The Bank On Yourself Revolution. Pamela Yellen

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 the loan back because I’m recouping interest I would have paid to a credit card company or bank. And by paying it back the way my Authorized Advisor showed me, my plan value increases. I feel so fortunate to have found Bank On Yourself.”

      How the Economy Affects Whole Life Policies

      Over the years I’ve been asked a number of questions about how Bank On Yourself policies might fare in different economic situations. I hear from people every day who tell me they want to add Bank On Yourself to their financial plan, but they haven’t quite been able to make the leap yet. They worry about what direction the economy is going. They want to see what the political climate will be. They want certainty in an uncertain world.

      I don’t have a crystal ball, but let’s take a look at the potential impact various economic conditions might have on Bank On Yourself policies:

       • A decline in the dollar: No one knows for sure what direction the dollar will go. The current economic environment can change at any time, and it can turn on a dime, as it has in the past. We’re a global economy, and the actions of other nations impact us and our own economy.

       An article from MSN.com’s MoneyCentral on October 13, 2009, reported that when the dollar was taking a beating in 2009, central banks in numerous Asian countries were “actively buying dollars to check its fall against their currencies.” Why would they do that? Because their nation’s exporters “can’t handle a drop in profitability and competitiveness” if the dollar drops too far.

       As Bloomberg.com reported on August 24, 2011, “A weak dollar may be one of the bright spots in the U.S. economy, and it could be the gift that keeps giving.” The article spelled out several ways the U.S. benefits from a declining dollar.