Infinite Banking Concept

Demystifying the Infinite Banking Concept

Here’s something you probably did not know in 2013; an average person spends about 60 % of his/her lifetime earnings on tax and interest payments. This means that for every $1000 you make, $600 of it is never really yours. You spend it paying the government or settling money you borrowed from banks or any other financial institutions.

You might dismiss this thinking as that’s the way things are.’ But it does not have to be! According to the infinite banking concept, you can be your own banker; break the cycle of paying out money to someone else and instead pay it to yourself. How’s that for a secure financial future?

Understanding the Infinite Banking Concept

In a bid to become your own banker, it is important that you first buy a whole life insurance policy. The two work hand in hand. The working principle behind the infinite banking concept is relatively simple; you use the whole life insurance policy to finance your major investments (mortgage, buying a car etc.) rather than the traditional method in which you borrow money from a bank or any other financial institution which you then have to pay back with some interest.

Whole-life insurance policies are basically a combination of life insurance and forced savings’ policies. ┬áThe forced savings’ part indicate that part of your premiums are invested implying you are entitled to some returns. The specific feature of whole-life insurance policies which the infinite banking concept focuses on is the fact that the policy holder can borrow money from the policy.

The infinite banking system is a financial philosophy of you being your own bank! This places you in a better position to manage/control your financial dealings instead of having some financial institution or advisor handling them for you.

In the traditional banking system, there are 3 key players; the saver, borrower and bank. The saver deposits money with the bank so that he/she earns interest; the borrower is lent money by the bank from which they have to pay interest. On its part, the bank charges high interest rates on the borrower that it pays the saver. In the infinite banking concept, the middleman (bank) is eliminated. You borrow from yourself and when it’s time to pay back, you will be paying yourself. Sounds complicated? Well it is not!

To be clear, the infinite banking concept will not make you money but would rather help you save! There is some confusion that the concept advocates superiority of whole life insurance over term-life insurance with regard to payments made after you pass. On the contrary, the theory emphasizes on the importance of the policy holder having access to the money they have paid into the policy while they are alive rather than having a lump-sum paid to their dependents when they die.

Getting started with infinite banking

Most financial experts advocate this system for people who have a good credit record and those who have 5 to 7 years to invest in their policy. They stand a good chance of benefiting the most out of this concept. With a lot of discipline and planning, you can enjoy your money now and still leave a financial legacy for your heirs/ heiresses.

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