Infinite banking system
Member since 2022 · 18 posts · 7 votes
Infinite banking system
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Josh St LaurentBusiness Member
Financial Advisor · Stateline, NV · Member since 2023 · 131 posts · 122 votesTim,
I have to chime in here. I'm a professor of finance at GGU and a financial advisor for the last 12 years including insurance. I am a Certified Financial Planner and I now run a firm specializing in helping RE investors and entrepreneurs.
Stay away from the "infinite banking system"
The main features of putting your money into an IUL (Indexed Universal Life) which is the vehicle used by infinite banking include incredibly high fees (Most of which go to the agent selling it to you during the first year), inability to access your money for 7-10 years, and you having to go through an insurance company to access your own money (As a loan that needs to be paid back per Infinite Banking "rules")
If you are someone who is simply looking to invest in properties just do it through a business bank account and save yourself the headache and fees. Most people will never need whole life insurance as a "bank" where they can loan themselves money. If someone is recommending this to you it is almost certain they are making a handsome commission.
Hope this helps and feel free to ask any questions
Wealth In Yourself57 Reviews
61 Replies
- Investor · Louisville, KY · Member since 2023 · 3 posts · 1 vote2y
Hey, I work with a team of agents that specialize in the infinite banking concepts for real estate investors and business owners. Recently got into real estate investing myself, but I have mentors who specialize in IBC. Will love to connect!
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes2y
Quote from @Tim Flickinger:
Hello. I've recently come across this system and it is my understanding it is an investor friendly way of accessing cash. Any agents out there that can assist?
Are you talking about whole life insurance? If that is the case then you need cash to put into the life insurance in order to get it out. I would consider it "a tool" for investors. My recommendation is do more research on it.
7e investments53 Reviews - Specialist · Grand Rapids, MI · Member since 2020 · 116 posts · 80 votes2y
@Tim Flickinger
Yes, this is a specialty of mine for both RE
Investors and high income businesses owners.
Very important on how your policy is structured. Feel free to reach out.
- 2yThomas RutkowskiPro MemberFinancial Advisor · Boynton Beach, FL · Member since 2015 · 833 posts · 798 votes
"The Double Play" is a great way to put your money to work in two places at one time. When you are evaluating illustrations, if you are not seeing about 90% of your premium going to the cash value, the policy is not designed right. IBC practitioners will often show illustrations with only 65% CV to premium. That is not optimal. Do NOT let them talk you into putting in a very large lump sum premium up-front. This is also not optimal.
- 2yOwen RosenBusiness MemberProfessional · Clinton Township, MI · Member since 2015 · 676 posts · 259 votes
Quote from @Tim Flickinger:
Hello. I've recently come across this system and it is my understanding it is an investor friendly way of accessing cash. Any agents out there that can assist?
It can be. It's not for everyone.
Royal Oath Insurance Group4.9203 Reviews - Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes2y
I think its better for those 500k-1M in net worth. Under that threshold you should be investing in deals/rentals. There is a bunch of fees and that's what you want to avoid in the beginning. If you do don't do more than 20-30% insurance... get a 90/10 policy.
- 2yJosh St LaurentBusiness MemberFinancial Advisor · Stateline, NV · Member since 2023 · 131 posts · 122 votes
Tim,
I have to chime in here. I'm a professor of finance at GGU and a financial advisor for the last 12 years including insurance. I am a Certified Financial Planner and I now run a firm specializing in helping RE investors and entrepreneurs.
Stay away from the "infinite banking system"
The main features of putting your money into an IUL (Indexed Universal Life) which is the vehicle used by infinite banking include incredibly high fees (Most of which go to the agent selling it to you during the first year), inability to access your money for 7-10 years, and you having to go through an insurance company to access your own money (As a loan that needs to be paid back per Infinite Banking "rules")
If you are someone who is simply looking to invest in properties just do it through a business bank account and save yourself the headache and fees. Most people will never need whole life insurance as a "bank" where they can loan themselves money. If someone is recommending this to you it is almost certain they are making a handsome commission.Hope this helps and feel free to ask any questions
Wealth In Yourself57 Reviews - 2yOwen RosenBusiness MemberProfessional · Clinton Township, MI · Member since 2015 · 676 posts · 259 votesI'm not personally a proponent of "infinite banking" but I'd like to point out that universal life and whole life insurance are not the same thing but you used them interchangeably.
Quote from @Josh St Laurent:
Tim,
I have to chime in here. I'm a professor of finance at GGU and a financial advisor for the last 12 years including insurance. I am a Certified Financial Planner and I now run a firm specializing in helping RE investors and entrepreneurs.
Stay away from the "infinite banking system"
The main features of putting your money into an IUL (Indexed Universal Life) which is the vehicle used by infinite banking include incredibly high fees (Most of which go to the agent selling it to you during the first year), inability to access your money for 7-10 years, and you having to go through an insurance company to access your own money (As a loan that needs to be paid back per Infinite Banking "rules")
If you are someone who is simply looking to invest in properties just do it through a business bank account and save yourself the headache and fees. Most people will never need whole life insurance as a "bank" where they can loan themselves money. If someone is recommending this to you it is almost certain they are making a handsome commission.Hope this helps and feel free to ask any questions
Fees definitely do not go to insurance agent. Do you mean insurance company?
Also, it would be odd if insurance agents didn't make a commission. That's how we make a living. Do you work as a financial advisor for free?Royal Oath Insurance Group4.9203 Reviews - 2yJosh St LaurentBusiness MemberFinancial Advisor · Stateline, NV · Member since 2023 · 131 posts · 122 votes
Thank you for making those points. I'm glad we found common ground on the subject of infinite banking not being in the best interest of most consumers.
You're absolutely right about the distinction between universal life and whole life insurance. My primary concern with infinite banking is its suitability for real estate investors.
Regarding the fees, I wanted to highlight that a significant portion of the initial premiums often serve as commission for the agent. While it's understandable that agents need to earn a living, I advocate for a flat-fee model in my financial advisory practice. This approach ensures transparency and eliminates conflicts of interest. Having worked in a commission-based model at a large insurance company in the past, I've come to believe that flat fees better serve the interests of my clients.
In my Risk Management & Insurance Planning course at Golden Gate University, we delve into the technical aspects of these insurance products. Although infinite banking has its complexities, it's important for investors, especially in the real estate sector, to grasp the implications of such strategies.
I appreciate the opportunity to clarify these points, and I'm happy to continue the conversation if you have further questions.
Best regards,
Josh
Wealth In Yourself57 Reviews - Real Estate Investor · Vacaville, CA · Member since 2016 · 40 posts · 15 votes2y
Quote from @Tim Flickinger:
Hello. I've recently come across this system and it is my understanding it is an investor friendly way of accessing cash. Any agents out there that can assist?
I was walking around in one of Las Vegas Casino and saw their poster as the conference was being held and was intrigued on what it was about so I came here to find out more.
- 2yThomas RutkowskiPro MemberFinancial Advisor · Boynton Beach, FL · Member since 2015 · 833 posts · 798 votes
Quote from @Josh St Laurent:
Tim,
I have to chime in here. I'm a professor of finance at GGU and a financial advisor for the last 12 years including insurance. I am a Certified Financial Planner and I now run a firm specializing in helping RE investors and entrepreneurs.
Stay away from the "infinite banking system"
The main features of putting your money into an IUL (Indexed Universal Life) which is the vehicle used by infinite banking include incredibly high fees (Most of which go to the agent selling it to you during the first year), inability to access your money for 7-10 years, and you having to go through an insurance company to access your own money (As a loan that needs to be paid back per Infinite Banking "rules")
If you are someone who is simply looking to invest in properties just do it through a business bank account and save yourself the headache and fees. Most people will never need whole life insurance as a "bank" where they can loan themselves money. If someone is recommending this to you it is almost certain they are making a handsome commission.Hope this helps and feel free to ask any questions
You sound like someone who clearly does not fully-understand "infinite banking" or maximum over-funded life insurance.
1. Infinite Banking, per se, is done with an over-funded Whole Life policy. Not an Indexed Universal Life policy. That said, both types of policies work exactly under the same under the hood and, when MAXIMUM OVER-FUNDED, can be leveraged for real estate investing.
2. It is a common misconception that the fees are very high. The fees are high in a traditional life insurance policy. A MAXIMUM OVER-FUNDED policy is one in which the death benefit is as low as legally possible. The fees and commissions are minimized. It is important to realize that in this type of design, total fees are usually just less than 15% of the premium. That means just over 85% of the premium is going to the cash value. And considering the money can be leveraged for real estate investing, the policy owner will quickly make up that shortfall and begin building wealth.
3. It is an absolutely false statement to say that a policy owner has to wait 7-10 years to access the cash value. My clients can access their cash value immediately upon issue. Again, you are thinking of a "Traditionally-designed" policy, not a MAXIMUM OVER-FUNDED policy.
4. "The Double Play" absolutely works and allows a real estate investor to put their money to work in two places at once. It is a way to consistently earn a slightly greater return. Even a 2-3% greater return will lead to much greater wealth in 20 years.
5. Everyone earns a commission. My commission doing these maximum over-funded policies is no different from the Realtor's or the Mortgage Lender. Again, you are confusing a maximum over-funded policy with a "Traditionally-designed policy where the goal is maximum death benefit for the money. Those policies do have a much higher commission. The goal with a maximum over-funded policy is just the opposite: minimum legal death benefit.
- 2yThomas RutkowskiPro MemberFinancial Advisor · Boynton Beach, FL · Member since 2015 · 833 posts · 798 votes
All the conflicting messages you are getting here are certainly going to make your decision harder. The important thing to remember is that many of the naysayers commenting here do not understand the difference between traditional life insurance policies and maximum over-funded policies. This misunderstanding is the reason why they make such blatantly false statements.
There is also a big difference between over-funded designs (IBC) and Maximum Over-funded designs. Most IBC designs only have 65% cash value to premium compared to 90% in a properly-designed, maximum over-funded policy design. I trust that you can understand that being able to borrow 90% versus only 65% of what you put in will make a HUGE difference in your business results.
- Accountant · Bryn Mawr, PA · Member since 2023 · 409 posts · 321 votes2y
@Tim Flickinger
Life insurance is so much fun ! Just make sure you know what you are getting in to and stay agnostic its about you and what you want to accomplish.
Do your research and homework there is nothing magical about life insurance but it can be a tool like @Chris Seveney mentioned.
- 2yOwen RosenBusiness MemberProfessional · Clinton Township, MI · Member since 2015 · 676 posts · 259 votes
Quote from @Josh St Laurent:
Thank you for making those points. I'm glad we found common ground on the subject of infinite banking not being in the best interest of most consumers.
You're absolutely right about the distinction between universal life and whole life insurance. My primary concern with infinite banking is its suitability for real estate investors.
Regarding the fees, I wanted to highlight that a significant portion of the initial premiums often serve as commission for the agent. While it's understandable that agents need to earn a living, I advocate for a flat-fee model in my financial advisory practice. This approach ensures transparency and eliminates conflicts of interest. Having worked in a commission-based model at a large insurance company in the past, I've come to believe that flat fees better serve the interests of my clients.
In my Risk Management & Insurance Planning course at Golden Gate University, we delve into the technical aspects of these insurance products. Although infinite banking has its complexities, it's important for investors, especially in the real estate sector, to grasp the implications of such strategies.
I appreciate the opportunity to clarify these points, and I'm happy to continue the conversation if you have further questions.
Best regards,
Josh
Josh,
I wanted to make clear that I have no issues with "infinite banking" it's just not something I specifically promote in my practice at this time. As I mentioned above it could be a fit for some and nothing is one size fits all.
Regarding fees, I have to quibble with you as an agent makes a commission on the premium of a life insurance policy and it really has nothing to do with fees. For instance, some carriers charge more or less fees on a given policy and it doesn't have a direct correlation to the commission rate. In addition, many fees charged by insurance companies are not-commissioned at all.
Royal Oath Insurance Group4.9203 Reviews - 2yJosh St LaurentBusiness MemberFinancial Advisor · Stateline, NV · Member since 2023 · 131 posts · 122 votes
@Thomas Rutkowski
Thank you for your insights. I understand that as someone who primarily sells these types of policies, you have a vested interest in their success. However, my perspective is informed by a comprehensive approach to financial planning and my experience teaching insurance at a university.While infinite banking using over-funded whole-life policies has its merits, it's important to consider its complexity and efficiency compared to direct real estate investments or traditional financing methods.
Even with lower fees in maximum over-funded policies, the cost is still significant compared to other investment vehicles. A 15% fee on premiums can impact long-term returns, and investors should evaluate whether the potential benefits justify these expenses.
Immediate access to cash value in maximum over-funded policies is a feature, but it's essential to consider the opportunity cost and long-term effects on policy performance. Other investment options may offer more liquidity and flexibility.
The allure of "The Double Play" should be examined carefully, taking into account fees, borrowing costs, and risks. A 2-3% greater return is not guaranteed when all factors are considered.
While commissions are a common part of many industries, they can create conflicts of interest in life insurance. My approach as a flat-fee financial advisor is to provide transparent and unbiased advice, aligning my interests with those of my clients.
In summary, while maximum over-funded policies can be useful for some investors, it's crucial to critically assess their suitability and compare them to other investment strategies.
Additionally, it's important to be aware of the various fees associated with whole-life policies used for infinite banking, including but not limited to:
Premium fees: Charges for the insurance coverage provided by the policy.
Policy administration fees: Fees for managing and maintaining the policy.
Cost of insurance charges: Fees for the life insurance component of the policy.
Surrender charges: Fees for withdrawing funds from the policy before a certain period.
Loan interest charges: Interest charged on loans taken against the policy's cash value.
Furthermore, policyholders typically do not have control over the investments within their policy, which can be a significant drawback for those looking to tailor their investment strategy to their specific needs.
For those curious about the real-world application of these policies, an industry colleague of mine has publicly posted his max-funded whole-life policy for the public to see what actually happens at The IUL Experiment.
In response to @Tim Flickinger, I hope this discussion highlights the complexity of these policies, the emotional attachment agents may have due to the commission structure, and the breakdown of fees compared to using a bank or brokerage account. It's crucial to understand all aspects of these strategies before making an informed decision.
Best regards,
JoshWealth In Yourself57 Reviews - 2yThomas RutkowskiPro MemberFinancial Advisor · Boynton Beach, FL · Member since 2015 · 833 posts · 798 votesAI much?
Quote from @Josh St Laurent:
@Thomas Rutkowski
Thank you for your insights.Even with lower fees in maximum over-funded policies, the cost is still significant compared to other investment vehicles. A 15% fee on premiums can impact long-term returns, and investors should evaluate whether the potential benefits justify these expenses.
Immediate access to cash value in maximum over-funded policies is a feature, but it's essential to consider the opportunity cost and long-term effects on policy performance. Other investment options may offer more liquidity and flexibility.
The allure of "The Double Play" should be examined carefully, taking into account fees, borrowing costs, and risks. A 2-3% greater return is not guaranteed when all factors are considered.
You don't seem to understand the model. A real estate investor is going to do a deal anyway. The only fair comparison is to look at using "The Double Play" versus simply using your cash. The risk and the real estate performance is apples-to-apples. The investor will capture a premium by utilizing The Double Play if the investment would have made money anyway. And if the investment loses money, they still have the life insurance.
And, again, the increased return, if there was going to be a return anyway, will quickly make up for the fees. Just make yourself a spreadsheet comparing the growth of $85 growing at 9% versus $100 growing at 6%. How long does the $100 stay ahead?
This is simple math and compounding interest. - 2yJosh St LaurentBusiness MemberFinancial Advisor · Stateline, NV · Member since 2023 · 131 posts · 122 votes
Thank you for all your insights and opinions posted here in this forum. I love to see others who are passionate about helping people. Wishing you all the best in your insurance sales business.
JoshWealth In Yourself57 Reviews - Specialist · Grand Rapids, MI · Member since 2020 · 116 posts · 80 votes2y
@Josh St Laurent
I have to agree with @Thomas Rutkowski on this subject.
I understand you’re looking at it from an outside perspective and have done some comprehensive research. However, you can’t compare these with a traditional investment vehicle, like index funds.
They are 2 complete different asset classes and should be used for two completely different reasons, in conjunction with each other.
Personally, I don’t like using the coined phrase IBC. It makes it sounds like a bogus sales pitch. And it kind of is. I think it cheapens the entire concept.
However, one main point of these is using IRS section 7702 (tax code referencing the tax deferral within the policy) to manage taxes in the long term.
This is the same tax code whether you call it IBC, Executive Bonus Plan, or Split Dollar Arrangement (like with Jim Harbaugh at U of Michigan just used) or even Deferred Compensation. It’s all the same tax code and all the same design.
The point of the design is that it uses as little death benefit as possible to keep costs as low as possible. The death benefit is an ancillary benefit.
And the loan rates SHOULD be a net 0%. Anything above that is poorly designed. With this design, commissions are 1/3 of what they would be if it wasn’t optimally designed. That’s how you weed out the bad agents/advisors. This is far less of an income than an advisor charging 1% AUM on that kind of money.
For high income entrepreneurs, they could comparably use a Cash Balance Plan and use high contribution rates as well. However, the actuary and administrative costs are included in those which cost 4-5k annually, and is invested at a very conservative rate as well.
If you’ve studied the long term RMDs on a fully funded Cash Balance Plan, it’s super high. I’ve seen individuals with $400,000 in just RMDs annually because of the amount of pre-tax money in their portfolio.
Yes, it’s not as “lean” as an index fund in a brokerage account, but it should complement to all of that to help manage taxes. Not to mention the tax-free death benefit and other protections it allows.
In business, there’s always a net cost, the question is how much are you in the black, or in the red.
These are legitimate strategies. No, I don’t think everyone should use them, but should never be thrown away unless truly understanding them.
There are too many people “villainizing” the entire lot in this industry when there are legitimate advisors who use it properly.
- 2yFrantz JosephPro MemberRental Property Investor · GA · Member since 2017 · 62 posts · 44 votes
@Chris Seveney read the book by Nelson Nash the inventor of ibc
- 2yFrantz JosephPro MemberRental Property Investor · GA · Member since 2017 · 62 posts · 44 votes
@Owen Rosen hi Owen I got my ibc policy 8 years ago. I got my policy based on the principles I learned from Nelson Nash, he’s a pioneer in the field. My policy is structured from what he explained in his book. I would love you to read it and let me know your thoughts. My policy was never meant to pull out my cash as soon as I got an opportunity to do so. I need to make sure It makes sense borrowing money at 8% from myself.
- 2yOwen RosenBusiness MemberProfessional · Clinton Township, MI · Member since 2015 · 676 posts · 259 votes
Quote from @Frantz Joseph:
@Owen Rosen hi Owen I got my ibc policy 8 years ago. I got my policy based on the principles I learned from Nelson Nash, he’s a pioneer in the field. My policy is structured from what he explained in his book. I would love you to read it and let me know your thoughts. My policy was never meant to pull out my cash as soon as I got an opportunity to do so. I need to make sure It makes sense borrowing money at 8% from myself.
I'd be happy to. I believe everything depends on the individual and your needs.
Royal Oath Insurance Group4.9203 Reviews - Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes2y
Quote from @Frantz Joseph:
@Chris Seveney read the book by Nelson Nash the inventor of ibc
Yes I have. whats your point? My point above is you are not given a policy for free? You need to have money to start a life insurance policy. People are like oh go start IBC and you can borrow against it....
You realize you can do the same at a bank - you can borrow against your own savings and pay interest on it. Does that make sense?
For me the only reason to do this is for the insurance part in case I drop dead. As an investor if you are active 90% of good investors will end up doing far better just taking cash and investing it versus putting it into an insurance policy, borrowing against it to invest.
But again, its insurance so it has a different value than just investing, which is why it gets a lot of negativity on the forums and many insurance salespeople push their product like its the greatest thing on earth and reality is, its not for everyone.
7e investments53 Reviews - 2yFrantz JosephPro MemberRental Property Investor · GA · Member since 2017 · 62 posts · 44 votes
@Chris Seveney
Based on what you said, it makes a lot of sense. I got my policy for the opportunity to save while I had a decent life insurance policy.
- Specialist · Grand Rapids, MI · Member since 2020 · 116 posts · 80 votes2y
Quote from @Frantz Joseph:
@Chris Seveney read the book by Nelson Nash the inventor of ibc
IBC doesnt tell the full story in my opinion. The Power of Zero by David McKnight, although he pushes it a little far and thinks everyone should get one, is where the main benefit falls. Lending against is just one part of the overall strategy. Leverage is the main story here...
- 2yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
ONLY 15% fee. So I pay 15% to get a life insurance product I don’t need, and to get access to my own money.
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