Infinite Banking?

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Mar 24, 2009 6:26 pm

AKA "Bank on Yourself". So, apparently, this is a way to employ the use of Whole Life insurance to earn interest and dividends as well as keep your funds liquid. You can also, supposedly, borrow from the Cash Value of your policy and pay yourself interest (like a 401K loan) without restrictions and without losing the earning ability of the borrowed amount (unlike a 401k loan).

 
They (Infinite Banking and Bank on Yourself) tout this process as realizing returns better than 20 year average mutual fund returns while at the same time saving you "34.5 cents on the dollar" in interest the average person pays to lenders. Lots of buzz words like "recapturing" and "growth & safety" and "DIVIDENDS, DIVIDENDS, DIVIDENDS".
 
Anybody know what's up with this?
Mar 24, 2009 7:16 pm

PDF: http://www.infinitebanking.org/IBC%20-%20How%20It%20Works.pdf

The Synopsis below is from

Infinite Banking - How It works by Gary Vande Linde

The

essence of the Infinite Banking Concept is how to recover the interest
that you normally pay to a banking institution through the use of
dividend paying life insurance, so that the policy owner makes what a
banking institution does. Earnings grow within the policy tax deferred.
You are both reducing your tax burden and capturing monies for yourself
that a banking institution normally would receive. And by the way, you
have a death benefit thrown in on the side!



Anytime you can cut your payment of interest to others and direct that
same market rate of interest to an entity you own and control, which
are subject to minimal taxation then you will have improved your wealth
generating potential significantly.



The Infinite Banking Concept is not about investing, it is about
financing, and financing is a process not a product. Financing involves
both the creation of and maintenance of a pool of money and its use.
However, when a financing system is combined with an investment system
the combination of the two will always out perform an investment
system. When the system combines reduced tax liability with a financing
engine and allows complete control over your investments there appears
to be no system capable of generating wealth with as much consistency
or speed.



A primary concept or principal is that you finance everything. You
either finance by: Paying interest to someone else - a bank, lender,
etc. Or giving up interest you could have earned otherwise. (When you
pay cash the interest the money could have earned is forfeited).For
these reasons when we are discussing investment alternatives we must
not only weigh the return we will receive but we must also evaluate
what we are forfeiting or giving up. This mind set will become more
important as we evaluate the "Infinite Banking Concept.” For all of the
reasons mentioned above every person should be fully engaged in two
businesses - Your occupation and Banking.

Mar 24, 2009 7:28 pm

I read that already. I don't need a commercial. What's the real deal? "recover the interest", "capture monies"...what the hell is that supposed to mean anyway?

Mar 24, 2009 7:31 pm

taken from the PDF:

To make the insurance plan work the owner (you) must make payments into
the company (insurance company) and the insurance company must put this
money to work in order to produce the benefits promised. This is usually done
in conservative financial instruments such as bonds, mortgages, etc.
Sometimes an insurance company will invest in speculative investments such
as real estate or joint ventures but this is usually a small part of the investment
portfolio.

5) Now since you are the owner of the policy and not the insurance company you
outrank every potential borrower who wishes to use the money in your policy
that is available to be lent.

6) Since you are the owner of the policy and you out rank every other borrower
you have absolute control over the equity (cash value) that has accrued in your
account.

7) In essence the insurance company can only lend the equity (cash value) in your
policy to other places if the policy owner (you) does not exercise his option to
use the money at the interest rate agreed.
8) By investing the premiums paid the insurance company creates an ever
increasing pool of money to service the policy.

9) Now at the end of the year the directors call in the accounts and ask “How did
we do on John Doe’s policy in comparison with the assumptions made by the
actuaries and the rate makers?”

10) Based upon this comparison a dividend may be declared.
-------------------------
1) Usually a life insurance policy will grow the cash value in a policy account in
three ways. These are:
a. Premium payments are credited to the cash value of the policy.
b. Interest Payments are made on the cash value in the policy.
c. Dividends payments are made based on the cash value of the account.

2) As a rule of thumb, a policy will have a blended internal rate of return (the rate
of return – before tax - based upon the net effect of both the interest and
dividend payments to the policy holder) of approximately 6 % to 8%.

3) Interest payments are usually based upon the cash value in an account.
Usually the insurance company will establish either a fixed or a minimum and
maximum interest rate that will be paid on the cash value in an account.

4) Dividends payments are once again a function of the cash value of the policy
and calculated as discussed above.

5) When you borrow from your policy your dividends continues. The reason your
dividend continues is because borrowing from your policy does not decrease
the cash value in your policy. Rather, the cash value in your policy is used to
collateralize your loan.

6) The insurance company loans the monies to you at some rate of interest they
deem necessary to make the policy work. This is what you are paying for the
use of the money.

7) If you decide to pay extra interest on your loan the difference between what the
insurance company expects and what you pay goes straight to increasing the
cash value of your account.

8) This extra money grows your dividend payment and helps to create an ever
growing pool of money for your “banking system”.

9) Remember that all growth within the policy has occurred tax free and these
cash values and death benefits can be passed onto the next generation with no
or limited tax implications.

Mar 24, 2009 7:32 pm
Mar 24, 2009 7:39 pm

Something to be aware of with this strategy:
http://www.latimes.com/business/investing/la-life-story2,1,3308159.story

Mar 24, 2009 8:07 pm

Thanks for the LA Times article. Interesting read.


I got this article from a weekly e-zine I get:

#000000">Why Conventional Financial Planning Doesn't Work... and What You Can Do Today to Take Back Control of Your Financial Future
by Pamela Yellen, President,
Bank On Yourself


Do we really need any more proof that conventional financial planning and investing methods aren't working?

The reality is that most Americans' savings and investments are right back where they were more than a decade ago. But inflation has taken a big bite out of your dollars' purchasing power since then. You could have done as well by putting your money under your mattress... and skipped all the nail biting and sleepless nights.

We've been brainwashed into believing we must risk our money, in order to grow it. But there is something you can do today to take back control of your financial future and Bank On Yourself. And Wall Street, banks and finance companies are desperately hoping you don't find out about it.

I've been investing in stocks and mutual funds since 1987, and I can tell you I've never even come close to getting the kind of long-term returns they've been telling us we should be able to get.

When my husband and I got frustrated managing our own retirement plan, we hired three of the country's top investment and planning firms in succession over a period of a decade to manage our account. They all charged hefty fees and all three of them lost us money during the longest-running bull market in history!



A Blindfolded Monkey Throwing Darts Could Have Done as Well, or Better
How was this possible? Was it just us? I decided to dig deeper and discovered that almost nobody is getting those lofty returns the financial pundits promise! I also discovered that Wall Street has some dirty little secrets! The problem – aside from Wall Street's massive marketing and brainwashing machine – is that we've become an immediate gratification culture, convinced there must be a magic pill out there that will make us rich overnight.

We jump on the latest "hot" investment, whether it's real estate or gold, or ostriches, without any knowledge of the historical ups and downs of those investments. (Home values have historically appreciated only one percent per year, after adjusting for inflation. Gold hit a high in 1980, then plunged and didn't return to that level until 2006 – a full 26 years later.)

We fall victim over and over again to thinking "this time is different" or "I'll know when to sell."

But it's almost never "different." Today's hot investment is almost always tomorrow's loser. And there are no magic pills.

The Classic Definition of Insanity:
Continuing to Do the Same Thing and Expecting a Different Result

#000000">There is hope, however. It's not a magic pill – it takes a little patience and discipline, but if you have that, it pays a lifetime of benefits. I investigated over 450 financial vehicles and strategies before learning about it. It's called "Bank On Yourself" and if you're ready to take back control of your financial future, here are six facts worth knowing about it:

1. Your plan increases by a guaranteed amount every year, and all growth is locked in – you can predict the minimum guaranteed value of your plan in any given year, as well as the minimum annual income you could take from the plan and for how long.

2. Your principal doesn't lose value when the stock or real estate markets tumble.

3. You don't have to depend on luck, skill, or guesswork in choosing the right stock, mutual fund or other investment, and you can stop chasing after the best way to invest money.

4. You can use the plan to get back every penny you pay for your cars, vacations, business equipment, a college education and other major purchases.

5. Your plan comes with tax advantages. It's possible to get your hands on both your principal and growth, with little or no tax consequences, under current tax law. There are no government restrictions on how or when you take income from the plan and no restrictive 401(k) withdrawal rules.

6. You can borrow your equity in the plan and use it to buy things or to invest in anything you want, while your plan continues to grow as though you never touched a dime of it. You can't be turned down for a loan, and you don't have to fill out any credit applications. If an emergency comes up and you have to reduce or skip some loan repayments, you won't get a black mark on your credit report or harassing calls from bill collectors.


#000000">Dr. Wayne Dyer noted, "The highest form of ignorance is to reject something you know nothing about." Why not read Bank On Yourself: The Life-Changing Secret to Growing and Protecting Your Financial Future and decide for yourself?


#000000">As a business consultant to financial advisors for two decades, Pamela Yellen investigated hundreds of savings and investing vehicles before learning about Bank On Yourself. She ultimately became convinced Americans have been brainwashed into believing they must accept risk, volatility and unpredictability in order to grow a sizable nest-egg. It became Pamela's mission to share the message of this proven method, and her new book, Bank On Yourself, has been endorsed by top experts in the field of personal finance. She has helped train 200 Bank On Yourself Certified Advisors to help their clients implement this strategy properly. Click Here to get Bank On Yourself from Amazon.com


 
 
Seems like a lot of fluff to me: getting back every penny you paid for major purchases, guaranteed returns, no risk, saying that everybody's brainwashed by Wall Street. Oh, but she does add that, "it's not a magic pill", thereby dispelling the get-rich-quick smell.
 
Any other insights on Infinite Banking or Bank on Yourself?
Mar 24, 2009 10:02 pm

Fud,

I've had some slimy whole life salesmen roll through my town with this concept.  I have never understood what people are thinking when they do this sort of thing. 

1) You already saw what happens when you blow the plan up (LA Times article).  It's bad, and if you have insurance guys telling you to leverage yourself to pay for your home, car, etc... by borrowing on your whole life plan, then you can bet they don't stick around long.  Sell the policy and get out of town. 

2) Tell me what insurance company is not making a spread on the loan?  Let's pretend that you're making 4% on the cash value.  Well, if they are charging you 6%, they tell you you're only paying 2% then!! That's a good deal right?!!

This happened all the time when people borrowed on their fixed retirement plans.  The insurance company would still pay you the fixed % (4% in this case) on the borrowed amount, but they would charge you 6-7% on it as well.  You are still being effectively charged 6%!

Why not just go to a bank, take out a loan at 5-6% (and earn the full amount on the retirement plan / and or whole life plan), and then be able to deduct interest on the loan (can't deduct on the life/retirement plan). 

Is that crazy?

Mar 24, 2009 10:52 pm

While I'm a whole life "salesman" (because I do SELL the whole life insurance), let's look at the basics of this:

 
You're borrowing from a whole life policy's CV - WHILE the CV is earning dividends (which are not guaranteed) while you're paying back on a loan which the interest is being paid back to...
 
 
wait for it...
 
 
the INSURANCE company!
 
They "return" this interest back to your WL in the form of a dividend, but there is NO DIRECT CORRELATION to this!
 
I would stay away from this as a sales concept.
 
The real value in a life insurance policy is the DEATH BENEFIT, not the cash value.  If you need to access the cash value, you access it depending on the nature of your needs.  If it's for an opportunity, take out a loan.  If it's an emergency, surrender a part of the policy.
 
Re-directing interest to another financial institution doesn't make a lot of sense - particularly if a Home Equity Line is available or other lower interest borrowing is available.
 
The true advantage is that it's a loan that's always available without a credit check.
Mar 24, 2009 10:58 pm

Let's also think about the SERVICE work for such an agent when you have a lot of policies that need to be monitored to be sure it doesn't "blow up" on your client.

 
That's setting yourself up for a very low-margin practice with that kind of work being entailed for each client.
Mar 25, 2009 8:23 am

"The real value in a life insurance policy is the DEATH BENEFIT,"



 
There is no question that the real value of a Whole life policy is having a death benefit that doesn't go away.
Nov 27, 2015 12:54 am

Bank on yourself provides you all with all important financial investment techniques where you can safely invest your money.

Dec 16, 2015 7:06 am

The real value in a life insurance policy is the DEATH BENEFIT, not the cash value. If you need to access the cash value, you access it depending on the nature of your needs. If it's for an opportunity, take out a loan. If it's an emergency, surrender a part of the policy.

Dec 19, 2015 1:38 am

Banks make money based on the total deposits maintained and loans issued. Consumers have many banks and credit unions to choose from, all competing for their checking, savings and lending needs. In highly competitive markets, banks must utilize strategies for acquiring and retaining assets from new and existing customers.