Content: Page 48, Becoming Your Own Banker Fifth Edition
It always sounds a bit strange to people when I say, “premiums and income should match.” Let’s start with a very basic fact—doesn’t all your money go through someone else’s bank now? When you get your paycheck, what do you do with it? Right! You deposit it in someone else’s bank. Then you write checks against it to buy the things you want in life. While it is in the bank, the banker lends your money to someone else and makes a good living doing it!
It seems a little ridiculous, but my All-American man on page 17 is depositing all of his paycheck in a bank—and then writing checks for 34.5% of every dollar to pay interest alone back to someone else’s banking system. He will never see that money again! It is gone forever. Why does he behave this way? Because no one has ever explained to him a better way of doing things! Once a pattern of life is learned in a culture it is nigh unto impossible to change. His paradigm is fixed! Set in concrete! The peer pressure and conventional wisdom is overwhelming. But, that doesn’t mean that it can’t be done. When he builds a banking system through life insurance, makes loans to himself to buy automobiles—and pays back to the policy (or policies) the same payment he would have to pay a banking institution—then he makes what the banking institution would have made off of him. And it is all done on a tax-deferred basis! The interest he pays never leaves his account and control. If this is done consistently throughout life it will make a tremendous difference in his financial picture.
So far, we have only looked at what will happen if we create a system that will finance just one automobile every four years. Why not expand the system by starting another policy that will finance the other automobile in the family? This will, of course, require the capitalization period of seven years at the rate of $5,000 per year, but at the end of that time we have kissed the automobile financing business goodbye forever!
In time, the total cash values in all policies are adequate enough to take the next step—self-insuring the automobiles for comprehensive and collision coverage. Please note that I did not say liability coverage—that is the insurance that covers you in the event of a law suit against you. Comprehensive and collision coverage is for damage done to your car in an accident. This is required coverage if you have the car financed with some other banking service, but if you are using your own banking system it is your decision to make.
Why not do it through life insurance policies? After all, what did the automobile insurance companies do to get into their business? First, they got actuarial data to determine the probabilities of a car accident and its attendant costs that are peculiar to the make and model of car. Then they got rate makers to determine how much should be charged for the coverage. Next, they turned it all over to attorneys that made legal and binding contracts out of the foregoing information. Lastly, they had insurance agents call on you to see if you would like to insure your car with their company. (Does all this sound familiar? Go back to page 21 and review the steps in creating life insurance.)
The auto insurance company has to put the premiums to work in the same places as the life insurance company! They also have to pay claims and administrative costs, just like a life insurance company. And they also pay dividends—to whoever owns the company—just like a life insurance company. Can you see that, once you get a substantial base of cash values in life insurance, you have all the elements of an automobile insurance company, except pricing of the product? All you have to do to self-insure is to find out how much more you should put into life policies to assume that risk. That is a simple matter—just get a quote from some prominent auto insurer on your make and model of car. If the quote is $750 per year for $500 deductible, don’t pay your life policies that amount—pay them $1,000 for zero deductible! If you had an accident, you were going to have to pay the $500 deductible first, anyway.
Next is the matter of the house mortgage. When enough money is accumulated in cash values in the foregoing policies to pay off the mortgage, then borrow from them and do so, making sure that you pay the policies whatever would have to be paid to a mortgage company to amortize such indebtedness. Of course, you can speed up this ability by adding new life insurance on someone (it doesn’t matter who the insured is—all you want to do is own the policy so that you can control the cash values). This repayment of the policies should also include “closing costs” that would be associated with the refinancing of a house mortgage. Remember to play the game—whatever the next-door neighbor would have to do to refinance his house with a new mortgage, you do to yourself at your own banking system. The money will go to your policies being managed by the life insurance company.