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Main Episode Description

The Paid Up Additions (PUA) rider is one of the most well-known components of an "IBC-Style" whole life insurance policy.

Most people think PUA = Cash value. And while it can look this way in an illustration, that's not exactly true.

In this episode, we'll discuss the often misunderstood PUA rider, base-to-PUA premium ratios, and how designing policies with PUA as the primary (or only) focus can lead to significantly constrained and smaller policies.

Tune in and learn to love the base (premium)!

Episode Highlights:

0:00 - Introduction

0:12 - Episode beginning

1:39 - What is a PUA rider?

3:01 - What does the PUA rider do for you?

6:33 - Designing a policy with a PUA rider

12:01 - The option to pay a premium for as long as possible

16:20 - “Short runway” policies

17:44 - PUA priorities

21:13 - Your options with paying premium

25:37 - One more thing about the death benefit

27:09 - Episode wrap-up

About Your Hosts:

Hosts John Perrings and John Montoya are dedicated to spreading the word about Infinite Banking so you can discover for yourself how you and your loved ones can benefit with a virtual streamlined process that will take you from IBC novice to sharing the strategy with friends and family... even the skeptics!

John Montoya is the founder of JLM Wealth Strategies, began his career in financial services in 1998 and is both an Authorized IBC® and Bank on Yourself® professional licensed nationwide.

John Perrings started StackedLife Financial Strategies after a 20-year career in the startup world of Silicon Valley where he specialized in data center real estate, finance, and construction. John is an Authorized Infinite Banking® professional and works nationwide.

Connect with us

If you'd like to see how to apply these principles to your specific situation, get in touch.

Schedule a free, no-obligation 30 minute consultation with us today!

Hello everyone.

This is John Montoya, and

this is John Perrings.

We are Infinite Banking authorized practitioners and

hosts of the fifth Edition.

Episode 66, PUA Writer Basics.

In this episode, we're gonna talk about paid up edition writer basics, the design

principles behind it, and also priorities when it comes to making a decision on

how to pay or when to pay your PUA.

John, let's kick this off.

Yeah, let's kick this off.

And as I mentioned last time, I recently attended the annual Infinite Banking

Think tank, the annual conference that the Nelson Nash Institute

puts on the Nelson Nash Institute.

Of course, being the organization that is the, really the source material

for all things Infinite Banking.

Conference, one of the themes we were talking about was gaining some clarity

on what's really happening out there and overcoming a lot of the noise that you

see in the financial industry in general.

And then more specifically and more recently with a lot of the

people that talk about Infinite Banking, A lot of them are not.

Authorized practitioners, they don't actually understand

the mission that we're on.

And one of the biggest problems that I see out there is the way that a lot

of the folks on YouTube, TikTok, et cetera, talk about the PUA writer.

And We thought it would be a good time to dig into that a little bit

and reiterate some of the basics of the PUA Rider and really understand

what's going on with the PUA Rider.

So first thing about the PUA Rider, what is a PUA rider?

It stands for paid up additional life insurance.

PUA paid up additional life insurance and.

The first thing to understand is a lot of people talk about PUA as if it's

this kind of separate cash component of a whole life insurance policy, as if

it's, like its own compartment inside a whole life policy in that you can

design to have more cash in a policy, and while you can design to have more

cash, it's important to understand the PUA writer is not a separate component.

Okay.

PUA Rider buys additional paid up life insurance.

PUA, Paid, Up, Additions.

So I'll just say it one more time.

What does that mean?

That means it buys more death benefit.

Okay.

And so it's really important to understand that little piece of it because we're

not creating a separate cash component.

We're buying more death benefit, but this death benefit happens to

be paid up, meaning no more future premium payments are due on this

little chunk that you're buying.

And it's that piece of it that's actually creating the possibility

to create more cash value in the early years of the policy.

That's what is actually creating the cash value.

And so what we find is that the PUA rider is the most important

from an IBC perspective.

When we're talking about capitalizing our system, the PUA Rider does a

lot for us in terms of creating some of that early capital.

Where, in the early years of a whole life insurance policy, we're paying for

a lot of the costs and the PUA Rider helps overcome some of those costs from

a cash value perspective and allows us to start capitalizing a little more quickly.

Yeah, and one thing I'll add there is that, When it comes to life insurance,

there is only one type of life insurance that you can actually, where you

can actually own the death benefit.

And the PUA writer is really illustrative of this because

when you contribute premium to this writer, you're essentially.

Buying equity in your own death benefit there.

There is no other type of life insurance policy that exists.

Not a term, not any flavor of Universal, where you get to own

equity in your death benefit.

And so what you're doing with this writer is basically buying your death

benefit and it creates instant equity that you can then, Use as collateral

for policy loans, which is, the basically the backbone of what we're

doing with IBC and Infinite Banking.

We're capitalizing.

If you understand that you can only own your death benefit with

a whole life policy you want to own as much of it as possible.

And what's the most advantageous way to expedite the owning of your death benefit?

It's through the PUA writer and only with the whole life policy do you get

this incredible benefit to really go out and buy up your own death benefit.

Actually lay claim to it every single time that you make a premium

payment to that PUA writer, you are controlling not only the death benefit.

The cash equity, the cash value in the policy that is a reflection

of that future death benefit.

So extremely unique and powerful.

And it's essential to really becoming your own banker.

And that's why, we do want to prioritize, especially in the early

years, that you take advantage of this writer because at the end of

the day, what are you trying to do?

You're trying to put yourself and your family in a better situation

and through this writer it happens.

In the short term and the long term it's really quite incredible when you

can accomplish two things at one time.

Yeah.

And you made a great point or a great distinction, you called

it a PUA premium payment.

PUA is premium.

It's buying death benefit.

And it's a really important and critical thing to understand that a

lot of people are getting wrong out there and they're really miseducating

a lot of people about what's happening with a life insurance policy and

what's happening with the PUA rider.

So as we're talking about how PUA is used and we're talking about, a couple

like mis misconceptions so to speak, of, what other people are saying about it.

So let's talk about some design principles, right?

So if, how should we design a policy with the PUA writer and.

Again, a lot of, I talked to some of the influencer people out there

that are talking about whole life insurance and their whole, really

all they're doing is cranking up.

To get maximum ca cash value.

That's the only thing they really understand about Infinite Banking is to

crank up the cash value to the maximum in the early years of the policy.

And I've said it before, I'll say it again.

If all things were equal, of course we would want that cash value

cranked up to the maximum that you can get in year one, right?

It'd be what?

It'd be awesome if we could just get a hundred.

Liquidity from, if we pay 10,000 in premium, we have

10,000 in cash value on day one.

Of course we'd want that.

Guess what though?

There's no such thing as a free lunch.

We're buying life insurance and if you pull a lever over here to create a.

An outcome of cranking up the cash value to the max in year one.

Another corresponding lever always goes up over there that will have some trade-offs.

There's always trade-offs.

There's no, there are no deals in the life insurance business or

the insurance business in general.

Everything's a trade-off between cost and risk.

And if you do something over here, you're gonna have a

corresponding trade off over there.

And the trade-offs for cranking up the early cash value are that you're either

going to have to pay up the policy early you're going to have to max out all the

quote unquote room in the policy where you have zero flexibility to expand

your system or you're going to have to introduce non guaranteed policy elements.

Create a situation where the policy will just blow up in the future and it

actually starts looking more like an IUL or UL type product where you've got

some rising costs of insurance extra premiums might be due in the future.

So all of those things might, will happen if you take that road or that

option to crank up the early cash value.

If we're practicing Infinite, Banking, what are we trying to do?

We're trying to capitalize and we're trying to build a bank, so to speak.

Do we want to build a bank?

That can only accommodate what we're doing today.

Or do we want to build a bank that can accommodate everything we want to do

in the future and give us the ability to open up new branches of our bank.

Right?

And that's if we're looking at a kind of simple goal of what we're trying

to accomplish with IBC from a design perspective, we want to design a policy.

Like it's the last one you can ever get because guess what?

It might be the last one you could ever get.

And so what's happening when people design these policies and

they crank up the cash value?

We don't know what your insurability will be tomorrow after you pay the

first premium on your first policy.

So you may never get the chance to expand your system.

And so it's very short-term thinking to crank up that cash value in the early

years, and it's a total misunderstanding of how the PUA writer works and what

the benefits of the PUA writer are.

I'll add that

if you don't really know how long you plan on working.

Meaning whether you're just entering the workforce in your twenties or you're

in your thirties, forties, fifties, and you don't have a crystal ball.

Let's face it.

Who does?

How long are you planning to work?

How do you decide?

I only wanna fund a policy for five years, seven years, 10 years.

The nothing in life is written in stone.

And if you're, In a position where you have to keep working or maybe you

really enjoy what you do and you want to keep working longer just cuz you

enjoy it and you have money coming in.

Where are you gonna direct that money?

And what we're trying to relay to you is that you need a place for your money.

And if you suffer from short-term, think.

And, you have the lens completely on.

I need to have the cash value cranked up in the first year you're completely

missing the bigger picture because you're gonna live a long time.

You get approved for a whole life policy.

Guess what?

The actuaries and the underwriters, they all agree that you're gonna make it out,

probably to your early eighties or longer.

You're gonna be around a long.

So all the money that you're bringing home after expenses, it's gotta go someplace.

And if you have a policy designed for you where you can only fund it for 5,

7, 10 years, what happens after that

point?

Exactly, or if you can only fund it.

If you've designed the policy to only accept your capabilities today,

your capacity today for capital, what happens in five years when your

capacity increases and you can no longer qualify for life insurance.

Also, so let's jump in and so if we're designing a policy.

Question I often ask, and I got this from Ed Slot.

He's a c p a guy out there and he does more IUL, so I don't really

agree with that, but he makes a great point using this line.

And he says, if you had a place to put money that.

Earned, I don't know, 40 times what it's gonna earn in a bi, in

a typical bank grew tax deferred, you could get to it tax free.

Has creditor protection provides a legacy of wealth for your family?

Like all these different benefits, would you wanna be able to only

put money there for a little bit of time or for as long as possible?

And so far, A hundred percent of the people that I asked that

question to say as long as possible.

So when we design a policy, we want to design it so that you

can, you have the option to pay a premium for as long as possible.

And the PUA writer, as we've been discussing, affects this.

If you.

Max out the PUA rider, it is going to significantly affect how long you can

pay a premium on an individual policy.

As John Montoya just mentioned, it may create a situation where you can't pay

any premium in, after year five or year seven, one of those, one of those two is

how it would typically pan out these days.

By the way, here we are at year, let's just say year five, your policy.

Just became cashflow positive.

You just overcame all the early costs of a whole life insurance policy, and

now you can't pay any more premium.

How in the world does that make sense?

It's like you just started a business, you just broke even, and now you

can't do anymore business, right?

Or you can't you can't expand that business at all.

You just, you're stuck with that one business.

So that's a.

That's a big deal.

And I really spend a lot of time talking to people about

understanding the very significant tradeoffs that the PUA writer has.

And so another trade off on this side of things is.

If you can pay for a longer period of time, you may not be able to

put any more PUA into the policy.

And so there's a lot of argument out there.

And they're all wrong cause they disagree with me, of course.

But if you have a, if you're practicing Infinite Banking and you

deploy capital from your whole life insurance via a policy loan, right?

And then you go buy an asset that creates, And then has a return on it.

Where are you gonna put that return if there's no room inside

your policy to fund any windfalls or any returns on your capital?

And that's a big deal.

It's if you're gonna practice IBC don't bastardize it and have this short

term thing where you get one chunk of money that's doing something for you.

On a strategic fashion, and then all the rest of your money can no longer

be used in a strategic fashion.

It's do you wanna be strategic or not?

That's the that's the question.

Yeah.

And if that resonates with any listeners out there that maybe have purchased a

policy that was funded for, or designed to be funded for 5, 7, 10 years, and you're

looking at your situation now, realizing that you need a longer runway to continue

funding premiums what's the solution?

The solution is well, Talk to an IBC practitioner first to

get your situation assessed.

But then from there you're gonna want to have a con conversation

about human life value, right?

Because you want to make sure that time is ticking and your

health today is not gonna.

The same five years from now, 10 years from now, 20 years from now.

So you wanna make sure that you're locking in your insurability to be able

to create your future policies if you're stuck with that short runway right

now.

Yeah.

And I should say, or we should say have we written short runway policies?

Yep.

And there's never a hundred.

Design criteria for everybody.

There, there is some uniqueness to everybody's situation.

For example, if you're in your seventies, sixties, or seventies, like it may not

make sense to have a really long runway for paying premium because you're, you.

It depends on where your income is coming from.

You may be on a fixed income type of scenario where you're, maybe

you wanna move an as move assets from a qual qualified type of

money into tax free forever money in the form of a death benefit.

And so there may be a limited runway to your ability to pay a premium.

So in some of those cases it could make sense.

So I'm I definitely wanna make sure.

As I get fired up about, the length of time to pay a premium, there could

be times where that could make sense.

But man, I tell you what, when I see these, policies sold to a 20, 30 or

40 year old who has so much, they're like, a 40 year old getting ready to

go into their maximum earning stage in their life, in their fifties,

and they're buying five pays, right?

Like craziness.

We've covered the P way basics.

And the PUA design principles.

How about we turn it over to PUA priorities?

And this is a question that I get every once in a while.

Do I have to keep funding the PUA?

Now when I get this question?

Yes.

Let me take that back.

You don't have to keep funding the PUA.

Remember, the PUA is optional, but does it benefit you to

keep funding the PUA writer?

Absolutely.

One of the things that we've said over and over on this podcast is

that you'll never be in a worst position by having access to cash.

So while this writer is.

If you have the income coming in, you got the cashflow.

You, you should absolutely take advantage of the PUA writer.

So you don't have to keep funding it but you should.

Now let's set out the priorities because the priorities will guide you as far as.

If you're stuck in a situation where it's the PUA writer or something else

let's just first say number one, as much as possible, you should with your cash

flow max out the PUA writer every single year, because again, you'll never be in a

worse position by having access to cash.

But number two if you aren't able to.

Maximize the PUA writer as much as you can.

Then you at least want to satisfy the minimum amount to keep your writer

in force for the next period, whether it's the next year or sometimes

on these whole life policies.

It's a rolling five year period.

So it's extremely important that, you know what the minimum.

To keep your PUA writer in force for the next year or the next

rolling five year period, cuz you don't wanna lose this benefit.

And then the third priority is when it comes to should I contribute

cashflow towards the PUA writer or should I make a loan repayment?

And my rule of thumb on this is that, The policy loans are open-ended.

We are our own banker.

We get to choose how much we want to repay the loan and the frequency,

whereas the PUA, as I just mentioned, you have a minimum amount to satisfy

each year or rolling five year period depending on the policy.

So there, there's really more of a clock that you have to be aware of and.

If you're having to decide between one or the other, I personally lean on

funding the PUA because I want to make sure I'm building that cash value and

it's, once it's there, it's compounding forever, and I can then have the freedom

and flexibility to make that loan repayment and continue to pay off that

loan over a much longer duration if

need.

Yeah.

And I like that as well.

And I think you know, it, you really just have to, that's the great thing about

IBC is like you can make the decision that's the best for you at the time

that you have to make that decision.

And let me talk about the option to pay PUA here for a second.

When we design a policy, we've talked a lot about designing a policy to

pay a premium for as long as you can.

For as long as possible, however, that needs to be understood.

In light of the fact that you can always opt to stop paying a premium.

You can always do what's called a reduced paid up, or you can

do a partial reduced paid up.

There's lots of options to stop paying a premium, but once you've designed

a policy that you can't pay any more premium, there aren't as many options

available for you to keep paying premium if your policy is designed the other way.

One thing I wanted to touch on with the optional PUA ability for the PUA

payment premium payment to be optional, something to understand is that one of

the trade offs of using the PUA to get cash value when you design the policy,

let's say you design a policy for a thousand dollars a month and you crank.

The, you crank up the way that breaks out to, let's say a hundred dollars

of base premium and $900 of PUA.

If anything happens, so this is another thing to think about

if anything happens where.

You come across a rough period of time and you need to, scale down your premium

payment and you reduce the amount of that PUA or even eliminate it altogether.

Your policy will not perform anywhere close.

To what was illustrated, especially if those PUA payments stop in the early years

of your policy because all of, almost all of the cash value, and let's just

call it the first five or so years, seven years, somewhere in that neighborhood,

almost all of it is coming from PUA at that point, and now seven years later.

If you haven't created that cash value by paying the PUA portion of

your scheduled premium you're now starting from a place that's way behind

where you were originally thinking.

And so it's super important to understand The PUA really has the most effect in

the early years, and what you'll find is that as you get older, the base premium

actually takes over and starts having a much higher effect than the PUA.

That's not to say we still don't want to pay PUA premiums though, because that PUA

premium is still doing a lot to increase.

It's just that it's not relative to the base premium.

It's not perf, it's not doing as much.

As the policy matures and you get older.

So that is one of the things that I wanted to touch on, in, in a, from a priority

perspective, is that if you, regardless of how you do it, if you want to go with

one of those people that cranks up your cash value in year one, you better just

make sure you're paying that PUA premium.

If you wanna work with somebody like us that has a more balanced approach

and understands the value of the base premium, you, no matter what

happens, your policy will perform closer to how it's illustrated.

If you have to stop paying and it'll blow.

High cranked up cash value PUA policy out of the water with the additional

room to expand your system in the future, blow it out of the water.

It's insane how much bigger the policy will be.

So that's the way we're approaching all of this, and it's important to

understand that, there are big offs to what we do with that PUA writer.

And Nelson said, don't be af don't be afraid to pay a premium.

That includes PUA.

And guess what?

That includes base premium too.

And so base premium is pretty good.

So anyway, I don't know if that what do you think of that, John?

Anything to add to that?

I love

that you added that last point because we're talking about the

PUA the priority of the PUA and what's the biggest priority of.

Paying that base pay premium.

Yes.

Yeah.

People come into this space with IBC and they get all excited about it and Yeah.

Wanting to take advantage of the Paid Up Additions writer and they

forget to value the base premium.

Yep.

That is absolutely true.

And you know what?

They also forget to value that death benefit, I'll add one more thing

about the death benefit you, when you crank up the PUA, another thing that's

happening is you're cranking up your total underwriting amount, and so you

could come into a situation where you've used up all of your insurability just

to have that PUA portion of your policy.

And so even if you do qualify in the future, if your system hasn't expanded

significantly, You still may not qualify for life insurance because you've used

up most or all of your insurability.

And so that just dawned on me as another point as we are wrapping up here, that

I think is important to understand.

So I think what you're saying is reach out and talk to a IBC practitioner.

Is that right?

I think so.

I think that would be a wise thing for for most people to do.

If they're interested in Infinite, Banking, connect with the organization

that created Infinite Banking.

Yeah.

And stands behind it.

And we'll we'll verify who is actually a legitimate practitioner too.

All you have to do is go to Infinite Banking dot org and you can suss

out if the person that you're talking to is actually a part

of the organization and in good

standing.

That's right.

Edith McDonald's, not McDowell's.

That's a Coming to America reference for the millennials and for the

youngsters out there.

Yeah, for the youngsters out there required watching for anybody out there.

Awesome.

This has been a great episode.

We kept it a little short this time.

We've been rambling lately, so it was nice to do a shorter episode.

This is good.

So if any of this is resonating with you and you'd like to find out how

this could pertain to you in your specific situ, You can always go to

our website, the fifth edition.com, and right there you can schedule a

free 30 minute appointment with us.

If you're one of those people that likes to do all your learning and

do all your research online before you talk to somebody, guess what?

We created an online course just for you, and you can get a 50%

discount to that course by going to www.TheFifthEdition.com.

It's right there at the top.

Awesome, John.

Good good topic today.

I agree.

All right, thanks, John.

Thanks everyone.