Term Rider and Infinite Banking [2019 Guide]

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How the infinite banking concept works

If you were like me, the concept of infinite banking seems very intriguing. The concept allows businesses and households to become their own bank or bankers. Imagine that! A man by the name of Nelson Nash learned the mechanics of whole life insurance which is the foundation or platform that IBC is practiced or implemented. This is really the best way to use life insurance as an investment

Furthermore, the basic idea behind infinite banking is to be your own banker or having a bank of yourself plan. This system is dividend paying, permanent life insurance. In fact, most whole life polices provide dividends which is a fraction of the insurance company profits. These are paid to policy holders or members if it is a mutual insurance company. Dividend rates is often determined on the money paid into the policy. 

So, what is infinite banking life insurance?

Having a cash value paying whole life insurance policy that is paying dividends would be liable for taxes far and above the premium payment that are paid. However, policy dividend payments are generally 100 tax free. This is a big concept on wall street with affluent business owners. We will go over finding the best whole life policy for infinite banking in this article. 

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Understanding the concept of whole life insurance infinite banking is really not too complex. Although these policies have many moving parts and can be customized in many ways, understanding infinite banking can be simple. 

The main goal is to be your own bank! To generate cash flow for the long term earning a interest rate and dividend with a guaranteed death benefit. However, if you are looking at this strategy as a death benefit first and foremost, then you are in the wrong product and maybe a term life insurance policy will better suit you. 

But if you main goal is to have cash flow, deferred paying taxes (Ot Tax Free Income), compounding interest then the infinite banking concept will work for you. Being your own bank can provide you the necessary financing for a real estate investment, or starting a business. Above all, knowing that you don't have to deal with the traditional banks for financing tends to give the consumer peace of mind. 


term rider and infinite banking

Above all, finding the best whole life policy for infinite banking is very important. Also, in some cases, adding a term rider can assist maximizing cash accumulation. This combination, when done right will utilize high cash value whole life insurance to accomplish safety, liquidity and growth. The flip side is the cash value is limited by the Modified Endowment Contract (MEC). The importance in understanding specially designed life insurance is key because of the tax complications that could arise. 

Keep in mind, withdrawals or loans from the MEC can result in being taxed on a last in, last out (LILO) basis instead of a first in, first out (FIFO). Any taxable gain coming out is reported as the nontaxable return of principal. For instance, being under the age of 59.5 may have to pay a 10% penalty tax for withdraws that are too early. 

As I stated above, this is where the term rider comes into play. It is an add on product that gives us term insurance added on top of the permanent or whole life policy. In this case, the rider provides more insurance (in some cases up to one million dollars), which raises the ceiling on the MEC line giving us more room. This results in more cash value immediately and buy less whole life insurance. Again, the result is more cash value by the end of year one and is also money that can be borrowed and utilized right away. This is what the benefit of the infinite banking concept is. It buys more cash value and keeping tax advantages. 


infinite banking retirement plan

Do you have a retirement plan? Are you concerned about your financial future? Infinite banking resembles a high growth savings account. Because term insurance is so much cheaper than permanent life insurance, we only purchase it for a few years. This is when it is great for being used for retirement accounts. In fact, that is when the whole life gets to the point it is not needed anymore. Remember the game plan is to the growth of the cash value, not the insurance!

What will my loan rate be? Will this be tax free? There are two alternatives in obtaining tax free retirement income from your IBC. The first, to take loans against the cash value, and by doing that they are not taxable! Second, income can come from policy withdrawals that equal the premium payments that are made to the policy. Moving forward you would take policy loans against the CV. This results in your income not being taxable! 

The great advantages of an infinite banking concept is you will receive a tax free retirement income. 

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770 account infinite banking

When using these specially designed life insurance contracts the term 770 account comes to mind. This refers to IRS code 7702. This IRS code surrounds cash value life insurance and cash value whole life polices. This is the code that makes Infinite banking possible. This code makes life insurance tax deferred as long as the life insurance meets the criteria. As long as it does so the policy can remain tax free. 

Section 7702 refers to life insurance contracts issued after 1985. Section 7702 will also determine how life insurance contracts should be taxed. 

These 770 accounts or investment strategy offers competitive, steady returns with limited to no risk! It shouldn't be a shock that agents will try to sell this offering much higher returns to make the sale. Again, the infinite banking concept utilizes a participating whole life policy from a mutual company with the goals of self-financing. It has nothing to do with mutual funds. 


10 best life insurance companies for infinite banking

Its important to understand which life insurance companies are best for infinite banking. But first, its important to understand the difference between direct vs non direct recognition companies. 

It is understandable that policy loans will wreak havoc on the dividend rate paid on the policy cash value. But taking loans are a major aspect of the growth of the policy. 

Even though non-direct recognition life insurance companies are held high in the infinite banking world versus direct recognition companies, DRC have solid performance even when infinite banking strategies are utilized!

Here are my Top 10 Life Insurance Companies For Infinite Banking:

  1. Foresters
  2. Penn Mutual
  3. Ohio National
  4. MassMutual
  5. Trust Mutual
  6. Minnesota Life
  7. Guardian
  8. Ameritas
  9. New York Life
  10. American United Life )AUL)

These are some of the best infinite banking insurance companies.


infinite banking concept reviews ~ Infinite banking scam?

Becoming your own banker seems like it is to good to be true. Is infinite banking a scam? Most CPA's that are approached with this strategy are intrigued. This is a wealth building strategy. Obviously this is a uncommon way to look at retirement. 

But to keep it simple, funding a whole life with paid up additions where you can borrow against the cash value of the policy to finance your purchases like real estate investments or supplemented income is a concept best explained by R. Nelson Nash. Check out the Nelson Nash Institute. Their is a wealth of information, resources and training. 

Here are some of the things you may have heard from financial planners that are uneducated about the IBC:

  • High Commissions for the agent (Only reason why it would be offered) NOT TRUE!!
  • Cash Value does not accumulate until 7-8 years later. NOT TRUE!!
  • Rate Of Return Is Dismal. NOT TRUE!!!

The IBC allows you to draw down cash value and use it as a tax free income. This concept is a way to leverage your life insurance policy to invest in everything else. Here are some examples of how the people that you would least expect got a start in their business:

  1. Walt Disney could not get a loan to finance his vision, instead he used the cash value in his life insurance policy to start Disneyland,
  2. The owner of the Pampered Chef borrowed $3000 from her cash value policy and started the company!

SO IBC is not a scam. It is a way to finance your purchases and paying yourself back. It is a fantastic vehicle to use to purchase for your kids as well. If you are able to invest 10k a year over 7 years into a IBC strategy, your kids could have 7 figures in that policy by the time they hit their 40's. 

How about that for a legacy gift!!!


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What about Infinite Banking New York?  Are you in a specific state and have questions? PinnacleQuote can help you. We are independent national life insurance agents. Licensed in 49 states.  We can guide you with the above companies that offer infinite banking.  We will help you secure your financial future today!

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