Is The Infinite Banking Concept or the other names it goes by (Infinite Banking, Bank of You, Bank on Yourself,) a Scam?? - Here is what you need to know
So, you've either read a book, talked to a friend, talked to an investment advisor or attended some seminar and now you want to know:
This website is here to inform those interested in the Infinite Banking Concept about a few things.
It's meant to explain the DO's and Don'ts and what questions you should be asking. It will also talk about the difference between whole life insurance (and why it is the preferred option) and Equity Indexed Universal Life (which is a newer insurance policy that fails to live up to its lofty claims)
For it to work there is a LOT you need to know. More often than not the guy or gal selling this won't talk about everything. It does work and it actually works really well but if it's not done the right way it can be really bad for you, really bad!!
Unfortunately, there is not a ton of information on the internet so hopefully this website helps.
In order for it to work right, the Infinite Banking Concept must be used with a dividend paying whole life insurance policy set up by a mutual insurance company. The policy should include as much of a paid up additions rider as possible and if it does the account will outperform most ANY other financial vehicle out there
I didn't believe it at first but it is pretty amazing!
Now I know what you are thinking Whole Life Insurance? But believe me, if it is done the right way it is awesome.
Whole life insurance, when set up and used the right way can give you guaranteed growth, tax benefits, and access to the money at any age not just after 60 years old.
Unfortunately, when it's set up or used in the WRONG WAY with the wrong TYPE of policy set is used,, it can be to your detriment and increase your overall risk. If you are entertaining starting the Infinite Banking Concept it's important to be fully educated before you start.
The typical insurance guy or financial planner is always trying to sell you the latest and greatest thing it seems like and in the end they are the ones who end up making out, not you.
There seems to be only a few financial groups out there today that understand the infinite banking concept well enough to set the policy up the right way and customize it to your situation, so you need to be careful of who you work with.
In fact, I have found that most planners that sell insurance under the fancy "Infinite Banking Concept" banner rip you off by selling the wrong type of policy or setting up the policy the wrong way. Don't get dooped! Make sure you know your stuff!
Due to the poor economy many salespeople have come out of the woodwork and got their life insurance license and have started selling Infinite Banking even though they don’t quite understand it. I have seen this a lot.
Because you have a lot of families looking for alternative financial strategies, because of the bad stock market, many are being taken advantage of. BE CAREFUL!
Most insurance guys tend to not to be educated sufficiently in the Infinite Banking Concept and howit was meant to be used and end up trying to bring a big commission instead of setting the policy up the right way. This is often the case.
So be careful, do your homework and work with those who have been doing it for a long time AND ACTUALLY DO IT THEMSELVES.
WHAT IS THE INFINITE BANKING CONCEPT?
In short, a man named Nelson Nash coined the phrase "Infinite Banking Concept" about thirty years ago during the crazy interest period of the early eighties (Interest Rates spiked to over 20% in just a few short months) Mr. Nash owed hundreds of thousands of dollars in real estate mortgage debt when interest rates suddenly skyrocketed and when trying to rectify his unfortunate situation realized the amount of money he carried in cash value inside his whole life insurance policies was a solution. The willingness of the insurance company to loan him money on extremely favorable terms allowed him to resolve his predicament. He took out a loan with the insurance company against his policy cash value, made whole with his creditors and then paid his policy loans back when he was able.
He realized that anyone could do what he did this with anything they had to purchase and therefore "officially" created the concept and wrote his best-selling book Becoming Your Own Banker.
Here is a link to his website where you can buy his books: www.infinitebanking.org
So now the question out there is: "If the Infinite Banking Concept is real and NOT a scam what type of insurance do I use, how do I set it up and in whom do I trust to set it up for me."
Today it seems like every financial institution out there has their latest and greatest thing. ETF's (Exchange Treaded Funds), Target Date Mutual Funds, covered calls and options strategies are all newer concepts investors have gravitated toward in the stock market which will hopefully outperform what they had previously experimented with. Unfortunately, these new ideas haven't really worked that great at all.
Insurance companies are doing the same thing with new products, they are always trying to attract NEW business with some new thing. They always have their latest and greatest plan out there, today it is Equity Indexed Universal Life (EIUL).Back to main concepts
Equity-Indexed Universal Life or Whole life?
From what I gather, there are only two possible types of polices that can be used for IBC, whole life and universal life since those are the only policy that have cash value in them. What I didn't quite understand in the beginning was which one was better for Infinite Banking. The idea was specifically borrowing the cash value through a policy loan and why?
Here's what I found out:
The first thing that I learned is that it's best to use a whole life policy from a mutual company that pays an annual dividend, preferably a strong company that has been around for a long time (100 years or more). MUTUAL means that when you buy the insurance policy you become an actual OWNER in the company. I had heard the word mutual before but didn't understand that the policy owners (only whole life policy owners) owned the company. I was certainly intrigued. So, as the insurance company profits every year, the cash inside of the insurance policy can go up each year. If the insurance company DOESN'T pay a dividend they have a guaranteed rate so the cash value still goes up.
EQUITY INDEXED UNIVERSAL LIFE
The other insurance option is to use an equity-indexed universal life policy from a company that you DO NOT own whose gains are based on gains in the stock market. I've learned that this is one of the biggest differences between these two types of policies one of them (whole life) is offered by a mutual company that you own and the other type (equity-indexed universal life) is offered by a stock-based company that is owned by shareholders. No dividends are paid to the individual with the Equity Indexed Universal Life policy, the profit of the company goes to the shareholder or stock owner. So again .The risk is whether the stock market does well or not.
THE STOCK MARKET AGAIN?
I have had enough with the stock market, I really have. Now putting my insurance policy success in the hands of the market? No way Jose. I would take a 100 year track record of mutual company profitability over the up and down stock market ANY day of the week!
Another point I concluded was the fact that an Equity Indexed Universal Life policy was set up to make a profit for the insurance company who is owned by shareholders. So if that is the case how can the gain of the insurance policy be better than the gain of the ENTIRE INSURANCE company?? It doesn't make sense. Whole Life MUST be better if the dividend paid reflects the ENTIRE profit of the mutual company!!
And it is, the return is much better.
Here is a video that will show how the index works and why is really isn't that great at all.
I would be aware of what your agent is selling you if it is Equity Indexed Universal Life! (Its mainly because of what they're not telling you)!
When I was starting to do this research I was talking to a good friend of mine about life insurance. I told him that I had read Nelson Nash's book and was doing research on permanent life insurance. I was very surprised at what he said next, "yeah, my agent gave me Nelson Nash's book to read, too. But then when I went to take out a loan and my agent discouraged me from taking out a loan! He gave me Nelson Nash's book", my friend said, "and told me all about Infinite Banking but then he discouraged me from using the loan to buy anything!"
I couldn't believe what I was hearing, I was only a couple of chapters into Nash's book myself but I knew that taking out loans was the "bread and butter" of the Infinite Banking Concept. Why would they say NOT to take loans??
When I asked my friend why his agent didn't want him taking out loans, he said, because if I take out a loan in the first couple of years it could make my policy lapse (cancel itself)! YIKES!!
I soon realized that: Not all cash value life insurance policies are created equally!!
As I did some more digging, I found out that we were talking about two completely different types of policies yet we were trying to use them in the same way and that just doesn't work!
That is when I started to get into all of this and decided to do this webpage.
As I got further into Nelson's book about the Infinite Banking Concept, I learned that Nelson Nash requires that for Infinite Banking to work, you must use a dividend paying whole life policy from a mutual company. My friend had learned the hard way. He had supposedly been "educated" on Infinite Banking and was consistently paying his premium payments into his policy but when he went to take out a loan he was shocked to find out that loans could cause the policy to lapse!
I found out that what his agent clearly didn't educate him on was that the equity-indexed universal life policy, that looked great when it was being touted with these high unrealistic market returns was not all it was crack up to be!
I went and spoke with my life insurance agent who told me that when you own an equity-indexed universal life policy, it is just like buying a term policy every single year and the cost of insurance is guaranteed to go up every year! That's right GO UP EVERY YEAR. So if you use the cash from the policy at the same time that the cost of the policy is increasing, the policy could very easily cancel itself out.
And you lose all the money you put in.
The "safety net" is the stock market isn't that an oxymoron! Some safety Net that is. The agent explained to me that market performance is supposed to make up for the increasing cost of insurance. Yeah, tell that to the people that owned this in 2008 and see what they say now
Why would I put money into an account where I wouldn't have a guarantee that when I needed the money, the insurance company is either going to 1. Potentially cancel my policy or 2. Ask me for more premium payments - to keep my policy from cancelling??
Check out this email I came across from someone who cancelled their EIUL policies to put into Dividend Paying Whole policies: Dear XXXX
So why is Nelson Nash so adamant on the use of whole life polices??
If I had to guess I'd say it's because:
Dividends are MUCH more consistent that the stock market (over 100 years straight)!
The Paid Up Additions Rider?
So, you are probably asking what is a "Paid up Additions Rider" and why is it so important?
When I finished Nash's book, I did some research on just what a Paid up Additions Rider is, since I realized this was another one of the differences between a whole life policy and an equity-index universal life policy. Equity Indexed Universal Life does NOT have a PUA rider.
What I found really surprised me: a PUA rider is a SINGLE PAY life insurance policy that is added to the whole life policy. The premium for this single pay insurance goes almost 100% to cash immediately. This is one sign that the insurance advisor knows what they are talking about. If they ARE using a PUA rider that is a good sign. This will set everything up so you have as much CASH as humanly possible!
That's why the PUA rider is important when using the Infinite Banking Concept because the more of my premium that is paid into the rider, the more cash I have to use.
AND THE HIGHER MY DIVIDENDS ARE TOO!!
A bid down side with equity-indexed universal life is that it doesn't even have a PUA rider.
To sum up all of my research into 5 things you need to know about Equity Indexed Universal Life Policies and a series of questions you must ask your agent selling you a policy for IBC.
5 things you need to know about Equity Index Universal Life Policies before you buy one for IBC
- An EIUL policy is guaranteed to get more expensive every year.
- If the policy is getting more expensive every year, what happens when the premium does not cover the cost of the insurance you got it, you either pay more premium or they take your cash value to pay the premium!
- Policy loans from an EIUL most often VOID out the guarantees of the insurance policy
- If policy loans cause the guarantees of the contract to be null and void, how can EIUL policy be right for IBC if IBC is strategically designed to use policy loans?
- With NO Paid Up Additions rider, EIUL policies are NOT always optimized for cash value growth
- Since their cash value growth depends on the stock market to grow you have to ask yourself: "How comfortable are you with how the stock market will perform in the future?"
- EIUL polices have surrender fees (cancellation fees) which make it COSTLY to access the cash during the first 10-15 few years. They also have Caps on your growth. (If the market did 20% you will only get 9-11 %)
- You don't get all the growth of the market! They also adjust these to accommodate their need to be profitable. The adjustments have occurred almost every year.
- With an EIUL policy you AREN'T credited the market gains on the amount of cash value that is outstanding in a loan.
- If you have $20,000 in cash value and have a $10,000 loan. Only $10,000 earns the market credit and the other $10,000 earns the guaranteed return (0-2%)
QUESTIONS YOU SHOULD ASK YOUR ADVISOR
- Who taught you how The Infinite Banking Concept works?
(Why would you choose to do business with someone that says they know about IBC but doesn't know how to back it up with real numbers?)
- How long have you been practicing and teaching IBC?
(You are looking for someone that has real-life experience with IBC rather than someone that has just read Nelson Nash's book)
- How many policies do you personally own?
What have you used it to buy?
Do you invest in anything else?
Can I see a statement from a policy you have as well as a loan history report?
- What other financial products/Investments do you offer?
If they are selling something else it shows that they do not value IBC as much because it is hard to outperform a properly set up policy
- Do you use Whole Life or EIUL? Why?
- If they sell Equity Indexed Universal Life have them show a Dividend Paying Whole Life Insurance policy too with the maximum PUA rider
You are looking for someone that can SHOW me the difference rather than just sharing their opinion.
- How do you get paid?
A jumbled, un-educated response may be an indicator that the policy is not being set up for your benefit but in order to earn a high commission.
- How many companies are you licensed with?
- Do you use a Mutual or a Stock company?
- What are the company's financial ratings?
The common rating agencies are AM BEST and Moody's
- Do you include a Paid Up Additions rider on your polcies?
If Nelson Nash's book says they are necessary for IBC and you don't use them, explain to me why you don't. Is Nelson Nash wrong?
- What tools do you provide to help me manage my Banking System?
Calculators and Spreadsheets are very helpful in keeping organized
- What is our relationship after I do business with you?
How often do I meet with you?
Will you counsel me in other financial affairs (Estate Planning etc)