The essence of The “Infinite Banking Concept” is to recover the interest that one normally pays to a banking institution through the use of dividend paying whole life insurance, and then lending those funds to others so that the policy owner makes what a banking institution does. Funds may be lent to any party, including yourself, and the earnings grow within the policy tax deferred. Thus, you are both reducing your tax burden and capturing monies for yourself that a banking institution normally would receive.
A foundational principle of the concept is that anytime you can cut the payment of interest to others and direct that same market rate of interest to an entity you own and control, which is subject to minimal taxation, then you will have improved your wealth generating potential significantly. (Insurance companies do pay taxes – it is just that dividends in an insurance policy are not taxed – we will talk about this later.)
A concept or principle that must be understood before we begin is that we are not talking about investing here; rather we are talking about financing. Financing is a process , not a product. Financing involves both the creation of and maintenance of a pool of money and its use. However, we will see that when a financing system is combined with an investment system, the combination of the two will always out perform an investment system. When the system combines reduced tax liability with a financing engine and allows complete control over your investments, there appears to be no system capable of generating wealth with as much consistency or speed. (Please see page 70 – Becoming Your Own Banker, New Third Edition)
A second concept or principle we must all agree on is that you finance everything. You either finance by:
Paying interest to someone else – a bank, lender, etc.
Or giving up interest you could have earned otherwise. (When you pay cash, the interest that the money could have earned is forfeited.)
For these reasons, when we are discussing investment alternatives, we must not only weigh the return that we will receive, but we must also evaluate what we are forfeiting or giving up. This mind set will become more important as we evaluate “The Infinite Banking Concept”.
For all of the reasons mentioned above, every person should be fully engaged in two businesses:
Of the two businesses mentioned above, banking appears to be the one that has the greatest potential for helping a person generate long term wealth.
If we look at the average American, we will find that most Americans spend about $0.24 - $0.34 of every dollar on interest expense (home, car, boat, credit card, etc.). For example, if you look at the purchase of a home, approximately 85% of the monies paid during the first five years of your mortgage are interest payments.
Also looking at the average American, we find that about $ 0.30 of every dollar is paid in taxes .
Summing these quantities we see that the Average American is paying from $0.54 to $0.64 of every dollar they earn on interest expense and taxes. If a legal, legitimate method could be developed to simply capture half of this loss, the wealth creating ability of the average man would be significantly improved.
In short, if these two sources of revenue could be captured, then you would be further along in generating wealth for yourself than if you made good investments in the market that were achieving high rates of return.
As a note, the methods we are about to discuss are used by Wells Fargo, Bank of America, major banks and Fortune 500 Companies to capitalize a portion of their banking system. These companies have purchased billion of dollars in dividend paying life insurance on their top executives. This pool of capital is one of the sources of working capital these companies draw on to fuel their banking system.