Extra Interest as Premium in Canada

As he was paying down the loan, some of that money, either once the loan was repaid or throughout, you know, every, a little bit every year, he was able to take some of that money and apply it to premium in the policy. The, the policy had room for him to pay more premium. And so if he applied some of that money, the extra interest that would have willingly went to Associates Finance and he pushed that money into a premium payment. However he chose to do that, it would increase the capital base of his system, it would increase the future growth of the policy, dividends and all the things he would receive, which is why all the numbers get better in each of the examples.

I'm here joined today with my good friend Roman, authorized infinite banking practitioner. And we're going to be going to Nelson's book. And specifically we're going to be looking at page 58 of Nelson's book and some of the associated pages that go along with page 58, which is the equipment financing example in Nelson's book. It's a great example. A lot of really good learning that can come from this particular segment of the book. But also probably the most confusing and hard to follow section of the book. We often hear people maybe struggle a little bit trying to see and understand what Nelson's doing. The reality is, you know, Nelson developed this book originally as a workbook for a 10 hour seminar.

So you would have to sit with.

Nelson for 10 hours to really figure out, you know, and in the, in the last segment of the book is when he would go over this section and he would spend a fair amount of time there. So we'll, we'll touch on some resources that you can use today for yourself to go back and, and I guess fill your boots with some more knowledge and listen to, listen to Nelson himself actually talk about this section of the book. But Roman and I are just going to riff on it a little bit today.

One of my clients sent me an email last night asking me how should I understand this page 58 where it says that the.

Amount of money that this person is sending to his insurance company is actually not a premium, not an interest. Actually this is what it says. It says here, actually the interest is not really interest. It is additional premium or capital that has been paid into policy that equals the interest that was being paid to the finance company. That is the reason that it is adding to the cost basis of the policy. If you have trouble understanding this, go back to the grocery store on page 15 and if you still don't understand, then contact me.

It's interesting that this coming up for your client. It does come up for people frequently. I find that people really kind of find this footnote.

They get to this footnote probably on their third or fourth reading of the book. Often when you're going through the book, there's just so much information you're covering that, you know, sometimes you don't spend time looking at like the little asterisks or footnotes at the end of a page. And it's actually a very important footnote. So just reiterating that here Nelson's saying, look, the, the extra money that's going in. When Nelson talks about pay yourself interest or pay yourself extra interest, what he's really saying or he's saying, look, pay yourself at minimum what you would be happy to willingly pay some other finance company. So there's a pile of money, you're going to go buy something. In our case, we're talking about financing equipment. There's a, where he's using an example of a logger who's got four trucks. He's got tree shears and all kinds of other equipment that's really flipping expensive. You know, he said Caterpillar tractors used to say they were, you know, like whatever a dollar a pound or something like it or you know, $10,000 a pound. And Nelson had some kind of inflation adjusted know rate that he would talk about there. So he was very familiar with this because he himself used to deal with forestry. So he knew a lot about this type of equipment and what it costs and how much it was to finance. So the example in the book that's being used, there's a, we're talking about Peterbilt trucks and those Peterbilt trucks. There's a financing package. There's a, there's a, a sheet in the, in the book that shows what that financing package is. And you know, it's, it's back in the mid-80s, I think, or not even it might have been like, yeah, 85 or 84 or 86 or something like that. It ends up being about 15% interest on this Peterbilt truck that this trucker was spending. But the key wasn't the interest rate. It was the fact that there was $1,800 a month in monthly payments on one truck walking out the door. The person driving these trucks to run his logging business, he needed to go and access a pile of money. He either had to access his pile of money or someone else's pile of money in order to have the use of this vehicle. So he could run his operation. The problem was he hadn't built up a pile of capital big enough on his own end. And he didn't understand the way that he could use that without draining it down to zero. So that's really the problem that Nelson's helping us solve with the infinite banking concept. And so you know this example, that $1,800 a month, the flow of monthly payments was happily. Maybe not happily, but basically every month it was walking out the door over to Associates Finance who financed this Peterbilt truck. And what Nelson's teaching us in the equipment financing example is once he had built up his own reservoir of capital through the power of dividend paying whole life insurance, well designed, he had access to enough capital that he could borrow from that resource. And the next time he went to go get a truck, instead of going to Associates Finance to do it, he could access a policy loan or access capital from the insurance company. His reservoir of capital, the money he's accessing is the insurance company's money. It's not, it's not his. His money stays in the insurance contract. It's growing and growing and growing every single day while that truck is on the road doing work, doing productive work. And that flow of money, the eighteen hundred dollars a month which used to go to Associates Finance is now being redirected to the insurance company that he is a co owner of. That's the key thing. It's about the flow of money. Now the question your client asked Roman is really important because what's hard to see in the examples in Nelson's book is that as he was paying down the loan, some of that money, either once the loan was repaid or throughout, you know, a little bit every year, he was able to take some of that money and apply it to premium in the policy. The policy had room for him to pay more premium. And so if he applied some of that money, the extra interest that would have willingly went to Associate's Finance and he pushed that money into a premium payment. However he chose to do that, it would increase the capital base of his system. It would increase the future growth of the policy, dividends and all the things he would receive, which is why all the numbers get better in each of the examples. And it is tricky to see. But that's basically what's going on in the equipment financing example. So this is, this is just scroll down here. This is, I think it's page 50, page 54. It's the first, first equipment financing example that Nelson has in the book. Nelson did this to set up the baseline. He's saying, look, if all you did was this, as the policy owner, you did nothing else, you put in a certain amount of premium and you stopped putting money in after that and you let the insurance company handle everything else and you did nothing additional. Here's what could happen. And now of course this is based on you know, policy illustration values from like the year 2000 basically. So 20, 22 years ago, very different interest rate environment and that sort of thing. But it's not about how the policy performs, it's about the reality of what's going on. So we can see here he's got total premium of $40,000 going in and you can see that happening for four years. So he's putting in premium for four years. We always recommend putting in premium for longer. Nelson also recommended that. He's not saying this is what you would do, he's just saying this is simply an example to get your brain thick thinking properly. He's teaching through phases. Nelson would say there's a minimum premium of 15,000 and then there's a paid up additions rider of about 25,000. On this particular policy you can see cash values are accumulating and at the.

Last year he's got about 157,000.

So he's basically got pretty close to what he contributed in the policy. Very similar policies that we set up today. Often we can get something fairly reasonable to that as well. Just depends on a variety of factors. Now when we scroll down in this, Nelson had certain criteria and things he.

Wanted you to see.

He wanted you to notice first off that the death benefit was rising and.

Once it got to this point then.

It actually started to decline. That's because no new money was going into the, into the premium. And so the premium still needed to be paid. There's $15,000. Yes, it's required every year. So this is something that we would refer to as a dividend offset. So here you can see in year five the dividend was $6,300. But that's a lot lower than 15 grand, isn't it?

It is not a math wizard, Roman.

But I'm pretty sure that's a lower number.

Yes. So basically what Richard is showing here is that 15,000 is required to come to come into this policy every year regardless of what's happening. And, and the dividend is not high enough yet in order to pay for this minimum. That's why the insurance company is basically surrendering.

Some paid up insurance that he has been able to purchase by that Time now that's why the death benefit is temporarily is going down. Is it declining?

You got it. So paid up addition surrenders is what's happening here.

Now the next thing that Nelson wanted.

People to see is he wanted them.

To pick what point do you see.

That death benefit start going up again?

It's when the. Yes.

If we go down here, line 17, you can see that that dividend has.

Accumulated large enough that now it can.

Cover the full amount of the minimum premium. And so the dividend or the death benefit stops going down and then it starts rising again, it starts going back up. So he wanted people to see that. And then we go back down here to age 65. And Nelson had set his criteria.

Look at that point in time.

This is a life pay to 65 policy. I've got $2.4 million in death benefit. In my example. I wanted to, and I'm saying I, as though I'm Nelson Nash here. He wanted to make it sure that when he showed death or when the end of the example, which was at age 84, 85, the death benefit numbers were pretty much the same. That was his criteria of how he wanted to set up the example.

And so he was trying to figure.

Out, look, how much could this person take out in a, in a, in an income tax free income for that period of time by, you know, surrendering, you know, whatever, whatever he's doing, policy, loans, etc. Surrendering some dividends, things of that nature to get himself into that same position. And so it's a really good example to kind of see. So this is the baseline. And now from this, Nelson was taking us to the next example which is where our starting question came in. What about getting that extra interest into the policy?

I'm going to flip over very quickly to the financing package of the Peterbilt truck we're talking about. So here's the Peterbilt truck. It's a, it was at that time it was $66,000. There's a trade in value of 13. And this logger is going to finance $52,600. When we scroll down, we look here at line seven, it says time, price differential or the finance charge. The total finance charge for this vehicle was almost $20,000. In other words, you borrowed 52 but you had to repay all in 72 in payments. And so that's your interest. That's right. And I have to apologize, I was saying $1,800 a month earlier. I stand corrected. It's actually $1,500 a month, yes. Was the actual 18,000, which is 18 grand a year. You got it. That's where my. Sometimes you read this book enough times, you get your numbers a little mixed up.

There's a lot of numbers in the book.

So let's go and move forward to the following example. This is illustration two. And this is on page. I think it's 56, 59. My apologies.

Nelson is actually also pointing our attention to specifically line number, sorry, column number seven, which is cumulative net outlay.

Cumulative net outlay, you got it.

This is what we're talking about.

The point that we started this session off with was about how do you get the extra interest in and why does that show up as capital base? This cumulative net outlay column is really.

Where the rubber hits the road.

You nailed it, Roman. It's so good that you pointed that out. And so everything up to line four in this example is exactly the same as in example one that we just looked at. There's no difference, no change. The only change or adjustment happens now when he actually goes and he takes a. He's taking a loan, a policy loan from the, from the insurance company, but he's taking a loan for 50, 52, 6. 52,600. But he's also making loan repayments. The loan repayments, 18,000. 18,000 a year or $1,500 a month. So the same cash flow that was going to go to Associate Finance, that monthly payment is being redirected back of the policy. And so Nelson's using shorthand here. Nelson would say, well, I had to.

Do it this way, otherwise I'd need.

Several other columns in this book. And it just wasn't going to work out.

He's basically shrinking. Not shrinking, he's basically combining different columns from different illustrations into one column showing premiums and loan being taken out and then repaid. Taken out and repaid.

One column.

You got it. And then he. And then we can see in these four, you know, these four year increments here was truck one, truck two, truck three. So every four years, at the end of the fourth year, the truck was miled out, needed to be replaced for the operation of the business. And they would go and get another one for the same financing package. And so you can see what ends up happening here. If we look at the original cumulative outlay in year four, it goes down because we took, we borrowed money out, but then we made payments. And the next year we didn't borrow any money out, but we were making payments. So when we actually get all the Way to year seven. We're now greater than the original capital that we did of outlay and we get to the end of the fourth year, if we take these numbers right here, 160 or 179 minus 164, well, that's $19,400.

That's pure interest, basically. Interest? It's not interest. This is exactly what Nelson said it is a premium that is going into a policy. But this is the interest he's basically charging himself.

That's right. And it's the exact same or very close to the same number that he was paying previously to Associates Finance. So if I go back to the debt paper here where he borrowed the 52,600, we can see the time price balance. What was he going to pay in interest to Associates Finance? He was going to pay them $19,496. So that same equivalent amount of money which would have went out the door was now contained and it found its way through the method that Nelson did as premium over the course of that time frame. Now, did it all go in the first year or. No, it went in incrementally as Nelson was paying down the loan, et cetera. And one other thing that Nelson doesn't necessarily show in here because it's hard to see is he actually paid the annual interest cost of the policy from dividend surrenders for the annual interest cost, which was very minor at that time. But he was then funding premium, basically equivalent to the same amount of money that he was giving Associates Finance. Now, if we follow that through every fourth year through this process, it continues to go and go and go. When we get down all the way to line 65, we can see the difference from what Nelson had originally funded, which was 160,000 in. In premium in the very first four years in example 1, minus the 315,000. So do a little bit of bring it up on the screen here so we get. Everyone can see what we're doing. I'll grab a calculator, make sure we get this back bang on 315,000 minus 160,000 with 155,000 of additional premium that was injected into the policy by doing the exact same thing that the logger was doing anyway, just changing who got the money and being strategic about how it was applied into the system that he was using.

Yeah, Richard, I just wanted to emphasize that the importance of.

Injecting extra interest because the interest that he's paid to the insurance company.

Is less than what he's charging himself. So interesting interested Enough that I went to calculate actually the. The actual interest he's charging himself, and it came to 16.35%, which is very close to what Nelson said in the book. He said about more than 15%. So it's actually 16.35%, which comes to $1,500 per month, which is $18,000 per year. So Nelson is showing that this extra interest that he's charging it cannot actually go into a policy, but it can be put into a policy in the form of premium. And this is exactly what he's doing.

That's right. So the key, and one of the things that makes this possible is that in example one, when we go back up to the first segment here, if we just isolate those first four years, in example one, when we got to year five, Nelson wasn't putting any more money in in the first example. Right. I can go back to that page. You can see here. He stopped putting money in in year five, which meant that premium still needed to be paid. That $15,000 a year was required. It was getting funded internally from the policy of its own resources. But now, because of this financing structure he set up with, with him, of his own decision, own volition, he's now able to pay that premium or a portion of that premium. So less of the dividends need to be surrendered, and everything else operates to make the whole system better and better. The key takeaway that you've identified, Roman, is that the what makes this better isn't that there was extra interest paid. What makes it better is that it was extra premium paid. The premium paid is a representation of interest that would have otherwise been paid somewhere else. That's the key takeaway. What Nelson's trying to teach us, should.

It be the same policy, or should this person open a new policy? And basically all these cash values are accumulation of two policies or three policies. So how do you think.

Is the best way to do that?

Nelson says at the beginning of the book on the. In the introduction of the book, he says, this is an exercise in imagination, reason, logic and prophecy. And he was very bullish on imagination. And he had other examples. There's an example of mathematician Carl Gauss in the book that he talks about because of the. The analogy of how he was discovered as a genius, because of his imagination and his way of looking at things through a different lens. And so Nelson uses these examples. They're just there as a teaching tool. It's not there as a guidebook to say, this is how you do infinite banking. It's there as a teaching tool to help us get our brain focused on understanding what is possible because we can implement this in our life. So it's not a matter of that. You're getting all the money back into the same policy. The focus that Nelson would say is that if you're paying yourself interest, you're going to be an honest banker, follow through on your loan schedule and get that extra that you're paying yourself, that you're committing to doing. You're making a commitment, make sure it finds a way into premium. If you don't have room in, in a specific policy for premium because you've already filled it, you've already paid the premium for the year and there's no more room to contain new money, well, pay it the next year or find another policy that you can pay it in or accumulate that value to such a degree that where now it's sensible to go and open up a new policy because you have more capital to work with. That's the thing Nelson would say, look, have you ever heard of a business that failed because it was undercapitalized? Of course not.

Yes, well, undercapitalized, yeah.

Under capitalized they need, they need to have capital to be able to thrive. And so you, you want more capital available to you. That's, that's within your resources of working with it. You want that capital stored in a safe, protected environment, ideally a private contract with other free people that you don't have to seek permission to, to get from, you know, governing powers, etc. And you can be in control of your financial destiny by implementing the strategies that Nelson teaches in his book. It's a mindset. It's how we think and then how we implement it is, is the, is the process. That's where good coaching comes into play. Like yourself, Roman, being there to help your friend who reached out and had this question. What a great thing that you had this question. And you know, you probably already dissected that with, with that client with you now, but here we're able to do that again in this format to kind of share that message with other people as well, because a great question came in, which is one of the things that we love, and then we get a chance to maybe add some context to those questions for the benefit of other people, which is part of why our community is such a wonderful place to be a part of. Now I want to take this example one step further with the time we have left. I'm going to go back to my screen share here now. If we go to illustration 3, we can see the same thing happens. That cumulative outlay is the same in the first four years. And if I scroll down and we go to the age 65 portion now, it's not $317,000 of capital that went in, it's 470. And then if we go to the.

Next example, the difference is $310,000.

$310,000. Okay, in that example, now we go to age 65 here. And the capital, cumulative capital outlay, in other words, money that went into the policy to help grow and bolster the policy, make it more efficient, increase all the dividends and value that was provided, increase death benefit, et cetera, et cetera, et cetera. Capital to work from was 625,000. And so we see that progression happening, which is, which is really powerful. And the following example, illustration five, again, he's financing the most amount of equipment in this scenario. Well, he gets his capital outlay all the way up to 946,000, just shy of a million dollars. Obviously, if you got that much more capital in the policy, that could hold it or system a policy, a number of policies in a family system that's going to provide. When we. When you've got a system where each and every year that it's enforced, the machine becomes more efficient. And every time that you put a dollar in, in this case we're talking about the base premium was 15,000. Every time you inject 15,000, it's giving you back 16 and then 17 and then 18 and then 20 and then 21. Like every time you put money and it's giving you back more than you contribute. And it does that for the rest of the rest of your natural life, human existence, regardless of who the body is, if the body is me or my kids or our business partner, we have perpetual motion on that capital and the utilization of it. So Nelson's talking about constant motion, uninterrupted compounding control and utilization. Utilization, meaning that this money isn't just sitting there with the insurance company doing nothing. The insurance company is required, required to put money to work for the benefit of all policy owners. Me, Roman, you, members of our community and so forth. They have to do that in order to guarantee all their benefits. One of the places, one of the places they could put that money to work is with the policy owner. In fact, in Nelson's book, we have a great example of that. I'll find the money pool drawing that I want. Let me, let me go back to it. Here, scroll up, scroll up. There it is it's page 26. Nelson talks about the money pool of the insurance company and where they're putting capital to work. There's lots of things they got to do. They do joint ventures, they do, you know, mortgages, etc. And the person that has the first right, the first ability to access whatever can be lent from their policy, whatever can be lent from their equity is the policy owner. They've got to put the money to work anyway. Why wouldn't they put it to work with you? The insurance company charges a bit of interest on that. That's just good business because they're collecting that for the benefit of who? Everyone in that money pool that they're managing on their behalf. It's, it's a, it's a, it's almost like, you know, Nelson also talks about the analogy of CO generation and he mentions, you know, a pulp mill and he said he'd never seen a pulp mill that doesn't have a CO generation plant. So they produce, you know, obviously, you know, whatever the things that they produce.

By pulp and everything that's there, but.

They also produce their own power because of the energy that's created.

Now.

They don't also go and have power lines that they go and string and they try to compete with the local, you know, power authority. Like they're not trying to compete with Epcore and you know, at CO&Fortis and BC and all these different distribution lines, they're just going to say, look, we just want to take all this energy that we're producing over here because of our other business and we just want.

To plug it right in.

This is already doing.

Yeah, you know, you guys handle selling it back to everyone and you need the power. Great, just pay us for the privilege of generating the extra energy. And that's all that's happening. In a mutual whole life insurance company, you're getting paid for the mutual generation of financial energy by all parties that are involved.

Perfect. Yeah, this is a great example. So instead of, you know, setting up my own polls, my own lines, hiring people to do that, I, I just can basically plug, plug into this system, existing system, and just use it because the system will accommodate this energy that I'm producing and everyone benefits from it because everyone gets power and potentially the power actually gets cheaper, right?

Yeah, exactly.

In a mutual insurance, the way that that happens is it happens by supporting long term stable dividends for the insurance company and for all the, well, for all the participating owners of the company. Man, this is fun, Roman. I'm really glad that you brought this up today because this is something we don't always dig into. I mean, we've done different examples around this, but it's nice because it's common and people are sometimes are discovering Nelson's message for the very first time. They're reading the book for the first time. They might have to go digging through like a treasure trove of old videos to try to find a similar example. So it's nice that we, you know, we keep this fresh and we don't always have, you know, Nelson's book at the ready in a digital format where we can just kind of start drawing all over the pages. So that was a lot of fun today. Additionally, one thing I want to leave you with is really important. I'm gonna, I'll probably do a screen.

Share again here too.

We have actually a chance where you can learn directly from Nelson himself on this exact topic. We're going to show one of the recent videos that we produced of an old seminar of Nelson's. And I'll share my screen so you guys can see this. This is a really fantastic segment. We have a whole playlist here on The Bankers Vault YouTube channel. So you can see I'm, I'm on this playlist right now. It's Infinite Banking with Nelson Nash. This is on The Bankers Vault YouTube channel.

So if you go to the YouTube channel, you look for playlists. There's a whole host of playlists there. Specifically Infinite Banking with Nelson Nash. Presently there's 26 videos on there. And actually a seminar that Nelson did, you know, in 2016 in Canada. It was done in, it was recorded in Kelowna. It was never meant for this type of production, but we've, we've added some flavor to it. And in fact, this most last video here, number 26, this video is actually Nelson going through and talking about the equipment financing example. He goes and talks about you. You can see the slides, you can see him talking through the same things that you and I basically walked over.

In this, in this segment.

And he goes, he goes into the, the car financing package, the interest volume. He goes into the different, the different aspects of the, you know, again, paying the interest, all those components he basically walks through. So there's that whole playlist right here. It's a fantastic playlist. Basically you get to sit through an entire Nelson Nash seminar, learn from the master himself, which is phenomenal. And there's just a ton of great stuff that you can get from digging into Nelson, having him walk you through the book, the way he would have done it if you were attending one of his own sessions, which they were always phenomenal to be a part of.

People sometimes get into weeds with all the numbers and with all the rates and stuff like that. But if we go to basic, if we go to the foundation of understanding that we should control and have ownership over the pool of money and. And then basically it just boils down to one thing. Just put as much money as you possibly can into the system, and the system will grow very quickly.

One key analogy that you inspire me to think of there, Roman, is.

I'll use hockey campus. Whatever team sport you do, there's always.

A training camp. Training camp for all team sports. And, you know, I'll pick on hockey because Stanley cup finals are on right now and we're recording this. And unfortunately, my team, the others just got. Just got ousted. But they. They had a good run, so I.

Was proud of them.

But they're going to have to go into training camp and retool and think about what.

What they got to do.

They got to dust off the summer golfing that they're going to get done. And when you go to training camp, the first thing that happens is you go back to the basics.

Basics.

Right.

You.

So.

And that happens each and every year, no matter what.

Even if you've been playing hockey or whatever the sport is for your entire life and you pretty sure you know what the basics are, you've been doing them since, like, peewee and midget and all these other, like, all the levels you had to go through to get to the professional league, you're still doing that.

Yeah. Maybe you get through it a little.

Bit quicker or faster, but until you as a team start getting around that, those basic fundamentals and everyone's working on the same page, it's only then you can start adding additional layers on for now, creating the plays and, and learning how to, you know, make. Make, you know, certain amounts of magic happen out on the ice. The same thing applies to your financial life. And when it comes to becoming your own banker, you have to have the fundamentals down and you got to go back to basics. And, and at that point is when you can start building on additional things and seeing how to apply it in more ways in your own financial life. Roman, this is great, man. I appreciate you. Thank you so much for joining me today and for our community. Thank you for tuning in. Hope you enjoyed this. And for the folks that are watching on YouTube, make sure you check out the next video that's going to pop.

Up on the screen.

There's probably some great recommendations there, and we appreciate you continuing your journey of learning.