Infinite Banking concept

21 Replies

Just curious if anyone here uses the Infinite Banking concept as a vehicle for holding and using cash for your deals and if so how it has worked for you?  Any and all comments from folks who use the concept are appreciated.  Not looking for comments from folks who haven't actually tried it...want to get the good and the bad from folks who are actually doing it.

Thanks!

I really don't recommend doing "The Infinite Banking Concept" per se if you plan to leverage the cash value for investing in real estate. I think the idea of leveraging a properly-designed and funded policy is a great idea, its just that the infinite banking folks don't do that.

I personally have several policies for myself. Both are overfunded IULs, not whole life.

Your money is working in two places at once. So you'll build more wealth over the long run.

The key is that you want a policy that is designed right up to the MEC limit. IBC policies leave too much room under the cap for money to be paid in later as paid up additions. Your illustration should show 85-90% cash value to premium at the end of year one. If it doesn't, find a new agent. IBC policies typically only have about 65% cash value to premium.

There's a ton more information here...

https://www.biggerpockets.com/forums/519/topics/24...

And a comparison of WL and IUL here...

https://www.biggerpockets.com/blogs/7595/77981-who...

Hi all,

I am also interested in this strategy. It seems everyone has a different solution for what they call Infinite Banking Concept so I'm looking for details on how it's actually structured and how that has worked for people who have actually tried it.

Thanks.

I started my first WL policy in March 2018 with Mass Mutual. $50K invested the first year with $42,500 Cash Value available. I borrowed against the cash value to fund 2 of the houses I flipped last year. This year, I again contributed another $50,000. Cash value is now around $89,000. Started a 2nd policy with Guardian and funded it with $80,000. Cash Value is around 85% of that number. The break even point is about year 4/5. So in 2022, I'll have contributed $250,000 (to Policy 1) and have a Cash Value slightly higher than that. In those 5 years, I'll have flipped countless properties and invested the profits back into the policies. After year 5, the policy will start earning 5 - 7% per year. I consider the WL not an investment at all. It's a place to park money with solid tax free growth that is safer than a bank. Especially when you consider that banks are designed to be cash poor and loan rich. If the economy tanks and banks go under, you have to run hat in hand to the FDIC, which is also poorly funded. The best Mutual Life Insurance companies have large cash reserves.

The biggest mental hurdle I had to overcome in buying the policy was I have to wait 5 years until I break even???  This is a horrible investment.

Before I purchased, I did 6 months of research.  I deconstructed the policies.  I read forums, articles and books on the subject.  I consulted experts.  I talked with multiple insurance agent, some knowledgeable, some not.  I researched the naysayers and analyzed why they didn't think the product was right for anyone. Once I understood all of the pros and cons, I went to a number of financial advisors and asked them if they had a financial product that did the following:
1) tax free growth at 3% or higher
2) availability to borrow against the policy at 90% or greater of the value

No one had an answer.  The closest I could find was muni bonds.  I didn't want my money to just grow in some tax free account.  I wanted it to grow in a tax free account AND I wanted to be able to borrow against it so I could continue to grow my asset base.  Unfortunately, a WL policy (or IUL), is the only way I found I could do that.  So I decided I was willing to put up the 5 year wait to break even to make that happen. 

The death benefit is an ancillary benefit that I think is around 5Mil between both policies right now, so that my family would be set if something happened to me.  It also provides protection from creditors in the hopefully rare case of a lawsuit.

In 2023, I'll have $650k+ invested.  I don't have to put anymore in.  It will grow at 5 - 7% tax free compounded.  And I have full access to all that cash at a low interest rate whenever I want.  No closing costs, no wait time, no qualifications etc.  Usually I get my check within 3 or 4 business days with a few clicks of my mouse. It also doesn't affect my credit score in any way, and I can repay on ANY repayment schedule I want, provided I pay at least the interest due at the end of every policy year.

I currently do have plenty of other avenues of low interest financing.  Everyone who has lived thru the great recession understands that the banks basically close their doors on lending in a bad economic environment, so I'm not counting on the banks to fund my investing.  Cash is king.

Is this product for everyone? NO.  I think it works best for individuals who are making far more than the money they need to live off of.  

I'm not an insurance agent and I have no vested interest in the product.  I know it's right for me.   Keep an open mind and you'll see the pros and cons and see if it fits your situation or not.

For people low on liquidity IBC does not make sense cause the fees come out in the front and as a new investor every penny should go to buying properties.

But for more high net worth folks (500k+) IBC is a good way to get tax savings, yield, and sheltering from litigation.

I own multiple Infinite Banking policies and use them for RE investing. It works. You can get tax free growth at 4% or higher and the availability to borrow against the policy at 90% or greater of the value. 

Originally posted by @Steve H. :

is this infinite banking concept available internationally ? (outside usa for non-US citizens / residents) 

The concept of leveraging the cash value of permanent life insurance can be done anywhere. It actually works even better for foreign nationals because there is no such thing as a modified endowment contract. That is based on US law. The products that I have available for foreign nationals allow for much greater cash value per dollar of premium. 

Thomas, I'm interested to learn more about how you work with foreign nationals. Are you going through insurance companies in their home country? Or are you actually working with US based companies? I've been an authorized IBC Practitioner for 2 years but have never worked with a foreign national (other than Canadians). Thanks!

@Tim Foster I've recently been looking into IBC, and I came across a video posted by Bill Allen from 7 Figure Flipping.  He had Tom Laune on talking about just this.  Tom is able to talk you through the process, and is willing to do it with no obligation.  He'll also send you a book to read.  @Thomas Rutkowski IULs are definitely a way to go, but there's more volatility there.  Tom Laune is able to set up a policy that allows you to borrow against the policy cash value while still accruing dividends, allowing your cash value to grow even when you borrow.  Also with Whole Life, there's zero volatility.  I would recommend using a company like Penn Mutual who's been around since 1847.  They have a 30 day seasoning, after which you can borrow against up to 90% of the cash value.  I would check it out.  Stress Free Planning Website

@Kristopher Kyzar The slight volatility in IUL is the price you pay for the opportunity to earn a higher annualized return than with a Whole Life. When you are leveraging the cash value of a policy, the volatility really doesn't play any role. If the cash value earns zero one year, so what? You still leveraged the cash value and put it to work in an alternative, right? And more than likely it will come back even stronger in subsequent years and will more than make up for it. Remember, the downside is zero, so you're not losing any of your cash value. The upside is much higher than a Whole Life. And again, the annualized return will almost certainly be higher than any Whole Life.

Understand that under the hood, the insurance company is essentially taking the dividend that they would have paid you and using it to hedge the market index with options. The movement in the market that they can capture is the "Cap". If the market index goes down, the option expires worthless (zero floor) and all you lose is the dividend that you would have earned. The underlying insurance company assets are exactly the same, as is the cost of insurance.

The Double Play is a long term strategy. 

The problem with using IUL's for lending strategies is not just the "slight volatility" but the lack of guarantees and the ever increasing cost of the insurance which is the primary guarantee of IULs and that is the costs are guaranteed to increase year over year, and they can not be leveraged like whole life can.  There is a reason why banks won't allow you to leverage them, and it has to do with the lack of guarantees.  IUL's are the tired old hackneyed 'buy term and invest the difference' of the 1980's which is based on the mistaken idea that investing will yield more spendable income in retirement than one can get from whole life alone.  Remember, it is not how much money you have at retirement, but how much money you can SPEND in retirement (and I might add, how much you can USE on the way to retirement).

Originally posted by @Jim Kindred :

The problem with using IUL's for lending strategies is not just the "slight volatility" but the lack of guarantees and the ever increasing cost of the insurance which is the primary guarantee of IULs and that is the costs are guaranteed to increase year over year, and they can not be leveraged like whole life can.  There is a reason why banks won't allow you to leverage them, and it has to do with the lack of guarantees. 

You can get a policy loan on an IUL the same way than for a WL. In fact, on IUL, most carriers have policy loans options that have often better rate than the ones found on WL policies.

You can get a bank loan on an IUL, but it is true that you will find less lenders than for WL.

@Brent Moeshlin , I really like what you've done with IBC.  I'm starting to look into for myself.  Can you recommend the best sources for my own research before talking to someone who sells it?  Or can you recommend someone who is just as concerned about educating the potential client as he/she is on them buying a policy?  Thanks

Originally posted by @Jon Collins :

Or can you recommend someone who is just as concerned about educating the potential client as he/she is on them buying a policy?  Thanks

You can start with the good content provided by @Thomas Rutkowski. His Youtube channel and webpage are full of good information. There are only a few people in the sector that I would recommend as most of the insurance agents are not familiar, or not willing to minimize their commission to maximize the cash value of a policy.