Here are a collection of common questions we encounter when discussing the material in Between the Lies. Answering questions for your own personal situation is best done by scheduling a meeting with us. However, FAQ may serve to further clarify some burning questions!
What’s the Compound Annual Growth Rate (CAGR) of a whole life insurance policy?
There is no simple answer to this question. Every insured person is different; every insurance company is different; every policy design is different. Every whole life policy will get more efficient the longer it has been in force. The best way to discuss the potential CAGR of a policy is to schedule a meeting so we can start to build a policy for your specific situation.
What if I am uninsurable? (Age 85 or older, diagnosed with a significant life-threatening disease, etc.)
First of all–don’t lose hope! There are a whole host of reasons why an individual may be declined for life insurance, or that a policy may be too expensive to make financial sense. Generally speaking, an individual has an insurable interest in several other people, such as parents, a spouse, even their children and grandchildren.
For example, it is common for grandparents to set aside funds on a regular basis as a gift for grandchildren when they get older. Personally, I had a family member put a modest amount into certificates of deposit (CDs) at a bank. As each CD matured, the funds were used to buy a new CD. It was a decent amount of money when I turned 18 years old!
When this is done with life insurance policies, the compound growth can begin at a very early age. When the grandparent passes away, a designated successor owner will automatically take ownership of the policy. This can be a great way to provide funds when the grandchild is ready for the financial responsibility of taking and repaying policy loans. A well-designed policy can easily outperform the CD method described above!
There are other opportunities here: businesses can have an insurable interest in their key employees, business partners have an insurable interest in one another, and non-profit organizations have an insurable interest in their regular donors. Many business partnerships have wisely constructed buy-sell agreements in case one of the partners passes away. What if the buy-sell policies also provide compound growth?
Just because you may not be insurable yourself does not mean this strategy is not for you–virtually everyone has an insurable interest on at least one other person!
In the book, you briefly mentioned that life insurance companies are not inflationary. How is that possible?
Put simply, life insurance companies are not inflationary because they are not allowed to practice fractional reserve banking. They are largely unregulated at the federal level, but are instead handled by the individual states. All of the money that they show on their books is really there. More details are available in our article on inflation!
Why have I never heard of using dividend paying whole life insurance like this before? Is this just some kind of scheme?
Consider this: As of Q2 2020, U.S. banks owned over $180 billion dollars in life insurance policy cash values. When interest rates are near 0% and banks earn an extremely low rate of return for their main business function, (lending made-up money) there is still an asset that still gets them a healthy rate of return: permanent life insurance.
While dividend payments from individual companies is hard to track down, there was a study of life insurance company financial data done many years ago, called The Historical Statistics of Life Insurance in the United States, 1759 to 1958. Life insurance companies have been paying dividends to policy owners since 1859. Here are a few selected years of dividend payments to show how the industry has performed and grown over the last 160+ years.
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1859: $417,000
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1870: $15,809,000
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1880: $13,172,000
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1890: $14,510,000
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1900: $22,860,000
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1910: $75,350,000
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1920: $157,500,000
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1930: $553,700,000
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1940: $456,100,000
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1950: $679,300,000
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1958: $1,566,300,000
Today, individual companies routinely pay dividends to the tune of hundreds of millions or even billions of dollars.
Notice that while the total dividends paid do fluctuate over time, this is not the same thing as the “ups and downs” of the stock market. The stock market has years of negative growth. Your whole life policy’s cash value is contractually guaranteed to increase every year, even if no dividend is declared. However, many of the companies that are appropriate to use this strategy with have paid dividends during the roughest periods of American history, without missing a beat: The Great Recession; the Dot Com Crash; the rampant inflation of the 1970’s; World War I; World War II; the Great Depression; the Spanish Flu; the COVID-19 lockdowns; you name it.
The longest series of consecutively positive years in the entire history of the S&P 500 index is the eight years of 1982-1989. The handful of mutual life insurance companies appropriate to use for the strategy in this book typically have dividend histories of well over 100 consecutive years. But again, even if the company can’t pay a dividend someday, your policy’s cash value still goes up. It will just be less growth than you would see if a dividend had been paid.
(Yes, some publicly traded companies have also paid dividends for many years consecutively. However, these dividend earnings are generally taxable to the recipients, and the dividend rates are generally significantly lower than those provided by mutual life insurance companies.)
Why haven’t you heard of this idea? Banks know about it, but want to make money off of you. Why would they tell you? The richest families on earth know about it, but it gives them an edge that you don’t have. Why would they tell you? Even life insurance companies themselves rarely mention the policy loan provision of whole life insurance contracts!
R. Nelson Nash connected all the dots in the relatively recent past, and began telling people the ideas in private seminars. His book, Becoming Your Own Banker, was not released until 2000. In the financial industry, a very few individuals have ever read his book. Of those who have read it, an even smaller number have taken its message to heart. Of those who have taken it to heart, an even smaller number have dedicated their business to this mission. Solid financial advice requires time spent one-on-one. The amount of people I can reach like this is extremely limited—that’s why my book exists. I want the idea to spread like wildfire.
What about Universal Life policies? (UL, GUL, IUL, VUL, etc.)
This an extremely broad and technical question. Speaking broadly, UL policies shift risk back to you, away from the insurance company. I do not consider them to be appropriate for implementing the Infinite Banking Concept at all. UL policies are based on annually-renewable term insurance, and depend on the cash value being sufficient to cover the ever-rising cost of one-year term insurance. This can be quite effective for someone who is 30 years old, as the policy’s crediting rate is likely to far exceed the cost of the term policy renewing at a higher rate every year. However, if the insured lives into their 80’s or 90’s, the cost of a one-year term policy is likely to be astronomical. This can lead to unpleasant circumstances, such as enormous additional premiums required late in life just to keep the policy in force. Whole life policies, on the other hand, have a fixed premium on day one–the insurance provider is on the hook for the death benefit as long as you pay the premiums you signed up for, period.
This is not to say that there are zero circumstances in which a UL policy may be appropriate. But within the context of Between the Lies, they have no place in the discussion.
UL policies with an investment component, such as Indexed Universal Life and Variable Universal Life, are sometimes sold as a sort of “Infinite Banking with stock market participation.” While these policies are a way to have life insurance while some of the premiums go into stock market investments, they are not IBC policies and come with a host of additional risks. I suggest that people use IBC to save and store wealth, then deploy their capital to make investments. Conflating saving with investing is a large part of what got the American public into the dire situation it is currently in.
What about hyperinflation?
No financial product would survive hyperinflation. Period. I’ve been worried about hyperinflation since the the Quantitative Easing (QE) programs started during the Great Recession era, and look where that got me! If I had known about and started organizing my affairs appropriately back then, I would be so far ahead today it isn’t funny. “The best time to plant a tree was 30 years ago,” and all that. Just because the U.S. Dollar will likely collapse someday, that is not an excuse to behave in a financially ignorant manner until that time. Pull all of your growth out and get into real, physical goods that you need to survive when hyperinflation hits.
This is part of a much larger strategy to survive in a worst case scenario, which I have written more about here.
Since 2020, there have been dramatically more death claims reported by some life insurance companies. Does this mean the strategy won’t work?
No. The principles involved are all still perfectly sound, even though there has been a tragic spike in life insurance claims.
This does not mean that every life insurance company will be fine if the trend continues. It is important to be discerning when selecting a provider to work with, and that is a major role that we play in serving our clients. For more details about increased death claims as it relates to the strategy discussed in Between the Lies, read our article on that, here.