88: IBC Insights: The Risks of Overextending Policy Loans

088 Max Loans

John Montoya: [00:00:00] Hello everyone. Welcome to the Strategic Whole Life podcast, formerly The Fifth Edition podcast. This is episode 88. What we're calling IBC is about more than just maxing out loans. This episode is based on a question that I received from a potentially new IBCer, prompted after watching videos on YouTube where multiple different sources said, if the only reason you are interested in IBC is to take a hundred percent loans and invest, You shouldn't do IBC.

This person asked for my take, and I feel like my answer surprised them. And here's basically what I said. I had to paraphrase it for this episode. And so I wrote down my thoughts and I'm going to read them to you here. And I'll just start. I agree wholeheartedly. When a person is only starting IBC to take out the maximum cash value, As a loan, they don't understand the problem IBC is solving.[00:01:00]

Controlling the banking function means eliminating third party banks who set the terms you must agree with. They can refuse you access to credit, freeze your funds, or close your accounts for no reason. By living under the rule of banks, you are always one step from having your financial life ruined by an arbitrary choice outside of your control.

Just as a side note, One of my good friends recently shared with me via text that after over 30 years of doing business, His bank was closing all of his checking accounts and he had, he had a total of seven checking accounts. He runs a couple of businesses the rest of personal accounts, no reason was given other than a general reply after being on hold for multiple hours with customer service that his profile didn't match their risk.

So rather rich in irony, considering the fractional reserve nature of all traditional banks, they're holding on to his money, yet he was the risk. So personal note[00:02:00] I once had one of my bank accounts seized by the IRS because my taxes hadn't been paid. I'm sorry, I paid my taxes. My taxes hadn't been filed.

For three years I received no letter from the IRS to warn me. My, my bank account was just frozen. Turns out, although I had paid all my taxes for the three years in question, my tax preparer had never filed the returns. I came to find out that he was battling dementia and. While he did everything, he worked on my taxes, he failed in the last step, which was to file them.

So I owed taxes for unpaid penalties and only found out when the money in my bank account was completely frozen. An experience like that grabbed my attention very quickly. It's one thing where banks can close your accounts without warning, but the IRS can do the exact same thing. How much control do you really want to give bankers?

And even bureaucrats to [00:03:00] upend your life. How important is it to you to have an asset outside of the fractional reserve banking surveillance system passing for your ally in wealth building?

Moving on, an IBCer or a potential IBCer should be prioritizing long term thinking. A person only interested in IBC for max loans from day one is prioritizing only year one, or at best, maybe year five.

As Nelson instructed us long ago, think long range, think three generations out, protect your livelihood and your family with a guaranteed legacy you can't outlive. It's impossible to do this with a perspective of max loans as soon as you get started with IBC, IBC, whole life policies are a cash asset that is always available to you, no questions asked.

When you aren't interested in parking, a portion of your wealth where the term hardship withdrawals doesn't even exist.[00:04:00] It doesn't matter if you're age 22, 62 or 102. Here I'm referring to a government retirement account, like a 401k or IRA. That will lock up your money for 20, 30, 40 plus years, depending on your age.

Nothing wrong with investing for the longterm. It's vital for any successful financial plan, but I caution investors, even those who are incredibly savvy, there is always a need for liquidity. The best asset allocators in the world are never a hundred percent all in, in investments. They always have cash parked for the next opportunity.

IBC is the best opportunity fund that you can buy. One thing I always like to say, no luck, skill or guesswork required. When you need access, no permission required by third party custodians. All you need to do is let the insurance company know how much you'd like and where to send it. That's it. For anyone thinking about taking the maximum loan from an IBC policy as soon as you can, [00:05:00] I will ask you to revisit the source material, Nelson's Becoming Your Own Banker book.

This strategy can be for you, but you need to study up and learn the first principles. By the way, we covered them in episodes 79, 80, and 81. Be open and honest about the rat race you're trying to exit, and the need for financing in your life when you realize the need for financing in your life is greater than your need for life insurance.

Nelson pointed this out by the way, over and over again, IBC will start to make sense for you. Your journey to becoming financially sovereign begins by realizing you should be the one controlling the banking function in your life, allowing yourself to create the rules in your financial life. Is paramount.

No longer beholden to a 401k administrator, bank loan officer, and no longer paying, playing the credit card carousel, chasing the next 0 percent introductory rate. When you realize the problem, the solution [00:06:00] will be obvious. So John, I'll turn it over to you now. What are some of your thoughts there?

John Perrings: First of all, that's a great response. I think it, it hits on a lot of The points that people should be thinking about when, they're creating their mindset around IBC, a lot of people try to look at life insurance, like They'll want to see illustrations, and they'll actually call them projections, which is not what an illustration is for.

An illustration is designed to show you how the policy works, not provide you with a projection. There are numbers on that page, but I don't know that I would call that a projection. And people will want to compare. What's $3,000 a month versus $5,000 a month look like? And it's it's just going to be proportional to each other based on your, your health and your age.

And so The underlying thought behind wanting to see that is [00:07:00] people are looking for like the projections or the rate of return of a whole life insurance policy. And the most important thing I think is trying to really get past that rate of return idea of whole life insurance and focus more on what it does really well, which is control and risk.

There, there isn't. Really much else out there that you can do where you have the amount of control that you have over this asset and guarantees. Whole life insurance is never meant to be a growth asset in the first place. It's a cash asset. So when people get, focusing on the rate of return, they're really, of course, rate of return matters, but it doesn't matter that much in this case because it's just not a, it's not a growth asset.

So the thing that matters most is looking at. The control looking at risk and then looking at the trade offs that happen with, different types of policy designs that people are, [00:08:00] proponents of out there and determining which one of those trade offs is the best trade off for you.

Because again everything in insurance in general is just a trade off between cost and risk. So there's no like special, super secret deals or super secret policy designs that, one person knows about that another person doesn't, that does not exist in, in insurance and especially life insurance, which is what we're focusing on.

It gets to this idea, what we're talking about is people who buy a life insurance policy and then immediately put max loans out on it. And if you look at the statistics of lapsed policies, the number one, and when I say a lapsed policy, one that can't be kept going, not one that, not a policy that somebody, surrenders. So there's a difference between a policy surrender where you're giving up the policy and taking the cash value versus a lapse where you can't keep the policy going anymore. If you look at lapses, max loans is a [00:09:00] number one, one of the top, if not the top contributor to people losing their life insurance policies because they go too far with the loan and they don't have any backup cash anywhere.

Max loans seem like a good thing and it works really well until it doesn't work anymore. We talk about that all the time. Works really well until it doesn't. So if you can do max loans, right? But as long as you have liquidity elsewhere, but in my opinion, I think Montoya would agree with me is that if you have liquidity elsewhere, why is it elsewhere?

Why isn't it sitting in life insurance where it's doing multiple things for you at the same time? It's probably earning you more than it will at a bank. You're getting tax deferral on it. You can get to it tax free later. The death benefit is paid out tax free. You have accelerated death benefit riders where you can get to it if you get sick or terminally ill.

You the waivers of Premium, [00:10:00] where if you become disabled, you actually the account is funded, quote unquote, account is funded on your behalf. I just did a, I just did a episode on it's not an account and I just called it an account, but we say account because a lot of times we're trying to talk to people.

And reach them where they currently are. And so if you compare life insurance to all the other account based products that they have out there, there isn't one of them that'll continue funding their account if anything happens to them. Whereas a life insurance policy has the ability to do that if you buy that disability waiver premium.

I'm just really getting back to the control aspect of what we're doing here. Whole Life Insurance is not a gimmick. Infinite Banking is not a gimmick. Policy loans are loans. They're loans from the insurance company that have an obligation back to them. They're not like free money.

It's not, a lot of people get or talk about velocity banking, which is a gimmick. It's just moving money from one place to another. It's not [00:11:00] real. Whereas Infinite Banking, we're actually building an asset. We're not just moving money from one place and to do, to try to make us feel like we're getting somewhere faster.

This is, we're building an asset and then we can use that asset to then create other assets. So it's not a, it's not a sleight of hand trick. Just immediately going in and maxing out loans, again not necessarily bad. However. It just has to be looked at whether or not it's sustainable and it has to be looked at whether or not, if one bad thing happens in your financial life, is this going to be okay?

You know what I mean? So those are some of the things that were going through my mind as you were walking through your response, John.

John Montoya: Yeah. And I'm thinking of these policies like the golden goose and you never want to kill the golden goose,

John Perrings: That's right.

John Montoya: but what's the fastest way to do it while take out a max loan don't be an honest banker [00:12:00] and, you're going to kill the golden goose. And we were talking pre show about Nelson's golden rule.

He who has the gold makes the rules. And if you keep your gold, your capital in someone else's bank, a fractional reserve bank, guess what? You're not making any of the rules. You're abiding by them. The best place for capital is with a mutual based life insurance company that puts you first and always.

And that's the type of system that you want to participate in. And what do you get for participating in the system? A lot of bang for your buck, but you don't see this immediately if you're prioritizing max loans and thinking, what's the max I can get out day 31. And, there is a silver lining to this that I didn't I didn't [00:13:00] think about adding to what I had written or shared even with the person who would ask that question that prompted this episode.

But there's a silver lining to only doing IBC for the max loans. And. It's this, as we get older, we mature, we attain more wisdom. You start to see and unlock more value where at first you didn't recognize it. And the longer you have your whole life policies, if you're disciplined enough to continue paying premium.

To service your loans recapitalize, the longer you have your whole life policies, it will eventually come to you. This is the silver lining that you have all this accumulated value just beyond the cash value, but the peace of mind of these whole life policies, the control, the liquidity in your life, the guaranteed legacy for your family.[00:14:00]

And here you were when you initially got started with IBC, just because you wanted to take out the max loan possible to go invest. And if you were fortunate enough to maintain that policy over the next 20, 30, 40 years, the rest of your life, you're going to realize that you participated in. And probably, I shouldn't even say probably, it is the best place for you to store capital in your life.

You locked in your human life value, guaranteeing that it would increase in value forever, no luck, skill, or guesswork required, and you'd be able to leverage it, collateralize it, access it. Tax free to do whatever you want, including invest and really propagate your values, your family values, your individual values, however you choose.

And it comes back to that control, but there's a silver lining there that [00:15:00] you may not pick up on. Immediately, but I just know from experience and having these policies now for almost half my life are getting there. It's the value that you unlock you start to appreciate things a whole lot more the longer you've had them.

So even if if you don't see the value right away, it'll come to you.

John Perrings: Yeah. And, I think that's the trick. One of the trickiest parts is really. Realizing the value of capitalizing during those early years, and, we had that episode about fear of missing out FOMO and staying above the FOMO, right? So to all these points, Remember that you have to actually qualify for whole life insurance.

You can't just get it. And the day that you buy your first life insurance policy or your next policy, it never gets better than that day, right? The day you buy it is the best day you could have possibly purchased [00:16:00] whole life insurance. After that, it gets more expensive and you're less likely to qualify for it.

And when I say expensive, I just mean the price of the premium goes up. If you look at it from that standpoint, you start to realize like, this is an asset that I need to protect, not just throw to the wolves, so to speak, where I'm just going to, look at it as a sleight of hand or a trick.

It's a, it's one of the most valuable assets you can get because not everybody can get it. That's one of the things that gives us its superpowers. You're working with the law of large numbers, aka actuarial science, where you're buying a guaranteed future cash flow. And You're getting that future cashflow at a discount today because it's all based on the actuarial math.

The other thing, if you're just buying, if you buy whole life insurance and you immediately max out the loans on it, remember that the cash value is the net present value of the future death [00:17:00] benefit. And so if you have no net present value that means your actual future value.

How can that even exist? So just realize this isn't an account like we were talking about earlier, where you can take money out and put it back in. This is a whole life insurance policy that was underwritten based on. Your health and your wealth today. And so you can't do things differently tomorrow to make sure that those guarantees stay in place.

So if you max loan out and anything happens, you're going to have some. Difficulty, keeping that policy in force and it reduces your options to keep the policy in force, premium offsets become more difficult reduced paid ups become more difficult, so it's you really just have to treat this with a little more respect rather than just the cup game we're doing more, we're doing more with this than just that kind of basic operation.

John Montoya: Yeah, so I'll just [00:18:00] say it as simply as possible. Don't kill the golden goose. And as Nelson would say, that is all.

John Perrings: Yeah. Awesome. This is a good episode. I think um, I think this is a really important one, so I'm glad you brought it up

John Montoya: thank you to the potential IBCer that that asked the question.

And asking questions is always a good thing. It means you're exercising that mass six inches above your neck. And uh, if you're asking questions, you're thinking critically. So I appreciate the person who did ask this particular question.

It's a good one.

John Perrings: It is. Great. Everybody, if any of this is resonating with you, and you'd like to understand how The Infinite Banking Concept and Whole Life Insurance could work in your life in particular, you can head over to StrategicWholeLife.Com, our new URL, and you can book a free 30 minute consultation with us right there.

And if you're one of the types of people like I am that really just wants to do all the research they can before talking to anyone, we have an online course just for [00:19:00] you right at the top of the website there called IBC Mastery. You can click it and get access to that. All right, I think that wraps it up.

Thanks, John Montoya.

John Montoya: All right. Thank you, Mr. Perrings.