Content: Page 62, BECOMING YOUR OWN BANKER – The Infinite Banking Concept.
There are so many things our logger can do to improve his situation – it is hard to decide where to start! The most obvious one is to buy more life insurance to build the system big enough to accommodate all his needs for financing. After all, his total monthly payments to the finance company were $16,000 per month at the start of this story and he has moved only $9,000 to the correct side of the “Great Wall of China.”
At this point he is only about 60% efficient. He needs to expand the system to accommodate the other $7,000 per month. In fact, he should have had the foresight to do this at about the 8th year in the schedule we have been studying.
For another improvement, turn to Exhibit 1 on page 56 in the book and look at item 4 — INSURANCE. The finance company can require him to have collision and comprehensive insurance on the truck – but they cannot make him do business with the dealership where he bought the truck. Of course, the dealer would like to sell him the insurance and finance the premium, too!! But notice that all the blanks have N/A in them.
That means he is doing business with an insurer of his choice. Further investigation – not shown – reveals that he is paying $2,100 per truck per year for $1,000 deductible. That’s a total of $8,400 per year for all his trucks.
Please tell me – has anyone ever seen a logging truck in a body shop?
Why would anyone ever steal a logging truck? What in the world would you do with it? It would be pretty easy to trace. Yet, this is all part of the picture when he uses a finance company.
With that in mind, look at the cash value on page 62 at the end of the 12th year – it is $365,675. At this point he can self-insure for comprehensive and collision coverage. After all, what did the C&C insurance company do to start their company? They got actuaries who played the game of “what if” as it relates to the probability of an accident in a logging truck. Then they got rate makers who determined the premium that was necessary to make it all work. Then they got lawyers who made legal and binding, unilateral contracts. And then, they got agents to sell those contracts to people like our logger.
Do you realize that, once you have a significant sum of cash values in life insurance, you have all the ingredients of a C&C company except premium pricing? All our logger friend has to do to be in the C&C insurance business is to call one of those companies and get a quotation as to what they would charge for such coverage. If that figure is $8,400 per year, then he needs to pay his own life insurance system $10,000 per year in order to self-insure. Remember the extra two cents for the can of peas at the grocery store? Now he is making what the banking business used to make from him plus what the insurance company was making. And it is all on a tax-free accumulation basis.
But there is a problem – the policy on page 62 won’t hold this extra $10,000 per year. He needs to buy more life insurance to accommodate this extra money.
For a look at another improvement possibility, go to line 2 in the Net Cash Value column on page 62. It shows $65,282 must be lent by the insurance company to some borrower. Our man could make a $52,600 policy loan at this point to finance the first truck. If he did so and made the payments of $18,000 per year plus continuing to make the premium payments of $40,000 to capitalize the system – then all the figures below this point in the schedule would improve. That’s because he would be cutting the finance company out of the pattern earlier and directing that financial energy to his benefit.
What’s more – he could arrange with the insurance company to “back date” the starting date of the policy to 6 months ago. That means that he could make a $40,000 premium payment now, and 6 months from now make another $40,000 payment. One year from that date he could be using his system to “cut the bleeding” to the finance company. Remember, the earlier you start a life insurance policy, and the longer it is in force, the more efficient it gets.
There are more improvements that he can make just by thinking and using his imagination, but we are running out of time and will have to save those items until the next lesson. In the meantime, see it you can think of any ways to do so.