What Dave Ramsey gets wrong about infinite banking
Radio host Dave Ramsey Ramsey is a critic of the infinite banking concept, going as far as to call it a “scam” on an episode of his show broadcast at the end of 2020. However, there are a few things that Ramsey misunderstands about the process.
This article outlines three misconceptions that Ramsey, and other financial gurus, get wrong about infinite banking.
Infinite banking is not the same as whole life insurance
One of the first things that Ramsey and others get wrong about infinite banking is that it is not just an investment in whole life insurance. Whole life insurance is used in the infinite banking concept. It is a tool that allows you to become your own banker.
A common piece of advice that Dave Ramsey gives is to “buy term, invest the difference.” With this idea, you can potentially make money on another investment, but the cash within the policy must be left there to get a return down the line.
With infinite banking, instead of building cash and making another investment, you have the opportunity to build cash value into the policy and use that cash value for another investment. This gives you a policy that will continue to grow, allowing other potential investments to grow as well. This enables you to get a higher rate of return while also keeping your money in motion.
Infinite banking is not about investing in life insurance. It’s about using a policy in this new way to become your own banker, and becoming a banker includes financing your investments with your policy instead of cash….It’s the financing tool, the banking tool to do all things that we want to do in life.
Downplaying the value of a policy and exaggerating the value of other investments
Another misconception by financial gurus is downgrading the potential of a policy while exaggerating the potential of mutual fund or stock investments. For example, they often claim that percentage of growth in another investment such as a mutual fund is much higher than that of a whole life insurance policy, stating that it only sees about one to two per cent growth. By comparison, a mutual fund can see upwards of 12 per cent growth annually. However, it is likely, you will not be able to realize much money.
With a mutual fund, for example, the fees eat up some of that extra value. You would have to earn a gross of 8 to 9 per cent to pay for these fees to be able to net around 4.5 to 5 per cent.
With whole life insurance, although the growth is often quoted at 1 to 2 per cent, it is usually in the range of 4 to 5 percent annually over 30 years. In the example above, this would be about the same as you would make using a mutual fund. The main difference, however, is that the return is guaranteed. Additionally, it grows tax-free. Moreover, term policies get more expensive as you get older. So once the term period has ended, it is likely to cost you more money to purchase another one. Is it really worth the risk to try and earn 8 or 9 per cent just to end up netting 4.5 to 5 per cent, that you could get into policy even having to break a sweat or worry about the volatility of anything?
The cost of whole life insurance vs. the dangers of not investing the difference
With the concept of “buy term, invest the difference,” success depends on people investing the difference. However, many don’t have the knowledge to do it or the resources to get started. However, if you are not making another type of investment, you are not getting much out of the term policy. You are still paying fees without gaining wealth; this has the potential to do more harm than good down the line.
For example, once a term is over, a new policy would likely be more expensive. Additionally, it may be more challenging to get one due to changes in health as you grow in age. Due to this, it may not be easy to get a new policy, leaving your family without enough money.
The only way money’s paid out is if you die, and the likelihood of you dying is very slim compared to the life insurance company having the money to use and cover that. A life insurance company doesn’t sell you term because they think that you’re going to die. They’re betting you’re going to live.
This is not to say that following the “buy term, invest the difference” mantra is bad; people just need to be aware of the risks that could come along with doing so. For example, there is potential to make good money through investments in the stock market or mutual funds, but these may not be guaranteed, and you must be equipped with the knowledge necessary to be successful.
With whole life insurance, a lot of these issues are not prevalent. It may cost more upfront, but you are covered for your whole life; the investment has more certainty. Therefore, having a whole life policy, especially when you are young, can significantly benefit you when you are older.
Infinite banking is not an investment in whole life insurance. It is not whole life insurance. It is a system, a concept of using a policy to become our own banker, that would include financing other investments you want to make.
Podcast episode: What Dave Ramsey gets wrong about infinite banking
List to our experts discuss this topic on our Dollars and Nonsense podcast. There are two episodes about Ramsey and his misguided advice:
- Episode 85: Why Financial Gurus Like Dave Ramsey are Wrong.
- Episode 32: The Best and Worst of Dave Ramsey’s Advice
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Cash Flow Insurance With Infinite Banking: What You Should Know
Cash flow is one of the most important components of financial health. Inadequate cash flow is the reason 82% of small businesses fail, and it is also one of the causes of personal debt.
If you want to grow your financial stability, you need to focus on putting measures in place to ensure reliable cash flow for yourself and your family.
One way to do this is through cash flow insurance and the infinite banking concept.
With adequate cash flow, you can avoid having to take on detrimental debt. You can also take advantage of opportunities that require timely funding.
As an example, McDonald’s, Disneyland, and J.C. Penny are all billion-dollar businesses that were either started or saved through the use of cash flow insurance and their founder’s inline banking system.
The first step to leveraging the advantages of cash flow insurance and infinite banking is to understand how these strategies work. Keeping reading to find out what these concepts are as well as the potential benefits of these strategies.
What Is Cash Flow Insurance
First up, what is cash flow insurance? Cash flow insurance might make you think of a type of policy that insures your cash flow.
This is not the case.
Cash flow insurance is a phrase that is used within the infinite banking concept. It is also one of the main benefits that infinite banking offers.
To understand the term, let’s take a look at the infinite banking concept and how it works.
The Infinite Banking Concept
Infinite banking, also known as private family banking, has been around for a long time and is a popular strategy with the wealthy, as well as institutional banks themselves.
In the early 1980s, Nelson Nash popularized the concept and coined the phrase “infinite banking.” He personally used the strategy to escape debt and build large amounts of wealth over the remainder of his lifetime.
The basis of infinite banking, also known as cash flow banking, is the use of whole life policies as a savings vehicle that can also be borrowed against at low or canceled out rates of interest.
Whole Life Policies and Cash Flow Banking
Whole life policies are valid for the entire duration of the policy holder’s life. They do not expire the way term life policies do. What’s more, they also accrue a cash value.
Once this cash value reaches a certain level, it can be borrowed against by the policyholder. The borrowed cash can then be repaid at will, providing that the policy does not lapse.
When used this way, whole term policies can provide a valuable source of cash flow for the holder. To get a true idea of why whole life insurance can provide you with your own “cash flow bank,” let’s take a detailed look at the benefits of borrowing from a whole life insurance policy.
The Benefits of Cash Flow Insurance
If structured correctly, a whole life policy can provide several benefits around cash flow, borrowing, tax savings, and more.
Cash flow insurance through the infinite banking concept makes borrowing easier, cheaper, faster, and reduces the opportunity cost associated with utilizing cash savings.
The Capacity for “Interest-Free” Borrowing
One of the attractive advantages of using a whole life policy as cash flow insurance is that in some cases, you can borrow from them for very little to no interest.
When borrowing against your cash value, the insurer will charge you interest on the loan. However, if you take out a whole life policy that allows for non-direct recognition policy loans, your cash value won’t be touched. Instead, the insurer will lend you money from an independent account that they own.
This means that although you will be charged interest, your cash value won’t be reduced, and will continue earning interest and dividends. In some cases, the interest and dividends will be able to cancel out the interest on the loan amount.
In others, you may even be able to make a marginal profit on your loan—something almost unheard of.
Swift Access to Cash Flow
When borrowing from a whole life insurance policy, you don’t need to go through an approval process to receive your loan. All you need to do is request it.
This means no credit checks or drawn-out waiting periods. Instead of waiting days or weeks for approval, you can have the money in your account within a few days.
Loans Do Not Show on Your Credit Report
Loans from whole life insurance policies do not show up on your credit report, as they are privately done between you and your insurer.
If you are looking for other types of credit, such as a home loan, and want the best interest rate and terms, this can be of great benefit.
Flexible Terms
Another key benefit to cash flow insurance using whole life policies is flexible loan terms. You are free to pay the loan back at any point. This poses great advantages to business owners, such as contractors.
Contractors frequently struggle with insufficient cash flow as they often need to foot project costs for several months before their lump sum payment comes in. In these types of circumstances, having your own “cash flow bank” with little-to-no interest and highly flexible terms is ideal.
You do, however, need to ensure that the interest on your loan doesn’t mount up and cause your loan to exceed the cash value of your policy. If this happens, your policy will be in danger of lapsing.
Tax Savings
The other benefit of private family banking and cash flow insurance is that the tax on the growth of whole life policies is deferred. Additionally, the death benefit is non-taxable.
Stable Growth
Another key perk to infinite banking is stable growth rates. If you choose a policy from a mutually owned life insurance company, the worth and growth are more reliable than many other investment vehicles that are tied to the stock market. This is because these policies are invested in non-correlated assets.
Do You Want to Learn More About Infinite Banking?
Infinity banking and the use of correctly structured whole life policies can provide business owners and families with a valuable source of cash flow insurance.
Besides this, private family banking also offers unique tax benefits and can be an impactful wealth-building tool.
If you want to learn more about the infinite banking concept, you have come to the right place. To get savvy about family banking, you can take advantage of our free course, or tune into our podcast.
If you are looking for assistance in implementing the infinite banking concept, feel free to contact us. We specialize in helping families and individuals achieve financial freedom and resilience via the infinite banking strategy.
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The First Step to Becoming Your Own Banker
A recent study shows that only 11% of Americans strongly feel that they are financially secure. Are you part of this 11%? If not, you may be interested in learning more about becoming your own banker.
Research has revealed that financial security is the leading source of happiness—and stress. Financial instability can affect your family, your future, your health, your children’s education, and even your relationship.
Becoming your own banker is one way to regain control over your finances and start building a healthy savings base. (The strategy is based on the book by Nelson Nash of the same name.)
Survey results indicate that more than half of Americans don’t trust banks. By becoming your own bank, you can step away from relying on a fragile banking system to safeguard your family’s financial security.
What’s more, you can also gain a number of tax and credit advantages.
If this sounds like your kind of solution, read on to learn the first step to becoming your own banker.
Step 1: Understanding Private Family Banking
The first step to becoming your own banker is to get to grips with the concept of family banking, also known as the infinite banking concept.
When people hear the term “become your own banker” they often picture literally starting a bank. Or, they think it involves hiding money in pillowcases under the floorboards.
Private family banking is neither of these.
What is Family Banking?
Family banking, or infinite banking, has existed for some time and was popularized by Nelson Nash. He used the concept to rescue himself from unsustainable debt and grow his finances to the point where he owned multiple “family banks”.
The way he did this was through whole life insurance policies.
Whole life policies used to be the norm in life insurance. As time progressed, term life insurance surpassed it in popularity. Term life insurance is much cheaper than whole life insurance. However, it lacks most of the benefits that whole life policies hold.
Instead of expiring, whole life policies are valid for the duration of your lifetime. After this, they pay out a tax-free death benefit. As well as a guaranteed death benefit, these policies also accrue what is termed a “cash value”.
The reason why whole life policies can be used as a “private bank” is that you can borrow against the cash value you have accrued.
Benefits of Private Family Banking
The main benefits associated with family banking are tax advantages, security, and “interest-free” cash flow. What’s more, the private family banking concept allows you to borrow money with none of the hurdles that come with credit applications.
Let’s take a closer look.
Tax Advantages
The first tax advantage to whole term policies is that they offer tax-deferred growth. Second, when the death benefit is paid out, this is tax-free.
“Interest-Free” Borrowing
While you’ll be charged interest on what you borrow from a whole life policy, this will often cancel out. When you apply for a loan against your cash value, the insurer does not draw on your policy. Instead, they loan you funds from an independent account that they own.
Therefore, while they are charging you interest on your loan, your cash value is untouched and continues to earn interest and dividends at a compounded rate.
Another advantage of borrowing against your cash value is there’s no approval process. The money is yours to borrow so long as you have sufficient cash value, and you can be in possession of it in a matter of days.
Lastly, any money you borrow is private, and won’t show on your credit report.
Enhanced Security
While retirement funds account for the lion’s share of most people’s financial security, these are not always the safest of vehicles for saving. The pandemic spurred market crash is bringing this to the forefront of people’s minds as they watch their 401K account balances dwindling.
While now is not the time to pull your 401K, and hopefully these accounts will recover in due course—it’s not nice having so little control or surety over your savings.
Contrastingly, savings that are in whole life insurance policies are more stable, providing you go with a mutual life insurance policy rather than a stock insurance policy.
Which brings us to the next step in becoming your own banker.
Step 2: Getting the Right Policy
Once you thoroughly understand the concept of family banking, you’ll be able to ascertain whether it is something that fits in with your financial goals. If it is, the next step to becoming your own banker is to investigate whole life insurance products.
There are many different types of whole life policies, and not all of them are suitable for private family banking purposes.
Look At Cash Value Accumulation
For a whole life policy to truly facilitate family banking, it needs to provide maximum cash value accumulation. Most policies are structured in the opposite direction, in the interest of enhancing the death benefit.
To be able to achieve a faster rate of compounded interest, and a cash value that you can borrow from, like a bank—you need a policy that’ll allow you to plow all your resources into the cash value. This is often termed to be a “blended” policy.
Take Advantage of Riders
To meet the criteria for effective cash flow banking, a policy also needs to allow “paid-up additions riders” and “term insurance riders”. These riders essentially allow you to increase the cash value of your policy as quickly as you can without triggering the IRS stipulated level where your policy will be deemed an investment for tax purposes (which means no tax deferment).
Go for Products That Offer Non-Direct Recognition Policy Loans
Another vital requirement is that the policy you select must be eligible for non-direct recognition policy loans. In normal language, this means that any loans you take against your cash value will not be taken from your policy. Your cash value will remain untouched and continue to earn interest and dividends, offsetting any interest you have to pay on the loan.
Direct recognition policy loans, on the other hand, will result in a withdrawal of funds from your cash value. This will impact your earning ability and negate one of the big benefits of private family banking.
Choosing a whole life insurance product for the purpose of family banking is a big decision. Don’t rush the process. Research different insurers, compare your options, and speak to professionals.
Are You Interested in Becoming Your Own Banker?
Becoming your own banker holds numerous advantages. From tax savings to compounded growth, savings security, and essentially interest-free loans, private banking can be a cornerstone of a successful long term financial growth plan.
However, to implement it effectively, you need to pick the right whole term insurance product.
If you feel that you need advice, contact us. We specialize in helping families find financial freedom through the private banking concept.
You can also take advantage of our free course, or tune in to our podcast for more insider info.
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E59: How to Avoid 50 Years of Money Mistakes with Infinite Banking
Ray Poteet joins us to share the money mistakes that he’s made over the past 50 years to help you avoid the same pitfalls. These are lessons from both in the investment world, as well as the errors he made while initially practicing Infinite Banking.
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Jim Harbaugh’s Contract with Michigan Includes a Life Insurance Loan
The University of Michigan and its football coach, Jim Harbaugh, recently agreed to an updated contract that will increase payments from the school, as well as loan Harbaugh $4 million in 2016 and $2 million for the following five years to pay life insurance premiums. According to information from a Freedom of Information Act request, the first $2 million loan payout was made on June 3, and each additional payout will be made each December.
At Living Wealth, we teach families and small businesses how to create and transfer wealth by Becoming Your Own Banker through Private Family Financing.
According to reports, Harbaugh does not need to repay the loan until he dies, as long as that insurance policy remains active. Upon his death, the university can recoup the investment it made, and the rest of the insurance payout leftover after the loan is settled will go to Harbaugh’s beneficiaries. If the policy is stopped, Michigan will still be able to get its money back from the insurer.
It is a tremendous savings vehicle for Harbaugh, to be sure. As a result of this deal, if Harbaugh dies while Michigan is paying for the policy, his heirs will get at least 150 percent of the premium that has been paid. This clause also protects Michigan — Harbaugh is allowed to borrow against the policy while alive, but must keep at least 150 percent of the value of the premium untouched, ensuring the school will be able to get back its investment if needed.
There are other contingencies in place as well. If, for example, Harbaugh is fired from his position or decides to leave the school, the university will no longer provide the loans for paying these premiums. If the policy is canceled afterward for any reason, Harbaugh must pay back the money loaned to him by Michigan.
This arrangement between Harbaugh and the University of Michigan is similar to the Infinite Banking principle we use as a vehicle to accumulate wealth at Living Wealth.
It allows Harbaugh to avoid traditional banks, getting access to money that can then grow significantly larger. While he does have to pay back the loan eventually, by the time he pays it off the money he has will dwarf the amount he needs to return to Michigan.
The University of Michigan, from an asset accumulation (endowment) perspective, is one of the top ten universities in the United States. Seems like smart people making smart business decisions.
For more information about Infinite Banking and our services at Living Wealth, contact us today.
Nate Scott, Client Development Coach
Nate Scott joined Living Wealth, Inc. with a desire to help families and small businesses become financially free. It was there, under the wise leadership of Ray Poteet, that he learned the power of “Becoming Your Own Banker” through Private Family Financing (PFF) and has made it his mission to tell others so that they can feel the same sense of freedom and control that he enjoys today.
Nate loves to teach people the benefits of becoming their own banker and to coach them on how to successfully implement the system in their constantly changing lives. He longs for everyone to hear the truth about how money really works and to understand the power and freedom that Private Family Financing can bring to their families.
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Why So Many Americans Distrust the Federal Reserve
One of the few topics on which most Americans can agree seems to be a distrust in the nation’s banking system. A 2015 Gallup poll revealed that the only federal agency in the United States with a consistently lower approval rating than the Federal Reserve was the Internal Revenue Service. That’s a shockingly low level of trust and approval.
Even big-time politicians on both sides of the political spectrum take turns in blasting the Federal Reserve. Presidential candidate Donald Trump has accused the Federal Reserve of keeping interest rates low to protect the image of the current Democratic administration. Numerous Democrats have gone on record to criticize Republican attempts to raise interest rates.
The average American has a much simpler reason to dislike and distrust the Federal Reserve. Simply put, they’ve been burned before, and the memory is still fresh in their minds.
The 2008 bank bailouts left a bad taste in the mouths of Americans across the country. The majority opinion in the general public seemed to be that the government had no business bailing out banks that got themselves into a mess with terrible mortgage loans and lending practices. Politicians on both sides of the spectrum have said the bailout helped banks, but at the expense of the average taxpayer.
Many people lost a lot of money in the 2008 economic recession, especially people who had mortgage loans. Much of this is due to a lack of care by the big banks, who flouted the responsibility they have with the money of their constituents.
Don’t rely on the big banks
If you are among those who have a distaste for the big banks as a result of the bailout and their reckless practices, there are still plenty of options you have to save money without relying on traditional savings practices that only serve to line the bankers’ pockets.
Living Wealth helps you to operate on a principle known as Infinite Banking. Rather than stocking money away in a savings account, you use dividend paying whole life insurance as the vehicle for your savings, allowing your savings to grow tax free while participating in the insurance company’s profits.
For more information about how Infinite Banking works and about how you can take control of your savings rather than relying on the big banks, contact us today at Living Wealth.
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The Most Common Reasons People Lose Big in the Stock Market
There are so many people who believe that the stock market is their key to getting rich quick and building up their retirement savings easily. The reality is the stock market, while it can be a good way to make your money grow and work for itself, can also be a good way to lose big really quickly, especially if you are inexperienced with it.
Keep in mind that you have your money and your future to worry about: this isn’t a game. With that in mind, here are a few of the biggest reasons people lose big time in the stock market:
They have unreasonable expectations.
Click to get your copy of 3 Sure Fire Ways to Lose Your Shirt in the Stock Market and How to Avoid Them
As a general rule of thumb, you should prepare yourself to never see or spend the money you initially put into the stock market. The money will not necessarily be available as soon as you need it. For most people, if they make money in the stock market, it’s because they let it sit there for a very long time.
You don’t just put your money into the market and hope it does well. There are other fees being charged to take into account. You must also factor in the taxes that you will owe on the entire growth, not just what you get to keep once you pull your money out. Many people simply do not understand these responsibilities and the way that money grows in the stock market, which leads to them making poor decisions.
Any money you put into the market absolutely must be money you are not relying on. If you can see yourself needing it at any time in the near future, DO NOT put it into the market. You will want to let it mature for many years.
They put all their eggs in one basket.
Have you heard about “diversifying your portfolio?” That’s what you need to do in the stock market. Too many people pick just one stock, but if that stock fails you have nothing else to fall back on. It’s a simple element of the stock market: you need to hedge your bets, especially if you are placing money in riskier stocks.
They give their money to the wrong people.
It’s understandable to not want to have to deal with the responsibility of your money and stocks yourself. But you are always going to care more about your own money than another person will. If you give up control of your money, be prepared for your hired help to give up caring about it, as they are going to get paid no matter what.
For more information about sustainable means of saving and growing your wealth, contact us today at Living Wealth.
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What is Infinite Banking and why is it an Important Concept?
The way the average person saves in America is fundamentally broken. Even your typical person who could be classified as fiscally responsible spends approximately 30 percent of their income on interest on loans and debt, and saves approximately 10 percent of what they make.
What is important about infinite banking is the process and not the product. Your mind must break itself from the bondage of the banker using your money.
You must take control of the process. At Living Wealth, much of what we do is based on a principle known as infinite banking. It is an extremely effective and efficient way of using your money in your lifetime while also being able to pass down your wealth to your loved ones and charities of your choice. Anyone is able to implement this strategy in their own lives.
In this process, you use dividend paying whole life insurance as the primary means of banking your money. In this way, you are growing your savings while shielding them from tax liability while benefitting from the profits of the insurance company through a dividend. So not only are you able to let your money grow tax-free, but you also have access to much of it at any time, which cannot be said for many other types of savings vehicles like trusts, CD’s and annuities.
This is the real power of infinite banking. The power of good financial habits. Be a great steward of your money. Learning to use your money and not the banker’s money. You are essentially taking loans from yourself, against the monetary value accumulated by your life insurance policy. This maximizes the effectiveness of your money, as every time you take out a loan, the cash value grows and you continue to receive dividends.
This is a more sustainable and financially savvy choice than using traditional vehicles like CD’s and annuities, which take a lot of the control of your finances away from you. As you continue to pay back your policy (instead of a bank), you are recapturing that interest.
Remember: 30 percent of the average person’s income goes toward paying interest. When you’re able to pay that interest to yourself over the course of time, this gives you a significant amount of money that you can redirect for your own purposes. Instead of giving money to bank shareholders, you’re giving money back to yourself.
We would love to provide you with more information about how you can take the concept of infinite banking and use it in your own life. Contact us today at Living Wealth for more information about how you can get started.
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Nearly Half of All Americans Don’t Trust the Banks
For years, especially since the recession, Americans have been growing increasingly distrusting of the country’s banking system. People realize banks are getting rich off of their money, and that they’re paying loans back with alarming interest rates, essentially wasting thousands of dollars over the course of many years.
It comes as no surprise, then, that people have been slowly starting to take money out of their savings accounts and have begun using new means to invest in their future. Americans don’t trust banks!
Not only is Infinite Banking the most efficient way of using your money in your lifetime, it’s the most efficient way to pass on wealth to family members, loved ones, or charities. Infinite Banking is a process not a product. Our goal is to teach you the underlying philosophy of banking, the most profitable business of all time, and explore how this concept can be implemented in your life.
A 2015 report by American Express highlighted just how much distrust there is among Americans of large banks. While a majority of people still keep their savings at a local bank, more than half of those people (53 percent) of all people who save in cash are planning on simply hiding bills at home. Additionally, 43 percent of Americans who are saving money do not plan to do so in a bank account at all.
This was a surprising revelation for many of the nation’s largest banks, and one that certainly does not bode well for their futures. Many of these banks depend on deposits and savings accounts to be able to give out loans and charge those same high-interest rates that have started to turn off their customers.
This is especially interesting in that most Americans are taught from a very young age that a bank is the safest, most reasonable place to build one’s savings. The reality, however, is that putting one’s hard-earned money in a savings account is no longer a good way to build savings, especially considering deposit accounts do not have legal protections, and that the Federal Reserve allows accounts to be frozen to protect the banks if necessary.
Another way
If you are one of the many Americans who no longer trusts the banks to build your savings, there is another way to protect yourself and build your future.
At Living Wealth, we use the concept of Infinite Banking to build wealth and save for the future. With this concept, you act as your own banker, paying yourself back in loan installments and avoiding giving the banks free money through interest.
For more information about this process, contact us today.
Nate Scott, Client Development Coach
Nate Scott joined Living Wealth, Inc. with a desire to help families and small businesses become financially free. It was there, under the wise leadership of Ray Poteet, that he learned the power of “Becoming Your Own Banker” through Private Family Financing (PFF) and has made it his mission to tell others so that they can feel the same sense of freedom and control that he enjoys today.
Nate loves to teach people the benefits of becoming their own banker and to coach them on how to successfully implement the system in their constantly changing lives. He longs for everyone to hear the truth about how money really works and to understand the power and freedom that Private Family Financing can bring to their families.
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