Building Wealth Beyond the Bank with John Ensley's Infinite Banking Concept

A cash value life insurance policy. I describe this a couple of ways. The kind of the nuts and bolts way to describe it is we're using the life insurance contract as a platform to accumulate cash value that we can then use as a source of financing to do different things. The market based approaches that are out there have their place, but we have to accept the risk, we have to accept the losses. So this is someplace we build up equity where we won't accept losses. In a whole life policy, there's no stated interest rate. It's an actuarial product. It grows over time.

All right, John, so super thrilled to have you here with us. You know what, for everybody who's listening, I'd love for you to give maybe a little bit of a background of exactly what you do and maybe some of the history of what brought you to where you are today.

Thanks for having me, Bob. I'm super excited to be here and yeah, I'm happy to share a bit of my background. So I usually begin my story in the late 90s. I'd gotten out of the US army and went to work for a company and it was the buildup to the tech bubble, right. So I was in the right place at the right time and did really well there and was in a position where the company was going to do an ipo and everyone was super excited. And of course, if anybody remembers the late 90s, everyone was doing an IPO in the late 90s. So yeah, it was all the rage. And so of course the tech bubble burst, right. And the IPO never happened. And it was kind of this big deflation. But it was a great company and a great job and I did okay there. And I left there with some money and an employee stock ownership plan, what we call in the US an east up. And. But after my experience with the, the whole IPO and kind of that disappointment, I decided real estate was, was where I would prefer to, to make my, my next venture. So I moved on to another day job. But I bought some property in Washington state and was developing a subdivision, just a small five lot subdivision. And my plan was to build spec homes on each of those, each of those lots. And of course by now we're in the mid 2000s and my appraisals are coming back just out of this world. Everything is going crazy in the real estate market. And so I start building, I get the subdivision mostly done and I start building the first spec home. And I'm about halfway through it in 2008. And so of course everything is falling apart then in the real estate market. And I've got these lots I couldn't give away if I, if I wanted to. And I made, you know, I always put a caveat on the story that, you know, I made some big mistakes, I really didn't know what I was doing and just kind of went for it and the economic situation pushed it over the edge and that project was, didn't, did not work out well as.

As with many in 2008. Right. Like you were definitely not alone. I think there's any, any big name that had any real estate in 2008 did not fare well.

For sure. Yeah. And you know, as I looked around at the people around me and their, their 401ks and their IRAs and their retirement plans all got, got hammered and the real estate part of it was, was bad. And so just some dark days for a lot of people, not only me, but I'm really grateful for the experience today, for both of those experiences because they both served as a real wake up call. And it caused me to start studying and learning and reading everything I could get my hands on. And in the course of all of that, I was on a webinar one night and this advisor, financial advisor, was walking through this example with some people, a couple in their head, their home equity and he started talking about a cash value life insurance policy. And it was the first exposure I had back then to the idea that life insurance could be anything other than a death benefit. And so that got my attention and I continued to do more studying and reading and you know, found out that this concept is, goes by some names. Bank on yourself is one of the names. Infinite banking is another. There's several out there that describe this idea of using cash value life insurance as sort of a wealth building platform. And so I got intrigued by that and set up policies of my own and started using them. And you know, I'd been to a whole bunch of financial advisors over the years and nobody really described this idea to me before. So I knew it wasn't really getting talked about in the financial planning world. And so I was ready for a career change. And so I, I got licensed, completed some pretty expensive agent training in the concept and launched my practice in 2012.

That's fantastic. And you know what, it's the lead up to you starting your practice in 2012 is not too different from an. That we're seeing right now. And so really, you know, I think one of the interesting conversations that we can have as this continues today is talking about, you know, that type of market and what are some of the things that we can do to make sure that we don't get in a situation like what happened in 2008. Banking on real estate. I'm sure, you know, many of the listeners have real estate right now have started to see those appraisal values drop if there's any refinancing. So it is, you know, it is a risky sort of area that can be very lucrative in great times and very devastating in others. As, as you saw too there. John, I'd love for you to, to walk us through. So the, the concept of bank on yourself and an equity filled life insurance policy. What specifically? Because I, I know I have a bunch of experience with these as well. So I'd love for you to maybe walk through for the listeners what that would specifically look like and what that type of policy actually entails.

Absolutely, I'd be happy to. So, a cash value life insurance policy. I describe this a couple of ways. The, the kind of the nuts and bolts way to describe it is we're using the life insurance contract as a platform to accumulate cash value that we can then use as a source of financing to do different things as well as build a retirement plan out of it or contribute to an overall retirement plan as a component. So that's kind of the very dry, boring. Right. Description of it. The other way I describe it is that all we're doing is creating a system. We are all involved in saving, borrowing and investing. We all do those three things and we're, we're familiar with some of the conventional ways of doing that.

Right.

We save in a savings account or bank, we save a retirement plan, those kinds of things. We, we borrow money from banks for major purchases, mortgages, business, those kinds of things. And then of course, we all want to invest and that sometimes is the same as the retirement plan. And sometimes we do things like real estate or whatever, but we're all saving, borrowing, investing, and we use kind of the conventional banking system to do that. What bank on yourself or infinite banking or any of these other things that it's called is about is using the unique features of my case. I particularly focus on whole life insurance contracts that are designed with a couple of writers that allow us to develop cash value. But we're using that unique system to create kind of an alternate way of saving, borrowing and investing that, that is separate from those conventional banking systems that we're all familiar with. But it has some features that gives us some advantages to do it that way.

Yeah. And so do you want to walk through what maybe some of those features would be, John?

Absolutely. So I really describe this as the base contract or the base whole life insurance policies. The same thing that's been around for close to 200 years. The unique feature of that base contract is that it's going to grow by a larger amount every year for the rest of your life, and there's nothing you can do about it, right? It's just, that's the way they work, that's the way they're designed. They're going to increase by a larger amount every year. Now, what I refer to as modernized whole life is where we now take some riders that we can apply to those base contracts. And what most people know of traditional whole life is it takes a long time for the cash to build up, right? It could take 10, 12, 15 years before there's really meaningful cash value in a whole life contract. And that's true if it was all base. But now we can kind of take a modernized approach and we can take these riders and we can structure so that we can actually create a lot of cash value. It could be as much as 80, even more percent of the premium can be available as cash value even the very first year, if we structure these riders correctly. So unique features there. We can create cash value very quickly now with this whole life contract. And then I think the next unique feature is around the world of policy loans. And so essentially we can borrow against the equity in these policies. And this is where most of, if you go online, you go on YouTube, you'll see all kinds of information out there, and it's all over the board in terms of accuracy. And there's a lot of misunderstandings about, about how these work. So the first thing is I get, I get a lot of calls from, from folks that have seen something online, and they, you know, they want to, they want to borrow from their policy. And first of all, that's a misconception. We don't borrow from the policies, we borrow against the policies. What's really happening with a policy loan is the insurance company is making. Insurance companies are highly regulated. The regulators say that, you know, they, an insurance company can't just go out and buy crypto, right? They have to invest in very solid, stable, safe investments. And the regulators make sure they do that. And one of the investments the regulators like are policy loans to an insurance company's own policy owners, right? That's a pretty secure investment for the insurance company. So what they're essentially doing is they're Taking this policy that you have, and the death benefit in the policy is the collateral, effectively. And the cash value in the policy is the limit that you can borrow. So let's say we put, I'll just pull a number out of the air. We put $10,000 in a policy, we've got $8,000 in available cash value. The insurance company will loan us up to $8,000. It's a little more nuanced than that, but that's the simple explanation. And the death benefit on that policy is actually the collateral. And so what that means is, and this is a very unique feature of how these work, we, the borrower have absolute control over the term. We can repay that loan any way we want to. We can pay it back over two years or 20 years or 30 or 50. It's entirely up to us. And we can start, we can stop, we can increase the payment, we can decrease the payment. And so if you think about that from a small business environment where we're always trying to manage cash flow and sometimes we need more cash flow and sometimes we have more cash flow than we need, but it's never real consistent. So the ability to hack access to a type of financing that gives you the flexibility to pay on your terms is just, it's a huge benefit. And then the other component of that is the interest rates are very, very appealing, particularly nowadays.

Yeah, for sure. So, and typically too, and correct me if I'm wrong, I think a lot of the primary banks will use those policies as collateral too. Like even if you're business banking, you know, you're going to your business bank and they'll also maybe not as preferable rates and maybe not as high loan to value as maybe the policy companies will hold, but there are opportunities to use that policy as collateral based on the cash surrender value within those policies.

Yeah, absolutely correct. The policy cash values can be used as collateral for a lot of different things. But you hit the, you hit the key terms, it won't be as favorable rates and you won't have the flexibility and so forth.

Yeah, and, and you know, maybe just from my perspective, a couple key elements of this and Whole Life Policy. I know John's down in the United States, we're in Canada, we work with people all across North America. So for the, the concepts and the, and the policies are very similar obviously with different legislation maybe applying and different licensed abilities to sell them in different countries and different states and all that. But one of the, one of the main benefits business owners of having, you know, whole life Policy is that one, if you have it owned and the beneficiary of the policy is your company. I'll speak specifically to Canada here because I'm not as familiar with the rule in the U.S. but in Canada, if your company receives the death benefit upon your death, it's a non taxable receipt and it actually flows out to the shareholders without having to pay any tax on it. So for example, if we have it held inside a corporation, the corporation can't deduct the policy, deduct contributions on an annual basis, but you're not taxed on those policy contributions. So it is a little bit of a savings component there. And then when you eventually die, because we all will, guys let's, you know, be prepared for that. It's going to happen at some point, hopefully it's later than sooner. But when the company does receive this policy, it isn't a taxable event. It comes in as non taxable earnings and then in Canada it creates a pool called a capital dividend account, which then gets distributed out to the shareholders on a tax free basis. So if we're looking at, you know, a policy that will help pay out essentially as part of an estate plan and you want to use maybe some of that value while you're still alive to get access to cash like John is talking about, we can secure the value of that policy so that we can reinvest funds back into our business. Like it is a really great system and platform. It doesn't fit everybody's individual circumstances. But if it's, you know, if this does fit what it is that you're looking for, it really makes a lot of sense, John. So thanks for the detail on that. I love that. Now does this, does this talk a little bit about your information about self financing? Does this kind of roll right into that or is that. Yeah, let's walk, walk me through that, John.

You know, there was one thing you said there, Bob, that, that I really keyed in on that I like, and that is what I always tell small business owner clients is that we, we don't ever put something like this together in a vacuum, right? We want your accountant, we want your CPA involved in that process. I am familiar. And the rules are similar in the US to what, to what you described, some nuances depending on what the structure is, et cetera. But, but we want the accountant involved, right? We want those team members as part of this whole process so that this gets done correctly, it gets reported correctly, you know, those kinds of things. So that I really keyed in on that, that, you know, you, you, you have a very clear understanding of, of that part of it that I may have a 10,000 foot level understanding, but not a detail understanding. And so the two of us together is, is what, what makes that it really. You can create some really effective strategies that way.

Absolutely. It's all about the professional team guys. You want to have your advisors one, you want to have your advisors who understand this stuff because it's important, even if it's not specifically applicable to you. Right. If you feel like you wouldn't want to necessarily take on this type of policy because it does come with a certain element of, of cost to fund these things, you still want your advisors to have that as an option for you so that when circumstances may be changed, that this is back on the table. And I think it's important that you know, your accountants, your financial advisors, your lawyers, all have a really good understanding of this because even when it comes to estate planning, you know, you want to have a key understanding of how this comes together so that when your will is being created that you know and your estate plan is being created, that all of these items are put in properly and there's no excessive tax paid or, or loss of wealth through some of these transitions. So, John, tell me more about this self financing. I would love to hear it.

My pleasure. And so, so basically we're using policy loans as a means of. Right. You build up enough cash value in the policy and eventually you've got enough in there that you effectively don't need the bank anymore. You're, you're able to function as your own source of financing. All kinds of great examples of that. A personal one here. Recently my wife and I just finished building a home here in Washington state. And as part of our design, we add in an adu, an additional dwelling unit above a detached shop that's across from our house. Well, we used a policy loan to finance that addition, that portion of the build. Now that we finished it up, we're now renting that unit at 22 to $2,400 per month. And we borrowed maybe $70,000 out of our policies to build out that, that apartment. So from an investment standpoint, being able to self finance that from our policies, you know, we figured the policy loan will be paid back in about two years from the rental income and our average annual interest rate over that period of time is going to be less than 2%. So there's no way we could have financed that any other way in any better way. So it's just, it's a great example of being able to use these cash values and either to fund investments or fund businesses or it could be major purchases as well. Right. But I think it really gets fun when it's something that's generating a return.

Absolutely. And cash flowing itself. Right. Because guys, listen, people love real estate and hey, John loved real estate at one point to still obviously has investments. I have real estate investments. They're great. They're not meant for everybody though. But I will tell you as a real estate investor, you want to make sure that those things cash flow and, and to be able to borrow from a policy which is essentially an asset you've built up to fund another project that cash flows itself is a brilliant idea, John. So like what a great investment strategy. And I'm sure you've got, you know, hundreds of different investment strategies, but that one seems to work really well when you can get a really good return on real estate. And you know, even if real estate markets do drop, guys, you know, the value of the rental market doesn't really seem to be going anywhere. And everywhere across North America has this shortage of housing. With a lot of the population growth that continues to happen. Like renting is going to continue to be a pretty powerful, you know, investment opportunity for people. If it's a short term and we see, you know, values of properties may go down, your rental is still going to stay strong. And I think everybody needs to, to, to be aware of that. But to be able to essentially self fund through this type of policy or this type of investment situation makes so much sense. Especially with the interest rates that John's talking about in here. You know, you're not getting that from a primary bank right now. Prime rates are somewhere around the 7% mark. So you know, that's not as nice as a 2% investment interest rate. Right. Like, you know, I am a professional when it comes to numbers, but I'll say that I think everybody can follow me. That 7% worse than 2%. Right, that makes sense.

Yeah, that's pretty clear. But you know, essentially anything that you would finance, you can self finance once you build the equity in the policy. And that's a different scenario for everyone there. There are people that can drop large lump sums very quickly into policies and be able to do this pretty quickly. And I would say most people build it up over some time right. Where they're, they're funneling money into the policy year over year until they, they reach a point where, where they could use it for, for various Things.

Yeah, and, and you know, one other element and I think benefit of, of those policies and you know, again, I think sometimes they make perfect sense based on the circumstance and sometimes they don't. But for those that it does to have that sort of return that comes in within like a whole life insurance policy. I don't know all the details of it, but it's typically almost like a fairly consistent rate of return that happens inside the whole life policies. John, you can correct me there, but the idea is that these returns are also sheltered from tax in there as well. So if you were to compare the interest rate, let's say that we, we purchased a gic, a guaranteed investment certificate from the bank, right? Now let's even say it's 6%. That 6% is taxed very heavily at your highest marginal tax rate which could end up costing in anywhere in North America upwards of, you know, 50% tax on that. So your net return could really only be 3 or slightly above 3% after tax. If you compare that to the return that's inside a policy that has no tax on it, you know, the returns could be substantially higher as well. John, I don't want to try and sell these for you, but I gotta tell you there are, there are a lot of benefits in the right circumstances for these to, to make a lot of sense. And, and this is likely, you know, leads into a small business owner sort of their opportunity to build wealth and, and to do some retirement planning. So how could we incorporate this into that type of plan, John?

So I loved earlier that you said it's not the right fit for every circumstance. That is absolutely true. And it, it's something I like to say often is it can work for anyone, but it's not for everyone. And so it's, it's really a matter of doing that analysis and making sure that that tool lines up with your goals, objectives, needs, concerns, worries, etc. So that, that I think is really important. So the, the whole idea is based on really three concepts that I try to focus on. It's safety, control and passive income.

Right.

That's really what we're trying to achieve by using the policies. Right? Safety. What does that mean? Well, we don't want losses, right. And so the market based approaches that are out there have their place, but we have to accept the risk, we have to accept the losses. So this is someplace we build up equity where we won't accept losses. Right. It's going to go up by a larger amount every year and there's nothing you can do about it. And that's what we want in this particular bucket.

Right? Yeah. Those are the types of returns that we don't mind not having in our control. Right. When it's always a positive.

Yeah, exactly. And then I think there's also some intangibles. So we can take a policy and do the kind of comparison you just did and say, okay, well, after you factor in taxes and don't forget fees. Right. That's a huge part of the scenario as well. After we factor in taxes and fees and so forth. The growth rate. I don't like rate of return because you don't get a rate of return in a life insurance policy. Right. The growth rate, which we calculate from the. From. We calculate it backwards, essentially.

Right.

There's no. In a whole life policy, there's no stated interest rate. It's an actuarial product. It grows over time. There is a dividend component with mutual companies in the United States. I don't know if that's the same in Canada, but so that, that plays in there. But what we can do is take that, that illustrated value at the point in the future and work backwards and say, okay, it's equivalent to 3% as you were saying. Right. But there's also some intangibles. Right. My little ADU is basically cash flowing at 30% a year as a result of my ability to borrow money at 2% and invest it and return it. So doesn't that count? Right? I mean, in the policy. But it's an intangible. We can't really draw a straight line and say, okay, well, it's worth this much for Iterator return conversation. But yet we can look at it logically. Well, there's clearly there's a value.

Yeah, yeah. Part of the wealth accumulation plan. Yep.

Yeah, exactly.

Yeah, yeah. Well, no, and obviously it sounds like these are again, exciting policies I've had the opportunity to work with. I'm gonna say hundreds of different policies that our clients have had over the years too. Haven't seen too many paid out from a death benefit standpoint. So I'm excited about that too. I know at some point in my career I'll probably start seeing a little bit more of that. But, you know, the idea too, that there is a life insurance component for this, guys. So, you know, the idea is that it does form part of not just your wealth accumulation strategy, but that, you know, your succession plan, your legacy plan, your estate plan to make sure that the next generation is. Is set up for success or whatever that looks like to you in your life. But these are pretty powerful investment and, and estate planning vehicles. John, let's turn to how maybe you know, the evolution of these policies can help support building that wealth plan or looking at somebody getting into retirement. How could people use this policy to essentially build that life of their dreams and move into maybe a post work environment and get access to these.

Yeah, that's where it could get a lot of fun really. You know, it's, it's called whole life. So it covers you for your whole life, your entire life. And, and so this is something you, you, you started at some point. And by the way, it's never too late. Right. Obviously if you started something like this in your late 20s or early 30s or something, it would, you know, the, the amount of compounding time available is, is enormous and it's, it's going to look great. But I, I would say my average new client is probably mid-50s, 50s to early 60s. So there's never, it's never too late to get started. And the, I think the fun thing is you started this whenever you did some period of years ago and now you're it, it follows you through periods of your life. I have a client, I tell a story about that he owned a fast food chain of restaurants and he wanted to open a new location and he was very frustrated trying to get money from the bank to do that. And so we got together and did a, did an analysis and he, he ended up taking some money from another source and putting it in a policy in a lump sum and then borrowing against that and opening his new location with that money. And this was, I don't know, 15 years ago or so. And so he opened the new location. His business collectively had like eight locations I think with the new one paid the loans back to him at by the way, a much higher interest rate than what he was borrowing the money for. So he had that arbitrage and as well as the tax advantages of that arbitrage. Right. Because he's now pulling passive investment income out of his business instead of W2 or, or a pass through income that he's got to pay self employment tax on here. So there were a myriad of benefits to doing that. Well, flash forward 15 years, he's, he's winding down, he's approaching retirement. And so now those same funds that have been growing all this time are now being transitioned into how do we turn this into passive income? And in that process he's opened a couple of additional policies and he's now kind of winding towards maybe in the next 10 years the retirement phase. So what I love about these is they're with you forever. They just leapfrog through the stages of your life. It could be helping you with car purchases and things like that at one point. And then as it builds up, it's helping you expand a business and then as it builds it's, you know, who knows, maybe it's buying, helping you finance that boat that you're going to take off and circumnavigate the world for a few years when you first retire. I have lots of climb. I'm an avid sailor, so I love working with sailors. And you know, I have quite a few clients that, that's kind of the plan they're on or RVs or whatever it is. Right. So we can finance these major purchases to fuel these retirement dreams that we might have and having the policies there to do that. So I have another client, they again put a lump sum into a policy and their plan is to buy an rv, tour the US for three years in the rv, come back home, sell the rv, pay the policy, loan off, and then start using the policy as an income source once they're done with the big adventure. So just a number of different examples on this policy that has kind of been with you for decades that is, is helping finance various portions of your life, depending on what life stage you're at. And when you get to the very end, as you were talking about a moment ago, there's, you know, there's only one way off this train.

Right.

We're all going to get there eventually and you know, and then we have the death benefits there to, to pass to the next generation or, or in a lot of cases even just, just protect the other assets in the estate by paying the tax maybe out of the death benefit so that you don't have to sell assets and deal things.

Like that, tax, debt, anything, any obligations there. Yeah. Upon death that maybe you didn't get the opportunity to figure out before you got to that point. Absolutely. John, question for you. I normally ask any of my guests. So a lot of our viewers are small business, medium sized businesses, you know, anywhere from maybe a couple hundred thousand dollars in revenue up to 15, 20 million dollars. So lots of business owners taking a lot of risk in there. If as you, as a business owner as well, you go back, what would one piece of advice be that you give to yourself now back when you started, if you had the opportunity to.

So it would be to get educated sooner. You know, I did, I did two Things back when I first discovered this, this concept, I did two things and, and one is I went back and looked at that real estate development and the money that I put into it. Had I put that money in a policy like this and financed it that way, instead of putting the cash directly there, I would have had the ability to be my own bailout. Even if the project went the way it did, I would have been able to pay myself back. And the thing we haven't talked too much about is the policies are continuing to grow when you borrow against them. They continue to grow as if you didn't borrow, borrow the money. So I would have been able to pay myself back over time and effectively recover all that capital and the growth on that capital, even if it took me 10 years to do it. Right. So, so, so I had, I need, had I been educated before I started the project and done this, I would have been able to kind of save myself. The second thing I did is I went back to when I got out of the military and started working professionally and I calculated if I had put just 10% of my income or whatever into a policy like this, what would that be worth, you know, at that time, which would have been, you know, 20 years later or whatever. And it's a big number, right?

So it's a scary number. Yeah.

You know, I wish I would have known about this at that time and that, but, you know, just as all of us are when we're young, I just, you know, wasn't reading books and didn't have that kind of mentorship in my life at the time. So, um, you know, so that, that would be my, my advice. Start early, start now, whatever, whatever time you're at, but get educated, start digging in, learning, understanding what's out there and how it can work for you.

That's amazing. Great advice, John. And now if any of the listeners want to reach out to you, get ahold of you. What's the best way for them to track you down to see how you can support them with this.

Yes, I have a landing page that I set up just for this purpose. It's called jumponwithjohn.com it's J O H N John. Jumponwithjohn.com and you get a three free 30 minute strategy session you can book right on my calendar. One of the things I always talk about is the key to this strategy is to just have a conversation with someone that knows how it works, has a deep understanding of how the policies go together and how it applies to you. That isn't going to shove it down your throat. As we've stated a couple of times, it's not for everyone. And unfortunately there are a lot of folks out there that will, that just want to close a sale and, and move on. And you need to work with someone that'll, they'll take the time to talk to you, listen to you, understand your goals and objectives and concerns and, and really help you determine if this is the right tool and if it is, how, how it works, how it fits. And so that's what I offer. A free strategy session. It's just a conversation to find out if, if this is a road you might want to go down. And so jump on with john.com so you can connect with me.

Amazing. And we'll include that link below as well. So for any of our, our listeners, our viewers, we've got a link in here with any of the data below this posting. Guys, this has been the Wealthy Entrepreneur. John, thank you so much for joining us today. If anyone has enjoyed this episode, please feel free to, like, comment and share it. You know, if you feel like you know somebody who could benefit from having this sort of financial retirement, wealth accumulation strategy, value conversation that we've had today, make sure you share it out. You know, ultimately we're here to help empower not just business owners, but everyone with a wealth of knowledge, financial knowledge, to help empower their lives, make more informed decisions and accumulate wealth. So if you can share that out or tag somebody in here, we would love for that to happen. Otherwise. Guys, this has been the Wealthy Entrepreneur. My name is Bob Gover. I've been your host. Thank you so much for watching and I look forward to seeing you again next week.