The first step in the implementation of the Infinite Banking Concept (IBC) is to read several times Nelson Nash’s “Becoming Your Own Banker” to be sure you don’t miss any of the gold nuggets within the pages of this book.
As we have discussed before, IBC is a process; it is indeed an exceptional cashflow management strategy for your personal economy or for your business. The best platform to implement that process is a dividend-paying whole life insurance policy.It is a guaranteed method of building wealth and contractually obtain access to cash values via policy loans. If the policy is properly designed, the money grows tax-free, and you get access to the money also tax-free.
If you are in the process of implementing IBC and you visit the internet, listen to podcasts, or watch videos, you will probably be pushed in every direction, depending on the authors and unfortunately, their financial interests. Here, we will give you an unbiased opinion of the considerations in the design of IBC policies.
1) The insurance agent must conduct a thorough fact finder on the client to determine this client’s plans to use the cash value in the policy, how fast he/she plans to use the cash value via policy loans, for how long he/she plans to pay premiums and what is the death benefit needed to protect the client’s family, if any.
2) The insurance company that you use must be a large mutual life insurance company with outstanding financial ratings and a record of declaring dividends for at least the last 100 years.
3) The ratio of the amount of premium going to the base policy as compared to the Paid-Up Additions (PUA) rider. In general, that ratio depends on the insurance company and the specific case under consideration. A design with 10% base premium and 90% PUA premium, or a 10%/90% design, if allowed by the insurance company and the case under consideration, would generate higher and fastest cash values than a design with 40% base premium and 60% PUA premium. Nevertheless, this later design would generate higher commissions to the insurance agent. Under certain situations where the insured is relatively older and/or the premiums are relatively low, it may not be possible to generate a 10%/90% design.
4) If the client is interested in higher and fastest cash values, then the 10%/90% design, or as close to it as possible, is preferable. Notice that in some situations, this design would reduce the amount of premiums going to the Unscheduled PUAs in later years.
5) If the client is interested in paying premiums for a long period of time, a 40%/60% design, or closer to that, may be preferable.
6) In order to avoid a Modified Endowment Contract (MEC), the IBC policy will need the addition of a term rider in the form of a One-Year Term rider that every year converts part of itself into a whole life, or a 7-, 10-, 20- or 30-year pure term rider.
7) Flexibility of Scheduled PUAs: consider the load of these PUAs and the minimum annual premium to these PUAs to keep them active. Also consider the maximum amount of premium going to Scheduled PUAs every year as it may be reduced as the years go by.
8) Flexibility of Unscheduled PUAs: consider the load of these PUAs and the maximum allowable annual premium to these PUAs during the first seven years of the IBC policy without the generation of a MEC.
9) Catch-Up Ability of Unscheduled PUAs: consider the ability to catch-up 100% of the Unscheduled PUAs that you didn’t contribute to on prior years or what these limitations may be.
10) Interest rate on policy loans: what is the annual rate, and is it fixed or variable?
11) Is the insurance contract a direct or a non-direct recognition contract? A non-direct recognition contract does not adjust the dividends paid on a policy when there is an outstanding policy loan. A direct recognition contract adjusts – positively or negatively – the dividend rate on the cash value collateralizing a policy loan. The truth is that one method is not necessarily superior to the other. 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.
12) Experience and knowledge of the insurance agent designing your IBC policy. Is this insurance agent an IBC Authorized Practitioner? Will this agent answer all your questions accurately and promptly? Will this agent discuss with you all the trade offs inherent in any policy design in an unbiased fashion?
Do you have other policy design questions that we have not covered here? If you do, please contact us at ContactUs@InfiniteBankingSimplified.com We answer all your questions accurately and within 24 hours!
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.