Blog 112 – Policy Loans Or Withdrawals?

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A lot of IBC clients ask us if they should take a policy loan or a withdrawal when they need cash from their policies.

As an IBC practitioner, you know how important it is to increase the cash value of your IBC policy, so you maximize its capacity and its efficiency. You also know that the best way to increase the cash value of your policy is via Paid-Up Additions and these Paid-Up additions can come from three sources: Scheduled Paid-Up Additions rider, Unscheduled Paid-Up Additions rider and the Paid-Up Additions dividend option. 

When you take a withdrawal to get cash from your policy, you are surrendering Paid-Up Additions, and you are decreasing the capacity of your policy forever. Those Paid-Up Additions that you are surrendering will never again generate interest and dividends for you. Also remember that you already paid a service fee for these Paid-Up Additions coming from your Scheduled or Unscheduled payments.

When you take a policy loan to get cash from your policy, the cash doesn’t come from your cash value but from the general account of the life insurance company. Your cash value remains in your policy earning interest and dividends while also collateralizing your loan.

In general, we recommend that if you need cash early in your life (not at retirement age), it is a better option to obtain a policy loan since it does not reduce the capacity of your policy forever. Don’t be fooled by the idea that by taking a withdrawal you are avoiding the payment of interest on your loan since by taking a withdrawal you are possibly also surrendering the service fee that you already paid for those Paid-Up Additions.

Later in life, when you are using cash from your policy to supplement your retirement income, the most financially efficient way – to legally avoid paying income taxes – is to start by taking withdrawals from your IBC policy down to your cost basis (the total premiums you have paid into your policy) and then switch to policy loans. 

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.

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