E74: 3 Disastrous Infinite Banking Myths You Need to Know

Holly: He’s Nate. He makes sense out of money. This is Dollars and Nonsense. If you follow the herd, you will be slaughtered.

Nate: All right, so today we’re here talking about infinite banking. Holly and I were just talking earlier, we get the same questions over and over again, or we find the same issues when people try to get started with infinite banking, things that come up all the time. So, we wanted to make a podcast with just these three areas where we feel like many people are confused or misguided or they’ve heard something, and some of them are from the infinite banking world that we’ve probably made an impression that might not be true. And others, they might be hearing from some blog article somewhere that has told them something that’s just not true, as well. So, we’re trying to cut through the weeds, give you guys some confidence and clarity of what this really is and we’re going to discuss the three areas where we find the most misconceptions.

Holly: The reason we want to do that is so you guys understand from the beginning, or if you’re in the process, or in the middle, what really is going on, and try and be as forthright as we can. But also, one of the biggest things we see is the belief that somebody has this idea in their head and then they go and do that, and it doesn’t work the way they thought it would because of the misconception they had. Because they never verbalized that misconception, or ask the question or if they did, it was after they’d already done it.

Nate: I mean, if you believe something that’s not actually true, that means you can do things that might not actually benefit you. They may actually hurt you most of the time. So, we’re trying to help you not be hurt by some misunderstandings. And the first misconception is probably, a multi-part one. There’s a few misconceptions about the loan scissors when we talk about policies and using them through a policy loan. It’s a unique transaction that we’re just not used to. So, we can come in with some ideas of how it’s going to work and what it does. It may or may not be true. So, the first misconception is going to have to deal with the loan process with policies. And we’re going to talk about the interest part. There’s a common misconception out there about what’s going on with this interest.

Holly: Well I think first, it’s like, I’m going to pay this interest because it is a loan so, there is interest due on the loan. Unless you get a 0%, but no insurance company is loaning you at 0%. Just like most banks do not loan. It’s your percent. [crosstalk 00:02:46]

Nate: It’s hard to stay in business without making money.

Holly: It’s hard to stay in business if you have 0%. And the misconception is that, when you pay this interest, it goes directly to yourself. You’re paying yourself the interest, and that is not true. You are actually paying the insurance company the interest. The insurance company loans you the money, therefore, you’re paying interest to the insurance company. And so, I think that people often think where the misconception comes into, “Well, if I borrow from my 401k and I pay it back, the interest goes into my 401k.” That is true. It is not true of the policy. The money doesn’t go to yourself. However, it does go to the insurance company, and then, you can receive that in the form of dividends.

Nate: We have two ways we buy things; we either borrow somebody else’s money, we pay them interest, or we pay cash for something and we lose any interest our money could have earned.

Holly: Yes.

Nate: You got it? And so, as Holly was saying with the 401K, many times when you take a 401K loan, they don’t let your money stay in the stock market and grow for you, hopefully grow. I mean, that can be up for debate. But regardless, they put it out of the stock market, so the interest you pay is getting deposited, but your money’s not growing the entire time. There’s a reason why the interest company charges interest on a policy. It’s not just, they want to stick it to you. Remember, you’re an owner of the company, they’re here to benefit you. The magical thing you can say about a policy is that when we take the loan from the policy, the money inside the policy, the cash really never stops growing. It’s going to grow at the same pace, compounded the entire time, still earning the same dividends, and essentially, how this works, if I can make it a clear picture, the insurance company is going to loan money to somebody. That’s what they do. So, your cash values growing. They guarantee you it’s going to grow.

I mean, they’re going to pay you dividends. They have for 150 years in a row type of thing. So, they’re going to pay dividends to the policy holders and they’re going to [inaudible 00:04:47] guarantee from their beginnings. How do they do that? Well, they have to make money. They’ll either lend the money out to somebody else or they’ll lend it to you, but somebody’s going to have to pay interest that makes them money so they can credit the policy, the growth of it.

So, when we say, “Does the interest you pay go directly as a deposit into your policy?”, the answer is no. It’s not just a dollar to dollar thing. Sometimes the interest you pay is less than what the interest in policies growing by. Sometimes it might be more. Maybe it just depends on how old your policy is. It’s brand new, it hasn’t really got started growing yet, probably not. But yeah, so the interest is a common misconception where we say pay yourself back with interest. The honest truth is that, it’s not a deposit into the policy when we pay interest, it’s what’s causing the growth of it through them lending you money, you paying it back with interest, and that’s how they can afford to keep compounding your policy. But it’s not actually going directly into your policy.

Holly: And I think the key there, one of the things you should have heard is, we automatically think the insurance company is out to get us. We’ve talked about this misconception that, you’re an owner in the company, you’re a shareholder so, this has benefits you. They’re there to benefit you and help it grow. So, the reason it is going back is because it is a loan. If you had a loan from a bank, you pay them the interest. Now basically, as a shareholder, you are an owner in that company, but you are paying the company the interest.

Nate: And Nelson Nash, that’s a great point. Yeah. Nelson Nash talked about that. We have to really see ourselves as owners of a bank, and we can’t, if you’ve read his book, steal the peas. And what he means by that is, most people, when they own something, they don’t think they have to pay to receive it. So if you own a third party bank, you could take a loan out at 0% if you wanted to, you own the thing. I don’t know how regulatory issues would come into play, but I guess you probably could. You give yourself favorable deals. And he’s saying that’s not a good business practice.

I do agree. There’s a misconception. I get the question, “How does the insurance company make money?” And essentially, it’s like this thinking of, they’re out to get me, they’re trying to make money off of me, what’s in it for them? But in reality, the insurance company does make money. They make it in a lot of ways. The question is not how do they make money off of you, the question is, the whole purpose of them being in business is to make money for you. You’re an owner of the company. Any money they make off of you, I’m using bunny ears if you can’t see me, if any money they make off of you is profit that they send back to the policy holders. There’s nowhere else for it to go. So, that’s what they have to do is, make profit, and send it back to the policy holders.

Any interest they charge you, it’s not like they’re just trying to stick it to you. No, they’re just trying to be profitable enterprise to profit everybody including you That’s the whole point.

Holly: Their job is to be a business, and their job is to make money for you. Really, that’s the bottom line. To pay back benefits and make money for you. That is the job of the insurance company, because you’re the shareholder and all you had to do was buy a policy to become a shareholder.

Nate: That’s the only way.

Holly: That’s the only way. It’s not like you’re in the stock market trying to figure it out. So, point number one, the loan interest goes back to the actual insurance company.

Nate: Most stockholders buy stock in a company, you’re not trying to think, if you buy stock in a Walmart, we’re not sitting there thinking, “How is Walmart going to make money off of me after doing this?” No, we’re focused on, “What are they doing to make money for me?” And that’s the whole point.

I’m the owner. I’m a part owner of this thing. I own stock now. I want them to do business practice that’s going to make money for me. The interest does not go directly to your policy, but it does benefit you, as far as, they have to lend it somewhere. They can lend it to you or somebody else, but either way, someone’s going to be paying interest. Your policy is going to grow the entire time. Compound many times, it’s going to compound by more than the interest you pay.

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Nate: People think that it’s the loan repayments that we make. So, if I go out and borrow money for a new car and I repay it with [inaudible 00:10:18], they think that just by repaying the policy, that is what’s causing the policy to grow. And the more loans I take, the more my policy is going to grow. Why is that a misconception, Holly? Why is that not exactly true?

Holly: Well, the misconception is that your money was growing, whether you borrowed it or somebody else borrowed it. Its principal, you’re paying back, really, on a loan. The only way the policy grows is, the premium is what drives the policy growth. It’s like taking $100 and buying groceries at the grocery store, and then, you eat the groceries and they give you the a hundred dollars back and you go buy more for groceries.

Really in reality, the hundred dollars you gave them, you just got back and earned and you gave them another hundred dollars. On a loan, It’s the same thing. Whether it’s ten thousand, twenty thousand, five thousand, the principal just says, “Hey, you have $5,000 again tomorrow.” That’s really all it says. The money was sitting there compounding year after year in growths. So, it’s the premium. It’s what you actually are putting into the policy, not the loan repayments that’s driving the growth.

Nate: We used to think Ray will tell us this. This would’ve been early 2000s. 2002, 2003. Haman, his clients were taking loans every month, and paying them back every month, and taking them out every month, and paying them back every month, and they were just shoving the money in and out because they thought the power was, “How many loans can I take and how much money can I send back in loan repayments?” And then we get to the end of the year, and he realizes his cash value is exactly where it should have been anyway.

He didn’t boost the cash value by making all of these transactions. He calls it a jumping through mental gymnastics type of thing. What we’re trying to say is, the good news is that no matter how many loans you take, your policy is still going to grow as if all the amount was there. The loan itself does not limit the growth. It doesn’t actually expand the growth either. The policy is going to continue to grow, but this misconception says, “I’ve got to pay my loan back really fast”, because the loan and again, my back pay is very important. What we’re trying to do, and this is a suggestion to kind of weed through this, with this understanding, but only payments do not boost the policy faster. As Holly said, the only thing that boosts policy faster is more premiums into it. Every time we pay a premium, we add new money to it.

When we take a loan out and repay it, we’re just replacing what we took out. So, anytime we get new money, that’s important. So what ray and I have done, and Holly have done is, we’ve said, “Why don’t we expand the term of the loan?” So, instead of paying you back over two months, or 12 months, what if I pay me back over 60 months? So now, I don’t have as much going back towards the loan. That means I’ve just freed up money each month that I can pay towards my premium, maybe in a paid petition writer, or maybe a new policy. And now, we have changed the policy. This also can be heard of as paying yourself extra interest. So, you’ll hear us talk about that too here. If the insurance company has a 5% low, we may pay back at 10%, and that extra interest will boost the policy.

Holly: Yeah, because the extra interest is actually going as premium. Paid up additions premium to the policy, not to the insurance company. What’s paid to the insurance company, key, the interest that they charge you is paid to them. The extra interest you pay is premium, and that is the only thing that drives growth in a policy, is premium. Not how many loans you can take out in a year and repay. And understand what Nate said in the terminology of extending the loan out, it only frees up cash for you to put into your policy to create more growth. Versus like, “Oh, I’m cash poor and asset rich.” Really, because we’re trying to make it so that you’re not cash poor, and that the policies continuing to grow and you’re able to meet the terms and conditions of the loan you established.

Nate: I talked to a lot of people, especially people who don’t start with us as far as being a client. They think that they’re paying the premium, let’s say it’s a $10,000 a year premium [inaudible] policy, and then they’re just taking loans out, repaying it, taking loans back, and they do it really fast and they think that they’re practicing from the bank and just by taking loans back and repaying it, that’s very important. We want you to treat it as a bank. However, you’ll find that all you did was take out loans and repay it.

20 years down the road, all those loans and repayments, they’re not driving more and more and more growth than what you would’ve been on anyway. So there’s good news, that we can make all the loans we want, and the policy still grows the entire time and that’s amazing, but we have to also be smart and say, “Well, if that’s the occasion and the premium is what gets more growth, can I situate myself to extend the loans, not repay them super fast and maybe add 11,000 a year and reduce my loan payments by $1,000 a year?” And now, 20 years later, and we are at a different level. So, the first one that had to do with all these misconceptions about loans and interest and how they work, the second one has to do with how long it takes for you to actually start using your policy. So Holly, what do we mean by that?

Holly: I’ve heard this a lot. I have to wait five years before I have cash, but you have to wait five years before I take a loan, or I have to wait three years before I can take a loan that I’m just putting money premium into this policy, but I can’t use it or access it. So, that’s a big misconception that people have is that, I start this life insurance policy, but it doesn’t benefit me in any way in regards to taking a loan out or using that cash value until five years down the road. And that just is not true at all. You might, with a traditional policy that somebody would sell you traditionally, but it all goes back to the policy design. But you can have cash value immediately. And when I say immediately, we’re talking a month, two months within starting a policy to be able to access that money and use it.

Nate: Exactly right. Not only that, some people think, “Well, I’ve heard that I have to wait three or four years so, that’s what I plan on doing.” What if there’s things we need to do right away? There may be three or four or five years of funding it before the policy really starts to start becoming very profitable, but that doesn’t mean that we should just sit on the money and not use it. What if we have avenues to put it to work right away? Let’s do it. So yeah, there’s a misconception that it takes five years before I can even start using it, but then there’s like, a pendulum swing. So, there’s that one side in the pendulum and it takes forever to use it. Which is not true. Almost every one of our clients takes a loan in the first year. They have it in the first couple months of that policy.

That’s through the GPS system we produce and we’ll show you what to do by looking at what’s going on financially, we’ll show you. The other flip side is that, there’s other people who think that the policy is much more profitable than it is much sooner. In other words, they think that just by owning a policy, they can be a few years in and be extraordinarily wealthy. I get this, but people come in and they’re going, “Wait, it takes me five years for it to really be grown by x amount?” They think that it’s a short term thing, like it’s a get rich quick scheme. [inaudible 00:17:20] thing. I can get super wealthy, super fast. I don’t know where that idea come from, but infinite banking is a longterm focus. It’s something that you are going to have with you as a banking tool until hopefully, until the day you die. That’s how you benefit the most.

Holly: And we even say, don’t think of your policy or any policy is a hundred yard dash. Think of it as a marathon. That it’s going to take five, six, seven, eight years, maybe, right? To really see this profit that you have. But would you invest that amount of time if you knew after four years or five years, nobody could get ahead of you for the next 20 years?

Nate: Exactly right.

Holly: I mean, I’m turning miles into years, but really, we are an instant gratification society. There’s rules to doing this and to following into being successful, but it’s like Nate said, I don’t understand how somebody says, “I’m only putting $4,000 in, but why don’t I have $20,000 to use?” It doesn’t work that way. And I often say back to a client, “Do you know, any investment that you put $4,000 in, two years down the road, you could pull 20 out.”

Nate: So, there’s two sides to this. There’s the side of, “Man, it’s going to take me forever to use this thing!” That is absolutely not true. But on the other side is, “I should be profitable in my policy.” It can take probably five to eight years, most of the time, on a policy from how much you paid in equals the cash value. And why are we willing to wait that long is because, life is not five years. I mean, if you plan on dying in five years, you should buy as much insurance as you can, but …

Holly: You’re going to beat the insurance company. That’s for sure.

Nate: Beat the crap out of the insurance company. Yeah, that’s the best way to think though. But we believe that wealth is a lifelong pursuit and we’re not in it for what it produces in five years. We’re in for what it produces in 20 years, in 30 years. And if you’re not going to live for 20 years, the insurance company won’t write you a policy if they think that. Because they expect if they’re going to write you a policy, they think you can live a long time, you’re healthy enough to do that. So, let’s bet with them and let’s plan for longevity for longterm. Building as much wealth life. It’s not a sprint.

Nate: So, there’s two misconceptions. That it’s going to produce a ton of income right away that will make a huge amount of profit. Which is not true. It takes time. Everything that’s good takes time. People forget about that in this culture. This instant gratification goal. It takes time to build your bank, but it’s so worth it once it’s there. As Holly was saying, once you have a policy that is five years old, there’s no going back. The thing is just making you more and more money each and every year. Where you can be putting in $10,000 of premium and you’re five and pull out 15,000 of cash value. When are you going to want to stop doing that? Is it worth being behind schedule at the beginning to be able to make 50% on your money every year on your premium or something like that? So, we can show you how to do that, but don’t come in expecting it to make you incredibly wealthy a couple of years into it.

Holly: Yeah, and don’t come into it expecting it’s going to take forever to be able to take a loan out. That you can’t use that money you’ve put in there for five years or even three years. That’s just not true. And so, it really is in policy design that there are people that say, “Oh, you’ve got to wait five years.”

Nate: No.

Holly: No.

Nate: Ask the thousands of clients that we met at [inaudible 00:20:43] in the first year and use it. So, that’s the second misconception. The third one is kind of the biggest one, that the hurdle that people run into, and it’s a mentality. It’s a misunderstanding or it’s a lack of change. We call it the payment mentality. So, the third misconception is that, for whatever reason, people don’t see the policy as a bank. No matter how much we tell you to see it as a banking tool where money goes in, money goes out. We still have this issue where every time we put money into it, we think of it as the form of a payment or a liability or an expense. And that can really weigh down your ability to build a good bank because we see it in an incorrect light.

Holly: Nate said this even yesterday and it was so true. He said, basically, because of the payment, the premium came out of our bank account. We see it as we’re worse off, we have less money, we’re poor. Instead of, in reality, you’re actually gonna be richer by making a premium payment. Not only death benefit, but the access to be able to use the cash that you’re putting in there. Now, if it’s relatively new, we’re not necessarily saying, “Hey, it’s dollar for dollar that you get back.” Not true at all.

But what we are saying is, if you stopped that mentality, and my dad says this a lot, Ray says this, have you ever made too many deposits into your own bank account? None of us have ever made too many deposits into our own bank accounts. And if you view it not as a premium payment, but as a premium deposit, that it’s a deposit into your bank account. Yes, that left your bank account out here at one of your local banks, but it went into your own private family bank account. Your life insurance policy that you get to control, and it actually made you wealthy. It made you more rich. It created generational wealth, today and in the future.

Nate: And so, instead of seeing the premium as this payment, see every payment you’ve ever made, you’ve sent money to somebody and then money’s gone. Whether that’s a car loan payment, a mortgage payment, or just simply utility bills or other insurance premiums.

Holly: Yeah.

Nate: Term insurance, car insurance and whatnot. So, whenever we make payments, we’re so used to the money being gone. We don’t like when money leaves the bank account because that’s where we are. Anything that leaves the bank account means I’ve got less money. And we roll, unfortunately, subconsciously, we roll the policy into that. That’s what breeds the questions. “Man, when can I stop paying this premium payment? You’re saying that when I take money out of my policy, I have to pay myself back?” We get these issues where we still throw the old world into the new world and it keeps you very limited on what you can do if you see it that way. And as long as Holly was saying, I mean, maybe not the first two years. When you pay a premium payment, your policy is not going to grow by more than you put in for the first couple of years, but by year three, year four, you can put in a $10,000 premium and have $12,000 of cash value. We have to stop seeing the premium as a payment. It’s just moving money from one pocket to another.

Holly: Most of us typically have at least one or two bank accounts. Whether it be a checking account and a savings account or something. All you literally are doing is taking it from one bank account, and you’re putting it to the other bank account. That bank account though, is the life insurance company, and that’s your life insurance policy. No, the check is not made out to you, but you’re the owner of that policy.

Nate: Instead of seeing it as a payment, the premiums and the loan repayments you make, any money that goes in, you cannot see it as a payment. You have to say, “Okay, when I write this check, what’s going to happen? Is the money going to be gone? How much is going to be available after I write it?” Because this became very crystal clear. I have plenty of clients who come to me and they say, “Man, I’ve got life insurance policies that I’ve owned for 20 years, 30 years”, and they’ll come to me and they’ll say, “I want to get started with the IBC policies. Should I stop paying into this old policy?” So, let’s say I have a $2,000 premium that I’ve been paying on this whole life insurance policy for 20 years. Should I stop paying it there to pay into an IBC policy?

And the reason they asked the question is because, they don’t like paying into that policy. They think of that as a payment. They’ve never used the policy. That’s the biggest issue, is that all they’ve done is send money to them. So it feels just like a payment that are making. They’ve got this life insurance payment on the expense side of the budget. And what I always say is, that might make sense, but first we have to see. Let’s say I write a check for 2000, but what is that $2,000 going to produce? So then, they go get what’s called an enforce illustration from the insurance company, and they look at it and for the first time they see this $2,000 premium that they pay in creates $6,000 of cash value on this 20 year old policy. They’re like, “What?” I’m like, yeah, you’re no longer making a premium payment.

You’re moving $2,000 out of a bank account into a policy and it’s going to produce $6,000 of cash value on this policy. Do you want to stop doing that? The answer is typically no. If you have this payment mentality going into life insurance, it’s going to cause some problems because you’re never going to really see the system what it is. You’re not going to use it very much. You’re going to have this, what we call, poverty mentality. We’re going to say, what’s the least amount I can put in it? What’s the least amount I can do? That’s not a way to build wealth. That’s why people are poor right now because they want to say, “What’s the least amount I can put in and still make it in the future? What’s the least amount?” We’re like, no, we’ve never made too many deposits.

Holly: And the lease mentality only gets you a poverty mentality. I mean, it only creates poverty instead of, “What is the most I can put in, and how much do I gain?” Ray tells the story of his mom who would complain. She had a 30 year old policy, but for the first 20 plus years or so, all she did was complain about the premium payment.

Nate: That her son sold her.

Holly: That her son sold her, right? This blankety, blank, blank premium payment, right? And then, when she realized the growth of the policy, her entire mind shift changed to, “Why didn’t you sell me a bigger policy? Why wasn’t I putting more premium in there?” So really, understanding that this actually is an avenue for you, or the other question that goes along with it is not the least, but when can I stop paying premiums? And I say to people when they’ve asked me that, “Would you ever want your boss to stop paying you for your work? Would you ever want to stop writing yourself a paycheck, paying yourself?” No. Well, that’s what you’re doing when you’re stopping your premium. You’re not paying yourself because if you’re viewing it as a deposit, a bank wants as many deposits as it can get. In the same way your policy, you should want as many deposits going in there as you can have available.

Nate: In other words, the question of how is it possible to stop paying in premium, the answer is yes.

Holly: Yes.

Nate: Your policy can grow after you make it through a short amount of time, and you don’t need to pay premium. But normally when that questions asked, it’s, “Man, I hate having to come up with the money to pay this stupid premium. When can I finally make it stop?” I mean, if we get to year seven in a policy, and I say, “Yeah, you don’t need to pay premiums anymore, but if you could put it in this $10,000, they’ll send you back 18,000”, my question to you is, why would you want to? Typically, it’s a misunderstanding.

And we know that it’s not a payment, but we think of it as a payment obligation. We also think that if we can’t pay the full premium at any given year, that everything’s going to explode and you’re probably thinking, “God, I’m going to lose all my money”, or something like that. As a way less stringent, way more flexible than most people realize, that can cause some of these problems. So, education is typically the number one way, but if you can get rid of that misconception that the premium is a payment, an obligation that makes me poorer, or even the loan repayments I make are a payment, an obligation that makes me poor, you’re going to miss out. You have to say “When I make these contributions, what happens?”

Holly: Absolutely.

Nate: And with that, I think we’ve probably over went our time. This has been Dollars and Nonsense. If you follow the herd, you will be slaughtered.

Holly: For free transcripts and resources, please visit livingwealth.com/e74.