IBC Policy Design Part 1

Chris Bay:

Welcome to the Life Success & Legacy podcast. My name is Chris Bay, and I’m joined today with the founder of Life Success & Legacy, Mike Everett.

Mike, we’ve talked in previous podcasts about how Nelson came to discover that whole life insurance, if designed properly, can be an unbelievable tool for really privatized banking, and controlling your own finances and all that. So, what we’d like to accomplish in this podcast is to educate people about different types of life insurance, why whole life insurance is the tool to be used, and why is this type designed differently for the purposes of Infinite Banking? So to begin with, can you just kind of give our listeners a broad perspective on the different types of life insurance that are out there, and why people buy life insurance?

Mike Everett:

Well, traditionally, life insurance was bought for one reason. It was bought for death benefit. If you go back, I’m going to say 40, 50, 60, 70 years, there was really numbers of different kinds of products out there in the life insurance industry, but the only difference was the design of what was going on. Some people, if you go back to my grandpa’s era, what they did was they bought whole life insurance and they bought it for death benefit. What they planned on doing was, they just planned on putting money aside just like you would for a savings account, but they just stored money into a life insurance policy.

There were all kinds of products out there. There was a 20 pay life. That means that you could pay the premium for 20 years and then it was paid up for the rest of the time. There was life paid up at 65. So you paid the premium until age 65, and then the policy paid for itself. Then you had your ordinary life or permanent life insurance, and you paid the premium all the way up to age 99. Basically what happened was, in all of those policies, the traditional life insurance policy, which was bought specifically for death benefit, the policy endowed at age 100. Meaning the death benefit amount and the cash value amount were equal amounts. What they did was, they turned around and they gave you the cash and said, “Hey, thanks a bunch for paying on this thing and thanks for not dying.”

Chris Bay:

I know from my past history in finances, personal, we were following some teachings of Dave Ramsey. Dave is famous for encouraging people to buy term and invest the rest. So can you just talk about term life insurance?

Mike Everett:

Term life insurance is exactly like renting an apartment. You’re basically renting your life insurance policy for a certain time period. There are all kinds of time periods that you can do. You can do annual renewable term. That means that you pay the premium every year and every year the premium goes up. It’s called attained age. As you get older, what happens to the cost of life insurance? It goes up because you’re just a little bit closer to death. That’s annual renewable term. You can get 5-year level, 10-year level, 15, 20, and even up to 30-year level.

If you think about it from an insurance company standpoint, the insurance company offers term life insurance for whatever time period you choose. Five years, you pay the premium for five years and at the end of five years, the premium goes up and you choose another term. 10 years, 15 years, 20 years and so on. If you think about it from a life insurance company standpoint, they just want you to pay your premium. They’d like you to not die. Right before you die, what they’d like you to do is, they’d like you to cancel your life insurance. Term life insurance is the number one profit center of most life insurance companies out there. So why wouldn’t they do that?

Chris Bay:

Yeah, so Infinite Banking obviously does not use term.

Mike Everett:

They do not.

Chris Bay:

You mentioned earlier that term life insurance is kind of like renting life insurance.

Mike Everett:

That’s correct.

Chris Bay:

So if we make that correlation to our living situations, if we’re renting, we’re not building equity.

Mike Everett:

That’s correct.

Chris Bay:

Okay. So then the option is then whole life insurance, and that’s kind of like buying a house where you’re building equity and that equity, we use the term cash value. Can you talk a little bit about whole life insurance and the cash value piece and why that is so important to the concept of Infinite Banking?

Mike Everett:

Well, this is one of the awesome things that Nelson discovered was, he realized through his own trials and his own tribulations, that there was a way that he was building equity. What ended up happening was, he had incurred a tremendous amount of debt. At the time that this had all come due, interest rates had soared extremely high, like 18, 19, 20, 21%. He realized that he had all kinds of equity, or all kinds of value in his life insurance policies, that he could tap into.

Instead of borrowing the money from traditional financial institutions at 18 to 21%, he was able to go to his life insurance policies and do a policy loan. Borrow against the cash value of his life insurance policy and be able to pay off some debts that he had out there. This is exactly what Nelson discovered in his book, Becoming Your Own Banker.

Chris Bay:

So, with a whole life insurance policy, you’re building equity, which can be borrowed against from the life insurance company and then utilized for many different purposes.

Mike Everett:

Correct.

Chris Bay:

Can you talk a little bit about the design of the whole life policy, because the traditional whole life policy… If I went down to some life insurance company and said, “hey, I want X amount of coverage.”, they’re going to design the plan a certain way, but if you went to an Infinite Banking coach, they’re going to design it differently. What are those differences?

Mike Everett:

In a traditional life insurance format, you’re buying literally a hundred percent death benefit. One of the questions that we ask every potential client is, “if we had to ask you right now, what was more important to you, cash or life insurance death benefit, what would you say?”

Chris Bay:

I’m going to say, “cash.”

Mike Everett:

It’s cash every single time. What if there was a way to design the policy where you could have both in ample supply? You would not only have death benefit, but you’d have the cash that you need now. We need cash from right now until the day we die. We only need death benefit one day. What if there was a way to design the policy to emphasize the cash value now, still get a death benefit, but yet really, we need the death benefit 20, 30, 40 years from now, not today. This, once again, was the beauty of what Nelson discovered. He realized there was a way to completely re-engineer the policy to work for you today and still have the death benefit when you needed it 20, 30, 40 years from now.

Chris Bay:

In the middle of Nelson’s book, Becoming Your Own Banker, he uses an example of a business person. He’s an equipment finance person, and he shows a couple of examples. One is first, this business owner simply putting money into his policy and just letting it be life insurance. It turns out to be a really incredible result for him. Then what Nelson shows is, if he actually uses the cash value of his policy and takes loans and utilizes that to finance his business expenses in his life, that he actually ends up with a better result. Simply by using his policy to finance everything in his life. That, sometimes for people, is a hard leap to make.

We always encourage them. If you think like a banker… In fact, in our boot camps, we say, “we’re going to remove your brain from your skull today and we’re going to replace it with a banker’s brain.” We want you to think like a banker. How do banks make money? If we can apply that to utilizing their own whole life insurance policy, but having it designed to emphasize the cash value portion versus the death benefit, it’s an unbelievable tool for banking.

Mike, thanks for explaining some of the ins and outs of life insurance. This is a topic that I think is going to take a little bit more explaining. I think what we’ll do is do another podcast that digs in a little bit deeper. We’re going to talk about the base portion of the policy. We’re going to talk about the paid-up addition portion of it and how those policies really can be thought of as businesses and how we can actually franchise our policies. Thanks for the information. Listeners, thanks for joining us and catch us on our next podcast.