[my sincerest apologies for the delay in the posting. I wasn't able to focus clearly on my blogs due to the hospitalization and eventual death of my father, Sulpicio.  He died last April 5 and was interred on April 16]

Infinite Banking - Basic Concepts

1) The essence of the “Infinite Banking Concept” is to recover the interest that one normally pays to a banking institution through the use of dividend paying life insurance and then lending those funds to others so that the policy owner makes what a banking institution does. Funds may be lent to any party including your-self and earnings grow within the policy tax deferred. Thus you are both reducing your tax burden and capturing monies for yourself that a banking institution normally would receive.

2) A foundational principal of the concept is that anytime you can cut the payment of interest to others and direct that same market rate of interest to an entity you own and control, which are subject to minimal taxation then you will have improved your wealth generating potential significantly. (Insurance companies do pay taxes – it is just that dividends in an insurance policy are not taxed – we will talk about this later.)

3) A concept or principal that must be understood before we began is that we are not talking about investing here rather we are talking about financing. Financing is a process not a product. Financing involves both the creation of and maintenance of a pool of money and its use. However we will see that when a financing system is combined with an investment system the combination of the two will always out perform an investment system. When the system combines reduced tax liability with a financing engine and allows complete control over your investments there appears to be no system capable

of generating wealth with as much consistency or speed.

4) A second concept or principal we must all agree on is that you finance

everything. You either finance by:

a. Paying interest to someone else – a bank, lender, etc.

b. Or giving up interest you could have earned otherwise. (When you pay

cash the interest the money could have earned is forfeited)

 

5) For these reasons when we are discussing investment alternatives we must not only weigh the return we will receive but we must also evaluate what we are forfeiting or giving up. This mind set will become more important as we evaluate the “Infinite Banking Concept”.

6) For all of the reasons mentioned above every person should be fully engaged in two businesses.

a. Your occupation

b. Banking

7) Of the two businesses mentioned above, banking appears to be the one that

has the greatest potential for helping a person generate long term wealth.

8) If we look at the average American we will find that most Americans spend about $ 0.24 - $.34 of every dollar on interest expense. (Home, Car, Boat, Credit Card, etc.) For example if you look at the purchase of a home, approximately 85 % of the monies paid during the first five years of your mortgage are interest payments.

9) Also looking at the average American we find that about $ 0.30 of every dollar

is paid in taxes.

10) Summing these quantities we see that the Average American is paying from $ 0.54 to $ 0.64 of every dollar they earn on interest expense and taxes. If a legal, legitimate method could be developed to simply capture half of this loss the wealth creating ability of the average man would be significantly improved.

11) In short, if these two sources of revenue could be captured then you would be further along in generating wealth for yourself than if you made good investments in the market that were achieving high rates of return.

12) As a note, the methods we are about to discuss are used by Wachovia Bank. To capitalize a portion of their banking system, Wachovia has purchased over nine billion dollars in dividend paying life insurance on their top executives. This pool of capital is one of the sources of working capital the bank draws on to fuel their banking system. 

[to be continued]

Today I give way to Gary Vande Linde.  This is an excerpt on an article he wrote several years back.

Infinite Banking – How it Works

By Gary Vande Linde

Why I am Interested in the Concept

Three years ago I left a large company, where I had served as the division

engineer for the past twelve years, to become part owner in a small business. The

owners hoped that the experiences I had would prove useful in creating a long range

plan for their business and developing a disciplined approach to the use of their

financial resources. I was comfortable with the methods and techniques needed to

implement these concepts since I had used and supported them in my previous role

as an engineer. The issues that I was not prepared for and frankly has been a

surprise, is the challenge that small businesses face in the procurement and/or

development of a source of working capital to fuel the growth and expansion of their

business.

As an engineer, working for a large company, having a ready source of working

capital was never a concern for me. Rather, if I could demonstrate that a particular

piece of equipment or machinery or change in our process would generate either

increased revenues or decrease cost enough to pay for the modification in two years

or less the money was on its way. However, in a small business setting I was soon

faced with the reality that although we could see many places where improvements to

our process would realize us huge benefits in terms of cost savings or quality

improvements we had a difficult time procuring a source of capital to help us

implement these changes. I soon realized that without some source of working capital

the rate at which we could grow our business was limited. It was at this time that I

began to talk with what I call “money thinkers” to see how other small businesses were

cracking this nut. One day an uncle of mine1 who does financial planning gave me a

book he had recently read on “The Infinite Banking Concept”. Andrew asked me to

read the book and said he believed the ideas could prove useful to me in solving some

of our business cash problems.

 

Upon first reading of the book, it seemed reasonable, sound, and caused my

imagination to explode with ideas. I immediately saw a method of building working

capital for our company that would solve several other problems simultaneously. At

the same time I found myself feeling skeptical. If this is such a good idea why are

other people not using it? How could something this simple work? Are the claims

being made true? How can I prove the ideas to myself? The list goes on and on. So

I took out a sheet of paper and began writing down every question I could think of and

every potential application that came to mind. I then began to contact people who

could help me analyze each question or opportunity. Over a period of about six

months I began to work through my list – adding new questions as they arose and

new opportunities as they became apparent. When I got to the point that I felt

confident enough to discuss the ideas in front of a group, I asked the members of my

investment club if they would listen to a presentation and help me evaluate the

strengths and weaknesses of the idea.

In preparation of that meeting I gave various members of our investment club

copies of Mr. Nash’s book and met with others individually to present the ideas over

lunch. My thinking was that the ideas run counter to what many people have been

taught and people need a little time to sort through the ideas at their own pace. I

believe that the ideas Mr. Nash is presenting are so simple and yet so powerful that

the natural reaction is to be skeptical – cautious. If people are rushed with an idea

that has such far reaching implications, I believe that they will reject the idea out of

fear that something is being sneaked past them.

The following paper was what I gave to the investment club ahead of time so

that they would have had time to familiarize themselves with the concepts. My goal

was to boil Mr. Nash’s book down to a paper with the basic ideas behind “The Infinite

Banking Concept” so that an individual could read through it in about ten to fifteen

minutes and have enough information to stew on. 

(to be continued)

How to Use the Infinite Banking Concept (IBC) to Purchase Cars Over a Lifetime

Today’s post tackles one of the more common applications of the infinite banking concept – purchase of cars over a lifetime.

Assume that you are going to get your cars every five (5) years.

There are several ways of getting your car, and the succeeding cars thereafter. 

The first is through a leasing option.  This is considered the most expensive way to get your car.  At the end of the leasing period, you don’t own the car.  This after you have fully paid your principal and interests.

The second way  to get your car is through a bank loan.  At the end of the loan period, you own the car for whatever residual value it is worth.  Yet, you won’t see again the principal and interests you have paid to the bank.

The third way is pay your car in cash.  You might think that by paying cash you will beat the leasing option and the bank loan option.

You are in for an unpleasant surprise.

Learn this by heart:  you finance EVERYTHING you buy!

You either PAY interest to someone ELSE when you use their money, OR you GIVE UP the interest and investment income you COULD have earned, had you kept your money invested instead.  When you withdraw your money, you’re earning ZERO interest on it.  It is called OPPORTUNITY COST.

Even paying cash has its own drawbacks!

The fourth way is to get your car, and the succeeding cars thereafter, by using the infinite banking concept.

When you do the purchasing this way, you are in for a very pleasant surprise – and more!

The infinite banking concept (IBC) uses a financial instrument known as dividend-paying whole life insurance as your ‘bank.’  By massively funding this financial instrument for the shortest time possible, your ‘bank’ accumulates guaranteed cash values and dividends.

The guaranteed cash values can be loaned out and the dividends withdrawn to purchase your car.

However, you need to faithfully repay the loan as if you are taking the loan out from a commercial bank, only that at this time, ALL the repayments go to YOUR “bank” and not to some other commercial banks.

At the end of the loan period, you own the car, PLUS you will RECOVER ALL THE PRINCIPAL AND INTERESTS you have paid  YOUR “bank.”!

And, to top that, your bank continues to grow its cash values – GUARANTEED,  year in, year out, ready for your next car purchase.

Since the financial instrument you will be using is a life insurance product, there is the added PROTECTION, just in case the Lord calls you to a meeting and you are not allowed to come back. :)

If you want to set up your own personal bank/s and recover all the principal and interests you would have paid to some commercial banks, give me a call at 0922.8547.111 / (032) 511.0102 / (032) 255.6262.  I would be more than willing to assist you, free of charge. :)

The Third Step to Creating Your Own Personal Bank

In the last two (2) postings we discussed about the first and second steps in creating your own personal bank:  get a whole-life dividend paying life insurance coverage from a mutual life insurance company and capitalize this coverage (which is your “bank”) for the shortest time possible, i.e., five (5) years.

The third step is a no-brainer:  set up several “bank branches.”

Remember, we are using the whole-life dividend paying life insurance coverage primarily not for its death benefits but for its guaranteed cash values and dividends for use as funds for financing big-ticket items such as car purchases, grand vacations, business expansion, or loan and mortgage repayments.

By setting up several “personal bank” branches, we will then optimize our sources of financing funds.  Just take a look at how many branches your neighborhood bank has.

On my next posting I will illustrate how infinite banking concept can be use to purchase several cars over a lifetime.

The Second Step to Creating Your Own Personal Bank

Mutual Life Insurance vs. Stock Life Insurance

The previous posting tackled the first step to creating your own personal bank:  get a whole life dividend paying life insurance.

In order to maximize and harness the full power of your personal bank, it is recommended that you have to get your whole life dividend paying life insurance from a mutual life insurance company as opposed to one from a stock life insurance company.

In a stock life insurance company,  whatever profits are there are first allocated to satisfy the stockholders of the company, before the policyholders get their shares in terms of dividends, if there are any left. 

In a mutual life insurance company, there are NO STOCKHOLDERS.  The policyholders own the company! In return, whatever profits are there are fully allocated to satisfy the policyholders.

Capitalize Your Bank

The second step to creating your own personal bank is to fully capitalize your bank.

To fully capitalize your bank, get a whole life dividend paying life insurance and fund it with the most premium or capital you can afford for the shortest time possible.

Most people get their life insurance with emphases on maximizing the death benefit with the least premium for the longest paying period available.  This route we have to reverse for purposes of infinite banking:  get the least death benefit,  with the most premium paid and the shortest paying period available.

We are doing this because we are getting the life insurance primarily not for protection but for financing and banking purposes.  However, if we do it the infinite banking way, the protection aspect will take care of itself.

On my next posting, I will discuss the need to put up several “branches” of your personal infinite bank.

The First Step in Building Your Own Personal Bank

The first step in creating and building your own personal infinite bank is to get yourself a dividend-paying whole life insurance.

What is a dividend-paying whole life insurance?

There are several variants of  life insurance coverage in the market today.  One is the term life insurance coverage.  This is temporary life insurance whose coverage is up to one year, or five years, or ten years.  This type of insurance is akin to renting a house.  You pay a monthly rent but you will have no equity, or ownership, on the house.  Term insurance does not have cash values.

Another type of life insurance is the endowment type.  This type will give you cover up to a certain number of years, i.e., 15 years or 20 years, or up to a certain attained age, i.e., age 50 or age 65.  When the number of years or age is attained, the coverage matures or endows, you will get the benefits stated in the insurance contract, but you will no longer have an insurance cover.

A dividend-paying whole life insurance, on the other hand,  is a life insurance that will give you a coverage up to age 100.  This type also gives a yearly dividend, although dividends are  not guaranteed.

Where to get a dividend-paying whole life insurance.

There are several life insurance companies operating in the Philippines today.  But for purposes of infinite banking,  the recommendation is for you to get your dividend-paying whole life insurance from  mutual life insurance companies, as oppose to getting your insurance from  stock life insurance companies.  There is a reason for this.  And, that will be the topic for my next posting.

Have a blessed year ahead!