E237: Can You Practice IBC Without Whole Life Insurance?

In this episode, Nate Scott dives into whether it is possible to do infinite banking without using whole life insurance. He explores alternative financial strategies such as velocity banking and borrowing against brokerage accounts, comparing and contrasting them with the principles of infinite banking. While acknowledging the effectiveness of these alternatives for cash flow management and asset building, Nate explains that whole life insurance policies offer unique benefits for wealth accumulation and creating a banking asset with guaranteed returns.

Ready to become your own banker and build financial independence through infinite banking?  Schedule your FREE consultation now!

Key Takeaways:

  • Infinite Banking Versatility: While infinite banking principles can be applied without whole life insurance, they may not offer the same unique benefits.
  • Alternative Financial Tools: Strategies like velocity banking and borrowing against brokerage accounts can be effective for cash flow management and asset building.
  • Unique Benefits of Whole Life Insurance: Whole life insurance policies offer a secure and guaranteed method to build wealth and create a banking asset that produces value in various aspects of life.
  • Personalized Financial Choices: Choosing the right financial tool depends on individual preferences and objectives, with each option offering distinct advantages tailored to specific financial goals and circumstances.

Episode Resources:

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What is Infinite Banking

Who was Nelson Nash?




Nate Scott [00:00]:

Is there anything actually special about the process of infinite banking? There’s gotta be another way to become your own banker without having to use whole life insurance, right? Glad you asked the question because in this episode, I’m going to dive into that question and discuss all the other financial tools available to do IBC without actually doing IBC with whole life insurance.

And this will hopefully help you see if the whole life insurance part of infinite banking is actually for you. I’m Nate. I make sense out of money. This is Dollars and Nonsense. If you follow the herd, you will be slaughtered.

Nate Scott [00:41]: 

All right, guys. Welcome back to the show. It’s so great to have you here. Man, this has been, can’t you tell that we have fun doing this show that I have fun every day, waking up saying, what can I tell the world about finance, money, life, philosophy, psychology, and especially the infinite banking concept.

And, today we’re going to almost combine all of that into this episode. Really diving into can you do Infinite banking without involving a whole life insurance policy. Can you do something that is similar to infinite banking without involving this stupid life insurance policy that Dave Ramsey and everyone else has said is just horrible?

Nate Scott [01:19]: 

And of course everyone knows people who’ve tried to sell them on whole life insurance, right? And so they’re all of our guards are up and rightfully so the idea is this, or what I hope to get across in this episode is that there actually are other valid ways of doing this whole infinite banking style thing without using whole life insurance.

But there are, of course, reasons why someone like me would believe that the whole life insurance part is extremely valuable, especially to certain types of people. So my hope is, once again, and I recently did an episode trying to bridge the gap between people who hate whole life insurance and people who love it for the infinite banking concept and just say, can we be friends?

Nate Scott [01:57]: 

That’s what I’m going to do here too, by the way, is that I, of course, believe that whole life insurance is an extremely important piece of the infinite banking concept. And but there’s other things that can work similarly that I think would just be helpful to know about. So let’s go and dive into this.

The first thing I want to get across is that whether you’re going to do the infinite banking concept the way it’s supposed to be done using high cash value, dividend paying whole life insurance issued by mutual companies to use as your banking tool, whether you’re going to do that or whether you’re going to adopt a different form of something that’s similar to infinite banking because you like that idea.

Nate Scott [02:32]: 

No matter what you end up doing. Everything starts at this premise that banking, the function of banking, is a thing that’s going to happen in your life, no matter what you decide to do. This is the starting point for any conversation. Without having this part of the conversation, there’s no point even talking about infinite banking.

So the idea is that the function of banking is going to exist in your life and it can exist in different forms for different people. There’s conventional ways and there’s unconventional ways. And so we have to understand that. Hey, banking is going to exist. And really what infinite banking is bringing to the table is saying, Hey, there is this other way to do this with a whole bunch of benefits that we think is going to be better than the way most people do banking.

Nate Scott [03:22]: 

And that is the whole premise of IBC, by the way. And you’ll notice that in that world, we’re not talking about investing money. We’re not talking about, Hey, whole life insurance produces better investment returns than stock market investments or real estate, or you have to choose between doing your real estate investing or whole life insurance, or you have to choose between investing in your business and whole life insurance.

All of this nonsense that people originally get hit in the face with whenever they start learning about this the typical questions that they bring up I’m just really saying we’re not even in that world yet. That’s not even where we’re starting that premise. The idea of the premise of Infinite Banking being that whole life insurance policies produce the best rate of return in the world for as far as an investing return would go.

Nate Scott [04:06]: 

That premise is not even a part of this conversation. The idea is this. Banking is going to exist. Inflows and outflows of cash flow and capital are going to happen in your life. Money has to reside somewhere and a lot of this concept is called banking. You’re going to buy cars, you’re going to buy assets, you’re going to buy a home, maybe invest in real estate, maybe start a business, maybe you’re already in business in which you know you need capital, you need a banking function to exist, you’re going to need to borrow money potentially to expand, you’re going to need to raise money to expand, you’re going to need to use your own money to expand.

All of this style conversation is powered. All investments, every, everything is powered by the banking function. And there are different ways to solve the banking function. So whenever someone says, Nate, can you do IBC without whole life insurance? I would say kinda, yes, kinda, no. The term infinite banking refers to a specific thing.

Nate Scott [05:01]: 

So of course you can’t do infinite banking without dividend paying whole life insurance. If you’re saying, can I mimic what I get to do or what infinite banking talks about without ever having to touch the whole life insurance piece. I’d say kind of, yeah. Because even in infinite banking circles, even in this whole concept, many of us would say banking is a process that you could do in a shoebox if you wanted to do it in a shoebox.

You can store money up in your shoebox and pay cash for things and pay yourself back in your shoebox and be fine. Is that infinite banking? No, it’s not. But yeah. That’s the process of banking outside of the world of conventional banking systems without using debt instruments in order to build wealth and whatnot. 

Nate Scott [05:38]: 

So essentially what I’m getting at with this is of course, the process of banking can be done in many different ways. Infinite banking just happens to be one, one place that the process or the function of banking can be solved for. And it has a whole bunch of benefits that I think you’ll see.

It’s hard to replicate charge, replicate elsewhere. So if we go into this even further. We would all know that if I’m going to, if I’m going to have the function of banking existing in my life, then we have to define what that even really means to us. So for most people, we use banking as a way to store up safe money. They’re banking.

The goal of money in checking accounts and savings accounts would be, I want some money to be safe. In case I need it, like an emergency fund, some people would say I need to store up money in banks because I need to, I’m like saving up for something, right? Like maybe I want to invest money into a business or start a business or invest in real estate or buy.

Nate Scott [06:33]: 

All these fun things that you would especially find in the alternative investing world. And so they’re saying I’m setting money aside here, and banking to be able to do that later on. So banking is this storage of capital that’s supposed to be used on top of like checking accounts that are used to pay for everyday things.

Of course, banking, you can also get loans from that whole banking world. So the world of checking accounts, savings accounts. And borrowing money that exists in the conventional banking world. And so the banks almost have an entire monopoly on the banking function. They’re in the business of banking, right?

They’re offering the banking function to the world based on the platforms that they’ve developed. Especially with online banking, checking and savings accounts, ATM machines. All of these things are products that they offer to the world that perform the function of banking. You don’t need a bank to perform the function of banking, by the way.

Nate Scott [07:22]: 

I’m just saying that they are, they have this monopoly on the function of making, and it’s the most conventional way to do it. The biggest issue with doing conventional banking. And the main reason infinite banking exists is that it’s not very friendly at the you and me level. Most of the time the growth of our savings is paltry compared to what the banks are actually making off of our savings.

So whenever we make deposits at the bank and they go out and they lend money and they lend it at 7% for a mortgage and they pay us. Two or three percent on our savings account or whatever it is, depending on the timeframe. I’m just merely saying there’s always a pretty decent spread between what they’re making and what they’re paying us.

Nate Scott [08:01]: 

And then on top of that, all of what they pay you is taxable. So if you’re like me and I pay it, I make a lot of money and I pay a ton of tax. I’m in. Between the state and federal tax brackets, somewhere between 30 and 40% total tax load on, my top income bracket. So I’m just saying that the interest they pay me, if they’re paying me even 5%, it really only feels like 3% because I got to give 40% of my 5% to uncle Sam.

So at the end of the day you just feel like you’re getting fleeced out there. And that’s why other types of money management, cash flow management, banking function style, things exist. Infinite banking being probably the premier one right now in the world. As I say, as a way to say, I don’t want to do the conventional banking thing.

Nate Scott [08:38]: 

And I want to go do something different. So can you do something like infinite banking and with traditional bank accounts, depends on what you mean, depends on what you mean. Can you put money into a CD and borrow against that CD at a bank? Yeah, you can. You can do that. Can you put money into a checking account, pay cash for things and pay your checking account back? Yes, you can. 

Just the function of banking. Yeah, of course you can do that at a bank. You don’t need a life insurance policy to do it. So let’s keep moving on. But what we would say is, yeah, there’s not much money to be made in that world. So there’s other things happening. One of those you’ll find online is this term of velocity banking.

Nate Scott [09:12]: 

I’m sure many of our listeners have maybe heard of this term and I’m going to butcher it. I’m not like a velocity banking specialist. I should have a guest on here that is a velocity banking specialist talk about it. But the idea of velocity banking is more so saying, Hey, since banking sucks, maybe we don’t even really need the conventional checking and savings accounts at a bank to manage our cash flows.

Maybe instead we can open up a home equity line of credits, a HELOC or just a personal line of credit or some sort of line of credit instrument. That would be offered by a bank and we can essentially use that as our bank. So we could borrow from the HELOC to go pay down debt or to go buy real estate or go buy assets and then have all of our income go pay down– 100% of our paychecks actually get deposited against the line of credit, right?

Nate Scott [09:56]: 

And then just use the line of credit to pay the bills. So a lot of times you can get like a debit card style thing. Attached to your home equity line of credit or whatever it is. And so there, there’s this idea called velocity banking. Why does that velocity banking exist? Because they say the traditional banking instruments are not very good.

So let’s go ahead and do something different. So you have velocity banking. I’ve also, you’ll run into people who maybe actually will use– they store all their capital in brokerage accounts or mutual funds and stocks and bonds and all of that. And they use margin loans is what they’d be called. They’d be borrowing against their portfolio when they need capital.

You run into this a lot in the world of finance as well. So they store up all their money in mutual funds, style instruments, stock market style instruments, securities, and then they borrow against those things. And they’re doing something like infinite banking and without having to use whole life insurance.

Nate Scott [10:43]: 

So what I’m saying is there’s all these other tools out there that do exist in the world that can help you achieve something very similar to what you would achieve with infinite banking. But of course the devil’s in the details. There are things that are different that you could then decipher through the differences to determine which one you like better.

That is what I try to do. If you’ve been around this podcast for any amount of time, you know that Nate does not like to say objective statements. I think in the world of sales, which I technically am in. Objective statements are supposed to be used to help people be convinced of what you’re saying, like, of what to do what you’re saying to do, people actually like to follow very confident leaders and very confident salespeople can lead people to certain destinations by just speaking with such a high level of confidence and I, that’s all great and there’s a time for that.

I’m just merely saying deep down, there is actually a difference between being confident speaking objectively versus being more of a subjective nuanced viewpoint. So that’s what I would like to bring to the table here is saying, yeah, there are other ways and maybe there’ll be better for you to do those other things.

Nate Scott [11:49]: 

But there’s a huge swath of people just like me and probably just like you listening that if we piece through the devils in the details style things with every other opportunity to do the function of banking, you would actually wind up saying, and actually, if you just get over yourself and the discussion of whole life insurance that you’ve heard.

Most of the time someone’s viewpoint on whole life insurance is based on someone else’s misconceptions. Like this is oftentimes the case. So if we can get past the idea of, I want to do, I like the idea of infinite banking, not being, stuck with banks, but I don’t like whole life insurance.

We’re like maybe, Actually, the problem, it’s actually such a unique use. Let’s go and dive into this.

So let’s start with the whole velocity banking thing. I actually am not opposed to that at all. And in a lot of ways, I think some of what is in the velocity banking world, using lines of credit to fund your lifestyle and fund everything in your life. There’s a lot of wins there. It’s actually very infinite banking-esque.

Nate Scott [14:00]: 

It’s very similar to it. But the issue though, is that whenever you’re using velocity banking, the actual process of banking, you don’t actually get to create a brand new asset that you didn’t have in existence per se before that now. So I think that there’s a bit of a difference between velocity banking.

And then just using other people’s money to buy assets. If that’s what you mean by velocity banking, I’m saying great, go ahead and do that while you also do infinite banking. But what I’m trying to bring up though, is that the issue with velocity banking is that the main goal at its core is cash flow management and reducing overall interest costs over a lifetime by getting rid of amortized debt and other things and trading them off the lines of credit.

With that being said, one of my biggest issues has always been. That, like whenever all the dust settles you may end up having no debt, but you also don’t really have a brand new banking instrument asset to show for it. You’ve just paid down all the lines of credit. You’re not paying interest to anybody anymore and all of that’s great.

Nate Scott [14:55]: 

And you can tap into the line to go do things, but you don’t actually have a banking asset that’s making you money. And that, of course, is a big difference between going ahead and focusing on building up a whole life insurance policy to become your own banker and using that in a similar way to get out of debt or to buy assets and things like that is you technically have a brand new asset that produces a ton of value in many different ways in your life.

And so there’s a bit of a difference and of course you can do both at the same time. By the way, you can do Velocity Banking and Infinite Banking at the same time. And they can marry each other very well. So what, one thing we would just say is whenever you’re comparing Velocity Banking or Infinite Banking, we’d say first off, let’s just marry the two.

Nate Scott [15:30]: 

You can actually do both at the same time and have a ton of success. But secondly, yeah, one of the pitfalls to Velocity Banking is that at the end of the rope, there’s not actually like a banking asset. You don’t own an asset called banking that makes you money. Now, you might have owned other investments that you borrowed from your line of credit to purchase, but you don’t actually have a banking asset that makes you money.

You just have maybe less debt than you otherwise would have versus when you do the same style of thing with infinite banking, you can also use your policies to go buy all those other assets, and you have these policies that produce value. So once again, I just think that it doesn’t answer the same exact thing.

Nate Scott [16:05]: 

It doesn’t produce a brand new asset in your life. We move on to the next step of saying what about using margin accounts borrowing against my brokerage funds my stocks and mutual funds and so forth and we say once again, we’re very similar, but nobody would call first off using margin debt against your brokerage account and compare that to a checking account and just say that we’re both in the same risk class, by the way. Everyone, we all know that there are some people who love to take a ton of risk and they say, yeah, I’m going to go ahead and stuff all of my money into the stock market.

Nate Scott [16:43]: 

And then I’m going to borrow on margin against that. If I want capital to go do things with, like to go buy a business, invest in a business, buy real estate, I’m not going to, I’m not going to save up cash to do that in banking instruments. I’m going to do that with my brokerage account and. All my money is going to be there and I’m going to borrow against the broker’s account.

And what we would say is, yeah, there can be value there. In fact, you could do that and do infinite banking all at the same time, just by the way, where that’s one of the things that we could talk about, as we go down the road. But what I’m trying to bring up is that no one would make the argument.

Nate Scott [17:14]: 

That saving money in a checking account and saving money in a brokerage and borrowing against it that we’re talking about the similar risk class here. Same thing goes with whole life insurance. That everyone would realize that the downsides with using the brokerage account as the banking tool are many fold.

First off, the margin loans that you can take against your brokerage account are not guaranteed to exist. In other words they can offer you a margin loan with certain rules, but they can change the rules whenever they want. And they could just choose to not let you borrow against your account whenever they want to.

Nate Scott [17:44]: 

There’s not actually a contractual arrangement that exists for your entire life to be able to borrow against your margin debt. So because, against your brokerage account, excuse me, using the margin loan system. Because that doesn’t exist, or there’s no guarantee of doing that, you could do this the whole time and then suddenly they close up the margin account.

They don’t let you do it for any reason that they want to give. What would be slightly concerning when you’re talking about banking is the idea that I can’t get to capital unless I sell off the assets, which we didn’t want to do because we want to take advantage of compound interest. And so one of the benefits of course, of using whole life insurance is to, is the ability to borrow against the cash value and have the cash value continue to compound the entire time.

Nate Scott [18:26]: 

As I said, you can technically do that with margin debt at a brokerage account. One of them, it guarantees you the right to do this. One of them, it’s just not, they’re just saying, Hey, there’s a tool out there that exists right now. You can use it, but you’re not in control. With whole life you have a contractual right to be able to take policy loans that exist for your entire life.

The day you buy the policy until the day that you die, you’re allowed to take policy loans by contract. That does not exist in a brokerage account. They can remove that right from you. You don’t have a contractual agreement for them to offer you the margin debt. On top of that, everyone also knows that with marginal loans, there’s a whole bunch of parameters involved that can cause a bunch of havoc if things don’t go well.

Nate Scott [19:01]: 

One of them being, you can only ever typically have 50 percent of your account borrowed out at any given time. So if you have a million dollars in. In mutual funds, you can only borrow 50 percent of it. So you can only borrow 500,000. And then if the stocks lose value, you have to sell your stocks to pay down the margin debt to always stay within a 50% window.

So if your million turns into 600,000. And you had a loan of 500, 000 already, you would have had to sell shares, all the way down to where you’ve sold 200,000 worth originally of shares so that the margin debt is now 300,000 because the assets are worth 600,000. And you can double up losses, you can force losses, you can force to sell out losses and various things with margin.

Nate Scott [19:42]: 

And all this would just say, yeah, so it could come to bite you depending on market timing. Whereas with a policy, we know it’s always going to go up. It’s always going up, never not going up. We never have to worry about that. We can borrow up to 100% of the cash value. We don’t have to, or let’s say 95% depending on what you define as cash value compared to net surrender value.

And we’re not going to talk about that, but what we’re saying is we can borrow essentially the full amount of cash value that’s in existence all the time, without ever having to worry about some sort of margin call. So of course, if I have a million dollars in a cash value and a million dollars in a brokerage account, we’re not talking about the same thing anymore regarding our ability to do banking.

Nate Scott [20:19]: 

One is of course way better than the other. So you would choose the riskier option, the brokerage account, if you hate whole life insurance and are hoping that the market produces a very high rate of return. Which we would say, sure, go for it. Don’t or maybe don’t do all of that and do some of each.

So they go ahead and put some money in a brokerage account. If you like to be in the stock market, go ahead and understand your ability to borrow against margin, to go use that while also storing up capital inside of a policy so you can get the best of both worlds. Why not? There are just benefits from doing, from having multiple places to pull capital.

Nate Scott [20:54]: 

But at the end of the day, if you’re looking to have a simple strategy, a simple banking strategy, just to move forward with for the rest of your life, that’s just guaranteed to work and make you a lot of money with no risk and no taxation. You can’t find anything that works. The way that the Becoming Your Own Banker concept using dividend paying whole life insurance policies work.

There’s nothing else in the world that’s like it. So whenever you hear someone talk about this, like Infinite Banking, like me, who’s biased towards Infinite Banking yeah, I love Infinite Banking and you hear us talking about all of this, and you say whole life insurance is expensive.

Nate Scott [21:30]: 

You say, whole life insurance takes a lot of time to grow. Whole life insurance is this. I’ve heard they keep the cash value when you die. And you give all these talking points against it. We’d say, go ahead and don’t do it then. That’s fine. You choose how you’re going to do banking.

And there’s many different ways to do it. Some of them are better than others. However, the honest truth is that dividend paying whole life insurance policies used according to Nelson Nash’s book, Becoming Your Own Banker where he was the one who coined the term infinite banking. Doing that produces a ton of value in someone’s life.

Nate Scott [22:05]: 

A lot of the value that it produces is actually seen under the floorboards as well. It’s like you may have heard the seen and the unseen of infinite banking. Like we can see a policy illustration with death benefit. And cash value and premiums and dividends. And we can run these numbers, but what we can’t see is the security that you feel, the peace that you feel, and your ability to make decisions from a place of strength because of the confidence you have on the foundation you built for your life.

With this asset that’s never going to budge down the ability to take advantage of opportunities because you’re actively seeking them with all of this liquid capital that’s never going to lose money. What we’re saying is your life can actually start to change. And we’ve had guests on the podcast, including last week, Cory Carpenter, whose life has changed and infinite bank has been a part of that.

Nate Scott [23:00]: And his life is immensely better. And it has nothing really to do with the rate of return of life insurance policies, transforming your life. It has to do with what the change of perspective and the foundation of infinite banking allowed him to see and make and transform his life into something worth living.

So we hope that by adding a banking system to your life. Seeing the world as with banking, a key piece of it, funding these policies and using them to achieve things in life, just by that perspective alone, it can create a life worth living. It can create a financial life. That’s very fulfilling. There may be other ways to do without the whole life policy, and you’re welcome to do it that way if you want, but it won’t be exactly the same because there’s nothing in the world that works exactly like whole life insurance.

Nate Scott [23:50]: 

So I hope this has been helpful just as we wrap up. For all of the Infinite Banking homeboys out there listening it’s great to have you on the show. Of course we know that the simple answer is, can you do the Infinite Banking concept without a whole life insurance? It is no, because the Infinite Banking concept means using dividend paying whole life insurance policies to become your own banker. That’s what it means by the way. 

So you may even have some people out there who are into universal life. I am not a fan of universal life. I don’t use it. If you use it, great. All power to you. I’m not gonna, I don’t even want to get into the argument anymore about universal life or his whole life.

Nate Scott [24:26]: 

I’m just merely saying you can add just like the brokerage account style thing. You can put money into universal life policies and borrow against those two. Is that infinite banking? No, it’s not because infinite banking is defined as purchasing a dividend paying whole life insurance policy from a mutual company and using that to become your own maker.

That’s what it is. And there’s no way around it. So that is the concept. There are other ways to do banking. Like you can do. You can try to solve the function of banking using universal life. You can try to solve it using brokerage accounts, philosophy, banking, checking and savings accounts, shoe box out back can buried in the mud.

Nate Scott [25:03]: 

You can do the process of banking with any of those things with varying effects, with varying benefits and disadvantages. I just happen to believe that if you weigh the advantages and disadvantages of all of them put together in a very objective format, you’ll find that a huge portion of the population would love to be practicing infinite banking the way Nelson Nash taught.

And there will be a portion of the population that will see the whole thing and say, I don’t really want to do it that way. All of us can shake hands. And say, awesome, good life to you. But don’t believe that just because it uses the tool of life insurance, that it is very misunderstood that there’s something wrong with it.

Nate Scott [25:42]: 

In fact, that’s what powers it. And that’s what makes it so unique. So I hope that’s been helpful. This has been Dollars and Nonsense. If you follow the herd, you will be slaughtered. And by the way, if as we said on the mid roll ad. We do have a free course on infinite banking. 

If you’re new to the whole infinite bank space, or if you’ve been around for a really long time, come check it out. I really do believe that the course that we have on at livingwealth.com/escapethebank is the best course on infinite banking to get you from A to Z and understand it at a really high level. So you can go to livingwealth.com/escapethebank to get FREE access to our course on infinite banking. I think you’ll love it. We’ll see you there. Have a good day.