Don't Cancel Your Whole Life Policy
InsightsOnce you start investigating the Infinite Banking Concept, it’s common to start telling coworkers, friends and family about what you’re planning to implement in your life.
If they lack understanding of whole life insurance, it’s very likely the concept could pass right over their head without them seeing it. This blog is meant to help you understand what they’re missing if you’re doubting your research and the Infinite Banking Concept.
I wish I could give credit for this quote but I’m unsure of who said it, it has a lot of truth to it though, “Most people’s perception of whole life insurance is based on someone else’s misconception.”
Here are some common objections.
You can find cheaper insurance.
When you hear this phrase, you know they missed the part about the IBC being a way to finance your life.
Although the death benefit is important, your focus is on cash value accumulation. So, while you could buy term, it doesn’t build cash value and won’t allow you any ability to finance with your policy. Aside from that, most everyone completely misses the fact that you have a much greater need for finance in your life than you do for death benefit. With your cash value growing every single day and safe from any market downturns, you’re ensuring yourself the ability to control at least part of this need when you begin practicing the IBC.
You are also purchasing an asset and not a liability.
Don’t misunderstand me here, term life insurance has a place in financial plans and I’m not disputing that, but assets put money in your pocket and liabilities take money out of your pocket. With term insurance you pay and pay and pay and at the end of the term period you’re left with nothing to show for all your payments. Many Americans don’t realize this and don’t understand the reason term costs less initially; it is because the life insurance companies know the odds of paying a claim on that policy are very low (somewhere between 1-3% depending on the year).
What if you still have a need for life insurance after this term is up and you're uninsurable too?
Whole life insurance is an asset, it gives you access to more cash value than premiums you’ve paid (as long as you keep the policy in force and don’t cancel). So, all along the way you have the living benefit of the cash surrender value and the death benefit which doesn’t expire (assuming you pay your premiums on time).
And, whole life is a tremendous way to supplement your cashflow during passive income time, without any tax consequences when properly structured and implemented.
You can get a better rate of return in blank…
First of all, whole life insurance is NOT an investment. Investments have risk, which in financial terms does not equate to reward like many advisors tell you (“You have to take risk for reward”). Risk means the chance of loss, and when you invest in things you have no education about, the risk is much greater.
When you logically think about the longer you subject your money to risk, it doesn’t even make sense that your reward will be greater. In fact, to me the loss being greater is what I believe I’m subjecting my money to in this scenario.
This statement also presupposes that once I pay money into a life insurance policy that it is the only thing that I can do with it.
This thinking comes from the fact that most places you put money are an either/or proposition. I either put money into my 401K or I buy this piece of investment real estate. With life insurance you are purchasing an AND asset. You can put the money into your policy AND when you find the piece of investment real estate you want; you can purchase it too with a policy loan. (Yes, you can take loans from qualified accounts like a 401k, but there are typically only a few qualified expenses and you have to sell off the underlying asset for the money. I say typically because as I write this during the COVID-19 outbreak these restrictions on qualified expenses have been relaxed. With life insurance you don’t sell off the underlying asset, you collateralize it with no questions asked and very little paperwork.)
I can defer taxes with my IRA.
If this is a strategy that you like, just know that the word defer might be better said as postponing your taxes.
It is hard, if not impossible to know what tax rates will be in the future. I do believe they will be going up though for a couple reasons. Below is a graph showing we are in a historically low tax rate environment. This just shows what the highest and lowest marginal tax rates were through history. You can do your own research about where a certain income put you on this scale.
This image was found at https://upload.wikimedia.org/wikipedia/commons/8/8c/Historical_Marginal_Tax_Rate_for_Highest_and_Lowest_Income_Earners.jpg
My second reason is a quote from David Walker, former comptroller general of the U.S., “The current fiscal policy is unsustainable. We are heading to a future where we’ll have to double federal taxes or cut federal spending by 60%.” The comptroller general is head of a legislative branch agency that oversees the fiscal accountability of government.
I don’t know about you, but I for one believe tax increases are much more likely than spending cuts.
You may also hear remarks like “postpone your taxes now because you’ll be in a lower tax bracket in retirement.” This statement almost assumes that you’ll be willing to have a lesser standard of living when you retire.
Is this your plan after working hard the past 40-50 years of your life?
Here are 2 more points to consider.
- You’re entering into an unknown tax liability by doing this. As I said above, we don’t know what taxes will do in the future.
- Will you have deductions in retirement? Kids are an example of a tax deduction most families have in their working years but not in retirement.
Roth IRA’s grow tax free.
The first thing I will say is restrictions and penalties for use until age 59 ½. Sure, you have access to the principal, but what about the growth? Personally, I want to have access to both.
These plans also have restrictions on how much you can contribute.
- $6,000 in 2020.
- $7,000 if you are 50 years of age or older in 2020.
*These limits phase out when you reach certain income thresholds the IRS sets.
The final piece I’ll mention for any qualified plan (whether Roth, traditional or self-directed) is you must know your subjecting yourself to limitations, restrictions and penalties for use of YOUR money. You should do a lot of research on your own to make sure these plans are the fit you want, and make sure you’re not just getting caught following the herd.
Let’s move onto the IBC solution from these problems.
Your money system and their money system.
Who is it benefiting when you deposit your funds into say a traditional bank, qualified plan, or stock brokerage account?
It benefits everyone else before it benefits you!
There are only 2 types of money systems in this world when we zoom way out, your money system and their money system. Put your dollars where you get the benefits right away, today.
Dividend paying whole life insurance with mutual companies is where you can do that. The policyholders are the owners of mutual companies so you share in the profits. You’re a part of what may be the most stable industry that exists in America today with these companies, companies that have been around since the mid 1800’s in some cases.
Safety.
Think about this. Death is a certainty and that is the business these companies are in the business of insuring. They’ve survived through world wars, the Spanish flu outbreak, the great depression and countless other trying times on the American economy and citizens.
Look at what an innovation in online streaming of movies and tv shows did to blockbuster (I’m writing about Netflix). In some cases, tech companies are one innovation away from being replaced, but the life insurance industry has survived through much more.
My closing thoughts about the financial noise.
Where do you go when you want to get your heart checked out or worked on?
A cardiothoracic surgeon
What about when you get a tooth ache?
A Dentist
My point is that it is okay to speak with other people about the IBC, but go to the experts when you need answers to your questions. Specifically, someone who teaches AND practices the IBC. There are also some excellent books on the IBC which include:
Becoming Your Own Banker, Unlock the Infinite Banking Concept
R. Nelson Nash
R. Nelson Nash
L. Carlos Lara & Robert P. Murphy, Ph.D.
The Case for IBC, How to Secede from Our Current Monetary Regime One Household at A Time
R. Nelson Nash, L. Carlos Lara, Robert P. Murphy Ph.D.
Bank Owned Life Insurance.
Banks own massive amounts of high cash value permanent life insurance (BOLI is a different product than an individual can buy, and isn’t whole life). I believe Barry James Dyke was the man who uncovered this, in his book The Pirates of Manhattan.
Why do banks own such massive amounts of high cash value permanent life insurance?
It is used as a funding method for bank executive’s retirement benefits, cost recovery of benefits like healthcare and qualified plan matches to employees, and it offers tax benefits (tax deferred growth and income tax free death benefit).
It is also viewed as safe capital so banks get to apply it toward their Tier 1 capital. Tier 1 capital is the foundation of a bank and to quote Barry James Dyke, “The larger the Tier One capital, the stronger the bank.”
I think we can learn from those that have the money already, and imitate their behavior as much as possible. Banks wouldn’t place massive amounts of money in this asset if it wasn’t the right thing to do.
Here is a chart from Barry James Dyke’s book The Pirates of Manhattan, showing the amount of life insurance these banks owned as of December 31, 2006. It can be found on page 140.
