A BEGINNER'S HANDBOOK TO BECCA WILHITE I N F I N I T E B A N K I N G
Becca Wilhite is an Authorized IBC Practitioner with the Nelson Nash Institute. She is passionate about teaching people about IBC in a clear and simple manner, without any extra hype. If you'd like to have a conversation with Becca, you can check her availability and schedule a meeting here: Or visit her website: Infinite banking. Become your own banker. Cash flow banking. Bank on yourself. IBC. There is so much out there on the Internet, and it can get really confusing! This guide is designed to clear up some of the hype and give you the facts. It's not primarily about all of the reasons you should use this strategy (although there is some of that- -I just couldn't help myself!) It is about the nuts and bolts of what you need to understand, or at least make sure your agent understands, as you get started. Now if you're brand new, this might feel like trying to drink from a fire hose. Don't get discouraged! Just keep it handy, and it will all make sense in time. This is a marathon, not a sprint. I just want to help make sure you have your running shoes laced up before you start the race. a note from the author.... -Becca book now Salient Solutions IBC All information in this book is for educational purposes and should not be taken as legal, tax, or financial advice. Please consult your personal professionals before making any financial decisions. © 2023 Salient Solutions IBC
CONTENTS W H Y I B C ? 01 P O L I C Y D E S I G N 02 W H A T I S A M E C ? 03 C O M P O U N D I N T E R E S T 04 L O A N S 05
D E A T H A N D T A X E S 07 C O M P A N Y S E L E C T I O N 06 H O W D O I U S E M Y P O L I C Y ? 08 W H A T ' S T H E C A T C H ? 09 W H Y D O E S N ' T E V E R Y O N E D O T H I S ? ! ? 10
0 1 C H A P T E R W H Y I B C ?
WHY IBC? We can all make the right decision if we have the right information. The problem is, most of us don't. The Infinite Banking Concept, commonly known as IBC, was an idea that originated with a man by the name of Nelson Nash. His book, Becoming Your Own Banker, is the gold standard in IBC education. If you haven't read it, I highly recommend that you do. After reading Nelson's book, you probably still have some questions about the nuts and bolts of utilizing the strategy. This little book is designed to answer some of the questions I didn't know to ask when I first got started on my IBC journey. If you're brand new, though, I want to explain briefly what infinite banking is, and why you might want to consider it as a part of your financial picture. Infinite banking is, in its very simplest terms, a different approach to where you store your "safe" money. It is not an investment. It is a savings warehouse that you can build up and leverage to pay off debt, finance major purchases, or make investments. 2
A life insurance policy designed for infinite banking allows you to store and grow your capital in a place that is safe, liquid, and guaranteed. Best of all, you have the ability to access and use that capital while it grows throughout your lifetime. No more waiting to save until you get out of debt, or get the kids through college, or buy that house, or whatever it is that's holding you back. The truth is, we all know we should be saving more, but we also need money to buy the things we need throughout life. Infinite banking is a strategy that allows you to do both at the same time. But it's not just about saving. Many people leverage the cash value in their policies to start businesses, buy real estate, purchase equipment, or fund other cash-flowing assets. The vehicle used for this strategy is a specially designed, dividendpaying, whole life insurance policy from a mutual company. That's a mouthful, but suffice it to say it's not your typical whole life policy. We're not primarily using it in the traditional sense. We're using it to cut out the middle man and bring banking back to the "you and me" level. We're using it to become our own banker. At the end of the day, it's about being in control of your finances. It's about telling your money what to do instead of the other way around. It's about not being dependent on a banker or anyone else to give you permission to go after your dreams and goals. It's a path to true financial freedom, and the possibilities really are infinite. 3
0 2 C H A P T E R P O L I C Y D E S I G N
POLICY DESIGN There's nothing wrong with a row boat, but if you're looking for performance, there are better options. If you're like most people, your opinion of life insurance is probably heavily influenced by what you've heard from others. As James Neathery would say, "Most people's view of life insurance is based on someone else's misconception." With that in mind, you may have heard that whole life insurance is a terrible place to put money. But this isn't your grandmother's whole life insurance. Picture a traditional whole life policy as a row boat. It serves a purpose, but it's not really going anywhere fast. How could we take something that has a great track record and make it, well, a little more efficient? We could add a sail. The "sail" in a policy designed for infinite banking is something called a Paid Up Additions rider, or PUA for short. The PUA rider does just what it sounds like. It purchases little chunks of additional, paid up life insurance, almost like minipolicies, each time you make a premium payment. What happens once life insurance is paid up? It becomes accessible as cash value inside the policy. Because of the PUA rider, the cash value accumulates much more quickly than in a traditional whole life policy. 5
Sounds like a great plan, right? Well, like all great plans, the IRS gets a say-so. To keep people from getting too good of a deal (and getting out of too many taxes), they have come up with rules that limit how much you can put into a PUA rider (more on this in chapter 3). The more death benefit you're purchasing, the more PUA's you're allowed to add. In order to stay within the rules of the IRS, most of the time we need something to hold up that sail. We need a mast. In this case, the mast comes in the form of a term insurance rider. The purpose of this rider is to raise the death benefit in a less expensive way so that we can contribute more PUA's. We want to have a nice, full sail....and keep the IRS happy. A note about PUA's: Just as you can choose to take down the sail on a boat, you may also elect to change the amount that you are contributing to your PUA rider as you go. This makes these policies very flexible. I recently had a client who needed to reduce their premium due to a job change. It took about five minutes and a call to the insurance company. Although it is to your advantage to fully fund the policy, there are safeguards in place when "life happens." You can use your available cash value to pay your premium, or take a loan to pay your premium. These are not "plan A," but rather a series of safety nets that are available. 6
Now if you go searching very long on the Internet, you'll probably stumble upon a hot topic regarding policy design--policy splits. You'll hear terminology like "40/60" or "10/90", referring to the percentage of premium that goes to the "base premium" (the hull of the boat, in our analogy), vs. the PUA's (the sail). The short answer is that there is no one-size fits all policy design. Your policy design should be based on your individual goals and situation. Remember that there are always trade-offs. Make sure that your agent can explain the pros and cons of different policy structures. Just to review, a policy designed for IBC will generally have three parts: a Whole Life base contract, a Paid-Up Additions rider, and a Term rider. 7
03 C H A P T E R W H A T I S A M E C ?
WHAT IS A MEC? "The nine most terrifying words in the English language are: I’m from the government, and I’m here to help." -Ronald Reagan Back in the late 1980's there was a significant number of ultrawealthy people who started to see the value of life insurance as a tax shelter. Now...full disclosure...before I go on I need to explain that I am not a tax attorney, CPA, or other legal professional. Talk to your people. Now that that's out of the way... These families were dumping very large sums of money into single premium life insurance policies. The powers that be couldn't stand missing out on those tax dollars, so they made a rule. In order for life insurance to enjoy its favorable tax treatment, it had to still resemble life insurance. People couldn't just overfund a policy to the point that it looked like an investment. If too little death benefit was being purchased for the premium paid, the government coined that as a "Modified Endowment Contract", or MEC, for short. Without getting too complicated, it meant that there had to be a relationship between the death benefit purchased (the whole life and term from our example in the last chapter), and the extra added on top (the PUA's). A policy is considered a MEC when the cash value grows too quickly in relation to the death benefit. 9
Now, to be fair, there are instances where it makes sense to set up a policy as a MEC. It's not evil incarnate. Typically, however, we do our best to avoid this. We can adjust all three parts of the policy to achieve a great design without stepping into MEC territory. Just because a policy starts out with a non-MEC designation does not mean that it couldn't fall into MEC status later on down the road. It can get a little complicated. However, a good agent will help you design a solid, stable policy. Life insurance companies also have safeguards in place and will let you know if you need to pull back on a premium payment to keep that from happening. So what happens if your policy becomes a MEC? It basically just loses its favorable tax treatment while you're alive. Any gains, or loans that access those gains, would be treated as taxable income. The death benefit would still pass to your beneficiaries with no tax due, in most cases. Again, not the end of the world, but something you want to avoid if possible. 10
04 C H A P T E R C O M P O U N D I N T E R E S T
COMPOUND INTEREST "Compound interest is the eighth wonder of the world. He who understands it, earns it...he who doesn't, pays it." -Albert Einstein Soon after getting my first "real" job in my 20's, I met with a financial advisor and set up a Roth IRA to plan for retirement. I thought a projected return of 7-8% was terribly exciting, especially considering how much time it had to grow before I retired. I remember punching in those numbers into a compound interest calculator and thinking, "I'm gonna be RICH!" I didn't understand that's not how it actually works. Fast forward 18 years. I'm not rich. Not even close. When I met with my advisor, she told me I should be happy because my account had performed at an average rate of 7.8% all these years, just as projected. But when I calculated the total I had contributed, the amount it had actually gained, and did a little 5th grade math, the actual rate of return I got was only 4.7%. Hmmm..... I asked my advisor (who is a wonderful human) about the discrepancy and her explanation was that it's not that simple. They use a computer formula that would go around the block to calculate these things...and it was surely 7.8%. But I still wasn't rich. 12
Here's where I got it wrong. I didn't understand the difference between average interest rates and actual interest rates. Although averages might be in positive territory, the actual performance of an asset might not be from year to year. That matters because it takes twice as much growth to recover from a loss. Let's look at an example. Let's say I have an investor approach me with an unbelievable opportunity. He can guarantee me 25% on my money if he can put it to work for 4 years. That sounds like a pretty good deal, so I give him $10k to invest. In the first year, the investment goes bad and loses 50%. I'm down to $5k. In year two it makes a remarkable rebound and grows by 100%. Now I'm back up to $10k. History repeats itself in year three and the investment plummets by 50% again, back to $5k. As luck would have it, year 4 shoots up again 100%, and my investment finishes where it started, at a value of $10k. Now I'm disappointed for sure, but when I ask about the 25% he guaranteed, he simply explains that he delivered on that promise. He explains: -50% + 100% -50% +100% = 100% 100%/4 years=25% My average rate was 25%. My actual rate was 0%. Beware of investments that rely on average rates of return. It doesn't necessarily mean you'll have any more money in your account. 13
On the other hand, the compound interest inside a dividendpaying life insurance contract works very differently. It is guaranteed to grow in a positive direction each year, so it never has to recover from losses. Once dividends are declared, they are guaranteed. The rate of growth can actually be much lower and still yield the same results as a higher average from a more volatile account, but without the risk. These policies get better every year, and there's nothing you can do about it! The compounding of your money is never interrupted, and that is a very powerful thing. Am I saying you shouldn't own any assets with the risk of a loss? No, I am not. What I am saying is that you should only invest money that you can afford to lose. A policy designed for IBC is not an investment, it is a savings vehicle. It's not about rates of return, but when you understand average vs. actual rates of return, you realize that the comparison is really not that shabby. Add in the fact that the gains inside life insurance can be accessed tax-free, and it sweetens the deal even more. So how exactly does this policy continue to grow and compound if you are able to access and use the capital during that process? We'll talk about that in Chapter 5. Let's dig into how loans work. 14
0 5 C H A P T E R L O A N S
LOANS The borrower is slave to the lender....unless you can be both. One of the key features of infinite banking is the ability to access your capital while it grows. It shines when compared to traditional retirement vehicles that lock your money away behind taxes and fees until you reach the magic age of 59 1/2. What if you need your money before you're 59 1/2?? This is also one of the most misunderstood aspects of IBC. You may have heard TikTok or YouTube personalities claim that you can "Borrow from yourself," or "Pay yourself interest instead of the banks!" I'd say that falls into the category of mostly true. Let's clear that up. When you take out a life insurance policy from a mutually owned company, you become a part owner of that company. As such, you have the right to borrow from the company's general fund with no questions asked. The amount you can borrow is dependent on the amount you have put in. It's almost like having your own personal line of credit with the insurance company. You are not borrowing from your policy. You are borrowing against it, with the cash value in your policy serving as the collateral for the loan. 16
The money in your policy continues to earn interest and dividends on the entire amount, because you haven't taken any money out. You're using the insurance company's money. Now let’s take a side step briefly and clear up another commonly misunderstood concept. The cash value that acts, in effect, as your “credit limit” is not separate from the death benefit. It is the “net present value of a future death benefit.” To put that in layman’s terms, the cash value is simply what the death benefit is worth today. It’s the amount of your death benefit that the insurance company is allowing you to access early. It‘s similar to the equity in your house. With each payment, more and more of the asset is paid for, and that becomes an ever-increasing resource that you may borrow against. Now, like any good business, the insurance company has to keep their money working for them wherever they have it. If it's loaned out to you, they must charge you interest. However, the interest you pay contributes to the profitability of the company, which pays you a dividend based, in part, on their profitability. So are you paying yourself interest? Not directly, but you are paying interest into your system. 17
Nelson Nash addressed this in Becoming Your Own Banker. His belief was that you should value your own money just as much as the bank's money. Therefore, if the bank would have charged you 9% on a particular loan, and the insurance company is charging you 5%, you should go ahead and charge yourself 9% on the payback schedule that you set up. The spread (the 4% between what the bank would have charged and what the insurance company charges) would go into your policy instead of going to the bank. In this case, you really are paying yourself interest that would have otherwise gone to the bank. Notice I said, "the payback schedule that you set up." A huge advantage of borrowing money from an insurance company in which you are a part-owner is that you set up the terms of how you intend to pay the loan back. Loan rules vary from company to company. Some companies have fixed interest rates while others have variable. Some companies apply dividends differently on money that is loaned out. Just remember there are always trade-offs. These are things to make sure you understand about your policy. 18
Another advantage of borrowing from the insurance company is the way interest is applied. The interest due is figured using simple interest (as opposed to amortized) that is applied once a year on the policy's anniversary date. Interest is calculated daily, but only applied annually. This is different from most credit cards or similar products, where interest is applied each month. It also means that if you pay the loan off early, you won't pay the entire percentage. Let me give you an example. I recently took out a small loan of $1,295 against my policy. The interest rate was 5%. I paid the loan back in three months, with a total of $16 in interest. Now if you do the math, 5% of $1,295 is about $65, but I only paid $16, which is only 1.2%. Why? Because I paid it off in only three months. In most traditional loan repayment situations, the interest is calculated and added to each monthly payment. Each time you pay, it's part interest and part principal. Loan repayments to the insurance company don't work like that. Instead, 100% of what you pay is applied to the principal. Therefore, a 5% rate from the insurance company will not be the same as a 5% rate from the bank. It will be less. 19
Add to that the fact that you are in complete control of the payback schedule, and you start to see some of the value that can't be shown on a policy illustration. One more note on loans: As a policy holder, you have a contractual right to take a loan from the insurance company. At any time. For any reason. There are no credit checks, no approval process, no questions about why you need it, and no applications to fill out. You simply request the loan, and the company sends it to you. This brings to light another intangible--the time and simplicity that this process puts back into your life. 20
06 C H A P T E R C O M P A N Y S E L E C T I O N
COMPANY SELECTION Which policy is best? "The one that's in force." -Nelson Nash While a reputable agent will recommend a company to set up your policy, it's good to be aware of the criteria that is typically looked at in choosing the right company fit. Here are some things to consider and discuss with your agent. #1-How long has this company been in business? Life insurance has been around for over 200 years. It pre-dates the IRS, the Federal Reserve, and the income tax. There are many companies that have a solid history and business model that has served them well for a very long time. I recommend using a company that has been in business for at least 100 years. #2-Is the company mutually owned? There are thousands of life insurance companies in America. Most of them are stock companies, which means that the profits go back to the stock holders. While it's not impossible to practice IBC with a stock company, I strongly suggest using a mutual company. Why wouldn't you want the profits to come back to you as a part owner? 22
#3-How solid are their financials? While this can be a bit tricky to evaluate as a consumer, each company should be able to produce rankings such as a Comdex score or ratings from various agencies to see how they stack up against comparable companies. #4-What are their rules regarding PUA payments? This is one of the most important aspects to understand as a policy holder, and it varies greatly from company to company. Since PUA payments are optional, companies have different rules for how they may be paid. Some allow unscheduled PUA payments, while others require them to be made only on the policy anniversary date. Some companies average the total premium payments of your first 5 or 7 years, and that becomes the ceiling of what you can put into your policy in the future. Others won't let you contribute more than you put in the previous year. Some let you catch up for the previous year if you didn't put in as much as you could have. Not to belabor the point, but each company is different. Make sure you understand the rules so that you're not caught off guard. #5-How do you manage your account? Many companies have convenient online portals to make premium payments, request loans, etc. Others require a paper document to accompany transactions. This is probably more of a personal preference, but good to know ahead of time anyway. 23
#6-Does the company treat loans with direct or non-direct recognition? This probably deserves its own chapter, but let me try and explain it briefly. This terminology of "direct vs. nondirect" is a hot topic of debate for many agents, and it refers to how the dividend is applied when you have an outstanding loan. It's not really a right or wrong, but one might be better for you depending on how you intend to use your policy. Non-direct recognition means that the insurance company applies dividends the same to your policy whether you have a loan out or not. Whether you have nothing loaned out or you've taken the maximum available in a policy loan, your dividend will be credited the same. Direct recognition, on the other hand, credits a different dividend rate on loaned funds. You will receive a lower dividend on amounts you have loaned out. While at first glance this seems like a no-brainer, remember there is always a trade-off. Direct-recognition companies can sometimes pay a higher dividend on money that's not loaned out, even though they're paying a lower amount on money that is loaned. A non-direct recognition company will just use the law of averages and pay everyone the same, instead of making a distinction. 24
#7-Dividend rates. I'm including this just to explain that rates really don't matter as much as you think they would as far as company selection goes. Many agents use this as a selling point. "Hey, my company has a higher dividend rate. You should pick me!" The truth is, it's almost impossible to compare dividend rates from company to company. The dividend rate is NOT the same as a rate of return. Some dividends are a gross number, some are net. Apples vs. oranges. The bottom line is that each company's dividend formula is proprietary. It is their system of distributing company profits back to the policy holders. The main thing is that they pay one. Whew. That was a lot, and probably a little into the weeds. Here's your takeaway though. Even if you don't have a firm grasp on all of the things we covered in this chapter, you need to make sure your agent does. He or she should be able to explain these concepts clearly. Also, keep in mind that there are always tradeoffs. There are no "deals" in life insurance. A higher dividend might mean a higher loan interest rate. A lower cost of insurance might mean stricter rules on PUA payments. Figure out what is most important to you, and know that you might need to make concessions in other areas in order to have your top preferences. At the end of the day, don't let all the details get in the way. It's easy to get paralysis by analysis. Find an agent you trust, and let them guide you in setting up your system. Nelson Nash shared so much great wisdom, and I love his reply when asked which policy was the best: "The one that's in force." 25
07 C H A P T E R D E A T H A N D T A X E S
DEATH AND TAXES "The only difference between death and taxes is that death doesn't get worse every time Congress meets." -Will Rogers A typical meeting with a CPA will center around one question: How can I reduce my tax bill this year? A better question to ask would be: How can I reduce my tax bill over my lifetime? To find the answer to that question, we need to ask another question: Do I believe that taxes will go up or down in the future? I don't have a crystal ball, and I'm not making a prediction, but maybe just an observation. Our national debt is skyrocketing. Our unfunded liabilities are in the trillions. Many government programs that people depend on are predicted to be insolvent in the near future. How is our country going to pay for all of this? I think maybe we can see the writing on the wall. As much as we like to complain about tax rates, the truth is that they are currently below the average since the beginning of the income tax in 1913. 27
Did you know soon after WWII, the top tax bracket reached a whopping 94%? There is plenty of precedent for Congress to raise taxes. What does this tell us? It might very well be that taxes are currently on sale. Let's pretend I'm a private money lender and you need some help getting out of a jam. I'm willing to lend you, say, $25,000 today. However, the loan has some interesting terms. I'm not going to give you the interest rate up front. I'm going to wait 30 years, check my balance sheets to see what I need, and then tell you what you owe me. Would anyone sign up for such an arrangement? This is, in essence, the deal that we make with the federal government, along with millions of other Americans, anytime we "defer" taxes. I prefer the word "postpone." The taxes are still due. We're just putting them off to a later date when we have no idea how much we'll have to pay. Seems like a gamble to me. Premiums paid into a life insurance policy are after tax, meaning you won't receive a deduction or a "postponement" of the taxes due on those funds. However, once inside the policy, the gains can be accessed tax-free, according to current tax law. Let's take a look at how that works. 28
There are two ways to get money from your policy: you can withdraw it, or borrow it. While we always recommend borrowing so as not to interrupt the compound growth, you are allowed to withdraw as well. You may withdraw up to your cost basis (the amount you've put in) with no tax implications. Loans, on the other hand, are not taxed, even if the funds you are accessing are past your cost basis. Therefore, these policies provide a vehicle for tax-free passive income later in life. You simply take loans that you never intend to pay back. Remember when I said these policies get better every year and there's nothing you can do about it? A well-seasoned policy will typically be increasing at a rate that will easily outpace the loan interest that is applied. What happens to those loans when you die, or, as Nelson Nash would say, when you "graduate"? They are simply subtracted from the death benefit. Let's say you had a death benefit of $1,000,000, and at your time of death you had $500,000 in outstanding loans. The insurance company would simply take the money you owed off the top and pay the remaining $500,000 to your beneficiary. That's also tax-free. 29
Let's look at the other side of the coin. There are three scenarios where you could potentially owe tax. 1) If you cancel your policy, or allow it to lapse, you would owe tax on any gains inside the policy. 2) If you withdraw more than your cost basis, those gains would be taxed. 3) If your policy becomes a MEC, your gains would become taxable. All of these are fairly easy to avoid. Keep your policy in force, don't take out more than you've put in, and stay out of MEC territory. A good agent will help you with all of this. Again, these examples are purely for educational value. Don't just take my word for it. You should always talk to your CPA or tax attorney about such decisions. 30
08 C H A P T E R H O W D O I U S E M Y P O L I C Y ?
HOW DO I USE MY POLICY? "There are only two sources of income--people at work and money at work." -Nelson Nash Now we get to the fun part! How exactly do you use this thing you've created? Well, how big is your imagination? While these policies have been leveraged for just about everything under the sun, there are three main categories that most uses fall into: debt reduction, financing major purchases, and buying cash-flowing assets. Debt reduction-80% of Americans are in debt, and while the advice from the "get out of debt" gurus is sometimes helpful, it typically only gets you back to zero. You might be debt free, but you've lost precious time when it comes to wealth building and saving for the future. When we combine infinite banking with other strategies like the debt snowball, we have a super-charged way to send our creditors packing while building a nice supplement to our nest egg for the future. With interest rates from insurance companies almost always being more favorable than credit cards or other lenders, why wouldn't you want to use your policy to pay off those debts? 32
Now a word of caution here: This is not just another line of credit to run up. If you are not disciplined with this strategy, it could leave you worse off than you were before. That's just the truth. If you pay off all your debt with your available cash value, only to take out another credit card and max it out again, this will not be helpful. However, if you decide to make a change in your money habits and are ready to live a new way, this strategy could be lifechanging. Most people can pay off debt in about half the time (yes, including your mortgage), and save tens of thousands of dollars in interest charges. If you are currently making overpayments to your debt, sometimes it's possible to re-route those funds to pay your policy premium so that your monthly budget doesn't change. This is where many people start. Which leads us to our next way to use the policy. Financing major purchases-We're all going to need to buy things throughout our lives. Cars, college education, weddings, vacations...there are some big ticket items on the horizon for almost everyone. Your policy provides a great place to save up capital for those purchases that you were going to finance anyway. This just gives you a way to be in complete control of those repayments, and just as importantly, doesn't interrupt the compounding growth of your money. 33
The last use I want to look at is really what's at the heart of the Infinite Banking Concept. It's putting your money to work outside your policy, while it continues to grow inside your policy. Buying cash-flowing assets-Good investors are always looking for an opportunity to make a profit, and there is an old saying that "capital attracts opportunity". When IBC users build up capital inside an insurance policy, they're basically creating an opportunity fund to be able to take advantage of deals that come along. Many people leverage their policies to buy real estate, start businesses, or finance equipment that's needed to increase productivity. As their investments pay out, they use a portion of the proceeds to repay those loans. All the while, the compound interest inside the policy is never interrupted. So many people get hung up on the rate of return in the policy itself. What you need to understand is that IBC is not about just having a stand-alone policy as an asset. It's about leveraging the dollars in that asset to make your money work in two places at once, whether that's paying off debt, financing major purchases, or buying other cash-flowing assets. 34
09 C H A P T E R W H A T ' S T H E C A T C H ?
WHAT'S THE CATCH? We're all familiar with the idea that if something sounds too good to be true, it probably is. But that thinking can also derail people from taking advantage of great opportunities! Just so you know that this is not "too good", I'd like to lay out any potential negatives so that you can go in with your eyes wide open. One drawback to becoming your own banker is that not everyone qualifies. Your ability to purchase a policy is based on a combination of your age, gender, health, and habits. However, there are ways around this. If you consider yourself "too old for life insurance" (you're probably not, by the way), or you're not in the best of health, you could take out a policy on someone else. It could be a parent, adult child, business partner, or anyone in whom you have an insurable interest. Another potential downside is that it's difficult for most people to think long term, which is one of Nelson's five rules for IBC. There is definitely a capitalization phase to this strategy, and not all of the money you've put in will be liquid right away. "Each problem has hidden in it an opportunity so powerful that it literally dwarfs the problem." -Joseph Sugarman 36
I like the analogy of thinking of it like a rocket ship. Did you know it takes a rocket most of its fuel to just get off the ground? But once it gets into orbit it is propelled effortlessly. In the same way, it takes a bit for these policies to "get off the ground." You will have some lack of liquidity in the early years, but if you can think long term, the payoff is obvious. The truth is, we think this type of timeline is normal in so many other scenarios. Parents (or students) expect to shell out tens of thousands of dollars for a college education that will hopefully pay off someday. If you were to start a business, it would not be profitable from day one. The same is true for a policy designed for IBC. There is an initial capitalization phase. It's just part of the process. Another one of Nelson's main keys: Don't be afraid to capitalize. One last potential drawback is that the success of this strategy really comes down to the behavior of the policy owner. I guess this could be a positive or a negative, depending on the person. You could have a great policy design, wonderful company, and the best agent out there. However, the greatest factor in the outcome of a policy's performance is YOU. Discipline and good money habits are key. Do you fund it like you say you're going to? Do you repay your loans? This brings up another of Nelson's keys: Be an honest banker. 37
10 C H A P T E R W H Y D O E S N ' T E V E R Y O N E D O T H I S ?
WHY DOESN'T EVERYONE DO THIS? "Don't follow the crowd. Let the crowd follow you." -Margaret Thatcher As an IBC practitioner, this is a question I am asked on a regular basis. After clients see all of the benefits of IBC laid out, and see the numbers of what it could look like for them, it's an obvious reaction. So...why is this not a more widely used strategy? One of the obstacles Nelson Nash talks about in Becoming Your Own Banker is what he calls The Arrival Syndrome. On page 34 he explains: Many people simply already think they know all about finance, or about insurance, and simply write it off before even giving it a fair shake. I know, because I was one of them. This phenomenon probably limited the achievements of mankind more than anything else. When this "thing" infects us, we stop growing, stop learning. We ROT! We turn off or tune out the ability to receive inspiration-- because we "already know all there is to know!" 39
My first exposure to infinite banking came at the request of a friend. She had invited an agent to give a presentation and wanted me to come see what I thought. I already knew what I thought. I already knew it had something to do with whole life insurance, and as a disciple of a well-known radio personality, I already knew that meant it was doomed from the start. The only reason I went was to keep my friend from making a huge mistake. It's kind of comical now, because that night ended up changing the course of my life. Literally. The presentation was not polished or perfect, but it did make me very curious. Could life insurance really do all these things they claimed? Well, I guess it's obvious where my research led me--an exact 180 degree turn from my previous opinions. I'm so glad I was open to hearing something new, even if my original motive was to pick it apart! Another reason IBC might be overlooked is that it is in competition with the status quo. Your banker is not going to tell you about it. Your investment advisor is not going to tell you about it. Truth is, they most likely don't even know it exists. To be totally transparent, most insurance agents don't know about it either. Those that do are going to take about a 70% cut in commission to offer you a policy built for IBC. 40
One of the other "human problems" discussed in Nelson's book is Parkinson's Law. One of the tenets of this law is that "expenses rise to equal income." Page 26 explains: In other words, it's hard to find the money to save. Parkinson's Law is an obstacle that must be overcome daily. It takes discipline and setting your priorities correctly. Oh, and the Joneses? They won't understand. You'll have to find other ways to keep up with them. The Infinite Banking Concept is not just about purchasing an efficient insurance policy. It's about building a system into your financial picture that allows you to be put back in control of your financial life. You might not want to stop with one policy. You could have a system of multiple policies. Nelson Nash had 49 policies throughout his lifetime! It's not for everyone. Some people just won't get it. But for those who do, they'll never go back to "banking" with anyone else. Be your own banker. Find freedom in your finances. Your future self, and future generations, will thank you. Income is limited for us all, but our wishes far exceed our ability to fund them. When a pay raise comes along it is very quickly absorbed by a new definition of necessities! 41
About the Author Becca Wilhite grew up in the small town of Gatesville, Texas. As an academic and athletic standout, she went on to play four years of college basketball at Wayland Baptist University. Both of her parents were teachers, and she continued that tradition in her early adult years as a teacher and coach. Her approach to the Infinite Banking Concept draws from that heritage, and she is passionate about educating clients and helping to guide them on their IBC journey. She is very thankful for the training she has received through the Nelson Nash Institute and honored to be included on their list of Authorized IBC Practitioners. Becca lives in Plainview, Texas, with her husband James and three wonderful children. Learn More © 2023 Salient Solutions IBC