In this enlightening episode, unveil the truth about Infinite Banking as Nate Scott dispels some of the most prevalent myths. Get ready to gain true clarity on this journey as Nate dismantles misconceptions surrounding base premiums, rates of return, policy loans, interest payments, loan interest versus policy returns, and the fate of your cash value upon your passing. Gain a deeper understanding of Infinite Banking and equip yourself with the knowledge to make informed decisions.
Join us in this myth-busting episode as we separate fact from fiction, bringing you closer to the truth about Infinite Banking and empowering you to make informed financial choices. Don’t let myths hold you back from exploring this powerful wealth-building strategy.
Key Takeaways:
- Base Premium Misconception: Learn that the base premium in Infinite Banking policies is not an expense; it actually generates cash value.
- Rates of Return: Discover the potential for good rates of return offered by whole life insurance policies, especially when considering their tax advantages and liquidity.
- Policy Loans and Wealth Generation: Understand that policy loans themselves do not generate wealth; it’s the policy and its cash value that play a crucial role in building your financial prosperity.
- Paying Interest: Realize that paying interest on your policy loans is not a foolish move; it enables you to keep your money invested and earn returns.
- Loan Interest vs. Policy Returns: Learn that the rate of return on your policy does not necessarily have to surpass the loan interest rate for Infinite Banking to be a viable strategy.
- Cash Value Upon Passing: Clarify the misconception that the insurance company keeps your cash value when you pass away; in reality, the cash value contributes to the death benefit, ensuring that your equity benefits your heirs.
Episode Resources:
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LIVING WEALTH PODCAST
DOLLARS AND NONSENSE: EPISODE 221 TRANSCRIPTION
Nate Scott [00:04]:
There’s so much nonsense going on in the infinite banking world. Some of the accusations against infinite banking don’t make any sense. And some of the proponents of infinite banking are saying things that aren’t real either. So in this episode, let’s bust some of the top infinite banking myths so you can have a clear understanding of what IBC is all about. I’m Nate. I make sense out of money. This is “Dollars and Nonsense”. If you follow the herd, you will be slaughtered.
Nate Scott [00:32]:
All right, everybody, welcome back to the show. We’re going to bust some IBC myths today. Some things that maybe some of you believe, or at least these are things that you’ve heard and maybe had questions about. I’ve got six here listed that I’m going to cover today. Six infinite banking myths. And as always, guys, we thank you so much for listening. If you wouldn’t mind taking a moment liking this video, and subscribing to the channel. Leave us a comment if this content is good for you.
Nate Scott [00:00:58]:
By the way, if you would leave a specific comment on this episode describing other things you’ve heard and trying to get our viewpoint on whether it’s real or not, we will reply to those comments. But also, I would like to do a second episode that I kind of pull together all of these other things that people have heard, that our listeners have heard from various places that you’re curious “Is it actually the way it works? Is it not? I’ve heard this guy say this, it sounds wrong to me”.
And so go ahead and leave a comment on the YouTube page with myths or things you think might be a myth, whether it’s good or bad towards IBC, because as I mentioned in the intro, people don’t do IBC for weird reasons. So some of the people who are speaking out against IBC, like the Dave Ramsey’s or whatever it is, who have content against IBC, most of their stuff that they say why you shouldn’t do IBC is not actually real. It’s not based on reality. Maybe IBC’s not best for you. Honestly, there are real reasons why someone wouldn’t want to do IBC based on their own personal situation.
Nate Scott [01:58]:
That does exist. There’s no doubt that exists. However, don’t not do infinite banking because you believe something that’s just not true. Go ahead and make sure you understand the truth and then make a decision. The same thing goes for the proponents. I think a lot of people are getting pulled into the infinite banking world through hype that they hear online and people making it seem too good to be true. And the way they’re describing it is too good to be true because it’s not true. And so they’re making it seem better than it really is.
Nate Scott [02:24]:
Now, everyone who’s listened to my show for a long time knows I love IBC. I believe it is the best thing in the financial world for a huge proportion of the population, and that it creates a space, an environment to achieve things financially that most people would never achieve if they didn’t have infinite banking. So, of course, I’m a huge believer in IBC and I love it, but there is some hype out there that is not true.
So, we’re going to dive into just some of the myths, some of the proponents of it, some of the ones against it. Let’s go ahead and just get started here. One of the myths I hear from youtubers or different people is whenever they get into the nitty gritty of policies. Here’s, by the way, most myths, whether it’s for IBC or against IBC, just really quick. Most myths occur because of oversimplification.
Nate Scott [03:13]:
That’s normally what happens. So I understand that people in the marketing world want to create content that’s very easy to understand for people who are new, so that we can just move on and get them down the pipeline to get a sale done. I mean, that’s what generates business. If people weren’t going to buy policies, then no one would do business.
So, I understand that whether you’re a proponent or an antagonist to infinite banking, most people create issues when they make claims that are oversimplified, that actually result in people not understanding what’s going on. I wish infinite banking could be described simply. A lot of people say that a true expert is able to make very complicated things simple, and I agree with that. But there are some things in the world that if you oversimplify it, then you actually will make mistakes if you get involved with it.
Nate Scott [04:06]:
So infinite banking is a strategy you’re going to implement. You can’t go in believing this oversimplification of something and whether it’s bad or good and make decisions based on that. It’s like a talking point almost at that point. It’s like a talking point. In politics, there’s so much complexity, whether it’s in the economy, whether it’s in the government in general, whether it’s world politics in general, geopolitical issues most politicians try to make, and whether you’re on the right side, whether you lean to left, Republican, Democrat.
Either side is creating oversimplified talking points as to why they’re right and somebody else is wrong. That because it’s so oversimplified, it just actually is nonsense. You hear this all the time, that people make a talking point. And by the way, I am more conservative, of course, probably more libertarian is where I would fall under.
Nate Scott [04:56]:
So understand that. But what I’m saying is we do it too. Everybody is oversimplifying complex issues to get their point across, and if people just believe the talking point, they’ll not understand anything but how the world really works. And that same thing goes with infinite banking. You can oversimplify it. So the first thing is very obviously oversimplified by proponents of infinite banking. So you’ll hear this happen all the time. The first point, that the base premium of infinite banking policies is an expense or is the cost of insurance and the paid up additions writer of the policy is the cash rider.
Myth 1: Base Premium is an Expense
Nate Scott [00:05:30]:
So the base premium is an expense and the PUA is the cash. This is just simply not true. I understand why people are saying this. They’re just trying to bring up a complex, difficult subject and present to the world this idea that hey, we want to put a lot of money into Paid Up Additions rider and we want to have low base premiums because the base premium is the expense. The Paid Up Additions rider produces cash value. Just nonsense though. I mean, it’s just not true. You don’t want to build a policy based on nonsense.
Nate Scott [05:59]:
The idea is the base premium absolutely is not an expense. It does produce cash value. If you bought an all base policy without even doing any Paid Up Additions rider, which is the way you would have had to buy policies for 100 years, all the way up until the when these things like Paid Up Additions rider started to come out.
The idea is that an all base policy is going to produce cash value and it’s going to be profitable. Of course, if you just bought a policy and only did base premium, is it going to produce a similar level of rate of return, is it going to produce a similar type as a base plus PUA policy? Typically not. Typically not. Honestly, though, in times of higher dividend environments, the base premium base only policies produce higher dividends. Once again, that’s a talking point.
Nate Scott [06:46]:
I don’t want to go too far into there, but I remember when I was first getting into the business back in 2012. Dividend rates were higher back then than they are today. And the reason was because dividend rates typically ebb and flow with the interest rate environment to some degree, but always by a lagging indicator. So policy dividends that are being paid are always lagging behind interest rate movements.
So, if you have a steady interest rate environment, then dividends will be steady for the most part. If you have a climbing interest rate environment, then you’ll typically see dividends climbing as well. But it always takes a few years of climbing interest rates in order for the dividends to start to reset and insurance companies start to realize more and more interest in their portfolio and pay higher dividends. The same thing goes when it goes down too.
Nate Scott [07:28]:
So back when I first got in in 2012, the low interest rates were just kind of getting started. In the 1990s and the 2000s, interest rates were much higher than they were in the 2010s all the way through practically last year, right? And so all that to be said, dividends were still very high or higher than they are today. The dividends had not been adjusted down for the new interest rate environments.
The interest companies still had all of their investments earning the higher rates of the 2000 to 2010 type of time frame. And I bring all this up to say you could actually build an all base premium policy with no PUA writer premium whatsoever. And because we were in a bit of a higher dividend rate environment over like 30 or 40 years, over a long period of time, that base only policy would actually end up. And this wasn’t at every company, but some of the companies. It would actually end up with more cash value than if you did.
Nate Scott [08:16]:
Base plus PUA rider. That’s what’s interesting now in the lower interest rate environment is with lower dividends. That started not to be the case, but what I’m trying to say is it’s just so obvious to us that the base premium is not actually an expense, and the p way is cash. Both of them produce cash value. Both of them are very profitable. It is true that the base premium early on is where most of the expense exists, but that all takes place in the first two to three years of a policy. After that point, the base premium is producing cash value, the PUA is producing cash value. Life is good.
Nate Scott [08:44]:
So the reality is, whenever people will say the base premium is the expense and the p way is cash, they’re trying to oversimplify a topic. And then they typically go in and say, you need the tiniest base premium that you could possibly get and the biggest p way you can possibly get, because the base premium is the expense.
Once again, if you start from an oversimplified rationale, you’re going to end up with weird results. You see this with the 1090 folks and everything like that, where they essentially are just trying to create like an assembly line approach. We just build the same exact policy for every single person that comes in. Everyone gets the same exact thing. Base premiums, expense p ways, cash. Let’s build the smallest base, biggest PUAs we possibly can get.
Nate Scott [09:24]:
And it’s a simple way to do it. If you’re just going to do an assembly line, it’s a simple way to do it if you’re not going to uniquely create policies based on people’s scenarios, which is the way we do it. Depending on– sometimes there is a place for those policies, but not all the time. And that’s what I’m saying. If you’re just going to create an assembly line, you have to oversimplify things. You can’t get in with clients like I do and work with them and ask them questions and figure out where they’re at and how long they want to fund it and try to actually build out a policy that really makes sense for them. If you’re just going to the assembly line, everyone gets the same exact design, then you have to simplify things. You have to just say base premium spends PUAs cash.
Nate Scott [10:03]:
That’s why we do it the way we do, without all of the repercussions for a lower base policy. So typically speaking, my personal opinion is that the base premium should not be tiny for every single person. That normally only makes sense for shorter funding time horizons. You don’t always want a low base. Sometimes you want a higher base premium, especially. The longer you want to be able to fund the policy, the more the base premium you want to have. So if you want to be able to fund it especially and add PUA, the ability to add big PUAs for as long as possible, you don’t want a tiny base premium. And then we’re not even bringing up the fact that to have a tiny base, you have to add term insurance.
Nate Scott [10:40]:
All I’m saying is if you start from this myth that the base premium is the expense and the paid up audition writer is the cash value, and you build policies with tiny base and big PUAs, you’re going to open yourself up to a world of consequences that you are not aware of because you bought into– because you heard a guy talk about this myth and he oversimplified it and he means well, but he’s oversimplifying it.
These types of people typically oversimplify it in order to get someone through the line very quickly. So first off, base premium is expense, PUAs is cash is not true. Just a myth, just a myth or a misunderstanding or an oversimplification, which most of these are. Number two is that the policies themselves produce bad rates of return. That whole life insurance is a very poor place to put money, and it produces bad rates of return. This is, of course, a myth put forth by an antagonist.
Myth 2: Policies Produce Poor Rates of Return
Nate Scott [11:26]:
They’re essentially saying that the reason why you should never do infinite banking is because I have heard that whole life insurance policies produce bad rates of return. The reason why this is so first off, a couple things. First off, everybody knows this from listening to my show. Anybody who is in the IBC world should know this. You do not do IBC because of the rate of return of the life insurance policy. You do IBC, infinite banking. You buy these policies in order to achieve things in life, for all the value that is produced by the policies, and then leveraging those policies to achieve things. The entire thing is what you’re doing.
Nate Scott [12:08]:
You’re not doing it for this one. So whenever they say they produce a bad rate of return, first off, they have no idea what we’re doing. Second off, I don’t even know what that means, the reason why. So here’s what I’m trying to say. I don’t want you to ever do it because the rate of return is good. That’s not actually what I’m saying. However, the idea that the return is bad is just not true. And here’s what I mean by that.
Nate Scott [00:12:28]:
So, first off, a policy grows in what can be called a tax free environment. It’s technically tax deferred, but through the use of policy loans, all of the cash value can be accessed at any time, tax free in a very unique way. So the idea that policies produce a bad rate of return, you have to push back and say, compared to what? Compared to what exactly do you mean a bad rate of return? A policy may produce 4% growth over time. That’s after tax, and in an environment that’s completely liquid, this is a unique thing.
So, if you’re actually going to go in and put your money into more of like a taxable account, like a brokerage account, by the way, that’s the other thing is unlimited contributions. So, you have this tool that is producing a good rate of return on unlimited contributions in a tax free environment, as opposed to like an IRA 401K, something like that, where you can only put a little bit in that has potentially tax favorability, depending on how favorable you want to think of tax deferred programs to begin with, depending on what future tax rates are going to be. But even like a Roth IRA in general, a very limited amount of money can go in per se for the average person. And once you go make a certain amount of money, you can’t even put money in.
Nate Scott [13:35]:
And so all I’m saying is unlimited contributions earning 4% in a tax free environment. If you are like me, I’m in the 40% bracket. So I mean if you’re in the 30% bracket or 20% bracket and you have to add state and federal put together, your tax savings might be less, but 40%. So if I’m going to earn 5% in a policy, which I have policies doing that right now, if I’m going to earn 5% in a policy and I had to pay taxes on it, then I really would have to earn 8.3% to– I just did the math. So I had to earn 8.3% and then pay my 40% tax rate on that gain to net 5%. What I’m trying to say is, if I didn’t have policies, I’d have to buy term insurance. All I’m saying is you start to look at it, you’re like, this is actually pretty good.
Nate Scott [14:24]:
It is not a bad place to put money per se. In general. I don’t know what you mean by a bad rate of return. I just don’t know what you mean. Most of the time what they’re saying is you can earn more in the stock market, but it’s like comparing apples to oranges for the risk class that we’re in, the risk class that we’re in. Whole life insurance policies built for high cash value like they would be for infinite banking, I think are the best asset over time for the risk class that it is in, which is safe, guaranteed money. Especially whenever you take into account the tax advantages, the tax free nature of the growth. What I’m saying is it doesn’t produce bad return.
Nate Scott [14:59]:
I think whether maybe it’s six to 8% like a pre tax rate. Now the policy is not growing by six to 8%. I’m just saying I would have to go put my money into a taxable place that’s earning like 8% for that place to net me what I’m getting in some policy I currently have. That’s what I’m trying to say. And now I don’t want to get caught being the marketing guy, just saying salesy things. It’s not the same for everybody. Can depend a little bit on health, can depend a little bit on age, and different things like that can have some minor implications for it. And depending on the insurance company.
Nate Scott [15:29]:
But what I’m trying to say is the idea that policies produce a bad rate of return. I’m just like, compared to what? They also, by the way, build wealth in a unique way. They grow in a unique way. So the idea is this. Some people would say, well, Nate, I can earn 5% in a high yield savings account right now. I would ask you, well, what’s the guaranteed rate on your savings account? And the answer is actually 0%. Savings accounts have a 0% guarantee. The guarantee is that you won’t lose money.
Nate Scott [15:58]:
The current interest rate might be 5%, but the guarantee rate is actually zero. That’s what they’re actually guaranteeing. And what I find just so unique is that, and of course, that’s also a pretax rate. So if you’re actually paying taxes on 5%, you’re in the 40% bracket like I am. You’d be netting 3%, which is way less than you’re going to get in the policy just to begin with. But what I’m trying to bring up is that not only is life insurance not exactly producing a poor rate of return, that’s just not true. I think. I guess it’s relative.
Nate Scott [16:24]:
I just don’t think it’s actually true. It also is the only thing that guarantees a lifetime of future values. That’s what’s super unique. So a savings account can guarantee a current rate for right now, and then they’ll just email you later and say, the interest rates are going down, we’re going to lower the rate, and you might be earning 5% now. And in two years we’re back to low interest rates because we had a recession and you’re earning 1% again. Congratulations. All I’m trying to say is that there’s no guarantee in the future of what it’s going to be now. You could say CD, but once again, CDs are five years.
Nate Scott [16:55]:
You can go US treasuries. No one’s going to put a 30 year treasury in their portfolio. Really, they’re not. So the longest you’re going to go is ten years for the most part. And what I’m saying is every other financial instrument has a period of time where they will pay you an interest rate and you can lock it in for a period of time. There is nothing that says for your entire life, here’s what you’re going to be earning money for. We’re going to guarantee that you earn money for your entire life, starting from today and into the future, plus earn dividends on anything above that we produce. That is really cool, people.
Nate Scott [17:26]:
So the idea that policy produces bad return, I’m just saying, compared to what, I think what they’re saying is compared to the stock market most of the time. And I’m saying, yeah, I don’t know. I mean, the stock market just doesn’t work like this. So, yeah, could we make a higher rate of return than the stock market? Maybe. But once again, we’re not doing this for the rate of return. I’m just saying that everyone uses a straw man for this. Like, Dave Ramsay says policy grows by 2%. You’re like, no, they don’t.
Nate Scott [17:52]:
Go ahead and say you can’t compare your 12% mutual funds, which is best case scenario and super unlikely and stupid, to policies’ worst case scenario. If you built it really poorly with a really bad life insurance company and they just had the worst policies you could find, you can’t compare the two. So you got to actually throw in the entire value add of the policies. Compare that to what else you could get. I’m just merely saying for the risk class that it’s in, it doesn’t produce a bad rate of return. It’s probably the best for its risk class, no question. And then if you want to go, move the money out of the policy into a different risk class, that adds risk, whether it’s the stock market or real estate or investing in general and all these other things.
Nate Scott [18:37]:
Voila. Welcome to infinite banking. The whole point that we’re here, but to just say that policies by themselves produce a bad rate of return, I don’t think that’s true. I don’t know what world you live in. You must be believing something that’s not true, oversimplifying it. So that’s number two. Number three is more of what you’ll find in the proponents of IBC, where they describe scenarios that they say the policy loans make me money somehow. This is super common from proponents of IBC.
Myth 3: Policy Loans Make Money
Nate Scott [19:06]:
They’ll say, you know, I borrowed my money to go on vacation. I pay back, and I made money. I’m making money, and the policy loans made me money. The policy loans don’t make you money, folks. Policy loans do not make you money. The policy makes you money. The cash value makes you money. The policy loan, just borrowing away from the policy, that does not make the policy grow faster or make you more money.
Nate Scott [19:32]:
That’s kind of just nonsense. The truth of the matter is the ability, and I’m going to talk about this in the next point, too, but the policy alone is just an amazing tool, and I’m going to talk about that here in. .4. But essentially the third myth is that the policy loans make me money, that there’s something special, something magical about borrowing money from the policy and how it makes me money. Now, the policy is going to make money whether you borrow from it or not, and we can leverage it to achieve things in life in a way that doesn’t exist in any other financial product. So let’s move on to number four, which is actually the reverse of number three. So if number three was the proponent saying, you should do IBC because of arbitrage, because policy loans make you money, because of all these weird magical benefits, and I got money in my pocket and I put money in here and I put money in here and I make money. I’m just saying that’s all hype.
Nate Scott [20:25]:
Don’t do it for that policy. Don’t make you money. But on the reverse side, you hear the antagonists say paying– So the third point was policy known as make me money. That’s a myth. The fourth point is what an antagonist would say, and it says, paying interest to use my own money is stupid. So this is a pushback. Why would I pay interest to use my own money? Once again, that is just nonsense.
Myth 4: Paying Interest to Use Own Money is Stupid
Nate Scott [20:48]:
That’s a nonsensical statement. Paying interest to use my own money doesn’t make any sense. I don’t know what you mean by that. I really don’t. Essentially, I know what they’re trying to get at, but it is what’s called a talking point. A lot of things are talking points. There is a little bit of truth. The fact that you do have to pay interest when you borrow, but then they jump over all of the benefits that is provided by that and just say it is a stupid idea.
Nate Scott [21:18]:
It’s what’s called a talking point. It’s nonsense. So what I’m saying is everybody knows this. When you get involved with infinite banking, and this is actually the biggest key understanding of anything in IBC that unlocks everything else, is the idea that you finance everything that you do. There’s only two ways to do anything with money in the world. You can either choose to pay cash for something, in which case you don’t pay anybody any interest, but that cash is no longer in your pocket to be able to do anything with. So you can pay cash for something, and all of the money that that cash could have earned you is now no longer being earned. You don’t owe anybody any interest, though, but it’s no longer investable to you.
Nate Scott [21:56]:
It’s no longer growable for you or in reverse. You could choose to invest your cash in something that’s going to earn you a return and choose to borrow somebody else’s money to go do whatever it is you’re doing, whether it’s an investment or buying a car for simplicity’s sake. And you pay interest on the borrowed money, but all of your money is still doing whatever it was doing, earning value elsewhere. And to say that it never makes sense to borrow your own money is ridiculous. Because now with YouTube, with podcasts and everything, everybody knows that. Or essentially, most people know. The reason the rich people know the billionaires pay so little in tax is because they just don’t ever create income to do anything. They just borrow against their assets.
Nate Scott [22:46]:
So to say, it’s stupid to pay interest. Like, in other words, if you have a billion dollars in Tesla stock and you’re Elon Musk, and if you wanted to go buy a hundred million dollar home for you, which I know Elon Musk doesn’t do that, the only way to do that, if you wanted to pay cash, I don’t want to pay interest. I use my own money. The only way to do it would be to sell $100 million of your shares and so you can pay cash for this property and you don’t pay anybody any interest.
Now, congratulations, you saved the day. Everybody knows he’s not going to do that because as soon as you sell $100 million in shares, you’re going to have to pay taxes on that $100 million capital gains tax on whatever the growth had been over that time. So probably a huge amount of capital gains tax on top of that. He definitely is going to believe that he would rather have money in his Tesla stock than sitting idly in his real estate.
Nate Scott [23:41]:
So I’m saying the idea that paying interest to use my own money is stupid. Why would I ever pay interest, use my own money? It’s, once again, nonsense. Because that’s not what you’re actually doing. The reason why it’s nonsense is that it jumps over a lot. It’s implying that whenever you take out a policy loan, you have to pay interest to use the money and your money is not doing anything for you. That’s the idea. Which is ridiculous. We all know it’s ridiculous.
Nate Scott [24:03]:
I don’t know why people are still saying this point. It’s dumb. So they’re paying interest to my own money is stupid? No, it’s not true. People do it all the time. They have assets that they don’t want to sell, and they leverage those assets to go do things and they’re paying interest to use their own money. Just kind of dumb on that same front. So the fifth point is that people would say infinite banking doesn’t make sense, or infinite.
Myth 5: Loan Interest Must be Less than Policy Rate of Return
Nate Scott [24:26]:
So this one also has a protagonist and an antagonist. The fifth point is that the myth is that loan interest must be less than the rate of return of the policy for IBC to make sense. Once again, not true oversimplification. There are some people in the IBC world who are kind of claiming that’s what’s happening. Those people are expressing a non-truth that is going to hype people up and get involved, and they’re going to be very disappointed, and they’re going to leave a bad rap for IBC.
We do not do infinite banking because we believe that the growth, the internal rate of return of a policy is bigger than the interest we pay on policy loans per se. That’s not what we actually believe. Like the rate of interest, if the policy loan rate is like 6% right now and my policy earning 5%, what I’m saying is the reason I’m still going to use the money all the time.
Nate Scott [25:18]:
And this lesson may not totally be able to get it across because I don’t have real numbers to share per se on the screen like I sometimes do when I’m talking about this. But the idea, first off, that IBC, it’s a myth to think that the reason we’re doing infinite banking and doing these policies is because the interest we pay on loans is going to be less than the rate of return inside the policy. That’s not exactly true, by the way. Maybe it can be true for periods of time, but that’s not actually what we’re doing. There have been times in the past where the internal rate return of the policy was actually bigger than loan rates. That is true. That’s probably rare, actually. And the reverse is also an issue.
Nate Scott [25:54]:
The idea that– first off, so if you have a proponent kind of saying that, sometimes you’ll hear people talk about, well, the dividend rates x and the loan rates this, so you’re actually making more money, run for the hills. These people are being dishonest or oversimplifying or something. But the same thing is also true with the people who are antagonistic toward it. They say, well, okay, so, yeah, so if we go back to point number four, that paying interest to use my own money is stupid. Well, I do understand, I guess, that the cash value is growing, but it’s not growing by as much as you typically pay in a policy loan rate. So that’s why it doesn’t make sense. We’re saying, once again, you are taking the entire concept.
Nate Scott [26:31]:
The question is whether it makes sense to build capital inside of whole life insurance policies built for this and then leverage those policies to achieve things in life compared to doing it more with a bank account centric model. And we’re trying to figure out which one makes the most sense. And they’re saying, well, we’re going to find out one piece of IBC and say, well, if the growth rate internally is not greater than the policy loan rate, then it doesn’t make sense to do IBC at all.
I’m just saying they’re missing the boat, they’re letting the nickel hide the dime. They’re missing the entire value position of building a life around policies and saying it all rests on this one thing. It is true, though, that they have to be kind of in line. I mean, I agree. The idea that the loan interest you’re paying on policy loans has to be at least in the ballpark of what the policy is growing by to some degree.
Nate Scott [27:27]:
They have to be in relation to another. Like, in other words, the policy was growing at 1% and the loan rate’s 10%. Yeah, don’t do it. That would be all a mistake. But there’s reasons why that’s not going to happen based on the entire deep understanding of mutual life insurance companies that are in existence to produce value to their policyholders and achieve policies and how that affects the loan rates, how loan rates are always going to be tied closely to what’s going on in the interest rate environment. So is the growth of the policies. You have to have a deep understanding. That’s why I wish we didn’t have to do talking points.
Nate Scott [28:03]:
The issue for most people when they learn about IBC is there’s so much to learn before you can get a full grasp on it, that’s why people do talking points, to either push away or to add, or either to hype it up or to push it away. People use talking points and oversimplifications because there’s a lot going on. There’s no doubt. You do not need to understand all of the details before you do IBC. It’s actually impossible. You can’t. So there’s always going to be a measure of trust based on what you do know. The big picture, the idea, and the examples that we build to show you the idea in action.
Nate Scott [28:42]:
These things are meant to help you see things, but there’s always going to be little details and little questions like this. So the reality is building your life around a pool of capital that’s liquid and that you can borrow against all of the cash value while it continues to compound the entire time with a no term line of credit, what we call an interest only line of credit for life, in which case, whole life insurance policies or life insurance in general, like whether it’s IUL they have something similar.
But once again, I’m not going to get into that right now. But specifically, whole life insurance policies are the only financial tool in the world that allows for that. To say that that’s not valuable is just odd. It’s just odd folks to say that. Having that, it’d be like saying I can put money into the stock market and the people who are managing the money are going to offer me the fact that I guarantee that I won’t lose money. And on top of that, they’re going to allow me to borrow up to 100% of my stock portfolio with an interest only line of credit for life with no repayment terms.
Nate Scott [29:55]:
That is ridiculous. I mean, you can get a margin account, but they max out at 50%. Of course, the stock markets could go down. There’s a ton of risk there. If the stock market does crash and you’ve got a lot of barred out on your margin account, then you have to sell all your stocks at a loss when you really would rather keep them. To get them bounced back, you have to potentially trigger tax consequences. I mean, I’m not saying there’s not something similar to dividend banking. What I’m saying is they’re not the same.
Nate Scott [30:19]:
So the loan interest being less than the rate of return of the policy, that’s a reason not to do it. That’s kind of a myth. That’s not why we’re doing it, by the way, nor should that be a reason that you shouldn’t do it. And the last one I’m going to do, the 6th one, is this myth that the insurance company keeps the cash value when you die. You hear this mostly, of course, by antagonists. And what they’re really trying to paint this picture is these insurance companies are out to get you. The insurance companies are out to get you. They’re nefarious.
Myth 6: Insurance Company Keeps Cash Value When You Die
Nate Scott [30:45]:
This is like a nefarious thing. They’re tricksters. They’re going to steal your money and only give you the death benefit when you die. It is a talking point. It is nonsense. I don’t mean any offense. I’m just saying it’s nonsensical. And so the truth is that the cash value and the death benefit have always been inseparable.
Nate Scott [31:08]:
The cash value is the equity you are building in your death benefit. That’s what it is. It’s a logical fallacy to think that whenever you die, let’s say, let’s think of it, maybe something that we could think like this, like a home, that you get the market value of your house and the equity of your house at the same time. So my house is worth $500,000, and I’ve only got a $100,000 loan now. So my equity, and it’s $400,000 when I sell it. I better get $900,000. I better get my equity and the market value of my house at the same time. I’m just saying it’s like we’re in this nonsensical world.
Nate Scott [31:58]:
So the idea that the interest committee keeps your cash values nonsense, it’s a talking point. Doesn’t make any sense. What they’re trying to imply, though. Here’s what they’re trying to imply. So I’m also not trying to push it too far down. I’m just saying that that idea doesn’t make any sense. It’s not a reason to do or not to do it. The cash value is the equity you have in the contract.
Nate Scott [32:19]:
So the idea is like, hey, if I put in a $50,000 premium and it produces, I have a policy with a $2 million death benefit or something like that, I’m going to be building equity as I pay premiums and as the cash value grows and builds up. But, yeah, if I was to die on day one, I’d get $2 million. Even with a tiny bit of equity, they don’t get to keep both. The cash value is just trying to. This is how life insurance works. At age 121, the cash value and death benefit equal. So the definite is always bigger than the cash value. And you’re building equity all the way up until age 121, in which case, at age 121, they match each other, and the policy endows at that point.
Nate Scott [32:57]:
And if you’re still alive, they’ll just write you a check and the policy is over. So the idea is, of course, we’re building equity in this contract. The reason why I was trying to bring up what they’re actually trying to say is, hey, what if you instead bought term insurance and you invested the money, invested the rest, right, by term, invest the rest. And so then if you were to pass away you’d get both the term insurance death benefit and the investments. So you get both. Whereas those nefarious life insurance, whole life insurance companies only give you the death benefit. They steal your cash value. Once again, that statement is nonsense.
Nate Scott [33:31]:
But I understand where they’re going. I understand where they’re going. The idea that if you have term insurance and an investment and you die during the term. So, a couple of things to note just on this front. First off, IBC is not about not owning term insurance. Like I own term insurance. You can do IBC and own term insurance. The whole term investment difference is like, we’re not even doing IBC to solve our need for a death benefit.
Nate Scott [33:58]:
By the way, I hope you guys understand that infinite banking is not a means to solve– So all of us have a need for a death benefit. Some of us have a big need. We got lots of kids, we’ve got a young family. We need a big death benefit. We make a lot of money. We want to provide for the family. We have a big need for a death benefit.
Nate Scott [34:14]:
Whenever you get started with IBC, you are going to be solving the need for the death benefit by accident. That’s not actually what we’re doing. We’re not trying to solve the need for a death benefit by IBC. Term insurance is typically solving a need for death benefit. It is true that if you’re doing IBC, and like me, I own term insurance, not because I need more death benefit, have my whole life policies, have more than enough. The idea is I just want. It’s for a different reason. It’s called a convertible term.
Nate Scott [34:40]:
I want to be able to convert that policy into IBC policies in the future, even if my health changes. So there’s some reasons for it. But what I’m trying to say is term insurance is meant to solve your need for a death benefit during a period of time. Okay? So while you’re raising a family, you need big death benefits, because if you die, your family’s out of luck.
And we’re not exactly solving that for IBC. We might solve it when you do your policy, if it’s a big enough policy, but that’s not what we’re after. So what I’m trying to say is, first off, you could choose to buy term insurance and do IBC, and then if you die during the term frame, you get two death benefits. You’re just making a killing.
Nate Scott [35:17]:
And so it’s just an interesting thing to say, like the idea that I should invest the difference or buy whole life, and if I own whole life. I shouldn’t own term. I’m just saying that premise doesn’t make sense on top of the fact that the best rate of return available to anyone in the financial world is to die owning term insurance. Let’s just put that out there. If I was to buy like, I own a ten year term policy and I’m young and I’m healthy and I bought it a few years back, I’m paying $300 a year and I bought it when I was in my twenties for a ten year term insurance policy.
$300 a year for a ten pay policy that’s worth a million dollar term death benefit. That’s like winning the lottery, folks. If I paid five years of premiums, I gave them $1,500 and then I died in that ten year term time frame, and they write my check, my family check, for a million dollars. I could not have invested my $300 a year anywhere else that would have produced that greater over return.
Nate Scott [36:20]:
So what I’m trying to say is, of course, if you could have the death benefit from term returns and your investment pool, it’s going to be better than just having your investment pool or just having the term insurance. I understand that, but what I’m trying to say is we all know that only like 1% of term insurance pays out.
So what I’m saying is the vast majority of us doing IBC, you’re only going to own your term insurance for a period of time, like 20 years maybe, or something like a ten year term, 20 year term, 30 year term, you’re going to have a period of time within which you own term insurance. And the truth is you’re probably not going to die. You’re probably not going to die during that time frame. It would suck to win that way. Of course, the best way to beat the crap out of the insurance company is to die early. That’s of course the truth.
Nate Scott [37:00]:
If you want to beat the crap out of the insurance company, get a great rate of return on your money, buy a policy and die a couple of years later. I mean, your family is going to be well set and you got a great rate of return. That’s a tough way to win. But what I’m trying to say is, no matter what, the idea that the insurance company keeps the cash value when you die, and that’s a stupid reason to buy whole life and they’re nefarious for doing that is nonsense. Doesn’t make any sense. They’re trying to mention that as a talking point to say if you buy term insurance and invest the rest, then you get the term and the investment when you die. I’m saying voila. Go ahead.
Nate Scott [37:30]:
We can buy term insurance too. Of course it makes sense to own term insurance if you die with term insurance. If you’re going to die during the period of time that you own term insurance, it’s going to be an awesome rate of return. It’s just extremely unlikely. So at the end of the day, what you’re actually going to end up having when you die is just term insurance, I mean, just your investment pool.
And what we are going to have is the death benefit. And the death benefit is always bigger than the cash value. So once again, the honest truth is that the idea that the death limit is always bigger than the cash value, and so my family is always going to get a bigger legacy than when I was built in liquid money myself.
Nate Scott [38:03]:
That’s actually a benefit. So they tried to create a nefariousness. The insurance company is out to get you, the idea that they’re going to steal your money. Just not true. So those are the six infinite banking myths. I’ve already taken up time, honestly on all this to go over it. But the first one is that the base premium is an expense and the p way is cash. That’s an oversimplification.
Nate Scott [38:19]:
Doesn’t make any sense. It’s going to create some wonky policy designs. The second one is that policies produce a poor rate of return. I don’t really think that’s true. I don’t really know what they’re going at. They normally make a straw man argument here. The reality is policies produce probably the best after tax, after all fees and all costs, value added rate of return in its risk class that you could find. And if you want to go take advantage of a different risk class, then you borrow from the policy and go invest it in something that maybe produces more rates of return, but adds risk to the equation.
Nate Scott [38:48]:
That’s the whole point of doing IBC. The third myth is that policy loans make me money. That’s not true. Borrowing money from the policy does not create wealth for you. You can’t create wealth by just borrowing money from the policy for fun. Borrowing money from the policy does not make the policy grow faster. The fourth one is kind of the reverse of that, that paying interest to use my own money is stupid. Once again, that’s kind of a myth that doesn’t make sense.
Nate Scott [39:10]:
People borrow against their assets all the time to create huge amounts of value. It’s a talking point. Once again, it doesn’t make any sense. There’s only two ways you can buy anything in life. You can pay cash and not pay anybody any interest, but also not have that money earn you any interest. Or you can take your cash and have it earn interest and borrow money and pay them interest. That’s it. It’s the only two things.
Nate Scott [39:33]:
One is not better than the other in a vacuum. They’re both just the only ways to do it. And we believe that leaving your money in a compounding growth environment like policies and borrowing against it has a ton of benefits, especially with the loan terms available. The fifth one is that the loan interest must be greater than.
I mean, the loan interest must be less than the policy rate of return for IBC to make sense. That’s actually nonsense. And the reverse is also a myth. If you ever hear somebody say that we do IBC because the rate of return of the cash value is bigger than the loan interest, run for the hills.
Nate Scott [40:05]:
They’re making that up. And lastly, the 6th one is that the insurance company keeps the cash value when you die. That’s a nonsense statement. The reason why it’s a myth is because it doesn’t make any sense. That would be like saying it just doesn’t make sense.
The idea that since the cash value is the equity you have in the contract and the whole point of the cash value is to equal the death benefit at one point in time in the future whenever you die, excuse me, at age 121, they’re going to equal each other. But if you die before the age 121, the difference is always going to be bigger than the cash value. The idea that the insurance company keeps the cash value when you die and that’s some sort of nefarious thing is stupid does not make any sense.
Nate Scott [40:41]:
Most people say that because they compare it to buying term investing differences where you get the term insurance and the investment and they’re saying that’s better than just wrapping it all up in whole life. I say, yeah, it’s always best to die with term insurance in force. That’s the best rate of return you can get as a family. Buy a crap ton of term insurance and die within the term period.
We all know that doesn’t happen too much. If you think that might happen to you, you might as well do IBC and own term insurance because that’s the best way to beat the crap out of the interest company. Make an awesome rate of return. The interest company is not nefarious for keeping the cash value when you die.
Nate Scott [41:12]:
That’s just the way it works. The cash value is the equity they are building up this big pool of money to one day pay you a death benefit. That is what the cash value is. They will lend you that cash value. You can withdraw that cash value. You can do whatever you want with that cash value. It’s your money and that’s your equity that they are one day going to use to pay you the death benefit down the road to begin with. So it’s not like they keep the cash value when you die.
Nate Scott [41:37]:
This is a nonsense statement. I hope this has been helpful. That’s some six of the top myths, remember? If you would leave some comments here of things you’ve heard about IBC, maybe that you’ve had questions on that you think, is this a myth or is this actually true? I heard this guy say this is actually true or not.
We’ll try to answer them in the YouTube comment section, but on top of that, we’d also like to do another one where we add more myths to it and detail maybe some of the most common ones that are brought up in the comment section in a second episode, a part two episode. So thanks so much for being here. Once again, if you like this show, if it’s meaningful to you, if you wouldn’t mind subscribing to YouTube, liking it on YouTube, leave us a comment. Go follow us on Apple podcasts or Spotify either one. Leave us a rating or review there.
Nate Scott [00:42:19]:
It just means the world to us. It means the world to the algorithms as well. To get this news out there. It’s been fun as always. This is dollars and nonsense. If you follow the herd, you will be slaughtered for free. Transcripts and resources, please visit www.livingwealth.com/e221
