78: Generic Infinite Banking Advice: The Pitfalls of "Hacking" the Process

[00:00:00] Hello, everyone. This is John Montoya. And this is John Perrings. We are Infinite Banking Authorized Practitioners and hosts of The Fifth Edition.

[00:00:12] John Perrings: Episode number 78, The Problems With Generic IBC Advice. Here we are another episode, we're going to help clear up some of the noise and sensationalism out there surrounding the Infinite Banking Concept newsflash all the hype is not required to create outstanding results and performance and improvement in your financial life.

[00:00:31] So we're going to talk about three things today:

• the ridiculous hyper focus on early cash value and how this creates a suboptimal outcomes in as little as three to five years, believe it or not.
• Number two, how this hyperfocus creates preconceived notions and misconceptions for buyers and how they think they want their policies designed.
• And then John and I will talk about how the fact that IBC works no matter how your policy is designed as long as you buy a whole life insurance policy with a reputable mutual insurance company.

So, if you're the type of person who wants the no BS non sensationalized ungarnished truth about, what we're doing with whole life insurance and IBC, keep listening because this episode is for you.

[00:01:16] All right, John, here we are back on Friday doing our podcast. Anything you want to jump into there before I hop into my bullet points on what we just introduced?

[00:01:28] John Montoya: No, I'm I'm like that character from Dragnet, just the facts. So let's jump right into it.

[00:01:35] John Perrings: All right. So let's talk about hyper focus on early cash value. And let me give it a little more context to the. The way I thought about this episode is just, it happens regularly, but for some reason recently, I've talked to a lot of not a lot, but several potential clients who come in just really thinking they, they know how they want their policy designed. And no matter h [00:02:00] ow you explain it to them they think that they know what they want.

[00:02:04] Meanwhile, the truth is the insurance companies don't make the information for policy design available to, the regular consumer. So it's always strange to me when someone comes in thinking that they know how they should have their policy designed. And usually it's just all they have in mind is like the, either the rate of return on the cash value or, how much cash value they can get in year one.

[00:02:28] And so it's usually a very there's not a lot of real thought put into how the policy is designed if you consider all the trade offs. A hyper focus on early cash value. Really I'm talking about agents right now. So there's this kind of generic IBC advice, usually from people who are not authorized practitioners and really, mostly what they're focusing on is proving to you how they can get you the most cash value compared to how much premium you paid in year one. So they're focused on year one mostly.[00:03:00] And it's there's a lot more to this IBC stuff than just how much cash value you can get in the first year of your policy.

[00:03:07] And so a lot of times these guys are on, social media or whatever. They're a lot of times newer agents, not knocking newer agents. I'm relatively new, not super new, but I was a new agent once and it. It's the most basic level of understanding of IBC is to only focus on the cash value.

[00:03:28] We're coming up in mid September as we record this, October is just right around the corner. So I'm going to throw out a nice reference. I think this is the pumpkin spice latte of IBC advice, just focusing on cash value. It's the basic, the most basic way to think about this. Just to take that a little further, it's like you buy, you go into, whatever, Starbucks, you buy your delicious pumpkin spice latte.

[00:03:53] You don't tell any of your friends about it cause you don't want them to know you like pumpkin spice lattes. And you buy it from one of those [00:04:00] teenagers. It's like his first job and he doesn't know what he's doing. He doesn't. I'm not sure he can understand anything about consequences. He puts the lid on wrong, and as you walk out of the store, someone bumps you a little bit, and half the lid comes off half your pumpkin spice latte falls out of your cup.

[00:04:15] Maybe you even drop it on the floor and you don't even have a pumpkin spice latte anymore. This. This analogy is really just to I don't know, try to draw a little humor on on everything that's going on there. But the, what I'm trying to say is if you can only focus on one thing, the reason I say it's very basic is because the trade offs are never discussed. In life insurance, everything is a trade off between cost and risk. Norm Baker via. Todd Langford. There are no deals in the insurance business. Everything's a trade off between cost and risk. And so when people only focus on cash value they're missing probably 80 percent of everything else that needs to be discussed because everything has trade offs in a life insurance policy.[00:05:00]

[00:05:00] All right, John, I see you have some thoughts you want to talk about here, so I'll stop running and turn it over to you.

[00:05:08] John Montoya: So you just got me thinking about, when the focus is solely on early cash values, people really miss the opportunity for holistic planning and where a whole life policy fits in their overall portfolio and they can't see the bigger picture. So that's why it's so important to work with an experienced advisor, at least someone with enough knowledge and expertise under their belt who can help pull you further away and help you to see the holes that you have in your overall financial portfolio and, in your overall financial plan, because the cash value is just one solve.

[00:05:51] And there, there are greater needs that you need to solve for, IBC is about solving for the need for financing, the death benefit just happens to be [00:06:00] attached, but with that death benefit, you have actuarial science and that will play into when do you want to retire, because all the assets that you're going to accumulate they have to be spent down in order to produce income while you're sitting on a phenomenal asset that has actuarial science. baked into it. So when you combine a whole life policy to everything else that you're doing for, that future stage in life, where you're going to be leaning on passive income, you actually have the ability to exercise the power of this actuarial science to increase your income options in retirement and just having that thought.

[00:06:47] And that realization that you need to start planning for this eventual event in your lifetime, how are you going to do that when your focus is only, cash value at year one, cash value at year [00:07:00] three, year five you're really in a. The wrong type of mindset and you're not going to be able to see the bigger picture.

[00:07:07] The focus there, yeah, you're absolutely right, John. It's not where people should be. I understand we're conditioned to think that way for a lot of reasons but. When you do that you're really missing all the things that make this whole life policy unique and how impactful it can be in your whole life, not just in the first couple of years.

[00:07:30] And one more thing that you got me thinking about too is, when I experienced it too, people will reach out to me, they found me through the IBC practitioner program and they want to get some "quotes."

[00:07:41] John Perrings: Right.

[00:07:42] John Montoya: It I have to tell these people basically no, and you're going about it the wrong way.

[00:07:48] You need to understand what this is all about and this isn't, a drive through menu. This is. Basically to me, it's the equivalent like turning on the boob tube [00:08:00] and seeing a pharmaceutical commercial and saying, Hey, you know what? I might benefit from taking this prescription drug.

[00:08:07] So I'm going to go set an appointment with my doctor and go in and tell him, "Hey, can you write me a prescription for this drug?" Was your doctor actually going to do that? No way. They're going to ask you a lot of questions before they even will come to a recommendation. And that's the same type of thing that needs to happen here.

[00:08:27] You don't go to a specialist and write your own prescription. You go to a specialist because you want Advice. You want guidance and you want to get the best recommendation possible for your situation. You can't do that by ordering whatever it is that you want and getting quotes.

[00:08:48] So I guess in short don't be that person. Or maybe to your analogy, don't order the pumpkin spice latte until you fully understand who's making it and what's going in it.

[00:08:58] John Perrings: That's right. That's right. [00:09:00] Yeah. And I, we should also just recognize, we're not trying to bash consumers on, them trying to make a decision, of course you want to get all the information. And we're not saying you should abandon all your agency either over deciding what is the best policy for you.

[00:09:17] However, the idea of getting quotes is a little bit misguided in this particular example, because it's not about the rate of return? It's not about the cost. There's no cost. There, there is cost in the early years of a life insurance policy where you pay it. Every dollar you pay in premium, it does not generate a dollar worth of cash value.

[00:09:40] Once that policy matures It's like taking money from your right pocket and putting it in your left pocket. There's no more cost to buying the whole life insurance policy. So of course you, you want to get all the information you want to make sure you have, the best policy. But when people look at quotes, like I've [00:10:00] asked the question, I'm like what do you, what would you like to see in a quote that will, what information do you need to know you'll have "the right policy?"

[00:10:06] And no one can even answer that question. So they're just looking around. They basically want to look at illustrations and. They don't even really know what they're looking at yet. Again, I'm not bashing them. This is, you have to spend some time understanding this. But one of the things that is interesting: look up Bobby Samuelson out there, he's, he does some great work analyzing, different types of, UL, whole life, comparing all those.

[00:10:30] And he talks about, illustrations: they're not really there to show you performance. They're there to show you how the policy mechanics work. So when people look at illustrations and they try to compare, this number to that number, it's really a little bit of a short sighted type of conversation.

[00:10:49] The other thing is, getting back to the, the agents that sell it like this. Again, they create this preconceived notion. One of the problems [00:11:00] actually comes from investors. So you get the people that look for quotes you get the ones that, try to tell you how they want their policy to look, and then you get the investors who, who really have a hard time getting over the lost opportunity cost of the first few years.

[00:11:14] And there's no getting around. Lost opportunity costs. We, there, you have it, even when you invest, you lose the next best option when you, whatever you're investing in, whether it's real estate or whatever, but you get, some investors that are focused on that lost opportunity costs and and so they want to try to minimize that, they love to get as much cash value in year one, right? The thing is if you really need, if you really need all your cash in year one, just keep it in cash. Like Ryan Griggs talks about this, I think, I don't remember, it was on one of his podcasts and he just had a great one.

[00:11:47] He's just keep it in cash. It's yeah, keep it in cash. Like why are you even doing this if you there's no free lunch out there. Like you can't just, buy something to create. Strategic advantage and [00:12:00] expect no, lost opportunity cost. Everything has a lost opportunity cost.

[00:12:05] Just digging into that going back to point three, here's the truth. IBC should and does not require sensationalism to understand that it does work, right? One of the great problems that I think out there in today's culture around money is that everything is looked at in the short term, and this permeates everything, right?

[00:12:24] We when it comes to money, we have everything from the hack culture, where, people talk about, these really high returns, getting them very quickly. 10X in your business and, I'm not knocking 10X in your business or anything, but I think that, it's created this situation where people have a really hard time thinking long term because everything's a side hustle now and doing all this other stuff, but it also goes out to the public companies out there, and this has been around way longer than the current like side hustle 10x fad, Public companies are beholden to their to their [00:13:00] investors and shareholders to make, and so they're at the whims and making these short term decisions to make all, make those people happy.

[00:13:08] And so everything that we get from like mainstream financial advice is all about how do you make this happen? How do you make it now? And how do you make it big? Nothing's ever talked about in the form of control and risk. Because of this, we're taught to give up control of our money. We're taught to take shortcuts.

[00:13:28] We end up having, we take these shortcuts, we give up control. We end up creating suboptimal results for ourselves. Before money even hits your checking account at your job. Some of it is peeled off and put into a 401k that you can't touch for the next 20, 30, 40 years, right?

[00:13:43] Depending on how old you are. If anything goes wrong, you're going to have to liquidate it, pay the taxes, pay the penalties. It's a disaster. Solving this problem requires us to not only take back control, but also think long range, if anyone's listening to this and you haven't read the [00:14:00] source material for Infinite Banking, which is the book, Becoming Your Own Banker by Nelson Nash.

[00:14:05] The whole thing's about taking control back in your financial life, taking over the banking function, and thinking long range, right? You gotta be able to do that. And if you can number one, it's boring at first, but number two, that lost opportunity cost in the first few years, you won't even realize that happened because instead of thinking about the lost opportunity cost for the first, whatever, one, two, three, four, five years, what about the lost opportunity cost by not having a strategic place to store capital over the next 50 years, right? People get so focused on these first few years, but I've run the numbers.

[00:14:43] I, I can prove it. You will do way, way better. By focusing on capitalizing first, then investing and over just analyze a 30 year period, you will crush it compared to just paying cash for all your investments. So anyway I'm, that's I'm going [00:15:00] long here, John Montoya. So anything you want to jump in here and add before I keep going.

[00:15:04] John Montoya: You make a great point about forfeiting control and that's essentially what people do when they opt into 401ks and IRAs and programs like that. And, the thing to realize there, one point in particular is that when you contribute to a 401k, an IRA, you are locking that money for decades, as you mentioned.

[00:15:27] Are you concerned about The, breaking even in five years, 10 years, hypothetically from that point of view, you don't look at it the same way, but you have to have the same frame of mind where, You're going into a 401k IRA thinking this is for the future and I'm not going to touch it.

[00:15:47] And the government limits, puts restrictions on you being able to access it anyway, even if you wanted to. But you're thinking, okay I can't touch this for 30, 40 years. You need to have the same [00:16:00] mentality. For a whole life policy, except you do have the availability to access it whenever you need it or want it to purchase, acquire, or, do whatever you want with the cash value there.

[00:16:13] It's there, available, you have first right to it unlike a 401k or IRA, but you have to have the same mentality in thinking long term. It's so ironic that, people go into these government retirement programs with the correct mindset for thinking long term, but then they refuse to do it with a whole life policy.

[00:16:35] John Perrings: The other thing that is, that Nelson talks about in the book is that don't be afraid to pay a premium, right? When people convince themselves that early cash value is the most important thing, and again, I've said this before, if all things were equal, of course we'd want as much cash value in the early years of the policy as we could, but all things are not equal in a life insurance policy, we have all the actuarial science, we have [00:17:00] the MEC limits, so the paying a premium is important and if all you're focusing on is the early cash value, you're actually falling into the trap of being afraid to pay a premium.

[00:17:12] That's just another form of being afraid to pay a premium when all you can focus on is that first year, second year cash value.

[00:17:20] John Montoya: I'm going to try to articulate this for the first time ever, so bear with me. I tend to walk about three to five miles in the morning and then again in the evening. And I had this idea because I've always been interested in words. "Premium." premium was a word that I was focused on recently and what that means.

[00:17:40] If you're going to pay a premium for a car, That essentially means that you're going to pay over asking price. Now, there may be a very good reason why you would do that, that there's some sort of, additional value that you perceive in doing so in paying that [00:18:00] premium. And it got me thinking about.

[00:18:02] Why we call it "premium" when we put money into a life insurance policy, we pay a premium where we're paying something more than the face value, let's say, of what we're getting. And I equated that to in the first five, six, seven, maybe eight years, we have less cash value than premium paid into it.

[00:18:24] We are definitely paying a premium over and beyond what we are receiving in terms of available cash value, but what's the trade off, right? We talk about trade offs. We get all these additional benefits that make that premium worthwhile in the short term, and then it accelerates and we get way more benefits. It just multiplies the longer we have this policy. So I'll admit I, I never really liked that word premium when it comes to explaining how life insurance works and paying a premium. [00:19:00] And then I thought about it recently and I'm like, you know what, that's perfect because price is what you pay.

[00:19:06] Value is what you get. And when you step back and you look at these whole life policies, And you really start to understand and appreciate all that it can do. You're willing to pay more premium.

[00:19:19] John Perrings: It kind of ties into the fact that, talk to any Infinite Banking Practitioner they'll tell you, you don't need whole life insurance to practice IBC. That's not required. It just so happens that whole life insurance, there's nothing better. There's nothing better you can use. And the whole, but the whole reason we use whole life for IBC is because It's the insurance that creates the benefits for us, and that can only be created via the actuarial science that goes into it.

[00:19:50] And it's the actuarial math that underlies the insurance, and when you try to shortcut the actuarial nature of life insurance, you're [00:20:00] essentially turning it into just another investment. And that's what you're doing when you're afraid to pay a premium. You're trying to shortcut the life insurance and the actuarial benefits of life insurance.

[00:20:11] And paying too high of PUA, again, things are not equal, unfortunately, because we now have the MEC limits and all that stuff. When you go to too light on base premium, you're shortcutting a lot of the benefits that could happen, in as early as three, five.

[00:20:31] 10 years, compared to a super high PUA policy, all the benefits of that super high PUA policy go away as early as three, five years. Yeah.

[00:20:41] John Montoya: So I was thinking about the sensationalism and it made me think of what's on my radar? What do I, what do my ears pick up when I happen to get on social media and I see what. Gets promoted or even, have people in a roundabout way reach out to me and [00:21:00] I hear what they're saying and it's basically, it's it's the key words are, what companies do you work with or what's the dividend rate or, do you know about the 10/90 split? And I've got my frequency tuned in to these questions. And people are asking because they're on social media and, these are the bullet points that keep on getting rammed down everyone's throat that is taking the time to, to watch these videos and the.

[00:21:31] The thing that it makes me think of here from a sensationalist point of view is that these are devices in a way that are being touted. To sell the policy itself, and it's completely sending people down the wrong path. And I'm hoping for listeners that they start to become more aware of this by us talking about it, because the advisors that are doing [00:22:00] this they're really short changing the public.

[00:22:03] And instead of being a consultant, they are basically acting as a salesperson. And I understand that life insurance as a profession. It's a tough sell. It's intangible. You can't see it, touch it, feel it. And you have to create emotion to get people interested. In it, really and I think that's true for all sales, but the problem I see is that the, these tactics are so short sighted that it it doesn't help people to see the bigger picture on what.

[00:22:38] Or how they can use whole life to accomplish and solve for their needs on a much broader basis. And I just want people to be aware of what they're watching, what they're listening, so that they can diagnose it themselves. And be like, man, that's that's short range thinking that's high time preference, [00:23:00] if you will.

[00:23:01] And it gets away from the core message of IBC and what we're trying to do long range. Be aware of what's out there and, think about what you want to accomplish long term and that's really going to set you down the proper path. And it'll also hopefully force you to do your own research do some more reading and.

[00:23:25] And really dive deeper into IBC. Nelson's book, he has such a incredible reference on, books that he recommends. That's enough to keep you occupied for at least a decade. There's a lot to chew on there. Don't get hung up on the sensational items. That is basically my point.

[00:23:48] John Perrings: I said it earlier, as my high school economics teacher, Mr. Evans used to say, there's no free lunch in room 117 and so some of these things I think, I'm not a big [00:24:00] believer in, just pigeonholing things and saying something's too good to be true just because it sounds incredible, but it is something that I think People should just, make sure they're looking at it and analyzing it.

[00:24:16] There's only, there are only three ways to get super high early cash value in a life insurance policy. The first way is you have to pay the policy up very early, like in year five or seven, maybe 10 at the longest. The other way is to use term riders for a long period of time. Remember, term riders, when we use those, they do increase the death benefit and allow us, allow more room for cash value, so to speak, but they're a, they're 100 percent a cost.

[00:24:44] It drags the performance of the policy down. So if you start using these things for a long time it'll start to eat into the performance of the policy and you're going to have a suboptimal outcome. But the, and the third way is the most, is the worst way where you get. Like these blended term PUA riders where [00:25:00] the term insurance increases, you don't actually know what it's going to increase every year because it renews every single year.

[00:25:09] And that can actually blow up a whole life insurance policy where you have to pay more premium. Now, some companies do these different than others, but The ones that are mostly being touted out there with these 90 10 type of designs, they're the ones that can blow up on you and just read the fine print in your illustration when you look at it and you'll see that it's true.

[00:25:28] We just, again not knocking consumers here. Mostly knocking the advice that's being put out there just by people who just got into the business and don't understand what's going on, and they're just touting cash value. We want cash value, of course, we want it, but we have to have it in the right way that's not putting us...

[00:25:49] If we're putting our cash somewhere, do we want to ever have that in a place that doesn't perform the way we think it's going to perform? And I think the answer is no. That's what... That's what happens [00:26:00] with investments. That's what we do after we capitalize, right? Anyway, I think, again, just having a few conversations recently, I wanted to...

[00:26:08] Talk a little bit about this sort of, in my view, a generic approach to IBC, oftentimes from people who are not part of the Nelson Nash Institute newer people that are just doing that like content hustle and are really not understanding the serious trade offs that can happen when you design a policy that way.

[00:26:30] You don't need it either. It's it really does not, it really does not create a benefit for you other than maybe the first couple of years.

[00:26:38] Just going back to the intro and that third point to wrap up on it, IBC works no matter what the policy design is. What makes Whole Life a financial unicorn? It's that guaranteed ledger. That guaranteed ledger basically spells out the increase in your cash value every single [00:27:00] year for the rest of your life.

[00:27:03] John Montoya: 50/50 splits, 90/10 splits, getting away from how a whole life policy is designed, how, in its predictable nature, where you park wealth, what you want to have happen is guaranteed to happen every year for the rest of your life. IBC, controlling the banking function through a whole life policy, it's best performed there because it is so predictable.

[00:27:34] It is so predictable that it is guaranteed by a full reserve, mutual based life insurance company. You can't find that anywhere else. It's a financial unicorn. So no matter what the policy design, it's going to work, even if you're not around to see it.

[00:27:52] John Perrings: Very nice. I love that. Everybody, thanks for joining us. Hope you got some, good insight out of this episode. [00:28:00] If you ever wanted to talk to one of us here, you can go over to TheFifthEdition.Com. You can schedule a free, no obligation, 30 minute consultation. And we can talk about how some of these ideas could work in your life, specifically. If you're the type of person like I was that just wants to read and learn as much as they can before they talk to somebody, we've got an online course just for you. You can go over to the, again, TheFifthEdition.com, right at the top. You can find a link to our course that gives you everything you need to know about IBC and whole life insurance before you talk to an agent.

[00:28:35] All right, John Montoya. Thanks as always.

[00:28:38] John Montoya: I'll see you next week.