Introduction Of How Much Money Can I Add to my Insurance Policy
How Much Money Can I Add to my Insurance Policy. It’s usually the 1st year I’ve got a negative hit on my money meaning I have less money in cash value than what I paid in and what I have heard from most individuals is I don’t want to go through that and if I can prevent ever having to go through it again in the future sign me up and I 100% understand that feeling. So what’s interesting about cash value life insurance policies
You the policyholder can often add more money to an existing policy we can make up for lost time so in this video we are going to go through an actual policy this will be a fun case study because we get to see how much he’s paid in thus far the actual cash value performance
You get to see the actual break-even point fell between years 4 and 5 which is sweet and then what it looks like if he is to make a large catch-up payment. So to demonstrate what I mean when I say catch-up payment or let me actually set some of the groundwork first we’ve got a 50-year-old individual started the policy 5 years ago and he was 50 years old
Actual Policy MEC Catch
The time what non-smoker reads is this is the health rating he received so he did not receive a preferred or ultra preferred rating just a standard non-smoker rating which is right around 80% of what people receive when it comes to whole life insurance policies and if a policy is designed for maximum cash value if I look at a non-smoker preferred rating or ultra preferred
There’s not a huge difference if things are designed properly with respect to maximizing the cash value. So in this guy actual policy MEC catch up before we just go through this let me touch on something here is when it comes to the MEC limits and we’ve got some content that goes through this in full detail
Specifically with the MEC limit if a life insurance policy becomes a MEC which stands for modified endowment contract what happens? We have to deal with taxation on the cash value anytime we access it specifically referring to the gains but when I look at the actual MEC limit let’s assume you have a policy like this individual had of $50,000
Big Catch-Up Payment
if you do not max fund a policy meaning you don’t pay all the way up to the MEC limit so let’s assume you have a $50,000 MEC limit and your actual payment let’s use round numbers is $10,000 just for the 1st year is specifically.
I’m focused on here what that means is you have a limit of $50,000 you only paid in $10,000 so you could have added another $40,000 to this policy but you did not you didn’t want to you didn’t have the money whatever the reason was you did not add those dollars.
So what happens with the MEC limit it resets each year so when year 2 rolls around the limit resets at $50,000 plus any unused space from the prior year which would mean what? Your true MEC limit would be $90,000 that year and unused space continues to roll over year to year unless you make a big catch-up payment. You Can Also Read Starting Policies for the Next Generation.
So what that means is he paid in $50,000 he could have paid in $51,000 so what this means right here is we have an unused $1,000 I could have paid in another $1,000 but I did not so I’ve got this $1,000 that will roll over. The next year I pay in $50,000 my MEC limit is $51,000 so I’ve got another $1,000 of unused MEC space plus the $1,000 from the prior year which is why we see $2,000 of extra dollars he can pay into the policy if he wanted to during the 2nd year very easy to follow, isn’t it?
What That Means His MEC Limit
We’re going to go through a chart shortly I’ve got it laid out on Excel but then here and this is often where people will ask what’s the total dollar amount I can add to a policy it can become difficult to track very fast especially if you’re not into this kind of stuff if you’re not an insurance nerd like me and the people that work here. But year 3 he pays in $8,000
What that means his MEC limit is what? $51,000 per year he paid an $8,000 I could write straight when I was standing sideways here so what does that mean if you look at the math there well he could have paid in another $43,000 so $43,000 plus the $2,000 from the prior years which is why we have this additional $45,000 the $43,000 extra that year plus the $2,000 from the prior years, Year 4 he paid in an oddball number of $6,831 that’s actually
The Insurance Company
The true underlying base premium in this example and then year 5 paid in another oddball number this was actually the exact dollar amount he wanted to pay in $39,169 just based on his cash flow and then year 6 which is actually coming up next year because he recently made this payment what’s the maximum dollar amount I can add to my life insurance policy?
Well taking into account all of the prior years $152,000 and a couple dollars extra on top of it I just rounded down in these examples. So what I want to add before we get into the case study is when it comes to making large PUA deposits (1) his base premium is about $6,831 the insurance company limits this particular insurance company limits when we look at the premium
MEC Catch-Up Contributions
PUA limitations which I talk about frequently is the total payment can be 10X the base premium annually they will not accept more so if I try to submit a policy where I have more than $6,831 going in so there’s my base if I tried to submit a policy with $70,000 per year going in they’ll kick it back and say this policy will not be approved for sale. A lot of companies do that however when we are making up for lost time with MEC catch-up contributions they do accept it we’ve done.
Medical Underwriting
For a number of years now it’s almost never an issue or I should say it is never an issue never has been so we can make up for lost time and exceed the insurance companies standard premium and PUA limits when again we are making up for lost time.
That’s step 1 step 2 this is very important to be aware of medical underwriting so when it comes to adding money into PUAs if I want to throw call it 150,000 into PUAs if I’m 55 years old that’s going to buy me call it another $450,000 to $500,000 in death benefit that’s a lot of life insurance many insurance companies will not allow that or before they accept it they’ll say hold up before we accept your large PUA payment we want to put you through some type of medical underwriting.