139. Infinite Banking Used On The Key People In Your Life | An Example

You are listening to the Wealth Without Bay Street Podcast, a Canadian guide to building dependable wealth. Join your hosts Richard Canfield and Jason Lowe as they unlock the secrets to creating financial peace of mind in an uncertain world. Discover the strategies and mindsets to a financial future that you can bank on.

We're going to.

Share the key to unlock the process of insuring key people. I think that, yeah, we'll just use that. That's a really good. Because we, so we have. This is, you know, recording content. It's been like a really busy summer. It's been a busy fall and, or busy fall. We're just getting into a busy fall. And so this, we're super excited to talk about this because initially the discussion was around key people in companies, but there's also key people in your life personally. And so we should, we should just examine it and talk about it. But we're also going to just walk through just a bit of an example to support it because the business aspect is what comes up more often when you're talking about key men. A key woman who, if you run a business who's in a senior position, you know, maybe an executive in the company that has a lot of responsibility and directly attributes a lot of value to, to the business. And God forbid if something happened to that key person in your company, not only would you, would you experience financial setback as a result, but you have to go and replace that team member.

And harder to do right now because you know, across the board, you know, as we're at the time we're recording this in, you know, Q4, 2022. Yeah, there's a huge difficulty in trying to attract talent to businesses and there's a huge gap in the employment space right now where we're trying to, you're trying to get high quality people to fill those roles in your business. And so you know that, you know that may mean to, to replace that individual, you have to go to a recruitment agency, you got to fork out a big chunk of money so that you can bring in the type of person that you need to step into that role to fill the role, the void that's created by this individual.

Yeah. And know, think about it as well from a, a co founder relationship and think about that as it relates to your family. Right. You are the co founder of your family and so your spouse, your spouse is a co founder of the family and God forbid if the co founder passes away unexpectedly, suddenly, prematurely, unexpectedly, that there's going to be some pretty significant financial impact and you've got this, this policy or the system of policies that returns the most money when it's when that money's needed the most. And it all occurs on a tax free basis. And so really, really important. If you just think about, and I'm speaking to our viewer and to our listener, if you think about who the key people are in your life, whether it's personal or business or both, a spouse, a joint venture partner, a co founder in your business, a key person in your business that has a senior leadership role or that plays an integral part in creating the value in your company. Products, services, intellectual property, new ideas like you need to really take a close look at ensuring these individuals lives not only for, for the eventuality which is going to be death, right where everyone's going to die someday, but also to be able to create this aquarium of capital so that your family and your business are at an advantage while the life insured is still with us. And everybody who's been watching and listening to us knows what that means. But we're going to look at like an actual example. We've got a key, we have a key person in a business.

And the business generates a significant amount of surplus capital after all expenses are paid, after profit is either reinvested into the business or there's maybe a declaration of a bonus or a dividend that gets distributed to, to keep people in the company, there's still a lot of money left over. And the, the, the business decided to put a portion of that money, which in this case is $200,000 a year into a dividend paying participating whole life insurance policy. And that key person is a 40 year old, just happens to be a non smoking male. And the objective is to fund that policy for a period of 20 years until that key person reaches the age of 60. And so let's have a peek at it. And Rich, you can kick us off on what we're seeing.

Yeah, so you know what Jason's bringing up here is we see a column that shows the cash premiums, of course the 200,000 that he identified. We're obviously going to do that for 20 years. As Jason had mentioned, we see a column that says premiums paid by dividends. Currently there's nothing in there. It's all zeros. We're not, we're funding the premium from this, the surplus cash flow. We, we have an annual dividend that's paid at the end of the year by the life company. That's the expected amount based on what currently what's been going on with the life company. And then we have a cash value column in this example here in year one, you know, we're seeing $155,000, you know, $155,600 basically. So just shy of 156 and we've got a death benefit that's kicking off at, at the end of that first year with the increase of paid up insurance because we, we funded a lot of flexible premium into this 200 grand which created some immediate ext benefit. And we're 4 million 234 million. So pretty healthy amount of coverage on that key employee. And of course for our 200,000, you know, we put in $200,000. The Life Company, the Life Company is pledging $4,200,000 tax free. And they've accumulated a pile of capital of $155,000 of which we can access a large portion of that 90% as the business. So the business is the owner. They've contributed this, this funding. They were going to do it anyway. They need to stockpile capital somewhere. They don't want all the money sitting around and you know, being attacked by things like passive income rules and all this other stuff that's that, that tend to happen inside of corporations that are dealing with this kind of capital flow and they want to put it inside of a high cash value insurance contract. Plus they want to be able to fund the, the needs of that key employee that they have to replace that individual on the books of the business if something happens to them.

And here's what else is really interesting and very appealing to the business is that all of this daily accrual of cash value, the cash value is only doing one thing each and every day. It is only increasing, it continues to rise. And so the advantage to the business is that they have an ever increasing pool of capital that they can borrow against to set about financing all the things they need in the business. Everything that, that we've described. But there's no tax on that daily accrual of total cash value. The policy itself is exempt from the passive investment income tax rules. So remember, the supply source of money to put in as premium is coming from surplus capital in the business. The money has to reside somewhere. So the business weighed the advantages of okay, do we start building this corporate warehouse of wealth or do we take that money and invest it somewhere? Well, if we invest it somewhere, we're subjecting that taxable gain, we're subjecting that increase in capital to, to the passive investment income tax rules versus maybe we Take the money and go buy another business, or we expand it, whatever that may be. But here's where the business owner grasped it very quickly. Just take a look at the total cash value accumulation at the fifth policy anniversary.

And so for our listeners who, again, we'd encourage you to go to the YouTube channel here to watch this episode. As you can see, the screen share. But what we're looking at is five years of 200,000. So that's a, that's $1 million of deposits. And what Jason's identifying is in the fifth year, at the end of that fifth year after receiving the dividend for that year, we're looking at a cash value asset that is 1 million 10, you know, million and 10,000. So it's, it's, you know, we have basically full liquidity on the asset side.

Cost neutral contribute.

Yeah. So the insurance company basically paid the business 10 grand over the last five years to own this insurance contract is effectively what's happened.

But they, the corporation maintains liquidity from day one because the corporation's been borrowing against that accumulation. This is just what's piled up. This doesn't describe what the business has actually utilized and what they've been able to achieve with that, Tom. And if you look at what Richard just annotated and pointed out here, and we'll describe this for folks who are listening on their podcast platform. So at the end of the second policy anniversary, we have $348,990 of total cash value that has piled up. At the end of the fourth policy anniversary, we have 572,120.

If we calculate the difference, the third policy anniversary.

Pardon me, the third.

Did I say one year later?

Did I say.

So it's between the second year and the third year.

Oh, I'm sorry.

Yeah, the third.

Which is quicker. Okay, that's good. And then we take the 5, 572,000, 1 20. We back out the 348,009 90. The annual increase in total cash value was 223,130. That was the annual increase from the end of the second policy anniversary until when one year later.

One year later. So you put in $200,000 in deposits and the cash value of the policy grew $223,000. So the end result is you put in a dollar. For every dollar that the business injected into this particular machine, the machine returned a dollar, a dollar 12, basically about a dollar 11. So for every dollar in a dollar 11 grew inside of the machine and you not including the death benefit increase.

And you paid no tax on that, on that accrual. Remember that. And here's what else is interesting. So the business again recognizes that the surplus capital has to reside somewhere. And the business begins utilizing the ability to borrow against this accumulation to take care of opportunities that track the business down. So the business needs $340,000 to go buy a new piece of equipment. The business does not need to rely upon anyone else's banking system to take care of that financing objective. The business. In that third policy year, the business is able to request a policy loan directly from the life insurance company for every dollar that it needs to go and buy that piece of equipment. The $572,120 of total cash value continues rising uninterrupted. And the death benefit continues growing. And the business controls the repayment schedule of that policy loan. And the lien for the loan balance is not on the equipment that the business purchased. It's on the death benefit of the insurance policy. So who's in a position of total and absolute control? And not to mention, if the key person was operating that piece of equipment and God forbid something tragic happened.

Not only will the business not have the loan balance outstanding any longer, but they will have lost a very important person to their company, which is tragic. And, and, but it happens. And then there would have been.

Millions of dollars paid in death benefit to the corporation which gives rise to the capital dividend account which permits the business to pay out tax free capital dividends. The business can utilize those proceeds for whatever the business decides to utilize it for. The key here is that the corporation will never pay in to the policy what the insurance company is going to pay out. It's impossible. I say that again just for effect. The business can never pay in what the insurance company is going to pay out. It's impossible. And if we go down. Rich. Oh, sorry. Did you have from year five to year six?

Yeah, I just wanted to isolate. So again, from, from year five to year six we've, we've added, you know, again another 200. You know, in the sixth year we put in 200,000. The increase is 248,000. So the, the, the span or the gap of the increase in cash value, it's, it's speeding up. And the reason it's speeding up is because again the cash has got to follow the leader, which is the death benefit. That death benefit keeps launching further and further and further into time. The cash value is just trucking after. It's got to keep chasing after that death benefit, because it's the insurance company is contractually obligated to raise those cash values on a daily basis to meet their final obligation at age 100. And so here, now you're putting $200,000 in and you're getting $248,000 back. I don't know about anyone else listening, but would you, how many bank accounts would you like to have where you could put $200,000 in and at the, at the end of the year you have an extra $48,000 without any risk?

That's really good. And, and that didn't happen because there was premium that was paid in the sixth year of 200,000. It happened because of all the premium that was paid into the policy since inception and how that policy gained all of that momentum. And Nelson described that perfectly in his book when he talked about the phenomenon that occurs when you take a pot of water down to seaside, you heat it up to 210 degrees, all you have is a pot of really hot water. You get to 212 degrees, now you have live steam. And so this is what's happening inside the policy is that by that and much earlier actually, in fact, by the third policy anniversary, we've created live steam inside of this policy. And the business's objective was to pay that premium for a 20 year time frame and to get to the 20th year. If we just do some simple math and we tally up how much premium was paid into the policy for 20 years, so we have $200,000 multiplied by 20, that's $4 million that's been paid into the policy in the form of premium. The death benefit grew to 13,717,000. So this is a strategy that's creating millions of dollars by utilizing this tool called dividend paying participating whole life insurance. The cash values cannot go backward.

They cannot go backward. So in that 20 year time frame, there's going to be stock market volatility, there's going to be economic volatility, there's going to be political turmoil, there's going to be uncertainties that arise. But yet the total cash values of the policy continue rising daily uninterrupted. And the business is not jeopardizing any liquidity. So the money's not trapped in a vice.

In fact, they're gaining liquidity because of the efficiency of the machine. And in the example on the screen at the 20th year, again, we've injected $4 million of capital over that timeframe, but the cash value is now over $6 million. So there's $2 million of additional capital that the business didn't contribute. That's available for working in the business.

Precisely.

And plus the death benefit.

I want you to zoom in, Rich, on what happens between year 20 and year 21. So at year 21, the business has not deposited premium yet. The total cash value has increased from 6,056,000 to 6,357,000.

So the business has deposited no premium in that 21st year, yet the total cash value is still rising. The reason is that in Canada, the total cash value, which, Rich, is highlighted here where you see the $6,357,000. That total cash value must continue growing so that it matches the total death benefit by age 100 of the life that is insured. So, Rich, tell me, when this key person dies, what age?

Well, let's just use the one that's at the. The bottom of the screen right here, the last line that we see. So that would be their.

That's age 63.

63. 63, yeah.

So at age 63, the life insured dies. And let's presume for a moment, Rich, that the corporation had coincidentally took out a policy loan for 90% of the total cash value in the year that the life insured passed away. So how much would the loan balance be today if that insured? If the company took out the maximum loan amount available. Let's calculate that together.

How about we keep the math simple? And it's about $6,200,000, but the death benefit is 14,100,000. So let's just say they owed $6,100,000.

Okay, so they owed $6,100,001. The life insured dies. So $14,105,159 is the total death benefit minus $6.1 million of a loan balance. That's $8,005,000. $159. $8,005,159. How much premium did the corporation put into the policy again?

$4 million.

4 million. And then the corporation used 6.16 million.

Yep.

And then the life insured sadly and tragically passed away. The corporation receives a check from the life insurance company for $8,005,159. Is there anything stupid about the business owner making the decision to do this?

Seems to me like the business is ahead by, Roughly speaking, about $10 million in the total circumstance of events.

Here's what else is interesting. If the life insured is still alive and the life insured, again, key person in the business Just so happened to, you know, co found the business, the key person says, hey, you know what, I'm just, I'm going to go ahead and take a step back, work a little bit less, but the company is going to continue to pay me because no, I co created the business and it's part of my agreement with the company that I'm going to continue to be paid money. Well, now the corporation can utilize this asset and pay that co founder money until the co founder dies. And then the corporation's going to get back everything it put into the policy plus everything that it paid the co founder. So now the business gets all of that asset replenished and the business can carry on and continue to grow. And that's why what's so important to highlight here is that businesses are doing this.

All the time. And when you think of some of the largest Fortune 500 companies in the world, this is what they do with their executive leadership team. Because they want to make sure that they're not only taking care of things while the executive is with the company and alive, but replenishing everything that was put in and spent when the executive passes away, whether the executive was with the company or no longer with the company at the time of death.

And so that's a key point, Jason. I want to hone in on that because the insurable interest to get that body insured only needs to be established one time when the policy is issued. So people move and change jobs and businesses and they get recruited, they get headhunted, they go to other large companies, et cetera. That happens all the time. But if you've established that insurance contract, that insurance contract doesn't go with them and it's not canceled. The business who set it up still owns and controls it. So even though that person may no longer be there with the company, the, the asset remains. Exactly.

And the way that, you know, for this particular example, the way that the policy was actually put together, what we've shown you on the screen, is that that's not like the policy would be even more efficient than. Right. We didn't, we didn't bake in the, the ability to put more accelerated deposit option limit into that contract. But we just wanted to show the viewer and, and help the listener tune into the fact that money has to reside somewhere. What better place than to have it reside than here? From that place, the corporation is in total control. If this was just a personal contract and the premium was 20,000 a year, or the premium was.

A hundred thousand or fifty thousand or sixty, whatever the number is, the more capital you put in, the more capital you get out. You can never pay in what the insurance company is going to pay out. It's impossible.

The cash value accumulation cannot go backward. You're paying no tax on the daily accrual of cash value. If you structure things properly, private contract is, you're dealing with a mutual life company. So it's a private contract, it's a private company. The advantages are just.

Endless. And so the. We talked about this earlier on our live streamyard. The only thing that's boring about the process of becoming your own banker, because all we talked about was a product. That's all that we talked about, the unseen is what happens off the policy illustration. It's everything that the company was able to achieve, everything that they were able to finance, everything that they were able to control. And the only thing that's boring about becoming your own banker is that it always works. The only thing that's boring about it. And, but yet we talked about, as you know, human beings want that stimulant. They want that, that stimulant of the rush. I put money into an investment, look at the gain I triggered. But you know what? This doesn't require any of your time, your talent or your energy. All you've got to do is fund it. And you've got all your time, all your talent, all your energy to go and do things that fascinate you and energize you. And the insurance company itself is going to administer that contract. The insurance company is going to grow capital to honor and fulfill all of those contractual guarantees that they're legally bound to fulfill. And they've gotten pretty darn good at it over the last 177 years in this country.

So again, where else do I want my capital to reside?

Well, and you know, not to expand on the whole example, but just to give people some context, we talked a lot about a business in this example, but we have a lot of real estate investors and a lot of times people are doing real estate that you usually start off on your own, with your own capital resources. You end up tapping out your ability to qualify, tapping out your own personal down payment resources, etc. And so then you're starting to look for other money, opm, other people's money. It's either third party banks money or it's a joint venture partner. So you have to learn how to become, you know, a joint venture master and all these kind of things. And so as you look to bring on and take on Joint venture partners. Well, what you're also doing is you're, there's some risk that joint venture partner that you've brought on that's now printing the money into your deal. They've got risk in, well in trust of you of course. But also what if you pass away? You're the real estate expert, you're managing the real estate deal and then you're gone. How do they get their money back out? What's the, what's the circumstance there? So there's another way that you can think about putting your, putting people at ease by having insurance and coverage in place just on your own life. But let's take that one step further. I have a couple, you know, gentlemen here recently. They're business partners with joint venture Real estate. You know, they've, they've, they've purchased roughly about 20 doors in some multi family units in, in 20, 22. Okay pretty short time frame, like about eight months. And they're rapidly growing. They've now tapped a lot of their resources and their, their qualifying potential. One guy's 42, the other guy's 55. They have different family dynamics, they're both married, they both have kids, they both are on the same mindset of a long term thinking and they're building a great real estate business now. They're incorporating the infinite banking concept. They're doing that for two reasons. One as a buy sell arrangement. If they want to know that if something happens to one partner rather than having to sell off all the real estate to raise the money to buy out the other partner's share, in which case all the work was, it wasn't for nothing but you don't have the real estate left anymore. They're going to have insurance come in and solve that problem so that the family can get covered and taken care of and the remaining partner can continue on with the real estate business that they put all their energy and effort into. So it solves a major problem. Now additionally they have really good positive cash flow. You know they're going to be having like about $8,500 a month positive cash flow and they're going to be doing some, some, you know, a little bit of renovations here to increase cash flow, a variety of things. They're going to be now committing that cash flow to help build up a policy on each one of them. So it's even, even situation. They both have hold cos they're building up these policies and they're going to create separate their dependency from typical lending lenders as they look to go do some development projects. One of their pieces of land, they could build an aplex on it. Well, they're going to need capital for that and they're going to be able to self fund a lot of that through the accumulation of their policy values over the next five years. So they've got a good game plan. They're insulating themselves from the market environment and they're separating themselves from their demand and need for third party banks capital and they're protecting their partnership so their money can be more efficient. And you know there's going to be vacancies, there's going to be, you know, some issues with tenants that will come up and there's going to be some renovations need to happen. But they're, they're, rather than setting that money aside, building up into a bank account, they're changing with the location of where they're storing that repair maintenance fund and the vacancy fund and they're, they're combining that in their, their overall cash flows to build it up in a different reservoir with the insurance company. So it just gives them so many different advantages by all. The only thing they changed was their thinking and the process by which they chose to move the money through their life.

It's brilliant. And again it's, it's a strategy that.

That, that can be worth millions.

It's whatever you want it to be worth. It's whatever you want to engineer it to be worth. And that's, that's what's so amazing about the tool, the product.

The process which you've described. And we have thousands upon thousands of examples of people's implementation of this process.

That's everything that happens.

Based on a person's imagination, based on a person's financing needs, based on a person's objectives, how much money they need to achieve those objectives and in what time frame. That's the essence. Recapturing the interest, getting that money flowing back to your own aquarium of capital versus continuing to transfer money away from your family and your business. So if you had a choice, I'd rather have capital flowing back to my own system versus landing on the books of someone else's. You're going to make the obvious choice, you want that flowing back to your own system. And we have so many resources Rich like we've got the seven steps, we've got watch ibc. We've got all of these resources for people to, to take a deeper dive into the concept, to develop a deeper understanding of the problem so that the solution really matters and becomes clear. And that's what we would encourage viewers and listeners to do. Make sure that you're tapping into all those resources, because that's what we built them for. And the playlist that you see coming up on the video, that's for you to continue your journey of learning. So we invite you to just click.

On the next video.

Keep watching, keep learning, keep growing. But whether you have a key person or key people in your company, you definitely have key people in your family. Think about who those folks are. Your money has to reside somewhere. Someone has to perform the banking function in your life as it relates to your needs. And if you're not the one controlling that function, you should be, because you're missing out on a pretty amazing opportunity. And you get to shield yourself from all of the factors that are impacting people's lives financially out there across the country right now. Rapidly rising interest rates, out of control, inflation, political turmoil, uncertainty around future tax rates, and what that's going to look like, with the exception of, we already know taxes are going up next year on a variety of things. Everything that you spend money on is going to go up in price because of taxes. Payroll taxes, carbon taxes and so on. Fuel taxes. The list goes on and on and on. Like, enough is enough. Start the construction process of building your own warehouse of wealth. And start gradually and incrementally filling it up with capital that can never leave your control, that can never stop growing. And then from that very place, go and take care of how you finance the things that you need in life and control how you finance the things that you. And this is the only asset on your balance sheet that won't require any of your time, energy, or talent. I never dropped the shure mic because it's. It's a really expensive microphone.

Pretty expensive. Yeah.

So I just grab. I just grab a pen and just.

And just do that. Okay. All right.

There you go. I digress.

Thanks, man.

That was fun. Okay, all our viewers, listeners, thank you. You're amazing. Keep listening, keep watching. Make the rest of your week great.

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