I explain this idea with three graphs in my video on the infinite banking concept. Each graph follows one person who buys five cars over 30 years. The cars are the same. What changes is where the money sits in between.
The debtor
The debtor goes to a dealership, takes out a loan, and pays it back while driving the car. Then the car wears out and the debtor does it again. After 30 years and five cars, the debtor is back at $0. The dollars did one job: they paid for transportation. They did that job well, but they did only that.
The saver
The saver feels ahead of the debtor, and in one way is. The saver puts money aside, pays cash, and gives no interest to a lender. Then the saver starts over for the next car. After 30 years the saver is also back at $0. The dollars sat in a checking or savings account, earned little, and again did one job.
The wealth creator
The third person saves too, but into a cash value life insurance policy that is designed for high early cash value. Cash value is the savings amount inside a permanent life insurance policy that you can borrow against. When it's time to buy a car, this person takes a policy loan instead of pulling the money out. That means the insurance company lends against the cash value, and the cash value itself stays in the policy, where it keeps earning whatever the policy credits.
The loan gets paid back with interest, and that interest goes to the insurance company. Then the person borrows again for the next car. In my graph the cash value keeps climbing the whole time, because the savings were never taken out. Those same dollars do several jobs: they pay for the car, they keep growing, and they come with a death benefit for your family.
What to check before you copy this
A policy loan reduces your cash value and your death benefit for as long as it is outstanding, and if the policy lapses with a loan on it, you can owe income tax on the gain. The growth rate in my graph is a projection from an illustration, and an illustration is an estimate, not a promise. Only the guaranteed column is guaranteed. The policy also has to be designed and funded so that it doesn't become a modified endowment contract (MEC), which changes how loans are taxed.
Ask an agent to show you the cash value in years one through five of your own policy, then compare it to what you would pay in premiums. I'm a licensed insurance broker, and I can walk through your numbers with you.