In this episode, I dive into the popular concept of infinite banking and discuss whether it makes sense to use your whole life insurance policy to pay off your mortgage, auto loans, or other debts.
I break down the strategy, dispelling common myths and misinformation, especially the idea that you are “paying yourself back” with interest. Instead, I explain how loans work inside whole life insurance policies and why it’s important to understand the real math behind it.
I also share insights into how you can best leverage your infinite banking policy for real cash-flowing investments like real estate and when it may or may not make sense to use it for debt.
I cover the benefits of keeping your cash flowing in multiple places at once and how to avoid some bad strategies that could hurt you in the long run.
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TRANSCRIPTS
Speaker 1 (00:00):
We’ve heard about infinite banking, right? We heard about paying yourself back. Should you be using your infinite banking to pay for a mortgage or pay off a mortgage or even your other debt like your auto loans? That’s what I’m going to answer in this episode today. Hello, my fellow Ripples. This is Chris Miles, your cashflow expert and anti financianal advisor. The show is for you, those that work so hard, but you’re ready for your money, start working harder for you today. You want that freedom. You want that ability to become work optional where you work because you want to, not because you have to. And most importantly guys, it’s not just about just getting rich for yourself and your family, which is awesome. It’s about living a rich life because as you are blessed financially, you have greater means and resources to bless the lives of those around you.
(00:56)
Thank you for tuning in today and allowing me to create a ripple effect through you guys. If you enjoy this show at all, whether it’s this episode or this show in general, if you’ve been binging it, please go to Apple Reviews or wherever you go to reviews, Spotify, I dunno, wherever you go for reviews. And just give us a good shout out, right? If you love this show, please let us know. We’d love to know and get some feedback about what you enjoy about the show and how we could best serve you today. That also reminds me too, you can always reach out to us if you have questions you think should be addressed on the show. Send those my way as well. I always love new topics, so be sure to do that today. So let’s talk about infinite banking and paying off mortgages.
(01:33)
Now, when I was first introduced to this concept, remember I was a financial advisor for four years, never heard of this infinite banking concept. And then in 2006 I started doing real estate investing. And all these real estate investors are raving about this infinite banking concept, right? IB, C. And I thought, well, this is interesting. I’ve never heard of it. What is it? And I thought like, this has got to be some cool new investment strategy. And then they dropped the bomb on me saying, yeah, it’s using whole life insurance. Said whole life insurance. You’ve got to be kidding me. Isn’t that stuff pays nothing? It’s like what one or 2% a year you make on that? That’s how can you make any money using whole life insurance? Why would anybody in the right mind, especially a real estate investor or business owners even want to do something like that?
(02:18)
And then that’s when I started to read the book, buy Nelson Nash, becoming Your Own Banker. Read that book. And of course, they talk about things like, Hey, you could pay off your debt. You pay off credit cards. Of course you pay off car loans. You can buy your car in cash using this strategy or buy your homes using the strategy. And so I thought, okay, well this is interesting. I’ll bite. And so I went to the guy that helped set up the policy for a lot of these other guys, and I said, I’ll trust you. And I remember looking at the policy thinking, man, this is so expensive. Why do I have to pay so much in fees upfront? Well, Chris, that’s just the way it goes. But after five or 10 years, you finally have enough money in this so you can actually do something with it.
(02:53)
I’m like, okay, well this is the long haul. Got it. Which when you’re a financial advisor, everything was by the long haul. It always about 30, 40 years in the future. So if you had to wait five or 10 years, didn’t sound as bad, did it? Well, of course, as you guys have heard this story, if you’ve watched my other lives, I actually do a much bigger, deeper conversation on infinite banking and how it all works and how you can get your money to pay you twice. I do that on our Money Ripples podcast channel here on YouTube under the live section. There’s plenty of videos about this infinite banking type of strategy, especially this max ROI, infinite banking. Well, I found out that he basically lied to me that he could have made it work better and perform better, where I could have had money in there from day one and use it from day one.
(03:31)
And you’re starting to see now, I mean this is why I spent the last 15 plus years honing in this craft and design these policies to get the biggest bang for your buck possible in any situation. And that’s the kind of thing I really get excited about. That’s the kind of thing I love teaching, and that’s why we even do it internally in our own company too, because I couldn’t find anybody out there insurance agent wise that would consistently give the kind of policy that I would want on myself and especially want for my clients. And so that’s why we did it ourselves. But again, this is not about us. This is about the strategy. So now while I’m starting to learn about infinite banking, there’s all these other infinite bankers and B om bankers out there, the BYOB type stuff. And the thing is, it got worse when Pamela Yellen wrote a book about Be your own banker, that BYOB.
(04:20)
And then they start saying, well, hey, you get this loan, you borrow from your policy and then you pay yourself back with interest. And I thought, well, this is awesome. This is great. But understand guys, I had still had an insurance license over this period of time. I like to verify facts. And here is the one lie that’s been coming out of a lot of these people, even on TikTok and Instagram, talking about you pay yourself back and it makes it sound like it’s almost like a 401k loan that if you borrow from it and you pay it back, you pay it back with interest that goes back into your account. But guys, it doesn’t work that way. And so naturally you think, well, if I borrow from this, and that’s what Pamela Yellen said in her book, right? She’d say, well, you borrow from it and you buy a car, you make money off of buying your car bs.
(05:07)
That is so misleading, so not true. Okay, let me explain how this really works. And remember, I of course love this thing, but if people actually understand the reality of how it really works, you’ll understand. You don’t have to lie and say these kind of things they do. The reason they lie about, I’ve seen their policies, they do suck, and the only way they actually want to get it is if you lie about it. That’s why if you do what’s right for the client, you actually design a great policy. Well then you don’t have to lie about this stuff. It actually is better. The truth is better than the lie they teach you. Here’s how it’s different. This is why if you always thought that I never pay interest, I’m just paying myself back. Well, of course you would pay off a house using your life insurance, right?
(05:50)
Like, oh, I’ll just have no mortgage. I’ll just use this. This will make me money off my house. The answer is false. Here’s how the loans really work inside of a life insurance policy. Now, this is not a bad thing. I actually love the loan structure inside of life insurance, especially with whole life insurance. But now you start hearing people talking about doing this strategy with using your I ls and uls and all that kind of stuff. No universal life, bad idea using this strategy. It’s even worse actually. It could be much, much worse and detrimental using that. I’m not saying that using a universal life is always bad, right? I’m just saying for this specific method with infinite banking type stuff, or even with trying to pay off debt, not a good idea. Okay? So let me talk about how these loans work with whole life insurance because whole life does allow you to have the ability to make money in two places at once.
(06:37)
But it’s different than what people have been telling you. They’ll always tell you like, oh, you pay yourself back interest. False. That’s not the case. You are charged interest by an insurance company. It’s here how it works. Say you have a hundred thousand dollars in cash in your life insurance. I don’t mean the death benefit. I mean that tax-free savings account that’s inside of there. Now, if you have a hundred thousand in there and you say, well, look, this, I want to get a $60,000 car. Maybe it’s a new car or slightly used at $60,000, you want to buy that car. Well, you could withdraw 60,000 from that a hundred thousand. But what happens, you’re now, your a hundred thousand becomes 40,000, you’re now earning less tax-free compounding interest, not the worst thing in the world, but now you’ve lost the ability to earn interest.
(07:20)
Well, what if you had a savings account that you could still leverage and use but never have to pull out of it so you could still earn the full interest in there and still be able to make money off of it too? Well, this is how it works with the car loan example. Instead of pulling out $60,000 from that a hundred thousand, instead, let’s just say you go and you borrow 60,000 from the insurance company. Why would they give you a $60,000 loan? Because they hold your a hundred thousand in there and what they’re going to do, they’re going to lock up the 60,000. They’re going to say, that’s our collateral. We’re going to lock it up. By the way, banks do the same strategy. You can go and lock up your money in a savings account, get a line of credit against it, cash out whatever money it is and go use it wherever you want.
(08:01)
You can actually get a line of credit with the bank. The problem is, is that the spread between what they pay you versus what you’re charged in interest is a lot bigger. Whereas life insurance is a much more narrower margin. The interest that they charge is slightly higher than what they pay you. But just so you know, there’s more to this. Okay, I’ll go back to that part in a second about why that’s still okay now. So the of course, they’re going to charge you a little bit more interest than even what they pay you in interest. So they know it’s guaranteed, it’s locked up. It never can lose money. Most of these insurance policies pay at least 3% guaranteed anyways per year. So they’re willing to give you up to like 95% line of credit on your money. So $60,000 you borrow, yes, they are charging you interest.
(08:41)
Say it’s about a little over 6% interest while you’re earning just under 6% in interest. Well, that’s great and all, but the good thing is this, is that when you get this loan, there are no minimum monthly payments. Now, they do charge you interest. Do not get me wrong. They are charging you interest not to go back in your account. They’re charging you interest to go back to them. You are paying them. They’re the bank. In fact, it’s literally like a bank loan. You just don’t have a minimum monthly payment and you have the ability to pay back however, whenever you want. So that’s the good news because if you go get a $60,000 bank loan for your car, yes, you’re going to have to pay that. I haven’t done the math. It’s going to be over a thousand dollars a month on that payment, right?
(09:23)
You will have to pay that every single month. You miss a payment, they can take the car away. So yeah, if you’re looking at all things being equal, sure, using your own cash, you could just buy it in cash outright of course, or you could borrow from the insurance company to then pay for that car in cash. I could have done the same thing. But you know what I did last year, last fall is I didn’t, we had to go buy a brand new car. Now, I had a car that totaled, that was a used car, so they gave us the check for that I used as part of the down payment on a brand new vehicle. So it was the same model, just the newer vehicle we got. And then I had a little gap there. There’s about $35,000 gap of I could either finance it or pay it in cash.
(10:02)
I could have paid it in cash. I could even borrow from my policy to pay it, but I didn’t. You know why? Because they offer me a 3.9% interest. Now, if you believed some of these lying infinite bankers out there, and I’m just going to say it bluntly like that, you might think, well, why would I pay 3.9% interest when I could pay my self interest? Not you’re paying back. Like I said, if you’re paying back a little over 6% in interest back to the insurance company, it’s just like a line of credit. It’s just like a bank loan. Granted, there’s no minimum monthly payment. That’s nice, but they’re still charging you interest on a daily basis to totally be over 6% a year. So the thing is, you’re still being charged interest. So naturally, I’m going to go with a lower interest and truth be told, if I can get bank money for around the same interest, maybe a little higher than what I could get on an insurance loan, I’ll still take the bank’s money because I’d much rather use my money for something more important where I can’t get bank money for investing.
(10:57)
I may not get money for investing. Now, if I buy a property, yeah, they’ll give me an 80% mortgage or a 75% mortgage, but I’ll still have to put the 20, 25% down. Good. Now, I’ll use my infinite banking policy for that 20 or 25% down payment because they won’t give me a hundred percent mortgage. I use that money and then I use the cashflow from that property to then pay back my line of credit. Well, of course my renters are paying down my mortgage. For me, that’s how I do that strategy. Now with this, now even if I’m buying a car, the thing is I still have to pay back a bank interest. I would rather just use the bank’s money so then my money’s free to use whatever I want for investing. That’s the difference. So the problem is you get people. Now, if you’re a Dave Ramsey fan and you’re all about no debt, this could be a good strategy.
(11:41)
But just understand, don’t, don’t be diluted. You’re still being charged interest. Now, granted, your earning interest, remember that a hundred thousand example, you’re still earning just under 6% tax-free dividends on that full a hundred thousand dollars even though you borrow 60,000, your full hundred thousand still in there growing and compounding, making tax free interest that could actually outpace and out earn what you’re paying them in interest. And that’s how you get that double dip effect. Right now, even their interest rates a little bit higher because of how it, depending on how the numbers work out, especially if you use that money, the payment, you would’ve paid to a bank. If you do pay back to the insurance company, now you’re talking because now you pay interest in principal, both just like a normal bank loan, right? You pay back principal interest payments. There’s so many people out there, I don’t know why financial people will try to make you believe that you’re being ripped off by the banks guys.
(12:35)
It’s literally, literally just math. You’re not being ripped off. If you get a five-year car loan, you’re like, yeah, they’re charging all the interest up upfront or that 30 year mortgage. They charge all the interest up front. The banks are ripping you off. No, they’re not. They’re literally doing nothing but math. You set the payment right? Now, you could have it be better than that by paying over 15 years or 10 years on a mortgage. But that’s risky, right? That’s really risky. The truth is, the reason why there’s so much more interest charge in the beginning is because that’s the highest balance, and you’re paying down principal and interest payments, which ticks away at the principle. The lower the principle goes, the less that the interest you’re being charged with. Their interest rate doesn’t change, but the amount of interest, because the interest rate stays the same, the amount of interest does change.
(13:17)
For example, you have a hundred thousand dollars mortgage being charged 5% a year. That’s 5,000 interest. If you pay down 10,000 on that loan, now it’s 90,000 being charged, 5% interest or 4,500 that year, you knock down another 10,000. Now you’re being charged 4,000 that year in interest. And if you’re just making this as normal monthly payments, yes, more and more goes to principle as time goes on because the balance goes down. So less and less goes to interest more and more to principle. Same thing with infinite banking. No different. They’re charging you interest. But if you pay that payment, like say that same $60,000 car we’re talking about earlier, say it is over a thousand dollars a month, but instead pay that a thousand back towards that line of credit, you’ll pay the interest and you’ll pay down the line of credit principle paying down that loan balance.
(14:05)
What does that do? That just means that you’re still getting paid all the interest over here, right? You’re still earning that tax-free dividends of the a hundred thousand over here, but now you also have less and less being charged to you an interest, and that interest goes down, down, down over time. It’s simple interest while you’re earning compounding interest, they’re not the same. Again, if you go on this same podcast channel, the YouTube channel of this Money Ripples podcast under the live section, we actually show the math and how that works, these infinite banking videos. But that’s the difference, guys. So you’re still paying back a bank, whether it’s the insurance company or even a normal bank, which there are banks that do offer what’s called insurance banks lines of credit or iBlock. They do offer those. There are those things out there, but it’s still all a bank.
(14:47)
So when someone says, pay off your mortgage with it, don’t fall for, again, if I can get low interest mortgages, and I still think right now it is low interest, six 7% is still freaking low interest, even about 8% going over 8%. If you’re like nine, 10% of the mortgage, now, I might lean more towards my life insurance, but if it’s still roughly about the same at straight, if it’s like one or 2% higher, it’s not that big of a deal. It’s not. It really isn’t. And so even if it’s about one or 2% higher, I’ll still stay with the mortgage so that I have my cash to make more than that seven or 8% simple interest that I’m paying on that loan. Does that make sense? So guys, my advice is, it’s not that you can’t pay off stuff. Pay off high interest credit cards, do that.
(15:30)
That makes perfect sense, right? Pay those things off and then pay yourself back by paying the payments back to the insurance company that pays down the line of credit, which frees up your cash to be able to use, again, builds up more reserves. You can use it whenever you need it, right? That’s great. But when it comes to these low interest loans, even some student loans, car loans, even mortgages, guys, I think it’s just a sales job to try to get you to buy more insurance. That’s really what it comes down to. It’s bs. The numbers don’t work out. It does not make more sense to do it that way. And so my advice is be careful. Be aware of that kind of stuff. And by the way, here’s a bonus for you. A bonus tip. There are some people that teach you the strategy that you go and you buy a policy.
(16:11)
Then a few years later, take the cash out of policy and start a new policy, another bad idea, because those policies just get more and more expensive. If you’re buying less and less insurance as time goes on, stripping all the equity, and especially if you do it with a universal life policy, you could possibly bankrupt some of those policy that you’re using. So again, be careful of these strategies, these little cute little strategies they try to teach you to get all creative. The truth is, guys, what we teach you on this channel, this stuff, that kind of stuff has proven to work, use it for your business, for growing your business that generates more cashflow, ideally to then pay back the line of credit. Use it for real estate investment, but use it for cash flowing investments, things that generate more cash. Even if it saves you on credit card payments, great.
(16:51)
Use it for that. So then you can use that money to pay back the line of credit. Again, you don’t have to pay back the loans. The deadline for paying off those loans is your death, and they just take out of the death benefit. But if you’re not careful, those loans do compound interest against you, which could actually offset the money you’re earning in the policy. The policy may not be depleted of cash unless you’re using an IUL. Maybe possibly could happen that way, but it won’t happen with the whole life as much if it’s designed the right way. So again, be careful with all this advice and these cute little strategies. Do what actually works. If you’re going to use this policy for something, use it for something that actually generates real cashflow in your life today. If you ever have a question on that, we have a whole infinite banking section on our website@moneyripples.com. Go and make a wonderful prosperous week. We’ll see you later.