The concept of Legacy banking has gained a lot of prominence in the financial world and it is, therefore, important to understand the basics. The first and most important thing that you need to know is “What is Legacy banking and how does it work?” More importantly, you need to know who legacy banking is for. For many newcomers, this can be difficult to conceptualize. If you want to know if infinite banking is right for you, this is what you need to know.
What is Legacy banking?
The Infinite Banking Concept that we call the Legacy Banking System was created by Nelson Nash in the year 1980. Mr. Nash was a financial expert and a follower of the Austrian school of Economics. This school advocates the fact that the value of the goods is not explicitly the result of the traditional economic structures like supply and demand. Individuals value money and goods differently based on their economic status and needs. From this thought, Mr. Nash developed the idea that by “Becoming Your Bank”, we would be able to achieve our own unique financial goals.
According to Mr. Nash, one of the pitfalls of traditional banking, is the very high-interest rates on loans. Too many people including himself got into financial trouble due to our reliance on the banking institutions. As long as they set the interest rates and the loan terms, we will never have control over our wealth. According to Mr. Nash, by “BECOMING YOUR OWN BANKER”, we would be in control of our financial future. However, for the Legacy Banking System to work, we need to create our own bank.
The role of Whole Life Insurance
Mr. Nash also determined that the best financial tool, as we refer to it, “Legacy Banking” is to utilize whole life insurance. The Legacy Banking System works best when we become the banker, by utilizing a properly structured whole life insurance policy that allows us to imitate and operate like the banks.
Utilizing Whole Life Insurance as a financial tool for building wealth is not a new concept. Business moguls like John D. Rockefeller have built their fortunes using whole life insurance and in doing so, have passed this TAX-FREE wealth to their heirs, and it has lasted for generations. The large companies hold millions of dollars in whole life insurance, to help fund their various business expenses and earn a favourable tax advantage. Even the banks use whole life insurance as Tier 1 assets, which is the safest place to put money, with ZERO market risk. FYI, Bank of America has over 24 billion dollars locked into this insurance asset!
Did you know that whole life insurance was taught as a college course at the Wharton School of Business in Pennsylvania. The curriculum? How to use the cash value of insurance policies to fund business expenses, entrepreneurial ventures, get out of debt, investment opportunities, purchase real estate, and more.
By the time Mr. Nash created the infinite banking concept, the idea of using policy loans as an alternative to using the banks in a way by which family wealth could be privatized was not new. At BBig Financial Solutions LLC, we refer to it as the Legacy Banking System, “The perpetual wealth strategy.”
This is how Life Insurance works in the Legacy Banking System:
Whole life insurance policies come with a cash surrender value that is also referred to as cash value. The cash value of your policy is the amount of your death benefit that the insurance company is making liquid to you. If you had to cancel your policy while you are still alive, the cash value is the amount that the insurance company pays to you. Once the policy premiums are paid, this cash can be used for personal and business loans using your policy as collateral. By keeping your policy premiums paid, you will be able to use the cash value for personal and business loans and this is done by the insurance company; keeping your policy as the collateral.
Unlike term life insurance which only supports your beneficiary after you pass away, this correctly structured modern whole life insurance offers coverage for your entire life. As the policyholder, you can take advantage of and enjoy its benefits while you are alive.
There are two different types of whole life insurance: participating insurance and non-participating insurance. The main difference between these two is that the participating whole life insurance policy allows you to participate or receive dividends that are based on the profits of the insurance company. With the non-participating policies, you will not participate or receive dividends from the insurance company.
If you use a participating whole life insurance policy for infinite banking, your cash value will increase every time the insurance company pays the dividend. It also increases when you pay the policy premiums and earn a guaranteed rate of interest.
Essentially, your “Bank” consists of a portion of the premiums that are paid by you, and the guaranteed interest that you earn plus the potential annual dividends. Instead of storing your hard-earned cash in a traditional savings bank account with minimum returns, you save inside of your dividend-paying whole life insurance policy where it grows TAX-FREE and you’ll receive four to five times a greater internal rate of return coupled with uninterrupted compounding growth.
The policy loan
You can access the cash value of your whole life insurance policy at any given time, for any reason. This may include real estate purchases, tuition and other investment opportunities, emergency expenses, business capital, etc as the sky is the limit. But to take full advantage of the “Legacy Banking System’s wealth building strategies, it’s best to use the cash value in the form of a policy loan rather than a withdrawal. The loan is TAX-FREE along with all the benefits of life insurance
When you use the “policy loan” feature of your whole life insurance policy, your cash value keeps growing even though you have taken a loan. You still earn interest and potential dividends on every dollar that you borrow. When you pay back the policy loan you pay this back to yourself. This is the RIGHT FINANCIAL INTRUMENT for the Legacy Banking System; you can grow your money uninterrupted and leverage insurance company’s money and create your own line of capital whereby you have BECOME THE BANK.
As mentioned, these loans are TAX-FREE since they fall under the 7702-tax code governing life insurance. You can use the interest and the dividends that you have earned without paying taxes on that money. Comparatively, if you withdraw the cash value of any amount that is over and above the amount that you have contributed to the insurance premium will be taxed. In regards to paying back your policy loans, you function as your own banker and you to create your payment schedule. Any unpaid loan will be deducted from the loan benefit.
Advantages of Legacy Banking System:
The Legacy Banking System is not just an immensely powerful money-making tool. The Legacy Banking System in its truest form allows us to gain full control of our money and eliminates any unnecessary money leaks so that our money grows and increases as an asset. The Legacy Banking System also enables you to take responsibility for your financial future and it has the capacity to be one of the best financial tools that you will ever find.
The advantages of legacy banking are as follows:
Liquidity
You will not need to jump through any hoops to get a loan as is the case with a traditional bank. All that you will have to do is simply request a loan from your insurer and the funds will be given to you within 3 to 7 business days. A whole life insurance policy is a much more liquid asset in comparison to other assets like real estate, bonds, stocks, or qualified plans like IRA or 401(K).
Since the whole life insurance policy is liquid, it can be a valuable part of the financial foundation that will act as your emergency savings. Irrespective of whether you run into unforeseen medical expenses or use the insurance policy to pay yourself an income, or if you decide to go on sabbatical, you can return to school, or you take time off from work to be with your loved ones; it is all completely in your control.
For an individual, we advocate funding a modern whole life insurance policy as a savings mechanism before you consider other investment strategies that include real estate or the stock market; use it as part of your perpetual wealth-building strategy and refer to this portfolio as “The Hierarchy of Wealth”
Control
A dividend-paying whole life insurance policy is zero to minimal risk and offers the policyholder a great deal of control. The control that Legacy Banking System offers can be grouped into two categories: asset protection and tax advantages.
Tax Advantages
One of the reasons whole life insurance is ideal for ”The Legacy Banking System” wealth creation is the way it is taxed. Apart from providing you with a tax-free policy loan and tax-free growth with interest and dividends inside the whole life insurance policy, the death benefit of a whole life policy is tax-free for the beneficiary and is often exempt from estate taxes as well.
Asset Protection
When you use whole life insurance for “The Legacy Banking System”, you enter into a private contract that is made between you and your insurance company. This privacy offers certain asset protection that is not found in other financial vehicles. Although these protections may vary from state to state, they can include protection from asset searches as well as seizures, protection from judgments, and from creditors and the IRS. The best part is that despite using policy loans, this will not affect your credit score.
Protection against Volatility
Whole life insurance policies are non-correlated assets. This is the reason why they work so well as the financial foundation of Legacy Banking System. Regardless of what happens in the market (real estate, stock, or otherwise), your insurance policy still maintains its net worth.
Too many individuals are missing this essential volatility buffer that helps in the protection and the growth of wealth. Instead they are dividing their money into the two traditional buckets: investments and bank accounts. The problem with this approach is that, while money in the bank account is safe, it offers a very low rate of interest, has fees, and is taxed as ordinary income. Market-based investments grow much faster but are exposed to market fluctuations; this makes them quite risky. The question that arises here is “What if there were a third bucket that also offered safety and moderate guaranteed returns? That third bucket is modern whole life.
Regardless of how diversified you might consider your portfolio to be, at the end of the day, it’s important to understand that a market-based investment is simply a market-based investment. In the event of a market downturn, you will lose money; this could be a lot of money. There is also a chance that your value may not decrease but your returns will. With the Legacy Banking System, using properly structured modern whole life insurance, you will get guaranteed returns, and your cash accumulation will never decrease.
Certainty
The rate of return on your whole life insurance policy is guaranteed. The death benefit and premiums are also guaranteed. These certainties are reasons why properly structured modern whole life insurance is the ideal tool for building wealth with the Legacy Banking System.
Consider the assets that are associated with your 401(k) or IRA. If you pass away with money left in either of these qualified plans, the funds that are remaining will be passed on to your beneficiary—but this money will be taxable. You can guarantee that your beneficiary will receive something, but you can’t be certain how much he/she will receive, because we do not know what the tax rates will be in the future.
While there are other types of permanent life insurance, whole life insurance is guaranteed to have the same premium for the entire duration of the policy. You can be certain that your premium will not increase as you get older. This is invaluable when it comes to setting and achieving your financial goals.
Cash Flow
Many individuals rely on the Legacy Banking System for enjoying a tax-free retirement. Since the insurance policies are paid for with after-tax dollars, you don’t have to worry about your future tax rate as you would, with a 401(k). As long as you use the policy loan feature of your whole life insurance policy, you will not have to pay taxes on the growth of your cash value. You can simply fund your retirement with policy loans and your insurance company will deduct the outstanding loan from the death benefit in the event you pass away.
If your retirement funds are linked to market-based investments, running out of money after retirement is a very real and valid concern for many Americans. The Legacy Banking System uses a properly structured modern whole life insurance that can supplement and ensure that you won’t run out of money in retirement, because your cash flow will not be at risk if the market experiences a downturn. In addition to being a private contract it is not counted as income. It is for this reason that some individuals opt to stop funding qualified plans like 401(k)s or IRAs altogether and rely completely on the Legacy Banking System’s strategy for retirement.
Legacy
The Legacy Banking System utilizing modern whole life insurance is a proven method for building generational wealth, in part as the death benefit is tax-free and in most cases is not subject to estate taxes.
In the case of large estates where federal or state estate taxes may be levied, it’s possible through the Legacy Banking System to utilize an Irrevocable Life Insurance Trust (ILIT). If you name the trust as the policyholder for your whole life insurance policies, even the largest of estates can be eligible for tax advantages that provide significantly more wealth to future generations.
What Are the Disadvantages of Legacy Banking?
Legacy Banking System is not a one-size fits all strategy. It’s highly customizable and its effectiveness depends largely on an individual’s financial goals. Here are three aspects of “The Legacy Banking System” to consider when deciding if it is right for you:
Qualification
The Legacy Banking System uses a modern whole life insurance as its “bank”, so it is not an option for everyone. You must be able to qualify for a life insurance policy. The qualification will be based on capacity and insurability.
At BBig Financial Solutions LLC, our Wealth Building Strategists work with the country’s top rated mutual insurance companies. For the individuals who are interested in the Legacy Banking strategy, we can help match them with the insurance companies who will be most likely to approve their application. It is highly recommended that applying for a modern whole life insurance policy when you’re young and healthy will build greater wealth. It is not over for the older crowd; it’s still possible to get insured even in retirement—you are never “too old” to pursue the Legacy Banking System strategy.
Cost
If compared to the term life insurance, the premiums for the whole life insurance are significantly higher. Keep in mind that you are not just paying for insurance, you are effectively committing to contribute a set amount into “savings” within your insurance policy to be used by you, whenever you choose, while still earning a guaranteed rate of interest and potential dividends.
That said, the Legacy Banking System is not ideal for an individual who is living pay check to pay check, however we are here to help with that also. It requires a growth mindset for someone who is comfortable with saving a certain amount of income and who is focused on long-term financial goals.
Remember, when you use the Legacy Banking System’s strategy of using whole life insurance, your insurance policy’s primary purpose is not the death benefit, it is the living benefits. Your main goal is not to protect your loved ones financially if something happens to you however this is a great bonus. What you are trying to protect is your income, your hard-earned cash. You are shielding your wealth against the bank interest rates and financing, market volatility, creditors, taxes, and the government.
Mindset
The Legacy Banking System is a proven concept for growing and protecting wealth, but it is not mainstream. You should be excited about taking control of your financial future along with having a clear outline of your financial goals.
Does Legacy Banking Work?
Yes. The strategy behind the Legacy Banking System—using dividend-paying whole life insurance as your bank for growing as well as protecting your wealth has been tested throughout time and is used by banks, corporations and the upper 5% for hundreds of years. As with any other financial tool, the benefits are largely dependent upon how the tools are used and require clearly outlined goals to measure success.
For the fastest growth and optimal benefits, it is recommended to pair the dividend-paying whole life insurance with the supplemental insurance called a Paid-Up Additions rider (PUAR).
With a PUAR you can “overfund” your insurance policy up to the time it becomes a Modified Endowment Contract (MEC). When you use a PUAR, you rapidly increase your cash value along with your death benefit, thereby increasing the power of your “Bank”. The more cash value you have, the greater your interest and dividend payments from the insurance company, along with the leveraging of insurance company’s money to pay down debt, finance college, take vacations, major purchases such as a home or a car, finance your business and so many more opportunities to never lose money.
By adding a PUAR to your whole life insurance policy, you will be able to front-load it to maximize its potential throughout your entire lifetime.
How to Get Started
BBig Financial Solutions LLC specializes in providing clients with the proper tools and education to take full advantage of the benefits of the Legacy Banking System. In addition to structuring your policy correctly, we will make sure that it is personalized to fit your unique financial needs and goals. We play an active role in continuing to educate and provide guidance to our clients, and long after their policy is in place.
Consultations with BBig Financial Solutions LLC Wealth Strategists are always free.
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