Episode Transcript
[00:00:00] Greetings. Michael sparks here with dynasty wealth partners, an authorized infinite banking practitioner. This is episode two of the IBC Audible podcast where we read some of the best articles about the infinite banking concept and other matters concerning finance and economics. Today's article is entitled IBC is not a Gimmick by Luck. Carlos Laura written for the April 2015 Laura Murphy Report newsletter.
[00:00:33] Carlos Laura is the co director of the Nelson Nash Institute, as well as a featured speaker and presenter on the infinite banking concept, business, finance, and austrian economics, as well as the co author of how privatized Banking really works, integrating austrian economics with the infinite banking concept.
[00:00:57] The case for IBC how to succeed from our current monetary regime one household at a time, and his latest release, the Perfect Understanding, whole life insurance and Nelson Nash's infinite banking concept. These books are available on our website, dynasty wealth partners.
[00:01:20] Just click on the shop button.
[00:01:24] In this article, Carlos explains some of the background on why whole life insurance and the infinite banking concept gets a bad rap.
[00:01:34] In the 1970s and eighties, several characters put whole life insurance companies under fire, saying that it was a gimmick, as well as deceives policy owners and the public with its complicated design and structure. Two main characters in these acquisitions to Congress were Ralph Nader, an american political activist, author, lecturer, and attorney noted for his involvement in consumer protection and environmentalism, as well as Al Williams, who coined the term buy term and invest the difference. He started the Al Williams company, which later became primerica.
[00:02:12] Okay, here we go.
[00:02:16] IBC is not a gimmick by L. Carlos Lara in April of 1987, a newspaper ad ran in the Wall Street Journal with the following almost unbelievable, bold headlines all life insurance lets you provide for your children. Ours lets you buy toys of your own.
[00:02:37] This ad was so ostentatious in its message that it became exhibit a in a Senate hearing before the Subcommittee on Taxation and Debt Management on March 25, 1988. The final outcome of these proceedings led to a dramatic change in the Internal Revenue code treatment of life insurance unmatched by any other since the industry's inception.
[00:03:07] Now, it's true that even our common sense tells us this advertisement is definitely talking about special benefits for the living, not the dead.
[00:03:18] So the ad does beg the question, is this really life insurance?
[00:03:24] Furthermore, who can dispute that? The ad itself is shameless, especially since congressional had just enacted the 1986 tax reform the year prior, seemingly closing all of the tax loopholes of the wealthy.
[00:03:42] But it seemed that by overlooking this remaining favorable tax treatment enjoyed by traditional whole life insurance, Congress had somehow inadvertently made a generous gift to a small privileged segment of society.
[00:03:59] Nevertheless, some life insurance companies had placed ads such as this in major newspapers and magazines, causing the sales of single premium whole life insurance policy to soar.
[00:04:12] The end result was the entire life insurance industry, and specifically the whole life product, came under federal scrutiny.
[00:04:25] One key witness in the panel of this formal inquest, the witness who actually submitted this particular ad as exhibit to her testimony, was the executive vice president of the Al Williams Corporation in an insurance agency specializing in the exclusive sale of term insurance and also the agency famous for the catchphrase buy term and invest the difference. She, among the rest of the 23 panelists represented, was particularly outspoken and took the opportunity to tell the members of the Senate that when life insurance becomes a haven for tax dodgers and a means for the wealthy to avoid paying their fair share of taxes, then Congress should take action.
[00:05:14] Failure to act now is tantamount to putting the congressional stamp of approval on these abuses.
[00:05:23] As assertive as these documented comments were, the truth is that there is much more to this complex story involving life insurance and this particular marketing debacle that first meets the eye.
[00:05:38] Granted, the newspaper ad is certainly disgracefully bad and tactless, but this accusatory reference to the tax dodging by the Al Williams company is also a bit extreme, especially when the accusation came from the organization that went on to become citigroup, one of the largest commercial banks in the nation, the very same organization that was bailed out with billions of dollars of taxpayer money in the 2008 financial crisis.
[00:06:11] Still, two wrongs don't make a right.
[00:06:14] It's the resulting doubt and confusion that the uneducated public must contend with that creates the long term damage.
[00:06:22] This is really how reputations can be ruined and institutions disgraced. As usual, government intervention only makes matters worse.
[00:06:32] More often than not, we discovered that government intervention is the primary culprit, as it was in this case. The end result of the entire ordeal was that the once invincible whole life insurance product was so maligned that it bears a stigma that lingers to this very day.
[00:06:52] In the LMR article, I intend to highlight several of the most significant in the chain of events that led to the Senate hearing in which the single premium whole life insurance product was put on trial and was ultimately reclassified as a modified endowment contract.
[00:07:14] The dramatic revision and how it became about is an important subject for all practitioners of the infinite banking concept, simply because the underlying framework for the implementation of this privatized banking process is still the dividend paying whole life policy.
[00:07:40] These historical incidences are important because they help explain why? Despite its often misunderstood image, those that truly understand the unique benefits of dividend paying whole life insurance continue to defend its merits vigorously. What we must not forget is that the practice of IBC using dividend paying whole life insurance continues to afford us financial freedom. But with this benefit comes responsibility, especially in how it is marketed to the public.
[00:08:16] Providing guidance and educational insight in this particular area is one of the most important reasons for the establishment of the Nelson Nash Institute, along with the authorized IBC practitioner program for financial professionals.
[00:08:33] Putting the facts in chronological order the story begins in the 1960s with all things a common misconception about how whole life insurance is designed and how it actually works.
[00:08:48] At the time, the life insurance industry was relatively uncomplicated and had only two life insurance products, term and whole life insurance. The only non life product was the annuity. But what many members of the general public did not know or understand from an actuarial standpoint was that term and whole life insurance were conceptually similar products that obey the same rules of design and pricing.
[00:09:18] Ironically, the same lack of understanding prevails today.
[00:09:22] Properly understood, there really is no price differential between term and whole life products, since they are both priced according to the length of time of their coverage. A term policy whose coverage is so long that the insured will almost certainly die during its term becomes very similar to a whole life policy.
[00:09:45] Term protection for a lifetime is naturally going to be more expensive than a ten, a 15, or a 20 year term policy.
[00:09:54] Consequently, in order to provide coverage for the period spanning a whole lifetime, a specially designed term policy will need to be created in such a way that an actuarial relationship between the fixed premiums, cash values, death benefits are to be just sufficient enough and no more to cause the policy to endow, which means become fully paid up.
[00:10:24] This is not a speculative strategy, but rather a set formula designed to reach a designated end.
[00:10:32] With a whole life policy, the insurer will pay out the death benefit claim either upon actual death of the insured or sometimes when the insured reaches the designated age. Originally was 100, age 100, but now often goes to 121 years and the policy endows.
[00:10:55] Unfortunately, as interest rates rose in the United States due to inflation and more of the american public turned to speculative ventures, this basic knowledge about whole life's simple protection and saving structure began to fade. In 1979, this crucial understanding was dealt a death blow.
[00:11:17] Our particular sordid story unfolds with Ralph Nader, the well known consumer advocate of the 1960s, who agitated for the federal laws governing seatbelts in our automobiles. Nader took a self promoting stance with the insurance industry by incorrectly diagnosing that whole life insurance was an investment product and that such was terrible when compared to other investment products in the marketplace that paid a much more favorable rate of return.
[00:11:52] Since most Americans still owned whole life policies as their primary means of saving money, Nader believed Americans were getting conned by the insurance companies. He began calling for a congressional investigation, and that's when they the trouble really started.
[00:12:16] The 1979 Federal Trade Commission report.
[00:12:20] By the late 1970s, when the government eventually stopped, stepped in to examine the life insurance industry and the whole life product itself, the confusion surrounding it had escalated. Keep in mind that the state insurance commissioners who actually regulate life insurance industry and have done so for two centuries, had no problem understanding whole life insurance, its mechanics, and its ultimate purpose.
[00:12:51] But now we had a federal inquiry made up of an assembled staff of individuals commissioned to explain the Federal Trade Commission how life insurance works by starting with the wrong premise. Their comparison of whole life to other investment products was an unfair analysis, more like comparing apples to oranges.
[00:13:16] They only served to bewilder the investigating committee even more.
[00:13:21] Consequently, their conclusions were not at all surprising and were identical to naders. According to them, whole life insurance was a bad investment with meager rates of return. Furthermore, they determined that the moving parts of the whole life product were entirely too concealed, thus making it difficult for investigating public to make proper buying decisions.
[00:13:47] Their recommendations were that the entire industry should be reformed to provide more disclosure of products and their internal workings.
[00:13:57] Unfortunately, the staff report to the Federal Trade Commission was published in a booklet in 1979 without any warning to the National association of Insurance Commissioners. Parentheses NAIC was released directly to the press. Predictably, newspapers had an absolute nationwide field day casting whole life in a bad light with astonishing headlines such as whole life insurance. A bad investment yields only 1.3% return FTC reports at the Los Angeles Times July 11, 1979 FTC says consumers losing money by keeping savings in insurance policies the Wall Street Journal, July 11, 1979 Americans lose billions on insurance, FTC says Houston Post, July 11, 1979 FTC finds whole life insurance a bad investment a Dallas Morning News July 11, 1979 an FTC study assails whole life policies Palm Beach Post, July 11, 1979 although the NAIC and Life Insurance actuaries representing many of the largest life insurance carriers came back into this investigation, hearing for weeks afterwards to rebut these false claims and accusations and set the record straight, it was too late. The damage had been done. The FTC report devastated the whole life product. It plummeted from about 85% of life insurance market in 1979 to about 50% by 1986.
[00:15:46] Buy term and invest the difference by the time of the Senate hearings of 1988, whole life was on the ropes and fighting for survival.
[00:15:57] While the entire life insurance industry was under great duress and attempting to financially reposition itself, several carriers such as executive life integrity and others were obviously struggling.
[00:16:13] It was actually these companies in desperate acts to increase premium revenue that had placed the ads in promising outlandish ads promising outlandish benefits from life insurance in order to keep them from going under and ultimately to protect policyholders financially, stronger life insurance companies eventually acquired them.
[00:16:37] Though this period proved to be one of the more difficult and darkest in the history of life insurance companies, the record shows that they adapted to the circumstances and emerged from it all financially stronger than ever.
[00:16:51] What really exonerated whole life insurance in the eyes of the thoughtful public was the severe stock market crashes that came later.
[00:17:02] What our readers must understand is that the slanderous remarks made by the Al Williams company against the whole life in this particular hearing had actually started 20 years prior. When the young Al Williams set out with a handful of agents to destroy it. He, like consumer advocate Nader, had failed to see that in the broadest sense whole life was in fact term insurance and investing the difference all in one financial product, but with the investing being done in a very safe and conservative portfolio compared to the equity based mutual funds. But now all that was a moot point.
[00:17:43] The 1979 FTC report had already made Al Williams a billionaire and helped lead to the surrender of millions of whole life policies because people believed the government. In his book and in his own words, Al Williams wrote, we put the FTC report on top of every client's kitchen table. We passed out flyers by the thousands. The report supported everything we claimed. Its credibility just couldn't be denied. Every man and woman in Al Williams company felt a new conviction that our crusade was 100% right for the consumers. Consumers now knew the real story behind trash value. And that's trash with a t, not cash value, trash value. Life insurance with a choice. They came to Al Williams every time.
[00:18:40] Al Williams coach 2006 after the Tax Reform act of 1986, sales of single premium whole life product had skyrocketed among wealthy individuals for good reasons. With many tax loopholes now removed, people began reaping the financial protections that had been there all along with traditional whole life insurance. At the time of the 1988 Senate hearing, Williams organization was no longer a small group of salesmen, but instead a nationwide network of independent businessmen and women marketing, financial services in all 50 states and all the provinces of Canada with 180,000 licensed representatives. The presence of the Al Williams representative at this hearing was principally to make sure whole life would not be resurrected into the prominence it had previously held.
[00:19:43] The 1988 committee's efforts were successful in reclassifying the single premium whole life product from pure insurance to a tax preferred investment account.
[00:19:56] However, the dividend paying whole life product for all practical purposes remained intact, complete with all of its multidimensional benefits. Although a one time single premium payment into a dividend paying whole life policy no longer avoids income taxation on the excess cash accumulation due to these hearings, it is still possible to properly structure and fund even a larger whole life policy that is not adversely affected by the revised IR's rule rules.
[00:20:31] When properly designed and funded, the dividend paying whole life policy continues to have the same favorable tax treatment, accessibility of its cash values, safety, privacy, diversification away from volatile markets, guaranteed growth, stability control, and numerous other financial advantages that had made it so appealing both historically and in particular after the 1986 Tax Reform act, it still continues to provide the flexibility to sequester small or large amounts of money inside of its maximum protection and financing purposes, in addition to the peace of mind that comes from protecting one's beneficiaries in the event of death.
[00:21:22] Since IBC is the process of using a specially designed dividend paying whole life policy for superior cash management purposes and safety, members of the public, when ready to implement the process, are encouraged to visit the Nelson Nash Institute for a complete, truthful explanation of its theory and seek out personal guidance from an authorized IBC practitioner listed on the website.
[00:21:53] It is wise to make sure one implements this process with the proper product, the proper policy design, and the proper education on how it works from the very start, what you will most likely never see again is a life insurance company promoting these special benefits ostentatiously and recklessly. Financial professionals should be careful not to do it either. We must not forget that the government is like a roaring lion seeking to destroy everything in its path through excessive regulation when given the opportunity.
[00:22:30] Let's not give them an irresponsible reason to come looking our way again with sensational and misleading advertising. No matter how too good to be true IBC may seem, it is not a financial gimmick and should not be portrayed as such. There is one last important incident I should mention in closing. It was reported frequently in the 200 page transcript of the congressional hearing, so it merits showcasing here and is exemplified in Senator Bacchus statement.
[00:23:09] If you are going to change the definition of life insurance. I think there is a strong basis for feeling that any changes should be prospective, that prior to investments ought to be protected because that change is very dramatic.
[00:23:27] This statement specifically refers to grandfathering in and protecting all of those that are already on the inside and rightful owners of a whole life policy before any new law changes are enacted. This principle of applying large scale changes and regulatory treatment only going forward is often, though not always, respected and when we survey the history of government intervention. So I would only add that you be judicious enough in its use to cause you to act soon. There is a bad financial storm coming. Don't be left on the outside. Get in now while there is still time.
[00:24:13] The end the infinite banking concept, or IBC, is the process by which one becomes their own banker, as taught by the late Nelson Nash in his definitive book on the subject, becoming your own banker, Nash explains how dividend paying whole life insurance policies issued through a mutually owned company can be used as a cash flow management system, as well as utilizing the policy loan feature to allow individuals, investors and business owners to become their own banker. To learn more about the infinite banking concept, visit our website dynastywealthpartners.com and schedule a consultation or send us a message with any questions that you have.
[00:24:59] Secondarily, we highly recommend that you visit infinitebanking.org comma, the official website of the Nelson Nash Institute, which we are one of only a handful of authorized agents to promote and utilize the copyrighted tools, concepts and trademark terms such as becoming your own banker and the infinite banking concept.
[00:25:22] The IBC Audible podcast can be found by visiting ibcaudible.com or searching in your favorite podcast player. You can also listen to more episodes on our website, ibcaudible.com.
[00:25:38] This podcast is for educational and informational purposes only and is not to be taken as financial advice. Each person has a unique financial situation and should consult with a proper advisor.
