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The Most Important Key to Uncommon Banking with Cash-Value Life Insurance

The single most important point to understand about cash-value life insurance and banking is that it all comes down to dividends. Understanding the power of dividends when they come from the right financial instrument can literally impact you and your family for generations to come.

Banking is the way you move money through your economic engines. Typically, you would deposit a paycheck into a checking account that earns little to no interest. This money is taxable annually. Then you spend those funds and the money is gone from your economic engine forever. Goodbye, money! Nice knowing you!

Uncommon banking through cash-value insurance is a way of revving up your economic engine instead of running out of gas. You’ve probably heard the phrase, “Pay yourself first.” It is usually a kind of shorthand for making it a priority to set money aside for your immediate and distant future.

With that Pay Yourself First mentality in mind, let’s look at how you can use a cash-value whole life insurance policy as a way to leverage the power of dividends.

When you put a premium or loan repayment into your cash-value whole life insurance policy and it accrues to cash value, the cash value will earn compounded interest for the existence of the policy. That whole cash-value dollar amount is on deposit with the insurance company. Here’s the really fun part: You will always be earning interest on that total cash-value, even when you take out a loan. When you access that cash-value growth and build-up via a policy loan from the life insurance company’s general fund, you are taking a loan against your cash value. Not from it.

This is where we love watching people’s eyes light up as we explain it: the insurance company still owes you dividends and the cash-value guarantee on the full amount, like your money is still there. It’s that simple. The life insurance company still owes you interest on your money, even if you take a loan to invest in another asset outside of the life insurance company. Now it’s “Hello, money! Glad you’re working for me!”

So how does this play out in real life?

Say you are in the market for a new car. If you have a checking account at the bank, you’ll get a small bit of interest on the money held in the account. Slow clap for checking account interest. Through the same bank, you take out a car loan for $10,000, but leave your money in your checking account on deposit. Do you owe them interest on the car loan? Yes, you do. Then again, they still owe you interest on the checking account. But where you might get 1% on $10,000 in a checking account, you will owe north of 5% on the $10,000 car loan. So the interest is way out of balance in the bank’s favor.

Now let’s look at the insurance company. You have $10,000 in cash value on a policy and you want to take a $10,000 car loan. Your cash-value is left on deposit, similar to your checking account at the bank. You request a loan from the life insurance company’s general fund, just like you requested your bank loan from their general fund. The insurance company sees you have $10,000 on deposit and they issue you a loan for $10,000 since you have the collateral. If you don’t repay the loan, then yes, they take your $10,000. But they still owe you interest on that cash value of $10,000.

We call this uncommon banking because you don’t have to stop with just a car loan. Your “bank” is growing bigger with every premium payment you make and as you repay the insurance company on the car loan. You will keep earning interest on the $10,000 cash value, plus what accrues as you make those premium payments. You can keep taking loans to purchase cash-flow producing assets or buy more of your debt.

Dividends from the right financial instrument can be an incredible wealth-building tool. You can leverage them to get a car loan, as a down payment on real estate – there are so many possibilities. Why let traditional banks and the government grab back your interest earnings and then some? Uncommon banking can help put you in the driver’s seat and keep your economic engines running strong.