so the drawbacks to high cash value life insurance whole life insurance what's the drawback the
negative piece to it because we often talk about the benefits frankly that's what we do we educate
individuals consumers and those in the business on how to maximize the cash value of life insurance
policies however what are the potential drawbacks or some of them we're not going to cover anywhere
near all of them just some of the main things to consider and what I do want to mention is
I'm going to specifically be focusing on the cash value we're not going to go into the whole debate
whole life first term life versus investments and such because everything has its place it
depends on our individual situation now when it comes to the drawbacks here's one drawback here
and this comes up a lot when I am funding a cash value life insurance policy it is going to take
time to capitalize meaning when I first open up a policy whatever dollar meant I pay in I'm going to
have less than that amount of money in cash value for example I make a $10,000 payment in the first
year depending on how the policy is designed I can have anywhere from zero on that payment all
the way upwards to over nine thousand 90% plus depends on the policy design here but in any
event it is going to take some time to capitalize we're going to touch on this in more detail as
well to the minimum premium piece must be paid initially now a misconception we hear sometimes
is that a whole life insurance policy requires payments to be made for my whole life which is
not the case however when I first open a policy now the design is very important here but I do
have to pay premiums initially and a lot of times especially if a policy is not designed with a high
cash value or high cash allocation upfront in the early years I can get in a position where
if life happens I can't pay I can take a huge hit and lose a lot of what I paid in main point the
premium must be paid initially and I'll get into more detail on that we have more information on
that in our life happened series as well if we stop paying very early cash value returns this
question comes up so much because it's common what's the cash value going to produce and we
try and directly answer the question we do and you may have seen this as well a lot of
individuals will beat around the bush or say you shouldn't look at it this way well to be frank
if I pay money into a policy I want to know what that's going to grow to just to simplify how much
am I going to have as I've paid it the thing is what is rarely touched on on this point is
how to maximize the cash value growth the returns short term and long term that's what we focus on
I've seen some other groups focus on this as well I very small percentage of individuals but I have
seen some others do this we actually have been doing it forever we work with an actuary as well
I've had consultation calls with him and the way that he'll advise individuals to set up policies
is the exact same way we recommend it from an actuarial perspective so we've got a couple
different design methods here this is important and it will influence whether the drawback is so
severe I don't want a policy or if the drawback is minimized upfront and the benefits are worth the
initial capitalization fees so point one time to capitalize if I'm paying any man of money into a
policy my money can go where if I take the policy design not going to go into the whole details
like I do sometimes money can go where premium or pas if I have a policy so Reds going to represent
the premium with 100% premium based based premium that's what that means I will see a policy often
take over ten years to break even meaning if I've paid in ten thousand dollars per year for
ten years a hundred KN I'm not gonna break you by year ten it's gonna take twelve to fourteen years
just to see my cash value equal what I've paid in so ten years plus with a hundred percent base
premium and when you hear these stories or read online that whole life insurance is a horrible
place to grow money because it might only produce or has only produced 2% if that well when we have
seen that to be true because those cases are a hundred percent validated - just like we validate
historical performance with well-designed policies and such that we have in the books but when that's
validated every case that I've seen that occur is when a policy is poorly designed huge insurance
expense this in my opinion would be the biggest drawback if my focus is cash value and I can't
go with a hundred percent base premium that's a big drawback because I have nothing in the
beginning I'm kind of show an example here soon to if I go with a fifty percent these premium
policy it's usually gonna take about seven years to break-even in what we've seen they return or
yields there are gonna fall between two and a half to four percent at best and this is the average
internal rate of return over time and then if I to minimize if I go a 10 percent base premium or
select the smaller company that lets me go lower I'm gonna see a break-even point between three
and five years and likely between three and five and a half and put three to six just to simplify
it a little bit but we've got other videos that really go into detail on that with some concrete
data and an analysis as well so point one time to capitalize but all over the base the earlier
the capital is a and the stronger the cash value so a drawback would be misunderstanding or lack
of education fully shown one option and perhaps one of these we see this split very popular with
anywhere from a forty the 60% base in the IBC world so individuals that promote or practice
infinite banking or become your own banker they'll often recommend a 4060 split because was in a book
and they leave it at that this is the way to do it just because it was written in a book that's how
that individual wrote that which is not validated we work with companies and they do not do that
they want the cash asset on the balance sheet so minimum premium must be paid initially so here
that 100 percent base premium is a commitment there's ten percent base premium the minimum
ten percent is a commitment in the beginning so whatever split I go with whatever the minimum
insurance pieces is going to be the commitment a drawback would be having a high base premium
being locked into it life happens I can't pay and how it feels like a burden I don't want that and
then the cash value returns we'll this we just touch on touched on as a huge impact depending
on that policy design so here we're talking about the drawbacks of a whole life insurance
policy but what's interesting here what are we really emphasizing this it ties into a lot of
our content policy design this is what causes one to feel if whole life is a fit or not and in the
majority of cases and just doing this for several years that's usually what I've seen where we've
seen so let's demonstrate which we're just gonna show both ends of the spectrum 100 percent base
premium maximum cash value and minimum premium we're not gonna show that 50 percent example we
do have Studies on that in our public and private content so focusing again on what the drawbacks
time to capitalize here's a traditional whole life policy I pay in $20,000 as my cash look in
year one Zippo nothing to show for it and that's gonna be the same if I pay two thousand or two
hundred thousand if it's all base premium I'm going to see this occur in the first year with
a traditional product so in my mind most consumers that is a huge drawback the company over charges
me for the death benefit up front same thing year two if I look at your 3d I've painted in a total
of sixty thousand dollars and I've got thirteen six to show for it thirteen thousand dollars like
what the heck I can do a lot more with my money that's where you'll hear the individual state
you want to buy term and invest the difference because look how long a whole life policy takes
to break even here to get your money back between thirteen and fourteen years imagine if you could
put your money into an account Ernie but call it four percent or eight percent how much further
ahead you be which has some validity to it and you can argue with the death benefit all that
good stuff but that's benefit has a place my point being this is a drawback that can be an objection
or difficult for one to overcome myself included I would not want to do this because I don't care
how great the long-term cash value is but just not going to be as good as this one but what
can I do with the money investing in business investing in real estate clearing debt whatever
it might be in the meantime I want to accelerate the speed of my overall financial situation I've
starting to ramble focusing on the drawbacks main thing capitalization with a traditional policy an
optimal policy exact same thing we lessen the impact but still this is the drawback right
here the main one in my opinion I paying 20k I have 17 to show for it if I paid in 200 I'd have
a hundred seventy wanting to show for it if the ratios are the same I'm going to see very similar
cash value point being the capitalization fees yes we made the numbers look oh so much better
and this is the same insurance company same whole life insurance product same health rating
but no matter how well I design it I've got a negative hit breakeven between years four and
five this is how we design policies and it gets better and better over time this really makes
it easier for individuals to get involved and it makes them makes any policy stronger definitely
short term but long term as well and we can we have those several studies on that point being
though when I look at the drawbacks of whole life insurance primarily the capitalization
phase his long term safe liquid tax free area to physician money but if I design it right
cut down on the capitalization fees reduce my minimum commitment and then also I'm gonna beef
up my cash value returns if it's designed properly no this one had a lot of content a
lot of material hopefully it was helpful reach out with any questions and we will talk to you
soon hey guys Steve Parisi here if you enjoyed the content you just saw please subscribe like
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