Blog 54 – Designing Your Banking Policy

Everybody wants to know what makes the banking policy or Infinite Banking policy different from other types of life insurance policies and how do they go about designing the right policy for them. Now, here is the secret: the policy designer should take into consideration all the observations indicated below.

The designer first starts with a dividend-paying whole life insurance policy from a mutual insurance company.  When designing a banking policy or Infinite Banking policy, you don’t specify the desired death benefit, but the annual or monthly contributions that the owner will be comfortable making to such policy.

For any specific insured, given his/her age, sex, health condition, and any specific contribution, there is a maximum relationship of cash values to death benefits determined by IRS regulations and pertaining to Modified Endowment Contracts, or MEC.

Once we know the required death benefit to avoid the MEC situation as explained in the prior statement, the designer needs to minimize the cost of that death benefit to be able to maximize the amount going to the Paid-Up Additions (PUA) rider which is the element that maximizes the cash value.

The way to minimize the cost of the death benefit is to blend the whole life policy with some type of inexpensive term insurance (similar to Yearly Renewable Term, or YRT) which eventually converts all to whole life insurance.

The internal costs of a whole life insurance policy are based mainly on two things: a) mortality costs which are based on the 2017 CSO Mortality Tables and b) Paid-Up Additions rider expense that can vary from 5% to 15% depending on the insurance company.

The efficiency of a Banking policy or an Infinite Banking policy, or how well the policy converts your contributions to cash values is more a matter of a) design, based on the knowledge and experience of the designer and b) the chassis or internal mechanisms of the whole life policy as originally designed by the mutual insurance company and its actuaries. It is problematic to make your decisions just based on internal costs since you have to consider also the chassis of the policy. In other words, what is really important is the cash value that the policy will generate given the above-mentioned parameters. The cash values in illustrations are shown net of internal expenses, so make your decisions based on what you see in the illustrations rather than on internal costs.

Many people interested in a properly designed Banking policy or an Infinite Banking policy, ask about Direct Recognition versus Non-Direct Recognition and which is best for them. The issue of Direct Recognition versus Non-Direct Recognition is a marketing ploy used by mutual insurance companies, as there are both efficient and inefficient Direct Recognition companies as well as efficient and inefficient Non-Direct Recognition companies. Please go to, Blogs and read Blog # 47 for more details on this.

There are products in the market characterized by so-called High Early Cash Values. These policies, as their name indicate, produce higher cash values during the first five to six years. Nevertheless, after the first eight to ten years, they become less efficient and cannot compete with other policies that start with lower cash values but are much more efficient for the rest of their lives. In this situation, the decision is very simple: do you want the cash now at the beginning, or are you willing to wait a little longer? This is the period we call the capitalization period.

Another decision that must be made in the process of designing a Banking policy or an Infinite Banking policy, is for how long you want to fund this policy? Most Banking policies, or Infinite Banking policies, can be made paid-up after approximately ten years, and sometimes even sooner. We recommend that you hold off this decision until you approach that moment. We also recommend that the client continues to make contributions for as long as they can, since it is savings for them. Why should you limit your savings?

The Paid-Up Additions rider (PUA) is a very important part of the construction of a Banking policy or an Infinite Banking policy. The contribution to this rider, net of its expense, is used to purchase an amount of paid-up insurance that depends on your age, sex and health conditions. The younger you are, the more death benefit it would purchase. Each purchase of additional life insurance that is generated through PUAs has its own cash values and future dividends. This help the policy grow faster.

One of the main purposes of a Banking policy or an Infinite Banking policy, is to accumulate substantial amounts of cash value that you can later borrow against for investment opportunities or emergencies. These loans have an interest rate, since you are not borrowing from your own money, but rather borrowing from the general account of the insurance company. Your cash value is used as collateral for the loan. The interest rate on your loan will be determined by: a) if the loan interest rate is variable, it would depend on prevailing interest rates and based on a particular index, or b) if the loan interest rate is fixed, it is determined by the insurance company. Generally, you can borrow between 90 to 95% of your cash value.

Some people like to add riders such as long-term care or critical illness riders to their policies. We generally discourage this, since these riders can be a drain on the cash values of the policy. The only rider we recommend, and under certain circumstances, is the Disability Waiver of Premium rider. Particularly, when the owner/insured is young and has a family. This will ensure that the premiums continue to be paid should the insured become disabled.

Often, we get questions on a 770 account and here is how we explain the 770. The 770 account is another marketing name for a cash value dividend-paying whole life insurance policy. 770 is short for the section of the IRS code 7702 that defines the use and benefits of whole life insurance policies.

The mutual insurance companies we represent have been in existence for 140 to 170 years and have never failed to pay dividends, including the Great Depression, World War I, and World War II.

This is our take on how to properly design a Banking policy or an Infinite Banking policy.

If you would like to learn how you can grow a substantial amount of cash that you have access to at any time without penalties, is unrelated to the stock market, and will generate income that is not included in your tax return, visit our website at  or feel free to email us your questions at or call us toll-free at 1-844-443-8422.

Isis B. Palicio, LUTCF, MBA
Pedro A. Palicio, MBA, Ph.D.
Infinite Banking Concepts® Authorized Practitioners

We are experts in designing high cash value dividend-paying whole life policies.

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