Creative Insurance Design vs. the Infinite Banking Concept (IBC)
An exercise in proper classification to help you sort the click-bait brand awareness marketing from the teaching and legacy of Nelson Nash.
There is an attitude out there — the dominant, majority attitude, in fact — that says that purchasing a dividend-paying whole life insurance policy with a substantial amount of premium payable to the PUA rider in the first policy year counts as “doing” or “adopting” or “implementing” IBC.
This is wrong.
I’m going to assume for the sake of argument that people who use the term “IBC policy” are using short-hand. Maybe they know that IBC is a philosophy, a financial paradigm, and not a type of insurance. When I challenge people about this, I know they sometimes think, if not outright say, “well you know what I mean, Ryan.” The subtly accusatory tone does not go unnoticed — as if I’m just nitpicking about specific words and drawing distinctions without meaningful differences.
Needless to say, I reject that attitude. There is a difference.
Three Distinguishing Aspects of IBC
The Infinite Banking Concept (IBC) is a specific financial strategy. One level of resolution higher, and we can say it is a capitalization strategy, or a strategy promoting the optimal accumulation and deployment of capital over your and your family’s lifetimes. Nelson, in his simple yet wise manner, called it a “banking” concept for a reason, it has to do with the movement of money: the origination and repayment of loans.
Someone who implements the IBC has determined to progressively reclaim ownership and control over the banking function in their own lives and the lives of their people — whoever they may be (e.g. family, friends, co-workers, congregation members, clients, business partners, etc.).
Whether you notice it or not, this is a very specific, carefully crafted goal. Upon closer inspection, you might notice some of the particular characteristics that make it so peculiar and precise.
First, it’s an extremely long-term oriented vision. It isn’t about solving for the banking function tomorrow, or next year, or even ten years from now. In a very grand sense, it’s about solving for the banking function permanently. James Neathery likes to say, “banking is.” Nelson would say, “banking is a process, not a product.” His book Becoming Your Own Banker is stuffed with metaphors about the on-going, incessant need for all sorts of things to continually flow, from water to air and blood. He’d point out that if these things stop flowing, life stops. Therefore, implementing the IBC means to attend to a permanent problem. The need to properly accumulate and deploy capital exists today, tomorrow, ten years from now, thirty years from now, a hundred years from now, as far ahead into the future as you can imagine, and then further. You might say the scope of the problem (and simultaneously, the scope of the opportunity) is infinite. And I’m not just being cute about that; I mean it technically and literally.
Hence, Nelson’s rule: Think long range.
Second, notice the object of the Concept. Notice the focus. It’s banking. I don’t know if I need to say this but based on the stuff I see online and from what I see with people I talk to who have purchased life insurance in the past, maybe I do. The word banking is not the word investment.
And just in case you think I’m playing word games, here’s the distinction: banking involves retaining and enhancing access to capital whereas investing assumes forfeiture of access to capital. If I’m capitalizing, I’m intentionally accumulating financial value in a manner that enhances my access to it. If I’m investing, I’m (hopefully) strategically divorcing myself from access to financial value. The severance of the link between me and my access to the given capital in the context of investing is often executed (ostensibly) with some time frame in mind as to when the link will be reestablished in the future, but it is initially severed nonetheless.
I submit to you that this is a categorical, technical distinction rooted in human action and experience. To talk about capitalizing and investing is to literally, meaningfully, technically talk about two different things. Therefore, implementing the IBC means to address the subject of capitalizing (banking), not the subject of investing, nor any of the priorities of the investment world like generating a comparatively high rate of return or performing your risk-to-return analysis.
Hence, another of Nelson’s rules: Don’t be afraid to capitalize.
Third, it’s worth noting that the facts of reality — wildly neglected as they are — suggest that this long-term-oriented emphasis on the banking function (or the capital accumulation and deployment process) is appropriate, relative to other potential financial objectives.
One of these facts of reality is that for many half-way serious Americans, the rate of return is already there. Since 1913, Wall Street has been on a tear to convince you of how worthless you are and through the Wall Street-Washington DC Frankenstein nightmare called the Federal Reserve, they’ve instantiated this propaganda agenda into law. Despite these attempts to crush you, the fact often remains: the individual’s greatest rate of return is generated through his own labor.
I know, I know, “mailbox money” and “passive income” and the alleged evil of “trading your time for money” are all the rage. They’re all lies, but they rage nonetheless. Each of these miniature golden calves are caricatured yet fundamental attacks on the idea of earning your keep. They’re the popular manifestation of the alleged propriety of getting something for nothing. At the core of those ideas is what Mises called the anti-capitalist mentality. Psychologically speaking, we could call it entitlement. Religiously speaking, it’s covetousness. They’re little siren songs that nudge you, whispering to you about how neat it would be to defy God, to structure reality so that you don’t have to labor for your sustenance. They’re devilish temptations masquerading as folk financial advice.
Fortunately, whether folks maintain an intellectual fixation on those silly ideas or not, our actions often demonstrate our fundamental disbelief in them. That is, we, as individuals are still, through our labor — in fact — the greatest generator of cash flow in our own lives. That’s where the bulk of our “return” over our lifetimes comes from: ourselves.
“Generating a high rate of return” is not the problem — keeping what you earn is the problem. This, by the way, is fundamentally a question of how purchasing power is imposed on the world, or more simply, a question of how you purchase. As I’ve argued elsewhere, there are two options: there is liquidating capital (directly spending accumulated cash) and there is leveraging capital (indirectly borrowing money in order to later spend cash). Of the latter, there is borrowing money under your ownership and control or there is borrowing money under someone else’s ownership and control. We generally borrow someone else’s money because we have not previously strategically accumulated capital in a manner such that we don’t have to depend on the conventional lending system in the first place.
For the big things in life (houses, cars, businesses, trips, medical visits, etc.) most people do not simply accumulate a cash balance ahead of time and then spend it down. Those who do are in some technical sense, economically retrogressing. They’re returning to the pre-industrial, pre-capitalistic age where we didn’t even have a concept of a collateralizable, financial ownership stake in a contractually defined piece of property in the first place. In this era, capital accumulation was inherently more difficult, because capital accumulated was just capital waiting to be liquidated. Without a collateralization and lending process in place, there was no way to systematically increase one’s capital base without interruptions for spending. Consequently, people transcended class boundaries relatively slowly, if at all. But to their credit (ha-ha), they’re not dependent on the conventional banking cartel, either.
And that’s where the problem is. The severity of the costs imposed by the banking cartel cannot be over-stated. This is why in Becoming Your Own Banker Nelson laid out what he called “the spending pattern” of the average American, and why he honed in on one of the most crushing (and yet popular — popular to the point of implicitly assumed propriety) types of conventional debt: the residential mortgage. It’s why he alerts readers to the idea that, especially in the context of accessing and deploying capital, what matters is the volume (the magnitude, the level, the amount) of dollars spent by the individual in the conventional lending world, not the quoted rate, and certainly not the government-mandated APR.
And hence, another of his rules: Don’t do business with banks.
Therefore, someone who implements the Infinite Banking Concept is thinking long range, they’re concerning themselves with the question of access to and control over capital, and they realize that failure to resolve this problem constitutes the greatest threat to (and opportunity for) their and their family’s financial, and therefore their actual, success.
There is much more to the IBC, but these three elements are a good starting point to demonstrate the specificity — perhaps an unconventional, contrarian specificity — of just what we’re trying to achieve here.
What IBC Means for Case Design
If the above considerations and the broader financial paradigm embodied in the IBC are directed to the question of how to buy life insurance, one might hope that the design and orientation of the life insurance product would be adjusted and crafted to address the very long-term-oriented, deeply severe need to optimize the function of capital accumulation and deployment.
To my mind, these considerations permeate the entire purchase process: everything from the evaluation and selection of the company from which the product is purchased (which, in turn, depends on the exact contractual terms of the constituent elements of that company’s contracts), to the structuring (proportioning) of the types of premium on the contract, to the method of determination and ultimately the selection of the total premium level, to the determination of the number of policies, to the choice of whether to use a term rider and if so of what kind of term rider, and more.
The degree to which the calibration of this product actually ends up fitting well for an individual client depends upon the quality of the advisory process. It turns out, at least to my mind, the advisor actually needs to know a lot — which often means spending the time to learn a lot — about you and your family long before any policy design and certainly long before a damn insurance illustration is stuffed in your inbox.
How could it be any different?!
Mind-reading. Mind-reading is the only way that this process could be any different and a proper, well-suited policy or set of policies still designed and delivered on the other end.
So when I say I “do IBC” with my clients, that’s a bit of what I mean.
What IBC Does Not Mean for Case Design
Here’s a bit of what I don’t mean.
What I don’t mean is acquiescing to someone’s preconceived ideas about what life insurance is or how it should be structured because some financial entertainer online told you that a given premium structure for a given policy from a given company is everywhere and always THE way to “get an IBC policy.” You know, because one-size-always-fits-all, right?
What I don’t mean is enabling the fear of capitalization with a policy that accepts a big, gigantic “dump-in” (who the hell came up with that word?!) of PUA premium in year one to accommodate a one-time windfall, while smashing the base premium down to the very minimum that the company will accept.
What I don’t mean is catering to the very American fad of hyper-short term thinking where all that matters is maximizing the amount of cash value relative to the total premium outlay on day one.
What I don’t mean is adding a “very low-risk” component to the broad and well-diversified investment portfolio.
What I don’t mean is a turn-and-burn, “advice on the fly” approach where we assume that a 30 minute phone call is enough to determine appropriate case and policy design.
What I don’t mean is creating a flashy, TikTok-approved internet brand so that I don’t ever have to utter the words “Infinite Banking Concept,” much less “Nelson Nash,” or have difficult conversations that fundamentally challenge unspoken preconceived ideas so that I can get you to say yes as quickly as possible, stuff an illustration in your inbox, and squeeze out an electronic signature on the application so that we can get that policy issued and delivered and commission paid as fast as possible.
What I don’t mean is “sell-and-sail” advising where as soon as a policy is sold, the advisor sets sail off into the sunset never to be heard from again, much less to ever provide any service because the time horizon for the client-advisor relationship matched the time horizon embedded in the contorted policy design.
What I don’t mean is mere, creative insurance design.
Look, I’m as libertarian as they come. And at the end of the day, some premium is better than none. Some cash value is better than none. People can do and buy what and work with whoever they want. But the idea that anyone who can manage to find the letters I, B, and C on the keyboard is actually doing or teaching IBC should stop. Because that is not what is happening on the internet. And I know that is not what’s happening because once the poor client gets strung through the flashy turn-and-burn sales systems, takes delivery of a policy, pays the first premium, spends a bit more time online, finds our Banking with Life podcast, or the Nelson Nash Institute, or my Whole Life Insurance Mechanics lectures, and calls me, they tell me and show me what they bought! And what do I find? Itty-bitty base premiums, the shortest possible term riders possible, rigidly inflexible PUA riders, 24-minute sales processes (e.g. Client meets agent, five minutes goes by, “ok so how much premium do you want to pay and for how long?”), no understanding of direct or non-direct recognition, either no idea or the wrong idea of what the catch-up provision entails, and on and on.
Of course, this does not apply to every single advisor on the internet. I know there are good guys and gals teaching what Nelson taught, and that’s awesome. But the self-identified marketing gurus are growing in number, maybe (probably?) faster than the serious IBC-style advisors. And the two are conflated — constantly. The result, typically, is disappointment. Because I believe that, generally speaking, what the individual actually wants is to do what Nelson Nash taught, but the bombardment of click-funnel and brand awareness marketing creates an environment where proper classification becomes extremely difficult, especially if you don’t know that there are differences out there worth identifying and observing. Yes, I get frustrated because that sort of negative experience in the client’s mind gets associated with the legacy of Nelson Nash, and yes, that absolutely bothers me.
Maybe this essay helps you sort through the Noise, so that you’re not so easily swept away in the marketing storm. So that you can reorient to the actual, severe, ever-present problem of control over the banking function and find an advisor that will help you solve that particular problem, rather than merely purchasing creatively designed life insurance.