What Are the 5 Most Misleading Claims About Infinite Banking?

We're going to talk about five areas that you should be aware when you're talking about life insurance, when you're being sold life insurance, or maybe when you're selling life insurance. My name is Caleb Guilliams. Welcome to the BetterWealth channel. The purpose of this channel is to talk about money and business and other concepts and frameworks to help you live more intentionally. I'm here with my good friend Chris Kurpatre. This is going to be fun.

It's going to be fun because we're literally going to talk about the five things that make me cringe inside that I'm sure I violated all five of them when I first started talking about life insurance. They can be misleading. There's a lot of good people that say things that I think majority of the time is right, but some of the things make me cringe inside. I want to make sure, Chris, you're also in the studio because I wanted to make sure that this is being validated and we can chat about it. You might not agree with all five of my areas. Okay. But that's the goal, is to have a further conversation to increase the IQ so that we can live more intentionally, right? So, amazing. And by the way, we have not talked about this ahead of time. Like, he's been jotting some stuff down and so I'm excited to get into this.

All right, so I want to be first clear. I'm a big fan of life insurance. Wrote the book The AND Asset. I believe when set up and used properly, life insurance is one of the greatest foundational assets. You can save your money. It literally gives your dollar more than one utility. It can grow the rest of your life. You can control that dollar while you get the benefit of growth.

It gives you future options in what some people call retirement. It can help increase cash flow. It can protect you and your money. It can allow you to save more money. It can allow you to live more intentionally. So I want to be very, very clear. Life insurance when set up and used properly is an incredible asset that I think can help you get closer to where you want to go and have better results. Fair. I think we both feel that way. Okay.

Okay. So here are five areas that I think are very misleading when people say. Number one is arbitrage, when they're talking about like, buy life insurance because your cash value will grow this, and they're looking at internal rate of return, or a lot of people do this in index universal life, like your money will grow here but then you can borrow against it. They say borrow from, but borrow against it, and you're borrowing at, you know, 4% but your money inside your policy is going to earn more than that. And so a lot of people do this with IUL because they're literally quoting you crediting rates. So it's like, you could earn 7% but you're paying 4% and so there's that arbitrage. And then whole lifers will say, well, my dividend is 6 and a half or five and a half%, but my loan rate's 4.

And so, overall, can there be arbitrage, Chris? Yes. Like, I have seen people that have had actual earning more in their policy than what they're borrowing against, especially with third-party lending. I just think it's a very bad tactic to lead with that. And if you're just buying life insurance for the arbitrage, I got news for you, there's probably better assets that could give you a little more upside in arbitrage if that's the only thing you care about.

Yeah. And I think you can get arbitrage in whole life policies eventually. You know, eventually. And but there's variables that come into that, right? Like, if you have a 10-year-old policy right now, can you get arbitrage? Probably. I've seen it. I've seen it. It happens. But are you going to do it through the company? Most likely not. You're probably going to have to use a third party bank, right? You're going to have to give up some control. There's going to be some things that happen that come into play, which I'm all for. I love it. But it's a matter of just not making these like blanket statements. Right.

Well, sorry. I got what I want to say. So here's what I also want to say on the arbitrage. While I don't necessarily think that the internal rate of return, like what you're actually earning in the policy versus what you're paying, I don't know, we got to be super, super careful on that. I do believe wholeheartedly, if you actually understand the benefits of life insurance, all the benefits that I mentioned early on in this video, it far outperforms what you're paying, because if it didn't, you shouldn't put your money in life insurance. So people get turned off when I'm like, no arbitrage, because I'm just looking at the math. But when you're looking at all the other benefits, like I've used life insurance is like a cell phone, it gives you multiple benefits and utility for this one device. Same thing with life insurance, it gives you multiple utility. All those utilities are far greater than the cost of borrowing against your policy.

Yeah, absolutely. And, you know, I mean, at the end of the day, I look at it, the math isn't so linear, right? Like, it's not as straightforward as most people want to say. And, you know, from that perspective, I would say the policy could be earning, let's say net net after everything, let's say it's earning three and a half, right? Like after all costs. And let's say you have a loan cost of four and a half, five, let's call it five. So that's negative one and a half%, but I could show you how over a decade that can still make sense potentially, because the benefit of life insurance is not just built around the internal rate of return, right?

Exactly. Relisten to that, because I think there's a lot of people that are just selling life insurance off of the rate of return. And so the moment that someone actually looks at illustration and says, "Why in the world, Chris, would I borrow at a higher rate than what I'm earning?" I'll tell you why. Because life insurance is extremely valuable and it's not just in the internal rate of return. So I think the reason, not to get off track, is on point. I know. I think so. This is why I told you we need five videos for this. But I think the reason for this is because what happens is we have an industry

of agents. Yeah, that are trying to take this concept that is really designed to resonate with entrepreneurs, real estate investors, people who are more creative in their ways where that control is more valuable for them. The value and the attributes of life insurance and what it does as an asset does more for them. And they've tried to simplify the conversation and make it so it kind of reaches across the broad spectrum and is attractive to, you know, school teachers and rank and file employee kind of people.

Well, this is going to lead into our second point. The second point is people that are highly pitching this crazy rate of return that you're going to get. It doesn't happen as much with whole life because it's harder to crazy pitch whole life because we're looking at internal rate of returns of anything from like three and a half percent to high fives. This is what I'm seeing in today's marketplace. And so again, a lot of people would see that and say that's not like that crazy. And you could say that those are tax-free and you could put tax rates on it. So you could still say like that's a great rate of return.

My biggest problem is just like what you were saying, is a lot of people are, you know, overhyping life insurance, whether it's super aggressive borrowing strategies within the policy, whether it's like looking at caps and just over hyping the whole general account. And what they're saying is life insurance is like the rich person's Roth. It's like the tax-free wrapper and all these things. And so they're saying half-truths because they're right in a lot of aspects, but they're over pitching life insurance as an investment. And that's a trigger for me and I've been pretty consistent for years on this.

I agree. It's a huge trigger for me and it's one I don't even want to comment on right now because it'll be 20 minutes on that topic alone. I mean, it's that big of a deal. Like life insurance is not an investment. It never should be an investment. Anybody who is selling it to you as an investment, talk to somebody else.

All right. Number three is when people are pitching the income of life insurance and that's like the main pitch and the income blows everything out of the water. Now, when I said this early on because I did a TikTok video, believe it or not, and someone that I respect was like, Caleb, like life insurance gets superior income. And again, I want to be very, very clear. I think what makes life insurance can be powerful is the compounded nature of it. It's that you don't necessarily need to pay taxes if you utilize the borrowing function and all is well. And so there can be some advantage of taking a tax-free loan against your policy and that can create some benefits.

But what I have found is the people that are over hyping income based off of an illustration have no idea what the future's going to hold. And whether it's whole life or IUL, I would just caution you because if you're just buying a widget for the future income, it's probably going to be a lot less. I don't care whether it's whole life or IUL. I would understand how life insurance can enhance income, whether it's directly or as it relates to the other assets that you have in your portfolio. Understand how that works, understand how the variables work, because I'm not saying that life insurance is worse than a 401k or an IRA, because I think the way that like even people nowadays are saying that the Monte Carlo for 4% is too aggressive.

So, I'm saying the whole thing is messed up, but don't just look at life insurance and say I'm just going to pull from my life insurance and it's going to be this magical thing because I'm telling you it's not. It's not popular for me to say that. I'm sure I'm going to have maybe some of my friends not happy that I'm saying that, but it's just the truth. The truth is don't overhype life insurance as the sole income, that it's going to be tax-free, because it's probably not going to perform to a fraction of what you think it is.

So Brendon Burchard always says common sense is very seldom common practice, right? And so if we utilize a little common sense here, life insurance companies, are they great at getting big returns in the general fund? Like if they, right, life insurance companies do not specialize in getting great returns on investments. They focus on preservation of capital. That's what they focus on. That is the foundational component to what they do.

That is why they do the best in down markets. That is why they've weathered three versions of the dollar since 1840. That is why they've never missed a dividend payment for the good mutually held companies over 180-year period, right? That is why. So if I'm going out and I'm trying to get bigger returns, more income, things of that nature, I'm not going to use a company that doesn't specialize in that. You know, like life insurance, I think it's hypocritical to think that a life insurance company's going to be able to do that for you when they can't do it for themselves.

And I want to be clear. I think, and I will back this up, if I had to put a dollar into life insurance versus a dollar into the market, my money's on life insurance as it relates to the spendable cash flow, especially when you look at other variables. So, what I'm not saying is that life insurance is horrible in retirement. I'm not saying it's a horrible income. I'm saying I've seen things that people are like three or four times x your income and it's so magical, and I've heard people say put all your money into life insurance for future income, and that's what I'm cautioning on.

What we're talking about is index universal life is really how it's being sold. I've seen it in whole life too. So people do it with whole life, but the danger comes because index universal life illustrates, it can look amazing 20, 30 years from now, crazy, and it's based around a lot of assumptions that I don't want to say is never going to happen, but it would be likely to happen. Yeah. It would not be wise to put all your money in, bet on these variables for the future. And so from that perspective, we always talk about this. What's the upside? What's the downside? Can I live with the downside? And what I look at

For this is the downside in an IUL. When you look at that, when you look at the income, if you're looking at an IUL that's trying to show you income, make sure you run an illustration that has income because there's a lot of extra disclaimers that get put on the illustration when they run it. Make sure you look at all the different columns, the current, the alternative rate, and the guaranteed column, and kind of find that happy medium in the middle. Don't go on the far right current rate because that's going to be way over ballooned. I would say whatever they run for income, I would knock it down a notch or two or three.

And I would say work with someone that understands how life insurance can work in your portfolio. And if all your money is in life insurance, if you want to literally be off the radar screen of the IRS, just make sure that you're getting very conservative illustrations because whole life and IUL might not illustrate the way that you think it might illustrate. Doesn't make either product bad. I know that Chris might disagree with me on that statement, but it's just, you have to understand that. No, IUL is not bad. It's just misrepresented. Yes.

Okay, number four. You ready for this one? I don't know. Ladies and gentlemen, you are not going to become wealthy buying liabilities. You're not going to become wealthy buying cars. You're not going to become wealthy buying boats or going on vacation. And the people that are saying, you know, drive your retirement and like become wealthy because you'll go on this vacation, this is where it's really coming from.

Pamela Yellen, she wrote a book on Bank on Yourself. It's a good book. It makes a lot of concepts. It was really key for me reading. She wrote a lot of things that I understood, but she made it sound like because your money's growing uninterrupted that you can borrow. She probably said from, but let's say she said against. You can borrow against your Bank on Yourself policy. Your money's growing.

So Chris, your money's growing while you buy the car. Your money's growing when you go on vacation. Your money's growing. You're doing those things. Which is correct, but it's just bad math. And at the end of the day, we've taken a step back and said, "Okay, yes, but Chris, your money's also growing even if you don't buy that car or liability." So, at the end of the day, if you're going to take a loan, you have to answer this question: is the activity that I'm loaning against my life insurance for giving me a greater result or return than the cost that it's costing me for that loan?

So to make things really simple, if a loan cost me 5% and I put my money in investment that's earning four, that's a negative 20% result off of that activity. Is my money growing, Chris, in my policy? Yes. Sure. I just lost 20% because of activity. Vice versa, if I borrow at 5% and earn seven, that activity is a 40%. Why? Because of leverage.

So, all that to say, sorry, dude. All that to say is, I get very, very passionate about this because I'm all about, if you want to buy cars or whatnot, but just don't think you're actually becoming wealthier by doing that. It may be the most efficient for your situation, but I bet you if you go off of our equation, you might find that a third party lender or a bank or a credit union might be more efficient than using your policy. Totally. Yes.

So I got a couple things I want to say. So, I want to ask you this though. What is your opinion? Yeah. Okay, so let's say I ran a 5% car loan for 5 years. And let's just say I don't have the numbers in front of me, but let's just say that we bought a $30,000 car. And at 5%, let's just say it was $4,500 in interest expense. So now we were paying $34,500 total for that car over a 5 year period. Okay. All the while my money is in the policy earning only 4%, net net everything.

Okay. So, we're earning less. There's a negative. That 4% though, let's say at the end, because of it growing on a compounded basis versus an amortized loan, earned more interest than you actually paid at 5%. I think that's so, in other words, what you're saying is it's possible that you're earning less but you're making more interest because of compounding versus amortize. Correct. But I'm saying that's bad math because we're talking about two separate things. Your money is going to compound regardless. And what I'm saying, if you're going to take a loan, look, you can look at amortization, but you should shop out the most efficient way to access that capital.

So it's a perfect answer. It got me in like it's exactly what I Were you hoping for that answer? Yeah, exactly. Okay. So what he's saying is that there's always a cost of money. Yes. Opportunity cost of everything. Opportunity cost of everything. So car is a depreciating asset, right? Yeah. That doesn't matter in this situation, but yes. But it's a degree. Yes.

And it kind of matters. Like if you're going to buy a car, let's face it, a car is an emotional thing. Like we want it. Can I stop you here though? Sure. So now we're getting into the conversation of should you buy that car? Nope. Okay. Because I think when you're buying a decision, when you're buying something, there's two things. Should you buy that? And then how is the best way to purchase? I understand how my statement might, but that's not where I'm going.

So when you go to buy a car though, it's also a secured asset and so therefore the cost of that money can be cheaper. Okay. So, like I could go to a credit union right now and get a 0.9% rate. So, the cost of money, if I want that car one way or the other, my money is in my whole life policy. So, the value of having a whole life policy is the control of that money and the flexibility and the leverage, right? Yes, we're aligned. Okay. And so, that's where utilizing a third party bank. Now, maybe your credit's not that amazing, but you could go to that bank and say, "Hey, listen, I'll guarantee it with this policy." Maybe like, I mean, that's not always the

...simplest thing to pull off, but it's possible if you have a good credit union relationship, whatever, right? But the bottom line is there's always an expense for that car. And if you're going to pay interest on it, which you're going to have to, right? I'm a believer and I believe you are as well. I'm going to take the 0.9% every day.

And now the people that say, and the pure IBC people are like, why reintroduce the bank into your life when you started this policy to take control of the banking function in your life? My argument back is you still control the banking function. If I want to bring a bank in to be a partner to reduce my expense and my cost of money, which is really what we're doing, I still have control of that because I still have the policy over here. Because if my cash flow struggles and the lack of ability to have an unstructured loan by having the bank, I can just move the money little by little from the policy to cover that gap if I need to. Right.

Yeah. I think this conversation, by the way, is very very valuable and I hope people watch this and share this, because I think it's going to elevate all the conversation. I want people, even if you disagree, if there's a point that I'm saying or Chris is saying that you disagree, please, please put that in.

I'm going to say something controversial on my point four. Is this. If I had the ability to take a loan against my policy, and let's say the loan was 4%, okay? And the bank would give me a 5 and a half% loan for a car. I'm taking the 5.5% loan, Chris, and because I value control more than the delta. I value controlling my capital. Sure.

In my life, greater than, you know, one and a half or five and a half percent. And let me just explain that. Is I would rather pay more interest to the bank than I would be to the insurance company for the flexibility and control of saying yes to who knows what in the future. You're going to take a lot of people off. So what I'm being very very clear, bad math, I'm saying I am willing to pay more interest in this scenario because I value control more than one and a half%.

So, here's what I'll say to that. And this is just my opinion. I don't think there's a right or wrong answer to that statement. I think it really depends on the individual and your own ability, your own confidence, your own network, your own, like, control has different value to different people. You're a highly sophisticated individual. I'm a highly, like, you and I, what we can do with control of 100 grand, yeah, has a different value than maybe a majority of people watching this video, right? Like, so it's, I would encourage you to keep educating yourself and get to that place.

Right. But there's some people, Chris, like Dave Ramsey. Yeah. Like a lot of people that listen to him that need to listen to Dave Ramsey, the more control they have, the worse they get. The worse. Yeah. So totally. It's like we talk about control in a positive light, but it could be reversed and be one of the most horrible things if we give people more control. Kind of like flexibility in an IUL. It's not always good.

All right. Are we good here? Like, this is okay. So, getting rich buying cars, vehicles, vacations, like, understand what they mean. And just by buying a liability doesn't mean you're going to get wealthy. Life insurance is a powerful asset, but let's actually understand how the borrowing works and all that. Awesome.

Number five is you're not paying yourself interest. People will say things like, you're recapturing interest, and you should pay yourself back. You should pay yourself back more interest. This is a big trigger for me. Yeah. I want to finish my thought because I have a lot of good friends that say this. And again, I 100% understand that we're talking about behavior and we're talking about, like, hey, if you're going to go buy a car, especially if you're going to go on vacation, we have to understand that, like, hey, we got to pay ourselves back. We got to make sure that we don't disrespect the banking function and like, you know, there's a lot of things there, but at the end of the day it confuses a lot of people.

You're not paying yourself back. It just confuses a lot of people. And I think we say things like it recaptures, but at the end of the day, it's all math. And I would say I'm recapturing more money if I'm using a bank and then able to have more cash flow to save more. Okay?

So, I'm going to put this into simple terms. So, first of all, you're never borrowing from yourself. You're always, I said this earlier, you're always borrowing from the insurance company, and you're never paying yourself interest. You're always paying the insurance company back. While your money is sitting in a side account, you're collateralizing your policy. That's what you're doing, to keep it like the technical terms, whatever.

So, let me ask you a question. Okay? Let's say I borrow against my policy. Okay? And I borrow against the policy. The insurance company gives me a loan, let's say $50,000 and paying them 5%. Okay. Okay. What's being told is you could pay yourself back interest, because now instead of 5%, I could just choose to pay myself back 10%. Explain that to me.

You're just paying off that loan faster. Okay. Right. So what happens once a loan is paid back and I want to keep putting more in? So two things. The way that we structure policies is nothing, because we maximally structure policies. But I guess if you have a policy that has room, that means in a way you could make an amortization schedule, and then when you pay off that loan, then you're paying additional premium into your policy. And so we're getting really in the weeds, but okay, but in a sense that's what they mean if you pay yourself back more. A lot of people actually don't do that. They just pay off their loan faster.

Okay. Yeah. The other thing, and so this isn't on your list. Okay. It relates to this. So what people say is, "Well, I'm going to borrow from myself." And what they say, what they mean is I'm going to have I

...have my company, right? And so my personal self is going to give my company a loan and my company is going to have to pay back the interest. And so it's a write-off for the company and I can charge more interest to the company. And so that's a write-off, right? So my cost, so I basically create my own loan system, right? So I'm going to borrow, Chris Kirkpatrick is going to borrow 50,000 from my policy and I'm going to loan it to Life 180. This would, I'm just using my company as an example here, right?

And now Life 180, I'm gonna charge, Chris Kirkpatrick is going to charge Life 180 10%. Okay. And so now when Life 180 pays me back at 10%, I'm going to take, I have the 5% expense, but Life 180 gets to write off 10%. Do you see any problems with that? I see a lot of problems. I see a lot of problems with that too.

I just, so here's what I want to say. Like there's no free lunches. If you write off 10% for Life 180, what is that for me? It's income. That's correct. I have expenses for the 5%, but now Chris Kirkpatrick, the individual. Yeah. Has income. Right. So you're never getting away with it.

And also the laws are very gray if you're not using a third party lending, writing off interest. People will say, "Oh, if you borrow against your life insurance policy to buy assets for business use, you can write it off." Do that and then get audited. If you're going to actually want to write off your interest, I would look into a third party lender. Yeah, totally.

The point that I'm making is, like number one, it's language. You're not borrowing from yourself. You're not paying yourself back with interest and you're not recapturing, like it all comes down to opportunity cost. You can say you're recapturing not because you're actually recapturing the interest, but your policy is continuing to grow and it's way more efficient than other ways. I say all that, I love the people in the industry. I love people that get people to be more in control.

And I think here's where I'll end, is I know people across the board that probably, and I know I make mistakes all the time. Are clients better off working with you and are they getting results? If that's the case, we can talk about concepts and we can agree to disagree, and at the end of the day I have the opportunity to host a life insurance mastermind where some people disagreed and that's amazing because it's elevating the conversation. And I always want to embrace that. But these are some of the things that I think we need to have the conversation because it's confusing and it also makes life insurance, I think it gives us a bad rap, because all these things, if you're really intelligent you're looking in and you're like, okay, you're not paying yourself back, how in the world can you get rich buying liabilities?

I don't understand how an insurance policy can 3x your income versus something else or how this gets a greater rate of return. So I think it's more common sense and going back to the quote that you like to say, like sometimes common sense seldom common practice. So but here's what I will say to it, where the people that talk about it like that, that say you can get rich buying depreciating assets, it's not the buying the depreciating assets that is getting you rich. It's the change in the behavior and the funding and all that that's going to get you rich. Now, buying that asset, there's probably a more efficient way to do that. Does it make doing what they're saying bad? No. It just means it's not 100% optimal, right?

So how they would get to that is they would say, well, by you being your own banker, you're saving 10, 20, 30, 40% of your income. Yeah. And so as a result, you're buying cars. Yes. It's a liability, but you're saving 40% of your income. And I would say, amazing. Can we save 40% of your income and still have them more efficient? But at the end of the day, we can debate and you will be better off if you're saving a lot more money than the people that are on TikTok and aren't saving a single buck. 100%.

Guys, like, subscribe, share. Chris, thank you for sitting in and making me sane going through this. And we would love to hear from you. We'd love if you could leave a comment. And if you know somebody maybe in the industry, in our profession, you know someone that needs to hear this message, send this to them. Because we want this channel to really be fair and balanced, ways to challenge you in money, business, and how you can live more intentionally. And that's why we make videos. Love it, man. Take care.

Hey, I want to thank you so much for watching this video to the end. This video is on life insurance. And if you have more questions about life insurance, infinite banking, why you should overfund it, we have a link below that goes to our AND Asset vault. This is a free vault that gives you everything you need to know about life insurance. We have case studies. We have a calculator on there. We have a handbook. We have frequently asked questions. We go through a process. I have my master class on there. We literally want to be the one-stop shop for every life insurance decision. And so, if you want to learn more, click the link below. And we look forward to educating and maybe opening your mind and eyes to the power of life insurance.