Part 1: The Truth About Whole Life Insurance - Experts Debate

There's this bomb that can explode on you when you're older.

I do not endorse our industry. I don't endorse how a lot of insurance is sold.

I've heard kind of nightmare stories about insurance. Is there something we really should avoid like the plague?

So joining us today, we have two guests, and a little bit different than some of the shows we've done before, and we're going to talk about the big topic of whole life insurance and infinite banking. This is something that comes up a lot in our conversations with investors, and it's a topic that can be very polarizing. And so we wanted to bring on two experts that will help us tease out the nuance of when does it make sense, when does it not make sense, when is it good, when is it not good, and really dive into the details here. And so we have Caleb Williams of Better Wealth, and we also have Jim Doo of Doo Wealth Advisors. Joining us today. And the fun part of this is we know both these guys very well and we're all friends here. And so this will be a really fun time to throw a little bit of punches, but also we all want to serve the same goal of helping investors and the listeners here really understand, you know, the nuances here. So let's dive in. Caleb, we're going to throw it to you to kick it off and maybe give us just a little background on you, what you do, and then let's dive in here.

Yeah. So, my name is Caleb Williams. I'm the founder of betterwealth.com. And what we're most known for is this subject around setting up whole life insurance well. And so, that's what people watch us on YouTube and come to us. And so, I'm grateful to be here, Jim. Big fan of you and just big fan of this conversation. There's not a lot of people talking about this. And so, the fact that you could put this together, Ben and Bob, honored to be here.

Can we just break down what is insurance? Jim, I'm going to throw it to you. It just, you know, what is— and we're really talking about whole life insurance. What is insurance? What is it good for?

I've been in the industry for 30 years. Mimi and I started our company, DoWealth Management, 26 years ago, really focused on serving entrepreneurs, successful entrepreneurs, and then learned about the way billionaires manage their wealth. And so, now, we build and run fractional family offices for entrepreneurs. And the reason why my perspective is important is 30 years ago, when I started in this industry, I wanted to get into financial planning and I interviewed with 3 brokerage firms. And guess what? 2 of the 3 in the interview showed me to try to pitch me to join the industry that if you sell whole life insurance, look how much money you can make. Whole life insurance is God's gift to the insurance agent, right? So, it's a product that's tremendous for the sales agent. The commissions are still hidden today. They haven't gone down. They're still 50% to 120% of target premium for these policies. And that's the way I started 30 years ago. Uh, so you might think, well, my incentive is, uh, are we an asset gathering firm? We are not. So what that means is that some financial advisors, they crap all over whole life insurance because they want to keep the money invested in their portfolio where they're going to charge 1%. So we are not a firm— we're a firm that does a fixed monthly fee. So we don't, uh, say, hey, you have to move all your money to us and charge 1%, which, by the way, in most cases, people are overpaying for their, their investment management. Which is a whole nother thing, which would probably get some people in the industry mad at me, just like some are mad at you about whole life, Caleb. So, when I started, I sold a lot of life insurance. And in those days, actually, whole life was much better than today for a lot of reasons that we can talk about. But I sold all kinds of life insurance. And then as I learned and got more wisdom and learned about where to put my money, I realized that whole life for me was not the right alternative to grow my assets over time. And unlike many people, I have those perspectives of I've sold whole life insurance. I've also done assets gathering, assets under management, and I don't do either today. So, I don't really have a horse in the race.

But you buy a lot of insurance for your clients, right? You have a lot of clients and you buy a ton of policies. So, you're really on the other side now as a buyer.

Absolutely right. So, we see both sides. And I'm not anti-whole life insurance or insurance in general. I think insurance plays a critical part. It's a tool, but it's often used inappropriately. It's often overused. And let me just walk you through a real quick way.

What is whole life insurance?

Yeah. So, and Caleb, you could probably explain that better than I would. Uh, I'll give you my shot and then Caleb could fill in. Uh, whole life insurance is really a, a contract you're making with a life insurance company. And sometimes I hear life insurance agents, they beat up on Wall Street, right? And I love to beat up on Wall Street too, cuz I'm not in that camp. However, I always think it's funny because whole life is expensive and complicated. I'd say it's the most complicated product in financial services. I know people who've studied for years and still can't understand how the heck whole life insurance works. And also, I don't trust insurance companies just like I don't trust Wall Street. So, when you have a contract with an insurance company, you have to know that they're looking out for their own profits and they're going to make sure that they make money. And life insurance agents are not representing you. They're representing themselves. And the company. So, it's a contract between you and an insurance company. And with whole life insurance, they have underlying guarantees and then dividends paid by the insurance company, which are not guaranteed and have been shown to change dramatically in a negative way over the last 30 years. Caleb, where did I miss on whole life insurance and what it is?

I mean, it's a contract between you and insurance company. Spot on there. And the contract is tied with certain pros and cons, guarantees, benefits, but also costs to it. And, and you're totally right. It's, it's, uh, can be a black box and, and it can be very mis-sold, over-abused, and not set up to be a win for the, the client. But then my pushback would be, it, it, it very much could be, and that's where this discussion could be. So Bob, to answer your question, it's a contract between you and an insurance company that is supposed to last your entire life. And has a death benefit, which is a liability to the insurance company that will pay upon your death. So if I had to, like, set the stage of this conversation, we're talking almost in two subjects: insurance in general, and then this concept of infinite banking. And what's interesting is if insurance is not a good thing, then if infinite banking is utilizing insurance, then that should also not be a good thing. So there's almost like two things that we need to address here. And I first and foremost just want to acknowledge that I do not endorse our industry. I don't endorse how a lot of insurance is sold. I don't endorse how it's— a lot of it is set up. And that's what I'm going to kind of do to set the stage of like why I'm a fan, but at the same time give disclaimers because I think Jim and I would agree with most of the things I'm going to talk about. So here are 3 common sales tactics that insurance is used and sold that I do not agree with. The first and foremost is if anyone's selling you insurance as an investment, I think there's misunderstandings there. It's not an investment. And I think there could be a lot of misleading things if people are using income from an insurance policy as a pitch. I also think there can be a lot of shenanigans when it comes to illustrations, and that can be very problematic. Someone could show crazy income, but the policy could end up being like blow up in your face. And so we could talk more about that if we want. And then the third thing when it comes to infinite banking is a lot of people will talk about cash on cash arbitrage. They'll say things like your money will grow the rest of your life. It's going to grow greater. Your borrowing is going to be cheaper and you're actually just earning arbitrage. That's not true in most cases, especially when we're talking about whole life. Your cash value growth will be smaller than the borrowing, which means there is no arbitrage. So it's like, okay, what is, what is my take on, on life insurance? My, my thesis is pretty simple, is when life insurance is set up and used properly, I believe that if you look at all the other benefits that it gives you, I do believe in benefit arbitrage, meaning You look at all the benefits that life insurance gives. I think I could make the argument that it actually does get you more benefits than the cost of borrowing. And that's where infinite banking can be attractive. If I can put my money into an account that gives me plus benefits, I get those and I get access to capital to do alternative investments or whatever I want to do. And so when we talk about what is insurance, all insurance is, it's a contract between you and an insurance company. Not all companies are created equal. Not all contracts are created equal. In a lot of cases, if you look at like Dave Ramsey and many people say about insurance, They'll, they'll say life insurance has terrible cash value, like no, no cash value in the first couple of years, takes forever to break even. It's terrible growth, not flexible, high commissions. Like those are some of the talking points and they're absolutely true. But when you max fund, which we'll probably talk about today, when you're like optimizing for the cash value growth, especially around whole life, because again, like that's a whole conversation we won't get into now, but around whole life max funding, you can get a lot earlier cash value, in some cases over 90% of first-year cash value in year 1. You can break even in a lot faster, a lot, a lot of better long-term growth. The death benefit actually can grow even greater than typical policies. You have a lot more flexible premiums and the commissions are a fraction. And so that's where it's like when we're talking about insurance, we're getting into a space that sells billions and billions of dollars and not at all— not all of it is created equal. And so when you look at the benefits, and this is where I'll end, is the benefits when set up and used properly, I believe it can— life insurance is a contract that can give you a lot of very safe built-in guarantees. The cash value is accessible, which is one of the premises of infinite banking that we'll talk about. I do believe this, and I'll stand by this, that compared to other accessible safe assets, I do believe life insurance gives you an amazing rate of return. We can break down that if you'd like. Your money, when set up and used properly, will grow tax-deferred. The cash value works as last in, first out, or could also be accessed in a tax-free loan, which is in a lot of cases built in to the life insurance contract. You get in many cases chronic and critical illness riders, which are not long-term care but act similar, and which I think needs to be part of the conversation when you're looking at the benefit bucket. The death benefit gets paid income tax-free. It's a private contract. You don't have the government telling you how much money you can put in. There's creditor protections in all 50 states. Some states are better than others. And then there's even academic, uh, research out there. Ernst Young, Dr. Wade Foul, Dr. Tom Wall are literally talking that life insurance could be seen as a potential better bond when you're looking at diversification. So just like we could look at credit cards and all agree that credit cards in general have created a lot of damage for the United States and like there's, 50% of the population that should not touch a credit card. But I would imagine that all of us here, you use credit cards to make purchases because of the benefits that we get when swiping, swiping that. So it's, I'm not endorsing credit cards, but I'm also saying that I use credit cards when it comes to purchase because of benefits. I think when life insurance is set up and integrated properly, it can do that same thing. It can actually benefit your wealth. But if the answer is not, then it doesn't matter that how many benefits you get, you should not do it. So at the end of the day, if life insurance is not helping you get, create a better result, don't do it. But if it does, I would give that an endorsement. So, that's kind of like setting the stage to my belief around insurance and then setting the conversation for infinite banking.

What's your perspective, Jim, on what does a good policy look like and what are the benefits of a good policy?

Before I jump into that, one thing that I want people to think about is often people don't have a way of understanding this and they're just looking at whole life in and of itself. And it really needs to be looked at in your overall plan. What are you trying to achieve? What are your objectives? And so here's how I think about life insurance in general. The, the number one benefit, or the key benefit of life insurance, is the death benefit. That's the key benefit of life insurance. So the first question you need to ask yourself is, how much life insurance death benefit do you need, and when? So if you have a 5-year-old child, you're going to need a chunk of life insurance from, let's say, when that child's 5 to 25. Not as much after, but if you die when the kid's 12, you got a major problem. If you have a survivorship issue, you're supporting a spouse, you need a chunk of life insurance until you build up enough assets where you don't need that. If you have an estate tax problem, that's a reason why you might need life insurance. Although now with the $30 million exemption for a married couple starting next month, it's not as big a deal. And there's all kinds of other things you can do for estate planning and for asset protection. So how much do you need? And then when? And once you know those two things, what's the most efficient way to get that death benefit? Is it term? Is it guaranteed UL? Whole life is an expensive way to get insurance, and sometimes it makes sense. So, that's the first thing. And then, once you've got the right death benefit, the most efficient way you can, then you can jump to the other side and go, "Okay, what are the other benefits? Why might I want to put more money in a whole life insurance policy or any other kind of insurance policy?" I see this backwards. I see entrepreneurs, they buy a whole life insurance policy that was sold to them. And they don't have the right death benefit. It's like, make sure you get the death benefit right. Or they pay way too much for the death benefit they need when they need it, because we should tier it. In my own life, we've tiered it based on the company, based on our own lives. Now, we don't have kids, but if I would have died 5 years ago, there's more risk for the company than if I die today. So, we've tiered term insurance in big chunks and it rolls off, right? Because I don't need that much death benefit in 10 years. So, think about how much you need, what's the most efficient way to get it, when do you need it, and then next, consider whole life or other policies for the other benefits. That's a critical piece of the decision-making.

And just to be clear, I 100% agree with Jim on this. We talk about this idea of human life value. There could be a need versus want. The idea is you have some type of economic value and life insurance could be a tool that says, if I die, I have a 1.5-year-old that is going to go through her entire life. I am going to provide an economic value while I work. And if I die prematurely, I can ensure that. So life insurance companies don't want to make you rich by incentivizing you to kill yourself. So there is an economic value we all have and we can't get $1 billion worth of life insurance just because we want it. And so that is first and foremost. But then where infinite banking really comes in is the want is the, the efficiency factor. So and you're totally right, a lot of people get infinite banking style policies without properly being insured. And so ironically, they're putting a lot of money in insurance and are underinsured at the same time, which is a tragedy.

Okay, now just follow-up question here, Ben. I know you want to jump in there, but so, you just said it's, you know, Jim, you said whole life is expensive. Now, I actually had a very large term policy back when I was a key employee of a dot-com, and it was really cheap and all that. It was really a good thing. But what happened is I missed paying the premium and it disappeared. And so, I wanted whole life because just for the stability of knowing something, I make 5 payments right now. So, when you say it's super expensive, really, would you say it's inferior to term or define how it's expensive? What does that mean?

We're talking about a screwdriver versus a Phillips screwdriver, right? These are different things. Term insurance is pure. If I die during the term when I have the term insurance, that's why it's called term insurance. I get a bunch of money, right? That's an incredible investment for my family, not one that I want to, you know, achieve. On the other hand, it's cheap, right? I just cover it for a period of time and then the premiums get too expensive. So I'm renting instead of buying, right? And if I need an insurance like my company for 10 years, that's the cheapest way to get it. If I bought whole life insurance for that purpose, I'm going to get a death benefit that's going to be very expensive if I don't need it beyond 10 years. So that's what I mean by expensive. And if you compare it to other products now, when you overfund these policies the way Caleb does, it reduces the, the problem with the expense. However, most policies are sold in a way where the commissions and the expenses are very high. And I'll still stand by, these are very complicated products. I know people who have spent months and hours and hours diving into these things, reading all the books, trying to get both perspectives, and they just throw their arms up and go, I don't understand these things. And I know that's true because one of the groups that we use that deals with ultra-high net worth insurance, life insurance, and billionaires. Uh, the guy, one of the principals, is a friend of mine. I was talking to him and he said anyone who tells you they understand whole life insurance doesn't understand whole life insurance. He's been deep in it for 30 years dealing with billionaires. He said, I still can't understand it because it's a black box. You can't go to the insurance company and go, tell me what the mortality cost is, the administrative fees. You can't break it apart. It's this black box. And so he's like, no one really understands it.

I think Bob, you made a good point too, because I don't know all the stats. You guys can feel me and Caleb, probably you might know these, but when I did a little bit of research, especially on the whole life, but probably term as well, the average lifespan of a policy was pretty short, right? So it's, I'm paying into this for my whole life and I do have a policy, but mine's structured as a monthly payment kind of into perpetuity. And if I stop paying that, that policy goes away. And when I did the research, it was something like 80%, maybe 90% of policies after 5 years are not in effect because they stopped paying. And so there is this element of, okay, you can sell this or this, there could be a benefit, but are you structuring it in a way that actually gives you the highest likelihood of keeping that benefit without kind of paying in this, into this premium?

—And basically, the reality, Ben, is that we have to talk practically, right? So, there's a lot of theory. And when I talk to agents that are selling this stuff, the reality is this. And LIMRA has come out with this, other studies. I think LIMRA studied 47 million policies, and they said one-third of whole life policies are canceled within the 5 years, 50% within the first 10 years, and 80% over the lifetime of these policies. So, when you talk about all these benefits, in almost every case, these benefits never come true because people cancel. The policies. And that's a big problem. And these are complicated. So I can't tell you how many times in my career I meet an entrepreneur, they've had a whole life policy for 10 years, and I go, when have you talked to the agent? I don't know, I haven't talked to the agent for 6 or 7 years. And you have to manage these because— and whether it's infinite banking or whole life, there's this bomb that can explode on you when you're older. So a lot of people don't know, if they take money out of their whole life policy and they take basis first and then loans so they don't pay taxes, if that policy lapses when they're 80, 85, 90, all of the money they've taken out over their basis is taxed as ordinary income in that year. So you could have a 90-year-old with a $4 million taxable income event when they're 90 because the agent wasn't involved, because no one was paying attention, the family didn't understand how these things work. And if you lose the agent, you try to deal directly with these insurance companies because I have multiple times getting in-force illustrations, getting them to communicate with you. They are terrible. I mean, if you think Fidelity and Schwab give you a hard time, try working with one of these big insurance companies. So, this is a 10, 20, 30, 40-year, 50-year commitment, and you have to have good advice all along the way.

And most people don't get that advice. So, before we jump into some of the ways that it can be poorly structured or not sold correctly, Jim, from your perspective, and I want to hear you as well, when does it make sense to do whole life versus term? Because if you're Dave Ramsey and you've heard that side of the camp, 100% of the time, use term, invest the difference. I'm using a stopgap before I actually have enough net worth and assets to then not need insurance when I pass for my beneficiaries. But is there a time when it does make sense to use whole life instead of term? And what are those circumstances or things that you should consider in making that decision?

Here's how I think about it, and this is reiterating what I said before. When you come to— when it comes to life insurance, number one, think about the death benefit. How much do you need and over what periods of your life do you need it? And then what's the most efficient way to get it? So if you just want death benefit when you die, guaranteed UL is going to be much less expensive. You can guarantee those things to 120 years or maybe more now. And even my friends who say they're going to live to 130, I think their policies are going to pay off, right? There's survivorship policies if it's a husband and wife that will be much less expensive than an individual whole life policy. So, get that figured out first. What's the most efficient way to get the death benefit? And then looking at whole life insurance as an alternative asset class compared to things like bonds, cash, treasuries, CDs, because that's really the comparison. And should some of your money go there as opposed to other alternatives in that space? And at what point in your life do you need a lot of exposure to things like bonds, conservative-type investment vehicle. So, that would be my take on it. And then I'd also say you want to be careful how much of your disposable income you're putting in there because really, as Caleb even said as well, you're not going to grow your assets in whole life insurance compared to the way you're going to grow your assets in real estate, stocks, or private equity. You're just not.

How I would approach this is very similar to Jim. You have a death benefit conversation and then you have a a wealth efficiency conversation. So if you put the death benefit hat on, I have a human life value. I'm— I have a lot of insurance for my life because I'm young. I hope to make a lot of money in my lifetime. And so there's that conversation. I have a combination right now of term insurance and whole life and majority term when you look at death benefits. I just want to be clear, I am not just endorsing that, but I am practicing what I preach because I believe in human life value and it would be very, very expensive for me to get the kind of death benefit I want in all in whole life. So especially if you overfund, you're actually lowering the death benefit, which is kind of counterintuitive there. So that's that aspect. When it comes to, you know, now the conversation of where do I want— how do I want to save and grow my money? I am a big proponent of putting a lot of money into permanent life insurance. But I just want to be very clear. You mentioned like policies being canceled, policies not being set up well. Ben, you almost mentioned like you need to almost fund to the day that you die. Now I want to look at your policy to see what you have. I just, I just like— this is where I I made the statement that I would not endorse insurance if I was just a peer, endorse insurance or not insurance because of all the things that you guys mentioned. But I think you can structure policies where the actual base premium, the required premium, can be a fraction of what you can put in. We try to structure the policies where day one, one policy, the one-time paying could land the plane on the 7-pay test. You don't have to continue to fund the day that you die. If, if there's enough cash value, you can do what's called the reduced paid-up. There is differences between IULs and whole life. And so there's, there's that aspect. Jim's 100% right. If you end up canceling or overleveraging your policy where it blows up and you're 85, 90, that's really, really bad. And so the risk of that needs to be factored in. But I think that's, that's where it's challenging is like we can have a one-on-one conversation and in the one-on-one conversation I would be buy term and invest the difference. But then in the 201 conversation, it's like, why am I a fan? And why do we have clients all over the country putting hundreds of thousands of dollars into permanent life insurance? They're doing it because of the benefits they get, and then they're utilizing it through infinite banking to acquire other assets. And there's— it's tricky because we can talk about the talking points, but then a more sophisticated person, you know, it can be tricky to try to try to— you have a foot in both buckets kind of deal.

So, so here, here's what I think, okay? And tell me if I'm wrong. And, you know, so I'd like— you know, Jim, I love what you said, renting versus buying is term, right? So I want to buy a policy because I want to kind of fire and forget. I don't want to, you know, miss a payment and it disappears. So I made 5 payments, I get one, you know. So I like that. I want to, I want to own. I don't want to rent. And then I also got a long-term care kind of rider, which I think was— I don't know if you can do that with term, but I wanted to make sure that there was something like that. So, I think it's good for that. And I think it was good also. I recommend it. I think it's good for unsophisticated people. As you said, I think of it like a bond. I think of it like a bond. I mean, it's not a great investment. It's not like— You know, it's not going to yield what the S&P 500 yields. It's not going to yield what you can get. You know, I'm in real estate and private credit. You can't get those kind of returns. But it's good. It's fairly safe, right? It's not volatile, doesn't have the volatility of stock market. So I think for if people don't know, really, Grandma doesn't know what to invest in, you know what I mean? And they don't have a financial advisor. To me, it feels like a good product and it has tax benefits, right? It has some tax. So those are the things that I think it's good about whole life. But again, shoot me down if I'm wrong here.

So I, I actually disagree with you. I think, Graham, these are the people that you have to be careful about because they get taken advantage of, where it's like, where you might be right for some of the talk.

I just mean it's, it's better than an indexed investment in Schwab or something like, like that. I mean, it's safer. It's a bond. It's like buying a bond.

I would say, and Jim, I would love to hear your thoughts, is for the typical person that's able to save and invest, I think permanent life insurance could be a bond alternative. And when set up and used properly, I would, I would make it a better bond. So even for a typical person who's maxing out their 401 and other things, I think I could make the argument that permanent life insurance could be a bond alternative. But meaning in your bond, you're not going to have 50/50 or 60/40 bonds. Like it's going to be a somewhat smaller portion and you're going to get majority of equities. So I think for a typical person, that would be almost where I would go. And then for the more sophisticated person, I would look at life insurance not just as a bond alternative, but maybe as a place to storehouse cash and be able to utilize. I would love to hear Jim's take on that, but I very much would not endorse someone putting all their money into any type of insurance product because the opportunity cost of only earning 4%, 4.5% versus, you know, 7% to 9% is large over your lifetime. Yeah.

Or 10% to 12%. I mean, if you put in real estate and private equity, you can get good performance. But just to answer that thing, I think I'd be I would not tell unsophisticated people put money in whole life. And the reason why I wouldn't tell them that is because this industry is fraught with people who would take advantage of people who don't understand. And as we talked about, like 80% of policies get canceled. If someone's unsophisticated, they're much more likely to get swayed by other people in their lives. And as soon as someone finds out you put a bunch of money in a whole life insurance, you're going to have probably 4 out of 5 of your friends tell you, What are you, crazy? Get your money out of that. That's the worst investment ever, right? So, you have to be careful about that. Gotcha. All right. Will they stick with it? Because this is a long-term play. You have to stick with it. And that kind of brings me back to our model, which is from a billionaire family in New York I know pretty well. And they buy life insurance too. But you know what they never do? They never buy life insurance without representation, someone on their team who understands the life insurance as well as the person selling it. But doesn't benefit or get rewarded in any way if they buy the life insurance. So even if it's Grandma, she should have someone who understands these policies representing her. I would just say, just same if you go to buy a car, I would never go to buy life insurance, uh, unless you had representation to help guide you through that process. Another thing is we talk about whole life as putting a bunch of money into it. Here's the, the problem, or one problem to consider. When you're young, let's say you're 35 years old, The mortality costs are way lower and that policy functions way better. But that's also one of the worst times in your life to have bonds and bond alternatives. You've got all this time to make money, right? And so, if I'm 35, and by the way, when I was young, I could have put money into whole life insurance. And by the way, in 1995, dividends for whole life policies were between 8 and 9%. Today, they're between 5 and 6%. So, over 30 years, we've seen that dividend come down by 30 to 40%. And in those days, right, we said, here are your non-qualified values, but look how great it looks. None of those policies performed anywhere near that illustration. So yeah, they're not guaranteed and they can go down because a lot of insurance agents will say, well, they've been paying dividends since 1880 or something like that. Yeah, but look how much they lowered these dividends to hurt the performance. So I could have bought whole life 25 years ago, also gotten paid a huge commission, and I still didn't do it because I said, gosh, you know what, even though my mortality costs are low, Why in the world do I want to stack a bunch of money in something that's going to earn 4.5%? In those days, maybe we thought 5% or 5.5% when I could put it in real estate, stocks, and private equity. And over 20 or 30 years, I'm going to have 2 or 3 times the amount of money. That's such a great point. And when you're older, it flips, right? Now, you're older, you want more bonds in your portfolio, but now your mortality costs are a lot higher. So, that's why I'd say for people who are younger, and have disposable income, you shouldn't put tons of money into a whole life policy simply because the opportunity cost for not investing in things that grow over time is so painful and so hurtful to your true wealth building.

Be careful about that. My pushback to that, Jim, would be that's why you have the loan function. And so, if you're in your 20s, 30s, 40s, and you're building up cash value, you can go invest in private credit. In real estate and the stock market, crypto. You can do— you can— so you can— there's not like when people say greater rate of return, you're totally right. I'm not endorsing. And by the way, I'm not personally just keeping my money over the next 30, 40 years in and being happy with a 4 to 5% rate of return in life insurance that I'm not doing that. But I'm using this as capital, just like you wouldn't say a savings account is like a horrible thing. I bet we all use savings accounts as a place to use money. So but deploy. And so that would be the idea of where we talk about infinite banking. I believe long-term life insurance from a benefit standpoint gives you greater benefits than the cost of borrowing. And so it's an equivalent long-term of having an account that is getting you greater benefits and you get to utilize that capital to also earn a greater rate of return. And if you can get a dollar getting over here and over here, that's the, that's the idea of infinite banking is now you're getting the benefit of your dollars doing more than one thing. Which only makes sense if your life insurance is actually long-term benefit. So, in other words, is you get to bake in the bond concept, but use that money as an opportunity fund to hopefully earn a greater rate of return. Now, does everyone do that? No. But that's the concept of infinite banking.

And let me just address that. And by the way, I think overfunded policies can make sense, like you said, Bob, for you. But just to address that, first of all, I can take a securities backline of credit and take loans against portfolios. I can take loans against real estate. If I take a loan from my life insurance policy and then I buy something like crypto and then I lose money in that, I still owe the money back to the policy, right? I still owe the money back to the policy. And if that policy blows up, I've got a major problem. Like, I've lost so much money doing that. So, yeah, I can do that, but I can also take an S block against my portfolio and I can invest that to maximize my return and get my dollars doing more. The problem is it's expensive and it gets complicated, and most people don't follow— even when they follow the sales process and they love infinite banking, I almost never see people actually utilize that in the right way to get the benefits that Caleb's talking about. So as I said earlier, I don't have indigestion about overly funded policies done right in the infinite banking. In reality, I rarely see that done right, and what I see a lot is a 35-year-old people putting tons of money into these policies when they could just be investing in real estate stocks and private equity and coming up way better off in the future without all the complexity and all the other stuff that happens.

So, just real quick, I've heard kind of nightmare stories about insurance, like where these products that literally were derivative-based and blew up. Is there something we really should avoid like the plague? And how do we identify those things?

Getting representation is really key. Having someone be really transparent with the process, really, really key. I personally am not a big fan of indexed universal life policies. They can work. They're a lot more transparent, but there's a lot more moving pieces.

And what is, what is indexed universal life and what is not indexed universal life?

Indexed universal life is a permanent life insurance chassis that utilizes annual renewable term. So annual renewable term is term that every year gets more expensive, and then the difference goes into a fixed account. And the fixed account with the insurance company is they're buying some type of option, and they're essentially the picture. You lost me. Okay, so the, the idea is the, the pitch to IUL— here, I'll explain this in a way— the pitch of IUL is you get the upside with a cap, but if the, if the market goes down, you get zero. And so the idea is you have upside. That sounds great to me. Sounds, sounds great. The problem is even if you get zero, there's cost of insurance. There's all the things that Jim and I are talking about. So it's actually not a true zero. If you build in cost of insurance, it's, it's, it's a lot more. And they talk about these being super flexible, which can be great, but the corridor of insurance can get outta whack. And that's where, and again, whole life has the same problem, but it's harder to manipulate whole life insurance illustrations. IUL illustrations, you can use arbitrage, you can use all these things to make 'em look amazing. And then you get situations like Kyle Busch recently, who's literally suing Pacific Life and his agent and pretty much saying that he lost $8 million and that, that was done through misunderstandings, terrible policy designs. The, the agent, it allegedly took them to the cleaners, which the fact that that can happen in our space is exactly Jim's point. Like the fact that that can— someone can actually lose or get taken advantage like that is a huge problem in our space. Um, which—

dive in a little bit because that's, that's shocking, right? Because the, the, the whole concept here is this is a safe asset, guaranteed death benefit. How does it get structured to where something like that or this now public case? Yeah, I still don't understand IUL.

So IUL is where it's like an option where you get all this upside. And you don't get downside. It sounds great.

Alright, so indexed universal life came out in 1997. And indexed universal life, what it does is, as Caleb was saying, is it will— for your performance, because on whole life, it's based on the dividend paying of the whole life insurance company, right? With indexed UL, it's tied to an index, let's say the S&P 500, and you gain in the cash value up to a cap. So you're limited. It might be 8%, 10%, 12% based on the performance of that index.

Yeah.

So if the stock market does 20%, you don't get 20%, you get, you know, 10% or whatever the cap is. And then on the downside, if the stock market loses 30%, you don't lose it. 30%. Sounds great. Your cash value gets zero. And, you know, I'm not— I don't have a horse in this race. I see pros and cons to both of those products. So let me just give you one of the pros, because I think, you know, you've given one of the cons, which is this isolated case where this guy lost all this money. I don't think that's rampant across IUL policies. But one thing that would be a positive about IUL is it's transparent, as Caleb said. So I can see what are the mortality costs each year, what are the different things that I'm paying for. And if I have a problem— this is another issue with whole life insurance— if I have a problem with my business, or if, you know, there's a divorce, or if there's— but we see this a lot. All of a sudden, someone's business has a couple or a few really bad years. With whole life insurance, you have to pay that target premium, the whole premium, whole life, whole premium. But with Indexed UL, we can drop that all the way down to just cover the mortality cost for a few years, waiting for the entrepreneur to actually get their business to recover and come back. So, that's one thing I like about Indexed UL. Historically, most of the things I've seen from experts it outperforms whole life as far as just performance numbers, and maybe Caleb would take issue with that. But I love the transparency. Do I love IUL? Do I love whole life? They're tools. They're tools that have to fit. And by the way, if someone understands IUL and feels more comfortable with it than they do with whole life to accomplish similar things, I don't have an issue with that either.

Are there things that you should absolutely avoid? I mean, the nightmare scenarios. I've heard people where these policies, they thought they had something and they just disappeared in value. I mean, you know, Jim, is there something to be avoided in this? Yeah.

Well, the first thing is Charlie Munger, he has a famous quote where he said, "Show me the incentives and I'll show you the outcome." And one of the problems with life insurance in general is the agent gets paid most of everything they're going to make in that first year. And there's no incentive to be there in 5 years, 10 years, 15 years. And for these products, what matters most is 5, 10, 15, 20, 25, 30 years from now on how these things are functioning. And that's unfortunate. So, I'd say that as I said earlier, the biggest thing is have representation. Also, you want to make sure that this isn't like your primary vehicle, like all your money's going into this one thing. Because unlike, let's say, most any other investment, it's hard to diversify. Because as Caleb said, if you buy insurance from 5 different whole life companies, you're diversified. But the cost would be insane because the only way to really do these efficiently is, like Caleb says, to massively overfund one policy. So now you're tied to that company, you're tied to what they do with mortality costs, you're tied to what they're going to do with the dividend, and that's unfortunate. And by the way, at some point on the call, we should talk about implementation, because I see when it comes to implementation where these policies are done wrong. So once you even decide that you need a policy like this, how they get implemented is critical as to the, the value of that policy going forward.

And is it the case that really the layperson can understand this? So, there's the good and the bad, and there's the A's and the F's, and I really can't tell, and I just really need representation. Is that kind of where you would land, Jim? Absolutely.

And let me tell you one other thing, and I'll just tell you one thing about implementation. And this is what I learned from the billionaire family. There's really two things that they do that most people don't do. So, when you look at illustrations, which is where most policies are sold, I would just tell you one thing, those are not true. Now, the guaranteed columns are true and they never look good, but those things you can learn some things from. But the policy illustrations are never true. As I said, in 1995 they were showing whole life policies with 8-9% dividends, and now dividends are 5-6%. So those things performed nowhere near what those non-guaranteed illustrations were showing. So that's one reason. And you can manipulate the assumptions. Caleb's right, much more in an IUL than you can in a whole life. But you can manipulate the assumptions and things like that. And one of the biggest assumptions with illustrations is the health rating of the insured, because all those policies are shared and illustrations are shared before they do the underwriting. And one of the most important things that will dictate how good that policy is, is what you get as a health underwriting outcome. So here's what billionaires do, and this is what we recommend. We recommend on underwriting that you get all the medical done. The blood test, the EKGs, the urine test. You put it— you send it up as a John Doe and a Jane Doe, and you send it out to 15 different companies. Then you get offers back and you get the companies to compete against each other. Because someone may say Penn Mutual is the best product, or they may say Guardian is the best product, but the truth is nobody knows till you get the insurance rating. And typically we see between 2 and 4 different levels of the health rating on the same exact blood work, the same age, the same gender, all those things. So, now, you find out that maybe you thought Penn Mutual is the best, but, uh-uh, it's Prudential that's the best based on the health rating. So, that's a critical piece. And then also, commissions, we require commissions to be disclosed and negotiated. And that's what every billionaire family does too. And it's interesting that even real estate agents where I think their whole industry needs to be revamped because I think 3% on selling a $2 million home for the work that I see is not worth what I'm paying. But at least they're disclosed, right? Insurance commissions haven't changed a lot in my 30 years and they're still not disclosed. So making those be disclosed and negotiated is a critical piece of the puzzle when it comes to implementation. And those things can also prevent you from getting a poor policy.

I just want to address one thing that you said, Jim. I do believe the flexibility is really, really important. And the whole life, when not set up properly, you have to pay that whole premium. You even mentioned that. But that's where it's like, the reason I like whole life is it's harder to manipulate. There's— it's— yeah, nothing's guaranteed, but even assuming a 5% dividend is different than 10% or 9% now. So it's not like none of these illustrations are bulletproof, but even the IRR that we're looking at is 4, 4.5%, which is a lot more conservative than what was happening in 1990s. And then even within that, there's tons of flexibility when you properly structure it. Now, I know that's like between you and me, not necessarily the industry, but I, I care deeply about flexibility. And that's why, like, after funding one premium, you should be able to land the plane.

Worst case scenario, we're going to hit pause right there. We honestly thought we could cover this all in one episode, but there's just too much to unpack. So next week, part 2 drops. And that's where we really dive deep into the idea of infinite banking, when it works, when it's oversold, how it can be used or misused. And as always, if you want to keep the conversation going with other listeners and investors, join our free community at InvestLikeABillionaire.org.