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This is what wealthy people do. In this episode, we are going to address the question, "How does Bank on yourself work?" In this episode, you're going to be blown away with how money really works with a lot of even finance professors at universities when I teach this, they sit there with their mouths open. So, get ready. So, my name is Doug Andrew. I've been a financial strategist for more than 46 years. And I've often referred to this concept --"be your own banker". But I have noticed that a lot of people that first hear about this. Maybe heard it from Pamela Yellen who I know. And she calls it Bank on yourself. Nelson Nash calls it infinite banking. It's basically the same thing. And so, a lot of times in the various places where I teach, people will raise their hand and ask, "So, what is Bank on yourself? How does it really work?' Now, first of all, you need to understand that Nelson Nash, Pamela Yellen, they primarily use whole life insurance for this concept which is fine. It's okay. I'm going to share with you why I use indexed universal life because Bank on yourself using IUL is like Bank on yourself on steroids. But first of all let's talk about how it works in general. When you accumulate money inside of an insurance policy and insurance contract, it's one of the very few vehicles in the Internal Revenue Code that for more than 100 years has been grandfathered, it accumulates tax-free. Whether it's interest you're earning or the dividends or what-have-you inside of that insurance policy. So, it's tax-free. It's like a sacred cow because it's money that generally you were going to be putting into the policy that if you die, it leaves behind a lump sum and that allows those that you leave behind your beneficiaries, your spouse, your kids, your grandkids, whatever. So, that they do not become a drain on society and needy and welfare. And so, the government has allowed it to be tax-free. Why would they shoot themselves in the foot and tax people who are trying to be financially independent? Now, when you use insurance for living benefit, you can also access that money tax-free. So, the banking concept is that when you build up some cash in your own personal bank, okay? The Bank of you. And that you need money to buy a car or for business equipment or what-have-you, rather than go to a commercial bank or lender, you are actually becoming your own bank. You build up that cash reserve so that when you need money, you can go and borrow the money out of the policy. Now, you could withdraw it but that's really not the smart way to go when you understand how money works. I recommend you borrow your money. Now, people say "Why would I borrow my money? Why don't I just withdraw it?" Here's why: Because when you borrow it out, the insurance company charges you a set fixed interest rate to borrow your money it may be 2%, 3%, 4%, 5%. But see they will continue to credit you on the cash value that you didn't withdraw. You simply used your cash value as collateral. If you have 100,000 in there or if you have a million in there, if you withdraw it, it's no longer there to earn interest. But if you leave there to earn interest and you borrow out using that as collateral, then you have the ability to have your money continue to earn a rate of return hopefully greater than what they're charging you to borrow it. So, with whole life insurance, you have a spread. Usually that spread even if it's 1 or 2 percent allows you to earn a little bit higher rate than what they're charging you. It's the really how the world goes around for millennia. When you put money in a bank, why are they paying you interest? Because your money is in a lended position. You're loaning your money to the institution. Same thing with an insurance company. Your money is in a lended position. Now, if you borrow your money out or you borrow using your money as collateral, they will charge you an interest rate. But just like banks borrow our money and they turn around and loan it back out at a higher interest rate or they invest it at a higher rate. If they borrow your money at 5 and they and reinvest it out at 7 or 8, they make a spread. And it actually compounds and does quite well. This is how you have this infinite banking concept. So, whole life is based upon that that small spread that a lot of banks operate on. Except recently banks have been borrowing our money at 1%. And they've been putting a lot of your money into triple-a rated insurance companies and earning more like 4 or 5 percent. Well, I'm going to show you how you can also do a similar thing and do far better than just earning an extra 1 or 2 spread on that money. So, the technical term for this is called arbitrage. Now, that sounds like a strange word to some people. Maybe they've heard it. They may be associated with that words that also have you know espionage. And they think, "Ooh, this is evil. This is spooky." No. Arbitrage has been around since biblical times. It's in the parable of the talents. You wicked and slothful servant. You just should have taken your money at least put it in a bank and with usury earned interest. But the bank isn't just a benevolent institution. They're turning around and and loaning that money back out at a higher interest rate and they make that spread. They borrow your money at 1, 2 or 3 percent. They loan it out at 5, 6 or 7 percent. That's called the spread. They have to make their profit and cover their overhead. But that is what arbitrage is. It is borrowing money at a certain interest rate and earning a higher rate. If you're going to do that, the reason why I love indexed universal life is because it makes this bank on your self-concept go through the roof. Whenever I've had licensed insurance agents that have been trained with whole life insurance, so many times, they have blinders on and they just say, "Oh, no, no, no. Whole life has this and this." And finally, I remember one top of the table producer. I mean top of the table with a million dollar roundtable is the top 500 agents in the world. And I was a member of that organization. And that elite group for 12 years. And I made friends with many other top producers. This gentleman, he was so big on Bank on yourself with whole life and I'm like, "Hello! Hey!" If you think that's great with whole life, look what indexed universal life does. When he finally studied it he goes, "Oh, My heavens. This is like on steroids. Why?" So, the reason why indexed universal life blows whole life out of the water with this concept is because... I'm going to give you actual history. There have been many times where if I just want to borrow money. Let's say I have a million dollars of cash value in my insurance policy. Now, it doesn't matter if I have 10 thousand, 100 thousand, 10 million. But I have many many clients that have at least a million dollars in their policy. And they're business owners, they use this banking concept as working capital for their business. And so they see an opportunity to tie up a piece of property. And they need 100 thousand. Maybe a million dollars of earnest money. They can do that. They just simply call and say, "Doug, fax me over or email me over the form." It's a one-paged form where they put their name and their policy number. And then it says, "Do you want to withdraw a million or do you want to borrow a million?" Now, what do you think they check? Yeah, they want to borrow a million, why? Because when they borrow a million, they have usually 2 choices. They can do a zero-wash loan and if they think the economy is going to be heading down for a recession or whatever, they may just do a zero-wash loan. That means they borrow a million from the insurance company and they leave their million there as collateral. A zero-wash loan they may borrow the money and the insurance company charges 2%. That would be 20 grand. But they credit you, guarantee to credit you the same 2% on the million that is no longer there but it actually your cash value still shows up on the ledger. So, they charge you 2%, they credit you 2%. That's a zero- net cost. Why do they do that? Because the IRS says if you borrow it out, it's tax free. And so, it's what they have to because his loan proceeds are not subject to tax. And so, by doing that, it's a zero-cost loan. It doesn't cost you anything. The loan is not doing payable during your lifetime. If you keep that loan out for 30 years when you die, the death benefit pays off the loan and you get the net leftover even though you pulled out your money. You just were pulling out some of the death benefit early before you die. But you did it a smart way under the loan. Now, if you feel like the economy's growing, you can opt to borrow the money maybe at 4%, 4.5 or 5 percent. There are many times our clients have borrowed a million bucks out of their insurance contract at 5%. Why would you agree to pay 5 when you could just pay 2? Because they will credit you whatever the index that you have linked it to or indices on the policy. Most of the time when our clients have done this, they've been charged 5% and they've earned 10%. 10.07 to be exact as the average. How much more 10 than 5? Don't say 5. It's 100% more. In other words, the insurance company was charging 50,000, you don't have to pay that physically. That was deducted from the 100,000 that they credited you on the million that you took out of there. Technically you borrowed it. But it's there and they credited you 100,000. And that covered the 50,000 of interest. They charged you 5, they credited you 10%. You made 5% net on your money tax-free while you were using your money. Hello!? That's 100% more than the cost of the funds. This is arbitrage. This is being your own banker. Do you know in 2017, I had many clients who borrowed money millions out of their insurance policies at 5% and they earned 16% and some earn 25%. Some people every million they borrowed, the insurance company charged 5% or 50,000. But they credited them 250,000 on their indexed universal life. 250,000 minus 50,000 is a net of 200. That's 20% return tax-free on your million dollars even though you're using it for something else in your business. You will never find a whole life insurance policy that can come close to having that kind of a spread or an arbitrage. That's why I'm partial to indexed universal life. Other than that, I don't have any strong feelings on this subject. So, if this is intriguing you, I would encourage that you learn about how to use this Bank on your self-concept the best possible way. Whole life is a good way. But I like to use the best way because good, better, best never let it rest. Never let it rest. Have good gets better and better gets best. If you want to learn about indexed universal life, I wrote on my eleventh book called The Laser Fund. It's actually 2 books in 1. One is 200 pages, 14 chapters. All kinds of charts and graphs. And there's a few chapters in there that talk about this very concept. If you like to learn buy stories, you flip the book over and this is 12 chapters with 62 actual clients stories of people that have used this very concept using indexed universal life. I'll pay for the book. It's free. You simply go to laserfund.com. You pay $5.95 shipping and handling. And I'll fire out a book to you absolutely free.