Content: Page 71-74, BECOMING YOUR OWN BANKER – The Infinite Banking Concept.
Back in my days as a consulting forester, I was teaching landowners who were 60 to 70 years old about planting trees. There was no way that these people could see the fruits of their labors. But, they could see clearly that they were creating a heritage for future generations and that was something very valuable to them – psychic income if nothing else. Based on this experience I developed the scenario on page 69 of the book as a model to compare a better way to create a financial heritage for future generations.
The elderly couple in this story was introduced to the idea of establishing substantial life insurance plans for their four grandchildren. Two were boys and two were girls. The boys belonged to one of their sons and the girls belonged to the other. The grandparents put $2,000 premium per year into policies on each of the grandchildren, retaining ownership of the policies until their own death, with ownership going to their sons at that time.
Their sons are now grandparents and they have a total of eight grandchildren, collectively. They have diligently followed the example established by their parents. Whenever a grandchild is born each will start up a new policy on the newborn with a $2,000 annual premium. Each policy is designed according to the guidelines on page 38 of BECOMING YOUR OWN BANKER, emphasizing cash accumulation and de-emphasizing death benefit at the outset. Premiums are planned for a period of 22 years – approximately one generation – and are to be paid by the grandparents out of current resources or, maybe, a trust that they have set up for this purpose.
On page 73 of the book you will see the illustration of the last policy that was added when a grandson was born. Studying the illustration on this page you will note that, after the first 22 years, the Paid-Up Additions Rider is terminated and the premium of the base policy ($600) is paid by dividend surrenders, resulting in no cash outlay from that point on.
With this particular company and based on the information shown, this is not a Modified Endowment Contract. If premiums were to be paid four more years, it would become one.
Note that there are no examples of using this policy for “banking” purposes illustrated here. Based on what you have already been taught in this course, suppose that the policy was used to buy a car at the beginning of the 23rd year and the repayment amount and schedule were designed to meet those same guidelines – what would happen to all the figures below that point? Answer: they would increase.
Also, suppose that the grandchild wishes to go to college. Where is the best place to get the funds to do so? What about a repayment schedule?
What should the payments be? You supply the answer.
Look at the cash value on line 40. ($412,080). This is prime home-buying time in the typical household. Suppose that the Insured wants to buy a new home at that time – what should he pay back? Answer: the closing costs that his next door neighbor had to pay on a mortgage plus monthly payments that would be equivalent to the current mortgage rates – or preferably, more than that. Remember, it will go to his policy and increase its cash value. This will result in increased “passive income” at retirement time.
Now, go to page 74 and look at the “passive income” beginning at his age 70 ($225,000 per year). Let’s assume death at age 85 and you will note that he has recovered the $22,000 that his grandparents paid into the policy, plus $3,556,000 in income and it still delivers $6,375,923 to the next generation.
There are other significant advantages to this idea:
- It covers multiple generations – promotes long range planning.
- Underwriting problems are minimized.
- Tax-free buildup of cash values over a long period of time.
- Outlay is very small compared with the ultimate yield.
- The generation paying the premium can most easily afford them.
- When death benefit occurs, the system becomes self-sustaining.
- Precludes any need for Social Security.
- Retirement income is assured.
- Estate planning is greatly simplified.
- Wealth “mentality” is transferred to succeeding generations over a long period of time to produce consistent understanding. They are learning a process – not buying a product.
- Promotes the understanding of what stewardship is all about.