So today
we are going to answer
a commonly asked question
that we receive quite often
which is around the topic
of multiple policies
and does it make sense.
Often we receive the question
hey why would anyone look at
multiple life insurance policies?
Like why not just try and get it right
with 1 policy?
Maybe 2
but why would I look at 5, 10
or 30 policies
like I see some people do
or hear about sometimes?
Well we're really going to break down
how a policy works to provide
some actual details to this answer
so let's have some fun.
The first time that we actually hear that question
meaning if you asked me that question
hey does it make sense
to take out a second policy?
How I would answer it
is first with a follow-up question which is
what is the reason for that second policy?
You've got one policy in force already
what's the reason for the second policy?
Because when you look at
a cash value life insurance policy
specifically if your goal is the cash value
here are the next 2 follow-up questions
I'm going to ask.
What is the worst part
about any whole life insurance policy?
No matter how well it's designed
the perfect policy
what's the worst part about it?
The 1st year
I get less money in cash value
than what I pay in
because of that underlying base premium
it does not show up in cash value.
What's the best part
about a whole life insurance policy
in respect to the cash value?
Every year after the 1st year
the money's compounding
premium dollars start to come back
to work for me
like PUA [Paid-up additions] dollars
and gets better and better over time
alright I'm loving it.
So if I have a policy
that is 5 years old for example
and I have the ability
to add more money
into that existing policy
or open up a new one
from a pure financial interest standpoint
which option is going to
yield me better results?
Adding to the existing policy
I don't have to go through the initial
insurance expenses again.
To demonstrate this very quickly
so when you have a life insurance policy
if you're paying any amount of money
into a product
base premium dollars
in respect to your cash value
typically do not show up in cash value
in the 1st year
and sometimes the 1st and 2nd year
and the reason why
this is where the insurance company
is really going to overcharge me
for the death benefit
or cost of insurance upfront.
As time passes however
after the 1st year
1st and 2nd year
premium dollars
will begin to capitalize the policy
and you'll see them show up in cash value.
Whereas PUA dollars
I often like to refer to this
as a cash dump in
the money I pay in here
shows up in cash value
it does get you some death benefit
we'll make this dollar sign small
but really why so many people
allocate money toward the PUA Rider
is to accelerate that cash value growth
and see more money in the policy today
that they can access
begins compounding
all the fun stuff
that we talk about all the time.
So a little exercise here
if you have a policy
that has a $100,000
MEC [Modified Endowment Contract] limit
and you've paid in $50,000
let's assume you are in
for simplicity here
year 5 of the policy
so you paid in $50,000 in year 5
$100,000 MEC limit
so you have room
to add another $50,000 in.
At that point in time
if you are considering a new policy
if you start a new policy
you're starting year 1 again with that new policy
anything you direct
toward the base premium
will not show up in cash value
you've got to go through
the capitalization phase again
early cash values not as attractive
has to break even
all that good stuff.
Whereas this guy
where premium dollars
and PUA dollars
are all coming back to work for me
year 5 if I have another $50,000
maybe it's another $5,000 or $10,000
whatever it might be
instead of starting a new policy
and taking on a new premium
I'll see it all show up in cash value
compound faster
and I'll do much better today
long-term as well.
So that is one way to look at it
but is that the end-all-be-all?
Absolutely not.
So again
what is the specific reason for it?
There's been times
where we've worked with individuals
and they have not max funded
an existing policy
specifically because
they wanted more death benefit
they said hey I took on some more debts
specifically here I need more life insurance
and I'd like it to be a cash value
life insurance policy as well
so what I like to do there
is not to say okay here's a sign right here
let's get it going
no no no no
if it was me
I want to slow down
and specifically what I want to see is
well what does it look like
if I continue to plow more money
into my existing policy
how quickly can I increase that death benefit
and will that satisfy everything
because that will give me more cash value.
Yes it doesn't generate
a new 1st-year commission
but who cares about that
so if you're an agent
just focus on doing the right thing for the client
giving them the most value
and everything else will come.
But if they said no
I need another $5,000,000 in death benefit
another $1,000,000 then okay
it makes sense for a new policy there.
Maybe it's more MEC space
maybe it's because of the 7702 change
I want to lock in the guaranteed rate at 4%
I'd like to max out my ability now
whatever it might be
like what is the specific reason for it
and then measure the pros and cons.
So yes it is additional work
but it doesn't matter
it's someone's money going into the policy
we want to make sure
it is properly designed
everything's set up right
we don't want to take out another policy
just because we think it's a good idea
that's where people get frustrated.
Maximize the existing policy first
so remember this
a new policy
you'll always take on new expenses
and you'll have that negative hit
on your money right off the bat
whereas if you have an existing policy
with the ability to add more funds
that will give you more money today
and long term as well
especially if you're over those expenses already.
So a way I like to look at it really here is
okay if I have an existing policy
is that maxed out first?
Have I maximized it?
If not
and I'm considering a new policy
I would want to see firsthand
what it looks like
if I maximize the existing policy first
and then eventually take out a new one
or never do
or if I keep going with my current path
with the existing policy
that's not maximized
take out a new one on top of it
what's the internal rate of return look like?
What's the actual cash value growth?
Could it have been better?
Like these are the questions
that people have with their policies
they want to maximize it
not just blindly go into something.
So I hope that this provided some context
in our next video we're really going to
take a deep dive
and look at an analysis of about 1 policy
compared to 6 or 7 new policies
and just how we maximized everything
it will be a fun case study.
If you did enjoy this
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and we'll talk to you soon.
Thanks so much.
Hey guys steve Parisi here
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