Infinite Banking Concept FAQs: Volume 1

1. What is the Infinite Banking Concept (IBC) and what is the main goal?

The Infinite Banking Concept (IBC) is a financial strategy focused on recapturing the banking function in your life. The goal is to finance your major purchases (cars, education, homes, etc.) by becoming your own banker, controlling the flow of money and recouping the interest you would normally pay to outside financial institutions. IBC isn't about quick wealth; it's a long-term strategy to control your financial environment.

2. How does dividend-paying whole life insurance play a role in the Infinite Banking Concept?

Dividend-paying whole life insurance is the primary tool used to implement IBC. The policy's cash value grows over time, and the policy owner can borrow against it to finance purchases. By repaying the loans with interest, the policy owner effectively “becomes their own bank”, with the interest flowing back into the mutual insurance company and to the policy owner’s cash values, leading to further growth. Dividends are viewed as a return of premium and are generally not taxable.

3. What are the key advantages of using dividend-paying whole life insurance for IBC compared to traditional banking?

Several advantages exist. First, the policy owner has control over their capital. Second, the money grows tax-deferred. Third, the policy provides a death benefit. Unlike traditional banking, where profits go to shareholders, with IBC, profits stay within the mutual insurance company and it’s policies, thus benefiting the policy owners. Also, IBC allows you to recapture the interest you pay on financed purchases, building wealth over time.

4. Is the Infinite Banking Concept a get-rich-quick scheme, or does it require long-term planning?

IBC requires long-term planning and discipline. It takes time to capitalize a life insurance policy to the point where it can effectively function as a personal bank. The author, R. Nelson Nash, suggests thinking seventy years into the future and planning intergenerationally. It's a long-term strategy focused on building wealth and financial control over time.

5. How does the concept of "Economic Value Added" (EVA) relate to the Infinite Banking Concept?

Economic Value Added (EVA) is the principle of realizing that you finance everything you buy. You either pay interest to someone else or you give up interest you could have earned otherwise. By understanding and implementing EVA, you actively choose to pay interest to yourself (through the life insurance policy loan repayment) rather than to external financial institutions.

6. What are some common human behavior pitfalls that can hinder the successful implementation of the Infinite Banking Concept?

Several human tendencies can sabotage IBC. Parkinson's Law (work expands to fill the time available) can lead to inefficient use of funds. Willie Sutton's Law (where wealth is accumulated, someone will try to steal it) highlights the threat of taxation. Succumbing to "The Arrival Syndrome" (thinking you know everything and ceasing to learn) and failing to "Use It Or Lose It" (not consistently applying the concept) can also derail your progress.

7. How important is it to repay policy loans within the Infinite Banking Concept, and why?

Repaying policy loans is crucial. It is described as essential to the success of the system, in the same way that loans must be repaid to a traditional bank or groceries must be paid for in a grocery store. Failing to repay loans undermines the banking system you are creating and prevents the continued flow of money and growth of cash value within the policy. Treat your policy like a real bank and pay back the loans so your bank can continue to make money off your loans.

8. R. Nelson Nash mentions the "grocery store" example - what is the key takeaway from this?

The grocery store analogy emphasizes the importance of understanding the banking business and not taking advantage of your own system. Just as a grocery store owner cannot afford to let family members steal from the store, a practitioner of IBC must repay policy loans diligently. In addition, if you charge captive customers (yourself) wholesale prices, you have defeated the purpose of the business – to provide income for you. Charge yourself retail and ensure the money finds its way back into the business.