Infinite Banking Explained - Becoming Your Own Banker

Infinite banking also known as becoming your own banker is a sales concept using whole life insurance that seeks to eliminate the use of banking institutions. Why pay interest to a bank when you can pay it back to yourself? Better yet, you can recycle your money an infinite amount of times! This is how we get the sales concept of infinite banking.

Sounds great in theory, but does it actually work using whole life?

Maybe the better question is does it work BETTER than other banking alternatives?

Is whole life the best vehicle for this velocity of money infinite banking idea?

There are tons of mistruths surrounding this infinite banking or becoming your own banker concept.

Made popular by the likes of Nelson Nash and Pamela Yellen this video aims to tackle one of the most common Becoming your own banker illustrations of buying cars through your life insurance policy loans versus using the traditional banking channels.

[moriendus]

The "feather-ruffling" that you might have received would be due in large part to your misunderstanding of IBC and "Becoming Your Own Banker."

IBC policyowners are not trying to "beat" the interest rate that the insurance company lends to us at. We own policies with mutual life insurance companies. That means we are part owners of the insurance company ourselves. Any interest we pay to the insurance company adds to the profitability of the insurance company, and is returned to us indirectly through the annual dividend. You know, the dividends that universal life insurance doesn't even pay.

And I get it -- the dividends are not guaranteed. But they have been paid by several mutual life companies in the U.S. (and a few in Canada) every single year for over a century, regardless of economic crises and wars. And when used to purchase more death benefit within the policy, those dividends cause a compounding growth of the cash surrender value over time.

The "extra interest" paid to the car in BYOB, by the way, isn't to pay the policy loan off faster. What Nelson meant was that you should pay more than what you would have paid to a bank and that extra "interest" becomes premium in the form of a PUA payment, thus adding to cash value growth, future death benefit, and future dividend payments.

Yes, you can borrow from a bank at a lower rate, but you sacrifice flexibility and privacy to do so. You also sacrifice the interest which is going to an entity that you are not an owner of at all, rather than being a part owner of the insurance company and recapturing that interest in the form of dividends.

IBC also discourages using your policy as collateral for a bank loan. The whole point is to utilize policy loans. But you're so focused on the interest rate that you don't consider all the intangible benefits of using the policy loans as intended. There are some benefits that can't be measured in numbers.

You also used a whole life policy example where the policyholder just stops paying PUA after year 9. Why? Why would I want to give up the ability to pay additional premium, grow even more cash value, buy even more death benefit, and entitle myself to a greater share of future dividends every year for the rest of my life?

In any case, you aren't looking long-range enough. That cash value growth will grow faster and faster over time. It has to because it is a function of the death benefit, and as one gets older, that cash value has to, at some point, equal the death benefit (either at the death of the insured or at the end of age 120 when the policy endows). But you only look ten years into the future. Is the "account value" of an IUL a function of the death benefit? No, it just grows randomly according to some index (if it grows at all). No guarantees there. I thought this was insurance, where risk is transferred to the insurance company? This sure seems like the opposite of that.

Your Monte Carlo simulation used criteria that you chose. You could have chosen a lower average return or a higher one. The point is that you do not know the future, so whatever numbers you use, they're just random. The most that someone could lose in your simulation was under 2%. You even say explicitly about your Monte Carlo simulation - "it's generating these returns for me based on the risk profile that I give it". You could make it show anything you wanted it to. Do you not see how that is a major flaw in your calculations? Oh, and you completely ignored taxes.

No, whole life is not "difficult" at all. By contrast, IULs are insanely complicated and suffer from major flaws. I'm not an insurance agent, but don't IULs have an annually-renewing, one year term insurance rider? And can't the cost of that rider go up at some point? What if you have a health problem that drastically drives up the cost of the term rider, or even makes you uninsurable? That is something you never seem to mention or take any account of in your illustration. And once again, the insurance company is transferring risk back to the policyholder.

Also, you basically used all the non-guaranteed values for both the whole life and the indexed policy and you should already know that illustrations are not accurate the moment that you print them out. They make assumptions about future dividend rates that are nearly guaranteed to be wrong.

At no point did you compare apples to apples. You just assumed the market would yield returns within the artificial bounds that you set. And you used a single whole life illustration from a single company (one that many IBC practitioners object to, by the way) with a weird design to boot. This video didn't prove anything except that you should probably read Nelson's book a few times. It's only 92 pages. The text is large and there are multiple illustrations that take up a lot of space. It's a fast read. Take a night off and try giving it an honest read through.

And did you honestly claim that IULs have a "slightly" higher risk profile than whole life? Are you joking?

"I know there's going to be tons of haters in the comments. And I know, by and large, the haters in the comments have no idea what they're talking about." Rather than being so arrogant, maybe you should do some more research on IBC first instead of using Youtube's keyword suggestions to base your conclusions about IBC on. You know, actually approach IBC practitioners honestly and start a discussion instead of pretending that IBC is just a "sales strategy", which it never was, and which you'd know if you'd read BYOB.

[joyo]

Real Life Scenario (Me) using Infinite Banking Concept.

My WholeLife insurance cash value was about 50k
3 years in. During covid crash, stocks dropped about 50%. I would have lost 25k right there but my life insurance cash value was untouched. Instead, I took that 50k out (at 5% int), dropped it into stocks. And sold a year later at 90k. Made 40k(80%) to use to pay back loan+5%int. And dropped the rest in as OPP just right below MEC limit. When my cash value hit 100k. I took 100k out to do stocks again. Started in 4/21 and sold all stocks 2/22 for a 30k loss. Yeah Paypal, BLOCK, etc dropped hard this past year. If I left that 100k in my life insurance account, I wouldn't have lost 30k lol. Anyways, I have positive vibes about IBC as long as your using it right. I also used over 10k to pay off CC debt (15%+ vs 5% is a big deal). Any debt under 5% I wont use my life insurance on.

Things I wish I knew beforehand. Dividends dont pay out the first year. Dividends % seem to be calculated based on cash value of anniversary date of the year prior.

PS. I don't think this concept works well for those who can't put in 1000 per month in premium. Yes stocks over the long term can double, triple, quadruple your investment, but have you seen your entire portfolio drop 50% before? What if you needed that money due to a business opportunity or financial crisis and can't wait til your portfolio recovers?

[ejbarraza]

Infinite Banking on steroids is better. That is to say, an Indexed Universal Life insurance policy collateralized for a business line of credit from M&M Bank at 3.65% APR and quarterly interest-only. The cash value is compounding with no life insurance loans outstanding so the IUL cannot lapse. The interest paid out of pocket is a tax write-off and the line of credit grows with the cash value growth similar to a reverse mortgage line of credit. Also, the line of credit does not report to your personal credit which means you can use the line of credit as proof of funds and the cash value as proof of collateral when asking for credit limit increases on unsecured cards or applying for a mortgage. Merchants and Manufacturers bank works with Ameritas, Lafayette, Prudential, Penn Mutual, and Northwestern Mutual.

[calmingsounds]

3 seconds into the video I hear "in a vacuum" and I think I probably don't need to listen to the rest of the video because when someone explain this subject to me, I thought that sounds good in a vacuum... and I feel like I got that confirmation 3 seconds in.

[carlosramirez]

Great video, gives very good perspective on this issue. Two questions: 1) if you want to use IBC for investing in real estate or a franchise, Typically the rates are not going to be as low but would the rates be lower with IBC than with an average bank for a commercial loan? 2) How would the numbers would stack up if you pair the IBC with Real estate investing for example?

[ascentreninc.]

Great video. I have question on this as the only benefit I see is if you are a Realestate investor you can borrow money without having to go to a bank, but I think there is something wrong there as well but I don’t understand it! If I have a $2 million policy and I’m in year 5 and I want to borrow $700, 000 to buy property. Would they give it to me? Or do I have to have enough equity(paid at least $700k) to be able to borrow that much?

[jeremyholmes]

Your comparison is fundamentally flawed. The stock portfolio is taxed when liquidated. You are also taxed on the growth. If you want to say it’s an ira that’s tax deferred, you left out the penalty for withdrawal. You also blew right past the fact that if you buy it on a policy loan you end up with the cash again plus the asset at the end of the repayment. Not to mention the CAGR of the stock market since it started is far less than the annual rates of return thrown around in this video. This video also only accounts for taking a loan for the full amount of the cash value in the policy. Taking a 30k loan at 6% on a policy that is being paid say 5% on 200k youarestill accruing positive cash flow on the policy even with the loan out

[calebmccarrick]

Thank you for this video. Definitely something to consider!

However, a few notes..
-WL has a lot of tax advantages that weren't discussed.
- who is getting 1.24 interest rates? I'm lucky if I get a 6.. currently sitting on an 8.2 for a car.
- do you see any value in having the option between your WL and the bank?

I will absolutely take the IUL into consideration.. I'm young and risk averages better in time.

[pablo]

Some will argue that excessive loans might “cannibalize” the IUL policy down the road. Overloan protection riders and proper policy management should easily avoid that situation.

[petersherman]

I think that you well handled the personal loan elements of the IBC. While the 1.24% interest rate is currently a thing of the past, I get your point. But, I am still confused about two elements I didn't hear about from you: Can you speak to the death benefits of the life insurance policy? And, can you speak to the tax benefits of whole life vs a brokerage account (or, perhaps, an IRA)? Thank you.

[livingworkingoutsidebox]

You've made some valid points but like the infinite banking sales Pitches your data is also skewed.

Velocity is good but one should always go with the lowest rates available. Yes 1.x% 0% for X years is the best.

But why not run a Montecarlo simulation on the IUL policy?

Is you market stock investment an indexed mutual fund or a managed mutual fund? The fees can be very different. The same for both policies depending on how they are set up. But that is another can of worms.

Also you left out the tax implications once you try to withdraw the stock market funds.

[coachlamysaint-fleur]

I agree 💯%. But at the same time with the IUL, you can do a partial withdrawal where you don't need to pay an interest and pay back the loan

[videoslve]

I understand what you are saying, my commit would the average car buyer isn't getting a car financed at 1.24 interest rate. Currently it is around 4 to 5 for a new car, and 8 to 9 for used. But this is generalize for people who have good credit. If you less than stellar credit you looking at 5-8 new, and 8-14 used. And that can also based on the term of financing that good rate would using be on 36 to 48, and increase incrementally the longer you fiance. And example would be I qualify for that $50, 000 car but to have a reasonable payment. I stretch the financing to 72 or 84 now I'm setting at an higher interest rate to get to the longer term. You probably understand this better than me. But when my interest rate for a 50k car is 6, and example policy is 6 percent is it still better to borough from the bank?

[ghostoferlock]

Thoroughly enjoyed the video, a fair detail between the two. I have been trying to tell people on a few channels that infinite banking in WL isn't a great option. For some reason the words 'infinite banking' seems to make people feel like they should defend it. My points are very simply, If anyone walks into their financial location and deposits $200, 000, they should be able to borrow against it. Ask an agent what they make on selling that WL policy that will be used for infinite banking, and if the client pays that commission through fees ? Thank you for being real about infinite banking. It's a marketing idea that isn't in many peoples financial future. I'm partially thinking that even wealthy people that could purchase it probably don't, as there are other ways to accomplish similar goals. Hoping many people watch this.

[CJP]

I appreciate your videos. Even though I’m a LH&A agent, my specialty is Medicare, so I’m far from the expert or even proficient at these products. But, I am having more clients ask me about these types of products and wondering how viable they are.



The one question I have is--In the comparison of WL vs. IUL is one better than another when it comes to the potential of withdrawing and paying taxes?



Thanks!

[namal]

Thank you for the video. Great, but is the real purpose behind using this for asset protection reasons like is the policy divorce proceeding proof or something like that?

[dear_mscaines]

I would like to know what banks have 1.24%, we're about 5-6% in NY. And if the bank rate is higher where I am, does that mean my WL % is higher as well - because of my location?

[wnywebdevelopment]

Way to many flaws in this video. First, where do you find a 1.4% loan? Second, with stock market investing your not guranteed gains. If your lucky enough to earn gains you have to claim taxes on it if your income is over $40k year. WLI is tax exempt, which you don't even get into. Third, bank will want collateral where as WLI is secured with the payments you already made. You don't loose possessions with WLI. They just keep your plan when you die and it's not reported to credit bureaus if you don't make payments.

[johnbryant]

When and How does the Ins Co collect the interest on the loan? Monthly?..from the cash value. Or from your rate of return on cash value? Thank you!

[homebasedbank]

A policy may be an alternative for those that cannot get a loan for 1.24%. In fact, I've never gotten a loan for such low rate...j/s