The Carr Report: If you’re a proponent of ‘Infinite Banking,’ you’re Infinitely Gullible! – Pittsburgh, Pennsylvania

Pittsburgh, Pennsylvania 2022-05-18 08:00:51 –

Damon Carr, for New Pittsburgh Courier

About a year ago, on social media, a friend of mine mentioned something about Infinite Banking on my Facebook page. At that time, I had never heard of the term infinite banking. But since I worked in banking and personal finance, I knew that the words Infinite and Banking were mentioned together would sound like a hoax. When it comes to banking, it’s not endless. All the products they offer have a maturity date and a cap. I did some research, confirmed the suspicion, and forgot it. No one inquired about Infinite Banking. As a result, until recently I didn’t feel the need to work on Infinite Banking.

Infinite Banking recently appeared on my Facebook page for the second time. In particular, there was one person who swore in Infinite Banking. As he described Infinite Banking, people began to investigate and endorse this product. Then I decided to chime. Then I decided, I will write about Infinite Banking. Spoiler warning! I think this product is TRASH!

What is Infinite Banking? In short, it’s a marketing strategy for the cash value type borrowing component of life insurance policies. An important point to note: Borrowing from a cash-valued life insurance policy is nothing new. It has always been an option. Names such as Infinite Banking, Bank on Yourself, and Lifetime Economic Acceleration Process will make you look sexier, more sophisticated, and more marketable. guess what? People are drinking Cool Aid! Keep drinking this cool aid, I promise you this — it will eventually leave a sour taste in your mouth!

The pitch is as follows: Take out whole life insurance instead of term life insurance. The period is finite. There is an expiration date, but WheelLife is permanent. In addition, you can use the Whole Life policy to increase your cash value. Here is a sophisticated loophole that enables so-called benefits, infinite banking. Instead of borrowing money from a bank for emergencies, large purchases, vacations, cars, colleges, or homes, you can use the value of cash as collateral for your loan and borrow from yourself. There is no credit check! Low interest rates! If you don’t want to repay, you don’t have to repay the loan. No tax!

Let me explain these benefits.

Term life vs. whole life. I wrote an article a while back titled Dropping Life Insurance DIMEs. Search Google for more information on these two types of insurance. It’s enough to say. The period is much cheaper than Whole Life. Therefore, it can get enough life insurance coverage for people. Most people who have life insurance have insurance. Those who have whole life insurance have a significant shortage of insurance because the premiums are too high. Since insurance agents and insurance companies make more money than term life insurance, 80% of all life insurance policies sold are full life insurance. You will find that the biggest interests of consumers are not the most money-making things for the company, but the main driving force. Finally, 80% of the whole life insurance sold will be canceled before death. why? They couldn’t afford to pay a large premium (expiration) or finally saw the light. Needless to say, Whole Life isn’t as permanent as they think, and banking is certainly not endless.

Low interest rates and no taxes: I think it’s a relative statement. What do you think is low? When comparing student loans, car loans, mortgages, personal loans, loans to insurance policies (infinite banking), and credit card interest rates. Loans for insurance policies are the penultimate. Interest rates on these loans average 8-11 percent. The only higher interest rate is the credit card. Interest paid on cash value loans is paid to the insurance company. Did you think the concept relies on yourself? So why don’t you pay yourself interest? I know what you are thinking, you receive a dividend or a percentage of the company’s profits each year. I will bet that the payout is not 8-11%. It will make it a wash or an interest-free loan. Therefore, if the dividend is 5%, you are paying 3-6% interest, even after considering the dividend paid. Insurance companies make money from the margin between dividends and interest rates, not policyholders.

It makes the insurance company a banker. This makes the policyholder an infinite borrower, not an infinite banker. That’s not the worst part either. The insurance companies that mainly provide this product are mutual insurance companies. That is, the policyholder owns the company. Dividends are the profits paid to shareholders. In order for a company to make a profit, it must overcharge you, the policyholder (owner), in order to pay dividends to you, the policyholder (client). Dividends are essentially overpayments of insurance premiums. That’s one of the reasons why there are no taxes. Another reason there is no tax is that the value of cash rarely exceeds the premium paid for the premium. Let’s sink it! If the cash value does not exceed the premium paid in the policy, it means that you got a zero return on your money.

You don’t have to repay the loan. It’s not a true statement. You pay off the loan while you are alive or when you die. No monthly payments are required, but interest will continue to accrue. If the loan dies before it is repaid in interest, it will be deducted from the insurance amount specified to be given to your beneficiaries. The real reason for life insurance is for your beneficiaries, not you. It will only be paid for your death. By leaving the insurance policy with an unpaid loan, you effectively left less money for your beneficiaries.

How much can I borrow from life insurance? It varies from company to company, and the maximum amount that any company can borrow is 90 percent of the cash value. So if your cash is worth $ 10,000, you can borrow up to $ 9,000. Please note that all loans borrowed for cash value are limited to 90%. To borrow more money after reaching the 90% threshold, you need to repay or expect the value of your account to increase. It doesn’t sound so infinite, right?

Space cannot compare how bad the return on investment within the cash value policy is when compared to the return on investment in the open market, but I think I argued.

(Damon Carr, Money Coach, please contact @ 412-216-1013 or visit his website at @ www.damonmoneycoach.com)

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