Business owners can utilize Infinite Banking to harness the power of their own money for purchases like equipment, without relying on traditional lending avenues.
Let’s explore this in more detail and provide a case study for clarity.
Using Infinite Banking for Business Equipment Purchases:
Establishing the Policy: Firstly, a business owner sets up a dividend-paying whole life insurance policy. Over time, as they pay premiums, a cash value builds up, much like equity in a home.
Borrowing from the Policy: When the business needs equipment, rather than seeking a traditional loan or using company profits, the owner can borrow against the cash value of the life insurance policy. This loan comes with a favorable interest rate and flexible repayment terms.
Repaying the Loan: The business owner then repays the loan to the policy. In essence, they are paying themselves back, not a bank or creditor.
Growth Continuation: Even while the loan is outstanding, the entire cash value of the policy (not reduced by the loan) continues to earn interest and dividends, as if the money was never borrowed.
Tax Advantages: The growth within the life insurance policy is tax-deferred, and loans taken out against the policy are typically tax-free.
End Benefits: Beyond the immediate benefits of leveraging one’s own money for business purposes, the life insurance policy still serves its primary purpose: providing a death benefit to beneficiaries.
John’s Manufacturing Business:
John owns a manufacturing business. He’s learned about the infinite banking concept and decides to integrate it into his financial strategy. He sets up a dividend-paying whole life insurance policy and contributes to it for several years, building a significant cash value.
A few years later, John’s business needs a new manufacturing machine costing $50,000. Instead of going to a bank or using his business’s working capital, John borrows the $50,000 from his life insurance policy’s cash value.
John’s business repays the policy loan with interest over a 4-year term. Even though John has borrowed against his policy, it still grows as if he hasn’t touched the cash value, due to the dividends and interest earned. By the time the machine’s loan is repaid, John’s policy has grown more than if he’d left the money untouched and used business funds for the machine. Plus, the machine has increased productivity, adding more profits to John’s bottom line.
Additionally, since the interest John pays on his loan goes back into his policy, he’s essentially paying himself back – not a bank. Over time, as John continues to use his policy for business equipment purchases, he creates a cycle of growth both in his business and within his policy.
The infinite banking concept allows business owners like John to tap into their assets, maintain the growth of their assets, and simultaneously reinvest in their business without involving traditional financial institutions.