As the concept of infinite banking gains popularity in the financial world, it is important to understand the basics. What is Infinite Banking, and how does it work? Above all, who is Infinite Banking for? For many newcomers, this can be difficult to conceptualize. If you're trying to determine if Infinite Banking is right for you, here's what you need to know.
What is an infinite bank?
Nelson Nash created the concept of infinite banking in the 1980s. Nash was a financial expert and follower of the Austrian School of Economics, which argues that the value of assets is not explicitly the result of traditional economic structures such as supply and demand. Instead, people value money and assets differently depending on their financial situation and needs. With this in mind, Nash developed the idea that people would become their bankers to achieve their individual financial goals better.
One of the pitfalls of the traditional banking system, according to Nash, was the high-interest rate on loans. Many people, including himself, have had financial problems due to their dependence on banking institutions. As long as banks set interest rates and loan terms, individuals have no control over their wealth.
Nash decided that becoming his banker would give him control over his financial future. But for Infinite Banking to work, you need your bank.
Deeper concept of infinite banking
Nash's Infinite Banking Concept (IBC) concept states that repayment amounts from whole life insurance policies serve as collateral for a loan. The individual simply needs to call the insurance company and apply for a loan policy.
A whole life insurance policy aims to cover a person's entire life, not just to help family/friends in the event of death. As such, the policy is entitled to the payment of dividends, which means it generates a form of income that increases the policy's cash value over time.
Once the policy is active, it has value, and it can be borrowed against so that the person can borrow money from the policy (using the policy as collateral) to cover unforeseen or significant expenses that arise during the policyholder's life.
The advantages of infinite banking
The most important positive aspect of the infinite banking concept or process is the simple improvement in liquidity or cash flow. The value of a whole life insurance policy that serves as collateral is much more liquid than, for example, a property because the loan can be obtained more quickly, and the individual can get the money faster and, therefore, generally, with lower interest rates compared to those available from traditional creditors.
Improving a person's cash flow can be important, especially in times of financial hardship or unforeseen expenses, such as medical bills or the need to buy a new car. A loan with an insurance policy can also come in handy if a person remains unemployed for a while, either due to health issues, death in the family, or simply the loss of a job. Because whole life insurance policies are unrelated assets, which means they are not tied to the vagaries of the stock market, they are created to hold their value.
Disadvantages of infinite banking
However, infinite banking has its drawbacks. A person must be eligible for a whole life insurance policy. And even if the person qualifies, the financial burdens typically accompany paying the policy can be onerous.
This is standard practice, and it is recommended that a person invest at least 10% of their normal income in a life insurance policy. For some families, this huge financial commitment is just not an option. If the policyholder goes through difficult times and takes out a loan on their policy, they may not make the payments due in the future.
Finally, the concept and practice of infinite banking are not intended for people without financial conviction and without the ability to think clearly and see the process to be followed. The concept requires a financially healthy person who is willing and able to play a long-term financial game. It is important to consider all of the above factors before becoming your banker.
Does Infinity Banking Work?
Yes. The strategy behind Infinite Banking - using dividend-paying whole life insurance as a personal bank to grow and protect wealth - has been proven and used by families for hundreds of years. As with any financial instrument, the benefits largely depend on how the instrument is used and require clearly defined goals to measure success.
To achieve the fastest growth and ideal performance, it is recommended to combine life insurance with full dividend payment with complimentary insurance called "Paid-Up Additions rider (PUAR)."
A PUAR allows you to "fund" your insurance policy until it becomes a modified endowment contract (MEC). By using a PUAR, you quickly increase your cash value (and your death benefit), thereby increasing the power of your "bank." Also, the higher your cash value, the higher your interest and dividend payments to your insurer. Reinvest those dividends to buy more paid payments.
When you add a PUAR to your life insurance policy, you receive it in advance to maximize your life potential.
Infinite banking benefits
Cash flow: You never know when an opportunity or an emergency will present itself. That's why it's important to have access to cash flow, which allows you to react quickly and decisively when investment opportunities or emergencies arise.
Control: Unlike other types of loans, which require money for whatever reason, you can use the loans taken out under your policy for everything from business needs to personal needs.
Dividend: Chances are your policy is administered by a mutual. In this case, there is also a good chance that the loan will pay dividends.
Freedom: When you are no longer in debt to the banks, you are truly free to make your own decisions. This is one of the benefits of endless banking services that can be invaluable.
Growth: Even when you take out a loan against your policy's cash value, the policy continues to earn interest at a rate of around 4% per annum. If the policy also pays dividends, you can add another 2-3% to this increase.
Liquidity: The cash value of your policy is liquid. You can access it whenever you need to, for whatever reason you feel is appropriate. And you don't have to qualify to use your money.
Protection of assets: Many states have a statute that protects money in life insurance policies. This can protect your funds from creditors.
Tax advantages: Infinite Bank offers a tax-free benefit guaranteed by death. It also offers tax-deferred increases, tax-free loans, and tax-free withdrawals. These are benefits that you will not normally get with other loans.
You can be your banker and help others: Infinite Banking doesn't just mean being your banker. It also allows you to lend money to others and to earn interest. This allows you to borrow money on your policy, plus interest. It is a great strategy for creating and maintaining wealth.
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