4 Ways to Design a Whole Life Insurance Policy

 Hey guys welcome to Better Wealth in today's video. We're going to look at four fundamental ways to structure a whole life insurance or what we call the end asset policy. And there's pros and cons to all these structures. And I'm just excited to dive into the numbers. One thing that we've gotten a lot of feedback on is Caleb, we love your drawings. We love the philosophy, show us the numbers. And so that's why this guy's here, Mr. Dom. And he's here, set the record straight. And we're going to go through the four fundamental ways to structure whole life insurance. We're going to look at a very typical design where a lot of you would kind of put the thumbs down. This is a bad policy. Turns out nothing is bad or good, but we'll show you the pros and cons of it. Then we're going to look at a max funded, what we call cash flow policy. Then we're going to do a front load policy, which is someone that has a lot of money up front. They like front load the policy and have very low flexible contributions every year after. And then we're actually going to look at convertible term because there's some of you that are watching this at one-and-and-asset, but you're not able or shouldn't qualify for one, and you would actually be better off getting term insurance that can convert into one of these policies in the long run. So before we jump into the numbers, anything that you want to say, I couldn't say that any better Mr. Williams. I'm practice. Thank you for starting it off hot. I'm reading from a script. No, you'd find that hilarious. You know, my lack of ability to read. So with that, we're going to jump in. We're going to look at a typical policy. This is where a lot of people that are big, massive anti-life insurance fans. A lot of them will say things like you have no cash value early on. It's horrible growth, no flexibility, high commissions, and a lot of other things that are actually not accurate. But those are some of the things that they say that are accurate. And I always love showing these examples because I always want to show both sides and really educate you, the listener slash watcher, that there's not all life insurance is great. And some people are using the and-asset philosophy of giving your dollars more than one job, but you're not getting a policy that's able to do that. And as a result, it might give everyone a bad name. Yeah, I think comes down to again, like, what are you trying to accomplish? What is this policy essentially going to do for you in your life? Because it's actually very fascinating. If you're talking about a place to store capital, to borrow it and to use for other purposes, or people want to call like an investment quote-unquote, yeah, this is absolutely not really terrible. Like, this is really bad. Like, really, really bad. And we're going to share with you why. But it's actually very universal across the board. If you start talking about using a policy like this for like a state planning, it makes a ton of sense. And when you start putting policies like this inside of trust, especially in irrevocable trust, you lose a lot of that control a lot of the times. And so when you put a policy like this, you don't care about the cash value. You're just trying to pass on a death benefit to the next generation. And so what we're going to talk about, though, specifically is the and asset philosophy is having your dollar to multiple jobs. And we're a big fan of using our cash flow to be able to go produce asset, producing activities, to increase our lifestyle, to live an intentional life. So for us personally, when we're talking about the end asset, this is not going to be something that's going to be attracted to a lot of the consumers we talk to. But if you're somebody that needs to do some estate planning, this could actually be beneficial. Yeah. So we're putting $50,000 first year. You have a cash value of zero. And then you have a year, two, another $30,000 cash flow or cash value zero. And then $150,000 going in year three. Now you finally have some cash value, 25,000 with a death benefit of 3.9 million. This if I remember correctly, the break even is year 12, meaning over 12 years, you have less cash value than what you've put in. But after year 12, you actually have more money than what you've put in and your death benefit you can see still rises. And so to play both sides, you could like Dom saying if permanent death benefit is something that's the most important thing. And you could say, Hey, you got a permanent death benefit. It's a crazy multiple of what you've put in and your cash value does catch up eventually. And again, knowing what we know, we probably would never recommend this. But there are certain people that are like, this is what they want. And has Dom would say, if you want this design, we'll sell it to you. All right. We'll set this up for you. If you want this, but in all likelihood and all jokes aside, I don't necessarily think there's many reasons why you'd want this when you look at other potential designs like guaranteed universal life. Yeah. And the other thing that I'm now thinking about is with the new 77 or two rule that came out a couple years ago, it's essentially saying that for the amount of money I'm putting in, you get less death benefit. And what are we doing here? We're trying to get as much death benefit as possible. And so for people that want an all based policy, like in a state plan like for this, there's actually a very disadvantage rule that came out. And so when I start to think about it, you actually probably are better off designing it in a way where it's kind of a mixture of both where you're focusing on the death benefit, but you're also having some cash value available, kind of being the dual purpose, because what you'll see as we start to look at the numbers, the death benefit at some point in time will actually catch up to it because we have a lot of PUA that's going into it, which is directly in the cash, which produces more dividends, which will make the death benefit grow faster as well. Yeah. So what's fun is the next policy we're going to look at is the same company, so same company, but instead of a 100% base, we're actually, we have a really interesting split where we're doing 17% base, which is the contribution that you have to pay. And we're doing 83% of flexible PUA rider that creates early cash. And so you'll see a quick example of like you have a lot of early cash value compared to zero, but the death benefit is much smaller. And so the benefit of this is you have flexibility, meaning your actual contribution is not 50,000. It's actually 17% of 50,000. You have earlier cash value, you have a break even at year five, meaning you actually have more money than what you've put in. And you can see that your death benefit is also growing. And there's a lot of benefits to this. And in most cases, if people are like, hey, I want to use life insurance to store my money, have it grow long term and tax advantage, be able to control and use my money, give myself different options for the future while protecting myself and my money. This type of policy accomplishes all those things. And the only downside in this example is the death benefit is less early on. Every, every other example is this is a better design than the other one. Yeah, and to supplement the lack of death benefit, we can just get some term insurance as well to kind of help that as well. Yeah, and not that we want to make a big point on this, but the other big difference is the compensation that's paid to the person setting up this policy is way different than the initial one. It doesn't make it right or wrong, but the insurance companies pay the majority of the quote unquote commission on a percentage of the base. And so whenever your base is smaller, typically your commission is smaller than if your base is larger. Again, there's that can vary, but overall a person setting this up not only do you have earlier cash value, but they're probably getting paid less than setting up the full base. Yeah, and I would give you and just know that this is rough idea and it's going to depend on per agent, but if you're looking at the numbers on what compensation would look like for the previous policy, all 100% base, someone would make around a 50 grand. And then on this policy, specifically here, you would make right around about 10 grand. So you could see it's about a fifth, like it's pretty insane in regards to the difference in compensation for the agent. Okay. So we talked about a typical policy. Well, then we talked about a 17% base 83% PUA. Why did we use that example? Because in this company that we use, that is one of the most efficient ways that we can do it from a cash flow perspective. And what we mean by cash flow at all is every year, we're using level 50,000, 50,000, 50,000. Now what we're going to do is we're going to do what's called the front load. And you want to break down what a front load is versus a cash flow. Yeah. So the cash flow strategy when we're looking at the one that we just looked at, it's $50,000 there for after every single year, no, 50, 50, 50, you can't change that going forward, except for the flexibility, right? I think that was the point I'm part that Caleb was talking about is like flexibility, your four is $8,000, and you're sealing it's $50,000. You have a window where you can contribute anything in between there. And so years to on, that stays exactly the same, nothing changes and the front load strategy. The only thing that changes is the amount of money that you're putting in the very, very first year. And it's going to be more than that $50,000 contribution. And in this example, we're showing you is $300,000 total going into the first year and $50,000 going in there for after. So essentially is the cash flow strategy, but essentially on steroids. Yup. And if I remember correctly, the minimum base contribution on this is 15,000. On this one specifically, that is correct. So what we're showing is we're showing you putting $300,000 in year one, you have $282,000 of cash value. That's over 94% of cash value available in year one. That is insane. And this is why we're a huge fan of front load policies. If you're sitting on a lot of cash, you also have an initial death benefit of $4.8 million. And then after that, you're putting $50,000 in with only a base contribution of 15. So we giving you the ability from year two on to contribute more than 15, but 15 is the base, meaning that's what you have to contribute. And in this example, you know, you have plenty of cash value year one to do what's called land the plane. If if something God forbid happens, there's a lot of options that we could not have to pay every single year. That's a, that's a common question that a lot of people look at this when they look at illustrations are like, I don't want to pay till the day that I die. And it's always good to know that you have that option. But in many of these cases, you can stop paying in the future when you want to. You can make a zero. You could do your window from, you know, whatever your base minimum is, all the way up to your ceiling. There's lots of options, which is why I really love the flexibility that we've created with these designs. And the other thing to notice, this company allows this to happen. If we were to choose this with a different company, same exact, the policy would not look at the same by any means. The liquidity of like 94% that we're getting here would actually be closer to like 70% in a different area. The break even point, instead of it happening in year four here, which we didn't really talk about that. But the break even point on this one is year four, we put in 450 and you have 458. It happens between years three and four. The break even point is really soon in this contract. If we were to do that with a different company, the break even point probably be like year seven or eight. And so it really is important for someone to work with an expert that knows, hey, if I'm going to do a front-line strategy, what is the company that is advantageous for that? Because I have seen other individuals put people in a front-line strategy where it's not advantageous from a flexibility standpoint or early cash value perspective when they could have been better off with a different area. The other thing that all know is in year 11, you're going to see that the annual contribution drops from 50,000 to 48,355 dollars. Dom, I'll take a stab at what this means. This means that there's a term rider on here that that makes up the difference between 50 and this number. And that term rider is essentially bumping up this death benefit for the first 10 years. And you can see a dramatic death benefit drop in year 11. And what we're essentially doing is we're optimizing for cash value. We're essentially saying after year 10, we're dropping the term rider because that's the most efficient thing that we could do from a cash value standpoint. If you still wanted to have life insurance though and have more, you could easily keep the term rider on. But this is the day that we can do that with a not mecking and becoming a taxable event. You couldn't have said that any better. The longest that we could do a term rider on with this contract specifically could be 30 years. And so we could have that big drop off not happen all the way until you're 30 if you wanted to. But like Caleb said, the whole goal is for us to optimize this for maximum efficiency in our dollars. And so therefore we want to drop the term rider off sooner because it is 100% of cost with this company. There are other companies that have mad me very, but this company specifically, the term is a straight 100% cost. And the reason why it's maybe so extreme is because we're putting $300,000 in and getting a 94% cash value available. If you think about that, that's like insanely good. And so it's just one of those things to take a look at from a standpoint of theirs. The term rider is factored into the efficiency. And so overall that's all I have to say about that. Anything else you want to say about front load? No, it's amazing. All right, so we talked about a typical policy. We talked about a cash flow policy that's optimally designed. And then we showed you a front load policy. And you might be saying, Caleb, I get it. I like this concept of the end asset. I want to give my dollars more than one job. This is amazing. Where do I sign up? And we want to be really frank and upfront with you because a lot of people will talk about the sizzle of life insurance, but not it's not right for everyone. And in a lot of cases, if you don't have an initial $10,000 to put in in year one to either do like a really small front load or do a cash flow policy in a lot of cases. Now the caveat is if you're a child or if you're, you know, a newborn that's that doesn't relate to you. But in many cases, we like to get you insurance to make sure that you're protecting your family and yourself and give you the ability to convert or transfer into a policy like this when you have enough money to be able to do this the right way because in life insurance, there's certain fixed cost. And there's just we've just found when running the numbers that if you're doing a couple hundred dollars a month, it might be a good mindset to get into, but you would be better off buying term insurance, having money on the side, saving up and then starting it the right way. Yeah, that's greatly said. And I think it all comes down to objective purpose and age. So if you're somebody who is older than 35 years old, and you're like 50 or 60s and you're only wanting to do $10,000 a year into a policy, we have to ask you something like what's it for like, why are we doing so? If you're like an entrepreneur or, you know, a real estate investor like that $10,000 is not going to move the needle forward. And you don't have as much compounding interest and time on your side to essentially recruit what you need to go make a drastic difference. But if you're somebody who's 20 and you want to do $10,000 a year into a policy, well, it makes a ton of sense because you have so much more time on your side to allow that to compound. So if you're someone who's in your 40s or 50s, you may not start to look to do like 20, 30, 40,000 plus dollars a year into a policy. And it also comes down to I think your lifestyle and your income and, you know, what you are looking for maybe potentially retirement because this could be users of volatility buffer for your retirement. And, you know, you may not need as much cash value compared to somebody who is an entrepreneur and real estate investor. So you have to have the right questions to be asked, answer the right questions to be able to design it to make the most sense for the person. Yep. So we're going to take a look at this very exciting convertible term illustration. And the reason you might look at this and say, why do we use 1.283? Why did we come up with this number? And the reason is we are looking and we're just modeling this same example in the $50,000 example. So if you, so as you see, $50,000 is going in and it's buying $1.2 million of death benefit. And we're saying, maybe you're not a right fit for that example. So instead of having $50,000 buying you 1.2 million, we're actually can do a 10 year convertible term policy get you the same amount of death benefit with the ability to convert or transfer to a policy like the ones that we showed you without having to redo a medical exam. And in some cases, Dom, you potentially can get part of your premium to be the credit. Yep. Majority of the companies that we work with, you get one year's worth of premium credits. So if you have the policy for a full year, then you can get the full $316 to roll over to start your whole life policy as well. Yep. So this is a can be a great example to give you options, protect your family. But if you're in a place where it's like, hey, you see the benefits of life insurance, you get it, but you don't necessarily want to contribute and even be on the hook for, you know, $6,000, $7,000 of base each year. This could be a really good policy to get you started. And as you can see that you wouldn't want this policy after your 10, if you didn't reapply for life insurance, no one would want to pay almost $11,000 for 1.2 million. But this is an example of convertible term is designed in this example to give you insurance and give you options for the future. Yeah. And it's really cool because if you're someone that's looking paycheck to paycheck or someone that's trying to increase income, decreased expenses, this allows you to keep those expenses extremely low to have that time in place. But if you're a business owner, if you're someone who's cash-strapped because you have it deployed into investments or opportunities, but you know you're about to sell, right? You know you're about to get a large sum of money. Well, then you can essentially get this in place, guaranteed your insurability, which means that no matter what happens, even if you get cancer, you can still have this strategy and convert to a whole life. And then when you sell your business or you sell your property or whatever the return comes in, you can then flip that over and put that into a whole life, snap your fingers, science paperwork, and you now have your policy. So we would love to hear from you like, hey, what are your thoughts? You have questions. We're committed to making more content, creating case studies around how you use the end asset as a tool because one thing that both Dominion, I will stick us a stake in the ground and say, listen, life insurance is not the end all be all. We don't want to overpitch it. We don't want to oversell it. It is the foundation. It's the tool. It's the place that you can save and control your money, protect your family. And if you understand that, it becomes a really amazing tool. But a lot of people that badmouth this, they're comparing it to investments and they're saying it's a bad investment. And hopefully, if you've watched any of our content on the Better Health channel, we have an amazing channel on the end. On the end, us aside, we'll make sure to link both channels down below. If you get educated, you'll understand that life insurance, one set up and use properly is not comparing. It's not an ore. It's really an end and understanding the numbers makes it super attractive. Love it. Could you say any better? Hit that subscribe button. And if you want to learn more, we have something called the end asset vault and other resources down below. If you want to talk to someone on our team and learn more, feel free. Thank you so much for watching and make sure to hit the subscribe