Roman (speaker) explains the trade-off between repaying policy loans versus capitalizing a whole-life insurance policy with paid-up additions. Using a detailed case study of a 45-year-old non-smoker paying a $35,000 annual premium (then $20,000 later), he compares two choices for a $15,000 windfall: (A) apply it to paid-up additions to permanently increase dividends, cash value and death benefit; (B) use it to accelerate policy-loan repayment and reduce interest paid. The paid-up-addition route yields higher long-term cash value and death benefit (examples: +$17,600 cash at year 12; +$105,000 cash & death benefit at advanced age; immediate death benefit increase ~$37,963). The accelerated-loan-repayment route reduces interest costs (e.g., interest paid $8,782 vs $11,759). Roman emphasizes timing constraints (paid-up additions generally must be done within about 12 months before the policy anniversary) and the principle from Nelson Nash: "never steal the piece."
Chapters
But if you miss this opportunity to put more money into the policy as paid up additions, then this opportunity is never coming back to you. You cannot catch up. You cannot make up for this lost opportunity to grow your cash in the policy. Hey Roman, I have a policy in force. I have a policy loan outstanding. I still have some space in my policy to capitalize this system and buy more paid up additions. What should I do first? Should I focus on paying off policy loan as soon as possible or should I first capitalize my system and buy paid up additions put my money to grow to address this question, I decided to show a real case example of someone putting $20,000 per year into a premium. At the same time this person has access to put more money into the policy. I'll show you in the example what it will look like if he does one thing over the other and what will be the financial result at the end of the year. Both approaches serve different objectives, different goals. When you really focus on not stealing the piece, Putting peas back on a shelf in your grocery stor. If you don't know what I'm talking about, read Nelson Nash's book. It is in a book. The objective is put the cans of peas back on a shelf. Don't never steal the peas. But at the same time, if you haven't capitalized your system enough, is it worth it? Do you want to put your money into capitalization first and then focus on paying off policy loans? There's a couple things to consider. How much time do you have to fulfill first objective? And how much time do you have to fulfill second objective? If you don't know because you are your own banker, because you have ownership and control over the repayment schedule, you are paying loans on your terms. You decide if you want to pay a loan in seven years or if you want to pay it off in one year, right? With paid up additions with extra deposit in the system, you only have, generally Speaking, up to 12 months until your next anniversary date in the policy. If you're paying policy loan longer than one year or two years, then it's fine. You have full ownership and control. You may end up paying a little bit more interest to the insurance company. But if you miss this opportunity to put more money into the policy as paid up additions, then this opportunity is never coming back to you. You cannot catch up. You cannot make up for this lost opportunity to grow your cash in the policy. Let's look at financial outcome. What it looks like if someone has a choice between paying enough policy loan or capitalizing Your system. In this example we have two side by side scenarios comparing apples to apples of a male, 45 years old, non smoker and he has a policy of $35,000 annual premium. He has flexibility, his maximum is $35,000, his minimum is about $9,000. As we can see, he' $35,000 for 5 years and then he actually dropping his contribution to 20k. Why? Because maybe his objective changed. Maybe because he has cash flow changed. He decided to drop it. Can he do that? Absolutely. Year six, he decided to buy a car for $50,000. He decided to pay it back in seven years and his monthly payment is $735 which comes to $8,823 per year. He has access to 90% of $205,000 which comes to about 180,000 dol. Borrow 50k? Absolutely. He can borrow 50k. He's paying it back in seven years. And then the interest, total interest paid is about $11,759. Just in two years after he actually took a policy loan, he has a dilemma because he has $15,000 a windfall and should I put it into policy loan repayment or should I actually maximize the potential of my paid up addition? He understands the importance of never stealing the piece. He wants to put it in a policy. But what type of payment should it be? Should it be policy loan repayment or should it be paid up? Let's look at that as we can see, his extra deposit, or extra windfall if you will, is $15,000. So in this example in the left scenario he is actually putting it as the paid up additions. In the right example, he's actually putting it in a policy loan repayment. So in the third year instead of 8823, he's put in $15,000 and his total loan repayment this year is 23,823. As you can see, because he has done that, his policy loan paid off sooner. So instead of seven years, he actually paid off his policy loan in only five years. And then instead of paying interest 11,759, he paid $8,782 interest to the insurance company which he owns. This interest is coming to the par fund from this par fund insurance company is paying him dividend. So the difference between interest paid to the insurance company in the first example where he pays back $11,759 interest example where he has extra deposit to pay the policy loan sooner, the difference is almost $3,000. I want you to remember this amount okay, in the second example, we are looking at putting this $15,000 into paid up additions. Can he do that? Yes, he can. And this is the impact that this transaction had on his cash values. Let us compare cash values and we will compare three columns. Column number one is annual dividend. Column number two is total cash value. Column number three is total death benefit. So as you can see, from the very first year of doing that, his annual dividend increased permanently. And each year after that the dividend is bigger. Compared to the other example, if he didn't do that, from year one, his dividend increased by $255 per year. Next year it is bigger because the dividend is being used to purchase paid up addition, total debt benefit increased. Now his total dividend next year is higher. So it is a permanent increase of the dividend. Second thing that is happening here is the total cash value increases. Let's look at year 12 where he actually paid off his policy loan. This year there's no more policy loan. He paid off his policy loan. Now he has $17,600 more cash value than in the second example where he used $15,000 to pay off his policy loan. As you can see, $418,000 cash value versus $400,000 cash value. This difference just increases because the compounding effect increases. And you can see that at the end of this table at age.
Death benefit and his total cash value actually increased by $105,000. If you think about this as a lost opportunity cost, in this example, he actually put this into policy loan repayment. But he lost opportunity to grow this $15,000 forever. He basically didn't maximize the potential of buying paid up additions. This year and next year this opportunity is gone. He cannot use it anymore again. Second thing that he missed on is growth of the cash value. What we can also observe here is the increase in the death benefit from year eight. From the same year that he put this deposit in, death benefit increased and the difference is 37,963. Again he has put 15,000. That's the extra deposit he's put in. And the death benefit immediately increased by almost $38,000. And as time goes by, this difference between the death benefit in one example and another scenario is becoming greater and greater. And by age 100, both the cash value and the death benefit are $105,000 more than in a second example where he did not use this capitalization. As you can see, just one simple transaction, one year of capitalization changes all the numbers in his cash values. And loan available and death benefit and dividend as well. I know this is a helpful example for you to understand why not stealing the piece is important, equally important and not being afraid to capitalize the system. If you want to learn more about infinite Banking, please go ahead and get a copy of Nelson's book and also go to watchibc.com that's watchibc.com and get access to instant on demand training on how to become your own banker.
