Skip to content

Are Big 1st Year Premium Dump-ins Good with Whole Life 4 IBC?

What if you have extra cash to dump-in a HUGE 1st year premium into a Whole Life insurance policy for infinite banking. Certain carriers even have a special to add a big first year premium. But is this optimal? Hutch explores how the extra death benefit needed for this rider may not be the optimal design and shows some other customized alternatives.

Timestamps & Resources Below:
0:00 – Intro to 1st year premium dump-ins
1:32 – The Single Premium rider written & in illustrations
3:11 – Comparing 1 Big Dump-in to breaking up over a few years
5:28 – Looking at different policies & the range of flexibility for additional premiums
8:11 – Isolating the short term IRR of the additional payments
10:05 – What if you had to borrow to do max-funding for 20-years

If you’d rather read the article, we made a quick transcript for you below:

Hey everybody. This is Hutch with And today we’re going to talk about first-year dump-ins into whole life. It sounds really great in theory, and we can always design it that way, but it may not be optimal for you. And that’s what this video is going to show you. Everybody has some kind of monthly number that they can put into a whole life policy that they know they can do no matter what, uh, A lot of times they have money stashed on the side and checking, savings, CDs. 

Maybe they sold a property. Maybe they got an inheritance, maybe they’re cashing out of stocks and they just want to sit on the sidelines for a little bit. And for whatever reason they want to do this kind of massive or this, uh, disproportionate dump-in the first year.

Well, what I can tell you is that the way that all whole life policies are designed and all insurance policies for that matter, uh, there’s a minimum and a maximum that you can put in and that’s based on how much death benefit is there. And oftentimes they’re trying to shrink wrap the least amount of death benefit around your cash.

So you can actually get the most robust cash value growth. And if you want to put in more the first year, Fine. We just need to raise the level of death benefit, which is, uh, the biggest determinant of the fees. Charges are commissions. Even if you are using term riders, uh, the death benefit is where most of that stuff comes from.

It’s not so much how much money you’re putting into the policy. It’s more so how much death benefit it’s buying, if that makes sense. And so we recently had a prospective client who came to us online. You know what I’m talking to this other group and they had this special policy that had a special rider that allowed for a first-year dump-in.

And I thought, well, that’s interesting. Uh, do they have some kind of proprietary, uh, private letter ruling with the IRS that allows them to violate these MEC limits more so than other carriers. And so we, uh, went into the lab and we started playing around with it to see how it worked. Uh, and so this is the other carrier that was, uh, Uh, recommended you could see that the annual premium was about $20,000.

The initial face amount is very, very small. And then there’s this lump sum of, and sure enough, it was a rider that allowed them to do this. You couldn’t do any more than the 20 in any other year, but you could, uh, do the 80. And what we saw was it actually raised the death benefit, uh, pretty substantially over the same policy with just $20,000.

You see, this is the initial premium of $20,000. The face amount is 37,000 compared to 117. But if you look at the total death benefit, and this is including the term rider and everything, you can see it’s about a $300,000 policy, but when you want to drop that extra 80 and it brings it up to basically a million dollars of a term rider that actually grows over the first seven years.

So what’s interesting is if we took the exact same cash flow, so a hundred thousand. Year one and then six premiums of 20,000. And then we just do an RPU just to, just to really make the thing maximum efficiency. And we compared that to 220,000 going in from what we found to be the best performing policy of 2022.

And by the way, if you haven’t seen our update of 2024’s best whole life policy, we really analyze the top four. These are some of the biggest oldest mutual companies in this video here. Uh, check that out when you have a chance, but take a look. When we looked at the best performer and we threw in the same 220,000 of total premium, but we feathered it in a little slower.

So we couldn’t fit the hundred all at once. And so we decided to shrink wrap a death benefit and then put in 55 year, 1 55 year two that’s total of 110. And then the other policy you’d still have 120. So we added an extra 10 in year three with 30, and then they’re equalizing, they’re both paying $20,000 premiums until year seven.

What you can see is that the first year dump-in – this a special rider, this gimmicky rider, it’s actually winning early cash value until about year nine, year eight. Things are pretty close and in year nine, you can see, that our feathered-in policy starts to pull ahead and you can even see the dividends are pretty close once we do the RPUs.

But then our policy starts really crushing on down the line. Total cash value. You get out all the way to year 25, you have an extra $87,000 of cash and extra $220,000 of debt. Simply by just feathering into, not some kind of special rider, but just a smaller policy, but allows for somebody to take that extra $80,000 dollars they had and put it in there.

Okay. This isn’t even totally optimal. Like you could, and you should pay as much as you can for as long as you can. I remember the rider didn’t allow him to do it. It really, you could do that extra 80 one time, and then it’s just straight twenties. But with our policy, you could actually do quite a bit, now anywhere in between you can do eight premium payments of $55,000, and then some. You see a bunch of wonky numbers going on down, and that’s really just because we’re bumping things right up to the IRS limits.

Another thing you can do is instead of the $55,000, it’s the same 220 going in over seven years, we just shrink wrap the death benefit a little bit further. So instead of a little bit over a million dollars to start with there’s 825,000, we do 45. 45 45. That’s 135,000 in the first three years versus there’s 140 in the, uh, uh, the first year dumping competition policy.

Uh, and then, so we add an extra 5,000 in the fourth year and then 20, 20, 20, just the same as this. And what you could see is by shrink wrapping the death benefit even further you actually ended up with more cash value instead of 590 year 25, you actually ended up with 600,000, and instead of 918,000 of death benefit, you have 930, so this was even more efficient.

So the only problem with doing the $45,000 policy is you have now shrunk your capacity. So you can only do 45,000 eight times. And that’s your top end here. And after that, you have smaller amounts you can contribute in the future. Then if you had done the 55,000, which you could do eight times and then bigger numbers, you also have more death benefit.

At the end of the study periods, you could see, you end up with hundreds of thousands more cash value and death benefit. If you allow yourself that capacity, and I know what a lot of you were thinking, like I got, I don’t know if I can do that. I don’t know if my income is going to grow. I don’t know if my real estate investments are going to work out and I don’t want to give myself too big of a bill.

Let’s just isolate the seven pays again of the 55,000 to show the efficiency of that extra payment in case you needed to borrow against the policy itself to do it, let’s just see how efficient they are. And if you could get comfortable doing it because what the first example, which was remember, we just did the 220,000.

Total dollars, which was the same as the hundred in the twenties. But with our policy, we feathered in 55,000, twice than 30 than 20, 20, 20, 20, 24 twenties total. What if we did the same policy? You see the million 11 death benefit million 11, and we did 55,000 seven times. Isolate those extra payments while they’re the same, the first two years, and then an additional 25,000 on top of the 30 to bring it to 55 and then an additional 35,000 over the twenties to bring it to 55.

So you would have paid an extra $165,000 and you would have gotten an extra 201,000. The 1 65 would have turned a 2 0 1. What was the rate of return of those payments while it was 4.1 to 9% and some of you are going okay. Well, that’s cool. But what’s important about that number is to remember currently you can borrow against these policies at three, sometimes even less, depending on how big your line of credit is.

But if you could get an extra percent arbitrage, why wouldn’t you do it. And end up with more death benefit, actually considerably more, at the end of, when you do the RPU at the end of the seventh year, you have just over a million dollars versus 1391. And then when you RPU the policy that you didn’t max fund, there’s only 570 of death benefit versus when you do max fun, that’s all buying PUAs.

So when you RPU it, there’s a lot of extra paid-up death benefit. In fact, over a million dollars worth. And again, if we fast forward over time, putting no payments into these policies, you end up instead of with 590, 2000 of cash value. After the 25th year, you end up with 1,000,050. So that’s a lot of extra stuff.

And I know you guys are saying well, but wait a second. What if I’m borrowing this stuff, remember that any time you can get the cash. These are PUAs you can cash them out and pay down loans. So, it’s if you could pick up extra arbitrage, why not? So if that works, then why stop there? So we can put in 55,000 eight times after that some wonky numbers, but we’re taking this thing up to the MEC limits.

And if we look at the end of year 21, you can see there’s 1.47, $8 million. If we subtract that, by 4 8, 4, 3 7 7, that’s what there would be in the 55,000. Uh, then we get an extra $994,000. Now that’s a big deal, because a lot of people are looking to find ways to get extra money into savings.

And we contend that getting $1 wearing multiple hats is the way to do it. If you didn’t have the cash flow, then you would borrow against the policy itself, continue to get lines of credit increase, or if you’re taking the policy loan, then that just automatically happens for you. And then you have all these extra payments to receive this extra 994,000 truth be told you feathered in an extra $569,000 using other people’s money.

But by doing so, you’re earning over 5% on that money. So if you could borrow at less than five, wouldn’t this be a good thing? Probably. So what if you could borrow at three? Keep in mind that with the policy at any time, if it seems to be a good deal, you could do an RPU or reduce paid up.

And you could also use the RPU to just take out your loan too. But if it’s working, why not continue in this way? Not only end up with extra cash value but extra death benefit. So what did we learn here? Well, it’s the same thing I always tell you guys. One is – always double-check the rhetoric with math. And the other one is one of my favorite sayings.

There’s no deals in insurance –  everything’s priced perfectly. So when you hear this thing, like our company does this gimmicky thing where you have a special rider where you can do a first year of dump-in, it’s the tax code. They don’t have any kind of proprietary exception on the tax code. And so there’s a better way to accomplish what you’re looking at.

That’s when you need a team to help you test and measure these assumptions to help you arrive at the most optimized situation. And if you have a first-year dump in to put into whole life, great. Awesome. That gives you a lot of flexibility, but maybe there’s a better way. Sure, if you want to, we can build you that much death benefit, but if you don’t keep funding at that level, it’s just not going to be as efficient as if you did something that maybe you feather it in just a little bit slower.

Also you learn that if you’re going to create a big enough policy to handle these dump-ins, you want to do them as long as possible, even if you have to borrow against the policy equity itself, whether that be the policy loan, or if you can get a lower interest rate line of credit, go ahead. These are PUAs once you pay them, no further payments are due.

And if for some reason you want to extinguish the loan, great. You can go ahead and surrender the PUAs to do it.

People hear the word borrow in debt and they freak out. But remember, if you have a corresponding asset that’s growing for you at greater than the rate that you can service that debt at, and you can extinguish that debt at any time with that asset, are you really in dept?

I would say, no. I hope this helps. If you want help looking at some customized specs for your situation, we’re happy to run the top two, three companies, whatever you need to see. And as long as you want to work with us and write the business with us, we don’t really care which company you choose. Hope to talk to you soon! 


John “Hutch” Hutchinson, ChFC®, CLU®, AEP®, EA
Founder of