Why Every Life Insurance Agent Needs to Hear This: Cash Value vs Death Benefit

On my channel last seven years, I want to say the last six from 2018 to 2024. The bulk of the content has been a number one focus priority is the cash value and how you can use it now and pay off debt and do all these wonderful things. And then similar to what happened to you, I had a incident in my own life. Not me personally, but someone very close to me. My sister in law was in a terrible car accident that she nearly lost her life and she had to undergo multiple surgeries. This is a healthy kid, 20 years old and in perfect health. And I had the honor to put a policy on her around September of 2024. And, and the car accident happened on October 4th of 2024. So we're talking weeks right after the policy was in force, like right after. And then this event occurs. And I'm sitting here like I never looked at, I never even paid attention to the death benefit. Even when I was presenting to her. I was like, this is the, this is the most important column for you right now. This is how, this is where you're going to save money. This is how much money you're going to be saving. She's going to do a $10,000 a year policy. We chose massmutual and you're just going to save your money here and we're going to build the discipline of saving money comes with this big old death benefit right here that you really don't need to worry about if anything happens. We've got that death benefit now, you know, your family be taken care of. But this is what it is. And so now after that event and then other stories that I've heard along the way, I'm like, oh wow, you know, how can I not only talk about the cash value component, which is still a very important piece, it's why again, nine out of 10 people are going to sign up, why they're going to do it in the first place. But also say, hey, you're 40 years old, you're 45, you're 53 kids, four kids, married, the whole, the whole deal. Maybe there's some balance definitely of priorities in yes, high cash value and maybe also a component of do we have enough death benefit on this, on this policy knowing that it could have an impact on your cash value performance in the early years. But is that worth it for that kind of person, you know, under those situations? Have you felt that way over the, you know, over this, going into this new season where you felt the need to maybe talk a little bit more about the Death benefit with clients or even with your team, your agents, your sales agents. Any changes there?

Yeah, good question. So, not a whole lot as far as like, you know, putting it on someone to say, hey, let's make sure, like, make sure that we really try to sell more death benefit, or try and emphasize this sometimes, but I've always tried to focus on what the consumer wants to focus on and start there and then add some additional benefits, like, hey, here's a reason why we might want to consider the death benefit, or hey, here's how other people view the death benefit. I can give you a quick example that we've used a lot for people in retirement or very, very near retirement. It involves a strategy of leveraging, typically an old IRA 401k, and it has to do with taking the value of that, insuring it, producing income, and also leaving that to the next generation. So the, the idea of how do I spend my money and pass it? Because you need the death benefit to be able to do that. As someone who's very concerned about generational wealth, and it works for somebody who's a multimillionaire or someone with a few hundred grand in old 401k or IRA or something like that. Like, we've, we've been focusing on that type of planning quite a bit, and a lot of people are attracted to it. I. I can share an example of that, which, which kind of hits on that point of the death benefit, if you'd like.

Yeah, absolutely. Let's do that.

Okay. Yeah, definitely. So I'll use a recent case study as an example with a woman named Leslie, who I absolutely love speaking with. Like, the energy with her and her family is so high, and she has a ton of fun talking about finance.

I love that.

Oh, she, she's fantastic. So I think she's 58. She'll be 59 in about a year. She's got an old qualified retirement account with, like $225,000 in it. Now, she had expressed that what she wanted to do with that retirement account is not spend too much of it because she wanted to be able to leave something to her children and grandchildren. Like, that's important, important to her. So if she could grow it and leave something that's ideal, even though it would be taxed, it's still a balance that's going to them that was very, very important to her. At the same time, if she could use some of that to supplement income, her income in retirement, like with Social Security, her husband's pension is where she'll Want it, but just with everything going up, she could use some additional income. Like it would put her in a position where she's like, all right, this is good. Yeah, not now, but in 10 to 15 years from now, she definitely will, or she thinks she will and so do I. So what we did there is we've got that old retirement account with about $225,000. She's 58 now. What she can do is transfer that to an annuity. IRA to annuity. There's no taxes. That's just a rollover. I'm transferring it from a similar account then at 59.5. So about one year from the time of transfer, she flips the income switch on. Now that annuity produces a guaranteed income. I think hers was between $15,000 and $18,000 per year, but it was guaranteed income for the rest of her life. We flipped it on one year later because she didn't need it yet. So what we did is take that $15,000 per year and feed a life insurance policy for about eight years. The reason why is because in eight years she'll be just past 65 and she might want to start taking the income. She might need it at that point in time. So funding a policy with just $15,000 per year for eight years, instead of just setting the death benefit at the absolute minimum, guess where we set it.

Absolutely. Okay.

$225,000 to insure the old IRA. Now she's got $225,000 in a life insurance benefit which is paid income tax free to her beneficiaries if anything happens. So now you've insured that asset with a tax free benefit instead of a tax deferred way better. But the cool part is it only needs eight years of funding to get away with less. But we fund it for eight years. We don't do our classic chop the term rider off, drop the death benefit, maximize cash value growth. She could if she wants, and we'll show that when that time comes. But we keep the death benefit at 225. It goes up as time passes.

That's what I was going to, you know, ask. Yes, 15 grand that we're contributing. I'm assuming, you know, there's, there's that cash value growth that's going to increase.

The death benefit big time too. But she also stops after eight years. So beginning year nine, all of the like, the cash value continues to grow, grow through dividends. That also pushes the death benefit up. But then after 8 years, that annuities annuity is still producing 15k per year. She now takes that personally for personal income. While the life insurance policy sits on the back burner and gross, she's got cash value if she wants to access that money, which she can access tax free now, by the way, which is sweet. But the annuity continues to pay. And if she makes it until she's call it 85 or take 90. I think we looked at the total income that the annuity would produce. I can run the Math. It was $15,000 for about 30 years there. I got it. So $450,000. It was a little bit more because it was an exact $15,000. It was a bit more. So she put in $225,000. She got $450,000 from the annuity. But at 90, the death benefit had appreciated. It was around. It was between $350,000 and $400,000. Call it three. It was about $400,000, actually.

Wow.

So what is that? Yeah. So not only did she get that $450,000, she used some of those $15,000 payments to put it into a life insurance policy. Now $400,000 is paid income tax free to her beneficiaries. So you used two insurance products, an annuity with guarantees, a life insurance policy with guarantees. The market's not for her. It's just a peace of mind strategy that makes it easy and you get the cash value, which is nice, and the death benefit, which satisfies that desire of leaving money to the next generation. But just from a tax efficiency standpoint, it makes it so much better, if you want to call it that. And you have no market risk either. So that's a high level overview. We've got a video on our channel, it's like 12 or 15 minutes that goes through that with visuals. But that's one strategy that does leverage the death benefit more. It's more so planning and coaching someone in retirement where you leverage different products, you know.

Yeah. For people listening, that might have flew over a lot of people's heads. But understanding that, wait, there's a way to have your cake and eat it too, as it relates to a lot of folks that are five, 10 years out from retirement. Because there's this, there's this huge population of people retiring every single day and, and then people that are five, 10 years out from retirement, they've got money locked up in, in these qualified retirement accounts. And those accounts are great for accumulating well. But then the strategy must change when you get into the distribution phase, the, the sequencing of returns. And this is things that I've been learning about lately and finally realizing, wait a second, you know, this whole life policy or these, you know, there's a new. The annuity, you dropped that in in our conversation here. But focusing on the, on the whole life policy, it has multiple functions and it solves for multiple things and while simultaneously removes certain risk the older we get. And it's so interesting, us young guys, how we first started out. You bought your first policy at 23. I bought my first policy at 23 as well. And again it was like it was just the cash value. And with all my client base that I now have over the last seven years, it's been all about the cash value. In the last year, it's been just presenting the conversation, not to your point, still focusing on what exactly the client wants and then also saying, here's how others have viewed the death benefit. Here's an experience I've had that you may not have had yet or maybe you did have. And we can actually incorporate some of that thinking into our design process to, you know, maximize all the benefits that could come with life insurance over, over the long haul. So I love that we're diving into that here with you and really cracking open some potential scenarios. Just like Leslie in that case. And quick question. With the funding of the 15,000, the split in terms of cash value to percentage of the 15 that goes to cash value versus death benefit, now that you're dealing with an older individual and there is a focus on solving for death benefit amount, does the break even period, did it still end up kind of being similar to a minimum design or is it slight difference and anything ever so slight.

Yeah. So the design of the policy was still a 1090, meaning 10% base premium, 90% PUA. We just added a little bit larger term insurance rider. That's how we got the death benefit to where we wanted. So the break even point was about year five instead of to where it would have been between years three and four. If we just stripped the term down to the absolute minimum, we typically always shrink that base as low as we can. The simple reason why we always did it for corporations. And when I track the actual results of policies, not just illustrations, but real policies that have lived the test of time, it always delivers the best results from a cash value performance standpoint. And then the policy with the greatest cash value also have the greatest death benefit long term. Typically right when you hit age 85, like when insurance companies are expecting us to kick the bucket, that's usually when we see the death benefit the highest too with a high cash value policy. So we still did that. We just added more term and when we looked at the different designs like we always do that one that one produced the most if that makes sense.

Yeah, no that's awesome. And it solved for exactly what she wanted. She wants to be able to leave money behind but now she's able to leave the whole 225 for the next generation and spend the 225 plus more plus have reserves in the whole life because although you're paying for death benefit you also have a living benefit which is the cash value which is a lot of what we all like to like to look at. And she's got that reserve component which all of that can be used tax free in retirement as supplemental income or you know take care of an emergency or an unexpected expense really whatever she likes. So I'm blown away by those, by those factors.