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317-912-1000
317-912-1000
A “770 account” is not a bank account, retirement account, or financial product established by the IRS. It is an informal marketing term commonly used for a permanent life insurance policy that satisfies Internal Revenue Code Section 7702.
*Policy loans generally are not treated as taxable income unless the policy is a MEC. A Policy lapse, surrender, or other policy change can potentially create taxable income.
A 770 account is a cash value life insurance policy regulated under IRS Tax Code section 7702. This tax code restricts how quickly the cash value in the policy can grow without being subject to taxes. Life insurance policies designed to conform to section 7702 are commonly called 770 accounts or 7702 plans.
770 accounts are either whole life policies or some type of universal policy. Term insurance isn’t called a 770 account because term policies don’t have cash value.
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Whole Life Insurance Made Simple Instant Download This free binder explains how Participating Whole Life Insurance (PWLI) works. |
The term “770 account” is often used to describe dividend-paying life insurance. Any life insurance policy which complies with section 7702 can be called a 770 account.
770 accounts can either be whole life insurance or some type of universal insurance. Each functions differently with unique advantages.
A 770 account structured as a whole life policy builds cash value as premiums are paid. With a well-designed policy, the cash value grows over time to exceed the total amount paid in premiums. The policy owner can borrow against cash value at any time without paying taxes on the growth.
If the 770 account is with a mutual insurance company, it’s called a participating policy and is eligible to receive dividends. While dividends aren’t guaranteed, they allow policyholders to share in the company’s profits.
The cash value in whole life insurance grows guaranteed according to the insurance companies guaranteed values on the illustration as long as the premiums are paid as scheduled.
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Whole Life Insurance Made Simple Instant Download This free binder explains how Participating Whole Life Insurance (PWLI) works. |
From an truly “permanent” insurance standpoint, universal insurance preforms poorly. While non-guaranteed values are projected optimistically, actual guaranteed values are disappointing.
Review: Whole Life Insurance vs Universal Life Insurance
A review of any universal policy usually reveals the guaranteed cash value and death benefit decreasing, with the policy potentially lapsing when the insured gets older unless the owner can pay a rapidly increasing premium.
Universal policies preform poorly long-term even when designed as a 770 account in compliance with Section 7702.
McFie Insurance generally favors participating whole life insurance because we believe its contractual guarantees provide greater long-term predictability.
The 770 account strategy is closely related to the infinite banking concept, a wealth-building approach that treats permanent life insurance as a personal line of credit.
Infinite banking involves using permanent coverage, usually whole life insurance, as a personal banking system. The concept was introduced by insurance agent Nelson Nash in the 1980s and detailed in his 2000 book, “Becoming Your Own Banker: Unlock the Infinite Banking Concept.”
With this strategy, policyholders contribute extra money beyond their required premiums(around 10% of their income), to accelerate cash value growth. Once enough cash value accumulates, they borrow against the policy rather than relying on traditional lenders.
Because 770 accounts are structured to comply with section 7702, they provide the tax advantages necessary for infinite banking to work effectively. The cash value grows tax-free, and loans against that value aren’t taxed, creating a tax-efficient personal banking system.
While infinite banking offers advantages, it requires careful planning and monitoring. The strategy works best for those with discretionary income who can commit to long-term premium payments and disciplined loan management.
401Ks and 770 accounts serve different purposes and operate under different tax structures. Understanding these differences helps you choose the right wealth-building strategy.
| Characteristic | 401(k), IRA and SEP | Mutual Funds | Roth | Money Market Accounts | Bonds | CD | Real Estate | Universal Life Insurance | Participating Whole Life Insurance |
|---|---|---|---|---|---|---|---|---|---|
| Tax Deferred | Yes | No | No | Partially | Partially | No | Partially | Yes | No |
| First In, First Out | No | No | Yes | No | Partially | No | No | Partially | Yes |
| Competitive Yield | Partially | Partially | Partially | Partially | Partially | Partially | Partially | Partially | Yes |
| High Contribution Allowed | No | Yes | No | Yes | Yes | Yes | Yes | Yes | Yes |
| Safe | No | No | No | No | Partially | Yes | Partially | No | Yes |
| Guaranteed | No | No | No | No | Partially | Yes | No | Partially | Yes |
| Free From Penalties and Fees | No | No | No | No | No | No | Partially | No | Yes |
| Flexible Terms | No | No | No | No | No | No | Partially | Yes | Yes |
| Dividend Paying | No | Partially | Partially | Partially | No | No | Partially | No | Yes |
| Hedge Against Inflation | No | No | No | No | No | No | Partially | No | Yes |
| Total Positive Score | 1.5 | 2 | 2 | 2.5 | 3.5 | 3.5 | 4.5 | 4.5 | 9 |
Scoring:
Yes = 1 point |
Partially = 0.5 points |
No = 0 points
Money contributed to a 401k plan is tax-deferred. While this provides short-term tax relief, you’ll pay taxes when accessing the money (usually more than contributions) later.
A 770 account is funded with after-tax dollars. This allows your cash value to grow tax-free and makes the death benefit tax-free as well-as long as the policy is not a MEC.
Accessing money within a 401k can be difficult and expensive. Some plans allow borrowing, but you must carefully repay the loan and interest according to the terms, or it could be considered a distribution. Some plans require full loan repayment if you leave your job.
A properly administered 401(k) loan generally is not taxable. However, an unpaid or defaulted loan may be treated as a taxable distribution and could be subject to an additional 10% tax if the participant is under age 59½ and no exception applies.
Required minimum distributions generally begin at age 73 or 75, depending on the participant’s birth year. Some current employees may be permitted to delay distributions from their present employer’s plan.
With a well-designed 770 account, cash value easily grows to exceed the total amount ever paid in premium and is accessible to the policy owner through signature loans or withdrawals without credit checks, lengthy applications, or approval processes.
A 401(k)’s investment risk depends on the options selected within the plan. Stock funds can experience market losses, while bonds and money-market options may be more secure but are not guaranteed.
770 accounts are not dependent on the market like 401ks. Values are guaranteed by the insurance company and not subject to market volatility. This enables well-designed 770 accounts to grow steadily regardless of market performance.
A 770 account allows you to borrow against your policy’s cash value with no taxes, credit checks, or usage restrictions.
Repayment Flexibility
Policy loans usually only require interest payments*. Policy loans generally do not have a fixed repayment schedule. Any unpaid loans are subtracted from the death benefit when the insured dies.
*It is best practice to repay policy loans to avoid recurring interest charges.
Impact on Policy Performance
Loans don’t affect your credit score. With non-direct recognition companies, loans don’t impact policy performance (although policy loan interest is still due); with direct recognition companies, loans may reduce dividends.
Withdrawals
You can also withdraw cash value permanently. Withdrawals are tax-free up to the amount you’ve paid in premiums; amounts above that may be taxed. There are no age restrictions or penalties, but withdrawals permanently reduce cash value and the death benefit.
Key person Policies
A key person policy protects a business if a key employee or owner dies or becomes disabled. This 770 account provides both cash value access and a death benefit to help cover replacement costs and maintain stability. Split-dollar arrangements can let key employees share in the benefits.
Business Succession Planning
A 770 account supports business continuity by providing cash value during ownership transitions and death benefits to stabilize operations. It can also serve as collateral for loans and fund keyperson coverage to replace critical personnel.
Tax Benefits
Cash value growth in a 770 account is tax-deferred. Loans against the policy are tax-free, and life insurance death benefits are generally not taxable, offering strong advantages for estate and financial planning.
*With a direct recognition insurance company, outstanding policy loans will affect the policy dividend. Read more about this here.
Policy owners can permanently withdraw cash value from the policy. Withdrawals will be received tax free up to the cost basis (total amount paid in premium). With a well-designed policy, cash value will grow to become greater than what you have ever paid in premiums, withdrawals taken above cost basis may be subject to taxes.
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Whole Life Insurance Made Simple Instant Download This free binder explains how Participating Whole Life Insurance (PWLI) works. |
770 accounts are not dependent on the market like a 401k. 770 account values are guaranteed by the insurance company and are not subject to the whims of the market. This enables well-designed 770 accounts to grow steadily whether the market performs well or not.
A keyman policy, also known as key person insurance, safeguards a company financially if a crucial employee or stakeholder, like a CEO or CFO, dies. It offsets costs related to replacing such critical personnel.
When combined with a 770 Account, a keyman policy offers dual benefits. This setup not only provides policy loans from the cash value but also ensures a death benefit for the employer. This benefit is crucial for covering replacement costs during transitions, ensuring organizational stability.
Moreover, a split-dollar arrangement can be applied to key stakeholders. In this, both employer and employee share premium payments and benefits, giving the key employee access to the 770 Account’s advantages, strengthening their financial security.
A 770 Account is vital in business succession planning due to its financial support during transitions. It offers cash value to sustain business operations during the owner’s life, ensuring stability. After the owner’s death, its death benefit helps cover expenses and maintain operations while new leadership is established. The account’s policy loans provide flexible financial support during transitions.
Additionally, a 770 Account can be collateral for bank loans, enhancing loan eligibility for business growth or unforeseen financial needs. Keyman policies for employees and partners, part of the 770 Account, offer cash value and death benefits, aiding in replacing vital personnel.
In essence, a 770 Account supports business succession with its cash value, death benefits, loan collateral potential, and keyman policies, ensuring continuous operation and financial security during and after the owner’s tenure.
The 770 account life insurance policy offers significant tax advantages regarding the cash value. This cash value not only grows at a predetermined rate or an index-linked rate, depending on your policy type, but also provides tax benefits. Furthermore, the 770 account enables policyholders to take loans against the cash value of their policy. This is particularly advantageous because the IRS does not regard the cash value of your insurance as taxable income. This creates a financially beneficial situation for policyholders. Additionally, with a cash value policy, there are no restrictions on the amount or age for taking out a loan based on its value.
*Policy cash values and death benefits generally are not treated as taxable income unless the policy is a MEC. A Policy lapse, surrender, or other policy change can potentially create taxable income.
A well-designed 770 account is one of the best financial tools you can own. The solid guarantees allow you to save and earn a return while having access to your money, which can be borrowed or withdrawn and used for any reason at any time. Owning a 770 account also protects your family by providing a death benefit when you pass.
For most people seeking a 770 account, a participating whole life policy from a mutual insurance company offers the best combination of guarantees, growth potential, dividends and stability. Avoid universal life policies because of their poor guaranteed values.
Setting up a properly structured 770 account requires expertise. The policy needs to be designed to maximize cash value accumulation while maintaining compliance with section 7702 regulations. An experienced agent can help structure the policy with appropriate premium levels and riders to accelerate cash value growth.
If you want to purchase a well-designed 770 account, contact us: 317-912-1000. We can help you.
The cost depends on factors such as the insured person’s age, health, sex, coverage amount and policy design. Whole life premiums are generally higher than term life premiums because whole life insurance includes permanent coverage and a cash value component.
The timeline depends on the premium amount, policy design, insurer and use of paid-up additions. Cash value may be lower than the premiums paid during the policy’s early years, so you should review the guaranteed values shown of the policy illustration carefully.
Yes. A policyowner may receive less than the total premiums paid if the policy is surrendered during its early years. Unmanaged policy loans, interest charges or insufficient premiums can also reduce policy values and may cause the policy to lapse.
Neither is automatically better. A 401(k) is a retirement plan that may provide tax advantages and employer matching contributions. A 770 account is an informal name for permanent life insurance that complies with Internal Revenue Code Section 7702.
If you stop paying premiums, several outcomes are possible depending on your cash value. The policy might lapse, leaving you without coverage. Accumulated cash value might be used to keep the policy in force, either temporarily or permanently, through reduced paid-up insurance options. The specific outcome depends on your policy’s cash value and design.
Yes. you may own multiple life insurance policies, subject to the insurer’s underwriting requirements and financial justification. Each policy has its own premiums, cash value, loans and death benefit.
A 770 account is an informal marketing term for a cash value life insurance policy that complies with Internal Revenue Code Section 7702. Infinite banking is a strategy involving the use of permanent life insurance cash value and policy loans. Owning a qualifying policy does not necessarily mean you are practicing infinite banking.
No specific level of wealth is required, but permanent life insurance generally involves a long-term premium commitment. You should be able to afford the premiums while maintaining emergency savings and meeting other financial obligations.
Policy loans generally are not treated as taxable income when received, provided the policy is not a modified endowment contract and remains in force. However, a lapse or surrender with outstanding loans may create taxable income. Individual circumstances should be reviewed with a qualified tax professional.”
A policy loan borrows against your cash value with the policy as collateral—the cash value continues growing, and you pay interest on the loan. A withdrawal removes money from the policy, reducing cash value and death benefit. Loans offer more flexibility, while withdrawals provide permanent access to funds.
Yes, many people use 770 accounts as a source of retirement income through policy loans or strategic withdrawals. This can supplement other retirement income sources and reduce your overall tax burden in retirement.
A participating whole life policy may receive dividends (many mutual insurance companies have been paying dividends for over a century). Dividends are not guaranteed. Depending on the policy, dividends may be received as cash, used to reduce premiums, accumulated with interest or used to purchase paid-up additional insurance.
Most people work hard, save what they can, and watch too much of their money disappear to banks and lenders. A well-designed 770 account can change that.
Over the past two decades, we’ve helped multiple people take control of their money. We’ve seen business owners finance equipment without bank approval, families pay for cars and emergencies from their own policies, and retirees create income that doesn’t depend on market performance.
A 770 account isn’t right for everyone.
Some people aren’t in a position to fund a policy properly. Others have health issues or simply don’t have the discipline.
If you’re curious whether a 770 account could help you keep more of your money and build wealth steadily, let’s talk. Call us or schedule an appointment. No pressure. Just honest answers from people who’ve been teaching this concept for two decades.
by Jordan McFie
Time is the one thing we are all limited by in this life. When writing content, I make sure it is accurate, to the point, and easy to read. Accurate information, that is easy to digest, saves the reader time and allows them to make important financial decisions quickly.