A question we are often asked by new clients, just starting their IBC journey is "how much should I fund a policy?" Or "How much does it cost?"

Whole life insurance, for the purposes of implementing the Infinite Banking Concept®, is about capitalizing (aka, storing cash).

So the real question should be: "How much do you want to save?"

When looked at in this way, we start to see that whole life insurance premiums are not a cost at all.

Questions? Head over to TheFifthEdition.com where you can:

• Schedule a free, no-obligation consultation to better understand how IBC could work for you.
• Get access to the online course, Whole Life Insurance Fundamentals, with a 50% discount

- Episode number 48.

How much should you fund when implementing

the Infinite Banking Concept?

In this episode we're going to get a little quantitative,

maybe not as quantitative as, you know

some people would like.

A lot of people love to look at illustrations, but, you know

because like everything else we do in IBC

the name of the game is about principles

and process not numbers on the page.

And so in this episode we're gonna talk a little bit

what does it mean to actually

"fund an Infinite Banking policy,"

how to think about premium payments.

And then we'll talk about some trade offs to consider

when funding a new policy when you're kind of thinking

about how much should you do.

So let's hop in.

- Hi everybody.

This is John Montoya.

- And this is John Perrings.

- We're authorized Infinite Banking practitioners

and hosts of The Fifth Edition.

- Okay, let's talk about funding a policy.

This is John Perrings here.

Going solo again today, really missing John Montoya,

but I'll try to, you know do the best I can here.

And the reason we're using this topic

is you know, just like most things we start to get a lot

of questions from different people

when we talk to them in consultations.

And so that becomes, you know typically a subject

that we'll push out on the podcast.

So in this one it's how much should you be paying?

And a lot of people will use terms like

how much should I fund the policy and...

So we're just gonna harp on some terminology

a little bit here and talk about funding.

You are in a sense funding a policy

where you're funding your pool of capital

and that's really what we're doing,

it's a place to store cash and so we're funding

our source of capital.

But it's, a lot of times people use it

because they're still using investment terminology.

So, you know, we're not funding a,

we're not funding an account,

we're not funding an investment,

you know, we're not putting money into a fund.

What we're doing is we're paying a premium.

And so, and this make, I think it's important

to differentiate again, I've talked about this in the past,

we're paying a premium and the reason

I'm kind of harping on it is because the number one thing

that creates cash value is the ability to pay a premium.

And so one of the things to understand

is when people think about funding something

they think about taking a large lump sum

of money and putting that into something like an investment

and that's not what we're doing here.

And so I'm kind of just reiterating the fact

that we're paying a premium.

Life insurance is very good at building a lot of value

over a long period of time with very regular

and predictable premium payments for that policy.

We're buying life insurance,

we're not funding an investment.

So just, you know, again, kind of harping on that just

to make sure we're all on the same page

and we know what we're doing here.

So, how should we start, how should we think

about premium payments when we're kind of thinking

about how much we should pay?

And you know, what we're really doing is capitalizing right?

Every time we pay premiums, we're capitalizing,

we're adding to our strategic source of capital

as Nelson talks about in the book

"Becoming Your Own Banker."

So if you still haven't read that,

which a lot of people will book appointments with us

not having read, "Becoming Your Own Banker."

And you know, I'm not trying to shame anyone

or anything like that, but it's the source material.

So you can, you know, watch all the YouTube videos you want

and get a half of an education or get some information

that's, you know either not complete

or maybe even inaccurate, or you can just read

"Becoming Your Own Banker.

It's a 90 page book.

Most people I think can do that.

So that's where you should be starting.

We are strategically accumulating capital

and we're using a cash asset, which is life insurance

that has benefits that no other cash asset has.

And so we should be thinking about life insurance

as a place to store cash.

And therefore it's kind of like,

well how much cash do you wanna store?

That's the question in terms of, you know

the amount of premiums you should be paying.

So I'll ask this question.

If you've ever been on a consultation with me

I've probably asked you this, but if you had a place

to put money that grew 40 times what it would grow

if you kept it at a bank, that growth was tax deferred

but accessible tax free.

It was liquid, right, has the same liquidity as a bank,

provided contractual leverage with guarantees

on the underlying collateral in the form

of a no questions asked policy loan provision,

had creditor protection that's different depending

on what state you're in but in general

much better creditor protection than anything else,

allows for strategies to reduce taxes and increase

the income generated on other assets, right?

So if you had all those things would you wanna put

just a little bit of money there or would you wanna put

as much as you could?

And so that's sort of the thought exercise of the day.

The question is really, you know, how much should you pay?

It's really, how much do you wanna save

and how much do you wanna save in a place

that has all of those benefits that I just mentioned.

So, that being said it's kind of like,

okay, that's all great.

So how much should I pay, right?

So it's like, I get it.

You know, we wanna have some answers

and the thing is it's very individual

and I'm gonna tell you why.

There are some general guidelines we could use

and it gets into what I've talked about before

with scheduled premium and unscheduled premium.

And by the way, this was in episode 46,

dealing with large lump sums.

And, you know IBC policies typically have some flexibility

regarding the premium amounts built into the design, right?

So if you think about the premium amount

that is regularly scheduled to be paid

on a monthly or a yearly basis, think of that

as the amount that you would commit to saving.

And so, you know, you could use different rules of thumb.

Like some people say, well you should take 20%

of your income and save that, right?

So maybe it's 20% of your income.

You know, maybe it's 10%, maybe it's 30%, right.

But you know, there are some rules of thumb

in what you save out there.

So maybe that could be where you start

in thinking about this.

But the other way we wanna think of it is

because there's this leeway a little bit

you've got sort of a minimum and a maximum

that's the flexibility that's built into the premium

when we're designing policies with infinite banking in mind.

So what that means is you, so you've got

your scheduled premium.

You could go down a little bit if you needed to

and you could also pay more into it

if you needed to pay more in premium.

And this causes some people to try to like game

the system a little bit, not game it,

but it's not a nefarious thing.

It's just, like for example, they'll say, well

if I could pay this but I could go down to this

maybe what I'll do is I'll pay this

even though it might be a little bit above

my comfort zone because I'll just scale

down to the minimum if I need to.

And that's understandable but what happens is

it may not be sustainable.

And so what people have to understand is

especially in the early years,

if you are using the Paid Up Additions writer

and you scale down to kind of the base minimum

of the policy, what you're actually gonna do

is you're gonna stop paying the PUA portion of that

and that's going to significantly affect

your cash value growth, especially in the early years.

And so that policy may no longer perform

the way you want to if you end up having to do that.

So in that case what I'd recommend

is scaling down the overall premium

and just pay the scheduled premium

that's comfortable and sustainable for you.

I mean, it should be, you know, as much as you can

but it has to be sustainable, right?

It has to be something that you would think, okay

I can do this for 20, 30 years,

whatever the length of time is.

The other side of that is sometimes people will say,

well, I'll just I'll, I actually could pay more

but I'll just schedule this little bit of money,

relatively speaking, a smaller amount of money

as my scheduled premium knowing that I can put more into it

but now I'm not tied to it.

And I totally get that.

I get that.

But what ends up happening is usually people

start to you know, when they first start a policy

they don't yet realize what it can do for them.

And so I have quite a few clients right now

that wish they could pay more in premium

but they're a little bit limited.

And so what's going to happen with the,

they're limited to the kind of the modified

endowment contract limits that are set by the IRS.

So, they started smaller but now they see

what they can do with it so they wanna fund more.

So now they're kind of maxing out their policy

and it's not really even hitting

the limit of what they could fund it.

And so what's gonna happen is they're going

to end up having to pay up the policy sooner

than what they had anticipated

which is not, you know the end of the world.

But now they're going to if they wanna keep having

this great place to put cash,

now they're gonna have to qualify for another policy

and we just don't know what, we don't know

what that's gonna look like in the future.

You know, sometimes we become uninsurable.

And then now, also now we're going to have a new policy

that we have to overcome that capitalization period

all over again.

So, what I try to recommend is like, let's come up

with an amount that you can commit to

for a long period of time and let's make that

the scheduled premium.

And then if anything happens and anything happens outside

of the norm, you need to go down for a little bit of time,

we can do that.

And if, and now you also have room to go up

if you run into some money you have some kind of a windfall.

So it's really kind of about sustainability

of the overall process of infinite banking, right?

So there's no you know, right answer.

You know, like sometimes people will well,

what do people normally pay?

And it's like, well it doesn't really matter

what other people are paying.

What matters is what's right for you.

So another trade off to consider, you know

we talked about dealing with lump sums again in episode 46.

Sometimes people will want to, you know

have that scheduled premium and then maybe put

an additional lump sum in the beginning of the policy.

And so some things to consider there are

how is that going to affect your liquidity, right?

So thinking in terms of an emergency fund.

So everyone should have an emergency fund, right?

If COVID taught us anything, it's that maybe

it wouldn't be a such a bad idea

to have a year's worth of income saved

and liquid so that you can access it

if things, you know, really go sideways.

And so the thing we wanna pay attention to

when we're thinking of amounts of how much premium

we should pay, is the money you're going to use to pay

especially those early premiums,

is that going to affect your emergency fund at all?

Because remember in the early years of the policy

we don't have as much cash value

as what we've paid in premium.

So I'm gonna say some numbers here with great trepidation

because I know there's some people out there

that are really focused on, you know, ratios of base to PUA.

Don't get hung up on these numbers.

I'm just gonna do it to make it simple.

Let's just say there's a 50% base and 50% PUA.

And man, I know some people are just like being like,

hey, it's supposed to be 90/10.

Maybe, maybe not and I'll talk a little bit

about that here in a second but let's just say it's 50/50.

And if you pay, let's just say a $20,000 premium.

Well, in that first year you're only gonna

have about $10,000 of cash value, right?

So if that's your emergency fund,

you just cut your emergency fund in half, right,

the liquidity of your emergency fund.

Now over the long term it's gonna be a great move

because it's going to, you know grow again

much more than it would grow in a bank.

But in the short term, if that's your emergency fund,

that can create some pretty serious liquidity issues

if you ever had an emergency and needed that money.

So those are some things to think about.

The last thing I'll talk about is I guess that

that whole ratio question, you know.

There's and just going back to like personalized design

for your life insurance policy.

There's no such thing as like a truly personalized thing.

Like there's only so many things you can do

with a life insurance policy but there are quite

a few things you can do, there are a lot of variables

and every time you pull a lever over here

for a design option, another lever over there goes

up, right?

So everything's a trade off and every are thing

is a trade off between cost and risk.

And we're working within the MEC limits,

there's all kinds of variables that cause us

to do different things with life insurance policies.

How much you should pay is greatly dependent on

everything else you have going on

in your financial life, right?

So while the, you know, if you go on YouTube,

all these people are gonna start talking

to you about PUA ratios.

And if you go down that route, congratulations

you just bought a cookie cutter life insurance policy

and you're on your way to having a cookie cutter

financial life.

The reality is since everything's a trade off

we have to consider all the other things going on

in your financial life.

There's no super secret way to design

a life insurance policy that's better than others.

There's no correctly designed life insurance policy.

The correctly designed life insurance policy

is what's correct for you.

And that, when I say that what I mean is

everything else that you have going on in your life

is part of the equation and there's no,

you know, one right way to design a policy.

So that's why it's important to find an advisor

who you like and trust.

And if you're doing this for Infinite Banking,

you should look at infinitebanking.org

which is the Nelson Nash Institute's website

and they list all the authorized IBC practitioners.

And you can find one that you like and trust

and you can work with them and just trust them

to design the way that makes the most sense for you

and that's really the number one thing

you should be looking at.

So I hope this was helpful for everyone.

Again, if you have any questions

about how this could, you know, impact you

in your current situation, feel free

to go to the fifthedition.com.

You schedule an appointment right there

with us for an initial no cost consultation.

And I also have a online course available

at thefifthedition.com where you can get a 50% discount

whole life insurance fundamentals

and it's really for those of you looking

at whole life insurance.

It's really kind of a general whole life insurance course

but also hits on a lot of the topics

that we talk about for Infinite Banking.

So it's a great thing if you're one of those people

that likes to, you know do all the learning beforehand,

before talking to someone, this course is exactly for you.

So thanks again.

Looking forward to getting back with John Montoya

on the next episode and we'll see you then.