When it comes to the infinite banking concept, the traditional design is a life paid-up at age 100 or 121 with a 40/60 split, 40% base policy, and 60% to paid-up additions. But sometimes we think it can make sense to do a limited pay policy, whether that be a 10 pay, a 20 pay, or a paid-up at age 65.
When it comes to designing a whole life insurance policy designed for cash accumulation, most agents use the 40/60 split, as illustrated in Nelson Nash’s bestselling book, Becoming Your Own Banker. So this design is used to have a substantial piece of the premium going towards the base policy because those are very efficient by nature and actuarially designed to get better and better every year, and a substantial piece going towards the paid-up additions. Those paid-up additions allow us to supercharge the cash value, accumulation, and accessibility in those early years of the policy.
Typically, you could leave that paid-up additions rider on for anywhere from 5 to 10 years, and at that point, the policy is efficient on its own and you could drop that premium down. The second piece of that design is the life paid-up at age 100 or 121, meaning the base policy premiums are going to be payable until the insured reaches age 100 or 121.
The thinking behind this is we want to be able to put money into our banking policies as long as possible. And while that is the goal, again, to allow us to be able to put money into the policy as long as possible, we also have to be cognizant of the fact that when you get into retirement, let’s say in your late sixties or seventies and you’re no longer working and you’re living off your investments or your savings, your cash flow is limited.
What we found is that some people get into retirement years and they don’t think they have the money to put into these life insurance policies. and that’s unfortunate because they’re probably thinking about things incorrectly. But because we’ve seen this mindset over and over, we have begun to implement limited pay policies, policies paid up at age 65. What that means is there are no more premiums after age 65.
Now we also know that people will be looking for places to put money beyond retirement years. So the point is this: why do we recommend the limited pay policies? Well, as someone in my thirties, I know that at age 65, I don’t plan on working any longer, but I still want to be able to utilize this concept while I’m working, in fact, these policies still continue to grow and compound interest even after age 65.
So what’s the downside really? Well, the only one that I could think of is I’m no longer able, I no longer have the ability to put money into that policy, whether I want to or not. But if you recall what I said earlier, we do this for younger people. Why? Because they have the option of buying the limited pay policy.
When you get into your fifties, your options for limited payment start to reduce. And if you’re understanding the infinite banking concept, you may want to buy more policies in your fifties and sixties. Those policies certainly will be paid up at age 100 or age 121. So your option for limited pay policies is off the board as you get older.
But if you have a situation where you have premiums stopping at age 65, that gives you the wherewithal or the ability to fund the other policies that you purchase later in life with the cash flow that you would have from retirement.
If you’d like to get started with an IBC policy, a policy designed for cash value accumulation, be sure to schedule your Free Strategy Session today. We’d be happy to speak with you.
And remember, it’s not how much money you make, It’s how much money you keep that really matters.
