I remember when I was 26 years old still working at the corporate planning firm where I modeled policies for corporations and executive benefit planning but I had also started to work on the side leads people who are interested in high cash value life insurance and I remember an older gentleman named Larry he was 65 when he started a policy but he wanted to pay $1,000,000 into a policy I'm at a point in my career where things are starting to pick up and then I call someone I'm talking to him and he says I want to pay $1,000,000 into this policy can I just write you a check or write the insurance company a check and send it on in and be done with it? I'm 26 finally starting to get going I'm like this is huge I'm all excited but at the same time I'm like okay Steve stay calm remember you always have to treat the client exactly the same go through your process educate them on what they want ask questions do things properly. But I was excited I'm a young kid I was trying to get married actually I think at that point in time I may have been engaged or I was about to ask my wife if she would marry me. I remember one day I'm at home talking to my dad about this case I'm like yeah you know I just talked to a guy he's selling an apartment complex he's gonna have about $800,000 my dad's on the couch he goes $800,000 to put in a policy? What? Because I was new in the business and he still may have not thought I was going to make it he saw me putting in time but he knew it was a tough business but I remember that reaction he kind of like jumped off the couch for a little bit. But with this case the interesting piece is Larry was 65 when he started the policy and his specific question was hey I've got $1,000,000 can I make a 1-time payment into the policy? I'm interested in this whole life insurance product for the following reasons I see that it is a safe area to position money that's not in the stock market I want nothing to do with the stock market. It's liquid Larry had been successful he still is successful with real estate investing he's into multi-family units owns apartment complexes he's very successful that's where he makes his money and he was interested in a cash value life insurance policy as a means to position this capital instead of just sitting in a bank account when he's looking at deals but he's got the capital he wanted to put it into a policy instead actually see it grow have the tax benefits and then take advantage of it borrow against the policy or leverage it for a collateral loan to obtain real estate and he has used his policy so many times over the years and we've seen him do very well. But he's got $1,000,000 in cash here's what I want to touch on because so many people are interested in cash value life insurance he was interested again in the safety and the liquidity also the fact that it's tax-free if he does everything right. But what he was not attracted to one bit was the thought or idea of having to make payments forever. I remember him saying hey can I just write you a check $1,000,000 the dividend rate with the company that he selected was MassMutual back in 2015 7.1% Now a couple things he thought hey if I just write you a check for $1,000,000 goes into a MassMutual whole life insurance policy that's earning 7.1% right off the bat I should see how much an interest 7% about $71,000 in the 1st year which is not the case because with the whole life insurance policy while we do have that dividend rate remember that anytime you see a dividend rate on a life insurance policy the same is consistent with the guaranteed rate that is a gross rate that is credited after the company's insurance expenses what I want to look at is the net internal rate of return the actual growth over time. So Larry said can I just write a check for $1,000,000? Because that will yield me the most money and then I love this concept of borrowing against it at 5% that was the loan rate I'm earning 7.1% I've got a loan rate of 5% positive 2.1% spread which really wasn't the case. We've got other content where we talk about that dividend rate being a gross rate. If I have a dividend of 7.1% my net return on cash value might be around 5% or so after the company pulls out their insurance expenses and such and we've got again other content on that. So his question was can I just give you $1,000,000 upfront? And the answer to be completely transparent is yes you can do that technically with a policy you can make a 1-time payment have it be a non-MEC [Modified Endowment Contract] you could see your cash value kind of sort of grow over time but it doesn't make sense it makes sense to spread it out. So before we look at Larry's actual policy what we're going to look at here is the policy setup. So when it comes to making a lump sum payment common sense would tell me if I've got a product paying a 7.1% dividend if it's not life insurance and I just throw $1,000,000 in that should start to compound right away because at the time his bank accounts earning 0.7% or whatever it was it wasn't that attractive. So policy setup when I pay money into a policy if you're going to pay $1,000,000 or $1 where can your money go? Toward 1 of 2 areas it can go first toward the insurance premium or second toward the PUA [Paid-up additions] Rider and we'll often refer to this as a cash dump in because it shows up in cash value right away it's money I can access this is the key to accelerating the cash value piece of a life insurance policy. So let's take a look at this just a lump sum option so we're going to look at just a generic example then we're going to look at Larry's actual policy $1,000,000 payment on a 60-year-old male here we go. So $1,000,000 goes into the policy 3 different options we have $1,000,000 going into the policy and 1 payment a 1-time lump sum then broken up over 3 years and broken up over 5 years. So if I am you if I'm the consumer regardless of my age this is on a 60-year-old male this applies to a 75-year-old male and also a 35-year-old male there's some differences but same concept. If I'm you I want to understand how do I maximize the cash value the efficiency of that product this way I can do what Larry did. Remember what Larry's goals were? Steve, I want a safe area to position my money and I want it liquid oh by the way the 3rd benefit is tax-free I'll take that too. So what do we see in option 1? Annual outlay this is his total out of pocket a $1,000,000 payment The 1st year he has what? Just about $900,000 in cash value Annual outlay represents his actual payment each year 0 forever. What this base premium is on the left that is the underlying base premium that's still due but he's not paying it. Now often wherever I set my base premium the insurance company will allow me to 10X that if I'm making a $1,000,000 payment we can make it a little bit more aggressive we stressed it to the limit like we do with all policies and all companies and when I say stretch to the limit reducing that premium because premium dollars do not show up in cash value in the 1st year and sometimes in the 1st and 2nd year depending on the company and product. But here squeeze the premium down as low as I can get everything else toward cash value you've got just about $900,000. Next year he pays in nothing what do we see with the cash value? Grows from $897,000 to $907,000 If I look at the actual earning rate that year 1st year he paid in $1,000,000 he had about $900,000 that's where the negative 10% hit is so I've got a dividend rate but the net return in the 1st year because I have less cash value than what I paid in is negative. Year 2 he pays in nothing grows by about $10,000 so I see 1% but here's where it gets interesting look what happens each year returns become negative for a little bit. The reason why and this can be confusing at times is this base premium over here call it the insurance expense is due for at least the 1st 7 years on the majority of whole life insurance policies this has to do with what's called a MEC test which is I've got my MEC limit on a life insurance policy that taxable line. Another name for my MEC test or MEC limit is my 7-Pay test it has to do with the 1st 7 years of a life insurance policy. Basically my death benefit has to stay at a certain level and the premium and death benefit have a direct relationship with each other so basically whether I'm paying the premium or not that premium will be due for 7 years like what I see in this example so I've got the premium due but I'm not paying it he can but we'll assume hey I don't want to have to pay anything here so he doesn't cash value comes down when I see the returns negative by year 7 I've got $850,000 in cash value not that attractive I paid in $1,000,000 I have a $150,000 loss I'm like no I don't want that this doesn't make sense. So why this is good to be aware of is when I think of a lump sum payment if I see a whole life insurance product and a dividend rate from that company you make that payment what are you expecting as the consumer? To earn that dividend that interest the thing is we want to remember what's the actual insurance expenses and to simplify what's the net growth? Like this is what I like to look at to simply know what's my money growing by it simplifies things. So then what we did was look at options where we spread the $1,000,000 out which allows us to lower the death benefit lower the premium lower the insurance expenses and we see a world of difference total of $1,000,000 goes in look at this he's got this $1,000,000 back by year 4 In this example we did it over 5 years by year 4 he's paid in $800,000 he has $800,000 Year 5 he's got a bit more This guy the 5-Pay actually made the most sense when I look at the 3-Pay they're not too far apart from a performance standpoint but what I will mention is when I look at the guaranteed values this guy's way more attractive the 5-year fund and we've got some lump sum studies on that as well. So let's go back to Larry's story so before we do that what I wanted to touch on here was when I look at a lump-sum payment a 1-time payment is not the most efficient strategy and that was something we took a lot of time going over with Larry showing him the numbers not just explaining it because obviously this stuff can be a little complex and some could say very complex. So what Larry ended up doing is this he set up a policy at age 65 where he paid in $200,000 per year for 5 years, okay that was his plan. Now what I will mention is he's heavily used the product for real estate so some years he paid in $200,000 some years he paid $100,000 there's 1 year he paid in about $50,000 then made a big $300,000 catch-up payment he has made a total or I should say a total contribution amount thus far of over $1,100,000 things have continued to produce for him so he's wanted to continue to pay money in. Now at this stage in his life he's going on 73 years old he's still involved to a degree with real estate but his sons and sons-in-law really have inherited the business where now they take care of everything. My point is he doesn't really want to pay into the policy we're going to show him options but where he's at now 2021 how's the policy actually performed let's have some fun here so as we look at the policy what I want to see entering policy year 8 total payments and these include premium and PUA payments these do not include any loan repayments he's made since he's borrowed from the policy paid the loan back paid a loan interest to the insurance company while his money has continued to compound and we've got other models plenty of videos on that. But here's his total payments so by year 8 what do we see here? This is his actual policy by the way which is always good to see this we can see some real results and he started at age 65 he was positive between years 5 and 6 that was his break-even point just about year 5 and you can tell because year 8 he's already got north of a $100,000 gain it's about $111,000 if I look at the total payments compared to the cash value. Now nothing goes in and this is an in-force illustration option A represents minimizing the death benefit to maximize the cash value So one of the things Larry said when we first connected was Steve I don't care about the death benefit I don't need it I've got other assets I've got my real estate that's income-producing like the life insurance piece I'm not interested right now that was at age 65. The cash value I'm interested in that was his point of interest So this option really emulates or displays what he wanted to do originally where what we did is cut the base premium cut the term insurance there's almost no term left on it but we reduced the insurance expenses to the minimum which reduced the death benefit to $1,800,000 almost $1,900,000. What this does I'll refer to that as cutting the drag so to give a little bit more information he's got about a $28,000 premium that's due each year if he doesn't want to pay it he can elect to have the policy pay for the premium on its own or he can get rid of it by exercising this RPU which stands for Reduced paid-up or just getting rid of the premium which is exactly what this option is so we cut the insurance expenses and there's your cash value keeps on growing over time. If we look at age 80 he's almost at $1,700,000 and you'll notice here we're starting at policy year 8 because he's 8 years into the policy so we're gonna go back to year 1 we could if I pull all the original values and input them on there we might do that in the future but this is moving forward in in-force illustration Year 8 about $1,670,000 death benefit almost $2,200,000 back to where it is today. The middle example is same thing with 0 out-of-pocket payments same total outlay $1,100,000 but here we're maintaining the death benefit we're not minimizing it like we are in this example and what you'll see things still appreciate but look at this death benefit here that's the big difference So let's do this to make it a little bit easier because all these numbers can be difficult to follow sometimes let's have some fun with this here we go. So why don't we look at these cash value difference good let's make this bold green So what I want to see here if I'm him because we like to show options to everyone we work with as time passes on the example where I minimize the death benefit I see a slight reduction in cash actually when I compare the 2 but it quickly takes off good and then what I also want to do is see the death benefit difference alright. What I'll do here a quick difference this year will be exactly the same so this is interesting. What we've got going on here just comparing these 2 let's give ourselves some more space cash value difference so this shows the difference between the 2. If I minimize the death benefit in this example what I see is the cash value actually for about 3 years because I have a dividend reduction if I minimize the death benefit is a little bit less but here's what I'm really interested in let's look at the same thing age 80 how much more do I have in value? About $33,000 greater in cash value. If I look at age 85 what's the difference? About $100,000 greater in cash value If I look at the death benefit comparing again this one to this one age 80 in the example where I minimize the death benefit initially that gives me a $330,000 hit that much less in life insurance By age 80 I've got $33,000 more but I have about $115,000 less in life insurance Now if I look at 85 he's interested in this option because it cuts the expenses and gives him more money he's got $100,000 greater in cash value but also almost another $50,000 additional in death benefit I know we're digging deep here but this is one of the things we like to do for people we are working with meaning before they buy a policy and afterwards during review meetings and as time passes in the event things change or life happens what pivots or adjustments can I make over time? Now if he becomes very concerned about the death benefit and he never wants to see it drop below $2.2 that's where this option could be very suitable But again now he sees the different options and can select the policy or I should say the option he's most comfortable with because this is the exact same policy he's 8 years into it And then as we look at the last option if he wants to keep making payments so his minimum premium was about $28,000 his MEC limit was $200,000 so he had very close to a 10/90 split he was just max funding that for a long time. Now we see what? Well if he keeps paying into it which he has the option to do so and he's expressed that he might do that Look at that cash value just keep growing same thing with the death benefit over time and we see this quite a bit typically one will start a policy and they have a plan to fund it with a lump sum but then their premiums so low if it was set up right They say you know what can I keep adding money into this? And the answer is yes you absolutely can and the advantage to that is if I continue to add money to the product what happens? Well obviously I see more cash value but the death benefit how are death benefit proceeds paid out? 100% income tax-free leaving perpetual wealth inside the family so going to the next generation having them set up with policies so they do the exact same thing with a portion of those death benefit proceeds we see a lot of families do that we see the ultra-wealthy do it but you don't have to have a humongous net worth in order to do it it's a nice option that's available and we can build awareness over time. It depends on you really do you care about the death benefit or not? But with this example I mean that's exactly what we want to know if we're looking at a lump sum how do I set it up where I get the most efficiency out of my dollar? And then what's it look like as time passes when I'm done funding it? Do I not care about the death benefit and minimize it initially for greater long-term value? Which typically that makes a lot of sense or do I keep that option open to keep paying into it keep on funding it? That policy performed beautifully and they all do if I'm set up with 1 of the 4 major mutual companies and I have a policy designed with a minimal premium which by the way copies what the ultra-wealthy, the elite, big banks, and corporations do if you do that you will see a policy that is very flexible but will give you the best bang for your buck the greatest overall value. So I know that one was deep I had some information in there. If you have any questions reach out anytime we always like to connect and as always I hope this helps. Hey guys Steve Parisi here. If you enjoyed the content you just saw please subscribe, like, and hit the notification bell for future videos. 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