IUL vs Whole Life Infinite Banking

IUL versus Whole Life Infinite Banking. Which one? Which do we use? Let's cover that in this video right now. All right, so maybe you've wondered, like, what should I be using? Whole Life, IULs, which is Indexed Universal Life, or just Universal Life in general, Variable Universal Life. What should I be using for Infinite Banking? Which one's going to work best? I'll tell you, I've been on all sides of these camps, in all of these camps, and I can give you my own opinion, and I'm going to share with you what I think would be the best thing. So let's dig in. All right, so let's start talking about what these different types of insurances are, and how Infinite Banking really works. Now, if you're just looking into Infinite Banking, there's a lot of different definitions, a lot of different interpretations. I give a shout out and credit to the Nelson Nash Institute, who, of course, coined the term Infinite Banking. And they were coining that term based on how a lot of companies, and even banks, have been using Whole Life Insurance, and or Universal Life, in some cases. They've been using this over the years, and especially they would use it as a way to cycle their money through, you know, get money out, and then have it come back through, and they're picking up interest dollars along the way. Why? Because when you borrow from it, you actually are able to borrow the cash, then use it for wherever you want, and then that money comes back, right? And of course, you earn money on that at the same time, depending on the type of insurance policy that you have. So there's a lot of different uses of it. There's a lot of ways to leverage it. Banks have actually been leveraging it for a long time, so they can actually loan out more than what they have in those policies. Things that might be a little bit different than what you can do, or is it? And so, let's talk about the difference of these different types of life insurance, how they deal with it. Now, I'm not going to talk much about term insurance, because we already know term life insurance is just death insurance. It's an expense. It just covers you for when you die, just like car insurance does. There's no extra component of this tax-free savings account inside of it. That is actually what makes Infinite Banking work. It's not about the death benefit, per se. It's really about the cash value, and how do you utilize that cash value to help you make more money in the process? Now, I'll recommend a book you can read, definitely to go back about Infinite Banking, Nelson Nash, called Becoming Your Own Banker. It's kind of a classic in this space. Now, there's things, because it was written quite a long time ago, there's things that I do agree with versus things I don't agree with. And we can talk about that, of course, but ultimately, we're trying to talk about what's the best vehicle to use. Now, if you were to ask Nelson Nash, he's going to tell you whole life insurance. So, let's talk about whole life and what it is, because there's even an argument for IULs, too. Whole life insurance is very much, really, the oldest form of life insurance that we've had. Whole life insurance has been around for a couple hundred years in just the U.S. alone. There's been different versions of life insurance over the years, but whole life insurance has been around for a long, long time. Now, what makes whole life different than term insurance? Term insurance, of course, covers you for a specific period of time. Whole life will cover your whole life. The negative to that is, of course, because it covers you your whole life and they fix the premium for their whole life, naturally, it's going to be higher, because they know it's much more likely to pay out at some point. Where term insurance, the companies literally bank on the fact that you're not going to die before you use up that term insurance. Because if you get, like, say, a 20-year term insurance and you're 30 years old, the chance of you dying before you're 50 are very, very slim. And the insurance companies know this. They also know that there's going to be other insurance salesmen out there all the time trying to sell you on term life insurance. Therefore, you're probably not going to be with them very long anyways, also lessening their risk. I actually have no specific insurance companies that literally are hoping that you will replace your insurance after a couple years with them. It's just so you'll move on and give the risk to the next insurance company, because then you just make pure profit. Now, whole life insurance, they actually profit, you know, depending on whether it's a mutual company or not. Some of them will even pay you based on the profits earned from term life insurance. So, whole life insurance is very much, it's got the death benefit that covers you your whole life, but it's also got this tax free savings account inside of it. This tax free savings account, like I mentioned, grows tax free, comes out tax free. This money can be used while you're alive. You do not have to wait till you're dead. You don't have to wait till you retire. This money can be used at any time for most of these insurance companies. Some might make you wait a year or so before you can access that money, but for the most part, this money is liquid and available to use. It's much like a tax-free, high-yield savings account. Now, there are insurance costs coming out of it as well. So, when you're putting money in, of course, that money eventually grows and earns interest. You get to a point where the money will eventually pay for itself. The policy will pay for itself. It will not only pay the cost of the insurance, because costs will go down in the insurance over time versus up. The great thing is they not just pay those costs, but they will actually pay you So, many people have been taught to use this as like a retirement strategy where it's a supplemental retirement. You can use it for tax-free income later on, and you don't have to wait till you're 59 and a half. So, maybe if somebody wants to retire earlier than 59 and a half, maybe they'll have their 401ks or their Roth IRAs or whatever it might be, but they know that that's going to be later in life. They're going to use their life insurance to bridge that gap so they can retire earlier. So, there's things and strategies that people use that way. But whole life insurance really is a pretty simple thing. There's no risk, market risk. There's no ups and downs, stock swings, things like that. It's all based on interest rates. So, right now, interest rates have actually been higher than they have been in the past. So, we're starting to watch dividend rates go up, many of which pay at least 6% a year right now. So, it's very stable, very secure. It's guaranteed not to lose money. And as I mentioned before, even down the road, of course, it's guaranteed to always keep growing too, even after you stop paying into it at some point, which you can do, even though most policies are sold that you pay into your whole life, you can actually make the policy what's called paid up later on. So, that's whole life insurance. Now, universal life, and I'm going to talk about indexed, yeah, but just universal life in general, universal life is basically buy term and invest the difference. It's funny because a lot of people will rip on universal life policies and say, well, just buy term, invest the difference. But that's exactly what a universal life policy does. Now, it depends on the type of universal life policy because they do have term component to them. Now, it's a term that gets more expensive each year. So, remember, whole life will go down as it's upfront, front-loaded with higher costs upfront, but then it decreases as time goes on. Universal life, like term insurance, actually will increase each year. The cost will go up because you're getting older, right? And it's buying a one-year term policy each year, of course, it gets more expensive, kind of like your group term that you might get through your company. So, there's that aspect to it, but there's also that same cash value tax-free savings account that you can use too. Now, depending on how that money is being invested or used or saved will depend on the returns you're getting. So, traditional universal life, which has been more popular in the last 40 years, give or take, traditional universal life has been paying pretty low lately because interest rates have been much lower. So, many people have been talking more about, in the past, when I first started as a financial advisor, variable universal life, where you can actually invest in stock market-based investments, or there's indexed universal life, which doesn't really invest in the stock market per se, but they use an index like the S&P 500 index or other indexes, but mostly the S&P 500, where they will pay you a range. They'll have a cap, it might not break over 8% or 10%. So, the market does 20% a year, you get capped at 8% or 10%, but if the market goes down, there's also a floor. So, you usually won't go below like 0% or 1%. So, generally, you see a range between 0% to 1% all the way up to maybe 10%. That can change year to year. So, when I started out as a financial advisor, I was taught about variable universal life. In the early 2000s, that was more popular, although it quickly lost popularity because when the market tanked in Y2K, a lot of people were upset because those insurance costs were coming out and they were losing money at the same time. When it happens, they were told they had to put in more money or they lose the policy. So, there's big, big risk if you try to use the variable universal life. This is why you really don't hear people talk about using variable universal life and infinite banking. They usually don't combine them because there's too much uncertainty with it. But that literally is like buy, term, invest the difference, right? When you use variable universal life. So, about the mid-2000s, I started hearing about this indexed universal life. Indexed universal life, like I said, it's very similar but they cap it. Now, we realized when we started looking at the numbers between 1995 and 2005, even though the roaring 90s had huge, huge market returns, still we realized that in that 10-year period, we probably would have been better off keeping our money in the indexed universal life. We would actually have more money in it because we didn't have the losses to go with it. We didn't have all the gains but we didn't have losses and that's a big deal. And so, I started offering that. Now, when I was training other insurance agents, a lot of them would ask different questions. They're like, well, what if the market doesn't go up and you just get that floor? I'm like, yeah, well, then it doesn't earn much money but you don't lose money. I'm like, no, you don't lose money. Well, you could lose money because if the insurance costs go up and they're coming out and you make a zero percent, then technically you did lose money unless you keep packing more money into it. They're like, okay, what about later on when it gets more expensive? I'm like, well, that's a risk too. So, you got to make sure that the rate of return keeps working. And I run numbers but the thing is that they run numbers at a flat rate. They don't show you like, what if you got zero percent for two years and then it got, you know, x percent these years and then it got down here. I mean, they really don't show you those kind of numbers very often. And so, as a result, it's very hard to predict what's going to happen. The reason why indexed universal life has become so popular the last 15 years especially besides the fact that it's became more popular even since I did it 20 years ago is because the market has not gone down but one year. It's only went down back in 2022. Every other year it's gone up. So really, indexed universal life looks like amazing hero. Technically, variable universal life looks like amazing hero. Even better than indexed universal life because the market hasn't really gone down much. In fact, we're way overdue for a correction. Drastically overdue. Like we're like Y2K levels overdue for a correction right now. So, that's where there's the risk. So, the risk is this that many people that try to use it for supplemental retirement but if costs keep going up and then you're not paying money into it anymore, you could quickly lose that cash very fast. Other things too in indexed universal life, they also have surrender fees. So, in those first early years, they try to make it to where you don't have access to cash. See, whole life, it's more expensive up front and especially we get traditional whole life, it's a piece of crap, okay? Those things are horrible. I bought one of those in 2006 because I was told that your whole life is the best thing ever. Then I bought a policy and it wasn't good because there's such high costs in the beginning. So, they were kind of similar in a lot of ways because those surrender fees in universal life could be very excessive. Even though you have cash value, they lock it up so you can't touch it. So, you really don't have early access to cash. And on the back end, it may or may not work because it gets more expensive. And here's the other thing too that's different with IULs. Like I mentioned with whole life, whole life when you borrow from that money, here's what happens is that you're borrowing from the insurance company. You're not borrowing from your own cash. You borrow from the insurance company because they're using your cash as collateral for the loan. The loan doesn't show up for your credit report. There's no monthly payments. You pay it back however whenever you want. The deadline is your death. But when you borrow, you borrow from the insurance company and you're paying them interest. But at the same time, all of your money is still in there earning tax-free compounding interest as well. So, what's nice is that returns are very similar but because it's simple interest, if you use that investment money to go and invest whether it be in your business, in real estate or whatever it might be, right? You can put it in anything. There's no limits. Whatever you put that money into, ideally, the money comes back. Even some people will pay their taxes each year, use that money and then they'll pay back monthly to pay back that loan so then they can do it again and recycle it again. So, that's the key is you have to pay back towards a loan if you don't want the interest to compound against you. And if you do that, if you pay at least interest only on these loans, now you're only being charged simple interest while the money they're paying you is compounding an interest. So, imagine this. Imagine you have $100,000 in there. You want to use $100,000. Well, $100,000, say you borrow it at six and a half percent, right? So, you're going to pay $6,500 that year. But that $100,000 is going to make you $10,000 a year. You pay back towards the loan. You pay the $6,500 in interest and then $3,500 pays down your loan balance. So, now you owe about $96,000. So, the next year, you get charged at six and a half percent. And now, it's going to be a little less than $6,500, right? And so, now you're going to pay it back again and then you're going to see it knocked down to roughly $92,000 that second year. So, maybe you've paid off like $8,000 of the principal that now you're being charged six and a half percent on. Well, here's the deal, right? Now, you're only being charged roughly about $6,000 a year. But on the other side, because let's say they're paying you 6%, that $100,000 turned into $106,000. The next year is $112,000 and change. You made over $12,000, where on the other side, or now you're earning well over $6,000 a year, while on the other side, you're paying less than $6,000 a year. So, what ends up happening is that grows more and more. That one gets less and less. You create a spread. You make more money here while you're still making all the money from the investments too that are there, especially their cash flowing investments, whether it be in business or real estate. Those are my preferred type of uses. You're able to make more. So, see, you have two different interests going on. When you use Indexed Universal Life, in about 95% of cases, they don't have that going on. You don't have that compounding interest versus simple interest where you make a spread. At best, they have what's called a wash loan, meaning that they'll credit you back the interest, but really there's credit against the interest rate to where you have a 0% loan, but no compounding happening. So, it's just a net 0% loan. Now, that's not horrible, but you don't get that compounding effect where you pick up extra interest dollars along the way. And so, which one do I prefer to use? Even though I've done both of these, the one that I've seen be most consistent and trustworthy and the one that really, in some ways, if it's designed the right way, can actually get you the best returns has been the Whole Life Insurance. But it has to be designed the right way because it's not about just the insurance, the type of insurance you're getting, but it's how the agent designs it. I've seen great designs for an IUL from insurance agents. We do it too from time to time. I've seen great designs there to where it actually does okay and it doesn't run out of money or doesn't have a lot of those risks as much. But I've also seen poorly designed of Whole Life and better designed ones of Whole Life too. All things being equal, when I look at the best case scenario for both, still the Whole Life gives me more certainty, gives me more leverage and I can do it quickly. I can actually, within the first year, access that money versus worrying about surrender costs. I don't have any of those. So, I get more certainty, really that better compounding versus simple interest effect because I really don't get that often with IULs. And I know that the money is always going to be there to keep using, to be able to use however you want. So, for me personally, I love using Whole Life for that very reason. It's much more trustworthy. There's less variables and moving parts that won't mess you up or trip you up potentially. So, even if you have a really, really well-designed IUL, there are a lot of shortcomings to that. There are a lot of things that really push to be more of a long-term thing where I personally like to use money to create short-term wealth. I like to create money now versus waiting until a few decades down the road before I can finally start to do something decent with it, if that makes sense. So, that's my personal opinion. Again, somebody can use it both. But really, if you even ask Nelson Nash, he says, Whole Life, when he was alive, he said, Whole Life is what he meant, not Universal Life. That was never intended to be used with the Universal Life. To even give you further evidence of that, banks don't even want to lend people money based on Universal Life. Even if it's indexed Universal Life because they know there's still a lot of risks and variables involved that if they give you a line of credit, they'll limit the line of credit to be only a certain percentage. Where with my Whole Life insurance, they'll a lot of times give me a line of credit up to like 95% of what I have in there. So, even the banks trust Whole Life more. And I like to go with where the banks go to. I know that banks have a lot more money than I do. And so, I go in and I trust using them. Okay. I went to a lot of detail here and there's even more details that we can go into. And so, I'm just going to recommend if you want to go further down this little rabbit hole, watch this next video.