Infinite Banking Concept - What You Need to Know
Wrapping Your Mind Around It
In actuality the concept is fairly easy, but based on what many of us have been taught about money, insurance, and investments it is sometimes difficult to wrap our minds around the concept.
I highly recommend you get the original book on the subject to help you understand the original thought process of this idea. I have provided a link to this book below.
In this HUB I am going to explain some things about this concept that I think are important. I will also make some recommendations that I feel are critical. However, let me tell you that I am NOT an insurance profession so you have to take what I say with a grain of salt and should validate anything I say with a professional.
Becoming Your Own Banker
Savings vs Investing
Many approach this concept with the mindset of an investment. However, I would say that it is not an investment, but a savings strategy that is really geared toward the long term. In this first element one must have a paradigm shift in how they look at their money.
Most people are looking to double their money really fast. This will not happen with this strategy, however, over time the power of compound will make this a very powerful part of your retirement planning. Right now, at the time of this writing, you should be able to get about 5% on your money. This is obviously much higher than CD's and other savings vehicles, but is much lower than what you should get with an investment.
Because the internal interest is a contractual obligation your balance does not go down therefore you are not subject to market conditions. This is a savings concept that will grow year after year. In addition, a 5% return that is tax free is the equivalent to an 8% taxable return for an individual in a 35% tax bracket. Once you start comparing the market variations of many investment such as a mutual fund and the difference made up in tax vs non-tax you will begin to understand that this really is a powerful savings strategy.
Because this is a savings strategy built within an insurance product one has to have a very long term objective. It is very costly to start this, but in the end you will profit tremendously. However, because of the initial upfront cost (the commission paid to the individual selling you the policies) you don't want to cancel it once you originate it. Therefore, this is what should be considered a "life" strategy. You will see the benefits of this below.
Typically you will start moving into profit around year seven and you will start seeing some dramatic increases around year 15. Obviously, this will vary depending on your particular situation, but my point here is that this is a long term strategy. You can't get discouraged in year three and cancel it. If that is your personality don't begin!
In the next section I will share what I feel are the main benefits.
Poll on the Infinite Concept
How Likely Are You to Use This Strategy?
So, who should you use to structure this for you? Well, there are some key things that you should know. First of all not every insurance professional understands this concept. It is not just a cash value policy that you need. There is a very specific way to structure this, therefore you need someone who specializes in this strategy.
There seems to be many more agents popping up that are offering this concept. I believe this is happening because the commissions are very high. However, you need someone who knows more about insurance than selling policies. You need someone who can structure this right.
I personally have set this up for myself and my children. The agent that I used scheduled four or five personal one-on-one training times with me. Each session was at least an hour long and all of them were geared to teaching me the concept, not selling me a policy. He was willing to answer all questions and wanted to make sure I fully understood what this was all about before he even tried to close the sell.
Make sure you understand before you buy. You can Google "Become Your Own Banker" or "Infinite Banking" and you will come up with several offering the product. Be wise in your selection, how yours is structured is key to how it will perform.
Here are the benefits that sold me on this concept.
First of all I think the performance is actually within reason, especially because it is contractually guaranteed. Even though it is very long term and in the first few years you are seeing more of the cost then any return, if you stick with it you will be quite impressed.
Second, because of the nature of the instrument you always have access to your money. Even though there is an interest rate associated with accessing your money, the money you access is considered a loan guaranteed by your cash value. In other words, you are still earning interest on your entire principal even though you are paying interest on the amount your borrowed. This keeps the compound going.
Third, there are no repayment requirements for the loans you access. While you will want to pay this money back, if you are in a financial pinch you can access the money without the obligation of paying it back right now.
Fourth, your money grows tax free. While this could change at any time the likelihood seems relatively small. These products have been around for over 100 years and have always escaped the hands of the IRS.
Fifth, this strategy is centered around life insurance. So, in the process of growing wealth you also have your family taken care of should something unexpected happen to you.
Sixth, the wealth you are building is transferred to your beneficiaries upon your death tax free. This is a powerful benefit.
Seventh, because of the life insurance provisions this asset is immune from the hands of creditors and bankruptcy. Check with a legal advisor on this.
Where and How Much
Because of the nature of this system it must be constructed with Whole Life Insurance. Any other variation will not work. In addition, the policy must be written with a Mutual Insurance Company. Not all insurance companies function the same.
How much should you commit to this? I would say, as much as possible. You do not structure this based on the death benefit size. You will want to structure it based on the amount of annual premium you can afford to pay. Because your money is accessible at any time, you should try to maximize how much you initially structure it around. Once established it cannot be changed, meaning you cannot add more to it later, although you can always start a second policy.
As with all things the best advice is to fully understand what you are doing before you do it. Don't get caught up in the hype of the sales person. Take your time and do it right. The salesperson works for you!