You can become your own banker. In this episode, I'm going to address the
question "How can I become my own banker?" This is a very powerful concept that
many people have addressed. I'm going to give you a different take on this so
stay with me, put on your seatbelt. You're going to be blown away.
I'm Doug Andrew. And I've written 11 books so far. My goal is to write a book
every year the rest of my life. But this is one of my favorite topics and I cover
it in different ways in all of my various publications. My most recent book
The Laser Fund has some really good examples in it and at the end, if you
stay with me, I'll show you how you can get a free copy of this book send out to
you. But the banking concept is something that's not new. But a lot of people don't
really understand it or how to capitalize on the ability to make money
through what is called arbitrage. Now, what is that? That sounds scary.
Arbitrage has been around for centuries. This is where even in the Bible, in that
parable of the talents, the master was sort of rebuking the one that buried
they're talents. You you should have at least put your money in the bank with
usury and made some interest. Now, when you think about it, that means when you
put money into a bank, a credit union and insurance company, you're actually
loaning them your money. So, they're paying interest. Now, sometimes people
think paying interest is bad. No, banks, credit unions, insurance companies. Paying
interest is their friend. If they stop paying interest, they would wither up and
die. Because they borrow OPM, other people's money and they pay 1, 2, 3, 4, 5
percent Interest. Insurance companies, they usually earn on their general
account portfolio, money they borrow from the public, They might earn 5%.
There's periods of time when interest rates are high like the 1980s that they
were earning 11 and 15 percent. A good financial institution will pass on most of that.
Now any banks and credit unions in the last 20 years have only paid 1 or 2 percent. You
put money in a savings account and they pay you 1%. On a million bucks that's
only 10,000 a year. They have to pay out to use your money. What are they doing
with your money? Well, they're putting it out into investments. They're loaning it
back out again let's say at 5%. But see 5% is not just 4% profit. It is actually
500%. Because every million, they pay ten grand. But
they're making 50 grand. How much more is 50 grand than 10,000? It's 500%
more. So, this is the concept behind becoming your own banker. And
there are authors like Nelson Nash. I've met him. He has used this term infinite
banking concept. And it's good. Many whole life insurance people talk about the
infinite banking concept. So, let me simplify it in this episode. And if you
like the concept and you understand it, I'm going to show you infinite banking on
steroids. Why would you ever settle for this kind of a rate of return when you
could have double or triple that rate of return. So, stay with me here I'm going to
illustrate. So, for long term investing, a lot of people understand the merits of
socking away money into tax-favored vehicles such as life insurance
contracts or policies. Now, to be honest with you, when I started out in my
profession back in 1974, I was a big-buy-term-invest-the-difference type of a
proponent until I found out in 1980 how EF Hutton sort of designed buy-term-
invest-the-difference under a tax-free umbrella. That's in another episode. But
when you put money into an insurance contract for living benefits, what you're
doing is you're taking the least amount of insurance the IRS will let you get
away with under the Internal Revenue Code. And you're putting in the most
premiums as fast as they allow. And then an insurance policy can turn into a cash
cow. Most people buy life insurance and it's simply for the death benefit. You
try to get this much insurance for the least premium in case you die. EF
Hutton realized that insurance policies were the only financial vehicle that
allows the person to accumulate their money tax-free. All the growth is
tax-free. You can take out your money tax-free if you do it the smart way. And
when you die, it increases in value, it doubles, triples or whatever. And
transfers tax-free to your beneficiaries. Nothing else does that. But traditionally,
up until 1980, most whole life insurance only paid maybe 2 ½
3, 3.5% interest. In the Great Depression, they did come
through with flying colors when some banks... In fact, banks closed only 60%
opened their doors again. But see, the insurance industry is sort of the
backbone of America. It's the backbone of the world because they have weathered
through this. Where I put my money in these insurance contracts, these
companies many of them have been around for a 130/140/
150 years. They've weathered the Great Depression. In 2008, when the
federal government was concerned because 400 banks went under and 900 more were
on the watchlist, the federal government asked the 5 major banks in America
where they had their tier 1 assets for liquidity and safety. This is money they
have to have on hand liquid and safe in case of a run on the bank.
Now, panic. Guess where they had it in bank owned life insurance contracts. For
the death benefit, no. For the living benefit. Banks were borrowing our money
at 1% putting it into insurance companies and increasing the safety by 6
notches, Triple-A rated institutions and most
banks rolling rated Triple-B. And they were earning 5%. How much more is 5 than
1? It's 500% more. Every million they're making 50 grand, it only cost
them 10,000. Well, that's the same type of banking concept you can do when you own
a maximum funded insurance contract. And I have have raged between 7% up to 11%
rates of return. There some years I make 25%. But in the last 25 years, by
using the strategies I teach in my episodes, I've averaged 10.17%. Net
cash on cash rate of return. That means every million generates 100
thousand a year of tax-free income if I needed the income. The IRS knows I
receive it and they know it's tax-free. That's pretty good. At 10% payout
tax-free. Now, if you're sitting there and you're going "I've never seen one of
those." You need to watch some of my other episodes or get a copy of my book and
I'll send one out to you free. But let me show you what savvy people do to use
this infinite banking concept. So, what I do and many
people do this is they keep their working capital, their money in a liquid
safe investment in a maximum funded insurance policy.
I prefer indexed universal life. And I'll show you why. If I sock away 500
a month or 100,000 and I let it sit and grow, I'm going to use an example
here where I have a million dollars accumulated in my insurance policy in
tax-free accumulation. This is my cash value. Now, if I have that million bucks
and I'm running my business or I want to buy equipment or I want to tie up a
piece of real estate like some of my clients do, I need to go borrow a million
dollars or withdraw a million dollars. Now, these savvy people, they can come and
say, "Doug, I need a million dollars out of my insurance policy." And I say, "How quick
do you need it?" If they say, "Oh, a week or so." Then I just send in the form.
Otherwise, if they say tomorrow, I can do an electronic funds transfer or a phone
call to do this. But the savvy ones they say, "Okay, send me the form." It's a
one-page form. They put their name on the form. They put their policy number,
account number on there. And then there's one of two boxes to check. The insurance
company ask, "Did you want to withdraw a million or did you want to borrow a
million?" Guess which box they check --borrow. If they withdraw the million, if
it's in the insurance policy.. And let's say that it's earning 10% like
I've been earning the last several years. 10% on a million is how much? 100
thousand bucks, okay? If I withdraw a million to tie up a
piece of real estate and then develop it or build on it or whatever or to to buy
equipment from my business, I'm missing out on a hundred grand. Now, that may be
worth it but I don't need to do that. So, the insurance company says, "Well, you have
a million in here. That's collateral. Will loan you the equivalent of your cash. And
your casual to stay here." So, they loan me a million. People say, "Borrow your own
money? Why would you do that?" Here's why: Because if I borrow a million, I have 1
of 2 choices. I can borrow that out and I can tell them, "You know what? They have
to charge a reasonable interest rate in the code in order to do
that." Many times that's been at 2%. So, if I borrow a million, they're going to charge
me 20,000. They just automatically deduct it. But the million in there on that
portion, they'll credit me 2%. So, what they do is they give me 2% interest on
my million that has been collateralizing the loan. That's called a zero wash loan.
They charge me 20, they credit me 20 it cost me nothing to
borrow my money. But that's not what I do. You want to see what I do? I say, "Well, I
want to leave the million there and link it to an index." Because I know I can
usually average 10%. So, the million stays in the policy and earns
10%. I make my 100,000. I make 100,000 on my money
while I'm still using my money. Now, the insurance company, if I do it that way,
they will charge me maybe 4 or 5 percent. They cap it at that. If they
charge me 5%, they're charging me 50,000. But they gave
me 100 grand that year because that's what I hear and by not
withdrawing it. They paid me a 100,000 they deducted 50(thousand). I made
50,000. How much more is 150... I made 50,000 bucks of interest on my
million while I was using my million. To do whatever I do in my business. Does
this make sense? In 2017, I had several clients who borrowed money a million
bucks out of their insurance policy to tie up real estate, to invest in their
business. The insurance company charged him 5%. 5% of the
50,000. But do you know what they're indexed universal life insurance
policies are in that year? 25. Some only earn 16. I had a fellow
who earned 25%. He earned a quarter of a million dollars of
interest. That 250,000 minus the 50(thousand), he netted
200,000. A 20% tax free rate of return on his million while
he was using his million for other things. So, with the infinite banking
concept, most people are using whole life insurance which is okay. But with whole
life insurance, you're borrowing at a lower rate, but your earn
much lower rate. Whole life insurance policies don't earn 10. They don't earn
25, they don't earn 16. So, the infinite banking concept when you use indexed
universal life and you link it to an index allows you to be able to borrow at
5 and earn 25. Like our clients did in 2017. When you use a performance
multiplier, there have been times people have borrowed at 5 and earned
55%. That's why the infinite banking becoming your own banker concept
is like on steroids when you use a maximum funded indexed universal life
instead of whole life. Whole life just sort of, *Yawn* that's okay, you're making
money. But it's not anywhere close to the arbitrage or the spread you can earn by
using an indexed universal life insurance contract. It's what I call the
Laser Fund. If this is arousing curiosity, I would strongly recommend you read this
book and watch some of my other educational episodes. I want you to go to
laserfunddot.com. Laserfund.com and you can get a free copy sent out to
you. You just pay 5.95 shipping and handling. And then there's
other options for videos and education. This has 14 chapters about 200 pages
charts and graphs. This side has actually 62 stories. This is the right brain side.
12 chapters. That actually illustrate how people use the laser fund as the dream
solution for these kinds of concepts like infinite banking.