The legitimacy of the Infinite Banking Concept has been a topic of debate. Some consider it a scam, while others consider it a legitimate investment strategy. However, due to the overwhelming amount of information available on the topic, it can be challenging to determine where the truth lies.

Several highly regarded individuals frequently express their negative opinions about the effectiveness of Infinite Banking. The question is, do they have a valid point?

Exploring the Infinite Banking Concept, we delve into its merits, doubts, and inquiries and investigate why there are allegations that it is a scam. Our aim is to gain a better understanding of this concept.

 

A Brief Introduction to the Infinite Banking Strategy

 

Infinite Banking can appear intricate when poorly explained, which is frequently the situation. Nonetheless, it doesn’t have to be. Fundamentally, Infinite Banking entails the practice of overfunding an insurance policy, either a whole life or occasionally a universal life policy, to maximize the growth of its cash value.

You can use the money you’ve saved in your whole life insurance policy to take advantage of smart investment opportunities. Whole-life insurance offers some unique benefits, like tax advantages and guarantees, that you don’t often find in other ways to save or invest.

Is it better or worse than other ways to invest? Well, that’s up to you to decide.

The idea behind “Infinite Banking” has been around for a while. Before it got that name, it was basically about putting extra money into your whole life insurance policy, often done with a 10-pay policy.

But in the 1980s, a guy named Nelson Nash, who wrote the first book on Infinite Banking, noticed that only a few people were using whole life insurance, especially business owners and investors. He spent his life figuring out how to make whole life insurance work better by putting more money into it.

So, that’s a quick look at Infinite Banking.

 

Concerns Regarding the Legitimacy of Infinite Banking

 

Now, let’s delve into some of the apprehensions surrounding Infinite Banking and examine the viewpoints suggesting that Infinite Banking might be a fraudulent scheme.

 

“Whole life insurance is a bad deal.”

 

They think it doesn’t really help you and is just a way for the insurance company to make money. Some even believe Infinite Banking is just a fancy name to sell more whole life insurance.

The truth is, whether whole life insurance is good or bad depends on how you use it. If you only seek insurance coverage, term insurance is usually better and cheaper. It makes sense if you’re talking about protecting your investments like stocks or a 401k.

But if you look at whole life insurance as a way to save money, it can be a good choice. A well-structured Infinite Banking whole life policy gives you:

• A chance for your money to grow.
• A safe place to put your savings.
• Access to your cash when you need it.
• Some tax advantages.
• A death benefit for your loved ones.

The insurance part is just a bonus when you use your whole life for Infinite Banking. Compared to other ways to save money, it can be pretty efficient. That’s why Infinite Banking uses whole life insurance – it’s like the right tool for the job.”

 

“Dividends are not the same as growth; they’re more like getting back the extra money you paid.”

 

Some folks label Infinite Banking as a scam because of how the tax folks (the IRS) treat dividends.

Here’s the deal: They say dividends are like getting back money you were charged too much for. When insurance companies make money, they can give some of it to those who own insurance policies. It’s kind of like when you own stocks and get a piece of the company’s earnings.

Now, these dividends aren’t guaranteed, but many companies have been paying them for a long, long time. One big company, for instance, has been doing it every year since way back in 1869.

The argument goes like this: The insurance company charges you more than they need to and then returns some of that extra money as dividends. And they make it sound like they’re doing you a favour.

But if those dividends are just money you overpaid, your policy won’t really grow. It’s like buying something at the store and then returning it to get your cashback. Getting your money back isn’t the same as making more.

If a whole life or Infinite Banking policy claims an 8.61% yearly growth rate, that growth has to come from somewhere. The truth is, the dividend in an insurance policy isn’t about growth; it’s about the money the company makes.

Insurance companies put billions of dollars into safe stuff like bonds and real estate. They earn money, and they share it with policyholders through dividends. The cool thing is that these dividends usually aren’t taxed, so you get to keep more of the dough.

So, it really doesn’t add up to call dividends a refund for something you were overcharged. These companies make money, and that’s where the growth in your policy comes from.

 

“When you’re gone, all your cash value disappears.”

 

Another reason some folks say Infinite Banking is a scam is cash value versus face value.

Here’s what those words mean: Face Value, or death benefit, is the money your loved ones get when you pass away or when the policy matures. Cash Value, on the other hand, is the amount you can borrow or take out of the policy while you’re alive.

But the truth is, face and cash values are not different; they’re the same thing. Cash value is just a part of the face value, the death benefit.

Cash value is the piece of the face value you can access while you’re still around, either by borrowing or taking out.

The argument makes it sound like there could be a time when the cash value is more than the death benefit, and if you happen to pass away, then you’d lose all that cash value.

But in reality, the cash value can never be more than the death benefit; it’s always less, just a portion of it. When you’re gone, that death benefit, the face value, goes to your loved ones without any income tax.

Once you understand how whole life insurance works, this argument isn’t a problem at all. It’s more of a misunderstanding.

 

“It’s pointless to pay interest on your own money!”

 

“They’re using Infinite Banking for their benefit, not yours.”

In an Infinite Banking type of life insurance policy, you don’t cash out the money you’ve put in. Instead, you borrow against your policy’s cash value and repay that loan to the insurance company with some interest.

The argument here is that since you’re repaying your own money with interest, it might seem like you’re not getting much out of it. It’s more of a win for the insurance company. You might feel like you’re losing, and they’re winning.

That’s one of the reasons some folks don’t like Infinite Banking and call it a scam.

But there are actually three critical questions we need to talk about when it comes to life insurance policy loans:

1. Why should I pay interest on my own money?
2. Does it help me if I pay myself back with interest?
3. Why can’t I just take out my cash and put it back in?

 

“Why should I pay interest on my own money?”

 

The insurance company charges interest when you borrow money from your life insurance. But they’re not doing this to complicate things; it’s about their investment fund and its performance.

When you take a loan, your money keeps growing inside your policy. So, if the insurance company expects to earn 5% that year (the current rate) from their investments, they charge you 5% on the loan.

For the insurance company, it doesn’t matter whether they make 5% from bonds or from a secured loan to a policyholder; it’s the same for them. And for you, it’s pretty much the same.

In this situation, you borrow money at around 5%, and your policy earns about 5% on your cash value. In simple terms, it cancels out. That’s how it’s supposed to work. The insurance company isn’t trying to profit from you.

Surprisingly, this setup can be a good thing. It comes with tax advantages, especially when used for investing or business purposes. It’s a bit of an advanced concept, but it’s good to know.

 

“Does it help me if I pay myself back with interest?”

 

Here’s the deal: Imagine your money as a snowball, growing as it rolls. But even when you need to use some of it, it keeps on growing.

That’s where the idea of Infinite Banking comes in. It’s all about a fundamental principle: always let your money grow. The concept is pretty simple. The difference is huge if your money grows at 5% for half of your life versus the whole time.

Let’s see this in action. Start with $100,000 in the bank. In 60 years, if you only let it grow for half the time, you’d have $432,194. Now, compare that to an impressive $1,867,918 if you allow it to grow continuously.

So, if you ever need to use your money – maybe for a car, a business, or real estate – there’s a cost. And it’s a good idea to pay that cost back to yourself as interest.

Whether you see it as “borrowing from yourself and paying yourself back with interest” or “borrowing from the life insurance company and letting your money keep growing,” the result is the same: Your money keeps on growing, and you don’t stand in the way of your future financial potential.

 

“Why can’t I just take out my cash and put it back in?”

 

That’s a great question. You don’t want to take out all your cash from your policy, not because you can’t, but because it’s tricky to return that money.

It’s because of some rules related to whole life insurance. In the past, the government wanted to stop wealthy folks from easily moving money in and out of a life insurance policy to get tax benefits. So, they put some rules in place.

They made it so people have to add money to their life insurance policy bit by bit, not all at once. Here’s the rule: If a life insurance policy gets too much cash value too quickly, it becomes something called a “MEC policy” or modified endowment contract.

When it becomes a MEC, it’s more like a retirement account. You can’t take the money out until you’re older without facing penalties. When you do take it out, it’s taxable, similar to the rules for a Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA) in Canada.

It’s a straightforward rule, and it’s not something you can accidentally break. But it means it takes time to build up your cash value. That’s why we don’t recommend taking out all your cash value; instead, taking loans against your policy is better. If you empty out the cash value, you must start from scratch.

 

“Commissions are a lot, and they mostly benefit the agent.”

 

Infinite Banking is often seen as a way to sell life insurance, which comes with higher upfront commissions that mainly benefit the agent. And that’s partly true. Commissions for whole life insurance are generally higher than those for other investment products.

But there’s more to this story. A crucial thing to remember: When you’re considering starting an Infinite Banking policy, the agent might have some say. If you’re unsure if the agent is genuinely looking out for your best interests, they could set up a policy that gives them more commission but might not be the best for your long-term financial growth.

So, the genuine concern here is weighing the benefits against the fees.

 

 

Do the benefits outweigh the costs?

 

Is an Infinite Banking policy a good deal when you consider the fees? What about a mutual fund or real estate investing – are they worth the fees? The key is to focus on the benefits, not just the fees.

When thinking about investments, it’s essential to weigh the fees against the benefits they bring.

Some folks doubt Infinite Banking because it comes with fees. But here’s the deal: most investments involve fees.

The real question to ask is, “Do the fees make sense when compared to the benefits?”

With an Infinite Banking policy, it’s pretty straightforward. You’ll receive a policy illustration that lays out how much you put in, the death benefit, the guaranteed growth, and the growth potential – it’s all there for you to see.

Moreover, the fee you pay for the whole life insurance policy gets you a valuable benefit – a death benefit. The only investment provides you with a significant advantage: a tax-free lump sum of money for your beneficiary.

Is the fee worth it? Well, that’s a decision only you can make. But with a whole life policy, you can see the benefit you’re getting before you commit and then decide with all the facts in front of you.

 

 

Whole Life Insurance isn’t a Good Investment

 

Another argument against Infinite Banking, which some folks call a scam, is that whole life insurance isn’t a great investment.

Now, someone into Infinite Banking might agree with this because whole life isn’t an investment. It’s not trying to compete with investments; it’s more like a place to save your money.

Here’s the thing: Savings and investments are different. Saving is like putting your money in a safe place and letting it grow slowly. At the same time, you wait for a good investment opportunity. On the other hand, investing involves more risk for a chance at higher rewards.

A whole life policy is where you see some decent growth, enjoy certain benefits, and wait for those real investment chances.

In the Infinite Banking world, the magic happens with the higher baseline return you get on your money. With this extra advantage, you can look for better investment opportunities. Before, you might have been stuck with not-so-great choices.

That’s because you now earn more interest on your money compared to other savings options.

Here’s a quick comparison: Let’s say you’re making 4% on a bond. Then, you come across a medium-risk investment opportunity that can get you 8% returns. After taxes, your bond gives you 3.4%, while the investment would give you 6.8%. The difference is 3.4%, which could be worth the risk.

Now, suppose you’re making 5% in your life insurance policy. Since it’s not taxed, you still have 5%. But the difference between your life insurance and the investment is only 1.8%, which might not be worth the risk.

With a higher return on your money and tax benefits, you can afford to wait for better investment opportunities. It makes you a more patient and better investor. Plus, earning that higher interest rate can really add up over time.

So, remember, whole life insurance isn’t an investment and doesn’t directly compete with other investments. It’s a savings tool that helps you make wiser investment choices. The goal isn’t to replace investing but to empower you to make vital investment decisions.

 

“Infinite Banking seems really complex; it might be a scam.”

 

Is Infinite Banking too complicated to be legit? Let’s simplify it.

The complexity of Infinite Banking and whole life insurance isn’t because of the insurance companies. It’s more about the rules set by the government. They’ve created various regulations surrounding insurance like modified endowment contract rules and tax laws. All these rules can make whole life insurance seem intricate, but remember, it’s not the insurance companies making things complicated; it’s the government.

But here’s the good news: You can clear up a lot of confusion by getting a whole life insurance quote or a policy illustration. These documents can help answer many questions about whole life insurance and Infinite Banking.

The fact that something’s complicated doesn’t automatically make it a scam. In the world of finance, there are plenty of things that are way more complicated. Just think about how the government impacts the economy, interest rate spreads, laws and rules around RRSPs and TFSAs (Registered Retirement Savings Plans and Tax-Free Savings Accounts), foreign investment taxes, and reporting laws – they all get very complex very quickly.

And sometimes, this complexity might be intentional. It can make things seem confusing on purpose, so you stay away.

With Infinite Banking, like anything else, it’s best to find someone who can cut through the complexity and help you determine if it’s the right fit for your situation. It’s either a good match or it’s not. It’s as simple as that.

 

“Infinite Banking Doesn’t Seem Right”

 

Finally, many folks feel that Infinite Banking doesn’t sit quite right with them. Something about it makes them feel like they might be getting taken for a ride.

That feeling is completely understandable. Infinite Banking can seem a bit tricky, and it doesn’t follow the usual path of Wall Street. It’s like a sense of uncertainty or stepping into the unknown. Wall Street has a knack for making you feel this way about many things. They operate on “FOMO,” or the fear of missing out. They make you worry that if you don’t invest the way they say, you’ll miss out on a significant, magical gain – the one just around the corner. Meanwhile, they collect their fees.

If Infinite Banking seems puzzling initially, don’t worry; that’s completely okay. It doesn’t mean it’s right for you, and it doesn’t mean it’s wrong for you. It probably just means you haven’t understood it well enough to make an informed decision.

That’s a good thing. It’s a good feeling to pay attention to. It’s in your best interest to get the full picture before deciding. So, don’t let that feeling discourage you from learning. And don’t let it be the sole reason to make a decision. Logic can only follow after you’ve gained some knowledge. Enjoy the part where you get to explore and learn something new. Then, make your decision.

 

“Is Infinite Banking in Canada a Scam?”

 

Now that you’ve learned more about Infinite Banking in Canada, it’s like a puzzle with its pros and cons. It’s not a one-size-fits-all solution, and it’s often misunderstood when discussed in the media.

The best advice for anyone exploring a financial product or idea is to educate themselves. Take the time to figure out what you’re dealing with, how it can impact your life, and whether it aligns with your financial goals.

If you’re actively taking control of your financial future and your financial knowledge, you’re on the right track.