Infinite Banking Concept [aka Life Insurance]

[Samuel Choi]

I recently listened to the Millennial Money Podcast where Chris Naugle talks about using a specific type of life insurance policy to "become your own bank" and build a foundation for wealthy building.

The idea is that you are able to take a loan out for 90% of your premiums. The loan comes out of the life insurance company's general account at 5% simple interest (paid annually) and technically you don't have to pay it back as it will be taken off your death benefit. The cash value in your policy continues to compound at 5.6%-6% (4% guaranteed, 1%-2% dividends) for the full amount. It's like an appreciating HELOC?

Just wanted to post and see if anything is familiar with the concept or have used it for real estate investing (i.e. hard money lending, down payments, etc.). I probably didn't explain it thoroughly and welcome any questions/critiques.

[Thomas Rutkowski]

@Samuel Choi 

@Mike S. explained it pretty well. Just to clarify what you stated...

You are not taking a loan against 90% of your premium. The internal fees and load in even the best designed, maximum over-funded policies is about 15%. Premium minus fees equals cash value. The cash value is the asset that you can borrow against. You may see life insurance illustrations that show 90% cash value, but keep in mind that is at the end of the first year and includes a dividend payment. That dividend will not have been credited at the beginning of the year when you'll want to borrow against the cash value.

Also, 4% guarantees are a thing of the past. Congress recently changed the 7702 statutes to allow for a 2% actuarial growth rate. The new rules were effective 1/1/21. These "guaranteed" rates are really just the minimum growth rate that the insurance company needs to achieve for the contract to perform. Because interest rates in the debt markets are now well below 4%, the industry was starting to get a little nervous about all those "guarantees" they made.