What You'll Learn
Most policyholders are the victims of ho-hum life insurance sales "techniques" that are hyper-focused on rate of return and other factors totally outside the control of the policyholder. And, while a policy's rate of return can potentially be important for hitting certain cash value and death benefit targets within a specific timeframe, ultimately "rate of return" on a whole life policy is mostly irrelevant.
What's most important is buying your full Human Life Value, and then funding the life insurance policy with as much premium as the policy will accept to build lifelong financial security for yourself and your family. Often, this is done in steps, using multiple policies. But, theoretically, it could be done with a single policy.
As I wrote in the whole life insurance section of this guide, the death benefit of whole life insurance is the future value of the cash value of your policy. And your cash value is the net present value of your future death benefit (i.e. it's what your future death benefit is worth right now).
Want more cash value in your whole life policy? Buy a bigger death benefit and fund it heavily with premium dollars.
Sadly, few policyholders discover the true long-term value of whole life insurance, and thus they continue to mindlessly pay premiums, always looking for a way to reduce or eliminate premium payments so they can invest in something more exciting and speculative, and hopefully earn a higher rate of return. This is the "rate chaser" mindset I discuss in The Investor's Dilemma.
The Perfect Policy™ Design Concept
The Perfect Policy™ is a fundamentally different approach to life insurance design, strategy, and financial planning. And thus, for the first time, policyholders can realize all of the valuable secrets and strategies embedded in their life insurance policy.
There are 3 basic approaches to designing life insurance.
The first approach is an "off the shelf" approach——the most basic. There are no (or very few) customizations to the basic policy. Cash value and death benefit growth depend on factors entirely outside of your control.
The second approach involves using modified limited-pay, fixed period, life insurance policies. These policy types may include "paid up at 65", or 10-pay whole life products with added paid up additions riders. Occasionally, these products utilize term blending to improve cash value growth instead of lowering premium outlay. The policyholder has much more control over the cash value and death benefit growth of the policy, but short-term cash value growth often comes at the expense of long-term growth. Premiums may need to be reduced to avoid MEC status, and premium flexibility is often contractually limited or limited by current company practice. A strong emphasis is placed on hypothetical illustrated performance of the policy, which may not materialize.
The third type of policy design is fully customized, and is flexible throughout the payment period of the policy. Premiums may be increased to a maximum, predefined, annual payment limit, or reduced to zero and are contractually guaranteed. Premiums may also be temporarily or permanently stopped for any reason, or they may continue out to the insured's age 100. The policyholder has a high degree of control over cash value and death benefit growth. The focus is on premium and policy flexibility, long-term cash value accumulation, and total net death benefit proceeds.
Examples Of Different Policy Designs
Each example assumes the same policyholder: male, age 35, preferred non-smoker. Some life insurance companies show a policyholder's age at the beginning of the year, while other insurers show age at the end of the policy year. This will make illustrations appear to show different time periods even though they show the same time period.
Whole Life, All Base Premium, Payable To Age 120.
An all-base premium whole life policy, typical of what is sold by the majority of life insurance agents doing business in the U.S.
This policy emphasizes a low guaranteed premium and a guaranteed death benefit, with slow and steady cash value growth. The result is a stable and reliable whole life policy, but with a rigid design and little to no premium flexibility. Long-term guaranteed cash value accumulation is slow but does eventually grow to equal $1 million. Non-guaranteed cash value growth is quicker due to the dividend enhancement. Guaranteed death benefit accumulation is zero, which allows inflation to erode the value of the policy. Non-guaranteed death benefit accumulation is substantially higher by comparison.
Click on the image below to see the full-size.
This is an "off the shelf" whole life policy, typical of what many life insurance agents sell. This particular policy is paid up at age 121.
An "Infinite Banking" Policy
Classic "infinite banking" policies are typically (but not always) designed around a high early cash value goal.
Some policies allow "premium offset", which gives policyholders the option of paying the minimum base premium with current dividend payments or accumulated dividends/PUAs. Depending on how the policy is designed, it may or may not limit the amount of premium that can be paid into the policy over the long-term.
Below are 2 examples of IBC-type policies. One is modeled after policy designs in Nelson Nash's original Becoming Your Own Banker book. The other policy design is a newer "90/10 split" design type used by some IBC practitioners.
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Infinite banking policy #2
A Classic Infinite Banking Policy
Click on the image below to see the full-size.
This is a classic "infinite banking" policy design. High level premiums are paid over a long period of time. A healthy percent of the premium is paid as paid-up additions premium which accelerates both the guaranteed and non-guaranteed cash value accumulation of the policy compared to an "all base" policy. Both guaranteed and non-guaranteed cash value accumulation is strong. Guaranteed and non-guaranteed death benefit accumulation is above average for a whole life policy. More importantly, the total death benefit of the policy at maturity (age 121) is 16x the value of an "all base" ordinary whole life policy. The PUA rider allowed the policyholder to buy more death benefit. More death benefit = higher cash value.
The Perfect Policy
The Perfect Policy™ concept emphasizes maximum premium flexibility within the context of insuring an individual for his full Human Life Value (HLV), while targeting a specific age, cash value accumulation amount, death benefit amount, or a combination of all three. It is the widest-scope application of life insurance planning possible. An individual may use one policy, or a combination of policies, to achieve the desired effect.
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The Perfect Policy #2
The Perfect Policy™ — $30,000/yr Scheduled Premium
This policy shows premiums of $30,000 going into the policy each year. The minimum premium the policyholder can pay is $7,780 per year and the maximum is $43,549. Premiums can be scheduled for between 5 years and to the insured's age 100. Additionally, premiums can be temporarily or permanently stopped at any time after the 5th policy year.
Click on the image below to see the full-size.
The Perfect Policy™ design emphasizes premium flexibility and maximum cash value and death benefit accumulation, within the context of an individual's full human life value. Policy performance is exceptional, though a secondary benefit. Both guaranteed and non-guaranteed cash value and death benefit accumulation are well above average for a whole life policy. Interestingly, the rate of return on The Perfect Policy is comparable to an IBC-style policy over the long-term. However, total lifetime net cash value and death benefit accumulation are much higher in The Perfect Policy, even when the same premium is paid over long periods of time. This is a function of the PUA rider buying more death benefit and thus achieving a higher total net cash value accumulation. Again, more death benefit = higher total lifetime net cash value.
The Perfect Policy™ vs Other Life Insurance Policy Designs
other policies | The Perfect Policy™ Design |
|---|---|
Can only be used after you’re dead; no personal benefit while you’re alive | Generous living benefits that can be used while you’re alive; don’t have to die to use |
Low early cash value or no cash value associated with the policy | High early cash value and easy access to money when needed |
High guaranteed premiums that cannot be changed | Low guaranteed premiums with options to stop and restart payments |
Cannot be paid-in-full; premiums may be required until death | Can be converted to a paid-in-full policy, with no further premiums due; conversion is simple and straightforward |
Non-guaranteed policy values; driven by speculative assumptions | Guaranteed policy values; driven by guarantees and supplemented by stable non-guaranteed dividend payments |
Level death benefit does not grow over time | Death benefit increases every year |
Builds little or no personal credit | Builds large credit lines that will equal the sum total of all your future income |
High lapse risk | Low lapse risk |
Does not endow | Endows |
A net liability | A net asset |
Difficult for your insurance agent to manage; high risk of unfavorable outcome | Easy for your insurance agent to manage; low risk of unfavorable outcome |
Cannot be used to finance major purchases; does not contribute to future savings | Can be used to finance many large purchases; adds a substantial amount of money to one’s future savings |
Crediting rates on cash value can fall to zero | Crediting rates can never be zero |
Expenses are variable and can be increased by insurance company | Expenses are fixed and cannot be increased by insurance company |
Death benefit can only be used after you die | Death benefit can be used before you die |
Single purpose | Multipurpose |
Rigid policy design; to the extent changes are possible, it increases the risk of the policy to the policyholder | Flexible policy design; changes to policy have minimal to no negative consequences to policyholder |
Scheduled premiums that are difficult or impossible to change | Scheduled premiums that are simple and easy to change |
No unscheduled premiums or alterations to premium flow possible | Generous unscheduled premium provisions; policy changes to accommodate policyholder needs and wants |
Fixed policy payment periods that cannot be changed later | Custom policy payment periods that can be changed later through special policy provisions |
Cannot be converted to retirement income | Can easily be converted to a guaranteed lifetime income, adjusted for inflation, that you cannot outlive |
Unknown future policy value and benefit | Known future policy value and benefit |
Little or no personal benefit to you | Immense personal value to you and your family |
How The Perfect Policy™ Can Be Used In Your Financial Plan
Protecting Heirs
Protect your loved ones by purchasing basic term life insurance protection that lasts for between 1 year and 30 years, guaranteed. Compensate your heirs for the loss of your income and protect your family's standard of living after you die.
Alternatively, provide permanent, lifetime, protection through whole life insurance. Or, combine both term and whole life insurance.
Protecting Savings And Future Income
Protect your savings with a high cash value, custom whole life insurance policy. Then, build an income stream through non-guaranteed dividend payments or convert your policy's cash value to guaranteed income for life, or cash savings, or cash payments to pay for a permanent chronic, critical, or terminal illness.
Building and Maintaining Personal Credit
Build and maintain personal credit that you own and control, using life insurance. Enrich yourself and your family instead of enriching banks, credit card companies, or other lenders. Finance your own business or other investments. Take back control over your finances and make a long-term financial plan you can count on.
Funding An Estate Plan
Fund a simple, but dynamic, estate plan that protects your assets from the corrosive effects of taxation. Compensate your heirs for the loss of your income and protect your family's standard of living after you die. Create a multi-generational family dynasty and leave a legacy you can be proud of.
Results
Read client case studies and learn how The Perfect Policy™ concept is working right now in real-world scenarios...
Be Your Own Lender:
Financing Major Purchases
Learn how Madeline took back control over her credit, became her own lender, and now finances major purchases and grows her savings at the same time, without making any personal sacrifices or taking unnecessary risks.
Creating A Stable Income:
Protecting Your Nest Egg
Learn how Tim protects his nest egg from the volatility of the stock market, and sets up a stable future income stream.
Multitasking With Money:
Planning Without Sacrifice
Learn how Sandra and James are planning for their child's future education needs as well as their own retirement without making any personal sacrifices.
Protection From Financial Uncertainty
Financial Protection Against Unemployment and Financial Catastrophe
Learn how Jake used whole life insurance as a shield against the uncertainty of life. From unemployment to unexpected repairs, he was able to overcome it all without sacrificing his long-term financial goals.
Next Step
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