What If I'm Uninsurable and Want to Start Practicing the Infinite Banking Concept?

First of all, don’t worry, there is likely an option for you to get a plan in force to begin practicing the Infinite Banking Concept.

The most important piece for your plan to work is being the owner of the policy, not the insured (The 3 most relevant parties on a policy are the owner, beneficiary and insured. There can also be a contingent owner and contingent beneficiary.). This will allow you to have control of the policy, which includes using the cash value. Let’s start from the beginning though, and see what you can do.

The best place to start with a policy is on yourself.

I know you’re reading this to see what action to take because you’re uninsurable. Before doing that though, we like to look at your situation, because even if you were uninsurable in the past, that does not mean you’re still uninsurable.

If you have corrected the reason you were declined, it is worth applying again. I wish I could give a timeline for you of when to apply again, but it really depends on the reason for being declined. Worst case is, we make a plan with you and go through underwriting, and you’re out a few weeks’ time if declined.

Since our focus is on cash value accumulation and not death benefit with the IBC, even a standard or table rated health rating (depending on the severity) can still be sufficient to begin a policy. Cash value accumulation will not be as strong overtime, but in the early years you will see very little difference between a standard rating and preferred rating.

It is important to remember that being insurable is more important than your rating.

I got denied, now what?

Once this happens, we need to find someone you have an insurable interest in. This could be your spouse, kids, a family member or business partner.

The insurable interest says that there must be a measurable financial loss and the beneficiary benefits financially from the life of the insured. Kids and spouses can fit into this, as well as business partners, but other family members could be difficult.

The insurable interest only needs to exist at issue though, so once a policy is put in force, it’s yours forever.

Oftentimes it will also be difficult to pay a significant amount of premium when insuring another life unless you have a sizable business endeavor together.

You also need to know that the person you are insuring must be okay with it. They’re going to know you’re applying for a policy on them. They will likely need a paramedical exam when they go through underwriting. They will have to disclose their gross income, net worth, and sign the application. It is a smart idea to let them know your intentions and reasoning for doing the policy on them, rather than holding back information.

If you get permission, and the proposed insured goes through underwriting with a clean bill of health, you’re in the driver’s seat. You will be the owner and beneficiary of the new policy, and because you’re the owner, you get to use the policy how you wish.

I want to leave something to my kids.

The death benefit of a policy is paid out when the insured dies. You are just the owner and beneficiary of this new policy. It would not be a good idea to name a different person as the beneficiary of this policy, because it would result in what is called a “Goodman Triangle” if the insured passes away. The short of this is that the death benefit would become taxable, with you on the hook for the bill (The death benefit is viewed as a gift to the beneficiary from the owner). You don’t want this. (You could file a form with the IRS, using part of your lifetime gift tax exemption to prevent the death benefit from being taxable.)

A better idea is to leave yourself as beneficiary. You can name your kids as the contingent owner and contingent beneficiary in case you pass away before the insured. You are still the owner in this situation, so you control the policy and the cash value. If you pass away before the insured, the policy simply goes to the contingent owner now.

If you leave a lot of cash value in a policy, you have effectively left death benefit to your kids (This is not an actual death benefit being paid to them, I’m just saying the cash value in the policy can be money you pass on to them). It is VERY IMPORTANT to remember this could be subject to taxation in the scenario I just laid out, so speak with your accountant or tax representative to formulate a plan.

The simplest solution would be if you have a spouse who is insurable and on the same page as you in wanting to practice the IBC. They could be the owner and insured while you practice the IBC together, and the kids can be beneficiary. When the spouse passes away the death benefit passes on to the kid’s income tax free. This eliminates complication but you aren’t the only owner of the policy.

*I am not giving financial planning, legal, or tax advice. This is just meant to be educational and give awareness of possibilities that exist. YOU should consult with your own financial, legal and tax representatives to design a plan for your unique situation.

Planning Ahead.

Some people will become uninsurable at a young age or even are at birth. If you ever are healthy and insurable, it is a fantastic idea to purchase life insurance. It is an essential part to every financial plan.

Parents can purchase life insurance on a child at 15 days of age.

You can also purchase policies called convertible term insurance. This gives you an affordable premium to start, locks in your ability to be insured given you’re healthy right now, and can be converted to permanent insurance when you have the financial means to do so.

The biggest takeaways I want you to remember from this blog are the importance of being an owner of a policy, and having insurable interest.

If you are uninsurable and want to start another policy, there is likely a way, we just need to find someone you have insurable interest in. To practice the Infinite Banking Concept, you just need to be the owner of the policy, not the insured, and you can begin to reclaim the banking function in your life.