Why is money held by a life insurance company safer than money deposited at a bank?

by John Montoya, Founder-JLM Wealth Strategies, Inc.

November 1, 2013

Based upon the fractional reserve system, banks are allowed to lend money up to 10 times the amount deposited. All this new money is simply created from nothing.  They do this in order to earn interest (on money which didn’t previously exist mind you) which of course translates to a very profitable business. But if all depositors were to ask for their money back at the same time (known as a “run on the bank”), banks wouldn’t actually have it all.

FDIC is a private “insurance” corporation back by taxpayers (you and me) to insure that all bank accounts to a certain dollar limit are protected. However, the FDIC itself only has a limited amount of dollars available as resources to cover claims i.e. deposits. Last information I read stated the FDIC had $115 billion available in assets & lines of credit. However, there is over $8 trillion sitting in bank accounts nationwide. That’s why FDIC isn’t really insurance because the FDIC’s claims paying ability (also known as insurance) isn’t 100% back by capital reserves.

Like the banks it is supposed to support due to insolvency, FDIC operates on a fractional reserve system as well. This means the FDIC is just as highly leveraged as our big banks. Yikes!

Of course, if worst came to worst, the Federal Reserve can create more debt/issue more paper dollars (fiat currency) with no gold backing to create a bailout and everything is back to normal, sort of… increasing the money supply by creating more dollars has the adverse effect of causing inflation which everyone pays for unwittingly (unless of course you read my posts or others like it). Inflation is the hidden tax I’ve written about before. (If you haven’t read some of my previous posts on Facebook, simply put, most people are aware that the price of things go up over time and think that things just cost more.

In reality the value of the dollar is actually eroding or losing value which means that it takes more dollars to buy the same thing. So what cost $2 a few years ago is now $4 today. This is the hidden tax known as inflation and erodes every dollar we spend and, even worse,  attempt to save.)

Life insurance companies, on the other hand, are truly the SAFEST FINANCIAL INSTITUTIONS in the world! There is absolutely no leverage (AKA fractional reserve system) a life insurance can utilize to create wealth unlike our traditional banking system. Here in the United States, our regulatory system requires that each life insurance company maintain sufficient capital reserves to cover all liabilities. This makes sense, right? After all, whenever we buy a life insurance policy, what we really are buying is the promise of that life insurance company to pay a death benefit which is a greater amount than what we’ve paid into the policy.

Ultimately what this means to us as a policyholder is that if every life insurance policy resulted in a claim today (a run on the bank, so to speak), life insurance companies would be able to pay each claim and still have money left over to conduct business tomorrow. That is SAFETY and PEACE OF MIND!

As an example, during the Great Depression while over 10,000 banks went out of business and people lined up outside of banks to get their money back only to be turned away (FDIC hadn’t been created then, though as you now know, FDIC doesn’t have the reserves to cover all bank accounts and furthermore was never intended to). Meanwhile, during the greatest financial crisis to ever hit our country, people who had faithfully paid premiums into their Whole Life policies were able to withdraw or borrow from their cash values to ride out the worst of times. This is an amazing feat to think about given our economic times and how close we came to the brink of financial calamity in late 2008.

So how secure do you feel about the money residing in your bank account now?

When you learn how to become your own banker by owning and controlling your banking system, you will ride out the storm like some of the fortunate did a few generations ago. You will also learn to recapture all the interest and principal, and ultimately profit from the major purchases you will make in your lifetime by learning how to bank with your own money versus give it to your big bank who will only lend back to you for their own profit. This is a simple, foolproof foundation to building wealth and it all starts by raising your awareness to how money is actually created and how to best protect your family with a financial asset that has survived the worst of times and will continue to do so in the future.

For more information or to attend a workshop, please contact JLM Wealth Strategies at (925) 386-6639.



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