Lets see what banks and brokerage firms do
Lock in because i’m going to show that this concept has been around for centuries
So the short answer to is being your own bank a scam? NO, it’s not a scam.
But for starters , let’s talk about what it is, how it works and how it evolves and why its my favorite vehicle.
In more simple terms, SMITH funding is the concept of indexed universal life. You may also know it as infinite banking which was named by Nelson Nash
It’s all the same concept and they all circle around the strategies of how money works
In the Bible in Luke 19:23 says “When then didn’t you put my money on deposit, so that when I came back, I could’ve collected with interest”
So In other words, if you put your money in a bank, a credit union or an insurance company in this example, you are lending them your money. It is in a lended position
They are not just an institution that will sit there an pay you interest, your money is not sitting in a vault
So what are they doing with your money?
They are loaning it back out again at a higher interest rate than they are paying you,
You then get rewarded
They loan it out or invest it and earn a higher rate
If they pay you 1 or 2 or 3% in a bank savings account and they turn around and loan money out on a mortgage at 5,6, or 7% or even a bank loan for your business
Best believe they will be making that spread or that difference
This is the be your own bank concept
When you have money inside of a life insurance policy, you’re building up your own bank, your own resource
And so whenever you have a need, then you can use your money and you go into the insurance policy.
But instead of withdrawing your money, I recommend that you borrow your money, this a int no scam?
You’re borrowing your money
And of you have the people who will say, why would I borrow my own money?
Because if you withdraw it, you hurt your ability to put back and have it be considered “grandfathered” in under tax-free accumulation laws in the Internal Revenue Code
So this means the best way is to borrow it out
And people will say, “ well then, they charge you interest.”
Is that a good thing or a bad thing?
I believe it’s good because in order to make sure that you don’t have to pay taxes on the money
But when you borrow, like borrow for a car or for a business you don’t have to pay on loan proceeds. Its tax-free
So when you borrow, lets say you have a million bucks of cash value in your insurance policy
Now you can go in there and borrow $10k, $100k, if you really wanted to you can actually borrow 94-95%
This borrowed money does not have to be reported as taxable income because you are borrowing it
Now it actually call it a true loan, the insurance company must charge you a nominal interest rate
That’s usually way down in the 1 to 2% range
It can also be as high 3.5 to 4% when we have higher interest environments
So then lets say do charge you 2% but at the same time, agrees to credit you close to the same to become a zero washed loan
So you borrow $100k or a million, they charge you 2%, that’d be $20k on a million but then they credit you 2% on that collateral. So it’s a washed loan
Meaning they credit you $20k which offsets the $20k they actually charged you
Now when you use whole life insurance, hopefully you have what is called a spread or an arbitrage
This means when you borrow at a lower rate, and you earn a slightly higher rate
So if you the whole life policy is around 5 to 6% or even 7 to 8% dividend rate.
If you borrow the money let’s say at 4% and they credit you, you’re making a spread just like banks
That is the bank on yourself concept as well
But why do I use Indexed universal life?
Because its bank on yourself on steroids
Heres why,
In a nutshell, a whole life is a good way to incorporate bank on yourself.
You can borrow money at a lower rate from the insurance company and you continue to be credited with a little bit higher rate.
But at the end of the day, whole life insurance is good for death benefit but in my opinion it doesn’t compare to when it comes to tax free income liek the IUL
In most illustrations that we do with this become your own concept, at the end of the day whole life might create incomes of nearly ⅓ of what IUL was producing for tax free income when it comes to this concept. This is why
With IUL, your money is generally earning 2-3% higher rates of return than regular universal life
And regular universal life usually earns higher rates of return than whole life
In other words, whole life insurance with most of the top companies the average a gross rate of return at 8%
So this means your net rate of return MIGHT be 6%
In universal life you will be able to earn 9% and net 8%. Totally tax-free
This means you’ll be netting what most whole life concepts credit crediting you in gross.
But with IUL, indexed universal life, you can actually on a million dollars, pull out a 10% pay out because of this be your own bank concept
Meaning, you’re borrowing your money out and they charge you 5% but they continue to credit you 10%
How much more is 10 than 5? Its 100% more. Would you hire an employee for $50k that made you $100k
For instance, on a million dollars, they may charge me 5 but I keep earning 10,
That spread, even if its 2% allows me not to just pull out 8% in tax free income because i’m actually with the arbitrage the Be your own bank concept
I’m tweaking the payout usually by 2% points
So a million of cash value can generate $100,000 a year of tax-free income using this spread of this arbitrage concept
So this is always why I would recommend you learn this concept ans then see, not just a good way to do it but the best way using indexed universal life
So in summary, being your own bank concept is not a scam concept
It’s been around for centuries
If you want to learn and study the best way, I suggest you read and study my most recent book The SMITH Fund.
Be sure to click the link below to claim your PDF copy today!
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