E223: What Is Infinite Banking and Why Does It Work?

Join us in this week’s episode, as Nate Scott explores the concept of “infinite banking”, what it is and why it works. Beyond being a financial strategy, infinite banking encourages individuals to rethink their approach to money, transforming it from a passive asset into an active tool that can be strategically leveraged to build wealth, ensure financial security, and leave a lasting legacy. 

The premise of infinite banking is based on the belief that mutual life insurance companies and banks have a similar business model, but mutual life insurance companies exist to benefit policyholders, while banks exist to benefit shareholders.

Nate discusses the unique features of whole life insurance policies, such as tax-free growth, policy loans, uninterrupted compounding, and the potential for passive income. By understanding and embracing the core principles of infinite banking, listeners gain the knowledge and perspective needed to take charge of their financial futures.

Key Takeaways:

  • Central Premise: Nate emphasizes that the core premise of infinite banking is choosing to do business with mutual life insurance companies as an owner and leveraging their financial tools to achieve better results than traditional banking.
  • Money Flow: The concept of infinite banking revolves around the idea that money should flow through a banking mechanism in your life, covering income, expenses, and investments.
  • Key Characteristics of Infinite Banking: Ownership, tax-free growth, interest-only line of credit, uninterrupted compounding, passive income generation, and a legacy mentality define infinite banking.
  • Understanding the Premise: Nate underscores the importance of agreeing with the central premise of infinite banking before exploring policy details. Policy loans, although initially confusing, provide valuable interest-only lines of credit, unique to whole life insurance.
  • Infinite Banking vs. Traditional Banking: Infinite banking complements other investment strategies and financial tools, offering an alternative approach to achieve financial goals.
  • Legacy and Wealth Preservation: Whole life insurance policies play a vital role in wealth preservation and transfer, particularly in estate planning.

Episode Resources:

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What is Infinite Banking

Who was Nelson Nash?




Nate Scott [00:00]:

Infinite banking does not have to be confusing. In fact, I think some agents make it more confusing than it needs to be, because they think they can more easily persuade you to do it if you don’t understand it and think it’s magical. Clients get confused because they’re trying to find the trick that makes this whole infinite banking thing work, when in reality, infinite banking is a simple idea that uses a very misunderstood tool called whole life insurance, which is the reason why things get confusing in the first place. 

So in this episode, I want to provide a profoundly simple and clear explanation of infinite banking and why it works. Let’s go ahead and dive into this. 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 [00:46]:

One of the main things I think causes so much confusion in the infinite banking community is the fact that we use whole life insurance, which has a lot of moving parts to it. And there’s no question that whole life insurance policies can be very confusing. And I want to make that known as we get started, that most of the confusion lies in whole life insurance policies and their characteristics and the different things that are happening inside the policy. 

But my biggest concern with people who are just learning about infinite banking is that they start to think that infinite banking is actually all about whole life insurance policies and the characteristics of those whole life insurance policies, when in reality, that’s not the case. The reason why IBC is so confusing is because it is true. Whole life insurance policies have extremely unique characteristics.

Nate Scott [01:40]:

In other words, you’ll find things in whole life insurance policies that do not exist anywhere else in the financial world. This is a cool thing. It is also a confusing thing. So, just to name a few of the things in whole life insurance that is unique to whole life insurance that exists nowhere else, is the idea, like, first and foremost, the idea that policies have guaranteed lifetime values. That as soon as you buy a policy, you can look at your policy contract and notice that there are values. The contract has a guaranteed cash value to it for the rest of your life. There’s no other asset or tool in the world that has some sort of future guaranteed values for a lifetime. Maybe there’s a period of time, like a CD account might have like a 5% guaranteed interest for a period of time.

Nate Scott [02:22]:

Same thing with bonds, same thing with us treasuries. There’s a whole bunch of things that can be guaranteed for periods of time. There is nothing that’s actually guaranteed for a lifetime. So this is kind of confusing. What the heck is this? Honestly, that part is not that confusing. I’m just simply saying it’s unique. The idea that there’s this cost to get started, that you get started with policies. But what’s the cost to do it? Why are my premiums going in, not producing 100% cash value? That’s kind of confusing.

Nate Scott [02:47]:

Of course, the policy loan feature is extremely confusing. The fact that you can borrow against these policies, what does that even mean? I got to pay interest to borrow my own money? Dave Ramsay says that’s a bad idea, and he’s always right about everything he’s ever said. Hyperbole intended, and all that to say you have this policy loan feature, which. 

The entire idea of the policy loan, which you’ve heard us mention, if you listen to our show, that whole life insurance policies are the only place in the world that offer you an interest only line of credit for life against essentially 100% of your cash value, the equity in the policy. This is a unique thing. It only exists in whole life insurance. But because of that, you’ve never run into anything like it. So, of course it’s going to be confusing.

Nate Scott [03:32]:

The fact that it comes with this death benefit from day one. I mean, that’s the unique thing in the financial world. Like, you put money into a bank account, you don’t get a death benefit with it. And the cost associated with that’s confusing. And the idea that these policies grow tax free, why is that? That you’re earning dividends? Where are those coming from? Why are those not taxed? All this to say, I know that it can be confusing. I am here to be the answer to prayer. I’m here to solve this for you. It doesn’t have to be that confusing to understand and believe that it works.

Nate Scott [04:01]:

The characteristics of the features of the concept, the characteristics of the policies, and the features of the policies don’t create the concept. The concept runs much deeper. The reason it works is based on this one simple premise. I’m about to dive in. The whole premise is based on this one idea. If you believe in this one premise that I’m about to present, then you’ll say infinite banking makes sense and is likely to work. If you disagree with this one premise, you’re going to say infinite banking probably doesn’t work. There’s no question.

Nate Scott [04:35]:

Everything rises and falls on this one premise. This one premise is actually the reason why the features and the characteristics of the policy even exist and can exist in a mutually beneficial arrangement between the interest company and policyholder. So here is the premise, you know I’ve got Nelson Nash’s book on the shelf over here, becoming your own banker. That started this whole thing. If you were to dumb it down to one conclusion, this is the exact premise. Here’s the premise of infinite banking and why it works. Mutual life insurance companies and banks actually exist in the same business model.

Nate Scott [05:13]:

So banks and a mutual life insurance company essentially have the same exact business model. The model is this, they both need other people to give them money, right? So a bank receives other people’s money in the form of deposits from depositors, and a mutual life insurance company receives its money from premium payments made from policyholders. 

But either way, both businesses start from the same exact premise, that we need other people to give us their money, whether it’s deposit money or pay premiums, we are then going to take that money and lend it out to other people. We’re going to lend it out whether it’s in big bonds like US treasuries and corporate bonds, or whether it’s to individuals, for individual things like you would find with a more community bank. 

Either way, they’re going to take our money and they’re going to lend it out to other people. And of course, the whole premise of this is that the money that they buy from us, especially in the banking world, the money they buy from us, our deposits, they’re essentially purchasing our money for an interest rate, right? So they’re buying our money. It had been 0% forever.

Nate Scott [06:20]:

Now, it’s a little bit more than that, of course, but the idea is they’re going to buy your money at one rate and they’re going to sell it at a higher rate, just like every other business model that exists in the world. And so this is the whole purpose that they actually do the same thing with money. And everything works the exact same way to produce profit for the enterprise, where things start to change directions and where they split. So the entire business model is very, very similar. 

Of course, life insurance involves death benefits and cost of insurance and stuff like that, that you wouldn’t find in banks. But they also don’t need nearly the cost of real estate and stuff like that, that a typical bank would need. So I’m just merely saying that not everything is exact. Of course, there’s different expenses for different ones that are more detailed directly to those direct expenses.

Nate Scott [06:59]:

But the idea is this, that they’re in the same exact business model until you get to the end. Banks exist to benefit their shareholders. There’s no question about this. Bank of America, Wells Fargo, Citigroup, even local banks and community banks down the road. They exist to produce a profit for whoever owns the business. 

This is a fundamental capitalism premise that exists, that the business exists to benefit and profit the shareholders. So a big bank or a small bank may share profit in different ways, like a big publicly traded bank. They will go out and they’ll do this whole banking thing. They’ll take all of our deposits, they’ll go reinvest it in other things and earn more interest than they pay us.

Nate Scott [07:39]:

And then that profit can either be distributed as dividends to shareholders, or a lot of times in a big company, they’ll just reinvest the profits that are generated to do something to grow revenue, which will boost share price, because really the shareholders want to increase share price more than they would want dividend checks. That’s very common, maybe a bit different in a small community bank where it’s not publicly traded. And so their main goal actually may be to receive distributions as owners. But either way, it’s there to profit the shareholders. 

Mutual life insurance companies up to that point are very similar. Where they start to split off, though, is of course, the fact that what makes the whole thing unique is that in mutual life insurance companies, there are no true conventional shareholders in a mutual life insurance company. There are only policyholders who have mutually collaborated together to achieve, to solve for some problem which originally was life insurance, the death of the members. So, a mutual life insurance company is just a group of citizens getting together by contract and saying, building this organization that’s supposed to benefit only the policyholders.

Nate Scott [08:48]:

There are no outside stockholders in mutual life insurance companies. There’s only policyholders. So at the end of the day, the entire enterprise of the mutual life insurance companies is built around benefiting and profiting the mutually owned company. The policyholders are the ones that receive the profit share in the form of dividends, not shareholders. 

Of course, that stands in contrast to the banking world. So at the end of the day, the entire bank, conventional banking system is there to profit shareholders, whereas the entire mutual life insurance company operation is there to profit policyholders. That’s the origination of the company. That’s why they exist.

Nate Scott [09:28]:

Which is of course, by the way, one quick thing to note, you don’t see new mutual life insurance companies popping up anywhere anytime soon. Why is that? There’s no money to be made anymore for the people who start a mutual life insurance company. Why would you start a mutually owned company when you can just go start a for profit insurance company, which there’s thousands of those in different elements here in the states, there’s thousands of stock held companies, very rarely. 

I don’t even know. I’ve not heard of any new mutual life insurance company anywhere near the recent term. All of these companies are hundreds of years old or more. That’s because there’s no reason to start a mutually owned life insurance company because you don’t make any money from it. So everyone starts stock companies nowadays, stock insurance companies.

Nate Scott [10:13]:

So here’s the premise, and from this premise, we get the whole idea that if they are truly in a very similar business model, and if one of them is in existence just to profit me, and the other one is in existence to profit some sort of shareholders, then we could make a logical conclusion that it is likely that if I was to do banking, if I was to use the mutual life insurance company as my banking reservoir through policies I buy from that company, that it’s likely to produce for me more profit over my lifetime than if I do the conventional banking systems the way that they’ve been in a conventional banking arrangement. 

And we would then also say, this can be proven through looking back at history, whenever you compared living, if you were just to compare living your life over the last 40 years, just doing conventional bank accounts as your main reservoir of capital and savings and borrowing, and then you contrast that with would have been if you used mutual life insurance companies. This is a very difficult exercise to do. 

Some people say, Nate, why don’t you just do that? Well, I haven’t been doing this for 40 years. All I know is what I could have done over the last twelve years actually being involved in infinite banking to begin with. And I don’t know if anyone, some insurance companies have tried to do this where they just kind of talk about historical policy performance. But of course, they’re not proponents of infinite banking, so they don’t bring it around to saying, here’s what would have happened if you had done it in savings accounts or something like that. They don’t even bring it up to that point.

Nate Scott [11:43]:

But the whole premise is that if you agree with this, if you agree that it’s likely not because of a feature of the life insurance policy per se, but if you agree that it’s likely that you getting into business with a mutual life insurance company, as an owner of that company, and using the tools available from that company to achieve your financing needs in life, that it’s likely that’s going to produce better results because of the way the system operates than going into conventional banks. You’re like half the way there, you understand enough to say, yes, I understand the premise of infinite banking, it makes sense to me. That’s how it would work. 

Now, that’s not a guarantee it’s going to work, but at least I can agree with the premise that on paper, that seems to make sense. If someone were to say, I disagree with you, Nate, I don’t think that mutual life insurance companies are actually in the business to benefit their policyholders. I actually think they’re in the business to benefit themselves. I’m just saying you’re making a losing argument, just by the way, on the face of it, and that’s fine. I’m not here to argue with anybody.

Nate Scott [12:45]:

I’m just merely saying, if that’s your initial knee jerk reaction, how does the insurance company make money? Then you just shouldn’t do this, by the way, your mind’s not in the right place. I think it’s a fair question to ask, how does the insurance company make money? But you can’t go out and say they’re out to get you. Who is “they”? The insurance company, of course. The insurance company makes a profit. What? We’re talking just like a bank makes a profit, they both make a profit, but something has to be done with the profit. The money has to do something to benefit someone. And in business, it has to benefit the owners of the company. There’s nobody else that it can benefit.

Nate Scott [13:24]:

So when you talk about how does Wells Fargo make money, how do they make money off of me? Well, we all know they make a profit. And whoever owns Wells Fargo’s shareholders is happy to see the profits go up. You as a depositor, it doesn’t matter to you, because there is a they and there is a you. And you are two separate parties. In a mutual life insurance company. You’re not two separate parties. You are the shareholder and the depositor at the same time, you know, you’re both parties at the same exact time. The whole business exists around benefiting the policyholders.

Nate Scott [13:55]:

That has to be an agreed upon premise. If that’s not an agreed upon premise, then who the heck cares about the features of life insurance policies? If you think that it is unlikely that, based on logic, that dividend paying whole life insurance policies issued by mutual companies are going to end up resulting in better performance over time than just using conventional banking instruments, there should be no reason to ever put your money in policies. 

So, why would we keep going down the list of all the cool things that you can do with policies because of this arrangement? It wouldn’t even make sense. So, this is the simple idea of infinite banking. We just simply believe that dividend paying, whole infinite policies produce the best environment we can find to solve this idea of banking. And the idea of banking is simply that money has to flow in your life. You’re going to receive income, you’re going to have expenses, you’re going to make investments. All of that flows through some sort of banking mechanism.

Nate Scott [14:51]:

And we want to profit from, in a bigger way, from that whole situation of money flowing in and out of your life. That’s the whole point of doing infinite banking. And so, remember, the features don’t create the concept. The concept exists. The features exist to support the idea, to prove the idea, not because of the features per se. 

You must agree to the premise before you start diving into the details. So now what I’d like to do is actually dive into the details before. I wanted to make one more note, too, that you could also argue as the premise is that you truly do finance everything that you buy, everything that you buy is financed.

Nate Scott [15:28]:

And on top of that, that banking is inescapable, that all roads lead to banking. Banking is simply the flow of money. There’s no such thing. You can’t escape banking. Everyone is going to be in the business of banking. You can either choose to be good at it, or you can choose to plug into Wells Fargo and let them profit from you. And, I mean, there’s no way around it. You are faced, confronted with the idea that there’s nothing you can do to escape the process of banking in your life.

Nate Scott [15:54]:

We believe infinite banking is the best solution to that process. If you have a differing opinion, then don’t do infinite banking. But nonetheless, we believe that logic and history prove the premise to be very true. Once you agree with the premise, you’re like, yep, I agree. But, Nate, I do have some questions kind of on the whole policy. 

You mentioned at the beginning of the show, there’s these features involved. These seem kind of confusing. I would like to have questions answered, like, what are the characteristics of the policy that I’m going to be working with? Once you agree with the premise, we can start getting into some of the details around it, but we’re all confronted with the fact that banking is.

Nate Scott [16:29]:

Let’s go and dive into a couple of the features I mentioned at the beginning. The key characteristics that once you agree to the premise are like, okay, these are what really make the whole thing work, are these key characteristics. The first one is, of course, the premise. Overall, as I mentioned, that’s number one. 

The key characteristic is that you are an owner of the insurance company. And you should expect to receive a better banking solution by owning the institution, as opposed to just being a customer at somebody else’s institution. This has to be an agreed upon premise. That’s number one.

Nate Scott [16:57]:

That’s key characteristic number one. Everything else is going to make sense from that. The second one I would like to talk about that is really pretty unique, is the idea of the policies growing inside of a tax free environment. This is, of course, very unique in the financial world. It’s similar to maybe like a Roth IRA or a Roth 401(k). 

The idea that we don’t get to deduct premiums that we put into policies, but all the cash value that accumulates inside of the policy can essentially be accessed tax free over the rest of your life, from day one and into the future, which is very unique. So even with a Roth IRA, you can access your principal before you’re 59 and a half without tax. But all the profits are taxed if you access them.

Nate Scott [17:38]:

And that’s a bit of a difference with the policy, is that the entire thing can be accessed without tax, mainly using the policy loan feature, which we’re about to talk about. But nonetheless, the idea that you have this money compounding and growing and earning dividends and interest inside of this policy, in a tax free environment, is certainly very different than if you were to go to a bank. 

If I’m in the 40% tax bracket, by the way. And so if a bank account is paying 4%, I’m not netting 4%. If I have $100,000 earning 4% in a bank account, that means they’re going to pay me a check for $4,000 that I owe taxes on in my income tax bracket of 40% with state and federal income taxes combined together. And so that means I’m only going to net, like, what is that, $2,400 afterwards? So my net is not 4%, my net is 2.4%. That’s a big difference. So, of course, the tax free nature, that’s not the reason we’re doing it.

Nate Scott [18:36]:

We’re doing it for the premise, remember that we’re doing it for the premise that I believe, based on logic, that doing business with mutual life insurance companies and building my banking system around that is going to produce for me better results over my lifetime than doing conventional banking. Based on the facts of the matter, right? Of what makes each company sing. However, the fact that if I went the bank route, I have to pay tax on all the money I make inside the banking system their way. But I don’t have to pay taxes on this one. That’s just gravy on top. Wow.

Nate Scott [19:05]:

Okay, this is cool. So the tax free growth is very unique in infinite banking inside a whole life insurance, even that unusual. By the way, it’s not like an infinite banking thing. There’s not some sort of secret tax advantage. It’s just simply that whole life insurance policies accumulate tax deferred by nature. In other words, all the income doesn’t have to be taxed. 

I mean, all the growth of the cash value is not taxed until you were to withdraw above your basis, above how much money you’ve put in, then it could become taxable. However, that just would be an unnecessary step because we can take policy loans out without ever paying tax on any of the money because a loan is never a taxable event in the United States tax law.

Nate Scott [19:46]:

And the same thing goes with policy loans as all of that, assuming, by the way, that the policy is not a modified endowment contract, which is not seen as life insurance, which has its own tax rules around it. So once again, we’re talking about typical infinite banking without a MEC, in an existing tax free environment. 

The third thing I wanted to say, so the second one was tax free growth. The third one is that you have a policy loan provision that is a very unique thing in the world of finance. As I’ve said many times before, there is nowhere else that you will find the loan terms that you get available inside of whole life insurance. So the insurance, here’s how it works. You are paying premiums into a policy. It’s producing cash value. 

Nate Scott [20:27]:

That cash value is compounding and earning interest. The insurance company has to put the money to work in order to continue to grow the cash value and be able to pay out a death benefit in the future. They have to put the money to work, so they lend money, you happen, as a policyholder to outrank everybody else that could have access to the money, of course. So the insurance company is going to put the money to work. 

But if you say, hey, insurance company, I would like to borrow money from the policy and pay interest on it, the insurance company says, absolutely, we’ll lend you the money and then you can pay interest back to the insurance company. But that interest is what is, of course, being used to help continue to build the cash value in the account. Now, are you like paying interest into your policy? No, you’re paying interest to the insurance company, but you just happen to be the investment for that cash value per se.

Nate Scott [21:26]:

So they have to put the money into work, you just happen to outrank every word that they could put the money to work into, and they love that. But because it is life insurance, which is something that you’re supposed to own, whole life insurance, something you’re supposed to own for your entire life, because you’re a policyholder and owner, because they’re not out to get you, they’re on your side. There’s some unique things that other institutions can’t offer to you per se, and that is the idea of an interest only line of credit for life, which is essentially what the policy loan provisions entail, an interest only line of credit for life. 

In other words, they will lend you as much money up against your cash value as you want. You can pull out as many transactions as you want from the policy in policy loan transactions. And all that they see is that they’re essentially offering you an interest-only line of credit for life. The line of credit means you can just pull and repay money as much as you want, whenever you want to. There’s no amortization schedule to it.

Nate Scott [22:20]:

That’s the “for life” thing. They never require you to repay the principal. You only repay it out of your own desire, like a line of credit. But most lines of credit like you can get a line of credit HELOC against your house, you can get lines of credit in various forms. Almost all of them are only good for a certain period of time. And for a period of time, they’re interest only. 

And then they transition to an amortized loan because the interest company, I mean, the bank that’s offering a line of credit wants to get their money back. So they will say you can pull from it, you can draw from it for the five year period or a ten year period and just pay interest on it on the balances outstanding.

Nate Scott [22:53]:

But then after ten years, of course, we’re going to have to amortize it out, turn it into a real amortized loan. You’re going to have to pay us back principal and so forth. They can’t offer you an interest-only line of credit for life, but the interest companies do. So it’s a very unique thing that you can borrow money from the policy using your cash value as collateral, which we’ll talk about in just a second, which really just means all the cash value stays in the account and you’re just getting a loan against the account. 

And of course, yeah, you will have to pay interest. But the idea that, hey, I can borrow this money, I just pay interest once a year on my anniversary date. And I can use the money to do all sorts of things, to build wealth, to invest money, to send my kids to school. I can do all of these things using this capital in a tax free environment, and I never have to pay it back.

Nate Scott [23:37]:

I can just choose to pay it back. I don’t have to amortize these loans. I can just treat it like a line of credit and it’s good for my entire life. So that means I never have to repay the principal or any of the loan if I don’t want to. I can just die one day with loan balances on the account and the death benefit will pay off all the loan balances. This is a very unique thing. So of course it’s kind of fun to understand those characteristics. The interest only line of credit for life policy loan provision is very unique in the world.

Nate Scott [24:02]:

In fact, it only exists in whole life insurance. You could say, I don’t really need that. Or you could say that the terms aren’t really going to be that favorable. Or hey, the interest rate on the policy loan is bigger than the internal rate of return of the cash value. So the whole thing probably doesn’t work. I’m just saying you can say all these things you want. It’s difficult for me to answer every question that anyone or comment that anyone would ever have. But the idea that can’t be argued is that the interest companies are offering to you against your policy, a financial tool that does not exist anywhere else.

Nate Scott [24:33]:

You could say, I don’t really want it, or I don’t think it’s that great, but you can’t deny that it’s kind of cool that they’re the only ones in the world offering it and then there’s interest-only line of credit for life. We keep going. So essentially that amounts to complete control of the equity in your policy at all times to use it however you see fit to achieve things in life, which is really what infinite bank is all about. 

And by the way, that has to be the case for it to become your own banker. Like in other words, if that wasn’t so, in other words, the key premise is that banking is better done with mutual life insurance companies than with banks. If they didn’t offer this interest-only line of credit for life thing. And instead you had to go through like a typical loan approval process with amortization schedules and stuff, we would say back up. That’s not very good.

Nate Scott [25:13]:

So what I’m saying is the premise exists and you have to agree to the premise. And then all of these features and characteristics of policies kind of help support the premise that if they were, of course, without these features, it wouldn’t make sense, by the way, to do a banking tool if there was no such thing as the loan provisions with a whole bunch of freedom inside of it. 

The next thing I wanted to say. So, the fourth thing is uninterrupted compounding. That kind of goes hand in hand with number three, which is the interesting line of credit for life. The uninterrupted compounding. The idea that whenever I borrow money from the policy or against the policy, excuse me, the cash value remains intact and continues to earn interest and dividends on the entire cash value. And I have a loan balance outstanding that I’m paying interest to.

Nate Scott [25:55]:

This is certainly a means for confusion. This feature, this characteristic gets confusing. Agents make it more magical than it really is. It’s not actually very magical, it’s just logical. There’s only two ways, by the way, to buy something. Let’s say you have $100,000 in cash in a savings account and it’s earning 4%. If you were to buy a car and it’s going to cost you $50,000, you could choose to withdraw $50,000 from the account and pay cash for the car. Now you only have $50,000 earning 4%, but you don’t owe anybody any interest.

Nate Scott [26:32]:

When you pay cash for something, you lose interest you could have otherwise earned, but you don’t have to pay anybody interest. There’s another thing you could have done, which is say, okay, I actually want to keep my $100,000 in cash earning 4% and I’m going to go get a car loan for $50,000 and maybe they charge you 5% interest. 

So, it is true that you are paying interest to somebody on the car loan, but now you get to keep the $100,000 intact, earning the interest rate it’s earning. This is just for an example purpose. And that’s the idea behind life insurance. It has to be one of the two. If you withdraw money from your cash value, of course you’re actually taking money out of it, and that money won’t be compounding anymore. Now, you don’t have to pay a policy loan interest rate whenever you withdraw money from a policy.

Nate Scott [27:14]:

But the idea of borrowing against the account essentially means, yeah, I know, I’m going to have to pay interest for the insurance company, but in return for that, they’re going to leave the whole entire cash value intact and continue to compound it on the full amount at all times. So that’s why we call it uninterrupted compounding. Like the compounding interest is always going to be there. Doesn’t matter how much or how little you borrow from the policy, it’s always going to be earning interest and dividends inside the account, even while you’re using it. 

So, that helps make sense as to, well, why would they charge me interest to use my own money? They’re not charging you interest to use your own money. Your money is building up equity in the cash value, and they’re lending you money against the cash value within this collateral, and they’re charging you interest for the loan. But all the while, your money gets to stay intact and continue to earn interest on the full amount, which is a very cool concept. It’s not the only place in the world that has that, because you can do that with margin accounts in a brokerage account.

Nate Scott [28:08]:

You can do that against real estate, you can borrow against real estate and stuff like that. And of course, when you borrow against real estate, the real estate is still rented, still producing income. It’s still appreciating in value, hopefully, but you’re able to tap into it, pay interest to tap into it, but then you can go leverage to go do other things. That’s the same thing infinite banking is doing with what we believe is much more favorable terms. 

The fifth thing I want to say is, as you’re doing this, as you’re paying premiums, building cash value, using it to achieve things in life, tapping into the interest only line of credit opportunity through the policy loan features that they allow for you to have, you’re going to build this big base of cash value that’s earning interest and dividends that at the end of your time frame can produce passive income. 

So, the fifth one is it really does produce pretty good passive income for its risk class. The idea that it’s guaranteed to grow over long periods of time and earn interest in dividends without risk of stock market fluctuations that you would find in other ways. It can really produce a very solid passive income stream just from the growth of the policies over time and the dividends that are being paid out.

Nate Scott [29:03]:

That’s pretty cool. All solved inside the banking system. And then the last one I wanted to bring up is the legacy mentality that most people adopt when they get into infinite banking. The idea, no matter what, is that, yes, to get into whole life insurance, there’s a cost of insurance taking place that the insurance company is providing you with a death benefit. 

You can see that the cost for the death benefit is typically in the first few years, what we call the capitalization period. That’s why it’s a bit confusing that you’re paying premiums early on and your cash value is not equal to the premiums you’re paying, and there’s a cost there. Well, where is that going? Well, it’s going to buying this death benefit that is of value to you. Now, I know in infinite banking circles we primarily focus on the cash value, but there’s no reason to push down the value of a death benefit.

Nate Scott [29:45]:

The idea is, from day one, as soon as I bought all my infinite banking policies, there is a guaranteed death benefit waiting for me and my family in the future. That’s an awesome way to leave a legacy. In fact, the wealthier you become, the more likely whole life insurance is mentioned by estate attorneys and tax professionals as a way to preserve and transfer wealth. It’s one of the best tools to preserve and transfer wealth. That’s like the conventional idea of whole life insurance. 

And so nonetheless, we get to do that and solve for banking all at the same time. We shouldn’t push that down. So you get all of these characteristics of the policies that help produce the concept, but nonetheless, never forget that the whole premise that you need to agree to or disagree to, to determine if infant banking is right for you, is to really understand the fact that we believe that mutual life insurance companies produce the best environment to do banking because of the fact that you become an owner of the banking institution as opposed to just a customer.

Nate Scott [30:44]:

If you agree to that premise, then you can start asking questions and diving into the details. If you disagree with that, then don’t come over here. If you think that the banks are likely to produce better results than policies over time, use banks. They’re happy to have the money. So I hope this has been helpful to you to make a clear, concise understanding of what infinite banking really is. 

By the way, we believe we have the best course available to understand inventory banking. You can go to livingwealth.com/escapethebank to get access to the free course that we have online about infinite banking. I really do believe it’s one of the best courses around that you can find, especially for free.

Nate Scott [31:19]:

I mean, it’s really great and it’s free to understand infinite banking. So go to livingwealth.com/escapethebank to sign up for free for the course. Thanks so much for being here, guys. This has been Dollars and Nonsense. If you follow the herd, you will be slaughtered. Bye.