If only I knew about that option
before I started a policy.
You ever feel like that
with whole life insurance?
You ever feel like that
with any product or service?
I know I have.
This often happens when it comes to
whole life insurance policies
specifically with individuals
that are interested in
maximum cash value.
Now what I mean when I say that is
to be very very direct here
is people will often
open a whole life insurance policy
your goal is cash value
you're told that the policy you're opening
is the best ever
it is maximized for cash value
you open the policy
and then you find out after the fact
it could have been better
often with the same company and product
it could have just been designed for
a lower commission to the agent
and higher cash value to you.
Maybe it is a different company
and product
but the big thing is
if only you were aware
that different options existed
then you could have picked the option
that you are most comfortable with
not the person
recommending you the policy.
Now I stated or phrased it in that manner
because this happens a lot
when it comes to whole life insurance
for a variety of reasons
and that's not to say all agents are bad
that's not my intent in any mean
any way shape or form
but it does happen
and a lot of people
a lot of people get frustrated
with whole life insurance.
So what we're going to go through
really in this entire series
is different whole life insurance products
different ways to design them
to provide awareness to you
the individual interested in a policy
on how to maximize the cash value
what to look for
when it comes to the design
the company
the product
all of that good stuff
so you can make the best
possible decision
whether you decide to work with us
or anyone
let's get into it.
So when it comes to
whole life insurance
there are a lot of different products
that are available
there's a ton
we are going to focus on
really the 4 main categories
this does not cover everything
but it will cover the main categories
through this entire series
not all in this video.
The first is the traditional policy
so a traditional old school
whole life insurance product
then we're going to look at
a high early cash value product
then a hybrid product
which is kind of in between the two
the name hybrid whole life
or if you google search hybrid whole life
it doesn't really exist
I made the term up
just because of how the product works
it falls in between those two
and then we've got
limited pay policies.
Now all products
with different companies
have pros and cons
again the key is
for the consumer to be aware
or if you're an agent
trying to become more aware to
do a proper service
or provide the proper level of service
to your clients
this will be helpful as well
we do have an agent training program
feel free to reach out to us
or you'll see it available
on our website as well.
So I'm going to provide just an overview
on each of the categories in this video
and then we'll be laser-focused
on each category in the following videos.
So when it comes to policy design
something we talk about quite a bit
if we were to start with a
traditional life insurance policy
here's exactly how it works
if you were to pay any amount of money
into a life insurance policy
you can actually choose
where your money goes
it can be directed toward
the premium piece
or toward PUA Riders
and a term insurance Rider is added as well
but here's the 2 main areas.
Dollars you add
toward the premium piece
this is referred to as the base premium
with respect to your cash value
so specifically here
I'm referring to a traditional
whole life insurance policy
here's how it works
you'll often see
0 of those premium dollars
show up in cash value
in the 1st and 2nd year.
The reason why
is that the insurance company
is going to overcharge me
for the death benefit upfront
now as time passes
as you continue to make premium payments
you will find
that the premium dollars
show up in cash value
beginning years 3 onward
however 1st and 2nd year
nothing in cash value.
Whereas the PUA Rider
which stands for paid-up additions Rider
I like to refer to this as a cash dump in
money I add here
oh yeah shows up in cash value
right off the bat
that is money you can access
begins to earn the guaranteed rate
it begins to earn dividends
this is the key to accelerating
the cash value growth on a policy
this is particularly true
when you look at the guaranteed values
and actual performance.
This is something that is not used
that much in the industry
the term actual performance
I wish that it was
we're making our efforts
to make it more well known
or putting forth efforts I should say
is a big big problem
in the life insurance industry
specifically with cash value life insurance
is we have illustrations
which project certain values
and often they don't come true
we then have actual performance.
So getting the actual results
is important
and what we have found to be
so consistent
is the higher this allocation is
the more money we pay
toward the PUA Rider
the greater the performance is
on one's policy
now that will buy us
some death benefit as well
but the PUA Rider
what's interesting about this
will function almost identical
in any type of product
with some rare exceptions
when you get to limited pay policies
but for the most part
this is going to function the same
regardless of the product type.
The main thing here
is that this traditional policy
the main takeaway
if I'm you trying to learn
hey what product should I choose
whatever your base premium is
if it's a $1,000 per year
do not expect to see
any of that $1,000
or a small percentage
show up in cash value in the 1st year
1st and 2nd year I should say.
If it is $10,000 per year
don't expect to see any of it
show up in cash value in the 1st year.
Now an important point
you might say
well can I put 0 in the premium
and everything in the PUAs?
My answer is I wish
but we cannot go quite that low
the lowest we can typically go
with cream of the crop companies
your 4 major mutuals
is often 10%
some smaller companies
will let you go lower than that
to be completely transparent
however
when you look at the quality companies
often they don't
10% is often as low as they go
so if you said hey
I want to be able to pay in
up to $10,000 per year
I would need a minimum premium
of at least $1,000
that's the case with traditional policies.
High early cash value policies
how these guys function differently
kind of in the name
high early cash value
any amount of money
I pay toward the premium piece
so again money can go
toward 1 of 2 areas
I'm going to direct it
toward premium and PUA.
The premium dollars
you will find
that approximately
it's going to depend on the
company and product
between 90% and 95%
of the premium piece
this excludes PUA payments
but 90% to 95% of the premium
shows up in cash value
right off the bat
that's in year 1
so they do not overcharge me
for the cost of insurance
or the base premium
in the 1st and 2nd year
which is nice
especially for business owners
or individuals who like to
see that cash value upfront
with that said
there's always give and take.
The drawback to these products
is when I look at them
over the long haul
they do tend to underperform
compared to other policies
because what the insurance company is doing
is not overcharging me
for the cost of insurance upfront
when you actually break the policy down
specifically these higher cash value products
the costs internally are higher
but they spread them out
over the life of the policy
giving the consumer more upfront.
Some people don't mind that
some look at it and say hey
this is still a great area
I can store money
and then I don't take this huge hit
in the balance sheet right off the bat
I've got access to more capital
that's a great opportunity cost
so it all depends on the individual of course
but it is a good option to be aware of
often people are not even shown that
so good to see that.
Let's continue on here
hybrid policy
so how this guy works
this is one of my favorites actually
and we'll touch on it in the hybrid video
but how this guy works is
whatever your premium is
it does not show up in cash value
only in the 1st year.
Remember what the traditional was?
Nothing showed up in years 1 and 2.
How about the higher the cash value?
You get most of it in the 1st year
so with a hybrid product
you don't get any cash value
from the premium piece only
in the 1st year
beginning the 2nd year
it comes back to work for you
it begins to compound
gets better and better and better.
PUA dollars
whether it's traditional
high early cash value
hybrid that we're on right now
function identical
plowed in the PUAs
I see it in cash value
oh yeah
that's how I accelerate it.
So that is the hybrid policy I'll see
richer cash values upfront
because the premium piece
starts to come back
to work for me earlier.
Now often this
the hybrid will underperform long term
compared to the traditional
not in all circumstances
if I want to pay into it
for a very long period of time
that's the case
however where these work
beautifully in my opinion
I do this with some of my policies
is if I say hey
I want to max fund this policy
for 5 years
for 10 years and then stop
or maybe I just pay the base premium
or a lower amount
that's where I can reap the upfront benefit
of the stronger early cash values
with this product
and reap the long-term benefits as well
when you actually measure
the internal rate of return
and the long-term performance.
Then we look at the limited pay products
so limited pay
what this means
is how long you can pay into the policy
for example
what is very popular
among many insurance carriers
is a 10-Pay policy
it's pretty straightforward
what 10-Pay means
is that I from the policyholder
can pay into it for a maximum of 10 years
after that
I can't pay anything into it
even if I want to.
Some companies
allow you to add PUAs
when no premium is due
one that does actually it's Guardian
with their 10-Pay product
but aside from that
like once I've funded it for 10 years
nothing else can go in
like that's it.
So how these policies work
PUAs are the same
for the most part
when we get to that video
we'll go through some differences there
but how they work
is with respect
again to the base premium dollars
because this is where we're going to see
a difference with everything
is as follows
premium dollars
with respect to your cash value
in the 1st year
you typically get about 30%
to 35% of your premium payment
so what that means is if I'm paying
$10,000 into the base premium
I'll see anywhere between $3,000
and $3,500 in cash value in the 1st year
beginning the 2nd year
I see just about all of it come back
and then more and more each year thereafter
so those limited pay products
are nice for upfront cash values
and often what you'll see
if you do things right with these
you will get very strong
long-term performance.
Sometimes the strongest
internal rates of return
sometimes you'll see
you can get the same
with the hybrid product
and that leaves the option open
to fund for a longer period of time
but in many cases
you can really juice a policy
this is great for someone that
is very very intentional stating
I don't want to pay into this thing
for any longer than 5 years
or 10 years
maybe it's 15 years
however long it might be
and again
they're not always the way to go
I will say we sometimes use these
a lot of people like them
but then often that hybrid option
we look at both
and you'll see the performance
guaranteed and non-guaranteed
is so so stinking close
and then the hybrid policy
gives you the option to keep on
feeding the policy if you want to.
And again
I'm adding a lot of pieces in here
the reason why
awareness
if I am aware of what is available
I can make an educated decision.
So this was a lot here
we're going to go through each video
I mean each piece option one at a time
I do hope this one was helpful
just from a pure
informational standpoint.
See you in the next video
if you enjoyed this one
please do hit that like button
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and as always
I hope this helps.
Talk to you soon.
Hey guys Steve Parisi here
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