Understanding the Different Types of
Life Insurance
Choosing the right type of life insurance is an important decision. Below, we explain the three
most common types of life insurance: Term, Universal, and Whole Life Insurance.
Term Life Insurance
Term life insurance provides coverage for a specific period, typically 10, 20, or 30 years. If the policyholder passes away during the term, the beneficiaries receive the death benefit. It’s generally the most affordable type of life insurance because it offers coverage for a limited time and does not accumulate cash value.
Universal Life Insurance
Universal life insurance is a type of permanent life insurance that offers flexibility in premium payments and death benefits. It also includes a savings component that accumulates cash value over time, which can be adjusted based on the policyholder's needs. Universal life insurance is more expensive than term life but provides lifelong coverage.
Whole Life Insurance
Whole life insurance is another type of permanent life insurance that provides coverage for the policyholder's entire life, as long as premiums are paid. It has a fixed premium and death benefit, along with a cash value component that grows over time. Whole life insurance is generally more expensive than term life, but it offers stability and a guaranteed death benefit.
Infinite Banking: Using Life Insurance to Take
Control of Your Finances
What is Infinite Banking?
Infinite banking is a financial strategy that lets you "become your own bank" by leveraging the cash value in whole life insurance or indexed universal life (IUL) insurance policies. Through this approach, you can access funds for various needs without relying on traditional bank loans, creating financial flexibility and independence.
How Does Infinite Banking Work?
The core of infinite banking is using permanent life insurance policies, particularly those that build cash value over time. This cash value grows, tax-deferred, and can be borrowed against, typically at favorable interest rates.
Build Cash Value: Whole life insurance policies accumulate a cash value over time, guaranteed
by the insurance company. Some policies, like IULs, have the potential to grow even more if
tied to a market index.
Access Tax-Free Loans: You can borrow against your cash value, accessing funds tax-free for
any purpose. From personal expenses to business ventures or other investments, infinite
banking provides a flexible source of funding.
Pay Yourself Back: Loan repayments go back into the policy, which means the money you pay
in interest essentially benefits you, enhancing the policy's overall value.
Why Choose Infinite Banking?
Infinite banking offers unique advantages over traditional borrowing methods. Here are some benefits:
Financial Control: Borrowing from your policy reduces dependency on traditional lenders and
fluctuating interest rates.
Tax Advantages: Loans from your policy are tax-free, and the cash value grows on a tax-deferred basis.
Guaranteed Growth: Whole life policies offer guaranteed growth on your cash value, which
helps your “bank” grow steadily.
Dividend Earnings: If your whole life policy is with a participating insurance company, you
may receive dividends, which can boost your cash value growth.
Considerations for Infinite Banking
While infinite banking offers substantial benefits, it may not suit everyone. Here are some factors to consider:
Commitment to Premiums: Whole life policies often require a higher premium than term
insurance. It's essential to consider if you can commit to these payments long-term.
Patience Required: Building substantial cash value takes time, so this strategy may be best for
those with a long-term financial plan.
Policy Type Matters: Whole life policies are most commonly used in infinite banking, as they
offer more predictable growth. IULs can work, too, but with more market-related risks.
Here is an example of using the infinite banking concept for a tax free retirement
A 25 year old puts $300 per pay check into the IUL. At 67 years they can retire with about $1.4 million
and start living off of about $115,000 per year all tax free.
This is subject to market conditions, the individuals health at 25 and other parameters.
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