While you may think of life insurance as money that is there for your family when you die, the product can actually be far more versatile. Your life insurance policy can enable you to become your own banker, so money is there when you need it. The infinite banking concept has transformed life insurance as we know it and has people thinking about this crucial product in an entirely different way. Here are the infinite banking concept basics that you need to know.
How Loans Against a Life Insurance Policy Work
Infinite banking is when you take a loan using the cash value of your life insurance policy as collateral. Technically, you are borrowing from the insurance company, but the cash value of your policy allows you to act as your own banker. You would pay the loan back overtime according to the repayment terms. If you failed to repay the loan, the money would come out of the death benefit that your family would receive under the policy.
You Can Take Loans Against a Whole Life Insurance Policy
Infinite banking is a possibility when you have a whole life insurance policy. In a whole life insurance policy, you have a permanent plan that pays death benefits so long as your premiums are current.
The infinite banking concept arises from the fact that you actually have a cash value to your policy that increases as you pay more premiums. This cash value is yours no matter what happens with your policy. Theoretically, if you were to cancel your policy and stop paying premiums, you would receive the cash value as a payout.
Your Life Insurance Policy Cash Value Is There for You
It follows that the equity/cash value of your policy can be used for your benefit while the policy is still in place. At various points in your life, you may face your own liquidity issues where you need access to money quickly. Without any other sources of money, you may need to seek a personal loan that could come at a very high interest rate. When you have a whole life insurance policy, you have a ready source of funds available to you when you need it. When you take out a loan against your life insurance policy under the infinite banking concept, you do not need to pay any taxes on the growth in your investment. Here, taking a loan is far more advantageous than withdrawing money. If you withdrew money, while you would not owe any taxes on the premiums that you paid, you would need to pay taxes on the increase in value of
your capital. Taking loans when you need it is one way to take advantage of the increase in your investment portfolio.
Think of a loan under the infinite banking concept as similar to taking out a home equity loan when your home has increased in value. You are using your own assets as a personal bank, and a whole life insurance policy is the same as any other asset you own. However, unlike a home equity loan, your right to borrow against your life insurance policy cannot be revoked, regardless of market conditions.
Infinite Banking Give You Power Over Your Financial Future
The infinite banking concept puts power in your hands. You do not need to rely on anyone else when you need money. You will have a source of money available to you whenever life throws you curves or when you have a planned need. For example, if you start to build equity in a whole life insurance policy when your children are young, you can borrow money to pay for their higher education without having to pay interest on student loans. Major infinite banking benefits include the fact that the purpose of your loan is unrestricted. The life insurance provider will not ask why you need the money, so long as you are requesting a loan, the life insurance company must advance the money with no questions asked.
Contact a Maryland Insurance Agent Today
At TRI Financial Services, we have been providing insurance solutions for families throughout Maryland, the District of Columbia and Virginia for nearly three decades. We are a woman-owned and African-American owned insurance agency in Maryland. To learn more about how we can help you, call us today at (410)880-4680. Our Anne Arundel County insurance agents have helped clients throughout the DMV, and we pride ourselves in our customer service.