Infinite Banking
Check out this great video on Infinite Banking
Infinite Banking What Banks Dont Want You To Know About
The infinite banking concept (IBC)
is a system whereby one becomes their own banker by growing their liquid cash value inside a properly-designed whole life insurance policy while borrowing against it to fund major expenditures, emergencies, and outside investment opportunities.
Utilizing the infinite banking concept rather than traditional banks provides competitive safe growth rates, tax-sheltering, various protection benefits, and most importantly the continuous compounding of their liquid assets even while they’re being borrowed.
IBC was originally laid out by the late Nelson Nash in the very first infinite banking concept book The Infinite Banking Concept – Becoming Your Own Banker.
I had the pleasure of speaking to Nelson early in my career on the telephone. He revealed how the IBC came to him as an epiphany while lying in a hospital bed with heart trouble. Nelson later published several iterations of his original infinite banking concept book and became a prophet of sorts with a massive following of infinite banking life insurance agents and consumers.
However, it is documented that famous entrepreneurs like J.C. Penney, Ray Kroc, and Walt Disney used Whole Life insurance as a private bank to either start, grow, or save their business decades before Nelson Nash’s work was published. As you would expect, the insurance products, prevailing interest rates, and adaptation strategies to optimize infinite banking have morphed and evolved over time.
Additional Information
Yes, the infinite banking concept does indeed work quite well assuming you have a properly structured Whole Life insurance policy and execute the strategy correctly. Similar to how big banks have both savings and lending capabilities, so too does a participating Whole Life insurance policy from a mutual insurance company.
However, unlike how banks offer low-yielding savings accounts, mutual insurance companies offer guaranteed growth between 2-3% in addition to non-guaranteed annual dividend payments. You see, mutual insurance companies are actually owned by their whole life policyholders, hence the word mutual. Projections in today’s low-interest rate environment produce a long-term internal growth rate of around 4.5%. However, unlike buying a bond or a CD today where you would lock in a low growth rate, future higher interest rates can equate to future higher dividends from a properly-structured Whole Life policy.
When you elect to roll these higher dividends back into the policy, they become part of a new guaranteed cash value calculation.This would entitle you to a bigger cut of future dividend pools, which increase the future guaranteed cash value, and increases your cut of future Whole Life dividends, and so on.
Click to watch how dividends from an actual Whole Life policy from 1980 compounded to be far bigger than expected from an initial spike in rates even though the dividend rate plummeted far lower than originally illustrated.
Enhancing and maintaining compound interest within the infinite banking life insurance policy is the key factor of its success, despite the gimmicky pitches you’ll hear about IBC.One last feature of a Whole Life policy’s savings component is the fact that it is tax-free as long as you keep your infinite banking life insurance active until a death claim is paid.
Don’t get me wrong, you can utilize your Whole Life cash value all throughout your life. You can even withdraw everything you put in without paying any tax, but in order to access the excess growth tax-free, you must borrow it.
This is a great time to discuss Whole Life’s “loan” component, even though it’s thought of as a 4-letter word. But remember how I said that compounding is the most important ingredient of the infinite banking concept? Borrowing against your infinite banking life insurance policy is exactly how you maintain the compounding of your safe and liquid assets while still using them to fund major expenditures, emergencies, and other investment opportunities.
You see, if you withdraw rather than borrow from your infinite banking Whole Life policy you would be removing assets that could’ve kept compounding on your behalf. The longer you let compounding work for you the better it gets, especially at the upper-right-hand side of the graph.
By pulling cash value from your Whole Life insurance policy, you rewind your compound curve to a lower position, not to mention you stunt future growth by receiving a smaller cut of any future dividend pools.Conversely, if you borrow against your continuously compounding cash value, you never miss a beat on that steepening compound curve while maintaining your place in line for those bigger future dividends.
Regardless of all the gimmicky rhetoric you’ll read/hear on how infinite banking works, this is the true scientific answer. Are there certain products, features, and ancillary strategies which can further optimize IBC’s compounding effect? Sure, but make no mistake about it, maintaining continuous compounding is the most important factor in how the infinite banking concept works.
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