What kind of growth can I expect from an Infinite Banking type policy?
The Infinite Banking Concept offers some of the most attractive growth potentials when compared to other safe money investment products.
By properly utilizing and structuring high cash value life insurance, we can maximize this growth inside of our whole life insurance policy.
But how much growth can we expect? Let’s break down the growth inside of a cash value life insurance policy, take a look at the past, and compare it to other safe investment options.
Historical Cash Value Life Insurance Growth
Infinite Banking is a relatively new concept. In order to understand the growth potential of a policy, let’s look at some historical data from one of the most trusted companies for cash value whole life insurance, Mass Mutual.
This historical performance study is not an Infinite Banking policy. However, it is safe to assume that an Infinite Banking type policy would do the same, if not better, than this historical policy, which is utilizing a 10-pay whole life policy.
The most important numbers here are at the bottom, in the section on right called “Total Cash Value.” Let’s analyze what the two columns here, labelled Illustrated and Actual, are telling us.
How Illustrations Work
When looking to buy a whole life insurance policy for cash value growth, it’s important to understand how a life insurance company makes their illustrations.
Many of us have become so accustomed to Wall-Street’s illustrations that we forget there are people in the world not out there to try and make everything look better than it really is.
That’s where whole life insurance policies come into play.
A whole life insurance company doesn’t operate inside the market. They utilizes their own investment strategies that rely on real estate, bonds, and other safe, predictable investments.
When the life insurance company earns money on these investments, they give it back to policy holders in the form of dividends.
This is where we get our growth inside the life insurance policy.
However, a life insurance company doesn’t try to predict their dividends for the next 30 years. If they did, the illustrations on these policies would look much better.
No. What the life insurance company does is just take the projected dividend for the current year, and then illustrate that dividend out until the end of the policy.
What this means is, whole life insurance companies are often underplaying the potential growth inside of the life insurance policy.
In our current example, the Illustrated growth, meaning the potential growth the agent would have shown his client when he was looking to buy the policy, was 4.23%.
Compare that with the actual growth that came from the policy – 6.52%.
This is a significant difference, and one reason why it’s important to understand that, when you are looking to start an Infinite Banking policy, the illustration will often show very conservative growth rates.
Growth and Taxation
One of the most overlooked features inside of whole life insurance are the tax advantages and growth–and how they support each other.
Many people often get excited about 9% growth inside of their 401k’s or IRA’s.
And, while this growth number is not bad, it doesn’t reflect the actual money that we can use because it doesn’t account for taxation.
If we end up paying 1/3, or 3%, on the growth inside of our 401k or IRA, and we earn 9%, then we are really only earning 6% on our money.
But that’s not the real problem. The real problem is this.
Money inside of our 401k and IRA is taxed
Money inside of our 401k and IRA is at risk
Earning 9% average is very difficult
We can lose money in a 401k and IRA and thus go backwards
Understanding the risks gives us more to consider with the growth inside of a whole life insurance policy. Would you choose 6% growth from a safe investment over 6% growth from a risky investment? Probably not.
When we compare apples to apples–meaning after-tax dollars–the benefits of Infinite Banking and cash value whole life insurance become much more apparent.
Ok, so what about municipal bonds or other safe investment options like a high interest bank savings account.
These investment are much safer than the mutual funds and stocks that often accompany a 401k or IRA.
But do they have the interest potential that an Infinite Banking policy has?
The answer is clearly, No.
Currently, municipal bonds pay about 2.5% to 3.5%.
This is even less than the illustrated whole life insurance growth projections.
The reality is, if you are willing to take heavy risk, then you can certainly do better than whole life insurance. But most money managers will tell you, it is very, very hard.
If you don’t want the risk then no safe investment product will likely compare to whole life insurance growth rates.
This is why we use high cash value whole life insurance. It has substantial growth potential when compared to the market, but it does not come with the risks associated with being on the Wall-Street rollercoaster.