When is the cash value available inside a policy when designed for infinite banking? With infinite banking, we utilize whole life insurance policies. Let’s compare a traditional whole life insurance policy to one designed with infinite banking in mind. That will help us see how long it takes to build cash value.
How to Build Cash Value
When we talk about whole life insurance, traditionally there is very little cash value in the first few years. All we do is take a whole life insurance policy and add something called a paid-up additions rider onto the policy that will allow you to have cash value immediately in year one. When we talk about the differences, there really aren’t any severe differences between a traditional whole life policy and a policy designed for infinite banking. The policy that’s designed for infinite banking includes the paid-up additions rider that allows you to have more cash value availability sooner.
An Example of How Cash Value Builds
When it comes to cash value in the very first year, let’s use our policy as an example. We have a $10,000 policy. What was available in the very first year was $6,000. Traditionally, when it comes to whole life insurance policies designed for infinite banking, you have 60–70% available in the very first year.
In the second year, we paid $10,000 and had $7,000 available. In year three, it started to get interesting because from year one to two, there was an increase in cash value. There was a similar increase in year three, which was about 90%. In year three, we had $9,000 available in cash value just for that one year. Years four and five are when you have more than the premium available in cash value. In year four, we had about $12,000 available in cash value.
It’s huge to note that every year after that, your cash value is going to be higher than your premium. When we talk about a policy designed for infinite banking, in the first two to three years, you may be behind. But all it takes is three years for that policy to pick up and generate cash value that is greater than your premium.
The Distinction of Infinite Banking
The other thing to note is that infinite banking is not investing. We’re not talking about taking your premium and using it as an investing vehicle. We’re simply saying replacing the banking functions in your life, so if you currently go to the bank and deposit money, go to a life insurance policy and deposit money because they are going to pay you the guaranteed 4% compounded interest rate.
Infinite banking is a tool you use to invest. You can use your policies to recapture debt as a banking function to redirect interest that would be leaving back to yourself. Or you can use it to invest in real estate. You can use it to finance your vehicles. You may want to create mortgages. There are a variety of different things that you can use infinite banking for because it is a tool to utilize to do other things.
Build Cash Value with Infinite Banking
The main thing we want to make sure you understand is that you use infinite banking to deposit funds into your policy so that you can then use that for any investing vehicle you choose. Not only will you be gaining the 4% compounded interest rate from the policy but whatever those double-digit returns are from your investment. We want to be sure you understand the differences between a traditional whole life insurance policy versus a policy designed for infinite banking.
The Extra Benefit of Whole Life Insurance
Let’s say you have a $10,000 policy and only $6,000 is available in the very first year. You may say, “Oh man, that’s not really good if I put in $10,000 and only have $6,000 available.” Remember, though, that $4,000 bought $500,000 in death benefit. Now every single year, that death benefit increases as you build cash value. In every single year that the premium is due, there’s more cash value than the premium.
While you may be behind in the first few years, after year four, you’re going to be using that money to invest. You have more money available every single year to do the things that you want to do. All we’re doing is building a basis of a banking function for you to be able to maximize your financial goals.