First, I don’t think “Bank on Yourself” is a scam, I think it’s a terrible, terrible deal. Here’s my understanding of how the “Bank on Yourself” concept is supposed to work (abridged version)*:
- You create a financial plan with an advisor. The plan will involve the purchase of a life insurance policy. Coincidentally, the advisor is almost certainly an insurance agent. This is not at all suspicious. Pay it no mind.
- You open up a policy a minimum monthly premium of at least $250. You diligently save for 1-3 years to build up cash value so that you can start all the wacky hijinks that game your life insurance contract to make you rich (somehow.)
- You finance large purchases through your life insurance contract, and pay yourself back. Oh, by the way, when we say pay yourself, we mean pay the insurance company for your contract. And you have to keep making premium payments, for-pretty-much-ever.
Alright, the bank on yourself contingent makes a lot of claims, and I can’t address them all in the space of this blog.** Let’s just look at the overarching concept.
- You put money into a financial product monthly.
- You build up a balance in that product over time.
- You take some of that money out to buy something.
- You replace the money you took out to make a purchase, while continuing to make your regular payments.
Congratulations, bank-on-yourself-ers. You’ve managed to unlock a variant of saving. Woo.
I can do a “bank on yourself”-like maneuver, for free. Want to hear how it goes?
- Save money in a savings account, diligently and consistently, for one to three years. Put away enough money to make a substantial purchase (say, a new-to-you car.)
- When you need to make your substantial purchase, withdraw the money for the purchase.
- Go to any online calculator (try searching for “debt amortization calculator”) and create a your own loan to yourself. If you want, make a pay-off period and loan rate similar to what you would be offered by conventional financing. Now you’re “banking on yourself.”
- Save the new “loan” payment while continuing to save the same amount you did before.
Profit.Increase net worth.
There. Enjoy your weird way to save. Of course, with a savings account, you aren’t locked in to a contract. Nor are you paying for heaven-knows how much life insurance. You also don’t have a surrender charges or mystery fees. And you can get your money whenever you want it. So…
* I think. The websites I’ve seen are pretty cagey about how this is exactly supposed to work. I’m pulling a lot of this stuff from a website with the same name as the concept, which I won’t link to because I really don’t want to give them traffic.
** Nor would I want to. These guys are experts at the Gish Gallop: a debating technique of drowning the opponent in such a torrent of half-truths, lies, and straw-man arguments that the opponent cannot possibly answer every falsehood in real time. Since I only have so much time to work on this blog, and I appreciate my sanity, I’m not going to address their bajillion counter-claims.