The Bank Said No; His Life Insurance Said Yes (Ep. 344)

"He has liquidity of this money. It is backed by his death benefit. If something happens to him, his family still has death benefit and he can pay it back whenever and however he wants. And it will not look like a loan and it will not be treated like a loan at his bank. Now, this particular bank is going to say it's a loan because they've already tried to pull that game on him. But that again shows the ignorance of not understanding how that loan is getting paid back. Because the loan is getting paid back with his death benefit, worst case scenario. And you did not want his death benefit as collateral. So just zip it. You got nothing to say."

Hello, hello, hello, and welcome back to the podcast. Thank you very much for being here. We have a fun story today. I don't think this podcast is going to be very long, but this has probably been one of the more exciting meetings that I've ever had talking to a client on the life insurance side of things, because they've had so much life insurance. And so I just kind of want to give you guys a glimpse into just what 40 years of life insurance can look like, even when it's not done right for infinite banking.

And let's just talk about that for a second. A lot of people will say, oh, I just have a traditional whole life policy that I've had forever, or we've had it since I've been a kid or whatever. And should I cancel it? No.

If you have an agent that you go to, and that agent says, you need to cancel your existing whole life and roll it into an IUL or another whole life or a VUL or some sort of a universal policy — you should probably run. Just my take.

Those policies — if you look back at Nelson's book that we just got done going through, and you look at his State Farm policies, those were straight-up traditional whole life.

So let me kind of explain what I'm talking about. When I structure a policy, there are basically — there's more than two parts, but for the sake of this, we'll talk about two parts. One is what they call base premium. Base premium is buying whole life death benefit, or it's buying universal life death benefit. It's what makes it whole life. If you buy universal life, it's what kind of makes that policy, okay, in Mary Jo terminology.

Now, what we're doing is we're adding on the paid-up additions rider. That rider is buying instant death benefit, creating instant cash value. So it's making the policy more cash value rich up front and more productive for IBC than if it was just the base only.

So Nelson had a State Farm policy. The majority of the policies he had until he really understood the paid-up additions rider were base only. You pay your premium and year one, no cash value. Year two, no cash value. Year three, pennies. Year four, a little bit — little bitsy, little bitsy. Year five, little bit. Takes about 20 to 25 years for that thing to really get going.

Okay. This is why people hate whole life, because it takes a long time for that base portion of that policy to start creating cash value. It does, but it takes longer. And y'all don't have patience. Except if you're putting money into a 401(k), then you're like, oh, I got to wait till I'm 59 and a half. But no, not with life insurance. You want that stuff tomorrow.

So what we're doing is adding on the paid-up additions rider.

So when people come with their policies and they meet with me, they think I'm going to cancel their existing whole life. I'm not going to cancel it. I don't really care what insurance company it's with. I am not going to advise you to cancel whole life.

Now, I have had clients cancel their whole life because they're paying premiums that are really, really high and they want more of that premium to go to cash value and they're in the early years of their policy. Now, they can do that. I can't stop them from doing that. But long term, those policies are going to be very, very good.

So this is a testament to that. I met with a client — a potential client — yesterday, and he was having trouble with the bank. The bank is giving him a hard time. And as we're talking through what he's got going on and all the stuff, his shop, he had to rebuild. And the bank — he went to the bank and they said, no, we won't give you a loan for that. And he said, well, do you want to use my life insurance as collateral? And they said, no, you don't. We don't want you to have any more loans.

So he went to his life insurance company. He borrowed against his cash value. He put the shop up and then he paid it back.

And I thought — we haven't even got to the life insurance portion of our discussion yet. I wonder how much cash value this guy has. Like a shop isn't peanuts, you know.

And so when we got to the life insurance section, he has 13 whole life policies. He started them when he was 20 and he is 65. Now he started buying — let me rephrase that, because y'all just pick words apart and you don't think sometimes. He started his first one when he was 20 and he is now 65. So for 40 years, he has been adding whole life policies along the way. And his biggest policy premium is $11,000.

Now, I want to go through his premium amounts because I think that most people think, oh, well, he must be paying high premiums. No.

Oh, let me back up. He has 13 policies. In those 13 policies, he has $1.9 million of cash value. In base-only policies. These were not set up for infinite banking.

Just the policies on him — he's got a death benefit of $2.3 million. And he's got cash value of $1.28 million. About 50% of his cash value to death benefit ratio.

So a lot of people think, oh, well, he's got $1.9 million. He probably is paying really high premiums. No, he's not.

Premium number one, $733 a year. Some of you are paying more than that for term insurance. He's got one for $1,100 a year. One for $2,200 a year. One for $681 a year. $777 a year. $4,500 a year. This is the big one: $11,480 a year. And then he's got policies on his kids that he's putting a fair amount into. Those are $6,500 to $7,000 a year. And then he's got another one for a little over $6,000 for his wife and another one for $1,300.

His premiums total $50,000 a year. And he told me, he said, Mary Jo, my cash value is going up by $100,000 a year at this point. So he is paying $50,000 in premium, gaining $50,000, and then able to turn around and borrow $100,000.

I told him, what is really surprising and what is super fun to see is that these are base-only policies. He has to pay this premium every single year. He has done that. He has not said, oh, times are so bad, I'm going to skip my premium or I'm going to cancel my policy. He has made his life insurance a necessity, not a luxury.

So many people look at their life insurance as a luxury. Well, hopefully I don't die. I likely am not going to die. So I'm just going to cancel this policy and I'll start all over later.

He has made a lot of really good decisions without really knowing they were good decisions. He got lucky and bought good whole life, and his insurance agent was obviously very good and didn't sell him crappy stuff. He understood that he had cash value to borrow, but he did not know how to leverage it.

And so he said, well, this is why I'm talking to you. I don't think I'm leveraging it to the max of how I can be. I'm like, absolutely not. You have seven and three quarter loans at the bank. They're riding your butt about it. They're being jerks. They're threatening to call notes just to feel good about themselves and puff their feathers, right? And you have all this money sitting in cash value.

And the bank is so ignorant — like, for lack of really a better term, like I should be nicer probably — but he offered them a collateral assignment against that whole life. Thank goodness that they were not smart enough to take it, because then they would have controlled his whole life policies.

Now, he can borrow against his policies. He can borrow that $1.9 million and he can pay off everything, right? No more problems. He can just turn around, give him the bird and say, I'm done with you guys.

Now, he does have a couple low interest rate loans. So he said, I don't want to pay those off. I'll never get that loan rate again. I'll keep those with that stupid bank, but the rest of them, I'm going to pay off. And I said, yeah, and pay it back to yourself. And then you have access to that money right away to go use it for something else.

So I'm like, you're actually going to pay them off and then you're going to sell grain and you're going to put that money back into your policy as a loan repayment, and then you have money for operating and you don't even need to go to them for operating. And now you can pay yourself back however you want.

He's also in a position where he's going to have to buy out all of his siblings, but there's one in particular that he would like to buy out. So I'm like, well, we could pay all the notes off, but instead let's use some of this money to buy out the one sibling and then let's pay off, I think it was like four of their loans, and then everything else is kind of taken care of and the bank should just be good.

Amazing, you guys. He's been patient for 45 years.

Some people are going to say — I'm going to refrain from comments on that because I have other videos on it. Okay, we're not going to get into a big discussion on it. He could have also had a better rate of return had he been using that money in the meantime or had his policy been structured for infinite banking. So he did have access to it in the meantime.

When you look at what he did and what if — let's just compare the two, for sake, not rate of return sake, but let's just compare the two. What if he had money in an IRA? $1.9 million in an IRA, and the bank is giving him a hard time? If he wanted to access that money, he would have to have tax on $1.9 million because it would all come to him taxable. He's 65, so he would not have the penalty, but he would have to pay the tax. So he wouldn't even have the $1.9 million, right? He would have $1.9 million minus whatever his tax bracket is.

So we have to recognize the fact that he has liquidity of this money. It is backed by his death benefit. If something happens to him, his family still has death benefit, and he can pay it back whenever and however he wants. And it will not look like a loan, and it will not be treated like a loan at his bank.

Now, this particular bank is going to say it's a loan because they've already tried to pull that game on him. But that again shows the ignorance of not understanding how that loan is getting paid back. Because the loan is getting paid back with his death benefit, worst case scenario. And you did not want his death benefit as collateral, so just zip it. You got nothing to say.

Awesome, awesome testimonial to how amazing traditional whole life is.

Now, I've seen a lot of traditional whole life over the years, and I've seen people with a lot of cash value, you know, six figures of cash value. I've never seen anyone with seven figures of cash value. And someone that did not have a loan on their policy. Because most of the time, when I see this, those people have cash value, but they also have a loan. They haven't repaid the loan. They're not repaying interest. They're being terrible bankers because they don't know.

This guy was just naturally a good banker. He borrowed it. He paid it back. He understood that side of it. He just didn't think, oh, I'm going to go there and use it as leverage to the extent of borrowing all of the money to get rid of the bank. He just needed to walk through that big number together.

So, super exciting. If you have whole life — it needs to say whole life. If you have whole life, you are on the right track. Is it growing as fast? No, but it's not bad. If you have a mutual company that you have whole life with, it's better than the universal, the variable universal, the indexed universal. And so if you have a UL policy, this is not what I'm talking about. Those policies are a whole different animal.

But if you have whole life, keep it and use it. Start banking with it. Borrow it. Maybe pay the bank off with something. Pay it back to yourself. Use it. You don't have to wait for my approval. I get why you want to, because you want the strategy run and I'm happy to do that for you.

But you're already the banker. That's what I told him. I said, you already own the bank. You already have money in the bank. You just didn't know it was a bank. You didn't know you could leverage your bank to this extent.

So, super exciting. I don't recommend buying more of straight-up traditional whole life because it takes forever. But if we can structure it so we can put some PUAs on there, give you some quick access to cash, a little more death benefit — why not?

So, there you go. That's that story. That's all I got for you today. Pay your premium and buy whole life insurance. Let me know if you guys have comments, questions, concerns. You can get the book — farmingwithoutthebank.com. Grab it there. Schedule your appointment with John or I and we are happy to have a conversation with you. You guys have a fantastic rest of your day.

Thanks for listening to the Farming Without the Bank podcast. We hope today's episode has inspired you to take control of your finances in new ways. Don't forget to check out our website, farmingwithoutthebank.com, and engage with us on our Facebook page, Farming Without the Bank. Join us next week as we smash more financial myths and empower you to accomplish your financial goals.