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Compared to What?

In the footprint of the Infinite Banking Concept®, a common question revolves around the potential rate of return. Nelson Nash explicitly states in the introduction of Becoming Your Own Banker that this is NOT about rates of return. However, it's understandable that the newcomer would be looking for an existing mental file into which to put this new information. Even if the question is missing the point, it does deserve to be answered.

A crucial question in measuring any financial opportunity is "compared to what?" I've heard it said that a seasoned financial professional was asked by a colleague, "How's your wife?" He answered, "Compared to what?"

Now I don't recommend taking it that far, but when weighing the options of where to store capital, it's not enough to just compare stand-alone metrics that can be very nuanced. We have to take into account the many variables of options, including environment, purpose, and imagination.


To answer this, we must come back to our original question: Compared to what? Well, first of all, we must compare options in the same environment. Is it fair to compare the speed of a cheetah on land to a black marlin in the water? While it would be a close race, if you take either of those and insert it into the other's environment, it wouldn't even be close. So when we think about rates of return, we have to keep the environment constant. A dividend paying whole life insurance contract resides in the environment of saving, not investing. It would not be a fair comparison to take a no-risk savings environment and compare it to an environment in which 100% of your money is at risk.

If we compare IBC with similar savings environments, we would be looking at options such as a savings account or CD at a local bank or credit union. This is safe money, not money at risk of loss. So what kind of rates of return would you expect to get on a savings account? Right now in 2024, interest rates have risen to 15 year highs, but the average savings account rate is still only a little above half a percent. A CD might get you 5% if you're willing to lock your money up for a year or more, and remember that all of that interest is taxable.

Here lies another environmental difference. Gains inside of a policy built for IBC are accessible tax-free under current tax law. Considering the purpose of life insurance is to take care of widows and orphans, I don't see the re-election-hungry politicians voting to change that anytime soon.

Another key factor in the environmental equation is that in practicing infinite banking, your money never leaves your system. When you use the capital you have built, its purpose is collateral. You are borrowing against, not borrowing from. So the values in your policy are free to grow and compound for a lifetime.

Let's be super-conservative. Let's say that the rate of return on such a policy is 3-4% over the life of the policy. Can you think of another place to store cash that would net you 3-4% with uninterrupted, tax-free growth, that was also available to collateralize a loan at any time for any reason? There's just not another environment like it.


Another factor that is vital to consider is the purpose of the capital that you are storing. Your purpose will determine your storehouse. Let's take a traditional retirement account for example. Is the purpose of that to finance cars or vacations? Of course not! Your money is locked away until you reach 59 1/2 under threat of penalty and taxation. This would not be a wise place to store money for the purpose of financing needs and opportunities.

What about a brokerage account? You could store money there that you need to use in the near future, but now there is a new problem: you have to time the market. Has anyone ever had a financial advisor say "now" is a good time to sell? I haven't. It's either, "Oh, let's wait until the market recovers," or, "It's on its way up! Don't get out yet and miss the upswing!" It's terribly difficult to do it well, not to mention incredibly stressful. So the purpose of a brokerage account is typically not money that you need to actually use. Now, to be fair, you could leverage this account and take a loan against it. However, the rules typically won't allow you to access more than 50% of the value, and you're always at the risk of a margin call if the value of the stock falls. Not a great formula for a good night's sleep, in my opinion.

Real estate? This is a popular wealth-building tool, but again, you are at the mercy of the market. To take a loan against your property is one thing, with similar risks and limitations as mentioned above, but to completely liquidate and sell when you need the money is dependent on market conditions and can drag out much longer than anticipated.

So where do people generally store money that's purpose is to be safe and available? Well, here we are back at a savings account at the bank. Could you potentially get a higher rate of return in a different vehicle? Of course, but it would defeat the purpose.

I live in a rural community in West Texas that is built on agriculture. It is not uncommon at all to get stuck on the highway behind a tractor that is moving very slowly compared to what my SUV is capable of. Would it be reasonable to conclude that the farmer is stupid or uneducated for driving his tractor down the road when a pickup would get him to his destination much faster? Of course not! The purpose of driving the tractor is to get to a field where he will use it to plant a crop and make a living. Getting to the field faster in a pickup would not help him reach his goal. Driving the tractor might seem slow or cumbersome, but it's just part of the process of running a very profitable operation.

What do tractors have to do with IBC? If the analogy isn't clear, let me connect the dots. The purpose of storing capital in a life insurance contract is not just about the rate of return inside the policy. It's about leveraging that capital to put it to work in other places. To have a fair and honest comparison, this must be taken into account when calculating a return. You have a modest return inside the policy, but what you can do with that money outside the policy simultaneously is where the real opportunity sits. That leads us to our final consideration for today: imagination.


There is a famous interview with Steve Jobs, the founder of Apple Computers, in which he recounts the following story:

“I think one of the things that really separates us from the high primates is that we’re tool builders. I read a study that measured the efficiency of locomotion for various species on the planet. The condor used the least energy to move a kilometer. And, humans came in with a rather unimpressive showing, about a third of the way down the list. It was not too proud a showing for the crown of creation. So, that didn’t look so good. But, then somebody at Scientific American had the insight to test the efficiency of locomotion for a man on a bicycle. And, a man on a bicycle, a human on a bicycle, blew the condor away, completely off the top of the charts. And that’s what a computer is to me. What a computer is to me is it’s the most remarkable tool that we’ve ever come up with, and it’s the equivalent of a bicycle for our minds.”

One of the main factors that sets apart humankind from the animal kingdom is our ability to create. And while Jobs applied this to the world of technology, I believe the principle is applicable in many areas. Bicycles make humans more efficient with their bodies. Computers make us more efficient with our brainpower. And, I would argue, a correctly designed system of dividend-paying life insurance policies makes us more efficient with our finances.

You see, leverage is only dangerous if your underlying asset can decrease in value. If you are borrowing against an ever-increasing pool of capital that is guaranteed to go up, it takes quite a bit of risk off of the table. It frees you up to use your imagination, and to be creative in wealth-building opportunities. Creativity is not something that is always valued by the loan officer at the bank, by the way. Try getting a loan for a new idea with no proven track record. The chances of success in that endeavor are not good!


I hope by now you can see that comparing rates of return is a difficult thing to do. It's not just about which number is bigger. To reach an accurate conclusion, one must take into account several factors that might not show up on an illustration or a spreadsheet. At the end of the day, the value of implementing infinite banking is not just measured in numbers, but in control, in peace of mind, and in being in charge of your own financial destiny.

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