By David Stearns
I feel it necessary to share how I think a layperson must approach the Infinite Banking Concept, so that when they view some of the hundreds of YouTube videos or read some of the many IBC-look-alike books available, they can more clearly see what this is all about. My hope is that when you are given an “IBC” life insurance illustration or presented various cashflow models, you will better understand the meaning of the numbers and how they relate to what I call the essence of IBC. My hope is that I will help you will see the numbers through Nelson Nash’s eyes.
Let me remind you that the book Becoming Your Own Banker, Unlock the Infinite Banking Concept, started it all and contains virtually everything you need to understand and implement IBC. In this article I will refer to the book a few times to illustrate a point. If you have not read the book, please do; no video or article can communicate this message as effectively.
Nelson toured the U.S. and Canada presenting his course—which he referred to as his ten-hour seminar—for several years before he wrote the book, which was published in the year 2000. Becoming Your Own Banker was then, even more so than now, a radical paradigm shift in financial thinking.
The book is the text for his seminar “about the power of Dividend-Paying Whole Life Insurance.” But, surprisingly, he led off his live seminar with the idea that
“The Infinite Banking Concept was an Exercise in Imagination, Reason, Logic and Prophecy.”
He suggested that the seminar attendee approach this “10-hour exercise” with an open mind and focus on the conceptual nature of IBC, not the life insurance aspect.
Initially, Nelson unsuccessfully tried to get his brilliant concept across in a single two-and-a-half-hour presentation, but through trial and error, he concluded that he needed a ten-hour hour seminar (broken up over two days) to get the audience to “rethink their thinking.” And for someone to fully grasp this paradigm shift, one had to approach IBC by using their Imagination, Reason, Logic, and—because of Nelson’s deep-rooted Christian beliefs—Prophecy.
“By reason and logic, we die hourly, by imagination we live!” wrote the Irish poet W.B. Yeats. Like Yeats, Nelson resurrected an age-old dichotomy between our ability to make sense of the world around us and our ability to see beyond what meets the eye. Some suggest that this corresponds to the idea of “the seen and the unseen of IBC.”
If you marginalized the importance of this approach, then an accurate understanding of the concept was probably going to take a much longer period, if it was ever fully understood and accepted. My point is that if the reader missed the essence of IBC, it was probably because they either did not get it or focused on the numbers. By numbers I mean comparisons to rates of return, loan interest rates, insurance policy illustrations, and policy designs. All of which can lead to what Nelson referred to as “majoring in the minors.”
It is also helpful if you take the time to think about the meaning of the three words Infinite – Banking – Concept and understand how they relate to each other.
Nelson chose these three words carefully, but many observers overlooked their importance or simply marginalized them as just a marketing label. When from the beginning, they were a simple but accurate description of a personal economic way of life.
Nelson chose Infinite because there is no limit on how you can use your policies. They can provide financing for all of life’s major needs, including cars, education, weddings, and even funding investments. They can be used as a cashflow management account for business owners. They also provide an outstanding vehicle to transfer wealth to successive generations.
Correctly designed IBC policies are a place to warehouse your wealth. And there are numerous ways that a policy can be designed, many ways that it can be funded, and several imaginative options on how money can be taken out of the contract.
The word Infinite can also describe a system of many policies, incrementally added as the policy owners’ insurable interests and wealth grow. Multiple policies can provide the opportunity to “increase the insured pool” and provide greater flexibility in repaying loans. Is the policy owner thinking long range, infinitely, or are they only concerned with the first ten years of the policy performance? Both scenarios support the concept, but each one has a different design.
Is the policy owner’s plan to use their policies to pass wealth to successive generations infinitely? If the consumer is looking at this strategy, then they are genuinely thinking long range, and probably should consider the longest in-force product available. Because the longer the policy’s premiums are contractually able to be paid, there is more opportunity to capitalize the contract, while using it repeatedly, with the ultimate goal to pass the policy ownership on to several successive generations while it is still being funded.
Nelson used the word Banking as an adjective; it is a descriptor for the word “Concept.” If you were lucky enough to have attended a live Nelson Nash Seminar, you would have heard him say, “Let me make it abundantly clear—I am not talking about a bank in the conventional sense of the word.” Please understand that what Nelson was referring to specifically was “behaving like a Banker.” This is in essence the central theme of the book. Isn’t the title Becoming Your Own Banker?
Five chapters in the book are devoted to human behavior. Although Nelson believed that The Human Problems were the most important part of the book, readers routinely dismiss them as secondary information to the book’s case studies. I will not cover them now, so I urge you to review them in the book. He labeled them Parkinson’s Law, Willie Sutton’s Law, The Golden Rule, The Arrival Syndrome, and Use it or Lose it.
Why did Nelson place so much emphasis on the human factors? Because he stressed if you cannot overcome these natural “laws” then it doesn’t matter how well your banking policy is designed or how high the rate of return is or how large the dividend scale is. Simply put, the behavior of the policy owner is more important than that of the insurance company.
“Recognizing the human problems is half the battle, one never fully conquers them, but if one is trending in the right direction, progress is assured.” -R. Nelson Nash
The result is a peaceful, stress-free life. Nelson coined the dictum, “There are two vocations that one should be involved with, your primary occupation, and banking.”
Regarding the three words that make up the term “Infinite Banking Concept,” Nelson thought the third word—concept—was the most important. A concept is something that is an understanding retained in the mind, from experience, reasoning, and imagination.
An important connection is how well you perceive the banking concept, and how successful you are in recognizing your human problems and overcoming them.
Nelson declared to us that Becoming Your Own Banker is the text for his course about the power of Dividend-Paying Whole Life Insurance. So, it is fair to assume that the focus of the book and seminar would be on Dividend-Paying Whole Life insurance. This is unfortunate because life insurance is not the essence of IBC and dwelling on it creates a myopic view of IBC, leading to unnecessary bantering, with much of the focus on policy design and insurance company comparisons.
It is critically important to recognize that Dividend-Paying Permanent Whole Life insurance is the platform that this concept or banking process is built on. We are not describing permanent insurance as an asset class to invest in, nor are we comparing internal rates of return with other asset class products. Although, when you do finally get into the numbers, you will appreciate the solid uninterrupted compounding of this product. Obviously, one could create an alternative “bank” using other means, such as with a rusted coffee can, stuffed full of cash, buried in the back yard. But Nelson demonstrated that the permanent Whole Life contract was the ultimate vehicle for Privatized Banking.
So, to review, the right approach to understanding the concept is to use your imagination, logic, reason, and prophecy. The relationship of the three words – Infinite – Banking – Concept must be understood to appreciate their significance. The concept is hinged on human behavior—becoming or acting like a banker. And ultimately, identifying and overcoming the human problems outlined in the book is critical in implementing Infinite Banking. Banking is a process, not a product! Dividend-Paying Whole Life insurance is the platform that the concept or process uses. As Nelson always stressed, if you understand the concept, then designing and using the platform correctly is “ridiculously simple!”