The infinite banking concept
bank on yourself,
becoming your own banker,
Cash flow banking,
your family bank,
there are a lot of names out there
that really all revolve around a whole life insurance policy.
But what does it mean?
Well the idea of the: "banking concept" call it,
really teaches individuals
how to use a whole life insurance policy
as a financing tool.
The best means to often illustrate this is real estate.
So let's pretend for a moment that you own a piece of property
and it appreciates that 5% every single year like clockwork.
That would be nice wouldn't it?
Now if you own that home free and clear,
will you continue to receive that 5% on the full full property value?
Of course,
you own it free and clear.
Now if you have a mortgage
or perhaps a line of credit outstanding against the property,
do you earn the 5%?
Only on the remaining equity,
or still on the entire property value.
The: Entire property value,
there's no lost opportunity cost.
So how this ties to the banking concept
and specifically a whole life insurance policy,
is in the sense that once $1
passes through the cash value of a whole life insurance policy,
regardless of if I let that dollar sit and garow
or if I decide to borrow against it.
I will continue to earn interest on my entire cash value
as if I never touched it in the first place.
Let's demonstrate quickly.
Let's assume that I have a whole life insurance policy
that is paying a dividend rate of 5%.
We'll assume that we have $200,000 in cash value,
just like the real estate value
that was appraised at $200,000.
Now if I let that money sit and grow,
that $200k,
what'll happen?
I receive a 5% dividend on it.
Now if I elect to
take a loan against the policy,
let's assume I borrow half of the equity,
so I've got $100,000
in cash value
or remaining equity in the policy
and then a $100,000 loan,
what will happen here
is the company
will continue
to pay that 5% dividend
on any money still in remaining equity
or cash value
and any money outstanding in loans.
I still
earn a dividend
on the full $200,000 as if I never touched it in the first place.
Now, how insurance companies do this,
there are 2 methods,
1: they do collateralize the death benefit,
we're going to show you an example here in a second,
And then 2: There is loan interest.
Just like we would take a mortgage against a piece of property,
if I take a mortgage or line of credit
there is a cost to borrow.
Let's assume it's 3%.
Over here if I take a loan from a life insurance policy,
if I go directly to an insurance carrier,
I might see the loan at 5%.
This interest on the real estate, would go where?
to the lender
call it the bank.
The loan interest on the insurance policy,
goes where?
the insurance company.
Let's take a look here, let's demonstrate an example.
So anytime we look at any strategies,
when we use a cash value life insurance policy,
it is beneficial to see what it looks like
if I don't touch the money first,
this way I have a clean gauge to compare my policy to
and see what the actual net impact of that loan is.
So here
we've got a policy on a 45 year old male
paying into it
for 5 years, $50,000 per year.
Now he can fund for a shorter or longer period of time
but we wanted to stop all payments
at age 50, in this example.
The cash value is optimized.
So we've got $150,000 in cash value here,
year 3 at that point in time,
we've paid in $150,000.
A goal that we have with everyone we work with
is to maximize the cash value
of a life insurance policy first and foremost.
The reason for this is,
if my plan is to use it, to take control of, call it:
the "banking function" in my life,
well I'm gonna optimize the cash first,
this way I've got more working capital there.
So, breaking even year 3,
okay,
performance over time,
all well and good.
Here's what I want to compare to.
What is the impact on my life insurance policy
when I take a loan? So, same exact policy,
same break even point,
difference here,
we take a $200,000 loan out in year 5.
So the impact of the policy is as follows:
what I can pull from the gauge
that determines how much I can borrow
will be my cash value.
So in the example where I did not touch it,
my cash value was $263,000.
I've pulled out a $200,000 loan.
the cash value
is now $53,000 over here.
So I see a $210,000 reduction.
The reason why,
in this example,
we took the $200,000 loan out,
the loan interest is 5%,
5% of $200k is $10,000
and we made no loan or loan payments
or loan interest payments in that year when we took the $200,000 out.
So, I pulled the $200,000 out
and then the attractive feature of this concept
is I'm still going to earn dividends
on everything!
And you can see it here this column,
my annual dividend column
does not change when I have a loan outstanding
relative to the example when I paid money in
and just let it sit and grow.
How the company does that is as follows:
I pulled out $200,000,
How much did my death benefit drop by?
$200,000.
Any time I take a loan from a life insurance policy
you will see
a dollar for dollar reduction on your death benefit.
That is what the insurance company is holding as collateral
when i borrow from the policy,
meaning if I die with a loan outstanding,
in this example,
prior to the loan being pulled,
they're going to pay $1,000,000
now they're going to pay about $850,000,
so I see that reduction there,
that is really
where the benefit comes into the insurance company.
Now as I repay the loan here,
so we repay it at $50,000 per year,
if we tally up those payments,
we see that we paid back
just about $229,000.
That additional $28,975,
was interest
that did go to the insurance company.
So if we stop here,
this concept makes zero sense
because I'm paying interest on my own money,
However, where it works for you and I as the consumer,
is once its paid back,
what do you notice here?
What's your cash value?
$325,000.
And then, what is it in the example
when I didn't touch it
and just let my money sit and grow?
$325,000.
I see my cash value and death benefit, for that matter,
fully restored to exactly what it would have been
as if I never touched it in the first place.
There's no lost opportunity cost.
So really, what the idea of the banking concept does,
is teach one,
how to use these cash value life insurance policies
as a financing tool.
Keep the compounding moving forward for you.
So, a lot of good can be done with this concept
what we'll teach individuals to do every single time,
first and foremost is,
how to maximize the cash value of a life insurance policy.
So, to demonstrate that and we'll close with this,
here is an example of three policies,
two on a 35 year old male and one on a 45 year old male,
paying in $50,000 per year.
Now what you'll find here, in each of the examples,
what's highlighted in yellow,
is his breakeven point.
You know the biggest objection,
why individuals do not practice this concept
or do not open whole life insurance policies,
is often the cash value.
How do I maximize the cash value from day one though?
which gives me more working capital from day one,
and also what you will find in almost every single case
is that it will maximize my long-term cash value as well,
especially when I'm looking at the guarantees.
So here are just a couple examples
of optimizing cash value up front
breaking even early,
this is very valuable
if you've been exposed to whole life insurance before,
perhaps it was traditional whole life insurance that took 12 to 14 years to break even,
world of difference here
and these are often the same policies,
just designed in a manner
where we've got the minimum insurance premium
and maximum cash value from the get-go.
So as always,
I hope this helps.
R each out with any questions
and we will talk to you soon!
Hey guys Steve Parisi here.
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