Often the subject of Legacy Building leads to a discussion of a single premium solution and understandably so. For many of us, the focus throughout our working lives begins with getting life started. Then we move to supporting our families, paying for college and saving for retirement. The concept of having extra money at some point that we want to leave to our children or grandchildren is a possibility, but not necessarily one for which we plan. The hope is that we have planned well and made good decisions so that, at some point, we’ll discover that the possibility of leaving that legacy has become a reality. When that occurs there is nothing easier than single premium life to accomplish that goal.
However, what if there was a way to increase the likelihood of that possibility becoming reality? What if we could guarantee it? Even better, what if we could accomplish all of that by using the same dollars that the client is using to protect his or her family today?
Let’s say that we have a client who is 50 years old. He’s in his prime earning years now and on track to retire at 65. His kids are in high school, college, or maybe he has one or two in both. He’s doing well, but he still has 15 years of income, five to 10 years of tuition and a retirement to protect. The bottom line is he needs more life insurance. I would be willing to bet folding money that there are a lot of clients out there in this age range that are facing a similar situation.
There are a lot of potential solutions for these clients as well and most of them will accomplish the goal of getting the client to retirement with those very important needs protected. But what if we could do that and more? What if we could help the client protect his family now and create a legacy? Not only is it possible, but it could be guaranteed, using participating whole life with a Reduced Paid-Up (RPU) option. This feature, found in most participating whole life policies, allows the client to use the cash value in their policy to have a guaranteed paid-up death benefit that remains in force for the rest of the client’s life. The paid-up policy acts just like a single premium whole life policy from that point forward. The client has no more premiums to pay, but the guaranteed cash value continues to grow and the policy continues to have the ability to earn dividends which can further increase the cash value and the death benefit. The client now has a legacy plan that leaves an income tax-free death benefit for his kids and guaranteed cash value that he can access in case of emergency at any time (specifying the cash value can be used pre or post RPU is important). All using the same policy and the same premium dollars that were used to protect his family before he retired!
Let’s see how this works. Using the same scenario from earlier, our 50 year old client purchases a $500,000 participating whole life policy for $9,465 per year. Should something happen to him between now and retirement, his family gets $500,000 to help pay tuition, replace income, etc. However, because he’s using participating whole life, there is more to his life insurance policy than just the death benefit. He also has guaranteed cash value and guaranteed cash value growth that provide additional “living benefits” that he can rely on if needed. For example:
- By year three his guaranteed cash value is increasing by an amount greater than his premium paid. In other words, his premium is paying for his death benefit and contributing more than $9,465 to guaranteed cash value growth every year.
- Cash surrender values at years five, 10 and 15 are more than $31,000, $81,000 and $140,000, respectively. Remember, there are no surrender charges with whole life, so the client has access to every dollar of that surrender value at any time.
- When the client reaches age 65, he has paid $141,975 in premium and has cash surrender value of $140,782. The net cost of his life insurance coverage for those 15 years is $1,193–total! By any measure, that’s a great deal.
- The cash value of his whole life gives him options when he retires. He can keep paying premium and continue his policy as is. He can surrender his policy and get almost all of his money back, as described above. He can elect to pay his premium from policy values and continue his death benefit without having to pay more out of pocket. Or he can elect an RPU option and create a legacy for his family.
In short, cash value means flexibility. With participating whole life, however, it can also mean leaving a legacy. The Reduced Paid-Up option for this client will take his cash surrender value of $140,782 and create a paid-up, guaranteed death benefit of $282,500. Not only does that mean no additional premium but, because he has a participating whole life policy, the death benefit and cash value will continue to grow and can continue to earn dividends which can accelerate that growth.
Using the same premium dollars and the same policy that protected his family before he retired, he is able to create a tax-free legacy for his children and grandchildren.
In summary, our 50 year old client can purchase $500,000 in whole life insurance death benefit to protect his family and his income for net cost over 15 years of $1,193. He can then create a legacy, guaranteed for life, of more than $280,000 for his children and grandchildren for no additional premium! The best part is that few clients, if any, know that this is even possible. That’s a conversation worth having. That’s whole life insurance for a client’s whole life!