All Forum Posts by: John Perrings

 I have not read those books but just ordered the second one after reading your post. Thanks for posting.

I am an Authorized Infinite Banking Concept practitioner, if you have any questions about that. 👍🏻

 Great points about the use of the death benefit. Having sufficient death benefit that pays out no matter when you die ensures your obligations *as well as* your various savings accounts (retirement, college savings, etc) "self-complete." 

The "disability waiver of premium" is another option that would provide this "self-completing" capability in the even the insured gets hurt and/or becomes too sick to work. The insurance company would pay the premiums to their cash value policy, thus providing a source of income in the event of a disability.

@Thomas Rutkowski

Well, you’ve got some nerve I’ll give you that. 

But unprofessional, uncalled for, and untrue accusations aside ...I have already *agreed with you* about the benefits of fully over funding a policy. 

I was attempting to have a dialog about some situations when it may not be the best thing to do.

Having a life Insurance death benefit *does* have value. And many people want it. So then it’s just a matter of how you’ll provide it to your clients.

There is more than one way to look at this thing called life insurance. Just like most things in life. 

 @Thomas Rutkowski - Regarding your experience of double-checking IBC policies - that's fair enough.

Can I ask - what is it about "leaving room" in the policy that you think is so detrimental? It obviously does push out the time it takes to "break even" on premiums paid vs cash value available in the policy. Less cash available early on. and it does lower the return on cash value somewhat. I get that side of the story, and it is important.

But I do think an argument could be made for leaving room. Especially for people here on BP. 

Staying with the idea of trade-offs.

In a non-fully-over-funded policy, you pay the same cash in, you do have less cash value (say 60% of what you paid in 1st year premium), but you have a higher initial death benefit.

In a fully-over-funded policy, you pay the same cash in, you have a higher cash value ratio in that first year (use the 85% that you've mentioned), but you have a lower initial death benefit.

If an investor leverages cash value to buy an income producing asset. That asset generates a profit. What are their options for where to put that profit?

It doesn't seem wrong to me that you'd leave some "room" in at least one policy so that you have a place to put those profits. A place where the money will never be taxed again.

If you compare the long-term IRR of both policies, the non-fully-over-funded policy will also be similar. Maybe around a half a percent lower. I'm not saying that's not important - but it's not far off from a fully over-funded policy in the long term - and that's if you leave the policy alone.

If you are truly using it as a source of capital, buying other assets, and then funding PUAs from the profit, the difference would presumably be less. Admittedly, still less.

So I suppose I'm coming at this from the angle of certainty. We don't know what our insurability will be in the future. We may not be able to start another policy into which we can save profits. Having some room now, ensures we do have that place.

Interested to hear your thoughts!

@Thomas Rutkowski

Yes, I understand and agree with all of that, but maybe look at it a little differently.

Rather than say that a non-fully-over-funded policy has "higher fees," I would say, rather, that more of your dollars are going towards the initial death benefit. To me, it's a trade-off of higher cash value, early on vs. higher initial death benefit. The "higher fees" are paying for more death benefit, so it's not like we're just throwing money out the window when buying a policy that's not fully overfunded with cash.

What does the client need?

I don't think I'm saying anything you would disagree with here.

I should mention, however, that I do take professional exception to how you frequently refer to Infinite Banking in a negative light. I do not agree with how you characterize IBC as a marketing system or that the typical IBC policy is not fully overfunded to the MEC limit. It's simply not true.

As an authorized IBC practitioner, I can tell you that not one second of the training in the IBC authorization program was spent on marketing or sales.

And while I'm sure you've seen policies by IBC Practitioners with less-than-fully-overfunded cash value, that does not mean it is an "IBC Policy." That being said, however, there may be very valid reasons to not fully overfund a policy. For example, it may make sense to leave some "room" in one of your policies for later years, when you may not be insurable. It is perfectly reasonable to plan for the possibility of coming into some money and needing a place to put it where it will grow tax-free for the rest of your life.

Here is a  podcast episode about this very topic.

I've written fully overfunded policies, I've written policies leaving "room" in them, and I've written policies with no Paid Up Additions rider at all - because in each case it was the best thing for my client - and in each case it still kept to the spirit of the IBC strategy.

IBC training is about understanding the macro-economy, the role banks and the govt played in the last two major recessions, and the benefits of creating your own sources of capital using dividend-paying, cash value whole life insurance. If you don't know how to capitalize, when you need cash, you must seek that cash from outside sources who do know how to capitalize.

From all of your great content here on BP, I know you feel the same way about the importance of capitalizing and leveraging that capital. :)

@Thomas Rutkowski

I am not saying that there are no costs inside the insurance policy.

I'm proposing a thought exercise for how to think about the costs of permanent insurance - to the policy owner - compared to term insurance (my original response).

I stand by my analogy.

Scenario 1: A bank depositor transfers a dollar from their checking account to their savings account (a guaranteed cash asset). -$1 in checking … +$1 in savings (net)

Scenario 2; A policy owner transfers a dollar from their checking account to their permanent life insurance policy (also a guaranteed cash asset). -$1 in checking … +$1 in cash value (net)

In both cases, they moved their dollar from one guaranteed cash account to another guaranteed cash account. In both cases, they have 100% control and use of that dollar after the move. One guaranteed cash account just so happens to also be tax-free and have the extra feature of a death benefit.

So did moving that dollar cost them anything?

Answer: No.

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BTW, regarding internal insurance policy expenses -- I don't think we should care about it. Seriously, why should we?

The policy owner gets an illustration that tells them, in black and white, what the guarantees and non-guaranteed projections will be, *net of all costs*.

A person either likes the guaranteed, tax-free rate of *net* growth or they don't. Why get caught up in these unnecessary debates over internal costs, fees, commissions, etc? It really doesn't matter.

I, of course, agree with @Thomas Rutkowski explanation that you are saving up for your death benefit using permanent insurance. But since the net IRR of the death benefit is positive, even if it endows, there was still no cost to the policy owner, other than possible lost opportunity cost.

(A quick aside about commissions: I think it's passing strange when some real estate people on BP - who should be completely accustomed to transaction commissions - get all bent out of shape over an insurance agent making a commission on a life insurance policy lol)

I agree, Mac. Opportunity cost is one of the biggest costs.

It goes back to my original response in this thread. You’re looking at opportunity cost by trying to compare the rates of return of one thing OR another. Leveraging life insurance cash value, I can earn a rate of return on one thing AND another.

In your original response to me, you mentioned that I was making an “unfair comparison.” You are trying to compare a gauranteed cash asset (life insurance) with investment vehicles that carry risk. THAT is an unfair comparison.

You changed the comparison. Read my previous post. I wasn’t comparing to “buy term and invest the difference.”

I was talking about the misconception of the “high costs” of permanent insurance.

Since you have use of the permanent insurance cash value, it’s like taking money from your checking account and putting it in your savings account. When you transfer $1,000 from your checking to your savings, was that a cost? Answer: No.  

 Hi Joe,

Yes, there is a cost for insurance. That cost is often paid in the first 1-3 years of the policy. During those first couple of years, you get less cash value per year than what you put into it.

After that, however, for every $1 in premium you pay, you end up with more than $1 in cash value for that year.

That is net of all costs, fees, etc.

At some point, say around 3-7 years, you will completely break even - meaning the total available cash value will be greater than or equal to every cumulative premium dollar you've paid into the policy.

If I put $1 in and my cash value is greater than or equal to $1, isn't that just like a savings account?

To use your example, if you paid $50/mo for term insurance for 20 years, that's $12,000 total cost. But it's $20,000 in lost opportunity cost if you would have put that $50 somewhere earning, say, 5% annually for 20 years. That's $20,000 you never earned and can never earn on in the future.

If you put the entire $1,000/mo in a permanent policy earning 5% for 20 years, that's $240,000 in total premium payments, but you'd have $400,000 in cash value, or a $700,000 death benefit. All tax free.

You have more tax-free money than what you put in. Was there a cost to you for this life insurance?

100% Control, Use, and Certainty

A recurring objection to permanent insurance is the perceived "high cost" of the premiums as compared to the perceived "low cost" of term insurance.

Something to understand: Term insurance is a true cost. When you pay term insurance premiums, you will never see that money, nor the interest you could have earned on that money, ever again.

With permanent insurance, you still have access to the cash you put into the policy.

If you move money from your checking account to your savings account, is there a cost?

The same thing is happening with permanent insurance.

And since there are the additional features of a permanent death benefit and disability waiver, this "savings account" (insurance policy) self-completes all the deposits you would have made into it, over the course of your working life, in the event you die or become disabled. Does your bank or brokerage account do that?