Infinite banking refers to a strategy that allows you to design a tailored financial plan for yourself, and it’s tied to having a whole life insurance policy. In essence, infinite banking uses the cash value of whole life insurance policies – also known as permanent life insurance – to accumulate wealth in the manner of a tax-free cash value account savings account.
What Is Infinite Banking?
Infinite Banking is a concept that allows you to become your bank, utilizing the value of permanent life insurance that pays dividends. Infinite Banking gives you the freedom to access the cash value of your policy at any time, by borrowing money from yourself and paying it yourself.
Imagine never having to worry about a credit check, paying high-interest rates, or applying for a car or student loan ever again – Infinite Banking could make it a reality.
How does Infinity Banking work?
The concept of Infinity Banking revolves around a life insurance policy. Life insurance is permanent life insurance compared to the more common term life insurance. This means the policy is guaranteed for life as long as premiums are paid on time. In comparison, term life insurance only runs for a certain period, e.g. 20 years, or up to a certain age of 65. The premiums for endowment life insurance are higher than for term life insurance. These are the three components that your monthly premium payments go into
- Fees and operating expenses
- The portion that covers the death benefit
- The portion of the cash value held in a savings account
A portion of each premium payment is channeled into the present value savings portion. This is a unique feature of a life insurance policy because you can borrow against this growing portion of the tax-deferred cash value to pay for larger living expenses like buying a home or paying for college. It is the cash value of your life insurance that allows you to become your banker if you follow the principles of infinity banking.
How To Set Up Infinite Banking
If the concept of self-funding excites you, here are a few steps to get you started.
How To Set Up Infinity Banking With Life Insurance:
Start Young While Premiums Are Lower
As with all life insurance products, premiums are lower when you are younger. Since your premium is insured for life, the earlier you take out the better.
Choose a reputable insurer
Infinity banking is a lifelong process, so make sure you choose from reputable life insurance companies that you are confident will last for the long haul.
Choose a Non-Recognition Policy
Whole life insurance policies to pay you dividends on your investment. If you borrow against its value, the insurer can only pay dividends on what’s in the account. A non-direct recognition policy pays you dividends at full cash value, even if you borrowed to do so.
Choose a policy with a cash value that will benefit your loved ones.
In most policies, the life insurance company pays the cash value upon your death, and your beneficiary receives the policy’s death benefit. To avoid losing the cash value you’ve built up over your life, add an addendum to your policy that gives the beneficiary both cash value and face value.
Additional Clause Up
If you’re just paying your monthly premiums, it can take a decade or more to build up a significant cash value to borrow against. Adding the Paid Insurance Rider, or PUA, to your policy allows you to add more to your cash value so you can grow faster.
Go ahead and borrow
If you’re willing to borrow, your loan comes from the cash value of your policy, which is used as collateral. Just call your insurer and request financing. Unlike a traditional loan, you don’t have to explain why you need the money, and the loan doesn’t affect your credit score. The IRS does not recognize the loan as income, so it is tax-free.
You will be charged interest, but this is likely to be less than interest on a bank loan. Although no monthly payments are required, you are expected to pay back the loan. Take as long as you like to repay, but remember that the loan reduces the death benefit until it is fully repaid.
Peace of Mind
Set for Life
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