How to use Life Insurance to Self-Bank

How Does Self-Banking Work?

“Self-Banking” is an exciting term given to a classic use of cash value life insurance. This is simply the act of overfunding a whole or universal life insurance policy, accruing excess interest on that additional premium, and pulling that cash back out to fund purchases or investments. Unlike a traditional loan or financier, using life insurance to self-bank avoids going through a approval process or putting up collateral to access funding. If planned adequately, the principal and interest accrued can also be pulled out tax free.

How Much Money do you Need to Self-Bank?

Because the underlying vehicle is first and foremost an insurance policy, there is no set premium that is required to produce the desired result. The premium needed will be calculated based on the age/health of the client, the death benefit, and the type of policy chosen. Once those variables have been satisfied, an additional level of premium will be added to accelerate the cash growth. We have designed policies to accrue excess cash for as little as $50 monthly to as much as $2500 monthly.

What is the Downside of Self-Banking?

The truth is that there is no perfect financial strategy. Everything has a benefit and a cost. When it comes to using life insurance for benefit of self-banking, the first hurdle comes at the price associated with the death benefit itself. The most commonly used policy for this strategy are Index Universal Life policies. The charge for having a death benefit is called a cost of insurance that rises with age. This charge is taken out of your premium and if it grows to the point that it exceeds the premium and interest being added, the policy will lose value and eventually lapse. This relationship can be accelerated by the very act of removing the cash to self-bank. A policy loan is the only way to access this built up cash while continuing to generate interest on that cash and keeping it tax free. A policy loan however comes with a annual loan interest rate. If that loan interest rate is not paid down then it will combine with the increasing cost of insurance as a deduction to your cash value. If either of the aforementioned scenarios occur and the policy lapses, all profit made throughout the life of the policy will immediately become a taxable gain.