Advantages of Whole Life and the Infinite Banking Concept

Go ahead … fall in love!

There is a saying when it comes to investments, don’t fall in love with them. Just because a particular stock has done right by you in the past, does not necessarily mean it should be a permanent relationship.

However, when it comes to the Infinite Banking Concept … I gotta say, I'm quite smitten. And as for Whole Life Permanent Cash Value Insurance … It’s a forever love story.  Literally a “to death do us part.”

And while not officially an investment, this strategy helps your financial life in so many ways. Here are just some of the Advantages of Whole Life and the Infinite Banking Concept.

 

Advantages For Today

  • Reduced Taxes – Using the Infinite Banking Concept I am building up often tax-free access to cash values through policy or collateral loans. Others who save in RRSPs or Pension plans have taxable assets that are at the mercy of taxation rates at the time of withdrawals. RSPs do not avoid tax … they only postpone them.   But they also postpone the tax calculation. And I know governments are in trouble and increasing tax rates are a real risk for RSP investors. I have the advantage of having less income coming from taxable sources.

 

  • Inflation Protection – Along with increasing tax rates, governments are printing money devaluing our dollar and its purchasing power. I borrow against my policy using the Infinite Banking Concept to invest in real assets. In addition, with the guaranteed growth of cash values and death benefit, my policy offers solid inflation protection.

 

  • Safe Money for Capital Opportunities – GICs and bonds are safe money sure. But currently earning less than 2% and often taxable. And don’t forget this rate is significantly less than the rate of inflation, so you are actually falling behind. Based on average life expectancy, the death benefit typically earns the equivalent to a taxable 6 – 8%.  But I earn much more as I have used the policy to purchase investment properties and invest in stocks at opportune times. It’s a flexible source of capital that I have a contractual right to access through policy loans – no application – no credit check.

 

  • Truly the “And Asset” - Are there assets out there that will outperform Whole Life? Yes, there are. But with a well-designed Infinite Banking Policy you don’t have to choose. You can do both through accessing the guaranteed cash values.

 

Advantages In Retirement

  • Paydown Versus Interest Only – In retirement I can live off the capital and the interest of my assets. I know that if I live beyond life expectancy, my capital will be replaced by the growing and guaranteed cash values in my policy. Those without Whole Life will have to live on much less – perhaps the interest only proportions of their investments.

 

  • Reduced Pressure on Assets – I don’t need to save nearly as much as those who do not have Cash Value Whole Life Insurance – and therefore do not need to take on the same investment risk. This is because I can create a much greater income stream from the same wealth compared to those without a Whole Life Policy.

 

  • Less Worry About Investment Fluctuation – In retirement when the market has a pull back … I don’t have to worry … as I can rely on my guaranteed cash values in my Infinite Banking Policy. Others will have to adjust their income down significantly or run the risk of running out of money as the same income will encroach on a larger percentage of wealth in a down market. I can wait for things to rebound.

 

Advantages At Death

  • Although I don’t have to die to benefit from my Whole Life Policy, on death it provides a tax-free benefit to heirs which can be used to offset capital gains taxes and help beneficiaries to keep assets like rental or cottage properties.

 

Are you ready to fall in love with your financial plan?


Buy Term Insurance & Invest The Difference Or Buy Whole Life?

The answer is it depends.

Let’s start with a simple explanation of each type.

Term (T) life insurance is like renting a house.  Whole Life (WL) is like owning a house.

The initial premium for T is small compared to WL. How much smaller depends on how long you want to be covered.  T is generally available for terms of 5 years up to age 85, sometimes age 100. The most common terms are 10 and 20 years.

WL premiums are based on providing coverage for as long as you live which may be to age 100 or longer.

So, you don’t need to be a rocket scientist to see that a T10 (10-year term) or T20 (20-year term) premium is going to significantly lower initially than WL.

Most T is guaranteed renewable at the end of term to a T1 (1-year term) or the same term as the initial coverage without medical info until usually age 70. Most T is also convertible without medical evidence to WL.

If you want coverage for as long as you live, WL will require lower cumulative premiums over your lifetime than will T.

Now let’s turn to the concept of buy term and invest the difference.

In my 38+ years experience it is rare for anyone to invest the difference.  Many may start out doing so but life happens, and the difference is absorbed elsewhere.

Then there are the non-financial considerations like tax, access and control.

In order to make investing the difference optimal, you will want to invest it tax effectively.  Most will turn to a RRSP (registered retirement savings plan) inside a mutual fund that provides a tax deduction and tax deferred growth.

The problems with a RRSP is if you need access to the money.

Most will allow you the ability to redeem but subject to income tax. Investing in a RRSP also means you forfeit control which means volatility and possible losses.  It also means you must start to redeem your RRSP currently at age 71.  Redemptions mean you lose compound interest and are unable to recontribute unless you have contribution room remaining.   Current contribution room is 20% of your annual earned income less any pension adjustment (PA).

Another investment option is a TFSA (tax free savings account). It is available for individuals age 18 and over.  Carry forward of unused contributions are available.  Past annual contributions have varied with current annual contributions being $6,000 subject to change.  There are no current rules requiring you to redeem at an age. All growth is tax-free. When and if you redeem, all earnings are tax free.  But as with the RRSP redemptions mean you lost the compound interest.  While you can recontribute what you withdraw the following taxation year, the compound interest you missed out on is lost.  Again, commonly, life happens and most never stick with investing the difference.

Many miss that WL provides lifetime compound interest, control (no redemption rules), access to your money via guaranteed loans to deploy for other opportunities with no credit checks.  Many well-known wealthy individuals and businesses acquire WL and use effectively in something called the Infinite Banking Concept, also known as Becoming Your Own Banker.

WL can be viewed as buying term and investing the difference in a tax-exempt growth mutual fund that always receives an annual dividend. This means your investment is guaranteed to increase every year.  A look at mutual fund performance will show that is not the case.

Good life insurance agents will recommend if cash flow is limited that you obtain enough T insurance to provide security for your loved ones if not adequate to obtain WL.

If cash flow is available, WL is one of the most unique, versatile, under-discussed, products in the financial marketplace you will find.

One of our clients after 20-years has accumulated $1.7M in cash value in his WL policies and was very pleased to learn it performed as well as his mutual funds.


What Is IBC and Why Should I Use It?

What is IBC?

It is the Infinite Banking Concept that was pioneered by R Nelson Nash.  It is a process that uses the product of a properly structured Participating Whole Life Insurance policy. Done right, it is a lifetime tool than can and should be used repeatedly and then will have a tax-free death benefit when you eventually pass away.

The problem is we have our dollars come in and most of them leave fairly quickly.  For most people, over 90% walks out the door in the way of taxes, lifestyle and debt.  For those fortunate enough to retain up to 10%, we try to figure out how to maximize that to take us to the end of life and hopefully take care of our beneficiaries.

When we study wealthy families, we see that they maintain control of a higher percentage of their income than the masses.  It is a matter of purposeful living and not luck.

We are the Infinite Banking Canada Group and we have a mission to show Canadians a better way.  We are collaborators across Canada who have qualified for the Authorized Infinite Banking designation that is issued by the Nelson Nash Institute.  At the time of this article, there are less than 50 of us Canada wide. This group is dedicated to maintaining the standards of the founder R. Nelson Nash who discovered and practiced the Infinite Banking Concept.  We have all gone through a course of study and been mentored in how to show Canadians a better way to be more efficient and maintain control of their finances.

Why Should I Use It?

The concept is that you will capitalize (build up) contributions in a properly structured policy that will generate cash values that are accessible to you, the owner.  As Nelson said, “your money has to reside somewhere”, so having it deposited in this type of structure (where you the owner determines the access) will give you many advantages going forward.  Unlike traditional financial advice, we teach you how to grow, control and protect your dollars in a tax exempt environment.

How so?  We mentioned capitalizing.  Like any banking system, it needs to be built up by deposits.

Unlike traditional vehicles such as the RRSP, your money is not in jail.  What do I mean?

I have a set of 40-year old twins who I interviewed.  During the process, I discovered Bob was a good client match but Bart was not.  They both worked as lawyers at the same firm.  Bob and I went through our process and determined that Infinite Banking was a great match for him so we got him started on his journey.  Bart went with a traditional advisor and decided he wanted to make $25000 RRSP contributions. Bob deposited $25000 in his plan with me.

Bob starts out with an initial death benefit of $750,000 while Bart starts out with a $25,000 taxable deposit.  If they passed away early, there was a significant difference for each family left behind.

Bob is building his system steadily and his access to cash values as well as death benefits increase each years.  Bart averages 10%/yr for 5 years accumulating $208,153.  He tells Bob he’s being dumb by “investing in insurance” and he should come and see Bart’s advisor instead. Bob tells him he’s happy with his choice.  A recession hits in year 6 and the economy and stock markets contract rapidly (a 25% drop).  The law firm has a drastic drop in business and billable hours are severely cut.

Most folks are panicking (including Bart).  His RRSP is now worth $156,000 and he finds himself in need of $50,000.  His house foundation has cracked and needs to be repaired along with having to pay off his Christmas trip he charged to his credit card.  He’s been enjoying life and has his $40,000 line of credit maxed out so he’s got very limited options.

He realizes that to get $50,000 in his hands, he will need to withdraw $65,000.  To make matters worse, that will be added to his income come tax time and he may owe another 17%  (approx. $11,000 more in taxes).  The timing is terrible as he’s down 25% on his investments and doing so will lock in the losses.

He is so stressed out that he asks Bob if they can hang out and chat.

He asks Bob why he’s so calm and Bob explains that his cash values keep on growing every day.  In fact, he just accessed $100,000 against his cash values to take advantage of a few opportunities.  Bob told Bart that he bought some great quality stocks at a deep discount with $25,000.  He used another $25,000 as a loan and took a secured position on a person’s mortgage who had lost his job and was in danger of losing his home. He set that up at 15% which was a deal that the person jumped at, considering his other option was a 25% loan.

Bob let Bart know he bought into a business that was in a cash crunch at a huge discount.  The business had good sales but the recession hit the cash flow hard. He invested $50,000 and got a stake in ownership (more than double what he could have even 1 year earlier).

He let Bart know that there was no taxation on his access and that he didn’t even have to worry about payments for the next little bit.  The loan was completely unstructured.  Loan payments and the timing of those were completely up to Bob.  Bart couldn’t believe his ears.  He thought he had done the right things and he just took a massive hit to stay afloat. Conversely, Bob was able to access cash, make investments and get noticeably ahead.

Bart asked Bob to reintroduce him to me.  He wanted to experience this stress free way of life that has Bob thriving and he felt his way was a huge letdown.  We agreed to meet.  I let Bart know this is a process that requires his commitment and he agreed.  I would work with him if he agreed to my coaching which included some reading and videos to get a baseline of this process.

Most important was that Bob didn’t have to touch the asset so it continued to grow uninterrupted and without taxation.  What was Bob’s rate of return in the policy?  It doesn’t matter.  I understand that this is hard for most people to grasp as we’ve been sold this way of thinking for a long time.  I can say that it was less than Bart’s average rate of return.   Did that matter?  No.  It was the right vehicle and continues to be so by having uninterrupted compounding for life.

You have a chassis that will grow over time and you determine access.  This is done by a combination of deposits and dividends.  This increases the face amounts and as a direct result…the cash values.  You are contractually guaranteed access to available cash when you want to without having to qualify.  As your policy system builds, you choose how and when to access the funds.

We set these up with Canadians every week.

Do you want a stress free way of life?

Do you want access to cash without having to interrupt the growth of your asset?  Do you want tax-advantaged access for opportunities or emergencies while controlling payment amounts, frequency etc.?  Do you too want to become your own banker?  Do you want intergenerational wealth?

Contact us and we can help you get started on a stress free, way of life.  We can help you to be part of the IBCanada Group family.  We can help you start to build an Infinite Asset that will take care of you for life and those who come after you.