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Paid Up Additions Rider (PUA): Get the Best Whole Life Policy Design - YouTube
Channel: The Money Advantage
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I want to talk with you about how to
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optimally design a whole life insurance
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policy now this conversation is about
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base premium and paid up additions
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riders and if you're not familiar with
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what that means or why we would even be
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talking about this let me bring you back
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to square one for just a moment because
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this conversation is something that
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trips a lot of people up when they are
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shopping for whole life insurance and
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specifically for whole life insurance
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that they can use for privatized banking
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now rewind to square one
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privatized banking is a way for you to
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be able to put dollars into a place and
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store that or have a place to store cash
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where then you can grow that cash it's
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safe and it's liquid meaning you can
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borrow against that cash and put it to
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work in another asset or another
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investment that produces cash flow and
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then be able to replenish that store of
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cash inside of your privatized banking
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system now specially-designed whole life
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insurance has been an ideal tool for
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accomplishing this purpose because it
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allows you to grow that cash value with
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uninterrupted compounding which is one
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of the main powerful features of
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privatized banking now if you are
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familiar with privatized banking and you
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know what it means to design a whole
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life insurance policy already go ahead
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and put in the comments below yes I know
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about privatized banking if you're
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coming to this video and you have never
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heard about privatized banking please
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put that in the comments below say no I
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have never heard about privatized
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banking I would love to get a feel for
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where you're coming from and where
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you're at right now so we can really
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design the most beneficial resources and
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tools for you in your journey and your
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current level of education so that you
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can get the resources that you want so
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now that we've discussed briefly what
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privatized banking is the tool of
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specially designed whole life insurance
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has a lot of people confused because
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here's why some people design those
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policies with one type of premium and
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some design policies with more of
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another type of premium and what what do
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I mean by that well there's almost this
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sliding scale or a spectrum if you think
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about the dollars that you put into a
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whole life insurance policy base premium
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would be at one side and paid up
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additions riders would be at the other
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now you can design a policy anywhere
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on that sliding spectrum with all base
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premium and no paid up editions riders
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or almost all the way over to having
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very minimal base or I would call it a
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skinny sliver of base and almost all
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paid up editions riders I've heard of as
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high as 90% paid up editions 10% base so
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I'll switch that ratio so I always say
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the base first 10% base 90% PU ways so
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anywhere in between 100% based 0 PU a or
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10% base 90 PU a what's the right ratio
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now another problem is that you have
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people going around saying there's only
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one funding ratio there's only one way
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to do this and if you don't get this
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exact funding ratio you're getting
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misled or you're getting ripped off
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where you're not getting what you really
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want the problem is there's a lot more
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to the story and there's not only one
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funding ratio so how do you need to
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think about this especially if you're
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the user of the privatized banking
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policy and maybe you really don't care
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about all the levers and like looking
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down into a motor inside of a car you
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just really want the car to run or maybe
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you don't want to really understand the
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soundboard and the mechanisms that make
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the sound happen you just really want to
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have this amazing vibrant ambience in a
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room so like that with your policy you
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want a policy that drives well you want
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a policy that gives you maximum early
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cash value meaning the dollars that you
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put in today most of that becomes
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available to you in the form of cash
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value in year one that's what you want
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in addition you also want the maximum
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long term growth and by long-term growth
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I mean having your money that you put
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into the policy grow as much as possible
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so that your cash value further down the
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road think like 10 20 30 40 years into
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having this policy is the most growth
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that you can get as well so that you not
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only have a policy that performs great
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out the gate but also wins well and goes
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across the finish line of your life
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really well so in order to get both of
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those objectives accomplished early cash
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value and long-term growth here's how we
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want to think about the funding ratio
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base premium is like the base or the
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foundation of your policy it's the main
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policy now as you pay in base premium
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it's
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kind of like pain on your mortgage over
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time you are paying towards the full
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house value and you're building equity
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slowly over time that's kind of how you
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can think about a base premium inside of
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a policy now now paint up additions are
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a little different think of using twenty
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five thousand dollars cash to put a
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addition on your house at garage I don't
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know if a garage would cost $25,000 but
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just so let's say that you could do that
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then that garage would be annexed or
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connected onto your house onto your base
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policy and what is happening is that
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portion is fully paid-up meaning that
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garage is fully paid for and the equity
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in that garage itself is increasing the
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overall value of your house but you also
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have that portion fully paid for so paid
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up additions writers are kind of like
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that where the money that you put into
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the paid up additions Rider is available
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much more quickly for cash value but it
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contributes less to the overall death
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benefit of the policy so base premium
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pays more towards death benefit much
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less towards early cash value paid up
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additions contribute less towards the
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death benefit but much more to early
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cash value so on that sliding scale
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between base and PU ace where's the
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perfect ratio now we tend to fall in the
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30% base to 70% PUA
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ratio generally in kind of a philosophy
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or a theory of how we design policies
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however it matters what particular
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carriers you're using along with the
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particular product with that carrier now
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for instance we have seen a policy with
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50% base 50% pas perform ideally just
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the same way that another carriers
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product might perform if you designed it
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with 20% base and 80% PU A's so there's
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not a one-size-fits-all funding ratio
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but here's a few really important things
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to think about one is that if you have
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big more base premium and less PU A's
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the base is a required premium where the
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paid up additions Rider is not required
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it's more optional it's optimal to put
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it in but at the same time it's optional
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meaning that if you don't put it in
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you're still gonna have a policy in
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force now
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if you have mostly bass unless PUA you
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have to pay a good chunk or good
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majority of that premium however if you
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have less space and more paid up
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editions you're in a position where you
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have more flexibility to pay less of the
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policy and still keep that in force
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that's one thing to think about another
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thing is that the way a policy grows
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really has everything to do with
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dividends and dividends can be a little
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bit hard to handle and understand
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because on an illustration you are
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looking at the projected performance
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into the future of a policy that has not
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yet happened you haven't walked the
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trajectory of this actual growth but on
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the illustration you can look at the
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guaranteed performance which is going to
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be credited based on interest a
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guaranteed interest rate inside that
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policy that is going to be fixed then
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you have the dividend portion which is
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the non guaranteed side of the
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illustration so imagine I'm looking at
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one illustration here and another one
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here I'm gonna see a guaranteed column
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and a non guaranteed column now can be
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really misleading if we look at the non
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guaranteed column of two life insurance
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illustrations and look out to say year
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30 and compare those cash value dollar
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amounts because how they arrived that
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non guaranteed cash value amount has
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everything to do with dividends now
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dividends on the illustration are shown
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according to today's dividend scale
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meaning whatever today's dividend rate
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is for company a and Company B they're
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going to use that same dividend and for
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instance and if you will copy and paste
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that every single year down to the end
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of the policy now we know that dividends
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are not fixed that's why they're non
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guaranteed these are highly anticipated
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that they will be paid these companies
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that we work with have paid dividends
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well over a hundred years and we're in a
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position where we highly anticipate they
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will be paid in the future however the
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amount of dividend is not a guarantee so
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then we have to think about what do we
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expect dividends to do in the future
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well dividends follow the bond market
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and right now interest rates are very
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low so the dividend rates in policies is
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very low what can we expect in the
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future again I don't have a crystal ball
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but we expect dividends to go up in the
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future as interest rates rise
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so that means that if you look at an
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illustration today in 2019 when this
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video is being published the dividend
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rate is fairly low if we put a policy in
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force today and we look at what that
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illustration is overtime and jump down
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to say year 30 maybe by time we get out
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to that actual year 30 dividends have
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risen tremendously and they might be in
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a position where the policy has far out
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performed what was on the initial
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illustration but here's something really
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important about dividends they credit
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more on the base premium rather than the
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paid up additions rider portion of the
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premium which means that over time if
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you have a one policy that has more base
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premium and less PU ace and another
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policy that has less base and more PU
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A's your dividend is going to grow more
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on the policy that had the higher base
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now what that means is that if we expect
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dividends to go up in the future then I
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want a policy that's going to take
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advantage of and optimize the dividends
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inside that policy and have the maximum
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long term growth I don't want to
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sacrifice the finish line just because I
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wanted to get early cash value today so
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when we look at policy design there's a
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lot of factors that really go into this
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mix now this can sound really complex
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and really complicated but the most
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important thing is really to focus on
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what is this policy doing for me
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not necessarily what are the levers that
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are being changed or adjusted to design
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that policy and what's going into the
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policy but what's coming out what is the
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actual performance how can I see what is
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going to perform best for me over time
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and that means you really want a good
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balance and good mix of base premium and
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paid up additions riders so the most
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important thing to focus on is not only
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what the illustrated dividends are but
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if we end up in a rising dividend rate
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environment which policy is going to
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outperform into the future and how can
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we not give up early cash value so that
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we can start using that policy right
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away now I hope this video has been
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beneficial and useful to you and if so I
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would love you to tell us in the
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comments below what questions do you
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have after hearing this video because
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these are questions
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we want to help you through so that you
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can get the information that you need
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the education that you need so you can
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build the confidence that take action
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and move forward with the best financial
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strategies in your life that help you
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maximize cash flow and control
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