Nelson Nash’s Becoming Your Own Banker: Part IV, Lesson 3 Equipment Financing

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Content: Page 52, BECOMING YOUR OWN BANKER – The Infinite Banking Concept.

The young man observes, “That’s like my wife shopping at Winn-Dixie Grocery when we own a grocery store, too. Can I do business at my store?” His insurance agent replies, “Yes, by all means! The insurance company must lend that cash value out in order to be able to pay the death benefit that it has promised – any you outrank all the possible places where they lend money! How much money do you need?”

“Every time I replace a truck, the dealership allows me a greater trade-in value, but the price of the new one I buy keeps going up, too. I seem to always keep financing about $52,600.”

Turn to page 61 and note that, for the first four years of the policy, it is identical with the previous example on page 55. The insurance company has got to lend $157,373 somewhere, so there is no problem in lending him $52,600 since he outranks all possible borrowers. It is a fully secured loan as far as the insurance company is concerned.

The agent explains that he needs to start a repayment schedule and that the policy calls for 8% interest on the loan balance – but “we are not going to play that game – you are going to pay the same thing that you are paying the finance company on those 3 other trucks in your fleet, and that is $1,502 per month!”

You must realize that the policy owner can tell him, “Stick it in your ear – this is my money and I can pay anything I want to – or maybe I’m not going to pay anything at all.” If the owner comes up with that sort of nonsense, the agent needs to take him back to the grocery store example in Part I and explain “the can of peas one more time.” If he doesn’t understand that story, then the agent needs to take him back to the First National Bank of Midland, TX and explain the error of the directors of that bank one more time. If he still doesn’t understand, then the agent needs to draw a line through his name and forget him because he is either a thief or he is un-teachable! Neither is a good business associate.

Let’s assume that he is a good student and understands that whatever he pays in interest is going to his policy being managed by the “gophers” at the insurance company. Anything over the 8% loan interest requirement will be going to increase the capital in his policy and provide more money for the insurance company to put to work in his behalf. It is just like the example of the extra 2 cents for the can of peas that the grocer required his captive customers to pay in Part I.

And so, at the beginning of the fifth year he makes a policy loan of $52,600 and trades in an old truck, making sure to make a loan repayment of $18,000 – the same thing he had been paying a finance company for the old one. This transaction shows up on the illustration as (-$34,600) in the Net Annual Outlay column. If it takes you a minute to understand this cash flow, then take all the time you need. It must be understood. At the end of the eighth year he has repaid the loan plus interest back to his policy. He repeats the process every four years.
Now, look at the cash value at age 65 – it is $1,988,254. Compare this with the yield in the previous example where the insurance company managed it all on his behalf ($1,517,320). He has an increase of $470,934 by financing the truck through his own banking system. His cash flow in both examples is the same. It is all a matter of where the interest he is paying goes – to the finance company or to his policy.

Note that his retirement income has increased to $125,000 per year. Assuming death at age 85, he has withdrawn a total dividend income of $2,034,800 plus everything that he paid into the policy – and still delivered $3,119,289 to the next generation. This is a significant improvement over the illustration on page 55 where the insurance company managed all the cash values on his behalf.

All of this is because the interest that he had been paying the finance company is now going to his policy – not the life insurance company.

Take all the time you need to study these two illustrations because they need to be thoroughly understood before we go any further. You must realize that the improved results are not the results of something that the life insurance company did. It was all because of how the policy owner directed his cash flow in payment for the truck he needs in his business. He has cut the “gate-keeper and toll-taker” out of the pattern.

And so, our policy owner says, “I’m beginning to see a pattern here – can I finance two trucks through this system?” We will look at that in the next lesson.