Infinite Banking Concept
- Thread starter byerly
- Start date
- 9,744
It's about infinite banking silly!
Nelson Nash did a lot of good work communicating the total value of permanent life insurance with this concept. Others have come along and refined the message since then.
My biggest issue with IBC is the piece that would have you almost depositing your entire paycheck into the life contract and almost constantly getting the money back out for everyday expenses through loans and withdrawals.
Many if not most IBC practitioners leave that part out. It's unnecessary and over the top. Approaches like "Private Reserve Strategy" are a better and cleaner way to show how to use permanent life insurance to its full potential.
- 1,459
Here is one thing I could never get, the advantage of using your life insurance policy for loans instead of just borrowing the money from somewhere else. The only advantage in my mind is a guaranteed loan, versus underwriting somewhere else. That and some carriers have a cap on rates if we ever hit a period like the 1980's again.
IB talks about the magic of borrowing for your policy to buy a car, but the money keeps working in the policy and you should make money on the spread. That is the same with any asset that is growing despite the loan source. The loan is directly from the insurance company, my policy is just the collateral on that loan.
I can get a car loan or home equity loan for less than the life insurance loan rate anyway, it would be costing me more to use my policy. I am a big proponent of some permanent life insurance in the overall financial plan, I have just never understood the IB concept. Maybe someone will come along on this thread and change my mind.
You're exactly right. Strictly from a "rate" standpoint, it seems to make more sense to use the money that costs you the least.
It's incorrect to assume that just because you have a max-funded life contract that allows loans that you have to use it when other sources are less expensive.
The real issue is that if the loan rates are close, using the policy to collateralize a loan from the insurance company gives you flexibility, such as UNscheduled loan repayments versus a fixed repayment set by the bank. Another benefit is that using a policy loan to finance a major purchase has no effect on your credit score from a utilization or cash flow standpoint.
- 1,459
That makes sense about flexible repayment, had not thought about that angle. One could take a loan out at a lower rate source and if they run into a cash flow issue, borrow from the policy to make a payment/pay off the other loan.
Also, the credit score impact, but I would argue if a person is too concerned about their credit score, they are probably levered too much anyway.
Also, the credit score impact, but I would argue if a person is too concerned about their credit score, they are probably levered too much anyway.
Good point on the first paragraph. It's nice to have a choice in the matter, and the life insurance "bank" provides that choice.
On the 2nd point, being able to take a $40k car loan with a $600 monthly payment "off the grid" might make a difference in getting the best rate on a mortgage or refi. Again, the magic word here is CHOICE.
- 11,273
Life Insurance loans only require that you pay the annual interest due (instead of principal and interest ALL other lenders require)... and even then, your policy could pay it. Greatest flexibility in terms of your monthly income cash flow.
Loans from life insurance policies are not reported to credit bureaus, so this helps your credit scores (particularly with debt to income ratios)... and is especially helpful in the event of unemployment.
In the event of unemployment, if you had a car loan or other loans, and you couldn't make the payments, you won't have a car in 2 months... let alone a bunch of collection calls. Loans from Life Insurance would avoid that from happening in the first place.
Sometimes, it's not as much about the rate as it is about cash flow and structuring your finances in the event of a 'worst case scenario'. Isn't that what life insurance is all about - worst case scenarios?
(Of course, this is exactly what Larry Tew said... I just put it slightly different, that's all.)
- - - - - - - - - - - - - - - - - -
Too difficult.
Think of 'infinite banking' like a finance company... not a checking account.
- - - - - - - - - - - - - - - - - -
Without talking about the rates too much, what I like is the idea that you can save and spend the same dollar twice.
Save the money in a non-direct recognition account, and collateralize a portion of your cash surrender values. Your savings continues to grow as though you haven't touched it.
Now, some people will say that the interest you pay on any loans goes back to your policy. Not true. It goes to the lender (in this case, the life insurance company) and they collect it and distribute it as part of the company's dividend (if they had a good year).
I'm not exactly sure about this part, but it *sounds good* - if your policy is more profitable for the company than others, you should be receiving a higher dividend. It depends on how it's structured and how long it's been on the books. In that perspective, it may help to use your policy to pay a guaranteed return to the life insurance company and be eligible for a higher dividend... but it's still not a guaranteed proposition. It sure sounds good though.
Even then, I would just keep it simple and talk about save and spend the same dollar twice while the original balance continues to grow as though you never touched it. It's simple, understandable and exciting!
Loans from life insurance policies are not reported to credit bureaus, so this helps your credit scores (particularly with debt to income ratios)... and is especially helpful in the event of unemployment.
In the event of unemployment, if you had a car loan or other loans, and you couldn't make the payments, you won't have a car in 2 months... let alone a bunch of collection calls. Loans from Life Insurance would avoid that from happening in the first place.
Sometimes, it's not as much about the rate as it is about cash flow and structuring your finances in the event of a 'worst case scenario'. Isn't that what life insurance is all about - worst case scenarios?
(Of course, this is exactly what Larry Tew said... I just put it slightly different, that's all.)
- - - - - - - - - - - - - - - - - -
Too difficult.
Think of 'infinite banking' like a finance company... not a checking account.
- - - - - - - - - - - - - - - - - -
Without talking about the rates too much, what I like is the idea that you can save and spend the same dollar twice.
Save the money in a non-direct recognition account, and collateralize a portion of your cash surrender values. Your savings continues to grow as though you haven't touched it.
Now, some people will say that the interest you pay on any loans goes back to your policy. Not true. It goes to the lender (in this case, the life insurance company) and they collect it and distribute it as part of the company's dividend (if they had a good year).
I'm not exactly sure about this part, but it *sounds good* - if your policy is more profitable for the company than others, you should be receiving a higher dividend. It depends on how it's structured and how long it's been on the books. In that perspective, it may help to use your policy to pay a guaranteed return to the life insurance company and be eligible for a higher dividend... but it's still not a guaranteed proposition. It sure sounds good though.
Even then, I would just keep it simple and talk about save and spend the same dollar twice while the original balance continues to grow as though you never touched it. It's simple, understandable and exciting!
Last edited:
