Blog 68 – The Term Rider Of An IBC Policy

One of the key pieces of information that a prospective client shares with us is the monthly or annual contribution that he/she would like to make to his/her Infinite Banking Concept (IBC) policy.

Once we know the original contribution to the policy, including the modal premium, (annually or monthly), and the age, gender, and the underwriting rating of the insured, we determine the minimum amount of death benefit necessary to make sure that the policy does not violate the Modified Endowment Contract (MEC) regulations.

Since the original contribution to an IBC policy could be separated in two parts: 1) the amount going to the base whole life policy and mostly responsible for the death benefit of the IBC policy, and 2) the amount going to the Paid-Up Additions (PUA) rider and mostly concerned with the cash value of the IBC policy, it should follow that we want to maximize the contribution going to the PUA rider to make the IBC policy as cash efficient as possible.

In order to minimize the cost of the death benefit necessary to satisfy the MEC regulations, we use a term insurance rider that helps obtain part of the necessary death benefit at a lower cost than having the necessary total death benefit depending on the base whole life policy.

The term insurance rider used above may be a level-term rider that never converts to whole life or a blended One-Year Term (OYT)-PUA rider that uses dividends and PUAs to convert the One-Year Term to whole life insurance. By reducing the cost of the death benefit necessary to avoid a MEC, more of the prospective client’s contribution would go to the PUAs. Be aware of the 10/90 base/PUA ratio discussed in the internet, because that policy design may be counterproductive to the generation of more cash value since the cost of the additional term insurance tends to wear away at the cash value performance. There are also design restrictions inherent to some life insurance companies.

There are a lot of discussions in the internet with respect to the topic covered above. Be careful with what is there because we have read a lot of misguided advice. A recent article makes you believe that the use of the blended OYT-PUA rider is dangerous because the insurance company may increase in the future the cost of this term rider to a point where your policy may implode. The article sensationalizes this issue but conveniently fails to tell the reader that the insurance company includes in its policy contract a Table Of Guaranteed Maximum One-Year Term (OYT) Rates Per $1,000 of OYT which are quite reasonable. If those maximum values were to take effect, the policy would still perform quite well.

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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