Infinite Banking with Whole Life Insurance - How Policy Design Makes the Difference in Performance

Hey guys, Nathan Sprague here with Guardian Financial Group and welcome. We are back here today to talk more about the Infinite Banking Concept and I'm not going to get into too many details about how the Infinite Banking Concept works here in this video. I've created another video where I talk about specifically what the Infinite Banking Concept is and how it works and how you can use it to your advantage, but just the quick 30-second overview is that the Infinite Banking Concept is really just the use of a very specialized type and structure of whole life insurance policy to essentially build your own self-serving line of credit so that you can effectively act as your own bank by self-financing purchases of anything, of any expense, or self-financing the investment in an investment, both of which, you know, if it's a purchase towards something like a car or a renovation to your house or to pay for your kid's college tuition, you're effectively going to reduce the cost of those purchases because you're acting as your own bank and effectively self-financing that purchase. If it's an investment, you're effectively improving your rate of return by utilizing this concept the same way. So this video is meant to show the difference in performance in two identical products on two identical people based purely on the design and structure of the policy. I want you to see the difference that the design and structuring can make. And so what I've shown here, what I've got on the screen is an illustration with a company from a company called Forrester's Financial. Forrester's is one of our top probably two or three carriers that we utilize for this infinite banking concept with many of our clients. They check all of the boxes that a whole life insurance carrier and product needs in order to be able to get the policy to perform as an infinite banking policy. And really quickly, again, the other video gets into more details, but number one, they're a mutual company. So they pay profits to policyholders instead of paying profits to shareholders. You as a policyholder are effectively a shareholder and they pay profits to you in the form of dividends. So they pay a very healthy guaranteed rate of return on your cash value, which is currently at 4% plus dividends. They've paid those dividends to their policyholders every single year since their existence, which has been about 70 years now consecutively. So their dividend rate is also very healthy, usually amounting to an extra one to 2%. So you're effectively earning five to 6% rate of return year after year like clockwork on your cash value, regardless of what the stock market is doing, regardless of what the economy is doing. So very healthy dividend rate. In addition, they've got some great extra benefits with their product. They've got accelerated living benefits, which basically mean that even though this is a life insurance product and it pays a death benefit, you don't have to die in order to collect that benefit. It also pays if you were to get something like a critical illness, for example, if you were to be diagnosed with a form of cancer, that would qualify as a critical illness and you would have the ability to advance all or at least a portion of the death benefit payable to yourself if you were to experience a diagnosis of cancer or any of those critical illnesses. And it's just a great feature to have that can pay you a lump sum of tax-free cash to help you fight that battle with cancer without obviously having to die in order to qualify for the death benefit. So that's just another great feature that this product and Forrester's includes free of charge. The other great thing we like about Forrester's and this specific product is just their flexibility. They've got a very low minimum required death benefit amount. You can start these policies with as little as $50,000 of death benefit, which may sound like a lot of money, but it's actually a very, very small amount. Most carriers won't let you go below about $100,000, which can actually make a big difference in our ability to design these with an infinite banking type structure. And it also opens the door for people who may not have thousands or tens of thousands of dollars a month to contribute to these policies with Forrester's because they've got such a low minimum death benefit requirement. You can start one of these policies with as little as about $400 per month, and we can still structure it very aggressively with this infinite banking type structure. So for all of those reasons, we use Forrester's a lot, as well as a couple of other carriers, primarily MassMutual, Penn Mutual's another good one, Ohio National. There's a number of really good ones, but Forrester's is probably in our top two or three just for all the reasons that I listed. So having said that, I'm going to look at two identical Forrester's illustrations here for the sake of this example. You can see here the name here. This is Mr. James' sample, and I'm comparing that to his twin brother, John's sample. So we're going to say these two gentlemen are twin brothers. They're the exact same age. They're the exact same health rating. For all intents and purposes, we can think of them as the exact identical person, and they're going to fund these products, these policies with the exact same amount of money, but one of the policies is going to have an infinite banking design, and one of the policies, the other policy is going to have what I would call just a standard stock or off-the-shelf design and structure, and I want to just point out the differences in how those perform. So we'll start first with the stock kind of off-the-shelf structure with James. So he is, some basic information here, he's a 35-year-old male. I have him rated at standard health, which is, you know, very average, non-tobacco, meaning he doesn't chew tobacco or smoke cigarettes. Both brothers are going to contribute a total of $2,500 per month into their policy, so $30,000 per year, and we're going to look at how this performs. So if we scroll down, we get through all the fine print here where it talks about, you know, some of the accelerated benefit, living benefit options and things like that. We're going to get into the numbers here to see the actual performance. So here we go. Let me highlight this so I can draw around on some numbers here. Okay, so on the left here, you see the contract premium. So this is where James is putting, he's contributing his $30,000 per year into the policy, $2,500 per month, and all we really want to look at here, you know, there's a lot of columns here with a lot of data that shows the expected annual dividends and things like that, but the only other two columns we're really interested in is these far right two columns. So we're going to look at the total cash value. So this is the net tax-free liquid cash value in the policy that you have available to you to borrow against and to utilize anytime you need it. And then to the right of that, you have the total death benefit, which is also a tax-free payable death benefit, payable to your beneficiaries if anything were to happen to you and you were to pass away at any point along the way. So as you can see here in year one, the end of the year, we've got a big fat zero in terms of cash value available to James. So he's contributed $30,000 to the policy, and he has yet to have a single dollar of cash value that's built up in the policy. In year two, he contributes another $30,000, and you may not be able to read that here, but he's got just a little over $3,000 available in net cash value. So at that point, he would have contributed $60,000, and he has only about $3,500 available in cash value. If we scroll down, looking kind of further out at the 10-year mark, he would have contributed a total of $300,000. And at that point, he's getting close to breakeven, but still, I mean, I guess your definition of close, he's a little over two-thirds of the way to a breakeven point in terms of his cash value having a little over $220,000 of cash value available to him. It looks like the breakeven point is probably around year 19, somewhere in there. You look at year 20, he's put in $600,000, and he's got $648,000 available. So he would have put in $570,000 at year 19, and he's got $596,000. So somewhere around this 17 to 20-year mark, I'm not going to do the math here, but somewhere around that mark is his breakeven point, meaning the total dollars that he's paid into the policy are finally matched in terms of his cash value that he has available. So this is just kind of what a very off-the-shelf stock structure looks like. And before we get into the infinite banking structure, what that looks like, I will say that many life insurance agents or financial advisors will show you a product that's designed like this, with kind of an off-the-shelf design. And many either don't realize that you can manipulate the structure and design of a policy to make it work like we need it to work for an infinite banking concept, and they're just not aware that they can do that. On the other hand, there's a number of other agents and advisors who are aware, but they know that by selling you a policy like this, with this design, that means their commission is much, much greater, oftentimes five to ten times more than what it would be with an infinite banking design. And actually, believe it or not, with an infinite banking design, that means the agent or advisor makes the smallest commission possible on that policy, because we're actually contributing the least amount of your total dollars towards the death benefit and paying for the cost of insurance and buying that death benefit. And that's what the agent or financial advisor is compensated on. So with these policies, the kind of off-the-shelf design, a huge portion of your premium is going to buying this death benefit, which means that agent or that advisor is making a much larger commission. So many are hesitant to manipulate the design if they know that you can manipulate the design, because it's going to mean they make a much smaller commission. So keep those numbers in mind. And we'll jump over and compare to James's brother, John, who again, for all intents and purposes, is the exact same person. But we've structured this policy with what we would call an infinite banking design. And I want to go back, before I show you the infinite banking structure, I want to show you the breakdown here. So with James's off-the-shelf structure, all of that money, that $2,500 per month, is going to the base premium, which is purchasing permanent death benefit. And a portion of that does ultimately end up going to cash value, but it takes a long time for that cash value to build. As you saw here in our illustration, there's very little to nothing available in these first few years. And it really takes close to 20 years to get to a break-even point. So with John, his twin brother, effectively the same person, I want to show you the breakdown here. So get this and we'll highlight how the premium dollars break down before we get into the resulting numbers. So John is also paying, down here at the bottom, a total of $2,500 per month, totaling $30,000 throughout the course of a year. But look at the breakdown here. So of this $2,500 per month, only $269 of that is going towards the permanent death benefit. And then in addition to that, what we've done is blend in a piece of 10-year term insurance for $38 per month, for a total of $307 per month of his dollars, of his $2,500, that is going towards purchasing death benefit. A chunk of that is purchasing the permanent death benefit. And then the $38 chunk is purchasing a small strip of 10-year term insurance. But what that allows us to do, if you look at the benefit amount column here, the $269 per month is purchasing him $250,000 of permanent death benefit. The $38 per month, so with a much smaller dollar amount, we're able to purchase over $800,000 of additional death benefit because it's a simple 10-year term insurance product. So what that allows us to do is just take a very small amount of dollars to purchase a lot more additional death benefit. And that allows us to then allocate a much larger portion of his total contribution of this total $2,500 to this amount down here, which is called flexible paid-up addition. So that's the amount of his total premium, that total $2,500 that is going directly towards his cash value. And that's what is effectively growing at 5% to 6% rate of return year after year after year. So if you look at what that amount totals, it's effectively just the $2,500 per month less the 307 here that he's spending to purchase both of his death benefits. So what's left over is that he's contributing almost $2,200 per month of his $2,500 directly towards cash value. And that's what's growing at that 5% to 6% rate of return. And keep in mind that even though he's spending $307 a month on death benefit, there's still a portion of this $269 that he's using to purchase the permanent death benefit that will go to his cash value. It just takes longer to grow as you saw in the first policy illustration with his brother James. So hopefully that helps illustrate the breakdown of how your dollars are allocated with an infinite banking type structure. And I will say before I move into the numbers here further, I've actually allowed for a little bit of leeway. So we could actually squeeze this number down even more a little bit to actually achieve a little bit more of his dollars going to paid up additions so that his cash value can grow even quicker. But with doing this, this gives us the flexibility to pay more dollars to paid up additions in the future. So he's paying $2,500 per month now, but he may get to a point where three years from now, he may love the way this is working and say, hey, I want to pay $3,000 per month instead of 2,500. Well, we've given him a little bit of headroom to do that. So that's typically how we do it. But everybody's different. Some people may walk into this and say, hey, I want to structure this as aggressively as is possible. And so we will put the absolute minimum amount of dollars towards purchasing that permanent death benefit that we can. But knowing that you can't contribute one extra dollar in the future moving forward. So if you were ever at a point where several years later you wanted to contribute more, you would just have to take out a new policy, which is certainly not the end of the world. Many people do that, but I just want to make you aware of that upfront. So anyway, having said that, let's scroll down here and look at John's numbers with the infinite banking design and compare the performance. Okay. We're going to look at the same numbers here and highlight these and compare. So again, contract premium on the left, the total of $30,000 per month that he's contributing. If you look here, that actually drops a little bit starting in year 11. That's because that whatever it was, $38 or $39 of 10-year term insurance that we've layered in rolls off. So that 10-year term insurance is gone. And so now his total premium is a little bit less. But remember, he could contribute a little more if he wants to. We've left a tiny bit of headroom for him to do that. But that's why you see those numbers change there after the 10-year mark. Other important columns looking over here on the right, total cash value and total death benefit. So look at the total cash value in year one. He paid in $30,000. He has over 25,000 of that 30,000 available in net cash value. Again, tax-free liquid cash that he can begin borrowing against and operating as his own bank and putting this infinite banking concept to use. And believe it or not, he can actually start doing that after just 30 days. So after basically making his first monthly premium payment, 30 days later, he will have built up cash value in the policy that he can begin using as his own line of credit and borrowing against. So if we do the math here, I think that equates to about 85% of his total premium that he's paid in that is available to him in the form of cash value at the end of the first year. And if we structure this, like I said, as aggressively as we possibly can, where we push up against that modified endowment contract limit all the way up to the limit, we can usually get this number to about 90 or 91% of your total premium out payment that is available to you in cash value. So moving down the line here to kind of look at a break-even point. So he would have paid 60,000 at this point. He's got 52,000 available. He's got 81,000 here in year three where he would have paid in 90, 112 available where he would have paid in 120, and then 145 available here in year five where he would have paid in 150. So again, he's just kind of slowly creeping up to that break-even point. But looking at the 10-year mark here, he's paid in a total of 300,000. He's got over 334,000 available in cash value. So again, not only does he have 85 to 90% of his money, his funds available to borrow against in that very first year or first couple of years, but he's already ahead of the game and netting a positive gain against his total contributions within about five years there. In fact, it looks like year six, so he would have paid in 180,000 and he's got just a little over 180,000. So year six is right at his break-even point where he's got every penny available to borrow against and utilize completely tax-free that he would have paid in in total premium. And in addition to that, he's bought himself almost $2 million of tax-free death benefit that would be payable to his beneficiaries if anything were to happen to him. So he's essentially bought an extra $2 million of family net worth, and he's got every penny that he paid in available to him that's fully liquid and fully tax-free to start taking advantage of his powerful strategy with. And he can do that within 30 days of taking out the policy. So hopefully that illustrates the big difference. If we kind of stretch this out and look at long-term, you know, long-term, it doesn't make as big of a difference. Let's scroll down to kind of retirement age. Let's say he were to retire after he was 65. So when he turned 66, he were to retire, he would have paid in a total of 890,000 into his policy. He's got $1.6 million available in net cash value here. And then he's got $3.6 million of death benefit. If we compare that to the kind of stock off-the-shelf design, he would have paid in $900,000. He's got $1.3 million available in cash value compared to $1.66. So he's got basically an extra $360,000, which is a nice chunk of change. That's almost 25% more with the infinite banking structure. And he's got $3.6 million in death benefit compared to $3.359. So he's actually got very comparable death benefit. So, you know, at the end of the day, if we look at the early death benefit amounts, you know, with the infinite banking concept design, he starts with $1.2 million. With the off-the-shelf design, he starts with $2.4 million. So he's got, you know, double the death benefit to start with the kind of stock off-the-shelf design, but that's really the only benefit. The other comparables in terms of his cash value growth-wise is much, much slower than the infinite banking concept design. So anyway, I'll leave it at that. Hopefully that helps illustrate the tremendous difference that you see in the performance of a policy based on design and structuring. And, you know, the reality is many of these products and carriers, especially the ones we're utilizing to design infinite banking concept policies for our clients with, they're going to give you the ability to do this. They're going to give us the ability to manipulate the design so that the policy performs this way. And that's, you know, kind of the whole purpose of, you know, if you're going into this knowing you want an infinite banking policy, you're obviously going to need it to be designed in such a way. So anyway, hopefully you found that informative. If you've got any questions about how any of this works or need suggestions on carriers or want to see an illustration for yourself, please contact me. My contact information is below. You can call or email me anytime, and I'd be happy to put together some illustrations based on whatever it is you're looking to accomplish. But again, I want to emphasize that design and structuring, policy design and structuring can make all the difference in the world in terms of performance for these infinite banking whole life insurance type policies. So again, hope you found this informative, and have a great day. Contact me anytime if you've got questions. Thanks.