IBC – FAQs

IBC works by purchasing a whole life insurance policy with a participating (dividend-paying, Mutual Company) insurance company. Over time, the policy builds cash value, which you can borrow against. The loan is repaid with interest, while your growing pool of Capital (money) continues to grow uninterrupted.

 There are numerous ways you can save right? Under the mattress, a can in the kitchen cupboard. Although, as it turns out (if you know how Whole Life Really works) Whole Life is the closest tool that works like a banking system. It is a unique financial tool. There is nothing like it anywhere else in the financial world. Aside from it’s banking type qualities, it also has a number of other attributes aside from the well known death benefit. 

Whole life insurance policies have guaranteed cash value accumulation and provide death benefits. They also offer dividends (in participating policies, with mutual companies), which can be used to purchase additional coverage and increase cash value. The policyholder can access the cash value through loans without the restrictions that come with traditional loans. If you become disabled, the premiums can waived while you recover. And if you get really sick, there is the possibility to tap the death benefit before you pass. 

•  Control: You control the banking process and decide when and how to use the funds. You also control the terms of the loans, including repayment schedules.
• Growth: The cash value continues to grow even when loans are taken out.That growth, over time, begins to snowball into substantial additional CV and death benefit.  
• Flexibility: Funds can be used for any purpose without restrictions imposed by traditional lenders. And if you have life changes and we need to make changes to the policy you can do that. 
• Tax Advantages: Loans are tax-free, the growth within the policy is tax-deferred. And the death benefit goes to your beneficiary(s) tax free.
• Liquidity: You can access funds quickly through policy loans. No long forms or contracts to file out or tax returns needed.
• Legacy: The death benefit can provide a legacy for your heirs, with the Death benefit passing to them tax-free. If you have taught your heirs this concept they will know to start new policies with the death benefit, keep the capital in your family to continue to grow.

Whole Life Insurance policies today, especially those with mutual insurance companies, are much better at growing cash value compared to the policies our parents or grandparents might have had 50-100 years ago. While those older policies are still available and valuable, new designs have significantly improved the growth of both cash value (CV) and the death benefit (DB).

When you pay your premium, it’s divided into two parts: a base portion and a Paid-Up Addition (PUA) portion. The PUA helps to accelerate the growth of both the cash value and the death benefit.

The cash value in a whole life insurance policy is the portion of your premium (from both the base and PUA) that builds up over time. This cash value grows tax-deferred and is guaranteed to grow each year with the insurance company. As a policyholder, you can borrow this cash value, using the death benefit as collateral. You can repay these loans on your own terms.

Yes, the cash value growth in a whole life insurance policy is guaranteed by the insurance company. Additionally, participating policies (Mutual) have paid dividends (passive income) for over 100 years, which will further enhance the cash value growth.

• Risk: We live in a risk environment when it comes to many areas of our life and this especially includes our financial life. However, a properly designed WL policy with a highly regarded Mutual company takes on all the risk of insuring you and potentially your Human Live Value, (HLV). Once a policy, AKA, contract has been put in force, the only changes that can be made by the insurance company are minimal, (interest on loans, and amount of annual dividend) and you are in charge of the contract that you can make many types of changes. Too numerous to mention here.
• Complexity: It is important to connect with someone who really understands the mechanics of how WL really works, and to gather an understanding of how whole life insurance and policy loans work.
• Over-Borrowing: Excessive borrowing without proper repayment can lead to policy lapse and loss of coverage. However, we will share with you how to manage and avoid this for our clients. And much like a traditional bank, the insurance company notifies you and us if there is a problem.

You can borrow the cash value of your policy to finance large purchases such as cars, home renovations, or business investments, just like you would using a conventional savings account except when you take money from the typical bank savings that money stops growing. By repaying the loan ( just like you would with a traditional bank) on your own terms, you maintain control over your finances while allowing the cash value to continue growing.

Yes, business owners can use IBC to finance business expenses such as equipment purchases, inventory, or expansion. By leveraging the policy’s cash value, business owners can avoid traditional bank loans and their associated fees and restrictions.

Policy loans can be taken up to the available cash value and collateralized against the death benefit (DB) of your whole life insurance policy. The insurance company charges loan interest, all while your cash value (CV) is growing uninterrupted. You have the flexibility to repay the loan on your own terms, and the cash value continues to grow.

Great question.

It depends. There are a number of options and things to understand about the mechanism of Whole Life.

As one example, if a policy loan is not repaid, the outstanding loan amount, including interest, will be deducted from the death benefit when the policyholder passes away, provided the policy has been kept in force.

If the loan and accrued interest exceed the cash value, the policy could lapse, resulting in loss of coverage.

Although, we work to teach you to monitor your loan balances so this can be avoided.

Educate Yourself

Read Nelson Nash’s book “Becoming Your Own Banker” and other relevant materials we recommend.

Consult a Professional

Work with an IBC Practitioner to understand the problem with the financial environment that we all live within and to assure a design will be done properly with a suitable whole life insurance policy.

In other words, contact us.

Commit to the Process:

Regularly fund your policy to build cash value and begin using policy loans to get out of debt, buy a car, start a business, invest in a business, etc.

Yes, if the policy’s cash value is too low or depleted (by taking out too much in loans) to cover the interest due on your policy anniversary and you are unable to pay it, the policy can lapse, which may have tax implications and result in a loss of coverage.

Although we work to teach you to monitor your loan balances so this can be avoided.

 IBC is best suited for individuals and small business owners with the discipline to save or repay bank loans they may have outstanding. And they also wish to grow their wealth in conjunction with their other assets in a more certain and predictable environment, with guaranteed growth and protection. You want to take personal control of  financing of the things you will purchase and invest in over their current lifetime.

Yes,

Yes, there is always the possibility of stashing cash or silver under the mattress, having a savings account or CD’s. These are traditional ways of saving money. Although they come with limited upside advantage when compared to Whole Life Insurance with a Mutual Insurance company. And specifically I am not including Index Universal Life (IUL) products to use with this IBC strategy. Even though they are categorized as a Whole Life product. We do not recommend them for this use. 

And there are other alternatives including  traditional investment strategies, such as using a 401(k), IRA, or investing in stocks, bonds, and real estate. Each of these are drastically limited for use with the IBC concept and the use of it’s strategy. They also carry their own risk, reward, and tax implications (much more than with IBC).

The simple answer is yes. Yet there are some requirements before you can make these changes such as how long your policy has been in force. What is your goal in making these changes? We can plan for these if you know a change is coming in the immediate or long range future.

There is a rider “Waiver of Premium” that we attach to all policies that can have this rider. Generally speaking, Whole Life companies have differing requirements regarding these waiver of premium riders. For example after 60-65 the rider may fall off and we may potentially need to pay a premium with loans, if it’s not a permanent disability. There are other things that can be done such as reduced paid up (RPU) change that ends your requirement to pay the premium and keeps the policy in force. It does lower the death benefit based on how long you’ve had the policy.

There are automatic riders with most mutual insurance companies that will release a portion of the death benefit (DB) to pay for living expenses and hospital bills before you pass.

No. It accrues on a daily basis but, interest is paid only annually just before your policy anniversary. We recommend paying this annually so it does not compound into any outstanding loans. If there is still an outstanding loan after paying the annual interest, interest will re-set  and begin to accrue for another year unless you pay it off within that year.

We strongly recommend setting up a schedule of your choosing to pay back loans while you are still working and have income coming into your life.

When you make these payments on a monthly basis and that money is sent back to the insurance company it goes to pay off the principal, none of it goes to interest, thus lowering the principal loan that the interest is accruing on and lowering the actual APR interest rate.

This is unlike most loans we experience where the payments go to cover principal and interest. This traditional method allows the bank to make more money from those loans.

You will see the cash value (CV) immediately and will have access to it (depending on the Mutual Insurance Company) within 10 to 30 days.