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The Infinite Banking Concept (IBC) has captured the attention of many individuals seeking more effective, long-term financial strategies. But as interest grows, so does the debate: which policy structure truly supports IBC? Many are drawn to Indexed Universal Life (IUL) because of its market-linked potential, while others advocate for Custom Whole Life due to its reliability and stability. This article breaks down the fundamental differences and explores why most IBC strategies falter, especially when built on IUL.
What is Indexed Universal Life (IUL)?
IUL is a type of permanent life insurance. Its appeal lies in how the policy’s cash value can grow based on stock market indices, like the S&P 500. It offers a guaranteed minimum interest rate (typically zero), which means you don’t lose value in a downturn. But there’s a catch: there’s also a cap on how much interest you can earn in a good year.
While this sounds flexible, IUL uses what’s called Annual Renewable Term insurance to provide the death benefit. This means the cost of insurance increases every year as you age, making the policy more expensive to maintain in the long term. Add on other policy fees, and managing IUL becomes tricky over time.
What Makes Custom Whole Life Different?
Custom Whole Life policies are structured around guarantees. They come with fixed premiums and a guaranteed cash value that grows each year. In addition to this predictable growth, these policies often pay dividends, which can be used to buy more coverage or boost cash value.
Because the cost of insurance doesn’t increase, policyholders enjoy more stability. Custom Whole Life is typically built with “Paid-Up Additions” that accelerate cash accumulation in the early years, making it a strong fit for those who want to leverage IBC without worrying about rising costs or market volatility.
Why Most IUL-Based IBC Plans Don’t Work
Costs Rise Over Time
The cost of coverage in IULs increases each year, which can erode the policy’s cash value, especially in later years if the policy does not perform well for consecutive years. Although you have a stop-loss provision for negative returns, it does not account for the cost of the annual renewable term, which continues to increase in premiums, and the additional policy expenses associated with management.Cap Limits and Performance Drag
Even if the market performs well, policyholders don’t receive full returns due to cap rates. This limits growth potential.Slow Early Cash Growth
IULs often start slow in building cash value. Add in high fees and rising insurance charges, and it takes longer to break even.Unreliable Long-Term Performance
IUL illustrations often paint an optimistic picture, but real-world results rarely align with it. The lack of guarantees makes it harder to predict outcomes.
When an IUL Might Still Work...
With proper design, such as allocating significant funding and minimizing the death benefit, IULs can be optimized for early growth in cash value. However, this approach requires experience and ongoing attention to loan management and policy structure, which I rarely see the issuing agent do for the client. Heck, Many have left the industry, or are impossible to track down, ultimately leaving me as the bearer of bad news. This has been my personal experience when reviewing a client who was sold an IUL Policy as the “Silver Bullet” in BYOB (Becoming Your Own Bank) without understanding it themselves, leaving these policies to underperform and erode their hard-earned liquidity.
Why Custom Whole Life Wins for IBC
For those serious about using life insurance to create a private banking system, Custom Whole Life offers:
Fixed Costs: No surprise premium hikes.
Guaranteed Growth: Your policy’s cash value grows steadily.
Dividend Opportunities: These enhance growth further over time.
Simplicity: Easy to understand and maintain with low risk of lapse.
Final Closing Thoughts:
If you plan to use your policy as a source of predictable liquidity—whether for retirement planning, business funding, or legacy building—stability is crucial. While IULs may appear attractive due to their flexibility and growth potential, they also come with added complexity and risk. Custom Whole Life, on the other hand, offers the consistency and control that most Infinite Banking users are seeking.
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