Margin Loans on Investment Portfolio's
If you own stocks, bonds, limited partnerships, TIPS or Business Development Companies in a brokerage account, you have the ability to borrow funds against the equity in the account. There aren't any rules or underwriting you have to go through to do this. All you have to do is set up the account and the brokerage firm will allow you to take money - no questions asked.
The interest that these companies charge are low AND tax deductible against earnings. For example, I have seen accounts where the interest rate to borrow against an investment portfolio of securities is only 1.5%. The company is giving away a Google Nexus 7 too when an investor opens an account. There is more information at Decision Tree Financial.
Are life insurance loans a better concept than borrowing against an investment portfolio of stocks? Can an owner of a life insurance company create money out of thin air?
This would be wonderful concept, and would be a "financial secret that 'they' don't want you to know" because, if real, would severely decrease the profitability of actual banks and the financial industry when they lose customers they want to lend money to.
Unfortunately,, it isn't as good as, it is made out to, be. However, that doesn't, mean life insurance ,is a bad product. Bank ,on Yourself just ,doesn't seem to ,be as great as, it is made out to be so far?,
Financial Planning Video
The Mechanics of a Bank on Yourself Participating Whole Life Insurance Policy
There are a lot of different types of life insurance policies on the market. In an effort to reduce confusion for now I am going to generalize these policies into two distinct types: Term Life Insurance and Permanent Life Insurance.
Term life insurance allows a policy owner to obtain the highest amount of "death insurance" for the least amount of premium. "Term" refers to a period of time.
Term life insurance allows a policy owner to obtain the highest amount of "death insurance" for the least amount of premium. "Term" refers to a period of time.
For example, a 40 year old may want to have coverage of $1,000,000 that last until they are 60. In this case, they could buy a 20 year term life insurance policy and it might require them to pay about $70/month in premium.
If they are blessed enough to live through the term (which for a 40 year old is highly likely but not guaranteed), then the insurance company keeps the money paid into the policy and the proceeds are distributed to the beneficiaries of policy owners that died during that term and the life insurance company's owners.
Permanent life insurance is different. "Bank on Yourself" recommends that an investor use a certain type of permanent life insurance policy manufactured by a mutual life insurance company called a non-direct participating whole life policy.
I will break down the meaning of this term in three parts:
Permanent life insurance is different. "Bank on Yourself" recommends that an investor use a certain type of permanent life insurance policy manufactured by a mutual life insurance company called a non-direct participating whole life policy.
I will break down the meaning of this term in three parts:
- Mutual Life Insurance Company
- Participating Whole Life
- Non-direct (vs. direct) Participating
Owning a company can be achieved a few different ways. One of the most understood ways of doing so is to invest in a company's stock.
When you buy the stock of a company, you become a partial owner of that company and are entitled to a portion of its earnings. For example, if you were to invest in (1) share of The Walt Disney Company, then you would own about .00000000059% of the company because there are 1.7 Billion shares outstanding. You would therefore be entitled to that percentage of the profit the company distributes. You would also have ability to profit from the increase in the price of the stock.
You may also lose money if your share of stock goes down in value but you will still receive your share of the profits.
You can invest your money into the stock of an insurance company as well. For example, an investor can open an account like the one if you click here and get a free Google Nexus. Then, they can buy some shares of insurance companies MetLife and Prudential if they would like. The profits they would be entitled to might come from the profits of term life insurance or various permanent life insurance policies these companies sell.
A person can not invest in a mutual life insurance companies the same way. s Instead, the owners of a mutual life insurance company are their whole life policy owners and the profits of the company are distributed directly to them.
Mutual Insurance = Owned by Policy Owners
Participating Whole Life is a whole life policy where the policy owner "participates" in the profits of the company. The profits of a mutual whole life insurance company can come from the money they make on their whole life insurance, their term life insurance and their other product lines. Some mutual life insurance companies have Wall Street Firms themselves known as "broker-dealers" and others even have actual banks and mutual funds where the profits they make are distributed to the owners of their participating whole life policies. However, most of the money that any insurance company makes comes from the way they invest their policy owner's premiums.
You can invest your money into the stock of an insurance company as well. For example, an investor can open an account like the one if you click here and get a free Google Nexus. Then, they can buy some shares of insurance companies MetLife and Prudential if they would like. The profits they would be entitled to might come from the profits of term life insurance or various permanent life insurance policies these companies sell.
A person can not invest in a mutual life insurance companies the same way. s Instead, the owners of a mutual life insurance company are their whole life policy owners and the profits of the company are distributed directly to them.
Mutual Insurance = Owned by Policy Owners
Participating Whole Life is a whole life policy where the policy owner "participates" in the profits of the company. The profits of a mutual whole life insurance company can come from the money they make on their whole life insurance, their term life insurance and their other product lines. Some mutual life insurance companies have Wall Street Firms themselves known as "broker-dealers" and others even have actual banks and mutual funds where the profits they make are distributed to the owners of their participating whole life policies. However, most of the money that any insurance company makes comes from the way they invest their policy owner's premiums.
EmoticonEmoticon