Are you thinking about implementing the Infinite Banking Concept and deciding how exactly to go about it? You may be wondering, do I really need a life insurance policy in order to achieve this? That’s exactly what we’re going to talk about today.
So let’s jump right into it. Do we actually need life insurance policies to accomplish the Infinite Banking Concept? And I think another question we could address is, what happens if I can’t get a policy? What if I’m uninsurable? How do I go about implementing?
That’s a great question. And really, let’s look at it. Basically, the answer is no, you do not need a life insurance policy to be in control of the financing function in your life. You could control the financing function through a home equity line of credit, or a business credit line, or a margin account, or your 401(k), certainly a life insurance policy, a savings account, a CD—whatever you use as the depository becomes your source of capital.
Now, to truly be in control, you’ve got to make sure you’re controlling all the pieces. And here’s what I would say: a credit line or a home equity line of credit, you’re not in control, because you’ve got to go to the bank and get approval to be able to tap into the equity, right? So some people will be knocked out there as well. If you’re disabled, if you don’t have a steady job, if you don’t make enough income, if you don’t have enough equity, then you can’t be in control of that function, right? Knockouts—because the bank is not going to approve you. So that’s one thing.
But here’s the other piece, the other side of that coin, which is really what happens: a credit line or home equity line of credit—the bank has the ability to call those loans in whenever. And people say, “Oh, well, that’s not going to happen.” Well, it did. It happened in 2008. If you had a credit line with certain banks and they didn’t like what was going on in the economy, you got a letter. And the letter said, “Hey, you’ve got 60 days to seek a new banking relationship.”
Basically, think about it. If you had a $50,000 credit line and you had $45,000 out on that line, you had to come up with $45,000 during the financial crisis. So again, that’s where they always say there’s an old saying, “A banker is somebody who will sell you an umbrella when it’s sunny and take it back when it starts to rain.” And that’s really where the genesis of that statement came from.
You could also use a margin account—a stock portfolio, right? But then we have the risk associated with the underlying investments. And if the underlying investment goes down for whatever reason, then you can get what’s known as a margin call, where you have to pay back principal and interest. So that makes that a little bit more risky.
401(k)? You’re limited. You can only take 50% of the value as a loan of your 401(k), up to $50,000. And the loan has to be paid back in a stipulated period. Again, you’re not in control. You’re not in control of the terms. You’re not in control of the interest rates. You’re not in control of anything. You’re not in control of the conditions of paying back that loan. Less than ideal, but doable if necessary.
And then the savings account—you can go to a savings account. It’s interesting. Nelson Nash clearly showed this in his book Becoming Your Own Banker. He had a comparison between using Infinite Banking in a policy and using Infinite Banking with a savings account. And he showed a 4.5% savings account versus a policy.
Now, here’s the key. For the first 13 years, the savings account was a better place to do this. Because you were in control of the function, you were earning interest—all of those things. But Nelson was trained as a forester, and so he thought long term. By the time he finished his analysis, the life insurance ended up with over $700,000 more in value—not death benefit, value—versus the CD or the savings account. Then on top of that, you get the death benefit.
So Nelson clearly showed, number one: you don’t need life insurance to become your own banker, to use Infinite Banking. But number two: he showed why life insurance is the best place or the best depository for the implementation of Infinite Banking.
Now, with the savings account though, when you take money, they don’t have a loan feature with savings accounts. So if you access the money, does that interrupt the compounding in his example?
No, but what you have to do is go to the bank each time you want a loan and get approval to collateralize your savings account. So again, you’re not in control of that process, because the bank could come back and say, “Well, you know, the economic conditions in the country were different when you started this process. Now it’s not as favorable. So we’re not…”—they don’t have to approve you.
But again, here’s why Nelson liked life insurance—because the loan provision was a contractual guarantee. It was in the policy that the company has to loan money to you. Well, gee, that puts you in control of the function. And that’s what it was all about. It wasn’t about interest rates. It wasn’t about “I have more money for 13 years.” It was “I want to be in control.”
Because not being in control—he found out what it’s like to not be in control of the financing function. That’s where he was up at 2 and 3:00 in the morning, on his knees praying, “Lord, help me find a way out of this financial prison I made for myself.” And boom, the answer was life insurance.
So Nelson vetted all of those other depositories, those other sources of capital, and he came to the conclusion that life insurance was the best place. And in his terminology, “What better place than free people coming to an agreement under their own free will?” And that’s between the life insurance company and the owner. Exactly.
So the long and the short of it is, there are options if you don’t want to use a life insurance policy to implement this concept. This concept is about being in control of your money, making your money as efficient as possible.
We just did a video recently on what is the Infinite Banking Concept. Go ahead and check that out if you’re interested in learning more there. But yeah, we’re able to help with life insurance. And I do believe that life insurance is one of the most efficient ways to implement this concept, because it’s a closed system that you have full liquidity, use, and control over. And that’s what this concept really is all about—control and freedom.
And there’s one other piece to this—it’s the death benefit. The legacy. You can make all these purchases over your lifetime—and we all will, right? You’re not going to stop spending money. And then when you die, somebody’s going to benefit from your foresight. What better way? What better system?
Well, there’s no better system, especially from a legacy and death benefit perspective. So thanks for bringing that up.
If you’d like to learn more about how to implement Infinite Banking and take control of your financial future, we invite you to schedule a free strategy session with our team. We’ll take a look at your unique situation and help you explore whether life insurance or another option makes the most sense for your goals. Visit www.tier1capital.com and click the “Schedule Your Free Strategy Session” button to get started today and remember: It’s not how much money you make, it’s how much money you keep that really matters.