What is the Infinite Banking Concept?
Executives looking for strategic thoughts on future income start asking very interesting questions like “What is the Infinite Banking Concept?”. Great news you have a resource to help with your next level planning just call to 1-912-ANNUITY
How does Infinite Banking Concept really work?
The Infinite Banking Concept (IBC) is a financial strategy that revolves around using whole life insurance policies as a personal banking system. This concept was popularized by Nelson Nash in his book “Becoming Your Own Banker.” Here’s an overview:
- Whole Life Insurance: The strategy utilizes dividend-paying whole life insurance policies, not term insurance or universal life insurance.
- Cash Value Accumulation: Whole life policies have a “cash value” component that grows over time, earning interest and dividends.
- Borrowing Against the Policy: Policyholders can borrow against the cash value of their policy, using it as collateral. This loan comes from the insurance company and not the cash value itself.
- Repaying Loans on Your Terms: Policyholders have the flexibility to repay the loan on their own schedule, as opposed to a bank loan which has fixed terms.
- Tax Benefits: The cash value in a whole life policy grows tax-deferred, and loans taken against it are generally tax-free.
- Death Benefit: In addition to the cash value, the policy includes a death benefit that is paid out tax-free to beneficiaries.
How It Works
- Policy Purchase: You purchase a whole life insurance policy and pay premiums. Over time, these premiums accumulate a cash value.
- Cash Value Growth: The cash value of the policy grows, earning interest and dividends.
- Accessing Funds: You can borrow against the cash value for personal expenses, investments, or to pay the policy premiums themselves.
- Repayment Flexibility: You have the flexibility to repay the loan on your schedule. The interest rate is typically lower than conventional loans, and the repayment is not mandated.
- Continuous Cycle: As loans are repaid, the cash value continues to grow, allowing for future loans.
Why People Use It
- Financial Control: It provides a degree of control over your financial resources, bypassing banks and traditional lenders.
- Tax Advantages: Offers tax benefits not available with conventional savings and investment accounts.
- Flexible Access to Cash: Provides a source of funds that can be accessed without the approval process required for conventional loans.
- Retirement Planning: Can be used as a supplement to retirement savings, offering a tax-advantaged income stream.
- Legacy Planning: The death benefit provides a financial legacy to heirs.
- Complexity: It can be complex and requires a thorough understanding of how whole life insurance works.
- Long-Term Strategy: IBC is a long-term strategy and may not be suitable for those who need short-term financial gains.
- Cost: Whole life insurance policies are typically more expensive than term life policies.
- Interest on Loans: Borrowing against the policy’s cash value involves interest payments, which can reduce the policy’s benefits if not managed properly.
The Infinite Banking Concept is a strategy for using whole life insurance as a financial tool for savings, borrowing, and wealth accumulation. While it offers benefits like tax advantages and financial control, it’s essential to understand the costs and complexities involved. Consulting with a financial advisor knowledgeable in this area is recommended to determine if this strategy aligns with individual financial goals and circumstances. Give us a call 1-912-ANNUITY for next level planning!