Does IBC Work for Older People?
Updated: Oct 13, 2020
"IBC" is the Infinite Banking Concept - the use of cash value optimized whole life insurance as a very safe storehouse of value and as a tool to finance your life. I also call it your Private Financing Solution.
The article below is by Robert P. Murphy
[Reprinted from the December 2018 edition of the Lara-Murphy-Report, LMR]
One of the most common questions we get from the public is whether IBC “works” or “makes sense” for someone who is older and/or in relatively poor health. People naturally worry whether the “pure cost of life insurance”—which is more expensive for older and/or sicker individuals, of course— at some point could make IBC impractical. If so, would it be better for people in this situation to take out IBC policies on others who are younger and/or in better health?
My short answer is: No. Generally speaking, IBC “works” for anybody. To a first approximation, the higher mortality rate of an insured party has two opposing forces that roughly cancel out, as far as IBC goes. On the one hand, to achieve a desired death benefit level, an older and/or sicker person will have to pay a higher premium. But on the other hand, since that person is more likely to die, the cash value of that policy at any moment will be higher, than an otherwise comparable policy for a younger and/or healthier person. (Think of it this way: the life insurance company would be willing to pay an older/sicker person more to surrender a policy of a certain death benefit, than it would pay to a younger/healthier person to surrender a policy of the same death benefit.)
Now it’s true that the growth rate of the cash value will—other things equal—be lower for the older/sicker person, but that is counterbalanced by the fact that there’s always a greater chance of such a person dying and achieving the death benefit earlier. Once you take into account all of the relevant variables, the true “financial value” of funding a whole life policy on different types of people isn’t directly dependent on the age or health status of the individuals being insured.
To sum up, in terms of the big picture, yes, a person who’s older/sicker will have to pay higher premiums for a certain amount of death benefit coverage. But those higher premiums will be associated with larger cash values too. The cash value will tend to grow faster for the younger/healthier person (other things equal), but the market value of having such a policy in force is correspondingly lower, since there is less chance of getting the death benefit. To the extent that one also wants to use a life insurance policy as a cashflow management system—i.e. if you want to “become your own banker” as Nelson Nash recommends—then the various forces largely cancel out. You can effectively implement IBC with a dividend-paying whole life insurance policy, regardless of the age or health status of the person being insured (assuming the person can obtain a policy in the first place).
Here are links to the highly detailed, two-part version of this article.
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