Starting Policies for the Next Generation
The value of someone started a policy for me when I was my child’s age. It’s a good question it comes up quite a bit. We are going to answer that and we’re going to look at a couple of different scenarios this video is based on an email we recently received from a mother who had recently received an inheritance
She would like to take a portion of that inheritance to start policies for her 3 children. Now her 3 children have grown up their adults either in their late 20s or early 30s we’re going to go through the specific ages and model everything out like we usually do but she received an inheritance and would like to take some of that money and start smaller policies for her kids.
Now she mentioned a couple of things in her email right out of the gates the first thing before we had any communication she sent this she said I’d like to give these policies to the kids with no strings attached meaning not required to pay
The Desired Dollar Amount
I get the desired dollar amount into the policies. Meaning once she moves that portion of money into the policies on her 3 children she does not want to be required to pay anything and she does not want her children to be required to pay anything.
The next thing she mentioned is when they receive the policy I want them to have access to as much cash value as possible that is a specific goal of hers so she doesn’t want to have to pay in for a long period I want to get the money into the policy and stop and then I want them to have access to the money. You Can Also The Dive Dive Insurance Guide In 2022.
Now as we progress through this we are going to show some options to (1) show her exactly what she wants to see just from a business process or running a business my firm belief is to show the individual what they want to see if you as the professional the agent feel better options exist show that in addition to what they want to see.
The MEC Limit For 7 Days
What drives me up the wall is when I ask for a certain product or service and someone shows me something else because they think it’s better for me it’s like now show me what I ask for. So if you’re in the business make sure you’re always showing the person what they want to see first
Foremost and then you can show additional options. Anyway, let me get back on track so I don’t ramble here so what she has specifically requested is she wants to pay $5,000 each for each of her 3 children but here’s what she mentioned which immediately told me she was doing.
Some good research she was interested in a 7-Pay policy so the nice thing about a 7-Pay policy is you can fund right up to the MEC limit for 7 years and then shut it down with what is called a reduced paid-up option this eliminates the premium altogether and really what you’ll find in most cases is that it maximizes
The Internal Rate Of Return
The internal rate of return and the overall growth rate of the cash value on a guaranteed and non-guaranteed basis can be very attractive. So that’s what she’s interested in in this particular case so what we’re going to look at here is $5,000 per year going into a policy for 7 years.
So that’s $35,000 total $5,000 times 7 years but over 3 policies so that’s just over $100,000 total you’ll see it when we go through the numbers here. But one of the things I mentioned earlier shows the individual what they want to see.
However, building additional awareness is always a good thing in my opinion we don’t want to info overload someone which I’ve been guilty of many times but providing that additional awareness with this way I don’t get into an option and then find out after the fact if I could rewind the clock I would do things a little bit differently than what I did in the past. Maybe maybe not if it was me I would like to see it as an option.
Adding More Money
So the kids might see the benefit to adding more money to the policy when they receive it perhaps they receive it in year 7 or year 8 and they see wait a minute this is a great area to position money the cash value is safe liquid tax-free if it doesn’t become a modified endowment contract or I don’t trigger a taxable event I’ve got all these benefits.
It’s growing between 3% to 5% per year I’m interested in that can I continue to add more money to this product? Can I keep on feeding the beast? If we exercise that reduced paid-up option after 7 years and just shut it down the answer is no.
Back to options we can go with the same policy where I can elect to stop funding altogether after 7 years or I can keep funding and I do not need to decide that upfront we can build in a ton of flexibility so when I hit year 7 I gift it to the kids they want to keep funding it they can keep funding it completely up to them
Quick Male Female Funding
We can shut it down so we don’t have to decide now is my point. Information here specifically what we’re going to look at is as follows we’ve got a 32-year-old male 31-year-old female and 27-year-old male I did not write that info let me write
It right here quick male female male funding $5,000 per year for 7 years and then also $5,000 per year for 7 years and then $1,000 per year years 8 through 30 now they can continue to fund a higher dollar amount but what a lot of people appreciate this is just from time and experience is hey what’s the policy look like if I pay in $5,000 per year
If my son or daughter does want to continue to fund it I don’t know that they’re going to be comfortable or have the ability to pay the full $5,000 per year can they pay just the minimum premium or in this case $1,000 per year?
The Minimum Premium
The minimum premium in some of these examples is about $500 per year a little bit less on some of them actually but just for the sake of round numbers we wanted to show the $5,000 per year for 7 years and then $5,000 per year for 7 years so these 2 are the same policies but what does it look like if they keep pumping money into the policy?
We’re going to look at 2 different companies here MassMutual and Guardian 2 of your 4 major mutual companies let’s get into it. What we will begin with is the exact option that she wanted to see which is this guy the $5,000 per year for 7 years with nothing thereafter not required to pay another penny to let’s have some fun.
So what do we see here 32-year-old son 31-year-old daughter and 27-year-old son these examples are pure 7-Pay funding right up to the MEC limit for 7 years and then shutting it down I’ll add that we did over-inflate that MEC limit a little bit which doesn’t matter