Podcast

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.

Nate: In this episode, I answer the question, why is it so difficult to get people interested in the infinite banking concept? I’ll offer suggestions to you that may help you successfully discuss IBC with the people around you. And if you’re new to IBC and are trying to figure out if this is a worthwhile endeavor for you, answering this question will help you understand why IBC can feel so difficult to comprehend to its fullest. Welcome to Dollars and Nonsense. If you follow the herd, you will be slaughtered.

All right. Well, it’s great to be back with everyone today. So excited for this show as always. This is Nate. I’m taking it solo again to answer this question. And some of these solo episodes that I’m doing are really just to dive in a bit deeper to some concepts than we do in our regular biweekly show that we do with Holly and me both. So just kind of keep that in mind. I’ll be doing some off-week episodes, whether I’ll be interviewing new guests, maybe or doing a solo to answer a question.

And if I sound a bit stuffy, it’s because I’ve had a cold this week. But with that being said, “This is a question, why is it so difficult to answer or to get people interested in infinite banking?” It’s a question that comes up quite often and it’s something I’ve been thinking about quite a bit and probably more so lately than ever before.

I think that how I’m going to answer this, so for those of you who are already practicing IBC and may have tried to tell people, you’ve probably run into this before. And for those of you who are new to IBC, I think that answering this question can help you by the way. As I brought up in the intro, I think it can help you understand why IBC feels odd. Okay? So IBC can feel odd and it can feel salesy, and it can feel too good to be true. It can feel gimmicky. I’m here to explain all of this if I can in this show. 

I come into this with essentially no notes. I may write down the introduction, but once that’s done, there’s no notes. So I may ramble a bit, so please pardon me for that. So either side of the spectrum has a lot to gain from this episode. And whenever we dive into it, people ask me this question quite often and people run into this problem quite often because it’s very natural when someone has adopted this concept. They’ve done the research, they’ve started a policy. The rate is spread, the news, spread the gospel of IBC.

They attempt to do so and it is so often that they get turned down and shot down. That can be discouraging. It can be discouraging for a couple of reasons as well, which we’ll get into. So it can be discouraging and there’s a right way and a wrong way to do it. But if you’ve ever spoken with me, you know that I don’t give simple answers to simple questions and it’s a problem, but I’m addicted to it.

So I’m addicted to trying to answer every angle around a question. So I wanted to not only just give you ideas for how to make suggestions, that would be the easy route for this episode, I’m actually here to say that the reasons why I think it can be so difficult to spread this and why it’s taken so long for infinite banking to start becoming more mainstream. It is becoming more mainstream, by the way. So let me give out a few points just right off the beginning.

Number one, infinite banking can be difficult to spread because the words you use to describe IBC can oftentimes sound salesy. And by the way, to answer the question why is it difficult to comprehend, especially if you’re new to this because there’s a lot of content online that is salesy content, that is actually doing a disservice to IBC. On the flip side, there’s also content that over simplifies and focuses too much on some analytical pieces of the policy where it also produces confusion and is unhelpful as well. So there’s a lot of content out there that’s very difficult to weed through and it can sound very salesy.

Some of the terms we use can sound salesy. I’m going to dive in. The number one reason why infinite banking can be hard to spread. By the way, I’m trying to hit both people. So the people who are existing clients of ours and the people who love IBC, who are trying to tell people and are feeling discouraged. And on the flip side, also, the people who are trying to learn about it. You always feel like you understand a lot of it, but you always feel like there’s something about it that you can’t quite put your finger on.

So you’re wondering if that means this is a scam or some sort of gimmicky thing, or it’s not actually true because you can’t quite put your finger on it. So I think both of these things are actually pointing to the reason. And the reason why is that infinite banking requires a paradigm shift in order to be accepted.

So you’ll hear this in the infinite banking circles a lot that IBC is caught not taught. And the idea is mainly that it requires more than just facts in order to convince this. So I’m going to describe why IBC requires a paradigm shift. That would then help us answer the question of how to go about it because everything in life that requires a paradigm shift has to be done in certain ways in order to get someone else to be convinced of this paradigm shift.

So my premise for this entire concept is that the reason why it’s difficult for you to fully comprehend if you’re new to this and why it’s difficult for those of you who have been trying to tell other people what you’re doing and why they’re not accepting it is because it requires a paradigm shift. And if you try to convince somebody of something that requires a paradigm shift, you have to do it a certain way. So this is the premise.

And by the way, this podcast, I’ve had a couple clients just this last couple of weeks who have been describing to me that they’re trying to get people on board and they feel like they’re messing it up. They’re trying to get people excited about it. And they’re probably listening to the show. Garrett being one of them and Brian being another. So welcome to the show if you guys are listening. I know you guys normally do.

Brian was one of the guys who had mentioned that he’d been trying to get some buddies involved. It was kind of discouraging because he thought that they would kind of love it and they would see it the way he sees it. He goes and meets with a group of people, three or four other people, and they just didn’t like it. They thought it was weird. They didn’t want to get involved with it. And it was of course discouraging, because then he’s maybe concerned whether, “Well, is this actually a good idea?” And discouraged that he wanted these people to be running mates with him.

So that’s what this episode is really all about. So I’m going back to my premise that it requires a paradigm shift. I’m going to talk about why that’s the case. But just to start with, I’m going to mention that everything that requires a paradigm shift has to be introduced in certain ways, especially if you’re not any good at sales, by the way. I am not good at sales. I’m in the sales world. I’m just actually not very good at it and I don’t enjoy it. And so that’s one of the reasons why I think that people can bypass the normal route for paradigm shift is just by being an extremely charismatic salesperson.

And there are some extremely charismatic salespeople in the infinite banking world and they’re convincing people en-mass to join in. A lot of times what they’re saying is that is not true, but people are buying into it because of how charismatic they are. I wish that was me sometimes, but I’m not. So that being said, unless you are a charismatic salesperson, you’re going to have to go about this certain way.

And by the way, if you’re learning about IBC and you are turned off by charismatic salespeople, then you’re not going to dive in because of a charismatic salesperson talking to you. You’re going to need to go about this the way I’m about to say. So I was thinking about this on a deep level. I’m a philosophical person. I was thinking about this on a deep level in my own life, I have a paradigm. I’m a believer in Jesus Christ. I believe that he was a real person who came. I believe that he rose from the dead.

And I believe that because he rose from the dead, he’s the only person in history to predict his own death, how he would die and to predict that he would rise again. And then he claims to offer that to anyone who puts their trust in him and becomes a disciple of his. So if I choose to believe that as my paradigm, which I have, that will then filter its way down into everything that I do, that is a paradigm of mine. So the universe is seen through a paradigm where there was a guy who was alive, who equated himself with God, who called himself the son of God essentially. Essentially calling himself divine and who said that through him there is eternal life and that he would author it and it would be proven to the world by his resurrection from the dead.

That’s what he came to do. And that in him, there’s forgiveness of sins in life forevermore. So he goes out and says this and he does it. And so my entire view on life and in the universe is filtering through that paradigm, that that actually happens. So that then paints a picture of everything I see in some way that Jesus is somebody worth following and that his teachings are worth investigating because of this paradigm I have of course.

So what I’m saying is that it filters everything about me. If an atheist or a non-Christian, a non-believer or certainly an atheist, and I’m sure there’s some listening, I’m not trying to attack you. We can be best friends, without you being a Christian of course. But what I’m saying is, if they were to come to me and then try to convince me that my paradigm is wrong, they had better do it the right way or else it’s going to, of course, produce nothing at all.

And then the same is the reverse, by the way, that if I was to sit down and have a conversation with someone who was not a believer and maybe was even opposed to it, the way that you would shift a paradigm has to be done delicately and it has to be done in a certain way. What I mean by this is the only way I would relate to it and the way I think most people do, is that to shift a paradigm, you have to do some research. You’re not typically going to be sold a new paradigm.

I’m not talking about the regular bell curve of people. A normal within a standard deviation of people at the top of the bell curve are not going to be sold new paradigms. They can adopt new paradigms, but it has to be done through a process of learning and research. So if somebody was an atheist and I was going to talk to them, I would not be able to convince them in 30 minutes to an hour that my paradigm is true and yours is wrong. Of course that can’t happen except for there’s the isolated two standard deviations away from the norm, then they may be able to see things more clearly. Also, I would say that the more entrenched a paradigm is, the more the research has to be done.

So if you have a paradigm and you’re just not very tied to it, maybe you’re a Christian, maybe you’re a believer, but you’re just not really that confident, well, then it wouldn’t take that much to maybe get you to shift. But the more confident you are in your paradigm, the more delicate you have to take the scenario.

And so the same thing goes for the atheist as well. In other words, I would not expect someone who is staunchly an atheist who of course doesn’t believe like I do or has the same paradigm that I do of the universe who must obviously believe that Jesus was not divine, Jesus did not rise from the dead, and there is no spiritual realm. If that is a staunch belief, of course, we’re going to have a conversation and convince each other of changing your paradigm and you’re wrong?

I mean, obviously it’s ridiculous. And so what I’m saying is every time there is a relatively strongly held paradigm that someone comes in with, if you’re going to convince them or try to introduce a different paradigm that you believe improves their situation somehow, it’s got to be done delicately. Normally, it has to be done through them having enough desire to research it on their own. So that’s the same thing if I was going to get convinced that my paradigm is wrong, it would take a lot. And then vice versa for other people who are on the other side of the aisle.

So I bring this up to say, most people when they get interested in IBC, they do not require their friends and family to go through every step that they went through to get this new paradigm. And then they’re confused as to why the people they’re talking to are not that interested in what they’re doing. It’s because you are trying to give them the cliff notes version of a paradigm shift that can only come through someone taking a delicate time through research to change the paradigm.

That’s the big problem in the infinite banking community as well. Now, IBC is not as a big of a paradigm shift as religion. That was the extreme. IBC was a much smaller paradigm they’d have to shift, but it has to be taken the same way. And so with infinite banking, most of the time the people run a foul of this when they decide to try to talk to somebody with the cliff notes version. They’ll paint it with numbers. They’ll paint it with policy illustrations. They’ll paint it with little vague ideas and then people will automatically shoot it down the same exact way that if someone was trying to convince me that atheism is correct and they throw me some little one-liner, some little punchline, some little things, it’s not going to do anything to me.

It’s going to have to take me being willing to dive into some evidence. And so on a much bigger scale. I mean, obviously, the IBC paradigm is not going to be as life transforming as getting saved, and completely changing your idea about the fundamental realities of the universe. So I’m aware of that, but I’m saying to the extreme. So here’s my suggestion to the people who are listening to this.

So number one, to the people who are listening to this, trying to actually tell people around them about IBC and get them interested. You cannot get anybody interested if they’re unwilling to learn about it on their own unless they like to be sold things, unless they’re easily sold or unless you have a huge amount of trust. In other words, they trust you so deeply that anything you tell them to do, they will go after it because they love you, they trust you so deeply.

So there are certain relations. I’m just saying the average relation, the average person you’re going to talk to. This is why we tell every agent who joins us, by the way. So we have agents who are spreading the news as well. They want to become an agent. By the way, if you’re listening to this and you’re a client of ours and you’re interested in telling people and getting paid to do so, feel free to talk to me. But what I’m saying is everybody who comes on and says, “I want to teach IBC,” it would be a huge mistake to go out in the world and just start running life insurance policy illustrations and handing them to people, and trying to sit down for coffee and throwing numbers and ideas at them.

What we always suggest you do is you have to simply give enough info where the whole point is to get them a resource in their hands with any sort of paradigm shift that would take place. Research has to be done. You cannot do it without research. And so the reason why I think that IBC requires a paradigm shift, and it comes in multiple ways, this is why we’ve always said, you need to read Nelson’s book. You need to listen to this podcast. Go consume a lot of episodes. You need to take the beginner’s course.

Anyone who’s going to get started with this and wants to join IBC should change their paradigm first. And so to do that, it can’t be a simple little conversation and it can’t simply be a run of numbers. Oftentimes, it involves you telling your testimony. That’s a common paradigm shift advice by the way. You tell your testimony what it’s doing for you. I switched my paradigm and I’m getting these results. I’m really liking them. Maybe you would like them too.

Don’t go into numbers, don’t go into the analytics. Here is some resources if you would like to learn about this new way of building wealth. That’s a normal route before. And I have so much to say. I’m already deep into this conversation. And so I’m going to try to get through this very quickly.

A couple more things to note, and I know I ramble. Nelson Nash, when he wrote his book, the way that he wrote his book, the book called Becoming Your Own Banker, the book that started the entire infinite banking concept as an idea, when he wrote his book, he was very careful to write it in a certain way and the way he wrote it irritates some people. Some people actually like it, but it irritates some people. Because first off, he’s not a great writer. He’s not some educated author. He wrote the way that he speaks and he speaks like a guy from Birmingham, an old timer from Birmingham, Alabama for sure.

So it’s fun to read. He’s a character and his character comes through the book. But he wrote it in a certain way because I believe he fully understood that IBC must require a paradigm shift. And that’s why in his book, he oftentimes speaks in metaphors and he oftentimes does not give answers away with concrete numbers and details. He did not write an IBC treaties on the mathematics behind why infinite banking works.

Now, of course there’s math in there, but what he was trying to paint is that this concept, this idea of becoming your own banker is deeper than just a life insurance policy and it’s deeper than just the benefits you can put on paper because he was trying to pitch it as a new paradigm. That’s what he was trying to pitch. And if you’re going to have someone shift to a different kind of paradigm, they have to think for themselves inside of that new paradigm. They cannot be force fed the new paradigm unless you’re a very charismatic salesperson or unless they’re outside the standard deviation bell curve in which case they’re looking for that type of thing.

So that’s the way Nelson Nash wrote it. He wrote it as a paradigm shipping. He would remind yourself of this metaphor when this question comes up. But go back to this page. If you’re thinking this question and that doesn’t quite make sense to you, go back to this page where we discussed this metaphor and people are like, “Ah, I don’t want to do that.” But he’s trying to help you see that it requires a paradigm shift. He’s not here to sell you on this idea. He’s here to say, this is the new way of life.

Announcer: How would you like to receive a free physical copy of Ray Poteet’s book, The Tree of Wealth: How to Build Legacy. I’d like to share with you a little about the book and Ray’s own words. “For a very long time, I was not quite sure what money was or what role it was meant to take on in my life. At the time, I treated money like many others do with an unwilling respect, a healthy dose of fear and the knowledge that there never seemed to be enough to go around.”

“Like a mirage, most people can see the wealth horizon, although getting there is something entirely different. As a Christian, money was always a gray area for me. I knew I wanted enough to be financially free at some point, but the cost of living was high and I felt like I was forced to spend everything I earned. After working hard, my reward was to be able to afford the lifestyle I had built for my family. Of course, when you’re not sure about money, it always seems to get away from you.” “That is how I felt back in those early days when I still had many money lessons to learn. The good news is that I did learn them and along my journey I picked up some incredible insight into how money works and how I could make sure that living from paycheck to paycheck would not become my eternal fate. God wants us to lead a life of abundance and that is really what this book is about.”

Now, to get your free copy, go to livingwealth.com/review. You’ll then be taken to Apple Podcasts where you can leave us a short written review. A few nice words is all we ask. Then email a copy of your review to [email protected] with your mailing address so we can send you your free copy of Ray’s great book, The Tree of Wealth. The first five people to do this get a hand autographed copy. So don’t delay. Go to livingwealth.com/review. Again, that’s livingwealth.com/review.

Nate: So a couple reasons why IBC, I put it into the paradigm shifting worldview. It’s got to be a paradigm shift. Number one, oftentimes people already are stuck in certain paradigms financially. And so the retirement idea, the of retirement is a strong paradigm. One that I feel, and it’s not exactly tied to IBC fully, but there’s more on that. In other words, you can retire with IBC too.

But I’m saying that the paradigm of retirement planning or retirement programming is so locked in that for us to present infinite banking, we’re essentially saying to them, they’re essentially bringing their paradigm with them, which is, “How does IBC help me retire?” And while I think that’s a fine thing to say, and while I think that we can certainly help with that, retirement being the ultimate and only goal for money is a faulty premise to build your financial life on to begin with.

And so that was one of the things Nelson tried to uproot when he wrote his book. So in other words, if we were to simply pitch… This is what I’m saying, the difference between pitching an idea that’s inside of your existing paradigm and how you go about that and shifting paradigms completely. I’ll give this as an example. So if we were to say… And IUL policies are sold like this all the time where it’s just a retirement plan alternative. It’s like, “Okay, you are in a paradigm customer that you really want retirement. And you are planning for this concept of retirement in the future. Come to me and I will show you a way to remain in this paradigm and just get better results, better retirement results.”

So people can pitch IBC that way. So they’ll say the IBC plan allows you to grow money without the volatility of the market. When you get to retirement age, you don’t have to worry about market collapses dropping 50% of your balance of your accounts and your 401k and IRA. You can feel safer, more secure in retirement. The policies are going to grow by four to 5%. We can spend off tax-free income from them instead of taxable income from the 401k and they will just pitch and they’ll call it IBC.

But they’ll just simply pitch this idea that it is a good retirement plan alternative. Once again, that pitch does not require a paradigm change. That pitch is just simply saying, we have a different asset to replace your current retirement program assets. And then people decide which ones they want. If you remember the last episode we did too with Holly, episode 160 and we talked about the four stages of IBC commitment in that episode.

I was trying to mention, and I think you can get the vibe, stage number one of IBC commitment actually requires no paradigm shift at all. And that’s why so many people find themselves starting out in that world of stage one commitment because it is what fits their existing paradigm. They didn’t have to change anything to go into it. So when people pitch infinite banking as a retirement program alternative, then suddenly doesn’t require paradigm shift. It’s actually easy to sell. It’s easy to understand the benefits and the cons of it and it’s easy to make a decision.

But Nelson Nash didn’t compare it that way because to him it was about a bigger paradigm that needed to be shifted. A retirement focused paradigm is super involved with people. So that means that they’re going to say, “How does IBC help me retire?” It’s a bridge that we could talk about, but I think if you just call IBC a retirement program enhancer, then I think everyone listening to this show would be quite obvious that that paradigm… Bring IBC to that paradigm will limit what you actually do with it.

And then the same thing goes if we go further. So there’s a paradigm that the rate of return of your investments is the ultimate goal. The ultimate goal is to get the highest rate of return possible in your investment. That once again is a paradigm that comes in. This is also a super common. And so whenever people are pitched IBC, that’s always their first response.

Well, what is the rate of return of the life insurance policy and how does that rate of return compare to the investments I’m making out here? And this is a paradigm that has to be shifted to IBCs, why it requires a paradigm shift because we are now presenting a new idea that the individuals had not thought of before. So if you’re listening to this, this is why you’re trying to convince yourself whether this is good or not. This is why you can feel like it’s difficult to comprehend because you have this paradigm that says, “My main goal in life is to produce the highest rate of return I can on my investments. And I’m not totally sure if this whole life insurance policy is going to produce the rate of return necessary to offset what I could have used the money to do otherwise.”

Obviously, some of you know where this conversation oftentimes goes that infinite banking is not about investing money in life insurance. It’s not meant to be focused on the rate of return of the life insurance policy. It’s an important piece to it. But what I’m saying is that it’s not actually the ultimate paradigm that you’re adopting when you come. In other words, people don’t become, or people shouldn’t practice IBC because they love the rate of return of a life insurance policy.

What IBC is trying to teach is that everything in life is financed. The banking function has its tentacles everywhere. So whether you are someone who is just living paycheck to paycheck and borrowing money from the bank to do various things with credit cards and car loans and different things and paying them interest, or you’re on the flip side and you’re an investor and you’ve got lots of money going through your hands and that are going out to buy different assets, everything requires the banking function to be taking place.

So what IBC is trying to paint itself as is that it is the ideal banking solution for almost every person and every situation. As we brought up in the last episode of the four stages of IBC commitment, there are some levels of commitment that actually are not objective anymore, that they’re subjective which means that not everybody should do them based on your own situation.

What I am bringing up is the idea having a policy as part of your life and borrowing from it to do things can actually create a world in which you’re more profitable than if you didn’t have the policy at all and you were just to pay cash for things is a difficult paradigm to shift to. But it’s the most important one to shift to that the IBC is not selling you a rate of return like an investment would.

See, I’m on Facebook sometimes and you’re getting investment ads. Come invest with me. I’ll give you 12% cash flow rate of return. All of these investment are pitched to investors by promising or hoping for rates of return to take place. IBC is not exactly doing that. It’s trying to say that you can practice IBC in a way that’s going to produce a new way to make money, which is why we call a new paradigm.

So if you try to convince people to accept a new paradigm, you can’t assume they’re already living in your paradigm. Don’t make the mistake of giving them the cliff notes version of the paradigm and expect them to do it. So what we have found, and it remains to be true is that if someone is not willing to actually research the concept, then they’re really not worth spending a lot of time with.

So if you’re not willing to research it, because it’s going to require a paradigm shift, which means you’re going to have to learn about it and you’re going to have to shift a paradigm through that process. Because it required a paradigm shift, you have to allow them to go through the same process that you went through when you came to this decision.

If you try to convince them without that same exact process and you’re wondering why it’s not working, well, it wouldn’t have worked for you in that process. There’s one more step to it as well. The third reason why there’s a paradigm shift taking place is because oftentimes people already have a paradigm. They already have a viewpoint of insurance, of life insurance whether it’s from Dave Ramsey or Suze Orman. So there are many paradigms that have to get flipped around and rethought in order for IBC to be practiced well.

I would tell you as I brought up, that there are different stages to commit to IBC, there’s different levels of commitment that you can practice IBC at. Stage one for sure actually doesn’t require a paradigm shift. So oftentimes this is where people start. And if you don’t know how to help people switch paradigms, then you’re going to have to convince people only with the discussion that would take place in paradigm number one.

But that’s the problem is that even really IBC, if a paradigm has not shifted. It’s why Nelson Nash focused so much on the way you think and people don’t like that. People want to be sold the numbers. People want to be convinced by evidence. And there is evidence out there. But what I’m saying is Nelson Nash was trying to convince people. Actually, it doesn’t really matter what the numbers are or the evidence is if you tried to bring existing thinking into IBC.

I know people don’t like when I talk like this. I also don’t like to talk like this, but I know it to be true. So sometimes you have to trust me that the reality is that a paradigm shift has to take place. For those of you who practice it well, you have shifted a paradigm. For those of you who are trying to learn about it and you’re trying to feel out why is it so difficult? Well, it’s oftentimes, it’s difficult because you are trying to bring IBC into your paradigm.

And that’s not judgemental. I’m just saying that’s what we do all the time. So if there’s a retirement centric paradigm, a rate of return centric paradigm, normal paradigms, and then you try to bring IBC and try to convince yourself, “Okay, I’m only going to do IBC if it helps me retire based on dollars and dollars out.”

So if I contribute 20 grand to a 401k or I contribute 20 grand to a life insurance policy, which one is going to help me retire? That is trying to force IBC to be a retirement program based on the paradigm you’re bringing to it. What I’m saying is I think we wish it was that simple, but it is a more complex subject that requires a paradigm shift to understand where it fits overall in your financial life.

This is one of the reasons why we also call it the gateway drug, by the way. We’ve said this over and over again and I’m loving it, that oftentimes people are attracted to IBC who either are already doing entrepreneurial hands on investment ideas with their money. In other words, they are not doing just the conventional in the box strategies that are pitched by Wall Street and banks and so forth.

They are the ones who have already shot out of the normal paradigms and are investing in different paradigms, so they’re excited to learn about new paradigms. The flip side to be the case too when we bring this up… So also, if you were in the conventional, and this was the first thing you learned about, suddenly you’ve switched paradigms once into this world and now you actually see differently about what your goals for money would be and how you’re going to achieve them. You start to become someone who takes more advantage of the various things that are out there and focuses on the more entrepreneurial style investments, which I feel are the way to true wealth.

That’s one thing we say is once you shift this paradigm… This is why we say it’s the gateway drug because suddenly it opens up a whole new world of ideas that you would not have even thought about if you hadn’t started with IBC. The vice versa could be true as I’ve brought up too, that if you were already in that world, then IBC actually becomes a cool idea because you’re already out of the conventional boxes of paradigms.

So to sum this up, the reason why it can be so difficult to get people interested in infinite banking is because it is not simply offering them a better alternative and remain in their existing paradigm about money and what their goals are and how they should think about things. So the way they think is they will try to interpret IBC as if it was just another solution to their existing paradigm.

It can be. People are doing IBC that way all the time. We have plenty of clients who didn’t switch paradigms who they just think that IBC is a better way to accomplish their existing paradigm. I would tell you that anyone who’s doing that is not going to go very far with IBC. They’re just using it as a tool to accomplish their existing paradigm. And so the reason why it can be difficult to teach other people is because you give them the cliff notes version. You give them what you think is going to convince them with some numbers and some details and some little snippets of what you’ve learned that you think are really cool that you’ve convinced yourself of.

But in reality, you were convinced through the journey of education that suddenly helped you shift paradigm and see that it was actually worthwhile for what it’s saying it’s going to be worthwhile. If you’re listening to this episode and you were someone who is trying to convince yourself whether it’s something to do or not, understand that sometimes if you haven’t made the paradigm shift yet, then it certainly can be difficult to understand why people overcomplicate.

In other words, why don’t they just compare a policy to a 401k and then I can finally make a decision? Once again, that’s based on a paradigm that the policy is a retirement program alternative. It can be, but that’s actually not what we’re preaching either. There’s a reason we’re not, and sometimes it can take a new paradigm to see that. If you think, “Why does it feel so different?” It’s because it is. We’re actually telling people that IBC helps them make money and do things differently than what their existing paradigms we’re trying to tell them they could do, which can make it a bit more confusing.

I know I’ve gone long, guys. I’m so thankful you showed up. I actually had more to say on this, but I rambled too much. But I think that the question is very common. If you want to help people around you learn about IBC, you cannot do it over just a cup of coffee unless you’re a charismatic salesperson.

They are going to need to follow a similar track to which you did to bring yourself to the point where you decided it was a good strategy. A lot of times, somewhere in there, the paradigm started to get softened and you started to see IBC for what it’s trying to be. And you’re not trying to force it to be something that you are looking for money to begin with. And that can only be done through research. Just like any paradigm shift. Any paradigm shift oftentimes needs to be treated delicately, and it can’t just be a simple little solution, a simple little change.

I do know that people are selling IBC that way on YouTube and different things. They’re just saying, “Hey, you just keep doing everything you’re always doing. Just change where the money is going and come into it.” I’m like, “Yeah, well, that’s essentially true.” But then you’re going to see people treat IBC possibly even as well as a way that it’s not supposed to be because they wanted a simple sales process.

And while you can present IBC through a simple sales process and get people excited to do it, I find their understanding level can be quite shallow of the actual meaning behind it. So I love IBC for what Nelson Nash taught it to be. I’ve devoted my life to it. It certainly is a paradigm shift. It’s taken me years to fully be confident in the shift. I hope this lesson has been helpful to you. If you want to talk to me a little bit more about this idea of the paradigm shift, and actually if you’re saying, “Nate, I have struggled talking to other people about it. What should I do?” I’m here to offer suggestions as well.

If you are new to this and you’re trying to figure out why it’s so difficult to comprehend, come talk to me and give me what your hangups have been. You can email me your hangups at [email protected]. Email me your hangups. Email me your thoughts. I’m happy to answer them and I think we’ll have a good conversation. This has been Dollars and Nonsense. If you follow the herd, you will get 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.

Nate: In this episode, we discuss the four different stages of infinite banking commitment that each person will find themselves in and also discuss the pros and cons to each stage. She’s Holly and she helps people find financial freedom.

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

Nate: All right, welcome back everyone. It’s great to have you on the show. I’m really grateful for your support as I know Holly is too and we enjoy doing this, don’t we Holly? We enjoy being here.

Holly: We do.

Nate: It’s fun and I’ve actually wanted to do this episode or have this discussion for a long time. It’s been in the back pocket. I really wanted what we’re going to talk about today to be an actual lesson of sorts where I was going to take a deep dive into a hypothetical human being with their own personal economy, because the question we get asked all the time, Holly, is I want to get started but at what level do I want to get started at? Or how do I get started? How much money do I want to put in? I don’t know if I’m the only one who gets that question but I assume you do as well quite often, right Holly?

Holly: Exactly. How much money do I have to get started with? What is it going to cost me to get started? Those are the first two questions most people want to know.

Nate: Exactly. And I’ve always felt that everybody can benefit from the concept of infinite banking. Everybody should become their own banker at some scale and that’s really where the confusion I think settles in. And really what I’m trying to do here with this episode is give language to I think what people feel, which is I think everyone understands there’s different stages of commitment to IBC. And so that’s part of where the question of I’m looking for your recommendation, what stage of commitment should I really be going into at this time? So really the main goal of this is going to be based on this discussion that everybody in the country I believe can benefit from the concept of infinite banking and everyone should practice it at some scale. The question at hand from almost everyone, the question is at what scale should I start at? And maybe even more so, what scale am I comfortable starting at knowing that we can grow in the future?

Holly: And I think you have to answer those for yourself first, Nate. A lot of times I don’t want to give an individual the you need to start with this amount of money, I want them to understand what are they comfortable with doing and what can they afford right now at this stage in life? Where they’re at later on in life will differ very much so on how they utilize their policies. But like we say, you have to get started somewhere. And I think the breakdown of having different stages also evolves how you start utilizing the policies or if you don’t.

Nate: I think you’re right. So I mean I really do think that everyone’s going to fit somewhere within these four and I invented these four stages and I gave them quick little terms, not that the terms really matter, but the idea behind them is what’s going to matter. I think first off, what we ought to recognize is that objectively speaking, which I like to set that stage, objectively speaking, which means that you can prove over and over with practically no exception, everybody should practice IBC at some level. What starts to get potentially a little bit hazy is when you start getting to the more aggressive and advanced levels of IBC, I would say at those points there’s a couple things. Some people may not be the right fit for some of the advanced stages and certainly some people are not going to be comfortable with some of the advanced stages as far as the big change of life that they’re going to commit to.

So we understand that going in. But I think if you’re listening to this podcast, if you’ve been listening for any period of time, understand that infinite banking is a concept that you cannot get around. That’s the cool thing about it. Concepts are essentially universal, they always work. What I have found though is that different stages of IBC commitment work better for certain people than for other people. And so maybe figuring out where you’re going to be at is going to be helpful. That’s why we also mentioned we tried to come up with some pros and cons to each stage so that people can help weigh well of course me being the IBC Kool-Aid drinker, and you too Holly, we are biased to some degree to the advanced stage. We think that’s really fun to do the last couple of stages.

Holly: Those stages, yes.

Nate: It’s going to be really fun. I think everyone should do those. But what I’m saying is I also come in with humility, understanding that not everybody is going to be excited to commit to that level of infinite banking, which is perfectly fine with me. What I think is that some people assume that to practice IBC, they have to do those deep advanced stages to receive benefit and so they think it’s an all or nothing approach. What I’m here to say is actually it’s not. While of course it’s more exciting to work with people in the advanced stages as an agent, as an advisor, it’s more fun to have conversations on those stages, but I would also say it makes sense for everybody no matter where you’re at, it’s going to make sense to come to infinite banking at some level, and that’s an objective opinion.

And I know I don’t throw those around lightly. If people know me, I don’t like to speak in black and white terms, I don’t like to speak in objectivity because very few things are completely objective in life. But I do know everyone is going to be in the world of banking at some level and it’s wise to have capital and cash on hand, that capital or cash has to be built up somewhere and we cannot find an objectively better place than what we’re doing right now. So that’s what I’m trying to say. At some level, everyone should do this and what we’re going to dive into is the four different stages that you can do it at.

Holly: As we’re discussing each stage, whether you’re a beginner or you haven’t even started or whether you’ve had a policy for a while, really the question is where do you identify and what stage are you at in this? And I want to say the reason it’s a lot more funner or exciting at the more advanced stages is because there is more of a need for an advisor, a coach to help you get through that versus you just being in it and doing it by yourself. It doesn’t work most of the time if you jump in with both feet and try and swim and you never learned to dog paddle.

Nate: Some people who are really actually in the first two stages, they think that they are actually in their heads doing the later stages. And so they think that they should be talking to us and doing some really cool things with IBC. And I like that this is going to give me some verbiage to describe some things to people. That was essentially the whole point was that while I would love to help you get rolling at some of the more advanced ideas of IBC, your commitment level so far is in the early stages of IBC.

Holly: Yeah.

Nate: So in other words, they’re paying lower premiums, or as far as compared to their income, they’re not really contributing a very high level per se of IBC commitment. But they think that they want the benefits of the higher level commitment and start to do some of the things that they’re going to do with the higher level commitment, and that’s actually where it gets wrong. So the only way to get more out of the system is to progress from one stage to the next.

Holly: Our stage one really is what Nate has termed the saver stage. It is those of us who are actually putting money into a savings account, we’re actually putting some money aside and storing it in a bank. And in our viewpoint, if you’re going to be putting it into a bank, you might as well be putting it into a policy because it’s going to do two things for you, it’s going to give you cash value now and in the future and it’s going to grow tax free. But the second thing too is it’s going to give you a death benefit and I feel like it gives you access to use that money versus just putting it in a bank. And if you take it out, it’s gone, Nate.

Nate: Yeah, and this is what I would call the objective stage. So in the saver stage of infinite banking commitment, this is somebody who already has some money saved up in some safe place, which most people would agree is reasonable. And you listen to almost anybody, they say you should have an emergency fund or something of the sort, you should have some money safe.

Holly: Or reserve.

Nate: Some reserve fund, emergency fund, opportunity fund, whatever it is, people understand that they should have some cash on hand, liquid money in order to do things of life, and as a buffer for all the trauma that can happen financially to people. So this is what I would call the objective stage that for most people, if you commit to this stage of infinite banking, you’re actually not changing anything about your life. The only thing you’re changing is which tool you’re using to save some money into. So this is normally the lowest level low hanging fruit, this is everybody should do this. Nobody should have 30,000, $40,000 in an emergency fund or more sitting in cash in a bank account, they really ought to just start rolling that money into a policy. And that’s why I say it’s objective, it’s going to make you more money. There will not be a con to doing it, there truly won’t be.

And if some people say, “Well Nate, you won’t have 100% of the money,” that’s not even a con, you have more than you need. And you would start at such a low level of actual premium if you had 40 grand, maybe you’re going to move in 10 grand a year that the difference in capital is going to be unnoticeable in exchange for the hundreds of thousands of dollars over a lifetime that’s going to be created. So it’s essentially what I would call the objective stage. But some prominent things about this is essentially all people like this are going to do is they just like infinite banking to be a safe place to store a little bit of money. So this would encompass the people, as I brought up, who already have just a little bit of money going into savings and they already have an emerging fund built up and they’re just going to slowly in a small scale build up a policy with those monies, and it’s not going to be that aggressive.

This could also be the stage of someone who wants to diversify, which I don’t love the word, but they’re like, “Oh, I’ve already got all this money in stocks and bonds and real estate and I just want a safe place. I’m just going to put some money in, a little bit here and there. It’s a whole life insurance policy. It’s safe, it’s tax free, it’s going to be nice.” The hallmark of this stage is that people in this stage rarely ever use their policies. They will rarely ever use it. They’re just saving a little money into it, money that would’ve been saved someplace anyway. They’re not even really changing their investment paradigm or their patterns, they’re still maxing out 401ks and IRAs and doing this and doing that and they’re investing in other places and they’re not using policies to do it, this is just a little, “I’m moving some savings in, diversifying.” By the way, I’m making fun of it.

But what I’m saying is it’s just the beginner stage of IBC. I’m getting a little policy going. People in this stage should not think that if they did some policy loans and maneuvered some money that they were going to create some awesome IBC system. You have committed to just the lowest level stage you can commit to, a stage that everyone in the country should be committing to to become their own banker, just moving their already liquid money into a place that’s going to give them more money in return.

Holly: This is like you got your feet wet and that’s all you want to do. You don’t want to go in the deep end or that you just want to stay in the shallow end, get your feet a little wet. It is essential because everybody, like we said, should be doing this. We’re doing banking whether you’re in IBC or not, this is a place to actually do banking and control your money. So that’s what we’re saying in this stage is that it is the low hanging fruit, but it’s the process of you getting started. And if that’s where you stay the whole time, that is okay. It’s what you’re comfortable with and if that’s where you’re comfortable, then that’s where you stay.

Nate: Yeah, exactly. My biggest issue is when you have clients who are doing this but yet think that because they’re in this little stage that they are doing IBC, and then you ask them what all they’re doing with money and they got a lot of money over here, they’re putting a lot of money over here, they’re putting a lot of money over here and they got this little tiny IBC policy and they’re trying to ask you questions about what they should be doing to maximize their policy. And I think guys, in the saver stage, don’t think that you’re going to make a life-changing thing. My recommendation to you will be to move to other stages. But not everyone’s ready for that because it’s going to create higher amounts of premiums as you go down the stage. That’s actually, by the way, the difference in all of these stages. When we say the four stages of IBC commitment, it’s actually essentially going to be how much of your cash flow is going into premium and then is going to go out and work for you. So in the saver stage, it is the smallest amount.

Holly: Yeah. And I think, Nate, too in this stage when people think they’re doing something else and they want to maximize it, it’s maximized. You can’t do much more with what you actually have until you increase premium. And so that’s one of the cons is you have to be okay if you want to move to another stage to increase your premium. If you’re not willing to do that, then you’re going to stay at the stage you’re at because you can’t maximize it anymore than what it’s been designed to do.

Nate: Awesome point. Your ability to maximize infinite banking in the various stages that you’re in is completely dependent on the stage you’re in. So when people say, “I want to maximize IBC,” most of the time the only way to maximize it is actually to grow into the next stage. That’s how you would end up maximizing because infinite banking is not a policy. Infinite banking is a process that uses policies. It would be the same thing if you were to own a business and you had a little community bank and you can do various little things with one location and one little bank. You can do a few little things. But if you really wanted to start growing the business, you would oftentimes try to figure out a way to add another location and to expand the business. And that’s why businesses do this. The same type of thing is with IBC.

There can be little things you could do in the saver stage to start getting more out of it, but there would not be anything that crazy. It’d be pretty easy to max out this stage. And so if you are only willing to commit to this stage then as we brought up, the con to this… The pro is that you’re going to be making more money than you were before you started the stage. And there’s no question about that, it’s not even arguable. The cons though would be mainly that you’re not going to be able to accomplish much in this stage regarding infinite banking. In this stage, as we mentioned, you rarely ever use it and the discussions that you and I are going to have as an advisor to a client relationship are going to be relatively bland because unless you’re willing to get into some more advanced stages, there’s only so much we can do.

If you want to expand beyond that, we’re going to call that the capital builder stage. And typically the hallmark of this stage is when someone is starting to redirect other cash flows into policies because they want to build more capital and want to be able to accomplish more things. It’s pretty obvious. So we call it the capital builder stage because it’s the stage of life where you’re of course doing the saver stage stuff, but you’re adding in other cash flows. The most common way to do this is when you’ll talk to a client and maybe they’re contributing to a 401K or an IRA or something of that sort, and they start to reduce contributions over to those accounts so that they can funnel more into premium and get higher amounts of capital built up in policies that they hope to use one day.

So in this stage, you’ll oftentimes not only have enough money for your emergency fund, but you’ll start to have enough money to do things like finance your vehicles, you’ll start to maybe pay down debt, make down payments on homes, send kids to college. This is going to be a bigger piece of your financial life. Now, you’re not going to do everything through a policy but you have committed to a higher level of premiums at this stage because you’ve redirected some other cash flows than just the saver stage. But you’ll also see that in this stage, most people who are using it, they are more personal items. So keep that in mind. They’re more personal items, things like cars, vacations, houses, just regular helping make down payments or home improvements, kids’ education. The people in this stage like the policies, they’re putting more money into policies, they like the tax free growth, they’re guaranteed growth, they like the liquidity, they’re willing to commit to a higher level. They haven’t started treating it as a business at this point.

Holly: And really in this stage, I say this is that stage of you experiment more personally with it like buying a car or paying for a vacation. And Nate, this is where you start understanding the initial process and the rules of what we call the rules of IBCR. So you actually start understanding the process versus all I’ve done is park money. I say at one point, you’re crawling, now you’re taking baby steps to actually implement the process of what IBC is. And until you start implementing it, that’s why it’s more personal because you take a smaller item or something like a car or a vacation and you see how it actually works before I think you really get to that next advanced stage that we’re going to go into.

Nate: That’s exactly right. So actually in the whole IBC kingdom, this is probably the most common stage for people to be in. As far as the pros and cons of this stage, it’s similar. I mean the pro of this stage is you’re better off in a situation in this stage, it’s better to buy cars from your own bank than to use somebody else’s. Now, some people on this podcast might say, “Well what about when the car loan is cheaper than the policy loan?” Who cares? Go ahead and use the car loan. What I’m saying is you’ve now created a place though where you are making more and more profits on many more transactions in life, still mainly personally. The cons of this stage once again, I mean it was hard to come up with necessarily cons in a lot of these stages, especially these early ones, because there’s very little to it. I mean as far as the con goes, once again it’s probably well you could probably get more out of IBC if you would commit to a different stage.

It’s like stage number one. By the way, everybody, I forgot to mention, my goal is by the time this podcast launches, I would like to actually create a presentation that describes this in more detail. I was going to mention that at the beginning and I forgot. But essentially, I was going to try to lay some numbers down and some hypothetical scenarios of what it would look like to be in each stage. Be on the lookout for that. That’s the capital builder stage. They’re using it, they use it for personal items a lot of the time, it’s a bigger piece of their life. They’re not just using their emergency fund strategy, they’re putting other cash flow into it, maybe from their 401K contributions, maybe their IRA contributions are reduced, maybe money that they used to save up to buy cars they’ve now saved up into policies and they’re using the policy to buy cars or just little things like that.

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Nate: The next stage, Holly, is we’re increasing complexity, we’re also increasing premiums as a proportion of income the further you go on. So the next stage, stage number three, is what we call the entrepreneur stage. Now, a couple of caveats here, Holly, you don’t have to be an entrepreneur to be in this stage. The reason I’m calling it the entrepreneur stage is because the people in this stage are most often a hallmark is that they really are going to treat this like a business. So in this stage, you’re committing to IBC at a high level and you’re going to essentially run it like you would a banking business.

What that essentially means is in this stage, pretty much every dollar of free cash flow… Now, that term free cash flow means any dollar that you’re not going to spend on just basic lifestyle, regular monthly expenses. Every dollar of free cash flow is going to be contributed to policy premiums first and then everything you’re doing in life, anything above monthly expenses is likely going to be funded from the policies. This is why we call it the entrepreneur stage because most people on this stage are essentially financing practically all of their investments with policies.

Holly: And then I think this is the stage that really you’ve achieved what Nelson has said in his book of you should always be in two businesses, the one you’re doing for your regular job and work and banking. So this is that you are actually training it as a business, you’re actually taking in those loans. And if you’re your own business or you own your own business, you’re using your policies literally to help fund whether it be payroll or what it is, but it literally is an asset that is basically growing. And I think very few people achieve this stage out of fear. I’m going to say it really is fear.

Nate: I think you nailed it, yeah. I think a lot of people think they’re in this stage when they’re really not because they have some fear still. It took me a while myself to even get into this stage, so I don’t think people should feel guilty about it. But you’ll talk to people who have committed to high levels of premium. Not every dollar of free cash flow is being contributed to policies yet. And I think that essentially has to be the case to be in this stage fully where pretty much every dollar of free cash flow is going to be contributed to policies. So you have people who are paying large premiums and who are using those policies to make investments and maybe run their business and they’re doing things like that. And so they’re getting really close to this stage. And I would say there might be a hybrid in between stage two and three where they are doing quite a few things with it, but they still have capital that’s not in their own bank that accumulates in the banking system and then goes out and does stuff.

They are very close to this stage. But you’re right, what keeps them from actually doing this is the fear of premium. The pro of being in this stage is that every dollar of free cash flow that you make is finding its way into policies first. And so every dollar is now able to do more than one job. Every dollar that you possibly can is going into policy premiums, producing cash value and you are leveraging that cash value to go do the things of life. So you don’t have any wasted opportunity cost anymore. You’ve completely gotten rid of it, everything is rocking around the way it should. The con of this stage, or at least in most people’s eyes, is that it takes a high level of commitment, takes a high level of comfortability and people are worried in this stage that their premium levels have gotten too high.

And so you could say that the con of getting to this stage where every dollar free cash flow is being contributed to policies and it’s really run like a business is that to do it, yeah, the commitment level’s pretty high. Your comfort level’s got to be pretty high. You can’t just do this as a side gig and be in this entrepreneur stage. But as we’ve talked about, Holly, if people are in the capital builder stage and they’re saying, “Nate, what can I do to maximize it?” There’s only so much you can do in that stage. You have to start getting closer to the entrepreneur stage which means you have to commit to higher premiums. And I know that word commit might be a little strong, people I think they have a weird relationship with premium. They think it’s more rigid than it is.

They think there’s going to be huge negative consequences if they don’t max out the policy each and every year. They think there’s going to be huge consequences if they miss a year of premium, all of which most of the time should not be concerns when you understand what’s going on. Now, we don’t have time in this show to do that, but we’ve done it many other times, try to alleviate some of these concerns. But I would say in this stage, you are actually getting to the point where it is possible to start being too aggressive. In the entrepreneur stage is when you’re starting to need to rely more and more on your IBC coach, your IBC advisor, someone like me or Holly or whoever you’re working with. In this stage, it’s not uncommon for me to rein people in and actually say, “Hey, you’re at a good level now, I don’t know if you really need to keep running around. I think maybe let’s take it in bits and pieces.”

So sometimes I’ll rein people in, some people will say, “No, Nate, don’t rein me in.” And I’m like, “Way to go, guys. You guys are really gung ho.” You can start it at any stage you want to, but in other words, you don’t have to go from one stage to the next. We have people start in this stage. The people who have done a lot of research are really excited. They’re just saying, “Yeah, I want every dollar of free cash flow to be contributed policies right away and I want to do everything in my life from policies,” and that’s awesome. And just not everyone is ready to commit and is comfortable at that stage because it’s going to take changes in how you’re doing things. The first stage and the second stage take very little change if any at all in really how you’re doing things. This third stage will start to really actually change what you’re doing.

Holly: And Nate, I want to say one other con maybe, but it’s not a con, you do have to be disciplined and you have to follow the system and that’s why you need an IBC coach because if you just think, “I’m going to throw all this money in and I’m just going to start loaning it out and investing it,” and you don’t have a system in place, then that is the con because you don’t know what that next step is. I took the loans up, but what am I doing now? And I think that one of the entrepreneurial processes is that every business has a business plan in the same way in the entrepreneurial stage you start having a plan that you get to follow and a guide to lead you down that path so you’re not by yourself.

Nate: Yeah. In this stage, things are well thought out. Yeah, I think that’s a good point. We lay them out on your financial GPS if you’re working with us, these are things where we’re tracking more and more things. You’re using it more often. A lot of times, people in this stage are using policies to make investments and in their business so they’re deducting interest. And there’s some fun things to do in here that you would really want some help to try to establish and make sure you’re dotting the I’s, crossing the T’s in this stage. So this is where you’re running it as a business. Pretty much every dollar that you can muster is going into premiums. Tons of policy loans coming out over the course of the year. I don’t know if I’d say tons, but you’re using it consistently for the various things of life. You’re making large premiums, you’re making large loan repayments, you’re recycling money in and out and in the entrepreneur stage, you’re running it like a business and you’re having a good time.

Holly: And I think people are like, “Well if I’m using every dollar I have cash flow, how do I get to another stage?”

Nate: That’s right. And this is the last stage, it’s a good point. And by the way, I don’t know if we said the cons, the con really would be if you tried to do it all by yourself and you don’t have a coach, you can mess some things up in this stage. So you really do want to have somebody that you trust that you’re working with who’s gone before you in this manner. You don’t really want to do that one alone. The fourth and final stage is the least common stage to be in, it’s the hardest stage to get to. And this is a stage that it does not always make sense for everybody to go to. That’s for sure. This stage is actually reserved for specific circumstances where people’s life will fit into this final stage of IBC commitment. So in other words, not everybody should even go here by the way.

For a lot of people, stage three is your best stage. But if you fit into stage number four, that’s great. This would be like the Nelson Nash practically premium equaling income stage. We call this the lifestyle stage. So in other words, instead of just throwing in all of your free cash flow, which is the money you’re not going to spend a monthly lifestyle expenses and stuff like that, in this stage, people will start to actually pay premiums into policies knowing that we’re going to borrow money out to go do something that’s a recurring normal thing. So this would be people who are paying premiums to pay their annual tax bill on top of the entrepreneur stage. And so they have all of their free cash flow going in and they actually have some additional premium amounts going into policies above their free cash flow.

So maybe they’re pulling loans out every year to do just natural recurring things like paying income tax or property tax or charitable giving or things of that sort. Some people would say, “Well Nate, I’m already paying taxes with their charitable giving and I don’t feel like I’m in that stage.” And that actually is true. You can do those things even in earlier stages, but it’s a hallmark of this stage to where not only are you having all of your free cash flow and making lots of investments from it, but essentially you have a premium that’s higher than your free cash flow overall across all your policies. And so the last point I wanted to make in that front, Holly, was to say in this stage, as I think your brain can take you there, in this stage, it is likely for you to accrue loan balances inside of the policy that you do not intend to repay at least for a period of time.

That is a hallmark of this stage. The con of this stage is that you can go too aggressive, you can make some weird mistakes in this stage. This is 100% a stage that you want someone in your corner, an advisor who can really help you decide whether taking the jump from entrepreneur stage to lifestyle stage makes sense. I think that the people who fit this stage most relevantly are the people who are pretty confident that windfalls are going to come in the future. Nelson Nash talks about this all the time of paying such high premiums that loan balances start to accrue and then plugging those in the future with various windfalls. So this is why I say it fits great to do these types of things, especially when you expect windfalls in the future. Windfalls can come in many different forms. They can come in selling existing assets down the road.

Maybe you’re a real estate professional or investor or you own a business and you are going to sell properties or sell the business sometime in the future, and you know there’s a windfall coming. This could also be you expect your income to go up in the future dramatically as far as your career path is concerned, or this could be an inheritance from your parents as expected. And there’s different things where essentially in this stage, you understand that for a period of time you’re going to be paying more premiums and you’re going to be using some loans in there that you’re not really going to plan to repay. But since you have so much capital going in, you’re not even that worried about it and there’s reasons why. And so if someone wanted to go to this stage, I ask a lot of questions and paint out a really clean picture of what life would look like in the lifestyle stage and then we play it out on paper with some different hypotheticals and we say, “Yes, it makes sense,” or, “No, you should stay in the entrepreneur stage.”

Holly: And I think too in this stage, what people have to understand when we say that you’re accumulating a loan balance that you’re not intending to pay off right now, those are often what we call strategic loan balances.

Nate: That’s right. That’s a good point.

Holly: It’s not a, “I just created this loan just to create it.” Like Nate said, it takes a lot of planning and strategically looking at it, does this make sense? And it’s not just a loan balance to have a loan balance, it’s what we would define as a strategic loan balance specifically for a reason that we believe there is going to be a windfall in the future and how that loan balance will play out. But like Nate said, there are very few that might ever reach this stage or it doesn’t fit for them.

Nate: Yeah.

Holly: And so it’s okay not to have to get to the lifestyle stage. The entrepreneurial stage is really a fun stage where you are actually creating wealth for your family. You don’t have to get to the final stage to create wealth and to make this process work. So every stage is very unique and it’s to each individual, and that’s why Nate and I say you need a strategic coach to coach you through that because that person is working with you on your personal situation. There are no two people and no financial situation that’s alike. And so that is one of the cons to this stage is you might never get to that stage because it will never be a fit for you.

Nate: It’s not like we’re just doing it for fun, we know what we’re doing and we know the end game. We have an agenda built out. So I’ve had people in this stage plenty of times before where for a period of time, their loan balances or maybe they’re borrowing money from policies, paid taxes and charitable giving and their premiums are so high that they’re not even choosing to repay those loans year by year. But we actually have a very specific plan. We are tracking, we know exactly where the loan balance is going, we know when windfalls are going to occur.

Maybe they’re paid to addition rider premiums, they’re going to reduce sometime in the future once policies are sufficiently capitalized and they’re going to use that cash flow to repay any loan that would’ve built up over that time. Or maybe this is a thing where they want a place to store capital above their premiums with random windfalls. So once again, we don’t exactly have enough time to go through the entire idea of what it means to create a strategic loan balance. That would be also something I should probably make a video on that’s not just a podcast discussion.

Holly: Yeah.

Nate: But that’s a hallmark of this stage and not everyone should do this. So for some people, their max stage really is the entrepreneur stage, and that’s perfectly fine. For others who have a high level of IBC comfortability are already rocking and rolling with their commitment and want to take it to the next step, questions are asked and a strategy is built up. And this is definitely the most complex stage and this is the one where you’ll want a coach to guide you through it more so than any of the other stages because this time in this stage, a coach may actually say, “No, I don’t think you should.” Well we’ve been here for a while, Holly, maybe we should recap and shut it down. So in the four stages, saver stage, entry level, your hallmarks or people rarely will use it in this stage, people in this stage may ask me, “What should I be using my policy for?” Nothing. You’re not in the right stage.

All you have is a little tiny premium and you have all these other big things going on in your life and you’ve committed to IBC on this very small scale. It’s acting like an emergency fund or a little saving spot. Policy loans are not magic. You don’t just take policy loans for fun just because it’s going to magically create more money. And it’s not a dollar amount of premium. A guy who’s making a million dollars a year in income, his saver stage might have big premiums, but he’s actually just in the saver stage. He’s got big premiums because he’s got a really high income compared to a guy who’s making 100,000 a year, his premiums may lower. Or the guy who’s making a million dollars a year probably has a higher saver stage than the guy who’s making 100,000 dollars a year has on the lifestyle stage. So keep that in mind. It’s not a dollar amount of premium, it’s a dollar amount in proportion to your income.

So saver stage, rarely use it, just getting things going, safe place to store some money. This is also the objective stage. There is no reason for people to be doing regular banking without doing this. Number two though is the capital builder stage. This requires you to start redirecting cash flow that used to go to some other places, maybe a 401K or an IRA or something like that. The hallmark of this is people will start using policies more often in this stage, mostly for personal items. The third stage is the entrepreneur stage, this is when you’re running like a business. Every dollar of free cash flow is going into policies and you’re making lots of moves with it. Policy loans are coming out all the time. You’re making investments, you’re running your business, you’re proactively seeking out things to do with policies to improve your overall situation. That stage comes with the pros of men, opportunity costs is no longer a problem. Every dollar that you’re making is going through the system and earning money for you all the time.

The cons are, yeah, you can get too aggressive even in this stage. And the con is it’s hard to get comfortable enough to do this. Lastly, the lifestyle stage is all the other stages combined. Plus, you’re going to be using it even for regular monthly expenses or monthly or annual recurring items, things like charitable giving, taxes and all sorts of other things. You may have already started that before. But the hallmark of this stage is that you will create a strategic loan balance over time. And you know what you’re doing. The advisor knows what you’re doing. We have a plan. We’re not worried about it because of X, X, X, and we have it all nailed out. And yes, let’s run with it. Not everyone is going to fit into this stage, but if you’re in the entrepreneur stage and you say, “What should I be doing?” This would be the discussion. So understand that, that oftentimes to go from one stage to the next is the answer to how to maximize your IBC.

And so there might be a few little things in each stage that we could offer as suggestions, but if you actually wanted to get more out of it, you’ve got to go down. Sometimes people in the entrepreneur stage, I’ll have to tell them, “No, you’re doing great and you are maximized. You’re doing awesome.” And there are sometimes where I’ll say, “You know what? Actually based on what I know about you and based on your answers to these questions, there might be the final stage to jump into.” Any other thoughts on your end, Holly?

Holly: Nope, you said it all. You did well.

Nate: Oh, thank you. Well everyone, thanks for joining us. If you are enjoying this show, man, we would love it if you would subscribe, whether you’re watching it on YouTube, whether you’re getting it on Apple Podcast, if you would rate it, review it, subscribe, that’s the only way we can get this podcast out there. And we so appreciate you listening. This is Dollars and Nonsense. If you follow the herd, you will get slaughtered.

Holly: For free transcripts and resources, please visit livingwealth.com/e160.

Announcer: 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 beginners course Ray, Nate and Holly made just for you. Again, that’s livingwealth.com/beatinflation.

Nate: In this episode, I answer the question, does it ever make sense to own a modified endowment contract, otherwise known as a MEC? We’ll dive into what exactly is a MEC, what are the pros and cons of owning a MEC, and under which situations is a MEC desirable? This is Dollars and Nonsense. If you follow the herd, you will be slaughtered. Well, everyone, welcome back to the show today, I’m taking it solo to discuss the modified endowment contract. So we’re going to be a bit technical regarding what a MEC is, how it applies to the concepts that we promote and so forth. So we’re going to go ahead and just dive into some content.

For those of you who are relatively new to the show, who are maybe new to infinite banking as a whole, and this whole concept, you’ll certainly hear this idea of a modified endowment contract brought up all the time. And there’s a lot of confusion around it. I know there’s a lot of videos out there, let’s say on YouTube or podcast done describing it. I don’t know if they all do it justice. I don’t even know if I’m going to do it justice on this show, because I am certainly a why guy. So everything needs to go back to why. The idea of why even discuss what a MEC is, and why it acts as almost a curse word in infinite banking circles, and I don’t think it really needs to be that way.

So I’m hoping to paint a really solid picture of what it is. I know we’ve actually discussed a little bit of a MEC in previous podcasts episodes as well, so we’re going to go ahead and dive in. So for those of you who are pretty new to the idea of infinite banking, which is what we promote and what we love to talk about here in Dollars and Nonsense, the whole goal that we’re trying to communicate is that you can become your own banker through a specific type of life insurance policy, specifically dividend-paying whole life insurance policies issued by mutual companies. And so the infinite banking concept is all about paying large premiums, and by large is a relative term. I mean, for your situation, we’re trying to put in as much money as we possibly can into these policies, then use those policies like a banking system.

And I know it sounds kind of marketing, I’m just saying that’s what we’re doing. So we’re putting a lot of capital into policies relative to your situation, and then we’re pulling money out of those. We’re leveraging the cash values that are produced inside the policies to live life, to make investments, to go on vacation, to buy cars. I mean, anything that you do that needs money, we want to use essentially what we call your own bank, which is funded with through these policies. It’s the source of capital for all the things of life. So that is the concept in a very quick nutshell. What this means to you and me though, is that, obviously whenever you’re trying to build a policy to solve for the banking function in your life, you would want that policy to have as much cash value as it possibly can for every dollar that you deposit into it.

This is where the idea of the MEC even comes about. This is why it’s even worth talking about. This is why we bring it up. This is why it’s common to bring this up, because the IRS, the Internal Revenue Service, has essentially created a formula that insurance has to follow in order for them to call it life insurance. And life insurance, everybody really knows, or if you don’t know it, I’m just saying it’s just common knowledge in the world that life insurance policies have very favorable tax treatment. So life insurance policies will grow tax free essentially, and can be accessed tax free under the vast majority of circumstances. So you can take out a policy loan will always be a tax free distribution, and even withdrawals, the vast majority of the time, are going to be tax free up to your basis in the contract.

So this is not exactly going to dive in too deeply into what that means, but essentially everyone would like to have a life insurance policy with the tax advantages alongside with it. The problem was, especially back in the 1980s, there were people really taking advantage of the tax advantages of life insurance, which they should do. We should take advantage of every tax break that we possibly can. And so people were just doing what was called single premium life insurance policies. And what these were, was they were essentially just individuals dumping large premium dollars, multimillion dollars one time. And pretty much in a single premium policy, which by the way is a MEC, and we’re going to talk about that. Practically, every dollar or premium goes straight into cash value. It starts earning the guaranteed growth of the policy, and producing dividends right away on the full amount. And the death benefit was very small on these single premium policies.

So wealthy people would just dump millions of dollars into single premium whole life insurance policies, and live off the tax-free growth of the money. And the IRS got upset, and they came in. And they were essentially saying, guys, you guys are taking advantage of this. This doesn’t even look like life insurance anymore. This looks like an investment. And so they created this idea that we now call a modified endowment contract, where essentially it’s a new classification for a life insurance policy that does not pass the MEC test. And so now all single premium life insurance policies that were designed back then are now called the MEC. Now of course, if you owned one before the regulations came about, you were grandfathered in. But now if we were to build one under today’s circumstances, it would be called a modified endowment contract.

And a modified endowment contract essentially removes all of the real tax advantages or the main tax advantages from the life insurance policy itself. So it will look like a life insurance policy, it will act like a life insurance policy. You can use it like a life insurance policy, but you just don’t have the same tax favorable treatment of the policy whenever it’s classified as a modified endowment contract. And so we’re going to dive into today what exactly it is, how you can avoid it, what are the pros and cons of a MEC, and then of course in that, we’ll describe the situations that actually owning a MEC and forgoing the tax favorability of life insurance, can actually make sense for certain individuals whenever they want to practice the infinite banking concept.

So the MEC itself, the IRS essentially created a formula that all policies have to pass in order to be called life insurance policies. If they don’t pass this test, then it’s called a MEC. And the idea behind the formula is essentially the IRS says, the death benefit of your policy has to be large enough for whatever premium dollar you want to put in. If you want us to call this thing life insurance, and you want us to offer the favorable tax treatments that everyone can understand about life insurance, there has to be a satisfactory transfer of risk, which is the fundamental definition of insurance. The death benefit is the transfer of risk. The death benefit is the risk of dying early, and the life insurance is going to be paying on a death claim. They’re essentially saying the death benefit has to be large enough for whatever premium you want to pay.

So you can start a policy with any premium amount that you want to. You can start a small policy with a few $100 a month, and you can start a large policy with millions of dollars of premium going in every year. You can start any size policy you want, as far as how much you’re funding into the policy. But what will limit the design of the policy is going to be this idea of the MEC, which essentially says, if you want to put $10,000 a year into premium, the death benefit has to be at a certain level, and it’s a formula. The same thing would go if you wanted to put a $100,000 of premium in, the death benefit would have to be at a certain level above the premium. I wish I could say that the formula was just a simple like, hey, the death benefit has to be 10 times the premium at a minimum or something like that. Unfortunately, that’s not how it works.

The test that is used is technically called the 7-pay premium test, and I really don’t think it’s actually useful to go into what that even means or how that applies, because it really doesn’t matter. But what we can draw from the idea of this test is that depending on how old you are and where you’re at in the process, that the death benefit has to exceed a certain amount. And pretty much, you want the illustration software that you use to build policies to tell us what it is. Because it’s not just a simple little formula, it’s going to change and vary based on your age, gender, and health class. So all that to say, the MEC itself is saying there needs to be a legitimate transfer of risk by the insured to the insurance company in order for it to be called life insurance.

So that’s why the old style policies of single premium style policy where you could just… Let’s say somebody comes up to me with a $1 million in just cash. Back in the 1980s, early 1980s, they could legitimately just write one check for a $1 million, plop it down into what’s called a single premium life policy. All that million would essentially be available in cash value, 90 to 95% of it, and the death benefit would be relatively small comparatively. It would be maybe like one and a half to $2 million of death benefit, which is a relatively small amount of death benefit for the premium they just contributed.

But all that to say that’s what they could do before the 1980s, before the MEC concept was written into law. Then immediately that cash value would start growing and earning interest and dividends in the policy, and you could live on it tax free, that would’ve been great. The problem today is that now to be able to put in a million dollars, there needs to be a satisfactory transfer of risk involved. If you were to write one check for a $1 million, then the death benefit would have to be at a satisfactory level. The problem is carrying a large death benefit just to allow for a one-time high dumping of money, can be not practical. So we’re going to talk a bit about that too, and I know I’m opening a whole bunch of loose ends and not closing them, but I’m going to try to close them as we go on.

So essentially what you would have to do nowadays is make sure that the death benefit is large enough to allow for a million-dollar contribution. If you want to put in a $1 million, then you have to have a death benefit high enough to allow for that, which used to not be a thing, that’s essentially what a MEC is. And this is where you run into it. So what is a MEC? It is essentially a taxable version of a life insurance policy. So I’m going to describe a little bit of that. I’m going to describe how we avoid it. I’m going to describe the pros and cons of it, and then we’re going to end with what situations make sense. So as far as the tax consequences of a MEC, whenever you own a modified endowment contract, the IRS doesn’t tax it as life insurance. They see it as its own, almost like a deferred annuity of sorts, which I’m not going to go… That would be the technical tax classification.

But essentially what it’s going to do is, it still grows tax deferred. Which means, as it’s earning interest and as it’s earning dividends, you do not pay income tax as the money is earned, which is a bit different and it’s still slightly favorable that way if you would compare to let’s say, owning a bond portfolio that’s earning interest. Well, the interest is just taxable in the year that it’s paid. The same thing goes in like a CD at a bank or a savings account. Those types of things will pay interest, and it’s taxable the year it’s earned as interest income. Well, in a MEC, it still receives a tax treatment that’s slightly favorable, and that as it’s accumulating interest and dividends, those are built on a tax deferred basis. So you don’t pay tax as it’s being accrued, as it’s being earned. But the big difference is, you will pay tax when you start to access the funds inside of a modified endowment contract.

Let’s say you had put in a $1 million into a single premium policy, and it’s growing with interest and dividends. And a few years later, it’s $1.2 million of cash value, and you want to come take a policy loan or a simply withdrawal. All of the gains will be taxed in what’s called a last in, first out accounting structure. Which essentially to you and I, means, the million that you put in, you can actually get back tax free, but you can’t get at your principle until you have withdrawn all your interest and dividends. So that’s what last in, first out means. Which means all of the growth, all of the interest and dividends are withdrawn from the policy first, and then you can access your principle. The principle amount is still tax free because it was after-tax money that you put into the modified endowment contract, so it’s only the interest and dividends.

So let’s say you had a $1 million that you put in, it’s worth 1.2 million and you want to pull out 500,000. How that would be accounted for is 200,000 of it, the interest and dividends would be taxable as interest income that year. And then the $300,000 of your principle that you were withdrawing, of course you can get back without tax. But no matter what, you’re going to pay tax on the gains first. Which, if you compare that to a typical whole life policy the way we would normally design it, it’s done completely different. First off, a policy loan in a regular policy is never a taxable event. So you can always access 100% of the funds with no tax at any time, and you can withdraw your principle first before you withdraw any of the interest and dividends.

So you can take out your basis and actual withdrawals, and a regular life insurance policy that passes the MEC test, you can do it tax free. So that’s the main issue with the MEC is essentially the tax consequences that come about if you choose to go forward with this idea. And for the vast majority of clients, it would not make sense to own a MEC by the way. Because the tax consequences, as the account grows and grows and grows, and you start to receive more and more interest inside of it, the tax consequences, which is the con of a MEC, will not overcome the pro of owning a MEC. And so I thought I would also mention though, that it’s not all bad. That’s why I don’t like how the word MEC is used as a curse word in these circles when trying to build banks. Is that it’s not actually a curse word, it’s just a thing. It’s just a thing, and it has a set of pros and cons.

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Nate: For the vast majority of people, the cons greatly outweigh the pros of doing a MEC, but what is the pro of a MEC? Essentially, if you were going to design a perfect banking system like what we think we’ve done with dividend-paying whole life policies, designed the way we’re doing it. We’ve already brought up that you would want as much cash value as you possibly can get per dollar of premium. If you know anything about how these policies are designed, we understand that the death benefit of the policy and the cash value of the policy, oftentimes work contrary to each other. Where if you weigh one side of the equation, you normally get a reduction in the other side.

So what that means is if you wanted to get a big death benefit, if you want to buy a pulse with a large death benefit, let’s say you want to pass on a very large estate or you’re really concerned of taking care of your family if you die. Or your main concern is death benefit, and you build the policy accordingly, then that means that for every dollar of premium, you have a high death benefit, but your cash value will not be as efficient. As the reverse design could be, you come in and saying, I actually want cash value, and I want as much cash value as I possibly can. But in order to do that, you have to build a policy that, for the premium you’re putting in, the death benefit is relatively small or the cash value is as large as you can get it. So that’s what we’re dealing with.

Obviously, for infinite banking, for the people who work with Living Wealth and follow us, everybody’s on the cash value side. You don’t even have to tell us. Some clients I’ll talk to, they’ll say, I want to start a policy, I want to do this, and I really don’t care much about the death benefit. I really want to make sure it’s focused on cash value. I’m like, “That goes without saying when you’re practicing the infinite banking concept, that every policy design is going to maximize cash value and minimize death benefit.”

The reason why I’m bringing all of this up is to say a MEC will technically do that better than anything else. Because by definition, a MEC can be the lowest death benefit you possibly can and the maximum amount of cash value, especially in the short term. So the main pro of a MEC kind of comes in that form, in lieu of getting a huge set of tax advantages and having to fall prey to taxable distributions on all gains anytime you want to access. You get a policy with the very lowest death benefit as possible and the highest amount of cash value per dollar of premium, especially early on. It never outweighs the tax consequences in 99% of the people we would work with. The cons of paying tax on every dollar of gain every time you use it, always outweighs the lower death benefit, and in return, slightly higher cash values.

We want to avoid the MEC as much as possible. So the way you would build a normal policy for infinite banking, let’s say someone wants to put in a $100,000 of premium a year into a policy. What you would do is design that policy to where the death benefit is as low as you can get it and still allows for a $100,000 of premium. That’s what you would want it to do. So you’re getting the least amount of death benefit and the highest amount of cash value per dollar premium that you’re paying. And there’s a lot of different ways to do that. I’m not going to dive in too much into that. There are times though where a MEC can actually make sense. And that’s why I feel like it’s trampled down and pushed down so far, that there are occasionally times where a MEC will make sense to own. And I can think of two primary situations.

One of the situations, practically nobody listening to this podcast is going to care about. So I’m going to fly through that one. The second one though, I think every one of us will end up caring about or know people who would care about it. So the first situation where a MEC can actually make sense is if you happen to be affiliated with a nonprofit organization. So if you are a nonprofit, let’s say you are a pastor of a church, or really you raise money for a nonprofit organization that you love, or you lead one, or you’re on the board, or you work for one, just thought I’d let you know for that very small subset that’s listening to this podcast. A nonprofit can own policies on important people. Whether it’s donors, whether it’s board members, whether it’s executives in the nonprofit, whether it’s a pastor.

And so a nonprofit can, if they have capital, which we’ve had different churches and different nonprofits as clients of ours. Where they’ll have a lump sum of money, and they can actually own a MEC without experiencing tax consequences, because they’re a nonprofit. Which means they’re a tax-free entity, they don’t pay tax themselves. So they have $500,000 sitting in the bank waiting for a rainy day as a kind of a reserve fund for their operations. They could write a $500,000 check into a single premium modified endowment contract, and have all of the money practically hit cash value, operate with it, knowing that it’s technically a taxable policy, but once again, they’re a nonprofit, so that won’t apply to them.

I don’t know if that information’s going to be useful to you listeners too much, but you may attend a church, you may want to pitch them IBC, talk to the pastor or something like that, and it could wind its way down to it like, okay, yeah, for the church who can own a MEC without any consequences, it’d be great. But the second grouping is the one I actually want to spend some time on. The older you get, the more beneficial a modified endowment contract may become. There’s a few reasons for that. So if you start getting into your mid to late 70s, let’s say, the reason why a modified endowment contract or a single premium style policy may make sense is, there’s a few reasons for it, which we found in the past.

Number one, the amount of life left to live is obviously, you’re at the tail end of life, not to be morbid or anything of that sort. But we’re at the tail end of life as we’re in our mid to late 70s. Which means, under a normal circumstance it takes four, five, six, seven, eight, nine, 10 years depending on how the policy’s designed, and depending on how it can be designed, before a policy would even break even per se, as far as premiums paid in, to cash value that can be pulled out when you’re building it to avoid the MEC rules. And obviously the later you get in life, the less time you have to wait for the gains of the policy to make sense. And then there’s not actually a lot of time after that to live, in which case you would experience the tax-free gains inside of the policy.

And so what we find is a lot of people in that stage of life may have liquid money, just savings accounts or brokerage accounts, or various things, maybe they’ve sold a business. So they’re sitting on this money and they don’t really know what to do with it. To them, it very well could make sense to pursue a modified endowment contract, because the tax cons may actually at that time not outweigh the simplicity pro of a MEC, just having a one-time contribution, as well as the immediate availability of capital pro that you can gain instantaneously. So let me back up one more point I forgot to mention. That in order to pass the MEC test, you would oftentimes have to design your policy where you are going to fund it for a few years, you really can’t do what’s called the single premium policy.

If you are 50 years old, and you came to me with a $1 million after selling a piece of property or something like that, we oftentimes would move that money into a policy over a few years, maybe $350,000 over three years. Or 250,000 over four years. We would move it in over a period of time, because we really can’t get away with just doing a single premium for 1 million and have it not be classified as a MEC. And for a 50-year-old who might have 40 years left of life, the amount of gains in that policy is going to be astronomical. That would be a foolish decision. There is no way that the pro of being able to add it in all at once quickly is going to exceed the cons of the tax consequences of the MEC. There’s just no way it’s going to happen.

But if you are 75, 77, 78, then it can start to make sense where you could just take, let’s say as I was bringing up the person with $500,000. They can just write one check into a single premium policy, and immediately keep access to the vast majority of it. It would actually come with a death benefit. Let’s say maybe you write a check for 500, and you get insured right away for 800,000 a death benefit, something like that. So that would be maybe a 1 million, it kind of depends on age. And immediately the policy would be growing in a tax-deferred manner, and you would only pay taxes on the capital that’s accumulating if you were to use it. So what we find is that the older you get, the more it may make sense to own a MEC, because the timeframe for the compound interest to accrue in any asset, of course, policies included, has shrunk down the older you get.

So let’s say that if they lived for 10 years, the policy would’ve grown from 500 to $700,000 or something like that. That’s great. The 200,000 may have been taxable over that 10 years if they’d accessed it. But what I’m saying is the tax consequences may not actually outweigh the pros of being able to get it all in, have it all available in liquid cash, and be able to break even much sooner according to single premium policy. So number one, the policy itself is going to simplify things for that individual. They don’t have a huge time horizon for compound interest to occur no matter what they do, but you want to get as much of it as possible in the time you have left, which a MEC can obviously do that better than any other type of policy per se. And the con of having a taxable situation may not be as much of an issue at that time.

The other thing to note is that you’ll meet with a lot of people who they’re actually hoping at that age, they’re actually hoping that they never would even need to touch the money, that’s their hope. So it’s not that we would discourage you from practicing IBC in your upper 70s into the 80s, but I’m just saying that people we’ve talked to, they’re like, yeah, I would like to put money in here to keep it safe and accessible anytime I need it. But deep down, I kind of hope I don’t have to. If I have to start touching that, that would mean that I’m starting to dip into savings I was hoping not to touch. So you run into those people as well. Some of that may be your parents. For those of you listening to the show, where you have parents who are sitting on a lot of money, a lot of capital, they want to keep it safe.

They want to keep it growing competitively. They want to leave as much as possible to their next generation, and they’re not really even thinking they may need to use the money, but they’re kind of at a loss for where to put it. Once again, a MEC can start to fit the bill in their age, possibly even better than a typical policy that’s non-tax. For all of this to say, a MEC is what we all have to deal with it. 99% of the people we talk to, it would not make sense, it would be foolish to try to create a MEC. We don’t ever create MECs by default, unless you are a part of the population who would come talk to us. In which case, we may recommend a MEC. I don’t think it should be a curse word, it shouldn’t be something so to be avoided at all costs, under all circumstances, at all ages. I think that would be kind of foolish. It is actually a viable tool to fit certain specific people.

There’s a lot of benefits to it. Pretty much in every circumstance, the cons will outweigh it, unless you start to get upper in ages with a large pool of capital, you want to keep safe, secure, growing in a very competitive manner, and accessible at all times, a MEC will fit that bill. And it still produces far better results than any other sort of safe money you can get it. As far as on the you and me level, a MEC by its nature, is essentially a formula that’s been developed by the IRS that’s going to determine how much death benefit a policy needs to have in order to contribute whatever you want to contribute. So let’s say like a $10,000 premium if you wanted to start, would need to have, let’s say a $100,000 of death benefit.

Comparatively speaking, if you wanted to put a $100,000 of premium in, you would maybe per se need a $1 million of death benefit. In other words, the death benefit has to be at a sufficient level in order for the policy itself to be called life insurance by the IRS. That would mean that there’s some repercussions of that. The single premium policy of old can no longer be done by itself. It oftentimes would need to be split up over a few years, to dump in large contributions like that over time, without creating a MEC, is essentially how that would go for the vast majority of us.

I have gone even longer than I had wanted to go on this topic, so I’m going to have to shut it down. I may revisit it later. If anyone here has questions on a MEC, or possibly maybe you’re thinking of your parents or maybe you’re thinking of your church, or you’re thinking of some sort of other nonprofit organization that you would like to chat about this, or you think that’s a cool idea, just go ahead and ask me questions. Anybody here can email me, [email protected]. I’d be happy to answer your questions on this, or for the people you’re thinking about. Are you just interested in learning more about how MEC applies to the infinite banking concept and to the policy design? I’d be happy to chat about that with you as well. But it’s been fun. I hope it was beneficial to you. I’m sure we’ll talk about it again, but this was at least a good intro discussion to what a MEC is, and which circumstances it would make sense to own one. This has been Dollars and Nonsense. If you follow the herd, you will be slaughtered.

Announcer: With that, we wrap up episode number 159 of Dollars and Nonsense. Get show notes, transcripts, and other resources by going to livingwealth.com/e159. 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.