A traditionally-designed whole life policy originally maximizes the death benefit that you obtain for a given premium while the cash value is originally very small or non-existent. This type of design is encouraged by most insurance agents and broker-dealers because it generates better commissions for them, but it doesn’t do much for you as a client during the first 10 to 15 years, except providing a death benefit.
On the other hand, a properly-designed IBC or banking policy originally maximizes the cash value that you obtain for a given premium while the death benefit eventually increases to be higher than in a traditionally-designed policy. This type of policy maximizes the living benefits which is the main purpose of the IBC process.
An IBC policy is designed by adding a Paid-Up Additions Rider which turbo-charges the growth of the cash value and by selecting the dividend option to purchase Paid-Up Additions. A term or a term-like rider could be added to increase the capacity of the policy if the client foresees a windfall or is planning to increase the premiums paid in the near future. This type of design reduces the commissions earned by insurance agents and broker-dealers when compared to a traditionally-designed policy, but it sure makes the client happy of its living benefits and eager to give referrals to the agent.
In addition to an income tax-free legacy, a properly-designed IBC policy offers you the following living benefits: liquidity, use, and control of your money, guaranteed access to credit, tax-free growth, reduced interest paid to others, no government involvement, insurance for life, predictable financial results, guaranteed cash accumulation, tax-free retirement income, and creditor proof and asset protected in most states.
Two of the most attractive living benefits mentioned above are guaranteed access to credit which we will explore in more detail in a future blog and tax-free retirement income which intrigues most clients.
How do you obtain tax-free retirement income from your IBC policy? There are two alternatives: with alternative 1 you take policy loans against your cash value and since your income is from loans and loans are not taxable, no income taxes are paid. This alternative does not reduce the capacity of your policy, which may help you if you expect to receive during your retirement a windfall that you expect to store in your IBC policy.
With alternative 2, your income comes from policy withdrawals until the amount withdrawn equals the premium payments made to the policy and from that point on you take policy loans against your cash value. Your income is not taxable. This approach does reduce the capacity of the policy in the amount withdrawn, but it is not a major issue if you don’t expect a windfall during your retirement.
To summarize, one of the great advantages of a properly-designed IBC policy is that you indeed receive tax-free retirement income.
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://dev.infinitebankingsimplified.com/blog/ 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 Practitioner