E118: Shatter Myths Promoted About Whole Life and the Infinite Banking Concept by Shameless “Gurus”

Nate: In this episode, we discuss some of the most common misconceptions about infinite banking and whole life insurance that are promoted by many ignorant financial gurus. She’s Holly, and she helps people find financial freedom.

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

Nate: All right. Well, today we’re going to discuss something that was brought on by something in the news that we’ve actually been contacted by a decent amount of our clients. I don’t know how much is decent, but certainly a couple of handfuls of clients who overheard something in the news about life insurance and that caused a stir. And we realized that this has been the case for a lot of different things. There’s a lot of different misconceptions out there and misunderstandings about how things work in the infinite banking world and in the whole life insurance world. And this was just kind of another one to add to the fire. So, Holly, what happened that really caused a crisis in some people’s head or anxiety regarding their policies? Why were they calling you?

Holly: The biggest reason why they were calling, and I had an appointment and emails and stuff, was because they had heard in the news that if you got the COVID-19 vaccine that it would void out your death benefit because it’s an experimental drug. And so that it voids out the death benefits of life insurance policy holders. So should they not get the vaccine? Should they get the vaccine? And what happens if they also die of COVID, because it’s this pandemic and stuff, would they still have their death benefit? Would their death benefit be paid out? And you can say it’s, no, that’s crazy. Right? Why would somebody even say that or believe that? But actually it even as an agent makes you a better person to actually, how many times do you read through the contract? And really life insurance policies are, it’s a legally binding contract.

And so the contract has to stipulate exactly why a death benefit would not be paid out. There’s stipulations in there such as suicide, depending on how old the policy is, or if you lied on your application. Right? Things like that. But the reality is most of the time we believe something because it’s out there in the news or we heard it, it must be true. And so we panic instead of looking or investigating ourselves. And what I laugh about is all the people that even contacted me, they actually have a policy, so they could read their policy themselves to see if there’s an exclusion in it. I actually went and read through the policies. I even asked the insurance companies, Nate, called them and said, “Is there any reason there’d be an exclusion for this?” Right? “In the contract is there anywhere it would be excluded?” And they’re like, “No, there’s no exclusion for that.” But it actually is in the contract there’s not an exclusion for an experimental drug.

Nate: Yeah. So essentially somebody on the news says, “Hey, if you get this COVID vaccine, and you die from getting the COVID vaccine, maybe it’ll qualify as an experimental drug. And you might have an insurance contract that does not allow for experimental drugs.” In other words, if you die from it, it would be disqualified. And so that causes this big stir and essentially, Holly, you and I hear these types of things all

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the time where someone overheard something, maybe it’s about infinite banking, maybe it’s about whole life insurance, maybe they’re already a client, maybe they are thinking about becoming a client, and suddenly they’re like, “Oh crap, what if that’s true?” So this is certainly an episode of like, hey, don’t believe everything that you hear on the internet. Don’t believe everything you hear on the news, because there may be life insurance policies out there that have exclusions for experimental drugs, but I’ve sold many different policies at many different insurance companies over time, and I’ve never even seen one that that is a stipulation, that it won’t pay out.

So in other words, it must be a very tiny proportion of policies. And yet now, because it was out in the news, everybody’s going to be concerned that there’s might be the one that, “If I get this COVID vaccine and it kills me, my death benefit won’t get paid out because I broke the contract.” Once again, as Holly said, look at the contract. If there is not an exemption for experimental drugs, then you are covered. You have life insurance. As soon as [inaudible 00:04:47], if you die, they pay out. And there’s this tiny little exemption area, which as Holly said, it’s typically a suicide clause, which is for the first two years, they won’t pay the [inaudible 00:04:56] amount if you die from suicide, or if you lied on the application and you die from a condition that you tried to hide from the insurance company, then those can cause an issue. Absolutely. But there’s not some sort of experimental drug common exception in life insurance. It would be a very uncommon exception.

Holly:

Yeah. And I would say the reality is there might be some insurance companies that contracts actually say that in there. The ones that we’ve sold or that we have sold do not state that in the actual contract of the policies. I don’t think there’d be very many insurance companies that would actually have a clause about an experimental drug specifically relating to COVID-19, because most of these policies when they were sold, the drug didn’t actually exist.

Nate:

Exactly. So this brings up kind of the meat of the podcast as well, which is what other things do people hear that are not true, but have been promoted by a Dave Ramsey style guy or somewhere on the internet where they say something. What are the common ones? I know I’ve heard Dave say, which is unbelievably ridiculous, but one of the common misconceptions is, Don’t use whole life insurance to build wealth because if you die the insurance company will steal your cash value from you.”

Holly: Yes.

Nate:

“Your heirs will just get the death benefit, but the insurance company’s going to steal the cash value. So it’s not worth doing.” Which is just a ridiculous misconception. It’s very ignorant to make this style of claim because with a whole life insurance policy, the cash value is simply the equity in the policy. It is not separate from the death benefit.

The death benefit is what you receive upon your death. The death benefit is always greater than the cash value. So no matter when you die, the death benefit will always send out a bigger check than your cash value. And so the cash value is simply the equity that’s being built up in the policy. It’s a nonsensical thing to say, because that would be like saying that if I was to sell my house, I should get the purchase price for the house plus my equity in the house and add them both together. So I’ve got a house that’s

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worth 500,000 and I’ve got a mortgage for 200,000, so I’ve got 300,000 of equity. Everybody would know if I sell the house, I get 300,000. But that type of reasoning would be, I should get the 500,000 plus the 300,000. And so if I sell this $500,000 home, I should really get 800,000, my equity plus the purchase price.

It’s just it’s such a weird argument. It’s such an odd thing to say, because it breaks the concept of insurance and puts it in a weird light. The good news about insurance is that no matter when you die, your heirs are going to get a much bigger check than what you have in cash value. That’s the best part. It doesn’t matter if you’re 70, 80, 90, or 50, whenever you die with a policy, you’ll have cash value, your equity in it, but the death benefit is going to be way bigger. I look at it as a plus. I mean, it would be a Ponzi scheme for the insurance company to give you your equity in the policy plus the death benefit. It’s just a ridiculous notion.

Holly:And what’s so crazy is to even think the insurance company is stealing your cash value. You with the mutual company, you’re a shareholder, you’re an owner. So basically you’re stealing from you if you believe that truth, because you own the company. The insurance company works for you. So they’re doing the best for you. But the reason people believe that is because they’re just like Nate said, no, the cash value and the death benefit is not added together.

Nate: Yeah, exactly. The death benefit is the death benefit.

Holly: There’s a reason the death benefit’s higher.

Nate: Exactly right. Some people may be worried, well, if they don’t give me my cash value upon my death, then what if my cash value is greater than my death benefit? So that might be like a worry or a question. They’re like, “Okay, Nate, I hear what you’re saying. What if the cash value is greater than my death benefit though?” To which case we would say, that’s impossible.

Holly: It is.

Nate: The death benefit is always greater than the cash value. Anything that you can do to make your cash value grow will also make your death benefit grow. So anything that you can do to make your cash value grow faster will also make your death benefit grow faster. So there’s no way that your cash benefit will ever exceed your death benefit. The death benefit will always be greater than your cash value. I’ve never made an investment in another type of investment where I got to die and my heirs received a much larger check than what was available to me. That doesn’t happen anywhere. But that happens in life insurance. That happens in whole life. I have this big pile of cash value. I’ve made a ton of money from infinite banking. I’m sitting on these huge profits. I die. My heirs get even more money than I built up. It’s a good thing, but yet they’re trying to turn that into some sort of negative to whole life insurance that suddenly the insurance company steals your cash value, which it’s just a funny, it’s like it doesn’t make any sense to me.

I guess maybe it makes sense to him because he says that if you have term insurance and you invest the difference, then your heirs get the term insurance plus the investment or something like that. But he does not understand IBC. We’re not doing this as a death benefit focused deal. In other words, if you want to buy term insurance, because you think you’re going to die young, go for it. The insurance company doesn’t think you’re going to die young. It’s probably just a waste of your money because an insurance company knows that. It’s highly profitable to them because there’s like one out of a thousand actually pay out. But if you want to, go for it, and then you can get the death benefit from your whole life and your term, and you have a ton.

Holly: Yeah, they don’t have a ton, they’re dead.

Nate: Yeah, the heirs have a ton.

Holly: The heirs have a ton.

Nate: Your legacy will be huge if you had term and whole life rocking and rolling in that same way. So that’s a weird thing people heard, “Hey, does the insurance company steal my money when I die?” That’s a misconception. It doesn’t make any sense.

Another one that’s very common, that we hear a lot, or some people have a concern, whether they voice it or not it’s kind of a thought. That, “Hey, with a premium, a whole life insurance policy premium, what happens if I don’t pay it?” And I feel like some people think of the worst like, “If I don’t pay my premium every year, I’m going to lose everything in this policy.”

Holly: Yep.

Nate: Ridiculous. And it’s unbelievably crazy for someone to think that if they have hundreds of thousands of dollars of cash value built up in their policy and they miss a premium one year that suddenly the insurance company is going to close down the policy and confiscate the money. It’s laughably wrong. But some people will come in with that notion. And in that same type of vein, Holly, they’ll come in with the notion that you have to pay a premium every single year till the day you die. So what is wrong with these types of thinking, Holly?

Holly: Part of it is the design of the policy, but your policy, like Nate said, it does have cash value. The reality is that if you don’t pay your premium, they don’t just close your policy and you get nothing, and it’s just gone forever. Most of the time, what they do is take a loan from the policy to pay the premium or otherwise known as premium offset. Most of the policies, even Nate and I design, I would be surprised if after year five or six, really, you couldn’t sustain the actual premium of the policy based on the design and have enough cash value growth that it could pay the policy in the future. So the reality is the insurance company isn’t looking to get rid of you. Remember they work for you.

What they’re trying to do is ensure growth takes place and that this policy does stay in force. And if you can’t pay your premium, most of the time they work with you, they give you an extension. They say, “Here’s how much cash value you have. Do you want a loan to pay for it?” I mean, there are way more options to keep a policy in existence than if you had a negative bank account. Right? Or a zero in your bank account and they close it. You have more likelihood of closing the bank account than you do, in my opinion of having your policy closed.

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Nate: After year five or six of a policy, you could never pay a premium again and the policy would still grow really well. In fact, if you’ve been to our website and you’ve maybe downloaded Ray’s ebook, or you’ve taken our free beginner’s course, or maybe you’ve purchased Nelson Nash’s book Becoming Your Own Banker, all of these types of resources will show policies where we elect to do a premium offset at year four or five or six or seven, somewhere really early on. But some people will still come into this with this thought that I have this premium due for forever. And if I don’t have enough money in a bank account to pay for it, then something terrible is going to happen to me. No it’s not. A premium is just a deposit essentially into the policy. And once it’s capitalized enough, the policy won’t care if you ever send another check in out of your pocket again. It’s going to continue to grow really well without you needing to cover the premium.

So you don’t need to pay a premium until the day you die out of your pocket. The policy can pay for itself when it’s a high cash value policy really quickly. And that kind of answers the question that we had asked, which is, if I miss a premium something terrible is going to happen to me. As if like, Hey, if I don’t pay a premium, the insurance company is going to lapse the policy and it’s going to go away. It is possible to lapse a policy, but to lapse a policy, you already have to have taken all your money out. So there has to be $0 in the policy. You have to already have taken all your money out and then a premium has to come due and you decide not to pay the premium, but that’s not as if the insurance company’s going to be taking your money. You already took all your money out of the policy.

So if you had a policy that had a hundred thousand dollars of cash value, and you took all a hundred thousand dollars of it out, and then a premium came due and you didn’t want to pay the premium, what is the insurance company assume? They assume you don’t want the policy. You don’t want to pay your premium, and you took all the money out. So I’m not saying that’s impossible to close a policy or lapse a policy, but what people assume is that if I don’t pay a premium and I have all this money in there, the insurance company is going to take it all from me, which is a ridiculous thought. The premium is not something that you’re 90 years old having to scrounge up your social security check to pay. Hopefully. If you plan correctly and are as wealthy as you should be when you practice IBC.

Holly: Yeah. And I think along that same line, Nate, is the belief that the paid-up addition rider it has to say on forever, or you never have any cash. Or on that same, and I’m going to say same thing, the only cash associated with a life insurance policy or an IBC policy is the paid up addition rider. That that’s the only thing that generates cash. And neither one of those statements are true. The paid-up addition rider doesn’t have to stay on forever in order for you to still maintain cash. In fact, we encourage you to reduce it or take it off, but the policy grows by making premium deposits, whether that be in base premium, little technical here, or in the paid-up addition rider premium. But it’s premium deposits that you have to make. It’s not just one or the other. In fact base premium is what drives the overall long- term growth of the policy.

Nate: Yeah. Some people will believe that there’s an insurance component and a cash component. And my paid-up addition rider is my cash component, and the base premium is the insurance component. I think I know where they’re coming from, it’s just not true. The base premium produces cash value just like the PUA does. In fact, it probably does a better job at producing cash value. When you get into the later years of the policy, then the PUA rider does itself. That is maybe a little bit technically speaking, especially if someone’s listening to this and they’re kind of brand new to the infinite banking concept, but essentially the PUA rider is what we use to boost the policy with cash value early on. But it’s actually your base premium part of the policy that will continue to produce value and even probably more effective value long-term. So there is not an insurance component and a cash component to the policy.

They’re just both essentially going to be cash components. They’re both going to produce cash value. You can buy a policy with no PUA rider and end up doing okay, honestly. It would be slower and I would not recommend it, but there’s plenty of people who’ve owned just base premium whole life policy since the eighties, and those things are just rocking and rolling now. So there is not a cash component and an insurance component of whole life. They’re both going to produce cash value.

And let’s do the last one here, Holly, the last myth promoted by ignorant financial gurus and talking heads. And that is, “Well, this whole infinite banking thing. If I need to use money for my policy, I’m going to have to take out a loan. And I got to pay interest to use my own money. Why would I want to do that?” And that is a very common, especially first question that people will have as they get involved with IBC. “You’re telling me I got to pay interest to borrow money?” Yeah, that sounds terrible.

Holly: It sounds terrible yet if you borrowed money from somebody else, you’d pay interest.

Nate: And that’s actually instead of one that’s incorrect, but the fact that they think they’re borrowing their own money. No, you have a cash value in a policy that is growing guaranteed and earning dividends. And the insurance company allows you to post that cash value as collateral. And they will lend you money. It’s technically not your money. You’re borrowing against your policy from the insurance company. Even though you do have to pay interest, the reason they can work in your favor is because the insurance company has not taken a dime from your account. So your policy is going to continue to compound on the full amount, not on the net amount. And this is the way Nelson Nash taught us when we were all learning this concept. Essentially what happens, the insurance company has this cash value.

Let’s say you have a hundred thousand dollars of cash value and they’ve already guaranteed that it’s going to grow. And it’s going to earn a dividend this year and they’ve already declared the dividend. And we know that at the end of this year, that hundred thousand dollars cash value is going to be worth $105,000 of cash value. So it’s going to grow by $5,000 this year let’s say. The insurance company has to have that hundred thousand working. It’s got to be out working, earning interest for them to be able to do this for you obviously. To be able to pay you the guaranteed interest plus the dividend the money’s got to be working someplace. But you as the policy holder and an owner of the company, outrank everybody else when it comes to access to this money. So you can call the insurance company anytime and say, “Hey, you know what? I don’t want you to put this money to work elsewhere. I want you to lend it to me, and I’ll pay the interest, and you’ll use that money to grow the policy.”

So they say, “Okay.” They write you a check for a hundred thousand dollars. You pay them back. Let’s say the interest is 5%, which is what it would be many times. So you pay 5% interest on the loan. You did borrow against the money, but guess what? They’re just using the interest that you’re paying essentially to credit your account. Now it may not be a direct deposit into your account, directly right into your cash value, but in a roundabout way that’s how it works. And what’s cool about the policy loan system is that its simple interest on the policy loan as you pay it. But yet the hundred thousand dollar cash value is going to compound every year. So if you had that outstanding loan and just paid interest on it for five years, your hundred thousand dollars will have compounded to be way higher than any amount of interest that you would have paid. So essentially they’re saying, “Well, you go to pay interest to borrow your own money.” No, you don’t.

You’re paying interest to borrow the insurance company’s general account money that is out working. And you just happened to be a place where they can invest money and you outrank everybody else. And the reason that works in your favor is obvious, because you’re not taking your own money out. Your money gets sustained and compounds the entire time.

Holly: When you think of this as a bank, and it is a bank, the shareholders of banks make money by individuals borrowing from them and paying interest. In the same way you are a shareholder of the company and you’re going to be making money. Plus like Nate said, you have uninterrupted compounding taking place in your policy. All the premium deposits you have made on that cash continues to grow irregardless of you borrowing money from the life insurance company to use. That’s also, Nate, why are people also will just say, “Whole life insurance is a lousy place to put money.” They obviously don’t understand the concept of whole life insurance and how it works or else you would think it’s actually one of the best places you could ever put your money.

Nate: Well, yeah, it’s always compared to what? Whole life is a lousy place to put money on compared to what? And we talked about this a little bit. I don’t know if we want to dive too deeply, but every financial strategy investment tool, it has to be compared to things that are trying to achieve the same goals. So if you’re making an investment to produce cashflow, that’s really what you want, that’s your goal, then a mutual fund is not your best friend. It’s not to say a mutual fund is inherently bad. I personally don’t really love him, but it’s not to say a mutual funds inherently bad. It’s just not going to do what your goal is. If your goal is, I want to put my million dollars in a place it’s going to spit me out a consistent $80,000 a year, a mutual fund is not a good place to do that.

Maybe a rental real estate, commercial real estate, syndications, something of that nature may produce steady checks way better than this other thing. So essentially when they say whole life insurance is a lousy place to put money, my question is always, “Compared to what?” And if the goal of the policy is to become a bank, then we have to compare it to other ways to finance things in life. That’s what we have to compare it to. How else could I have built capital up and used it in a banking fashion? Because banking is just simply the movement of money. All we’re trying to say is everybody has a hub for their financial situation. Most people have a bank account as their hub. That’s where their paychecks get deposited, expenses will come out of there, investments come out of there, that’s their pool. And all we’re saying to do is if you would use policies as your hub, instead of bank accounts, you’re going to end up making hundreds of thousands, if not millions of dollars more over a lifetime through that system.

So in other words, you always have to say, compared to what? I mean, whole life insurance is amazing compared to what it should be compared to, which is banking instruments. And now if you want to use the policy to make other investments that can earn higher rates of return, please do. That’s not what we’re trying to replace. We’re just trying to replace how you finance those investments. So that is an interesting myth or odd thing to say that whole life insurance is a lousy place to put money. You can say that about anything. If someone’s big in real estate, they can say, mutual funds are a lousy place to put money and vice versa. And it’s like, “No.” Everything has its purpose. And if you use the tool or the strategy the way it’s intended to be used, then you can achieve good results. So I don’t know if that was helpful.

Holly: I think it was, Nate. It is helpful. And you also have to ask yourself with banks, banks are in the money business. That’s where most money is stored in the world is in a bank. We would think. And if a bank is such a lousy place to put money and you think life insurance is a bad place to put it, then why are banks putting so much money in life insurance?

Nate: Yeah, you’re essentially just making a deposit at a bank and they use that money to make loans that produce profit. And then they take that profit and buy bank owned life insurance. [crosstalk 00:25:36] okay with it. They just know how to use it better than you do. That’s what it boils down to.

Holly: Yeah, they know how to use the money better than you do, or either they know something about money you don’t know. Right?

Nate: Exactly. And it’s okay to be ignorant, but it’s not okay to remain ignorant. So you now know what you can do. There’s a lot of things you can hear in the big wide world of finance, that Nelson Nash called that Noise. There’s a lot of noise going on, and you have to insulate yourself from the noise. Your death benefit will get paid out even if you get a COVID-19 vaccine. So that’s what started it. And then there’s so many other things you can hear about whole life insurance and infinite banking that’s just not true, but it’s out there. We thought we’d send this out to help anyone who’s had a trouble finding the right answer, the truth to it. Just look a little bit closer and you’ll see it pretty easily. Any last words, Holly, before we close it down?

Holly: Nope.

Nate: All right. Well, this sounds good. This has been Dollars and Nonsense. If you follow the herd, you will get slaughtered.

Holly: For free transcripts and resources please visit livingwealth.com/e118.

Announcer: Dollars and Nonsense podcast listeners, one more thing before you go. Ease your worry and start your journey towards security today. Visit livingwealth.com/secretbanking. You’ll gain instant free access to the special one hour course Holly and Nate made for you. Again, that’s livingwealth.com/secretbanking.