I can take this one. People are asking why don’t I do like an IBC policy for my kid, or they hear us talking about using this in lieu of the 5 29 plan, which I’m not a big fan of for their college savings or education. The big thing here is yeah, it’s cheaper to buy insurance per kid, but the problem is like a lot of these insurance payouts is based on how much money you’re making today, based on your pay stubs or salary or tax. And your baby, in this case, or a young kid doesn’t make any money so they can’t get very much. It doesn’t make much sense because you’re not going to get any too much of anything.
And I’ll just add, so that limitation of 50% of the parents total death benefits so what they’ll look at is they’ll look at the parents and see how much total death benefit the parents have. One example we recently just did as a parent had $1.6 million death benefit so that the child’s policy could be no more than an $800,000 death benefit. Their cost of insurance is very low. What that results in is a very small amount that you could contribute so that resulted in seven grand a year, max, that this person could put into that policy for the child in order for it to have the maximum cash value, growth and dollars, only over five years. Doing it over the over seven years, it would drop. They could only contribute four to 500 a year. Not really much in the sense of cash value and utilization of a cash value, but it does have a benefit that it’s a policy on the child.
My personal recommendation would be maximize policy on yourself. You’re able to maximize your dollar and have it grow throughout your life. And then also when you pass a death benefit, then can transfer a generation earlier and having it on your child. Your child can still access and use it and have access to the cash value and benefit from it that way, even though they’re not the ones being insured.
Sure. Yeah. Another con would be, the kid has access to the cash value where you have to be careful with that. Of course! And then another thing it’s very similar to people talk about, oh, I’m going to pay my kids a salary or put them on my taxes. And this is a big video or like podcast episode that people like use as clickbait just to sell views and listeners. In which is a strategy where it works, you pay your kids, really? What are you gaining from this? So you can pay five to $6,000, which is the standard deduction where you don’t have to file taxes, but like at a 20% tax bracket did all this work and in the book effort for what, 1500 bucks. And it’s not worth the effort. And most of the people doing these IBC they’re putting at least 25,000, $50,000 a year. A kid probably maxes out or would you say four or five grand a year? It’s not worth it.
No, that was on a newborn. And I would say if you have a child who is putting an income, once they started putting in an income, decent income in their twenties or so. Yeah, for sure. I think starting policies on them would be a good. At that point, this example was for people asking for their newborn or a one-year-old and starting the policy now.
Well, but then the danger is that now they have access to it. Go buy whatever they want with it.
So the parents would be the owner until they’re 18 at least.
Like when I thought about this the point is instead of a 5 29, it’s a way to fund the kids’ college. So if you’re putting in $7,000 from when they’re zero to seven, that you’ve put in 49 grand, what does that look like when they’re 18? Because it may well be more than enough to still fund their college education or whatever they choose to do at that point.
My recommendation would be that time period would be the same if you did a policy on yourself or when working. You’d be able to more at same amount or have it be more cost efficient policy and then access your cash value to do the same, even though it’s not in their name. But I don’t know if that made sense.
Yeah, it’s not like you’re saving much and just the time. Time is more valuable than money as I see it. So just get it in your own name and it’s easier to access too. I feel like it’s your retirement funds don’t need to be an a sole 401k self-directed IRA. It doesn’t need to be in a retirement account. It could be in your savings account. We can still call it retirement account.
Same thing here. Like your kid’s college savings doesn’t need to be in their infinite banking could be in yours. It could be an altoids’ tin in the backyard too.