Properly Structured Whole Life Policies: An Industry Insider Reveals the Truth

Most insurance agents structure whole life policies the same way. They put your entire premium into base coverage, maximize their commission, and send you on your way with a policy that will underperform for decades.

There is a reason this happens in 95% of cases, and it has nothing to do with what is best for you.

This article reveals exactly how properly structured whole life insurance works, why most agents will never tell you about it, and what you need to know before purchasing your next policy.

The Problem With Traditional Whole Life Policy Design

When you sit down with a traditional insurance agent and ask about whole life insurance, here is what typically happens:

The agent calculates your premium based on your age, health, and desired death benefit. Let’s say that premium is $10,000 per year.

In a traditionally structured policy, 100% of that $10,000 goes into base premium coverage.

This creates several problems:

• Zero cash value in year one. Despite paying $10,000, your policy has no accessible cash value for 12 to 18 months.
• Slow cash value accumulation. Even after several years, your cash value remains a fraction of what you have paid in premiums.
• Low internal rate of return. The policy growth rate underperforms compared to what properly structured whole life insurance is actually capable of delivering.
• Maximum agent commission. Base premium generates roughly 100% first year commission for the agent, meaning they earn $10,000 on your $10,000 premium.

This is why critics like Dave Ramsey attack whole life insurance. But their criticism is fundamentally dishonest.

What Is Base Premium and Why Does It Matter?

Every whole life insurance policy has base premium. This is the minimum amount you must pay to keep the policy in force.

Base premium primarily purchases death benefit coverage. While it does eventually build cash value, the process is slow because so much of the premium goes toward:

• Cost of insurance charges
• Company overhead and expenses
• Agent commissions (approximately 100% of first year base premium)
• Mortality costs

In a traditional policy design, 100% of your premium is base. This means 100% of your money flows through the most expensive, least efficient part of the policy structure.

Barry Brooksby, our Senior Advisor with over 25 years of experience in infinite banking, explains it this way:

“Most insurance agents or advisors will take someone’s full premium and only put it into the base portion of a policy. The problem with doing this is you end up with a policy I call less efficient or less effective. You are primarily buying a lot of life insurance death benefit. There is zero cash value in year one, and then very slow or little cash value growth as time goes on. Unfortunately, this is how most life insurance policies are designed.”

This is not how high cash value whole life insurance should work.

The Solution: Paid-Up Additions Rider

There is a better way to structure whole life insurance, one that flips the traditional model and prioritizes your cash value growth from day one.

Instead of putting 100% of your premium into base coverage, you can add a special rider called Paid-Up Additions (PUA) and redirect the majority of your premium dollars into this rider.

Here is how it works:

Using the same $10,000 annual premium example, a properly structured policy might allocate:

• $2,000 to base premium (20% of total premium)
• $8,000 to paid-up additions rider (80% of total premium)

This 80/20 structure creates dramatically different results:

• Immediate cash value. PUA premiums create instant cash value (minus a small load fee of 4% to 9%).
• Accelerated growth. The additional insurance purchased through PUAs earns dividends immediately, creating compound growth.
• Higher internal rate of return. Your policy can now deliver 4% to 6% net returns instead of the anemic performance of base-only policies.
• Lower agent commission. Because only $2,000 is base premium, the agent earns roughly $2,000 in first year commission instead of $10,000.

Steve Gibbs, our CEO and Co-Founder, describes the PUA rider this way:

“If the policy is a properly structured cash value policy and the policy itself is the engine, the paid-up additions rider is like the power cell. It maximizes every piece of the policy. Without a paid-up additions rider, you do not have that power, you do not have the energy to really move the policy forward like it could be.”

For a comprehensive breakdown of how PUAs work mechanically, see our detailed guide on paid-up additions for whole life insurance.

How Properly Structured Policies Create Superior Results

The difference between traditional and properly structured policies becomes obvious when you compare cash value accumulation over time.

Traditional Base-Only Policy (100% Base Premium):

• Year 1: $0 cash value
• Year 5: Approximately 30% to 40% of premiums paid
• Year 10: Approximately 60% to 70% of premiums paid
• Year 20: Cash value finally catches up to premiums paid

Properly Structured Policy (80/20 PUA/Base Ratio):

• Year 1: Immediate cash value of 70% to 80% of premiums paid
• Year 5: Cash value exceeds premiums paid
• Year 10: Cash value significantly exceeds premiums paid, with accelerating growth
• Year 20: Compound growth creates wealth accumulation that base-only policies cannot match

The PUA rider creates what we call a snowball effect. The additional insurance earns dividends, which purchase more paid-up additions, which earn more dividends, creating accelerated compound growth that traditional whole life policies simply cannot achieve.

The Commission Truth: Why Agents Do Not Tell You About This

Now we arrive at the uncomfortable reality that explains why 95% of whole life policies are structured incorrectly.

Agent commissions on base premium average approximately 100% of first year premium. Some carriers pay as high as 110%. This means an agent selling a $10,000 annual premium policy earns $10,000 to $11,000 in first year commission.

Agent commissions on PUA premiums average approximately 2% to 4%. This means an agent earning commission on $8,000 of PUA premium receives only $160 to $320.

Let’s do the math on our example policy:

Traditional Structure (100% Base):

• Base premium: $10,000
• Agent commission: $10,000 (100%)

Proper Structure (80/20 PUA/Base):

• Base premium: $2,000
• PUA premium: $8,000
• Agent commission: $2,000 + $240 = $2,240 (22.4%)

The agent earns $7,760 less on the properly structured policy.

This is not a minor difference and you might be starting to understand why finding agents who design whole life properly are hard to come by.

Barry addresses this directly:

“The base premium is really where the commission is. People get worried about how much the advisor is going to be paid, a lot of it is in base premium. So the paid-up additions for this kind of thing, yes, the agent is actually getting less commission on that than if you were doing all base premium. That is correct. And because of that, less commissions paid out, more cash value is there for the client to have.”

Beyond Commission: Why Agents Do Not Understand This Structure

The commission problem is significant, but it is not the only reason most agents structure policies incorrectly.

Many agents simply do not know this alternative exists.

Insurance licensing education focuses on basic policy mechanics, state regulations, and sales techniques. Advanced policy design, particularly for infinite banking applications, is not part of standard training.

Most agents learn policy design from:

• Their agency’s training program (which emphasizes traditional structures)
• Carrier illustrations and software (which default to base-heavy designs)
• Senior agents and mentors (who learned traditional methods)
• Industry conventions and continuing education (which rarely cover advanced design)

Barry explains:

“Most advisors do not understand this structure, they are not familiar with it. You want to be talking with an expert. You want to make sure that you are using the right company, the right structure. It is very important to make sure day one you have a properly structured policy moving forward throughout the rest of your life.”

This creates a problematic situation where well-intentioned agents, who genuinely want to help their clients, simply lack the technical knowledge to design policies correctly. They default to what they know, which is the traditional base-heavy structure that their training emphasized.

For more on selecting the right carriers for properly structured policies, see our guide to the best dividend paying whole life insurance companies.

How to Design a Properly Structured Whole Life Policy

Understanding the problem is one thing. Implementing the solution requires specific knowledge about policy design ratios, carrier selection, and strategic use of additional riders.

Optimal PUA to Base Premium Ratios

There is no single “correct” ratio for every situation. The optimal structure depends on your age, health rating, premium budget, and financial goals.

However, these are the most common designs we use at Insurance and Estates:

PUA/Base Ratio	Best For	Early Cash Value Performance	Use Case
60/40	Conservative approach	Good	Clients who want higher death benefit with decent cash value
70/30	Balanced growth	Better	Standard infinite banking implementation
80/20	Maximum early cash value	Excellent	Aggressive banking strategies, real estate investors
90/10	Extreme cash accumulation	Superior	Business owners, high income professionals needing maximum liquidity

The 80/20 and 90/10 ratios are most common for serious infinite banking practitioners. These structures maximize early cash value accumulation, which is essential when you plan to use policy loans for investments, business opportunities, or alternative wealth building strategies.

The Role of Term Insurance Riders

One challenge with aggressive PUA ratios is the Modified Endowment Contract (MEC) limit. The IRS restricts how much money you can put into a life insurance policy relative to the death benefit.

If you exceed the MEC limit, your policy loses important tax advantages.

This is where term insurance riders become valuable. By adding a small amount of term coverage to your policy (typically for 7 to 10 years), you can increase the death benefit, which raises the MEC limit and allows more PUA premium without crossing into MEC territory.

Barry explains the strategy:

“Sometimes we will add an additional term insurance rider, and the term rider can raise the MEC limit. So if someone says they want to put in an additional lump sum in the very first year, more than likely that lump sum would MEC the policy. But we can add a term insurance rider, which either has no cost or very little cost to it for roughly seven years, and then the MEC limit is raised. They can get that extra cash into the policy.”

The term rider costs little to nothing, drops off after several years, and allows significantly higher PUA contributions during the critical early years when compound growth matters most.

For detailed information on MEC rules and how to avoid triggering MEC status, see our comprehensive guide on Modified Endowment Contracts.

Selecting the Right Insurance Carrier

Not all insurance companies offer robust PUA riders. Some carriers limit how much you can contribute through PUAs. Others charge excessive load fees that diminish the benefits.

The carriers we work with at Insurance and Estates share these characteristics:

• Mutual company structure. Only mutual insurance companies pay dividends to policyholders. Stock companies pay dividends to shareholders instead.
• 150+ years in business. Long operating history indicates stability and conservative management.
• High financial strength ratings. We work exclusively with carriers rated A or better by major rating agencies.
• Consistent dividend payment history. Look for companies that paid dividends every year, even during the Great Depression and 2008 financial crisis.
• Flexible PUA riders. The best carriers allow high PUA contributions relative to base premium.
• Reasonable load fees. PUA load fees should range from 4% to 9%, not the 15% to 20% some carriers charge.

Companies like Massachusetts Mutual, Penn Mutual, and Guardian Life have strong track records for infinite banking applications. Each has specific strengths depending on your age, health rating, and premium amount.

For a comprehensive carrier comparison, see our analysis of the top 10 best infinite banking companies.

The Strategic Advantages of Properly Structured Policies

Once you understand how policy structure affects performance, the strategic advantages become clear. A properly structured policy with aggressive PUA ratios creates opportunities that traditional policies cannot match.

Immediate Liquidity

Traditional whole life policies trap your money for years. You pay premiums for 5, 10, even 15 years before you have meaningful cash value to access.

Properly structured policies create immediate liquidity.

With an 80/20 PUA to base ratio, approximately 70% to 80% of your first year premium becomes accessible cash value within 30 to 60 days. This money is available for policy loans at any time, for any purpose, with no questions asked.

Barry describes the liquidity advantage:

“What is great about the paid-up additions rider is that money is liquid. Usually, with most companies, about 95% of your cash value is liquid to be used for policy loans. When you take a policy loan, they do not physically remove that money from your cash value, they put a lien against it. So in essence, your full cash value is still working for you, so there is no lost opportunity cost.”

This creates a powerful dynamic. You can access your money while it continues earning dividends and compound growth inside the policy. This is fundamentally different from withdrawing money from a savings account or 401k, where the withdrawn funds stop growing entirely.

Tax Advantages

Properly structured whole life insurance offers multiple tax benefits that traditional savings and investment accounts cannot match:

• Tax-deferred growth. Your cash value grows without annual tax liability.
• Tax-free loans. Policy loans are not considered taxable income under current tax law.
• Tax-free death benefit. Your beneficiaries receive the death benefit income tax free.
• No required minimum distributions. Unlike IRAs and 401ks, you are never forced to take distributions and trigger tax liability.

This tax treatment becomes increasingly valuable as your wealth grows. High income earners paying 37% federal tax plus state income tax can save hundreds of thousands of dollars over their lifetime by growing wealth inside properly structured policies instead of taxable accounts.

For more on life insurance taxation, see our guide explaining whether life insurance is taxable.

Creditor Protection

Many states provide strong creditor protection for cash value life insurance. This means your policy cash value may be protected from lawsuits, business failures, and bankruptcy proceedings.

The specific protections vary by state. Some states like Florida and Texas offer unlimited protection. Others cap the protected amount or limit protection to certain policy types.

Regardless of your state’s specific rules, cash value life insurance generally receives more favorable creditor protection than savings accounts, brokerage accounts, or real estate holdings.

For state-specific information, see our comprehensive guide to life insurance creditor protection by state.

Uninterrupted Compound Growth

Perhaps the most powerful advantage of properly structured policies is uninterrupted compound growth, even when you are using the money.

When you take a policy loan, your full cash value remains in the policy earning dividends and growth. The insurance company simply places a lien against your cash value and lends you money from their general fund.

This creates a situation where your money is working in two places simultaneously. Your cash value continues compounding inside the policy while you deploy the borrowed funds for investments, business opportunities, or major purchases.

Barry emphasizes this point:

“You can either let the money grow in the policy at say 5% net returns or go put it to use. And if you put it to use and keep that money in motion, you are going to ultimately create more wealth along the way.”

This is the core principle behind velocity of money strategies and why properly structured whole life insurance works so effectively for wealth building.

Real World Applications: How Properly Structured Policies Create Wealth

Understanding policy structure in theory is valuable. Seeing how it works in practice makes the concept concrete.

Real Estate Investment Example

Consider a real estate investor who structures a $50,000 annual premium policy with an 80/20 PUA to base ratio:

Year 1:

• Premium paid: $50,000
• Cash value available: approximately $40,000
• Takes $35,000 policy loan for rental property down payment
• Cash value continues earning dividends on full $40,000

Year 2:

• Premium paid: $50,000
• Total cash value: approximately $85,000 (including growth on Year 1 cash value)
• Takes $40,000 policy loan for second property down payment
• Now owns two rental properties generating positive cash flow

Year 3:

• Premium paid: $50,000
• Total cash value: approximately $135,000
• Uses rental income to repay policy loans with interest
• Policy loans are repaid, cash value is restored, cycle repeats

This strategy allows the investor to acquire multiple properties while maintaining a growing pool of capital inside the life insurance policy. The policy becomes a private family bank that funds investments while continuing to compound.

For detailed information on this strategy, see our guide on how to triple your real estate returns with infinite banking.

Business Owner Example

Business owners can use properly structured policies to create permanent working capital that remains available regardless of bank lending conditions.

A business owner paying $100,000 annual premium with a 90/10 structure creates approximately $85,000 in first year cash value. This money can fund:

• Inventory purchases during seasonal demand spikes
• Equipment upgrades without bank financing
• Payroll during cash flow gaps
• Marketing campaigns and business expansion
• Acquisition of competitors or complementary businesses

The business repays the policy loans from revenue, restoring the cash value for future use. Over time, the policy grows large enough to fund major opportunities that would otherwise require outside investors or bank loans.

This creates genuine financial independence. The business owner controls the capital, sets the repayment terms, and never surrenders equity or control to external financing sources.

For entrepreneurs and business owners, see our guide on infinite banking for entrepreneurs and business owners.

Retirement Income Example

Properly structured policies create tax-free retirement income that does not trigger Required Minimum Distributions, Social Security taxation, or Medicare premium increases.

A 40 year old who funds a policy for 20 years can begin taking tax-free policy loans at age 60. These loans provide supplemental income without the tax consequences that plague traditional retirement accounts.

Unlike 401k or IRA distributions that are fully taxable as ordinary income, policy loans are not considered income for tax purposes. This means:

• No federal or state income tax on policy loans
• No impact on Social Security taxation thresholds
• No increase in Medicare Part B and Part D premiums
• No required minimum distributions at age 73

The policy continues growing even during retirement, often outpacing the loan interest and maintaining or increasing the death benefit for heirs.

For more on this strategy, see our article on retirement planning with whole life insurance.

Red Flags: How to Identify Agents Who Do Not Understand Proper Structure

Once you understand how properly structured policies work, you can quickly identify agents who lack this specialized knowledge. Here are the warning signs to watch for:

The right questions to ask any agent:

• “What PUA to base premium ratio do you recommend for my situation and why?”
• “Which mutual insurance companies do you work with and why did you select them?”
• “How much of my first year premium will become accessible cash value?”
• “What is your commission on base premium versus PUA premium?”
• “Have you personally implemented infinite banking in your own financial life?”

These questions quickly separate knowledgeable advisors from order takers who simply run illustrations using carrier software defaults.

The MEC Limit: Understanding the IRS Constraints

One critical concept you must understand is the Modified Endowment Contract (MEC) limit. This IRS rule determines how much money you can put into a life insurance policy without losing important tax advantages.

The MEC limit exists because life insurance receives extraordinarily favorable tax treatment. The IRS does not want people using life insurance purely as a tax shelter, so they created rules that require a minimum amount of death benefit relative to cash value.

If you exceed the MEC limit, your policy becomes a Modified Endowment Contract and loses these benefits:

• Tax-free policy loans (loans become taxable withdrawals)
• Tax-free withdrawals up to basis (all withdrawals become taxable)
• 10% early withdrawal penalty applies if you are under age 59 and a half

The death benefit remains tax-free even in a MEC, but you lose the tax-free access to cash value during your lifetime.

Barry explains the MEC limit this way:

“At the top of this line is what is called the MEC limit, stands for modified endowment contract. It is an IRS rule the life insurance companies abide by, which simply says, yeah, you can stuff as much cash into these policies as you want, there is no limit, but once a policy is in force, now that in-force policy does have a limit. The goal is to get right up to the MEC limit, not cross it so that all your cash value growth is tax advantage, hopefully tax-free if you have done it correctly.”

The strategy is to fund your policy as aggressively as possible without crossing into MEC territory. This maximizes cash value accumulation while preserving all tax advantages.

If you want to put more money into policies than one policy allows, the solution is simple. Start multiple policies. There is no limit to how many policies you can own, and each policy has its own separate MEC limit.

For complete information on MEC rules, consequences, and strategies, see our detailed guide on Modified Endowment Contracts.

When to Add the PUA Rider: Timing Matters

One critical mistake people make is thinking they can add a PUA rider to their policy later. While some carriers allow this, it is not the optimal approach.

You should add the PUA rider when you purchase your policy, not after.

Here is why timing matters:

• Medical underwriting requirements. Adding riders after policy issue typically requires new medical underwriting. If your health has declined, you may not qualify or may face higher costs.
• Lost compound time. Every year you delay implementing proper structure is a year of lost compound growth. You cannot go back and recapture that time.
• Carrier restrictions. Some carriers will not add PUA riders after issue. Others severely limit the amount you can contribute if added later.
• Opportunity cost. Running a traditionally structured policy for several years before converting to proper structure means you miss the critical early years when aggressive PUA funding matters most.

The right time to structure your policy correctly is at the beginning, not after you discover you made a mistake.

If you currently own a traditionally structured whole life policy, you have options. Some carriers allow policy restructuring. In other cases, starting a new properly structured policy and maintaining both policies temporarily makes sense. In some situations, executing a 1035 exchange to move cash value from an old policy to a new properly structured policy is the best approach.

Each situation is unique and requires individual analysis.

How We Structure Policies at Insurance and Estates

Our approach to policy design differs fundamentally from traditional insurance agents. We do not work for insurance companies. We work for our clients.

Our process:

1. Understand your financial goals

We start by understanding what you want to accomplish. Are you building capital for real estate investment? Creating a family banking system? Funding business growth? Planning tax-free retirement income? Your goals determine optimal policy structure.

2. Analyze your current financial situation

We review your existing assets, liabilities, cash flow, and tax situation. This helps us determine appropriate premium levels and whether whole life insurance fits into your broader wealth building strategy.

3. Compare multiple carrier options

We are independent advisors who work with multiple top-rated mutual insurance companies. This allows us to compare carriers and select the best fit for your specific situation, age, health rating, and premium amount.

4. Design custom policy structure

We create custom policy designs with optimal PUA to base ratios, appropriate use of term riders to maximize MEC limits, and strategic dividend options. Every policy is designed individually, not run through generic software templates.

5. Provide transparent commission disclosure

We explain exactly how we are compensated, what commission we earn on base versus PUA premium, and why we recommend the structure we do. There are no hidden surprises or undisclosed conflicts of interest.

6. Educate throughout the process

We believe educated clients make better decisions. We explain how your policy works, how to use it strategically, when to take loans, how to repay them, and how to integrate the policy into your overall wealth building strategy.

Steve explains our philosophy:

“We are talking about things we are actually familiar with, that we actually do. You want to be talking with an expert. You want to make sure that you are using the right company, the right structure. It is very important to make sure day one you have a properly structured policy moving forward throughout the rest of your life.”

Our team includes specialists like Barry Brooksby, who has over 25 years of experience in infinite banking and has personally implemented these strategies in his own financial life. We do not just sell policies. We use them ourselves.

The Difference Between Product and Strategy

One final point deserves emphasis. Whole life insurance is a product. Infinite banking is a strategy.

The same product produces dramatically different results depending on how it is structured and how you use it.

A traditionally structured whole life policy with 100% base premium is a mediocre financial product that deserves the criticism it receives from financial commentators. It creates slow cash value growth, poor liquidity, and underwhelming returns.

A properly structured whole life policy with 80% to 90% PUA ratios becomes a powerful wealth building tool that creates immediate liquidity, tax-advantaged growth, and opportunities that traditional financial products cannot match.

The difference is not the insurance company, the policy type, or the underlying mechanics. The difference is structure and implementation.

This is why education matters. Once you understand how policy structure affects results, you can demand proper design from the beginning and avoid the mistakes that plague most whole life insurance buyers.

For foundational understanding of infinite banking principles, we recommend reading Becoming Your Own Banker by Nelson Nash, which explains the philosophy behind using whole life insurance as a wealth building tool.

Getting Started: Your Next Steps

Understanding how properly structured whole life insurance works is the first step. Taking action is the second.

If you recognize that traditional policy design leaves money on the table and you want to implement a properly structured policy, here is what to do next:

1. Schedule a strategy session

Our Pro Client Guides specialize in custom policy design for infinite banking applications. During a complimentary strategy session, we analyze your specific situation and show you exactly how proper structure would work for your goals, age, and premium budget.

2. Review your current policies

If you already own whole life insurance, we can review your existing policies and determine whether they are structured optimally. In some cases, restructuring or starting a new policy makes sense.

3. Compare carrier options

We work with multiple top-rated mutual insurance companies and can show you side-by-side comparisons of how different carriers perform for your specific profile. Not all carriers are equal, and the right choice depends on your individual circumstances.

4. Implement with confidence

Once you understand the structure and select the right carrier, implementation is straightforward. We handle the application process, underwriting, and policy delivery. Your job is to fund the policy and start building wealth.

Final Thoughts: The Choice Is Yours

The information in this article contradicts what most insurance agents will tell you. That is intentional.

We are not interested in defending the status quo or protecting an industry that often fails to serve client interests.

Traditional policy design exists because it serves agent and company interests, not because it serves policyholders. The commission structure rewards agents for putting your entire premium into base coverage, even though that structure produces inferior results.

Most agents are not deliberately deceiving anyone. They simply do not know a better way exists. Their training emphasized traditional methods, their mentors taught them traditional approaches, and their compensation structure rewards traditional design.

But you now know better.

You understand that policy structure matters enormously. You understand that PUA to base ratios determine whether your policy becomes a powerful wealth building tool or an underperforming asset. You understand why most agents structure policies incorrectly and what questions to ask to identify knowledgeable advisors.

Armed with this knowledge, you can demand better.

You can insist on proper policy structure from the beginning. You can work with advisors who prioritize your interests over their commission checks. You can build wealth using properly structured whole life insurance in ways that traditional policies simply cannot match.

The choice is yours. You can accept the traditional approach that 95% of agents use, or you can demand the proper structure that creates superior results.

We believe you deserve better. That is why we publish articles like this one, even though it reveals uncomfortable truths about our industry. Education creates better outcomes, and better outcomes for our clients are what we care about most.

For more information on implementing infinite banking strategies with properly structured policies, explore our comprehensive resource library:

• Volume-Based Banking: Our Proprietary Approach
• The Three Pillars of Wealth Creation
• The Ultimate Asset: Why Whole Life Insurance Belongs in Every Portfolio
• Cash Value Life Insurance: Complete Guide
• Whole Life Insurance Pros and Cons

Frequently Asked Questions