Is The Money Guy Show Right About Infinite Banking?

You keep hearing about this infinite banking. Have you ever want to know what's the scoop? Do you think they've watched any of our videos? I'm not sure, Brian. I am so excited about this because this gets so much press and we get so many questions asking us about it. Guys, what about infinite banking? Is this what the elite wealthy do? Is this what the top rung of society is doing?

I think Garrett Gunderson, our good friend, wrote "What Would the Rockefellers Do?" and I think that book did a really, really good job, like, getting people's mindset to be like, oh, there's some wealthy families that have done strategies like this. And like everything, people have ran with it and maybe have overemphasized infinite banking, because infinite banking, the term, hasn't been around for hundreds of years. It's really a term that's been around maybe for 20, 30, 35, 40 years. But I think a lot of times people use that infinite banking and say, oh, like, people 300 years ago did this, when in all reality, they didn't use those words. This the secret financial thing that I need to know about in order to truly be a financial mutant? So in today's show, we want to unpack that.

Well, here's the thing that gets me: is insurance is a very necessary part of the wealth building process. What I don't love is somehow in this modern world we live in, you cannot help but turn on social media and people will tell you 401ks are a scam. Yep. And it's typically followed by, because where you need to be putting your money is in life insurance, whole life insurance, and even bank on yourself through infinite banking. A fun fact, that's how I learned about this whole thing, is every time I learned about infinite banking or whole life insurance or index universal life insurance, everyone that taught me pretty much had to bash everything else. Your 401k, all these things are bad, insurance is good. And that's where it makes it, like, that's where people think it's an investment, because you're pretty much bashing other investment alternatives and saying do this instead.

And I couldn't disagree with that more. I think that's a really bad philosophy, and I don't think over 30 years that concept of this is bad, this is good, invest in this, like, is going to compound well for you. So just to be clear, I'm not pro bashing other things like 401ks to lift up other things like life insurance, and that's all I'll say about that. I just glad that we finally have been able to find an insider that would share the details with us so we could do this content. So stick around to watch all the details on infinite banking.

Yeah, that's a great setup. What we've done is we actually have a listener out there says, hey, I actually, I do this, this is a strategy I perpetrate, and every time you guys talk about this, you're not actually using policies that are designed for this specific purpose. So we asked this friend of the show, hey, why don't you send us some policy design so we can actually do a side by side case study to see if this is meritan. But I will say, I appreciate that they're doing this, because a lot of times when people use life insurance or talk about infinite banking, they're using horrible designs that nobody would be endorsing that talks about infinite banking or whatnot. So I'm glad that they're approaching this way, or at least that they're listening to their listener and saying, hey, like, we're going to take a stab at this. We'll see if the policy's actually properly designed, but I think this is a really good step in the right direction.

Before we get into that, for those of you who don't know, for those of you who aren't familiar, infinite banking or bank on yourself is a way in which you use whole life insurance to build up savings and leverage cash values for self financing. It may be pitched as an alternative to putting your money in a bank or putting your money in the stock market. You instead get to be the bank. So that's the pitch. You no longer need a brick and mortar, you no longer need a financial institution, you yourself can become the bank.

Now look, I want to play the part of helping you kind of walk everybody through this, and sometimes when I see definitions, it doesn't really tell the full picture, Bo. So how about a visual? Do you have a flowchart or a visual that can help people who maybe are the learners who go beyond the words? That's exactly right. So here's what you do. You as a policy holder, you're going to pay premiums or send cash into a whole life insurance policy. It's going to be a life insurance policy offered by an insurance company that you're going to pay a premium into every month. Well, with that premium, one of two things is going to happen: part of it is going to go buy a death benefit, if you were to die a death benefit would be paid out to your beneficiaries, and the other half is going to go to build up cash value inside of the life insurance policy.

I think one thing that a lot of people overlook is, yes, you have the death benefit and cash value, but you have a lot of other benefits as well that comes along with the insurance contract. We'll see if they dive into that, but there's lots of reasons. I've gone on record for saying, if all you care about is the cash value, which most people that promote infinite banking, that's the thing that they talk most about, that's all you care about, I actually don't think the math works out in your favor. I really don't. I think you need to start factoring in other benefits, and I think when you factor in all the other benefits you get with life insurance now and in the future, then there's maybe a reason why you would do that versus option B, which is not do that.

But yeah, this is a really good start. You put money into a life insurance policy, you get your death benefit and cash value, lots of other benefits that are not listed here, but then it looks like you can loan against your cash value to benefit you, the policy holder. So I appreciate anyone that can on a whiteboard or in a slide separate things like this. Well, as that cash value then builds, you as the policy holder can then borrow against it. So if you need to be able to have money to spend rather than going to the bank and

Pulling money out of a bank account, you can instead use your life insurance policy as the bank to pull money out of. Now, I already noticed something that's a little concerning to me, Bo, is that when I talk about life insurance, I'm very familiar with buying term life insurance, which is primarily you are buying the insurance. If something happens to you, you get paid, but it doesn't build up cash value, meaning that there's not an element of investing or making the premium level in a permanent way. But I also notice the thing that gets me, this says whole life insurance. Why don't you tell us what variables or factors are needed to really set this up? Because that's already a unique thing to be whole life insurance.

That's right, Brian. And this is what we were told, again, by our insurance insider. Hey, you got to make sure that you're buying the right type of policy. And so let's talk about the elements that make up this infinite banking policy. The very first thing that you need, the what you have to buy, is high dividend paying whole life insurance. Now, you immediately alluded to something, Brian. Immediately our spidey sense goes off when we hear you have to go buy whole life insurance, because we know all the time that we talk about term insurance versus whole life insurance, there's a very tangible reason why we like term insurance more.

Well, first of all, life insurance I think is a period certain need. Like, hopefully the goal is that you're saving and investing, you're building up your army of dollar bills, so hopefully at some point become self-insured because you're financially independent, you don't need to replace your income anymore because your assets will talk for you or protect you and your loved ones. That's not what I'm seeing here, because when we talk about whole life, the premiums are substantially higher. And I know we even have some research on that.

Yeah, if you look at how much insurance coverage costs, I just, they're talking about we want to do the proper structure policy for infinite banking, but then they go through the same talking points. They're going to talk about how whole life for the certain amount of death benefit is so much more expensive than term. But that's the, say, like when you use infinite banking for, when whole life for infinite banking, you're like maximizing the cash value, so you're by default making the death benefit as small as possible. And I'll be the first to say that a lot of, big mistake that people make is they, like I have a term insurance on my own life, my wife has term insurance. Like there's a big, I'm a big, big fan of using term insurance as an insurance supplement to overfunding life insurance, because most of us can't get enough life insurance by the premiums that we're putting in that we should want in our families.

The other thing about self-insurance is, yeah, maybe not in this video, it probably will be a rabbit hole, but you should read Killing Sacred Cows by Garrett Gunderson, and he has a chapter on self-insurance. And it's just very interesting to me because it's a very popular talking point about like you should get to a point where you can self-insure. Death is going to happen to every single one of us, and so if that is something that is going to happen, it's like a point that, regard, like I know every single person including myself is going to die someday, like that will happen. So the idea is like we can quote unquote self-insure, but or we could optimize that date that will happen and just make it better. And the idea, one of the concepts of infinite banking is like you can have both, like you can hopefully maximize that date, but you don't have to necessarily put all your marbles in one strategy to maximize that date.

And when you think about self-insuring, if you actually are doing what you're saying is self-insuring for that date, you're tying up a lot of your capital that may or may not be as efficient. And that's all I'll say. I said I wasn't going to go down this rabbit hole and I semi did, but maybe I'll do another video about self-insure versus transfer or leverage insure in the future and talk about the pros and cons of that.

This is for a female in excellent health for a $500,000 policy. If you were going to go buy term insurance, it would cost her $188 at the age of 30. That same level of coverage for a 30-year-old would cost $4,000 a year. So 4,000 versus 188. Fast forward to a 50-year-old female in excellent health. If that lady wanted to buy a $500,000 policy, she's going to spend about $644 a month for that term coverage. If instead she wanted that same amount of coverage in whole life insurance, it's going to cost over $9,400 a year. So these are very different when it comes to cost of getting that insurance coverage in place.

But it is, it's called permanent insurance for a reason. This is meaning you're planning on buying this policy and holding this policy until you pass away, whereas term, as the title kind of alludes, is only for a period certain of time. So I'm a little confused on that, but I'll let you keep us on this journey.

So specifically, this, you want to make sure that you're buying high dividend paying whole life insurance, because you can use other types of permanent insurance, but dividend paying, or also known as participating policies, are the ones that work best. And there's a few reasons why they work best. Number one, the premiums don't go up as with other policies, so you can actually lock in a fixed premium for the life of the loan. The other big way that these policies are sold is that the cash values are guaranteed to go up. If you look at other types of cash value whole life policies, they have a guaranteed rate that says no matter what, we're going to make sure that this goes up. Not all cash value policies work that way. Some of them can actually decrease in cash value, but if you buy a guaranteed whole life policy, you can assure that you're going to have some minimum rate of return that you receive.

Now, here's the problem though. When it comes to buying whole life insurance, there are often a lot of very expensive commissions, very expensive fees that go into this. So Consumer Reports came out and said, hey, when we look at all the different cash value whole life policies out there, the average rate of return, and this is including the dividend payments, but with the

Guaranteed cash value built in is only about 1 and a half percent per year. So if you look at the average of all the policies out there issued, the average is 1 and a half percent. Hence why historically, if I wasn't making videos on this, if we didn't have a specialized way of helping people through BetterWealth in this strategy, I would probably say on billboards, "Buy term and invest the difference," because majority of people are not going to get a fraction of what they think by putting their money or investing into life insurance.

So I couldn't agree more with the average person over their lifetime is probably making less than 2%, and they're probably not taught or value the benefits on life insurance, and so they look back and feel like, man, I got the short end of the stick. Now we're going to talk more in a moment about how we're going to try to use a policy that's custom-built to satisfy infinite banking. But right there on the start, even though there's a guarantee, a guarantee at one and a half or around one and a half does not get me super, that doesn't completely shock me, because whenever I hear the word guarantee, when you're talking about financial products, that's a heavy burden. That's a word, like, I know when you're doing securities training, they tell you never ever ever use the word guarantee, because that's something that, I mean, if you are taking on risk, that by its sheer nature is, you're getting risk, you're taking a risk to reach a premium in return. There's a risk reward from that. A guarantee has to be a lower price point, and that's why there's fees, there's lots of other things that I completely get why a guarantee is going to be a much lower rate of return.

So the first thing we're thinking about, the elements that you have to have, is you have to have a high dividend paying whole life policy. The second thing that you have to have is a lot of cash. So this is a little bit counterintuitive: in order to be able to execute an infinite banking or a bank-on-yourself strategy, you have to already be someone who can dump tons of cash into these policies. So right there off the bat, that's fairly limiting, right? Because not everyone has a ton of excess discretionary cash flow.

I agree. I've said this publicly, I think unless you have $10,000 a year to put into life insurance, unless like you're a kid or you're doing life insurance policies on kids, would not even recommend you think about it. And there's people who have cash flow that we may point or highlight different strategies and may not, it might not even make sense for that. So if you look at it and you look at how many people can actually do a strategy like this, it starts dwindling really really quickly when you start even using those numbers. And so I couldn't agree more, majority of people in America, majority of people that are watching the Money Guy Show, maybe this channel, or for sure lots of people that are trying to do the best with their money should not look at infinite banking as something that should move the needle in their life. So I could not agree more with what they're saying.

That they can throw at this kind of policy. And so the question you may ask is, all right, well, why do I need that? What do I want to be happening with this tons of cash? Well, what you essentially want to have happen is part of the cash you're putting into the policy is going to pay for the premium, the other part, and the premium being what the insurance actually costs, the other part is going to go to building up the cash value. What you want to do by dumping as much cash into this policy as you can is you're buying paid up additions. And what paid up additions are, are entirely paid for a life insurance additions that both increase the death benefit, increase the cash value, and thus increase the dividends that are paid out.

So for infinite banking, this paid up addition is primarily used to increase the cash value as much as possible, so the dividends that pay in that cash value are as high as possible. No different than if you had a bank account and you want to put as much money into that bank account as possible so that the interest or the dividend you earn on that is as high as possible. Another way to say this is when you're funding, you want as much of your cash to go to paid up additions or term riders that allow you to increase paid up additions so that you can increase the cash value.

Makes sense. I thought he did a good job explaining that. Now wait a minute, when I watch the brochure commercials, everybody always says you put all this money in, but here's the benefit over investing: you get access to your money completely tax-free. How in the world, I mean, because you're making this thing sound like you're just paying for a lot of life insurance. Where is, how am I going to get access to my money tax-free as I often hear people talk about?

So when we think about the cash value increasing, you're dumping this money in, and we look at the average dividend rate, the 10-year average dividend rate on cash value policies is somewhere around 5 to 6%, some companies a bit lower, some companies a bit higher. But the thing that makes this exciting or gets people excited about is exactly what you said: you actually have the ability to take loans from the policy. So if you need money, if you want to access the capital, you can take a loan from the cash value that is quote unquote tax-free, where you can then use that money to go consume goods or to go buy products or go do fill in the blank. You are borrowing money from those copious amounts of cash that you've paid into the policy to build up that cash value.

Now wait a minute, because my Spidey senses are starting to tingle a little bit here, in the fact that leverage is not something that in, taking on encumbrances don't tie into financial independence, because those two words, independence, encumbrance, those just don't work. This is the problem with me watching a video first time. What I would love to ask the question is, how is leverage and encumbrance, I agree that when we think of debt we think of an encumbrance. When I think of leverage, I actually

I don't think of financial leverage. I think of like the fact that I'm speaking into a camera and multiple people are seeing me is leveraging my time. Like I could talk to one-on-one right now, where I can make a video that more than one person's going to watch. That's a form of leverage. The idea of leverage is an amplifier. It can be horrible and it could be good, but I agree, you don't want any encumbrances to your money.

So I think what is going to be said is like, why, like anytime you're taking loans against or borrowing, what some people say, from yourself against your policy, like that's a bad thing. And I have plenty of videos to talk about when you should or should not borrow, and the math dives into it, because if you're borrowing to go buy consumer goods, it's probably a negative thing. But you could borrow against your policy to buy assets, and now you have a dollar doing more than one thing, which on a financial balance sheet and potential cash flow statement, that could be a really good thing.

How are you going to make this work where I'm taking loans because aren't I not paying interest rates on this stuff? I mean, what's, there has to be a catch here. That's exactly right. So a lot of these loans do indeed have interest rates that you're paying. Now, before we go into the interest rates you pay, there are two different types of loans you ought to know about.

There are what are called direct recognition loans, which means when you pull the money out, you don't earn any money, you don't earn any dividends on the money that you've pulled out. That's not the right definition for direct recognition. Direct recognition is they directly recognize a loan and change what they pay you. Now, sometimes they pay you more because of where interest rates are. So sometimes they pay you more, sometimes they do affect, but it's not like they don't pay you anything. Whereas non-direct recognition is they pay the exact same crediting rate regardless if you borrow against or not.

Well, then there are non-direct recognition loans where you do keep earning dividends on all the cash value, even what you take out as loan. So again, I'm trying to think about this in terms of banking. On direct recognition, if I put money in my savings account and then I go to pull the money out of my savings account, I no longer earn interest on that money that was in there. With non-direct recognition, it's like I can pull the money out but I'm still getting that. However, you've already alluded to this, these loans do bear interest. Well, if you now have an interest rate you're paying on the loan that's greater than the dividend that you're receiving on the policy, it does not work, it falls apart.

So there's another feature, because these insurance companies that think of everything, where they make available what are called wash loans. A wash loan is not part of whole life, and I have many videos that talk about, because what they're essentially saying is, if you're paying more to access your cash value than what you're earning in your policy, they're saying that doesn't make sense, it falls apart. Which I would agree, if the only two things that mattered was your cash value and accessing your money, it wouldn't make sense. If your policy or if the strategy had other benefits, the question would be, do those benefits outweigh the cost to borrowing against your policy? And if the answer is yes, then it might be something that you pursue.

I have lots of other videos that I talk about this. I clearly believe with my actions and what we do that there's a lot more benefits that life insurance gives someone if it's properly set up and used than just the internal rate of return and the borrowing rate. But that's just my two cents in response to the statement that pretty much says, if you're costing more to access your money than what you're earning in the policy, it falls apart.

So where you can go take a loan out of the policy and you can guarantee that the rate you pay in the policy matches the dividend rate so that it doesn't flip upside down. But as you can imagine, if you're trying to get one of these policies, it has non-direct recognition loans and those loans even operate as wash loans, what's likely going to happen is either the costs and fees of the policy are going to be greater, or the rate of return they're willing to give you through the dividend rate is going to be lower. There's going to be a cost somewhere.

I've watched a lot of social media. I've never heard a lot of people talking about direct recognition, non-direct recognition, wash loans. Awfully complex, this stuff. I mean, my head's spinning a little bit on this. So, because this is not anywhere that I'm seeing on social media, maybe we ought to take a few steps back and at least, why don't you bring this back to what are the benefits there, at least telling me I'm going to get out of this? Because right now the details are making me feel like I'm swimming upstream on this. So at least let's break it back in a little more elementary, tell me what the brochure says the benefits are.

So let's look at the brochure. Very first thing, we already said this, they tell you, hey, the dividend rate will be 5 to 6% or more each, which can be deceiving, as I've had many videos talking about. Dividend rates aren't actually the internal rate of returns. So the internal rate of returns is going to be a lot less than whatever the stated dividend rate is. But that's again where a lot of people go wrong, is they pitch the dividend rate being the actual crediting rate.

And if you look at the 10 average dividend, so you think about that kind of like interest rate on your savings account, dividend rate on your cash value, somewhere around 5 to 6%. Returns on the policy are guaranteed. So that's not like investing in the stock market, and the market can lose money, it can go down. If you have a cash value whole life high dividend paying policy, there's likely going to be some guaranteed rate in there, so your money can't go down in value. So a lot of people like the security around that. So that's another brochure. Got a catch to that. I know you're going to cover the catches in a minute, but there's got to be a catch to tell me I can make 5

To 6% guaranteed, because we have it in all caps for a reason. There's got to be something more to... let's keep going with the brochure though, because the other thing to say is, hey, not only do you build this cash, not only do you have this capital that you can use, life insurance also offers protection for your loved ones in case something were to happen to you, and it's there forever. It doesn't go away at some point in time. So not only do you have this bank that you're building where you can get the money out, but your beneficiaries, your loved ones, are taken care of if something were to happen to you.

And I think this is the biggest benefit that people really really dive into, this: your money will be accessible when you need it, unlike a 401k plan where you have to wait till retirement, you can't access it until you're old and decrepit. So this is what they say. Yeah, the ironic thing is 401k, you can take a loan from your 401k. But the whole concept is, yes, like access and control. Huge, big big big part of the strategy. And we'll see if they actually dive into the strategies of control, because what a lot of people say is they just kind of write it off, that doesn't make sense if it costs you more than what I'm earning, so they kind of write it off, whereas that's a big part of the strategy, is it's not an investment.

And I think the big misconception that so many people have is it's like they're comparing insurance to something even like a 401k, where you really shouldn't. And over 20, 30 years, if all you did was invest in life insurance, it would, I, out of all people, would probably say probably is going to underperform, maybe, what you thought you were going to get. Healthy dividend rates, guaranteed rate of return, life insurance protection, and you can get to the money when you... we've done this all wrong, because you spent the first 10 minutes going through all these definitions, complications. You should have started here on the brochure. This is, I mean, I can get behind this, this sounds really good, 5 to 6%. They should have started with this and then went into the boring stuff.

But you know, I'm very empathetic. Someone that has done hundreds of videos on life insurance, it's really not easy at all to do videos on life insurance, so I'll give you guys a break. Guaranteed, I get life insurance for my family, and I can actually get access to the money. What could go wrong? This sounds perfect. I can see why this is what I'm finding on social media. But now let's talk about the reality.

In reality, only the cash value is growing at the dividend rate. So we're going to show you a case study in a moment where all that money that you're throwing into this whole life policy, not all of it's going to cash value, and so not all of it is getting the dividend rate applied to it. Even in the early years you're not really building up very much cash value at all. So maybe it's not as great as just a savings account right now paying five to six. There's one piece.

The second piece is, if you want some of these bells and whistles like non-direct recognition loans where you can take a loan and still earn dividends, or if you want wash loans where you can make sure you never have a disparity between the rate you're paying and the rate you're receiving, it's going to cost more. They're going to lower the dividend rate that you receive on that. These are all the things that have asterisks on them. These are all the asterisk things. Okay, keep going.

How about this one: fees and expenses can eat into your return. Nothing we've talked about right now actually covers the mortality expense fees or the commissions that are paid on these types of policies. That's a whole separate subject that we're not even broaching here. And then this one is a big one: surrender fees typically don't go away until you've had the policy for at least 10 to 15 years. So what happens is you're signing this insurance contract saying yes, I'm going to perpetrate this strategy, but if I change my mind and I decide I want to move away from this, if I want to get out of this at some point in the future, I'm going to be penalized from doing that.

Well, all of a sudden that makes it sound like, well, maybe this isn't my money. You know, at the bank, if I don't like my bank, I can pull my money out, I can go choose a different bank. With the insurance policy, if I decide to pull my money out, I get penalized for not carrying in my part of the agreement. Well, and just be clear, surrender fees are more of an IUL term, and so when it comes to whole life insurance, it really comes down to break even, and break even means you have more money than what you put in. So if you fund the first year and then want to pull out your money or cancel your policy, you'll get your cash value, but it'll be less than what you put in. And that's, you could say easily that's a surrender fee, because it's like that's money that is not realized after surrender, but it really is, when do I have more money than what I've put in, because then you could technically take your money out and there's no fees to surrendering.

I would say whole life, if it's structured properly and with the companies that we work with, you're looking at anywhere from like four to six years. And so, you know, it's not 10 to 15, but typical life insurance policies it's 10 to 15 plus. So it makes me wonder what policy they got and where they're coming up with this, but it is very very valid. Permanent life insurance has a bad rap for taking a long time to have more money than what you've put in.

I want to go back to something we covered a little earlier. If the Consumer Reports found the average rate of return is one and a half percent, that has to mean that people aren't getting the 5 to 6%, because we even went, pulled back, when Consumer Reports came out with the article, some of the dividend rates were actually up as high as 7%. So it's not like this is a different interest rate environment or things have changed a lot in that aspect. What I think is interesting, when I started doing a

Little deeper dive on this. If you need your money in the first three years, that surrender fee is going to eat you a lot, because a lot of the initial premiums is going towards commissions and other things, so there's going to be a steep surrender fee. So that's controlling your ability to vote with your feet on the front end. And then if you live to be a ripe old age, and the back end is going to get really crushed, because the cash value is actually going to be paying the much higher cost of insurance. Am I reading this right? That's right.

So you don't really, this banking on yourself actually has a lot of asterisks and catches, is what I'm hearing. And by the way, if I can, for all the people who say putting your money in a 401k is putting your money in prison because you can't touch it, this is a better way, how do you get past the surrender fee?

All right, so two things that I'll say. First thing that he talks about is the surrender fee, so you can't even use your money in the first couple years because you're going to have to realize that fee. Hence this is the importance of borrowing against, because when you borrow against, you're not, like, the only reason you're getting surrender fee is when you cancel, because you're realizing the money that you don't have. There's maybe a lack of dollar for dollar access that you might have in the first couple years, but how many people that put their money in 401ks and other things are actually accessing all that money?

So just to be really clear, that yes, like, early on you can't have access to all your money. A lot of times you can have way better window than what they suggested. But when you borrow against your policy, you're not realizing the surrender fee, you just have less money than what you've put in. Just like if you put money into 401k, you might have access, you might not have access to all that money that you could borrow against or take a loan from.

Second thing that they talks about is mortality, and he says essentially as you get older, you're like just like term insurance, if you get, you know, term insurance when you're 70 years old, it's going to be really, really expensive. And they're essentially saying, like, the older you get, your whole life insurance gets more and more expensive with higher fees. That's incorrect. Like, with whole life insurance, they're building in the mortality from day one, hence why a lot of times there's more fees early on, more, you know, less cash value early on. And again, the way that we structure this is a fraction of what most people do. It's like way more flexible.

But the point is, like, it's building that from day one. That's why they can say it's guaranteed, because they're literally building in your lifetime of mortality, not all in the beginning of the years, but it's all calculated. And so the idea that you're, you know, more fees and it becomes less sufficient the older that you get, is actually the exact opposite. Actually it gets more efficient the older you get because of how they're structured. So just wanted to share those two things.

You called this Alcatraz. If putting your money in 401ks, putting in prison, putting in this feels like putting in Alcatraz, something that can't be. This doesn't tie to what I'm seeing out there. And then this is what you just alluded to, this money is locked into a complicated insurance product. I think they're really missing the boat.

If I think in certain things you have to see the pros and cons, and I for sure think when people promote infinite banking, when I talk about the AND Asset, like the liquidity and control and being able to utilize your money throughout your life is a big portion of that. And they clearly think as worse than a 401k. And so I think if that's the case, there's no way in the world you would value this strategy if you don't actually see the value of being able to utilize your money and getting all the benefits of life insurance. It's not like taking your money out or surrendering your policy. That's like withdrawing your money. So I think that's probably the big disconnect so far, but we're going to keep watching so all of us can kind of understand.

If I have my money in a bank and I have it in a savings account, I need to go get it, I get that money and I can get statements on that, understand what's going on. Well, now we have this alternative to that that has a lot of asterisks, a lot of ifs, a lot of ands. But maybe the numbers will be compelling. Maybe when we look at an actual policy that's actually been designed for this strategy, maybe then it's going to click, maybe then we're going to say aha. So let's look at a Money Guy case study where actually test the numbers using a real policy designed by a real insurance agent.

So let's assume that you have Infinite Banking Isaac, and Infinite Banking Isaac is going to put $10,000 per year into a high dividend whole life paying policy in order to carry out infinite banking. That's what Isaac's going to do. And so the dividend rate we're going to assume, which is the dividend rate as of right now in 2023, is 5.2%, and the non-guaranteed values assume that this rate stays constant for the entire life of the policy. What we're saying is we're going to lock in 5.2%, we're going to assume it does not go down even if interest rates fall. We're trying to stack the deck in favor of the illustration. Make sense?

All right, I will say, just, I mean, just to represent the insurance people, when you say that you're locking in the 5.2, you're 100% right, 5.2. I actually potentially know the insurance company that they're using, because we have a company that we represent that has a 5.2% dividend rate. But again, like, whole life insurance is very, it's like watching paint dry. It's like very, so, you know, they're barely, interest rates have barely, like, they haven't necessarily adapted in dividend rates yet to, like, the high interest rates. And so what some people say is you're locking it in even if interest rates go down. Dividend rates and interest rates are already pretty low, and any illustration that they're looking at, any illustration that we've ever showed, is showing pretty historically low interest rates, because the last

Ten, 15 years been pretty low interest rates, and so nothing that they show in an illustration is going to reflect high interest rates. You can't say like, oh, if interest rates go down, these are going to get worse. Like actually no, that's not the case, because these are pretty much reflecting very, very low interest rates.

We're also going to say that by the time, since we're doing paid up additions, since we're buying more insurance at $865, the non-guaranteed cash value, this is from the illustration that an insurance agent actually provided for us, the non-guaranteed cash value will have grown to $532,000. The non-guaranteed death benefit at that time is $897,000 at age 65. Now this is an important thing to mention. When Isaac first started buying this policy, remember the whole idea is I'm going to dump a bunch of cash in, I'm going to buy paid up additions throughout the life of the policy. When he first took the policy out at the very beginning, at 36, it was only a death benefit of $196,000.

Okay, so that $196,000 death benefit over the next 30 years grew to be 896, but didn't start 896, because I think that is something worth noting. His cash value, by perpetrating the strategy, went all the way up to 532,000. So the question is, what does his investment return look like? And just so you guys know, and let me know if this would be interesting, if I do this with some of our team, we can run illustrations and we can see the pros and cons of what they're stating. I think I might know the company that they're working with, maybe not.

And at the end of the day, we can, like, you know, run our own illustrations and see like, is this accurate, is it not? If they tell me that rate of return, I'll be able to tell you over 30 years it should be around three and a half to four and a half percent today. And you know, if interest rates, you know, don't tank and stay low for the next 30 years, there's a good chance that internal rate of return could be close to 5% internal rate of return. It's not dividend, internal rate of return. So we'll see, we'll see what this actually is.

Now, before you give us the aha moment, I want to make sure I put it out there. First of all, thank you, thank you, thank you to the life insurance agent that was willing to come forward and just share it with us. I mean, because this is, it's hard to get information on these type of products. So to actually have somebody come and say, hey, we, I use these, I think I'd love to get your take on it and share it. We're not doing this just to straight up just rip it up.

This is why I want to be like better friends with these guys, because, I say better, this is why I want to be friends in general, is because they're very genuine and they're not trying to throw anyone under the bus, like, generally want what's best for their audience, and they have no ego in the way that they communicate, and I just really, really appreciate about the money guy show. We tried to give it the best scenarios we could. I mean, let's face it, timing wise, interest rates are as they've been in the last 30, 40 years, that's probably a great time to lock in guaranteed type returns. We tried to give it some benefits of the doubt on that, and we didn't pull any money out.

So it's actually the worst time, if you think about, if you're going to compare today's high interest rates with what they're seeing in the illustration, it's like, actually it could not be worse. You know, if when interest rates are with one, less than 1%, it would be like, the long term, if you could show someone three and a half, four and a half, maybe 5% internal rate of return, yeah, it's long term, but it's like every single year, that's amazing. Now if you can go get a savings account, it's at, you know, three, four, 5%, you're like, what's the big deal? But you're looking at something short term that's probably not going to be there for 30 years, versus something that takes a while to adjust with illustrations, but will historically always be greater than the long-term yield that you would get in a savings account. So I appreciate what he's saying, but it's actually the exact opposite with all that.

And then, thanking the insurance agent, what's the rest of the story? So here's the rest of the story. Over this 30-year time horizon, if you look at the $300,000 that was paid into the policy and the guaranteed cash value of 532,000 and the guaranteed death benefit of $896,000, the actual rate of return that was received in this policy, 3.62% over this 30-year period. When you think about the return earned on capital that was deployed into this policy, 3.62% does not get me super, super excited. And this assumes you didn't actually use it for the number one benefit that's touted from it, which is borrowing money from the policy through time.

And I know that there's a lot of opinions about internal rate of return rate, you know, and 3.6% low end for sure over 30-year period of IRR, but again, it's like, I think a lot of times we, the whole picture, because regardless of what an illustration looks like, I'm not sure if that's actually going to be, it might be higher, might be lower. So yeah, I mean, it would be really interesting to do the numbers and see what we're getting on this end with today's, you know, illustrations. But I know 3.6% is not crazy low, it's better than the one and a half percent, but it's definitely not, you know, the best I've seen in the space. That's all I'll say about the rate of return.

But overall, I'm just interested to see that, because a big thing that I talk about is we have to understand the true, like, when we see 3.6%, we have to understand like what's the true, like, other factors that may affect the 3.6%, like, you know, cost of insurance, like taxes, like all the other benefits that no one ever talks about to why someone like life insurance. But this is exactly why, if all you care about is rate of return and arbitrage, infinite banking will not work in your favor if those are the two things that you care about and you don't care about anything else. So we'll see what they, how they

Dive into this now. I know earlier you showed it on the assumptions page this thing was paying over 5%, so for it to have returned 3.6, is that because it's back to what you said, you're only earning off the cash value and then there's that's net of fees and all the other things? They never pay the net or gross dividend. They never pay that. That's what they'll say the dividend is, but then they cut out all the other costs of just running the business, the cost of the advisor, you know, that sold you it, and then the mortality, like they actually are on the hook to pay out when you die. And so all those, going to be like whatever the stated dividend rate is, you're never going to get that or higher. You're always going to get something lower than that.

So that's why I have just an ax to grind with everyone that's pitching dividends, because it just confuses people. Internal rate of return, you've probably heard me say it a couple times in this video. Internal rate of return is the thing that you should look at. It's actually very easy to calculate, and almost any illustration that you do, you could get an internal rate of return, which shows you the actual long-term rate of return that you'll get over 10, 15, 20, 30, 40 years, and will show you the actual rate of return, which I'm sure the 3.6% is the internal rate of return over 30 years in this example. Exactly right. There are fees coming through, and then a portion of that every single year, every single month is paying for the insurance. So it's not like you had all $10,000 working for you or all $10,000 having that 5.2% dividend rate applied to it.

Now again, these are not numbers that we did. This is from an actual insurance policy. We just calculated the rate of return, 3.6% over the 30 years. So then the immediate question we have is, might there be a better alternative? Might there be something that looks different? If we were not going to do infinite banking, what would the Money Guy team do? How would we approach this?

Well, we said, all right, let's look at Manny the Mutant. And you guys have seen Manny the Mutant a few times in this show before. And let's assume that Manny wants the exact same protection as Isaac, but he's also going to just invest the remainder in the stock market, right? So Manny, a 36-year-old male in excellent health, goes out and gets a million dollar 30-year term policy, right? And I say a million dollars because, you know, at the end of Isaac's policy it was worth about $896. We kind of round it up. 30-year policy, million dollars of coverage. It's going to cost him $787, $788 per year to have that term policy in place.

Now right out of the gate, he's going to have a lot more life insurance protection for the whole time than the whole life. I actually think they're not giving apples and apples comparison and they're actually being more favorable to the whole life person, because at the end of the day, this Isaac has more life insurance from day one. So I'm glad that they pointed that out. So even though he's only paying 787 versus the whole life is paying $10,000, he's going to have almost five times the coverage. That's exactly right. With 196, he's going to start with a million.

And then we're going to say, okay, well, we're going to have the same cash outflow as Isaac, so he's going to invest the remaining $922 into the market. And earning 8%, we're just going to use an 8% rate of return for a 36-year-old investing for the next 30 years, how does this play out? Well, there would still have been a $300,000 capital outflow by Manny, but at an 8% rate of return on the dollars that were not buying the life insurance, right, they were not buying that, the 9,200 that was going into the market would be worth almost 1.2 million. And from 36 all the way to 65, because remember it's a 30-year policy, there would still be a $1 million death benefit in place for Manny the Mutant.

So when you look at these two stacked up next to each other, you have the infinite banking Isaac who has $532,000 of capital available, but then you have Manny the Mutant that has $1.2 million of capital available. Isaac has almost $900,000 of life insurance coverage at the end of the policy. Manny had a million dollars for the life of the policy. Isaac's money that he was investing, if you look at it, was making 3.6% in the single product he was investing in. Manny, the money that he was putting to work for himself was making 8% over the long time.

Now we need to be completely transparent though. Age 66, the life insurance gone with this term. The cost of insurance is going to be so expensive now, because the underwriting is going to have to be done again, you would probably just not be able to afford the life insurance. So that million dollars will disappear. But I mean, it was one of those things when I saw this case study and I was looking, I was like, but that's okay, because realize, as we showed in the best case scenario for the infinite banking, the death benefit would be $896 and the cash value would be 532. You don't get to keep both, you only get either or.

So the only way you get the 8.96 is if you die, versus at least with the investing, you know, buy term, invest the difference, you at least now get to have the assets and then use the assets, and then your heirs get the assets later. You don't have to die to get the higher number. Am I getting this right? You're saying exactly right. But I don't want this, because once again, it's coming off very, they don't put this in the TikTok videos, that's for sure. What are things we left out to try to make this as rosy of a scenario for this situation possible? Dare I say that what we've laid out here is the best case scenario.

This is the best outcome, because here's what we did not talk about. This is the stuff we left out. Fees and commissions can be very high for whole life insurance. I would love to see the actual illustration that they used for this, because if they're saying that 10 to 15 years or like break even, I'm just curious what that would look like. The other thing that they do not factor in, and almost nobody factors in when they do comparisons, is they're just

Looking at infinite banking as like just parking your money and investing into life insurance, it's almost like me badmouthing a savings or a checking account because of the rate of return. But my whole purpose is not long term to park that money, it's to put that money and then deploy it. And so what would be interesting is if they actually took their same assumption and then showed life insurance, put their money into life insurance, Isaac the infinite banker, and invested in the same mutual funds, 8% versus the person, the Monty or Manny that did the 8%. What you would find is Manny would be a little bit ahead, they'd be a little bit ahead from a standpoint because he had more money earning earlier on at 8%, so he'd be more ahead. But Isaac would still get a greater rate of return, because instead of looking at 3.6, you're earning eight, and yes, there's interest costs and all, but you have a life insurance asset at the end of 30 years.

And this is one thing that we could talk about, is there's a lot of research out there, there's a lot of people out there that will say life insurance is a valuable asset to have in quote unquote retirement, is a valuable asset for the future. We haven't even talked about distribution rates. You might have $1.2 million in the market, but like, what's the best ways to take income out in a way that you're not going to, or fear of like running out of money? Dare I say, life insurance potentially could be a good portion potentially of your portfolio that could maybe help you take out more income. So we're not seeing the whole picture, and that's my biggest problem.

If we, majority of people that like infinite banking don't even like the market, like they're not, the market's not like the thing that's going to, like that's not why they're doing it. They're usually business owners, real estate investors, they're usually people that think a little bit differently. And so their whole thing is, should I put my money in a high yield savings account, withdraw that money and invest in whatever I want to do, or should I put it into life insurance? And you know, short term you're better in a savings account. 30, 40 years, if you put that, if you redirect that through life insurance, like you're far greater with all the benefits doing that through life insurance than a savings account.

So I think that's the, and maybe they'll acknowledge this, but I doubt it, but that's like the big epiphany. Is like, of course, anytime you compare whole life insurance to an investment, it's not going to hold a candle to it. And I can say that because I don't build my whole brand off of badmouthing or smashing other things. I don't put money in life insurance because of the rate of return or investment growth. I do think long term, when all things are factored, it's going to get better return than a mutual fund. But if there was a tax free, or sorry, high yield savings account, if there was a tax free high yield savings account that gave me all the benefits that I cared about that I have in whole life insurance, I would do that, and you know, do other things.

So it's like, that's just kind of like the mindset. And again, I'm super curious to hear your thoughts, because people that aren't aware of this, they hear this and go like, why would anyone do this? Like, why would anyone promote something like this? And I agree, it's like, when you look at it this way, it's like, would you rather have 1.2 million or 500? 1.2. But you're not seeing the full picture. If you're buying low cost index funds, the internal operating expenses are super super low. We didn't even factor either of those pieces into the equation.

We also assume that the non-guaranteed dividend rate at 100% of the current dividend scale today, right now with elevated interest rate, so we know that the dividend rate right now is around 5.2%. Oh, in reality over the next 30 years it could drop. They're making the assumption that the dividend rate has increased significantly because of the high interest rates, and the reality is they're really locking in the illustration and the rate of return are a result of like two years ago interest rates. And so if interest rates stay where they are, you'll see dividends all increase, not maintain. And if interest rates lower, which they will long term, because I just don't think with our current economy and how things work that people can afford to have high interest rates like this, we're going to see interest rates come down, but you're not going to see dividends like drop like a heartbeat.

So that's kind of what I'll share as it relates to that, because we have to remember after 2008, like his interest rates are pretty pretty low, and all of the illustrations you're looking at right now are pretty much locked in that pretty low rate of return. So I highly disagree with what, let me restate, I just disagree with that second point that they're making. If we see interest rates come back down, there's a really good chance the dividend rate could also fall. We did not even factor that in.

We also assumed, and this is probably the biggest assumption, there were no loans taken out. So the whole point of infinite banking, of banking on yourself, is that I can use myself as a bank instead of having to use the bank. Well, if you do that, all the numbers get smaller, they go down, they get lower, so they get smaller if you don't buy asset-based things, if you don't invest it. So I 100% agree, it only gets worse if you go buy things that don't, you know, increase your assets or cash flow. But they could get better if you invested in a Dave Ramsey mutual fund at 12%. That actually would, they would actually outperform their other case study if that was the case. I know that, you know, that's just an example.

So that, loans, they're looking at loans because again, through the lens of like it being a hindrance, it being a bad thing. And I look at loans as being, it really depends on the person that's utilizing it. Majority of Americans, loans equal bad things, but that doesn't mean across the board that's the case for everybody. If you actually use this strategy the way that it was designed to be used, it actually looks worse, it's going to hurt the illustration. And then we just assumed the 8% rate of return.

For investing, if you look over the last 30 years, if you would have just bought the S&P 500, the broad 500 largest companies in this country, it's annualized almost 11.3% over that 30-year period. So we kind of stacked the deck in favor of infinite banking and tried to be conservative on the Manny the mutant side, and I still think it just doesn't make sense. I could not get there as to why this would be something that would be a strategy that I would want to carry out. So it's complex, there's opportunity cost potentially with it, and all the guarantees have lots of disclosures and other things, lot of costs to the guarantees.

So here's my thing. Look, life insurance is a very valuable resource when you're doing financial planning, and I don't want people to watch this and think we're anti-insurance. We're not. I actually own quite a bit of insurance. I try to protect, I minimize risk as much as possible, but all term. I just want it is all term. I just want to make sure, though, that people measure twice, cut once, because a lot of times, especially with financial products, read the fine print. There's a lot more going on beyond the brochure.

And a lot of people, I mean, when you hear people who are trashing 401ks, which if you think about why are 401ks so successful, is because it's not only your money that's working, a lot of times your employer's giving you absolutely free money to participate in this. To walk away from something that has got so many incentives and benefits and tax favored status, you have to go, man, there has to be a catch. And that's why I do appreciate, now look, I know there's probably going to be people, I'd invite you, leave comments, tell us things that maybe we didn't think about, but I also once again want to thank that insurance agent for opening up his books to kind of letting us see a best case scenario. I'll be curious to see what feedback he gives us after he watches this show, because he doesn't know the results of what we're going to do. But it is one of those things, I feel like there's so much information that we ought to just have covered this the way we did, and I hope that the Money Guy family, this was helpful for you guys.

Bo, what other final words would you have on infinite banking? Yeah, I just think that anytime you approach a financial product or a financial strategy, it should not be so complicated that you can't understand it. And if you can't understand it, and that's the trump card, is if you don't understand something, even if you don't understand the way that we articulate life insurance, don't do it. There's like, and I can, like, do not do it, because that is something that does not compound well. If complexity doesn't compound well, that's why simplicity is so important. And that's why I try not to overemphasize any one strategy, and I'm always looking at the cons and the worst case scenarios.

So I could not agree more. Is make sure that your financial strategy is simple to understand. Ask someone else to explain it to you, and if they can't explain to you, ask someone else. We tell our clients all the time, when we recommend a strategy, when we recommend a solution for you, we want you to be able to leave our office, go to the supermarket, and be able to explain what we explain to you to the person behind you in the supermarket. And if you can't do that, then we've not done a great job of explaining it to you. Don't feel like just because you don't understand something, or just because something sounds complicated, means it's good or it's right for your financial situation. Make sure that you are the general of your army of dollar bills that your army of dollar bills needs you to be. Don't be sold by someone trying to spin your head and convince you that you need something you don't really need.

Yeah, I mean, this is one of those cases where buyer beware. Do your research. I mean, the sec.gov, all the government regulatory boards, they have lots of information on buying insurance, on buying your first investments. Guys, do your research. Arch an educated consumer, Bo's already kind of shared, is a better consumer. And that's one of the things we're trying to do, is just give you enough information where you'll do a little bit more digging, a little more due diligence, to figure out how do I walk this journey and build the best financial life for my family, so that I don't have regrets, that I don't fall into traps, and I don't get myself in a moment where I look back and go, man, what could have, should have, would have happened if I had just known there was a better way to do money.

Hey, I first of all just want to say thank you to the Money Guy Show for making this video, and I'm very much looking forward to future conversations across the board. It would be amazing to be able to sit down, because I think, like anything, we would agree on probably 96% of everything, and then we could talk about the 4% differences. My whole thing is, I could not agree more, if you don't understand something, period, you should, and that should be a red flag, whether it's in infinite banking, whether it's an investment strategy.

And the way that I just explain life insurance is, life insurance is a safe, it's essentially a safe asset that I save money to over a long period of time. It's going to get a greater yield than what I get in a savings account. It gives me other benefits, like a death benefit, chronic illness rider, privacy, other benefits that are important to safe money. But then I can utilize that money to borrow against to buy other assets, and those assets have to create increase in balance and cash flow. And if they don't, then I should keep my money in the boring old life insurance until I find an opportunity that I want to do the AND component of. And so I just have a high view of life insurance now and in the future, but I don't think it should replace your 401k. I don't think it's the end all be all place to put all your money and not do anything with it. I think of it very much as a foundational asset that hopefully a part of your portfolio can be in, because later on in the future we're going to start turning into cash.

Flow. We want to talk about future cash flow, and I think there's a lot to be said to having life insurance as a part of that conversation. Can increase your likelihood, increase your confidence to have more cash flow. I also believe a lot of people that we work with are entrepreneurs and investors, and they do value safety because a lot of their life is not balanced. So they're taking high risk in other areas, and so they're okay that a portion of their money is in safe, boring life insurance that ultimately does protect them, because a thing that is very common with our clients is if they're taking out of the equation, they want to make sure that their families are protected.

And regardless, you can do this with term. I mean, everyone should have life insurance. You can do this with term or whole life. I happen to have both. But the point that I'm just making is you got to make sure that you are protecting the activity that's creating the current and future cash flow.

So I would love to hear your thoughts. We'll probably do another video with the team on this, and this is part of my way of saying like, hey, let me know questions. What are things that I could added? What are questions that you have? Maybe what are things that you disagree with? If you're a fan of what we're doing, maybe you can put a, you know, a bug in the Money Guy Show's ear, and because we're 30 minutes away, it would be amazing to maybe do an episode and talk further about this.

But overall, I appreciate the work that they're doing and just excited. I'm excited for this new year. I'm excited to see the many conversations that come, because at the end of the day, I'm a fan of the AND Asset and it's been a huge part of BetterWealth, but I'm also excited to talk about other things.

And I think when it comes to financial education, when it comes to mindset, I'm excited for our Naked Numbers series that is really speaking into people's financial questions and their life. And I'm excited about that because what you'll find is that there's so much more to the toolbox than any one strategy. And we have a lot of videos on this one strategy, but it doesn't really reflect my whole mindset of how I would speak into someone's financial life. So appreciate those of you that subscribe and help other people hear what we're up to, and we'll see you on the next video.