The Infinite Banking Concept™ is not complicated.  It is actually quite simple – accumulate your wealth in an asset that you have complete control over and that is guaranteed to increase in value.  Then, through wise leverage, finance the things of your life – family, business, etc.  In this you retain complete control over the terms of every purchase and capture the opportunity cost of those purchases.

It is simple, but it does require a paradigm shift and requires rethinking your thinking.  Because changing how we think is difficult, many people feel the need to sensationalize IBC or, in attempting to enlighten their audience they come up with analogies or explanations that reveal one truth but do also muddy the waters.

Still others will misrepresent the Infinite Banking Concept in order to disparage the concept to in favor of the conventional financial paradigm.

This is the first of a series of articles addressing some of these misconceptions, misrepresentations, or over-sensationalized statements.

One of the most confusing statements about IBC is that you can “recapture interest that would have been paid to someone else’s bank.”

But what does it mean to “recapture interest”?  If you’re like me when I was first exposed to IBC, you had no idea what this means.  Does it mean you get to keep the interest?  Does it mean you don’t pay interest?

Sometimes marketers, trying to explain what this means, will claim that you “pay interest to yourself.”

There is some truth in this attempt at explanation, but it is not entirely accurate.

The money you are using is not your money.  In fact, you have no money.  Your money was spent purchasing an asset.  That asset is a contract – a whole life insurance policy – with guaranteed future value (the death benefit).  Because it has a guaranteed future value, its present value can be calculated.   

The insurance company will allow you to take loans up to the present value of that asset.

That present value is called capital – the monetary value of property.

There is a cost for the use of the insurance companies’ money, which is the charged interest rate.  If the insurance company did not charge you interest, the loan would represent a loss of ~3% due to inflation (if you trust government CPI numbers) PLUS the return they could have earned on that money if it was invested somewhere else.

There is always a cost of capital, even if it is your own money.  In practicing the Infinite Banking Concept, you are using the insurance companies’ money and there is interest charged. We’ll come back to this in a moment, but the first point is that you are paying interest to the insurance company.

If you are an honest banker, you will pay at least what you would have paid to another source of financing.  If your local bank is charging 5%, you should pay your bank at least 5%.  Paying less is stealing from your business.  In doing this you will pay off the loan in less time, due to the favorable terms of the loans. The remaining amounts are still paid to the policy in the form of Paid Up Additions. This increases the capital you have available for the future.  These remaining payments are interest that would have gone to the conventional bank but are instead “interest paid to yourself.”

But, let’s go back to what is paid to the insurance company.

Remember, we are practicing the Infinite Banking Concept with

1. Dividend Paying (Participating) Whole Life Insurance policies
2. With Mutually Owned companies (who have paid a dividend for at least 100 consecutive years)

In order to take control of the banking function in our lives, we are creating a business – a banking business. Each policy is a branch of our banking system.  The insurance company is our partner in the business.  We provide the capital for the business and they provide all the accounting, and legal, and other overhead costs for the business.

As partners, the insurance company is a part of our personal economy.  When you pay interest to the insurance company, you are contributing to the profitability of a company you own.  Surplus profit is returned to you in the form of a dividend.

That dividend, when used to purchase Paid Up Additions, increases the future value of your asset – the contract – and therefore also increases the present value of the contract.  That same present value is the upper limit of what the Insurance company is willing to lend you because the contract is the collateral.

The interest is 𝒄𝒂𝒑𝒕𝒖𝒓𝒆𝒅 in your personal economy growing the capital you control instead of being paid to someone else’s bank and growing their capital.

That is what it means to recapture interest.

It is one part surplus interest paid to ourselves, instead of a commercial bank in the purchase of PUA and one part interest paid to and contributing to the profitability of a company we own (the mutual insurance company) that comes back to us in the form of a dividend increasing the capital available to us in our banking system.

If you’re ready to take control of the banking function, or just want to learn more, click to book a free call with an advisor today.

Veritas non verbum venditoris

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