Is Dave Ramsey Right About Infinite Banking?

Banks use this product to... No, they do not. You've been watching too much TikTok. Banks do not use whole life, not ever. Banks for sure put some of their tier one assets... Over 3,000 banks in the United States have some of their tier one assets in what's called bank owned life insurance. Dave Ramsey is actually incorrect when he says that no banks do this.

Hey everyone, welcome back to BetterWealth Reacts. Many of you have sent me this, one of Dave Ramsey's newest videos that he chopped up on infinite banking. Someone actually from Nashville, you know, gave him a call and was talking about his kid's policy that he set up. It's an infinite banking policy, and him and Dave were like water and oil, and to be honest, I did listen to it once. It was painful to listen to on both sides, and I will do my very best to listen to this for the second time.

We'll stop it throughout the video if I have comments, and I'll give you my final thoughts at the very end. But take two on Dave Ramsey talking about infinite banking. One thing I'll give Dave Ramsey is he knows his terms. I was very impressed with some of the things that he knew about when it comes to life insurance. And like always, I'll do my very best to try to share with you both sides and not be too biased. So without further ado, let's jump in.

"Miss Wilson, Nash." "Hey Jim, welcome to the Ramsey Show, how can we help?" "Hey Dave, glad to talk to you, man. Enjoy your show." "Thank you." "Right. I am calling in response to a video I saw recently that you claimed infinite banking concept was a scam and actually got quite pissed off about it."

And Dave's like, "Okay." Like, I'm okay. "So I do not agree with that, and certain points that you made in that video." I will say, just like, and again, I know this, so the power dynamics is so different when you're calling into a show. But starting off with, "Uh, these are things that I don't agree with," it's like, dude, you're not going to win. Like, you're not going to win, because the camera is not on you. He's got the dominant microphone, and Dave's been doing this for 30 plus years.

And so that's a tough thing, is anytime someone comes in and argues, you're already at a disadvantage. And when you're like, "Hey, this is what I disagree with," Dave's now ready to bury you. "And I have set up a policy for my son when he was one years old. He's five now." "I'm sorry?" "Um, say that again." "I said I'm sorry." "Yeah, so am I sometimes." "No, so I set that policy up for him when he was one years old. It has a $500,000 face value. We pay $5,373 a year for 13 years, and it's paid up at that point. There's a few points that I wanted to discuss that I just didn't agree with."

"Do you want to just kind of take one thing at a time?" "Sure, that's fine." "Sure, okay. One of the main things was that you claimed that the cash value dies with you and you only get the face value paid out." "That's true." "Well, it's not true if you reinvest the dividends back into the policy." "Dividend reinvestment is not cash value." "Dividend reinvestment is, because you have a mutual company and the policyholders are the owners of the company, and so the profits from the company come to the policyholder, and they use that to buy paid up additions. That is not the same as keeping your cash value. That's buying extra insurance with your overpayment." "But it still works out to be..." "No." "...having a cash value much greater than the..."

So what's happening is, one of Dave Ramsey's biggest complaints when it comes to life insurance, it's usually the typical, and these are very valid problems with a lot of typical life insurances. You have no cash value in the first couple years, it takes forever to break even, which ultimately they'll say it's a horrible investment, high commissions, not flexible. And one of the things that Dave Ramsey says is that your cash value gets eaten up by your death benefit. When you die, they steal your cash value.

And what Jim is saying, what he's trying to say, I think, is like, hey, my death benefit is increasing as I pay the premiums. And one of the things that Jim says, which I think is a mistake, but I don't think Jim could have won this conversation regardless, is he says my dividends are buying paid up additions, which is probably true. When you have a dividend, you can elect to take it in cash, you can elect to buy more insurance benefit, you can elect to have it go back to cash value, which is buying up paid up additions. That's like the agent term for, that's the insurance term for adding more to your policy. And Dave Ramsey is just like, well, he's just like, you can't count that because you could be doing something else with that. I think he later talks about opportunity cost.

And one thing that I bet you is the policy that Jim is designing, when he says he's putting $5,000 in per year, I bet you not all of that is going to base. I bet you it's probably a max funded policy or some type of max funded policy. Again, I have not seen it, I don't have any knowledge of what company he's using, but my guess is from the very beginning, every single payment he's making, there's a good likelihood that the death benefit is increasing even if you didn't reinvest dividends. So the fact that you are reinvesting dividends, which is very common if you do overfunded life insurance, I would say that the death benefit is going to be increasing regardless, because my guess is that he's making payments that are paid up additions.

Now, the fact that it's paid up, I would have a lot of questions of why he chose that for his kid, but again, I don't know the details there. But after you pay up, obviously the only thing that's getting credited in addition to the interest is the dividend. So the dividend in this scenario is a big deal.

I just want to give context to maybe where I think the disconnect was from the very beginning. $69,999 we put into, but the actual cash value, not the paid up additions, the actual cash value dies with you. No, because, well, think. Okay, but I personally don't like the whole argument pro or con, because I just think it's like you should be able to look at person A versus person B. Person A does this buy term and invest the difference, which is Dave is a huge fan of, buy term insurance, put the rest in mutual funds and see compound interest next 60, 70, 80 years, and versus person B is like, hey, I'm going to put my money into a life insurance policy, the concept of infinite banking.

And again, I have videos across the board. I'm not here endorsing one strategy. I've seen a lot of things that make me cringe about life. I feel like I've done a pretty decent job explaining the pros and cons. But the whole concept of infinite banking is it's not investment. You're literally putting your money into a life insurance policy, you get the benefits of life insurance. The whole concept is to be able to use that or borrow against it to then invest in other things.

And so if we want to use Dave Ramsey's rate of return, which he used to say 12%, in this video he says 11%, you could technically use that same logic. And I think a lot of people that teach life insurance this way, the right way, are not talking about it as investment, are not saying you should put all your money in it, not saying that you should buy cars or go on vacation with this, are simply saying this is a place that you could store capital and reinvest. And if your greatest investment is a mutual fund, then you could reinvest into a mutual fund. There's a lot of people that use this strategy and reinvest in real estate or in their business. But it's the same concept, is the real asset is the thing outside the policy and you're getting the life insurance policy and that activity.

And that's the thing that is just lacking in this whole video, is what they're just focusing on for a long time, like this dividends, does your cash value die with the death benefit. And I just think it's such an unfortunate conversation because it's not even talking about the heart of the issue. Really the heart of the issue when Dave Ramsey talks about infinite banking or life insurance is the buy term and invest the difference. Buy term and invest the difference is buy term insurance, take the rest, invest it. You'll see later in the video he talks about, you know, having a portfolio of $25 million. And unfortunately he's comparing life insurance as the investment and not doing anything with it.

And I would 100% agree, if you're just looking at a 2.5 million versus a 25 million in that scenario, obviously everyone would want the 25 million. But over 60, 70 years, 80 years, there's a lot of things that are missing and it's unfortunately not an apples to apples comparison. So let's continue.

But your death benefit is larger than your cash value. So it, so whoever you're, so for me I looked at it, because you bought more insurance. You know what a paid up addition is? A paid up addition is buying additional insurance. Understand? That's why you're getting more at death, not because you got your cash value, but because you used your policy dividends to buy additional insurance. Right, but that's different than getting your cash value. If you took those policy dividends and went and bought a term insurance policy for 100,000, well, you'd get 100,000, but that's not your cash value. Well, I have a term policy, wife. But you miss my point. Okay, let, you're talking about, you use the policy dividends, you use the money they send to you because you're in a mutual company, to buy additional insurance. Yes, paid up additions. Yeah. Yeah, if you buy a term policy on the side for $100,000 instead with that same money, you would get $100,000 more than your face value, but that's not your cash value, that's additional insurance. They're different. But in, right, they are different, in term you don't have cash value to borrow against. I'm aware of that, but your point was that you don't lose the cash value, and my point is 100% of the time, by definition, you lose the cash value.

See, I see where Jim is trying to say, is like, I totally see where he's trying to say. And unfortunately I think at the end of the day we just have to look and say, okay, you lose your cash value, but you're also getting a death benefit of greater, and Dave Ramsey saying, well, you should have term insurance. Well, the reality is majority of people don't have term insurance when they're in their 80s or 70s or 60s. Why? Because it's actually really, really, really expensive. So that logic might work when your chances of dying is low, but the logic actually for term insurance when your likelihood of dying is highest is almost unheard of.

So I think it's tricky. And again, we're majoring in a minor, because Dave Ramsey can say you lose your cash value, and what Jim will say and what I also will point out is your death benefit is increasing every year. You could say it's because the dividends are repaying and getting more life insurance, but it's just a form of compounding. And whether life insurance uses dividends versus maybe other investments use, you know, interest rate, the whole concept is you got to compare. And that's where I think Dave Ramsey is like majoring in the minors, and he's kind of making this person kind of trip up. And unfortunately I don't think either side was listening.

And again, you're not going to start off Dave Ramsey's show by saying you're wrong and have him be listening as empathetically on air. It's just not going to happen. And unfortunately I think Jim never got out of the gate, because you're going to see that this is going to continue to be a thing, and I don't think they got to the heart of the matter.

Okay, but okay, so as I said, tit for tat, if he lives to be 80, I'm looking at the readout here, if he, say he only lives to be 80, okay, the cash value will be worth about $2 million, but the payout for the death benefit will

Be 2.6 million. So okay, technically yes. So you take the cash, you're taking your policy dividends and go buy term insurance with it, and you would have more than you're talking about because you get a better buy on the insurance than you're getting with this ripoff whole life crap. Yes, you would get a high, but you wouldn't be able to use it throughout your life as your own bank.

I think that's okay, but here's the thing. That's a side issue. That's a side issue. But your first issue was, you know, he's going to have all this money at retirement. Well, let's just do a little present value calculation on what you put in for a baby: $5,000 a year for 13 years. Do you know what that would be in a mutual fund?

I would just be curious, what are you guys' belief in the next 80 years the, act like an actual mutual fund or the S&P will do? I'm just curious from a standpoint of your thoughts on that. At age 88, it would be $25 million, dude. He's, well he's gonna have that anyway. No, instead of putting it into this ripoff thing and making 4% on your money, and when he dies he loses his cash value. If you had put this in a good mutual fund, you'd have 100x, 10x the amount of money, and that's your infinite freaking bank.

But we're only putting in 70,000 and he's going to be. That's how present value formula works in finance, you know. Look, let me just, okay, take the same, I mean I understand. Let's intellectually deal with this for a second. Okay, take the same amount of money when you get off the air and put it in a financial calculator at 11% and pretend it was invested in mutual funds and see what is when he's 88 years old. It'll be more, a whole lot more. But, and he'll have that too with this.

To me, I wonder if Jim is saying when he'll have that too, if he's referencing that he's doing this in addition, or if he's going to be teaching his son to, you know, borrow against the policy and invest that in mutual funds. I'm not sure. I don't think he talked about that. One thing I will point out, and this is what a lot of people that will say in the infinite banking camp will say, is they'll say, well yes Dave, but if you were to put that money into an account and then take that money out to pay for college or a car and all these things, like you're losing.

Like Dave Ramsey is the fan of buy cash for everything. So Dave Ramsey's like, okay, you're going to get 11%, but he's also the person that says pay cash for the home, pay cash for the car, pay cash for things. And so again, you can see where you can take that same logic and say, Dave, if I can earn 11% over here and you're telling me to pay cash, that could cost me $25 million if you paid cash for that home, or more, using Dave's logic. Whereas people in infinite banking will say, well no, you have your policy, you borrow against it, and then hopefully you buy assets. But at the end of the day, it's the concept of using your money while it continues to grow and you get the benefits of life insurance.

I have tons of videos that break down the actual math of how that actually works, but that's another conversation. And Dave Ramsey, you know, earlier said like, well that's a separate issue. But that's where it's like when you actually get real life, how many people are putting money in a mutual fund, never touching it, and actually getting 11% every year? If that was the case, I think people would be in a totally different financial situation. But people's greatest financial need is using money, and a lot of times people don't have a strategy where they can save and use their money throughout their life.

Is a way to? No, he doesn't have that to borrow. That's what you, that's called opportunity cost on your money. I'm a fan of Dave Ramsey talking about opportunity cost. You put it into something that's going to make him at 88 have two and a half million and he should have had 25 million because you screwed up and put it in the wrong thing. Well, we when we screw it up and put it in real estate too, and he's going to get real estate. Well then put the money in real estate, but don't put it in this crap.

And this is, I'll just say this to the maybe the day I die talking about this subject, is Dave Ramsey, he's looking at life insurance, real estate, mutual funds, all in the same category, all an investment. And that's where I think people have gone wrong selling life insurance, as they pitch it as an investment, which I am anti. I'm anti people pitching infinite banking like this is going to be like that, you save your marriage and be an amazing investment. But again, he's talking about it like an investment. And I don't, unfortunately Jim never had an opportunity to explain how he's going to use it, because he's saying, well, he's going to have this too, he's going to have this.

I think Jim was getting a little defensive, but also wasn't able to explain that because Dave had his talking points, and to Dave's credit is very, very good at that. And that's why he's the GOAT when it comes to personal finance. Like I could say that maybe I don't agree with everything that he says, but he's legendary. It's because he's stuck to a framework, helps a lot of people, been consistent, and that's why his show's continuing to grow and people know his name.

I have to respectfully disagree. What basis? He's getting more money if you put it somewhere else. But he's able to borrow against this. If you've got 25 million in mutual funds, you can borrow against it. But he's gonna have to wait until he's, you know, retired to get to that amount of money. Okay, so you're going to teach him that the way he becomes wealthy is borrowing against money that his father invested for him? That's how he builds wealth, in invested for him, said no one rich ever.

I mean, banks use this product to. No, they do not. You've been watching too much TikTok. Banks do not use whole life, not ever. Banks for sure put some of their

Tier one assets. Over 3,000 banks in the United States have some of their tier one assets in what's called bank owned life insurance. I know people personally that work with banks and set up life insurance. Again, it's not an investment, it's not replacing their bond portfolio, but it's an asset that banks love. It's great for their banks employees and it also is something that they can loan against. So Dave Ramsey is actually incorrect when he says that no banks do this. Fully disagree.

No, they don't. They do not use whole life life insurance. They, what bank? Well, the bank that I grew up used whole life insurance from a carrier that you would all know. We, I mean, we could Google it and see what typically banks do with their money. But I believe typically banks never put, let me tell you what banks do. They put it in bonds. They're required to. They wouldn't be allowed by federal regulations to put it in whole life. It's not true. It's not a place to invest money because it's a horrible investment. The rate of return sucks, and when you die you lose your cash value.

I know, but that, but you also, you don't, you're making it sound like I'm losing money on the whole. You are. You're leaving money on the table. You're making it sound like, you're making it sound like when not me but my son, when he dies, yeah, that he's only going to be able to get his, he's gonna have $22 million less than he should have if you had put this in a good investment.

I would be curious what the death benefit would be at year 80 in this policy. I just, I'm curious. Again, I'm not endorsing the way that this is designed, don't know what company, I'm just curious what the death, if the cash value is two and a half million, I bet the death benefit was much greater than that. You had mentioned that the cash value dies and you only get the face value. That's not true.

That is true. That's not, I just covered that with you for the last 10 minutes. Paid up additions are the only way that cash value increases, unless you're using a universal life program where you pay extra to get the extra insurance, which is another form of paid up additions.

That isn't coming out of my pocket though. I put 70,000.

It is coming out of your pocket. It's coming out of the policy's pocket. I know, the policy, you put the money in, dude, and then it paid you a dividend and you chose to buy more of this crap with a dividend, and you're calling that I kept my cash value. No, you didn't. You bought more insurance.

Well, I know that I put in 70,000, and at a certain age it's going to be, at age when he's 15 years old, that's going to be paid up.

Yeah. You understand what paid up is? You understand if you're alive that there's a probability of your death, and so 100% of the time that a life insurance program is paid up it means that you prepaid. That's all it means. Because as long as there's a probability of death, there's a cost. So the insurance company has always got a cost as long as you're alive. So there is no such thing as a paid up. That's an industry term that gets suckers like you. That's what it is.

Now, paid up means prepaid. You paid all of the premiums in 13 years for his whole freaking life in advance. That's why it's paid up. Hey man, I think you ought to keep it. It's perfect for you. But thanks for the call.

Maybe that's the warning to all of us that want to call Dave Ramsey and say that you're wrong. Anytime that I respond to a Dave Ramsey video I get people all across the board. I think a lot of our audience get really frustrated with how arrogant Dave Ramsey can come across. But I'll tell you this, there's a lot of people that are watching the TikToks and are doing dumb things with their money and maybe over putting, over investing their money into life insurance or doing things that they shouldn't.

And I've said this publicly, but if I had to take a stance for America and if I was on the radio, I think majority of people even that are in our space would agree, would agree that you would not want to be pro life insurance, because there's so many bad examples and there's so many people that unfortunately are not better off because they've put their money into permanent life insurance. And then there are many people that are just like, they get it and they're like, okay, life insurance is not an investment. I'm not going to major in the fact that my cash value gets lost when I die because I know that my death benefit is going to increase by more than what I put in. And that's really the argument there.

This person probably started with cash value and their death benefit, and let's just hypothetically say they put in 5,000 and you know that the death benefit was half a million. I think that was the case. And then as they continued to contribute and as dividends started building up, the death benefit increased by more, meaning like if you put in 5,000 the death benefit would have to increase by more. Because if that's not the case, and Dave's 100% right, they steal your cash value. And all I'm saying is that they majored in something that at the end of the day does not matter, because you really have to go back to what's better for you and your family. Buy term and invest the difference, overfund your money into life insurance, have the permanent life insurance as a part of your portfolio and reinvest into other things.

And the last thing I'll say is Dave Ramsey made a comment to say, what would you rather have, $25 million portfolio or $2.5 million portfolio? I think that's again unfair if you look at over 80 years and opportunity cost and what someone could do, but I get what he's saying. And I think another thing that we sometimes don't appreciate is just because you have a bigger dollar amount doesn't actually mean that the result is greater. So for examples, like would I rather have a portfolio that gives me, you know, $250,000 of cash flow or a portfolio that gives me 200,000? We'd be like, well, I would rather have

...something that pays me more, but there's a world where that portfolio that pays me more is worth less on paper. And a lot of people might think that's crazy, but there's different ways to view personal finance. And in a lot of cases, again, we can go back to the simplest, simplistic idea and say a higher rate of return equals better, or a higher net worth equals better, and a lot of cases that's not wrong. We have to be like, what is the end result? And the end result is cash flow.

We should be looking to optimize our cash flow, not just now but into the future, and we should be able to put assets now and into the future that can enhance that cash flow, and really be able to understand the different ways that you can maximize your quote unquote retirement or whatever situation you're in. And again, I'm not saying that investing in life insurance is a good idea. Not at all, don't endorse it. I am a fan of warehousing your money in life insurance, using it, but really thinking through how you're going to invest, how you're going to grow, how you're going to create future cash flow streams, knowing that life insurance is really just a place that you can save your money and use it versus a typical savings and checking account.

I know that for majority of people out there, that's not a great strategy, and I'm very public with majority of people shouldn't do this. And so all that to say, those are my final thoughts. Thanks for everyone that sent this clip my way. It was painful to listen. I'm sorry, sorry for interrupting so much.

Hopefully you get a sense of just how I take these things when I see them. I would love to hear from you in the comments, and if you want to learn more about life insurance, what we call the AND Asset, you just want to learn more about this whole concept, you can go to our AND Asset Vault down below, and we have videos, we have our handbook, we have all kinds of resources for the person that wants to learn more. And if you want to talk to someone on our team to see if this strategy would make sense for you, we're here for you. So you can get that information below, and we'll see you on the next video.