How to get started in infinite banking.
Getting started in Infinite Banking!
Everyone online talks about how they use their Whole Life banking policy to do the most amazing things. What they don’t talk about is how to get one started, how long it takes, and how to make sure the policy you get actually will work with the concept!
Since this concept is pretty much all I focus on, here are the things to know about getting started.
Know how much money you have free to use for this, what you plan on using the concept for, and when you want to get started with that plan. For example: say you have $300 a month free to use. You also have $100k in equity in your home. If your goal is to buy a rental property in 10 years and after that retire with tax free income. Putting $300/m into a policy makes the most sense. If however, your goal is to get a rental property next month we need to be more creative. How about looking to get equity out of your home, frontloading a policy (plug in a large amount right away) so you can get that property now! There are specific tax things to remember for the front loaded policy which I’ll get into later.
Now that you have some idea of your starting point and goal, now we have to get you there. Not all life insurance policies and companies are equal when it comes to doing the Infinite Banking concept. I’ve seen so many policies that just don’t make sense to use for this. First, it has to be a dividend paying company with a strong history of doing a good return. As of right now the companies I’m working with are offering between 5% and 6% dividend rate. Next, look at the loan rates within the policy, if the loan rate is not equal to or less than the dividend rate RUN AWAY!
The final step is finding an agent who knows how to set up the policy’s cash growth in a ratio that get you fantastic growth. If you have someone show you numbers here is what to look for. First, Year 1 you should see about half of your total annual payment in the cash value. If you see that then the next thing is to see at about year 8-10 all the money you paid into the company available in the Cash Value. That’s called the break even year. I can usually get the break even year at least at year 10. Sometimes sooner.
The next step is a bit tricky. Its not hard its just odd for most people. Accessing your money from a bank loan doesn’t seem to fit with the “be your OWN bank” idea. Here’s why I tell people to talk to one of the 3 banks we’ve identified as good places to go to create a bank line of credit on the life policy. First, the banks are charging less to use the cash value in the policy than the insurance company. Right now its about 2% less. That means that now your money is growing by an extra 2% every year you use it to make money!!! The second reason is that it gives you another buffer for options if rates change. If the bank changes their rates you still can use your loan from the insurance company to pay off the bank. Its just another layer, and that’s good. The final reason is that if you have front loaded a policy and it is a Modified Endowment Contract or MEC (an IRS label that means its not tax free growth but tax deferred) you can still access the growth in your life policy without paying taxes on it because your not taking anything from the policy you are creating a collateralized loan. That means its not taxable.
That’s it! its not hard to set up or get started. There is no real minimum and you don’t have to have a plan yet as to what to do. It does take time to get the ball rolling in a meaningful way though. It is not a get rich quick idea, its a solid plan to building true and strong generational wealth.
If you want to get started today or talk through it more fully, contact me and lets talk.
John Trahms