Common Misconceptions or questions about the Infinite Banking Concept
Dave Ramsey says Infinite Banking is a scam. Is he right?
The truth is what Dave Ramsey is describing is a standard Whole life policy and not the type of policy that is is used for the Infinite Banking Concept. We won’t even get into the banking concept on this which is really where this concept thrives and he misses completely. In Infinite Banking we use a specially designed and engineered whole life insurance policy from a mutual dividend paying insurance company with a special Paid Up Additions rider that allows us to maximize how much cash we can put in the policy while keeping the base and therefore the death benefit low and preventing a MEC or Modified Endowment Contract which would kill some of the tax advantages. This creates a policy that has multiple aspects that are contrary to Dave's description. First of all he speaks of a level death benefit through out the life of the policy. When a policy is designed for Infinite Banking the death benefit increases every year as we use dividends to buy more paid up additional insurance with the least amount of cost. So the death benefit continues to grow each year with the cash value. The second thing he mentions is the the insurance company keeps your cash value when you pass and only passes the death benefit to your family. When you look at a properly designed Infinite Banking policy you will see the death benefit grows at a pace to more than cover the cash value plus the death benefit the policy started with. One more thing Dave brings up is that you pay to borrow your own money and we covered that last week showing that you are not paying to borrow your own money but rather you are paying to borrow money from the insurance company. This allows your cash to never stop compounding with no interruptions paying you more than the interest the insurance company is charging you in 99% of cases. My thinking is Dave hasn’t seen a true infinite banking style policy and therefore just doesn’t understand how it works or how the concept works. I do agree with a lot of what Dave has to say and I have been through Financial Peace University and love that he helps people get out of debt. I just think he isn't fully informed on the Infinite Banking concept and the type of policies we use for it.