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Jorge Herrera
Cash Value Banking Consultant

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Video explaining the power of the Infinite Banking Concept, in which Cash Value Banking is based.

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What Is Cash Value Banking?

Cash Value Banking, also known as “Infinite banking,” refers to a process by which an individual becomes his or her own banker.

The infinite banking concept was created by Nelson Nash. In his book, “Becoming Your Own Banker,” Nash talks about the use of whole life insurance policies that earn dividends, and how owning such policies allows individuals to control the cash flow in their lives by borrowing from the insurance company with their cash value(savings) as collateral. This creates a profitable alternative to having to go to third-party financiers who then are the ones in control.

Digging Deeper into the Infinite Banking Concept

In Nash’s Infinite Banking Concept (IBC), the cash surrender value of whole life insurance policies acts as collateral for a loan, and the individual simply calls the insurance company and asks for a policy loan.

A whole life insurance policy is meant to cover the entirety of an individual’s life, not simply assist family/friends in the event of the individual’s death with the death benefit, but allows the owner to grow savings(cash value).  To do that, insurance companies pay out guaranteed interest and dividends. These payments generate income, that if elected to reinvest in the policy, increases the cash value and the death benefit of the policy over time.

What is different with the agents that follow Nelson Nash’s teachings is that we use mutual life insurance companies, and in those, the policy owners become shareholders of the company. The dividends received are classified as a return on premium by the IRS, and for that reason, are tax exempt. Better yet, Nelson Nash’s students teach their clients how practicing IBC can become a lifestyle.

As soon as the policy becomes active, it has value and can be borrowed against, so that the individual can take money out of the policy, with the cash value as collateral, to use for unexpected or significant expenses that occur during the individual’s life.

Advantages of Infinite Banking

The most outstanding positive of the Infinite Banking Concept is the sheer improvement in liquidity or cash flow.

The value of a whole life insurance policy acting as collateral is far more liquid than, for example, equity in real estate, because the loan can be quicker and the individual can secure cash in hand faster and usually at lower interest rates than those available from traditional lenders.

The improvement to an individual’s cash flow can be significant, especially in times of financial hardship or unforeseen expenses, such as medical bills or the need to buy a new car. An insurance policy loan can also come in handy if an individual happens to be without work for a time, whether due to health issues, a death in the family, or simply the loss of a job.

Because whole life insurance policies are non-correlated assets – meaning they’re not tied to the whims of the stock market – they are set to retain their worth.

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Disadvantages of Infinite Banking

Infinite banking is not without its drawbacks, however.

An individual must qualify for a whole life insurance policy. And even if the individual qualifies, it takes time for a policy to mature, so it requires the understanding that these policies behave like a business: They must be capitalized on and then allowed to solidify as they absorb the initial costs of creation.

In the end, the Infinite Banking Concept and its practice are not for individuals without financial conviction and the ability to think clearly and long term.

It’s important to consider all of the aforementioned factors before “Becoming your own banker”