The infinite banking concept is a financial strategy that involves using a permanent life insurance policy as a savings vehicle. The basic idea is that you can borrow money from the cash value of your policy, then pay it back with interest, effectively borrowing from yourself instead of a bank.
Here’s a simple example to help illustrate how it works:
Let’s say you have a permanent life insurance policy with a cash value of $100,000. You want to buy a car for $20,000, but you don’t want to take out a loan from a bank and pay interest. Instead, you borrow $20,000 from the cash value of your policy at an interest rate of 5%.
You use the $20,000 to buy the car, and you start paying yourself back with interest. You might make monthly payments of $500 until you’ve paid back the $20,000, plus $1,000 in interest. The interest payments go back into the cash value of your policy, so you’re effectively paying yourself instead of paying a bank.
The key to making this strategy work is to use a permanent life insurance policy with a cash value that grows over time. As the cash value of your policy grows, you can borrow more money and pay it back with interest, effectively creating your own private banking system.
It’s important to note that this strategy isn’t for everyone, and it’s important to work with a financial advisor who is familiar with the infinite banking concept to make sure it’s the right fit for your financial goals and situation. Additionally, borrowing from the cash value of your policy can reduce the death benefit paid out to your beneficiaries, so it’s important to consider the impact on your overall financial plan.