Schedule Appointment »
317-912-1000
317-912-1000
When people think about preparing for long-term care expenses, the nursing home industry and insurance agents have convinced them that long-term care insurance is the only option. Pay premiums for decades, and if you need care, the insurance company will cover it. Sounds simple enough.
But what if you never need long-term care? What if you pay premiums for 20 or 30 years, only to die quickly from a heart attack without ever stepping foot in a nursing home?
There’s another way to think about this problem. Instead of paying premiums that don’t build equity or don’t build equity very well, what if you could build a financial asset that serves multiple purposes throughout your lifetime, including the ability to fund long-term care if needed?
This is where the infinite banking concept comes into play.
Typical long-term care insurance operates on a straightforward premise. You pay premiums for years, and if you eventually need care in a nursing home, assisted living facility, or in-home care, the insurance company pays benefits according to your policy terms.
But let’s examine what you’re really getting.
Traditional long-term care insurance operates on a “use it or lose it” basis. You’re paying premiums that can range from hundreds to thousands of dollars per year, depending on your age when you purchase the policy and the amount of coverage you want. These premiums don’t build any equity. If you never need long-term care, or if you die before needing it, those premium dollars are gone forever. You’ve been renting protection.
Now, it’s true that some of the newer hybrid long-term care products do build equity when they’re linked with a whole life insurance policy or an annuity. These hybrid products can do well covering long-term care needs if you end up needing care. However, if long-term care is not needed, the growth on the equity side is nothing to write home about. The cash value accumulation in these hybrid products typically lags behind well-designed whole life insurance policies built for the infinite banking concept.
These policies also come with restrictions that many people don’t understand until they need to make a claim:
There are elimination periods before benefits kick in, daily or monthly benefit caps, and lifetime maximum benefits. Some policies require you to be in a care facility, while others offer in-home care options.
Most concerning may be the “2 out of 6” rule. Long-term care policies won’t pay out unless you can’t perform 2 of the 6 basic activities of daily living (bathing, dressing, eating, toileting, transferring, and continence). What if you can’t perform only 1 of these activities? No payout. You could be struggling with your daily life, but if you don’t meet their criteria, you receive no benefits despite paying premiums for years.
There’s another limitation that few people consider: Long-term care insurance may only cover your long-term care if you are following treatment prescribed by a medical doctor. If a client wishes to seek alternative or natural treatment in a long-term care situation against the advice of their doctor, the long-term care insurance may not pay during this period. This means you could be paying for coverage that won’t support the type of lifestyle you would choose.
Finally, if your health changes or you can’t afford the premiums anymore, you may have to let the policy lapse. After paying in for years, you could end up with nothing.
There is a place for long-term care insurance, especially the hybrid type that builds some equity. Hybrid LTC policies are often a good fit for people who want long-term care insurance and are comfortable with the restrictions and limitations. Given all these constraints, hybrid LTC should at least be combined with properly designed whole life insurance (PWLI) built for infinite banking, rather than relied upon as the sole solution. This way you would also have access to cash values not directly tied to your long-term care benefits.
Now, let’s examine a different approach to help establish a long-term care funding strategy: Utilizing properly designed dividend-paying whole life insurance as your own personal banking system, commonly referred to as the infinite banking concept.
The infinite banking concept was developed by R. Nelson Nash in the 1980s when he found himself in a financial bind. Facing 23% interest rates on his bank loans while his whole life insurance policies were charging him only 5 to 8 percent, Nash realized he could transfer his debt from expensive bank loans to affordable policy loans. This discovery evolved into a strategy for building wealth and maintaining financial flexibility.
When you purchase a properly designed whole life insurance policy, you’re building an asset that accumulates guaranteed cash value over time. This cash value grows tax-deferred, and you can access it at any time through policy loans without the restrictions, applications, or waiting periods that come with traditional lending.
You can build a lot more equity this way compared to paying premiums on a long-term care policy.
With a well-designed infinite banking policy, you can expect to see 50 to 70 percent of your first year’s premium translate into cash value. After the first year, your cash value continues to grow each year. Within 8 to 15 years, you can expect your total guaranteed cash values to exceed your total premiums paid. It’s an asset that continues to build value for your whole lifetime.
With traditional long-term care insurance, you might pay $3,000 per year in premiums starting at age 55. Over 20 years, that’s $60,000 in premiums paid.
If you never need long-term care, or if you need it but die before the elimination period ends, or if you only have difficulty with 1 activity of daily living instead of 2 the policy may never pay out. It provided no other benefit to you during those 20 years. You couldn’t borrow against it, and you couldn’t access it for emergencies. You may have a death benefit if the long-term care product was a hybrid based on a whole life policy or an annuity.
Even with a hybrid long-term care product linked to whole life or an annuity, while you might retain some cash value if you don’t use the long-term care benefits, that cash value growth is minimal compared to what you could have achieved with a policy designed for infinite banking.
With the infinite banking concept, you might also pay $3,000 per year into a properly designed whole life policy starting at age 55. But here’s the difference: after 20 years, instead of having $60,000 disappear into thin air or grow minimally, you might have $80,000 or more in guaranteed cash value, plus about another 100k of death benefit that has grown beyond the initial face amount due to paid-up additions and dividends.
During those 20 years, you had access to that growing cash value for any purpose. You could have used policy loans to pay off debt, fund a business opportunity, help a child with college expenses, or handle an unexpected emergency. This policy can serve multiple purposes, not just one function.
If you do need long-term care—whether it’s medically recommended care or alternative treatments you choose for yourself—you can access your cash value to pay for it. You’re not waiting for an insurance company to approve your claim. You’re not limited by daily benefit caps or lifetime maximums. You’re not restricted to only medical doctor-approved treatments. You don’t need to prove you can’t perform 2 out of 6 activities of daily living. You’re accessing your own money, money that has been growing guaranteed and which puts you in control.
If you don’t need long-term care, your beneficiaries receive a tax-free death benefit when you pass away. The money wasn’t wasted. It served its purpose throughout your life and continues to provide value after your death.
One of the biggest advantages of using whole life insurance designed for infinite banking are the high guaranteed values.
Participating whole life insurance policies from mutual insurance companies offer contractual guarantees that can’t be changed. Your premiums are fixed and will never increase. Your death benefit is guaranteed. Your cash value growth is guaranteed. These aren’t projections or estimates subject to market performance or company whims. They’re binding contractual commitments.
In 1911, the Supreme Court of the United States ruled that life insurance is an asset. Legally, the case is settled. When you purchase participating whole life insurance, you’re purchasing an asset which carries a resemblance to purchasing real estate, a business, or something that pays you royalties.
The infinite banking concept also provides something that long-term care insurance does not: Policy loans.
If you borrow against your whole life policy during your lifetime or to pay for long-term care, you control the repayment terms. You can repay the loan as quickly or as slowly as you want.
Provided you at least pay the interest on the policy loan, then your cash value continues to grow as if you hadn’t borrowed against it. You’re still earning guaranteed growth and dividends on the full policy value, even while you have an outstanding loan. If you pass away, then the loan balance will simply be deducted from the death benefit.
This creates a situation where you can use your money to save toward long-term care expenses while continuing to build wealth by accessing the money for opportunities during your life. At the very least it helps to offset the interest paid on such a policy loan. This is not possible with true long-term care insurance even when it is a hybrid based on a whole life product.
The most compelling argument for the infinite banking concept over long-term care insurance is the flexibility and options.
Life insurance cash values are not affected by market downturns, recessions, or economic cycles. They provide stability and protection when you need it most. During times of financial uncertainty, having guaranteed liquid cash that you can access immediately becomes invaluable.
The death benefit provides financial security for your family, guaranteeing they won’t be burdened by final expenses, debts, or lost income. This benefit exists whether or not you ever need long-term care.
The policy can be used for retirement income supplementation, allowing you to take tax-advantaged policy loans instead of taking taxable withdrawals from qualified retirement accounts.
You can use policy loans to fund opportunities as they arise, whether that’s investing in real estate, starting a business, or simply taking advantage of a once-in-a-lifetime chance that requires immediate capital.
The policy provides a source of emergency funds without the need to liquidate investments at inopportune times or take on expensive consumer debt.
Q: What happens to my long-term care insurance premiums if I never need care?
A: With traditional long-term care insurance, if you never need long-term care, all the premiums you’ve paid over the years are gone forever. You receive no benefit and nothing is returned to you or your heirs. You’ve essentially been renting protection that you never used. With hybrid products, you may retain some cash value, and have a death benefit for your heirs, but the growth of cash value and death benefit in a long-term care product is typically minimal compared to whole life insurance designed to build high cash value.
Q: Can long-term care insurance premiums increase over time?
A: Yes. Some long-term care insurance policies are subject to premium increases, some are fixed. What starts as affordable could become a financial burden as insurance companies raise rates if you do not have a fixed premium.
Q: What are the restrictions on when long-term care insurance pays out?
A: Most policies require you to be unable to perform 2 out of 6 basic activities of daily living. If you can only perform 5 out of 6, you don’t qualify for benefits even if you’re struggling. Additionally, many policies only cover long-term care based on assessment by a medical doctor—if you prefer alternative or natural treatments, your medical doctor may not give you the clearance needed for long-term care benefits to start.
Q: How does the infinite banking concept differ from traditional long-term care insurance?
A: With infinite banking, you’re building an asset with guaranteed cash value that grows over time, rather than paying premiums that disappear or grow minimally. You maintain control and access to your money while still having the ability to fund long-term care if needed—without waiting periods, without proving inability to perform multiple daily activities, and without restrictions on the type of care you choose.
Q: How quickly can I access cash value in a whole life insurance policy?
A: You can access cash value through a policy loan at any time on a whole life policy designed for infinite banking, without restriction. Long-term care policies do not allow for policy loans even when they are based on a whole life product with some cash value.
Q: What percentage of my premium becomes cash value in the first year?
A: With a properly designed infinite banking policy, you can expect 50 to 70 percent of your first year’s premium to translate into cash value.
Q: When will my cash value exceed what I’ve paid in premiums?
A: Within 8 to 15 years, you can reasonably expect guaranteed cash values to exceed your total premiums paid on a well-designed infinite banking policy, meaning you’ve recaptured what you put in and now have a growing asset.
Q: What happens if I borrow from my policy to pay for long-term care?
A: You control the repayment terms when borrowing from an infinite banking policy. You can repay as quickly or slowly as you want. If you don’t pay the interest, it is added to the outstanding loan balance. The outstanding balance is deducted from the death benefit when you pass.
Q: Are whole life insurance guarantees really guaranteed?
A: Yes. Whole life insurance policies from mutual insurance companies offer contractual guarantees that cannot be changed. Your premiums are fixed, your death benefit is guaranteed, and your cash value growth is guaranteed—these are binding contractual commitments.
Q: What happens to the money in an infinite banking policy if I don’t need long-term care?
A: Your beneficiaries receive a tax-free death benefit when you pass away. The money wasn’t wasted; it served multiple purposes throughout your life and continues to provide value after your death.
Q: Can I use an infinite banking policy for purposes other than long-term care?
A: Absolutely. You can use policy loans for any purpose: Paying off debt, funding business opportunities, helping with college expenses, handling emergencies, supplementing retirement income, or funding investment opportunities. The policy can serve multiple purposes, not just one narrow function.
Q: Is there a place for hybrid long-term care insurance?
A: Yes, hybrid LTC policies can be a good fit for some people, particularly those who specifically want long-term care coverage and are comfortable with the restrictions. Given the limitations on when benefits pay out, the coverage restrictions, and the modest cash value growth, hybrid LTC should at least be combined with properly designed whole life insurance for infinite banking rather than used as a standalone solution.
The decision between long-term care insurance and the infinite banking concept comes down to what you value and what kind of financial flexibility you want in your life.
If you’re comfortable paying premiums for decades with the possibility of receiving nothing in return (traditional LTC) or minimal cash value growth (hybrid LTC), and if you’re willing to accept the restrictions and limitations that come with long-term care insurance, then this strategy might work for you as part of a broader financial plan. Afterall, long-term care policies do have the potential to pay out more in benefits compared to cash value growth in an infinite banking policy IF you end up spending several years in long-term care (think Alzheimer’s Disease).
And if you want to build an asset that serves multiple purposes throughout your lifetime, provides guaranteed growth you can access at any time, offers death benefit protection for your family, and gives you the flexibility to handle long-term care expenses if needed—whether for traditional medical care or alternative treatments of your choosing—all while maintaining control over your money, then the infinite banking concept deserves serious consideration as well.
The beauty of properly designed whole life insurance is that you’re not making an either-or choice. You’re not betting on whether you’ll need long-term care or not. You’re building financial security that works for you regardless of what happens in the future.
At McFie Insurance, we specialize in designing policies that maximize cash value accumulation while providing the guarantees and flexibility that make the infinite banking concept work. We can also design and review long-term care products with you. We’re here to help you build wealth using proven financial tools that have stood the test of time.
Call us at 317-912-1000 or Schedule an Appointment here.
by John T. McFie
I am a licensed life insurance agent, and co-host of the WealthTalks podcast.
As a 16-year practitioner of the Infinite Banking Concept on a personal level, I can help you find the clarity and peace of mind about your financial strategy that you deserve.
Working with hundreds of financial scenarios over the years has helped me to develop a sixth sense about how to quickly find a clear and balanced solution for clients using whole life insurance as a financial tool.
This free binder has the information to build your own Infinite Banking system.
