What is going on everyone
Steve Parisi here with IBC Global
today we've got a treat for you
we are going to talk about
and really what we hear frequently.
When it comes to the idea
of infinite banking
this attracts so many people
to whole life insurance
particularly
in respect to the cash value
but what we hear so many times
just through phone calls
and working with thousands of people
is Steve
I get the idea of infinite banking
I understand the concept
I'm interested in a whole life insurance policy
however
what I do not understand
is whole life insurance.
I want maximum cash value
that is what I am interested in
sometimes we even hear
I don't care about the death benefit at all.
So to take that a step further
what I want to understand again
if I'm a consumer
this is what we hear
is who uses these policies
and how do they use them?
Because I hear of big corporations
big banks
wealthy individuals
using whole life insurance
specifically for the cash value
but tell me more
I'd like to really understand it
and not just move forward with it
based on a partial understanding.
So to provide some more information on
who uses cash value life insurance
we've got 3 examples up here
banks.
March 2020
remember that?
That's when COVID really
came on strong in the U.S
everyone was panicking
what did the stock market look like
specifically during March?
Yeah, it was tanking.
What did interest rates look like
during March?
They were already very low
and they're going down even more.
I remember getting a text message
from an officer at a bank
and all it said is Steve
we have a large pile of money
they gave a specific dollar amount
but we have a large pile of money
that we need to move asap.
Guess where they put it?
Cash value life insurance.
When you look at
all of the major U.S banks
often the number one asset
on their balance sheet
in respect to their tier 1 capital
which is among that classifies
their safest assets
is typically the cash value holdings
in their life insurance policies.
Interesting statistic, isn't it?
If you were to look at corporations
I've got a construction company
written down here
so a little bit of my background
during my earlier years
in the industry
I had the privilege
of working for a company
where I designed policies
for corporations
and really my goal was to
design policies
analyze different companies
look at historical performance
very nerdy back-office guy
data-driven
like that was my personality.
But I remember working with
a construction company
or I should say designing the policy
I didn't work with them
to be transparent there
I designed the policies on the back end
and I heard what the owner had said.
The owner of this construction company
had a number
of whole life insurance policies
some with major mutual companies
some with smaller companies
and they had performed
quite nicely over time
and he said you know
as I look at these policies
for a number of executives
for our company
when it comes to whole life insurance
my policies have been some of my
best-performing assets.
The owner had money in real estate
stocks
bonds
he went further to say
with the exception of the interest
I have in my company
in his construction company
my whole life insurance policies
have been my best-performing assets.
And the main reason why he stated that
he said last year
I made a $12,000 payment
to one of these policies
and the cash value grew by $48,000
now that policy was 30 years old.
In 2008 his value
just continued to appreciate
it was a peace of mind product
he did not have to worry about
any type of fluctuation
that's really what did it for him
and gave him that ah
I like this product
but it has to be set up properly.
But we see how banks use it
how corporations use it
that was a particular case
where we put policies
on a number of executives
the company owned
the cash value products
and the cash value was an asset
on the balance sheet
and the owner
was very satisfied with his products
that's why they did it.
Then we see the wealthy
a $200,000,000 policy.
So did you know
within the past decade
within the past 10 years
a wealthy individual
a billionaire purchased a large
cash value life insurance policy
of about $200,000,000
and I did not get to sell this policy
unfortunately.
However it is the largest
single policy on record
of ever being sold
you can actually google search this
but my point to this
is when you do Google search it
he made a comment
he did not care
about the life insurance one bit
when you Google search it
you'll see the quote
it reads that he purchased
the life insurance policy
purely for cash value
he saw the growth
this is a fixed asset
a safe area for him to position money
that's what he was doing
along with the tax benefits.
So how do people use it?
Why are they using it?
Both individuals
because what he did
almost everyone can do
with an individual policy
if it's set up properly.
Banks use it
corporations use it
because it is effective
when it's set up correctly.
If I transition into the basics
so some education
on whole life insurance
because going back to the beginning
I'm interested in infinite banking
but Steve IBC Global
I don't understand
whole life insurance
tell me more
I want to understand it
before I move forward.
So with the whole life insurance policy
we've got 3 main pieces
we've got a premium
which is level
for the life of the policy
we've got cash value
and I also have a death benefit
so with a life insurance policy
the premium
is level for my whole life.
Now with the word
whole life insurance
how long do you think
you have to pay into it?
Well naturally
I would think my whole life
it's in the name, right?
Which sometimes is the case
but if you do things right
you can have a policy
where you pay into it for 2 years
maybe it's 5 years
maybe it's until age 65
you stop and go
fluctuate with your different
payment amounts
that really leads into policy design
but I'm not going to touch on design today.
My point
is we have a premium
that's level for our whole life
however
we do not need to pay into it
for our whole life
it's very easy to accommodate a design
where we stop early.
We have a death benefit
that typically gradually
increases over time.
Now death benefit proceeds on policies
every single time
whether it's a whole life insurance policy
term policy
universal life
whether it's a
MEC [Modified Endowment Contract]
doesn't matter
the death benefit
is paid out income tax-free
however
it is not exempt from estate taxes
typically we need to do
a special type of trust planning
in order to accommodate that
but income tax-free
death benefit proceeds
are paid in that manner.
Cash value
here's the part that intrigues everyone
the cash value
as the years pass
go nowhere but up.
If things are going very very well
in the stock market and economy
or if things are going very very poorly
that value just continues to go up
I have a guaranteed rate
associated with it
nowhere but up.
This
going back to the construction company
and the owner
this is what he was attracted to.
Now with whole life insurance
if you want to pretend for a moment
if you were looking at a policy
let's say you buy one
you put money in
it's maximized for cash value
but then your cousin
your sibling
a mentor of yours
who is very savvy
when it comes to finance
says to you why did you put money
into a whole life insurance policy?
That is one of the worst areas
you can position money.
And you put money there
and you're like, I can't explain it
only if you could talk to my guy
the agent I worked with
they could explain it perfectly.
And then you're in that situation
like, no no they just ripped you off
for a high commission
as we've all been in situations like that
whether it's life insurance
or anything.
So how do we explain it?
Well what I like to say here is
if there's anything to remember
what are the core benefits
the main features
to a cash value life insurance policy
when I'm interested in the cash value
and I want to copy
what these guys are doing?
Here you go
remember these 3 things
safe
liquid
tax-free
safe, liquid, tax-free
that is a cash value life insurance policy
when it is set up properly.
So safe
to provide some more information
my money is not invested
in the stock market.
Net internal rate of return
the net growth rate
will typically fall
somewhere between 3% to 5%
now this piece is very important
to clarify here
because confusion always
always stems from this.
So if I pull up dividend history here
this is one of the major mutual companies
what do we see for 2021
and then what do we see on the far right?
Dividend interest rate 5.65%
that is their declared dividend rate
for 2021
we see a guaranteed
cash value interest rate of 4%
that's their floor.
Now depending on when you're
watching this video
as of 2022 all new products
have a lower guaranteed rate
and it depends on
the company and product
but if you have a policy
that was purchased in 2021
the 4% guarantee was locked in.
But how it works
anytime you see a dividend rate
I have a 4% guarantee
that means a surplus
of 1.65% was declared
add the 2 together
5.65%.
Now question for you
if you have $100,000 in cash value
earning 5.65%
what should that equate to
if I was earning
5.65% in a bank account?
Well $5,650.
If I had a dividend rate of 6%
say it was a different company
that should equate to what?
$6,000 in interest.
That with whole life insurance
is not the case
not even one bit
anytime
this is important here
anytime you see
a dividend interest rate
that is a gross rate
that is credited after the company's
insurance expenses
what they classify as mortality charges
everything.
So to demonstrate that
so if I go back
or if we go back to the whiteboard
what do we see?
Net growth rate of 3.5%
net.
Let's take a look
I'm going to pull up an example
of a policy
with a 6% dividend rate
let's make this a little bit bigger
now this touches on
policy design a little bit
because we see
where the money's going.
You see a 45-year-old individual
he's 46 at the end of the 1st year
I'll do this actually
there we go
46 at the end of the 1st year
where is the money going?
$10,000 base premium
term insurance Rider
everything else
funneled into PUAs
this is an example with a level term Rider
total payment $100,000 per year
breaking down where the money's going.
You can identify this
on the full illustration
with any insurance company as well
but 1st year
just about 89%.
Now here's what I want to touch on
this is a product
that has a dividend rate of 6%
I pay in $100,000
I have about $89,000
in cash value the 1st year
did I earn 6%?
No, I lost 11%
so I've got my gross dividend rate
but after the company's
insurance expenses
I net out at a negative 11%
internal rate of return
important to make that transparent
build awareness there.
2nd year I pay in a $100,000
the cash value grows from $88,000 and change
to $184,000
dividend rate illustrated here is 6%
that often changes year to year
but the actual growth rate
if I isolate year 1 to year 2
I get less than $100,000 I pay in
that is why I have a negative 2.15%
internal rate of return
growth rate.
Now as I look at this each year
here's really what I want to touch on
what the yellow represents
is when I break even
when I have more money in the policy
than what I've paid in
but as I look at this
if I go down to the peak earning years
and this is the annual IRR
not the average
what do you notice here?
This assumes the dividend stays
at 6% forever
which typically does not happen 6%
the IRR annualized tops out
a little under 5%.
Meaning that the insurance expenses
associated with the product indefinitely
pull down that gross earning rate
and that's valuable to be aware of
and I mentioned that because
you know we've spoken with individuals
that put away $5,000 per year
$10,000 per year
$500,000 per year
and this comes up all the time.
I was told I'm getting a dividend rate
of this much
which is the truth
however it is a gross dividend rate
I want to know simply
what's the actual growth rate?
How much did my cash value grow by?
And if I crunch it on a calculator
what does that come out to?
And I've got my death benefit
appreciation as well.
But safe
I will see it produce in the neighborhood
of that 3% to 5% range
as the years pass
if I do everything right
from a design standpoint.
Liquid
I can access it anytime I want
typically 10 days after I start a policy
is when most companies
permit me to access the cash value.
And then always compounding
so this part
most people get
when it comes to the idea
of the banking concept.
And then tax-free
I used to always say tax-free
if
and it is tax-free if
if I do everything properly
and the big if here
I do not want to trigger
a modified endowment contract
if that happens
cash value grows tax-deferred
but anytime I want to
access money with the MEC
what happens?
Gains are taxed as income
and you also have a 10% penalty tax
if under the age of 59 and a 1/2
but it's easy to prevent
and then no lapse.
If a policy lapses
or if I cash it out
and there's a gain on it
meaning more money in the policy
than what I've paid into it
that will also result in a taxable event.
So I hope you enjoyed this video
please if you have questions
comments
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Thanks so much.
Hey guys Steve Parisi here
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