The Infinite Banking Calculator is a useful tool designed to help individuals manage their whole life insurance policies as a means of building wealth, providing a death benefit, and creating a personal banking system. By understanding the inputs and calculations involved, you can gain insights into how this concept can benefit your financial planning.
Understanding the Calculator’s Purpose and Functionality
The Infinite Banking Calculator helps you estimate the growth of your cash value, the available loan amount, and the repayment amount for any loans taken from your policy. Here are the key components and their definitions:
Inputs:
- Initial Investment: The amount of money initially invested in the whole life insurance policy.
- Annual Premium: The annual premium paid into the policy.
- Interest Rate: The annual interest rate earned on the cash value of the policy.
- Policy Loan Interest Rate: The interest rate charged on policy loans.
- Policy Loan Amount: The amount of money borrowed from the policy.
- Loan Term: The term or duration of the loan in years.
Calculations:
- Cash Value Growth:
- Formula: Initial Investment + (Annual Premium * Number of Years) + ((Initial Investment + (Annual Premium * Number of Years)) * Interest Rate)
- This calculates the growth of the cash value over time based on the initial investment, annual premiums, and the interest rate.
- Death Benefit:
- This is the amount that the beneficiaries receive upon the death of the insured, typically the initial death benefit plus any accumulated dividends or cash value.
- Loan Available:
- Formula: Cash Value – Outstanding Policy Loans
- This calculates the amount available for a policy loan.
- Loan Repayment:
- Formula: Loan Amount + (Loan Amount * Policy Loan Interest Rate * Loan Term)
- This calculates the total repayment amount for the loan, including interest.
- Net Cash Value After Loan:
- Formula: Cash Value – Loan Repayment
- This calculates the remaining cash value after repaying the loan.
Step-by-Step Examples
Let’s go through an example to see how the calculator works in practice.
Example:
- Initial Investment: $10,000
- Annual Premium: $2,000
- Interest Rate: 5% (0.05 as a decimal)
- Policy Loan Interest Rate: 6% (0.06 as a decimal)
- Policy Loan Amount: $5,000
- Loan Term: 5 years
- Cash Value Growth Calculation:
- Number of Years: 10 (for this example)
- Cash Value Growth = $10,000 + ($2,000 * 10) + (($10,000 + ($2,000 * 10)) * 0.05)
- Cash Value Growth = $10,000 + $20,000 + ($30,000 * 0.05)
- Cash Value Growth = $10,000 + $20,000 + $1,500
- Cash Value Growth = $31,500
- Loan Repayment Calculation:
- Loan Repayment = $5,000 + ($5,000 * 0.06 * 5)
- Loan Repayment = $5,000 + ($5,000 * 0.30)
- Loan Repayment = $5,000 + $1,500
- Loan Repayment = $6,500
- Net Cash Value After Loan:
- Net Cash Value After Loan = $31,500 – $6,500
- Net Cash Value After Loan = $25,000
Relevant Information Table
| Input | Value |
|---|---|
| Initial Investment | $10,000 |
| Annual Premium | $2,000 |
| Interest Rate | 5% |
| Policy Loan Interest Rate | 6% |
| Policy Loan Amount | $5,000 |
| Loan Term | 5 years |
| Calculation | Result |
|---|---|
| Cash Value Growth | $31,500 |
| Loan Repayment | $6,500 |
| Net Cash Value After Loan | $25,000 |
Conclusion: Benefits and Applications of the Calculator
The Infinite Banking Calculator is a powerful tool that helps you understand the potential growth of your whole life insurance policy’s cash value, determine available loan amounts, and calculate loan repayment terms. By using this calculator, you can make informed decisions about leveraging your policy for financial growth and personal banking purposes. This tool not only simplifies complex calculations but also provides clear insights into the financial benefits of infinite banking, allowing you to plan effectively for your future.