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Life Insurance Policy Valuation

  • mollyjacobson
  • Nov 20, 2023

Life Insurance Policy Valuation – You probably already know that the Bank On Yourself method relies on a specially designed dividend-paying life insurance policy issued by a very strong financial company with an impeccable dividend-paying record of 100 years or more. But you may be wondering about those mystery riders (or options) that are added and increase your cash value much faster than the whole life policy that most financial experts talk about.

. And you can potentially use that capital as a powerful financial management tool right from the start. (For reference, the policies described by Suze Orman, Dave Ramsey and most other experts do not pay dividends and typically have no cash value in the first year.)

Life Insurance Policy Valuation

Life Insurance Policy Valuation

So let’s take a look under the hood and see what these drivers are and how they help your cash value grow much faster.

What Is A Life Insurance Policy’s Cash Surrender Value?

The main objective of the Bank On Yourself strategy is to maximize the growth of your cash value without increasing your premium. Cash value is a treasure trove of money that you will use to bypass banks, credit cards and finance companies to become your own source of funding. Use that money wisely and you can fund most or all of your lifestyle with it.

Table A below compares three life insurance policies that pay different dividends, all designed for the same 35-year-old man. The annual premium for each policy is set at $12,000, but how it is distributed varies. (Don’t settle for this particular premium or starting age. This is just an example. Your policy is tailored to your personal situation, so you can start at the level that suits you. Plans can be designed effectively for newborns until the age of 85. )

Policy 1 is a traditional dividend-paying life insurance policy for a healthy 35-year-old man, whom we’ll call Martin for no particular reason. The entire Martin premium is allocated to the base policy and no riders are added. An all-basic policy has a higher death benefit, but this means an increase in cash value.

See the circled amount on the line for year 7 of the insurance? This is important because, starting this year, the annual increase in cash value exceeds the premium Martin pays each year. (His $12,405 increase in cash value is more than the $12,000 premium.) That makes Martin a happy camper.

How Does Life Insurance Work? The Basics Of Life Insurance Explained

In policy 2, only 40% of the annual premium goes towards building the base policy. The rest buy paid plugins. Paid Supplements are the most effective way to increase cash value because they direct most of the premium directly into the cash value portion of the policy while purchasing a small death benefit. A paid supplement is like a mini life insurance policy that requires a single premium.

See the circled amount in the row for the 5th year of coverage? With most premium purchase additions paid, the annual cash value increase begins to exceed the annual premium two years earlier than in policy 1. ($12,572 cash value increase is more than the $12,000 premium) .

Over 90% of every Paid-Up Additions Rider premium dollar goes directly to building cash value, very little goes to the death benefit, and only a small amount goes to the financial representative as commission. A financial representative who wants to help you increase your cash value by adding a significant additional commission should be willing to take a significant cut in commissions. Learn how to find a Bank On Yourself professional who knows how to structure these policies correctly and is willing to waive most of your commission.

Life Insurance Policy Valuation

Premium You don’t have to pay to keep the policy in force. So, as a last resort, you can cut it, and some companies will even let you catch up on some or all of it later, depending on your situation. This gives you more flexibility than a traditional policy with no lifetime excess.

Cash Value Life Insurance: Should You Buy It?

In policy 3, only 30% of Martin’s premium is used to pay the base policy. The rest buy paid add-ons and term insurance.

The IRS sets a limit on the percentage of the premium that can go toward the cash value of a life insurance policy, without risking the tax benefits. If the policy exceeds this limit, it becomes MEC and loses a key tax advantage. The limit is based on a complex formula that compares the cash value to the death benefit. The higher the death benefit, the more money can be put into cash value.

Why add the term “rider” to a whole life policy? Didn’t Bank On Yourself say term insurance is a bad idea? How

For permanent life insurance, generally yes. But term coverage has a valuable place as a driver of permanent policies. Here, the rider term allows you to pay more into your PUAR and therefore build cash value faster without going against the guidelines of the Modified Endowment Agreement (MEC).

How Much Does Life Insurance Cost In 2021?| Guardian

Because the rider term increases the death benefit, the IRS formula allows Martin to put more money into his cash value without converting the policy to MEC. The term “rider” is intended to be removed sometime between the end of the seventh and twentieth year of the policy. (The first seven years of a policy are the most critical years in determining whether a policy will become MEC.)

It is not always possible to structure the policy so that only 30 percent goes to the base policy.

Each policy differs based on many variables, such as age, need for coverage, how long you plan to receive your retirement income, and more. But if you work with a Bank On Yourself professional, they will structure your policy to drive the lowest percentage of your base policy premium that will allow you to meet the goals you set in your plan, without turning your policy into a MEC.

Life Insurance Policy Valuation

Returning to Policy 3, you will notice some interesting items. First, look at the amounts marked in the row for policy year 1. At the end of the first year, policy 3 has nearly eight times the cash value of policy 1 (the policy without members). Properly applied paid additions Rider and Term Rider provide a powerful overload effect.

What Is Cash Surrender Value In Your Life Insurance Policy?

Now check the amount marked on the row for year 4. PUARs and time riders have caused Martin’s annual increase in cash value to exceed his annual premium starting in year four, one year earlier than in policy 2 and three years before before policy 1. ( Your increase in cash value is $12,337 more than the $12,000 premium.) Go Martin!

Your reward for being patient in the early years of your policy is a growth curve that gets steeper each year you keep the policy. Even the premium policies used for the Bank On Yourself concept grow more slowly in the early years. It takes some time for your cash value to equal the premiums you paid, even though from day one your premiums are the same

Go back to the chart and look at the year 20 line on policy 3. As of this year, Martin’s cash value more than doubles the premium he pays ($26,077 in cash value versus $12,000 in premium). And starting in year 30, your cash value triples the premium ($37,994 increase in cash value vs. $12,000 paid). Martin is dancing now!

Even more exciting: look at the line for year 40. This is the last year Martin plans to pay the premium, and the policy continues to grow, but without paying the premium. See the policy year 50 line? The premium paid was zero, but the cash value increased by $59,425, with no luck, skill or guesswork required.

Do You Have Regret About Purchasing A Whole Life Cash Value Insurance Policy Or Universal Life Policy?

Your financing policy for large purchases. This is another reason why it’s important to work with a Bank On Yourself professional who can show you ways to maximize the value of your plan.

Each policy is developed individually – there are no cookie cutter plans – so your plan will not look like Martin’s plan. However, you can learn what a plan designed for your unique situation, goals, and dreams can look like when you request a FREE analysis. If you do, you will be referred to one of the professionals.

But what about the death benefits of these policies? Does this policy benefit much on death? That’s a good question, and Table B below shows you the answer. As you can see in this table, all three policies generate significant death benefits over time. But in the end, Policy 3 actually creates the biggest death benefit of all. (FYI: The policy Seuss, Dave, and others are talking about has a death benefit that never increases.) Let’s see:

Life Insurance Policy Valuation

In the early years of Policy 1, the monetary value was relatively small, whereas

Life Insurance: What It Is, How It Works, And How To Buy A Policy

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