Content: Page 69, Becoming Your Own Banker ©

This exercise is very simple and easy to understand for most folks. Nevertheless, there are some who have a problem with it – and, of course, there are those who will never understand. To those who have difficulty I offer this exercise below.

Go to page 54 in the book. This is where the Insurance Company managed all the cash values. Look at line 4 in the Net Cash Value (NCV) column ($157,363). Now, go to line 8 (NCV) column ($201,772).

The gain was $44,409 when the company managed all the Cash Values.

Page 59 is where the owner financed one of his trucks through the same policy. Look at line 4 (NCV) column ($157,363). Now, go to line 8 (NCV) column ($216,568). The gain was $59,205. Subtract the gain when the company managed all the CV above ($44,409) and you will see the gain the policy owner had by financing one truck through the policy ($14,796). He had to pay out $19,400 in “interest” to get this gain. So, all the “interest” he paid out did not go to his policy at this time. That is because it takes the company about 13 years to amortize the cost of acquiring a new policy. Those costs have to be absorbed before all the earnings can be attributed to the policy owners.

Go back to page 54. Line 8 (NCV) shows ($201,772). Now, go to line 12 (NCV) and you see ($262,987). The gain was $61,215.

On page 59, line 12 (NCV) shows ($216,568). Now, go to line 12 (NCV) and you see ($298,379). The gain was $81,811. The difference in gain in the comparison was $20,596, and this was the result of him paying out $19,400 in “interest” to his policy — so, it gained more than he paid out.

Now, go back to page 54. Line 24 (NCV) shows ($618,942). Next, go to line 28 (NCV) and you see ($833,139). The gain was $214,197 when the company managed everything.

Go back to page 59, line 24 (NCV) shows ($776,947). Now, go to line 28 (NCV) and you see ($1,065,819). The gain was $288,872. The difference in the gain in this comparison was $74,675. For this difference he only paid out $19,400 in “interest” to his policy. So, you see, it gained much more than his “interest” payment to his policy.

And so, when you study page 69 in the book, I hope you see that I understated the case when I said, “the interest you pay on your policy loan goes to your policy – not to the insurance company.” Yes, the company does receive the payment – it is the administrator of a policy that they engineered and promise to carry out for the benefit of the owner. This type of company is a “mutual company” and it is impossible for it to “make money” in the usual sense of the word. All earnings are allocated to the policy owners.

But, as you have clearly seen in Part IV of this course, every policy has the potential of being different because of how the policy owner behaves.

Following this line of reasoning, it should be evident that it is impossible to “get a higher rate of return” by making an investment without getting the money to do so from your life insurance policy.