“A Family Bank is a strategy to keep wealth in your family and keep it growingfrom generation to generation.”
– The Family Banking Book (forthcoming)

Piggy bank family

This strategy has been called “Family Banking,” “Private Family Banking,” the “Private Reserve Strategy,” “Infinite Banking,” “Insurance Banking,” and probably a half-dozen other names, too. In our newest book, Perpetual Wealth, we call it “Family Financing.”

Whatever your preferred name, Family Banking is a method of using permanent, high cash value life insurance policies to build a multi-generational “bank.” This Family Bank grows and safeguards actual dollars while providing opportunities for family members to participate in growing and/or borrowing against the policies.

Watch the video and read the article below to learn how you can use whole life insurance as a perpetual wealth-building machine that helps your family replicate wealth from generation to generation.

Table Of Contents:

From the Family Business to the Family Bank

Once upon a time in a not-too-distant past, the family business was used to teach financial skills and success habits, help give heirs a “leg up” on a successful life without giving them a handout, and transfer wealth through business equity, assets, and know-how. However, as families have become more mobile and as career paths have become more fluid, the concept of the family business is, well, going out of business. In addition, the recent pandemic demonstrated the extreme challenges that many brick-and-mortar family businesses must face, particularly during uncertain times.

A November 5, 2013 article in the New York Times detailed why Family Banks are becoming the new family business. Like a family business, they provide opportunities to teach financial skills and transfer experience, wisdom and know-how. Best yet, Family Banks don’t require a conventional business to implement, and they work with families of diversified interests and career paths — which seem to be most families nowadays! With the continued shift towards virtual and online transactions, Family Banks can be a helpful tool used by families that are spread across the country and even the globe.

While the exact reasons for starting a Family Bank may be as different as families themselves, some common motivations are:

1.  Growth of assets.

Family Banks that use permanent life insurance aren’t simply a way to track, manage, loan, and repay assets. They are also a safe and reliable growth strategy. When compared with other safe storage solutions for cash, such as savings accounts, certificates of deposit, and money market funds, there is simply no comparison for growth potential.

2.  Unparalleled financial flexibility.

Oftentimes, seniors with assets are hesitant (as well they should be) to use irrevocable trusts and other financial instruments that could limit their OWN use of and access to their money. After all, who knows how long they will live? What sort of health they will enjoy? What kind of assistance they might need later in life?

Financial flexibility is key and actually allows people to save more when they know that the money is not locked up in “money jail.” Permanent whole life can provide many of the advantages similar to trusts with greater flexibility and additional benefits.

3.  Create a source of lending for family members.

The most common uses for Family Banks include funding higher education, down payment for buying a house, and starting businesses. As policy loans do not have to fit within narrow bank or mortgage guidelines, constructive uses for policy loans are only limited by one’s imagination and the Family Bank’s approval process.

Family Banking allows for money to be put to USE while also maintaining a level of CONTROL over the money. It is an excellent structure to teach children how to utilize money in a productive, responsible way, and to train them that “mom and dad” (or ATMs) are not the source of all money.

4.  Permanent protection for all generations.

The structure of a Family Bank helps to ensure that every generation is adequately protected with life insurance, with no risk of losing that protection for reasons of health or insurability.

One of the advantages of a Family Bank is that often, children are given a “head start” on their whole life policies by a parent or grandparent. This prevents a child from being turned down for reasons of insurability and also ensures that a term price hike won’t put life insurance suddenly out of reach.

5.  Unparalleled estate planning benefits.

Families have used whole life insurance for generations to hold, grow and pass tax-free assets along to their heirs. This should be no surprise, as life insurance was designed to do just that! The Family Bank holds these life insurance policies in place to facilitate generational wealth transfer, ultimately making estate planning a simpler process that avoids messy probate issues.

6.  Teaching valuable financial skills.

Helping your children learn the habit of saving (whether they are in 4th grade or whether they have families of their own) is perhaps the most important financial lesson one can teach their children and grandchildren!

There are other valuable financial skills that Family Bank participants develop, such as:

  • Learning to talk about money
  • Observing the value of a long-term wealth strategy
  • Learning to apply for, obtain, and payoff loans according to established Family Bank guidelines
  • Writing a business plan or doing a savings analysis
  • Learning what to do with a large sum of money

7.  Leaving a legacy of more than money.

Family Banks provide an opportunity to divert money from “involuntary charity” in the form of taxation and put it to use in ways that support the values and priorities that are important to your family. Family banks can be used for charitable donations, family projects, and travel, and they can prove invaluable when financial challenges or other financial opportunities emerge.

A Family Bank is much more than a financial strategy, asset, or method for passing assets generationally and providing funding… it is a compelling opportunity to pass along values, priorities, habits, stories, traditions, and more.

Family Banking Philosophy: A Tale of Two Fortunes

Piggy bank - vis á vis

Instead of giving money to children and grandchildren, a Family Bank can loan money in ways that can increase their success and independence. Adult children can take on the role of stewards and producers of family wealth, rather than consumers of it. This distinction is critical.

When railroad and shipping magnate Cornelius Vanderbilt died, he was the richest man in the United States by a large margin. Upon his death in 1877 his heirs inherited the largest fortune ever accumulated – reportedly greater than the sum of money held in the U.S. Treasury at the time.

However, his children and his grandchildren lived lavishly, building huge, extravagant mansions on New York City’s Fifth Avenue and elsewhere. Some consumed their fortunes completely.

In 1972, the 120 Vanderbilts gathered for a reunion at Vanderbilt University, named for their patriarch who had provided the school its initial $1 million endowment. According to Klepper and Gunther’s book, The Wealthy 100, there wasn’t a millionaire among them. The greatest fortune in American history had nearly vanished in 95 years.

Contrast the Vanderbilt story with that of the Rothschild family.

In the late-18th and early-19th centuries, Mayer Amschel Rothschild established five family banks, in Frankfurt, London, Paris, Vienna, and Naples, and assigned one to each of his sons. His action put his family in the position of great wealth and influence and preserved his descendants’ power over their assets and affairs for generations. Although Mayer Amschel Rothschild passed away 200 years ago, the Rothschild dynasty remains one of the wealthiest families in the world today.

One of the secrets to growing wealth is controlling wealth.

 Too many Americans let banks make money off of them – keeping the bankers wealthy – instead of building and utilizing a Family Bank that allows them to keep control of and protect their own wealth.

Family Banks also provide a structure for mentorship and guidance. Who cares more about the family’s money than those who have been contributing to it? Family Banks help guide and direct younger family members while encouraging all family members to live up to certain standards.

The influence of a Family Bank goes far beyond finances. They can be causes for family reunions, instruments for charitable giving, and vehicles which carry the family values from generation to generation.

Want to start Family Banking in your family? We can help! We use advanced analytics tools such as the Whole Life Insurance Calculator to help you get the most out of your policy. Contact us for further information.

Get Your Copy of Perpetual Wealth Today

Perpetual Wealth: How to Use “Family Financing” to Build Prosperity and Leave a Legacy for Generations, recently debuted on Amazon in April 2021! (Currently available in Kindle, hard-cover, and audiobook).

Perpetual Wealth contains our BEST strategies and tips for:

  • Building bullet-proof wealth that lasts for generations.
  • Raising children to be financially responsiblenot entitled.
  • Structuring life insurance policies for multiple generations and maximum cash value.
  • Developing the human capital of your family.
  • Wisdom from the wealthiest families on “do’s” and “don’ts.”
  • Examples of family retreats, family mission statements, and a letter to an heir.
  • And how to leave a legacy that lasts!

Co-authored by life insurance expert Kim Butler and wealth coach Kate Phillips, Perpetual Wealth is the most complete resource around to help your family build generational wealth. The book integrates an engaging story with wisdom gleaned from affluent families and estate planning attorneys, along with practical “how to’s” of using whole life insurance to build a family bank.

You’ll want to use this book as a resource for years—and generations—to come! For more on Perpetual Wealth, read this excerpt in “The 4 Cornerstones of Generational Wealth.”

23 thoughts on “Family Banking 101”

  1. Hi,
    I saw a reference to a February 2020 article regarding new retirement legislation
    that presents problems using IRAs to preserve wealth. Could you please send me a link to your article.
    Regards,
    John B.

    1. Prosperity Thinkers

      Hi John,
      Happy to help! Here is the article I think you’re looking for: https://prosperitythinkers.com/the-secure-act-changes/

      Have a great day!

  2. I’m 56 and only have a term policy. Would any of these strategies work for me as far as starting a family bank

    1. Prosperity Thinkers

      Hi Shelby,

      All eight of these strategies would work for your family bank. Age should not deter you when planning to leave a legacy for generations to come. This is one of my favorite articles because it not only speaks to leaving actual money to your family but it also touches on sharing valuable financial skills that you have learned with your experience.

      I’d welcome you to check out our Accelerator Pack where you’ll learn how to create MORE WEALTH… with LESS WORRY! Included is the “Financial Planning Has FAILED” eBook which will explain in detail why at any age you can successfully build your family bank and create your legacy.

      Get your Accelerator Pack here: https://bit.ly/acceleratorpack

      Have a great Tuesday and as always we are happy to answer any questions you may have!

  3. I am a healthy 72 yo retired nurse. Am I too old to qualify for this Family Banking Strategies?, or are there ways to “go around it” legally and appropriately. I have heard about this years ago but did not pursue, however as I read more now I am so intrigued by all the positive ways it can impact our family wealth and legacy for the next generation, mostly in funding for good education and the value of money. Thank you for your kind attention.. TRC

    1. Hi Teresita, No you are NOT too old! People can qualify for the type of life insurance we recommend in Family Banking (aka Family Financing) into their 80’s as long as they are reasonably healthy. AND there are multiple generational strategies as well (insuring children or grandchildren) that work really well. Especially relevant now as the brand new retirement legislation presents problems using IRAs to pass wealth! (We will publish an article in a week about it.)

      I recommend getting our new book, Perpetual Wealth (the article tells how you can download it for free and you may already have it) and talking with Kim Butler to see how this concept could help your family 🙂

      I forwarded your email address to Jan on our team, she can assist you in exploring this further.

      Best, Kate

  4. Hey .. so what mechanism would be in place for recovering a loan… and or protecting the participants from a law suit in divorce

    1. Always have a contract… and loan carefully! As the book details, loans should be wisely vetted and if made to an heir, there could be a built-in mechanism as any unpaid loans (plus interest) would be deducted from an inheritance. (Though that should never be the plan…) Kate

  5. Kingsley Ibizugbe

    Hi Kim,

    I like the idea of the family bank and permanent life insurance program. However, I’m not sure if this is available in the UK?

    I am 51 years old and have had a whole of life insurance with an insurance company here i the UK for over 5 years with increasing yearly premiums and increasing payout sum.

    I do not think this is same as what you are describing and would like you to please explain how they are different? Also, please confirm if you have a representative in the UK that I could speak to as I am interested in the concept of permanent whole life insurance and the chance of building wealth for myself and my family, clearing my debts and paying off my mortgage. Thanks

    Regards,
    Kingsley

    1. Hi Kingsley, we don’t have associates in the UK, unfortunately, and I’m not sure how whole life might be similar or different there. (i.e., does it build cash value?)

      IF the product is similar, you might be able to employ the strategies we will be suggesting in the book. But even in the US, it wouldn’t always make sense to use a policy to pay debts or (especially) a mortgage. Car loans and home loans tend to be more efficient/lower interest than policy loans. However, life insurance is generally a better place to borrow than credit cards or other higher interest, unsecured loans.

      Hope that helps! Kate

  6. Richard Mendelson

    I am 66 years old. Would a life insurance policy be prohibitively expensive to be the foundation of a family bank. Are there other financial products that could fund a family bank???

    1. Hi Richard,

      Policy premiums do rise as we age because there is less time to build up equity in the policy (sort of like how a 15 year mortgage cost more than a 30 year.)

      However, IF one of your goals is leaving a legacy, one of the advantages of life insurance is that the face value of the policy is going to be substantially more than your premiums paid. Whereas, if you used say a bank account, it’s readily liquid, but there’s no larger face value (which is the death benefit and also, depending on riders, can provide future living benefits for you.) For instance, we got new policies a couple of years ago with long-term care riders. And many people get terminal illness riders. These riders protect the insured and their heirs from having bank accounts drained.

      It does take a few years to accumulate substantial cash value, but you’re definitely not too old to start a family bank with a whole life policy. I can get you an illustration so you’ll have an estimate of what the premiums would be and how the cash value would build. Email me at kim@prosperitythinkers.com with a request for an illustration. I’ll get a few details from you (birth date, state, etc.) and have the illustration run for you.

      Kim

  7. How do you start a family bank if there is no insurance company offering permanent whole life insurance ?

    1. Hi Pascal, I’m not entirely sure what you mean… “if there is no insurance company offering permanent whole life…”

      Perhaps you are in a country that does not offer it, or perhaps there is a qualification issue.

      In some cases, you can insure another family member — a child or grandchild, a parent, or any family member where there is an “insurable interest.”

      If none of those are possibilities, certainly other assets or investments could be used to help the next generation get a head start, but it may not have the same legacy benefits as a whole life insurance policy.

  8. I have read most of the books on this subject, but not one of them gives a specific product that they recommend. I am an insurance agent and financial adviser and would love for one of the authors to share which company and product they recommend for this strategy, but I have yet to see it. By the way, I love the idea! Please share with your readers which product you recommend and how it is structured.

    1. Hi Jim, thanks for your question. This is Kate and I don’t write the policies… but I do co-write and/or edit our books and blog (and am also a client), so I can speak to this. We use almost exclusively whole life insurance, also convertible term, generally with as long as possible long time frames. But it can vary…

      I think one reason that many authors don’t name a specific company/product is that what might be a best fit for one person won’t be for another, either because of ease in qualifying, age, the specifics of their financial situation and also their wishes. For instance, a lot of advisors use 10-pay policies, we prefer much longer timelines so that people will continue to have a “bucket” to store cash for as long as they may have that need, and a policy that has been in place for 10+ years can be modified if someone no longer wants to pay premiums. But still, some people will want a policy that is a 10-pay or that stops at age 65, which we can accommodate. But often people don’t know when they will retire, and even if they think they do, it can change.

      Another reason we don’t typically get too specific is that (as Kim is always quick to say) there are MANY good companies and we don’t want to give the impression that the few we do business with are the only valid choices, especially as advisors who work with different but equally good companies use our (and others’) books!

      We recommend mutual life insurance companies that have been in business for many decades. Many of our policies are with Guardian and Mass Mutual, but we work with other companies as well, and there are many excellent companies. Kim writes most of her policies with maximum PUAs to maximize cash value, though sometimes there are reasons to do otherwise (when a client wants to maximize death benefit). In some cases, it could make sense to add a term rider, though often a separate (perhaps convertible) term policy is more affordable and preferable.

      For more specifics you could email Kim@prosperitythinkers.com, and I would HIGHLY recommend investing in your business and coming to The Summit for Prosperity Economics Advisors in July where dozens of whole-life-friendly advisors will gather to learn about and discuss all kinds of questions like this! Kim Butler, Patrick Donohoe, and Todd Langford are the main speakers (I’ll be speaking about marketing) main topics life insurance, alternative investments, practice management and marketing.

      Hope that helps! Kate

  9. victoria deblase youngblood

    The stories of the Vanderbilts and the Rothschilds are sobering reality in handing wealth down without a plan in place. I plan to share this with my own grown children.

  10. Dearest Best New Friend Jill ; what kind of “Plan” did Kim create for Kiyosaki? Listen to her segment of the Rich Dad program. I’m going to listen again right now, then we will be on the same page. Thanks C.H.

  11. Thanks Kim. I have not forgotten our conversation, just been very busy getting our accounts in order. I just wanted to say “Hello” and Thanks for the info you send that keeps me engaged.

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