This post is part of our Frequently Asked Questions resource page.
The idea of paying, or charging, yourself extra interest is more of a philosophy than a rule, and is commonly taught incorrectly, in my opinion. The idea of paying yourself more interest than the insurance company charges is simply a way of forcing yourself to pay off the loan to the insurance company quicker. Higher interest results in increased payments, which snowballs (adds additional principle) the loan, resulting in a faster payoff. Once the loan is paid back completely, the payments you are forcing yourself to pay will be used to add additional premium to your policy, or to start a new one.
This, for me, gets a little confusing, and tedious to manage. The philosophy is actually quite simple, and should certainly be applied to the overall Infinite Banking Concept. Here’s what I do.
Instead of trying to create extensive amortization schedules, track payments, and become a loan officer, I use the philosophy that my money is more valuable paying off loans and saving interest than sitting in my bank account. If, at any point, I have extra money, I apply it to my loans. This reduces my overall interest expense, ultimately increasing the long-term efficiency of the strategy. Money saved is money earned right? I am essentially trying to pay off my loans as fast as I can, and if I have no more loans to pay off, I add those funds to the cash value, or start a new policy.
The great part about having your own private banking system is that you have less fear of paying things off quickly. When I borrow from a bank or other financial institution, I hesitate to make extra payments, because I know that if I need that money, I’ll have to qualify to get it. Using my own banking system allows me to pay things off quickly, knowing that I can access that money anytime I need it. I find this to be a significant part of this strategy, much more valuable than I am capable of expressing on paper.
Hopefully this helps explain how what it means to charge yourself interest. Please let me know if I better clarify anything here.
Albert Simpkins August 7, 2012 at 1:39 pm
policy should allow for tbe option of paying down principal as you have stated or better yet add tp paid up additions and increase death benefit and cash value increasing amount to be used in banking system.
Rodney Washington September 4, 2012 at 2:51 am
Let's start creating wealth, by under writing the time that is needed.