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Infinite banking through whole life insurance

3,507 Views | 28 Replies | Last: 1 yr ago by RockOn
Brian Earl Spilner
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AG
So I just learned about this strategy from a CPA on YouTube and starting looking into it.

Please tell me why I'm dumb to even consider this over standard retirement vehicles.
Joseph in Cypress
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If it's a good fit for you and your plan it's not dumb. Just understand how it works, how the product works. Not all products are created equally
Stive
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AG



In reality, Joseph in Cyprus is correct, but this thread will be fun.
SquareOne07
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There's a guy on TikTok that makes videos about this crap. He says your 401ks and Roth IRAs are the biggest financial scams there are.

So if that tells you anything…
$30,000 Millionaire
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Lmao.
You don’t trade for money, you trade for freedom.
utah, get me two
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Op can I interest you in an annuity?
topher06
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There's at least one guy on here that pitches this as a good product for the average person. Whole life is a scam, unless there are tax reasons to do it (I think this means you need to be very wealthy before it. can matter). Agents will make a mint on the sale though.
Medaggie
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This is how I understand infinite banking.

You get a life insurance policy. You pay high premiums. The extra money above the life insurance policy has a cash value.

You borrow from the cash at an interest rate like a bank. If you do not pay the loan back or pay your premiums, then you can default on the policy.

As an example.

You put 50k per yr x 3 yrs = 150K
You want to borrow from this policy but are allowed only 120K. You can never borrow more than u put in.
So you get to borrow at around a 4% interest rate. So you have to pay interests your own money you are borrowing.
If do not pay the interest on the loan or pay the premiums, you can default on the policy. If you default you get the cash value that is much less than you put in.

If you put that 150K over 3 yrs, you will have about 170k in an avg market. You take that 20k, and get yourself a $2M term policy at 1k/yr x 20 yrs. If you want to "borrow" from yourself, you can borrow up to 150K interest free, no obligation to pay back. If you have hardship, you do not default on your policy and still have 150K to use with an already paid 20 yr policy.

Other than getting an insurance policy on someone that may be very expensive or someone who is uber rich who has maxed out every conceivable retirement avenue, then what is the point?
Brian Earl Spilner
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AG
Thanks for that.

Yeah the whole thing sounded fishy from the start. Funny to see supposed CPAs actually pitching this.
cjsag94
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Brian Earl Spilner said:

Thanks for that.

Yeah the whole thing sounded fishy from the start. Funny to see supposed CPAs actually pitching this.


I've seen many, many cases where financial professionals, especially early in their careers, are SOLD by insurance company reps on the grand ideas of the various insurance products. They are easily sold because the benefits are fantastic, as long as you ignore the rest of the story.

By the time financial professionals should know better, they've effectively been brainwashed by constantly being told how good the products and strategies are, and paid very well to sell them. They actually can't even see the drawbacks.

And finally, securities licensed people are held to a very different standard than insurance licensed individuals. My advice to anyone ever looking to buy a complex insurance product is to find someone who will go in depth on the reasons not to buy it, and then decide if the benefits are still worth it.
texasaggie2015
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Quote:

I've seen many, many cases where financial professionals, especially early in their careers, are SOLD by insurance company reps on the grand ideas of the various insurance products. They are easily sold because the benefits are fantastic, as long as you ignore the rest of the story.
I lost my job due to COVID and began working as an agent for New York Life. It was a total scam. They sold us on the idea above and I just never felt right trying to sell this to my friends and family. I quit after a couple months.

Edit: Just want to clarify I don't think whole life insurance is a scam. The New York Life business model was. It rubbed me the wrong way with how hard they pushed whole life insurance and I didn't feel right selling a product to friends and family that often times wasn't right for their situation at all.
htxag09
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I agree with what you're saying. But, to be fair, isn't the interest rate much lower than going rates when borrowing from your whole life cash value? It's also not the entire picture as there are other benefits. Not saying they outweigh the cons for most people, but there are pros.
Medaggie
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Interest rate has some type of cap and it typically is lower, say something like 4%. In a high interest environment, then yea it looks like a deal. In a low interest environment where you can get a home loan for 3%, then no you are not getting a deal.

But the overlying point that really makes no sense is, I am paying interest to the insurance company for borrowing my own money.

Imaging if you put 100k in Bank of America savings and you took out 50K to buy a car but now that 50K has a 4% interest that you have to pay back.

Seems like a messed up product.

Now if you are uber rich, have funded every reasonable normal products, and have the need to put more into a "retirement product" And Need more insurance that a term policy does not meet; Then sure, throw 100K into a product where you are essentially investing about 80% of that value after all fees are deducted.
Stive
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Except you're not borrowing your own money. You're borrowing against the equity that you've established inside an asset that you own, but you're not borrowing your own money. You can simply cash out portions (or all) of the contract if you'd like and there's not interest at all.
OutlawAG04
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It really comes down to what you are trying to accomplish. I use the whole life/ infinite banking model for a variety of reasons.

1. Compound interest uninterrupted
2. If I pull the money out i use it to invest in items that make a higher return
3. As long as you pay the interest your money actually accumulates as if it was sitting there in the account the whole time uninterrupted
4. Protection for your family. Being 1099 has its advantages, but my wife stays homes with the kids so I went 20x my gross income to offset any risk. She can put that in the most modest investments and never have to worry about her and the kids for the future.
5. Have one on my wife and one on each kid as well.

Everyone is different. If you are never going to touch the money, not a great idea. If you use the money like I do for real estate investments, stocks, etc., it's a pretty nice vehicle to work with and gives you some piece of mind on your family's future.
Win At Life
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Maybe not the same thing, and maybe policies have changed, but in the early 90's I sat through a sales pitch of a whole life policy. They wanted me to pay $500/month (back then that was a lot of money, and at my starting salary too). Anyway, he lays out this great presentation that shows me getting rich (1.5MM IIRC) by retirement age. Not bad. I suppose, but what got me was the equity value at the end of year two.

At the end of the 2nd year, after paying them $12,000, my equity was only $500. I'll concede some money for the life insurance fee, but them where did the other $10,000 of my money go? If I'd have paid $12,000 over two years and realized at the end of that I only had $500 of worth, I'd have cried.
Win At Life
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AG
BTW, the answer of where the $10,000 goes, is into their pockets.
AG N ASIA
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Win At Life said:

Maybe not the same thing, and maybe policies have changed, but in the early 90's I sat through a sales pitch of a whole life policy. They wanted me to pay $500/month (back then that was a lot of money, and at my starting salary too). Anyway, he lays out this great presentation that shows me getting rich (1.5MM IIRC) by retirement age. Not bad. I suppose, but what got me was the equity value at the end of year two.

At the end of the 2nd year, after paying them $12,000, my equity was only $500. I'll concede some money for the life insurance fee, but them where did the other $10,000 of my money go? If I'd have paid $12,000 over two years and realized at the end of that I only had $500 of worth, I'd have cried.
So how do you feel about your stock i vestments this year? I am sure losing 20+% is something to cry about as well.
SquareOne07
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AG
AG N ASIA said:

Win At Life said:

Maybe not the same thing, and maybe policies have changed, but in the early 90's I sat through a sales pitch of a whole life policy. They wanted me to pay $500/month (back then that was a lot of money, and at my starting salary too). Anyway, he lays out this great presentation that shows me getting rich (1.5MM IIRC) by retirement age. Not bad. I suppose, but what got me was the equity value at the end of year two.

At the end of the 2nd year, after paying them $12,000, my equity was only $500. I'll concede some money for the life insurance fee, but them where did the other $10,000 of my money go? If I'd have paid $12,000 over two years and realized at the end of that I only had $500 of worth, I'd have cried.
So how do you feel about your stock i vestments this year? I am sure losing 20+% is something to cry about as well.


Crowing about a down market when a lot of the folks on here realize the opportunity it presents.

Tell us how you feel about your 2% return a few years ago when the rest us us saw 20%+ returns.
7yrplan
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I've got a neighbor who is a "financial planner" and really into this. This is the primary vehicle he pushes to his clients.

He has a YouTube channel that has well over a million subscribers. At first he kept the channel content somewhat separate from his business but now he is using his YouTube to try and feed his financial planning business.

Nicest guy in the world, incredibly intelligent, and one of the most well read people I know. I really have enjoyed being his neighbor. I never understood why he felt so strongly about these products. They never set well with me, but.. what do I know.

Anyway… cool story bro.
utah, get me two
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channel link?
SquareOne07
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7yrplan said:

I've got a neighbor who is a "financial planner" and really into this. This is the primary vehicle he pushes to his clients.

He has a YouTube channel that has well over a million subscribers. At first he kept the channel content somewhat separate from his business but now he is using his YouTube to try and feed his financial planning business.

Nicest guy in the world, incredibly intelligent, and one of the most well read people I know. I really have enjoyed being his neighbor. I never understood why he felt so strongly about these products. They never set well with me, but.. what do I know.

Anyway… cool story bro.


He's not a financial planner, he's an insurance salesman. Which is cool and all, it's just an important distinction.
$30,000 Millionaire
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Why the hell would anyone want to do this? If I want to "borrow" money from myself, I write a check for something I want to buy.
You don’t trade for money, you trade for freedom.
$30,000 Millionaire
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AG
AG N ASIA said:

Win At Life said:

Maybe not the same thing, and maybe policies have changed, but in the early 90's I sat through a sales pitch of a whole life policy. They wanted me to pay $500/month (back then that was a lot of money, and at my starting salary too). Anyway, he lays out this great presentation that shows me getting rich (1.5MM IIRC) by retirement age. Not bad. I suppose, but what got me was the equity value at the end of year two.

At the end of the 2nd year, after paying them $12,000, my equity was only $500. I'll concede some money for the life insurance fee, but them where did the other $10,000 of my money go? If I'd have paid $12,000 over two years and realized at the end of that I only had $500 of worth, I'd have cried.
So how do you feel about your stock i vestments this year? I am sure losing 20+% is something to cry about as well.


Can't believe this requires a response but down 20% after up 100% is not that big of a deal and is normal.
You don’t trade for money, you trade for freedom.
Casey TableTennis
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AG
After 34% down (S&P 500 Covid drawdown). That equals a 2-3% annualized return in the simple example you are putting forth. I know you are loosely using the upswing, but my point t is simply that short--term dynamics do not tell the story fully.
Win At Life
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$30,000 Millionaire said:

AG N ASIA said:

Win At Life said:

Maybe not the same thing, and maybe policies have changed, but in the early 90's I sat through a sales pitch of a whole life policy. They wanted me to pay $500/month (back then that was a lot of money, and at my starting salary too). Anyway, he lays out this great presentation that shows me getting rich (1.5MM IIRC) by retirement age. Not bad. I suppose, but what got me was the equity value at the end of year two.

At the end of the 2nd year, after paying them $12,000, my equity was only $500. I'll concede some money for the life insurance fee, but them where did the other $10,000 of my money go? If I'd have paid $12,000 over two years and realized at the end of that I only had $500 of worth, I'd have cried.
So how do you feel about your stock i vestments this year? I am sure losing 20+% is something to cry about as well.


Can't believe this requires a response but down 20% after up 100% is not that big of a deal and is normal.


I think both of you are missing the important part. I have no say one way or the other about returns in years 3 and on. My complaint is they basically just put the first two years of your payments in their pockets and start investing the rest. F that.
Joseph in Cypress
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Again it depends on the product and how it is structured. Some of the comments about this make it sound like it's either or…. One thing that I have not seen mentioned is that when you borrow/withdraw from your investment the money is no longer earning, it is spent. The insurance is still earning. It all goes back to if it works for your situation it can be a great tool and piece of your plan. It is most certainly not for everyone.
TxTarpon
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Quote:

Funny to see supposed CPAs actually pitching this.
High commission on sales of those.
And they continue year after year after year.
RockOn
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Milkshake drinking is probably more profitable than preparing tax returns.
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