In this episode, Nate and Holly discuss the biggest misconceptions about policy loans and how to avoid them in this episode. Unfortunately, these are the misconceptions many people believe when they get started with the Infinite Banking Concept that can lower their wealth-building trajectory.
Topics discussed in this episode:
- Understanding the process of why and when you take policy loans
- What actually takes place with policy loans and How to Utilize those with your policy
- What’s the point of ever borrowing from Policy Loans?
- The Three ways for a Policy to grow
- Why the real power in IBC is the capitalization of the policies
- Gain access to our Beginner’s Course now FREE to listeners of the podcast here now
- What is Infinite Banking
- Who was Nelson Nash?
- CREDIT: Episode art background photo by LinkedIn Sales Solutions
In this episode, Nate answers a common question: when does it make sense to use your policy to pay for something, or should you pay for it with cash?
Topics discussed in this episode:
- Why would it make sense then to use a policy and actually pay policy loan interest to do something
- What’s keeping you from actually fully transitioning into becoming your own banker
- Policy Loan makes sense for almost everything if you have structured your financial position
- Why You need to set yourself up in the true pure IBC fashion
- Understanding that there’s no magic in policy loans
- Gain access to our Beginner’s Course now FREE to listeners of the podcast here now
- What is Infinite Banking
- Who was Nelson Nash?
- CREDIT: Episode art background photo by Blake Wisz
Podcast transcript for episode 163: You Shouldn’t Use Policy to Pay
Nate: In this episode, I answer a common question, which is when should I use my policy to pay for something and when should I just pay for it using cash? This is Dollars and Nonsense, if you follow the herd, you will be slaughtered.
All right everyone, welcome back to the show. It’s so great to have you here. I’m taking this one solo as well to answer a common question we get: when does it make sense or does it really make sense to use my policy to pay for something, or should I just pay for it with cash? So if we could pose the question for a moment, and by the way, really quick too, I did a webinar that’s recorded and you can view it on our website anytime you want. If you go to livingwealth.com and click on the Wealth Creation Resources, there’s a Training Videos and webinars tab. If you click on that, you’ll see a video there. I think it’s titled like Policy versus Cash: When to Use It or something like that, and it’ll dive into some real numbers about this scenario. So there’s a resource that if you want to go a bit deeper into this than just a verbal audio podcast.
But with that being said, the biggest issue I have with this question is that it’s oftentimes asked from a weird vantage point. The idea really would be you have an individual who maybe is going to go buy a car and they’re doing IBC and they have a policy, but they also have $50,000 sitting in cash in a bank account still. So they may have $50,000 in a life insurance policy, they have $50,000 in cash in the bank account, and they have this feeling inside of them that because they’re practicing IBC, they should use the policy to do this. They’ve been around us long enough to understand that our normal recommendation would be to go ahead and use the policy to do this, but there’s something in them that feels like it doesn’t make any sense because if they pull a policy loan from the policy to go buy this car in our little example here, then they’re going to have to pay policy loan interest to the policy, whereas if they just use their cash, then they wouldn’t have to pay anybody any interest.
So they’re trying to feel like, man, what I like to say is they have their feet in both camps at the same time. So they had this, man, I think I should use my policy, but I don’t know why I would and I don’t really know why it would make sense to use it because I have money to go do this thing outside the policy and I won’t have to pay anybody interest on that. So there’s a part of them wanting to use the policy, part of them is just wanting to pay cash, and what I’m saying is, by the way, they are absolutely right, and so I’m going to dive into this.
I think the real answer is that we should set ourselves up in a position to where it almost always makes sense to use a policy to fund something. I’m going to repeat that. This is very important. I think it makes the most sense to set yourself up in a position where it will almost always make sense to use a policy loan to pay for everything including the car. The problem is if you have not set yourself up in a position that is correct, then it may not actually make sense to use the policy for things yet. And it’s not because the system doesn’t work, it’s because you haven’t set yourself up in the right position yet. And so this is where I want to dive into.
So by the way, to answer that person’s question, if they were to come to me and say, Nate, I’ve got cash to buy this car. I’ve also got… And I normally pay cash for cars. That’s the idea. Now, you can listen to this and say, I normally finance cars and they offer really cheap interest rates, finance cars and blah, blah, blah. That’s actually a different question, so pretend it wasn’t the car, pretend it was anything. And I’m merely describing something that you would normally pay cash for that you have the cash to do, you’re planning on doing it. You’re also practicing IBC and you’re trying to figure out when does it make sense. If you were to come to me in that light, I would likely tell you it wouldn’t make sense to borrow money to buy this car if all you’re going to do is leave the other $50,000 sitting in your bank account.
So now you have a policy loan for $50,000 that you pulled out to buy the car and you’re left with having $50,000 in the bank account doing nothing. I’m like, that doesn’t really make sense. I think that’s why it’s a bit confusing. People think they should use the policy, but then they’re like, I don’t know why. Well, you’re right. The real question though, why would it make sense then to use a policy and actually pay policy loan interest to do something? What if they had built themselves a situation that I believe is more correct in the IBC community? Let’s rearrange this a little bit and say, how about this person, instead of having $50,000 in the bank account and $50,000 of policy cash value when it comes time to make this purchase, what if they had something like $10,000 in a bank account and $90,000 in a life insurance policy?
Now this question doesn’t even apply anymore. It becomes quite obvious which one we should do, right? And what I mean by that is, of course we’re going to use a policy loan to purchase the car. We don’t have enough money in the bank to buy it. So I guess what I’m trying to bring up is that the answer to when should I use a policy and when should I use cash, the question itself is actually kind of the wrong question. I believe the right question to ask is more so how do I set my life up to where it makes sense to pay for almost everything from policies? I hope I’m becoming clear with this that the question is not exactly when does it make sense to use one and when does it make sense to use another? The question is, how do I set my financial situation up to where it almost always makes sense to use a policy loan?
And the reality is you get this question more and more often from people who have not gone… By the way, we just did a podcast a couple podcast episodes ago about the four stages of IBC commitment. You get this question all the time from the lower stages of IBC commitment because those stages are oftentimes, IBC is a smaller piece and they feel like they’re listening to episodes like this and they’re doing IBC, they feel like they should be using the policy, but they always are kind of caught in this situation because they have so much money that’s still not even in policies. And what that is a flashing sign that simply says there’s something keeping you from actually fully transitioning into becoming your own banker. Oftentimes it’s a fear of premium, it’s a concern of over-extending yourself with premiums and so you start kind of small and you’re putting money in, but you technically could be paying more premium, but you’re worried about it for some reason, you don’t want it to get too high.
And some of these are very valid concerns, but I’m merely saying that the answer to the question is oftentimes me posing another question to you. So I guess my answer, if there was a person coming in with $50,000 of cash and $50,000 of cash value and they’re wondering which one they should draw from to buy this car, the answer is likely going to be well, just use the cash you have. There would be no reason to pull a policy loan out to purchase this car, or whatever the item is, if the end result is just you being left with a bank account that has a large balance, the problem is not actually which one should we use. The problem is that you still have enough money in the banking world to do all the things that you want to do. And so that means that it hasn’t been fully adopted, you haven’t been fully committed yet to IBC, which is not a problem. That’s perfectly fine, but that’s what’s causing the question.
So the reality is, if you were to have created a situation where you were paying higher amounts of premium, producing higher amounts of cash value, then it would become obvious that we’re going to be pulling from the policy to pay for something, that’s where all the money is. That’s banking. The idea is that I want all my money, as much as I possibly can, inside of policies compounding for me all the time, and then I want to leverage that to purchase the things of life. You’ll make more money inside of the policy if we had higher cash values and were taking a policy loan out to fund something than if we just had lower cash values, lower premiums and were to just continually pay cash for things.
In other words, if we take a car example and we take someone who normally pays cash for cars or any other expense that you could think of in that type of light, then oftentimes what they’ll have to do is they’ll pay cash for a car and then money will have to slowly build back up in their bank account over time in order to purchase the next car whenever their previous car wears out. Now, it’s actually pretty rare that someone is depositing a set amount into a savings account in order to do that. So it’s very common for the money just to happen to be there later on because they live on less than they make and they accumulate capital. That’s the only way you can pay cash for anything is if you live on less than you make and by doing so, capital accumulate and so you have enough money to pay cash for something.
It’s rarely ever a structured basis, and that’s what’s pretty cool about IBC is that we can either add structure to it so we can move that capital into a policy by paying premiums into the policy over a period of time and then leverage money from the policy to go purchase a car. You can just slowly chip away at it whenever you want, there’s no real amortization schedule involved, or you can systematize it and pay back the policy on a structured basis if you want to. You would be in charge of that. But what I’m trying to say is if we were to have set it up, and maybe I’ll make it even simpler, practically nothing in the savings account, $0 and $100,000 of cash value versus $50,000 in the savings account, $50,000 in cash value to purchase this item. And if we had $100,000, we borrowed $50,000 out, I hope you can see that in either scenario we have $50,000 left, but as you put money back into the policy to repay the car, you could say, or to build up enough money to be able to pay cash for the next purchase again at some point, if you were to take the $50,000 out of the bank account, that’s where the money would accumulate and you would be left just practicing banking with a bank account, which is what everyone’s doing.
And what IBC is trying to say is that there’s a better way to do it, but we have to put ourselves in the position where it makes sense. You have to be properly capitalized into the policy. If you don’t set yourself up in that way, then the question is very valid and the answer is actually just pay cash for things. If you’re uncomfortable taking the cash out of the bank account and getting more capital, more cash value in policies through paying premiums, if that’s uncomfortable to you, which is perfectly fine, you will end up in a situation where there’s enough money in bank accounts, because you’re living on less than you make, and you’ll be able to just pay cash for things and rarely will you ever touch the policy, but don’t say that the policy doesn’t, or you don’t understand when the policy loan would make sense.
A policy loan makes sense for almost everything if you have structured your financial position in a way that it makes sense, in which case it would just be you’re paying adequate premiums for where you’re at that is enough to essentially move almost every dollar of capital you can into policies. Then we’ll be borrowing from policies to do all of the larger items and we’ll treat it more like a banking system as opposed to a savings system.
So I know it’s been kind of complex. The other answer, by the way, for this person who came to me who has $50,000 in a bank account, $50,000 of cash value and is asking the question which one should I use, as I already brought up, the answer is typically, well, just use the bank account. There’s no reason to take a policy loan and pay policy loan interest to a policy when the end result is going to be I have $0 of available cash value to me in my policy and I’ve got 50 grand still in my bank account. It wouldn’t make any sense.
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Nate: We could say this: this is the more advanced strategy, the more advanced idea. The answer could be, well, how about this? What if we were to use the $50,000 cash value to buy this whatever it is, we’re using a car as an idea. What if we were to take $50,000 out of the policy to buy the car, which would then free up the $50,000 in the bank account that used to be committed to that? Now you can take that $50,000 and use that as money to start a brand new policy. Now we’re onto something. Now we have a possible solution to this question. You’re putting yourself in a position to where it makes sense to use the policy now. If you don’t want to do that, then just pay cash for it. But the actual solution is really found in two ways.
Either number one, before money accumulates inside of a bank account, before money actually is able to accumulate there, pay larger premiums. Get more money in cash value, and then when things come your way, whether it’s an investment opportunity or a large purchase or a house remodel or a large family vacation overseas, all of these larger ticket items, charitable giving taxes, we have to use the policy because we have situated ourselves where that’s where all the money is already. So you can’t even ask the question, of course we’re going to be using policy loans to pay for this thing. That’s where all of our money is. So you kind of bypass the question. That’s actually how you set yourself up in a way where it makes sense to use a policy for almost everything, maybe beyond just the basic monthly expenses to live life.
But what I’m trying to bring up is you can set yourself up in advance of that to where the question doesn’t really come up too often or, as I brought up, the second solution would be to go ahead and use the policy to fund something which would free up the money that you have on hand to do that anyway, and then use that money to start another policy. Now you’re backing into the situation where in a couple of years, once we’ve been able to fund the policy, where a couple of years later, of course the bank account is a much smaller piece of your life and the policies are a much larger piece of your life.
So what I believe the answer to the question oftentimes is if you set yourself up in the true pure IBC fashion, then it will almost always make sense to use policy loans for most things. If you have set yourself up in a bit of a more conservative approach to IBC, this question will come up because there will be money outside of your policies to be able to pay for things, and then you’ll have this question of this tug and pull. If you are uncomfortable with my options to situate yourself in a way that it makes sense, then oftentimes you will, my suggestion would be to just go ahead and use cash to do it. In a real IBC form, there are ways to get money into policies and then pull it from policies to where you actually profit by doing so.
We have a video that shows that, as I already mentioned, livingwealth.com, go to the Wealth Creation Resources, go to the Webinars tab and to record in their Policy versus Cash, somewhere in there, in those training videos. And so we’ll dive into, yeah, you’ll make more money if you set yourself up that way. And it’s a very simple video. In real life, it’ll be more complex, but we’re here to help with that. So you can either go ahead and use policy to do it if that allows you to fund a new policy or increase premiums on existing ones depending on where you’re at and how much room you have in your MEC space and so forth.
The other thing we found too is that this type of thing even works if you’re going to quote unquote refinance money you’ve already spent. So you also talked to clients who said, Nate, I had a big house remodel, or I bought a big piece of equipment, or I bought whatever it is, and it was $50,000, $75,000, $100,000, but I actually had cash in my bank account to do this, so I just paid cash for it. I didn’t even use my policies. I felt like I should have, but I didn’t really understand. I had enough money so I just went ahead and paid cash for it. Well, did I make the wrong decision? I would say essentially, no, you didn’t make the wrong decision. You shouldn’t have used a policy loan to pay for those things if you had cash sitting on the sidelines.
However, we could essentially refinance those purchases with a policy loan, so we could pull out $100,000, maybe it was an investment they made, maybe it was a purchase they made. It was something where they used cash to do it because they had cash. What I’m saying is it could make sense. The only reason it would ever make sense to use a policy is if you are finding a way to get that money that was not a part of the policy system into the policy system. So that’s why I would say it could make sense to refinance that purchase or that investment that was made by pulling out a policy loan even after the fact, and then use that money to start and capitalize a brand new policy over time. We borrowed out $100,000, we put in $25,000 a year for four years into a brand new policy and we pay back the $100,000 policy loan over time with money that would have normally accumulated in the bank account because that’s where that money was situated.
But if you can’t tell at the end of that four or five years, they would’ve had a brand new policy fully capitalized and they would’ve been using that excess cash to pay back the policy loan system. So at the end of that timeframe, they’ll come to a new investment, they’ll come to a new expense and they won’t even ask the question because they have changed where their financial position is. So now they’ve got the $100,000 back into their first policy and they have $25,000 of premium paid for four years into that new policy that they started. So four years later, the money that would’ve been accumulating in a bank account because of them living on less than they make, and what I’m trying to bring up is that’s where the money would’ve came from.
In other words, the only reason they had $100,000 to pay cash for the investment or for the expense or whatever it is, the only reason that that money was in a bank account was because they live on less than they make, money starts to accumulate in the bank account and then they can go spend it. And what we’re saying is we have now changed the position because instead of having money accumulate in the bank account, they were simply using the money that would’ve accumulated in the bank account and they were just sending chunks back to repay the policy loan that they took to fund the investment or the expense or the equipment or whatever it is, and they have this brand new policy that was paid for just from the refinancing of the expense by taking on a policy loan.
And so what we have now is a position where they’ve got $100,000 approximately. Some people watching this video will be critical and they’ll say, Nate, in the first couple of years, they’ll be paying the premium and it won’t have all the cash value. Once again, okay, it doesn’t change anything on the actual design of this, but yeah, you’re right. But what I’m trying to bring up is they would’ve put in $100,000, maybe the cash value’s $90,000 by year four, I don’t know. I mean, whatever the cash value is at that time in that policy, they would’ve replenished this one, and then what’s going to happen is they’re going to need to buy another piece of equipment, they’re going to need a down payment on a new home, they’re going to…
Whatever these things are in life, they’re going to have to come back and realize that now they have situated themselves in what I would call a more proper IBC situation, which means that their bank account is not flush with cash anymore. It’s been moved in to a policy and they’ve got a couple of policies being capitalized over on this other side and now they’re going to be pulling money from policies more often because that’s where the capital is. And so the question itself was answered by how they set up their financial position.
And so the idea of, well, should I pay policy versus cash? It’s a great question. I’ll recap where we went from today. There are ways to set up your life to where it will almost always make sense to use policy loans. But the reason it will make sense to use policy loans is not because there’s magic in the policy loans. It’s simply because that is where you have capitalized the vast majority of the money that you are accumulating. And so whenever an investment comes along, an expense comes along, a house remodel project comes along, the question won’t even really arise because you have situated yourself where the amount of liquid money available to you outside of the policy is very small, it’s very insignificant compared to the amount of money that’s inside the policies. So of course we’re going to be using policies.
I would then like to prove to you that setting yourself up that way is more profitable, of which case you can go view the video that I mentioned where we actually dive into the numbers behind that. There’s a way to situate yourself to where it almost always makes sense that’s also the most profitable way to have set yourself up as. If that is an uncomfortable reality for you, which is perfectly fine and acceptable, it’s not a cookie cutter approach, everyone has their own level of comfortability. If that’s uncomfortable for you, then unfortunately the answer will typically be, yeah, it’s likely you’ll just want to pay cash for a lot of things. So there’s no real reason, there’s no magic in policy loans. There’s no real reason to pull a policy loan out to pay for something or to make an investment when there’s money sitting in cash that is not going to be going anywhere anytime soon of any sort of value, nor is it earmarked for policies.
By the way, that’s another good point too, is that sometimes we’ll say go ahead and use a policy loan to pay for something even though you have cash, but we know that that cash is actually earmarked to pay premiums coming soon, maybe year two or year three of a policy. And so we may have some cash at the time where it’s just waiting for its turn to go into pay premiums into a policy. So it is true that there are times where you will have cash and we’ll still say use the policy, but that’s because you’re in the process of situating yourself in a way where this question will start to fall by the wayside as time goes on.
So I hope this was helpful and I hope this maybe answered some questions, especially even for those who are fairly new to it who are trying to figure out why would I ever pay interest to borrow my own money or these other types of questions. Well, I know I didn’t really dive too much into that concept. You can watch the video though and see by the way that the whole premise is that by setting yourself up this way where you’ll use policies for the vast majority of things will end up resulting in you a more profitable existence. So that’s where we’re all trying to go. Each person’s life though can be more detailed where there are reasons why we would just say, yeah, don’t start a new policy, go ahead and pay cash for it. You’re not in a situation to open a new one.
What I’m saying is it’s not a cookie cutter approach for anybody, and this is my issue. Some people are critical of me describing these kind of ideas and providing these hypothetical examples, because what a lot of people will say is they can poke holes in the hypothetical examples. But that’s what I’m saying is yeah, there are exceptions to everything. There are exceptions that you can poke holes in anything. I can poke holes… There is no strategy that exists in the world that can’t be poked holes on or some hypothetical simple example.
But what I am saying is this is the idea. The idea of IBC is not that there is some magic in policy loans, so we should just use them all the time to pay for everything just because there’s some sort of magic involved. That’s not true. In fact, it could not make sense to use policy loans to pay for something if the end result of using the policy to pay for something is just that your bank account is now flush with cash because there was already money in there to pay for that thing and you use the policy loan to pay for, but now you’ve just got a bank account that’s flush with cash and what have we done? We haven’t done anything. Now you’re just paying loan interest for fun with no corresponding added benefit that’s been created.
The idea though, however, is that if you position yourself correctly, it can make sense to use policy loans for almost everything, and not only can it make sense, the whole point is that it’s more profitable to you if you have set yourself up that way a lot of the time. If this stirs some questions for you and you want to chat with me and you have your own specific situation, I’m perfectly fine with that. You can email me anytime, [email protected] I’d be happy to answer your questions about your specific situation. There are ways to set yourself up in advance for those things by just paying more premium, taking cash and start paying premiums. There’s ways to do it at the moment of, as I brought in, where you could go ahead and borrow from a policy to pay for something even though you have the cash, as long as your plan is to move that cash into a new policy.
And then there’s also even ways to do it after the fact. If you’ve made an investment or if you’ve bought something, you can technically refinance those purchases with a policy loan if you wanted to, which would then put money available to you to go start a new policy, and then without any cash flow going in, we’ll just use the refinanced package. So essentially what we’ve done is we’ve recreated a scenario where we used the policy loan to pay for it and we put the money back in the bank account, then we used that money to fund the new policy and to get more capital into premium. And then over that period of time, you can slowly chip away at the loan balance with the money that will likely inevitably fill up, or used to fill up into the bank account before you set yourself up this way.
And I know I like to recap, so recap. Don’t borrow money to pay for something if the end result is just going to be a large balance of bank account money. There’s no sense in paying policy loan interest on a policy loan if all you’re going to do is sit on cash type of a bank account. We got to get that money working. One solution would be to in advance, knowing that that’s likely going to happen is to pay more premium. The other side would be let’s go ahead and use the policy to do it, but we have to move that money into premium at that point, otherwise all we have done has been paying loan interest with no added benefit.
So I hope this has been helpful. It’s been fun. By the way, as always, if you guys enjoy this show, if you enjoy this podcast, man, we would really appreciate it if you would like or review it wherever you’re consuming it, rate it, subscribe to us. We’d love to have you a more consistent part of the listenership. But this has been great. Once again, this is Nate. I’ve had a great time with you. This is Dollars and Nonsense. If you follow the herd, you will be slaughtered.
Announcer: Listeners, one last thing before you go. Start your journey towards financial security and wealth today. Visit livingwealth.com/beatinflation. You’ll gain instant free access to the beginner’s course Ray, Nate and Holly made just for you. Again, that’s livingwealth.com/beatinflation.
A shocking number of Americans live paycheck to paycheck. Surveys show that 74% of all employees live month-to-month, and more than 25% of families earning a six-figure income do the same. Why are so many people so hard up and in poor financial shape? In many cases, the answer to this could lie in the mismanagement of money and escalating debt cycles. The more you earn, the more credit you are entitled to, which combined with interest and fees, erodes family wealth. That’s why it is worth learning about private family banking.
Family banking is easy to fund and provides numerous benefits and can ensure that you never fall into a debt cycle.
Debt is not necessarily a bad thing, as it can facilitate important actions such as buying a home, paying for college, buying a car, or covering health care expenses. However, the interest rates that are tied to traditional lending can cause you to bleed out wealth that could have otherwise been accumulated for your family.
Private family banking can ensure this never happens while allowing you the option of borrowing funds from a whole life insurance policy you set up. This lets you access cash when you need it without borrowing from a traditional bank or other for-profit loan-making organization.
Besides protecting you from debt, family banking also comes with several tax benefits and a number of other financial advantages. Read the rest of this article to find out what these are and to evaluate if the strategy is right for you and your family.
How Private Family Banking Got Started
Before we dive into the mechanics of private family banking, let’s take a look at how the financial strategy got started.
During the 1980s a man named Nelson Nash found himself in a predicament. He had overextended himself on debt and was unable to build wealth thanks to the resulting interest and repayments. At the same time, he recognized that sometimes, to build wealth, you need to be able to borrow money.
As a result, he struck upon what has now become known as the private family banking concept, also referred to as infinite banking. A method where families can effectively become their own bank, build up wealth, pass it to future generations tax-free, and be able to borrow “from themselves” (from life insurance policies) at essentially no interest. We’ll get to how to do that in a bit.
Over time, his ingenious method has become popularized through the publication of a book he wrote called: “Becoming Your Own Banker: Unlock the Infinite Banking Concept”. It is also known among his devotees as the ‘Nelson Nash book’. This book can be found on Amazon.com or from Barnes and Noble or through most other major booksellers.
Other books on the topic have since been written on creating a so-called family bank, and the method has become a widely used, yet little known, wealth hack.
How Family Private Banking Works
So, how does family banking work? How do you set up a family bank and become your own banker?
Private family banking is based on one core offering. Whole life policies purchased through life insurance companies. Let’s take a look at how these work to increase your financial health and to build wealth for you and your family.
Family Bank Funding with Whole Life Insurance Policies
Life insurance can be generally divided into two categories, namely whole life insurance and term life insurance.
Term life insurance is the most common type of life policy nowadays, as it is the cheapest. With a term life insurance policy, you are covered for a certain period, for example, 15 years. Once that period is over, if the policy is unclaimed, it falls away.
In this case, you would need to take out a new policy, and all of the money that you put into the expired policy would be lost. This kind of life insurance policy has no cash value.
Whole life insurance works differently to term life. As the name suggests, whole life policies are for the whole duration of a policy holder’s life. During this time, your monthly payments accrue and give your policy cash value. This makes whole life policies a viable savings vehicle for everyone that can make use of them.
When the insurance policy is claimed (in the event of your death or at a stipulated maximum age), the gain from it is tax-free.
Draw out the cash value of your whole life insurance policy
You can also choose to completely draw out the cash value of your life insurance policy when it has matured. This occurs when your cash value reaches the value of your death benefit.
At the same time, you can choose to borrow cash from your whole life insurance policy before it has matured, and before it reaches the value of the death benefit.
There are quite a few advantages to this, one of them being that you won’t have to go through a loan approval process. If your cash value is high enough, all you have to do is request your ‘loan’. With a family bank, there is no need for credit checks, collateral, or any of the other traditional requirements that typically come with taking out a bank loan.
This effectively gives you a form of cash flow insurance, provides a tax-efficient savings vehicle, and allows you to become your own banker through a family bank.
Now that you know the basics of how to become a private banker, let’s take a closer look at the advantages of this wealth-building system.
The Advantages of Our Family Banking Concept
Private family banking and the family bank concept we use holds a few key advantages. These can be broken down into the following areas. Let’s take a closer look at each of these.
The Ability to Borrow From Yourself Effectively Interest-Free
One of the biggest perks of private family banking is the ability to borrow from yourself, at no interest. It gives you instant cash flow when you need it. Or let’s rephrase that, you will pay interest, but this interest will cancel out.
Here’s how this strategy works.
When you borrow from your whole life insurance policy, you will pay interest on the borrowed amount of money. This interest is set and does not rise over time.
However, the real benefit derives from where this money comes from. When you apply for a loan from your policy, the insurance company does not withdraw the funds from your policy. Instead, they use other funds in their holdings to meet your cash request.
This means that the capital in your policy remains untouched, and continues to grow at a compounded rate of interest. Therefore, while you are paying interest to the life insurance company on the money you borrowed against your policy, your policy itself is canceling out this interest by generating its own positive interest.
This allows you to borrow—against your own money—and effectively not pay interest.
On top of this incredible advantage, as mentioned above, when borrowing against your insurance policy you also won’t have to jump through any of the hoops that you would with regular banks or lenders.
Tax-Free Wealth Growth Through Family Banking
The other sizeable benefits of family banking and the use of whole life policies to build wealth is that they allow for tax-free growth.
The compounded interest you earn on the money within your policy is not subject to tax, unlike most other investment vehicles. Over time this can pose a substantial saving, once which can effectively go back towards the policy and continue to earn more compounded interest over time.
Superior Estate Planning
The third main advantage of private family banking is that it allows for superior estate planning.
Depending on your assets, and where you live, death duties can take a sizeable chunk out of your estate. If you choose to store and accumulate wealth with family banking, you will be able to side pass this.
This reason for this is that life insurance payouts are tax-free. Because these are not taxable, you will be able to transfer the whole value of your fund to your heirs without paying death duties or tax.
Who is this Family Banking Concept for?
Family banking is, essentially, for anyone who wishes to build wealth, improve cash flow when needed, have financial independence from banks and lending institutions, and be smart about estate planning and the passing on of wealth.
However, there is one criterion for embarking on this method. You will need to be able to foot the monthly whole life insurance payments. These payments are substantially higher than term life insurance, which is the reason why term life insurance is now the main type of cover that people take out.
However, with some savvy financial planning and some stringent debt squashing, you may be able to structure your money matters in such a way as to afford a whole term life policy.
Are You Interested in Private Family Banking?
As you can see, private family banking poses a number of key advantages to those that are interested in leveraging this system. From gaining interest-free liquidity backed by your own money—to passing on your wealth tax-free, you have to admit that the perks are substantial and family bank funding is easy to do with our strategy.
If you are interested in learning more about this system of wealth building management, you are in the right place. We have a store of resources on the subject, and also offer consulting services. Additionally, you take advantage of our free infinite banking course that teaches the basics of the infinite banking concept.
At LivingWealth.com, we are a team of experts that are passionate about empowering people like you to realize financial freedom through infinite banking. We are happy to help you in any way that we can realize your goals.
If you have any questions or would like to explore the strategies outlined in this article in more depth, then contact us, or book a live consultation today to get the advice you need to use infinite banking your advantage to design your own private family banking plan.Read More
Life insurance is a contract between two parties, the policyholder and the insurer. The policyholder pays a premium to the insurer, and then the insurer offers a benefit when the policyholder dies. The benefit is a sum of money intended to ensure financial security to dependents of the policyholder after their death. In this article, we will look at specific types of life insurance called whole life.
But first, let’s look at life insurance in general and then we will get into types of whole life insurance policies.
Essentially, life insurance provides security. It allows for individuals to have a piece of mind knowing that their family, kin, and other dependents will not face a significant financial burden in the event of their death. Unfortunately, all life insurance policies are not created equal. It is essential to understand which policies allow you to maximize your benefits and suit your individual needs.
Examples of life insurance policies
Examples of life insurance policies include term life, universal life, variable universal life, whole life, and many more. Each policy has advantages and disadvantages. This article’s focus is on whole life insurance.
The insurer for life insurance is often a third-party such as a bank. With whole life insurance, the policyholder has complete ownership. This ownership enables you to have more control of your investment and gives you the flexibility to cater the policy to your personal needs. For example, policyholders can borrow against the premiums you have already paid. You are not limited to waiting until death to have access to your money.
How whole life insurance differs
Whole life insurance also differs from other policies in that it offers a fixed benefit. (This is what Wikipedia says about it.) With some life insurance policies, you pay into it with the hope that there will be a significant amount of money received. However, the exact amount you will receive upon death and/or at the end of the policy may is not guaranteed, nor is it known beforehand. Whole life insurance eliminates the guesswork by providing a guaranteed cash value that remains the same throughout the contract, providing peace of mind. It also allows for accurate planning.
Another perk of a whole life insurance policy is that the money grows tax-free. This means the growth of the policy is not dependent on the IRS and the federal government. There are many advantages to having a whole life policy. However, there are some downsides. To reap these benefits, you are often required to pay higher premiums and extra fees.
Additionally, it is a more complicated option, which may be hard to benefit from without the help of a professional. Nonetheless, this policy has been around for over 100 years and is proven to have worked for many people. It gives you control of your contract and ensures you are reaping the benefits instead of a third-party insurer. Therefore, it can be an excellent investment to get you towards financial freedom and security.
All whole life insurance policies are not created equally. There is a wide variety of options to suit your individual needs. Below is a deeper dive into the different types of whole life policies.
Types of Whole Life Insurance Policies:
Let’s look at the types of whole life insurance policies available in the marketplace:
Non-participating Whole Life
A non-participating whole life policy is one of the more common policies people choose. In this policy, you are not participating in investment activities. You have a fixed death benefit, guaranteed cash value, and level premiums. It is a lower cost and lower risk, but it may not see as much growth as other options.
Participating Whole Life
A participating whole life policy, you are participating in investment activities through dividends. A dividend is a sum of money given to members of the company and/or shareholders. Essentially, when the investments do well, the policyholder receives more money. Premiums are often higher with the policy because of the potential for growth. However, it is a bit of a higher risk because dividends are not guaranteed.
Single-Premium Whole Life
In this policy, you pay a lump sum amount to purchase the policy upfront. This is often lower risk because you are deciding how much you would like to have in your death benefit; it is dependent on how much you invest initially. The option has excellent growth potential. The earlier it is purchased, the longer it can have to build-up. A downside to this option is the high cost, and you are charged more substantial fees for canceling the policy within the first few years.
Level Premium Whole Life
Level Premium Whole Life is also a common policy choice. In this policy, premiums are calculated based on the entire duration of the contract or the policyholder’s life. This option offers stability and consistency. The premiums are the same every pay period until the policyholder dies. Additionally, you have the option to pay for a shorter term (ex. 10 years) to fit your needs. It is also a lower risk because the premium price does not change unless specified by the policyholder.
Indeterminate Premium Whole Life
In this policy, the premium payment varies and is based on the performance and projections of investments. If they are doing well, then the policyholder will pay a lower premium. When they are not doing well, premiums go up. However, the premium cost can not exceed the maximum amount. The amount is set at the time the policy is purchased.
Whole Life Economic
This policy works similarly to participating whole life insurance through the use of dividends. However, dividends are used to buy additional life insurance. A benefit of this option is that benefits can grow if performance and projections are doing well. However, it can also decrease if they are not doing well.
Living Wealth tips for developing a whole life insurance policy
Living Wealth believes that to maximize the benefits of your whole life policy; you should purchase the policy with a mutual company and add a paid-up addition (PUA) rider to the policy. A mutual company is one that is not controlled by the stock market. When you put your policy into the hand of a stock company, you do not have a say in how your money is used. Additionally, the extra money made through the investments goes to the shareholders of the company. In a mutual company, the owner is the one who buys the policy – you. This means you can participate directly in the profits and dividends. Moreover, the profits go to you instead of the stockholders.
A paid-up addition (PUA) rider allows for the policyholder to add benefits to the existing policy. This is achieved by buying additional coverage with dividends. By doing this, you are increasing the potential for growth as PUA riders can also increase in value as time goes on. Essentially this helps you add value and cash to an existing policy.
Overall, whether you take these tips or choose to purchase one of the existing types discussed above, whole life insurance is a good option for many. It is generally higher cost, but this price point allows for greater stability, control, flexibility, and potential for growth. This provides peace of mind knowing that your dependents will be taken care of after your death.
Infinite Banking Concept Defined
Before we dive into common infinite banking terms, let’s quickly take a look at the infinite banking concept itself, and how this system of personal money management works.
Infinite banking was conceptualized by a man named Nelson Nash in the early 1980s. Nash was struggling to build wealth at the time, thanks to having to pay high rates of interest on his credit. When he realized that much of his financial frustration was due to a lack of liquidity, and debt that incurred interest, he struck upon an idea, which became what is known as infinite banking. IBC works by individuals investing their savings into a whole life policy. The money put into the whole life policy generates interest and accumulates. From this policy, the holder can take out loans if need be. The family of the holder is also financially protected in the event of the death of the policyholder. When they do pass, the family is paid out.
Advantages of Infinite Banking
The Infinite Banking Concept method of personal banking has a number of key advantages. These include:
- Financial security for the family
- Long term savings and wealth building
- Liquidity of savings, which equates to good cash flow
- Non-taxable interest earned
- Interest paid on money borrowed from the fund is set and does not change for the duration of the policy
One of the benefits that people love about infinite banking is that it essentially helps you become your own banker. If you want to take a loan from yourself, you simply call your insurance company, and the money arrives in a few days.
There are no complicated approval processes, no credit checks or fluctuating rates of interest. Policyholders are also in control of how they pay back loans from the policy.
Common Infinite Banking Terms Defined
Now let’s take a look at some of the common terms associated with infinite banking and their meanings.
1. Be Your Own Bank
Probably one of the most common terms used in infinite banking is to be your own bank. Through the use of whole term policies, you can essentially become your own banker, borrowing from yourself and repaying yourself at will, without common credit restrictions or interest rates that are out of your control.
2. Family Bank
Another similar term is family bank or private family banking. This means that same thing as Be Your Own Bank. It is simply referring to the fact that a family can gain control of their wealth building and cash flow through the infinite banking concept and whole term policies.
There are a number of other names for this, such as: bank on yourself, circle of wealth, and the perpetual wealth system.
3. Borrow From Yourself
As you can see, one of the key benefits of the infinite banking system is that if you need to take out a loan or leverage cashflow—either for emergencies or for an opportunity—you can do so at any point.
This is known as borrowing from yourself. When you choose to borrow from yourself, you are borrowing from your whole term policy. You can borrow up to the cash value of the policy, which is how much you have put into it.
4. Pay Yourself First
Most people pay themselves last. For the most part, in America today people send their money out to everyone else – to their landlord, their mortgage holder, to credit card companies – and they just hope that there’s something left at the end of the month for them. That’s not a good system to guarantee success.
If you paying yourself first, have your money work for you, you’re going to build wealth, reduce your reliance on interest-earning financial businesses such as credit card companies and banks. Instead, you use own money and borrow against it. You also set the terms based on what works for you, as opposed to having to meet terms laid out by a bank or other lender.
Learn more about paying yourself first in this episode of our podcast: Episode 7: Paying Yourself First
5. Whole Life Insurance
If you are interested in how infinite banking works, one of the first things you will need to understand are the terms whole life insurance and term life insurance.
Let’s take a look at whole life insurance first.
Whole life insurance is insurance that covers policyholders for their entire lives. This type of life insurance does not expire.
In some cases, whole life policies may have a cut-off point, generally at 95, 98, or 99 years of age. At that point, the policy will be paid either to the holder or to the beneficiaries in full.
The premiums for whole life insurance are a lot higher than for term insurance. However, over time, these policies increase savings.
Learn more about types of whole life insurance policies here. Also learn more in this episode of our podcast: Episode 20: How to build the perfect insurance policy
6. Term Life Insurance
Term life insurance is more popular nowadays than whole life insurance. This is largely because premiums are much lower.
However, term life insurance policies only run for a set period, such as 15 or 30 years. When this period is up, the policy expires, and—unlike whole life policies—the money that you put into it evaporates.
What’s more, while the premiums are low for younger holders, they increase substantially as you age.
Are You Fascinated by the Infinite Banking Concept?
Are you like us? Fascinated by the infinite banking system?
If you want to figure out how you could use the infinite banking concept to build wealth and financial stability, we are the folk you want to speak to. Passionate about providing people with the tools to thrive financially, we are eager to help you understand more about infinite banking.
To learn how to get started with becoming your own bank, schedule a private consultation with us and let us set you off on the path to financial freedom.
The United States economy looks great at a macro level. Gross domestic product is increasing and unemployment is near record lows. Once you peel back the onion, a different story emerges. The truth is that 60% of Americans do not have $1000 available in the event of an emergency. The good news is that middle-class Americans do not need to live like this.
Financing pioneer Nelson Nash developed a creative way to generate wealth. Read on to learn all about a process called infinite banking, that Nash invented. Explore the concept behind infinite banking and how it can help you achieve financial independence.
Who is Nelson Nash?
He was born in 1931. He died Wednesday, March 27, 2019, at the age of 88. His death was a result of complications from heart disease.
Nash’s white-collar career started as a private consultant in the forestry industry. He received a B.S. Degree in Forestry from the University of Georgia, 1952. From 1954-1963, Nash worked as a Consulting Forester in eastern North Carolina.
In 1964, he transitioned to the life insurance industry. Here, he developed the expertise that led him to start the Become Your Own Banker method.
Later in life, Nash was frustrated that he did not stumble upon this secret sooner. Imagine a scenario in which you could wholly eliminate financing expenses. Think of the positive impact on your personal budget if you did not pay interest on a mortgage or auto loan.
Nash was passionate about shifting financial independence away from lenders and towards consumers. He spent the majority of the last 20 years empowering people to take control of their personal finances.
Nash worked in life insurance for more than 35 years. He worked with The Equitable Life Assurance Society of the U.S. and with The Guardian. Nash was also inducted as a Hall of Fame Member by Equitable, a Chartered Life Underwriter, and Life Member of the Million Dollar Round Table.
Nash flew with the Army National Guard and earned Master Aviator Wings during his 30 years of military service. He was a licensed pilot for 71 years.
What is the Connection Between Nelson Nash and Infinite Banking?
Nash developed the concept behind infinite banking is for consumers to create their own banking system. The primary method for generating capital is using dividend-paying whole life insurance. The end goal of infinite banking is to no longer rely on banks or other financial institutions for capital. Instead, you are financially independent and raise capital on your own. See further info and a glossary of terms here.
What Is Whole Life Insurance?
Since whole life insurance is the vehicle for infinite banking, it is important to define it first. Whole life insurance is permanent and covers a person until their death. This differs from a term life insurance policy, which provides coverage for a fixed period of time. A term life insurance policy most commonly covers a person from 10 to 30 years.
Another benefit of whole life insurance is that the premium is fixed. The premium does not change over time, regardless of how long you have carried the policy. As it pertains to infinite banking, the most important element of a whole life insurance policy is the cash value benefit. There is a savings component for this type of policy. A portion of your monthly premium is directed into a savings account.
What Are Dividends?
Some whole life insurance policies provide dividends. Dividends are a cash payout provided to policyholders on a regular basis. The dividend amount is typically based on the performance of the insurance company’s investment. In some cases, a portion of the company’s profits is returned to policyholders as a dividend. A dividend-paying whole life insurance policy is the foundation of the infinite banking concept. This is the cash flow that can reduce a consumer’s dependence on banks and other lenders for capital.
What Are Dividends Used For?
Dividends on a whole life insurance policy are used for a number of different purposes. Some consumers use dividends to pay down premiums. Others use it to buy additional insurance or prepay a policy. These two uses are not what Nelson Nash had in mind with the IBC. Instead, one way to effectively use dividends is to keep them with the insurance company. The cash is retained in a savings account where it accrues interest over time. Another effective use for IBC followers is accepting cash or check. You can request that the insurance company issue the dividend to you directly.
The good news is that the Internal Revenue Service (IRS) does not tax dividends issued in cash or check. IRS policy is to consider the dividend an overpayment on a premium. By following either one of these methods, you can achieve financial independence. The dividend can now be used to support a business venture or pay for your child’s higher education.
What Training Resources Are Available?
Some consumers are going to want more information than a blog post can offer. While the infinite banking concept (IBC) is easy to execute, there are training resources available for those that want it.
IBC Seminar and Live Training
The Nelson Nash Institute holds an IBC seminar conducted by financial professionals. These seminars routinely occur throughout the country. They are four hours long and are designed to coach IBC users on achieving financial independence
An IBC seminar DVD is available for users that cannot attend in-person. Lastly, there is a training program specifically designed for IBC practitioners. In fact, Nelson Nash was the primary instructor of this program for many years.
The Nelson Nash Institute (NNI) has posted many informative YouTube videos. Some people tend to retain more information from a video rather than a book. For this reason, Nash had the foresight to video record his speeches. Many conversations about IBC with Nash were recorded as well. There are also video tutorials of other IBC experts such as Dr. Robert Murphy.
Of course, Nelson Nash’s book Becoming Your Own Banker is the best source of information on IBC. There is a lot of written content available for interested consumers. For example, the NNI releases a monthly PDF newsletter with helpful information. There have also been many professional articles written on the subject.
A Recap of Nelson Nash and the Infinite Banking Concept
While many Americans are struggling with debt, you can chart a different path. Nelson Nash laid out an effective strategy for achieving financial independence. You can use a dividend-paying whole life insurance policy to eliminate financing expenses. If you are interested in learning more about Nelson Nash and IBC, sign up for a free course today.
Related Nelson Nash Resources:
Here are some additional resources that people look for when they study Nelson Nash.