Blog 73 – Short-Term Versus Long-Term Cash Values In IBC Policies.

The Money TreeIt is a well-known fact to Infinite Banking practitioners that it takes a few years for the cash value in your policy to equal or exceed the total premiums paid. Some people call this specific year the Cumulative Breakeven Year and for those with knowledge of Finance, it is the year when the Internal Rate of Return of the cash value switches from negative to positive.

Why do the premiums paid exceed the cash value during these first years? Well, it is due to the initial costs of setting up the death benefit and the compensation paid to the financial professional who designs, sells, and will service the policy for years to come. This is what Nelson Nash calls “the capitalization phase of the policy”. Insurance companies call this initial cost, acquisition cost.

We have clients that would like to have the maximum amount of cash value in their IBC policies as early as possible since they are ready to take policy loans to invest, let’s say, in rental real estate properties. Other clients are more interested in high cash values in their IBC policies in later years to take policy loans to pay for their children’s college education or to supplement their retirements.

It is interesting that there are some IBC policies, let’s call them Policy A, that satisfy the first group of clients very well but the second group of clients not that well, and other IBC policies, let’s call them Policy B, whose cash values are lower than Policy A during the first five to ten years, but later on very well surpasses Policy A’s cash values.

Intuitively you might think, if Policy A generates higher cash values at the beginning, those cash values would compound and continue to generate higher cash values later on. Although that thinking is intuitively correct, it is not complete because you also have to take into consideration how the policy amortizes the acquisition cost. In fact, what happens is that Policy A amortizes the acquisition cost over a long period of time, while Policy B front-loads the acquisition cost. The way they amortize the acquisition cost is responsible for Policy A to offer higher cash values short-term and for Policy B to offer higher cash values long-term.

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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