What is Infinite Banking?
Infinite banking is a financial strategy, sometimes called IBC, or the infinite banking concept, that can allow you to take control of both your savings and your debt needs, helping you become, in essence, your own bank.
Did you know that the average American spends 25% to 35% of their income on interest through things like real estate, new cars, education (student loans), and credit cards and tries to save 10% of what they make?
Conventional financial planning focuses on what to do with the 10% savings portion of your income. The infinite banking concept focuses on how to redirect the 25% to 35% you’ll spend paying off debts like your mortgage, car loans, student loans, and credit cards. Instead of lining the pockets of the bank shareholders, you’ll be lining the pockets of the policy owner, which is you.
If you are curious about infinite banking and how it works, keep reading. Because we are about to introduce to how infinite banking works and how it can help fulfill your financial dreams and bring financial freedom to your life.
What is Infinite Banking?
So first things first. What is infinite banking? Infinite banking was invented by finance expert R. Nelson Nash in the early 1980s. At the time Nash was struggling to meet high-interest rates on loans that he had taken out with traditional banks.
He was in financial trouble, and he started to contemplate the reasons behind this. He realized that as long as the banks determined the interest rates and the terms—he would be at their mercy. So Nash decided to find a solution and in doing so he developed a revolutionary yet simple idea: He created the infinite banking concept.
Back in the 1980s, whole life insurance policies were highly common (it was only in recent years that term policies came to dominate the market). Nash realized that he could take control of his personal finances by creating his own bank, or fund, from which to borrow, by taking out a whole life insurance policy and using it to borrow from when needed.
To grasp how this works, let’s look at how whole and term life insurance policies work.
Term Life Insurance Policies Defined
Term life insurance policies are the most common type of life insurance purchased today.
They provide a policyholder with life insurance for a specific period. The terms are based on the individual at the time that they take out the policy.
While term policies are a lot cheaper than whole life policies, they can be more costly in the long run.
For example, a 25-year-old man takes out a life insurance policy for the term of 20 years. He is in excellent health and does not have a high-risk occupation. Therefore, his monthly payments are set to a low amount of $15 dollars per month.
After 20 years, the policy expires. He then takes out a new policy. However, he is now 45 and has the pre-cursors for heart troubles. His premium is now $90 per month.
What’s more, he has lost all the money that he put into the initial policy.
Now let’s take a look at whole life insurance policies.
Whole Life Insurance Policies Defined
Unlike term policies, whole life insurance policies are for the duration of a holder’s life. Some policies have a cut-off point of 99 or 98 years of age. However, at this point, the accumulated policy is then paid out. The holder is then free to pass it on to his or her next of kin.
The drawback to whole life insurance policies is that they initially require much higher monthly payments than term insurance, with the average monthly payment hovering around $165.
However, as time passes, this amount begins to even out against term policy premiums. What’s more—the money invested in whole life policies is yours and is guaranteed to pass to your family, or to you if you live over the age of 99.
How Whole Life Policies and Infinite Banking Work Together
So what is it about whole life insurance that allowed Nelson Nash to it to create a personal bank?
Here is the key. Whole life policies allow you to borrow against the accumulated premiums that you have paid in. While this attracts interest, the interest is set at the time you take out the policy.
This process uses dividend-paying whole life policies as the vehicle for your savings. By using whole life insurance, your savings are guaranteed to grow tax-free and also participate in the profits of the insurance company through a dividend (not guaranteed). Not only is your money in a stable, tax-free growth environment, but you have the freedom to access your funds at any time.
The freedom to access your money at any time is the real power of Infinite Banking. By taking loans out against the accumulated cash values of your life insurance policy, you’ll be maximizing the work of your money. When you take a loan out, your cash values continue to grow and receive dividends even with a loan against the policy.
So, instead of putting cash into a 401k or IRA, and using a bank for the major purchases in your life, you can put cash into your whole life policy and take loans against your cash value for those purchases. As you pay back your loans to your policy, the same way you would with a real bank, you’re the one who recaptures the interest – treating your money the same way a bank does. You have, in essence, become your own banker.
What is more, as the money is actually yours, you can take a loan against it at any time (providing it is equal to, or less, than your accumulated premiums). The insurance company also won’t need to see credit scores, collateral, or proof of employment or income.
Essentially, Infinite Banking allows you to build up your own bank from which you can draw from at any time, without having to jump through hoops or pay high-interest rates. You can use it to finance a new car, buy real estate, or fund any other purchase that you would normally finance through a bank or traditional lender because of limited cash flow.
Not only is Infinite Banking the most efficient way of using your money in your lifetime, but it’s also the most efficient way to pass on wealth to family members, loved ones, or charities.
The Benefits of Infinite Banking
Here are the benefits of infinite banking:
- Borrow at any time from a policy.
- The interest rate never changes.
- The interest rate is lower than that of traditional lenders.
- There’s no set term to pay back the policy loan.
- You don’t have to make set monthly payments.
- Pay back the loan at your own pace.
- Money drawn from a whole life insurance policy is not deemed as income by the IRS.
- Income earned from your savings is not considered taxable by the IRS, so it is a tax-free investment.
- Use it to improve cash flow.
Learn About Infinite Banking
Infinite Banking is a process, not a product. You can learn more about it on this site. Our goal is to teach you the underlying philosophy of banking, the most profitable business of all time, and explore how this concept can be implemented in your life.
If you are interested in learning more about the infinite banking concept, along with other financial concepts that can activate your financial freedom—make sure you take our free Infinite Banking course.
Infinite Banking Resources
Here is a series of free resources that will help you better understand the infinite banking concept. They are designed to help you to start reclaiming your finances, and putting them back into your hands:
- Library of videos and webinars
- Dollars and Nonsense Podcast
- Who is Nelson Nash?
- Infinite Banking Glossary of Terms
- What is Private Family Banking?
- Infinite Banking Blog
Finally, if you are feeling unsure where to start with the infinite banking concept, contact us to set up a private consultation. We are in the business of helping people like you achieve financial independence through our tried and true tool, Private Family Financing.