In today’s episode, we go into the Infinite Bank Concept, using a specially designed high cash value life insurance policy. We also get into the differences between the debtor, the saver, and the wealth creator.
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Now, the infinite banking concept is something that grabbed my attention and really never let go.
I immediately recognized it for the potential to maximize somebody’s cash flow, and to do it in a way that’s extremely safe and helps to provide the maximum returns in these safe vehicles.
What the infinite banking concept is, is it’s the use of a specially designed cash value life insurance policy. That’s designed to be used as a personal bank that you can put money into and take money out of, over and over again. Knowing that every time you pay into it, all that money will be available to you to take back out of it. Just like you were putting money into a checking or savings account.
The big difference is, is your money is sitting in a life insurance policy that has guaranteed growth. And with a specially designed policy, you’re going to see 4-6% growth on the cash that sits in the policy and you’ll be able to access those funds tax-free, at any point, for any reason.
Are you intrigued yet?
Oregon Cash Flow Pro offers free money management advice to help you take control of your finances. And now here”s your host, personal finance enthusiast and licensed insurance broker, James Barber!
So, there’s something that you need to understand, is there’s always a cost to money. There’s either interest that you;re paying to use somebody else’s money or interest that you’re missing out on if you’re using your own money.
If you’re using your own money, you’re missing out on the potential growth from investing it. Now, by using a cash value life insurance policy, you are able to access those funds by borrowing against that policy and those funds will continue to grow inside the policy, as if you had never touched it.
I’m going to explain this concept using the idea of a debtor, a saver, and a wealth creator.
Some of the best uses of the infinite banking policies, is to divert some of your regular expenses into the policy. Things that you might normally be paying cash for or borrowing money for. The reason we do that is that every time you divert those regular expenses into the policy, you’re kind of turning those into little personal wealth building blocks, that put your money to work for you on a permanent basis.
Let’s go through the debtor, the saver, and the wealth creator, so you can kind of understand where I’m coming from.
So, this graph, this is the debtor. What you see here is, let’s assume this is the vehicle purchases throughout a person’s lifetime, ok?
What a debtor does is they will go to a dealership, and they’ll buy a car and they’ll take out a loan. That’s this here. And then they’ll pay that loan back as they use the car. And eventually, they’re going to end up paying that car off, and then they’re going to buy another car. So, they go into debt again. Then they pay that off.
This line represents where you started at. So, he started off with no money, or many a little bit of a down payment. Borrowed, paid it back, and then did the same thing again repeatedly throughout the course of his life. Let’s say 30 years, ok? So, we’ve got five cars that were bought and paid for over the course of 30 years.
You’ll notice at the end of these 30 years, he’s in the same place that he was at the beginning. Back at $0. So, those dollars that he spent on transportation did one job for him. They paid for his vehicle. That’s all that it did. And it did that job well, we’re not complaining about that, but it only served one purpose.
We can do better than that!
Now, here we have The Saver. The Saver feels like they’re in a much better position than The Debtor, because they’re doing real well. They’re saving up to buy their purchase. They’re not giving their money away in interest to a lender. And so, we see here, they start off at $0. They save up for their car and then they buy their car, they pay cash.
And then they start saving up for the next one, knowing that it’s not going to last forever, and they buy their car. And they do the same thing over the course of 30 years, save up and then pay cash. And where did they end up?
At the end of that 30 years? They end up in the same place that they started, back at zero. Again, those dollars did one job, they paid for their transportation and they did that job well.
But we can do better!
How can we do better? This is how. This is what The Wealth Creator does. Using the Infinite Banking Concept. The Wealth Creator ends up putting their money back to work in multiple ways, while it’s still compounding and growing in a safe, tax advantaged asset. And here’s how they do it.
First, just like The Saver, they start saving their money. Only they’re not saving it by putting it into a checking or savings account. They’re putting it into a specially designed cash value life insurance policy. And so, we can see that go up here. They’re saving their money and then they’re ready to buy their car.
Rather than paying cash for the car, what they do is take out a loan against that cash value that’s in the life insurance policy. So, when we say they take out a loan against it, it means they’re not withdrawing the money out of their life insurance policy. That money gets to stay in their compounding at a 4-6% interest rate. And they can borrow against that cash value at any point in time, for any reason, with no credit checks, no need to ask for anybody’s approval. As long as there is cash value available in the policy, you can access it for whatever your personal needs are.
Ok, so at this point he’s ready to buy his car. So what he does is he borrows against that cash value and then he pays it back.Then he borrows from it again for his next vehicle and he pays it back. And you can see that this cash value that’s in the policy continues to grow at a 4-6% rate.
It grows and it compounds, and it keeps getting higher and higher. This is what a compound growth curve looks like. And so, he borrows, pays it back. Borrows, pays it back. This initial savings that he went through is key. He started at zero and from there on, it only went up. Because of the guaranteed growth in these kinds of policies, it’s guaranteed that he will never go below the amount of money that he’s earned already in the policy.
So, at the end of 30 years, look where he’s at now. While our Debtor and our Saver were down here, look at where he’s at. Because he was using his infinite bank policy to borrow money against that cash value, he never had to pull that money out. He did pay interest. He did pay interest on the money that he borrowed. You pay that to the insurance company, but the insurance company is giving you money on the funds that still sat in the account, that you never withdrew. And that’s really what makes this all work.
Now, the neat thing about this is, we talk about having a specially designed high cash value life insurance policy. And the reason we say specially designed, is because with a policy that’s designed specifically for the infinite bank concept, you could actually have more access to cash than you’ve paid into the policy in premiums between years 3-6. Really depending on how you fund it and your health rating.
Let me show you an example.
Let’s look at what we’ve got here. This is a guardian policy. We’ve got a 53 year old male, who wanted to put in $500k into an infinite bank policy. There’s a number of different ways that we could put this into the policy, and what we settled on with this particular account is, we’re going to put it in over the course of 3 years.
We’re going to do $175k, $175k, and $150k. And, if you take a look here, this column is the normal Guardian Life 95, called the GL95 and this is just the GL95 using the index option. Now, if you take a look here. First year, we see cash value $152,830. Not too bad considering most whole life policies have $0 cash value for the first two years.
With this special design, we’ve made it so that they can have, basically, between 85-90% cash value in the first year.
Year 2. Now we’re at $350k total in the policy, and the value $331k. Year 3. Now we’ve got all $500k in, look at this, $490k.
We’re almost caught up to our premiums. And during this whole time, the money that we put into the policy is available for us to pull out and it’s providing us a substantial death benefit. Look at this death benefit. $2.8 million dollars!
So, if for some reason tragedy were to occur, this person’s family would receive $2.8 million dollars and they’ve only put out $175k to start building this policy. Those are your dollars doing multiple work, ok?
They’re buying you a big death benefit. They’re getting into a policy that’s going to be earning 4-6% interest. And the cash is available to use for whatever you need.
Now, here in this policy, you can see, between years 3 & 4, we pass the $500k. We’ve stopped putting money in. We’ve got zero going in from here on out. And at year 4, we’re now over $500k and it only goes up from there as the dividends pay back and you get that guaranteed growth rate.
At no point, does this drop below $500k. Now, if you were to borrow money out of the policy, whatever you borrow comes off of the cash value. So the cash value that’s available to you would end up going down, minus the amount of whatever you borrowed. But, as soon as you pay that back, soon as you pay that loan back, you’re back to even. All of that money is still back in there. It’s been growing the whole time, but the amount that’s available to you is the same amount that the policy is in cash value.
And, the difference here, you can just see there’s a difference in the growth between the indexed option and just regular whole life taking the dividends from however the company is performing. The index option is weighted against how the stock market performs. How the S&P500 performs. So, it depends on your needs and your desires as to which option you want to choose. In this case, it’s reliant on how the stock market performs. And in this case, it’s reliant on how the insurance company performs, paying dividends.
So, back to this example. $500k goes in. After year 4, there’s more than $500k available and from there it continues to grow and compound at a 4-6% rate. In addition, you get a substantial death benefit.
Now, you can see the death benefit drop right here. And that’s because, in this illustration, we turned off paying any more premiums into the policy. If we wanted to keep the death benefit up, we could do that by just continuing to pay premiums on the policy that would fund a $2.8 million death benefit. It takes a lot of years, but it eventually will get back up to that point.
So, the beauty of this concept is, this $500k would normally be sitting in a savings account or a checking account, just earning piddly interest rates. Not doing much at all. And the reason that it’s sitting in those accounts is because it’s there for opportunities, investment opportunities. He could be saving it to invest in real estate, to do flips, or he could be saving it for if the stock market drops so he could buy into the stock market when the stock prices end up lower. There’s really a number of reasons why you would want to keep a whole lot of cash on hand, but, you can do the same thing within the infinite bank policy earning a better rate and getting you a substantial death benefit to boot.
In addition, all of this growth ends up tax-deferred, and you can access it all tax-free through policy loans. So, at any point in time, he can decide to start pulling money out of this policy, whenever he needs it, through policy loans.
So, if I told you, that if you put $500k into a policy and in 4 years you could pull out more than $500k. And that policy would continue to grow guaranteed, tax-deferred and you can access it tax-free, and if you happen to pass away your loved ones would receive a substantial death benefit tax-free. How much money would you like to put into that policy?
Yeah, as much as you can, right? I mean, that’s my answer. I want to be able to put as much as I can. Now, I wouldn’t necessarily put all of my money into this right away. You want to make sure that you’re funding your retirement accounts and taking advantage of the tax deferral options that you might get through an employer. When it comes to after tax funds, this is the best option to maximize the use of those dollars. In fact, it’s my goal to channel all of my income through the life insurance policy.
It’s kind of like giving myself a permanent raise, if I know that it’s going to grow at a 4-6% rate. Now, as a business owner, it’s possible that I can channel all of my before tax income through there as well, including retirement contributions.
If you’re interested in hearing more about that, schedule a call with me and we can go over those details.
So, what we end up seeing with these kinds of policies is, some people use them to funnel their income through it on a long term basis, some people use it to just put in large chunks of cash all at once, and we end up spreading those deposits over 3 or 4 years. But that’s all that they put into it and then they stop. So, all of this is to say, that these types of policies are very flexible and they can accommodate a lot of different situations. So, it’s really, really important to understand what your needs are, so that the policy can be specially designed for your situation and how you intend to use it.
Now, not everybody wants to put all of their income into these policies. That’s definitely not something that people just jump right into doing these types of policies and throw all of their income into it. Usually what we recommend is you start with something that’s comfortable, either how much you have in savings, where you use your emergency savings, or extra cash flow that you might have. It’s a good place to get it started and get a feel for it. So, you want to use these policies and get comfortable with how they function, how it works with your life and your situation. And then as you get more comfortable with it, you can start increasing the amount of money that you put into the current policy that you have, you can get that policy expanded, or you can open up new policies.
The founder of this concept, Nelson Nash, who passed away recently, he had over 30 separate policies on himself and his family members! So, for him, it was his life long goal to match his premium payments with any income that he had. It’s pretty amazing and if you’re interested, you should check into Nelson Nash.
But, even if you’re not interested in getting that deep into it at this point, I would definitely recommend you consider starting this type of policy for a place to store your emergency funds and also any extra cash flow that you might have. That’s usually a good place for people to start.
I’m going to end up going over with you guys one of my infinite banking policies, I have multiple ones. But I’m going to go over the specific details. I just opened up another one and we’re going to track its progress as it goes, and I’ll be sharing that with you on this channel.
So, like I said at the beginning of this video, if you want to follow along be sure to hit the subscribe button, it really helps us out. And if you’re interested in exploring this type of policy, you’re welcome to give me a call and talk about it. I am a licensed insurance broker and I work with about two dozen companies. So we can usually find you the best rate out there. If you have specific health issues, this type of policy may not be the best option, but we can always explore that and I can let you know. It’s our goal here to help you do what’s best. So, if you’re trying to find a good vehicle for storing your cash, we can do some illustrations and find out exactly how this would look for you.
Thanks for watching! I hope you found some value in this and I hope to talk with you soon.
Now, go maximize your cash flow!