Market Frustrations Inspire Being Your Own Bank

Just as they might customize their home or wardrobe, investors are creating personalized and private banking systems to meet their unique needs. Increasingly, they’re forsaking the risks and low-or-no returns of traditional stocks and bonds, and are instead accumulating cash value that can both grow and remain accessible through an insurance policy.

Nearly a misnomer, cash value life insurance policies are being bought to benefit the living rather than creating a remembrance for beneficiaries. Without some of the typical constraints, cash can be accessed for domestic needs such as a car or home addition.

Cash value life insurance policies complement other safe-money vessels like annuities by being a predictable and conservative asset. They help establish a financial foundation and have these characteristics:

• Within annual IRS limits (TAMRA), monies deposited into policies can generate tax-free income, and the income does not impact the taxation of Social Security
• The policy’s cash basis can be withdrawn tax-free (generally after 15 years.)
• The policy’s gains can be borrowed and collateralized by the policy cash values.
• Outstanding loans can reduce any ultimate death benefit to be paid.
• Unlike IRA or 401(k) accounts, age constraints of 59 ½ for accessibility and 70 ½ for required withdrawals don’t apply.
• Loans are subject to interest charges at compettive rates.

The most potentially consequential aspect of a cash value life insurance policy is that it must be kept in-force for the life of the policyholder, lest the withdrawals be subject to tax as ordinary gains, which could be substantial.

The old saying that cash is king is nowhere more true than for savers who have the discipline to set aside the promises of risk, and remain able to seize timely opportunities. Cash value life insurance is but one way to establish such a safe-money, private banking system.