Is the Infinite Banking Strategy Using Whole Life Insurance Right for You?

Several months ago, I became fascinated with the Infinite Banking Concept.

Since then, I have committed probably something to the tune of 100 hours in to researching the Concept, reading books about it, talking to professionals/bloggers in the personal finance field, as well as discussing the concept with three life insurance agents who specialize in the strategy. It has been a really good learning process, and one that I have truly enjoyed since personal finance is a hobby of mine!

My purpose of this post will be to share with you what I (as someone whose living is in no way dependent on the Concept – I do Alzheimer’s disease research as my primary day job) have learned over the past few months of investigating the highly controversial, highly mysterious, and often highly unknown financial strategy called the Infinite Banking Concept.

Since it’s entirely too hard to find unbiased investigations on this subject due to the sea of commissions that are available to sales agents through this strategy, another goal of this post will be to provide a place where people can share their first-hand experiences and/or questions about Infinite Banking (in the comments), but I will ask that everyone quickly disclose any financial affiliation with this Concept (if any) before approving each comment. This is to help ensure that people receive objective perspectives.

Let’s get started!

 

What is Infinite Banking – From a “30,000 Foot” Perspective?

The Infinite Banking Concept is a very creative/genius idea utilizing whole life insurance as a savings accumulation vehicle created by former insurance salesperson Nelson Nash in the 1980’s and popularized in his famous book, Becoming Your Own Banker.

In an effort to have full disclosure, it is significant in my mind to note that Nelson Nash, who invented this strategy, mentions in his book that he made a fortune as an insurance salesperson, and that his “income tripled” after beginning to promote this strategy. Thus, we must always consider for better or for worse that the creator himself (and any other insurance salesperson you’ll encounter for that matter) has a competing/non-fiduciary-responsibility-to-the-end-client financial interest in seeing this strategy succeed.

From a very general perspective, the Infinite Banking Concept involves…

  • 1) Over funding (with after-tax money) a specially-designed high-cash value whole life insurance policy from a mutual life insurance company which is guaranteed never to decrease in value,
  • 2) Having it accumulate (on a tax-free basis) cash value over the years with a conservative-but-respectable-interest-rate, and then
  • 3) Taking tax-free loans (that don’t necessarily ever need to be paid back) against the policy’s cash value to put money to use in other investments that come along your way or simply to pay for regular living expenses.

The Concept has the word “Banking” in the title for several reasons. First, you are potentially able to mimic the way a bank operates by borrowing money at one (lower) interest rate, putting it to use, and then earning a return at another (higher) interest rate. Second, when you borrow money from your policy’s cash value, it technically is still working for you by continuing to earn dividends in the policy even though you are using it elsewhere. Of course, one big difference between how a bank operates and how the Infinite Banking Concept works is that banks utilize other people’s money, whereas here, you will only be using your own money.

 

What’s the Purpose of Infinite Banking and Why Was I Interested in It?

In reading the general description of the Infinite Banking Concept above, you might be able to imagine why I became so interested in it.

Here we potentially have a system that is highly tax-efficient, delivers a competitive interest rate for how stable it is, can never decrease in value, and not only that, but in it, my money will continue to work for me inside the policy while I am using it elsewhere!

In my mind, I was thinking that this seemed like a perfect option for saving money in a stable way that allowed me to have tax-free access to my cash. 

Having said this, I think it is a good time to point out what the true/intended purpose of Infinite Banking is. Contrary to what some people think about the Concept being “too good to be true” (I’ve read some horror stories about people taking equity out of homes and pouring ALL of their money in to this strategy), Infinite Banking is NOT intended as a long-term investment that will enable you to aggressively accumulate money for retirement. It is NOT something that is going to make you rich quickly, deliver 10% annual returns, replace your real estate investments/stock investments, etc.

Instead, the purpose is to provide a place where money starts.

  • In other words, the purpose of Infinite Banking is to be your personal savings system, where the money grows in a stable/conservative manner, is guaranteed never to decrease in value, and can be dependably accessed tax-free through policy loans at any time.

In portfolio / asset allocation terminology, I like to think of Infinite Banking as being part of the fixed income (short-term bonds) portion of an investor’s portfolio. Indeed, if I was to adopt this strategy in my life, that is how I would count the cash value of the insurance policy in my asset allocation calculations.

 

The Mechanics / Details of Infinite Banking – Is the Devil is in the Details?

So, having gotten on the same page about what the often-misunderstood purpose of Infinite Banking is, we now need to get in to the “knitty-gritty” of how Infinite Banking works.

The reason? For me, it was only after shifting through all of the very minute details of this strategy, that I was able to determine if it was right for me or not.

Many people I talked to (especially ones that were selling whole life insurance policies) said that “whole life insurance could be as simple or as complex as you wanted it to be.” However, in my experience, I felt like I really needed to understand every little minute complexity of the strategy in order to avoid being taken advantage of by the life insurance agents, simply due to the nature of how it is set up. Indeed, I think that the reason most people get in trouble with whole life insurance policies is that they simply go along with whatever the insurance agent recommends, which is a bad idea because the insurance agent does not have a fiduciary responsibility to help the client accumulate the most money.

The following sections include the mechanics of Infinite Banking I have learned from a variety of books and Internet article sources, listed below (along with their affiliation, if any, in parentheses):

 

Mechanics of Infinite Banking – A Properly Structured Whole Life Insurance Policy

At the core of making the whole Infinite Banking Concept work is a properly structured whole life insurance policy.

At this point, you may be thinking, “That doesn’t sound too hard.” In my experience, it SHOULDN’T be hard to obtain, but it is.

The reason for this is because you essentially have to trust an insurance agent, someone who does not have an incentive to act in your best interest, to directly reduce the amount of money he or she gets paid in commissions in exchange for you being able to accumulate more money in the long run. This is almost the equivalent of asking a stock-broker, who gets paid on a per transaction basis, to buy an index mutual fund for you and never make any transactions again.

Because of this conflict of interest, the investor/saver looking at whole life insurance has to have a very solid idea of what kind of policy is properly structured for Infinite Banking.

Listed below are the aspects required in a whole life insurance policy to make Infinite Banking work most efficiently:

  • Be a policy with a mutual insurance company that has close to or more than 100 years of consistent dividend payments and good financial ratings (even through recessions / The Great Depression).
    • Mutual insurance companies are owned by their policyholders (unlike non-mutual insurance companies which are owned by their common stock shareholders, to whom the profit is passed), and therefore, will have more incentive to pass dividends (excess premiums) back to the policyholders instead of to common stock shareholders.
    • You can view a list of mutual insurance companies at Wikpedia here.
    • Several companies that fall in to this category that are commonly used for Infinite Banking include NY Life, Mass Mutual, Northwestern Mutual, Guardian Life, and Lafayette Insurance.
  • Policy is eligible for policy loans, at a varying interest rate (more on this in policy loan section below). 
  • Policy is “participating,” meaning it is paid a dividend (more on this in Expected Rate of Return section below).
  • Policy does NOT reach / become a Modified Endowment Contract (MEC) after a short amount of time (this causes growth to become taxable).
  • Should be a blended / over-funded / high-cash value policy
    • Most traditional whole life insurance policies are structured so that you get the maximum possible death benefit from day 0 for the amount of premium you want to pay in.
    • For the Infinite Banking Concept, you DON’T want to be traditional. Instead, you want to structure your whole life insurance policy so that it has a minimal amount of death benefit in the beginning along with the highest amount of cash value at day 0.
    • In insurance terminology, you want what is called a “blended” policy containing a minimal amount of whole life insurance and maximal amount of paid-up level term insurance (Paid Up Additions rider). The paid-up insurance adds immediate cash value to your policy because you have purchased full death benefit insurance all at once with no insurance or premiums cost.
    • By structuring a policy this way, you will reduce your insurance agent’s commission by 80% or more.
    • According to several articles I read by fee-only insurance consultants, you should make sure that your 1st year cash value is 50% or greater of the premium paid your first year. In several of the illustrations I had run for me, I personally saw that it was possible to get 60-90% cash value access of your first year premium.
    • With a traditionally-structured whole life insurance policy illustration I had run for me, I only got access to around 14% of my first year premium during the first year. Big difference, right?!
  • Has a reduced-paid-up option
    • This is a commonly overlooked option that is available from almost all whole life policies.
    • It enables a policy holder after a set amount of time (usually around 7 years) to exercise the “reduced-paid-up” option, which simply uses the policy’s current cash value to purchase the equivalent amount of paid-up insurance. Once the option is exercised (cannot be reversed), the policy then does not have any required future premium payments (irregardless of future dividends), but still accumulates dividends.
    • In a lot of instances, this can be a much better “out” strategy than cancelling your policy all together!

If all of these details about policy structure sounds like a headache, join the club! Still, when I sort through the details of whole life insurance, I become a little confused myself. However, there are several things you can do to improve your chances that you’re getting the best structure. Two options are listed below:

  • Talk to several different life insurance agents, of whom represent several different insurance companies. 
    • This will give you different perspectives that you can put together to decide which is right for you and what is the truth vs. a myth.
  • Pay a fee-only insurance advisor to review / fine tune your policy before signing the contract. 
    • To find one, simply Google “fee only insurance advisor, and a couple will pop up.
    • If you’re really serious about being with this strategy for the long-haul, isn’t it worth spending a few hundred Dollars to get some professional, objective advice?!

 

Mechanics of Infinite Banking – Expected Policy Growth Rate / Internal Rate of Return

Perhaps one of the most difficult things about the Infinite Banking Concept is getting an objective measure of how much your money, if any, will grow each year.

The reasons this is so hard to obtain are because 1) you can never quite tell if the interest rates figures being shown to you by the insurance company are before or after fees and death expenses, 2) different rates (guarantees vs. non-guaranteed) are shown, and 3) insurance companies are allowed to do what almost no other financial institution in the world can do, which is show forecasts of future performance given current dividend rates.

In an effort to shed some light on what investors can expect as far as growth from a whole life insurance policy, I’ve compiled a summary the interest rates I’ve found from various studies and sources:

  • After talking with an insurance agent representing Lafayette Life, he and I agreed that a 4.5% annual internal growth rate of cash value was realistic to expect.
  • A historical dividend study from Mass Mutual displayed actual internal rates of returns between 1980-2008 of 4.5-6.5% per year average over the 28 year period.
  • In an often-used study by life insurance agents, it is reported that a 40 year 4.5% internal rate of return is realistic given the current economic environment.
  • In article in Kiplinger’s Personal Finance Magazine titled, “Life (Insurance) Begins at 50,” they report cash value internal rates of return between 2.62%-4.41% per year of how total premiums paid have translated in to annual cash value growth from Northwestern Mutual, New York Life, Thrivent, MassMutual, and Guardian over a 20 year period.

It is important to note that these are all after-tax returns, since the cash value in whole life policies can be accessed tax-free using policy loans. So, from the reported numbers above, I came to the conclusion that I can only expect a very long-term (30+ years) average after-tax rate of return of 4.5% from a whole life insurance policy.

However, it is crucial to note that this is only if I hold the policy for 30 years or more. Even with the most efficiently-structured whole life insurance policy, there is going to be a “capitalization” period of 5-7 years minimum where your rate of return on current cash value will be negative.

This “break even” phenomena can best be seen using the screenshot below of a real-life illustration I had drawn up for me by one of the life insurance agents I spoke too. I want to focus on three columns – the one labeled Guaranteed Net Cash Value (no dividends) on the left hand side, the Cumulative Premium paid column in the center highlighted in red, and the Non-Guaranteed Cash Value (including dividends) on the right hand side.

 
 

As you can see in the table above, if we assume the current 100% dividend rate of the company, it will take 8 years for me to break even (in other words, to have my current cash value accessible = amount of premiums I have paid in to the policy). If we exclude the non-guaranteed dividends, it takes even longer, at 14 years. 

This is a significant phenomena to take in to consideration. Essentially, what it means is that in order to start earning the 4.5% long-term internal rate of return found in the studies shown above, we have to “wade through” 8-20 years of lower returns before we start averaging what the studies show.

In the policy illustration above, I manually calculated the guaranteed and non-guaranteed internal rates of return that you experience at various time points in owning the policy. Below is a summary of what I found (Please note that these are the cash value returns in a specific year only. The overall average return would be lower due to poor returns in the beginning years):

  • In Year 2, you have a guaranteed return of -28.4% and a non-guaranteed return of -20.8%.
  • In Year 5, you have a guaranteed return of -2.6% and a non-guaranteed return of 0.9%.
  • In Year 10, you have a guaranteed return of 1.7% and a non-guaranteed return of 4.1%.
  • In Year 20, you have a guaranteed return of 2.5% and a non-guaranteed return of 4.3%.
  • In Year 30, you have a guaranteed return of 2.5% and a non-guaranteed return of 4.3%.

So, as you can see by these return calculations, the internal rate of return including dividends seems to be converging on the long-term reasonable assumption of 4.5% average return per year. Thus, I think that for once, the current whole life insurance illustrations are pretty conservative/accurate, and maybe even a little bit lower than what you might actually observe by living the policy long-term!

 

Mechanics of Infinite Banking – Policy Loans

While having your cash value accumulate at the respectable 4.5% after-tax internal rate of return mentioned above is good, the thing that makes the Infinite Banking Concept really work is being able to access the cash value tax-free, at any time, through policy loans. Thus, you want to make sure the whole life policy you’re looking in to does, in fact, offer policy loans!

Having made sure that the policy does in fact offer loan provisions, there are several other issues that need to be considered as well:

Policy Loan Issue # 1 – Direct vs. Non-Direct Recognition – Is There a Difference?

The first thing to look in to regarding policy loans is whether the life insurance company you’re dealing with does loans on a direct or non-direct recognition basis. Non-direct recognition companies continue to pay you a dividend even if you have taken out a loan on your policy, whether direct recognition companies do not pay a dividend on loaned money.

At first glance, it seems that if you’re doing Infinite Banking and taking policy loans, it’s a no-brainer that you’d want to use a non-direct recognition company (MassMutual, Lafayette Life are two examples of non-direct recognition outfits).

However, it actually turns out not to be so straight forward. As pointed out by this person who has both direct and non-direct whole life insurance, there is essentially zero difference mathematically between the two at the bottom line. It just differs in how they adjust the numbers. See explanation below for more details:

  • With a direct recognition company, a policy loan does not decrease your death benefit, so the amount you receive in dividends as a percent of your ownership (death benefit) with the company, decreases.
  • With a non-direct recognition company, a policy loan lowers your death benefit (ownership in the company), so the amount you’re paid in dividends as a percent of your ownership in the company stays the same.

Policy Loan Issue # 2 – Make Sure You Get a Policy With a Varying Loan Interest Rate

When I talked to a local Northwestern Mutual life insurance agent and had him run some policy illustrations for me, there were several things wrong with the structure that I later figured out on my own. First, the policy he had drawn up for me was designed to MEC out at Year 14, sooner than I would have liked, but never would have caught on to if I hadn’t of had another agent look at the policy design.

The second thing that was sub-optimal about the policy design was that it contained a fixed 8% loan provision, a fairly common thing for Northwestern Mutual policies. You can view where this fixed rate loan provision is stated in the policy illustration screenshot below:

 

 

Of course, it’s easy to understand why having a fixed 8% loan rate (especially in today’s low interest economy) is not optimal. Sure, if interest rates increase to what they were in the 1980’s, you would be golden. However, since you’re only going to be earning 4.5% average return from your policy, you would be in quite the hole if you had to pay out a full 8% on the money you loaned out to execute the Infinite Banking Concept.

When I asked the agent about this potentially issue, he said that it was possible to have a variable loan rate with Northwestern Mutual, you just had to know to set it up that way.

So, in order to prevent this whole issue, make sure that the whole life insurance policy you are looking at contains a variable loan interest rate that goes up and down depending on what the current Fed Funds Rate is and correspondingly, what the insurance company is currently seeking in terms of required return.

Policy Loan Issue # 3 – A Policy Loan Is Not A Free Lunch

As mentioned above, taking out a policy loan using your cash surrender value is not without costs.

For example, if you have a whole life insurance policy with a non-direct recognition company, the money that you take out as a loan will still be earning a dividend/interest rate on it. However, you will also be charged a loan interest rate that you are responsible for paying (to the insurance company, not to your own policy) at some point in life or death. What this means is that you are essentially financially responsible for covering the spread, or the difference between the interest rate you’re charged and the interest rate you’re earning on the loaned money. 

From my experience talking with several life insurance agents of non-direct recognition company, the spread seems to be fairly minimal (less than 1%). An agent from one company showed me a table that listed historical loan interest rate vs. cash value returns, and even though the spread seemed to fluctuate between positive or negative (so the difference between a loan making you money vs. costing you money), it seemed to generally be between 0.5-1%.

One eBook I read by an Infinite Banking practitioner mentioned that the spread that a policy holder generally must cover is between 0.5% – 0.67%.

Policy Loan Issue # 4 – Paying Yourself Back? Or Not?

One of the nice things about policy loans from whole life insurance is that you pretty much can define your own loan repayment terms. You either a) pay the loan back with interest as soon as possible or b) manage your loans in a way so that you never pay them back until you die. If you decide to do the later method, please note that when you die, your death benefit will be reduced by the outstanding loan balance + accrued interest.

However, it is definitely to your benefit to in fact pay back your policy loans + interest because it frees up more of your cash value to be used for future things/investments/expenses.

 

What Are Other People Recommending Regarding Infinite Banking? Is it A “Go” or “No-Go?”

By now, we’ve gone through the basics + the advanced mechanics of how the Infinite Banking Concept works.

As a next step, I now want to review the opinions of several people I talked to about whether or not this strategy is good to use:

  • I talked to 1 Lafayette Life, 1 MassMutual, and 1 Northwestern Mutual life insurance agent, and they were all big fans of the idea, provided people could stick to the strategy and be comfortable with it. But, they all mentioned that it is not for everyone.
  • I talked to one CPA who said that, “So far, every analysis I’ve encountered from sources I trust has shown it not to be worth pursuing. So, I haven’t done any additional research myself.”
  • I talked to one personal finance blogger who does have a whole life insurance policy with Northwestern Insurance and is satisfied with it. He didn’t take out the policy specifically to do Infinite Banking though.
  • I talked to one fee-only financial planner who said, “I’m not a fan at all of the Infinite Banking Concept. It’s glorified whole life insurance. I don’t like whole life in any of its shapes, forms, or variants unless you either a) have a special needs dependent and will need something close to permanent insurance to ensure a special needs trust is properly funded, or b) you’re going to have a net worth in excess of what gift tax exemptions currently allow for. The rest of the reasons cited by the whole life promoters are to line the pockets of the sales reps. If you can find someone who signs a legally binding fiduciary oath and sells whole life insurance, then you have found either a) the financial services equivalent of Sasquatch, or b) someone who is very, very ignorant about the risks he/she has just taken in signing that document.”
  • I talked to another fee-only financial planner who said, “I’ve read a bit about it, but I have to say I’m skeptical. The whole concept I believe is based upon projections/illustrations that the policies will return. Most illustrations I see are rather ambitious which ruin the whole concept. I probably need to do more research to verify some of the specifics, but that’s my general take on it.
  • I talked to two doctors who mentioned that they were using the Infinite Banking Concept because they wanted to further diversify their other investments, and since they had extra income that they wanted to invest after investing other places, it was a good fit. They also wanted a permanent death benefit for their children if they died.

Essentially, what I found from talking to these people can be summed up in one long sentence.

Unless I specifically need a permanent death benefit and/or am already maxing out essentially all of my other investment options (which I am not, but may be in the future when I’m making more money), the only people that are telling me that Infinite Banking is a good idea are the people who will directly receive money by me purchasing a policy. 

This is a huge red flag for me personally. 

Is the Infinite Banking Concept Right For You?

Clearly, the consensus from talking with others is that Infinite Banking is not something that would be worthwhile to look in to. However, in an effort to ultimately make a decision, I wanted to run my own analysis using 2 scenarios:

Scenario 1 – Saving money and having life insurance coverage using the Infinite Banking Concept with a whole life insurance policy.

Scenario 2 – Buying term life insurance for all my life insurance needs for the next 30 years and investing the difference between what the term life insurance costs vs. whole life premiums.

Analysis Assumptions – In order to simplify things to get started on an analysis, we need to lay out some things we’ll assume throughout. 

  • I do NOT need life insurance after I am around the age of 60.
    • If you do need life insurance around this time, your best bet will be to have whole life since term life will be prohibitively expensive.
  • I have $5,102 per year to either save or pay life insurance premiums.The time frame that will be analyzed is 30 years.
  • I require $446,000 of life insurance coverage for the next 30 years to cover my family in the event that I die prematurely. This is the median death benefit shown on the policy illustrations drawn up for me between now and 30 years from now.
  • The whole life insurance cash value accumulates at the rate of 4.5% per year discussed in the previous section.
  • In Scenario 2, I will invest the difference in a vehicle with an approximately equivalent risk profile and tax treatment to whole life insurance (that is – very stable and tax advantaged).
    • In this case, I will choose the Vanguard Short-Term Tax Exempt Bond Fund, which invests in federal tax-exempt municipal bonds with 1-2 year maturities.
    • Since inception in 1977, it has averaged a before-tax return of 4.33% per year, which equates to a 4.05% after-tax return once a 6.5% state tax is subtracted out. In this time, it has been very stable, and according to the Simba back testing data, has not had a negative return during a 31 year period from 1985-2011.
  • In Scenario 1, we will assume a level/constant cost of a 0.5% spread per year to access the whole life policy cash value through loans during retirement. We will also ignore the capitalization period for the first 7-11 years of the policy.
  • In Scenario 2, we will obtain term life insurance quotes using State Farm’s life insurance quote system. For level-premium 30 year term coverage for $446,000, the annual preferred non-tobacco rate quote that popped up was $719 per year.

I assembled the table shown below to summarize the results of my analysis. You can also view the numerical results in spreadsheet form by clicking here.

While this analysis is by no means perfect, I think it shows us in a good enough way how things would play out using Infinite Banking versus the alternative that I would choose in its place. Essentially, what we see is that because the whole life policy has a higher after-tax return, it actually results in a higher nominal ending value after the 30 year period analyzed.

However, since the cash value of a whole life policy is only accessible using policy loans (which carry a 0.5% spread cost that you must cover), it is quite costly to have access to that money during your retirement years. In effect, what we see is that you end up about the same with Scenario 1 and Scenario 2 after a very long run.

So, the question then becomes which would I choose? Clearly, why would I bother with all of the headaches of a whole life policy, potentially being done-over by a life insurance agent, the low/negative returns during the accumulation period, and all of the inflexibility that would go along with a whole life, when I can get about the same performance with something I firmly understand?

For me, it is clear that Infinite Banking is not right for me (and likely the vast majority of normal folks reading this) because…

  • It doesn’t result in “stellar” performance that I cannot obtain on my own (as we saw above).
  • It is difficult to understand, there are a lot of complexities that could easily mess the whole thing up, and gives me a headache trying to wrap my head around.
  • I could not find anyone that is not being paid a life insurance commission that could convince me it was a good idea.

Who is a Good Fit for the Infinite Banking Concept?

Unlike others who have reviewed Infinite Banking and decided it wasn’t suited for themselves or indeed the vast majority of people, I do NOT think this strategy is the “devil walking the Earth.” In fact, there are some valuable things to learn from the strategy, and I think that the aim of it (having steady, reliable, tax-free access to cash) is well-intended.

More specifically, there are some really good instances where Infinite Banking would be nicely suited. I’ve listed a few of these below:

  • People that do not have the discipline to “invest the difference”
    • If you really have trouble saving money for retirement and are the type of person that needs some external encouragement, being required to send in a monthly/yearly premium to the life insurance company might not be the worst thing ever.
  • People that really need a death benefit in retirement
    • For most people, I think that having a death benefit in retirement is likely a nice thing to have, but probably not a requirement.
    • However, if you are someone that really does need a death benefit during retirement since you have people that depend on you financially (and your savings cannot cover it), whole life insurance is really your best bet to obtain this.
  • People that are pretty wealthy and are looking for another place to diversify, stash money, and avoid estate taxes.
    • As I mentioned above, if I was to the point where I had so much money that I needed to find a place to put money tax-free, I wouldn’t be all that opposed to using whole life insurance.
    • However, in this case, it really wouldn’t be Infinite Banking, but more just using whole life insurance…

How about you all? Have you ever heard of the Infinite Banking Concept? 

What are your thoughts about it and whole life insurance in general as a savings vehicle?

Share your experiences by commenting below!

Comments

  1. I have never heard of Infinite Concept Banking, so thanks for educating me. I think I would have to be much wealthier to consider something like this.
    My recent post New Tutorial – My Asset Allocation

    • Happy to help rjack! It seems like whole life insurance is something pitched to most folks at some point(s) during their lifetime, so it's always good to be armed with some background on what it is! 🙂
      My recent post Is the Infinite Banking Strategy Using Whole Life Insurance Right for You?

  2. First time I'd hear of it! It's interesting, but definitely not for me.
    My recent post Savings Strategy: Best of the Worst, or Worst of the Best

    • Thanks for reading Jenny! Several people I've talked to say that in the personal finance blogging community, not many know about this. It's good to have some knowledge about it and whole life insurance in general in the event that it ever becomes something you're considering
      My recent post Five Frugal Living Tips Everyone Can Follow

  3. I've never heard of it before and probably won't be doing it myself. My parents got screwed on a whole life policy some years ago. The salesman made it seem like some amazing deal, but ended up costing them a lot more than they realized. I don't know if I would care enough to avoid all of the potential pitfalls you mention above.
    My recent post The Simple Way To Test A Relationship

    • Thanks so much for sharing Bobby! I'm curious – in what way was the policy structured that they felt like they got screwed?
      My recent post When Disaster Strikes: The Importance of an Emergency Fund

  4. thanks

  5. I've noticed that the examples given in nelson Nash's book show a capitalization phase of 4 years at 40,000 per year compared to yours at 5000 a year. In his example, the net cash value caught the cumulative premium after only 4 years as opposed to 8 or 14. Supposing one can heavily fund the policy as shown in his examples, do you feel it would be a good way to invest? Thanks.

    • Hi Deem! Thanks so much for your question.

      At first glance, it would seem like adding more dollar value in to the policy premiums each year would reduce the capitalization time. Unfortunately, since the premium value is calculated in part based on the amount of death benefit, it doesn't speed up the process.

      The example Nash is likely using is based on interest rates that are higher, which is a key reason why illustrations cannot be trusted.
      My recent post Emergency Fund Considerations – Where Should the Account Be Located and What Should It Be Invested In?

      • It seems to me that it was the ratio between the policy premium for the death benefit and the PUA that brought the capitalization phase to a close quickly, not the interest rate. In my previously mentioned example, Nash uses a policy with a $14,999 premium and a $25,000 PUAR (which together equals the $40,000 annual outlay). The 15K to 25K ratio (favoring a higher PUAR, lower policy premium) is what I had understood to cause the cash value to rise quickly, thus lowering the capitalization phase. Is this correct?

        In your example of a $5000 annual outlay, what was the ratio between the policy premium and the PUAR?

        -Thanks!

        PS – thanks for not laughing at my typo-name from before (no offense to any Deem out there, if there is one…)

        • Hey Deej! The ratio of whole life premium to PUAR is a good thing to look at, but I really think that it was the higher interest rates of the 80's-90's when Nash's book was published that enabled it to shown the quicker accumulation phase.

          In the policy example I showed with the $5k outlay, it was $1,807 premium to $3295 PUAR, so a ratio of 0.55, which is a little better tilted towards PUAR than Nash's illustration.
          My recent post The Size of Your Emergency Fund Should Be In Inverse Proportion to the Stability of Your Income

  6. sanjeev tummala says:

    nice blog. I was actually looking at Lafayette whole life insurance policy after reading Nelson nash book and speaking to Lafayette agent.Yes, I think this is not for everyone. I was interested because I wanted to diversify and am max out in other things. The policy loan to pay for kids school/college expenses using tax free loans and earning dividends at the same time sounds appealing.
    For example, the agent said he uses this policy to pay his daughter’s school fees -15K each year upfront using a loan and then he pays it back with monthly payment and little more by year end. That way, he is getting about 4.5% guaranteed interest and some dividend that negates the loan interest. If people use the policy this way do you think its a good reason to buy this policy? Also, if you want to save money in this policy for college and then take a loan for college education, the funds are not considered parent asset for financial aid.Do you agree?
    thanks

    • Thanks so much for your comment Sanjeev. Good to see you’re digging deep in to this to see if it’s appropriate for you.

      First thing, since you’re currently maxing out EVERYTHING else, then you might be more suited for this strategy than most (same as the doctor couple I talked with mentioned in the post).

      To answer your questions…

      The easy one first regarding saving money with the policy not being counted in your assets for financial aid. I would agree with that.

      For me, it’s hard to really trust the advice of life insurance agents with whole life policies since they are directly being compensated by having you purchase the policy.

      1) He mentioned a guaranteed 4.5% interest rate. In my experience, the guaranteed rate is only about 2.5% per year, and then the non-guaranteed dividend makes up the rest of the return, which combined can be assumed to be 4.5% per year.

      2) With Lafayette, the way it generally works is that you take a policy loan out and get charged one percentage rate (say 5%), and then while you have the loan outstanding, you are earning a return on that money that is a little less, say 4.5%. Thus, on the policy loans, it’s costing you a net of around 0.5% per year. It’s not a free lunch.

      As you can see, even though your loaned money technically keeps “working for you,” the whole life policy system only works if you pay yourself back all of the money loaned plus interest.

      You would come out just about the same if you simply saved the money yourself, placed it in short-term tax exempt bonds, and then used the money when needed. This would also save you all of the headache from dealing with the complexities of these polices.

      Having said all of that, whole life policies might be suited for your specific instance for example, if you are high net worth, looking for a tax-free source of retirement income (like Roths) and don’t qualify for funding a Roth.
      Jacob A Irwin recently posted…How to Utilize Gazelle Intensity When You’re Facing Years of Debt RepaymentMy Profile

      • I am thinking of the LaFayette policy for the same reason that Sanjeev mentioned: to pay for looming college tuition and expenses.

        You agreed that it doesn’t count in the financial aid assessment (FAFSA, etc.) It seems to me that there is one consequence of this fact that you didn’t account for in your response: the value of the assets in this policy are not considered, or ‘added’ to, overall parental assets that are themselves assessed by college aid offices at 20%+ per year.

        For example, we are being shown that shielding those non-retirement investment assets in this type of non-MEC insurance vehicle will most likely reduce our annual Estimated Family Contribution from $55k per year to about $35K. Since most colleges we’re applying to commit to meeting ‘all ‘ of demonstrated financial need, the overall cost to attend (our Estimated Family Contribution) drops $20K per year, from $55 to $35; over four years of college, that’s at least $80K less in tuition/fee/etc than would otherwise be charged to the student/student’s family, (or more with the annual costs of college escalating).

        Could you please comment on whether you think this makes sense.

        Thank you.

        Christine in GA

        • Thanks for reading Christine!

          I’m curious – who is showing you the shielding numbers? Is it a life insurance salesperson? Just keep in mind that they do not have a fiduciary responsibility to help you save money, so you may want to get a second opinion on the matter.
          Jacob A Irwin recently posted…8 Reasons To Always Carry CashMy Profile

          • Thanks for your reply, Jacob. In answer to your question, we are working with a certified college financial planner who owns a wealth management company. Returning for a minute to my earlier question, do you have an opinion as to whether this insurance vehicle would seem to have the added benefit of the $80k shielding of assets (with modest growth) over the four years of college? This is by far the biggest advantage of this financial product for our current needs. Thank you for any further input you may have on this question. Christine in GA

            • Good to hear! The FP is likely giving a balanced perspective then.
              There are a few issues at play in your decision that I could see:
              1) is whole life insurance a good way to shield assets from being in your financial aid calculations? My answer to this would be yes, I agree.
              2) The next challenge would be to set up the plan in such a way that you are able to dump 80k in to it very quickly in order for them to be absent when the financial aid calculation is officially conducted.
              3) Next, will the whole life insurance plan give modest growth over a short time period of only 4 years? The answer to this is a definite “no,” since even efficiently constructed WL plans have a 5-7 year accumulation period in which you won’t be earning any growth.
              4) The next question I have, if it were me, would be if it is truly warranted to send your child to a school that costs $50k per year. Have you considered a cheaper state school?
              Jacob A Irwin recently posted…8 Reasons To Always Carry CashMy Profile

              • 4) The next question I have, if it were me, would be if it is truly warranted to send your child to a school that costs $50k per year. Have you considered a cheaper state school?

                Strongly agree there… colleges are extremely over priced. Take advantage of in-state college discounts. I don’t know where you live but there is likely a college on par or near par with the other one you’re looking at for 1/5th the price. I went entirely for free paid for by just keeping grades above a 3.0 in state. And quite frankly glad I did, never ended up showing that piece of paper to anyone but my mom… few employers care these days where you went to school, they care about what you can do for them.

                • Fascinating blog throughout. Limiting my comments only to this specific thread: why hasn’t anyone mentioned 529 plans as the benchmark against which to measure the efficiency of these life insurance strategies when it comes to “saving” for college costs?

                  • Mark Marshall says:

                    Great question! As both a practitioner of IBC and the owner of a 529 plan, here is my opinion based on real life experience. I also run a college planning practice.

                    1. I started the 529 over 12 years ago, long before I knew about IBC. During that time, it has had a net annual return of only about 3%. The same amount of money in an IBC plan would have grown substantially more during that time.

                    2. With a 529, once the funds are used they are depleted. With a safe money plan, I can borrow the funds and pay them back. Therefore, the funds are not depleted.

                    3. The good news is that 529’s are tax favored if the funds are used for college. However, contributions are limited and there are restrictions and penalties if the funds are NOT used for college. What if the student decides NOT to go to college? With my IBC plan, I can use the funds any time for any purpose.

                    4. Funds from a 529 count AGAINST you on the financial aid formulas once they are used. This is especially true for private colleges. For example, if I use $10k THIS year, my aid award will be REDUCED by $10k NEXT year! This is a trap that many people find out about after the fact.

                    With my IBC plan, all of my cash is invisible to the financial aid formulas.

                    5. Finally, 529 plans are subject to the whims of the market. When there is a down turn during the college years, there is a double loss of sorts. First the value decreases PLUS a withdrawal is taken in the same year.

                    My IBC plan has no down years and I can take a loan instead of a withdrawal. While the loan is outstanding, my cash still GROWS.

                    Hope this helps.

      • I maybe wrong but just some basic googling of the companies used by people who actually seem to know how to set these up are MUCH higher then 2.5%… try 2-3x higher.

        Even in our super low interest times these that I was recommended considering all are over 5%:
        http://bejs.com/sites/all/files/bejs/attachments/BEJS_White%20Paper_Update%20on%20Mutual%20Company%20Dividend%20Interest%20Rates_June%202013.pdf (end of pdf)

        Am I missing something? Do they end up lower then the 5-7% for some other reason such as fees?

  7. Bob Richards says:

    It is easy to get caught in the minutia and not see the big picture:
    1. you can invest in the exact same things as the insurance companies (primarily bonds and mortgages)
    2. they must take a cut off the top to pay their expenses
    3. they must take a cut off the top for mortality costs.
    4. The tax advantage is no different than a Roth IRA (yes, the Roth has an annual contribution limit but so does the life policy or it becomes a “modified endowment contract” and loses its tax benefit)
    There is no magic in the world of investing. if you hand your money to a a manager and they do what you can do on your own, they must take compensation out of your earnings or principal.
    I love life insurance. I wish I could buy more (too expensive as I have a medical condition). But I love it because it is INSURANCE. NO ONE ever talks about insurance being an investment other than life insurance salesmen.
    Bob Richards retired CPA (inactive), ex-financial advisor and insurance licensee, Harvard MBA
    Bob Richards recently posted…Bond Funds are a Sucker DealMy Profile

    • Interesting, except you can’t access Roth funds at will till retirement? That’s one of my biggest issue and reason for considering this.

      Also Roth IRA’s are NOT protected from lawsuits it appears: http://www.latimes.com/la-ira-story3,0,6977190.story#axzz2xYA3fERk

      I’m leaning towards adding it as a part of my overall strategy. I swing for the fences in my business but something guaranteed like this may make sense for a secure back up.

      And don’t tell me it’s not guaranteed, it’s as guaranteed as you actually owning your mutual fund shares in the case the mutual fund company collapses. If the company goes under, you’re shares are NOT direct registered in your name unless you go through the extra process to do it… bet your financial advisor never told you that.

    • There is a limit on both an Roth IRA and an IBC plan, but there can only be one Roth IRA, where as you can have as many IBC plans as you and the insurance companies are willing to.

  8. Jack Reitzel says:

    I’m 66, retired and living on Social Security and a relatively small monthly pension. I’m looking into liquidating most of my stock holdings (120k) and 401k (65k) to fund a whole life policy to the maximum to utilize the infinite banking concept. I want to preserve my recent stock market gains in both stocks and 401k before another market decline such as in 2008 which caused my accounts to lose about 35% of their before crash value. I have a large long term tax loss carryover from last year to offset most of the taxes that will be due on my gains from the liquidations this year.
    Do you think this is a good or bad decision in order for me to be able to borrow from the policy to pay for cars, home repairs, etc. down the road, plus draw from for future retirement income. I need about 200k of life insurance to offset the loss of my pension if I die before my spouse. I’m not a fan of annuities, and that has been recommended as my only other possibility. I currently have a 200k flexible premium adjustable life policy in force that may become underfunded at some point in the future that I wouldn’t mind replacing with this new policy. I have already been approved for a policy at a “standard” rate for this proposed policy.

    • Thanks so much for reading Jack and also for your good questions!

      There are a lot of facets that go in to a decision like this, so I’ll try to address things one by one to show you how I would be thinking about it:

      1) What is your current asset allocation split between fixed income and stocks (equities)? If I was retired, I would first look to make sure I had a very conservative asset allocation tilted towards fixed income so that even if a correction comes, I will have an appropriate risk tolerance.

      2) Who have you been talking to about these recommendations that says that your only other option is an annuity?

      The reason I ask is that were you getting the advice from a life insurance sales rep, which can only really SELL annuities and life insurance, so I might imagine they would want to keep your money with them so they can make money.

      3) What would you be looking to achieve specifically with Infinite Banking?

      For example, you have about 200k that you’re looking to invest. If you just need it to be stable, then there are other options for where you can invest it aside from whole life insurance.

      4) Do you really need life insurance now that you’re retired?

      For example, if you died, could you use your savings instead of life insurance as a way for your spouse to have financial support?
      Jacob A Irwin recently posted…When Should You Leave A High Paying Job?My Profile

      • I think you need to talk to a Tax guy or CPA about selling your 401K but stock outside a 401K. the gains can be offset. My understanding is that a withdrawal from a 401K is considered ordinary income and not capital gains so that you would not benefit in offsetting prior capital losses. I do however believe that the IBC is a great idea if set up properly. You might want to think about, if you have children, taking a policy out on them but you would be the owner of the policy(s) and have the benefits of the cash value during your life then policy can go to your children when you and your wife pass on.

  9. Jack Reitzel says:

    Thanks for the reply.
    My responses:
    1. I’m very heavy (way too heavy!) right now in only stocks.
    2. The guy recommending the annuities says he has “been in my profession since 1967 and throughout those years I’ve used and worked with about every type of investment and program that has ever been created. Both professionally as well as personally. As an Independent Registered Representative I do NOT work for a particular company. I can and often use a wide variety of investment programs from various companies. Myself and my Broker-Dealer constantly compare hundreds of investments. Therefore, the investment programs I offer are in my opinion, the best there is! If something better comes along I’ll recommend and use it!” He provides assistance with Financial guidance , Pre & Post Retirement, Education, Trusts & Estate Planning, Tax Guidance, Charitable Gifting, plus numerous other services.
    3. I’m mostly wanting to be able to utilize my “bank” funds (cash value) from the policy to finance new cars, major home repairs, etc. that may be needed in my remaining years, as well as draw retirement income as needed tax free from the paid up additions built up within the policy.
    4. Yes, as I stated above, I need at least 200k (or more if affordable) of life insurance for my spouse to invest and live on to replace my pension income which will go away when I die. The policy I currently have may become under funded in a few years, so I could surrender it for it’s cash value (approx 27k currently) and put that into the new policy as well. I’m waiting on the new policy illustration to be presented to me this week to see how much coverage I can afford and how it’s cash values project out to see if I want to proceed with it. I don’t have to replace my current policy, but that is one option to free up the $185 monthly premium I’m paying now for it. I’ve had it since May 1997. The rep I’m dealing with is very knowledgeable on the IBC topic and is my age as well, so I trust that he knows what I’m looking for.

    • Thanks for sharing those details Jack!

      While I am not intimately familiar with all of the details of your situation, if I were you, I would hold off pulling the trigger on the whole life insurance/Infinite Banking strategy.

      First, it doesn’t seem to me that you actually need Infinite Banking. You don’t seem to need the “death benefit,” but instead, simply need a stable place to put your 200k in savings, which can be achieved elsewhere from whole life insurance. You also don’t need the tax benefits offered by whole life insurance in the case of a super high net worth individual.

      Second, for a middle class retiree, it seems way too risky to me to be 100% invested in stocks. If I were you, I would look at putting the majority of my money (60-70%) in short-term and intermediate bond index mutual funds, perhaps with some allocation to TIPS as well. Hope that helps. Please let me know if you have any more questions!
      Jacob A Irwin recently posted…When Should You Leave A High Paying Job?My Profile

    • frank obrien says:

      why not use your older policy before it becomes underfunded? you have a lower insurance cost on that policy. over fund that, plus there is no new underwriting. personally i dont think you should put all your money into one policy- because you can only have one loan at a time and its a loan you should be paying back to the policy or it will lapse and you will have no insurance and a big income tax bill( from any loans out at the time it lapses
      Frank- financial advisor/ insurance advisor 15+years

  10. Jack Reitzel says:

    I appreciate your input. I have been wanting to get out of the top-heavy position I’m in with stocks for quite some time, and that’s what got me into contact with the rep recommending the annuities as the best place to “park” my investment funds in retirement instead of the stock market. Then I learned about the infinite banking concept from a newsletter I subscribe to and I thought maybe that was a better way to go, since I have my own reservations about tying my funds up in annuities.
    If the IBC policy works as explained, and I can access my funds as easily as promised, then I have to seriously consider which way would benefit me the most. Having additional life insurance would assure that my spouse would have adequate replacement of my pension income if I were to die sooner rather than later, while the steady growth of the cash value of the whole life policy would be much safer than leaving it exposed to the ups and downs of stocks and/or mutual funds if I live to a ripe old age. My family genes would support thinking that I could live into my 90’s, so I need to be sure I don’t run out of money too early. It’s not an easy decision, but it’s probably the last and BIGGEST and most important financial decision I will make in my lifetime. I can’t afford to be wrong.

    • I definitely agree. It’s a very large and important decision. For your situation, it sounds like it’s a little more involved than simply deciding for or against Infinite Banking. You likely need help putting together an entire retirement plan.

      Since there are so many complexities and factors going in to this, it may be something that you want to get some advice on. For that, I might look at going to a FEE-ONLY certified financial planning. He or she will get paid only for their time and not via commissions for what they get you to invest in, therefore, it’s more likely that they will provide unbiased advice.
      Jacob A Irwin recently posted…Trois, Deux, Un – Let The 3rd Annual Debt Free Direct Tour de Personal Finance Begin – Let’s Give Away $800!My Profile

  11. Thanks for the nice intro. To my understanding, however, direct and non-direct recognition works differently. Non-direct recognition means that regardless if you have or don’t have an outstanding loan with the company, the interest on your cash value (the dividend) will be the same like everyone else on the who,e amount. In contrast, direct recognition companies give you a higher interest against your outstanding loan than the regular dividend you get against the rest of your cash value. They reward you for your loan and thus, by the way, making the actual cost of the loan lower.

    As an example, say I have a policy with a company that gives 5% dividend and my cash value is $20,000. I will get that year $20,000 * 5% = $1,000 dividend. If this was a non-direct recognition company, if I had an outstanding loan of $10,000 in 8% my dividend would have been the same and my actual cost of borrowing was 8%-5%=3%.

    Now say that the same company is a direct recognition company, they will pay me 5% against my un-loaned $10,000 (=$500) and against my outstanding debt they will give me, say, 7% (=$700). My dividend would be $1,200 and my actual cost of borrowing is 8%-7%=1%.

  12. Jacob,

    Thank you for taking the time to dig into all of this. I’ve read a lot on the concept, and you have explained things that I could never get to the bottom of! One thing I think you did not discuss in your comparison — which Nash harps on a great deal — and which I believe is an important issue to think about is using loans against the policy along the way to retirement. Any thoughts there?

    Regardless, I think your final “who is this good for” still stands. Again many thanks for sharing this!

    • Glad the post was helpful Karen!

      What specifically were you curious about regarding policy loans? There are so many details that it’s hard to discuss only in general terms. Thanks!
      Jacob A Irwin recently posted…8 Reasons To Always Carry CashMy Profile

      • So, what if you needed say to take a car loan and instead of paying the bank, you take a loan from your insurance policy (say after 10 years or so of owning it). If you have a policy that allows this, and say you have a policy from one of the big mutuals that continue to pay dividends on the cash value (regardless of the loan amount taken), i.e. non-direct. Then you decide to pay the loan back to the policy using the going commercial interest rate that a bank would have charged you. Is this a good idea, and if so, under what conditions would it be a good idea? Does it matter what the relative rate of the commercial interest rate to the policy loan rate minus the dividend? Does this help you accumulate more money in your policy so that you’d have more money to work with in retirement?

        • Thanks for the additional details on your questions Karen. Normally, the thing that makes the policy loans scenarios look so tempting in the books written about Infinite Banking if that they all involve you paying back your policy loan (so essentially replacing your savings).

          Let’s walk through an example to think more about if what policy loans involve and whether or not they are suited for what you’re asking. Below are the details of a hypothetical policy loan:

          -Policy loan = $100,000, you plan to pay back in 1 year
          -Cash value accumulation rate (includes guaranteed + dividends) = 4.5%
          -Current policy loan interest rate you must pay back = 5% (generally, the spread ie what it costs to take out a loan is around 0.5-1% per year from the numbers I’ve seen. Since the policy loans from most of the mutual companies are “variable,” they do change according to what the current interest rates are.)

          This would mean you would be earning $4,500 per year in accumulation/dividends, and paying $5,000 in interest for the loaned amount in a non-direct mutual company. This also assumes you PAY BACK THE ENTIRE $100,000 from some other source within the loaned period.

          So, the net cost to you of the 1 year loan would be $500. In other words, you paid $500 to have access to your OWN money. Since you are accessing your own money, in my opinion, you cannot compare this strategy with taking a loan from the bank where you are using SOMEONE ELSE’S MONEY.

          The proper comparison, in my opinion, is what it looks like to use your own money. Using the stable Vanguard Short-Term Tax Exempt savings vehicle mentioned in the post, which has averaged a 4.05% after tax return, let’s walk through how that would look as well with a “loan.”

          $100,000 “loan” from your savings
          -do not earn any interest on money you take out, but you are not charged interest on it’s use either.
          -You then pay back your “loan” to your own savings.

          Net cost to use your OWN money = $0.

          So, as you can see, the main benefit to a policy loan is that it “forces” you to pay back money to your own savings. This can be accomplished (if you have the discipline) in cheaper ways WITHOUT whole life insurance.
          Jacob A Irwin recently posted…8 Reasons To Always Carry CashMy Profile

          • Thinking as I type.

            Scenario 1: take bank loan. 2% loan means $300 for 30 payments = 9000. Money goes to bank forever gone from you.
            Scenario 2: take WL loan. Spread on loan rate v. Dividend is say 0.5%. Now still pay in 9000. Excess money goes to work for you forever more.
            Scenario 3: take money from savings. Pay back 9000, and hopefully put it somewhere it can work for you.

            Scenarios seem like they get better as you go from 1-3, but the WL loan is better than borrowing from bank. Am I missing something? Besides being restricted to loans in WL?

            • In my opinion, the WL loan and a bank loan aren’t comparable since WL is your own money and a bank loan is someone else’s money.

              Also, keep in mind that with taking the money from your own savings (scenario 3), you wouldn’t need to pay back as much since you wouldn’t be charged any interest.
              Jacob A Irwin recently posted…How To Stop Emotional SpendingMy Profile

          • Therre are a few very important points that aren’t being addressed in the discussion here.
            1) in this post you just mentioned that when using your own money the cost is ZERO, I beg to differ with you, PLEASE, there’s always a cost either interest that you pay using someone’s money or the lost opportunity that you could have earned on your money, in your example where the loan was $100,000 and 4.05% could have been earned on that is the cost still ZERO?
            2) it’s very interesting to me that when buy term & invest the difference is used, the question of “is it guaranteed” isn’t raised, only when the non guaranteed numbers on the WL illustration are being quoted is that question being asked, when in reality, one thing is absolute that once a dividend is given, it cannot be taken away, where in an investment portfolio, it can be there today and vanish tomorrow, and it might just be at the most inopportune time.
            3) You used here a tax advantage fund, where again in reality, most people will not be there, when matching up the numbers, you always fail to take into consideration the taxes that are being paid along the journey which are almost always paid from another pocket, as well as the fees, in addition there is an abundance if independent research where even though the average fund does X amount of percent a year 98% of people only make a fraction of that for a variety of reasons.
            4) when all is said and done, you MIGHT have more in your portfolio account, however, people are locked out of their wealth, as when people reach the age of retirement they tend to start worrying about outliving their assets, legacy and most if not all will live off the interest , now I want you to make the calculation, if we were both retiring tomorrow with $2.4 million in the bank the only difference being that I also have a $2.4 million policy collecting dust in my basement filing cabinet, how much would you spend each year & how much would I spend. If you have a hard time running and posting those numbers, let me know, so while you might not NEED the insurance after 60/65, you might just WANT it.
            5) I’ll leave out with one last note, that strategy of “buy term & invest”, where you write about “people” that aren’t disciplined enough (you make it sound that it’s some kind of minority that needn’t be reckoned with) I don’t know who sees he world upside down, me or you, if that is followed through in more than 1% of people that have used that fancy cliche, I would be VERY surprised. Check out this TED talk from a well known finance behavioral professor.
            http://www.ted.com/talks/shlomo_benartzi_saving_more_tomorrow

            Your research is greatly appreciated

  13. It seems to be different than a Roth since its money can be available anytime after being funded whereas a Roth you need to wait to a certain age. To invest in mutual funds is no guarantee either-most do not do well. With whole life you get access to the money and a death benefit — assuming you like your kids or the people you are leaving the money to in the end. For someone to say ‘don’t trust them because they’re selling it’ does not make sense — unless you stop trusting anyone selling you anything ( have fun being a hermit—-and by the way –hand over your cell-phone). If this whole life is funded and I can pay off my mortgage or car and then pay back the whole life with the SAME payment that I would have paid to the mortgage co. or to the car finance co., it seems I have just created my own finance co. The 1/2 % net cost does not sound bad compared to the 7% or more of a finance company. Tell me what I am missing!!!!!!

    • Thanks so much for reading bullet. In my opinion, whole life insurance is NOT terrible.

      However, I think that it’s not everything that it is hyped up to be by the salespeople (like some magic formula better than anything else). From your website, I saw that you might be a dentist. In your case, whole life may be appropriate if you are maxing out all of your other investing outlets, particularly tax free ones.

      Below are my thoughts about your points in your comment:

      1) “Whole life is different than a Roth since the money is accessible anytime.”

      Absolutely true. With a Roth, you cannot access earnings easily until during retirement. However, with a Roth, you can withdraw your CONTRIBUTIONS at any time tax and penalty free. Just keep that in mind.

      2) “If this whole life is funded and I can pay off my mortgage or car and then pay back the whole life with the SAME payment that I would have paid to the mortgage co. or to the car finance co., it seems I have just created my own finance co.”

      In my opinion, it’s not fair to compare whole life insurance to taking out a loan from a finance institution b/c with whole life insurance, remember that it’s YOUR money/savings that you are having to pay back. With a regular loan, you are borrowing OTHER PEOPLE’S MONEY.
      Jacob A Irwin recently posted…How To Stop Emotional SpendingMy Profile

      • Jacob,
        I’ve read your analysis and just about every comment up to this point. You’ve certainly done a lot of research and statistical analysis and I commend you for that, but your above response indicates that you do not fully understand this concept. The purpose of the infinite banking concept IS to create your own finance company. The average person will pay 35-40% of every dollar they make in finance charges over the course of their life. 35-40%! That’s 35-40% of the money the average person makes over their life where THEY GIVE UP THE INTEREST EARNING POWER OF MONEY FOREVER! Money can accommodate many different kinds of transactions but the only real power money has is it’s ability to generate interest. This dynamic is the same for everyone regardless of how much they have. The decisions we make either give us the ability to earn interest on our money for our benefit or gives others the ability to earn interest on our money for their benefit. The infinite banking concept allows people to maintain the interest earning power of their money (through dividends) AND control the financing needs over the course of their lives. When you “borrow with other people’s money” you are paying interest and giving up the interest earning power of that money forever. When you finance using the infinite banking concept you maintain the interest earning power of your money and when you pay yourself back plus interest (being a good banker to yourself) you are compounding your savings AKA increasing your wealth. The infinite banking concept also shifts the risk of generating wealth onto the individual. The individual has to be a good banker to themselves in order for this to work. They need to capitalize their bank properly and pay themselves back honestly. Those are the only risks associated with the infinite banking concept. When it comes to generating wealth, I would much rather take those risks than be subject to market fluctuations that I have no control over. A lot of wealth can be generated by recouping finance costs.
        The truth about truth is that it is widely criticized and disregarded before it is finally accepted. Whole life has been around for over 200 years. It’s one of the best financial tools available to us, but people are polarized by it (by design). Most of the complaints about whole life aren’t about the product, it’s about the people selling the product. I sell life insurance but I’m not good enough to sell people something they don’t want.

  14. We are starting our 3rd WL policy with Lafayette Life, one of those being a small one where we put 4K/year in for our son, that we started at his age of 16. I was very big in to Dave Ramsey and was adamantly against
    Whole Life. My age is 55, and all I can say is, I wish I would have started this concept of Infinite Banking many years ago. We have used ours to loan money to buy vehicles, property and yes even to fund the next years premiums. Yes we pay ourselves back with interest and I look forward to those payments …because I know they are helping to build my supply of money in my cash value. No, it is no where near get rich quick….but when we have suffered downturns in the stock market, our policies are slow and steady to grow. Our policy illustrations have been pretty much at the 50% guaranteed rate so far and cap rate is right as scheduled….6-7 years. I couldnt be more pleased . I love the concept of my tax free retirement, but in the meantime I can use that money any time I want and YES I want to pay back the interest. Also the life insurance is a nice addition (no we didnt do this for the life insurance, obviously Term would be better)
    Using the concept of buying a 40K car… borrow from the bank, pay the car back plus interest and in 5 years all you have is the depreciated car. Borrow from your own bank and in 5 years you now have your money back plus interest plus the car. THere are downsides and those are, if you are not committed you WILL lose your money if in the first 7 years or so you decide to quit your policy. Never quit your policy, work with your advisor to set up another way.

    I could go on and on but suffice to say I am sold on these policies, at least the way ours have been set up. My advisor earns her money because she has spent hours and hours with me over the years and is there for me at the drop of a hat. Would not consider doing a policy without her.

  15. Robert Trasolini says:

    Great analysis, I thought you were very thorough on the concept, although i think you missed one principal of the concept. The idea of using the policy as a financing tool. You talk about loss of money when taking a loan with a greater interest rate on the amount being earned. However if you take a loan calculator out and calculate the interest lost if you take a $5,000 loan and pay back the loan over 5 years @8% interest. Total interest you would have paid $1082 in interest. If that same money was earning 7% in your policy( lesser rate than you are paying) over that 5 year period you would have earned $2,012 in interest. I would love if you did more analysis on the financing aspect of the system and run some numbers with a loan and compounding interest calculator. I of course am biased as I am in the industry, but have also done a considerable amount of research and come to my own different conclusion.

    • Howdy Robert! Thanks so much for reading, stopping by, and bringing up this great point!

      I definitely agree with you in the numbers you ran. Since you are paying back the $5k loan (decreasing the loan principal), you will pay less in interest to the insurance company than you will be earning in interest on your policy dollars (since the policy dollars is compounding on a ever increasing $5k amount). This is not surprising at all.

      Even though stopping at this face-value comparison makes a whole life policy loan seem like a great deal because, hey, you’re earning more money in interest than you are paying out, I don’t believe it changes the key takeaways I mentioned above.

      With the policy loan, at the end of the day, you are essentially paying interest / paying back YOUR OWN MONEY, not a bank or someone else’s money after you use it.

      As I state in the article, the same magnitude of an effect can be accomplished by withdrawing money from a savings account. Let’s just assume your savings account can earn 7% interest (unlikely today, but let’s keep this consistent) and that you have $5,000 in it. You want to buy a nice road bike for $5,000. You take out the money at time 0 (you don’t get charged any loan interest), and pay back yourself to your bank account the ~$100 per month that you would have been paying back money to your whole life policy loan if you had taken the policy loan route. If you let this accumulate interest over 5 years, you will earn roughly the same amount as you would have made letting the policy cash value grow.

      My spreadsheet calcs – would lover to hear your thoughts!

      https://docs.google.com/spreadsheet/ccc?key=0AmFbyISqaYDadHNySzJOaER4SmhLVDhRNldacWRteVE#gid=0

      f you take a $5,000 loan and pay back the loan over 5 years @8% interest. Total interest you would have paid $1082 in interest. If that same money was earning 7% in your policy( lesser rate than you are paying) over that 5 year period you would have earned $2,012 in interest
      Jacob A Irwin recently posted…Financial Mistakes New Parents Make: Have You Done Any of These?My Profile

      • I looked at your spreadsheet. I have a lot of personal experience with Infinite Banking in my own life. The 8% loan rate you assumed is almost double the loan rate I’ve got in my policies. I currently pay a 4.4% rate, not 8%.

        It’s not a very fair comparison. Even if it were, I think there are multiple issues you need to address if you’re going to play this game. That 7% savings scenario does not exist. If it did exist, if you were actually earning 7% in a 100% safe savings account, you’d also be paying tax on those earnings as you go, creating either a drag on the account, or additional out of pocket on your side. Not so with IBC. If you did this with a brokerage account to earn that kind of interest rate, you’re going to pay brokerage or management fees, capital gains, and investment expenses, with no guarantee of safety. Not so with IBC (The cash value is simply a discounted expression of the death benefit in today’s dollars at a given rate, minus future premiums. don’t believe me? Ask the actuaries that engineer these things.) If you were sued and there was a judgement against you, your savings could be seized. Not so with IBC (In Florida where I’m from anyway). You are paying extra $ (which has its own opportunity cost) if you buy term insurance. Not so with IBC.

        I could go on, but I’m not here to pick a fight. You have the right intentions in trying to educate people, but you’re only viewing IBC as a matter if interest rates. It’s not about interest rates. It’s about who plays the role of banker in your life, and what that really means. you’re paying cash over financing, which is good, but that doesn’t make your scenario realistic.

        I’m happy to answer any questions you might have about IBC. I am a student of Austrian Economics and an Authorized IBC Practitioner. You can easily search me on the IBC official website.

        I feel sorry for people who shy away from IBC after reading things like this. It’s a shame that they are missing out on something that’s genuinely there to help them.

        • Hi Kyle, thanks so much for reading and for creating some good discussion.

          (Disclaimer to other readers: As I mentioned in the post above for the sake of clarity, I want to bring attention to when people have a conflict of interest with these policies – because there is much money tied up in them and to be made. So, I just want to make sure everyone knows before we proceed that as an IBC practicioner, Kyle makes money by selling these whole life policies. There’s nothing wrong with that – I just want people to know the context that he is coming from)

          Below are my questions/comments on the points you brought up. I look forward to hearing your input!

          1. “I looked at your spreadsheet. I have a lot of personal experience with Infinite Banking in my own life. The 8% loan rate you assumed is almost double the loan rate I’ve got in my policies. I currently pay a 4.4% rate, not 8%.”

          I apologize for the confusion here. The policy loan illustration I got from Northwestern Mutual showed an 8% interest loan. I did not mean to generalize that ALL whole life policies have an 8% interest rate on their loans.

          Furthermore, as I state in the “Is the Infinite Banking Concept Right for You” section, the important thing to look at is the spread between the variable policy loan rate and the cash value accumulation rate, which is usually in the range of 0.5%. Since I assumed a cash value accumulation rate of 4.5%, this would put the loan rate at 5%, so about in line with the figure you mentioned as well.

          2. “It’s not a very fair comparison. Even if it were, I think there are multiple issues you need to address if you’re going to play this game. That 7% savings scenario does not exist.”

          If you look at the comment that Matt made below this comment string and some of my follow up comments, we addressed and put to rest this issue/concern about the use of an assumed 7% interest rate on a savings account.

          3. “in a 100% safe savings account, you’d also be paying tax on those earnings as you go, creating either a drag on the account, or additional out of pocket on your side. Not so with IBC. If you did this with a brokerage account to earn that kind of interest rate, you’re going to pay brokerage or management fees, capital gains, and investment expenses, with no guarantee of safety. Not so with IBC”

          In my calculations for the post where I tried to determine if the IBC concept was right for me, I utilized the Vanguard Short-Term Tax Exempt Bond Index Fund, which is exempt from federal taxes, and I also incorporated the subtraction for state taxes income tax and all investment fees/expense ratios. In addition, I analyzed the standard deviation and annual rates of return, and found the Fund to be very safe (see stats in post), although you are correct – it is not guaranteed to not lose money. That guarantee is a benefit of IBC.

          Regarding capital gains, you are correct that with a bond fund, they may be incurred. However, I would assume that since we are dealing with bonds and not stocks, the majority of the cash you will accumulate will be a result of dividends. Thus, I assumed capital gains taxes would be negligible. However, if you can quote a good study about capital gains on tax exempt bond funds, it’d be very interesting to see.

          4. “If you were sued and there was a judgement against you, your savings could be seized. Not so with IBC (In Florida where I’m from anyway). You are paying extra $ (which has its own opportunity cost) if you buy term insurance. Not so with IBC.”

          Regarding the term insurance issue, the important thing is what the comparison looks like between using IBC and the “buy term and invest the difference” scenario. That’s why I showed both in my post above.

          Regarding the safety of whole life cash value in lawsuits, I definitely agree with you. That is a benefit of IBC.

          Overall, my conclusion with IBC is not that it is inherently evil or it does not have its place. Quite the opposite – if I get to a point in my life where I am higher net worth and higher salaried, I will probably use one of these polices to get tax free earnings later in life.

          My conclusion is that people just have to be careful b/c IBC is not well suited for the MAJORITY of people out there.
          Jacob A Irwin recently posted…Don’t Let Yelp Do All the Heavy Research for YouMy Profile

          • Hi Jacob,

            Thanks for your response. I appreciate you taking the time. Yes, if you’re using tax-free muni bonds, you’re not going to have tax issues, so you’re spot on there. Sorry if I didn’t catch a previous post and made you rehash something. I want to be very clear to you though that although I am an IBC Authorized Practitioner, none of my IBC clients are what I would call “High Net Worth”. These are folks that make from 30k to 100k/yr. Regular people. When I started my first policy at $250/mo, my wife and I were not even making 50k a year together after taxes.

            From a practical standpoint, from someone who studied IBC for over a year before he even had the courage to try and talk to people about it, I thought long and hard before deciding to put my name next to this concept. My business would be doing fine without recommending IBC policies. Furthermore, if an advisor really builds these policies properly, we can take anywhere from a 20%-70% commission cut over selling regular whole life insurance. Anyone who is using pre-built products without heavy PUA riders (with the exception of maybe a strong 10-pay), there’s a good chance that what they are calling IBC isn’t really IBC. I am my own biggest customer.

            Something that people must understand is that IBC is NOT an investment. It’s a savings. It’s a place to warehouse money and build a capital base in a tax-favored risk-free environment, allowing you to earn interest while still giving you full access to those funds (not all of it initially, of course. I have to be very clear about that). I disagree that IBC is not right for the majority of people. I think it is definitely right for majority. The majority are the ones who need our help the most. Not the rich. Why would I tell someone that it was ok to finance a car, for example, and pay someone else interest when they can build up a capital stock and leverage that for their banking needs, while never interrupting their compound interest? Over a lifetime of repeating that process they will end up with more money in their pocket than if they had done the traditional finance way, and all the while making the same payment at the person who financed…after the initial savings. Plus, people die. There’s a death benefit throw in in there just for the heck of it ;).

            I’m going to be late for a meeting if I keep writing, and I’m really not the type of person who likes to debate strangers online, so again I appreciate your input on the topic, even though I do not agree with your conclusion at all. There is no apples to apples comparison you can make to IBC and something else. Believe me, I’ve heard it all.

            I wish you nothing but the best,
            -Kyle
            Kyle D. recently posted…My CEO Interview – Why I Do What I DoMy Profile

            • Thanks so much for sharing your thoughts Kyle. I definitely respect your opinion, as everyone is entitled to their own. 🙂

              I do honestly believe that IBC offers many benefits and I would like to believe in it.

              However, at the end of the day, the harsh reality remains that I still have not found anyone [not receiving money by selling whole life policies] who can convince me that they are appropriate for the majority of people.
              Jacob A Irwin recently posted…Don’t Let Yelp Do All the Heavy Research for YouMy Profile

              • I understand where you’re coming from, Jacob. There’s a trust factor that’s missing for you. I would suggest for you reading Robert P. Murphy PhD’s report and his personal experience with IBC. He is an economist and, like me, didn’t know what to think of this stuff at first. It’s an easy read and I think you’d like it.

                All the best!

                https://s3.amazonaws.com/IBC-General-Resources/2013.05+Murphy+My+History+With+IBC+May+2013+LMR.pdf

                • Thanks for the reference. I’ll take a look and report back with questions/comments I have.

                  Do the authors of this report, Carlos Lara or Murphy, sell or have ever sold whole life insurance?
                  Jacob A Irwin recently posted…Don’t Let Yelp Do All the Heavy Research for YouMy Profile

                  • They have never sold life insurance in any form. Murphy is an economist and Lara is a finance professional.

                    • I took a look at the pdf document you recommended last night, and unfortunately, there were no technical details in it explaining IBC and/or his reasons for believing in it other than a qualitative surface explanation that could give me any more trust.

                      Also – I discovered that Murphy does profit from propagating whole life policies, as he makes money through the practioner’s program – http://www.infinitebanking.org/practitioners-program/, similar to Nelson Nash.

                      Can you recommend any other documents I should take a look at? This topic is very fascinating to me.
                      Jacob A Irwin recently posted…CD Rates Suck – But Here’s Why You Need to Be In Them AnywayMy Profile

                    • I don’t have anything right here at my fingertips for you, but I think you need to adjust your viewpoint a little bit. At least, that is what helped me to really understand why this is a good thing.

                      Also, before I forget, I took offense to your disclaimer on your first response. I just wanted you to know that. I am not wealthy. I work hard to do the right thing for my clients. The implication was not very nice.

                      IBC is not an investment. It is a savings strategy that allows uninterrupted compound interest and a slew of other benefits that most other financial tool do not have, which I will list for you in a moment. I REALLY think you should re-read Becoming Your Own Banker. If you need a copy, I will mail you one. I do not have any desire to try and make you a client, but I really feel that you are in the perfect position to start an IBC policy. Those benefits are below:

                      Tax Deferred (Not Tax Deductible)
                      No limits on contributions
                      Tax Free income and withdrawals
                      No mandatory withholdings
                      Tax Free to Heirs
                      Penalty Free Access to money under 59.5
                      No required minimum distributions at age 70.5
                      Has guaranteed costs, expenses and contribution amounts
                      Can take out a loan over 50K (no limits) vs. 401(k) – No loan repayments required (but it’s in your best interest to pay them back.)
                      Unlimited Investment Options (i.e rental real estate, land, business)
                      Can be used as Collateral (i.e. for loans / small business)
                      Estate Tax Free
                      Liquid (access to funds at anytime without penalty– no hardship required)
                      Disability Protection – automatic funding of retirement if you become disabled
                      Use as your own bank – source of financing
                      Self Completing – if you die income for spouse and children (college education) are paid for
                      Judgment Proof – protection against creditors and lawsuits in many states
                      Potential for Dividends – more beneficial than employer match as it can potentially guarantee future tax free retirement income
                      Protection from future income tax rate increases
                      Guaranteed to grow every year – you know what account will be worth in the future (worst case scenario)
                      Guaranteed retirement income (if structured correctly)
                      Not stock market based – protection against market risk
                      Long Term Care benefits – protects against the costs of health care in retirement
                      Retirement Income Flexibility -Allows you to spend down your other assets in retirement most efficiently
                      Provides money for terminal and chronic illnesses ((I can access up to 50% of my death benefit early if I’m terminally diagnosed))
                      Last but not least…death benefit – money when you need it most..

                      Let’s play that game. This is coming from a guy who knows he will not profit in any way from YOU starting an IBC policy. Fair enough? Ok. Jacob, I think you are a perfect candidate for an IBC policy, and I think it should be a big part of your overall financial picture. Other than the reasons above, here’s why I think that.

                      You are young like me (I just turned 30), so your mortality cost on the insurance portion of it will be less than someone who is older. You’ve got more years of being young than say a 50 yr old, which spread out equals left cost. you have a TON of time to let a WL policy compound, tax-deferred, using it for your own personal costs and investment opportunities at any time. Also, I KNOW for 100% fact that in a drastic economic downturn, you will not lose a penny inside of your policy. We can’t say that about stocks and bonds. All cash values are 100% funded. The insurance company could pay it all out if they had to.

                      I also have to go back to your spreadsheet that you did with Robert. You’re also assuming that you can go out and find loan rates for your purchase (whatever it may be) at a low rate. This will not always be the case. If your FICO score is below 690 right now, you’re going to pay 7.07% on a 60 month note according to Yahoo finance http://autos.yahoo.com/car-finance/ Not everyone has great credit. Also, don’t even bother mentioning 0% interest deals. It’s just a clever form of discounting, and that person with the under 690 score wouldn’t qualify anyway. You’re also paying their taxes too. It’s built in to the price of the car. Can the IBC policy make a whole lot of sense in that situation? You bet it can!

                      A friend of mine who is opening a restaurant next year. The former owner is going to self-finance it for him at 1% first year, 2% second year, then 7% til it’s paid. No early payment penalties. Guess what we’re going to do in year 3? If you guessed throw a chunk into a maxed-out policy and take advantage of that spread, you get an A+!

                      My point is, there are going to be opportunities in your life that do not exist inside of a spreadsheet or vacuum. I love spreadsheets, but as Harry Markopolis said, “There are no straight lines in finance”. He is my hero. He should be a proclaimed a hero of the 21st century, bar none. Cash is King. Having accessible cash that is always compounding will allow you to make more strategic moves than the average bear.

                      Even having your money in that safe muni bond position (smart, I agree. I love tax-free bonds), you do not get 19 of the above benefits for utilizing a strategy that appears comparable on paper. Again, paper. Not real life. In real life, I’d take the life insurance position any day of the week.

                      I don’t expect to change your mind, but I feel- no, I know- that you are missing the boat.

                      Best of luck to you sir,

                      -Kyle
                      Kyle D. recently posted…My CEO Interview – Why I Do What I DoMy Profile

        • Totally agree with you Kyle. I am not a student of Austrian economics but my husband and I have just started our 3rd policy. All I can say is that I feel fortunate to have learned about IBC, BOY or what ever terminology you want to use. Being 55 I wish I could have been introduced to the concept 20 years ago.

          • I’ve got to tell you, Lisa. I am 30 years old and started when I was 27. Wow, you can imagine how blessed I feel. My wife and I recently increased our contributions dramatically, due to my business growing. I started policies for my 27 year old cousin this year and also a husband and wife who are both 26…and a current client started a small one for his infant son. I’m so excited for them, needless to say.

            You’re still in a great position even at 55. You have a risk-free banking system that serves as a source for borrowing and uninterrupted compound interest. How many people do you know who can say that?

            Very happy for you!
            Kyle D. recently posted…My CEO Interview – Why I Do What I DoMy Profile

            • Thanks for all the great, robust discussion points here Kyle.

              I think you are correct – neither of us are going to change one another’s minds on this. However, that’s not a bad thing at all. It’s good to have some discussion and let folks come to their own conclusion.

              Furthermore, I honestly don’t think that IBC is all that terrible – there are positive aspects about it and I will more than likely use one when I have a higher net worth and income and am needing more outlets for tax free investing (not the case right now).

              I just don’t think it is well-suited for the majority of people vs. the alternatives out there of using very stable tax-exempt bond funds in conjunction with other retirement accounts such as Roth IRA, Roth 401ks, 401ks, etc because of all the headaches/confusions/potential of being taken advantage of from whole life policy salespeople.

              You listed out a very informative list of the benefits of IBC, which I will not dispute at all. Below are my comments comparing with using a stable tax exempt bond fund along with more “traditional” tax free, tax deferred, and taxable retirement vehicles:

              I would love to get your thoughts on this.

              1. Tax Deferred (Not Tax Deductible) – Tax exempt bond fund is exempt from federal income tax.

              2. No limits on contributions – also true of tax exempt bond fund

              3. Tax Free income and withdrawals – Tax exempt bond fund is exempt from federal income tax.

              4. No mandatory withholdings – also true of tax exempt bond fund

              5. Tax Free to Heirs – Only useful for high net worth people, not normal individuals due to $5MM estate tax exemption or whatever it is currently – however, this is not guaranteed.

              6. Penalty Free Access to money under 59.5 – also true of tax exempt bond fund

              7. No required minimum distributions at age 70.5 -also true of tax exempt bond fund

              8. Has guaranteed costs, expenses and contribution amounts – I would argue that also true of tax exempt bond fund – Vanguard is very efficient and has been for a long time.

              9. Can take out a loan over 50K (no limits) vs. 401(k) – No loan repayments required (but it’s in your best interest to pay them back.) –

              also true of tax exempt bond fund, except you don’t incur loan spread cost like with IBC

              10. Unlimited Investment Options (i.e rental real estate, land, business) – also true of tax exempt bond fund

              11. Can be used as Collateral (i.e. for loans / small business) – also true with tax exempt bond fund – http://www.inc.com/guides/201101/5-tips-using-collateral-to-secure-a-small-business-loan.html

              12. Estate Tax Free – Only useful for high net worth people, not normal individuals due to $5MM estate tax exemption or whatever it is currently – however, this is not guaranteed.

              13. Liquid (access to funds at anytime without penalty– no hardship required) – also true of tax exempt bond fund

              14. Disability Protection – automatic funding of retirement if you become disabled –

              Question – I am familiar disability waivers on life insurance, stating that if you become disabled, you don’t have to pay insurance premiums, but does life insurance pay a “death benefit” if you are disabled?

              Or, is it just your cash value?

              15. Use as your own bank – source of financing – also true of a tax exempt bond fund

              16. Self Completing – if you die income for spouse and children (college education) are paid for – also true of buying term insurance and investing difference.

              17. Judgment Proof – protection against creditors and lawsuits in many states – this is a clear advantage of IBC/whole life.

              18. Potential for Dividends – more beneficial than employer match as it can potentially guarantee future tax free retirement income – tax exempt bond fund fed income tax free.

              Roth IRA / 401k withdrawals tax free.

              19. Protection from future income tax rate increases – also true of tax exempt bond fund.

              20. Guaranteed to grow every year – although not guaranteed, a stable bond fund is enough for me to cover this.

              21. Guaranteed retirement income (if structured correctly) – also true of tax exempt bond fund.

              22. Not stock market based – protection against market risk – also true of tax exempt bond fund.

              23. Long Term Care benefits – protects against the costs of health care in retirement – also true of tax exempt bond fund.

              24. Retirement Income Flexibility -Allows you to spend down your other assets in retirement most efficiently – also true if use mixture of tax exempt bond fund, tax free, taxable, and tax-deferred vehicles

              25. Provides money for terminal and chronic illnesses ((I can access up to 50% of my death benefit early if I’m terminally diagnosed))

              A nice benefit, but is this also true of term life insurance?

              26. Last but not least…death benefit – money when you need it most..

              I would argue that most people only need a death benefit when they have dependents, ie when you can get term life insurance.

              Lastly, in my spreadsheet that I did with Robert, I do not believe I included a loan from a bank, just a loan from a whole life policy.
              Jacob A Irwin recently posted…Reader Profile – Dojo from Dojo BlogMy Profile

              • Hi Jacob,

                Thanks for your response. I think I’m totally convinced by now that someone tried to foist a WL policy on you at some point, as every response mentions some form of built-in mistrust from anyone having any financial interest in writing policies. Even Robert Murphy, who helped develop a training course to educate the next generation, and doesn’t make a dime if a Practitioner writes a policy That’s a shame.

                “I just don’t think it is well-suited for the majority of people vs. the alternatives out there of using very stable tax-exempt bond funds in conjunction with other retirement accounts such as Roth IRA, Roth 401ks, 401ks, etc because of all the headaches/confusions/potential of being taken advantage of from whole life policy salespeople.”

                I still disagree wholeheartedly. Three things.

                1) You gave a scenario in your spreadsheet of using a policy loan vs. paying cash and then paying back the savings into bonds. I cannot say I’ve ever met anyone who has done that or has even presented the idea. In reality, people are either financing or paying cash, and then replenishing their cash because they feel uneasy about not having liquid savings. In reality, it’s FAR more likely that someone is either operating on a cash basis or a financing basis. My example above with the 7.07% 60mo car loan above is what’s happening in the real world with real people in which case IBC will be a huge benefit for them vs. having their money in cash or going into debt with a bank. Sorry, but I work with clients every day, and even though the knowledge is out there and someone could follow your advice with the bonds, they just don’t. I have to coach them to start a savings plan, for which IBC can be a good fit. We won’t even talk about transaction costs or account fees where you’re keeping those bonds.

                2) You have to remember that when we use qualified plans like the ones listed above, the money is under government regulation and control, subject to early withdrawal penalties/Required Minimum Distributions, and subject to changes in the rules and tax brackets at any time, as per the decisions of the Federal Government. you have no control. They make all of the rules. Also, where is this IRA or 401(k) that has no management fees or trading costs whatsoever? Please don’t be fooled into thinking that there are no-fee accounts out there. http://www.marketwatch.com/story/no-free-lunches-no-fee-free-iras-2013-08-10?pagenumber=2. There’s a drag there at some point. Company match in a 401(k)/403(b) can offset some of this, usually but not always.

                3) Headaches and confusions will not be a factor if you’re working with an ethical financial professional. You have risk of being taken advantage of by anyone selling anything. It’s not exclusive to WL policies. Again, I feel that you’re assuming that all of us are slimy insurance salesmen that must be liars. I’m just reporting that vibe I’m getting here.

                I’m glad to share my thoughts on the list. I said ” you do not get 19 of the above benefits for utilizing a strategy that appears comparable on paper” I’ll put a little O by the ones that share the identical benefit with WL and an X when there is a problem:

                1. Tax Deferred (Not Tax Deductible) – Tax exempt bond fund is exempt from federal income tax.- O

                2. No limits on contributions – also true of tax exempt bond fund- O

                3. Tax Free income and withdrawals – Tax exempt bond fund is exempt from federal income tax.- O

                4. No mandatory withholdings – also true of tax exempt bond fund- O

                5. Tax Free to Heirs – Only useful for high net worth people, not normal individuals due to $5MM estate tax exemption or whatever it is currently – however, this is not guaranteed.- X the rules can change at anytime w/ estate limits. the 5mil increase only happened this year. IBC is always tax-free no matter what.

                6. Penalty Free Access to money under 59.5 – also true of tax exempt bond fund- X only if it’s in a non-government plan. WL cannot be held in these plans.

                7. No required minimum distributions at age 70.5 -also true of tax exempt bond fund- X only if it’s in a non-government plan. WL cannot be held in these plans.

                8. Has guaranteed costs, expenses and contribution amounts – I would argue that also true of tax exempt bond fund – Vanguard is very efficient and has been for a long time.- X It’s nice that Vanguard is good, but not everyone is with Vanguard. Even so, do you know what the yearly account fees or transaction costs will be when you go to sell the bonds? Any trading costs going on?

                9. Can take out a loan over 50K (no limits) vs. 401(k) – No loan repayments required (but it’s in your best interest to pay them back.)
                also true of tax exempt bond fund, except you don’t incur loan spread cost like with IBC – O

                10. Unlimited Investment Options (i.e rental real estate, land, business) – also true of tax exempt bond fund- X Only if you sell the bonds, in which case you no longer have a compounding bond. My Policy goes nowhere and gives me investment interest deduction when I use the investment gains to pay it back.

                11. Can be used as Collateral (i.e. for loans / small business) – also true with tax exempt bond fund – http://www.inc.com/guides/201101/5-tips-using-collateral-to-secure-a-small-business-loan.html- X This is not in any way guaranteed. They do not have to give you a loan because you can show bonds. Policy loans provisions are at-will and guaranteed.

                12. Estate Tax Free – Only useful for high net worth people, not normal individuals due to $5MM estate tax exemption or whatever it is currently – however, this is not guaranteed. O- True, it’s not guaranteed.

                13. Liquid (access to funds at anytime without penalty– no hardship required) – also true of tax exempt bond fund- O and X- True you don’t have to qualify for hardship or anything, but again, you have to pay transaction costs and liquidate the bonds, hopefully at a profit.

                14. Disability Protection – automatic funding of retirement if you become disabled –

                Question – I am familiar disability waivers on life insurance, stating that if you become disabled, you don’t have to pay insurance premiums, but does life insurance pay a “death benefit” if you are disabled?

                Or, is it just your cash value?- Life insurance won’t pay a death benefit if you’re disabled, but many companies will offer an accelerated death benefit if you’ve been diagnosed terminally ill (Ours will give us 50% access to DB early). However, the key here is that they will pay the premium for you if you become disabled via waiver, like you mentioned. If you’re paying 400/mo into IBC and you become disabled, the insurance co will continue your 400/mo payments for you. There are time limits of course. I think 5-10 years is the longest they’ll do that in many cases, but usually if you’re paid in a few years and then have 5 years of additional payments, you can usually cease premiums and still be paid up in the long run…leaving you with a fully functioning banking policy and a permanent death benefit. This happened to a client of my mentor. He paid out 30k over 5 years, and then was disabled for 5 years. They stopped funding it after the 5 year waiver ran out and by then he had 70k cash value and the policy was self-sustaining from there on. Not too shabby!

                15. Use as your own bank – source of financing – also true of a tax exempt bond fund- O True. Nelson even gives an example of banking with CD’s in his book.

                16. Self Completing – if you die income for spouse and children (college education) are paid for – also true of buying term insurance and investing difference- O and X. You’re 100% correct, but when you bring term into the picture, I want to see numbers when you put a strategy next to IBC. Term has a cost, and it grows over time…and those term premiums have opportunity cost. Also, insurability becomes harder to prove as we age, or you may be uninsurable at some point…which would force you to keep Yearly Renewable Term, which is a HORRIBLE idea! That stuff is ridiculous.

                17. Judgment Proof – protection against creditors and lawsuits in many states – this is a clear advantage of IBC/whole life.- O

                18. Potential for Dividends – more beneficial than employer match as it can potentially guarantee future tax free retirement income – tax exempt bond fund fed income tax free.

                Roth IRA / 401k withdrawals tax free.-O and X Keep in mind account fees and such. I know I keep harping on that, but when we show IBC illustrations, its usually net of all fees and commission…and when people show other investment numbers, usually fees and commissions aren’t factored in first because it’s usually done with a financial calculator to come up with the desired numbers…in other words, not being run through a real account. But this is minutia. Don’t mind me.

                19. Protection from future income tax rate increases – also true of tax exempt bond fund.- O- I love this.

                20. Guaranteed to grow every year – although not guaranteed, a stable bond fund is enough for me to cover this.- O- Can’t argue there. I’m not going to talk about default.

                21. Guaranteed retirement income (if structured correctly) – also true of tax exempt bond fund.- O- But are you talking about drawing the interest, or selling off the bonds? It doesn’t really matter. There would be an obvious course of action when the time same.

                22. Not stock market based – protection against market risk – also true of tax exempt bond fund.- X Taking your liquidy comments above, I’d be careful assuming this. The value of bonds can and will drop as interest rates rise. If you need to cash out, this could really hurt your bottom line.

                23. Long Term Care benefits – protects against the costs of health care in retirement – also true of tax exempt bond fund.- X How do you mean? I know I can leverage death benefit for LTC costs without hurting my cash value. (This part is VERY NEW for me, so I probably couldn’t answer much as far as details, yet.)

                24. Retirement Income Flexibility -Allows you to spend down your other assets in retirement most efficiently – also true if use mixture of tax exempt bond fund, tax free, taxable, and tax-deferred vehicles- O- Definitely.

                25. Provides money for terminal and chronic illnesses ((I can access up to 50% of my death benefit early if I’m terminally diagnosed))

                A nice benefit, but is this also true of term life insurance?- X- Yes, it can be, but again that has a cost, which we need to factor in. It’s already rolled into IBC numbers.

                26. Last but not least…death benefit – money when you need it most..
                I would argue that most people only need a death benefit when they have dependents, ie when you can get term life insurance. O and X- It’s more of a want than a need. A lot of people use future death benefit for planned giving, but of course I see your point.

                Ahhhh, looks like you got me. My 19 number was off on IBC having benefits that bonds didnt. It was only 15! Oh well. Can’t win em all…although if I promised myself I wouldn’t bring up default possibility for obvious reasons…if you’re in bond funds, you’re good. However, I’d get my license pulled for claiming some of those things about bonds. You can’t say that to clients. Such as, “22. Not stock market based – protection against market risk – also true of tax exempt bond fund.” I’d be roasted and lose my license in 2 seconds flat for that one!

                I appreciate the discussion about this. I also appreciate that you’re not the usual “12% mutual fund” guy that I have to deal with often.

                Again, I wish you the best and I still think you should consider starting a policy for yourself. It is the ideal resting place for capital. someone has to play the function of banker in your life. You might as well do it yourself and make what the banks would otherwise make off of you, tax-free. Later in life, who knows? You may even find yourself paying off your house early via policy loan and still being able to claim the mortgage interest deduction. A nice little trick 🙂

                All the best!
                Kyle D. recently posted…Why a 401(k)/403(b) Could Be a Death TrapMy Profile

              • Hi Jacob, just browsing through the post where you are comparing BOY to tax exempt bonds. I have NO experience in bonds but on your last comment regarding death benefit..”I would argue that most people only need a death benefit when they have dependents, ie when you can get term life insurance.”
                This in one where I have experience in:) At 37 my husband and I took out a 20 yr term policy because our retirement accounts were doing well and we knew we would be on the mark to retire at appx 60. Well that didnt happen..lost alot of money in the market. We have finally past the mark of money that we have contributed. We are no where near retirement. Our children are grown , we are 56 & 58, and my term policy will expire worthless in appx 1 year. I can renew of course, and my yearly premiums go from $480/year to $9400/year. And the bottom line is that we are likely to live another 30 years. We are no where near where we need to be in our retirements, after putting away appx 20% per year into retirement.
                Hindsight is 20/20 and I can only speak for myself, but one of my biggest Mulligans would be to set up CV whole life policies with a reputable advisor starting in my 30’s. I can tell that our financial future would look a lot different. So what am I trying to say? We are in our late 50’s and STILL need life insurance, because our retirement currently wont hold us pas 12 years of retirement at TODAYS inflations…

  16. I appreciate all your effort that has gone into this. I am a relative novice in personal finance, and I only just recently have become aware of this concept as it was introduced to me by my insurance agent (who told me it took him over 2 years to understand this…). I have spent only a fraction of the amount of time trying to research this that you have, but I am quite skeptical/confused as well. What you have here is the most complete and seemingly fair treatment of the topic that I have seen so far. It seems strange to me that there aren’t many really detailed projections with side-by-side comparisons, aside from what you can find in the insurance-industry published marketing material, which often have essentially straw man comparisons (investing in CDs or other low yield vehicles, ignoring the tax benefits of investing in your employer-sponsored 401K, Roth IRA, HSA, making weird assumptions about tax code, etc).

    However, I still find the issue of using it as a financing tool alluring, and I take issue with your 2 illustrations above. First, in your response to Karen on 8/8 above, you provide the illustration of a $100,000 loan with a 1 year term, with a hypothetical 5% interest rate and earning 4.5% in a non-direct recognition WL policy. You incorrectly state that the total interest paid on that loan would be $5,000, vs earning $4500, and demonstrating a net LOSS of $500 to borrow her own money. If you actually amortize a $100,000 loan over 1 year you’d see that the total interest paid is in fact only $2728.98 (because of reductions in the principal), and you would in fact earn $4,500 in the WL policy, for a net GAIN of $1771.02. That sounds like a winning proposition.

    The second issue I have is with your illustration in your last post, of the $5000 loan vs $5000 in a savings account. Of course if the rates of return on the WL policy and the savings account are equal (7%), you will end up with equal amounts after 5 years, that’s not really surprising. But why on earth would you assume a 7% return on a savings account?? Certainly in years past this might have been possible, but if interest rates on savings accounts go that high again, presumably the internal rate of return in the WL policy would also increase proportionally. It seems very unlikely that the interest rate on a savings account will ever be equal to the rate of return on a WL policy. Maybe I’m wrong about that, and maybe somebody has historical data showing the MMA rates against WL rates. That would be interesting.

    I do agree that it seems that this concept would only be useful when you are already addressing your retirement needs through more conventional means, and I don’t really see how WL can be superior to those for retirement planning, for which you ought to give up your liquidity during your accumulation years anyway. Also, I don’t plan on financing much of anything in my future aside from my mortgage, so there is no initially obvious appeal to me for financing a home stereo system or something that no one should EVER finance in the first place. However, there is a reality that even if we are very frugal and reasonable with our spending and saving for retirement, there are still going to be large ticket purchases in life that most of us can’t simply pay for out of one or two paychecks (autos, major home renovations, repairs, etc). Many of these are recurrent/perpetual as well, not something you just save up for and spend once (like a downpayment on a house or a college education). In some sense you are always preparing for or recovering from the next big expense, whether you mean to be or not. There are 2 conventional options: borrow from a lender, or save it up in a savings account. Saving up is clearly superior to borrowing for most things, and for anything that depreciates. But if you can use a WL policy as a savings account for these types of purchases, earning 4-5% interest even when you’ve taken out the money, it seems that would be superior to a conventional MMA earning 1%. At the end of the day, I do agree that the time and effort to carefully select the right agent, right policy, remain vigilant and educated about this complex financial instrument may not ultimately be worth it.

    • Hi Matt! Thanks so much for reading and for all the insightful questions. You’ve made me really think about some things here! I think you and I are on the same page – I really would like to believe in this strategy and I do think it has a place, you just have to educate yourself to protect what you’re getting in to.

      Let’s take a look at some of your points/questions and see if I can provide some answers:

      1. You mentioned – “First, in your response to Karen on 8/8 above, you provide the illustration of a $100,000 loan with a 1 year term, with a hypothetical 5% interest rate and earning 4.5% in a non-direct recognition WL policy. You incorrectly state that the total interest paid on that loan would be $5,000, vs earning $4500, and demonstrating a net LOSS of $500 to borrow her own money. If you actually amortize a $100,000 loan over 1 year you’d see that the total interest paid is in fact only $2728.98 (because of reductions in the principal), and you would in fact earn $4,500 in the WL policy, for a net GAIN of $1771.02. That sounds like a winning proposition.”

      I definitely admit that when I first wrote this post, I forgot to consider amortization of a policy loan, which didn’t affect too much since my original analysis was more based on using this strategy as a retirement funding method, instead of a short-term financing method.

      However, your question brings up a good point/question. With whole life policy loans, is the interest amortized/re-evaluated/accrued monthly or on an annual basis? In looking online, I am still not sure which is the case. I found one article indicating that it might be annually (http://www.newyorklife.com/nyl/v/index.jsp?vgnextoid=291447bb939d2210a2b3019d221024301cacRCRD), but then in reading nelson Nash’s policy loan mechanics article, it states that it might be monthly. If it is monthly, then making monthly payments would reduce the loan principal of the 1 year loan, and I agree, it would be less than the $5000 interest I stated.

      2. You mentioned that assuming a 7% interest rate on a liquid/secure savings account isn’t realistic in this day and age. I agree for sure. I was just stating that as a comparison with the reader’s example. Based on the research I did for the original post, I found that 1) a good assumed cash value increase % is 4.5% per year for a whole life policy, 2) a good liquid savings vehicle I would use for comparison is the Vanguard Short-Term Tax Exempt Bond Fund, which invests in federal tax-exempt municipal bonds with 1-2 year maturities. Since inception in 1977, it has averaged a before-tax return of 4.33% per year, which equates to a 4.05% after-tax return.

      If we were to re-run that scenario analysis from the Sep 30th comment using realistic whole life loan interest rate of 5%, WL cash value increase rates of 4.5%, and the Vanguard Short-Term savings vehicle after tax return of 4.05%, I think it would turn out with about the same conclusion.
      Jacob A Irwin recently posted…Credit Card Myths: DebunkedMy Profile

      • Thanks for your thoughtful reply. A couple other thoughts:

        1. It would be interesting to know how often the interest is re-evaluated on a policy loan. If it were only annually, then in the example you gave it wouldn’t matter, but I doubt that is the case. I would assume it re-calculates every time you make a reduction in the principal, as this is how it works with virtually every other type of loan that I’m aware of. Also, your example of borrowing a large sum of money for only a year is probably not the best use of this concept either. If I can pay it back in a year, the opportunity costs with respect to the time value of money weren’t that great. I’m more interested I suppose in the possibility of using the method to finance purchases that I might take 2-3 years to save for in a conventional savings account.

        2. With re: to your comparison of a low-cost bond fund like VWSTX, I don’t think it’s fair if we’re talking about SHORT TERM financing to use the LONG TERM 36 year rate of return as the comparison, especially when that 36 years includes the 1980s. The 3, 5, and 10 year rates for this fund are 0.83%, 1.65%, and 2.09% respectively–hardly in the ballpark of a 4-5% return on your WL cash value you could get today. I know we’re at a time of historically low interest rates, but all that proves is that there are likely to be long periods of time where a liquid short term savings vehicle with returns comparable to WL cash value doesn’t exist.

        • Hey Matt! Thanks for stopping by again. Again, you’ve made some of the most intellectual and insightful comments I’ve seen around this topic.

          @ # 1 – I’m still not sure exactly how often the interest is re-evaluated. If you find out about that, I’d love for you to share!

          @ # 2 – You make a good point. At the PRESENT TIME in 2013, provided that you had a fully funded (capitalized) policy, then I would have to agree that short-term financing (with payback of your own money) from your WL policy would put you ahead compared to doing something similar.

          Indeed, the fact that short term financing using a WL policy is advantageous at this present time in history is probably why it is getting more press recently. The same sort of thing happened a year or so ago with Harry Browne’s Permanent Portfolio because our financial environment made it so that gold and long term bonds were outperforming so much, so more people started buying in to it.

          However, for me personally, the fact that short term borrowing from a WL policy is attractive RIGHT NOW alone doesn’t convince me that it is right to jump in to a WL policy, which is a very LONG-TERM commitment. There are several reasons I think this way – 1) It takes 7-10 years to capitalize a policy to the point where you can actually earn 4-5% annual returns, and 2) we as humans are historically very terrible at predicting the future of the stock market and/or interest rates, so I wouldn’t trust myself to make that kind of a call based on shorter term interest rate behavior.

          I look forward to hearing your thoughts!
          Jacob A Irwin recently posted…Should You Start A Family In Your Mid 20’s?My Profile

          • I remember in the late ’90s getting near 5% on a 6 month CD, so yeah I agree, the current interest rate environment likely has a great deal to do with the current appeal of this concept.

            I think all in all, I’m probably not going to pursue the IB/BOY concept, mostly for the reasons you espoused above. The most telling point is the lack of promotion for this idea outside of people selling WL policies, and the amount of time and energy that would be involved on my part to carefully select and manage the policy. I enjoy managing my personal finances, but I enjoy many other things as well, and I’m just not convinced it’s worth my time. I also like a fair amount of freedom and liquidity in the allocation of my investments and the ability to leave them if my philosophy or life circumstances were to change. This is a pretty substantial long term commitment to make this successful, and a pretty significant risk if you were suddenly unable to make your premium payments due to a loss of employment or a new unanticipated recurring financial obligation. If a similar instrument existed without being tied up with WL insurance (for which I have no use), I would probably be more inclined to pursue it, especially if it was offered by a bank or other financial institution and didn’t have to be sold to me by a commissioned rep.

            Thanks for the back-and-forth, all your investigative work that went into writing this post, and the fairest and most balanced treatment of this topic that I’ve found!

        • Matt, I always have one or two policy loans going and my interest is recalculated yearly.

  17. Well, since we seem to have some knowledgeable folks actively discussing this, I’ll ask a question/give some feedback on my experience.
    I have a WL policy with NYL and recently purchased a new car. I first took out a loan from my credit union where I got a great rate of 2% APR. I decided to try out the IBC and found out some very interesting things:
    1) Nash seems to indicate that if I take a policy loan that the cash comes from my account and the interest paid then along with the principle returns to my account. This is not true for NYL. The loan comes from some general pool and so the interest on the loan also goes back to the general pool. NY claims this is OK because while the money is loaned out, they still pay me my full dividend on the cash value of my policy as if no loan had been taken. I’m skeptical, but that’s what they claim.
    2) If I take a loan and pay it back, the value of my WL policy does not increase. I have illustrations I was given from NYL to prove it.
    3) The rate on their loan was about 4.5% when I asked and the dividend was around 5%. So, while some might argue that the effective rate of the loan was -0.5% (just go with it, I know it sounds crazy and I have a feeling if I had gotten farther into the process I would have been told this was incorrect.) the reality was that since the 4.5% wasn’t going back into my account, it seemed somewhat silly to do this.
    4) So I could not figure out how I was supposed to make this work practically speaking. It seemed that it would work if a) the interest rate I was being charged “outside” was > than the interest rate from NYL and I send in the monetary difference to NYL as additional payment toward cash value or some other increase in coverage or b) I should have added some other rider to my policy to make the IBC work that I’m not aware of.

    I’d love to hear from Kyle — who seems to have some experience here — his insights into how he actually implements IBC and if what I’ve been told/inferred (#1,2,3,4) are in keeping with his understanding. Maybe it just is not possible with NYL.

    I have to say that my financial planner was also stumped, and she was the one who gave me the Nash book in the first place. She indicated that my 2% loan was unusual and that in other cases IBC “would work better”, but I’ve got my doubts because of points #1 and #2. She actually arranged for me to talk with the NYL specialist and I’m still confused. And I will add that I have advanced degrees in engineering — so it is not that the math is too hard…

    • Some great questions Karen. It’s also awesome to hear from someone who has real life experience with executing this strategy with a “live” policy.

      I’m definitely with you on how confusing this stuff can get. It seems like every time I start pondering IBC, I start thinking myself in circles, which does not happen with many financial strategies.

      Below are my takes/input on your points. I look forward to hearing what others say as well!

      “1) Nash seems to indicate that if I take a policy loan that the cash comes from my account and the interest paid then along with the principle returns to my account. This is not true for NYL. The loan comes from some general pool and so the interest on the loan also goes back to the general pool. NY claims this is OK because while the money is loaned out, they still pay me my full dividend on the cash value of my policy as if no loan had been taken. I’m skeptical, but that’s what they claim.”

      This is a common misconception about policy loans with whole life insurance. With all companies I know of, the policy loan comes from a general company wide account, NOT from your policy’s cash value. In fact, it is this aspect that makes it tax free b/c it is a loan and not a return of your own money/earnings. So, when you pay back the loan, it DOES NOT go back to your account directly. It is paid back to the company, along with interest. The company then releases the lien it has on your policy’s death benefit or cash value, depending on structure.

      “2) If I take a loan and pay it back, the value of my WL policy does not increase. I have illustrations I was given from NYL to prove it.”

      I’m not sure what you’re asking here. Could you clarify if this result was different than you were expecting/told?

      “3) The rate on their loan was about 4.5% when I asked and the dividend was around 5%. So, while some might argue that the effective rate of the loan was -0.5% (just go with it, I know it sounds crazy and I have a feeling if I had gotten farther into the process I would have been told this was incorrect.) the reality was that since the 4.5% wasn’t going back into my account, it seemed somewhat silly to do this.”

      This is actually quite possible. An IBC salesman I talked to showed me Lafayette’s current dividend rates and policy loan interest rates, and although the spread is generally +0.5% in the direction of the loan interest rate being higher, there were/are time periods when the dividend rate can be slightly higher than the loan rate.

      “4) So I could not figure out how I was supposed to make this work practically speaking. It seemed that it would work if a) the interest rate I was being charged “outside” was > than the interest rate from NYL and I send in the monetary difference to NYL as additional payment toward cash value or some other increase in coverage or b) I should have added some other rider to my policy to make the IBC work that I’m not aware of. ”

      I’m a little confused on what you mean here. What is your definition of “making it work practically speaking?”
      Jacob A Irwin recently posted…Reader Profile – Dojo from Dojo BlogMy Profile

    • Hey Karen,

      I’m going to try and answer your questions with as little fluff as possible (even though I know myself and it’ll probably be loaded…see?). You hit on some very important subjects inside of IBC, and even some people who claim to practice IBC don’t necessarily know the answers. Also, you made me laugh out loud with your engineering degree comment. You are probably better at math than all of us ;). By the way, get your Becoming your Own Banker book out. You’re might want to reference.

      “1) Nash seems to indicate that if I take a policy loan that the cash comes from my account and the interest paid then along with the principle returns to my account. This is not true for NYL. The loan comes from some general pool and so the interest on the loan also goes back to the general pool. NY claims this is OK because while the money is loaned out, they still pay me my full dividend on the cash value of my policy as if no loan had been taken. I’m skeptical, but that’s what they claim.”

      The claims from NYL are correct on all counts. I was trying to find the wording that Nelson used about loaning and returning from your account. I think if you turn to page 26, it’l all pop into focus. Yes, your account cash value is what’s available to you alone, but it all comes from the same pool. All of the premiums paid go into the general pool. All of the cash values are in the general pool. The amount of cash value in your policy is just how much they are willing to lend to YOU from that general pool, and that number is governed by your equity in your policy. That’s where expenses come from, that’s where death claims come from, and that’s where they lend from to earn interest. The insurance companies have to lend money to pay promised death claims later. If it’s not to you, it’s going to be to others. And yes, NYL will pay you a full dividend even if there’s a loan. Example: You have 50k cash values and you borrow 30k of it. You’re still going to earn a dividend in relation to the entire 50k, not just the remaining 20. This is because NYL is a non-direct recognition company, and that’s what that term means. I understand you being skeptical about that. I get funny looks EVERY TIME I explain that to someone, but it’s worked that way for 200 years. Also, I want to put to bed forever something that life insurance agents like to claim, since we’re on the topic…

      Direct vs. Non-Direct recognition of dividends. One is not necessarily better than the other. There are non-direct companies (like the policies I own) that currently, in real life, pay a 6% dividend, flat, regardless of policy loans. There are direct recognition companies that currently pay a 7% dividend on funds that are not being loaned and 4% on loaned funds. Can you say for 100% that one is better than the other? Nope. Me neither. The math is completely dependent on the lifetime loan use of the policy, which is not something we can necessarily predict. We might need to take the money at some point for a reason we never saw coming…that’s just life. So, the Direct vs. Non-Direct argument is just hot air. I’ve said this exact same thing to some NYL guys here in town and they had no idea. These companies teach you what they want you to know…

      2) If I take a loan and pay it back, the value of my WL policy does not increase. I have illustrations I was given from NYL to prove it.

      This is going to be long. Yes yes yes! You couldn’t be more correct!!! If you take a loan, and pay the loan back at the current policy loan rate, it will NOT cause your cash values to increase. It’ll be right back where it was as if you never took a loan(with a non-direct company) which at face value is a big deal. You just used money for your own purposes, paid the loan back, and still earned interest on it at the same time. That does not happen (that simply, mind you. home equity anyone?) anywhere else but inside of an insurance contract. After I first read Becoming Your Own Banker, I was in a mental coma for days trying to replicate what Nash showed in the book. I was clueless to what was really going on because I could not get my software to do that stuff!

      However, doing what I just described is NOT what Nash was describing…not by a long shot.

      If you look at his famous “Equipment Financing” chapter starting on page 51, this is where EVERYONE gets off track. The illustration on pg. 54. this is showing a 4-year capitalization period, which would have to be longer today because dividends are down, yes we understand that. Look up in the top left hand corner. You’ll see how the policy is designed with a $14,999.99 base premium and a $25,000 paid up additions rider. (Fun fact for you. That base premium is what we, the practitioners, get paid on. The paid up additions are almost negligible. Your imagination can fill in the blanks with what might happen with a less than ethical person. That person wouldn’t be able to do what we’re doing though. They wouldn’t have enough cash value as quickly.)

      What is going on there is 25k of that 40k premium is going straight into fully paid up additional insurance benefit each year on top of the initial death benefit of 1.2 million. Those paid up portions are almost fully liquid because no further premium is required to assure that extra death benefit. Look how the death benefit rises sharply in the first 4 policy years on pg. 54. So, each year, they are adding 25k worth of additional 1 shot bursts of fully paid up insurance that never goes away. (hence 24k of that 25k being accessible immediately in cash values in year 1. If there weren’t a paid up additions rider, you’d have to wait til the first dividend was paid at the first policy anniversary, which would buy paid up additions, which would then grant access to cash value on an increasing basis. Now, between year 5 and year 16, I want you to look at the death benefit. It’s dropping, isn’t it? There is 0 premium after the first 4 years going in…therefore to keep the policy alive, we have eat up some of those liquid paid up additions in order to make our premium of $14,999.99- the BASE premium (The only reason we have to do it this way is because of the government MEC line. Otherwise, we could lump it all into the first year and be done with it.) Now, look at what the dividends are doing in those first years. They are starting to grow. Look at the dividend at year 17, and look at the death benefit on year 17. The dividend is bigger than the base premium and the death benefit is starting to rise again! That’s because the dividend is more than enough to cover the premium now and will be forever and ever. The excess dividend above the 15k base premium will buy paid up additions to increase cash value and compounding.

      HERE IS THE KEY TO THIS ENTIRE EXAMPLE: This policy, starting in year 5, can accept up to $14,999.99 of premium each year. If we don’t pay it, the paid up additions and dividends will do that for us. That’s what makes this whole example work.

      What Nelson says to do, and i’m paraphrasing, “When you take a loan from the policy, you want to pay it back at a rate equal to or greater than what the finance companies would have charged you for that same loan.” The illustration on page 59 is showing exactly that. The loans he is taking, he is paying back at 15% when the policy only calls for 8%. He does this because he is playing “honest banker” and the rate that the equipment lender was going to charge him on a commercial loan was just above 15% (See pg 56, and you can see the auto loan package and the interest being charged. Also, since he is self financing it, he doesn’t have to pay for insurance on it like he would if he were using a lender.) That results in the loan being paid back early, and the extra capital is going into the policy as more premium, which adds to the compounding base of your policy.

      BOTTOM LINE: He would have had to pay 15% interest through the lender. He used his policy to borrow at 8% but still paid back at 15%. Since the policy can accept up to $14,999.99 of premium each year, that extra “interest” is going into the policy as extra premium…meaning more cash value over the life of the policy.

      3) The rate on their loan was about 4.5% when I asked and the dividend was around 5%. So, while some might argue that the effective rate of the loan was -0.5% (just go with it, I know it sounds crazy and I have a feeling if I had gotten farther into the process I would have been told this was incorrect.) the reality was that since the 4.5% wasn’t going back into my account, it seemed somewhat silly to do this.

      If you can find a loan rate better rate than 4.5% and get approved for it, you’re right. It would be silly to pay extra interest since the required interest on the loan does not go to you. However…don’t get suckered into low interest rates that are really just a clever form of discounting. A lot of them are teaser rates anyway. There’s no such thing as 0% APR…it’s an illusion. If you search the topic and read into it a bit, you’ll see what I mean. Cash is king. You can find some incredible deals if you’re a cash buyer…and you might find investment opportunities that you weren’t expecting.

      4) So I could not figure out how I was supposed to make this work practically speaking. It seemed that it would work if a) the interest rate I was being charged “outside” was > than the interest rate from NYL and I send in the monetary difference to NYL as additional payment toward cash value or some other increase in coverage or b) I should have added some other rider to my policy to make the IBC work that I’m not aware of.

      I think most of this was already covered above.

      Final thoughts:
      I want you to look at this chart here. http://www.moneycafe.com/personal-finance/prime-rate-history/ This is the history of Prime Interest Rate from 1930 to the present. We have depression-like interest rates right now which is heavily distorting people’s view and use of money. Now, we as common folk, we don’t get prime rate. We have to pay 1.5% over prime in most cases. *When* interest rates rise again, IBC puts you in a position of control. In the early 80’s prime rate peaked at 21.5%…which means that we would be charged 23%. People with life insurance cash values had access to capital at lower rates. Nelson had borrowing power in his policies at that same time at 5%, 6%, and 8% interest. It got him out of a LOT of trouble. He describes the whole mess on pages 12-13.

      Right now, IBC can have the outward appearance of being a raw deal once you scratch the surface and dig a little bit into it…and it’s mostly because all people look at is present interest rates and present rates of return. These things won’t last. They never do. It’s a cycle. What position do you want to be in when rates rise and we’re paying 8-10% on regular loans? I see tremendous opportunity to set ourselves up to win the game using IBC.

      IBC only requires 4 things of you:

      1) Long-Range Thinking
      2) Don’t be afraid to capitalize. The more you put in, the more you’ll have.
      3) Don’t steal the peas. Don’t rob your bank by not paying back loans. (Dividends can pay a loan back for you, but it’s not ideal. If you get strapped for cash, well, at least you have this option.)
      4) Don’t do business with banks. They create money out of thin air and are an engine for inflation. Every time you take a loan from a bank, it is inflationary. http://radiofreethinker.files.wordpress.com/2012/01/fractionalreservebanking.png

      All the best,
      -Kyle
      Kyle D. recently posted…Why a 401(k)/403(b) Could Be a Death TrapMy Profile

  18. 2) If I take a loan and pay it back, the value of my WL policy does not increase. I have illustrations I was given from NYL to prove it.”

    I’m not sure what you’re asking here. Could you clarify if this result was different than you were expecting/told?

    So if I take a loan and pay it back, there is no difference in the value of the policy. According to the Nash book, when I pay back the loan the value of my policy should increase. But it does not. So they only way for the value of the policy to increase is if you over pay the loan back. For example:

    Case A: Bank Loan @ 6%, WL policy loan @ 4.5 % — Instead of just paying back my loan @ 4.5% I’d have to pay back the additional 1.5% and ask my agent to put the this extra as cash value into my policy.

    Case B: Bank Loan @ 2%, WL policy loan @4.5% — If I pay back the 4.5% loan, then my policy has no additional money put into it, and thus remains at the same value as it would have been if I had not taken the loan.

    So for my situation it was Case B. But according to the Nash book it sounded like it should be Case A.

    If you have the book this comes from pg 52. ” The extra cash flow becomes capita) in the system and
    enables his “gophers” at the life insurance company to lend more money to all those other borrowers.
    This extra money does not go to the general portfolio of the company-it goes to his policy that is being
    administered by the company on his behalf. So, examine illustration #2 closely. Note the
    year 5, column 1 and you see (-) $34,600 expressed lS an outlay. That is “shorthand” for the fact that he
    jorrowed $52,600 that year and paid back $18,000 S1,500 per month). Notice that the debt is being
    reduced to zero at the end of four years. Remember that the policy loan provision calls for interest at 8%
    – but he is repaying his policy at the rate of a bit over 15%. It should be obvious that he will repay
    the loan before the four years are up. The additional S l ,500 per month becomes additional premiums and
    adds to the capital base. Go to line 36 (his age 65) and look at the cash value now in comparison with the previous
    illustration. Note that the cash value is now 51,988,254 compared with $1,517,320. He made 5470,934 by financing just one truck with his bank!

    • One more thing Karen,

      “If you have the book this comes from pg 52. ” The extra cash flow becomes capita) in the system and enables his “gophers” at the life insurance company to lend more money to all those other borrowers.
      This extra money does not go to the general portfolio of the company-it goes to his policy that is being administered by the company on his behalf. So, examine illustration #2 closely. Note the
      year 5, column 1 and you see (-) $34,600 expressed lS an outlay. That is “shorthand” for the fact that he borrowed $52,600 that year and paid back $18,000 S1,500 per month). Notice that the debt is being reduced to zero at the end of four years. Remember that the policy loan provision calls for interest at 8%
      – but he is repaying his policy at the rate of a bit over 15%. It should be obvious that he will repay
      the loan before the four years are up. The additional S l ,500 per month becomes additional premiums and adds to the capital base. Go to line 36 (his age 65) and look at the cash value now in comparison with the previous illustration. Note that the cash value is now $1,988,254 compared with $1,517,320. He made $470,934 by financing just one truck with his bank!”

      This is 100% accurate. If you did that at today’s policy loan rates (4-5% not 8%) he’d have even more cash at age 65. He’s just playing “honest banker” with himself and adding more cash to his system opposed to the alternative of paying 15% interest to someone else’s bank. It’s brilliant.

      Like I said in my other post, it’s kind of distorted by today’s extremely low interest rate environment, but if you look at that interest chart again http://www.moneycafe.com/personal-finance/prime-rate-history/ and understand that it’s all cyclical, your imagination will quickly see how IBC can really set you up for success over a lifetime. Long range thinking.

      Page 55, the “Great Wall of China” example is a great little piece to help people understand finance. The finance companies are borrowing a lot of that money from insurance companies and then chopping it up and selling it off as loans to you and me. IBC eliminates the middleman.
      Kyle D. recently posted…Why a 401(k)/403(b) Could Be a Death TrapMy Profile

  19. 4) So I could not figure out how I was supposed to make this work practically speaking. It seemed that it would work if a) the interest rate I was being charged “outside” was > than the interest rate from NYL and I send in the monetary difference to NYL as additional payment toward cash value or some other increase in coverage or b) I should have added some other rider to my policy to make the IBC work that I’m not aware of. ”

    I’m a little confused on what you mean here. What is your definition of “making it work practically speaking?”

    I mean just that if you can go out commercially and get a loan at a lower interest rate than the policy loan rate, I’m not sure how IBC can ever work. So I’m assuming this inversion of bank to policy loan rates is a fluke of the 2008 financial crisis. But this is an assumption. I’d really like to hear from someone who has done the IBC to understand how it works.

    • Thanks so much to Kyle and Karen for sparking some great discussion here! 🙂

      Karen – I’d be very interested to hear your take on whether policy loans seem like something worth pursuing after synthesizing Kyle’s feedback on your above questions. Thanks!
      Jacob A Irwin recently posted…How To Learn More About Finance Without Boring Yourself to TearsMy Profile

      • My assessment after getting very close to doing the IBC with a WL insurance policy from NYL is that the IBC could work, but the current economic climate is not ideal for it because borrowing costs are so low.

        I do believe that the IBC should really be seen as something to do after you are doing all the other more obvious, and lest overhead/costly investment options. For example, I’m already socking 15% of my income into a retirement account and another 5% into shorter term investments most of which are in stocks & bonds (or collections of these like mutual funds, index funds, etc.) It is also something to consider if you are in a higher tax bracket because then the tax free growth is key. Again, all my income (from investments) is going to be taxed at the >25% point. So the fact that insurance growth is guaranteed is appealing and the fact that they are mostly invested in long term, low risk investments is also appealing.

        So I’ll try again later to use IBC, but when commercial borrowing costs are less than the borrowing cost from your WL policy, then it does not work. It only works if you find commercial borrowing costs higher than your WL policy and then you pay back your WL loan as if it were the commercial loan. It will be important to tell your insurance agent how you want the repayment money applied. For example, if not properly instructed they would likely apply all of your payment (principle + interest + difference between commercial & WL interest) directly back to your WL loan. Instead you want to put some of it back as additional cash value. (You can of course pay off your loan by doing the above, and then transfer the remaining payments to your additional cash value). Either way the amount of money you pay and the number of payments should be the same to your WL loan as to your commercial loan. The way you repay may have some impact on MEC — your agent can tell you.

        If you are going to use the IBC with your WL policy, you should be sure to tell your insurance agent because they can structure the policy to help you to avoid MEC (if you go over MEC then you have to pay tax).

        If you like the idea of the IBC with whole life, but don’t like the idea of the slow growth of WL, and you feel you have not already over exposed to the stock market, you may be able to do this with other types of Insurance Policies such as variable life or universal life. But if you are confused by WL, then stay away from variable or universal, it only gets more complicated.

        • Karen,

          What you have to realize is that interest rates are cyclical. If you look at the chart I provided for you above, you have to admit that we are in depression-like interest rates right now. It will not last. It never does. Also, not every loan out there sits a point and half above prime. Go out and try to borrow some money. You’ll see what I mean. Real life is different than conversation on the internet. Also, it’s my understanding that NYL’s mortality cost is pretty high and their loan rates are like 6-8%. Correct me if I’m wrong. I have policies with Ohio National. Lowest mortality cost in the business and right now the loan rates are 4.4%.

          I think you need to address your idea of timing when you say, “I’ll try again later”. It is going to take time for you to build up cash values. You won’t get to that point where you can take a reasonable loan for a while (unless of course, you’re putting in large premiums. Most people aren’t though). If you wait years to implement this, you might never have time to benefit from it. If interest rates went up tomorrow, you would not be able to leverage cash values because you have none, even though the market interest rates might make IBC look much more appealing to you at that point. When rates get pushed up, you have to be ready with a strategy like this.

          I live in Florida. To me, this would be like saying, “I don’t need to get my air conditioner fixed because it’s winter right now and I’m not hot in the house. I’ll fix it when it gets hot” The day I wake up sweating, I don’t automatically get access to an A/C tech. It might take time for them to work me into their schedule. What if they have to order a part and it will take another week? All the while, I’m having to suffer higher temperatures. Suffering higher interest rates because you have no cash value collateral built up beforehand…it’s the same thing.

          Also…apple and oranges. You’re putting 15% into a retirement account. I don’t know what you’re invested in or what type of “retirement account” you have, but the tax rules and safety of those type of accounts usually do not make them comparable to IBC. If it’s a government qualified plan, remember they have full discretion to change the rules at any time on those things…

          I want you to know that you know more about IBC than most agents I know. You give the sales force too much credit 😉

          All the best,
          -Kyle
          Kyle D. recently posted…My CEO Interview – Why I Do What I DoMy Profile

          • Yes, I get that. I think you interpreted my “try again later” phrase to mean that I will try later to buy WL insurance for the purpose of IBC. Instead I meant that I will try again later to use my WL insurance to fund a loan instead of taking a commercial loan.

          • Hi Kevin, just recently signed up for Ohio as well – the Prestige 10 Pay. I went with them mostly because of the ONL reputation and the loan structure. However, their CV is a lot lower first year – more like 20% vs. the 50+ % that is recommended in the article. What were your thoughts on that?

  20. Kyle,

    Going back for a minute to your list of benefits of IBC: could we add a 27th benefit — ‘sheltering assets from view of college financial planning offices’? This is a benefit that our financial adviser is promoting to us. I’m having a hard time finding information on others using IBC for this benefit and their experience with it for this purpose. Thank you for any thoughts you have on this idea as it relates to IBC. Also, how can I get a copy of ‘Becoming Your Own Banker’. Thanks. Christine in Georgia

    • Hi Christine,

      I do know that life insurance cash values don’t factor in to financial aid calculations…but that’s about it. I don’t really like to promote IBC as a way to shelter assets. That’s not why I’d recommend someone do it, but yes, it will get the job done. I can’t say I have personal experience with people using it for this purpose specifically, although I’m sure there have been plenty of situations where it’s helped behind the scenes.

      You can get a copy of the book from the IBC website https://www.infinitebanking.org/ and just click on Store at the top. You can order a hard copy or a digital e-book download through the store. I buy them by the case. I’ve got 20 copies left before I have to order more. I’d also recommend picking up the “Banking with Life” DVD. Watch the little preview and you’ll get a sense why.

      I do not make any money off of the sale of these items. I know they will help you. I can’t believe that someone has spoken with you about IBC and not sold/given you a copy of the book. That’s a big No-No among authorized practitioners. Everyone needs to read that book. I’m putting together a video introduction to IBC pretty soon. Let me know if you’d like a copy and I can send it over when it’s done.

      All the best to ya!
      -Kyle
      Kyle D. recently posted…My CEO Interview – Why I Do What I DoMy Profile

  21. Fledgling Self-Banker says:

    Hi, all. A bit of web surfing for an IBC annuity calculator and insomnia led me here.

    To aid with the perspective: I am a 31 yr old male, making a decent living as an auditor. I have a 9 month old and for the past 3 years (at least) have been researching passive income and alternative investment strategies. I stumbled across the IBC concept, did some research, found an agent, and signed up last month. I’ve made my 2nd policy payment and am sitting on a whopping ~$540 of cash value.

    I am not an undisciplined saver: I’ve always been rather frugal, my retirement accounts sit around ~$100k all of which was accumulated while digging myself from mid five figure debt.

    I give all of that background to say that I am not high net worth, I am not an insurance salesman, I do have a son to provide for in the event of my untimely demise, but that is a sidebar to my motivation behind executing this policy. I totally get where Jacob and others are coming from in their assessment of the benefits and being able to accomplish similar results elsewhere, but I don’t see any savings/investing vehicle that can generate a return while said funds are being otherwise deployed.

    I view my IBC policy as a capital account that will eventually permanently replace my need to jump through loan qualification criteria ever again. Now if the funds are being used only for financing purposes, then, yes, the myriad benefits can all seem like smoke and mirrors, mostly. However, as a budding real estate investor who nearly lost my deal on account of the incompetence of my mortgage company’s personnel (said loan changed hands three times in the span of the first 2 months, btw) I told myself there has to be a better way to fund my investments. I believe that, over time, my IBC policy will be that tool. I intend for it to be an unfettered source of capital to fund my own ventures, until such time that I choose to passively invest in others like the banksters.

    I feel like I’m getting preachy and as though I’m rambling, so I’ll cut to the quick: this strategy is something that can benefit anyone but is not for everyone. I’m a contrarian at heart and the ability to take myself out of the conventional bankster financing loop is, personally, worth any perceived complexity or downside. I can’t see losing on having capital that I can deploy to generate a return that while being deployed will still net me a return regardless. So even if I fail on the venture my policy is still providing a return.

    Where’s the loss?

    • Hi Self-Banker! Thanks so much for stopping by and sharing your story/background. Always great to meet another person interested in this fascinating concept.

      I definitely agree with you that the downside risk / potential to lose money with IBC is very comforting b/c it is so secure.

      However, I’m curious on your take on 2 things you mentioned that would make it hard for me to jump on the IBC wagon:

      1) “but I don’t see any savings/investing vehicle that can generate a return while said funds are being otherwise deployed.”

      Even though your savings are earning interest while they are deployed elsewhere (via a policy loan), the interest that you have to pay on the loan can cancel out the interest earned, generally resulting in a approximate loan interest rate spread you have to cover of ~0.5% annual.

      2) “I view my IBC policy as a capital account that will eventually permanently replace my need to jump through loan qualification criteria ever again.”

      For me, it’s hard to compare a traditional loan (other people’s money) with an IBC policy (my own money).
      Jacob A Irwin recently posted…$98.40 Giveaway – Community and Charity 10% Monthly Blog Income Give Back # 27 – December 2013 EditionMy Profile

  22. Fledgling Self-Banker says:

    Jacob,

    Thanks for the quick reply, on a weekend to boot. I thoroughly have enjoyed this post.

    To your points:

    1. My understanding of my policy is that it functions like a 401k loan in that any interest accumulated goes back to the cash account. The only fee that I am aware of with my policy is the nominal loan processing fee on the front end. So while I get your illustrations, if I were to take a policy loan tomorrow it will not have a stated interest rate, but will be what I choose. However, if the insurance company’s cost of capital is 4.5% that would be the minimum I charge myself.

    But going back to the scenario you prescribed of the interest rate spread. If I can acquire a property by way of a policy loan and lose a point of interest, I would still be receiving 3.5% – 4% on my entire cash balance, correct? All the while, my policy loan portion will be utilized to fund my real estate venture that, if successful, theoretically will have an infinite rate of return.

    But say I deploy the funds in a program like the lending club, or speculation in the market, etc. these scenarios can generate returns that can offset the perceived loss on the interest spread.

    2. I understand your perspective: paying any fee to access your own capital is counterintuitive and paying a fee for OPM is reasonable, rational, and inherently a more practical value proposition. The first rule of investing: use OPM, where possible.

    That is a valid argument and perspective, and I don’t disagree with that logic. But where IBC intrigued me was in allowing me to develop a system by which I could put myself in a position to no longer need to be funded by these institutions.

    As modestly as I live, and despite maintaining near 800 credit, I am limited by the amount of mortgage credit that I can receive. My rental generates $600 of monthly profit. However, I have to wait two years before I’ll be able to recognize that income for DTI purposes. The mortgage note, which negatively impacts my profile, of course has been recognized immediately. Also, the first four mortgages are said to be relatively hassle free (after my first foray, I shudder to think about my 5th closing) to acquire, but then one cannot have more than 10 mortgages at a time. These seasoning limits and restrictions only serve to impede my real estate enterprise’s growth rate.

    With IBC, the day will come when I literally no longer need to apply. Additionally, it affords me a method of recouping a significant portion of the interest that I would otherwise forfeit using conventional financing methods. That capitalized interest will further capitalize the account and expand my opportunities for deployment.

    I may not get to experience the full potential of the account in my lifetime, but it is a legacy product that I can teach my son to utilize, pass on to him, and hopefully positively impact future generations.

    I rambled again. The TL:DR version: strictly by the numbers, I can understand an analytical person’s reservations with the program. For me, there are qualitative benefits to be derived from the IBC system that in the long run make it a worthwhile capitalization strategy.

    • Self-Banker,

      You’re like me. You like to ramble 🙂 Question, have you picked up a copy of Becoming Your Own Banker? If not, I’d highly suggest you get a copy. That is the IBC bible, so to speak. Also, check the replies I made to Karen above. It might help you understand a little deeper what’s going on “Under the Hood”.

      Best of luck to you!
      Kyle D. recently posted…My CEO Interview – Why I Do What I DoMy Profile

    • “I may not get to experience the full potential of the account in my lifetime, but it is a legacy product that I can teach my son to utilize, pass on to him, and hopefully positively impact future generations.”

      I believe this is an often under-represented benefit of IBC. The ability to easily leave the legacy that you created without it being squandered by the successive generations. I want my great great grandchildren to say “Wow, who was that guy Michael Sparks” that allowed us to have a head start on life.

      Good luck teaching all that other financial mumbo jumbo to anyone but a certified guru. IBC can be easily shared, taught and used by the average person. Understanding that your own bank can be larger, safer and more rewarding that the bank down the street.

      Lastly, a person experience, my daughter who just turned 21 was finally exposed to a small UGMA that was left by her grandmother. Since she became the owner, she promptly removed half of what was in the account to “Pay for school”. She’s managed to pay for the last 3 years without this money. But I guess that clothes, shoes and purses got the best of her. Now that “emergency fund” is a 1/2 emergency fund. If this would have been in an IBC, the policy owner (me in this case) would be able to decide when to release control. I would have also been able to teach her how to borrow the money and pay it back, hence replenishing her bank. Now it’s gone with the wind.

  23. Fledgling Self-Banker says:

    Thanks for chiming in Kyle,

    I definitely have a copy of the book. It’s what got me hunting down and getting in touch with my agent.

    Thanks for chiming in,
    S-B

  24. Thanks for this great post. I am still not fully clear but here goes

    I am high NetWorth and have a large bank account that is earning a piddly amount. Say 1%. If I buy Whole life can I view it as account earning a guaranteed interest. The only downside is that I loose liquidity for 7-20years. The gauranteed interest is 2.5% and its tax free. Forget the extras of Death Benefit and Infinite banking.

    Something is wrong here or is it?

    • Hi Robby, Thanks for stopping by!

      That’s a great question. Overall, I believe you’re on the right track, and I think that since you’re high net worth, a whole life policy would be something suitable for you.

      The issues of liquidity and earning guaranteed interest are sort of separate with a properly structured whole life policy.

      1) Liquidity/tax free access – With a properly structured, high cash value whole life insurance policy, you will have liquidity/access to between 60-80% of your 1st year premium right away, so you don’t technically “lose complete liquidity” for the 7-20 years, you just wouldn’t be earning the 2.5% return.

      In addition, it’s also important to note that your cash is only accessible tax free via policy loans (which do incur an ~0.5% interest rate spread, so it’s not exactly a free ride).

      2) Earning interest – In the policy illustration I was shown, a guaranteed overall annual interest rate of 2.5% was earned after averaging over a 20-30 year accumulation period (as shown below). While you technically start earning interest before that time, as you can see below, it takes a while for the policy to capitalize. In addition, it’s also important to note that not all policies will have the same 2.5% guaranteed interest rate, so you’d want to check on what that specific number would be for your policy drawn up.

      “In Year 2, you have a guaranteed return of -28.4% and a non-guaranteed return of -20.8%.
      In Year 5, you have a guaranteed return of -2.6% and a non-guaranteed return of 0.9%.
      In Year 10, you have a guaranteed return of 1.7% and a non-guaranteed return of 4.1%.
      In Year 20, you have a guaranteed return of 2.5% and a non-guaranteed return of 4.3%.
      In Year 30, you have a guaranteed return of 2.5% and a non-guaranteed return of 4.3%.”

      In addition, if you simply go to your insurance agent and ask for a whole life policy (without specifically requesting for a high cash value one), chances are they will structure it so that you have the most death benefit (highest commission to the agent), which will result in extremely low liquidity and cash value. Therefore, be careful about how/who you approach to help you with this! 🙂
      Jacob A Irwin recently posted…What You Need To Know About Nonprofit Debt Relief ProvidersMy Profile

  25. Fledgling Self-Banker says:

    Hi Rob,

    As a subscriber to the system I would say that is a mostly accurate assessment.

    It would be inaccurate to view the dividend (interest) as being guaranteed. View the insurance companies as dividend aristocrats that have a long history of paying out, but that return isn’t guaranteed or federally insured (for whatever that’s worth) like bank interest.

    To your point about being illiquid, during the initial capitalization phase, depending on the amounts you plan to access, that is debatable.

    I am on month three of my whole life journey and have already taken a policy loan to buy Christmas presents. So, considering your net worth, depending on the size of your policy and PUA contributions and the amounts you need to access, you may experience a satisfactory level of liquidity from near inception.

    ::Sidebar::
    To OP, and others, I had an opportunity to speak with my agent and share my travails on this blog. She corrected me by stating that whole life policy loans do not consist of “your money”, one’s cash value is used to collateralize the policy loan, not fund it. Because it is the insurance company’s funds a loan holder has to pay the insurance co’s cost of capital. However, because one’s cash stays untouched, policy holders still receive their dividend at year end and any excess loan repayments are used to further capitalize the cash account.

    Hopefully, that corrects my misstatement before and clarifies some for others.

    Seasons Greetings to all!!

  26. Thanks Jacob and fledling_banker.
    I got an illustration of 300K policy with yearly premium of ~12K over 11years. I am in the long haul and don’t care about withdrawals. Just want the max interest and pass the maximum onto heirs. I am already maxing out 401k etc. so no other places

    With this illustration, I see the guaranteed rate is ~2.5% like you said and Breakeven is ~18yrs and Death benefit never increases; stays at 300K.
    With non-guaranteed current the breakeven ~10yr, rate is closer to 5.6% for cash value and 2.1% for death benefit.

    Thats a huge difference. Is that common? How can insurance company even offer 2.5% when the banks are offering .1%. I presume they are taking on some more risk.

    • Hi Robby, glad the responses were helpful here!

      Yep, it’s quite common for the non-guaranteed to be higher than the guaranteed. In fact, it is that very aspect that gets people in to trouble/misconceptions with whole life policies since those non-guaranteed rates are subject to change based on current interest rates. For example, folks taking out policies in the 2005-2007 were likely shown non-guaranteed total cash value accumulation rates of 7-10%, which of course didn’t hold up from 2009-2012.

      As mentioned in my post, a solid long term cash value accumulation / total interest rate to assume for WL policies is 4.5% per year (based on long term historical studies).

      As far as the investments a life insurance makes, since they are able to spread out risk among many policy holders, they can invest in a slightly more risky securities than you or I could individually to still have liquidity. I found a pretty good table in this article about what they invest in – http://econintersect.com/b2evolution/blog1.php/2013/03/13/where-do-u-s-life-insurers-invest

      Needless to say, I have found plenty of evidence to convince me that life insurance company money is very safe, likely more safe even than money placed in the federal govt.
      Jacob A Irwin recently posted…What You Need To Know About Nonprofit Debt Relief ProvidersMy Profile

  27. Fledgling Self-Banker says:

    Banks offer interest based on the Fed Reserve prime rate and LIBOR. Insurance companies generally hold bonds, which like Jacob stated, have experienced erosion on returns brought on by the bull market in equities. We should experience improved non guaranteed returns once the effects of Fed tapering start taking hold.

    To your point about not being interested in making withdrawals, Robby, I would challenge you to consider taking policy loans to increase your policy’s cash value.

    I know Jacob would say it’s a negative value proposition, but if you have nowhere better to park your funds, consider that the portion of your policy payments above the principal and the insurance co’s interest rate further increase the cash value of the account.

    For example, I borrowed $500 from my policy and I chose a repayment amount of $600. The insurance company will get ~$44 (4.75% borrowing rate) the remaining $56 will go to the cash value portion of the policy. At year end (or on whatever basis the dividends are paid) I will receive a dividend on that $56, as well. So in addition to my scheduled PUA payments I will have diverted more funds to the policy to further grow the policy’s value and receive a dividend on.

    I say all this to point out that if your main objective is to maximize the policy’s value, policy loans are a fantastic means of rapidly increasing the overall value of the policy. The death benefit will always be what it is, but the cash value can grow almost exponentially via excess policy loan payments (of course keeping in mind the MEC limit). With the amount of free cash that you have at your disposal you sound as though you would be a prime candidate for such an approach to funding your policy.

    S-B

  28. Hi S_B
    ” The insurance company will get ~$44 (4.75% borrowing rate) the remaining $56 will go to the cash value portion of the policy. At year end (or on whatever basis the dividends are paid) I will receive a dividend on that $56, as well. ”

    a)4.75% of $500 = $24. So I am confused about the numbers
    b) In addition, does this mean $44 goes away as fee/expenses so only $56 goes back to us.

    Something I don’t understand in IBS is how the cash value and DB both decrease when one takes out a loan. Say I have 100K in cash value and 300K in DB. Then I take out 10K as a loan. What happens to cash value and DB. And when I pay back the 10K+Interest (4.75%), then do I get both my cash value and DB back to the original values (as if I had never taken out the loan). If so, does this mean I am taking a loan and then paying myself back. There has to be some expense the insurance company charges.

    Sorry to be so dumb about this but this one I don’t understand. A simple spreadsheet would be most helpful.

    Thanks!

  29. Fledgling Self-Banker says:

    Robby,

    Far from dumb. I am certain I have oversimplified. The $44 came from an annuity calculator compounding interest over 10 periods.

    To answer your question about fees, the $44 constitutes the insurance company’s fees on my transaction.

    You are correct that only $56 will go back to the account in my situation as PUA. I will have my agent model something for me in a spreadsheet that I can share with you all to illustrate.

    From what I understand, the death benefit is only impacted if the loan is not repaid and your cash value is not enough to satisfy. Your cash value will be offset by the loan balance. In the event that there is an outstanding balance(s) on the policy, the disbursement will be reduced by the loan amounts.

    I will speak to my agent about circumstances that can lead to DB reduction, but I don’t see how that would be. In your example, it is my understanding that your 300k would be paid at face value and your 100k of cash value would be offset by the loan balance resulting in a $90k cash payout.

    When you repay the loan, the 4.75% is going to the insurance company. So going by simple interest, $475 will go to the insurance company. When you take out the loan, ideally, you would elect to repay it at, say 10%, so that $525 will go to your cash value balance.

    The thought there being that your account will now have $100,525 which will receive a dividend of 4.5%. So you lose .25% on the transaction overall, but you have added to your cash value basis, which will receive the 4.5% dividend, as well as increase your access to virtually unfettered capital in the process.

    Merry Christmas to all!!

  30. Thanks so much for this well written and organized post!!! Also thanks everyone for the shared experiences. After reading Nash’s book, and seeing illustration after illustration from 2 different insurance agents and representing 4 different insurance companies, I really wanted to get some “unbiased” thoughts on this whole thing.

    I plan to take your advice. At 29, I have some time to get into this when I make more money, and making only $100k per year at the moment will allow me to still use a ROTH IRA. For now, I will be maxing out my Roth IRA’s and using a 20 year convertible term policy to protect my family and convert it to while life later for this system if I start making too much for the Roth.

    Also, having this vehicle in place when my kids are applying for college sounds useful for the purposes of FAFSA.

    Thanks again and have a great 2014!!

  31. I may have missed this somewhere, but isn’t the 4.5% earned in the policy compound interest? As opposed the 5% straight interest on the loan that is getting paid back into the policy?
    Great article and comments by the way.

    • Hi BRD – thanks for stopping by. The distinction between what is compound vs. simple interest was something I forgot to address in the original post.

      You are correct though. The policy loan is simple interest.

      For more information, see the Sep 30th, 2013 comment/response above to Robert Trasolini.
      Jacob A Irwin recently posted…A Complete Guide To Saving Money On Your Taxes By Cleaning Out Your ClosetsMy Profile

      • According to my state farm agent on our WLP is it True that the loan is simple interest, but the interest on the cash value is compound interest. Potentially earning more than your paying for your loan. In addition to this as mentioned about taking out a loan and paying it back increases your cash value put right back in the compound category.

  32. Jacob,

    Excellent analysis of both the issues surrounding whole life for IBC as well as the IBC economics. I was unaware (but suspected) that “the house” was getting its .5% somewhere in there! Therefore I agree with your assessment (and that of others) that this is not an investment vehicle, rather it is a savings vehicle that comes at a cost (.5% on outstanding loans).

    On the other hand I also agree with those who say that for the middle class this is a smart savings vehicle because forced savings is a good idea from a behavioral finance standpoint. You have people on this post who seem to sleep better at night knowing they have themselves to borrow from (subject to a .5% fee). As Mastercard would say – that’s “priceless”.

    However, I am wondering if this really is a useful tool for above middle class, and here’s my thinking:

    1. The estate tax threshold is now $5MM-ish for individuals and $10MM-ish for married couples. Therefore the real, core value of life insurance for estate purposes (ie, to avoid estate taxes) is not applicable to 99.9% of the population, myself included.
    2. So if you’re between middle class and $10MM+, you aren’t going to benefit from either forced savings or the estate tax avoidance.
    3. If you’re in that wealth range you probably also have some valuable real estate you can use for a reverse mortgage when the time comes…you may even have a second home that you can RM. (Note: I am not a RM salesman or any other financial advisor – I have just read that the product has gotten better since the 2008 mess, particularly for higher net worth homeowners)

    Given this line of thinking, wouldn’t the group between middle class and $10MM+ (including docs, other professionals, small business owners) benefit more from a reverse mortgage to bank on themselves than whole life?

    I don’t really want to digress into a debate on RMs but for higher net worth folks with plenty of home equity this seems to be a no-brainer, and while RMs have their costs too it’s a bank you already own.

    If you or if any readers who fit this profile have an opinion I’d appreciate it!

    Thx

    CB

    • Hi CB – sorry for the delayed response. I’ve been buried in putting together my PhD dissertation for the past few months.

      You make some very nice points to consider.

      However, one place where a whole life / IBC savings account would come in handy for higher net worth individuals is providing “tax free” income during retirement through policy loans, since higher net worth/higher income earners aren’t allowed to take advantage of the more traditional tax free sources like Roth IRAs.
      Jacob A Irwin recently posted…A Complete Guide To Saving Money On Your Taxes By Cleaning Out Your ClosetsMy Profile

      • This is a great point. I learned from my dad who failed to create an IRA (or any kind of retirement account) until he was past 50, he created a policy that allowed him to pay 11k per month in premiums for 5 years. Now more than 15 years later he takes out loans to live off of basically his new income not taxable. This amount of stashing is not available by any other means, IRA or 401k.

        So to play catch up I can think of no other way. In 2008 I like many others lost my job, after fumbling around for 3 years trying to get back on my feet I dumped and lived on my 401k, now that it is gone and I am over forty a 401k or an IRA is never going to “catch” back up to what I had. 15kish /year in a 401k isnt going to allow me to retire in 15 years, thats chump change that might last for 2 years of retirement.

        Now that my car is paid for, i have a single house payment, 5-6k per month into a whole life policy is easy and several years from now I can increase my capitalization byorrowing on it for a new car, then taking what I would have been putting into a new car and placing that into another new similar policy. The more ways you can stash into multiple policies the better because at time of retirement you will thank yourself for not having to pay the government while you have free spending money and zero tax to pay for. Also having multiple policies to have more places to stash and not worry about creating an MEC.

  33. Don’t know what happened to my post but I’ll try one more time…
    I am not an insurance agent and use IBS for many things. I have studied with Robert Castiglione (LEAP) and Douglas Andrew (Missed Fortune) as part of my finance education.
    Your analysis is not complete. The main feature of the IBS is not rate of return per se, but elimination of opportunity loss by using your own cash in a taxable environment to purchase things.
    I would be interested in hearing your thoughts on the cost of loans paid to others for financing things bought during the 30 years of buying term and investing the difference. And if you’re suggesting paying cash cost nothing – YOU’RE WRONG. It means you do not have that cash for other opportunity purposes for strengthening your financial bottom-line.
    Also – a key part of Missed Fortune you do not reference is the fact that people that take retirement distributions from Gov’t sponsored plans (IRAS/401ks) spend through their tax deferred savings within 7 years. The best option there is to do a strategic withdrawal before the distribution phase and take the tax hit and move the money into a tax protected environment. There are components to this process that need to be considered as part of this decision that I will not go into here.
    Regarding reading material, one of the best books on the subject is PIRATES of MANHATTAN.
    If you have not read this, you should. It will give you a broader education on the subject including doing more accurate comparisons with other investment types.
    The benefits are enormous if one has the discipline to follow the system. The reason this system is not widely used is because 1) lack of knowledge, 2) perceived lack of commissions (the normal way), 3) the hit the mutual fund companies would take 4) the hit the gov’t sponsored retirement plans would take, 4) the 80-20 rule….most people want to do what everyone else is doing thinking it is the right thing to do vs opening their eyes and educating themselves on the other possibilities for safely saving, protecting and having access to your money when you need it. IBS will not work as intended if you do not pay your loans back with interest. Yes the insurance company charges interest but companies like the Guardian (one of several I use) will increase their dividend % if you have a loan taken out vs the normal dividend if no loans are taken. Also, you can use the IBS strategy with other insurance like for example I do with Variable Universal Life, but this requires a lot more hands on tracking of the mutual fund-like allotments you use for growth within the policy…not recommended for most using IBS, but one key feature I like about this, is that although I won’t get a dividend on my policy or my cash value goes down based on the loan, at least the borrowed amount is protected by being shifted into a guaranteed interest account at 4.5% while I pay 5.5% on the loan while I’m using the money. Of course, you would still pay back the loan (with interest) and follow the strategy. The difference is you can get mutual fund-like growth returns in a tax-free environment (if done properly..)
    So there are a lot of ways to use IBS and knowledge is key to being successful with it. THanks for providing your forum to discuss. Tom

    • Robert Castiglione says:

      I am Robert Castiglione, the inventor of the LEAP System. I developed a “Be your own banker” life insurance “strategy” prior to Nelson Nash. Nelson Nash admitted in writing in his own book that if it wasn’t for LEAP and LEAP Licensees , he would not have been able to write his book. Many of the agents using the IBC concept are ex-LEAPERS and some of those have written their own books about the subject of “banking” and use LEAP concepts they acquired at LEAP.

      Since I developed a “Be your own banker” insurance strategy in the 1970’s and used it with my clients, and although the strategy was different but better at that time because of the tax laws, interest rates, life insurance dividends, and more, I think I know more about this subject than anyone else on this planet. So I will not beat around the bush. The Insurance Banking Concept and all of the other names it has been given by a variety of authors is not all they are cracked up to be.

      There are many reasons why IBC fails to perform as advertised: (1) The mathematics is flawed. (2) Insurance policy illustrations are outdated. (3) Unfair, false, and unequal comparisons are made, (4) Omitted lost opportunity costs of the IBC policy taint the results, and (5) Most of the economic and financial principles cited in IBC are arguably false.

      I have written a manuscript about the fallacies of IBC and have verified that it is a losing strategy for consumers to use. I have also checked with the life insurance companies selling IBC policies and they tell me that the IBC strategy gets more consumer complaints than any other selling systems they use.

      So which one of the following options would produce the worse results for a 21 year old woman who is in the market for a car and wants to get a new car every four years until she is age 65: (1) leasing the car from the dealer, (2) buying the car by taking a car loan from a bank, (3) saving money monthly in a savings account to be able to buy a car with cash each time, (4) capitalizing an account first and then saving money to buy the car with cash, or (5) using the IBC life insurance policy method of financing?

      If you said the option that would produce the worse results is option (5) IBC – congratulations, you would be correct. Instead of IBC being the clear winner as their advertising claims, it actually would produce the worse results for the consumer. Most consumers fall prey to the advertising because they are vulnerable to the misrepresentations, illogical principles, and confusing but incorrect math that is employed in the advertising of IBC.

      I asked one compliance department of an insurance company that sells IBC policies how they can allow such misrepresentations. Their answer was, “We are not endorsing the IBC system. We only endorse our life insurance policies that are used by agents that sell with us.”

      If there are agents reading this blog that are interested in this matter, or have not figured out why IBC is a losing strategy as of yet, I would be more than happy to help you see the light. I am willing to answer legitimate and intelligent questions that are posed on this blog or you can write me at rcastiglione999@comcast.net Thank you

    • Hi Tom, thanks for stopping by and sharing your opinion. It is valuable to get different perspectives even if we are not in agreement. Thanks.
      Jacob A Irwin recently posted…A Complete Guide To Saving Money On Your Taxes By Cleaning Out Your ClosetsMy Profile

  34. One thing I think that has been overlooked with muni-bonds. This is from Charles Schwab.

    “Although municipal bond interest income is generally free from federal income tax, the IRS considers that interest part of your “modified adjusted gross income” for determining how much of your Social Security benefits, if any, are taxable. Let’s say you’re married and filing jointly. If half of your Social Security benefits plus other income, including tax-exempt muni bond interest, is more than $32,000 ($25,000 for single filers), up to 85% of your Social Security benefits are taxable.”

    Whole life policy loans do not affect taxation on Social Security Benefits.

    For full disclosure, I am a 2nd generation life insurance/retirement planner and my family owns over 50 whole life policies between my parents, the adult children and the grandchildren. It has helped our family over the years tremendously.

  35. People who say whole life is worthless seem to forget that some of the people who have life insurance die ‘early’. Who is supposed to cover that premature loss to the insurance company?

    The idea underlying life insurance (or any type of insurance for that matter) is that the risk is being spread among insureds. Some people’s beneficiaries will receive ‘windfall’ profits if the insured dies too early; others, if the insured lives ‘too long’, will only receive the 3% (actually closer to 4%) return you cited, tax free.

    As someone once said, “If you know you are going to die next week, buy Term Insurance; if you know you are going to live to age 100+, buy an Annuity. However, since no one knows when he is going to die, over the long run, Whole Life is the best ‘deal’.

    A 3% to 5% internal rate isn’t all that bad.

    It is also worth noting that most superior mutual life insurance companies, i.e. Northwestern, New York Life, Guardian, do not invest those monies held in the stock market, but rather in safe, AAA bonds, for the most part.

    If you wish to invest your money in Facebook, fine. But, I suspect your spouse might look at is differently if you died today, after having bought Facebook at the IPO price.
    Thomas recently posted…Life Insurance LoansMy Profile

  36. I would greatly appreciate if Kyle would answer this.

    I was told by many IBC agents that when taking a loan from my whole life policy to buy equipment or any high price item for my business LLC, I could claim the interest payment as an investment expense deduction. I was considering taking a loan and deposit the check from the insurance company directly to my LLC business account and make all interest and loan repayments directly from the LLC business account back to the insurance company. When I talked to my CPA accountant about this, he told me that this might be a problem since it is loan from my own policy (it is personal), and the debtor is myself, not the business LLC. It would not be a problem to claim as business interest expense, if the LLC has actually taken a loan from any commercial bank since the debtor would be the business LLC, not myself. Would greatly appreciate any comments on this.

  37. Dan Proskauer says:

    Greetings. Thank you for creating this post / thread. The discussion has been good.

    I want to honor your first request. I am not an insurance salesperson and make no money from the sale of any kind of insurance policy. But I also want to inform up front that if you Google my name you may find me quoted in various blogs or web sites from people who DO have connections to insurance sales. This is solely because I am an incredibly satisfied *customer* and wanted to share my success with others. Despite being interviewed a few times and being willing to share my story in a public forum, I receive no money from anyone related to insurance sales.

    I too spent 100+ (definitely hundreds) of hours researching this approach to saving and building wealth and I thought that your analysis was reasonably good. This concept is NOT easy to understand or appreciate. Like many people who have followed this path, I started small to ensure both that my understanding of it was accurate and also that it performed as advertised. Once I gained confidence, I (really I mean “we” because this is a family and ultimately inter-generational wealth buiding tool) directed larger portions of our savings into it – with great success. I am also an Excel junkie and have created some sophisticated spreadsheets to calculate the cumulative and compound returns (at every year) from one or multiple insurance policy illustrations. I track my policies (and I have nine) on a monthly basis and know exactly how they are doing against their plan and my expectation.

    I did struggle with three of your main themes though. Those are that this strategy works only for the wealthy, should be undertaken only when everything else is maxed out and that any book written by an insurance salesperson should be suspect by default.

    Let me tackle them one at a time. Although I myself would probably be considered on the upper end of the middle class, I have seen this strategy work very well for people of all income levels. In fact, it can be a huge benefit to people who are accustomed to borrowing to pay for things. In this circumstance the policy loan aspect can allow a family to operate as they are used to while suddenly transforming their personal economy from one of borrowing to one of saving. I know that sounds a little bizarre, but if you really think about it, it works. There is a great diagram in Financial Independence in the 21st Century (one of the books you referenced). If I had it in front of me I would cite the page number, but I don’t.

    As for maxing everything else out first… I used to be a VERY active investor in the equities and options markets. I made money doing that. However, I was making money when the market was going up. If you want a relevant read, check out “Fooled by Randomness”. After living through TWO major stock market events and watching my absolutely by-the-book asset allocation investments return next to nothing for 10+ years, I stepped back and looked at the traditional approaches to saving and wealth building with a very critical eye. What I found was surprising. I won’t quote you back a lot of the material from the books you cited, but I urge you to go back and review it again. There is more material as well, and I would be happy to send you some privately. Another great book if you haven’t read it is “The Big Short”. After reading that I just couldn’t stomach the thought of my hard-earned money going back into a system that rigged and that suspect. At this point I am the opposite from maxed out in traditional investments – I contribute the *minimum* required to fully capture the matching funds offered by my company and I have that money allocated to the *most conservative* choices available. I regret every dollar that is stuck in qualified plans and constantly question the wisdom of even continuing to capture the match (but my spreadsheets tell me it is still the right thing to do).

    Finally, although there are undoubtedly some self-serving folks out there, I think it is risky to discount everything written by someone who is also in the industry. As a good friend said recently, “Wouldn’t you rather read a book about brain surgery written by a brain surgeon then by an auto mechanic?” This is a complex topic. Wouldn’t folks who do this for a living be in the *best* position to be able to explain it? As I informed up front, I am a very happy client. I have been doing this since 2009 and the results have far exceeded my expectations. By that I don’t mean that the policies have returned more than the illustrations said they would (in fact it has been slightly less due to the dividend scales drifting down with the artifically low interest rate environment we are in now). What I mean is that the results that count – our family’s net worth, financial security and peace of mind – have FAR exceeded my expectations. If it weren’t for me keeping an open mind when reading exactly the kind of material you raise such concern over (and doing my homework, of course too!), we wouldn’t have achieved these results.

    I’ll leave it there. There is a lot more I could say, and I will be happy to engage in dialogue in any direction on this topic that people want to take it.

    Thanks again for initiating the post and doing the research. It was well presented and thorough and I know how hard this concept can be to explain!

  38. Chris Doherty says:

    One point that has not been made in this forum… What happens if you lose your job and cannot make the policy payments for an extended period of time? This whole strategy is dependent on always making your payments. Yes you can use the cash value to pay the premiums, but wouldn’t that quickly erode the cash value and the whole point of investing this way? At least with other forms of savings the money stays put and does not depend on more money being added to make the strategy not fail.

    • Hey Chris….you raise a valid point. You absolutely can spend down your cash contributions or rum into problems taking out policy loans to pay the premium if no payments are going into the policy. The main component of financing your policy aka “your banking system” is to look for areas where you are currently spending that could be reduced and funneled into the policy so there is a minimum (if any) out-of-pocket. An example would be raising the deductibles on your homeowners or auto insurance…how much can that generate off of your monthly expenses that could be applied to the policy premium, etc… Another area would be to look at your pre-tax savings into a 401k…if you are contributing more than your employer’s maximum for employer contributions, than pay only the employer maximum contribution limit and use the overage contribution for your policy. These are just 2 common examples…the idea is to have your financing system being capitalized regardless if you are employed currently or not.

    • I think Chris asks an excellent question, it is very easy to commit to premium demand that you can’t meet long term. The crash of 2008 illustrates how quickly career & lifestyle changes can happen. Be careful, study your policy in depth before signing anything. Insurance salesman can be convincing in order to get their sale. Know long term what you are capable of!

      Here is some of our IBC background. We started in 1995. We now have 6 policys, DB of 4M, CV of 850K, 3 of the policys have been naturally abridged, dividend & CV pay the premiums. I plan to abridge the other 3 policys in the next 5 years. We view this as the conservative, fixed income portion of our portfolio. I think a long term, 5% return is reasonable. You also receive key benefits such as DB, flexible policy loans, tax advatages. It’s not what you make, its what you keep!

    • Chris, There are ways to deal with this concern. For example, you can structure a policy where your annual primium is relatively low, but supplement it with an addition called Paid Up Addition. If things become difficult, you stop contributing your opptional PUA and only pay the primium. Secondly, in a later stage of the policy, your dividend might be substantial enough to cover part, all, or beyond your primium. This should not effect your policy other than slow it’s growth (because now your dividend will be directed to the primium and not to buy additional insurance, the same PUA). Finally, there is an elective rider that basically insures your primium. An additional annual pay will ensure that if you cannot work and pay your primium, this rider will, usually for up to 10 years. This might also include your usual PUA contributions and not just the primium. I’m not sure this will work if you loose your job, but it will if you’ll loose your ability to work in the unfortunate case of injury or illness. So here is the other side: which other insurance will continue and pay your investments for you if you are no longer capable to work?

  39. Dan, so thoroughly enjoyed your post. So well articulated. We have three policies, and like you started with a small one, then after a few years graduated to a larger then our last biggest policy. Just can’t say enough about these policies. We borrow, pay back and borrow again and so far is working great for us. I would love to be able to put our accounts on an exel spreadsheet to see exactly how they progress..Thanks for your insight.

    • Dan Proskauer says:

      Thanks Lisa! So glad I was able to speak clearly on it. As Jacob (and many others) have pointed out, this is not a simple concept to understand. What is ironic about it, is that once you do understand it, the actual execution of the strategy is extremely easy and low maintenance. No constant portfolio rebalancing, no messing around with figuring out capital gains taxes and pass-through taxes and all that each year, no managing lots of accounts at different banks and brokerages, etc.

      As for tracking, I have two main tools I use – both homegrown. One is a spreadsheet where I can copy and paste in the original policy illustration (from text based pdf) and it parses the text and puts the numbers into columns in Excel. It has the ability to take multiple illustrations for policies started at different times and interleave them based on dates so you get a single combined illustration. The other thing it does, for a single illustration or the combined one, is to calculate the equivalent rate of return (as if the policy were a savings account) that you would get in each policy year. The first year it is negative, the second year, less negative, ultimately crosses zero anywhere from year four to eight (depending on policy design) and hits a maximum of 4.5% – 5.3% (based on policy design, based on dividend scale at the time of illustration). Each year return is what a savings account interest rate would have had to be from the policy start to that year to end with the same cash value. This tool is really a projection tool.

      The second tool is a tracking tool. In this spreadsheet I have some basic information about each policy (base premium, MEC limit, etc.) and then I enter each month any premium paid and the values from the insurance company for Net Cash Value, Outstanding Loan Balance, Available Loan Value and any dividends received (those are annual). Using that I can see all my current policy values and compare both the values and the return to the projection from the original illustration.

      With these tools combined, I have had much more visibility into both the projected and actual performance of my savings / investment than I ever had using more traditional approaches with mutual funds, individual stocks, 401K plans, 529 plans, etc. I am definitely a numbers guy and Life Insurance is the last thing I ever expected to wind up finding good performance, security, flexibility and predictability. I am constantly shocked, but very, very happy!

      • THanks for the explanations Dan. I am totally Exce illiterate but have a family member who is very good at this type of thing, so I will see if we can put our wits together and come up with a set up like you have.
        Do you do this monthly, set date etc so you can compare apples to apples? Because if you look at your policies online,they change daily.

        Another plus that isn’t discussed a lot is the safety of your cash in these accounts. We had a recent scare with our son who was in a car wreck, no one hurt but in South Texas, a quick lawsuit is similar to a small lotto. In any case we had some cash in our accounts(that we had borrowed from a BOY account) that were getting ready to be used to build a barn. It was sure nice to be able to move those into 2 BOY plans that had room in them. Safe and sound yet there to use when we need it.

        My only regret on these policies is that we didn’t start a lot sooner! My only concern about these policies is what would happen in the event of a coming dollar collapse. Actually I know what will happen, but for now they are a pretty safe bet.

  40. Is the Internal rate of return 4.5%-6.5% for death benefit or cash value. Suppose I am not interested in taking a policy loan but strictly in how much money I make on my investment to pass over to my spouse, then what rate of return do I assume.

    • Dan Proskauer says:

      The internal rate of return is typically calculated for the cash value. The rate of return on the death benefit is always higher (but you are dead). The two are always equal at the point where the policy is calculated to terminate (typically age 121 of the insured). I calculated the return on the death benefit of one of my policies and in the first year it was 2276.89%!! Of course, I would have to die to realize that awesome return, but what a deal! I’m pretty certain that if I owned a stock ETF and I died it would not bring that kind of return! 🙂

  41. Chris,

    There are ways to deal with this concern. For example, you can structure a policy where your annual primium is relatively low, but supplement it with an addition called Paid Up Addition. If things become difficult, you stop contributing your opptional PUA and only pay the primium. Secondly, in a later stage of the policy, your dividend might be substantial enough to cover part, all, or beyond your primium. This should not effect your policy other than slow it’s growth (because now your dividend will be directed to the primium and not to buy additional insurance, the same PUA). Finally, there is an elective rider that basically insures your primium. An additional annual pay will ensure that if you cannot work and pay your primium, this rider will, usually for up to 10 years. This might also include your usual PUA contributions and not just the primium. I’m not sure this will work if you loose your job, but it will if you’ll loose your ability to work in the unfortunate case of injury or illness. So here is the other side: which other insurance will continue and pay your investments for you if you are no longer capable to work?

  42. Regarding the ability to take loans from the policy and pay back the loan with extra interest (interest that the market would normally charge). How is that done? Ex: If I take a loan from the policy and the interest loan is 5%, but since the market is charging 8%. I am supposed to pay back the loan with the extra interest of 3% (8% – 5%).

    I realized that when the policy is initially structured, there is the premium + PUAR. In order for the policy not to lapse, the premium must be paid, but the PUAR is optional. Does that mean that if I decide to pay the 3% interest, I would use the PUAR portion that was originally created for this purpose? It is not an extra 3% on top of the scheduled payment of Premium + PUAR, correct? Please help me understand. Thanks.

    • Hi Chris, you asked two different questions. I’ll try and answer.

      1. When you take a loan you have to pay the interest as it appears in your contract. In your example it is the 5%. This is all the insurance company wants. To practice the Infinite Banking concept correctly, you should pay higher, according to market values (or higher, if you can). What will happen is that your loan will be paid quicker, and because you are paying more than you should, the last one, two or few payments will actually happen after the loan is already paid back in full, so these payments will indeed be addition (Paid-up additions). You can see it as a self-imposed mechanism to pay back your loan, and then pay a little more to your own saving (cash value). That way you captured part of the interest profit that an external lender who would have lender you in market rates would have made.

      2. When you structure a policy you commit to pay a premium. Any payment beyond is a paid-up addition. This PUA can be “scheduled” – that is that you commit to pay it (and your agent can change it for you if needed) or “unscheduled” – that is you pay more when you want and can. The extra payments you will pay when returning a loan in higher rates (ex. 1 above) will actually be unscheduled PUA. You do need to pay attention to the MAC limitations when you start doing so in substantial amounts.

      Hope that helped.

  43. Fledgling Self-Banker says:

    Hi Dan,

    Thanks for your contributions. I would greatly appreciate a scrubbed copy of your spreadsheets if you’re so inclined. They sound like just the tools I have been looking for.

    I started my policy just a few months ago and have been looking for a tool that I could use to optimize the cash value of the policy.

    As a satisfied customer of several years would you see there being a benefit to a program of perpetual policy loans, almost like a CD ladder, to the cash value of the policy?

    I haven’t crunched any hard numbers, but I am thinking, for instance, right now my policy has a cash value of ~$830. If I were to take a policy loan of $800, and payment terms of 10 months $100, would this be an effective method of speeding up the increase to the cash value of the policy? I know it’s only $200 net of expenses, right now, but over time, the loans and payback amounts will grow along with the cash value gains.

    As a practitioner, is this a good approach to take? I should mention I have a convertible term policy, also. Would converting some of the term amount be a more effective method?

    Thanks for your time,
    FSB

  44. Dan Proskauer says:

    Hi FSB

    I actually have a sanitized version of that Excel workbook and I am happy to share. However, I don’t want to wear out our welcome on this blog. But I also don’t want to post my email address.

    To the blog master – can you please send my email address to FSB and to Lisa and we can continue this offline?

    Thanks!

  45. Fledgling Self-Banker says:

    Sincerely appreciate it, Jacob!

  46. That would be great, thank you Dan

  47. To Uri, Thank you so much for answering my question regarding the PUAR part. You couldn’t be more clear. I have these policies for 3 years now, but just did not know how to maximize them.

    To Dan, would also like to thank you for confirming what I suspected all this time. We are definitely not big spenders, we have saved all our lives and have applied all the traditional financial lessons, diversifying in different assets, etc. We have always maximized all our contributions in 401K, IRA, 529 Plan, etc, throughout the years. But we lost money whenever the market crashes. We got frustrated and tired of it. Not knowing where to save the money, we came across this concept and after putting many hours of educating myself on the concept, we decided to move most our savings into the Bank on Yourself. We have to say that we are not in the phase of making any money yet, but we do know that our money will not go down with the market anymore. At this time, we have 1 child in college, with 2 more after. Being in the middle class, we did not qualify for any financial aid. But, the biggest disappointment of all was to learn that in order to take money from any of the plans mentioned above, many rules and penalties apply. In the 529 plans, one should be very careful, to make sure that it would qualify as “qualified expenses”; otherwise, they will be taxed as well. At this time, we really needed to have access to our money in these so called “deferred savings account”. With 1 child in college and 2 more to go, we will not have any extra cash flow for the next 12 years. We feel trapped and betrayed. It is as if our money is “in prison”. We can only access it, if we are willing to pay very hefty penalties. Our biggest regret is that we did not realize this earlier. At this point, limited to contribute more money to our policies given our children’s education needs, all we can do is to maximize all we have in our policies within our budget possibilities, and manage them the best way we can. I would, therefore, greatly appreciate, if you would be willing to share your Excel spreadsheet tools with me also. My email address is chris1now@gmail.com
    Thanks for sharing your thoughts and confirming that we are finally onthe right track financially.

  48. I’ve read the blog and comments with great interest, though haven’t posted.
    Dan could I please get your spreadsheet?
    mbcatalyst@gmail.com
    Thank you!
    Marc

  49. Thank you Jacob for this blog. I have learned a great deal. I’ve read it thru twice. I have made notes to myself. I have written down several questions to ask my agent. I feel however, there are a number of issues misrepresented. I don’t think it to be intentional on your part. So, I will list my thoughts quickly as possible.
    I am 62 years of age. I am an insurance agent, but not life ins…I am on the health side of insurance sales. I am far from wealthy… probably in the higher end of the middle.
    1. With Kyle’s 19 points made, your response to his 19 points, then Kyle’s rebuttal…as you would continually point out…”same with Tax free bond fund”. Are you not aware that your principle is at risk? If interests rates go up, & they surely will, & you need to cash out for whatever reason…buy a car…you may be trading in your shares below your cost basis. You just locked in a loss. Not so with IBC. Interest rates cannot go below 0…they can only go up at this point. Your bond fund, unlike individual bonds, never matures…the fund just buys more bonds as they mature. Your bond share price can go down. Sooner or later it will.
    2. You obviously have 100% trust & faith in Uncle Sam. Are you kidding me? This is not a political forum…thankfully. However, this government has proven beyond any question it is not fit with my money. They borrow money with reckless abandon…17 trillion to date. Who can even grasp the size of that number? They continually raise the debt ceiling. They are financially irresponsible. If you & I ran our household as they run theirs, we’d be in bankruptcy. In their case, unlike us poor saps, they just print & print. You have way too much faith in Uncle Sam. I personally would not lend them 10 cents. Just take a good look at their balance sheet. If they were not the US gov, would you lend them your money?
    3. If you’d like to know someone who recommends IBC, that is not an insurance agent, I will point you to Tom Dyson. He is the publisher of a financial newsletter called Palm Beach Letter. He refers to the IBC as “Income for Life”. He has written about 25 essays over the last several months about this concept. He indicates he loves it. He says he also has several policies personally. He has no financial incentive in giving this advice…that I am aware of. You can easily find him or the PBL online.
    4. I take exception with your thought that commissioned sales people cannot be trusted. I have about 600 senior insurance clients. All that business is Medicare insurance related. I always take my clients’ best interest to heart. Even to a fault. I lose business sometimes because I am honest. I tell the truth. Sometimes the truth hurts. I’ve lost business because of that.
    My clients thank me again & again. They know that they have a knowledgeable insurance agent on their side. They also know & consider me to be a friend.
    Have you considered that there might be dishonest Alzheimer Researchers. You may be under pressure to publish something. How do I know I can trust your analysis? How do I know you are not just meeting a deadline?
    Jacob, nothing personal here. I am just trying to make a point. There are dishonest plumbers, CPA’s, politicians, etc. Life Ins Agents do not have a lock on dishonesty. That is a function of human nature. Getting information from professional people is critical. That’s why visiting with at least 3 agents might be a very good idea. Someone above in this blog made this point. I would want a brain surgeon specialist rather that a primary doc for my brain surgery. Would’t you?
    Your point concerning CPA’s not recommending this IBC. I have issues with CPA’s. For 15 years they told me to sock away as much in IRA’s as possible. With recent talk about Gov take over of such accounts. I know that sounds outlandish…even rediculous. I have learned that nothing is sacred with Washington. If it suits their agenda, they’ll do it. I regret the $ I have put in these accounts. I truly wonder if I will ever have the use of it.
    As I have recommended my insurance clients to consider the purchase of Long Term Care Insurance, again & again, the reply from my clients I would get is that, my CPA does not recommend it. Oh really? Would that same CPA be willing to sign a statement to that affect. We both know the answer. In dealing with CPA’s both personally & in my business, I have found them to be off base more often than not. The fact that no 2 of them agree on the tax due for any given taxpayer…that should tell you something about CPA’s. This point has been well documented. You can look it up.
    5.Lastly, at age 62, having experienced 2 major stock downturns in last 13 years, and a third one looming…I no longer trust the stock market. I can say the same for the bond market. Many financial pundits think that we are in for another major market correction. Read Harry Dent’s take on the matter. You can Google his name. Bonds are in a bubble. The risk of munis is default. We have had record number of defaults in very recent years… I refer to city & county defaults. We have at least 5 States that are on the edge of financial disaster. All these gov entities have unfunded pension & health liabilities. My point here is that at age 62….I feel I have NO GOOD PLACES TO PUT MY MONEY…ABSOLUTELY NONE. Getting 4.5% in this ultra safe environment in a tax advantaged plan seems quite good.
    In summary, you make many good points, and thank you again for this blog, but I respectfully & wholeheartedly disagree with your point of view.

    • Hi Mike, thanks so much for your valuable opinion and perspective.

      You’re correct that a short term muni bond fund is not guaranteed in the same way that FDIC insures bank accounts or that life insurance companies can guarantee principle. However, if the historical return data shows that the fund I referenced didn’t have a negative return in 30 years, it’s good enough for me.
      Jacob A Irwin recently posted…A Complete Guide To Saving Money On Your Taxes By Cleaning Out Your ClosetsMy Profile

      • Robert Castiglione says:

        There are over 30 falsehoods mentioned in the various IBCs (Insurance Banking Concepts) advertising and articles to both consumers and agents alike. Here are a few of the most common falsehoods without getting into all the mathematical errors that IBCs make.
        IBC says: A primary concept or principal of IBC is that you finance everything. You either finance by: Paying interest to someone else – a bank, lender, etc. Or when you pay cash you forfeit the interest the money could have earned otherwise.
        Response: False: you do not finance everything. Forfeiting interest is not financing. A person who has cash and pays cash for everything does not go into personal bankruptcy. Financing debt is the one way to get into financial trouble.
        In reality, giving up 1% interest from a savings account can earn more interest by paying off a 12% credit card loan. Why borrow from a life insurance policy from between 5% to 8% when spending is cheaper than financing. Paying cash for an item can save not only financing interest but can also receive a cash discount at the immediate time of the purchase. There are many money strategies in real financial analysis that build wealth without taking financial loans from a life insurance company.
        IBC says: When IBC discusses investment alternatives we must not only weigh the return we will receive but we must also evaluate what we are forfeiting or giving up.
        Response: False: When one is investing, they are not forfeiting. The idea to investments is to get a return on investment that is greater than in a savings account or life insurance policy. Stocks earn dividends, pay no tax on the gain until it is sold, has capital gain tax efficiencies, can be used as collateral for a loan at Libor rates, and it gains ownership share of a corporation. Put options and stop loss orders are just a few of the tools one can use to protect the investment by minimizing the downside loss while maintaining full upside potential.
        IBC says: The Infinite Banking Concept is not about investing, it is about financing, and financing is a process not a product.
        Response: False: IBC is in no way a process. It is a product sale. IBC is only about buying a whole life policy and using the standard options that are contained inside every whole life policy: paying a premium, selecting a dividend option, adding a PUA rider, taking a policy loan, paying loan interest, and paying back the loan with more money than the loan requires. All of these actions are product centric. If one does not purchase a whole life policy, IBC would not have a process. Therefore, it cannot be a process.
        IBC says: Anytime you can cut your payment of interest to others and direct that same market rate of interest to an entity you own and control, which are subject to minimal taxation then you will have improved your wealth generating potential significantly.
        Response: False: IBC is about paying interest to a life insurance company, and in no way are you paying interest to your own self. You may own an IBC whole life policy, but the life insurance company controls the loan and more. The life insurance company determines the loan interest rate, the timing of the loan, the payment of the loan interest, and holds and controls the cash values and death benefit as collateral for the loan. The life insurance company has the control to say NO! to your loan up to six months according to the provision of the contract. As far as taxation is concerned, there are several dangers lurking in the future for IBC life insurance loans, too many to name here. Perhaps another discussion point for you readers.
        IBC says: Financing involves both the creation of and maintenance of a pool of money and its use. When a financing system is combined with an investment system the combination of the two will always out perform an investment system.
        Response: False: To say that by combining by borrowing money from a life insurance company (financing) will always outperform non-leveraged investments is an absurdity. Borrowing money is a cost to the borrower and cannot be profitable if the money borrowed is lost or produces a lower rate of return than the cost of the loan. Investment and borrowing combinations are a dangerous duo and have in the past damaged consumers over and over again. Intuitively, you should know that there is no free lunch. You just don’t get something for nothing. IBC overstates its gains and underestimates its costs.
        IBC says: When the system combines reduced tax liability with a financing engine and allows complete control over your investments there appears to be no other system capable of generating wealth with as much consistency or speed.
        Response: False: An IBC policy does not reduce tax liability, it simply defers it. IBC policies are subject to the same ordinary income taxation if and when it is cashed in. In some cases, the tax deferred treatment of an IBC life insurance policy could be eliminated if the policy becomes a MEC.
        In all of the IBC literature, there is never a complete comparison to expert financial strategies. IBC only compares itself to the worst money decisions such as high interest bank loans at 10% to 12%, below average stock market yield years like 2007 and 2008 while they don’t include 2013 up 30%, and a taxable IRA and 401(k) plan without mentioning possible ways to avoid the income tax on both at retirement time. The IBC marketing strategy is to compare itself to the worst financial moves in order to make itself look good.
        IBC says: The essence of the Infinite Banking Concept is how to recover the interest that you normally pay to a banking institution through the use of dividend paying life insurance, so that the policy owner makes what a banking institution does. And by the way, you have a death benefit thrown in on the side!
        Response: False: IBC is comparing apples and oranges. A high interest bank loan is not a collateralized loan. The bank is taking a complete risk on the borrower. A life insurance loan is a collateralized loan which totally protects the insurance company from the risk on its loans. If anyone would deposit the same collateral into a bank as the premiums paid into an IBC policy to create the collateral, than that same bank would actually have a lower collateralized loan rate than the IBC policy.
        There is absolutely no possibility that a policyholder using IBC will can make the same return on the loans as a banker does. If any one believes that the IBC policyholder can, I have a bridge to nowhere to sell you.
        The primary purpose of any life insurance policy is to purchase a death benefit. Every aspect of the policy is based on an actuarial mortality table and other data. To say that a life insurance policy is earnings with “a death benefit thrown in” is a total misrepresentation of a life insurance policy. Consumers are not well served or informed with such definitions and explanations.
        IBC says: Earnings grow within the policy tax deferred. You are both reducing your tax burden and capturing monies for yourself that a banking institution normally would receive.
        Response: False: IBC does not define what they mean by earnings. Whole life policies do not receive earnings like other financial products do. Cash values are a preset contractual value established by the life insurance company. A life insurance illustration shows that it takes many years before an IBC policy breaks out even over and above the paid in premiums.
        My only hope is that all insurance products and services and can be advertised honestly and with ethical standards for the financial well-being of all consumers.

        • Unfortunately you refer to ibc as a product or a concept related to an insurance policy, when in fact it started from other types of retirement plans that allow you to borrow against your IRA and use that cash as if its yours. If you pay 6% for the loan while your cash still earns 4% you have a net loss of 2% paying for someone to manage the tax protection that you cannot create for yourself. This concept existed before people thought about using a whole life policy as the IBC vehicle. The main concept is that you want to control your cash and keep its water level regardless what life does to your lifestyle (ie surgery, emergency) stock/bonds/partnerships/stack in a company, do not give you a mechanism to use your money therein for these occurances. If you have your money tied up in these things you have much less control to stabalize things when some unexpected happens.

          Investments= Might make a return, if you do your likely going to pay uncle sam, it is an investment because your giving your “cash” to someone else temporarily, it is a risk because you have no control over what they do with your money.

          Cash to a mutual company for an insurance policy is not an investment toward a business or stock or municipality, it is an investment on your own future (ie death benefit, savings plan, retirement account ) and nothing else. You pay a premium to a company to manage it for it. You cannot create your own tax shelter, for example you cannot created your own IRA, you must pay a company licensed to do it. If your paying premiums for an IRA you might as well be givnng it to an account that gives additional benefits for the same dollars you put in. Create an IRA with a bank that has the ability to allow you to use it as an IBC.

          Create a whole life policy to save for retirement with more than 15k per year. Save 100k per year in a whole life policy if you wish, because its an ira without deposite limits.

  50. Tanisha Souza says:

    I am the owner of a 12-year old Wealth Coaching company. We do not sell financial products. In fact, we are not insurance agents, financial planners, CPAs, loan officers, realtors or any other type of financial services company. We have never received referral fees or kick-backs from these people because we want to remain unbiased coaches for our clients. Because my company teaches and coaches people on wealth strategies, one of the many strategies we have been teaching for almost the entire 12 years is the concept of Infinite Banking.

    I’d say that most of the details of how Infinite Banking works in your article are true and correct. Here’s the big point that I feel is missing from your blog. The point of Infinite Banking is not to get a higher ROI than you could get by buying a term policy and investing the rest. The reason is simply to recoup the interest that you would have paid a bank for things you typically finance throughout your lifetime, and do it in a tax advantaged vehicle that can grow exponentially over time.

    Let’s face it. We will pay hundreds of thousands of dollars to banks to finance cars, student loans, business equipment, homes, rentals and more over the course of our lifetimes. What could we do if that money was paid to and growing tax-free and safely inside a whole life policy (not subject to stock-market fluctuations) and could be accessed tax-free throughout your life? That’s the premise behind Infinite Banking.

    I will say that in my years in teaching this concept, I have yet to meet many competent or informed insurance agents who know how to (or want to) properly structure a whole life insurance policy for the maximum benefit of the insured who wants to use this, most likely for the reasons you mentioned above.

    I agree that this strategy is not for everyone, especially people with tight cash flows or lots of pre-existing debt. However, I think that it can be for the average person who is trying to build wealth.

    • Thanks so much for reading Tanisha and for sharing your valuable input.

      At your company, do you work on an hourly coaching fee structure, or is it commission based?

      As I’ve mentioned before, I don’t really think you can compare whole life insurance savings/loaning to taking a loan out from the bank because with whole life, you are borrowing your own money, not other people’s.
      Jacob A Irwin recently posted…5 Habits That Will Definitely Waste Your MoneyMy Profile

      • Tanisha Souza says:

        Hi Jacob,
        We don’t coach for hourly fees and we don’t do anything commission-based. We charge annual coaching fees for monthly one-on-one online, telephone and email coaching, workshops and classes.
        I agree with the OPM concept and I teach a lot of that, especially as it pertains to real estate investing. And I agree that this is different. In my view, it’s an entirely different way of thinking.

    • Robert Castiglione says:

      To Tanisha, Could you answer the following questions for me that wold help explain IBC. At what interest rate are you using for outside bank loan interest to compare to IBC? You say that this bank loan interest will be used over a lifetime. would not a person ever have cash to spend eventually to avoid bank loans? Could you explain why you say life insurance loans are tax advantaged since they are paid back with after tax dollars and the loan interest is not income tax deductible? Fixed life insurance loan rates are between 7% and 8%. Since bank car loans today are very low between 1.5% to 4% and some are income tax deductible, how could worse life insurance rates produce greater results than better bank loan rates?

      You say that the premise behind Infinite Banking is to have “money growing tax-free and safely inside a whole life policy (not subject to stock-market fluctuations) and could be accessed tax-free throughout your life. Could you explain how money is tax free in life insurance and not tax deferred?
      Could you explain how life insurance companies and their reserves to pay dividends are not subject to stock market fluctuations? And lastly, can you explain how life insurance values can be accessed completely income tax free for life? Since this is the premise of IBC and you are a IBC teaching coach, your explanation should be exact and supported by facts please. Thank much.

      • Mark Marshall says:

        Robert, I would like to take a stab at some of your questions for Tanisha.

        Regarding your reference to “worse life insurance rates”, you are assuming a FIXED loan rate from the insurance company. Your argument would be somewhat true in that case. However you are not factoring in the guaranteed interest and non-guaranteed dividend that would offset the rate.

        The better option is to have a policy with a loan rate tied to an index. That is what I personally have, as do all of my clients. Generally the difference historically is about 1%. As I pointed out in another post, when you finance with a third party you only have use of those funds ONE time and all of the interest is paid out.

        Why not borrow from YOURSELF with interest while EARNING interest on the funds at the same time? Once you pay yourself back, you have FULL use of the funds again and your account has GROWN during the payback period. Where else can this be done?

        Paying cash is also not wise and is somewhat of a myth. If you research “time cost of money”, you will see why. If I have $20k in cash and use it to purchase a vehicle, I have to first consider how long it took me to SAVE that amount.

        For example, if it took me 4 years I now lose in at least 2 ways. First, it will take another 4 years to save it again. As a result, I lose the gains I could have made during that time. The same cash in the right safe money plan EARNS during the entire time and I can borrow the funds from my plan to pay cash for the vehicle in a much more efficient and profitable manner.

        To your point about tax-free vs. tax-deferred, I prefer “tax-favored”. Notice Tanisha said “could”. In my discussions with accountants, they say tax-favored is accurate in this case because the tax basis actually increases over time in a properly designed plan. As long as withdrawals or loans do not exceed the cost basis, then indeed the money is tax free.

        Finally, how is it that mutual insurance companies do not seem to be adversely affected by market downturns? Simple. They run their business extremely efficiently! Can you name ONE life insurance company that went belly up in 2008?

        In fact, it is very rare for a life company to go under. If they do, most if not all states have guaranty associations to pay up to certain amounts for both death benefits and cash values. Generally what happens is that the home state of the company would put it up for bid to be purchased by a competitor.

        Of course, there are no guarantees but life companies are among the most solid in any industry, many with track records over a 100 years. The business model is sound and based on the mathematics of actuarial tables. In other words, they are very accurate in predicting when death will occur. As a result, they have a good handle on assets and liabilities in advance each year.

        I would ask you: how is it that a number of companies who provide these plans have paid dividends each year for over a 100 years?

  51. Robert Castiglione says:

    For those of you who may have missed the CBS report “Bestselling book’s financial promises don’t add up.” By Alan Roth. You can Google it at:
    http://www.cbsnews.com/news/bestselling-books-financial-promises-don't-add-up/

    IBC or BOY states that one can build up the cash values in a policy and then borrow from it to purchase cars or any other items. If they pay back the loan principal and interest, and add some extra cash to it and also up front into a paid-up-additions rider, BOY policyholders can recoup every penny of their major purchases.

    So Roth and his wife met with a Bank on Yourself authorized representative. I too did exactly the same thing about one year ago. In both cases we were presented with life insurance illustrations. The illustrations I was shown had mathematical errors as well as timing errors. In Roth’s case, he checked it out and the bottom line was he found errors and BOY claims that were unmet.

    Determined to verify Roth’s calculations of Bank on Yourself’s offer, he contacted Lafayette Life directly and spoke with top management there. Roth says that they told him,”your numbers are right.” The BOY book’s tantalizing notion of consumers eventually recovering “every penny” they spend somewhere down the financial road fell far short of that promise. Rather, it seems like a pricey way to finance a purchase…

    The takeaway? Beware of claims that sound to good to be true and with no specifics or clear proof of it being true.

    • Actually, this has been pretty thoroughly analyzed here: http://www.bankonyourself.com/response-to-allan-roth-cbsnews-com-moneywatch-review-of-bank-on-yourself.html

      The two second summary is that Mr. Roth was comparing the cost of financing the purchase of a car through policy loans to the act of not purchasing a car at all. No surprise he came to some bizarre conclusions!

      That being said, when I first heard of this concept I was confused by the whole financing concept. The conclusion I have come to after several years of my own experience building policies of this sort is that the option to access the cash value through policy loans creates tremendous flexibility and offers a lot of security – and for some people, can be better source of financing purchases than other options available to them. While I value this benefit, it is only one benefit among a host of others. I would hate for anyone to shy away from thoroughly investigating and understanding this strategy solely due to the confusion over the use of policy loans for financing!

  52. Robert Castiglione says:

    Dan:
    I appreciate your reply. My Roth did exactly what he should have done in his analysis. The claim made by BOY and others is, and I quote from Pamela Yellen: “You can use the money growing in your plan (BOY) to buy things (cars), while your money continues to grow as though you never touched a dime of it (to buy cars).” She goes on to say in her advertisements: “In addition to the three cars we’ve already gotten for free, my husband and I have laid the groundwork to get new cars for free for each of us, every 4 years, for the rest of our lives. ”

    The claim made by Yellen and every other authors of the Insurance Banking Concept is that you get everything that you buy for “free”. To test that concept, Roth was exactly correct to compare two identical people, one using BOY to make car purchases; versus another person not purchasing any cars at all. If BOY’s claims were accurate, the results would show that BOY had purchased cars for life and had the same amount of money or more than the other person had without any cars. As the actuarial data clearly shows, BOY does not hold up under certified actuarial verification.

    BOY argues against accurate actuarial calculations because it wants to make its comparison only with a person using car loans at very high loan interest rates, such as with credit card loans and non-collateral bank loans. In other words, BOY wants the other alternative to be a worse case scenario. For example, if a person bought cars using a 3% loan interest rate, BOY would be a losing proposition every time. The only way BOY can make itself look good is to have the other person buying cars (or anything else) by constantly borrowing at loan interest rates of 12% or higher.

    BOY advocates paying back a 5% variable or 8% fixed life insurance loan at a constant rate of 12% or higher. That extra money paid is “free money” according to BOY because it assumes it had to be paid to the credit card company or bank otherwise.

    But if you could borrow money at a lower rate than the life insurance policy charges for its loans, and pay back the lower rate to the BOY policy, then the BOY policy would have an ever increasing debt and may eventually lapse. That means, there is a large opportunity lost using BOY for anyone that could borrow money at low rates such as with paying cash, a home equity loan, a refinance of a mortgage, a personal loan, a 401(k) loan, a collateral bank loan, a margin loan, an interest free lease, cash discounts, or other strategic financial moves available in the marketplace. Having only one source
    or concept (all your eggs in one basket) is never a good idea because laws, taxes, rates, personal situations and employment options can all change.

    In regard to your other remarks about your own policies, you are not accessing your cash values when you borrow for your BOY policy as you claim. Your cash values are locked up and held by the life insurance company as collateral for the loan. If you read your life insurance policy contract in the loan provision section, it clearly states that you can borrow money from the life insurance company and they will hold your cash values as collateral for the loan. You have debt on your balance sheet when you take a life insurance policy loan. You did not access your cash value otherwise you would have no debt. The only way to access cash value is to surrender the policy and lose the death benefit.

    Loans of any kind do not offer financial security. They give up security. Unpredictable things in life can happen to make loans come back and bite you. We do not hear of a person who had no loans at all ever going bankrupt As far as flexibility is concerned, you also lose flexibility wit the BOY concept. Loans bind up flexibility, it does not increase it. Only cash gives you flexibility and cash values are not liquid or flexible. You can never get your cash values unless you surrender your policy. At death, you lose all your cash values to the life insurance company. They will only pay the death benefit to your beneficiaries, and keep the cash values. If your cash value are yours, then how does the life insurance company have the right to keep them at your death? The reason is that the cash value is never yours to use. It is owned by the life insurance company as either collateral against loans or collateral against the death benefit. Only upon the surrender of the policy and the loss of all of the benefits will you be able to access your cash value.

    Whole life insurance is an amazing financial product. Its use can certainly improve the financial condition of anyone who owns it. But the “Banking” concept takes those benefits away by turning the policy into an inefficient one because (1) Lowering the death benefit of the base policy is a major mistake. (2) Adding term life insurance adds an unnecessary cost that never gets recaptured. (3) By increasing cash values it runs the risks of the policy becoming a MEC, which would be a disaster for the policyholder. (4) The complexity of the policy’s calculations and administration is time consuming, stressful, and dangerous. (5) Loans are not a safe way to handle life’s purchases. There is the ever present danger of over using loans. (6) Loan interest rates could go higher making the policy even more inefficient. (7) Life insurance loans could become income taxable under the law. It has been discussed already in Congress. (8) When the inventors of the “banking” concept in their books and advertisements make mathematical errors and use hyperbole which cannot be supported, then one must be cautioned not to trust the concept itself. (9) Given an honest and ethical comparison, the banking concept loses under any legitimate scenario compared to other methods and strategies available to consumers in today’s marketplace.

    You say that you were confused when the concept was first shown to you. Now you say, ” I would hate for anyone to shy away from thoroughly investigating and understanding this strategy solely due to the confusion over the use of policy loans for financing! ” you admit there is much confusion. Why is that? Easy to answer. There is no validity to it and any legitimate analysis would show it true costs.
    I can tell that you are an intelligent and nice guy. In all of your threads, you are professional and polite. I respect that in a person. But are you sure you are doing the right thing for yourself and your family? If there was a better way than BOY, would you want to know about it? If the answer is yes and you are open for improvement, then I think that you should take a little more time and research this issue with experts in the field of personal finance and not just those that sell BOY.

    • Mark Marshall says:

      Hello Robert. I see that you speak strongly against safe money plans and I appreciate your passion. However, I believe you have some misconceptions about how these plans work. My first question to you is if you have read either of Yellen’s books? I just finished reading the latest one and see it as very much fact-based. The math is sound when understood in context.

      First, in my arguments I will be referring ONLY to an over-funded dividend-paying life insurance policy obtained from one of only a handful of companies who customize plans for clients. In addition, these companies provide non-recognition loans only with VARIABLE interest rates.

      Just as in any industry, there are many different choices. Not all are good. You may surprised to know that some of the more well known companies mentioned in Jacob’s article do NOT provide the best options.

      In addition, many of my colleagues have NO IDEA how to properly structure a safe money plan for clients. In my case, I work with a professional association that has been in this industry for almost 20 years with thousands of clients. If this concept was as bad as it is portrayed here by some bloggers, this association would have disappeared long ago.

      Here is a simple counter argument to your claim that car loans from these plans are not good or do not work as claimed. First, interest rates from third parties are always based on credit worthiness and ability to repay. Second, the lowest rates for vehicles generally come at the expense of not getting rebates. In other words, I either get the rebate OR the lowest rate and not both.

      With my safe money plan I have something that I have not seen discussed: LEVERAGE. I can go to the dealer with cash and get the best price. Then I borrow the money from my “bank”. The insurance company lends me THEIR money, using my cash value as collateral.

      I also do not have to BEG for the money or PROVE anything. All I do is make a request and the money is sent in a few days.

      As an “honest banker”, I then calculate the monthly payments for the loan as though I had borrowed from a third party. If I am really savvy, I will actually pay HIGHER than market interest since it is in my best interest.

      While the loan is outstanding, I am paying SIMPLE interest to the insurance company once a year. In other words, I only pay interest on the amount outstanding at the end of each year. With a third party, I am paying AMORTIZED interest. That means, I generally pay a DAILY interest rate, calculated monthly based on the CURRENT outstanding balance. This is no different than paying a mortgage.

      With my personal plan, my interest rate is tied to an index. Generally, if that rate goes up, so does my dividend on my cash value. To be clear, this is NOT guaranteed but has plenty of history behind it. In my case, I use a company that has paid dividends for over 100 years and the “delta” or difference in the loan rate vs. the dividend has generally been about 1%. Remember, as a mutual policyholder, I am FIRST in line to receive benefits. It is NOT in the insurance company’s best interest to mess with me!

      I ask you now–all things being equal–where can you get net 1% loans for ANYTHING today? In addition, are you familiar with a concept known as “velocity”?

      While I am repaying the loan, at least two leveraged events are happening. One, my cash value is still growing and COMPOUNDING. Plus, as the account is repaid, I have instant access to those funds again. Please explain how you can do this with a third party loan.

      With an amortized loan, I am paying compound interest to the bank. With a safe money loan, I am EARNING compound interest on my cash value while I repay the loan. If I then pay myself higher than market interest, I do even better.

      Your argument that taking out too many loans can be problematic is partly true. If the plan is reviewed with an expert advisor on a regular basis, the client will be warned about any borrowing issues. However, we all have free will. If we make the conscious choice to be foolish, that is on us.

      Worst case is we lapse the policy. If so, shame on us. However, if I am irresponsible with “street credit”, I can hurt my future chances to obtain credit. This cannot happen with a safe money plan.

      Another aspect to consider is gaps in employment or even disability. If I lose my job and cannot make my car payments, here comes the repo man! Again, this cannot happen with a safe money plan that is properly managed. The car is already bought and paid for. If I miss a few payments, there are no negative consequences and no mark against my credit.

      Worse, if I am disabled when I try to make any large purchase, who will lend me the money? This is another advantage of a safe money plan.

      Finally, one could indeed make the claim that financing cars this way is “free”. Why? Simple. Think “compounding”. I am further ahead with a safe money loan than with a street loan. The math is simple.

      Anyone is free to debate my explanation. All I ask is please present FACTS and not opinions. Let’s learn together.

    • I think you may have misunderstood something. I did not intend to imply that having or taking loans provides security. What I said was that having the *option* to easily access funds (using cash value as collateral) provides security. I firmly believe that to be true. I am as much against debt-funded consumption as you appear to be and fully appreciate the risks inherent in debt.

      Compared to many other places where wealth can be stored and grown, over-funded Dividend Paying Whole Life offers an easy way to access funds without the risk of locking in losses (i.e., forced sale of equities or bonds at a bad time), without requiring someone else to grant permission (i.e., attempt to initiate a mortgage or HELOC in a hurry), without losing money to penalties (i.e., cashing out funds from 401K), and without requiring a rigid repayment plan (i.e., personal loan), etc. Not saying it is “my” cash value, I definitely understand that it is a loan from the insurance company using cash value as collateral. That doesn’t change the fact that if one has cash value, it is easy to initiate that loan and get access to funds in the event money is needed for whatever – hopefully good and thoughtful – reason or purpose.

      I agree with you that there are more efficient (i.e. cost effective) sources of financing available to many people. On the other hand, the policy loan rate may be the best one available to others – it totally depends on individual circumstances.

      I agree with you that the focus on financing in IBC (dating at least back to Nelson Nash if not earlier) may be over-stressed and and can distract from the many other benefits that are also critical to making this strategy such an attractive option. When I said, “confusion”, that’s what I was referencing. Because like you, I am also an analytical person, I was “confused” by the stress on financing when I could readily identify other sources of financing – available to me – that had lower costs. I was also “confused” by the assertions about recapturing cost of purchases since that doesn’t immediately make sense, I’ve never found such a thing as a free car! Fortunately, I was able to set that aside (since if you don’t want to use policy loans you certainly don’t have to!) and see all the other benefits as well.

      If you are using the financing aspect alone to evaluate this strategy, I am not surprised at your conclusions. I understand the concerns you are raising about various assertions. I think there is a point that the folks making the assertions are trying to make about efficiency (rate arbitrage) and the fact that paying interest cost back to a mutual insurance company makes the company stronger which in turn benefits the policyholder. As stated earlier, I have also struggled with understanding the intended message, but I am not throwing the baby out with the bath water over that and would suggest that nobody else should either!

      I am both experienced and well read in personal finance and our family uses or has used many of the other things you alluded to in your post. I have had extensive experience in the stock market, with mutual funds, with government sponsored plans (IRA, 401K, 529, etc.), with annuities, whole life and with straight term insurance. I minimize my mortgage rate through appropriate refinancing and we have a very low rate HELOC. We intentionally separate equity from our home and keep it safe in other places (at a cost lower than the return made in those other places). We live below our means and do not finance our consumption through debt. I use short term policy loans from time to time to manage cash flow, but I also use the HELOC for that purpose. I am very confident in saying that what we are doing is meeting or exceeding expectations for our family, including using Dividend Paying Whole Life as one of the key repositories for the storage and growth of our wealth and in some other creative ways.

      I am under no illusion that I have learned everything there is to know and am always looking with an open mind for new things that could complement (or even replace if appropriate) strategies we are using today.

      And with that, I’ve said my piece and will step back. No need to reply point by point. 🙂

  53. Mark Marshall says:

    Jacob, this is an excellent blog. Full disclosure: I am a college planning consultant and a licensed life insurance general agent (non-captive). Over time I plan to read through all of the replies here. My primary concern is that there is a great deal of misinformation in some of the responses.

    In my experience, I find this is due to a lack of understanding of the infinite banking concept. Honest debate is appreciated but only when it involves facts and not opinions stated as fact.

    In my case, we have a dual responsibility in our practice. Most of our clients have waited until the last minute to fund college. As a result, their savings choices are severely limited. Using what we call a “safe money plan” with permanent life insurance as a vehicle just so happens to be the ONLY way to address this specific challenge.

    Speaking of challenges, I challenge anyone to devise a better plan for SAVINGS than the safe money strategies. Many naysayers compare it to INVESTMENTS. That is a false argument at best. Truth be told, their is NO downside to a safe money plan. Whereas the ONLY guarantee with investments is that you can lose some or all of your money!

    There are TRADE OFFS with infinite banking but they are all good. This is not my opinion but is based on experience with my own plan. Life insurance companies are in business to MAKE MONEY! That is a GOOD thing. As a mutual policyholder, the company is beholden to ME and not to stockholders. I am FIRST in line for benefits.

    As time allows, I hope to be able to bring another voice to this blog and clear up some of the common misconceptions. Anyone is free to disagree. However please do not “confuse me with the facts”. Math does not lie. People do. Let’s have a productive conversation and learn together.

  54. Robert Castiglione says:

    Hi Mark:
    Your reply to my email was quite interesting. I would like to respond point by point, not with opinion, but with facts.
    When you say “I believe you have some misconceptions about how these plans work,” I believe you are barking up the wrong tree. I am probably more familiar and more qualified to speak about these plans than anyone else in the United States. I have spent years studying, researching, analyzing, witnessing, and attending actual training sessions of IBC by IBC teachers.
    I have read most of the books on the subject – “Becoming Your Own Banker” by Nelson Nash, “Bank on Yourself” by Pamela Yellen, “The Ten Truths of Wealth Creation” by John E. Girouard, “Safe Money Millionaire” by Brett Kitchen and Ethan Kap, “A Path to Financial Peace of Mind” by Dwayne Burnell and some others. What do all of these books have in common – mathematical errors, hype, misconceptions, and no proof.
    The Insurance Banking Concept is not fraudulent or against any insurance laws. However, many of the largest life insurance companies in the industry will not support, endorse, or allow it to be sold by their sales representatives. The life insurance companies that do allow it have reported they are receiving more policy holder complaints than with any other sales method.
    Now let me address your arguments:
    Mark says: “First, interest rates from third parties are always based on credit worthiness and ability to repay.”
    Bob replies: That is why third party lenders are able to offer cheaper loans than the life insurance company. Today, lenders charge 1.5% to 3.5% while life insurance companies charge about 5% to 8%.
    Mark says: “Second, the lowest rates for vehicles generally come at the expense of not getting rebates. In other words, I either get the rebate OR the lowest rate and not both.”
    Bob replies: Car dealers have inventory and want to sell cars. They will offer tremendous deals on loan interest rates for leases or loans. I negotiated my car interest loan rate this month down to less than ½ of 1%. Life insurance companies will not give a lower interest loan rate because the dealer wants to sell cars. I am in control, insurance banking concept is not in control.
    Mark says: “With my safe money plan I have something that I have not seen discussed: LEVERAGE. I can go to the dealer with cash and get the best price. Then I borrow the money from my “bank”. The insurance company lends me THEIR money, using my cash value as collateral.”
    Bob replies: There is no leverage with insurance banking concept. Anyone can pay cash for a car by getting a cheaper loan rate from the dealer, real bank, or other lender through negotiation of the rate.
    Mark says: “I also do not have to BEG for the money or PROVE anything. All I do is make a request and the money is sent in a few days.”
    Bob replies: A life insurance loan is a collateral loan. With whatever lender you choose, if you give them collateral too, you will not have to beg or prove anything. The life insurance has no risk to lend you their money. The have your money (cash value) locked up in a vault somewhere.
    Life insurance companies have the contractual right to delay a car loan for up to six months from the time you request it. You might as well wait for next year’s model to come out by then.
    Mark says: “As an “honest banker”, I then calculate the monthly payments for the loan as though I had borrowed from a third party.”
    Bob replies: How honest are you when you do not quote a rate lower than the life insurance company rate? Keep in mind that we are looking for the best plan not one just better than the worst plan.
    Mark says: “If I am really savvy, I will actually pay HIGHER than market interest since it is in my best interest. While the loan is outstanding, I am paying SIMPLE interest to the insurance company once a year. In other words, I only pay interest on the amount outstanding at the end of each year.”
    Bob replies: The life insurance company is holding your money as collateral in an account. It is no longer your money, it is theirs.
    Mark continues: “With a third party, I am paying AMORTIZED interest. That means, I generally pay a DAILY interest rate, calculated monthly based on the CURRENT outstanding balance. This is no different than paying a mortgage.”
    Bob replies: Third party loans come in many types, rules, rates, payments and penalties and not as you describe.
    Mark says: “With my personal plan, my interest rate is tied to an index.”
    Bob replies: You have no control over your own interest expense rate. The rate is not guaranteed and you have no way to truly know your outcome over the life of the policy.
    Mark says: “Generally, if that rate goes up, so does my dividend on my cash value.”
    Bob replies: There are no such guarantees regarding dividends. Dividends may not go up when loan interest rates go up. Even if they did, they may not go up in the same proportion or as fast as the indexed loan interest rate does.
    Mark says: “To be clear, this is NOT guaranteed.”
    Bob replies: It is not clear to consumers when you say one thing and then take it back.
    Mark says: “but it has plenty of history behind it. In my case, I use a company that has paid dividends for over 100 years and the “delta” or difference in the loan rate vs. the dividend has generally been about 1%.”
    Bob replies: The words -“generally been about” – are not very reassuring. It would be helpful to see the actual side by side numbers, you know, just the facts.
    Mark: “Remember, as a mutual policyholder, I am FIRST in line to receive benefits. It is NOT in the insurance company’s best interest to mess with me!
    Bob replies: The life insurance company employees receive benefits before you do. They get their insurance benefits, their retirement benefits, travel expenses, and more. Actually, policyholders are last in line to receive a return of their premiums. Lenders to the insurance company come before policyholders.
    Mark says: “I ask you now–all things being equal–where can you get net 1% loans for ANYTHING today?”
    Bob replies, I hope you are not advising your clients that they are receiving a net 1% loan. That is untrue. Dividends are not guarantees and cannot be used as a part of the loan calculation rate. Even if the dividends were paid, and I believe that some dividend will be paid, that has no bearing on the interest cost of the loan. A dividend will be paid whether you have a loan or not.
    Example: Person A has no loans and receives a dividend of $500. Person B has a loan and owes $600 of interest. He takes his $500 dividend to pay the loan the loan interest plus $100 out of pocket. He is out $600 dollars
    Mark asks: “In addition, are you familiar with a concept known as “velocity”?”
    Bob replies: Yes, I was the first person in the life insurance industry in 1973 to ever use the term “velocity.” I have taught the concept of velocity of money to thousands of agents across America and Canada.
    Mark says: “While I am repaying the loan, at least two leveraged events are happening. One, my cash value is still growing and COMPOUNDING.
    Bob replies: Cash values do not grow in a compounding fashion. Cash values are a preset contractual amount printed in advance in your policy the day you buy it. There is no compounding going on.
    Mark says: “Plus, as the account is repaid, I have instant access to those funds again. Please explain how you can do this with a third party loan.”
    Bob replies: I believe you are confusing collateral loans with non-collateral loans. That is like comparing apples and oranges. If my savings account at a bank has $10,000, I can borrow up to $10,000 without credit or any problem. As I repay the loan, that money becomes available to be borrow again.
    Mark says: “With an amortized loan, I am paying compound interest to the bank. With a safe money loan, I am EARNING compound interest on my cash value while I repay the loan. If I then pay myself higher than market interest, I do even better.
    Bob replies: False, false, and false on all three points. Loan interest does not compound, cash values do not compound, and you cannot do better by paying more interest unless the loan rate that you are comparing is much higher than the life insurance loan rate.
    Mark says: “Your argument that taking out too many loans can be problematic is partly true. If the plan is reviewed with an expert advisor on a regular basis, the client will be warned about any borrowing issues. However, we all have free will. If we make the conscious choice to be foolish, that is on us.
    Bob replies: People in our society have a propensity to spend. If you tell them that they are borrowing at a net 1%, and then everything that they buy “is free”, then you are opening up the door for runaway spending and an insurance policy destruction.
    Mark says: “Worst case is we lapse the policy. If so, shame on us. However, if I am irresponsible with street credit”, I can hurt my future chances to obtain credit. This cannot happen with a safe money plan.
    Bob replies: Borrowing money is never a prudent financial strategy. It is a cost no matter how you look at it. It is speculative and when things go bad, they realty go bad. I have seen policy loans create policy lapses. It is a fact that policies with loans have a higher lapse rate than policies without loans.
    Mark says: “Another aspect to consider is gaps in employment or even disability. If I lose my job and cannot make my car payments, here comes the repo man! Again, this cannot happen with a safe money plan that is properly managed. The car is already bought and paid for. If I miss a few payments, there are no negative consequences and no mark against my credit.
    Bob replies: Remember, you funded or capitalized your collateral upfront with a payment to a PUA rider. That payment could be collateral in any other lending situation too. So there is no repo man, no lost credit, and no negative consequences.
    Mark says: “Worse, if I am disabled when I try to make any large purchase, who will lend me the money? This is another advantage of a safe money plan.
    Bob replies: Everyone should own life insurance. They should own more life insurance than the banking concept recommends. The philosophy of lowering the death benefit for more cash value is dangerous for consumer. The death benefit is always more important than the cash value. Remember, you cannot get the cash value as long as the policy is in force. And when you die, the life insurance company keeps all of the cash values and takes loans from the death benefit.
    Mark says: Finally, one could indeed make the claim that financing cars this way is “free”. Why? Simple. Think “compounding”. I am further ahead with a safe money loan than with a street loan. The math is simple.
    Bob replies: No professional and accredited actuary would certify that the cars are “free.” The cars are not free and they cost more under the banking concept than any almost any other intelligent way to buy cars.
    When you compare something bad for people against something that is worse, than in that instance, bad looks good. That is the hidden secret and ploy used by the insurance banking concept. It compares itself to only worse case scenarios. But if the banking concept is compared to the best case scenarios in the market place, then the insurance banking concept looks bad
    Mark says: “Anyone is free to debate my explanation. All I ask is please present FACTS and not opinions. Let’s learn together.”
    Bob replies: Thank you Mark. I have taken you up on your offer to help people learn the true facts about the insurance banking concept. Almost every thought, word, or idea about your support for insurance banking is invalid and not verifiable by actuarial certifications.

    • Mark Marshall says:

      Robert, where do I start? For the sake of bandwidth and eye strain, I will keep it short.

      I am no spring chicken and have met folks like you over the years. It seems to me that you are the type who would disagree with proven facts even if they were right in front of you. That is unfortunate and does not make for honest debate.

      Most of what you say here is your OPINION. Unless I am missing something, I do not see many FACTS. When you say “I am probably more familiar and more qualified to speak about these plans than anyone else in the United States”, do have any FACTS to back that up or is that your opinion of yourself?

      If, in fact (pardon the pun), you have a better solution for the wary consumer, then please present it at the BOY site and claim your $100,000 prize!

      I am part of an organization (not BOY) that has millions of dollars in premiums in force and thousands of clients. The persistency rate is higher than the national average. That is all the PROOF I need that the concept works. That is “boots on the ground” stuff and not theory.

      In addition, my wife and I have our own plan and it works exactly as it states in the contract. We have had zero issues in any dealings with the company and do not expect any.

      Again, that is all the proof I need, i.e. personal experience. We can all make numbers look the way WE want. What matters to me–and to clients–is what is stated in a contract in one of the most highly regulated industries on the planet.

      If your argument is that SOME agents and companies may misrepresent the concept and the numbers, then we could have some common ground. However, to say flat out that the concept as a whole does not work is flat out false. That is FACT based on my personal experience and that of my clients.

      I wish you well in your mission.

    • Mark Marshall says:

      By the way, Robert, one footnote. When you say, “What do all of these books have in common – mathematical errors, hype, misconceptions, and no proof.

      The Insurance Banking Concept is not fraudulent or against any insurance laws.”

      That would seem to be an apparent contradiction. Sorry, but you cannot have it both ways.

  55. Robert Castiglione says:

    Dan:
    Thanks for your reply. You continue to be a gentlemen. I try to be one but have a more difficult time because I am the messenger of bad news to all of those IBC people out there who have succumbed to slick marketing folks.
    We agree that any kind of loan is not a cost and can lead to over use. The consumers prove that every day with their cravings for things. Any loans that are advertised as a net 1% is misleading and inaccurate as well as dangerous. The net cost of a life insurance loan is exactly the amount the life insurance company is charging for the loan. The Insurance Banking agents and authors play a shell game with consumers. They make believe there is a dividend payment on the loan. There is none. The dividend will be paid whether there is a loan or not. There is no extra goody in there for the loan applicant. He would have gotten the dividend anyway, therefore the cost of the loan is the full interest charge and not a net 1%.
    The fact that it is easy to access a life insurance loan does not make a costly loan any better, especially if it is a losing deal versus other available cheaper approaches.
    The disadvantages are numerous:
    1. It is a variable loan rate. You do not have control over the rate, the life insurance company does.
    2. The dividend is not relative to the loan interest. It will be paid whether there is a loan or not.
    3. The life insurance loan rate is higher than most other loans available in the marketplace, accept for credit cards and low credit bank loans. No sophisticated borrower would pay life insurance loan interest rates on substantial sums of money.
    4. Life insurance loan rates are not income tax deductible. That is too large a benefit for anyone to give up for their borrowing needs. As taxes go higher, the deduction of one’s loans becomes extremely important to the efficiency of the borrowing.
    5. The reason insurance banking people fail to tell the truth about the net cost of the loan not being 1% is because they would lose every time in comparison to all other loans available in the market place at better rates. So they play inappropriate math games with the American people by taking the dividend and subtracting it from the loan interest rate.
    6. Cash values do not belong to the policyholders unless they cash surrender their policies. That is the only way to get access the cash values (PUA’s are policies). The proof of that is when a person dies, the insurance company keeps all of the cash values. To boot, if you have loans against those cash values, the insurance company takes that amount from the death benefits being paid to the beneficiaries.
    7.The IRS is contemplating taxing life insurance policy loans in the future. It has been discussed. If it happens, those people that have all their eggs in one basket will be cooked. Can it happen? Yes it can.
    8. The life insurance company can deny payment of loans for up to 6 months. IBC people are not warning consumers.
    9. The rate of lapses of policies with loans is higher than those without loans.
    10. Life insurance companies expenses go up when all of the notifications and forms are been submitted for policy loans. That is an expense to reserves and future lower dividends for all.

    Everything that is going on in the marketplace today has worked against those people that bought into IBC. We have lower loan interest rates than in life insurance policy loans. The stock market has boomed into record performance giving investors huge returns. The estate tax credit has grown to $10,000,000 having a reason to own cash value life insurance become less likely for may consumers. Dividends on life insurance have declined over the last few years. People are living longer making the opportunity costs of the policy to potentially outgrow the death benefit.

    Cash value life insurance is a complex financial tool. I am an expert of cash value life insurance. I would not use those policies in such a designed losing strategy. But IBC is not as bad as having loads of credit card debt, term life insurance, and taxable mutual funds all together. But I prefer the best strategies not the bad ones or the worst ones.

    I would be more than happy to answer any of your questions and continue the dialogue. It is good for consumers to hear all sides.
    Thanks.

  56. Robert Castiglione says:

    Mark:
    Errors made by authors and advertisers do not make something fraudulent. It simply makes it wrong. If the authors and the marketeers were to correct their mistakes, that would be an improvement. But if they did. the banking concept would still not meet expectations and fall far short of other available approaches to personal finance.
    I know that most people that sell IBC may mean well and not be cognizant of the errors or omissions contained therein. So please don’t take me wrong. Incompetence, ignorance or ineptitude is allowed in America. We are all guilty of those traits at one time of other in our lives, but we try to learn and grow and be better.
    I am a strong advocate of whole life insurance and know that cash value life policies and their options are sound vehicles for building wealth and protection, but if one mixes the options together in a bad way and uses inappropriate language to explain it, then they can do harm to consumers unknowingly.

    • Mark Marshall says:

      Robert, now we have some common ground and can continue this part of the conversation. One caution I have given to myself is not to be an absolutist. I am only responsible FOR me and TO my clients.

      As you touche on, those of us in the insurance industry have to carry Errors and Omissions coverage. In other words, we can be held accountable for what we SAY and not just what we DO. I take that VERY seriously.

      Here is what I do know from personal experience: the infinite banking CONCEPT is sound and it works every day for “honest bankers” with good plans. I will personally take guarantees any day over the whims of the various markets.

      Honestly I am surprised that you give so much credence to Wall Street simply because the market is up right now. How quickly we forgot about 2008. In that year, not one of our clients lost a dime in their safe money plans.

      When–not if–the next crash occurs, those of us with these plans would have safeguarded our futures once again. Why not consider spending more time warning folks about the dangers of INVESTING vs. the wisdom of SAVING?

      Right now, my wife and I know EXACTLY how much cash will be in our plan in 10 years. On the other hand, the remainder of her 401k is literally “imprisoned” by her employer. She cannot do any in-service distributions until she leaves her employment. How is that right? Where is the fiduciary responsibility there?

      Speaking of misleading–yet legal–I am sure you know that mutual funds are allowed to use the arithmetic mean instead of the compound annual growth rate when stating “average returns”, right? The difference is stunning, yet legal. My wife’s 401k has had an ACTUAL average return of about 3% per year since 2000. Yet her fund advertises 8%. Big difference.

      Take out the 1% fee and it has not even kept up with inflation! Yeah that’s really going to create wealth for the average Joe.

      I will take my 4% guarantee any day.

      Again, I appreciate your softened tone in your last reply. There are many variables within the concept. In the end, it is the consumer’s responsibility to READ THE CONTRACT before agreeing to the terms.

      In our practice, we actually require it!

  57. Robert Castiglione says:

    Mark:
    Thank you for the reply. I appreciate your comments. First let me give you a background of myself. I think it will help us in our discussions.
    I started in the life insurance business in 1970. That is a 44 year history, a long timI have seen many things come and go over those years. I gradated from New York University with a degree in Economics and Finance. As an agent, I led my agency and the company in production and in lives. I was awarded the top award in the company. I have been a speaker on the Million Dollar Round Table. I have been a speaker at over 25 major life insurance companies as well as a paid consultant
    to them. I stated my own company in 1980 with over 20 employees and over 4,000 agents. I train, educate, and coach agents on their life insurance and financial careers. I am an expert on analyzing financial plans and life insurance policy illustrations and sales. I have seen it all. I even invented “Be Your Own Banker in 1983, using many of the terms and calculations found in BOY. Most of the authors writing about the insurance banking concept were students of mine.

    As an expert, I too am very particular of the words that I use regarding life insurance and other financial services. All of the work that I create gets forwarded to the major life insurance companies for approval, including the ones that you use for BOY. They are clients of mine too. I know the CEO and their top executives well.

    When I see error, I need to try to correct it, especially as a trainer and coach. The BOY process is filled with inaccuracies and misstatements and that bothers me as well as it should you. I am not a believer in the ends justifies the means. If the end is worthy, why can’t the means to it be worthy too?
    I am more a believer in the means justifies the ends. That is basically how free enterprise and capitalism works best. Please, if you will, read my longer earlier reply to your email again and tell me where you think it was my opinion responding or facts.

    I appreciate your belief in BOY. Success rests on on’s belief in what they do. I believe 100% in my work and my comments. I use critical thinking to get to any viewpoint. i want you to know that I have never seen a BOY policy that was best for a client in the long run. I have seen at least thirty. 30 out of 30 bad ones is not a good percentage. I am still looking for the good one, the so called well designed policy that every BOY person says exists.
    I do not sell or have a 401(k), term life insurance, mutual funds, annuities, or CD’s. My wealth is in life insurance, real estate, businesses and index private wealth management. They all have done very well over the years. There in no one financial product that can out do cash value life insurance for performance and protection. I like the guarantees too, but what BOY misses is the dramatic but complex velocities of integrated financial planning – Safety with high yield.

    We should spend our next replies on the numbers. You say math doesn’t lie. Well I have seen many mathematical presentations in 44 years that lie. There is an old saying that states that “numbers can lie and liars use numbers.” So I don’t have your confidence in numbers so I inspect them carefully. The authors of BOY and the others books out therein the market place all have untruths in them. To the novice, they could go unnoticed, but to a mathematician are easily spotted.

    I hope that you take this seriously and give me a listen. Thanks very much

    • Mark Marshall says:

      Robert, thank you for the information on your background for all here to see. I did some research and do respect your credentials. To be fair, I will read your book at some point and then compare and contrast.

      I have to say I am a bit confused since we seem to be on the same side. Yet you paint a very bleak future for the future of the infinite banking concept. For every one of the 30 policies that you say are “bad ones”, we have clients with “good ones”.

      “Good” or “bad” would seem to be more SUBJECTIVE than OBJECTIVE.

      Where we are in COMPLETE agreement is in the use of words. I always strive to be correct and I am sure I make mistakes. However, mistakes go to intent. No hidden agendas here. I am happy to be corrected and will change course if necessary.

      I have to wonder that if the practitioners of the concept are as flawed as you say, then where are the authorities? Where are the damaged policyholders screaming from the rooftops? Why would companies risk their reputation and their assets on such a flawed concept?

      From a cursory look at YOUR concept, it looks like it is very advanced for the common man. Of course, I could be wrong. As I mentioned in another post, my primary market is families with children in high school who have waited until the last minute to plan for college. In these cases, we cannot help everyone. However, for those we can, I see no other option other than over-funded, dividend-paying whole life.

      If there is something better for these folks, please enlighten me. Once again, our group has thousands of clients actually USING these plans just for this purpose and then for future large purchases.

      To show what I mean regarding opinion vs. fact, here is your reply to one of my claims:

      Mark says: “With my safe money plan I have something that I have not seen discussed: LEVERAGE. I can go to the dealer with cash and get the best price. Then I borrow the money from my “bank”. The insurance company lends me THEIR money, using my cash value as collateral.”
      Bob replies: There is no leverage with insurance banking concept. Anyone can pay cash for a car by getting a cheaper loan rate from the dealer, real bank, or other lender through negotiation of the rate.

      To be clear, there is DOUBLE leverage here. Yes, anyone with cash can negotiate. However, where are you factoring in opportunity cost? If I pay cash, I am losing the return I could make on that money. In addition, I now have to start saving AGAIN in order to have the cash for the next vehicle.

      Who has the discipline and/or ability to do that? Good old-fashioned whole life is a FORCED savings plan. That is a good thing in my book.

      Over time, paying cash is better than financing with a 3rd party but my “infinite bank” blows it away! Since I am borrowing the money from my plan, I will still be paying cash for the vehicle and can negotiate the best price. Leverage number 1.

      I then pay myself back at a market rate or higher. For the term of the loan, my total cash value remains intact and earns a return. Yes, dividends are NOT guaranteed but I get 4% guaranteed no matter what. Also, I will go with a 100+ year history for dividends any day of the week. Leverage number 2.

      Once the loan is paid back, I have 100% use of those funds again for ANY purpose. And my cash value is fully intact and can be even HIGHER if I pay myself back at a higher rate.

      Please show me where my math is wrong. Your reply was an OPINION and did not address how these plans work. I am happy to stand corrected if you can show me the error in my explanation.

  58. OK, well this is getting very interesting and informative, but the argument from Robert Castiglione is not sitting well. Having sat through hours of his and his partner L.F. presentations, and heard them personally promote many of the concepts back in the Late 80’s of which sound very familiar to the IBS (not all but many…) I don’t agree with his current seeming reversal. I believe too much of the focus is on the product (IBS) and not the underlying principles which do indeed make IBS successful. It does work when implemented properly. There are too many contradictions to what I heard in those presentations, and the current posts I’m reading here. I agree that without quantifying proof, his current claims just don’t seem to be enough. After reading Mr. Castiglione’s report on the web titled “Creating a WOW Experience With Life Insurance Sales”, I get the feeling that possibly there may be a frustration that implementing the IBS with Permanent Life Insurance is not helping his efforts to help Life Insurance Agents have more lucrative careers. After all, if you structure the policies the IBS way, there would be less commissions due to the IBS ratio of Perm/Term Insurance/PUA, which helps the clients achieve a better cash value position starting in year 1. Vs…not having any cash value the first couple years and having the agent get 50% of the total annualized premium. That would make me mad as well if that were my business…but as a consumer implementing the IBS strategy, I like the upside on my end much better. Further, according to his report, out of 1000 new agents, only 14% survive. No surprise if anyone is familiar with the 80/20 rule…for life insurance, real estate agents, etc, the 80-/20 rule is understandably more drastic. Who knows, maybe if life insurance agents were taught how to structure policies that could produce the positive results that we as implementers of IBS have seen, more would survive? All I know is that I think we can all agree that compounding taxes on compounding interest is not a good thing, and that there is a opportunity cost/loss as a result. The IBS as shown by Nelson Nash is a good framework but certainly not an end-all strategy for everyone, or by itself for folks that use it. It is though a positive part of the wealth accumulation puzzle that I feel fortunate to be using and sharing with others. I also believe the LEAP system is another part of that puzzle…but I can see the conflicting results of that as we are reading here. Recently I’ve purchased several foreclosure rental homes using the IBS strategy, (and yes, it can be tax deductible when taking the loans if you structure the loans properly with your business entity). To have that kind of leverage and be able to buy homes with cash, then be able to refinance them to generate more income pulling out equity from them is not common – I agree…but it works. Then to use the rental income to pay down the loan and still have a positive cash flow – what is wrong with that? I say nothing. But if I’m missing something, please share with better details that all of us can benefit from…otherwise, I think it would be best to agree to disagree and move on.

    • Mark Marshall says:

      Thomas, thank you for the sensible post. One suggestion: please space your paragraphs. One long one is tough to read!

      It is refreshing to see an actual practitioner of a safe money plan. Your application in buying properties is perfectly sound and fits within the design of a good plan. Of course, you know that from actual experience as opposed to theory or opinions.

      I completely agree that infinite banking as a concept is NOT a be all and end all. However the concept DOES work, all things being equal.

      As an agent in the field with a practice that helps families up against the horrendous cost of college, I can say that I sleep well at night knowing the difference I can make with our clients. Regarding the whole reduced commission challenge, that is a GOOD thing because it clearly demonstrates that we are not out to line our pockets.

      Ironically, I would say many agents do not make it in this side of the business in part due to the “too good to be true” attitude of many consumers. In my experience, it sometimes takes our clients an extra measure of time just to understand the concept and then to implement it.

      Others do not qualify for one reason or another. Still others buy into the Wall Street propaganda at their peril.

      Another reason for failure could be that the agent just does not do a good job explaining the concept properly. We all have an obligation to become masters of our trade.

      Thanks again for the post and continued success with your infinite banking plan!

  59. Hi Thomas, Mark Marshall, Dan

    I completely agree with all of you. I would say that I am still new to this concept since my policies were set up in 2011, but I can’t emphasize enough how wonderful it has been to be able to sleep well at night, without the stock market volatility and see the policies grow. I am thrilled that all those, including me that are benefiting from this concept are letting others know that this is definitely a valid concept worth looking into it. I have purchased a real estate property for rental borrowing from my policy, but still don’t know how to make it deductible. If Thomas or Mark Marshall or anyone willing to shed some light to help me, I would greatly appreciate it My email is chris1now@gmail.com Thanks for all the wonderful posts.

    • Mark Marshall says:

      Chris, thanks for chiming in as yet another practitioner of the infinite banking concept.

      Opposing viewpoints are helpful but I have learned to always go to the source when making important decisions. In my case, I am fortunate to be surrounded by a support group of coaches who are WAY smarter than I am and who have direct contact with some of companies who provide these plans.

      Of course, I am a practitioner myself.

      With that in mind, Chris, you need to get tax advice from an accountant. If it were me, I would contact my agent who set up the plan and see if he or she has any accountant contacts.

      Hope this helps.

  60. Sorry for the long post – it was late and I couldn’t help but address some conflicts of interest or the competitive nature of what was being posted.

    I will not address the tax deductibility issue directly since I am not a CPA qualified to address that on this forum…but I will say that one should consult with a professional into how the loan taken out can be redirected as a loan to a business entity.

    What I’ve found is that folks like to be shown how the process can work for them directly vs just reading about it…and being forthcoming on how to use the strategy whether an agent or not should help develop strong goodwill. I believe that is an issue with the way Perm life insurance is sold currently the typical way.

    I’ve also found that the underlying principles do not have to just be used with Perm life insurance and can successfully be used with other financial tools…e.g. I would much rather pull out equity from my home that is doing nothing but reacting to the market conditions and put it in a sound financial tool that is liquid, safe and getting some kind of return – although the return is the least important part of it…if I have access to it and can use it somewhere else to increase my income, that is the key part.

    As I’ve learned from my Missed Fortune days…as long as I have the cash build up to pay off the increased debt to have the liquidity and safety I need, I feel debt free and I’ve achieved greater leverage for growing my bottom-line.

    Regardless of the tool used, if one goes into this without doing their due diligence, or not handling the loan debt in the proper manner, or is not disciplined to follow the framework for the model, this could be a problem and not something I would recommend to a newbie.

    Rather than debate which program/system/tool is better, my model includes taken the best from all the qualifying models to create a more flexible model that can better accommodate my individual needs, or for more individuals trying to see how it can work for them. And, to present options for how to use the model – whether for buying real estate or doing owner financing, buying gold/silver, cars, etc…

    So, I don’t believe this is a either/or situation, but rather a both/and. Forums like this are helpful for folks to get info from all angles as they do their research.

  61. Robert Castiglione says:

    Hi guys:
    We are really starting to get somewhere for the benefit of the readers, consumers, and agents. We have an articulate group debating an important issue that can affect the lives of thousands of people. A real debate is only as good as the knowledge of the debaters and their and willingness to share supporting information. The only winner should be the audience not the debaters.
    The debaters need to present their facts and trust that their facts will support their side. The temptation to belittle the other side should be avoided for which such talk only shows a lack of understanding and confidence in their own facts. This is applicable to both sides.
    I know that you are all advocates of IBC. You have made that clear. I know that you use IBC yourself and say that it is working now and your clients seem to be happy with it . I know that you have been trained by IBC people and have several books and literature supporting your beliefs. Going forward, I hope that we can resist these restatements and provide real supportive information for your beliefs.

    Please try to respect my viewpoints and I will try to respect yours. I admire when people have a strong belief in their product for I have a strong belief in mine too. My objective is seeking the truth and accuracy of the methods we both use, and not whether they sell or not. I doubt if you will have an argument with that as our goal since you all seem intelligent and fairly open to improving your lives as well as your clients.

    In response to just a few of the negative comments you all have made about me, I want you to know that I can take anything you say. It does not bother or upset me. That is because I am 70 years old, retired, very wealthy, and have a loving family. I am not a salesman. I have no stake in IBC or anything else at this time. I am only interested in correcting wrongs, that I have tested to be wrong, that is being used in the insurance industry. I care about the life insurance industry because it has been very good to me. I feel that I should have to give back to it for as long as I live.

    Let me now state my position so that we can proceed to address these points:
    1. IBC’s use of words and terms in marketing and advertising misrepresent and mislead consumers
    2. IBC claims of being the best way to build more wealth are exaggerated and unreachable
    3. IBC cannot add additional money supply that makes consumer purchases become “free.”
    4. IBC itself has an opportunity cost in its own method rather than savings opportunity cost.
    5. IBC is not fraudulent because IBC uses the functions of an approved life insurance policy.
    6. Most insurance companies do not approve of IBC because of its errors and long term dangers.
    7. Insurance companies using IBC claim more complaints than with other sales systems they use.
    8. There is no leverage or velocity being used in IBC according to the definition of both terms.
    9. Having “all eggs in one basket” opens up high risk due to potential tax/insurance changes
    10. Most important, from all of the above, is that the math used in IBC is incorrect.

    I am not evaluating IBC as compared to another system. I am evaluating IBC to see if it can stand on its own merits as advertised and meet its claims and promises made to consumers.
    I look forward to our debate and evaluation of the facts and I praise you for your professional participation and concerns.

    • Mark Marshall says:

      Robert, I can only speak for myself here. The main issue I have with the majority of your talking points is that they are ABSOLUTE. By your comments, you are basically saying “I am right and everyone who disagrees with me is wrong”. That hardly leaves room for debate.

      I will address some of your points above.

      You say:”IBC’s use of words and terms in marketing and advertising misrepresent and mislead consumers.” Please provide a couple of examples and the source.

      You say: “IBC claims of being the best way to build more wealth are exaggerated and unreachable.” Who says it is the “best” way? It is certainly ONE way. In our group, there are many clients who have built substantial wealth with the concept.

      Once again, you make a sweeping general statement here. I personally know a practitioner who is using his safe money plan to invest hundreds of thousands of dollars in apartment complexes. In fact, he is the one who first introduced me to the concept about 2 years ago. I only wished I had found out about it years ago.

      You say: “Most insurance companies do not approve of IBC because of its errors and long term dangers.” This is a perfect example of an absolute statement with no facts to back it up. There are over 1000 life insurance companies in the US. How could you possibly know this?

      You say: “Insurance companies using IBC claim more complaints than with other sales systems they use.” Which companies? And why is this a problem? Insurance companies are not generally known to provide the best customer service or be the best communicators.

      Agents can be a big part of this issue as well. It is up to the companies and the agencies to make sure agents are trained properly in the concept.

      You say: “There is no leverage or velocity being used in IBC according to the definition of both terms.”
      Really? From dictionary.com for leverage: “the use of a small initial investment, credit, or borrowed funds to gain a very high return in relation to one’s investment, to control a much larger investment, or to reduce one’s own liability for any loss.”

      My friend mentioned above who introduced me to the concept would beg to differ. He uses his POLICIES (plural) to leverage his investments on a regular basis.

      From dictionary.com for velocity: “the rate of speed with which something happens; rapidity of action or reaction”.

      As I pay back a policy loan, I have immediate use of those funds again. Sure looks like velocity to me.

      You say: “Most important, from all of the above, is that the math used in IBC is incorrect.” There you go again, Robert, with another absolute statement. The only math that matters is what is in my CONTRACT. That math MUST be correct by law.

      I live by an old adage that has served me well over the years: “Don’t confuse me with the facts!” So, if you would care to respond here with FACTS, I for one am all ears.

  62. Chris S. says:

    Hi Mark,

    Thank you for your suggestions. Unfortunately, when I asked my accountant about it, he told me that interest paid for loans from life insurance are not deductible even if it is for purchasing rental real estate. I thought to myself, my accountant is probably not familiar with loans from life insurance, which is not uncommon. I then, asked “my coach” who set up the policy for me if he would know someone. He was kind enough to recommend me an accountant to me that is familiar with life insurance, but for some reason, the person just never bothered to reply. My coach has been trying to find someone else, but no luck. After reading so much about this concept, I just know that it can be done. As I have said previously, I couldn’t be happier to have found out about IBC. My only frustration so far is not knowing how to report this expense to the IRS, making it a deductible expense. It has been almost 3 months that I have been trying to figure out about this, searching non-stop on the internet, reading more books and articles on this concept. And, when I read Thomas’ recent post about applying the loans to rental real estate on this site, I was hoping that Thomas or someone will be able to give me some guidance. I realize that all of you are so more knowledgeable than me and so willing to share your positive experiences which makes reading this blog a real learning experience for me. I just wonder how people do it and of course I would assume full responsibility if I decide to use it as a deductible expense on my tax return. At this point, without help, I might just have to give up since I cannot hold my tax return much longer. Thanks.

    • Hi Chris, I attended a workshop given by Teresa Kuhn who is my advisor and just so knowledgeable on the concept. Nelson Nash was as the workshop as well as a CPA (can’t remember his name) who was very knowledgable on using insurance in a tax deductible concept…

      If I am buying property for example (and have done several times) I go to the bank and ask them what the interest rate would be if I purchase XYZ. They come up with a number then I ask if they will print those numbers for me. I take it home add 2-3 % because there is always a variable on what banks charge you.

      Then I write up the paperwork my self , who I am borrowing the money from and at what interest rate. I set up my monthly payment, which is automatically debited from business to my personal then to Life Insurance co. I write this in the documentation as well. File it in my official papers, just like any loan you would get at the S&L, Bank etc, on not quite as legal looking:)

      I have used this several times and I get no complaints from my CPA. I just document everything and I am essentially Bank of Lisa:). I can find out the name of the CPA if you need it. I think a couple of years ago he charged $75/hr for telephone conference.

      Not a lot of help but maybe it will give you some ideas

      Thanks
      Lisa

  63. Hey Chris – I’m assuming your accountant is a CPA…if not, ask a CPA…but ask them specifically about the deductibility if you structure a note from you (from the insurance loan proceeds) to your LLC purchasing the rental property.

    My understanding is you are correct that it will not be deductible to you as the owner of the policy and using the same name as owner of the property. When I mentioned business entity, again you need to ask specifically based on creating a loan from you to an entity like an LLC…that is how I would ask the question.

    Don’t feel bad if they don’t know…I’ve gone round and round many times with my previous CPA who is old school and firmly believes that a mortgage MUST be paid off to be mortgage debt free…he also thinks it is too risky to separate out equity in a side fund…I totally disagree but again implementers of this strategy are the very few who are disciplined enough to make it work…as my CPA said – he acknowledged that it could work, but most of his clients would “screw it up”. He’s probably right. I will say that finding a good CPA/tax professional is worth the time and effort!

  64. Robert Castiglione says:

    Mark:
    I believe you have misunderstood my reply. I was establishing a general position for moving forward for our future debate. Rules are the only way for intelligent people to have a constructive and valuable discussion.

    My points were not meant to be absolutes but rather my stated position about IBC which I am under the burden to prove and intend to state the facts for my position. Your position is to see each proof one at a time and agree or disagree by using your facts and proof.

    We are trying to find out the truth. Your statements about clients being happy and wealthy on IBC are not facts but just statements. They are not proof of anything. For example, a person who robbed a bank successfully may be happy but I do not think it is a correct approach to making wealth. That is not to say that IBC is like robbing a bank. I was just trying to make a point. You would have to show the numbers of how much premium he paid and what money he now has in his policy.

    I will be using real numbers from the experts of IBC to prove the points I have made.

    Please read my position reply again and see if you agree to the terms of proceeding.

    • Mark Marshall says:

      Robert, thank you but I did not misunderstand you.

      You say: “My points were not meant to be absolutes but rather my stated position about IBC which I am under the burden to prove and intend to state the facts for my position.”

      Whether they are “meant” to be absolutes or not does not change the fact that they are. There can be no useful debate under those circumstances. I believe I have successfully refuted a number of your “stated positions”.

      In return, you simply continue to make your absolute statements. Then you make rules but do not follow them. How does that make for healthy debate?

      You are correct that my references to clients and friends using the concept in practice do not come with specific numbers. That is referred to as anecdotal evidence. As I already mentioned, the only numbers that matter are those in the contract that are GUARANTEED. Unless you are prepared to prove that those numbers are incorrect or inaccurate, then the specifics are not relevant.

      I have previously explained an example of a vehicle purchase and see that you have not refuted it. The CONCEPT works there as do the numbers. The math is accurate. We can start there if you like. If my example is wrong, feel free to correct it with proof.

  65. Robert Castiglione says:

    To Chris:

    It is mind boggling to me to see that no IBC salesperson knows whether life insurance loan interest is tax deductible or not. After all, it is the loan from life insurance policy that IBC is all about. That is their entire deal. You would think that they would be able to give you the answer on a tax question instantaneously.

    As I have said many times before, most agents that I have talked to that sell IBC are not knowledgeable about life insurance. they have only a superficial understanding and are more interested in sales rather than accuracy and assistance to customers or theirs.

    This should be a warning to you that you may not be getting the kind of service from your agent that you deserve. One thing to be weary of is having your policy become a MEC. There is a danger of this happening to you if you are not careful. Policies that are proposed may at first not be a MEC but they cab become a MEC if change occur in the policy or in your additions top it. If your policy becomes a MEC, you will have a very awful experience and lose a tremendous amount of money. Your loans will become a taxable event. It has been reported to me by insurance companies that some of their policyholders complained because the agent told the policy owner that the policy would not become a MEC and yet it became one. Every agent must service your policy to protect you.

    since your agent has not returned your call for three months, I strongly recommend that you seek to get another IBC agent who can answer your questions on the spot. I am against IBC policies for many reasons which I will not go into with you. You have already bought one. If you are interested as to why, continue reading these threads for further information.

    As to your question, life insurance loan interest is not income tax deductible against your earned income for any reason. The IRS considers a life insurance policy loan as a personal loan and therefore is not tax deductible. Before the mid 1980’s, life insurance loan interest was 100% deductible against your earned income. That was a very powerful tax advantage and made borrowing from life insurance polices attractive. As the IRS saw people taken these tax deductions and especially when loan interest on variable loan rates policies were going higher, they had to put a stop to this tax abuse. The law forbid life insurance loan interest from being tax deductible at all for consumer purchases.

    Your question has to do with policy loans for investment purposes. In general, any borrowing for investment purposes is tax deductible, not against earned income, but against the investment’s income. If the investment does not produce an income, there would be no deduction of the loan interest. Or, since it might be rental income property that you have, the question becomes is it a net income or the gross income that it is generating that you could be using.

    However, when comes to life insurance policy loan interest, the IRS stance has been that this is not an investment loan but rather a personal loan which is not tax deductible. However, the code is not 100% clear on this issue. Some CPAs are aggressive and others are not on this issue. Therefore, my suggestion to you is to NOT take the tax deduction until you write a letter to the IRS with specific terms to your situation and ask them for a ruling.

    Being safe at this time is worth more than to risk a complete audit or disqualification of your insurance policy for life.

  66. Lisa:
    Thank you so much for taking the time to address my concern. You have no idea how helpful you have been. I now have an idea on how to proceed. Thanks.
    Mark:
    Thanks for the link. Will definitely look into it to learn more.
    Robert:
    Thank you for your reply. Please don’t misunderstand me. My agent did not abandon me. He has been trying to help me out with this. I can’t expect my agent to be knowledgeable in the tax area. As I have said, I was a bit frustrated of not knowing how to best address the tax issue, does not mean that I’m unhappy about the IBC concept. My only regret is that I did not learn about it earlier. We have been through many ups and downs in the stock market and lost significant amounts in it. I finally realized that all I did (maximizing our 401Ks, contributing to 529 Plans, etc) just imprisoned all our savings. And, I thought that I was doing everything right. I appreciate everyone’s input and take every opinion on this post seriously and learn a great deal from it.

    • Hi Chris, I found the name of the accountant. I am sure there are many more but this was the one I saw at a workshop and really seemed to know his stuff. His name is Neil Denman and his website is http://www.littlerockcpaaccounting.com. I think it would be worth pay $75 or what ever his new rate is to give you an hour of his time. Get every question you can think of together so it makes it worth your time/money. Please share if you find some earth shattering news:) lbruce1063@aol.com

      Also I can testify to the 529 accounts. Our youngest is in his soph year at college and I finally started taking money from his 529 account. What a hassle!!! Never would I do this again..but like I said hind sight is 20/20 . It made virtually no income over the last 8 years, of course I was in a conservative fund.
      You have to make sure all of your P’s and Q’s are lined up , meaning have copies of college bills, books room and board and be prepared for an audit should that ever come up. then it was tax time….I couldn’t do his taxes ( not real good at any advanced tax forms) when I have done or helped do, many simple tax forms.

      Yesterday we needed money for a golf cart. I sent an email to my advisor, signed my name a couple of times, as well as my husbands signature. Faxed the form back to her.. I should have my money wired to my account first part of next week. Simple, no questions asked, and we make our payments back to Lafayette Life. We would never have this money set aside if we weren’t “forced” to. We are not very good savers:) Love this product!

      • Mark Marshall says:

        Lisa, great post! The 529’s are in my “wheelhouse” and you absolutely nailed it. There is nothing better than personal experience when proving a point.

        For those who don’t know, “529” is an IRS code. Just like “401k”. When you see the codes, think “government program”. The concept makes sense: save for college with after-tax funds and then pay for college with tax-free dollars. That’s the good news.

        The bad news is the restrictions, which are many and can vary from state to state. Generally, any changes can only be made ONCE a year.This includes moving the money from one fund to another.

        When the student is entering college, funds generally can only be transferred ONCE a year! Otherwise there are penalties.

        Finally, what’s up with this: until the funds are used they do NOT count against you in the financial aid formulas. However, funds used THIS year will count against you NEXT year! So I save for college and then it could end up costing me both need-based AND merit-based aid.

        Thanks a lot US government and colleges!

        Of course–in hindsight–a much better saving for college option is a safe money plan. I can do WHAT I want with the money WHEN I want. Most importantly, whatever I have saved in the plan does NOT count against me in the financial aid formulas.

        Finally, great to hear about you using your “bank” to pay for your golf cart. Even though a company may reserve the right according to the contract to take up to 6 months to send the money, it looks like you usually get it in days which is more the norm. Good job!

  67. Mark Marshall says:

    Robert says: “It is mind boggling to me to see that no IBC salesperson knows whether life insurance loan interest is tax deductible or not.”

    There you go again. Another absolute statement. We are all wrong and only Robert is correct.

    In one our groups, we have an accounting firm that is expert in the specifics of infinite banking. My suggestion to my clients is always to contact those who do this every day. This firm evaluates each situation and advises accordingly.

    It is NOT my place to give legal or tax advice.

  68. Bob, in all fairness and due respect I am getting more disconnects from reading your posts – especially after listening to you and your partner Lou Farkas at several presentations back in the 80’s as you were promoting the Equitable cash value life insurance products for accumulating and protecting wealth in your PS&G model in a tax-free vs tax-deferred process.

    Here’s why…in your response on 3/8 top Tanisha you commented:

    “You say that the premise behind Infinite Banking is to have “money growing tax-free and safely inside a whole life policy (not subject to stock-market fluctuations) and could be accessed tax-free throughout your life. Could you explain how money is tax free in life insurance and not tax deferred?”

    That was the EXACT same question asked of you and Farkas by the attendees at those prior presentations as you were explaining the “tax free” accumulation and distribution (when structured properly) using the policies. While that was the biggest pushback in those presentations (followed by how does one find the money to fund a policy), I thought you addressed it well and I for one was not one of your skeptics. You were also not a big supporter of promoting mutual funds as you explained your model…but rather the cash value life insurance. Today, your responses appear reversed on mutual funds? If not, please clarify.

    So the more I’m reading in this forum from you, the more disconnects I am experiencing having heard you speak before.

    You have a ton of knowledge and experience and I respect all of your credentials…but some of your responses sound a little jaded as we debate competing models…vs just finding a constructive way to make the models coexist in a constructive manner for the client. I respect LEAP but I don’t agree that IBS is just a marketing tool…( I don’t even refer to BOY as I feel is just a stolen concept from Nelson Nash…) In fact, I’ve heard people refer to LEAP as just a marketing ploy for agents and I don’t agree with that as well.

    I think the underlying principles and framework for either model are good and beneficial to folks. And I think it is fair to say that the underlying process for these models started much before these so-called product names were formed in the Late 80s and 90’s.

    As I’ve mentioned, there are multiple pieces to the wealth building puzzle – some you want more than others, and some you don’t want at all factoring in taxability, liquidity, and protection. I believe both LEAP and the currently debated framework are valid. I think your wisdom would be better appreciated if possibly you could help show people objectively how both models could work together vs just debating to show one is no good and the other is. This is where the jaded agent impression starts to come through…and I always held you in a higher regard than that.

    I’ve had a similar experience with one of my policies that I manage mutual fund like allocations while also utilizing the vector vest tool. The reason I got on board with this is because my designated account manager for the policy was not performing to the standard I expected and I was losing cash value – who knows, maybe he didn’t feel my policy was big enough…but I will tell you this….since taking over the management back in 2007, I ‘ve more than doubled my cash value (even factoring in the downturn of 2008 and stopping my premiums) managing the allocations…not because I’m a genius or better than anyone else, but because I educated myself on how to do it and make it work. And yes I know this is a riskier approach but one I am comfortable with as part of my puzzle.

    It would be nice to see more constructive alliances formed aimed at improving the models used so they become even stronger. You could add a lot in that regard.

  69. Mark Marshall says:

    Thomas, great posts. I appreciate all of your input and feedback as an IBC practitioner.

    In my case, my primary clientele are families with high school students who have saved little or nothing for college.

    One strategy we use is a cash-out refi. It is generally recommended to choose a 30-year term to keep the monthly payment the same or less. Of course, this is NOT for everyone and each client’s situation is different. The basic premise is to move the cash to an IBC non-MEC plan. That way you can use the funds without depleting them.

    Too many families believe they can just use a HELOC (Home Equity Line of Credit) to pay for college. Unfortunately that can be a real trap. One lure is the current low rates, which are always subject to change since a HELOC carries a variable rate.

    Another lure is the ability to pay interest only on some HELOC’s for the first 10 years. That is why a cash out re-fi could be a better option. Plans can be designed that give a client access to the funds while the student is in college. Ideally they let the plan grow during the deferment years (when loans do not have to be paid back).

    Then they can borrow against the cash value and pay themselves back instead of depleting the funds and paying interest to a third party. Once the loans are repaid, they would still have the option to pay off the mortgage–or not.

    You are correct that paying off a mortgage is not always the best option. Again, everyone’s goals and situations are different. If you do decide to pay off the mortgage, you could then get the most out of a reverse mortgage scenario.

    Some people may not realize that you can even do a reverse mortgage when the first mortgage is still not fully paid off. As you point out, these moves should only be made after speaking with a qualified advisor and looking at all your options.

    In our practice, we have access to a mortgage company that actually originates the loans. In other words, they are the actual lender. We also have accounting and estate planning experts as those needs arise.

    We look at each case individually before designing a plan. We also meet clients at least annually or as needed to make sure their plan is on track. One nice benefit of these plans is the FLEXIBILITY. Changes can be made along the way in case life gets in the way!

    There is no “one size fits all”. And, unfortunately, we cannot help everyone with the immediate expense of college. However, there IS a plan for everyone who wants to save for the future in a guaranteed fashion.

    • Thanks Mark – sounds like you have a good flexible model and I like what you are doing. I deal with a lot of folks in pre-foreclosure and have found that majority of them misused their HELOC proceeds…either spending the money on worthless capital improvements that would not be reflected in re-sale prices, or spending the money on “comfort” items, or just trying to keep up with the family next door. (cars, pools, etc, etc..)

      Part of my model includes using the strategies to cash out (e.g. HELOC into a tax preferred liquid side account) to use as the foundation for kid’s education, as well via the purchase of strategic residential rental foreclosures. Why? Because while you can find great price values on the purchase, the rental income has not taken as big a hit and a positive cash flow can be achieved. A lot of the model reflects careful research on areas designed for growth after the real estate bust…maybe you are involved as well with that kind of research. The idea being to sell off the homes as the child gets closer to their college years. This strategy/model can be optimized and made more aggressive if a child is closer to their college years, but admittedly it will have more risk involved due to the lack of time slack for achieving the value goals.

      I also like interest-only mortgages as I’d rather save the principal portion for a conventional 30 year and also fund my side funds…I’ve purchase land this way doing owner financing using interest only with a balloon pymt…worked very well and had more than enough to pay down the balloon.

      So while I fully support and have studied the IBS framework, my model is more of a hybrid that reflects other models other than just IBS…I wasn’t trained in IBS per se by Nash or his team, but I see the value in it and use it as part of the bigger plan. It is always good to hear from folks like yourself who talk more about how they use IBS for more than just buying cars… and I agree with Bob in saying that nothing is free when using the model. Things can be optimally leveraged, but not free…

      People do need to realize though the IBS loans are only collateral loans secured by the cash value account – as Bob indicated earlier. Not sure why people think it is using their own money when it is not…the same thing could be done with your Savings Bank or credit union accounts…in fact, one of the credit repair strategies we teach is how to use secured loans as a way to increase FICO scores so folks recover quicker from the credit impact of a short sale or foreclosure/deed in lieu… In this case, it works better to do that outside of a life insurance account because of the credit reporting issues.

      Thanks again for your support an education!
      Tom

  70. Michael H says:

    Sorry to jump into the heated debate, but I have a question (or 2):

    I am new to the IBC concept, but am a owner of a commercial insurance agency who happens to have a life license (But not my focus – mainly just to help family/friends). I was introduced to this concept through reading BOY. I also just purchased Financial Independence in the 21st century which has all 5 stars at Amazon. I am looking into for my own use and really had no intenetion of becoming a practicioner other than to help my own person situation or friends. This blog has been very helpful in revealing things I need to research further, but here are a few of my questions/concerns:

    OP claim breakeven on cash value does not occur until 6 or 7 years, but in BOY they talk about the additional use of a Term Life Rider (In addition to the PUUD rider) to accelerate the funding, with a positive cash flow by year 4 roughly speaking. I believe this is used to avoid the policy being considered an Endowment contract by the IRS. The Term Rider can then drop off after year 7. Do all these different systems use that rider, as it seems to make sense.

    The one obstacle I am trying to overcome, is the negative returns for the first 4-7 years (whatever it is) as that seems like a lot to recover until you are say 20 years into this.

    So my question is, there are obviously numerous groups presenting the IBC concept – Are there any differences in them as far as the way the policies are structured, which companies they use, fees/commissions charged. As I said be ore, I have my life license, but not sure I care to do this myself due to the complexity involved, but want to focus my efforts on the most effective IBC group.

    One other thing the OP keeps saying is that insurance agents don’t have a fiduciary responsibility to work toward our clients best interest – I am not sure that is true, because at least out her in California, we have fiduciary responsibility

    • Regardless of the term rider/pua blending that is done…there is still a capitalization phase for any policy…and keep in mind the main reason for using the strategy is not for interest rate investment returns on your investment money per se, but for a tax advantaged account providing liquidity, safety and leverage to finance yourself and maximize your wealth accumulation efforts. If you grasp the capitalization concept and have a properly structured policy, you should do fine.

      Structuring of these policies can vary depending on the needs of the client and age of the client and type of policy etc. And if overfunding a policy, the MEC limit can reset each year depending on the PUAs added. So, you would need to be careful not to use a one model policy setup for all.
      This will require more formal education on the products offered by the companies you use to be better equipped to provide a better service to your clients – especially if friends and family who can be the biggest skeptics for a professional!!

      For example it would be good to know however if the insurance company you use will return the premium if your overfunding generates a MEC. The Guardian and AXA Equitable will return your premium and I would check others like Mass Mutual and Penn Mutual to be sure…but most times, you as the agent should know when to pull the plug to avoid a MEC and start a new policy.

      Also keep in mind it may make more sense to open a larger policy for the client to fund vs opening several smaller ones depending on the insurance costs, and how the policies are set up.

      The thing is the insurance company can change their procedures and it helps to understand when setting up a policy for the client when setting expectations…same for the dividend the company provides if you have a loan out or not. For direct recognition companies, when the interest the company earns on policy loans is greater than the earnings on other assets, the company generally pays a higher dividend on policies with loans. That is an advantage of a direct recognition company…(in addition to policy owners without loans not being negatively affected by those policy owners who do take out loans…)

      Here’s a FYI rule of thumb for your education when doing this for clients – make sure you know more than the customer service folks that answer the phone at the insurance company. Many have no clue about advantages of direct recognition over non-direct recognition, or if you can even add riders after you have a policy in place. Point is they can give mis-leading information that could reflect on you if the client calls directly…so I’m sure you know to understand as much about each company as you can to determine the best product to use and so you are always the go to person.
      Good luck with your journey!

  71. Robert Castiglione says:

    Thomas:
    Thank you for your kind words. I appreciate the respect that you show and the calm in which you address the issues. It is fun hearing from someone who was at a session of mine 30 years ago.

    I can’t explain why you are having any disconnects from my posts. I have not changed any of my theories on life insurance or mutual funds. As you may or may not know, all of my work has been approved by several major life companies’ compliance departments and their actuaries for accuracy and consistency.

    I can’t spend time giving a course here, but let me explain why life insurance taxation is a key issue with me and why I am opposed to so much of the IBC sales literature and agents making outrageous claims which simply are not true.
    Life insurance does not fit into any one kind of income tax category. Tanisha is wrong to call it “tax free growth” or to say it can be “accessed tax free”.
    A standard cash value life insurance policy personally owned by the insured has possibly every kind of taxation in it. Let me name them:
    1. Premiums are paid with post-tax dollars unlike IRA, 401(k)s that are paid with pre-tax dollars
    2. Premiums are the cost basis for the Guaranteed Cash Values which are income tax deferred
    3. Annual Dividends are a return of premiums, not an earnings, therefore they are income tax free
    4. Interest on Dividends held under the Accumulation Option is taxable income.
    5. Policy loan interest is not income tax deductible
    6. Policy loans made under a policy that becomes a MEC are income taxable
    7. Death benefits paid are income tax free but included in the taxable estate for Fed. Estate Taxes
    8. Tax free loans as retirement income become income taxable upon surrender of the policy
    As you can see, to say that a policy accumulates money income tax free is not acceptable. A life insurance policy can have every type of tax going on all at the same time. A true financial model must show and explain all of these tax variations so that consumers understand exactly what they own, how it works, and what the potential consequences are in the future.
    I hope this helps.

  72. Robert Castiglione says:

    To All:
    Life insurance banking is not new, no hidden secret, or is a unique invention. We were using insurance banking concepts back as early as 1971. From 1971 to the mid 1980’s life insurance banking was advantageous to use because:

    The loan interest on life insurance loans was income tax deductible against your salary.
    Marginal income tax brackets were over 50% making the interest deduction more valuable.
    The life insurance loan rates were fixed at 5% (NY) and 6% everywhere else
    There was no direct recognition on dividends from any life insurance company
    Dividends on life insurance policies were high starting in the first year
    Guaranteed cash values also appeared in the very first year of the base policy
    The 5th dividend option insured the policy loan

    Since that time, life insurance banking has taken a large hit. It no longer is as attractive. Here is what happened:
    The IRS eliminated the income tax deductions of life insurance policy loan interest – a major blow to the concept.
    The IRS has added the MEC laws to restrict high cash value contracts – danger of loans being taxed
    Life insurance companies raised the fixed loan rates to 8% – cost of borrowing went higher
    Other life insurance companies installed indexed variable loan rates – Danger of inflationary rates
    Life companies installed direct recognition cutting dividends on policies with loans – the double hit
    Life companies changed mortality rates which lowered CV’s and dividends in early years – time delay
    The IRS lowered tax rates making loan interest less desirable for deductions – higher net cost
    Many life companies have removed the 5th dividend option of insuring the loan – beneficiaries pay

    These changes and lost benefits are not going to be the last. There will be more. One big danger for BOY and IBC policyholders would be the IRS naming life insurance loans income taxable events. I believe this will happen. Any tax loopholes are going to be attacked. The IRS needs tax revenues.

    All financial products have advantages and disadvantages including cash value life insurance. The key to financial success is very simple. Enhance the advantages of any financial product while at the same time eliminating or reducing the disadvantages. I personally own almost every type of financial product. That balanced approach using the velocity of money concept in a coordinated and integrated fashion is the key to generating wealth in America. No single product or strategy can win all by itself. There must be an offensive and defensive strategic positioning working simultaneously and in constant motion.

  73. Robert Castiglione says:

    Thomas:
    As you can see from my posts, I have stated that I am not comparing IBC to any other system. IBC must stand on its own claims and promises. From my perspective, as an expert on life insurance, and someone who has taught it for over 40 years, and has been recognized as a leader in the field, I think I have the responsibility to help people understand some of the eminent dangers I believe are lurking in IBC.

    How can I sit by and ignore misrepresentations, inaccuracies, mathematical errors, distortions and slick marketing jobs that are designed to fool the consumer? Even the advocates of IBC tell everyone that the IBC policies must be well designed, by an exceptionally trained agent, who is working with a select company with unique characteristics.

    I have not asked anyone to compare models. I don’t want anyone here to look at any other systems. All I want is for them to know and understand how IBC works, its advantages, but also its disadvantages. I have nothing to gain. I am doing this out of respect for the readers and to give them some important facts to consider.

    Jacob Irwin started this blog asking the question “Is the Infinite Banking System using whole life insurance right for you?” All I am doing is replying with my thought on the subject matter. You say, “It would be nice to see more constructive alliances formed aimed at improving the models used so they become even stronger. You could add a lot in that regard.” And that is what I am trying to do. I am but one voice. I’m trying to break through to those people who could help me build those alliances and improve the life insurance industry for the better. If you have suggestions as to how to approach it, I am all ears.

    • Thanks Bob for your reply…I hear you and think I understand. However understand that how you say something can be perceived as different than what is intended. Example: “I’m trying to break through to those people who could help me build those alliances and improve the life insurance industry for the better.”

      You see for me, I don’t give a rip about the insurance industry as much as I do for the end client working with good models for financial success. Part of the issue here has been that I’ve interpreted what you’ve said here as a competing thought process on this whole thing due to the downturn and lack of success by agents who are not achieving the success you’ve enjoyed.

      I could be wrong, but I think it is fair to say that you did not achieve your financial success writing policies for clients using the blending options discussed in IBS or similar models. Would that be fair to say?

      You see I know Guardian agents that do not like to confronted with blended structuring of policies with PUA following the IBS model. They try to avoid it. And yes, I understand your LEAP system is widely used within the Guardian as well as other companies.

      I’m sure as having made millions in the industry you do not need to prove anything and could just relax on some tropical island if you chose for the rest of your life…and to that I say job well done.
      So how about we agree to move forward and brainstorm ways to optimize the wealth accumulation puzzle so the end client benefits?

      I think it is reasonable to say that any model using cash value life insurance can be further improved and optimized especially given the changing times we are now dealing with and will be dealing with in the future.

      You’re point is well taken on the taxability of the insurance loans…I think the first sign of that being close could be when the HELOC proceeds become taxable. It basically the same thing being a collateralized line of credit based on a determined value…and there has been a lot of debate over it in Washinton.

      So I will agree to channel my efforts to focus on optimization as part of the critiquing process.
      There is too much knowledge here to waste…I think we can all provide value brainstorming ideas…
      I’m all for online masterminding! Enjoy your weekend Bob.

  74. Robert Castiglione says:

    Mark:

    You state that you ” have previously explained an example of a vehicle purchase and see that you have not refuted it. The CONCEPT works there as do the numbers. The math is accurate. We can start there if you like. If my example is wrong, feel free to correct it with proof.”

    I cannot find that post. Can you redirect me to it please. Thanks.

  75. First I want to say thank you for analyzing this. You did an excellent job at crunching the numbers and coming to a reasonable conclusion based on the evidence.

    Second – I do not have or do I sell IBC (but I must admit I am flirting with the idea)

    Thirdly – your conclusion is flawed because your not looking at IBC the way it should be viewed. IBC is not about retirement (directly), it is about banking and recouping cash flows. It is about using the money in the present or near future to fund more profitable ventures.

    As an example of what IBC is intended for I’ll use a young fellow who wants to sell widgets. The traditional model says that the fellow should save up his capital or take out a loan to start his venture. IBC says take out the loan, but do so from yourself.

    So the fellow needs $20K to fund his widget business. This is where the advantages of IBC shine. Instead of convincing a banker that he should lend the guy money to start the business, the guy creates a loan to himself, gets the check for the full amount and then funds the business. He pays himself back the $20K plus interest, and on top of that he gets the tax benefits on his balance sheet as well. Let’s say there is a seasonal lull in the widget business where it’s hard to make that monthly payment. Going almost any other route, he’d have collection agents all over him if he stopped making the payment. However if he skips a month or two or three, nobody cares and he get’s the benefit of the added cash-flow in the lull period. And as a bonus our fellow dies shortly after starting the business, his family get’s a death benefit too.

    The whole point of IBC is to not pay the banker, but instead pay yourself. If you are looking at this through a retirement lens, your going to come to the conclusion that it is not worth it. However if your like me, an Anarcho-Capitalist who looks for every tool to undercut bankers whenever possible, this is a great tool to have in your arsenal.

    Thanks again, for the article it was quite possible the best I’ve read so far on it without having to read a book in great detail.

  76. Robert Castiglione says:

    It should be obvious to all that financing of any kind is a cost and a drag on wealth building. Certain types of financing costs are worse than others but all financing is a cost. That is an economic fact. Everyone knows that credit cards at 12% to 24% are not sound ways to finance anything. Everyone knows that an unsecured bank loan of 10% to 14% is not an efficient means toward wealth building. The trick that IBC and BOY use is that they compare themselves to the worst ways to borrow money, and not the best approaches and/or cost recovery methods.

    To design a program based on the concept of only recapturing money from the worst strategies of financing defies all logic. The purpose of any new wealth building strategy should not be driven by being better than the worst ways to finance, but should be driven by being one of the best ways of financing and building real wealth. BOY and IBC only make themselves look good by comparing themselves to the worst strategies possible. They call this technique “Being the honest banker.” There is nothing honest about it. You should not be fooled by this old marketing ploy of comparing a bad product against a worse product.

    What are the dangers for consumers of owning an IBC or BOY life insurance policy?
    1. The future dividends may not be as great as projected to overcome loan costs.
    2. Variable loan rates may go much higher exposing the concept to extreme inefficiency.
    3. The voluntary nature of overpaying the premiums or loans simply may not occur.
    4. The loans for retirement income from a life insurance policy could become income taxable.
    5. Policy loans may be penalized like annuities prior to age 59½ or moved to a later date.
    6. Promoting building wealth through spending is not a sound strategy for consumers to use.
    7. The potential for premiums to be missed compounding the loans into a lapsed policy.

    One must consider Murphy’s Law: If anything can go wrong, it probably will, even if it hasn’t gone wrong yet. Any of these things could happen and probably will according to Murphy’s Law. There will always be changes in the future of the financial environment. That should be an obvious fact to everyone. The IBC or BOY concept cannot control the banking equation, the financial environment, or the life insurance environment. We have witnessed these type of changes for the last 50 plus years.

    But there is one thing that is verifiable for certain now, the mathematical statements that IBC or BOY make about recapturing the cost of all purchases by financing through an IBC or BOY designed policy is not true. The IBC numbers are illogically compared to other worse financing methods. IBC and BOY “invent” the results to look good by loading the dice in their favor and tell stories used to confuse consumers and agents alike so that no real scientific and empirical evidence ever gets demonstrated.

    Here is what IBC and BOY say:
    When building an IBC or BOY banking system through life insurance, it requires the capitalization period of seven years, then making loans to purchase items —and making the same payments back to the policy as would have been made to a regular banking institution—then you make what the banking institution would have made. If the policyholder does this, then he will effectively make what the finance company would otherwise make and do it all on a tax-free basis.

    Hidden in that statement are two mathematical errors that load the dice. Most consumers and agents miss it entirely because they are not trained to see it. The culprit is the capitalization period and making the same payments back as other bank financing.

    IBC and BOY does not count the capitalization period as a front end cost. They ignore it as simply a requirement aspect of the policy to start the concept. Some feeble excuse is used that all businesses need to start with capital. But no matter, all capital is part of the cost basis and must be part of the comparison equation. In order to have an equal comparison to any method of financing, all costs must always be equalized.

    As stated earlier, by making increased payments over and above the life insurance loan interest payments does not resemble or replicate actual consumer financing. As you will see, the extra payments are really additional premium payments to purchase additional insurance policies. They are not money that is recaptured but are an additional cost basis wrapped up inside the life insurance policy.

    Some questions to ponder until my next post are:
    With IBC or BOY, will you ever get the cash values of your policy? The answer is no, the life insurance company owns them and gets to keep them at your death.

    Is the cash value used to collateralize the policy loans from the life insurance company? The answer is no, the death benefit is the source of the collateralized loans. The life insurance company already owns your cash value and it is already being used to collateralize the death benefit. When you die they keep all of the cash values, so they will take any unpaid loans from the death benefit and pay the net amount o your beneficiary.

    Which is more valuable to you for retirement income, cash values, loans, or death benefits? I will not answer this one because this one is advanced and requires an extra credit score if you get it right.

    My next post will put forth the numbers and mathematical proof. I know that is what most of you need and want and have been waiting for. But I wanted to present some real life insurance policy facts first so that you had a frame of reference on the underlying mechanics of how a life insurance policy really works. Now the math will be easier to understand and the fallacies of IBC and BOY easier to detect.

  77. Robert Castiglione says:

    Welcome Norm:
    Nice hearing from you. I like your post because it is a perfect example of the kind of misunderstandings that consumers walk away with from being exposed to an IBC or BOY agent.
    Your heart is in the right place Norm. I too would want everything that you have said. the problem is that it is not happening.

    As you gave the example of a person wanting to start a widget business and needs $20,000 to start. If he walked into a life insurance company, they would say, sorry we do not lend money for widget business. then the fellow goes to his banker, and the banker does ask questions and evaluates the business opportunity and lends him the $20,000. Thank God for the banker. The fellow is now in the widget business and is extremely successful. The life insurance company turned him down because he had no life insurance policy there. To start a policy and build up the cash value to borrow for the widget business might take several years. By that time the business would have been sold to someone else and this gent is without a widget business that he wanted so badly.

    Bankers take risk. Life insurance companies do not. Banker lend the amount that you need with no limit. Life insurance companies will only lend you what you already have. Bankers and life insurance companies are not at odds with each other They are both integral parts of our economic system. Bankers are not the bad guys as BOY or IBC paint them to be. The stock market has boomed over the last 6 years over 10,000 points on the Dow. People have made fortunes in such a short time. IBC and BOY paint the stock market as evil just because it goes down occasionally. If you do some home work, you will see the the stock market throughout its history has gone up many more time than it has come down. Not to be in it in some fashion or other is a major mistake a consumer can make. IRA’s and 401(k)s are not evil either. The money paid in is tax deferred and is never locked up like BOY and IBC tell people that it is. You have total access to your money at any age and at any time and without penalty or cost. All you have to do is pay the tax that you had deferred up front. the combination of bankers, the stock market, and qualified plans plus whole life life insurance are an amazing array of tools when coordinated. integrated, and positioned for maximum benefits with minimal risks.

    Tying up all of your money in just one financial product is a straight jacket to failure. there is too much opportunity cost lost with BOY and IBC. They can bad mouth all they want, that is easy to do. Bu the reality is that you are not getting what you think you are getting and are being kept from generating the wealth that you deserve.

    I borrowed money to buy an investment at .0047%. that is less than half a percent. In addition. it was tax deductible against the earnings of the investment. That is not possible borrowing from a life insurance policy. I have very substantial wealth in whole life insurance policies alone. I have never borrowed from them. the 4.5% I am making inside the policies and tax deferred and tax free if I die is as good as any investment . Why ruin it with a loan from the insurance company that costs 5% to 8%, for a net loss.

    You say that you are borrowing your own money. I’m sorry to inform you that you are not. You are borrowing the life insurance company’s money and paying them back, and not yourself. None of that money that you borrowed is your money, nor does it go back to you. You get none of it.

    Only the extra payments do you get that simply buys more life insurance increasing your cost basis.
    Where did the widget guy get his money from the life insurance company. It was his own payments. that is called collateral. If you had that collateral with the banker, you could have negotiated rates under % tax deductible and in some other lenders under 2%.

    Sorry norm to have to break the news to you but you have been had.

    • Mr. Castiglione,

      I think I comprehend that you are vehemently opposed to the Infinite Banking Concept. I am starting to age though waiting for you to cut to the chase and tell us what it is everyone should be doing in lieu of IBC

  78. No need to appologize Robert. As I said, I am flirting with the idea and am not sold on it completely at all. Thanks for your detailed and informative replies. I look forward to your next post on the topic.

    I don’t have enough knowledge about the subject one way or another to give you a rebutel or bolster your argument, so I’ll just leave well enough alone and see what else you can enlighten me on and digest what you have already given.

    Thanks again.

    PS: I asked this question elsewhere today and I wonder how you would reply (maybe in future blog post).

    If you had only $5000 to invest and you could invest it any way you chose, where would you invest it? You can slice it up in small chunks or put the whole thing on a horse if you wanted to (not advisable). The objective is to at least double your money in 24 to 36 months.

    • Norm – based on your 2 – 3 year goal, you would need a return of at least 36% – 33% per year.
      It would be a disservice to you to make any kind of guarantee of where to get those results.
      Crystal ball investing is not wise, and don’t listen to the penny stock speculators…however…from what I’ve seen (and done), you could make that kind of return in strategic real estate investments (with a foreclosure purchase from Fannie Mae (Freddie, HUD, others, etc…) depending on the location).

      For this investment, while you could get good values in recovering market places at the $10k-20K, the minimums are now going up so I would say it would be tough to find a $5K foreclosure.
      But if you had around $15K, you could pick up a nice foreclosure as a first time homeowner (if that applied to you…) and get a 203k mortgage to help with the repairs and see excellent investment returns…or you could buy as an investor not living in the home.

      An example – In 2012, I purchased a nice foreclosure in Tennessee for $17K that was/is rented for $550 month. Did not need work and is now valued based on comps at approximately $57K.
      Now I paid cash for it using my financing model…but think of the leverage of using a mortgage to purchase (your own loan or even from other people’s money)…

      Key thing is to find the right deals that will produce “instant equity” based on the front end evaluations of the location and comps. But they are out there.
      Aside from real estate REO purchases, I’d say another area to focus on is municipal property tax sale certificates. The person wins whose bid is the lowest…but in my state, the bid begins at 18%. So you could pick up a great investment since the certificate must be redeemed in the future.

      There are some other investments with stocks that you could do but it could be much riskier…and nobody on this forum knows what your investment risk tolerance is. If this is your first $5k, I would protect it as if it were your first $100K, be smart and lean toward conservative in this economy. The ideas above work, but you need to get your feet wet and test yourself to see how disciplined you are to stick to a solid plan. And diversity IS good.

      I also believe capitalizing your system so you have more to invest with in the future is very wise. So if you want to just keep aggressively saving for another year or two, you may have more options open to you that will help you achieve your goals. Later.

  79. Mark Marshall says:

    My goal going forward in this blog will be to write some short posts to balance the conversation. Let’s advance the story, shall we?

    My primary business is helping families with high school students take on the high cost of college. Our strategic partners help thousands of families all over the country each year with the help of a customized approach to the IBC.

    The majority of our clients have saved little if any money for college. There is no time for investing. Our “friends” the banks are lending less and less money and many large banks are even getting out of the college funding business. In their estimation, it is too risky. Some friends!

    Starting next year, we will begin helping our youngest child through the process–and all with a safe money plan. She will initially take out federal student loans to have some “skin in the game”. We will fund the rest with our plan and then pay ourselves back instead of paying ridiculously high interest (currently 7-8%) to third parties.

    According to a recent article in Forbes Magazine–and by doing the math in a simple calculator–based on a 10-year payback and $100k in parent loans, the family can expect to pay back about $40k in interest. But the banks are our friends, right?

    Once our daughter gets her degree and is out on her own, we plan to pay off her debt as well–again with the money in our plan. This is not a wish or a hope. It is already in play and happens every day with the clients we are able to help.

    When our loans are paid back, our cash value will have grown PLUS we have use of the funds all over again. No tricks, no deception, no fuzzy math.

    In future posts, I will address some of the other myths and misstatements that have been put forth–and will use simple math to disprove them.

    • Mark Marshall says:

      Part 2 to the post above.

      The advantages to using a safe money plan for late-stage college planning are:

      1. Cash value is liquid.
      2. Principal is guaranteed.
      3. Interest is guaranteed.
      4. Funds stay outside the financial aid formulas.

      Item #4 can make a substantial difference in the amount of aid a family receives.

      Other vehicles like Roth IRA’s, annuities and other retirement assets fit some of the above criteria. However they are best suited for more long-term needs. In fact, once college is out of the way, the funds that have been paid back to the plan can now be used to supplement retirement.

      To my knowledge there is currently no other plan available that can help both with the short term need of college expenses and the longer term needs of retirement.

    • Hey Mark…
      One thing to consider…while it appears that the 3rd party loan rates are 7-8% that you refer to, keep in mind there are other ways to handle the interest rate issue while still overfunding your policy.

      For example, there are lenders who will give you a line of credit against a percentage of your cash value between approximately 60-75%. One lender we’ve used offers a 4% rate on the loan. Since your cash value is not reduced as you take out the “collateralized” loan from the insurance company, you could take out the 4% collateralized loan from the private lender and fund the difference of the payments into your policy with PUAs. That would be a cheaper option than the policy loan at 7-8%. And it will not affect your annual dividend to have the loan outside or inside…I take that back, it could affect the dividend rate depending on the insurance company you use.

      As far as dividends, I would hope you are getting the increasing dividend on your cash value whether there is a loan or not right?

      Now if you have a VUL and are taking a loan, the good part is the loaned money is protected more and getting a guaranteed interest rate separate from the allocations you may have used for your cash value. Your cash value is reduced while the money is being used…and as payments are made, they go into your allocations as you have set in your plan.

      So the policy type can affect the handling of the loans. You know better how your loans are treated so I’m sure you have the right handle better than I…I’m just presenting some other options I’ve learned.

      • Mark Marshall says:

        Thomas, thanks for the valuable feedback. Yes, we make clients aware of all available options.

        To be clear, we primarily use only non-MEC’s with whole life. Over the years, we have found that UL, VUL and IUL do not work well with late-stage college planning.

        What you do a great job of pointing out here is the FLEXIBILITY of the these plans. Thanks again.

  80. As stated elsewhere, the question for Robert is: Instead of IBC, where or how would you put money aside for yourself later that can be used, makes some sort of return, is safe, tax efficient, easy for anyone to do and comprehend?

    I found IBC trough a friend because I’m a saver to which the government and banks have colluded against anyone who would delay gratification in order to pay for their wants at a later period in time. This financial repression may change in the future, they may collapse the dollar, the world might end, who knows.

    Please give us an alternative solution to savings that will compete to IBC. Thank You.
    Michael Sparks recently posted…Make Necessary Changes to have a Successful FutureMy Profile

    • Mark Marshall says:

      Michael, good for you for being a “saver”! And you have a good friend who introduced you to IBC.

      You are correct that the banksters and the government work against REAL savings. That is one reason why many banks now have investment arms and why the government wants us all to have 401k’s. Mutual funds make a ton of money on FEES and not on PERFORMANCE. If they were paid on the latter, many would go out of business!

      About 20 years ago (I am 57), we met with our financial planner to discuss retirement options. Like many so-called “gurus”, he chanted about “buy term and invest the difference”. So we did.

      He then went on about the Rule of 72 and how a really good mutual fund could average about 12% per year. If you divide 12 into 72, he said our money would double every 6 years. According to his calculations, we would have about $1.2 million by now. Guess what? Not even close.

      Funny thing: no one has been able to show one of these phantom funds that averages 12% per year. Even those who PROMOTE the idea can’t produce ONE. According to Dalbar studies (you can Google it), mutual funds have averaged about 3-4% per year since 2000. Now how long will it take for your money to double?

      The only reason we have done reasonably well is because we only contribute to our 401k’s up to the match. As a result, the majority of our growth has been from CONTRIBUTIONS and not RETURNS! Mutual funds take fees every year on your TOTAL balance whether it is an up year or a down year. Both the fees and the down years interrupt our Rule of 72 in a big way but you will seldom hear that from the so-called experts.

      I only wished I had found IBC years ago. Here is what I DO know: at a guaranteed 4%, my cash WILL double in 18 years. At the current dividend of 6%, it COULD double in as few as 12. The dividend history of the company I use is over 100 years with not a year missed. How many mutual funds have been around that long?

      Keep saving and keep doing your research. You are on the right track.

  81. Robert Castiglione says:

    Hi Norm:

    The only way I know how to guarantee to double one’s money on a single deposit of $5,000 in 24 to 36 months is to put one’s money into a 401(k) that has a 100% employer matching contribution. Low risk.

    Other than that remote possibility, there is no other place to put a single sum of money on a guaranteed basis and double one’s money. Otherwise, we would all have it and not have to post here.
    If a person was willing to lose the entire single sum of $5,000 to possibly achieve the goal, the commodities market offers such potential rewards, but with very high risk. Or they could go to a casino and play roulette putting down $1,000 on red or black and hope that red or black comes up three time in a row. This can be tried five separate times with $5,000. Again, with very high risk.

    If a person was willing to lose only $1,000 dollars of the $5,000, they could purchase a stock with a Stop Lose Order on the stock at 20% below purchase price. Then they could hope that the stock doubles in price in two to three years. High risk

    If it were me, I would use the single sum of $5,000 (assuming no other money is forthcoming in annual deposits) and divide it up into a balanced strategic approach and forget about doubling my money in 2 to 3 years. I would first purchase term life insurance with disability waiver for my economic life value. Next, I would set aside $1,000 in a savings account. Next, I would contribute $1,000 to an IRA or Roth IRA which ever was available to me. Next I would take $1,000 to pay off any short term loans that I had with loan interest above 6%. Next I would invest $1,000 into an index fund that matches my purposes. Next, I would take the remaining funds and buy gold coins (not rare coins). This is only one possible approach out of many ( not knowing any other data) but it certainly has good structure both offensively and defensively. It is flexible enough to move in any direction pending the changes in the economic environment.

    If I had an additional annual $5,000 next year and thereafter, I would first convert the term life insurance to whole life insurance with dividends paid in cash to use throughout my positioning, then add to my savings account until it reached 50% of my gross income, then increase my IRA’s deposits up to 7% of my gross income, then pay off any remaining high interest short term debt, and finally continue to fund my index funds.

    My reply is just a courtesy to answer your question. The right way to do things is to take complete data and to design a strategic financial position that is well balanced, coordinated, integrated, and ready to be changed according to the changes in the market place and economic environments. No one static and linear approach can ever be designed that will hold up and be successful over time. In economics, this refers to Gresham’s Law.

    I wish you the best of luck in all your endeavors.

  82. Robert Castiglione says:

    Hi Stosh:

    I can understand your frustration. We all want to know what is the best way to handle our money.
    It is not my position here to promote myself or my programs. Jacob Irwin is the owner of this blog and I respect him and honor his rules and requirements. I joined this blog to stick to the subject and provide honest facts regarding the pros and cons of IBC or BOY. It is true that I do not favor IBC or BOY for anyone to use because it has so many dangers and problems.

    Facts about life insurance are pretty cut and dry. But IBC and BOY twist the true facts about life insurance and weave it into a fantasy story that it is no wonder so many people are confused. I do not wish IBC or BOY to be bad, for I do not. I hope it would be great because it is not opposed to what I teach – finance and cash value life insurance. I have no competing system or strategy of IBC or BOY. If it were good, I would simply support it and add it to our programs.

    I would say this to you in answering your question. The key to financial success is different for each individual. The best plan is the one that is optimum for that person. The ingredients that matter and taken into account in the design of a successful program are: Your age, your family structure, your income, your tax returns, your estate documents, your savings and investment assets, your liabilities, your casualty insurance, your health insurance, your life insurance and annuities, your home, your cash flow, your governmental programs, and your employer group benefits. These ingredient are who your are at that moment in time.

    The outside world must be analyzed and assessed too. Tax laws, rules, regulations, inflation, deflation, devaluation, market fluctuations, interest rate fluctuations, technologies, obsolescence,
    lawsuits, natural disasters, fees, charges, commissions, penalties, and financial products.

    It is you against the world. You move, they move, you move, they move, on and on. It is like playing chess. Each and every move must be coordinated with every other move you make for optimum offense and defense. This playing of the financial game takes knowledge, skill, and even art. It is a science, and not a product or process. You cannot win the game playing the same game every year. That would assume that the opponent is always making the same moves too, and they don’t.

    Every financial product has an advantage and disadvantage. The key to financial success is to know how to make the advantages of each financial product work for you and to be able to minimize the disadvantages at the same time. Therein lies the secret to financial success.

    Taking a loan from a life insurance policy is not your own money. It is the life insurance company’s money.
    The loan is also not tax free, it is tax deferred. If cashed your policy in, your loans would be a part of your income tax calculations.
    The gross amount of the loan interest that you pay is your true cost and not a net cost of some mysterious earnings rate that you imagine you are receiving. For example, if you borrow at 5% and your mysterious earnings are 4%, it is not a net 1% loan rate but rather a 1% loss of funds.
    The cash values of the life insurance policy are being held by the life insurance company, not as collateral for the loans that you might take, but for the death benefit that they have promised you. You will never get your cash values in an IBC plan. When you die, the life insurance company keeps all of your cash values, and if you have any loans at that time of death, which IBC and BOY say that you will have, that amount of loans will be deducted from the death benefit to your family.
    Dividends are not an earnings they are a return of your own premium. That is why they are income tax free. So when you purchase more paid up additional insurance with your dividends, you are turning your tax free dividends into cash values that you will never receive without cashing in the death benefit.
    Your money in the policy is not being used again and again. It is sitting there in collateral accounts owned by the insurance company.
    All you are receiving from an IBC policy is a loan from the insurance company and any money that you pay back in principal goes to them, not you.
    Any interest you pay them goes to them not you.
    Any extra “honest banker payments” are nothing more than additional premium payments raising your cost basis on the policy. IBC does not compute the extra premiums as a cost but rather as a cost recovery, which it is not.

    I hope this helps you.

    • Thanks Bob, but now here is where my disconnects are with your explanation and previous explanations…I need to be sure I really understand what you mean if you can clarify…

      But your initial underlying point – ” The key to financial success is different for each individual.”
      I totally agree. Now…
      1) “You will never get your cash values in an IBC plan. When you die, the life insurance company keeps all of your cash values, and if you have any loans at that time of death, which IBC and BOY say that you will have, that amount of loans will be deducted from the death benefit to your family.”

      I recall you saying that whole life builds liquid and accessible cash value, without penalty. They grow tax-free (unless surrendered – policy cancelled or becomes a MEC) at a rate no less than the insurance company’s contractual guaranteed interest rate?

      With one of my Guardian INForce Whole Life 95 Policies, my cash value is increasing each year, and also my death benefit, which can be utilized for living benefits (via the cash value).

      So 2), I thought you’ve said in the past that – the increasing death benefit (via PUAs) guarantees the amount of money/assets you can spend (via cash value) while alive, that will be replaced at death. I.e. your “license” to utilize and enjoy your wealth more fully? So given you can only a) take withdrawals up to your cost basis or b) a loan, how else would you expect someone to execute this strategy?

      3) “So when you purchase more paid up additional insurance with your dividends, you are turning your tax free dividends into cash values that you will never receive without cashing in the death benefit.”

      Again based on the policy illustrations by Guardian and others I use, I am not getting an increase in death benefit only related to the guaranteed interest, but from the value of the dividend additions…so isn’t this beneficial to do if trying to execute the “license” strategy above?

      Are you saying firmly that under no circumstances should the dividends be used to purchase
      PUAs but rather just take the cash tax free and invest?

      Maybe you don’t mean this so black and white, but if you do, I think we all would benefit to understand the reason. Possibly your basing your comments on the type of policy structure IBS recommends?, or is it with any whole life product? I know there are various views on the types and setup of policies that are agents think are more efficient…

      Thanks, Tom

  83. Mark Marshall says:

    For every point, there is at least one counter point. In addition to providing college planning services, I also own and use a safe money plan both for business and personal reasons. I cannot speak to ALL plans but this is how MINE works.

    1. To start this plan, we are moving funds from one (risky) “bucket” to another (guaranteed) bucket and over funding it for the first 5 years. The plan is designed so that our cash value will be GUARANTEED to be at break even at the end of year 5. This is AFTER the cost of the death benefit. The plan is a non-MEC (Modified Endowment Contract).

    2. The plan will initially be used for a business loan and to help pay for college. The company that I chose offers what are called non-recognition loans. In other words, they loan me THEIR money while my cash value remains intact.

    3. While I repay the loan at 5%, the company is paying me a guarantee of 4% or the dividend rate, whichever is higher. The dividends ARE a return of premium and this company has been paying them for over 100 years. The current dividend–which is NOT guaranteed–is 6%. They even paid 6% in 2008.

    4. Let’s take an amount of $20k that is in a liquid “bucket”. If I used it for my business in a lump sum, the funds would be depleted and would no longer be working for me. That results in a loss, also known as opportunity cost. By borrowing it from myself and paying it back with interest, I have use of the funds once again and the cash value has GROWN GUARANTEED during that time.

    5. While I am alive, I have complete use of my cash without having to deplete it. Should I die in the process, my family receives the death benefit less any outstanding loan amounts. In other words, I have BOTH a LIVING BENEFIT and a DEATH BENEFIT. I am smart enough to know that I can never have both.

    6. My plan will be fully paid up in 10 years. That means I can stop paying premiums, yet both the cash value and death benefit will still grow.

    This is how my plan works in practice and not in theory. Each family’s needs are different and plans are flexible enough to meet those needs.

  84. Craig Pulliam says:

    I confess that I have not read every word of all the comments. I am a CFP, Accredited Investment Fiduciary, CLU, etc. Been practicing for 22 years. I am insurance licensed also and used to work at a mutual insurance company. I conceed that there appear to be benefits to IBC. But . . .
    1. Like so many things in the insurance and financial field, this is highly complicated stuff, and most “buyers” of this product do not undertand all the nuances of it . . . the lengthy, lengthy holding period for the cash value to produce that 4.5% return; the negative early returns, etc.
    2. The people we’ve talked with had no idea how the insurance agent was compensated . . . or at least how much. In my business, we disclose everything, and we are held to a far higher standard of care for our clients by FINRA, the CFP Board, and our own broker dealer.
    3. These policies can hang by a thin thread. Take money out early and they can blow up or dramatically change how the program works. Most clients/investors (studies show) do not have the discpline to sock away many, many thousands of dollars and not touch it for decades, unless it is in a non-qualified account.
    4. There is no one investment that answers all things. IBC does not do it, stocks, bonds, ETFs, alternatives, whatever. We diversify, and are probably more likely to look at good term policies and invest (my gosh . . . use a”529″ plan for college funding NOT an IBC straegy) . . . allowing us and our clients far more freedom, transparency, and liquidity without penalty in the early stages of IBC (when the reteurn is negative thanks to commisions, etc.). And potentially great returns (not guranteed)

    Be careful.

  85. Robert Castiglione says:

    Craig:

    Welcome to this blog. It is nice to have a professional on hand. All of your comments are exactly correct. All of the inaccurate math and statements made in IBC advertising, books, and presentations if proof of your appraisals. I have made hundreds of calculations and agree with your professional assessment. I have checked with industry actuaries and they agree. You and I are unbiased. All we want is the truth being stated. If IBC were beneficial, then we would say so, but if it is dangerous we have a right and a professional responsibility to tell the truth to unsuspecting and certainly unqualified consumers.

    I keep asking, if IBC is so good, than why all of the misinformation, mathematical errors, false comparisons, and phony stories. We wait for facts. not continuous say ole same ole of happy clients that cannot be measured or validated.

    I appreciate your presence here and hope that the lack of verifiable data, hype, and false analogies by IBC advocates don’t discourage you from all life insurance agents in the profession. Those that I know care more about consumers than just their compensation.

    Thanks

  86. Mark Marshall says:

    Nice post, Craig. Thanks for bringing some additional balance to the conversation. I completely agree with your suggestion to diversify.

    Honestly, if anyone claims that IBC is the be all and end all, then he is flat out wrong. However, another aspect of this discussion is personal responsibility. In our case, we INSIST that clients who are considering IBC do their diligence before making a commitment.

    In line with that, we encourage them to research the insurance company and read both the good and the bad about the concept. The majority of our clients see that the benefits can far outweigh any pitfalls.

    Years ago, the owner of a large family-owned retail chain used to end every commercial with, “An educated consumer is our best customer”. I would agree. In the end, the consumer has a responsibility to make an informed decision.

    The points you describe do not apply in our practice. A properly designed plan works the way it should. Specifically, we only use over funded, dividend paying WHOLE life plans that are non-MEC’s in most cases. Some times MEC’s work as well.

    You are also correct about regulation. However no amount of regulation will prevent folks from making bad decisions and losing money. Again, that goes to personal responsibility.

    One quick note on 529 plans: they are a potential trap in at least 2 ways.

    1. They count AGAINST you once you use them. Specifically, the amount used counts as an ASSET the following year and can reduce the amount of aid received. There are also penalties and tax consequences if the funds are used for any other purpose. What happens if the student decides not to go to school?

    2. The same money put into a safe money plan is guaranteed to grow and compound with no downside, unlike an investment. The funds are then outside the financial aid formulas and can be borrowed instead of depleted. They are also tax-favored as with a 529.

  87. Robert Castiglione says:

    Mark:
    To your reply of March 28th.
    1. Can you tell us what the “risky bucket” was that you transferred out of? And in your statement you are stating that life insurance returns in 5 years are guaranteed? Can you explain how all returns are guaranteed to be paid in 5 years from now? How do you know that the 5th year point will be the break-even point?
    2. What do you define as a non-direct recognition loan? Are you saying that the life insurance company has no recognition of your loan and has no collateral to safe guard itself? Life insurance companies are not in the business of giving money away for free. They do recognize your loan and want to be paid back, and if it goes unpaid, they will collect it either from your cash values at surrender or your death benefit when you die. There is no free lunch with insurance loans. It is directly recognized and they are holding collateral in case of your default.
    If you are referring to the dividends of the IBC policy not being discounted (recognized), that is still not a gain for you or other policyholders. You have already admitted that dividends are paid whether there is an outstanding loan or not. So there is no gain to equity of the policy because of an IBC loan transaction.
    If you are referring to other life insurance companies that discount the dividend for policy loans, you cannot claim that feature as a gain for you because some other company discounts dividends. There is another whole debate on that topic anyway. Those life insurance companies that do discount dividends for loans also pay higher dividends to policyholders who do not borrow. Your IBC companies pay somewhat lower dividends overall on policies whether policyholders borrow or not.
    3. Your #3 statement is not true at all. You cannot take an overall long term projected rate and use it as a year by year rate. This was the point that Craig was making in his reply. You do not borrow at 5% and get back 4% guaranteed. But putting that argument aside, you do not get anything back on your loan repayments: zero, nada, and zilch. You would have received the same values in your policy whether you borrowed or not. The increase in your policy values is not coming from your loan repayment. Your cost of the loan is 5% and you are getting 0% return back from the life insurance company on your loan payments.
    4. Your # 4 is the illusion that most IBC advocates want to project but it is only an illusion.
    If a person has $20,000 in a liquid bucket, and they spent the entire liquid fund on a consumer purchase, then Mark is correct to say that the person has no money left in the bucket. But of course the person has the equal value in the item purchased. Therefore I dispute that fact that Mark calls it a loss. Cash or assets are of equal weight on a balance sheet. That is not an opportunity cost, it could be an opportunity gain. The consumer gained the opportunity of owning something needed or wanted. If it was a business machine that was purchased and that machine produced $50,000 in profits, the cost of the machine was not an opportunity cost but an opportunity gain. This is called economic value added. Mark, you may not be an economist and as such I can allow such confusion that you may have on that issue.
    I must continue to object and to reinforce the fact, and without any doubt, that Mark is not borrowing from himself. He is borrowing money from a life insurance company. The loan provision of the life insurance policy clearly makes that known. Open up your own whole life policy and read the section on policy loans. Here is what mine states: “A loan may be obtained from the company on assignment of this policy as security provided it has (1) has acquired a basic cash value and (2) the policy is not is not in force as extended term insurance. The amount of the loan may not exceed the cash surrender value.
    Interest on the loan will be at the rate of 5% per year and will be payable annually in advance subject to the proper discount allowance. If interest is not paid it will be added to the indebtedness with interest at the same rate. The repayment of the loan in whole or in part may be repaid at any time.
    Payment of the cash value of this policy or the making of any loan, other than a loan for premium payment, may be deferred by the company for not more than six months after the written request is received. “
    Notice that the cash value is NOT stated as the collateral or security of the loan. The policy is said to be the security or collateral. The reason why the cash value is not stated as the collateral is because if the policyholder dies, the life insurance company gets all of the cash values regardless, so they want the ability to take the loan indebtedness from the death benefit in addition to keeping all of the cash values.
    When Mark pays back the principal and the interest on the policy loan, none of those loan repayments or interest goes to Mark’s policy values. All of those repayments and interest go 100% directly to the life insurance company. All Mark has now is another right to borrow the life insurance company’s money at a cost of 5% and to repay that loan and interest to them, not to himself. There is absolutely no additional funds being earned by Mark whether borrowing from an outside source or from borrowing from a life insurance company.
    How did the existing cash value get into Marks policy? It came from previous premiums payments. That is a cost to the IBC policy side of the comparison which the other borrower did not have to make. Therefore, those same additional payments would have to fund the other borrower’s bucket prior to him making the loan of $20,000. The other borrower will have the same ability to use a collateral loan with his additional funds or he could spend cash out of the bucket whichever is best for him. But the IBC person does not have those same options. He has only the policy loans as a choice to use , or he could cash surrender his policy and lose the protection.
    5. All people have the same options not to deplete their buckets if all of the contributions have been equalized as I stated above. IBC is the only method of financing that restricts (straight jacket) the choices of financing to only one type – a life insurance loan. Life insurance loans are a choice that anyone can use but it is not always the best choice because it has higher than market rates, is not negotiable, and not tax deductible.
    Of course with life insurance loans there is the danger of further regulations on loans as has occurred in the past. The MEC laws are now in place. That means the IRS knows about this IBC stuff. It is watching and if IBC gets abusive, the IRS could go further and begin taxing those insurance policy loans or restricting their use through penalties like they did with annuities. Since the IRS is looking for revenue because of the 17 trillion debt, life insurance loans could be the place. Regardless, consumers must be cautioned of these events because they have all their eggs in one basket when using IBC concepts.
    6. Can you tell us how you know that your plan will be fully paid up in ten years and I assume you mean guaranteed? How does that differ from a 10-pay whole life policy? What is the importance of having it paid up? Isn’t there a downside to having a policy paid up if you can afford the premiums?
    Based on your comments. I do not feel you know how your own policy works, nor do I feel that you could accurately express it to your clients. But that is only my opinion. Others will have to decide for themselves based on the facts of how life insurance actually works measured against your own statements and commentary.
    In your March 27th post you say that “When our loans are paid back, our cash value will have grown PLUS we have use of the funds all over again. No tricks, no deception, no fuzzy math. In future posts, I will address some of the other myths and misstatements that have been put forth–and will use simple math to disprove them.”
    I still see tricks, fuzzy math, and much deception. I hope that you do supply everyone with simple math to disprove it. I look forward to it. If I am wrong, I will be the first to admit my error. I hope you will feel as I do that if you or IBC has erred, that you will admit it too. If anyone feels that I am off base with my facts, please let me hear from you. I am willing to listen to anyone who has legitimate insight and knowledge.

  88. Robert Castiglione says:

    Hi Tom:
    I would be more than happy to clarify things for you.
    But before I do, I want to thank you for your openness and willingness to digest facts and still be honest enough to question them. That shows me that you are searching for truth and that is a very good thing.
    I am also happy that you agree with my central point that “The key to financial success is different for each individual.”

    Now let me address your disconnects and help you clear them up.
    1). By definition, whole life cash values do build up liquid and accessible, and without penalty. Cash values are considered a liquid asset on a balance sheet by most CPAs. Some may call it a semi liquid asset. It is similar but not identical, of course, to a 6 month CD in that it too is a liquid asset or as some would say a semi liquid asset. A 6 month CD is accessible by early surrender at any time but with a penalty. Whole life cash values are also available upon surrender after a potential 6 month life insurance company waiting period, but with no penalty.

    It is also correct to say that life insurance cash values “grow tax free until they are surrendered.” That does not mean that cash values “are tax free“ because there is a qualifying statement there. To say “until surrendered” means that it is taxable at that time. It is the same definition used for an IRA or 401(k). You know my financial Model which has cash values placed in the S7 drawer (tax deferred) that clearly presents it as being a tax deferred item. I am completely consistent on that point.

    I have never said that “cash values grow at an insurance company’s contractual guaranteed interest rate?” Cash values do not grow at a set interest rate. If you look at any life insurance policy illustration, you will see that the cash value increase changes from one year to the next at a haphazard rate. I will never say never but if you can find where I have stated that I would apologize for a misstatement, but I will say I doubt it for now.

    You are incorrect to say that you can utilize the cash values for living benefits. You can utilize the dividends but not the cash values. Only taking a loan from the life insurance company is your other choice. You can never get your cash values unless you surrender the policy which is not advisable. It does not matter if they are growing, only a surrender gets them to you. The living values do not come from your cash values in the policy but rather from other strategic positioning moves.

    2). You say, “I thought you’ve said in the past that – the increasing death benefit (via PUAs) guarantees the amount of money/assets you can spend (via cash value) while alive, that will be replaced at death.” Sorry Tom, but I never have said that. There are no strategies in our entire course that have cash values being used as a living benefit. Where did you hear that or see that, I don’t know, but it did not come from me? Again, I will never say never but if you can find where I have stated it I would apologize for a misstatement, but I will say I doubt it for now, but I am really leaning more to never on this one.

    You say, “so given you can only a) take withdrawals up to your cost basis and b) by a loan, how else would you expect someone to execute this strategy?

    You can only access your PUA cash values without a loan up to the cost basis but you give up death benefit which is larger. So you lose money that way. Loans also lose money from death benefit so you are robbing your heirs and not the insurance company.

    I could not possibly explain the entire course on this blog. Please attend another coaching session on me at no tuition for the answer. But for now, understand that you cannot access cash values other than PUAs for income or withdrawal. Loans are a problem, they lose money, and are dangerous and uncomfortable to use.

    3) Again based on the policy illustrations by Guardian and others I use, I am not getting an increase in death benefit related to the guaranteed interest, but from the value of the dividend additions…True

    So isn’t this beneficial to do if trying to execute the “license” strategy above? Are you saying firmly that under no circumstances should the dividends be used to purchase PUAs but rather just take the cash tax free and invest?

    This could be advantageous or disadvantageous depending on your other financial positions and age. You have already agreed that every situation is different. Dividend options are made so that people can tailor make their life insurance policies to maximize their current financial well-being. You can choose from: Cash, Reduce Premium, PUA, Accumulation, or Term Insurance. Each option has a reason for use. I cannot know which option is best for you without complete data. Personally, I have used every option on my own life insurance policy portfolio. Only having or using one option is never the best option.

    Life is dynamic, not a straight linear line. Things change whether we like it or not. A successful plan is one that uses every means of having financial success, and from all different financial corners. Only through and coordinated and integrated use of a variety of financial tools will financial success be achieved. That takes talent and skill but can be easily taught. But if one ignores the truth and wants to use a closed ended and dangerous approach putting all their eggs in one basket with one strategy, then all I can say it is their right to do so, even if it is a bad choice.
    Hope to see you soon.

    • Bob – thanks for the reply. I dug deeper on the resource for the basis of my previous comments.
      It appears that the source was not you directly, but from a few LEAP PS&G documents I read that appeared to reference you as the source, but were rather interpreted versions of your model outline. One from an apparent LEAP agent titled: “Making Principles Based Decisions A Discussion of The PS&G Model™” back on August 30, 2010. So I apologize for assuming the summary I read was consistent with your opinion.

      I understand that cash value is not something that can be directly benefited from unless the policy is surrendered (not recommended) or once the insured dies. However I’ve interpreted living benefits to include having the ability to access the “loan provision” tax free at any time for any reason based on the cash value in the policy. To me that is a living benefit of the policy design since it is helping me in some financial way to either invest the funds somewhere for a greater return, or to pay down debt that is costing more to carry.

      One problem I potentially see is that all reference to the borrowing aspects of the loan is that it is a loan secured by the cash value, or collateral for the loan. Knowing that in the early stages while one would have a death benefit and little to no cash value the first few years, the only reason why you are able to exercise the loan provision is because of the accumulated cash value – not the death benefit. So the loan amount available is based on a percentage of the cash value. So, in theory, the more cash you accumulate, the greater your ability to use the loan for further uses that potentially can increase your assets. Again, to me, that seems like a living benefit.

      Bob – as you can probably tell, there are aspects to the IBC concept I do agree with, but I do have reservations on writings by others like BOY Yellen…(I’ve even told her so…) I agree that she is misrepresenting some things in her effort to take credit for the IBC evolution from Nash.
      The idea that all the interest you pay goes back to yourself is absurd – it absolutely goes to the insurance company for the loan they give. That just never sat well with me. The only thing as we’ve beaten to death here, is the extra interest you pay does go toward PUAs. But still, the features and use if carefully executed can be a benefit in my opinion.

      I guess in a way one could look at paying back the loan and then some in the same way one makes extra principal payments toward a conventional mortgage. Would one be better doing that or by investing those extra payments somewhere else for a greater return? (I say somewhere else based on my dealings with balloon payments in real estate.) Yet, lenders will have you pay an extra fee for a marketable product that allows for extra payments when in reality you don’t have to sign up for any program by the mortgage company to do that strategy. Oh well…a little off topic.

      On another note Bob (since I’ve got you here…) I did want to say that I was refreshed to see your very detailed outline to Norm on March 27th. That kind of help is what it is all about. None of us here should view ourselves above the person we are trying to help. And your reply to him (just as Mark has been doing) brought that across…For me, I am an optimizer never too old to say I’ve learned it all or that things can’t be improved. One thing I notice is that you are direct and play the devils advocate role very well…enough that in my mind it helps me (despite the disconnects at times) to journey through in my optimizing efforts. So don’t stop. I appreciate your generous offer on the coaching session and absolutely would be interested in hearing your latest version of it – if you are again in the NYC area, just let me know. Thank you.

      PS – I’m sure you have read Barry Dyke’s book the “Pirates of Manhattan”…curious to hear what your review of it and the cash value concept would be. I personally couldn’t put the book down until I finished it. And, I’ve pointed a lot of folks to that to better understand this whole topic.

  89. Robert Castiglione says:

    Hi Mark:
    I would like to respond to your March 19th reply:
    You say: “I always strive to be correct and I am sure I make mistakes. However, mistakes go to intent. No hidden agendas here. I am happy to be corrected and will change course if necessary.”
    That is a good thing and I commend you for your openness to change.
    You say: “There is no intent on your part”
    I’m glad to hear that and I take you at your word.
    You ask, “I have to wonder that if the practitioners of the (IBC) concept are as flawed as you say, then where are the authorities?”
    I have visited the life insurance companies whose policies are sold by IBC agents. They tell me they are in the business of building insurance policies, not in the business of advocating how to design the use of their policies. Think of it this way – people have a right to make bad decisions.
    You say: “Where are the damaged policyholders screaming from the rooftops?”
    These top executives tell me they get more consumer complaints from IBC sales than from any other sales process. Most of the largest life companies do not allow IBC policies.
    You say: “Why would companies risk their reputation and their assets on such a flawed concept?”
    These same executives tell me that IBC sales agents are independent contractors. These life insurance companies did not build IBC, advocate IBC, or promote IBC.
    You say: “From a cursory look at YOUR concept, it looks like it is very advanced for the common man.”
    My concepts are not being debated here. I am only interested in sticking to the subject matter and discussing the pros and cons of IBC. I am trying to stay as factual as possible.
    You say: “If there is something better for these folks, please enlighten me.”
    It is not a question of what is better, it is a question if what is worse. Almost anything else is better than IBC when all of the data is compared accurately and fairly.
    You say: “To be clear, there is DOUBLE leverage here. Yes, anyone with cash can negotiate. However, where are you factoring in opportunity cost? If I pay cash, I am losing the return I could make on that money. In addition, I now have to start saving AGAIN in order to have the cash for the next vehicle.”
    Your statement ignores the veracity of the equalization of mathematical comparisons. For example: If we were to take two identical people, Person A and Person B. Let’s say they both have $20,000, neither has a car, both work for the same company, and have the same salary.
    Person A meets an IBC salesman using the advertising pitch on how everyone in the financial services industry is evil and that he will lose money borrowing from banks or using cash.

    Person A uses the entire $20,000 to buy an IBC policy. But he still has no car. He is told he has to wait until year 5 to buy his car. This period is called the capitalization period of IBC.
    Person B. on the other hand goes to his bank. He is advised to take a $20,000 interest only collateral bank loan at 3%. Person B buys his car with the loan and keeps his $20,000 earning interest in the bank.
    Both men read in the newspaper the next day about a new job opening at a plant 80 miles away. This new job pays $20,000 more in salary. Person A says, that’s too bad, I can’t walk that far. Person B says, I think I will take that job, I have a car. This is called an opportunity gain for Person B.
    Person B’s money is compounding in the bank, he is paying interest only at 3%, and has a new job with an increase in salary of $20,000. Person B also adds to his bank account the difference between his interest only loan payment of $50 per month and the annual premium that Person A is spending for premium in years 1, 2, 3, and 4.
    The IBC person A that has a real opportunity cost loss. That opportunity cost loss comparison is omitted from the IBC calculations, and it is one of the fatal flaws of IBC. The capitalization aspect of starting an IBC plan is called in economic terms called “a cost of waiting” and it must be accounted for in all calculations.
    You say: “Who has the discipline and/or ability to do that? Good old-fashioned whole life is a FORCED savings plan. That is a good thing in my book.”
    Yes it is a good thing in my book too. I am a big believer and advocate of whole life insurance. But I do not believe that a forced savings approach is its biggest sales feature. I believe in a coordinated and integrated approach that is electronically automated and with failsafe protection.
    You say: Over time, paying cash is better than financing with a third party but my “infinite bank” blows it away! Since I am borrowing the money from my plan.
    You cannot negotiate is the loan interest rate that the IBC insurance company is charging. You are stuck with whatever the variable rate is being charged. With outside lenders, you can negotiate loan interest rates. Therefore, you are losing a leverage lever when borrowing from a life insurance policy versus the choices that you can have or even create with outside lenders.
    You say: “I then pay myself back at a market rate or higher.”
    Here is where you go off track. You are not paying yourself back. You are paying the life insurance company back both principal and interest with 100% of your money. Only any extra payment you add to those payments go to your account as another premium payment.
    You say: “For the term of the loan, my total cash value remains intact and earns a return.”
    Yes your cash value remain intact but for who? You will never get it. When you die, the life insurance company gets all of your cash values.
    You say: Yes, dividends are NOT guaranteed but I get 4% guaranteed no matter what.
    You are not making 4% guaranteed every year. You are quoting the long term compounded rate but not a number that is earned each year. There is a major difference between the two.
    You say: “Also, I will go with a 100+ year history for dividends any day of the week. Leverage number 2.”
    Dividends are not your earnings but rather a return of your overpaid premiums. That is why dividends are not taxable but they do reduce your cash value’s cost basis increasing the taxable event if you surrender the policy. Those over payments you make increase the cost basis of the cash values because they are considered premium payments for accounting purposes.
    You say: Once the loan is paid back, I have 100% use of those funds again for ANY purpose. And my cash value is fully intact and can be even HIGHER if I pay myself back at a higher rate.
    You do not have 100% use of your cash values. Rather, you have the use of a life insurance company’s loan. Your cash values are never used nor added to by the use of a loan. You are not paying yourself back at a higher rate, all you are doing is paying an additional premium that gets cash value and death benefits like any other premium.
    You say: “Please show me where my math is wrong. Your reply was an OPINION and did not address how these plans work. I am happy to stand corrected if you can show me the error in my explanation.
    Your math is inaccurate and very misleading. You are not accounting for the opportunity cost loss of IBC policies for the capitalization period needed to build the concept. Those costs must be applied to alternative options as gains to equalize the costs to both sides.
    You do not borrow your own money. You borrow the life insurance company’s money of which you pay them back 100% of your money and have no gains in your accounts for such payments. You would have had the same earnings even without the loan so paying any principal or interest to the life insurance company does not add wealth, it can actually reduce wealth.
    Your over payments of interest to the life insurance company are nothing more than new premiums purchasing new death benefits and cash values. It increases your cost basis of the policy and therefore does not improving the overall rate of return.

  90. Mark Marshall says:

    Robert, I admire anyone who can read and understand your replies. I confess that I cannot. It appears you only agree with those who agree with you. As a result, I will continue to post what I believe is correct about IBC and you can do the same. The reader can come to his own conclusion.

    Following is a simple real life example to clarify how the loan provision in MY own policy works.

    Many years ago, I needed some money to start a business. I was 20 years old at the time and had good but limited credit. After visiting my local bank manager, he offered me what was then known as a “passbook loan”.

    I had a savings account with the bank. The following numbers are not exact but the math is correct. The balance at the time was about $5000 and I wanted to borrow $2500. The bank agreed to loan me the $2500 and use my account balance as collateral. I was thrilled.

    Now here is EXACTLY how it worked. My “passbook account” still showed a balance of $5000 for the DURATION of the loan. The bank continued to pay me 5% interest on the ENTIRE balance. I then paid them 6% interest on the $2500 loan.

    Therefore, the NET interest rate on the loan was 1%. Simple math. No deception. No misunderstanding. Yes, I paid the loan money back to the bank. However, the PRINCIPAL amount NEVER left my account. I simply could not withdraw it or use that amount as collateral until it was fully paid back.

    This is EXACTLY how my loans from my IBC policy work. Yes, the cash value is collateral. Yes, the loan is paid back to the insurance company with interest. And SIMPLE interest I might add. MY policy loans do not come with an amortization schedule like the majority of “street loans”.

    While I am paying back the loan to the insurance company, my cash value remains INTACT. Historically–with my personal plan and that of tens of thousand of clients in our group–the difference between what I PAY in interest and what I am PAID is about 1%. Some times a bit more and some times the amount has even been equal.

    These are REAL numbers based on personal experience of myself and clients. I cannot speak to what other companies may or may not do. I only know that all of our providers have assets in the billions and have high ratings with the agencies.

  91. Mark Marshall says:

    The question was asked how I know that my personal IBC will be at break even at the end of year 5.

    Simple answer: I have a CONTRACT with the company and the numbers are in the GUARANTEED column. According to what I understand–and have experienced–with contract law, the company is BOUND to these numbers.

    Specifically, my cash value will be equal to the funds I have sent to the company during that time. Part of the funds pay my annual premium plus a temporary term rider. The remainder go in as single premium paid up additions (SPPUAs).

    This particular company does not charge any fees for the SPPUAs. As a result, I have full access to the entire cash value, again according to the CONTRACT.

  92. Robert Castiglione says:

    Hi Tom:
    Nice response. Lots of good thoughts. Here is my reply to each of your paragraphs.
    First paragraph: Thank you for the correction. Others may speak for me, but only if it comes from me, signed by me, then it is me. LOL
    Second paragraph: I agree with you that a life insurance loan is a financing option, but I would caution anyone calling loans a living benefit? Instead I would agree that is a living cost because the combination of the gross loan interest rate paid (not net rate as portrayed falsely by IBC), the income tax costs, and the loss of the death benefit make it an expensive way to borrow money.
    Life insurance loans are a tax liability upon surrender of the policy and can only be forfeited by death. Other types of loans are not taxable events and some are even tax deductible. A life insurance loan cannot be accessed at any time because a life insurance company can freeze the loan application for up to 6 months. The dangers of having life insurance loans declared taxable or being penalized in the future would be disastrous for any IBC policyholder. No other loan types are vulnerable to such dangers.
    You are not borrowing from yourself. You are not earning anything on the money that you borrow. And, you are not paying yourself back either. If people are allowed to use words that don’t mean what they say, then what chance do consumers have of getting reliable information? I was totally flabbergasted when Pam Yellen stated that her printed words were not meant to be taken literally. And that is the biggest problem of IBC or BOY, so many of their words are inaccurate, misleading, and some are outrageously untrue.
    Policy loans can be useful at times, and I am not against taking policy loans if for good reasons. The superior borrowing mechanisms in the marketplace make borrowing from life insurance a living cost, not a living benefit. Anyone planning to take loans on life insurance policies in their retirement years should be made totally aware of all the hidden dangers to such a strategy. It could be a disaster waiting to happen.
    Third paragraph: IBC and BOY only compares their strategy to negative options such as failing stock market and not one that is a growing. They site Dalbar studies measuring human behavior (buy high/sell low) using a low rate of return of 3% or 4% in contrast to the real rate of return of between 6% to 10% based on portfolio choice. IBC cherry picks the worst financial scenarios to make themselves look better than what they really are. All the actual measurements significantly has IBC behind by millions of potential dollars in most cases.
    Fourth paragraph: Thomas, can you share with me in detail the actual IBC aspects that you do agree with and why?
    Fifth paragraph: Extra payments to a mortgage is generally not a good idea, (sorry Dave Ramsey) because it is a cost, a lost opportunity, not diversified, and tax inefficient. The same holds true for paying off a life insurance loan with extra payments (so called interest by IBC). Those extra payments are actually premium payments. Premiums build cash value and death benefits and increase the cost basis of the policy. If it were extra interest it would only go to the accumulated interest account in your policy, the same one that your dividends could be deposited into.
    Sixth paragraph: I do not see myself as playing devil’s advocate. My statements are truth based. My research and scientific measurements and comparisons back my statements up. I have measured IBC using scientific laboratory like studies and those result disprove the IBC claims. Using life insurance as a bank account, credit card, or checking account is expensive, inappropriate and riddled with dangers.
    Your PS Seventh paragraph: Barry and I are friends. We have known each other for years prior to his book. He was kind enough to credit me with the inspiration he had to write his book. A few weeks ago Barry was nice enough to send me a copy of his latest edition and a gift. I think his book is a monumental effort to try and rid the financial services industry of many of its ills. I concur with much of his research and findings. I was hoping that he and I could get together some day and write a new book on the winning and losing strategies of life insurance.
    Thanks much

    • Bob – specifically what I like is the freedom to not have to qualify for the tax free use of the loans, and the ability to use funnel money through a tax deferred account that gives me more flexibility and options. I also like how Guardian for example treats the loans with their dir. recognition process.

      As Guardian puts it: “for example, under Guardian’s 2010 dividend scale if your fixed loan
      interest rate is 8% the actual cost of borrowing is reduced to 7.1% because of the higher dividend paid on policies that have loans. In other words, those policyholders with loans would receive a higher dividend in 2010 to compensate them for paying a higher loan interest rate relative to the prevailing market interest rates.” Now I understand that it is not a guarantee every year, but again I like the feature if taking a loan and it applies.

      I like having the ability to tailor the insurance product (up to a mec limit) and increase the cash via the puas…again, I understand your cost warning for loans, but that is true for any loans.. I like the protection of moving the money through the policy to achieve specific business goals I may have.

      And since you agree that you are not totally against the loans, could you give a good example of where you’ve seen it used in a constructive/optimal way that you do support?

      Regarding mutual funds, I prefer the use of a mutual fund type VUL with various allocations I can manipulate as I manage its growth. I believe the main issue with mutual funds as Barry Dyke explains on page 63 of his book “Never Met A Man Who Made His Millions In Mutual Funds”, is that many folks get into the market on a whim vs doing any serious research on their own. This many times results in getting into the market when the up trend is about to stop, and then not getting their money out as it trends down. NEVER rely on the media experts who manipulate the market and people’s emotion on a daily basis!

      For me, I study the market sectors and look for seasonal trends that have consistently provided higher returns…not homeruns, just higher returns…and then pulling out before the down trend.
      Case in point, on 2/20/14, I researched 4 utility sector stocks for my SEP that are killing right now. I will be out of that sector for a short time starting in May. But as I’ve said before, that takes effort to do. Most folks will not take the time to do the research even though they’d be better off if involved in the market. So I believe folks can and do well with mutual funds – just a smaller percentage.

      Other things I like about CVWL is the safety, security, liquidity and cash value build up. Looking at your friend Mr. Dyke’s book on page 201, he states there is “no lost opportunity costs with whole life insurance”…and goes into more detail which I agree with. I like having that “safe harbor for private capital formation” AND not just having it for the death benefit but for any financial needs that it can assist with.

      I like being able to build a cash value that can be utilized for a pension for example if I want that or for other needs…(Reverse mortgage and whole life??) I understand the amounts taken would be deducted from the Death Benefit, but unlike the way IBC/BOY recommend, I have a much higher death benefit that gives me more flexibility since I do not need multiple smaller policies which would result in more costs for each policy…for me, the main focus was to setup for the Human Life value since I needed that…I just like the other attributes that provide more options via the loans if/as I need that. … I am worth more to my wife dead than alive – so I am constantly sending her roses!! 🙂

      Bob – it seems that given how you were the inspiration for BDs Pirates of Manhattan and you are friends, he agrees with a lot of what folks are saying on this forum regarding the perceived benefits.
      If that is not true, I’d be curious to know what parts of the book you don’t agree with. I though Mr. Dyke outlined very well the benefits of cash value whole life, just like I thought you did back in the 80’s. And, that is a large reason why I am sold on it…absolutely not a result of IBC or the copycat (taking credit for someone else’s idea) BOY.

      Bob – I don’t expect you to outline every possible reason in detail…so if the coaching offer is still available, I would be interested in sitting in. You were basically the first sme that got me hooked on this whole thing to begin with!
      Tom

    • Hey Rob:

      When you say its expensive do you mean in the sense that the money could make a higher return elsewhere, or expensive as in actual effective cost?

      When you say riddled with dangers are you saying that its dangerous if executed properly or dangerous if executed improperly?

  93. Mark Marshall says:

    Last Thursday, I requested a policy loan from my IBC plan. The request was done online via a secure email system that connects directly to my account.

    All I had to do was fill out the form with my policy number and the amount requested. The funds were sent to my bank account by EFT and were deposited today–in 3 business days. The sum was five figures.

    The interest rate is 5.5% per year and I will be credited 5% per year on the borrowed amount (since it remains in my account as cash value) PLUS dividends (which are not guaranteed but have been paid annually by the company for over 100 years).

    According to the math, that makes the NET loan interest 0.5%. The funds came from the insurance company and will be paid back to the insurance company. During that time, my cash value remains fully intact and will continue to grow.

    If I die while the loan is outstanding, my wife receives the death benefit less the amount owed on the loan. She says she is fine with that since the debt would be fully paid!

    This entire process is very similar to the bank passbook loan example that I posted the other day.

    • Mark but the kicker for me is that when you die the cash value that you spent years building doesn’t pass on to your kids….the insurance company keeps it.

  94. Hey is it just me, or is everyone now experiencing that we don’t get email notifications that a new comment has been submitted? The last notifications I received were on Saturday.

  95. Mark Marshall says:

    Tom, first I like your style! Second, I personally have been getting the notification emails.

    You make some excellent points on both the PROPER use of the IBC concept and also about investing.

    My investing mentor has taught me that if I do not make a profit with my investments it is only due to a lack of financial EDUCATION. In my case, I prefer stock options because it fits my style.

    It is up to ME to learn how to invest myself. That goes to personal responsibility. Wall Street wants us to think it is too complicated and that they are somehow more qualified to invest my money FOR me. Nothing could be further from the truth.

    It is simply astounding how the average person will blindly TRUST people they do not know–that is mutual fund managers–with their retirement funds. Yet, many of the same people will not even consider the IBC. Life is full of irony.

    In a perfect world, we would all have a customized safe money plan, do our OWN investing in the markets, and own tons of property! Alas, the world is anything BUT perfect.

    Thank you for your ongoing valuable feedback here. I really appreciate you being fair-minded and open to the IBC concept.

    • Thanks Mark…I appreciate it. The way I look at this is we all probably share the same goal of just getting better at what we do in the finance world. That really can’t happen without some serious discussion on points – whether we agree or not…In the end though I think it makes us better. Keep plugging!

  96. Robert Castiglione says:

    Hi Mark:
    In your post of March 31st at 11:45 am, you were speaking about a passbook loan on a savings account when you state, – “This is EXACTLY how my loans from my IBC policy work”.

    The problem with your statement is that life insurance does not work anything like a passbook loan.
    There is no similarity between a passbook loan and a life insurance loan. They are two distinctly different financial tools when using them for loans.

    Here are some of the differences:
    A $5,000 deposit into a 5% CD can immediately be collateral for a $5,000 loan @6%. A $5,000 premium into a whole life insurance policy has no collateral value for a loan.
    A $5,000 deposit into a 5% CD maturating in 5 years has no opportunity cost of waiting. A $5,000 premium into a whole life insurance policy has an opportunity cost of waiting.
    A $5,000 deposit into a 5% CD maturating in 5 years has a guaranteed consistent earnings rate. A $5,000 premium into a whole life insurance policy has no guaranteed consistent earnings rate.
    A $5,000 collateral loan from a CD is completely income tax free forever. A $5,000 collateral loan from a W.L. policy is not income tax free. It is taxable at surrender of policy.
    A $5,000 CD does not require any further payments of principal for the loan. A $5,000 premium payment requires additional premium payments to generate cash value loans.
    A $5,000 CD can diversified into smaller savings and investment taking advantages of changing times A $5,000 premium cannot diversify without loans or surrender to take advantage of changing times
    A $5,000 CD is guaranteed and insured from loss by FDIC. A $5,000 premium is guaranteed but not insured from loss.
    A $5,000 deposit into a CD ever year allows for the collateral of a $5,000 loan being issued every year. A $5,000 premium into a W.L. policy does not allow for collateral of a $5,000 loan issued each year.
    A $5,000 CD guarantees interest payments every month. A $5,000 premium payment into a whole life policy does not guarantee any level of dividend returns.
    A $5,000 CD if surrendered in year 1 will only receive an interest penalty or small principal fee. A $5,000 premium in a whole life policy if surrendered in year 1 will receive no principal or drastic cut.

    There are several more differences but I think you get the point that these two financial tools are not close to you saying – “EXACTLY how my loans from my IBC policy work”.

    What bothers me most about many if not most IBC people is their constant drum beat that IBC policy loans are “income ax free.” They are not tax free, they are tax deferred and possibly taxable. To ignore and not warn policyholders of the possibility of substantial income tax costs in the future, whether they are self-inflicted by human behavior and surrendered, or caused by outside tax, economic, or insurance changes, is in my eyes irresponsible.

    You say, – “Therefore, the NET interest rate on the loan was 1%. Simple math. No deception. No misunderstanding.”

    It is simple math, I agree, but I disagree with your wording. The interest rate on the loan is 6%, not a 1% net interest rate. The combined interest rate on the total transaction of both the loan rate and the earnings rate may be calculated to result in a net 1% rate, but that rate is not the loan itself, it is the entire transaction. Some consumers who are not as smart as you will be deceived and have plenty of misunderstanding, and even many agents I meet are confused by such wording. Keep in mind that the Variable rate could go up and the earning rate could come down. The spread could get wide as it has in the past.

    I was happy to see you say, – “Yes, the loan is paid back to the insurance company with interest.”

    Thank you for clearing that up that the loan is not paid back to yourself. I hope that you help correct Pam Yellen, Nelson Nash, and all of the other authors and advocates of IBC and BOY, etc. and to begin to help correct their words and statements to describe the IBC process. Isn’t it only fair and ethical to do be accurate, fair, and honest?

    You say – “MY policy loans do not come with an amortization schedule like the majority of street loans”.

    All collateral loans on the street come with the same interest only or pay down options as the IBC life insurance policy. I believe you are comparing apples and oranges when meaning either mortgages or non-collateralized consumer or business loans. You should be comparing all options for clients, not just the bad options. There are “better collateralized loans” available in the market place now compared to IBC policies.

    Finally, the IBC or BOY policy design is to capitalize the policy with capital upfront to build up the collateral sooner than later. This is not a problem for me. The big weakness is in the IBC mathematics of not showing that capitalization as a lost opportunity cost or an opportunity gain to all other alternatives. Instead, IBC wishes it away with some fancy wording about all businesses must start with working capital. Yes, that is true, but they are honest enough to call it a cost basis.

  97. Mark Marshall says:

    Robert, I could have saved you the trouble of explaining all of the “differences” above. First, please show me where you can get a 5% CD these days. As far as I know, they do not exist.

    Second–and to be clear with “words”–each year I deposit a lump sum in my plan. It purchases an SPPUA (Single Premium Paid Up Addition). I pay a one-time fee and then have access to the remainder of the funds IMMEDIATELY.

    No one likes to pay fees but there is always a cost of doing business. I could make the argument that banks charge fees in the sense of paying so little on deposit accounts. Instead of charging me the fee, they simply pay me less on my money. Banks should be ashamed to pay so little when they charge so much.

    For example, a bank pays me 1% on my $10,000 deposit. Then, thanks to fractional banking, they can then lend someone else $100,000 for a mortgage at 4%–based on that original deposit!

    This may be “legal” but where does the $90,000 come from? Answer: thin air! It is just an accounting trick that is allowed by law but based on nothing of substance.

    Care to calculate the PERCENT of profit the bank makes on that transaction over time? It is in the thousands.

    With my plan, I pay the fee ONCE and am done. That works for me. This also beats mutual funds every time with their greedy fee structure.

    Again, I can only speak about my plan and those of my clients. They work exactly as I have described and can outperform your CD any day of the week. A bank CD right now does not even keep up with inflation. My plan does.

    Compounding matters. You do not seem to address that. Which would you prefer? 1% compounding annually on a CD or 6% with my plan? The difference is HUGE. Again, simple math. Even the guarantee of 4% blows away the CD.

    I gladly pay a premium for a death benefit that protects my family in case I die prematurely. We have a living benefit while I am alive and a death benefit when I die. That works for me.

  98. Mark Marshall says:

    Robert says: “A $5,000 CD is guaranteed and insured from loss by FDIC. A $5,000 premium is guaranteed but not insured from loss.”

    Please clarify. If you mean I could lose the funds if the company were to go out of business, that would not be true.

    In my homes state, there is a state guaranty fund that guarantees up to $300,000 in death benefit and $100,000 in cash value.

    In the unlikely event that a life insurance company were to go belly up, the assets would most likely be purchased by another life company, making the guaranty fund unnecessary.

    In 2008, not ONE life insurance company went out of business. Bank failures are much more likely and common.

  99. Robert Castiglione says:

    Tom:
    You say you like to tailor the insurance product up to the MEC limit. I have a question for you.
    If there were no MEC limits, how would you tailor make the policy? Would you want all cash values without death benefits and simply purchase term life insurance? Can you supply me with the best IBC tailored policy structure given no MEC limits.
    You also ask, could you give me a good example of where you’ve seen a life insurance loan used in a constructive/optimal way that you do support?
    Yes, I can, but optimal is to have no loans from a life insurance policy and not to buy a policy up to the MEC limit. It is that combination that is linear, narrow, and self-defeating compared to real financial dynamics.
    Life insurance policy loans are a cost. They are not as efficient as other loans in the marketplace. Yes, they are better than the worst loans in the market place but that is not a reason to apply such a strategy. We are always looking for optimal results and not just better than worst case, which is how IBC and BOY markets itself.
    Taking policy loans should be a moment in time decision based on both the economic environment and the personal financial conditions of the policyholder. This principle is true for all financial decisions. There is never one answer for all people. There is never one financial product for all people. There is never one time frame to use for all people. There is never only one company to choose from for all people. Policy loans should be used mainly for an individual’s cash flow issues example, help paying the premium, emergency uses, and financial buffering applications.
    I have a client that took out a mortgage at 3 3/4% for 30 years and uses that money for all purchases and investments. Locking in such a low rate, that is tax free, tax deductible, and having a low cash flow is optimum efficiency. It is safe because the life insurance policy is the collateral for the superior loan. Life insurance policy cash values are collateral safety nest but not because they use the cash value directly.
    After income taxes, my clients loan nets to a 2% cost. His life insurance policy is growing at 4.5%. According to Mark’s passbook loan example, my client’s loan is a net gain of 2.5% instead of Mark’s 1% net cost IBC policy. You know, simple math, no deception, and no misunderstanding.
    Mutual fund investing is an art and a science. It is dynamic and has many moving parts. Significant money can be made in the market if one approaches them with a strategy. If one approaches mutual funds without a strategy, then too bad for them. But it is not the IBC role to bash mutual funds because of some peoples’ inept approaches. A good approach to mutual fund investing will significantly be more productive than a 4.5% tax deferred IBC yield minus a loan cost rate. After taxes and inflation, IBC is operating at a loss.
    Tom you say that other things you like about IBC policies is the safety, security, liquidity and cash value build up. But those are just your words. In reality, you have none of those things. IBC polices have high risk therefore they are not safe. There is little long term security if any of the change issues that we have discussed will happen. They have low liquidity at all times because they are loaned out leaving the liquidity elsewhere and possibly vulnerable. And as far as cash value is concerned, it will not be your money.
    Cash values can never be used for a pension while maintaining your policy. Loans are the worst way to receive a pension and the scariest way too. A cost can never be a good income producer. The risk of loan rates increasing, dividends declining, income tax laws changing, and the insurance company regulating put you at great risk. I wish you God Speed.
    The coaching offer is a promise. Send me a personal email.

    • Bob – that’s a good question about the mec limit and the best way to tailor a policy… to me that depends on a lot of “what ifs” having to do with the client’s needs – where they are now financially, where they want to be, and what they need for their life value for the benefit of their heirs.
      You probably can answer that better than me if you had that information. There could be a blended policy option depending on the answers to the above questions.
      In your mortgage example using the life insurance as security, why would that be tax deductible any more than a policy loan? In order for it to be tax deductible for investment purposes aside from real estate, that would depend on the type of investment and could apply I would think to the policy loan depending on how it is structured. For a mortgage on real estate, the deductibility would be determined by the acquisition indebtedness…and if a heloc, only 100K more than the acquisition indebtedness right? And so everyone understands, the AI is the lowest amount the original purchase mortgage was paid down to before a refi etc…
      So I would need to understand more details about the mortgage loan example you are using.
      But, I do agree it is a great idea and can be used very strategically.
      I hear what you are saying about the pension and other uses, so does that mean you disagree with Barry’s book Pirates of Manhattan where he emphasizes those other benefits?
      I’m a little confused on what you do agree with and don’t agree with on that book…for me, it would help me to understand since I made a point of saying how much I agreed in principle with the book.
      Thanks Bob…I know I ask a lot of questions but your answers help everyone here.

  100. Mark Marshall says:

    Robert says: “After income taxes, my clients loan nets to a 2% cost. His life insurance policy is growing at 4.5%. According to Mark’s passbook loan example, my client’s loan is a net gain of 2.5% instead of Mark’s 1% net cost IBC policy. You know, simple math, no deception, and no misunderstanding.”

    You remind me of the bully in the playground, always wanting to get your way even when you are wrong.

    What difference does it make how much his cash value is growing if you claim it is a bad idea to use it? Seems contradictory to me. You have a habit of using false premises in a great deal of your pontificating.

    Does your client’s money GROW while he is paying it back? Answer: no. Instead he is paying back AMORTIZED interest to the bank. The bank also gets the majority of the interest up front.

    My cash grows while I pay back the loan. Therefore, the net difference is a PLUS and not a MINUS as you portray it. In other words, when my loan is paid back, I have MORE cash than when I took out the loan. Funny how it works that way when you say it doesn’t.

    The interest I pay back is SIMPLE interest. I am assuming you know the difference.

    In our group we have many high net worth individuals who use their plans for large expenses and investment. These are not fools as you would have your readers believe.

    In the end, you are free to invest the way you believe works for you and your clients. Bashing the IBC does not serve your cause well, especially when you are incorrect.

    By the way, do you EVER admit when you are wrong? Personally I cannot imagine going through life that way. But that’s just me.

  101. Happy Sunday Evening Everyone!

    Time has flown by, and it has almost been 1 year since I originally wrote/published this post. In that time, there have been approximately 220 comments, encompassing multiple thousands of words. Needless to say, we’ve had some great discussion! A big thanks to everyone out there for contributing.

    Having almost reached the 1 year mark, I figured it would be appropriate for me to synthesize everything I have learned from all of you in the comments in the past year and publish an “update” type of post on my blog. As part of this process, I will be reviewing all of the comments in detail in the next few weeks/months/whenever my PhD studies will allow.

    Although I haven’t done a detailed analysis yet, from what I’ve read here so far, I think my position on BOY/Infinite Banking will be unchanged from what I wrote in the original post above.

    Furthermore, it is quite clear from the comments that Infinite Banking is not a good fit for EVERYONE. However, I do strongly believe that it is very suitable for certain people.

    Therefore, I think it would be the most value-added use of our time as an Infinite Banking-informed group is to commit our work to defining WHO is suited for this strategy vs. convincing everyone to stay away or everyone to flock to this approach.

    As such, in my “Infinite Banking 1 year update” post, I will committing an expanded section to defining who this strategy is good for. As part of this section, I would like to include some input from you all.

    In other words, I would like to open up the forum for answers to the following questions, with a twist to improve impartiality:

    1) If you consider yourself AGAINST this strategy, what type of folks / financial situations do you think ARE suited for using Infinite Banking?

    2) If you consider yourself FOR this strategy, what type of folks / financial situations should AVOID it?

    Thanks so much for everyone’s continued discussion!

    Jacob
    Jacob A Irwin recently posted…Obamacare Is Causing a Rise In Cash-Only DoctorsMy Profile

  102. Robert Castiglione says:

    Thank you Jacob for your continued interest and concern for providing your readers with information to help them make informed and intelligent financial decisions.

    As you probably know, I am opposed to IBC, BOY, or any other name they give to this concept. Why I am opposed fall into five general categories:

    1. The mathematics is incorrectly calculated, presented, and compared
    2. The misinformation and misleading explanations used to explain the program by IBC people
    3. The bashing of every other financial product or strategy in the market place
    4. The lack of warnings to consumers of the internal financial dangers of using IBC.
    5. The poor design of the use of a whole life policy that undermines its true value to consumers.

    Given those reasons, and in my opinion, the only people who should consider using IBC are “high risk takers” and or speculators. These consumers should also have substantial other assets and income in case the IBC concept falls apart due to changes in the insurance laws and/or income taxation of loans. They should have the stomach for borrowing money on a regular basis and the unusual tenacity to continue paying back more principal or loan interest than the life insurance company is charging for the loans. Keep in mind that this over-payment is not required and not based on any actual formula, but rather on some imaginary outside higher or worse loan rate alternative. Given human behavior on spending and borrowing, many people will fail to keep up with these requirements of IBC even if there were no negative internal consequences of using IBC.

    As I continue to contribute to this blog, and I want to thank you for that opportunity, I will provide evidence and factual information to support my observations. I will continue to respect your invite by not making derogatory statements about other participants who may have different facts or opinions than mine. I hope in the future that others will do the same. I do not believe that readers want that sort of unprofessional verbiage.

    Thank you for your continued support. Your blog is one of the few places where people can share their viewpoints without edit or censor.

    • Items 1-4 are your reasons to be against the marketing of IBC not IBC itself. Item 5 is the only reason to be opposed to IBC itself.

      A lot has been written at this point, but can you summarize using the easiest most basic terms possible why the design is poor and what is its true value or appropriate purpose?

  103. Craig Pulliam says:

    The fact that this blog is still going on, and that there are so many exhaustive and lengthy (learned, too) posts . . . tells me something about the product. It is terribly complex, it is often misunderstood, and is possibly misrepresented from time to time by those who s ell it (see insurance commissioner cases and FINRA). We work a lot with private wealth clients, and use actual real investment products such as stocks, bonds, mutual funds, ETFs, etc. to fund most client goals. Insurance, which we place too, is used to insure against loss for the most part (or in estate planning for taxes).
    Believe me, explaining investments to clients is a heckuva a lot easier and more transparent and straightforward than any of the insurance concepts discussed with IBC. And client undertanding, client discipline, client behavior is a major component in the successful use of any financial product or plan. Successful investment concepts are pretty basic – and everything I share must be compliance and FINRA approved. I feel very good about sharing investemnt risks with clients and what the potential gains are for long term, disciplined investors . . . which is exactly what IBC purchasers have to be to see any gain at all. The diversified portfolios we use ALL have returns far in excess of the IBC returns over periods of 10-15-20+ years. But we will always tell clients that we cannot guarantee the results. Thats qualified, non-qualified, 529 Plans, etc. And this is not because we are such great advisors, it’s because of the way the marklets have worked over the last 10-20- 100 years.
    Why would we want to sell a client life insurance and call it an investment? A product that has a negative return for first 5-8 years (GUARANTEED) thereby making it “illiquid” for all intents and pusposes if you want to wait for any growth; has a nominal return for years after its breakeven; where we have to worry about MECS, what happens to the death benefit if we withdraw, the changes the insarunce company can legally make to the expenses, how and when to take loans, paying back loans, various tax issues. I’ve only scratched the suface. IBCs seem like they were concocted behind the curtains of OZ . . . by Rube Goldberg.
    IBCs are so darned complicated (even those of you who are advocates can’t agree on many technical issues), they have so many moving parts, there needs to be a fortunate confluence of events and discipine for them to “work.” For me, I will eschew (yes, I said that) them and stick with concepts I can explain and clients can understand, and that I can legally illustrate using historical data. That are liquid (unless we disclose otherwise) and are highly regulated. I’ll take a 9% average annual return in my daughter’s 529, thank you, and yes I undertand that the markets can do down. And no, I don’t want to fund college with life insurance cash value so that I can game the financial aid system when I reall “could” afford tution (don’t now if that;s an IBC pithce, but I’ve see insurance agents selling this concept).
    Too complicated is not so good when trying to help people with theier financial life.

  104. Mark Marshall says:

    Jacob, thank you for your recent post and for this blog.

    As a supporter of the IBC, I would say the following situations are where a plan might not work.

    1. An individual or family who has no assets.
    2. An individual or family who finds they are constantly in debt with no assets and no plan to pay off the debt.
    3. An individual or family who lacks the fiscal discipline either to finance a plan or to use it properly.
    4. Anyone who does not understand either the concept or how the plans work.

  105. I am not going to rehash all the pros and cons of IBC/IBS/BOY/….it has been thoroughly done already. I will share what I’ve noticed in general with financial product sales people and financial media “experts”….

    1. There are good ones and bad ones – and the prospect needs to be more conservative, patient, and skeptical until they’ve done enough due diligence on their own to make the best decision…which could include not participating in a product being sold.

    2. Writing a book is easy…and for the most part, in order to get someone’s attention a book should be engaging and many times entertaining, challenging a prospect to rethink their skepticism and move forward with a perceived easier “home run” solution to their financial journey. The problem is that much of society “craves” for entertainment and looks for the easy way out of anything, i.e. the quick fix to all of their problems…and therefor, look for an alternative to doing what is needed in #1.

    3. More times than I’ve wanted in the past, I’ve given financial professionals the benefit of MY doubt and paid a price for it…it is critical for anyone to research and understand at a sufficient enough level so they have a good foundation for what their goals and objectives are. Fear many times drives reluctance, and emotion unfortunately can drive “perceived” truth even though it may be false! So it takes more than a smooth talking salesperson to make the right decision. While I like to hear what someone thinks of a product via blogs/etc,, I base my decision on my own impression after doing the research and studying it…no different than anything else I buy.

    As far as the media, I have no confidence in any one opinion on any given day…sorry, but they manipulate the markets too much and have too much control over people’s emotions. On any given day, you can go to the yahoo/Morningstar/etc finance home pages and read contrasting views from the prior day – and, the markets react accordingly…and not always for logical reasons. The news we read on those pages many times appears to be OLD reports that have already been played out in the markets..but because they are printed, I believe it is done to cause a specific action…timing is everything you know…the point is, the buyer needs to beware on many fronts.

    I guess the key point is there is no quick fix and especially a fix that everyone will agree with or be comfortable with…and that’s ok. I think what is needed is the continued education and service that helps the prospect build the foundation of understanding so they are better equipped and confident to make the decision best for them. The comments on this board have helped with that.

    So while I’ve had ups and downs in the journey, I look at it as making me better for it as I make future decisions. But that’s just my opinion based on my journey!

  106. Mark Marshall says:

    Hello Craig. You say: “The diversified portfolios we use ALL have returns far in excess of the IBC returns over periods of 10-15-20+ years.”

    I, for one, would like to see proof of this. Surely you understand the difference between “average” or “arithmetic mean” and the correct measure which is CAGR (Compound Annual Growth Rate), right?

    IBC is not complicated at all when explained properly. Since I own plans myself, it is very simple to explain because I literally practice what I preach.

    Everyone’s situation is different. For every private wealth client you may have who uses traditional investing, we have one who either adds an IBC to help balance a portfolio or sells off investments entirely because they no longer want to deal with the roller coaster ride.

    In the end, it is a personal decision and no one strategy is necessarily better than another.

    My 529 plan has only averaged about 3% per year over a 12 year period. Our 401k has done about the same over 20 years. Those are the ACTUAL returns and not “averages”. In fact, the majority of the growth in the 401k has come from contributions and matches.

    When you factor in the taxes we will have to pay when we start taking money out, the net returns will be substantially lower.

    About 20 years ago, our financial adviser told us we should have about $1.2 million in the 401k by now based on “history” and the “Rule of 72”. Thanks to the tech bust around 2000 and the recession of 2008, we are not even close.

    Had we started an IBC plan at the same time, we would have about DOUBLE what we have now. And that would be real CASH and not an asset sitting on a computer screen. As you well know, assets are not liquid until they are sold.

    If my 529 funds had been in an IBC plan, we would have more ready cash for college right now and we could do with the funds whatever we please with no restrictions.

    One thing I have learned in life is that there are at least TWO sides to every story. There is no one-size-fits-all when it comes to savings and investing. Our clients (including my wife and I) sleep very well at night knowing that the majority of our funds are safe and not subject to the whims of the market.

    In the end, an individual should always do what they believe is in their own best interests. My job is to EDUCATE. It is on the other party to make sure they do their diligence and understand the decisions they are making. That is known as personal responsibility and seems to be in somewhat short supply these days.

    I wish you success in your endeavors and hope you and your clients fare well with your investments.

    • But Mark it’s not really cash. It is collateral that you can borrow against is it not? I wouldn’t refer to that as cash. I think the problem is the phraseology being used here.

      That cash value that you are referring to goes back to the insurance company when you die….it doesn’t get passed on. Then the insurance company keeps outstanding loans from the death benefit that does get passed on…..which theoretically if you are in retirement will be a substantial chunk. That’s the only issue I have with this IBC plan. From what I have seen its meant to create generational wealth, but it can’t really do that if the cash value goes back to the insurance company when you die.

  107. Robert Castiglione says:

    Craig:
    Thank you for joining in on the discussions.
    Your observation is correct that IBC or BOY is very complex. It is not understood by consumers, but the agents that sell it do not understand it either. But your most important comment hits the nail on the head. The concept is being “misrepresented” by those selling it.
    Unlike your investment advice, life insurance selling lacks strict compliance review. As far as I know, not one life insurance company compliance department has endorsed IBC or BOY for accuracy and appropriate conduct. On the other hand, and more importantly, there are top life insurance companies that do not allow IBC or BOY policies to be sold. That should tell us something about the concept’s veracity.
    Whole life insurance is a great financial tool. It provides long term financial security and benefits like no other product can provide. There are many uses and strategies of whole life insurance that make it an advanced financial product taking much education and training.
    As PAM Yellen states, “BOY (and IBC) takes a whole life policy and turns it upside down.” And that is the point. – if a great product is turned upside down, it becomes a bad product. And there is no question in my mind that IBC and BOY is a bad concept for consumers to use.
    If IBC or BOY were good, it would not be that difficult to understand. It is not rocket science. It is simply a mathematical exercise using the options that exist in all whole life policies. Mathematical comparisons to other options should be should be easy and straight forward. It should not need many metaphors and stories to understand and explain it.
    You are so correct when you say, “IBC is so darned complicated (even those of you who are advocates can’t agree on many technical issues), they have so many moving parts, there needs to be a fortunate confluence of events and discipline for them to “work.” Bravo Craig, that is absolutely correct. That is why I say that IBC or BOY is only for speculators to use, and for those willing and able to take major financial losses, whether the losses be real or lost opportunities.

  108. Mark Marshall says:

    Thomas, thank you for your EXCELLENT post! It is refreshing to see comments on PERSONAL RESPONSIBILITY.

    It is said that what does not kill us makes us stronger. Saving and investing should be a lifelong journey. And one where we learn from our mistakes.

    Personally, I prefer to be in control of my money as much as possible. In addition to the IBC, we also teach clients how to safely invest on their own in the markets. As in all things, there is a right way and a wrong way to invest.

    It all comes down to education. If I lack cash flow and assets, it is not due to a lack of income but to a lack of education. It is ironic that we live in an age of technology and yet we can still be ignorant of money principles.

    Our journey so far has lead my wife and I to now control the bulk of our investments and to use our safe money plans for saving, investing and making large purchases. And the journey to more knowledge continues!

  109. As April 15th draws near, and I’ve waited to the last minute to file my taxes, I’ve been doing quite a bit of research into Whole Life Insurance policies. I found your article to be very informative, and to have gathered many useful tidbits of information in one place.

    I did note, however, that there was a distinct lack of information on what’s called “Single Premium Whole Life Insurance”. This is something that is interesting to me, because with a “Single Premium” policy, you pay it all off at once, in a single lump sum, right at the beginning of the policy. You then own it for life, and the policy has an immediate cash value equal to the premium paid. It continues to grow from there. I wonder, then, if such a policy would lend itself better to infinite banking by eliminating the early period of policies where you’re basically just digging yourself out of a hole, trying to build up a cash value. Since “Single Premium” policies start with an immediate cash value, you should start seeing your % rate of return pretty much immediately.

    Am I wrong? Have you looked into the “Single Premium” policies at all? I’d love to hear what you find out.

    • Thanks for stopping by Marcus. I have heard of a policy with a reduced paid up option which enables you to stop paying premium after like 5 years or so, but never of a Single Premium Policy.

      I would be curious how the insurance company and insurance agent makes a commission, if the entire premium goes to cash value.
      Jacob A Irwin recently posted…Identifying And Eliminating The Grey Charges In Your LifeMy Profile

      • If you type “Single Premium Whole Life Insurance” into google, you’ll get some information on it. I suspect that any commission earned by the agent is a one-time commission based on the prospect that the insurance company will use your money to make them money over time. I doubt it includes any residual commission, which is likely why single premium whole life isn’t as prevalent as it possibly could be. There isn’t a lot of incentive for agents to push such a policy.

        There IS, however, incentive for people to seek such a policy, especially if you’re self-employed. From my understanding, life insurance purchased for employees or officers of your company is a tax adjustment/deduction. With a policy that immediately has a cash value, such as single-premium whole life, you could basically use it as an instant tax shelter for your money. For example:
        A. You owe roughly 35% taxes on $200,000. ($70,000)
        B. You have $100,000 of that years income saved up.
        C. You purchase a single premium whole life policy for $100,000.
        D. Tax liability is lowered by $35,000, so now you only have to pay 35k.
        E. Take a policy loan of 90% against your 100k cash value, leaving a 10k cash value.
        F. Have 90k, pay your 35k taxes, and have 55k left that you can use without paying it to uncle sam.
        G. Using this method, since you never really have to pay the policy loan back, you end up having a net gain of roughly $25,000 that you wouldn’t have had if you’d simply paid your taxes normally, and not invested in life insurance at all.

        This information is based on many, many hours of internet research. If anyone here has further insight into how this would or wouldn’t work, I’d love to hear it. Thanks for the response!

        • Marcus – with your loan scenario, you would still have $100K cash value in addition to the loan…you just would not be able to get further loans of 90% of cash value until you pay down the loan secured by your cash value…and that is why your cash value is getting dividends on the total 100K…it is still there. You are right that you would not have to pay it back, but that is a bad move.

        • One thing to keep in mind is that all single premium policies fall into the MEC category.

  110. Robert Castiglione says:

    The numbers I will be showing you are directly from the IBC book, “Becoming Your Own Banker.” If any of you have the IBC book by Nelson Nash, you can validate these numbers. IBC uses a case study to compare IBC to other financing alternatives:
    Here is that case study data:
    An age 21 female wants to acquire a car with a purchase price of $10,550 She wants a new car ever 4 years over the next 44 years until she is age 65 The 21 year old is in a 30% income tax bracket, and her capital gain rate is 15% The bank’s C.D. rate is @ a net 4%. The investment rate would be @ a net 5.5% The bank’s loan rate is @ 8.5%

    The 4 methods identified by IBC to acquire cars are: (CAPITALIZE is omitted as inconsequiential)
    (1) LEASING, (2) FINANCING, (3) PAYING CASH, (4) IBC
    The annual out of pocket outlay for each method from data in the IBC book:
    Years 1 – 4 Years 5 – 7 Years 8 – 44
    Leasing $2,671 $2,671 $2,671
    Finance $3,120 $3,120 $3,120
    Pay Cash $2,428 $2,428 $2,428
    IBC $5,000 $5,000 $3,030

    First, you will notice that the annual out of pocket outlays for the 4 methods are unequal outlays. Unfortunately, IBC does not equalize the annual out of pocket outlay for each of the methods for comparison purposes. Unequal treatment of out of pocket outlays creates a severe mathematical distortion in the IBC results in their charts, graphs, and illustrations.

    In order to equalize the methods for comparison purposes, we must take the highest out of pocket outlay of $5,000 for the IBC method in years 1 – 7 as an expense, and give the difference in outlay as additional savings to the other three cheaper outlay alternative methods.
    For years 8 – 44, we must take the next highest outlay of $3,120 from the FINANCING method and give the difference to the other three methods as additional savings.

    Second, there is an imbalance in the number of cars that each method has available to them.
    The LEASING method provides a car immediately and a car every 4 years, for a total of 11 cars to age 65.
    The FINANCING method provides a car now and a new car every 4 years for a total of 11 cars to age 65.
    The PAYING CASH method requires a waiting period of 4 years until there is enough money built up in the savings account to buy the first car.
    The IBC method required a waiting period of 7 years before the first car can be realized, and only has 10 cars overall to age 65.

    This IBC discrepancies of not having a car available for 7 years carries a substantial mathematical “cost of waiting calculation”. IBC ignores the cost of waiting and simply writes it off as an inconvenience or as a necessary cost that should be rewarded later, but never does.

    In order to equalize the number of cars for each method, the PAYING CASH method and the IBC method must acquire cars in the years that they are without cars. The PAYING CASH method needs to finance a car @ $3,120/yr for years 1- 4.
    The IBC method needs to finance a car for 4 years @ $3,120, and then lease a another car for years 5, 6, and 7 @ $2,870/yr.

    Third, the additional outlay expense for cars by the PAYING CASH method and the IBC method must added to the outlay as additional savings for the LEASING and FINANCING methods that already have a car.

    Once the out of pocket outlays have been equalized for each method and the same number of cars equalized for each method, we can have a fair and balanced scientific evaluation and assessment of each methods results.
    In years 1 – 4, each method has $8,120 as an annual outlay. In years 5 – 7, each method has $7,870 as an annual outlay. Years 8 – 44, each method has $3,120 as an annual outlay.

    Here are the results for each method after properly equalizing them for comparison.
    Leasing Method $311,029
    Financing Method $357,136
    Paying Cash Method $339,716
    IBC Method $225,212
    As you can see from using the correct mathematical models, IBC does not produce better results, it is actually the worst financing method to use. LEASING, FINANCING at a real bank, and PAYING CASH are all superior methods to IBC. If you use the IBC method of financing, you will lose a significant amount of money over your lifetime compared to using the other reasonable and available alternatives of financing.

    So how does IBC manipulate the numbers to make it appear that IBC is a winning strategy?
    1. It used a whole life insurance policy that is not available in the marketplace.
    2. They used a leasing rate that was over a 20% loan interest rate.
    3. They did not equalize the out of pocket costs for each methods ignoring “opportunity costs.”
    4. They did not have the same number of cars owned ignoring the “cost of waiting.”
    5. They tell people that you are borrowing money from yourself – not true, it is not your money
    6. They tell people that loans are income tax free – not true, they are taxable events at surrender
    7. They tell people that cash values grow when the loan is being paid – not true, not one cent is
    8. They say paying interest goes to yourself – not true, all payments go to the insurance company
    9. They tell people that dividends are earned interest – Not true, only a return of premium.
    10. They compare IBC results with outrageously expensive alternatives only. True.

    So don’t be fooled by IBC’s unbalanced mathematical comparison models, exaggerated life insurance policy illustrations, misleading words and statements, omitted warnings about potential risks, and concocted stories and testimonials built for your consumption. The math speaks for itself. IBC is a losing financing strategy.

  111. Robert Castiglione says:

    Marcus:

    It would seem like a good idea to have a single premium whole life policy (SPWL), getting the premiums done and over with, have higher cash values especially in the beginning years, and then use the dividends to increase coverage over time. However such is not the case.

    1. The single premium obviously has is a high expense which immediately makes the policy a taxable event early in the game. (See MEC rules)
    2. There is an opportunity cost to for the difference between the single premium and the lower annual premium.
    3. The single premium is being paid with all current valued dollars. This means that inflation will work against you. Alternatively, paying with level annual premiums, inflation works for you controlling the same death benefit.
    4. Since SPWL has premiums paid in full, you lose a disability feature of level premium whole life.
    5. Whenever you over fund any policy , you lose flexible and control over your money.
    6. The biggest disadvantage of SPWL is the death benefit you receive for you premium.

    For example: If you pay a single premium of $400,000 for a SPWL policy for $1,000,000 death benefit, you really only have $600,000 of death benefit. $400,000 was your own money. The life insurance company keeps all of your cash value at your death and pays the death benefit.
    Thus: $1,000,000 – $400,000 = $600,000 of death benefit at risk.

    If you kept your $400,000 in savings, bonds, or mutual funds and simply took the earnings out annually from the $400,000, say 5% , that would be $20,000. Take that $20,000 each year from your $400,000 account and use it to pay a premium on more than $1,000,000 of whole life insurance. If death were to occur, your family would receive both the $1,000,000 and the $400,000 for a total of death benefit $1,400,000. You would also have a disability feature and total control over your financial affairs to avoid income taxes, avoid a MEC policy, and other potential loan issues.

    For all of the same reasons why IBC is not a good financing tool, those same reasons apply to a single premium whole life policy, only worse.

    Hope this helps.

    • Robert,
      I absolutely see your point when it comes to the death benefit, and what you’re saying makes sense. However, I wasn’t looking at single premium whole life for the death benefit at all, but rather primarily as a tax shelter for my money now. Looking at it from that perspective, and being able to get a single premium whole life policy that is NOT a modified endowment contract(therefore not having to pay taxes on loans against it), my question is what are people’s thoughts on using it to keep your own money from getting taxed by uncle sam.

  112. Robert Castiglione says:

    Marcus.

    SPWL is fundamentally not a good life insurance product to own because of the large opportunity cost associated with the high premium, death benefit is reduced substantially, risks associated with potential changes in insurance laws, risks associated with potential changes in taxation laws, and
    low rate of return compared to other insurance strategies. Most life insurance agents know the downsides and that is the reason the product is not sold, not because it doesn’t pay renewals fees.
    Also, the SPWL product would not be a good move for privately owned insurance for IBC. There is no income tax deduction on the premium.

    With that said, there is a business application for SPWL under certain limited situations. The corporate owned life insurance market is extremely complex and no simple answers can be given without knowing considerable facts about the business and financial conditions.

    If you would like more information on this corporate owned SPWL approach, I suggest that you provide me with more information in an email rather than getting off topic in this blog.

  113. Robert Castiglione says:

    “Banking” May Be Hazardous To Your Wealth

    I have shared with the readers of this blog the mathematical proof that “Banking” as presented in the IBC case sample is a losing financial strategy compared to all other traditional alternatives. The many errors, misrepresentations, and false comparisons are quite abundant in the insurance banking concept (IBC) literature and advertising.

    Now I would like to share with you the potential hazards of following an IBC strategy.

    1. The risk of overusing loans and failure to pay back loans can produce negative results.

    2. Not paying back policy loans or loan interest can lead to policy lapse and/or income tax penalties.

    3. The IBC strategy of overpaying life insurance premiums and loan interest adds a high input cost.

    4. Policy loans are not income tax free but taxed deferred and taxable upon policy surrender or lapse.

    5. IBC policy loan rates are short term variable rates that can increase substantially over time.

    6. If variable loan rates increase, there is no guarantee that dividends will increase proportionally.

    7. Life insurance companies have the contractual right to delay loan requests for up to six months.

    8. Non-direct recognition of dividends is not contractual and could change at any time.

    9. Over-funding a life insurance policy can potentially become a MEC and subject to income taxes.

    10. Policy loans can become taxable, penalized, or forbidden due to insurance or tax law changes.

    11. Failure to pay premiums and loans for an IBC policy can cause a policy to lapse.

    12. Additional interest payments are not earnings, merely new premiums increasing the cost basis.

    13. The extra loan interest payments are not a real cost recovery but only an imaginary one.

    14. The complexity of IBC design and service is problematic if the selling agent leaves the business.

    15. Dividends and not guaranteed and are a return of premium therefore are not taxable earnings.

    The potential dangers of owning an IBC policy must be totally understood by consumers before delving into such a strategy. An IBC policy is not a bank account, does not act like a bank account, is not taxed like a bank account, nor does it have the same liquidity or control offered by a bank account.

    Banks and life insurance companies are both good people. They both help consumers to meet their financial needs and obligations. They are different institutions offering different services and advantages, and some disadvantages too. Consumers deserve full disclosure and transparency when being presented with any financial strategy. In my opinion, IBC, its agents and marketing do a poor job of providing both.

    • Bob – thanks for the points. My comments follow each point…

      1. The risk of overusing loans and failure to pay back loans can produce negative results.
      =>Agreed on the failure to pay back loans depending on the client’s situation. But it could have advantages over outside loan programs because you have the flexibility to pay the loans on a schedule that you design that works best as part of your overall plan. A feature that outside loan programs from banks and such do not accommodate….which impacts your credit/FICO if you miss payments. So that additional leverage in addition to getting the funds quickly and using in a tax favored environment could be a benefit for many people.

      2. Not paying back policy loans or loan interest can lead to policy lapse and/or income tax penalties.
      =>Agreed

      3. The IBC strategy of overpaying life insurance premiums and loan interest adds a high input cost.
      =>That could be true but is debatable depending on the overall financing strategy model/plan one is using. Overpaying can increase your face value and subsequent cash value right? And depending on the use of the plan via loans/dividend credits in a tax favored environment this could be advantageous?

      4. Policy loans are not income tax free but taxed deferred and taxable upon policy surrender or lapse. => Agreed, but would that depend on other variables like if you have a living benefits rider where there would not be a taxable situation? Or, would that not matter?
      Add-on…
      4b. Is policy loan interest tax deductible or not? For most as they use NO…however, wouldn’t the interest be deductible IF – the person owns the policy personally, takes the loan out personally to buy products/services/material, etc, then leases that material to be used by one of their business entities like a C Corp or LLC? Wouldn’t this allow an interest deduction for the policy loan because it was made for business purposes? This was my earlier point on it depends on how the loan is structured on the front-end and proceed purchases are subsequently structured on the back-end with one’s business entity…

      5. IBC policy loan rates are short term variable rates that can increase substantially over time.
      => Agreed, but could this also apply to any other variable rate financial products outside of the insurance industry? I do see the benefit as you’ve outlined for a fixed -interest product for this reason!

      6. If variable loan rates increase, there is no guarantee that dividends will increase proportionally.
      =>Agreed

      7. Life insurance companies have the contractual right to delay loan requests for up to six months.
      => Have not heard of this happening, but I believe you. Can you provide insight into which companies are more known for this practice and/or under what circumstances this would happen?

      8. Non-direct recognition of dividends is not contractual and could change at any time.
      =>Agreed

      9. Over-funding a life insurance policy can potentially become a MEC and subject to income taxes.
      =>Agreed, but would you say it would be wise to make sure you pass the 7-pay test for the policy to make sure you are always under the MEC limit with any over-funding being done?

      10. Policy loans can become taxable, penalized, or forbidden due to insurance or tax law changes.
      => Agreed, but based on how our government is run, I believe that could apply to any financial product. I personally will not hold back from taking advantage of the benefits available today based on the what-ifs of the future BUT – I agree that approach should only be taken as part of an overall strategy to protect as part of your plan in the event major changes occur based on our economy and such.

      11. Failure to pay premiums and loans for an IBC policy can cause a policy to lapse.
      => Agreed – especially for paying the loan interest at a minimum. That’s a must. The cost would be to great to have the policy lapse because of non-payments….better to not have the policy in the first place if you can’t make the payments required.

      12. Additional interest payments are not earnings, merely new premiums increasing the cost basis.
      =>Agreed, however the additional interest results in purchasing PUAs, which increases the face value, death benefit, and cash value right? So this could conceivably add more capital to use in this tax favored environment.

      13. The extra loan interest payments are not a real cost recovery but only an imaginary one.
      => That seems to be debatable when you factor in the increase puas that increase face value, cash value, and death benefit…but from the cash value standpoint…wouldn’t this not be an imaginary one if it provides more leverage to use loans or dividend credits strategically in a tax favored environment?

      14. The complexity of IBC design and service is problematic if the selling agent leaves the business.
      =>Agreed – you need a knowledgeable agent that understands the design and use by the client.

      15. Dividends and not guaranteed and are a return of premium therefore are not taxable earnings.
      =>Agreed.

      Thanks Bob for listing all of these points. It is helping to clear up the grey areas for me.

    • Bob – I couple of things I forgot to include….

      5. IBC policy loan rates are short term variable rates that can increase substantially over time.
      => I agree that having a fixed product could be an advantage over a variable rate policy loan…but it is important to consider that not everyone will qualify for the fixed “outside” loan product due to credit worthiness…Even though the loan would be collateralized by the policy, the lender will factor in the person’s credit score (FICO)/worthiness…the collateral is not much of an advantage if the policy lapses as you’ve mentioned…no different than it a homeowner forecloses on their house by not paying the mortgage…the lender gets the house at least…but what happens if the policy lapses and their is a mortgage lien on it?

      Regarding the IBC model…this is why I agree with you on the implantation of IBC not being an end-all but rather a part of the financial plan…how much a part depends on the needs and the uses, and the diligence of control over the process.

      Thanks again.
      Tom

  114. Mark Marshall says:

    In reply to Mr. Castilgione’s “hazards” of the IBC concept, I will contest a few of the points.

    In addition, since he claims he made his fortune in the life insurance business and that he is a self-proclaimed “expert” of sorts, I would like to know why he still apparently recommends whole life insurance to his clients?

    Specifically for clients with assets, regular whole life is inefficient primarily because its focus is on the death benefit and cash values build slowly. I also wonder what he suggests his clients DO with the cash value? Is it not a waste of premium dollars to have cash values and not use them?

    After all, Robert correctly states that you never get both the cash value and the death benefit. So, why bother? That is not a ploy by the insurance companies by the way. That is how whole life insurance works!

    Following are counter points based on MY plan and the experience of tens of thousands of clients in our group. Most of what are shown as “hazards” are actually “rules of the road” or “trade offs”. When we look at what “could” happen, we need to measure it by probability rather than by theory.

    For specific example, points 1 & 2 are rules and are fully explained to our clients. All of the other rules are explained as well. Trade offs are noted and the prospect always has the option to not start a plan.

    Robert says: “The IBC strategy of overpaying life insurance premiums and loan interest adds a high input cost.” What high input cost? Most of the over funded amount purchases an SPPUA (Single Premium Paid Up Addition). The company I use does not charge for this purchase. Instead I have full use of that cash beginning in the first year.

    Some companies charge a fee the FIRST year, similar to front-end loaded mutual funds. However, the difference ends there. Mutual funds charge fees in each successive year, interrupting and slowing the compounding. The IBC funds compound uninterrupted, making a substantial difference in growth over time. Robert seems to leave out this very important aspect.

    It is also important to remember that the focus in NOT on the death benefit amount. That would favor the agent. We always look to design a plan that fits within IRS rules and provides the greatest benefit to the client.

    Robert makes it sound like clients are bound and chained to these plans. On the contrary, they are flexible and can be changed as life changes take place.

    Robert says: “IBC policy loan rates are short term variable rates that can increase substantially over time.” Mine are based on an index. Historically, the separation between the interest rate and the dividend have remained about the same amount. Logically, if insurance companies were to make this gap larger, policyholders would cancel the policies.

    In our group, this has not happened in over 20 years and is not likely to happen in the future. Just because there are not certain guarantees does not mean the concept does not work. After all, insurance of all kinds is about SHARED risk. Mutual companies have a direct responsibility to policyholders. Historically, this has worked and there is no reason to believe it will not continue to work.

    Robert says: “Additional interest payments are not earnings, merely new premiums increasing the cost basis.” This is partly true but Robert leaves out the fact these payments purchase PUAs (Paid Up Additions). Depending on a person’s age, there is about a 3:1 ratio of payments to additional insurance. In other words, $1000 in premium purchases another $3000 in death benefit.

    This new “policy” earns its own cash value. This is called “internal compounding” and is a GOOD thing and not a “hazard”.

    Robert says: “The extra loan interest payments are not a real cost recovery but only an imaginary one.” In my case–and in that of our clients–I enjoy living in my fantasy world! As I repay my loans, I have FULL use of those funds once again and my total cash value is always HIGHER. Those funds are by no means imaginary.

    As a matter of fact, I have some of these imaginary funds in my bank account right now. I can spend the funds on whatever I want with no taxes and no government restrictions. While I am paying back the insurance company at a higher rate than they are charging me, they are paying me guaranteed interest on the ENTIRE amount. In other words, ALL of my cash value is still in my account while I use my imaginary money.

    I could go on but will end here for now. Unless I am missing something, Robert does not offer alternatives for the average person to the IBC concept. Instead, he rails on the product. If he wishes to be a crusader and warn all of what he believes are unsuspecting potential victims, then why not suggest other options?

    Here, I will help him. In my experience, other options that work are: 1) learning how to trade the markets yourself with proper money management, 2) take some of those profits and begin to purchase income-producing properties, 3) start your own income-producing business, and 4) use IBC to fund your business and/or make large personal or business purchases.

    Personally, I have tried many of the so-called “investment” options in the past (401k, IRA etc.) and they do NOT work for the most part in the long term. There are plenty of statistics to prove it. The primary reason is because these options are mostly controlled by OTHERS. The future tax consequences are HUGE, especially for baby boomers.

    Finally, the only guarantee with funds in either standard savings or investments is that you can LOSE money either to market swings or inflation. With my IBC plan, my cash is SAFE and is guaranteed to grow compounded with NO losses. If I die prematurely, my heirs get the death benefit, less any cash outstanding in loans. Works for me and thousands of clients.

    In the end, do your own research and make up your OWN mind. Seek out and INTERVIEW a competent advisor. If, at any time, you are not comfortable with the person, MOVE ON and find another. Personally, I would take either those who are naysayers or exuberant cheerleaders of IBC with a grain of salt. Look for something somewhere in between. And ALWAYS act in your OWN best interests.

  115. William K. says:

    Hi guys I am very interested in the IBC. I have to admit that I am a complete layman when it comes to terminology. I am 25 and and leaving the ARMY. While serving in the ARMY for 6 years I had a life insurance policy called (SGLI), its basically term insurance with a DB of 400K. I know I can transfer my SGLI to New York Life and switch it to a Whole Policy for IBC. I plan on getting with an agent and writing up a contract the way Jacob outlined and having it reviewed by an outside party. I have a couple layman questions though. If I wanted to take out 50K to pay off my wife’s + my car, would I be paying a life insurance payment + paying back the loan i took out from myself? What happens if i stop making payment? (which I don’t plan on doing). Also, in my case, when would I be able to take out an amount like 50k? as soon as I start my policy?

    Thanks guys!

    • William,

      Thank you for your military service! I too am in the military and have SGLI, which I have recently canceled and switched to a term policy that is convertible. My advice on switching is to find an IBC practictioner. 95% of insurance agents won’t know how to properly structure an IBC policy.

      As far as borrowing and paying back, you will still have to pay your yearly (or montly) depending on your Mode of Payment premiums plus your loan back.
      If you completely stop paying your payment and do not have enough cash value in your policy it could collapse.

      My advice is find a qualified practitioner and get with them. PS where were you stationed?

    • Mark Marshall says:

      William, thank you for your service! Michael’s advice is spot on. There are a limited number of insurance companies that offer properly structured plans. Your plan should be custom designed based on YOUR needs and goals as opposed to some cookie cutter or one size fits all approach.

      Take some time to do your diligence, find some IBC practitioners and INTERVIEW them. Do NOT do business with anyone until you are comfortable that they are looking out for your needs and not their commissions.

      Do a Google search for “infinite banking concept” to start the process. Educate and arm yourself with the information you will need to seek out and find a good advisor. One of the first questions I would ask is “do you have a plan yourself”. Then ask them to describe how they have been using it.

      Anyone can “sell” you a plan but it may not be properly designed. New York Life is a fine company but may not be your best option. Look at a few others before making your final decision. A properly trained advisor will answer all of your questions before your proceed.

  116. Thanks Mark!

    William, if you want the name of my agent I would be glad to give you his name.
    Michael Sparks recently posted…The Art of Followup Pays Big BucksMy Profile

  117. For Dan Proskauer:

    Dan,

    If you’re still following this, I read the transcript of your interview with Janet Yellen. In that you state – “If you look out into the future, you want to have flexibility in your policies so that
    you can use them in different ways in how you draw down and take retirement income,
    so you could have some policies that you convert to “reduce paid-up” earlier than others,
    depending on how much income you need to take.”

    Can you explain ‘reduce paid-up’ status, why and when somebody might decide to do this? Thanks in advance.

  118. Hi Stosh –

    Yes, I am still following. 🙂 I am not an agent or anything like that so I might get some of this wrong or explain it in a confusing way. I’m sure one of the more qualified folks participating in the discussion will correct me though if I go too far astray!

    If one is planning to use the cash value in a dividend paying whole life policy to help provide income during retirement, it is likely that they would also want to stop paying premiums at that time. The base policy normally has a provision that will allow this to happen. You call up the insurance company and tell them that you want to do this. They reduce your death benefit to whatever the current cash value of the base policy would support and no more premiums are due. Guaranteed and non-guaranteed dividends would continue to be paid though, and if you have dividends going to Paid-Up Additions, the death benefit would continue to grow over time, even though you are not paying any premiums at all.

    It is important to note that this applies only to the base policy. Any Paid Up Additions you may have previously bought – either through dividends or explicit over-funding – remain as they were and are not impacted by moving the base policy to reduced paid-up. Paid Up Additions are already a “one-time” purchase of additional death benefit and no more premium is ever due.

    So… The summary is that when one wants to change from working and building up wealth by actively paying in to a policy to not working and drawing down previously built-up wealth, you can “shut off” the premium due on your base policy whenever you decide it is the right time to do so. The only thing that changes is the value of the death benefit. Cash value remains the same. Dividends are still paid. And in fact the death benefit can continue to grow. I say “can” because if you draw out cash value through surrender of Paid Up Additions, the death benefit will be reduced due to that, so whether the death benefit goes up or down depends on the relative size of dividends coming in and surrenders going out. At this point in the life-cycle of the policy though, the death benefit is usually not the primary goal anyway.

    I hope this helps! For the real experts, please feel free to correct if I got this wrong. While I am still years away from reaching this point, I do want to be sure that my own personal understanding is accurate too! 🙂

  119. Trying to think through how policy loans are repaid.

    I assume that you must leave some percentage of your income free, i.e. not mortgage, not utilities, not groceries, not fuel, not anything. Is that the case and if so, how do you determine how much income to have for loan repayment and where do you keep that money when you do not have an outstanding policy loan to repay?

  120. Mark Marshall says:

    Hi Stosh. I am not Dan but do have a plan and can explain the reduced paid-up concept.

    Basically, one advantage of whole life policies is an option to stop paying premiums at some point in time. In our case, after 10 years our policy will be “paid up”. At that time, we no longer have to pay premiums.

    The insurance company then “reduces” the death benefit based on the accumulated cash value. However, your cash value will continue to grow. As a result, you can borrow funds for retirement on a tax-favored basis instead of surrendering the policy.

    The loans do not have to be repaid. Upon death, the beneficiary receives the death benefit less any outstanding loans.

    FULL DISCLAIMER: this is just ONE possible strategy to use with a safe money plan. ALWAYS check with your trusted advisor to be sure you are acting in your own best interests. There can be unintended consequences if your plan is not handled properly.

  121. Robert Castiglione says:

    “There are more consumers complaints than all of the other selling systems combined”, says the President and CEO of a major life insurance company. There is not one life insurance company that promotes, endorses, certifies, or has given compliance approval of IBC use in the marketplace. Some of the largest life insurance companies do not allow their life insurance agents to sell insurance using the IBC method.
    Everywhere you look on the internet you will see arguments about whether IBC is real or a scam. IBC turns life insurance “completely upside down” says IBC advertising.
    In my April 11th post, I provided you with mathematical proof that IBC is a losing financial strategy. I have provided you with numbers and facts that can help you make intelligent financial decisions.
    Facts that you can rely upon in making your financial decisions about IBC.
    1. Payments to all personally owned whole life insurance are made with after-tax dollars.

    2. IBC is designed to make you pay more after tax payments called “overfunding”.

    3. The chart below illustrates the after-tax payments for IBC and traditional W.L. policies:

    For an IBC Policy Design, you will pay: For a Traditional Whole life, you will pay:
    $ Base premiums $ Base premiums
    $ Term premiums
    $ A Single Premium PUA
    $ Annual premiums PUA
    $ Loan repayments
    $ Loan interest payments
    $ Extra loan payments (premiums)

    4. The difference between the overfunded payments for IBC compared to the lower payments for traditional W.L. must be calculated, then equalized for comparative purposes by applying the difference to an outside equity account in favor of the traditional W.L. side of the ledger.

    5. All of the IBC payments in the chart above are not income tax deductible. That means there is a high lost opportunity cost on tax with IBC. The traditional whole life payment is lower and has fewer payments, therefore the income tax savings must be applied to the equity account of the traditional W.L. This is a significant oversight by the IBC presentations.

    6. The cash values inside any personally owned whole life policy do not grow income tax free. IBC advertising, literature and presentations often make the claim that cash values grow income tax free. Cash values grow tax deferred and become income taxable over the cost basis when the policy happens to be surrendered or lapsed. These events can be intentional or unintentional.

    7. All cash values in your life insurance policies are held by the life insurance company as collateral for its obligation to pay a death benefit. When you die, all your accumulated cash values are kept and owned by the life insurance company.

    8. While you’re alive, whole life insurance does not provide you access to the cash value account as long as the policy is in force. Only upon the surrender of the policy or surrender of the PUA policy will cash values be available to you. When you surrender a policy or PUA, you give up protection benefits and your cash values can be taxable, above basis, at your marginal tax bracket.

    9. The IBC designed strategy is to borrow money from the life insurance company. You are not borrowing from yourself or from your own bank. The loan principal and the loan interest is owed and payable to the life insurance company and not to yourself or to your own bank account. This loan appears as a liability on your balance sheet.

    10. This is the most important. *** The policy loan repayments that you make do not increase the IBC policy cash values, dividends, or death benefits. All loan repayments and loan interest are paid and kept by the life insurance company. IBC supporters actually believe that (a) their policies grow when they repay the loans, (b) that they have the same money to use over and over again, and (c) they are borrowing at a loan rate of 1%. They are wrong and misinformed. You should not be.

    11. Every time you are borrowing money from the life insurance company, you lose money. The gross interest rate that the life insurance company charges (6% for example) is the actual cost to you since the loan is a separate transaction that is incidental to the rest of the policy’s premiums, cash values, and dividends.
    In summary, IBC is a losing strategy because:
    a. It overfunds payments with after tax, non-deductible dollars (High cost).
    b. It buys a lower death benefit rather than a higher one (tax free opportunity cost).
    c. It builds more cash values that are not accessible to you (an opportunity cost).
    d. It forces you to borrow money at non tax deductible interest (an interest cost).
    e. It requires you to pay back loan principal and interest (an after tax out of pocket cost).
    f. It is designed to give all cash values at death to the insurance company (an asset cost).
    The above facts make the IBC strategy one of the most costly approaches used to own life insurance. Looking at the summary above, there is nothing positive happening for you. No one would want any of those features in defining their successful winning financial plan.

    he successful life insurance plan would be the exact opposite:
    a. It pays the best premium rate and does not have the high overfunding costs
    b. It has larger death benefits
    c. It builds less cash values but grows tax free dollars and other assets outside the policy
    d. You are not forced to borrow money, but you can if need be.
    e. You borrow outside the policy from the best loan source available at the time.
    f. There are no short term loan repayments only lower long term loan repayments
    g. Cash values are recaptured and not given away to life insurance companies at death.

    So there must be something else that IBC people perceive as being a benefit to their strategy since everything else is a losing strategy within its approach. IBC calls this so-called winning strategy the “Honest Banker”. That name always gives me a laugh since there is nothing honest about it. IBC defines the Honest Banker as: You make additional loan repayments to the IBC policy at the same loan rate that you would have made on borrowed money from a third party.
    In order to make the IBC Honest Banker concept look like a real benefit, IBC must assume or pretend, which ever you prefer, that the following conditions apply to the “honest banker” in you.

    1. It assumes you would have borrowed money systematically for the rest of your life.
    2. It assumes you would have borrowed money only at the highest rates.
    3. It assumes you would never borrow money in a tax deductible manner.
    4. It assumes you would never have other collateral assets to use to leverage better loans.
    5. It assumes you have no intelligent approach to other financial planning knowledge.
    6. It assumes you can afford large start-up costs and have no need for money elsewhere.
    7. It assumes you can withstand waiting for a purchase years after the first year.
    8. It assumes you do not understand opportunity cost on the capitalization period for IBC.
    9. It assumes you are not concerned about changing tax, loans, and insurance regulations

    Now here comes the big surprise: If you take an IBC policy and pay it every year without ever borrowing money from it, you will have a stated result of cash values and death benefits at retirement age. If you then run the exact same policy but this time borrow money from the policy every four years and repay the loans over those four years at the companies stated interest rate, you will have the exact same cash values and death benefits as the policy that had no borrowing.

    We know that borrowing from a life insurance policy does not increase any of its values. The only thing that can cause an IBC policy to grow larger is to put in more money. And that is what IBC is all about: putting in more money. IBC calls this extra money like “paying interest to yourself.” That’s false. The extra payments do not go into any existing account that you have or own. It’s just another life insurance premium for another life insurance policy called a PUA.

    This new PUA policy contains a new cash value and a new death benefit. You have now taken more of your after tax dollars and purchased cash values that you and your family will never get. All you can do is borrow more money from the life insurance company at non-deductible interest. You will go around and around like on a merry go round and get absolutely nowhere?

    At this juncture, I request that one of the IBC supporters, perhaps Mark Marshall, will step forward and provide us with a sample illustration of how the IBC policy works and its benefit to the policyholder. We are ready to see the IBC numbers. I have shown the numbers in my April 11th post that prove IBC to be the worst strategy, now it is someone’s turn to show the numbers to prove IBC is successful. If no one shows the numbers, then I think all the readers can interpret what that means. The readers need to know either way for their own financial well-being.

  122. Robert Castiglione says:

    Hi Tom:
    Here are the answer to your questions from your post.
    1. I agree that life insurance is a choice to use for a loan among many choices all having advantages and disadvantages. But we are speaking about IBC recommending a systematic use of loans, not occasional loans when needed, which I do support. I am against the suggestion that borrowing from a life insurance policy will grow wealth, for it will not. To do so, there must be a blend of loans that are coordinated and integrated so that all of the advantages exist without any of the disadvantages in your loan portfolio.
    2. Agreed
    3. The input cost is the gross amount of payments paid into the policy. We are not discussing any other aspect. Gross inputs into IBC have a cost of waiting, an opportunity cost, and a lost opportunity cost on tax. Those costs must be equalized in favor of the other alternative options before we go looking at the net cost due to cash values, dividends, or death benefits.
    4. A living benefits rider does not matter because you are speaking about another aspect of the policy that is not certain to occur. We must stick to the point that life insurance policies are tax deferred and taxable under the law. What one might due to avoid a tax is another issue not relevant to the taxation of life insurance policies. T
    4b. No, life insurance loan interest is not deductible. That is the tax law. What one might or might not do now or in the future to make the loan interest deducible only supports the fact that it is not deductible on its own. Advisers must tell consumers the truth about deductions based on the tax law. What can be done through exotic accounting is not the issue. How many people who buy IBC will use exotic tax planning? Life insurance loans for business purposes is a very slippery slope that is complicated and dangerous without professional tax advice. The negative consequences of such moves need to be discussed as well.
    5. Successful financial planning seeks to get certainty into the plan. Variable rate loans are not popular because they are not predictable and must be paid. Affordability of loans can become more difficult as loan rates rise. The IBC strategy of high interest loans could be discouraging and the loans stopped. That defeats the entire IBC strategy and gets the policyholder into a very expensive straight jacket. If he surrenders the policy as Mark recommended, the family losses the death benefits and may face income taxes and penalty interest.
    6. Agreed
    7. You may not have heard of it happening but it did happen during the depression and high recession years. The delay is up to 6 months. Life insurance companies can get their response time down if they get a surge of loan requests. This could happen simply because of the current federal debt. Once the negatives of IBC as a strategy is that it is self-defeating in many ways if it ever gets broad base appeal.
    8. Agreed
    9. Agreed, Yes, but unknown events occur in peoples’ lives. Many people are oversold and find out later that they cannot afford the payment inputs.
    10. Agreed. I do not like to fly blind. Over the last 50 years, the one thing that I have learned and witnessed is that what you don’t think will happen usually does. It is Gresham’s Law and Murphy’s Law all wrapped up into one. For you not to worry about how your policies could be changed is in my opinion too dangerous. Having a good defense with a good offense are keys to a well-designed plan.
    Life insurance policies are a unique financial product. They are highly regulated. If you look at Canada, England, and Australia, you will see some pretty devastating changes that occurred to life insurance policies. My question to you is, what advantages do you have today from IBC policies? I believe you are playing a losing game based on perceived advantages from misleading information. I’m glad that you are open minded to say that “I agree that approach should only be taken as part of an overall strategy.”
    11. Agreed
    12. Agreed. My answer is: No, on your question. You are converting post tax dollars into cash values that you will never receive. You will be forced to take more loans from the life insurance company increasing your interest costs. But that could change with taxation of loans. This is a trap door waiting to be sprung.
    13. The answer to your question is: Yes, it is debatable, but your side would lose based on the data. If you live past age 82, you will lose. So what is the point of buying more cash values and death benefits where the odds are against you? Why would you not want to expand your wealth in higher return assets, without tax, with higher tax deductions and no cash value confiscation at death?
    14. Agreed. From what I have seen, there are few agents that are knowledgeable about the real working s of life insurance and the integration of it into one’s financial life. They misled people, make false comparisons, unrealized claims about recapture of costs, and manipulate the data. Keep in mind that the inventors of IBC type programs have made mistakes and error everywhere.
    15. Agreed. Bob – I couple of things I forgot to include….
    Extended questions: I have not explained how the mortgage strategy works. It is not a linear play but a dynamic integrated array of financial engineering.

  123. Robert Castiglione says:

    Stosh:

    Pardon me for responding. I know you requested an answer from Dan and Mark also responded. But I think that there is more to the story, so I hope I am not interfering. I apologize if I am.

    Generally speaking, a reduced paid up option is not a wealth building option. It is strictly defensive. The word “Reduce” should give you a hint that you are losing money. The reason you would choose the “reduced paid up” option is only because your personal financial condition of cash flow and net worth does not afford you the ability to continue keeping your life insurance policy at full power.
    It is a fact that a life insurance policy on full power is always better than one on reduced power. Therefore, all the other options should be reviewed before a “reduced paid up” option is chosen. Once you choose a “reduced paid up” option, that’s it, you are stuck with it. No more full power is available to you. Since there are many other options (and better options) available to you, you should think of the “reduced paid up” option as a merely a last resort under dire circumstances.

    When you choose a “reduced paid up” option, you immediately lose a portion of your death benefits. That amount of loss could be substantial pending your age and cash value at that time. The thing that you must always keep in mind – The cash values of the policy are not yours unless you cash surrender the policy. At your death, the cash values are kept and owned by the life insurance company. With that option and loans taken, your death benefit is going to be reduced four times: (1) by the reduced paid up option, (2) by the cash value loss at death, (3) by the unpaid loan amount at death, and (4) by any unpaid loan interest.

    As you and the policy get older, your cash values and the dividends begin to slow down. If you are using your policy for retirement income by way of loans, the cost of the loan interest does not slow down but increases exponentially. That is why almost all loan scenarios for retirement income run a great risk of lapse.

    Keep in mind that any change in tax law or insurance law could wipe you out. Loans from policies could become income taxable under the LIFO accounting structure. I believe this could happen in the next 10 years. People dumping all their money into these IBC policies are asking for trouble.

    For example: Read more: http://www.bankrate.com/finance/insurance/are-life-insurance-loans-a-bad-idea-1.aspx#ixzz2zx9h5G6A
    “If you instruct your insurer to pay your loan interest with dividends or by dipping into your policy, you could be headed for serious trouble. That’s because if they fail to cover the full interest due, that unpaid interest will accrue as income and be added to the loan balance.
    “A policyholder with a policy cash value of $1 million borrowed $900,000 and using dividends or loans to pay the interest. She called and said, ‘I just got a 1099 from the IRS for $1.6 million!'”
    Although it was what the Internal Revenue Service calls “phantom” income, meaning there was no corresponding cash flow, she was still on the hook for 10 years of borrowing from her own policy.
    The kicker is you may not discover how far in the hole your policy has fallen until you opt to drop it or your insurer notifies you that it’s about to lapse, both of which constitute a taxable event that can prompt that heart-stopping IRS notice of tax due. And once you owe more than the amount you borrowed, you can’t simply pay your way back into the black; you have to pay the whole loan back.
    Consumers should not venture into policy loan territory without a firm understanding of the risks. You can ask your insurance agent to run what’s called an “in-force illustration” that shows the impact a loan will have on your policy.”

    There are many other more successful approaches to financing your financial life than IBC. The top financial advisers in the country that I know do not recommend IBC. Their approaches outperform IBC by millions of dollars, and that is without the risks of loans and tax law and insurance law changes.

    Every time you borrow from a life insurance policy you are losing money and the life insurance company is making money. That should be obvious to everyone otherwise the life insurance company would not be lending its money to you. Every time you borrow money from a life insurance policy, you must come out of pocket for the loan interest. (see example above). Every time you borrow from a life insurance policy, you lose tax free death benefits, your cash values get locked up, and the loan interest may rise dramatically without your approval.

    For ease of understanding, but not necessarily a recommendation, it is superior to borrow money from your brother-in-law than your life insurance policy. If you and your brother- in-law decide on a loan rate of 5% (you can negotiate terms), it could be a fixed interest rate, interest only, simple interest paid at the end of the year, and you could accelerate payments, or do whatever you both decide. This way your life insurance policy grows at full power. You can use your life insurance policy as collateral in the agreement with you brother-in-law so that he has safety and security. You can use your policies tax free dividends to pay him off without any loans of any kind. The money that you save can go into a Roth IRA, 401(k), or pay off 12% credit card interest.

    Borrowing from a life insurance policy is not a wealth builder as is claimed by IBC. Borrowing from the policy is an eroding factor and has the many inherent risks of blowing up due to changes in the laws. The trick that is used by IBC people to get people involved is called the “good, bad, worse” marketing gimmick. If you want to make “bad” look “good”, then compare “bad” only to something “worse” and do not tell anyone about the “good” options.

    The IBC strategy is based on expensive imaginary loans that you may never have or at least you should not have. You then pay an increased interest rate to the policy based on a rate that you do not have or should not have. You pay the insurance company back first on the required loan rate, and then pay a premium for more life insurance with the access payment. Don’t fall for that trap. You are only buying more insurance with cash value and death benefits, not paying interest to yourself or a bank account. That means you must do more borrowing to get it out and the vicious cycle continues.
    Other options to pay premiums for full policy power without loans are:
    1. Dividend option to reduce premium
    2. Accumulated dividends to pay premium
    3. Dividend averaging to pay premium.
    4. Income tax reductions to pay premiums
    5. Realignment of cash flow to pay premiums
    6. Savings assets for re-engineering
    7. Investments assets for re-engineering
    8. Annuitization of certain assets
    9. Pension options
    As Ben Hogan used to say, “Don’t wish me good luck, wish me good skill.”

  124. Robert Castiglione says:

    William:
    You are a great hero to our country and probably an expert soldier. You were trained to handle any situation that could arise and were given the well equipped tools to protect us.

    You are not trained, nor are you an expert in personal finance and insurance. You would be entering the financial war without being well equipped. You admit to being a layman when it comes to terminology. By the nature of your questions and statements, I can see that you have no experience or knowledge of life insurance or taking loans from policies.

    If you see an IBC salesman, you will be inundated with misinformation, misleading statements, erroneous data, and false comparisons. You will be vulnerable and thus convinced to play their game.

    May I suggest, that before you speak with an IBC sales people, that you meet with a life insurance professional from NYL (since you have a policy with them now) and your CPA to discuss life insurance and IBC. Next, invite the IBC sales person to meet with you and your CPA for their presentation.

    Now you would have heard both sides and you have your CPA to give you unbiased advice. This is a fair approach and one that I believe you should use. It is too important for you to get started in life on the right track and not make financial mistakes.

    Don’t hope for success, instead make sure of it.

    Best wishes for you and your family.

    Hi guys I am very interested in the IBC. I have to admit that I am a complete layman when it comes to terminology. I am 25 and and leaving the ARMY. While serving in the ARMY for 6 years I had a life insurance policy called (SGLI), its basically term insurance with a DB of 400K. I know I can transfer my SGLI to New York Life and switch it to a Whole Policy for IBC. I plan on getting with an agent and writing up a contract the way Jacob outlined and having it reviewed by an outside party. I have a couple layman questions though. If I wanted to take out 50K to pay off my wife’s + my car, would I be paying a life insurance payment + paying back the loan i took out from myself? What happens if i stop making payment? (which I don’t plan on doing). Also, in my case, when would I be able to take out an amount like 50k? as soon as I start my policy?

    Thanks guys!

    • >> If you see an IBC salesman, you will be inundated with misinformation, misleading statements, erroneous data, and false comparisons. You will be vulnerable and thus convinced to play their game.

      I think that statement is a bit excessive in the vitriol department… The primary thing that has been questioned here is whether the focus on the use of *financing* related to IBC is justified. Many posts have presented the case that depending on circumstances there are may be more effective ways to finance than to always use a policy loan (which I personally agree with). Many posts have made the case that some statements related to the use of *financing* in IBC are questionable (which I understand). Let’s make the assumption that those posts are dead on and that *financing* using IBC needs to be understood and treated appropriately.

      What concerns me about the statement above is that it throws the baby out with the bath water and appears to assume nefarious intent. I don’t think that is fair. I have worked extensively with one of these “IBC salesman” and in the years since have since met many others. I have never seen the kind of single-minded focus on *financing* that these posts and statements imply exists out there. I have personally taken a few policy loans, but typically to manage short-term cash flow (see note). I have personally taken loans from multiple other sources that were more efficient with the full support of my “IBC salesman”.

      The rest of the post I am responding to was reasonable and good advice. Please do talk to multiple sources of information including insurance agents not associated with IBC if you like (keeping in mind that IBC trained agents may be more expert at designing policies that maximize growth of cash value). However, it is important for everyone reading this blog to know that IBC does not automatically equal a fixation on using policy loans for everything! It is a responsible alternative to traditional methods of saving and investing that has *many* advantages. Many, many advantages. Only one of those is the ability to access liquidity (by borrowing from the insurance company using your cash value as collateral). That is just one small piece of the puzzle. Everyone should make sure to look at the whole picture.

      Dan

      (note): I did use a policy loan to purchase a car and later another for a boat, however, I ultimately paid both those loans off with a lump-sum rather than continuing a long-term repayment plan because I ended up having the money available, but I was very comfortable with those loans while I had them. Had I not had the lump sum available, I very well may have borrowed from another source to pay them off. Either way, the flexibility to leverage the most efficient source of financing is there.

  125. Mark Marshall says:

    Robert says: “There are many other more successful approaches to financing your financial life than IBC. The top financial advisers in the country that I know do not recommend IBC. Their approaches outperform IBC by millions of dollars, and that is without the risks of loans and tax law and insurance law changes.”

    Could you be more specific? Based on my personal experience–and that of our group–most financial advisers have no clue how IBC even works. In fact, if their approaches were so good then why is it that the average baby boomer has very little saved for retirement?

    Even if I had $1 Million in a 401k and wanted $75k per year AFTER taxes, the account would only last about 10 years–maybe less. In my case, my “top financial adviser” told us we would have about $1.2M in our 401k at this time. Instead, we have less than HALF that amount.

    Finally if these advisers do such a great job for clients, I am curious why none have claimed the $100k waiting for them at the BOY site? If their plans are so good, they should be shouting them from the rooftops.

    I believe Mr. Castiglione is assuming that the average middle class person has a ton of liquid assets and substantial positive cash flow outside of a job. Even in those cases, IBC should be PART of the overall financial plan. Any “top” adviser would recognize that.

  126. Mark Marshall says:

    Robert says: “May I suggest, that before you speak with an IBC sales people, that you meet with a life insurance professional from NYL (since you have a policy with them now) and your CPA to discuss life insurance and IBC. Next, invite the IBC sales person to meet with you and your CPA for their presentation.”

    This is what I would suggest. First, it is very likely that neither the NYL agent nor the CPA knows how the IBC works. After doing your own research, I would “interview” the agent and/or the accountant to see if they understand the concept.

    Once you “educate” them, both may try to talk you out of it. If so, ask them WHY and make sure they use FACTS and not OPINION. Agents make substantially higher commissions when selling higher base premium policies. In our practice, we always put the client first and thus make lower commissions.

    We actually have life agents and CPA’s as clients. Once they understand the concept, a good number become practitioners.

    Please also be aware that even if an agent wanted to set up a plan, they may not have the ability to design one properly. NYL is a fine company but they do not train agents on the IBC concept. This I know from personal experience.

    In the end, always act in your own best interests.

    • Mark, I agree with you on the CPA issue of not being familiar with the strategies discussed here.
      If I listened to my CPA, I would not have financed an 80K lot from the owners of the property, paid it off with a 7 year balloon, which was done by funding a mutual fund that left me with over 30K on top of the balloon…his approach was to give each owner extra principal payments for the 7 years to pay off the loan…using my CPAs method I would not have had thee extra 30K after the balloon.
      Also – my CPA is not a supporter of taking equity out of the house and storing it in a safe liquid account that protects it and gives it a real return….(this is from the Doug Andrew Missed Fortune model..) Why? Because he’s afraid of models he’s not familiar with or that the mainstream financial guys support. Anyway, thanks for your input!

      • Mark Marshall says:

        Tom, thank YOU for sharing a real life example of “thinking outside the box”. As I mentioned, we have CPA’s as clients. Others totally disagree with the concept and that is fine.

        Regarding home equity, with our college planning clients that is sometimes the only option to help pay for college. For those who have waited until the last minute, there is no other short term available that works as well as IBC.

        In fact, we have mortgage brokers as clients as well. One local to me serves as a consultant to clients and educates them on the use of home equity within the IBC. He has already put his daughter through college with his plan, so he knows whereof he speaks!

        By the way, you nailed it with the word “mainstream”. Generally speaking, if the majority is doing one thing, it is better to at least consider the other option. Personally I have always been a contrarian and that has suited me well over the years. I wish you all the best with your ventures.

  127. Mark Marshall says:

    Dan, thank you for your post. You are correct that it is wrong to paint IBC agents with such a broad and negative brush.

    Our group consists of dozens of agents who can match credentials with most any other agency in the industry. There will always be a percentage of insurance sales people who are only interested in making commissions at any cost. Some will lie and cheat in the process. That is why there are insurance laws and regulations.

    More than once, I have been lied to by financial advisers. Again, I believe it is a small percentage that are bad apples. In each case, I reported them to the proper authorities and action was taken.

    I can only speak to our group and say that honesty and ethics are paramount in how we handle our individual practices.

  128. Robert Castiglione says:

    Hi Dan:
    Thanks for your post. I believe it is helpful to readers to hear all sides from IBC clients, from IBC agents, and from a life insurance teacher and coach.

    You seem to take offense at my statement, “If you see an IBC salesman, you will be inundated with misinformation, misleading statements, erroneous data, and false comparisons. You will be vulnerable and thus convinced to play their game.”

    I want you to know that my statement is truthful, caring, compassionate, and has concern for William and other readers. William is a hero and deserves the best. He has taken risks for us to be safe, now he should not have to be exposed to take more risks with IBC.

    The problem is not with the IBC agents themselves that you mistook my words to be pointed towards. The problem lies within all of the written materials contained in IBC books, websites, illustrations, presentations, marketing and advertising. They are filled with “misinformation, misleading statements, erroneous data, and false comparisons” as I have stated. IBC sales agents read and use this required reading for their clients as reinforcement or testimonials for IBC’s efficacy. Is that not true?

    If there was just one IBC book that was well written, accurate, truthful, and concise about IBC, then we might not be having this discussion. Unfortunately, no such written material exists (and I believe I have read most if not all of it). If you know of one great IBC source that can explain it, with total professionalism, without hype, with complete and fair comparisons, and can mathematically prove IBC is a winning strategy, please let me and all of the readers know which one source it is so that we can finally have the truth about it.

    If William meets with an IBC agent, and receives the same standard presentation that IBC makes that Mr. Roth and I had to endure, then William will be overwhelmed and no match for the well rehearsed pitch. In one case, I met with an IBC agent that had just received an award as being the top qualified IBC agent with his company. His presentation was filled with the same misrepresentations that we read and hear about over and over again in the IBC literature and marketing materials. Here are just a few samples:
    1. “You are borrowing your own money”
    2. “You are paying yourself back”
    3. “Your cash value grows larger when you pay the loans back to yourself”
    4. “Life insurance loans are income tax free”
    5. “Cash values grow income tax free”
    6. “Dividends are your interest”
    7. “You have the same money to use over and over again”
    8. “The policy is your own bank and finance company”
    9. “There is no opportunity cost with an IBC designed whole life insurance policy“
    10. “Life insurance loan interest is tax deductible”
    Are you telling me and the readers that certain IBC agents that you know do not ever in any way use these statements or have these philosophies? To me it is impossible for any IBC agent not to misinform, not to mislead, and not to be inaccurate comparing data since the entire concept of IBC is faulty.

    You say, “What concerns me about the statement above is that it throws the baby out with the bath water and appears to assume nefarious intent. I don’t think that is fair.”

    I’m sure some IBC agents are well intentioned and may not necessarily have a nefarious intent. They too may be victims of IBC marketing, training and sales ploys. If IBC could be proven to be a winning strategy, I would support it. I have been an advocate for insurance solutions for almost 50 years. Actually, I wish it were correct so that whole life insurance could have another positive arrow in its quiver.

    You say, “I have worked extensively with one of these “IBC salesman” and in the years since have since met many others. I have never seen the kind of single-minded focus on *financing* that these posts and statements imply exists out there.”

    It is not the single minded focus of an IBC agent that is in question. I am not painting anyone with a broad brush. Some agents are experienced and others are not. There loyalty to INC is not even in question. The real issue is an economic one that the specific design of an IBC whole life policy is flawed: For example:

    An IBC policy “overfunds” premiums making it more costly for consumers to acquire whole life
    An IBC policy underfunds the death benefit making it costly to both the insured and the beneficiaries.
    An IBC designed policy runs the risk of becoming a MEC policy and will be costly to the owner.
    An IBC designed policy has a “cost of waiting” that could amount to millions of dollars over a lifetime.
    An IBC policy SPPUA rider has an equalization “opportunity cost” for comparison purposes.
    An IBC policy is specifically designed to take and use loans from the policy. Loans have costs.
    An IBC policy has higher loan rates than the most efficient loans available in the market place.
    An IBC policy has variable loan rates making future loans and loan rates more uncertain and costly.
    An IBC policy dividend is not guaranteed to be paid as projected or rise as loan interest rates rise.
    An IBC policy is designed to lose cash values and unpaid loans when the insured dies.
    And much more:

    In my earlier post, I mathematically proved that IBC’s own sample case by its inventor is false and inaccurate. Until some IBC person can come forward and provide the insurance community with actuarial and certified proof of its veracity, it should be avoided by all consumers, and life insurance agents should be cautioned about selling it.

    You say, “I have personally taken a few policy loans, but typically to manage short-term cash flow. I have personally taken loans from multiple other sources that were more efficient with the full support of my “IBC salesman”.

    You were smart to realize that the outside world will have better opportunities available than inside the IBC policy design. You took a loan elsewhere, and also paid back an IBC loan with a single sum rather than with installments and the extra added loan imaginary loan interest. But every time you use an outside loan source or pay cash for items, you increase the lost opportunity cost of your IBC policy. If you or any IBC policyholder never borrows from their IBC policy, they will be losing money in opportunity cost. An IBC policy owner must borrow money from the policy in order not to lose money. But if they do borrow money, the so-called gains from borrowing are only imaginary, not actual, as you have now discovered when you borrowed outside the policy for more efficient loans.

    As far as your own IBC agent is concerned, of course he had to agree with your decision to borrow from an outside source because it was better than borrowing from your policy. But that means that the policy your IBC agent designed and sold is already failing to be effective for you.

    You say, “IBC trained agents may be more expert at designing policies that maximize growth of cash value.”

    That is why IBC policies are to be avoided. Consumers do not benefit by maximizing cash values. As I explained earlier, cash values belong to the life insurance company as security (collateral) to pay death benefits. You can only get the cash value if you surrender the policy lose the benefits and then pay income taxes on any gains. A better designed whole life policy and coordinated strategy is one that will pay both a larger death benefit and the cash values to your family as well. That is achievable but not with an IBC policy.

    You say, “However, it is important for everyone reading this blog to know that IBC does not automatically equal a fixation on using policy loans for everything! “

    Everyone reading this blog should know that the purpose of the IBC policy design is to take out loans for everything. That is exactly what all of the literature on the design of the policy clearly and precisely states. There is no other purpose or use for an IBC policy design, other than loans, that a traditional whole life policy design could not supply. Therefore, whenever you do not take loans from an IBC policy, you are experiencing a large lost opportunity cost from the overfunding of premiums and the building up of cash values that you will never receive.

    You say, it is a responsible alternative to traditional methods of saving and investing that has *many* advantages.”

    Life insurance policy loans are more costly, income tax deferred, not tax deductible, loan rates are variable and will probably rise in the future, have no fixed payments and will rise in the future, and runs large risks of becoming either income taxable or penalized.

    There are advantages of borrowing from a whole life insurance policy, but more for convenience than for any economic gains. But that would be available for a traditional whole life policy as well. It is the systematic borrowing from a whole life policy that has always caused consumers all the trouble with loans.

    Dan, I think the readers would enjoy seeing a list of what you call the “many, many advantages” of an IBC designed policy over a traditionally designed whole life policy.

  129. Robert –

    You seem to have this in your head: “IBC = Policy Loans”. To me, IBC is an introduction to the use of Dividend Paying Whole Life Insurance as part of an overall savings and investment strategy. It is with that in my mind that I am participating in this blog. Sorry for the confusion. I realize that you have been doing this for years and years and the use of Whole Life may be old hat to you, but it probably is not to many readers here.

    So…if you consider IBC they way you do, I think you are missing the opportunity to educate people on the benefits of Whole Life overall. It is to those benefits that I refer to many, many advantages. To restate clearly: “Using Whole Life as an integral part of saving and investing has many, many advantages over by-the-book 401K, stock market, mutual fund, Wall Street approach.” I am not talking at all about policy loans.

    In your replies you go instantly back to loans. With the numbered list. With the vitriol. You are focused on the pine needles on the ground and I am talking about the forest. You and I are talking past each other and I am worried that your very strongly worded statements will cause people to miss the opportunities that Whole Life provides. To the extent that “IBC People” raise awareness of Dividend Paying Whole Life in general, they are to be applauded.

    Final point:

    >>Dan, I think the readers would enjoy seeing a list of what you call the “many, many advantages” of an IBC designed policy over a traditionally designed whole life policy.

    Many, many advantages refers to having an IBC designed policy compared to money in a “traditional” 401K, mutual fund, etc., etc., not to another life insurance policy. The best designed policies I have seen provide great flexibility in minimum premium due to keep the policy current and maximum premium+PUA possible to pay in a given year, along with very rapid cash value accumulation / recognition, along with dramatically reduced cost of commission, along with optimized IRR. OFFLINE, I am happy to compare specific illustrations if you would like.

  130. Robert Castiglione says:

    Dan:
    With all due respect, you are way off base and confused if you believe that an IBC policy is not about loans. The “Infinite Banking Concept” is totally about borrowing money from a life insurance policy.

    To prove that let’s see what the inventors, authors, marketing firms, and blog owners say what IBC is:
    Nelson Nash: “The Infinite Banking Concept has to do with recognizing where money is flowing to and charging interest to yourself for the things that you buy using your own banking system. Anytime that you can cut out the payment of interest to others and direct that same market rate of interest to an entity that you own and control, which is subject to minimal taxation, then you have improved your situation.”

    Jacob Irwin: “The infinite banking concept involves (1) overfunding with after tax dollars a specially designed high cash value whole life insurance policy from a mutual company which is guaranteed never to decrease in value. (2) Having cash values accumulate on a tax free basis over the years with a conservative but respectable interest rate, and (3) taking tax free loans against the policy’s cash value to put money to use in other investments or simply to pay for regular expenses.”

    Paradigm life: “a Whole Life Insurance Policy acts as the individual’s lending vehicle. The Whole Life Insurance policy becomes your bank. Whenever you need to make a large purchase, you borrow money out of the policy like you might with a bank. However unlike traditional financing, you are earning the interest, rather than the bank.”

    Pamela Yellen: “One unique and powerful benefit of a BOY policy… You can borrow from the policy and invest the money in anything you want. Because your policy continues to grow at the same rate, regardless of any loans you take, your money can do double duty for you.”
    I could go on and on quoting every book, article, and presentations where IBC is explained and they all state that the program is about taking loans and paying yourself back instead of a banking institution.

    There would be no reason to capitalize an IBC policy (overfund), or have a variable loan rate, or be with a non-direct recognition company, or worry about the policy MEC line if it were not for the purpose of taking loans.
    The advantages of owning a whole life policy are many. Those advantages are not unique to IBC. The problem with IBC is that it takes away many of the advantages and adds many disadvantages and risks not found in traditional whole life policies. And that is what disturbs me.

    You state, “Using Whole Life as an integral part of saving and investing has many, many advantages over by-the-book 401K, stock market, mutual fund, Wall Street approach.”

    Why do IBC agents need to bash all other savings and investment programs. Cherry picking some problems is easy to do. The reality is that all financial products are good, if you know how to own them and avoid their disadvantages. My qualified plans do not lose money. My mutual funds do not lose money. And my stock portfolios do not lose money. It is all a matter of how to use them and not just to own them. But if you do not have them, taxes and inflation will eat your money up over the long haul.
    Dan, I have been an expert on life insurance design and sales for over 45 years. I have no preconceived ideas about it in my head as you claim. I am not missing the forest by looking at the pine needles. My only objective is to supply the facts to the readers. The readers want truth, not hype or fluff. I have presented the facts in black and white of the misrepresentations made by IBC supporters and agents. Not one of my facts has been challenged with supporting facts. As I have said in a previous post, I am 70 years old, retired, wealthy, have no ax to grind, I don’t sell insurance, and have nothing to profit from here. All I care about is that the readers and consumers get a far shake through better education and information so that they can have better current and future financial lives.

    Dan, dividend paying Whole life has been around for over 150 years. Dividend paying whole life insurance is the number one selling type of life insurance policy in the world, and had been before IBC ever came on the scene. There is no thanks that has to be given to IBC for making people aware of dividend paying whole life. I believe IBC will damage that reputation of dividend paying whole life insurance. consumers complaining about IBC policies more than any other sales program combined.

    The advantages of owning whole life insurance is not the issue in this blog, but for those interested, here are the differences in the advantages of owning traditional whole life insurance compared to IBC policy strategy:
    Traditional Whole life insurance IBC specially design policies
    Lower premium cost Overfunded higher premium cost High death benefit Lower death benefit High disability waiver of premium Lower waiver of premium Option to collect both D.B and C.V at death No option to collect cash values at death Equity side fund without borrowing No equity side fund Tax advantaged retirement income Tax deferred retirement loan income No term life insurance cost Term life insurance cost No danger of becoming a MEC ever Danger of becoming a MEC Hundreds of life companies to choose from Only a few life companies to choose from More dividend options to choose from Only one dividend option to choose from No dividend recognition problem Has a dividend recognition problem Can add a PUA rider Can add a PUA rider Loans are optional Loans are required (tax deferred, not tax free) CV exempt from creditors in most states CV exempt from creditors in most states Non probate asset to beneficiary Non probate asset to beneficiary Lower cash values that you can’t get Higher cash value that you can’t get without surrender without surrender Tax Deferred growth of cash values Tax Deferred growth of cash values Tax free death benefit Tax free death benefit Optional benefit riders Optional benefit riders Limited payment plans Limited payment plans

    As I said earlier, life insurance is not competing with any other financial products or strategies. There is no good reason to bad mouth all other strategies for the sake of selling an IBC policy. Real financial planning is efficient, coordinated, integrated and prevents any risks or hazards to occur. IBC fails at all of those characteristics.

    • Hi Robert –

      Good news. I think we are in violent agreement about the most important thing. Dividend Paying Whole Life Insurance is a hugely attractive asset class that should be considered as part of an overall financial plan. Really – that is the most important thing and that is why I have been posting here at all. I don’t think that is widely understood.

      I definitely hear what you are saying about IBC and loans, but with all due respect, even the quotes you selected reinforce that loans are only one part of the concept. Also, with all due respect, I think that some hype may be required to get people’s attention to the existence and benefits of the Dividend Paying Whole Life asset class in general. The Wall Street hype machine is always running full speed and is much, much larger. Personally, I would have never “discovered” this without that thread of hype that made me look at it. I am envious of your long history with it – I wish I had known about it 30 years ago. I do certainly agree and have always said that everyone needs to do their own research and due diligence and understand as fully as possible – and that goes for everything, not just insurance or whatever.

      And, finally, I really would like to engage OFFLINE on the policy design concerns you raised. I don’t understand why cash value is a bad thing. I sent you an email yesterday. Happy to get into gory detail on that with you, but I think we have beat the horse to death on the other topics here at this point.

      🙂

  131. Mark Marshall says:

    Robert, I am confused. You say you believe in “traditional” whole life. Then please explain what you recommend to do with the cash value.

    What is the point in having it if you do not use it? Since I never get BOTH the cash value AND the death benefit, why have cash value at all?

    • Mark – not to speak for Robert, but the way I read his message is that with a IBC designed policy for max cash accumulation and minimal death benefit, you would only get the death benefit less any loans outstanding at death…or, you could get the surrender value (cash-loans & exp) of the cash value if you choose to close out the policy…
      But with a traditional WL designed for higher death benefit, there would be the capability to get both death benefit and cash value at death….but I like you am waiting for Bob’s reply to make sure I got it right…Tom

      • Mark Marshall says:

        Tom, if I understand you correctly, you seem to be saying that you can get BOTH the death benefit AND the cash value with a traditional whole life plan.

        Actually, that is not the case with ANY type of life insurance that has a cash value. The cash value can only be used when you are alive.

        Or did you mean that with a traditional plan you can get MORE death benefit from the same amount of premium? If so, that is possible but to what end?

        To be clear, the primary focus of an IBC is NOT the death benefit. If a person desires a certain amount of DEATH insurance, then he should consider having a separate policy just for that purpose.

        The key is to work within the IRS guidelines to craft a plan that allows for maximum funding in order to accelerate cash value growth. This strategy provides the most LIVING benefit. It makes no sense to me to have cash value and then not use it.

        Or am I missing something?

        • Mark, I was just explaining how I read Bob’s message…I could have got it wrong…which is why he needs to clarify the answers to your questions.

          Untrue though about ANY type of insurance with cash value…I have a VUL that allows my heirs to get the increasing cash value as I manage allocations that directly affect the cash value. Of course there could be a decrease in value based on market conditions but that is a risk I take that I don’t mind.

          Unlike WL, if I take a loan out on this policy, my cash value balance will decrease by the amount of the loan…however the loan amount is getting 4.5% interest until the money is paid back. The overall death benefit reflects the total value of face value plus the cash value…upon death., the loan is subtracted out of that total.

          I realize and understand that IBC is not about death benefit but cash accumulation as it is designed…I’m sure all of us could be missing something because we only know what we know…there is more to learn….which is why these forums and your feedback is helpful.

          Tom

          • Mark Marshall says:

            Tom, thank you for the kind words.

            I stand corrected on a VUL. Thank you for pointing that out. You are right that there is a variable death benefit option equal to the cash value at the time of death plus the face value of the death benefit.

  132. Mark Marshall says:

    Robert says: “My qualified plans do not lose money. My mutual funds do not lose money. And my stock portfolios do not lose money. It is all a matter of how to use them and not just to own them. But if you do not have them, taxes and inflation will eat your money up over the long haul.”

    Please elaborate on the no-loss investments you use with your portfolio. Except for certain property investments, name ONE that is 100% guaranteed against loss.

    Speaking of taxes and inflation eating your money, that EXACTLY describes a 401k and an IRA. Depending on the timeline, a person can end up paying 3-5 times MORE in taxes than what they saved. How is that working out for the average investor?

    To date, you have offered ZERO alternatives to the IBC. How does that help anyone?

    Robert also says: “Not one of my facts has been challenged with supporting facts.” This is simply NOT true. I have personally challenged a number of your “facts” and you have chosen to ignore the replies.

    Many of your “facts” are just strong opinions and do little to advance the subject. Instead of saying the same things over and over again, why not consider offering alternatives for the readers here to consider?

  133. Mark Marshall says:

    Robert says: “Real financial planning is efficient, coordinated, integrated and prevents any risks or hazards to occur. IBC fails at all of those characteristics.”

    True or false? FALSE! Assuming you have investments as part of your personal portfolio, your plan fails as well. There is no such thing as investment without risk. How preposterous it is to even suggest that.

    Specific to my personal IBC plan:

    1. It is VERY efficient, substantially more than a “traditional” whole life plan.
    2. It coordinates and integrates VERY well with the rest of my portfolio since I am diversified.
    3. My money is 100% safe, thereby reducing risks and hazards. The plan helps to mitigate the risks inherent in my other investments.

    In FACT, the ONLY vehicle currently available that keeps your money 100% safe–while earning on a guaranteed and tax-deferred basis–is an IBC plan or any other plan that includes whole life insurance. If there is another, PROVE IT!

  134. Can someone speak to the use of a direct recognition policy for IBC. In a post from Kyle D. on 11/25/13 he states that “the direct vs. non-direct argument is just hot air.” Everything I’ve read on IBC or BOY states that the policy must be a non-direct recognition policy.

    So my question is – is the IBC / BOY strategy viable with a direct recognition policy? Would love for someone with knowledge of this to elaborate. Is there people on here using or advising people who are using a direct recognition policy for this?

    Thanks.

  135. Robert Castiglione says:

    I have listed many of the IBC misrepresentations and falsehoods in my posts. The biggest falsehood that IBC tells the public in their advertisements and books is: “by using an IBC specially designed whole life policy you recapture the cost for everything that you purchase, just as if you had never bought them in the first place.” They are all free!!!

    If you believe that, then you deserve to be in an IBC policy for being so gullible. The ethics and morals of IBC people is at a low point in life insurance selling. How can we trust these people when they make such fraudulent claims? Then when you examine the math that IBC uses to explain their concept of “getting free stuff” you find that the math is totally bogus. So these people are not only fibbers but poor mathematicians as well.

    When IBC agents are presented with the mathematics that disproves them, they go into a state of denial. They attack the messenger rather than the message. They can’t believe they were taken themselves. They want IBC to be true because it helps them sell life insurance to their clients. It gives them a better feeling of self-worth that they have something that no one else knows. They advertise it as a “secret”.

    The facts speak for themselves:
    1, “Overfunding” is not savings but overpaying premiums which adds to the cost basis of the policy.
    2. Loans come from the life insurance company and not from “yourself.” You are not borrowing your own money. Loans are a liability on your balance sheet reducing your net worth.
    3. Life insurance loans also not income tax free as claimed by IBC. They are income taxable at the surrender or lapse of the policy plus penalties if loan interest was not paid with out of pocket dollars.
    4. When you pay back your life insurance loans, you are not paying yourself back. Not one penny of your loan repayments will go to you or your accounts. All the loan payments and interest go to the life insurance company. IBC falsehoods are damaging consumers and that is why there are so many complaints.
    5. Cash values are not held or used as collateral for your policy loans. The contract provision on policy loans states that the entire policy is the security for the loans. This is a big deal because if cash values were the collateral as stated by a policy contract, then the life insurance company could not confiscate your death benefits for the unpaid loans, which they are allowed to do because cash values are not collateral for the loans. IBC agents continue to make false statements about cash values as collateral to make people believe they are accessing their own funds.
    6. Cash values in your policy do not grow one penny when you repay a policy loan or loan interest. You are not paying yourself back. IBC continues to make people believe that they are borrowing their own money and paying themselves back. When will the lying stop? It is up to consumers and ethical life insurance people to stand up and be heard.
    7. At your death, any remaining unpaid loans are not paid by the cash values in your policy, but are paid out of the death benefit. Cash values have nothing to do with the collateral for your loans other than they limit the amount of the loan in case you surrender the policy and give up your death benefit.
    8. Cash values are not your money at all unless you surrender the policy. All cash values belong to the life insurance company when you die. You get not one penny of your cash values that you have built up by the overfunding.
    9. When you overfund you policy or pay extra interest on your loans, that money is not going to you as interest or savings. It is instead just another premium payment that buys insurance and gets a cash value and death benefit. You can only take loans to resemble ever getting any of it back.
    10. IBC lowers the death benefit of the policy and raises the cash value by overfunding premiums. This is the opposite strategy that anyone should want to use. Since the death benefit comes in tax free to your family and the life insurance company keeps all of your cash values, it makes no sense to use the IBC designed policies to lower death benefit and increase cash values.
    11. Taking policy loans as retirement income accumulates the loans that will eventually be deducted from the net death benefit leaving little or no real values to your family.
    12. The loan interest that you pay is the gross interest rate that the life insurance company charges. You are not paying a net amount after earnings as IBC supporters claim. During retirement the interest that you must pay will increase annually as you take more and more loans from your policy as income.

    Whether you live, die, or surrender with an IBC policy, you are going to lose money compared to intelligent life insurance approaches. It can’t be made clearer than with the above facts. If IBC tells falsehoods to consumers in their advertising and books, how can you trust them? If the numbers they use don’t work out, how can they be trusted? If there are more consumer complaints about IBC policies than all other complaints combined, how can you trust them? If the top life insurance companies do not allow their agent to sell IBC designed policies, how can you trust them? If IBC disparages everything in the financial marketplace other than IBC policies, how can you trust them?

    I have not mentioned any hazards or risks that could occur that would totally destroy IBC policyholders. If life insurance loans become taxable under the FIFO laws like annuities, policyholders will be stuck with little or no way to achieve successful retirement income.
    Keep in mind that the IRS is watching IBC policies with a very close eye. The IRS has already instituted the MEC laws to limit overfunding insurance policies. There is no reason why the IRS will not take another step to prevent them from losing taxation.

    I would not want to be the person to say a few years from today, “I told you so.” I’d hope that you made the intelligent decision today to stop funding your IBC policies and get back to reality.

    In my next post I will answer some of the questions that were posted by Mark and Thomas. They are very interesting topics.

  136. Robert Castiglione says:

    Hi Rob:

    If IBC is not a viable strategy for the folks in America to be using, and it is not, then it should not matter if the dividends were direct recognition or not?

    But let me give you the answer to your question: No, it would not be a good idea. The reasons are:
    1. Paying interest on a life insurance loan is bad enough, paying more interest can’t be good.
    2. You could be paying a higher fixed loan rate currently than the current variable loan rate.
    3. In addition to increased interest cost, your dividends would be cut. That’s a double barrel hit.
    4. Less dividends means less PUAs, cash values, and death benefits.
    5. Dividends are your money and they are tax free. You do not need loans to take them out. Tot take a cut on your money that is tax free is not a good idea.
    6. With a higher interest rate and a lower dividend, it can become difficult to carry the interest payments during retirement.

    But I must repeat IBC is one of the most dangerous and erroneous concept ever devised in the insurance arena. It takes a great product like whole life insurance and turns it upside down, taking away the benefits and adding more costs and danger.

    Do yourself a favor and avoid IBC.

  137. Robert Castiglione says:

    Dan:

    I must respond to your April 29th post for the record since it was before we began to exchange emails. I have enjoyed our email exchanges thus far.

    We do agree that dividend paying whole life insurance is a great financial product for people to own. But that’s about as far as it goes on agreement:

    First, the IBC design of overfunding to the MEC limit is a losing financial strategy. Paying a higher premium for the same product, is not a winner. The increased premium have a lost opportunity cost.

    Second, reducing the death benefit of a whole life policy and paying more premiums for it is unwise. The death benefit is the most valuable aspect of a whole life policy. The death benefit is always a greater amount of money than the cash values. You should want to get the death benefits.

    Third, the cash surrender values do not belong to you, unless you cash surrender the policy. As long as the policy is in force, you are not the owner of the cash values. The life insurance company is the holder and eventual owner. The proof of that is when you die, all of the cash values go to the life insurance company.

    Fourth, the life insurance company is laughing out loud at you IBC policyholders. Why? Because you take them off the risk by lowering the death benefit, then you increase the cash values that belongs to them, and then you take loans and pay a gross interest rate, and then amazingly pay them back with more money than was required to pay the loan interest. Those payments are new premiums not interest to yourself.

    Fifth, variable loan rates can go up much higher as we all know and have experienced. There is nothing in the policy contract that state you will receive a higher dividend if loan rates increase.

    Sixth, if money gets scarce during a runaway inflation, the insurance company can delay giving you money for up to six months. If this is needed for retirement you could starve by that time.

    Seventh, life insurance policy loans are being discussed as a possible future tax revenue source for the IRS. The IRS is watching ever since they have put in the MEC rules trying to prevent overfunding a tax deferred account with no insurance. The trick of adding a term policy to the death benefit is not going to hold up under IRS scrutiny. It looks like the discussion is to make insurance loans a FIFO tax like annuities.

    Eighth, the policy has so many moving parts that it is a nightmare waiting to happen. A change to any one part could cause a calamity to the entire policy.

    Ninth, dividends are not guaranteed as we all know. But the life insurance company has the right to change the non-direct recognition stance to one of recognition.

    I could go one for hours speaking about the failure of IBC and all of the consumer complaints, more than all of the other complaints combined. There must be a reason why so many consumers are so unhappy with their IBC policies. The reason is they were lied to. Almost everything that you read about IBC is a falsehood.

    The IBC policy in no way acts like a bank, not even close. You are not your own banker. You have no control of anything: not the interest rate, not the dividends, not the cash value, not the death benefit, not the loans, and not the taxation. And all for what purpose? An IBC agent told me that if everything works out as planned, he gets a half a percent more rate of return on and IBC policy than on a traditional whole life policy. Is that worth the risk and dangers and loss of control? I think not.

  138. Mark Marshall says:

    By now, I think we all know how Robert feels about IBC. 😉

    Those of us who own a plan are all fools according to him. This has been established by Robert saying the same things over and over again. Not sure why.

    Some of us are still waiting to hear about alternatives to IBC. It could just be that he doesn’t have any. Again, not sure. The silence on advancing the topic is deafening.

  139. Robert Castiglione says:

    Hi all:
    I said I would comment on Mark’s posts since April 27th. He has asked me many questions that I would like to address. Since Mark is an IBC sales person, we expect him to answer our questions in detail and with real facts.
    Mark: Based on my personal experience–and that of our group–most financial advisers have no clue how IBC even works.
    Robert: That is because many advisors know it is wrong for consumers and would not take the time to learn it. Others have taken the time and have proven it to be mathematically bogus. And others take the word of their home office compliance department that tells them that IBC is not compliant and filled with errors and falsehoods.
    Mark: In fact, if their approaches were so good then why is it that the average baby boomer has very little saved for retirement?
    Robert: The average baby boomer now has enough saved for retirement since the stock market is at record highs. Mark is still back talking to people about the year 2008 when the market dropped.
    Mark: Even if I had $1 Million in a 401k and wanted $75k per year AFTER taxes, the account would only last about 10 years–maybe less.
    Robert: This is an opinion not a fact. Anyone setting up a retirement portfolio would have a balanced portfolio of staggered CD’s, insured short and mid-term bonds, guaranteed annuities, high dividend paying stocks, and a growth index fund to grow capital for the future. This portfolio will last a lifetime.
    Mark: In my case, my “top financial adviser” told us we would have about $1.2M in our 401k at this time. Instead, we have less than HALF that amount.
    Robert: I can’t imagine anyone with more than a 50% loss in the market when the market is at record highs. You must have the worst financial advisor in history to accomplish that feat. Get a new one.
    Mark: Finally if these advisers do such a great job for clients, I am curious why none have claimed the $100k waiting for them at the BOY site? If their plans are so good, they should be shouting them from the rooftops.
    Robert: Pam Yellen’s 100k reward is not real. No one could win it even if they had the right answers. Our attorney has advised us not to participate in it. Pam is the sole judge of the reward and her stipulations are impossible to comply with. If Yellen would choose a non-partisan judge, and have no stipulations other than which program wins, I would apply immediately. But she will not do that because it is only a marketing ploy.
    Mark: I believe Mr. Castiglione is assuming that the average middle class person has a ton of liquid assets and substantial positive cash flow outside of a job. Even in those cases, IBC should be PART of the overall financial plan. Any “top” adviser would recognize that.
    Robert: I assume that anyone with assets or without assets should not be involved in IBC. IBC is a losing strategy for anyone. It cannot win accept against the worst possible financial decisions. Having IBC which is bad is not a winning because it beats something that is worse.

  140. Robert Castiglione says:

    On another post by Mark on April 27th, I had suggested to that before someone speaks with an IBC sales person, that they meet with a life insurance professional and their CPA to discuss life insurance and IBC. Then, next, invite the IBC sales person to meet with them and their CPA for their presentation.
    Mark says: First, it is very likely that neither the NYL agent nor the CPA knows how the IBC works.
    Robert: It does not matter who goes first. I think it is a better for consumers when making an important life changing decision like this to hear both sides of the issue and having a CPA there to crunch the numbers.
    Mark: Once you “educate” them, both may try to talk you out of it. If so, ask them WHY and make sure they use FACTS and not OPINION.
    Robert: I have seen very little facts from Mark. Everything has been opinion or fluff about his firm and happy clients. When are the readers going to see facts about IBC to counter the facts that I have provided.
    Mark: Agents make substantially higher commissions when selling higher base premium policies. In our practice, we always put the client first and thus make lower commissions.
    Robert: This is not accurate. It is not worthy of a comment.
    Mark: We actually have life agents and CPA’s as clients. Once they understand the concept, a good number become practitioners.
    Robert: This is fluff. We cannot verify. It is not a fact. Every life insurance agents has CPA’s as clients.
    Mark: Please also be aware that even if an agent wanted to set up a plan, they may not have the ability to design one properly. NYL is a fine company but they do not train agents on the IBC concept. This I know from personal experience.
    Robert: You are correct. NYL does not allow IBC sales. They would if it was compliant.
    Mark: In the end, always act in your own best interests.
    Robert: Ditto

  141. Robert Castiglione says:

    Mark says: Tom, thank YOU for sharing a real life example of “thinking outside the box”. As I mentioned, we have CPA’s as clients. Others totally disagree with the concept and that is fine.
    Regarding home equity, with our college planning clients that is sometimes the only option to help pay for college. For those who have waited until the last minute, there is no other short term available that works as well as IBC.
    In fact, we have mortgage brokers as clients as well. One local to me serves as a consultant to clients and educates them on the use of home equity within the IBC. He has already put his daughter through college with his plan, so he knows whereof he speaks!
    By the way, you nailed it with the word “mainstream”. Generally speaking, if the majority is doing one thing, it is better to at least consider the other option. Personally I have always been a contrarian and that has suited me well over the years. I wish you all the best with your ventures.

    Robert: No comment here. This is more fluff. No real facts presented.

  142. Robert Castiglione says:

    Mark says: Dan, thank you for your post. You are correct that it is wrong to paint IBC agents with such a broad and negative brush.
    Our group consists of dozens of agents who can match credentials with most any other agency in the industry. There will always be a percentage of insurance sales people who are only interested in making commissions at any cost. Some will lie and cheat in the process. That is why there are insurance laws and regulations.
    More than once, I have been lied to by financial advisers. Again, I believe it is a small percentage that are bad apples. In each case, I reported them to the proper authorities and action was taken.
    I can only speak to our group and say that honesty and ethics are paramount in how we handle our individual practices.

    Robert: No comment. no real facts here.

  143. Mark Marshall says:

    Robert, I will let your replies speak for themselves. I believe most fair-minded people can see right through them. Your premise is full of contradictions and most of your “facts” are just strong opinions.

    You know full well that I cannot share specific details about clients. Instead, I HAVE shared details about my OWN plan and how it works. And the statements that I make about MY plan are FACTS. You simply choose to ignore them because these facts do not fit your agenda.

    Speaking of fluff, Robert says: “The average baby boomer now has enough saved for retirement since the stock market is at record highs. Mark is still back talking to people about the year 2008 when the market dropped.” Really? PROVE IT! Where are your “facts”to back this up?

    Also, what will these boomers do when the next crash occurs? Answer: lose money. It is easy for YOU to make these outlandish comments because you are in the small percentage of folks who are “all set” financially. Apparently there is a huge disconnect between you and the reality of the middle class.

    You also seem to forget about the 2000 crash. Most boomers were affected by that one as well. FACT: since 2000, the average mutual fund has made about 3-4% per year. How is that going to build wealth?

    From CNN Money, quoting Fidelity: “People on the verge of retirement, ages 55 to 64 years old, saw their nest eggs grow to an average balance of $165,200 from $143,300 in 2012, Fidelity said. Savers with both a 401(k) plan and Individual Retirement Account managed by Fidelity had larger nest eggs, with an average balance of $261,400, up from $225,600 in 2012.”

    Is that FACT enough for you? Please explain how a nest egg that size can last a lifetime and provide a substantial income at the same time.

    Here is a math question for you, Robert. If my account went down 40% in 2008, how much did it have to increase just to get back to break even? Most would say 40% but you know better, right? You know the answer is 67%. Feel free to dispute that mathematical FACT.

    Finally, most of our clients have waited until the last minute to put a plan together for college. Some have saved a little, some have saved none. How do you think their 529 plans have done since most were growing during 2008? Those people lost BOTH time and money and do not have time to make back either loss.

    At least we have provided them with a solution. You have offered NOTHING that would help these same people.

    To be clear and to repeat: IBC is NOT for everyone and it is NOT a financial cure all. However, compared to most other options that involve substantial risk, IBC can serve to add BALANCE to a person’s portfolio.

    Whether YOU believe my FACTS or not is irrelevant. I am confident anyone here considering an IBC will properly weigh his or her options and make the decision that is right for their situation.

  144. Mark Marshall says:

    “Mark: Agents make substantially higher commissions when selling higher base premium policies. In our practice, we always put the client first and thus make lower commissions.
    Robert: This is not accurate. It is not worthy of a comment.”

    Now here is a comment that I believe clearly exposes your agenda. YOU are the one who is not accurate and YOU know better. But, hey, let’s just disguise the truth to support our agenda, right?

    Since you like math, let’s do some. I will use one of MY personal plans as an example. Funding for the first year was $30,000. Of that, $4,000 went to base premium and about $1,000 to a term rider. the remaining $25,000 purchased a Single Premium Paid-Up Addition (SPPUA).

    On that case, the agent made about a $4000 commission. That is because SPPUA’s pay very little as a percentage and varies a bit from company to company. However, as the client, it gave me direct access to the FULL cash value of $25,000 the first year (this company charges no fees on SPPUA’s).

    Now if all of the $30,000 went to base premium, I would have a much larger death benefit but a much SMALLER cash value in the beginning. The only one to benefit in that scenario is the agent since the commission would be about $24,000-$27,000.

    Which is larger, Robert, all things being equal? Of course, you can argue that the total amount would NOT all go to base premium but what is to stop the agent from doing it that way? In fact, if the client NEEDED a large death benefit, then it may be a good option.

    However, assuming the agent knew nothing about IBC, it would never even come up in the conversation. After all, according to you, IBC is NEVER a good option. And all of our high net worth clients who have one or more are all utter fools, correct?

    Once again, feel free to dispute the math. Regardless of how you “alter the equation”, the traditional life agent will always make more than the IBC agent–everything else being equal.

    By the way, that is not necessarily a bad thing. It just depends on the context and always doing what is right for the CLIENT first and foremost.

  145. Robert Castiglione says:

    On April 29th Mark states: “Robert, I am confused. You say you believe in “traditional” whole life. Then please explain what you recommend to do with the cash value.”

    Robert: I would buy a traditional whole life policy that has a lower premium, higher death benefit, lower cash value, and higher dividends than an IBC policy. Then I would invest the difference in premiums between the traditional policy and the IBC policy. Since I own the assets outside of the traditional policy, I keep funding the assets with the difference to all of the overfunding from an IBC policy and the tax free dividends from the traditional policy . I can use these dollars to purchase items or grow my wealth. The rate of return on my outside savings will be immediately received from day one, while the cash values of the IBC policy build more slowly and may take a few years to have a positive ROR.

    My outside assets have more flexibility than cash values inside the IBC policy. I can spend all or part my assets without taking a loan, therefore I can replenish those assets without an interest cost as with an IBC policy that has to pay interest to replenish.

    I can offer my outside assets as collateral for a superior negotiated loan, whereby the IBC policy has no negotiation privileges or control over the loan rate. My outside dollars can be used to enjoy tax deductible strategies, whereby an IBC cash value can never receive income tax deductions.

    If tax laws change regarding the taxation of life insurance loans, I am not affected by such laws. I have no worries about my traditional policy becoming a MEC policy either. If the company changes the recognition of dividends on loans, I am pleased to receive the extra dividends in cash versus the IBC policy having its dividends cut. If I lose my job, I can use my outside dollars to pay premiums whereby the IBC policy would have to borrow cash values to pay premiums.

    One of the biggest advantages of the traditional whole life policy approach is that my outside assets are paid to my family in addition to the death benefit of my traditional whole life policy, unlike an IBC policy whose cash values are confiscated entirely by the life insurance company.

    There is much more to this strategy especially at retirement that provides me with greater control, diversification, a potential for a higher rate of return, more wealth, and less risk and hazards to worry about.

    Mark: What is the point in having it (cash values) if you do not use it?

    Robert: The point is you do not want cash values to be used, you want higher death benefits, higher dividends, outside assets, more flexibility, less risk, more control, by not using cash values. Yet, the cash values of the traditional policy are engineered to be recaptured at death by the outside use of assets, whereby there is no recapture of cash values with an IBC policy.

    You never really use the cash values of an IBC policy, nor do you ever own them. The only use they have in an IBC designed policy is to allow a negative loss of money by borrowing money from the life insurance company. Every loan taken has a greater interest rate loss than the cash values will earn.

    Marc: Since I never get BOTH the cash value AND the death benefit, why have cash value at all?

    Robert: You just answered your own question. That is why an IBC designed policy should be avoided. It accelerates the build-up of cash values that you do not own, lowers your death benefits, and converts tax free dividends to even more cash values. Additionally, the accumulated loans during retirement further reduce the death benefit and increase the cost. Mathematically speaking, IBC’s design must lose money for people while exposing them unnecessarily to major dangers and risks.

    • Mark Marshall says:

      Robert, thank you making this one really easy. First, you are making a ton of assumptions because you do not indicate what these “other” investments would be outside the policy.

      You also do not mention that the cash value is GUARANTEED, whereas investments are not. You ASSUME you can replenish the assets, even after a loss. Says who?

      Finally, regarding all of your tax law ramblings, you conveniently forget to mention that back in the 80’s those who had IBC’s already in place were GRANDFATHERED. Even though that is not a guarantee for the future, history is usually consistent.

      Since many of the largest banks in the country and many of the wealthiest people use over-funded dividend-paying life insurance as PART of their financial plans, your tax nightmare scenario is not likely to occur any time soon.

      Most of what you describe in your rants is THEORY and does NOT apply to most folks in the middle class. You are living in the Land of Oz if you believe that the average person has all these assets to invest. What works for you personally is irrelevant. I work in the world of reality, that is what is real and what matters to my clients.

  146. Robert Castiglione says:

    Okay Mark, I will play your game. You accuse me of not providing facts just strong opinions. So let’s put both of us to the test. I will list all of the facts that I believe are undeniable facts and not my opinion. The readers of this blog will want to hear from an IBC sale person whether my facts are real or just my opinion.

    I have no hidden agenda as you claim. My agenda is out in the open: I want to let readers know that IBC is not a good deal. I give them my reasoning and facts to support my claim. You are free to respond in kind:

    Fact #1. The IBC policy design lowers the death benefit while increasing the cash values by overpaying premiums. The base premium is a premium. The term insurance premium is a premium. The single premium PUA rider is a premium. The annual premium PUAs are a premium. And the extra payment to loan interest is a premium. All these premiums are paid with after tax out of pocket costs and contribute to the cost basis of the policy. Is this a fact or my opinion?

    Fact #2, IBC advertises that by using an IBC policy for financing with loans everything that you purchase, you will be able to recapture the cost and the interest on everything that you buy. This is totally false. Is this a fact or my opinion?

    Fact #3. IBC policy loans taken from the IBC policy are not income tax free as advertised. They are income tax deferred. Life insurance loans become taxable upon surrender or lapse of the policy. Pending how loan interest was paid on thee loans, the IRS could charge back taxes and penalty interest. Is this a fact or my opinion?

    Fact #4. The IBC policy cash values are not the CONTRACTUAL collateral for an IBC policy as advertised. The POLICY CONTRACT does not state that the cash values are the security for the loan. The policy contract states that the entire policy is the security for the loan. Is this a fact or my opinion?
    Fact #5. When you borrow money from an IBC designed life insurance policy, you are CONTRACTUALLY not borrowing money from yourself as advertised, You are borrowing money directly from a life insurance company. You owe money to the life insurance company and not to yourself. Is this a fact or my opinion?

    Facts #6. When you pay back an IBC policy loan with interest to the insurance company, your payments do not increase or grow the cash values of the IBC policy as advertised. If you borrow and pay back the loans with interest or never borrow from an IBC policy, you will have the same amount of cash values throughout all of the IBC policy years. Is this a fact or my opinion?

    Fact #7. When you pay the required loan interest (say 5.5%) to the life insurance company, your cost of the loan is that gross interest rate 5.5% for that year. The cost of the loan is not a net rate based on any earnings of any other assets including cash values? Is this a fact or my opinion?

    Fact #8. You can never access your cash values inside an IBC policy while it is in force. It just sits there. Only through the surrender of the policy do you have access to your cash values. A loan from an insurance company is not access to your cash values. Is this a fact or my opinion?
    Fact #9. Policy loans and loan interest are outright costs to the insurance company and are not premium payments, therefore they do not receive any credit for cash value or death benefits. Is this a fact or my opinion?

    Fact #10. Any extra interest payments (honest banker) made toward a loan in an IBC policy is not additional interest that you are paying to yourself. Rather, those extra payments are considered additional premium payments that go to new insurance and cash values, and increase the cost basis. Is this a fact or my opinion?

    Fact #11, At the death of an IBC policyholder, the life insurance company keeps all of the cash values and subtracts the outstanding accumulated retirement income loans from the death benefit. Is this a fact or my opinion?

    Fact #12. The IRS MEC rules were established to limit the amount of overfunding life insurance policies. IBC advocates overfunding to as close to the MEC line as possible. Any change in premium payments, dividend scale, term life insurance cancellation, dividend recognition, loan interest rates, could push the policy into the MEC territory. Is this a fact or my opinion?

    Fact #13. Life insurance companies can delay loan payment s to an IBC policyholder for up to 6 months as stated in the life insurance policy contract. IBC states that these loans are available without delay. Is this a fact or my opinion?

    Fact #14. Policy loan interest from an IBC policy is not income tax deductible. That is the tax law. Is this a fact or my opinion?

    Fact #15. A variable loan rate can rise dramatically in an inflationary time. This loan rate increase can make carrying the IBC policy during retirement more expensive. This is a risk that every IBC policyholder takes and must be warned about it. Is this a fact or my opinion?

    Fact #16. Policy loans may become income taxable or penalized in the future similar to what they did to annuities. Each loan could be a FIFO taxation and possibly penalized before age 591/2. This is a fact that has already been discussed in Congress. It is not guaranteed to happen, but because IBC policy design is loan based, this hazard needs to be explained to every future policyholder and signed as having been explained by the agent. Is this a fact or my opinion?

    Fact #17. If loan rates rise, there is no contractual guarantee that dividends will rise accordingly, as a matter of fact, the dividends could drop as loan interest rates rise. This would directly affect all IBC policyholders severely. This hazard needs to be explained to every future policyholder and signed as having been explained by the agent. Is this a fact or my opinion?

    Fact #18. The future dividends on an IBC life insurance policy are not guaranteed. No one should make projections of future dividends for the purpose of paying future interest costs on policy loans. This hazard needs to be explained to every future policyholder and signed as having been explained by the agent. Is this a fact or my opinion?

    Fact #19. The life insurance company has the right to change the dividend recognition stance it has taken. If they do take this direct recognition stance, than IBC policies will see their dividends cut dramatically. This hazard needs to be explained to every future policyholder and signed as having been explained by the agent. Is this a fact or my opinion?

    Fact #20. IBC life insurance policies are not guaranteed. To say IBC policies are guaranteed is in violation of the insurance rules and regulations. Mark erred when he stated states in his April 29th post “In FACT, the ONLY vehicle currently available that keeps your money 100% safe–while earning on a guaranteed and tax-deferred basis–is an IBC plan.” IBC is not safe at all. It is highly speculative based on the facts and hazards mentioned above. No one should be thinking that the IBC policy is 100% safe. Mark, I’m sure you have good E&O coverage, you might need it.

  147. Mark Marshall says:

    Robert, let’s keep this simple. First, I am not playing any games. You just do not like to admit when you are wrong.

    Second, I can only speak about MY plans and those of my clients. Many of the handpicked points you stated above are correct and do not take anything away from the value of these plans. Instead, they actually support how the plans work and I am careful to explain all of the aspects of a plan with my clients.

    Before your ego gets any larger, anything correctly stated in your facts post are THE facts and not YOUR facts. The problem is this: whenever someone tries to correct you, you go on the attack. That does not further the conversation and is not constructive.

    Third, you are WAY out of line with your supposed FACT #20. My contracts–and those of my clients–all contain a schedule of GUARANTEED cash values. What else can that mean? Or are the insurance companies lying and misleading as well?

    I will now address just two of your statements that are incorrect. This is for the sake of time and bandwidth. Most of your statements are just a rehash, ad nauseum.

    “Robert’s Fact #2, IBC advertises that by using an IBC policy for financing with loans everything that you purchase, you will be able to recapture the cost and the interest on everything that you buy. This is totally false. Is this a fact or my opinion?” Nice attempt at a twist on this one. I do not know who “IBC” is. With MY policies, I use loans for large purchases and pay them back with interest. By CONTRACT I pay the insurance company 1% more than they credit to my cash value. That is FACT and how it works. I make no claims otherwise.

    “Robert’s Fact #7. When you pay the required loan interest (say 5.5%) to the life insurance company, your cost of the loan is that gross interest rate 5.5% for that year. The cost of the loan is not a net rate based on any earnings of any other assets including cash values? Is this a fact or my opinion?” Why do you insist on twisting again? Let me make it simple for you. When I borrow $10k, the company sends me the money from their general fund and I pay them 5.5% in this example.

    At the same time, the company credits me 4.5% on the $10k of cash value. The difference is 1%. If I paid the money back in one year, I would owe the company $550 and they would have credited me $450. Therefore, my cash value has GROWN in spite of the loan. Why is that so difficult for you to comprehend? My bank does not do this. Does yours?

    In addition, I have FULL access to that same $10k AGAIN once the loan is repaid. And it is not “imaginary” money as you have stated earlier. It REALLY shows up in my bank account for my use.

    That’s enough to show again that any of your facts that are accurate are THE facts and not YOUR facts. The two examples above show that you are incorrect because you choose to twist how MY plan and those of my clients work. One of your tactics is to slant the explanation of a FACT in a way that makes it look BAD or NEGATIVE. Fortunately, my clients are smart enough to know the difference.

    In general, your references to “as advertised” do not apply to me. In the end, THE facts are known to me and to my clients. You call some of them “hazards”. I call them trade-offs. Unlike you, I trust contract law and the companies who design and implement these plans. Since these are all well-established MUTUAL companies, they must serve the policyholders or face the consequences.

    If, in FACT, these plans and the promoters of them were as bad as you make them out to be, the authorities would be all over them. The concept is not new and these plans are used by some of the ultra wealthy and some of the largest banks.

    If the sky falls–as you predict–we will be in good company. Good luck with your crusade. Your words on this blog–as well as mine–will speak for themselves. Let the audience decide.

  148. Robert Castiglione says:

    I have given this blog absolute mathematical proof in my April 11th post that IBC is the worst alternative to financing anything. Leasing vehicles beats it, bank loans beat it, paying cash out of savings beats it, and of course real financial planning beats it: Here were the mathematical results at age 65 from the IBC book using all of the data supplied by IBC.

    Leasing Method $311,029
    Financing Method $357,136
    Paying Cash Method $339,716
    IBC Method $225,212

    Notice that Mark has NOT responded to the most important fact of all – the mathematics showing that IBC losses to all financing alternatives. That has to be a shock to all IBC fans. No matter what the case data will be, IBC will always lose when valid mathematical models are used to measure the results.

    Mark writes: ‘Please elaborate on the no-loss investments you use with your portfolio. Except for certain property investments, name ONE that is 100% guaranteed against loss.”

    Robert says: Of course I did not state that my investment were 100% guaranteed against loss. Those are Mark’s words. Here are the tools that I like to use, including life insurance and real estate investments.

    Treasury Bills Certificates of Deposit Insured Short Term and Mid-Term Municipal Bonds Single Premium Annuities Qualified Plans (IRA) and 401(k) Structured Investments 80/20 Index funds averaging about 7% Rollover Roth IRA Put options and stop lose orders on stocks Automatic Rebalancing of stock portfolio at % change set points Secured Mortgage loans

    When I use these tools and apply the LEAP Strategic Allocation Model, losing money is almost impossible. The problem with most people is that they do not invest with the idea of not losing, they invest with the idea of winning. Risk should be minimized and avoided at all costs. The first four tools are insured and safe, and the capital remains intact. Only the yield from those assets get invested. No money we earn should be at risk, only the interest from other people’s money.

    Qualified plans are already tax advantaged so you should not put stocks or mutual funds in them. If you receive an employer match, you should invest and only risk that money but not your own. You can’t lose that way. I have advised people to do this for years and they have been very happy with the results with total peace of mind and no losses. When they retire, they will not pay any income taxes for they will roll over to a Roth IRA. The taxes for the Roth rollover will be paid by other people’s money by a strategy that we set up in advance.

    Annuities are guaranteed and insured. The payout is higher than most other income sources. That income also funds other investment opportunities.

    80/20 Index funds are amazing. They drop in value less than they have gone up more in value. The buoyancy keeps the money balanced but with income and growth.

    Structured investment are insured not to go down but are limited to the upside to 14%.

    Put options and stop loss orders may be used frequently. They are like insurance policies to protect any major down side losses. They are not used to make money but only to protect it.

    Secured mortgage loans are good secure source of income.

    Rebalancing is not the portfolio type that you hear about. It is the assets that are being rebalanced. It actually works off the concept of buy low/sell high. It is not trying to find low or high points, but provides a balancing of over all assets types.

    Mark says: “Speaking of taxes and inflation eating your money (in an IBC plan), that EXACTLY describes a 401k and an IRA. Depending on the timeline, a person can end up paying 3-5 times MORE in taxes than what they saved. How is that working out for the average investor?”

    Robert says: Mark is spouting out what is advertised from IBC. 401(k) and IRA are the most productive assets to own. But you must know how to set them up and use them when needed. There is absolutely no reason to lose any money or pay income taxes as mentioned above.

    Mark says: “To date, you have offered ZERO alternatives to the IBC. How does that help anyone?”

    Robert says: I have laid everything out. You have to read all of my posts to understand it. It is there in black and white. But the most important suggestion is, do not buy an IBC type policy, you will mathematically lose because the math IBC uses is hype not reality, and that is without any of the dangers and hazards occurring.

    Mark says: “Many of your “facts” are just strong opinions and do little to advance the subject. Instead of saying the same things over and over again, why not consider offering alternatives for the readers here to consider?”

    Robert says, the subject matter in this blog is not about other financial alternatives of which there are hundreds. It is whether IBC is a good or bad strategy to use in your financial life. The answer I believe and have tried to teach here is that it is not. It will financially damage consumers over the long haul. That means that you can use just about anything else and beat IBC.

  149. Mark Marshall says:

    Mission accomplished–finally! After all the repeat posts, we finally know what Robert does to invest as alternatives to the infamous IBC.

    Now the readers can decide what is best for them. The story here has finally been advanced. It took a while but Robert finally came through.

    Following are some parting thoughts and then I am out of here. Bigger fish to fry.

    1. Regarding Robert’s math: it is mainly theoretical because it cannot be proven with certainty. He also assumes that everyone has equal access to credit and other alternatives.

    2. “Robert says: Of course I did not state that my investment were 100% guaranteed against loss. Those are Mark’s words. Here are the tools that I like to use, including life insurance and real estate investments.”

    Robert, here are YOUR words: “My qualified plans do not lose money. My mutual funds do not lose money. And my stock portfolios do not lose money.” That sure looks like guaranteed against loss to me. Or are we twisting words again to make a point? ALL investments lose either value or real cash from time to time. A loss is a loss. Simple math.

    3. For qualified plans, Robert apparently is not aware that many of them are “imprisoned” by the employer such that the employee has limited choices for investing. In addition, funds can often not be moved to safer vehicles like annuities as long as the employee continues to work there.

    In my wife’s case, she has been with her employer for 25 years. She has limited choices within Fidelity even though they have hundreds of options. She is 61, yet the company will not allow her to roll over to an annuity, even though Fidelity offers them. In that sense, all those funds are hostage and just waiting for the next market correction or crash.

    How’s that for reality, Robert? The government, Wall Street and the banks are NOT our friends when it comes to qualified plans in the workplace.

    4. Finally, now that Robert has revealed other options, he is absolutely correct that what he outlines COULD BE additional options as part of a balanced portfolio.

    As we meet with clients, we educate them on these and other options. However, implementing first requires assets or cash to work with. As I have stated previously, the majority of people in the middle class (our primary market) are not doing as well as Robert thinks.

    Our specific market is families who have waited until the last minute to pay for college and are risking having even less for retirement as a result. Based on our experience, there is generally NO other option that can handle the short term challenge as well as help with longer term goals than IBC.

    Now that the cards are on the table, I encourage the readers to look at ALL available options based on their specific situation and act accordingly.

    Many thanks to Jacob for starting this blog and to all those who have contributed. Thanks to Robert as well for finally revealing some valuable options. Ciao for now!

  150. Robert Castiglione says:

    I want to thank Mark for taking the time to provide readers an insight into how IBC people think and what their belief structure is. I believe Mark is a good man, and I forgive him for his personal attacks on me. Mark is enthusiastic and emotionally committed to IBC. It appears no one will be able to change that.

    I have lived 45 years with savings and investments and have done quite well over time. The success factor is not based on WHERE you put your money, it is based on HOW you put it. I teach the HOW. The WHERE you should put it, without the HOW, is a lost opportunity. When I stated that my investments do not lose, I did not mean that they are 100% guaranteed not to lose assets. I assumed that everyone on this blog was intelligent to understand that difference.

    Before I leave this blog, I want to teach everyone a very important concept for you to contemplate. This is not an easy one to absorb at first, but if you study, it will be the difference between winning and losing with insurance strategies:

    THE DEATH BENEFIT ALWAYS HAS A HIGHER RATE OF RETURN THAN THE CASH VALUES.

    Therefore, if a life insurance company were to give you a choice at age 65 from your policy of either receiving a check for the death benefit or the cash values, which would you choose? (This is not a trick question).

    I hope all of you chose the death benefit check. 1. It would be substantially larger sum of money. 2. It would be income tax free. 3. The cash value check would be smaller 4. The cash value check would have income taxes to pay on it.

    IBC believes that having more cash values in a whole life policy is a winning strategy. That is clear to all of us by now. You also know that they lower the death benefit and pump the overfunded premiums into cash values of a PUA rider.

    At first glance, by a novice eye, this looks pretty darn good. The earlier ROR is better per premium dollar to cash values than a traditional whole life policy But of course because it cost more premiums).

    But a wise person would ask, “Are the cash values really your money?”
    The truthful answer is, NO, the cash values are not really your money. It is like a mirage that the closer you get to it, the further away it moves. I know this is advanced thinking and an advanced concept for people who are new to whole life insurance to absorb. So let me help explain it.

    The proper name for cash value is called the CASH SURRENDER VALUE or LOAN VALUE by insurance contract law. Those are the only two ways to have access to the cash values.
    When you cash surrender for your cash values, you are giving up all the benefits of the policy. You and the life insurance company no longer have a relationship on that amount of surrendered cash value.

    When you use the loan value, you are not actually getting access to your cash values. You are simply applying for a loan from the life insurance company. The life insurance company limits the amount of the loan to the amount of your cash surrender value. This protects the life insurance company from defaults.

    At your death, the life insurance company keeps all of the cash surrender values. You surrender!!!
    I will try to make this example so simple that I think everyone will understand it:

    Say the IRS allows an IBC life insurance policy with a death benefit premium of $1.00 and you a SPPUA of $50,000. The $1.00 of annual premium buys $100 of death benefit and the SPPUA rider $100,000 of death benefit.

    If uou were to die, your family would receive $100,100 ($100 + $100,000). The $50,000 of cash value of the SPPUA is lost to the life insurance company. You surrender it.

    If you live, and need $50,000, you borrow money from the life insurance company @ 5.5% (variable) which is a loan interest cost of $2,750 every year (variable). Meanwhile, your cash values are growing at an average annual rate of 4.5% per year for a net loss.

    If you now die with an unpaid loan, your family will only receive $50,100. ($100 + $100,000 – $50,000)

    Now you meet with another life insurance agent to compare. He advises you to take your $50,000 and purchase a Certificate of Deposit @ 3%. (Guaranteed and Insured)
    Each month you receive interest of $125 ($1,500 annually) which you automatically have sent to your checking account at the same bank.

    The life insurance agent signs you up for a traditional whole life insurance policy with an automatic premium payment of $125 per month being paid by the interest from the CD in your checking account. The policy has a death benefit of $150,000.

    If you die, your family now gets $200,000. ($150,000 from the policy and $50,000 from the CD.) There is no loss of the cash value like there was with an IBC policy that lost $50,000. Your cash value was invested outside the policy so it can’t be lost and it was insured and guaranteed.

    If you live, and need $50,000, you borrow money from the bank using your CD as collateral @ 4% fixed interest for the term of the CD. The loan interest cost is $2,000 every year (fixed). Meanwhile, your cash values are growing at an average annual rate of 4.0% per year inside the policy by age 65.

    You also now have $750 of additional money to invest in the stock market that the IBC person does not have. There is no risk because this money is a recapture of an opportunity cost from the IBC loan interest expense ($2,750 – $2,000). This $750 could be a substantial sum over a long period of time.
    If you now die with the collateral loan, your family receives $150,000 plus the value of the $750 per year account.

    Please study this oversimplified example and try to understand the concept. There are hundreds of financial moves that can be coordinated like this to make IBC look silly, and it is. Why anyone would give up their cash values to a life insurance company just for the right to borrow it back from the company at high interest cost. That is not a living value it is a living liability.

    Good luck to all. It was nice meeting you.

  151. One thing that has bothered from the very beginning of reading the BOY material especially, and also the IBC material from others, it that they did make it sound like 1) the interest you pay back does go to your cash values directly when taking out a loan, 2) that you recover the interest you pay by getting an added bonus of dividends, and 3) they don’t explicitly say that the cash value is available to you – except by surrender if they even share that…

    Regarding 1), interest is paid to the insurance company on money they lend from their fund, not from your cash values. If you overpay the interest, it buys PUAs that will increase your cash value…allowing you the capability to replenish and borrow again. ( The issue though is: will borrowing from the policy outperform other forms of financing??) 2) the added bonus is no bonus at all…just a return of a portion of your premiums…and not guaranteed.
    3) it took some digging (not being an insurance professional) to realize that the cash value is not treated the same as with a VUL policy…with a VUL you get the cash value on top of the base face value death benefit.

    I recently met recently with Bob Castiglione (prior meeting 1988) to discuss my understanding of IBC within the framework of my financial objectives. Not only did Bob fill in the blanks on the previous gaps of understanding I had from my previous meeting years ago, but he opened my eyes on many ways my objectives could be met. Very instructional, very detailed analysis. I can say this in all fairness to Bob, nobody in the financial planning industry has ever provided the kind of in-depth macro-economic analysis on my financial objectives the way Bob does. And I’ve met with quite a few over the years….online and offline.

    The bottom-line is the numbers don’t lie, and there are things I learned that I could be doing better – and plan to make changes. One needs to have the right kind of analysis on their plan in order to see areas that can be improved or optimized.

    I also realize that for many folks like myself who were strongly supporting IBC, that it could be an option when compared to other less favorable options – BUT it is likely not the best plan.
    I’ve always included it as part of a hybrid model, but now see improvements that I could be making after discussing with Bob. For me, not having access to the cash values is a big issue, and if there are better ways to utilize the cash value vs just financing loans, then for me that makes better financial sense. My situation is specific to me, so that does not mean it would apply to others….but the knowledge gained from Bob’s instruction is critical to me taking the right steps.

    All I can say is THANK YOU Bob for taking the time to help me understand better the pros and cons of my current planning efforts.

  152. Robert Castiglione says:

    Hello Thomas:
    Thank you for your kind and unsolicited words. I am very pleased that I was able to help you with your insurance and financial program. Now that you have a better understanding of your insurance, savings, and investment assets, you are now well positioned to make more intelligent decisions and winning choices in your financial life.

    I hope the readers of this blog can learn as you have, that the insurance banking concept is a losing strategy for the majority of consumers. There is no doubt using life insurance as your own bank is very confusing, not by the complexity of the concept, but by the total misrepresentations and misleading information that the “banking” agents put forth, both verbally and in writing.

    For those of you considering an “insurance banking” type policy, the best advice I can give is stay away, and for those who are already in such policies, try to understand the dangers and the misconceptions that you might have. Visit with an experienced life insurance agent to help you undue the “banking” design. Or, you can use this blog to get answers to any of your questions.

    I will continue to add more posts as time goes by or when there are questions coming in. Honest and ethical communication is by far the most valuable asset that anyone can own. I wish Thomas and all readers of this blog a very happy and successful financial life.

  153. Mark Marshall says:

    I would add that Bob’s program is also most likely not for the majority of consumers. There is no such program. All strategies involve risk. The key is managing the risk.

    As an owner of a safe money plan and as a professional advisor, I can only speak for myself in saying that I never mislead or misrepresent our plans.

    Our group has thousands of happy clients. For them, a safe money plan is anything but a losing proposition.

    If anyone here has a better plan for families with children in high school to comfortably pay for the high price of college, I am all ears. If there WERE a better plan, our group would be using it.

    IBC has a role for SOME consumers as part of a BALANCED portfolio. Our plans work EXACTLY as designed.

    Rather than “stay away” from these plans, my advice would be to seek out a professional who SPECIALIZES in them and not just any general insurance agent. Always act in your own best interests and always do what is right for YOU.

  154. Agreed Mark. I am not an agent but only a holder of 3 policies, our oldest being 5 years old. They are working as designed which in the process allows us to access to that money. Maybe in 20 years down the road I won’t be happy with them but to date I only wish I would have started a policy much sooner.

    • Ditto. Got caught up in the 2008 market demise. Watched 25-30% of the 529 money vaporize. Part way through it all re-allocated to a more conservative position or it would have been worse. But still, not conservative enough.Who knew it would get that putrid? With the 529 rule on 1 reallocation per year, well that was all she wrote. Yeah, yeah, I know the old battle cry – “it all comes back eventually”. And it did for us for the most part as well, but not soon enough. Had the tried and true mix of “growth & income, growth, international” (no, I had no “aggressive growth”). I consider myself to be the textbook example of the argument that says – it really dang matters when the crash happens. Have 2 policies and I can’t say I’m displeased in any way. I suppose it’s possible that later, I might be, but mighty darned happy now.

  155. Mark Marshall says:

    Lisa, thank you for sharing. No one can predict the future. There are constant references here to POSSIBLE tax code changes.

    Historically, any changes usually apply going FORWARD and existing plans would most likely be exempt.

    Lately, Congress seems to have more of any eye on 401k’s and similar plans. Personally, that is more of a concern to me since trillions are at stake. Only time will tell.

  156. Robert Castiglione says:

    Welcome back Mark. We missed you. I’m glad you’re back because we need an IBC, BOY, or Safe Money Plan representative to debate. Otherwise, it is all one sided and not much fun, even though it is always informative to the readers.

    You state in your post, “As an owner of a Safe Money Plan and as a professional advisor, I can only speak for myself in saying that I never mislead or misrepresent our plans.”

    Well I went back to all of your posts on this blog and found many of your statements that are simply not true or in error. In that regard they are either misleading or a misrepresentation. Let’s take them one at a time.

    Mark writes: “Why not borrow from YOURSELF with interest and while earning interest at the same time.”

    Bob’s evidence: When persons take policy loans, they are not borrowing from themselves. They are borrowing money from an insurance company. It is the insurance company’s money that is borrowed and owing. Evidence: Loan provision in the contract.

    Bob’s evidence: Policyholders who take policy loans are not in any way shape or form paying themselves the loan interest. All loan interest payments go entirely 100% to the life insurance company. Evidence: The loan provision of the policy.
    Bob’s evidence: Policyholders earn no interest of any kind on the principal or interest payments to the life insurance company. Evidence: Policy loan provision and any life insurance illustration
    Mark writes: “I ask you now–all things being equal–where can you get a net 1% loan for ANYTHING today?”

    Bob’s evidence: a policy loan requires the full payment o