StackedLife - Authorized Infinite Banking

Policies that grow with your income
===

John Perrings: [00:00:00] If you've spent any time on YouTube or social media looking into whole life insurance, especially for The Infinite Banking Concept, you've probably come across videos comparing policy designs across different carriers, showing you which one has the best first year cash value, which one breaks even the fastest, which one is the most quote unquote efficient?

And what I wanna talk about today is why that entire conversation. The way it's being framed is fundamentally flawed because the people having that conversation are evaluating life insurance, like it's an investment and it's not. It's a life insurance policy, and that distinction matters way more than a lot of people, I think, realize.

By the end of this episode, you'll understand why so-called efficient policy Design, I think is one of the most misleading phrases in life insurance right now.

And why the ability to pay a premium, not efficiency is the number one factor in building a big powerful [00:01:00] policy.

The "Efficiency" Myth
---

John Perrings: So let me set the stage a little bit here. There's a lot of content out there, videos, et cetera comparing whole life policy designs across multiple carriers, for example. And these videos will take the same premium. They'll run it through six different companies with different design structures, and then compare which one gives you.

The best first year cash value, which one breaks even the fastest, which one has the best internal rate of return? And what I wanna talk about today is that whole conversation revolves around this idea of efficiency. You know, uh. Policy efficiency or efficient policy design or correctly designed whole life insurance or properly structured whole life insurance and all of this stuff, especially like the efficiency type of thing.

It's all really just code for high, early cash value. And that's, that's it. That's really all it means.

When someone says efficient policy design, what they're really saying is [00:02:00] we're going to minimize the base premium, maximize the Paid Up Additions, and get as much cash on the policy in year one as possible. So like, again, some more terms is like. The "10/90" type of design, max funded life insurance, overfunded life insurance, you know, whatever you wanna call it.

These are all just different ways of saying a maximum PUA ratio to get the highest early cash value.

And before we go any further, I'll just say like, yes, of course, all other things equal, we want as much cash value as possible, as early as possible. Of course, we want that. But here's the thing with insurance, and this is for all types of insurance, all things are not equal. Everything is a trade off. So here's what's happening:

Insurance Is Not an Investment
---

John Perrings: when I see people promoting this idea of policy "efficiency," they're evaluating whole life insurance the way you would evaluate a savings account or a brokerage account. And in this world. [00:03:00] You know, efficiency makes sense. If you have a savings account or a Schwab account, you can put money in there whenever you want.

You can increase your contributions whenever you want. The more you put in today, the more there is to compound, and that means the more you'll have in the future. And that's just basic, you know, math when it comes to an investment account. But life insurance is not an investment. It's not an account either, right?

It's a life insurance policy. It's a private contract between you and the insurance company and everything having to do with it is an actuarial calculation based on a guaranteed future cash flow called the death benefit. It is called whole life Insurance because it's based on your whole life, your entire life, which includes your health rating and the mortality risk that goes along with it.

Higher Early Cash Value Doesn't Mean Higher Late Cash Value
---

John Perrings: So when someone applies the investment account mindset to insurance, and they'll say like, well, if I have more cash value early on, [00:04:00] doesn't that mean I'll have more cash value later?

Like, doesn't hire early cash value mean higher late cash value as well, and. The thing is that logic doesn't actually transfer the way that we might think it does, because the growth of cash value in a whole life policy is not just your money compounding. It's again, an actuarial calculation, which is if you don't know what actuarial means, that just means the math used for risk. It's insurance, math. It's a math equation derived over an insurance company's entire block of business driven by mortality risk, operational costs, investment returns, lapse rates, you know, all this other stuff all built into your specific policy. So. This is a technical way of saying that higher early cash value does not automatically mean hire late cash value.

And that's one of the biggest misconceptions out there. At least right now it is. And it's [00:05:00] based entirely on the investing mindset that frankly, you know, as people in the whole life in IBC space, we should all be pushing back against that.

So

The Irony of Max PUA Designs
---

John Perrings: here's where things get kind of ironic, and this was what inspired this episode. I was watching a video recently. Again, there's a bunch of them out there where they spend like an hour or two walking through case studies comparing six different carriers all with a similar premium structure, all designed for high early cash value.

And they do a really thorough job of it. By the way, they're comparing first year cash value percentages. Break even years. Load fees on PUA. PUA flexibility rules, all this stuff like going deep into the weeds for an hour or more. And then after all that, they either have to stop paying premium altogether, reduce it down to like 10% of what they originally started with, or at best can never pay another dollar over and above the current design.[00:06:00]

That's the irony of the whole thing. You just spent all this time trying to squeeze the efficiency out of the five least efficient years of the policy, and then right when the policy starts to ACTUALLY get efficient, you're hamstrung for the next 50, which is kinda like, you know, I don't know, spending all your time and energy optimizing the launch of a new business and then immediately passing a board resolution to never grow that business any further.

And, and

Ability to Pay Premium Is #1
---

John Perrings: this is where we really need to reframe the whole conversation because with whole life insurance the number one thing that builds cash value again, is the ability to pay a premium, not efficiency, not the ratio of base to PUA, not which carrier has the lowest load fee. It's the ability to pay a premium as much as you can for as long as you can.

Just think about it like this. With an investment account, your ability to put money in it is essentially unlimited. You can contribute to a [00:07:00] brokerage account or a savings account whenever you want, however much you want. And so the only question there is like, what's the return and how efficient is that return?

That is the right question to ask for that type of an account. But with life insurance, you can't just put money in whenever you want. You have to, number one, qualify for the death benefit with your health and your wealth. And then the IRS limits how much premium you can pay relative to that death benefit,

before it might become what's called a Modified Endowment Contract or a MEC, making the policy taxable, kind of like how an IRA is taxable. And of course if this happens, uh, you. Up giving up one of the superpowers of life insurance, which is its tax treatment.

The Insurability Risk
---

John Perrings: So because of the limitations on expanding the system with higher early cash value designs, when policy owners' income outgrows their policy, they're taught that this is now simply when you buy your next policy. [00:08:00] But the problem here is that. This assumes that you'll qualify number one, which they may not, they're assuming, you know, you're still insurable 7, 14, 20, whatever years down the road.

And of course, anyone in this business that's been around for any amount of time knows that's a really bad assumption to make.

Lemme say it like this so I can try to illustrate it a little bit better. Let's say you're 40 years old and you buy a Max PUA policy designed for high early cash value over the next 30 years. What people don't think about a lot of times is. With a 4% annual cost of living increase, you know, just like an a typical cost of living increase that you would get as a W2 employee.

Nothing else than that. Your income over that 30 years will grow by over 200%. But over that same 30 years, you will not be able to put a single extra dollar into that policy without turning it into a Modified Endowment Contract. [00:09:00] The only way to expand your system without losing the life insurance tax superpower is to go buy another policy.

At 47 maybe you've developed a health condition. It may not even be life threatening, but it's enough to change your rating where it really increases the cost. You might still be able to get a policy, but now the cost is significantly higher. But of course, the worst case scenario is maybe you can't get one at all anymore.

You know, people are so focused on the lost opportunity cost of the first few years of their policy. But it's like, how about the lost opportunity cost on not being able to strategically accumulate and deploy the capital from a 200% income increase over the next 30 years?

It's like, how, how are we missing that lost opportunity cost?

Now compare that to someone who bought a more balanced policy at age 40, a policy that was designed with room to grow. During the first few years, the the [00:10:00] cash value will be less, although there are ways to address this.

This person can keep paying premium for 20, 30, 40 years and they can increase their PUA contributions as their income grows. They can also absorb windfalls and if their health changes at 47 or 54 or 61 or whatever, it doesn't matter. The policy is already in force and they've already locked in their insurability and they can just keep paying.

So over the life of that policy, the difference between these two approaches, the higher early cash value and the balanced approach. Can literally be hundreds of thousands, if not millions of dollars in cash value and in death benefit. And it all comes down to one thing, the ability to pay a premium.

Policy Potential vs. Efficiency
---

John Perrings: And so this is what I call policy potential, and I think it's a way more useful concept than policy Efficiency. Efficiency tells you how much cash value you can get, per dollar, in premium in the short [00:11:00] term. Policy potential tells you how much total value this contract can create over your entire lifetime, a maxed out high PUA design has significantly less policy potential because it's already hit its ceiling.

There's no room to expand, there's no room to put windfalls there. There's no room for income growth. There's no room for anything really. You've got, you know, you got your 90 cents on the dollar in year one, congratulations. And now it can never get any better than that.

A balanced design might give you 50, 60 cents on the dollar in year one, but the potential, the total capacity of that policy to accept premium and build value over time is massive. And, and that potential is what creates the real long-term difference.

Real-World Example: Balanced Growth
---

John Perrings: Let me give you a quick example from my talk at the Nelson Nash Institute Think tank last month, to a room of a couple hundred advisors. I had this, a very similar talk to [00:12:00] this. If I take a balanced policy and just increase the premium by that 4% per year that I mentioned a minute ago. By year 10, I'll have increased my premium payments by 50%.

By year 18, I've nearly doubled my premium payments, and that's all going into the same policy. No requalifying, no new costs, no starting the clock over on a new policy. And every time I do that, it just creates more cash value. You know, this idea that I wanna stop paying premium it, it's like, well, if I stop paying premium, I stop building cash value.

So why would I ever want to do that? Meanwhile, while the balanced policy person is just continuing to build their policy and and expand the system, the person with the Max PUA policy has to now try to buy their second or third policy requalifying every time. Paying new policy costs and hoping nothing has changed with their health and.

No Deals in Insurance
---

John Perrings: This is something [00:13:00] I learned from Todd Langford who he learned from his mentor, Norm Baker, and I think everyone needs to hear it. I've said it a bunch of times on this podcast, and that is there are no deals in the insurance business, whether it's life insurance, auto insurance, health insurance.

Everything is a trade off between cost and risk. And so what this means is there are no super secret, correctly designed policies that somehow get you something for nothing. There's no such thing as a free lunch. When you pull a lever down over here to create high, early cash value, for example, another lever goes up somewhere else in the policy to have a corresponding trade off.

And the thing is, is most people. You know, think the trade off is only between higher cash value and lower cash value, which is like, that's the getting something for free thing. It's not that way at all. The real trade off is between current cash value and future potential.

You're sacrificing future potential just for a couple years of [00:14:00] advantage. Every time you use one of these maxed out PUA designs.

When we understand that, when we can. You know, really internalize it. 'cause I know it's hard to do. Like we all want everything now. I get that. But when we understand that everything is a trade off, we can stop chasing, you know, quote unquote efficiency and start thinking about what actually matters.

Which is how do we design a policy that gives a, gives. Us the maximum capability to capitalize over the longest period of time. And so here's a question I'd encourage everyone to think about. Whether you're a consumer evaluating this for yourself or whether you're another advisor, thinking about how to serve your clients better.

And if the idea of The Infinite Banking Concept is to strategically capitalize, which is putting money in a place that gives us a strategic advantage, then do we wanna only be strategic for the first five years, or do we wanna be [00:15:00] strategic for the next 70?

The Infinite Banking Concept is not a financial hack. It's a process. And I think part of the problem with the so-called efficiency obsession, which again, is just code for high early cash value, is that it feeds into the hack culture. You know, it makes whole life insurance sound like a get rich quick tool where all you have to do is figure out the right design trick to game the system kind of thing.

There is no trick. There's no secret design. When you buy a maxed out PUA policy, you're cutting the strategic nature of the whole thing off at the knees, so it's not a hack.

Think Like an Institutional Investor
---

John Perrings: In fact, my experience in the data center, real estate and finance space taught me that institutional investors, the folks with the real money, deep pockets, who operate at the highest levels of finance.

Their top priorities when evaluating an asset are control and risk, not rate of return. Rate of return is a close third, but control and risk are the top two, because [00:16:00] they know that if they have control over a high quality, low risk asset, they can create multiple returns off of that same value over and over and over again.

The return on the individual acquisition is not the most important thing. It's the assets' quality and what it allows them to do over time. That's the most important thing. And. Aren't we doing the same thing as the institutional investors with Infinite Banking, we're just using a different asset class to kick things off.

We're building a high quality asset that gives us control and safety, and then the growth comes from what we can do with it over time, outside of the policy. Not from eking out every last little extra bit of first year cash value.

Key Takeaway
---

John Perrings: So if there's one takeaway from this episode, it it, I would say it's this "efficiency," again, code for high early cash value is not the most important factor in whole life insurance policy design. It's not even [00:17:00] close. The ability to pay a premium. As much as possible for as long as possible is the number one factor, and any policy design that sacrifices your ability to do that in exchange for a better first couple years is trading off long-term potential for what amounts to not be much more than optics in the short term.

Life insurance is not an account. It's not an investment. It doesn't compound like one. Everything's an actuarial calculation and once you understand that, the whole "efficiency" conversation starts to look a lot, a lot different. Every time we buy life insurance, we should buy it. Like it's the last policy we'll ever get because it might be. That means we want room to grow, we want room to put more money in, we want policy potential, not just policy efficiency. So as Nelson Nash said in his book, becoming Your Own Banker, we all have to think long range. And if we can do that, if we can think [00:18:00] long range, we'll have implemented the process of a lifetime.

If these concepts are resonating with you and you'd like to learn more about how they could apply in your life specifically, schedule an appointment with me. You can head over to StackedLife.com. You can book a free 30 minute consultation with me right there. We'll talk about you. I'll take you through a short assessment and if IBC is a right fit for you and it will be a value in your life, I'll let you know what that next good step you could take is.

Thanks. See you on the next one.