Many times we’re asked about infinite banking, “Why do I have to pay to use my own money?” The short answer? You don’t pay for YOUR money. That’s WHY we do it! In this episode, Chris Miles breaks down how infinite banking actually works, and how it compares to just investing your money from savings. Tune in as he discusses the right way to deal with bank loans, insurance companies, and tax returns.
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Why Do You Have to Pay For Your Infinite Banking Money?
This show is for you, those that work hard for your money, and you want your money to start working harder for you right now. You want that freedom and cashflow now. Not 30 or 40 years from now, but right now so you can live that life that you love doing what you love. It is not about getting rich. It is about living a rich life because as you are blessed financially, you have a greater capacity to bless the lives of others.
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It is because of people like you that kept me inspired to want to keep going forward. Thank you for allowing me to share and create that ripple effect through you guys. As a reminder, if you have not done already, go to our website, MoneyRipples.com. Take the passive income calculator now to see how much passive income you can create in the next twelve months and next year. Be sure you check that out right now.
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I get into a topic, but we haven’t talked about infinite banking for a little while. I had a friend who is a successful real estate investor and he asked a great question. It’s one that I have heard before and it needs to be addressed. He was almost upset after he learned about it because he had heard about different people, but it never quite made sense. After I started showing him better numbers than what he has seen from other infinite banking types of specialists and gurus out there, he was like, “Chris, I still can’t wrap my head around this. Why would I pay for my own money?” I said, “That is a great question.”
The funny thing is his wife was the one that answered it correctly. She was like, “Honey, this is easy.” That is the way it is. Sometimes it is spouses that get it better than some of us men. I have noticed that in many cases coaching over the years. To answer his question simply, and this is what I told him, is, “You are not borrowing your own money. You are not using your own money. That is the whole point.” This is the lie that people hear when they hear about infinite banking. They say you borrow from yourself. That is 100% false. It is bull. You do not borrow from yourself. It doesn’t even make sense to do that.
The real question people are asking is, “If I can take my money and invest it, why would I run it through an insurance policy where there are going to be some insurance costs coming out of it first before I can invest the rest? Wouldn’t I eat in my cash that I could be using to invest and create more passive income? Chris, doesn’t that contradict the things you teach about?” The answer is, from that perspective, yes, it does. I would say wrong. For many years, I had that same debate as you did, which I’m like, “It doesn’t make sense. We are paying all these fees. I get the death benefit, but what about my life now?” That is what I’m going to address here.
Not An Investment Account
This is a supercharged savings account. This is not an investment account. Do not ever think this is an investment. It is tax-free savings account if done properly. It is, in most states, protected 100% from lawsuits and creditors. It also doesn’t show up on your FAFSA or financial aid form when you are trying to apply for a kid’s college or for your own.
Many people, including the guy on our team, paid for his college to do it that way. His dad is a successful entrepreneur. He started a lot of businesses here in Utah. The one thing he taught his son when he was eighteen. He said, “Son, I wish I knew how to do this strategy twenty years prior to when I learned it.” The guy is only in his 50s and going now going into his early 60s. That is one of the big things right there. It is protected, tax-free, guaranteed growth, and much better than your point-nothing percent savings account, with no stupid limits or penalties. You don’t have the 59.5 rule, and there is bank leverage and access to cash now. That is what I want to talk about.
When you put money in, the best way to do this is to pay into this on a regular basis for at least 5 or 10 years if you are going to max fund it. We show people how to max fund. If somebody wants to put in $20,000 a year, it is great. That is $20,000 a year they put in, but that is not the minimum required premium. It is usually at least a quarter of that. It is less than $5,000, sometimes even less than $3,000 or $4,000, depending on the situation.
That is the situation we have, where you have a big range. You can put in anything from the max all the way down to a quarter or a fifth. Whatever that max is, that is your minimum. There is this extra ability to put in. This is not a high-def benefit policy. You are not paying a lot in insurance costs. It mostly goes to the cash value. Generally, at least 75% to 80% in the first year will go right to a cash value that can be used.
It is front-loaded, unlike term insurance. Term insurance gets more expensive over time or gets cheaper over time. She gets less expensive. Those first two years or the most expensive years. If it is done right like the policies that we do, usually by year 3 or 4, it is paying for itself. It is making more than what the insurance costs are coming out of it. Therefore, it is like a tax-free savings account. It doesn’t mean that there are no costs. It means that the interest you are earning, which is usually at least 5% to 6% tax-free right now, is offsetting the cost of that policy.
How Infinite Banking Money Works
Here is how it works and just so you know, if someone doesn’t have $20,000 a year, we don’t recommend putting that in. I also don’t recommend putting all your paycheck in here. If people teach you to do that, it is a complete lie to help sell them more insurance to make bigger commissions on you, but it costs you more money. Don’t do that. Don’t put all your money in.
I see some guys out there that are infinite bankers. They dump $200,000 to $300,000 at once and pay little after that. Don’t do that strategy. I would say 99.5% of the time somebody asks me to do that strategy, I generally recommend against it. Yes, that means I get paid less in commissions. The reason is because it means you make more money. I’m not a fan of that strategy, although there are infinite bankers that are insisting that is what you do. Just know this, even if they do it this way, most infinite bankers, even the good ones, usually you are paying at least 25% to 30% in the first year, sometimes 40%.
Think about it. You shouldn’t put in $200,000 that first year. That first year is the most expensive year, ironically enough. If you throw that money in, you are going to be left with maybe $120,000 or at best, $150,000. Even in our situation, where we have the highest cash return guarantee that we try to do to have the least cost with the amount of money you are putting in, you still might have $160,000 in there. Still, that is $40,000 with the costs. You don’t want to do that. You want to do it to where it is something you can put in more evenly spaced out over time and invest the difference.
What I generally have people do is I have them say, “If you got $250,000 in cash, let’s only take $40,000 or $50,000 of that. Invest that and take the $40,000 or $50,000 and put that into the life insurance. It was the savings of vehicle there. The other $200,000 you go and invest. That means you are making at least usually $20,000 a year in passive income returns that will help pay for that policy. Maybe you could put in up to $40,000 or $50,000 a year, but the minimum is only $10,000.”
The great thing is if you have cashflow coming in and you got enough money to save, it may not be long, especially with the way the cash is growing in there. You could be using that to invest. It may not be long where that will be able to pay for itself because the passive income you are earning could be paying for their premiums for you. It is not coming out of pocket per se. It is reinvesting the cash you have been using anyways.
Most people take cash and put it into investment. The cashflow from the investment comes back to them into their checking or savings account, making nothing. We are saying they are doing the same thing, but instead of putting it back into your bank account, which is tax and earns point-nothing percent, we are saying, “Take this money instead, put it towards your life insurance.”
Here is what the difference is. The dollar goes into the policy and you take a loan against the policy. This does not mean that if you loan, you borrow your own money. What it means is that a high cash value policy is still there. Let’s use the example where you may be put in $50,000. There is now $40,000 in cash in there. You are not going to pull $40,000 out of that policy. That $40,000 is going to stay there, earning tax-free returns. At the same time, you get a line of credit against that policy.
It is like with your house. If you get a home equity line of credit, it is not like you are pulling cash out of the house. You are going to the bank and saying, “I would like to use the equity as collateral. Can you give me money based on the fact that there is enough equity in my home?” They will say, “Yes.” Granted there is a difference here. When you pull in equity at your home, it is money that is invisible to you. It is money that you never had, and now it is there.
Here is the money you have put in and you are accessing money, but here is why instead of withdrawing it, which is an option, you can withdraw it like a savings account. The reason why we borrow from the insurance company instead is because we want the money in the policy growing faster than the interest you are paying on that loan. That is the difference.
If you take money out of savings and dump it into an investment, the money is only being made in the investment. That is for the cashflows being made. If you pull all the money out of your savings account, you are not earning any interest in that savings account anymore. That money is only being made in one place, in the investment.
If you do this strategy where you get a line of credit from the insurance company and you pay it back however and whenever you want as long as you pay it back by your death and they take it out your death benefit and give your family the rest tax-free, you pull that money from them, your money is still in there growing. That $40,000 are still making tax-free returns. You might take $30,000 of that and invest it. Let’s say you are earning $3,000 to $4,000 a year of that money, great. You use that to pay towards that line of credit.
Why do we do that? It is like that velocity banking strategy some of you might have heard of where people will get that home equity line of credit. They invest that equity. They use the returns from that investment to pay down their mortgage and pay down faster. We are not paying down a mortgage. We are paying down that line of credit you use. You can use it again. You can run it up again because you pay down that interest or principal. Less interest gets charged, while on the opposite extreme, your money is compounding interest.
If you earn 5% and you are charged 5%, just because you are paying down the loan balance and the balance of the count is going up, it compounds. This one goes with simple interest. If it goes down over time, you make more money. Even if they were to the same interest rate, you compound more money. Meaning you have made money in two places at the same time. That is why you are not borrowing your own money. You are not paying to use your money. You are getting leverage off the bank to use their money.
You are doing the same thing that the bank does to you when you put your money into a savings account. They are not letting it sit there and do nothing. You don’t know that because you go in and you pull it out, you were like, “It is like it was there the whole time.” Don’t brush the dust off. That is not the case.
What is happening is that they are taking that money and they are loaning out even more than what you give them. They are loaning that out to earn a higher interest rate. That is why they will loan it out on auto loans. They are earning now at least 6%. We got mortgages at 6.5% to 7%. and credit cards at 13%, 15%, 18%, to 20%. They are loaning out that money while paying you piddly point-nothing percent.
It seems unfair but the truth is the bank is smarter than we are. They are doing the same thing that I’m telling you to do here. Turn the tables back around on them where now you are leveraging that money at a lower interest while you can earn a higher interest on that money and yet still invest it. You still earn money in the investment earning more than you pay them anyways and you are earning money inside your policy at the same time in that tax-free savings account. You earn money in two places at once. What is that like? That is almost like having a home equity line of credit that also pays you interest and you can go and invest it. That is what it is like. There are costs to this. This doesn’t always work in a vacuum, but when done right, it works awesome.
Hopefully, that answers your question. No, you are not paying to use your money. You are paying to use the bank’s money or the insurance company’s money, and at the same time, they are still paying you on your money too. The trick is you got to beat it. Many times, people will say they get analytical into the numbers. They will say, “I want to see the numbers. How does this work?” I have some people who like to say, “Show me the difference. What would happen if I used my savings account versus investing with this?”
We know it is not apples-to-apples because you are getting a death benefit from this. You are getting other benefits from this life insurance. Legally, I’m supposed to say the number one reason for life insurance is for life insurance, the death benefit. I like to talk about the life portion of it, which is the cash value portion, but the truth is there is a death benefit there.
If I were to do this apples-to-apples, I would probably say, “Let’s use the whole buy term invested difference with Dave Ramsey.” Here is the deal. There are plenty of videos on that already. There are plenty of people who have already said, “Buy term and invests the difference.” You pay more on the term, especially over time, and you lose money. Whole life is still better, and that is with inferior whole life policies. It still works out better.
This is according to the internal numbers that they tell us as insurance agents. They say, “Usually, 1/2 of 1% to 1% at most ever pay out when it comes to term insurance policies.” They rarely ever pay out and they are cheap. They are easy to sell. Why do they market them so much? It is because they are a big money maker. That is great for you if you are a whole life policy-holder in a mutual company.
If you are in a mutual company versus a usual stock company like MetLife or these companies that have stocks, all the dividends get paid to the shareholders. With mutual companies, you have heard like MassMutual, Northwestern, Guardian, Penn Mutual, or anything with a mutual inside of it. Those mutual companies are owned by the members. Those members are the policyholders. It is like a credit union versus a bank. Credit unions usually pay more because the members own or have voter rights in that company.
The same thing is true with mutual life insurance companies, where you have voter rights inside that company. They pay the dividends of the profits of the company back to the whole-life policy owners. The way they are able to pay dividends is because they are making profits. They already schedule it in there anyways when they try to return some of that premium to you. They also make returns off their money, off of their company’s profits, and you make returns off the money that they are investing too and get paid on it.
Buy A Term And Invest A Difference
Many people will say, “What if I didn’t buy a term and invest a difference? What if I didn’t buy any term at all? What if I compare my savings account to using whole-life?” The savings account will win early on and you are 100% correct. The savings account will win in those first few years, but over time, maybe not so much.
Let me show you what I mean. I wanted to use real numbers. I use my own life. I’m a 45-year-old healthy male. If you are a female and you are the same age or even a year older than me and you are healthy, you will probably get better numbers than me. If you are male over the age of 45, the numbers won’t be as good on the whole life side. Progressively less. It is small by fractions of a percent. If you are younger than a 45-year-old male, these numbers are even better than I’m showing you.
Nothing is guaranteed. This is based on current interest rate environments as they are starting to climb. We haven’t even seen an increase in whole-life dividends yet. If the interest rates do keep staying up higher, it is good news for you if you have a whole life policy. They will pay you higher dividends than what I’m even projecting right now in my own situation.
There has not been an increase in whole-life dividends yet. But if interest rates keep going up, it is good news for everyone. Click To TweetI want to use somebody who I mentioned before, maybe had $250,000 that they went and they invested. They make a passive income of $25,000 a year or a 10% return. It is common for our one-on-one consulting clients to get. Ten percent is the baseline for many of the deals that they are doing. That $250,000 they are investing. They are not dumping in this policy. They are investing it to make $25,000 a year. This is true for both the savings account person and for the whole-life person.
The difference is that this person is also saving an additional $30,000 a year. They stopped funding their 401(k) to try to max fund it. Many of our clients are the clients that have put in a large percentage, maybe 10% or even more. Sometimes they go up to the max and they give the match on it. I want to show someone who has been putting away $30,000 a year and they are getting $25,000 a year from their investments. That is $55,000 a year. That is where this number comes from.
If you are in a savings account that first year, you get $55,000. That makes 10%. It gives you a $5,500 increase. That means they went from $25,000, from the $250,000 they invested last year, the first year. Now they got $55,000 more plus the money they have been putting away. They got $30,500 so I keep reinvesting that.
After ten years, even if you only made a 10% return, this is good to know. Even for those that are considering hiring us consultants to strategize a game plan, 10% is at the low end of what many of the returns are on these investments. Even in this person’s situation, they went from $250,000. If you try to do the traditional financial planning there, you are pulling out $7,500 a year.
Instead, now we are getting a lot more. That can get them up to $112,000 after ten years. No guarantees. It is based on numbers. This is purely for illustration purposes but no cost coming out. I didn’t even take out taxes. I had left taxes out of the equation here. I let it grow unencumbered. It is $112,000 a year after 10 years. Not bad. That is over $9,000 a month.
What about using the whole life? If you put in $30,000 a year, part of that is going to come out. You will have about $24,000 in cash value. Of that, you can access $22,000 in change. I rounded down to $22,000. This person put in $25,000 from the passive income they made from the $250,000 plus a $22,000 loan.
That means that they invested a total of $47,000. That increases the cashflow by $4,700 a year. I also took out interest charges. This example is someone who didn’t pay back the loan. They paid the interest only. They kept the cashflow to reinvest again. That means they have $3,600 they can apply to their amount the next year. Now they have $52,600 to apply with their cashflow and everything else and so on. It keeps building.
This is again using life insurance. They use the cash value that is available. It ended up being about under $112,000. Notice there is only a $700-a-year difference from the savings account. Even though they are only paying back interest only on loans, they still come out about breaking even as if you almost had free insurance. That is huge. They found this up by this point was close. It was somewhere between $700,000 to $800,000 by this point. It was a death benefit. It’s $111,000, almost $112,000. This one was $112,000.
The third example is the one we recommend. You take the entire cashflow and pay down that line of credit. You can use it again. The difference is you pay down the line of credit versus the money you are already paying into this plan, $30,000 a year max funding it. The minimum on that is $7,500 a year. It pays down faster. By the end of 10 years, you have $121,000, almost $122,000. You have about $9,000 more than the example where you only did savings, not even buy term and invest the difference.
Use a savings account with no cost coming out compared to doing it with your life insurance policy because that compound interest effect is bigger. You are using that money to create and pay down the loan, create simple interest and reinvest it. Every year, this person was reinvesting the money. They were doing new deals each and every year. The difference is, because of that double dip, you return money in two places at once and you make a bigger income. You end up with another $9,000 a year. It is about $750 a month.
Is it life-changing? No. Is it better than doing a savings account? Yes. This is me as a 45-year-old healthy male. If you are a woman, women have a benefit because they live a couple of years longer. I’m almost the equivalent of about a 47 or 48-year-old healthy female. If you are younger than this age, these numbers could be better. The thing is that this is all based on circumstance. It is all based on running these numbers and making them work. This did take me a couple of hours to do because, unfortunately, there is not good software to run this stuff.
Here is my point. If I’m to sum this up is that you are not borrowing your own money. You are borrowing money from the insurance company or a bank, whoever is going to give you the better interest deal. That is the great thing. You can shop and figure out where it is. Now, insurance companies are generally cheaper. Some of them are even doing loans like 4% right now. If I go to the bank, it would be over 6.5%, almost 7%.
That is something I want to avoid. I want to go for the lower rate, even the better spread on my money. They create the biggest spread possible while I’m earning interest on money too. That is the secret. The key is that we are creating leverage. When you do it right, and it is designed the right way, this creates a much better effect.
This infinite banking policy I’m showing you, beats pretty much every other infinite banking policy out there. The numbers don’t look as good for most common infinite bankers that you see out there. Even the ones who are doing videos like this, most of them don’t even get numbers this good. That means it takes longer even to break even or to be able to catch up to that same account scenario.
My experience has been if you are going to invest for at least the next 5 or 10 years, you will be better off using this as a vehicle to help you accumulate those funds and use it. Move money in and out to invest. It doesn’t mean you put every dollar into here. That is the key I want you to remember. There was still extra cash being done on the side. We weren’t putting all the money in here. That is another sales tactic I don’t like. We are using this as an example of a way to create more leverage with the savings you are going to be using anyways to invest because we want to earn money in two places at once.
If you got questions, you could always ask questions at MoneyRipples.com. We are more than willing to serve you and help you in any way possible, even run numbers if you want to see what that looks like in your situation. The point is that I want you to know that leverage is everything. It is like when you get that nice lever. If you want more strength, use levers. Everything works better when you are using the right tools in the right way. When you don’t, those tools are useless. Trust me. There are plenty of people on there saying, “That pair of pliers with a piece of crap. They didn’t work when it was more of a user error.”
Leverage is everything. If you want more strength, use levers. Everything works better when using the right tools in the right way. Click To TweetIn this case, there are user errors and agent errors. You got to be careful of both. When you can use it correctly, it is going to be a great tool. I want to reemphasize something I said back in August 2022 on this same show, “You do not need life assurance or infinite banking to become financially free. You can do all these strategies without it and still do it.”
It is like I showed you in that first example. That person still got to $112,000 without using infinite banking, but if you want to get a little extra juice, a little extra squeeze out of the money you got, this is a great tool and strategy to use when it is done correctly. Do you want to learn how to do that, go visit us at MoneyRipples.com. Go and make a wonderful and prosperous week, and we will see you later.