MassMutual May Terminate Agent Contracts, Reject Applications Associated with Infinite Banking
In January 2023, one of the largest life insurance companies in the world circulated an internal memo blasting Infinite Banking. I respond.
Super Fun Disclosures
First, let’s get the required disclosures out of the way. As a licensed life insurance agent, I don’t represent MassMutual, nor have I ever, nor do I intend to seek a contractual relationship in a sales capacity with the company.
Second, nothing in this article should be taken as disparagement against MassMutual. I’m as capitalist as they come, so MassMutual is perfectly within their rights to treat their salesforce as they see fit, within the bounds of the law. I neither object to nor endorse their decision to exercise such authority. None of what follows should be taken as advice or instruction to do or to not do business with MassMutual. Always talk to a qualified, licensed financial professional before doing anything with your money.
In this article, I deal strictly with historical facts, general ideas, and my own experience of the industry.
Reprehensible Sales Tactics
The MassMutual memo rightly condemns certain life insurance sales practices. These include:
- Positioning life insurance as a checking, savings, or retirement vehicle, or something other than life insurance.
- Failing to provide complete whole life policy illustrations that include all legally required disclosures and guaranteed values.
- Advocating large, one-time, up-front premium payments, potentially to facilitate money laundering.
- Failing to properly educate clients on the mechanics of policy loans, policy loan interest accrual, and the effect of rising interest rates.
- Disregarding the value of the death benefit on whole life insurance.
- Encouraging the use of policy loans to pay for everyday expenses to boost premiums and sell policies.
- Violating Unfair Trade Practices regulations that outlaw the mischaracterization of life insurance as anything other than life insurance.
- Referring to premium payments as “deposits.”
This sort of stuff is out there, and for what it’s worth MassMutual is right to condemn these practices. Of course, to my knowledge, literally every life insurance company with a presence in the Infinite Banking world either has or would eagerly condemn these tactics. We would and do join them.
Given their concerns — whatever they may be — over the use of these sales tactics by some of the salesforce, in the memo, MassMutual threatens to cancel agent contracts if an agent associates MassMutual or its products with the Infinite Banking Concept.
The company reserves the right to reject life insurance applications if the policy for which the proposed owner applies is “based on such a concept or strategy” as the Infinite Banking Concept.
And still further, the company solicits reports from their salesforce should an agent learn of another’s use of “banking”-related terminology in their marketing.
It would seem MassMutual is not interested — with prejudice, you might say — in Infinite Banking Concept-type business.
As I say above, such is their right, and I would defend their right to discriminate in the sort of business they’re willing to consider.
The Infinite Banking Concept was Not Created as a Sales System for Life Insurance Agents
Life insurance companies, generally speaking, have never liked the word “banking” in any way associated with the marketing or sale of life insurance.
And look, I get it, it’s a litigious world and the fact of the matter is that there are agents out there — just like there are bad actors in any business — who will do and say anything to get paid.
Nelson Nash used to point out that no one individual or company has a monopoly on language. He would point out how the side of a river from which you might push a canoe is called a river bank. A pile of snow that collects alongside a mountain cabin is called a snow bank. If you go to donate blood, you’ll likely do so at a blood bank.
He was also extremely clear, and bonafide IBC Practitioners are too, that a dividend-paying whole life insurance policy built for the IBC is not a replacement for a checking or savings account (I mean, where would the premium come from?).
If you are one of the dwindling minority who had the opportunity to know Nelson, you know how he felt about tax-qualified retirement plans. You probably know how he felt about the very idea of retirement in the first place! In his public seminars he would point out the whole idea is socialist in its very nature and origin, stemming from German dictator Otto von Bismarck who subscribed to the zero sum economic fallacy. The idea is that there is a fixed number of jobs in an economy, so you’ve got to tax the citizens in order to pay the seniors to “retire” and leave their scarce jobs so that the young people would have something to do.
That is, it might sound a bit silly to anyone who knew Nelson Nash that he would advocate in the Concept that he came up with that you should use life insurance to replace a bank account or plan for conventional retirement.
In the pages of this blog and on the Banking with Life podcast with my mentor James Neathery, we’ve repeatedly blasted the tendency in the contemporary life insurance marketing footprint to neglect the death benefit of whole life insurance.
In fact, cash value only exists on a policy because there’s a death benefit. Death benefit is a future cash flow and cash value is the net present value of that future cash flow. Without a death benefit, there is no cash value.
As James points out, on policies sold currently in the United States, the cash value will equal the death benefit at age 121. This is another way of saying that the net present value of a future cash flow will equal the magnitude of the future cash flow in the instant that the “present” meets the “future.” He asks, “so do you want a little death benefit, or a big death benefit?”
One of Nelson’s rules was to think long range and don’t be afraid to capitalize.
Nowhere in any of Nelson’s work did he ever teach that the thing to do with a whole life policy is to design the composition of one’s premium outlay by smashing the base premium down to nothing, or as close to it as possible, in order to maximize the PUA premium portion.
Doing so constitutes a violation of both the admonition to think long range and to be unafraid to capitalize.
The ultra-high PUA premium, vehemently anti-base premium policy design mantra is obsessively short term-oriented. It’s meant to juice cash value growth relative to total premium outlay in the earliest-possible years of a policy. This tactic is marketed as “improving efficiency” or boosting so-called “policy performance.” The implicit notion is that generating more total cash value than one has paid in premium since when the policy was started is per se the correct goal.
Therefore, this approach is fundamentally short-term oriented and demonstrates a refusal to capitalize; meaning, a refusal to embrace the near-term illiquidity (where cash value is less than one’s total, cumulative premiums). It is a direct violation of the teachings of Nelson Nash.
Now, watch me here, this does not mean that you necessarily shouldn’t take this approach.
What it means is that if you want to do what Nelson Nash taught, then you might consider another piece of advice from Nelson: rethink your thinking.
The fact is that the ultra-short term oriented policy design approach results in what I call significantly reduced PUA premium “capacity.” This means that by so heavily weighting annual premium payment to PUA in early years, and thereby disproportionately emphasizing short-term cash value growth, the policy owner will have to reduce and ultimately stop paying PUA premium much earlier than he or she otherwise would have to, in order to retain the preferable non-MEC tax status over time.
As I show in Lecture 6 of my (free) Whole Life Insurance Mechanics series on YouTube, the result will be much less PUA premium — and much less premium in general — payable into the policy over one’s lifetime. Consequently, total cash value growth in the policy in the long run will be much, much lower than it otherwise could have been.
Curiously, the agents we’ve seen market whole life insurance with this sort of premium design tend to be the same ones who advocate taking maximum policy loans as soon as possible to go invest. As I’ve heard one marketer say, “you don’t make your money in your policy, you make your money outside of the policy.”
Predictably, this fundamental unwillingness to capitalize and to just pay the premium often results in very high policy loan balances. Such a loan balance can grow to exceed the cash value in a policy. Companies call this situation an “overloaned policy.” An “overloaned policy” is another term for policy lapse. Whole life policies cannot have loan balances that exceed the cash value. Such a situation results in a potentially tragic tax event for the policy owner (not tax advice, talk to an accountant before doing anything with your money, etc.).
This is yet another reason why it is not advisable to take this approach to policy design, funding, and management. Bonafide IBC Practitioners (agents) and small-p practitioners (consumers) know this — or at least, they should.
I suspect that the proper long term-oriented perspective required for genuine IBC implementation is what motivates much of these unadvisable sales tactics, including the employment of terminology that very well could confuse the prospective consumer.
Just look on some of the websites and social media channels of these online marketeers. Many of them fail to ever mention the name Nelson Nash, or Becoming Your Own Banker, or the Nelson Nash Institute, or whole life insurance. But you will find contemporary investment jargon aplenty: “passive cash flow,” “hack your cash flow,” “mailbox money,” “[insert single digit numeral of your choice]x your income,” “how to quit your day job and retire in 4 years,” “learn the cash flow tactics of the millionaire class,” “how to manage money like Rockefeller,” and so on.
In my experience with the ex-clients of those who endure these marketing-blitz programs and ultimately become customers, I’ve learned of the general lack of policy owner service provided after the eventual sale of a policy. It’s no wonder this sort of business leads to a dis- or mis-educated consumer, who may — potentially rightly! — complain to companies, industry watch-dogs, or regulators.
Here’s a fun question you can ask your prospective insurance advisor: What’s your persistency record with your preferred carriers?
In life insurance sales, persistency refers to the ratio of policies sold and kept inforce to those sold. If an advisor sells 10 policies, and one is surrendered, typically within some predefined time period like three to five years, then that advisor’s persistency with respect to those policies is 90%.
Advisors with high persistency (let’s say 85% or better) sell policies that people keep. Advisors with low persistency sell policies that people surrender or that lapse.
One would think that life insurance companies might cancel agent contracts with consistent track records of low persistency, but many don’t or take their sweet time getting around to it. I often find it curious that some companies get upset with some agent sales practices when the companies themselves issue and maintain the agent contracts. Some companies go even further and explicitly design products with actuarial mechanics that support the hyper short term-oriented advisor’s sales tactics. Some of these companies do this so that an advisor can print a whole life illustration that was deliberately designed to show higher, earlier cash values than the illustrations of whole life policies sold by other companies. Some companies even go further and explicitly name these policies in such a manner so as to convey the special, near-term emphasis on cash value growth.
And I do mean some companies — in the plural. Don’t get any cute ideas. I’m talking about an industry-wide phenomenon.
In reading the above — in returning to the teachings of Nelson Nash — one might reflect on a memo like that distributed by MassMutual and wonder, “just what are they talking about?” It sure doesn’t seem like the Infinite Banking Concept as Nelson Nash — the creator — taught it has anything to do with unfair trade practices, short-term policy design, maximum loan activity, increased lapse likelihood, poorly educated clients, poorly educated advisors, replacing a checking account, setting up a retirement plan, neglecting policy loan interest, neglecting the death benefit, using loans to pay for everyday expenses, “depositing” premiums, and paying giant first year lump sum premiums, much less stranger-owned life insurance.
The reason is that genuine Infinite Banking Concept-style business doesn’t involve any of that.
But that’s OK!
MassMutual is doing what it thinks is best to protect the best interest of consumers, which I appreciate and respect, even if I might consider their characterizations — let’s say — excessively generalized, and their understanding of the Infinite Banking Concept that Nelson Nash taught (which is, the only one) — let’s say — lacking.
The good news is that, like Southwest Airlines, you have a choice when you fly.
It turns out that you are not required to go with any one particular company in order to implement the IBC in your own life. A sound advisor may even walk you through how to think about the question of company selection from the get-go! Plus, if a given company doesn’t want your kind of business, then as grown adults, we can all choose to go our own way, always based on our own comprehensive, informed perspective.
And that’s what the IBC is, isn’t it? Something you implement in your own life.
It’s a philosophy. It was never intended to be a sales tool for life insurance agents in the first place.
I completely respect the right of companies to impose restrictions on their salesforce, especially when those restrictions actually achieve superior outcomes for consumers.
I happen to be of the opinion that Nelson Nash’s Infinite Banking Concept does achieve superior outcomes for many clients.