Whole Life
Well now we have to look… how are we going to accomplish that. Now traditionally, there's something called cash value life insurance and then there is another concept called buy term and invest the difference.
So this traditionally is what insurance companies want the consumer to buy, it’s called cash value insurance and it goes by the name whole life, universal life and variable life.
Now just a quick little lesson on it. This is an example of John and Mary. They are both 30 years old and they each have $150,000 of life insurance or we really should call it death protection. Okay, because if either one of these people died prematurely…the other would receive the $150,000. Now for that they are paying a combined premium of $285 a month.
Now part of that $285 a month buys the life insurance or the death benefit… and the other part of that in these types of policies goes into the so-called savings account also known as the cash value. Okay, so how much of the $285 do you think goes into the savings account? Okay that would be the question.
Do you think it would be half the money…a third of the money… a tenth of the money what do you think? Okay one of the interesting issues is people that own this generally don't know how much goes to the insurance and how much goes to the savings… it is very difficult to decide. Now lets just assume the money is going into this cash value…here’s what’s going to happen.
At age sixty-five, there is going to be money accumulated… in this example the value is equal to about $124,000. So this family would have generated about fifty thousand dollars in savings or cash that would be available.
Okay, so it's got really two things here. It's got an account where you are accumulating money, and it’s got an account for your family if you die prematurely.
Okay, so I want to just talk to you a minute about this account. Pretend for a minute that you got a letter from your bank. Who do you bank with?
Okay I'm going to give you the five rules of this bank.
What they've done is sent you a letter in the mail and they've told you that they are going to change all the rules of the checking and savings accounts.
Now here are the new rules of your savings and you've got to sign off on the rules before they make the changes.
1. The first rule is all new deposits will have a zero balance for the first 2-3 years.
2. The second is they will then pay you 1 -4 % interest from then on. 3. 3. The third is if you need money, you will have to borrow it and you'll pay 5-8 % interest to borrow your money that was earning 1-4 % (that wasn't even there for the first 2-3 years). How do you like it so far? Okay ... these are the rules though ...
4. the 4th rule is ...The bank has the right to hold the money for up to 6 months. So, if you have an emergency you need to know six months in advance, okay.
Oh yeah, and number 5 is if you die . . . you know how when someone dies, sometimes families will bicker and quarrel about the money ... we don't want that to worry you, so when you die, the bank is going to just keep the money and your family won't have to quarrel over it.
So those are the rules . . . would you ever knowingly sign this dotted line? Well in this type of product those are the guaranteed rules that are written in it. Now there are some variations of that with these other products, but I want you to understand that if you died this is with the family gets, and if you live you have that and if you need it you can borrow against it. Here is the main thing I want you to know. Lets say you got out here to retirement and you had $124,000 in guaranteed money. You were 65 years old and you had your insurance and your money and you died. Okay, let's say god forbid, both of you were killed in a car wreck and now the money to go to your heirs. How much should they get? So you both have $150,000 or $300,000 and you also have the $124,000 of savings. So wouldn’t it seem that they would get the insurance and the money? I want to make sure you understand this is part of the death benefit. So you're paying for both insurance and the savings, but you can't really use them both at the same time. Okay, fortunately there are alternatives to this.
So this traditionally is what insurance companies want the consumer to buy, it’s called cash value insurance and it goes by the name whole life, universal life and variable life.
Now just a quick little lesson on it. This is an example of John and Mary. They are both 30 years old and they each have $150,000 of life insurance or we really should call it death protection. Okay, because if either one of these people died prematurely…the other would receive the $150,000. Now for that they are paying a combined premium of $285 a month.
Now part of that $285 a month buys the life insurance or the death benefit… and the other part of that in these types of policies goes into the so-called savings account also known as the cash value. Okay, so how much of the $285 do you think goes into the savings account? Okay that would be the question.
Do you think it would be half the money…a third of the money… a tenth of the money what do you think? Okay one of the interesting issues is people that own this generally don't know how much goes to the insurance and how much goes to the savings… it is very difficult to decide. Now lets just assume the money is going into this cash value…here’s what’s going to happen.
At age sixty-five, there is going to be money accumulated… in this example the value is equal to about $124,000. So this family would have generated about fifty thousand dollars in savings or cash that would be available.
Okay, so it's got really two things here. It's got an account where you are accumulating money, and it’s got an account for your family if you die prematurely.
Okay, so I want to just talk to you a minute about this account. Pretend for a minute that you got a letter from your bank. Who do you bank with?
Okay I'm going to give you the five rules of this bank.
What they've done is sent you a letter in the mail and they've told you that they are going to change all the rules of the checking and savings accounts.
Now here are the new rules of your savings and you've got to sign off on the rules before they make the changes.
1. The first rule is all new deposits will have a zero balance for the first 2-3 years.
2. The second is they will then pay you 1 -4 % interest from then on. 3. 3. The third is if you need money, you will have to borrow it and you'll pay 5-8 % interest to borrow your money that was earning 1-4 % (that wasn't even there for the first 2-3 years). How do you like it so far? Okay ... these are the rules though ...
4. the 4th rule is ...The bank has the right to hold the money for up to 6 months. So, if you have an emergency you need to know six months in advance, okay.
Oh yeah, and number 5 is if you die . . . you know how when someone dies, sometimes families will bicker and quarrel about the money ... we don't want that to worry you, so when you die, the bank is going to just keep the money and your family won't have to quarrel over it.
So those are the rules . . . would you ever knowingly sign this dotted line? Well in this type of product those are the guaranteed rules that are written in it. Now there are some variations of that with these other products, but I want you to understand that if you died this is with the family gets, and if you live you have that and if you need it you can borrow against it. Here is the main thing I want you to know. Lets say you got out here to retirement and you had $124,000 in guaranteed money. You were 65 years old and you had your insurance and your money and you died. Okay, let's say god forbid, both of you were killed in a car wreck and now the money to go to your heirs. How much should they get? So you both have $150,000 or $300,000 and you also have the $124,000 of savings. So wouldn’t it seem that they would get the insurance and the money? I want to make sure you understand this is part of the death benefit. So you're paying for both insurance and the savings, but you can't really use them both at the same time. Okay, fortunately there are alternatives to this.
Buy term invest the difference
The alternatives are called buy term and invest the difference. Now this is what we do.. Okay, you take the exact same $285, and you could nearly triple that coverage. So for example lets for example we did the financial needs analysis… and it was determined that the family would need $40,000 a year coming in if they die prematurely. So now we have four hundred thousand on each. This is an example of a 35 year level term. What that means is that for thirty five years the premiums and the death benefit remain the same. And there is ten thousand on the children, and the premium would be a $126. So for $126 a month we nearly tripled the coverage for the family and we get coverage on the children. Okay, so, so far…if this were you, let me just ask you a question and you loved your family and wanted to protect your loved ones which way would you go? That is kind of a silly question right? Now there is another issue here… and that is this $159 a month extra. This is the $110 a month that you would have been paying them… that you have now got to do something else with. What could you do with it? Where could you save it? You could save it with us, you could put it towards your retirement plan at work, or save it in a Roth IRA or it could be put towards college for the kids or you can pay down debt, build some emergency savings…there is a lot of things you could do with it. Now lets just say for example you saved it for retirement, and lets just say that account averaged nine percent. That account would grow to $471,252 at age 65.Alright so now what we've got is… we've got insurance and we've got savings and they have been separated. Do you see that? They are completely controlled separately. So in this particular case, if you die prematurely, what would the family get? Lets say we go out to sixty five again…what would happen? The family would $400,000 each right? Plus this…so they have over a million dollars. Now that is you’re money, you control it. You can do what you want, if you needed to based on the different rules of the accounts okay. So let me ask you a question, if this were you…and you were shown these two options side-by-side which program would you want? I’m just curious, if you went to ten people, Lets say you were working with us part time. I think this is the thing that (trainee got most excited about because he realized that if he sat with people that were here… and he could show them this alternative out of ten people how many do you think would make the change? Right, and your friends and family if they own life insurance and they own this…would you want them to know about buy term and invest the difference? At least to be given the choice right? So that's what we do, we show people if they are here how to go here or if they have none, how to buy insurance and save separately.