When is the right time to implement The Infinite Banking Concept for children and how do you do it?
We talk about everything you need to know in this episode!
In this episode we'll discuss the rules of thumb, pro's and con's, and other insights you ought to know if you're thinking about starting an Infinite Banking policy for your children. In the insurance world, these are called juvenile policies.
And be sure to give Episode 21 "Who to Insure First" another listen for additional context!
As always, let us know what questions you have. The hosts of the show are IBC Authorized Practitioners and can be reached at www.TheFifthEdition.com.
- Hi everybody. This is John Montoya.
- And this is John Perrings.
- We're authorized Infinite Banking practitioners and hosts of The Fifth Edition.
Hey everyone, thank you for listening. This is Episode 47, Infinite Banking for children. In this episode, we're gonna discuss the Infinite Banking Concept for children. Sometimes it's called the Rockefeller method. So we'll go into that. We'll discuss the pros and cons. What are the restrictions that is the rules of thumb that you should be aware of, when you should consider IBC for your kids and is it the same design as an adult IBC policy? So thanks for tuning in and John let's get started with this episode.
- Yeah, I think this will be good. We're kicking some things off here with rules of thumb, around buying life insurance with the intent of implementing the Infinite Banking Concept for your children. And it's a super common question that comes up where, especially people in their maybe 40s or 50s start thinking about how they can improve their children's financial lives. And so they'll ask, maybe I'd like to buy a policy on my child. And so the first rule of thumb that we have is that when you buy insurance for a child, and by the way, we did an episode that we'll link to in the show notes called "Who Should You Insure First?" which I think is Episode 21 and we'll link to that in the show notes. And that that'll be a good complimentary episode to this one. But the insurance companies are gonna require at least one of the parents to be insured, right? And there are exceptions to that if maybe both the parents are uninsurable, but in general, the rule of thumb is, the parents need to own life insurance first, before they can buy life insurance for a child especially if they're a minor. So we're in this episode, like you can have adult children, which we'll we'll get into, but we're kind of talking about juveniles in this particular case.
- Yeah. 18 or younger. So that's one of the rules of thumb. For a juvenile policy, it's typically 18 or younger. And if you have multiple kids, 18 or younger, they all need to be insured equally so no playing favorites. For example, I've got three kids. They each have their own IBC policy and it's all funded equally. No paramedic exam typically is needed. However, depending on your child's height and weight, there maybe an examiner who comes out to simply take a look at your child and have them step on a scale. I have had a couple instances where a child was declined and the reason why is due to height and weight. Be aware that this isn't one of those things where every single child is going to qualify. I know we tend to take that for granted, that kids are always in good health, but the reality is that this is a policy that does need to be applied for, and it has to be approved. And so, it happens especially nowadays where child obesity is more of a common thing. Just be aware that if your child happens to be a little bit on the heavy side, make sure you're asking the advisor what is the recommended height, weight for a child at this age and we can tell you. So a child obesity is a red flag and a potential decline. Going one further, the earliest you can insure one of your children is at the two-week-old mark. Let's say you're pregnant, you're expecting a child and you wanna get that policy started as soon as possible, well, you have to wait at least two weeks from the date of birth.
- And there's also some rules of thumb around how much insurance the parent needs to have. There are some multiples in terms of like, how much the child can be insured for relative to how much the parent or parents have in life insurance. And those are different in different states, but twice as much as a good rule of thumb, sometimes it's a little bit less than that, but those are some of the things that will also come up that you can talk to your agent about.
- Yeah, and also, it's just one of the parents that has to have that minimum amount of death benefit in order for the child to have a policy. To give you a numbers example, let's say one of the parents has $1 million worth of life insurance coverage, it can also be a term policy. It doesn't necessarily have to be a permanent policy like a whole life policy, it can be a term policy. But let's say that one of the two parents has $1 million in coverage, then as a general rule of thumb, the insurance company will approve of to a half a million in death benefit coverage on the child. Now what that actually equates out to in terms of premium, that's really where we need to run the numbers. Just to give you kind of a heads up on what we see on our side, I'll give you an example of my daughter's whole life policy, where the funding premium baseline premium was 2000 a year plus another 2000 in PUA. Well that generated a face amount of over $400,000 from the time of issue. Well, if you think about it, what child needs 400 plus thousand of death benefit? It's not the reason why we did the policy. We did it to establish her own banking system for her entire life, but because of her age, every dollar of premium generates more dollars of death benefit from day one. So in that example, I had to have at least a million dollars worth of death benefit in order for my daughter to qualify for her policy. Just keep those rough numbers in mind. You have to be insured. You have to, generally speaking, have twice the amount of death benefit of the initial face amount that your child's policy will start with.
- Absolutely. And what are some of the benefits of ensuring a child and why would a parent want to consider this?
- Well, first and foremost, we wanna lock in our child's health. That may seem like a crazy notion, but with everything that's happening today, medically, I mean, we see the rise of autism, childhood diabetes, and then you have all these other afflictions that can hit us really at any age. And the one thing that we always take for granted is that we're going to be in good health, our entire lives. I wish that were the case, but it absolutely is not. So just from a health standpoint, to be able to lock in a financial system, we're not even talking about the death benefit, just the financial system of Infinite Banking and being able to establish for your child that they will never have to rely on a traditional bank for their life, it's huge. But in order to do that, you need to lock in that insurability. So I would start there locking in insurability because yeah, we can't take our health for granted and especially, our kids. We just assume that if they are in good health, that'll last and knock on a wood, we always hope that's the case, but anything can happen. So this prepares us for any future event health-wise and allows our children to basically have something set in motion for the rest of their life.
- Yeah, that's awesome. And then you're locking it in, so you're locking in the ability with their health, but I would also say you could potentially also be locking in their mindset for the future. So I remember, my mom sat me down and tried to explain to me what compound interest was when I was a youngin I mean, I was like, yeah, that makes sense. Cool. I'm gonna go buy a bike with my paper route money and so it didn't really sink in, but if you actually lead by example and you fund a policy when a child is, before they're at an income earning age, you get a kid that reaches their twenties and they already have hundreds of thousands of dollars in a cash value life insurance policy, all of a sudden that becomes very real to them and they can see what's possible with having some financial discipline and some financial know-how like knowing how to do it. A lot of people think that, they kinda take a negative approach to it. And they're like, yeah, well, if I died and my kid had a bunch of money, or if my kid just ran into a bunch of money, he'd blow it. And that might be true, but that's an education problem, right? And I think that there are also a lot of kids, for example, when my father passed away and we're not talking about death benefit right now, but we're just talking about mindset, when my father passed away, I got a very small windfall, it made me actually have skin in the game to want to preserve that, right? It made me wanna preserve it and make it even better. And so I think, there's something to be said for showing your kids what's possible as opposed to just kind telling them they should be doing all these things and then, some people get it and some people like me, it took a little bit longer to get there.
- I love that you bring up this point because it's something that I was thinking about over the weekend. I was having a financial conversation with my wife and we were talking about her financial journey and I was relating how mine was just so different. Her parents never talked about money in the household, and they were constantly struggling from one life event to the next. And it really took a toll on my wife as far as her relationship with money. And I compared it to my mind where my mom, even though she didn't understand life insurance, she didn't know anything about IBC, that wasn't really around back then, but what she did do, what she did pass on me was this discipline of saving and any birthday money, any Christmas money that I would get, it would go in into my passport savings account. And she would proudly show me what the interest rate was. And back in the 80s, banks were actually paying something. And this instilled into me this discipline of saving for the future. And I was thinking about that this weekend and the impact that this mindset that my mom helped passed on to me, it basically helped me to develop a sense of security. And knowing that by continuing to save, by developing this discipline, I would be able to write out life events in the future. But just that initial mindset of being a saver at a very young age, the impact that you listeners can have with your children, by teaching them to be disciplined savers, to teach them where to park money as a foundation for wealth building, you can have an incredible impact by teaching your kids the strategy and the forward thinking of saving money. And when you apply IBC on top of it, I think you really set them up to take financial control of their lives. So I'm glad you bring up that point, John.
- Yeah, and the cash value can be used for anything. A lot of parents they have this really burning need sometimes to, they have this idea in their head they're like, well, my parents paid for my college, so I'm gonna pay for my kids college. And that's the gift that I'm gonna give to them. So this is just one example, right? And what if you, instead of paying for their college and just never seeing that money in your family ever again, like that just goes away forever, what if you instead save money in a life insurance policy that your child owned or in yours, right? But right now we're talking about juvenile policies. What if you saved it in their policy? And you said, "Hey, here's the money. You can use this to pay for college. Or you can just, before I assign it over to you, you can either use it to pay for college or use it to go to more of a vocational thing or use it to start a business." Like what if they were responsible for that cash value knowing that it was theirs and knowing that if they wanted to keep it, they would have to pay it back. Because a lot of times when parents pay for things, it doesn't always get paid back because there's no skin in the game for the child. So those are just some off the top of the head examples that I can think of that would really instill a sense of ownership for the child going through life and as they get started in their income earning years.
- On that note too, as the parent and payor on the policy, you are actually the owner of the policy. Now you can transfer ownership of the policy to your kids at a future age. And this is something that I initially had planned on doing with each of my three kids. I set up these policies for them and I figured out, well, you know what, in their twenties, I'll go ahead and transfer the ownership over to them. But then after a couple years and dwelling on it, I was thinking, you know what? I don't know. I hope my kids are gonna be responsible and disciplined, good with money, but it's no guarantee. So if they're not, why would I want to transfer ownership of this policy that I've been funding their entire lives? That didn't make much sense to me. And then I thought further about it. And I was like, you know what? If they are being responsible and disciplined, and I've taught them all the tenants of IBC so that it's passed on to them, they're gonna start their own policies and they'll own those policies. And what's gonna happen is I'm gonna continue to own these policies on them. And just my way of thinking but I got to thinking, well, you know what, when I get into my seventies, maybe my eighties and I hope I get there, well, there's going to be a financial incentive for each of my kids to check in on me. Why is that? Well, there's this really nice whole life policy that has been well funded during their lifetime that's compounding every single year and who stands to benefit from the ownership of that policy once I pass on? It's them. So in a sort of backwards kind of way, it kind of ties them to me and being interested in my well-being when I'm older, not that they wouldn't be, but, it's always interesting how money does play a role sometimes in relationships and knowing that they will have an inheritance coming from me in the form of a policy that I took out on them, might maybe, I don't know, but it might get them thinking, well, hey, you know what? I should stay in dad's good graces, because I've got this coming. So maybe I hope they'll continue to call me at least once a week and we make time to see each other, but that's my hope anyway. And so it just got me down this line of thinking that, well, you know what, these policies don't actually have to transfer over to them in their twenties and when they become of a certain age, I wanna make sure that they're a good steward of this wealth, and they're gonna have demonstrate that to me over their lifetime. And my hope ultimately is that in doing so, it'll strengthen our relationship and it'll naturally just be a part of them always being in my life. So an additional benefit maybe to having a policy on your kid.
- Yeah, and that, I mean, that's a great example of the other side of things, where if you're funding a policy and you own it, you do wanna make sure they're gonna be a good steward. I think I would believe that I'd wanna give them the opportunity to prove it. And, but, you can still do that and maintain control. And that's where some things like, strategic trusts come into play. But then on that note of what's gonna happen in your later years, life insurance is one of the greatest assets you could ever have from the perspective of wealth transfer, generational wealth transfer. It bypasses probate, it's income tax free. It can be estate tax free depending on the size of your estate when someone does pass. And John put a note in here that it's headache-free compared to a real estate portfolio, which is tough sometimes to transfer that value. So especially if some of the step-up in basis rules change. So it's such a fantastic tool to use on a lot of levels that I think it is good to bring into a child's life if it's appropriate. And I think that's maybe where we're gonna head next to talk about some of the pros and cons and determine if it's appropriate and again, Episode 21 is a great one to listen to to get a little more background on that.
- Well, before we go into the pros and cons, maybe just touch on the Rockefeller method of creating, growing and transferring wealth because this is a strategy that the wealthy have deployed for generations. And it's really quite simple when you think about it, but life insurance is the best way to transfer wealth from one generation to the next. And what the wealthiest families have done for generations is when there is a child born, the parents will take out a policy on that child, and it creates this multi-generational plan, because what happens with large amounts of wealth, family wealth, is that in order to preserve it and keep it in the family, you have to have strategies that best utilize the IRS tax code. And as we mentioned briefly, in this episode, what transfer's tax free? Well, the best asset that does so is a life insurance policy. So when you take out a policy on your child, as soon as they're eligible for it, in this case, as early as two weeks from birth, you are locking in a transfer of wealth. And if you can imagine this gets done for your kids and then your kids have kids and new policies are taken out at that time, this is just a repeating formula to make sure that the wealth that is attained in one's lifetime continues to be transferred to the next generation. And that's really all it is, that's the Rockefeller method where you take out policies on the newest editions of the family and you keep perpetuating that wealth from one generation to the next.
- Everybody, well, not everybody, but a lot of people complain about the 1% out there. They're kind of like, they've got that envy thing going on. And what most people don't realize is anyone could live like the 1%. Like, yeah, there might still be people that have more money than you, but it's a mindset. I talk to so many people that all they're concerned about is saving as much money and then being able to live on that money. So they work their whole life, try to save up a bunch of money and then they spend it all. And it's like, well, if you actually, as Nelson Nash points out in his book, if you thought several generations ahead, instead of thinking about the next 30 years, what have you thought about the next 70 years? Your legacy could be a family that lives just like the 1%, because they're not cannibalizing everything. They're not consuming everything that they build. So there's this kind of consumer mindset that we get trained into us really by the kind of status quo, financial planners out there, whereas, real producers of wealth, which that's what the 1% are, they produce. And they just produce with capital instead of their hands or their know-how, and that's, I think, that's a huge thing to think about. And I think it's a big mindset shift, to really move away from that kind of consumer mentality.
- Yeah, I call it going from short sleeve to short sleeve. When you're stuck in that lower middle class economic status level. When you think long-term, and you initiate these policies, and you fund an IBC policy to become your own bank, and then you pass this on to your kids, by getting policies on them and funding in the same manner, you're basically allowing your family line to go from short sleeve to long sleeve, maybe in one generation. If you really do it right, you're gonna have multiple policies and yeah, it's going to happen. But then how do you maintain that long sleeve, right? Continue to go long sleeve to long sleeve from one generation to the next and by long sleeve, I simply just mean like any white collar job, right? Where you're doing less labor intensive work and maybe working more with your brain instead of your hands, so to speak. But that's what I mean going from short sleeve to long sleeve. I liken it to my own family upbringing where my dad was a butcher and my mom was a cashier. I consider the way that we grew up very blue collar in short sleeve. In fact, my dad getting up in the morning, seeing him go to work, I mean, he wore a short sleeve shirt as a butcher, worked in a freezer, I don't know-how he did it for so long, 35 years, but yeah, he was blue collar all the way through and through and disciplined to save, but didn't save it in the right places. And that's a whole nother segue, but anyway, short sleeve to a long sleeve, how do you accomplish that? Well, this is what we do practice and implement for everyone who's interested and takes the journey with us to learn more.
- You've said that analogy before, and I like it, I think it's fine. Next episode we'll talk about going from short sleeves to no sleeves.
- And by that you mean like hanging out at the beach in Costa Rica, no shirt.
- Whatever that means to you. Yeah. Whatever that means to you .
- All right. So we can into a little bit of, we touched on it a little bit, and so there's kind of like pros and cons and like, when should you consider this and I'll just say it for the third time, Episode 21 has some other great info on this. I guess the cons may be, not every child will qualify. So we were kind of talking about, if for some reason, there's like some childhood obesity going on, they may not qualify for it, right? And other than that, I would say the only other con, which we get into in 21 is that you can't fund as much into a child's policy because of what you mentioned earlier, where every dollar buys so much more death benefit than an adult that you very quickly start to exceed the underwriting limits and so the policies tend to not be very big for a child's policy.
- And that's okay. That's okay. Because if, again, if you're doing IBC right, and you're teaching your kids about money and having that conversation which is so important when they're young, what are they gonna do when they're in their working years? They're gonna start their own policies, but you've given them a head start.
- Yeah, and the flip side to not being able to pay a very big premium, well, the other side to compounding is time. So the child has so much more time than an adult that those small premiums really start to create big results, 80 years, that they have for that policy to build. So it becomes a pretty impressive thing.
- I would like to add one thing there too. I mean, if you were thinking about putting in large amounts of money on a policy for your child, well, first off, we would be having the conversation about, well, how much life insurance do you have inforce on you and are you maximizing your human life value?
- Right? Because ultimately if this money's gonna be for the benefit of the child, we should be looking at you first. And we will look at you first before having that conversation about starting a policy on your child, but any additional amounts that can't go into a child's policy, that really should be going into a policy on the parent's life.
- Yeah, I'm really glad you brought that up. It's huge 'cause if you think about what's gonna do the most for your child in the short term is not a cash value policy for them. What will do most is to make sure your income is protected and that everything works out the way that you, as the adult are currently planning, no matter what happens.
- Awesome, well, I think we covered quite a bit, even more than what we planned to. So this has turned into, hopefully, a lot of good information for our listeners out there.
- Agreed and yeah, so check out the show notes to get the other episode, Episode 21, put these two episodes together and you'll have a pretty good baseline of understanding for juvenile policies. If you find this helpful head over to our website, thefifthedition.com, you can get access 50% off of a brand new online course that we have. And if you can, and you think this is useful information, leave us a review and give us a five star review on any of the podcast platforms that you use or just write on our website. And that helps us even more get the word out. So thanks everybody for listening.
- Yeah. Thanks for listening. Take care, everyone.