The Infinite Banking Concept is NOT an Investment

The most important thing is who bears all the risk when you put your money into investment, who assumes all the risk you do? If the portfolio does not perform well, then all the risk is on you.

And then you can still take the money to do investment. We're not saying that. It's just that when you're doing investment, don't just look at the rate of return, look at the risk, look at all the fees and look at all the different features. So be wise investor.

All right? Hello Canada, this is Roman Pushkar and Xinjiang Fung, the authorized infinite banking practitioners with Ascending Financial. Today we're going to be talking about very important topic that just recently came up in conversations with our clients and we're going to break down some key points to better understand how infinite banking is not an investment. Recently I got a question by email from one of my clients. She loves infinite banking. She is open to it, she's open minded, she's ready to go go and she intuitively understands that infinite banking is the way to go for her. But she was approached by a different advisor or investment guru who doesn't know anything about infinite banking. They heard about it, but they don't understand how this works. But they have an opinion on that. Right? And when she talked about infinite banking with that advisor, that advisor said, you know what, you don't have to do infinite banking. You can do exactly the same thing but much cheaper. How you can do that? You can buy term and invest the difference. And we heard this many, many times. Jianjin, would you agree with our conversations with our clients?

Yes Roman. Yes Roman, I really resonate what you shared actually buy term, invest the difference was a cliche or is a quite common saying, common suggestion back in the 90s I guess and I followed that philosophy to be hon as early of my journey. I bought a lot of term myself but it doesn't mean that we don't also look into different ways to grow our wealth. So I think that's a great topic that we can discuss with Canada today regarding on this topic and also think it's a great opportunity for people to to rethink their thinking and have a better idea of what really infinite banking concept is. So yeah, I look forward for this discussion today.

Sounds good. Perfect. So like Nelson Nash in his book by by the way, if you haven't read this book you have an opportunity today it's becoming your own banker by R. Nelson Nash. If you click the link below this video you will find a link to purchase this book in our web web store. Also, if you have never, never heard about infinite banking, go to watchibc.com that's watchibc.com and you will be, you will have option to opt in for a free masterclass and you can watch an introductory masterclass about what it is and how you can become your own banker. First thing that comes to mind to my mind is let's compare the different types of insurance. Because term is one type of insurance, the whole life is a different type of insurance. They work completely different and like Gingen said, it is not something that we should compare. They're not even close because they serve as different objectives. Whole life is a protection for life and as well it has accumulation of cash value which can be used as a bank. Term life has nothing to do with banking. It's only protection and nothing else. It's. It's like renting insurance. So Jenjin, what types of term do we have and how does it work? Can you maybe give us examples on the difference between term and whole life?

Sounds good. So term by its meaning is temporary life insurance. So. So of course term just means that for a certain period of time you are going to be covered by this insurance in another way. The only thing for you to win by the term insurance by actually dying. Therefore, our probability based on the big number theory and the mortality table, the chance for us to die during a certain period is actually quite low. So the payout is actually quite small. I think it's less than just a few percentage. And that's also the reason why term insurance is a very affordable way for our, for us to get coverage. So of course the shorter the term, the cheaper your premium should be because you know, of course you're younger and also the covered period is shorter. Right. So you can have term 10 years, that's very common or term 20 years. Just so you know, there's a certain age that reaches a maximum which even though you are willing to pay a lot of money, you are not granted with the term insurance.

Yeah, perfect. Yeah. And so the term, it's the premium is level for specific period of 10, 20 or 30 years. So if it's for 10 years, then it is level for 10 years and then it goes up and then it's level for another 10 years, it goes up and then level for another 10 years. And normally generally speaking, you can only buy term until age 85. Usually some, some companies actually allow different, different conditions, but generally Speaking it's until 8 age 85 and after age 85 you cannot have term. So it has to expire. When people say buy term and invest the difference, they, they're basically talking about first 20 or 30 years. Right. Because after 30 years the cost of term increases so dramatically that you won't, you won't want to renew it because it will be very expensive. And if you cannot qualify for a new policy, then you may, you may want to drop it.

That's right. And then I really like your analogy of renting versus owning a property because a term policy is, is very affordable, but it's the same as car insurance or house insurance. So is a kind of a consumer consumption kind of insurance because if you, if you don't use it, this money just gone versus for whole life, you do start to build equities within your policy, which infinite banking concept is talking about. How do we utilize that equity, which is called cash value, to achieve things in life. So there is quite a bit of difference in that. So I like that.

Yeah, yeah, perfect. And also when we talk about comparing term and whole life, you want to compare the, not only the premium, the level premium, but you also want to compare the death benefit. The death benefit is not going up in terms term as well. So you want to make sure that you buy enough term so that later in life it will be enough for you and for your family to actually, you know, receive that benefit and not look for another job, not, not look for, you know, selling anything, just, just to maintain the lifestyle that you are used to. So for whole life it's a total different story. The way we structure at a standing financial, we structure whole life policies is your death benefit is designed to always go up. So for me, the longer I live, the higher death benefit my family will receive. Even past 85 years old, even at 90, 95, 99 years old, my death benefit is designed to climb very rapidly and it may be 10 times more than it is today. For example, if I buy a whole life policy today, I may be buying $200,000. By the time I reach 99 years old or 100 years old, my whole life protection will be two plus million dollars.

That's fantastic. Yeah, especially with inflation, we don't know for example, what is coverage we need in future. So today you look at $2 million or half a million dollars, you think that's a lot of death benefit, but maybe in 10 years time that's not really enough. So I really like the IBC design or the infinite banking design because that death benefit, although is not our goal, but it's a great bonus for the family protection and the kind of inflation proved as we go older. Also, Nelson mentioned that the IBC infinite banking concept, IBC policy is engineered to get better and better every year. So if you think 65 is the cut off or 85 is cut off, you miss a great opportunity because the later you grow, the better it gets.

Yeah, exactly. And with term, if you outlive your policy, congratulations.

You'Ve achieved longevity. But at the same time, all this cash, what happens with this cash? If you outlive your life insurance, your.

Term, I don't think you can see a dime again.

Yeah, it's gone forever. It's gone forever. And then there's no cash value accumulation, there's no capital, it's just gone as, as expense. So for whole life most of it will be available to you to use as capital. You can use it, you can, if you have an opportunity, come by, what can you do with it? You can use this, we will talk about that later. But you can tap into this capital and use this cash as never lost. And at the same time you have protection for life. So perfect. And so what else do we have? Jenjin, when we compare buying term and invest in the difference, what else do we need to look at in terms of the.

Pieces of this puzzle? Very important pieces that we should talk about.

Yeah, let's talk about point number two which is talk about investment because people like to compare infinite banking concept as a investment. They will say let's invest in here, let's invest in this tax free saving account where we don't have to pay tax but you know, we have the money saved from not putting into a whole life and we can put in here. So a lot of people compare that with investment. Maybe let's talk about that Roman.

So first off, that comes to mind when we talk about investment is what Nelson.

Talked about investment. He said that infinite banking is not a sort of investment of any kind. I'm going to read from page three of Nelson Nash's book becoming your own banker. I'm going to read from page three, one small paragraph. It says this book is not about investment of any kind. It is about how one finances the things of life which can certainly include investments. So if investments is something you love to do, absolutely do that. But do that wisely. Open your own banking system first and then invest. So it's not about either opening a policy or investing, it's both. Do both. I mean if you like to do both, do both. Put your money into your bank, make it grow on a daily basis and at the Same time, borrow from the insurance company to invest if you want.

So let's talk about what attributes of investments do investors have when they put money into investments like TFSA or RSP or RESP and non registered investments, you know, private investments and stuff like that. So what, what, what do, what do we have? We have potential taxes, right? So what else?

We have taxes. We also have a risk. The reason it's called investing, not saving.

Is because risk of losing, principle risk of losing the capital, of course. And Warren Buffett said a rule for the investment number one is never lose the principle. Rule number two is never forget about rule number one. So when you put money into investments, you always have some sort of risk, maybe low risk, medium risk, high risk of losing this investment or part of it. So what else?

Also fees, I guess.

Fees. So most of the time when you invest into like stock market or portfolio funds, mutual funds, whatever it is, there's usually a management fee that the management companies will charge you when the portfolio goes up. They charge you when the portfolio goes down. Do they charge you? Tangent.

They still charge you?

Yeah, they still want to give you, you know, make money on your portfolio regardless of what happens to the investment. And not only you're losing the capital from the investment performance, you also your capital is eroded by the fees and all the expenses that associated with that market risk volatility. This is another thing that we discussed as well. And most of the financial gurus, when they incentivize you to look at investments, they actually tell you, hey, we got this amazing fund that averaged 6% for the last 30 years or 7% for the last 15 years. So they talk about average rate of return and what they really mean is average rate of return is not an actual return. It is a very tricky, tricky term that they use to make you think that if you put your, let's say $1,000, then if you make a projection, this is how much you would have today. If you had put it, let's say 15 or 20 years ago, this is how much you would have today. But this is not true. Gingin. So would you maybe explain more about how we should look at average rate of return and why it is not true?

Yeah. So average rate of return, the word average is not really relevant. Number one is when you talk about that 15 years, I was just thinking all those 15 years that money is not in my system, right? That I have to say goodbye to that money for all this time. I can't see it. And then there's a lot of Things could happen during this time, and we don't know when is the end of the 15 years that you need to access this money. For example, someone might really need that money at the year 15, but year 14, you had a big hit. That means you may not have time to recover from the loss. And it's easy to say the return of average, but it really, you know, if you lose, you lose 20% and then you gain 20%. It doesn't mean that you're back to zero if you do the math right.

Exactly. Yeah, yeah, let's, let's do, let's do a simple example. For example, you have a $1,000 investment. So first year, your investment $1,000, you lose 20%. So negative 20%. Second year, positive 25%. What is the average 20 plus, minus 20 plus 25 is plus 5 divided by two years, that's 2.5% average rate of return. So it seems like you got a profit of 2.5% rate of return. But in fact, what happened was your thousand dollars, if you look at the real dollars, if you go down by 20%, that's $800. If you go up by 25%, that's another thousand. So you went back, you just went back to where you were two years ago, and there's no profit. But on paper, it looks like it's 2.5% average rate of return, which is not true. Plus, in addition to that, we already talked about fees, so they probably charged you couple percent fees on first year and couple percent fees on the second year, which means that you actually got a little bit less than $1,000. Right? So in fact, you're negative couple percent, couple dollars, maybe four, five, ten dollars. You're negative, but on paper, you're positive two and a half percent rate of return annual, which is absolutely, you know, different. Right. You, you should not, you should never look at the rate, what you should look at and how much money you're actually making or how much money you're actually losing.

That's a very good point, Roman. That's one thing that I really hope people will, you know, when you watch this video, really rethink about what you were thinking about investment. I mean, investment is great, but there's just a better way to invest that you can mitigate the risk and, and then you can have your money grow. So go ahead to watch. IBC.com, there's a better way for you to, for you to invest. Now, the other point I also wanted to put in is that life insurance Company in Canada or in North America has been around for over 200 years and they've been, they have to invest this money as well so that they can grow the death benefit. And they've been doing this very successfully for the last 200 years. So you know, why do you reinvent the wheel? Right? So co generation and just hook up with what they've already doing and then you know, tap into them.

And then you can still take the money to do investment. We're not saying that. It's just that when you're doing investment, don't just look at the rate of return, look at the risk, look at all the fees and look at all the different features. So be wise investor.

Yeah, perfect. And you know Jason, our audience may actually question. So when you put your money into whole life insurance, how do you avoid that volatility? How do you avoid that market risk? Like does this, does this money go into stock market or do we still have that risk or how do we mitigate that risk, that risk altogether?

So life insurance company like to invest things in a, on a very conservative way. They also invest in stock market, but maybe they, they in equities that are very conservative and generate a long term dividend because they've been doing this very successfully. They're looking at things that could generate income, can be very stable and also they are access to opportunities that are not, maybe not available on the un me level because they do have a large amount of money. So they are able to do things. And most of the life insurance company, I guess a third of it, they invest in bonds. Do you think bonds is risky or is boring?

It's pretty much low risk or pretty much almost no risk investment for the.

So they invest quite a bit in bonds. Right. So Roman, you can add on.

Yeah. So the most important thing is who bears all the risk when you put your money into investment? Who assumes all the risk you do. If the portfolio does not perform well, then all the risk is on you. If the portfolio does not perform well. Let's say insurance company is like Gingen said, most of insurance companies put the par fund participating fund into mostly bonds which are very low risk and they're producing long term cash flow. So some of the money is invested. Very little is invested into stock market but invested into very, very reliable and long term, you know, hold for the, for the equity that is also producing dividends and cash flow. It's not to buy and sell stocks like you know, like, like big companies like blue chips and you know, companies that we all know about that go up and down and fluctuate. And the biggest, biggest thing is that insurance company cannot lose the participating fund. They cannot risk the participating fund because they have to make sure the fund is there. So when there is a death happens, so they have to provide this death benefit no matter what, they cannot put it to risk. They cannot gamble with this cash. So the most important thing is that they assume all the risk. If the bond is not performing well, all the risk. With the insurance company, we as participating policyholders, our cash value still has to go up. So no matter what happens to the economy, no matter what happens to the stock market, if the stock market goes up, our cash value in the policy goes up. If the stock market goes down, our cash value in the policy goes up. No matter what happens, insurance company has an obligation to match my total death benefit and my total cash value that is growing daily and match these two numbers at age 100 so that they have all this death benefit saved up in cash and ready for a payout for every participating policyholder. Not just for me, but for everyone.

That's fantastic. Thank you so much, Roman, for explaining that. Maybe that's a natural for us to jump to point number three, which is when we know that life insurance company is so robust, they have such a good track record in the last almost 200 years. Then the third point is that when we are comparing term and whole life, we're really missing out one big part, which is our blind spot, which is also the core of the infinite banking concept, which is the opportunity cost.

Yeah. Yeah, you're right, Jingjin. So when you invest into anything, your money is hopefully growing, maybe not maybe just, you know, doing sideways. Especially in 2023 where the stock market is not performing as well. And let's imagine the opportunity comes by. Jianjin, do you know when. When your next great opportunity will show up?

I don't know.

And do you know how much it will be?

I don't know.

You don't know?

So.

So the key for that is having access to cash, right? So if your cash is tied up in all this stock market that you purchased, or crypto, whatever you purchased, an opportunity shows up. What do you do?

You have to borrow money or you have to miss out, or you have.

To sell your investment, right? Potentially losing the compounding that you created or whatever growth that you created in the investment. Or you're going to miss out. Exactly. So with infinite banking, that's not the case because you can do both. You can have your cash still growing and you have access to liquid cash which you don't have with buy term and invest a different strategy because there's no access to cash. Only one way to access this cash to use to take this opportunity is just to either borrow and pay interest to someone or to sell this investment. So when I have a policy, participating policy in my family and my business, when the opportunity shows up, what do I do? Do I interrupt the growth in my policy? No, I don't.

Yeah, you can keep your money, continue to grow while you can collateralize with your money to do anything you want.

Yeah, I still borrow, but I borrow from the system that I own and control. Right. I borrow from insurance company and when I pay interest to the insurance company, the interest is going to the participating pool which I co own because this pool pays me and everyone in our company in the participating mutual company that we co own pays dividend at the end of the year. So all this interest is coming back to me at some point and I'm not losing this interest, I'm not losing opportunity cost based on this opportunity. So if I, if I'm, if I'm honest banker with myself, if I'm on time paying the policy loans back, then I'm prepared for the next opportunity to come by and to take this opportunity and capitalize on it.

That's great.

Which is huge. How much can you, how much. So think about how much you can create passive income just by using the opportunity cost, just this thing alone.

How much can you create passive income? How much wealth can you create by borrowing against your cash value and using someone else's money to buy investment or anything? Maybe real estate, maybe private lending deals, maybe buying land, maybe flipping houses, maybe flipping cars. Whatever it is, if the opportunity shows up, you just need to have access to capital which you don't have with regular investments and you do have with having access to whole life insurance.

I like it Roman. And that reminds me of why Nelson named this concept as infinite banking concept. Because the opportunity is also infinite that you can use it. And there's really no comparable with term and IVC because you cannot name a number for all this utilization that you just talk about. Because all of this is not unseen from the number from the table because the opportunity is not able to see, because you can, you can do IBC and then invest in all those things. Right? So, so it's not really, it's, it's not on the same level, I would say it's not on the same dimension. The other thing I want you to add on is that think long term, right? When we compare with numbers, sometimes we're just looking into a very short period of time that we can foresee in the near future. I can see that I can invest in this, this opportunity. I can see that I can do this investment. I can see that I'm not using this death benefit per se. But life happens, you know, life is a long term journey and we don't know what holds on our future. For me as a real estate investor, when, even when I was investing, when I was buying term and investing the difference at the back of my mind I always thinking, okay, if I pass away, who's paying for the death benefit, right? How much tax do I have to pay? And that my friend is not something that term can help you to solve. Not at least not in a longer term planning per se. Right, Perfect.

Yeah. So it's not about, it's not about that buying term and invest in a difference is bad. It's just about think about what happens to if you over outlive, if you outlive the insurance. What, what happens if you live too long? Will you have insurance in place? Who's going to pay for your taxes? And instead of putting your money at risk and not having access to liquid cash when the opportunity comes by, it's much better to actually put your money into one solid place where it is designed only to go up and never go down and have access to opportunities, have access to liquid cash when the opportunity shows up. We know that you enjoyed this video today and we encourage you to learn more about this amazing concept, Infinite Banking concept. So go ahead and watch. Go to watchibc.com that's watchibc.com to learn more about how infinite banking can change your life as it changed mine and in life and many other people. Many are clients of ours and also buy a copy of Nelson's book and you will get connected to one of our amazing advisors who will help you get started and coached and learn more about the infinite Banking concept. Thank you so much for watching and we'll catch you at the next one. Thank you.