Don’t Make This Life Insurance Mistake!

You’ve probably heard this term “Infinite Banking” all over the place. It is also known as the ‘Bank On Yourself” concept.

In theory it’s very appealing. Pay yourself interest instead of the bank The problem is that it takes CASH in order to loan yourself…CASH.

And here’s my issue with the Infinite Banking concept. A Universal or Whole Life Insurance policy is the basis for the operation to succeed. This means you need a significant amount of cash value in these policies for your to “bank on yourself.”

So, the next obvious question should be is how long does it take to get a significant amount of cash value in your life insurance policies?

Well, if you buy a policy through an insurance salesmen, it’s going to take some time. You probably won’t have much cash in the policy, if any, in the first 8 years or so.

However, even a firm like USAA or TIAA-CREF that sell their policies direct to the consumer they also have loads too, which reduce your cash value. Loads are synonymous with commissions. In fact, at USAA you pay a 5% load with each premium payment you make.

Now because there is no salesman commission you will see more cash value available to you in a shorter amount of time, but you probably won’t see much growth on that cash value for a few years until after the policy has been inforce.

Also, you need to know the difference between whole life and universal life insurance. Whole Life is literally there for your “whole life.” You just make the premium payments and when you die the policy pays out. Thus, the risk is on the insurance company.

Universal life (UL) means the risk is on you. There are a myriad different ways you can fund a UL policy. For cash strapped people mostly this means they’ll “under-fund” the policy with the idea of contributing heavily when they can more afford it. (For the record, I haven’t seen this happen).

On rare occasions you can overfund a UL policy too. This means you’re putting more in on the front end than the target premium allows. You can do that but there are restrictions on your ability then to “bank on yourself” because you have MEC’d the contract. MEC means Modified Endowment Contract and this will put limits on your ability to borrow against the policy and also poses a 10% withdrawal penalty if you take money out before you’re 59.5, like an IRA.

Lastly, with a UL policy, if there is not enough cash in the policy to keep it afloat it will lapse before you do and could potentially cause a significant tax hit, never mind the fact your insurance is gone too.

At the end of the day, I’ve RARELY seen ULs work as advertised. Doesn’t mean it can’t. It’s just a rare occurrence in my experience. If you are healthy, in your 40s or so, with excess cash flow, a UL may be a great option.
For everyone else, not so much.

Whole life isn’t a bad option because you know exactly what you’re getting for what price. The problem is though because the risk is on the insurance company and now you, you’ll get less life insurance coverage for each dollar of premium. This will make whole life a lot harder to work successfully in the infinite banking arena.

Life Insurance is a big deal. It’s an even bigger deal if you thought you had a life-long policy but suddenly find out that your policy has lapsed. Now what do you do???

Make Sure Your Life Insurance Doesn’t Expire Before You Do

In the video below, I’m going to show you exactly what you need to do make sure your life insurance policy doesn’t expire before you do.

Huge Difference Between Whole Life and Universal Life Insurance

I can not tell you how many clients I’ve had in my 20+ years who thought they had Whole Life Insurance. But in actuality they have Universal Life.

The difference between these two life insurance types are significant.

With Whole Life Insurance, you pay the agreed upon premium, on time, and the policy will literally be there for your “Whole Life”. There is no risk to you. Other than your ability to pay the premiums.

Whole Life Insurance Risk Is On The Insurance Company

Now, because there is no risk to you, the amount of whole life insurance protection will generally be much less than a similarly priced Universal Life Insurance policy.

The reason for this difference is that the risk with Universal Life Insurance is on you, not the insurance company.

Less risk to the insurance company, the more they can offer. More risk to the insurance company, the less they can offer. It’s really that simple.

Universal Life Insurance Risk Is On You

With Universal Life Insurance the policy interest rates can, and do, change regularly. Let’s say you bought a Universal Life Insurance policy in the late 80s or early 90s, you were shown a crediting interest rate of 6% or 7% or something along those lines.

Fast forward 20 years and what are interest rates today? Half.

Interest Rates Today Vs. 1980s and 1990s

When you bought that policy the illustration shown to you presumed the interest rates your policy received would stay at 6% or 7% throughout the policy.

That hasn’t happened.

In fact over the last 15 years or so, your policy has had SIGNIFICANTLY less interest credited to it, all the while the COST to insure you has grown each year.

Older You Get More Expensive Life Insurance Is

As you get older, you’re more likely to die, thus life insurance becomes more expensive. Yet, while the costs have gone up, the interest you’ve been making has gone down.

A life insurance policy with increasing costs and decreasing interest can not last! It will lapse.

Given the risk of lapsing policies to unsuspecting customers, one would think the insurance companies would go out of their way to help those owners understand that risk, right?

You’d be wrong.

Your Annual Statement Is Not Enough!

What the insurance companies do is they send an annual statement. Unfortunately the annual statement just represents how your policy is doing TODAY. It says nothing about the future strength of the policy.

I had a 68-year-old doctor client. He had a $1 million dollar Universal Life policy that had $88,000 cash value.

Just looking at his statement, he thought this policy was good to go and he stopped making ANY premiums.


I ran an INFORCE ILLUSTRATION though. The INFORCE ILLUSTRATION shows the FUTURE performance of the policy based on current interest rates and costs.

For my client, it was a rude-awakening. His policy was on track to lapse in 8 yrs, when he turned 77!

To say the least, he was not happy.

After the expletives cleared, I told him the options.

How To Keep A Underperforming Policy From Lapsing

Reduce the death benefit. Add cash to the policy. Cancel the whole thing and pocket his $88,000 cash value.

He wanted the policy. So canceling was not an option.

But he also didn’t want to reduce the death benefit of that $1¬†million either.

His only option was to add cash to the policy. Thankfully, he had a couple of CDs maturing he could add to the policy.

But what if he didn’t have that cash?

The moral of the story: Keep up to date on your life insurance policies.

Request an INFORCE ILLUSTRATION every 3 years.

If you don’t know how to read that illustration get the insurance company to walk you through it.

Your policy is too important to simply trust the insurance company. You need to do your due diligence.


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