PUA and infinite banking, bank on yourself etc...

[SamIam]

I usually sell IUL so if I'm missing something let me know. This is about PUA in regards to infinite banking. If the policy had been designed optimally from the start, there should not be room for 1-cent more of paid up additions. The interest on the policy loan is paid back to the insurance company. This optimally-designed gives for example a real estate investor a higher "credit line" from which to borrow against right from the beginning. What am I missing?

 

[Allen Trent]

I usually sell IUL so if I'm missing something let me know. This is about PUA in regards to infinite banking. If the policy had been designed optimally from the start, there should not be room for 1-cent more of paid up additions. The interest on the policy loan is paid back to the insurance company. This optimally-designed gives for example a real estate investor a higher "credit line" from which to borrow against right from the beginning. What am I missing?

kind of, but not entirely. While it is true that the more money you put into a policy, the more cash value it will likely have & thus allow you to pledge the CV as collateral to get a loan from your insurance company, there are up front load fees when buying PUA. So, while maxing out PUA for the given policy size & MEC premium guidelines will create cash value quicker, it will still take several years, at a minimum, to break even. going through a life policy to get your own cash back out in the short term still isnt good math regardless, but it is better math with max PUA than putting all the premiums in a base WL policy. Long term proposition no matter what type of WL, UL, IUL, VUL, etc

 

[DHK]

Guy Baker The Box: Either fund the box or pay the curve


10 minute lesson on life insurance - benefits of funding a policy up to the MEC guidelines:


BOY - High Commission myth (talks a bit about the PUA rider):

 

[DHK]

So, while maxing out PUA for the given policy size & MEC premium guidelines will create cash value quicker, it will still take several years, at a minimum, to break even. going through a life policy to get your own cash back out in the short term still isnt good math regardless, but it is better math with max PUA than putting all the premiums in a base WL policy. Long term proposition no matter what type of WL, UL, IUL, VUL, etc

I've got a comparison on this forum somewhere (now outdated) where I showed a minimum-funded whole life (from a company not known for their whole life) and it had a 22 year break-even point (cash values exceed premiums paid), compared to a max-funded IUL (it could also be WL) where it reached "break-even" by about year 7-8 (probably around year 10 these days).

It's just so important for agent to understand why max-funding is best:
- for the policyholder
- for the company
- for the agent

It's great all the way around, once you know how to properly position it so clients WANT to.

 

[DHK]

If the policy had been designed optimally from the start, there should not be room for 1-cent more of paid up additions.

There will always be some kind of gap up to the MEC guidelines. We don't want the policy to become a MEC, but we want the funding design to get as close to it as possible.

 

[pfg1]

I usually sell IUL so if I'm missing something let me know. This is about PUA in regards to infinite banking. If the policy had been designed optimally from the start, there should not be room for 1-cent more of paid up additions. The interest on the policy loan is paid back to the insurance company. This optimally-designed gives for example a real estate investor a higher "credit line" from which to borrow against right from the beginning. What am I missing?

Yes, a max funded design is typically best from day 1, but I'm not exactly sure what you are asking or trying to figure out. ?

 

[hunschuld]

In today's interest rate environment why would anyone do the infinite banking concept?
Not only are you paying 6% to 8% premium load but you are paying 7% to 8% interest to the insurance company when cars loans are 0% to 1% and a 30year mortgage is 3%

 

[DHK]

Flexibility of payment terms (try skipping a payment on a 0% car loan and see what happens)
No impact on credit scores
Disability waiver of premium (better strategy than credit disability)

It's not just a comparison of rates.

 

[hunschuld]

The concept is based on dumping money into a whole life policy , pay 8% premium load on every dollar deposited and the borrow money from the policy to pay for things like a car loan . and then you pay interest back to the insurance company on the money that your borrowed and a rate of 8%. If you do not pay the interest rate then what happens to your insurance policy cash values? Also isn't the concept based on paying back the principal your borrowed as well as interest? What makes more sense borrow $10,000 and pay back over 5 years or borrow $10,000 and then pay 8% interest on the loan until you are able to pay back the loan. It is actually a comparison of rates. The other things you mention aren't free they have a cost and you must include the cost of the premium load and you must included the cost of the life insurance and you must include the fact that the base whole life policy is based on 150% total commission paid on the initial premium.You must include the premium waiver cost. Perhaps the cost is better spent on a DI policy

Borrowing to buy a car will actually increase your credit score if you keep up with your payments.

 

[DHK]

And the original balance continues to grow as though it hasn't been touched - as long as the annual interest is paid each year...

Simple interest vs compounding interest

Amortized interest vs simple interest

Are you sure you're comparing apples to apples?

And what happens if you DON'T keep up with your payments?

But I guess life has always been perfect for you and every single client you've ever had, so no reason to think about emergencies or opportunities.

It's just not for you.