The Bank On Yourself Revolution. Pamela Yellen
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Is This a Safe and Secure Place to Put Your Money?
The companies recommended by Bank On Yourself Authorized Advisors are among the financially strongest life insurance groups in the country. In essence, they’re owned by the policy owners (you!), which means these companies focus on the long-term best interests of the policy owners rather than the short-term demands of Wall Street.
Many people don’t realize that life insurance companies are strictly regulated via four layers of protection:
1. They’re audited regularly by the state insurance commissioner’s office (sometimes by dozens of different states) to ensure they maintain sufficient reserves to pay future claims and that they are on solid financial ground.
2. If a company gets into financial difficulty, the state insurance commissioner’s office can take over and run the company in the interests of policyholders. Historically, a failed insurer’s business is then taken over by another company, according to the National Organization of Life and Health Insurance Guaranty Associations.
3. Most insurance companies are audited regularly by several independent rating companies.
4. Additional policy owner protections are available on a state-by-state basis. For example, in one annual policy statement I received, there was a notice regarding the various protections provided by the Insurance Guaranty Association of New Mexico, the state where I live.
In addition to these layers of protection, life insurance companies are simply run differently. Remember that mom driving in the minivan versus the kid in the hot sports car? Life insurance companies aren’t trying to grab short-term profits wherever they can. Their mission is to get you and your family to your destination safely.
MYTHBUSTER
The Truth About AIG
Is AIG an example of a big, bad insurance company? When AIG captured headlines during the financial crisis and received a bailout, many people assumed their life insurance operations were at fault.
According to a 2009 posting on the National Association of Insurance Commissioners (NAIC) website, they weren’t. They “did not receive a bailout; they are financially solvent.” The NAIC also stated that AIG’s insurance subsidiaries did not cause the problem and would, in fact, be part of the solution. It was the company’s non-insurance operations that wreaked all the havoc.
Facts of Life (Insurance)
• Drivers of the economy: Life insurers have $4.3 trillion invested in the U.S. economy, making them one of the largest sources of capital in the nation.12 They paid more than $19 billion in federal, state, and local taxes in one recent year.
• Meets safe capital requirements: I’ve said that life insurance is safe, but don’t just take my word for it. Banks are legally required to have a foundation of very safe liquid assets, known as Tier 1 capital. Life insurance is considered to be so safe that bank regulators allow life insurance policies owned by banks to meet their Tier 1 capital requirements. According to the most recent statistics, the nation’s banks owned guaranteed, high-cash-value permanent life insurance with a surrender value of approximately $135 billion.13
• Blessed by the Oracle of Omaha: Warren Buffett, widely considered to be the most successful investor of our time, owns several life insurance companies. (Buffett can’t legally own the kind of insurance companies used for the Bank On Yourself concept because they are owned by policy owners rather than stockholders.)
• Diversified low-risk investments: As for the companies recommended by Bank On Yourself Authorized Advisors specifically, the bulk of their portfolios is invested in investment-grade fixed-income assets. Their bond portfolios are highly diversified across many industries and companies, and typically no investment represents more than 1 percent of assets. Less than 1 percent to 2 percent is invested in U.S. Treasury or other government debt. These companies had virtually no exposure to the risky investments that caused the market meltdown of 2008.
Due to their financial strength and reserves, these companies have the ability to hold on to any assets that may decline in value for many years until those assets recover.
• Source of capital, even in tough times: Life insurance cash values serve as a source of available capital to individuals, families, and businesses, even when credit is difficult to obtain. As of the last available data, there were $129 billion in life insurance policy loans outstanding.14
The Pillar in Retired Navy Commander’s Financial Plan
“I almost didn’t call the Bank On Yourself Authorized Advisor I was referred to. When I first heard about Bank On Yourself, I thought it was another investment scheme and almost didn’t look into it. I’m glad I overcame my concerns—it’s now a major pillar in our financial plan.”
—Commander Robert Chambers, Jr., U.S. Navy, Retired
• Bedrock of our grandparents’ savings plans: Back in 1900, half of all Americans’ savings was held in life insurance and annuities.15 And fully one-third of families owned whole life insurance policies in 1950.16
• Help great businesses succeed: Many famous people have used life insurance policy loans to start or grow their businesses when no banker would lend them a dime. Following the 1929 stock market crash, famous retailer J. C. Penney borrowed against his life insurance policies to help meet the company payroll. Had he not had this ready access to capital, the company probably would have been forced to close its doors.
Walt Disney borrowed from his life insurance policy in 1953 to help fund Disneyland when no banker would lend him the money.
McDonald’s might have only served a few hundred thousand burgers had it not been for Ray Kroc’s whole life insurance policies. Kroc had constant cash flow problems during the early years and borrowed from his policies to help cover salaries of key employees and to create the initial Ronald McDonald advertising campaign.
In 2002, Doris Christopher sold her kitchen tool company, the Pampered Chef, to Warren Buffett for a reported $1.5 billion. She had started the company in her suburban Chicago home in 1980 with $3,000 she borrowed from her life insurance policy to purchase inventory.
Foster Farms was founded in 1939 when Max and Verda Foster borrowed $1,000 against their life insurance policy to buy an eighty-acre farm near Modesto, CA.
All of these fully documented stories and more can be found in the article Six Famous Brands Started or Saved by Life Insurance on www.LifeHealthPro.com.
Of course, you don’t have to be famous to take advantage of the financing opportunities these policies offer. Suzi Hersey, a real estate investor in Virginia, reported, “I was able to take a loan with no questions asked and no credit check. I’m the one who determines when and how I’ll pay the loan back. I want to pay