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Best Infinite Banking Books

Infinite banking can be a complex subject for a beginner, but understanding the strategy and eventually learning to master the infinite banking concept can help put people on the path toward financial freedom. Here are the best infinite banking books to help you build wealth with IBC.

Becoming Your Own Banker

Becoming Your Own Banker is the book that started it all. It is one of the most important books to read before starting an infinite banking journey. It was written by R. Nelson Nash, a financial expert that used his experience in life insurance, forestry, and real estate to define the infinite banking concept. 

Becoming Your Own Banker summarizes the core infinite banking concepts. The book consists of five sections and 20 chapters. The first few sections discuss Nash’s background and what led to the creation of the infinite banking concept. The final sections explain how to build and maintain your own banking system. The book is a must-read for anyone interested in taking control of their financial situation through infinite banking.

To learn more about Becoming Your Own Banker, read the book summary or purchase the book on Amazon.

Building Your Warehouse of Wealth

Building Your Warehouse of Wealth is a follow-up to Nash’s first book (discussed above.) It was released a few years after Becoming Your Own Banker and looks at similar themes and concepts discussed in the first book but with new material and insights.

The main difference between Nash’s two books is that Building Your Warehouse of Wealth focuses more on his worldview and how it ties into the infinite banking concept and discusses core principles, and provides financial education and wisdom. However, Nash also connects his teachings to the Christian faith and views on government involvement in personal finances. Building Your Warehouse of Wealth is an excellent addition to your library and will complement your ownership of Becoming Your Own Banker. Find it on Amazon.

Bank On Yourself: The Life-Changing Secret to Growing and Protecting Your Financial Future

Bank On Yourself is a New York Times Bestseller (2010) written by Pamela Yellen. She is a consultant to financial advisors and has been working in the financial field since 1990. In her career, she has investigated many financial tools and methods to grow wealth but found they did not do what they promised. It wasn’t until she found herself in financial trouble that she realized the power of dividend-paying whole life insurance policies.

Bank On Yourself reveals how people can take control of their personal finances and secure their financial future. In the book, readers will learn how to:

• Have a simplified and reliable financial plan with predictable retirement income
• Ditch the volatile and unpredictable stock and real estate markets
• Get back the money spent on cars, education, vacations, etc.
• Become your own financial source and recapture interest and control that would have been given to banks and other finance companies

Learn more about the Bank On Yourself concept on the official website or by purchasing the book (See it on Amazon). More information can be found in the follow-up book, The Bank On Yourself Revolution (Also on Amazon). This book looks at similar concepts and discusses success stories from people that have adopted the Bank On Yourself strategy. 

The And Asset

The And Asset was written by Caleb Guilliams, founder and CEO of BetterWealth, a company focusing on financial education. He is a young entrepreneur who started in the financial world in his teens. Through the years, he has used his education, experience in the investment world, and two years spent learning from top financial experts to discover strategies and principles to create and protect wealth.

One of the ways Guilliams shares his knowledge is through The And Asset. It explains processes and strategies that will allow people to take control of their finances. For example, readers will learn how to earn uninterrupted compound interest and how to use that interest to finance cars, real estate, investments, etc.

More information on The And Asset can be found on the official website: https://www.andasset.com. The book can be purchased on the site or through Amazon and other book retailers.   

Killing Sacred Cows: Overcoming the Financial Myths That Are Destroying Your Prosperity

Killing Sacred Cows is a New York Times and Wall Street Journal bestseller written by Garrett B. Gunderson with Stephen Palmer. Gunderson is an entrepreneur, financial advocate, and founder of Wealth Factory. He has dedicated his career to simplifying personal finance and debunking myths that hinder economic prosperity. Palmer is a ghostwriter and author.

In Killing Sacred Cows, Gunderson exposes common fallacies and traditions relating to personal finance. Some subjects he tackles in the book include:

• Traditional and “safe” investment plans (e.g., 401k)
• Conventional retirement plans
• Net worth and cash flow
• Money usage
• Debt
• Hidden factors causing financial struggles

Learn more about Killing Sacred Cows and its author on the Killing Sacred Cows website. The book can be found on Amazon or through other retailers.

What Would the Rockefellers Do?: How the Wealthy Get and Stay That Way… and How You Can Too

What Would the Rockefellers Do is another book written by Garrett Gunderson. It looks at the financial strategies used by the Rockefellers, a family with one of the world’s largest fortunes.

The Rockefeller family has managed to protect and grow their wealth for several generations. The book talks about how the family did this and how others can employ the Rockefeller Method in their lives. Some topics discussed in the book include:

• Improving your cash position and finding hidden money
• Boosting low-paying savings accounts
• Improving retirement income without taking additional risks
• Making money when making big purchases

The book can be found on Amazon or through other fine booksellers.

Heads I Win, Tails You Lose: A Financial Strategy to Reignite the American Dream

Heads I Win, Tails You Lose is written by financial strategists Patrick H. Donohoe. He is the president and CEO of Paradigm Life and PL Wealth Advisories, companies committed to teaching clients how to create and build wealth for themselves and their heirs.

The book shares financial secrets used by the wealthy that will help lead to financial freedom. In addition, it discusses managing money through life insurance and financial strategies that help readers secure personal wealth and their financial future. It is available on Amazon.

Live Your Life Insurance & Busting the Life Insurance Lies: 38 Myths That Sabotage Your Wealth

These two books are part of a series written by Kim D. H. Butler (Busting the Life Insurance Lies is co-authored by Jack Burns and James Ranson). Butler is the founder and president of Prosperity Thinkers, a personal finance firm that aims to help clients build wealth and take control of their finances. She has been part of the financial industry for many years and uses her knowledge to help clients create wealth-building financial strategies using whole life insurance.

Live Your Life Insurance is a guide to whole life insurance and how it can be used to help build financial security. It also looks at ways to best use the policy regardless of age (Get it on Amazon).

Busting the Life Insurance Lies looks at 38 common misconceptions about life insurance. The goal is to help demystify life insurance policies and learn how they can be used to benefit policyholders while alive (buy the book on Amazon).

Living Wealth ebooks

We have produced three infinite banking ebooks that are free to download from this website.

They include:

• The Cash Poor Dentist: The Three Mistakes That Even Smart Dentists Make That Keep Them Feeling Cash Poor & How to Avoid Them 
• 3 Surefire Ways to Lose Your Shirt in the Stock Market and How to Avoid Them
• The Tree of Wealth 

Need advice or further information?

The Living Wealth team is here to guide you through your journey to financial freedom. Our website is filled with great infinite banking resources to get you started, and our team of experts is there to help you every step of the way. Here are some handy learning resources that you can access to get your questions answered:

• Podcast episode about borrowing from a whole life policy
• Our free infinite banking concept beginner’s course
• Our free infinite banking ebooks
• Read our blog
• See our training videos
• Book a free call with our infinite banking experts
• Subscribe to our infinite banking podcast called Dollars and Nonsense.

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Difference between Keynesian and Austrian economics

Two of the most prominent schools of thought in macroeconomy are Austrian and Keynesian economics. These concepts provide insight into the economy and personal investments. However, economic decisions and investment outlook vary depending on which school is followed. We discussed the topic in episode 38 of our infinite banking podcast. There is more detail about the difference between Keynesian and Austrian economics in the article below.

What is Keynesian Economics

John Maynard Keynes developed Keynesian Economics during the 1930s. He lived through the Great Depression, and the principles of this school of thought stemmed from his belief that current economic theory could not explain what caused the Great Depression.

Keynes argued that aggregate demand (total spending of businesses, households, and government) was the economy’s driving force. He also believed that changes to improve aggregate demand could help prevent recessions.

Keynesians believe that government intervention is necessary to prevent or address recessions and market crashes. Governments should also implement policies to monitor and predict drastic changes in market conditions. 

Keynesian economists rely heavily on statistics, modeling tools, and empirical data to make predictions and reach conclusions about economic behavior.

What is Austrian Economics

Austrian Economics was developed by an Austrian economist, Carl Menger, who wrote Principles of Economics in 1871. His ideas were built upon by other Austrian economists and eventually adopted internationally.  

Menger’s principles focus on people and how their knowledge and environment impact decision-making. Austrian economists believe that value is subjective, and everyone has different needs and purchasing powers. Principles also focus on utility (usefulness and enjoyment consumers get from a product) and marginalism (value determined by marginal utility).

Austrian economists also believe that the best outcomes come from minimal government intervention and rely more heavily on deduction than empirical and statistical models and data. They make predictions based on assumptions and logical reasoning for human behavior.

Main difference between Austrian and Keynesian economics

One of the main differences between Austrian and Keynesian economics is the view on government involvement and intervention.

Austrian economics asserts that government control disrupts the production and supply cycle. Markets are viewed as efficient, self-regulatory, and controlled by people’s actions. Therefore, there is no need for government control.

Austrian economists also believe that the economy goes through natural processes, and recessions are necessary to fix imbalances in the economy. Government intervention to avoid reductions in spending is viewed as harmful and may worsen impacts from negative business cycles. The same thinking applies to individual businesses. Austrian economists believe that companies should be allowed to fail to make room for better ventures. 

Keynesians stress the importance of government intervention. They believe that markets are inherently volatile and inefficient. Therefore, governments should implement policies to monitor and predict drastic changes in market conditions. Examples of these policies include:

• Fiscal policy – government spending to stimulate the economy (e.g., tax cuts).
• Monetary policy – modifying the supply of money (e.g., changing interest rates).  

Another difference between the schools of thought is the importance of spending and savings.

Austrian economists stress the importance of savings. They believe that money saved can be invested. The investment is used to improve business productivity, leading to improvement in the economy and growth.

Keynesians believe that spending, or aggregate demand, is the backbone of economic growth. And an increase in spending will lead to a higher Gross Domestic Product (GDP). GDP is the market value of goods and services produced in a fixed period (e.g., quarterly). Changes in the GDP growth rates show how fast an economy is progressing. Therefore, a higher GDP signifies a trend towards economic growth.  

Keynesian and Austrian economics also have different approaches to inflation and deflation.

Austrian economists are not as keen on inflation because a more significant portion of a person’s money is spent instead of invested. In contrast, Keynesians believe that a steady inflation rate is good for a growing economy because inflation encourages borrowing, which often leads to more spending.

Austrian economists view deflation positively because consumers can benefit from lower prices (e.g., more money for investments). In contrast, Keynesians view deflation as unfavorable because it delays spending and economic growth. 

Another difference between Austrian and Keynesian economics is how money is viewed and treated. Austrian economists believe in “sound money.” Sound money is a currency backed by a hard asset such as gold. Therefore, following this principle, money can only be created if converted into an asset, which limits the money supply.

Keynesians lean towards “fiat money,” which is a currency not backed by an asset. This allows banks to increase and decrease the money supply, which may decrease the value of exchange rates and impact savings. 

Need more help?

The Living Wealth team is there to guide you through your journey to financial freedom. Our website is filled with great infinite banking resources to get you started, and our team of experts is there to help you every step of the way. Here are the infinite banking learning resources for beginners. They are great next steps for learning how to get started with infinite banking:

• Our free infinite banking concept beginner’s course
• Our free infinite banking ebooks
• Read our blog
• See our training videos
• Book a free call with our infinite banking experts
• Subscribe to our infinite banking podcast called Dollars and Nonsense.

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Can I borrow money from my whole life insurance policy?

If you are new to infinite banking, you have likely heard that it allows you to become your own banker by using and borrowing money from your policies. But some may wonder how this works. And what kind of policy is needed to do this. This article will answer these questions and further explain the ins and outs of borrowing money from life insurance policies.

What type of life insurance policy should you use?

One of the most common types of life insurance people buy is term life insurance. This policy lasts for a pre-set period. Because of this, it is often cheaper, but policyholders are limited to waiting for death to have access to their money. Therefore, term life insurance does not have cash value, so policyholders cannot borrow money from it. However, this is possible to do with permanent life insurance.

Permanent life insurance is a blanket term used for policies that last for the duration of the holder’s life, making them more expensive upfront. However, with the more considerable cost comes features that allow policyholders to have more control over their money. 

Common types include variable, universal, and whole life insurance. However, certain ones are better suited for borrowing. 

Cash value can only be invested into sub-accounts (e.g., equities, bonds, or indexes) available to the policy with variable life insurance. Holders can borrow from this type of policy, but cash value depends on the sub-accounts performance. Therefore, the cash value may not be maximized. 

It is possible to borrow from universal life insurance as well. Like variable life insurance, cash value increases by investing funds into indexes (or keeping it within the policy to earn a low, fixed rate of return). Therefore, the value is also dependent on the performance of the indexes. 

Whole life insurance, particularly dividend-paying whole life insurance, offers ideal circumstances for borrowing against the policy. Unlike the previous types, growth is not dependent on the performance of accounts. Instead, there is a fixed benefit that continues to grow for the duration of the policy. Cash value also grows tax-free, and you can borrow against what you have paid into it. The growth of the policy is also not dependent on the IRS or the federal government. 

How to borrow money from a whole life insurance policy

Purchasing a whole life insurance policy typically involves a larger initial fee and higher premiums. These fees allow for more financial control and security; however, it is common to wait several years until there is enough cash value in the policy for what you need. 

How these policies work is that policyholders pay monthly premiums, and the amount paid is more than what is needed for the death benefit and goes to other fees such as administration fees. The rest of the premium payment remains as cash value. Additional cash value can be added by paying more than the premium payment or through participating whole life insurance. 

There are two common types of whole-life insurance – non-participating and participating. As the name suggests, non-participating insurance policies do not participate in investment activities. Policyholders still have a guaranteed rate of return and cash value-added, but the growth will not exceed what is provided from the premium payment.  

Growth through dividends

Participating whole life insurance allows for additional growth through dividends. When a corporation earns a profit or surplus, a portion of this is shared with members or shareholders as a dividend. Purchasing dividends allows the cash value to grow more substantially, but it is a higher risk, not guaranteed, and may involve higher premium rates. 

Policyholders can also add benefits through paid-up addition riders. The money received from dividends can be used to buy additional coverage, which will provide more potential for growth.  

Essentially, the first step towards borrowing from a whole life insurance policy is to purchase it and accumulate cash value. Cash value is guaranteed in the initial policy but can be improved through dividends and paid-up addition riders.  

Once enough cash value has accumulated in the policy, it can be borrowed against as the policyholder sees fit. However, a loan cannot be taken out that exceeds the cash value within the policy. Nonetheless, policyholders can take out what they need, at any time, and pay it back whenever they would like to. Still, there are some stipulations when doing so. 

When a loan is taken from a policy, it is expected to be paid back with interest. However, interest rates are often lower than that on a bank loan or credit card. Additionally, the policyholder is the one capturing the interest. Moreover, there is no additional monthly payment. 

Although there is freedom when borrowing and paying back, policyholders are expected to do so reasonably quickly. Interest will continue to accumulate until the loan is paid, so taking too much out without paying some back puts the policyholder at risk of exceeding the cash value. If this happens, the policy will lapse. Nonetheless, many insurance companies offer options and opportunities to prevent this from happening.  

Overall, a whole life insurance policy can be a great tool to provide more control over one’s money. However, there are some pitfalls. First, policyholders must invest a large sum to purchase the policy and keep up with the premium cost to get these benefits. It is also likely to take years before borrowing is possible. Additionally, taking out money from the policy when alive can reduce the death benefit down the line (if it is not paid back).

Moreover, not paying it in a timely manner can cause the policy to lapse if not careful. Finally, borrowing from a life insurance policy may be complex for people not in the financial field. Policyholders must fully understand how it works and how to maintain it for it to be successful. Nonetheless, there are many resources and professionals to help walk you through the process. And doing so can be beneficial in the long run.   

Why borrow from whole life insurance policies? 

A whole life insurance policy has a guaranteed rate of return. The cash value grows tax-free, and there are additional opportunities for growth through dividends and paid-up addition riders. In addition, policyholders do not need to wait until death to access the money, so they can spend money while making money. 

These are all great benefits; however, one of the most significant ones is allowing for more control over finances. The policyholder has complete ownership with whole life insurance instead of a third-party institution. This means they have control over all investments and flexibility to cater to personal needs.  

Learn more about borrowing from a whole life policy

The Living Wealth team is there to guide you through your journey to financial freedom. Our website is filled with great infinite banking resources to get you started, and our team of experts is there to help you every step of the way. Here are some handy learning resources that you can access to get your questions answered:

• Podcast episode about borrowing from a whole life policy
• Our free infinite banking concept beginner’s course
• Our free infinite banking ebooks
• Read our blog
• See our training videos
• Book a free call with our infinite banking experts
• Subscribe to our infinite banking podcast called Dollars and Nonsense.

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How to get started with the infinite banking concept

Much of the success of the infinite banking concept can be attributed to the release of Nelson Nash’s book, Becoming Your Own Banker, first published in 2000 (see a chapter by chapter summary of the book here.) Nash popularized and further defined the wealth-building approach that he had been practicing for 20 years and that had been used by wealth builders since the late 1800s. As a result, many people have transformed their financial situations by implementing Nash’s concept. Reading the book alone can seem daunting for infinite banking beginners, and it can be challenging to understand how to get started with the infinite banking concept. That’s why we have provided a guide below.

Infinite banking for beginners

Before we dig into the steps on how to get started with infinite banking, it is important to gain a general understanding of the infinite banking concept.

Essentially, infinite banking uses life insurance policies to become your own banker and establish your own private family banking system. Instead of using a third-party bank to aid in your finances, you will create a fund you can use and borrow from as you please. This is done with whole life insurance, more specifically, with dividend-paying whole life insurance.

Most people choose term life insurance policies, which last for a pre-defined period and they have no cash value. However, if the insured person dies during the term they pay out the face value of the policy. Because of this, the policies are more affordable than whole life policies. 

Whole life insurance policies can cost more but they offer more value. They typically last for the entire duration of an individual’s life. And during this time, you can leverage a policy to help you have total control over your finances.

Dividend-paying whole life insurance policy

When you purchase a dividend-paying whole life insurance policy, the cash value within the policy grows tax-free, and you can borrow against what you have paid into it. Your family and your estate are not limited to waiting until after your death to access your money, like with term insurance policies. The growth of the policy is also not dependent on the IRS or the federal government. Moreover, you may generate additional growth from the insurance company through dividends.

Borrowing money from your policy can accrue interest; however, you are the one that earns the interest. This mechanism is used by banks and other financial institutions. With infinite banking, you are using the same tools banks use but putting yourself in control, essentially becoming your own bank.

Now that we have defined the concept, let’s explore how to begin your infinite banking journey.

Understanding cash value

One of the first things to look at is cash value and the different types of cash value insurance.

When you purchase a policy, a portion of the premium goes to buying the death benefit and pays for administration fees. The rest of the premium is rolled into the policy as cash value. The cash value varies depending on the type of insurance you have.

Variable life insurance and universal life insurance offer similar features to whole life insurance, however, you have a guaranteed rate of return, and opportunities grow more through dividends with whole life insurance. In addition, the cash value is not dependent on the performance of investments, which is what makes it more ideal for infinite banking.

Types of whole life insurance

There are a few types of whole life insurance, which grow in different ways. They all offer a guaranteed rate of return, but only certain ones allow you to participate in dividends.  

As the name suggests, with non-participating whole life insurance, you are not participating in investment activities. You still have the death benefit, guaranteed rate of return, and level premiums, but you may not see as much growth. However, it has a lower cost and lower risk than other options.

Participating-whole life insurance is issued by a mutual insurance company and allows for more growth through dividends. Dividends are a sum of money given to members of a company or shareholder. With this option, you get more money if the investment does well. However, this also makes it a higher risk since dividends are not guaranteed and draw higher premium rates. Nonetheless, it allows the cash value to grow more substantially than non-participating whole life insurance. And this growth can be used to pay your premium or buy more insurance through paid-up additions.

Paid-up additions riders

Paid-up addition riders allow the policyholder to add benefits to an existing policy. If you use the extra money received from dividends to buy this additional coverage, you will increase the likelihood of growth in your policy.

With whole life insurance, there is already guaranteed growth fixed into the policy, but now there is potential for growth of the paid-up addition riders. The overall growth is comparable to mutual funds or retirement plans, making the policy function more as a way to build wealth rather than use simply as life insurance.

For these reasons, paid-up additions are crucial to the success of infinite banking. Therefore, it is essential to partner with an insurance advisor who is well-versed in paid-up addition riders. 

Understanding the Hierarchy of Wealth

The Hierarchy of Wealth is a framework that outlines how people can achieve financial freedom. It outlines the different tiers of wealth and the needs and goals you must have control over before moving to higher tiers.

Tier one, or the foundation of the hierarchy, focuses on the tools you use to get the most basic things you want and need (e.g., food, mortgage payments, car purchases, etc.). In this stage, it is crucial to understand how your cash flows and determine ways that you can control this. Essentially, you are making a foundation that will allow you to begin your journey towards financial freedom.

The next tier is focused on control. Here, you can actively find ways to put more money in your pocket. An excellent way to do this is through a whole life insurance policy. The goal here is to find ways to guarantee wealth and control of money. With whole life insurance, you are guaranteed a fixed rate of return that grows tax-free. Therefore, access to cash is not limited to after your death or under the government’s watchful eye.

Once you control your cash flow and assets and have maximized benefits, you can then move on to tier 3. It involves investing in something that is not guaranteed to give you a return but picking something with a safety net to minimize your loss, such as a hard asset. A hard asset has inherent value and holds that value long-term. An example of this would be real estate. For example, if you can take a loan from your policy to purchase real estate and rent that to someone, the person renting would be giving you a stream of a monthly income that is essentially guaranteed.

Finally, the last tier involves making investments that are not guaranteed and are likely riskier than those in previous tiers. However, if successful, they can be pretty profitable. This can include things such as mutual funds, stocks, and cryptocurrencies.

The hierarchy of wealth can help you maximize your wealth more safely. Many people put the foundation of their wealth in risky endeavors; while profitable, your financial freedom and wellbeing are uncertain. By placing your foundation in more guaranteed investments, like whole life insurance, you can maximize your wealth without the fear of being financially ruined.

How to get started with the infinite banking concept at Living Wealth

Mentioned above are important things to consider when getting started with infinite banking. It is crucial to understand what you are getting into and the benefits and risks of your decisions. However, if the concept is still difficult to grasp, a great way to get started would be to talk to professionals in the field, and Living Wealth is here to help you begin your journey.

The Living Wealth team is there to guide you through your journey to financial freedom. Our website is filled with great infinite banking resources to get you started, and our team of experts is there to help you every step of the way. Here are the infinite banking learning resources for beginners. They are great next steps for learning how to get started with infinite banking:

• Our free infinite banking concept beginner’s course
• Our free infinite banking ebooks
• Read our blog
• See our training videos
• Book a free call with our infinite banking experts
• Subscribe to our infinite banking podcast called Dollars and Nonsense.

 

 

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Is the Phrase ‘Money Can’t Buy Happiness’ True? 

You may have heard the phrase “money can’t buy happiness”. It is a common mantra to remind us that money may not be the answer to all your troubles, but is this always the case? Does money really buy happiness? Research by Northwestern Mutual suggests that money can be a source of happiness, but it is also a source of stress. This article will investigate this concept further to determine if money does, in fact, “buy happiness.” 

Origin of the phrase: Money can’t buy happiness

Before we examine the happiness research by Northwestern let’s look at the origin of the phrase “money can’t buy happiness”.  The expression appears to originate from a similar phrase first coined by a Genevan philosopher, writer, and composer, Jean-Jacques Rousseau. In 1750 he wrote: “Money buys everything, except morality and citizens.”

In the United States, the “money can’t buy happiness” phrase was first printed in the William and Mary College quarterly history magazine. Since then it has evolved into several similar forms like money can’t buy love; money can’t buy education; money can’t buy friends, and the like.

Northwestern Mutual happiness study

Now on to the happiness study. The 2018 Planning and Progress Study was commissioned by Northwestern Mutual and conducted by Harris Poll to explore feelings and attitudes towards money, financial decisions, and financial security for Americans in a particular age group. 

The study polled 2,003 Americans aged 18-34 using an online survey between March 7 and March 19, 2018. The results of this survey were weighted to Census targets for different demographics. The propensity score was also weighted based on the likelihood of participants being online. The propensity score looks at the probability that the people polled have specific results or be assigned to certain treatments. This can help offset selection bias. 

Happiness survey results 

The survey showed that 68 percent of Americans surveyed felt happy about their financial situation or felt happy about it sometimes. However, large portions of the group also felt negative emotions towards money. 

Approximately 54 percent felt anxiety towards their financial situation, with 25 percent feeling anxiety “all the time” or “often.” This financial anxiety also caused 28 percent of the group to feel depressed at least monthly and 17 percent to feel the effects weekly, daily, or hourly. 

Another 52 percent surveyed felt insecurity (24 percent felt this “all the time” or “often”), and 48 percent felt fear towards their current financial situation. 

Money also was shown to be the top source of stress in the group (44 percent), which surpassed other forms of stress such as personal relationships (25 percent) and work (18 percent). 

These results were not surprising considering large percentages of the group experienced high or moderate anxiety levels towards financial costs. This is especially true for expenses that are unplanned, unpredictable, and uncontrollable such as the rising cost of healthcare (59 percent), unplanned financial emergencies (55 percent), and unplanned health emergencies (53 percent). 

Other financial pressures causing anxiety were income (48 percent), savings (28 percent), debt (42 percent), and retirement (41 percent). 

Additional happiness research

Similar research on this topic has been done throughout the years. A notable study was conducted by Daniel Kahneman and Angus Deaton in 2010. The study looks at the relationship between income, emotional wellbeing, and life evaluation. It surveyed 450,000 Americans and found that emotional wellbeing increased with rising income. However, after the household income surpassed $75,000, happiness did not change as drastically, but life evaluation continued to improve. This data concluded that income over $75,000 does not buy happiness but can buy satisfaction. 

In 2021, a study done by Matthew Killingsworth challenged the conclusions of the previous research. The study was conducted through a smartphone app that would periodically ask a large group of people how they felt towards the day on a scale going from “very bad” to “very good.” 

He found that happiness and life satisfaction continued to increase with increasing income, even after the household income surpassed $75,000. Nonetheless, the margin between income and happiness above $75,000 was small. And it is essential to remember that correlation does not mean causation. 

What does this research suggest? 

Essentially, all the studies mentioned draw a similar conclusion: there is a correlation between money and happiness. However, that does not mean that money will solve all your problems. 

As the study by Northwestern Mutual shows, the uncertainty of financial expenses (e.g., the rising cost of healthcare) is often a leading source of financial stress when you are not confident with your current financial situation. However, a larger income and good financial planning can help alleviate some of this stress, which could alleviate some of the negative feelings it causes. Therefore, a correlation between a larger income and happiness and life satisfaction would make sense in this scenario. Nonetheless, the relationship between money and happiness is not black and white. 

How money positively impacts your life depends on various factors, such as cultural/societal values, where you live, how you value money, and what the money is spent on. 

For example, if you are in a lower-income household, having enough money to provide adequate access to healthcare, healthy food, mental health supports, etc., can help improve the quality of life for you and your family. This would likely positively affect your happiness. 

However, if there is more than enough to access those services, some may argue that what is done with that surplus of money may not have much of an impact on happiness. This is not always the case.  

For example, an article called “If money doesn’t make you happy, then you probably aren’t spending it right” looks at the correlation between happiness and how the money is spent.

The authors found that spending our money on experiences and helping others often brought the most significant levels of happiness. (Other suggestions can be found in their paper here.) Therefore, it may be more beneficial to spend money to go on a trip, rather than buying a new large screen TV. Likewise, you may feel more personal satisfaction donating to a charity important to you than buying a new sports car. 

Research conclusion to: Does money buy happiness? 

Based on some of the research discussed above and personal views, some may deduce that the answer to this question is “yes.” However, the answer is more nuanced. 

A higher income is likely to have a positive impact on many. It helps ensure you get the necessities and are better prepared to handle unforeseen events and challenges. Additionally, a surplus of money may allow you to have more experiences and give back to the community, which can instill happiness. However, these things may not hold as much value to different people and cultures. Therefore, a better answer to the question may be “sometimes” or “it depends.” 

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What is a Modified Endowment Contract?

As you advance your knowledge as you use the infinite banking concept, you will likely encounter the term Modified Endowment Contract (MEC). Although it is likely not to play a massive role in becoming your own banker, it is essential to understand what it is and its potential impact. This article will help explain this term and its relation to the infinite banking concept.  

Definition of Modified Endowment Contract 

A Modified Endowment Contract (MEC) is a type of life insurance subject to taxation in the United States. This happens when the cumulative premiums paid into a policy exceed the cash value within it. Essentially, there is more growth within the policy than what you put in. Therefore, you now must pay taxes on any withdrawals made instead of being treated as non-taxable income.  (See what Wikipedia says about a MEC.)

Brief History of Modified Endowment Contract 

Cash-value life insurance policies as a financial instrument date back to the early 18th century. However, it wasn’t until the 1970s that many life insurance companies began use the advantages of tax-free growth within these policies. 

Policy owners were able to withdraw interest and principal as a tax-free loan. Essentially, they could use their policies to minimize or decrease taxable income and liabilities. This became a popular tool for many, allowing the policy to act as a tax shelter. 

The U.S. Congress did not allow that policies should be used in this way, so it passed the Technical and Miscellaneous Revenue Act of 1998 (TAMRA). With a MEC, taxation is based on a first-in-first-out (FIFO) basis.

Before TAMRA, this meant that contributions to the policy for a tax-free return were taken out before earnings. Now, FIFO (in relation to MEC) means that interest or gains come out of a policy first, then you get the principal back. Therefore, anything that exceeds gains is taxable, and the policy becomes a MEC. Essentially, TAMRA placed limits on how much could be paid into the policy to be tax-free. 

How to create a Modified Endowment Contract 

A Modified Endowment Contract is most often created in two ways. One of the most common ways to create one is through a single paid premium; this means that you only pay a premium once. This would automatically become a MEC. 

Another way to create a Modified Endowment Contract is when more money is put into paid-up additions than what was paid as the premium. This, too, will often automatically become a Modified Endowment Contract. 

Modified Endowment Contract and Infinite Banking 

In general, when creating your own bank, it is best to avoid a MEC. Therefore, the primary connection between MEC and infinite banking is how to utilize insurance policies so that they do not turn into a MEC. This concept is discussed by hosts Holly Reed and Nate Scott in Living Wealth’s Dollars and Nonsense podcast, Episode 108, called: What You Need to Know About Modified Endowment Contracts.  

In this episode, Nate and Holly describe what a Modified Endowment Contract is and how it applies to infinite banking. One of the cornerstones of infinite banking is that your money can ultimately grow tax-free. If the policy becomes a Modified Endowment Contract, that is not possible. Therefore, they discuss how many are worried about this happening accidentally. Although this is unlikely, they explain how this can be avoided. 

“When we’re building out a policy, we want to produce for our clients as much cash value as we possibly can be based on the premium they’re paying,” explained Nate. 

Buying as little death benefit as possible is the optimal way to do this. However, if you buy too little death benefit, it automatically becomes a MEC. Therefore, you must buy just enough death benefit to pay the desired premium, and the paid-up additions riders will produce most of the cash value. However, there is a limit to this that can be done, the MEC limit. Therefore, you need to determine how much premium you need to pay and how much paid-up addition rider you can pay. 

“When we are designing and structuring these policies for you, we are trying to make your money as efficient as possible, and trying to get as close to that MEC limit without creating a MEC on the cash value the paid-up addition side, and as low of a base premium as we can get in order to make your money efficient for you from the very beginning,” explained Holly. 

In the next part of the episode, Nate and Holly discuss avoiding creating a MEC. Insurance companies or insurance advisors are a great tool to help prevent this.

Generally, it is always good to put more money into a policy when possible. However, if you want to ensure you are not putting in too much, you can contact your insurance company and ask them to run the numbers for you. However, they will notify you even if you forget to do this, and transactions can be reversed. Therefore, there is no significant concern that this will happen without your knowledge. 

Reasons to own a MEC

Finally, Nate and Holly discuss why someone may want to own a MEC and how it can be helpful in certain instances. The first of those is for nonprofits. 

Nonprofits do not pay taxes regardless of where they are saving or holding their money. Therefore, a MEC can give nonprofits a way to access their cash right away. Moreover, they will also get some money from the death benefit that will be higher than the cash value. 

Another reason to own a MEC is if you are an older person. For example, if you are 75 years old and have a lot of money, you may not want to pay premiums for years. Therefore, paying all the money in a single payment may be more beneficial. By doing this, most of the cash value is available right away, and the death benefit will be tax-deferred.

“What it allows you to do as an older individual is it enables you a possibility to leave a larger tax-free amount to your children or heirs or whoever you want to leave that money to with really no out-of-pocket costs. Except for if you use that money while you’re alive,” said Holly. 

Overall, with infinite banking, a MEC is often not ideal for optimizing cash flow because it does not offer the most tax-free growth. However, a MEC can be more beneficial in specific scenarios than just leaving your money in a savings account or Certificate of Deposit.  

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Summary of the book Becoming Your Own Banker by Nelson Nash

The book Becoming Your Own Banker was written by Nelson Nash and published on Jan. 1, 2009.  It was revised through six editions in the ensuing years. (See it on Amazon.)

The book has since become the ultimate guide to anyone that is interested in implementing the infinite banking concept. It is a must-read. Still, it is helpful to have a guide to quickly access the wisdom in the book and basic tenets of the financial philosophy that Nash became famous for.

As such, we have summarized the core concepts from the book in our Becoming Your Own Banker book summary guide below.

Part 1: Becoming Your Own Banker

Any type of transaction involves the flow of money, but where does that money come from? It comes from one pool of money managed mainly by banks, insurance companies, corporations, and a few individuals worldwide. The cash flows from the pool to help us meet our needs are primarily out of our control and back into the banking system.

“This book is all about how to create your own banking system so that you can control 100 per cent of your needs—becoming your own banker! Give it your close attention ,and it can make a radical improvement in your financial future” (pg. 13). 

Chapter 1: How the Infinite Banking concept got started

The first chapter dives a little into Nelson Nash’s life and how it led to the Infinite Banking Concept.

Several aspects contributed to this concept. These include:

• Nash’s background in forest finance
• Life insurance sales
• Real estate

Nash was educated as a forester and spent 10 years as a forestry consultant. Much of his work dealt with compound interest over long periods. This meant that a lot of the work involved looking years into the future and making investments that would not see results for an extended period.

Nash also worked in life insurance sales for over 30 years. During this time, he learned how dividend-paying life insurance works, which is an essential aspect of the infinite banking concept.

Finally, the concept was strongly influenced by his experience in real estate. As his business ventures went well, he learned about the magic of leverage in the real estate world and was inspired to be part of it. He came across advice that entailed buying real estate, borrowing money, and paying interest rather than selling the property; all you gave up in that scenario was the interest you paid out. However, he was unprepared for what happens when the leverage works against you.

For a chunk of time, the interest rate Nash was accustomed to paying was 9.5 per cent, but this rate later rose to 23 per cent, and he was stuck paying a lot more in interest than expected. At the same time, he and his wife’s house was burglarized, jewelry was stolen, and his grandchild was diagnosed with cancer.

Amid this challenging time, Nash spent a lot of time praying and hoping for an answer to help him get out of his financial mess. Finally, he found his answer through life insurance companies.

At the time, people could get approximately five to eight per cent of the money from a policy they owned. However, it was dependent on how much you put into these policies. It became clear to him that he had to increase his life insurance premiums to create a pool of money that he could borrow from to pay the increased interest he owed. To do this, he began with revising his spending patterns. With this and a better understanding of how life insurance worked, he devised a system that worked well, which was the beginning of the infinite banking concept.

“Maybe you have found yourself in such a financial prison—or maybe you want to develop a system that will keep you out! Maybe yours is smaller or greater. Whatever, the principles are the same, and they will serve you well. It requires understanding—and it requires discipline to implement the idea, but it can change your life dramatically—even beyond your fondest dreams!” (pg. 17).

Chapter 2: Imagination

An essential aspect of the infinite banking concept is imagination. To illustrate this, Nash talks about a scenario from the 1700s. A German schoolmaster had trouble with the boys that day, so he gave them a math problem to quiet them down. They were told to add up all the numbers – one through one hundred. 

The boys sat down with their slates figuring this out, but one boy stared out the window, then picked up his slate, wrote down the correct answer, and gave it to the schoolmaster. When asked how he figured it out, he explained how he visualized the solution and simplified it. This boy was Karl Gauss, a famous mathematician.

This example is to stress that Gauss did not invent a mathematical fact. Instead, he discovered a different relationship between fixed numbers that cannot be changed. Therefore, the knowledge he shared with that relationship can now be applied to other similar scenarios, and nothing can be done to change the fact/relationship he discovered. 

Chapter 3: The Grocery Store

Continuing with the imagination exercise, Nash looks at the process of getting into a business where you are a consumer and a seller at the same time. An excellent example of this is a grocery store because everyone consumes groceries, and everyone around you is a potential customer.

When you begin studying the grocery business, you find the things necessary to succeed in this field, including a good location, high-quality merchandise, attentive staff, fully stocked inventory, etc. All of this will cost a lot of money.

Once the operation is set up, the difference between the “front door” and “back door” helps determine how you will be living. For example, if you sell a can of peas for 60 cents at the front door, and replace it at the back door for 57 cents, then you must turn the inventory 15 times to break even; this is the interest you must pay on the money borrowed to set up the grocery operations. If you turn the inventory 17 times, you make a profit; if you turn it 20 times in a year, it can help pay for early retirement.

Next, Nelson asks you to imagine if you were a male, married with children, and your wife bought groceries at your store, would she take groceries from the front or back? Many admit that the wife would want to go out the back door instead. However, this type of behavior is theft and can encourage more theft amongst employees and customers.

Many believe that they can do whatever they want with their business. However, the ones that pay for this theft are the customers getting their merchandise from the front door, and your business will need to sell more products to make up the deficit. The more you make, the more the IRS will take from you; this is another reason people would want to go out the back door instead.

If there is a situation where the profits from the grocery sales are not subject to income taxes, one of the incentives to go out the back door is taken away. The only reason left is the human instinct to use the back door. However, you and your family (plus some others) are captive customers in this scenario. If you charge wholesale prices, you are not creating more proceeds for retirement income. Charging the retail price on the can of peas helps you buy more cans of peas to sell to other customers. If you continue to do this for an extended period, it will create a profit. This will also create more value and income when selling the business down the line.

Chapter 4: The Problem

This chapter focuses on illustrating the problem with the current banking situation. To do this, Nash looks at an example of a 29-year-old young man making $28,5000 per year after taxes and what he does with the after-tax income.

In this example, the young man is spending 20 per cent of that income on transportation, 30 per cent on housing, and 45 per cent on living expenses (clothes, groceries, etc.). This means that only five per cent is disposable income. However, for this example, he allocates ten per cent to disposable income and 40 per cent to living expenses. The problem that Nash notes about these percentages is that banking organizations finance the costs.

This hypothetical person is offered a car financing package of $10,550 for 48 months with an interest rate of 8.5 per cent with payments of $260.04 per month. If this individual trades the care at 30 months instead of 28, 21 per cent of every payment would be interest. If he goes 48 months before trading, the interest will still be 20 per cent.

This same line of thinking can be applied to housing and living expenses. Most times, people end up paying large amounts of interest. Therefore, a portion of the disposable income paid is in interest. For this example, he says he puts that number at 34.5 cents. This would mean that assuming he is trying to save per cent of his disposable income, there is a 3.45 to 1 rate of interest paid out compared to savings.

Nash also compares the situation to flying a plane. The example is as follows:

You are in Birmingham, AL, with an airplane that can fly 100 miles per hour, and you are flying to Chicago. However, there is a headwind of 345 miles per hour. If the air mass is above you, there is no headwind, so that the plane will be going at 100 miles per hour. If you decide that this speed is good enough, you will remain at this speed. However, if you wait for the air mass to move, you will have a tailwind of 345 miles per hour on top of the 100 miles per hour. The plane would then be going at a ground speed of 445 miles per hour.

In this scenario, Nash states that most people in America would be flying with a 345 miles per hour headwind. However, if you have 345 miles per hour tailwind instead, those people have twice the wind than you would. Most in this situation would try to make the airplane go 105 miles per hour. It is better to spend their energy instead of controlling the flying environment. You cannot control the environment when flying, but you can do this in the banking world by controlling how banking relates to you.

“That’s what this book is about—creating a perpetual “tailwind” to everything you do in the financial world…This is the unique message of The Infinite Banking Concept” (pg. 27). 

Chapter 5: Creating a Bank Like the Ones You Already Know

Before trying to create a bank like the ones you have been working with for years, there are a few crucial steps you must go through.

First, you must research and have a firm grasp of this field and run your own banking business. 

Next, you must go to the Banking Commissioners’ office and apply for a Bank Charter. This aspect is often not easy. It can take a considerable amount of time and cost substantial money to get there. Like the grocery example, this would be like finding a good location and suitable building for your business.

Once you are in business as a bank, you must entice people to make deposits in it. You must spend money to do this. Once people have made deposits, you can lend those deposits. However, it is vital to be prudent with lending. For example, if you have a capital of $100,000, it would not be wise to lend $50 million to another institution.

There are examples of banks not prudent with lending. For instance, in 1983, First National Bank of Midland, Texas, had a loan portfolio of $1.5 billion, and 26 per cent of those loans were not getting their money back. Responsibility for supporting the bank fell to the stockholders. The stockholders’ equity lost 87 per cent of its value to $12 million. When the public found out, the deposits went down further. Within two months, they were out of business.

Nash uses this example to illustrate an essential part of loans. If you do not pay back loans, you will effectively destroy the business.

Getting into the banking business this way will be costly and time-consuming. However, there is an easier way to create your own banking system – dividend-paying whole life insurance. The problem is that few people know how the business works and who to use these policies to your advantage.

To explain this concept further, Nash compares it to “co-generation.” This word is used in the production of electrical power. It refers to producing two or more forms of energy from one fuel source. What do you do with this power if you have a plant that creates more electrical power than you need? Of course, you can sell it, but it is easier to sell to a power supplier than making a new plant and canvassing for customers.

“Creating your own banking system through the use of dividend-paying life insurance is much like co-generation. All the ingredients are already there in place. All you have to do is understand what is going on in such insurance plans and tap into the system” (pg. 33).

Chapter 6: Creating Your Own Banking System Through Dividend-Paying Life Insurance

Nash explains where to begin with the infinite banking concept in this chapter. First, he stresses that everyone is aware that they finance everything they buy; either the interest is paid to someone else, or you give up the interest you could have earned instead. 

He then explains the concept of Economic Value Added (EVA). EVA is the amount of profit left over after the cost of the company’s capital is deducted from the operating profit. Before this concept was introduced, companies were borrowing capital from banks and paying interest but treating their capital as having no value. Once this concept was understood, profitability increased. 

Creating a product begins with engineering, and the engineers of the life insurance companies are actuaries. They deal with the people that have been through a screening process for policies, work with a theoretical lifespan and provide that information to rate makers. These people determine what the company will need to charge the client to pay the death claim down the line. These matters are then turned over to lawyers to make contracts sold to clients. Finally, administration workers hold these matters all together.

To make an insurance plan work, the policy owner makes payments, and the company uses that money to produce the benefits promised in the contract (e.g., by investing in real estate). However, the policy owner has total control over how the money in the policy is invested. Therefore, money can only be invested by the insurance company if the policy owner does not use the money and pays interest instead. If the owner does not do so, the company has access to an increasing pool of money.

Sometimes the policy owners die, and the money is given to them from this pool of money. However, policies are generally made to benefit the company. “That is because the cash value is guaranteed to ultimately reach the face amount of the policy by age 100 of the Insured. There is an ever-decreasing “net amount at risk” for the company” (pg. 37). 

Essentially, the contracts are designed to do well no matter what. So once the dividend is declared, the policy can never lose value in the future.

Nash compares this to an example in the airplane world. A plane is loaded with as much fuel needed to fly about 10,000 miles. After flying 8,000 miles, the plane can do more than when it took off because a lot of fuel has been burned, and the airplane weighs less. However, the engines can still produce as much power as when they took off. Therefore, the plane gets more efficient with every mile it flies.  

There can be periods where expected earnings are lower; businesses would turn to stockholders in this case, but this does not work for life insurance. Instead, capital is added to counteract this. For example, if accountants report that they have collected $1.10 from someone’s policy but found they only needed 80 cents to deliver the benefit, then the directors would decide what to do with the 30 cents. Most would put a portion of this into a contingency fund for unexpected risk and distribute the remaining dividend. Distributing the dividend is not a taxable event. If the client used the dividend to purchase additional paid-up insurance, it would result in an “ever-increasing tax-deferred accumulation of cash values that support an ever-increasing death benefit” (pg. 39).

Nash then explains his point further with another example (referring to the example made earlier in this book: the young guy making $28,500 after taxes). A salesperson calculates the value of an individual for the policy by what he expects to earn a year and multiplies it by the number of years he expects to work. With factoring things such as pay raises into the equation, it is feasible to assume he will have an annual income of around $38,000. For a 29-year-old at the time, this would produce approximately $1,368,000 in income, and about 40 per cent of this would be used to pay for his needs. This would leave about $820,800 to his family. The salesperson would then calculate the principal sum and determine $400,000 would work. This guy would be paying over 35 per cent of every dollar of after-tax income in this scenario.  

Suppose the man puts $50 per month into life insurance premiums and then goes to a dealership to buy a car and finances that with another loan. The man will now be paying $50 for the insurance and $260 to another finance company. So in total, he will be paying $310 that will go into the same pool of money directly and indirectly. However, if he paid $310 into the company as a premium for about four years, he could make a policy loan and pay for the car with cash.

It would likely take more than just four years to capitalize on the infinite banking concept. It is estimated that it takes at least seven years to profit from an investment. “So, why not capitalize each policy purchased for at least 7 years, to the point where dividends will pay all the remaining premiums on the policy” (pg. 42).  

“It will take the average person at least 20 to 25 years to build a banking system through life insurance to accommodate all his own needs for finance—his autos, house, etc. But, once such a system is established, it can be passed on to future generations as long as they can be taught how the system works and suppress their baser instincts to “go out the back door of the grocery store”—or in a word that is more descriptive—steal” (Pg. 42-43). 

Chapter 7: Basic Understandings

In this chapter, Nash reiterates the basic understanding people must know and understand about the infinite banking concept. This includes:

• You “finance” everything you buy. As a result, either you pay interest or lose out on the interest you could have earned.
• Create an entity. An example of an entity would be a life insurance policy. These are always created to have value. The person who owns the policy has absolute control over how the money is lent and borrowed. The insurance company can only invest money if the policy owner does not use the money and pays interest instead. At the end of the year, the company analyses the policy’s value, and a dividend is declared, which cannot be taxed. “Dividend is then used to buy additional paid-up insurance at cost, then the result is continuous compounding of an ever-increasing base” (pg. 44-45).

Part II: The Human Problems – Understanding Parkinson’s Law

In the first section, Nash talks about the technical aspects involved in the infinite banking concept. This chapter will look at the limitations we face with Parkinson’s Law.

1. Northcote Parkinson was a British essayist, lecturer, and economist who shared observations about human nature limitations. Some of these observations include:

• Work expands to the amount of time given to finish it. So, for example, if you are given an assignment due in three days, it is not surprising that it will be completed later on the third day.
• Enjoyment of luxury becomes a necessity. Once you have gotten used to luxury, we view it as necessary. For example, cars used to have no air-conditioning. That was fine when there were no alternatives, but few would now pick a car without this feature. 
• Expenses to rise based on income. When we come into more money, we often view more things as necessities and spend that extra money on them. 

“Parkinson’s Law must be overcome daily. If you cannot do so then just go ahead and give up—you are destined to become a slave! That’s the bad news. The good news is—if you can whip Parkinson’s Law you will win by default because your peers can’t do it—and everything you do in the financial world is compared with what they are doing” (pg. 49-50). 

Chapter 8: Willie Sutton’s Law

The Willie Sutton Law stems from a story of an interview with the robber. In the story, a reporter asked Sutton why he robbed banks. According to the reporter, Sutton replied, “Because that’s where the money is.”

Essentially, it means that when trying to diagnose, do, or achieve something, you should choose the most apparent option or route to do so. Essentially, it is a reminder to focus on things that produce the best results most easily and effectively. 

Nash notes that one of the biggest thieves in this world is the Internal Revenue Service. He explains it as follows: 

If a person goes up to another person in the mall, puts a gun to their head, and tells them to give them all the money in their wallet, those witnessing the situation will view it as theft. However, if the same people gathered beforehand, and Nash explained for an hour how they would divide the contents of the wallet among them, this would be viewed more as democracy. 

He explains how taxation can be viewed as a parasite-host relationship. 

“Government is a parasite and lives off the productive taxpayers, the host. It is self-evident that if the parasite takes all the produce of the host, then both parties die” (pg. 52). Therefore, the government resorts to an exception to the rule (e.g., 401-K plans), but even with those, the government still controls much of what you do. 

“Economic problems are best solved by people freely contracting with one another and with government limited to the function of enforcing those contracts. And the best way to do so is through the magnificent idea of dividend-paying whole life insurance!… And only the people who care about others that are dear to them participate in the idea” (pg. 53-54). 

Chapter 9: The Golden Rule

The premise of the Golden Rule is “those who have the Gold make the rules!” (pg. 55). This chapter expands on this idea. 

Most people are so focused on living in the moment that the concept of creating personal capital through savings has lost much of its value. Therefore, someone else must provide the capital to live our lives, which comes at a high cost. 

He illustrates this idea through the Japanese company Panasonic wanting to build a plant in Mexico. To make a plant there, Mexico required that Mexican people own 51 per cent of the business. As a result, Panasonic pulled out of the agreement. In this scenario, Panasonic had the “gold,” so it made the rules. 

Essentially, those that have capital tend to have more control over decisions. If you have more cash, good opportunities tend to arise. However, people are still reliant on someone else supplying the capital. In the same vein, there is a tendency to look for government solutions to a problem believed to be out of their control (e.g., obtaining a loan to afford college). This way of thinking is widespread, and it needs to be overcome for success. 

“Succumbing to these feelings produces a huge burden on your financial future—the price must be paid. You will always be at the mercy of the ones who have the gold!” (pg. 57). 

Chapter 10: The Arrival Syndrome 

This chapter discusses what Nash calls “The Arrival Syndrome.” He views this as one of the most limiting mindsets someone can have because we lose much of the ability to receive inspiration. Essentially, it means that people do not try to do better or think differently because we already know what we need to know. 

To illustrate this, he uses the example of Ed Deming, a well-known business consultant. He is known as the person that taught Japanese businesses about quality. He first tried to preach his ideas to American companies but was brushed off because they believed they were already doing what Deming suggested. Therefore, he brought his ideas to Japan, and they were a success. As a result, many business schools now accept and praise him and his ideas. 

The Arrival Syndrome is one of the obstacles to teaching about the Infinite Banking Concept. 

“[T]his is probably our hardest job—to get people to open up their minds and take an in-depth look at just exactly what is going on in the business world and correctly classify what is seen” (pg. 61). 

Chapter 11: Use It Or Lose It 

This chapter focuses on the last aspect of human nature that must be dealt with to be successful in becoming your own banker. It is difficult to get out of our comfort zone; however, it is necessary. 

Nash views his teachings of the Infinite Banking Concept to argue that the world is round when most believe it is flat. It is a relatively simple concept to explain, but it becomes more difficult if you are part of the paradigm that thinks the world is flat. 

To accept a different paradigm, you must develop new habits and ways of thinking. For example, Nash finds that some get caught up in the interest rates when learning about the Infinite Banking Concept. Instead, it is understanding money flow and charging interest to yourself and what you own. Doing this with minimal taxation can significantly improve your financial situation. 

“Just like EVA [Economic Value Added], to be effective, The Infinite Banking Concept must become a way of life. You must use it or lose it!” (pg. 64). 

Chapter 12: Creating The Entity

When actuaries begin creating an insurance plan, they look at many factors that will affect the value of the plan. This includes mortality rates, illnesses, mental health concerns, etc. 

One of the main things factored into the equations is the theoretical lifespan of individuals. Actuaries look at things such as mortality tables. If the rate that participants with an insurance or pension plan have died is better than what is shown on a mortality table, better dividends will be given to policyholders. This is the desired outcome. 

When creating a plan, cost calculations begin with how much it would cost to cover someone for their whole life. This is called single premium life insurance. However, many do not choose this option. Instead, they choose term insurance. This involves renting a single premium life insurance for a particular time frame, but the death benefit is contingent on the individual dying within that time frame. This is like other forms of insurance (e.g., fire insurance), except those are more for “what-ifs.” Death is something that you know will happen at some point, and it is just a matter of “when” it will happen. 

Nonetheless, Nash notes that particular life insurance policies have more value than some may notice. They have fewer qualities in common with standard insurance plans and more in common with banking. “A better name would have been “a banking system with a death benefit thrown in for good measure'” (pg. 68). The idea of the Infinite Banking Concept stems from this idea that there is a lot of nonsense in the market because things are not classified correctly. 

Nash compares this to the common potato. In the late 1500s, conquistadors of Spain were in South America looking for gold. They did not find gold but instead found potatoes. However, when potatoes were brought back to Europe, they were viewed as poisonous due to their scientific classification. However, over time they realized the value of the potato for consumption and medicinal means. A similar misunderstanding happened with the tomato plant as well. 

When choosing a plan to begin creating an entity with, it is best to select a close plan close to the Modified Endowment Contract (MEC) without crossing it. These are plans that are not treated as life insurance by the IRS. Therefore, these plans will be subject to taxation. 

For this reason, it is best to choose a plan in the middle of the scale (figure on pg. 70) and add Paid-Up Additions to it. The base policy and the Paid-Up Additions will pay dividends that can be used to buy more Paid-Up Additions insurance. 

“[T]he objective should be simply to get as much money as possible into a policy with the least amount of insurance instead of trying to put as little money in and provide the greatest amount of insurance (initially). It is the exact opposite of what one thinks about when purchasing ‘insurance'” (pg. 71).

Part III: How to Start Building Your Own Banking System

In this section, Nash talks about five methods of financing an automobile over a person’s lifetime. These examples assume the car will be replaced at four-year intervals, and the financing package will be $10,550 at 8.5 per cent interest for 48 months. The timeframe for this will also be 44 years. 

Method A: Leasing the car for 44 years. 

This is the most expensive method. It is difficult to calculate the total cost with this example, but one can assume that the person leasing has no equity to show from this expense at the end of each four years. 

Method B: Through a Commercial Bank

The calculation for this is more simple: $260 per month for 528 months = $137,280. By the end of the four years, the person has a four-year-old car to trade in to buy the next car. This will likely be cheaper than the first method. 

Method C: Pay Cash For Each New Car. 

Paying for a new car with cash every four years would cost $116,050. With this method, the individual would still have to make car payments. However, the difference between the first two is that these payments will go to a savings account to pay for the new car in four years instead of a leasing company or bank. 

Method D: Accumulating Money and Paying a Higher Annual amount 

This method involves accumulating money from a new investment (within seven years). In this scenario, the individual would accumulate cash in a savings account and purchase a Certificate of Deposit (C/D) of $5,000 with a yield of 5.5 per cent interest. 

The C/D will attract the IRS, who will take some of the earnings, but he will still earn 4 per cent after taxes. The results of this would be an after-tax amount of $41,071.13. He can now start self-financing the car purchases from the system now. He can withdraw $10,550 from the C/D account, add the trade-in car, and purchase a vehicle instead that is not overly expensive. 

He adds funds to his savings and takes out $3,030 to purchase a new C/D each year. The individual would achieve more significant results with this method than with the previous methods because it results from three more years of accumulation with the seven years at an additional amount ($5,000). 

Method E: Dividend-Paying Life Insurance. 

This method involves creating a banking system to finance the cars through the help of dividend-paying life insurance. In this scenario, the person puts the $5,000 from the previous example in high-premium life insurance with a mutual life insurance company.  

After seven years of capitalization, the individual withdraws dividends to pay for the car. To do this, the person must make premium payments to the policy instead of a finance company, but at the same amount as the example above, $3,030. 

Method D produces excellent results as well. But what is not considered is the expensive and time-consuming process of getting a Bank Charter and deposits from others in Method D. Both methods rely on the borrowers making their business successful. The main difference is that the owners earn interest and dividends with Method E, and none go to stockholders. So the difference between Method D and Method E is what went to the stockholders in Method D.

There is also a considerable difference in the retirement income that can be taken from each method. If $50,000 were taken out each year with Method D, the C/D account would be out of money in five years and eight months. In contrast, the life insurance company will continue to grow with withdrawn dividends. If the person were to die at 85 (65 years into the policy), they would have withdrawn $650,000 in dividends on top of the death benefit, which is over one million dollars.

“This is the essence of what The Infinite Banking Concept is all about recovering the interest that one normally pays to some banking institution and then lending it to others so that the policy owner makes what a banking institution does. It is like building an environment in the airplane world where you have a perpetual “tailwind” instead of a perpetual “headwind” (pg. 79).

Chapter 13: Expanding the System to Accommodate All Income

When someone receives a payment, they will often deposit it into someone else’s bank. Even if you have your bank account, the institution lends your money to others, and the interest you pay means that the money will be gone forever.

Through infinite banking, the same process will occur, except the individual will make loans to themself and pay them back to the policy. It is the same payment as a banking institution, except it happens tax-free, and the interest never leaves the account.

So far, Nash has looked at using the life insurance banking system to finance cars, but it can be used to finance most things. You can use the same process to finance comprehensive and collision insurance. To self-insure, you would have to determine how much more you need to put into life insurance policies to assume the risk. This can be determined by getting a quote from an auto insurer. If they quote $750 per year for a $500 deductible, you would pay your life insurance $1,000 for zero deductible. This can also be applied to a house mortgage. If enough money has been accumulated to pay off the mortgage, you can borrow and pay it off while making sure you pay the policies you would have been paying the mortgage company.

Part IV: Equipment Financing.

Nash begins this section by refreshing people on the steps to take to get into the personal banking business.

First, you must select an appropriate plan from a dividend-paying life insurance company and put money into it. It would be best to accumulate capital in this policy for some time. He advises four years minimum, but more would improve profitability.

Nash illustrates a scenario for a 30-year-old man who owns a logging business. If he put $40,000 into the plan for four years, with a Life Paid-Up premium of $15,000 per year and a Paid-Up Insurance Rider premium of $25,000, at the end of four years, the cash value would be $157,363, which is almost the same as his cumulative outlay of $160,000.

He would no longer have to pay premiums in the fifth year because the dividend and paid-up insurance will cover the value. The death benefit will then be at $1,651,077. After 36 years, the cash value will be around $1,517,320, and the death benefit will be approximately $2,406,948. The death benefit has grown and is tax-free.

When the insured turns 66 and is considering retirement, he can begin withdrawing $92,000 per year in dividends from that point on. Then, if he dies at 85, he would have recovered the premiums paid into the policy ($160,000), plus $1,588,000, and still gives a $2,407,736 death benefit.

Nash explains other examples where the individual can use the life insurance system to finance equipment for his logging business. This can be done by borrowing from the cash value within the policy. In each scenario, the individual must set up a loan repayment plan that equals or exceeds what the individual would be paying to the finance company he used in the past. Doing this enables more cash flow which becomes capital and can be lent to more people down the line.

It is also essential that the individual does not finance from too little capital. To avoid this, it would be optimal for the individual to add additional policies to finance from. It is also important to continue to capitalize the policy for four years or longer.  

Another strategy to improve the capital is to backdate the policy for six months. Pay the premium now, but ask the company to date the policy six months ago so that there will be less time before you can use the policy to cut out the finance companies from the business equation.

The next improvement would be self-insurance with comprehensive and collision damage. It is also advisable to self-insure for liability. By doing this, the individual would be making what the finance company and the casualty insurance company are making, all tax-free.

The individual would also benefit better from owning the policies himself, instead of putting it under the ownership of the company or corporation. The individual can purchase the trucks himself and lease them to the company.

“By doing it this way he can have an interest deduction for the policy loans used to purchase the equipment (the loans are for business purpose)—he can depreciate the trucks over a reasonable time—and he has a “captive customer” to lease the equipment to that is sure to make the lease payments” (pg. 103).

All interest in these scenarios has been paid by withdrawing additional dividend credits. The system can further be improved by selling the equipment down the line. In the end, the individual in this example would have over $3,500,000 available at the age of 66. 

Part V: Capitalizing Your System and Implementation

If you have decided that you would like to reap the benefits of the Infinite Banking Concept, you may be unsure of where to start. Nash notes that the first thing you must have is desire. IF you want to get the benefits from this method, you must first reflect on your current financial situation and commit to changing for the better. This would involve changing your priorities and realizing the value of becoming your own banker.

A great way to get started is to find a consultant or coach familiar with the Infinite Banking Concept. They will be there to help mentor you in the process. It is also a good idea to organize or join a club of like-minded people that meets periodically to support each other in the process.

However, the most important thing you can do is get started as soon as possible. “The longer you wait, the more you have penalized yourself” (pg. 117).

Chapter 14: The Retirement Trap

In this chapter, Nash discusses the downfalls of social security and pension plans.

He illustrates this through an example. If the doctor puts $10,000 into their pension plan, the money will not be their money. Instead, half of that money will be, but the other $5,000 will pay taxes that allow you to have the plan. The doctor has done an excellent job at putting money into the fund, but social security needs half of the money the doctor put in to stop it from falling.

Many articles share the sentiment that social security is a scam or a fraud, and Nash believes that it is a matter of time before it runs its course and collapses.

He also believes that pension plans have a similar fate. He views them as self-destructing. He also encourages readers to read “The Pension Idea” to learn more about how pensions do not work.

Chapter 15: The Cost of Acquisition

Many businesses realize that it is necessary to finance a business, but they do not address the cost of acquisition of finance. Unfortunately, it is often costly to do this.

Nash looks at the example in the book “Iacocca.” Lee Iacocca shared that he would not have gotten involved in Chrysler if he had known how bad off it was. To get out of it, he had to get a government-backed loan. To get this, he had to gather the highest-paid members of the company to persuade lobbyists. Months later, they had succeeded in doing so. 

However, they only had the government back guaranteed. They also had to get the money from the bank and only was given one-third of the amount at a time. Then, when the next third was needed, they had to go through the same costly and time-consuming lobbying process.

This example shows the cost of the acquisition of finance; the cost of finance in addition to this. The ones that paid for all the activity were Chrysler customers.

“If you are in command of the banking function, you do not have to go through all this expensive erosion. The Infinite Banking Concept does exactly that! You can make timely decisions. There is no cost of acquisition. You compete with others who must go through the erosion that has been outlined” (pg. 125).

Chapter 16: “But, I Can Get a Higher Rate of Return”

When someone is introduced to the Infinite Banking Concept, many know that they can get a higher rate of return from a different investment. However, that is not the point of becoming your own banker. The focus is not on the investment yield. Instead, it is on how to finance things you buy with your own banking system.

Nash demonstrates this idea through the following example: 

Investor “A” invests $100,000 for one year and earns 20 per cent. So the net yield would be $14,000.

Investor “B” builds cash values of $100,000 into a dividend-paying life insurance plan, then borrows from the system for eight per cent and makes the same investment. The net yield would be $8,400. However, this investor would also earn $8,000 from the banking system, so that the total yield would be $16,400. There will be a delay when first setting up the banking system, but it will be beneficial in the long run.

“If you are in command of the banking function, you do not have to go through all this expensive erosion. The Infinite Banking Concept does exactly that! You can make timely decisions. There is no cost of acquisition. You are in competition with others who must go through the erosion that has been outlined” (pg. 125).

Chapter 17: An Even Distribution of Age Classes

Nash compares creating a banking system to a forest management plan.

An owner has 4,000 acres in this plan and plans to grow on a 40-year rotation. The land will be divided into 400 compartments, and each year, they want to harvest one compartment and replant it. It will take 40 years to complete this process. It will involve several years of growth and removal of less desirable trees (improvement cutting). Once the replanting begins, there will be a final harvest on one compartment and three improvement cuttings on the other compartments. This will create four sources of income during a year. However, it will still take 40 years for this process to get done.

Infinite banking is a similar process. It may take a while to become proficient in it and reap its rewards, but it will be beneficial down the line. It can also benefit later generations.

He uses the example of an elderly couple that purchased life insurance plans for their four grandchildren at $2,000 per year. When they died, ownership was given to their sons. Those songs have done the same thing for their grandkids. After 22 years, the base premium can be paid by dividends, and surplus dividends can buy additional paid-up insurance. The cash value for the grandkid at 22 years would be $101,260, and this value could be up to $4,103,852 by the age of 70. The individual can then withdraw dividends to $225,000 per year. If the individual dies at 85, he would have recovered the initial $44,000 put into the policy plus $3,556,000 and give the death benefit of $6,375,923 to future generations. They can further reap the benefits by using this policy to finance cars and mortgages.

This plan benefits future generations, builds up cash value, avoids social security/pension needs, creates passive income, simplifies estate planning, and more. It also encourages a wealth mentality and control over your finances.

Chapter 18: A Different Look at the Monetary Value of a College Degree

In this chapter, Nash looks at the value of a college degree. Growing up, he was told that getting a degree would offer more monetary value, but he suspects this may not be the case.  

First, he looks at where the desire for everyone to get a college degree originated. He traces it back to World World II. Many students wanted to get their degrees because they feared that those returning from war would return to civilian life and ruin the economy. Therefore, getting a college degree became more of a necessity. Nonetheless, the cost to get one has risen past the economy’s inflation.

To look at a degree’s monetary value, Nash compares the cost of a degree to the importance of teaching a child to use dividend-paying whole life insurance.

For his example, he assumed that the college degree would get $20,000 per year for four years. If you put the same amount into the high-premium policy, the dividends would be used to pay the base cost for the premium after four years. If that individual retired at 70, the plan’s cash value would be around $2,457,303, and $145,000 dividend credits could be withdrawn for retirement purposes. If the individual was insured to 85, they could have withdrawn a total of $2,175,000, and if they died that age, they could also get a death benefit of approximately $2,175,000.

Nash does not believe that a college degree would produce as high of a financial result. The insured individual could further benefit themselves by using the policies to finance cars and mortgages, and the like.

“So, in evaluating just the financial benefits of the college degree at a cost of $80,000 vs. putting that same $80,000 into high-premium whole life insurance, I don’t believe the degree is as valuable. As a matter of fact, the probability of the college-educated person ever learning the benefits of “banking” through the use of whole life insurance is not very good” (pg.144).

Nash notes that this does not mean he is against higher education but believes being educated on using life insurance policies to your advantage will likely provide more value. 

Chapter 19: What if I am Uninsurable?

For some people, given various circumstances, they may not be insurable. Nash offers an alternative an individual could do instead to get the benefits of being his own banker while being uninsurable.

He provides the example of a 50-year-old father who cannot be insured. Yet, he has a 23-year-old daughter who is in excellent health. He puts $20,000 per year into a policy on her, $10,000 into the policy, and $10,000 into a Paid-Up Additions Rider.

After 20 years, they decided to stop premium payments and draw out $28,500 per year in passive income from the cash values of the Paid-Up Additions. This is tax-free and equals the base cost for the policy.

After another 15 years, the father is 85, has taken out dividend additions, and wants to continue getting tax-free income. He can do this by switching to policy loans. If he dies at 85, he will receive $1,110,726, which will be given to his daughter.

The policy is still there for the daughter to finance parts of her life. However, if she chooses not to, she would still be able to surrender the dividend additions in the amount of $150,000 for the rest of her life. If she dies at 90, this would mean she has received $3,150,000 in passive income and will be giving a $2,378,391 death benefit to future generations. 

Chapter 20: Points to Consider

In the final chapter, Nash lists seven important points to take away from this book. These are as follows:

1. “There are only two sources of income—people at work and money at work” (pg. 157)
2. Will knowing that you will get the money back, tax-free as passive income, encourage you to put more money in?
3. When you use traditional banks, they get the total value of your money. However, if you create your own banking system, you will be deposited into your own bank and reap the full benefits. Nonetheless, this takes time, closer to 20 years for some, so it is something you must commit to. It can benefit future generations if you do. 
4. When the government creates a problem and gives you a break, it benefits them more than you. In the case of taxation, they could help consumers by cutting taxes; instead, they offer “tax breaks” such as retirement and pension plans.
5. Wealth will reside somewhere. It is up to you where you want it to reside. With life insurance plans, “you can do any of the other things in life that you desire” (pg. 158).
6. “You finance everything you buy. You either pay interest to someone else, or you give up the interest you could have earned elsewhere. There are no exceptions.” (pg. 158)
7. “Your need for finance, during your lifetime, exceeds your need for life insurance protection. If you solve your need for finance through life insurance cash values, you will end up with so much life insurance; you can’t get it past the underwriters. You will have to ensure every person in which you have an insurable interest” (pg. 158).

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What is the Willie Sutton Rule?

In episode 127 of our Dollars and Nonsense Podcast, show hosts Holly Reed and Nate Scott discussed the Willie Sutton Rule. Here’s more about the concept and how it applies to the investment world.

The Willie Sutton Rule Defined

The Willie Sutton Rule or Sutton’s Law states that you should choose the most apparent option or route when diagnosing, doing, or trying to achieve something. Essentially, it is a reminder to focus on the most efficient and effective way to produce the best results.

The rule is named after American bank robber Willie Sutton, who is known for an infamous crime career that lasted 40 years. During those four decades of robbery, Sutton stole an estimated $2 million, was put on the FBI’s top ten most wanted list, was arrested multiple times, and escaped from prison three times.

Reporter to Sutton: Why do you rob banks?

The Willie Sutton Rule stems from a story of an interview with the robber. In the story, reporter Mitch Ohnstad asked Sutton why he robbed banks. According to Ohnstad, Sutton replied, “Because that’s where the money is.” The authenticity of this story has been questioned over the years. In his autobiography, Sutton even denies that he ever said it. Nonetheless, the quote evolved into the Willie Sutton Rule and has become a common ideology.

Applications of Willie Sutton’s Rule

The Willie Sutton Rule has been used in many fields, including science, medicine, accounting, finance, and more. In the medical field, for example, it refers more to diagnoses. It is invoked mainly for medical students to emphasize that the most obvious diagnosis is the most probable one. And so, it is best to run tests in the order that attempts to rule out the most likely conditions, diseases or illnesses before moving on. This expedites the diagnosis while minimizing the use of resources and costs.

Sutton’s Law in Finance and Investment

In the finance and investment world, the rule focuses on achieving profits and returns. It states that more time and effort should be put into activities that will produce the highest yield or best rewards. For investors, this could mean investing in stocks that may be less profitable but are more transparent and likely to succeed. These types of positions may not produce the highest yield, but you know what you are getting into. Once you have exhausted the more obvious stock options, you can move on to more lucrative positions. This can help avoid the mistake of first putting everything into a venture that may never develop or succeed.

Willie Sutton’s Rule and Infinite Banking 

In episode 127, Nate and Holly discuss the Willie Sutton Rule in relation to wealth accumulation and the government.

“It is just something within human nature to look at where money is being stored and for us to figure out how we can get our hands on that guy’s money,” said Nate.

He attributes Sutton’s infamous quote to mean that when wealth is accumulated, someone will try to steal it. However, when this is applied to personal wealth, the ones trying to do this are not bank robbers. Instead, it is the IRS and other government and financial institutions; the infinite banking concept can help avoid this. 

How to Accumulate Money That Can’t Be Stolen

“It is a great way, one of the best tools we know of, to accumulate money that can’t be stolen,” he added. 

When you put your money into something like a 401k, it is uncertain how much money will be yours in the end and how much money will go back to the government. Additionally, you are losing control of the money you have put into the account. In banking, money is not being stolen from the account. Instead, it is being put to work. As a result, the bank reaps the rewards, and the customers get nothing in return. 

The ideology also suggests why some aspects of the life insurance industry were created. Mutual life insurance, for example, is there to profit policyholders, and they are the only owners.

Infinite banking uses whole life insurance policies to grow wealth tax-free, and be used tax-free at any time. This helps shield policy owners from taxation and from institutions trying to use your money to their advantage.     

“Anywhere people are trying to accumulate money, someone else is going to try to steal it or limit it or control it. And that guy is normally the government,” said Nate. “That’s why we have these MEC rules. Why do we have to design policies in certain ways, we can’t do in other ways, and so forth. It’s all due to Willie Sutton’s law.”

To listen to more episodes of Dollars and Nonsense, click here.

 

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What Dave Ramsey gets wrong about infinite banking

Radio host Dave Ramsey Ramsey is a critic of the infinite banking concept, going as far as to call it a “scam” on an episode of his show broadcast at the end of 2020. However, there are a few things that Ramsey misunderstands about the process.

This article outlines three misconceptions that Ramsey, and other financial gurus, get wrong about infinite banking. 

Infinite banking is not the same as whole life insurance 

One of the first things that Ramsey and others get wrong about infinite banking is that it is not just an investment in whole life insurance. Whole life insurance is used in the infinite banking concept. It is a tool that allows you to become your own banker.

A common piece of advice that Dave Ramsey gives is to “buy term, invest the difference.” With this idea, you can potentially make money on another investment, but the cash within the policy must be left there to get a return down the line. 

With infinite banking, instead of building cash and making another investment, you have the opportunity to build cash value into the policy and use that cash value for another investment. This gives you a policy that will continue to grow, allowing other potential investments to grow as well. This enables you to get a higher rate of return while also keeping your money in motion. 

Infinite banking is not about investing in life insurance. It’s about using a policy in this new way to become your own banker, and becoming a banker includes financing your investments with your policy instead of cash….It’s the financing tool, the banking tool to do all things that we want to do in life. 

Downplaying the value of a policy and exaggerating the value of other investments

Another misconception by financial gurus is downgrading the potential of a policy while exaggerating the potential of mutual fund or stock investments. For example, they often claim that percentage of growth in another investment such as a mutual fund is much higher than that of a whole life insurance policy, stating that it only sees about one to two per cent growth. By comparison, a mutual fund can see upwards of 12 per cent growth annually. However, it is likely, you will not be able to realize much money. 

With a mutual fund, for example, the fees eat up some of that extra value. You would have to earn a gross of 8 to 9 per cent to pay for these fees to be able to net around 4.5 to 5 per cent. 

With whole life insurance, although the growth is often quoted at 1 to 2 per cent, it is usually in the range of 4 to 5 percent annually over 30 years. In the example above, this would be about the same as you would make using a mutual fund. The main difference, however, is that the return is guaranteed. Additionally, it grows tax-free. Moreover, term policies get more expensive as you get older. So once the term period has ended, it is likely to cost you more money to purchase another one. Is it really worth the risk to try and earn 8 or 9 per cent just to end up netting 4.5 to 5 per cent, that you could get into policy even having to break a sweat or worry about the volatility of anything? 

The cost of whole life insurance vs. the dangers of not investing the difference 

With the concept of “buy term, invest the difference,” success depends on people investing the difference. However, many don’t have the knowledge to do it or the resources to get started. However, if you are not making another type of investment, you are not getting much out of the term policy. You are still paying fees without gaining wealth; this has the potential to do more harm than good down the line. 

For example, once a term is over, a new policy would likely be more expensive. Additionally, it may be more challenging to get one due to changes in health as you grow in age. Due to this, it may not be easy to get a new policy, leaving your family without enough money. 

The only way money’s paid out is if you die, and the likelihood of you dying is very slim compared to the life insurance company having the money to use and cover that. A life insurance company doesn’t sell you term because they think that you’re going to die. They’re betting you’re going to live. 

This is not to say that following the “buy term, invest the difference” mantra is bad; people just need to be aware of the risks that could come along with doing so. For example, there is potential to make good money through investments in the stock market or mutual funds, but these may not be guaranteed, and you must be equipped with the knowledge necessary to be successful. 

With whole life insurance, a lot of these issues are not prevalent. It may cost more upfront, but you are covered for your whole life; the investment has more certainty. Therefore, having a whole life policy, especially when you are young, can significantly benefit you when you are older. 

Infinite banking is not an investment in whole life insurance. It is not whole life insurance. It is a system, a concept of using a policy to become our own banker, that would include financing other investments you want to make.

Podcast episode: What Dave Ramsey gets wrong about infinite banking

List to our experts discuss this topic on our Dollars and Nonsense podcast. There are two episodes about Ramsey and his misguided advice:

• Episode 85: Why Financial Gurus Like Dave Ramsey are Wrong.
• Episode 32: The Best and Worst of Dave Ramsey’s Advice

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Infinite Banking

What is infinite banking?

Infinite banking is a financial strategy, sometimes called IBC, or the infinite banking concept, that can allow you to take control of both your savings and your debt needs, helping you become, in essence, your own bank.

Did you know that the average American spends 25% to 35% of their income on interest through things like real estate, new cars, education (student loans), and credit cards and tries to save 10% of what they make?

Conventional financial planning focuses on what to do with the 10% savings portion of your income. The infinite banking concept focuses on how to redirect the 25% to 35% you’ll spend paying off debts like your mortgage, car loans, student loans, and credit cards. Instead of lining the pockets of the bank shareholders, you’ll be lining the pockets of the policy owner, which is you.

If you are curious about infinite banking and how it works, keep reading. Because we are about to introduce to how infinite banking works and how it can help fulfill your financial dreams and bring financial freedom to your life.

Why infinite banking was invented by Nelson Nash

So first things first. What is infinite banking? Infinite banking was invented by finance expert R. Nelson Nash in the early 1980s. At the time Nash was struggling to meet high-interest rates on loans that he had taken out with traditional banks.

He was in financial trouble, and he started to contemplate the reasons behind this. He realized that as long as the banks determined the interest rates and the terms—he would be at their mercy. So Nash decided to find a solution and in doing so he developed a revolutionary yet simple idea: He created the infinite banking concept.

Back in the 1980s, whole life insurance policies were highly common (it was only in recent years that term policies came to dominate the market). Nash realized that he could take control of his personal finances by creating his own bank, or fund, from which to borrow, by taking out a whole life insurance policy and using it to borrow from when needed.

To grasp how this works, let’s look at how whole and term life insurance policies work.

Term Life Insurance Policies Defined

Term life insurance policies are the most common type of life insurance purchased today.

They provide a policyholder with life insurance for a specific period. The terms are based on the individual at the time that they take out the policy.

While term policies are a lot cheaper than whole life policies, they can be more costly in the long run.

For example, a 25-year-old man takes out a life insurance policy for the term of 20 years. He is in excellent health and does not have a high-risk occupation. Therefore, his monthly payments are set to a low amount of $15 dollars per month.

After 20 years, the policy expires. He then takes out a new policy. However, he is now 45 and has the pre-cursors for heart troubles. His premium is now $90 per month.

What’s more, he has lost all the money that he put into the initial policy.

Now let’s take a look at whole life insurance policies.

Whole Life Insurance Policies Defined

Unlike term policies, whole life insurance policies are for the duration of a holder’s life. Some policies have a cut-off point of 99 or 98 years of age. However, at this point, the accumulated policy is then paid out. The holder is then free to pass it on to his or her next of kin.

The drawback to whole life insurance policies is that they initially require much higher monthly payments than term insurance, with the average monthly payment hovering around $165.

However, as time passes, this amount begins to even out against term policy premiums. What’s more—the money invested in whole life policies is yours and is guaranteed to pass to your family, or to you if you live over the age of 99.

How Whole Life Policies and Infinite Banking Work Together

So what is it about whole life insurance that allowed Nelson Nash to it to create a personal bank?

Here is the key. Whole life policies allow you to borrow against the accumulated premiums that you have paid in. While this attracts interest, the interest is set at the time you take out the policy.

This process uses dividend-paying whole life policies as the vehicle for your savings. By using whole life insurance, your savings are guaranteed to grow tax-free and also participate in the profits of the insurance company through a dividend (not guaranteed). Not only is your money in a stable, tax-free growth environment, but you have the freedom to access your funds at any time.

The freedom to access your money at any time is the real power of Infinite Banking. By taking loans out against the accumulated cash values of your life insurance policy, you’ll be maximizing the work of your money. When you take a loan out, your cash values continue to grow and receive dividends even with a loan against the policy.

So, instead of putting cash into a 401k or IRA, and using a bank for the major purchases in your life, you can put cash into your whole life policy and take loans against your cash value for those purchases. As you pay back your loans to your policy, the same way you would with a real bank, you’re the one who recaptures the interest – treating your money the same way a bank does. You have, in essence, become your own banker.

What is more, as the money is actually yours, you can take a loan against it at any time (providing it is equal to, or less, than your accumulated premiums). The insurance company also won’t need to see credit scores, collateral, or proof of employment or income.

Essentially, Infinite Banking allows you to build up your own bank from which you can draw from at any time, without having to jump through hoops or pay high-interest rates. You can use it to finance a new car, buy real estate, or fund any other purchase that you would normally finance through a bank or traditional lender because of limited cash flow.

Not only is Infinite Banking the most efficient way of using your money in your lifetime, but it’s also the most efficient way to pass on wealth to family members, loved ones, or charities.

The Benefits of Infinite Banking

Here are the benefits of infinite banking:

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