INTRODUCTION
In this article I’ll discuss what the infinite banking concept is and why it’s an important concept for cryptocurrency investors to understand. I’ll also be explaining how to incorporate what we call the “safety” and “windfall” strategies of infinite banking into your blockchain investment strategies.
WHAT IS THE INFINITE BANKING CONCEPT AND WHY DOES IT MATTER?
The Infinite Banking Concept was created by R. Nelson Nash over twenty years ago and is simply an alternative way to store, grow and access wealth in an efficient and relatively risk-free manner. In his book, “Becoming Your Own Banker”, which came out in 2000, Nelson goes into great detail on how he discovered that certain properly designed, participating (i.e. dividend-paying) whole life insurance contracts with specific (not-all) mutual life insurance companies in the U.S. are an ideal vehicle for personal wealth management. I also believe that he was truly inspired to share this somewhat forgotten and neglected approach to personal wealth, especially in the face of the overbearing and flawed influence of Wall Street, big banks and various government programs.
Here are some of the benefits from utilizing these strategies:
- 1The ability to use the same dollar more than once for different income-producing purposes, similar to how banks always get the money back.
- 2Taking advantage of the magic that is uninterrupted compounding growth of your money tax-free, while also being able to access it tax-free.
- 3Turning your expenses and liabilities into cash-flow (i.e., outflow of money to inflow of money).
- 4Storing, growing and accessing your wealth in a vehicle that has zero stock market exposure and was instrumental in the early success of companies like Walt Disney, J.C. Penny, and The Pampered Chef to name a few.
- 5Create inter-generational wealth... you guessed it —tax-free!
Here is a link to an article on the infinite banking concept that I wrote recently if you’re interested in learning more: https://michaelrhession.com/what-is-infinite-banking-and-why-should-you-care/
HOW TO SIMULTANEOUSLY IMPLEMENT BOTH THE SAFETY STRATEGY AND WINDFALL STRATEGY:
Now, I’d like to go into some detail on what it is that we’ve been doing with my current crypto-investor clients.
To begin with, it’s a two-pronged approach that implements a ‘safety strategy’ and/or a ‘windfall strategy’. The former involves a properly designed, whole life contract that immediately takes advantage of the benefits noted above (and many more beyond that), and the latter utilizes what’s called convertible term life insurance policies with the same companies we use for the safety strategy. If you’re not familiar with the difference between whole life and term life, it’s pretty straight forward; whole life is designed as a contract that you fund for your whole life (although there are a variety of options that allow you to pay for a shorter period of time), grows accessible cash value along with other benefits to the insured person aside from a payout to the beneficiary upon their death, while term is for a set period of time and primarily serves as pure protection with no cash value and little in the way of ‘living benefits’. Term insurance can be for as little as a year at a time, which is more common through a person’s place of employment, and longer periods such as 10, 20, and less commonly, 30 year term.
This is our process when talking with these crypto-trader clients and how we determine which route to go, and how sometimes we’ll incorporate both:
A) Safety Strategy - After reviewing the client’s financial situation by utilizing a proprietary 8-year analysis software tool, which takes into account income, assets, liabilities, etc., I can get a pretty good idea of which strategy to go with. In short, if the client has assets and decent cashflow, and also has money flowing away from them in the form of interest on debt; credit cards, auto loans, mortgages and the like, they are a good candidate for the safety strategy to start with. The reason for that is they’re losing money to outside lenders and they have some capital that can be put to work to fund the whole life policy or policies. By utilizing infinite banking concepts we’re able to stem that tide, because regardless of what is going on in their crypto holdings, those debts are still coming due each month.
B) Windfall Strategy - With the windfall strategy what I’ll do is set the client up with what’s called 10-year convertible term insurance with the same mutual insurance companies that I use for the whole life contracts. The clients who start with this often don’t have the reserves to start a whole life policy but may have a large amount in their crypto holdings that they’re eventually planning on cashing out at some point. The term insurance is much less expensive because initially it is pure protection, there is no cash value and it is not an asset like a whole life contract. However, the owner of the contract has the right to convert all or a portion of the term contract into a whole life, infinite banking concept policy, at any time when they’re ready. And because the term policies are less expensive, you can get a higher face amount in place which allows for a sort of warehouse of future wealth, and it also allows you to lock in your health which means that you don’t have to go through further medical underwriting when you’re ready to convert.
There is quite a bit more to say about this, but I wanted to lay out the basics.
Many of my clients will do both the safety and windfall strategy simultaneously so they can start ‘banking’ for themselves and have a vehicle that can take in future windfall. I have come to see how this very old-school, whole life contract that’s been around for close to two hundred years is a perfect ancillary piece to speculative endeavors, be it in the crypto space or other areas such as real estate and the like.
Here is the process for my current crypto investors:
- 1After an initial conversation with me to discuss the infinite banking concept, I’ll typically require that they do a little recommended reading on the subject. Reading my article to start with might be sufficient, and if not I have other resources to suggest with the holy grail being Nelson’s book “Becoming Your Own Banker”, the idea is to get the wheels turning a bit more before the next step. Honestly, if someone can’t get their head wrapped around operating their finances like a bank and it doesn’t make sense to them, there’s no point in moving forward. This is not for everybody, and that’s okay.
- 2The next step we take with our current crypto clients is to submit an intake request where they add their assets, liabilities, income, etc. in an electronic form so that I can perform an 8-year analysis that looks at how their financial lives could look if they incorporate infinite banking into their lives. The analysis tool is very good but isn’t terribly useful if the client has no debt, in those cases I often don’t bother with the analysis tool but talk further about the benefits and focus more on the windfall strategy.
- 3Once they’ve filled out the form, we then set up an hour-long, recorded meeting to review their analysis where I’ll discuss in more detail the windfall and safety strategies.
- 4If the client chooses to move forward at this point then we start the application process and the client receives training videos on how IBC works and how to implement given their unique financial situation.
- 5We typically apply to several insurance companies simultaneously, and once offers start to come in we can review and make decisions. By doing it this way we have options and can make informed decisions that make the most sense to the client.
Closing statements:
In closing, although I personally have not ventured in to the crypto space & am still learning about it, I love the fact that the blockchain was created out of the financial mess in and around 2008 as an alternative to the existing monetary regimes. This is another area where I see a great ‘meeting of the minds’ between the blockchain/cryptocurrencies and infinite banking, and is something that most people don’t understand. The life insurance companies that we utilize are:
A) Mutual companies that are not publicly traded in the equities markets, and thus are not beholden to random shareholders and the volatility of their stock price. They are, in essence, owned by the policy holders who enjoy full ownership of their policies and enjoy all the benefits therein.
B) The money that the insurance companies hold are not held in any banks, they are held separately in some of the safest accounts on the planet and are not privy to possible future bank runs. This is exactly how and why someone like Walt Disney was able to access his cash during the depression to further expand on Disney World, that money was safe and sound in life insurance accounts.
C) The insurance companies do invest a portion of their holdings in order to grow and satisfy the demands of future death benefits, but they’re nothing like what Goldman Sachs or Lehman Bros. were doing back in the day. They’re incredibly conservative and safe, things like government & corporate bonds, real estate, etc., and the companies we use have shown an ability to grow steadily for decades (in most cases for well over a hundred years) through the civil war, depressions, countless recessions, world wars, and epidemics and are still going strong. They’re also pretty savvy when need be, and one of the main companies we use, MassMutual (which predates the civil war) made a significant investment into bitcoin in late 2020!
So, thanks for reading and I hope this article sheds some light on how the infinite banking concept can be a beneficial partner in your crypto investing. If you’d like to learn more, please see below to set up a time to chat.
