Monday, April 11, 2011

The Infinite Banking Concept (IBC)- The Most Frequently Asked Question

What's the most frequently asked question I get? Without hesitation:

Why haven't I heard about this before? It sounds too good to be true. 

There are many reasons.

First, this financial strategy seems to be given a new name every few years.  It is originally known as the Infinite Banking Concept (IBC).  Bank On Yourself is another popular name thanks to Pamela Yellen who's book by the same name hit multiple best-seller lists in 2009.  It's also been called Becoming Your Own Banker, Income For Life, the 770 Account, the Presidential Account, Private Reserve Strategy… you hopefully get the idea.  Many names for the same thing.

The Infinite Banking Concept/Bank On Yourself is a savings strategy (not an investment strategy) that also includes a death benefit.  This means Wall Street investment firms do not underwrite, market, or promote IBC/Bank On Yourself.

Sadly, the life insurance industry does not put much effort into promoting IBC/Bank On Yourself either.

Part of the reason is because IBC/Bank On Yourself policies strictly use only dividend paying Whole Life insurance policies.  There are only approximately 45 mutual life insurance companies left in the United States out of 1500+ that exist today.   Of those 45 or so mutual (owned by policyholders instead of shareholders as with a stock based company), maybe 10 offer a competitive and flexible Whole Life policy suitable to IBC/Bank On Yourself.

If you are wondering what the difference is between mutual and stock insurance companies, here's a brief explanation:

Any profits earned by a mutual insurance company are rebated to policyholders in the form of a dividend.  In contract, a stock insurance company is owned by investors who have purchased company stock.  Any profits generated by a stock insurance company are distributed to the investors without necessarily benefitting the policyholders.  This is why you want a dividend paying Whole Life policy from a mutual insurance company.

The savings component of a dividend paying Whole Life insurance policy is contractually guaranteed to increase in value every year and the life insurance company is on the hook for those increases regardless of economic conditions.  In comparison, Wall Street cannot offer any guarantees because they do not insure your money against losses.  They are paid to manage assets and you as the investor assume the risk of losses. The death benefit component of the IBC strategy can only be offered by life insurance companies.

Since Wall Street does not profit from the vehicle that best fits Becoming Your Own Banker, they have no incentive to sell it. Wall Street is primarily interested in 1) managing assets from which they can earn an annual management fee and 2) selling products that bear no financial risk to the firm when a clients assets fall in value.

As a better alternative to mutual funds and 401k's, it is Wall Street's worst nightmare come true should the public discover they could re-allocate their savings into accounts that are insured from loss, 100% access to their money without penalty, and provide tax-favored growth, distribution, and transfer including a life long death benefit protection. Think about it for a moment. Would you still choose a risky and tax-disadvantaged 401k for you and your family over what I just described?

Another reason why you may not have heard of Becoming Your Own Banker, while traditional banks can offer this specific type of life insurance product, doing so would eliminate the most profitable department of every bank: the lending department. Americans have been conditioned from one generation to the next to outsource their individual banking function to their traditional bank. These banks have no financial incentive to give their customers the ability to develop their own banking system within their larger banking system.

It wouldn't make any business sense for banks to teach and offer Becoming Your Own Banker because giving people the capacity to save and borrow from themselves would eliminate the need for banks as we know them. The only reason for having a traditional banking relationship would be limited to maintaining a checking account.

Ignorance is indeed bliss for bankers. Sadly, this is so true that not even bank employees know how to set up their own banking system. Ironically, the largest purchasers of cash value life insurance policies are banks.

Banks purchase more high cash value life insurance policies than any other institutions in the world! And they do it for a variety of reasons which any savvy individual would recognize are the same reasons they should be purchasing it for themselves: safety of principal, to enjoy tax benefits, strengthen financial stability, and to have contractually guaranteed growth provided by the most financially secured institutions in the world (life insurance companies).

Due to the volume of high cash value policies bought by banks, the policies they purchase are now known as Bank-Own Life Insurance or BOLI. Corporations do the same thing with policies known as Corporate Owned Life Insurance or COLI.

Also, the mainstream media is largely controlled by the same Wall Street financial institutions that pay for lobbyists to influence members of Congress. If you don't believe me, ask yourself how quickly Congress intervened to approve TARP money for troubled Wall Street investment firms and bank in 2008? It happened in days.

Compare this to how quickly these same elected officials were willing to reach an agreement on a fiscal budget to avoid a government shutdown. The budget shutdown didn't get resolved until the final minutes even though Congress had months to reach an agreement.

The point is Wall Street's advertising and lobbyist dollars have a direct influence on what we hear, read, and watch from our various news outlets. Turn on the evening news and before too long, you'll be updated on how the stock market fared. Tune into your favorite AM radio station for the same news.

Open any financial magazine, you'll find strategies created and recommended by Wall Street for the benefit of Wall Street. Sadly, we've been conditioned for far too long by the Wall Street marketing machine and now believe that the only option for saving money is investing with Wall Street.

You have to ask yourself why this is? Who benefits? Are there alternatives? If what you thought to be true wasn't, when would you like to know? Wall Street lost over 35% of your account values twice in the past decade. Do you really have to be convinced that any other strategy would be better?

Hopefully, you get the idea of why people haven't heard of Becoming Your Own Banker. There are many high power influencing forces (Wall Street, Traditional Banks, and the Corporate Media) that don't want you to know.

Now I'll get to the biggest culprit which may surprise you. Believe it or not, life insurance companies are as much to blame as any other entity previously listed. Life insurance companies offer an incredible product called dividend paying Whole Life insurance yet fail to invest the time and energy to properly train licensed agents how these policies are engineered to be the safest and most superior savings vehicle ever created.

The fact that whole life policies have survived over 150 years with little change should be testament enough to even the most skeptical of doubters. What is particularly interesting is that the sale of dividend paying Whole Life policies has seen a substantial increase in the last 10 years thanks to the many scandals and financial collapse of storied firms like Lehman Brothers and Bear Stearns and the demise of others who only survived by being swallowed by their peers (think Merrill Lynch and Morgan Stanley among others).

My hope is that the trend continues. I can't think of one person who would not benefit from having a safe, tax-free, and guaranteed way to grow their money.

As disappointed as I am in the life insurance industry for the lack of leadership in promoting the Infinite Banking Concept, I understand why life insurance companies choose not to invest the necessary time to train a licensed agent how to design and implement this strategy.

First and foremost, the failure rate for newly licensed agent is extremely high. The majority of new agents fail to make it past their first year. Secondly, any agent trained to sell a policy structured to meet the specific criteria of a Becoming Your Own Banker policy must be willing to take at minimum a 50% pay cut in commission. In some cases, the commission paid on a this type of policy is as great as a 70% cut in commission.

Since the life insurance industry, much like Wall Street advisors, is a sales driven industry, stomaching a 50-70% drop in pay for often what is 5 times the amount of work in educating prospective clients is simply too steep a price to pay.

From the perspective of a life insurance company and any business owner, does it make sense to train an employee who's likely to be doing something else in 12 months how to make 50-70% less on each case? It simply does not.

It's my belief that if insurance companies took the initiative to train a sales force on the Infinite Banking Concept, the length of a career agent would increase dramatically and it would also have the dramatic effect of strengthening the financial foundation of Americans who would benefit and prosper from having a rock solid financial foundation the Infinite Banking Concept provides and 401k/IRA/Mutual Funds simply cannot.

John A. Montoya
JLM Wealth Strategies, Inc.

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