Traditionally, most whole life or Index Universal Life (IUL) life insurance agents advise clients in such a way mainly emphasizes the death benefit and/or living benefits of policies. If the death and/or living benefits are the focus, then the base or target premium of the policy will be the primary focus in terms of the cost of the policy. Emphasizing payment of only the base premiums results in a policy with a maximized death benefit and extremely slow accrual of the cash value over the life of the policy.
For instances, offering an IUL or traditional whole life policies as a college funding purposes and insuring an 8 year old child is simply wrong! 10 years later when the child is ready to attend college at age of 18, the surrender value of the policy available for access for withdrawal or loan may be in many cases less than half of the premium contributed to that child’s policy. Or even designing for an adult for retirement purposes, if the client is contributing only base or target premium without maximum or “overfunding” the policy, it does not build sufficient surrender value, in many cases, depends on the Carriers, it may not even be equivalent to the total premium paid first 10 to 15 years of the policy.
In contrast, the Personal Banking Concept approach is to design the policy for early high cash value growth and liquidity. This include a strategy that emphasizes what is called paid up additions (PUA). Simply put, paid up additions accelerate the accrual of early cash value within the policy and most cases, PUA and gains are 100% accessible tax free in form of a policy loans, typically 30 days after issuance of the policy. In addition, PBC policy design is for having ACCESS to the cash value and leveraging the the money into other wealth producing assets or reduce off high interest bearing debts. Thus you can become your own bank utilizing PBC policy.
For example: If someone had $1,000 per month to spend on life insurance, if the entire amount is applied to base target premium, this would purchase a larger death benefit with slower cash accrual. However, if PBC Policy strategy is applied, this amount could be divided 50% paid up additions, 50% base premium, thus accelerating the cash value growth as well as creating immediate cash access. Overfunding IUL policy is not the same as Paid Up Additions applied to participating whole life polices, especially in terms of accessibility and liquidity.