A Simpler, and More Efficient, Way To Implement The Infinite Banking Concept

This is part two of The Infinite Banking Concept Review, the first article was: What You Should Know About The Infinite Banking Concept

The real reason for overfunding a life insurance policy is to build up the cash value inside the policy as quickly as possible. The principle is the same as for any financial product. The more money you invest on a compound growth curve in the shortest period of time, the more cash you'll accumulate as long as all other factors are equal.

What you need to do then is just find the simplest way to stuff as much money into a life insurance policy as you can given the death benefit you're purchasing. You want to deemphasize the death benefit in the early years of the policy, and emphasize the cash value for all years of the policy.

Who knows why Nash, et al insist on using "life paid up at age 65" policies. You could speculate that even the self-proclaimed "infinite banking gurus" have books, videos, and seminar tickets to sell in order to teach you a "complicated" financial strategy, but the truth is that only Nash knows why he does things the way he does them.

Look at that continuum again. Instead of using a "life paid up at age 65," why not just use a 10-pay life? That product will be guaranteed paid in full after 10 years. It has the "overfunding" function built right into the policy by design, but you don't have to worry about hitting that MEC guideline. It will also produce more cash than a rigged "paid up at 65" policy since none of the dividends go towards paying for policy premiums.

Look at the illustration of a 10-pay policy below:

Your policy is paid up in full after 10 years with a 10-pay policy, and you don't owe any more premiums. However, you don't have to wait out the 10 years to do the banking thing.  Look:

Let's say you wanted to take out a loan in year 5 for $5,000. The 4th column from the left titled "annual loan Beg Year" shows you the loan amount you take in year 5. This figure is also duplicated 5 columns over under the column title "total outstanding loan end year." The difference between the two columns is that one shows you the loan balance at the beginning of the year, while the other shows you the loan balance at the end of that year.

If you begin repaying the loan amount with a $100 per month suggested loan repayment, your loan can easily be repaid over the course of 5 years. By the way, this $100 loan repayment represents about a 7.5 percent interest rate on the loan. This would be like taking out a small loan for a used car with an APR of 7.5 percent.

Even if you think your credit is better than that, and that you should be paying a lower interest rate, remember that none of that matters here. Since you own the "bank" when you use a dividend-paying whole life policy, there's nothing bad about paying a higher interest rate. In fact, it's a good idea to pay the suggested repayment by the insurance company. After all, it all comes back to you in the end.

Look at the restored cash value amount in year 10. When your loan balance is $0, this means that you've repaid the loan in full. In year 10, the "total outstanding loan end year" reads $0. The column just to the right of that, which reads "net cash value end of year" reads $30,431. Now, scroll up to the original illustration. There's no loan being illustrated here, so you must look at the 8th column in from the left, titled "total cash value end year." At year 10, you'll see the cash value amount is $30,431.

Wait a minute. The cash value is the same for both policies. This means that the policy grew as though you had never taken out a loan at all. Keep in mind that this only illustrates one loan. You can keep recycling the money in that policy over and over for anything your little heart desires and the same phenomenon will occur. You can even take on multiple loans, at the same time, from your policy as long as there is cash value available for borrowing. Amazing.

The "net cash value end year" column does show decreased cash value during the loan period. This shows you how much you have available for borrowing. Naturally, once you've borrowed against the policy, and secured that portion of the cash value, you cannot do it again until the policy loan is repaid. However, look at the 6th column in titled "annual dividend end year" for both illustrations. The dividend is the same. In fact, if you look at other elements of the policy, you'll be able to verify what this special loan feature is doing for you. It keeps the cash value growing even though there is a loan against the policy.

There really isn't another financial product capable of pulling this off, which is why life insurance is the favored financial product for this concept. Happy banking.