Infinite Banking, TFRA, & Other Gimmicks Posing As Life Insurance
Even if you can’t recall, you’ve probably seen some sort of advertisement for life insurance that was disguised as a hyperbolic investing euphemism that just seemed too good to be true. The pitch involves benefits such as no funding limits, tax-deferred growth, and tax-free withdrawals whenever you want them (even before age 59). Some of the common names I’ve seen include infinite banking, tax-free retirement accounts (TFRAs), and LIRPS among many others. A good rule of thumb is that anything you encounter that you suspect is posing as life insurance… probably is.
The reality is, most insurance salesmen (I refuse to refer to them as any sort of advisor) give the same spiel to each and every one of their clients because it pays them a big commission to do so. I am not here to say that cash-value life insurance is bad because when it is done correctly, there is no asset for the wealthy business owner that is as dynamic as life insurance. When structured properly, it can be protected from creditors, in-laws, income taxes, and even the dreaded death (estate) tax. Ray Kroc (McDonald’s), Walt Disney, and John McCain all notably did okay using life insurance. Michigan football coach Jim Harbaugh has a permanent life insurance policy that the University of Michigan contributes $2 million to each year. What do all of these people have in common? They’re wealthy. For the average person, the honest reality is that they’re better off maxing out their 401ks and IRAs and then saving the rest of their money in an investment account, rental property, CD, or someplace else.
Just pay the taxes because, honestly, they aren’t that high. Life insurance is way more expensive than the effective tax rate of the average person. If you don’t believe me, read up on some of the disasters that have occurred from the “big name” insurance companies that will try to sell life insurance to everyone under the sun. If you think it might be a good fit or want a second opinion, feel free to reach out.
