Common Sense Financial Podcast

Alternative Banking Option

Episode Intro

Brian Skrobonja breaks down the myths and the mechanics of Infinite Banking and how this strategy allows you to take control of your cash flow and finance larger purchases while still allowing your money to earn dividends and interest. Learn how Infinite Banking works, why you need to forget what you think you know about whole life insurance, and whether this strategy is right for you.

Show Notes

  • In order to understand the concept of Infinite Banking, you have to set aside the common understanding of how life insurance works. You also have to realize that there are pros and cons with every financial strategy and there isn’t any silver bullet that everyone should adopt.
  • Infinite Banking, also known as Privatized Banking, Cash Flow Banking, or Bank On Yourself, utilizes a specially designed whole life insurance contract. If you search for those terms you’re likely to find a huge number of articles on how the process works (or doesn’t work) because the strategy has been around for years.
  • When you look at the course of someone’s life, you might be surprised at how much money is actually earned and spent. Capturing and maintaining control of this money as it comes in and goes out is the core of this strategy.
  • Many of us use banks on a day-to-day basis. Aside from the recurring expenses that we all need to spend money on, there are also semi-frequent large transactions that you may want to save for.
  • Big ticket items may require borrowing money from a bank, but no matter how you go about funding those purchases, the end result is a zero-sum game which requires a continuous need to earn money.
  • In the example of purchasing a $30,000 automobile every five years, you save money each month and then write a check at the five-year mark, bringing your account to zero with the whole process starting off again.
  • Using a specially designed life insurance contract can create long-term wealth from money that you would have otherwise spent. It requires using the life insurance contract that is very different from the traditional approach.
  • Make sure you are working with a financial advisor that understands the concept.
  • Many people dismiss whole life insurance as too expensive with rates of return that are too low, and in some ways that’s true. Term life is usually a better option for life insurance, but we are not talking about simply buying life insurance.
  • The idea is using a whole life insurance contract as a cash alternative, not an investment alternative or life insurance solution.
  • A specially designed whole life insurance contract has a specific feature to allow the policy owner access to money through non-recognition loans from the insurance company. This allows for your entire cash value to stay within the policy earning interest and dividends, and allows for uninterrupted growth.
  • Compared to a savings account where you are withdrawing money and the interest earning balance declines each time, borrowing money against your policy allows that money to continue to earn interest and grow. There are ways to structure the contract that can also offset the cost of the loan.
  • This kind of strategy is the best for business owners and habitual savers who don’t require every dollar they make.
  • The loan on the contract comes with flexibility because it doesn’t come with the usual repayment schedule. From the insurance company’s perspective, the loan is covered by the collateral in the policy.
  • You’re likely to want to repay the loan so that you have access to the money later. This strategy is all about cash flow and how the design creates a conduit to creating more money than simply paying cash or financing purchases through a bank.
  • There are also tax considerations for life insurance. The earnings within a policy are tax-free, same with the money growing within the policy, the death benefit, and the loans.
  • If you are a good saver, this strategy could work for you. Infinite Banking will lock up your money for up to five to seven years. The lack of liquidity covers the cost of the life insurance and to disregard that could be careless.
  • Don’t beat yourself up about financial decisions you’ve made in the past. There is a lot of misinformation about financial topics out there.