Being your own bank is a novel concept. It implies that you can act like a bank and not only have money but lend money and control the money. It also implies that the bank is there for your use.
This summarizes the concept of how this system works. The intent is not to start an actual bank, but to use some of the concepts that banks use and reap the rewards by having access to your bank.
The bank that you will be setting up will be based out of your cash value life insurance. This is done for several reasons, but most importantly because of the benefits and control you have over this account. Not all cash value life insurance policies are the same so it is important to be with the right company and the right policy for you. With a life insurance policy as your bank you get some benefits like the death benefit and the disability waiver, but these are added bonuses and not the primary purpose of the bank.
The bank is set up by funding the policy up to the MEC level, which is the maximum investment amount that the government allows you to put in a life insurance policy before it is treated as a basic retirement account. This MEC level is based off of your investment amount and the initial death benefit. The underlying characteristics that make this policy work like a bank are twofold. First your cash value grows each year and gives you a return on your investment while the money is invested in your policy. Secondly you are able to borrow against this policy which gives you access and control over your money, no questions asked. Not to mention that you can do all of this without any taxes as long as you keep the policy in force. Put those two characteristics together and you have a system that grows when it sits there and can be accessed when the money can be used for a better purpose.
This bank can be extremely useful when you treat it as your safe, liquid money. Then when you have an investment you want to own, you can borrow against your bank and use it for the investment. When you pay yourself back your payments go right back to working for you in your bank.
This strategy can be extremely useful when used correctly for investment capital as well as large purchases that you make in your life, like cars, college tuition, etc.
We are an independent financial service firm helping individuals create retirement strategies using a variety of investment and insurance products to custom suit their needs and objectives. Financial planning, investment advice and insurance provided through Business-owner Strategies Group, LLC a North Carolina Registered Investment Adviser and Licensed Insurance Agency d/b/a BSG Advisers. Wealth CAPS does not provide legal or tax services.