So what whole life insurance policy
should you consider
if you are looking at a
huge amount of money
going into a policy?
When I say huge
we're talking high 6 figures
or 7 figures per year.
This is quite often when it comes to
cash value life insurance planning
often people think or hear hey
is high cash value life insurance
only for the elite
the ultra-wealthy
and these big corporations?
And the answer is no
if a policy is designed properly
but in this video
what we are going to cover
is a product that
is really exclusive to individuals
pumping a ton of money
into whole life insurance policies
it falls under the category
of a high early cash value product
which is in the last video we covered
a basic higher early cash value policy
this is a bit different
with respect to how a
high early cash value policy works.
Remember in the last video
where about 80% of the premium
shows up in cash value right off the bat
and really how the company does that
is that they are not overcharging you
the policyholder right off the bat
they're spreading those expenses out
so if you were to compare
a high early cash value policy
to a different policy that's available
you'll see it lag over the long haul
in terms of actual
cash value performance.
Whereas with this guy
not really the case
we get the strong upfront cash value
and strong long-term results
they do spread the expense out
and it lags slightly
slightly compared to other policies
but it's not enough
to make or break a decision
people look at and say okay
that's attractive
but again you have to qualify
for this particular product.
So how this policy works is (1)
it is really geared
or the market for it is
individuals that are allocating
a lot of money into policies
whether they're doing that
with their own cash flow
premium financing
corporations
some small businesses
you'll see a lot of corporations
take these policies out
for a number of their executives
it's kind of the name of the product
executive strategies whole life.
Here's what I want to mention here
with respect to the
base premium requirement
the minimum requirement
if one individual is considering a policy
is $100,000 per year
so that's not base premium piece alone
the $100,000 base
that does not include PUAs [Paid-up additions]
PUAs would be in addition to that.
That right there
will disqualify a lot of people in itself
because if I'm paying a total
of $100,000 per year
that's my maximum payment
which is a lot of money going into
a whole life insurance policy
I could take a hybrid product for example
or a limited pay
set a $10,000 base premium
and juice the thing
this way I'm only committed to $10,000
and can really maximize the cash value
and have very very similar results.
This guy is different
with a minimum
base premium requirement
is a $100,000
I will add if you own a business
or whether it's a small business
or a large corporation
and you're looking at this policy
for a number of executives
then the minimum base premium
is $50,000 per individual
which is a lot
so it is really geared
for the specific market
for this type of product
is corporations
and higher net worth individuals.
So how it actually works
when we take the base premium piece
because going back
to the fundamentals
where you can direct money
premium or the PUA Rider
what happens?
Premium dollars is typically
what everyone does not want
because they don't show up
in cash value right off the bat
check this out
you'll see about 95%
both on a guaranteed
and non-guaranteed basis
immediately in the 1st year alone
so that's based on the base premium
what credits the cash value
a death benefit will be purchased
based on that as well
and then in addition to that
you can elect to add funds into PUAs
further accelerating
the cash value growth
very very attractive
and the PUA Rider
will get you some death benefit.
Let's make that dollar sign small.
So let's look at some examples
we're going to do things
a little different this video
first we're going to look at a basic
executive strategies
whole life insurance product
but then we're going to look at an
actual case study
which we actually had to get approved
it was a special exception
which anyone can get
if the circumstances are correct
companies will approve it
but we'll look at that
after the basics.
So beginning with a basic illustration
we've got a 40-year-old individual
where's your money going?
Well here we have a basic design
here's your base premium
check this guy out
$100,000 per year
all base premium
that's the minimum requirement
the software will actually
warn you of that saying hey
for the minimum premium for this case
is a $100,000
if it's lower than that
it will not be approved for sale
so they make that very clear.
But as we look at this guy
what do you notice?
So this is a 100%
base premium example
therefore this column
only reflects the base premium
so we can use it in this case
$100,000 in
there's your cash value
based on the minimum guarantee
in the 1st year $95,000.
Here's a real money column
net cash value in the 1st year
these two match each other
that's attractive
no matter how you slice it.
Now what's also
very interesting about this
here's your annual payment
$100,000 per year
to the right of that
are your total payments over time
there's your breakeven
and this is based on the present dividend
nothing fancy
no indexing
nothing like that.
So with a 100%
base premium product
we're breaking even year 8
now what happens
when you start to get creative
and really juice the policy?
Let's take a look
so what we're going to look at here
is an individual
who is younger than me
when he looked at this policy
he's younger than me in general
I'm extremely impressed by his work ethic
and how fast he moves in business
and he's humble about it as well
which always goes a very long way.
In this case he's considering
7 figures going into a policy
looking at a number of options
here we've got a true 7-Pay
so what that means
he's max funding
up to the MEC limit for 7 years
interested in maximum cash value
he said okay
how do I maximize this thing
based on the limits
that are made available
with about 7 figures per year going in?
Right around a $1,000,000
a little bit more in this case.
So knowing that the minimum premium
a lot of corporations do this
just the planning and strategies
might be different
but the minimum premium here
is what?
$100,000
as low as we can possibly go
with this particular type of product.
Then what do we see?
Paid-up additions Rider
or PUA Rider
literally 10Xed it
as much as we can.
Now here's what I want to add here
of that PUA Rider
we've got a pretty
fat term insurance Rider here
this is a cheap way to raise
the MEC [Modified Endowment Contract] limit
with that said
he is very young
here's the cost for the term Rider
just about $8,000 initially
and the cost will go down
each year as well.
Guardian is nice
because it has that flexibility
we can bounce payments
up and down over time
with that said
often when working with these type of cases
people don't need the flexibility
or it's a premium finance case
where it's being financed
so they don't need that flexibility
it's not as much of a conversation point
sometimes.
So as we look at this guy
what do we notice?
$1,000,000 goes in
what's your cash value
right off the bat?
I'm sorry $1,100,000 goes in
there's your cash value
just over a $1,000,000 initially.
Death benefit
is really solved for a MEC limit
we overinflated it slightly here
but here's just a true 7-Pay
$1,100,000 going in
here's your payments
breaking even
between years 4 and 5.
The old product
before the 7702 change
would break even between years 2 and 3
because we had a lower PUA Rider fee
but even with that said
the new design
here you go
looks fantastic
and we did look at options
with payments
constantly going in after 7 years
as that's very possible
but here we just looked at okay
how do I maximize
the internal rate of return
based on the dividend option only?
So here we go
so no payments thereafter
look at this thing go
so IRR a lot of times
I know people will ask
hey how do you get the
internal rates of return
what formula do you use?
Some people say that
we're making it up on Excel
it's like no
it's right here in the illustration.
Here's the same policy
internal rate of return
this is the average IRR
IRR and net cash value
you will notice the IRR
the average
not the annual
the average will no longer be negative
when I have more money in cash value
than what I paid in
so in this case
I've paid in $4,400,000
year 4 I've got $4,372,000
next year $5,500,000
I have $5,600,000
another $100,000
that's where I've got the positive
internal rate of return
based on the company's
present dividend interest rate
tops out a little over 4.3%
so it gets close to 4.4%
then let's also look at an index strategy.
Here is an example
exact same policy
you can see with the death benefit
there's the $1,100,000
funded for 7 years
after that
he pays just the minimum premium
a lot of people like to practice this strategy
so I just want to zip down here
here we go
check this guy out
how's that IRR look?
So this is 100%
just a safe asset play
meaning here's money
that is in safe accounts
I can move over to a cash value
life insurance policy
the safety is great
he likes that index feature
he may or may not use it
he can flip back and forth over time
but here's a great area to position money
it's liquid if I ever need
or want to access it
the tax-free feature
especially when you're in a higher tax bracket
is very attractive
to say the least.
And then also you've got
a big death benefit
from an estate planning standpoint
which always
always has a benefit
when you're looking at
these kinds of numbers
but internal rate of return
just continues to increase
but it is a good product
to be aware of.
I'll add this too
there's been many many times
where we look at that product
some people select it
some people don't
they like the traditional product
when they measure
the internal rate of return
they get a little bit more long-term
it depends on the individual
it's not uncommon to see at all
someone say you know what
I'm not going to use the money upfront
so I don't need to have 95% of it
I'm okay with 90% or 85%
because I'm not going to need it
I value that little bit stronger
long-term performance.
My point there is
if you're in the business
show them the options
if you're a consumer
make sure you see the options
that is really what gives
anyone assurance that
you're going to pick the right option
because they're all presented.
If they're not
and you find out about this after the fact
that's where issues can pop up.
So I hope you enjoyed this one
I always like talking about
these types of corporate based policies
because frankly it's my background
before I got into business for myself
that I was a back-office nerd
just modeling these things
and I love the illustration software.
So I hope you enjoyed this one
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and as always
I hope this helps.
Talk to you soon.
Hey guys Steve Parisi here
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