So we are going to take a look at a case study of someone that we put a policy together for we put
it in force when I first started kind of branching off on my own so this is nice to kind of see
a policy living the test of time. This specific policy was issued in 2014
so it is 6 years old it will actually be a full 7 years this August
so his policy anniversary date is coming up this August so that'll be policy year number seven
which is great we've seen it perform at a strong level but to kind of set the stage for this
Case Study the policy was on a 30 year old male at the time so he was 30 years old
he was attracted to the idea of Cash Value Life Insurance primarily through the banking concept
he wanted to practice infinite banking he liked that idea said hey I can pay money into a policy
have access to my cash my capital and be able to use it for things like buying a new car,
investing in real estate in the future and then as he learned more he said hey I like the idea
just of a Cash Value Life Insurance policy in general I mean I've got a small 401k at work but
I don't really like putting a whole lot of money in there the reason being is I'm 30 years old now
I'm gonna have to wait just about 30 years to have some real access to it and I've got to deal with
taxes penalties like I'd rather have access to my money now this way if an opportunity pops up
I can use it to the fullest extent which cash value life insurance provides that
so he also is building savings with it then he also wants to save for a house and this will
complement that so his payments when he first opened the policy he could afford or commit to
five thousand dollars per year at the time that's how much he could actually pay into the policy
now his income has increased over the years so he's got the ability to add more to that
existing policy you know on that point he did bring up the idea he said hey Steve I can open
up more policies right and the answer is yes you certainly can open up more policies however what I
will mention is this policy we equipped it with a little bit of extra MEC space remember that
MEC limit you've got a little bit of room from your insurance premium limits as far as how much
room the the company will allow you to add in the PUAs per year my point being is before we open up
a new policy from a pure monetary standpoint adding PUAs dumping money into cash value
will certainly accelerate the growth and your monetary value overall to a much greater degree
the reason why is remember when you first open that policy the first year that's the worst year
we pay money in less shows up relative to what we pay in every year after the first year is the best
year I get more and more back relative to what I paid in I'm over the initial insurance expenses
it looks great so we've equipped the policy and as he received bonuses and pay increases
he added more money into the policy you're going to see actually in the case study that his
ongoing payments are now 7,500 per year he increased them from what was five thousand
two seventy five hundred now one other quick side note that is interesting
because it's good to observe from case studies to see hey what did this individual do
or what is he actually doing what value is in learning about one situation so i can then execute
the same thing if it benefits my particular situation so when he first took the policy out
he received a non-smoker rating wasn't unhealthy but had some things as a result did not receive
a regular preferred or ultra preferred rating non-smoker. However we had a discussion he asked
hey if I get a bit more healthy if I start dieting and exercising can I ever improve my rating or
would I have to get a new policy at that time? And really the conversation was well Alex you know if
we take any life insurance policy a lot of people aren't aware of this is you can actually upgrade
a health rating on an existing policy
you would be subject to medical underwriting again so a nurse has to come out
ask medical questions take blood and urine they're going to order medical records from your physician
your primary doctor but if they review everything and they say hey he's much healthier now
than he was back then well they'll upgrade the health rate and what he actually did was jump from
non-smoker to ultra preferred which is the top health rated class
and the neat thing was is when you looked at the policy what had actually happened
he did this a couple years into the policy they actually went back to the company when I say
the insurance company went back to day one and assessed that ultra preferred rating from then
and what was neat is you saw a nice little jump in the Cash Value compared to what he had
the day before and the day after the health rating upgrade was actually assessed which is pretty cool
when you see hey literally pays to be healthy in this case. So he was able to upgrade the health
rating on an existing policy as a result so let's take a look at a case study because just recently
within the past month actually he called up said hey things are going great I am looking to buy a
new car you know my car right now it's lasted me I've always said like 220 some odd thousand
miles he said it's a great car but it is time for a new one I've got my money's worth out of
the existing car okay what kind of car you get because I like cars I don't ask that question so
the car he was looking at costing about thirty thousand dollars thereabout so here we're going
to look at modeling his existing policy not a new fresh illustration but his actual policy and what
it looks like if he pays money in lets it sit and grow compared to loaning it out and then repaying
it and then practicing IBC where he's going to borrow repay that loan and throw in extra PUAs
on top of the loan interest. So let's check it out. So here we've got our policy issue in 2014
30 year old mail on the left we've got our growth so this shows paying in 7,500 per year
up until age 50. If he wants to keep going at that point in time he will
but we're going to stop the payments here at age 50, 20 years of funding. Present Cash Value
37,502 so that's at year six remember when he first opened it he was paying in 5k per year
however he has paid in more than $30,000 because over the years as he has received bonuses and such
he's been throwing more money into PUAs which has accelerated his cash value growth these values
have been larger than zero this is just his enforced illustrations we don't have those
back values or I didn't manually input them all so there's the Cash Value growth over time growing by
more than what he's paying in each year which is great that's exactly what we expect to see
with a well-designed policy but then we're going to look at loans here so identical policy all
we're going to do here is take a policy loan and then repay so he takes out the $30,000 car loan
still making the same $7,500 per year payment that does not change here what he does
is begin to repay the loan at 500 bucks per month
or 6,000 per year what I will add as a quick side note is we actually illustrated here deferring
the loan for 12 months so you'll notice no payments in the first policy year
he didn't pay anything on month 13 is when he started applying those payments so pay 6k per year
until the loan is paid off with his particular policy the loan interest rate is 5%
now he does have the option to find names directly to the lender zero percent actually
no not for the card he was looking at because it was used point being is that is something
we always like to measure to say hey do I use my policy directly or does it make sense to finance
elsewhere if I can get a better rate and kind of weigh them out from a mathematical standpoint
but what I want to focus on here is when the loan's repaid when it's repaid in this example in year 13
for my cash value and death benefit compared to the example
when I just let it sit and grow and what do you notice the cash value is 100% restored to exactly
what it would have been as if I never touched it in the first place so there's no lost opportunity
cost when I borrowed so if I look at year seven here in the example where I let it
sit and grow my cash value is 45k when i borrow out $30,000 your cash value reduces as a result
it's about 14k your cash value is your equity if you liken it to a line of credit that's how much
money that's the gauge that determines how much I can actually borrow from the policy
now they're still going to pay him dividends on the borrowed money and what's left over in cash.
How they do that is one they do charge interest on the loan
that goes to the insurance company and then two
they collateralize the death benefit dollar for dollar any time you take a loan from a
life insurance policy you will see that occur a dollar for dollar reduction on the death benefit
remember the insurance company's first and foremost obligation is to do what?
payout life insurance claims so if we die with a loan outstanding they're okay with
it we can put it that way they're on the hook for that much less okay so let's continue on
on the right we've got the fun policy so the exact same thing from the funding
7,500 per year initially light blue we take the same 30k loan out so in year 7 when we do that
death benefit collateralized cash value reduction exactly the same as we saw in the last example
now the difference here or I should say the consistency first is that I've paid back
at the exact same pace or he pays it back $500 per month 6k per year that's how he is applying money
toward the loan now what he does in addition to that he said hey if I want to practice
the idea of paying myself extra interest because the loan interest goes to the insurance company
the loan interest stated on the policy but if I want to pay myself extra interest that concept
what that entails well Alex it's exactly what you've been doing
in the sense when you've been adding additional funds into PUAs
you can do the same thing here but now we're just modeling it to be repaid
with your payments and loan repayments
so he's paying in 7,500 plus another thousand per year so his net payment aside from the loan
would technically be 8,500 of these years he's paying an extra thousand bucks in there
so the impact here's what I'm interested in is I want to see when my loan is paid back
what's my cash value 109 14 where I have paid back the loan plus an additional six thousand
dollars so another 6k I've got 109. If I did not pay the extra 6k in there what would I have 102.
So close it's about a 75 a little bit over a little bit under $7,500
game where I paid in 6k so it's a net $1500 of dividends and interest credited to my policy
from paying you in that six thousand dollars and it will compound over time
or if you'll get your 20 here's what we got 205 compared to the other two guys 196.
so I paid in another $6,000 now I see about an additional nine thousand dollars in cash value
granted we only paid in an extra thousand bucks for a couple years but
at the same time it has an impact so when we look at case studies with individuals
adding a zero on and practicing the same concept but just adding a zero or taking one off
if you've watched a lot of our content you likely know this already that it's the same thing at the
the end of the day it's all ratios as far as the policy design the loan repayments and such this
particular case study was just nice to see it in action where you started with you know a 5k per
year payment gradually added more and now he's at a point in time where he can actually use it he
said hey I want to test it out I like the idea of borrowing from my policy and paying it back
a hundred percent at leisure where I couldn't finance through the institution but not gonna pay
it back at their terms you know what let me just attack it how I want to attack it here and then
if I want to pay it off in a lump sum I'll do that later but he's got control that's where
he was attracted to this idea so this was certainly a fun case study. As always I hope
this helps reach out with any questions and we would love to work with you have a great day
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