How Big Should Your Infinite Banking Policy Be?

The typical journey someone takes from initially learning about the infinite banking concept to actually purchasing a policy goes something like this.

They hear about it from a friend/family, or more recently a webinar. They are intrigued so they book an appointment. They hear what the advisor has to say. They leave the meeting feeling great and start to do a bit of research. They are met with a significant amount of mixed information as to whether or not IBC is a good idea. They go back to the advisor who answers their concerns. They then really start thinking about how much they want to contribute and then they purchase.

It is that second last process – thinking about how much they want to contribute – that I want to cover in today’s article. Let’s dive in.

Oh – by the way, as with most (all?) of my articles – there is a companion video:

I have a love/hate with IBC practitioners which are individuals who have taken the IBC practitioner course from the IBC institute. The reason is that IBC is filled with… well… ‘old sayings’ which while they have great meaning they do not really add anything to the mathematical equation that IBC is trying to solve.

Pair this with the cult-like following that IBC has and that leaves you with most IBC practitioners recommending that every single penny you earn should be flowed through your policy. And while that would certainly be an ideal situation the math just doesn’t work out.

Why? Let’s look at the math. Say you make $100k per year and pay that as a premium into your policy. Most policies lose 20-30% in the first year and you also have to pay interest on the borrowed money. If you paid all of your income into the policy how do you pay the interest? And where do you make up the shortfall?

The logic only works if you income is ever increasing. Which for some, may be the case, but for most certainly isn’t.

So what do I recommend instead? I recommend setting a goal for how large you would like your policy to be in a specified time period, reverse engineer the premium amount (ask an IBC practitioner to run some illustrations), ensure it fits within your available cashflow, and start!

Practically this looks something like this. Say you want to have $50k inside of your policy within 5 years. Your premium needs to be $10k to accomplish this. Of course, this is an easy example – as the breakeven for a 30 year old is 5 years. This is where an insurance agent can help you identify the amount you need to contribute.

Let me know your thoughts! If you agree, let me know. If you disagree, let me know and we can discuss. As always – I am not a financial advisor or insurance agent – I am just a guy who likes personal finance.

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