Oh gosh, if it smells like Missed Fortune, that says it all for me. Yeah, stay far away.

By mbhunter on Apr 19, 2009

It’s not even close to Missed Fortune in terms of product or strategy. And the commissions paid on these plans are 50-70% lower than traditional plans.

By Dierdre Claire on May 7, 2009

Huh? Are you more concerned with costs or results? Although I’ve seen several calculations of the costs of a Bank On Yourself policy held until maturity (which is the whole point of them) at around 1 ½ – 2% per year, thus equivalent to many mutual funds, but without the added costs of 401Ks that many mutual funds are in, I fail to see any comparison between mutual funds and a Bank On Yourself designed whole life policy.

At least I get some advantages for those costs, like:

• Guaranteed annual increase, plus dividends that have been paid every year for over 100 years

• Principal and gains locked in even when market crashes

• You can borrow your money in the plan to buy something or invest in something, and your plan continues growing at the exact same rate

• By running your purchases through the plan, you can get back what you paid for them and then some

• Income-tax free death benefit for your family that’s likely to be many, many times the amount you’ve got in the plan

• Tax-free retirement income according to current tax laws

There are sample policy statements on the Bank On Yourself website showing how these policies not only held their value, but also grew during a recent period in which the S&P 500 plunged by 40%, and also graphs showing how the plans grow over time.

I don’t know about you, but I would happily have paid a LOT higher fees than mutual fund fees to have every penny of growth I ever got in my stock market investments still there, even when the market crashes.

You can check it out for yourself. The book has tons of specific examples as does the website, including these two links in particular:

http://www.bankonyourself.com/what-the-experts-dont-know-about-bank-on-yourself-policies-part-2.html

http://www.bankonyourself.com/stock-market-timeline

Keep in mind these are bottom-line results AFTER accounting for ALL fees and expenses.
I’m not confident my mutual funds will ever catch up with a Bank On Yourself plan, and I’m tired of worrying about what’s happening in the market all the time. I really don’t have much to show for it.

By Dierdre Claire on May 29, 2009

The IRR in one of these policies is around 4-½ – 5 ½%, so equivalent to a 7-8% after-tax return, for those in higher tax brackets.

The idea of 10 -12% plus returns is an urban legend in my opinion, certainly for those saving for college or retirement, like most of us are trying to do (versus speculating).

The other thing I like about these policies is that the cash values and dividends get better every year –without you having to keep looking for the best way to invest your money. That’s the way these policies are designed – to become more efficient every year.

By Dierdre Claire on Jun 9, 2009

I need enlightenment! The (Life Insurance?) Company paying these – guaranteed – returns must earn them somehow. What do they invest in, in this market to generate the promised returns? One way, I can think of, is from new money, new customers. That would be illegal. I cannot think of any kind of investment that could generate guaranteed returns when the main source of investment income, the stock and bond markets have tanked 40%. I would be glad to invest in this, if I could be sure that these earnings are generated in an understandable, reasonable, legal way.
It seems that any savvy stock broker, investor, Wall Street dealer would salivate at these levels of returns – guaranteed – safe etc. They certainly go after much lesser returns with a vengeance.
There is something that seems too good to be true …
Show me how the companies, I entrust with my money are legitimately earning the kind of returns to guarantee the promised returns – and I will become a believer …
KlausG

By KlausG on Jun 18, 2009

I don’t think Wall Street will ever “salivate” at returns of 4 ½ – 5 ½ % per year (equivalent to 7-8% in a taxable account, because it’s taxed like a Roth-IRA). They can convince a lot more people to keep coming back for more punishment by dangling 8-10% or more returns, even though the typical mutual fund investor has actually been LOSING 1% per year over the past 20 years (inflation-adjusted), according to the latest study by Dalbar, Inc.

But your concern is justified. The companies don’t guarantee a 4 ½ – 5 ½ percent return, they guarantee you’ll receive an annual increase in your cash value, and those increases get larger the longer you have the policy.

Every year, the companies that pay dividends project a “worst-case” financial scenario, and if their results are better than that, they pay a dividend. Dividends aren’t guaranteed, but some life insurance companies have paid them every year for over 100 years.

The 4 ½ – 5 ½ % return mentioned above is based on the current dividend scale, which is at historic lows.

And if you use the policy to finance a car, vacation or college education, and get back the cost of those purchases by doing so, what’s the rate of return on that? That’s what Pamela Yellen shows you how to do in her book on Bank On Yourself.

The type of companies recommended for Bank On Yourself-type policies invest primarily in high-quality, fixed-income assets such as long term government and corporate bonds. Because of the legal requirements the companies have to maintain sufficient reserves to pay future clams, they have the ability to hold on to their assets for very long periods of time, if necessary.

They have been doing this successfully for more than a century and they invest “prudently” – a word that does not seem to be in many people’s vocabularies anymore.

Hope this helps.

By Dierdre Claire on Jun 23, 2009

The dividends that are guaranteed by these policies are based off of the claims ability of the company that issues them. Most of the whole life companies that are suitable for Bank on Yourself are mutual insurance companies not publicly traded stock companies. There is a huge difference between the two in the matter of paying dividends. A dividend is paid when the company experiences profitability higher than expected. With a stock company, this goes to the shareholders. With a mutual company, this goes to the policy holders. The company’s have a general account in which they make very conservative investments, that is how they can guarantee your minimum rate of return. Most of these investments are cash based and fixed income securities backed by some asset. Example may be high quality real estate that the insurance companies underwrite, high grade corporate bonds, treasury securities, cash instruments. Most company’s offer a 3% guarantee, its not hard to generate 3%. So when the insurance companies have paid 6, 7 and 8%, it’s because they experienced lower mortality that expected and profitibility is up and that is returned to the policy holders. Look at the insurance company ratings as well. The type of mutual insurance company’s in Bank on Yourself have higher ratings than your local bank or any investment company. There are no AAA, or AA rated banks or investment companies however, there are for insurance companies. I hope this helps.

By Idris Talib on Jul 14, 2009

Since when did “borrowing” your money at 6 – 8% like most whole life policies charge ever make sense? Did you mention the part that you can typically only borrow half of the cash account? That amounts to one huge deposit into a life insurance policy if you intend to borrow enough to buy a car. And you failed to mention one other important detail – if you die along the way, your insurance company keeps the cash account. Been there, done that with “the company you keep”, whole life insurance is a rip off. The only difference between the insurance companies and the mortgage companies the last several years is now the public knows the mortgage companies have been killing them, they haven’t figured out that the insurance companies selling trash value life insurance have been fleecing them legally for years!

By gary on Jul 21, 2009

I’m afraid you have been misinformed on all accounts:

“If you die, the insurance company keeps your cash value.”

If you go to the link below, you can see actual policy statements showing how this works.

For example, there’s a policy statement shown there that would pay the policy owner’s family $382,000, rather than the $250,000 death benefit of that policy when it was issued. You can see there how that’s actually MORE than the amount of the initial death benefit PLUS the current cash value!

This is typical of a dividend-paying whole life policy, because dividends left in the policy buy additional coverage at the lowest possible cost. It’s a process which also happens to grow the cash value in the most efficient way possible.

Perhaps the most interesting thing you’ll notice at that link is how much the policy grew during a period of time when the S&P 500 plunged 40%. The principal did NOT vanish when the markets fell and all growth since the policy was started is still there, too.

See for yourself here.

“Borrowing your money at 6-8% doesn’t make sense.”

You do pay interest on policy loans. However as Pamela Yellen explains in her book, Bank On Yourself: “policy loans come from the company’s general fund, because the cash value in all the policies is pooled together. Interest paid on loans goes back to the general fund and the policy holder ultimately gets the benefit through a combination of guaranteed annual increase plus any dividends the company pays.”

It’s a FACT that if you finance things though a Bank On Yourself policy and pay your loans back at the interest rate the company charges, you’ll end up having the SAME cash value as if you didn’t use the plan to finance anything (and thus paid no loan interest).

If you were paying that interest to a finance or lease company, you’d never see it again. If you put money into a savings account and then pull it out to pay cash for something, how much interest are you then earning on that money? ZERO!! But, if you pay for the item by borrowing from your Bank On Yourself policy, your policy can continue growing as though you never touched it. Yellen does a great job of explaining this in her book.

“You can typically only borrow half of your cash account.”

I can’t imagine where you got this idea. Most companies allow you to borrow around 90% of your cash value. They hold onto the balance as a reserve or cushion to help ensure you don’t accidentally lapse the policy, if you’re late paying a premium or have a loan you don’t pay back.

In fact, my husband has a policy from the company you mentioned, so for grins we called them up and asked how much of the cash value they’d let us borrow today – and the figure they gave us was 93.5% of the value of the account!

Given that you are misinformed on all three counts, perhaps you ought to consider revising your conclusions based on the facts.

This is another good example of how many myths and urban legends there are out there about this – amongst both the public AND financial advisors.

By Dierdre Claire on Aug 3, 2009

I’m afraid you have been misinformed on all accounts:

1. “If you die, the insurance company keeps your cash value.”

At the Bank On Yourself website, you can see actual policy statements showing how this works.

For example, there’s a policy statement shown there that would pay the policy owner’s family $382,000, rather than the $250,000 death benefit of that policy when it was issued. You can see there how that’s actually MORE than the amount of the initial death benefit PLUS the current cash value!

This is typical of a dividend-paying whole life policy, because dividends left in the policy buy additional coverage at the lowest possible cost. It’s a process which also happens to grow the cash value in the most efficient way possible.

Perhaps the most interesting thing you’ll notice is how much the policy grew during a period of time when the S&P 500 plunged 40%. The principal did NOT vanish when the markets fell and all growth since the policy was started is still there, too.

To see the details and statements, go to http://www.bankonyourself.com and click on the third featured blog post on the right side: Suze Orman and Dave Ramsey: Let’s debate!

2. “Borrowing your money at 6-8% doesn’t make sense.”

You do pay interest on policy loans. However as Pamela Yellen explains in her book, Bank On Yourself: “policy loans come from the company’s general fund, because the cash value in all the policies is pooled together. Interest paid on loans goes back to the general fund and the policy holder ultimately gets the benefit through a combination of guaranteed annual increase plus any dividends the company pays.”

It’s a FACT that if you finance things though a Bank On Yourself policy and pay your loans back at the interest rate the company charges, you’ll end up having the SAME cash value as if you didn’t use the plan to finance anything (and thus paid no loan interest).

If you were paying that interest to a finance or lease company, you’d never see it again. If you put money into a savings account and then pull it out to pay cash for something, how much interest are you then earning on that money? ZERO!! But, if you pay for the item by borrowing from your Bank On Yourself policy, your policy can continue growing as though you never touched it. Yellen does a great job of explaining this in her book.

3. “You can typically only borrow half of your cash account.”

I can’t imagine where you got this idea. Most companies allow you to borrow around 90% of your cash value. They hold onto the balance as a reserve or cushion to help ensure you don’t accidentally lapse the policy, if you’re late paying a premium or have a loan you don’t pay back.

In fact, my husband has a policy from the company you mentioned, so for grins we called them up and asked how much of the cash value they’d let us borrow today – and the figure they gave us was 93.5% of the value of the account!

Given that you are misinformed on all three counts, perhaps you ought to consider revising your conclusions based on the facts.

This is an example of how many myths and urban legends there are out there about this – amongst both the public AND financial advisors.

By Dierdre Claire on Aug 7, 2009

As someone who works in this industry I would say the biggest problem people have in understanding this is that so few companies can afford to do this so there is a very low awareness of this program. The reason there are only a very few that do is there are only a very few who have positive cash solvency in the billions of dollars. One of these companies in particular has a higher financial rating then the state I work in.

With that being said, this isn’t for everyone. Here is a great example/analogy. If you went to a football game and there were two parking spots side by side one for $10 and the other for $30. Of course you would pick the $10 spot. But what if the $30 spot guaranteed to pay your money back when you wanted it with interest AND offered to run you some extra cash during the game to buy more beer. If you really only have $10 you can only take the one where your money goes away, but if you have an extra $30 to use, you are an idiot for not using it.

By Adam Jones on Aug 14, 2009

Her book sounds like a rehash of Nash’s book. (Becoming Your Own Banker) No doubt, she learned from him. But his explanations are not clear, but just mostly stories. The only endorsements I’ve seen come from the insurance sales people following these methods.

By john earle on Aug 22, 2009

Why is it that everyone who is in favor of this scheme writes as if they cut and paste paragraphs from a sales brochure? That alone is enough to turn me off.

By booch221 on Aug 26, 2009

It amazes me how people whom disagree with this strategy have no definitive reason as to why they disagree. The most common expliainations I see is “its too good to be true” or “whole life insurance is a rip off”, or “this is just another way to sell life insurance”. If you are so confident that you are correct why don’t you take on the $10,000 challange that Pamella Yellen has put out there?

I am looking for someone to show my why this concept does not work. I cannot figure out why it does not work, and to date, I have not found anyone else who can give me a conclusive reason as to why it can’t work either.

Once upon a time everyone on earth KNEW FOR A FACT that the world was flat. Thank God for explorers and people willing to challenge the status quo and show us the light!

By Joel on Sep 2, 2009

I dunno. Why is it that everyone who has something negative to say about this sounds like they fell off a turnip truck?

Isn’t it a sad state of affairs when comments that are poorly written, riddled with inaccuracies and misinformation and often written by people who admit to having little or no knowledge of the subject are acceptable… but articulate, comprehensive and well-documented comments are suspect?

And in regard to the poster who said “the only endorsements I’ve seen come from the insurance sales people following these methods” – given that he admits he hasn’t read the book on Bank On Yourself, it should come as no surprise that he didn’t bother to actually check to see who endorses the book or concept.

A brief search will turn up an impressive roster of people who aren’t in the insurance business who endorse this, including to name just a few:

Mark Victor Hansen – co-creator of The Chicken Soup for the Soul series (100 million copies sold)

New York Times best-selling author, T. Harv Eker

Jeffrey Gitomer, New York Times best-selling author and sales consultant

Martin Weiss, Ph.D., New York Times best-selling author and safe money expert (“Bank On Yourself is a great book”)

John Goodson, nationally respected estate planning attorney

Somers White, former State Senator and Bank President, Harvard MBA and internationally respected negotiations and merger and acquisition expert

Bill Handel, popular Los Angeles radio talk show host and attorney and host of the ‘Handel On The Law” Show.

Yuri Maltsev, Ph.D., Professor of Economics, Carthage College, WI

And a whole lot of other people ranging from top surgeons and endocrinologists, company CEO’s, to policemen, nurses, private investigators, CPA’s and nuclear engineers.

By George Campbell on Sep 3, 2009

Well said, or should I say written?

By James on Sep 10, 2009

Hey Joel,

Don’t forget the one they like to pull out when they can’t think of anything intelligent to say: “Bank On Yourself is a scam.”
Check out this blog post for a classic example of this:

http://www.bankonyourself.com/what-the-financial-gurus-think-they-know-about-bank-on-yourself-that-just-aint-so.html

Your point about challenging the status quo is well taken.

As Will Rogers noted, “The problem in America isn’t so much what people don’t know; the problem is what people think they know that just ain’t so”.

And as Malcolm Forbes put it: “The dumbest people I know are those who know it all.”

I have yet to see anyone give a conclusive reason as to why it can’t work, either. But I’ve seen plenty of proof why Bank On Yourself may well be the best way to invest money.

My own Bank On Yourself policies didn’t lose a penny when the stock and real estate markets crashed, they have kept growing, and the growth keeps getting better every year.

My wife and I each have a Bank On Yourself policy and we took out polices for each of our 3 kids (ages 3-10). We’re getting ready to start 2 more policies soon.

I told some of my friends about this when we started about 4 years ago, and some of them thought we were crazy.

They’ve changed their tune now, as most of their retirement accounts are still down 30-50%, even after the recent rally in the stock market. They have lost hope they’ll ever be able to retire comfortably.

That’s not a concern for us, though. And we don’t worry about the crazy ups and downs of the stock and real estate markets anymore.

I can’t even begin to express how good that feels.

By George Campbell on Sep 12, 2009

Great back and fort on this BOY issue.
I’d like to thank all the skeptics and believers. So many good and pertinent questions. It has helped me in my decision to try the BOY technique. I’ve been all over the WWW researching. And as someone stated, no one has made a coherent argument why BOY can not do at least as well as typical investing with out the roller coaster ride of the market.I see Miss Dierdre Claire has eloquently answered all your questions at length and made perfect “cents.” I’ve read the BOY book as well and now plan to check out Last Chance Millionaire and Missed Fortune 101 as well.
Thanks.

By murph on Sep 15, 2009

I forgot to mention, Many of these same type questions are put to Pam Yellen (BOY Author) at the following link http://images.moneyandmarkets.com/yellen/yellen-audio.html
by Finance and investment expert and New York Times best-selling author, Martin Weiss, Ph.D.
Well worth listening too. You can even hear in his voice at times He’s not “buying” it. But Miss Yellen has all the answers.

By murph on Sep 15, 2009

The word is diversification.. isn’t that what we are taught in investments 101. When one thing is down have access to another that is up. Why does everything have to be black and white. I personally have some whole life, some company retirement, pay off a little of debt ect. If anyone group (financial planners, cpa’s , insurance agents ,the no debt group or whoever) was right all the time then wouldn’t we all know about it by now. Wouldn’t they all be rich. So until someone becomes all knowing. Spread it out.. do not get greedy live within your means and have some fun.

By VMIkeydet on Sep 25, 2009

George Campbell if you opened these BOY policies for your whole family, what is the Whole life amount you opened them for and how much do you deposit into each monthly to keep them going or did you do a one time dump of money? Thanks for your advice and help!

By Sher on Sep 26, 2009

I love these BOY debates, but I’d like the BOY gurus to explain the three scenarios below. I’ve read Pam Yellen’s book and is just stumped on why example A is best based on her book. In all three scenarios I have the exact same BOY policy which let’s say earns 4%.

A – I take out a policy loan for $20K and let’s say the interest is 6% for 4 years.

B – I take a $20K loan from my bank at 6% for 4 years. 0 closing costs or fees.

C – I make no big purchase for 4 years

Why is it that scenario A good for the spend and grow strategy? Be great if the gurus can explain the controversial “recapture” of cost and interest too. Please be as technical and detailed as possible. Like using spreadsheet data.

What if I get laid off 3 months into starting a BOY? With unemployment probably going over 10% over the next year so anyone who thinks they are financially secured may be laid off.

Answers to these questions will help someone who is on the fence like me. Thanks.

By Tim on Sep 29, 2009

George Campbell if you opened these BOY policies for your whole family, what is the Whole life amount you opened them for and how much do you deposit into each monthly to keep them going or did you do a one time dump of money? Thanks for your advice and help! – By Sher on Sep 26, 2009

Hi Sher,

I’m happy to answer your questions.

I’m putting $600 a month into my own policy, and the death benefit was $302,000 the first year. I was also able to do a one-time additional lump sum of $10,000 the first year, which came from money I had in a money market account earning less than 1%.

My wife also puts $600 a month into her policy, and her death benefit started at $189,000 (mine was more because of the lump sum I put in the first year).

On the three kids policies (ages 3-10); we’re putting in $200 a month for each and the death benefits range from $202,000 to $270,000.

I referred my sister to this and her plan looks totally different. That’s because all the policies are tailored for the person, and the policies can be designed a myriad of different ways, depending on where you are and what you want to accomplish.

Both my sister and I work with a Bank On Yourself Certified Advisor we got referred to at the http://www.bankonyourself.com website, and we’ve both been very happy with the results.

The Certified Advisors really know their stuff. I tried to discuss this with a financial advisor who helped us with other things and he really didn’t have a clue.

When it comes to something as important as your financial security and retirement, I think it’s important to work with an advisor who has advanced training on this. Now that I’ve been doing it for 4 years, I realize there’s more to it than meets the eye, and my certified advisor helps me every step along the way.

For example, I didn’t realize that how you actually use the policy to finance things can make a significant difference in how much you’ll have at retirement.

I hope this is helpful.

By George Campbell on Oct 7, 2009

“For example, I didn’t realize that how you actually use the policy to finance things can make a significant difference in how much you’ll have at retirement.”

This is exactly what I asked in the previous email. Please show some numbers as to why financing will give you more cash value vs not financing.

By Tim on Oct 8, 2009

Tim,

I’m sorry; I’m not a “spreadsheet” kind of guy. Maybe one of the experts can give you that detail.

But I do know that Pamela Yellen goes into GREAT detail in her book on how this works, with specific numbers and examples on pages 18-21, 53, and pages 97-104, which gets into the real meat of it, and is the clearest explanation of this I’ve seen anywhere. And it’s told in a very entertaining way so it doesn’t make your eyes glaze over. (I’ve highlighted these pages and read them many times, because this is an important piece of the puzzle.)

Have you read her book? I see you can get it for 35% off at http://www.bankonyourself.com/products.

By George Campbell on Oct 8, 2009

I have her book and re-read those pages. Let me do the spreadsheet numbers and I don’t see any difference between borrowing from BOY vs borrowing from a bank when you have a BOY already.

Let’s say your BOY’s CV gets 5% interest and you have $30K. In her book she used a loan of $30K w/ 7.5% so you pay $725/month and that makes the total payments in 4 years is $34,800. I know you can’t borrow the full $30K, but let’s say you can.

“Work $$” is the money which you worked for to pay the loan.

1) Borrow from BOY
Year BOY CV LoanBalance Work $$
1 $31,500 $26,100 725*12=8700
2 $33,075 $17,400 8700
3 $34,728 $ 8,700 8700
4 $36,465 $0 8700
——
TotalWork$$ = $34,800

2) Borrow from regular Bank w/ same loan
Year BOY CV LoanBalance Work $$
1 $31,500 $26,100 725*12=8700
2 $33,075 $17,400 8700
3 $34,728 $ 8,700 8700
4 $36,465 $0 8700
——
TotalWork$$ = $34,800

See. No difference in how much your cash value grew. Good thing is the CV net is $1665 ($36,465 – $34,800) in both cases.

In the book, it even mentioned that if you do nothing, your CV will grow slower than if you finance through BOY. In the cases above, if I did not purchase a car I’d have $34,800 in my hands after 4 years vs having a car, but my CV is still grew the same to $36,465.

Also where is the “recapturing”? Over four years I had to pay $34,800 for the loan. My CV didn’t grow an extra $34,800 so there is no recapturing.

Am I missing like a “magic” column in my numbers above that adds to the CV?

By Tim on Oct 9, 2009

Tim,

There are a few flaws in your assumptions, so let me clarify…

1. The bank loan is a fixed rate loan (48 months at $725)

2. The Bank On Yourself plan is simple interest loan. The monthly loan payments are subtracted from the loan balance and the loan interest is added on the anniversary date. ($30,000 – $8,700 = $21,300, thus the loan interest is charged on the decreasing loan balance. Average balance of $25,650.)

3. The loan interest being charged in the BOY plan is 6%. Which means with simple interest the payment would be $685 an month.

Bank loan: 725 x 12 = 8700 x 4 = $34,800

Minimum BOY payment: 685 x 12 = 8220 x 4 = $32,880

$34,800 – $32,880 = $1,920

4. By using the BOY plan instead of a commercial loan, and if the same payments are paid into the BOY plan, the gain in cash value would be $1,920 plus interest. In this case, the gain would be $2,085.

I don’t know about you, but I buy a new car every 2 years, alternating between my wife and I. Thus in 20 years, I would save $20,850. Compounded at only 4% tax free (as is the case with BOY plans), that would be $29,190. That’s a lot of extra money for doing nothing.

The bottom line is that, assuming you have a BOY plan, it costs you more to borrow from a bank (unless you’re getting a very low interest rate), than from the Bank On Yourself policy.

Regarding your question about how do you recapture the cost of items, here is something I saw posted by Pamela Yellen elsewhere:

“The car examples in my book are based on people who do not already have $25,000 or $30,000 saved up to buy a car. They are based on someone starting with little liquid savings, which describes the majority of people in our country.

By establishing a Bank On Yourself plan they can use to self-finance things, and by paying the plan back, rather than using a finance company or credit card, they are able to recoup the cost, replenish the plan and recycle their dollars to buy things. They will have a continuously replenishing source of capital they previously didn’t have.”

I would also point out that, in addition, you get all the other benefits and guarantees described in the $100K Challenge (see http://www.bankonyourself.com/challenge).

By Steve on Oct 12, 2009

No you didn’t miss anything. The premise is that somehow, the insurance Co is ‘better’ than the bank because you somehow benefit from your interest that improves your returns. However as you pointed out, in the case of one individual taking one loan, there is no real benefit. Better to implement a savings strategy and eventually be able to loan yourself money from saving or, better yet, have cash on hand to buy at the bottom of a deflationary cycle where cash will be king and debts will be death.

By ex VRWC on Oct 13, 2009

Hi Tim,

I am not an expert and just trying to get up to speed on the concept since I already have a WL policy. But what I “think” you are missing is that the 8700 is/can? be added to your cash value buy buying additional insurance, so you are potentially making the 5% on 40,200 after yr one.

The way I am looking at it is:

I have a 10K loan at 6%. If I borrow from my policy at 6.44, which is the actual loan rate, and my 10k is still make 4% in the policy I now have a 2.44% loan, and just shift my payment from the bank to the policy.

I am in the process of finding out what my IRR is so I know what my actual loan rate will be.

By Mike on Oct 16, 2009

Steve,

3. I don’t know what interest rate the BOY charges, but I’m trying to keep it an apples to apples comparison and will just use 7.5% b/c that’s what Pam is using in her car example on page 19. If an ordinary bank charges 7.5% and BOY charges 6% why would I use an ordinary bank. HECK, if an ordinary bank charges 0% and BOY charges 6% why would I use BOY for a loan? That’s why I am assuming BOTH are the same.

1. Yes that is right

2. I ran a simple interest schedule w/ payments of $725, start balance at $30K, and simple interest of 7.5% which accrues monthly.
All I got was $250 better using simple interest.

4. Based on above, all I see is just the CV growing to $36,465 assuming 5% interest earned (which is still good) plus $250 in savings.

When you and your wife buy the cars, you still did use $$ to pay back the policy loans for those cars. If you recaptured the full cost, then your CV (minus any PUA, premiums, interest earned) would grow extra to the amount you paid for the cars. What you pasted from Pam’s doesn’t show exactly how the recapture works.

This recapture seems like too much hype, BUT
I agree with the 16 other benefits of BOY, so I’m still planning on starting a BOY. I still see the benefit of getting a policy loan for net 1 – 2% interest and I don’t have to worry about late fees.

By Tim on Oct 18, 2009

Mike,

I don’t think the $8700 goes to the CV directly b/c it’s being used to pay the interest and principal of the loan. It’s only when you pay EXTRA that will be used as a PUA and that will go into your CV. That’s why in the book she mentioned to pay $750 instead of $725 to really get going. I don’t know how much that extra $25 will affect dividends.

In my first meeting w/ the BOY agent I still didn’t come out gaining anything I already knew except for how the life insurance will be structured. The agent will give me the “numbers” in our next meeting. Let’s hope it all comes together and I can explain the recapture.

By Tim on Oct 18, 2009

OK. I finally see the “recapture” (I haven’t met my agent yet) It’s more easily explained below using a non-BOY method. Maybe others understood it but didn’t know how to explain it.

You have some account (doesn’t have to be BOY) that has $10K. Playing as a banker you loaned yourself that $10K, but you pay yourself back w/ interest let’s say it’s 6% for 4 years. Your account is also earning you 5% interest. See schedule below:
Monthly payment = $234.85
Annual payment = $2,818.20
Total payments = $2,818.20 * 4 = $11,272.80

IOP = interest earned on payments over 1 year

Yr_StartBal_Intrst__Pymt_____IOP____EndBal

0___________________________________$10K
1__0________________2818.20__77.50__2895.71
2__2895.71__144.79__2818.20__77.50__5936.20
3__5936.20__296.81__2818.20__77.50__9128.72
4__9128.72__456.44__2818.20__77.50__12480.86

See how your account grew to $12,480.86, but
you only paid yourself $11,272.80? That’s pretty good.

In the next response I’ll show what I think how BOY works. So far BOY doesn’t look as good as above given all equal conditions.

By Tim on Oct 23, 2009

Below is how I think BOY works. In BOY, the $10K you loaned to yourself begins to earn interest, but since it is used as collateral for your loan you actually can’t touch it. You should see the NET CV and it should be the total CV – minus outstanding loan balance.

Let’s assume BOY earns 5% too – interest and dividends. You have the same loan at 6% and 4 years.

Year____StartBal____Interest____EndBal
0_______________________________10000
1_______10000_______500_________10500
2_______10500_______525_________11025
3_______11025_______551.25______11576.25
4_______11576.25____578.8125____12155.06

After you pay your policy loan your CV grew to $12,155.06, which now you can access again. So see, you did recapture your loan cost PLUS MORE.

You may also notice that the non-BOY ended up at $12,480.86 though. The only reason I can think why the BOY numbers above are worst is b/c the dividends will be used to buy more insurance and you will get slightly higher dividends each year. Over 4 years I’m not sure how much that will be. Maybe it’ll give you the same results as the non-BOY.

I ran a similar schedule using $200K over 20 years and non-BOY beats BOY by like $50K. that’s not good.

By Tim on Oct 23, 2009

Tim,

Where are we supposed to get the 5% interest rate in a savings or money market account that you used above in your “non-BOY” calculation?!? I’m not even getting 1% these days!

I’m glad you “finally see” how the recapture aspect of Bank On Yourself works. As I mentioned earlier, I’m not a “spreadsheet” guy, but since we’ve used our Bank On Yourself policies to finance cars, vacations and some home repairs already, I got all the proof I needed that I’m recapturing my money when I finished paying my loans back to the policies, and the full cost of those purchases was back in our policies – and then some. So I was able to use those dollars over again.

If I had used bank financing or put those purchases on a credit card, what would I have to show for my payments after I finished repaying the loans?

Nothing (other than the trade value of the cars).

I realize not everyone sees it this way, but I don’t see how pulling numbers out of a hat to run projections helps much.

One mistake I’ve seen some people make to compare using a BOY policy to purchase something with not making the purchase at all. Obviously, that’s not a fair comparison.

By George Campbell on Oct 27, 2009

George,

Good point. My time savings is earning a great rate of 0.60%! :p

It seems like you signed up on faith and it’s working for you. Anyone who truly understood how this “recapture” works would’ve been able to post the numbers I did above.

I sure hope the numbers I posted will help those who are slow like me to finally understand BOY. It took me nearly 4 months to see this. I should’ve tried the spreadsheet numbers earlier to save me the trouble.

To clarify one thing, the recapture is initially only the interest. But when you get that interest eventually it’ll continue to grow and gain more interest. Eventually you’ll really recapture the purchase price. I ran the $10K numbers and it will take around 3 purchases and 12 years to recapture the purchase price of the first purchase. Essentially you’re getting 3 items for the price of 2.

By Tim on Oct 27, 2009

Which is the best performing Mutual Insurance Company to use in BOY Strategy

By Matt on Dec 7, 2009

Tim,

So, is this BOY a good deal. Are you going to purchase it.

By JAKE on Dec 8, 2009

Testing. I responded to the two questions above on Dec. 11 and now it’s Dec. 15, but I still do not see my response.

If the response shows up, ignore this.

By Tim on Dec 15, 2009

OK. Looks like it didn’t go through! Here it is again:

My agent is using Lafayette Life b/c they allow a very flexible PUA. Most companies do not and you must pay the amount you signed up for. That may be why Lafayette is more expensive.

By Tim on Dec 15, 2009

I can’t say if BOY is a good deal or not yet. Most of my friends told me to do the Term-Invest-Rest strategy.

To me, I see BOY as my fixed income (money market) portfolio in my investments, but much more flexible than what I currently have in my 401K.

BOY is setup with a base whole-life insurance policy with a short term life insurance portion. The term portion is what allows you to do the PUAs. What I did was setup so that I can pay the minimum portion of it annually. That is the base policy plus term. If I can’t pay that as one lump sum then it is too expensive for me and I should get a smaller amount of coverage. The rest I will pay in PUAs. If one year I have extra money then I pay more PUAs and if I have less I pay less.

The main idea is to not let your base policy lapse.

By Tim on Dec 15, 2009

I have had one of these policies for almost 5 years. I am very pleased with the way it works so far. So much so, that I have become somewhat of an online evangelist.

I haven’t seen an argument yet that I can’t lick.

My favorite argument right now is Dave Ramsey’s “They keep your money when you die” argument.

Oh really?

Numbers don’t lie and here are mine…

One day one of policy, I could have dropped dead and my wife would have received $400,000.

One year and $12,000 in premiums later, if I had died, my wife would have received $450,000.

(Could I interest you in some 2nd grade math?)

After 2 years and $24,000 in premiums, my wife could’ve bumped me off to receive half a million dollars!

Dave, half a million is MORE than $400,000 + $24,000.

And if I die today, my wife will get the original $400,000 death benefit + our $50,000 we paid in premiums + another $100,000 in “take that, Dave!” money.

BOY works well when implemented as described.

And I happen to like (and got lucky) with Lafayette Life because it turns out they have almost the highest ratings you can get from Fitch and AMBest. And ratings matter when you’re talking about life insurance.

By Brent on Jan 15, 2010