I thought I would give an actual scenario this week of how the Infinite Banking Concept is being put to use every day. Like the game, it can become a monopoly!
Assumptions: We have established a whole life policy that’s properly designed for the Infinite Banking Concept. Available cash value for policy loans is $60,000.00.
Scenario: You begin investing in real estate by purchasing a $20,000 rental property. Rent is $750/month. After taxes, insurance and property management you net $500/month or $6,000/year. That’s a 33% annual cash on cash return. You send that $500/month back to your policy to repay the policy loan. So, what do you have? A rental property that you own free and clear with a $500 monthly stream of income back to your policy, and $40,000.00 in your policy.
You use the remaining $40,000.00 in your policy to purchase 2 more properties just like the first. Now you have 3 rental properties that you own outright and positive passive cash flow of $1500 each month.
With a traditional mortgage of $20,000, payments of $500/month and an interest rate of 8% it would take the borrower 47 months to repay the loan. Does the borrower have instant access to their equity? No. They would have to refinance the property, adjust the rate and terms and pay the expenses to do so.
However, one of the best features of the Infinite Banking Concept is the ability to get multiple turns of the money. You don’t have to refinance your loans in order to access the money again. Every time you make a payment back to your policy, those funds get credited to the account and are available to be borrowed again. No questions are asked and no fees are charged. Can you do that with a traditional loan? No. There will come a time when your debt-to-income ratios will be too high or the number of financed properties will exceed the maximum allowed by traditonal lenders.
By re-paying $1500/month in our scenario it will take just over a year before your policy values are back to $20,000.00. Instead of letting it sit in the policy, you borrow it again and purchase another rental property. Now you have 4 properties that you own free and clear with $2,000/month in passive cash flowing back to your policies. Now it will take less than a year for you to accumulate another $20,000.00.
Can you see what’s happening here? By turning your money over you’re amplifying the speed with which your policy values can regenerate. The cycle can be repeated quicker, cash flow will grow more robust and you will be able to purchase more properties over and over again.
In time, you will have a hefty stream of passive cash-flow that will be pouring into your policy. You will own all of your properties outright, minimizing the risk from market downturns. However, you will still be able to enjoy a tax write off on the mortgage interest from the policy loans. As with any write off the paper trail must be properly documented and meet with the IRS standards.
And by paying off your loans completely, you will maximize the growth of your policy. Your dividends will increase, the death benefit will grow and your cash values will flourish. It’s the snowball effect. So, when it comes time to retire, not only will you have that passive stream of rental property income, but you will also have a nice annual tax-free dividend that you can take from the policy. And when you do pass away your beneficiaries will receive the death benefit income tax-free. Plus, they’ll receive a step-up in basis on those rental properties when they are sold. What’s that? Essentially, there will be no capital gains tax on the sale. The previous basis, or amount spent on the property, will be bumped up to the current value. Net tax is 0%!
I’ve mentioned the living benefits that the Infinite Banking Concept offers. This is a prime example of that. Many people see life insurance as one thing…protection in the event of premature death. But it can be so much more than that and that’s the point I want to drive home. The uses are truly infinite!
Scott Storace
What is a dividend? The simple answer is that it’s a return of premium. The Internal Revenue Code defines a dividend as the return of that portion of the premium that was not used to guarantee the cash values and death benefit of the policy. Therefore, generally speaking, the higher the policy’s premium the greater the annual dividend. But there are other factors that determine the size of the annual dividend.
