Paid-Up Additions: The IBC Secret Sauce

The Money Advantage Podcast

Sep 20 2021 • 52 mins

Want to get an insider’s look at an IBC policy? When it comes to how the Infinite Banking Concept works, the magic is (mostly) in the paid-up additions or PUAs. Let’s go to the IBC lab and talk about PUAs today. What are they, and how do they impact your whole life insurance policy? So if you want to understand just how valuable these three letters are, how they add access, growth, and flexibility to your policy… tune in now! Table of contentsWhat are PUAs?How Do Paid-Up Additions Enhance Your Life Insurance?The Difference Between Base Premium and Paid-Up AdditionWhat Are premium splits?Book A Strategy Call What are PUAs? The acronym itself stands for Paid-Up Additions; and they can add a lot of growth, access, and flexibility to your life insurance policy. If you’re interested in setting up a policy for the purpose of creating an infinite banking system, it is essential to understand the importance of PUAs.  As you may be able to guess, PUAs are additional coverage on your life insurance policy that you can buy. In other words, you’re adding additional life insurance coverage that is completely paid up and requires no further premiums. As you add PUAs to your policy, you’re thus incrementally increasing the impact of both your cash value and death benefit.  Nearly any contract has the ability for PUAs, however, the mechanics can vary from policy to policy. The company, for example, also establishes how much additional coverage you can purchase within your contract--as well as when and how you purchase it.  How Do Paid-Up Additions Enhance Your Life Insurance? Let’s think about this from a real estate perspective for a moment. If you bought a residential property, you’ve bought an asset. Whole life insurance is also an asset—as you pay premiums, you’re building up equity like you would in a home.  Then, let’s say you want to build an addition to this residential property, in order to add value. In this instance, let’s say you add a $10,000 sunroom, and have an appraiser check it out. If the sunroom is well done, your appraiser might tell you that your value went up by $40,000. The same happens when you purchase a paid-up addition. That $10,000 PUA could add around $40,000 to your death benefit, or the total coverage of your insurance policy. Not to mention that an increase in death benefit also positively impacts the efficiency of your cash value build-up.  Here’s where things get really interesting. Upon the appraisal of your residential property, you could then go to the bank and say, “Look, the value of my property has increased. I’ve paid for the addition out of pocket, could you lend me money based on what I spent on the addition?” The bank could then lend you a portion, or the full value, of that $10,000 to create more value. Life insurance works the same way. The $10,000 is your premium for the PUA, and a portion of that is available to you as a loan against your cash value.  In both scenarios, the $10,000 you pay increases the value of your asset by $40,000. This makes it easier for a bank or insurance company to lend to you because they know that even if you default on the loan, there’s additional value there as collateral.  The Difference Between Base Premium and Paid-Up Addition Base premium is the money you pay to obtain your life insurance coverage to begin with. The base premium that you pay is what largely contributes to your long-term growth, dividends, and death benefit. PUAs, on the other hand, will contribute more heavily to your early cash value accumulation and less to the death benefit. This is because your base premium is designed to cover the cost of your insurance first, with anything leftover contributing to your cash value. This is because the risk to the life insurance company is greater in the early years. In other words, if you were to die in the first few years of the policy,