What Is Cash Flow Banking ?

Cash flow banking is a strategy for capturing the opportunity cost of your money. It allows you to act as your own bank and gain interest on your own money. Whole life insurance is the most popular way to do this. Whole life insurance is popular because it is both reliable and cost-effective.

What is cash flow banking?

Cash Flow Banking - Cash Photo

You can think of cash flow banking as a kind of mortgage. Imagine that you’re a homeowner in the real estate market. You know what you’re going to pay for your house, you have a deadline, and you get a discount for paying early. What you don’t have, though, is a house in the first place. That’s why you have to come up with cash and borrow against your house. Let’s say that you’re a homeowner and you’re about to buy a house. You have to come up with $100,000.

When you think of the house you want, you picture it. You think of your kitchen, your bathroom, and the location of the swimming pool. You know the mortgage on that house and what you’re going to pay. Now, you just need to come up with the $100,000. You can’t borrow against your house directly because you don’t have a house yet.

Who uses cash flow banking?

Of course, whole life insurance is an expensive product. While you might get some cash flow from the cash flow banking, you won’t have a big return on the initial deposit of $100,000 or $500,000. It is most appealing to those who are in the top income quartile.

Who Has Successfully Used Cash Flow Banking? Generally, all my clients have successfully used cash flow banking to accumulate wealth. One client I worked with successfully used cash flow banking to amass over $1 million.

However, his success was mainly due to high fee annuity insurance. Investment Risk Reduction One of the biggest benefits to cash flow banking is that you are taking advantage of the investment risk of your money. If you have invested your money in bonds, the interest rates are so low that you are losing money.

The benefits of cash flow banking

Cash flow banking lets you manage your money and your insurance responsibly. A key benefit is that you get to control your own money. This gives you greater financial flexibility than life insurance offers without you having to relinquish control. To improve your chances of using cash flow banking, consider these ideas.

Take advantage of cash flow banking to reduce your insurance premium. The insurance premium will usually be less if your current policy has very few months to go. This is because you will have to put off buying new insurance until the end of the policy. However, if you have cash flow banking, you can buy insurance whenever you want.

What is whole life insurance?

Whole life insurance is a traditional term life insurance that guarantees a sum of money over a certain term, usually 30 years. The premiums for whole life are, however, continuous and spread out over a large period of time. Why is it called whole life?

Whole life insurance comes in different types. Once you opt for whole life, it is unlikely that you will change the term life insurance for another term. In fact, a large chunk of the life insurance money remains in the policy for the duration of the term, which makes it virtually bulletproof. For the existing term life policy holder, this provides the ability to defer paying for coverage while saving money for other purposes.

The drawbacks of whole life insurance

Whole life insurance has a lot of downsides that are part of the risk you take on with the product. What you are buying is reliability. Your whole life insurance will remain in force as long as you live, and no matter what the life expectancy is, your policy will still remain in force. That means your premiums will stay the same every year, and that means you’ll never find yourself upside down on the balance of your account.

The risk to the insurance company is that the client does not live as long as expected. The benefit to the client is that they get the income for the rest of their life. Fidelity Mutual Life Insurance offers whole life insurance for as little as $100 per month to $400 per month for those who want the certainty of guaranteed income but don’t need the coverage.

Check out our Phoenix Life Insurance Review.

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Levi Jorgensen
Levi Jorgensen is the co-founder of QuoteYeti.com & LifeInsuranceGrades.com. He is an avid lover of creating amazing content to educate people about life insurance. He is a life-long explorer. When he's not writing about life insurance, he builds websites, and manages local marketing campaigns for insurance agents. He's based in Columbus, Ohio with his wife and 2 children.
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