The idea of being your own banker may sound too good to be true, but many have enjoyed financial success by using their whole life insurance plans to do just that. You will often hear life insurance agents or promoters refer to this benefit when talking about the benefits of buying into one of their policies, and for the most part, they are telling the truth. However, others have taken the concepts and over-sensationalized the practice, leading to a lot of myths and misinformation about infinite banking practices.
What’s the Real Deal?
There have been several books written on the topic of infinite banking, and some of the wording and quoted success stories have many questioning the legitimacy of the practice. If you follow the advice of wrong information, then yes, you may find yourself caught up in an infinite banking scam. The ideas behind IBC have been around for years, but not to the extent of the success that you see on infomercials or read about in books. The practices and mechanics of a basic IBC work can work quite well but only when the whole life insurance policy at the heart of the transaction has been designed for a maximum cash value accumulation. There will need to be a very unique combination of riders, features, and the overall design for your policy to be optimized into a personal bank. If you can get your policy to have this happy marriage, you can experience a number of benefits.
Key Benefits of an IBC
There are generally seven key benefits mentioned when using your whole life insurance for a financial system. You enjoy guaranteed growth and principal protection each year, but at a competitive growth rate that starts much higher than a traditional bank would offer. You have tax-exempt distributions and tax-sheltered growth. Many states offer creditor protection against these policy funds, and you have the ability to access your equity for any reason and at any age. When the death benefit is paid out, it is tax-free over and above where the equity falls, and you can have a tax-free advance on some of the death benefits if you develop a chronic illness. These are benefits not commonly found in any other assets, which is why many promote whole life insurance as a must-have for retirement. It is less risky than other investments.
The Arguments Against IBC
If you follow the podcasts or information by financial gurus like Suze Orman or Dave Ramsey, they will most definitely tell you to stay clear of any whole life insurance policy in general. Though notedly successful in their own rights, their financial plans and strategies are promotions for their lifestyle and mindset. Their opinions don’t guarantee that the choice will be wrong for you. It is possible to make a bad financial decision with the purchase of a whole life insurance policy, so you can’t discredit their warnings entirely. There are two sides to every story, and it is possible to design the policy specifically for an IBC. The bulk of the costs for a whole life insurance policy can either be put toward maximum death benefits or toward an accumulation of cash value. Your design for the policy determines if, and how much, money you can get out of the policy for a private loan to be your own bank.
Policy Design Matters
You aren’t going to get rich off a traditional life insurance policy. For you to be able to use the cash accumulation as a private bank, you need to have your rides and design features targeting robust cash growth. You want it to grow early and often. Even though an agent may not want to steer you in this direction, this is the only design that can bring enough cash value quickly to let you use it as a personal bank. Who you select as your agent and the insurance company you choose to put your money into is the starting point of being successful with the IBC.
