Whole Life insurance overview

When it comes to accumulating wealth and reaching financial freedom, owning Whole Life policies on yourself and on loved ones in your family can increase your certainties, and make growing wealth a lot easier. 

What Whole Life Is:

Whole Life is permanent life insurance and when designed properly it is the best storage place for your dollars and creates a solid financial foundation. These policies are uniquely designed to maximize the cash value account.  You see, permanent life insurance has three main components: a level premium (meaning your premium never increases), a cash value account with guaranteed growth, and a death benefit with guaranteed growth. Annual premiums are divided by base premium and paid up additions, or PUA. Base purchases death benefit and PUA purchases cash value. Therefore when we design overfunded Whole Life policies we’re putting the minimum base into the policy so the rest of the premium is contributed to PUA. When we do this we’re driving down the death benefit. 

While cash value is super important because it's the cash value that we’re going to build wealth with while we’re living, there has to be equal weight on the death benefit if we are going to truly create a financial foundation with this asset.  To get the death benefit where we need it so your Human Life Value is insured, we will either select a term policy rider or have a separate term policy. In either case the term policies that you buy from these companies are convertible policies. This also creates the opportunity to convert the term coverage into a second whole life policy while using the health rating from when you originated the term policy.

Multi-Dimensional Asset

That’s a quick snapshot on what Whole Life is and how it's designed.  Now let’s talk about how it helps you efficiently grow wealth. Whole Life is a multidimensional asset. It offers liquidity and control, guaranteed lifetime growth, unlocks new retirement strategies, offers guaranteed protection for your family, and puts into place an instant legacy.  In short, Whole Life gives each of your dollars inside of your policy multiple jobs which accelerates your path to financial freedom.

Multi-Dimensional Asset - Liquidity & Control

Liquidity means having access to your dollars. The dollars you put into a policy are available to you at any time for any reason. It’s very similar to a checking account at your local bank in that it is an accessible source of your cash, but it's actually more similar to a line of credit. (More on that shortly).  When we implement a Whole Life policy into a financial strategy, there is an immediate shift from traditional financial advice. Traditional financial advice says to get your money deployed so it is earning a rate of return. When we subject all of our wealth to the market however, there is an increased risk because nearly everything you have is subject to loss. Any remaining liquidity has zero efficiency when it is sitting inside of a savings account.

But…a Whole Life policy puts those dollars to work without increasing your risk AND those funds are still liquid for when you find an opportunity that earns you a greater ROR than what the policy provides.

Multi-Dimensional Asset - Guaranteed Lifetime Growth

Another attribute to Whole Life policies is they offer guaranteed growth. Now, there’s 2 contributing factors that account for the growth. The insurance companies offer you a guaranteed ROR that’s highlighted in the contract. The second factor is the annual dividend. The dividend is not guaranteed though the mutual life insurance space is made up of very very stable companies that, in many cases, have never missed paying dividend payments to their policy owners.  To take it one step further, the growth doesn’t get interrupted if you utilize the policy loan function. The way we access these funds allows for the entire cash value to continue to compound without interruption. The way we do this is through a contractual obligation on the part of the life insurance company to lend you their own money using your cash value as collateral. This feature right here makes life insurance very unique. Few people get to actually witness uninterrupted compounding growth in their life. The reason why people don’t get to experience uninterrupted compounding growth is that most financial vehicles are subject to taxes, fees, market loss, and they are negatively impacted by use. 

Let’s use an example…Over the last 20 years the S&P has averaged 7.8% annually. A Whole Life policy will average a return of around 4%. Now, we aren’t comparing Whole Life to the S&P as an investment. Whole Life is simply a storage place for your dollars, NOT an investment. But our point is that a low risk storage place isn’t far off from the stock market considering we have tax free use of the dollars inside of the policy. Because after you account for taxes, fees, and market volatility, that 8% gets closer and closer to the 4% that the low risk life insurance policy offers. And because these policies are multi-dimensional, at the end of the rainbow sits a tax free death benefit. 

Multi-Dimensional Asset - Retirement Strategies

Another attribute to Whole Life policies is how they show up in your retirement years.  Regardless of what your retirement strategy is, utilizing the cash value and death benefit within your policy unlocks so many more financial efficiencies. One example is using the cash value as a volatility buffer. If you are relying on a stock account in retirement, instead of taking distributions in a down market, you can shift distributions to your life insurance policy. This has been proven to extend the lifespan of retirement accounts by Dr. Wade Pfau, the foremost expert on retirement strategies.

Your policy can also act as its own revenue stream, taking annual distributions from your cash value. And to be clear, you can actually take distributions, not just policy loans. In your retirement years, you may find it to be most appropriate to take these distributions as a revenue stream. You can take distributions up to your basis, or what you’ve put in, tax free. Anything beyond your basis is simply taxed at ordinary income rates. 

The last two strategies are pension optimization and asset spend down.  Pension optimization allows for someone with a pension (or annuity) to maximize their income. When Mike was a firefighter he had a pension from the department. Had he worked until retirement the pension fund would have given him 2 options. He could have taken 100% of what he was entitled to and would have had that amount hit our checking account every month until the day he died. With that option the day he passes away those pension payments stop. The second option, which most people opt in for, is to take a lesser distribution from their pension which allows the pension payments to continue after they pass away which leaves their spouse pension payments for the rest of THEIR life. So, how does life insurance play a part when there is a pension?  Well, when there is a sizable death benefit, you can opt for that higher pension amount because the tax free death benefit payout replaces the pension. 

Lastly, a family can be more aggressive with the spend down of their assets because of the fact that the death benefit will replenish the remaining spouse’s wealth.

Regardless of your retirement strategy, adding Whole Life might be a great decision.

Multi-Dimensional Asset - Guaranteed Protection

This one is easy. Regardless of when you die, your loved ones receive a death benefit. That’s it. It’s that simple. Once you have a Whole Life policy you never need to worry about increased premiums, decreasing death benefits, or requalifying with a medical exam. You own the death benefit.

The amount of insurance you qualify for is up to your Human Life Value. The definition of Human Life Value, or HLV, is the present value of future income. This calculation is a multiple of your present income. As a reminder, the most efficient strategy is to design a Whole Life policy which maximizes the cash value, and if you’ll remember, that means the death benefit is minimized.  And then supplement the policy with an additional convertible term policy to insure you up to your human life value.

Multi-Dimensional Asset - Legacy

And finally, legacy. When you create a Whole Life policy, you are putting in place an instant estate which can be used for your legacy.  This is because there is a permanent death benefit that increases every year and will be paid out to your estate or beneficiaries when you die. This legacy allows you to pass your wealth onto multiple generations if you choose. If you don’t plan to pass on anything, you can leave your death benefit to a charity or impact that you are passionate about. And there isn’t a single non profit who wouldn’t be ecstatic at the gift of your multi million dollar death benefit.  That allows you to continue impacting the world even after you’re gone through the work of that charity. 

Conclusion

Mike: So here’s the deal guys…If you want to become financially free in your 30s, 40s, or 50s, a mindset shift is required. Instead of focusing on accumulation, focus on creating passive cash flow. In order to purchase cash flowing assets, your cash needs to be accessible.  The most efficient place to store that cash is inside of a Whole Life policy. This is why having Whole Life is the most crucial first step when starting your financial freedom journey.

-Mike & Katie Bargetto