As people learn about the concept of becoming their own banker, they often disregard the very words of R. Nelson Nash who was the founder of this unique concept. In the fourth edition of his book Becoming Your Own Banker: The Infinite Banking Concept, on page 44, Mr. Nash explicitly states,
Time and time again we see policies designed which maximize the insurance (death benefit) in order to increase the cash values, allowing more premium to be paid. Yet, adding more premiums to a policy in this manner, thwarts the benefits of the policy growth by adding to the cost of capital when using a policy for IBC purposes.
There is no question that a policy with a larger premium can build cash values significantly faster than a policy with lower premiums when the death benefit is increased by adding a term rider. But the cost of capital associated with accessing the extra cash value such a policy design provides, will outweigh the policy’s growth potential rapidly. Therefore, maximizing the death benefit in order to speed up the cash value growth in a policy for the purposes of borrowing that extra cash value becomes counterintuitive.
Interest paid, regardless of whether it is paid on a policy loan or elsewhere, adds to the cost of capital. If the extra dollars spent on additional premium were used without having to incur this added cost of capital, then the money management system that IBC provides will work better than when this cost of capital must be met. This is a legitimate fact.
Unfortunately, we are seeing more and more policies which have been sold as, or are being marketed as, conforming to Nelson Nash’s policy recommendations. Yet these policies all end up increasing the cost of capital for those who purchase them with the intent to utilize the IBC money management system Nash describes in his book.
One rightfully should question why such policies are becoming so common. The reasons are numerous, but the most likely reason is because people are ignorant of the guidelines Mr. Nash set down about how these unique policies should be designed and engineered to grow cash values. Of course, one can’t discard the second most obvious reason…greed. After all the higher the premium, the greater the commission.
Whatever the reason or reasons may be, the key here is to always do the math. Accurately completed, math becomes an objective clarifier. With facts, you can build sustainable wealth.
Those who attempt to start too fast accomplish little more than the proverbial flash in the pan. Therefore, being slow and steady will get you to where you want to go. Remember, everything you do in the financial world is compared to what everyone else is doing. Reducing and/or recovering the cost of capital in your own life, compared to everyone else who keeps paying and losing the cost of capital in their life, will make you a winner.
Don’t let anyone play the numbers game with you. A dollar today is not worth what a dollar was worth 5 years ago, let alone 30 or 40 years ago. Consequently, the cost of a dollar saved today necessitates that this cost be recovered. The more frequently it is recovered, the more valuable your dollar becomes. The IBC is the definitive way to accomplish this recovery. But you must start with the end in mind and not get rushed into purchasing a policy(s) which will increase your cost of capital rather than help you recover the cost of capital.
Mr. Nash wrote the forward to our book Prescription for Wealth. In that forward he stated,
We at Life Benefits, LLC are here to serve you and help you keep more of the money you make. We have helped thousands of people who want to live a better and more productive life and keep more of what they make. Give us a call if you would like us to help you. 702-660-7000. Get the Most for the Least.
Dr. Tomas P. McFie
Most Americans depend on Social Security for retirement income. Even when people think they’re saving money, taxes, fees, investment losses and market volatility take most of their money away. Tom McFie is the founder of Life Benefits which helps people keep more of the money they make, so they can have financial peace of mind. His latest book, How to Build Sustainable Wealth, can be purchased here.