In my last blog I tackled the myth that term life insurance is cheaper than whole life insurance. Today I want to tackle the myth that with whole life insurance you don’t get any “fair amount” of cash value in the first fifteen years of your policy.
This is such a misleading conception in this industry I must set the record straight.
The one and only thing most people know is they buy insurance based on how much death benefit they want. That is also how 99% of agents are taught to sell life insurance. Agents and insured are not told they can have the best of both worlds by looking at the whole picture.
Traditional VS IBC setup
Infinite Banking policies are not set up the same as a traditional policy. What I want to briefly explain to you is how a policy can be structured for your benefit to access of more cash value. I am going to use the same numbers as last week’s blog.
**Keep in mind this is a BRIEF explanation of how this works. I am not going to get technical and explain every last word in this example. If you want to know what each thing means in more detail please contact me and I will be happy to discuss.
Policy setup: 35 yr old male, nonsmoker, standard health. Premium amount of $5,360.00
Let’s tackle these misunderstandings one at a time. Here is the link to both illustrations. I have color coded the areas so you can easily follow along. I know this can be difficult if you are not familiar with insurance, remember I was in your shoes at one time so I understand!
Premium Dollars and Early Death Benefit – Keep in mind we are not looking at this strictly for death benefit, we are looking at growing your cash value. In order to do this we have to split the premium dollars on the infinite banking policy.
Traditional Policy – The premium dollars all go to “base.” This is just the technical name for death benefit. That part is easy, this is how you are used to buying life insurance. You want $500,000 of death benefit and it’s going to cost you $5,360/year for that coverage. ALL the premium dollars, of $5,360 are going to buy death benefit
You will also notice with the traditional policy the premium will remain the same through age 100.
Infinite Banking Policy – the premium is split between base (death benefit)and a Paid-Up Additions Rider (PUA). This rider is what makes this policy work so well, it increases access to cash value!
Notice also that this premium changes at age 66 (year 31) and drops to $2,500/year until age 100. That is due to the fact that if we add more money to the rider the policy will be overfunded with cash value and the growth then becomes taxable. The goal is to keep that growth tax deferred for you. For more information on that please contact me to visit or keep watching for a blog on this subject.
Accessible Cash Value – Now that you know where the premium dollars go let’s look at what you get for those dollars in cash value.
Year One: traditional policy gives you access to $155.00 and the infinite banking policy gives you access to $2,883 year one. This is a huge difference because you put less money to death benefit and added the PUA rider you gained access to more cash value.
Year 31 (Age 65): You can follow each year down and I have some highlighted in pink. At age 65, there is a significant difference of $45,244. This money could be used for anything from paying off debt to supplementing retirement income.
Break Even Point – Let’s go one step further in this cash value area. Lot’s of people bring up the point that it takes so
long to “break even” in a whole life policy. Meaning the amount you paid in total premium is not equal to the amount of accessible cash value. That is a true statement in a traditional whole life policy but it is NOT true when a policy is setup for infinite banking.
Traditional Policy Total Paid Year 17= $91,120
Traditional Policy Cash Value Year 15= $93,247
Infinite Banking Policy Total Paid Year 10= $53,600
Infinite Banking Policy Total Cash Value Year 10= $53,803
What we see is that in the infinite banking policy you actually “broke even” year 10! Whereas, the traditional whole life policy didn’t “break even” until year 17. This is all do to splitting those premium dollars and putting some to the PUA rider.
Now if you are looking at the death benefit you are going to tell me that they are not even close to being insured properly if something should happen. Very important concern to discuss.
Did you know only a quarter of people die before the age of 65? Yes. Most people have term insurance until they are 65 years old and then die without any coverage or worse yet they try to buy more coverage at age 66. Insurance premiums will go up over 1000% at age 66! Be sure to read the blog on whole life costs vs term costs to find out more on that subject.
Since it is a concern let’s look at how these policies fair in the death benefit department.
Traditional Policy – $500,000
Infinite Banking Policy – $223,636
Traditional Policy – $554,894
Infinite Banking Policy – $580,424
Age 80: (avg age of death for U.S. males)
Traditional Policy – $632,835
Infinite Banking Policy – $691,898
As you can see by these numbers, you were able to use the cash value while you were alive but when you are more likely to die you actually have more death benefit with the infinite banking policy. It truly is the best of both worlds.
Don’t be misled by those who do not know how whole life policies can be constructed. This is a simple example of one way to construct a policy, there are additional ways that would even allow us to meet those death benefit needs as well as the cash value needs. Again, more information than this blog contains.
Traditional whole life insurance buys you death benefit and gives you little in return outside of that death benefit. For the same premium on a yearly basis, you can meet your needs while you are alive and have more at the time when you are more likely to pass away.
With so many moving parts to a whole life policy it is important to visit with a professional that knows what your goals and wants are so a policy can be constructed just for you. Heck some companies don’t’ even offer all the needed elements to construct a policy like this. This is not a generic one fits all product.
Thank you for reading and please share a comment below. Education is key. At any time please give me a call or email if you have questions you want answered privately.