How to maximize Cash Value and the Policy Design so we are going to take a look at exactly how to
design a policy for maximum Cash Value let's get into it so when you take out a life insurance
policy and you're going to pay any amount of money into a policy let's assume you're not just
price quoting for a death benefit but you want a truly cash flow policy and use it as a flexible
savings asset your money can go towards one of two areas at the end of the day we have the Base
Premium I'll also refer to this as the insurance expense and then we have the PUA stands for Paid
Up Additions Rider I'll refer to this frequently as a Cash dump-in so what you want to understand
from a policyholder perspective or from an agent perspective and if we're educating our consumers
on this is how to design a policy for Maximum Cash Value how do these different areas function
let's assume we're going to pay a thousand dollars per year into the Premium piece for the insurance
expense component and then the thousand dollars per year into the PUA Rider the cash dumping
dollars that go towards your insurance premium piece in respect to your Cash Value with a
traditional Whole Life Insurance policy what you will see in most with most companies and products
in the first and second year that thousand dollar payment zero shows up in Cash Value and again
that's the first and second year the reason why is the company is overcharging me for the death
benefit upfront with a Whole Life Insurance policy in respect to my base Premium dollars
the insurance company really over charges me in the first two years now some products it's only
the first year some are the first three years but with a traditional product of most companies it is
the first and second year now what's important to note here is while I call it the Insurance
Expense it does not that it is a forever Insurance Expense you will find from the third year onward
that $1,000 Premium payment regardless what the number is if it's $100,000 Premium payment will
begin to credit the Cash Value accrued dividends and the growth will accelerate over time so my
main point is this Premium dollars do build Cash Value or call it equity over time it's really just
the upfront hit that I have to be aware of that's where it's gonna hurt me in respect my cash value
up front now dollars that I paid towards the PUA Rider the cash dump-in component pay a thousand
in I see just about all of that thousand show up some companies it's all of it someone might be
nine hundred eighty dollars some companies have fees and such up front for their PUA Riders but
dollars that go towards the PUA component this is money I can access it begins to yield the
guaranteed rate and dividends sooner because I have money in Cash Value immediately now it will
buy me some Life Insurance PUA states are paid up additional life insurance depend on my age we
might see on average by paying a thousand bucks in another thousand dollars I'm sorry another three
thousand dollars show up in a whole life death benefit as a result so a question we often get
is Steve I don't care about the death benefit how do I put a hundred percent of my payment into the
PUA component well we cannot go quite that aggressive depend on the limits set forth
by the insurance company and then by the IRS the IRS has to do with our MEC limit now real
quick the MEC limit without getting into much detail here and you're not aware of this we can
actually set it wherever we want we have control over this you'll find that it has a relationship
to one's age in death benefit think of it this way that is the measuring stick that the IRS uses
to determine if a Life Insurance policy will be viewed as life insurance in their eyes or a pure
taxable investment good to be aware of that now in respect to how much money can go towards premium
and PUAs 100% depends on the company we see a lot of companies offer this 10 90 split meaning
if I want to put 10,000 per year to a policy or if I have a one thousand dollar minimum premium
I have the ability to go up to 10k if I wanted to put a 100k per year I need to set down to ten and
some smaller companies have no limit to that I can drive it as low as I want but main point is
this money can go where Base Premium or PUA Rider how do I understand the insurance company limits
and IRS limits so I can squeeze that premium as low as possible and get more money into PUAs
accelerating the initial and long term cash value growth so we've got a quick example here
this is on a 40 year old male with the exact same insurance company Whole Life product and here's
what we got on the left we have a traditional Whole Life Insurance policy he's paying twenty
thousand dollars per year in here's his Cash Value and we haven't been read here until you see the
highlighted year you highlighted in yellow piece year fourteen the reason why is at that point
in time he has finally generated a positive cash value meaning over 14 years he's painted $280,000
and he has 287 at this point time so a traditional old school Whole Life Insurance policy does accrue
Cash Value but look year one I paid 20 grand I have 0 year two I paid another 20 total of 40 K
I've got 3 grand to show for now Cash Value starts to accrue getting more more back than what I'm
paying in right around here seven or eight but it takes a long time in 14 years to yield a positive
Cash Value then we've got a policy with a 10 90 split same company same age same outlay for the
policyholder 20k going in minimum Premium it's right around $2,000 as a term writer attached as
well but here's the main difference year one over 17,000 instead of 0 very similar death benefits
and that had to do with the MEC treatment but then year four I've paid an 80 I've got just about
80. 79,835 and I'm positive by year 5 continue to pay in the same amount for the same period
of time much stronger cash value by year 15 I've got just about $100,000 more so again the purpose
of this is to teach one how to maximize the cash value of a Life Insurance policy if my goal is to
use it for retirement income just a safe place to position money practice IVC this is going to show
you how to beef up your Cash Value first so you've got more capital to work with short term and long
term so we paid it for 15 years well let it sit and grow right here 30 I've got about another two
hundred thousand dollars more the only difference here just to reiterate is where my money's going
because again I can go toward my Base Premium i.e. the initial insurance expense or the PUA Rider so
when it comes to policy design this is the most important piece to maximize the Cash Value in
flexibility for that matter can design a policy where I commit just to this and throw money into
here whenever I want depending on the company but how do I maximize the cash value first and
foremost if I understand the policy design I'll be set up where things were likely go very well
me point to this if I design the policy properly I'm set up with some cash value from the get-go
long-term in most most scenarios as well and we'll be happy with the policy hope this helps
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