Life Insurance vs High-Yield Savings Detailed Financial Review
On today's blog, we're comparing life insurance with high-yield savings accounts. We'll include an investing opportunity, assuming the same investment results for both options. We'll look at a 10-year and a 30-year timeline to weigh the pros and cons of each.
Overview and Assumptions
- A 35-year-old male with preferred health invests $60,000 per year.
- An investment opportunity pays $24,000 per year from a $100,000 investment repaid over seven years.
- We'll use a 6.5% interest rate for calculations, which is on the higher side, to keep things fair.
Life Insurance Policy Details
- Policy started with figures from a real illustration: $60,000 per year with a $50,000 first-year return.
- By the third year, an investment is made but assumes limited liquidity.
- The cash value adjusts based on loan repayment and investment income.
Note: Returns shown are calculated presuming a 0% interest on extra cash.
High-Yield Savings Account
- Assumed 5% interest rate, although it's historically higher than typical rates.
- $60,000 annual contribution, adjusted for interest.
- Withdraw $100,000 in the third year, reducing annual interest gain.
- Simulated tax-free savings for simplicity.
Comparative Analysis
- Adjusted for taxes: Introduced a 15% and 25% tax rate for high-yield account interest.
- Life insurance offers a death benefit exceeding $3 million, which savings accounts do not.
Long-term analysis shows that when adjusted for realistic interest and tax rates, life insurance might have a slight advantage.
Long-Term Look: 30 Years
- As time progresses, life insurance becomes more beneficial due to $4.6 million in death benefit versus 1.9 million in cash after paying back loans.
- After 18 years, life insurance outpaces savings accounts through accumulated cash values even while keeping additional investment at zero earnings.
Conclusion
The comparison shows a noteworthy benefits array for life insurance. Although high-yield savings offer upfront gains, over longer periods, life insurance offerings such as cash value and death benefit provide substantial value.
To explore if life insurance fits your financial strides, check our detailed resources at in-ness.com/vault.
Full Transcript
| Three-seater, is that still real? Yeah, you're still so close. It's a no-no-no difference on the insurance side. That's huge. That's huge. All right, on today's video, we're going to be comparing life insurance versus a high-yield sales account. We're going to be including investing in an opportunity. Just want to be very clear that this is not a video on investing. We're going to assume that the investment gets the same result for the high-yield sales account and the life insurance policy. We're going to look out over 10 years. Then we're going to look out over 30 years. We are going to see the pros and cons to having your money stored, being stored, and being used in a life insurance policy, some of the pros and cons that. Looking at it in a high-yield sales account over that same period of time, we have our Google Sheet Wizard. Still trying to figure out a great nickname for Justin Gartman, one of our coaches here. Justin, you are the Google Sheet Wizard on the team. This is something that you built from scratch. For any of the people that have worked directly with you, they know that you're extremely analytical. So, Belford, they're due, man. Let's jump into this. This is a 35-year-old male-preferred health, so not the highest self-training, but a higher health rating. $60,000 per year is what they were already saving. You see they're going to be going to a high-yield sales account or storing it in a life insurance policy here. They did make an investment, and again, this is talking with an act not disclosing names or anything, or the investment, but talking with them. An investment they made that paid $24,000 a year. They invested $100,000, and it paid all of that back over seven years. That's where the cash flow is coming from. As we pay here, so first we'll just look at, so hide that part and we'll just look at this part so I can explain to you what is happening here. So, started policy. These numbers were pulled directly from the illustration. $60,000 per year, $50,000 in the first year, and then finally in year three. They're like, hey, I have an opportunity. I'm going to make this investment. Obviously, one thing that may be we can't invest $165,000 because we don't have access to all of that. Your illustration, if you've had one in which you've looked, is going to show end-of-year value. At the beginning, we're going to invest $100,000. Over the time, we're going to pay back these loans. Obviously, there is a cost to that. I'm using a 6.5% interest rate, which to me is pretty high, but I wanted to be as fair as possible. A lot of companies that we work with right now are actually even lower than this, but just to even the playing field and shows you pay back over that amount of time. End of the year has total cash value and cash. The reason this is higher than what's illustrated for your cash value is because, hey, we pay back our loan and now this is just extra income really coming towards us from the investment we've made. We can't put it into the policy because there's no room for it. You've already paid everything back. That's the total there. Really, you have that extra amount there plus showing you what the depth benefit would be. Are you showing the extra amount earning any interest or are we assuming 0% interest? Are you assuming some type of interest rate on the money that can't go in the policy? Yeah. Right now, it's showing, hey, you did that money and you stuff that under your mattress and it's just what you had. That'll be clear. Just to be clear, we're going to now compare to a high yield savings account where we're giving it the benefit of the doubt on your dollars earning greater. If we were to tweak this in real time, which I won't ask you to do, I would say we should at least use whatever the high yield savings account interest is. Yeah. Apply that to the life insurance model. What I'm hearing from you is, because we have gotten attacked on this channel first being like, hey, you're trying to pad the numbers on life insurance. Like, listen, we're actually using 6.5% loan rate. You're designing a policy that's not crazy, optimally designed for high cash value. You're also assuming that the extra cash from the quote unquote investments are not going back to life insurance, not earning long-term inter-rater turn there, just literally earning 0. Am I capturing that correctly? Yeah, that's right. That's right. You could have made it where in the years which aren't showing here, hey, we pay back, and that's what it's used, but just showing, hey, try to make it as simple as possible. Yeah, just as simple as possible. We're a worse sales person all time on our channel, but I appreciate it. And then the death benefit on the life insurance policy over 3 million. Obviously, high yield savings account doesn't have that. Want to be very clear, we're not talking about all the other benefits that you get on life insurance. So we're just purely looking at the cash death benefit. If you follow any of our videos, you know that you're not just going to put money into life insurance just because of cash value growth. It's a, the ability to have accessible leverageable cash that you can do while you still get the benefits of insurance. Amazing. And we're just going, my hope is if you're confused by that, you'll watch more of our videos or maybe get the book or go, go to our NSF vault. But life insurance has so many benefits. We're literally just talking about, we're cherry picking a few. So let's look at a high yield savings account where you are asserting, assuming a savings interest rate of 5%, which I think is crazy, but let's look at this. Yeah. So looking here, just a quick Google said, hey, what's the best high yield savings interest rate right now? And instead anywhere from 4 to 5%. I don't, I have one that gets 4%. So maybe I need to, I need to change that. But assuming that and also assuming is 0% tax rate right now saying you have the best tax plan in the world and you're not paying any taxes, just to start off here. So same thing is going on here. $60,000 a year going in. Are these that interest that year? So next year we pay another 60,000 plus the interest and that continues to earn interest there. So showing same cash flows, year three, take out 100,000. So that's why it drops there. Where in your life insurance policy, you notice, hey, we still have that same amount. But we just have a loan balance now. We're here. It just drops it down and now we're actually paying, earning less interest because we have less money in there because that's why the end asset here, we can do both and we're earning in both places over here and the saving account and you have to pick and choose. So yeah, shows the numbers here. Any any comments so far if they live? Yeah, I know. Comments obviously, you don't have that benefit, but it's, it's in this scenario, it's about 100,000 to more than 100,000 dollars ahead. Why don't we add, let's keep it at 5% right now and this is only over 10 years. We're going to look at over 30 years in a second. Why don't we add a 15% tax rate to the high-out savings account and just for those of you at home, you do pay ordinary income tax on your savings interest. So 15% I think is like very generous, low. If we're comparing, if we're, if we're, because again, this is not capital gains. This is for the person that has the ability to save $60,000 a year, probably could assume that they're going to be paying more than 15% interest. Right. Just want to point that out. And so, yeah. And just in case now that drops to total cash to 8, 843, just put that to 25%. Just want to, I just want to see, just to see how this looks in real time. So you can see 8 real time, it shapes down. And then what do you do? Like, this is, this is the big thing when it comes to how you'd save the accounts. And I know you did this on purpose, but we're, they can 5%, which is like, I got 5% for like six months. So it did exist on a, a lip on a map. It's already coming down. But we're comparing insurance. We're still comparing to low interest rates. So it's like, it's not, when I am comparing apples to apples, long term historically, high old savings accounts, I don't know what would you say would be an actually more apples to apples comparison if we wanted to give the benefit of the doubt to the high old savings. Yeah. It is something where I look, what were you getting? So this is 10 years, 10 years ago, what were you probably getting? And the answer is maybe 0.5. But even if we just meet in the middle on the high size, still leaving it there, now all of a sudden you pay your taxes and we drop that to a more realistic, which yes, right now 5% is great. Just I don't think anyone plans on, on that lasting. And so dropping it down to three, which to me is still generous, generous. We now have an advantage on the life insurance side. Yeah, small advantage, but still in the manage. Yeah, and this is this only over 10 years, just to be clear, like I was, I mean, I would be totally, totally comfortable having the high old savings account strategy winning them for 15 easily because you also have a death benefit of 3 million that you don't have an high old savings account. And there's all kinds of other benefits. We're talking about creditor protections, critical and accelerated benefits that you get. You have, I think, better options for a life insurance policy than you have in high old savings account. You have special tax advantages, I guess we are including. What you think this, the tax rate at 25% is fair. Do you think we should drop that down a little bit? Because I just want to be like very, I want to like be able to be as unbiased as possible. Yeah, unbiased, I would say, I mean, I agree with you. If you have the ability to contribute $60,000, chances are you're going to be paying a higher tax rate. But even if we drop it to 20%, just to be completely fair, we still lose a little bit, but that's not even taking into consideration the death benefit that you have, which, yeah, I ran this on the last year. If we just did 10 year terms so that at the end of 10 years, we include the death benefit. If you plug that in and so let's just take off and say, actually, you can only save $59,000 if you want a death benefit. Then you see it's actually probably a cost more than that, maybe cheaper depending. And you can see now we're actually definitely on the life insurance side. Yeah, that's great. Let's keep it at 20% tax rate. Let's not include the term just because it's like, I love that way you pointed that out. But let's look out over 30 years. And I'm making the assumption that the insurance policy is going to get more efficient. And we are assuming a 3% rate of return, we're also assuming that the tax investments are just sitting at 0% on the life insurance side, which hopefully, like, that wouldn't be the case. I want to also point out that we're playing that game. Yeah, so we're doing that. And then the other thing assuming here is, hey, now you've increased your cash value, we're now investing $500,000 per year and getting the same returns. Now, chances of you getting the exact same investment, they invested in this fund, chances of it being the same, probably slim, but just to show you investing in something, whether it be earning the same return, different return, that really doesn't matter because it's going to the same, same places. We're using the same returns. And if we look out over 18 years, so we just look out over 18 years, even doing 20% tax, 3% rate, now all of a sudden, we have a 12 and a half percent difference, a vanish to the life insurance side, assuming again, you didn't do anything with that extra, extra cash that you had plus. Now you have a $4.6 million death benefit. Now, yes, this is 18 years, but you can see the advantages of, hey, being able to have both, especially here, you pull out $500,000. Now that's $500,000 that is just going into the investment, not earning even that 3%. We're here. You're still going to earn a dividend. Plus, now you're earning over here, and that's where the real advantage and the end asset come. You can just be clear on the cash side, the interest that you were paying the insurance company, that's just going right to your high yield sales account. So we're doing an accurate cash flow to cash flow. Yeah. Yeah. So here, you were paying back this interest. So every year, you earned 120. So we knocked down our loan plus paid off that interest that you had built up every single year over here. Yeah. So we're going to take in so that you are earning the interest now on what you just previously earned. So that's why it's building up so quickly. Cool. Cool. I'm tracking so far. So we're in 18 years in, you have $4.6 million death benefit, then all the other benefits of insurance. You have 1.9, almost 2 million of cash. You would have over 2 million of cash if you were actually earning an interest rate on the cash under the interest. And then the high yield sales account route, you have 1.8 century. So we're 18 years in and you have $200,000 difference in just cash. Hey, it's Caleb Williams here. I'm just interrupting this video quickly to invite you to check out our in-ness at vault. You may have been there. We've actually revamping it. And if you are somebody that wants to learn more about is life insurance rate fit for me, does this in-ness? It makes sense. Like, does this actually help me be more efficient? We've put together a 10 minute documentary style video. And I can test a really, really good job giving the history why the in-ness at different setups and designs that we use. And then we have an in-ness at vault that gives like case studies, calculators, handbooks, and so much more. We are here to serve you whether it's a conversation, whether it's education or the video. So make sure to go check out in-ness at .com slash vault. Learn more. Yeah, in just cash, not counting death benefit, not counting all the other advantages, which I'm sure everyone on the channel already knows and we hit those cards. So just strictly looking at cash here. And then go ahead and we'll just run this out to 30 years. So skips, skips those there. But showing you doing the exact same investment. Again, over 30 years, which, because as we know, life insurance gets better and better each year. That's why early on. Yeah, you can say short term. Yeah, there's other things you can do long term being able to spend both. We're looking at one and a half million dollars difference of cash value. So an increase for the people who like percentages of 42 percent, which I think is pretty substantial. That's huge. That's huge. I mean, a $1.5 million difference. Let's, can we go up and change the rate of returns? I'm just now curious on how this all, let's change the rate of turn to 4%. I want to see if you could get 4% in a high yield savings account for 40, for 30 years. Can you scroll down and see what difference that makes? Okay. Yeah. Now, that's all we have. You're one million dollars difference. What? So you still have a difference there. And that's assuming 20% tax. And the other thing that we, we haven't actually messed with is this loan interest rate, which can make, make a difference. And if you look at what were the loan interest rates even, even five years ago, let's just use, let's drop it to 5.5. And you see just a one percent difference. It doesn't make the biggest difference because you are paying those back each year. So you're not getting it time to build up. But including that now, it's a $100,000 difference over, over those years. And we could even go lower. Yeah. And then, and then let's just, let's increase tax to 25% on the high yield savings account. This is the reason for a video like this. I just, I want people to understand that there's variables. And like, yeah, you might be watching this and be like, I don't pay any taxes. Well, then, then everything's a little bit different. But you can see like when you, when you create levers, then different, the different consequences happen. And then let's, is it possible? Did you do it? Did you figure out the math of a 30 year term? Yeah, 30 year term would have cost. And this is only so I only did it for $3 million. Okay. Just to be clear, at the end of 30 years and on the permanent life insurance policy, you have over what? Seven million? Yeah, you would have $7.3 million of death benefit. So. But let's just say someone is like, hey, I'm going to do this whole buy term, invest a difference. And just just to be clear, we're showing in the high yield savings account, you are investing in the same investment. Yeah. You're getting better returns than the insurance policy because instead of going and paying some of the interest to the insurance company, you're getting all of it. And but yeah, let's, let's assume that you have to pay 30 years of term insurance, which I believe costs over three grand a year. We'll just use 57,000. Okay. So we're assuming $3,000 a year goes to, for the next 30 years to say that you have temporary term insurance for the next 30 years. So yeah, it's a 1.0, almost $4 million difference. Yeah. And you see, especially early on, like now, even in your tin, with those changes, hey, you're $15,000 ahead over that time, $1.3 million. Yeah. Drop the interest rate and they're 4% to 3%. I still think 3% over 30 years in a high yield savings account. Very generous. And that's where I'm at is if you can average 3%, which average would still not. Can you just drop down and can we see over 10 years of $41,000 difference? Wow, 1.7. So I mean, I would love to hear the feedback in the comments. I think the big, the big reason I'm a fan of life insurance is not that it's an investment. Clearly, it's not. But from a foundational safe asset, it gives you options. But it also, I believe accessibility and the ability to leverage an accessible asset and get all the benefits of insurance, like the death benefit credit protection, future options. Also have the flexibility to be able to make moves super, super valuable. And you know, it, yeah, I mean, I'm trying to think of the criticism that we could get. I think we could get. You are investing $100,000 in the first 10 years. You're investing $500,000 in the next. Maybe the criticism is you could be more heavily invested in the high yield savings account. Yeah. I think it just over time, you are going to get a better result on the insurance side because the internal rate or turn does not have taxes. It's earning greater just just to be just to be clear. Let's, let's move the savings and just rate to 5% and let's keep it at 25% tax. I just want to see what happens. And assuming you can earn 5% in your safe accounting, you're still investing. Can you scroll all the way down? Yeah, you're still. Are you still, is that, is that still real? Yeah, you're still. It's a little bit different on the insurance side. Yeah. So still a million dollars difference because obviously it's, you tax rate and you're having to pay for term if you want deficit. Let's eliminate, yeah, let's keep the, let's keep the death benefit. Let's eliminate the tax. I just, I want to just like show how. Yeah, so if we eliminate 0% tax, that probably would, that's you that this is going to, this is going to tip the scale. We're still barely ahead in your 18 year behind, but in your 30 years, still, because the $30,000 difference. Now, let's say we don't buy term insurance. I just, I want to, let's, let's see, I assume we're not buying term insurance. Yeah, no term, none of that. You end up ahead in the high-yield savings account. And so barely. And we're talking, we're talking, we're giving, we're literally talking 60,000, like no, death benefit. You're earning 5% tax-free. And you're, so there you have it. So what, here's my question. Would you, is the $49,000 difference, like would you rather have the high-yield savings account in this perfect analogy or scenario, would you, would you, you pay 49,000 to have a $7.3 million death benefit and growing after 30 years? Personally, even if I would, I would be 49,000, $50,000 behind in this scenario, just to have permanent life insurance, because I know what that could do for, for the future. But I just, I mean, just, and I appreciate you putting this together. I look forward to hearing people's feedback on this. I'm excited to have a segment where we dive more into the numbers. We, we listen to your feedback a lot, and we know that you guys want more case studies. And, and so we're going to do more case studies on, on people that come to us, scenarios, the pros and cons. There's people that come to us that want to, want to transfer policies and do another, and it's like it just, the math doesn't, doesn't make sense. Sometimes it does, and our hope is to continue to shed light on this. And so if you're, if you're watching this and you, and you like this content, subscribing, liking, commenting really helps other people find this. And then if you want to talk to people like Justin, or learn more, we got links down below, and we would love to, love to talk with you and, and serve you. Justin, is there anything that you want to say as we, as we end today? Yeah, I, I would just say I know there's assumptions made here, and you can look at it and say, well, what if you started investing in that first year because you had more, and there's lots of different levers you can pull here. So I would encourage if, if you think make a spreadsheet yourself, do it. And so you can see the real numbers of like, with your assumptions, because we all have to make assumptions, because we don't know what it's going to be like 30, 30 years from now. And I personally choose that I'm going to go with the life insurance companies assumptions since they've been around for way longer than I have, and park my money there, rather than what has become a high-old savings as of recently and, and, and, and like that. So I would just say knowing there are flaws to however you, you look at it, and just kind of taking those into consideration. But hopefully you see the power of life insurance in the whole, all of the aspects of the benefits, rather than just more cash value, or a little more cash in the first 10 years. So it really comes down to back to what we always say of it. But what would you rather have, and how long are you looking at your time horizon? Love it. Justin, I appreciate your analytical mind. I hope the audience does as well, and we'll see you next time. |
