You know when I first got into
the life insurance industry
within my 1st 2 to 3 years
I remember one day
working with my sales manager at the time
we were putting together a plan
for a potential client at the firm
and I'm looking at the cash value
and I'm playing around
with different products
and illustrations and saying hey
how come we don't design policies
in this manner
which really beef up the cash value?
And the response I got was
you can't do that
and when I continue to
question my superiors more
the response I would get would be
well when you look at
the long-term performance
of a life insurance policy
it's about the same
whether you take more money upfront
or you take less money upfront
long term if we look at the clients' age
of 80 or 85 when they're about to die
the cash value and death benefit
are about the same on the illustration
and why that was stated was because
if the client has less money
and cash value upfront
that resulted in more commission
for the agency
the sales manager and me
if I was on the case
and a lot of times when that response is used
the typical follow-up from the other agent
if it's me in this example it'll be like okay
sounds good if all things are equal
at the end of the day
and I can make more money with option B
let's go with option B.
The thing is
there is an unseen element
when it comes to actual policy performance
and this is what causes
so much buyer's remorse
when it comes to whole life insurance sales
where someone is deliberately
taking out a life insurance policy
and they're interested in the cash value benefit
I want to maximize the cash value
I see one thing on an illustration
but then reality is different
much much different
and how do I actually
see that reality beforehand
before I put my money into a product
is what I mean when I say that
and to get that information
you really have to dig deep as an agent
clients and policyholders
don't know the questions to ask
many agents don't know the questions to ask
in order to get that information.
We're going to hit on some of that information
and bring it up
as we progress through this video series
but what we're mainly going to hit on
is how do I get the most out of my policy?
We're going to look at different designs
when it comes to cash value
life insurance products
what we'll begin with here is as follows
what I just hit on
a sales tactic that I was exposed to
I don't want to use the word encouraged to use
but it was discussed in the agency to say hey
long term
the clients are going to have
the same amount of money
so we sell these types of products
because it drives more premium
more revenue
more commission for us
we can be the top dogs
when we're compared
to other agencies out there
let's just call it the culture of the industry
just from being on that side of the business.
Now a lot of agents dislike us
not all of us
I know a lot of you guys
are my friends watching this
but the sales tactic
that has been used in the industry
frequently is less money upfront
particularly
in a cash value life insurance policy
can result in more money long term.
Particularly we'll hear this
if dividends go up
if you take less upfront
you definitely should have more long-term.
The thing is
I'm always big on paying attention to words
choice of words
is I'll hear the word
should have more long term
I can't recall when I've ever heard
you will have more long term
any experienced agent
knows not to say that
because when you look at again history
not illustrations but history
and real policies
that have lived the test of time
when I take an illustration
that produces more long term
but then in reality it does not produce
more long-term it under-delivers
if I state as an agent
you will have more long-term
and then I do not have more long-term
or you don't as the client
what's going to happen there?
Yeah you're going to come back and say
you said
I will have more money long-term Steve
but I don't
what's going on here?
And now there's a potential problem there
so going back to the choice of words
you should have more money
if you take less upfront
that's often used because
you should if things go according to plan
with respect to how dividends are applied
on whole life insurance policies
a little complex
I'm going to use some visuals
throughout this video series.
So to summarize that
less cash value
so I say less money
less cash value
for you the policyholder upfront
should produce more money long-term
based on an illustration
and that is amplified
if dividends go up.
Here's the thing
that's often not stated here
is less money upfront
particularly cash value for you
results in more commission
to the agent and agency
so the reason why
really has to do with policy design
before we hit on the policy design though
the why
why are people attracted
to cash value life insurance in the first place?
Because there's a lot of
negativity out there about it
there's also a lot of positivity
when I look at big corporations
wealthy individuals
they have used whole life insurance
different types of cash value life insurance
in addition to whole life
for a long period of time
but then I've got an ugly side of it as well
so if it's going to be good
or not so good
if it's going to be good-looking or ugly
it has to do with the policy design
but here's the core benefits
particularly around the cash value
safe, liquid, and tax-free
so when I say safe
to be more specific here
the net growth rate internal rate of return
is what I would refer to this as
is often going to fall between 3% to 5%
and that's the net growth rate
not the dividend rate
if you see a dividend rate
of 6% with an insurance company
your net internal rate of return
your actual growth rate over time
may be between 4% to 4.5%
after we back out the actual cost
of the life insurance
but what do we see here?
Net internal rate of return
somewhere between 3% to 5%
the question frequently comes up
what am I earning on my cash value?
What did my cash value grow by last year?
What was the actual
return on my cash value last year?
These are questions people have
so rather than play a word game
and say well the dividend rate was 6%
but my money didn't grow by 6%
just be straight up
like it grew by 3%
if I had $100,000
and I see $3,000 of net growth
that's 3% that's what I grew by this year.
Liquid
I can access it anytime
and I've got that unique loan feature
a lot of you know what this means
if you don't know what that means
a unique feature
to a cash value life insurance policy
is if I decide to borrow against it
my entire cash value
any money still in cash value
think of it as equity
and what I have loaned against it
it continues to compound for me
as if I never touched it in the first place
so I get that constant compounding over time
and I can access it anytime
a lot of people take advantage of that
for opportunities
and then tax-free
if I do things properly
like I don't trigger a MEC
I don't cash it out with a gain
I want to avoid taxable events
which we've got other content on that.
So let's address this piece
less money upfront
can potentially result in more money long term
so when I look at policy design here
one of my favorite topics
when you pay money
into a life insurance policy
you the policyholder
can actually decide
where that money goes
dollars can be allocated
toward the insurance premium
premium dollars
with respect to your cash value
what happens here?
If it's a traditional policy
you'll see this on an illustration
called a paid-up at 121
or Life 100 or Life 99
those represent the ages
you can pay into a policy
with a traditional policy like that
I'll see zero in cash value
often the 1st 2 years
some products it's only the 1st year
some products like a limited pay product
the 10-Pay is a great example
will often credit approximately
30% to 35% on average
of the base premium to cash value upfront
and then you've got
high early cash value products
which gives you approximately 80% to 90%
sometimes a little bit more
depending on the company and product
but that's on the base premium dollars.
Generally speaking though
if I were to take
the most commonly sold
whole life insurance product
what most people own
the 1st and 2nd year
I won't see anything show up in cash value
the reason why
from the insurance company's perspective
is that they are going to overcharge
the policyholder for the cost of insurance
for the actual life insurance policy upfront
now as you continue to make premium dollars
you will see money show up in cash value
that's money you'll have access to
it begins to earn dividends
you see a compound
it gets better and better as time passes.
Why people are not attracted
to whole life insurance though
is often due to the early years
when I've got next to nothing
or I take a negative hit on my money
it takes a long time just to break even
what I mean when I say breakeven
is get your money back
so premium dollars
don't build cash value not initially
eventually they do
versus this guy PUA
which stands for paid-up additions Rider
I like to refer to this as a cash dump in
money I pay here
is why I call it a cash dump in
it shows up in cash value
right off the bat
you're going to see more than that
you'll see between 90% to 95%
of whatever that PUA payment is
show up in cash value immediately
so you don't get 100% of that
and the reason why
is because there are fees
that are associated with that
however the majority of those payments
show up in cash value
that's money I can access anytime
that begins to receive dividends
and the guaranteed rate
this is really the key
to accelerating the cash value growth
on a life insurance policy
both on a guaranteed
and non-guaranteed basis.
It will buy you some death benefit
it's very small relative to premium dollars
depending on your age
and your health rating
and your gender
on average if I paid in $1,000 here
toward this PUA Rider
I might see another $3,000
$2,000 to $3,000
show up an additional life insurance benefit
so with this
if you're looking at a
cash value life insurance policy
and you make the statement
or your goal is to maximize cash value
I want as much cash value
as I can possibly get
I don't really care about the death benefit
not right now at least
or I've got other life insurance in force
how do I really beef up this cash value?
That's why I'm putting money into this product
otherwise I wouldn't be considering it
where would you want to put your money?
My father asked the question
when I was early on in my career
many years ago
can I just put 0% here
and everything else into this area?
And the answer was no you can't do that dad
unfortunately
now I like to go into a lot more detail
so rather than just say no
we'll go into some detail here.
There are different
or I should say there are limitations
that are set by insurance companies
which limit how much money
we can pay toward both of these areas
so limits are the key
I've got insurance company limits
then I've also got IRS limits
that has to do with the MEC limit
but when we look at policy design
we often talk about splits
we have videos on our channel
if you just search Split Study
you'll see them pop up
but let's take a look here
when we look at a split
what this refers to
is where is my money going
so we've got this term over here
this 10/90
10/90 split what does that mean?
Well this represents
if I'm paying in let's call it $100,000 per year
into a life insurance policy
if I've got a 10/90 split
that means that 10% of the total payment
which would be $10,000
is allocated toward the premium
and then the other 90%
is allocated toward the PUA Rider
so what I'm doing
is reducing the insurance premium
as much as I can
in order to be able to get
everything else of my payment toward PUAs
to really maximize that cash value growth
right out of the gates
this way I see the majority
of what I pay to the policy
immediately available to me
begins compounding
I see an early breakeven point
strongest guaranteed values
it looks great.
10/90 split if I were to look at
some of the major mutual companies
like a MassMutual
Guardian
New York Life
often as low as I can go
with that base premium is 10%
now some companies
if you look at our all-about Guardian videos
you'll notice in the 1st year
they allow us to go much higher than that
you can pay 50 times the base premium.
Some companies
smaller carriers don't have a multiplier
smaller companies
like a Lafayette Life for instance
will allow one to pay a maximum
of $500,000 per year into PUAs
regardless of what the base premium is
so all companies
do have different limitations there
but if you want to maximize the cash value
what do we want to do?
Drive the premium down
beef the PUA Rider up
you can also make this very flexible
if I want this $100,000 number
what a lot of people will do
is set up a policy
where they will commit to $10,000 per year
and then at their discretion
they'll add additional funds
up to $90,000 per year
making the policy very flexible
pretty nice, right?
So here's where I'm going with this
so I've got that 10/90 split
but then I also see a 50/50 split
and also a 100% base premium
here's the thing
what do those different splits
or different ways that I can design a policy
how do they impact your cash value?
Again if your goal
is to maximize cash value
I'm going to pay money into a policy
how do these different splits
directly impact you based on the scene
meaning the actual illustrations
but then also the unseen?
Maybe it's guaranteed values
and I wasn't showing that
that's also on an illustration
perhaps it's having insight
on historical performance
and how corporations
actually structure these policies
to beef up the cash value
real data not just projections.
The design will have every single time
a direct impact on your cash value
and also a direct impact
on the agent's compensation
so I always like to just have full transparency
so in this video series
we're going to look at
how it impacts cash value
we're also going to take a look at
how it impacts the commission
keeping all things equal
same company
same product
same design
we're gonna have a lot of fun
as we go through this
but again if your goal
is to really maximize the cash value
of a life insurance policy
this will provide you
with a lot of additional insights
you can ask your agent the right questions
make sure that everything's properly set up
hopefully you find this informative
so we are going to cover quite a bit
in the next several videos.
I hope this video did help
if you have any questions
please feel free
to leave them in the comments below
you can email us or call us directly.
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and as always I hope this helps.
Thanks so much.
Hey guys Steve Parisi here
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