Basic Concepts

The essence of the “Infinite Banking Concept” is to recover the interest that one normally pays to a banking institution through the use of dividend paying life insurance and then lending those funds to others so that the policy owner makes what a banking institution does. Funds may be lent to any party including yourself, and earnings grow within the policy tax deferred. Thus you are both reducing your tax burden and capturing monies for yourself that a banking institution normally would receive.

A foundational principle of the concept is that anytime you can cut the payment of interest to others and direct that same market rate of interest to an entity you own and control, which is subject to minimal taxation, then you will have improved your wealth generating potential significantly. (Insurance companies do pay taxes – it is just that dividends in an insurance policy are not taxed. We will talk about this later.)

Calculating Dividends- Now the insurance company recognizes that several factors may cause the $ 1.00 / Year estimate to be wrong such as high administrative cost, larger than expected death claims, or lower than expected earnings.

As a result, they apply a fudge factor and bump the rate to $ 1.10 / year. This extra $ 0.10 is the capital that makes the system viable.

After a few years the directors call the accounts in and ask “How did we do on John Doe’s policy in comparison with the assumptions made by the actuaries and the rate makers?”

The accounts report we have collected $ 1.10 in premium on John Doe’s policy and it has only cost us $ 0.80 to deliver the promised death benefit.

As a result, the directors now have $ 0.30 to make a decision with.

Since the directors are smart people they decide to place $ 025 into a contingency fund and return the remaining $ .275 as a dividend.

Since the dividend is not an actual “gain” but is rather a “return of premium” the dividend is not considered a taxable event.

Unlike a dividend declared in a security which may lose its value as the stock rises or falls, a dividend declared in an insurance policy can never lose any of its value. Once a dividend is declared it is guaranteed - it can never lose its value.

If the owner will use the “dividend” to purchase additional Paid Up Insurance (no cost for acquisition or sales commission), the result is an ever increasing, tax differed accumulation of cash values that supports an ever increasing death benefit. This pool of money has no real governmental strings attached as to how, when or why it may be used and can be passed on to the next generation with limited or no estate taxes.

But it seems risky

1. A point to consider about an insurance policy is that it is designed to become more efficient over time no matter what happens. How can this be?
2. Insurance policies become more efficient over time because over the life of the policy the cash value is guaranteed to reach the face amount of the policy. As a result, the insurance company faces an ever decreasing “net amount of risk”.

Possible Uses of the Infinite Banking System

1. Medical Insurance – This system works well for people who are “un-insurable”.
2. Car Insurance
3. Life Insurance
4. Buy Sell Agreements
5. Home Mortgages
6. Car, Boat Financing
7. Equipment Financing
8. Estate Planning & Wealth Transfers
9. Charitable Trust and Giving
10. College Savings Plan
11. Leasing Business
12. Retirement Planning
13. Eliminates need for Social Security
14. Can cover multiple generations – good method of teaching and transferring wealth to successive generations.
15. Business Financing