Monday, January 17, 2011

What is Infinite Banking?

Hi there everyone. Recently I've had a lot of folks asking about The Infinite Banking System and what it is and how it works. Your Banking System is an idea that champions the saving and investment theory. Throughout our financial education we are programmed to think why certain vehicles are the smart for these objectives. Well in this post, I will give you the brief overview of the program and try to dissect it from a newbie's perspective.

To start, let's take the typical retirement plan and focus on what its intent is.  A 401k or mutual fund is designed to save money and let it grow, or so we are accustomed to believing.  When you deposit money into this fund, you expect it to grow at rate of about 6-12% and when you retire, hope that it will have grown enough to provide for yourself a nice nest egg to live on.  There are 3 problems with this:

1.  Taxes- Most retirement accounts tax 1 of 2 ways.  At the time of deposit or at the time of withdrawal.  Either way it is taxed.

2.  Access- Once the money is deposited, there is limited access to that cash i.e. rollovers, money down for home purchase, medical emergencies etc.  If it is withdrawn and doesn't qualify it could come with a penalty.

3.  Risk- These funds are subject to the market and contrary to what some would like to think, it goes down as often as it goes up.

These are three very real issues and The Infinite Banking System solves them all.

Permanent Whole Life Insurance
Let me introduce a very old product that has been around for over 100 years that few know much about but has many great features. One feature is that the policy holder is the sole owner of the policy.  This means that first priority is given to the owner before the insurance company, the government or even the insured.

Example: (True example) I am the owner of a policy that insures my wife.  I pay the premiums and in the unfortunate event that she passes away, the beneficiary (me) and contingent beneficiary (my daughter) will receive the death benefit. I also have dibs on all cash values.

A Whole Life Insurance policy is a contract that no government can touch and no insurance company can void.

Let's look at how whole life insurance can avoid the 3 problems I mentioned earlier.

1.  Taxes- The government cannot tax earnings from cash values and dividends paid on whole life policies unless they are considered MEC (Modified Endowment Contracts).  There are certain situations where whole life insurance will become a MEC and you should speak with a agent who is well trained before this happens.

2.  Access- You may access your cash value in your policy at any time with no penalties throughout the life of the policy.  Unlike 401k's.

3.  Risk- The company I write policies through performs around 5% returns every year and has paid dividends every year since there existence beginning in 1904.  When you reinvest the dividends it performs even better.

*This is why Whole Life is a better option than 401k's and mutual funds and we haven't even started on the Infinite Banking part yet.

Where does the Banking part come in?
You must have an entrusted agent to make sure your Whole Life policy is set up correctly and when you do at least 55% of every dollar paid in premiums should be available to you through cash values.  So if you pay $300 in premiums $165 is available for you to take out.

Now this is where you have to treat your policy like a bank and not an insurance policy.  Take the $165 out, but Pay It Back!

When you go to a bank to borrow money, they make money by charging you interest.  Wouldn't it make sense to charge yourself the interest instead of giving it to the bank?

The policy performs so much better not only when you pay yourself back the loan, but its golden when paid back with interest!  I don't have the illustrations to show you but there is a wealth of info at  Nelson Nash is the creator of this process and his book details all of the illustrations there.

Just think of all the things you finance throughout your life; cars, houses, boats, clothes, vacations, gifts and the list goes on and on.  An average American spends 34.5 % of their income in interest through their life. This process if funded and set up correctly could even one day finance your house.  And you know how much interest you spend on a mortgage (nearly the same amount as the actual price of the house!)

Well there you have it. I wanted to give you the basic rundown of what Infinite Banking is.  When you see the benefits of whole life over mutual funds coupled with The Infinite Banking System, this process can change your entire family tree by showing your loved ones how to save and invest properly. It's not only an insurance policy, but a total new approach to saving and investing.

Contact me to get more info on how to start your own Infinite Banking System!
Ask me for free a copy of Nelson Nash's book, "Becoming Your Own Banker".

1 comment:

roncents said...

Hi Brandon,

Just saying hello from WA where I also do IBC. My blog is called RonCents.