Privatized banking is a way of escaping the traditional banking system by using a life insurance policy for saving, investing, and borrowing needs.
Not just any life insurance policy will work for privatized banking, though; there are certain policy features to look for that can encourage maximum privatized banking success. This article will examine five of the most important features.
1. Whole Life
The most important policy feature for a privatized banking system is that the policy builds cash value. Term life insurance, while considerably more affordable than whole life, only provides temporary coverage.
It can be useful in some applications, but term life insurance doesn't provide the permanence required for a privatized banking system. Given its temporary nature, it also doesn't build cash value.
Whole life insurance, on the other hand, is permanent insurance designed to last until the insured dies. It also builds cash value that grows over time and can be withdrawn from or borrowed against.
The policy's cash value is the very core of a privatized banking system, so buying whole life is imperative.
There are two major types of life insurance companies: stock companies and mutual companies. Stock companies are owned by the company's shareholders, who may or may not be policyholders.
In addition to enjoying ownership of the company, shareholders are also entitled to share in the company's earnings.
Mutual insurance companies, however, are owned by the company's policyholders. Policies issued by mutual companies are known as participating policies, and by purchasing one you become an owner of the company, sharing in the company's profits in the form of dividends.
How you use these dividends is up to you; you can receive them in cash, reinvest them by having them credited to your policy's cash value, use them to increase the policy's death benefit, or use them to reduce future premium payments.
Buying a policy that participates is a powerful way of maximizing privatized banking success.
3. Large Death Benefit
As mentioned earlier in the article, whole life insurance is more expensive than term life insurance.
Bearing this in mind can bring about the temptation to opt for a lower death benefit in order to save money. After all, the larger the death benefit is, the higher the premium payments will be.
Don't let the illusion of saving money in the short term derail your long-term financial plans, though. There are two compelling reasons to buy a large death benefit.
Firstly, and obviously, a larger death benefit means more money for your loved ones after you pass away.
Secondly, the policy's death benefit is a contributing factor to how much money you will be able to contribute to the policy.
Buying a policy with as large of a death benefit as you can afford will maximize the amount that you can contribute to the policy's cash value, which is at the center of your privatized banking system.
4. Competitive Interest Rate
Aside from how much money you contribute to your privatized banking policy, the policy's interest rate is the most influential component of how much growth your privatized banking system will experience.
For a whole life policy, there are two interest rates to consider: the crediting interest rate, and the minimum guaranteed interest rate.
The crediting rate is the rate at which the policy's cash value is currently credited. It may be declared periodically by the insurer and subject to change at certain times, but it is the rate that you would earn right now.
The minimum guaranteed interest rate will be less than or equal to the crediting rate, but it acts as a floor beneath which the crediting rate will never go below as long as the policy is in force.
Both rates are very important to consider when buying a policy. Because interest rates may vary by insurer, be sure to compare several companies' interest rate offerings and select the highest one.
5. Insurer with Proven Track Record
By its very nature, a privatized banking system is where you will keep most, if not all, of your money. That makes it very important that you buy a policy from an insurance company that exhibits great financial strength.
The easiest way to determine an insurance company's financial condition is to examine its insurer ratings.
Independent agencies such as Moody's, Fitch, and A.M. Best, analyze financial aspects of insurance companies – things such as assets, liabilities, and investments – and assign a rating to them on a scale that helps the public determine the worthiness of the company.
These ratings are easy to find, and most top-tier insurance companies post their ratings to their websites.
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