IBC Policy Design Part 2

Chris Bay:

Welcome to the Life Success Legacy podcast. My name is Chris Bay, and I’m joined today with the founder of Life Success & Legacy, Mike Everett. Mike, in our last podcast we started to talk about the policy design for Infinite Banking. And one of the phrases that you used is, “What’s more important to people? Is it cash, or is it death benefit?” And obviously, for most of our life, cash is more important than death benefit. So now what we want to do is dig in a little bit more into how we design the policies to emphasize the cash value, and then how that is utilized to, for example, turn the wind current, or, people use their cash value for investment purposes, retirement purposes, a variety of things. So can you talk a little bit about the two pieces of a policy design, and what I’m getting into is the base portion and typically what it generates, and then the paid-up addition portion and what it generates.

Mike Everett:

Okay. Traditionally, once again, life insurance was designed almost 100% for death benefit. So one of the things that Nelson discovered was, if you can reengineer or rearrange the way the premium is allocated internally with the policy, there are these two pieces that you’re talking about. We have the base premium. The base premium purchases almost 100% of the death benefit in the life insurance contract. So basically what you’re doing is, you’re taking a certain percentage of the premium and you’re allocating it to what we call the base premium.

Chris Bay:

So in a traditional life insurance policy, most, if not 100% of that premium, is going to go to base-

Mike Everett:

That’s true.

Chris Bay:

… and so it’s going to be 100% going towards death benefit.

Mike Everett:

That’s correct.

Chris Bay:

Okay. So how is this different?

Mike Everett:

Well, then Nelson realized that there was a way to actually create cash in your life insurance contract by adding a piece called the paid-up additions rider. This paid-up additions rider, what it does is it creates almost 100% cash value available in the contract that people can access. Now, there is a certain portion that purchases a little bit of death benefit. Remember, it’s a life insurance contract, but yet, I asked the question again, what’s more important right now, cash or death benefit? We’ve all said cash. We’ve said this a number of times, but we want to reiterate this to the people listening because cash is king, and if we can get access to that cash in some sort of way, and still have the life insurance contract in place, why wouldn’t a person want to do this?

Chris Bay:

Let’s put this into specifics for people. Let’s say that I come to you and I say, “Hey, I want to start an Infinite Banking concept policy. And I want to be able to put, I’m going to say, $10,000 annually into this policy.” Break that out for me, then. If I’m putting money into it, when do I get access to the cash value that I can then utilize for turning wind current and other things?

Mike Everett:

Well, if you were going to put $10,000 in, then there’s a certain way to allocate these dollars. So what we’re going to do is we’re going to take 40% of those dollars or $4,000 of that 10,000, and we’re going to buy the base portion of the policy. Then we’re going to take $6,000 or 60% of those dollars and buy the paid-up additions rider. Now, the easiest way to explain the paid-up additions rider is the Apollo rocket. You know, when it goes up into space, it gets up into space and it’s on the Apollo rocket. It’s got these turbo boosters. Well, after they get up into space, what do they do with the turbo boosters?

Chris Bay:

They drop off.

Mike Everett:

That’s exactly correct, but they need those two turbo boosters to get the rocket up into space. With the way that Nelson created the Infinite Banking concept, you need the turbo boosters or the paid-up additions rider in order to get this thing up and going.

Chris Bay:

So it’s flooding it with cash.

Mike Everett:

That is correct. Now, your question was, when do you have access to that cash? With the companies that we utilize, you can have access to that cash within the first month of starting your Infinite Banking Concept policy.

Chris Bay:

Now, when you say that you’re talking about an annual premium, so someone would pay the full 10,000 upfront.

Mike Everett:

That’s correct.

Chris Bay:

We also have clients who, for various reasons, they decide to do a monthly premium. So would they get access to that money right away?

Mike Everett:

They would not.

Chris Bay:

Okay.

Mike Everett:

Because, the way you explain that to people is, if you were going to write a check on your checking account, how much can you have access to? With whatever you’ve got in there?

Chris Bay:

Right.

Mike Everett:

So if you have somebody who pays an annual premium, they have access to their portion or their 60% of their policy when they pay that premium in the first 30 days. But if you have somebody who goes on a monthly plan, it’s going to take them the full 12 months or annual premium of monthly payments in order to have access to those dollars. In the great big scheme of things, it doesn’t make any difference.

Chris Bay:

Yeah. Yeah. So, if I understand correctly, when we put a chunk of money in, I’m going to get access, or I can borrow against my policy-

Mike Everett:

That’s correct.

Chris Bay:

… and really that’s a loan. It’s called a policy loan, but it’s not really money from my policy. It’s really a loan from the company.

Mike Everett:

That’s true.

Chris Bay:

And they’re using my policy as collateral, which is an unbelievable trade of this is that our policy stays fully intact and it continues to compound and grow for us on the full, let’s say it’s $10,000, even though I’ve pulled out a loan for $6,000.

Mike Everett:

That’s correct.

Chris Bay:

So, we’re never interrupting the compounding interest of our policy.

Mike Everett:

Eighth wonder of the world.

Chris Bay:

It’s unbelievable. Now, some people might say, “Well, I just put in 10,000 and I’m only getting access to six.” Well, let’s talk about capitalization and thinking of our policies as businesses a little bit.

Mike Everett:

Well, we’re going to go back to Nelson’s three main principles. Number one, you’ve got to think long-term. Remember, Nelson was trained as a forester, so he thinks 20, 30, 40, 50 years in advance. Infinite Banking is a long-term thought process, so we tell people, “If you’re not in this for the long haul, this is not a good thing for you.” But number two, you can’t be afraid to capitalize. That means that you have got to put some money into this thing in order for it to work. If you think traditionally about life insurance, and it doesn’t matter if it’s term or whole life or universal life, most of the financial gurus out there say, “Let’s buy as much death benefit as we can and put as little premium in there as we can.” With Infinite Banking, it is completely opposite. We’re wanting to flood this thing with as much cash as we can get and get as little a death benefit as possible in order for you to be able to access the cash efficiently in your own life.

Chris Bay:

In fact, we call our premiums, premium deposits because it deposits into a banking system, really, that we own and control. So, if it’s a deposit into your banking system, do you want that deposit to be a little or a lot?

Mike Everett:

I want it to be a lot, but we need to be careful here because, this is called the Infinite Banking Concept. But we want to reiterate that we’re life insurance guys, and you are purchasing a life insurance policy. And in that purchase, you are creating absolute control of that contract. So you get to decide or control where 100% of that investment goes when you access that cash through a policy loan.

Chris Bay:

Okay. I want to take you back to your analogy of the space shuttle.

Mike Everett:

Correct.

Chris Bay:

Or the Apollo, or whatever it was that you used. And you talked about those booster rockets falling off. And that is what we call the flexible paid-up addition rider.

Mike Everett:

Correct.

Chris Bay:

That flexible piece is an important word. And you talked about, on the rocket, those falling off. Does the flexible PUA, the paid-up addition rider, do those ever fall off the policies, and why?

Mike Everett:

Well, once again, it’s called flexible because you have the flexibility of deciding what you want to do with that. We personally would like people to leave that flexible paid-up addition rider on there, but we can adjust the premium or keep it flexible enough to where you have a place to put some additional cash if you want to. Or you can actually reduce that to a minimum flexible paid-up addition rider payment of $100. Remember earlier we talked about 6,000, but then it goes to a hundred. So that creates a whole bunch of cash flow on your side of the fence, so to speak, when we help you understand how the policy is designed.

Chris Bay:

Yeah. It’d be easier if we had some visuals for people to teach them this next concept. But in theory, if we think of our policies as businesses.

Mike Everett:

Correct.

Chris Bay:

And let’s say we’re in the business and let’s use McDonald’s as an example. Obviously McDonald’s started with one restaurant. Well, now they’re everywhere across the world, right? They franchised them. So if we think of our policies as businesses, are we able to franchise our policies?

Mike Everett:

Absolutely.

Chris Bay:

Nelson, I think, we know this. I’m not sure he says it in his book, but at one point he had 49 life insurance policies.

Mike Everett:

That’s correct.

Chris Bay:

And I think you’re up to what? 17 now?

Mike Everett:

16. Almost 17.

Chris Bay:

Yeah. And in, gosh, seven years, I guess of doing my plan, we’re up to six policies. Explain to people why in the world would they want to start adding additional policies?

Mike Everett:

If you look at your policies as a business and your one policies or two policies or three policies are doing well, why wouldn’t you want to go and start more? All we’re trying to do is create a system to where you control 100% of your own cash flow. So, bottom line is, Nelson on page 48 talks about expanding the system to accommodate all your income. He’s helping people think through, why in the world would you want to continue to build policies? But the way we design the policies is, your policy is going to get better every year, regardless of the economy, regardless of the financial landscape in our country. So if that’s true, why wouldn’t you want additional policies at certain time periods as you’re growing this thing?

Chris Bay:

And, theoretically, we’re able to show people that they could actually start a additional policy of roughly the same size every five years without any additional cash out of pocket.

Mike Everett:

That’s true.

Chris Bay:

And so, eventually, aren’t they going to be capped on how much life insurance they could get?

Mike Everett:

There’s a possibility of that happening, but it really takes a large number of years. 15, 20, 25 years before they really need to worry about that.

Chris Bay:

Okay. And obviously we coach people through all of that.

Mike Everett:

That’s correct.

Chris Bay:

That’s part of the strategic planning that we do with people. My great topic, for some people this may be a little too much in the weeds for them, but I think there’s probably some folks out there that, I know this for a fact, that they like to understand the design of the policy and why it’s different than a traditional life insurance policy would be designed. In the future podcasts, what we’d like to do is get into some of the applications of how people are utilizing their policies in their life for the different ways that they do that, whether it’s for business, addressing debt, college financing, things like that.

So, to our listeners, thanks for joining us. Lots more information on our website at lifesuccesslegacy.com. If you haven’t got yourself a copy of Nelson Nash’s book, Becoming Your Own Banker, you can get that at our website as well. We encourage you to read it. Come back and join us again.