Maximizing Your Wealth with Infinite Banking in Canada

Infinite banking is an innovative financial approach that leverages a whole life insurance policy as a savings mechanism, enabling individuals to tap into its cash value to meet their financial needs.

By using infinite banking, one can generate a tax-free, self-funded source of capital that can be utilized for various expenses or investments. In this blog, we aim to offer a fundamental understanding of infinite banking in Canada.

We will explore the mechanics of infinite banking, its advantages, the steps to establish a policy, potential risks and limitations, and the alternatives available.

This blog aims to provide you with essential insights into the Infinite Banking Concept (IBC) in Canada.

If you have any questions or need personalized advice, please get in touch with our advisor at Sure Insurance. We’re here to help you navigate your financial journey with confidence.

Introduction to Infinite Banking in Canada

The Infinite Banking Concept is a financial strategy that has recently gained traction, particularly in Canada. This concept involves utilizing a whole life insurance policy as a savings instrument, enabling individuals to access its cash value for various financial needs.

This approach offers a way to create a tax-free, self-funded source of capital that can be used for significant expenses, retirement savings, or leaving a legacy for loved ones.

Infinite Banking works by purchasing a whole life insurance policy and borrowing against its cash value. The loan proceeds can be used to pay off other debts, for investment purposes, or for personal needs, such as buying a car.

One of the advantages of this strategy is that the interest rate paid is usually comparable to what a bank would charge on a similar loan. Often, the interest is tax-deductible (when used for investment purposes), and the loan can be repaid at any time without penalties.

By borrowing from the policy’s cash value, individuals can build a self-funded source of capital for future expenses, effectively becoming their banker. Meanwhile, the whole life policy continues to grow in cash value (through dividends) and death benefit, potentially allowing the owner to leverage more capital in the future.

What is infinite banking?

Infinite banking is a financial concept that involves using a whole life insurance policy as a savings and investment tool. By borrowing against the policy’s cash value and repaying those loans, individuals can create a source of tax-free, self-funded capital for various purposes.

Understanding the structure and type of whole-life policy is crucial for maximizing this strategy. Not all whole-life policies, even from the same insurance company, are designed the same way.

To explore how infinite banking can benefit your financial future, contact one of our advisors at Sure Insurance for a consultation. We’re here to help you understand your options and tailor a plan that meets your needs.

What is Whole Life Insurance?

Whole life insurance is a form of permanent life insurance that offers coverage for the insured’s entire life. There are two types of whole life insurance policies based on how interest is accrued: non-participating and participating.

In non-participating, or “non-par,” whole life insurance policies, the insurance company retains any interest earned from the investments of the Cash Surrender Value (CSV). Premiums for these policies are usually lower because they factor in these gains.

Conversely, participating, or “par,” whole life insurance policies share the interest with policyholders. Policies employing the infinite banking concept are always participating policies that pay dividends to the policyholders, providing them with various dividend options.

What are the dividend options?

Dividend options in life insurance pertain to the different ways policyholders can use the dividends generated by their whole life insurance policies.

Although dividends are not guaranteed, Canada Life, the oldest life insurance company in Canada, has consistently paid dividends since they first offered a whole life policy in the 1830s, even before Canada was established as a country.

Common dividend options include:

• Paid-Up Additions (recommended for IBC): 

This option allows policyholders to use dividends to purchase additional paid-up life insurance coverage. These extra amounts of coverage are fully paid for and will accumulate their cash value and dividends, enhancing the overall policy value and allowing the owner to leverage a higher cash value in the future.

• Premium Reduction: 

Policyholders can use dividends to reduce future premium payments, maintaining the same death benefit and cash value accumulation while reducing out-of-pocket premium costs.

• Cash Payment: 

Policyholders can opt to receive dividends as cash payments, providing immediate access to the funds for any desired purpose.

• Enhanced Coverage: 

Policyholders can use dividends to increase the policy’s death benefit. This option is only recommended if the death benefit is very important to the policy owner. 

However, the added cost of insurance for the enhanced coverage will reduce the cash value, making it less ideal for infinite banking, where cash value determines borrowing capacity.

It’s important to note that the availability of dividend options may vary depending on the insurance company and specific policy. 

Policyholders should carefully review their policy contract and consult with their insurance advisor to understand the available dividend options and choose the one that best aligns with their financial goals.

To get customized recommendations and learn about the advantages of whole life insurance for your situation, reach out to our experts at Sure Insurance. Our goal is to assist you in making informed choices for your financial future.

How Infinite Banking Works in Canada

Infinite banking in Canada involves acquiring a participating whole life insurance policy and utilizing its cash value as a self-funded source of capital. The individual assumes the roles of both the policy owner and the insured, enabling them to borrow against the policy’s cash value whenever needed.

The cash value of the policy continues to grow, offering a source of tax-free capital that the individual can access.

To initiate infinite banking, one must purchase a whole life insurance policy, a form of permanent life insurance. This policy accumulates a cash value over time, which can be accessed through policy loans.

The policyholder can then use the policy’s cash value to cover expenses, such as significant purchases or funding their retirement.

A major advantage of infinite banking in Canada is that it empowers individuals to take control of their financial future. By using a life insurance policy as both a savings and investment tool, individuals can access their capital whenever needed without relying on traditional lending institutions.

Contact one of our advisors at Sure Insurance for a consultation today. Let us help you take control of your financial future with confidence and security.

The Pros and Cons of Infinite Banking in Canada

Infinite banking in Canada presents several benefits for individuals who adopt this financial strategy.

Pros

• Access to Personal Capital:

Infinite banking enables individuals to access their capital without needing to go through traditional lenders. This means they have a personal source of funds for various needs, such as major expenses, retirement savings, or leaving a legacy for their loved ones.

• Potential for Tax-Free Loans:

Loans taken out against the policy, as long as they don’t exceed its adjusted cost basis, are not subject to taxes. This means that people can access their funds without having to pay taxes on the loan amount or the interest, which helps reduce their tax burden.

• Growth of Cash Value:

The cash value of a whole life insurance policy increases over time, providing a growing source of tax-free capital. This growth is linked to the policy’s underlying investments, which may include stocks, bonds, and other assets.

• Estate Planning Tool:

A whole life insurance policy can be an effective estate planning tool, offering a means to leave a legacy. The death benefit can be used to settle debts, support surviving family members, or fund charitable causes.

• Flexibility:

Infinite banking offers significant flexibility, allowing individuals to access and use their capital for a variety of purposes as needed. This flexibility is advantageous for those who wish to maintain control over their financial future.

While there are significant benefits, it is important to consider the potential drawbacks before deciding on infinite banking. It may not be suitable for individuals seeking affordable term life insurance or those purchasing life insurance solely for death benefit protection.

Cons

• Complexity:

Infinite banking can be complex. Understanding the intricacies of whole life insurance policies and the structure of policy loans is crucial. Properly setting up the insurance policy is essential to maximizing the benefits of infinite banking.

• Reduced Death Benefit:

Taking loans against the policy can reduce the death benefit, which is the amount paid to beneficiaries upon the policyholder’s death. This can be a concern for those who rely on the death benefit to support their loved ones.

Infinite banking can be a valuable financial strategy for those who fully understand its workings and are prepared to handle the associated costs and limitations. It’s vital to weigh both the advantages and disadvantages carefully.

If you’re interested in learning more about how infinite banking can work for you and gaining control over your financial future, get in touch with our advisors at Sure Insurance for a consultation. We can help you explore your options and find the best solution for your needs.

How to Set Up an Infinite Banking Policy in Canada

To fully benefit from the infinite banking concept, it is crucial to structure your policy properly. Here’s how to get started:

1. First, purchase a dividend-paying whole life insurance policy that will build cash value over time. Opt for Paid-Up Additions (PUAs) for your dividend option instead of enhanced coverage or cash payments. Maximize the additional deposit option (ADO) within the policy to increase the cash value. Select the “wealth” option rather than the “estate” option. Typically, whole life plans come in two types—choose the one that offers higher cash values earlier.

2. Over several years, contribute a significant amount of money to your policy to build up its cash value.

3. Once you have accumulated sufficient cash value, you can begin borrowing against it. This process involves lending money to yourself and repaying the loan over time, often with interest.

4. As you repay the loan, the policy’s cash value is restored, allowing you to borrow against it again in the future.

5. Upon your death, any outstanding loans will be deducted from the death benefit, but the remaining amount will be paid tax-free to your beneficiaries.

Some Insurance Companies are ideal for the Infinite Banking Concept.

• Canada Life
• Desjardins Insurance
• Industrial Alliance
• Manulife
• Sun Life

While other insurance companies might also be suitable, the best approach is to contact a life insurance broker, Sure Insurance, who can help you find the right plan for your needs.

For individualized guidance and assistance in setting up your Infinite Banking policy correctly, reach out to our advisors at Sure Insurance. We are dedicated to understanding your requirements and offering optimal solutions to safeguard your financial future.

Risks and Limitations of Infinite Banking in Canada

Infinite banking, while offering various financial benefits, also comes with certain risks and limitations in Canada:

• Interest Rate Risk: 

Fluctuations in interest rates can affect borrowing capacity.

• Liquidity Risk: 

Taking loans against the policy’s cash value can reduce the available funds for emergencies or other needs.

• Insurance Risk: 

To maintain the insurance coverage, the policyholder must continue paying premiums. Failure to do so can result in a lapse of coverage and the loss of the investment.

• Time Horizon Risk: 

If the policy is terminated prematurely, the cash surrender values may be significantly lower than if the policy were held longer. A mid-to long-term commitment is advisable when considering this plan.

• Taxation: 

Loans, dividends, and death benefit payments from the policy may have tax consequences. Understanding these tax implications is crucial before adopting infinite banking.

• Complexity: 

The concept of infinite banking can be intricate. It is essential to grasp the policy details and cash accumulation aspects before making any investment decisions.

Is Infinite Banking in Canada Legitimate or a Scam?

Infinite banking in Canada is a legitimate financial strategy and not a scam. Originating from Nelson Nash in the United States, this concept has been embraced by financial professionals in Canada and around the world.

It involves utilizing a specially designed whole life insurance policy to build and access cash value over time, offering benefits such as increased financial control and potential tax advantages. 

However, like any financial strategy, it has risks and drawbacks that need careful consideration. Fees and costs associated with implementing infinite banking should also be evaluated.

Tax Advantages of Infinite Banking in Canada

A significant tax advantage of infinite banking in Canada is the potential for tax-free growth of the policy’s cash value. Unlike other investments, the growth within a participating whole-life policy is not subject to income tax. 

Policyholders can also access this cash value tax-free, provided withdrawals or loans do not exceed the policy’s adjusted cost basis—the amount of premiums paid minus any dividends or fees. If withdrawals or loans surpass this adjusted cost basis, the excess may be taxed.

It is essential to note that tax benefits can change with alterations in tax laws and regulations in Canada. Additionally, the specific structure and execution of an infinite banking strategy can affect its tax implications.

For a personalized consultation and to understand how infinite banking can work for you, contact our advisors at Sure Insurance today. We are here to empathize with your financial concerns and help you navigate the complexities of infinite banking to secure your financial future.

Frequently Asked Questions (FAQs) about Infinite Banking in Canada

Can you do infinite banking in Canada?

Yes, you can do infinite banking in Canada, and Sure Insurance offers services to help you set it up. Infinite banking is a financial strategy where you use a participating whole life insurance policy to create a personal banking system. 

This is feasible in Canada with the right insurance products and guidance from professionals who understand the nuances of this approach. Sure Insurance provides the necessary expertise and policies to implement infinite banking effectively.

How does infinite banking work in Canada?

Infinite banking in Canada involves using a participating whole life insurance policy, which accumulates cash value over time.

This cash value grows, often tax-deferred, through dividends and interest. Once you have accumulated sufficient cash value, you can borrow against it at relatively low interest rates. 

These policy loans do not have fixed repayment schedules, allowing you flexibility in managing your finances. By working with Sure Insurance, you can efficiently set up and operate this system to finance large purchases or investments.

How to start infinite banking?

Starting infinite banking involves several steps, and Sure Insurance can guide you through each one. First, educate yourself about infinite banking by consulting with financial advisors at Sure Insurance who specialize in this area. 

How much does infinite banking cost?

The cost of infinite banking primarily revolves around the premiums for the whole life insurance policy. These premiums can vary based on factors such as age, health, and the size of the policy. 

Generally, whole life insurance premiums can range from a few hundred to several thousand dollars per month. Additionally, there are interest costs on policy loans, although these payments go back into the policy. Sure Insurance offers policies tailored to your financial situation and goals, providing clear guidance on the costs involved.

What is infinite banking life insurance?

Infinite banking Life insurance refers to a whole life insurance policy specifically designed for the strategy of endless banking. These policies, offered by Sure Insurance, accumulate cash value and pay dividends. 

The cash value can be borrowed against it, allowing the policyholder to use the policy as a personal banking system. Participating whole life insurance provides lifelong coverage, ensuring that the benefits of infinite banking can be leveraged throughout the policyholder’s life.

How long does infinite banking take?

The time it takes to start infinite banking effectively depends on how quickly the policy’s cash value grows. With Sure Insurance, the initial setup, including purchasing the policy and starting premium payments, can take a few weeks to a couple of months. 

Building sufficient cash value to start borrowing takes several years. Sure Insurance can help structure your policy to build cash value more quickly, often within the first 5–10 years. 

Once the cash value is substantial, you can continue borrowing and repaying for decades, making infinite banking a long-term financial strategy.

Infinite banking: How much can I borrow?

The amount you can borrow through infinite banking depends on the cash value of your whole life insurance policy. Generally, you can borrow up to 90% of the policy’s cash value. The more premiums you have paid and the longer the policy has been in force, the greater the cash value. 

Why infinite banking doesn’t work?

Infinite banking might not work for everyone for several reasons. The initial costs can be high, as whole life insurance premiums can be expensive. It requires a long-term commitment to paying premiums and managing the policy. 

The complexity of the strategy can be daunting, necessitating a thorough understanding and diligent management. Policy performance is another factor; the success of infinite banking depends on how well the policy performs, which might not always meet expectations. 

Why use infinite banking?

People use infinite banking for several compelling reasons. It offers control over your finances, allowing you to manage your borrowing and repayment schedules. There are potential tax advantages, as the cash value grows tax-deferred and policy loans are typically not taxable. 

Participating policies pay dividends, which can enhance cash value growth. Infinite banking provides liquidity, giving you access to cash value for emergencies or investment opportunities. 

It also enables self-financing, allowing you to finance large purchases or investments without relying on traditional banks. Sure Insurance offers the expertise and policies to help you realize these benefits, making infinite banking an attractive strategy for those who can manage the associated costs and complexity.

Who offers infinite banking?

Sure Insurance offers comprehensive infinite banking solutions through their participating whole life insurance policies. They specialize in helping clients understand and implement the infinite banking concept, tailoring policies to meet individual financial goals. 

When you choose Sure Insurance, you get expert advice and reliable products for infinite banking. Our knowledgeable advisors will help you understand and use this financial strategy effectively.