Velocity Banking Comes to a Screeching Halt for Many

Using a Home Equity Line of Credit (HELOC) to manage cash flow just became a precarious undertaking because Wells Fargo Home Lending will no longer accept applications for Home Equity Lines of Credits.  Of course, other banks are following Wells Fargo’s lead.

A HELOC or Personal Line of Credit (PLOC) is the essential back bone of the Velocity Banking model for cash flow management.  Velocity Banking depends on the cash flow provided by a HELOC or PLOC to capitalize your current expenditures.   Be that as it may,  banks are also shutting down all their Personal Lines of Credit, making the practicality of Velocity Banking impossible.

Velocity Banking has long been considered a less-than-ideal method for managing debt and cash flow. While it can increase short-term cash flow by using a Home Equity Line of Credit (HELOC) or Personal Line of Credit (PLOC), the key drawback lies in where the interest payments go. The interest on these loans is paid directly to the bank or financial institution that issued the loan, rather than to an entity that shares profits with the borrower. This means that while the strategy may help with cash flow, it doesn’t offer the same long-term financial benefits or wealth-building potential that other strategies, such as whole life insurance or investing in assets, can provide.

Years ago, Nelson Nash showed how the dividends earned in Participating Whole Life Insurance (PWLI) can offset, and overtime, overcome the interest cost associated with financing.  That is because PWLI dividends can become quite significant.  For example, a PWLI policy issued on a 2-year-old child with an annual premium of $2,000 paid only through year 19 (age 21) can produce over $680,000 of cash value by year 80. This averages out to be greater than a 4.842% annual rate return on the initial $38,000 of premium payments.

As the S & P only returned an average of 7.392% over the last 61 years, this tax free, no fee growth of 4.842% over 61 years is remarkable as 2% for taxes and 1% for fees and the S & P returns provide only $522,979 which is 23.091% less the PWLI but with ZERO death benefit.

This policy cash value growth will occur even if the policyholder chooses to borrow from the growing cash values over those 61 years to finance other purchases or investments. Furthermore, nobody can legally stop the policyholder from taking such loans like Wells Fargo and other banks are doing today with their HELOCs and PLOCs.

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And here is another important factor.  The interest the insurance company collects from lending their money to policyholders increases their bottom line, which in turn increases the profitability of the insurance company.  As profits are a determining factor in the dividend rate which the insurance company pays to their policyholders, this becomes a monetary gain for policyholders, just like Nelson Nash outlined in his book Becoming Your Own Banker.

Using Paid-Up Whole Life Insurance (PWLI) to velocitize money, rather than relying on traditional loans like a HELOC or PLOC, offers several distinct advantages. One of the biggest benefits is the elimination of interest costs that are paid to banks with those conventional loans. PWLI not only prevents this unnecessary expense but also guarantees growth, along with the potential for dividends, which can accumulate significantly over a lifetime. In addition, because policy loans are a contractual guarantee, policyholders always have the option to borrow against the existing cash value in their policy—guaranteeing that there will never be a time when they are told they cannot access their funds.

A key trait of a wise person is their ability to learn quickly and adapt. Wise individuals recognize profitable opportunities and pursue them with speed and purpose. They don’t blindly follow the crowd or continue doing things the same way simply because that’s the norm. Instead, they take the time to analyze what others are doing and learn from their mistakes. When it comes to financial strategies, understanding that paying interest without a means of recapturing that cost can slowly erode wealth is crucial. Avoiding these pitfalls is a hallmark of financial wisdom.

Learning to use PWLI as a financial tool, not just as a death benefit, is contrarian.  It goes against the grain of what everybody else is doing.  But the important message is, using PWLI is profitable and will build sustainable wealth for those who diligently use it to keep the interest they would normally lose or pay to others.

Tomas P. McFie DC PhD

Tom McFie is the founder of McFie Insurance and co-host of the WealthTalks podcast which helps people keep more of the money they make, so they can have financial peace of mind. He has reviewed 1000s of whole life insurance policies and has practiced the Infinite Banking Concept for nearly 20 years, making him one of the foremost experts on achieving financial peace of mind. His latest book, A Biblical Guide to Personal Finance, can be purchased here.