Be Your Own Bank: The Infinite Banking Process
“Be Your Own Bank” has come to mean different things to different people. But what is lost in this glut of meanings is the actual process of what it takes to “Be Your Own Bank.”
To “Be Your Own Bank” it is important to understand what it takes to start a bank and also how a bank operates to generate profits. This process has been overlooked or ignored by many who are advocating “Be Your Own Bank” and the Infinite Banking Process.
To start and keep a bank operational, millions of dollars must be kept in reserve, either in the vaults of the bank itself or at the regional Federal Reserve Bank. Money a bank needs to cover daily transactions, and potential withdrawals must be kept in the bank’s own vault while the rest of those millions of reserve dollars are required to be kept in the Federal Reserve Bank.
In addition to these millions of dollars of reserves, the bank must also get the Comptroller of the Currency to approve of their business plan, also known as a bank charter. This charter allows the bank to operate as a bank and serve the public. It is also necessary to be approved for FDIC (Federal Deposit Insurance Corporation) coverage. This insurance coverage protects up to $250,000 of a depositor’s money at each FDIC-insured bank.
A bank then must higher employees, acquire office space and most importantly attract depositors. It is the depositor’s money which allows a bank to make loans and turn a profit. Everything up to this point has been a cost for the bank and their stockholders. Profits only occur when a bank lends depositor’s money and earns more interest on these loans than what the bank has to pay their depositors to keep the depositor’s money in the bank.
Banks also make money by using fractional reserve lending. This is where one bank leads money which is then deposited back somewhere into the banking system, creating a money multiplier effect. Borrowed money which is redeposited into the banking system increases the amount of money which can be lent.
Fractional reserve lending allows banks to make more loans which can help expand the economy, but it also creates inflation because it allows banks to lend money that didn’t exist prior to the loan but was merely generated out of thin air by the banking system.
Banks are willing to go through all this process because banks earn huge profits annually. (See attached chart.)
In order to “Be Your Own Bank” according to the Infinite Banking Process, one needs to piggyback on an existing institution that has already laid the foundation which banks are required to have before they can lend money to the public. This is where participating whole life insurance becomes part of “Be Your Own Bank” and Infinite Banking.
Life insurance companies are required to go through a very similar process that banks do in order to sell insurance policies to the public. Life insurance companies are required to have millions of dollars in reserve, they must get approval from each state comptroller of the currency they plan to do business in, and they must get the state commissioner to approve of the products they intend to sell prior to selling anything.
Once all this is in order, life insurance companies must then attract those who want to purchase life insurance. The premiums paid for life insurance policies are invested, loaned and managed by the insurance company so the insurance company can generate profits, pay claims, pay agents who sell the insurance company’s products, and fund Guaranty Associations which protect policyowners up to $300,000.
When purchasing participating whole life insurance, the best life insurance to own to “Be Your Own Bank”, a policyowner is piggybacking on the due diligence the Insurance Company has already completed in order to be profitable. Because the cash values in participating whole life insurance continue to experience compound annual growth, even when the policy has been used for collateral and the insurance company has lent money to the policyowner, it becomes the best type of life insurance to “Be Your Own Bank” and practice Infinite Banking.
With Infinite Banking, once a policy loan has been taken against a participating whole life policy, the insurance company becomes the policyowner’s depositor, the policyowner must now behave like a bank in order to make a profit on the money the insurance company deposited (lent) with them. This is why it is called “Be Your Own Bank”. The policy isn’t the bank, and neither is the insurance company. It is the policyholder who has to “Be Your Own Bank”. This means, whatever the insurance company needs in interest on the deposit given to the policyowner (the policy loan), and what the policyowner ends up earning on the money the insurance company deposited (lent) with them, determines if “Be Your Own Bank” and the Infinite Banking Process will be profitable or not.
Here is what many fail to grasp about “Be Your Own Bank” and the Infinite Banking Process. The compounding growth which the participating whole life policy provides, regardless of whether a loan is outstanding against the policy or not, is not the primary reason why Infinite Banking and “Be Your Own Bank” can be so profitable. Yes, this guaranteed growth is important, but it is not the most important part of being your own bank. The most important part of being your own bank is the difference between what the Insurance Company Interest Rate is, and the interest rate you generate, collect, or earn on the money which the insurance company has loaned to you.
The question arises, if the Insurance Company charges the policyowner 5% to deposit (lend) money with a policyowner and the policyowner generates only 3% on the money deposited (lent) with them, how can a policyholder make a profit?
· A $1,000 loan @5% for 5 years with an annual payment of $230.98 per year comes to $1,154.90 over 5 years, while
· $1,000 compounding @ 3% annually over 5 years comes to $1,159.27
In this scenario the profits generated are slightly greater than the costs associated with the deposit (loan) and the banker will make a small profit. In addition, if this $1,000 was a loan from the insurance company against a participating whole life policy, the compounding growth which the policy produced over the 5 years, along with any dividends the participating whole life policy provided, will make profits for the policyowner (banker) even greater.
However,
· A $1,000 loan @ 5% for 3 years with an annual payment of $367.21 comes to $1,101.63 over 3 years, while
· $1,000 compounding @ 3% for 3 years only comes to $1,092.73
Unless the compounding growth in the participating whole life insurance is greater than the difference in these two 3-year scenarios, there will be a loss for the banker (policyowner) who is endeavoring to do Infinite Banking and “Be Your Own Bank”.
To “Be Your Own Bank” using the Infinite Bank Process requires an understanding about,
1. How banks generate profits
2. How interest increases the cost of money borrowed
3. How interest produces compounding growth on money saved or invested
4. How participating whole life insurance provides guaranteed compounding annual growth, even when a loan against it is outstanding
5. How dividends provide additional compounding annual growth in participating whole life insurance
Without a solid foundational understanding of these fundamentals of Infinite Banking, the attempt to “Be Your Own Bank” could be a losing proposition. At McFieInsurance.com we believe a solid education about what it takes to be “Be Your Own Bank” is the most important part of the Infinite Banking Process. Infinite Banking made simple is what we are known for. We provide education to anyone who truly wants to “Be Your Own Bank” and recover the cost of things financed. This is the crux of Infinite Banking and what it means to “Be Your Own Bank”, recovering the cost of things purchased.