Infinite Banking concept

HoosierLife

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Who's familiar with overfunding whole life to loan yourself money?

At least I think that's the idea. I've got a friend that's talking to someone to help him do it. I've got the illustrations but I don't know what to compare it to.
 
Is mutual trust life insurance company a good company to do this with?
 
Mutual trust life tends to be a favorite for this concept - primarily for non-direct recognition of loan balances for crediting dividends to a policy.

Here's the basics:
  • $100,000 cash values earning 4% = $4,000 in policy earnings (interest & dividends).
  • Take out a $50,000 loan for 4% = $2,000 in loan cost.
  • If you don't pay the policy loan interest each year, $4,000 earnings - $2,000 loan cost = $2,000 net earnings.
  • If you pay the policy loan interest each year: $4,000 earnings - $2,000 loan cost + $2,000 out of pocket interest paid = $4,000.

This works because the company does not 'recognize' the loan against the original balance. If they did, it would look like this:

$100,000 - $50,000 loan balance = $50,000 earning 4% = $2,000 BEFORE taking out a loan.

There's more to it than that, but that's the general idea. Actually, in context of this example, the direct recognition policy would have a HIGHER dividend payout because they would be rewarding those policyholders for NOT taking out a loan.

So the question would be: Do you want to have good earnings with flexibility, or better earnings withOUT that "penalty" on your policy performance?

But you've got to run the numbers. Assurity Life is a 'direct recognition' policy and it works very well for this concept - as long as you pay the annual interest due every year.
 
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Its a great idea. Unfortunately it gets pitched and explained wrong all the time. Many mutual companies are good, as long as the product is designed properly. The direct / non direct is really a non issue, though some would have you believe otherwise. I have used MTL, overally they are a good smaller company. I like some other carriers better.
 
I use Mass Mutual's product funded to within a few dollars of becoming a MEC for my business-owner clients that want to create a stream of tax-free income years down the road to supplement their own qualified plan.
 
How much service work is involved with these? It seems like a service nightmare with loans and that sort of thing...
 
If an agent is in the habit of "sell and dash", they shouldn't use this at all.

If an agent is dedicated to annual reviews and setting proper client expectations in advance, it's a great value-added strategy.
 
It's an extremely convoluted concept that usually takes 5 to 10 years to build up to the point that it's actually usable in the way they pitch it.

The main concept is that your money is still earning interest inside of the policy, even once you have spent it on items.

You pay the loan back at a rate higher than what the policy charges. So not only is there an Arbitrage within the policy... Hopefully. But there is an Arbitrage that you create by paying extra back into the policy.

There are extremely few clients out there that are disciplined enough to follow through with this. Many of the major WL life carriers will not allow the sale if they find out an agent is pitching infinite banking. I have heard about many cease-and-desist orders being sent to agents that pitch it.

I sell a heck of a lot of permanent life insurance for cash value purposes... But I steer clear of infinite banking with a ten-foot pole. And I have read all the books, went to the seminar, and have met the creator of the whole system in person.

And mutual trust life is not even in the top 10 of carriers that I would put a lot of money into a whole life policy with.

Jmho
 
You pay the loan back at a rate higher than what the policy charges.

This is part of where it gets convoluted.

If you're at a furniture store and you wanted to finance your furniture (a bad idea but a good example), you ask about the interest rate & payments.

If the interest rate was 15% and the loan on your policy was only 5%, then you still pay the additional 10% into your policy via loan repayment or additional policy premium - depending on your policy and/or until the loan is repaid.

It confuses people. I keep it simple: Keep your policy earning interest and reimburse your policy for loan costs every year to keep the policy continually earning interest.

I like Brandon Robert's article on the subject:
Why Life Insurance Policy Loans Help You Save Money

And I think this is far better than raiding your 401(k) to repay credit card debt:
New Report Shows Credit Card Debt Is Hindering 401(k) Savings
 
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