we're going to go through a little bit of material on dividends and how they are paid to cash value
life insurance policies what's interesting about this is if I see a dividend rate of 6% right or
whatever rate the company is paying often the consumer or the policyholder thinks that's what
I'm getting on my money 6% or whatever the rate is which we know that's not the case right whatever
dividend rate I received from an insurance company or that they declare keep in mind that that is the
gross rate that the company credits after the cost of insurance mortality expenses the whole
nine yards so if I have a dividend rate of 6% my net earnings might fall somewhere between
4 to 5% when I look at the returns year over year so we always want to be aware of that once what's
interesting and we're gonna kind of break this down a little bit today is when I look at how
dividends are actually paid on a cash value life insurance policy my money can go where
when I allocated towards an account premium or cash we say that in about every every video and
we always want to put it with one of the four major mutual companies what is it interesting if
I design a policy properly meaning I put 10% into premium and that's going to give me the maximum
cash value on day one and often throughout the life of the policy I'm gonna have more
money all right so that's the main takeaway if you don't want to go into details that's
really all you need to know however often when one looks at an illustration they're presented
policies with higher base premiums and the reason behind that is an advisor or agent will say well
you've got a higher dividend Pat over here we're gonna show an example in this a spreadsheet but
what I want to highlight here is when you look at how insurance companies actually paid dividends
on life insurance policies the formula used on base premium dollars is more favorable meaning
you're going to see a higher payout especially initially than what they will pay on cash now
here's the thing you kind of want to look at is yes the company might come to me and say okay we
want you to put money into premium so what we're gonna do is pay you a larger dividend on premium
what happens though with my premium or insurance expense dollars where do they go first the death
benefit nothing shows up in cash so they are going to pay me a higher dividend but I'm gonna have
less to work with so I'm getting a higher rate but on less money versus these dollars they go
straight into cash my PUA rider what happens there boom starts earning an interest for me picking up
the pace lower rate but on a larger bucket of money so we're gonna pull up a spreadsheet here
and what you're going to see is the option where I get more money into cash will initially have a
lower dividend rate declared and illustrated by the company but more money right you want to be
interested in more cash value who cares about the dividend as far as money net returns or higher
that's what I want let's demonstrate ready for this shine alright so what we've got here is the
example to the left all base premiums remember those videos and the examples where we say hey
this is a great example of what you don't want to do this is it 40 year old male pays in 20 grand
how's that cash look the first year you want that no I don't want him either better than a
zero six hundred fifty bucks it takes 11 years he pays in a total of two hundred grand eleven
years into it he finally has a game he's over 50 right it's too long really if you want to
be able to use the money that's taking too long now we've got highlighted here in this dividend
column in yellow you're gonna see why we've got the 50/50 example here I don't really need to
look at that let's just compare this to the proper way to design policies 1090 split 10% insurance
premium 90% cash what happens right off the bat that's obviously more attractive I paying 20 I
have seventeen five versus paying in twenty and having six hundred fifty bucks like no-brainer now
also instead of year eleven my break-even point or when I'm positive is year four substantially
more money upfront much better break-even point by age 50 I had 205 call it 206 verses here $260,000
and what's important to note here is this is the same insurance company same product same interest
crediting rate everything's the same except for the policy design now what I want to highlight is
let's look at year - here my dividend payout here is 870 bucks my cash though is 37 almost 38,000
dollars versus year - my dividend payout here is fifty four hundred dollars that's much higher
right kind of how you see the marketing and how insurance companies work is the dividend payout is
much more attractive on the example to the left however the cash value is much less attractive
I've got way less money right so the way to kind of look at it is do I want this higher dividend
this looks very nice on paper but not to say that columns not important what I want to look at again
my green column my net cash value that's the money I have access to anytime that's the money that
starts to come pound right away I want to know how I can drive that up and while the dividends
look stronger initially eventually the example on the right overtakes it and if we scroll down here
all right you're gonna see at no point in time does the other example ever overtake it by
year 30 dividend payout twenty nine thousand six hundred ninety seven in cash versus over
here five hundred fifty K that's a big difference almost a hundred one hundred fifty grand with the
same insurance company same crediting rate seem out-of-pocket by the consumer I just redirected
reallocated to where my money went alright so sometimes dividends will look shinier with the
higher base premium and the reason for that is companies do give preferable treatment to base
premium dollars however when you look at the net value at the end of the day it doesn't
make much difference right that dividend and it doesn't matter because I get more money in
the cash what's going to happen the more money from day one throughout the life of the policy