In this video
we are going to address the question
what happens to your cash value
when you die
with a whole life insurance policy?
This is an area of debate
especially among professionals
in the financial services industry
typically you have people that are
call it anti-whole life insurance
they hate it
they'll often state
do you know
with the whole life insurance policy
when you die
the death benefit
is the only thing that is paid out
to your beneficiaries?
Meaning the insurance company
keeps your cash value
therefore
it is a bad place to put your money
and stay away from it.
And then the
whole life insurance agents hear that
and they go and fight
with the other individuals
and the consumers left there thinking
I just want to know
how it works
so I can make a decision
if it's a fit for me or not.
So we're going to go through
exactly how it works here.
On paper when you die
with a life insurance policy
whatever the death benefit is
that is the dollar figure
that is paid out
to your beneficiaries.
We're going to go through
an example here.
What I want to add though
is with a whole life insurance policy
your death benefit
will appreciate over time
it will grow
and that growth
does have a direct relationship
to the cash value growth over time
so it's important to be aware of that
and when you see examples
it'll start to tie together
and make sense.
But what I want to touch on here
is with a whole life insurance policy
the cash value
that is a living benefit
that is money you can access any time
is compounding
is a safe
liquid
tax-free area to position money.
99% of the people we work with
will openly express
hey Steve IBC Global
I don't care about the death benefit
I'm interested in the cash value.
But to get back on point
with this question
what happens to my cash value
if I die?
If you have a policy in force
and the cash value today
is $100,000
and the death benefit
on your annual statement
online account is $1,000,000
and you die
the net death benefit of $1,000,000
is what is paid out
to your beneficiaries.
Think of it this way
the cash value is gone
but if that cash value did not exist
that death benefit
might only be worth $800,000.
What does that mean?
You can tell I like this stuff
and have a lot of fun.
So an example
let's assume day 1
you open up a policy
you're about to make a payment
but before you pay
anything into the product
your cash value is 0
and you have a death benefit
of $1,000,000.
So I make the payment
I die
$1,000,000 is paid out
to my beneficiaries.
Now let's assume that I
fund the policy for a period of time
and over 10 years
my cash value
with the same
whole life insurance product
has grown to $100,000
my death benefits
may now be worth $1,300,000
it could be a little bit more
it could be a little bit less
depends on the design of the policy
my age
how long I'm paying into it
a number of factors
but typically
you will see a pattern like this.
We're going to pull up an example
very shortly.
Where as I grow that cash value
my death benefit grows as well
so what this means is
$1,300,000 is paid out
let's assume I died in year 10
then $1,300,000 is paid out
to my beneficiaries
so I have grown the cash value
to $100,000
if I die the $100,000 cash value
is not paid out to my beneficiaries
but instead
they get an additional $300,000
in life insurance
which is paid out income tax-free.
This was a big reason
someone in my family
purchased a large
whole life insurance policy
he was not that interested
in the cash value benefit
although he's heavily funding it
he really looks at it
from an estate planning play
where he says
you know the death benefit
if I continue to pump money into this
I leave a much larger dollar amount
in pure life insurance benefit
I see it
I get it
okay I'm sold on it
after 10 years of
analyzing it and such.
But as we look at this
the main thing I want to touch on
I pumped money in
my cash value grew to $100,000
death benefit was $1,000,000
now it's $1,300,000.
So look at it this way
what happens to my cash value
when I die?
It's not paid out to your beneficiaries
but would you be comfortable with this
if this is you
your cash value
has grown to $100,000
but the death benefit's
not $1,000,000 anymore
that's $1,300,000
that's paid out to them.
Let's look at an example here
so what we've got here
is a policy that is designed
for maximum cash value
so this is someone who's interested
in the cash value benefit
not so much the total death benefit
what I'll add
is if a policy is designed
for maximum cash value
it will often result
in the greatest long-term
death benefit as well
which is interesting.
But as we look at this guy
here's our annual outlay
so this individual is paying in
$30,000 per year
and we can make
the dollar amount any figure.
Where is the money going?
Here's his underlying premium
as low as we could drive it
10% in this particular example
so 10% toward premium
plowing everything else into Riders
that accelerate the cash value growth.
Cash value
in the 1st year $26,211
net death benefit
let's circle this in red
$1,243,000.
So if he dies on day 1
what would happen
that $26,000 in cash value
he would not receive a check for that
or his beneficiaries
would not receive a check for that
they would receive
a check for the $1,243,000.
Now as time passes
he was 30 years old when he started
pays into it
by year 10
$30,000 per year
which he doesn't have to pay
that much each year
you can bounce payments up and down
but what is your cash value grown to?
Almost $350,000, okay.
So if you die that $350,000
is not paid out to your beneficiary
however
the death benefit
was $1,200,000
now it's $2,400,000
a little bit less than doubled here
so it has appreciated quite nicely.
So again if it's you
which one would you rather have?
The death benefit day 1
of $1,200,000
because if it's a term policy
that will not increase over time
term policies are typically level.
So assume it's $1,200,000
plus the $350,000
or $347,000 in this example
or I see the cash value
grow to $347,000
and then if I died 10 years into it
the net payout
is $2,400,000 to my beneficiary .
Another way to think of it
because this can be
confusing sometimes
is this death benefit
accounts for the cash value growth
so the total death benefit
accounts for everything
I've paid into the policy
any dividends that have been paid
this is the net dollar figure
that is paid out to my beneficiaries.
As I continue to make payments
I see the same impact
so here's an example
he keeps on funding it
30 years into it
there's his cash value
almost $1,800,000
death benefit
has grown to $4,600,000.
So he started out day 1
with a $1,200,000 death benefit
over 30 years
he's grown the cash value
to almost $1,800,000
the death benefit
is $4,600,000 though
that has paid out
100% income tax-free.
And we can continue to
look at the years as they pass
as he continues to pump money in
in this example for 50 years
but let me touch on something
because if I was presented this
my reaction would be well
I don't want to have to pay
$30,000 per year
or any dollar amount for 50 years
until the guy's 80 years old
a lot of people are turned off by that.
So here is the exact same policy
where we only pay into it
for 10 years in this example
so same policy
there's our minimum premium
as we look at this guy
here's your $30,000 payment
there's your cash value
identical value $26,211
death benefit
identical over here $1,243,000.
Time passes
10 years into it
you've paid in $300,000
look at your cash value
it's identical
to what it was in the last example
10 years in
just under $350,000
death benefits $2,400,000
and then after that
we stopped paying into it.
We can see it right here
annual net outlay
beginning year 11 nothing
and then we made
some adjustments here
really to maximize
the cash value performance.
So look at this
we reduced the death benefit
so this was a move
or a lever we pulled on the policy
in order to optimize
cash value growth
but what's interesting about it is this
so again you paid in a total
of $300,000
there's your cash value appreciation
continues to appreciate over time
as it grows
what happens to your death benefit
on the far right?
Does it stay the same?
No
appreciates as time passes as well
so I could argue this
30 years into it
I paid in a total of $300,000
over the 1st 10 years
cash value is almost $870,000
and if I die
$2,000,000 is paid out
to my beneficiaries.
And of course you could make
additional arguments to say hey
with the term policy
maybe I pay $500
or $1,000 per year
and invest the difference
that strategy works
both of the strategies work
it's really just understanding
which one is best for you
and then moving forward with that
maybe it's a combination of both
which we have people that do that.
I think where the issue pops up
in the industry
and this is on both sides of the fence
is from an objective standpoint
and an emotional standpoint
you have 2 sides that are in favor of
whatever they sell
and they fight each other
and sometimes consumers
get pulled into that as well.
Really as a consumer
if I'm a consumer
is just provide transparency
show me the pros and cons
in this case
answer the question
specifically
what happens to my cash value
when I die?
If I were to give a quick answer to that
and we'll sum up with this
is if you die
on paper
the death benefit is paid out
so whatever you see
as far as your net death benefit
on paper
on the illustration
on the annual statement
that's what's paid out.
However
that death benefit does account
for your cash value growth over time
so if day 1
you have a $1,000,000 death benefit
and then your cash value over 10 years
has grown to $100,000
your death benefit
might now be worth $1,300,000
that is paid out
to your beneficiaries.
So I hope that this video was helpful
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If you didn't like it
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and we will talk to you soon.
Have a good one.
Hey guys Steve Parisi here
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