So in this video
I want to go through the
2 most important steps
when it comes to
a whole life insurance policy
if your goal is to specifically
maximize the cash value.
I remember years ago
I was working at a firm
where my role was to design
high cash value life insurance policies
for corporations
the firm that I worked at
really specialized
in executive benefit planning
I had experience with
bank-owned life insurance
also known as BOLI
and working with some very
very high net worth individuals
and large corporations.
Now I was a back-office guy
kind of an insurance nerd
I still am today
where I had a ton of fun
designing policies
modeling them
for maximum cash value
but what was really interesting
is at that firm
whenever we would work with
a potential client
or I should say the owner of the firm
worked with the clients
I typically was not involved in the meetings
I would get the orders
and design the policies
but any time a potential client
came to the company
there is so much conversation
around setting that policy up properly
for what insurance company
do I choose
and it went well beyond
just what was projected
because when it comes
to whole life insurance
there's projections
it's referred to as an illustration
that often looked very good
over a certain number of years.
But a key difference
between that firm
and the firm I worked at before then
which was just
planning for individuals
just everyday people like you and I
is at the individual planning firm
we would look at illustrations
and say hey
based on the company's
current dividend rate
we can expect the performance
to produce exactly
what you're looking at Mr. Client
whereas with the corporate firm
working with the
call it one-percenters
it was a much different tone.
Those policies had to be set up properly
and the illustration
was somewhat thrown out the window
and we wanted
actual results.
Meaning when we engaged
with a CFO at a large corporation
you had to have proof of performance.
Has this company delivered before?
Are they reputable?
And we want to know
that these products
we're taking on our executives
for our corporation
are going to be here for the long haul
and provide or produce
the absolute greatest results.
So in working at that firm for
quite some time
I really learned
what whole life insurance policies
produced the absolute
strongest cash value
for the policyholder?
And as I left that firm
really in working with individuals
and companies
we work with corporations
small and large today
but as I left that firm
really what I discovered quickly
is individuals
wanted the exact same thing
or they want the same thing.
There's so much interest
around the topic
of whole life insurance
but where people feel
taken advantage of
or some use the term ripped off
or whole life insurance is a scam
is often
when they are proposed
or sold a whole life insurance policy
under the impression
that this is going to produce
phenomenal results
look at this dividend rate
it's got a 6% dividend interest rate
that's what you're earning on your money
it's not true.
When they actually start to
crunch the numbers
or a financial advisor does it for them
they say here's the reality
of the whole life insurance policy
they thought they had something great
it turns out they did not
they sigh
they come back to the agent
the agent gets very defensive
and there's a whole issue
with whole life insurance
because of this
and many other reasons.
But then again
you've got corporations
who just pile boatloads of cash
into these products
we work with corporations
our largest client is a bank
that has some very large
high cash value life insurance policies
so it works
we've done several studies
where we validated
the proof of performance
but why?
Why is there always such a difference?
Well we've got several videos
that go into detail on that
today we're going to go through
the 2 most important things
you can do
with your policy
to make sure
that it is set up
for maximum cash value
just like corporations do
because you can have
the same thing.
The first thing to do
company selection
so you do not need me
or anyone to tell you that
there's a lot of
life insurance companies out there
we can turn on the TV
or YouTube for 15 minutes
and advertisements will hit us all day long.
When it comes to maximum cash value
life insurance policies
the companies that have
consistently delivered
the strongest actual cash values
to their policyholders
are as follows
in no particular order
MassMutual
Guardian
New York Life
and Northwestern Mutual.
Now all of these companies
have pros and cons
if you were to speak with
any one of these companies
of course they're going to tell you the best
and if there was any company
that was just clearly the best
we would let you know
and we would heavily recommend them
however
what I have found
through actual data
through a performance study
policies dating from 1975
through 2021
and we ran this study
I ran it
with these 4 companies
and smaller carriers as well
the evidence is so so clear
that when an individual
is interested in a maximum
cash value life insurance policy
these 4 companies have delivered
historically
based on that performance study
we've seen internal rates of return
or I should rephrase
those policies have produced
internal rates of return
between 5% to 7%.
Now that'd be great
if it was still doing that today
however to properly set expectations
if you were to take out a policy today
or if you've taken out a policy recently
that was designed
for maximum cash value
I'd set expectations
somewhere between the 3% to 5%
net internal rate of return
the actual growth rate
on your cash value.
So first and foremost
company selection
we IBC Global
primarily use MassMutual
and Guardian
sometimes we do show
New York Life as well
but Mass and Guardian
provide that quality
any of the big 4 do
and you can also have a policy
that's very very flexible
meaning you can adjust payments
as the years' pass
you can fund it for a short period of time
you can be very very creative with the design
and you can with the other 2 carriers as well
so the first most important thing to do
company selection.
The second thing
policy design
now this piece can sometimes become
or sound technical because
when you think of an insurance policy
what comes to mind?
I pay a premium
and if it's a life insurance policy
when I die
something bad happens
a benefit is paid out.
However
with a whole life insurance policy
this next piece
blows so many people's minds
I'm always fascinated by it
no matter how many times
I talk about it and doing it
I've been doing this for 10 and 1/2 years now
is when you pay any amount of money
into a policy
you the policyholder
can actually decide
where that money goes.
At the end of the day
your money can go toward 1 of 2 areas
you can direct it toward the premium
which I like to refer to
as the initial insurance expense.
Dollars that you direct
toward the premium
whatever that dollar amount is
if it's $1,000, a $10,000, a $100,000
with respect to your cash value
typically 0 shows up in cash
in the 1st year
and sometimes the 1st and 2nd year
this depends on the company
and product selected.
Now as time passes
you will see those premium dollars
come back to cash value.
So for example
I have a policy that shows
0 premium shows up in cash value
in the 1st year
it's not uncommon to see
by the time I hit year 2
those premium dollars
come back to cash value
I can access it
begin to earn the guaranteed rate
dividends
and gets better and better.
But what happens in year 1?
With the premium dollars
nothing shows up in cash value
whereas with this guy
this PUA Rider
which stands for
paid-up additions Rider
I like to refer to it as a cash dump in
what happens with these dollars
is as I pay them
guess where they show up?
In cash value
that's money I can access
begins to earn the guaranteed rate
begins to earn dividends
and the growth accelerates
on a life insurance policy.
Now it does purchase us
some life insurance
but really why individuals
and corporations
the corporations we work with
why they plug in
so much money into this area
is for the cash value
that is the area of interest.
Now quick story on this
when I first learned about this
before working at the
corporate benefit planning
the executive benefit planning firm
I remember one day I'm sitting on the couch
modeling some policies
just kind of playing around with the software
my dad's sitting next to me
and it kind of piqued his interest
when he saw the cash value build up
he's always been into investing
real estate business
so he's asking some questions
and to make a long story short
he sees these 2 areas
he goes
can I just pay nothing into the premium
because I don't care about the death benefit
and put it all into this area
to grow the cash value?
And I'm like, no you can't do that.
He goes I don't want it then.
Now eventually he did take out a policy
many years later
but it demonstrates
he demonstrated
a common theme
that so many people have
I don't care about the death benefit
how do I maximize the cash value?
We often hear that initially
and then the death benefit
does become valuable later
but at the same time
the interest is the cash value
so how low can we go with the premium?
It depends on the insurance company
typically we can drive the premium
with these carriers
some smaller companies
let you go lower than this
typically we can drive that premium
down to 10%
this 10/90 split.
So what that means
is instead of me saying
here's a $1,000,000 policy
it's going to cost you
X amount of dollars
throw that approach out the window
instead I like to ask
how much do you want the ability
to add into a policy
on any given year?
With the cash value being a safe
liquid
tax-free area to position money
those are the core benefits of a policy
the cash value specifically
safe, liquid, tax-free.
How much do you want the ability
to add into a policy
on any given year?
If someone says
I want the ability Steve
to pay in up to $100,000 per year
what we would do
is set that premium at $10,000
that is all they are committed to each year
and then they can throw in
an additional $90,000 into PUAs
and they don't have to
some years they might add another $10,000
some years another $50,000
some years they'll max fund it
my point is
the more money
that goes toward the PUA Rider
or the more the aggressive
the split is
the greater the cash value.
So really to summarize this
I have limits I need to be aware of
that the insurance company sets
all companies have different limits
it's not a clean 10X
with each of these carriers
but it's very close.
So this 10/90 means
if I want to be able to pay in
$100,000 per year
I would need at least a
$10,0000 minimum premium
and then I could pay
up to $100,000 per year.
If I wanted to pay a maximum of
$50,000 per year
then I would need a
$5,000 minimum premium
and I could pay up to $50,000 per year
so that's the insurance company's limitations.
And then next I have this guy
this MEC limit
which stands for
modified endowment contract
so again the core benefits
of a cash value life insurance policy are
safe
liquid
tax-free
those are the core benefits.
Any life insurance policy
can become classified as this M-E-C
which stands for
modified endowment contract
if it does what happens
is that the cash value
still grows tax-deferred
but anything I access
I have to pay ordinary income tax
only on the gains
and also a 10% penalty
if I touch it prior to age 59 and 1/2
that is only
if your life insurance policy becomes
classified as a modified
endowment contract
so we don't want that
because it strips the policy
of one of the most attractive benefits
being the tax-free aspect
so how do we prevent it?
Well every policy
has what is called a MEC limit
that limit is exactly what it sounds like
it's the maximum amount of money
one can pay into a policy per year
and still have the life insurance policy
classified as life insurance
in the eyes of the IRS [Internal Revenue Service]
not a taxable investment.
The fun part
is we can set that MEC limit
wherever we want
what you'll find
is that it has a direct relationship
to an individual's age
and total death benefit
that is actually 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 modified endowment contract
or if I want to access the cash value
I have to deal with potential taxes.
So to summarize this
what are the 2 most important steps
with whole life insurance?
To actually copy
what the wealthy do
what the banks do
what major corporations do
how do I copy that as close as possible?
Company selection
and then policy design.
Companies that have consistently
delivered strong actual cash values
to their policyholders
and then policy design.
How do I minimize
that insurance premium?
As low as I legally can
per both the insurance company limitations
and also the IRS limitations
if I do that
I will see maximum cash value day 1
based on a guaranteed cash value basis
also a non-guaranteed basis
but the most important thing
is the actual performance
the proof is in the pudding
I love that saying.
So what to look for?
Because I know this
can be overwhelming
(1) with the policy in the 1st year
whatever my payment is
I should typically see between
80% and 90% of that in cash value
so if you pay in $10,000
I should see between $8,000 and $9,000.
If I pay in a $100,000
I should see between $80,000 and $90,000.
Why there's a big range 10%?
Depends on the company
and product selection
some companies offer
more cash value upfront
with weaker long-term performance
and vice versa
so that's where it's good to see options there.
And then the break-even
when I have more money in cash value
than what I've paid into the product
it should range between years 3 and 6
and again this depends
on the company
and product selection.
So I hope that you found this helpful
if you have any questions
please feel free to reach out anytime
and as always
I hope this helps.
Thanks so much.
Hey guys Steve Parisi here
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