He Turned a $388 Policy into $125,000 | The Hidden Power of Dividends

For the first 15 years of that contract, that's what Nelson had elected, because that's what he was told to do. He grew that policy five times. The original death benefit. He sacrificed the first 15 most formidable years of the policy by stunting its growth. He actually stunted that policy a second time. Just think about the scale of the impact that we're talking about with what Nelson stunted in his own life that he could have had. He would obviously never recommend that premium reduction or, or dividend to reduce premiums. All right, so this comes up. Actually, Nelson talked about this with his state farm policy. Now we've talked about his state farm policy he got in 1959. He was, I believe, 28 years old at that time. When he got that policy, the annual premium was $388 a year, and it was a $20,000 death benefit. I am doing this from memory, but I'm pretty sure maybe James Nethery will watch this and comment and tell me if I was on, on point. But for the first 15 years of that contract, that's what Nelson had elected, because that's what he was told to do. So every year when he got his dividend, it would reduce some of the next year's annual premium. So if his premium was 388, maybe the next year was only 360, and maybe the next year was only 345. Maybe the next year it was only, you know, 327. So each year it was minimizing that until such a point where the dividend was big enough that it was covering the entire premium. And if there was any excess. So let's say the dividend was greater than that. $388. It was $400. Well, he would have paid the premium, and the remainder amount would have been issued to him as a cash payment in a check, which he then would have been taxable. So, so that's what premium reduction looks like. We're reducing the premium each every year with the dividend. If the dividend is growing, it reduces more of the premium. Once the premium is completely reduced and there's nothing more to reduce, the remainder gets spit out as a cash payment at that point in time. Yep, yep, Very accurate. And, and now Nelson would say he would obviously never recommend that. So he actually stunted the growth potential of his state farm policy through the, the, the most important years of that policy, which was the first 15 years. Now, when he found out about this, it was when he joined the insurance business, and he went. And he went to the Voting booth. He grabbed the form from the life insurance company and he changed his dividend election and he switched it back. Well, switched it intentionally now to paid up additions. So now going forward, he paid the 388 Premium and every future dividend that he received bought paid up insurance. Now, when Nelson passed away, that policy, don't quote me from, remember, but I believe, Jason, you might know this. I believe it was around 125 to $127,000 in death benefit.

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That's close enough. Yep. But his original death benefit was $20,000. Right. He passed away at age 80. So he was 28 years old. He passed away at 88. So he had a pretty good 60 year chunk of time basically with that policy. And he grew that policy five times. The original death benefit by paid up additions. He didn't have a paid up addition premium. There was no flexible premium. All he had was the base premium that he could pay. That was the power of dividends after he sacrificed the first 15 most formidable years of the policy by stunting its growth. So just put that into context for a minute. Sure. We're talking about $388, but what if it was $38,000 and that was you today and you had the ability to have those dividends working for you for 60 years. Just think about the scale of the impact that we're talking about with what Nelson stunted in his own life that he could have had and he actually stunted that policy a second time. This is an important thing because we're talking about these dividend elections in the early 2000s. Nelson wanted to prove a point. He didn't need the policy loans anyway. He had multiple policies. He changed his dividend election, he went back to the voting booth, he changed his dividend election again, and he switched it to pay the dividend in cash. He did that for four years. And that was between 2000, I think it was. Was it 6, 7, 8, 9 and 10? 2000? 2006, 7, 8 and 9? 2006, 7, 8, 9? I believe it was the years we have the checks that we don't have them in front of us. But the end result is all the checks that he received recovered all the premiums that he paid for the lifetime of the policy. Right. And he did that because he wanted to take a picture of the check and use it in presentations as a proof point for people. So he stunted the first 15 years and then he stunted four of the larger years in the back end of his life, and he still ended up with more than five times the original death benefit in the policy. That's pretty impressive. Go ahead, watch the next episode. Click down below and make sure you click over here to subscribe to our channel.