Why start an IBC policy?
We can’t figure out the “why” behind an IBC policy without first determining your goals, and then reverse engineer a solution for how they can be achieved. So, let’s get started.
We let outside institutions (whether traditional banks, credit cards, or mortgage companies) finance our large purchases in life. When we practice the IBC, we start taking over the role these institutions play, by building an accessible pool of money with our dividend paying whole life insurance policy, which we can leverage to finance any purchase we choose.
The all American family.
In R. Nelson Nash’s famous book, Becoming Your Own Banker, Nelson goes over a case study of the “All American Family.”
He found that 34.5 cents of every disposable dollar spent by the average American, goes toward interest (after taxes). Nelson had people challenge him on this, and he told them to do their own research. After their own research was completed, they informed Nelson that he had understated the problem!
The idea of infinite banking requires discipline to build your money pool, but once capitalized, we can use our IBC policy to recapture lost interest. The dilemma mentioned in the prior paragraph is why you would frequently hear Nelson say the IBC is not about rates of return, but volume.
The volume of interest escaping us through traditional finance methods is massive, but we struggle to see this, and chase high rates of return on the small amount of money we save to invest.
The larger we build our IBC policy, the more interest we can recapture, and use over and over again.
The IBC isn’t investing.
Practicing the IBC is not investing, it’s saving.
Investing involves the chance of loss, which cannot happen with your policy. Your cash value is guaranteed to grow every single year, and you will participate in dividends if declared by the company, which aren’t guaranteed.
The mutual companies we work with have paid dividends for more than 100 years running. Because of the guarantees and ability to participate in dividends, an IBC policy is the IDEAL place to accumulate capital. You are in total control; your capital is safe from loss, and growing faster than the pace of inflation, unlike with traditional banks.
The control is yours.
When you are in control, you get to make the decisions. There are no restrictions, penalties or lengthy amounts of paperwork to use your money. This control and easy access will help you to see opportunities and act on them.
Maybe that is in your business, you have a chance to expand your client base or just offer more services, or maybe you see a piece of real estate you want to buy. You get to use the money for investments, business, personal, college funding for kids or grandkids and maybe even passive income down the road, whatever you choose.
Money has to reside somewhere.
Think about it, right now you probably are putting some money in your qualified plan, you deposit your paycheck in the bank, and some of you may have a house you’re paying on, or have paid off.
All of these are places you put your money. Your qualified plan has restrictions for use set by the government, you don’t participate in the company’s earnings at your bank, and your house can lose value with changes in the real estate market (real estate is not very liquid either).
With an IBC policy, you avoid all of these downfalls, and you have the ability to leverage your policy for life’s purchases. At some point you may make money selling a rental property, business, or shares of stock.
Again, money has to reside somewhere, so when you take your profits, the best place to accumulate capital is in what, you guessed it, your IBC policy! The efficiency you achieve with your money is fantastic, keeping it at work for you, and when you need it, you have quick, easy access.
Invest in yourself!
When you practice the IBC, you’re investing in yourself. You’re placing a higher importance on your money, than outside institutions money. Today you have control of where your money goes; you can be prepared for a health emergency, car break down, or potentially losing your job.
If you have debts and make extra payments toward them, you have given up control of your money, and the ability to make it grow for you. Look at the example at the end of this blog post, we have a short example showing compound interest and amortized interest to get you thinking of possibilities with your money you may not even see yet!
An added bonus of practicing the IBC is that it solves the problem of needing term insurance, and leaves you with more DB at the time you're most likely to pass away usually.
The IBC can also be a forced savings method. You’re being efficient with your money, using a single dollar for multiple jobs when you use policy loans to take on debt, and recapturing the opportunity cost that would otherwise be lost.
A quick review.
You may not need to use your IBC policy right away, but once you create it, you’ll have a growing pool of liquid capital and access whenever you need it.
The biggest takeaways you should be having right now relate to access, control and guarantees. When you start practicing the IBC, you are investing in yourself, and taking control of your financial success.
You won’t need to chase high rates of return when you recapture the interest (opportunity cost) lost financing life’s big purchases. You’ll have the ability to act on profitable opportunities that come your way, and can rest easy knowing that if you leave debt when you pass, your DB will cover any outstanding policy loans, and still pass on money to your loved ones (It’s important to keep your policy in force until death).
If you have questions or this has pushed you to want to learn more, you can schedule a financial strategy call with us. We look forward to empowering you with knowledge to take action towards financial independence!
Compound vs. Amortized Interest $50,000.00 @ 5% for 10 years
End of year Balance
End of Year Balance
Above is a table we put together to show you possibilities you may not even see with your money. We made an example to show what happens if you have $50,000.00 compounding for you at 5% annually, vs. $50,000.00 of debt @ 5%, which you make monthly payments on, amortized over 10 years.
The point of this example is to show you two things:
1) Compounding interest grows faster than the amortized interest you pay on debt. This is simply because the balance of one is growing (the compound interest example), and the balance of one is shrinking (the amortized interest example). I could have even made the interest rate 3% on the compounding interest in this example, and it would have made you more than you paid ($17,195.82 earned @ 3%).
2) This is a prime example of why keeping control of your money is so important. Creating a cash flow management system that you control (an Infinite Banking Concept policy), would allow you to recapture the $13,639.21 of interest paid in this example. Every one of those dollars can be used over and over again by practicing this concept!
By saving your money where you can earn interest and be in control, you’ll be prepared for life’s many ups and downs. All this relates back to Nelson’s book Becoming Your Own Banker, where he talked about “The Golden Rule-Those who have the Gold make the rules!”
If you haven’t read it, I highly encourage you to pick up a copy!