Why The Infinite Banking Concept Is Such A Sound Financial Strategy

An interesting statistic reported by the Federal Reserve’s Survey of Consumer Finances, shows that only 1 out of 5 Americans have, or will, receive an inheritance. There are many reason why this is true, from probate to parents believing their children do not value financial responsibilities the way they should. Yet the fact remains, only about 20% of Americans will inherit anything of the “$90 trillion Great Wealth Transfer” which is about to take place over the next decade.

Recently, Warren Buffett publicly stated he will not leave his children a large inheritance but will leave his vast wealth to charity. Yet Buffett has donated billions of dollars to his own foundation and the foundations of his three children, Howard, Susie and Peter. This is similar to what Bill Gates, Bill Clinton, Mark Zuckerberg, John D. Rockefeller, Andrew Carnegie, Penny Pritzker and other very wealthy people do and have done, to keep the wealth they have created growing and in their and their family’s control.

Foundations, which take a lot of money to start, are legally allowed to set up endowments, which also cost a lot of money to start. But it is the endowments of these foundations, colleges, charitable organizations etc., which are responsible for providing a consistent and reliable source of income for the foundation, college or charitable organization. These endowments investing the money they are endowed with to create more money for the foundation, college or charitable organization.

Where, and to whom these investments are made, is controlled by those who run the foundation. Therefore, it is a common occurrence for an endowment to lend money to the very people who donated the money to start the foundation, college, or charitable organization, and to continue to lend money to the families of those who started the foundations, colleges or charitable organization for generations.

This, in itself isn’t a bad thing. But bad things can, and have been funded by those who have such easy access to such large sums of money at the nominal interest rates these endowments expect in return on such loans. Regardless, setting up foundations, colleges, and charitable organizations which then create endowments, is a legal way wealthy people have, and continue, to keep from paying as much in estate taxes, while keeping their children and grandchildren well supplied financially.

Most Americans are not in a financial position to start a foundation with an endowment fund to perpetuate their wealth for the children and grandchildren. It simply costs too much for them to benefit from following in the steps of the Gates, Rockefellers, Carnegies, or Clintons. But that doesn’t mean that the average everyday American can’t benefit from the general concept of what these wealthy individuals have done to make themselves and their posterity more prosperous.

Enter the Infinite Banking Concept. An idea which has been ridiculed and mocked by pundits who don’t understand, or value, the cost of finance which is lost every time someone spends a dollar. One dollar spent today which could have earned 3% over the next 30 years ends up costing the one who spent that dollar the 143% of compounding growth it would have generated. How can someone spend that dollar and not lose this compounding growth over the next 30 years? Enter the Infinite Banking Concept.

Johnny saves $5,000 a year for 10 years and purchases a participating whole life insurance policy on his life. At the end of 10 years, Johnny has $54,298 of cash value, meaning he has more cash value in his participating whole life policy than what he paid for the policy.

Now Johnny decides to spend $30,000. Instead of spending $30,000 out of his pocket, Johnny decides to borrow against the value of his participating whole life policy and spend the money the insurance company lends to him. Johnny does this knowing the cash value in his policy will continue to compound even while it is leveraged for this $30,000 loan.

Furthermore, Johnny decides to repay this policy loan beginning in year 13 with $333 a month until the policy loan is repaid.

In year 23, nine and a half years after starting to repay this $30,000 Johnny has repaid $38,167 to the insurance company.

At this point his policy has $93,495 of cash value, which is $68,092 more than what his available cash value was after he took his $30,000 loan in year 11($93,495 - $25,403 = $68,092).

This means Johnny didn’t lose compounding growth on the $30,000 he spent when he borrowed against his cash value. He didn’t lose compounding growth on his premium payments either, as he has $93,495 in his cash values which is more than what he paid in premiums plus what he repaid on his policy loan ($50,000 + $38,167 = $88,167).

In other words, Johnny has his cake and has eaten it too! He has whatever he purchased for $30,000, he has his life insurance policy which he paid $50,000 for, and he has $93,495, which is $5,328 more than what he has spent on premiums and loan repayments.

But the pundits say, “If Johnny would have invested his $50,000, instead of paying premiums with it, he would have turned his $50,000 into $115,536 over those same 12 years he took to repay his policy loan.” But what they leave out is Johnny would then have had to borrow $30,000 from a bank or financial institution. The cost of finance on $30,000, at even just 4%, would have run him $37,823. $115,536 - $37,823 = $77,713 which is 16.88% less than the $93,495 Johnny had in cash value after fully repaying his policy loan.

Notice also that Johnny’s cash values continue to grow?. 40 years after starting this policy his cash values have compounded to equal $220,036. If Johnny had invested $50,000, what he paid in premium for this policy, and waited 30 years, he would have had to earn 5.0632% on his investment after taxes, to match what his participating whole life insurance policy has accomplished for him.

Johnny could continue to leverage his cash values throughout his life time, recouping the cost of finance on things he purchases or invests in, and still leave a tax free inheritance to his children and grandchildren. This is similar to what the Rockefellers, Gates, Clintons, Carnegies etc., have done with their foundations, colleges, and charitable organizations but it has cost Johnny nothing to accomplish this at his own net worth level.

Foundations, colleges and charitable organizations cost a lot of money to start up and maintain but are worth it for very wealthy people because it saves them millions of dollars in estate taxes while providing them with tax benefits while they are still living. As Federal estate taxes kick in when an estate is worth 13.99 million dollars in 2025, it makes no sense for those whose net worth is less than this, to start foundations, colleges or charitable organization so they can fund an endowment.

The Infinite Banking Concept, using participating whole life insurance, is the best financial tool for those whose net worth is less than $13.99 million. This is because it allows these folks to perpetuate their finances like the Rockefellers, Carnegies, Gates, Buffets, Clintons, etc., and keep the money spent to finance things in life. It also provides tax free access to the wealth retained in life so that it can be passed on to children and grandchildren for generations to come, as long as the methodology of the Infinite Banking Concept is followed.