Many traditional whole life or Index Universal Life (IUL) insurance agents advise clients in such a way that emphasizes the death benefit and living benefits of policies. If the death and/or living benefits are the focus, then the base or target premium of the policy will be the primary focus in terms of the cost of the policy. Emphasizing payment of only the base premiums results in a policy with a maximized death benefit and extremely slow accrual of the cash value over the life of the policy.
For instances, offering an IUL or traditional whole life policies as a college funding purposes and insuring an 8-year-old child is simply wrong! 10 years later when the child is ready to attend college at age of 18, the surrender cash value balance of the policy available and accessible for the loan to pay for the tuitions, in many cases, may be significantly less than the total premium contributed to the child’s policy over the years. As noted previously, the policy loans are typically only allowed from the surrender cash value balance. Similarly, designing as retirement purposes for an adult with less than 15 years before the retirement age and the client is only contributing the base or target premium, not the maximum contribution or “overfunding” the policy, in many cases the policy does not build sufficient surrender value, some cases not even equivalent of the total premium paid for first 10 years of the policy.
In contrast, the Personal Banking Concept approach is to design the policy for early high cash value growth and liquidity. This includes a strategy that emphasizes what is called paid up additions (PUA). Simply put, paid up additions accelerate the accrual of early cash value within the policy and most cases, PUA and gains are 100% accessible tax free many cases 30 days after of issuance of the policy. In addition, PBC policy design is ultimately having ACCESS to the cash value and leveraging and investing your money into wealth producing assets. Now you have Personal Banking Concept policy working for you!
For example: If someone had $1,000 per month to spend on life insurance, if the entire amount is applied to the base or target premium, this would purchase a larger death benefit with slower cash accrual. However, if PBC Policy strategy is applied, this amount could be divided 50% Paid Up Additions, 50% base premium; this will accelerate the cash value growth as well as creating immediate cash access. Overfunding IUL policy is not the same as Paid Up Additions applied to participating whole life polices, especially in terms of accessibility and liquidity.