Infinite Banking for Canadians: What is it? How does it work?
What is the Infinite Banking Concept? How does it work for Canadians?
Let’s get into it.
Infinite banking for Canadians.
When we set up the infinite banking concept.
What we're doing is we're buying a maximum funded participating whole life policy.
When we have the policy set up, what you're going to do is you're going to put the maximum amount of cash in there that the CRA allows you to.
You want the maximum cash surrender value and the minimum amount of permanent life insurance and then when you need to use the money what you're going to do is you're going to borrow against it instead of withdrawing it.
This is because the cash values are so secure and guaranteed once they hit the account, you can use the cash as collateral to get 90% loan to value from the insurance company, with some banks you can get 90% or 100% loan to value.
This allows you to have compound growth forever inside your policy versus withdrawing money like you would in a bank account that stops your compounding.
How does it work?
When you buy one of these participating policies it comes with two parts to the account one part is the regular life insurance that everybody understands if you pass away money pays to a beneficiary.
The second part is the cash part of the account, and this is what we want to make as big as possible and there's huge advantages to this cash account that are not available in any other type of financial instrument.
First, it's a very safe and secure place to store your money, it's insured more than any money that's in your bank account.
Second, you're invested in the insurance company's participating account only people who own these types of policies can access that account, the growth in these policies comes from a dividend that's paid by the insurance company.
So today in 2023 the dividend on average is around five or six percent depending on the company you work with. These dividends are safe and secure, the companies we work with have paid these dividends every single year for more than a hundred years, that includes world wars, great depressions, the 2008 crash and they still paid a dividend every single year.
We’re not allowed to promise you what they're going to do in the future but if they ever didn't pay a dividend, they would have some serious problems because the cash in these policies is so safe and secure you can leverage against it.
There are two ways to do this depending on your needs, the first way is the simplest you can borrow it directly from the insurance company this is what's called a policy loan there's no simpler way to get a loan than to get a policy loan from a whole life policy.
Look at it this way, the insurance company’s holding your cash plus they have life insurance on you so if you ask for the money, they're going to give it to you . They also control the investments in the participating account that pays your dividend. They are covered.
Borrowing from a bank?
The other way to do it is you can take your policy to a bank or other third-party lender and leverage against it. Usually what they will do is they will set up some sort of line of credit or a demand loan. The average teller is not going to have any idea what you're talking about, you need to talk to very specific people inside the bank who specialize in lending against insurance policies.
Leveraging from a bank is a little different. First, the minimums are much higher they don't want to talk to you unless you're putting at least a hundred thousand dollars a year into one of these policies.
In fact, when we set up the lending with a bank what they do is they underwrite you for a loan at a million dollars first and then they'll release it a hundred-thousand dollars a year for ten years as you make your premium deposits or whatever numbers you're working with.
When you get the loan from the bank you're going to have to go through their full financial underwriting, you have to qualify for the loan. So, it's a little tougher to borrow from the bank but the big benefit is that usually the loan interest rate is lower and right now we're dealing with prime plus.
To recap you open a participating whole life insurance policy with the right insurance company and then you put the maximum amount of cash in that you're allowed and when you need to use the funds, you leverage against the cash value so that you can invest or buy or spend.
We have clients that are using this concept to renovate their house, so that they can invest in the market or to even start a whole brand-new business, some even funded their business by doing this so what you're going to do with yours is totally up to you and we're here to guide and coach you through that process.
We do this all day every day and have hundreds of clients doing this all across the country. So, if the infinite banking concept is right for you then get in touch by email phone dm we're happy to talk to you see you next one
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.
Related Insights
If Something Happened to You Tomorrow… Would Your Plan Actually Work?
Executive Summary: Probably not the way you think, because most business owners have the components of a plan rather than a plan designed to function...
You’re Not Paying Too Much Tax — You Just Don’t Have a Strategy
Executive Summary The tax bill that frustrates incorporated Canadians usually isn't caused by the rates, it's caused by the absence of a coordinated strategy across...
The Silent Risk in Your Portfolio
Executive Summary The silent risk is real estate concentration, where 60% to 80% of a successful Canadian's net worth sits in property that can't be...
Why High Income Isn't the Same as Financial Security
Executive Summary A high income is a resource, not a financial plan, and on its own it can hide real structural fragility behind lifestyle creep,...
Your Corporation Has Accounts You've Probably Never Seen
Executive Summary Your corporation tracks three notional accounts, the Capital Dividend Account, RDTOH, and GRIP, that never appear on a statement but directly determine how...
What Happens After You Reach Out to Safe Pacific?
Executive Summary When you reach out to Safe Pacific, a real person from our team emails you within 24 hours with a link to book...
The Protection Playbook for High-Income Employees
Here's something that surprises a lot of people. Some of the most financially fragile households we see are actually very high-income families. Not because they're...
Whole Life Insurance: The Strategy Most People Miss
Most investment portfolios are built around three pillars. You have equities, you have fixed income, and here in Canada, a lot of people have real...
Why High Earners Are More Vulnerable Than They Think
Most people assume that earning more money makes life simpler. More income, more security, more options. But the uncomfortable truth we see every day is...
How to Protect Your Income in Canada with Disability & Critical Illness Insurance
What would happen to your savings, your retirement plan, and your finances in general if you were sick or injured tomorrow and couldn't work? How...
The Decisions Your Future Self Will Thank You For
Most financial plans assume that life stays ordinary and orderly. Your income continues, the markets recover on schedule, your health holds up. But future you...
Liquidity: The Missing Piece that breaks most Financial Plans
Most financial plans look great on paper. Strong net worth, solid investments, a growing business. But here's an uncomfortable truth: a lot of plans don't...
