If you want to know all about Family Banking, this article is awesome for you. It explains all about family banking and how to get started with one.
First things first, a bit of introduction to banks and how they work. A bank is a financial institution that accepts deposits and channels the money into lending activities.
There are many banks around and they do similar functions. However, a ‘family bank’ sounds like a bank owned by a family but it means much more than that.
Setting up a family bank is a way of preserving the wealth of a family.
It also provides members of the family with a steady financial flow to carry out their personal or business activities.
There are things you need to know about family banking. These are facts that can help you make better decisions and utilize the system well.
This piece discusses family banking and everything we need to know about it.
What is Family Banking?
A lot of people can simply describe family banking as a banking program in which every individual of a family bank under a specific Family ID.
A lot of banks and financial institutions offer this banking concept and allow each family member to open an account and then link their details together as a family.
While this concept of family banking is clear, there is more to the concept of family banking that would be explained in this post.
Now, a very important concept of family banking that should supersede all other concepts is discussed profoundly.
Family banking is a strategy whereby a family uses permanent, high cash value life insurance policies to build and preserve generational wealth.
Vital Facts about Family Banking
The following are some vital facts about family banking you should be aware of.
- Family banking is also known by other names. These include “Private Family Banking”, “insurance Banking”, “Infinite Banking”, “Private Reserve Strategy, and more.
- It is based on the Whole life policies purchased through life insurance companies.
- This is a system adopted to keep and sustain the wealth of a family from generation to generation.
- Family banking helps to carry the values of the family from generation to generation. These values are often promoted through family charities and reunions.
- Family banking ensures that the wealth of the family is not lost to the coming generation.
- This banking is a philosophy whereby the wealth is transferred to a successive generation who will have the responsibility of managing and controlling the wealth and preserving the family legacy.
- Family type banking strategies are diverse but the common is strategy is that which utilizes permanent life insurance or whole life insurance policy to protect the wealth of a family from failing.
- Family banking involves the use of guidance and mentor. This will help guide and direct younger family members to be responsible with their lifestyles and help maintain the family’s wealth.
- This type of banking allows for the transfer of wisdom, experience, and financial skills from the patriarchs to the next generations of the family.
- Family banking can be implemented without a family’s business. It can be work with the diverse career paths and financial interests of different family members as seen nowadays.
- Family banking provides a structure to teach children how to use and control money while making them realize also that their parents are not the source of all money.
Why Family Banking?
Now you may be wondering why a family bank would be set up in some homes.
Each family could have a specific reason for wanting to start and implement a family type banking system.
Reasons for Setting up Family Banking
There are common reasons for setting up this banking. They include:
To grow assets for the family
A family bank can help store and sustain the money and wealth for the family.
Just as the function of a traditional bank includes providing loans, savings accounts, certificates of deposits, etc., a family bank works through whole life insurance and ensure that the assets of the family are managed for growth.
To provide financial flexibility
Financial flexibility allows members of a family to access the right legal amount of funds when they need it.
With a Family bank, this can easily be achieved and sustained.
Instead of putting their money in a trust or a traditional bank account where it is locked up, a family bank will give people access to their funds when and where they need it.
Of course, it is only when the family bank is covered with permanent whole life insurance would greater financial flexibility and other benefits are achieved.
To build a place where family members can lend money
Family banks are set up to create a source of lending for family members.
Members of the family can access funds to pursue higher education, buy a home, and start a business, etc.
Lending money from the bank to fulfill these common uses of the fund is not the issue, but by compliance to the family bank’s approval process.
Related: Best Tips To Help With Borrowing Money.
To give protection to all generations
Sustainable Family banking is built around a whole life insurance policy.
So, there is no risk of losing the protection even if the holders or their children come under health challenges or for the reason of insurability.
Yes, financial protection is enjoyed by children or grandchildren of parents who signed up for permanent whole life insurance.
To provide for real estate planning
Family banking with whole life insurance policies allow families to plan, build, and grow an estate.
Also, this estate can be passed down to the next generations tax-free.
To teach children valuable financial skills
Family banking provides families with important opportunities to teach children and grandchildren some important financial lessons.
The banking program can help family members learn how to talk about money, observe the value of a long-term wealth strategy and develop how to write a business plan.
It can also help family members learn how to analyze investments, understand and learn how to obtain and repay loans through the family bank lending structure, and so on.
To leave a legacy that is more valuable than money
Helping others through charities is one of the values that can provide more fulfillment than the acquisition of money.
With Family banking, families can set aside funds to prioritize charitable donations and help others during emergencies.
Family Banking and Whole Life Insurance
It has been mentioned repeatedly in this article how family type banking is a function of whole life insurance.
Here, we are going to explain this insurance policy further and relate it to this type of banking.
For start, insurance companies offer two categories of life insurance – Term life insurance and Whole life insurance.
Term life insurance is the type of life insurance whereby an individual is covered for a specific period – For instance 20 years.
Once that period is over, then the policy becomes invalid. Whether there was a claim or not, the term of this policy is important.
This type of policy could be risky since all the money you put into it would be lost as a result of the expiration of the term.
A whole life insurance policy is the policy that remains valid all through the lifetime of the holder.
The monthly payments for Whole life insurance accrue thereby ensuring that the holder has a cash value.
The policy is also a form of viable savings for any holder that wants to make use of cash in the future.
You can choose to completely draw out the cash value of your life insurance policy when it has matured.
Of course, this will only come to pass when your cash value reaches the value of your death benefits.
Also, you can choose to borrow cash from your whole life insurance policy before it has matured, and before it reaches the value of the death benefit.
This process has benefits which include that you don’t have to go through a lengthy loan approval process before you can access funds.
If your cash value is high enough, then all you need to do is simply request your money or loan.
This also applies to how family banks work. When taking a loan from a family bank, there would be no need for collateral, credit checks, and other requirements associated with the traditional banks.
You can become your banker through the family banking process.
Benefits like cash flow insurance and tax-efficient savings would be achieved with a family banking system.
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