How Policies Beat Inflation Over Time | The 52 Year Old Policy

It's okay to be patient. Everything comes with time. Policies get very efficient, and the longer they're on the books, the more efficient they become and the more powerful they become. And their potential to outpace inflation, or to certainly at least keep track with it, is already demonstrated through history.

I'm starting to implement this process called becoming your own banker, the infinite banking concept. But gosh, I heard it takes like five or six or seven years to get more money out of the policy than what I've put into the policy. Man, I think I could do better with my money elsewhere. Well, it's not about what you do, it's about how you do it. And remember, it is called a whole life policy. So my colleague Rich and I, what we're going to talk about is what it looks like to see the results inside of a dividend paying, participating, whole life policy when you actually look at it over a long period of time. Because, because last time I checked, you're going to be using money in banking until you leave planet Earth.

What's cool about this is that the time's going to go by anyway. Your life is going to progress. The next day is going to come, and the next day on each one of those days, you're going to need some money. And you know what, if we go 20, 30, 40 years down the road, depending on your age today, you're probably going to need some money then. Right now people are really, you know, losing their minds and Chicken Little and the sky is falling, and the sky that's falling right now is this big word called inflation. Everyone's really worried about it. Well, hey, there's nothing wrong to be worried about it. But what we're going to talk about a little bit today, when we look at an example of a policy that had a lot of history to it, specifically Nelson Nashes, the guy who wrote this amazing book and came up with this amazing concept, who was the creator, he liked to use real world examples. Well, there wasn't any better real world example than him. So we're going to talk about his second book and how he shows in that book an example of a policy that was enforced for 52 years as of the time of writing the book. And we're going to summarize a few more things because that book was written in 2012, which was over 10 years ago. We'll talk a little bit about some things that happened, you know, leading up to when Nelson passed away. Vern, you've got a really good reference point of a real life story that Came across recently in a meeting with, with a client. But I think we should start with Nelson. And this all stemmed because we're, we're having a great conversation and of course all of a sudden the title of Nelson's book, building your warehouse of wealth comes up. A grassroots method to avoiding fractional reserve banking. Think about it. Nelson really loved that. He loved that. He was like, oh yeah, got a title for my new book. Get this, get this. It ends with think about it.

I remember when he was telling me about publishing the book, he's like, oh yeah, you're going to love this part. It was so funny. Great, great book. And what this does, it doesn't replace becoming your own banker. It's, it has similarities to it. But Nelson gets to go into a little bit more story aspect to the book. You know, become your own banker isn't a story type book. And here he gets to tell a little bit more of the story of his personal life and that sort of thing. And so specifically the, the chapter that we're talking about is storing wealth. Looking at a life insurance policy over a long period of time. Again, Nelson begins this with how you think is everything. Most people don't think long range. And so he was trained naturally as a forester to be in the think long range. And so he uses an example of a policy showing what does it look like over a long term horizon. And he picks one of his own policies. In fact, one of the policies was probably, I would imagine, one of the least efficient in his policy system. And we'll, we'll talk a little bit about why, why that is as well.

That's why the, that example is so powerful because he goes into detail of hey, by the way, what if I did this? What if I did that? What if I did this correctly? Now when I say correctly, he didn't actually know that he was doing anything incorrect at the time necessarily as it relates to having it be the most efficient policy possible. But that's the point is he basically did everything wrong, for lack of better terms. And it still turned out with these amazing results that we're going to share with you. But to your point, you'd mentioned that I had a reference. The way that I started the video is, you know, this whole process, it's like, you know, we're, we're ascendant. It's like the policy ascends, like it just keeps going in one direction. And what happens because we have like tunnel vision and we're impatient. We're human beings and we want Everything like yesterday I look at, hey, I put this much in in the first two years of the policy and I put 150,000 in, but I only have 140,000 of cash value. I don't understand. Well, you're going to be putting the 150,000 in somewhere for the rest of your life, right? And so I end up meeting with this client and he totally got it. Which was the good news is guy cares about his family, he thinks long range, he's extremely coachable and he's diving into the content and just eating it up.

Right.

So I love working with those types of people, self starters and people, like I said, who care about their family and they're coachable, right. So I get off the call with him, we have a great call and then about three seconds later I get a text message. He's like dude. And he's like, I had no idea. Sends me a screenshot of an in force illustration. So that's basically the policy kind of a snapshot of where it is today. The date on it is like I can't remember. March something, 1989. He's like, I had no idea. My mom has been paying for one of these things on my life since I was born and so worked out some quick math. Mom has put like about $9,900 into this policy over that period of time. This policy again is not designed optimally for banking. She's not even funding it heavily. I mean nine, $9,900 over like 30 something years. Not a lot of money per year. It's like $272 per year. There was over $21,000 of cash value in the policy. She's still paying 272 per year in the year over year. Growth in the cash value is like 1200 bucks a year. I don't know anywhere I can put three. Like I can, if I could put a dollar in and get $4 out, would I ever stop putting a dollar in?

So I recently, you know, connected with a great dentist and we're helping him get some new stuff in. But he, he had an existing whole life policy, really great policy. It was issued in 2008. It's a good sized policy. His, his total premium and it's a base policy. There's no flexible numbers or any of that stuff. It was, it's 70, $71,000 a year. His original kind of whole life coverage was about 3.4 million bucks. His increased paid up insurance is 2.4 million bucks. So over that timeframe he's increased the policy from $3,400,000 and he's added $2,400,000 of additional death benefit on there. Wow. Yeah, he's a cash value of, you know, over $1.6 million. Really, really exceptional. But what was really interesting is just the dividend alone that he got on that policy. The dividend last year was 52,344 bucks.

Holy smokers.

So I can guarantee you, I mean, I don't have a statement from the previous year, but I know for a fact, based on the age of the policy, the size of the policy, every time he puts 70 grand in, he's getting a heck of a lot more than 70,000 back. So it's very, very efficient. And he's not the only one. I have another gentleman, another great guy in Boston, Ontario, similarly similar policy action with the same company. Not as large of one, but again, but it's been been enforced for a longer period. So again, very healthy, large cash value. Every time that he puts a dollar in, he's basically getting three or four dollars, almost three or four dollars back in the accumulation of cash value. This is the impact of time working to your advantage.

This almost kind of speaks to. In Nelson's book, I can't remember the specific page, maybe you do, but he talks about expanding the system to accommodate all income. While if you have a system that's kicking out a whole lot more than what you're putting in, doesn't it make sense then that I could obviously put, at this point, even without being super strategic about it, I could, I could put easily put 100% of my income into the policy, and it literally becomes your bank. Now it's financing all your life's needs where you would normally use your own cash to finance the needs. And I'll tell you one other quick story. I'm sure I've shared this on YouTube before, but I was meeting with a guy who was a friend of mine and who now become a client. So I get chatting with him and he's, you know, he's gone through some of the content and stuff. He says to me, you know, Vern, now the more I think about this, this guy's about, for context, he's about 49 at the time. He goes, I think I have one of these things. I go, what are you talking about? He goes, well, my friend was a life insurance guy, like when I was like 30. He goes, I was making good money. I didn't have kids at the time. He goes, he's now moved on now he's, like, in management. He goes, but he, like, kind of twisted my rubber arm and was like, dude, like, buy one of these policies. It's a good idea. I had no idea what I was buying. He goes, I've been putting about $500 a month into this thing for the last 19 years. And he goes, I think it's done, like, next year or something. And I go, I think you've got what's called a 20 pay. Again, not optimally designed for banking. That wasn't the intention of it. And I said, here's what you got to do. He goes, sure. I go, I want you to call the life company one day, and I want you to call them the next day. We call them and ask them, hey, what's my current policy? Loan availability? He goes, okay. And then call him the next day. So he reaches out to me and he goes, holy snap. Because we're trying to figure out how to build a system so he can pay off some debt to free up some cash flow or recapture some debt within his system. Talk about kickstarting a policy. He calls me back and tells me there's about $140,000 of loan availability alone. He's put in about 125. There's 140,000 that he can borrow. And the policy is growing every day by something like 150 bucks a day or something like that. Needless to say, this guy, right under his nose the whole time he's a business owner, he's struggling to find a place where he can actually borrow some money because they don't like him, because he doesn't have a T4 income. Yada, yada, yada. You know that story. All of a sudden, he finds out that he has this rolling, increasing line of credit that he has total and absolute control over. And, oh, yeah, it's just growing every single day. And we solved a whole lot of problems, like, immediately. And he had no idea that that was even a thing. It was pretty awesome.

It's really incredible. And. And so, like, the. The gentleman I was just talking about, I took a quick look, and so that. That particular contract, you know, it's. It's 25 years old. So it started in 1998. And as of this year, he said he's basically, you know, it is 25th year of the policy. The policy premium is. It's around 8,000 bucks or something a year. It's a little bit less than that. And so I. I don't have all the statements. It's not A policy unfortunately I can take over the agent record on which is, which is completely fine. So I had a statement from and then the most recent one that he sent me and you know, I took a look at it and it's like oh, okay. So he put in over that three year period $22,000 in, in premium contributions. Okay. The cash value increased $84,000 in that same period. So he put in 22 and he's got 84,000 for every dollar of premium. He got 3.8 dollars of cash value.

Increase, not including the death benefit, uninterrupted compounding.

It's so interesting and refreshing to see. These are just a couple of recent scenarios of that. You had an experience. I've had a couple recent experiences. But we do get people that have these things from time to time. A lot of times they kind of knew that they had it, but they don't really know they haven't used it for anything. Not that we won't have any regrets or anything but a lot of times it's like oh wow. So you mean, you know, when I went to go invest in my business I could have used this and like. So there's all these like flood of thoughts and ideas as to what could have been done over that timeframe of life had they been coached how to utilize it and the purpose of those that thinking. Again, it's not to be regret oriented. It's to be next time something comes up, what might I do differently in the, in the, in the conversation with that? I think we should circle into Nelson's example because in Nelson's book building your warehouse of wealth, he's Talking about a 52 year example and he talks about his, we call it a state farm policy. Now Nelson, this policy was sold to him by his brother while his brother was in the business. And his brother didn't tell him anything about it. He just needed insurance. It's $388.20 a year. That was the original premium and he got it in 1959. Okay. Now at that time that was a good, that was a lot of money. Nelson always committed a lot of money. And he viewed insurance premium not only as protecting his family but also as one of the places where he put money. He thought it was, you know, it was a savings vehicle at that time it was well known that way.

I believe he mentions in the book he's putting 388 per year. But I think he's only earning 10 grand a year at that time or something around that range.

Correct. So, yeah, so like almost 4% of his income is going towards funding this one policy. In his live seminars, he used to tell another story about a guy that sold him an accumulation fund plan where at the time you could only. You needed ten grand to invest in the stock market. He's like, oh, don't worry, you don't have ten grand. Now we're going to get you on an accumulation plan. What Nelson said is that $600 a month was going to this stupid accumulation plan to build up an amount so he could eventually get to 10,000. So he could eventually get into the market. That's what it was sold to. Now, had my brother been smart and taught me to take all of that money and put it into a bigger whole life policy, boy, oh boy, life would have been very different. So that's the, that's how Nelson used that analogy in the, in the conversation, because that's really what happened to him. So again, it's a $20,000 started death benefit. So Nelson inflationarily locked in the premium. He was always paying that policy with $1959. When he passed away in 2019, the anniversary was in August. So his previous payment would have been in August of 2018. He paid $388. That was $1959. But he was getting 2018 values. So that's a really important, fundamental thing to think about when we talk about this idea of inflation. When you lock at a premium that can't go up, you're locking in the strongest dollar the day that you get the policy.

Very, very important.

And we're going to see that here. In the example Nelson, he shows a bar graph, and he only really started tracking this starting in about 1990. And the bar graph shows in the book. It goes up to 2010. The book was written in 2012. So I have an actually updated graph of that. What we see here is this graph. This is a graph that Nelson used to use in his own seminars. It comes from the Nelson Nash Institute. So here's the State Farm Policy. 388.40 was the annual premium. Nelson was 28 years young at that time. And we see a lot of col, you know, graphs, you know, bars on here. The one that I want to highlight is the red one at the very bottom, and it's straight and level all the way across. And that was his annual premium of 388 a year. Okay. Now, in 1990, Nelson says in the book, when he put in the premium of 388, that same year, his guaranteed Cash value. So this little yellow bar, the minimum guaranteed cash value increase, that's the money that's growing to equal the original contract. The original contract was a 2, $20,000 death benefit by age 100 at this time, Nelson, it was a 100 contract. By age 100. The cash has to equal the death benefit. Well, the original Death benefit was 20,000. So the guaranteed cash increase was 500 bucks. He put in 388. Guaranteed cash increase was 500 bucks. But then he received his dividend. His dividend was about $2,000 that year. So to add those two things together, the total increase was 2,500 bucks. So he put in 388 and his cash accumulated 2,500 bucks. Now what's interesting about this graph, if you look at it, you have to look at each year is actually like stacking onto the year next to it. It's not that we're seeing a graph that goes, oh, here's what happened kind of year by year. It's each year on top of it. So we're not looking at cumulative. You have to, in your mind, vision cumulative.

You have to slam all those numbers together.

Exactly. 388 created 2500 bucks. The next year, the same 388 created more than 2500 bucks. You know, if we go here to 1994, 388 created basically almost 3000 bucks. And you can see that ongoing progression. And then something interesting happened. And unfortunately I have that image, but I don't have it available to me. But Nelson has it in the book. He talks about how in teaching this concept, becoming your own banker. Nelson was getting a little bit tired of running into the same mindset of people, people who wouldn't believe what he was saying. And he says, you know what, I bet you they'll believe a check. If you show people a check, they'll believe you. In 2005 he says, you know what? Change the dividend election, you guys, at my discretion, because I'm the owner, send me a check. 2006 was when the first one came in, it was for $3,877. So in 2006, because he changed the structure of it, of course he went to dividends in cash versus buying more paid up additions. We don't see the same continued accumulation. And so he received a check for $3,877. He put in 388. And he got more than 10 times the premium. He got 10 times the premium back. Basically in 2007, his check was $3,927. In 2008, it was $3,973. And in 2009, which, by the way, 2008, 2009, wasn't that some pretty crappy economic else was having global market meltdown, you know, financial crisis. You know, we just kind of talk about like that, like it didn't happen. Well, in 2009, he got a check for $4015. He's putting in the same 388. And he's getting more than 10 times the amount of money money back.

Just from the dividend?

Just from the dividend. His cash is still growing. Yeah, you can see the yellow bar down here. Well, the yellow bar had to keep growing. It's still growing each and every year. That's what growth per year. It doesn't have to be the same amount each year, but it's growing each and every year. So all those yellow bars are adding on top of one another, which means Nelson had access to money. If he had a deal that came up, he could have got more money. Not a problem. This is the interesting thing because, you know this book, building your warehouse of wealth that we were referencing, it was written and published, I should say, in 2012. Well, Nelson passed away and we miss him dearly. In 2019. We go ahead a number of years. And so we have this policy. The original Death benefit was $20,000 when Nelson passed away. The official death benefit, the check that was received by his wife Mary was 137,482 bucks. But what we are talking about is 687% more money or 6.87 times. Almost seven times. Almost seven times more capital than what the original death benefit was. That's a pretty good way to keep up with inflation. So over Nelson's history in time, that's how this policy performed during that entire period of inflation. It kept up with inflation more than perfectly over that entire time frame. And what Nelson would always talk about is this is what you see. This is the scene. What you don't see is the three policy loans I took from this policy contract, this one contract to make very good real estate investments. Those numbers don't show up my illustration. That's off the page. I just want people to really take a moment and stop and think about that. So 2019, that makes that policy's lifespan was 59 years. So in the book, he was in 52 years. Total time frame that that policy was on the books before Nelson passed away was 59 years. 59 years of real life experience of real history of putting in an inflationarily locked in premium, getting more than that premium dollar back on an, on an ever increasing basis, year by year. Now what we didn't tell you at the beginning of our video here is there were two things that Nelson did that reduced the effectiveness of this policy. This policy was stunted at the very, very beginning. Now when does compounding have the biggest impact? At the beginning. So Nelson used the dividend that he received each and every year because of the conventional wisdom what everyone else was telling him to reduce his premium. So for the first 15 years he reduced how much premium he actually paid because the dividend paid a portion and to a point where it actually would have ended up paying all the premium. So Nelson was first, there was a point where he wasn't even putting any money in because the dividend was paying it for him. When he got into the insurance business he realized that was wrong and he changed the dividend election to buying paid up insurance. But he was already 15 years into the deal. So it was only of the 59 years, minus 15 years. It was only 44 years where it was buying paid up insurance. But we just talked about four checks that he took. Now are those checks that he took out in the bigger years of the policy or the early years? It was in the bigger years. So he took out some of the biggest dividends that he was getting that would have bought more increasing death benefit on a guy who's uninsurable because he wanted to teach people a lesson. So if we subtract those years, actually only 40 of the years that Nelson had the policy in almost 60 did it actually use dividends to buy paid up insurance. So the death benefit of 137 grand was far lower than it could have been had he just followed his own advice, which he didn't know yet because he did. He hadn't been able to give himself that advice at that point in time.

What's cool about it, right? When you start to hear these stories and you start to pull things together, you can start to imagine where he came up with Nelson Nash's golden rules. Think long range. I mean I know the forestry stuff, but also him looking at his policies, you got to think long range. What about don't be afraid to capitalize? Well, he was afraid to capitalize. He didn't know it, but he was using his policy or his policy dividend to pay part and maybe all the premium for the first 15 years. And again that impacts, think long range. And he also Says in the book too, like, hey, I was putting $388 a year. What if I was using my dividends to buy paid up insurance? What if Instead of putting 388, I was putting a thousand a year? So you can start to see where he comes up with the golden rules because of his own experience and some of the wins that he had, but also many of the mistakes that he made. And wow, we just get to benefit from all those mistakes.

That's right. And that's often how, you know, history is a teacher for us. We can use the history of other people, those who've come before us, specifically Nelson Nash. And that's part of what he wanted. That's one of the reasons why he wrote building your warehouse as well. He said, learn from me, learn from what I've done so that you don't make the same mistakes that I did. What's interesting is we look at those dividend checks they took out and the 15 years of dividends used to pay premium. Those years represent 32% of the entire policy's lifespan. So for 32% of the time that that policy was around, Nelson stunted the growth of the policy, which means the death benefit of 130. You know, Nelson, when I asked about this before he passed away, he fully believed that the death benefit would have been over well over 160 grand on that policy when he actually passed away. So there's, there's a large percentage of capital that wasn't possible. And now why did Nelson stunt the growth, you know, in the last couple of years, he just wanted those checks. He says, you know, I'm in the education business. I need to find a way to get this through people's heads. And he had pictures of those checks in his presentation that he delivered. In fact, if you want to dig more into that, that example, there's a great video of Nelson talking about on the Nelson Nash Institute. It's on from a Freedom Advisors event. It was recorded a number of years ago. And you can watch about an hour long session of Nelson talking about that very same policy. Phenomenal, phenomenal education. And so the key takeaway here is it's okay to be patient. Everything comes with time. Policies get very efficient and the longer they're on the books, the more efficient they become and the more powerful they become. And their potential to outpace inflation, or to certainly at least keep track with it, is already demonstrated through history.

Your behavior is the most important piece of the entire equation. Which again, Nelson's behavior just demonstrated that part of it because he didn't know any better. And then eventually, even when he did know better, he did it on purpose. So that's. That's huge.

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