The overwhelming majority of content about the Infinite Banking Concept is USA-based. Why? Simply because the concept originated from there. If you are Canadian, you have to be very careful because a lot of the key aspects to IBC in Canada and the USA are different.
As always – I am not a financial advisor, nor insurance agent. I am simply a personal finance lover who really enjoys the alternative side of finance.
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So let’s dive right into it. There are three main components where infinite banking in the USA is different than infinite banking in Canada.
Cash Values
If you have ever watched any USA based IBC videos you will see them throw around very high 1st year cash values. For those who are not aware, an IBC policy ‘loses’ money in the first year of ownership. I discuss this in my Negatives Of Infinite Banking article.
In Canada you can expect to lose, on average, approximately 20-30% in the first year with a break-even point usually in the range of years 4-6. However, this apparently has been changing recently to allow for lower losses.
In the USA it isn’t common for you to retain nearly 85-90% in cash value in the first year. Higher cash value means being able to use your policy for more.
Guarantees
In the USA there are actually dividend guarantees. Meaning that the insurance company guarantees they will deliver a X% return on an annual basis, gross of fees.
In Canada, I do not know of a single company that offers a dividend guarantee. The only guarantee that exists is that the cash value that is earned inside of your policy will never drop as long as your premium is covered.
Taxes
By far, the biggest difference is taxes.
In the USA policy loans can be taken completely tax-free, regardless of the amount. At least as far as I am aware.
In Canada, this is not the case. At a certain point, when your cash value exceeds your adjusted-cost basis of the policy, you will pay income taxes on the money above that amount. The current way to get around that is to use your insurance policy as collateral to obtain a secured line of credit or a loan.