What the Bank On Yourself Reviews Don’t Tell You

There have been various financial strategies over the years, starting with LEAP, followed by Infinite Banking or Becoming Your Own Banker, and most recently, Bank on Yourself (BOY). These strategies all share a common goal when it comes to offering permanent life insurance to individuals:

  1. They aim to save you money.
  2. They offer ways to refinance your debts to lower interest costs.
  3. They propose strategies to reduce taxes, both now and during retirement.
  4. They promise to establish a reliable stream of income for your present and future needs.

These goals are undeniably appealing. However, the effectiveness of these strategies in real-life application may vary significantly, which is an important aspect to consider before fully committing.

Bank on Yourself (BOY) advocates claim they can “Reduce and ultimately eliminate the control banks and financial institutions have over you.”

I was once invited to join the Bank on Yourself team but declined the opportunity. You can find more about my experience and decision here.

How Does Bank On Yourself Work?

The Bank on Yourself method involves using a special type of life insurance policy known as a high cash value participating whole life policy. The key to this strategy is the ability for the policy to grow in cash value over time. Here’s how it works:

Initially, you purchase a specific kind of whole life insurance policy that’s set up in a way to make the Bank on Yourself strategy effective. These policies are unique because they build up a cash reserve that you can tap into later. You can borrow against the cash value of your insurance policy for any personal needs, essentially taking out a loan from your own policy. The repayment terms of these loans are flexible, allowing you to pay back the borrowed amount on your own schedule with just the interest.

This is why the strategy is called “Bank on Yourself.” It’s as if you’re using your own resources like a personal bank, where you’re both the borrower and the lender, setting your own loan conditions. While this approach might sound straightforward and beneficial, there are many who look deeper and wonder if the Bank on Yourself concept is too good to be true.

Is Bank On Yourself a Scam?

While the idea of “Bank on Yourself” might seem very appealing, it’s important to consider the broader picture of how the financial world operates. The Federal Reserve Bank plays a significant role in shaping the economy by setting short-term interest rates and influencing the availability of credit. This, in turn, affects many aspects of the financial world, including long-term interest rates and the value of various assets, which can impact your personal wealth.

Similar actions are taken by central banks and financial institutions worldwide. Even with different banking rules and management styles, the collective influence of these entities shapes the economic environment we live in. This reality persists despite any claims that purchasing a life insurance policy could free you from the influence of banks and financial institutions.

It’s also noteworthy that the leadership of many life insurance companies, which sell policies like those endorsed by Bank on Yourself, are often involved with the Federal Reserve Bank. This connection raises questions about the claim that buying a specific life insurance policy could eliminate the influence of financial institutions on your life.

In truth, buying permanent life insurance doesn’t shield you from the wider effects of banking and financial systems. These institutions play a role in the rising costs of goods and services and can affect the return on your savings, making it harder to accumulate wealth. Relying on life insurance as a means to counteract these forces is, at best, overly optimistic.

What are Some of the Pros of Owning Participating Whole Life Insurance?

1. Participating whole life insurance has a long and rich history, offering a range of benefits that have been valued since the early days of the concept. The idea of tax-free growth within these policies dates back to the 18th century, starting with the establishment of the Amicable Society of London in 1706. Innovations by individuals like James Dodson, who linked insurance risks to the premiums policyholders paid, paved the way for the development of permanent whole life insurance.

Edward Mores, a follower of Dodson, further advanced the concept by founding the Society for Equitable Assurances on Lives and Survivorship in 1762, marking the start of mutual or participating whole life insurance. In the United States, Benjamin Franklin played a key role in promoting life insurance, leading to significant milestones like the Presbyterian Corporation for Relief of Poor and Distressed Widows and Children of Presbyterian Ministers in 1759.

However, life insurance wasn’t mandated in the U.S. as it was in some European countries until the Social Security Act was passed in 1935. Subsequent changes in 1939 shifted the tax provisions related to social security, affecting individuals’ ability to invest in their own life insurance policies. As a result, today a significant portion of Americans rely on Social Security benefits in retirement, rather than the benefits of personally owned life insurance policies.

2. One of the perks of having participating whole life insurance is the ability to take out loans and make withdrawals without paying taxes on them. However, it’s important to know that this advantage isn’t exclusive to life insurance policyholders. The reason is simple: loans, in general, aren’t subject to income tax, whether you borrow from a bank, another financial institution, or your life insurance policy.

Similarly, the option to withdraw money tax-free isn’t limited to life insurance policies. You can also withdraw money without facing taxes from regular checking accounts and most savings accounts at banks and credit unions. But, there’s a word of caution: not every loan or withdrawal from a participating whole life insurance policy is automatically free from taxes. It’s crucial to be aware of the specific situations where a loan or withdrawal could lead to tax implications, despite what some financial advisors might suggest.

3. The benefits of having participating whole life insurance haven’t changed much over the last 250 years. Here’s what you get:

  • Once you pay your first premium, the policy guarantees not just your initial investment back but potentially more.
  • Buying a policy essentially makes you a part-owner or “partner” in the insurance company.
  • The returns on the money you pay into the policy are usually better than what you’d find elsewhere.
  • You can use the cash value built up in your policy for your needs or pass it on as a tax-free inheritance.
  • You can access the cash value of your policy whenever you need it without stopping the growth of your money within the policy.

John Wanamaker, known as the Prince of Shopkeepers and the Postmaster General of the United States, once had the most insured life in the country. He was paying what would be about $2.36 million today for $52.52 million worth of insurance coverage.

Even before modern financial regulations like income tax laws and Social Security were established, people understood the value of saving money, avoiding unnecessary interest, reducing taxes, and securing a steady income for the future. This is why whole life insurance became such a key financial tool for many Americans. In fact, by 1989, the Federal Reserve Bank of Chicago found that 77% of American households had some form of life insurance.

Whole life insurance proved to be a crucial safety net for J.C. Penney, especially after the devastating stock market crash of 1929. Back in 1922, Penney took out one of the largest life insurance policies of his time, valued at $3 million, which is roughly $53.2 million in today’s dollars. This move was a financial safeguard that became all the more valuable when the 1929 crash caused his business’s stock value to plummet and led to personal and financial turmoil for Penney.

“While living in that sanitarium, Penney heard the gospel hymn, “God Will Take Care of You” being sung by the other residents and was inspired to return to the real world.  He started over by borrowing money against his participating whole life insurance policy and was soon back at the helm of his department stores as chairman of the board.”  Years later, a young employee named Sam was taught how to “wrap a package with a very little twine and very little paper and still make it look nice”.  This same Sam was so inspired by Penney, that he went on to start his own store. Today, Sam Walton’s Wal-Marts have surpassed J.C. Penney’s stores in both sales and locations and serve billions worldwide daily.

The ability to quickly get cash from his whole life insurance policy was a game-changer for J.C. Penney. This feature is one of the key reasons why owning such insurance can be so valuable. Without this easy access to funds, Penney might have faced financial ruin and other serious challenges. Instead, he was able to turn his situation around and positively impact many lives. This financial turnaround even enabled Penney to mentor Sam Walton, whose Walmart stores would go on to serve billions of people around the globe.

Owning a participating whole life insurance policy is incredibly powerful. Just by signing your name, you can borrow money from your policy whenever you need it, for any reason, and for as long as necessary. There’s no need for a loan application, credit check, or collateral other than the policy itself. Perhaps most importantly, there’s no strict requirement to repay the loan, giving policyholders flexibility and peace of mind.

The ability to easily access cash from a whole life insurance policy is a major benefit, but it’s not the only advantage. Here are a few more reasons why owning this type of insurance can be a smart move:

  1. It helps you keep more of your earnings.
  2. It offers an alternative way to finance things, which can save you money on interest.
  3. It can reduce the amount of taxes you pay now and when you retire.
  4. It guarantees you a steady stream of income.

While all these benefits are significant, the real impact of whole life insurance is seen in stories like J.C. Penney’s. He used his policy not just for financial security, but to rebuild his life and influence countless others. This shows why having such insurance can be so valuable.

Are There Any Cons to Owning Participating Whole Life Insurance?

Yes, there are some downsides to owning participating whole life insurance, and it’s important to be aware of them:

  • Getting a policy that builds high cash values instead of just paying high commissions to the agent can be challenging.
  • If you don’t follow IRS rules carefully when borrowing money or making withdrawals from your policy, you could end up with a tax bill.
  • If you stop paying the premiums too soon, your policy might become a financial burden rather than an asset.

Policy Checklist - How to Get a Good Policy
Policy Checklist
Make Sure You Get a Good Policy
Is your policy good or bad? Use this checklist to help evaluate your existing life insurance or a new policy you are considering.

Essentially, most of the drawbacks come from not fully understanding how participating whole life insurance works or not getting the right advice. These issues can usually be avoided if the policyholder takes the time to learn about the policy and follows the necessary rules. The benefits of owning such a policy are accessible to anyone willing to purchase it.

Dr. Tomas McFieDr. Tomas P. McFie

Most Americans depend on Social Security for retirement income. Even when people think they’re saving money, taxes, fees, investment losses and market volatility take most of their money away. Tom McFie is the founder of McFie Insurance which helps people keep more of the money they make, so they can have financial peace of mind. His latest book, A Biblical Guide to Personal Finance, can be purchased here.