When it comes to whole life insurance
most people that work with our company
are interested in the cash value.
It is not uncommon to hear someone say
Steve
IBC Global
I don't care about the death benefit at all
I am interested in the cash value.
And what ends up happening
is if you optimize a policy
for cash value
you actually end up
with a maximum death benefit
long term
in the majority of cases as well
which is interesting.
But we hear that all the time
and why I started with that
because what I want to talk about
in this video is agent compensation
and kind of the big elephant
in the room that is never discussed
is when someone is interested
in a high cash value
life insurance policy
so if you hear all these good things
about whole life insurance
you want a maximum cash value policy
you open a policy with someone
you're paying money into it
you're told
it is the best possible design
for what you were looking for
but you look at it and just think
wait a minute
I'm paying all this money in
I have 0 in cash value right off the bat
or I have 60% to 70%
of what I paid in right off the bat
why would banks
and corporations
these wealthy players
that I hear about doing this
why would they do this?
Like it is not making sense to me.
This is a common objection
that so many people have.
Meaning they put a dollar in
and they don't see that dollar
or they might see 60%
to 70% of that dollar in cash value
in the 1st year
takes 7 years or so
just to break even
sometimes 10 years plus to break even.
But then we can set up a policy
where we have maximum cash value
right off the bat.
And my point to mentioning all of that
is your cash value
whether you see a lot of it upfront
or not that much at all
or just a fraction of it
has a direct impact
on an agent's commission.
As a licensed professional
as I've been in this business
for over 10 years now
how we drive our business
is through selling policies.
If someone decides to work with us
if we have the privilege
of working with them
we are paid a commission
from the insurance company
for bringing them that business
they otherwise would not have had.
Now there's 2 things
that directly impact
an agent's commission
(1) is the policy design
the other is the
insurance company selection.
Now let's say you are interested
in a high cash value
life insurance policy
specifically whole life insurance
and you're looking at policy performance
you say hey
I want the best company
the best policy
maximum cash value day 1
long term like
I'm doing this for the cash value
so I want it set up properly.
What should you look for
as a consumer
in order to maximize value?
Well again policy design
and company selection.
We're going to go through each of these
when it comes to company selection
we always talk about who?
Major mutual companies
4 of them
that have consistently delivered
being MassMutual,
Guardian,
New York Life,
and Northwestern Mutual.
We're going to go through compensation
how it works with those carriers
and others
when we touch on that piece
and at the end of this video
we're going to look at an example
of someone who's proposed
a small company
with a high dollar amount
going into a policy
on an annual basis
and it was not good for the consumer
it was very lucrative for the agent
we were able to fix the policy
and then he was able to have
a high cash value policy for himself
which is what he was interested in.
First
let's begin with policy design
as this is always important.
So when you pay money into a policy
say it's a nice round number
of $10,000 per year
that money
can go toward the premium
or toward the PUA Rider
from the consumer value
so from your perspective
if you say I want maximum cash value
how these 2 areas work
if you were to allocate
that $10,000 toward the premium
you would see
with most traditional
whole life insurance policies
0 in cash value
often for the 1st year
and sometimes the 1st and 2nd year
as time passes
you will find that premium dollars
come back to cash value for you.
But why they do not show up
in cash value
often in the 1st and 2nd year
is because the insurance company
is overcharging me
for the death benefit upfront.
Whereas PUA dollars
which stands for paid-up additions Rider
I'll often refer to it as a cash dump in
if I pay the same $10,000 there
I'll see just about $10,000
show up in cash value
could be between $9,000 and $10,000
some companies have fees for it
my point is the majority
will show up in cash value
immediately
that's money I can access
begins compounding
makes the guaranteed values
look more attractive
than any other type of design
meaning the more money
I have going here
the better the guarantees will look.
And you do get
some death benefit from this
but mainly why people pump
so much money into this Rider
is really for the cash value benefit.
So if I told you
this is how you maximize
the cash value in a policy
by putting money here
this gives you 0 cash value upfront
how much money
do you want to put here
compared to here?
Most we work with
I shouldn't say most
a lot of people have said hey
can I just put 0 toward the premium
and everything into the PUA component?
Which would be nice
if you look at bank-owned life insurance
and what banks do
that's a BOLI policy
in so many ways where
it functions like a big PUA deposit
but
with a pure whole life insurance contract
we cannot quite do that.
Here's how it works
we have limits to be aware of
insurance companies
have limitations that exist
as far as how much money
I can direct toward the premium
and then the PUA component
we see major mutual companies
and then smaller companies.
What do we have next
to major mutual companies?
10/90
we talk about that 10/90 split
all the time
what that would mean
is if I'm paying in $10,000
$10,000 represents 10%.
What's 10% of $10,000?
$1,000 toward the premium
that's as low as the company
will allow me to go
being a MassMutual,
Guardian, New York Life,
or Northwestern Mutual
they're not all a straight 10%
some let you go a little bit lower
some not quite as much
but you'll see right around
that 10% average
with the 4 major mutual companies
so it could drive the premium
as low as $1,000
in this particular example
the other $90,000
plowed toward cash value.
Smaller companies
depends
depends on the company.
There's a lot of insurance companies
out there
different companies
have different appetites
or preferences
as far as how much money they'd like to
have required to go toward the premium
versus the PUA
mainly because premium dollars
are more profitable
for an insurance company
and the agent.
Couple examples
if you take some small companies like
Lafayette Life
or Security Mutual
they do not have any ratio
as far as a percentage
that is directed toward
the premium or PUA.
What you'll often see
with Lafayette for example
is a $500,000 annual PUA maximum
what that means
is if I had a
$50,000 base premium
or a $10,000 base premium
I can direct $500,000 per year
into PUAs.
Now there are other limits
to be aware of
with term Riders and such
the lowest we've ever been able to
drive a smaller carrier
is right around a 397 split
which is pretty cool when you look at it
has strong guaranteed values
but I am still looking
or comparing small companies
to the major mutuals
when I look at guaranteed values
non-guaranteed values
and most importantly
actual performance
historical data.
So main thing here
because I'm going
fairly deep in this example
when it comes to policy design
if you're putting money into a policy
whether this is $10,000,
$100,000, or $1,000,000 per year
where do you want to allocate
the majority of your money
if you're interested in cash value?
The PUA component
so really what we want to do
regardless of the company selection
is minimize the premium
and maximize the PUA allocation
that will give you more money
from start to finish.
Company selection
we're going to touch on exactly
how the compensation works
with this next as well
policy design
but it is important to touch on
company selection first.
Assume we're looking at a
$10,000 base premium
nice round number
major mutual companies
you will see the 1st-year commission
with the major mutual companies
top out between 85% and 95%
this depends on the company and such
and product too
not all of the major mutuals
go as high as 95%
some will max you out at 55%
if you're a captive or career agent there
after so long.
To hit these levels
as an independent broker
you do need to produce a lot of volume
you may start around a 70%
or 80% rate on average
but I'm using the max rates
with the major mutuals
let's assume you're a consumer
working with an agent
who has produced a ton of business
their season
they do a lot of volume
and the company's going to pay them
because they get a lot of business
from that agent.
Major mutuals 85% to 95%
smaller company 130%
some go up to 140%
and it does have to do
with if the company solicits business
in the state of New York.
For example
some smaller companies
like Security Mutual of New York
Penn Mutual now
do solicit business
in the state of New York
so their pay rate
would actually slide over to
what the major mutuals are at
and that has to do with New York state
and the commission
regulations that exist
but for the most part
you'll see this.
So the agent compensation
how is it driven?
Here we go
major mutuals
if I have a $10,000 base premium
and I'm at a 90% rate
for the company that goes that high
$9,000 commission
would be the absolute max.
Smaller company
$13,000 based off that 130% rate
that's if I have a $10,000 base premium.
Now going back to policy design
well before we get there actually
we've seen
among the 4 major mutuals
proof of performance
we've done historical case studies
dating back from 1975
when policies were started then
all the way to present
and consistently
we've seen these guys
deliver the greatest consumer value
but then the least
agent compensation
least agent value.
What's more important though
if I'm a consumer
I'm interested in maximum cash value
yes I want to work with a competent agent
but at no point in time
should the agent take money away
meaning take more of that
consumer's payment away
direct it toward premium
which would boost the compensation
and sacrifice the consumer's cash value.
That in my opinion
is just not right
and that's not a shot at any agent
or anything like that
just frankly
if I'm interested in a cash value product
and I state I want maximum cash value
it should be set up for maximum cash value
pretty straightforward.
But looking at this
so if I had a $10,000 premium
there we go
let's assume
you've got a 10/90 split
so this would be what?
A $1,000 base premium
what would that mean
in terms of your compensation?
It'll be $900 not $9,000
a little bit higher.
PUAs
there are commissions
on PUA payments
depending on the company
typically between 2%
some go as high as 3.5%
again depends on the carrier.
But the base premium
is the number 1 driver
in the 1st year these are commissions
specifically the 1st year.
With a small company
if you had a $1,000 premium
you would see what?
$1,300.
Now the problem
is this
we often see higher premiums
typically between 25%
to 40% recommended
call it 40%
that's going to be the example
I'm going to show you next
40% premium
so this is $4,000
what is your compensation
all of a sudden?
$5,600
if a small company is used.
Now the issue with this
and again this is in my opinion
is that the consumer
is interested in cash value
and he's getting something
that is not maximized for cash value.
Smaller company
that has not provided
any proof of performance
and then a policy design
that takes away from the consumer
goes to the agent
no matter how you spin it.
So we're going to look at a case study here
and this is on an individual
who is mid-50s, 53
standard non-smoker rating
not preferred
we're going to look at a small company first
and as we look at the small company
we're going to look at a product
with a 40/60 design
which is exactly what he was proposed
he has a 1035 exchange
going into this as well
but we're going to look at the small company
with this product
then we're going to look at
that same small company
with the same product
but designed differently
just to highlight
exactly how the consumer value
can be improved
and then from that point
we're going to look at a
major mutual company
with a properly designed policy
juicing the cash value even further
guaranteed and not guaranteed
and then we're going to look at
the compensation
because if I'm you
if I'm the consumer
I want to know what?
Is my policy set up
for maximum cash value?
That's the number 1 thing.
And then 2nd if it's not
why not?
Am I getting an honest review of everything
or are things not being told?
Do I have to pull teeth to get answers?
That kind of stuff, like no
get that out of my face.
So let's get on into it.
Hey guys Steve Parisi here.
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