Hey, everybody. Welcome back to Better Wealth and the And Asset Show. I'm Justin Garman here. And today, we're going to answer a simple question. It's going to be a pretty short video, but we're going to answer the question of what exactly are paid up additions? It's something you hear us talk about a lot, or if you've been researching high cash value life insurance, I'm sure you've seen a lot about it. But we're going to look at it from a more technical standpoint of what exactly is it? How does it work? And most importantly, how does it benefit you? to have something like that in a policy. So to start, we're going to look just a quick overview of what are paid up additions. So a simple definition of paid up additions would be it's additional death benefit that is fully paid for. So as the simplest of terms, that's what it is. You put in paid up additions, it buys a little bit more death benefit. It's fully paid for, meaning there's no more ongoing premium that is due. It's already locked in and a byproduct of that is that you are also going to get cash value from that. So typically with most paid up additions riders across the many different companies is you'll be able to put in a dollar and have somewhere around 90 cents available of immediate cash value there. That cash value then for the paid up additions, it is participating in the dividend. So you put in the money. Now that money is earning a dividend and therefore now it's going to continue to to grow each and every year after that, if the dividends are paid, which dividends are not guaranteed, strongly assumed though. And once it's in, it's not going to go down. So it is also knowing that it's paid up addition, you've probably seen this is what's giving you your cash value. And most of the people, a lot of people I'll talk to say, hey, I just want cash value. I don't want death benefit. Don't care about the death benefit. But in order to get the cash value, we need to have a death benefit and we need to have that death benefit increasing. So that's what paid up additions are actually doing. They're buying a little bit more death benefit, but it's fully paid for. Therefore, we're getting the cash value from that. And so it's actually increasing your death benefit quite significantly, especially over time as we use those dividends by more paid up additions as we grow. So paid up additions also are critical for accumulating cash value. So if you are getting a policy and the goal is building cash value, you will need to have the paid up additions. That is what makes it optimum. designed and going to get you the most benefit out of that. So that's a quick overview of paid up additions, but let's look at how is that actually helping me and my policy? So one, how paid up additions grow. So it's really the power of compounding. So first year you put those paid up additions in, and then now it's earning a dividend. And most of the time, most commonly, we will have that dividend. go back into buying more paid up additions. So that starts the powerful compounding cycle of we have paid up additions go in, call it $100,000 of paid up additions. That is earning a dividend. The dividend buys more paid up additions, which now earns more of a dividend and it keeps cycling through and continues to grow so that one, now we're going to have part of it will be guaranteed growth because we are locking it in once a dividend is paid. That is now paid up insurance. It's locked in. it's going to be guaranteed to grow. And as we get more dividends, it's just a matter of how fast that is going to continue there. I've seen videos out there. It is the magic of life insurance. It's a supercharged policy. It's a proprietary design that you need to work with us to get it. No, in reality, it's simply math and it's simply compounding with a design that's best suited for your goals. So most of the companies, all the companies we work with have a paid up additions writer. They all work slightly differently. But the paid up insurance with a participating company will earn a dividend. If you elect to do it back to paid up additions, it will buy more and it will compound and grow every year. So it's not magic, it's math. And just understanding the best design that can get the goals for you is going to be the important part there for that. Now, there are some important details and considerations that want to make sure it aren't. So one, load fees. You may have heard of these, you may have seen these, maybe you've looked at an insurance policy and thought. put in $100,000 of paid up additions. Why do I not have $100,000 of cash value immediately? Well, that's because all paid up additions riders will have some type of associated load fee. Now, that may be 3%, 5%, 10%. It can vary. Also, some companies have different paid up additions riders that have different load fees. But think of that as you put in $1, you get 96. You put in $100,000, you're going to have. $90,000. So I'll be immediate cash value. Now that cash value is now going to immediately be earning a dividend. So that can quickly offset that load fee that you have there. Part of that too, you have to remember it is buying additional insurance. So it's not that they just took a portion of your cash and only give you part of it back there. It is buying additional insurance and therefore it is growing. And ultimately the way the paid up additions work and what's really happening is you're giving. that money to the insurance company. They are now investing that in their fund. They are earning your return. And now you're getting to partake in the growth of that, where the dividends come in. So some other key things to know is one, every company allows different options with their paid up additions. Some of them, you can put a total paid up addition up to a certain amount or multiple of your base. So maybe it's you can put up to 10 times your base. You have $5,000 base, you can put up to a total of $50,000 in paid up additions. Sometimes it's different. They all have different limitations. They all have their own advantages and disadvantages to how we can actually design them. Sometimes it'll be you have certain limits that you have to meet over a certain time period or the rider goes away. So meaning if you paid no paid up additions for a certain amount of time, then you lose the ability to actually fund up to that. high anymore. You don't lose the policy, but now you can only pay for the minimum amount of insurance there and can't truly overfund or fund more paid up additions into the policy. Some of them, and we like the ones that allow this, allow a catch up provision. So meaning you missed the year of paid up additions, come back the next year, you can make up any missed paid up additions from the previous year. And that can be really helpful there. Some of them have limitations if you don't pay a certain amount over time. you're now limited to that's your new ceiling. You can't continue to pay more paid up additions. For some, it's completely flexible. As long as you meet the minimums, 20 years down the road, you can come back and keep paying up to the maximum that's allowable. So all that's to say, it is very important that one, you understand these limits, so you know what you have and you know what your options are. And so work with someone that can walk you through these and help you get the best options out of that. If you're a high income earner or own a successful business, you're already creating real value in the world. The real question is, are you keeping that money, protecting it, and growing it the way that actually supports your long term goals? At Better Wealth, we help people like you better keep, protect, and grow their wealth through various tax strategies, estate planning, especially design life insurance, retirement planning, and even a fractional family office service. If you're interested in one or more of the areas we can serve and want to learn more, The next step is to book a free clarity call with us. Click the link in the description or tag comment below to get started. Back to the video. And then also can't forget that even if you could pay as much paid of additions as you wanted to with the actual contract, you still have to worry about the MEC limit. Not worry about the MEC limit, but understand that you need to stay below that because that will still factor in there. And so if you want to keep the taxable advantages, then we have to stay under that amount, which If you're not sure on what the MEC limit is, I know Demetrius just did a video on that. So make sure you go check that out, get a better understanding of exactly how that would work. Again, more on why does this benefit you? How can paid up additions help you and why it's important? Well, most people typically through talking to many people have three main concerns whenever they give us a call or when they're looking at what do I want to do with my money? And those three concerns are preservation of capital, liquidity, and growth. So I want to make sure I keep my money and don't lose it. I want access to my money. And I also want my money to grow. So life insurance with paid up additions, especially really can excel in all three of those areas, meaning preservation and principle. It's going to be excellent, especially with the paid up additions it's paid for. It's not going to go anywhere. You have guarantees that are built in and as well as the dividends just being the icing on the cake to help it grow faster. And then liquidity, accessibility. you do have access to those dollars. So down the road in retirement, you can withdraw tax-free, no loan charge. You can also always take a loan against the policy. So you always have access to the cash value that is available in your policy. And then the growth, I'm not going to say it's excellent, but it is going to be good for a safe storage vehicle. Typically going to be 45% IRR. So think you put money in, $100,000 in, and that earns 4% every single year. compounding for the rest of your life, that's what an IRR is. That's what that is factoring in. And that's going to be somewhere around 4% to 5% there. And then also the tax advantages. Now, ability to avoid paying income taxes, also have the death benefit and income tax-free, that can boost the actual returns when comparing it to a... taxable asset. So all that to say, you're not getting it just for the returns. You're getting it for the accumulation, the ability to pull money out, potentially tax-free if done right. And all of these main benefits there, like we said, and the returns being 4% to 5% are actually going to be very good comparatively for this same type of asset there. So it's really safe money storage. Again, we always say not an investment place to store your money, and then you should have other investments. borrow against this. Maybe that's what you're using to invest in other assets and earn a higher rate of return. So it's accessible. You get the guaranteed growth plus the dividends. You have creditor protection, so it is safe and it's leverageable, meaning you can borrow against it. But those dividends are still being earned inside of your policy the entire time while you still have the use and accessibility of that money. So finally, key takeaways, paid of additions. Think of it, it's going to grow value inside of your policy. much faster than a regular whole life policy. That's why it's important. If you are looking at this as some type of alternative asset class, a place to store your money, to build up cash value that you can use, you really need to focus on the paid up additions and make sure that that is a majority. I'm not going to say it has to be all of it, 90% of it or anything like that, but it needs to be a good majority of what your premium is in going into a policy. there's many reasons why you can say hey Doesn't need to be 90%. We want some extra flexibility, some room to grow. We need to have it less so that we can actually do that. So that's where it's really important. Talk with an expert who understands one, what you want, that's going to listen and figure out exactly what you want and how we can best design something, but also needs to understand how those paid up additions work, be able to walk you through the flexibility of it, how it works, and some things to look out for, such as the minimum that you need to meet and all of those good things. So with that said, give us a call. If you have a policy already that you know it has some type of paid-off additions or you're not sure, submit that to us so we can give it a look, do a policy review, hopefully let you know, yeah, this is great. And if not, let you know, maybe here's some options that you have that could make it better. Or of course, give us a call. Always happy to talk through your situation, see if a high cash value life insurance policy could possibly be right for you. But until next time, hope you have a great day.
.svg){kind=logo}
