We must never forget that beyond all of
the outstanding attributes of a properly designed dividend-paying Whole Life
insurance contract and how it works, policy loans are a completely separate
undertaking and are a central feature of the Infinite Banking Concept.
The design of high cash value, dividend paying whole life insurance policies, or Infinite Banking (IBC) policies, has two phases. The first phase consists of policy blending, heavy use of paid-up additions, and the typical 10/90 or 20/80 split between the premium going to the base whole life policy and the premium going to the paid-up additions rider. This first phase is quite consistent from case to case and the only variability might be in the premium split due to the total amount of premium (annually or monthly) to be paid, and design restrictions from the insurance company we are using.
One of the questions we more often have from our clients is: Should I pay for this expenditure with the cash I already have in my conventional bank account, or should I first deposit that cash as an unscheduled PUA contribution to my IBC policy and then use the cash from a policy loan to purchase the needed item? What they are really asking is if there are any special conditions or guidelines they should consider before deciding whether to use cash or a policy loan for their expenditure.
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.
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.
Are you financially self-reliant? If not, decide to develop your own financial stability through taking control of your earning power, developing multiple streams of income, saving all you can, and concentrating on reliable investments with known or guaranteed returns. That way, even in times of stormy economic weather, you will find yourself on solid ground.
There is a lot of confusion in internet blogs about borrowing or taking a loan from your IBC/Banking policy. Let us make it absolutely clear that when you take a loan from your IBC policy what you are receiving is money from the general account of the insurance company that issued your policy, collateralized by the cash value of your policy.
Those of you familiar with Nelson Nash’s “Becoming Your Own Banker” know that to obtain efficiency in the generation of maximum cash values in your IBC policy, you should design it as close as possible to the MEC line.
On the other hand, if you follow Nelson’s teachings, you also know that when you take a policy loan against the cash value of your IBC policy, you should repay your loan at an interest rate comparable to the one that an alternative source, let’s say a credit card, would charge you. The dollar difference between this rate and what the insurance company is charging you, should be deposited in your policy as an additional contribution to your PUA rider. This means that you should have enough capacity in your PUA rider to accept this additional contribution. But wait a minute, if you have built this additional capacity in your policy, it means that it is not as close as possible to the MEC line for maximum efficiency. How do you solve this dilemma?
Everybody wants to know what makes the banking policy or Infinite Banking policy different from other types of life insurance policies and how do they go about designing the right policy for them. Now, here is the secret: the policy designer should take into consideration all the observations indicated below.
The designer first starts with a dividend-paying whole life insurance policy from a mutual insurance company. When designing a banking policy or Infinite Banking policy, you don’t specify the desired death benefit, but the annual or monthly contributions that the owner will be comfortable making to such policy.
A Business Credit survey1 conducted and published in March 2016 by the Federal Reserve Banks of New York, Atlanta, Boston, Cleveland, Philadelphia, Richmond, and St. Louis reports that “cash flow” is the number one problem facing small businesses with fewer than 500 employees. At the same time a Financial Stability Report dated November 2018 by the Board of Governors of the Federal Reserve cites that business-sector debt relative to GDP is historically high and “debt has been growing fastest at firms with weaker earnings and higher leverage.”2 In essence this report insinuates that the very same cash flow difficulty also exists among the larger companies, that is, those businesses with more than 500 employees.
