Why Doesn't Everyone Practice Infinite Banking Concept?
Jan 11, 2021
Why Doesn't Everyone Practice the Infinite Banking Concept®?
Why Doesn't Everyone Practice the Infinite Banking Method? Technique? Program? Principle? Design? Infinity Banking? Strategy?
Why doesn't everyone practice the become your own banker concept through cash value life insurance? Policyholders obtain guaranteed death benefits, accumulate tax-exempt savings income, use cash value equity for loans, and subsidize their retirement income.
The concept of using whole life or cash value life insurance for the benefits listed above have been around since the end of WWII. Nelson Nash popularized and trademarked the Infinite Banking Concept (IBC) in his 2000 book Becoming Your Own Banker.
Should Everyone Practice IBC?
The first question we should ask is should everyone practice IBC rather than why? For example, a stock investor making a killing on high-risk securities may ask why doesn’t everyone invest in high-risk stocks? Of course, everyone would love to earn loads of money in the markets, but for various reasons, many don’t think they should. The higher risk of losing money, for one, is a deterrent for many.
The role of an insurance agent is to first understand your financial goals and then communicate how the infinite banking strategy can contribute to those goals. An agent that says you should take advantage of cash value life insurance before understanding your financial goals may not have your best interest in mind. Many people take time to contemplate and make financial decisions if they are uncertain about the value, which is wise and expected.
For example, there was a time when there was no possible way, I would pay someone for business coaching. I felt I didn't need it. Our company is growing, everything seems to be going well, why would I hire consultant? Then as time passed, my mindset completely shifted, and we have hired a business consultant to help our business grow further.
It took time to understand the value of a business coach. It can be the exact same thing with cash value life insurance and the infinite banking method. Everyone takes time to understand and decide whether a financial decision is a good fit or not.
Reasons for not Taking Advantage of Infinity Banking
If a person should use the financial advantages of whole life insurance, why don’t they? There are a multitude of reasons, but a few are commonly asked in question-and-answer sessions with potential clients.
About six months ago, I was invited to an infinity banking presentation by someone I had worked with in the past. There were about a hundred people and one individual stated during Q&A that the presentation differed from one they had seen several years ago. That presentation implied that it took around seven years to reach cash value breakeven whereas we had stated that it could be achieved in as little as three years. They had decided that the seven-year breakeven point was too long, and they could get better returns on $100k elsewhere. But if cash value breakeven could be achieved in three years, they were going to take another look at putting funds into cash value life insurance. “Why the different timelines?”, they asked.
I answered that policy design is critical for optimizing cash value growth. Not all insurance agents take the time to understand the intricacies of policy design involved in accelerating cash value growth. It wasn’t that whole life insurance wasn’t a profitable financial option several years ago, but that the agent didn’t understand how to design a policy that helped the individual reach their financial goals.
Another common reason people don’t choose to take advantage of cash value life insurance is due to misunderstandings. This is the reason we include Q&A sessions at our presentations. Even so, not everyone is comfortable speaking up at meetings and I find out later that there were misunderstandings because I didn’t communicate effectively. I always provide contact information so that we can resolve misunderstandings on a one-to-one basis later.
A third reason is that some people want to pay off their debt before starting a cash value life insurance policy, which is good financial management. Nearly everyone has experienced the exhilaration of making that last debt payment. It is a relief. At that point, some will reconsider cash value insurance to see if it fits their new debt-free life. We can show how to achieve both financial goals simultaneously for those who are interested.
Lastly, some people think that the benefits of whole life insurance are too-good-to-be-true. This is a common risk avoidance strategy against those in our society who run illegal financial scams or use unethical practices. We use one of the top actuaries in the country to fully understand the internal workings of cash value insurance. That way our presentations can be verified by other financial professionals.
Why is Policy Design so Important?
We’ve mentioned that policy design is critical for rapid cash value breakeven and future growth. At IBC Global, we typically use a 10/90 split strategy where we design a policy that produces 80-90% of cash value breakeven in the first year. A cash value equity position is typically achieved in the next two to four years.
A 10/90 split describes the allocation of your monthly payment. We can allocate payments to the base premium which guarantees lifelong insurance coverage and to the Paid-Up Amount (PUA) rider which governs cash value growth. A 10/90 split policy is designed to accelerate the time needed to reach cash value breakeven.
To achieve that goal, we want to apportion the lowest amount that large insurance companies will allow to the base premium which guarantees lifelong coverage. We want to allocate the highest amount to the PUA rider which drives cash value growth. So, 10% goes toward the base premium and 90% toward the cash value generating PUA rider. We’ve found that the 10/90 split meets the limit of what large mutual companies will allow. Smaller insurance companies typically do not allow 10/90 splits.
Advantages of Whole Life Insurance
Guaranteed death benefits for the life of the policy holder, guaranteed tax-exempt interest income, the potential of dividend earnings, and the ability to borrow from the policy are the major advantages of cash value insurance. High-net-worth individuals use these policies to further diversify their financial portfolio as well as provide significant death benefits for their family when the time comes.
Guaranteed death benefits from whole life insurance are paid upon the death of the insured whenever that may occur.
Guaranteed interest income and discretional dividend earnings are tax-exempt
Low-interest loans can be taken without early-withdrawal penalties to pay off debt, pay a child’s university expenses, buy a summer home, or invest in real estate. There are no restrictions as to how the money is used.
Cash value equity is shielded from creditors, including bankruptcies, should something unforeseen happen in the future.
Cash value life insurance offers a low-risk option for parking cash during volatile economic situations like we have seen in the 21st century.
Flexible Tax-Free Savings Vehicles
Maximum cash value whole life insurance policies are flexible tax-free savings vehicles. Cash value funds can be used in emergency situations, used as tax-free loans, and act as an annuity during your retirement years. It can be particularly useful for those who’ve maxed their IRA and 401k limits by providing a safe, stable, tax-free investment.
If you’d like more information on how to use a whole life insurance policy to maximize your tax-free cash position, you can view instructional videos on the IBC Global YouTube channel. You can also contact us for a free, no-obligation consultation from one of our Innovative Life Insurance Specialists.
Disclaimer IBC Global Inc is independent of and is not affiliated with, sponsored by, or endorsed by Infinite Banking Concepts, LLC.