When you engage in the strategic use of the Infinite Banking Concept you improve your cash flow and liquidity.
To access your cash value, all you need to do is call your insurance company and ask for a check to be issued. You can usually receive a check within just a few days – no qualification, no evaluation, no hassle.
This is one of the things that makes Infinite Banking so powerful – you can store your wealth in a liquid asset. And that asset provides true compound interest growth, in a tax favored environment.
When you employ an infinite banking strategy you are placing your equity into a tax-advantaged “warehouse” for later use. The cash in your warehouse (your policy) is growing because it is generating uninterrupted compound interest.
What do we mean by “uninterrupted compound interest”? Because you never touch your actual principle, but instead are borrowing from the carrier’s general fund, your money grows rapidly. How rapidly depends on the rate, but to give you an idea of the power of uninterrupted compound, consider this:
If we gave you a penny and doubled it every day for 30 days (interest compounded daily), you’d have $10,737,418 at the end of the 30 days!!!
When you understand the power of compound interest, you understand why you want to put all of your capital into your “warehouse” before you deploy it.
Even though Infinite Banking leverages life insurance as the vehicle, the life insurance death benefit is not the main focus when implementing the Infinite Banking Concept. But it does provide a great benefit of life insurance – a tax free death benefit to your beneficiaries. Having a lump sum, tax free death benefit provides peace of mind knowing that your loved ones are taken care of. Especially if you die young.
For those that choose to fund a 401k plan or IRA, there is no death benefit. A beneficiary family gets the proceeds from the 401k or IRA as is, minus any income tax owed, which is taxed as ordinary income (the highest taxed type of income).
In contrast, with life insurance, the death benefit is tax free.
As an example, an individual may elect to pay $1,000 a month toward an Infinite banking policy. At the end of year one, they would have nearly $10,000 in cash value liquid and available. In addition, that money is growing tax free and if they die there is a significant tax free death benefit as part of the policy. And depending on the insured’s age the death benefit is often way more than 10x the cash value
So the death benefit is there from day one, which is huge financial leverage dollar for dollar, when you consider you only put a fraction of money into the policy. Your IRA or 401k death benefit would be zero, because IRAs and 401ks have no death benefits.
Please note: You can also add a term life insurance rider to your Infinite banking policy in the early years to get additional death benefit protection for your family. Adding a term insurance rider is a great strategy to build cash value quickly, while also having a larger initial death benefit. When employing the infinite banking strategy our goal is to build high cash value ASAP.
You are using money that has grown at around a guaranteed rate of 3.5-4% a year, plus dividends that add another potential 2-3% a year. That is a potential 5-6% yield that compounds year after year that you can use tax free via loans.
(Note: potential returns vary but when interest rates rise, your infinite banking policy dividends will most likely increase as well. At one time, dividends from whole life companies were double digits.)
And if you are not being taxed on your gains, depending on the tax bracket you fall into, this could be equivalent to earning another 2-3% interest.
On a side note: Consider that normal stock market returns are taxed around 20% or more. That means if you earn $10,000, you will pay around $2,000 in taxes that year (maybe higher). If you earn $10,000 in your policy you will pay ZERO taxes, even though you have access to that money via collaterally assigned policy loans.
Think about what the long term implications of not being taxed on your entire cash value accumulation will be.
There are many states that provide creditor protection for life insurance.
So, if you are faced with financial strife, your cash value may be sheltered from creditors.
Additionally, if you are sued, the money in your policy may also be protected from a judgment.
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