StackedLife - Authorized Infinite Banking

007 Term Insurance vs. Whole Life
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John Perrings: [00:00:00] Should you buy term and invest the difference or implement The Infinite Banking Concept, the internet is flooded with passionate arguments on both sides of this debate. Financial gurus talk about how whole life insurance is a terrible investment. Meanwhile, IBC practitioners, myself included, insist that it's the foundation to financial freedom.

With so much conflicting information, how can you possibly correctly compare term insurance versus whole life insurance? Well, stick around because I'm going to do just that. And I'll do it by going back to my tried and true analogy of buying a house to make the comparison.

This is Stacked Life, 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 at [00:01:00] StackedLife.com.

By the end of this episode, you'll understand why the conventional wisdom about term insurance being "cheaper" than whole life insurance is really fundamentally flawed because you can't use grade school math to calculate this. Financial math must be used, and when we do, everything becomes crystal clear.

Today we'll examine term life insurance versus whole life using five critical pieces. First, we'll use a house analogy to understand the fundamental difference between these two products. Second, we'll discuss how the risk profiles of the two products are very different, even if the death benefit is the same.

Next, we'll talk about the difference between. Price and cost. Fourth, we'll analyze which one is an asset and which one is a liability. And finally we'll address the popular "buy term and invest the difference" strategy and why it might not be the financial silver bullet many claim it is. So tune in and let's get into [00:02:00] it.

House Analogy
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John Perrings: Alright. If you've listened to any of my other podcast episodes, I like to use a real estate analogy for looking at and understanding what whole life insurance is. I think it makes a makes it very easy to understand what's going on with whole life insurance and we'll do the same thing here.

Term insurance is kind of like renting an apartment. When you rent an apartment, you pay your rent, and when you're done living there, you don't get any of that rent money back. Term insurance is kind of the same thing with term insurance. What we're doing is we're paying for insurance for a term, which is a period of time.

Maybe it's 10 years, 20 years, 30 years. Most of the time we're gonna talk about 30 year term insurance on this episode. Every time you make your premium payment, you have the coverage, and at the end of the term, if you have not died within that term, the policy ends and you don't get any of the premium dollars back.

Whole life insurance, on the other hand, is more like buying a house. Because with whole [00:03:00] life insurance, the reason it's called whole life is because it lasts your whole life. Rather than paying a death benefit, only if you die during the term, whole life insurance pays out when you die.

Not if you die. It's guaranteed to pay a death benefit in the future. So either when you die or if you happen to live to age 121, the policy will endow and the death benefit is still paid out. And so whole life is more like buying a house. When you buy a house, every time you make a mortgage payment, you build equity in the house.

And similarly, when every time you make a premium payment with whole life insurance, you build equity in the policy, and that's just called the cash surrender value. So if you ever moved out of the house and sold the house you'd get the equity back of what you built up in that house. With whole life insurance, if you ever wanted to not have the policy anymore and surrender the policy, the life insurance company guarantees they'll [00:04:00] essentially buy that from you for the equity that's available, and they'd give you the cash surrender value of the policy. And so in thatt way, when you buy whole life insurance, you're actually buying your life insurance. When you pay for term insurance, you're really renting your life insurance.

Level of risk transfer to the insurance company
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John Perrings: And to understand why that is, we have to understand where the risk comes in. The risk profile of term and whole life are, it's very different because the reason term insurance premiums are so much lower than whole life insurance is because there's just much less risk. I've mentioned on this podcast before I learned from Todd Langford, the founder of Truth Concepts.

There are no deals in the life insurance business or in any insurance business for that matter. Everything is a trade off between cost and risk, and so the reason term insurance premiums are so much lower is because there's much less risk for the insurance company. And the reason for that is during a 30 year term, let's just say you're a [00:05:00] 35 year old and you buy a 30 year term policy, and so that'll cover you to age 65.

During those years between 35 and 65, you're statistically very highly unlikely to die during that period of your life. So there's a weird sort of contradiction happening when you buy term insurance in that when you have term insurance, you have coverage during a period of your life where it's statistically highly unlikely that you'll die. Then after the term is over, you have no life insurance coverage during a period of your life where it's guaranteed you will die at some point.

And so this idea that, we should only have term insurance it's almost a little bit backwards because why wouldn't we want to have some insurance that will be around to provide some type of indemnification for a guaranteed event? We just don't know when that will be, exactly.

So let me [00:06:00] also pause and quickly say that this is not about, saying whole life is better and you should only buy whole life. And never term insurance. Not the case at all. I sell quite a bit of term insurance. It's a perfectly fine solution for different scenarios. Like for example, your cashflow may just not support a whole life insurance premium because it is higher.

There's absolutely nothing wrong with buying term insurance and protecting your family. The purpose of this conversation is really just to help you understand how you should be comparing these products. But if at all possible. I do think buying whole life insurance is superior as you'll, I think, agree with me after the, after you watched or listened to this episode.

But a lot of times what happens is people don't necessarily have the cash flow to support buying all the life insurance they need or want. With whole life insurance because the premium's higher. So a lot of times what people end up doing [00:07:00] is they buy some whole life insurance and then they buy some supplemental term insurance.

But if you can't do whole life insurance at all, what I would recommend doing is buying some what's called convertible term insurance, where. Anytime during that term, you have the ability to convert that into some type of permanent life insurance. I would, of course recommend whole life without going through underwriting.

So it's a really good way of locking in your insurability and guaranteeing you can convert into a whole life insurance, which as we'll talk about, is gonna be, give you more of an asset as part of your financial life rather than a liability.

Cost vs. Price
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John Perrings: Alright, so now that we've got that covered, let's talk about cost versus price.

It's very common for us to say, Hey, how much does that cost? And when we say that, what we're really usually referring to is the price of something. Like you have a sticker price on a car, or you have a price tag on a shirt. And so price is really the money that leaves your wallet at that [00:08:00] time to buy whatever it is you're buying.

John Perrings: Cost, on the other hand, is the amount of money that leaves the rest of your life due to that price. It's the amount of money that never gets to grow on the purchase price because you bought the thing you bought. Another way of saying this is lost opportunity cost, or in Infinite Banking terms, it ties into the economic concept that "you finance everything you buy."

You either pay interest to someone else when you use their money in the form of credit or you give up interest you could have earned when you pay cash, when you use your own money. You finance everything you buy. So when you pay term insurance premiums, we have to look at the true cost of paying those term insurance premiums because that money never gets the chance to earn interest over those 30 years that you're paying for the 30 year term, for example.

So again, we usually would, we usually call [00:09:00] it a cost, but it's really a price. We could call it an initial cost. You know that immediate, money that's coming outta your wallet, but the true cost is the net compound cost. That's the money that never gets to. Earn it never gets to earn interest for the 30 years.

And that's the net compound cost. And that's what we really have to look at when we look at term insurance premiums. If we're gonna truly make a comparison on this. Going back to price. When we look at term insurance, the premiums we're paying on that is really a price. That's the price of the term insurance premium. And the reason it's so much less than whole life insurance is because, again, you're statistically highly unlikely to die during the term of that term policy.

In fact, it's only something like 1% of term insurance policies ever pay a death benefit. And the insurance companies know that, and that's less risk to them, and so they price the premium [00:10:00] accordingly.

Assets vs Liabilities
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John Perrings: Now understanding all of that piece of it, we can understand that 99% of the time term insurance premiums are a true cost or what we might call a liability, right?

If we, if you ever read any of Robert Kiyosaki's stuff,_ Rich Dad, Poor Dad_, he talks about how the poor and middle class buy liabilities, typically, where the rich tend to buy assets. And if we look at the type of. Products. These are we can understand that term insurance is really more of a liability ,99% of the time, whereas whole life insurance is an asset because it builds a value.

All along the way. You're building equity in that policy that can be recovered if you no longer want the policy or there's a guaranteed death benefit paid at the end of that when you die, not if you die. They're two really different types of insurance from that perspective. Term insurance is a liability.

Whole life insurance is an asset.

Level premiums and inflation
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John Perrings: So going back to the [00:11:00] house analogy, one benefit. Of mortgages, in fact, is the fact that you have this flat mortgage payment. And what happens in, in an inflationary environment, which we're pretty much always in for, reasons we can talk about maybe on another podcast episode, inflation is always there. And so what happens is over that 30 years, your mortgage payment the cost of that mortgage payment or even the price of that mortgage payment effectively reduces every year because the, that payment is actually worth less because of inflation. So it actually is a benefit for having those flat, long-term mortgage payments that works in your favor.

Similarly, insurance premiums for both term and whole life, in fact, over that 30 years, a level term premium over 30 years, the effective cost of that premium goes down. And same thing with whole life. The price of that whole life insurance is, again, [00:12:00] higher, but because it's level, it's gonna effectively go down every year.

John Perrings: Now what happens is with term insurance, the premium is level, but the death benefit is also level. Typically. And so what happens in an inflationary environment in 30 years, the value of that death benefit will also be less. So you get some benefit on the effective cost of the premium going down, but you're also getting hit on the other end where the value, the effective value of the death benefit is also going down. With whole life insurance,

on the other hand, you are getting that same effect where the effective cost of the premium is going down. But on the other side, because we're buying in IBC, we use Paid Up Additions riders, we typically also have the dividends buy more paid up additional life insurance. So what happens is the debt benefit goes up over the years, I don't, it's hard to say whether or not the death benefit will actually keep up with inflation, but it will do a better job of keeping [00:13:00] up with inflation than a term insurance death benefit will. So you get some benefits on both ends of the spectrum with whole life.

Buy term, invest the difference?
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John Perrings: Now, going back into what we said at the very beginning of the episode, let's talk about "buy term, invest the difference."

Is that something that's truly. Of value on the face it seems like it is. But because whole life insurance builds cash value. What the buy term invest. The difference people always gloss over is the fact that we're building cash value and we can do something with that cash value. All along the way, whole life insurance is sometimes called the "and" asset.

Meaning you can buy whole life insurance _*and *_you can buy other stuff with the cash value, hopefully in other investments. What this means is it allows each dollar in our system that comes into our system, that starts with whole life to do more than one job at the same time.

So the buy term, invest the difference people always talk about, Hey, we'll pay [00:14:00] this lower premium price to get the same death benefit, and then we take the difference and we'll get a higher rate of return in some other investment than what you can get in whole life insurance. And the first thing to understand is, I've said it a million times, I think it's inappropriate to compare investments to life insurance. There are two completely different asset classes. However, let's look at what happens in the real world. In the real world, no one actually knows what the whole life insurance premium would be. They just buy the term insurance, and so they actually don't even know what the difference is, let alone do they ever actually invest that difference.

It really just doesn't happen in the real world. But number two, you don't have to invest the difference. You could actually invest it all. Again, because whole life insurance is the and asset. You build up cash value and you can now invest it. And so over the years, as these policies become more and more mature, as I'll show you here in a [00:15:00] second, you have more and more cash value where you can invest

all of your cash value. So it's I don't really understand why anyone thinks buy term, invest, the difference is good because rather than investing the difference, it should be "buy whole life and invest it all." So this is a really big piece that gets glossed over again all the time with buy term, invest the difference.

And if you think about it once you're past the capitalization period of a whole life insurance policy that I'll show you here in a second, every dollar you pay in premium creates a corresponding dollar in cash value.

This is very much like taking a dollar from your checking account and depositing it in your savings account. If you take a dollar from your checking account and put it in your savings account, was that expensive? Did it have a cost? There's really no cost to that. If I take a dollar from my left pocket and put it in my right pocket, that doesn't cost me anything. It's the same thing [00:16:00] with life insurance. I'm taking a dollar from my checking account, paying a premium with it, and a, and it's creating a corresponding dollar in cash value.

So at a certain point, with a whole life insurance policy, there's actually no more cost to it. And all we're doing is saving money in a strategic manner that then allows me to get some leverage on that cash and more efficiently invest in things. And because I'm building more cash value than what I would probably be able to do in a regular savings account or checking account, I actually have more liquidity every single year that I can use to go and invest.

My investing actually becomes much more powerful. Here's an example. The financial entertainers out there will tell you, yeah, just put your money in a mutual fund and you'll get a 12% rate of return, or put it into the S&P 500 and reinvest dividends, and you'll get a 12% rate of return.

They say it like, it'll just happen. In [00:17:00] reality, we know it's not that easy, but let's just pretend it is. If you're that confident that you can get a 12% rate of return in a mutual fund, why on earth wouldn't you put it into life insurance first? Borrow against the cash value, and let's say you have to pay 6% on a policy loan.

If I can pay $6 to earn $12, guess what? That's a hundred percent rate of return. This is completely ignored in the buy term invest difference world. Of course, I personally wouldn't recommend borrowing against a policy to then buy stocks, but you could certainly do it with other types of investments and especially investments that provide cash flow that will service the policy loan on your behalf.

There's a lot of stuff you can do to create massive acceleration that's way better than anything you can do just getting a 12% return with the difference. That, by the way, doesn't happen anyway.

Screenshare: whole life illustration to see the costs
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John Perrings:

Now that we understand that I want to, I'm gonna share my screen here and I'm gonna walk you through a whole life [00:18:00] insurance illustration and let's just take a look at what do these costs really look like and we're just gonna use

John Perrings: grade school math, the same way that the buy term invest the difference people tell you to do, because all they do is add up the cost of the premiums. They don't use financial math. So we're gonna take a look at, hey, just using the buy term, invest the people's rules, how does whole life insurance actually stack up?

And then we'll take a look at how does this stack up if we actually use financial math.

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John Perrings: So if you've never seen one, this is a whole life insurance illustration. It's essentially a table of numbers that shows you black and white. With numbers, what will happen with your life insurance policy? Assuming you know a certain dividend experience and assuming you pay the premium as expected. These are never gonna be exactly the way they look right now because we don't know what the dividend's going to be.

We don't know how much premium you'll end up paying over the years, but. [00:19:00] What I like about this is it's showing you numbers net of all cost, fees, commissions, et cetera, rather than giving you a growth rate that can have hidden cost, fees, commissions, et cetera. And so we know exactly what's gonna happen, with the caveats of we don't know the dividend and we don't know how much premium we're gonna pay, but this is essentially black and white, what we can expect, and it shows us how the policy actually works.

So lemme just walk you through this again. What we're doing is we're looking at. The costs of whole life. What do the real costs look like? So I'm gonna zoom in here. The first thing to understand is everything on this chart is end of year. So what I did is I created a million dollar initial death benefit, whole life insurance policy for a 40-year-old.

And when we design for IBC, we use riders like paid Up Additions, riders, and term insurance riders. So you kinda have to back into a death benefit number sometimes. And so this isn't exactly [00:20:00] a million dollars, but it's close enough. And this 40-year-old, at the end of year one, they're gonna be closer to 41.

They'll have paid $17,750 in premium. The other place that's here is this premium outlay. And all the way to the right that got them this million dollar death benefit. In the middle is the cash value. What I wanna say real quick is don't get hung up on ratios of how much cash value you have compared to premium.

What I did here is I wanted to build a conservative whole life insurance policy where I'm not pushing it by, buying too much PUA because I wanted to actually show a little bit more on the cost side. So I could compare that to a term insurance. The point of this video is not to compare cash value ratios

that can change depending on the client. The point of this is to help you understand how to look at the costs and price of premium. Okay, so all that said in year [00:21:00] one, I have a premium outlay of $17,750. If I go over here to the change in total cash value, I see that I have an $11,000 in cash value growth, which is of course the same as the total cash value in year one.

So what that means from a cash value perspective in the next column is that's a negative $6,664. From a cash value perspective. One way you could look at this is that 6,664 cost bought you the million dollar death benefit. Over here. It's not exactly what's happening, but we can use it as a talking point.

Okay, so that, that's a cost that came out. It's not something that we have available to us right now. That's $6,664. In year two, we pay $17,750 again, and now we have a negative $5,360. A little bit better, not much, but you can see now our cash value has grown to $23,000. Year [00:22:00] three, it gets a lot better where the cost is only a negative $1,600.

Less true costs with whole life
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John Perrings: And then in year four is really where I wanna show you. This kind of gets back to the putting, taking money from your checking account and putting it into your savings account that I was talking about earlier. What happened here is we paid $17,750 and our cash value. The new cash value that grew in the policy grew by $18,852.

So again, this is like taking a dollar from our checking account, and by the time it got into our savings account, it was a dollar and some change. I call this when the policy becomes cashflow positive, because from this point on every dollar you pay in premium, you're guaranteed to grow your policy by more than one new dollar.

And so at this point, again if we pay a dollar in premium. And we have more than a dollar of new cash value show up in the policy. Does that cost us anything anymore? [00:23:00] Because this cash value is completely available to us? I would say there's no more costs. So my point is that this first three years is really the only costs in the policy.

Take not accounting for lost opportunity, cost of these initial, losses. We definitely want to know that's there. But if we're using the buy term, invest the difference mindset where we're just adding up premiums, I'm just playing by their rules, demonstrating that, hey here are the first three years of the cost for this whole life insurance policy.

And if we add those up, that's $13,620 in the first three years, and if I compare that to a 30 year level term policy, and I divide this by 360 months, this costs me $38 a month. I, of course, paid for it upfront, but this essentially cost me $38 a month for this $1 million starting [00:24:00] death benefit. If I run a million dollar, 30 year million dollar term insurance policy, no bells and whistles, just the cheapest term insurance.

It's $90 a month. And of course guys, there's a million, term insurance products out there. But this one is very cost effective. Very reasonable. So I think it's a good number to use and it's accurate. You might find something a little bit better. But I think the point still stands because this $90 is almost three times more than the $38 a month that we paid over here.

So even if you find something less, or even equal to $38, there's still, from a adding up the premium perspective, there's not much benefit to be had with term insurance. And again, I'm gonna reiterate. There's nothing wrong with term insurance. I'm not suggesting never to buy term and only buy whole life.

I'm just showing you a way to analyze is buy term, invest the difference? Is that really [00:25:00] the thing it's cracked up to be? Is it really what they're saying it is. And the whole purpose of this is just to look at that and make some decisions for yourself. So we see that the term insurance is actually more expensive on a monthly basis.

Bigger death benefit with whole life
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John Perrings: But also look at this, at the end of 30 years, I've got almost $2 million of death benefit. So my $38/mo ended up getting me $2 million in death benefit at the end of 30 years. Where if I just died on the last day of my term insurance policy, I'd out, I'd only have a million. But of course, we're, that's statistically unlikely to happen.

So at the end of 30 years, I have a $0 death benefit.

So what does this mean? Again, I'm just looking at this playing by the buy term, invest the difference, people's rules. I'm just adding up premiums and even by their own rules, this still does not make as much economic sense [00:26:00] to buy. Then buying whole life insurance, assuming of course you can.

Cover this cash flow. So again, if the, if that cash flow doesn't work, it doesn't work, and term insurance is a great option in that scenario. Typically what I would recommend is buying some convertible term insurance where you could convert that term into whole life without going through underwriting anytime during the term.

So that's a great option if you just don't have the cash flow to pay for a whole life insurance death benefit right now.

Financial math shows term has a much higher cost
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John Perrings: All that said, we just used grade school math to analyze this, which is how they do it. They just add up the premiums and say it's cheaper, but that's, as we said before, that's not the right way to do it.

So let's use financial math. Let's look at the net present value of both of these. Operations. The net present value essentially tells you what is this next 30 years of this thing you're gonna do? What does that mean for you in today's [00:27:00] dollars? That's what we're calculating. And to do that we need to use an interest rate of what that money could have grown to today's March 4th, 2025.

The risk free rate is 4.25%, so I use that as my discount rate to calculate the net present value. And if we look at our term insurance, that's a negative $18,000 in net present value to you today to, move forward with that operation over the next 30 years, assuming no death benefit is paid out.

However, the net present value of the whole life insurance is $43,000. So right off the bat we can see that this is a more valuable transaction, even though the premiums are significantly higher than the term insurance. We're actually creating value. Whereas here we're essentially creating a loss because again, statistically very highly unlikely that a death benefit will ever be paid out on your term insurance.

"Buy whole life and invest it all"
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John Perrings: So now that we see that, I just [00:28:00] wanna go back over here and just reiterate, we're instead of buy term, invest the difference. I say buy whole life and invest it all. You've got all of this cash value that you're growing over here, all along the way. That can all be used to buy investments, to buy assets, other assets, so you can buy your whole life and buy investments and.

These act very much like a HELOC or a some other type of line of credit where if you buy an asset and that asset pays the loan off, it frees up that cash value all over again to reuse. And that's really where part of partly where my name, my company name comes from Stacked Life is because if we can.

Create this stack of assets just recycling the same money over and over again. We create this stack and if we're doing this with, even with small returns, but I can recycle the [00:29:00] same money over and over, five 4% returns. Is the same as a single 20% return. But we did this buying assets that don't have any risk or very little, if any, and this is what I call stacked interest acceleration, where it's almost geometric compounding where we're compounding our compound interest.

And so in order to get this, and by the way, it doesn't stop at five, it just keeps going, for as long as we want it to. And so this 20% just keeps growing and growing, and I. This is really what I'm trying to help people discover. And you can't do this with stocks. You can't do it with bonds.

You can't do it with most real estate because the value is unknown. You have to have the correct structure. It's possible to do it with some stocks, it's possible to do it with some real estate, but the structure in which you own those makes a huge difference. And that's what most people don't have is the [00:30:00] structure.

And the only way to do this is to have the correct structure, and that's what we're doing with whole life insurance is we're setting up the structure and creating a massive liquidity acceleration after we get through this first capitalization period. Right here we pay a dollar in premium and it creates a dollar 25 right here.

Cash value grows by more than the premium
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John Perrings: We pay a dollar in premium and it creates $2 in cash value. That's a 2:1 ratio right here, we pay a dollar in premium and we get $3 in new cash value. Where else can you put money that has this level of guarantees and this level of liquidity that also does all these other things for you, provides your family a death benefit, provides you with chronic and terminal illness protection.

It's just like this amazing Swiss army knife of a financial product. But of course, the buy term invested difference, people say it's "bad investment." We have to change our mindset. Understand that having the correct structure allows us to get way [00:31:00] better returns than the 12% the financial entertainers tell you can get in mutual funds without taking any of that risk.

So if any of this was resonating with you, head over to StackedLife.com. You can book a free 30 minute consultation with me right there. We can talk about you and how some of these principles might apply in your life specifically. And then also on my website, you can get access to all my stuff. I've got free information, I've got free courses, I have a paid course.

But what I'd like you to check out is my newsletter, which you can get to at newsletter.stackedlife.com. And on my newsletter you get weekly exclusive financial content where I analyze some of the current events going on out there. And this information isn't anywhere else in my ecosystem.

It's not on my podcast, it's not on my website. It's only on the newsletter. So I hope you check it out, newsletter.stackedlife.com. Thanks for listening today, and I'll see you on the next one.