Today, allow us to shine a light on the infinite banking concept through the lens of a case study —showcases how an entrepreneur, used this strategy to fund three distinct projects in life.
We'll go over how he strategically employed his Whole Life Insurance Policy to finance upgrades to his business, pay for renovations to his new home, and lay the groundwork for a great retirement.
As we get into the workings of this strategy, it's essential to understand the fundamental premise:
Business owners who incorporate permanent insurance into their company are not merely safeguarding their financial future; they're cultivating a fertile ground for wealth accumulation.
By nurturing the growth of their assets within the policy's cash value, they're strategically positioning themselves to leverage this accrued value from the bank or insurance company—its a powerful tool that evolves with their evolving needs.
Let's delve into each facet of our entrepreneur’s infinite banking journey, beginning with the pivotal role his insurance policy played in upgrading his business operations.
Upgrading the Business
This entrepreneur, a client with multiple policies, owns a thriving machine shop. He allocates approximately $100,000 annually across his array of policies, he has been doing this for many years at this point, showcasing his dedication and this strategy’s use for long-term financial security.
He has a manufacturing facility where they build specialized things out of metal, and he was able to use his policy to take out a loan to completely rebuild his shop.
So, what he was able to do was finance the whole thing himself without really asking anybody for permission, without getting a credit check, and without having to prove anything.
Because with these policies we do all the work upfront, it’s simple and easy when it comes time to access that money.
If you ask for a loan of your own money, you should get it quickly, and with these policies you really do.
Renovations to a New Home
Just as easily as he could lend out for his business, he could lend out for his own personal use.
As this business owner also moved a handful of years ago, and he moved into an older home with a lot of character, and it needed a couple hundred grand to complete the renovations.
At the time the Vancouver Real estate market had huge highs, so he had already leveraged himself about as much as any mortgage would give him to purchase the home.
So, there wasn’t any extra money for the renovations that he wanted so he said, “That’s fine, I have this insurance policy and I have a line-of-credit already set up” and he funded a couple hundred thousand dollars of renovations on the house.
Also, when you're lending against your insurance policy, you’re usually doing it through private or commercial banking, you’re not doing it at a teller level, you're doing it at a higher level.
When you’re dealing with a different level of the bank, they have way more flexibility on how they give you the loans, how they structure them, and the amount you’re able to get.
Usually this means bigger numbers and that’s because with private or commercial banking they’re able to consider your entire picture.
They can see well these are your assets, you have this money in savings, you have this life insurance policy, but maybe you’re a business owner so you don’t have a huge income.
You could if you wanted to, but most business owners don’t have a giant T4 or T1, so traditional mortgage brokers or bankers won’t be able to get you a loan because you don’t claim enough.
Whereas if you're working with private or commercial bankers, they look at your whole picture and they see, obviously you could carry the debt.
Funding Retirement
The last thing our client was able to do is fund his retirement.
He was an older guy, not very old, but when you get to a certain age it feels like retirement is on the horizon and when it comes around, he will have probably paid off all the loans he’s taken out against his policies.
He has a portfolio that’s going to generate his standard retirement savings and then he’s going to supplement his retirement by taking loans against his life insurance policy.
What’s even more beneficial is if these loans are done correctly, they should be mostly tax free.
Next Steps
Are you a Canadian business owner looking to fund major purchases like Expanding the Business, Home Renovations or Retirement?
Schedule a no-pressure consultation with one of our advisors to see if this strategy could be right for you.
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