The Infinite Banking Concept is the process of controlling how you finance the things you need throughout your lifetime such as property, vehicles, appliances, businesses and investments. There are several aspects to the Infinite Banking Concept including policy structure, policy loan interest volume, dividend election, premium payments, cash value accumulation rate, and tax benefits. To understand this concept comprehensively, it is essential to delve into each of these facets.
Process: The process of infinite banking involves recapturing the interest that you would otherwise pay to banks, credit card companies and to finance companies, while controlling how you finance all the things you’ll need throughout your lifetime. The tool that is used to implement the process is a participating (dividend paying) whole life insurance policy, or ideally a system of policies, ideally with a mutually owned life insurance company. This policy (or system of policies) provides policyholders with contractually guaranteed accumulation of cash value on a daily basis, which they can borrow against, on demand, on their terms, through policy loans. These policy loans serve as a source of funds to control how one finances the things needed throughout a lifetime such as investments, debt reduction, or personal expenses. Policy loans are unstructured, meaning there is no payback schedule, and they do not interrupt the daily accumulation of total cash value.
Policy Structure: The policy type is a participating whole life insurance policy, emphasizing high, early cash value growth. These policies provide both a total death benefit and a total cash value component. Each day, the total cash value grows, and cannot go backward, providing ever increasing collateral capacity that policyholders can access, on demand, on their terms. There is no taxation on the daily build up of cash value and no taxation on the death benefit proceeds.
Loan Interest Rate: When policyholders requests loans against their total cash value, simple interest accrues on the loan balance which is a lien against the total death benefit. The simple interest rate (%) for policy loans is often lower than what traditional financial institutions offer, making it an attractive borrowing option. In addition, it’s important to note that a policyowner co-owns the life insurance company, and policy loan repayments (principle plus interest) are a net contributor to the earnings of the life insurance company. A primary factor in the dividend paid to any particular policy is primarily based on the “contribution principle”.
Dividend Earning: It is important to confirm the policy is participating, meaning the policy “participates” in the divisible surplus generated by the life insurance company in the form of annual dividends. Once declared, a dividend is contractually guaranteed to be paid, cannot be repossessed and cannot lose value. And, when the policyowner elects to have dividends buy fully paid up additions to the policy, there is no taxable event triggered. Each paid up addition receives a dividend, and the total cash value of the policy is guaranteed to match the total death benefit by age 100 of the life insured. Dividends become enormous, and can be used to propel the total cash value growth of the policy and / or provide additional income to the policyholder.
Premium Payments: To keep a policy in force, policyholders must make regular minimum required premium payments. These payments contribute to both the total death benefit and the total cash value of the policy.
Cash Value Accumulation Rate: The cash value accumulation rate represents how quickly the cash value of the policy grows over time. A higher accumulation rate can lead to more collateral capacity for policyholders to borrow against without ever interrupting the daily growth of the total cash value.
Tax Benefits: There is no tax on the daily build up of cash value, and no tax on the death benefit proceeds. Policy loans above the adjusted cost basis (ACB) do trigger a taxable gain, while partial or full repayment of the policy loan balance triggers a corresponding income tax deduction dollar for dollar. Cash surrender value lines of credit are offered by the major commercial banks. When a policy is collaterally assigned to a commercial bank in exchange for a cash surrender value line of credit, there is no taxable event triggered when funds are accessed, and the total cash value of the policy continues growing daily, uninterrupted.
The Infinite Banking Concept is aprocess, not a product. The whole idea is to recapture the interest that one is presently paying to banks and finance companies for the major items that we need during a lifetime, such as vehicles, property, investment opportunities, business equipment, etc. At Ascendant Financial we teach the ‘’Infinite Banking Concept’’ which was conceived by the late R. Nelson Nash, the author of the best selling books titled ‘’Becoming Your Own Banker’’ and “Building Your Warehouse of Wealth”. In these bestselling books, Nelson discusses the impact of financing with third party banks and lenders over a lifetime and how much wealth is permanently transferred away from your Family or Business.
Nelson also goes on to explain that “you finance everything you buy…you either pay interest to someone else or give up the interest you could have otherwise earned”. The real power of The Infinite Banking Concept is that it solves for this problem and empowers the Canadians who embrace this concept to take the control back over their financing needs, and to have that money flowing back to them versus away. It is often misunderstood but this includes the cash purchases that one makes over a lifetime as you are still working with borrowed money, even when you pay cash for things. This is called lost opportunity cost. When you pay cash for things, you permanently give up the opportunity to earn interest on your own savings over multiple generations. To solve this problem, Nelson created his own banking system through the use of dividend paying participating whole life insurance policies, ideally through a mutual life company. It has been called many things over the years including Infinity Banking, Cashflow Banking, The Perpetual Wealth Code, The Money Multiplier, and many other variations.
Infinite Banking Concept Creator Nelson Nash
What is the process involved in the Infinite Banking Concept?
The process of implementing the Infinite Banking Concept begins with purchasing a product, a participating whole life insurance policy (or ideally a system of policies) from a reputable life insurance company. It's important to work with a knowledgeable Authorized Infinite Banking Practitioner who understands the steps necessary to successfully implement this process. The policyholder makes premium payments to the life insurance company, which contributes to both the total death benefit and the total cash value of the policy. Each day, the total cash value accumulates, and the policyholder can borrow against this total cash value to fund various investments, expenses, or financial needs, on demand and on their terms. Unlike traditional loans, a policy loan is unstructured and has no repayment schedule. The policyholder determines their own repayment schedule, pays simple interest to the life insurance company which is a contributor to the net earnings of the life insurance company (which the policy owner co-owns). The key to success in implementing this concept is to make it a way of life. It is not a financial plan. The policy owner needs to develop the discipline of ongoing premium payments, responsible borrowing, and repayment of policy loans. Properly executed, the Infinite Banking Concept can provide financial flexibility, control, and tax advantages for individuals, investors, and business owners seeking a unique approach to their finances.
How is the policy structure typically designed in Infinite Banking?
In the Infinite Banking Concept, the policy structure is a crucial element that needs careful consideration. Typically, the policies used are participating whole life insurance policies, known for their stability and contractually guaranteed daily accumulation of total cash value. The policy structure is designed to maximize the high, early cash value growth component while providing a sufficient total death benefit. Policyholders work with Authorized Infinite Banking Practitioners who are well-versed in this concept to tailor the policy to their specific needs and financial goals. The premium payments are structured to be consistent and predictable, ensuring the policy remains in force and the cash value continues to grow. The policy structure also takes into account the policyholder's age, health, and rating to determine the appropriate coverage and premium amounts. It's essential to purchase the product from a reputable life insurance company and to work with an experienced Authorized Infinite Banking Practitioner to ensure the policy structure aligns with the advantages of maximizing the total cash value accumulation.
What are the loan interest rates associated with Infinite Banking Concept?
Infinite Banking Concept interest rates vary from one life insurance company to another. When policyholders borrow against the total cash value of their participating whole life insurance policy, a lien is placed against the total death benefit for the loan balance. The total cash value continues rising uninterrupted by the loan balance. Simple interest accrues on the policy loan balance and compounds once annually on the policy anniversary. When loan repayments are made, the funds are paid directly back to the life insurance company, benefiting every participating policyholder rather than the stockholders of a bank or financial institution. The policy loan simple interest rates established by each life insurance company are not that different from traditional lenders. The rate is often tied to a specific mandate established by the board of directors at each life insurance company (i.e. X% or Prime plus X% whichever is higher), and it's important for policyholders to understand the terms and conditions associated with policy loans. The ability to recapture the interest and leverage the life insurance company’s funds for various financial needs is a key advantage of the Infinite Banking Concept. Additionally, the interest paid on policy loans may have potential tax advantages, making it an attractive option for those looking to optimize their financial strategy. It is recommended that you consult with your tax professional for any tax related planning considerations.
Does the Infinite Banking Concept offer dividend earnings to policyholders?
Yes, the Infinite Banking Concept “participates” in dividend earnings generated by the life insurance company in the form of annual dividends. There are two types of life insurance companies. Stock and Mutual. When dealing with a stock company, the shareholders have an expectation of participating in the divisible surplus along with the participating policy owners. With a Mutual company, there are no stockholders. The participating policy owners own the company and are the sole beneficiaries of the divisible surplus and ever increasing owner’s equity. Dividends are a portion of the company's divisible surplus, profits that are returned to policyholders in the form of cash or used to enhance the policy's cash value and death benefit. Policyholders can elect how they want to receive dividends, whether as cash, premium reductions, or additional paid-up insurance. The ability to earn dividends adds to the wealth-building potential of participating whole life policies and can be a valuable feature for policyholders seeking long-term financial growth and stability. Once declared, dividends are contractually guaranteed to be paid, cannot be repossessed and cannot lose value … ever.
How do premium payments work in the Infinite Banking Concept?
Premium payments are a fundamental aspect of the Infinite Banking Concept strategy. Policyholders make regular premium payments into their participating whole life insurance policy to keep it in force and to build the policy's total cash value. These premium payments are typically structured to be consistent and predictable, ensuring that the policy remains active and the cash value continues to grow over time. It's essential for policyholders to adhere to the premium payment schedule to maintain the benefits of the policy and to maximize its potential as a financing tool. Unlike term life insurance, which provides only a death benefit, participating whole life insurance policies used to implement the Infinite Banking combine insurance protection with a cash value accumulation component, making premium payments an integral part of the strategy. Working with a knowledgeable Authorized Infinite Banking Practitioner is crucial to determine the appropriate premium amount based on the policyholder's financial goals, risk tolerance, and desired cash value accumulation.
What is the cash value accumulation rate in Infinite Banking Concept?
The total cash value accumulation rate in a participating whole life insurance policy is contractually guaranteed to match the total death benefit by age 100 of the life insured. That accumulation is influenced by various factors, including the premium amount, policy design, and the performance of the life insurance company's participating account. Generally, participating whole life insurance policies used to implement the Infinite Banking Concept are designed for high, early cash value growth. A significant portion of the premium payments goes toward building the paid up death benefit, which must accumulate its equivalent in total cash value, which can be used as collateral by policyholders to request policy loans. The exact accumulation rate can vary among insurance companies and policy types, but the growth is predictable based upon the contractual guarantee. Policyholders can work with their insurance advisors to project the expected cash value growth based on their premium payments and the policy's total death benefit growth.
What are the tax benefits of the Infinite Banking Concept?
Implementing the Infinite Banking Concept can offer several potential tax benefits, making it an attractive strategy for those looking to optimize their finances. While tax laws and regulations may vary by jurisdiction and can change over time, some common tax advantages associated with the tool utilized to implement the process, participating whole life insurance policies include no tax on the daily build up of total cash value, tax-free access to capital (when structured properly), and tax free death benefit proceeds. The total cash value of the policy grows daily on a tax-advantaged basis, meaning that policyholders do not trigger taxable policy gains as long as there is no deemed disposition from the policy. When policyholders borrow against the policy's cash value through policy loans, the proceeds are typically not subject to income tax when the loan amount is less than the adjusted cost basis (ACB) of the policy. Additionally, the death benefit paid to the named beneficiaries is income tax-free (when structured properly). It's important to consult with a tax advisor or financial professional to fully understand the tax implications of your specific participating whole life insurance policy and to ensure that it aligns with your overall tax strategy and financial goals.
Infinite Banking Tool
The tool that is used to implement Nelson’s Infinite Banking Concept, is a properly designed dividend paying participating whole life insurance policy, or a system of policies. The money returned to a policyholder by the life insurance company if the individual forfeits the life insurance contract before it matures, or before an insured event happens, better known as total cash surrender value, acts as collateral for policy loans from the insurance company. The Policyowner has full contractual authority and so when a policy loan is requested, it is issued unstructured, meaning the policyowner controls the repayment schedule. The insurance company places a lien on the death benefit for the loan balance and the entire cash value of the policy continues growing daily … uninterrupted. The reason the life insurance company does not require (nor can they ask for) a repayment schedule, is the insurance company itself guarantees the collateral (the total cash value). Policy loans are the best invested asset the life insurance company can have because they establish a guaranteed return and the is no risk of default.
The life insurance policy is designed to cover the whole life of an individual, and not just to help their beneficiaries when the individual dies. That said, the policy is participating, meaning the policy owner becomes a part owner of the life insurance company, and participates in the divisible profit generated in the form of dividends. Now I know what you’re thinking when you read the word dividend. “Here comes Revenue Canada”. That is not the case. When dividends are chunked back into the policy to purchase paid up additions for no additional cost, there is no taxable event. And each paid up addition also receives dividends every single year they’re declared. Now you may have heard that “dividends are not guaranteed”. That’s not true. The only dividend that is not guaranteed is the one that hasn’t been declared yet. Life Insurance Companies who sell participating whole life policies declare dividends one time annually, and when a dividend is declared, it is contractually guaranteed to be paid and it cannot ever be repossessed or lose value.
What are the benefits of Infinite Banking Concept?
The main benefits of the infinite banking is that it creates a peaceful, stress free financial life. It is a financial lifestyle, not a financial plan. Other advantages are control. Imagine having a pool of financial value that’s growing on a daily basis no matter what and being able to take advantage of opportunity that will track you down. Another is the increase in cash flow or liquidity. The net worth of a life insurance policy standing in as security is has more liquidity, than, let’s say, equity in real estate, since the loan can be accessed without qualifying and the policyholder can get cash more quickly.
The development of a person’s cash flow can be remarkable, particularly in the onset of financial difficulties or unexpected expenses. If a policyholder is rendered temporarily jobless, either because they are sick, bereaved, or permanently jobless, a policy loan might also be useful in such a situation. This is because policies under whole life insurance fall in the category of non-correlated – simply meaning that they are not tethered to the fluctuations of a risky stock market, as they always maintain and grow in value.
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