Frequently Asked Questions - Your Personal Bank

Your Personal Bank – frequently asked questions

Your Personal Bank ™ is more than a product. It is a financial concept that strategically integrates a bank line of credit with a high cash value life insurance policy. This creates positive arbitrage on your money. You continue to earn tax-favored growth on your funds even when you access them for other purposes. This synergy creates a powerful financial system!

Your Personal Bank ™ can be structured different ways for many purposes, depending on the needs and goals of the owner. It also provides several unique benefits. For these reasons, it is often misunderstood by people – including many financial advisors.

Your Personal Bank ™ is often used by banks, businesses, real estate investors, and individuals to pay down debt, purchase items, and invest in other assets. This strategy has been used successfully for over a century.

Below are the most frequently asked questions about the Your Personal Bank ™ financial concept. If you already own an insurance policy with cash value, this may be able help you optimize your policy by maximizing cash growth, minimizing taxes, and receive positive arbitrage when accessing funds.

What is Your Personal Bank™?

First, a high cash value policy is established to maximize cash growth on a tax-favored basis. This is not an insurance policy most people are familiar with. These policies focus primarily on paying high dividends, while limiting the death benefit. This creates high cash growth, high liquidity and are tax-favored. Between 50% to 90%+ cash is typically available day one, increasing to 100%+ in a few years, depending on the individual situation and how the policy is structured.

Second, a line of credit is established with a bank using the policy as collateral. Typically, the interest rate charged on the line of credit is less than the interest earned in the policy. There are no loan fees. Interest is charged only when you access the funds. The interest is usually tax-deductible if used for business purposes.

Therefore, when you access funds from your bank line of credit, the money in your policy is increasing faster than the interest charged on the line of credit. You keep the difference. This is known as positive arbitrage. Remember, you earn interest on money you spent or allocated elsewhere!

The funds in the policy are principle guaranteed by the insurance company. This creates a very safe leverage of your money because the underlying asset (policy) does not lose value.

Another layer of protection is provided thru the National Organization of Life and Health Insurance Guarantee Associations. Go to nolgha.com for more info.

What Returns Can Be Expected with High Cash Value Policies?

There are several insurance companies that have been paying 6%+ dividends (interest) for the previous 25+ years!

These companies have also never missed a dividend (interest payment) since before the Civil War. This means they have consistently paid strong dividends every single year for over a century, including the Great Depression!

I have a chart that shows the dividend rate paid each year since 1996 by most of the major dividend-paying insurance companies in the US. This was obtained from a major financial institution that tracks this information.

When I show this chart, most people are surprised and state “I did not know there were companies paying so much for so long”.

These are A-rated, multi-billion-dollar insurance companies, with massive cash reserves. They are well positioned to pay strong dividends long term. One of the Chief Financial Officer’s (CFO) stated in 2018 at a conference I attended “If we added no new customers, we could pay current dividends to our policyowners for the next 100 years”.

Personally, I think the insurance industry has done and extremely poor job of advertising. They just quietly keep making profits and paying to dividends.

I like to share this chart because people immediately recognize many of the companies. They also know which companies they want to invest in and some to avoid based on their dividend history.

Because the dividends are paid thru a life insurance policy, the interest grows tax-deferred, and the principal and interest can be accessed income tax free if the policy is structured correctly.

You can grow money income tax free and access the funds income tax free for any reason. This creates a powerful tax-favored financial account. You eliminate future tax liability and uncertainty. Future tax planning options are increased and can increase the funds you have available for retirement.

Earning 6%+ dividends consistently, tax-free, with high liquidity, and the ability to access funds and create positive arbitrage on funds spent or allocated elsewhere is extremely attractive for many people.

What are the Key Points to the Bank Line of Credit?

A line of credit is established with a bank using the cash in the policy as collateral • Simple application
Easy loan qualification – poor credit OK, no judgements/liens
No loan fees
Line of Credit amount:

o Up to 95% of the cash value of your whole life policy (Consistent Steady Growth) o Up to 75% of the cash value of your IUL policy (Index Growth and Performance Factor Growth) o Up to 50% of value of non-qualified investment account (securities, mutual funds, bonds, etc.) o Can combine policies and assets for a blended line of credit

Does not affect Loan-to-Income ratio for other financing: not reported as debt by the bank because cash in policy is collateral for the bank line of credit (collateralized loan)
Interest is charged only when funds are borrowed
Interest payments typically tax-deductible if used for business purpose
Interest Rates: based on Prime Rate

– Federal Reserve has announced they will maintain current low interest rates thru end of 2022 – If future bank rates increase above policy loan interest rate, use policy loan to pay off bank line of credit (always choose lower rate)

– If future bank interest rate increase, typically dividends paid by insurance companies are higher – Historically, this provides positive arbitrage in most interest rate environments

Interest Rates: $20k – $50k = 3.95%*

$50k+ = 3.0 – 3.25%*

* rates may change, contact us at YourPersonalBank.com for current rates

When you access funds from your bank line of credit, the money in your policy is typically increasing faster than the interest charged on the line of credit. You keep the difference. A positive arbitrage situation is created.

If you leave the funds in your policy, you earn solid and consistent dividends (6%+ for the past 25+ years). When you access your funds thru the bank line of credit, you typically earn 2-3% on funds you spent or allocated elsewhere!

The funds in the policy are principle guaranteed by the insurance company. This creates a very safe leverage of your money because the underlying asset (policy) does not lose value.

How is this Different than Traditional Insurance Policies?

Most people, including financial advisors, view life insurance as primarily a death benefit protection tool. When I share Your Personal Bank primarily uses insurance as the asset to grow cash, some people stop listening and miss the point. They view life insurance as having only one purpose.

When I am asked what is the cost of insurance and other death benefit related questions I respond with, “Are you looking for death benefit protection or to maximize tax-favored cash growth?

Policies can be adjusted to maximize cash growth or death benefit or a balance of both. The key is what is your focus?

Please understand, I am not against death benefit protection. If you have death benefit protection needs such as family, business, key person, college funding, etc. you should take care of that need. We can search the most cost-effective option. Or if you prefer, you can go online and shop yourself.

Your Personal Bank ™ is the opposite of how most people utilize insurance policies. The focus is to maximize cash growth and access to funds. Sometimes a combination of cash growth and death benefit protection is needed.

A common problem with financial media and advisors is they will review policies that were never designed to be a financial vehicle or were a combination and state life insurance is a bad investment without realizing the policies purpose.

Insurance agents often provide the best solution to a client’s situation, then are criticized by financial media or advisors thru a strictly growth potential viewpoint.

Your Personal Bank ™ life insurance policies allocates most of your contribution to cash value instead of death benefit. This creates a much higher initial cash value and faster cash growth each year. This is can increase your cash 50 -90%+ more cash annually than a traditional insurance policy. Cash is available day one.

Most traditional insurance policies typically allow you to access little or no cash the first 1-4 years and the cash builds much more slowly, particularly in the early years.

Below are two primary keys to determine if you own or are looking at a policy to maximize cash growth:

50%+ of your contribution available first year (should be 60-90%+ available day one) 2. Access to funds at a lesser cost than gains (thru bank line of credit or policy)

If your policy or one you are considering does not have these two features, your policy is not designed to maximize cash growth and create positive arbitrage.

I recommend you contact us at YourPersonaBank.com and request a no-cost or obligation comparison. Most people are surprised how much we can improve the cash growth and liquidity.

What are some Key Points to the Bank Line of Credit?

A line of credit is established with a bank using the cash in the policy as collateral • Simple application
Easy loan qualification – poor credit OK, no judgements/liens
No loan fees
Line of Credit amount:

Does not affect Loan-to-Income ratio for other financing: not reported as debt by the bank because cash in policy is collateral for the bank line of credit (collateralized loan)
Interest is charged only when funds are borrowed
Interest Rates: based on Prime Rate

o Federal Reserve has announced they will maintain current low interest rates thru end of 2022 o If future bank rates increase above policy loan interest rate, use policy loan to pay off bank line of credit (always choose lower rate)

o If future bank interest rate increase, typically dividends paid by insurance companies are higher o Historically, this provides positive arbitrage in most interest rate environments

Interest Rates: $20k – $50k = 3.95%*

$50k+ = 3.0 – 3.25%*

* rates may change, contact us at YourPersonalBank.com for current rates

Typically, the interest rate charged on the line of credit is less than the interest earned in the policy. There are no loan fees. Interest is charged only when you access the funds. The interest is usually tax-deductible if used for business purposes.

Therefore, when you access funds from your bank line of credit, the money in your policy is typically increasing faster than the interest charged on the line of credit. A positive arbitrage situation is created. The funds in the policy are principle guaranteed by the insurance company. This creates a very safe leverage of your money because the underlying asset (policy) does not lose value.

Can Other Assets be used as Collateral for a Bank Line of Credit?

Many assets can be used as collateral for a bank line of credit. Investment accounts, securities, bonds, certificates of deposit, real estate, businesses, autos, collectibles, cash value in insurance policies, and other assets can be used as collateral for a bank line of credit.

Real estate and autos are often accepted as collateral for loans by most banks. Finding a bank willing to loan against less common assets requires a bank that specializes in that type of financing. We have identified the leading banks in the US who offer this type of financing. We can match your policy with the best rate/loan available. Most banks do not offer loans using cash value in a policy as collateral.

Banks usually offer a higher line of credit on a lower risk asset. For example, banks typically offer 50% of an investment portfolio value and up to 95% of the cash value of a whole life cash value. Risk of loss generally determines how much of the collateral value the bank is willing to offer. Interest rates can also be affected.

One of the primary reasons high cash value policies are used for the Your Personal Bank ™concept is banks offer up to 75% of the cash value of Index Universal (IUL) policies and up to 95% of Whole Life policies. This is because of the underlying guarantees and liquidity of these financial tools.

What are the Best Financial Tools for Your Personal Bank ™?

There are three primary options that work best for Your Personal Bank polices. All are principle guaranteed (no market loss), tax-favored, and can utilize the bank line of credit to access funds, typically at a lesser cost than the interest earned (positive arbitrage).

Consistent Steady Growth – guaranteed growth every year (average rate = 6%+ past 25+ years*)

Designed to grow consistently every year with underlying guarantees and maximum access to funds • Most often used by business owners, real estate investors, and anyone needing access to funds to pay off debt, purchase items, or invest in assets.
Returns are consistent, long-term, with minimum guarantees. Cash value and growth is guaranteed. Fees and cost of insurance are also guaranteed. It is all about the guarantees.
There are no surprises. Your policy cannot lapse if the market does not cooperate. • This guarantees that your cash value increases annually. You are ensured of having more funds available to use every year for the rest of your life.
Often used to pay off debt, purchase items, or purchase other assets, including additional policies.

Index Growth – credit based on index, typically S&P500 (currently up to 13%, minimum 1% annually*)

Designed to maximize growth potential, while limiting downside risk
Most often used to grow funds over time for college funding, purchase items, vacations, retirement, etc. • Gains are credited based on indexes (S&P500, Hang Seng, MCSI Emerging Markets, EURO STOXX 50, etc.) • Principle guaranteed – no market losses
Good upside potential, double digit returns in good market years, no loss in bad years

Performance Factor Growth – up to 2.7x index credit with limited downside (currently 7.5%*)

Same as Index plus…
Performance Factor – increases credit by 2.7x, minus fee
Example: 10% index credit x 2.7 = 27% credit – 7.5% fee = 19.5% return
Strong upside potential, double digit returns in good market years, limited loss in bad years • Flat or Down market: principle guaranteed, minus fee (currently 7.5%*)

* rates may change, contact us at YourPersonalBank.com for current rates

If you want to invest in the stock market, why settle for whatever the market gives you, up or down? Why not gain 2x or more in good market years, limit your downside losses all on a tax-favored basis? You have access to your funds thru a bank line of credit and typically earn positive arbitrage.

A combination of steady consistent growth and performance factor growth is often the best solution for many clients. This provides diversification of returns.

Once our clients start investing their money in Your Personal Bank ™ policies, most of them they never want to go back to the uncertainty of returns, market risk, taxes, limited access to funds, and no positive arbitrage when funds are spent. Our 5-year client retention rate has been 98%+ for over a decade.

What Other Financial Tools Work with the Your Personal Bank ™ concept?

Some financial advisors or “financial experts” in the media often state one financial product is good and another is bad. They are only sharing their personal bias. This is not advice. It may not apply to your situation.

This is one of my biggest pet peeves with those financial advisors. It is supposed to be about you, the client, not an advisor’s personal bias. If a financial advisor has decided that a certain tool is “bad”, they typically are not open minded enough to consider situations when that tool may be the best option for a particular client.

Financial tools are not “good” or “bad”. They are designed for a specific purpose. When reviewing new client’s financial situation, I commonly find financial tools that are not a good fit based on their goals. Often it is because the client’s situation has changed since the financial product was purchased. Other times, the best tool for the situation was not presented.

Your Personal Bank ™ can be used for many different purposes. Many people use this as their “foundation”, then build into other investment options. If you have other investments, Your Personal Bank™ can enhance your investments thru positive arbitrage.

Can any Insurance Product Work with the Your Personal Bank ™ Concept? No. There are several types of insurance products that exist. Most do not work well with this concept.

Term:

Designed strictly for death benefit protection for a period, or term. Death benefit expires after term period.
Does not work with Your Personal Bank. Has no cash value.
Best used to provide inexpensive death benefit protection for a certain amount of time. Term periods are typically 10-30 years. Term insurance works best as a short-term solution as longer terms are more expensive. It is not designed as long-term or permanent solution as the term expires.
Essentially you “rent” insurance for a certain period. If the insured does not pass-away during the term, the coverage expires. The premium paid is lost. Although it is important for many people to have death benefit protection for loved ones or business purposes, statistically most term insurance policies expire before death benefit proceeds would be paid.
“Buy term and invest the rest” is often shared by financial advisors and media “experts”. The statistics prove most people do not actually invest the rest. It is typically spent on lifestyle. Obviously, that does not benefit their financial situation.
Most advisors that use “buy term and invest the rest” recommend investments that include market risk.
If you want growth, why settle for whatever the stock market gives you? Why not gain double-digit index returns in good market years, and prevent or limit your downside losses? (See question #3 for more info.)

Variable:

Designed for high income clients due to tax benefits, want higher potential returns, and are comfortable with higher risk of loss. Returns are based on stock market returns and can lose value.
Does not work well with Your Personal Bank due to increased volatility and limited bank line of credit.
Often people purchase these policies because they are shown an illustration that looks favorable. But, if the stock market investments do not perform as expected, your policy could lapse. You could be faced with having to pay the insurance company additional premiums because the returns did not perform as expected. If you do not pay extra premium in that situation your policy lapses.
This also creates a taxable event. You would owe taxes on the gains in the policy the entire time it was in place. A select few banks will offer a line of credit using the cash value of a variable policy as collateral. Typically, they will offer up to 50% of the cash value.
Lastly, accessing funds against an asset that varies in value carries inherent risk and can be disastrous if you are not prepared. If you accessed funds from your line of credit and the cash value drops significantly, the bank can require you to pay down the loan. You would have to provide additional funds during a downturn.

Universal:

Designed for younger people (typically under age 50) to provide stronger cash value in early years because the cost of insurance is lower in the early years and increases in later years.
Can work with Your Personal Bank if under age 50, but less efficient in later years due to increased costs.
There is a consistent rate of return annually and the principle is guaranteed. This provides steady and consistent growth with guarantees.
The cost of insurance increases annually as you age. The rate of cash growth decreases over time because the costs increase with age. Usually has less cash than other options in later years due to the increased cost of insurance.
If you own or are considering a Universal Life policy, it typically is best to exchange your policy to a Whole Life policy around age 50 to level the cost of insurance or exchange earlier to Indexed Universal Life to enhance upside potential growth.
Policies can be exchanged using a 1035 exchange. This is a non-taxable event. You must qualify medically for a new policy as the insured has to be the same. There is a risk that you may not qualify in the future if you have a medical condition. Riders are available that can guarantee you will qualify medically for a future new insurance policy but include an additional cost.
Also, there can be costs to starting a new policy. We usually recommend choosing the policy you intend to grow cash value long-term to avoid these potential risks and additional costs.

Index Universal:

Designed to maximize potential growth while limiting downside risk.
Can be best for Your Personal Bank if strong upside market. Slightly less liquidity in early years and limited risk.
Most often used to grow funds over time for college funding, purchase items, vacations, retirement, etc.
Best used to maximize cash growth potential, especially if combined with the Performance Factor rider. Can have the highest cash growth of all insurance products. Can outperform popular stock market indexes with no or limited downside risk.
Returns are based on index returns, typically S&P500 (see more info on question #3).
Index Universal Life (IUL) has similar or greater upside potential than Variable Life or popular stock market indexes with less downside risk. Often combined with Whole Life to diversify and offset the limited risk with Index Universal Life (IUL).

Whole Life:

Whole life policies are designed to generate steady consistent growth.
Works well Your Personal Bank.
Most often used by business owners, real estate investors, and anyone needing access to their funds to pay off debt, purchase items, or invest in assets.
Returns are consistent, long-term, with minimum guarantees. Cash value and growth is guaranteed. Fees and cost of insurance are also guaranteed. It is all about the guarantees.
There are no surprises. Your policy cannot lapse if the stock market does not cooperate.
This guarantees that your cash value increases annually. You are ensured of having more funds available to use every year for the rest of your life.
Can be used to purchase other assets, including additional policies.
Key point: policy must be structured correctly to maximize cash value and growth

Why Have I Heard or Been Told Not to Purchase Whole Life Insurance? There are several reasons. Below are some of the most common:

First is lack of understanding. Most people, including financial advisors, insurance agents, and insurance home office employees focus on life insurance strictly as a death benefit tool.

Most policies are not structured to maximize cash value and growth. The focus is primarily to maximize death benefit protection. Insurance companies and agencies typically do not teach their agents or employees that there is a wide range of how cash value and death benefit can be adjusted based on current tax rules.

Another reason is fees. Compensation to agents is primarily determined by the death benefit amount, not the cash value. Higher death benefits result in higher compensation. If most contributions are applied to the death benefit, this can create higher cost of insurance, fees, and compensation to the agent.

If the policy is structured efficiently to maximize cash growth and minimize death benefit, the cost of insurance and fees, will be minimized. This reduces compensation to the agent, often significantly.

The cash in your policy can be maximized up to certain limits that are set by Federal Tax Law. This is known as the Modified Endowment Contract (MEC) rule. This is a tax rule since the 1980’s. You can easily research more info online on the Modified Endowment Contract (MEC) rule or see below:

What is the Tax Treatment of Your Personal Bank ™ Policies?

The Modified Endowment Contract (MEC) is in section 7702A of the Internal Revenue Code. It was established June 21, 1988. This tax rule specifies the tax treatment of funds within the policy. It defines limits of how much your contributions can be attributed to cash value versus death benefit and still grow tax deferred and access income tax-free.

Some agents and insurance “experts” advise to avoid a Modified Endowment Contract (MEC) because the gains will be taxed when the funds are accessed. In general, we agree tax-free access is better than tax deferred, but there are certain situations when a MEC policy is the better option.

The tax code defines a non-MEC as “7 relatively equal payments”. This means if you contribute premium to a life insurance policy for 7 or more years, your policy cash will grow income tax-deferred and you can access funds thru policy loans income tax-free. This is often referred to as 7-pay. The tax benefits apply immediately. You do not have to wait 7 years to access funds income tax-free.

Fortunately, the MEC rule has been interpreted many times and allows a significant amount of flexibility.

Policies can be funded in as little as 4-5 years and still qualify as a non-MEC (tax-free). Also, relatively equal payments have been defined as a range of roughly 50 -120% of target or your benchmark premium.

For example, if the first-year annual premium is $10,000, a typical policy we structure for our clients allows them to fund $5,000 – $12,000 annually and remain a non-MEC (tax-free) policy. The policy must be structured with specific riders to allow this flexibility. Many policies do not have this ability.

Most policies allow premium to be funded monthly, quarterly, semi-annually, and annually. You can change your funding frequency anytime.

What if you have a lump-sum you want to fund into an insurance policy? We refer to these as front-loaded polices. Most if not all the premium (contribution) is funded up-front with little or no additional contributions. Many agents and advisors tell you not to do it. Why? Because the gains will be taxed when you withdraw or take a policy loan.

The key is to understand the tax rules and apply them accordingly.

The cash grows tax-deferred in both a MEC and non-MEC policy if the funds remain in the policy. You do not pay taxes each year on the gains. With a MEC, the gains only, not the principal, are taxed when accessed with a withdrawal or policy loan. Non-MEC policy funds can be accessed income tax-free.

The dividends, elimination of market risk, tax-deferral, guarantees, and ability to create positive arbitrage on funds spent are often enough to off-set tax on gains for many people.

Also, if you access funds from the bank line of credit instead of the policy itself, no taxable event occurs. I often ask prospective clients this question “Are you accessing funds from the bank or the insurance company?”. If from the bank, no 1099 is issued from the insurance company. No taxable event. No tax due.

Proceeds from a line of credit are not income. Those funds are loan proceeds. Therefore, they are not taxable. If the funds are used for business purposes, the interest is typically a tax-deduction.

We have many business clients who fund a MEC or non-MEC policy, earn dividends tax-deferred, access the funds thru the bank line of credit, keep the positive arbitrage, and receive a tax-deduction on the bank line of credit interest.

This is not unethical or illegal. It is not making blanket statements to avoid because there may be tax implications. It is understanding the tax rules and following them accordingly.

Why Have I Not Heard about Your Personal Bank™?

Most people, including most financial advisors, are not familiar with this concept for several reasons.

First, much of the financial industry has taken a very narrow view regarding the use of life insurance. Many financial advisors view is the only purpose for life insurance is the death benefit.

Other advisors focus almost exclusively on the tax-favored benefits of this concept. This naturally leads advisors to individuals and institutions that are high income earners, including banks, corporations, and the ultra-wealthy. Bank-owned and corporate-owned life insurance are common uses of this concept.

Personally, I have heard advisors state “You don’t make enough to qualify”. My response is if I help someone reduce overall income tax by 10%, they are going to be happy whether they earn $50,000, $500,000, or $5,000,000 annually. In fact, it could be argued reducing taxes for someone who earns less makes a greater impact for that person than someone who earns more.

Second, most financial advisors that are familiar with the Your Personal Bank ™ concept manage family offices, large funds like pension funds or work with bank, insurance, or corporate finance boards. These are often referred to as institutional investors.

Family offices typically are small, closely held businesses. The advisor usually manages millions in assets, for a few wealthy families, businesses, trusts, or even one very wealthy client. Some famous family offices are Walton Enterprises (Walmart), and Bezos Expeditions (Amazon). Oprah Winfrey and Michael Jordan have family offices as well as many wealthy families.

Most of these financial advisors who manage these offices will not meet with anyone with less than $10 million in liquid assets. Unless you have met a financial advisor that continually works with institutional investors, it is highly unlikely they are familiar with the Your Personal Bank ™ concept.

The financial industry defines everyone else as retail investors. Most financial advisors work primarily with retail investors. Most people have only met with these advisors. These advisors are taught, trained, and focus on products and solutions primarily geared towards retail investors. As a result, only a tiny percentage of advisors have been introduced to or use the Your Personal Bank ™ concept.

Wholesale buyers typically receive better deals than retail buyers due to greater purchasing power.

I was a top 10 national producer for multiple years with one of the top financial institutions in the US. My focus was IRA’s, retirement plans, and annuities for clients nearing or in retirement. Although I had a few wealthier clients, my typical client was middle to upper middle class. I was never taught anything else. They just told me “great job, go help more clients”.

Fortunately, I was introduced to this powerful financial concept by some highly successful business and financial leaders. I was later invited to join and became Chairman of the Board of an FDIC-insured Bank in formation. We routinely discuss the Your Personal Bank ™ concept as an investment solution for our bank.

In fact, FDIC lists this as one of the preferred Tier One capital investments a bank can make. Tier One capital is considered the safest assets a bank can own.

Your Personal Bank ™ is one of the very few agencies in the US that has agents thoroughly trained in how to properly establish and maintain Your Personal Bank ™ to maximize results for you.

Together, we are changing the financial future of individuals and families!

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