Put simply, the strategy requires you to purchase a whole life insurance policy on yourself if you can medically qualify for it. if not, you can buy a policy with someone close to you to be your own bank.
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warning: insurance companies hate stoli (stranger owned life insurance) and so does the irs.
However, these are the types of relationships where insurance companies will sometimes write a whole life policy for you to own and control as your own bank:
- business partner
- key employee
- people you have lent significant amounts of money to
note: with proper documentation, other scenarios may be possible to become your own banker using other people as insureds for your bank infinity life insurance.
once you’ve identified who to buy insurance from, what’s the next step?
step 2: design needs of whole life policies and add-ons to become your own banker
now you shouldn’t take out any kind of life insurance policy like your private family bank.
Nelson Nash’s book “The Concept of Infinite Banking: Becoming Your Own Banker” and Pamela Yellen’s books “Banking Into Yourself” insist that it must be a participating whole life insurance policy from an insurance company. mutual insurance.
While we’re also big fans of using certain whole life insurance policies for infinity banking, we also recognize that certain indexed universal life insurance (IUL policies) can also work if properly structured. however, since there is additional risk associated with these types of policies, we recommend that you fully understand all the pros and cons of index universal life insurance before using iul as your own bank.
going back to using the proven & True Whole Life Insurance To become your own banker, we completely agree that getting your policy from a mutual life insurance company (as opposed to a stock insurance company) is of the utmost importance. This is critical as mutual companies are owned by policyholders and share their profits with whole life policyholders in the form of dividends. It’s what makes the cash value of whole life insurance a true uncorrelated asset with steady, strong growth rates, unlike “high-yield” savings accounts or CDs.
In order to maximize cash value growth and early access to capital within your own bank, you’ll also want to make sure your life insurance policy includes these 2 key clauses:
- paid additions (pua) rider: here’s how to turbo-charge your “banking engine”. (more on this below)
- temporary insurance clause: it would be like the titanium frame that holds the turbocharged engine in place.
- the commission paid to the agent for additional overfinancing payments is minimal
- 90-95% of this additional premium goes directly to your cash surrender value (in other words, these overfinancing payments become immediately accessible within your private family bank)
- The other 5%-10% of this additional payment, which does not go towards immediate capital building, goes to purchase a small portion of the additional permanent death benefit (called a paid addition or pua). What’s nice is that no more premiums will be due on a PUA as it is paid by contract with this lump sum payment, hence the term paid addition. PUAS immediately increase the guaranteed cash value of your whole life policy and entitle you to a greater share of your mutual insurance company’s future dividend funds.
- These paid additions accumulate into your cash value which contractually begins to grow at a favorable guaranteed rate of return (even if dividends were never paid again).
- withdraw your surrender value in cash or…
- borrow against your cash surrender value using the guaranteed policy loan feature for maximum flexibility
- increase your total borrowing capacity by using outside financing without even having to pledge your policy (ie 1.9% car loan)
- promoting the policy as collateral for a cash value line of credit (cvloc) program when you can often get a better rate than a policy loan (or for convenience when you own multiple policies ).
frequently asked questions: “but wait, a temporary insurance clause? i thought you needed a lifetime for ibc banking?”
Answer: When you become your own banker, you need your whole life. however, combining it with this additional term can substantially reduce the total cost of the total death benefit needed to support the excess funds. it also increases the number of paid add-ons you can purchase in the early years, which is like the turbocharger that will greatly accelerate continued growth within the whole life policy as your own bank.
Check out our “Whole Life Growth Components & Riders” to fully understand the proper construction of an infinity bank life insurance policy.
Now that you know who to buy insurance from, where to buy it, and what features you want to add, what’s the next step to being your own bank?
Step 3: Properly Fund Your Policy So You Can Become Your Own Banker
Now I realize that it seems completely counterintuitive to pay more than you absolutely have to when it comes to insurance. then get ready to shift your paradigm and blow your mind!
The way to beat the internal costs of a whole life policy is to pay an additional premium above the amount required for basic coverage. in fact, you’ll want to pay a lot more when you become your own banker… as much as the premium the irs will allow.
[hint: when the irs regulates something, doesn’t that usually mean they’re trying to limit something good that’s going on there?]
here are the 4 reasons why you want to pay the maximum amount of the whole life insurance premium to be your own bank:
Now that you have your bank engine in place, you’ve filled it with fuel and the engine is humming, now what…?
Step 4: Use the cash value to be your own bank to fund expenses and fuel outside investments
Using our car analogy, it’s time to take your bank infinity life insurance policy for a spin. Most people don’t want to accumulate wealth just to have an impressive set of ink dots on a yearly statement. he wants to become his own banker to buy things, build wealth, invest for his retirement and his legacy.
You can now use the capital within your own bank to do these things at any time and for any reason using one of these 4 methods:
Now I know that most of you just cringe and see red when you hear the words borrow and lend.
That said, even though you’re technically borrowing funds when you become your own banker, your total cash value balance continues to grow within your life insurance policy, including the amount you borrowed.
You see, some people mistakenly think they are “borrowing” the policy’s cash value and “paying themselves with interest.” that is not true at all and is often used as a misleading sales pitch.
Your cash value never actually leaves your whole life policy, even when you take out a loan and “borrow.” You see, the mutual insurance company is happy to give you a loan from their general account because they always have your cash value as collateral and it’s guaranteed to grow every year no matter what.
That’s why it looks like you’re paying yourself the interest.
again, this is important:
none of your cash value comes out of your whole life policy when you borrow. your entire cash value balance continues to grow within your bank life insurance policy, including the amount you borrowed.
question: “what if I never want to repay the damn loan?”
answer: “you don’t have to, but you might want to. and you have maximum flexibility in how you do it.”
Step 5: Pay back the loan on your terms with your own private family bank
Fortunately, a whole life policy loan is a private loan between you and the insurance company, so it doesn’t show up on any credit report. Also, since the mutual company holds your growing cash value as collateral, there is no strict payment structure with your own bank. These are your payment options:
- pay principal and interest on the schedule you want
- make interest-only payments
- don’t pay anything until you can make a balloon payment for the entire balance
- pay nothing (in the hope that the cash value growth will keep pace with the loan interest accruing on the loan balance), and eventually the lifetime death benefit pays off the loan when the insured dies.
It goes without saying that there is no other institution (not even a mob loan shark) that offers this kind of flexibility to be your own bank. Obviously, you should schedule some kind of regular loan maintenance, but it’s certainly not required by the insurance company.
In fact, I have contractor clients who bid on jobs and have to pay out of pocket for material and labor costs. they float a whole life policy loan for almost a year and then pay it off in one lump sum when they get paid for all the work. we encourage them to pay the minimum interest maintenance necessary to maintain simple interest on a fixed loan balance while earning compound interest on a growing cash value balance. however, when a bank life insurance policy is performing as well as your own bank, the required minimum loan payment may be zero.
many people hear about paying interest on the loan and think: “ah, I see, I knew there was a catch! I knew it was too good to be true.”
but think about it: even if you just kept your cash in a bank account and made a withdrawal for each purchase, don’t you start making deposits soon after to top up the account for the next purchase?
So if you apply the exact same “save-spend-replenish” routine but channel the exact same cash flows through a properly designed whole life insurance policy as your own private family bank, you’ll often find that the difference in net wealth is staggering when you practice what they call the concept of infinite banking.
These are the 3 reasons why becoming your own banker using life insurance works:
- your cash value typically earns a much better growth rate than any bank account, cd’s or even safe bonds (with minimal fluctuating values)
- growth, as well as any lifetime distributions, are immune from income tax as long as a small amount of the life insurance death benefit remains in effect until the insured dies.
- When you borrow instead of making a withdrawal, your total cash value continues to grow within the policy despite any loans you have against the policy with the insurance company.
that’s it! and that third factor is huge. Believe it or not, the combination of these 3 factors can add up to much greater wealth for the policyholder if this banking strategy is used correctly.
what I mean by that is that you should pay off your loans as soon as possible so that you can continue to practice banking throughout your life