At The Phoenician League, we advocate the principle of asset allocation. This is about spreading your money – your capital – across several different asset classes according to a personalized model. The purpose here is true asset diversification.
A robust asset portfolio will consist of some combination of the following:
- Reserve Assets (gold and Bitcoin)
- Max-funded life insurance (IBC)
- Capital-efficient stocks
- Cash flow investments (real estate and mortgage notes)
- Alternative investments
We dedicate a separate page to provide a high-level overview of each of these asset classes. In this entry we’ll cover max-funded life insurance (IBC).
How to Warehouse Cash With Max-Funded Life Insurance
Max-funded life insurance refers to a specialized life insurance policy established based on the Infinite Banking Concept (IBC). These are life insurance contracts designed to create outsized cash value within the policy over time. And make no mistake about it, these policies are dramatically superior to standard life insurance.
Now, I know there’s sometimes a stigma attached to life insurance. And I realize that it might not be suitable in some cases. Everybody's situation is different.
But max-funded life insurance is a tax-efficient vehicle that will provide us with uninterrupted compounding and complete liquidity. Meaning, we can use our life insurance cash value for other investments and we’ll still generate a return on it inside the policy.
That means we can leverage the same dollars twice. They generate a compounding return inside the max-funded life insurance policy. And then we can use the cash value to also make investments outside the policy.
That’s why the banks and insurance companies love max-funded life insurance. They use this strategy themselves.
The key here is that we need to structure these policies according to the Infinite Banking Concept (IBC). That typically requires that we work with a specialist who understands the nuances of this strategy.
Simply put, Infinite Banking policies are not traditional life insurance policies. Our goal with them isn’t to buy life insurance. Instead, it’s to strategically warehouse cash in such a way that it will compound annually yet still provide us with complete liquidity.
Typical IBC policies are structured such that only a small percentage of the premium paid supports the base life insurance policy – the death benefit. The remaining portion of the premium accelerates the growth of cash value inside the policy. That’s why I refer to these as max-funded policies.
The result is that we build cash value very quickly. Then we can access that cash value at any time for any reason – without having to sell anything or create a taxable event.
The following example demonstrates how it works:
This is a max-funded life insurance performance illustration that I pulled from one of my policies. So this is a real-world example with no hypotheticals.
I know there appears to be a lot going on in this graphic, but it’s really quite simple. At the top of the chart we can see three distinct categories.
The first is “Premium Breakdown”, shaded in gray. It shows us the total premium we’ll have to pay each year to keep this contract in force.
The second column is labeled “Guaranteed”. This refers to the policy’s cash value and death benefit. Even if the life insurance company never pays a dividend, we are contractually guaranteed to have the total cash value and death benefit listed in this column by year, as long as we pay the annual policy premium.
The third column is labeled “Non-Guaranteed” and shaded in gray. This column lists the dividends we’ll receive each year if the life insurance continues to pay dividends at its current schedule. They accelerate the growth of both our cash value and a death benefit.
Let’s walk through this real quick...
We can see that the premium for this policy is $4,000 a year for the next 15 years. That’s a total outlay of $60,000.
As long as I pay make this premium payment each year, I’m guaranteed to have $69,312 in cash value after 15 years. That’s a conservative return of 15.5% on my money.
However, if the life insurance company continues to pay dividends at the current schedule, I’ll have $81,559 in cash value after 15 years. That’s a return of 35.9% on my money. And that’s with no market risk—meaning my cash value can’t go down.
So when I make my $4,000 premium payment each year, I don’t see that as an expense. It’s savings. Because my money’s going to grow. It’s like depositing that money into a bank account... except much more strategic.
And don’t get me wrong – I don’t have to wait 15 years to access my money. As we can see in this illustration, my cash value grows every single year. I can use that money for anything I want at any time. There are no restrictions.
Now, look at what happens starting in Year 16. The policy premium drops from $4,000 to $608 a year. That’s because I was paying $3,392 a year for accelerated cash value growth... but I don’t have to do that after 15 years. I can pay the base $608 a year and my cash value will still grow.
So if I were to fund this contract for another 15 years, it would only cost me $9,120 more out of pocket. That’s a total outlay of $69,120 over 30 years.
Yet, I’m guaranteed to have a cash value of $114,222. And if the company continues paying dividends on schedule, my cash value would be $183,108. That means I will have grown my money by at least 65%, and perhaps by as much as 164%.
Again, this is without sacrificing any liquidity. I can access my cash value at any point along the way for any reason.
That’s the power of max-funded life insurance. It’s a great vehicle to strategically warehouse cash. And as a bonus, it also provides life insurance coverage.
As you can see in this example, the death benefit starts at $247,525. Then grows to $617,310 after 15 years and $773,272 after 30 years. That’s a nice little chunk of change for the beneficiary to inherit.
Okay, so I hope you can see why I believe so strongly in max-funded life insurance according to IBC principles.
And I should add that these policies are completely flexible. I’m demonstrating a policy that starts with a $4,000 annual premium... but there’s nothing magical about that number.
You can set up bigger or smaller policies as you see fit. You can also set up policies where you drop a large chunk of money into them up front, and then pay a smaller annual premium after that. Everything is customizable.