One of the great advantages of an Infinite Banking Concept (IBC) policy is that you have access to the cash value in your policy any time you need it in the form of a policy loan.
Remember that when you take a policy loan, the money does not come from the cash value of your IBC policy, but from the general account of the insurance company, and your cash value remains in your policy earning interest and dividends. The amount of your loan is collateralized by the same amount of cash value in your policy and as you pay down your loan, the exact same amount of cash value is released from collateralization, and it is again available for another policy loan.
Depending on the insurance company, between 95% and 98% of your cash value is available for a policy loan.
The insurance company charges you simple interest from the day you take out the loan until your policy anniversary date, which is the day of the year when your policy was issued. If you don’t pay the loan interest when it is due with out-of-pocket money, but you have the Automatic Premium Loan rider and enough cash value in your policy, then a loan will be taken to pay the loan interest, and you will be paying compound interest rate on the original loan.
The problem with taking the maximum allowed policy loan from your policy is that you may not have enough cash value in your policy to pay your loan interest at the time it is due, in which case, you will have to find another source of cash to pay the loan interest. We recommend that you think about this before taking the maximum amount of loan available. Always be responsible when taking policy loans.
Many clients ask us if a given expenditure should be paid with cash or via a policy loan. We use the following “rule-of-thumb” as our answer: you should take a policy loan if the expenditure you have in mind is a lifestyle “necessity”, a reduction of debt, or an investment. Lifestyle necessities can be repairs, maintenance, and replacement costs of facilities and infrastructures that serve to increase your future production and/or future revenue. Debt reductions serve to increase your net worth. Investments appreciate and then can be sold for a profit. All three of those types of expenditures contribute to building your estate in the long run and are appropriate expenditures for taking a policy loan. On the other hand, living expenses such as food, gasoline, utilities, and similar consumption costs are completely different types of expenditures that should be paid for with cash, not policy loans. You don’t want to use your IBC policy like an ATM machine every month.
The best way to increase the amount of available loan is to increase the cash value of your IBC policy and the most effective way to increase the cash value of your IBC policy is by making as large as possible contributions to your Paid-Up Additions rider within the Modified Endowment Contract (MEC) limitations.
Do you have other policy loans 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.