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.