Introduction Of Do You Know The Most Efficient Way to Get Money into a Life Insurance Policy
Do You Know The Most Efficient Way to Get Money into a Life Insurance Policy. A substantial death benefit to be able to get a one million dollar mech limit I’ll explain that as we go through the numbers but then if I take that one million dollar and break it up over two payments that’s 500 thousand per year three hundred thirty-three thousand dollars in change.
Most efficient way to get money into a whole life insurance policy
If I do it over three and then two fifty over four and two hundred thousand dollars over five years the purpose of this study is to show you what is the most efficient way to get money into a whole life insurance policy if you’ve got that lump sum you want to get it into the product and maximize the cash value growth as we progress.
We will look at how to use the money, particularly for real estate with this individual but first and foremost we are interested in maximizing the cash value growth because you may recall in the last video his objective is to get that one million dollars in can I just make a one-time payment well now we’re going to look at breaking that one-time payment up over a couple of years.
But I don’t want any ongoing payments how do I just get the most out of this one million dollar that is it often people do elect to pay money after the fact that you can do that but here we’re assuming nothing goes in after the 1 million so as we go through the different numbers we will look at the overall design of the policy and you’ll see all the options are with guardian we ran 1090 splits so.
Initial term insurance costs
What that means is if we’ve got the 500k for two years the underlying premium will be 50 000 if it’s 200k for five years the underlying premium 10 will be 20 000 remember that the base premium does not show up in cash value in the first year that takes the biggest bite out of the initial cash value that’s why the policy will take several years just to break even and recoup.
The one million dollars so how do we shorten that breakeven period all of these examples that you will see are run with guardian just based on their 2022 dividend interest rate as we progress to the next video we’ll look at guaranteed values as well with some of the best options one last thing I want to touch on regarding policy design and we hit on this in the last video is all 1090 splits except the one million dollar option.
Where we can take advantage of guardian’s 50x limitation meaning I can have a 2 minimum base premium in the first year only so in this particular example a 20 000 minimum premium helps the performance but as you saw in the last video it doesn’t help quite enough so let’s get into the numbers and have some fun shall we I’m going to touch on the illustrations briefly and then.
We’re going to look at everything side by side just to simplify this so here is the detailed illustration this is the one pay just to break down where the money is going underlying premium twenty thousand dollars term insurance rider we’ve got two term riders attached a renewable term rider for 8.6 million dollars and then this target additional.
The term insurance costs
Benefit this is a one-year term insurance rider just about three grand so his initial term insurance costs are ten thousand dollars in the first year and they increase each year thereafter as well up until the seventh year I should say the eighth year after the first seven years we cut the term riders all together so what we’ve got here the one million dollar payment.
There it is here’s his underlying base premium of twenty thousand dollars beginning year two net premium net after-tax outlay same thing if this is you this is your actual out of pocket you pay nothing beginning year two zero out of pocket however you still have the base premium of twenty thousand dollars due and what’s not accounted for in this example are the term insurance costs as well. You Can Also Read How To Get Guaranteed Rates of a 3 Pay & 4 Pay Insurance Rates Guide.
So what has to happen in this example years two through seven we’re not paying this premium or the term rider expense the policy is paying for itself through the dividends and interest earned in the policy the dividend piece and the guaranteed rate piece this is referred to as a premium offset so the interest earned in the policy is offsetting the need to pay the premium.
We exercise a reduced paid-up option
That occurs up until the beginning of year eight then we exercise a reduced paid-up option this also eliminates the term rider there we go but what’s interesting about this is look at years six to seven the last premium offset year your growth based on the present dividend scale is about 12 grand what’s it the next year once we go reduced paid up and get rid of the term writer look at that about 47 000.
So we cut the drag that’s often how I like to refer to it so that’s the one pay example and you’ll see that term rider reduction and reduced paid up on all of these examples just because when we’re looking at a lump sum policy option that is the most efficient way to maximize the cash value growth you do see that reduction in death benefit as a result which some people don’t like then.
We look at different options but here cash value focuses there’s your premium this is the to pay fifty thousand dollars here’s your term insurance rider we didn’t need two-term writers in this example about 3 600 initially as we look at this guy here we go similar results a little bit stronger performance you can tell your breakeven point is between years five and seven I’m sorry between five and six.
What’s the minimum amount of life insurance
Where you’ve paid in a million and now you have a million if you recall what the one pay was it was just at year seven where you had one million and ten thousand dollars so it’s interesting here we’re breaking the payment up over two years accelerates the cash value performance the reason why is this you’ve got this premium over here if you’re paying 500 000 years one and two funding up to the mech limit.
This death benefit is kind of an oddball number you solve for the absolute minimum death benefit to be able to attain guess what a five hundred thousand dollar mech limit what’s the minimum amount of life insurance which gives me the minimum cost so I can plough money into puas and see that living benefit there immediately and I can access it if I want to so in this example years one and two we are covering the premium with out-of-pocket funds in year two, unlike the one pay the policy does not need to pay for itself.