Revisiting Common IBC® Objections (Part 1) (BWL POD #0253)

In this episode of the Banking With Life podcast, James shares his thoughts on a comment left on episode #240, titled "Addressing Common IBC Objections". As always, we hope you enjoy and thank you for listening!

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➫ The Full Comment

assuming dividend + guaranteed rate is = borrowing rate.... there is little/no reason to do this. yes, you can borrow against a policy. but just take cash and invest it. "but the tax advantage"... ok, take cash and invest it in buy muni bonds. "but perpetual compounding"... yeah, just automatically re-invest the bond interest. "but the guarantee"... yeah, munis are also guaranteed. "insurance company guarantee is better - been around 100 years". Huh? Honestly, think about what you are saying. The full faith and credit of US government and US states is higher quality than any insurance company. If an insurance company goes under... it is the Fed that bails them out (or lets them default). Remember US government is the sovereign entity in which the insurance company exists. Before the US goes under it has taxing authority that it could apply to any company. So it is a completely absurd argument to suggest insurance guarantee is better than state or sovereign guarantee. It is categorically false to suggest that. I would be delighted to debate anyone that believes insurance guarantee is greater than government guarantee. I'm happy to cite the related legal statutes. "but you can use your money in two places"... go back to what I said earlier - if the policy rate = borrowing rate .... think about it... There is no meaningful benefit - just added complexity.

Are there benefits to IBC? Sure. The legacy transfer idea is legit. And of course you are buying life insurance - so there's that. How about for investors using it in tandem with high income asset classes? Yes. What you can do is offset the earned income with interest expense related to the loan. In fact, this may be the only tangible benefit (legacy transfer can be handled in other ways, and life insurance can be purchased via a term policy). But here's the thing - and this is important: you must continue to borrow against the policy and invest in the asset class of choice, or you will eventually be worse off than simply taking cash and investing. For example, if you invest in real estate (which many use in tandem with IBC) - when the investment (hopefully) pays off and you return the assets to your policy... you need to find another investment relatively soon, borrow, and re-invest. If you do not, you will eventually find yourself behind the investor that simply takes from one real estate investment and moves to the next. This is easy to see in a simple spreadsheet. If you would like transparent, honest details on this subject, feel free to reach out. I am an investor and unrelated to the insurance industry. My main advice: do all of your own analysis on this concept before implementing.

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