The concept of infinite banking is a hot topic that you may or may not have heard about yet.
During tonight’s session of Women & Money Montreal we went over the history of the infinite banking concept, a breakdown of how it works, and if you should consider it for yourself.
At the base of it all, remember it is a type of life insurance policy. If you missed tonight’s session you can catch the video recap here. Remember to come back here for the Q&A period post-presentation.
1. “If I wanted to get life insurance for my child, what would it matter if I have life insurance or not?” The purpose of life insurance at its core is to provide an income that’s no longer there if someone were to pass away. If I have a family in front of me and they’re interested in getting life insurance for their child, for sure I’ll ask about their own coverage. Why is that? Because they are the providers – what if one of them were to pass away? Can the surviving spouse pay for these premiums? Can the surviving spouse pay for other expenses? If I haven’t asked these questions I’m not fulfilling my fiduciary duty as an advisor. Are there advisors who will move forward with it, no questions asked? Of course – it’s commission – but they are not acting in the best interest of the family.
2. “Aren’t premiums for a young child a lot less expensive than for an adult?” Generally speaking yes because of age, but it also depends how much coverage you’re looking for.
3. “I’m interested in this concept but I’m paycheck to paycheck. I thought I could use it to pay off my debt. Would you suggest I use this is a kind of savings mechanism and then later on use the cash value to pay off my debt?” The infinite banking concept promotes itself as becoming your own banker and using the cash value of a life insurance policy to pay off your debt. As illustrated in the tables during the presentation, it takes a while for cash value to accumulate. This can work for those with a long term strategy and personal cash flow or retained earnings in their business. For the average person my question is always, Why don’t you just work on paying off your debt?
4. “The illustrations you showed have very high premiums. Are there permanent life insurance policies with lower premiums?” Of course! The death benefit is lower and therefore, the cash value will be less.
5. “I have a term life insurance policy that expires soon. What are my options?” First thing is to check if your existing policy has a renewable option at maturity. Next, if you’re in good health you’d probably be better off checking what’s available in the current market – premiums will most likely be lower than what your current policy offers. The advantage of going with your current carrier is if you have medical issues. You don’t need to pass another medical if you decide to renew.
6. “I’ve heard online about ‘stacking policies’. Can you explain this?” It’s basically the idea of either multiple policies or grouping multiple types of coverage. Take me as an example – I have multiple life insurance policies. Why? As a young mom, I went with what I could afford and added along the way as my needs changed and my income increased. For other couples with some financial stability, they may be able to address their life insurance needs under one policy by “stacking” different types of coverage. Let’s say you have a couple with young children, and they want to make sure there is coverage until their children become independent and they also want to leave some money for them no matter what, we may propose a policy that includes Term 20 or Term 25 coverage plus small permanent life insurance, depending on their budget. The term coverage will end when their children reach their late 20’s, when they “should” be independent.
Lin Sok is a Quebec-licensed Independent Financial Security Advisor and Mortgage Broker. You can reach out to her regarding your insurance, investment or mortgage needs here.