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what is infinity banking
You want your money now. Not over decades.
Infinite banking refers to a process by which an individual becomes his or her own banker. The infinite banking concept was created by Nelson Nash. Nash talks about the use of whole life insurance policies that distribute dividends and how owning such policies allows individuals to dictate the cash flow in their lives by borrowing against/from themselves instead of depending on banks or lenders for loans.
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ADVANTAGES of infinity banking
Here are some benefits of implementing cost segregation in the first year of owning investment real
The most outstanding positive of the infinite banking concept or process is the sheer improvement in liquidity or cash flow. The value of a whole life insurance policy acting as collateral is far more liquid than, for example, equity in real estate, because the loan can be taken out more quickly and the individual can secure cash in hand faster and usually at lower interest rates than those available from traditional lenders.
The improvement to an individual’s cash flow can be significant, especially in times of financial hardship or unforeseen expenses, such as medical bills or the need to buy a new car. An insurance policy loan can also come in handy if an individual happens to be without work for a time, whether due to health issues, a death in the family, or simply the loss of a job. Because whole life insurance policies are non-correlated assets – meaning they’re not tied to the whims of the indexes– they are set to retain their worth.
Disadvantages of Infinite Banking
Infinite banking is not without its drawbacks, however. An individual must qualify for a whole life insurance policy. And even if the individual qualifies, the financial burden that often comes with paying for the policy can be weighty.
It’s common and recommended practice for an individual to put at least 10% of their regular income into their whole life policy. For certain families, that large a financial commitment simply isn’t an option. If the policyholder should fall upon hard times and take out a loan against their policy, they run the risk of being unable to make adequate payments on it later on down the road.
In the end, the infinite banking concept and practice are not for individuals without financial conviction and the ability to think clearly and see the process through into the future. The concept requires an individual who is financially sound, and who is willing and able to make a long-term financial play. It’s important to consider all of the aforementioned factors before becoming your own banker.
Digging Deeper into the Infinite Banking Concept
In Nash’s infinite banking concept (IBC), the cash surrender value(s) of whole life insurance policies act as collateral for a loan. The individual simply needs to call the insurance company and ask to take out a policy loan.
A whole life insurance policy is meant to cover the entirety of an individual’s life, not simply to assist family/friends in the event of the individual’s death. As such, the policy is eligible to pay out dividends, meaning it generates a form of income that increases the cash value of the policy over time.
As soon as the policy is active, it possesses value and can be borrowed against so that the individual can take money out of the policy as a loan (using the policy as collateral) to use for handling unexpected or significant expenses that occur during the individual’s life.
iul vs infinite banking
The Significance of Cost Segregation for Investment Property
The "Infinite Banking Concept" (IBC) is a financial strategy that utilizes the cash value component of a permanent life insurance policy as a personal "banking system". Indexed Universal Life (IUL) insurance is one type of permanent life insurance policy that can be used within this strategy, although Whole Life policies are more commonly used. Here's a comparison of IUL and Whole Life policies for Infinite Banking:
Whole Life Insurance:
- Guaranteed Cash Value Growth: Offers a guaranteed cash value growth rate, making it more predictable.
- Predictable for Long-Term Planning: The steady growth allows for reliable long-term financial planning.
- Simpler and Less Risky: Generally considered simpler and has less market-related risk compared to IULs.
- Transparency: While Whole Life lacks complete transparency in cost and growth rates, mutual companies are more likely to offer non-direct recognition loans (where borrowing doesn't affect dividend payments),
- Lower Potential Returns: May have lower potential returns compared to IUL.
- Higher Initial Premiums: Whole Life policies generally have higher initial premiums.
Indexed Universal Life (IUL) Insurance:
- Cash Value Growth Linked to Market Indices: IUL's cash value growth is linked to market indices, offering the potential for higher returns.
- Potential for Higher Growth: Can potentially accumulate cash value faster than Whole Life.
- Market Risk: The cash value growth is subject to market fluctuations.
- Downside Protection: Typically includes a "floor" that limits losses even in a declining market.
- Transparency: Offers transparency on annual costs and growth rates.
- Flexibility: Provides flexibility in premium payments.
- Requires Active Management: Requires careful policy management due to its variable nature.
- Can Be More Complex: May be more complex and require a higher level of financial understanding.
Key Differences Summarized:Feature Whole LifeIndexed Universal Life (IUL)Cash Value GrowthGuaranteed, steadyPotential for higher growth, tied to market indicesRiskLower, more predictableHigher, market-relatedComplexitySimplerMore complex, requires active managementTransparencyLess transparent on cost/growthMore transparentPremiumsGenerally higher initialLower initial premiums, potentially increasing costs over timeSuitability for IBCGenerally preferredSuitable for those comfortable with more risk and active managementChoosing Between IUL and Whole Life for Infinite Banking:
- Choose Whole Life if: You prioritize stability, guaranteed growth, and predictability.
- Choose IUL if: You are comfortable with market risk, seek potentially higher returns, and are prepared for more active policy management.
Important Considerations for IBC:
- Tax-Advantaged Growth: Both IUL and Whole Life offer tax-deferred cash value growth.
- Loans are not Taxable: Loans taken against the cash value are generally not considered taxable income.
- Death Benefit is Income Tax-Free: The death benefit paid to beneficiaries is generally income tax-free.
- Long-Term Strategy: Infinite Banking is a long-term strategy that requires careful planning and consistent funding.
