When NOT to Start a Whole Life Insurance Policy (Do This Instead)

What do you do when the timing for a whole life insurance policy isn't quite right, but you still want to move forward on the strategy that actually protects your family and sets you up for the future? That's precisely the story of a woman that came into Better Wealth and was assigned to work with me. She and her husband had done very well for themselves. Strong investments, multiple properties, about $5 million of net worth, but they also carried a significant debt load and wanted to aggressively start paying that down. before diving into a whole life insurance plan specifically designed for high levels of cash value. Now, a little bit of story, a little bit of context behind the scenes. She told me from the very beginning that she could not stand banks, right? She's had some bad experience with them and wanted to use whole life insurance as her personal banking system, like something that's safe, it's consistent, it's private, right? Her goal was control, right? Predictable cash value growth and a very lasting death benefit that could leave a very meaningful legacy. for her kids. She wanted to eventually redirect somewhere in the neighborhood of $48,000 per year to her policy alone, right? Money that was currently flowing to escrow account and debt repayment. And she wanted to fund that into a properly designed whole life insurance policy that she could use to build wealth for the longterm. Now, when we started to design her plan, the ideal whole life insurance policy for her, like I mentioned, of $48,000 per year would require somewhere in the neighborhood of $900,000 of permanent coverage, right? It's technically this term that the life insurance world calls the underwriting amount or the underwriting requirements, what they call the net amount at risk to the life insurance carrier. But because she also wanted to start overfunded whole life insurance policies for each of her two young adult children, we actually have to factor in something that was very key within the carrier's rules, right? Children cannot be insured for more than 75% of the death benefit of the highest insured parent. And in this particular case, my client was the highest insured parent. So this isn't the case across every carrier that we work with, but at this particular carrier, in this case, it was Penn Mutual. That's the rule in this particular case. And so one of her kids would have around $2 million of coverage or technically that underwriting amount just to make all of this possible, right? Under again, those carrier guidelines at Penn Mutual. And so that would mean my client would need to have somewhere in the neighborhood of $2.7 million of total coverage on herself. Now, for further context, since my client already had about $1.5 million of life insurance and just kind of term insurance that she had placed prior to working with us, we simply needed to apply for an additional $1.25 million of convertible term insurance coverage, which would give her the protection that she needs now and the flexibility to convert it into an ideal whole life insurance structure later. Again, once all of the debt is gone and the cash flow kind of opens up for her. So I'm actually going to pivot, share my screen with you, kind of show you the lay of the land in terms of the whole life insurance structure and the amount of term insurance that's necessary. And then we'll wrap up from there. So this is the policy that my client and I looked at initially, right? We're seeing $48,000 per year, very healthy levels of cash value growth. We're seeing by the 10th year or so, we're looking at $480,000 contributed to this particularly policy. with a cash value of $567,355. And the death benefit started at $773,000, and it ends up with about $1.5 million by the end of that 10-year span. Now, one of the things that I want to clarify is that earlier I mentioned the $900,000. It was a little bit more than that, the $900,000 of underwriting amount that the life insurance company sees that that's the total amount of risk that they're taking. And so when you see $773,000, that's the actual amount of death benefit that pay out if she were to die within that first year. But the total underwriting amount, the net amount at risk from a life insurance carrier perspective was that $906,000. And so I know that's probably a topic for a completely different day, but I just wanted to highlight that in its specificity simply because of the fact that I mentioned $900,000 and you're seeing $773,000. And since she wasn't yet in a position to have this particular policy, what we wanted to do was actually make a pivot. And so we knew again. that there was $900,000 of death benefit that she would need for her particular policy. We move forward a little bit more so, and we see that for her kid's policy, it would be closer to about $2 million that would be required. And so in order for her kid to get that sort of policy, she would need to have at least $2.7 million of coverage. And so what I wanted to do is show you what it would look like in her particular case in terms of getting the total amount of coverage necessary in order to make not only her whole life policy possible in the future, but also her children's whole life policies as well. So let's take a look. Hey, it's Demetrius. Just want to pause the video real quick and let you know about our education hub that we call The Vault, because the reality is most people have no idea how to evaluate whole life insurance. And so the vault is a collection of all of our best resources and educational tools to help break it all down. So there's a calculator, a handbook, crash course, a deep dive videos on all of the numbers. You have all of that in one place in all for free. So go ahead and click the link in the description or the comment below to unlock your access to the vault. Now back to the video. So in this particular case, it's very straightforward. It's very vanilla. This is the exact policy that we're going forth with at this particular moment. And so for her We're looking at the $1.25 million of coverage in terms of the $48,000 compared to the $2,027.75 is night and day difference, right? And so she's very comfortable with contributing $2,000 per year to get the coverage that she wants, knowing that she's guaranteeing her ability to convert into a whole life insurance policy when the time's right, whether that's in a few months from now or whether that's in a few years from now. As soon as she gets the debt paid off from a standpoint of just like. from the cashflow from her properties and from some other investments that she has going on, she's gonna be in a much better position and be in a place where she can more prudently place dollars into a whole life insurance policy. Therefore, something as great as whole life doesn't feel like a burden for her and her family. Now, here's something that I think is really important to share as well, given some recent events that's happened within my own career, right? And so one of the things that I wanted to highlight is the simple fact that usually on this particular channel, we're talking about high levels of cash value, We're honing in on the cash value in and of itself. And we ever so often talk about the death penalty. And I think that makes sense based on the reasons why people want policies and why people come to us. But at the same time, we have to remember that this is a life insurance at the end of the day. And I'm happy that even though whole life insurance is not something that my particular client in this case is going to be pursuing at this very point in time because of some extenuating circumstances, she is protecting her family. And so when I talk about things that have happened for me. in my career over the last few months or so, frankly, what I'm talking about is the fact that I've seen the death benefit actually matters, right? After over seven years in the industry, I've started to deliver, I've been being at a point in my career where I've started to deliver death benefits, policies that were meant for cash value, but ended up changing the lives of families when tragedy came about. And like, when I think about that, it's like a very odd and sobering thought and reminder that I have that life insurance again. is not just about the rate of return on life insurance. It's not just about cash value accumulation. It's not just about all of the living benefits, right? That does put the life back into life insurance, but the death benefit brings life back into your families and those who you care about the most, who you got the life insurance for from the very beginning. It's about protecting those that matter the most to you while you also build toward your bigger vision. I hope that makes sense. And so anyways, if you're in a season where the numbers don't quite... line up yet. Maybe you're focused on debt payoff. Maybe cashflow is just really tight. That doesn't mean that you have to wait to get started, right? You start with the right amount of coverage now, right? Make sure that coverage is convertible and build into or grow into a permanent plan when it makes sense to do so, regardless of what that number is for you. So therefore you're still protecting your family while also building your foundation. So if you want help designing a strategy like this. one that actually meets you where you are today, but still aligned with your long-term goals, go ahead and just schedule a call with our team here at Better Wealth. And we'll be more than happy to walk you through exactly what that could look like for you. Thanks for watching. We'll see you in the next one.