So today's video
is going to discuss the topic of age
when it comes to a whole life insurance policy
and cash value is the goal.
Recently I was working with an individual
who is interested
in a whole life insurance policy
cash value is the goal
but she's 72 years old
so we were looking at scenarios for her
mom will call her in this video
but she asked the question
would it make more sense
to take this policy out on my adult son
instead who's 41 years old
he like myself has no health issues
does it make sense?
It should make sense because I'm much older
and the older you are
the more expensive the life insurance policy is
correct?
On that point when you're older
does that mean that life insurance
is more expensive?
Yes and it's especially true
if you're purchasing a life insurance policy
purely for the death benefit
you'd find for a 41-year-old
or a 72-year-old
the 72-year-old
is going to spend a lot more money
for the same death benefit
than what the 41-year-old would.
What if cash value is the goal though
and mom says
I don't care about the death benefit
we're already covered there
cash value is what I'm interested in
does age still play a role?
Meaning does it make significantly more sense
to take a policy out on son age 41?
The answer is maybe
now in this particular case
mom's an engineer
she's a software engineer
so I can talk through the benefits
of taking out a policy on a younger individual
and an older individual
which we're going to go through
I'm going to show you how really
to approach a policy
when you're trying to find out
do I take it out for myself at an older age
or on a younger individual?
But with that said she's an engineer
so if I just tell her what can be done
or just tell her how it works
will that be satisfactory?
Probably not
typically someone who is an engineer
perhaps an I.T professional
or anyone who's very analytical
or just has experience
and wants to see information
because they believe what they see
not just what they hear
they want to see the proof here
how does it work I want to understand
how the watch is built
that way I can really use the policy
to the fullest degree.
So we've got option A
policy for mom at 72 years old
or policy B or option B
policy for son at 41 years old
the funding she is interested in is as follows
$100,000 per year for 5 years
that actually is a range
anywhere from $100,000
to $200,000 per year for 5 years
so a total of $500,000 to $1,000,000
that she would like to funnel
into a whole life insurance policy
or again cash value is the goal
is the death benefit important?
That's a question I'm going to ask
especially for someone
who is in their 60s or 70s
because leaving a death benefit
to the next generation
is valuable to a lot of people
when you look at whole life insurance
even when the cash value is the focus
the death benefit
often is appealing to individuals
especially those that are interested
in generational wealth
because how is that death benefit paid?
Income tax-free
now if you have a high net worth
and you exceed the estate tax limits
there are trusts that you can
have a policy owned by in order to
be passed more tax efficiently
but that is a question for a tax attorney
which is a good topic for another day
but with that said
is the death benefit important?
Now I actually brought this up
a couple times throughout the conversation
not asking the same question
over and over again because that'd be rude
but I did want to have certainty
that the death benefit is not important to her
and she had expressed that explicitly
she said I have the death benefit's not important
okay so let's look at numbers
and focus on the cash value
but here's what we really want to make sure of
when we look at a comparison
for any 2 individuals
but when we have an age gap like this
it's very important to make sure
it's an apples-to-apples comparison
and that nothing is manipulated
so what we're going to look at here
is the same company
the same product
and the same policy design.
What I mean when I say same policy design
we're funding the policy with what?
$100,000 per year for 5 years.
Where is the money going?
That is the most important piece
when the product is being designed
here's the premium of $10,000
here's our paid-up addition Rider of $90,000
there's a 10/90 split
the MEC limit
is set at $100,000 for both examples
so that's everything that's the same
what's the difference here?
The death benefit will be different
so the death benefit for mom at 72 years old
for a policy with a $100,000 MEC limit
here's the important piece
for a 72-year-old female
she will need a total death benefit
of just about $930,000
that will give her
that MEC limit of guess what?
$100,000 for the 41-year-old son
how much life insurance does he need?
It's $2,000,000 in total life insurance
for a MEC limit of guess what?
It's $100,000.
What do you notice about that?
The older you are
the less life insurance you need
for the same MEC limit.
The older you are
the less life insurance
less death benefit you need
to be able to pay in the same dollar amount
as a younger individual.
Why that is valuable to be aware of
is often we think as we get older
it's going to be more expensive
if I'm going to purchase this policy
it's going to cost me a lot in premium
to purchase this death benefit.
If the cash value is the goal
and I want to pay in $100,000 I can do that
and have a policy that has the same MEC limit
as a younger individual
I'm just going to start
with less death benefit naturally
so we need less life insurance
which will help keep the costs low
so we're going to look at an example on that
and then we'll come back
and hit a specific question she had
on the term Rider cost.
So let's begin with illustrations here
so we'll begin with mom
we've got mom age 72
where's the money going?
First off where's the funding?
On these stereo instructions
here you go $100,000 per year
and if we look at this down here
we've got $100,000 per year for 5 years
and nothing thereafter
we can scroll down
we're going to look at this on Excel
in a little bit too
but there's your funding of $100,000 per year
so the money is going where?
Well up here
is your insurance premium
in green is your paid-up additions Rider
Pua Rider which we like to refer to as what?
The Rider to accelerate the cash value
of a whole life insurance policy
this will do the trick.
So here's your PUA payment
what do you notice
about that and the premium
when we look at those 2 figures?
The PUA is literally 10X the base premium
so the most aggressive design
that we can illustrate
with this particular company
this is Guardian
is whatever our base premium is
10X that per year going into PUAs
with the exception of the 1st year
where we could go as high as 50X
we're going 10X year in and year out
in this particular example
a 5-Pay for mom at age 72
is the most efficient
preferred non-tobacco
which is the second the best health class.
So when we look at the funding here
$100,000 goes in
here's your money column
net cash value
and here's your death benefit
net death benefit
look at that figure $930,000
the MEC limit on this policy
is just a hair over $100,000
she pays in $100,000
there's the cash value of $86,900
so what is that?
Is just about 87% in the 1st year
did you think that that was possible
for someone 72?
A lot of times people do not think
that it's possible
this really illustrates
the importance of policy design
and when a product is designed correctly
you can really push those
insurance expenses down
in many cases regardless of age
and maximize the cash value.
What do you notice about year 2?
At the end of year 1 you're at $86,900
if this is you
you then pay in $100,000
cash value at the end of year 2 is $187,375
meaning you got your $100,000 back
your $100,000 back
and then a few hundred dollars on top of it
so you did not lose any money in year 2
and then from that point forward
it gets better and better
when's your breakeven point?
Look at that between years 4 and 5
for someone starting at age 72
so the policy is designed
for maximum cash value
we minimize the death benefit
as much as we could upfront
we minimize it again actually in year 8
and this is optional
but if someone said hey cash value Steve
that's what I'm interested in here
what you could exercise is this option
the earliest you could do it
is after the 1st 7 years
it has to do with the MEC test
but what we're doing
is chopping off the premium
cutting any remaining term insurance
and as a result you see the death benefit drop
so you give up death benefit
but what you get in return
is a little bit stronger cash value growth
because when you're not paying anything
or out of pocket here is $0.00
years 6 and 7 that premium was still due
the policy was paying for it internally
and then year 8 we can eliminate it
if we don't exercise this option
that premium is due up until age 95
because the name of this product is an L95
I can pay into it until the age of 95
but anyway the key takeaway here
when was your breakeven point?
Between 4 and 5
year 4 you were close so keep that in mind
let's look at the son
first off there's your break-even
you're at $396,000 in year 4 for mom
you're at $404,000 for the son
but what do you notice about the top?
Here's your premium
there's your PUA
anything different about those two
compared to the last one
on the policy on mom?
No, they're identical
what is different?
This total death benefit is not $930,000
$930,000 for a 41-year-old male
with this product will give him a MEC limit
of about $40,000 to $45,000
here we're at $100,000
in MEC limit or MEC space that is
so we've got the minimum death benefit
to be able to fund the policy
with $100,000 per year
so the difference with these two is this
which we did not hit on with mom
what this guy is
this target additional benefit
is term insurance that's attached to the policy
this is the cost of the term insurance Rider
OYT represents one year term
which we're going to go through that
in a little bit we're going to go through
details on that
let's go back to mom actually
so son is $600 for the term cost
mom is $1,600 there's a difference
so again
we'll go through the term Rider thoroughly
let's look at a side-by-side here
so what we're going to look at
is both a non-guaranteed
and guaranteed value
so we've got a side by side
we will begin with the non-guaranteed values
mom on the left age 72
now this reads minimum premium of $11,000
the son is $10,000
what was the base premium on both of them?
Can you recall that?
If we go back to the PDFs you'll see it
it was just over $9,000
so why we have the minimum premium
for mom at $11,000
and then for the son $10,000
sometimes I like to use the word
minimum commitment here
is because this includes the premium
plus the cost of the term Rider
so if I have a policy like this one
where I can commit just to the minimum
and then add additional funds
into PUAs at my discretion
which is a benefit here
she was interested in that
because the term Rider
costs more over here
and that's why it's $11,000
these questions come up
hey what's with the extra $1,000
when I compare and contrast?
It's a bigger policy
maybe it's another $10,000
meaning if we're looking at $1,000,000 per year
but that's why that's higher
a little bit higher term insurance costs
but as we look at the difference here
is it a lot initially?
No, as time passes it becomes more drastic
let's do this and this is going to show
how much more or how much less
we have in cash value
with the policy for the son
compared to mom 85 and 90
so by age 85 what's your difference there?
You've got about $47,000 more in cash value
with the policy for the son
so let's do this
death benefit compared to cash value
and this is if the death benefit's important
the purpose of this is what I want to know
is if I take a policy out on mom
or she takes a policy out on herself
and she passes
how much goes to the son
if he's the sole beneficiary?
If it's going to multiple individuals
it's a different conversation
but with all that said
if she dies let's say by age 80
if she would have taken a policy out
on her son
that cash value in this illustration
is appreciated to $606,000
however if she died
almost $750,000 is paid income tax-free
to her son
going back to that question
is the death benefit important?
We also want to factor in
with the death benefit
like what's happening here
this is a lump sum income tax-free check
my peers would argue that yeah over here
you can access that cash value
completely tax-free
that's true if you do everything right
and you don't trigger a MEC and such
however
I wonder if he doesn't see the benefit to it
after mom passes?
We can go over all the pros and cons
if it's just not a fit for him
we all have feelings
on certain products and strategies
it might be the best thing since sliced bread
but it's just not a fit for us
no matter who's convincing us and such
my point is if it's not a fit for him
and he wants to exit what happens?
The gains are taxable
as ordinary income to the policy owner
this is assuming
we made him the owner from day 1
transfer of ownership would be different
potential taxable situation
so having a policy on her
especially if the death benefit is valuable
is cleaner in many respects
it's a lump sum
income tax-free death benefit
if he wants to start a policy
at that point in time
let's say it's age 85 well what happens?
Well he can just use those proceeds
to begin a policy then
but the point is seeing numbers
especially for someone who is very analytical
or anyone really
but anyone who wants to see this
it helps really paint the picture
to see which one gives you more value
and again we're not
you got to remember
that this is income tax-free
but what do you have here, at what age?
Right 91
okay it's neat how the insurance companies
have this figured out, right?
No matter how you spin the illustrations and such
so let's take a look now at this guy
so she had a question
which is around the term Rider cost
so the type of term Rider
that we have attached...
Hey guys Steve Parisi here
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