20 Feb 2010

Notes on Privatized Banking Through Whole Life, part 1

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Carlos Lara is a businessman in Nashville who contacted me out of the blue back (I think) in late summer 2008. He was a student of Austrian economics and saw on one of my books that I also lived in Nashville. It was Carlos who introduced me to Nelson Nash’s concept of “infinite banking,” in which a household uses whole life insurance policies as a personal bank. In particular, Nash says that individuals should finance their car and (once they are really into it) home purchases through policy loans, rather than relying on loans from auto finance companies or mortgages.

Carlos and I are writing a book on this, due out in early summer. The more I learn about it, the more I think it’s a no brainer for every household where at least one person is still in prime working years to buy at least one whole life policy, as early as possible. In particular, a whole life policy gives people who run their own businesses a lot of flexibility because of the way the tax code works. (Yes, Carlos and I both have whole life policies.)

Given our intentions, it’s appropriate that I start laying the groundwork now. Not only will this help introduce you to the (initially odd) idea, but it will also make it easier for me to write my portions of the book.

As this series progresses, I’ll tackle specific topics in more depth, and handle some of the typical objections (like “buy term and invest the difference” and “the rate of return on a whole life policy is awful–are you nuts?!”). At this point, let me just paraphrase a point that someone at the IBC conference made to me (and yes I think he sells policies for a living): If Dave Ramsey is right and whole life is such a stupid place to put your money, then why did the government cap how much cash you could put into a particular policy before the tax exemption phases out? If the government wanted to prevent something from being used by super rich people, doesn’t that make you a bit curious to explore this thing?

In the next post I’ll discuss what a whole life insurance policy actually is. But if you can’t wait, try this.

5 Responses to “Notes on Privatized Banking Through Whole Life, part 1”

  1. Joe In Morgantown says:

    Hi Bob,

    one concern I have with whole life that I'd be pleased if you could address is the sales commissions. Since the product is so often sold— rather than bought— these tend to be rather steep.

    • David says:

      Hi Joe,
      You are correct in your statement about commission on a typical whole life policy. However those that utilize Nelson’s policy structure to build a “banking policy”, will by definition drive down the death benefit while the cash value is increased significantly. With these features, the commission is sharply reduced because there is very little commission on the cash portion of the policy.
      A logical question is, “why would the agent do this?” and the answer is that we have found that when the client sees what they can do with this structure, they become excited and commit an even larger amount than they would for ordinary life insurance, plus it is common for them to give us multiple referrals. It should come as no surprise that when we act in the best interest of the client, good things happen for all concerned.
      I discovered this concept about 2 years ago and spent over a year of due diligence, reading everything I could find and attending presentations and events to meet the people that understand the structure. The bottom line is that I could not find any “hair on the deal” and was so impressed with it that I not only started several of these “accounts”, but I have now become an agent to promote the concept and by this fall will be devoting 100% of my time to it.

  2. Mike in Alaska says:


    I second Joe's concern.

    Also, to lend (no pun intended) credence to your upcoming conclusion, that Whole-Life is the way to go, I would expect you would invite the likes of Gary North and others to a point by point defense/challenge on the subject.

    Let's determine, once and for all, whether whole-life is a good deal, in terms everyone can understand and without subjecting observers to jingos for and against. You do that and I'll buy a whole-life policy.

  3. Brandi Jo Newman says:

    Hi Joe and Mike,

    I am asked everyday about the commission structure on my client’s ‘banking’ policies. What they have heard from Suze and Dave is that the only good thing about whole life is the commission to the agent…

    Yes if you are working an agent that is taking all your cash flow and buying death benefit – this is wrong for the client in many average cases.


    Here is the breakdown on how a banking policy is built with a client’s cash flow:

    #1 – if the client’s banking number for the month is $300 (which is my average client) the dollars are divided between purchasing death benefit to increase tax advantages and ‘depositing’ dollars into the PAID UP ADDTIONS RIDER – the cash account in the ‘banking’ policy.

    #2 – With the life insurance companies that I work with the split of dollars is $1 to death benefit with $2 to cash to push the MEC line out in time.

    – $100 to death benefit
    – $200 to PUA/cash account

    The majority of the commission is calculated on the death benefit with a very, VERY small amount of commission calculated on the PUA.

    I believe this is why the concept of privatized banking has become a movement among prudent, wise Americans rather than a sales pitch. And if Mr. Murphy will allow me to post a link to how I build a ‘banking’ policy – http://www.theflowofmoney.net/buildingyourbankingpolicy/ this is a video I produced to show my clients how I build policies and minimize my commissions.

    May I suggest to you gentlemen, read Becoming Your Own Banker, The Richest Man in Babylon and Mr. Murphy’s book How Privatized Banking Works.

    I have found my calling to spread this message of privatized banking. This is a very wise thing to do with ‘the money you are allowed to keep’ as stated in Richest Man in Babylon. AND as Mr. Murphy has projected, a weapon against the monopolistic Federal Reserve.

    — Mr. Murphy, I hope to bring you, Carlos, Paul Cleveland and Nelson to Austin and Dallas, Texas at the beginning of next year for a Personal Economic Symposium.

    — Joe, I played on the Futures Tour and was in the Betty Puskar Classic in Morgantown (if you are in West Virginia) a great town!!!

    Thanks and good luck to all who are searching for economic freedom.

    Brandi Jo Newman

  4. David Robertson says:

    Since both Robert Murphy and Carlos Lara are Austrian economists why do they not advise building cash values in the policy in the form of gold or silver reserves?

    Since the cash values are never withdrawn, only used as collateral, this would seem to be a more secure method of creating a truly Austrian privatised banking system. It would also be more in keeping with Austrian principles, safeguarding cash reserves against the likely disappearance of our current debt based irredeemable fiat paper money.