This article is meant to highlight the basics of both the Infinite Banking Concept & Cash Value Life Insurance.
The Infinite Banking Concept was created by Nelson R. Nash. His book, “Becoming Your Own Banker,” teaches one how to use a dividend-paying life insurance policy as a financing tool. We’ll often relate this to real estate, as many are familiar with this asset.
Let’s assume the following:
- Property valued at $100,000.
- Property appreciates at 5% simple interest every year with zero market fluctuation in real estate values (pretending we are in a perfect world).
- Now, if we ever take a line of credit or mortgage against our property, will that impact the appreciation of our property value? No.
- Regardless if we own the home free and clear, or have an outstanding loan, we continue to yield that 5% appreciation on the entire property, not just the remaining equity.
How does this relate to the Infinite Banking Concept & Cash Value Life Insurance? A life insurance policy functions in the same manner! A unique feature to a life insurance policy is that once a dollar passes through the cash value, it is at work for us, as long as the policy is still active. In other words, there is no lost opportunity cost on our money! The purpose of this post is to teach one how a life insurance policy functions in respect to loans and not losing compounding on the dollar. This article will not touch on the power of IBC at all, but will merely set the stage for a better understanding of how policy loans work.
How Policy Loans Work
This is a topic that always comes up. The simple reason? The industry does not teach it very well. We’ll touch on these points in future articles:
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