Why doesn't Nelson Nash get it?
By Roccy Defrancesco
The Wealth Preservation Institute
The title of this article could also be, “Why don’t agents who sell products using the Infinite Banking Concept (IBC) get it?”
I hesitated to write this one because I don’t like giving free press to sales concepts I don’t like, but one can only take so much. Last week, I was forwarded (for about the 100th time) something from Mr. Nash, along with a question about my opinion on his opinion about using whole life insurance versus anything else as a wealth accumulation tool.
For the record, I not only don’t like the IBC sales concept, I despise it. I despise any sales concept that:
- confuses clients
- uses math that doesn't add up
- doesn’t compare itself to other wealth building tools
- is sold by agents who don’t understand what they are selling
- incorrectly tells clients that a specific type of life policy must be used to make it work
Don’t get me wrong, I very much like the idea of using cash value life insurance to grow wealth and have written extensively on how to use equity indexed universal life (EIUL) to grow wealth.
But that’s not why I wanted to write this article.
Whole life and nothing but whole life
What sets me off is when I read commentary by Mr. Nash and others about why whole life (WL) insurance is the “best” type of insurance to use when growing wealth for retirement. Mathematically, this is a false statement. Over the last 20 years, not only would clients have been better off using EIUL, but they’d have been much better off.
I was recently forwarded what appears to be a monthly newsletter Mr. Nash’s company puts out. In that newsletter, Mr. Nash tried hard to justify why WL is the only type of policy that should be used in his IBC concept.
In the newsletter, he focused on traditional universal life (UL) (not EIUL) and the problems it had in the 1990s. If you’ll recall, in the late 1980s, UL policies were illustrating north of 15 percent due to the extremely high lending rates at the time. This, of course, was unsustainable, and when interest rates came back down and bonds adjusted their returns accordingly, the policies didn’t perform anywhere near as illustrated.
Mr. Nash suggested that WL must be used because it’s a policy with guarantees — if the insured pays the premium, the policy will not lapse. While that’s true, there is no guarantee that the policy will perform as illustrated (which historically, they have not done). Mr. Nash talks about policy loans in his newsletter but again, only compares WL to traditional UL (not EIUL).
I’m guessing in an attempt not to sound like he’s perpetually stuck in the 1990s with his analysis, he briefly alludes to EIUL in his newsletter and suggests that, while it’s true that EIULs have had better returns than WL, the risk of using an EIUL for his IBC concept is too great.
Lack of disclosure is not good client service
Let’s look at the facts. Over the last 20 years, a good EIUL policy would have yielded an average rate of return of 8.66 percent (with a 92 percent probability of earning 8 percent). This is during a time when we’ve had several market crashes, and the returns are several percentage points higher than the average rate of return of any WL policy.
EIUL policies offer variable loans as an option.
EIUL policies have the best living benefits riders, for example, free LTC riders. Most WL policies don’t even offer living benefits.
Even though I despise the IBC, if you run illustrations using EIUL versus WL when showing clients this platform, they would have way more money in retirement than if they used WL (using the past 20 years as the basis for my statement).
Full disclosure is good; hidden biases are not
I would submit to Mr. Nash that he needs to get into the new century and update his book and his attitude about WL versus. EIUL. Unfortunately, there are several agents that listen to him as if his word is gospel. My opinion is that he is doing the agents he works with and their clients a tremendous disservice by not correctly explaining the pros and cons of both WL and EIUL so clients can make an informed decision about what they think is the best policy for themselves.
For the IBC/BYOB Kool-Aid drinkers
I’m going to get a lot of hate mail from this article and that’s OK. I know there are a lot of agents who drink the IBC Kool-Aid and have made a lot of money selling this concept in a non-full disclosure manner to clients who have no idea that it shouldn’t be used if their goal is to grow the maximum amount of wealth for retirement.
If you are one of those Kool-Aid drinkers and want to debate me on the use of the IBC/BYOB concept, I welcome the debate.
Just share your favorite IBC illustration that you gave to one of your clients, and I will compare what you recommended to what should have been recommended, in my opinion); We’ll then see which one the client would have been better off with.
So, Mr. Nash, do your agents and this industry a favor and start putting out newsletters that are intellectually honest when it comes to the use of WL versus EIUL. Your agents, the industry in general, and clients who buy into the IBC will be better off.