Fundamental Friday

December 19, 2025

Topic

The Philosophy of Saving & Using Infinite Banking for Family Wealth

Key Takeaways

1. Savings Build Confidence and Control

• The “Save and Walk Tall” philosophy connects saving to self-confidence, independence, and principled decision-making.

• Savings reduce economic pressure, allowing calm, candid, and values-based choices.

2. Insure Children Early to Lock in Insurability

• Secures a child’s health rating before future medical issues arise.

• Example: Jim’s grandson became uninsurable at age 24.

• Convertible term insurance is a low-cost way to lock in insurability.

3. Children’s Policies Act as Financial “Training Wheels”

• A sample $150/month policy for a 12-year-old teaches saving discipline.

• Can be designed to be paid up in ~7 years.

• Creates a small, growing asset for future needs (college, first car).

4. Fund Your Own Policy First (“Oxygen Mask Rule”)

• Parents’ financial stability is the foundation of family wealth.

• Prevents parents from becoming a financial burden on their children.

Topics Covered

I. The Philosophy of Saving

Budgeting vs. Saving

• Budgeting: Allocating money.

• Saving: Requires a clear why.

• Without purpose, spending expands to exhaust available funds, creating a reactive, scarcity-driven mindset.

Scarcity vs. Abundance Mindsets

• Scarcity:

  • Defensive and contracting

  • Focused on survival

• Abundance:

  • Offensive and expansive

  • Focused on leveraging resources and creating opportunities

The “Save and Walk Tall” Philosophy

• Savings directly build confidence and control over one’s life.

• Without savings, people are always “running”:

  • Forced to take the first job offer

  • Dependent on others in emergencies

• Savings provide the freedom to:

  • Calmly evaluate opportunities

  • Leave a job on principle (often increasing perceived value)

  • Speak honestly and make candid judgments

• The ability to save is a habit, not a function of income size.

II. Using Infinite Banking for Family Wealth

Insuring Children

Why It Matters

• Locks in insurability and health rating while young and healthy.

Underwriting Rules

• Parent must have a policy with a death benefit greater than the child’s.

• All children must be insured (or a stated plan to do so).

Age-Based Ratings

• Under 20:

  • Standard rating

  • Higher insurance costs

  • Slower cash value growth

• Age 20+:

  • Eligible for preferred ratings

  • Lower costs

  • Faster cash value growth

Policy Design & Funding

• Convertible Term Insurance

  • Low-cost method to lock in insurability

  • Convertible to whole life later with no new medical underwriting

  • Minimum age: 20

• Whole Life for Children

  • Example: $150/month policy for a 12-year-old

  • Cash value exceeds total outlay in ~7 years

• PUA Catch-Up Feature (Penn Mutual)

  • Allows business owners to make up missed Paid-Up Additions from the prior year

  • Useful for capturing unexpected profits

• Funding Strategy

  • Policies can be designed to be paid up in ~7 years

  • Creates a small, growing asset for future milestones

Teaching Financial Discipline

• “Vitamin K & D”

  • Knowledge and Discipline

• Involve Children

  • Have them contribute to premiums (e.g., from chores)

  • Builds ownership and responsibility

• Use Policy Loans as Teaching Tools

  • Demonstrate borrowing and repayment

  • Teaches real-world banking principles

• Transfer Ownership

  • Once mature and educated, the policy can be transferred to the child

Friday Zoom Session — November 21

Meeting Purpose

Explain the Infinite Banking Concept (IBC) by analyzing how a bank operates.

Key Takeaways

• Two Wealth Paths:

  Wealth is created either through volatile market investing or through stable actuarial science (lending). Banks and insurers use actuarial science for its low risk and predictable cash flow.

• The Banker’s Model:

  Banks use depositors’ funds (a liability) to make loans (an asset), earning profit from the interest spread. Their own $10M Tier 1 capital serves only as a reserve—not for lending.

• Controlling the Flow:

  The banker controls loan terms (rate, length, payment schedule). By becoming your own banker, you can recapture this control and the interest, turning an external cost into personal profit.

• The “And” Asset:

  Whole life insurance is an “and” asset. You can borrow against cash value and the full amount continues to compound—creating a powerful wealth-building loop.

Topics

1. Two Ways to Create Wealth

1. Market Investing: Volatile; depends on buying low and selling high.

2. Actuarial Science: Stable; uses statistics to manage risk (e.g., predictable mortgage payments).

Banks and insurers choose actuarial science for its predictable, low-risk cash flow.

2. The Banker’s Business Model

Four Players:

• Bank Owner: Provides $10M in Tier 1 capital (cash or equivalents like BOLI). This reserve is not used for lending.

• Banker: Employee who sources customers and manages loans.

• Saver: Deposits money for safety and liquidity, accepting low returns (e.g., 0.1%).

• Borrower: Receives loans and repays with interest.

Core Function:

Transform a saver’s liability (deposit) into a bank’s asset (loan), using other people’s money (OPM).

3. The Banker’s Rules for Risk Management

Primary Rule: Avoid risk.

The 5 C’s of Lending:

• Credit — Score & history

• Character — Reputation & integrity

• Capacity — Ability to repay

• Capital — Skin in the game (e.g., down payment)

• Collateral — Assets securing the loan

Higher-risk borrowers are charged higher rates, points, or less favorable terms to transfer risk away from the bank.

4. Becoming Your Own Banker

The Infinite Banking Concept replicates the bank model in personal finance.

How it works:

• Change where you save: Put cash flow into a whole life policy.

• Change where you borrow: Borrow against your cash value instead of using a traditional lender.

Benefits:

• Recapture Interest: Payments and interest go back to your policy.

• Control: Set your own loan rate, payment schedule, and terms.

• “And” Asset: Cash value continues compounding even while borrowed against.

Example:

Use a policy loan to pay a $6,000 tax bill.

Your $6,000 stays inside the policy, compounding, while you repay yourself—preserving opportunity cost and improving long-term cash flow.

5. Managing Leverage and Risk

• Leverage: Insurance companies typically allow loans up to 95% of cash value.

  • Recommendation: Do not borrow the maximum; start conservatively (around 50%) for new policies.

• Risk: The tool is powerful—and can be misused.

  • If a bank wouldn’t lend to you, you shouldn’t lend to yourself.

  • Always have a repayment plan, even if your investment idea fails.

💻 Friday Zoom Session – November 7

Topic: Comparing Qualified Retirement Plans vs. Life Insurance Retirement Plans

🎯 Session Objective

To compare the structure, risks, and long-term outcomes of qualified retirement plans (401(k), IRA) with life insurance retirement plans (LIRPs), and explore a hybrid strategy to maximize retirement income and minimize taxes.

🧩 Key Takeaways

• Qualified Plans Have Critical Flaws

  • Taxes are deferred to an unknown future rate.

  • Exposed to sequence of returns risk, which can drastically reduce retirement income.

• LIRPs Offer Superior Control

  • Properly structured Whole Life (WL) policies provide:

    • Tax-free growth and withdrawals

    • Guaranteed returns

    • Immediate liquidity — use as your own “private bank”

• A Hybrid Strategy Maximizes Income

  • Draw from your qualified plan first to stay below the standard deduction (≈ 0% tax rate).

  • Then switch to tax-free LIRP withdrawals after depletion.

• Liquidity Beats Rate of Return

  • Prioritize access to capital over debt elimination.

  • Liquidity enables you to pursue higher-return opportunities, like funding a LIRP.

⚠️ The Problem with Qualified Plans

1. Origin & Purpose

• The 401(k) (created in 1978) shifted retirement risk from employers to employees.

• Its inventor, Ted Benna, later expressed regret, citing high fees and the transfer of risk to workers.

2. Tax Deferral Is a Gamble

• The government favors these plans because it collects taxes later, when rates are likely higher due to national debt.

• This creates a “tax time bomb” — future tax costs are unpredictable.

3. Sequence of Returns Risk

• Market volatility matters more than average returns.

• Example: Two retirees with the same average return can end up with drastically different results:

  • Portfolio A: $211K

  • Portfolio B: $693K

💡 The Solution: A Life Insurance Retirement Plan (LIRP)

Vehicle: A properly structured Whole Life policy from a mutual company.

Why Whole Life (WL)?

• Guaranteed growth and dividends

• No market exposure or volatility

Why Not IUL (Indexed Universal Life)?

• Market-linked returns = more risk

• Example: Recent $8.5M lawsuit against an IUL provider over misleading performance claims

Tax Advantages:

• After-tax contributions

• Tax-free growth and withdrawals (like a Roth IRA — but no contribution limits)

Liquidity & Control:

• Immediate Access: Borrow against up to 95% of your cash value.

• “Money in Two Places” Concept:

  • Continue earning dividends on borrowed funds.

  • Use borrowed capital for other purposes (e.g., debt payoff, investments).

⚖️ The Hybrid Retirement Strategy

Goal:

Maximize spendable income and minimize taxes using both qualified plans and LIRPs.

How It Works:

1. Draw from Qualified Plan First

   • Keep withdrawals below the standard deduction → effective 0% tax rate.

2. Switch to LIRP Withdrawals

   • Once the qualified account is depleted, move to tax-free income from your LIRP.

Example Outcomes:

• $1M in a Qualified Plan → ~$28K/year (after 20% tax)

• $1M in a LIRP → $40K–$70K/year, tax-free

🏠 Q&A: HELOCs & Home Equity

Q: Should I pay off my HELOC early?

A: Not necessarily.

• Paying off debt stops interest but doesn’t grow wealth.

• Prioritize liquidity — funding a LIRP can grow your capital and keep it accessible.

Alternative Strategy:

• At age 62, a reverse mortgage can provide tax-free access to home equity — like a no-payment, tax-free HELOC.