Episode Transcript
[00:00:00] Speaker A: Foreign.
[00:00:11] Speaker B: Welcome to wealth on Main street, where conversations about growing your wealth are fun and entertaining. Wealth isn't just about money. It's the skills and the knowledge that we develop to pass on to future generations.
Tune in each week to grow your mindset and your net worth at the same time.
[00:00:36] Speaker A: We got this email from one of our teammates, Shilpa, who said, you guys need to have a conversation about these questions, these frequently asked questions. And Rich and I, well, we're like, well, we've frequently answered them.
And so
[00:00:54] Speaker B: when you do the same question multiple times, I think frequent is the correct, correct definition of what that means.
[00:00:59] Speaker A: Yeah, exactly. And so let's just dive right in. Now this of course is in relation to The Infinite Banking Concept, the process of Becoming Your Own Banker that was pioneered and developed by our late mentor, R. Nelson Nash, who wrote the books titled Becoming Your Own Banker and Building your Warehouse of Wealth. If you don't have either of those two books, you have an opportunity. Add them to your wealth building library without hesitation and you can thank Rich and I later.
Okay, so let's dive right in. So Rich, question one is, am I too old to start?
[00:01:38] Speaker B: The answer is no. If you got two feet and a heartbeat, probability is that you're doing banking, I suppose you can do it if you have one foot.
The heartbeat is required however.
And then yes, you're probably doing banking in some way, which means the concept could work for you. Yeah. Is it right for you? That's a different story. That's up to you to determine by doing your research.
[00:02:00] Speaker A: Right. Yeah, it's a really good point. And am I too old to start can fall into a couple of different categories. So if you are the proposed life to be insured on the policy, which is the tool that's used to implement the process, then unless you are already celebrating your 85th birthday or you're not even born yet, there's absolutely an opportunity to explore being the proposed life insured. But there is a cap there at age 85.
And if you're wanting to implement the process, but you're okay with owning the insurance contract or the system of contracts, then you do not have to be the life insured in order to be able to implement this process. And we only, we not only see that around age dependent questions, but we see that around just helping people understand that the process of Becoming Your Own Banker is not age dependent. And so have a, a really thoughtful conversation with an authorized infinite banking practitioner and just explore what the best structure is, not just an implementation of the process, but the structure of who should own the policy and who should the life insured be? It can be the same person. It doesn't have to be.
[00:03:28] Speaker B: And to expand on that, Nelson has a page. Page 82 of his book is what if I'm uninsurable? Right. So with age often comes health maladies to some degree. Right. Usually people aren't getting healthier as they age. It's usually the opposite. Okay, right. Despite all of our good efforts, you know, the body tends to let you down eventually at some point in time. That's. That's what I'm told. Anyway, being that I'm in my mid-40s, I have discovered it also personally, in case anyone's wondering. And so, you know, what if I'm Insurable talks about an individual who was an uninsurable father, in this case 50, funds a policy on daughter for 20 years, then uses policy loan to basically take out everything he put in to augment or as a passive income, and then leaves the policy to daughter and daughter also creates a passive income off the same policy.
And the result is it works for both of them. And so he has an example of that right in the book. Now, Nelson himself at the time he started this, well, he had policies from early on, but they were much smaller, Much smaller. And then he started really growing that in the early 80s. And at the time he started doing this, he was in his early 50s.
And Nelson became uninsurable himself because of a quadruple bypass heart surgery. And I believe it was 87. Right. Jason, does that sound about right? Yep, 1987. So from that point forward, he was uninsurable, but he continued to acquire policies on other human beings in his family. That's right. So he didn't stop doing this. When Nelson passed away at age 88, just not long after his 88th birthday, he would have said 88 revolutions around the sun. And about four or five months prior to that, he had taken out a brand new policy for $2,000 a year on a great grandchild. So he knew he wasn't long for the world, he would graduate soon. It didn't stop him from acquiring new policy assets that he could transfer down to his family line.
[00:05:24] Speaker A: That's right.
[00:05:25] Speaker B: That's a perfect example.
[00:05:26] Speaker A: Yeah, it's a great example. And in our own family, we, over the past 19 years, we've piled up 77 policies with 27 individual lives insured. So it's another sharp example of what Nelson would refer to as being well diversified in lives insured.
And so next Question.
Is it too late for me?
[00:05:53] Speaker B: It might be too late for you. If your brain is frozen and you have the arrival syndrome, if you're coachable
[00:06:00] Speaker A: and
[00:06:03] Speaker B: you're willing to do a little bit of effort and some research and read a book and meet with a coach and go over your circumstances, then, yes, you could do this. It's not too late for you. So just like we said, Nelson, 88 years old, bought a policy four or five months before his 88th birthday. It wasn't too late for him.
So if you think that everything stops all of a sudden at 88 and then you're not going to continue doing things like what changes for people, Jason, is their priorities and their thought processes on what's important to them.
So if you're in your, let's say, 70 plus horizon, your thought process may be slightly different on what you would want this to do for you or for your family. A lot of people shift their mindset and their thinking and their focus on what is the legacy they're leaving behind. What does that look like? What does it look like financially? What does it look like emotionally and contextually for the people I love and care about? But if you're, let's say you're 70 years old and all you're thinking about is, oh, can I use this to help fund my retirement?
Well, you may have been a little late to the game in that scenario because if you haven't done any pre work and we have to make up for 70 years of a lack of putting things away, you know, this isn't a magic pill that you can take that's suddenly going to solve all your problems. It's, it's not going to do that. But if you have cash flow, you have some asset resources and you have the important mindset that you want to create a structure that allows things to continue so you can use it. And when you're gone, others can also use something or you can create this, this longevity of, of continuity within your family line. We actually have an event that we're going to be hosting that speaks to that very thing, the family forum event. And so you absolutely could be doing this. But if you're starting with nothing or you don't have, you don't have any existing savings and you, you're not sitting in a good cash flow position, this isn't going to solve that for you.
[00:08:02] Speaker A: In addition to all that, I look at it through the lens of being very clear in distinguishing between the process and the tool that's used to implement it.
So if regardless of age, if you were to walk into a conventional bank and ask the same question, is it too late for me to become a customer of the bank? Well, the bank is going to say, well, provided that you still need the use of money and you have to have a medium of exchange and a method of paying for your goods and services that you'll be consuming, then it is absolutely not too late for you to become a customer of the bank. The tool used to implement the process is that is age dependent, related to the life insured.
But the policy owner, much like we described earlier, there's a distinction there. The policy owner and the life insured can be the same person, but doesn't have to be.
And that's something that people just simply aren't immediately aware of. And so it's a really good question.
Third question, which I think we covered is does age matter? I think we've been very clear on, you know, the distinction there.
[00:09:19] Speaker B: I want to add one context to does age matter? So does age matter?
Where it matters is like you identify Jason, who's the life insured? And so you have a person who is 60 years old.
[00:09:32] Speaker A: Yeah.
[00:09:32] Speaker B: And then you have a person who's 20 years old and they're putting the same $20,000 a year in annual premium that they want to commit to their system. Right. Well, the 60 year old will get less death benefit and the 20 year old will get more death benefit. It's the same 20,000 of cash flow. So the cash flow doesn't change that the person is working with. What changes is how much death benefit value gets created and then a little bit maybe on how it's distributed inside of the makeup of the policy design based on the insurance carrier's rules. But the cash flow doesn't change and matter for your age. What you might get as far as a total starting death benefit does, cash accumulation doesn't vary drastically between those two people either.
Other than that the 60 year old has 40 more years to 100 and the 20 year old has 80 more years to 100. So ergo they have more compound potential in mathematical time.
[00:10:29] Speaker A: All true. How much money do I need to get started?
I don't think getting started involves first thinking about how much money do I need. In my humble opinion, it all begins with desire. Much like what Nelson describes in his book titled Becoming Your Own Banker.
And when a person develops the desire and says, yes, I definitely want to get started, there's two elements that answer the question, how much money do I need to get started? The first element is that you have to be spending less than what you earn. That is the financial posture that you need to be in. And the second element is that whatever amount you decide, the answer to the question is, how much money do I need to get started?
The answer is, what is comfortable and what is affordable?
It must check both of those boxes, or you have to adjust one or the other.
It could be comfortable, but you're not checking the affordable box. It could be entirely affordable, but you're not quite yet comfortable.
Well, then the amount is off, even if it's affordable, you know, so you have to be able to check both of those boxes with the. The authorized infinite banking practitioner that you're working with. And that's where you start. And this is meant to be a system.
It's not meant to be achieved through the device of a single policy.
You should eventually ensure everyone that you have a beneficial interest in.
[00:12:09] Speaker B: And I want to expand on comfortable. Cause I like the way you describe that, Jason. Comfortable. When you're just starting this process and explored it, you just heard about this yesterday.
You might have a very different context of what that comfortability feels like versus after you read the book, after you watched maybe a webinar or a couple of our client podcast episodes, or you've, you know, you've watched the Nelson documentary film.
You've done a little bit of effort because you're making a decision about a lifestyle that you're going to embrace financially for you and your family.
Take a couple of hours of energy and apply it to the effort of getting comfortable.
Then you meet with an authorized practitioner. You have a good discussion. You find some questions that you have that you want to dive into. You get clear on those things. You see a couple of examples, and that person has most likely been trained to understand your different financial dynamics and how they might, you know, coalesce. And they can say, oh, I see this, and I see this, and I see this. I've seen these things before.
I know there's a way we could put this together that would allow you to make. To create this type of an outcome, and then they can explain how that might work for you so that you can have clarity. Clarity can increase your comfortability very, very quickly. So that only happens when you can meet with someone so that you can get to that level of clarity.
[00:13:30] Speaker A: Oh, yeah. Clarity is the primary ingredient of comfort. The next question, what is the minimum premium?
We have clients that contribute as little as $100 per month on a juvenile policy. That would be a policy that they purchase on the lives of their children, their grandchildren.
And we have clients that pay more than seven figures a year in premium, including me. My premiums are 1.569 million a year, soon to be a little higher.
And so we always say that if you're somewhere in between those two numbers, we can help you.
And what people develop a deep understanding of when they go through our process of being educated and resourced on this process, they develop a deep understanding that this all begins where you, the potential policy owner, determines, is the best starting point for you.
Does each insurance company have a minimum premium in terms of what is the smallest starting face amount or death benefit of an insurance policy and what is the corresponding premium? What would that minimum threat be? Absolutely. Every insurance company has that, but that's their minimum. And so what your minimum is, as we mentioned earlier, has to check both boxes of comfort and affordability.
[00:15:09] Speaker B: And working with a coach, you'll help discover and understand that. And they've had experience figuring out, okay, well, what's actually happening with your cash flow in your life. Like, there's things that you don't necessarily always think about that are happening, that they have an idea on how to see and show you a different way of looking at it, because they have experience in doing that. And to take this one step further, you know, the minimum amount would also have some relevance to again, the age of the life insured person. So what does that output going to look like depending on who we're insuring? So there can be some relevance there. And like as an example, I have a gentleman, he's in his late 40s, he's about to apply for a corporate policy.
That policy is going to be a little over $100,000 a year.
But his minimum requirement on that one policy will be around $30,000 a year. So he has a minimum and he has a ceiling.
But the total he's looking at, what he's wanting to contribute is the $100,000 number. And he knows the dynamics between the minimum and the maximum. Similarly, I have a gentleman that I met with recently, nice man, exploring us for the first time. He's in his very early 60s.
It doesn't have the same cash flow position. Had to hit the reset button back in 2008. Jason, we had some stuff that happened back in 2008. Right, sure. Do you know some people that had to hit the reset button?
Quite a few, yeah. So that happened at an age of life where they're, they're still plugging away at, you know, that rebuild process and good, you know, good, good on them, good for them. So starting at that point in time, coming into this equation, they, they're maybe looking at a budget of around $1,000 a month that they can work with presently. Well, in order to get that started, because he actually needs insurance, needs coverage to protect the family and the situation. We're probably looking at a 350 to $400 minimum just to get that done with the budget they have and how it all puts together.
Because there's a bunch of uniqueness in their scenario now that will be different for every person because your life, your financial situation is different than the person next to you. That's why you need a coach to be able to assess that logically, look at it from a pragmatic standpoint, and help you understand your own circumstances.
[00:17:22] Speaker A: Yeah, it's very true. This next question is so good. Can I start with a smaller policy and increase later?
Yes.
And where most people want to begin is trying to achieve this through the device of a single policy. How do I create the biggest policy that can accommodate the most amount of capital out of the gate? And we would both suggest to you that that is not the right approach because that takes away the diversification in ensuring the lives of people that you have a beneficial interest in. It's moving too quickly.
Now, of course, the death benefit of the policy has to have merit. It has to be associated with a justifiable need.
[00:18:13] Speaker B: Otherwise the insurance company won't agree to it. They're a party to the transaction and they say this needs to make sense.
[00:18:19] Speaker A: Totally.
[00:18:19] Speaker B: Kind of seems a little iffy. I don't think we're going to approve it totally.
[00:18:22] Speaker A: And that's why when people that we sit down with and they say, well, hey, you know, we want to initiate this process, we're ready to move forward, we want to get going with 200,000 a year in annual premium. And we know that the beneficial lives that will eventually be insured amount to five people.
And we're trying to get this done through the device of a single policy on one life insured.
That's where we step in and provide clarity and say, here's where we think the right starting point is, where the death benefit has merit. It's justifiable.
The tool, the very first. So we're going to coach you and guide you on how to use the tool to implement the process. But we're not getting $200,000 of capital deployed in the form of a single policy.
The long range plan is, is going to be to stagger that capital and to ensure the lives of those people that you have a beneficial interest in, for all the reasons that you and I know matter.
Long range.
And Nelson Nash's first golden rule is to think long range. They've already checked off the don't be afraid to capitalize. The proposed policy owner is like, I'm not afraid to capitalize, like I'm ready to go.
But we have to think long range. We have to do the right thing at the right time. And so can I start with a smaller policy and increase later? The answer is yes. And that is actually for most people, the right sequence.
[00:19:55] Speaker B: Correct. And I think to expand on this question, can I start with a smaller policy and increase later? I would add to that, yes, you can increase your system later.
But the individual policy itself, if we're just talking about the one contract, that contract will have a minimum requirement and it'll have a maximum allowable limit. So that limit isn't going to grow each and every year with the policy contract.
And if you try to put too much into an insurance contract that's above or over these limits, you create a problem which is a taxable scenario because it has an, it's called an exempt product. But in order for it to stay exempt, it has to be below their rules. There's a, there's a testing mechanism that they do annually on policies to make sure they fit under the guidelines so that people know and they agree it is an insurance contract. It's not an investment contract, it's on an investment vehicle. So once you cross over those limits, you move into a different category and they're going to want to tax you appropriately, you lose tax exempt status. That's, you know, the, the terminology for it in the US and Canada might be slightly different, but the result is the same. Right. And so can you increase your system? Yes. Can you make one policy bigger than it was built to, to hold, let's say at the beginning of the contract?
Not, not so much. All right. A contract has a limitation to it. And that's why Nelson says there's need to be a system of policies. One other caveat I'll put on to the idea of can I start with a smaller policy and increase it later? Is if you plan on increasing your system later or you want to have that, that intention built in, which I think a well trained advisor would, would provide for that and they would discuss that with you in probably one of your first meetings. I know for me it's a really big component of my discussions with clients, there needs to be certain elements put in place to make sure we optimize for that. Okay, so that might be looking at having extra term insurance or term riders in place for the purpose of eventual conversion. So we lock in your health status today so we allow for a conversion event. We could be looking at other bodies. Well, but you or some of those other bodies that you might want to insure, they could lose their health insurability. They could be insurable today and not be insurable the next. We just did a podcast with one of our advisors, Jason, who ran into multiple insurability events amongst his family and he started insuring other people. He was able to get over that, but, but it was a challenge. We had another gentleman who ended up learning that he wasn't insurable and, and he made massive health changes in his life, ended up conquering his diabetes and getting back on track to a lot of things so he could become insurable. You know, so we've seen a lot of changes happen with people where if you want to be able to expand the system, you need to also make sure you're putting, you know, planting little fence posts of protection around what you're building. Day one to create the optimized opportunity for expansion to exist 100%.
[00:22:50] Speaker A: Okay, next question.
How do policy loan work?
So when, when you have a dividend paying whole life insurance contract, ideally with a reputable mutual insurance carrier, you have a policy loan provision where you can request a policy loan for up to 90%, 90% of the ever increasing cash value minus any existing loan balance that may be outstanding.
And a policy loan is executed when a request is received by the policy owner. So the policy owner submits, I need a policy loan for X amount.
The life insurance carrier processes the request and there are no income verifications.
There is no lengthy nosy credit application.
The loan is not reported to TransUnion or to Equifax.
The loan proceeds do not devalue the policy.
The loan proceeds.
There's a lien placed against the death benefit of the insurance contract.
The cash value of the policy, which is not money. It is simply the net present value of the future payment of a death benefit. And that cash value is rising daily.
That daily rise continues uninterrupted by the policy loan balance. Example 100,000 in total cash value.
A loan request is made for $90,000.
The insurance company asks the policy owner two questions. Would you like us to mail you a check or directly deposit the funds into the account that we have on file?
So how do policy loan work ridiculously simple.
You get the proceeds, you, you look inside the insurance policy, the very next day, the total cash value is higher than what it was the day that you received the loan proceeds.
And the reason for that is ridiculously simple. Cash value is not money. It's the net present value of the future payment of a death benefit.
The cash value is contractually guaranteed to match the total death benefit by age 100 of the life insured in Canada, age 121 of the life insured in America.
And so every day that you're aging, if you're the life that is insured, your cash value is rising.
Every premium payment that you make increases your total death benefit.
Every dividend that you roll right back into the policy to purchase paid up additions at no additional cost increases your death benefit.
And so when you understand the simplicity of ready access to capital on demand, on your terms, without reducing the assets value, without triggering a taxable event, Logic knocks on your door and says, hey, I got a question for you. How much of your capital do you not want residing here?
That was actually pretty good. I threw that logic thing in at the end. I like to put that in there.
[00:26:12] Speaker B: But we'll get an animation of, of a character called Logic that comes and
[00:26:16] Speaker A: does that maybe policy loan work ridiculously simple.
All you need to do is request it.
[00:26:23] Speaker B: Well, on your topic there, I'm going to make a shameless plug. Of course, for Cash Follows a Leader. We wrote this book specifically to help people see and understand and even get a visual representation of that contractual element of cash value, which is not money growing to equal the death benefit. And so it's a very simple thing. How does the policy grow? Well, it grows because of contract value that says the cash value must equal the death benefit at this period of time when, you know, when the contract reaches its, its maturity date. Now I like to say, how do policy loan work? I say they work really well. They work great.
You know the next one here that's in the same alignment of that is how do you pay back loans? And so actually was with a client yesterday walking through this exact example. She was taking her first loan, young, young girl, she was there with the parents and she's in her early 20s. Great saver, done amazing job saving, bought a truck and she wanted to build up credit. So she spent the first year paying the regular banking institution for the purpose of building credit. So she had an intention and now it was time to pay off the truck. Well, the truck payoff amount was around $40,000 she had 62,000 available because she's been really good at capitalizing her system.
So I had her log in, she logged into the system, I walked her through all the things. She clicked the button, she requested the loan, got an email. She had to do a little docusign thing with this particular insurance company.
And now sometime next week, most likely as long as she also had to send in an account for bank bank deposit. She didn't have her account set up so that'll take an extra day or two to get lined up. Probably by next Friday she'll have that money land in her account and she will go get a bank draft and pay off the other institution.
Then we worked out the amortization chart so that she was going to print and sign and a commitment page that we have a template to make a loan commitment that she would sign and date and her parents, because they were both there, will witness to hold her accountable to the repayment process.
She's going to take the bi weekly payment she was making the other institution, she's going to make that as a monthly payment and add another $25 to it because she doesn't mind back to her system and repay it now over six years.
It should we walk through the entire process from start to finish. That's how you pay loans back. She logs into her online banking, she sets up pre post dated transactions of bill payments to her policy.
She sends one email with a very clear and specific instruction. By the way, we have templates for that on exactly what she's going to do. So when the insurance company sees that money come in every month and it's a different person that works at the insurance company. Nelson has a definition called gophers in the back of the book. He explains what those people are. They're very nice people by the way. And that person is going to say, oh, transaction here for client for this policy. I see it's 700 some odd dollars. Oh, it happened again last month. Oh, there's an email here from a year ago. What to do with that money. Yep, we're going to apply it to the policy loan.
So the process is simple. It takes you from requesting the loan to setting up your repayment process, even using your mobile device, maybe 10, 15 minutes, 25 minutes. If you're doing it the first time and you fumble it around a little bit or you have a crappy Internet connection.
[00:29:51] Speaker A: I see. How do you pay back the loans on your terms?
And that that is something that it can be an advantage and it can also be a potential liability based on the human condition.
So having, having the ability to. To be in a position of total and absolute control over the repayment schedule of a loan cannot be correlated any more better than Nelson saying the policy owner's behavior is far more critical than the behavior of the insurance company. If you request a policy loan, the sequence is build the plan to repay it, then request it, not the other way around.
And just because you're in a position of total and absolute control, people see that immediately, understandably so, as an incredible advantage. It's like, oh, okay, this is fantastic. I'm in control. I dictate the repayment schedule. That could be a problem if your behavior gets in the way of a responsible repayment plan. And so that's why having a good coach who's responsible to you, not for you can help make suggestions on how to build a very simple to follow and in many cases, hands off repayment schedule. But boy, where else can you have ready access capital on demand on your terms?
[00:31:17] Speaker B: And Jason, I have clients that have done a miserable job repaying policy loan Some of them have done no repayments.
And doesn't matter how many emails or text messages I send or how many podcasts we record, if they're not listening and they're not taking the action, I can't force their hand, right?
And that's, that's not on me because I've done my. My part of the responsibility to educate them and to bring them back to the source material. On page 44 of Nelson's book, there's an addendum says there are only two hard and fast rules in building and care. Building and carrying out this concept. Building and carrying out this concept. Number one, don't be afraid to capitalize a system. The more capital you put in, the more you get back tax free at passive income time.
Number two, don't make policy loan without making provisions for paying them back. In essence, stealing from the system. Just as in the grocery business, don't steal the piece. How simple can it get?
[00:32:14] Speaker A: That's it. Ridiculous.
While we got through. We got through eight questions.
[00:32:19] Speaker B: That's good.
[00:32:20] Speaker A: Good start. That was fun.
[00:32:22] Speaker B: Peace out, everybody. Hey, if you're enjoying this episode, hit subscribe on Apple and on Spotify or wherever you listen to podcasts. Never miss a show in the future.
