Infinite Banking concept

[Lloyds of Lubbock]

pfg1 is correct, as is DHK....interest should always be paid.
You also dont have to take a loan from the insurance company, cash value backed loans are readily available from many sources.
Direct Recognition is not a four letter word.
If interest rates continue to rise and dividend rates fall, variable loan policies will gave lower dividend interest rates than loan rates.
Does that make these policies bad? I don't think so
The two predominant companies that offer direct recognition are NML and Guardian.
Both pay higher dividends on loaned money than unloaned money.
The first Nelson Nash book was based on Guardian illustrations.

 

[pfg1]

Penn Mutual is direct also. ON and Lafayette are not. And Mass does both I think, at least they used to.

 

[scagnt83]

The first Nelson Nash book was based on Guardian illustrations.

Interesting. Are you sure about that?

Subsequent versions used illustrations from State Farm as well, some of them are actual personal policies of him and his family.

 

[Lloyds of Lubbock]

Actually I am.
As I worked Guardians support dept I received many calls on duplicating them.
I could not, so I called him.
There was a lot of cutting and pasting done.

 

[Lloyds of Lubbock]

Mass does do both.
Penn uses DR with a variable loan rate.
Guardian new policies have the ability to switch to a variable loan rate after ten years.
I believe NML does both also.

 

[pfg1]

Problem also with Nelsons illustrations are they are so old, dividends were alot higher. Can't come close today when illustrating.
Conceptually, the IBC concept is fantastic. Having a bucket of money that you can use as your own bank is great, and imo everyone can benefit by having that. Running all your income in and out, I'm not a big fan of that thought process.
The other issue, he explains it as borrowing from yourself. Technically that is not correct, and it is parroted incorrectly all over - even by seasoned agents.

 

[Lloyds of Lubbock]

Most agents do not know how a loan works.
Fewer agents know how direct recognition works.
When I spoke with Nelson, I believe Guardians dividend crediting rate was 8.75.
A totally misleading number, but you can see why those illustrations work a lot better.

 

[DHK]

The other issue, he explains it as borrowing from yourself. Technically that is not correct, and it is parroted incorrectly all over - even by seasoned agents.

It's only "borrowing from yourself" if you are borrowing at a lower rate (to the insurance company) and repaying it back at a higher rate (that you would've paid to another lender or finance company). Otherwise, it's just borrowing against your policy at life insurance borrowing rates.

https://davidkinderfinancial.wixsit...le-post/2018/09/21/Infinite-Banking-Explained

 

[Lloyds of Lubbock]

His explanation of Direct Recognition 1000% WRONG!
Direct Recognition means Dividnds are impacted by loans.
Let's look at Guardian.
On older series policies the loan rate twenty years and prior to age 65 is 8%.
There is a hundred basis point spread between the loan rate and the dividend rate.
That is a dividend crediting rate of 7%......higher than the current dividend of rate 5.85..
Now if dividend rate got over 7% the same situation would result in lower dividend on your loaned money.
I think we have a ways to go before dividend crediting rates are North of 7%.

 

[DHK]

You're talking about arbitrage.

What is "recognition" in relation to dividend treatment? The recognition is when the company pays out a dividend and whether they recognize that there is a loan outstanding against that policy.
- If there is, they pay a lower net dividend on the remaining, UNBORROWED values.
- If there is not, they pay a higher net dividend on the cash values.

However, to help discourage borrowing, direct recognition companies often pay out a higher net dividend than those companies that are non-direct recognition.

Direct Recognition does mean that dividends are impacted by loans. The question is how?

If you have $100,000 in a life policy earning 4% (including dividends), it earns $4,000.

If you have a $50,000 loan against that life policy at 4% as well, it has a loan cost of $2,000.

However, for dividend purposes for direct recognition policies/loans, you'll only earn dividends on the remaining UNBORROWED $50,000.... which may be at a higher crediting rate anyway because this is a way for companies to discourage borrowing against their policies. You wouldn't get that $4,000. The remaining unborrowed money ($50k) would earn 4% or $2,000.