What I want to talk about today
is maximizing the long-term cash value
of a whole life insurance policy.
We're often asked questions
about policy design
how to maximize the guaranteed values
the non-guaranteed values
and how do I make sure I get it right
however what we've heard a number of times
over the years is this
Steve if I take a policy
that has less cash value upfront
that means I'm going to have
more money long term
than what I would have if I take a policy
that has more cash value upfront.
Does that make sense?
Meaning if you take a whole life insurance policy
let's pretend it's a policy
with the same company
same product
same out-of-pocket to you
option A you've got 90% of your payment upfront
so you're paying $100,000
you've got about $90,000 in cash value.
Then option B
you pay that same $100,000 into the policy
but you've only got $60,000 in cash value
then you're told that somehow
with that option that has $60,000
in cash value in the 1st year
$30,000 less than option A
long term you'll have more money
with that option.
Have you ever heard that?
This is something that is taught quite a bit
when it comes to whole life insurance
and there is some truth to it
when we look at life insurance illustrations
what I want to talk about today though
is looking at illustrations
but then looking at what actually happens
and I'll also give my opinion on it
and how I feel about putting people into policies
that actually deliver strong cash values
where we have proof of it
and have strong guarantees
versus those that have not
and how commissions have an impact as well.
So what we hear sometimes is as follows
a higher base premium
will result in more money long term
and where you can see this
specifically is sometimes on an illustration
looking at the non-guaranteed value side
of that illustration.
We've got that word proof
when you see the word proof
what I want here
what I would want to see if I'm you
is not an illustration
but proof of an actual policy
that has lived the test of time
and has it delivered stronger
actual cash values long term
meaning if I go with the policy
that gives me less money upfront
I'm going to sacrifice some of my money
because an agent tells me
you will have more long term
if you go with this option
do you have proof of that?
Meaning if it has happened before
then I'm going to have more confidence
in taking the hit upfront
however if I see
on the non-guaranteed side of an illustration
that I might have more money long term
and then things occur
with the insurance company
that perhaps I and even my agent
have a hard time explaining
and ultimately result in me having less money
now I'm going to be upset
because you told me
by taking less money upfront
I would have more long term
but it didn't pan out.
Let's look at a visual here
so here's a policy
with one of the top life insurance companies
we've got a video up here
that provides a full breakdown on the company
we go through full illustrations and everything
but we're going to look at a summary here
so here we've got a policy
based on the non-guaranteed values
a 35-year-old male
where we talked about less money upfront
equals more money long term
we see $100,000 per year going in
and their base premium is $50,000
the 1st year cash value is $66,000 and change
what is highlighted in yellow
represents his breakeven point
meaning he is paid in $700,000
and he has more than $700,000
whereas over here high upfront cash value
he pays in $100,000
and has just about 90%
right out of the gates
what's highlighted in yellow
is his breakeven point.
So at first glance
which one is more attractive to you?
And keep in mind
these are the exact same products
with the exact same insurance company
same individual
same health rating
everything's the same
with the exception of the policy design
we've got a lower base premium
and the base premium
takes the biggest bite out of my cash value
especially upfront.
I take the higher upfront
just looking at it
based on what I see right here
but then we can look at this
cash value difference
so this is going to tell us
how much more or less we have in cash value
with this option high upfront cash value
compared to less upfront
so what do we see as time passes?
Well we see we've got more cash value
we stopped funding after 10 years
and look at this
just about 40 years down the road
I see the policy where I took less upfront
generates more cash value
so firstly if this did occur
would I be comfortable
waiting about 40 years to see a gain?
Because now you've got the whole argument
well what can I do with the money
in the meantime
if I can put it somewhere and earn 1%
that's going to put me further ahead
but if I'm just parking money in here
and looking at cash value and death benefit
I see long-term a long range of ages 85 to 90
it's getting around a $100,000 in difference
meaning this option gave me more.
So this is often
where the argument is generated
if you take less money upfront
you will potentially have more long term.
A couple issues I have with it
never seen it actually occur for one
when we look at actual policy performance
but then (2)
look at the exact same product
but with the guarantees
so when we look at the guarantees
what do you notice here?
On the non-guaranteed side
what always happened
well it went up for a bit
and then went down and eventually
that higher premium policy
overtook the lower premium policy.
What about on the right?
Guaranteed values just continue to go up
so are you more comfortable
with something that's guaranteed
to produce greater cash value
short-term and long-term?
And also
here's the big selling point in my opinion
based on actual results not illustrations
we've seen deliver strong cash value
or go with something that on an illustration
projects greater values
but personally I've never seen it happen
so when we look at this
reviewing the guaranteed values
what do we see?
More money upfront
and more money long term
when we look at proof of performance
what I've seen
is often the strongest actual results
follow the guaranteed values
not to say the actual values
we see on the guaranteed side of illustration
but if I had more money guaranteed
from start to finish
if I go with that design
then when I look at reality
I typically see that to be the case.
What I see with these options
when I go with less upfront
and this is what really scares me
is that they underdeliver
particularly when that base premium is high
we've seen that happen too many times
and here's where my fear is
being in the business
so if we flip positions
this is always a topic
with cash value life insurance
it always has been and it always will be
the commissions.
If you go with a policy
that has less in cash value upfront
what will happen
is a higher commission
is paid to the life insurance agent
so think about that for a second
I sell you that policy that we looked at
this option less upfront
I make a higher commission
I tell you
you should have more money long term
okay sounds good
the policy underdelivers
you do not have more money long term
meaning if you would have went with this option
you were guaranteed to have more money
short-term and long-term
and you did have more long term
but it's too late the policy is already in force
how would you feel?
I should have went with option B
now how would you feel if
you found out I made more money
recommending that one?
This is where you might get upset
a lot of people would
I know I might get upset.
So let's take a look here
at exactly what the commission looks like
in this particular case
here are the same 2 options
and this is with a product
that pays minimum commissions
based on the company and the product itself
less upfront with the $50,000 base premium
these commissions
are based on our company's rates
what we would actually receive
if we sold these two
so the 1st year is $18,000 and change
compared to this one
higher upfront cash value
and higher guaranteed cash value
is $5,600 and change.
Where you see this column
total compensation
this tallies up all years
of commissions that are paid to the agent
so if this individual
paid in $100,000 per year for 10 years
the total compensation
paid to the agent in this example
would be almost $50,000
$49,000 and change
whereas over here
it's about half of that.
And a quick side note
if this was a more traditional product
the $50,000 base premium
you'll see some companies
pay more than $50,000 in the 1st year alone
which is huge
and that's primarily based on the base premium
how commissions work
we've got other videos that cover that
but my point is
if we flip positions
if I'm the consumer
and you sell me this option
and I buy it from you because I believe
that I will have more money long term
but then it doesn't pan out
and then I find out
this pays a higher commission
and you could have sold me this
but you didn't even show it to me
that's where I could be upset as a consumer
so when I hear this argument
a higher base premium
will equal more money long term
I need the proof, that's it
where's the proof of performance?
Because once we have that
we have clear evidence that it can be
in the best interest of the consumer
we don't want to put a consumer in a product
that might work out
it turns out it doesn't work out
that's where issues pop up
like no thanks, we're not interested in that.
So I hope this made sense
it's a question and topic
that comes up quite a bit
we've heard a number of times over the years
but it is something that
if you're looking into whole life insurance
and you have heard this
or you're speaking with others
I would really dig into it
remember it's always okay
to ask questions about the policy
before you dedicate money there
because it is your money going into the policy
and that's the case if cash value is the goal
or death benefit is the goal
or it's a combination of both.
So I do hope that this video was helpful
let us know if it was
and we'll talk to you in the future.
Thanks so much.
Hey guys Steve Parisi here
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