One of the greatest advantages of implementing the Infinite Banking Concept (IBC) is the daily growth of your policy’s cash value. This growth is not just an optimistic prediction—it’s a guarantee written into the contract of your Dividend-Paying Participating Whole Life Insurance Policy. The reason for this guaranteed growth is simple: your cash value must equal the death benefit by the time you reach age 100. But how exactly does this work?
Defining Key Terms:
- Cash Value: This is the portion of the policy’s value that accumulates over time and can be accessed by the policyholder. It’s also referred to as the net present value of the future death benefit.
- Death Benefit: The amount of money agreed upon between the policyholder and the insurance carrier to be paid out to the beneficiary upon the passing of the life insured.
- Paid-up Addition: Paid-up additions are additional amounts of whole life insurance coverage purchased using dividends or extra premium payments. These additions are “paid-up” because they are fully funded at the time of purchase, meaning no further premiums are required.
With these terms defined, let’s delve into how the cash value grows within the policy. As mentioned, the cash value must equal the death benefit by age 100. This is why it can be helpful to think of the cash value as the net present value of the death benefit. As you approach age 100, the cash value must grow accordingly. However, this growth isn’t linear—it accelerates as you near the end of the curve, creating a more exponential growth pattern. Why is this?
The reason is that the odds of living to age 100 are slim, so the insurance carrier has structured the policy to ensure that the cash value increases more rapidly as you age. Each day that passes brings you one step closer to age 100, so your policy’s cash value must increase daily, even if the growth is small at first. This translates into guaranteed daily growth in your cash value!
But here’s where IBC becomes even more powerful. In the IBC strategy, you don’t just pay the minimum required premium; you pay more. These extra payments go towards what are called paid-up additions. As defined earlier, paid-up additions are like mini life insurance contracts that are fully paid up, and they come with their own death benefit and cash value.
The key advantage here is that the ratio of premium paid to death benefit with paid-up additions is highly favorable—often around 1:4 or even 1:5. This means that for every dollar you put into premium for a paid-up addition, you get four or even five dollars in death benefit. As a result, the gap between your current cash value and the death benefit widens, requiring even greater daily growth in your cash value to bridge that gap.
Moreover, by using your dividends to purchase more paid-up additions, you continuously push the growth goal further, ensuring that your daily cash value growth remains strong and consistent. This powerful compounding effect is what makes IBC such a compelling financial strategy.
Ready to see how this daily growth can work for you? Contact us today to learn more!
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