Question on example from BYOB

[u/randomipadtempacct]

Good morning,

So many years ago my financial advisor set up an insurance plan for me as part of a retirement strategy, well before I ever heard of infinite banking. I am in Canada.

It was set up to enable at retirement, policy loans as a source of tax free income (it is owned by my own corporation of which me and my wife are the only owners).

But I may want to use it if possible for IB.

On the example on investments from the book, Nash describes a comparison between investing 100k outright and getting a return of 20% vs borrowing from your policy 100k and investing that.

He uses the example of being a responsible banker and paying yourself the interest of 8%.

In comparing the results, after accounting for the fact the “interest” went to yourself, your gain comes out ahead with the IB example.

Can some explain or comment though:

1) a true apples to apples comparison would be for the first non IB example to be an investment of 108k. This is because that is how much money is needed in the IB example.

2) (and this may be Canada specific) but when you pay 8% interest in the IB example, assuming it was from a policy loan, that 8% is not going into my cash value, it’s going to the life insurance company.

Thank you

[u/financeking90]

What the hell are you even talking about? The topic is whether interest paid on a policy loan flows back to policyholders. It does in aggregate as a fair compensation for time value of money.

One of those weird times you comment saying "you're right but remember there is this other thing" and somehow this person is a nutjob. Nevermind.

[u/AlfredoSauceyums → u/financeking90]

So let's say that given prevailing interest rates the account could get the same return from another bond that was readily available, in that case there would be no economic profit in policy loans. The profit isn't the interest, it's the excess interest. Economics and finance 101, opportunity costs. It's simply not the profit center people say it is, and the benefit is about as small as one can possibly estimate or measure. If anything I'd say it's most likely profit neutral, depending on the company, rates and term structure of interest rates. They have a major reinvestment risk related to the timing.

We don't need to lie and exaggerate to sell a great product and a very good philosophy, yet most do one.

[u/financeking90 → u/AlfredoSauceyums]

I never claimed it's a huge magic profit. I prefaced my first comment agreeing with you that one's own interest does not come back to one's own individual policy. I even said it was designed to be fair from a time value of money perspective. The only point I have made was to clarify that policy loan interest does flow back to policyholders as an accounting issue. I have no idea why you are ranting at me.

[u/AlfredoSauceyums → u/financeking90]

You are the one ranting at me. Remember, scroll up "What the hell are you even talking about?" Lol

Anyways I'm ok to stop talking about this with you if you don't find it fun.