What Actually Happens to Your Money Inside a Whole Life Insurance Policy?

I was under the very same notion and understanding in my own mind that all my money was growing inside of my policies. And when Nelson Mandela said, "People can take a tiny bit of information and reach an absurd conclusion," there's no better example of this than the misunderstanding of dividend-paying life insurance out there. I didn't understand what he meant. I used to say the same thing, like, yeah, look at all the money that I've got growing in the policy. You know, the more you see, the more you see you didn't see. Let's start with something that might sound a little uncomfortable. So if you've ever heard someone say, "Your money is growing inside your whole life policy," or maybe you've even said to someone, "My money is growing inside my whole life policy," that's not actually true. And I Can acknowledge that might sting a little bit, especially for folks who have been talking about this for a very long time. I'm 19 years into my journey of implementing the Infinite Banking Concept, 77 policies in our family banking system, $1.5 million in annual premium, and 6,500+ clients coast to coast in Canada, sea to shining sea. In the United States. And if, if that were true, if your money was actually growing inside the policy, it would, it would feel more like a savings account. And some of the smartest people I've ever met believe that their money is growing inside the policy. I'm talking about business advisors, engineers, spreadsheet warriors, and it's just casually said, yeah, hey, my money is just compounding inside of my dividend-paying whole life policy. And respectfully, your money left the building the moment you paid the premium. And so today, Ash and I We're not here to tear anything down. We're just here to clean it up because when you actually understand what cash value truly is, you'll stop treating it like a savings account and you'll understand that what you have is a system and that changes everything. And so, welcome back to the command post where Ash and I, we don't just talk about money. We talk about how it actually works. And so, before we get into this, Ash, I would ask everybody watching, listening, just do me a favor. If, if you're into conversations that challenge how you think about money, not just, you know, sensationalize it or hype it up, then, uh, hit subscribe. And throughout this episode, if something hits you sideways, then just drop a comment, even if it's just, okay, I get it, I've been saying this wrong for 10 years. You won't be alone. And so, Ash, let's talk about this. The phrase, my money is growing inside of my policy— why it sounds right, but it just isn't.

Well, I would say is, uh, you know, cash value is a ledger entry on the life insurance company's books, right? Right. So very similar to banks when we talk about when you deposit your money with a bank, that's not an asset, that's a liability for them. Their assets are when you borrow money from them and they receive interest payments from you. That ends up as an asset on their books.

Yeah. Yeah. It's exactly right. And when Ash— So when you say it's a ledger entry, it's an accounting of the strength of a policy at any given moment in time. So if, if you have a policy where, um, you know, you've got a death benefit, you have the net present value of the future payment of that death benefit, which is in fact the cash value. That's why words have meaning. The life insurance company aptly named it cash value, not cash balance. There's no money growing inside the policy. I can't emphasize that enough. When you pay premium to the life insurance company, that is not your money anymore. It's no different than what you said, Ash. When you leave money at the corner bank and it's on deposit, That is an on-demand deposit. It's not your money anymore. And so we just have to share that you don't deposit money into a dividend-paying whole life insurance contract. What you're doing is you're paying a premium in exchange for acquiring a contract that has legally binding rights. That's what you're paying for.

That's also why we reference this as a business. So, treat this more just like you're starting a business. You're going to need capital. You're going to need time for it to become efficient. And I liked when you brought up the savings account, like into a savings account, because people would look at this more as an investment. And we know Nelson says that this is not an investment.

That's absolutely correct. And it's important, again, just when you understand what's really going on, you'll know exactly what to do. And when you understand that cash value is a contractual entitlement, it's not a pile of money that the life insurance company keeps stacking on, it just isn't. You said it best, Stash. It's a ledger entry. And when you think about the fact that you can access money from the life insurance company without reducing the value of the asset, that is essentially what you're borrowing against. It doesn't mean that there's a stack of bills sitting in the walls at the home office of the life insurance company. They keep very little cash on their balance sheet. There's a reason for that. They maintain some cash on hand so that they can readily distribute and fulfill policy loan requests But the money that you're accessing is the life insurance company's money and always has been the moment you paid the premium. And Nelson, we were chatting about this. We do inside of Ascendant Financial. So, on our team, we meet every Tuesday. We do a Learn with Jay coaching session. And I was sharing with our teammates that Nelson described this arrangement brilliantly in his book Becoming Your Own Banker. And people, at least anyone that I've ever spoken to, when I say, hey, let's go reference that page and share with me what came up for you when you read on page 69 of the book titled Becoming Your Own Banker, when you read what Nelson wrote, it is just like a trust agreement A trust has a grantor, a trustee, and a beneficiary. The grantor puts property into a trust. The trustee takes possession and title to all the property in the trust. The trustee puts the property to work for the benefit of the grantor, and when income is earned, it all goes to the trustee. But the trustee has an obligation to the grantor to carry out the mission of the trust. And in such an example, have you ever heard one say, look at how much money that trustee is making? To the contrary, one says, look how well the trustee is doing for the benefit of the grantor and the beneficiary. Otherwise, the grantor would never put property into the trust. And so in this case, who do you suppose the grantor is? The policy owner, the one paying the premium. And who do you suppose the trustee is? The life insurance company. And who has title to the property, the premium, the money, the moment that it gets paid? The trustee. The trustee puts the money to work That's the investment function of the life insurance company. The trustee earns the income from those investments, and then the trustee has a contractually binding obligation to the grantor and the beneficiary. Ridiculously simple. Ridiculously simple.

Yep, that's— that was a good summary of control as well.

Oh, all day long.

All day long. Because you're still going to need the use of money for the rest of your life. And when you reference a savings account, if you do it that traditional way and you then use said funds that you have to withdraw from the savings account to purchase or finance whatever it is, those funds are now gone. The bank is not just going to randomly replenish those overnight and be like, "Oh yeah, yeah, no worries. You come back next week, it'll be topped up." That is so right.

And if you think of— here's what, Nelson. So when you think of a function of policy loans, okay? So the policy owner outranks everybody. The policy owner can access in the form of a policy loan Think of it as the equivalent of 90% of the equity that has accumulated in the contract as a value. Not, not bills sitting in a vault somewhere, but just an accounted value. Well, Nelson says it perfectly, same page, page 69. He says the grantor can certainly be a place where the trustee puts money to work. In the case of a life insurance policy, the owner of the policy outranks every other place that an insurance company must put money to work. For proof of this fact, go back and study the equipment financing section of this book. A number of people have had trouble understanding that the interest paid to the insurance company went to increase the cash value of his policy. And what Nelson is saying, that extra interest isn't really interest, it's more premium. But if you think of the trustee saying, hey, where can we put capital to work? Well, there are a variety of places that they can put capital to work, but in the case of a dividend-paying whole life insurance contract, ideally with a reputable mutual insurance company, the policy owner aka the grantor, is a perfect place for the trustee, aka the life insurance company, to put property money to work. Because the insurance company knows that it's a policy loan, is one of the best invested assets on their balance sheet. The return is guaranteed.

Oh yeah, no, that's, that's, that's amazing. You know who also glossed this over, Ash?

They just gloss right over this in the book. They're like, why is Nelson talking about a trustee and a grantor? Like, I thought I was learning about dividend-paying whole life insurance and the power of a process to, to become the banker as it relates to my needs.

You know, do you know who else likes The fact that there's guarantees when it comes to dividend-paying whole life insurance, these contracts?

Banks.

Banks.

That's where, you know, our editors put in a big crescendo like, "Oop." Welcome to the world. Do what they do, not what they advertise to you you should do.

And it is. I always bring it back to the, you know, to the banks, right? Like, they're not right or wrong, it just is. And it's just like a lot of other investment vehicles and a lot of things you can do with your capital that will benefit you over time. Um, but you have to ask yourself, you know, like, do you think banks are successful?

Of course.

And if they're successful, what exactly are they doing to make them successful?

Yeah.

So when we say success leaves clues, if you just deconstruct exactly what they're doing and then you find out that you have the ability to do the same thing, if you did the exact same thing and had control of that, would you also be successful?

All day long.

That's why it's ridiculously simple.

Yes, that's exactly why it's ridiculously simple. And, you know, when you look at, um, let me just do this. I'm going to, uh, I'm going to pull up— so for people who are watching, I'm going to share just, um, basically, uh, a snippet here. Ash, are you able to see this on the screen?

I can.

So in this particular example, when somebody looks at an actual policy illustration, they say, well, Jayson Lowe, if cash value isn't money, why is there a dollar sign next to the figure in the total cash value column? I said, well, there's a dollar sign next to the figure in the total death benefit column. That's not money. It's a contractual obligation. It is represented to you accurately. So in this scenario, you've got a 40-year-old male. He puts $26,000 into a contract, and at the first policy anniversary, he's got more than $22,000 in total cash value. That doesn't seem like a whole lot in the first year, but when you get to a point— let's see where this milestone happens inside of this policy. Let's see where we at at year 3. So at year 3, the total cash value is $74,000. In year 2, it was $46,000. The annual increase in cash value was $27,453. Ash, pick any year after year 3.

Uh, let's go year 9.

Okay, so let's go to— so we have 5, 7, 9. So at year 9, do you see that total cash value at $276,404?

I do.

And we subtract the year previous at $236,970. The annual increase in cash value from the 9th policy anniversary to the 10th policy anniversary is 30— from the 8th to the 9th, pardon me, is $39,434. The premium paid at the 8th policy anniversary was still $26,000. Now, what some people believe is that all of their money is growing inside of this policy, and that is not what's happening. What's happening is the strength of this contract is improving daily, and what's really happening is the net amount at risk to the insurance company is going down, not up. So if you look again, go back to year 1, and we know that we have a cumulative death benefit at the first policy anniversary of $550,213, and we subtract the net present value of the future payment of that death benefit, which is illustrated as total cash value So we subtract $22,372. The net amount at risk to the life insurance company is $527,841 if the life insured died at the first policy anniversary. Now if we go back to your year 9 and we take the total death benefit of $1,060,301 and we subtract the total cash value of $276,404, the net amount at risk is $783,000. Did the net amount at risk go up or down? Up. It went up. What happens when the life insured gets much closer to mortality? So let's take the life insured out to— oh gosh, let's go to year Let's say age. What would that be? Let's go over to age, uh, 60. Where are we at? Let's go to age 85. Let's go to age 80, closer to, closer to mortality. The relationship between the total cash value of $3,182,000 and the death benefit of $4,202,000, is that much closer now? So has the net amount at risk gone up or down?

That's gone down.

It's gone down. It's gone way down. And the life insured continues aging, and the contractual guarantee is that the total cash value must match the the total death benefit by age 100 of the life insured in Canada and age 121 of the life insured in the United States. And again, we serve clients in— we operate in both countries. We're a North American agency. And so when people understand again what's really going on, and they understand that cash value is the net present value of the future payment of a death benefit, and they understand that their contract gets stronger every day. And then they also understand that control and liquidity, when exercised properly, is a remarkable advantage. So let's talk about exactly that. When I say a remarkable advantage In— I'll talk— I'll say 6 years ago, Ash, almost exactly 6 years ago, an opportunity tracked me down. And what did Nelson say about what happens when you have ready access to capital?

Opportunities will track you down.

Absolutely. He loved to explain things plainly and simply. And so an opportunity tracked me down. I've been practicing this process for 19 years, 77 policies in our family banking system. We have ready access to capital. We don't have any money growing inside of our policies. We have a system that provides us with ready access to capital. So an opportunity tracked me down, and cumulatively I invested $1.2 million in this business, and I invested the life insurance company's money. My cash value continued rising. So for the past 2,190 days, 6 years, the cash value has continued to grow. I would explain it to somebody who really understands what I've got, that the strength of my insurance contracts continued to grow every single day. The life insurance company didn't ask me, what do you need $1.2 million for? The reason they don't ask me what I need the money for— their money— the reason they don't ask me for income verification or credit check or anything like that is exactly why cash value is not money. The insurance company itself is guaranteeing the collateral for the policy loan, so they don't need to know any of that. They're like, look, we've already got a contractual arrangement with this policy owner. The policy owner has the contractual authority to request a policy loan at any given time. For any purpose, on demand, on his or her terms. The cash value, given that it's not money, is not going to go down because we gave the policy owner a loan. There's nothing to go down. There wasn't any money there. And so that capital got deployed, and that business pays me $90,000 every $90,000 in dividends. So what's my return on capital? It's explicitly, it's infinite.

It's pretty good. That's what it is.

Right. And so I could not have taken advantage of that high-caliber opportunity if I didn't have ready access to capital. So I understand that when I pay a premium, that money's not my money anymore. But I understand that the trustee, the life insurance company, is contractually obligated to put that capital to work, and they can only be responsive to the owners of that life insurance company, which are the participating policyholders. There's nobody else to be responsive to. So if the trustee is halfway smart, they're going to do a pretty darn good job taking care of all those grantors, all of those policyholders, and they're more than happy to lend me capital, their money, so that I can go and deploy that capital and multiply it. There's simple interest that accrues on the policy loan balance. I control the repayment schedule. I decide when and how the loan gets repaid. Which again is me saying another aspect of the control that I have, that every participating policy owner has. But when we start to, to believe something that actually isn't true, in that, my— Ash, all my money is growing inside my policies every day, that's where financial capable financial professionals out there have rocket fuel for their criticism of this type of insurance contract, because their thinking is your money shouldn't be inside of a policy, your money should be inside of this mutual fund that I'm recommending, your money should be inside of— do you see the words? Your money should be inside of stocks. "So, buy term life insurance and invest your money in stocks." When they have no understanding that there's no money in the policies, that what they're trying to compare is materially irrelevant. It's so off the mark.

Yeah, and I would say most people, they want to put their dollars to work. They want their dollars to have a job. Of course. And when you take said dollars and you deposit it into a checking or a savings account, it does one thing. It sits there.

Yeah.

But when you pay premium, those premium dollars do more than one job. And that's what people aren't seeing. You can still access capital to take advantage of opportunities that track you down or to continue building your financial system? I think people dismiss the word system a lot. Things should— what we're doing in the financial space, it should complement each other. One shouldn't necessarily dominate over the other. If they don't complement each other, then they're not working in harmony. They're not working holistically. And it's the same thing when you talk about financial professionals in the financial space. They serve different roles just like we do. And I don't profess to be a financial advisor. So, when you employ and empower the people that are good or experts in their field, you get the best of everything. It's the same when it comes to premium that you're paying to the life insurance company that you co-own if it's a mutual company. And the other thing I'll say is that illustration that you showed, there's lots of guarantees on there. But what people need to realize is it's not guaranteed that you're going to be able to participate and do this when it comes to infinite banking. We don't have— it's not a right. If we qualify, it's a privilege.

I like that. Yeah, I like, I like your thinking there. And, you know, I think over my, over my journey When I first, you know, began, I was very, very excited about the tool because Nelson would describe it as the best tool to get the job done. And the job is to become a controller of capital, to control the banking function as it relates to your needs, and that your need for finance is going to be far greater than your for death benefit over the course of your lifetime. It sounded very simple. And when I first looked at illustrations and paying premium and getting a system of policies off the ground, I was under the very same notion and understanding in my own mind that all my money was growing inside of my policies. And when Nelson said, people can take a tiny bit of information and reach an absurd conclusion, there's no better example of this than the misunderstanding of dividend-paying life insurance out there. I didn't understand what he meant. Other than I thought he was referring to smart, capable financial professionals who have, in many cases, at best, a rudimentary understanding of the construct of a dividend-paying whole life insurance contract. But what Nelson meant was so much more than that. He, he shared that more so for the benefit of people who coach and educate and guide others on the process, because the tool is the best tool to get the job done. But the more you see, the more you'll see you didn't see. And so thank you, Nelson.

No, that's, that's a, that's a great summary of what he said to you. And yeah, what Infinite Banking does is it creates opportunities. And who doesn't want opportunities?

So well said. I haven't met anybody who would say, "No, yeah, I really— Yes, opportunities, no," especially if they're high caliber. I'm not interested in that.

That would be a first for me as well. I've never come across somebody that said, "Hey, I've got this great financial opportunity. It's going to work well for you. It's going to put you in the driver's seat, put you in control, and it's going to look after yourself as well as your family, God forbid something were to happen.

But you probably don't want to take part of it." Yeah, it's, it's so interesting to me because all the stories, all the stories that we receive from existing clients who have a very clear understanding and who— and, and, you know, I dive deeper into this, um, in more training at learnwithjay.com. That's learnwithjay.com. But when clients share with us their stories, how they've been able to take advantage of high-caliber opportunities, how they've been able to readily access capital on demand, on their terms, and understanding that being in control could be a bad thing too. If you don't have a disciplined approach, how you do anything is how you do everything. And so controlling the repayment schedule of a policy loan is both good and dangerous if you have an irresponsible borrower. If you're, you're responsible at borrowing from someone else's bank and you begin to borrow from the life insurance company that you co-own, and you know that you're in a position of total and absolute control as it relates to the repayment schedule of that loan, wherever you go, you take all of you with you. And so that bad habit or absence of discipline is going to transfer to the borrowing activity that you control. And so that's why you need to, um, to really ensure that you have that introspection to say Okay, am I going to be responsible in taking care of my family banking business? That's really truly what it is at the end of the day. And you have to treat it that way in order to achieve really, really great outcomes.

Yeah. Once again, going back to treating this as a business, you're starting a business, right? And you need to have that discipline. A misconception about what we're trying to communicate to people, I believe, is when they speak to us, they're under the impression that we are telling them only do this. But that's not what we're trying to say.

No, not at all.

What we're saying is if you're starting a business or if you're building a building, You need to have a strong foundation if you want it to last the test of time. So, it would be different if we were communicating to people, "Yeah, only do Infinite Banking. That's all you ever need to do in your life. That's it." We're not saying that.

Right.

That's why we communicate to them that you can do this and whatever else that you're already financially doing. That's further enhancing your position in life. It would definitely be different, or I would understand the skepticism or the hesitancy if all we were saying was, "Yeah, this is all you need to do.

This will solve all of your problems." Yeah, and that, you know, I agree because it— I was sharing this with our teammates, you know, earlier this week that That was, I think, something that I've experienced come up with people who begin to educate and teach people about this process, where they had the understanding that Nelson felt that way. And, and Nelson would always, always clarify to say, your money must reside somewhere. What better place to have it reside than here? And then from that place, you can achieve all of your financial objectives, whatever those objectives might be. If it's to become a great real estate investor, that's your own objective. If it's to become a great, um, owner of quality businesses in the form of common shares that you would buy, um, from stock exchanges, then that's your financial objective, whatever it may be. What Nelson was clear on is that someone and some organization must perform the banking function as it relates to the achievement of that objective, and that someone should be you as and that some organization should be the life insurance company, because the life insurance company cannot inflate their money supply. So they're not contributing to the problem when they advance policy loan proceeds to a borrower, a policy owner. Whereas if that policy owner said, I'm not going to access the capital from the life insurance company I'm going to go to a conventional bank. When you borrow from the conventional bank, the moment that you do that, you've contributed to inflation. You've contributed to the problem because the bank simply created money where no money existed before. The life insurance company cannot do that. And so having a very clear understanding when you know what's actually going on, you will know what to do. And if we can, myself included, like, I've learned so much over these 19 years. I've, uh, I've really cleaned up a lot of what I've said, you know, over the years, that it's, you know, it sounds right and it feels right, but it just wasn't accurate in the sense of Things— I used to say the same thing, like, yeah, look at all the money that I've got growing in the policy. Wow. You know, the more you see, the more you see you didn't see. And what I can tell you is that in my 19 years, I haven't had a single client contact me and say, Jayson Lowe, I'm really frustrated that my cash value continues rising every day. That's really bothering me. I'm really irritated by that because every day that it's rising, I have ready access to more capital on demand, on my terms, without reducing the asset's value. Logically, how much of my capital do I not want residing there? Because from that place, I get to go and do all the other things, like build a portfolio of now 15 companies. Credit to the life insurance company for being a great supply source of, of money. Thank you for that. I am very grateful.

You're able to do that because you had a strong foundation to pull from.

1,000%.

And you know, we've touched on— you've touched on this a few times already, but can I share a paragraph from Nelson's book?

Yeah, please do.

Because so I'm going to read a paragraph on page 3 at the very beginning of R. Nelson Nash's book, Becoming Your Own Banker, which specifically refers to and talks about the infinite banking concept. And I like this paragraph because, you know, we want to be upfront with people and we want to explain to them what this is and what this isn't. And he summarizes this pretty good in this paragraph. This book is not about investments of any kind. It is about how one finances the things of life, which can certainly include investments. It is not about rates of return. As time goes by, interest rates are up and interest rates are down, but the process of banking goes on no matter what.

Mic drop. Mic drop. And it is meant to be ridiculously simple. And so, all right, so before we wrap this up So Ash and I, we'll clean this up again once and for all. If you still think that your money is growing inside of your policy, we're here to share with you that it's not. There is no money growing inside your policy. It's not sitting there. The life insurance company is either putting capital to work or it's not. And they wouldn't be a life insurance company for very long if they didn't put capital to work. And that's the whole game for them. They're a deposit-taking institution. You pay premium, they deploy it, they put it to work. And if this episode of The Command Post, if this made you pause even for a second hit subscribe and drop a comment for Ash and I. The moment that made you go either, "A, okay, I may have been saying something inaccurate," or if you've got that one friend or advisor who keeps saying, "All your money is growing inside your policy," send them this episode. Just send it. And, um, if you're serious about actually understanding how to implement this process properly and how to, uh, utilize the best tool to get the job done, don't stop here. Like, we've got another video that's shown up, and, um, you, you can do a deeper dive if you go to learnwithjay.com. That's learnwithjay.com. And, uh, just discover more about how this plays out in real life, what to do, what not to do, and where people, um, enjoy the remarkable advantages of the infinite banking concept. And so head on over there and, and watch that next, because, um, knowing this and implementing it are not the same thing. Isn't that good?

Yes. And I would, I would also add that there's a lot of noise out there, a lot of noise in the market, a lot of noise in the world. And you want to ensure that in order to get the right information, you're speaking to somebody that's an expert, that's a practitioner in the space, the space that you want to know or learn about. And the only way to silence that noise is to, you know, have a clarity conversation to be able to figure out if this is something that's going to work for you or something that's not. Because although this will benefit everyone, it is not for everyone.

Well, on that note, Ash, this was a lot of fun, great conversation, and can't wait for the next one.