Whole Life Insurance: Beware of the Infinite Banking Concept

Infinite banking concept through whole life insurance is misleading and not recommended for low-risk investors by financial advisor Dave Ramsey.

### Dave Ramsey Warns Against Infinite Banking with Whole Life Insurance
* 🏦 Dave Ramsey cautions against the "infinite banking concept" with whole life insurance, emphasizing that **whole life insurance is an expensive product that should be avoided**.
* 💰 Whole life insurance dividends from mutual companies like Prudential and Northwestern Mutual are considered by the IRS as "**a refund of a deliberate overcharge**," rather than true dividends.
* 📉 When policyholders borrow money from their whole life insurance policy, they are essentially borrowing their own money and **paying interest on it**.
* 💸 Cash values in whole life insurance policies die with the policyholders, as the beneficiaries only receive the **face value of the policy**.
* 👎 Ramsey recommends working with a real financial advisor for investing, especially when **risk tolerance is low**.
* 🚫 Mutual life insurance companies are generally higher priced, as they charge more to **give back some of it later as dividends**.
* 🔔 Ramsey encourages listeners to trust their instincts and "listen to the bell" when something feels **off about a financial product or deal**.

[Music] Jason is with us in Detroit. Hi, Jason. Welcome to the Dave Ramsey Show. Hey, Dave. Thanks for taking my call. How are you? Better than I deserve. How can I help? Well, I had a question for you. I've been working with a financial advisor who's given me some advice, and I follow the show. I'm on Baby Step 7 currently, but he presented me with an idea that was a little outside the box. And I have term life insurance. I've been anti-whole life, but he presented me with this infinite banking concept. Jesus. You're kidding me. Yeah. I have excess money in a savings account and looking to rebalance my portfolio to get it to work a little bit harder, but my risk tolerance is a little bit low. And he showed me how you can do this where you overfund the whole life policy. You can access the money. You break even in year seven. And then the dividend outruns what you put into it. Yeah. It doesn't seem like a terrible idea.

in that regard, but I just wanted your take on why you know that might not be the best way to go. The problem is that where it gets confusing is that um, God, he's sona dividend, a financial advisor assistant. This is an insurance guy. Well, he's both. They have, you know, it's one of the bigger companies, um, Northwestern Mutual or Prudential. Exactly. Yeah. Okay, he's an insurance guy. He's not a financial advisor. Okay. So because those are both mutual companies. Now there are two types of life insurance companies, mutual and stock. Okay. Likely you bought your term unless you bought it from him from a stock company. A stock company stockholders owned the insurance company. A mutual company, which is Prue and Northwestern State Farm, is mutual. The policyholders are actually the stockholders. Okay. Okay. So when the company makes a profit, the policyholders receive a dividend as if they were a stockholder and received a dividend. Does that make sense? Yep. Now follow the math here. If you are the owner of the company and

you're also the customer of the company, and the only place the company gets money is from the customers that are owners, and they give you money from a profit. By definition, that means it's because they took too much from you as a customer. There wouldn't have been a profit otherwise. Okay, so the IRS has deemed, consequently, that mutual life insurance company dividends are not dividends in the true sense of a dividend, that instead they are (and this is the IRS's language) they are instead a refund of a deliberate overcharge. So they overcharge you in order to give you some money later to make you feel like you're making money off of them, and it's absolute hogwash. It's a pass-through mathematically. It's a pass-through. It's the way it has to be. It's the legal definition. The freaking company and the IRS says so. So yeah, the thing I didn't love is, you know, when you take the money back, you basically are paying an interest rate on it, exactly, and whose money is this, right?

that you're borrowing, you're borrowing your own money, and you're paying them interest. Yep, this is infinite banking for them. Yeah, yeah, the infinite banking concept is old school whole life done poorly. You need a real financial advisor, not an insurance broker that's trying to sell you a load of manure. And so, yeah, the other thing is that your cash values that are sitting there all die with you. So, whatever cash you put into this is equals zero at your death because they only pay the face value. Prue does not have a policy. Northwestern Mutual does not have a policy that pays more than the face value except universal life B's, which are not in infinite banking products. And universal product B is where they charge more than they usually charge, which basically buys the insurance so they can still keep your money is the way the math actually works on this. So you're dealing with one of the most expensive insurance products in the marketplace if you're dealing with either one of those two companies. I would stay completely away from both.

of them. They're um everyone in the financial field, except people that work for them. We all think they're a joke of us. Anyone who's academically trained or has any kind of CFP or anything else, when they, when someone says they work for Northwestern Mutual, we just kind of laugh and go, Yeah, right, you screw people every day. So dude, you need to get away from them, and you need to go get a real financial advisor that can help you do some real investing that takes into consideration your low risk tolerance. Low risk tolerance does not need to lead you to losing your money 100% of the cash invested at death. Yeah, that's a bad risk tolerance thing. So you need to move on, dude, you need to move on. But because the, and the whole thing of the dividends are paying for it is such a joke, because the dividends are the refund of a deliberate overcharge. So who's paying for it if you're getting dividends from, if you own Home Depot stock and you got dividends from that.

then home depot's making a profit, but they're making a profit off of their customers. Yes, and I'm the owner of the investment. I get that dividend. That's different than if I am the customer and I'm the stockholder. Thereby, the only way I made a profit was off of me myself. So I pay you an extra hundred bucks, and then you give me 70 of it, and I'm supposed to feel great about that, right? Yeah, so that's what this amounts to. And so you guys working with State Farm, when you get your little dividend check, that's what it is. It's the refund of a deliberate overcharge. IRS verbatim says that. Yeah, and that's why you don't get taxed on it. If you get a dividend on Home Depot stock, you get taxed on it as income because it's real income. You really made an investment, and then you really made an income. So that's what's going on with that stuff. And so do not buy anything in the life insurance world.

based on dividends. You look at the price, look at the structure of the policy, and you'll usually find that mutual companies, by the way, are the higher priced. So when you go to a quote service like Zander Insurance and you get quoted on term life insurance, you're going to find no mutual companies in the 42 different companies that they give you a quote from because they're not competitive. Why? Because they charge more so they can give some of it to you back later and make you feel like that you got something. That's really what it amounts to, and that's why you won't find them. They're not competitive. Yeah, Dave, you're fired up about this one, man. I'll tell you what pisses me off, infinite banking, my butt. Okay, infinite banking is for them. Yes, the only, listen, the only thing that that agent has for his whole life is a need for your commission to be paid to him. Absolutely, that's the only whole life thing that is involved here. These products are horrendous.

and you know it's bad enough when they feed on the middle class, but that guy's a baby step seven man. He's probably a millionaire. Yeah, and and and they create such a jumbled word picture that you can't cut through the bs. And yet you know the thing about him, here's you notice what happened with him. This is interesting. You know it didn't feel right, yeah. He felt it, didn't he? Yeah, he felt it. And that's probably because he's going through our process and he knows what we teach. Well, it's not just that. He didn't just say, Well, Dave says it's wrong, right? He's, there's something wrong here. I just can't put my finger on it, yeah. Overpay and get money back. But I mean, you ever have those feelings? I don't know exactly what's wrong, but I smell a rat, yeah, which means there's a dead rat in the corner somewhere. I just hadn't found him yet. Or below the couch, something stinks in here, yeah. Something stinks in here. Something

got in the house and died you know i got a smell in here what is it something's wrong you got you can't find it yeah you can't put your finger on but how many times have you been in a situation with a person or with a product a financial product you know you had one you had one you were buying an item i won't say what it was on the air but you got the smell off the people and you ran it what three weeks ago what was it dave tell me are you gonna have it i'm not going to because because they're they might be listeners and i'm not gonna do that to you i'm gonna throw you under the bus you walked out of a deal into a different deal not long ago oh yes sir was it not the same thing it was the exact holy spirit inside of you said i smell a something's not right something be wrong with these people i ran this deal is there i can't put my finger on it but this deal is bad yes

and you ended up in another deal. There's a much better deal because you listened. Even though you couldn't logically explain it, you could listen to your heart. Absolutely listen to the bell. When the bell rings, it's called the Holy Spirit. Yeah, this is The Dave Ramsey Show.

Why Infinite Banking is a SCAM!

The Ramsey Show Highlights

Discussing the Infinite Banking Concept with a Financial Advisor

Jason, who is on Baby Step 7, is considering the infinite banking concept presented by his financial advisor to make his money work harder with low risk.

The advisor, who is also an insurance guy, is suggesting overfunding a whole life policy from a mutual insurance company.

Dave Ramsey explains the difference between mutual and stock insurance companies and why the infinite banking concept may not be the best option.

The Truth About Mutual Life Insurance Company Dividends

Mutual life insurance company dividends are actually a refund of an intentional overcharge, not a true profit distribution.

Taking back the money means paying interest to the company, essentially borrowing your own money.

The cash values in these policies become worthless at your death, as the payout is only the face value, making these insurance products one of the most expensive in the market.

The Issue with Northwestern Mutual Financial Advisors

Northwestern Mutual financial advisors are not well-regarded in the financial field and are seen as taking advantage of their clients.

The idea of using dividends to pay for their services is criticized as a deliberate overcharge, leading to a lack of trust in their investment strategies.

The advice given is to seek a different, more reputable financial advisor for low-risk investing.

Criticism of Infinite Banking and Whole Life Insurance

Whole life insurance, particularly through infinite banking, is criticized for being designed to benefit the agent through high commissions.

The strategy is accused of overcharging customers and offering money back as a way to create a false sense of gain.

Even a millionaire following the baby steps is targeted, with the complexity of the products making it difficult for customers to see through the facade.

Trusting Your Instincts in Decision-Making

Trusting your instincts is important in various situations, whether it's a personal or financial decision.

Sometimes, you can sense when something is wrong or not the right fit, leading you to better outcomes by following your intuition.

This concept of listening to your "inner voice" or instincts is valuable in making sound decisions.