Privatized banking is a concept that continues to develop among those who want to take personal control of their financial future.
Participatory and non-participatory whole life insurance policies lie at the heart of privatized banking.
They provide the funding and the glue for savvy individuals who want to have the power of being their own personal banker. With the right kind of whole life policy, you can maximize your private banking returns.
Participating vs Non Participating Policies
The real difference between participating and non-participating policies is that participating policies provide you with a slice of the insurance companies profit.
This type of whole life policy treats you as one of the investors and provides you with a slice of their profits as a result.
Your policy begins on the day that you take out the policy. You can make the premium payments in a variety of different ways.
Some people pay the entire policy up front to maximize their financial benefits and returns. This can very effective for those in privatized banking.
Others will choose to pay the premiums over a number of years until the policy is completely paid up. Those making regular payments may find it as a much easier way to save money for retirement than other options.
Term life policies are non-participatory and not applicable at all in privatized banking. If you take out a term life policy, you don’t have any cash value in the policy.
The term is for a set period of time and when it ends, the policy ends with no payout. All the premiums are spent and you have nothing to show for the term policy.
Advantages of Participating Policies
The biggest advantage is that you can receive both a guaranteed dividend and participatory dividend based on the return of the insurance company’s investment profits.
Going with a mutual insurance company means that you are part of the company and receive a share of its investment income. This will increase over time as you continue.
Many companies have shown long-term rates of return of nearly 4.5% or higher. These represent much better returns than a typical bank with very little risk. It can be a solid basis to build off of for anyone wishing to use the privatized banking concept.
You can receive tax-free dividends. If you invest in a mutual fund and receive dividends then it is taxed as dividend income. This opens up all kind of tax responsibilities.
The IRS doesn’t look at an insurance dividend like a typical mutual fund dividend. They view it as a refund of overpaid premiums. This is an important difference and means that your insurance dividends are not taxed.
It also means that the cash value that you extract from it is also tax-free. This represents a very significant advantage for those in higher tax brackets.
You can take out cash value loans at a great interest rate. Basically, you are borrowing money from yourself, all the while your dividends are still coming in.
You will eventually need to pay the cash value loans back, however there is no set timetable. You can borrow money from your policy and then invest it into something that pays you more interest while earning interest on the value of the policy itself.
This really illustrates the banking ideas behind the whole life policy.
Disadvantages of Participating Policies
With privatized banking, the disadvantages of participating life insurance policies are generally covered. The disadvantages are rather in the proper execution of privatized banking.
The biggest disadvantage is going with a participating policy is that you don’t take advantage of the financial advantages that come with the whole life policy.
If you aren’t investing your dividends or using the cash value to borrow then you are losing the advantages of your policy. This is why privatized banking goes hand in hand with whole life policies.
It’s important to make sure that you have the knowledge and background, or seek help from someone who does, to properly execute your privatized banking vehicle. Not exploiting every advantage can turn an advantage into a disadvantage.
You want to be able to regularly take out loans to invest and ensure that your policy is maximized for your financial benefit. Just remember, if you are just using your whole life policy as a substitute for a term life policy, you may end up paying more for insurance in the long run.
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