Most of the policies we design for Infinite Banking, or IBC policies, are paid-up at 95 or paid-up at 100 which means that they have level guaranteed premiums payable to age 95 or to age 100.
Since most of us either do not want or cannot afford to pay premiums to such advanced ages, or in case of a financial emergency, there are several options to stop premium payments earlier. These options are Automatic Premium Loan, Premium Offset and Reduced Paid-Up. Let see how we can use these options, their advantages, and disadvantages.
Let’s assume that you have an emergency roof repair whose cost was higher than the amount you had anticipated for it and the time to pay your IBC premium has arrived. Since you are temporarily short of cash to pay your premium with out-of-pocket money, you can use the Automatic Premium Loan option which allows your policy to pay for the base premium through a policy loan, assuming you have enough cash value in your policy. If you exercise this option, you have taken a policy loan which you should pay with the loan interest rate at your earliest convenience. This option is good for financial emergencies.
When you do not wish or cannot pay your policy premium for the time being but want to leave the option to continue making premium payments in the future, you use the Premium Offset option. The dividends and interests of your policy are used to pay the base premium and the remainder goes to cash values. There will not be a sudden drop in death benefit, but there will be a “drag” in cash value performance and the amount of this drag will depend on the premiums already paid and the age of the policy. This option allows you to continue to make premium payments in the future; therefore, this option is reversible.
When you do not wish or cannot pay your policy premium ever again, you use the Reduced Paid-Up option. The dividends and interests of your policy are directed to the cash values. There will not be a drag in cash value performance, but there will be a drop in death benefit and the amount of the drop will depend on the premiums already paid and the age of the policy. You cannot exercise this option before policy year 8because otherwise, your policy will become a Modified Endowment Contract (MEC) and lose its cash access tax advantages. This option does not allow you to pay premiums for the base policy or the Paid-Up Additions rider ever again; therefore, this option is irreversible. You should have full certainty that this is what you wish to accomplish before executing this option.
As you can appreciate, whole life policies offer you tremendous flexibility in the payment of premiums.
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.