Infinite Banking

Maybe I’m misunderstanding your example but why would you put $250k into a whole life policy with the intent to immediately borrow against it? Just use the actual cast for your liquidity crunch then reassess after that is done.

If you’re asking for the future, that’s a different matter.

Been a few years since I had to study up on Whole life Policies, but my understanding is that in this scenario you would be buying a $1-3M dollar policy and paying in full for $250k. That $250k would go towards the premium costs, and the excess would go into an investment portfolio. Ideally the investment grows at a rate to have a cash value of $250k+, but that will most likely take a few years as that initial amount will need to be used to pay the annual premiums, initial fees (including large commissions), annual fees... and be subjected to the generally more conservative investment options.

Once you have the necessary cash value, you can then borrow against those funds with relative ease (didn't have to learn the process to borrow), and if you opt to not pay it back it would simply reduce the final value of the policy. However, if you borrow too much, you may not have enough in the cash reserve to pay your annual premiums and will now need to begin making those payments to keep the policy in place.

There is no magic bullet.

My suggestion would be for the business to bank the money. Then it's immediately accessible if needed.

If you have $250k liquid and are not in debt up to your eyeballs, a local bank is likely going to be thrilled to extend you a big line of credit. I suggest you get friendly with a local banker. I have been very surprised at how much they're willing to stretch for business

quote:

---

Is your banker / their bank selling whole life insurance products

---

No, he mentioned it as an alternative to my inquiry for LOC against a commercial property.

Already use local banks for "big" CAPEX and agree they're excellent. For "smaller" purchases I use one of the previously mentioned alternatives.

The infinite banking comment left me intrigued about possibility of a better mousetrap -- per usual it doesn't exist.

Appreciate the confirmations, fellas.

Your "banker" is an insurance salesman.

If you invested that $250k in index funds you could borrow against them at favorable rates while remaining fully invested in market. Just got to avoid getting over leveraged and vulnerable to a maintenance call.

Smaller stakes version of the " buy, borrow, die" tactic.

quote:

---

Question: is there a scenario where it makes most sense to put $250K into Whole Life policy and borrow against it vs one of these alternatives?

---

No. The answer is no. I’ve been a life insurance agent for over a decade and I’m here to tell you the ONLY parties that benefit from a whole life policy are the company and the agent that sold it to you.


Believe these words: do not ever buy a permanent life insurance product if your reason is to one day borrow from it.

YOU WILL LOSE EVERY SINGLE TIME.

I could go into detail to explain why but trust me, keep your savings/investments separate from your life insurance.

quote:

---

but a caveat is that money held in life insurance is free from litigation if ever sued. That has some value.

---

True in some cases, however if someone has enough money to be in that situation, there are better places to put their money.

Whole life insurance isn't some magic wand that immediately provides tons of cash value and even a SPWL would almost never provide more cash value than the lump sum you put into it.

Whole life insurance builds cash value slowly over time and it takes roughly a decade for the cash value to be worth what you've paid into it by then. Then and only then will it start to actually grow "profits" for you. Even then, it's only growing at 1-3 percent a year (3% if you're extremely lucky). You're losing money when you consider the opportunity cost whereas you can place your money in a ton of other places that will grow your money much faster (such as an actual investment -- and from day one.

Whole life (and universal life) policies are NOT investments. I don't care what an agent tells you and how he/she spins it to sound like it is. I've sold this shite for a long time and have been to countless conferences on the topic and though I still don't know everything, I know enough to never ever recommend a whole life - or any permanent life insurance product for that matter - to someone looking to borrow from the cash value one day.


Lawsuit protection can be found in other products such as umbrella policies or other backdoor financial/business structuring. Don't use a permanent life insurance policy to do that.





On the flip side, a universal life insurance policy is just as bad and even worse in some ways...

Universal life insurance works this way:
1. Monthly premium of $100
2. Monthly expense charge - for simplicity's sake, we'll say this is $10
3. Actual cost of insuring your life in policy year one: $50

Every month you pay that $100, $60 dollars comes right off the top for expense and mortality charges. This leaves $40 left to earn interest in the cash pot. This interest is typically ~4%. It could be lower and it could be higher. The agent will pump up the fact that it'll never be 0.

Well in year 2, you're still paying that $100 because your agent sold it to you as a permanent policy with a permanent rate. Well, it's not locked in. It's typically up to you to remember to properly fund this policy by increasing what you pay each year.

If you keep paying the same $100 monthly, less of it is going to go into that cash pot earning interest. Why? Because now you're a year older so the actual cost of insuring your life is now $55 so now only $35 is going into the cash pot each month.

This process continues indefinitely.

Years down the road you receive a letter from the insurance company telling you that if you'd like to continue the policy, you'll need to pay $400 (or more) because now you're 25 years older and the policy is under funded.

"How the hell is this under funded? My agent told me it would never lose money", you scream at the company representative when you get them on the phone.

Well it's because at some point, that $100 monthly premium was not enough to cover the expense charge and the actual mortality charge so the difference between what you paid and what you SHOULD have paid was taken from your cash pot. Now your cash pot (cash value) is almost $0 and you must pay more in order to keep the policy in force.


There are various types of universal life policies and various ways to solve for coverage and/or premium but they all except one type work very similarly. The one type that doesn't work this way is what's called a GUL, or a Guaranteed Universal Life policy. This is essentially a permanent term policy with rates a little higher than term but lower than permanent policies. A GUL isn't a terrible idea if you're really hung up on wanting permanent life insurance. Problem with that is nobody needs life insurance for their entire life. You only need life insurance for the time between now and the time of your life that you are financially secure enough to no longer need the coverage, such as when all debts are paid, retirement accounts are fully funded, and you have a very healthy savings account.

You could have your agent set up a UL policy so you never underfund it but you'll pay even more for it from day one. OR you could simply buy a term policy that will provide the same amount of coverage for $35 a month from day one, freeing up a lot more of your monthly income for actual investments and savings, where your money will grow much faster.



Buy term and invest the rest. It's as simple as that.

It doesn't work the way described.

Bob Murphy, my favorite living economist outside of Sowell, is very positive about it. Admittedly I don’t know too much about it, but he has a few podcast episodes dedicated to the subject.