By adding a PUAR to your whole
life insurance policy, you front load it to
maximize its potential over the course
of your lifetime.
Disclaimer: The Infinite Banking
Concept® is a registered trademark of
Infinite Banking Concepts, LLC. Mass
Mutual is independent of and is not affiliated
with, sponsored by, or endorsed
by Infinite Banking Concepts, LLC.
Permanent life insurance, whole
life included, features a unique asset
that term life insurance doesn’t offer.
When you buy permanent life insurance,
a portion of your annual premium
is reflected in a built-in savings
account called cash value. You can
withdraw your cash value during your
lifetime, or you can borrow it from your
insurance company tax-free.
In addition to your premium payment,
your cash value also earns a
rate of return. Depending on the type
of permanent insurance you buy, this
rate of return may be calculated based
on sub-accounts or market indexes
(like with universal life insurance), or it
can be a guaranteed rate set by your
insurance company (like with whole
life insurance). The reason whole life
insurance is preferred for an infinite
banking system is that a guaranteed
rate of return helps protect your cash
flow from market volatility and promises
steady growth.
A Wealth Maximization Account
takes infinite banking with whole life
insurance two steps further than a typical
whole life insurance policy.
First, Wealth Maximization Accounts
utilize participating whole life
policies from mutually funded insurance
companies. Mutual insurance
companies work in the best interest
of the policyholders. When the company
is profitable, it extends these
profits to policyholders in the form of
dividends. So when you use a participating
whole life insurance policy
from a mutually funded insurance
company you not only earn a guaranteed
rate of return, you also have
the potential to earn dividends—further
growing wealth and supporting
a robust infinite banking system. The
mutual insurance companies we work
with at Mass Mutual have historically
paid out dividends for over 100 years.
Second, Wealth Maximization
Accounts are designed with paid-up
additions (PUA) riders that create
instant liquidity. A paid-up additions
rider allows the policyholder
to “overfund” their policy in its early
years to maximize growth and
supercharge the policy’s earnings
over the life of the account. The design
of the policy, specifically how
much PUA can be added, adheres
to the Internal Revenue Code Section
7702, which defines maximum
contribution level of a life insurance
policy without the growth being
taxed. (A Wealth Maximization Account
is also known as a 7702 Account
or a 770 Account.)
Since 1983, all life insurance policies
have had a requirement called
the 7-pay test. The 7-pay test measures
the amount of money paid into
a policy over the course of seven
years, relative to the amount of insurance
coverage or death benefit. If a
policy passes the 7-pay test, the cash
value grows tax-deferred and can be
accessed tax-free. If it doesn’t pass
the 7-pay text, it is classified as a
modified endowment contract (MEC).
Wealth Maximization Accounts tow
the line just below MEC classification,
far outperforming traditional whole life
insurance in terms of growth while still
receiving the same tax advantages.
Infinite banking is becoming increasingly
popular among American
families as people look for ways to
diversify wealth away from the stock
market and reduce exposure to market
volatility. Cash value whole life
insurance is a proven strategy for
growing and protecting wealth, and
one that has been used by banks
and corporations for decades.
While any cash value life insurance
policy could be used for infinite banking,
there is one type of policy structure
that reigns supreme when it comes to
optimizing growth with a guaranteed
rate of return and potential dividends.
So if you’re interested in how to start infinite
banking to help accomplish your
financial goals, here’s what you need
to know before you schedule a consultation
with an insurance agent.
When you purchase a cash value
insurance policy, it provides guaranteed
coverage for life, a death benefit
for your heirs, and a number of living
benefits for you. Those living benefits
typically include liquidity, policy loans,
increased cash flow, tax advantages,
and certain asset protections. When
you pay your insurance premium, a
portion goes toward your death benefit
(the face value of the policy) and
administrative fees. The remainder is
reflected in the policy’s built-in savings
account, called cash value.
Depending on what type of cash
value life insurance you buy, you cash
value grows based on one of the following:
A guaranteed rate of return (whole life)
Indexes, like the S&P 500 or Nasdaq
(universal life)
Sub-accounts selected by your
insurer, comparable to mutual funds
(variable life)
The type of cash value policy
you choose determines how much
risk your “bank” is exposed to. With
a universal or variable policy, growth
is linked to market factors. While you
might outperform the growth of a
whole life policy in some years, other
years could see your cash value stagnate.
If you’re looking for reliable and
predictable growth, a whole life policy
is best suited for infinite banking.
Participating Vs. Non-Participating
Whole Life Insurance
Just about any insurance agent will
happily sell you a whole life policy, but
not all whole life policies grow the same
way. While any will provide a guaranteed
rate of return, only participating
whole life policies earn dividends. A
participating whole life policy is one issued
by a mutual insurance company.
These types of insurance companies
prioritize their policyholders and pay
out non-guaranteed dividends in addition
to a guaranteed rate of return.
The mutual insurance companies
we work with at Mass Mutual have
historically paid out dividends for over
100 years. What’s more, dividends are
usually tax-free and can be used to
pay your insurance premium or even
buy additional insurance in the form of
paid-up additions.
The Paid Up Additions Rider
Insurance riders are supplemental
insurance that help customize your
policy to deliver maximum lifetime
benefits based on your financial goals
and your insurance needs. When you
start infinite banking, one of your priorities
should be to grow the cash value
in your “bank” as quickly and exponentially
as possible. The paid-up
additions rider allows you to do that.
In the early years of your policy, it
allows you to buy additional insurance
with premium payments that go directly
toward cash value. Once you earn sufficient
dividends with your participating
whole life policy, they can be used to
pay for your paid-up additions. This
feature is ultimately what allows an infinite
banking strategy to work so well
that its growth is comparable to gains
from mutual funds or qualified retirement
plans after their associated taxes
and fees. When your policy is structured
with a paid-up additions rider, it
functions more like a wealth building
strategy and less like life insurance.
The paid-up additions rider allows
you to supercharge your policy for rapid
growth and maximum wealth over
the life of the policy. It’s crucial to the
success of an infinite banking strategy,
so it’s imperative that you work with an
insurance agent who is familiar with
this type of insurance rider. They also
must know how to perform the 7-pay
test (adhering to Internal Revenue
Code Section 7702) to safeguard your
policy from becoming overfunded to
the point that it becomes a modified
endowment contract, or MEC, and
loses its tax-advantaged status.
You can access the cash value of
your whole life insurance policy at any
time, for any reason, including real
estate purchases, tuition, other investment
opportunities, business capital,
emergency expenses… you name it.
But to take full advantage of the Infinite
Banking concept, it’s best to use
your cash value in the form of a policy
loan rather than a withdrawal.
When you utilize the policy loan
feature of your whole life insurance
policy, your cash value continues to
grow in spite of the loan. Every dollar
you borrow still earns interest and potential
dividends. When you pay back
your policy loan, you recapture the
interest—not a bank. This is the backbone
of the Infinite Banking concept;
your wealth continues to grow, even
as you borrow against it. You are basically
borrowing from yourself.
Additionally, policy loans are taxfree.
You can use the interest and dividends
you’ve earned without paying
taxes on that money. Comparatively,
if you withdraw your cash value, any
amount over your basis—the amount
you’ve contributed in insurance premiums—
will be taxed.
In terms of paying back your policy
loans, you function as your own
banker and get to decide the payment
schedule. Any unpaid loans will be deducted
from your death benefit.
A participating whole life insurance
policy structured with a paid-up additions
rider—also known as a Wealth
Maximization Account™—is the best
tool for infinite banking. But it’s just the
foundation of your wealth strategy, not
where all your wealth is stored.
The Hierarchy of Wealth is an outline
for classifying assets in terms of
risk and control, offering the highest
benefit for each class (rate of return).
The more control you have over an
asset, the less risk you have. When
you start infinite banking with a Wealth
Maximization Account (WMA), you’re
getting optimal control, protection, and
a great return. Aim to put 15-20% of
earned income, or 6-24 months of living
expenses into the cash value of
your WMA to secure your foundation,
or Tier 1 assets.
Once you’ve established your
Wealth Maximization Account, you
can move on to higher tiers on the
Hierarchy of Wealth. Tier 2 seeks out
investments that offer control, collateral,
cash flow, and consistency. These
investments could include your own
personal development to make more
money, investing in your business, or
hard assets like residential real estate.
Tier 3 investments offer no guarantees
and no control, or are investments
where control is relinquished to
a professional like a financial planner or
broker. They provide higher returns, but
come with higher risk. Examples include
hard money lending against collateral,
or syndicated funds for hard assets
such as real estate or commodities.
Tier 4 investments also offer no
guarantees. These are speculative investments
where you risk losing 100%
of your investment. This tier comes after
at least 90% of your assets are in
their respective Tiers 1, 2, and 3.
When you employ the Hierarchy
of Wealth with a Wealth Maximization
Account as your foundation, it
will make you wealthy. It’s the opposite
of the approach most people take
with their wealth, where the riskiest
assets have become their financial
foundation. When a recession or market
downturn comes, most people risk
becoming financially wiped out, while
those with an infinite banking strategy
are able to take advantage of opportunities
and do very well.
Although participating whole life
insurance is the preferred vehicle of a
successful infinite banking system, it’s
important to understand your primary
goal isn’t the policy’s death benefit.
Yes, you’re buying insurance, but the
idea is to purchase the smallest death
benefit possible while contributing the
maximum-allowed amount by the IRS
and retain tax advantages. You’re using
insurance as your bank first and as
an insurance policy second.
Whole life insurance is substantially
more expensive than term life insurance
of the same face value, but with
whole life insurance, only a portion of
your premium is going toward paying
for the death benefit. The rest is in your
“bank” as cash value, earning interest
and dividends. Plus, where term insurance
is a “use it or lose it” financial
tool, participating whole life insurance
provides lifetime guarantees.
A Wealth Maximization Account
functions as your financial foundation.
Instead of cash sitting in a bank,
it will be in an account that earns a
greater rate of return. Unlike a qualified
retirement plan, it retains liquidity
and you won’t be penalized for
accessing your cash value, regardless
of your age or how much wealth
you’ve accumulated. If you need to
borrow against your insurance policy
to take advantage of a purchase
or investment opportunity, it comes
with a guaranteed loan provision, of
which you determine the pay-back
schedule. And when you pass away,
there is a death benefit payout.
A Wealth Maximization Account
by itself won’t make you wealthy. But
when you factor in the benefits, including
tax benefits, low costs, liquidity,
rate of return, protection from market
volatility, protection from creditors and
no limit to yearly contribution amounts
(like with a 401k), it’s easy to see why
executives, banks, corporations, and
wealthy individuals rely on the infinite
banking system to help grow and protect
their wealth.
Infinite Banking With
Mass Mutual
The expert Wealth Strategists at
Mass Mutual not only understand how
infinite banking with a Wealth Maximization
Account works, they own WMAs
themselves and have first-hand experience
using whole life insurance as a
financial foundation. They’ve worked
with thousands of clients to set up
participating whole life policies properly
structured to help them reach their
financial goals.
Schedule a free virtual consultation
with a Mass Mutual Wealth Strategist
today to find the right whole life
insurance policy to help you achieve
your financial goals.
