Your past and present can never catch up to your future.
Updated: Jun 1, 2018
Once people fully grasp how incredible life insurance is for ensuring your family has money after you are gone, you realize you are buying dollars for dimes as they say. Life insurance is an asset that you buy and own. It is a contract with real value to can be used as collateral or sold on the secondary market like a home. Companies, like Bank of America list it in their asset column. And it is an incredible tool when used correctly, during your lifetime.
At its most basic, it is the purchase of a leveraged amount of tax-free money that will ALWAYS be greater than the amount of money you place in the contract if it is designed properly. Its also one of the few assets you can buy and have relative certainty of its future value.
So what do I mean by it will always have greater value than the money you place in the contract? I've designed a contract to use as an example. The contract is on a 40 year old male in standard health that does not use tobacco. Because of age, health and his desire to save $600 a month or $7,200 for the year, he is offered an initial death benefit of $193,100.
If he dies in month one, he has only given the insurance company $600 and his family gets $193,100 tax-free as a death benefit payment. The return on this is so huge I am not even going to mention it. You can easily see your $600 did very well. Now, knock on wood this doesn't happen but it can and does happen.
A friend of mine sold his brother in law a policy several years ago. A few months later while on vacation he suffered a stroke while taking a shower. This caused him to lose balance and slip. He hit his head causing further damage. Unfortunately, he did not survive but his death benefit did. I promise you his widowed wife was not calculating the ROI but I know she was incredibly grateful for the money they received.
Let's play with some numbers for a minute. The example initially started with $193,100 in death benefit coverage, but the way I designed the contract, the death benefit grows with the client (reference far right column on picture below to see death benefit increase each year). However, let's see how many years of $7,200 per year payments it will take to catch up with the $193,100. If we divide the death benefit by the annual deposit, it will take 26.8 years to catch up to the death benefit he was offered from day one. Wow!
So his annual deposits are to his advantage for 26 years before he is breaking even on the money the insurance company has guaranteed to pay out if he were to die at any time in that 26 year window. However, it is actually better than that. I hope you are using the pictures above to see how this works. If we go out 26 years, the death benefit it no longer $193,100. It has grown to $565,335 in tax-free death benefit.
$565,335 subtract the original $193,100 death benefit puts his contract $372,235 ahead of where it originally started in coverage. If we take the growth in death benefit and divide that by the $7,200 a year it would take an additional 51 years to get to breakeven, but as you can see from the pattern above, the death benefit will have continued to grow well into the millions of dollars. Your premium cannot catch up to the death benefit. What an incredible asset to own.
In year 26 this man has contributed $155,375 of after tax money. His cash value has more than doubled to $316,020 of tax-free money and the death benefit, if he dies at year 26 is $565,335 tax-free to his beneficiary. This is what I mean by leveraging your money and buying dollars for dimes. You come out way ahead of the money you place and every year that passes, you'll see it only gets better.
A properly designed insurance contract will grow every single year and so will the death benefit. This only changes as you take money back out of a policy. A properly designed plan will allow you to grow, access money tax-free through loans and pass your death benefit on tax-free as well. A properly designed plan allows you to use your money and earn in two places to have even more money.
Let's me walk you through your own numbers and properly design a plan for you that will get you from where you are now, to where you want to be in the future.