“The Infinite Banking Concept is an exercise in imagination, reason, logic and prophecy.”
– R. Nelson Nash
It is incredibly hard to quantify what the Infinite Banking Concept is. You can’t see it, it’s a thought process of your “imagination.” Even having a strong grasp on the concept, I sometimes struggle to relay it to people. That is why I want to break it down here. You need an answer to this question:
What is the Infinite Banking Concept?
Defining the Infinite Banking Concept.
The Infinite Banking Concept is just that, a concept. It is a strategy or way of thinking about how to perform the banking function in your life (are you currently performing it yourself?). It is far from mainstream, and this is in part why I feel it’s so hard to describe. As practitioners we’re dealing with a paradigm that is foreign to you.
Nelson illustrated the point like this: “ What I’m teaching is equivalent to teaching that the world is round-when most folks think that it is flat. Technically, that is a very simple thing to explain-but if you are one of those who think it is flat, then it becomes a very difficult problem!”
If you believe everything you’re doing, or have been told about money is true, and aren’t open to learning, the IBC is hard to grasp. I can tell you firsthand that when I speak to someone about the IBC who has no prior knowledge of the concept, the thought of controlling the banking function in their life themselves hasn’t yet crossed their mind.
The fact that we need to play honest banker with ourselves and charge ourselves for use of our own capital just like a 3rd party would do for use of theirs’ is mind bending! You must think this way though.
Nelson said it perfectly: “You finance everything you buy. You either pay interest to someone else or you give up interest you could have earned elsewhere.There are NO exceptions.”
Whole life insurance as an IBC vehicle.
The IBC is implemented with dividend paying whole life insurance from a mutual company.
Let it be known now that you could implement the IBC “strategy” using other financial products. The problem is no other financial product is as efficient at implementing the banking function at the you and me level as dividend paying whole life insurance.
I think you can understand that my job would be a lot easier if I didn’t have to educate people to get past the mental block the words whole life insurance set off. So, why is whole life the ideal vehicle to Become Your Own Banker?
You own the contract; the life insurance company is just the administrator of your plan.
Ultra-liquid, access to between 90-99% of your money (contributions and growth) in 3-5 business days, WITHOUT PENALTIES.
Would you want the place you warehouse your wealth to have a hole in the floor, i.e. the chance of loss? Your cash value is contractually guaranteed to go nowhere but up!
Participate in profits
When you’re a policyholder with a mutual company that makes you an owner, and the owner’s receive dividends when declared as their share in the profits.
One of the two biggest destroyers of wealth is taxation. Under current tax law your cash value grows on a tax deferred basis and can be accessed tax free with proper structure, implementation and use.
A self-completing asset. Your cash value instantly jumps in value up to your death benefit and is passed on income tax free at your passing.
Truly Uninterrupted Compounding
Opportunity cost, the second of the two biggest destroyers of wealth. What would your dollars future growth be if you didn’t spend it? Once a dollar is paid into a policy, it is FOREVER earning, working for you until the contract completes.
A traditional whole life policy can be used to implement the IBC. In fact, if you have whole life policies right now, we can analyze them and tell you if it will work for infinite banking! When we start working with a new client, this is where we begin once the education has taken place.
You should know a traditionally designed whole life policy is not what we would call ideal, but if it has cash value and has been in force for several years it can work.
If you don’t have whole life, your existing policy won’t work, or maybe just isn’t big enough, you need to start a new policy. We custom design these to your current financial situation. An IBC designed policy has cash value on day 1, unlike your traditional whole life policy you might hear Dave Ramsey talk about.
We typically attach a Paid Up Additional Life Insurance Rider, and sometimes a term life insurance rider as well, to turbocharge cash value growth. Our goal when designing these policies is to maximize cash value and minimize insurance costs, unless your needs require a different design. Attaching the before-mentioned riders gives you flexibility in the amount of your premium payment that is due every year and provides the ability to max fund the contract if you can.
Putting the IBC into action.
Once you have a whole life policy you get to put the Infinite Banking Concept into action. By starting your IBC policy, you are building a pool of capital that you have complete control of. The IBC revolves around accumulating capital in a place that you control so you can finance your large purchases in life.
By doing so, you have taken the power away from third-party sources of capital, and the terms they give you for finance. After a purchase (by means of a policy loan) using your IBC system, you simply direct the payments for the item back to the insurance company. During this time of an outstanding policy loan, you continue to earn guaranteed interest and dividends if declared by the company. Now you have money flowing to you (this is the best way to recapture what would otherwise be lost opportunity cost when paying cash or using traditional finance), instead of away like what nearly everyone does now.
So that’s it. The Infinite Banking Concept is a thought process that teaches one how to take control of the banking function in their life, by accumulating capital in a dividend paying whole life insurance policy, and collateralizing the cash value in their policy to finance their large purchases in life.
The uses for the system you build are only limited by your imagination.
Like Nelson said, “it’s ridiculously simple.”
As practitioners, we are creating confusion around all the minutia that happens with Infinite Banking. My advice is to simplify and teach the concept first. Education is crucial; the numbers and talk about insurance companies comes second!
The Infinite Banking Concept is caught not taught.
I recently attended the 2020 IBC Practitioners Think Tank Symposium in Alabama. David Stearns gave a presentation, and in it he addressed what Nelson meant by each of the 3 words in Infinite Banking Concept. Infinite was chosen because there is no limit on how an individual can use their policy, or system of policies, and the variations in policy design are nearly limitless. I haven’t designed 2 policies the same yet! The following comes straight from David, “the word banking is an adjective, a descriptor for the word Concept. Human behavior, specifically behaving like a banker is the real focus of the book.” The final word, Concept, in Nelson’s own words, “an understanding retained in the mind, from experience, reasoning and imagination.”
Nelson believed this word was the most important!
This saying from Nelson rings true with many who have been exposed to the IBC, and it’s the final piece I will leave you with.“Infinite Banking is caught not taught.”