Infinite banking is like having a supercharged tax-free savings account that allows you to earn money in two places at the same time. We know using whole life insurance (infinite banking) works with real estate investing. But how would that apply to your business? Is it even possible? How can you get your money to pay you while you’re also earning money in your business? Can you get a tax write-off as well? Chris Miles shares various ways that you can successfully use your infinite banking policy for your business expenses or projects.
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How Can You Use Infinite Banking In Your Business?
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I want to talk about a concept. We’re going to come back to infinite banking because I’ve had a lot of people ask me. They’re saying, “Infinite banking works with real estate investing. It’s a no-brainer. It’s awesome but does this work with business too?” The answer is it works with business. That’s what I used to teach people mostly how to do it with. I want to illustrate how that works within your business. This business could be a business of investing.
There are a lot of different ways to use it but there are some additional benefits you get in using this for your business that you would never get with certain types of investments. I want to talk about this concept in general. For those that are not sure what infinite banking is, you can become financially free without infinite banking. You don’t need it to invest or anything else but it’s a great way to build up and store your cash savings. It’s a supercharged tax-free savings account that allows you to earn money in two places at the same time. That means you get to double dip on your investment returns.
The great thing is you can do that in your business as well where your business can not only just pay you for the money you make in the business but with the cash you’ve been using to pay for other types of expenses within that business, especially regular expenses or occasional expenses, you can use your policy to pay for those things that allow you to make money in two places at the same time, earning interest on the money that you’ve been using in your business anyways.
That’s the key thing. How does that work? When we use whole life insurance, that’s the type of vehicle that we use for infinite banking to work the best. When you use that money, what you’re doing is you’re building up cash. It’s not a death benefit. You’re building up cash inside of this policy. This cash that’s in here is a tax-free savings account. It’s not an investment. It is a savings account that’s inside of here. That cash value as they call it can build and grow tax-free.
It’s much like a Roth IRA but you don’t have the whole 59 1/2 rule or dumb rules to deal with that way. As it builds and grows, you have the ability to take out a line of credit using that cash as collateral. This is no different than if you went to your bank where you have a savings account and said, “Can I get a line of credit against that savings account?” They would say, “Yeah.”
What they would do is they would lock up that savings account so you can’t touch it but they would allow you to get money out in a line of credit. You do not pay interest to yourself. You pay interest to that bank while your money is still in that savings account, growing and compounding interest. The same thing happens here with life insurance but instead of earning point-nothing percent as you would earn at the bank, you’re earning in many cases at least 5% or 6% tax-free dividend rate.
It’s much higher and better than point-nothing percent. You earn a much better return while at the same time in many cases, you get a lower interest rate on your loan. What it means is you’re getting charged less interest on the loan than what you’re earning inside the policy, allowing you to make extra money there. You can still use that money elsewhere.
The big thing that everybody talks about with infinite banking and even with using a business is they will say, “It’s not that big of a benefit because you have to borrow your money.” First off, you don’t. You can withdraw the money. You can do that but the reason we say to borrow it is that if you’re earning more interest inside that life insurance cash value than what you’re paying in interest to a bank or a life insurance company, that spread is that extra return you can add on top of whatever you’re doing with that money.
When we talk about you doing it with real estate investing, you could say that the down payment for the real estate property is $50,000. You borrow $50,000 from that line of credit, your bank, or that insurance company. That money then gets used to invest. You’re earning the cashflow from that $50,000 investment. The cool thing is the $50,000 is still inside your life insurance policy because that line of credit you’ve got is separate from the cash.
You’re not pulling the cash out of your policy and losing the ability to earn interest. You’re getting a line of credit, borrowing it, and paying them interest but all of your money is still in there. If you had $100,000 in there, you’re still earning $100,000 compound interest tax-free. That$ 50,000 did not come out like it would if you pulled out of a savings account and lost the ability to earn interest.
With infinite banking, you're just getting a line of credit, borrowing it, and paying the bank interest but all your money's still in there. Click To TweetThat is key to understanding when you’re dealing with business. An example I’ve used with many people is this. Let’s say you want to put $25,000 into a marketing strategy for your business. As a business owner, I get this. You want that marketing strategy to work. You have a marketing strategy. Maybe you’ve already proven it and it already worked before. You’re using that money again. It’s $25,000 to do that marketing strategy but it’s going to generate about $5,000 a month.
Most people pull it out of their checking account from their business. They use that $5,000 month to come back in. You didn’t earn anything off that other than the $5,000 a month, which is great. However, what if you could earn extra interest on top of that $5,000 a month? If you use your life insurance policy, instead use that money. You borrowed the $25,000 from the policy, the insurance company, or the bank that gives you a line of credit against that policy. It’s collateral.
You borrow that %25,000 and invest it but then you take $5,000 of that return you’re getting from the marketing strategy and pay it back to pay down that line of credit. What happens? You pay almost zero interest on that loan because it hardly had time to charge you anything but if you only made a net 4% tax-free on that money over six months, you made $500 in six months over a year. That would be $1,000 over six months more than what you would have earned had you put that in your checking account within your business.
It allows you to get these little extra bonuses inside your company. Think about it. Even if you said, “I’m going to use that extra money I’m making for my life insurance to pay myself an extra dividend or bonus in my company,” how cool would that be to be able to come home every so often with $500,000-plus, not a month but even a year or whatever it might be because you leveraged it right?
The best type of expense you could use this for would be taxes. It’s a great one, especially if you pay taxes, whether it’s quarterly or annually. If it’s more regular, that’s great. You pay for insurance costs. Maybe you save money by only paying your insurance premiums. It could be your property insurance, liability insurance for your business, or whatever applies. If you pay that once per year, you save money because you only pay once per year but then that money can be used to make more in the meantime. You can make money off that.
Let’s say those insurance premiums are $10,000 a year. That $10,000 can now at least earn 4%. You earn another $400 on that money. It’s the same thing if you’re using this for buying a property. Here’s something you can do with this. You can borrow it for a down payment. I had one client in particular. He said, “I’m looking at canceling this policy. I’m going to cash it all out.” He had over $300,000 sitting in cash. He didn’t understand the value of the policy. He didn’t care about the death benefit.
Even when we do this, the death benefit ends up becoming icing on the cake. It’s a perk. He said, “I’ve got $300,000 here. What if I use this to pay for my building so I don’t have a mortgage payment?” He still needs a little bit more money to do the build-out and everything. The office building he was trying to buy for his business, and then rent out some of the units, was going to cost him about $375,000.
Here’s what’s cool. I said, “Slow down, Sparky. Hold on. Do not cancel this policy and cash it out.” Plus, he would have some taxes if he did that. You’ve lost the tax-free umbrella that you get. I said, “Don’t do that but instead use this policy as collateral with your local banker credit union.” He was looking at getting that with his local credit union. He had a great relationship with them.
Do not cancel your insurance policy just to cash it out. Click To TweetThey were willing to offer him 5.25% at that time. This was when interest rates were a little bit higher, similar to what they are now. They’re offering right around 5.25%. They were going to give him a great deal because he was going to use this insurance policy as collateral. If banks understand this, they know that the cash value is guaranteed to grow every single year. They’re always guaranteed to earn interest.
As a result of that, they said, “We will give you a loan. Even though you only have about $310,000 to use, we will give you the full loan at $375,000 and give you a 3.25% interest rate on this money.” What did that do? That saved him $400 a month on his payment. Over the course of that loan, it saves him about $125,000 in interest. He’s leveraging it. It locks up the money. He can’t use the money in the policy anymore because it’s locked up. Until he pays down the loan, they start unlocking the money slowly but after a year and a half, he built out the building.
He started to get some renters in it. He went back to the credit union. He said, “I’ve done it. The value of the property is more than enough to justify to able to secure the loan now.” Instead of having the insurance policy be the collateral for the loan, he wanted to switch it back to the office building. He went back to the bank and said, “Can I do that?” They said, “Yes. We will keep your terms. The interest rate is the same.”
What it did is unlock all that $300,000-plus in cash they had in his policy that now he can use for whatever he wants to invest but he still got the low payment that he would never have gotten had he used the building in the first place. He was able to manipulate the system, saving himself $400 a month, which equated to $125,000 in interest over the 25 years of that business loan that he got.
That was big for them. The rent he was receiving from those tenants more than paid for his mortgage payment, allowing him to be completely profitable and live rent-free inside his building. It’s like the BRRRR strategy on steroids. If you don’t know what the BRRRR strategy is, that’s Buy, Rehab, Rent, Refinance, and Repeat. It’s what people do when they buy their property, live in it, rehab it, and then rent it out. This is the same thing but he did it with an office building.
Here are other ways that people have used it in business. General Electric or GE used to pay the pensions for their employees. How did they do it? They bought insurance policies for their employees. You can buy policies for employees. They bought a policy on their employees and built the cash value. They controlled it and owned it. The employees didn’t get any access to it but then when the employees said, “It’s time for me to get my pension. I’ve been here for 30 or 40 years,” they said, “We will do that. Here’s your pension.” They paid out of the cash value.
When they passed away, that death benefit is then paid back into the pension fund within that company, boosting it back up and allowing them to have more money in that pension fund. They paid out some cash value but the death benefit was way more than what they pulled out. They replenished. It allowed them to do it again. Walmart used to do this too until the employees and their families created an uproar because in many cases, the employees didn’t have insurance of their own but Walmart profited off of those people when they passed away. Walmart stopped doing that thing.
It’s not as politically or socially acceptable for people now but it’s something that people and certain companies still do, especially small businesses. You could also do what Walt Disney did. If you ever heard of a guy named Walt Disney, he could not get financing for Disney World. Even though Disneyland was proven to be a success, banks said, “We’re okay with California but you want to buy the swamp marshy land in a place called Orlando. Why would you do that?”
He said, “This is going to be big. You’re going to love it. It’s big because the acreage is huge. It’s going to work.” They said, “We’re not comfortable with it.” Roy is the CFO. They’re having to deal with him. What did he do? He said, “I’ve got cash inside my life insurance policy.” Back in those days, whole life was the only option. There wasn’t even term insurance back then. Term insurance didn’t come on the scene until the 1970s. Universal life and IULs didn’t even exist until later.
It was in the 1980s when universal life came out. Whole life was the thing to use where people saved money. They didn’t even trust the stock market in many cases because the stock market was unpredictable, especially after the last Great Depression. People used whole life policy to build up cash and store it. He said, “I’ve got money inside this whole life policy. Will you use that as collateral?” The bank said yes and approved it. He got the loan. The rest is history.
You now go to the happiest place on Earth, EPCOT Center, and everything else. You run your little marathons, runs, and all that stuff. All that happens because Walt Disney had his whole life insurance policy to use as collateral for his business. JCPenney paid their payroll during the Great Depression to keep things going. If you ever heard of Pampered Chef, Pampered Chef started their business, borrowing money from their policy to get that seed money going.
There are so many ways to use it. I didn’t even say the best thing. Whatever interest you do pay on those loans is a business expense. What does that mean? Interest is tax-deductible to be able to be used. It doesn’t matter if the policy is in your company’s name or your personal name. Still, you can use that to get that tax deduction. That’s one of the coolest benefits there.
Even when you do pay interest, you’re riding off on your taxes as you would paying interest on a credit card. That’s the beauty. You will pay a lot less than a credit card too. Those are a few of the ways you can use it for your business but the key thing is this. Even if you’re using it for short-term investing, it can still generate interest for you while you’re using it for some of these things that you might be storing money for. It could be eventually storing cash to then use later on for a big purchase in your business. It could be buying out a partner.
There are a lot of different reasons why you want to store money and have it available. You never want to be caught in a place as a business owner trying to hustle to get money to scrounge for doing that. Even when we released our 21-minute movie for those of you that might have watched it, in that 21-minute movie, we used a good chunk of money from our company.
Imagine the amount of interest that we could be earning from that, not to mention that we’re earning from the company because of that movie and because we used the policy. It allows that money to keep growing to compound interest tax-free inside there while still getting the leverage for it. There are so many ways to use it. I even use it for safety purposes, having liquid cash available in case the worst were to happen.
The great thing is insurance companies are more protected than banks. Banks have been known to fail, whether it’s the Great Depression or the last Great Recession. We saw a lot of banks fail. Insurance companies don’t fail because they can’t do what banks do. They can’t go and over-leverage themselves where banks loan out more money than they have. They can’t pay for it. They go bankrupt.
Insurance companies are not allowed to do that. They’re also backed up by what’s called reinsurance companies. They have to buy a policy that allows another insurance company to protect them in case they go out of business. It allows your policies to be safe. Everything is protected regardless of what goes on with that insurance company. There are lots of great ways to use it. I don’t want to go into too many details because the truth is it’s up to your imagination. That’s the beautiful thing about it.
Insurance companies are more protected than banks. Insurance companies don't fail because they can't do what banks do. Click To TweetIt has to be done and designed right. You don’t want to dump a ton of cash right upfront because there will be insurance agents telling you, “Throw in a huge amount of cash up front and then pay a little bit later on.” That pays them big commissions. It pays you less. There is a right way to design this, especially if you try to use it for your business and/or for your personal investing. If you want to know how to do that, reach out to us at MoneyRipples.com. Make a wonderful and prosperous week. We will see you later.
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