Infinite Banking, LEAP, Bank On Yourself, etc

[jcorr]

I've been reading up on Infinite Banking, LEAP, Bank On Yourself and Found Money Management. It makes a lot sense to me and I really like the concept. As I get older I'm finding myself getting more and more financially conservative. My question is what are the drawbacks to the concept? I'm not looking for philosophical difference but actual shortcomings. The only real shortcomings I've seen so far are possible insurability issues and the need to commit for a minimum of five years. The only other negative I saw was a link in a comment to a Forbes columnist who met with a BOY advisor from Layfette where the numbers didn't seem to work (I do have some questions about how it was presented but the columnist didn't go into enough detail).

 

[DHK]

If you're going to be recontracted with New York Life... then your concerns will be primarily your compliance department and not to use "funny math". That's one reason why you'll want to stick with quality books like Tools and Techniques of Life Insurance Planning. There have been captive career agents terminated for promoting "infinite banking" because there have been issues with properly presenting it in the past.

Understand how life insurance policies work and you won't talk about "infinite banking" or "bank on yourself", but merely how life insurance loans work.

For example:
If you have $100,000 of cash values earning 4%... you'd earn $4,000 for the year.
If you take a loan of $50,000 against your cash values, with a loan cost of 4%... you'd have a loan interest cost of $2,000 per year.

Now, if you don't pay back the policy loan interest, then $4,000 earnings - $2,000 loan interest = $2,000 net gain to your policy.
If you DO pay the policy loan interest out of pocket, then $4,000 earnings - $2,000 loan interest + $2,000 out of pocket reimbursement = $4,000 policy earnings restored.

That's simple math. (Although loan interest does come out FIRST when you first take out a loan, so the timing of the loan cost wasn't factored in, but the essence of it is there.)


Also, some of these programs are very expensive, steep learning curve, and far too long of a process. (Btw, if you want people to use the 'logical' side of their brain, use software. If you want to connect with people and have people buy 'emotionally'... don't use software.)

LEAP & Wealth In Motion have a 6-meeting "comprehensive" process (and $2,500/year software cost + $600 training sessions; I went to 3 of those).
1 - Present "Personal Finance & Wealth Building" & "PS&G Model" booklets.
2 - Fact-Finding (then data entry into the computer)
3 - P for Protection module
4 - S for Savings module
5 - G for Growth module
6 - "External design" to coordinate everything together.

I learned a lot from learning this process... but with IPS, I could do all of this in ONE meeting and present a recommendation on the 2nd call in an easy to understand format.

You can't do all that... if you're working with the Middle Income market. The premiums just aren't there to justify the cost and that level of work. Today, I'd either charge planning fees for each session... or I'd need to be assured of a $25,000+ commissionable premium to do that work.

MoneyTrax Circle of Wealth is less expensive long-term and has an easier learning curve... but it's about the same. ($4,000 up front, but only $400 renewal cost last I checked.)

Both of these programs are used as a way to prove your concepts and the viability of cash value life insurance.

Insurance Pro Shop can teach you how to use all these concepts... but without computerization, so you can actually LISTEN to your prospects and help them with THEIR problems... rather than just trying to prove the merits of life insurance. It's also far less expensive to learn... which means you can geometrically expand your pool of potential prospects for these concepts.

As far as shortcomings for the client: These concepts are tools that need to be used by skilled advisors. There may be over-eager advisors that would sell cash value life insurance to people that don't have enough other liquid assets. If someone doesn't have sufficient savings in the bank, then buy term and save what you can (which is different from "buy term and invest the difference").

Also, advisors need to commit to doing annual reviews and reinforcing proper expectations of their policy performance and managing loans on these policies. They're service intensive... but if you were going to build a clientele, you were going to do annual reviews anyway, right?

There are also various ways to structure the policy so that there is a great deal of early cash values... but that can also mean a lower commission for you. If you're with NYL, they'll have to help you with that. With UL/IUL policies, if you do an over-funded IUL with increasing death benefit, you could have reduced your compensation by 50% or more over a maximum-funded level death benefit. So, it really depends on what's best for the client and how quickly a client may need flexibility in their plan and/or access to the cash values.

 

[jcorr]

I spent a bunch of time last night (my wife would say too much) going over the programs and from what I've seen so far I really like IPS followed by Bank on Yourself. I'm currently reading Bank On Yourself Revolution by Pamela Yellen and I like the way she explains it and seems to be able to back up what she talks about. She does like to self promote though. Next read will be Becoming Your Own Banker (which I'm sure will be pretty much the same as Bank on Yourself Revolution). I'm looking forward to reading Tools and Techniques of Life Insurance Planning.

With UL/IUL policies, if you do an over-funded IUL with increasing death benefit, you could have reduced your compensation by 50% or more over a maximum-funded level death benefit. So, it really depends on what's best for the client and how quickly a client may need flexibility in their plan and/or access to the cash values.

I'm not too worried about getting less in commission. I figure if I do a good enough job and they like the results they'll get more insurance and be more willing to give out referrals. My initial impression of UL/IUL is pretty lukewarm, IUL I don't think I'll have the option of doing. It's one of the few drawbacks for NYLIC, they don't do indexed funds or allow their agents to do them (as far as I understand it). Until I find out more I'm really liking whole life.

Also, advisors need to commit to doing annual reviews and reinforcing proper expectations of their policy performance and managing loans on these policies. They're service intensive... but if you were going to build a clientele, you were going to do annual reviews anyway, right?

Yep. I agree 100%

 

[DHK]

Correct. Last I've heard, both NYL and Northwestern Mutual don't allow ANY indexed life or indexed annuity sales.

Guardian does allow it - from what I've heard on this forum. They also have an "indexed interest" dividend option on their WL policies. MassMutual does allow approved Fixed Indexed Annuities as well, but only for their registered/securities licensed reps and only with approved annuity carriers (no IUL).

IPS will still be helpful - particularly their online video training for you at this stage of your career. It should be compatible with your NYL training - especially on how to conduct a fact-find. As for anything else, I'd readjust to your NYL agency first before adding anything else.

The other books you're looking at reading... just be aware that there's sometimes some funny math... so if it doesn't make sense, don't plan on integrating it into your client meetings. Far safer for your career that way.

If it came down to defending a recommendation, I'd much rather rely on Tools & Techniques of Life Insurance Planning from National Underwriter (practically a textbook) than other self-published books.

 

[pfg1]

If you are designing the policies correctly, you will get lower commission.
The main drawbacks I've seen...the clients need to understand its a LONG term commitment, not a short term deal. And they need to be able to fund the plan to make it work. Sometimes people oversell the premium and it ends up they can't really afford to fund it properly.
Also, some folks tout this as a replacement for a 401k, etc. IMO, it should be used along side the 401k, not instead of. Both life ins and investments have their place and work best used together.

In order to effectively make the strategies work the best its really a lifelong plan (or at least until retirement). The only way it can work with shorter timeframes is if they really have alot of cash to fund in early on, and the policy is designed as such. I personally prefer WL over IUL, and if designed properly it can do really well.

Remember that its just a concept, and once they understand that concept completely they can do alot of things with it.