Welcome folks, to Oregon Cash Flow Pro. I’m your Cash Flow Consultant, James Barber, and I’m here to help you take control of your finances! Today, we’re talking about the Infinite Banking Concept, specifically for Business Owners. The Infinite Banking Concept is a master tool for wealth building. This is especially true for business owners looking to maximize their cash flow. There’s a lot of opportunities out there to divert your regular business expenses into personal wealth building blocks. That will put your money to work for you, permanently.
What we’re going to do, I’m going to go over the concept and then I will show you some specific examples on how we can do this. So, to begin with, let’s look at how business is traditionally done. Traditional business banking. This represents your typical quarterly or annual tax account. Could be your payroll account, could be a profit sharing account, or a cap ex account.
What happens is, typically in a separate, non-performing account, so checking or savings account, you build up the account with the funds to pay your quarterly payroll tax, to pay your monthly payroll, bi-weekly payroll, whatever the case may be. Could be your annual bonus, profit sharing. Your account builds up and then it pays out. Next period, builds up – pays out. Builds up – pays out, and it keeps repeating as long as you’re in business, right? It’s going to continue to do that. May not seem like much opportunity to generate cash flow, and in this situation it’s not.
Right here where we started out is where we ended up. All that money did in the meantime was just went up and down, up and down. The balance went up and down. So, how can we maximize this? That’s what we want to look at.
We maximize it by diverting those funds into a high cash value life insurance policy. Typically a whole life policy and I will show you specifics on that in a bit, but the main concept of it is, rather than having it build up here, we put these funds, we load the accumulated funds into a personal or business high cash value, dividend paying, whole life account. Then when it’s time for payroll, you borrow against it. When it’s time for your taxes, you borrow against that account. That’s what we see happening here. We borrow against that account, then we pay it back. Borrow – pay it back. Borrow – pay it back. Borrow – pay it back. You can see now, when we borrow against that life insurance policy, we’re not actually pulling the money out of the policy. It sits in there. It’s guaranteed to grow at at least 4% each year, minus whatever the cost of the insurance is, but for our purposes it’s pretty negligible.
So, those funds are going to continue to grow and compound and that is the beauty of this curve. You get a compound growth curve. In the meantime, what we borrow from the policy and then pay back, borrow and payback, those funds do not compound. We borrow close to the same amount each time and we pay it back. And the interest charge on that is going to be about the same each time, as long as we’re paying it back over the same period. You’ll see in the next few screenshots that I’ve got, I will show you exactly how those numbers work out. So, you borrow against the account to meet your obligations, the funds in the account compound, cycle after cycle, growing tax-deferred and you can actually borrow, everything you borrow out of this account, you borrow it tax-free. And the beauty of this is, the business gets to deduct the interest expense, the business deducts the interest expense.
So, you’re essentially, if you’re the business owner, your business is going to pay interest that it normally wouldn’t now, under this first scenario. Under this first scenario, you’re not paying any interest, but you’re not earning any interest. In this second scenario, you the business owner are making interest on the funds and it’s compounding on top of each other. And your business is deducting the interest that it pays to borrow those funds. Make sense? Well, if it doesn’t yet, hold on, because I’m about to show you how this looks in real numbers.
The policy itself has to have already been established. You’ve already got money in there, that way the amount of funds that we divert into it goes almost exclusively to cash value. And we have to design a special, we have to specially design a high cash value life insurance policy to function this way. You can’t just go out and buy any whole life policy and expect it to work like I’m going to show you today, ok? These are specially designed accounts.
Ok, check this out. This is quarterly taxes diverted through the whole life policy. Let’s say your quarterly taxes are $10,000. We’re specifically looking at a policy that uses a fixed loan rate with direct recognition. That means, whatever funds you borrow from the policy, you’re going to borrow them at 6%, but the company that you’re borrowing it from is also going to credit your account, the funds that you’re borrowing against, that same 6%, ok?
So, we know how much the funds that you borrow against, are going to grow. If you put $10,000 into that account, and you’re borrowing $10,000 out, we know the it’s going to grow at 6% and the insurance company is going to charge you 6% to borrow those funds. The advantage of that? Remember when I said earlier, the business, your business, will pay and deduct those taxes, er, your business will deduct the interest that gets paid on this, while you, the business owner, get to benefit from that 6% growth. Ok, so take a look at this.
We’ve got a $10,000 policy value. If you get those funds diverted and that $10,000 sits in that policy for 20 years, you’re going to end up with $32,000 at the end of those 20 years. Just from that one change. It’s only a one time diversion, because the rest of the time we’re putting money in and taking it out, right? Your loan costs are going to end up being, because what we’re expecting is that that loan ends up getting paid down, throughout the period as you would normally save up those funds, you’re actually putting those funds to paying that loan back, right? So, our loan cost is half the cost of the 6%. So, it ends up being, because the balance isn’t going to be $10,000 over the course of that period, whether it’s, in this case it’s quarterly, half way through the quarter we’ve saved up half of our quarterly taxes again. Which means we’ve paid back half of that loan.
So, what I’m figuring in these numbers is half the cost. $300 is what it will cost you to borrow each quarter. That $10,000 that we diverted. That totals up at the end of 20 years, I’m sorry, not $300 each quarter, that’s what the annual cost to borrow that $10,000 will be when you do it each quarter. So, at the end of 20 years, you’re going to have $6,000 out in extra loan costs that you’ve spent, that you would not have spent if you had just built it up in your checking or savings account, ok?
But, that allowed that account to grow up to $32,000. Now, the advantage here is, the business pays this $6,000 over the course of those 20 years. That’s the cumulative total, right? It’s only $300 every year. We need to recognize that because the business get’s to deduct those expenses, you get tax savings from that. So, if you’re income tax rate, in this case we’re figuring a 24% marginal tax rate, that would be $72 per year. So, after 20 years, $1,440 cumulative income tax savings, which we can add into our total benefit to the business owner. So, what we have for our total benefit to the business owner is, we have our policy value at the end of 20 years minus the cost of the loan that we’ve paid and then add in the tax savings that we got from it. And we end up at $27,511. That’s’ with a $10,000 diversion of quarterly taxes. Pretty neat, isn’t it? Now, let’s see how that works with bigger numbers.
Let’s say it’s employee bonuses, or profit sharing, ok? If your account builds up to $100,000 once a year and you end up paying that out to your employees for employee bonuses and we divert those funds. You get them saved up, we put them into a life insurance policy or right after you pay your bonus for one year, we immediately start putting the bonus in for next year, right? Start building it into the policy. Next time bonus comes around, you pay out the bonuses from the policy by borrowing against it.
That loads the policy with $100,000. Again, 6% direct recognition fixed loan, so we know this account is going to grow at 6%. At the end of 20 years, oh look at this. Now you, the business owner, have a $320,000 extra in your life insurance policy. Your loan costs, $3,000 a year. $60,000 worth of loan costs at the end of that time. Again, we are going to figure 24% income tax rate and at the end of the 20 years, you’re going to have saved $14,400 in income taxes.
For a total business owner benefit of $275,113.55! And that was from diverting employee bonuses through the life policy. Kind of a small change, big effect for you, the business owner. This is how we maximize your cash flow.
One more example, let’s look at diverting payroll through the life policy. Figure payroll of $20,000 a month, that’s what we’re anticipating in this scenario. We’re going to divert that first $20,000 into your life policy and then we’re going to borrow against the life policy, in order to make payroll each month. For an annual loan cost of $600 and an annual tax savings, because the business gets to write off that interest, of $144. So, at the end of 20 years, you now have in your personal life insurance policy $64,142.71…approximately. Your loan costs…$12,000. Your income tax savings… because the business paid those loan costs and is able to deduct that interest, which comes off of your income at some point. Total benefit to the business owner…$55,000 after 20 years!
These are three separate scenarios that a business could do altogether. I have them listed out separately. Remember I called these wealth building blocks. You don’t have to do any of them, you could do one of them. You could do all three of them. There’s probably other opportunities. Maybe you save up for capital expenses. Your capital expense cost, we can divert that and then suddenly if you’re buying a truck every 3 years for your business, now instead of paying cash for that truck, we divert that into the policy.
Pretty amazing! This is the infinite banking concept, that utilizes a high cash value life insurance policy, that’s specially designed. I can design these for you.This is one of the things that I do. So, if you’re interested in seeing if something like this can work for your business, get in touch with me. Leave a comment in the comment section. You can check out my website www.oregoncashflowpro.com. There will be a link in the comment section. Connect with me, we can get you set up. First we will look at your business and figure out how we can maximize your cash flow. The other thing we can look at, this doesn’t have to only be done with a life insurance policy. We can maximize your cash flow in a number of different ways utilizing business lines of credit as well. So, There’s a number of different ways that we can do this and make it work, but it just takes knowing what your scenario is, what your goals are. A lot of different ways we can make cash flow work better for you.
Thank you for watching. Be sure to hit the like button, subscribe down below. If you have any questions or concerns, leave them in the comments. If you’re interested in getting a banking plan, a dynamic banking plan, or you’re interested in a life policy, fill out the form that’s in the comments. I’m happy to go through it with you.
You can check out my Patreon page. For people that become Patrons, we’ve got some pretty exciting things going on so check it out and I look forward to talking to you soon. Have a great day!