Infinite banking is a strategy created by Nelson Nash, life insurance agent for 35 years and author of Becoming Your Own Banker. The premise is to use a whole life insurance policy to lend money to yourself, using the cash value of the policy as collateral. It’s an intriguing approach, especially for those who have been frustrated with the loan process.
In this episode of The Agent of Wealth Podcast, host Marc Bautis is joined by John Williams for a conversation with Anthony Faso and Cameron Christiansen, founders of Infinite Wealth Consultants and the hosts of Infinite Wealth Podcast. Together, they discuss the concept of infinite banking.
In this episode, you will learn:
- What infinite banking is.
- How to employ the concept of infinite banking into your own finances.
- How to maximize the use of a life insurance policy to create infinite wealth.
- And more!
Exclusive Deal for Agent of Wealth Listeners | Infinite Wealth Consultants | Infinite Wealth Podcast | Anthony Faso | Cameron Christiansen | Becoming Your Own Banker | Bautis Financial: 7 N Mountain Ave Montclair, New Jersey 07042 (862) 205-5000
Disclosure: The transcript below has been lightly edited for clarity and content. It is not a direct transcription of the full conversation, which can be listened to above.
Welcome back to the Agent of Wealth. This is your host, Marc Bautis. On today’s show, we actually have a full house of people. John Williams is back on the show. John, how are you?
What’s up, Marc?
We also have two special guests, Anthony Faso and Cameron Christiansen, founders of Infinite Wealth Consultants and the hosts of Infinite Wealth Podcast. Anthony and Cameron, welcome to the show.
Thanks, we’re honored to be here.
So I know both of you are passionate about empowering families and business owners to create passive income and financial freedom using a concept called infinite banking. I’m excited to talk about that concept — so let’s get right into it. Start us off with a high-level overview of what infinite banking is and how someone can become their own banker.
Why don’t you start, Cameron? But before that, I’d like to interrupt Cameron. I guess I’m interrupting him before he even says a word, right?
What is that? Yeah.
What is Infinite Banking?
Let’s talk about what infinite banking is not. I know you mentioned that some of your listeners have probably heard about the concept. Infinite banking is not an investment. This is more of a concept, and if anything, it’s used as a cash management tool.
Oftentimes, people compare infinite banking to investments like mutual funds or 401(k)s. They’re two different things — they solve different problems and use different products.
I just want to be clear that what we’re talking about is not an investment, it’s a concept and a way that we can invest or spend money while that money continues to compound.
If someone is brand new to infinite banking, I would explain it by breaking it up into two pieces. The first part is the product, the second part is the process.
The product is a properly designed whole life insurance policy. When I say properly designed, this ain’t your momma’s whole life. If your parents had whole life insurance, it’s not designed that way. This is specifically designed for high cash value, which is just cash inside of a policy for high accumulation. We want this thing to grow as quickly as we can get it. That’s the product.
The process is outlined as this: Once you accumulate cash value inside of the life insurance policy, there are two options for accessing the funds:
- A surrender.
- Take a loan against the cash value.
For the latter, you must ask yourself: ‘What do I want to invest in?’ We tell people to invest in what they know the most.
On our podcast, Infinite Wealth Podcast, we frequently talk about real estate. When it comes to infinite banking, you want to look for opportunities that create cash flow, and real estate fits that bill. So, for example, you can take a loan out against your life insurance policy to secure a cash-flowing asset, such as a single-family residence. The cash flow that you receive back from that asset will be used to pay the loan, back to the insurance policy.
Okay, that makes sense. Can you walk-through the process of how this works? Is designing a whole life insurance policy where you start?
Yeah, that’s the first place.
What goes into that whole life policy? What are the important variables that make it usable for this strategy?
Designing the Life Insurance Policy
There is a list of criteria that should be met. One of which is making sure that the life insurance is through a mutual company, as opposed to a stock.
I’m sorry to cut you off, but there aren’t many non-mutual companies that do whole life insurance to begin with, right?
On paper, there are about 30. But really there’s about 10 that have a good product. Of that, there’s about six that are well suited for this form of infinite banking.
Where the dividends are strong enough where it makes sense to structure it in that way?
Well, great point, John. People bring up dividends a lot in these sorts of conversations. But there’s a lot more that goes into creating cash value than dividends. When we design a policy, we’re not designing it for death benefit. That’s what we talked about earlier — your momma’s whole life. Those policies are typically designed for maximizing the death benefit. For infinite banking, we design life insurance policies very differently.
Here’s how we do it. First, our client decides what dollar amount they feel comfortable putting in their policy, and that would be at a monthly, annually or one-time occurrence. That number comes from them. Then, we design the policy to get as much cash as possible and still be under the neckline. In simplest terms, this makes the process tax free.
I’ve seen some competitive cases, where large companies are touting their high dividend life insurance policies. But when we compared apples to apples (aka the same premiums), our design had higher cash value than the company’s.
The cost of insurance isn’t dragging it down so early, there’s all those things going-
Yeah, exactly. There’s a lot of things that go into it, but dividends are like the sizzle, right? That’s what everybody talks about.
The Pros and Cons of Infinite Banking
There are pros and cons to doing everything, right? Infinite banking is great, but there’s some things that aren’t so great about it. We’re very clear on that (with our clients). One thing that’s a bit different from other strategies is there’s a minimum payment or deposit.
So, we work with people and companies that have flexibility. There have been times that we’ve worked with someone who said, “Oh, great, I can do this (make deposits) every year, no problem.” But then something happens — whether it be with the business, a family emergency and so on — and they can’t make the payment. So we design it with flexibility.
That’s another thing we look out for when researching the insurance company. Some companies allow life insurance policy holders to stop the premium with a phone call. Others only allow policy holders to change a premium on the anniversary of the account. That’s what I meant when I said there might be 10 companies that have a good product, but they all might not be the best for infinite banking.
With a client, the first thing we do is provide education — we can’t just start a policy without them knowing how and why it works. Then they determine what they want to put in the policy. Next, we design it to maximize cash and minimize death benefit. Then, the client borrows against the cash value, allowing them to make an investment. Finally, the return on that investment is used to pay the loan.
A lot of our clients are investors. Whether they want to flip raw land, invest in uranium or do multi-family real estate investing. There’s going to be an investment, right? Usually, they all require cash.
To buy real estate, for example, an investor:
- Saves up enough money to secure a down payment on a piece of real estate.
- Purchases the asset, depleting their account of the money they saved for the down payment.
Then, when they want to buy another property, an investor:
- Saves up enough money to secure a down payment on a new piece of real estate.
- Purchases the asset, depleting their account of the money they saved for the down payment.
Essentially, it’s a repeating cycle.
The problem here is that they’re breaking the compound interest curve every time they drain their account. What makes infinite banking — with the products we use — unique, is that we don’t withdraw money and break the compound interest curve, we borrow against it. Your money is still compounding, it’s still growing.
Because remember, when we take a policy loan we’re not depleting money from your policy, we’re borrowing it from the insurance company.
How Interest Works In Infinite Banking
Now, since we’re not using your money, there is going to be interest. A lot of the time, that’s where people get caught up. They say: “Wait a minute, I just put my money in this policy. Now that I want to use it, I have to pay interest to borrow my own money?” Technically, that’s not true. You’re not borrowing your money, you’re borrowing the insurance company’s money.
A prime example to display this is what I’m doing with my daughter. I set up a life insurance policy for her… I mean, we’ve done a lot with it, it’s also how we financed her (college) education… but recently she took out a policy loan to buy a rental property in Tennessee. The property was $100,000, so she needed to come up with about a $25,000 down payment. So she took that loan against her life insurance policy to buy the property that’s going to cash flow, right?
She’s going to take that cash flow and pay back the insurance company. Now, that’s going to take some time, right? But when it is paid back, she will have one cash flowing property, and since we never took the money out of her life insurance account, her policy continued to grow due to interest. So, once the loan is paid back, the policy will have the same amount of money as day one, but now she will also have a cash flowing asset.
At this point, she can hit the repeat button — or, so to say, rinse and repeat. She’s then going to buy a second property. That second property loan will be repaid twice as fast, because she has a cash flow from property one and property two.
Essentially, she’s using the cash value as a place to store cash.
Is there a point when the arbitrage makes sense? Let’s say the interest rate is 5%. If the policy isn’t growing at the same pace that the interest rate is, what happens?
Very good question. Because we design life insurance policies in such a way, we have people using their policy 30 days after it’s issued. Now, where the real value is — if we’re looking at arbitrage — is in what the policy loan is charging compared to what the investment is returning. And you’re right, if we get a policy loan that’s 5% and the property we’re buying is cash flowing at 10%. With this property, none of the money came out of my pocket, I’m just using the insurance company’s money, right? So however long it takes for that asset to repay the loan, none of that’s coming out of my pocket. At some point, that loan is going to be paid off.
If the asset has a higher cash flow, it will be paid off faster. If it has a smaller return, it’s going to take longer. This is a long term strategy, you shouldn’t be doing this only for a couple of years.
We also work with a couple banks that will do the same thing — we borrow from the bank and they use your policy as collateral. The biggest advantage to that is the interest rate will be lower. The highest they’re charging is 3.9%, my loans are 3.25%, and my policy is averaging (after fees) around 4%, and that’s tax-free.
Tax Advantages and Other Benefits
But here’s the cool thing, even if it’s 4% interest charge and interest earned, there’s that difference between compounding at 4% and simple interest at 4%. As we compound, that balance gets higher and higher. So even if it’s the same rate, we’re going to earn more interest compounding than simple. We can make it better, for one, by using a bank, so maybe it’s around 4% or 3.5%. But if we use this for an investment purpose, like to buy real estate or land — anything that’s going to create taxable income — we can deduct the interest that we’re paying. It’s very similar to margin interest on an investment account. It’s the same tax code that allows us to deduct it.
By the way, cash value inside of a whole life policy has some level of asset protection across all states in the U.S. For example, in Nevada it’s 100% protected — protected from the IRS and lawsuits, growing at a decent rate of return, and it’s liquid.
One of the things that we hear from clients looking at whole life insurance policies is that they look at insurance companies’ graphics and see that year one will produce a negative cash value. Same thing year two: Negative cash value. Year three: Break even. So they think, ‘It’s really going to take a long time to see value.’ What’s different about the way you design policies?
Not a lot of people realize you can actually tell an insurance company where you want your premium applied. It can go to the base premium and/or the PUA (paid up additions) rider. The PUA rider is fundamental — it’s an additional rider, added onto the policy, that shows up in or on that policy as just cash. When somebody is looking at a policy like you just described, Marc, that’s a 100% base policy. Your momma’s whole life. That’s what Dave Ramsey and other financial gurus reference when they say whole life is a bad investment. And I wouldn’t buy that, either. That’s the old way of doing it.
The way we create life insurance policies is the complete opposite. We’re solving for that cash value piece. The way that you supercharge, or overfund, the policy is by putting in the PUA rider. That’s what creates the cash value early on.
Makes sense. What happens if someone is not in the best health, can they still create a life insurance policy for infinite banking? And can I create a policy for someone else, say my kids, and implement this type of strategy?
What If You’re Not Healthy? Misconceptions About Life Insurance
Great questions. As long as you have insurable interest, you can purchase a policy. I personally own policies on business partners, parents, in-laws and my children. So as long as there’s that insurable interest, a policy can be purchased. I am healthy, so I do own my own. But if I wasn’t, the first place that I would look would be somebody else — a family member, loved one, business partner or something like that.
When you look at the way that we design policies, the premiums are dictated by the client, right? So somebody comes to us and says, “Hey, I want to put $10,000 a year into this policy.” What we do is we try to direct as much of that to the cash portion as possible, so the premium is fixed. What varies is going to be the death benefit portion, right? So if we have a 20-year-old come to us and say, “I want to put a $10,000 year premium into a life insurance policy,” their death benefit might be $500,000 (assumption). If a 40-year-old says the same thing — $10,000 premium — cash value is going to grow and accumulate very similarly to the 20-year-old, but the variable that changes is the death benefit. So maybe the 40-year-old’s death benefit is $350,000. Now, a 60-year-old comes to us and says, “Hey, I want to put $10,000 a year into a life insurance policy.” It’s the same thing — the cash value is going to accumulate very similarly to the 40- and 20-year-olds, but the death benefit is going to be only $200,000, let’s say.
Cameron, that’s a great way to examine the ages. A lot of times, people think, ‘Oh, I’m too old.’ The oldest policy I’ve written was for somebody who was 77.
But let’s talk about health. I had a client who had Aspergers, OCD, anger management issues and was about 50 pounds overweight. Now I’m sure not everybody here knows about the ratings that insurance companies have, but when you get a policy, they give you a health rating. Most people are standard. There’s also ratings above standard and below standard — the latter called table. This guy was at table four, meaning that he was four levels below standard. I’m not going to lie, when I saw that, I was thinking, ‘Oh, I don’t know if this is going to work.’ But when I ran it he had close to the same amount of cash value available in the life insurance policy. Although, the death benefit was much lower.
There are a lot of misconceptions out there.
This is why we emphasize product and process. The product, the performance or the rating or the insurance company, is going to be impactful. But the strategy of infinite banking was really coined by Nelson Nash, who wrote the book Becoming Your Own Banker. In that book, he says you don’t need whole life insurance to do this. He teaches infinite banking more so as a way of thinking, and he compares different products.
We believe whole life insurance is the best product to use for infinite banking, but you could use a CD or a savings account. While you can do this process without whole life insurance, we have found that using whole life is going to provide a lot more benefits, in addition to occluding the growth.
You’re bringing back a lot of memories here. I actually got my start in the business with MassMutual. (Life insurance) is a hard concept to explain to people and get them to wrap their head around. I feel like I’m in a different spot than a lot of people in the RIA space, because I’ve bought into it. Some people say, “Well I can put my money in the S&P and get 8% returns.” Sometimes it’s hard to show the benefits on paper.
I think it’s an amazing tool, especially the longevity of it and having that steady growth. But I also think it’s important to have investments outside of it. So you’re saying, your clients primarily invest in real estate?
I wanted to address the first part of your comment there, John, that it’s difficult for people to understand. I’ve actually found the opposite, for most of our clients. Because most of our clients are business owners and real estate investors, the number one concern for them is control. Once they realize:
- They put money into an account with a guarantee.
- There’s no fluctuation.
- They have absolute control over the account.
… they’re sold. That’s what sold it for me, when I came across this strategy of banking. I thought, ‘You mean I can put my money somewhere today and still have access to it later on? I don’t have to wait until I’m 59.5?’ That was a game changer for me.
Most of our clients want unlimited access to their money, so they aren’t interested in investment accounts.
What we talk about, time and time again, is invest in what you know. And that’s what we like to tell our clients. Through whole life insurance and the infinite banking strategy, people can do just that.
I’ll explain a couple ways I use my policy. I’ve used it to finance my kids’ college educations, I’ve used it to pay unforeseen medical expenses, I’ve used it to improve my house. Those are all what Robert Kiyosaki would call liabilities, right? That’s money going away from me, and this (strategy) works well for that. It’s a lot more exciting when we’re buying assets. One of the things that I’ve been doing lately is flipping raw land. I saw you had Mark Podolsky on your podcast a few episodes ago. I’ve been doing that for over a year. I’ve loaned out money at 10%. I’ve bought rental properties. I’ve invested in my business when we needed some improvements. I’ve actually bought other people’s life insurance policies.
With infinite banking, it’s not an either/or. We’re not saying put the money in life insurance or the market. This is an “and” asset. You can create a life insurance policy and invest in the market and real estate and your business.
I want to go back to something you mentioned on the mechanics of a loan. You gave the example of someone saving up some money and buying real estate, while depleting their money. Then they do it all over again. What does the loan look like in terms of payback? Is it on some sort of schedule? Does it operate like a credit card?
Repaying the Loan
Essentially, when you’ve got cash value in the account, the insurance company is extending a line of credit equal to that cash value amount, right? So if you take a loan for 50% of your cash value to go make X investment, the loan interest of 5% it’s being charged on the outstanding money. It’s a 5% annual loan, you actually dictate any sort of loan repayment that goes back to the insurance company to pay down the loan.
One of the things that we tell clients is to let the asset dictate what your loan repayment schedule is. If you get monthly cash flow, great. If it’s a fix and flip — where money is outstanding until you sell — pay when you get all the proceeds. There are no penalties for paying the loan off early.
If somebody takes out a loan against their cash value, and, for example, makes a monthly payment of $1,000, they have access to that thousand dollars that they just paid back. So there’s no score keeping there, right? Once you make a loan payment, you have access to that cash over and over again. I hope that answers your question, Marc.
To confirm: Theoretically, even as you’re taking a loan out, you’re making premiums, you’re having dividends and there’s interest on the policy. So that max line of credit is theoretically always increasing over time, right?
Exactly. The terms are very similar to a home equity line of credit (HELOC) — it’s a line of credit and if you don’t use any of it, there’s no interest. If you do, the interest will only be on what you use.
Some of the difference between HELOC and a policy loan is your policy loans are not reported on your credit. So if you take a loan out and you repay it, that’s not going to affect your debt to income ratio. Also, life insurance policies have an increasing balance. I have a HELOC on my home, but it’s locked. As the value of my house increases, I can’t increase the HELOC — I need to go back to the bank and ask permission.
As you mentioned, Marc, the whole life insurance is going up every time you make a premium, so your line of credit automatically increases.
On policy loans, interest is due annually. We recommend people pay it. For one, if we’re using it to buy an asset, we can deduct it, but we can only deduct it when we pay for it, right? We actually have to cut the check in order to deduct it. But also if you don’t pay the loan or you don’t pay the interest, they (the insurance company) will just add that money to the loan.
If you’re in a bind and there’s no cash available to repay the loan, you can opt to not pay the interest. Like I mentioned, that will just be added onto the loan.
Alright, makes sense. We’re just about out of time. Anthony and Cameron, thank you for being on the show today. You gave some great information about the infinite banking concept and how it can be applied to create financial freedom and passive income. How best can someone find out more information on what you guys do?
If your listeners want to reach out to us, they can go to our website, infinitewealthconsultants.com. But we do also have an online course that explains infinite banking, and as a thank you, we’re extending an offer to your listeners. Typically, we charge about $500 for access to that course, but for having us on, we’ll give your listeners a free link. If you’re interested, you can access it at infinitewealthconsultants.com/agentofwealth/. That link will take you to the landing page where you’ll see more information and can begin the course. This isn’t a sales pitch, it’s just education. Some of the videos that Anthony referenced today you will find in there.
Also on our website there is a link for a discovery call. I’m sure there are people listening who have some questions about this process. If so, we can hop on a call, answer those, and see if this is a good fit for you. The infinite banking strategy isn’t a good fit for everybody, and we’re very clear if it’s not for you. But if it is, we can show you how you can learn more.
Perfect, we’ll link to that in the show notes. Thanks again, and thank you to everyone who tuned into today’s episode. Don’t forget to follow The Agent of Wealth on the platform you listen from and leave us a review of the show. We are currently accepting new clients, if you’d like to schedule a 1-on-1 consultation with our advisors, please do so below.