One of the key pieces of information that a prospective client shares with us is the monthly or annual contribution that he/she would like to make to his/her Infinite Banking Concept (IBC) policy.
Once we know the original contribution to the policy, including the modal premium, (annually or monthly), and the age, gender, and the underwriting rating of the insured, we determine the minimum amount of death benefit necessary to make sure that the policy does not violate the Modified Endowment Contract (MEC) regulations.read more
Prospective clients need to realize that the cumulative break-even may take a few years due to the initial cost of setting up the death benefit of the policy and the compensation to the financial professional who designs, sells and will service the policy for years to come. That is what Nelson Nash calls the capitalization phase of the policy.read more
Up to the late 1980s, policy owners could place an unlimited amount of discretionary capital into a life insurance policy. All this changed in 1988 with a new law known as the Tax and Miscellaneous Revenue Act of 1988 or TAMRA. This law established a qualification test for life insurance contracts based on the amount of premium paid each year to the policy. If the premium is too large under the guideline, the policy fails the test and no longer enjoys life insurance status. It is then reclassified as a Modified Endowment Contract or MEC and it loses several tax favorable features enjoyed by life insurance contracts.read more
The most common dividend options for dividend-paying whole life policies are paid-up additions, paid in cash, reduce premium, and accumulate at interest.
Of the four options, paid-up additions will produce the most amount of cash value and will also increase the amount of death benefit. The reason is that you purchase paid-up additions which earn dividends which then purchase more paid-up additions resulting in a compounding effect or exponential growth in the amount of cash value as well as in the amount of death benefit.read more
A flexible paid-up additions rider allows the policy owner to increase or decrease the contributions to the paid-up additions rider within a range specified at policy issue. The policy owner is free to make these adjustments at any time during any payment period of the policy.
The level paid-up additions rider does not provide the same flexibility to adjust the premium going towards it. The level paid-up additions rider assumes that the policy owner will pay the same amount year-over-year towards the rider. If the policy owner reduces the premium going to this rider, that reduction can become permanent.