Frequently Asked Questions for IBC

The Infinite Banking Concept – or IBC for short – is the use of a properly designed Whole Life Policy to take control of the banking function in your life. It is simply changing how you think about money and where you store your wealth.

In practicing IBC you are purchasing an asset – a life insurance policy. You have contractual right to request loans up to the Cash Value (the Net Present Value of a future death benefit) of the contract, which is the collateral for the loan. The entity issuing the loan is the same entity that guarantees the value of the collateral and that the value will increase.

By doing this, your capital is allowed to continue growing at unbroken compounding interest. When the loan is paid off, you have paid some interest to your business partner – the insurance company – and your money continues to grow as if you never touched it.

Read Becoming Your Own Banker and the articles on this page to learn more and how it can benefit you.

No, it is not the same thing. Yes, your 401(k), 403(b), 457 and other retirement plans have a “loan provision”. But it is not actually a loan, it is an authorized withdrawal with a required repayment plan. Your money is withdrawn and is not available to take advantage of market gains. If you take a $100k in your 401(k) and take loan of $50,000 and the market goes up 10% your 401(k) will only go up $5,000.

All loans have collateral. Only with Whole Life insurance is the value of the collateral guaranteed by the entity providing the loan. And the insurer guarantees the value will go up.

If you use a HELOC, the value of your house can decrease, leaving you upside down on that loan.

If you take a loan against your retirement plan, the value of the account can decrease. Check the terms of your accounts, but many are not really collateralized loans – they are authorized penalty free withdrawals with a mandatory repayment plan.

Because the value of the collateral is not guaranteed, nor is it guaranteed to go up, you are limited to how much you can take. With a 401(k) the limit is 50% up to $50,000; if you have $1M in your 401(k) you can till only take a “loan” for $50k. Similarly, banks do not give HELOCs for the full equity of the house – because house value can decrease.

Additionally, when you want to take a loan, you have jump through all the banks hoops. Credit checks, applications, explaining what the loan is for, proving you can pay it back. And you have to establish and adhere to a strict repayment schedule.

None of that is true with a policy loan with your life insurance company.

Yes, you can attempt to approximate IBC with other assets. But it is not the same.

Whole Life insurance is the ideal asset for practicing IBC. It is a truly remarkable and unique financial tool.

Before answering this, it is important to note that the National Association of Insurance Commissioners (NAIC) considers it an ethics violation to compare a term policy and a whole life policy only on premium rates as it obviously is misleading and incomplete. Any insurance agent making such a single-point comparison is at risk of fines or losing their license.

Yet this is precisely what financial entertainers and some financial professionals do.

Term insurance pays out IF you die.

Whole Life insurance pays out WHEN you die.

Premiums for both are based on actuarially fair calculations using the same CSO Mortality Tables.

For an accurate analysis of cost, you must also consider the living benefits and look long term. Use of the loan provisions to finance your life, recapturing interest. Things you cant do with a term policy.

With a properly designed policy for practicing Becoming Your Own Banker, there is a point in the life of the policy where total dividends exceed total premium paid. This point will vary with client needs, goals, and other factors – but at this point the permanent death benefit provided has a net-$0 cost.

At the end of the day, term insurance is a sunk cost. We spend the money in hopes that we are wasting it. Meanwhile, whole life insurance pays for itself and enables us to take control of the banking function in our life.

You are not borrowing “your own money”.  You are borrowing the money of the life insurance company.   This allows your money to stays growing with unbroken compounding interest. The cash value of your life insurance policy serves as collateral for the loan. You pay a small amount of interest to the insurance company to do this, but when the loan is repaid it is as if you never took the loan. Your money continues growing with unbroken compounding interest.

If you were to take a “loan” from your 401(k) that would be borrowing your own money. Your 401(k) balance is reduced by the amount of the loan and you have a rigid repayment plan and interest. Your 401(k) does not earn interest on the borrowed amount.

The life insurance company does not “pay you the death benefit and keep the cash value”.

The cash value is the Net Present Value of a Future Death Benefit. When you die they pay you the full death benefit (less any outstanding loans). When you die, the cash value immediately grows to the full death benefit.

The cash value is the equity in the policy that you have built through premiums paid, plus interest, and dividends.

The difference between the death benefit and the cash value represents the risk that the insurance company is assuming.

Lets say you purchased your house for $200,000. Over time you have paid it off and in that same amount of time its value has increased to $350,000. When you sell your house, does the “evil realtor” give you the sale price and keep the equity?

No, that is nonsense.  You do not receive the sale price of $350,000 and your $200,000 equity for a total of $550,000. You receive the sale price which is your original equity of $200,000 + the $150,000 additional value that it earned.

This is a common gimmick found in the online noise regarding IBC.

No, both Base Premium and PUA premium buy death benefit.

The difference is that Base Premium is an installment payment for the initial death benefit or face value of the contract.

PUA premium, whether from dividends or “out of pocket”, also buys death benefit. But a paid up addition is a small fully paid for, single premium life insurance policy, that is added to the base policy. With it being fully paid for, almost all of the value of this small policy is represented in the cash value, less some small administrative charges.

While we only work with Insurers that have paid a dividend, every year for over 100 consecutive years – no, dividends are never guaranteed. Our preferred company has paid dividends for over 120 consecutive years.

However, once a dividend is paid, they are permanent additions to your death benefit and cash value.

No, becoming your own banker isn’t just taking advantage of a tax loophole.

The life insurance industry in America began in 1759 with Presbyterians forming the Corporation for Relief of Poor and Distressed Widows and Children of Presbyterian Ministers. In 1848 the industry began to offer policy owners the option of loans using their cash value as collateral in order to keep policies in force. Because policy lapse is not beneficial for either the policy owner or the insurance company, these grew to be more common by the late 19th century and first became required parts of Whole Life contracts in 1906.

The IRS and the Federal Income Tax were not created until 1913. Life Insurance and the ability to take loans and take control of the banking function in your life predate taxes, so it cannot be a loophole. The tax advantages of IBC are due to a proper tax classification of life insurance, dividends, and loans.

When the contract is put in force, the insurer evaluates the estimated premium they must charge in order to meet the obligation of the death benefit. This is based on an assumed return on their investments. These premiums are then invested to meet future obligations and cover business expenses.

Every year, the insurer evaluates how they have done. When the company profits, they take some of the excess premium and put it in the general fund to meet future death benefits and ensure continued profitability. The rest is divided among the policy owners for mutual companies (share holders for stock companies) and paid out in the form of dividend.

This dividend is your portion of the companies profitability and is classified by the IRS (correctly) as a return of premium. The companies profitability, achieving a greater return on investments, means they did not need to charge you as much premium as they did.

If taken as a pay out to the policy owner, the Dividends are not taxed until they equal the cost basis in the policy. If they remain in the policy, purchasing Paid Up Additions (PUAs), they are not taxed because they are not received as income, they are spent to buy more death benefit.

Loans are not taxed because they are not income.

When you take a loan from your local bank to buy a car or house – is that income?  Is that taxed?

Credit cards are nothing more short term loans (with usurious interest rates) – when you use your credit card to make a purchase, should that amount loaned for the purchase be taxed as income?

“Withdrawals” are actually not withdrawals but a are surrender of paid up additions. These are taxed above the cost basis.

If you have paid $50,000 in premium and accumulated $70,000 in cash value towards the death benefit, then decide to “withdraw” (not collateralize) $60,000 – that $10,000 difference above the cost basis is taxable as income.

If you have paid $50,000 in premium and have accumulated $70,000 in cash value, and you take a loan for $60,000 – that $60,000 is not taxable. If the policy lapses with an outstanding loan – then the loan value above the cost basis is taxed as income.

There is one case where loans are taxed – if your policy is a Modify Endowment Contract (MEC) then loans above the cost basis are considered income by the IRS and are taxed.

Contrary to the social media influencers claiming to do “IBC”, there is no one “proper design”.

Proper design is defined by the clients needs.

What might be a “proper design” for your goals and financial situation will not look like mine.

In one sentence, our philosophy for policy design is this: To allow the policy owner to put as much capital into their policy for as long as possible. 

During our new client process, we will work with you to identify the proper strategy for you to implement the Infinite Banking Concept, giving you confidence to Become Your Own Banker and make lasting changes for you and future generations.

For more on policy design and our philosophy, see this article

I’ll have a full article on this in the future. For now, here is a brief answer.

First of all – The Infinite Banking Concept is a copyrighted term and specifically refers to the use of “dividend-paying Whole Life insurance with a Mutually Owned Company.” (BYOB, page 3)

Beyond that, the reasons against IUL for IBC fall into two categories – Philosophy and Product.

Philosophy
When Becoming Your Own Banker, you are creating a business – your own banking system. With a mutually owned company, the policy holders are also part owners of the insurance company and the insurance company is your partner in your bank. When you start your bank with a stock owned company, the co-owners of the insurance company are the share holders of that stock insurer. Policy owners are customers.

Do you want your business partner to have obligations to anyone other than you? Do you want your business partner to view you as a customer and source of profit?

There is no minimum premium. Clients have started with just $15.00/month ($180/year).

The higher your premium the faster you will accumulate capital and begin to be able to finance your purchases. Lower premium just means it will take longer to finance larger purchases.

There is no maximum age for starting. Individuals as old as 70 years old have started IBC. Your agent will work with you to ensure it makes sense for your specific situation.

The only thing age affects is how much death benefit the policy provides.

Cash values will grow at similar rates for the first 10-15 years for a 35 year old and a 55 year old and after that, the younger policy will begin to grow at a slightly faster rate.

But it is not about rates of return. It is about recapturing interest – keeping more of your money and what your keep is more important than what your make. It is also about control of your capital.

At what age are you no longer going to need the use of money? You never outgrow your need for finance.