Our Response To Dave Ramsey's "Why Infinite Banking Is A Scam" | IBC Global

[Music] okay in this video we are going to review a recent video published by dave ramsey regarding infinite banking and how it is a scam so if you had a chance to view the video you likely saw that the talk is mainly about whole life insurance but the infinite banking concept does 100 percent revolve around a dividend paying whole life insurance policy which we all know dave ramsey's thoughts and opinions on whole life insurance so we are going to break down this video we're going to look at several clips we are going to begin with the theme of the video being infinite banking and really how and why dave views it as a scam so the video began with a caller talking to dave let's check that clip out and i have term life insurance i've been anti whole life but he presented me with this infinite banking concept jesus you're kidding me yeah i have excess money in a savings account and looking to rebalance my portfolio to get it to work a little bit harder but my risk tolerance is a little bit low and he showed me how you can do this where you over fund the whole life policy you can access the money you break even in year seven and then the dividend outruns what you put into it yeah it doesn't seem like a terrible idea in that regard but i just wanted your your take on why you know that might not be the best okay so we see the caller asking dave about a whole life insurance policy specifically an over-funded whole life insurance policy that has cash value he has access to breaks even around year seven what that means is by year seven if he's paid in ten thousand dollars per year by year seven he's paid in a total of seventy thousand dollars he would now have seventy thousand dollars that is decent with a whole life insurance product however you can get it to break even much earlier than that and have much stronger cash values but what's interesting is when the topic was brought up infinite banking so the caller said hey the agent pitched me with something a little bit outside of the box infinite banking so let's just hit on this point right here what is infinite banking and how does it relate to a whole life insurance policy well really what infinite banking does is teach one how to use a dividend-paying whole life insurance policy as a financing tool the best means to illustrate this is often with real estate so for example let's pretend that you or i own a piece of property and that property appreciates at five percent every single year like clockwork regardless of what happens in the economy the real estate market your your property your real estate just goes up by five percent every single year now if you own that property free and clear will you still receive the five percent depreciation on the entire home value of course now if you have a loan or mortgage outstanding against that property will you continue to receive the five percent appreciation on your entire property value or just the remaining equity well i still get it on the entire home value that's how real estate works that's why many people are attracted to it so how that ties to infinite banking and whole life insurance infinite banking teaches one how to take control of the banking function in their life as you will find a whole life insurance product works in the exact same manner specifically i'm referring to the cash value here in the sense that once a dollar passes through the cash value of a life insurance policy regardless if i just let that dollar sit and grow or if i elect to borrow against it i will continue to earn interest dividends and interest on my entire bucket of money as if i never touched it in the first place so to illustrate if i had a hundred thousand dollars in cash value earning five percent if i let that money sit and grow i'd earn five percent if i elect to loan or borrow out 50 000 interest would be doing the loan just like it would be if i had a mortgage outstanding which does go to the insurance company however i would continue to earn that five percent on the full one hundred thousand dollars as if i never touched it in the first place which we will provide more detail on this in a minute so that is in a nutshell how infinite banking works and we wanted to be sure to lay that out this way as we continue to progress through the call we want to see if the title of this video infinite banking is addressed by dave or not so when the concept is brought up when the caller asks about infinite banking what happens here well dave immediately defers with a question he's selling a dividend is this an insurance guy or a financial advisor that is the immediate go-to question let's look at the clip quick well here we go the the problem is that you where it gets confusing is that um god he's selling a dividend a financial advisor assistant this is an insurance guy well he's he's both they have you know it's one of the bigger companies um northwestern mutual or prudential exactly yeah okay he's an insurance guy he's not a financial advisor guys okay so because those are both mutual companies now there are two types of life insurance companies mutual and stock okay okay so in that clip we see does not address the topic of infinite banking immediately asks the caller if the agent he's working with is an insurance agent or a financial advisor and the response was well he's both and dave said yeah he works for one of the bigger companies like prudential or northwestern mutual and he continues to go on talking about how northwestern mutual and prudential are two of the biggest companies in the country in the world actually because they are massive size companies and that they are both mutual companies so if you were to look up prudential you will actually find that they are a stock company now why that's important is because dave continues to go into the difference between a mutual and a stock company there are several differences here which he gets a lot of pieces accurate as far as talking about the differences between a mutual and stock company there's more information but we'll get into that later however it's important to note that prudential is a stock company in fact let's take a look here so there we go prudential financial insurance company don't need to go much further than just the first page of google there is their stock price looks like they're doing well today on december 1st so he then goes into how dividends work with a life insurance policy and really that dividends are a deliberate overcharge from the insurance company that's when that's why when we receive a dividend really what it is is a refund from the insurance company of premiums that they had already over charged us for per the language from the irs which is accurate there that is how and why cash value life insurance remains tax-free in a lot of ways why so many people are attracted to cash value life insurance is that if we do everything properly we can grow that cash value and access that cash value 100 tax-free now couple items on this point with the tax favorable treatment one we mentioned we can access the funds completely tax-free which we can however any life insurance policy can become classified as what is called a mec this stands for modified endowment contract if a life insurance policy becomes classified as a modified endowment contract the cash uh excuse me the cash value will grow tax deferred and anything i access in respect to the gains i have to pay ordinary income tax on and an additional 10 penalty tax if i touch it prior to age 59 and a half that is if i violate this limit and my policy now becomes a mech it is easy to avoid but my point to mentioning this is yes cash value life insurance policy is utilized tax-free and the language language from the irs states the reason why is due to the overcharge of of premiums and a refunded dividend which is just overcharged premiums that is the language however it is that language so the product can still remain tax now what's also interesting about this is if we go back to 2016 and several times before this date there have been several attempts to change the tax laws on cash value life insurance in 2016 when trump ran for office in his campaign i remember looking this up and everyone in the insurance industry knew this for the most part it was stated that the rules on cash value life insurance would be adjusted in his new tax proposal meaning he wanted to tax the cash values of life insurance policies now what was so interesting is when he got into office that was proposed but it was pulled out so so quietly the new tax proposal or the revision i should say more or less stated cash value life insurance treatment will remain the same right because what goes on as far as maintaining that cash value that same treatment keeping it tax-free is very very very valuable for people in congress lobbyists big banks corporations the amount of money there is absurd the ultra wealthy big banks and corporations have been using this forever so changing that status would ruffle some feathers to put it lightly so let's continue on here on this point he did talk about the dividends he was accurate but he left out the reason why it is considered a deliberate overcharge of premiums that's important because that's where the tax favorability comes into play now here he talks about policy loans so let's look at the clip real quick the caller had a question on this uh you'll see the caller did not like the fact that he had to pay interest on his own money let's take a look so yeah the thing i didn't love is you know you when you take the money back you basically are paying an interest rate on it exactly and whose money is this right that you're borrowing you're borrowing your own money and you're paying them interest yep this is infinite banking for them yeah yeah the infinite banking concept is is old school whole life done poorly you need a real financial advisor not an insurance broker that's trying to sell you a load of manure okay so we see him talking about the loan interest and this is something dave has expressed several times over the years anytime we see a video on whole life insurance right you have to pay interest on your own money when you borrow it which is true just like if we borrow against the equity in our property we have to pay interest to who the lender that's 100 correct however if our property our real estate continues to appreciate we continue to earn that appreciation rate on the entire property not just the remaining remaining equity let's take a look here at an example actually of exactly how policy loans work because this is a topic that is so so interesting and transparency here is extremely valuable so here is a policy a high cash value policy where a 45 year old male opened the policy and paid into it 50 000 per year for five years his goal was purely cash value so on the left we have an example where he just pays money in and lets it sit and grow year one he's paid in fifty thousand he has forty seven thousand right off the bat by year three he's paid in a total of one hundred fifty thousand dollars and he has one hundred fifty thousand dollars his break-even point continues to let it sit and grow here is his dividend column as well the example on the right exact same policy you can see that by year three only here he takes out a 200 000 loan the question i will always ask if i'm you if i'm the consumer is hey when i borrow against my life insurance policy what is the impact of that policy loan how does it affect my policy well the gauge that determines how much i can borrow how much equity i have access to is my cash value so here you see the line reduce since i pulled two hundred thousand dollars compare that to this example now the company will continue to pay you dividends and interest on your full cash value meaning the 53 000 remaining and the 200 000 as if you never touched it in the first place how and why would an insurance company continue to do that well two reasons why one there is an interest charge you'll see the loan interest here on this particular example the loan interest charge is five percent the other reason is they collateralize one's death benefit the death benefit is really the liability that the insurance company has think of it this way what is a life insurance company's first and foremost obligation to pay life insurance claims if i die with a loan outstanding you'll notice i borrowed two hundred thousand dollars my death benefit reduced by two hundred thousand dollars if i die with a loan outstanding the insurance company is on the hook for that much less now paying back loans are optional i do not have to do it the interest will continue to accrue and you would see it slow down the cash value growth and also deduct for my death benefit each year if i did not pay it back however here we are going to pay it back at 50 000 per year which we can pay it back in any pattern or scale any method that we want we paid it back aggressively if you tally up the payments i borrowed 200 i paid back 229 000 approximately this twenty eight thousand nine hundred seventy five dollars was interest that went to the insurance company if i stopped there we'd make dave look very good in the sense that i'm paying interest on my own money which we are just like borrowing against a piece of real estate the thing is let's look at the loan when everything is paid back so the interest expense went to the company when that loan balance is zero here's my cash value and the example when i just let it sit and grow here's my cash value death benefits are identical as well look at the year that the loans were outstanding what do you notice about your dividends identical all the way through meaning the company continued to pay the same dividend on any money in cash value and any money i had borrowed from the policy another way to put it is that there is no lost opportunity cost here things keep on going forward exactly what i want to see so that is a quick overview of how policy loans work we've got a lot more material if you'd like to dig in or you can reach out to us anytime as well let's continue on here so he did mention something about infinite banking being old school whole life insurance done poorly now that comment i would disagree with the reason why is when i think of an old-school traditional whole life insurance product i think of a policy where i pay a premium i have a death benefit and zero cash value right off the bat nothing versus infinite banking really what that has done extremely well when you look at the concept as a whole is bring attention to the fact that an individual can obtain a cash value life insurance policy and have cash value immediately as soon as we start a policy it can be cash rich a quick example here let's take a look on the right we see what is referred to by dave as a load of manure you'll see that in a little bit his comment on that is his comment on old school whole life insurance and why i mention that you see a 50 year old male this is the same company same product same design same health rating 100 000 in next to nothing right off the bat 13 000 in there what's highlighted in yellow is his break-even point then you see a standard infinite banking policy why we called it a standard policy this is very similar likely very similar to what that caller was proposed what i base that off of is this represents a break-even point of year seven just like the caller stated by year seven i've paid in seven hundred thousand dollars and i have just over seven hundred thousand dollars but then the thing is can also take a policy and optimize the cash value where right off the bat same dollar figure going in 88 in year one break even point year four positive from that point forward this policy produces a net internal rate of return between four and four to five percent which is a tax-free internal rate of return as well that's after all the insurance expenses mortality charges all that good stuff so as far as an old-school whole life insurance product to stay in point here this is what i would refer to a policy that has nothing right off the bat so let's continue on here let's look at the next clip regarding whole life insurance being expensive this was an important point he raised because whole life insurance product i would agree with him in some respect here that if i purchase it just for death benefit it is quite expensive let's take a look and so yeah the other thing is that your cash values that are sitting there all die with you so whatever cash you put into this is equals zero at your death because they only pay the face value prue does not have a policy northwestern mutual does not have a policy that pays more than the face value except universal life b's which are not in infinite banking products and universal product b is where they charge more than they usually charge which basically buys the insurance so they can still keep your money is the way the math actually works on this so you're dealing with one of the most expensive insurance products in the marketplace if you're dealing with either one of those two companies i would stay completely away from both of them they're uh everyone in the financial field except people that work for them we all think they're a joke okay so they've raised a number of points here let's go through a couple key points one he mentioned when you die the company keeps the cash value so how whole life insurance works we've got videos directly studying and explaining how whole life insurance works regarding the cash value and death benefit and how the net amount paid out to beneficiaries is actually greater in the death benefit but i'd encourage you to watch that video if you want a full explanation on that to give a quick example let's look at this example here so what happens as my cash value grows over time cash value is growing when he pays nothing else in not even the premium he stopped after 10 years death benefit is increasing as well i have access to my cash value all the way through that is the equity i can access that's my safe area to position money but if i die the greater amount is passed to my heirs my beneficiaries in the death benefit it continues to appreciate over time a simple way to explain it is that they grow together so if i die on paper the amount paid out to my beneficiaries is the net death benefit but that net death benefit does include the growth on cash value over time very important to make that clear continue on then he mentioned universal life b products being the only products that pay both the cash value and death benefit at death and then he mentioned prudential and northwestern mutual both being mutual companies again offering the most expensive product he's referring to whole life insurance here actually what you can see on the subheading of the video is agent tried to sell me an over funded whole life insurance product but it talks about prudential and northwestern expensive product but again here's the point here prudential is a stock company you'll see why i'm so adamant about that as we continue on in his video but another thing is that prudential does not sell whole life insurance when you look at prudential as a company they offer term life insurance and three different types of universal life insurance in fact let's take a look here because this is interesting so before we had prudential just there on our google search here does prudential sell whole life insurance and the answer we have so according to google prudential does not offer whole life insurance okay so we've got it from them let's take a look just at prudential's website let's go to the source as opposed to asking google okay so on prudential's meeting website let's click on life insurance they are a massive insurance company have been around for a long time well rated but let's talk about different life insurance coverages that's great here we go find the right life insurance solution learned about term and permanent life insurance whoa there we go term insurance universal life insurance indexed universal life insurance and variable universal life insurance so they've spending a lot of time talking about prudential being one of the carriers being a mutual company which they're not and offering whole life insurance which they do not offer whole life insurance there's a reason i'm leaning into this which we're going to get into next so let's talk about one thing as far as whole life insurance being an expensive product because we mentioned earlier if i purchase whole life insurance purely for the death benefit it is expensive i want to be aware of that now the policy structure which dave touches on later is critical here so how does the policy structure impact the actual life insurance policy well let's take a look when we talk about policy structure a couple things we want to be aware of with any whole life insurance policy let's be clear here what do i have i've got my cash value and then i have my death benefit okay [Music] when i pay any amount of money into a policy my money can go toward one of two areas at the end of the day i can allocate money toward the insurance premium or toward what is called a paid up additions or pua rider understanding the relationship of these two areas is critical so let's simplify this a little bit the premium piece i'll often refer to as the insurance expense and the pua component i will refer to often as a cash dump in so again looking at the relationship of these two areas how do they work dollars that go towards the premium let's assume i'm going to pay 1 000 per year into the premium component what will happen in respect to my cash value is this typically i will see zero show up in cash value for the first year and with most products the first and second year the reason why is that the insurance company is going to overcharge me for the death benefit up front that may purchase me perhaps fifty thousand dollars in actual life insurance now as time passes as i continue to make those premium payments once i hit the third year with most products i'll see that thousand i pay in comes back to cash value that's money i can access begins to yield dividends and interest gets better and better but right off the bat behind the eight ball takes time to pick up the pace and that's why in that last example we saw with a hundred thousand dollars per year going in into that traditional policy the one titled load of manure took 11 years to break even versus money i pay towards the pua component if i pay the exact same dollar amount down here what i'll find is just about a thousand dollars will show up in cash value that's money i can access begins to yield the guaranteed rate often a four percent and then also any dividends right off the bat this is the key to accelerating the cash value on any life insurance policy especially if we are being laser focused on the guarantees prepping ourselves for a worst case scenario the less money i put here and the more money i put here will accelerate the cash value growth and then all of a sudden i am mimicking what big banks corporations wealthy individuals that have used these products forever i'm mimicking their exact strategy or very very similar now that will purchase me the pua component some death benefit if i paid in a thousand dollars i may see another three thousand dollars come back in life insurance there is more to this i would uh refer you to our policy design video or structuring a policy for maximum cash value to get more details on this particular topic let's continue on here so if we look at the next clip let's take a look regarding experts in the industry we all think they're a joke all of us anyone who's academically trained or has any kind of cfp or anything else when they when someone says they work for northwestern mutual we just kind of laugh and go yeah right you screw people every day so dude you need to get away from them and you need to go get a real financial advisor that can help you do some real investing that takes into consideration your low risk tolerance low risk tolerance does not need to lead you to losing your money 100 of the cash invested at death okay so dave talks about experts individuals who are academically trained kind of laugh off anyone who works for northwestern mutual or sells whole life insurance you know that piece right there that may be true of some advisors and some people at northwestern or other big companies might say the same back right about each other that's what always happens in industries competition arises and they fight each other the thing is that i like to see here is proof can we please have some proof of individuals that stated that and can you prove out the scenario because what's so interesting is when you look at proof earlier this year we set up a plan for a bank it was a cash value life insurance policy what was so interesting about it it was shortly after coveted hit lockdown to a beginning the bank sends me a message message and states we've got a pile of money we'd like to move into a product asap the product that they wanted and where they moved that money was guess what cash value life insurance they did that for a specific reason it's been tested they understood it but boy did they study it as well the individuals i worked here worked with there were what i would consider experts the cfo of a bank and an executive whose former role was an examiner or very very bright when it comes to finance also working with actuaries cpas experts in the field of finance understanding cash value life insurance understanding other investments and such individuals that do both my thing is do not put all of your money in cash value life insurance do not put all of your money in stocks mutual funds understand the pros and cons of different products out there and then select the options that fit best for us rather than just say my way's the best and everybody else stinks like nah we don't want that kind of stuff we want to peel the emotion out let me understand the product just like i can understand it if i shop on amazon pretty transparent pros cons do i want it from this vendor or do i search and purchase it from someone else pretty simple let's continue on next part sanders insurance so let's listen to this our next clip so when you go to a quote service like a zander insurance and you get quoted on term life insurance you're going to find no mutual companies in the 42 different companies that they give you a quote from because they're not competitive why because they charge more so they can give some of it to you back later and make you feel like that you got something that's really what it amounts to and that's why you won't find them they're not competitive yeah dave you're fired up about this one man i'll tell you what pisses me off infinite banking my butt okay so dave feels very strongly about mutual companies like northwestern mutual and prudential extremely expensive here and he states that if you were to quote term insurance on xander's quote services xander quote services which is a company he endorses you will not find any mutual companies in their quote service of the 42 companies that are quoted no mutuals will exist because they are too expensive so this was interesting when i heard this i'm like okay we sell a lot of life insurance whole life and term so i'd like to understand this because that goes completely against my understanding of the marketplace so what i did was decide to quote myself 32 year old healthy male 1 million dollar policy 20 year term life insurance so different companies we've got here protective they are a stock company we've got aig but then we've got pacific life is pacific life a mutual company or a stock company well what we ran here is what is called a vital signs report this is an independent vendor that gives a full disclosure report on insurance companies and financial institutions here we have pacific life a lot of information regarding their ratings we can get their an asset breakdown but here's the main thing i want to look at stock company right so dave is accurate so far let's continue on lincoln financial group they are a stock company as well sbli savings bank mutual life insurance company mutual life insurance company okay so we found one mutual in there thus far let's continue on behind dave we've got north american insurance company there let's take a look at them north american stock company thus far he's accurate if we continue on look at this prudential another stock company we see here the quote actually continues on where we saw companies like mutual of omaha in there which is also a mutual life insurance company point being is predominantly i did see stock companies pitched in this example however mutual companies are sold and he also talks about prudential him talking about a mutual company we see that they are actually a stock company let's continue on to our last point right so you've got to check your research here two points left actually commissions this will be quick you know this point he mentioned commissions really being the only motivator for the agent selling a whole life insurance product when we go back to the policy design where we talked about money that can go toward the premium piece or the pua component if you recall that and to maximize these policies what we will always do maximize the cash value that is is reduce the premium as low as possible so if and when we do that what happens here the premium is the number one driver of the commission so naturally if we are going to shrink that as low as we can what's going to happen to the commission it's going to be reduced as low as possible when you look at big banks corporations wealthy individuals that have used this forever many banks have this position cash value life insurance as the number one asset on their balance sheets and they are not dumb in some respects but they're not dumb especially their executives there's a reason for this but the products that are set up for them are designed for maximum cash value so if cash value or cash accumulation is a goal of mine when i purchase the product reducing that commission will maximize the cash value of a product and we've got several videos and case studies on that as well the last thing here this is more emotion where he talks about the gut feeling right that the caller had this gut feeling that something was wrong right pure emotion here and we can really pitch that about any product or individual the thing is whenever we are looking at any product any strategy any move that we want to execute what's important here we need data and we need accurate information that's how good decisions are made by us as individuals and companies we need solid data where in some respects you could say dave has discounted himself in this video is he constantly referred to prudential being a mutual company and selling whole life insurance neither of which are true he talked about zander's quote service quoting only stock companies not true they also quote mutual life insurance carriers so these are just some pieces that we've got a fact check to say hey is this a reputable source or not with anyone now this is not to completely discredit dave there's a lot of stuff that we've seen on him that i like where his strength i would say lies is really in teaching individuals how to be disciplined with personal finance and paying off debt he's done a lot of good there so we can certainly gather good from him the issue here is we've got someone who's an expert in the field of personal finance and debt and trying to speak intelligently and promoting themselves as an expert around whole life insurance a cash value life insurance product which there's a lot of moving parts that can be complex we've got to break it down properly so again my advice here would be to do your due diligence look at different options see if it is a fit for us whether it be cash value life insurance term life insurance mutual funds real estate how do i use them all together and put myself in the best position possible really by emulating and copying the ultra wealthy so as always i hope this helps if you have any questions at all feel free to reach out anytime and we'll talk to you soon hey guys steve parisi here if you enjoyed the content you just saw please subscribe like and hit the notification bell for future videos if you'd like more information or to see some custom policies for yourself feel free to call or email our offices at the contact information below

Channel: Insurance Business Concepts (IBC) Global

Views: 672,592

Keywords: ibc global inc, dividends, cash value life insurance, insurance, life insurance, whole life, whole life insurance, finance, cash value, debt, ibc global

Id: qJYdJ0yrbWc

Length: 38min 20sec (2300 seconds)

Published: Fri Dec 04 2020