Note From Kalen: I like to include all types of investing options for you to choose from. Like every investing strategy, do your research first, but this is an interesting look into Infinite Banking, which was a new concept to me. Enjoy!
Although Infinite Banking has been around for decades now, there are still many individuals and investors who know very little about this strategy. And, while many are aware this system is based around high cash value life insurance, they still have very little understanding of just how Infinite Banking, or cash value life insurance, works and how it can be applied to many of those looking for safer ways to plan and save for retirement.
This article will answer some of the more common questions about Infinite Banking, so you can have a clearer picture of just what this concept is, how it works, and whether or not it is something you should consider researching further.
What Is Infinite Banking?
The Infinite Banking Concept, first developed by R. Nelson Nash in his book “Becoming Your Own Banker,” is based around a specifically structured cash value life insurance policy that is created to favor cash value growth over base life insurance.
The concept utilizes the liquidity inside of a high cash value life insurance policy in order to grow and protect capital while also having access to capital and liquidity for for personal, business, or investment use.
The strategy often relies on using these life insurance policies as your own personal bank. By borrowing money, and paying yourself back with interest, you are able to grow wealth with compound interest indefinitely—a key component to growing a sizable retirement nest egg.
How Does High Cash Value Life Insurance Work?
The main component of Infinite Banking, high cash value life insurance, uses a whole life insurance policy that has been structured for cash value growth. By structuring it in this specific way, we maximize the growth potential inside of the whole life insurance policy.
These policies have some great benefits. They offer competitive growth, liquidity, death benefit, they growth tax-free, and the have safety and no-loss guarantees. This is why they are used for Infinite Banking, they offer more advantages to be your own bank than other safe investment alternatives.
Is It True That Infinite Banking Can Grow My Money Tax-Free?
Tax-free growth is a huge benefit for any retirement plan or savings vehicle. Because life insurance policies earn dividends, the dividends remain tax-free as long as the life insurance policy is in-force—or active.
By keeping the life insurance policy open until we die, we avoid any taxes while we are alive. Then, when we die, that money is passed on to our beneficiaries, or heirs, income tax-free.
This way, a high cash value life insurance policy can remain tax-free indefinitely. This makes the growth inside of these policies more valuable, in comparison to other safe investment strategies, because the growth inside of the policy is tax advantaged.
Taxes can have a major impact on growth, Infinite Banking utilizes the tax advantages inside of a high cash value whole life insurance policy in order to provide more income and capital to the policy owner for personal use or retirement.
What Kind of Growth Can I Expect?
Historically, the growth inside of these policies has been around 4-6%, or more, tax-free. These are conservative projections. Infinite Banking relies heavily on the individual saving more money, and keeping that money safe—without market losses.
By avoiding stock market and mutual fund losses, we can, in essence, earn more on our money than we would by risking that money in the market and constantly trying to earn our losses back.
Compound interest, over time, is the most effective way to grow wealth. Infinite Banking utilizes no-loss compound interest in order to effectively growth and secure wealth for the long-term.
Losses can also have a major impact on compound interest. Infinite Banking avoids these losses by using high cash value life insurance—an investment with guaranteed minimum returns when structured properly.
Can You Roll Over IRA or 401k into Life Insurance?
Because a 401k or an IRA are tax-deferred, we cannot roll them into a life insurance policy. In order for money from a 401k or IRA to be put into a whole life insurance investment it must be taxed.
In some cases, taking money out of a 401k or IRA will also come with a penalty, depending on your age. It is always best to take this into account before making any liquidation decisions inside of a tax-deferred or government sponsored savings or investment program.
How Do I Implement Infinite Banking?
Implementing the Infinite Banking Concept is not difficult, however, it does take some precision. An expert will be needed to setup the life insurance policy so that it can be maximized for cash value and not for insurance.
The majority of those who sell life insurance are life insurance professionals. However, many of those who help implement the Infinite Banking Concept are investment and financial professionals with a financial background, not a background in simple life insurance planning.
It is best to speak with a professional before making any long-term commitments to an Infinite Banking plan. These plans are created with the long-term in mind, and must remain long-term for them to work properly for retirement.
Is Infinite Banking Right for Me?
There is no financial product or instrument that will work for every individual. For those who earn a significant amount of return in their stock or mutual fund portfolios, safer investment strategies are probably not a good fit for their risk-based investment plans.
However, those who have had bad experiences with Wall-Street investment methods, and are looking for safer alternatives to risk-based investment models, may find Infinite Banking is a good fit for their goals and future savings and investment decisions.
Infinite Banking requires discipline and commitment to work properly for the long-term. It has its advantages and disadvantages. Infinite Banking practitioners see things differently. Many believe that it does not take risk to create a solid financial future. Always speak to a professional before making any major decisions or changes to your financial plan.
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