In my research of infinite banking, I had questions, a lot of questions. Several of them couldn’t be answered by the same 'experts' who were selling policies by the dozens.
When I finally got answers, I was amazed—because of how important they are in making this strategy work—that the so called 'experts' don’t know these details.
In this post I will cover some nuance details that are tough to come by, even from the people who know the most about this strategy...
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In our last post, we explored the lies many agents are telling their clients.
It was pretty alarming, right?!
All lies aside, there are some generally accepted principles in determining a carrier to work with and what to expect with infinite banking, but there are also some details that seem to not be understood by... well, every 'expert' that I have talked to about this strategy.
Let's get into the three of the most important factors about your infinite banking policy that are very poorly understood...
1. CONTRIBUTION FLEXIBILITY
Contribution flexibility is very carrier specific, which is why it is not only incredibly difficult to get information on, but why it’s dangerous.
Many agents or experts do not even know about this and if they do, they don’t realize that this is different from carrier to carrier and hence make blanket statements that end up being inaccurate.
The majority of policies that are over-funded (which if you have an IBC policy that is properly designed, it will be) will allow you to adjust down your premium from what it was applied for.
I am writing a post in a couple weeks on where to find the funds for infinite banking without changing your current cash flow. The easiest way to stay up to date on that is to subscribe to my YouTube channel and hit the notification bell so you are reminded when that comes out.
Ideally, this isn’t happening because of proper planning prior to committing to a policy of that amount, but life does happen and knowing the flexibility is important to plan for the unexpected life events that happen to us all.
Contribution Amount
For example, if someone was contributing $1,000 per month and had their hours cut at work and needed as much extra money as they could find, they may want to drop down the premium of their policy.
In this case, the insurance company will let this person drop down to just the cost of insurance, which should be around $100-$200 of their current set contributions (10-20%, assuming their policy has been properly set up).
Commonly, they may require the cost of insurance plus a minimum over-funded amount of somewhere around $50/m or $600/y.
Your agent may tell you that you could drop down to $0 if needed and they would be right, but when doing this, you will be using the cash value to make that minimum premium payment. Hence, this erodes your savings and is not what we recommend if it can be avoided.
Now, it’s important to note that by reducing the amount of over-funding you have reduced the effectiveness of your policy.
Future Contributions
And, if you’re smart, you may be saying, "Well yeah, but I can just make that payment up later when I have more money." And, you’d also be right, but... you might not realize just how little time you have to make it up.
You have to be careful.
The vast majority of carriers will have guidelines in place that will only allow you to make up payments within a 12 or 24 month window.
On top of that, almost all carriers will take the average contribution that you have made over a certain period of time—maybe 5 years , 2 years, sometimes even 1—and make that the new maximum amount moving forward.
So now, not only were you not able to make up previous payments, but you are permanently restricted from making those full payments into your policy.
A Grim Hypothetical
Imagine...
- Setting up your policy with one of the best IBC providers...
- Contributing $1,000/month...
- Disciplined for a decade...
- Hard times hit…
- You’re smart and remember the flexibility you have...
- So, you drop your minimum payment down to the cost of insurance at $100/mo...
- You do that for 12 months so that you can use that other $900 to help pay bill