Setting up your infinite banking policy is arguably the 2nd most important step of the entire infinite banking concept. The 1st, of course, is understanding the concept itself.
Today, we are going to dive into the 3 main things to consider when setting up an infinite banking policy. But of course, as always, if you do not want to read this article there is a companion video below.
So without any unnecessary delay. Let’s dive right in to it:
Do you understand IBC?
First and foremost, as I mentioned above – you NEED to understand how the concept works before you take the leap and take out a policy. The reason for this is that you do not want to dedicate yourself to such a long-term strategy. We are not talking 1-2 years in terms of commitment, the infinite banking policy typically takes at LEAST 4-5 years, if not 6-8 years more commonly, before you can ‘stop’ the concept without losing money.
You need to be 100% sure that you are going to go down this route.
When do you plan on using the cash?
Depending on the insurance company, you may not be able to use your funds for an entire year after you pay your premiums. This is fine if you do not plan on accessing your cash in the short term but can be devastating if you are using IBC as an emergency fund replacement.
Whole life insurance policies typically have a cash surrender value that is LOWER than the total premiums paid in the first 5-8 years. While this gap closes very quickly after the first 2-3 years, in the first year it can be upwards of a 30% lose if you need to access your cash as a withdrawal.
Now, this would only occur if you withdrew the money, and didn’t access the funds via a policy loan.
How much money do you plan on allocating towards your IBC policy?
The IBC world is full of… dreamers… to put it bluntly. They would claim that every dollar of money earned should flow through whole life insurance policies. However, this is simply not practical.
You need to understand how much you plan on allocating to your IBC policy and ensure that you not only have enough cashflow to fund the premiums of the policy but also have a healthy cashflow reserve as well. Why would I say this?
Well, let’s think about it. If you want to fund a policy for $10,000 per year and you have a free cash flow of that same $10,000 how would you repay any policy loans you took? I mean, in an ideal world you would only ever use your policy for investment reasons, but that simply isn’t the reality for most situations.
4 thoughts on “Top 3 Things To Consider When Setting Up An Infinite Banking Policy”
I have a holding company and thought we were doing things the best way possible but now I see from watching your videos that there is a better way. Can my holding company be set up to be the bank or it has to be done at a personal (individual) level?
Great videos, very informative
thank you in advance
Great question – and I will first state that when involving the corporate side of whole life policies you really want to involve a CPA, a tax lawyer, and a seasoned authorized IBC practitioner. I am none of these, so take what I say with a grain of salt.
You are able to hold a whole life policy inside of a holding company and pay for it with pre-personally taxed dollars. As I understand current tax laws you can then take out a secured loan in your personal name, which the company would guarantee and allow the financing institution to secure the loan against the whole life policy. You would then be able to have the money you earned inside of your corporations completely tax-free. And as I understand, you would then be required to pay a nominal fee to your corporation for the benefit of them having provided the collateral. I believe this rate sits at the 0.5% – 1% range of the money that is actually used – and not of the entire policy CSV.
Obviously, this isn’t without negatives; you of course have interest charges – just as you would personally. Usually this negative is significantly offset by tax differential which can be substantial depending on your personal situation. A more significant risk, and the one that made me not do this, is that you effectively lose the creditor protection that is offered by whole life when set up properly when you hold them inside a corporation. This may not matter, depending on your line of work, however, holding companies and the ‘corporate veil’ are not as bulletproof as one would believe.
Your videos are very informative and I couldn’t hold myself from watching them all. Thanks for the content and time you put into them.
I have been learning about this process recently and would like to get started. But as you mentioned in one of your videos, we need to get professionals and life insurance policymakers who are very knowledgeable in this.
Can you advise on how to go about it to avoid buying the wrong policy that doesn’t really give all the advantages of the IBC concepts in Canada? Or do you offer any kind of support regarding that?
Thanks once again for your content.
Thank you so much for the kind words! I haven’t been able to post any infinite banking videos as of late as my recording computer is down; but I will be back up and running soon!
Purchasing a poorly designed IBC policy is one of the biggest risks to the processes. You are best to work with an authorized IBC practitioner. You can find one at https://infinitebanking.org/finder/
Just be cautious, because they too can recommend some… interesting thoughts that are counterproductive to most. Regardless; interview a few, see who you are most comfortable with and don’t hold back. And no, I do not provide IBC support or review of policies. Perhaps one day but not now!