01: What is Infinite Banking (in plain English)?
001 What is Infinite Banking in Plain English
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John Perrings: [00:00:00] What if every dollar you put to work could do more than one job at the same time? What if instead of watching the banks profit from your money, you could take a page from their playbook and perform that banking function for yourself? Well, today I'm going to tell you exactly how The Infinite Banking Concept lets you do just that and why it could change your entire financial trajectory for the better.
This is StackedLife, the podcast that teaches you everything you need to know about the Infinite Banking Concept, Whole Life Insurance, and the strategies that make it all work. And I'm John Perrings, an authorized Infinite Banking Practitioner. I've implemented IBC for hundreds of my clients and educated thousands more with original content from my podcasts, articles, and courses over at StackedLife. com. You might actually already know me from the Strategic Whole Life podcast, where we reached over 60,000 unique listeners and generated more than 150,000 downloads on this very niche [00:01:00] topic alone.
While that show is no longer in production, I'm excited to bring you that same level of detailed practical education here at StackedLife with even more strategies and insights to help you take control of your financial future. So in today's episode, you'll learn exactly what the Infinite Banking Concept is, how it works, and most importantly, how it can transform the way you think about and handle your money forever.
So, today we'll cover how traditional banking works and how it's probably not working on your behalf, what the Infinite Banking Concept really is, how Whole Life Insurance serves as your banking platform, the power of policy loans and how they can be used to become your own banker, and why this strategy isn't more widely known.
The And then finally, how to use IBC and start thinking about things a little bit differently and how to think about your money a little bit differently. Before I get into the meat of it, a little bit of [00:02:00] background here that I think could help. If you've listened to my old podcast, you know that my background is in tech.
So I have, I had a 20 year career in Silicon Valley. I spent a lot of that time in the data center space, doing data center, real estate, finance, and construction. And if you're not familiar with what a data center is, it's just an industrial class of real estate designed specifically to hold all the servers or computers for large companies and data center operators.
So, you know, the Googles, Facebooks and Netflix of the world have these large data centers that have racks and racks and racks of servers and a bunch of cooling, obviously a lot of power goes to these facilities, and then internet connectivity. And what I learned while in this business, when I was working on data center deals, we would advise on data center transactions and these large institutional investors would come in with an interest in [00:03:00] buying one of these real estate assets. And these transactions could be very large, you know, 10, 20, 50 million dollars. And what I learned from my mentor in that business at the time. And what I saw for myself is that these large investors, rate of return wasn't even in their top two considerations when evaluating these deals.
Rate of return is built in there of course , in the cap rate and you know, typical real estate transactions. But the top two things they were actually mostly concerned about was control and risk. Because they knew if they had control over a high quality asset, meaning low risk, what I have learned since is that they can create multiple rates of return off of that same asset by having the correct structure in place.
The reason I'm bringing this up is it's the first thing that really led me to where I [00:04:00] am now. Because what I saw was a disconnect in how institutional investors with millions and millions of dollars, to work with, they really looked at using their money in a different way than how we're taught in personal finance.
And so I saw this disconnect and I, and I wanted to find out why that was. And I wanted to find out, Hey, is there any way for us in personal finance to use our money and have the same priorities with our money that these large institutional investors have. And of course, what we're taught in personal finance is rate of return is everything. So you know, we're taught to take high risk to get a high return. And you know, what I saw with the, the big money people is they didn't want to take risk at all. And so I, I, I always wondered, well, how can we. How can we bridge that gap?
And my research around that and my learning around that concept helped me land on The Infinite Banking [00:05:00] Concept. And really at the core, The Infinite Banking Concept is taking principles that no one would bat an eye at, at the corporate level, things like economic value added, where.
The cost of money matters. And losing matters. So we, in the corporate world, you don't want to take a lot of losses. Like that's not really what we're trying to do here. Everything is, we're trying to allocate every dollar to create growth. But in personal finance, it's like, Hey, you can afford to take some risk is what they tell, especially young people.
And so what infinite banking really is, is it's taking , tried and true financial concepts from the corporate space and really just applying those to our personal financial model. So it's something to keep in the back of your mind as we start to talk about the rest of this.
Okay, let's start with something fundamental. At its most basic level, The Infinite Banking Concept [00:06:00] is privatized banking at the individual so called you and me level, using the cash value from a dividend paying whole life insurance policy as the platform. And before we go any further, let me clarify something important.
Understanding where the Infinite Banking Concept comes from. The Infinite Banking Concept was founded and created by R. Nelson Nash and was really put out into the public with his book in the year 2000, Becoming Your Own Banker, Unlocking the Infinite Banking Concept.
So as we go through all of this, I want to really hit home on the fact that the source material for Infinite Banking is the book Becoming Your Own Banker. That's really what started it all. Nelson also has these hours-long talks that he would give over several days, educating people on The Infinite Banking Concept that he, that he created.
You can go to InfiniteBanking. org and on there [00:07:00] you can access lots of resources like the book itself, the DVD for his seminars, and you can also find a practitioner finder. I really love the practitioner finder because
it lists advisors who have taken the time, expense, and effort to add another level of training where they became certified by the Nelson Nash Institute to become authorized infinite banking practitioners.
All right, now that we've covered a little bit of the background, let's get into the Infinite Banking Concept.
To understand why this is so powerful, let's look at how traditional banking works. Let's look at how traditional banking works. When you deposit money at a bank, what happens?
The bank pays you some tiny amount of interest for the privilege of using your money. Then, they turn around and lend that same money to borrowers at a much higher interest rate. The difference between what they pay you and what they charge their borrowers is their profit. And [00:08:00] That's really how they create these massive profits using your money.
But if you think about how most people use banks today for most households, it's really nothing more than a glorified expense account, right? Money comes in and before they can even get their hands on it, a lot of times, a big chunk of it goes to taxes, then it goes out to lifestyle expenses, debt payments, and a lot of times, qualified plans like 401ks and IRAs get first priority.
But here's the problem. Even that money that gets saved, that money is tied up for decades. You can't access it without penalties. So what happens is you're actually, when you need money, whether for an emergency or for an opportunity or a major purchase, because you don't have any money, aka capital, you end up having to go right back to those same financial institutions to borrow that money.
And [00:09:00] often you're borrowing from the same bank where you keep your deposits. So you're both a depositor and a borrower, and the bank is the only one really benefiting from this arrangement. So this brings up an important financial rule that most people don't realize. And that rule is that you finance everything you buy.
You either pay interest to someone else when you use their money, or you give up interest you could have earned when you use your own money. And in economic terms and fancy economic lingo, this is called lost opportunity cost and you can never escape lost opportunity costs, but you can minimize it with the right structure.
And this is where the infinite banking concept comes in. Instead of relying on banks, we create our own quote unquote banking system using dividend paying whole life insurance. Whole life insurance, just like stocks, bonds, real estate, your [00:10:00] business, those are just asset classes and whole life insurance, just like those other assets is just another asset class. It just happens that because of the actuarial nature, meaning the actuarial math or actuarial science, That's used to calculate insurance prices.
It gives it some unique advantages and unique characteristics. So sometimes what I'll say is, you know, whole life insurance is kind of like a savings account, a corporate bond, a Roth IRA, and a piece of real estate had a baby. You get the guarantees and the liquidity of a savings account. You get growth similar to and most often better than corporate bonds.
, the tax treatment is kind of like a Roth IRA. , and the collateral power that you get from life insurance is similar to real estate equity. The key difference with whole life insurance is these are guaranteed contracts. Traditional whole life insurance provides guaranteed growth every single [00:11:00] year with no down years and the growth is very respectable. When you factor in all the tax advantages and other benefits of whole life insurance, you might be surprised to learn you need to earn somewhere in the 7-8% range in another type of an investment to match what you get with whole life insurance. But here's where it gets really interesting.
The policy loan feature. Just like you might get a home equity line of credit against your house, you can get a loan against your policy's cash value, and the difference is your policy's cash value is guaranteed by the insurance company itself, unlike the real estate, which can fluctuate and is not guaranteed.
When you take a policy loan, You're not actually borrowing your own money, and this is crucial to understand. You're borrowing from the insurance company, using your cash value as the collateral.
This is something that is misunderstood all the time, where people call [00:12:00] policy loans, borrowing your own money or paying to borrow your own money. You're not borrowing your own money. You're borrowing the insurance company's money. And here's the magic. While the loan is outstanding, your policy cash value continues to grow and compound uninterrupted because instead of taking the money out, we borrow it against it.
And this is just leverage. Any investor understands the concept of leverage. But what this means in layman's terms is that it means every dollar in your system can do more than one job at the same time. So let me give you a practical example. Say you want to buy a car and the market rate for an auto loan is 8 percent call it.
And let's say using your, using a policy loan, you might be able to borrow. From a policy loan from the insurance company at 6%, so there's a 2 percent spread there, right? Now, here's where being an honest banker comes in. If we're [00:13:00] gonna, if we're gonna take over the banking function and become our own banker, we have to be honest bankers in our own system.
So instead of just paying the policy loan back at 6%, you pay back at the market rate of 8%. That 2 percent spread goes back into your policy as additional cash value, creating a financial tailwind that we would call it in the infinite banking world. It's kind of like when you fly from New York to San Francisco, you're flying into a headwind.
So it takes, you know, five or six hours, maybe even seven hours to get home. But if you fly from San Francisco to New York, you have a tailwind behind you, so it only takes four to five hours to get there. And if you can just start doing this every single time you fly, if you had a tailwind every time you flew, you'd gain a lot of hours back in your life.
Same thing with our money. If you create this tailwind, it's small improvements that add [00:14:00] up over time that create a really significant improvement in your financial life. You know, I know that 2 percent might not sound exciting, but imagine applying this principle to everything you finance, whether it's cars, college, property taxes, business expenses, over a financial lifetime of 30, 40, 50 years, we're talking about hundreds of thousands, if not millions of dollars of improvement. So it's not, this isn't chump change that we're talking about. And it gets even better When you use this strategy for investments, if you can, going back to our 6% policy loan rate, if you could go to the life insurance company and borrow at 6% and then go buy an investment that nets you 12% per year, get out your financial calculator . Earning 6 percent is the same as saying it costs you $6 for every $100 that you borrow, and if you earn 12%, [00:15:00] that's the same as making $12 on every $100 that you borrow.
So, get out your calculator, get out your financial calculator, and put negative $6 in the present value, in the future value, put $12, and then, put one year. If you can do that every year, that's a 100% rate of return. You're spending $6 to earn $12. And this is exactly what banks do with our deposits by the way, but now you're the one in control. And speaking of control, you're in complete control of the payback terms on this policy loan. So. Here's another example, imagine being a real estate investor or, and let's say you're a flipper, and imagine doing a flip and not having a lender breathing down your neck if a project runs longer than expected.
That kind of flexibility can be the difference between success and failure in many ventures. The [00:16:00] Infinite Banking Concept does even more though. Because this is life insurance, your family is protected all along the way because you've got that big death benefit going along with this, right? Plus having a permanent death benefit opens up significant tax saving strategies for retirement and estate planning. Imagine having a million dollar guaranteed death benefit. Wouldn't that give you the freedom or, as we call it in the business, a "permission slip" to use and enjoy that other million dollars from all your other assets while you're still alive. Knowing that your family is taken care of with that tax free death benefit that'll be coming their way.
As we get close to wrapping up here, I want to talk a little bit about people's reactions to this. You know, when people hear about this, they usually have one of two reactions. You know, why isn't everyone doing this and is this too good to be true? And if I actually were to name a third one that I probably hear more than anything else is once [00:17:00] 20 years ago or learned about it 20 years ago.
But you know, why doesn't everyone know about it and is it too good to be true? I would say are doing this. They just might not be talking about it. And the other thing I would say is that if we're looking for some validation of this product, I would say, speaking of becoming our own banker, let's look at the big banks themselves, the actual real banks, the banks themselves hold hundreds of billions of dollars of whole life insurance as part of their tier one capital, their safest, most liquid assets.
They buy a whole life insurance on executives and as part of their compensation packages.
And the reason it's not more widely known, I would say that since the eighties, there's been. A massive shift from guaranteed financial products to more risk based products like 401ks. Prior to the [00:18:00] 80s, most people had whole life insurance and a pension. A pension is just an annuity that guarantees income for the rest of your life.
During those days, another term for that is a defined benefit plan where you put in your work and you maybe contribute to it and you have a defined benefit, meaning you know exactly how much income you're going to have for the rest of your life. Well, in the eighties, with the advent of the 401k, things switched over to what are called defined contribution plans, where the only thing you know about this is how much money you put into it.
But if you think about a typical financial plan, there's really very little that we know about anything that makes it a plan at all. For example, how much money will you make? What kind of returns will you get? How long will you live? Will emergencies derail your plans? You're giving up control, taking all the risk, paying all the taxes, just hoping [00:19:00] for an average rate of return.
And so if you think about this, like, what about a financial plan, like a typical financial plan is actually a plan.
Our money has to reside somewhere. Would we rather have it reside in a system where we have zero control and unlimited risk? Or, would we rather have it reside somewhere where we have 100% control and guaranteed growth?
I'm not saying you shouldn't have other investments, of course. What I am saying is that having some certainty in your financial life through Whole Life Insurance and The Infinite Banking Concept gives you the foundation that you need where it allows you to take calculated risks elsewhere. All right, that wraps up episode one.
This was really just a high level overview of what Infinite Banking is. The whole purpose of this podcast is to dig into the nitty gritty of this concept and help [00:20:00] educate you on how everything about it works. We can't do that in one episode, but if you want to jump ahead, you can go over to StackedLife.com and I've got tons of information over there. If you're ready to learn more about implementing the Infinite Banking Concept in your life specifically, again, www.StackedLife.com/consultation. You can schedule a strategy session with me right there and we'll discuss your specific situation and show you how to get started with becoming your own banker.
In our next episode, we'll dig deeper into the mechanics of whole life insurance itself, how it's structured, how it can be designed, and why it's the perfect tool for Infinite Banking. So click over to episode two and I'll see you over there.
