In this section I'm going to get into the weeds. I find that as I'm explaining this and getting people excited, they begin to ask very detailed questions. People are smart, and once their curiosity is piqued, they begin to think hard. People get excited, very excited, and then they begin to wonder if they have been taken in by someone selling pots of gold at the end of the rainbow. They get suspicious, as they should! I commend them for being wise and slow to make a decision.
So this will be my third and final lesson in this short introduction to the Private Family Banking Concept, also known as the Infinite Banking Concept. Let me see if I can answer some of those questions that tend to come up.
First of all, let's establish some credibility.
This concept, this strategy for financing the things of life, has widespread acclaim among people who have actually tried it. Something I heard from a life insurance agent who had been in the business a very long time was this: "Michael, I've had complaints before, especially with products that are in the market, affected by the market, such as variable life insurance. But I have never had to apologize for a whole life insurance policy." That sounds good to me: the workhorse of this financial concept is a product that I am confident that I as the agent will never have to apologize for selling it. The values are guaranteed, and the asset portfolios at the insurance company are very stable, and the dividend history is solid. The life insurance companies that my clients purchase from have been in the business for over a hundred years, and have paid their clients dividends (even though dividends are not guaranteed) every single year since the mid 1920s. They paid dividends during the Great Depression, during the 2008 crash, and during all the other major financial crisis points in the 20th century.
I am reliably informed that Joe Biden, whose net worth is around $900,000, keeps all his money in whole insurance policies. This is a very common practice for wealthy people in America. Why? Tax-free growth, tax-free inheritance, stability and freedom from market volatility, etc. Think about it. When the market crashes, if all your money is in life insurance, it won't be affected at all by the crash. Then when everyone wants to sell, and nobody wants to buy, you will have money, and you'll be able to buy houses, investments, you name it - for a song.
Remember also: these whole life policies are one of two top assets in the asset portfolios of the banks: Wells Fargo, Bank of America, J.P. Morgan Chase, PNC, Suntrust, you name it: they have more whole life than everyone else combined. I want in on that action, don't you?
Something I regularly tell prospective clients is that even if they don't realize the power of private family banking, even if they see their life insurance policy as an "expense" rather than an asset, they still will not regret having it.
Did you know that Walt Disney started his business on a life insurance policy loan? Just another little tidbit I ran across.
This week I took out a policy loan for $2,580 to start paying off some credit card debt I accumulated on a new card that won't start charging me interest until the end of next year. I could have paid off the bill with cash, but I waited and ran it through a policy first. So now my policy loan will pay back the insurance company, and my money has started making me that tax-free compound interest we talked about.
The Mechanics of Permanent Life Insurance
In this section, let me explain exactly how a policy works. First, let me show you a sample policy illustration:
In this sample illustration the fictional 32-year-old "client" has decided to purchase a permanent life insurance policy for an annual premium of $3,000, or $250 a month - you can see that under the heading "policy premium." This illustration shows two different illustrations, a guaranteed side on the left and a non-guaranteed side on the right. The only difference between the two sides is the "dividend" and "dividend option" columns I have circled. Obviously if you make dividends the numbers will be more favorable. While dividends are not guaranteed, it is notable that life insurance companies compete with each other on their dividend reputation for their policy holders, so I like to look at the non-guaranteed numbers a lot with my clients because those are the ones I look at for myself. I have also circled the initial death benefit of the policy, which is what the beneficiary would receive in the first year of the policy if the insured were to pass away. But notice the cash value of the policy in year 8. It has only taken 8 years of paying premiums for the cash value of the policy to exceed what the owner has paid into the policy - that's pretty good! At that same time, the death benefit has also increased by almost $70,000 as well.
I like to show this to people because I want them to see the quality of the product they are purchasing even if they do not understand the concept of privatized banking. If a client successfully implements the private banking strategy, the numbers will be much more favorable.
Now, many clients will find that they will purchase multiple policies once they see how favorable the results are. But let's assume this client only buys one policy. What will their situation be at "retirement age"? Let's look at age 65, when the policy is in its 34th year. If you add up the total amount of premium paid, that figure comes to a total of $74,000 in premium. Sounds like a lot, right? But look at the other numbers. The client is getting an annual dividend of $3,700 - that's passive income. But look at the cash value - almost $184,000! That's not too bad at all. And the death benefit has increased to $363,000 - that's money that the family would inherit tax-free. Especially if there is any land in the family, that money could come in very handy. But here's the most important number to consider - the premium to cash value ratio. In year 34 of the policy the client put in $1,000 of premium - but the cash value increased by over $9,000. Let me talk about what that means to me, and why it's important.
I do not believe in retirement. Rabbi Daniel Lapin says that according to ancient Hebrew philosophy and classical anthropology, people were not made to retire. The "age of retirement" at 60 years old was set back when average life expectancy was around 65 years old. People are meant to find job fulfillment - to work in a place and in a way that brings them deep meaning and fulfillment, to find much of the meaning of life in their work. This is something that I believe in deeply. I fully intend to work until I die - but what if I had my own private family bank that I could put my salary into when I'm 65 years old that would give me $9 for every dollar I put in? I could automatically increase a significant portion of my salary by a factor of 9 every year! That's pretty good.
This is why I lament when I see people cash out on their life insurance policies when they are 55 or 60 or 65 years old. They get starry-eyed when they see how much the cash value has grown vs. the premium they have put in, and they cash out on it, take a big hit in taxes, and spend all of it, and then it's gone. They should have kept that policy and used the power of it!
This is why I believe that the two most likely people to latch onto this strategy are 1) business owners, because they probably started their own business largely out of a desire to do work they truly love rather than someone else's work, and 2) the millennial, because that generation of people has realized the meaninglessness of retirement and working a hateful job for your whole life just so you can.....do what? They also are very smart and through their intuitive grasp of the internet can see what's going on in the larger financial world better and are beginning to understand the deep problems that exists within the financial system they inherited from their parents and grandparents.
So if you want more out of life, if you're someone planning on finding and keeping long-term job fulfillment, if you want to continue to create value and make a financial strategy that is truly reliable and create wealth and a legacy...this financial strategy is for you. The rich plan for many generations down the road, and the poor only plan for Saturday night.
Which are you?