L30) How Cash Flows Through Your Private Banking System

One Example of Cash Flowing Through A Private Reserve, Infinite Banking System

“You will either own your own bank or you will be the customer of someone else’s bank, but you cannot take banking out of the equation.” Nelson Nash.

Question: Which current financial vehicle works best for utilizing as a private reserve, infinite banking system, and why?

Click this link to see which one and why

Answer: A specially designed for maximum cash value dividend paying whole life insurance policy with a mutual company. Below you will see one example that depicts why these policies are perfect for utilizing this concept.

Please note that: I do not recommend doing this with any type of UL, VUL or EIUL. (I am mentioning this because some people call these policies whole life when in fact they are a cost increasing annual renewable term with a risky investment side fund. Infinite banking is all about safety and guarantees. With these types of policies, the client takes on ALL the risk).

The following post is ONE example of an INFINITE number of ways this client could flow his money through his private banking system.

The illustration (fig. 1) below depicts his current debt and savings information. He does not have a lot of debt, but does have a nice amount of savings and pays for his son’s college  tuition with cash. After looking at his overall financial questionnaire, I decided to depict how he could easily afford a $30,000 annual premium.

 There are 2 credit cards and 3 cars that need to be refinanced into his own banking system.

There is $37,311 sitting in a corner bank savings account and is considered sleep at night money.

He also saves $1,000 every month and has about $1,950 of discretionary income each month. He saves that up and then uses it to pay for tuition and other surprise expenses like plumbers etc. He also has some cash ($4,000) sitting in his check account.

(fig.1)

Below (fig. 2) is what the insurance company illustration Cash Flow Increase chart looks like for someone of this person’s age, standard health rating, and $30,000 annually paid premium. This is where I will be taking the information from when ever premiums are paid, to enter into the bank calculator which is illustrated by multiple slides below this chart, .

 Notice, that the cash value increase is less than the $30,000 premium amount deposited each year, for the first two years only. However, beginning year three, the cash value increase, increases, more than the $30,000 premium amount each year (as seen in the column called ‘Surrender Cash Value Increase). Also note that there is a maximum amount of money that the policy will hold at any one time, (as seen in the column called ‘Surrender Cash Value) however, you can flow an infinite amount of money ‘through’ the policy.

Also, notice, the death benefit increases each year as well. The ‘Gain at Death‘ column depicts the total of the death benefit minus the total premiums paid up till that year.

Please understand, this is just a simple scenario with little detail so one can begin to understand how the money can flow. In reality you can only borrow about 90% of your cash value and that is called the ‘loan value’, however, to make it easy for people to find which numbers I was taking from the illustration to the spreadsheet, I kept the cash value numbers instead. Also, I have not included the interest charged by the insurance company on the loans. Again, I am depicting the flow in and out and how money can be utilized multiple times. The interest isn’t that big a deal for me and would have just made this more complicated than I wanted it to be.

(fig. 2)

Regarding (fig. 3) below,  to pay for the first year’s premium, we used $30,000 (E5) of the $37,311 savings (E4). This generated approx. $18,000 (B2 & C4) of cash value of which this scenario is using $15,125 to refinance all current debts (fig. 1 – L 2,3,4,5,6) of two credit card’s and 3 cars from the current financial institutions to his own private financing system. Notice, he is borrowing this money as soon as his premium cheque is clear, approx. 10 days after the insurance company receives the cheque.

Also, notice, I said, refinancing the current loans. Many people think because they have paid off the corner bank they no longer owe that money, however, he drained his savings to pay off those loans and so has to rebuild that loss, so he must continue to make those monthly payments as if he was still paying the corner bank. He is respecting the lost opportunity cost of that money which occurred when he drained his savings account so those dollars are no longer earning him any interest.

However, he now does have flexibility in case he cannot make a payment one month. He is now not REQUIRED to make that monthly payment. His credit score will not be affected if he skips a month or two but an honest banker will make up those lost payments and continue making those payments until the new refinanced loans are paid off.

First though, I will explain what each column in the calculator below is depicting. Scroll down to review: My goal is to show him how much extra money he has that will not fit into his policy (banking system). This translates to me believing the $30,000 premium is really not big enough for the amount of money he has to utilize in this system.

(Fig. 3)

Column ‘A’ is the date a transaction happens.

Column ‘B’ shows the starting balance of $18,000 which is from the 1st years premium’s cash value. It also shows each transaction that takes place within the Cash Value section of the policy.

Column ‘C’ is the balance available to borrow against in the cash value portion of the policy. (Please remember that we are not actually debiting your policy when you take a loan. The numbers depicting the cash value are really depicting your collateral capacity; the amount of money you are able to borrow against, not necessarily withdraw, like in a savings account.)

Column ‘D’ Describes the transactions in either column ‘B’ or ‘E’

Column ‘E’ is the corner bank account, where excess money or savings are held. This is a banking system and so it is necessary to utilize a corner bank account as well, along with your regular checking accounts. Notice the balance of the account after the $30,000 has been withdrawn to pay the premium is $7,311.

Column ‘F’ shows the current monthly payment on the debt depicted on each particular transaction line.

Column ‘H’ shows the increasing death benefit each time the premium is paid. So the first premium has bought a $654,284 death benefit.

We see column ‘B’ lines 6,7,8,9,and 10 depict the refinancing of the five debts into this private banking system with ‘F’ showing the current monthly payments still owed and that will continue to be paid, but into the cash value account now.

Notice Column ‘F’ line 2 shows the monthly repayments of those 5 loans equals $1,005.00.

Line 11, 10/1/2012 shows the first repayment of those 5 refinanced loans back into the cash value account.

Line 12 shows the $1,000 monthly savings and line 13 shows the discretionary savings of $1,950.

We see during November 2012 and December 2012, lines 14 thru 19, those same amounts being deposited into the cash value account as well.

We also see a loan of $5,000 taken in December for either Tuition, Christmas, Life expenses or whatever.

January 2013 and February2013 are once again showing the three monthly payments into the Cash Value, which is really paying off the debt created by the 5 loans, while saving for tuition payments, saving for retirement and emergency fund and creating a private financing pool, all within this one account.

You should contemplate why we are indoctrinated into thinking we have to save for each of these future life events in separate, restrictive, sole purpose accounts. Money earns money when it is liquid and moving. Who has access to your money and moves it for their own benefit in common savings and retirement accounts? Your money has penalties and taxes and restrictions associated with you accessing it before you are 59 1/2 in many cases. Why is that? Or for using it for other than it’s purpose, like 529’s for qualified higher education. Why is that? Please, contemplate who is making all the rules and controlling all your money!

 (fig. 4)

As we can see on (fig. 4) above (C27), in March of 2013 the maximum amount of money allowed in the cash value section of the policy at one time has been reached, ($18,000). At this point we use the corner bank account to continue making the monthly payments into (column ‘E’).

(Line33) April 2013 – tuition expenses were due again, along with some other expenses so a withdrawal of $5,000 was taken. This allowed some room for a few more monthly payments to fit in the policy again until the limit of $18,000 was reached again.

By the end of Sept 2013 the amount of cash in the corner bank savings account has built up to just shy of $30,000 (fig. 4 – E2). This cash of course could be used to pay for the year 2 premium. However, I have chosen to make use of the cash value account as much as possible while showing how much extra money this person has that won’t fit inside their banking system, so must be stored in their corner bank account.

 So even though the $29,646 (fig. 4 E2) cash saved in corner bank Holding Account  is there, for this scenario I chose to make up the year two premium payment due of $30,000 by borrowing all available cash value of $18,000 and borrow just $12,000 from corner bank savings instead, as is depicted in the next (fig. 5 – E49).
(fig. 5) – Lines 49E and 2E are the only difference from (fig. 4)

 So we see above (fig. 5) the $18,000 (B49) deduction from the cash value account and the $12,000 (fig. 5 – E49) deduction from the corner bank account, which has reduced the savings in the corner bank to $17,646.00 (fig. 5 – E2). We also see on (H49) the death benefit has increased by $60,605.00 to $714,889.

Also, on (L50) we see that the $30,000 Year 2 premium payment generated $23,000 (C50) of cash value bringing the maximum total of Cash Value allowed in the policy, to be $41,000 (D50).

Below on (fig. 6) we see depicted two more tuition / life expenses withdrawals taken (L51) and (L61).

We also see below that I decided to transfer $10,000 (E62) from the corner bank into the cash value account (B62) so it was not long before the limit of $41,000 was again reached and money had to be saved in the corner bank once again. One more tuition/life expenses payment (Line B72) is shown also.

(fig. 6)

Notice we are not yet paying back the tuition loans, however, we will in the future after some of the other debts have been paid off. Also, there are some different possibilities for the repayment of tuition loans.

1. The parents have paid the money from their savings and they will repay their savings when possible.

2. The son will pay back the parents savings when he is set with a good job and is able.

Question: What would be the incentive for the son to pay back the parents savings?

Answer: He is the beneficiary of the policy death benefit. So he will end up with the money back in his pocket, as a tax free death benefit in the future anyway. So this is a great investment opportunity for himself, much safer than any stock market investment, as his parents are guaranteed to die in the future.

Question: What leverage do the parents have also, in case the son decides not to pay back the college tuition?

Answer: Sorry son, your name has been removed from the beneficiary list as you have not proven to us you are responsible and reliable and a good steward of our family money.

(fig. 7)

 The slide above is depicting how for the year 3 premium, there was enough cash to borrow the full $30,000 (L92). This increased the death benefit from $714,889 to $787,933, a $73,044 increase. We also see how beginning year 3, the cash value generated by the $30,000 premium deposit was $1,000 more.

So we took $30,000 from the insurance company and they called that a loan. We gave the $30,000 back to them, and they called that a premium payment. They then gave us back $30,000 PLUS an extra $1,000, just for the fun of it, and they called that cash value. SAME MONEY. This has also increased the limit we can hold at one time in our cash value account to be $73,000 (Line93).

At this time we have $27,151 (E2) sitting outside our private banking system so I decide to bring $20,000 ((Line94) into our bank which increases our available cash value to $60,955 (C94), while reducing the savings account total to $7,151 (E2).

I then depict how life happens and a new car is needed or some business equipment or something, so I show a $20,000 (fig. 7 – B95) loan being taken. I set up a $400 (fig. 7 – F95) loan repayment plan for this expense as well. We can see this repayment has been added to the $1005 to make the new repayment $1,405 (B98) with the now 6 loans.

See amortization schedule for new loan below (fig. 8). Notice the volume of interest is 21.659% even though the interest rate charged is 8%. Those who understand interest earn it, those who don’t, pay it. By borrowing from his own pool of capital, isn’t he now keeping that $4,331.80 of interest charges in his own wealth bucket, rather than allowing it to transfer into someone else’s wealth bucket? Isn’t he actually earning 21.659% guaranteed, rather than loosing that amount to a financing company, while chasing an 8% average in the risky stock market? Open your mind to a new way of understanding money.

(fig. 8)

(fig. 9)

Our last slide, for this scenario, shows on (L100) that he stopped paying three of the loans. The three loans had monthly payments that totalled $400 (fig.1 L 2,3,6) and they were paid off at this time, leaving room for the new $20,000 #6 loan repayment of the same $400 amount. So the monthly cash flow was not really affected by this new purchase.

I also show how the discretionary savings (B104) goes down, and the Tuition or Life Expenses(B105) goes up as well.

(Line 109) shows how he began to start paying back the tuition payments with $400.00 (F109) There are now 4 loans being paid off.

(Line 112) shows a transfer of $7,151 from the corner bank into Cash Value Account and two months later the limit allowed to be held in the account has been reached again.

By beginning of May (Line 114) he has once again reached his CV limit of $73,000 and so must hold his repayments in his outside corner bank account.

He again borrows the $30,000 from the insurance company to pay for the year 4 premium. This creates a nice hole for him to continue filling over the next year.

The insurance company gives him back the $30,000 PLUS an extra $3,000 this forth policy premium deposit (L120). (See fig. 2 – Yr. 4 – Age 49)

This transaction also increases the ‘Cash Value’ limit to $107,008. (see fig. 2 – Surrender Cash Value column)

That payment also increases the death benefit by $77,788, from $787,933 to $865,721.

(L121) shows how I emptied the corner bank account by depositing all the money into the private banking system account. We can see that the difference between the cash value available and the limit allowed is a mere $14,751. Within 4 months that limit will be reached and the corner bank holding account will have to be utilized once again.

This client ended up choosing to do a $50,000 premium after seeing this. We had shown him a different illustration using $50,000 before he saw this one but was a little nervous about the premium charge. We had previously shown him how he could flow his business expenses money through the policy, and this helped him to see how it was possible, even without using any business money.

*Look at what happens at his age 68, 23 years from now (fig. 2). He deposits his $30,000 premium and the insurance company credits his cash value account with …. how much?……. yes,double that…. $60,000!

SO! Without changing his lifestyle except for redirecting the flow of his money through his own private reserve system, but without spending any more money than he already was spending; over this three year period of time,  this fellow has:

Increased his savings from $37,311 to $92,257 creating a liquid pool of money he can use to finance his life, which is increasing his wealth and improving his retirement.

Has an increasing death benefit to protect his family,  with a current total of $865,721.

Has paid off all debts to outside lenders, thereby capturing the lost interest charges he was paying them.

Has purchased a new big ticket item (car or business equipment), and because he is in control of that loan he has UNSTRUCTURED repayments. He will not ruin his credit score or have his car repossessed if he happens to miss a few monthly payments.

He has multi-tasked the money he was spending on college tuition.

AND ALSO: By year 7 of this scenario, if you look at the insurance company illustration (fig. 2), you will notice that he would have paid 7 x $30,000 of premium payments, which equals $210,000. Now move your eyes across the year 7 line to to the column titled ‘Surrender Cash Value‘. What is the total cash value available? Answer, $210,937. Please wrap your mind around this. This is when the tail winds begin. How much has his $1,076,000 death benefit cost him at this point in time? Every dime he has deposited as premium into this system, is available for him to borrow against. Who said Term insurance was cheaper than properly designed Whole Life?

Below is a Term policy illustration. How many people actually see this? Or do they just want to know cost of how much death benefit till what age and do not look any further?

Here is an example of a Term policy for the same age, 45 year old male. Do you think he would pay for the policy after his age 65 and beyond? Would you? Where is all the $50,000 he paid for the term insurance and wasn’t that just an added expense rather than a wealth building private banking pool of liquid capital?

The value of a Term policy is two fold.

1/ It does increase the amount of death benefit one has on the breadwinner until the policy designed for private banking has aged enough to equal the term death benefit. We solve for cash first so often extra death benefit protection may be needed in the form of a term policy.

2/ It also protects the insureds health if the Term policy is a guaranteed convertible policy. This means that as one ages and could possibly afford to convert the Term to whole life, this can be done even if the insured has become uninsurable during the term. No underwriting is required when converting the one of these types of Term polices into Whole Life. If the insured has children, maybe after any number of years within the term, his children will be able to afford to pay for the conversion to whole life so they can be sure they will reap a guaranteed, tax free, legacy in the future. If they understand how to flow their money through the policy, as their dad has been doing, then they will be able to continue this family banking system into the next generation.

When do you want to get started? Call me now, so we can discover how a private reserve banking system will help you increase your wealth. Jennifer Hansen 845-649-7487.

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September 15, 2012 · Jennifer · 6 Comments
Tags: , , , , , , , , ,  · Posted in: CLIENT LESSONS, COLLEGE SAVINGS PLANS, L30) IBC CashFlow

6 Responses

  1. Craig - November 4, 2012

    Nice writeup Jennifer. I’m wondering how much does this person in the example make per year?
    Interested in knowing what percentage of income I should be putting into a policy.

  2. Jennifer - November 4, 2012

    Hi Craig,

    Thanks so much for your excellent question Craig.

    In this example I was only using their current debts, their current savings and their current discretionary/college tuition payments/emergency plumbing,electrical etc. savings and was not considering any other of their money. They are business owners, they save in other types of accounts, they are real estate investing etc. My point for them was showing them how they could easily afford a $30,000 premium and in fact a higher premium would have been preferable due to not all the money fitting back into the policy. I did not use any other of their money for this example. In legacy planning we want other money to purchase on parents and children etc. also.
    Knowing their income will not help you determine how much would be a correct amount for you personally. If you would like help in determining your personal situation, if you have an agent already, ask them to help you, if not, we would be very happy to help you decide according to what you want to achieve.
    This example is providing a visual picture using accurate numbers and cash flow modal because I have found most people cannot understand how their money can flow in and out without this type of tool depicting a scenario for them.

  3. Jeanette - August 11, 2013

    Hi, I do believe this is an excellent website.
    I stumbledupon it 😉 I am going to come back yet again since I
    book marked it. Money and freedom is the greatest way
    to change, may you be rich and continue to help others.

  4. menaki kundu - September 10, 2013

    Jennifer,
    I have a similar situation and would appreciate if you could work with us (my husband and me) to help us manage our debt and get our monies flowing. We live in Queens and work in New York.
    Hope to get a response soon.
    Thank you
    m
    PS: the mailbox of the phone# given here is full!

  5. Vince - April 29, 2014

    As you stated you do not included any interest charges on the loans taken from the cash value. So when you are borrowing 30K every year to pay premiums, your sample person here has got to be running up some staggering loan debts, yes? How in the world do they get paid off?

  6. Jennifer - May 1, 2014

    Hi Vince,

    Thanks for visiting my blog. If you follow the transactions through the post you will see how the cash values are repaid constantly thereby reducing the loan balance before taking another loan.
    Owning the debt in your own banking system and being charged interest by a company you are part owner of has a very different outcome than owing to an institution you do not own and therefore giving up that interest to their coffers instead.
    Also, insurance companies do not amortize the interest and in many cases pay you dividends on the money that you are borrowing from them because your collateral is still sitting in your policy.
    There is way more to the story than I have answered here as well. If you would like a private webinar to learn more please email at Jennifer@DebtDiagnosis.com

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