1)What is the Infinite Banking Concept?
The Infinite Banking Concept (IBC) is an exceptional cash management tool for your personal economy or for your business that gives you financial independence by recapturing interest payments that otherwise would flow to outsiders.
Blog 69 – Is Social Security Income Taxable?
According to the Social Security website, some of you have to pay federal income taxes on your Social Security benefits.
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.
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.
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.
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.
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.
To use dividends to purchase paid-up additions, you just elect the paid-up additions dividend option.
The other way to purchase paid-up additions is through an elective rider. You choose this rider and make payments to the rider to purchase paid-up additions with your own money. Essentially, you elect to pay the insurance company more money than it requires to.
In this blog we are going to concentrate in the definition of paid-up additions and in future blogs we will be going deeper into the types of paid-up additions riders and how to use them to maximize the cash values of your whole life policies.
Paid-up additions are mini paid-up whole life policies that attach to your base whole life policy. They have a death benefit and a cash value and as its name implies, they require just one single premium payment and they are forever paid-up. In other words, you keep the death benefit of the paid-up additions and its cash value without ever paying any additional premiums.
Although you may be discouraged of your progress in some areas, we are sure that you will be proud of your accomplishments in other areas, and perhaps one of them for many of our clients is your success towards achieving financial independence.
We define financial independence as a financial situation in which you have enough money set aside to take care of unexpected financial challenges and also enough money to take care of opportunities that become available to us. Believe us, when you have money available, opportunities are constantly knocking at your door.
