Infinite Banking Concept

[Full Throttle]

Without talking about the rates too much, what I like is the idea that you can save and spend the same dollar twice.

That is the part of the pitch I do not understand. I am not saving and spending the same dollar. I have an obligation to pay back the dollar I spent (or it's not saved).

By that rationale, this is nothing unique to life insurance, it applies to all leverage. Instead of pulling money out from my money market account for a car, I could buy the car with a private car loan and invest that same money into something else for a return above the car loan rate. That really isn't "saving and spending the same dollar". That is leverage.

I understand some of the potential choices life insurance can give you that would not apply to a traditional loan, I just don't buy the "saving and spending the same dollar" concept as more than sales smoke. I am open to being proven wrong, Larry made some good point earlier that I had not taken into account.

 

[DHK]

Do you REALLY have an obligation to pay back that dollar when borrowed against a life insurance contract?

In the event of death, it's paid back via the death benefit.

Until then, if you don't make the interest payments, it'll be taken out of the dividends or cash surrender values. You should make principal payments... but one is not required to do so with their life insurance loans.

Most people don't have much savings at all (statistically speaking), so being able to 'have your cake and eat it too' is rather appealing.

We all only have ONE 'compound interest curve' going on in our lives. The more that we start & stop that process without true disciplined savings... the less we'll see of that in our lives... and deplete our financial potential.

 

[rousemark]

UNscheduled loan repayments versus a fixed repayment set by the bank.

That is the ticking time bomb in the concept.. Human nature tempts people to forgo payments they don't HAVE to make. That is the reason so many people have huge credit card balances. They chose to make the minimum payment each month and use the money that should be used to pay off the loan for other things.With IB, most policies are going to end up crashing because the interest ate up the policy values due to payments not being paid on the loan.

 

[Full Throttle]

I still don't buy it. You never "have your cake and eat it too". I may not have an obligation to pay it back, but then it's spent (not saved). You can't have it both ways. If I don't pay it back and die, the loan amount is withheld from my death benefit (it was spent, not saved).

 

[DHK]

Let's say you have a non-direct recognition contract with $100,000 in cash surrender values.

Your interest and dividends are based on that same $100,000... regardless of any loans. It will continue to compound over time.

Just like owning a home - your home would appreciate (or depreciate) regardless of the total amount of loans you have outstanding against the property.

But most people don't have such an asset working for them in their life. They save to spend... or they borrow to spend and then pay it back.

The sooner one can get that compounding going on in their lives on an uninterrupted basis, the more wealth one can have.
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In regards to the death benefit... wouldn't that money have been used to pay off debts anyway - regardless of who the finance company is? This time, the lender is 'in house'... that's all.
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That is the ticking time bomb in the concept.. Human nature tempts people to forgo payments they don't HAVE to make. That is the reason so many people have huge credit card balances. They chose to make the minimum payment each month and use the money that should be used to pay off the loan for other things.With IB, most policies are going to end up crashing because the interest ate up the policy values due to payments not being paid on the loan.

1,000% true.

That's why they need an agent/advisor to help them manage the policy.

Selling this concept and leaving the implementation and monitoring of it just to the client... is stupid and careless.

If the agent/advisor has no intention of doing annual reviews or helping to monitor the policies with outstanding loans... they are doing their clients a disservice.

 

[Full Throttle]

That is the ticking time bomb in the concept.. Human nature tempts people to forgo payments they don't HAVE to make. That is the reason so many people have huge credit card balances. They chose to make the minimum payment each month and use the money that should be used to pay off the loan for other things.With IB, most policies are going to end up crashing because the interest ate up the policy values due to payments not being paid on the loan.

I am a big fan of permanent life insurance as an asset. I view it as a savings reserve in my personal life. I have my savings account for cash emergencies. I have my life insurance cash value as the next line of defense. Since I own permanent life insurance, I keep less in savings, and should get a higher IRR in my life policy than savings account.

If I get a loan, it will be a private loan unless the life insurance policy offers a lower interest rate (which I have not seen yet in practice, but could happen in theory). I still like the flexible option life insurance borrowing offers if I ever got in a world of hurt and needed it. Why not have the option?

But to your point Rouse, it should not be marketed as such to a client who has a history of over spending and leveraged to the eye balls.

 

[rousemark]

1,000% true.

That's why they need an agent/advisor to help them manage the policy.

Selling this concept and leaving the implementation and monitoring of it just to the client... is stupid and careless.

If the agent/advisor has no intention of doing annual reviews or helping to monitor the policies with outstanding loans... they are doing their clients a disservice.

Even if the agent is on top of the situation, how many times have you encouraged people to pay back their policy loans and your advice has fallen on deaf ears?.. They intent to do it .. someday..

 

[Larry Tew]

That is the ticking time bomb in the concept.. Human nature tempts people to forgo payments they don't HAVE to make. That is the reason so many people have huge credit card balances. They chose to make the minimum payment each month and use the money that should be used to pay off the loan for other things.With IB, most policies are going to end up crashing because the interest ate up the policy values due to payments not being paid on the loan.

If people are immature and lack basic financial discipline, NO CONCEPT will save them.

The person who has unscheduled payments still has to and WILL pay the loan and interest back - whether on a schedule of their choosing (versus the bank's choosing) or at death or surrender of the policy.

I can't even tell you how many situations I've seen where a little flexibility and choice kept a company afloat and payroll met or a car in the garage or a family in their house.

The idea that people are stupid and will blow a good opportunity unless we jam them into a situation that "appears" to be compulsory (scheduled payments, etc) is too "big brother" for me.

I say "appears" because nothing is compulsory. Defaults, foreclosures, repossessions, and bankruptcy pretty much "uncompulsorizes" anything we decide to stop paying for.

 

[DHK]

I ain't their papa. But document, document and document it.

The same discipline it took to build up the policy (assuming it was from monthly contributions and not an inheritance or other windfall) is the same discipline to pay it back.

Remember, it's banking/financing. Teach them how to be a good lender to themselves.

Could they afford the payments if they had financing elsewhere? If so, go ahead and borrow it. If not, you shouldn't borrow money you can't repay.

If it's a short-term emergency, then you've gotta do what you gotta do.

If it's a long-term situation, you may want to consider doing a policy withdrawal instead of a loan.

Every situation is different. But without discipline - of the agent to stay in contact - and of the policyholder to save & repay... it will fall apart.

 

[anonymous1]

The process behind ibc is creating a personal finance for loans retirement income ect. The reason why you choose a loan from wl verses traditional means is OPPURTUNITY costs. Your cash value continues to grow Now if you pay back the loan with a percent higher. You gain more dividends to buy more paid up additions creating more death benefit which results in more dividends the next year The though is you capture the lost interest you would have paid fo the bank Sorry its a little jumbled on the phone