Content: Page 51-52, Becoming Your Own Banker – The Infinite Banking Concept.
This young man is making a mediocre living as a logger – and the finance company is living well from his payments on the equipment. If he wants to make more money he should get into the “banking business” through dividend-paying whole life insurance. The good news is that he doesn’t have to get out of his logging business to do so. In fact, every businessman should be in two businesses – the one in which he earns his living – and the banking business that finances what he does for a living. Of the two, banking is the most important.
To get into the banking business, he is going to have to come up with capital – in this case I suggest that he put $40,000 per year for four years into very high-priced whole-life insurance with a reputable, well managed company. Now, please don’t ask me where he is going to get that much money for premiums to start this new venture!
Remember that he put a $13,190 down payment on the truck in the last lesson. That was bound to be the case when he bought the other three trucks, too. So, that means he has $52,000 in equity in the four trucks.
Recall, also, that the two logging tractors cost twice as much as the trucks – and they are financed, also. That means he has another $52,000 in equity in them. The tree-shear costs much more than the logging tractors and he must make a down payment of about $55,000 when he purchases it. All this equity adds up to about $160,000. When contemplating this scenario, I have yet to have someone ask, “Where did he get that $160,000.” He was motivated to come up with that much capital because he thought it would be a good business venture.
So, if he wants to get in the banking business, he must be equally motivated to come up with the capital to get started. Turn to page 54 and look at the bottom, right corner of the page. There you see the premium structure of a possible plan to get started. Turn to page 41 and visualize where this fits on the scale.
He is putting $15,000 per year in to the Life Paid-Up at 65 “base policy” and he is putting $25,000 into a Paid-Up Additions rider. The net effect is a policy that “snuggles up” to the MEC line – but does not cross it.
Looking at page 55, you note that he does this for four years. At this time, he has paid out $160,000 and his net cash value, including dividends that have been buying additional paid-up insurance, is $157,363. He has very little “sunk cost” in getting the policy started – it is very liquid and is sizeable enough to start financing his equipment.
In this illustration he terminates the $25,000 PUA Rider at the end of the fourth year and lets the dividends pay the remaining base policy premium of $15,000 per year. Note that the dividend in the fifth year is $6,339. This is not enough to pay the $15,000 premium due, so some of the paid-up insurance is surrendered to make up the shortfall. Look at the Death Benefit column and note the highlighted numbers. The death benefit is smaller the fifth year than in the fourth year. The difference in the two is the face value of the insurance that was surrendered, the cash value of which ($8,661) made up the difference in the premium ($15,000) and the current dividend ($6,339).
As the schedule progresses the annual dividend is increasing and in the 17th year the current dividend ($15,634) is enough to pay the base premium ($15,000) and the surplus ($634) is used to buy more paid-up additions. The net result of all this is that there is no additional outlay after the first four years. This is the classical “premium offset” illustration with which most all life insurance agents are familiar.
Note that the cash value of this illustration is $1,517,320 at his age 65 and the death benefit is $2,406,948. He considers retirement at this time and looking at the Net Annual Outlay column you see highlighted figures of ( -$92,000) from that point on. A negative outlay is “computerese” for income. This income is coming entirely from dividends.
The dividend at age 65 is only $71,942, so paid-up additions were surrendered to make up the shortfall just as we did earlier in this lesson to pay premiums. At year 47 the dividend ($92,892) is more than the income figure, so the surplus purchases more paid-up insurance.