The Difference Between Base Premium and Early Cash Value

Have you heard about the Infinite Banking Concept, and you want to learn more? Or maybe you’re already using Infinite Banking, but would like to explain it better to your spouse, your parents, your children, business partner, or friends. https://www.youtube.com/watch?v=JD3NvQBiqaI In part 1 of our series on Infinite Banking, we're unpacking the basics of policy design and what that means. You can view the first part of the series here: What is the Infinite Banking Concept? Part 1. Here’s your cue to see what the fuss is all about… tune in now! Table of contentsWhat is Specially Designed Whole Life InsuranceWhat Makes it Different from Ordinary Whole Life Insurance?What is Base Premium?What Are Paid-Up Additions?What is a Mutual Company?What is a Dividend?What is the Difference Between the Policy Owner and the Insured?Roles Are FlexibleShould You Buy a Specially Designed Policy or an Ordinary Policy?Book A Strategy Call What is Specially Designed Whole Life Insurance What is Specially Designed Whole Life Insurance?The “special design” is dividend-paying, high cash value whole life insurance with a mutual company. This is the simplest definition, and we’ll break down the pieces and parts over the next few questions. This answer gives you something to come back to and ground yourself. What Makes it Different from Ordinary Whole Life Insurance? Essentially, ordinary whole life insurance is a basic policy that has a simple, non-optimized cash value component, and death benefit. With this type of policy, you only pay the base premium. A Whole life insurance product is a permanent, guaranteed insurance policy that lasts your whole life. However, if you are interested in using an Infinite Banking strategy, you’ll want to ask for a more customized policy. For example, you can either buy a policy with a stock company or a mutual company, which can affect your cash value growth. Similarly, you can also customize what you pay in premiums vs. paid-up additions, which affects your cash value growth. An “ordinary” whole life insurance policy may not grow cash efficiently, yet for Infinite Banking having a specially designed policy is important. What is Base Premium? The base premium is the minimum premium that you must pay in order to keep your policy in good standing. This premium is calculated by the underwriters who use actuarial science to determine your premium based on age, health, and death benefit amount.  Your base premium contributes to your cash value over time, just like mortgage payments contribute to your home equity. If you want to speed up your early cash value growth, you can add PUAs to your premium payments.  What Are Paid-Up Additions? Paid-Up Additions, or PUAs, are additional portions of insurance that you can buy fully paid up each year. This means that on top of the premiums you pay toward your base policy, you can buy a certain amount of additional coverage each year. This gives you additional death benefit, and it also gives you additional cash value.  When understanding PUAs, it’s important to grasp how cash value works. Your cash value is the equity of your death benefit, just like you build equity on your home. That means that as you pay your premium, you build equity on your insurance policy. Cash value is the accessible portion of your death benefit.  Additionally, your early premiums have a slow build-up. This is because the costs of your policy are front-loaded. So, at the beginning of your policy, your cash value won’t increase at a rate equal to what you pay. Though, over time, more of your premium will contribute directly to the cash value.  PUAs are like micro policies that you can tack onto your premiums each year, up to a limit. Your PUAs are a fully paid-up portion of insurance. This means that when you pay it, you’re directly increasing your death benefit and cash value. By adding PUAs to your base premium,