Be Your Own Bank

piggy bank and a calculator

See if placing your own money to work for you is better than borrowing money from a bank with the infinite banking concept.

Infinite banking is the concept of using your own money in your own insurance policy to:
1. Provide life insurance benefits for your family.
2. Make your money do twice the work for you (instead of just once)
3. Fund major purchases throughout your life
4. Maximize the tax benefits of such a policy

Infinite banking – when using a high cash value life insurance policy as the vehicle – is a safe place to put your money. The specific mutual life insurance companies that provide these policies have been in business for a hundred years or more and pay dividends against these policies. They provide a guaranteed minimum interest rate and historically provide dividends as well that makes this type of money tool superior to the stock market when you take into account transaction fees, hidden IRA/401k account management fees, and market downturns. The big banks put billions of dollars into these policies to provide safe, guaranteed, reliable income that makes up the core of their stability and assets. You can too as an individual…

This example is scalable – the premium you pay can be whatever amount you are comfortable paying as long as you are consistent with it, ie – $100/month, $500/month, $10,000/month – it all grows at the same illustrated percentages. Do what is comfortable for your budget – if you can’t afford it, it won’t help you later on.

As an example illustration, let’s say you are 30 years old, are in good physical condition (no major medical issues, non-smoker) and have a good job and want to put money away to the tune of $500/month ($6,000 a year).

Provide Life Insurance Benefits

With the infinite banking policy, it is built with a blend of high cash value whole life insurance with level paid up addendums along with a term life policy. The math behind the policies are very specific to ensure the tax benefits you receive over the policy lifespan is maximized.

In this example, our 30 year old client is receiving a 1st year life insurance death benefit of $289,976. This benefit grows every year:

YearAgeAnnual PremiumCumulative PremiumNet Cash ValueDeath Benefit
Net Cash Value is breakeven with cumulative premium between policy years 8 and 9. Death Benefit decreases after policy year 30 when the level paid up addendum 30-year term expires but continues to build up with continued whole life premiums, interest earned and dividends paid. Illustration is showing assumptions of 100% of Current Dividend Scale for 2020.

Make Your Money Do Twice The Work

As an individual, you generally can only assign your money to do one job at a time – you can spend it or you can make it earn money by saving it. But the banks can make your money do multiple jobs at the same time through leverage. They can borrow money against the money, they can lend the money to you and make ten times over what they paid for it, they can invest the money, and so on. They utilize the financial tools provided them and maximize the money that money can earn.

With the right tool, you can make your money do multiple jobs at once also – spend it and earn it – with an infinite banking policy. If you just save money in a savings account or money market account, the second you take a withdrawal, that money stops earning you money. If you have money in the stock market, aside from the risk of loss by volatility, if you sell the stock, you stop earning money. But if you put the money you have been saving or investing into an infinite banking policy, simultaneously you can borrow your money, use it to make more money or buy waht you need, and still earn dividends and tax benefits on your original cash value that offsets the cost of borrowing your own money in the first place.

Further, you can use the money to make money if you put it in money making ventures such as buying real estate or funding a business (tax deferred as well – see below).

Fund Major Purchases

Let’s say that in year six of the policy that you need to buy a car. You do your research and decide that buying a one year old truck off-lease for $20,000 is best. In 2020, I am seeing average used car loan rates for an average credit rating 660-780 at 6.38%. With your infinite banking policy, you can take a loan up to $27,954 and the interest rate is 5%. Just with this number, it’s a no-brainer, the insurance policy has a rate that is 1.38% better than the bank rate. But the insurance policy pays 4% dividends on your existing cash value – you just got your loan for 1%! Most older mutual life insurance carriers have paid dividends year over year even during the Great Depression. They are rock-solid businesses.

This concept is scalable. If you are paying $10,000 a month towards a policy and in year 5 you need a $100,000 dump truck for your business – use your own money you have been saving instead of leveraging the bank and making them money. It pays in the end.

Maximize the Tax Benefits

There are a bunch of tax benefits with infinite banking.

  • Dividends earned are not taxable as income but as unearned premium payments being refunded
  • If the money to fund the infinite banking policy came from a retirement account through a 1035 exchange, you can use this money for retirement funding as well with no limitations on what the borrowed funds are used for as the principle is leveraged (and not used directly).
  • Life insurance loans are not taxable. But pay the interest and/or principle as not doing this may lapse a policy if you are not paying attention, lower the death benefit, and cause a taxable event.
  • Guaranteed tax free death benefit
  • Tax deferred growth through guaranteed minimum interest rates and non-guaranteed dividend payments
  • Tax free withdrawals (up to Basis)

Creating your own financing through the infinite banking concept provides tax benefits, liquidity, compound interest growth, paid dividends with a stable history of payment, asset protection of the life insurance policy from creditors, and the ability to recapture debt costs that you would pay a bank for borrowing their money.

To see if a high cash value whole life insurance policy is right for you and to see infinite banking in action, please contact us.