October 2

Infinite Banking

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A 35 year old male of average health with a traditional whole life insurance policy contributing $1,000/mo, after 2 full years of contributions (so, $24,000) would be projected to have just $3,947 accessible to him through his policy’s cash value.

If this same male, contributing the same $1000/mo, were to get a properly structured infinite banking policy, he would be guaranteed (not just projected) to have $20,327 in that same 2 year time frame.

In our last post, we explored the pros and cons of this infinite banking concept and I wanted to further explore how this differs from a traditional whole life inusrance policy.

Even though infinite banking is reliant upon traditional whole life insurance in order to provide the host of benefits that come with the strategy, it should not be confused with a traditionally-structured whole life insurance policy.


Understanding the Difference

For the sake of this post, I will refer to the infinite banking concept (and the unique way we structure and optimize those policies) as ‘infinite banking.’ When referring to the normal structure of a whole life policy (the way most life insurance salesmen sell it), I’ll call that ‘traditional whole life.’

Let's explore how much of a difference that this is subtle difference is making...

Simplistically, all whole life insurance policies come down to three main components- premium (what you pay in), death benefit (what the beneficiary receives upon the insured's passing), and cash value (what you can use along the way).

Originally when traditional whole life insurance came about, the focus was always on the death benefit. The basic question was how much premium was needed for the insurance company to guarantee the death benefit. 

They realized that while they were pooling that money to be set aside in reserves, they could allow people to access some of that money in the form of cash value.

The government recognized the benefit of people having life insurance for their entire life. It meant less widows, orphans, and ultimately government assistance for the financial loss that is incurred when losing a loved one. 

Because of this, not only did they allow death benefits to be tax-free, but they also allowed policy holders to access that cash value tax-free as part of an incentive for people to own more whole life insurance!

The cash value at this point began to gain traction as a valuable place to store money, but originally only as an auxiliary benefit that came with the cost of having life insurance. 

However, as whole life insurance evolved, wealthy people who had a policy realized that they could put in more money (way above their required premium) to be placed inside the cash value of their policy so that they could get the...

  • Safety
  • Guaranteed growth
  • and Tax-treatment 

...that they couldn’t get anywhere else.

People then started to get policies for the least amount of death benefit that they could so that they could take advantage of the benefits of whole life insurance as a place to diversify their money!

This is where the infinite banking strategy became popular and why it is increasingly popular to this day. It is focused on designing policies for the cash value, with the death benefit being the auxiliary benefit.

However, it’s interesting to see that this way of structuring a policy, can actually end up providing a better death benefit long-term as well!

Let’s go ahead and take a peek under the hood and see what's making these two so vastly different when it comes to performance.

A couple things to note about the two illustrations before we dive in- 

Both are using the same exact...

  • Company
  • Product
  • 35 year old 
  • Male 
  • Non-tobacco 
  • Standard health rating
  • Contributing $1,000/mo

I’ve just structured the policy in two different ways.

I’ve removed as many variables as possible, so I can demonstrate just how big of a difference the proper structuring of a policy with the right company can make.

As I mentioned before, when comparing illustrations, the most important initial considerations should be for the premium, death benefit, and cash value and how those change over time.

The cash value and death benefit have a guaranteed column and a non-guaranteed column. 

The guaranteed column is the absolute least amount that your cash value or death benefit could be, assuming you funded your policy at the amount that is indicated here on the illustration, which in this case would be $1,000 per month.

This non-guaranteed column is factoring in the current dividend rate that gets paid out (a topic we cover repeatedly in other videos). Though it is not guaranteed, several of these bigger companies have paid out a dividend for over 100 years in a row.

Keep in mind, this dividend could go up or it could go down in the future, but this is their current rate.

In this comparison here, because we have the exact same premiums we can really see the difference in death benefit and cash value.

Let’s look at the end of year one for both the guaranteed and non-guaranteed columns of a traditional whole life insurance policy.


Year 1

The first thing to notice is that for the same amount of premium, you will have a substantially greater death benefit at the end of year one in both the guaranteed and non-guaranteed columns then you will when you look over here at the policy designed for infinite banking.

Death Benefit

Traditional

Guaranteed: $944,664

Non-Guaranteed: $954,058


Infinite Banking

Guaranteed: $391,590

Non-Guaranteed: $391,590


Difference

Guaranteed: -$553,074

Non-Guaranteed: -$562,468


This is to be anticipated, as the infinite banking strategy tries to lower the cost/portion going toward insurance as much as possible. 

But, let’s take a look at how the cash value is impacted! This is one of the big myths of why whole life insurance is a terrible savings vehicle. Next week I’ll be directly responding to many of these misconceptions!

You can see that the cash value in year 1 is at $0 with a traditional structure and with the infinite banking structure it is already guaranteed to be at least $8,571 higher. 

Cash Value

Traditional

Guaranteed: $0

Non-Guaranteed: $1,852


Infinite Banking

Guaranteed: $10,148

Non-Guaranteed: $10,422


Difference

Guaranteed: $10,148

Non-Guaranteed: $8,571


One thing I don’t hear many anti-whole life people discussing is how a lot of life insurance companies now increase their death benefit over time with their whole life policies, but you can clearly see that here with both the traditional and infinite banking policy.

With our IBC policy, that death from end of year 1 to end of year 2 increases by approximately $45,814 with $12,000 of contributions and over $10,000 of it going to cash value.

Again, with a traditional structure you will see no cash value guaranteed but with our IBC structure you are already guaranteed an absolute minimum of $20,327 by the end of year 2.

This strategy is certainly not for the short run, because even at that, in the short term you have less cash value available to you then what you had put in though it’s far superior to anything that you probably have heard before.

I transparently discuss this con in the early years in my last post.

Let’s look further out and see how this impacts your policy long term!


Year 10

By the end of year 10, the cash value in the traditional policy seems like it is catching up, because it now has $102,102 of projected and $72,097 guaranteed, but in reality it’s not. The gap has actually grown to $35,265 and $47,821 respectively.

Cash Value

Traditional

Guaranteed: $72,097

Non-Guaranteed: $102,102


Infinite Banking

Guaranteed: $119,918

Non-Guaranteed: $137,367


Difference

Guaranteed: $47,821

Non-Guaranteed: $35,265


If you look closely, what you will see is that over the course of those 10 years, the difference in the smaller death benefit is starting to be minimized between the two policies. The IBC policy is starting to catch up!

Death Benefit

Traditional

Guaranteed: $944,664

Non-Guaranteed: $1,058,345


Infinite Banking

Guaranteed: $748,613

Non-Guaranteed: $782,248


Difference

Guaranteed: -$196,051

Non-Guaranteed: -$276,097


Let’s continue to progress through the life of this clients policy.


Year 20

At year end of year 20 the cash value difference has continued to grow. If both policies perform at the minimum guaranteed levels, the difference in your cash value will be $86,518 and if they perform at the non-guaranteed levels the difference will still be $48,347. 

For the first time you can see that based on the guarantees, the death benefit in the infinite banking structured policy surpasses the traditional structure. This crossover actually happened in year 17 (at age 52).

Take a look at how these numbers now look at the end of year 20.

Cash Value

Traditional

Guaranteed: $198,493

Non-Guaranteed: $311,688


Infinite Banking

Guaranteed: $285,011

Non-Guaranteed: $360,035


Difference

Guaranteed: $86,518

Non-Guaranteed: $48,347

______________________________________________________________________

Death Benefit

Traditional

Guaranteed: $944,664

Non-Guaranteed: $1,254110


Infinite Banking

Guaranteed: $1,040,466

Non-Guaranteed: $1,169,130


Difference

Guaranteed: $95,802

Non-Guaranteed: -$84,979



Year 30 (Age 65)

Now this next 10 year period puts us at age 65.

At this point a lot of people may be looking to retire and may want to quit contributing that $1000 a month so that they can use that as extra cash flow in retirement. To factor that in, I set up both of these policies to be funded until age 65. 

Both policies have completely stopped their premium contributions at this point.

This is what is known as paid-up insurance.

Meaning what you have already paid-in is sufficient to maintain a death benefit for the rest of your life.

The impact that this has is an immediate dip in the death benefit.

A paid-up policy will never have an impact on the cash value amount so you will continue to see that growth with the guarantees plus the dividends of that year even without any further contributions. Even with that initial death benefit drop, it will go back to increasing every year after.

Year 30 (age 65) also signifies the point at which the infinite banking policy has surpasses the traditional structure in every important measurable that a person would want to consider with their policy.

The death benefit and cash value are greater in both the guaranteed, non-guaranteed values across the board.

We do have clients who want a whole life policy structured for infinite banking, but would like to cover the death benefit deficit in the early years. In this case we look at how adding a term policy could assure an appropriate amount of death benefit at all times.

Take a look at the death benefit difference that now exists! It’s substantial and continues to pull away each year.

Death Benefit

Traditional

Guaranteed: $697,870

Non-Guaranteed: $1,295,296


Infinite Banking

Guaranteed: $974,746

Non-Guaranteed: $1,393,803


Difference

Guaranteed: $276,876

Non-Guaranteed: $98,508


So let’s break this down.

This infinite banking policy ends up having a greater death benefit in the later years of life (when you're at a higher risk of dying). Plus, it is guaranteed to have way more liquidity early on and that difference that only continues to grow throughout the life of the policy.

Check it out!

Cash Value

Traditional

Guaranteed: $348,105

Non-Guaranteed: $646,106


Infinite Banking

Guaranteed: $486,213

Non-Guaranteed: $695,243


Difference

Guaranteed: $138,108

Non-Guaranteed: $49,137


This is a shocking realization.

The traditional structure is how the vast majority of people are sold whole life insurance policies.


Year 41 (Age 76)

Once we get to age 76 (the average age that a male lives to) this client would have at least $81,255 more in cash value and at least $121,766 more in death benefit.

Cash Value

Traditional

Guaranteed: $465,689

Non-Guaranteed: $1,068,292


Infinite Banking

Guaranteed: $650,448

Non-Guaranteed: $1,149,546


Difference

Guaranteed: $184,759

Non-Guaranteed: $81,255

______________________________________________________________________

Death Benefit

Traditional

Guaranteed: $697,870

Non-Guaranteed: $1,600,917


Infinite Banking

Guaranteed: $974,746

Non-Guaranteed: $1,722,683


Difference

Guaranteed: $276,876

Non-Guaranteed: $121,766


And this only increases...

Even at age 100, it just continues to outpace the traditional structure. 


Closing Remarks

A traditional whole life isurance policy performance is vastly different than that of infinite banking.

When you dig deep into these numbers, it’s clear that focusing your policy on the structure for maximum cash value, as infinite banking does, can be a far superior approach long term. 

I say this not only because of the cash value, but also for the death benefit increase that allows you to surpass a traditional policy going into later years where you would be at higher risk.

Part of the reason that so many people are unaware that whole life insurance can work this way is partly because few agents structure polcies in this way and also because of the myths that exist within the insurance industry.

Next week I will be doing a fun video debunking these myths.

If you want stay on top of the content and learn more about financial strategies that will help you plan and protect your financial future, then you should check out my YouTube channel as well as Stephen Spicer's.

Until next week, 

Take care!


Brody Boston

Brody Boston is the infinite banking specialist at Spicer Capital, LLC. Outside of helping serve Spicer Capital's clients, he enjoys reading and staying active in any way possible.


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