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.