Whole Life Insurance: Since most of us either do not want or cannot afford to pay premiums to such advanced ages, or in case of a financial emergency, there are several options to stop premium payments earlier. These options are Automatic Premium Loan, Premium Offset and Reduced Paid-Up. Let see how we can use these options, their advantages, and disadvantages.
“Should we pay for this with the cash we have sitting in our bank account, or should we first put that cash in our IBC policy and then take a policy loan to purchase the needed item?”
OPTION VALUE EMBEDDED IN WHOLE LIFE POLICY
One obvious difference between a whole life policy and a term policy with the same death benefit, is that the former gives the policyholder the option to maintain coverage for life. (This after all is the reason we call it “permanent life insurance” and the plain vanilla “whole life” policy.)
As always, we want to educate our clients and prospects on the details necessary to design and understand the mechanics of an IBC policy. In a typical situation, we would have an individual who wants an IBC policy contributing a certain amount of dollars a year (the annual premium) for so many years. Depending on the individual’s gender, age, health status, and lifestyle, you need a death benefit of at least a certain amount of dollars to avoid the IBC policy from becoming a Modified Endowment Contract (MEC) and losing the tax-free distributions advantages.
“MEC” Defined: The acronym “MEC” is short for “modified endowment contract.” To say
that you “MEC”ed a policy means that you stuffed it with too much money and hence the IRS will now cease to classify it as a standard life insurance contract.
Conclusion: The reality is that the existence of policy loans against cash values dates back to the mid-1800s, but the life insurance industry has never vigorously promoted them.
We get the following question quite often from prospects: What does it take to implement the Infinite Banking Concept (IBC) successfully?
all businesses recognizethe fact that finance of the business is necessary—butthey never address the cost of acquisition of finance!
An IBC policy is a dividend-paying whole life insurance that you obtain through a mutual company, rather than a stock company. Mutual life insurance companies share their profits with participating policyowners via dividends.
Direct recognition versus non-direct recognition is more a game of smoke and mirrors used by insurance companies and marketing organizations themselves to keep your focus away from what is important.
