After designing high-cash value whole life policies, or Infinite Banking (IBC) policies, for many years, we list below the main concerns or questions that prospects tell or ask us. We hope that the explanations provided will help those that still have questions or concerns on these subjects to better understand the IBC process.
Capitalization Phase. The difference between the cumulative premiums paid and the cash values during the first few years of the policy is due to the initial cost of setting up the death benefit and the compensation 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”. It is the year that your IBC policy becomes profitable, and the profitability of your policy is contractually guaranteed to increase every year.
Remember, any type of investment that you make – real estate, starting a professional practice, or getting a college degree – has a capitalization phase of several years after which you are increasingly profitable. For the few who ask why the IBC policy doesn’t break-even in year 1, we respond that this is impossible for a properly designed policy based on Actuarial Mathematics.
Policy Loan. A policy loan is a loan from the general account of the insurance company to the policyholder, with the cash value of the policy serving as collateral on the loan. The insurance company charges a policy loan interest rate to the policyholder, but the cash value remains in the policy earning guaranteed interest and dividends. This means that the cash value is doing double-duty for you: it provides you the loan that you need, and it remains in your policy growing all the time. For the few who ask why they must pay a loan interest when it is their money, we respond that the money they are borrowing belongs to the insurance company and as mentioned before, their cash value remains in the policy earning guaranteed interest and dividends.
Cash Value And Death Benefit. A few prospects ask why the beneficiary doesn’t receive both, the cash value, and the death benefit, when the insured dies. Let us explain; the actuarial definition of cash value is the net present value of the death benefit. In other words, the cash value represents what is called your living benefits. It is the amount of your death benefit that you have available to obtain a policy loan, or the amount of your death benefit that the life insurance company will return to you if you decide to cancel your policy. So, when the insured dies the beneficiary receives only the death benefit. The cash value isn’t something laid on top of the death benefit. Let’s compare this situation to a home mortgage: when making monthly mortgage payments, the homeowner gains equity by knocking down the remaining principal on the loan. When the mortgage is finally cleared, the homeowner receives the deed free and clear from the bank. He wouldn’t expect the bank to then give him “all of my equity in the house” on top of the deed! That would obviously be misconstruing what “equity in the house” means.
Direct And Non-Direct Recognition. The terminology of direct and non-direct recognition refers to the method that the insurance company or insurance contract uses in treating dividends when there is an outstanding policy loan. A non-direct recognition insurer or contract does not adjust the dividends paid on a policy when there is an outstanding policy loan. A direct recognition insurer or contract adjusts the dividend rate on the cash value collateralizing a policy loan. The truth is that one method is not necessarily superior to the other. Direct recognition versus non-direct recognition is more a game of smoke and mirrors used by insurance companies and marketing organizations themselves to keep your focus away from what is important. In fact, there are good and bad insurance contracts in both direct and non-direct recognition insurance companies. What is important to you as a consumer is what the insurance contract will provide you in cash values at points in time that are of relevance to you, and this is more specific to the internal design of your policy than the fact that the insurance contract is direct or non-direct recognition. In fact, dividend recognition is not the most important factor when selecting the best insurance contract for your needs.
Timing Is Not Right. Some prospects are spending more than they are making, or they have life changes coming. In fact, if they don’t have the patience, discipline, and long-range planning required for IBC, they should not attempt to implement it.
No Time To Read Nelson Nash’s “Becoming Your Own Banker”. If the prospect insists that he/she has learned about IBC from the internet or YouTube, but they don’t have the time to read Nelson’s masterpiece, they should not attempt to implement IBC.
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 http://InfiniteBankingSimplified.com/ or feel free to email us your questions at ContactUs@InfiniteBankingSimplified.com 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.