Infinite Banking system....

Submitted by Rick Blaine on Fri, 07/14/2006 - 21:38

Does anyone here participate in a Equity Index Universal Life Policy with the idea of building up large Cash Value for borrowing? Usually they are heavily overfunded upfront just below MEC limits or Modified Endowment Contract. It is an interesting idea, you'll usually earn anywhere from 4-6% interest or if you pick a more traditional UL or WL one can anticipate 5% from a good Participating W/L carrier like Guardian Insurance.

Idea is stuff as much money as you can in the first 4-5 years. When you have substantial Cash Value all your borrowing is done outside of the Insurance Contract. Take out say $25,000 out to buy a new car. You pay yourself back with 8% interest, insurance carrier will charge 0-4% depending upon your contract. Yet the interest you pay yourself back with is money earned compared to sending it to a third party bank.

Posted: 15 Jul 2006 03:54 Post Subject: Infinite Banking system....

So far I know the equity indexed Universal Life policy is similar to the conventional universal life insurance policy. It offers a death benefit as well as a cash value that grows over time. It has the advantage for the tax-deferred growth of the account value; it is linked to the growth lined to an equity-index. But how it is related to the infinite banking system?

Posted: 15 Jul 2006 04:39 Post Subject: advantages of the infinite banking

Could anyone explain the advantages of the infinite banking system? and how the equity maximization related to? thanks.

Posted: 15 Jul 2006 10:03 Post Subject:

Infinite Banking System,

Basically a policy usually a UL or a EIUL but some use a W/L Policy. The basic thing is to create a contract with the least amount of Death Benefit and the greatest amount of Cash Value as quickly as possible. With the UL you can do this in about 4 years and not MEC the Contract or create a Modified Endowment Contract which you would then lose the tax advantage of the CV Insurance Monies.

So basically the contract is set up so that less then 1% of interest from the Cash Value side will fund the COI or Cost Of Insurance with no further premiums. Yet when you borrowed the money from most well design UL's you can use a Preffered Loan with 0% or 2% rate of interest. Now you pay yourself in loan installments of 6-8% whatever you feel like giving yourself base on your credit rating you give yourself.

Now if the Policy is getting to rich in CV you have to open a second insurance contract and repeat the above!

Basic of basics, basically your using a Arbitrage with your own money.

Posted: 15 Jul 2006 10:18 Post Subject: I messed up

Okay I messed up! Forgot to sign in and ended up double posting the above post about infinite banking system.

Posted: 15 Jul 2006 11:46 Post Subject:

Now look at this way, most people can't just buy Pernament Life Insurance because of affordability reasons. So when I suggest this use of Life Ins. I do it in a Step Up Method.

Say a 30-35 year old making around 35 grand a year. His or her Net Life Value of now is 30X his/her income. Obviously he or she can't afford a UL or WL policy of a Million dollars! So I suggest is 100 grand W/L along with Term to complete the million which is usually affordable.

Now I take that 100 grand EIUL/UL/WL whatever and max fund that. Once you fund that fully, payments are no longer needed and the CV easily stands in for ones Emergency Fund plus now your debt will be owned by the individual. If they can do this in 5 years the next step is to either increase the UL or pick up a new policy and start over funding again. The goal is by 20 years one has a fully funded Policy or Policies greater then a million.

This is assuming as one goes the wealth expotentially grows. Yet using insurance is guaranteeing value unlike other investments. I'm not saying other investments shouldn't be done but the use of Insurance products such as W/L and Annuities guarantees one's wealth.

Posted: 18 Jul 2006 10:28 Post Subject: pls explain, it seems inneresting !

So just as you have said, one needs to increase the UL or get a new policy after those 5 years, how much increase do you prefer if you have initially invested worth 100 grands in UL or WL ?? Again where do I see my investment after 20 years counting the exponential growth that you described ??

Posted: 18 Jul 2006 12:48 Post Subject:

Okay, let me say this. You'll create a little less then if you invested in your 401 depending if you even qualify to put that much in a Qualified Plan. Yet though, when you retire and start Harvesting the money, Insurance Contract shines! Why? Because if you use a EIUL you will if you are smart use the Preferred Loans, meaning you can pull the money out in loans without any taxes. Okay up to a certain amount, or what you have place in the contract. Yet some disagree with that and suggest as long as you use the Loan feature no taxes but that isn't quite right. Yet though, the loans go against your DB in a good EIUL not Cash Value. What does that mean? You'll keep you Cash Value high making interest off of that. In fact, what you could create if you keep loan withdrawals down to around the interest being credited to your account/accounts you can keep the withdrawals of money far longer then if you was withdrawing money out of a Qualified Plan or Non Qualified Security funds. Once again, I highly suggest getting with a expierence agent and have him run you the illustrations, then go see a CPA or Lawyer to assure that the illustrations is honest and not loaded up with returns that are higher then the policy can really pay.

Exact amounts of returns and accumulations. I'll have to get back to you shortly on that. Yet though if a 35 yr old in good health, paid premiums of 6800 dollars a year in a good EIUL and uses current illustration method (which would be about 6-7%) at the age of 65 they would have about 750,000 dollars of Cash Value to work with. So using my suggesting of loans and crediting you could pull out 37,500 yearly without touching the 750,000 base of cash value. Yet I would suggest to keep making payments thru out your life. So that would be a income of about 31 grand a year for ever and ever and have a DB when you pass away to boot. Few other tricks I played here, like having a level DB but if something happens you change the DB option to recieve DB plus CV at your Death.

Yet this is the time I have to spend right now. I know I skated all over the board, and probably didn't explain it exactly as I should. So if you have certain questions please fire away!

Posted: 20 Jul 2006 11:44 Post Subject:

So just as you have said, one needs to increase the UL or get a new policy after those 5 years, how much increase do you prefer if you have initially invested worth 100 grands in UL or WL ?? Again where do I see my investment after 20 years counting the exponential growth that you described ??

Part of the expotential growth will come from the Name Sake, Infinite Banking. In other words after you build up your first one, you'll start extracting loans such as a new car or furniture. Except paying a bank or financial group you will pay yourself with interest.

UL's, have exceptional loan features, depending up what company you pick you'll have a 0 or 2% interest rate on the money you borrow from your account value. Yet be careful, you'll want a contract that has the most favorable treatment to CV while there is a loan outstanding.

Now you pay yourself back 8% and you make 6-8% instead of the bank. Same thing goes for Realstate such as your home. Just borrow the money out of your contract and pay it back just like you do the bank. That is the arbitrage quality of the idea.

Yet if you do it correctly, while you pay yourself back and interest earned and you fully funded as much Cash possible in the Contract, what will happen is the Insurance Company will have to send you the excess money or deposit it in another Contract to avoid a MEC, Modified Endowment Contract. This came by some years ago when Banks and Securities end of the business complained and lobby the Government for relief, it use to be you could place as much money in a Insurance Contract as you desired.

Posted: 20 Jul 2006 11:53 Post Subject:

Now if anyone is 55 or older, self employed or proprietor you can take advantage of the 412i Plans. You can do the MF/Infinite Banking and your premium will be tax deductible just like your 401 Plan is.

You can use up to 100% of your income plus an extra % depending upon several factors. They generally run for 5 years and available to self proprietors that failed in saving for retirement an has the ability to fund a plan within 5 or so years! So overfunding an Insurance Contract is not alien to everyone, well not least the US Government! You can use Annuities or up to a 50/50 split with Annuities and CV Insurance contract.

Posted: 22 Sep 2007 03:55 Post Subject: just read the book on infinite banking

I think that a ul or vul provides more flexibility than the WL used in the book, I am not sure that ny company sells a paid up additions rider anymore like illustrated. It is still a dividend option, but cant buy the rider. I am playing with the numbers on both the WL and VUL to see which is better. The book is worth $20, neat concept to share with savvy clients

Posted: 19 Oct 2007 06:05 Post Subject: not just chasing rate of return

Finding a company with a good participating whole life contract with a paid up additions rider is key. Remember, these concepts and strategies were used by the wealthy before those riders were around, they just work that much better now.

People get caught up in how this is infinite by starting new policies etc. but they tend to neglect looking beyond funding cars etc.

Imagine for a minute, that you had 50K available in cash value. If that is sitting there until you happen to want to buy a car or just look at some large expenditure, it is not being used to its full potential.

Suppose you noticed that living in your home you had benefited from several things, the big ones being appreciation and tax deductions.

You can leverage that 50K from the insurance company, not removing it from you policy of course, but paying the 2-5% interest cost and investing those funds into a property worth 200K. Finding a property that is breaking even or cashflowing a few hundred dollars, you are now using OPM to make your money.

You can go ahead now and DEDUCT in most cases, that same 2-5% interest cost, while finding that your small cashflow is more than enough to cover your interest costs. 50,000 at 4% is under 200/mo and now it is deductible since it was used for an investment.

So youve picked up extra deductions, appreciation and the tax advantages of (artificial) depreciation of the structure of your property.

You might now be able to keep all your EARNED income (the money you have to wake up and go to work to earn, which is taxed at the highest rates) TAX FREE as well, by creating indirect tax deductions and therefore indirect cashflow.

Now, a couple years down the line, you sell, pay back the loan, and 1031 the profits into two properties. (or you harvest the equity through a refinance having raised rents to cover the cost) and now you have your 50K back in there (plus growth) to go purchase more, or buy that car.

This works with any investment, stocks, mutual funds, etc, people just use real estate for the power of leverage and the "less volatile" market.

This is why many use whole life as the underlying contract. because of the saafety, the guarantees etc. the insurance contract isn't chasing rate of return. You are creating your own rate of return outside the contract, and using the benefits and the increased money supply to fuel them. Making your potential infinite.

Posted: 25 Mar 2008 08:18 Post Subject: No UL with Infinite Banking!!!

Sorry there - Anyone implementing Infinite Banking with a UL policy is not practicing Infinite Banking. If anyone has attended one of Nelson's seminars or read the book at least once will know that UL policies are not used.

Posted: 28 Mar 2008 05:23 Post Subject: UL/VUL

Anyone using these policies is getting scammed by an insurance salesman with his/her own best interest at heart... Both of these have a "load" of around 8% which the salesman likes to take home. If anyone is pushing this on you, look for a REAL Infinite Banking practitioner.

Posted: 28 Mar 2008 08:44 Post Subject: insurance

I've been hunting around for Life Insurance. I'm in the 'low-income' bracket. MAN!!...I din't realize there were so many TYPES of Life Insurance, you can get. Hopefully I can find a good policy, at a price I can afford. some policies seem very high. Some that aren't so high, seem like they don't give much 'coverage' from them.

Posted: 30 Mar 2008 05:51 Post Subject:

With a UL, aren't you also paying the premium and fees throughout the length of the contract, at some point eating away at the CV? You may be making a return on your CV but you are also paying premiums.

Also, if you're only making $35k a year, where are you going to find a way to dump that kind of money into investments?

Posted: 01 May 2008 10:18 Post Subject: ul

If you are going to do infinite banking just buy WL. If you are going to just let the money sit and take your chances, then God bless you and I hope you have good luck.

Posted: 26 May 2008 07:19 Post Subject: Infinite Banking

One key is find a Life Co that continues to pay the dividends with an outstanding loan (not all companies do)

Absolutely right to look beyond cars when cash allows: I would use the money in the real estate purchase mentioned, or perhaps "self-mortgage".

One idea is to create an LLC as an equipment leasing company for a small business owner to self-lease/rent cars, equipment, etc. Enhances tax deductions, by allowing a higher interest rate to be charged and offers asset protection.

I use WL for I. Bank strategy to guarantee it will be around to use. EIUL only has guarantee if enough cash to cover costs which continually rise. Not as workable when you are constatntly borrowing and need to "chase a return" to keep it funded.

I use EIUL for other financial strategies (charitable giving, NQDC, WBTs, "Roth" type savings, etc.)

Posted: 09 Jun 2008 04:06 Post Subject: Misunderstanding of how to use which

I am a licesened life insurance agent, among other things (LifeGroupLLC.comto see my resume). I preach using EIULs for equity management as Doug Andrew preaches. EIULs are the best investment around BUT are not appropriate for the infinite banking system idea.

The reason Whole Life is to be used with IBS is that it pays dividends based on the face value, not the cash value. EIULS (and any universal life) pays interest based on the cash value. As a result, your death benefit do not continue to grow even though you pull money out. With Whole life, which does have a lower return, your death benefits continue to grow because the dividends, based on the face value, fund more "paid up" insurance. As a result, you can put more in.

That said, I still have to run the numbers and see which one would end up working better - I encountered the IBS idea just few days ago and therefore didn't have a chance yet to do full analysis and run simulations. It could be that the superior return of the EIULs trumps the dividends efffect.

Posted: 22 Jun 2008 12:18 Post Subject: IBC

In answer to the first question and to follow up on "Guest's" remarks, this is a great concept and what I've always liked is it promotes honesty and true help from financial planners. It can't be done if not done right. The only advice I would give is stick with the whole life. The concept is becoming your own banker and the policy is the tool. Use a safe place for your money that is going to grow almost guaranteed, increase your wealth by becoming your own banker and financing your cars, home, debt, etc. Good Luck!

Posted: 06 Aug 2008 09:04 Post Subject: IBC

The best thing to do is this. If you can afford a couple hundred dollars a month put it into a new whole life policy that is MAXIMIZED and OVERFUNDED, just under the MEC guidelines. If you really feel you need the coverage get a little term on the side to arrive at the death benefit you need. The policy, as you use it for banking, etc, and as the paid up additions are put in place, you will be able to increase that death benefit dramatically. Within 15-20 years you should have all the death benefit you'll ever need as long as you use the concept correctly.

I would stick with whole life in order to maintain guaranteed growth and safety. Its about banking more than the policy growth.


system edited-link removed

Posted: 07 Aug 2008 06:41 Post Subject:

Hi Jake, why not join our community? You can surely add a lot to this community with your expertise.

Posted: 15 Mar 2010 05:07 Post Subject: UL for IBC?

I would hope that many of these posters have never read Nelsons Book
The best tool to use for IBC is Dividend paying whole life with a non-direct recognition policy. It is important to have flexibility. Most WL policies are less flexible than UL but there are a couple that are.

Posted: 30 Jul 2010 08:06 Post Subject: EIUL

Good Equity Indexed life policies work very well for this. Good EIULs are better than participating whole life. This company did not invent this concept. I have been using it for 24 years. You want an EIUL that has more than S&P 500 index and guaranteed zero net cost loans as well as an over loan protection rider. Midland National has 6 different indexes as well as contractually guaranteed zero net cost loans and over loan protection.

The EIULs give you more up side potential than whole life with no risk of loss. And typically better loan arrangements.

This is not a solicitation for business. This is for educational purposes only.

Posted: 31 Jul 2010 02:55 Post Subject:

Yup sure, but if it's truly trying to educate then maybe you should spend some time reading up on what exactly BOY is. UL doesn't work with BOY because BOY is built on LEAP concepts concerning lost opportunity cost, which means non-direct recogntion of dividends is crucial.

Posted: 31 Jul 2010 03:01 Post Subject:

This company did not invent this concept. I have been using it for 24 years

Not with EIUL you haven't.

This is not a solicitation for business. This is for educational purposes only

Good thing.

Most WL policies are less flexible than UL but there are a couple that are.

Really? Name one. By definition a traditional WL policy is inflexible.

People who try to exploit life insurance as a means to subvert taxation and other "rules" of government by promoting the product as something it was not intended to be are responsible for things like Modified Endowment Contracts -- which were invented by Congress as a result of the Tax Reform Act of 1986 and the elimination of tax deductible interest other than on a mortgage. Your "rich uncle" Sam didn't get that way for no reason at all.

Unfortunately, our current crop of Democrats and Republicans (dating back at least 10-12 years or so) have gone a long way toward putting Uncle Sam on a path to be utterly destitute in his old age.

Posted: 01 Aug 2010 03:06 Post Subject:

Really? Name one. By definition a traditional WL policy is inflexible.

Now I can't let you go on that one. Where in the definition of WL is the word inflexibility?

People who try to exploit life insurance as a means to subvert taxation and other "rules" of government by promoting the product as something it was not intended to be are responsible for things like Modified Endowment Contracts

That's an interesting opinion, but I'd say highlighting the benefits assoicated with the taxability of life insurance cash values, and having it become a popular practice that the government steps in and curtails is a vote of confidence in the power those benefits have, but that's just my opinion.

and the elimination of tax deductible interest other than on a mortgage. Your "rich uncle" Sam didn't get that way for no reason at all.

The top marginal tax rate when from 95% to 35%, the took away tax deduction and exclusions so as not to go bankrupt. Sure they lowered tax rate, did they necessarily lower taxes? Yes probably, but not as much as they'd like to allude given the quoted changes in marginal rates.

Take the tax cuts that were put in place in the last decade. Sure they lowered the marginal rates, but they also significantly aggrevated the AMT. Tax revenues were up, is this the laffer curve at work, or the AMT's burgeoning exposure? Maybe both.

We could always go back to vanishing premium.

Posted: 01 Aug 2010 10:55 Post Subject:

Where in the definition of WL is the word inflexibility?

It may not be explicitly stated in the definition, but you'll find it in the language of the contract, and what is or is not permitted.

A traditional WL policy neither allows for the policyowner to raise or lower the death benefit ad libitum, nor does it allow changing the premium paying schedule (timing and/or amount).

Obviously, anyone can stop paying premiums any time they want (and use accumulated cash value to pay the premiums until the CV is exhausted), and insurers only allow death benefit increases to those who can qualify for them. But an attempt to reduce the death benefit in a WL policy requires surrendering the contract (or using 1035 exchange) and creating a new contract at an older age, which means a higher rate for a lower benefit.

The entire premise behind UL policies is the "flexibility" inherent in the language in the contract that permits both changing the death benefit, death benefit options, and premium paying schedule (raising, lowering, stopping) -- without having to surrender the original contract. At any point in a UL policy, the cost of insurance is dictated by age, since the underlying insurance "engine" is Annual Renewable Term.

The language of a WL policy specifically states, "Premiums payable to age 100" (or other stated age) or "Premiums payable throughout the lifetime of the insured" or words to that effect. On the other hand a UL policy simply states that only the first premium (the "consideration" required to form the contract) is required. Very different concepts.

A traditional WL policy is intended to "endow" at a stated age, given a fixed, unchanging internal rate of return which does not permit any amount of premium to be paid according to the owner's whim, but a UL policy does, to the extent that it does not create a MEC, because the language of the contract does not specify an "endowment" value. You get what you have in the CV if you get to the endowment age while still living.

So that's the reasoning behind my statement that WL is "inflexible". And it's why UL policies are usually labeled "Flexible Premium Adjustable Life Insurance", while WL policies are lableled, simply, "Whole Life Insurance".

a popular practice that the government steps in and curtails is a vote of confidence in the power those benefits have

No doubt that is true to an extent. But I don't see it as a "seal of approval" either.

The rationale behind the MECs created by the act of Congress in 1986, was that, in part, given the rising popularity of UL and Variable policies in that time period (just as the initial waves of UL policy collapses were beginning to happen, courtesy of declining interest rates in the economy) and the ability to both dump huge amounts of money into the contract and immediately borrow most of it out and deduct the "phantom interest payments" on the loan from one's income tax appeared to be a tax dodge (which it was, albeit lawful at the time).

I'll agree that no one should pay more in taxes than they legitimately owe, and everyone should not fear taking all the deductions to which they are entitled, but the abuse of the tax laws in such a manner as this was not one perpetrated by Joe Bluecollar. It was an exploit of Daddy Warbucks. But it was certainly an exploit that Congress never intended, so they closed the hole in Uncle Sam's pocket.

[And I don't necessarily agree that creating MECs was within the purview of Congress either, but I don't think anyone ever challenged it in court. There were/are many other more practical ways they could have closed the loopholes they created.]

We know that the wealthiest people in America, who do pay the highest marginal tax rates, also pay a smaller percentage of their wealth/income in taxes. I have no argument with that (plenty of others do, and they are the ones who clamor for the wealthy to "pay their fair share" which is mostly a tale of "smoke and mirrors"), because these same people are fueling the economy by employing others, and through their investments.

Take the tax cuts that were put in place in the last decade. Sure they lowered the marginal rates, but they also significantly aggrevated the AMT

Amen to that! AMT is the biggest fraud perpetrated on the taxpaying public in America. And investors, in particular, are perhaps more frequently exposed to the AMT than most others. The number of persons being exposed to the utterly ridiculous AMT is increasing each year, and it's only going to get worse come 1-1-2011 if Congress fails to act before then.

Just wait 'til Congress wraps its grubby little hands around the Value Added Tax (which is wrecking the European economy) as a "new source of revenue" to feed its spending appetite in the future.

Posted: 12 Jan 2011 03:10 Post Subject: Good Discussion here

many people have eluded to this already, dividend paying whole life is the best choice for infinite banking. As you may or may not know within an IUL or UL you are essentially buying annual renewable term. As you get older that annual term policy will get more and more expensive and start to eat away at your cash value. another issue is that most IULs have a cap, meaning that even if the market explodes and grows by 25% you will only see maybe 12% of that growth. If there is no cap there may be a participation rate which says, for example, you will only get 70% of the gains.

IUL and other universal policies may look appealing up front but to implement infinite banking in the most effective way dividend paying whole life should be used.

Posted: 12 Jan 2011 05:23 Post Subject:

Infinite banking? That's what the Congress and the Federal Reserve are doing these days by printing all that phantom money. $1 TRILLION here, another $660 BILLION there.

Just wait for the (inevitable) INFINITE INFLATION to arrive. The next generation of history books will have COLOR photographs of people pushing their money around the U.S., like the people of Germany in the mid-1930s were, in wheelbarrows.

I heard an interesting eye-witness account of the German fiasco a few months ago in a documentary on PBS. Seems that the money had become so worthless that when the person stopped at the bakery with their wheelbarrow-full of money to buy a loaf of bread, that when they came out of the bakery, having left the wheelbarrow unattended, they discovered the money sitting in a pile on the sidewalk and the wheelbarrow missing -- because the wheelbarrow had value!

Here's the next big stock play: invest -- heavily -- in wheelbarrow manufacturers.

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