The IBC Glossary: Every Key Term, Explained Simply

IBC has a vocabulary problem.

Too much of the education assumes you already know what PUAs, MECs, and wash loans are. If you don't, you end up confused — or worse, you think you understand something you don't.

Here's the glossary everyone should read before their first call.

Cash Value

The accumulated component of a whole life policy that belongs to you. It grows at a guaranteed contractual rate every year, regardless of market conditions. This is separate from dividends — don't let anyone conflate the two.

Dividend

A non-guaranteed payment from the insurance company, declared annually based on company performance. Strong mutual companies have paid dividends for over a century, but they are not contractually guaranteed. Dividends sit on top of guaranteed cash value growth — they are not the same thing.

Paid-Up Additions (PUAs)

A rider that lets you purchase additional chunks of fully paid-up insurance. PUAs carry high immediate cash value relative to their cost and are the primary mechanism for accelerating early cash value accumulation. An IBC policy without a PUA rider is a poor IBC vehicle.

Modified Endowment Contract (MEC)

A policy overfunded beyond IRS limits (the 7-pay test). A MEC loses the tax treatment that makes IBC work — distributions become taxable and potentially penalized. A properly designed IBC policy is structured right up to the MEC line. Never over it.

Policy Loan

A loan from the insurance company using your cash value as collateral. You are not withdrawing your cash value — the company lends you their money and your policy secures it. Your cash value keeps earning uninterrupted. No credit check. No mandatory repayment schedule. No taxable event.

Wash Loan

When the interest earned on the policy approximately equals the interest charged on the loan — netting to near-zero cost. This is policy and company-specific, not a universal feature of all whole life products.

Death Benefit

The amount paid to beneficiaries upon death — income-tax-free. In a well-maintained policy with consistent loan repayment, the death benefit can grow over time alongside cash value.

Mutual Company

An insurance company owned by its policyholders, not shareholders. This structure is what allows dividends to be paid back to policyholders. Mutual companies are the only correct vehicle for IBC.

Premium Offset

A stage some policies reach where accumulated dividends are sufficient to pay ongoing premiums, reducing or eliminating out-of-pocket contributions. Reaching this point is a milestone — not the goal itself.

Know these. Use them precisely. The distinctions matter — especially when someone is trying to sell you something that almost fits the definition.

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