What Is The Infinite Banking Concept?
To set the stage, it may be easier to discuss what the Infinite Banking Concept (IBC) is not, before we talk about what it is. IBC is not:
· An investment (it is a process)
· A procedure to ‘get rich quickly’ (It’s the opposite and requires long range thinking)
· Not about creating a conventional bank (we want to become the banker, not the bank)
With those misconceptions out of the way, we can focus on what IBC actually is. IBC is a process focused on controlling your cash flow by performing the function of a banker. By performing the function of a banker, we control the financial environment. By controlling the environment, we can recapture the interest paid while we finance the things in life that we need. Essentially, IBC is a method where your cash is put to work inside a participating whole life policy, and you borrow against that policy to access funds to pay for the things in life you were already going to buy. We will discuss in detail what this means when we compare the conventional banking system to the IBC system below.
The vessel used to perform this function is Participating Whole Life Insurance. Why a life insurance policy? Simply because, to our knowledge, there is no other vessel that exists that can be leveraged to the same efficiency for the purpose of storing wealth and using that warehouse to finance the things you need in life. A participating whole life policy is a standard life insurance product, although it is specially designed to maximize cash value for the use of IBC. If you were to go to an insurance carrier and ask for an IBC policy you would be turned away because that is not a product sold by an insurance carrier.
Policies are funded through the purchase of premium. In a participating whole life policy set up for the purposes of IBC, there will be a portion of that premium that funds the base amount of death benefit, and also a portion used to purchase what are called paid-up additions. Paid-up additions can be described as fully funded life policies. They require no additional funding once purchased and come with a set death benefit, which is added to the base amount agreed upon in the contract. The premium put towards paid-up additions continues to compound and grow the same exact way as base premium does within the policy. As part of the contract for a whole life policy, there is a portion of each premium paid that is put aside as a sort of “savings account” for us to access called cash value. This is a bit of a misnomer because the cash value is not our money. The money put into the policy as premium buys death benefit. That money has been spent and now the insurance carrier puts that money to work. We actually borrow against the cash value. As outlined in the insurance contract, your cash value must equal your death benefit at age 100. Therefore, your cash value (the net present value of your death benefit) is contractually guaranteed to grow daily. While your cash value grows (in a tax-free environment!), you borrow against your policy (the death benefit is the collateral) to finance the things you need in life using the insurance carriers money. As you repay the loan, every dollar repaid is instantly accessible to use again. All while your original capital, the premium, grows and compounds uninterrupted! The true power of IBC is not in just owning the vessel, but understanding how to perform the function of being your own banker utilizing the vessel to do so.
Let’s look closer at what controlling the financial environment actually means. In R. Neslon Nash’s book Becoming Your Own Banker, he outlines the four characters in the financial play: The depositor, the borrower, the banker, and the bank owner. In the conventional banking system, most people act as the first two characters, the depositor and the borrower. We will break this down and look at the characters in the conventional system widely accepted around the world today, and then look at the characters within IBC.
Conventional
In the conventional system, the function of the banker is controlled by someone else (meaning those who deposit the money, do not act as the banker). This is a key position because it is the banker who controls the financial environment. When a depositor puts money into the bank, the banker puts that money to work and lends it out to someone else. Who reaps the rewards? The bank owner. When a borrower comes to access capital, it is the banker who decides if they qualify for the loan, and it is the banker who determines the schedule to pay back the loan. Again, who reaps the rewards of the loan? The bank owner. What this is truly saying is that in the conventional system, we happily give up control of our money, allow someone else to perform the role of the banker, all for the benefit of the bank owner.
IBC
In IBC, you become all four characters in the financial play. You are the depositor buying premium to capitalize your system, you borrow against your capital (with the death benefit as collateral), you control the banking function, and you own the policy so you reap the rewards through dividends! By acting as the banker, you determine the size of the loan (up to 90% of the available cash value), and you determine the repayment schedule (though you must pay it back!). There are no credit checks, no justification, no hoops to jump through. You own the policy, your death benefit is the collateral, therefore, you set the terms. You are the banker! This is all written into the life insurance contract, they are contractually obligated to abide by these terms.
