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Subject:  Re: Life insurance annuities Date:  5/17/2012  1:13 AM
Author:  Dwdonhoff Number:  70690 of 88543

Hi smolkod,

He's promoting the use of annuities through a book called "Bank on Yourself" by Pamela Yellen.

OK... this is a strategy that prefers whole life as its accumulation & collateral center piece. If I may dramatically reduce it to short strokes, here is what I would say;

A) Its better than nothing, but barely...
B) Its extremely safe for nervous sleepers, like a 15 FRM mortgage... and equally overexpensive (if you were aware of the lost opportunity costs with this methodology you'd choke!)
C) The entire premise is to accumulate your savings in a cash value whole life contract, then
D) Instead of borrowing money as you normally might on credit cards or car loans for life's consumptions, you borrow from the insurance company using your life contract as collateral.

The *MAJOR* failure in the whole scheme, in my opinion, (and frankly it is so egregious TO ME I cannot believe this has lasted the multiple decades it has, let alone grwn as widely as it has,) is as follows.

Whenever you borrow against your policy, you are to make a repayment amortization schedule, with an imaginary made-up repayment interest rate, and "pay yourself your own profits." (Thus their terminology of "banking on yourself.")

Its silly because obviously you are no more profitable by 'declaring' your imaginary repayment interest rate to be 2%, 5%, or even 50% per year... you are simply moving earned income from one pocket against the repayment of the policy loan, capturing savings equal to the interest rate charged on the outstanding balance. There is zero interest rate arbitrage or profits involved.

In essence, it is a forced savings program using a long outdated product that underperforms its newer alternatives... but again, just as with expensive fixed rate mortgages, it makes people "sleep at night" (mostly because they are not viscerally aware of how much they are paying for that slumbering privilege.)


Hi AJ,

Since Dave sells these types of policies, he's biased towards them.

That's not true at all. As you can read above, I am very much *NOT* in favor of underperforming financial products that don't fit a person's profile. (Whole life still has its place... but the percentage of good use has dramatically plummetted the last 15 years or so.)

Further, the only products I favor, I favor because they have superior safety and/or performance... I design what works into my client plans because I favor their results, not the other way around.

Since I've had some bad experiences with life insurance and annuity salespeople, I'm biased against them.

As a blanket? Everything?

Dave Donhoff
Leverage Planner
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