The Benefits of Infinite Banking in Canada
In this blog we are going to talk about one of our favourite topics, the Infinite Banking Concept.
This is a strategy we’ve been doing since the company started and it’s something we all do personally.
Specifically, we’re going to talk about the benefits of this concept and especially how it benefits Canadians.
Depending on your situation there are many of reasons why this strategy can work for you.
What is Infinite Banking?
So lets begin with the simplest question - what is Infinite Banking?
If your familiar with our content, you might already have an idea, but if your new here's a very quick run down:
It’s a really old strategy that used to only be available to rich people who could pay the for the right advisors to set it up for them.
Infinite Banking uses an over-funded, participating whole life insurance policy so that you can invest or finance the major purchases in your life or both.
We use specially designed participating whole life insurance policies to provides very high CSV or Cash Surrender Value.
The CSV is what is used as collateral to take out loans against your policy.
We also use this type of policy because it grows with a dividend from the Life Insurance Company’s participating account.
This allows the money you put into the account to compound and grow for the rest of your life like nothing else.
1 - Loan to Value Ratio
One big benefit is this strategy has a high Loan to Value Ratio or LTV.
Since the insurance policy we set up for you is so secure, it works great as collateral.
You can use other forms of collateral like real estate or stock portfolios to get loans, but they don’t offer as high loan to value rates. These can get you 50% or 60% or 70% or 80% loan to value.
With your participating whole life policy as collateral we can often get you 80% or 90% or 100% loan to value at really competitive rates. You can borrow from the insurance company or you can borrow from a bank so you’ve got options.
Usually when we set up the lending at a bank we can get you prime or prime plus point 5 or plus 1.
2 - Wealth Growth
The next benefit is the ability to grow wealth with what we call “stacking investments”. You can essentially earn twice on the same dollar if you do it the right way.
Your Participating Whole Life Policy earns a Dividend every year from the Insurance Company, so the collateral you have for loans grows.
Today in 2022 this dividend is between 5.5% – 6.5% depending on the insurance company you work with.
These dividends are consistent, all of the companies we work with in Canada have been paying dividends to policy holders for more than 100 years.
Since you can use your Participating Whole Life Policy for a loan without withdrawing any funds from your policy, that growth can compound forever.
Now, when you take that loan against your policy and invest it, hopefully you make good investments and those grow too.
So you are effectively earning twice on every dollar you put in your policy and leverage out. First with the Dividend in your policy. And Second with any investments you make with your loan money.
3 - Business Owners and Liquidity
Our third benefit is for the business owners out there, the liquidity of Infinite Banking
Many of our clients need insurance in the first place and have money sitting in retained earnings in their company. Often that money is not invested - and business owners generally want to grow their money.
We can set up infinite banking with your corporate earnings in your Holding company.
When we set this up for business owners one of the most common questions we get asked is how easy is it to access cash from your earnings.
As a business owner you often need to tap into your earnings for all sorts of things like growth, salaries, inventory, buying a new machine or trucks or whatever you want.
A benefit of Infinite Banking is you can easily and quickly access the funds in your policy, without losing the compounding effect of the dividend.
One of the quickest ways to access cash is through the Insurance Company by a policy loan.
In fact, the insurance company is contractually obligated to give you the loan if you ask for it.
Plus it's relatively simple to do, you fill out a 1-page-form and send it to the insurance company, once they review it they send you the money.
This usually takes 2 to 3 days for direct deposit, and 7 to 10 days if you ask for a cheque.
There are of course other ways to take a loan against your policy and if you would like to learn more about the details check out our blog "Leveraging Whole Life Insurance for a Loan".
4 - Tax Deferral on Growth Inside the Policy
Another benefit of Infinite Banking is the dividend growth inside your policy is tax deferred.
Not paying taxes on the growth inside the policy accelerates your compounding over time.
Since you’re leaving your money in the policy, and taking loans out to access the value, you never lose that compounding effect.
Depending on how you take loans against your policy, most of the money you take out against your policy can be tax free.
5 - Your need of Life Insurance
The last benefit of Infinite Banking is the most obvious, your need for Life Insurance.
If you have a family, are purchasing a new home, or have a business, chances are you have a need for Life Insurance anyway.
This is a great way to get the insurance coverage you need, while putting your money to work and keeping liquidity so you’re money is not tied up paying large insurance premiums.
At the end of it all, Life Insurance in Canada pays out tax-free. Depending on how you set it up it can pay to your company or to a trust or to your family.
When we work with you, we set it up right up front, and there’s tons of flexibility to make changes to this as time goes on and your situation changes.
This added benefit of infinite banking ensures you, your family, and your business are properly covered should anything happen to you.
Contact Us
At Safe Pacific Financial, we specialize in helping Canadian business owners, incorporated professionals, and investors structure life insurance for maximum wealth protection, tax savings, and business growth.
If you would like to discuss whole life insurance or investments, we’re happy to chat and see if we can be a good fit to work with you. Fill out our contact form and we will get back to you within 24 hours on business days.
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