Lara-Murphy Report – The Greatest Hits

One of the virtues of a dividend-paying whole life policy is the control the owner has over his money. In particular, policy loans are a very convenient way to access wealth stored in this fashion. Nelson Nash’s Infinite Banking Concept (IBC) uses policy loans as a way to “become your own banker.” Rather than relying on outside financiers and the associated interest payments, Nash encourages individuals to build up a warehouse of wealth inside one or more so that major purchases can be financed through policy loans and paid back on the owner’s own terms.

Life, as we all know, is difficult. Each of the twenty four hours of every day is filled with uncertainty and a host of stress filled problems of one kind or another. In fact, the demand for stress relief from life’s problems is so large that it has spawned a multitude of billion dollar industries. The books, articles, and studies that have been written on the subject of human anxiety are innumerable going as far as categorizing and ranking our fears from the least to the greatest. Not surprisingly, what we find when we read these reports is that the greatest fears center mostly on money issues. Even above the fear of death is the fear of being without money or the lack of financial security. Ask the average American to list his greatest fear and almost one hundred percent of the time the fear of impoverishment tops the list.

IN EARLY FEBRUARY, CARLOS AND I WERE very pleased to participate in the annual Infinite Banking Concept “Think Tank” held in Birmingham, Alabama... because the Think Tank is a forum for the actual practitioners of Nelson Nash’s Infinite Banking Concept (IBC): people in the financial sector who use IBC when advising their clients. At this year’s Think Tank [2014], I noticed that the various speakers seemed to fall into two camps. In the first camp, the practitioners stressed their understanding of the “banking” aspect of Nelson’s ideas. People in this camp explained how they helped their clients redirect cash flows to allow their clients to “become their own bankers.” Not surprisingly, people in this camp relied very heavily on Nelson’s best-selling book, Becoming Your Own Banker, since their approach with clients followed very closely the approach Nelson uses in his book to address the reader. Typically the people in this camp would reject the conventional framework and terminology of the professional financial industry, saying that only by changing one’s mindset and thought process could one escape from the bondage of the bankers. On the other hand, there was a different camp of speakers at the Think Tank. In their presentations, they explained how they showed their clients that dividend-paying Whole Life insurance was a perfectly respectable asset class, which had its own pros and cons. They then explained quite convincingly that in our current economic and political environment, it made a lot of sense for many clients to shift their portfolio more heavily in favor of this conservative asset, because it was superior to the more popular selections (stocks, bonds, real estate, etc.) on many dimensions. The practitioners in this camp did not shy from taking on the Dave Ramseys and Suze Ormans of the world on their own terms.

There are various ways of motivating the philosophy of Nelson Nash that he lays out in his classic book, Becoming Your Own Banker (BYOB). In this article I want to focus on the benefits of “owning your debt,” a phrase that I first heard from David Stearns. I want to be clear that what I discuss in this article is not the sole rationale for implementing Nash’s Infinite Banking Concept (IBC), but I hope my discussion resonates with a large segment of American households who are crippled by outside debt.

Until 1976, no one in the life insurance industry had ever done an empirical analysis of the policy loan option in an insurance contract. With the life insurance industry being centuries old, the fact that this type of research had never been done before is quite surprising. However, in 1976, two industry insiders, Wilfred A. Kraegel and James F. Reiskytl, dug deep into transactions of the Actuarial Society of America; the records of the American Institute of Actuaries; the general proceedings of the American Life Convention; and other journals, conferences, and court renderings of the 1800s and early 1900s to uncover a host of revealing historical facts about this unique policy feature that brought serious scrutiny to their findings by other members of the actuary societies of that day.

The financial strength of the life insurance industry is impressive. Compared to commercial banks and investment firms, their solvency record has been nearly faultless even during hard economic times. While Americans witnessed Standard & Poor’s Rating Services actually downgrade the long term credit rating of the United States in 2011 with a negative outlook, the life insurance industry not only survived the 2008 financial crisis, it emerged from the Great Recession financially sound and continuing to issue policies, paying policyholder claims and servicing in-force business.

In his classic work, Becoming Your Own Banker, Nelson Nash claims that the standard approach to life insurance has things backwards. Consumers have been taught to get their desired death benefit for as little as possible. Yet Nash argues that people’s need for finance while they are alive is more urgent than their need for a benefit check when dead.