How Do You Front-Load a Whole Life Insurance Policy?

hey guys, welcome back to another video from BetterWealth. And in today's video, we're going to talk about front loading a whole life insurance policy. Believe it or not, front loading is my favorite policy design. And I remember, Dom, the first time that I learned that this was possible, I was like, for people to understand the power of life insurance, the power of everything that it can do, and you're sitting on cash, if you're an entrepreneur, you're an investor, this policy design is a total game changer because it gives you flexibility, but it also gives you early cash value and options in the future. And so what we're going to do is we're going to talk about what front loads are, and we're going to show you examples and go through some pros and cons.

So before we jump in, Dom, what is your initial thoughts around front loading? Yeah, my initial thoughts are, one, when you showed me this design years ago when I was first getting into space, I was like, wow, this is actually pretty nifty. I was like, did you come up with this? Dude, I'm actually curious, did you come up with this or did you learn from somebody else? Because we're now innovating around it, but I'm curious where this initial concept came from.

I can't take credit for this, but to be frank, I don't know of anyone else that was doing this before we were doing it. And we actually talked to the initial insurance company that we worked with at the time, and we were talking about different examples, and they showed an example of like a little bit more up front and then dropped off the premium, but the premium stayed level. And I was like, wait a second, can we like increase that? And they're like, yeah, let's look. And so, again, I can't take a ton of credit for this, but for sure after publishing our videos, a lot of people have been kind of copying, which I am a fan of, because that means people are getting better policies, whether you work with us or someone else. I love that this is becoming more common.

A front load is essentially anything that goes above and beyond years two on. So if my premium is ten thousand dollars years two on, anything above ten thousand dollars in that first year will be essentially considered a front load. We're going to show you three examples what a front load will look like. And the reason why we like front loads is because you get a lot of early cash value. If you understand the value of life insurance, you want as much of your money in what's called cash value, which is the cash available in life insurance, because of all the benefits. And so overall, it allows you to have that without giving you a large contribution that you have to hit every single year. So you kind of get your cake and eat it too. You get the benefit of life insurance, early liquidity, but you don't have large base contributions, required contributions ongoing, and so it's the best of both worlds.

If you are not getting a return on your dollars, if it's essentially getting zero percent in a bank account, well, actually now at the rising interest rates, you know, two, three percent, whatever it looks like at the current moment in time, depending on when you're watching this video, this can be a valuable tool for you to get your dollars to work for you faster. And so I'm also going to share with you why some companies actually perform really well and some companies really don't, because there's some advantages depending on the company. Like Caleb was actually saying at the beginning, he may have worked with a company that was showing the specific design, they didn't even know what was possible, and then you work with another company and they know it's possible, but they intentionally make it disadvantageous because they don't want you to do so. Why do they not want you to do so? It's because they understand that people that want to do front loads, they're likely going to be able to use that cash early on. There's a lot of companies, they really want to hold on to that control of that cash and not have you take policy loans against it.

Yeah, there's only about three or four companies that even allow you to do this style of policy. And so with that, we're going to jump into the numbers, and Dom, I'll let you take it from here. Amazing. So we're going to look at three different designs. They're going to start off small and then they're going to get larger and larger. And so the first design we're going to look at is a 50,000 front load first year contribution. After that, it's going to be twenty thousand dollars going forward thereafter.

So we put in fifty thousand dollars. You'll see that we have well over ninety percent liquidity within that first year. So this first year there's almost 46,000 of cash value and 826,000 of death benefit. The break-even point, which we always like to talk about, happens in year five, where you have more cash value than the money you contributed, which there's a hundred and thirty thousand one hundred and seventy two dollars within that fifth year. And then what is the actual base or required contribution? So the base on this policy is actually 15. Okay, so it's 15 base, 85 percent PUA. And so when we're looking at that, that's a three thousand dollar contribution that you're required to contribute after the first year.

So I want to put this in perspective. We're showing someone putting fifty thousand dollars in the first year and you have over ninety percent cash available, and then ongoing your actual contribution, your actual base contribution, is three grand. So we are essentially hyper funding a three thousand dollar policy to give you early liquidity and a lot of different benefits. And that's why I'm a big fan. Is if you might be sitting on some money but you don't know what the future holds, you would like the ability to save twenty thousand dollars a year, but if you can't, we want to give you all the options and flexibility to figure out different ways to either fund the three out of pocket or figure out how you can take some of your cash value and fund the base contribution.

Yeah, and this one is cool, but the next two actually, in my opinion, are even sexier, and I will show you exactly why. So if we look at the second option, we're contributing a little bit more in the first year front load. So instead of being 50,000, there's a hundred thousand dollars in the first year, and then it's a thirty thousand dollar contribution thereafter. So if

You look at the cash value perspective of the amount of liquidity you have, it's really easy to do the math of a hundred thousand. There's 93.4 liquidity in the first year, which is insane amount when you look at typical whole life, because typical life you have a zero percent in the first year, and now we're looking at a policy where you have access to almost 94 of liquidity to be able to borrow against, to use for another activity, hopefully an asset producing activity if you follow the movement of the AND Asset. And when we look at this, the break even point is at year four.

Wow.

Now I personally, if you're not 1035 in the policy, which is essentially taking cash from one company to another company, I have not seen a policy be able to break even any earlier for at least a consumer. There are other policies like BOLI and things like that, bank on life transfer, you could accomplish it. But when we're looking specifically for a consumer or business owner, breaking even in year four is as early as I've ever seen a company allow that to happen, which is insane when we're looking at actual control, when we're looking at whole life insurance.

Yeah, and just for you, if this is the first time you're watching a video of ours, break even, it means you have more cash available than what you've put in. It really is one of those metrics I think more people like talk about and it doesn't necessarily translate to value, but it's like if you're going to cancel your policy you actually have more money than what you've put in, and it's a good way to compare apples to apples when you're looking at other policies. What is the actual base on this contribute, on this?

The base on this one is 20. So there's two things that I'm wanting to mention with kind of what we're looking at. So the first thing is that there is a term rider that's inserted into these policies. Okay. And when you're looking at most whole life insurance contracts, if you are doing a cash flow strategy which is there's no front load, so in this one if it was thirty thousand dollars therefore after, if you did like a 10 year term rider, likely would only allow you to pay into it for 10 years.

This one has a 10-year term rider as well, as you can see in the 10th year the contribution goes from 30,000 to 29,452, and also if you look at the death benefit it goes from 2.2 million to 1 million 66. And the reason that is, is because that term rider that's inside of the contract essentially falls off. But the really cool part about this is term insurance is essentially a cost with this company. Now every company is going to be slightly different, some companies will allow you to buy PUA with that term rider, but this company specific, the term insurance is a hundred percent just a cost. But because we're putting in so much money up front, that PUA is going in so fast that we're able to do a very short-term rider and to be able to allow yourself to keep paying this longer than 10 years, which is essentially another amazing benefit, because now we have a cheaper policy from an expense standpoint and you can still pay into the policy extremely long to allow you to slap the benefits of life insurance.

Yeah, and then the other thing when it comes to the base, I would say this is a small slight disadvantage when we're doing dump ins, is when we're having a large dump in and we're looking at the ongoing payment, if the front load and the ongoing payment are too small away from each other. So essentially, you know, it's a 70,000 difference between the hundred thousand and the 30,000. If those become too far apart from each other, the insurance company is going to ask you to increase the base on the policy. That doesn't essentially make you less efficient, because we're putting in so much cash up front, but what that essentially does is it makes it slightly less flexible for you in regards to the ongoing contributions.

And an extreme example of this is if you were to put a million dollars of cash like upfront into a policy and then you were like, hey, I want to put ten thousand dollars a year after, there's no way that we could do that and for it not to be a MEC. Now we'll have other videos about the pros and cons of actually MECing a policy. I think there are some benefits to MECing a policy, but overall if you want it to not become a MEC, meaning you want it to get all the tax benefits of actually being insurance, that what you're saying is the base has some ratio, every company is a little different, and so if we put a huge front load, a lot of cases what requires us to put more money ongoing, and that base has to hit a certain minimum.

Yeah, and it comes down to what the IRS is saying, because I mean, like Caleb said, the insurance company will allow you to do 50x the base to be able to put in for PUA plus, but the IRS, if you want to have those tax advantages that life insurance has, then you have to stay within the limitations of what the IRS will allow.

So is it fair to say that this is a six thousand dollar policy that we're putting a hundred thousand dollars in a year and giving someone the ability to put up to thirty thousand dollars for the first year two through ten?

Yeah, it's literally amazing. If you were someone that had a hundred thousand dollars that's sitting in the bank doing absolutely nothing for you and you're like, hey, I want to start a policy but I may be able to save six grand and I may be able to save all the way up to 30 grand, it's exactly what that is, which is insane when you think about it.

What I love again about this is when we talk about landing a plane, you have ninety three thousand dollars of cash value, unless you're leveraging all that money, which we will go on record and saying like we don't recommend on people taking a safe asset and leveraging 100 of it. We have clients that do that and we just again love there to be some buffer. So if you didn't leverage all your money out, and we have plenty of videos that talk about the benefits of borrowing against and how people do that, you have enough cash value easily to do what's called landing the plane and then at least come up with a year's worth of

Base contribution even if you couldn't go out of pocket, but for a lot of people, six thousand dollar out-of-pocket would not break the bank in a policy design like this. Yeah, and this company specifically, they really, really, really are designed for the flexibility to do these types of front loads. Like, I've never seen another company in the entire space that this company allows that to happen. I've actually had conversations with other people in the other space with other companies where they intentionally make your base really high and you make your policy less efficient, we have less cash value, so they push you away from doing that.

And this company is big into like infinite banking. They have seminars around it, a lot of top producers are infinite bankers, and so they understand their audience, which I think is important. And then there's other companies that understand their audience, their target market, and they would say, we actually don't want that business, and therefore they make it very hard or disadvantageous for you to do that. So all of these rules that Caleb and I are talking about are company specific, and this company just allows us to be extremely sexy.

And one of the things that we're pretty clear on, it is the less we're getting like an update on company and company that year, we're just gonna keep the companies anonymous, because every company could change year to year on their new products, and so we want this to be as evergreen as possible. And for the last five to six years in business, front loads do exist. Now, how they work year to year could change based on new regulations and interest rates.

So we're going to go to the third and final illustration for this example, and this looks like we're putting 300,000 in year one, three hundred thousand dollars in year one. And just know that three hundred thousand dollars isn't the limitation. Like if you're somebody that had like a million dollars and you wanted to throw that in, and then you were like, hey, I want to do a hundred thousand dollars therefore after, that is also very possible. It just really has to make sure that the ratio between the two isn't too far apart. And you know, this one is only 6X the difference between fifty thousand to three hundred thousand, so it's really not that far off. And what we can do is we can just design it in a specific way that fits your needs based off of how much you want to contribute year one versus how much you want to contribute therefore after.

And when we're looking at the liquidity, I think you might have done the calculation. I can't help myself. 94% first year liquidity, and this is not a MEC, meaning it's when set up and used properly, you can borrow against your policy income tax-free, your money grows tax deferred, and it still gets passed on income tax free. Like that's unbelievable. Dom, 94% first year cash value, not making a policy a MEC, it is absolutely insane. And that's why I actually love MECs.

And when you start to look at the break-even point on this policy, it happens between years three and four, which is insane. You have 396,000 of the 400 you put in in year three, and then 458 in year four. The thing that I really, really like about this is when you look at insurance, you start to look at actual cash flow and dollars that you put in and how much do you get back. I actually think that's a really cool metric to look at. And in this policy specifically, when you put in 50 grand in year two, your policy increases by 55,000. So you essentially put in 50 and you made almost six grand. That happens in year two.

When you start looking at cash flow, like that is absolutely incredible, and it doesn't happen really on any other policy unless you're front loading it. And with this company specifically as well, the disadvantage again, this policy specifically, the base is now 30 versus 15, the other one. The reason being is it has to, because we're starting to get really far away from each other in regards to 350,000. But that's still only a fifteen thousand dollar base requirement to contribute and to give you the ability to do fifty thousand dollars of your ceiling is absolutely incredible. And we have 282,000 dollars of cash value in year one if we somehow couldn't pay our base premium in year two, which gives you maximum flexibility in my opinion, by throwing in a ton of money and having the ability to pay using your premium if needed to.

So I don't get too concerned about increasing the base, because typically when we talk about increasing the base, it makes it less efficient. But in this instance, you can see the policy broke even earlier and we had more cash value earlier, so increasing the base actually was a win in this situation. And if you wanted to actually put more money in, like let's say you want to put 300,000 and then maybe 75, then increasing the base actually gives you the ability to save more, which you could easily argue in the long run is better long term, because you're now comparing oranges to apples. So it's not as black and white, but what we want to do is give you different examples.

Because what I love about this is like if you understand the power of the AND Asset and giving your dollars more than one job and protecting yourself, growing your money, controlling it, giving yourself options in the future, it's pretty incredible. Like one of the biggest problems in life insurance is like early liquidity. This kind of eliminates early liquidity pretty much right in year one. Because majority, like if you put your money in 401ks and other things, you don't even have access to it. So unless we're dealing with a savings account, which would be ahead in the first couple years, but the savings account doesn't have a death benefit, savings account doesn't have all the other benefits of life insurance, and this pretty quickly outperforms the savings account and gives you all the other benefits.

And so if you started doing like a pros and cons, the pro would be in the first couple years would be slightly ahead, the cons, the pros on the life insurance side would just trounce this long term. Yeah, and you know, if you start looking at it from the common perspective, when would you ever use 100% of your dollars? Like I think that's a very risky thing to do. So it's very fair, and you're still going to need term insurance to cover yourself for the death benefit that you're provided here, so.

In reality, like, yes, that is a con. But when you start to compare and look at the other advantages, like you said, that you get tax advantages in this policy as well that you don't get in a savings account. But one thing that I would like to add when we're looking at these is something to consider, is that your income that you make is actually an important indicator of how much insurance that we can get on you as a human. You may be a great saver and had a million dollars saved up, but if your income was only twenty thousand dollars a year, it would be really hard to justify a policy like this, because they are going to underwrite you for amount of death benefit that you're worth as a human being that they're going to deem worthwhile.

And so to know that exact metric of, like, what your human life value is, what the insurance company will insure you for, you would essentially have to come in and sit down with us for us to ask you some questions about age, income, net worth, for to find out, to see what is possible for you to contribute to these policies. And that also comes to the annual contribution after that as well, because there are some limitations around how much you can contribute thereafter based on your income as well.

Yeah, I think that was super well said. And not that this is a pitch to talk to us, but literally, if this is something that you're like, "I want to learn more," that's exactly what we do, and that's why we make videos, is to educate, make you aware. But also know that your situation is different. You're probably not 36 years old, whatever the health rating is, with three hundred thousand dollars. Like, you may be a little bit of a different human being, and so seeing your custom numbers is key.

And also talking about just different examples, because there's pros and cons with front loading versus what we call the cash flow style policy. One's not all better than the other. It's just, it's just one of those, if you have a ton of cash up front and you get the benefit of life insurance, front loading in many cases makes sense. Love it. Thank you.