I told you I would explain how to bank on yourself, yet have taken quite a bit of time to do so. I have been busy. Well, here it finally is.



The way you start the bank on yourself is by purchasing a permanent life insurance policy. This policy can be either a universal or whole life policy. You have to be careful when choosing which company to buy from or how the policy is designed. Each company does it differently and some aren't good contracts. You want a company that looks at loans in an indirect fashion. This means they will grow the account value without recognizing any outstanding loans.

When it comes to life insurance, the government has placed a maximum you are allowed to pay for it. When you exceed this maximum, the policy ceases being life insurance and becomes a Modified Endowment Contract (MEC), which loses all of its tax advantages. The trick in banking on yourself is buying a policy that reaches these limits. The way your money grows in the policy depends on how the money is invested. Whole life policies are invested in the company you purchase from and grow through dividends. Universal life policies grow by stock or interest rate prices. I tend to like whole life policies best, because they don't have the big insurance costs and fees typically associated with Universal Life.

When you get the policy, you get the option of choosing your payments. You can make one big payment up front or stretch your payments out over a period of time. The cash value, which you will use as your bank, grows over time and as the account grows. When you receive dividends or make additional payments, you buy small amounts of paid-up insurance, which is basically a one time payment policy, that increases your account value. Since you are only allowed to pay so much for the insurance, you have to be careful. Universal life insurance policies are based upon having term insurance mixed with permanent. This allows the person to change their premiums and pay more one month and maybe less the next. You can also make a whole life policy with mixed term insurance as well. You can convert that term into permanent with additional payments and this too gives you flexibility of universal life.

As your account grows, you get to borrow the money from your life insurance policy. Use the money to make any and all big purchases. You will pay the account back as you would a bank with interest. Since the account doesn't recognize the loan, the account will grow in value as if you hadn't taken out a loan. This will compound the value of your account quicker than by borrowing from a bank or your retirement account.

Since insurance companies don't care whether you pay your loan or not (it comes out of your death benefit at death) you have to have some self-motivation and pay it back. If you can afford it, pay back more than you would normally so your account grows even faster. This also allows you to have capital to borrow from for a future purchase.

Now that you did this your whole life, you are ready to retire. You now have the ultimate tax free retirement account. Instead of taking loans out and paying them back, you can start taking an income stream from your policy until the day you die and then have a leftover death benefit for your successors!