Understanding The Infinite Banking Concept
The Infinite Banking Concept (IBC) is a financial strategy that utilizes specifically designed, dividend paying, Whole Life Insurance policies. It is a way to manage your money that mimics what banks have been doing for centuries. The concept was introduced by R. Nelson Nash, who published his book, "Becoming Your Own Banker," in 2000. At its core, IBC empowers individuals to become their own banker, providing them with the tools to finance their needs and investments without relying on traditional financial institutions.
Key Components of the Infinite Banking Concept
1. Whole Life Insurance: Central to the IBC is the use of dividend-paying Whole Life Insurance policies. These policies offer a dual benefit by providing a death benefit to beneficiaries and accumulating cash value over time. This cash value serves as the foundation for creating your personal banking system. Additionally, you can also purchase multiple insurance policies, either on yourself or on anybody that you have an insurable interest in, to further the growth of your money.
2. Cash Value Accumulation: As policyholders pay premiums, a portion goes toward the policy's cash value, which grows tax-deferred. These cash values represent the equity in the policy’s death benefit, which can be accessed at any time and used for anything the policyholder wants, such as purchasing assets, funding business endeavors, paying for expenses, etc…
3. Paid-Up Insurance Rider: This rider allows you to purchase chunks of paid-up insurance, which inflates the Cash Values of the policy. With the addition of a paid-up insurance rider in the first 8-15 years of the policy, Cash Value growth can accumulate at triple the rate that a standard Whole Life policy would, taking advantage of early compounding growth.
4. Policy Loans: One of the cornerstones of IBC is the ability to take out policy loans. You can take loans out up to the total amount of Cash Values that have accrued in the policy. These loans are collateralized against the death benefit of the policy and are taken out as interest-only loans. This means that you have full control of the repayment schedule of the loan, or if you even pay it back at all. This can be beneficial if you use the loan to fund an investment that is earning more than you have to pay in interest on the loan. Any loan balance that you have when you pass away will be deducted from the total death benefit that you leave to your beneficiary, which will still leave them a large sum, tax-free! This allows you to use your own death benefit while you are still alive. Additionally, these loans are not subject to credit checks or loan approval processes, and the interest paid on the loans goes back into the policy in the form of dividends, enhancing the cash value growth.
5. Dividends: When purchasing a Whole Life Insurance policy, make sure it is through a mutual life insurance company. This is because all policyholders are part-owners of the company, meaning that earnings of the company can be paid out in dividends to the policyholders. The dividends are technically considered to be a return of overpaid premiums, which means they are not taxable. They can also be used to purchase more paid-up additional insurance (which we recommend), increasing the cash values and the death benefit of the policy to staggering amounts! As a side note, these mutual life insurance companies have consistently been paying out dividends to their policyholders for over 200 years, even through the hardest of economic times like the Great Depression.
6. Recapture and Repayment: The key principle of IBC involves recapturing the interest that would otherwise be paid to traditional financial institutions through the use of policy loans. When you pay back the policy loan to the Life Insurance company, that makes them more profitable, which you are a part owner in the company, meaning that the interest you paid will increase your dividends. Also any extra interest that you pay back on your loans will go to purchase more paid up additional insurance, again increasing your cash values growth. This effectively allows you to recoup interest payments and direct them toward your personal banking system.
Benefits of the Infinite Banking Concept
1. Financial Freedom: By becoming your own banker, you gain greater control over your finances. You can access funds for various needs without relying on external lenders and can customize repayment terms to suit your financial situation.
2. Tax Advantages: The death benefit that gets paid to your loved ones when you pass away is 100% tax-free, which can be used to purchase more of these policies. This will continue the growth of the money tax-free forever, if you continue this cycle. Additionally, the cash value growth within them is tax-deferred, and policy loans are tax-free, meaning that you have tax-free access to the growth of your money for the rest of your life. This can result in significant tax benefits over time, enhancing your overall financial strategy.
3. Asset Protection: Cash values within life insurance policies are often protected from creditors, providing a level of asset protection in certain legal situations.
4. Compound Growth: Unlike standard retirement plans, the money in life insurance is not tied to the ups and downs of the market. Therefore, the compounding effect of the cash values is uninterrupted, leading to substantial growth over the long term, bolstering your financial stability and investment potential. Additionally, you are able to leave your money in the policy, allowing it to grow in this way for the rest of your life, while still being able to access it whenever you want.
Considerations
While the Infinite Banking Concept offers some amazing benefits, it's important to approach it with a clear understanding of how it works. Some factors to consider include:
1. Insurability: In order to obtain an insurance policy, you have to submit to a health examination and a risk assessment. Your health and age can factor into the policy's performance. However, the insurance company is always striving to secure the best health rating for you. If you can improve your health or mitigate your risk factors, and maintain this for at least a year, you can secure a better health rating through the insurance company, thereby improving your policy's performance. Another advantage is that if your health deteriorates, you are allowed to keep the original rating you received when you first purchased the policy.
2. Minimum Death Benefit: The insurance company requires that you purchase at least $100k worth of insurance when obtaining one of these Whole Life policies. This cost could range from a minimum of about $150 per month for a young, healthy adult to about $500 per month for an elderly person with less than optimal health. Although, the more money you put into these kinds of policies, the more money you will get out of it. Everybody that uses the Infinite Banking Concept (myself included) wants to put as much money as they possibly can into it. But if you can’t yet afford the minimum that is required to get a properly designed dividend paying Whole Life Insurance policy, the Infinite Banking Concept can be implemented without one, it just won’t be as efficient in terms of growing your money.
3. Your Responsibility: Just like with anything in life, the success of implementing the Infinite Banking Concept and a dividend-paying Whole Life Insurance policy depends on your responsibility. You are in charge of managing your own money in this system, so if you are not responsible about paying your insurance premiums and the loan interest, then, just like with anything else you put your money into, you're going to lose it. However, the guarantees and the lack of risk in the Whole Life Policies make this a straightforward process to manage in your life.
Conclusion
The Infinite Banking Concept is an amazing and unique financial strategy that empowers individuals to take control of their financial future by managing their own money and doing the same thing that bankers have been doing for centuries. By using specifically designed Whole Life Insurance policies and through the strategic accumulation of cash values, the use of policy loans, and the recapturing of interest, individuals can obtain financial freedom, tax advantages, and asset protection. Simply put, this is one of the best ways to manage your money, that will allow you to grow your wealth beyond what you thought was possible in your life. As well as leaving behind a large legacy for your future generations.
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