Understanding The Cash Value In A Whole Life Policy | IBC Global, Inc - YouTube

All right

In this video we are going to go into a whole life insurance policy and attempt to better understand the cash value

In simple terms I'm not going to go into as much detail as I usually do. Let's get into it

So when it comes to the cash value on a life insurance policy

What I'll mention is 99% of the people we work with - their main point of interest is the cash value

Right when we hear the words whole life insurance or I should say insurance in general, right? I say insurance what comes to mind?

Premium - I pay pay a premium every year every month

And when I die if it's a life insurance policy money's paid out to my beneficiaries

Then we hear stuff about whole life insurance and the cash value component that makes it sound really good

But then there's not a whole lot of transparency in respect to the information out there

You know when it comes to the information around whole life insurance, typically, there are

Two ends and they are polar opposites

The first side is whole life insurance is the worst area to put your money. Don't put anything there

It's junk by term and invest the rest. You'll always have more money

And then the other side

is

Whole life insurance is the best area to position money when you look at the ultra wealthy, big banks, corporations

They put a boatload of money into cash value life insurance and a lot of individuals we work with do the same thing

So why are there two sides here?

polar opposites

well

Really has to do with this guy: the whole life insurance policy, the design

is key

We're not going to spend time going through how to design a policy in this video since I do that way too much

If you have not seen our video on how to maximize the cash value in a life insurance policy. I

definitely recommend viewing that where we walk through how to design a policy for maximum cash value. What I will touch on

is this

When I see a whole life insurance policy we mentioned there's a lot of information out there

that's very good has a lot of positive things about to say about whole life insurance and then information that has

Not so good things to say about whole life insurance. Here's how I look at it

our company sells whole life insurance

We design it for maximum cash value and our mission is to provide

Transparency and convenience to everyone we work with those are professionals in the industry and also consumers looking to purchase

policies but with that said

How do we design a policy or

Why do we see differences out there before we design a policy?

Why do we see those two opposite ends of the spectrum really bad, really good? Because here's an example where we have the exact same

Company, exact same 40 year old male, exact same cash flow

It's a whole life insurance policy in both examples. One example looks very bad

So when we read or see the stuff that says stay away from whole life insurance. It's the worst area to position money

Twenty thousand a year going in

Look at this five years in I've paid in a hundred grand

And I have $48,000 in cash value

zero right off the bat

By year 14 when you start to see the highlighting and yellow piece I'm finally positive relative to what I've paid in

so when we hear

Or read or see videos that state whole life insurance is the worst area to position money takes forever to get your money back

typically

It's referring to a traditional whole life insurance

Whole life insurance policy: the bad

but then we hear of these corporations and wealthy individuals just

Positioning tons of cash into whole life insurance policies. They're not doing this

Same out of pocket cash value right off the bat and a death benefit

What's highlighted in yellow represents my break-even point when I have more money in cash value relative to what i've paid in

This has more money short term

And also long term

Same company same out of pocket for the policy holder, drastically different results

Good and the bad. See, if again my focus if I have a laser focus on cash value

This guy I do have a higher death benefit right off the bat

So it's good to consider that as well, especially if I'm interested or have a need

For death benefit right off the bat. So let's break down the cash value a little bit and just highlight a couple bullet points here

So we've got safe, liquid, tax free and always compounding, right?

So these are some core benefits to any whole life insurance policy around the safety

So a life insurance policy is a safe area to position money

A lot of times we'll work with individuals that have a lump sum of money just sitting in cash

Right in the bank account in their bank account

Maybe it's in bonds and another fixed asset and they look at this and say hey

Here's an area I can position money regardless of my situation and how much I have

Build up my cash value in a policy and leave a legacy through a death benefit

Sounds like a great deal and it is looking at the guarantees and non-guarantees

So on the safety what I mean when I say that is there's no risk meaning if the market tanks or the economy tanks

I will not see my policy all of a sudden

Lose value, not going to happen like what I would see in the market

Often I will see a guaranteed rate

A four percent a company would pay a surplus in addition to that

Then I would see a total dividend rate

Dividends for 2020 with the top companies out there range from about five to six percent

A little bit over for some companies six percent

Now when I mentioned that in 2020, we are at the end of August here

It's hard to get a bank account for a .4 or .5%

for a lot of people

So how on earth are insurance companies paying these type of rates on cash value life insurance products. Here's the thing

These are gross rates. So it is a safe place to position money. But again,

To be as transparent as possible

If I have a dividend of five percent, six percent, whatever it might be that is a gross rate that is credited

After the insurance company's expenses and mortality tables what I am most interested in

What's my net performance? The insurance company will refer to it as IRR (Internal Rate of Return)

If I have a six percent dividend I'm so many years into the policy I might see it produce, call it four percent

Let's just use simple terms

I might do between three and five or three to six percent

As far as a net internal rate of return on a life insurance policy over time meaning after all the insurance expenses

Everything are said and done. I can peg it there to go a bit more conservative. Let's call it three to five

Historically they've done stronger but we are in an extremely low interest rate environment right now

so

safe

Great

Let's give ourselves some more space. Perfect

liquid

Huge advantage here, right? I want to put my money somewhere where I will actually

Earn something on it, but I don't want to have to tie it up

Like I don't want to lock it up like I would in a 401k or some other

Some other type of account with a whole life insurance policy a cash value life insurance policy

I do have access to my money. Typically I can access it

fastest

Through a policy loan if I request a loan typically depending if i'm going check or direct deposit

Call it three to seven business days. Now, as a side note

And we've got more videos on all of these topics

On our YouTube channel and website

Contractually, you'll see - I've seen it with every insurance company but I've read through the contract language

And searched for this piece

Is companies do reserve the right to

Hold loan requests for up to six months. Good to be aware of that

I've never seen this happen or heard of it happening even through the Great Depression, didn't happen in 2008

However, contractually they do reserve that right. So it's good to be aware of that. But for the most part

extremely liquid

tax-free

Now here I am going to put in red

The word if

if

we set the policy up properly and if we do not trigger a taxable event we can use it tax-free why I

Add that word in there is what is heavily marketed around cash value life insurance

Is the fact that it can be used tax-free and frankly that draws in a lot of interest it piqued my interest as well

The thing is it is possible for a taxable event to occur

On a life insurance policy some things that can result in a taxable event

Would be if

I trigger what is called a MEC (Modified Endowment Contract)

if a policy

Lapses or I cash it out

With a gain on it

If a policy

Lapses

With an outstanding loan

And there was a gain on it and we've got more videos that really go into more detail there because that can be

Not a complicated topic, but can take a little bit of time just to understand

And we always like to be thorough so I'm not going to go into all of the details here. My point

to this generally speaking is

Huge, huge benefit to cash value life insurance. I can use it tax-free

Important to be aware of however what could potentially

Strip me of the tax benefits

and then always compounding so

A unique feature to a whole life insurance policy. Is that once a dollar passes through a policy?

Regardless if I let that dollar sit there and earn call it

Five percent or if I decide to access it and borrow against it I continue

To receive five percent or whatever the earnings rate is on my entire cash value

To illustrate: if I have

a total cash value

Of let's say a hundred thousand dollars whether I started out with a lump sum payment or I gradually built it up

I have a hundred thousand dollars

We'll assume that the dividend rate

Is five percent and I loan out half of it

Now if you had a hundred thousand dollars in a bank account and you elected to

Pull out half of it

Fifty thousand, how much would you still earn in that five percent bank account

The half that's remaining

Life insurance policy does not function in that way. Now when I borrow there is a cost to the loan

Typically, you'll see that between five and six percent depending on the insurance carrier. However,

I had a hundred thousand dollars. I loaned out 50

the insurance company will continue

To pay me that five percent dividend

On the entire $100,000 as if I never touched it in the first place

How they do that - two reasons

There's a loan interest expense on the amount. I pull and then second anytime. I take a loan out

My death benefit is collateralized dollar for dollar by the amount. I access

so in this example if I had a total life insurance benefit initially of

A million dollars and I loaned out 50,000

The net amount

That would be paid out if I died with that loan outstanding

Would be $950,000

Now if I ever repay it I see everything fully restored to exactly what it would have been

As if I never touched it in the first place

always compounding

No, lost opportunity costs. We've got a lot more information

And videos and flow charts that go into more detail on that as well

But those are some bullet points to the cash value

We've got our chart on how to maximize the cash value as well over time. Look at it long term. There's your growth

Main point is if I'm really digging into a whole life insurance product and I'm interested in the cash value

The design is key. But it's also good to understand

The other pieces like we just touched on. The core benefits: safe, liquid, tax free, money is always compounding for me. That's great

What companies do I select? Flexibility?

These are all additional topics which

we've got

Plenty of content on you can find that on our website or on our YouTube channel

Or you can reach out to us to us directly. Feel free to

Call or email our offices anytime. As always, I hope this helps and we will talk to you soon

Hey guys Steve Parisi here

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