What is the Difference between IFA and IBC

So all we're doing here right now is creating a bit of clarity to help people understand that there's a clear difference between ifa, an immediate financing arrangement, and the process of becoming your own bank or the infinite banking concept. And it depends on really what your objective is and what you're trying to accomplish.

If I knock the balance down to $50,000 and I did that in the middle of the year, I'm not able to actually go and access that money again from that credit facility. I have to wait until the next year. I have to fund my next year's premiums. I have to go through the annual update, you know, Q and A paperwork that's required with the bank lender to get reallocated that money, the next year's amount of money and the amount that I paid back. So it is not a true line of credit structure like other cash surrender value lending instruments are, or certainly like the policy loan is. So this is where a lot of the confusion comes in. And that confusion is actually created at the life company level because their own marketing material doesn't explain that.

Now next up, we're going to swing it over to Vern. Let's get you going here and we'll talk a little bit about some of the mystery unwinding the mystery between the three letters of IBC versus the three letters of ifa.

Yeah, absolutely. Thanks, Rich, for the handout. Before I jump into that, I just wanted to share a quick thought because you're talking about control. You're talking about, hey, if I fall upon hard times or if I decide because it's my banking system, if I want to redeploy capital elsewhere at any point, I can start increasing my loan repayments or start my loan repayment back up. But if I come into a windfall and I have a large loan outstanding, is there anything stopping me from just lump summing that capital right back into the system and putting that entire windfall right back into my policy. I get to choose how that goes.

Right?

So again, all about control access and being able to make the calls that best suit you and your family. I'm gonna go ahead and share my screen. Before I do that, there might be some people thinking, what does this mean? Ibc, ifa, that kind of thing. So a lot of times there's a lot of clients that hear these terms that come up, different ideas, different strategies, you're googling different things. Maybe you're talking to somebody or you're on a group call like this, and we get a lot of Questions about this thing called an ifa. It stands for Immediate Financing Arrangement. So all we're doing here right now is creating a bit of clarity to help people understand that there's a clear difference between IFA and Immediate Financing Arrangement and the process of becoming your own bank or the infinite banking concept. And it depends on really what your objective is and what you're trying to accomplish. We're not saying, hey, do ibc, forget about that IFA thing. There could be a lot of situations where an IFA might be in your favor and the process of becoming your own banker is what I just said. And it's an and process. It's not one or the other. You can certainly take advantage of the opportunity of an ifa, an immediate financing arrangement, and you can still implement and practice the process of becoming your own banker. So Sarbo and I are going to highlight that right now. Okay, so we're just going to point out a couple of highlights here just so that we can see high level how the process of what an IFA versus IBC kind of looks like. So first things first, like I said, big on acronyms. We know IBC and we have ifa. Now the key thing is here, the tool, that's what the policy system is, is just a tool, dividend paying, whole life insurance, or is the same thing that we're going to use for an immediate financing arrangement if we go ahead and do that, or it's going to be a similar tool. So you can use different types of insurance policies for an ifa. Now the insurance company that's best suited for the banking concept would be what we call the mutual insurance company that is Equitable Life of Canada, but it's preferred. Nelson made it very clear in his book that we use the best tool that we can for the job to implement the process of becoming your own banker. There's some countries on the planet that don't even have dividend paying whole life insurance. Does that mean that they can't become their own banker? Absolutely not. You could use a shoebox to become your own banker. It's just that a shoebox is not a great place to save capital. Right. So preferred is a mutual insurance company. If you're not with a mutual insurance company, I have policies that are outside of the mutual insurance company. Nothing wrong with that. They still have the same contractual guarantees which is the cash value and definitely have to match by age 100. So every day that we all age, more cash available today than there was yesterday. And that's good for everybody. Ifa it could be any company with the right product has to be the right tool to qualify for the ifa. So the loan type, the loan type for a policy or for the process of becoming your own bank. The bank concept, it's going to come directly from the insurance company and it's unstructured. That means that you're in control. You get to decide how that loan is going to get repaid and that's up to you to be the responsible banker. Whereas with the ifa, the loan is going to be a secured line of credit. I don't think it's out of line to say, you know, much. If you think about much like a home equity line of credit, right, there's an asset there, there's something with value. I've got my policy, I'm using the policy cash value. That's the, that's the security for the, the bank. So it's going to be a line of credit against the policy. And we know obviously the bank is going to be the one who's determining all of the.

Minimum payments or the interest rate and that sort of thing that come along with that loan repayment. Again, it's unstructured. So the loan repayment for the process of becoming your own bank or the infinite banking concept is going to be set by the policy owner. You get to call the shots, how much you want to put in, when you want to put it in, change, modify, increase, decrease. That's completely up to you. Whereas the IFA is going to be set by the bank. Now that's not meant to like I'm not picking on IFA here, I'm just saying that, just making sure that we're clear between the differences between ifa, the immediate financing versus the process of becoming your own banker. But it's important to know that there is going to be a minimum interest only payment that has to be paid. So that's required with the immediate financing arrangement. This is really important. Who is the ideal client? Is anything for everybody, Although maybe it adds value for everybody if implemented properly, sure, but not anything is for everybody. So there's an ideal client. The process, becoming your own banker. What I forgot to put in here was mindset. We have to have the proper mindset to implement the process and we're doing a great job today, I think of highlighting all that. But it's for anybody who wants to control the process called banking. That's who infinite banking is for. It's for you. Otherwise you probably wouldn't be here today. Who is the immediate financing Arrangement for generally speaking, it's going to be for clients who are considered high net worth. It's going to be for people who have a need, a high need for permanent insurance for things like taxes, planning purposes. And also they're going to require. There are some minimum thresholds. We're not going to get into that today. But it's going to require generally what would be considered higher premiums. You're not going to put 2,500 bucks into a policy and use that for an IFA, generally speaking. So they also have a need. These people who are implementing ifa, they have a need for a lot of cash for their business or their investments. They should also have a separate policy for the process of becoming your own banker. If I implement the immediate financing arrangement, that doesn't mean that I'm replacing the process of becoming your own banker. I can still continue to practice the process of becoming your own banker. I can have policies within my corporation or personally that I'm using for implementing becoming your own banker. And I can have policies that I'm using for the immediate financing arrangement. So qualifications. Let's assume right now that the policy is already in place. So we have a policy obviously if we want to access a policy loan. Yeah, pretty simple process. Again, show of hands, fairly straightforward. Now the ifa, the immediate financing arrangement, there's. There's going to be some additional steps that are required, some things that you need to do. There's going to be financial qualification, we've all been through that, a similar process. It can be, you know, somewhat involved. There may be fees involved. There's going to be a minimum fee that is generally around 2000 bucks, initial startup fees and there could be ongoing fees required as well and could be additional interest payments. So just again understanding how that works. But there are some added advantages or advantages that come with it as well.

Warren, again, nothing against ifa. I think it's a great strategy for very specific purpose. But you know, it involves the use of bank. And there's two ways banks usually make money. If you open up banks financial statements, you'll see two, two ways interest payments and what's the other one?

Loans fees. Yeah, right. Absolutely. Yeah. No, no kidding. Thanks Starblow. But again, like Starblow said, it's all about the right fit. Right. There's tax advantages. There are some situations for potentially business owners or in general that the ifa, the interest could be attractive to somebody. So you can have the interest on the bank loan is going to be deductible and there can also be a portion of the premium that will be tax deductible when you implement the IFA loan availability. I want to point something out about this that I think is super powerful. We know that we can access up to 90% of the total cash value from our policy system anytime that we ask for it. Where the life insurance companies contractually bound to loan us that money. Now with the IFA you can borrow up to 90% of the total cash value and in some cases it's 100% of the total cash surrender value. What I want to point out about that is again, I'm not saying, hey, you know, a whole life policy or that tool and nothing else, you know, do buy whole life policies and don't buy real estate. I'm not saying that. Okay, that's not what I'm saying. I'm just pointing out if you look at the strength of the tool, the actual asset, we all know that if you had a mortgage free home and you use that as collateral and you were able to qualify at the bank for whatever that house is worth on paper, they're not going to loan you 90 or 100% of the value of that home, the value of that asset as an example. So this kind of speaks to banks know something that a lot of people walking out there don't know. They know exactly how strong this tool called dividend paying participating whole life insurance is. So they'll only up to 90, 90 to 100% of the cash surrender value. And the outstanding loans these. The reason why there's only one line here is because it works the same. The loans do not impact the daily cash accrual within the policy, the daily cash growth. And it doesn't have an impact on the dividends or the death benefit growth. So that's a good thing. And the outstanding loan when death occurs gets paid tax free from the death benefit. So the same goes for if I have a line of credit, if I have a collaterally assigned policy at a bank and I have a line of credit and there's a loan outstanding, then you know, upon my passing, my death benefit will pay off that loan first and the rest will flow to the beneficiaries income tax free. And we highlighted this at the bottom because an IFA doesn't replace controlling the banking function. There's a lot of noise out there that says, oh yeah, no, I do infinite banking. I got this thing called an ifa. Just they're not the same thing.

No, I just want to say, you know, IFA has its own place. And you know, I have clients and we all, we all have clients who, who have IFAs in place because they had a high need for permanent insurance we needed, which needed high access to premium. They had to put a lot of premium in to get that high need for insurance. But at the same time, they didn't want to be in position where they were not able to access that cash. And in that particular scenario, yes, IFA 100% made sense. But in addition to that, they're also controlling the banking function by adding some more policies on themselves to use those policies for the purpose of practicing becoming a banker. So it's going hand in hand.

There's one key thing I want to just reference for everyone watching here today. So if you can bring that back up. So here we have unstructured policy loan versus from the bank, a secured line of credit. When the life companies, they put together their own quote, unquote marketing material for this strategy. This is a common strategy. It's been around, you know, for I don't know, 25, 30 years or something. So it is very popular, especially in the business community. However, on their material it'll say that this is a, this is a line of credit. But that is not truly accurate because when we think of a line of credit, we think, oh, hey, I have a personal line of credit or a homemade line. I can put money in there and pay it down and then I can immediately go and either use my debit card or write a check or go do a transaction out of that credit line. Our assumption of a credit line is that that's how most of them work in an IFA situation. It's actually more of a demand loan situation where as an example, I put up in premium of $100,000 and then I get it. And just to keep everything very high level, here I go and get a $100,000. You know, IFA basically they're going to call it a line of credit. But if I go and use that and let's just say I put it into my business or I put it into some kind of an investment, well, now my business wants to go and pay some money down on that credit line to bring the balance down. If I knock the balance down to $50,000 and I did that in the middle of the year, I'm not able to actually go and access that money again from that credit facility. I have to wait until the next year. I have to fund my next year's premiums. I have to go through the annual update Q and A paperwork that's required with the bank lender to get reallocated that money, the next year's amount of money and the amount that I paid back. So it is not a true line of credit structure like other cash surrender value lending instruments are or certainly like the policy loan is. So this is where a lot of the confusion comes in. And that confusion is actually created at the life company level because their own marketing material doesn't explain that. I remember having meetings with one of the main lenders that does this. They're very popular, well known in Canada for doing these types of loan structures. And it took me three meetings to get someone to truly confirm because they couldn't answer the question for me directly. And that's something that is really important to understand. And so that kind of an idea takes the incentive off of actually putting money back on the policy loan or the collateral loan because then you're trapping it into a prison for a period of time before you can have it released again. So this is again one of the big differentials between doing, having the control of that private contract with the life company directly versus now being beholden to the rules of a bank.

And Richard, if I may also. So what can you speak to the commitment letter from the bank also they're committing to a certain period of time and then after which you may have to qualify or requalify again.

Yeah. So you know, sometimes it depends on things like age of the insured person, a number of stuff. But there will be an initial qualifying. So not unlike a mortgage qualifying that you guys would be familiar with. And often these are done at a business level. And so you're typically they're going to qualify you for let's say a 3, 5 or maybe as far out as like a 10 year period of time. But they're doing like an initial qualification. They're saying look, if you borrowed, let's just say it's 100,000 and you intend to do this for 10 years. Well that's 10 years of 100 grand, that's a million dollars. So we're going to pre qualify you for the ability to debt service $1 million interest only credit line 10 years from now. And we're using kind of today's numbers and the policy growth to do that. But each and every year you're still going to have to do effectively like a mini update. And there's some, you know, we got to hand in the annual statement, you got to pay your annual fee. They're going to re look at some things to make sure that all of a sudden you haven't gone and declared bankruptcy in the last year and then they're going to pull the credit facility out from underneath you. So there is an annual kind of update that does happen. And then eventually.

If we don't meet their qualifications or they change the lending criteria, which banks are also known to do from time to time, maybe you fit in their bubble today, but tomorrow's bubble, you don't fit in. And so they might call the loan due at that time, in which case you would then access money from the, from the policy directly and you would pay off the outstanding, you know, instrument that you owe that third party bank. And they do something that's. It's kind of like in real estate they call it a simultaneous close. So it's kind of like refiing. You've got a mortgage with one company and you're going to refi with, you know, mortgages. With td, you're going to refi with rbc. RBC is going to pay TD out and then register a new instrument. So it's the same similar process, but there's a little bit of legwork there because it's a chicken and an egg situation and the banks doesn't want to release their assignment of collateral until they have the funds in place, essentially. I don't know if I captured your question, Sarblo effectively.

And you did.

That's good.

And then there are also selective banks who actually understand the power of ifa. So again, don't do this alone, use us. We have a great relationship with accountants who actually help us facilitate all this. Also from tax planning standpoint. That's why, as Warren mentioned, this is ideally suited for someone who's got high cash flow but at the same time want access to that capital. But they also have a high need for tax planning from estate tax purposes.

I want to honor and respect the time that we allotted for today and everyone, you know, you committed to be here, so we want to honor that time.