03: Is Infinite Banking Really Legit?
003 Is Infinite Banking Really Legit?
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[00:00:00]
Introduction to Financial Influencers and Infinite Banking
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John Perrings: Ever notice how a lot of those financial influencers out there are filming themselves in front of fancy cars that they probably rented, talking about hacks and tricks on how to get rich quick? Well, when it comes to Infinite Banking, There's a lot of noise out there. Some people get really excited about it.
John Perrings: Others are immediately skeptical.
Understanding Infinite Banking Concept (IBC)
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John Perrings: Today, we're going to cut through some of that noise and look at what IBC really is, why it's legitimate, and why some of the loudest voices out there might actually be hurting more than they're helping.
John Perrings: This is StackedLife, the podcast that teaches you everything you need to know about Infinite Banking, whole life insurance, and the strategies that make it work.
John Perrings: 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 at StackedLife. com.
John Perrings: Today, you'll learn why IBC sometimes seems too good to be true to some people, what makes it actually legitimate, and how to spot the difference [00:01:00] between real IBC strategies and the marketing hype that I think can sometimes color the way IBC is viewed in the wrong light.
Common Misconceptions and Skepticism
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John Perrings: The most common things I hear about IBC usually fall into one of two camps. First, there's the, Why isn't everyone doing this? And it seems too good to be true camp. And then there are the people that actually implement it or believe in it. And I'll hear a lot of times, man, I wish I had started this 20 years ago.
John Perrings: And I'd say that the too good to be true feeling comes more from the noise created around IBC than from IBC itself.
John Perrings: The Infinite Banking Concept was created by Nelson Nash and released in his book, Becoming Your Own Banker in the year 2000. Back then, interestingly, the noise was around more typical financial planning type of advice. But now, you know, 25 years later, the noise is actually often around IBC itself.
John Perrings: And here's one of the things that I think is affecting things. It's, it's really easy [00:02:00] to get into the life insurance business. It's kind of like a real estate. It's pretty easy to get your license. So what happens is people hear about Infinite Banking, they'll get their life insurance license and they'll immediately take to social media talking about, you know, getting rich buying cars and starting your own "bank."
John Perrings: They'll film themselves in front of, again, fancy cars and make sensational claims that, in my opinion, are usually incomplete at best, if not outright inaccurate.
John Perrings: And I want to throw something out there that I think is pretty important.
The Nelson Nash Institute and Authorized Practitioners
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John Perrings: IBC has an official home. And that's the Nelson Nash Institute at InfiniteBanking.org. It was founded by Nelson Nash himself, who wrote the book, Becoming Your Own Banker. Nelson passed away a few years ago, and so now the Nelson Nash Institute is run by his son in law, David Stearns. The Institute has an official authorization program to become an Authorized Infinite Banking Practitioner.
John Perrings: And getting that authorization [00:03:00] actually requires significant additional training, which in many ways it's harder than getting a life insurance license itself. The training that is involved gets into, you know, obviously the problems IBC solves, like the need for financing, as well as some of the macroeconomic factors like inflation and fractional reserve banking.
Economic Principles Behind IBC
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John Perrings: But most importantly, we learn a core economic principle 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 pay cash. And that's how you In economic terms, this is the concept of lost opportunity cost.
John Perrings: And the reason it's important is that it ties directly to the corporate finance principle of Economic Value Added. Where in order to make optimal decisions on where to allocate capital, we have to take into account the cost of money. So the real reason this is important is because, [00:04:00] now, we can understand that we're taking practices that are, by the way, completely accepted in the world of corporate finance, and now we have a methodology of applying them in the world of personal finance.
John Perrings: In personal finance, There are financial experts who take hard stances on how to access capital. They'll either talk about, you know, the best way to borrow money, or they'll have a hard stance on never borrowing money and that you should only pay cash.
John Perrings: And the thing is, both of those camps are always wrong at some point, right? So yes, you pay interest when you borrow, but you lose interest you could have earned when you pay cash for the rest of your life. And so I'm not suggesting you never use banks and borrow or you never pay cash. I'm just saying that IBC is about understanding how money really works and having a way that no matter what, and no matter what is the best way for you to use money.
John Perrings: You have a way that's best for you when you need to use it [00:05:00] and you're in control.
Addressing the Noise and Misleading Information
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John Perrings: Going back to the kind of noise around IBC, you know, a lot of people have kind of attached themselves to IBC, or they'll use some other term with the word "bank" in it. They'll kind of make up their own terminology, but they're essentially latching onto the coattails of Nelson Nash's work. They're putting information out there, but they're not affiliated with the Nelson Nash Institute and they haven't gone through the true IBC training program.
John Perrings: And I'm not saying that. You know, everyone who isn't Authorized IBC is bad. I'm just saying there is an official home for IBC and it has value because the additional training and the principles that we follow. And I guess the main problem I have with the sensational coattail riders is infinite Banking is not a hack. It's not a magic trick. And, you know, funnily enough though, when you actually implement IBC properly, And you have a mature life insurance policy, it actually can feel like a hack. But that's [00:06:00] only because you took the time to set up your financial system so that's working for you.
John Perrings: You've created this financial "tailwind" as we call it in IBC that you'll read in the book where everything starts getting easier, simpler, more peaceful, you're in control of everything. And so at that point it kind of feels like a hack. But that's because you've done the work and you've taken the time to set the system up properly first.
John Perrings: And one of the worst things I've seen out there is this so called hack of almost setting up what, what they would try to frame as almost free insurance. You know, there, there are advisors that'll tell people to pay these, you know, super high premiums, sometimes equal to their income that they then just borrow immediately back out of the policy.
John Perrings: And if there's one thing that has the highest likelihood of blowing up a life insurance policy, it's doing that. There's sometimes this focus on trying to build high early cash value and some agents I think get tunnel [00:07:00] vision on this because they think it gives them an edge.
John Perrings: And I mean, quite frankly, it kind of does. It makes selling life insurance easier. If you can show somebody, hey, if you pay this premium, but then you can borrow the money right back out of the policy, actually against the policy. If the client buys into that strategy, it'll, of course, reduce the resistance to buying life insurance.
John Perrings: The problem is there are really significant trade offs to doing that, and the worst of those being, of course, that you can blow up the policy altogether and lose money.
John Perrings: The truth is Whole Life Insurance. Is an incredible asset that has characteristics that no other financial product has.
John Perrings: If you know what you're doing, you don't have to talk about hacks. If you understand like the power that whole life has and where it fits and the strategies that are available when you have it, you don't need to use tricks to make it sound appealing. The further you try to make [00:08:00] life insurance act like it's not life insurance, trying to make it look like a savings account or a brokerage account, the more fragile it gets.
Common Objections to IBC
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John Perrings: So let's talk about some common objections that you hear out there to the Infinite Banking concept. There are the, you know, financial entertainer types that really bash whole life insurance and Infinite Banking. And one of the things that's very common that you hear is they think you have to "pay interest to borrow your own money."
John Perrings: And this really just kind of shows the level that they're playing at, because anyone with even the most basic understanding knows you're not borrowing your own money. You're borrowing the insurance company's money, collateralized by your cash value. This is part of what makes it work. You know, you get no-questions-asked access to credit from the insurance company, which is the same entity guaranteeing your cash value, by the way.
John Perrings: And the benefit is your cash value continues growing, even while you have the loan outstanding. If you borrowed your own money, you'd have to take [00:09:00] it out and you'd lose the growth all along the way. And that's actually what happens more like with a 401k loan. You know, some people like to say that, you know, you can borrow money against your 401k for things like buying a house, but actually what's happening with a 401k is you're actually withdrawing your money, your own money, thereby losing the growth on that money. On the flip side, you might be, you know, protecting yourself from some downside, but you're taking your money out and you have to pay that back, by the way, even though you didn't actually borrow it.
John Perrings: You just took your own money out and now you're paying it back with after tax money, getting a little bit of a double whammy on the, on the payback. But that's what's going on. You're borrowing your own money out of there and you're literally paying interest on your own money when you use a 401k. But that's not what's happening with life insurance.
John Perrings: On the flip side of that, you have people who are, you know, pro IBC and pro whole life insurance. They'll make sensational claims that you can borrow [00:10:00] money against your policy and pay the interest "back to yourself."
John Perrings: And this is also wrong.
John Perrings: It would not make sense for them to lend you money if they're not going to earn on it. They have obligations to all their policy owners to earn on the money in their general fund.
John Perrings: Here's where being an honest banker comes in. There could be a spread you could take advantage of here. If the going market rate is 7% and we can borrow against our policy cash value at 6%, that's a 1 percent spread. And if we've become our own banker and we want to be an "honest banker," we don't pay the loan back at 6%, we pay the loan back at the market rate we would have gotten if we weren't doing any of this.
John Perrings: So in other words, we pay the insurance company the 6% for the loan and the additional 1% goes back into our policy in the form of paid up additional life insurance, thereby capturing that spread.
John Perrings: But it's not always about the loan rates, there's always an advantage with whole life insurance. Because both growth rates [00:11:00] and loan rates tend to lag the general market rates, if interest rates are low, life insurance growth rates are probably higher than what you can get at a bank.
John Perrings: You know, like three or four years ago they were significantly higher, like 40 times higher. And as interest rates go back up, other cash and cash equivalents like CDs and bank accounts, they do start to compete a little bit better with policy cash value growth, but now policy loan rates can often be lower than what you can get in a bank.
John Perrings: So there's always an advantage. But a lot of people make the mistake of waiting for the perfect conditions instead of just getting started. You know, like the people who didn't buy whole life insurance five years ago because they could borrow cheaper money from a bank, they now wish they had bought whole life because now they'd have a bunch of cash value they'd be sitting on that they could leverage, likely at lower rates than what they could get at a bank.
John Perrings: You know, here's another misconception pushed out by the financial entertainers [00:12:00] out there. They'll say things like, when you buy whole life insurance and you build cash value, "the insurance company keeps your cash value when you die" and only pays the death benefit. And they say this like it's some huge scam, but let me explain why this again shows they don't understand how things work. Buying life insurance is actually a lot like buying a house. You know, when you make a mortgage payment, you build equity in your house and that's just the value minus what you owe to the bank.
John Perrings: And so if you sold that house, you wouldn't get both the equity and the full sale price, would you? You'd get the sale price minus what you owe. And if the house is paid off, the equity equals the sale price. And that's exactly how whole life insurance works. The cash value is your equity, but the asset instead of the house is the death benefit.
John Perrings: When you die, you don't get both, just like you wouldn't get the house and the equity. You just get the death benefit. The benefit is that while you're still alive, you get to use the equity [00:13:00] all along the way to buy assets or pay for large expenses, just like a home equity line of credit. You can use the equity you have in the death benefit to perform other economic functions while you're still alive.
Investor Perspectives and Long-Term Thinking
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John Perrings: Now let's address something that's not necessarily a misunderstanding, but more about sound financial principles. I mentioned earlier that a lot of people have trouble with what we call the capitalization period, where your cash value is less than what you paid in premium. And, Investors are really the ones that have the hardest time getting over that.
John Perrings: What they're missing is the long range thinking of what this creates for you in the future. I've run so many financial models and yes, things do start out slower when you buy whole life insurance, first, because of the capitalization period.
John Perrings: But over a 20, 30, 40 year period, it just keeps getting better as you go along. It massively [00:14:00] outperforms just using your regular cash to directly invest in something. And this is just the concept of leverage. Any investor should know that. If you compare two scenarios, one where income comes in and you put it directly into an investment versus income coming in, buying whole life insurance first, then leveraging the cash value to buy the investment.
John Perrings: The second one performs way, way better over the long term. There's just no question. And the big problem that kind of leads to this is there, you know, Especially with investors, they just get massive FOMO, which is fear of missing out. If you've never heard that term.
John Perrings: Right now, investors are just looking for anything that they can invest in. And if you think about it, we're at all time market highs right now for just about everything. Meanwhile, the number one rule of investing is supposed to be buy low, sell high, but everyone seems to be tripping over themselves these days to buy, buy, buy while we find ourselves in all [00:15:00] time market highs. I think there are going to be a lot of disappointed investors in the not too distant future because they've been buying everything while it's high rather than waiting for the right opportunity.
John Perrings: And if you look at some of the biggest money people out there, the, you know, the Berkshire Hathaways and Apples of the World, they're sitting on hundreds of billions of dollars in cash
John Perrings: because there just aren't any good deals out there right now.
John Perrings: And this fear of missing out piece really gets overlooked because everyone feels like they need to be investing all the time, invest, invest, invest, or they're going to miss out and mess up their retirement. But if you just had a little patience, a little longterm thinking, and a little discernment about what you're investing in, I just think you'd be so much better off.
John Perrings: One of my favorite clients told me that Infinite Banking has made him a more discerning investor. He's able to focus on capitalization and cash accumulation during these times when everything's at all time market highs.
John Perrings: And now he's just [00:16:00] waiting for the right opportunity to come around.
Conclusion and Next Steps
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John Perrings: All right. So these are just a few items that come up to create some FUD, Fear, Uncertainty and Doubt -there's another acronym for you- around the Infinite Banking Concept and Whole Life. But at the end of the day, this is really simple.
John Perrings: Whole Life Insurance is a bedrock financial asset, the product, with an unparalleled growth-to-risk ratio. And the Infinite Banking Concept is simply a process, not a product, that makes it dead simple to bring universally accepted corporate finance principles into our personal life.
John Perrings: So, if this has piqued your interest in IBC and whole life insurance, you should go and grab my free course, Adding Financial Certainty to Supercharge Growth, and you can get that at www.StackedLife.com/supercharge. And if any of these ideas and principles and strategies are resonating with you and you'd like to learn how they could work in your life specifically, just head [00:17:00] over to www.StackedLife.com and you can schedule a free consultation with me right there. See you next time.
