Watch THIS Before Starting a Whole Life Policy! | IBC Global

So I'd like to start today's presentation with a story. This story dates back to about 2012 or 2013 when I was relatively new in the industry, insurance industry and financial services that is. So I'm working for someone else at an office and a physician has an appointment scheduled with the owner of the firm and another senior agent. The physician walks into the office. He had read a book called Becoming Your Own Banker. This is a book that really teaches individuals how to use whole life insurance policies as a means to save and build wealth and then also use the policy as a financing tool. Now the individual had read the book, walked into the office, throws it on the table and says, I want to put $100,000 per year into this. So I'm new in the industry. I hear that and I'm kind of like, all right, what got him interested in putting all of this money into a life insurance policy? So really because of what the book had educated him on, he had read it, he liked what he had read. We can certainly get you a copy of that book as well, by the way. But he was attracted to this idea of cash value life insurance. Now what he was actually sold compared to what he wanted was completely different. What had happened is he wanted the policy that was designed for maximum cash value and he was sold something that looks like this. Putting in $100,000 per year into a life insurance policy with the goal of cash value and he gets something where $100,000 goes in and he's got $3,300 right off the bat. And about 11 years down the road, he finally breaks even, catches up with how much he's paid in. Because he's paid $1,000,000 in by year 11, he has north of $1,000,000. So who sees this and wants it? Who doesn't want it? Who on earth wants that? You have a life insurance policy, a death benefit, but there's not a whole lot you can do with your money. It takes a long time just to get it back. So when it comes to cash value life insurance, or I should just say a whole life insurance product, often we hear these phrases, that it is a bad product, it's expensive, has weak returns, horrible place to position your money. It is a much better strategy to buy term insurance and then invest the difference. And then if you buy it, you're going to have buyer's remorse. Have we heard that? Probably, or maybe we've heard things similar from Dave Ramsey, Suzy Orman, financial advisors. It is very true that whole life insurance has a bad rap for a number of reasons. What you just saw was a prime example of exactly what not to do with the whole life insurance policy. But what is interesting is with all that said, you've got these guys, the 1%, specifically banks, corporations, the ultra wealthy, have more cash value life insurance, often is to a degree where it's the number 1 asset on their books. Bank of America, for example, has north of $22 billion in their cash value holdings. Their death benefits are even larger than that. But that's how much money they position in the cash value component of their life insurance assets. Same thing with companies and wealthy individuals. They really purchase as much cash value life insurance as they possibly can and they're not doing it necessarily for the life insurance death benefit. That does have a play long-term but their point of interest is cash value. Cash accumulation, and they want that cash value now. They do not want to have to wait 10 years to break even to get that back. They're not going to do that. So why? You know, what's interesting about this is, shortly after COVID hit, this was about a month after the fact, not even, when interest rate pressure, everything was going down. I get a text from an executive at a bank we work with that says, Steve, we've got $10 million we need to deploy ASAP. We got to move that somewhere. Because what was happening with interest rates, they're going down. They understood the cash value life insurance product to make a long story short, they ended up moving that $10 million into high cash value life insurance, bank-owned life insurance, to be specific there. Why? Right? Why would they do that? And by the way, it looked nothing like the example you just saw. So at its core, a life insurance product is a safe, liquid, tax-free area we can position money that is always compounding. So a unique feature to a dividend-paying whole life insurance policy is that once a dollar passes through the cash value of your life insurance policy, regardless if I just let that dollar sit and grow, or if I decide to borrow against it, if I pull that money out, there's no lost opportunity cost. My money continues to move forward for me. A lot of real estate investors and business owners are attracted to this in the sense that they view this, hey, here's a safe area I can position money that typically, when it's designed how these guys design it, might generate between 3% and perhaps 5.5% tax-free. That's great. It's like a high-yield savings asset. But I can pull that money out and use it to invest in real estate, to invest in my business where that's ultimately where I get the highest rate of return, but my money keeps at work for me. I don't have to put in a bank account, dish it out, or go to a bank or a lender, anything like that. We're going to touch on that a bit more. Side note here, why they purchase it? Cash value. That is what they are interested in, cash accumulation. So a couple bullet points here. When it comes to a whole life insurance product, a couple items we want to be aware of. One, we have a premium that is level for the life of the policy. Now when you hear the word whole life insurance, naturally, how long do we think that we have to pay premiums? Our entire life or our whole life? The thing is, we can design a policy where we pay into it for 2 years and then stop. Maybe we have a lump sum, maybe it's 5 years, 20 years, we stop and go, adjust our payments. We're going to show you how you can use it as a flexible savings asset. A lot of leeway there. The point is though, it is level, you will not see it increase on you over time. We have a death benefit that will gradually increase over time. Death benefit proceeds are always paid out 100% income tax-free. And then we have the cash value. So this component gradually increases over time and is really the topic of interest. So a couple bullet points here on cash value. We like to prep them in advance, save ourselves some time. So number 1, no risk. Specifically what I mean when I state that is that your money, if it's in a whole life insurance policy, is in no way, shape or form invested in the stock market. You're completely separate from the market, which is great. We have a guaranteed floor of 4%. So that is the minimum guaranteed rate based on the contract. However, the company, most companies will often pay a surplus on top of the guarantee. The guarantee plus the surplus equates to a total dividend rate. You may have heard the term dividend paying whole life insurance. That might sound familiar. These are rates for 2020. You'll see rates range between 5% and a little over 6%. Payments are made with after-tax dollars. Kind of like a Roth account where any payments we make are made with their after-tax dollars. We've already paid the tax on those. However, the growth is tax-free. Now the growth on a life insurance policy, to be accurate here, is technically tax-deferred. However, we can easily access money tax-free if we do so properly. I'm going to explain exactly what that means. Why I like to throw that word if in there is if you've been exposed to whole life insurance, if you're familiar with it, perhaps you own it or any type of life insurance, the word tax-free is heavily marketed with that. Which makes sense, right? Who doesn't like the word tax-free? The thing is, it is possible where taxable events can occur. We want to make sure everyone's aware of that. And then you've got a unique loan feature, which again has to do with our money in cash value. And once a dollar passes through a policy, it's forever, it worked for you. The best means to illustrate this is often with real estate. So for example, let me ask everyone here, have you ever invested in real estate? Or do you? Or do you own a home? Okay, let's say that it is a perfect world and every single year, the appraisal value of your property appreciates by 5% like clockwork. Regardless of what happens in the economy, the real estate market, the stock market, it doesn't matter. That property goes up by 5% every year. If you own that home free and clear, do you receive that 5% on the entire home value? Yep. If you have a mortgage or a line of credit outstanding against it, do you receive that 5% on the entire home value? Or only the remaining equity? The entire home value. Doesn't matter if I have a loan outstanding or not, I continue to receive compounding on my entire bucket of money. The exact same thing happened to the life insurance policy. In this case, there's an interest rate that goes to the lender. Same thing happens when I utilize my cash value life insurance policy and exercise the loan feature. Let's take a look at this actually because this is interesting. So what we've got is a policy that mirrors much, much more so what the 1% do. In the sense, do you remember that first example we showed briefly? Where I paid $100,000 per year in and I had next to nothing, 3% of my payment and cash value the first year. Look at this, $50,000 goes in. I've got $47,000, approximately 95% just about right off the bat. What's highlighted in yellow here represents the break-even. So that original policy took 11 years to break-even. Here, I'm 3 years to break-even. After 5 years, I pay nothing in ever again. Although I have the option to do so. So that's what a policy looks like if I just let it sit and grow in this example. Here is the same policy where I'm going to elect to take policy loans. Well, one loan I should say initially. So I take a $200,000 policy loan here. Now real quick, when we hear the word loan and just loan I should say, what comes to mind? Payments and interest. If I borrow from a bank, I'm going to have payments and I'm going to have an interest rate. With a life insurance policy, there is an interest rate on this specific example. It's 5%. It goes to the insurance company. However, it is optional to repay it. If I decide to repay it, I can pay it back however I want, whenever I want, at my leisure. There's no requirement or anything like that. What you're really doing is taking control of your finances when I want to use this as a financing tool. Perhaps I'm buying real estate or investing my business with it. So I pull out $200,000. What is the impact of that policy loan? That's what I'd want to know if I'm a consumer. Here's my cash value. View that again as the equity or line of credit. Cash value reduces by approximately $200,000. We can always compare this to the example we borrow from. That we don't borrow from. So this way we have a side-by-side comparison. Now, I'd stated before that once a dollar passes through a policy, regardless if I let it sit and grow, I'm going to earn interest on any money in cash value and on that $200,000 I loaned out. There's no lost opportunity cost. How the insurance company does that is primarily through this. Collateralizing my death benefit. So look at your death benefit in year 5. On the example when I just paid money in and let it sit and grow, compared to the policy which is the same policy when I borrowed out. Dollar for dollar reduction on the death benefit. So really the insurance company says, okay, we're going to continue to pay you interest on your entire cash value. You do have a loan interest charge on the loan amount only. But how we're going to continue to pay you interest is we're going to collateralize your death benefit. If you die with a loan outstanding, the net payout here in this example is $850,000. What is an insurance company's first and foremost obligation? To pay out life insurance claims. That's why they are a life insurance company. So if I die with a loan outstanding, how can I put it? They're okay with it. Now what I want to look at here is once the loan is repaid, so we pay it back aggressively here. We can pay it back however we want. We borrowed out $200,000, we paid back $200,000 plus approximately another $29,000. That was interest that went to the insurance company. Important to be aware of that. If I stop there, this concept would make zero sense whatsoever. However, when that loan's paid off, look at your cash value in the example when I never touched it, when I let it sit and grow, compared to when I borrowed and repaid. So even though I pulled out the $200,000, the dividend payout over here never changed on either example. It remained constant. So the company continued to pay me dividends and interest on my entire bucket of money, again as if I never touched it in the first place. That is why my cash value and death benefit is 100% restored to exactly what it would have been as if I never touched it in the first place. Things keep moving forward. The same thing down here. And by the way, we can easily provide this to everyone or custom scenarios. We've got several videos and courses that provide detailed information if you really want to understand this further. Of course, we can provide more information as well. So let's go back here. So let's go back to the story. Remember how we started where that policy was set up for the physician. He came in, wanted to put 100 grand per year into this product, was very, very interested in it. And he got something that just didn't look good at all. Well, the thing is, and we just showed you an example where it's very cash rich right off the bat. The thing is when we set up a life insurance policy, a lot of people are not aware of this is we can actually choose, us the policyholder, I can choose where my money goes in that policy. This is a key element knowledge that I want to have. I can choose how much goes towards the insurance premium, which first buys me a death benefit and then eventually comes back to cash value. Then I can choose how much of that dollar goes directly toward the cash value, which is accessible to me, does buy me some death benefit as well. But I see a huge, huge difference when I look at my net cash value and really how much money I'm paying in. So quick example here. When I pay money into a product, I can direct it toward the insurance expense, call that the premium, or it is called the premium, or the PUA Rider, we'll call that the cash dump-in. What I want to understand as a consumer is really the relationship of those dollars. So let's begin with the premium component. Dollars that are directed toward the insurance premium, if I pay $1,000 per year in, in respect to your cash value, with a traditional whole life insurance policy, you'll often find in the 1st year or 1st and 2nd, zero of my premium payment, call it the insurance expense payment, will show up in cash value. A lot like that example we started with. The reason why is because it primarily purchases me a death benefit. That is where the insurance company overcharges me for the cost of insurance or death benefit upfront. It's also the bulk of where the commissions are paid to agents. Now once you hit the 3rd year and from that point forward, you will find if I pay $1,000 in, I see that $1,000 start to come back to work for me, begins to earn dividends and interest, picks up the pace, gets better and better. Versus the PUA component, if I pay the same amount of money in down here, $1,000 per year, again wanting to understand the relationship here, $1,000 goes in, you'll see just about $1,000 show up. This is money you can access. This is money that begins to yield the guarantee, that begins to yield any dividends. This is the key to accelerating the cash value growth on any life insurance policy. Now you will find that it will buy you some death benefit, depends on my age, if I pay $1,000 into this component, I might see approximately $3,000 come back in life insurance. But really the key here is maximizing the cash value. That's why everyone's interested in this area. So really the question we always get is, Steve, I don't care about the death benefit, how do I put nothing into the premium and everything into the PUA component? I want the cash value. That's what banks actually do. Now we cannot put $0 here, because we still need the policy to be considered a life insurance policy to reap the tax benefits. We have limits, 2 limits to be aware of. We've got the insurance company limits and the IRS limits. Here's the key, with the insurance company, all companies are different. You will find with the top companies, we can often lower the premium to about 10%. Now what's that mean, 10%? That means however much I want the ability to add into a policy on any given year, my premium must be at least 10%. For example, if I have a $1,000 premium, like we see in this example, I have the ability to often 10x that to pay a maximum of $10,000 per year. Another $9,000 into that PUA component. Now that limit does slightly vary from company to company, but you'll see that fairly consistent with a lot of the larger mutual insurance carriers that big banks, corporations, and wealthy individuals select. So that's 1 limit. The other limit to be aware of has to do with the IRS, specifically this term. So any life insurance policy can become classified as a MEC, a Modified Endowment Contract. If it does, I have to deal with taxes. The policy functions very similar to that of a 401k, which completely strips the benefits as to why people are attracted to life insurance for the cash accumulation component. Now, every policy, here's the interesting piece, has what is called a MEC limit, which is exactly what it sounds like. It is a limit that is determined by the IRS that states how much money I can pay into a policy as far as a total dollar each year and still have it remain classified as life insurance, not a taxable investment. What many are not aware of is we can actually set that limit wherever we want. What you'll find is that it has a direct relationship to an individual's age and death benefit. That is called the measuring stick the IRS uses to determine if a life insurance policy is life insurance in their eyes or if it will be considered a taxable investment. A lot of information there, just about done. Here's the last piece. That's better. The question, how much do I want the ability to pay into a policy any given year? Because my money can go where? Premium or the PUA component. And how do I again use this as a flexible savings asset? Because often we'll hear, hey Steve, I really like the idea of this. I want the ability to pay in $300,000 per year but I don't want to get a bill for $300,000 per year, which makes sense. So we can literally design a policy where we commit to that 10%, knowing the insurance company will allow me to 10x that payment and then the MEC limit at $300,000. Same thing, if I want the ability to pay in $100,000, if it's $50,000, if it's $10,000, as long as the ratios are consistent, minimum premium, ability to add more. So now I commit to this policy, never feels like a burden and I can plow more money into cash value at my discretion. This way, when we work with a good doctor, he's originally shown this but we can turn it in to this high cash value product right off the bat. Same company, same product, different design. A lot of info here. Again, we can get you all this. I guess we can open the floor to questions now and thank you again for your time. Hey guys, Steve Parisi here. 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