Alright
today we are going to answer
a recent question we received
that is a really good question
and a lot of times people ask
if they don't
we always try and ask it for them
and then provide an answer
because it provides
some fantastic awareness.
The question specifically is
if you don't max out
your PUA [Paid-up additions] Rider
meaning if you have a plan
to max fund a policy
at $10,000 per year
at $50,000 per year
$100,000 per year
whatever your dollar amount is
you've got a plan to max fund it
but then you don't
will that impact the policy as follows
will it take longer to break even?
The answer is typically yes
we're going to show a demonstration.
And then (2)
do you have to pay
longer than planned?
So as an example
if I plan
to pay in $100,000 per year
for 10 years
and I've got a policy
with a $10,000 base premium
a $100,000
MEC [Modified Endowment Contract] limit
so you know okay
I've got a plan to get this
$1,000,000 into a policy
$100,000 per year
I think I can do it
that's my plan.
But then life happens
things don't go according to plan
maybe you get in
$100,000 for only 5 years
then stop
maybe it's $50,000 for 10 years.
Let's say $50,000 for 10 years
the specific question here in part B
is okay
I plan to pay in $100,000 per year
for 10 years
life happened
I can't get it in
I got $50,000 in for 10 years
with the policy that was designed
with a $10,000 base premium
do I have to pay longer
than that 10 years
since originally
it was equipped to handle
a $1,000,000 over 10 years
and I didn't get it in?
The answer is no
you can continue to fund it
so we're going to look at
several different variations
pretty much with the same policy
and then 1 additional option.
But what we're going to look at here
is whenever we have a plan
which plans always change
for everyone over time
but if we have a plan
to pay in $100,000 per year
for 10 years
we've got our $100,000 MEC limit
I want to see what it looks like
if I follow through according to plan
$100,000 per year for 10 years.
But then what if life happens
and I take that same policy
that was optimized for 10 years
that's the key there
and stop after 5 years?
Because if my plan
was to only fund it for 5 years
I'm going to design that
a little bit different
I'm going to go with the smaller
term Rider on a 5 year
compared to a 10 year
just to reduce my costs further
and bump that internal rate of return
it always depends
on the individual's preference.
So again just to stay on track
plan $100,000 for 10 years
look at that
in the same policy
with only $100,000 for 5 years
then the same policy
with a $10,000 base premium
and the $100,000 MEC limit
but with $50,000 for 10 years
and then stopping altogether.
$50,000 for 20 years
we're even gonna look at
$50,000 for 5 years
that's an option too
so my point to mentioning that
and what to illustrate
is we can stop early if we want to
which is really nice.
And then what if I only do
$20,000 for 20 years
look at different variations
now we're not going to look at
all of these variations
but the majority of them
we're just going to give you some samples
in respect to what it would look like.
So again policy design
here's the sample we're going to follow
that $10,000 base premium
so we've got a $10,000 base premium
with the ability
to pay another $90,000 per year
into PUAs.
Now if life happens
and he cannot if this is you
if you cannot get in
the original plan
which was what?
A $100,000
when you add those 2 together
you say hey I can only get in $50,000
I can only get $15,000
maybe I just start with the minimum
what's your true minimum?
That base premium
so what I want to touch on here
is when you first set up that policy
wherever you set that
minimum premium
that's your actual commitment
when you start a policy.
I'll add where a lot of people
are attracted to
the idea of a 10/90 split
or a minimum premium policy
is the high cash value
especially when you look at the guarantees
but really the flexibility
I'm committed to a lesser amount
and that really just gives me
as a consumer
I hear this frequently
peace of mind
I don't feel obligated
or committed to this big bill
in the event that life happens
maybe my cash is tied up elsewhere
but that flexibility piece
has really given a lot of people
a lot of peace of mind
and it's helped a lot of people too
when life has happened.
Real estate investors
they don't get the amount of funding initially
then they sell a piece of property
and make a huge catch-up payment
and make up for lost time
we've seen that too.
So let's take a look at some examples
and looping back to this
answer these questions specifically
if you don't max out your PUA Rider
so I don't do everything
according to plan
will it take longer to break even
and do I have to pay longer?
So the answer here
no
we're going to look at the numbers to validate
and then here
also no
but you can continue to fund.
So anytime we look at
side-by-side comparisons
or different samples
what I like to look at
pretending that it's me
if I'm the individual
the questions I would always
ask my superiors years ago
when I was learning about a lot of this
and I still ask questions
is stick with the original plan.
Meaning I don't want to tweak
or adjust the design
keep all things equal.
Plan for $100,000 for 10 years
paid $100,000 for 10 years
assuming this was the individual's
original plan
starting at age 45, okay.
$100,000 for 10 years
$10,000 base premium
$82,000 almost $83,000
right off the bat
this is a product that complies
with the new 7702 changes
break-even year 5 in this example.
As we scroll our eyes to the right
to the middle example
let's circle this in green
what do you notice
about the 1st 5 years?
Everything's identical
because it's the same policy
the only difference here
is that we are assuming life happens
and you can't pay another
penny into the product thereafter.
Hey I say you can pay in
the base premium
you say no
I can't pay anything in.
And for transparency's sake
because this is on Excel
years 6 and 7
the $10,000 base premium
is technically still due here
but if we're not paying it
the policy is paying for itself
and then year 8
we cut the term Rider
actually we did not go
reduced paid-up on this one
we cut the term Rider
so we can keep funding it if he wants
but you see the
death benefit dropped there.
But the main point
is we see a pivot here
planned to pay for 10
couldn't do it because life happened
what's it look like
if I still get $100,000 per year in
but then stop after year 5?
Compared to the option on the far right
let's put this in red
planned for 10 years
but I only paid in $50,000 for 20
not optimized.
So what I wanted to do in this example
was get the same out of pocket
$1,000,000 total
so 100 times 10 is $1,000,000
50 times 20
is the same $1,000,000
but here's the big thing
you've got $50,000 going in
with a $10,000 base premium
which effectively
is a 20/80 split
now great that you have window room
to throw in another $50,000
for a total of $100,000 per year
but we're getting $50,000 per year in
there's your cash value
$36,000 right off the bat.
Break-even point is when?
Between years 6 and 7
so not bad
not horrible by any means
but we do see the difference there.
So I plan to max fund it
the first question
is will it impact my breakeven point?
And there's the answer
this is the same product
same company
health rating
all things are equal here
just paying in less
you see the death benefit's
the same on the far right too
the same $1,000,000 in
$1,525,000 in cash value.
Compared to the example
where you got it in over 10 years
$2,060,000
over $500,000 more
same out of pocket
but time value of money
you get it in over 10 years
so of course it's going to crank faster
it's going to compound faster for you
and you optimize the design too
I mean we're 10Xing the base premium
shoving more money
into the product each year
taking advantage of the term Rider
funding up to the MEC limit
with the max we can.
Like that's optimized
this example was life happened
I still want the ability
to go up to $100,000 but I didn't do it
I just paid in $50,000
so now I can see it upfront.
Now if this was the case
as we have our review meetings
and reach out to everyone
we work with 6 months
what I would do
and what our company would do
is continue to have the conversation
and if we felt
and the consumer feels that hey
I'm getting a max of $50,000 in
is that likely going to be the max
you're going to get
on any given year?
Yeah you know I don't foresee myself
getting to $100,000 anymore
what we would do
is actually scale everything down
you can always
reduce the death benefit
which reduces the MEC limit
after starting a policy
same thing with the base premium
so we can peel that down to $5,000
still get the same $50,000 in
and improve performance
very easy to go down
difficult to go up
it requires underwriting
and sometimes you can't do it.
Let's look at another variation here
so what do we see here?
The 1st 2 are identical
plan for 10
paid in for 10
this guy plan for 10
$50,000 for 20
this is the exact same example
the exact same thing.
Example on the right
plan for $100,000 for 10
life happened
pretty severely here
he got in $50,000
but stopped short
so not only is the policy not optimized
meaning I'm not
10Xing the base premium
when I had planned to do that
but it's not optimized
and I have to stop short
so the question if we go back
was what?
Will it take longer to break even
and then would you have to pay
longer than planned?
So when I see or hear no
you wouldn't have to you'll be okay
okay that gives me some peace of mind
can you show it to me too
so I can actually see it?
Like I'm that guy
like I want to see it
before I move forward
just because so many things
happen all the time
or told one thing
and then something different happens
no one likes that situation.
So what do we see here?
If you still heavily fund
a PUA Rider
so here we're still
I mean we're 5Xing
our base premium
in terms of a total payment
$10,000 base
shoving another
$40,000 per year into PUAs
a little bit less because of a term Rider
but that's still a healthy fund overall.
So what do you notice here?
I mean it still breaks even
between 6 and 7
that is not bad at all considering
how we equip the policy
with the original planning.
Now if we were to scale that down to
$20,000
would not look that good
it would take longer
about 10 years
over 10 years actually to break even
but that's the kind of stuff
I want to see upfront
and we look at that.
When we get to the final stages
and I mentioned this before
we look at the 3rd option
when we get to the final stages
with anyone we work with
I'm a huge fan of showing them hey
here's the original plan
it's $100,000 for 10 years
but here's what it looks like
if you only pay in $50,000
here's what it looks like
if you pay in just the minimum
this way they see it upfront
and there's no surprises.
As the agent
we can never assume
that someone's going to
understand this
and know exactly
how to navigate through the stuff
like we can
it's our responsibility
to build awareness
around the important parts
like driving a car
here's the steering wheel
gas, brake, all that good stuff
I don't need to go under the hood
and explain how
the mechanics of the washer fluid work
if that makes sense.
Planned for a $100,000 for 10
funded for 10
then a different one here
planned to pay $100,000 for 10
but paid in $50,000 for 10
so specifically
what I want to highlight here
here's your base premium
break-even point is when?
Between 6 and 7
so not bad
but not great.
Now compare that
to the same policy
for the consumer
in respect to $50,000 out of pocket
for 10 years
but taking the base premium
down to $5,000
cutting the death benefit in half
which has to do
with the MEC treatment here
so what's interesting about this
what do you notice?
Highlighted in yellow
represent your break-even point.
The guy on the far right
is going to match more so
the guy on the far left
from a performance standpoint
because the ratios are the same.
Here you've got
a $10,000 base premium
$100,000 per year for 10 years.
Here $5,000 based premium
$50,000 for 10 years
compared to the middle option
which is $50,000 for 10
but a $10,000 based premium
higher insurance expense
where I thought I could hit it
but I couldn't for whatever reason.
So this is good stuff to see upfront
I do hope it provided
an answer to your questions
thank you so much for the questions.
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Hey guys Steve Parisi here
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