With so much economic uncertainty, sometimes it can be difficult to fund the things in your life that are important to you, including your IBC whole life insurance policy. However, there may be a way that you can make up for the lost ground.

The “Catch Up Provision” in the PUA rider of many whole life policies allows you to catch up with missed PUA premium from prior years. This is a critical feature with whole life insurance and, more broadly, Infinite Banking.

There are times when we need to roll with the punches and there will be times when funding an IBC whole life policy to the desired level may not be possible. With the catch up provision, we have options to minimize the lost opportunity cost of hard times.

Tune in to find out to learn more!

Episode Outline:

● (0:35) - Episode beginning

● (1:01) - How a catch-up provision works, the history of it and where it fits into your IBC policy

● (3:40) - “Taking over the banking function of your IBC policy”, how catch up provisions give you more flexibility

● (5:20) - “Where does the income go?”, catch up provisions give you flexibility and options

● (9:14) - “Should you prioritize maxing out your PUA rider, or repaying a loan?”

● (10:58) - Is there such a thing as a “correctly designed policy”?

● (13:52) - Common question: “Which company has the best PUA catch-up provision?”, how insurance companies update their products

- Episode number 56,

Understanding the Catch Up Provision

of a Life Insurance Policy

and How That Applies to the Infinite Banking Concept.

So in this episode,

we'll talk about what a catch up provision is, how it works,

and how it can be a very important component

to a policy structured to implement

the infinite banking concept.

(hopeful music)

- Hello everyone, This is John Montoya,

- And this is John Perrings.

- We are infinite banking authorized practitioners

and hosts of "The Fifth Edition."

Awesome.

Well, this will probably be a pretty short

but informative episode.

This is not something

that typically gets a whole lot of mention,

but I think it can be really impactful

for IBC policy owners to really understand how it works,

and to, for their situation, maximize the full benefit

of the PUA rider when they do have a catch up provision.

So this is basically how it works,

some but certainly not all life insurance companies

will allow unused paid-up additions

to be carried over to the following policy year

thus creating a whole life policy

that really acts more like a savings account

where you have the freedom to save additional capital

into your policy on your own schedule.

Now, this feature of a PUA rider is a more recent update,

having this catch up or carryover provision

within the PUA rider.

And when I say recent, keep in mind whole life policies

have been around for over 150 plus years.

So when I say recent, you know,

it's really over the past decade or so

that we've started to see insurance companies

make this PUA rider provision more flexible

for policy owners.

And I'll add that, you know,

it really wasn't until Nelson's book,

"Becoming Your Own Banker," the black book,

which all of you really should have a copy and reread every,

I'd say, you know, 6 to 12 months, read a chapter.

But this is the book that really started to promote the idea

of broadly overfunding your whole life policy

and especially that PUA rider to create

immediate cash value growth.

But back to the catch up provision,

most life insurance companies, you should be aware,

they still restrict the period

of PUA contributions to one year,

it's what I call a use it or lose it type feature.

So you gotta be very cognizant

that you are maximizing this rider each and every year

because not all of 'em allow you

to take that unused PUA contribution

and carry it over to the next policy year,

so that's why I call it the use it or a lose it.

Ideally for IBC policy owners,

in order for you you to be most effective

in capitalizing your policy, it is a nice provision to have,

but it's certainly not a make or break.

If Nelson were around,

I mean he'd tell you (laughs) there was no such thing

as a carryover or catch up provision

with his whole life policies when he started doing,

you know, what essentially was IBC with his IBC policies

decades ago, this didn't exist,

so it's not like you absolutely need this

in your IBC policies, but knowing that it is out there,

certainly is a benefit that is a nice to have.

- Yeah, totally agree.

And, you know, it's one of those things that allows you to,

it's not required,

but it does give you some additional flexibility

to really take over the banking function, right?

And so another little kind of caveat to understand

about the catch up provision

is when you take advantage of it,

you're going to, and, you know,

there may be some carriers that do it differently,

but in general, you're going to have to pay

all of your current policy year's premium

before you can take advantage of the catch up provision.

Otherwise, you know, the insurance companies

would always sort of be in a position

of like being in arrears with the PUA that you pay,

and so that becomes difficult

for the insurance companies to plan for that.

So like for instance, if you have $10,000 of catch up money

from the previous year that you didn't pay

and paid up additional life insurance,

and you have, you know, as part of your scheduled premium,

$10,000 for the current year,

well, you're gonna need to pay that $10,000

for the current year and any additional room

that you, quote, unquote, "room"

that you have in the policy for PUA for that current year,

and then if you still have capital leftover,

you can then go back and take advantage

of that catch up provision,

but there, it's not gonna be one of those things

where you can sort of sandbag it (laughs),

you know, and do the catch up provision first

and then pay for your current policy year's PUA.

But what it does allow you to do

is really have the additional kind of structure or,

you know, an easy way to think of it is just room

inside your policy that can accept income

that's coming through the implementation

of the infinite banking concept.

So if you've gone through and created your IBC policy

and now you're strategically accumulating capital,

what do you do with that capital?

You can either buy liabilities that we're gonna, you know,

redirect some of the interest that you would,

you're going to pay for that liability,

and that will go back into your system,

your financial system, so that's,

we need room in the policy to do that,

or we're gonna buy assets

that will also create hopefully an income.

Where does that income go?

There's a certain amount of that can go in the policy

in any given year if it's structured in the way that,

you know, John and I typically structure policies,

but then what if you hit a windfall, right?

Where you have a larger lump sum that comes your way?

Can your policy accept a windfall?

And that's, a lot of times where this catch up provision

can come and be very useful where you've got a lot more room

to work with it in the case where you experience a windfall.

- Yeah, I think also where it's helpful

is for business owners who have fluctuating incomes

where maybe one year they don't maximize

the PUA contribution,

and so it carries over to the following year,

or maybe depending on the policy,

to the third year or the fourth year,

and cumulatively you have the ability

to catch up on the unused PUAs.

So that's, it's ideal for business owners

but also too for wage earners

who potentially have the ability

to receive a large year-end bonus,

well, maybe some years, you know,

your bonus isn't what you thought it would be,

but in other years it is.

Well, if you have this catch up provision,

it does allow you the room and the ability

to catch up from previous years.

So it is definitely a nice extra feature to have

within your policy for sure.

- Or, you know, I can give you a personal example,

when I changed careers and got into this business from,

you know, as a lot of you know,

I was in the tech industry for a long time

and then I got into this business,

well, there was a period of time where, you know,

it takes a while to get a business up and running,

and so I was only paying the base premium

for a period of time

because I just didn't have the income to,

you know, fully fund my policy.

And, you know, now I'm in a position,

well, really starting more like a year or two ago where,

you know, the income was starting to happen,

and so now I had the ability to go back

and take advantage of that catch up provision, you know,

fully fund my policy for the current year,

and then I was able to go back and catch up

for the year or two that I didn't,

you can only go back a year

but there was a couple years where I was not able

to fully fund the policy but I was able to go back one year

and catch up with that piece of it.

So, you know, again, if COVID taught us anything,

it's nice to have options.

A lot of people are experiencing layoffs right now

in the tech industry.

And so just having a structure that allows you

to go back in time a little bit and sort of catch up

which is (laughs) the catch up provision,

catch up with what you missed out on

because you just needed the flexibility

to not have to do it at that time.

Now of course you're not going to be earning

any kind of growth on the PUA from the previous year, right?

You're not catching up on any type of growth

that would've happened,

but it just allows you to at least catch up

with the principle that you are, you know,

capitalizing inside your policy.

- Now, one of the questions that I've received

over the years is in regards to should you prioritize

maxing out the PUA rider or repaying a loan?

And I think that's a pretty good question

to share with all of you.

My rule of thumb is

if you have the ability to contribute additional capital,

you should prioritize the PUA rider first,

first maxing out your current year,

and then obviously any unused PUA beyond that.

And the reason for my thinking on this to prioritize,

making the contribution to the PUA rider

before repaying a loan is pretty simple.

There is no schedule for loan repayments

when you take your policy loans.

You can pay that back, I always say,

over two months or 10 years

or potentially if you're using it for income later on,

never at all,

but with the PUA rider as we've discussed,

there is a time limit where the life insurance companies

will essentially at the most extreme level

use it or lose it in your current policy year

or there's gonna be that catch up provision,

but even then it's not, you know, you can catch up forever.

Most of the companies out there will limit

the catch up provision to a number of years,

and that may be up to a handful of years.

But that's the reason why I always say,

if you have the option of contributing to the PUA rider

or repaying the loan,

I will recommend to maximize the PUA rider first

because you have a much longer runway to repay a loan.

- That's a great point.

And, you know, this just gets into the options

that we always talk about.

And, you know,

when we design a life insurance policy for IBC,

there's a lot of hype and noise out there

about what's a correctly designed policy.

And I think, you know, we take the stance,

there's no such thing

as like a truly correctly designed policy

other than what's correct for the insured

or the policy owner,

but there are some principles that we work on

that I think are important to discuss,

you know, one of the tradeoffs, you know,

you'll hear people talk about maxing out the PUA,

and that's the main focus of their policy design,

which is really kind of a one size fits all approach,

number one.

And number two, there's very significant offs,

if you max out the PUA in those early years of the policy,

what you're doing is you're taking up all of the room

where your scheduled premium is using up

all of the PUA payment capability,

including the catch up provision

because everything is going to be maxed out completely

as part of your scheduled premium payment.

So you'll really already have kind of filled that bucket up,

and you won't have, if you pay your scheduled premium,

you won't really have any room to address

what do you do with income, you know,

and what do you do with windfalls,

so I think it's a really important thing

to think about in terms of like designing a policy

where you create the scheduled premium

as what you want to have happen as your ideal scenario

and what you can commit to for a long period of time,

and then building in that room

so that you can take advantage of some of these options

and kind of either roll with the punches

or take advantage of opportunities as they come our way

without being locked into a certain kind of scenario where,

you know, the trajectory is already set.

When you use a policy designed the way John and I do,

you have that room to take advantage of those opportunities

and roll with the punches.

And if you do take advantage of the opportunities

and you do end up max funding this thing,

it ends up being a much much bigger policy

than what you even, you know, have on your illustration

because you're going to be contributing

all this additional PUA down the road.

- And that's a good thing 'cause like we've said before,

you'll never be in a worst position

by having access to cash.

So definitely as much as you can, and, you know

capacity allows, you do wanna overfund your policies,

and if you have the provision,

take advantage of it as much as possible.

One final thought from me,

some of the listeners may be wondering

which company has the best PUA catch up provision,

and I want to answer that very carefully

because I think you and I both are on the same page

that the purpose of this show is really to educate

and promote infinite banking

and not in particular hit one life insurance company

as the best against all others.

I think doing so, you know, we see this happen quite a bit,

it's really shortsighted for a couple reasons,

one, it's, you have to realize that it's self-serving

to the advisor to steer potential clients their way

by marketing one company as the best.

And in truth, we wanna be agnostic and we truly believe

that there isn't one life insurance company

that is absolutely the best

because what it all comes down to

is your own personal situation.

And each company is going to underwrite

just a little bit different.

They're gonna have a little bit different product features,

and what's right for one person

is not necessarily gonna be right for the next person.

So we're not here to promote

the best catch up provision,

to pit one life insurance company over the other.

And also too, you know,

someone listening to this episode next week, next month,

or a couple years from now,

the information would be outdated

because life insurance companies do update their products,

if not on an annual basis, you know,

it's every couple years,

and they're gonna update their PUA rider,

and if the past is any indication,

these provisions are going to continue

to add flexibility to it.

So it's always a ever changing field

even in the life insurance industry.

Even as old as these whole life products are,

things do evolve over time.

- Absolutely. That's a great point.

And, you know,

one of the things that's constantly changing

is people's life expectancy, you know, so the,

that's just changing and people are living longer,

and so all the insurance companies

are updating their products, and things do change.

So I think, that's a great point,

and I think that probably wraps up

what we were gonna talk to

about the catch up provision today, John.

- I think it does.

- Well as always, if you like what we're talking about

and want to learn more about how it could apply

to your life specifically,

you can always head over to the fifthedition.com

and you can schedule an appointment right there with us,

no obligation, or you could get educated further

if you are one of those people

that likes to just get educated, educated,

we have a, an online course that you can take

that's a soup to nuts course on whole life insurance

as it applies to IBC.

All right, John, thanks a lot.