It is an awesome strategy which allows for maximization of your cash and assets.
Infinite banking is not a product, but as the name entails, it is a concept for which life insurance just happens to be the best vehicle to practice the concept with.
The concept of infinite banking is to use high interest bearing cash accounts paired with dividends, compound interest, and a solid death benefit- to produce a robust bhigh income generating banking system
IBC has no financial loss risk either because its backed by mutual insurance carriers that have been around longer than most traditional banks, all of which provide easy liquidity and guranteed rates of returns - Vastly better benefits than traditional banks.
When you engage in the strategic use of whole life insurance applying the infinite banking concept you improve your cash flow and liquidity.
Consider this fantastic infinite banking example.
If you have equity in real estate, how liquid is that equity?
The answer is, not that much. If you want to gain access to the equity in your home or investment real estate you have to sell the property, qualify for a HELOC or Cash Out RE-Fi.
Rather, if your equity is in your life insurance policy, an advantage this offers is that you have unhindered access to your policy’s cash value.
To access your cash value, all you need to do is call your insurance company and ask for a check to be issued. You can usually receive a check within just a few days – no qualification – no evaluation – no hassle.
In addition, consider this.
If you had a $500,000 home with 100% equity (i.e. you owed zero), most people would tell you, “Great job, you are debt free!” However, what if you owed $500,000 on that same property (a liability), but you also had $500,000 in a bank account (an asset), or better yet, a life insurance policy earning tax deferred compound interest?
Would you still be debt free?
In reality, you would have a $500,000 debt, but you would also have $500,000 LIQUID CASH available for you whenever you needed it. Your balance sheet would reflect ZERO overall debt, with a growing asset (your cash value).
However, if all that equity was in your home and trouble hit, how difficult would it be to take all or even some of that equity out? The answer, pretty difficult if not impossible.
So, a huge benefit of infinite banking using whole life insurance is that you can store your wealth in a liquid asset. And that asset provides true compound interest growth, in a tax favored environment. (More on this below)
Non Correlated Asset
We cannot stress enough the importance of having your money stored in a safe environment, free from the ups and downs of the stock market or real estate market.
Whole life insurance is an asset that is not correlated to the stock or housing market.
What does “non correlated” mean?
In a world obsessed with the stock market, it is important to have assets that are non correlated, i.e. not tied directly to the stock market, that do not move in lock step with the fluctuations of the market.
One great thing about whole life insurance is it is not tied to the stock market.
Rather, whole life offers guaranteed cash value growth year over year, providing policyholders with an excellent “safe bucket” of assets that can help insulate you from the ebbs and flows of the stock market.
And consider this, since January 2022, we have seen a large pullback in the overall markets. Over the last year we have yet to see a large crash, although the S&P 500 finished 2022 down over 19%. To put that in perspective, the past two stock market crashes (2000 and 2008) led to at least 50% losses.
Whole life insurance is a great way to create some stability in an otherwise unstable world by providing a safe bucket, a rock solid financial foundation, against the next inevitable market downturn.
In addition, if you are looking to truly diversify into different asset classes, instead of having your entire nest egg in the stock market, a participating whole life policy is a great option.
When you employ an infinite banking strategy you are placing your equity into a tax-advantaged storehouse for later use. The cash in your storehouse (your policy) is growing due to “true” compound interest.
It is true compound interest because you are never touching your actual principle, but instead are borrowing from the carrier’s general fund. That way your money in your policy is continually compounding, even while you are paying simple interest on a policy loan, which currently can be variable or fixed.
You are allowed to continually add to your policy in addition to your normal premium through vehicles known as life insurance supplement riders, additional life insurance riders, or paid up additions.
Paid up additions
Paid up additions, also known as PUAs, allow you to take cash profits from your various assets (real estate, oil, dividend stocks, you name it), re-invest that cash into your “bank” and convert those cash profits into tax free dollars via policy loans, to use for additional cash flow asset purchases, large ticket purchases (vehicles, office equipment), retirement income, etc.
And don’t forget about the death benefit
The life insurance death benefit is not the main focus when implementing the concept of infinite banking but it does provide a leveraged death benefit payout in the early years should you die prematurely.
Having a lump sum death benefit provides peace of mind knowing that your loved ones are taken care of if you die young.
401K or IRA
For those that choose to fund a 401k plan or IRA, there is no death benefit. A beneficiary family gets the proceeds from the 401k or IRA as is, minus any income tax owed, which is taxed as ordinary income (the highest taxed type of income).
In contrast, with life insurance, the death benefit is tax free.
As an example, an individual may elect to pay $1,000 a month in premium toward an IBC policy. At the end of year one, they would have nearly $10,000 in cash value available. In addition, that money is growing tax free (as we’ll see next) and the depending on their age, the owner is insured for $100,000 or more.
So the death benefit is there from day one, which is huge financial leverage dollar for dollar, when you consider you only put a fraction of money into the policy. Your IRA or 401k death benefit would be zero, because IRAs and 401ks have no death benefits.
Please note: You can also add a term life insurance rider to your IBC policy in the early years to get additional death benefit protection for your family. Adding a term insurance rider is a great strategy to build cash value quickly, while also having a larger initial death benefit. When employing the infinite banking strategy our goal is to build high cash value ASAP.
Tax Advantage & Policy Growth
Your policy’s cash value accumulates tax free. And you can completely avoid ever paying taxes on your policy gains by choosing to take out life insurance loans.
Taxes are the number one killer of wealth and your number one expense throughout your life.
A properly structured cash value policy designed for infinite banking can help you avoid taxes altogether versus having your money grow tax deferred in an IRA or 401K, only to be at the mercy of the government and whatever the tax rate currently is when it comes time to take your money out.
So, you may be wondering, how does a whole life insurance policy grow?
One way your policy grows is through life insurance dividends.
Participating life insurance provides an annual dividend payment, considered a return of premium for tax purposes, to its eligible policyholders.
Although not guaranteed, most top mutual insurance companies have paid a dividend every year for over 100 years.
Life insurance dividends can be used for many different things but ideally you want to use the dividends to purchase additional paid up life insurance.
So what happens is, your dividend goes back into your policy and buys even more death benefit.
As you do this, your policy’s death benefit will continue to grow, in addition to your policy’s cash value.
No Credit Check - Tax Free Loans
Although you may be tempted to withdraw cash from your policy, it is important to understand that life insurance policy loans are not taxable.
You are using money that has grown at around a guaranteed rate of 3.5-4% a year, plus dividends that add another potential 2-3% a year. That is a potential 5-6% yield that compounds year after year that you can use tax free via loans.
(Note: potential returns vary but when interest rates rise, your whole life returns will most likely increase as well. At one time, dividends from whole life companies were double digits.)
And if you are not being taxed on your gains, it is similar to earning another 2-3% interest, depending on the tax bracket you fall into.
On a side note. Consider that normal stock market returns are taxed around 20% or more. That means if you earn $10,000, you will pay around $2,000 in taxes that year (maybe higher). If you earn $10,000 in your policy you will pay ZERO taxes, even though you have access to that money via collaterally assigned policy loans.
Think about what the long term implications of not being taxed on your entire cash value accumulation will be.
It is truly amazing compound interest growth over the long haul, and why whole life insurance is the best vehicle to use when practicing infinite banking.
Now we just mentioned above one reason whole life is the best vehicle for infinite banking.
In addition, a properly structured participating whole life policy provides a few incredible guarantees.
Whole life insurance guarantees:
Along with the above guarantees, you can also earn dividends. Although dividends are not guaranteed, the companies we recommend have paid dividends for the last 100 years, and in many cases much longer – that includes paying dividends through the years of the Great Depression and the Great Recession!
For many asset classes, the public can simply do a search and find out what you are up to.
For example, running a credit report or title search will tell you a great deal about an individual’s financial holdings.
However, with life insurance your policy’s information is private. Your life insurance holdings does not show up on any reports or searches.
Further, when you take out a policy loan for infinite banking, your loan does not show up on a credit report, which comes in handy when you are applying for financing. And there is another reason why this privacy is beneficial – creditor protection.
Creditor Protection for Cash Value Life Insurance
There are many states that provide creditor protection for life insurance.
So, if you are faced with some financial strife, your cash value may be sheltered from creditors.
Additionally, if you are sued, your money in your policy may be protected from a judgment.
You can click the link above to check with your particular state for more.
The biggest con is that it only works when its set up correctly, and most agents have no idea how to set it up. We specialize in infinte Banking and we curate every system around your goals.
As with any life insurance policy, you need a person to list as the insured so you must qualify for an infinite banking policy. This means that if you have existing health problems, it might be harder for you to qualify for a policy.
The good news is that businesses and churches can be policy owners and the does not have to be the insured insured employee's can also be listed as the insured and whole life insurance may actually be easier to qualify for than term life.
When applying for life insurance with health issues it pays to have options and choose a company that you are more likely to be approved with.
You may have to have more than 2-3 meetings with our Finance Brokers if you don't have all of your business or personal information ready to go. Coming to your consultation prepared with your social, EIN number, and other business documents make the process move faster.
IBC systems can be utilized with a vast variety of insurance policies some have better interest and higher cash values than others. Captive Agents work for only 1 Carrier and can only show you the policies there carrier has. All of our Brokers are non captive and work with over 100 different carriers, so they can show you the best products on the market because their not tied to one carrier.
Since all your money is only in your life insurance asset, you are breaking one of the main tenets proposed by financial “gurus” who tell us to diversify, diversify, diversify!
Well, as advocates of infinite banking, you can safely assume we do not follow the current trends pushed by so called financial experts.
The idea that you have to diversify assumes that the market may move against one of your positions so being diversified acts as a hedge against market volatility.
What really occurs with diversification is the owner of the account entrusts his portfolio to an advisor who takes into account the owner’s risk tolerance and creates a portfolio to match.
With a properly structured dividend paying whole life policy designed for infinite banking you don’t have to worry about market volatility because your resturns aren't tied to the market and are always GURANTEED.