Alright
what whole life insurance policy
should you choose?
Only if I knew that option was available
before I started a policy.
Today we are going to go through
what I like to refer to
as a hybrid whole life insurance policy
which is actually a made-up term
I made it up
there's no such thing
as hybrid whole life.
What I mean when I say that
we're going to look at
specifically an L95 policy.
Why I use the term hybrid
is when you look at a traditional
whole life insurance policy
like a whole life 100
a whole life 99
what are those types of products
specifically geared for?
Strong long-term performance.
What's the drawback
if you go back to the traditional
whole life insurance videos
what's the drawback to those?
Premium dollars
do not show up in cash value
in the 1st and 2nd year
they're gone
the company overcharges me upfront.
So the drawback
weak upfront cash value
but strong long-term cash value
and the ability to keep pumping money in
for a long time if I want to.
On the flip side
I've got a high early cash value product
which credits me
the bulk of my premium upfront
very cash-rich from day 1
however what's the drawback
to a pure high early cash value policy?
Long term performance
and isn't that attractive?
I get my money upfront
but they spread the expenses out
over the life of the policy
and they're actually a bit higher.
So a hybrid whole life insurance policy
is right smack dab in the middle
and really how it works
is if I'm going to
pump money into a whole life policy
an L95 for example
for a long period of time
it'll underperform
compared to a traditional policy
if all things are equal
meaning the design's the same
companies the same
all that good stuff.
However
a unique advantage
one has with these products
is if someone says hey
my goal is to max fund this policy for 5 years
and then stop
10 years and then stop
I'm very intentional
about maximizing the internal rate of return
maybe after 10 years I'm going
to keep paying the minimum premium
but I'm just going to stuff it early on
and then take my foot off the gas a little bit
you will get strong upfront cash value
because of how the policy works
I'm going to go through the details in a second
but then also strong
long-term cash value as well
which is a nice advantage
where I can capture the best of both worlds there.
Also because this particular type of policy
exists with Guardian
what a lot of people like to do
we'll see this frequently
where someone says hey
I want the ability Steve
not commitment
but ability to pay up to a $100,000 per year
I do want to have access
to the majority of my capital
that I pay in overtime
so what they'll do is commit
just to the minimum premium only
which in this particular case
would be what?
$10,000 and then 100% at the discretion
they'll throw money into PUAs
just on an unscheduled basis
which is nice.
So how this product works
to be very specific here
whatever your premium is
let's say it's $10,000
what you will find
is that 0 shows up in cash value
for the 1st year only
beginning year 2
that minimum premium
begins to come back to work for you
you see it in cash value
it begins to compound
it gets better and better.
Now similar to a traditional
whole life insurance policy
the company is mainly overcharging us
for the cost of insurance in the 1st year.
Now PUAs [Paid-up additions]
like any and all policies
can be plowed into the policy
therefore accelerating the cash value growth
in this particular example
we're going to look at something
like this
$10,000 in the base
$90,000 in PUAs
with a $100,00
MEC limit [Modified Endowment Contract]
but first we will look at just a
$10,000 base premium
to help better understand
how the base premium actually functions
so let's get on into it.
Here we've got an L95 policy
hybrid whole life product
with just a pure $10,000 base premium
nothing fancy about this one bit
as we look at it
so here we go.
Where's the money going?
Base premium of $10,000
that buys you a whole life death benefit
of just under $510,000.
As we look at the actual charts down here
what do you notice?
The 1st year
you make the $10,000 payment
$10,000 base premium
what does this column again represent?
We've covered this in each of the videos
if you have not seen
any of the prior videos
this column
base guaranteed cash value
represents what the cash value buildup is
based on only the base premium
so if you have a policy
where you're adding money into PUAs
this column will not reflect that
it reflects only the base premium
and only the guaranteed rate
in this particular case
being 3%.
So what I'd want to know here is okay
how's the policy function?
I've got the $10,000 payment going in
scroll your eyes to the right
net cash value
there's your money column
right off the bat you have what?
$351
not quite 0 but very close.
The next year however
$10,000 is made
in a pure premium payment
and what do you notice?
You get all of it back
and a little bit more
but then the following year
you get a little bit less
eventually it picks up the pace again
if I look down here
it takes between 13
and 14 years to break even
just to get my money back
which is common for most
whole life insurance policies
when I'm paying
just pure base premium.
High early cash value product
might be a little bit different
and some limited pay products are different
but here it still takes a long time
because it mirrors a traditional
life insurance policy in that respect.
However if you said hey
I want to max fund this thing
I'm not really interested
in just paying a premium
I'm interested in the cash value benefit
and the life insurance
but the cash value is why I'm doing this
how do I really maximize this thing?
And here's the answer
or one of the answers
so I get to have too much fun
talking about life insurance.
Here we've got
a $100,000 payment
where is the money going?
Here's the premium piece
there we go $10,000.
Paid-up additions Rider
PUA right down here
now what I want to touch on here
is the full $90,000
is not going toward PUAs
your premium $10,000
gets you the exact same
whole life insurance death benefit
we saw in the last illustration
with just the pure $10,000.
Then we've got
this target additional benefit
of another $1,500,000
what that is
is a term insurance Rider.
The purpose
of a term insurance Rider
is that it is a cheap
if you don't like the word cheap
a cost-effective strategy
to raise the death benefit
which raises the MEC limit
and allows me to
plow more money into PUAs.
So let's take a look at the numbers down here
here we've got a 5-Pay
a lot of people are attracted to this
where I can pay into it
for 5 years and I'm done
you could pay into this
this is based on a 40-year-old male
for 2 or 3 years then I'm done altogether.
Here's $500,000
net cash value
when's your break-even?
Year 5 in this example.
If you've watched any of our old videos
from last year or years ago
you will likely
remember this type of product
the hybrid series
where it broke even between years 3 and 4
with the same company and product.
Why it's later now
even though the base premium
and everything is the same
is as a result of that 7702 industry change
most companies have increased
their PUA Rider fees
which as a result
have pushed the breakevens back a little bit
the companies have had to
to remain profitable
and that's a good topic for another video.
But here's my cash value over time
it looks good
as we continue to scroll down.
So again the advantage to this policy
what a lot of people will do
is say hey I'm going to have a policy
I'll commit to that only
that and the term Rider
which was about $500
so I commit to $11,000
and then at my discretion
I can just throw another $90,000 into PUAs
on an unscheduled basis
so I commit to the minimum
add more my discretion
very exciting.
So let's look at
one different variation of this
so here's another version
we're going to look at the guarantees as well
and I made one tweak to this
to improve the cash value performance
we actually pushed the base premium down
to a little under $90,100.
it's not much difference
but here's what I want to touch on
guaranteed values
dividend values
what do you notice here?
Guaranteed values
a $100,000 per year going in for 5 years
and I stop
breaking even
between years 8 to 9.
Annualized internal rate of return
annual IRR
again isolates what you are earning
year over year
so for example
the guaranteed rate is 3% here
do you ever see an earning rate of 3%?
No.
When it tops out at 2.57%
what that means
is if I just simply measure
how much did my cash value grow by this year
what's the actual rate
based on the guarantees alone
when it grew from $509,000
to $522,000
almost $523,000
that's a net internal rate of return
of 2.57%
that's the net number
so important
we've been showing this
in almost every video
when we look at numbers now
the reason why
is with whole life insurance
there is so much confusion
and so much frustration
I can feel it in people's voices
when they talk to us
or when they text me all the time
not with us fortunately
because I try and make this transparent
though it has happened in the past
the point of frustration
is when individuals are led to believe
or told look at this dividend rate
with the insurance company.
You've got this great earnings rate
here's what will do
or they're not even told
what the actual net earnings rate is
whatever it might be
they get frustrated
because people simply
want to know
what is my cash value growing by
that way I can make an educated decision
or I'm already sold on it
just tell me what the numbers are
don't play a stinking game with me.
So that's based on the guarantees
here we go
based on the present dividend rate
quite attractive over time
there's my internal rate of return
on an annual basis.
Average
represents what I averaged out
over a certain number of years
so if I take a look at this guy
by year 20
I'm earning just over 4.7%
year-over-year
and almost at 4% on the average
internal rate of return.
So this is a 5-Pay here
I could fund shorter
or longer if I wanted to
but great option to be aware of.
Why I like it so much
is I like the traditional
whole life insurance model
except for the 1st 2 years
but I like the traditional model
where I can keep paying in
and I experience strong
long-term internal rates of return
strong long-term performance.
This guy
gives me the same thing
but I get more cash value upfront
which whether I use it or not
it's an asset on the balance sheet
whether it's business
or my personal balance sheet
but I've got access to that capital
for opportunities
being in business
that's much more valuable
than another 0.50%
a company is going to give me.
So I hope you enjoyed this one
I always loved talking about this stuff.
If you did
please hit the like button
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it does help us
and I will talk to you soon.
Thanks so much.
Hey guys Steve Parisi here
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