Infinite Banking Strategy?

Question

Hello,

Has anyone incorporated an infinite banking strategy into their personal finance or business? I've done surface research, but was wondering if anyone has found success with it, or any obstacles in its use.

Lance Mundo

Taylor L. · Answer

I've had conversations with numerous people who sell the policies and a handful of people who use them. My main issue is that I feel the plans are somewhat recklessly promoted as the key to financial freedom that can't possibly backfire or have any downside.

The overall impression from the users that I've talked with is that these plans can be useful to help add a little juice to your overall investment returns. However, you need to be aware of how the cash value works, particularly in the early years. They're also not going to turn you into a gajillionaire overnight (as is heavily implied by some of the folks who sell the policies).

I also interviewed Richard Wilson of the Family Office Club & Billionaires.com last night and asked him about this exact topic. Essentially, whether those of high net worth really do use these policies. That is an extremely common common selling point by the people who sell the policies. His impression was that they're mostly used by people in the $3-$15 Million net worth range, but once you're above that point you're wealthy enough to be effectively self-insured and have many other options for your legacy.

Any time I state these misgivings on BP I'm told almost immediately how dumb and misinformed I am, so let's see how long that takes.

Alicia Marks · Answer

Chris Miles is my go to. He's a great guy and will give you straightforward info.

Alicia Marks · Answer

Hi Lance,

Here's a thread that has some good thoughts. https://www.biggerpockets.com/... I would also suggest listing to Chris Miles at Money Ripples. He talks a lot about how to set up a policy that is very favorable for investing.

Chris Seveney · Answer

@Lance Mundo

Just be aware that they will provide a 4% IRR. Most real estate investors laugh at that. I view them as another tool in the tool belt and they are what they are, an insurance policy.

I don’t see them as negative, I do believe they are oversold with some hype though.

Jeffrey Evans · Answer

I got one recently and it has worked as it is suppose to.  Better actually.   I put money in and it funded on a Friday, I put in to take it back out that day and it was back in my account the next day ready to deploy in other investments ect.   I was able to take out around 90% or so of the cash value the 1st day it funded.  I was very skeptical and put off getting one for a couple years due to it sounding to good to be true.   But so far it has worked as it was designed to.

Thomas Rutkowski · Answer

I promote and sell these types of policies and have never positioned it as a get rich quick scheme. I always tell my clients that you are not going to hit the ball out of the park. But it is a way to systematically, and over time, improve your returns by a few percent each year. That few percent makes a huge difference over time.

High net worth people very often use life insurance for estate tax minimization. Its either that or very sophisticated tax planning that often includes life insurance. But these are completely different policy designs from those used for private banking: minimum funded vs Maximum over-funded.

Chris Miles · Answer

Thank you for the kind words and recommendation! I like our stuff too ;)

Alicia Marks · Answer

Could you let us know who you went through? There are so many policies that don't work for people that they can get a bad name, so having a list of ones that do would be great.

Ryan Lam · Answer

@Lance Mundo

Everyone has made some very good points here. Definitely something that tends to be oversold, so due diligence is important. I see a lot of insurance agents selling the idea that this is the solution to everything. I would say there are plenty of agents out there pushing these without fully understanding them.

If you’re talking Infinite Banking specifically, keep in mind things such as direct recognition versus non direct recognition as it applies to how values are credited when loans are outstanding. By default, one would think non direct recognition is the better of the two. To make things more confusing, I have seen direct recognition insurance carriers have better results over their counterparts.

In terms of cash value life insurance generally, there could be a variety of other ways it can fit your overall strategy (protection, diversification, estate planning, etc) outside of real estate. I think it is important to identify all of the ways incorporating a policy like this would suit your specific situation. I often hear the discussion about investing elsewhere instead of these types of policies, but to be fair, these policies really shouldn’t be viewed as “investments” that are expected to keep up with stock market returns over the long term (as one example).

Infinite Banking Strategy?

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