Alright time to look at some numbers
when we are talking about
policy splits
and cash value
more money
or more efficiency?
Would you rather finish strong
have that strong finishing kick
like we talked about in the last video
or would you rather win the race?
So what we're going to look at
in this video is as follows
we're going to look at
$15,000 per year
we're going to look at a 10/90 split
directly compared
to a 40/60 split.
We're going to look at
2 funding options
so same company
same product
we're going to look at 1 of the
4 major mutual companies
we're going to look at a
Legacy 100 product
meaning we can pay into it
until we're 100 years old
if we wanted to
but we're going to look at
paying into the policy
for 20 years
and then also for 50 years
age 40 male
that'll take him
up until age 60
then also up until age 90
we could keep going until age 100
but we stopped at 50 years
clean 50 years
it doesn't really matter at that age
so let's get into it.
What we've got here is
a side-by-side comparison
but first let's take a look
at the actual design
this way we can validate
the breakdown.
So what we'll begin with here
is our 10/90 split
so what we've got
where's the money going?
What we've got here
annual outlay
$15,000 per year.
If I am a consumer
if I'm considering this policy
I want to know
where my money is going
to ensure
that it is designed
for maximum cash value
if that's my goal.
So money can go where?
We discuss this frequently
toward the insurance premium
which is right here $1,500
so we set it at 10%
of the total desired payment.
And one thing
I wanna mention here as well
we're not committed to the $15,000
we have the $1,500 base premium
and the company will allow us
to pay a total of
10X that base premium
into the policy per year
for a total of $15,000.
If someone said hey
I might want to be able to pay more
than $15,000 per year
what we would do
is increase the
MEC [Modified Endowment Contract] limit
but also the base premium.
If someone said hey
in a perfect world
or I can see my income going up
I may want to be able to pay in
$25,000 on any given year
well what we could do
is still have the same
$15,000 per year going in
but instead of having
a $1,500 base premium
we would set it at $2,500
because we can 10X
that base premium
and then we would compare
to this one
back and forth to see
which one we're comfortable with
as a consumer
to ensure everything's
maxed out properly
but I wanted to slide that in there
because that question
comes up a lot
and it's a good question.
So money's going where?
Premium $1,500
now we have a
term insurance Rider
let's circle this in green
of about $270,000.
We see $700 here
that is not the cost of the term
the actual cost of the term
in this example
is a little over $200
we didn't get the exact
but it's minimal.
This is a blended PUA Rider
where a portion of the payment
goes toward term insurance
and then the rest
goes toward PUAs [Paid-up additions].
Then in blue
this $12,800 is a pure
paid-up additions Rider
just money dumped into cash
purchases us
additional whole life insurance
death benefit as well
paid-up additional life insurance
that's where the money's going
okay.
So as we take a look at this
$15,000 per year
money column
net cash value $74,800
we've paid in $75,000 over 5 years
we're just about there in year 5
we're getting there
and positive year 6.
With a traditional product
like this
a paid-up at age 100
when it comes to the
base premium dollars specifically
this $1,500 here
this does not show up
in cash value
in the 1st and 2nd year.
We can actually see that
when we look at this column
basic policy cash value and year
what this represents
is the cash value buildup
off of the base premium only
which in this example is $1,500
and if it only received the guarantee
no dividends forever
no PUAs
nothing like that.
So the only thing
I want to highlight here
is the 1st and 2nd year
based off base premium payments
what shows up in cash value?
Nothing
and you'll see that consistent
with most traditional products.
A lot of times we'll use
different types of products
that only overcharge one
in the 1st year
some don't overcharge it all
and the cost is spread out
different products and such.
So everything looks good here
what I want to look at
before we look at the 40/60
we've got the 20-year funding
cash value is what by year 20?
Net cash value $442,000
just when we look at the
Excel sheet
you'll see everything match up.
MEC limit
$15,000 and change
and this policy by the way
did not MEC short term
long term
nothing like that
we've got MEC test videos on that.
40/60 split
where's the money going?
Now for the 20-year fund option
like we see here
we did not need to add
a term Rider with the 40/60 split
for a year 40-year-old male
I will add
if we want to fund for 21 years
at the same $15,000
it will MEC
so if there is a chance
that an individual
wants a 40/60 split
wants to pay $15,000 per year
and wants to fund the policy
longer than 20 years
we would want to add
a term insurance Rider
or his alternative would be
to reduce the funding
and pay in less
than $15,000 per year
beginning year 21.
In this option
we're going to stop
after 20 years altogether
let's progress through though.
So $15,000 total going in
where is the money going?
Premium $6,000
where you'll often see
the base premium
on a life insurance illustration
because all companies
have different terminology
and verbiage
here
it is referred to as the
base policy insurance
with some companies
it will read base face amount
some it'll read the name
of the product
depends on the company
product
what we're looking at there
but this example
that's my base premium
then we've got $9,000
directed toward PUAs.
What do you see
from a performance standpoint?
Net cash value
$9,600 right off the bat
takes between 8 and 9 years
to break even
you're going to see this
when we look at the actual
side-by-side comparison
we're going to track
the total payments
looking at the growth
everything.
What was your cash value
at the end of year 20?
Do you recall that?
It's about $442,000
in the 10/90
here
you've got $433,000
again we're going to look at
a side by side
to make this easy
but what's my MEC limit?
Look at that
$15,000 and change
very comparable in that respect.
So we've got 2 policies
with the same company
same health rating
same age
same product
same everything.
So let's look at a
direct comparison
and what we're going to look at
going back to the last video
that track race
do I want to win the race
or do I want to be more efficient?
I want to win the race
at the end of the day.
So let's take a look
side by side
10/90 on the left
all those illustrations you just saw
we pulled the values
put them right on here
$15,000 per year
there we go.
Year 5
I paid in $75,000
just about there.
This example the 40/60
when's your break-even?
Year 8 you've paid in $120,000
you're at $119,000
just about there
year 9 you're positive
so you've got more money
from start to finish.
Year 1 was a 10/90
$13,000
year 1 with the 40/60
$9,600.
I want to make a comment
on this point
if I'm just looking at the
early years
we're going to look at this long term
but if I'm looking at the early years
and I plan on using my money
for anything
business
real estate
debt
which one would I rather have?
Opportunity cost
if I have access to capital
to use for other investments and such
that
is where I'm going to grow
my net worth
my business
everything.
Access to capital
seeing the long-term results
even if this produces more
which it doesn't
but even if it doesn't
like I can do a lot more
with my money here
and I don't really care
about the extra 0.25%
I might get in a 40/60
and might is a big word.
So let's take a look here
as time passes
what do we see?
Here's where it gets
really interesting
year 20 by age 60
I've paid in a total of $300,000
with the 10/90
what do you have in cash value?
$442,000.
With the 40/60
it caught up
but not quite enough
you're at $433,000
almost $434,000
so a little less than $10,000 less
in the 40/60 by year 20
than the 10/90
but you also had money
more money all the way through
with the 10/90.
As time passes in this example
because we stopped
the funding in 20 years here
and kept all things equal
you're not going to see
much of a difference.
In fact
let's take a look here
first of the cash value growth
then we'll look at
the cash value difference
so the growth
this will be interesting
one of the worst years
of a life insurance policy
we touched on this
with the illustration
the base premium
does not show up in the 1st year
and the 2nd year.
So going back to that track race
800 meters out of the gates
10/90
I'm out of the gates fast
I'm trying to keep up
with the competition
those guys that are out
because I don't want them
to get too far ahead of me
otherwise I'm going to lose the race
so this minimizes
my upfront drag.
Over here with the 40/60
when I see cash value
growth negative
what this means
year 1 you paying $15,000
you see $9,600 show up
in cash value
if there's a negative
that means you paid in $15,000
and lost $5,385.
Year 2 I pay in $15,000
the net I lost
$4,866.
Year 3 I paid in $15,000
I lost $1,284.
This is the kind of stuff
I want to isolate
and be aware of
if I'm okay with it
that's perfectly fine.
Same thing with this guy
by year 3
I pay in $15,000
why I see $80 there?
If I look at the cash value
grows by $15,000
plus another $80
and gets stronger
and stronger each year.
Now as time passes
what do we notice here?
If you compare these cash value
difference columns
or cash value growth columns
year 20
what do you notice?
10/90 you grew by $17,700
40/60
you grew by $19,000 and change
which one is growing faster?
Which one has a stronger
finishing kick?
Who won the race?
Meaning which one do you have
more money in?
Would you rather again
see stronger growth long term
or simply have more money
because you're out of the gates faster?
Which means you can
use that money
to multiply your money
in other areas
that's how I look at it.
Would I rather earn
$100,000 every single year
and put that to work
or start out earning $10,000
next year $15,000
I'll eventually get to a point
where I'm earning $200,000
but the guy that earned
$100,000 every year
put that other money to work
and now he's got $10,000,000
so the guy that was slow to start
has $5,000,000?
It's like I don't care if I'm earning more
I've already lost
not to compare to a race in that respect.
But hopefully that's clear
and that makes sense
if we look at this over time
let's look at the CV difference actually
cash value difference
meaning how much more
or how much less money
do I have in both of these options
when I compare them to each other?
It's the same company
and product by the way
like this is nothing
no manipulating illustrations
we had that illustration up before
it's the same thing
just redirecting
where the money's going
we see a difference.
So initially
there's a big difference
as time passes
with the way we design this policy
and really the 40/60
why we made it a 20-year fund
is that favored the 40/60
more than any other scenario.
Meaning we tried everything
we could
to beat the 10/90
from a design standpoint.
We couldn't do it
we came very close
and remember
if we want to make
another payment here
to say well what does it look like
if you keep paying into it
if we keep paying $15,000?
Year 21 it would MEC
so what you could do
as an alternative
is pay just the base premium
the $6,000 base
and we've done studies
on this before
for a fair equivalent
what you would do with this guy then
which you can keep paying
$15,000 per year
so there's a big difference with this
without a MEC
you could pay $6,000
which would actually be broken up
between $1,500 and base
and then the rest would be what?
$4,500 in PUA
and we've done studies on that in the past
split studies
let us know if you'd like to see any of those
I know we've got a ton of content
on our channel
but if you search split studies
they'll pop up
you'll be able to find it
it's on a 43-year-old individual
those examples.
So this is the 20-year fund
a lot of fun here I had with it.
Let's look at the 50 real quick
so with the 50-year fund
the 10/90
is exactly the same
meaning through the 1st 20 years
you're not going to see a change
literally all we did
was continue to pump money into it
and stress-tested it
to make sure it did not MEC
but we're fine
all the way through.
So as time passes
there's our cash value growth
well let me just
I don't want to skip over this
with the 40/60
and a lot of people have gotten
into trouble with this before
especially when dividends
were higher back in the day
and they've come down
is to prevent a MEC
if you have less money
going into PUAs
your death benefit
is not pushed up
at a fast pace
and all that means
is from a long-term
MEC testing standpoint
you can run into trouble.
So as we stress-tested this
and we don't want to just look
at just the basic
dividend ledger illustration
you want to look at everything
I want to make sure we don't MEC
we really had to over inflate
that death benefit
that's too high
I'm not comfortable with it
but to prevent the MEC we did that
and what do we notice?
Year 9
we break even
keeping that term Rider
to fund that long
it's not as attractive.
This is actually the 40/60
is less flexible
than that 10/90.
And again
not just to come out and say
one's better than the other period
if I've got a $6,000 base premium
in this example
and I want to pay perhaps
up to $60,000 per year
I deliberately built out more space
that's a different story.
I do that with my policies
where I'll commit to
a minimum amount
but then that discretion
I've got my high-end limit
where I can 10X
my minimum premium.
Some years I could in theory pay
a 50/50 split
if I just double my base premium
but I know I've got the window room
to pour in excess funds
and not have to open up
a new policy.
So really a lot of people we work with
it's not always
just a consistent cash flow amount
going into a policy
a lot of people will do that
but a lot of people we work with
say hey here's my target amount
but in the event life happens
I don't want to be committed to that
let me commit to a minimal amount
so I can take the vice grips off
it doesn't feel like a burden
I can pay that no problem
and then at my discretion
I can just pour the rest of the funds in.
So as we look at this
kind of summing it up
and we can scroll down here
let me give myself
some more space here
let me take the
CV difference formula
so we can compare and contrast
and whenever you look at
split studies to
if you're working with an agent
I would encourage you
always to look at
direct company comparisons
direct product comparisons
meaning you don't want to look at
1 company and product
compared to another one
that's when
it's not an apples-to-apples comparison
things can be manipulated
when we use different
term Riders and such
we want to have awareness
around that fact.
So this
like we showed it in the beginning
of this video with the illustrations
same company
same product
everything's the same
the consumer has transparency as far as
what he or she is getting into
maximum cash value
and look at all these
charts and everything
this is just to show the comparison
we saw there
if you're looking at the numbers
the 40/60 never overtakes
that 10/90.
The only way it would have a chance
on an illustration from that perspective
not actual performance
is if we paid for 20 years
going back to the 20-year option
then continued to pay
the base premium
of $6,000 thereafter
and on the 10/90
only paid the base premium of $1,500
so you'd have to pay less money
when you really look at the numbers.
So I hope this helps
if you enjoyed this technical video
please hit the like button
hit the subscribe button
and we'll talk to you in the next video.
Thanks so much.
Hey guys Steve Parisi here
if you enjoyed the content you just saw
please subscribe
like
and hit the notification bell
for future videos.
If you'd like more information
or to see some custom policies for yourself
feel free to call
or email our offices
at the contact information below.