Blog 67 – The Capitalization Phase Of An IBC Policy

When we properly design IBC policies, we are concerned with what we call cash value efficiency.

The annual break-even of a policy is the year in which the increase in cash value from the previous year is equal to or greater than the annual premium contribution in that year.

The cumulative break-even of a policy is the year in which the total cash value is equal to or greater than the total premium contributions made to the policy.

The earliest the annual break-even and the cumulative break-even happen, the highest the cash value efficiency of the policy.

How do we increase the cash value efficiency of an IBC policy? It depends on several factors: the age, gender, and the underwriting rating of the insured, the original contribution to the policy including the modal premium, (annually or monthly), and the way the policy is designed. The younger and healthier the insured is and the larger the original contribution (annually better than monthly) the greater the cash value efficiency of the policy, in general.

Prospective clients need to realize that the cumulative break-even may take a few years due to the initial cost of setting up the death benefit of the policy and the compensation to the financial professional who designs, sells and will service the policy for years to come. That is what Nelson Nash calls the capitalization phase of the policy.

To be successful in implementing an IBC policy, you should be able to show patience, discipline, and long-range planning. The rewards, once you complete the capitalization phase of the policy, are worth all the efforts since the cash values start increasing at an increasing rate and the policy becomes more cash value efficient every year, meaning that the ratio of the increase in the cash value from the previous year to that year annual contribution keeps increasing every year.

To explain your policy behavior after you pass the capitalization phase, we quote Nelson Nash on page 22 of Becoming Your Own Banker: “Imagine that we are going to make a very long flight in a Boeing 747, so we load it with all the fuel it will hold. This makes it capable of flying about 10,000 miles. By the time we fly 8,000 miles, the airplane will now be able to do things that we would never attempt at takeoff. This is because we have burned up an enormous quantity of fuel and the airplane weighs that much less – but the engines are capable of producing as much power as when we took off. Therefore, every mile that we fly, the airplane will get more efficient – and you can’t do a thing about it! It gets better – no matter what!” 

You just need to be aware that in any project that you engage in life – investing in real estate rental properties, starting your own business, or even graduating from college or vocational school – it takes some money and a period of time that you need to spend before you take advantage of your opportunities. It is no different with an IBC policy.

Remember, we are always available to advise you on the best way to utilize your IBC 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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