You’ve probably come across the bank on yourself concept when looking for an ideal way to safeguard your financial future. With this concept, you get to use your life insurance cash values as a bank. You can earn interest which you ‘pay to yourself.’ Not to mention that you can borrow from yourself also!
While it sounds really great, you should never rush into using it to your advantage. As a rule of thumb, it always pays off to acquaint yourself with the different bank on yourself problems before making your final call. Here are some of them:
Loads and Commissions
With bank on yourself, you pay the insurance broker a commission to sell the policy to you. Of course, you might be wondering how this happens in the first place. Well, you make these payments even if you don’t see it.
This has the potential to reduce your cash value significantly in the life insurance policy. Remember, it takes a couple of years to cover up for the drop in cash value your policy loses for the life insurance company to pay the brokers commission.
Lifelong Commitment
Once you decide to take up any of these insurance policies, you’re signing it up for life! Insurance premium payments have to be made to keep the policy in force. This is regardless of the financial position you might be in.
In the event that you can’t make the premium payments for any reason, any outstanding loans you have become TAXABLE! Provided you have a cost basis in the policy from your premium payments, but any growth you have withdrawn is taxable.
Based on the above bank on yourself problems, there is a good chance you might not fall in love with this concept. Luckily, there are far better ways to save and invest your hard-earned money without worrying about anything.
It all narrows down to finding what works perfectly for your needs. If you don’t see anything wrong with the bank on yourself concept, then you can still use it to safeguard your financial future.