In this video
we are going to go through
how to set up a policy properly
if you are interested in finance
and high cash value life insurance.
Earlier this year
I received a phone call
from an individual
who earns about $600,000 per year
he is employed by
one of the largest insurance companies
and financial services providers
in the world
the second largest in the world actually
they are a publicly-traded company
and this individual
has actually written the script
for a lot of their sales force
as far as how to conduct themselves
when engaging with clients
prospects
he knows his stuff
he's very sharp.
Now he is interested
why he made the phone call
is he's interested in a
whole life insurance policy
but he is in the business
his company primarily sells
variable universal life insurance
they actually don't even offer
whole life insurance
but he used to work for companies
that did offer whole life insurance
some of the major mutual companies
and he knows the product
inside out
like he knows what to look for.
His interest
is maximum cash value
he knows what questions to ask
he's interviewing me
but as I'm talking to him
he is very clear on the phone
he speaks extremely clear
enunciates his words perfectly
I have not asked him
if he's worked on his
personal development
and presentation
but man he's at that level
like when you talk to people
and you're like this guy's good
that's the reaction
I got over the phone,
At first, I'm like is he like acting?
Is he an agent trying to get
information from me?
Because he was like so good
I thought he was overexaggerating
then I'm like no no he knows his stuff
okay Steve get on your game
when I'm talking to him.
But I'm not going to tell
the entire story here
what he was interested in
as I'm talking to him
was really 2 things
he was working with other agents
he had actually started
the underwriting process
with different companies
but what he mentioned to me
the first thing that really jumped out at him
was the company selection
because again
he knows cash value life insurance
we always talk about
what do the wealthy do
what do people with money do
when it comes to these policies
we want to copy that model
they know it
he knew it beyond just knowing it
and seeing what the wealth he does
he actually sells it
his company deals with
private placement insurance
like he knows how these products perform
he's got a better feel on them the most.
But company selection
when he engaged
with the other company
and I remember this
because he told me this
and it's just stuck with me
he said that this other company
said to him hey we recommend
a smaller life insurance company
it was a mutual company
but we recommend them
this is who we prefer.
Specifically
here's what he said
there is no way
I am going to flow
$2,000,000 to $3,000,000 of my cash
through that small company
there's no way.
Now why would he say this?
He knows the industry inside out
and again I'm educating him
going through our normal process
but I'm talking to him.
You ever go through a Q&A session
and you're answering questions
you're providing information to someone
and you know they know the answer
they're just seeing
how you answer it to make sure
you know your stuff?
Like that's the sense
I always get when I talk to him
because he's a sharp guy
he knows the stuff.
But he was pitched on a smaller company
and he stopped it immediately
there is no way
I'm going to flow
this amount of money
through a small company
there's no proof of performance
they pay very high commissions
and I don't see my capital there
like I'm not doing it.
As I'm having a conversation with him
he makes this statement
he goes Steve
I want a top mutual company
no I want the best mutual company
for my money to go into a policy
this is for my cash value
and also from a death benefit perspective
when it comes to legacy planning
leaving a large death benefit
to the next generation
creating perpetual wealth
and just constantly repeat that process
from one generation to the next.
This is what he wanted to do
he knows the industry
we go through our normal process
but I want the best mutual company.
Now who's the best?
Well there's no one company
that is simply the best
if there was
that is the company
that we would use at IBC Global
and when I say best
specifically what I am looking for
for someone interested
in cash value life insurance
is (1) the quality
quality of the company
from a financial standpoint and such
but really quality in terms of
whole life insurance policies
that have actually delivered
solid cash values
north of an internal rate of return of 4%
is really what I like to see
when the policy is designed properly
and we've seen 4 companies
consistently do that
MassMutual
Guardian
New York Life
and Northwestern Mutual
when they're designed properly
those carriers are also used
when it comes to
bank on life insurance
and corporate-owned life insurance
not all of them with corporate-owned
but bank-owned yes.
So company selection
is very important to him
and then really what he did here
was an asset transfer
shifting assets
he was a cash cow
I'm going to refer to him as
he has a lot of money in cash
that has just constantly compiled
he's got everything on his balance sheet
he showed me his balance sheet
he's got it all in Excel
it's beautiful
as far as how he budgets
his cash flow
money for lifestyle
money for savings
deferred comp plans
everything he's doing
he's got it all budgeted beautifully
and we're actually able to map out
here's your current path
based on just your
overall retirement plan
and then here's what it will look like
once this policy
is incorporated into your plan
because we're going to
shift money from cash
over into a high cash value
life insurance policy.
Here's the thing
the other group
once he said there's no way
I'm flowing this amount of money
through a small company
the other group was smart in the sense
that they pivoted and said
here's one of the top companies
and they showed him that.
The issue
was when you look at the design
he wanted to do what?
Shift or move
a bunch of cash
into a high cash value
life insurance policy
this is his plan
when he saw the other option
he said that's alright
it's not a 10/90 though
it's not maximized
based on the insurance company limits
and IRS [Internal Revenue Service] limits
he looked at that
and it wasn't a fit
as he studied more
dug into the guaranteed values
the guaranteed values
were very important to someone
which says a lot
for someone in the industry
think of it from that perspective
it's way different
if we see marketing
we read books
we hear information
versus someone who is actually
in that driver's seat
every single day
he is 55
he may be 56 now
he's been in the industry for a long time
I've been in it for 10 years now
he's been in it much longer
than I have been
but he's in the driver's seat
every single day
he knows the feel from experience
and he's looking at the guarantees
and he looked at
different policy designs
and he preferred
as most people do
I found that 10/90 split
really because of this
he looked at it and said hey
right now this gives me
the greatest cash value
based on a guaranteed
non-guaranteed basis
he's heard talk that if you take less upfront
you could have more long term
and he said you're asking me to give up
what's guaranteed
for something that could potentially
come true in the future
but it never has
no I'm not doing that
max out the policy
to the greatest degree.
Now he didn't say that to us
because we always max the policy out
to the greatest degree
and if anyone wants to see different splits
we show them different splits
some people have selected higher splits
it's really up to the consumer
not up to us.
But again someone
in the driver's seat
they've got the feel
interesting story, right?
So you've got someone very experienced
at that level
we admire him as a company
I do a lot
I've learned a lot from him
just in regular conversations
but let's see
what he actually did.
So he took again cash
he had a ton of cash sitting there
and it just continued to pile up
because he's a net saver
he makes a lot of money
but he saves it
he spends what he needs to spend
they've got a comfortable lifestyle
but he's saving more
than what he's spending.
So what we've got here
one policy
he received by the way
a standard non-smoker rating
so this particular option
represents a non-smoker rated policy
not preferred
ultra preferred
nothing like that
which is always good to see
if you'd like to see different options
or if you're thinking hey
if I'm not that healthy
but I can get a non-smoker rating
what would it look like?
Here's a large policy
with that dollar amount
I mean with that rating intact.
So 2 options he wanted to see
this is the same policy here
on the left
$400,000 per year for 4 years.
I'm going to add something here
flexibility
was very important to him
his minimum commitment
is about $40,000
a touch more than that
with a term insurance Rider
his premiums about $36,000
whatever his base premium is
he can 10X that
in PUAs [Paid-up additions]
so the true split would be about
9/91 something like that
but we maximized it
as much as we could
MEC limit [Modified Endowment Contract]
$400,000
based on that death benefit.
Look at the 1st year
$400,000 goes in
$351,000 in cash value.
What is the worst part
about a whole life insurance policy?
What are the drawbacks to this Steve?
He asked that question
frankly everyone asks that question.
If you are interested in a
high cash value life insurance policy
the biggest pain point
the worst part or the drawback
is going to be what we just circled
right there
that 1st-year cash value
I pay in $400,000
I see a little over $350,000
it's a negative return
when we look at the internal rate of return
it's about negative 12%
a touch more when you really break it down
that's what it is
when we squeeze the expenses down
as much as possible
you can alleviate that
with a high early cash value product
but when you look at that
over the long haul
it's a pure high early
where the expenses are higher
but spread out
that wasn't attractive
and it is for some people
but a lot it's not
but that's the worst part.
The best part
is every year after that
so if we see an annual
internal rate of return of 0.32%
very minimal year 2
what that means
is he paid in $400,000
and he got back
more than $400,000 year 2
so we see the growth
go from $351,000
to $754,000
he gets his $400,000 back
plus about another $3,000 on top of it
it's doing what it's supposed to
each year he continues to pay money in
55-year-old male
breaking even year 4.
I think on the guarantees
I gotta go back and reference this
the break-even was around year 6
7 at the latest
minimum guarantees
that was the break-even
because it was designed properly.
Annual internal rate of return
there it is
tops out at what?
4.73% above that 4.78%
then you've got the average
internal rate of return
what's the average
over the life of the policy.
If that's confusing
think of it this way
what did you earn last year
in the S&P 500
in the stock market?
I earned 30%
I knocked it out of the park.
What did you average
over the past 30 years?
I produced an average of 7%.
The difference between annual
what I earned that year
and then average
we also have the taxable equivalent
which if you're making $600,000 per year
the majority of which is W2 income
you're going to be in a high tax bracket
so if we've got this 35% tax bracket
what this means
is if I'm earning
let's just look at this year 10
an average internal rate of return
of about 3.1%
so the cash value life insurance policy
which is what?
Safe, liquid
and tax-free.
What would I need to earn
in a taxable account
in order to generate that same 3%
a little over 3%
without any risk?
Just under 5%
4.74%
and as time passes I'll need to earn
more and more
which honestly a lot of people could do
the people that are attracted
to these products
a lot of corporations and banks are
but it's money that they don't plan
on investing in the market
it's their safe funds.
Hey it's better than a bank account
I don't have to think about it
I can park it
let it sit and grow
I've got this monster death benefit
from a legacy planning standpoint.
A quick side note on that
why that death benefit drops year 8
is we cut the term Rider here
and reduce the insurance expenses
and we can keep that up if he wants to
he didn't want to in this example
maximum cash.
But again going back
to the other point I was mentioning
people that do this
typically look at it
as a cash alternative
a safe area to position funds
if I want to access it
borrow against it
to invest in real estate perhaps
or my business
I've got access to my capital
all the way through.
Now policy loans right now
are a bit expensive
relative to the earning rate on the policy
so a cash value collateral loan
is a great option
if I plan on heavily using a policy
and I'm pumping a lot of funds in
when I look at the pure interest rate
from when I look at it
from a pure interest rate standpoint
it's a good option
that's the thing.
So option A and option B
is the exact same policy
but what it looks like
if he continues to pay in
$40,000 per year after year 5
up until age 70
$40,000 per year?
So a lot of times this happens
someone has a plan to say hey
I've got $1,600,000
I'm going to move that
just from money sitting in cash
over to this policy
over to this high cash value
life insurance policy
I got a death benefit too
I've got a positive cash value
but can I keep adding after it?
And the answer is yes
in fact in this policy
you can keep slugging away
$400,000 per year if you want to
but the model he wanted to see
what's it looked like
if I just paid close to the minimum
$40,000 a little bit more in this case
what's the growth look like?
Well it looks pretty nice
I pay in $40,000
that particular year
without crunching returns
or anything like that
it grows by a gross amount
of over $100,000
now I paid in $40,000
so I'm gonna back that out of course
so I can crunch the actual cash growth
I hate the saying
I give you a dollar you get two back
it's like no no no
I give you a dollar
I get that dollar back that I paid
because I paid it in
then I get a dollar of interest
so just for transparency there.
But here we go
he continue to pay money in
and it keeps on growing
it looks good over time
just an option
standard non-smoker rating
one of the major mutual companies
which remember I want the best
and this is what he did.
So if you're considering a policy
if you're looking at $400,000
or if you're looking at $40,000
or $4,000 per year
you can do the same thing.
We've got individuals that
put in have policies with a MEC limit
of $4,000
a base premium of $400
which is minimal
now age and health
does play a factor there
if we're older we might not be able to get
a $400 base premium
but we do that
and we see something
extremely comparable
to what we just looked at
the ratios are the same.
So I do hope that
you got some value out of this one
I had a lot of fun
working with this individual
I talked to him on a regular basis
because I love learning from him
he's a good guy.
If you enjoyed this video
please hit the like button
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and I hope this helps
we'll talk to you soon.
Hey guys Steve Parisi here
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