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Differentiating a Life Insurance Company and a Bank Thumbnail

Differentiating a Life Insurance Company and a Bank


The word “banking” in Infinite Banking Concept is a descriptor of the word concept. Nelson Nash chose these words carefully and did not mean a bank in the literal sense, but rather “behaving like a banker”.

You have to put yourself in the banker’s shoes and as Nelson said so many times, “think like the banker”. For your understanding of why you should Become Your Own Banker, I will take you through the “character’s in the play,” as Nelson would say.

Hint, the characters are the different elements at work in both a life insurance company and a bank.

First of all, what is the play?

At Cash Value Solutions, my partner Kyle and I spend a lot of time writing about this, and in fact it’s so important to us that we put it in our mission statement. The play is the business of banking.

Right now, whether you or a third party is controlling it, banking is being performed in your life. The person who is performing the banking function is in control financially, and is profiting quite handsomely. Infinite banking is the concept that shows you how to take control of the banking function. Dividend paying whole life insurance with a mutual company is the best tool for the Infinite Banking Concept.

Just wait, you’ll see banking is a good business to be in!

Who are the characters in the play?

When you know and understand who the characters are in the play, you’ll see another reason why we believe so strongly in warehousing your wealth in dividend paying whole life insurance. Nelson said, “When it comes to the subject of finance, frankly, most folks don’t understand the play. Worse than that, they can’t get the characters in the play straight!”

I just informed you about the play, let’s see the characters now.

The Characters in the Play

Conventional Bank Owner

Life Insurance Policy

  • Hired Help
  • Hired Help
  • Borrower
  • Borrower
  • Stockholder (Dividends)
  • Policy Holder (Dividends)
  • C/D Owner (Interest)
  • Policy Holder (Guaranteed Cash Value)


This is close to an exact copy of how Nelson described the characters in his 10-hour seminars.

The hired help and borrower.

For your understanding let’s give an explanation to go along with the characters. Both the conventional bank owner and mutual life insurance company must have hired help. Without these essential people there would be no place for you to do business. Both must also lend money out to borrowers. If they don’t do this, and do it successfully (i.e. have performing loans), there business models don’t work and they can’t deliver on their promises. So, in regard for these 2 characters in each business, there is no difference. (I realize the business models and practices are different, but that is not what we’re discussing.)

C/D owner’s, stockholder’s, and the policy holder.

In a conventional bank, a C/D owner earns interest on their deposit with the bank. With a dividend paying mutual life insurance company, the policy holder earns interest too, a guaranteed cash value increase.

So, what is the difference?

Now we’re at the part which should interest you.

Who receives the profits in a conventional bank?

The stockholders do, and being an account holder DOES NOT make you a stockholder.

Who receives the profits of the dividend paying whole life insurance policy with a mutual company?

The policy holders, they are the owners of the mutual life insurance company. At the end of the year the performance of the company is reviewed, and profits are distributed back to the policy holders in the form of a dividend.

All the characters were the same. The only difference is policy holders with a mutual life insurance company receive BOTH THE INTEREST AND DIVIDENDS! You also have a death benefit which is nowhere to be found with the conventional bank. This means you can perform the banking function and provide protection all with 1 product!

Why doesn’t everyone use whole life insurance to perform the banking function then?

  1. A very small percentage of people know they can do this. When people hear whole life, they think expensive and a terrible place to put money because of the misinformation and financial noise that financial talking heads have been spreading for around 40 years now (a stinging review from Ralph Nader led this in 1979). If you hear something enough times you just take it as truth.
  2. It also has to do with the fact that the life insurance industry as a whole has focused on the death benefit aspect of the contract. The life insurance companies didn’t teach agents about the financing capabilities, and therefore agents couldn’t share this with their clients.
  3. There is also an initial loss of liquidity when you start a new life insurance contract. This is drastically reduced however when you design a policy as Nelson Nash taught. That is how we design policies at Cash Value Solutions.

An explanation of the loss of liquidity.

This will follow Nelson’s teachings in his 10-hour seminar and book Becoming Your Own Banker very closely, as has this blog, so thank Nelson Nash for all this information!

When you purchase a life insurance contract, you are starting up a new business. This contract never existed before and with any business there is startup costs. According to Nelson, it takes “13 years to amortize the cost of acquisition of a new policy” for the company. The earlier years of these 13 are especially where you see the startup cost. (Think about how long land, real estate, and college educations take to turn you a profit! Also, how long does it take before you can access your qualified plan money penalty free?)

Did you know that the local bank you choose to work with didn’t decide they wanted to open up a banking business last week, and proceed to open their doors?

They had to create a liquid pool of capital, get a bank charter from the commissioner, and get deposits on the books all before they could start lending money. This was time and capital intensive. Nelson says it’s about 15 years before a new bank reaches its break-even point and profits.

Keep in mind all these things they went through, and you realize that when purchasing a C/D, you’re tapping into a business that is already established. It also brings into perspective that the business must be profitable if they’re willing to go through 15 years of work to make their first profits.

Below you see Nelson’s illustration of purchasing cars. One method depicted is to use C/D’s as your banking method, and the other is to use the Infinite Banking Concept, built on whole life insurance. Both methods have the same outlay.

You can see very plainly when you look at the numbers how there was a cost of acquisition for the life insurance contract. At year 15 it surpasses the C/D owner though. Move down all the way to line 51 and you can see what the banker’s reward was for starting his business, assuming you let it compound tax free for 51 years. It’s the value of the life insurance policy, minus the value of the C/D’s.

Think Long Range.

Many people will focus on the early years of a life insurance policy and determine it’s a terrible place to put money. Learn the “characters” and the “play” though, and you will see for yourself how much the Infinite Banking Concept will benefit you. Yes, this will require you to think differently about money, to think long range, and invest some time in education (reading Becoming Your Own Banker), but you will reap the rewards in the coming years.

Finally, Nelson had not even optimized the policy numbers you see below because he wanted to make the illustration simple. Take some time to educate yourself and put you and your future generations in the best situation possible by implementing the Infinite Banking Concept.

*The table below was made when interest rates were higher in the year 2000. The overall performance for both methods would equal less cash overall in the end, but comparatively speaking the results would be the same.