Alright split #2
10/90 versus 40/60.
Do you want to win the race
or finish strong?
If you've run track and field
cross country
or any type of race
you know you want to win the race
the finishing kick
is not always going to win.
Going back to that intro video
I'm always relying on my kick
and I'm getting obliterated
so I finally learned
I've got to get out of the gates faster.
So with policy design
same thing
here we go
we're going to look in this example
$100,000 per year
same company
same product
that we looked at in the last video
all non-MECs [Modified Endowment Contract]
10/90 compared to a 40/60
here are the specific designs.
Now we didn't touch on compensation
in the last video
I'm going to touch on it briefly here
in fact let's look at the numbers.
So here we've got
our comparison sheet
before we look at that
let's validate everything
here's our 10/90.
If I'm you
I would want to know this
if I'm a consumer
having the knowledge I have
on cash value life insurance
where is my money going?
I can direct it toward
the insurance premium
$10,000 base premium
which is as low as I can drive it
with this company.
This is with 1 of the
major mutual companies
will generate approximately
a $9,000 commission
in the 1st year
and then years 2 through 10
with renewal commissions
$500 per year
that's how the compensation works.
If we were to look at the
40/60 split
let's go to that
here we go
$40,000 base premium
$40,000 base premium at 90%
what's that come out to?
$36,000
so world of difference on compensation
$9,000 upfront
compared to $36,000 upfront
there's also a 5% renewal on that
$40,000 per year as well.
PUAs [Paid-up additions]
with this company
pay 2% per year to the agent
so compensation
is in favor of what?
Definitely the 40/60
but if you're a consumer
and you say hey I don't care
what the agent makes
as long as I have
the best possible policy for myself
which makes sense.
Which one gives you more money
in the beginning?
Definitely the 10/90.
Going back to that
by year 5
you've paid in what?
$100,000 per year for 5 years
cash value $502,000
you're breaking even
this is based
on the non-guaranteed dividend rate.
Death benefit
just about $3,000,000
which gives you
a $100,000 MEC limit, okay.
The 40/60 at a 20-year fund
we do not need a term Rider
if we wanted to fund 21 years
with a 40/60
without a term Rider
at the same $100,000 per year
you'll run into a MEC
based on the current dividend
midpoint guaranteed values
it will MEC.
Options would be (A)
to add a term Rider
if we want to do a 40/60
for a longer period of time
than just 20 years
or (B)
reduce the funding after 20 years.
So what I attempted to do here
was put the 40/60 split
in the best possible position
to succeed
and actually produce greater value
than the 10/90
without triggering a MEC.
When's our breakeven?
$100,000 per year
it's easy to track here.
Year 8
you've paid in $800,000
what do you have?
$800,000.
You gotta love these
life insurance illustrations, right?
What's your death benefit?
Almost the same $3,000,000.
So let's do this
look at the comparison sheet
what do we got here?
10/90 on the left
10/90 split
20 years
this is exactly the same
we peel all the numbers
you can see it here
$502,000 in cash value.
This guy $800,000 in year 8
$800,000 in cash value
$800,000 paid into the policy
that's also what I have in cash value.
Okay looks great
now let's have some fun.
The question here is what?
Which option is more efficient?
And which option
gives me more money?
Would you rather have
more efficiency
meaning you're seeing it grow
by more and more each year
or would you rather have
more money from start to finish
to work with?
I'd rather have more money
like if I compare myself to
another business owner
that has generated
$100,000,000 in revenue
and he's got
$100,000,000 in his bank account
and I say hey we're finally catching him
after so many years
he's still earning $100,000,000 per year
now 30 years later
we're at $130,000,000
$150,000,000 like we're beating him
year over year
but I've got $20,000,000
in my bank account
he's got $150,000,000 like hey
I'm not even close
and he's had more money
all the way through.
So I mentioned those big numbers
because when working with people
and corporations like that
that's how they view the approach
there's a reason
why the wealthy
big banks
corporations
take all of this capital upfront
and they see it long term as well
there's a reason for that.
So let's take a look here
what we're going to look at
cash value growth
let's compare this side by side first.
What do you notice here?
Year 1 and 2
what's your base premium
on the $100,000 the 10/90 split?
$10,000.
Year 1 $100,000 goes in
what does not show up in cash value?
$12,000 and change
the $10,000 base premium
the cost of the term Rider
there's a PUA Rider charged as well
with all policies
with most companies actually
not all of them.
This example
40/60 split
no term Rider attached
$100,000 in
$64,000 in cash value
$35,000 almost $36,000
does not show up in cash value
meaning I pay in $100,000
and I see $64,000 show up.
Year 2 with the 40/60
you pay in $100,000
grows from $64,000 and change
to $132,000 and change.
Cash value growth
negative $32,000
same thing year 3
$7,800 negative
it's by year 4
I finally start to see
more money come back
than what I pay in
that's the net cash value growth
excluding our payment
that I don't count as growth
because it's money we have
we're paying into the policy.
If I look by year 20
similar to the last video
with the $15,000 per year going in
what do you notice here?
The 10/90
you grew by $120,000
and with the 40/60
you grew by what?
$130,000
Wow
you're growing by $10,000 more
with the 40/60
than you are with a 10/90.
Sometimes we hear
well that's the most important piece
because you're more efficient
when you look at the growth.
I'm like no
I've got more money here
and I had it from start to finish
which is a huge opportunity cost.
It's like when you look at this
like what am I missing?
I take more money
from start to finish
and then I can invest that in myself
and continue to push forward.
Now what I am missing
which this is not how I think
by the way
but on the compensation
this is reduced on this guy
so I want to look at
the net cash value
from start to finish
can look at the net death benefit as well
this generates greater death benefit
long term
it's interesting how it works, isn't it?
Let's look at the cash value difference
between the 2
so time passes
what do we notice?
20 years
what do you have more money with?
Simple as that
if cash value is your goal
so what are the core benefits
to a cash value life insurance policy?
Safe
liquid
tax-free.
The first video of the split series
we mentioned how and why
the ultra-wealthy
banks
corporations use this
how the wealthy
know what to look for
because they have advisors
that know what to look for
like an Elizabeth
like a Scott Witt
that are not in the industry
but they have training on the product
and serve as that
disinterested third-party advisor
that's why I like those people so much.
Which by the way
we have zero
financial incentive with them
we align in so many ways
that's why I recommend them.
Cash value difference
$60,000 more by year 20
and you have more money
all the way through.
I mentioned this in the first video
I spoke with a couple
that they will do close to
$100,000,000 in revenue this year
that couple was presented
whole life insurance
high cash value life insurance
first with options that took
7 to 10 years to break even
not enough money upfront
and they saw the long-term benefit
they did not move forward with it.
The simple reason
the husband
this sticks with me he mentioned
it's the opportunity cost
like they keep telling me
no you're not understanding
it's the long-term value.
He's like listen
I built my business
with capital upfront
that's what I invested in my business
I kept on growing it
so when you're telling me
to sacrifice that
for a little bit more long term
which by the way doesn't even happen
he's like no
it doesn't make sense.
The core benefits
like why he was attracted
to a cash value life insurance product
he had a lot of money in cash
already he had money in other areas
saying okay here's money in cash
he can put it into
a high cash value life insurance policy
safe
liquid
tax-free
if everything tanks in the market
and economy
this will continue
to produce that 3% to 5%
no risk
the tax-free benefit
is huge at that level
but that's how everyone approaches it.
You don't have to have
millions of dollars either
in order to make this work
I use them as an example
because that's someone
who hasn't figured out
that couple
so obviously we want to learn from them
copy them
how do they get there
from a business standpoint
but then also what are they doing
with their money
and then what are the details
they're doing with these policies
that their advisors know what to look for
like that's the kind of stuff
that's very valuable to me
that I take away anytime
I'm learning about something that
I don't understand
other than cash value life insurance.
So as we look at this over time
what do we notice?
Cash value difference is in purple.
Do you ever have more money
in the 40/60?
No
you don't.
For a point in time
it was growing at a faster rate
but eventually it slows down again
because we stopped the funding
after 20 years
if we try to do the same thing
funding it for 50 years
the outcome's the same
and again we took that 40/60
with no term Rider
I'm sorry in the 50-year fund
we had to add a term Rider
in order to fund it
at that level that long
same thing with a 10/90
but there's no difference there.
And again we're not saying
a 40/60 is just evil
and never go with it
that's not the intent at all
like this policy
this 40/60 split
where it would work I mean
if he's got a $40,000 based premium
which he does
is we would tweak the death benefit
in the policy a bit more
and set it at a $400,000 MEC limit
and he could in a sense
continue to fund a 40/60 splits
but now he has the ability
based on the insurance company limits
and the IRS [Internal Revenue Service] limits
to add up to $400,000 per year here
so he's got more window room
that he can plow into the policy.
Like that's the big thing there
how do I equip the policy
to have more space
so I can add into it
if I want to
but not be committed to it
in the event things do not go
at the pace or rate I anticipate?
If that makes sense.
So I hope you enjoyed this video
with the spreadsheets and such.
If you have any questions
please feel free to reach out anytime.
If you enjoyed it
please click the like button
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I hope this helps.
I'll talk to you in the next video.
Hey guys Steve Parisi here
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