Awareness on Life Insurance Illustrations - 10/90 vs. 50/50 | IBC Global

All right, in today's video, we are going to provide awareness on life insurance illustrations and something that is very, very important to be aware of before putting money into a whole life insurance policy designed for maximum cash value before starting a product. This is gonna be very interesting. We're gonna cover a lot of material, so let's have some fun. What we're gonna look at specifically in today's video is one product on one individual. He's going to pay the same dollar amount in on a yearly basis, but we're going to look at different designs. Specifically, what we're going to look at here is as follows. We're going to look at a policy with MassMutual. We're going to look at what is called their 10-pay product, which is one of their strongest policies when it comes to maximizing the cash value. So a 10-pay policy, I can pay into it for a maximum of 10 years. When I look at the actual design of a policy, what is much different from a traditional whole life insurance policy, if I take a traditional whole life insurance policy, when it comes to base premium dollars, typically what shows up in cash value in the first year? Usually the first and second year. Goose egg, nothing. Whereas with a 10-pay policy, what I'll see here is on average, about 35% of the base premium show up in cash value. So we're gonna look at an example here, nice round number of 100 grand per year going into a policy. For example, if you have 100% of your payment going toward the base premium, that means you'll have approximately $35,000 in cash value right off the bat. Now, if you had 10% going toward premium, what does that mean? You'll have about 3,500 of the base premium show up in cash value, and then the other 90% money directed toward cash value, PUA's that is, this product, you get about 95% right off the bat, approximately. So the name of the game is maximizing cash value. And we know, if you've watched any of our other videos, you know that minimizing the base premium will give you more cash value upfront. But what if I told you, when we look at an illustration, that if you go with a 10-pay product, actually the higher the base premium you have, the more money you should have on a non-guaranteed basis long-term. Keep in mind, I said, the more money you should have, not will have. Very important just to be aware of the word choice used whenever we're discussing cash value life insurance policies with anyone. So where I'm going with this, when we look at a 10-pay policy, with a 10-pay policy, the guaranteed rate, let me back up, MassMutual's dividend interest rate for 2022 is what? 6%. The guaranteed rate with their 10-pay product is 2%, which means there is a declared surplus of the difference at 4%. And why that's important to be aware of is when we look at how dividends are paid based on the non-guarantees, which is 100% the surplus, how dividends are applied to whole life insurance policies, you will see higher dividends based on an illustration that are applied to a higher base premium. So the higher the base premium is, the higher the dividend payout number is each year. We're gonna pull up illustrations and actually walk through that in this video. But with a 10-pay product, we've got a very low guarantee and a high surplus. I can make a case based on the illustration that you should have more money long-term by going with a higher base premium and taking much less money upfront. Now, here's the thing. When we look at reality and actual performance, there's a much, much different story. So we're gonna go into everything in full detail here. Here's the important piece really that I wanna hit on. Is policy design obviously has a direct impact on cash value. It also has a direct impact on compensation. So think of it this way. I'm in the business, I'm a licensed agent. This is how we drive revenue for our company. If I said to you, if you go with a policy that has a high base premium, say a 50-50 design or 100% base premium, you'll have more money long-term. And I can even prove that out on the illustration. Is your goal to have more money upfront or long-term? Well, long-term naturally, that's why I'm doing this. Okay, well, more base premium upfront, you'll have more money long-term, knowing or not knowing that I make significantly more compensation. Show you exactly what I would make with these different designs as we go through this video. But keep that in mind there because as we start to progress through everything, this is very important just to be aware of if you're on the other side. Full transparency is the purpose of this to show what the design has a direct impact on. Now, illustrated and actual performance is critical. We'll hit on that very briefly at the end of this video. So let's take a look here at these guys. We're gonna look at everything side by side, but first we will validate the illustrations. And what we've got to start things off with is a MassMutual 10-Pay product with 100% of our payment going toward the base premium. So here we go, everything's in base. Oops, let's scroll down so we can make sure that that is disclosed. There we go, 100K base premium. No riders in this policy, no term riders, no PUAs, nothing. MassMutual, one of your major mutual companies. Contract premium, $100,000. Guaranteed cash value, 33. Non-guaranteed cash value, $36,000 and change. Right around that 35% of the base premium in cash value right off the bat. A little bit more, significantly more than a traditional whole life insurance policy. Death benefits, 1.7. That gives you a MEC limit just over 100K. Now, let's look at another design here. We've got all of them up here, but let's take a look at the 1090 design. We've got a custom report as we've got different riders here. This is why it says supplemental current values and the other one said tabular values. If you'd like to understand what those mean, I would encourage you to check out this video as we go through the difference on those two terms in the illustration. So where's the money going? Base policy insurance. There's your base premium, $10,000. We also have term insurance attached to this policy. So a term rider is a cheap way. If you don't like the word cheap, a cost-effective way to raise the death benefit. What does the death benefit have a direct relationship to? If you've ever seen our policy design videos, the MEC limit, making sure that we keep the third core benefit of a cash value life insurance policy intact, being the tax-free benefit. So we've got a policy here set up for maximum cash value. We only have the non-guaranteed values here. Year one, you're almost at 90%. You paid it $100,000, you've got 89,708. This is on a 35-year-old male, very healthy, ultra preferred. We ran it at the best health class, which if we ran it at a lower health class, it would not make much of a difference. Breakeven point, year four in this particular example, meaning you've paid in a total of $400,000 over four years, and you have $400,000. Then after 10 years, you don't pay anything else into the policy. Now, when we compare these long-term, which one do you think has more money? The answer is that base premium option, long-term. However, we're gonna look at these side-by-side, this way it just keeps things easier. We've also got the 50-50 example. Actually, before I go to the 50-50, I said these are non-guaranteed values. We've also got the guaranteed values, which are right here in an additional report. Summary of guaranteed values, 100K per year for 10 years. There's your 100K going in. There's your cash value right off the bat. And just because of my OCD, let's validate the design, because I would question this if I was watching this video. There's my design, 10K base premium, same exact breakdown as what I saw in the last example with the 10-90 split. Same policy, we just had to run an additional report. If we wanna get more additional reports, we've got the internal rate of return, all that fun stuff. Anyway, let's go back here, 50-50 design, so we can see the same thing, and just to make sure that everything is truly from the illustration. When we look at the Excel spreadsheets, that is. We wanna make sure that everything is nice and accurate. All right, so here we go. There's my base premium, $50,000, and the rest is going toward PUAs. I do have some term insurance attached as well. Again, term writers do what? Cost-effective way to raise that MEC limit and keep the premium lower. So what I'm interested in here is as follows. There's my guaranteed values, actually. The design's all well and good, but let's go down to the non-guarantees. Anytime you see the current values on the illustration, that represents the company's present dividend interest rate. So rather than go back and forth, which you can rewind the video a little bit to go back and forth here, what we did is lay everything out on Excel. So let's have some fun here. There we go. Higher base premium, more cash value long-term. Don't fall for it, is my recommendation. Here's why, or my tip, I should say. Example on the left is the first illustration we looked at, the 100% base premium policy. What do you notice here? Annual outlay in blue, that's how much you're paying in each year, matches the base premium of $100,000. So this is 100% of our payment going toward the base premium. You are committed to that dollar amount each year as well. Now you will see a dividend, which this is pulled directly from the illustration, of $3,700 and change. And there's your first year non-guaranteed cash value, approximately $37,000. Breakeven point, year nine, based on the non-guarantees, you paid a total of $900,000. You've got 933. You're just about there year eight when you look at it. You've paid an 800. You've got 796. Based on the present dividend interest rate and non-guaranteed value. Year 10, what do you have? $1,076,000. How about here? 50-50 split. The same 10-pay policy, but split up, where only 50%, $50,000 per year is going toward the base premium. There we go. Okay. 100,000 total. First year, no dividend attached. That's because we have LISR attached to it. If you're in the business, you know what that means. That's a term insurance rider that results in no dividends being paid in the first year. But here's what I wanna touch on. Year 10, what do you notice? 1.135. This one you had $1,076,000. Which one has more money at year 10? The one with a lower base premium. Which one has a higher dividend when you look at the annual dividend in year 10 and every year before that too? Interesting, isn't it? $39,000 and change. Over here, it's $33,000 and change. What that means, let's say you had this policy and you're in year 10. On your annual statement, when you receive your annual statement, the dividend, the dollar amount that was paid in dividends to you is $39,000 and change. Whereas over here, you'd have gotten a $33,000 dividend, which makes it seem like, hey, I got a higher dividend, I win. Sometimes we hear if dividends go up, a higher base premium, this will be even higher. We'll hit on that in a second. I strongly disagree with it based on history and real data, not these projections. But while the dividends are higher, you've got less money. Total cash value is the column I'd always look at. Now let's really stretch it as much as we can and look at that 1090 design. What do you notice over here? Same dollar amount paid in, million over 10 years. And look at your cash value, $1,185,000 compared to this guy on the far left, the all base premium example. It's almost $100,000 less, a little bit more actually. Yet what's the difference in the dividend column? Big, big difference. So short-term, 1090 split, more cash value. How about long-term? Take a look. How far down shall we go? Well, we're gonna break it up. Let's start with year 30 and see what we notice here. Which one has more money? All base premium example, just under 3.1 million, $3,090,000. The 50-50 split, whoo-hoo, these are getting real close. 3.112, there's about a $30,000 difference between those two. And then the 1090, more of them start to finish, 3.145. So for the first 30 years, I've got still significantly more money in cash value with that low premium policy. Continue on here. Let's go down to year 50. And this is all often what's pointed out here. So at year 50, what do we see? What do you got here with the 100% base premium policy? 8.22 million, 50-50, 8.1. And then the 1090, $8,000,000 and change, $8,033,000. So now, the 100% base premium example has almost $200,000 more than the 1090. If I stop there, what do you think as a potential policyholder? Wow, I must have more money long-term or long-term base premium policies, high base premium policies do generate more money long-term, right? That 1090 does not produce the most cash value long-term, even though it gives me more upfront. So if I stop there, think of it this way, going back to the compensation, could I justify this policy? Maybe, but then what about the guarantees? Let's look at the same example side-by-side. This is very important. Same thing, 100% base premium, 50-50, 1090. What's the difference right off the bat? Similar story to what we just saw based on the current dividend interest rate. Here we've got 33%, 50-50 plan, 63,000. Over here with the 1090, you're about 87% guaranteed. The guaranteed values, by the way, represent only the guaranteed rate of 2% is charged. And then also the terminators we have attached, this assumes the maximum allowable charge is assessed to the policy each year. So maximum expenses and a minimum guaranteed rate. So worst, worst case scenario. We don't have a term writer with 100% base premium. Now, let's scroll down. First off, what do you notice in the break-even point? Here, between years 20 and 21 with the all base premium example. 50-50 between years 15 and 16 and 90 between 13 and 14. So I get more upfront, I'm faster out of the gates. No dividends are paid in these examples, just the minimum guarantee. Let's go all the way down to year 50. What do we notice here at age 85? What did we notice in the last example? The higher base premium had less upfront, but more long-term. Is that the case when I look at what's guaranteed? No, not the case at all. I've got significantly more with the 1090 design, close to $200,000. I'm just over 1.5 with 100% base premium and I'm close to 1.7 with 1090. 50-50 is close to the middle, 1.636. But I see a difference there. Now, a lot of information, dividends have always been paid with mutual life insurance companies, particularly the major mutuals for over 160 years. So if dividends are continuously paid, does that mean that the higher base premium should give me more money long-term? Here's how I would look at it. I would look at two things. One, having more money 50 years, 40 to 50 years down the road when I finally catch up, is it worth waiting that long to potentially have more with the work potential being huge? If I want access to my capital for other opportunities, do I value that more than the extra one to 2% the insurance company will give me? I would progress through that just from a thought processing standpoint. And then the other thing is actual performance. So without spending a lot of time on this, I would check out our how dividends really work video. But when we look at policies with high base premiums that really bank on a high dividend being paid on the base premium because base premium dollars receive more favorable dividends. Remember that part? If I'm relying on that to really drive my long-term performance, will it actually happen? And I've never seen it happen with any policies we've put in force. Now I've only been in the business a little over 10 years or older policies that we've requested. Haven't never seen it. I've heard it a million times, particularly from those that state you make more commission with a higher base premium. But here's a illustration from 2007 with a policy with one of the major mutuals. 24K per year going in up until 2021. And this is what he planned to do. And this was one of those cases where he did exactly as planned, which is very nice when we track the actual performance. Now I did not write this policy. I was a freshman in college at the time in 2007. I was a bit young. I didn't know anything about life insurance, but we did request servicing rights. We received them, and then we were able to pull the annual statements each year and see what was actually paid in dividends and what actually happened with respect to real cash value and real death benefit performance. Now dividends have come down over time, but I'll add about this policy. The dividend rate actually came up for the first six years. And again, we've got other videos where we break this specific policy down in full detail. Yet when I look at it year six, the original illustration looks better. Now that's what the dividend rate increasing, by the way. As time had passed, however, here's where he got frustrated as time really passed. We look at it long-term, actually not year 15, year 14 was the last study we had on this example. 355 is what he actually had in cash value where he paid in 336 versus the original illustration projected 392. Big gap. And he got very frustrated because he was told the policy should perform very close to the non-guaranteed values. And based on that dividend projection, which was driven north long-term based on the high base premium, did not actually happen. Those are the dividends he actually got. And this is the kind of stuff that goes on when dividends are applied to policies, we see them fluctuate more, particularly on base premium dollars, not as much on PUA payments or PUA dollars. So this can be certainly technical. The point here is what we see is that on an illustration, which often we look at and think, look how much money I'm going to have, a high base premium policy can produce more money long-term. But then based on reality, and then when I look at the guarantees, it tells something different. So just being able to really dig into it and see what option is truly in my best interest if my goal is to maximize cash value. I want to be very clear about that if my goal is to maximize cash value. So this was the guarantees based on the 10-pay policy. Let's wrap up with the thing I said I would mention, which would be the compensation. We've got all three policies here. That's cash values, death benefit. What I'm going to do here just for the sake of simplicity, and putting this all side by side, is condense the cash value and death benefit column. There we go. And this just gives a breakdown as to where you're paying your money. In fact, let's do this actually. Since everyone's interested in the cash value, here's what I want to do. Let me just condense the base premium. Now we can see I'm paying the same dollar amount in. I see money going to different areas. I see what I have in cash value. I also see what the agent recommending different designs is making in this particular example. And really, here's my advice. If you like to look at all the, or see the different options, is request the different options. How I view it, I mean, we show, if you've worked with us, you know this. We show a lot of options. Particularly to those who want to see different options, is we show them. Take as much time as needed just to go through everything. This way, no one feels rushed. It's your money at the end of the day. So we want to make sure that everything, firstly, is fully transparent. We see the different options, and we can make an informed decision. So here, what do we see? Annual commission. And then I also tallied up everything. So each year of the total compensation just combines what I've collectively earned. So commissions are primarily paid on the base premium, more than anything else. So here, 100,000 goes in, and this is based on our payout rate, which is close to the highest here. About $34,000, right out of the gates. I should say, based on our payout rate with MassMutual. This is a smaller company, way higher. 50-50 design. What do you notice here? Same out-of-pocket for you, if you're paying money to the policy. But look at this, big difference in compensation. Long-term, when I look at it, total comp I made with the 100K was 100% base premium example, $78,000. 50-50 design, $49,000. How about that 10-90, which gave you way more money guaranteed, $26,000 and change. So this is where looking at the different designs are important, and again, commissions, I believe all agents should get paid. This certainly can or certainly is a difficult career. But where issues pop up a lot in the industry is where someone specifically requests a high cash value life insurance policy. They're not shown all of the options. They find out that they could have been set up with a policy with more cash value, and they find out that when they did purchase, was set up with high commissions. And if they would have been shown an option with a lower base premium and lower compensation, they likely would have picked that. So what we have to make sure of as agents is that we're showing that stuff up front. Don't try and recommend, well, this design's best because long-term you should have more based on the dividends that are non-guaranteed. When you dig into it, like that hasn't happened. That's why we don't do it. And now if someone says, this is the option I want, after seeing everything and it's fully transparent, we'll set it up and monitor the performance, but we don't really set these types of policies up because we've never seen them actually deliver real results going back to the historical performance, not just projections based on the non-guarantees. So this was an in-depth video. The next several videos, we are going to go into detail on different products, different designs. We'll have a lot of fun with it. If you enjoyed this one, please hit the like button, subscribe for more, and as always, I hope this helps. Thank you so much. Hey guys, Steve Parisi here. If you enjoyed the content you just saw, please subscribe, like, and hit the notification bell for future videos. If you'd like more information or to see some custom policies for yourself, feel free to call or email our offices at the contact information below.