If someone said to you
I've got a whole life insurance policy
and I put away $200,000 per year
and I took that policy out
because I was interested in the cash value
and here are the ways I use the cash value
here's all the benefits to it
how would you react?
Well most people would hear $200,000 per year
going into a whole life insurance policy
say what, why on earth would you do that?
Tell me more because what I've heard about
whole life insurance has not been that good
but if you're putting away $200,000 per year
you're doing that every year, right?
Not just one time?
Yeah every year
that's how much I pump into the policy.
Okay tell me more about it
because you've got my curiosity
and then we listen
and then typically what happens?
We go on Google
and we do more research on our own
perhaps YouTube as well
so why I mention that
is when it comes to
whole life insurance products
where individuals
are interested in the cash value
what is very beneficial to understand
is what is the process
that individuals go through
who have already taken out policies
and successfully use them?
We've got up on the board
how to copy the wealthy
with cash value life insurance?
So if you hear of someone
putting away $200,000 per year
or say $2,000,000 per year
into a whole life insurance policy
would you want to understand
exactly why they are doing that?
How are they using the policy
for the cash value benefit?
What's the growth rate?
How do loans work?
Like what are the details?
There has to be something there
if they're doing that
I know I would
anytime I speak with a business owner
or someone who is very far ahead of me
with respect to business
I'm asking them a lot of questions
and I'm trying to learn from them
so I can take some of the ideas
or some strategies they've implemented
and implement it into my own business
that's often how we learn from each other.
So what we're going to discuss today
is (1) the product
what often attracts individuals
to whole life insurance
when I say individuals
those putting away large dollar amounts
and then also with that product
what are those same benefits
that they appreciate
after they've owned a policy?
So I'll hit on what initially attracts them
and what they actually like about it
once the policy is in force
and then (2)
what's the process they go through?
Hopefully this gives you some ideas
as far as questions and such to ask
or create your own vetting process
when you're considering a policy for yourself
seeing what others do
or learning from others will really help you
make an informed decision upfront
because it can be a big decision for many
especially if you're considering
a large dollar amount.
So with respect to the cash value
we've got the 3 core benefits here
under the product section
cash value core benefit
safe
liquid
and tax-free.
Let's go through a couple details
on each of those points
safe
IRR stands for internal rate of return
I'd like to refer to this often
as the net growth rate
you see 3% to 5% there
if a policy is set up properly and positioned
with one of the major mutual companies
that 3% to 5% is a great range to state
to properly set expectations
based on the historical data we've seen
when we look at actual
whole life insurance policies
typically with the 4 major mutual companies
what have they actually produced
we've seen them fall between that
3% to 5% range
historically we've even seen it higher than that
but to provide conservative numbers
I do prefer to state the 3% to 5%
internal rate of return.
Then we've got peace of mind
so we do like to refer to this
and a lot of people express this
in one way or another
that it's a peace-of-mind product
and what I mean when I say that
is regardless of what's going on
in the stock market
in the economy
if that policy is producing call it a 4% IRR
and net growth rate
that'll just continue to occur
regardless of what's going on in the economy.
In 2008
in 2020 when COVID first hit
and the market took a severe dip
over a short period of time
there is a lot of interest
generated in whole life insurance
because of that peace of mind feature
I don't have to think about it
I know it will continue to appreciate
that's often attractive to a lot of individuals
when they're exploring the cash value benefit.
Liquidity
so this one's huge
especially for business owners
and real estate investors
so we can use the cash value
similar to a line of credit
how it works
is once you have money in cash value
let's pretend you've got $100,000 in cash value
it's earning a 4% internal rate of return
so it's growing by 4% per year
regardless if you let that cash value sit and grow
or if you elect to take a loan against it
it'll continue to compound at the same 4%
so for example I've got a $100,000
I elect to borrow at $50,000
I'll continue to earn dividends
on the full $100,000
as if I never pulled the $50,000.
Now there are some things to be aware of
such as when I borrow the $50,000
I'll see my death benefit drop by $50,000
there's also a cost to borrow on the $50,000
a loan interest rate
that goes to the insurance company
it's a lot like a piece of real estate.
If I've got a piece of property
that's appreciating at 5%
and I elect to take a loan
against half of the available equity
I'm going to pay interest
on the amount I loaned
however
I'll continue to earn that 5% appreciation
on the entire home value
so you'll see a lot of people
involved in real estate
attracted to that feature
especially when you couple that
with the peace of mind feature
and they know it just continues to appreciate
it becomes very attractive in that respect
and what I've noticed
with individuals we work with that
have paid in 7 figures per year into policies
they often want to compare the product
with what they are doing right now
so for example
someone's investing in real estate
and they're considering a policy
where they want to put away
$1,000,000 per year
and they specifically want to
leverage the cash value
for real estate opportunities
what they want to see is
if I just continue to use cash in the bank
for my real estate deals
what does that look like
and then lay that out for me side by side
where I can compare it with a policy
and factor in the cost to borrow
the net growth rate I'm receiving
so I can see
when I have more money in my bank account
versus when I have more money
in the whole life insurance policy
just provides a side-by-side comparison.
Then the third core benefit we've got tax-free
so tax-free
yes I can access my cash value tax-free
but there there are ways where I can mess it up
so technically how the cash value works
is that it grows tax-deferred
and I can access it tax-free if I do so properly
but it's very important to avoid a taxable event
one commonly known taxable event
is a modified endowment contract
a MEC
there are other instances
that can trigger a taxable event
I would check out any of our videos
that go through taxation
and whole life insurance products
for a full breakdown on that
but having awareness on that is something
we will see individuals
considering large policies do
and really what they want to make sure of
is (1) that we avoid it
and then (2) that we the agent
or the agent you're working with
is setting it up so
you won't ever have to worry about that
it's easy to prevent
but we've got to do things right.
The death benefit
often does have value as well
we see a few bullet points there
both on the personal
and business side of things
but let's go through the process here
so when someone is interested
in a whole life insurance policy
it starts there with interest
they're interested in learning more
and they'll often do research before connecting
and that's typically what most of us do.
For example if you're interested in a new car
but you don't know which one
you want to buy yet
do you go straight to the dealership
and let the salesperson educate you
or do you do research online first
and check out the different models
maybe you price shop
maybe you look for a certain year
a model that you really liked when you were a kid
whatever it might be
you're doing research first
this way you know what you want
when you actually go to the seller
the same thing with whole life insurance
what we often experience
is people reach out to us
and they're educated on the product
they know a lot about it
just from the research they've done
before we even speak with them
and what they're researching about
is the product, company
and then sometimes the agent
or agency as well
that is important.
Here's a big one
what I have experienced
both on the individual
and always the corporate side
is when a large policy is being considered
there's often more parties involved
we've got third-party involvement
so here we see CFO with corporations
I can give you a quick experience in this
years ago we worked with a bank
we still work with this bank
in setting up their bank-owned
life insurance policies
and when the bank makes the decision
as far as how much they want to pay in
what companies they want to select
they are going through a thorough process
and you've got the CFO
you've got an individual in the boardroom
who was a former examiner
a very very sharp guy
he looks at all of the details
and another executive
that's just with me connecting with them
then afterward they do additional research
so they're really vetting the product here
but you've got multiple individuals
looking at it asking the right questions
to determine if it is a fit.
Attorneys are often involved with individuals
typically tax attorneys
sometimes they are well educated
on cash value life insurance
and they know the right questions
to ask an agent
that a consumer might not know
this is extremely valuable in my opinion
and then sometimes a fee-only advisor as well
which is someone who can come in
analyze the product
perhaps they have prior experience selling it
but what they're doing
is just representing that client
to make sure that the product is set up properly
because the agent selling the product
is compensated through commission
so it can be difficult in some circumstances
for that agent to have a true
or I should say act as a true fiduciary
that should be the case
all the time in my opinion
however it's not uncommon
when working with individuals considering
what I've seen is $500,000 and up
bring in a third-party advisor
which could be a fee-only advisor
or an attorney
who is compensated through fees
that's not uncommon at all.
Some key points of awareness
typically what we will always show
and what is requested in cases like this
where someone's considering a large policy
is as follows
the guaranteed values
look at the worst-case scenario
don't listen to someone saying
ah the guarantees never happen
yes companies typically deliver
greater than what we see
on the guaranteed side of illustration
but look at them.
How I like to view it is
if I see the guaranteed values
I can set expectations properly
knowing that this is a potential
worst-case scenario
it's always done better
but when I look at that
is it an absolute deal breaker saying
if it does that I don't want it
there's no possible way
or do I look at it
and my initial reaction is okay
it's still designed
where I've got a lot of cash value upfront
the IRR is decent
like that, I'm good with that
and if I know it always does better I love it
so let's move forward
the point is looking at the guarantees
is extremely valuable.
Historical performance
so this is a big one in my opinion
because when it comes to
cash value life insurance sales in general
what often triggers buyer's remorse
is when someone is shown an illustration
we look at it over the long haul
and it projects these beautiful values
30 years down the road
and then the actual results are significantly less
and then the individual
who took out the policy says
the agent told me it should deliver cash value
similar to what was on that illustration
why is it so much less?
Because now they have less money
than what they thought they would
it's their money at the end of the day
not the agent's
so looking at historical performance
allows one to see has this company
actually delivered strong cash values?
And if it's sometimes
well what was done with those products
that have delivered strong cash values
where the consumer has been satisfied
as opposed to what was done in situations
where the product hasn't delivered
strong cash values
what we don't want is a situation
where someone feels
like they were over promised
but then underdelivered
like no we don't want that
so historical performance
can be beneficial to look at
because it's very big
in the life insurance industry.
And then awareness
commissions are minimized
so if a product is set up
with minimum commissions
what that often results in
is the strongest possible cash value
particularly
on the guaranteed side of illustration
so if I have the guaranteed values
as high as possible
that's going to result in minimum commissions
in almost every situation
and then the last thing just to hit on
a quick example here
if you're considering a policy of any size
how do I know if it's set up correctly?
That 1st-year cash value
generally should fall somewhere between
85% and 95%
sometimes it might be closer to 80%
depending on the company and product
but the majority of your payment
should be in cash value initially.
The break-even
should fall somewhere between 3 to 5
sometimes 3 to 6 years
if I receive a poor health rating
or I start a little bit older
somewhere between 3 to 5
to 3 to 6 years
and then company selection
selecting one of the major mutual companies
is extremely beneficial in my opinion
because going back
to the historical performance
we've seen them deliver strong
actual cash values
not just good-looking illustrations.
So I hope this video was helpful
if it was please hit the like button
subscribe for more
you can also leave any comments
or questions below
and I hope this helps.
Thanks so much.
Hey guys Steve Parisi here
if you enjoyed the content you just saw
please subscribe
like
and hit the notification bell
for future videos.
If you'd like more information
or to see some
custom policies for yourself
feel free to call
or email our offices
at the contact information below.