Having spent a good deal of my career steering folks away from whole life insurance I found it fascinating to be talking to a customer that came to me and told me exactly what she wanted to buy. She wanted to do the business through me and it was whole life insurance and she simply didn’t care about my feelings.
Why me? Because she is a foreign national she doesn’t have access to the products in her own country of Bermuda that it takes to fund the infinite banking concept. She needed a good participating whole life policy in order to have the guarantees she needed. She had read that I was able to get life insurance through several major US carriers for foreign nationals that met certain criteria and who were willing to go the extra mile and come to the US for the application, exam, and the delivery of policy. This is a customer willing to go the extra mile to meet the US life insurance requirements.
I’m going to make a confession here. In the past I have bludgeoned the infinite banking premise as nothing more than a scam for agents to get more money out of client’s pockets. And I have been brutally commented on, and called something akin to an idiot for saying what I said. I now believe I was wrong. I don’t accept the idiot remarks but I now believe there is a group of people for whom this can actually work.
My premise had always been that since you have to over fund the participating life insurance policy you were, quite simply, paying too much for a product that, if your need was life insurance, was overpriced to start with. Now understand that most of my clients have either figured out their financial future, or like most of the world they are kind of scraping by. Infinite banking candidates kind of fall in between those two in that they make good money, so they aren’t scraping by and have excess cash. But they also haven’t reached an independently wealthy status either.
As I reviewed illustration after illustration it became clear that, as most infinite banking aficionados will tell you, it’s not a way to make money or fund a retirement. Its’ real strength is in the amount of money it can save you when you are able to borrow from your own source at rates near a net 1%. The other strength is that with participating whole life, with dividends going to paid up additions, your life insurance is growing constantly. I have often asserted that one glaring problem with whole life is that the cost often prohibits the purchase of adequate family coverage. In the early years of a participating whole policy that would be true, but if over funded as in infinite banking, it rapidly makes up the under insured problem.
Lastly one of the issues I had with over funding whole life insurance was the amount of money the agent was making. I was wrong about that also. In the scenario that started this post the base policy has a $3700 a year premium and a $4700 excess funding component. The agent only gets paid a 50% to 60% first year commission on the base. If the agent makes anything on the excess it is only 2-3%. So, my apology to all of those whole life agents who I have accused of pillaging. I still stand by my disdain for agents that sell whole life for term insurance needs.
Bottom line. I have claimed for years and still claim that most people’s life insurance needs, probably 95% of them, are term insurance needs. But infinite banking, whether you agree with it or not, is not an insurance need being addressed. The fact that the right product can now be offered to some foreign nationals that otherwise wouldn’t have access is a home run.
One last thought on infinite banking. I truly believe that it is something that should be carefully considered and that if you decide to do it, commit to it. If you aren’t sure you can stay committed, leave it alone.