Just learned about infinite banking at my last meet up. I was by no means an expert when I left, but I did have a grasp. Read the book by nelson Nash "becoming your own banker" and enjoyed it. Has anyone out there borrowed against their life insurance to fund a deal? This is whole concept fascinates me, I wish I had learned ten years ago.
Just learned about infinite banking at my last meet up. I was by no means an expert when I left, but I did have a grasp. Read the book by nelson Nash "becoming your own banker" and enjoyed it. Has anyone out there borrowed against their life insurance to fund a deal? This is whole concept fascinates me, I wish I had learned ten years ago.
There are a lot of people here on BP using this approach. I use it myself and it absolutely works.
Lender · Boulder, CO · Member since 2016 · 53 posts · 21 votes
3y
Hey Everyone,
To piggyback on the discussion here, I started an IUL policy with the intention of borrowing against it in the future. However, my understanding of my policy is that the loan needs to be repaid within the same calendar year to avoid reducing the cash accrual. Is this the case for all policies or just mine?
To piggyback on the discussion here, I started an IUL policy with the intention of borrowing against it in the future. However, my understanding of my policy is that the loan needs to be repaid within the same calendar year to avoid reducing the cash accrual. Is this the case for all policies or just mine?
Thanks!
You can keep a loan forever. You don't ever have to pay it back. When you are leveraging the cash value for investing in real estate, why would you ever want to pay it back when the bank/insurance company's money is working for you? I happily pay the interest on my loans each year knowing that 4.5% money is making me much more.
If you don't pay the interest on a policy loan, the insurance company will loan you the money to pay themselves the interest. You will have a compounding loan balance. You wouldn't want to do this in business, but it does offer some nice flexibility if you are in a cash crunch.
@Jeffrey K. That shouldn’t be the case. If you want to be able to reuse the policy over and over, it’s better to.
If you don’t pay back the loan, you’ll need to make sure the policy won’t lapse down the road. An in-force illustration would help with that.
A loan will only cause a problem if the policy owner doesn't pay the interest. You aren't physically taking money out of the policy. The insurance company is loaning money to you that is secured by the cash value of the policy. Policy owners run into trouble when they don't pay the interest and the interest due gets added on to their loan balance.
Investor · Charleston, SC · Member since 2011 · 606 posts · 413 votes
3y
I researched this concept over 10 years ago and did not find any merit in doing it. Sounds good on paper but many variables. If you are going to do it you better start young since it takes years to get benefit even if you front load it (first you have to make enough to offset your fees). I'm not going to put cash into an account where the investments are not controlled by me. Rather I will spend my time, energy and money in getting double digit returns by investing in what I control like mortgage notes, private landing, rentals, syndications, etc.
I researched this concept over 10 years ago and did not find any merit in doing it. Sounds good on paper but many variables. If you are going to do it you better start young since it takes years to get benefit even if you front load it (first you have to make enough to offset your fees). I'm not going to put cash into an account where the investments are not controlled by me. Rather I will spend my time, energy and money in getting double digit returns by investing in what I control like mortgage notes, private landing, rentals, syndications, etc.
If you think that it doesn't work or that it takes too long, you probably weren't looking at it the right way. Life insurance is not the investment. It is simply a way to earn a greater return on what you are investing in. When you lend $100,000 of your money at 10%, you make $10,000. If you are in a 40% tax bracket, you'll write a check to the IRS for $4K. Your net, after-tax return is only 6%.
If you leveraged a cash value line of credit to do the same thing you'll still make the same $10K by the end of the year. But this time you will write off the interest on the CV-LOC as a business expense. If we assume 5% loan interest rate, that leaves you with $5,000 of taxable income. After writing the IRS a check for only $2,000, you are left with $3,000.
You should remember that the cash value securing the CV-LOC is earning a dividend too. Mass Mutual is paying a 6% dividend. That means that the cash value earns $6,000.
Your net, after-tax return is $9,000, or a 9% effective return. That is a 50% higher return.
Use whatever assumptions you want. It still works.
Great points here but the example taken here is for someone in the 40% tax bracket, is IB still relevant for someone in the 24% tax bracket?
especially given when other conventional banks are already offering 4% in savings account interest (risk free)and even 5% in CDs and the treasuries and munis are also good tax shelters.
Great points here but the example taken here is for someone in the 40% tax bracket, is IB still relevant for someone in the 24% tax bracket?
especially given when other conventional banks are already offering 4% in savings account interest (risk free)and even 5% in CDs and the treasuries and munis are also good tax shelters.
You can't get a loan from the bank secured by your savings. It doesn't work like life insurance. Especially not with the interest rate arbitrage that you can get in a life insurance policy i.e. borrow at less than your cash value is earning. Banks make money doing the opposite: charging your more for loan interest than they pay on your deposits.
Yes, it will work at 24% tax. Just swap out the number and recalculate. It was just an example.
Thanks but if I understand it correctly there is a 15% haircut in fees for IUL (5% in fees for whole life?) coupled with indexing returns capped between 0-10% makes me wonder it all evens out in the end and even if we make a tad less with the non-ib approach as someone mentioned earlier the investor is in total control and in drivers seat.
Investor · Houston, TX · Member since 2019 · 95 posts · 29 votes
5mo
Yes. In my experience, the biggest surprise for most people is how simple it actually is once you understand the mechanics.
You fund a properly structured whole life policy. The cash value grows guaranteed, every year. When you need money for a deal or an expense, you take a policy loan. Here is the key part -- your money keeps growing uninterrupted inside the policy even while you are using it. You are essentially borrowing from the insurance company, using your cash value as collateral.
You pay yourself back on whatever schedule works for you. No bank. No application. No credit check. And the whole time, your money never stopped compounding.
The families and clients treat it like a financial foundation. It is not a get-rich-quick thing. It is a long-term strategy where your money works in multiple places at once. That is what makes it different from just saving in a bank account.