The Infinite Banking Concept Has NOTHING To Do With a Dividend

The life insurance company might look at that and go, hey, you know, Vern's 39 years young. We have this much death benefit. He gave us 10,000 bucks, and we have a duty of care to put that money to work. But, you know, the actual cost of insurance, it should have only been like two grand or five grand or whatever. So now there's a surplus, which helps produce more profit, which helps them share more of that profit with me. It's just the way that the policy is engineered partially to help keep that tax exemption, to keep the whole system efficient, regardless of what I decide to put into my system. Isn't that money, isn't that capital needing to be deposited somewhere? Right. The insurance companies are incredibly efficient at how to manage this money and how they structure the whole system so that it does stay efficient and stays tax exempt and so on. So if we're contributing more to the insurance company than they actually need, Dan, wouldn't that be a pretty good way to create an engineered outcome to ensure that the insurance company continues to be profitable?

Right.

Okay, Canada, we're here, here to talk to you about the process of becoming your own banker, the infinite banking concept. And we hear all this wonderful stuff about the tool dividend paying, participating whole life insurance contracts. And there's some common misconceptions out there, Dan. People think that this process of becoming your own banker has something to do with life insurance and something to do with a dividend. And Dan and I are here to clear all that up and let you know that the process of becoming your own banker actually has about this much to do with life insurance and, and about this much to do with the dividend. So let's dive right into it. Dan, this is so exciting.

I'm jumping out of my seat here because you and I just talked about, like, what are we going to record? What are we going to talk about today? And because we've got some great guidance from our team, our leader, Jason Lowe said, guys, just pick up the book, read a section in Nelson's book, and hit record. And that's exactly what we're going to do today. And Dan, you pulled up a really good point, so I'm going to hand it over to you and let you read this paragraph from Nelson Nash's book, becoming your own banker, unlocking the infinite banking concept on page 26. And then you and I are going to dissect it a little bit.

All right, thanks, Vern. Yeah. And it is something that we, you know, always get people coming up and they're Asking us questions about the product. Now that's okay. So I'm going to tell you that's okay from a perspective that at some point we use that product as, as the foundation for the practice of becoming your own banker. So you want to know about it. So Nelson goes to a great length to speak about the product just because he knows it's important for you to understand that. So we're going to jump into page 26 where yeah, Nelson is talking about the product and we're going to talk about at the end of the year. So when Nelson says at the end of the year, that's the end of your policy anniversary year. The life company.

They take an accounting of the experience of the year of the death claims and earnings on premiums collected and the expenses of running the company. So that's real. Life. Life company is a business. They are a business. They take a year end kind of snapshot of how did we do. A dividend is declared which is actually a return to the policy owner of surplus premiums that was collected. So that's going to be a factor in there. That was one thing Nelson went to trouble to help people understand because dividends are not taxable and he says hence it is not an earning and therefore is not taxable. And then he goes on and says when that dividend is used to buy additional paid up insurance at cost, then the result is a continuous compounding of an ever increasing base. So that is right out of the becoming your own banker. And it's talking about just what happens, that experience that the life company has, they do those things and both Vernon and I are pretty happy about one thing, that we are policy owners because when the company's profitable, what do they do with that profit burn?

They are contractually bound to share that profit with the participating policyholders, which is the owner of the mutual insurance company. So this is so good, Dan. Let's, let's break this down sort of line by line and we'll expand on it. You said at the end of the year, obviously the life insurance company makes an accounting experience of the year. The death claims, the earnings, every. See, the insurance company is really good at collecting data and making predictions. So people sometimes don't understand how the dividend works because they go, oh, they're thinking of it like an investment. Hey, if I put $10,000 into an investment and the rate of return is 6%, that means I'm going to get, you know, $10,600 back. Well, dividends at the insurance company don't Work that way. They have a projected dividend based on their, their estimation of what profitability is going to look like. But they need to look at, well, what was our actual experience? How much premium did we collect? What were the returns of the investments that we put into various instruments in a very conservative way, hey, did we have a higher claims experience than we were expecting? Were our expenses somewhere higher than we were expecting? And they take all that into consideration and then they, they declare a dividend and they share the dividends with the participating policyholders. Now, Dan, if they were to share less of the dividend or less dividend than was projected to be shared, let's say in the fifth year of your policy, if they shared less, whose interest are they taking into consideration? Whose best interest are they taking into consideration when they're making decisions at the life company? Is it the life company or is it the owners?

It's the owners. That would be the interest that they've taken into consideration if they declared less now. And that's just a great point you bring up, Vern, because you know, when you think about a business and you know, the life companies that we work have been profitable ever since they started this process. So they've been issuing dividends every year. But one thing I always ask people to think about is, so what happens if they decided not to declare a dividend or like you say, a less of a dividend? What would that really change for us? And what always takes me to Vern is that it's not about the dividend. The dividend is icing on the cake, but it's not the cake. What I focus on as a policy owner and as I coach people is there's one thing that really matters to me and that's how do I get my death benefit to go up? How do I keep that death benefit increasing? And the reason behind that is, hey, my cash value has to catch up to that death benefit over time. And they, they're very good at doing that. So even if I had a year where there was no dividend, you know, it's still, I still have this cash value growth that's there. It's going to grow every day. It has to by contract. And when we, when you speak about that, when you think about that, yeah, the dividend, nice. I love it. I put it back into the policy as to buy paid up additional death benefit, so it supports that journey. But my behavior is more important if I put in my optional amount that I'm given the latitude to do with the contracts that we have designed and put in place for ourselves and for others that's going to influence that death benefit increase. And that's what I can focus on. I can focus on what I can control. And if I do that, my death benefit is going to go up that year. And to me, that's what I focus people on. Yeah, dividends, great. But it's icing on the cake. The cake itself is that contractual guarantee that cash value has to grow to equal the death benefit by age 100.

Bravo, Dan. Brilliant. See, this is again, we're not picking on anybody here. We're not beating anybody up. But this is just what happens a lot of times in the life insurance industry. People who are very well knowledgeable about how the products work, but the product is not the process. We're not saying, hey, go buy dividend paying whole life insurance because you've got this policy now you're your own banker. No, the policy, like Dan said earlier, is the foundation. It is just the tool that we use to implement the process. And the process has nothing to do with the dividend. It's all about what you can do. So in other words, what Dan's saying there is. Look, I got this policy that I've agreed contractually to put a certain amount of cash in. I'm just picking a number here, Dan. I'm contractually guaranteed that I got to put $5,000 per year into this policy. I don't care what that number is. I'm contractually, I agreed to put $50,000 a year into the policy. Now whatever that contractual agreed upon amount is, 5,000, 50,000, I don't care. I have the ability now, I have the contractual right to now put in an optional additional premium. Now again, I'm just making an arbitrary number. If my base premium was base or my required agreed upon premium was 5,000, maybe I could put up to 15,000. So that additional money that I put in that I choose to warehouse in my own private system is going to immediately purchase what's called paid up additional insurance. So more death benefit. More death benefit is important because it helps, you know, protect my family further, it helps protect my legacy, it helps preserve my estate, and it helps make sure that there's a windfall upon my death so that we have more capital to continue to build our system beyond my years. Right. So that's a decision that I made when I put that money in there. It buys a one time chunk of death benefit. Now, the life insurance company is contractually bound to make sure that the cash value rises to match that total death benefit. Dan, have I touched any? Have I talked about a dividend at all at this point?

No, you haven't.

Okay, great. What I just described was cake. The cake is delicious because I'm the one baking it, right? I'm the one making it. I'm the one making the decisions and putting the cash in there. But now, because I'm a co owner and I'm participating in the growth with the insurance company, they're going to do exactly what Dan and I said, and they're going to look at their projections versus their actual experience, and they're going to go, hey, great. You know, Vern has contributed to this pool. He's going to receive a certain portion of divisible profit, and we're now going to use that dividend. I could take it in cash. Another decision I could make. But if I take it in cash, Dan, I took it in cash. It wasn't used to buy more death benefit. So if the dividend wasn't used to buy more death benefit, it's not going to help further compound the growth in the policy, making me eligible for potentially more profits in the future. But more importantly, right now, it's not going to buy more death benefit. And that means that I'm the one. Because of a decision that I made what to do with that dividend, I slowed the growth inside the policy. But the policy is going to grow and the cash values are gonna match the death benefit even if another dividend was never paid ever again. And I'm gonna continue to slam as much cash as I possibly can into my own system because I know that my behavior is far more important than anything the life insurance company's ever gonna do. So nothing to do with the dividend at all, Right. Dividend's just a bonus. It's just an icing on the cake that makes the system work a little harder, right?

Yep. It's one of those nice to haves and great when it happens. And it's yes, we are our experiences. It's always occurred with the life companies we work. It is something we want you to understand that it is not the key element that you want to focus on. It's your behavior. That's what I heard as you spoke, Vern. It's our behavior as policy owners. It's more impactful to how we do this process than anyone else's. And I just thinking for those of you that are out there watching, maybe you don't know much about this concept. Well, I'm going to encourage you to go to watchibc.com if you're a Canadian, that's a great place to go. And even if you're an American, you can still learn lots from that. But here in Canada, we direct people to watchIBC.com great 90 minute time for you to understand more about this. If you don't. And the other thing I was going to say too is that if you already have a copy of this book, and if you don't, I'm going to advise you to get a copy. I want you to open up and turn to page 26 and I want you to look at that little diagram that Nelson put in that book. He just talks about all the things that going in and out of that pool that help influence what that dividend is going to be. And it's just a great page to read and to go through and get all the great content that's there for us to help. It's a really. I, I love that page, Vern. Every time I read it, I just go, I just, I could just imagine Nelson as he was putting that page together and how much, how many nuggets that he put in there to help us understand about the basic understandings of the infinite banking concept.

He's writing it and saying to himself, man, it's ridiculously simple. It is ridiculously simple. See, there's another common misconception. Dan, don't. Not to go too far down the rabbit hole here, but to your point, we have a duty of care to make sure that the client actually understands the tool clearly. Right? But we're focusing on the process and the only reason we're really using dividend paying, participating whole life insurance is to implement becoming your own banker is because it's simply the best tool we've been able to find to implement the process. The process has nothing to do with the policy. It says here a dividend is declared which is actually a return of policy or policy owner surplus premium. So I want to talk about that for a second because a lot of times again, people look at whole life insurance and they go, what do you mean? They're just returning premium. So that means that they overcharged me for the premium. Well, yeah, they did actually, and we actually want them to do that. So, you know, I'm putting in $10,000 per year, the insurance company. These are just arbitrary numbers, okay? I want to be really clear about that. I'm just picking a number out of a hat here. I'm not breaking down a specific details, but If I put $10,000 a year into the policy, and that creates a certain amount of death benefit. The life insurance company might look at that and go, hey, you know, Verne's 39 years young. We have this much death benefit. He gave us 10,000 bucks. And we have a duty of care to put that money to work. But you know, the actual cost of insurance, it should have only been like two grand or five grand or whatever. So now there's a surplus, which helps produce more profit, which helps them share more of that profit with me. It's just the way that the policy is engineered partially to help keep that tax exemption, to keep the whole system efficient. And the whole point that Dan and I make and our teammates make to people is that, look, regardless of what I decide to put into my system, isn't that money, isn't that capital needing to be deposited somewhere? Right. The insurance companies are incredibly efficient at how to manage this money and how they structure the whole system so that it does stay efficient and stays tax exempt and so on. So if we're contributing more to the insurance company than they actually need, Dan, wouldn't that be a pretty good way to create an engineered outcome to ensure that the insurance company continues to be profitable?

Oh, that's exactly right. And you hit the nail on the head. That's exactly why they do that.

They're engineering an outcome. They, you know, so if you think about engineers, I love engineers because when they design anything, they know they're not going to just design it to meet the requirements of whatever project they over design it. They want to make sure this is going to work. They don't want it to fail. And it's the same thing with this process. They take more just to make sure that they're going to have the resources they need to be and stay profitable. So I have no problem with it. It's just something that people need to understand. And yeah, it works. Well, just follow the history. The history is phenomenal. They know what they're doing and they've done it for hundreds of years.

Yeah, and it's pretty darn important that they do it because again, to protect the business and to protect the interest of the owners. And they've made an agreement, they've promised that God forbid you get smacked by a bus tomorrow now that you have this contract in place or you live at or well beyond the age of mortality, we are going to pay that contract. Not we as an ascendant financial, the life insurance company. But they are going to, they are going to sign a dotted line and Say, hey, we're going to pay this death benefit. And they are bound to make sure that they have capital set aside in reserve to make sure that they can pay those death claims if they maybe experience more claims than expected. Like the insurance companies are, are regulated quite heavily in terms of how they actually manage the money, which is why they've been solvent for so many years. And you don't see them running into, you know, financial problems because they take these things into consideration. In fact, this is just kind of a one off. But we've gotten so many calls probably like last year and stuff like that during the whole Covid thing. People are going like, hey, like, are we going to be okay? How's the insurance company doing? Like, is this still going to be profitable? Is this smart? What's going to happen? Like cash value? Rightfully so. We say, hey, no worries, relax. We actually talked directly to the life insurance companies and the leaders there and they said, look, just tell your clients this is exactly what we're built for. We've been building pandemic pricing into the insurance premiums since the Spanish flu. Like we didn't know Covid was going to hit, but we were well prepared for it. We are well capitalized, things are running smoothly. In fact, I would assert, I don't know this specifically, but I would assert that the profits have actually increased during the COVID times. So these insurance companies are incredibly solvent. I just want to circle back quickly, Dan, to I heard this comment made in a article that we may expand on later. But the comment was that we promote we as an IBC practitioners and it's kind of a blanket statement. We promote that interest is recaptured within our policy system via the growth of the dividend. Now that is the most ridiculously absurd comment I've ever heard as it relates to this process and why we're doing what we're doing. That that is just absolutely not true. It's just like what Dan and I just said, that the, the growth of the policy values are going to grow regardless of a dividend uninterrupted to match the total death benefit of the contract. And really how we recapture interest is within the growth of the cash value because the cash value is what's consistent and what's guaranteed, right? And now once those dividends are declared, Dan, I'll circle back to the recapturing interest. But because I just mentioned guaranteed when a dividend is declared today, let's say my dividend gets paid in and for whatever reason there's an economic downturn tomorrow Am I going to experience? Is that dividend going to get taken back or lose value?

Can't.

Okay.

Once it's been declared, it is into your policy. It is part of your policy. It can't be taken back.

So let me get this straight, Dan, you're my client. I show you a projection of the policy system that you're looking to implement for your family. And you look at the premium that's going in, which is guaranteed. You look at the cash values that are, again, a projection. Because what could happen? Well, could the cost of insurance increase or decrease over time? It could. So if the cost of insurance increased over time, in year 10, when you put your premium in, you're older, but the cost of insurance is a little bit higher. So maybe you're buying a little bit less death benefit with that deposit. Because a change that I couldn't control occurred, maybe the cost of insurance goes down. So the opposite effect would occur. Who cares? The time's going to go by anyway and the money has to be deposited. Now, the dividend, let's say in year five, just as an example, is a projection of what's really happening today. So what I always say to clients is, look, that dividend could be higher or lower than it's projected to be. I don't know what the dividend is going to be in year five, and I don't care what the dividend is going to be in year five. But what I do know is that once that dividend is declared, it is then vested and guaranteed. It can't be taken back, it can't be reduced, and the policy system is going to just keep on going. You know, our colleague Richard Canfield, in his live talk in Vancouver, he did an excellent job of isolating the guaranteed future growth that's going to occur in his policy system because of what he's already done. The premiums he's put in, the death benefit that's been created, the dividends that have already been declared, if he did nothing else, remember he said, look, if I took my foot off the gas and never put a single premium in the policy ever again, do I have a guaranteed $4 million of growth now in the future? I absolutely do. Like, that's what this process is all about. And that's how we're able to now access the cash without interrupting the growth. And then when I repay my loans, yeah, there's interest that accumulates on the loan, but that interest is all recaptured within the growth of the cash value. So when I pay interest to the insurance company that I co own. Not only does it get put to work for a company I co own, but I actually get to re access and use that interest money again that I've actually paid to the system. So nothing is lost to me, regardless of the rate. Dan, how many times have you had a client say to you, hey, the insurance company's charging 6% and I can get 3% at the bank. I go, okay, forget about the interest rate versus interest volume for a second. Let's just think about Dan, who's getting the money.

Exactly. That's a key element for people to understand. Vern, you're 100%. You know, we used to get those comments, lots, not so much anymore as interest rates have gone out there up there. But unfortunately, you know, we used to get that all the time. And it's not about the interest rate. Nelson says that right away on page three of his book. It's not about the interest rate. It's about how one finances the things of life. And if there's one thing that I could get people to understand and you know is that that's what the infinite banking concept is about. It's about how you go about financing the things of life. Like I think Nelson says it well, he says it on page 26 again, you finance everything you buy. Either pay interest to someone else or you give up the interest you could earn. And that's really about what the infinite banking concept's all right about. And we've given them so much great value today, Vern. And I'm just going to encourage people that if you're watching this, you're wondering about some of this stuff. Get a copy of the book, go to page 26. Well, go to the whole book. But really spend time understanding, teaching yourself, helping you see what was this that Nelson discovered that he wanted all the rest of us to know? And it's like you said, Vern, it is ridiculously simple. But it does take time for you to connect those pieces. And that's why I always encourage people get a copy of the book. The best investment I made in my life was a copy of that book.

Absolutely, Dan. Well said. Again, watchibc.com, go to watchibc.com to get access to a 90 minute webinar. And to your point, Dan, this is just a word of caution to folks out there if you're looking at implementing this process, assuming you're not connected or engaging with Ascendant Financial, our teammates, the great coaches there, make sure that you're working with somebody who's an authorized infinite Banking practitioner through the Nelson Nash Institute. Make sure you're working with somebody who's actually coaching you and guiding you from the book. Make sure that they can demonstrate to you that they have a system of policies in place and they're implementing the process and if they're talking to you about the product now again they have to help you understand how the product works. But there's a difference, Dan, than educating somebody and giving them the tools and resources they need on how to implement a process versus selling a product. So if the person is just drilling down and so focused on how wonderful this product is and they haven't talked to you about the process and how to actually implement the process to achieve your objectives and I would potentially consider maybe shopping around or maybe not moving forward with that person. Make sure you're getting the guidance that you need to implement the process because it can make a dramatic difference in your life. Canada all the best. All the best.