E165: Beware of the Critics Online on Infinite Banking that can Mislead You

In this episode, Nate discusses the most common critiques of Infinite Banking that you can find online to determine which critiques are fair and which are misleading.

Topics Discussed:

  • Why there’s no such thing as a financial strategy that cannot be critiqued
  • The reality of Financial Life – Why every strategy comes with sets of pros and cons
  • Determine whether or not you should do Infinite Banking
  • Why every financial strategy is compelling or unnecessary depending on situational realities
  • When you can practice Infinite Banking to be better off in objective terms

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Podcast transcript for episode 165: Critics Online on Infinite Banking

Nate: In this episode, I discussed the most common critiques of infinite banking that you can find online to figure out which critiques are fair and which critiques are misleading. This is dollars and nonsense. If you follow the herd, you will be slaughtered.

All right, everybody, welcome back to the show. Man, we’re so pleased to have you. I’m excited for this topic. We’re going to dive into this. I don’t know how long this is going to take, maybe even ends up as a two-part episode, but we are going to discuss today some of the most common critiques of IBC, which by the way, before I dive in, I know that there are a lot of listeners of this show, dedicated listeners who love this show, who listen to it every week, and we’re so thankful for you. But I also realize that many of you haven’t yet even haven’t given us a rating or a review, wherever you consume the podcast. I’m just merely here to say, just to ask, if you wouldn’t mind taking a few seconds out of your day to rate or review this show, it would mean the world to us.

And it is the most important thing for getting the word of this podcast out there. So if you appreciate it, we would appreciate from the bottom of our hearts, a rating or review of the show. But we’re going to dive into the critiques of IBC. And so, there’s actually a lot of legwork, I’m going to have to get out of the way as we get started. And so, I’m going to spend a lot of time before we even get to the critiques, kind of describing what to expect in this type of a podcast. It probably doesn’t come as a shock to most of you that if you looked online, you would see some people who adore IBC and love it. I would be one of them who have dedicated their life to preaching it and promoting it, and I have a list of hundreds, if not thousands of clients of my own, let alone of Ray and Holly and the rest of us at Living Wealth, and IBC practitioners across the world of people who are doing this, who love it.

And so, there’s obviously this group of people who adore IBC, and there’s also a group of people who are critical of IBC, who have written posts that put it in a bad light. And my biggest concern, and the reason why to do this episode is because I know that there are some people who go and they’ll read an article, or they’ll watch a Dave Ramsey YouTube video, or they’ll do something where someone is critical of IBC, and they’re making arguments against the quality of it. And these people will look at what they have to say, and they’ll assume that the critics are correct, and the devotees of IBC are incorrect about the quality of living your life as an infinite banker. And so, they will push aside the entire concept. And what I have found, by the way, is that the majority of people who will go read a critic, or will watch a critic video who then decide, “Yep, this is not for me.”

They were already individuals who were not going to be interested in pursuing IBC to begin with. I believe that is a fair thing to say. And the reason I believe it’s fair is because there is no such thing as an objective financial strategy. There is no such thing as a perfect financial strategy. There is no such thing as a financial strategy that cannot be critiqued. This is the reality of financial life. There is no such thing as one is better than the other in every situation. So, since there is no such thing as a perfect objective financial strategy, that means that every financial strategy can be critiqued. It also means that every strategy comes with sets of pros and cons. So, I’m always incredibly surprised when somebody will listen to a critique of IBC, or will read an article that is criticizing it saying, “It’s not really that great.”

And they’ll just assume that that’s right and it must not be that great. I’m thinking, “Well, you do realize that there are legitimate critiques of every financial strategy?” There are critiques across the board, in every single thing that you do, and there’s also lovers of various things as well. So in the world where there is no such thing as an objective financial strategy, every strategy comes with its own sets of pros and cons, then everything can be critiqued. And so, what I wanted to do was answer the critiques, because the truth is though, there are some fair critiques of IBC. There are also unfair critiques of IBC. And so, I wanted to go through this, because there’s so many items out there that are just simply not true, and it’s easy to criticize ideas, but just because critiques exist doesn’t mean that the idea itself shouldn’t be adhered to.

I hope everyone understands this. Just because there are valid critiques of something doesn’t mean you shouldn’t follow through with it. So, the next thing I wanted to say is actually the end goal of this, what I believe are fair critiques, are critiques that will help you come to a decision on whether you should follow this idea, whatever it is. And so, we’re going to talk about IBC today. So, a real critique is something that will legitimately help you go through the weeds to determine whether or not you should do IBC, or whether you should do anything, right? But we’re talking about IBC, so that is a real critique. Here’s the issue, though. What I find in the world of IBC critiques is that so many of them are talking points. So many of them, they state, many of them are not fair, not accurate, not real, or they actually may sound like a critique, but they don’t.

But I’m not calling it a fair one, because it doesn’t actually help you decide whether you should practice IBC or not. So a lot of times, I think the whole goal of criticizing IBC by those critics is to say, “Because of these things you should decide not to do this.” I think we all can agree that if someone’s going to write an article criticizing something, oftentimes, not every time. Oftentimes it’s because these are the reasons they’re going to present why someone should not do it. Which means that to be a fair critique of something, that your arguments have to actually present something that allows people to make decisions, yay or nay. And that’s the biggest problem with a lot of the critiques is they don’t do a very good job with that. So once again, I’m not a very biased person.

Of course, everyone here knows I’m probably going to be biased towards IBC, but I’m here saying if you’re going to critique it, at least give some valid critiques that would help somebody decide whether they should follow it. Don’t just say random talking points about whole life insurance, or something of that sort in order to, if you’re actually trying to help people see whether they should do it or not. And honestly, a critique would most of the time say, “After looking into it doesn’t sound very good because X, X and X.” Well okay then. X, X and X better be legitimate things that would cause someone to not want to do it. So that’s kind of the background of this. I would also let you know that a lot of IBC practitioners like myself do this, that I could critique the financial strategies that they promote, just as easily as they can critique the financial strategy that I promote.

This is just the reality. As I’ve already said, there’s nothing objective. So like Dave Ramsey who has a critical radio showpiece on IBC, which is just filled with nonsense, which I’m not even going to get into today, by the way. That’s another thing, most of the critiques of IBC, they do. The critical people, they do themselves a disservice by trying to discuss the details of let’s say whole life insurance, dividend paying, whole life insurance, mutual life insurance companies, policy loan provisions. They get into these details and they make themselves look like fools or ignorant, which I am actually going to bypass. I’m not even going to because once again, it would be a talking point argument. So they go into all these things, where in their critique, with just simply false things, but not that they’re trying to lie, I’m just merely saying that they’ll say things, well it’s not true, it’s actually not how it works.

But they obviously just looked up on YouTube or Google and tried to surmise what we’re trying to say. They’re not life insurance professionals. They actually don’t know everything that they’re trying to talk about. So they say things that are dumb, they say things that aren’t true about policies, or the concept itself, and it would be easy for me to then just get mad at them for doing that. But that would be a disservice to you the listener, because what am I trying to do? I am trying to help reveal to you whether or not you should do this or not. And so, I’m only going to focus on the critiques, not the nonsense, or the things that they say that are not true. So, I’m actually going to do them as service that they would not offer to me. But that’s beside the point. So as I was mentioning, I could critique their points of view in the same way they can critique mine.

So, like Dave Ramsey offers a financial solution for the world where he promotes certain things, and I think almost everyone listening to the show would understand that much of his financial solutions are critiquable. Honestly, they’re even more critiquable than mine. The reality is, because they actually tell you to do things that are purely unwise. They don’t make sense to do. It is objectively true that you should not get a 15-year mortgage and attempt to even pay that off sooner. Objectively true. Objectively there’s no argument. But what he’s saying financially, numerically speaking to go get a 2.75% mortgage and throw as much money as possible at it, for as long as possible. He was promoting that back in the low rate environment and he was saying you should pay off your mortgage before you do any sort of investing.

That is a dumb thing to say. That is not financially sound advice, that’s not true. It doesn’t make sense to pay down 2.75% deductible debt on a 15-year mortgage instead of going investing in the 12% mutual funds that he also promotes. So, I’m just merely saying we can sit here and critique each other all day long, but the reality is a lot of people love paying, emotionally paying off their debt. It’s part of his system. If you follow his system, you’ll probably end up okay. Oh, you really will. You’ll save a lot of money, you’ll be very frugal, you’ll have no debt, you’ll have your mortgage paid off, that’s all fine. I’m just merely saying we can… So just because I can critique some of his advice to you does not mean that you should disregard Dave Ramsey, say he’s an idiot, never listen to anything he says.

Unfortunately, I hope you guys can see that’s what they are attempting to do in reverse. Most of the critical, they’re essentially saying, “You should not do IBC because I can offer critiques.” Once again, that’s not a fair way to look at it, because the door has to open both ways. So here to sum it up, they tried to paint IBC as bad, as a pursuit that’s not that good objectively. That it’s really just either a scam which is just ridiculous, or it’s not a very good tool objectively speaking, which is also ridiculous. Here’s the reality. If you get nothing from this episode, then what I’m about to say here, this is the key, this is the whole episode. IBC is compelling or unnecessary based on situational realities. Let me say this again, IBC is compelling or unnecessary based on situational realities for each person.

There is no such thing as an objectively perfect financial strategy in the world, because an objectively perfect financial strategy is un-critiquable with zero cons. That does not exist. And the reason it does not exist is because everything financially is compared to what could have been done. And since nobody has a crystal ball, but that’s another thing, financial strategies are always forward looking. So the success of a financial strategy would be seen later on, obviously. And since nobody has a crystal ball, nobody can really offer an objective strategy. All they can say is, “Here’s the pros and here’s the cons of my strategy. Would you like to do it or not?” That’s what we all have to offer. So, every financial strategy is compelling or unnecessary depending on situational realities. It’s obvious the guy who’s making a $100,000 a year of income may not situationally be able to implement the same strategies that a CEO making $10 million is going to be able to implement.

So, the strategy you end up adopting needs to be situationally appropriate for you. So I’m here to say fundamentally every strategy, but especially IBC is compelling to someone or unnecessary depending on situational reality, the reality of where they find themselves at the time. I would also say, and this is as I’ve tried to say before in a couple webinars ago, I think it was maybe or a couple podcasts, maybe episode 160, I want to say we did the four stages of IBC commitment. I actually believe it’s fairly easy to prove that IBC, infinite banking, that you can practice infinite banking at some level and be better off than you hadn’t in objective terms. And we talked about that in that podcast, by the way, episode 160, you should go look at it. We even dived into more detail in a webinar I did after the podcast, which you can view on our website, livingwealth.com.

You can go to the webinar tab, the wealth creation resources tab and download the webinar. I strongly recommend you do that. I think it’s a foundational truth. I think it’s one of the biggest breakthroughs in IBC education that I’ve seen in a while. It just happens to be, I came up with it, I would’ve said the same thing if someone else came up with it. I think it’s amazing. But beside the point, what I’m trying to say is, based on situational realities, you will be more compelled or less compelled to practice IBC. Let me give you a hint, moving forward with that. The people who are most compelled to do IBC are the people that you find are entrepreneurs, business owners and investors especially. And those three types oftentimes have a lot of cash flow flowing around and all over the place. And since IBC is a banking solution, it is easy for them to see how they can manage their cash flow through policies to receive the ultimate benefit that IBC is proposing.

So, it becomes very compelling to them, based on their situational reality. You could also run into someone who is just working a day-to-day nine to five, W2 style person who doesn’t have a lot of cash flow moving around who may be less compelled, who may come to see that maybe IBC is not that necessary for me. Now of course, I would say that we have a whole bunch of people in that shoe who are practicing IBC to awesome levels, and there would be of course reasons why they would. But what I’m saying is I hope you can see that there’s not a yes or no, it is not a black and white decision, IBC is good or bad the way that I think like a Dave Ramsey personality, or maybe a guy like the White Coat Investor, like a financial blogger like him or some of the others that are maybe critical of it, they kind of try to help you make a decision by painting it in black and white terms, good or bad.

And it’s obviously not bad. No strategy is like that. So I think they do themselves, by the way, a disservice, I hope you’re listening to this. Anyone who tries to paint a strategy as black or white, good or bad is doing a disservice for the world, because it makes them seem like a fool. Because if you can’t see pros and cons, then your biases are going to go out the window. So, IBC is going to be compelling or unnecessary based on situational realities, and there is a spectrum that’s going to exist. It’s going to be more compelling for some people, and less compelling for others. It’s going to be more necessary for some people and less necessary for others, just like every other financial strategy. I would say, and I don’t even think it’s very biased to say that IBC for the most part actually can produce value at some stage of commitment, which goes back to the four stages of commitment podcast and webinar that we did, once again strongly recommend.

But in that world, I think almost everyone can benefit from IBC. Almost everyone, because I believe it is essentially an objectively better banking solution for everybody. The question is how much cash flow do you want to devote to it and so forth? That is where you’re getting into subjective realms of IBC, that are more based on desire. So it’s more compelling or unnecessary, but there is some objectivity to every strategy, there’s some subjectivity to every strategy depending on how heavily you want to promote it. So all that to say, critiques should help you come to a decision. The decision should be based on situational realities. IBC is more compelling to some and less compelling to others based on situational realities. As I’m going to dive into the critiques right now, so I know we’ve already gone 20 minutes, but I’m going to dive into them right now.

But right before I do, I want you to understand too, that if you feel critical of IBC already, if someone comes in with a preexisting bias against following IBC, it is of course unlikely that this, why would I even want to talk to you, by the way? That sounded more mean than I wanted to do. That’s not actually what I meant to say. I meant to say I don’t really feel any pressure to try to convince you, and I mean that in a nice way. I’m just merely saying, I’m sure you’re going to be fine doing whatever it is you are doing. But as we like to say, I want the people who would find IBC compelling, I want them to come. Whose life would really enjoy philosophically and practically, the concept of infinite banking. Those people who really would enjoy it, and would feel compelled to it. That’s, of course who we want to come do it with us.

Just like everybody in the financial world that you don’t want to try to come to someone who loves investing in commercial real estate and try to convince him to stop putting money in commercial real estate, so that he can go invest in your brokerage account. Maybe, I mean he would be like, “Well why I’m doing just fine developing commercial real estate,” or maybe he’s, “I’ve already gotten a little bit in the stock market, I don’t really care for it.” And why would you try to convince him otherwise? I just don’t. But you could pitch why it might be helpful to him on a podcast show like this and if he’s compelled to reach out to you, he will. So that’s of course how we run our business. We want to attract the people who would be compelled by the message of IBC, and we’re not really in the business of people who have preexisting biases against it, or who wouldn’t really like it, to avoid it.

Just like we did recently a podcast talking about how IBC requires a paradigm shift which to operate in a paradigm shift, you have to do research, you have to have an open mind. Now I’m not saying that everyone who doesn’t do IBC doesn’t have an open mind or didn’t do research, that’s not true. I’m just merely saying that’s what will be required. I’m not here to try to say that just because that a lot of the critiques aren’t fair means you should do what I’m doing, and I’m trying to convince you to do it. I’m really not. What I am trying to do is help people who may be on the fence who are concerned that IBC sounds too good to be true, and they got these critics out there, so obviously some people don’t like it. I’m really talking, I guess to those people for the most part to say that honestly, I hope you don’t make a decision based on some sort of critique in a blog post or video.

So, we are 20 minutes in. Let’s dive into the critiques. I’ve spent a lot of time to discuss this understanding that I’m going to offer this podcast show in a way that says, I think that a critique is only fair, is only a real critique if it legitimately helps you make a decision on whether IBC is objectively good or objectively bad. Because the problem that critiquers do, is they try to paint an objective picture of IBC, good or bad. That’s a bad idea. That’s a very bad idea, because it can’t be done. So, your critiques won’t be fair doing it that way. So the reality is it’s going to be based on situational realities. I’m going to describe why most people should just bypass most of the critiques, because they don’t actually help you decide in your situational reality if it’s good or bad for the most part.

And then I will also give light to what I believe is the fair critiques, fair situational realities where IBC may be unnecessary. I’ve never done this before. Let’s dive in. So, I’m going to talk about a few false critiques that are very prevalent in the circles, and there’s some that will be like it and some, I’m sure you can find additional ones, but these are the ones that will crop up most of the time. There’s one critique that that’s very common, which is, “Whole life insurance is bad, IBC uses whole life insurance, thus IBC must be bad.” So, we’ll talk about that one. We’ll talk about the characteristics of that critique. The other critique is oftentimes found in the loan provision side, they’ll try to critique, or offer some sort of details about borrowing money from the policy, and paying interest to the insurance company and how that will result in a bad situation for you.

This is a common critique. And lastly, the very most common, and what most of them boiled down to is that the rate of return of a life insurance policy is not as high as I could potentially get in other types of investments. So, I’m just going to choose to avoid the policy and put money directly into an investment. So, these are the most common critiques. These are what that all boils down to in reality, this is what it boils down to in reality. These are the main critiques, and there’s some little ones inside of each one that I’m going to dive into. On top of that, understanding too that every other critique that they make, besides these is oftentimes a talking point, and what a talking point is, is it’s something that sounds good. It’s a very political type of solid thing to do where it sounds good.

It’s like saying, “The rich don’t pay their fair share.” It’s a talking point. There’s no actually argument based on it. So in other words you could, it might actually be true, by the way that the rich don’t pay their fair share. It might be true, but the talking point means nothing. The talking point is worthless because it has to be backed up by reality. So you have to then go out and in your argument you have to say, “X, X and X of Y, the rich don’t pay their fair share in taxes,” and how they’re cheating and how to decide then who you should vote for to make sure the rich pay their fair share. And then, for it to be an objectively true argument, there would have to be no valid critique against doing it. There would be what would be the reverse effects of increasing taxes and closing loophole loopholes on rich people? What would be the economic impacts of that?

That is what all has to be done for a legitimate critique to take place. Otherwise, it is a talking point. So we don’t even know what you’re trying to say, and that’s the problem with some critiques, as they’re actually talking points. Let’s go ahead and dive in by the way. The first critique is going to be, “Whole life insurance is bad, IBC uses whole life insurance, thus IBC must be bad.” Once again, this is not truly a critique of IBC. This is not truly a critique of IBC, because in this situation they have to pull from other critiques to try to make this one. They have to pull from other types of criticisms to make this. It also doesn’t really help you come to a decision, which is why I say it’s not fair.

Whole life insurance is bad? That is a statement rife with assumptions. So whenever you say, whenever you’re starting your argument with, “Whole life insurance is bad.” They don’t do, I’ve never seen anyone do a good enough job at describing it. Many times they will bring in a few others that we’re going to talk about. So this is the common critique. Many times it’s filled with talking points in this one, especially by someone like Dave Ramsey, but even like the White Coat Investor or these various other individuals, they will bring up critiques against it. And so some of the reasons first off, as I said, the critique is not fair. You could, because it doesn’t actually help you make a decision. How could that statement help anybody? They have to then pull from other types of critiques, more legitimate ones to make this statement. So one of them would be that whole life insurance is bad because it takes too long.

It takes too long to accumulate cash value. It takes too long, you’re behind in the beginning, it takes too long. So they would say you don’t break even fast enough. So, IBC must be a bad financial strategy because you don’t break even fast enough. I hope everyone can see though, that this is not exactly a real critique that could be used for you to make an objective decision on whether IBC is good or not. This can be a fair critique, but most of the time it is not. And so, the reality is, the breakeven point of any investment does not present an objective yes or no. It can offer a situational yes or no. Inside of this, I think there’s some sort of infatuation by the way, especially even in the IBC circle of when the breakeven point is, as if it matters.

And this is where people might say I’m biased, but I’m really not. What I’m trying to bring up, by the way is that every financial strategy, the whole goal of every financial strategy is to accumulate wealth. To produce wealth over a longtime horizon. That is obviously the goal. Sustainable long-term wealth is the goal for every situation. Now, there are some investments that offer great short-term results, but the reality is you choose those in light of the fact that the good short-term results will help catapult you to producing good long-term results. Like in other words, this is an obvious reality that it goes without stating, that it doesn’t matter how good you’re doing for the next five years. If you have to file bankruptcy in year seven, it doesn’t matter. So, the long-term sustainable wealth trajectory is what financial strategies are all about.

They’re trying to create a long-term wealth trajectory for you. So, to say that the breakeven point is a reason that someone shouldn’t do it, it’s just folly. It doesn’t make any sense. It’s not a legitimate reason to do or not to do. However, you can be in a situational reality, in which case that would be unnecessary. That would be not compelling. I hope you can see that would not be compelling. So, there are reasons why when you open up a policy and you pay a premium, and not every dollar of the premium goes directly to cash value in the first year or two for sure, which is obvious. And by the way, a lot of times in these types of critiques, they’re trying to imply that this is unknown. Like this is trying to be covered up by the agents, maybe some, but why would you decide whether a strategy is good or bad based on unscrupulous, deceptive salesman in that industry?

That’s just not a real reason to avoid it. Obviously, every single IBC practitioner worth anything. Every example they show and describe, and every single time they meet with a client is pretty obvious what to expect. Expectations are met. So, I’m not sure exactly what the critique is, but obviously in this critique they’re saying it takes too long. It takes five, six, seven, eight years to break even depending on the policy in the company. And so, a lot of times they’ll say things like, “It takes too long.” Inside of this same example. So you’ll hear the breaking point. It takes too long to break even for whatever reason. I don’t see how that helps make a decision, because the whole goal is sustainable long-term wealth for everybody. As I said, it doesn’t matter if you broke even. A bank account breaks even the day you put money in. That doesn’t mean it’s a good situation, and investments that are locked up and you don’t get your money back for five, seven, eight years, whether it’s maybe a commercial real estate development project or something of that sort.

Or I have clients who’ve invested with startups, and they’re hoping to get bought out and it’s way down the road. Just because it takes a while to get your money back also doesn’t mean it’s bad. It’s not an objective reality, it’s a situational reality. So, there obviously could be situations in which case the breaking point might be helpful to understand. So, it is a characteristic of the system. It is not an objective good or bad thing, and I like to liken it to anything else in life. So I just bought an Airbnb this year, my first endeavor into the short-term rental marketplace. And I was buying this property, we kind of fixed it up, got it ready, invested some money into it, and then we were going to put it, our initial plan was possibly to flip it, but then we decided I actually wanted to keep it as an Airbnb, and I had to compare whether I should do the Airbnb route or whether I should do a long-term rental.

And what I’m saying is the Airbnb route costs more, by the way. So I forgot to mention one thing, I don’t have to interrupt my story. That in that breakeven style, there’s another huge characteristic in this, “Whole life is bad. So IBC uses whole life, it must be bad,” situation where they’ll say it costs too much, life insurance costs too much. The cost problem. And what I’m saying, once again is not a legitimate reality. A solution is good if the benefits outweigh the cost. The cost is irrelevant, unless the cost is greater than the benefits which everyone would look at. IBC, understand the benefits outweigh the costs. You’re going to end up making more money than you put in. And so, the only reason why the cost would impact you is in a situational reality, not based on some sort of objectivity.

But that’s beside the point. So, the cost is too much. You’ve heard this, the cost must be taken into consideration. The breaking even point must be taken into consideration, but it’s not an objective truth. And I was bringing up the Airbnb thing to essentially realize if I was to invest, or turn that into just a long-term rental, I would not have had to spend all the money to furnish it and get it ready for a short-term rental transaction, which it cost us maybe $20, $25,000 to full. We furnished it very nice, we wanted to make money on this. It’s a business decision. So, we had to spend $20 to $25,000 more in pure furnishing and decorating the Airbnb property, that we would not have had to spend if we had just done a long-term rental. We expected to be able to make conservatively, our hope which is not guaranteed, would be to make more cash flow every month on average in the short-term rental than we would in a long-term rental.

And also, understanding that our cash flow would be greater than, would be higher than the long-term rental. And also, include things like setting money aside to pay for replacement furnishings and decorations over the long term. And so, we estimated maybe $200 to $300 a month in short term rental increase in cash flow, even setting aside money to replace the 20 to 25 grand that we already put in to furnish everything, we know we’re going to have to replace that as time goes on over time, beds will wear out at some point and so forth. So all that to say, we expect to have $200 or $300 a month. Well if I put $25,000 into this investment and I’m going to receive $3,000 a year in cash flow by being a short term rental, then that’s 250 bucks a month. 250 bucks a month is three grand a year.

So it’s going to take me 25,000 divided by $3,000 a year. It’s going to take me 8.3 years to break even. Man, that sounds like it sucks. I mean obviously, I’m kind of kidding here. The reality is, the breakeven point was irrelevant in the decision. It was irrelevant in the decision. It did not matter to me when I got the money back, because what I could see was that I was going to make an additional $3,000 a year, and it was only going to cost me $20 to $25,000 to do it. Well, if I was going to make an investment of $25,000 and it was going to spit out to me $3,000 a year in a positive cash flow, that is a 12% cash flow, it was not a bad deal to me. I was like, “Okay, I’ll take the 12% cash flow on the 25 grand investment,” and that was the reason.

So the fact that it’s going to take me eight years for me to get back my 25 grand is not exactly, is kind of an irrelevant scenario per se, but just knowing by the way that yeah, you would have to take that into consideration. There’s reasons why you might choose to do long-term rentals over short-term rentals all the time, based on situational realities. One is not objectively better than the other. So, I hope that makes sense. The whole life is bad argument, it’s just kind of awkward. It normally has to do with costs, it normally has to do with breakeven, it has to do with these little things on the side, which once again don’t actually get to the crux of whether or not it is beneficial over a lifetime to handle your banking situation through policies, as opposed to the regular cash flow banking scenario.


That’s what we’re trying to decide. The short term, the first few years, the cost, the break even point, those analyses don’t do a very good job determining whether you should do it or not. The time that it would. So this would be the fair critique. The time that it would cause a potential concern is if you are desperately needing every dollar of capital to do whatever it is you’re trying to do. And so it’s just not a good, you just can’t really get going with IBC. Now in other words, the fact that the policy does not break even in year one, the fact that you need every dollar. Yeah, that that’s obviously a situational reality that would make IBC not compelling, right? That doesn’t mean IBC is bad because of it.

It just means that a situational reality would cause you maybe not to choose to do it. Of course. So remember, the critiques are mostly based on situational realities. That’s how it’s fair or unfair. You have to understand the situation reality of it. The other critique that’s super, super common is that the loan provisions, they start to get into the loan provisions and so they’ll say, a Dave Ramsey will say something like, “Paying interest is always bad. Why would you pay interest to borrow your own money?” Once again, this is a talking point. I hope people see through talking points. Talking points don’t mean anything. The talking point has to be backed up by arguments and they have to be based on reality. So anyone who’s ever said it doesn’t make sense to borrow my own money and pay interest to borrow my own money, that is a talking point. I hope you get over it.

And so, that’s one element of it. I’m going to talk about that. The other element is that they would say, “Well, IBC is only good really if the loan rate on a policy loan is less than the cash value growth rate on the policy loan.” Once again, when has that ever been pitched by any IBC practitioner? When has anyone who’s been practicing IBC for any period of time said IBC is only good because life insurance policy cash value growth rates are greater than loan rates? When has that ever taken place? No one has ever said that. So if you think, if you’re listening to this podcast and you think that that is actually what makes IBC make sense is that the growth, the interest rate of the internal rate of return of life insurance policy is greater than the policy loan, so you can create some sort of automatic arbitrage and that’s why we’re doing it.

By the way, if you’re doing it for that reason, you’re wrong. I’d run for the hills, because there’s a huge misconception you’re believing, and that’s causing you to do it. And I hope that’s not why. On the flip side though, once again that doesn’t actually determine whether it makes sense to provide your banking situation from policies. Because every example we’ve ever done, every example that anyone’s ever done, everyone who’s ever done IBC for any period of time is doing it, not believing, or not because they believe that the internal rate on a policy is greater than the policy loan rate. There must be something else going on. And the issue I knew I was going to run into by the way is we’re already 30, almost 40 minutes in, and I can do a whole podcast on why that’s not reality.

And some of you’re going to say, “Well once again Nate, you’re telling them that they’re saying a talking point and they’re not backing up with argument, and then you’re not allowed and then whenever you say that they’re wrong, you don’t provide an argument.” That’s fair. That’s fair. I mean, I would just say the nugget is, the reality is not whether or not the interest rate on a policy loan is greater or less than interest rate on a policy loan. The reality is, if I practice IBC to do what I’m doing, will it produce more wealth for me than if I don’t? In my situational reality, that’s the decision. And by the way, we have never, no one has ever made the argument that the policy loan rate needs to be lower than the growth rate in order for it to produce more wealth for you over a long period of time.

We never said it, nor are we implying it, by the way. And so if that’s a hangup, you talk to people and you hear that all the time by the way, that that’s what they think is happening, it’s actually not true. And there’s so many reasons why we’ve talked about them all the time. By the way, the value of the loan provision of life insurance policy, I hope everyone understands this, that life insurance is the only place in the financial world with a guaranteed interest-only line of credit for life. I hope people understand that everyone who’s actually mocking loan provisions, or tries to bring up anything that describes the loan provisions as being a reason not to do it has to also understand that a life insurance company is offering something that does not exist in the financial world, except for in life insurance.

I hope people understand that. They’re offering you a contractual right to borrow 100% of the cash value, essentially at any moment in time on an interest only basis for life, with no repayment schedule required. And while the money is outstanding, of course part of this line of credit situation is collateralizing your cash values, which means your cash values are going to continue to compound, and earn interest and dividends on the full balance as opposed to the net amount. So, all we’re trying to bring up is that we actually see the loan provisions as an exciting piece to the policy. And what’s amazing is, you’ll hear people try to criticize the loan provisions. It is true that if insurance companies are charging really, really high loan rates, and their policy are growing by really, really low interest that yeah, this probably won’t really work that well.

That is true, but there’s reasons why that’s not taking place, and that’s based on the entire concept of IBC, of mutual life insurance and so forth. So we don’t really have time to dive into all of that. But all that to be said, it is funny to me that we’ll see the loan provisions as being a reason to practice it. That is really, really cool, that you can have a guaranteed line of credit using collateral that the insurance company’s guaranteeing, and then is offering you eternal line of credit, interest only for life with no repayment schedule, no requalifying period, no qualification at all, simply by request. And that the entire asset itself can continue to grow on the full amount, and you can leverage it and use it like a line of credit. And we believe, that’s a whole concept of IBC, that this is a better way to operate financially than just simply using checking accounts, and there’s reasons for it.

So, all that to say when people bring up the borrowing your own money and paying interest to the insurance company is bad, doesn’t make any sense. I would say I think that they’re misguided. I think they’re misguided. I think that they’re probably incorrect of their understanding of what’s actually happening. And you would always once again have to compare IBC to what else they could do financially, which is likely build up cash in the checking account and then take the cash out of the checking out to purchase something, which we would prove objectively, IBC’s going to be better than that over a long period of time. Objectively, there’s no question. You could also say that they’re not going to build money up in a checking account. Instead, they’re going to build money up in a brokerage account, or some sort of passive long term appreciation based investment and they’re going to pull from that account to do it instead of IBC.

In which case yeah, sure, maybe that would be a better solution for some people. I’m fine to say that it’s a situational reality. The issue is, what I find an issue is that people don’t want to do it that way though, and they’re not doing it right now, and they had no intention to do it. So it’s kind of a false dichotomy. There’s no reason to make that argument. So a lot of times they’ll bring up talking points against borrowing, comparing interest and they’ll try to bring up some weird stuff. I remember reading in the White Coat Investor describing some things that’s got to be a non-direct recognition policy. It’s got to be, which it was just so funny that he was. It goes back to the thing where if they would stay out of the details and make their regular critiques, they’d do themselves a service because in the same article he says that it needs to be non-direct recognition, which is not true.

Nelson Nash used direct recognition of his books, that’s not true. We’ve done podcasts on it before. And then on the flip side in the same article, he says, “You also need to make sure that the company’s offering a wash loan where the dividend rate is tied to the loan rate.” And the reason why this is so funny is because in the same article you’re saying it has to be non-direct recognition, but also offer wash loans. Wash loans are direct recognition loans. It is just funny. Guys, stay out of the details. It makes you look weird. So when people outside the IBC community start to criticize the loan provisions, a lot of times they get kind of weird, and they get kind of shortsighted. It’s fair to critique though, in other words, it is true. You’re borrowing money from the life insurance company, you’re paying interest to the life insurance company, and in exchange you’re getting interrupted compound interest on your policy.

And it is possible for that not to work in your favor. It really is. But there are reasons why it does work in your favor, and historically has. There are reasons, but it is true. It’s a fair critique. It is possible it cannot pan out, it’s possible. We would just say there’s fundamental reasons why we wouldn’t worry about it, and it’s beyond the scope of this episode to do. We’ve talked about the whole life insurance is bad, they’ll bring up things like cost, they’ll bring up agent commission as well, in that they’ll say the agents get paid too much commission to sell whole life insurance policies. Once again, guys, unfortunately it’s not a fair critique on whether you should do it. The amount that someone’s going to get paid to help you implement a solution, it’s actually irrelevant to whether the solution is better than what you’re already doing, by the way.

This kind of goes without saying, and I’m just surprised at how many people fall prey to this, that the idea that the policy itself, that the agent getting paid is getting paid too much of a commission. So that’s why this thing doesn’t make any sense, is kind of an irrelevant argument because it makes sense if it helps you produce wealth better than what you’re currently doing or the other alternative that’s being pitched to you. Once again, that’s what we’re trying to say. It needs to come help you make a decision. Whether the agent’s going to make any money or a whole bunch of money is irrelevant on whether the situation’s going to help you build wealth or not. I remember the same thing goes for everything in life, by the way, like you go buy a $5 million commercial property and the selling and buying agent or probably going to make up to 6% commission, that’s $300,000 to help this transaction clear.

That doesn’t mean that the $300,000 because they’re going to make that, it doesn’t mean that it’s a stupid thing to do, that it doesn’t make sense because the guys are going to get paid a commission. The property is going to be a good property in spite of the commission, because of the profit it’s going to produce for you. The same thing as the policy. It’s kind of an irrelevant argument. It’s either a good deal or a bad deal. And obviously, the commission being included and that’s interesting is that all the life insurance policy examples are always actual cash value inside of a real life insurance policy. That’s what it always is. The commissions are paid by the insurance company. There’s no, “Here’s the policy and you also have to pay commissions.” No, it’s like, “Here’s the policy, here’s the policy, the commissions are irrelevant. Here’s the policy, this is what it looks like, this is how you can use it.”

This is what life would look like as an IBC life. So obviously, commissions can be thrown in there. Once again, it’s kind of a talking point. It’s like I have a hedge fund guy who’s a client of ours. He may be listening to this, I don’t know. He charges a 2% management fee on his hedge fund. And so some people would say, “Well, that’s higher than I could get on an S&P 500 CTF.” In which case you’d be right. However, that doesn’t exactly mean that one piece of information does not mean you should or shouldn’t do something. Obviously, what really would determine whether you should join the hedge fund or not is whether the hedge fund is investing in things that you would prefer to invest in, as opposed to the S&P 500 and which you believe it’s going to produce higher results, as is the case with everything.

So, I hope that’s helpful. The last one, and we’re going to be pushing an hour on this one. The last one is that the rate of return of life insurance policy is not that great, and so it’s likely you could get a better rate of return doing something else. We’ve beat this one down to a pulp. This is the most common, this is essentially, by the way, what every critique is about. All these other critiques just simply point to this. By the way, what everyone is saying. Nelson Nash wrote about in the book, it’s the most common. In fact, it kind of means all the rest doesn’t even really matter because this is actually the only one that really matters, per se. But there are of course reasons why this doesn’t make any sense in a lot of ways.

So, this goes back to though, the idea that IBC is compelling or unnecessary based on situational realities. So, in the vast majority of financial situations, IBC will offer you more wealth by practicing it than by not, because I believe it’s kind of easy to prove, objectively speaking than a policy produces more wealth than practicing banking under the normal circumstances. And so, the reality of the rate of return being bad, the reason why we oftentimes don’t, it’s not exactly a fair discussion is because whenever you’re funding IBC policies, most people are using the capital that is accumulated in the life insurance policy to leverage it out, and to purchase an investment. And then, we would like to show you how by doing that, it will create more wealth than just saving money up in a bank account to purchase the investment.

Which is why you find business owners, entrepreneurs, and active investors very compelled by IBC’s message, because they have a lot of cash flow moving around that they can flow into policies and then re-leverage, then refill and re-leverage. It’s a perfect fit and makes a lot of sense. So, you see them very compelled by it. The people who would be less compelled, and who this critique might be the most fair in some circumstances is if you find somebody who is really just interested in investing money, like they take all of their money every single year. Maybe it’s like a W2 employee, they are just getting paid a salary and they throw it all into retirement programs, all into brokers accounts, all into mutual funds, long term passive appreciation-based investments, and that’s what they’re doing. And then they’re fine to go borrow money from banks and so forth to pay, and they don’t have an emergency fund and they don’t have savings, and they don’t have cash in any way.

And all of it is being put into the market. They would say, “Well, does it make sense for me to divert that cash flow into a policy premium and then borrow it out to go do that?” In which case I would say honestly, it actually could over a long period of time. But once again, you would be low on the compelling scale, right? Of course, you’d be low on the compelling scale. It would be like, “Well it’s not really helping you manage the cash flow.” I would say it’s probably unnecessary for you to practice IBC on your situational reality. The problem is the people that I talk to, or the problem for that is that that critique is only valid for a very small portion of the people, of the population. But yet that is essentially what people are after, that they’re essentially imagining that whole life insurance isn’t as good because it’s offering four to 5% and they could get 10% in a mutual funds.

So they’re saying, “I’d rather stick with the mutual funds, and all my money’s there anyway and it’s always going to be there and it always has been there.” So the only way for me to do IBC is to take money out of the mutual funds to pay a premium. In which case, I really just want to put it back in the mutual funds. In which case, by the way, I would say it actually is possible for it to make sense. It’s kind of an advanced conversation, but I would tell you, “Yeah, it’s probably not very compelling to you.” Maybe unnecessary, but very few people are doing that and very few people believe that that’s the reality they want to live. So, IBC may not be as compelling in that situation. I also know equally though, that there’s a whole bunch of people who are compelled by the rate of return that a policy offers guaranteed, tax-free with no risk to begin with.

So the reality is, there’s an equal number of people on the other flip side who are doing it because of that. Either side though, is kind of not fair because the reality of IBC is, it is a more profitable way to practice banking in your life. A cash flow management moving money, it is more profitable. In other words, if you add IBC to your life at some scale, remember there’s four stages of it. Some people can, the entrepreneurs, the business owners, the active investors, they will lean more towards stage three and four. The average person though, stage one could easily just be the objective stage and make sense. But all that, say at some scale, I would say 90% of the population, it would make sense to IBC. And most of the critiques are in the hypothetical realm that do not actually paint any light to them on whether they should practice it or not.

But all this to be said, I’ve been here for almost an hour. All this to be said, there are some fair critiques of IBC. Every fair critique is one that produces help to you to make a decision. And so because of those critiques, you say, “I am not in this situation that could benefit from what IBC is saying, you can benefit from, based on X, X, X.” Those would be fair. And they do exist. On the flip side, most of the critiques you’ll find are based on false realities or realities where first off, it’s actually hard for me to listen to these shows and news articles with a straight face because there’s just so much that’s unfortunately incorrect. But I don’t want to dwell on that just simply because I actually care about the real critiques. So, I wish they would just kind of stay out of the weeds and just put forth the real critique.

Most often the real critiques, or the critiques that they offer don’t do a very good job describing whether you should do it because they don’t actually describe ever the situation realities of when it makes sense. And some people I’ve tried, I think the White Coat Investor has one that he just described, “Here’s some people that might make sense for.” All of them are just simply, “Here’s who it makes sense to own whole life insurance.” There’s not a single person in there who could actually practice IBC, who he adds in, because he is very biased against it. Of course, he’s made that decision. It’s black and white, and essentially he’s just saying there’s some people who might benefit from a whole life insurance policy, but most people wouldn’t really be that important. It’s probably unnecessary. In which case I would say, you’re not talking about IBC, you’re talking about whole life insurance.

So that’s the last thing I would say, is most people discuss all the things about whole life insurance that they know about, with loan provisions and this and that, but they don’t actually describe how life would look like practicing IBC, and whether or not someone would be interested in it or not. At the bottom line to some all of this up, IBC is compelling or unnecessary on a spectrum based on your situational reality. It is more compelling for people who have a certain philosophy, more so an entrepreneur, a business owner, a Republican and independent focus, anti [inaudible 00:54:25] personality, as well as the people who are conservative with money. They are very compelled to do IBC. So based on situational realities, financial philosophy and desire for money, IBC can be very compelling. It can also, based on the certain situation realities and just based on philosophy.

On the reverse, it can be unnecessary or you can be critical of it, if you are in a situational reality where it wouldn’t make a ton of sense to do. By the way, it almost never doesn’t make sense to do. It just may be more unnecessary, or less compelling based on certain situational realities, and based on certain financial philosophies. So there’s just no reason for someone who is of a different financial philosophy to spend a whole bunch of time with me hoping that I can convince him to do it, him or her. That would be a waste of both of our time. Kind of like it would be kind of a waste of time for me to argue with Dave Ramsey. It’s kind of a waste of time. It’s like, I’m not expecting to convert him. He’s not expecting to convert me. It’s going to be kind of antagonistic. It’s going to be a critical discussion. It’s like a debate forum in that way. Who cares?

People are more compelled or less compelled based on situational realities. There is no such thing as an objective financial strategy with zero cons, only pros. That cannot exist. Anything that comes with a set list of pros and cons must be looked at subjectively, not objectively, which means it can be criticized, and it cannot be a good fit for somebody depending on their situation. I believe IBC is the unicorn of financial strategies in some ways, that almost everyone can do IBC at some level and profit from it, and be better off by doing it. It’s one of the unicorns, one of the few things that that’s like that whether you’re making $10 million a year or whether you’re making $50,000 a year, you can commit at some level and have it be profitable to you and be beneficial.

That’s why I love it. That’s why I preach it. But I’ve spoken to clients before, I said there are certain instances where it is not very compelling, and maybe unnecessary based on certain situational realities. I’ve gotten far too long on this. I hope this has been helpful. I hope you understand that if you’re listening to this, I assume you are being compelled by IBC. For the most part, you’re probably being compelled by it, and I think I would not spend a ton of time looking up the critiques to try to convince yourself not to do it. Because most of those critiques, you probably don’t know enough to understand if they’re actually fair or valid or not. Just like you don’t understand if what we’re saying is perfectly true, it’s why you would want to come talk to someone like me, and understand based on my reality, what would make sense and how would it look.

And at the end of the day, your decision will always essentially be kind of a subjective decision. In other words, IBC is a good financial strategy for almost everybody. There are other, I’m sure good financial strategies. IBC does an amazing job complimenting a whole bunch of other financial strategies in a way that most of them don’t. Most financial strategies are pitched as either, “Invest in my real estate or invest in my brokerage account, either invest in my short-term rentals or my long-term rentals.” I can’t have one property be a short-term rental and a long-term rental. I have to make a decision, either/or. IBC sits in this very unique spot where it is not being pitched that way. IBC sits in a very unique spot where it is saying, you can fund a policy and also use the policy to fund other things.

It is very unique. It is very cool. It is very fun. There are situational realities though, where it would be un-compelling, and there are some valid critiques as there are, there are cons to it, just like there are for anything else. And so you would, subjectively speaking, you can make argument one way or the other based on your situational reality. But it can’t be done objectively, in my opinion. So, I hope this has been good. Understand that IBC is very unique. It’s different. You have to change a paradigm to really understand IBC to its fullest, because it is so different. We’re not used to thinking in this either/or, mentality or we’re so used to thinking in either/or as opposed to IBC, which is essentially saying, “Hey, you can put money in a policy and then leverage that to buy real estate, and then use the real estate cash flow to pay back the policy,” and it will produce more wealth than if you just built cash up, bought the real estate property, had the income come into cash, into a bank account and then did it again.

You’ll make more money. Would you like for me to show you how? That’s what IBC’s trying to teach. You could say, “Well, I don’t fit in the situation, I don’t fit in any of the super compelling situational realities.” So then you have a subjective decision to make. That’s essentially how it works. I am so glad you’re here. Remember, if I am helping you, if this podcast is helping you, there would be nothing that we could appreciate more than if you would rate or review it. “Podcast is great. Love these guys.” Whatever it is, it would mean the world to us. We’d really appreciate it.

It’s the best way that we know of to get this podcast out there and help people. If you’re passionate about IBC like we are, we’d love to have you. Understand that there’s going to be people criticizing this. There’s critics of every financial strategy. There is no objective financial strategy. So, go find one that you love to do, get excited about it, rock and roll with it, and you’ll have a great time. Thanks everybody. Have a great day. This has been Dollars and Nonsense. If you follow the herd, you will be slaughtered.

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