Author Topic: Infinite Banking Concept/Bank on Yourself/Etc  (Read 536 times)

tdprice12

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Infinite Banking Concept/Bank on Yourself/Etc
« on: February 17, 2019, 10:23:47 AM »
Hi everyone,
This is my first post. I recently listened to Sam on the Art of Manliness podcast, and I've read the blog off and on for a few years now. Hearing him on the podcast made me want to get back to reading more regularly. I'm 29, been married for 3.5 years, and finally finished up physical therapy school and have been working as a PT for a couple months now. I'm working on getting my financial life together, and a concept that has intrigued me over the past few years is the Infinite Banking Concept. I'm strongly considering using this as my primary means of wealth building going forward. I'm curious to know if anyone on here is familiar with the concept, and I would love to hear your thoughts on it. For those who are unfamiliar, here are the main points that I've been learning about as I'm researching it.

The concept is built around using a dividend paying whole life insurance policy as your cash vehicle. BEFORE YOU FREAK OUT AND WRITE IT OFF, JUST READ ON. I know that basically no financial "guru" seems to support whole life insurance in any way, but I haven't seen any of the mainstream financial experts address the infinite banking concept head on.

With these policies, you have a GUARANTEED rate of return of 4-6% each year. Obviously, this isn't as aggressive as what you would hope to get in the stock market, but it is guaranteed. As we all know the stock market may gain 15% in one year only to lose it the following year. The way I see it, you get the safety of a CD or bond, but much better rates of return.

As you build up cash value in your policy, the end goal is to be able to use the policy as your own personal bank so that you eventually never have to go take out a loan from a bank ever again (obviously this will take a long time, but I love the sound of getting to that point eventually).

Let's say you have $30k in cash value in the policy after 5 years. You can take out a loan against the policy for the full amount of your cash value for say a new car, house down payment, investment opportunity, etc. (As a side note, you don't have to go through any approval process to get the loan, it's essentially the same as making a withdrawal from a checking account) The real beauty of this whole system in my mind is that your policy will continue to gain the 4-6% interest on the full amount that you have in the policy as if you had not touched the money at all. You also get to set your own terms in regards to paying back the loan that you take out against the policy. You don't pay any interest to the company at all and you can take as long as you want to pay it back. The only time there would be a penalty is if you never pay back the money, and at that point, they just take the amount out of your death benefit.

In addition to this, the other advantages that I've seen are that you don't pay taxes on the dividends that you get because they are actually paid to you as "overpayment of premiums", so it seems like a very tax efficient system (this become very important when you reach retirement and start using the dividends to live off of). Also, don't forget that it's life insurance, so you're building up a nice death benefit along the way.

In summary, the way I see it, this is an incredible combination of liquidity, safety, tax efficiency, and growth, and I don't know of another product that can match this system in all three of those categories.

The main downside that I see is that your cash value is less than what you have actually put into the policy for the first few years - this is where they take out their fees. In most projections I've seen, you have access to about 70% of the cash you've put into the policy in the first year. This increases slightly until you "break even" in year 5. Yes, this kind of stinks, but this is a long game. When you start looking at the projections 25 years down the road, taking a small hit at the beginning looks totally worth it.

With this layman's summary, what am I missing? What questions should I be asking? What are the problems you see? In my perfect world, I will eventually use this system to start my own business, invest in real estate, save for kid's college, etc.

Admittedly, some of the proponents of this system have made it seem really cheesy, and frankly it often comes off as "too good to be true", but I've been doing quite a bit of research, and I can't find any concrete evidence that it isn't a good tool to use. Most of the ones who talk badly about it don't go into any detail about why they dislike it.

Also, the whole reason I came here to ask this is because I felt like it really fit into what Sam described on the podcast. He specifically mentioned at one point looking for things that will provide a 4% return safely. So I wanted to hear if anyone here had any experience with the product.

Thanks everyone. Glad to be joining in on the discussion! Sorry this was a little lengthy.

Dadvolution

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Re: Infinite Banking Concept/Bank on Yourself/Etc
« Reply #1 on: February 18, 2019, 09:22:10 AM »
Having worked in Insurance in a past life this statement " You don't pay any interest to the company at all and you can take as long as you want to pay it back." is generally false. I can not speak for all whole life policies, but for the company I used to represent it was around 8%. If you have credit that is a really crappy percentage rate to have to pay back.
 However there is no real timeline to pay it back and if you reinvest dividends into paid up term policies (which you can cash out without penalties and may be what the proponents of this idea were actually referring to). There is a way to make these work but you really need to sit down and have a long discussion with your agent, and make sure he know what he is talking about,  as the loan has gotten many of my former clients into a jam where they essentially had very little policy in effect when things were all said and done. Unfortunately for them the person who had serviced their policies prior to myself was either a poor communicator, lied to the client or the client did not listen.