Infinite Banking

Perpetual Wealth - The base of any financial plan

Growing up you have been probably told there is only two ways to get a large amount of money for something, be it for a car, a home, an investment or even just an emergency.

Option 1: Save money.

Dollar by dollar, you work and grind to build up your savings in a bank account so that one day, eventually (hopefully?) you will have the amount you need for whatever it is you desire. Admirable but there are three main problems with this.

First, at the time of this writing in 2019, interest rates are PALTRY. Even with an online bank account you are lucky to get close to 2% interest on your money. If it is a local, community bank chances are the interest rate starts with a decimal point. If we were to factor in the historical “official” inflation rate of around 3%, you are actually LOSING money or rather losing purchasing power every year.

The second reason, to add insult to injury, if you earn even as little as $10 in interest off your bank savings, the government figures you are now wealthy and will TAX you at your ordinary income rate on that $10+ dollars. So even at the 22% tax bracket, congrats! You get to keep $7.80 while $2.20 goes to Uncle Sam.

Finally, if you are saving money you are saving AFTER TAX dollars. If you make $20 an hour and want to save $1,000 you have to work 50 hours, right? Well, if you are in the 22% tax bracket and assuming you have no state or local tax obligations, for every $20 you earn only $15.60 actually makes it to your checkbook. So on an AFTER tax basis if you wish to save $1,000 you will actually have to work over 64 hours at your job.

Option 2: Borrow money.

This option we are probably all familiar with; if you need money you simply go to the bank and take out a loan. A car loan, a personal loan, a mortgage or even just swipe your credit card and the money is there quick and easy! However, this isn’t “free” money, you have to pay this back with interest.

Now on the flip side of having low interest rates on your bank accounts that don’t even keep up with inflation, interest rates for loans are generally at historic lows right now. Car loans are advertised as low as 1.9% and my wife and I were able to lock in a 30 year fixed rate on two investment properties at 4.25%.

Depending on your needs and situation, a loan may not be a bad option, especially at low interest rates. But the other problem with this is that depending on your credit score and other factors, you may not even QUALIFY for a loan. If you have less than a 720 credit score and/or some dings on your credit report or even just have a high debt-to-income ratio, best case you may be paying higher interest rates, worst case you are denied the loan. AND if this was for a large loan, say a mortgage, this is AFTER you provide two years of tax returns, 60 days worth of asset account statements such as your IRA, 60 days worth of bank account statements, explanations for large (based on the underwriter’s opinion) deposits and/or withdrawals, your 2 most recent pay stubs, a hard credit inquiry, proof of homeowner’s insurance and probably 12 additional follow up documents over the course of 2-4 weeks minimum. Sounds like fun, huh?

Option 3: High Cash Value Life Insurance

Infinite Banking. Cash Flow Banking. Bank on Yourself. Be Your Own Bank. The Sacred Account. These are just some of the various names that if you were to do a Google search or research on financial websites you would find. However, they all are pretty much the same thing: High Cash Value Whole Life Insurance.

Whole Life Insurance has actually been around in the US since the 1800’s and many families (think Rockefellers, Waltons, Kennedys and Kochs) have actually created MASSIVE generational wealth via these policies. These policies are held within mutual insurance companies that are private (not publicly traded) and owned entirely by the policyholders. Any profits earned by the companies are either retained within the company or given back to the policy holders in the form of dividend distributions and/or reduced annual premiums.

Here is a very basic overview of how this works. You apply for life insurance so that when (not if) you die, your heirs will receive a tax free lump sum from the mutual insurance company to compensate for lost earnings, pay off accumulated debt in your life, etc.

In the meantime, as you make your policy payments, a portion of that accumulates cash value in the policy. Think of this as a savings account within your policy. Now in addition to growth in this via your premium payments, this also accumulates dividends (typically 3-5% at the time of this writing) AND grows tax free. Already we are seeing additional benefits than Option 1 offers that we talked about earlier.

Now, let’s say after a few years you need to use this cash value for a purchase. For simplicity, let’s say you have $5,000 in cash value. You may now borrow against that amount (usually 90-95% of your cash value) and take out a loan against it. How do you take out a loan? Pretty simple, you just request one from the insurance company and within 5-7 days your funds will deposit into an account of your choosing. No credit check, no employment verification, no credit inquiry, and no submitting of tax returns. The ONLY restriction to your policy loan is the amount of cash value you have in your policy.

Now of course you have to pay this back with interest. However the rates are typically lower than at banks. Also, remember the part of mutual insurance companies paying back profits in the form of dividends? Well, if you pay $500 in interest, you aren’t going to get $500 back directly into your policy however indirectly a portion of that you will see. Wouldn’t you like to get a portion of your interest back versus it going to the eight figure salaries of CEO’s like Jamie Dimon or Charles Scharf? And the best part is YOU get to pick your payback terms! Technically, you can even just make interest only payments for the rest of your life. At the time of your death, the outstanding amount is simply deducted from your death benefit payout.

Finally, during this whole time, remember you just took a LOAN out against policy’s cash value. You didn’t actually take out the money. So even while you have a loan out against your policy, your cash value is STILL accumulating dividend payments and growing month after month, year after year.

Higher rates, no taxes, guaranteed growth, negotiable terms for loan paybacks and no credit checks or denial of loans. I don’t know about you, but this certainly seems to be better way to grow wealth and access money when you need it.

For more information and if you would like to hear more on this from the agent I personally use, please check out the next section: Perpetual Wealth Q and A.