I was recently introduced to the concept of Infinite Banking using whole life insurance. I’m still trying to understand how it can help with retirement.
Can someone explain in simple terms how this works?
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Being your own bank with a whole life cash value policy is known as infinite banking. If you purchase it as a single premium full life (you give the corporation a big quantity of money all at once), it functions best. After that, you have 30 to 60 days to access the cash value as a loan. When you repay the loan, the 4-8% interest rate is deducted from your cash worth. As long as you pay the interest to prevent the dividends from being offset, the policy will keep growing.
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Infinite banking is a cash flow management strategy that utilizes the “cash value” of a specially structured life insurance policy. By overfunding the policy and borrowing against it, you can maintain compound interest.
The concept of infinite banking is often linked to claims that some of the wealthiest and most influential families in U.S. history, like the Rockefellers and Disney, have used it. However, it’s crucial to note that if they did use this approach, it was likely for preserving wealth rather than building it. There’s a big difference between having a nine- to ten-figure net worth and seeking ways to protect and transfer it tax-efficiently, versus needing to build wealth and plan for retirement.
For the vast majority of people, life insurance policies that allow you to build cash value are among the most harmful financial products available. Annuities are another example. Both also tend to offer high commission rates to those selling them, which is likely not a coincidence.
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The Infinite Banking Concept is a personal finance method that aims to create wealth and personal “bank” by using complete life insurance policies. Nelson Nash’s book Becoming Your Own Banker made it well-known. Rather than relying on conventional banks or lenders, the objective is to use the cash value component of whole life insurance contracts to finance significant expenses, make investments, or cover unforeseen costs.