Infinite Banking Simplified:
What is this Infinite Banking Concept?
“Let’s consider the words – infinite means it’s not finite – it’s unlimited – it’s limitless. And then banking – what is banking? Webster’s says it’s loans, loan repayments, deposits, withdrawals, checking accounts, savings accounts. It’s the movement of money. And then concept – a concept is nothing more than an abstract idea.
What is the purpose of this article?
We’re going to bring clarity to this concept and put form to this abstract idea.
Next, let’s consider what’s really going on in the big wide world – we’re all surrounded by noise and its relentless. Some of the worst noise is in the financial world. In this article, we’re going to cut through the noise and get to the clarity. In the financial world, we’re all taught to work hard, save our money, cut our lifestyle if we have to and get a tax deduction while we’re saving. Typically those savings to get a tax deduction to end up in a qualified retirement plan – a 401k, an IRA, 403b, etc.
The distinction between saving and investing:
Investing has an element of risk – the risk of loss. So if you consider the definition of risk, maybe you would agree with me that a definition of risk could be the probability of loss. If that’s true – think about this – the financial world tells you to expose your money to the probability of loss, and the longer you do that the better the outcome will be for you… Eh, maybe not. There may be a better way. First, let’s consider what savings actually is. The savings rate in America today is appalling low – it’s below 4%. You know you’ve got to spend the money as fast as you get it because inflation is devastating the value of the dollar. Consider what saving actually is; you have an income and your expenses should be lower than your income. That difference is your capital (your money), and you should save it for a future purpose whether it’s spending, investing or whatever it may be – not to spend it now. Savings should not contain an element of risk (risk of loss) – right? As a matter of fact it’s almost required – it’s highly preferred to not have any risk to your savings. Ok, so we’ve made a distinction between saving and investing. When you put your money into an IRA, a qualified plan, 403b, 401k – typically that ends up going into the stock market in some form or fashion, so then is it really saving for retirement, or is it investing for retirement? Ok well how much of the element of risk do you want in your savings? Should you have investments? Maybe so. Should you have savings? Maybe so. (Only if you want to have the ability to spend money in the future, or take on a worthy goal or project, whatever it may be.) If you put your money into a qualified retirement plan, an IRA, 401k, 403b etc., you’ve effectively separated yourself from your capital because it’s put up and put away for that future purpose of retirement income. So, if the majority of your money is going there – you are separating yourself from the majority of your capital. If you don’t have access to your capital to make major purchases for example whatever they may be, automobiles, vacations, education – then your beholding to someone else to have access to their capital. Who controls that access? They do. They’re going to tell you how much you can have, how much you can access, how you’re going to access it, when you’re going to pay it back and at what rate. They’re a gatekeeper and a toll taker. Your capital – your money – is in a long term, illiquid, investment or savings program. In this scenario, you’ve separated yourself from that capital, so if you need capital you’re going to be beholding to someone else, and they’re going to control your access. Think about that – while you’re saving or investing for a future project, retirement in this case, you’re making purchases every day, year in and year out.
The unseen price of paying cash:
How many automobiles have you driven since you’ve been driving? And how many are you going to drive for the rest of your life? This is just one example of a major purchase that we all make over and over. I don’t care if you lease the car or if you pay cash for it – if you formally finance, that’s a cash flow going through your personal economy. Some people will say “James, I don’t pay interest, and I don’t mind – I have the money, I’m going to pay cash. If you think about that – you have to save up cash to make a cash purchase, and as soon as you make that cash purchase you have to start saving again for the next cash purchase. You’re accumulating capital and then spending it – when you do that you’re interrupting the compounding of your savings. Every time you put it into a savings vehicle and it starts growing, and you pull it out to make a major purchase – it’s not going to earn any interest or dividends for you forever. Now you get the purchases, and you get to enjoy whatever it is you purchased, but then you have to start saying again – over and over and over. Think about the major purchases you’re making in your life. Look – you can make your savings, your money, your capital earn interest and dividends forever, tax-deferred, accessible tax-free with the Infinite Banking Concept.
A closer look at the Infinite Banking Concept:
The Infinite Banking Concept uses high cash value, dividend-paying, whole life insurance issued by a mutual insurance company. Every one of those are important, so you may have some homework to do to discover the importance of what I just said. In addition, you’ve got to be able to get past the word life insurance – I’m not talking about the life insurance that just came to your mind when I mentioned the word life insurance. I’m not talking about your grandfather’s life insurance. What we’re talking about with the Infinite Banking Concept is a uniquely structured, particular type of life insurance – dividend paying, whole life insurance issued by a mutual company structured for cash. So the focus isn’t on the death benefit – the focus is on the cash value (the cash accumulation).
Why life insurance? (Benefits of dividend-paying whole life)
You can bank with anything. Life insurance has all the characteristics that you need to get into the “banking” business. Before we get into banking, let’s talk about life insurance. Did you know permanent life insurance is a private asset? Indeed, it’s a private contract between me and a private entity. It’s a protected asset, and it’s a non-countable asset in most states. You own it, you control it, just like your automobile. If you buy an automobile – that’s your asset – you own it – you control it. Life insurance is the same way, but it’s also an appreciating asset – it goes up in value. The death benefit increases, the cash values increase, and you can make the dividend increase as well. Twenty-four hours a day it’s growing, getting more and more valuable. It’s appreciating seven days a week, three hundred and sixty-five days a year – even on weekends and holidays. Did you know the stock market is closed on weekends and holidays? Life insurance is compounding and accumulating interest and dividends, tax free, accessible tax free forever – that’s pretty powerful. Also, it’s a cash flowing asset – it can produce a positive cash flow, and it’s preferentially tax treated. It can create a passive stream of income (passive – I didn’t have to do anything for it – I didn’t have to work – I didn’t have to exchange my time, talents and ability. It’s liquid – you can access the value you have in a dividend paying life insurance – you can do that through loans or withdrawals, and it has a deferred benefit…
Someday you’re going to die – we’re all going to die – when you do, and you own life insurance, permanent life insurance, there’s a net death benefit that passes to your heirs – or whomever you want it to pass to (in a tax efficient way). Short recap – life insurance is a real asset, a private asset, a protected asset, an appreciating asset, it’s a cash flowing asset, and it has a deferred benefit.
Side note – how real estate is like life insurance:
Let’s look at real estate investing. Think about this for a minute – why do people buy real estate? It’s private property, they own it, they control it, it’s preferentially tax treated, it appreciates, it produces a cash flow, and there’s a deferred benefit – when you sell that property if it’s gone up in value you’re cashing out. Life insurance has very similar characteristics. In fact – when you marry real estate investing with the Infinite Banking Concept, you’ve almost reached financial nirvana. These are bold statements, so I encourage you to continue your education in our learning center to see if this makes sense for you and your family. Sometimes it will – sometimes it won’t – just don’t throw the baby out with the bathwater – most folks’ perception of life insurance is based on someone else’s misconception, so I’m just encouraging you to discover the Infinite Banking Concept for yourself.
Back to life insurance – more benefits of whole life:
In the financial world, life insurance has always been used for the death benefit, but with the Infinite Banking Concept – were focusing on the cash accumulation. You can’t buy life insurance without a death benefit, so once your need for death benefit is solved life insurance should be used for cash accumulation (building the cash value). Whenever you consider all the characteristics of life insurance – structured the way I’m talking about, issued by the particular companies that I’m talking about – with the Infinite Banking Concept – what you have operates like a pre-engineered tax-free trust.
Types of life insurance:
There are all kinds of life insurance policies out there. When it comes to the Infinite Banking Concept – I’m speaking very specifically about dividend-paying whole life insurance issued by a mutual company structured for cash. That’s the first paradigm shift in thinking (the structure), and then we’re focused on the cash value – not the death benefit. We’re trying to get as much money into the policy as possible with the least amount of death benefit while maintaining the tax treatment of life insurance. This is nothing new with life insurance. What is new is the scale that Nelson discovered in the eighties. His story is in the first section of his first book, “Becoming Your Own Banker”. Buy the book – let him tell you the genesis of his discovery – it’s powerful, and it’s well worth reading. We’re not talking about universal life insurance – we’re not talking about variable universal life insurance, and we’re not talking about the awful equity indexed universal life – that’s the latest product that the life insurance industry has foisted on the unsuspecting American public.
An in-depth look at the problem with universal life insurance:
The concept of insurance has been around well over 400 years, and life insurance has been around for over 200 years. Universal life insurance was created in the eighties by the insurance companies – that’s back when interest rates were 10 and 12 percent. So, there’s really two parts to the universal life policies – there’s the death benefit, but the cost of that death benefit continually increases – it compounds over time. The closer you get to mortality – the higher that cost of insurance is. Then it’s segmented, but all contained into one policy – there’s two parts – the death benefit, and the side account, or the vehicle that’s used to accumulate interest. Universal life was designed in the 1980s when interest rates were very high. These policies have all but imploded today (2018). The insurance companies came up with variable universal life in the 1990s – I wonder why… The stock markets booming, so they say “hey, let’s use some sub-accounts that look like mutual funds to get the interest credited – those work out pretty well when the markets up. Well, what’s the market going to be next week, next month, or next year, and will it compensate or overcome that ever-increasing cost of insurance of the death benefit. In the last several years the insurance companies have created equity indexed universal life – they’ve dropped the equity on a lot of them, and now it’s just indexed universal life. They’re using an index (a series of indices) to get the interest crediting, and it’s combined with the internal cost of the death benefit – the cost of insurance that goes up every day – 24 hours a day, 7 days a week, 365 days a year. And the older you get – the cost of that death benefit increases – it’s an exponential curve. Most of those come unwound typically when someone’s in their 70s. They discover, “oh, this might not work out like I thought”, and then it’s typically too late to correct it. So I would encourage you – before you take any action of any kind – take the action of learning – you’re the best investment you have. You cannot invest enough in yourself. I’m encouraging you to invest in yourself through education – learn about this concept – learn enough to make a good decision either way whether it’s good for you or not good for you. Take the time to do your research and your homework – vet it for you. So the life insurance companies got it wrong with universal life in the 80s – strike 2. They got it wrong again in the 90s with variable universal life, and guess what – they got it wrong again with indexed universal life – strike 3. My encouragement is to do your homework, and I think a good and worthy resource is our learning center – go there, and research more about universal life policies – research and discover more about the Infinite Banking Concept. How do you become your own banker – and is it really worth your time effort and energy to do so? You decide for yourself.
Type of insurance and policy structure:
The type of insurance and the structure of the policy is extremely important when it comes to the Infinite Banking Concept. Once you have vetted the information yourself, and it makes sense to you, and you start a policy – you need a good coach – someone who knows what they’re doing – someone who knows how to structure a policy, and someone who knows the correct insurance company to choose. This is all above board – it’s well within the law – it’s not a tax scheme – the insurance companies even know what’s going on. Once you have structured a policy and you’re paying premiums (you’re putting money into the policy in the form of premium) – the more you do that the bigger the pool that you’ve created of capital becomes. When you put money in the policy that’s structured for cash all you’re doing is creating a pool of capital that you own and control. The more you put in the better it gets for you – the more capital you have access to, the more opportunities you can take advantage of. I’m not saying that you have to go out and look for things to put your capital to work… But you are financing automobiles. The average family spends well over a million dollars just driving cars, and I’m not talking about a big family – I’m talking about a husband and wife. The question here is – how much of that money would you like to retain? Discover how you can do that with the Infinite Banking Concept – because you can become your own banker just financing automobiles. Again – once you put money into the policy you’re creating a pool of capital – that pool of capital you own and control. You can access that capital collaterally to finance everything you were going to finance anyway. I’m just talking about automobiles, but you’re financing education, vacations, and passive retirement income.
The power of leveraging your cash values through loans:
You can access that capital collaterally through loans, so you’re not interrupting that compounding by taking money out through withdrawals. Although you can do that if you want – a better way may be through loans. You’re just collateralizing the cash value – now you’re controlling that loan. Are you going to pay the insurance company interest? Of course, you are. You’re not going to borrow money anywhere without paying interest on it – and your capital has value, so practice honest banking – not only pay the insurance company interest, but pay yourself the market rate of interest. Whenever you do that – your pool of capital grows – your future dividends go up – your death benefit goes up, and more opportunities show up. When you’re in the position of owning capital you’ve gone through the effort, the time and the energy to accumulate capital – that’s capital formation (the basics of fundamental economics). Practicing the Infinite Banking Concept is a very good way to accumulate capital (capital formation). You accumulate that capital, and the more you use it to finance things you were going to finance anyway (which is every major purchase) the bigger your numbers get – and the death benefit goes up. You might say – “yeah, well we’re not interested in that.” Ok – I’ll show you how to spend the death benefit today. The cash values go up, the interest goes up. “Why?” – you might ask – because you put more capital in, therefore the dividends go up. “Why?” – because you put more capital in, (and you’ve never had too much capital) – you’ve never had access to too much capital. You can’t put enough money into a life insurance policy structured this way (my opinion). Becoming your own banker is really just that simple – capital formation in an entity that you own and control that’s structured for cash. It has all of these wonderful characteristics that you can use to make your pool of capital bigger and better. Cut through the noise in the financial world, and discover the Infinite Banking Concept for yourself.
Additional educational resources:
“Becoming Your Own Banker”, the book (Nelson Nash’s first book), and our learning center, the Nelson Nash Institute is a great resource too. Cut through the noise that exists in the big wide world. Then connect with someone who knows what they’re doing – someone who has done this – someone who is not going to practice on you – someone that can structure the policy correctly for you, exactly where you’re at in your financial life.
We can do that in my office we can structure the correct policy for you, exactly where you’re at in your current situation, and we can structure the policy correctly for whatever it is you’re doing in your financial world.
My name’s James Neathery – I have practiced the Infinite Banking Concept for over 13 years. I’ve been in the financial world for over 27 years. We know how to practice “banking”, and we know how to teach our clients how to “bank”. Our office exists to serve our clients, and you should be one. Continue learning on our website, or reach out – send us an email, register for a webinar, or go to our learning center – get into the modules that we have there. We’ve got great content on the website, and we’re adding more every week. Thanks for spending this time with me – I can’t wait to meet you – I can’t wait to help you, and I wish you the very best.”