[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, episode number 64. What is an IBC policy? And so in this episode, we're gonna talk about, there's. , there's a lot of a lot of information out there, right to, and a lot of people talk about things like correctly designed life insurance policies when it comes to designing a whole life policy for Infinite Banking.

[00:00:34] And so we're gonna talk a little bit about that today. Like what is an Infinite Banking policy or an IBC style policy? You hear a lot of, some of those types of terminologies out there. and let's talk about some highlights of, maybe we'll start with what it's not. IBC is all about capital accumulation and becoming your own banker.

[00:00:57] So what? It's not, what an IBC policy [00:01:00] is not, it's not about the rate of return of the policy. It's not about how much you can get into the policy in the first year. And it's not only about the cash value, right? And so last of all, it's not an IUL , so we're starting to see a. Maybe a little uptick in people talking about doing Infinite Banking with IUL, which is called, which is indexed universal life for the folks out there just getting into the insurance world.

[00:01:32] And, I had a whole LinkedIn argument with a guy who came on my thing. I was, I made some posts and he had a whole thing about, why not do Infinite Banking with IUL? And just his whole argument was, I didn't understand how IUL works apparently. So I'm like, okay, great argument. But so we're gonna touch on some of these things here and by the way, we just got back from.

[00:01:56] From the annual IBC think tank, which [00:02:00] is the annual meeting for all authorized Infinite Banking practitioners who get together, talk about current events, talk about obviously Infinite, Banking and one of the. Big topics this year was what is a policy, how does, what should an Infinite Banking policy look like?

[00:02:21] And, all the authorized people, I would say know for the most part and. We just wanted to maybe reiterate it and quantify it a little bit more this year. Ryan Griggs did a great session. James Net. He did a great session. They were, they were all good.

[00:02:42] I'm just naming a couple because they just really hammered home on some of the policy design stuff. Anyway, I'm getting a little off topic here. We're talking about what, what makes up an IBC policy and maybe I'll turn it over to you, John, Montoya, and I'll stop talking for a second. [00:03:00] I will add that episode 37, why Universal is Not Right for IBC is the episode that you want to check out.

[00:03:07] For those people who are, have heard of IULs and maybe are wondering, why not, an IUL for Infinite Banking. You can go right to that episode 37 and listen to us break. The reasons why, and I'll give you a little hint. The guaranteed elements we want bedrock not a a house built on sand.

[00:03:34] So check out that episode when you have a chance and you'll come away understanding why we want whole life for IBC policies. So we talk about what is an IBC policy And there, there is. This thinking that we've got to dump as much money as we can in right away. And [00:04:00] there's been talk about the 10 90 splits and how to formulate a policy.

[00:04:04] And the people that are getting to this frame of thought, they're com completely missing the bigger idea of. Infinite Banking is all about because it's not trying to solve a capital outlay in the first 30 days and then completely just disregarding, the next 7, 10, 20 plus years of your life.

[00:04:33] Th this is long-term thinking. So the policy design is really secondary. You've gotta mentally capture. Why in the world are you even interested in IBC in the first place? Understand your why, and then everything else is gonna come together. You really gotta figure out what problems you are trying to solve to even figure out if IBC is going to be the [00:05:00] right solution for you.

[00:05:02] Because. If you're trying to do, something that is achieving a rate of return or having, the most cash value you can have in year one you're really not understanding what IBC is all about. We wrote down in our notes here what problems are we trying to solve?

[00:05:28] And the number one thing is look, none of us control the Banking equation. If you're. Practicing IBC with a whole life policy, right? You don't have the Banking equation solved in your life, and this is what we need to do. We need to learn how to figure out how to finance our lives. Because if we don't take care of this, then the banks are gonna take care of it for us, and we're constantly gonna have to lean on them for every single phase in our.

[00:05:58] John, you wanna continue? [00:06:00] Yeah. And I think you hit the nail on the head, policy design is secondary. It's all about what we're trying to accomplish. And the other thing to remember is IBC is a process, not a product. And it depends on what kind of process you want to develop.

[00:06:23] If you're gonna build your bank do you want to build a bank that only, that can only expand for three to five years or seven years? Or do you want to build a bank that can continue to expand for generations, right? And the, when we're talking about controlling the Banking function or the Banking equation, what does that mean?

[00:06:51] There's so many things that can go into that. We have like income replacement. We have, replacing the traditional bank controlling your cash [00:07:00] flow. , going into retirement, creating guaranteed sources of income, right? A guaranteed legacy and reducing and eliminating taxes.

[00:07:10] Like all of these things are coming into that equation that we all know. All those things I just listed, we all know from a kind of typical financial planning model that we're all taught. However, if we tie all of those things into. Controlling the Banking equation, it takes on a totally new meaning because it starts from day one and can expand beyond what we're doing.

[00:07:42] It's not just adding up numbers. Now we're starting to multiply numbers and and so it's a really important place to start from where, if we're making an IBC policy, Does it [00:08:00] address all of those things? And does it give us the control and does it give us all the options that it could just like we would want to have with a business, right?

[00:08:10] We've said it on here a million times. Like you're in two businesses, the business you're in, whether that's an actual, a restaurant or a service business, or if you're an employee at a company, you're still in that business. But guess what? You should also be in the business of "Banking." Yeah. With that in mind let's keep the long term perspective, because one of the things that I hit on is, it's.

[00:08:35] The most important thing is not the immediate cash flow or the cash value in your first year, right? You wanna look at this from a long-term perspective, and one of the things that Nelson wrote in his book is, if you knew going into passive income time that every dollar of premium that you put into one of these whole life policies, you'd get back tax free, how much would you [00:09:00] wanna put into.

[00:09:01] That's right. And if you're thinking right the answer is as much as possible, right? If you knew that you were gonna, every dollar that you put in, you'd get back tax free. Then plus more. Why would why would you wanna put this to the side? Or, even do what's called a short pay.

[00:09:22] Now, I understand that there are some arguments for a short pay, but again, we want you to think long-term. Nelson was always big on thinking long-term because. If you the further away you get the longer term perspective that you have looking at your money situation this is low time, no low time preference versus high time preference.

[00:09:45] You're gonna make better decisions not only for yourself, but for your family. And ultimately when you become your own banker, the more access to capital that you. The better choices you're [00:10:00] gonna allow yourself to make in that low time, that low time preference where the most successful people really are in that space because they don't get caught up in emergencies.

[00:10:14] I have to do this, or I have to pull money outta here, or, I have to load up my credit card because I didn't save enough, because everything is such a high time frequency that you're constantly running from, one investment to the next or , you don't have that emergency fund saved up and you're just, you're all over the place and you end up paying the price for it.

[00:10:36] Especially, come retirement time, but even before then, because you basically, Don't accumulate the capital that you need in your lifetime, and as a result, you're always relying on the bank. Bringing it back to, thinking about a short pay, you know that is one way to.

[00:10:58] Get high [00:11:00] upfront, early cash values, but you're really shooting yourself in the foot later on. Yeah. And we just recorded an episode on this, called Showdown short pay versus long pay. And, we, I think we've done a pretty good job of proving with the numbers that you know, A bunch of trying to buy several short pays over your life because you, because the cash value accumulation looks better.

[00:11:26] What's not being accounted for is what the cash value accumulation of a long pay looks like after that first five years, and then after the 10 for next five years, and then the five years after that. And so the numbers actually don't work. The full story. Is not as good as what you think it is when you try to stack a bunch of short pay policies because the cash value accumulation looks better.

[00:11:50] It actually performs worse than just a single long pay policy. Just from the numbers. But then there's also the idea of , [00:12:00] so John Montoya just said would if you had all these features, would you wanna put, as little in, in there, or as much as you could? And the, and then the other side of that time value of money, would you wanna be able to put that only for a little bit of time or would you wanna be able to put money in that location for as long as possible?

[00:12:19] And that's one of. Rules of thumb. And from an IBC design perspective, we want to try to pay a premium for as long as possible, right? Of course, within reason, we don't always necessarily think we're gonna pay premiums all the way to age 100, but you never know. Like people are living longer and longer The way that we design policies as.

[00:12:44] We give you the most options, right? So you can always stop paying a whole life insurance policy. That's one of the myths out there is you have to pay forever. You don't have to pay forever. You can do what's called a reduced paid up or you can offset premium. There's a whole bunch of ways [00:13:00] for you to not pay premium out of pocket.

[00:13:02] there aren't a whole lot of ways to continue paying a premium if you've stopped. Because we don't know what your insurability will be like. We don't know what the premiums the premium price will be depending on your age. So having, designing every single policy, like it's your last policy is I think one of a crucial.

[00:13:26] Design feature so that no matter what happens, you have the best policy for the longest period of time with the most options that you can get. So that no matter what happens you always have a place to put capital. And then of course, there's always, there's the strategies that, that we've talked about in the past in having some convertible term, which has several benefits, including increasing your current death benefit.

[00:13:52] But it's it's people, mi people still mistake [00:14:00] Infinite, Banking and whole life insurance, and they try to equate it to an investment. And that's not what we're doing. We're not building, we're not investing money here. And that was one of, one of our more recent episodes.

[00:14:12] I forget the the number of it, but it's like the last one or the second to last one we did. And. What we're doing here is we're building the bank to finance all the investment we're going to do in the future. So do you wanna build a little bank or do you wanna build a big bank? And if you build a big bank, It, you're starting a business. You don't get all your capital, no matter what business you start, you don't get all your capital on day one. And so all the, all these folks that are, looking at this and only focusing on the first couple years of the policy Again, John Montoya already said it's shooting yourself in the foot because you're just really hamstringing all that future potential that you could have [00:15:00] by the way, on a guaranteed basis, once it's enforced, it's that contract is locked in.

[00:15:04] It's a unilateral contract that the life insurance has to provide for you and and so to skip over that. . It's really short-term thinking. Everything is a trade off in life insurance, and I'm telling you, there are some big trade-offs to designing policies that are only focused on short-term cash value accumulation.

[00:15:30] I think my favorite thing of what you said there is you want to design a policy like it's your last one. I got an annual statement recently and. There was a regret that I had. And the regret was simply, man, I wish I would've started with a bigger policy. Cause I started with smaller policies cuz that's where my income was.

[00:15:53] And I've got these little policies that are, they're nice sized policies now, but for the [00:16:00] time it was right for my cash flow. But now it's 10 plus years later and I get these annual statements and the premium is like, Don't even think about it, and it's man I just, I wish I would've had more conviction. And certainly more cash flow when I started. But the conviction part. Yeah. Because I know for a lot of people it's and I understand it you wanna this sounds too good to be true and you just wanna, see how it works and is it everything that I hear, and it's, all those things. But then you get into it, a decade plus passes and then it's It. It's doing everything that it was supposed to do, and that little pang of regret that I have is, man, I wish I would've just. Bought more, paid more premium.

[00:16:58] I think that's a very [00:17:00] common thing. I, I had a client just one year into his policy. He was like, it's crazy. I couldn't imagine, like this premium seemed huge to me and I couldn't imagine paying anymore. And he is now I'm like, I. I can't believe I didn't start with something bigger because I have all this, I have all this capital that I need to put somewhere.

[00:17:21] And it, it definitely changes, and the thing is I totally agree with what John Montoya just said, and it's but at the same time, it, you are where you are when you're there. And so as long as you start right, it's okay. Like it's still better than what you're doing now.

[00:17:42] And. . What ends up, what you find ends up happening is when once you start doing this, it solves so many problems at the same time that you actually find you're in better control of your whole financial system and you end up with more money. And so it's it's a totally normal [00:18:00] problem from what I've seen to have this situation where you.

[00:18:05] I think starting with the, a cash flow that you can sustainably start with is the right thing to do all conviction and everything like that aside. And then, but what happens is you're, it improves everything. And so it's a normal problem to run into where people are like, now I have all this money , and so what do I do with it?

[00:18:27] And so it's a little bit of a chicken and egg thing that happens. And so that's why it's great to plan ahead and have a policy that. That can service more of your capital and more of your financing requirements in the future, and has room to expand like it's. Just going back to these short pay and all 90 10 and all this stuff like the trade-offs to those are, you've completely used up, like all of your scheduled premium is that's all you can do.

[00:18:58] There's no room for [00:19:00] expansion. And so you see these people then all they're paying these premiums and the only place they can go is down. They can never go up. What we're finding is when people, once people implement The, Infinite, Banking, Concept, they have more capital in the future, and now they need a place to put it.

[00:19:16] So all these people talking about rates of return, lost opportunity cost on the early cash value. Hey, you know what? There's lost opportunity cost to everything. What's the lost opportunity cost for the next 50 years that you've got this policy that you can't put any more capital into it and use it and create, two, three, $4 of cash value for every dollar you pay in premium.

[00:19:39] Shortsighted stuff, man. Shortsighted. Yeah. That, that, that's huge. Time is the one thing that we don't get back. And so if nothing else, if you're on the fence, if you're waffling, Just get started. That's it. Let's get started because 3, 5, 10, shoot, 20 plus years [00:20:00] goes by in a blink. It does. We're both staring at, hitting 50 here before too long.

[00:20:07] And, I think about that the closer it comes and it's man, we're the last 25 years. Go and. If only I had started this in my twenties. So don't let that be your regret if you're on the fence. Get started. Cuz time is the one thing that you don't get back. And what you're doing with this IBC policy is you're locking in.

[00:20:32] Your human life value. Yep. And the older you wait, the older you get, the longer you wait to get started. The your human life value decreases. Now you can earn more income and increase it that way, but just, Statically it's going to, if you stay where you're at income wise while you're gonna age [00:21:00] and your human life value is going to decrease in the amount that you can put into these policies, is going to start to limit itself.

[00:21:08] Yeah, that's a great point. That's a great point. Hey, by the way, since we're talking about this it's not exact, but since we're on this topic, we're about 10 years since you helped me get my. Infinite Banking whole life insurance policy. So thank you my friend. And I started that one with what I could start with, now, of course I wish it was bigger, and in fact this year I, I had some, cash flow that I wanted to put. Into my policies. No more room in that one. So luckily I've got more, but it was, that was actually the first time where I was, I had a situation where I don't have any more room to put into that policy, but I started at the correct place where it was for me at that time.

[00:21:59] And [00:22:00] and you designed. To have additional room to expand as my income expanded and now my income is just happens to be expanding past even that which is going to happen to everybody, right? But we want to try to design a policy that has the most options, the most. Future expandability and also, we're not saying no early cash value, right?

[00:22:25] So we're balancing this with a responsible and respectable level of cash value in year one. We're not just saying no cash value in year one, but what we're saying is we have to balance and create as many options for ourselves as. So we've talked about the philosophy for the last 20 minutes here, and hopefully that resonates with you.

[00:22:46] And so how do we actually get there? What are the typical design components you should look for in a, in, by the way, there's no [00:23:00] one answer for everything, right? , even 90 10. It's could that make sense In some, we're not saying it could, it's impossible for that to make sense.

[00:23:10] But what we are saying is that probably more than likely it wouldn't just depending on all the other trade-offs, right? Because we said trade-offs. Maybe there are some trade-offs where it makes sense, right? And so what we're talking about today is just a, where you would start as a typical IBC.

[00:23:31] Policy, so to speak. And the, so the things you would look for you'd have some base whole life premium, right? That's just your regular whole life insurance premium. That's gonna be a component of your monthly or annual premium, however you're paying. And then, and it's a requirement. Just want to add that yes, the base premium is a requirement.

[00:23:53] That's right. That's a great point. By the, Hey, guess what everybody, you know where cash value comes from death [00:24:00] benefit, , right? That base whole life premium is a requirement also. One more side note real quick. The whole reason we're even talking about policy design is mostly because we have to design around the Modified Endowment, Contract limits, which are the IRS limits.

[00:24:19] This, if this were the eighties, we wouldn't even be having this conversation. But that's what we have right now. We have to work within the IRS rules. If we go outside of those rules, the policy just becomes taxable. Similar to how an IRA is taxable, by the way. Would that be the end of the world?

[00:24:39] No, it wouldn't. Do we wanna try to avoid it if we can? Yep. But could there be situations where we just go ahead and me the policy, right? Yeah, there could be. We're just talking about like a typical IBC style policy base, premium required. The [00:25:00] second component is the PUA rider. PUA stands for Paid, Up, Additions, or paid up additional life insurance, right?

[00:25:07] And pUA is on there. It basically is buying little chunks of additional paid up life insurance. Paid up means no future premium is required on it. And so what that does is that actually creates a higher present value for that little chunk of life insurance, and that's what helps create more cash value in the early years of the policy.

[00:25:30] The greatest effect of the PUA writer is in those early years of the policy, and what you'll find is, The base premium actually starts to do more for you in the later years. PUA is still amazing to have on there, but the PUA is primarily in from an IBC perspective. PUA is primarily there to help us get cash value in the early years of the policy.

[00:25:57] And then I'll turn it over to you, John. I'll just wrap it [00:26:00] up with the three primary components that we're looking for. And the last one is what we would call a term writer or a term insurance writer. And so what that means is we're folding in a little bit of term insurance into the design of the whole life policy.

[00:26:15] It's not a separate. Term insurance policy, unlike what we've talked about before with convertible terms, the, at this point we're talking about a little bit of term insurance folded into the whole life insurance policy. And what that does is it for less premium, we're significantly bumping up the death benefit, which allows us to have more cash value in the early years without without the policy becoming a MEC.

[00:26:41] And so these are some typical design strategies where we use that term insurance to increase the death benefits so that we can have more of the cash value in the early years, which of course the PUA is doing most of that in the early years. So tho and, [00:27:00] we'll get into some other things like some riders that we think you might want to have on there, but those are the three basic components of a typical Infinite, Banking type of whole life insurance policy.

[00:27:12] There was one thing that you said that I think is really critical for people to understand, and you were talking about the base premium and you said, by the way, Where does the cash value come from? It comes from the death benefit. And I may be paraphrasing you a little bit, but I like that's verbatim.

[00:27:33] You said that because it made yeah, it made me think of something. And I know we, we mentioned listening to episode what, 37? Why not a universal policy for IBC, but let me just explain this as simply as I can. When you have a universal policy the death benefit in that policy does not [00:28:00] produce any cash value.

[00:28:02] The death benefit is a one year renewable term. It increases each year, so when you pay the premium, you're paying a one year renewable term, and then anything over that cost of insurance. Then gets allocated to earn interest in some other index with rules, restrictions, caps limits, participation, what have yous.

[00:28:28] None of it guaranteed, but the main thing here is the premium that you're paying never becomes cash value in an i u with a whole life policy in an I u l when you're paying the base premium in a whole. , I like to use the analogy of a 30 year fixed mortgage. because people are very familiar with how a 30 year fixed mortgage works.

[00:28:58] You have a house, you [00:29:00] buy a house, and you go shopping for your financing. And, for most people they're gonna choose a 30 year fix. And, I'll bring this up and I'll ask people why didn't you choose the one year adjustable arm? You got a lower interest. Got a cash flow a little bit more, but they're like, no, I like the 30 year fixed.

[00:29:21] It's stable and I know that it's gonna be the same payment every year for the 30 years. And I'll say, okay, great. You like the stability. Okay, you know what? I think you're gonna a whole life because it has similar stability. For your entire life, not just each year and the next year, but let's see how it does thing.

[00:29:44] You have that stability and control. And then going further in, in the analogy when you make your mortgage payment, you have a bit of principle. in a bit of interest, right? In the early going, that [00:30:00] mortgage is mostly interest, but as you move along that amortization schedule, what happens more of your mortgage payment is being allocated to principle to pay off that mortgage?

[00:30:13] I'd liken that to a basic whole life policy because as you pay premium, what's happening is that you're starting to buy. The equity and the death benefit, you're starting to control it as you move along into your whole life policy. As each year passes you're starting to increase the guaranteed cash value of that policy just by simply paying the base premium.

[00:30:41] Now we add the PUA writer to that. And what happens is we're accelerating the cash value and I bring it back to a mortgage and I say, look, if you wanna pay off your 30 year mortgage faster, what do you do? Most common answers [00:31:00] I send in more principle. That's what that PUA is.

[00:31:04] You're sending in more principle to your whole life policy. To accelerate the cash value so that you own more equity in your death benefit faster. It's the same thinking to me. So the design components base premium PUA writer. Minimally, it has to have those, the term writer will use where it makes sense to expand the envelope so you can dump in more premium through the PUA to accelerate that, that cash value.

[00:31:39] But the idea here is that you wanna pay that premium and where you can, you wanna overfund, send more principle, take advantage of that PUA writer at a minimum. Make sure you're hitting the minimum in your policies to keep that PUA [00:32:00] writer in force for the next year, or in some policies, it's a rolling five year period.

[00:32:05] So you don't wanna fall asleep on this. And in fact, if you are falling asleep, you know it, it's time to wake up and realize shoot, I should be overfunding this policy to create capital. Capital for myself. You want to take a look at where your policy is and how much you've contributed to that PUA writer to make sure that you're at least hitting that minimums and ideally, Getting as much cash flow as you can into that writer.

[00:32:32] Everything else will take care of itself. One of the things that we've, come to say is that you'll never be in a worse position by having access to cash. , and it's so true. The, these things will just take care of itself and the fact that you have a guaranteed level base premium that just.

[00:32:52] Creates peace of mind for you that you have for your entire life. And if you're thinking about your entire life, think [00:33:00] of it from a long-term perspective. Going back to what you said, John, plan this out. Like this is gonna be your last policy. At least think about it. Don't have that short-term how's this gonna look for five years?

[00:33:13] And then, after that, I'm done. Yeah. Think of it like how much you. Can I put into this policy over my life? And when you start to do that, you're gonna have the elements of a proper IBC policy for you and your family. Said. I really like that mortgage analogy as well. And so that all of those things matter.

[00:33:38] And we'll just wrap this up with a couple other things. They're, these are not necessarily an IBC thing. There are a couple riders you might wanna look at and make sure they're part of the policy. Sometimes they always are, depends on how much insurance you're actually buying, but you have things like, chronic and terminal illness protection [00:34:00] riders, which are just called accelerated Death Benefit Rider, so you can get access to your death benefit in the case of a chronic or terminal illness.

[00:34:08] Another really important one is a waiver of premium rider, where if anything happens to you and you become disabled. The insurance company will pay the premium on your behalf. And something to understand on that one is that they don't typically pay the PUA portion, but they'll at least pay the base premium and the term writer typically that portion of your premium.

[00:34:30] So that. No matter what happens, you'll end up at least in the same ballpark that you expected to, even if you become disabled. And then a couple another one that is PR is good. Not a lot of carriers offer it, but there's a thing called a over loan protection rider that you know, as you in your later years as you're taking money, as income from some of these policies you could borrow.

[00:34:58] Really as much as you want. [00:35:00] And you'll never run into, what's sometimes called a tax trap, where if you borrow too much money and it collapses the policy all that borrowed money that you use for tax-free income could turn into actual income and it could become taxable.

[00:35:18] Some of these riders will protect against things like that. Anything I'm missing here, John, before we wrap up? There's what's called a chronic illness writer. That's a potential , add in and some of those this particular writer you've gotta qualify for it just like you're qualifying for the rest of the policy.

[00:35:43] And, not everyone will. Get it, but it's a nice little additional writer that you can get basically if you can't do two outta six activities of daily living, then it gives you access to a percentage of the death benefit each year. , [00:36:00] it's not the reason why you do an IBC policy. A lot of people get stuck on I want this policy because it, it provides all these, additional optional writer benefits and let's just remember we're solving for your need for cash in your lifetime and really make that the priority, these additional benefits that you can.

[00:36:27] they're great. But l let's make sure you're qualifying, Yep. And solving for the biggest need in your life. The need for financing. Absolutely. Okay, John. Awesome episode. And for you listening out there hey, if you find this useful, we'd sure appreciate if you gave us a five star review to help us, get up in the algorithms and get this info out there to more people.

[00:36:56] If you would like to learn more about how this could apply in your life [00:37:00] specifically, you can always go to the fifth edition.com and you can schedule a no obligation. 30 minute call with us right there. Or you can also get access to our online course. If you're one of those people that just likes to do as much learning on their own as possible before talking to anyone, we have a 50% discount on our online course right there on the fifth edition.com.

[00:37:22] All right, John. Thank you very much. All right, everyone. Thank you. And thank you, John.