we had some recent questions come up in the questions were how long can I pay premiums
and how long should I pay premiums and this came up mainly because people are looking at policies
and they want the maximum cash value upfront how do I get that 1090 split for example and be able
to pay in for a long period of time and have it not trigger a MEC anything like that down the
road is that possible because some just say no you can't do that you're gonna run into issues
down the road so it is possible and we're going to first explain it conceptually and then as usual
we'll prove it out with the numbers and math so how long can I pay premiums let's touch on this
one first this will depend on a couple factors one is the product so when I have a whole life
insurance product there are lots of different policies out there I have limited pay policies
maybe call the five pay a seven pay or ten pay if the product name is a ten pay that means guess
what the longest I could pay you'd do it is for ten years I can't go longer than that so I can go
shorter but after ten years I cannot pay so that would be one answer to that question if I have a
limited pay well however many years I'm limited to now if I have a product let's call it a life
paid up at 100 what that means is literally if I wanted to I could pay into the policy at I'm
100 years old so forever but at the same time I'm not committed to it and we'll get into more
detail on that so we can have a product where I can pay let's put it this way long as I want to
supplement that answer if I want to pay into it for a long period of time someone says hey it's
in your best interest to continue to feed the policy which it won a hundred percent is if we
can get things right with one policy keep feeding that thing before we look at multiple policies
but with that said and we have passed videos on this when it comes to how long can I pay premiums
the MEC the modified endowment contract becomes important to look at mainly because every seven
years that limit tends to reset and a lot of times it gradually decreases depending on the
policy design so to answer the question how long can i fund it meaning can I get high cash value
up front fun very close to the MEC limit and fun for a long period of time - we're gonna look at
that in our next video but on the second question how long should I pay premiums and I like this
question because guess what as the consumer the policyholder if we set everything up right we've
got control we have an inch and we can answer this how long should I pay it well as long as you want
the longer I feed it especially when I get beyond the early years I'm passed the insurance expenses
so dollars that go into premium and pennyways where do they go cash value they inflate my death
benefit as well things get better and better where people that we've interacted with do not
like whole life insurance are those that see the early years no matter how well we designed it it's
a negative hit we don't like the early years either but that's how the product works then
those who have fallen fallen in love with whole life insurance aside from the idea of borrowing
and such when they look at just their pure cash value death benefit it's really beyond the first
two years where I'm starting to pay money in and I see it coming back to work for me the dividend
accumulation is picking up things get better and better so how long should I hey you could answer
the question as long as you can but if I have a lump sum do I just want to move that over over
a certain number of years how long should I pay well I'll answer that by saying keep your options
open design a policy where if you want to fund it for a long period of time maybe for 30 years with
varying amounts you can but if life happens and you have to stop early well you can do the exact
same thing you can do that keep your options open this way we're not locked down to or commit it
to anything so what we're going to look at in the next segment is this firstly on the policy design
touch on this frequently when I set up a policy my money can go where underlying insurance premium
or p-waves so let's build something out here my cash value and I've got my death benefit here's
what I want to go over end of the day I'm gonna pay any amount of money into a policy premium
or my PUA rider I can choose because I can where's my money going to go dollars that
go towards premium I'll refer to this as the insurance expense as well I'm going to go over
a refresher on this especially for those who have not seen any of our content if I'm going
to pay a thousand dollars per year into premium and a thousand dollars per year into cash what
I want what do I want to understand what is the relationship with those dollars what as
I pull different lever levers what moves my cash value what moves my death benefit when
I understand this I can really take advantage or use the products to their fullest dollars that go
into the premium piece if I'm paying a thousand dollars a year in with a traditional old-school
whole life insurance policy relative to my cash value in many cases I'm going to see zero or very
little cash value in the first and second year nothing is going to show up based again off of
the base premium or insurance expense dollars the reason why that's the insurance company
over charges me for the cost of insurance up front on a whole life insurance policy they're
overcharging me in the first two years that's why if I've ever seen a basic old-school whole
life insurance policy nothing but premium usually when you hit year three from that
point forward you see your cash value start to build up the reason why is premium dollars even
though we hear premium I think expense forever but premium dollars do build cash value it's
just in the early years the company is going to overcharge me for them PUA Rider ie cash dump in
if I pay the same thousand per year here firstly the company does consider a premium in their eyes
dollars that go into PU azor cash you will see just about all of it show up in cash immediately
you will have a PUA load depending on the company might see 950 bucks show up on day one but this
is money I have access to and money that sooner rather than later begins to yield the guaranteed
rates and dividends it accelerates the cash value of a life insurance policy now that PUA stands
for paid up editions remember that company does consider this premium and the reason why is it
does buy us some life insurance it depends on our age on average say if I pay a thousand into the
pu8 component it is naturally going to purchase me another $3,000 and whole life insurance benefit
death benefit that's added to the the initial amount so a question we get here lots is how do
I maximize my cash value how do I put 0% here can't go quite that low the lowest I can often
go depending on the company is 10% your insurance companies limits that's where we will will refer
to that 10 90 split meaning of meaning if I have $1,000 per year premium how much can I pay in
total on any given year if I'm committed to that what'll the company allow me to do any guesses
$10,000 10x that's the insurance company limit now the other limit I've got to be aware of here
is our MEC limit which has a direct relationship to the death benefit that's the measuring stick
the IRS will use to determine is this policy life insurance or a pure taxable investment in
their eyes but if I wanted the minimum expenses with $1,000 premium I can literally set a policy
up with a $10,000 mek limit and maybe i over inflate it a little bit if on a fun for a long
period of time now a lot of education we've gone through several times in the past the question is
how do I design a policy let's say I'm paying in 10,000 a year let's say it's 20,000 a year
because that's the example we're gonna look at so if I have a policy with a base premium
of $2,000 a MEK limit
of 20,000 it's gonna be just over 20,000 between 20 and 21 and a PUA rider of 18,000 so I'm going
to max fund this thing total of 20,000 a year going in that's a combination of your base
premium and tue Grider so if I'm paying in 20,000 a year let's assume it's a traditional product if
I do this I'm gonna see an early break-even point I'm gonna have high upfront cash values I'm going
to crossover between years 4 to 6 I'm actually between 3 to 5 and the example we're going to
show you but here's the main thing we want to touch on with this policy if life happens I can
fund it for 2 years life happens I can fund it for 5 years I can fund it for 10 years 20
30 or I can keep going what we're gonna look at here is the exact same policy of that on day one
it is designed exactly the same for all of these scenarios and we're gonna stress test it meaning
as I paint money into it do I have the same breakeven point up front do I have the same
mech limit and does AMEC ever occur based off of the guarantees and present dividend values
we're gonna look at the midpoint values too that's how we stress test a policy here the
whole point to this is really really when you see the models the question is can I design a
policy where I get my cash upfront I mean I can max fun do that 1090 split but then I have to
stop after five or seven years right no we can design it where you can keep going this way to
keep call it feeding the beast grow this cash value grow this policy quickly and see great
long-term cash values and your death benefit from a legacy planning standpoint is going
to be large as well so we're going to go through that in detail in our next segment
you