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.

Table Of Contents:

From the Family Business to the Family Bank

Once upon a time in a not-too-distant past, family businesses were 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. 

Better 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, below are some common motivations.

Why Should You Start a Family Bank?

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 sources 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 pay off loans according to established Family Bank guidelines.
  • Writing a business plan or doing a savings analysis.

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

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! Contact us for further information. You’ll also want to read our new book described below!

Get Your Copy of Perpetual Wealth Today

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

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.”

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