The concept of Infinite Banking is gaining popularity among Canadian families who are looking for ways to build their wealth. Infinite Banking is a financial strategy that involves using a permanent life insurance policy to build a cash value that can be borrowed against to finance various expenses. In this blog post, we will explore why Canadian families are turning to the Infinite Banking concept and how it works.

Why are Canadian Families Building Their Wealth through Infinite Banking?

1. Tax Benefits

One of the primary reasons why Canadian families are turning to Infinite Banking is the tax benefits that come with it. The cash value of the permanent life insurance policy is tax-deferred, meaning that it grows without being subject to tax. Additionally, the policyholder can withdraw money from the policy without being taxed, as long as the withdrawal does not exceed the total amount of premiums paid.

2. Control

Another reason why Canadian families are embracing Infinite Banking is that it gives them control over their financial future. With a permanent life insurance policy, the policyholder can access the cash value whenever they need it, without having to go through a lender or a bank. This means that they have more control over their finances and can use the money for whatever purpose they choose.

3. Compound Interest

The third reason why Canadian families are turning to Infinite Banking is that it allows them to benefit from compound interest. When money is deposited into a permanent life insurance policy, it starts earning interest immediately. This interest is then added to the cash value, which starts earning interest as well. Over time, the cash value grows exponentially, thanks to the power of compound interest.

4. Protection

Finally, Canadian families are drawn to Infinite Banking because it provides protection. A permanent life insurance policy provides both life insurance coverage and a savings component. In the event of the policyholder’s death, the beneficiaries will receive the death benefit. In addition, the policyholder can access the cash value to pay for unexpected expenses or to supplement their retirement income.

How Does Infinite Banking Work?

Infinite Banking is based on the concept of using a permanent life insurance policy as a vehicle for building wealth. A permanent life insurance policy is different from term life insurance in that it provides both life insurance coverage and a savings component. The savings component is known as the cash value.

When a person purchases a permanent life insurance policy, they pay premiums to the insurance company. A portion of these premiums goes toward paying for the life insurance coverage, and the rest goes into the cash value. The cash value grows over time, thanks to the interest that it earns. The interest rate on a permanent life insurance policy is typically guaranteed, meaning that the policyholder knows exactly how much interest they will earn.

Once the cash value has grown to a significant amount, the policyholder can borrow against it. The loan is not subject to income tax because it is considered a loan, not income. The policyholder can use the loan for any purpose, such as to pay for a child’s education, to buy a home, or to start a business. The loan is repaid over time, with interest.

When the loan is repaid, the money is added back to the cash value. This means that the policyholder can borrow against it again in the future if they need to. Additionally, the cash value continues to earn interest, even when a loan is outstanding.

Infinite Banking is a long-term strategy for building wealth. It takes time for the cash value to grow to a significant amount, but once it does, it can provide a source of funding for various expenses. It is important to note that Infinite Banking is not a get-rich-quick scheme. It requires discipline and patience to build up the cash value over time.