Multiple Whole Life Policies for IBC

John Montoya:
Episode 58: How and Why Multiple Policies? All right, well, thank you for everyone for joining us for this next episode of the Fifth Edition podcast. We wanted to discuss this topic, how and why multiple policies, because it tends to come up, especially early on, for people who are just learning about IBC. It's become a frequently asked question, why do people talk about having multiple policies? Why not just one really large policy? So we're going to discuss that today. And John, let's get this going. Hello everyone, this is John Montoya.

John Perrings:
And this is John Perrings.

John Montoya:
We are Infinite Banking authorized practitioners and hosts of the Fifth Edition. What do you think about that question? Why do people ask how and why multiple policies?

John Perrings:
Well, I think, like a lot of things, if people have come through this process correctly, they've read the book Becoming Your Own Banker, which, of course, as always is the source material for all of this regardless of what you see on YouTube, that's really where everything comes from. So a lot of times they read the book and they see and read about how Nelson Nash had multiple policies, and they read about starting your next policy.

John Perrings:
So I think it just becomes one of the things that unlocks the future potential of IBC where they're like, "Man, I never thought of it that way." Because when they start thinking of life insurance as a financial asset and they realize, "Oh, you can have more than one of these." Because if you look at normal life insurance acquisition, someone will have maybe one policy, maybe, and it'll be like a term policy or something. They're like, "Okay, I've got my insurance policy." And the idea of being able to have multiple policies is I think pretty new. And I'll even say groundbreaking in terms of how people think. So I think that becomes one of the things at the forefront of their mind where they just think of that they go into the future and they're like, "Man, how big could this get for me?"

John Montoya:
Right. And also, I think the reason why they ask this question is because they're trying to compare it to what they already know.

John Perrings:
That's right.

John Montoya:
And maybe they're contributing to a 401(k). Well, you can only contribute to one 401(k) at a time.

John Perrings:
That's right.

John Montoya:
Or if you have an IRA, you can have multiple IRAs, but you're stuck with that annual cap on what the government says you can contribute to all of your IRAs. You can't just magically put in the annual maximum into all of your IRAs. Or maybe they're thinking of it like, "Well, I have a checking account or a savings account at the bank, why do I need to have five savings accounts or 10 savings accounts? Because I can just keep putting money as much as I want into those accounts." So their framer reference is skewed to what they know. And life insurance, let's face it, when it comes to life insurance people, even the financial educators out there, the so-called educators, they really don't understand how these policies are engineered and what is restraining the use of just putting in as much money as you want. So let's hit on that.

John Perrings:
Well, I think, you made a note in our prep material here about running a profitable business. And we should all be in at least two businesses. The first one is the business we're in, and the second one is the business of banking. We've said it on here a million times. So the idea is we need to be able to expand our system of businesses. That gets into chapter 13 of Becoming Your Own Banker, he talks about expanding the system. We have to have a way to do that as we go through. And if we're doing our thing, that by default, it's going to get bigger and we're going to need to expand the system.

John Montoya:
But let me stop you right there. What is the one thing that will limit us from putting as much premium as we want to? I mean, we could, but what's the consequence of putting too much premium into a whole life policy?

John Perrings:
I think I see where you're leading me now, John Montoya. So yeah, I think you're getting towards to the IRS limits that are placed on a life insurance policy.

John Montoya:
Correct.

John Perrings:
And that's really where any conversation about policy design and all that stuff, it all boils down to the limits that the IRS places on a life insurance policy called the modified endowment contract limits or MEC limits. And that's really what limits the initial funding of a life insurance policy when it's designed for cash value.

John Montoya:
Right. Simply put, there's an annual maximum of premium that you can put into the policy before you pass that modified endowment contract level and lose the tax favorability of it. So there's an annual limit and then there's also a lifetime limit as far as how much premium you can put into the policy. That's the main reason why you'll hear people talk about having multiple policies. It's because, especially when it comes to Infinite Banking, they've reached a point where they are putting the maximum amount of premium that they possibly can into their policy and now they have room left over. And that excess money is basically going back to a traditional bank to do nothing in those checking and savings accounts. So that's the reason why we expand the portfolio. We will add additional policies because we want that money not to be in a traditional bank, but we want it to be warehoused in the best place possible. And that is an additional IBC policy.

John Perrings:
Yeah. And I'll just tack on you, you mentioned money overflowing, so to speak, because you've reached the maximum limit of a specific life insurance policy. And going back to the bank, well, I would say, more often than not, it's actually getting spent. It might go back to the bank for a hot second and then it'll become part of their lifestyle expense. So then, now all of a sudden that has left your system forever. Right? To kind of recap that, we have two limits. We have the IRS limit, which limits cash value to death benefit, and then we have a full underwriting limit that the insurance company will only underwrite you for so much. So there's a limit to how much you can pay in premium in any given individual life insurance policy. There's some caveats to that where there's some provisions out there that you can buy the right to buy more life insurance in the future. But just keeping things simple, that's what's going on.

John Montoya:
Right. And getting back to what you were saying about running a profitable business and being in two businesses, one of my favorite things that Nelson would talk about, just the mindset there, if you have the discipline to save money and your cash flow increases, well, you should be thinking like a business owner. We talk a lot about having a business owner mindset. Well, this is exactly what we're talking about here. If you are now capped as far as what you can put into your IBC whole life policy and you've got that excess cash flow, if you're thinking like a business owner, what do you do with that excess profit? You reinvest in yourself, right?

John Montoya:
Well, if you pretend you're running, let's say something familiar like a Starbucks, you own a franchise, well, it's very profitable, what do you do? And this is what Starbucks has done so successfully, they open up a new location, maybe across town. They keep doing it over and over and over again. And that's what you do if you're a successful business owner. You keep expanding your business. So that's the mindset that we want all of you listeners to have when it comes to IBC. We want you to get into this growth mindset where you are looking to contribute as much as you possibly can into your policies and then keep expanding from there. Because like we say so often, you'll never be in a worse place by having access to cash, and this is the ultimate place to warehouse cash.

John Perrings:
Man, I love that analogy. I never thought of it that way of just opening up additional franchise locations or different locations of your business. That's so good because if we talk about being in the business of banking, well yeah, why wouldn't we have multiple locations for our business? So we're just creating multiple locations for where we're storing cash all under our control. And to just finalize the underwriting side of this, if you think about as the system expands, from the insurance company's perspective, as your wealth grows, well, guess what? You become eligible for more life insurance. So it just makes sense that you would have multiple policies from that perspective because now, simply, you have a higher human life value, which is just an insurance term that gives us an idea of how much insurance you can actually buy or how much the insurance company will sell you.

John Montoya:
Awesome. Well, you have a note in here for expanding the system, chapter 13 of Becoming your Own Banker. You want to hit on that?

John Perrings:
Yeah. I think John and I were talking before. We were talking about how do we think long term, which is, think long range as one of the principles in Becoming Your Own Banker. Of course that makes sense, we always want to think long range. And thinking long range is really, it's a bunch of short-term decisions that are really well coordinated, but we want to have that long-term perspective right from the beginning. So how do we do that? How do we set up the structure of our IBC system so that we have the ability to think long range?

John Perrings:
One of the issues that you could run into is that we don't know what your insurability is going to be in five years or 10 years or 20 years. So when it comes time to expand the system, and maybe you've gotten in a car accident or you had a health issue, whatever it may be, by the time you get to that point where you'd like to expand your system, you may not be able to with life insurance. And that's one of the caveats of dealing with life insurance. One of the things that makes it so powerful is that we're actually ensuring something and that has a value to it. Right? So how can we set up right from the beginning a structure that has the ability to expand no matter what happens? One of the things that John Montoya taught me from early on is buying what's called a convertible term policy. John, you're probably the best person to talk about this since you've taught it to me.

John Montoya:
Yeah, absolutely. So the way that most people buy life insurance is they buy it as a commodity. They're thinking about the death benefit. I want two million, three million, whatever the case may be and whatever the number they're searching for, and they want to pay the least amount for it, that's a commodity. You can go to any website and buy life insurance that way. There's not a whole lot of thought to it. But when it comes to implementing an IBC system, that's not the way that we approach it. We're looking to set up a banking system where you are funneling either existing assets and or your existing income into these policies. And what's going to happen is, we're not solving for one million, two million, three million plus in death benefit. It's not a nice round number.

John Montoya:
What we're actually looking to do is redirect your cash flow or existing assets into these policies. And what's going to end up happening is that we're going to end up with a smaller death benefit than how people would traditionally buy a whole life insurance policy. As a result, since we're not setting this up primarily for the largest death benefit possible on the front end, you're going to start on day one with a typical IBC policy that has a lower death benefit than the traditional commodity-driven way to buy a life insurance policy. So the best way to fill in the gap, if you are someone who, you're married, you got kids, you've got income to protect, you got loved ones that you want to see go on graduate high school and go to the college of their choice, you have all these financial dreams that you want to see happen, well, maybe that initial IBC policy doesn't provide the death benefit that would satisfy all those financial dreams. Well, that's where a convertible term would fill in the difference.

John Montoya:
John, you mentioned human life value and solving for the maximum that the life insurance company will underwrite a person. Well, in this case, you have your initial IBC policy that has a certain amount of death benefit in it, and it will increase over time. That's a great benefit about IBC. It doesn't stay static. But then you also have a convertible term which covers the difference with what you're getting in that first IBC policy with ultimately what you wish to have. Maybe it's that two, three, five, $10 million worth of total death benefit, and now you've given yourself that ability to convert that death benefit at a future time to another whole life policy, maybe two or three or more whole life policies, all without having to medically qualify again. So I call that future planning.

John Perrings:
That's awesome. And yeah, future planning, exactly. So that convertible term policy, it's like buying an option. You are buying the option to convert. You don't have to, but you can, you can convert that into your next whole life insurance policy. Just as a side note, there's a lot of hoopla out there. If you get on TikTok or YouTube or whatever, there's a lot of people that kind of frame Infinite Banking as a kind of get rich or buy your dream car kind of scheme. True IBC does not ignore the traditional uses of life insurance. It just recognizes there's an additional use. So human life value is super important. And like John mentioned, if you're married with kids or you got a mortgage, you should probably just have a bunch of death benefit as well. And this is a great way to add to that and also create the structure you need to expand your system in the future.

John Montoya:
Agreed. Now, I want you to talk a little bit more about your type of future planning, which I think is really important too in the conversations that you're having with the people that you're working with, John.

John Perrings:
Yeah, I mean, very similar to yours. So convertible term insurance is, there's an underwriting amount that someone qualifies for. It actually doesn't happen very often, sometimes people can afford to pay the premium of a whole life insurance policy for their entire human life value. And in that case, that's what they get. They get whole life insurance. But more often than not, the premiums for whole life insurance, because it's actually building a cash value, they're much higher than term insurance. So people, they don't always have the cash flow to support their entire human life value with whole life insurance. So if that's the case, I always recommend buying some convertible term insurance as step one in setting up the IBC structure.

John Perrings:
The other place that I have strong opinions about is setting up the whole life insurance policy itself to have a long-term ability to expand the system. And what I mean by that is, there's a kind of fad out there, I guess, where people in certain circles will go to the mats saying you need to have maximum PUA and cash value from day one on your life insurance policy. And of course, if all things were equal, of course we would want that, but with life insurance, all things are not equal. Everything is a trade-off between cost and risk. One of the trade-offs, if you completely max out the PUA and cash value from day one of a life insurance policy, there's no additional kind of room in the policy. It's like you filled up the bucket of that life insurance policy, you can't put anymore in there. So when people design their policies that way, it cuts off right from the beginning the ability to expand your system in the whole life insurance policy that you bought right there.

John Perrings:
And again, it could be okay if you have a convertible term policy to back it up, but I would say that, this is going to be our next episode, if you compare fully funded where you have no more room in the policy to a policy that has room, I can very easily prove to you that a longer term policy that has room and it will become a much bigger financial asset than if you take that short-term approach and only focus on that day one cash value. So my opinion is that we should design our whole life insurance policies to have built in room to expand our system, and then we should also have that convertible term insurance to not only give us additional future expansion, but also to cover our immediate death benefit needs and cover our human life value to protect our families.

John Montoya:
Yeah. And I think the big takeaway for our listeners when starting out with IBC, you should not only be asking yourself, where would you like to start today? But you need to be asking yourself, where should I be five years from now, 10 years from now, 20 years from now in funding my policy? Because what's going to happen with inflation is that your income will naturally increase over time. We get these costs of living adjustments. Just those increases alone, not even talking about getting a promotion at work, where does that extra income go? But five, 10, 20 plus years from now, you're going to be earning more and you have to have a system that will allow you to redirect those increases of income into your policies. So it's a great point that you bring up, John.

John Perrings:
Yeah. I mean if you're in your 30s or 40s and you've been working for a little while, go dig up your W2 from when you were 22, 24 years old at your first job. What was your income then? And compare that to what your income is now. So there's an obvious need to have the ability to expand our system. Otherwise, what ends up happening is all that money, just like John Montoya said a minute ago, it'll go into your bank account and it'll most likely be spent. And that's happening with most of the people I talk to. I mean, of course we have clients that are very good and they're really paying attention to what's happening with their money. And I tell you what, these people are not lower income people. These are Silicon Valley directors, managers, execs making hundreds of thousands of dollars a year or more. And I'm telling you, man, these same people still do not have a great handle on where their expenses are going.

John Perrings:
So what happens is, also in the book Becoming Your Own Banker, he talks about Parkinson's law where our expenses tend to inflate along with our income, as one way to describe it. And that's absolutely true. It's hard not to do it out here in the Bay Area where things are expensive, but if we can get a handle on that, man, I tell you what, it makes a huge difference in terms of being able to funnel cash into our IBC system as we become more efficient and more productive in our lives.

John Montoya:
Absolutely. Well, to sum up how and why more policies when it comes to IBC, real simple, capital needs a home. Right? So when we realize that we need to capitalize in the best place possible, you're going to know from listening to us, reading the book, whole life policies, the IBC System is the greatest place where you can capitalize for multiple benefits for multiple reasons, liquidity, access, control, the additional death benefit, making sure that what you want to happen financially is guaranteed to happen.

John Montoya:
Another point we always make, you'll never be in a worse position by having access to cash. Boom. Why wouldn't you want more of these policies? Who doesn't want more access, more liquidity to funds? When it comes to retirement, now we're not really focusing on this for this episode, but wouldn't you want more options in retirement? Well, having multiple policies will allow you to have more retirement income options. And last but not least, wouldn't you want to leave a more abundant future for your loved ones? Pretty straightforward.

John Perrings:
After you die and also while you're still alive, you need to, if you haven't yet, listen to episode 55 where John's wife Kelly gets on and talks about everything that she's gone through with her health care in the last year and a half, two years, and it's incredible. Definitely give that episode a listen because it's not all about protecting when you pass along, it's about having the options available while you're still alive to still be here with your family.

John Montoya:
Absolutely. Thank you for sharing that, that little plug for episode 55.
John Perrings:
Excellent. Well, I think we've hit the nail on the head on this one once again, John.

John Montoya:
This was a really good episode. I think our listeners will enjoy it and have some takeaways from it that hopefully will lead them to connect with us. Because if you're learning about IBC, knowledge is great but taking action is even more important, so be sure you reach out and get started with IBC.

John Perrings:

Absolutely. It's a powerful episode. So as we wrap up here, if you're just learning about IBC or whole life insurance and want to better understand how any of these principles can apply in your life specifically, reach out to us at thefifthedition.com. Right there, you can schedule a free 30-minute consultation with one of us and we'll be happy to walk you through how it could work for you.
John Montoya:
Thank you, everyone.