I've read through this, and a few other, threads in this forum about whole life, Paradigm Life (the company) and Infinite Banking. Lots of confusion. LOTS. I'll answer Mark Creason's question because he seems to be genuinely interested in this, and the least hostile (so far). Mark, good question.
DISCLOSURE: Before I go any further, I want to disclose that I have a life insurance license, am a Registered Financial Consultant, and my primary business is life insurance analysis. I call it insurance-based financial planning only because it involves more than just sales and I think it's probably more accurate of a description of what I do.
To answer your question Mark, the way you get 85% CV in the first year is typically using a specialized whole life contract called "High Early Cash Value" or HEVC. It's a particular contract type. Mass Mutual sells one called, wait for it, HECV Whole Life. The other way to get those high cash values is to do something called policy blending. Blending involves buying a basic whole life policy, adding term insurance to that policy, and using an insurer's "additional paid up insurance rider" to pay additional premiums to the policy.
Without getting into too much of the technical details, what this does is allow the insurance agent to design a policy that is heavily funded with premium dollars while simultaneously lowering the annual calculated costs within the policy (which can be verified by reverse-engineering the policy to break out the annual costs, cost per $1,000, etc).
And, what I discovered was that some of what the IBC folks say is true, some of it is hyperbole. I think the difficulty in this concept is that, if you ask 10 agents, you might get 10 different answers because there isn't one way to design a policy for high cash value. Some ways produce highER cash value than others, but it's very difficult for the consumer to know that in advance unless the agent is smart enough to show the internal costs of the policy.
In other words, all other things being equal, lower internal costs = higher cash values.
It also means far, far, lower commissions for the agent. In my case, for every $1,000 in premium on my own policy (yes I eat my own cooking), the commission is a paltry $74. On one of my client's policies, it's $68 per $1,000 of premium. Not even term insurance has such a low payout per premium dollar.
...which is why you'd be hard-pressed to find someone willing to sell you a policy like this without you paying him for his time.
To echo Thomas, yeah, you don't have to wait 5 years for CV accumulation. I used my policy in year 1 to finance my wedding. Worked just fine.
*****
To the whole life haters, skeptics, everyone else in the undecided camp: I normally try to ignore people who talk sh*t about whole life insurance because, for the most part, they have absolutely no idea what they're talking about. They have no formal insurance education, they don't own a policy, they have no access to the illustration software used to design these policies.
...but they do have a big mouth. And, that's probably their greatest asset.
I do agree with Don Konipol that a lot of what passes for insurance advice these days is nothing more than a gimmick - IBC included.
And, unfortunately, the baby gets thrown out with the bathwater.
Even when you do get what appears to be analysis on the subject (i.e. Blease Full Disclosure), it's not always completely accurate or meaningful. For example, Blease did analyse blended life insurance, but it was unclear whether those policies were optimized for lower costs or lower premium. If I recall, they were designed to reduce premium (which depresses cash values). And, if you can show insurance not performing according to an illustration, then you have an official-looking report showing whole life doesn't perform as advertised.
Another issue is with the guaranteed rate in the illustrations. Glenn Daily did a nice piece on why guarantees in a whole life policy are a "big fat idiot" (his words, not mine). The reason is because every year that a dividend is paid, it completely changes the guarantees (because as non-guaranteed dividends are earned, those cash values become the new guaranteed values). Which means you're constantly trying to hit a moving target.
It's funny when people say "oh, whole life will perform at or close to the guaranteed values - run an INFORCE illustration and see for yourself." And, when you do that, surprise surprise, they're right...
...but irrelevant.
You see that kind of shoddy "analysis" all the time. All. The. Time.
RE: term vs whole life. I don't like comparing whole life to a BTID strategy, but I did it to see a reference point (since that is the commonly-used alternative to whole life). When I broke out the costs on my own policy, I published the analysis.
It wasn't what I expected. You read a lot about how BTID strategies are supposed to beat whole life. At least in my case, it came out about even, after tax. It doesn't always work out that way, but in my case it did. And, for every client that I recommend it to, it does or I point them in a different direction.
So really, the reason I went with whole life, and I suspect the reason a lot of other people do too, is because:
1) I needed the death benefit.
2) Much less risk for about the same amount of savings generated through a "well diversified portfolio".
3) Perfect market timing - no one talks about this, but when you cash out of an investment, you always have to time it so that you're not selling off into a correction. You never have to worry about this with insurance because the insurer manages that risk for you by providing guaranteed cash values (their general investment account (GIA) invests in a diversified portfolio of stocks, bonds, real estate, precious metals, etc.)
4) Liquidity. One of the reasons business owners don't put more money into IRAs and 401(k) plans is because they need/want that money to expand their business. You can't do that if your money is tied up in a 401(k), at least not without a lot of complication. For the most part, it can't be done. I'm like every other business owner out there. When I need money, I need it. And, I don't want to be told how I need to spend it in order to maintain my tax benefits.
5) Obvious tax benefits.
6) I don't want to cash out and retire at 701/2 unless I'm forced into that position because of my health.
With that being said, whole life isn't for everyone. It requires a high savings rate and a commitment to paying those premiums if you want it to work out as illustrated. You can't get hung up on year-over-year dividend payments because they fluctuate a little bit. In that sense, it's not for people with a "day trader" mindset.
There's plenty of financial products out there to suit those types of people.
It's also not for people who are backing into this for the cash value only (even though you can cannibalize most policies these days with annuity conversions). It took me many years to really "get" this on a psychological level. Probably because I have the same hangups that everyone else has when it comes to thinking about my own death.
...that whole life is a legit way to buy death benefit and over the long term has a much lower cost per $1,000 of death benefit than term and that that's a good thing because permanent insurance is really useful when you're 80 or 90. So, if you want to do something like leave a large inheritance to your kids, or (probably more likely for people my age) to a cause/charity you *really* believe in and want to succeed after your death, WL is a pretty easy way to accomplish that.
