Blog 94 – Misunderstandings About Whole Life And IBC Policies In Particular 

Pedro Palicio On The Infinite Banking

As always, we want to educate our clients and prospects on the details necessary to design and understand the mechanics of an IBC policy. 

In a typical situation, we would have an individual who wants an IBC policy contributing a certain amount of dollars a year (the annual premium) for so many years. Depending on the individual’s gender, age, health status, and lifestyle, you need a death benefit of at least a certain amount of dollars to avoid the IBC policy from becoming a Modified Endowment Contract (MEC) and losing the tax-free distributions advantages. 

The first step in the design must be a base whole life policy, but if we allow this base whole life policy to have the required IRS death benefit, it means that most of the premium contributions would go to the cost of this base whole life policy and it would not be very efficient in generating cash value. 

What we do is reduce the death benefit of this base whole life policy to an amount that allows this base policy to qualify for the best insurance company rating and at the same time reduce the base whole life policy cost. The difference between the IRS required death benefit and the death benefit of the base whole life policy is provided at a substantial lower cost by an Annually Renewable Term rider. 

The difference between the premium that we have available a year and the cost of the base whole life plus the cost the Annually Renewable Term is used to purchase Paid-Up Additions through a Paid-Up Additions (PUA) rider. Paid-Up Additions are small policies that do not need more payments since they are already paid-up, and they also generate higher cash values. 

Next, we select the dividend option to purchase Paid-Up Additions. In other words, during the first years of the policy, the death benefit of the base whole life policy plus the death benefit of the Annually Renewable Term rider plus the death benefit of the Paid-Up Additions is equal to the IRS required death benefit. As the amount of death benefit for the Paid-Up Additions increases, the Annually Renewable Term decreases until the Annually Renewable Term disappears and the total death benefit then grows beyond the IRS required death benefit.

It is important to know that the base whole life policy is mainly responsible for a portion of the total death benefit, but it does not generate much cash value for the first couple of years and it is the Paid-Up Additions that is mainly responsible for the growth of the cash value.

Some prospects ask us to generate an IBC policy with no base whole life policy, just Paid-Up Additions. The answer is that it cannot be done. To do so, would remove the tax benefits of a life insurance policy and it would simply become an annuity.

Other prospects ask us how come when they die, they don’t receive the cash value plus the death benefit of their policy. The Actuarially 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. The cash value is the “equity” in your death benefit. If we use a home mortgage analogy: when making monthly mortgage payments, the homeowner gains equity by reducing 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 his equity in the house” on top of the deed! That would be misconstruing what “equity in the house” means.

We strongly recommend that you read, perhaps several times, the 89-pages “Becoming Your Own Banker" by Nelson Nash. We also have a lot of information on Infinite Banking on our website. You should understand policy mechanics, policy loans, Paid-Up Additions, and the IBC process very well if you wish to obtain maximum advantages from it. Remember, we are always available to answer your questions and we do answer them promptly.

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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