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
- Specialist · Grand Rapids, MI · Member since 2020 · 116 posts · 80 votes2y
Quote from @Lu Kang:
Quote from @Thomas Rutkowski:
Quote from @Sean Winchell:
Thanks for responding Matt. Yeah definitely makes a lot more sense now. I did use the loan actually this last december instead of taking out a HELOC to secure a property.(saving me the fees and % on the HELOC) With the idea that when we move this spring/early summer to pay the loan back.
Are some of the policies set up with where the loan is always going to be net 0% no matter what the market is doing? That would be attractive in the future once I am earning more to set up in addition to my current policy. Or do they roll over an older policy like this one into a new one that is set up that way?
You guys have been great and helpful thank you
Sean
I hope you understand that if your policy's dividend is 6.1% and you have a 5% variable loan option, your net cost for the loan is -1.1%. Your cash value is growing by MORE than the loan is costing.
That said, don't think in terms of "Net Cost". That's ********. Your cash value is going to earn whatever it earns. You need to focus on the OUTSIDE. What can you do with that 5% money? If you can invest it and make 10%, you made 5% OUTSIDE of the policy. You made 6% inside the policy and another 5% outside of the policy. That's 11% combined.
Even if we (incorrectly) presume your policy was only making 3.5%, if you bought it for death benefit protection 12 years ago, then it shouldn't factor into your decision making. It is what it is. But you still have access to $56K at 5% that you can use to make that 10% investment. You are coming out ahead.
So what happens to the Cash Balance of the IUL if I died. Would the insurer keep my cash value and only pay out the death benefit?
It all comes in the form of the death benefit as @Thomas Rutkowski explained, but is mostly comprised of the cash value. You'd need to look the numbers to get a better idea of how that works. In a properly formed policy, you're maintaining a ratio between cash value vs. death benefit, which is at the most minimal level.The concept is that you want to "squash" the death benefit to keep the costs of the insurance down so you are building the cash value to it's full potential. Thats how you manage the costs, by using the cash value to offset their risk. We want the cash value to be close to the death benefit.
There are designs that's don't do this, but it's not intended for the purpose of maximizing cash value growth.
As Thomas also mentioned, people with large audiences push the wrong narrative here due to a lack of understanding.
- Investor · Punta Gorda, FL · Member since 2010 · 151 posts · 127 votes2y
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
Hi Josh, it is true there are agents who structure the policy for their pockets and not for the client's best interest. Those policies usually lapse leaving the client with nothing (which in my opinion should not even be allowed). So there are valid reasons for Infinite Banking (IB) to have negative comments thanks to agents like this.
The way our team structures policies is for max cash value and minimum death benefit that increases over time. After all the whole point is to access the cash value in the policy. When policies are structured this way (properly) agents like me take an 80% cut on commission. Our clients get access to 50-60% of their money in year 1 and it goes up from there-again when structured properly.
See attached example. On the far right is the column showing how to properly structure a policy for IB. FYI - most clients don't fund the amount shown in this example - meaning our commission is less than half of what you see on the far right.
Just trying to provide another perspective. Not all agents are unethical.
- 2yJosh St LaurentBusiness MemberFinancial Advisor · Stateline, NV · Member since 2023 · 131 posts · 122 votes
Quote from @Deb S.:
The way our team structures policies is for max cash value and minimum death benefit that increases over time. After all the whole point is to access the cash value in the policy. When policies are structured this way (properly) agents like me take an 80% cut on commission. Our clients get access to 50-60% of their money in year 1 and it goes up from there-again when structured properly.
See attached example. On the far right is the column showing how to properly structure a policy for IB. FYI - most clients don't fund the amount shown in this example - meaning our commission is less than half of what you see on the far right.
Just trying to provide another perspective. Not all agents are unethical.
Deb,
Thank you for sharing your perspective. It's important to acknowledge that not all agents are unethical, and I commend your team for structuring policies with the client's best interest in mind.
I do want to point out, however, the inherent conflict of interest in commission-based models. This is a concern that spans various industries, not just insurance. When a salesperson is incentivized to sell one product over another, the transparency of their advice can be compromised. This is why I advocate for a flat fee structure in my own business, eliminating conflicts of interest and ensuring that my advice is based solely on what's best for my clients.
Regarding infinite banking, it's noteworthy that the advocates for this strategy often stand to gain from commissions. It's rare to find proponents who aren't earning a commission from life insurance, which raises questions about the impartiality of their advice. Going a layer deeper, the risk management and insurance planning portion of the Certified Financial Planner (CFP) exam only makes up 11% of the total content. This suggests that while proponents of IB may have an understanding of insurance planning, their financial education might not be as comprehensive as it should be for holistic financial planning.
In my opinion, the key to ethical financial advising is transparency and education. By providing clients with a clear understanding of all their options, including those that don't generate a commission, we can build trust and ensure that their financial plans truly serve their best interests.
I appreciate the opportunity to discuss this further and would be happy to continue the conversation.
Best regards,
Wealth In Yourself57 Reviews - Accountant · Bryn Mawr, PA · Member since 2023 · 409 posts · 321 votes2y
When do you recommend insurance products for your clients? What types?
- 2yJosh St LaurentBusiness MemberFinancial Advisor · Stateline, NV · Member since 2023 · 131 posts · 122 votes
Quote from @Jonathan Bock:
When do you recommend insurance products for your clients? What types?
Thanks for your question. In my practice, I recommend insurance products to my clients based on their individual needs and financial goals. It's important to note that I do not make any money on any of the policies I recommend. My goal is to provide unbiased advice that serves my clients' best interests.
Here are some common types of insurance I recommend:
- Term Life Insurance: For clients with dependents or significant debts, to ensure financial security in the event of untimely death.
- Disability Insurance: For clients who rely on their income, to provide a safety net in case of injury or illness.
- Health Insurance: Essential for all clients to help cover medical expenses.
- Long-Term Care Insurance: For clients concerned about potential long-term care needs in retirement.
For real estate investors, I also recommend:
- Landlord Insurance: Essential for rental property owners to cover property damage, lost rental income, and liability.
- Umbrella Insurance: Provides additional liability coverage beyond standard policies, protecting investors' assets.
- Builders Risk Insurance: For clients involved in property development or renovation, to cover property loss due to construction-related risks.
- Title Insurance: For property purchases, to protect against defects in the title that could affect ownership rights.
When recommending insurance products, I utilize third-party tools like Policygenius to help clients find the best options. If a specific product is not available through these tools, I leverage my referral partners who work in a transparent, commission-free structure to ensure my clients receive the best possible advice without any conflicts of interest.
I hope this provides a clear understanding of my approach to recommending insurance products for my clients.
JoshWealth In Yourself57 Reviews - Accountant · Bryn Mawr, PA · Member since 2023 · 409 posts · 321 votes2y
Ok cool that's a good start I meant the more fun elephant in the room so none of your clients have permanent life insurance?
- 2yJosh St LaurentBusiness MemberFinancial Advisor · Stateline, NV · Member since 2023 · 131 posts · 122 votes
Quote from @Jonathan Bock:
Ok cool that's a good start I meant the more fun elephant in the room so none of your clients have permanent life insurance?
Thanks for your follow-up question. When it comes to permanent life insurance, such as whole life or universal life policies, my recommendations are always based on the specific needs and financial goals of my clients.
While permanent life insurance can be a valuable tool for some individuals, particularly for estate planning or wealth transfer purposes, it's not a one-size-fits-all solution. For many clients, especially those focused on real estate investing, the cost-benefit analysis often favors term life insurance or other investment vehicles that offer more flexibility and potentially higher returns.
That being said, there are situations where permanent life insurance might make sense, and in those cases, I work with my clients to explore their options and make informed decisions. My priority is to provide transparent and unbiased advice, ensuring that any insurance product recommended aligns with their overall financial plan and long-term objectives.
If you have any specific scenarios in mind or further questions, I'm here to help!
Best regards, Josh
Wealth In Yourself57 Reviews - Member since 2018 · 81 posts · 26 votes2y
@Thomas Rutkowski
Hi can I get more info on the over funded policies?
- Real Estate Agent · Berkeley, CA · Member since 2009 · 20 posts · 24 votes2y
overall, being your own banker can allow you to get on the right side of compound interest. If you are earning net interest across ALL your finances then your wealth is growing. Hopefully it is growing at a compounded rate. Being your own banker is what allows you to pay a 30 year mortgage and all your debts in as little as 5 to 7 years - 13 tops. I see it as a way to acquire that free-and-clear portfolio every real estate investor wants or at least a means to become a homeowner instead of a loanowner.
Infinite banking, velocity banking, laser banking, etc. its all about being your own banker (BYOB). And at the end of the day it is MATH. If you really wanna go down that rabbit hole, there are some actuaries on YouTube speaking on the subject and I dare you to follow along with them. This is the "vodoo math" that the oldest and most well-established financial institutions on the PLANET have used to grow massive fortunes that have stood the test of time through wars, natural disasters, revolutions, and all manner of social upheaval and unrest. Some of these companies are older than the countries some of us were born in.
We can argue over how we can best use these strategies to build our wealth but it is beyond argument that fortunes have already been built on these ideas.
But this is great! All these perspectives are helping us reach a more informed truth that we can all benefit from.
- Rental Property Investor · Henderson, NV · Member since 2019 · 105 posts · 60 votes2y
@David Wilhite
That's right! Nice post!
Even though I personally don't (won't) use it to pay off my primary residence there's beauty in the fact that one (including myself) COULD if they wanted to yet never stop earning compound interest (and likely dividends) AND get a lifelong death benefit. That's incredibly powerful.
IBC is an amazing concept when properly understood and policies are properly designed. Not much to argue about....proof is in the pudding.
- Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes2y
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