How The Rich Use Infinite Banking For Tax Free Wealth

You're listening to Freedom Fast lane, presented by capitalism.com this is the show about building businesses and investing the profits so that you can live life on your terms. And now, your host, the future owner of the Cleveland Indians, Ryan Daniel Moran.

Hey, fastlaners, welcome to Freedom Fast Lane. This is Ryan Daniel Moran, and today I'm going to be joined by Sam Prentice. Sam runs a company called wealthpoint, which specializes in an investment strategy that some people call infinite banking. And I first became familiar with infinite banking a few years ago as a way that super rich people invest for long term wealth while also having access to their capital so they can invest in other things. Which sounded really cool, but I unfortunately had a negative experience with infinite banking because. Because I went with just kind of a slick salesman who was just after a commission, and I got sold a policy that I now regret taking out. So my experience with infinite banking wasn't so positive and I had a bit of a negative opinion about it until I met Sam. Now, when I found out that Sam ran the same infinite banking strategy, I was a little bit skeptical because of my experience with infinite banking, but. But I had a friend or two look into his processes and into his business. And it's funny for me to say, but I was a little bit skeptical of just Sam and his company when I first met them because of my experience. But after having several people go through and look at the way they structure things, everyone that I spoke to was like, this is the right way to do it. They're actually sacrificing commissions for the benefit of their clients by the way that they structure it. And actually seeing how they prepare these policies made me want to invite Sam onto the show to share a little bit about how infinite banking works and how it could be a piece of your portfolio that you might want to consider. So Sam is really, really smart and sometimes uses big words that confuse my stupid brain. So I make the attempt of simplifying this process for those of you who listen to the show. And I want to give you a bit of a Cliff Notes version of what infinite banking is before we dive into this session with Sam. But infinite banking is kind of like having another bank account that is actually a life insurance policy. So you deposit the money and you pay a yearly premium into this account. And if something happens to you, you have the death benefit that you would have from any other insurance policy. The difference between this and a traditional bank account is your policy. This other account is gonna be tied to some performance of the stock market. So it could go up more than just your traditional bank account. It's not gonna go up at 0.01% or whatever you're getting at the bank. It's gonna go up as much as 8, 9, 10%, sometimes more, depending on how the market's doing. But it has a 0% floor, which means if the market goes down, you don't lose money. So if you're familiar with some of Tony Robbins strategies that he shares in some of his investing books, where you get the benefit of upside but you don't lose money if it goes down, this is kind of like that. So it's a really slick, kind of cool, low risk way to put money aside that will grow over the long term. The place where this gets really exciting is you can borrow against that policy. So you could actually put the money that you put into the account back into your pocket and it will continue to grow tax free. So it's kind of a complicated strategy, but it's one that's really exciting if you can really get how this concept works. So throughout this interview, I often interrupt Sam to try and simplify the process. And Sam expressed to me that he wishes that he had been able to go more into all the benefits of this plan. So we did not give a clear way for people to give more information during this interview. So I asked Sam to set up a link@gowealthpoint.com Freedom, that's G O wealthpoint.com Freedom and there, there is more training about how this process works. And there's also a client intake form if you want to find out if something like this might be a fit for something in your portfolio. So I wish that I had met Sam several years ago. I am in the process of moving my policies over to Sam so that I can take advantage of a lot of things that are available through this strategy. So if you want some more information about how this might fit into your overall portfolio and your strategy, you can go to GoWealthPoint.com freedom and learn more about how all of this works. With that, let's dive into the strategy on Infinite Banking with Sam Prentice.

Hey everybody. Welcome to Freedom Fast Lane Sam Prentice. Thanks for hanging out with us.

Hey, thanks for having me, Ryan.

Hey, Sam. So a couple of years ago, I've told you the story. I discovered this idea of infinite banking and the concept blew my mind. And then I did what I thought was the proper way of doing it and got sold by a slick salesman and did not have a good experience with it. And then I met you and you kind of blew my mind again on concept. So my first question to you is that term gets thrown around a lot of infinite banking. Is that the right way to describe it or is that not the case?

So there's nothing wrong with the term of describing it that way as infinite banking. The strategy and concept behind it. Definitely that is an accurate way to describe it. I personally tend to shy away from using that terminology as commonly just because of the, oh, somewhat negative connotation that comes with it. Because a lot of the people who, you know, say they do an infinite banking strategy, it's not structured the way we structure it. And when these, these strategies, which when they are structured properly, are exceptional when they're not structured properly on the other side, it produces a lot more risk for the client as well as a lot less return, a lot less value to the client. And so while I would say infinite banking is an accurate description, I would probably shy away from using that just because of the typical approaches put out there. That is under the brand name. Infinite banking is not done the same way that we would do ours.

Okay, got it. So tell us from a high level, what exactly is the strategy and why do people use it in the first place?

So great question. So the strategy basically in a long story short, is to find a way to add an additional driver of returns to your balance sheet. So to have very limited additional risk. So there's always risk to anything you do, but with very limited additional risk, add a compelling driver of return. I'd be willing, and I do not come from this, with a life insurance background, with an infinite banking background. I actually come with an asset background. I grew up, I love assets. I have a pretty diversified portfolio of different assets. And what I would say about this is as an asset, it has one of the most asymmetric risk reward profiles of any asset that's out there. So anytime you have that compelling return with reasonably limited risk that we can take, you want to take advantage of as much of that as possible. So the reason people use this strategy is it allows you to add an additional tax efficient, very tax favored return to your balance sheet. For example, you have a million dollars to invest. We can take that million dollars, invest it, take the same million dollars and get it basically invested in two different vehicles at one time, add a different driver of returns there and increase your tax efficiency, have better creditor protection, a variety, a host of other benefits that come from having life insurance, which is one of the more tax favored assets in the tax codes.

So it has Tax benefits. And it also, you said it grows in two different ways. What are those two different ways that it can grow?

So the tax benefits, first and foremost is that when this is structured and utilized properly, we are able to access all of the gains 100% tax free. So let that sink in for a second. With a typical account, in a best case scenario, you're going to be accessing with capital gains at 15, 20% depending on your bracket, and that's the best case scenario. Worst case would be short term capital gains and then you depend on the asset potential, other royalties and taxes. With life insurance gains, when they're accessed properly, we can access those gains 100% tax free. That's very important. What was the other part of your question?

When we call it investing, I know we're opening a life insurance policy, but when we actually invest it, what does that actually get invested into?

So the cash value, the way the assets. So basically life insurance is divided up into two portions. There's going to be a asset portion and a protection portion. The protection portion is the death benefit. That's where if you die, there is a benefit paid to the beneficiary of your choice, whether that's a spouse, whether that's a business, whether that's an estate, etc. That's where the benefit will go and that's the protection portion. The asset portion is the cash value. That's what you use while you're living, that can be used to pay expenses of the policy, that can be used to loan against, that can be used to be pulled out, etc. There's quite a few things you can use that cash value for. The way we structure ours for this quote unquote infinite banking, or what we usually refer to as a capital warehouse, a place to store capital, is we structure this to be very heavily focused on the asset portion. We almost, in a sense, in the initial analysis of this strategy, we disregard the death benefit. Now it is very much a part of the play of what we're doing, especially if compliance is listening. We absolutely want the death benefit. That's a benefit to the client. However, in the initial upfront analysis of whether or not you hold us on your balance sheet, it has to stand on its own two legs as an asset. So we focus on that asset portion as much as possible. The asset portion inside of these policies can be allocated to a variety of different trackers that will track the growth. Okay, so what I mean by that is there's different kinds of permanent life insurance that can be used For a infinite banking or capital warehouse strategy, there's anything from your whole life, index, universal life, et cetera. We have quite a few that we've set up in different fashions there. The best strategy, the one that we focus on, is using index universal life. With that, the return.

So, Sam, I'm going to. I'm going to interrupt you because you're using a lot of big words and I'm going to need you to dumb this down to stupid people like me. So where I kind of get confused is I understand the traditional life insurance policy. You know, if I die, a million dollars goes to my business or whoever, a family member or whoever I assign. Where I get confused is I know people say that the insurance plan, you know, grows or is invested in something. What does that exactly look like? I've heard people say that it's. Some people say it's like a fixed amount that it grows. Some people say it gets tied to an index. Yep, clear this up for me.

Great. Okay, so the cash value of a life insurance policy, specifically with the strategies that we set up, is going to be tied to a specific stock index. So, for example, we'll use the S and P very common. Most insurance carriers have an option for your cash value to be tied to an S and P index. That index is going to have a limited volatility to it, which means they put a floor and a cap on what your returns will be. A floor means that they'll have a 0% floor. If the market goes down 25, 35, 45%, it doesn't matter. You will get for that year a credit of 0%. Take, for example, let's say you start one of these policies at the beginning of 2008. At the beginning of 2009, as you can imagine, you did not get a positive credit in the S and P. The S and p was down 35, 40 points. So at that point, year, year one, you would have put a million dollars in and you would have gotten a zero percent credit. That's the way that would have taken place is you would have had a 0% credit on the policy. Year two, though, from 2009 to 2010, it's going to take a reset. It's going to take a snapshot of day one of 2009 to day one of 2010. It's going to compare those two and see if the market's gone up or down. If the market's gone down again, another 0% credit. If the market's gone up 25 or 30%, you would get credited that amount up to the cap. So basically, the returns on the cash value, you give up a little bit of the upside. The cap may be anywhere from 12% to 17%. That return, that gain for that year will be credited back to your policy at the end of the policy year. So if you have $1 million put in, you get a 20% gain. You would be capped at 13%. Say you would have $130,000 of interest credit given to the cash value of that policy.

That sounds almost like too good to be true. But what I'm hearing you say is that the insurance company that is basically backing this, they're hoping for that additional upside on top of the cap, but we get the benefit of no downside. Is that right?

That's a great question and a great thought behind it. But technically that's not the case. So here's what's actually happening inside the policy is for simplicity, the 0% floor is made by the insurance company. They take that and they have ways to invest money at 4 or 5% in a safe bond portfolio that they operate off of. And that's what allows them to take the majority of the cash value, invest that over there, and that's what allows them to meet that 0%. If the market goes down, they actually buy a sophisticated collared option strategy. So there's no magic, there's no guessing, there's no need for market performance. On the insurance company side, they are the epitome of a disciplined, systematic investor. Very, very simple approach of what they do. The reason they're able to do it in a way that's attractive to the individual consumer that we can't replicate on our side is economy of scale. They're able to buy with a billion dollars of purchasing power significantly better options on the market than we're able to purchase on the individual side. And so what they're doing is they're taking take $100 of premium, they're taking 95 of that, putting it in their safe bond portfolio, earning 5%, which grows back to $100 at the end of that year. That way, if we get a negative market year, they've got the money ready to meet that zero percent commitment that they've made to you as a policyholder. With the other $5, they are going to purchase options. Options on the market are options, the S and P for this example, that say, if the market goes up, you know, 20%, we are able to exercise this option and take advantage of that gain. And actually what's kind of Ingenious about this is they actually sell away above. Typically they sell away above that cap. So they might sell from 12% up, they might sell to another purchaser. And what that lets them do is it lets them stretch how much of a spread on between the floor and the cap they can have. Which is why you can have a 12, 13% cap on the S and P in today's environment, for example, which is going to allow you to capture a significant majority of the upside. And if you actually look back historically, you compare this to just a straight S and P index, this is historically over the past 25, 30 years, down within 50 basis points of what the market has done by itself, with full risk and exposure along the way.

As an investor, as someone who is looking at this as a potential piece of my portfolio, I'm basically going to open an insurance policy and I'm going to have a death benefit just like I would have in any other insurance policy. With this one, we have upside potential, but very limited risk because of the way that it is structured. So so far, that's correct?

Yes, absolutely. Very much correct.

So why is it called infinite banking? Like, first of all, I would take that deal all day long. Like, if something happens to me, I've got, you know, I've got a death benefit. But also at the same time, I have really strong upside in the market with little to no downside. I would buy that plan. Like, I would. I would invest everything I have into a plan like that. So the second piece is then, that's good enough, by the way. But what's the infinite banking side of it?

Exactly. This is where it really gets exciting. Because first off, we usually start off having to go through why the asset stands on its own as an asset. We look at life insurance, we say, how can we structure this in a way where even if we couldn't do the infinite banking or leverage or those things, why does it stand on its own as a compelling asset? And I think that it very much does. And one of the biggest risk mitigators with the way we structure it is being liquid. Because at the end of the day, where most people go astray with assets is not being liquid, because we structure these so liquid it helps you protect the risk of it as its own asset by itself. But what being liquid also does is it introduces a new element of opportunity to you. And this is really where we take the balance sheet to the next level and where we say this can function like an appropriate capital warehouse. So to kind of give you an idea of this infinite banking concept. Let me walk you through a scenario and kind of walk you through how this would work is go back to our example, you know, and this is all I use numbers that are round numbers. Everything is scalable. If it works at a million dollars, it also works at $10,000. The difference, of course, is appetite with, you know, who we go to lender wise. There's some different things that change when we play in bigger ballparks versus smaller ballparks that as a product, the person who's putting a million dollars in puts their money into the same kind of product that is, you know, that someone who's putting $10,000 a year into. So just know that this is, this is a scalable. So whatever numbers I use are all scalable. But take a million dollars that goes into this. We're going to have between 85 and 90% year one that is going to be liquid and still available. What liquidity does, like I said, is it's a one, it's a risk mitigator because of everything. Every assumption we build this on does not go correct in the future. If you're liquid, you have an exit strategy because your money's liquid.

By liquid you mean we have access to the cash that we put in, right?

Exactly. You have access, accessibility. That's hugely important to do. One, minimize and mitigate your risk. But two, to give you the ability to take advantage of opportunity. Because where most people fail is we are not liquid through times of opportunity. Whether it's times of opportunity in your business, in your personal life, or just times of opportunity in the overall macroeconomic environment. You know, where we have a market downturn, typically if you're heavily invested in the market and we have a downturn, you just have to be stuck and ride that back up. If we have ways to stay exposed to upside, limit the downside and stay liquid, it's huge for what it allows you to do.

So in other words, like if I were to put money in the stock market and it goes down, the only way for me to get that money is to sell that stock, take the loss, and then find something else to do with it. With this, what you're saying is if it goes down, we've got downside protection and we could access the cash but not affect the investment. Like we could pull the money out, but it would still be kind of in the investment is what I'm hearing you say.

Let me kind of walk you through that real quick and I apologize for going on a rabbit trail there, but basically and just because this is very, when this is done properly, this is a game changer for how your balance sheet will operate through times of ups and downs in the economic cycle. What this does, we put a million dollars in, you're going to have $850,000 that you could take a loan against if you wanted to. So a million dollars is going to earn between that floor and cap. We know that's going to happen long term. That should average, you know, closer to 7%. We typically run our assumptions based on, in the 6% range. Just because it's easy. If we, if we do better, we can always figure out what to do with more money. We want to be conservative with our assumptions that we're running on. So say 6%, that means that that million dollars is going to earn it 60,000 if we did nothing with it, if we did no infinite banking, no leverage, etc. If we went through and there was an opportunity, say you had another investment that you felt was compelling, you had a business opportunity you felt was compelling, you had a personal need you needed to take care of and didn't want to liquidate other assets, or we had a macroeconomic environment that was conducive for it. We had a big market, we have 2009. You know, you can be an idiot in 2010 and make money because everything's down, you're buying at a value. So any of those situations take place where you need to access your money, you can go take a loan on the life insurance policy for or against the life insurance policy. Rather take that loan for 800, 850, $900,000 that we can take as a loan. So 80 to 90% we can take as a loan out of this. So we pull $850,000 out, we are loaning that money against the policy, which means we have not stopped the growth of that million dollar policy. It's still going to earn its 6% average over a long period in time. Even if we've taken loans against that policy. Just like loaning against your house, if the housing market appreciates, the property value appreciates regardless of whether or not you have a mortgage on the property. Same thing with life insurance. If the policy is going to appreciate based on the market returns and the contract terms, then it is going to appreciate regardless of what loans you've taken against the policy. So now you've got $850,000, you've pulled over here to go invest and earn whatever returns you want to earn with it, but you're still earning your million Dollars times your percentage rate for that year inside the policy. That's what's really key is then what we've done is we've found a way for you to make two returns on $1. So you have a million dollars earning one return, have $850,000 earning another return. We have the cost to borrow in the middle and one of the risks we discuss, and one of the pieces to the strategy is the play we're making is that the performance of the policy should exceed the cost of the borrowing. That's based on a lot of solid principles. It's like when you're younger, you typically hear the advice that you buy stocks and not bonds. I'm sure you've heard that when you have a longer horizon, stock should long term outperform bonds. So you would have, the proposal would be to put more money into stocks as opposed to bonds, more money into equity. And instead of debt, that's what we're doing with the policy is we're getting a return that's based on the stock market. We're borrowing money that's based on the debt market. So that spread between the return, the long term return of stocks and the long term cost of borrowing is we're adding that additional driver of return.

So it's kind of like buying a rental property or buying a house. If you paid cash for the house, you could immediately go refinance the house, put that money back into your pocket and go put that into a different opportunity like a business or another house if you want, and that would continue to appreciate and you would have the renter in there or whatever paying the debt service on that. It's what it's reminding me of. It's just a different asset class. This is insurance.

Absolutely.

It's the exact same concept. And that's one of the keys. And what I think is missed a lot in traditional financial planning is most advisors are very focused on one specific asset class. And there's nothing wrong with being excellent in your craft and understanding that asset class. But diversifying across asset classes is key, not just within an asset class. And so you mentioned real estate. You know, I'm talking here about life insurance, all of these things actually, when this is structured, right, can work in, can work in cohesion and can complement, you know, complement, with an E, complement each other. And so we have life insurance. It can actually complement your real estate, it can actually complement your business because we structure it where it's liquid. A lot of times when this infinite banking strategy is proposed, it typically is Very much a competitor to your other assets, to your business, to your cash flow, et cetera. With this, where we're 85, 90% liquid in day one, year one, we're only tying up the opportunity cost of this is a very, very small amount of opportunity cost up front. And in fact, the returns we get, like in year one, for example, put a million dollars in, we tie up 150,000, because we can only pull 850 back out in the loan on that 150,000. Remember, we're still making $60,000 less the cost of borrowing. So we're talking a 20 to 25% cash on cash return for that year one. So it's pretty compelling. Our opportunity cost is not that great if we have a five year, 10 year outlook for this asset. And so that's what's really key behind it. Go ahead.

You just gave me a braingasm. I'm going to come back to that braingasm in a second because I'm seeing how this can multiply on itself and how it can compound. But the question that comes up for me is, who then do I owe the money to? In real estate, if I borrow against it, I owe it to the bank. But if I have a life insurance policy and I borrow the money back to myself, who do I owe that money to? Do I owe it back to my own policy?

That's a great question. And so it really depends on the size of policy we're doing. If we're doing a smaller policy. The basic gist of what's happening here is it's just like if you walked into a bank with a cd, you know, a certificate of deposit, it's on their own paper. They know that collateral incredibly well. And so if you say, hey, I have a $10,000 CD, will you give me a $9,900 loan against it? You know, they're going to say sure, because they know the collateral. They know if you don't make your payment, they've got a cash equivalent in hand. So you hand them your piece of paper, they hand you money. If you want that piece of paper back, you hand them the money, they hand you back the piece of paper. In the interim, you pay your interest. Pretty simple transaction. Makes sense. Not a good example of what we want to do because you're going to have negative arbitrage, a negative spread. Your CD is not going to outperform the cost of borrowing because your CD is 1%, 2%. Your cost of borrowing is going to be 2.5%, 3%, 4% on that kind of loan. But it's still going to be very attractive rates they'll offer you because of the kind of collateral that it is. Same thing with life insurance. Now, on life insurance you have an additional factor there because the life insurance company actually will contractually guarantee loans with different terms and timeframes, and we discuss that on each one. But the life insurance will contractually guarantee an offer to make these kind of loans to you in the future. They'll typically tie it to an index like Moody Corporate Bond yield index, which is going to be based on the debt markets. But that's the idea is the life insurance company will make that loan to you with the same kind of idea as the bank in that they will say, we are going to put a lien against a portion of your policy. So you have a $200,000 cash value. You want to access half of that, you want to access 100. They're going to say, let's put $100,000 lien against your policy, which means if you die part of your death benefit, $100,000 of it goes to pay off this loan. If you want to surrender the policy of your $200,000 cash value, 100,000 of it goes to pay off the loan. If you want to take an additional loan, you can only loan the remaining 100,000. You can't keep, you know, you can't keep loaning the $100,000 indefinitely. You can only loan up to the capacity of what you have in your cash value. But we will offer you that loan against your asset, which means you still earn your full return. We just loan it because we know the collateral. The insurance company, of course, knows the collateral. It's on their paper. It's a very simple transaction. Now, if you have a larger balance sheet, which is, you know what we typically would do this strategy more with, we would shop that loan through banks and third party lending institutions. The reason is that they will typically loan at more aggressive rates than the insurance company would for larger loans. And so we've got to have probably $250,000 or up to be looking at a third party loan like that in the cash value.

That makes sense. And when you say shop for more aggressive rates, is that based on whatever interest rates are at the moment?

Correct. It's typically going to be Libor plus a spread or prime minus a spread. And so we'll have an example of that is, and we just did a loan here recently that was sub 3%, 2.2.75%, all in Libor plus the spread. And so that will fluctuate over time. But that loan was taken and it's because banks again same as the insurance company or same as the bank with the cd. It's incredible collateral. The bank is basically lending against cash. It's a cash equivalent. It's very, very easy to make that loan. Banks love it for capital because it's tier one capital, it's very secure capital, it looks good on their balance sheet for their loan portfolio. And here's what's so key and why this all mixes together is if you remember back when we're talking about why this works as an asset is because you know you can put money into it, you can expose it to upside, but you can limit your downside. That's the same reason banks love this as collateral. Because they can on day one they can look at this policy and say if a worst of the worst comes through and nothing goes right, the market goes down 40%. We know on day 366 or 67 and a leap year we know exactly how much money will be in this account. So we'll loan that amount and we'll loan 100% of the low point of what's going to be in the policy if the worst case scenario happens. That's encouraging for you because typically the risk of leverage, like if you did this with a traditional stock account, your risk would be much higher because if that value were to go down 30 or 40%, you've got to come out of pocket to pay into the value of your asset or to pay that loan off because the bank doesn't want to loan you money when your collateral is not sufficient to cover it. And so with this we can actually have a life insurance policy. Since we know the downside, we can have the bank loan you money with no other collateral aside from your policy. It is a self contained transaction. It's non recourse lending which means that you're able to pull money out, put it in your pocket. The only collateral is that of the life insurance policy. All you have to do is meet your, meet your interest payment along the way and you have a million dollar asset working for you with very, very little opportunity cost and you'll long term the growth is tremendous. Go ahead.

Sorry. So a lot of eyes just glazed over. So I'm going to. Sorry, sorry. I'm going to call to attention those of you who are listening whose eyes just went or brain just went ow. Because what I'm going to try and do is I'm Going to try and button this up. And Sam, you can tell me if I'm close and where I'm wrong. And then, and then I want to tell you the braingasm that I just had while you were talking. And so as I'm understanding this, I have a lot of students who have sold their businesses for $2.3 million, $9 million, $8 million, $25 million, $19 million, or people who are just have businesses that are spitting off cash flow. There's a temptation to put it somewhere, right? Like tell me where to go put my money. The way I'm understanding this process is you would open up this policy as almost like different savings account. It's going to grow at an attractive rate for a long period of time, an average of 6%. And then in 6 12, 18 months, when the right opportunity comes along, we can borrow against that bank account. Essentially leave the money in the bank account, Take the money, but borrow against it. Go buy the asset or the business or whatever it is that we're buying. And now we have the money growing in the life insurance policy, which is the 6% minus whatever the debt is, 3%, we'll say. So it's growing at 3% per year. And we get to have the asset that we just basically paid cash for because we borrowed it against our life insurance policy. So both assets continue to grow from the same dollars that were originally put in. Did I say that accurately? Did I violate any terms? Did I violate any legal laws there?

I don't think we'll go to jail on that just yet, but no, that's exactly right. And the idea is basically we're just adding, like I said, another driver of returns there, where you have the full million dollars, you have the dollars you can leverage out. Absolutely. You're right on the point.

Okay, so here's the braingasm I had. If you're borrowing against and I'm gonna lose some people, and I'm sorry, but I'm gonna geek out with y' all here. So if we borrow against the policy, which is just like borrowing against a bank account, and then we go buy a house or an apartment building, we're essentially paying cash for that, for that property or whatever it is that we're buying. So would it be fair to say that we could then borrow against that asset and keep the cash for even the next opportunity so the same dollar gets stretched over several different assets at a cost efficient rate?

Oh, absolutely. With that, the answer to your question is absolutely. And with that, we have to, from an advisorship role, because typically when clients come to me, they are looking for advice on how to structure these things properly and how it coordinates with other assets. So just by nature of this being such a complementary asset, I have gotten involved with quite a few other assets as well and provide, you know, say, here's how you want to manage your whole balance sheet, how this fits into it, and how it coordinates with the rest of your assets. The one thing with leverage that I would issue as kind of a cautionary tale is that when you leverage, you have to be both psychologically and financially prepared for the effects of leverage, because leverage exposes you to additional risks depending on what kind of assets you're leveraging into. What you mentioned of like real estate, for example, I love that model because that's a very appropriate use of leverage because we have positive cash flow. Typically it's something that does introduce additional risk to be leveraged, but it also hedges you against some risks, hedges against inflation, things like that. So there's a lot of positives to that. The life insurance strategy, because it's got the 0% floor, is a great place to leverage because there's not a lot of risk of reduction of value causing you to have to come out of pocket to meet a capital call or something. And so I would just say that that leverage, absolutely, you can do that multiple times, just making sure you have enough in reserves, we have enough liquidity, where if there is a contingency that was not planned on, we don't have every single last dollar leveraged into it. But for a good portion of your balance sheet, which you described, is absolutely doable. And in fact, the majority of the high net worth clients that I have, that's exactly what they do, is they take strategic use of leverage in the right environment. And let me, let me give one more thing and I'll quit geeking out on this, I promise. But remember, where we're at in the macro, the overall economic landscape right now is, you know, we're eight years into a bull run in the market, real estate's doing strong and we have a very attractive cost of borrowing right now. And so with that, you know, if we can lock in borrowing rates at 3, 4% right now, that's pretty attractive and pretty tough to beat. So now is a good time historically to be taking some portion of liabilities, using leverage, taking some debt because of where it's at. If this were to flip flop and we're to have a change in that scenario, then some of these strategies we may look at it differently. And so you always have to look at your underlying premise in the overarching economic condition. But what you're describing right now, very attractive and totally awesome.

Yeah. So it might be favorable to open up one of these policies and take the leverage while debt is cheap and then kind of wait for the next opportunity in the event that we're at the top of the cycle, which is kind of what I'm doing right now is kind of keeping my.

Keeping some chips off the table. Absolutely.

Let me ask you this. At what point should someone consider this as part of their strategy? Obviously, this is if someone is just getting started in their business, all of your capital should go into your business. But at what point is this something that someone might want to consider as part of their portfolio?

That's a really great question. And really what it boils down to is it boils down to where you're at in your liquidity. Because what we don't want to do on our set is we don't want to start with someone who is, like you mentioned, at that very, very early stage of the business, trying to put every dollar of capital into it. I would advise even, even when you're somewhat early on, maybe not that first, you know, six months or so, but as you get into the business, you start getting some cash flow. Having a little bit set aside and reserved within the business is not a bad strategy. One of the things that I look at from a financial, you know, planning standpoint of trying to, you know, plan your financial advisory standpoint or whatever is trying to reduce the expenses you take on as an individual. And so one of the things that being liquid or having some level of reserve liquidity does is it lets you be a more savvy business owner in that you may not take on the same kinds of debt. If you've got liquidity, you may not take on whatever. So I advise looking at this strategy pretty early on in the business. I've got a team here that we work with here that handles all levels. And so if you're at the top level, we get into that pretty quickly. If you're just getting started, it may not be the right time. But at least understanding how these principles are work and coordinate with your business I think is very important. But the typical rule of thumb is when you've got positive cash flow in excess of what you are needing to invest back into your business, and you're looking at starting some of the passive things, that's a great time to start into this. But even if you're still in heavy business building mode and you have good cash flow. This is a good time to look at it, because building these things now, you get the cumulative effect of having it working for you. And so putting this off five, seven years while we wait for that business to get to be perfect, we may miss out on some good additional upside that could have been had because you can always pull money back out to invest in your own business.

Yeah. And what should someone expect to put into one of these policies? Like, at what point should they say it's worth it for me to start depositing into that account? Or is that relative? Depending on. Can you change it?

Depending on it can change, absolutely. And here's what I'll tell you is we have. I mean, obviously on our side, there's a certain time factor because the amount of time that goes into these is usually pretty similar from a small case to a big case. But what I'll tell you is we've done cases where we have someone putting in a few, three, four, five hundred bucks a month for a grandchild. We've of course, done cases up to where we're putting in seven, eight figures over a period of time. Anything in between there. There's not really a particular size because what happens is we're able to reduce that death benefit down, where we maintain the same ratio of asset to protection inside of the policy, where we maximize the asset portion, minimize the protection portion to make it perform as much like an asset as we can.

And is there any. I mean, we've talked about limited risk. We've talked about the fact that there's a floor of 0%. Is there any doomsday scenario or any. What's the worst case scenario for using this as part of your portfolio?

I appreciate you asking that, because I was trying to figure out how to work this in because I don't want anybody to think. We typically spend more time talking about risk with our clients, then we talk about benefits, because most of the time our clients come to us kind of understanding the general idea of how this works. And typically there's almost irrational exuberance because it's so exciting. So what we like to do is we like to walk through every last little chink in the armor and start there. And if we don't scare you away, we're in pretty good shape. And so going through that, we've identified the three main risks to this strategy. Very simple, very easy to understand. I think it's all manageable risk. But risk number one is that we would have A carrier default, that means that you put your money at this insurance carrier and the carrier goes under. Now we're talking 100 plus year old companies, a grade institutions. I could go through data anytime. We want to discuss why I feel that they are stronger and more compelling places to park your money than a bank. We can talk through, you can go look up how reserved the FDIC is if you'd like. Sometimes go to any of that research and come back to me with how likely you think the carrier default risk is to happen. But that is risk number one is that in a worst case scenario the carrier goes belly up. That's the case.

It's like saying my money in the bank could go away because the bank went out of debt.

Correct? Exactly. Same idea, same idea. And if you look back to that note is go look back in 2009, look at the percentage of banks that defaulted, the percentage of insurance carriers, and then look at the percentage of life insurance carriers. Life insurance is basically where all the, all the smart math kids went after college. But anyhow, that being said, the life insurance carriers, if you go look at that, it was less than 1% that had defaulted in 2009. It was over 10% of banks. And so as far as safety, very safe asset. But that is a risk, it is a real risk to discuss. Now here's one of the beauties of this, so let's go through this real quick is one, it's unlikely that's going to happen overnight. But two is remember this is leveraged with non recourse debt. So in theory a lot of that risk is actually if this is structured right is shifted in some degree to the lender. Because if you've got 85, 90% of your money out and the carrier defaults, then it's non recourse debt. It's not tied to you. That loan is the lender's job to collect on that policy, not your job specifically. So that's that, we can talk through it. But that's one risk I feel pretty limited, pretty compelling for the kind of returns we're taking. Risk number two is of course interest rate inversion. What that means is that the cost to borrow exceeds what you earn in the policy. That's a very real risk. And what I'll tell you, to be honest, is that in some periods of time you will have that happen. Which is why I mentioned before, anytime you leverage, you have to be prepared for the additional potential expenses that come with leverage. So if we do that, I want.

To guess on this so that would be like in the event that we had a 2008 scenario and so we earned zero and we had borrowed previously at 3%, it means we would owe 3% into the policy, but we would still have the capital that we had hopefully invested somewhere else. So, but that, that would be a potential risk, is that right?

You would owe 3% on the loan from the policy to the lender. But yes, absolutely, that's exactly correct is you'd have 3%, you paid, you earn 0.5%. So on that particular sector you're going backwards. Now if you earned extra returns outside of that, that's fine. But you know, the risk there is that, you know, your outside investments, if we go through a crash like that may not do as well either. So you have to be reserved appropriately. Or if we have that and what we do on our side is we don't look at 2008, 2009, we go back and we plug in Great Depression numbers. So we actually plug in from 1929 to 1949, plug in that 20 year sector and say, okay, hey, if this happens, here is what you'd need to have reserved in a worst case scenario. If that number doesn't work, say that number to put in a million dollars. Say that number is $800,000. If that number doesn't work where you have that amount, you need to have that amount reserved. And that would be to put in like $8 million into a policy. So maybe 10%. But if having that amount reserved doesn't work for you, then we back the number down to something that does work. Because what we don't want to do is we don't believe in gotchas. One of the things that I don't like about this particular strategy is that most advisors who do it have not done very many of these. They've done, you know, maybe one or two policies. They're testing out, you know, waters they don't understand and they're exposing their clients to a lot more risk they need to be exposed to. When this is structured properly, it's incredible. When it's structured improperly, there's a lot of risk a client takes on. So it's, it's just very important to do this right. And so on the risk side, where I mentioned we talk a lot about that is we'll show those stress tests to a client and say, hey, look at this, here's a stress test of what this would look like. Is this potential out of pocket, which is in a very stressed environment. It's very unlikely it would probably be 30, 20% of that in a likely worst case. But if we go into this very stressed environment, we have eight or seven out of 10 of the first years, we do zero percent. Are you comfortable with the cost that would be associated with this? And they look at that and say, okay, absolutely, because I'm going to be potentially and unlikely even tying up half a million dollars, but I'm going to get a $4 million asset out of this. This makes perfect sense. I'm game. My irrs make sense. All of this works. And so the key though is understanding that risk of the potential for negative arbitrage in a short period in time. Now back to that addition, that first risk I was talking about or the second risk I was talking about of interest rate inversion is that long term. I feel that that's a pretty unlikely risk to take place. But that is the play we're making. If that were to invert and say that everything that's happened historically doesn't happen in the future, all the macro trends. Because the reason that works is people typically borrow money to invest or to put money into equities that typically outperform what they borrow for. There's a lot of things of why that spread should maintain between the cost to borrow and what we earn inside of equities. But if that were to change, if that were to be different, we were not to have that positive spread. One of the benefits of this strategy is that we stay very, very liquid. And so by being liquid, like I said before is liquidity is a risk mitigator if you know what you're doing. So if everything were to shift and for whatever reason, our long term outlook were to differ from that of today, where we expect equities to outperform debt in the future by being liquid, we have an exit strategy. You may walk with a 5% loss or something, 10% loss, but you can at least walk if you needed to, as opposed to being tied into something.

Yeah, that makes sense.

Does that make sense?

It does, it does for me. I know this is meaty for a lot of people. It took me a few times of kind of really understanding of going through this to understand the strategy. And there are a lot of slick people who just want to sell you a policy. I feel like that's, that's the case that happened to me when I did this on my own, which is why I was really glad I found you. And you are one of the good ones in my opinion. So how do people get ahold of you or I know you have some trainings out there to help people understand. Tell us where people can either get a hold of you or get a better understanding of how this works and if it's something you should pursue.

Absolutely, yeah. So with that we have done quite a bit to make ourselves very client friendly. We do a lot of stuff with clients. You virtually where you're able to log on, go through different education pieces. We have, we have online intakes where we can start onboard you as a client. A lot of things to make the client onboarding process very simple, very easy and provide as much education as you would possibly want about this strategy. So we've got an online portal where when you contact us and reach out to us, whether it's to the website, whether it's going through, whatever link Ryan provides here with this or whatever takes place as far as reaching out to us, you will go in, we'll have a client onboarding process there where you can meet with a quick Advisor, have a 15 minute initial consult to kind of ask any questions you may have. We'll provide you with a client intake where you can fill out your basic personal and financial information, which gives us kind of a general reference point to reference when we are deciding what parts of strategies we'll talk to. You know, obviously if you're working with $10,000, we wouldn't be going and looking at a bank loan. Whereas if you're working with a million, we may start the process and geared around that talk so it lets us get a feel for where you're coming from and then we're able to direct you to the right point and make sure our talks are as focused as possible from that point forward. So we have our website, we have GoWealthPoint.com you can email. I mean you can email me personally, SoWealthPoint. Any of the staff you can email at the GoWealthPoint address and go from there. The URL is www.gogo wealthpoint. W E A L T-P-O-I-N-T.com so GoWealthPoint.com cool.

Well, Sam, this is. I'm always amazed at the times we live in and these are kind of opportunities that I think were only reserved for students, super, super wealthy people even 20 years ago that now are becoming more and more possible. And it's through pieces like this that I think make it possible for people who are building businesses and investing the profits to be able to utilize them. So I appreciate what you're doing in the world thank you for being one of the good guys. Thanks for hanging out with us here on Freedom Fast Lane.

Absolutely. Sure appreciate you putting me on here. Thank you so.

Much.

Hey, I hope you're still with me. Hope that wasn't too far into the clouds and high level investment strategy for you. And there are still some questions that I wanted to ask Sam, like can you keep one of these policies in a business? Can you write off the strategy? Are there ways to structure it so that it's even more tax efficient? What do you do with the cash once you bring it out of the policy and invest it somewhere else? These are all things that I'm interested in going in deeper. I nerd out when it comes to investing and planning long term wealth. I try to limit how much I allow myself to go deep into the clouds here on the podcast. But I hope to have Sam back on a time or two to kind of clarify some of those different pieces. If you found value in this and you want more about how the plan works, you can go to go wealth planning.

And there's some additional trainings about how the infinite banking plan and policy works. There's also a ton of stuff on this on YouTube and you can just use those Google machines to find out more about how the structure works. I would just be careful with where you go in terms of if you decide to set one of these up. Once again, I kind of got locked into a plan that I wish I had not gone with because of the company that I chose that just wanted a commission and sold me the policy that would just give them the greatest commission. And I obviously wish that I hadn't done that. If you enjoy these types of podcasts, let me know. Leave a review on itunes or shoot me an email or a Facebook message and let me know if you like these kind of high level investment strategies or not. I thrive on your feedback on this kind of stuff and as always, I appreciate you sharing the podcast with other people who would find value in it and for supporting what we do here at freedom fastlane and capitalism.com I believe that freedom and entrepreneurship and personal responsibility is the best shot we have at creating a better world. And we need more success, we need more freedom, we need less government, we need more personal responsibility and we need more people like you who care about your future, who care about taking care of your family, who care about building businesses. So I honor that and I consider it an honor to serve you here on Freedom Fast Lane. Thanks for listening to the show and I'll see you on the next episode.