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