Why Nash Said Your Premiums Should Match Your Income

When R. Nelson Nash told audiences that premiums and income should match, he knew people would be surprised. He opens the lesson "Expanding the System to Accommodate All Income" by saying exactly that. His meaning is simpler than the phrase sounds. Every family already runs its income through someone's financing: a car lender, a credit card, a line of credit, a mortgage lender. Over many years, and with several policies, a family can move more and more of that financing flow into capital it controls. The volume of premium that goes with it is a destination reached over decades, not a deposit anyone should try to make in year one.

That is the verdict. The rest of this guide explains how Nash got there, what "economic value added" has to do with a household, what the idea looks like in Canadian dollars, and where Canadian law and insurer rules draw the line. It is written by someone who is paid by insurer commissions when a policy is bought, which is worth knowing as you read.

What did Nash mean when he said premiums should match income?

He meant that the money a family now sends through outside financing could, over a lifetime, pass through capital the family controls instead. The premium needed to hold all that flow is large, but it is built slowly, with several policies, as each kind of financing is moved over.

Nash's book, Becoming Your Own Banker® (2000), sets out the financing approach known as The Infinite Banking Concept®, which this site explains in Canadian terms. In Part III, Lesson 6 (page 48 in the fifth edition), he describes the system growing in steps. You start with one policy that can finance one car. Later you add a second policy for a second car. Later still you carry more of your own risks from the cash values, and eventually you refinance larger debts from them, on a normal repayment schedule.

Seen that way, "premiums should match income" is not a budget rule. It is a description of where the family's financing flows at the end of a long process. Today, part of your income goes out every month as loan payments and interest to outside lenders. Nash pictured a family whose income passes through its own policies first, and whose purchases are financed from the cash values those policies hold. At that point the total premium the family pays across all its policies would be of the same order as the financing it used to send elsewhere.

Three things follow. First, the amount is not a fixed figure anyone can quote you. It is the sum of the financing payments your family makes, and that changes as your life changes. Second, it is reached with several policies over many years, not with one large contract. Third, it depends on you repaying what you use, at a pace an outside lender would have required. Nash's own picture of a grocer who takes goods off his own shelves without paying is the reason the eight rules put repayment at the centre.

Keep one more thing in view. Nash wrote about American law and American plans. The behaviour he describes transfers to Canada. The tax rules and the limits on how much you can pay into a policy do not. Those Canadian limits come later in this guide, and they matter a great deal.

What does "you finance everything you buy" mean?

It means that every purchase has a financing cost. Either you pay interest to someone else, or you give up the interest your money could have earned. Paying cash avoids a lender, but it does not avoid the cost.

Nash makes this point early, in Part I, Lesson 11 of his book (page 21 in the fifth edition). Think about a car. If you finance it through the dealer's lender, you make monthly payments, and part of each one is interest that goes to that lender. That cost is easy to see.

Now suppose you pay cash from savings. There is no lender and no interest bill. But the money you took out is no longer in your savings account, earning whatever it earned. Until you put it back, you are giving that up. Economists call it an opportunity cost: the value of what the money could have done elsewhere. It does not arrive as a bill, and it may be smaller than a loan's interest, but it is real.

So the real choice is not "finance or not finance". It is "finance through whom, at what cost, and with what effect on my capital". That shift in thinking is the first step toward thinking like a lender. A lender asks where the capital comes from, what its use costs, and how it gets repaid. A family can ask the same questions about its own purchases.

This is also why Nash talks about income and premiums together. If every purchase is financed one way or the other, then almost everything your income buys passes through some financing arrangement. The question is only whose.

What is economic value added, and what does it have to do with a family?

Economic value added is what a business earns after charging itself for all the capital it uses, including its owners' own money. Nash borrowed the idea to show that a family's own cash has a cost too, so paying cash is not free.

In the same lesson, Nash quotes a 1993 business magazine article on the idea: "Earning more than the cost of capital is about the oldest idea in enterprise." The measure it described, economic value added, was developed by a consulting firm and carries its trademark. In plain terms, it is a company's operating profit after tax, minus a charge for all the capital the company uses. That charge covers borrowed money and the shareholders' own money.

Nash's point was about what happened when companies started doing this. Before, some managers treated the shareholders' money as free, because no one sent them an interest bill for it. Once they charged themselves for every dollar, they began to see which activities truly earned more than their capital cost, and which only looked profitable.

Illustrative example, not any real company. Suppose a company earns $100,000 of operating profit after tax and uses $1,000,000 of capital. If that capital could earn 8% elsewhere, the capital charge is $80,000, and the economic value added is $100,000 minus $80,000, or $20,000. If the capital could earn 12% elsewhere, the charge is $120,000, and the result is minus $20,000. The same profit looks very different once the owners' money is given a price.

Families make the same mistake the old managers made. Money in savings feels free to spend, because no one charges interest on it. Once you give your own money a cost, what it could have earned, paying cash stops looking free. For a family, the economic value added by handling more of its own financing is the interest cost it stops sending out, net of what its own arrangement costs. That last part matters: premiums, the insurer's loan interest, and the early costs of a policy all belong in the comparison.

How do four ways of paying for a car compare?

In this illustrative example, an outside loan sends about $4,483 of interest to the outside lender, paying cash gives up about $1,988 of savings interest, and a policy loan sends about $3,818 of interest to the insurer. Matching the outside lender's payment adds about $664 of extra deposits to the policy over four years.

Illustrative example only, not a quote or a projection. The rates are assumptions chosen for the arithmetic, not the terms of any lender or insurer. Here are the assumptions:

• you buy a $30,000 car and repay over 48 months with equal monthly payments;
• the outside lender charges 7% a year, compounded monthly;
• your savings account earns 3% a year, compounded monthly;
• your policy already has enough available value for a $30,000 policy loan, and the insurer charges 6% a year, compounded monthly, held constant for the four years (in real life the insurer sets the rate and may change it);
• there are no fees, taxes or other charges, and payments are rounded to the cent.

Way 1, an outside loan. The monthly payment is $718.39. Over 48 months you pay $34,482.72, of which $4,482.72 is interest. The outside lender receives all of that interest.

Way 2, cash from savings. You take $30,000 out of savings and put back $625 a month ($30,000 divided by 48) for four years. Left alone, the $30,000 would have grown to about $33,819.84. Rebuilt at $625 a month, the account ends at about $31,832.01. The gap, about $1,987.84, is the interest you gave up. No one received it; you simply did not earn it.

Way 3, a policy loan repaid at the insurer's rate. The insurer advances $30,000, secured by your cash value. The monthly payment is $704.55. Over 48 months you pay about $33,818.40, of which about $3,818.40 is interest, owed to and paid to the insurer. The interest does not come back to you. Meanwhile the cash value stays in the contract and continues under its terms; some contracts adjust dividends on the part that is borrowed against, so ask which kind yours is.

Way 4, a policy loan repaid at the outside lender's payment. This is what Nash suggested: repay at the rate an outside lender would have charged. You pay $718.39 a month, as in Way 1. Of that, $704.55 repays the insurer's loan, exactly as in Way 3. The other $13.84 a month, or $664.32 over four years, goes into the policy as an extra deposit, if the contract has a rider or deposit option that allows it and the yearly maximum has room. Part of each extra deposit pays for insurance costs, so it does not become cash value dollar for dollar.

Read the table honestly. With a one-point gap between the two rates, the difference in interest is modest: $4,482.72 minus $3,818.40 is $664.32. If the insurer's rate were higher than the outside lender's, Way 3 would cost more than Way 1, and it can be. Cash from savings has the lowest cost in this example, because savings earned only 3%.

So why did Nash care? Because the table leaves out the part that matters most to him: what happens over decades. In Ways 3 and 4, the capital that financed the car is still in a contract you own, and the repayments restore your access to it for the next purchase. In Way 1, the capital was the lender's. In Way 2, it was yours, but only if you had it, and only if you rebuilt it. The table also leaves out the premiums you paid for years to build that cash value in the first place, and the insurance protection those premiums bought. A fair comparison puts all of that on the table. The explanation of what "recapturing interest" really means works through the same point with a larger vehicle.

How does the system grow from one policy to many?

In stages, over many years. Each stage moves one more kind of financing into the family's system, and each one runs into a Canadian limit that sets its pace: underwriting, the exempt policy test, the policy's early costs or the loan limit.

Nash describes the growth in Part III, Lessons 5 and 6. He starts with a car, because a car is bought again and again over a lifetime. His example of a second policy for a second car used about $5,000 a year for seven years of capitalization. That was his American example in his own time, not a Canadian quote. The stages below follow his outline, with the Canadian limit that applies at each one.

Notice that premiums grow in steps, not all at once. A family at stage 1 might pay a modest premium. By stage 5, decades later, the combined premiums on several policies may be large, because the family's income has grown and because it is now financing much more through its own contracts. That is the sense in which premium and income come to match.

Stage 4 needs care in Canada. A Canadian mortgage is amortized over many years but renewed at shorter terms, so its rate resets at each renewal. Paying part of it off with a policy loan can trigger a prepayment charge, and the mortgage rate may be lower than the insurer's loan rate. Compare the real numbers before moving any debt. The guide on deciding what the system should finance gives a screening test for each purchase.

Stage 3 also has a limit worth naming. Carrying more of your own risk, for example by choosing a higher deductible on your car or home insurance, only makes sense once the cash value can actually cover the deductible with room to spare, and without leaving you short for a real emergency.

Why can't premiums match income on day one in Canada?

Because Canadian rules and insurer practice tie what you can pay into a policy to the amount of coverage, and tie coverage to your earned income and age. Early costs and the need to capitalize before use add a practical limit on top.

There are five limits. Each is set by someone different.

The insurer caps coverage by income. Insurers publish financial underwriting guidelines that cap how much life insurance they will issue as a multiple of your earned income, and the multiple falls as you age. One Canadian insurer's published guideline (2025), for example, allows up to 35 times income from age 16 to 30, 25 times from 31 to 40, 20 times from 41 to 50, 15 times from 51 to 60, 10 times from 61 to 69, and up to 5 times from 70 to 75, counting only actively earned income. Another insurer's guideline is similar. So at 35, with $80,000 of earned income, that guideline would allow up to $2,000,000 of coverage, before health, coverage you already hold and other factors are considered.

The exempt policy test caps savings relative to coverage. Under section 306 of the Income Tax Regulations, each policy anniversary the policy's accumulating fund is compared with benchmark "exemption test policies". For policies issued after 2016, the benchmark is a policy paid over eight years that endows at age 90. A new benchmark is deemed to start when the death benefit rises by more than 8% in a year, and a separate 250% rule applies from the tenth anniversary. The result, in our reading, is that the ceiling on what a policy can hold is set by its coverage, not by your income. A policy that fails the test loses its exempt status, with tax consequences; what happens when a contract fails the exempt test explains them.

The contract caps extra deposits. Deposit options and paid-up additions riders have a yearly maximum set when the policy is issued, so that it stays exempt. The insurer refuses a deposit that would break that status. Some contracts also stop the option if a scheduled deposit is missed for a certain period, and ask for new evidence of insurability before it can restart.

Early costs come first. In the first years, premiums pay for coverage and the insurer's costs of putting the policy in place, including compensation for its sale. Cash value can be well below the premiums paid. The real costs of a policy show how to read that gap on an illustration.

Capital must exist before it is used. A policy cannot finance a car until it holds enough value to do so with room left over. That takes years, which is why capitalization before use is its own subject.

Put together, these limits mean that in Canada you grow toward Nash's destination the way he described it anyway: one policy at a time, each within its own limits, as income and needs grow. Each new policy means new underwriting, and it needs an insurable interest in the person insured or that person's written consent.

How do you find premium without straining the household?

By honestly re-examining what you already spend, before a raise disappears into new expenses. Premium should come from money you can commit in an ordinary year, after emergency savings and suitable protection are in place.

Nash comes back to this in Part V, Lesson 1 (page 65), on capitalizing the system. His answer to "where will the premium come from?" is not "earn more". It is "look at where your money goes now". He points to Parkinson's law: expenses rise to meet income. A raise arrives, and within a year it has turned into a larger car payment, a new subscription or a bigger home. Nothing is left over, and nobody quite remembers deciding.

A spending review does not need to be grim. Here is one way to run it:

1. List every payment you make each month to an outside lender: car, line of credit, credit cards, store financing, student loans. Next to each, write the interest portion. This is your current financing flow.
2. List the regular expenses that grew the last time your income grew. Ask whether each one is still worth what it costs.
3. Write down what an ordinary year looks like, not your strongest year. Premium belongs in that ordinary year.
4. Decide in advance what share of your next raise goes to capital before it goes anywhere else.
5. Check that an emergency fund and the protection your family needs (life, disability, critical illness where it fits) are already in place, or funded first.

The last step is not optional. A premium paid by emptying your emergency fund is not capital; it is a risk moved to a place where it is harder to reach. And if you would need a policy loan to pay the next premium, the budget has not been solved.

Nash's suggestion to redirect money from retirement plans was written for American plans. It does not carry over. This practice gives no ordering between a policy and an RRSP, a TFSA, an FHSA or a pension. They do different jobs, under different rules. Questions about registered plans belong with a professional licensed to advise on them.

What does matching premiums to income not mean?

It does not mean borrowing for everything, putting your whole income into premiums, or expecting a guaranteed result. It describes a direction of travel for a family's financing, followed with discipline, not a promise.

It helps to say plainly what the idea is not.

• Not borrowing for everything. A purchase you would not have made anyway is not made wiser by a policy loan. Small purchases paid from ordinary cash flow can stay there.
• Not a whole paycheque sent to an insurer. Food, housing, taxes and savings for emergencies come first, and the Canadian limits above cap what a policy can accept.
• Not a guarantee. Guaranteed cash values are the insurer's obligations under the contract. Dividends on a participating policy are not guaranteed, and illustrations that assume them are not promises.
• Not an investment. A participating whole life policy is life insurance. Its cash value is part of an insurance contract, and it should be judged first as coverage your family needs.
• Not a way around interest. A policy loan is an advance from the insurer, with interest owed to and paid to the insurer.
• Not a reason to drop outside lenders overnight. During the building years, an outside loan may be the sensible choice. The aim is to rely on them less over time.

The long-term aim this practice describes is the family financing its own way, with less and less reliance on outside lenders. Canadian Wealth Creation Centre Inc. calls that destination Infinite Financial Sovereignty®, a registered trademark of Jose Salloum. It is a goal, not a promised outcome, and the plain-words explanation of Infinite Financial Sovereignty® sets it out.

What are the risks, and what do the Canadian tax rules say?

The risks are a loan balance that grows faster than it is repaid, early costs if you stop, and tax on a policy loan above the adjusted cost basis. Each one is manageable only when you know it in advance.

A policy loan is an advance from the insurer, secured by the cash value, with interest owed to the insurer. The Autorité des marchés financiers describes it in the same terms in its page on accessing the cash surrender value without cancelling your insurance. The insurer sets the loan rate and may change it. Unpaid interest can be added to the loan. An unpaid loan and its interest reduce the death benefit paid for the person insured. If the debt grows larger than the value that secures it, the policy can lapse.

Tax follows section 148 of the Income Tax Act. A policy loan is a disposition. The part of the loan above the policy's adjusted cost basis (ACB) just before the loan is included in your income, and the loan lowers the ACB. Repaying can restore the ACB and can give a deduction under paragraph 60(s) in the year of repayment, up to amounts previously included. Interest on a policy loan is deductible only when the borrowed money is used to earn income from a business or property (paragraph 20(1)(c)), and then only as the insurer certifies on CRA Form T2210 (subsection 20(2.1)). A car for personal use does not qualify. Quebec residents also file with Revenu Québec.

The insurer's solvency matters too. A life insurer is supervised by OSFI if it is federally incorporated, or by its home province (the AMF in Quebec) if it is provincially incorporated. Every life insurer authorized in Canada must belong to Assuris. For whole life, Assuris protection keeps up to $1,000,000 or 90% of the promised death benefit, whichever is higher, and up to $100,000 or 90% of the promised cash value, whichever is higher, calculated after policy loans. Assuris is not a government guarantee.

The biggest risk is behavioural. A system built over decades depends on repayment every time. The eight rules call the failure "stealing the peas", and it undoes the whole idea: capital used and not restored does not finance the next purchase. The objections and risks section goes through the rest.

What should you ask the insurer, the accountant and the representative?

Ask each one the questions only they can answer: the insurer about limits and loan terms, the accountant about tax and cash flow, and the representative about design, fit and how they are paid.

Questions for the insurer, in writing:

1. What is the maximum yearly deposit this contract accepts, and how much room is left this year under the exempt test?
2. What happens to the deposit option if I skip a year, and does restarting need new evidence of insurability?
3. What is the current policy loan rate, how is it set, and how has it changed in the past?
4. Does the contract adjust dividends on the borrowed portion (direct recognition) or not?
5. What is my adjusted cost basis today, and how would a loan of a given amount affect it?
6. At what loan balance would the policy be at risk of lapsing, and how will I be told?

Questions for your accountant:

1. Given my current ACB, would this policy loan create income, and how much?
2. Would the interest be deductible for this use, or not?
3. Does the premium I am considering still fit an ordinary year, after taxes and other savings?

Questions for the representative:

1. In which year does the guaranteed cash value first exceed the premiums I will have paid?
2. What share of the design is optional deposits, and what are their limits?
3. Why this amount of coverage, and how does it fit the insurer's income multiples for my age?
4. How are you paid for arranging this contract, by whom, and how much in the first year?
5. What would make you tell me not to do this?

An honest answer to the last one tells you a great deal about the person across the table.

What this page will not tell you

It will not tell you how much premium your family should pay. That depends on your income, age, health, debts and needs for coverage, and only a proper review of your own figures can answer it. It will not give you a loan rate, a dividend scale or an insurer's product terms; those come from the insurer, in writing, for your contract.

Some details are left out on purpose: policies owned by a corporation, loans used to pay premiums, the ceiling on how much a repayment restores to the ACB, and the rules for a policy whose loan overtakes its value. Each can change the answer. Nash's page numbers refer to the fifth edition of his book and may differ in others. The contractual terms of any policy are those of the issuing insurer. Nothing here is tax or legal advice; confirm your situation with your accountant, and with your lawyer or, in Quebec, your notary.

Who this does not suit

The idea of routing a family's financing through its own capital is open to anyone as a way of thinking. The policy is not. If your income could plausibly miss a year, if you may need the money in the first several years, if high-interest consumer debt is already straining the budget, or if you have no real need for permanent life insurance, other steps will likely serve you better first.

It also does not suit someone looking for a quick result. Nash's destination takes decades, several policies and repayment every single time. If that is more patience than you want to commit right now, waiting is a sound decision. You can still start the habit today, with a pencil: list what you financed last year, through whom, and what it cost. That list is where Nash's idea begins.