Insurance

Lock In Your Success with Life Insurance

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We sell life insurance to a variety of people for a handful of reasons, and today I want to highlight one of the common themes involved when someone approaches us about a life insurance purchase.

To be sure, there are several reasons why someone might want to buy life insurance.  And when it comes to cash value life insurance, the motivations multiply and often overlap a bit.

We have a specific example of one motivation that came up recently, and I think it explains the scenario really well.

Putting a Stop Loss on Success

When I was younger, I foolishly thought that success was a linear achievement.  Watching my parents’ lives improve as they aged, left me with a very sheltered belief that everyone experienced the same progression.  With time came more earnings and as such life improved along a track defined by its upward slope when graphed.  Oh how limited my observations and understanding of adulthood.

In truth, my parents’ lives didn’t really progress in the fanciful fashion that I conceived in my childhood–I simply didn’t understand the whole picture until years later.  But it wasn’t until I entered adulthood and meant other adults and got to know something about their lives that I began to understand just how winding the road to success is.

Many of us have wins here and there.  And many of us look back on them years later with despair as we feel we squandered the gains we achieved during those moments when everything worked out in our favor.

Life insurance, specifically cash value life insurance, is a financial tool that we can use to guarantee a certain level of success we achieve never goes away.

Early Homerun

We recently meant a relatively young individual who was fortunate enough to achieve what most of us would define as an early success some might classify as a homerun.  He managed to turn a relatively modest investment into a plus $1 million position.  The challenge from here was what to do with the money to ensure that this early success didn’t turn into later-in-life ire.

He was savvy enough to realize that this chance opportunity might just set him up for a lifetime of reduced financial anxiety and was shopping his options.  Somewhere along the way life insurance came up and when he set out researching the subject, he stumbled upon the oldest–and in my humble opinion best *wink* *wink*–blog on the internet dedicated to explaining life insurance in this context.

Having done something similar to this several times in the past, we were quickly able to convey the idea of how he could best go about accomplishing the goal with various life insurance products.  Since we’re independent brokers, we have the ability to look at the broad market of options and walk through various options noting their strengths and weaknesses.  He, like many before him, appreciated the perspective vs. a singular focus on a specific company or a specific product type.

The Specific Life Insurance Recommendation

The individual is in his early 30’s and was looking to take a little more than $1 million and park it somewhere that would ensure the money grew favorably and safely.  He is employed in an industry with strong earnings potential, but like a lot of people who fall above-average in annual salary, he expressed nervousness about how long he’ll be earning the salary he does–he’s not alone in that worry from my experience.

Given his age, the amount of money we were talking about, and few other factors I was thinking about that he most likely was not–more on that later–I put together options including both whole life insurance as well as indexed universal life insurance, but I came at this with an admitted bias favoring indexed universal life insurance for his specific situation.

Here’s what we could do with his money:

Year Age Surrender Value IRR Surrender Value

1 33 214,759 -28.41%

2 34 512,147 -10.10%

3 35 827,692 -4.13%

4 36 1,162,720 -1.26%

5 37 1,215,179 0.36%

6 38 1,282,729 1.49%

7 39 1,353,794 2.21%

8 40 1,428,612 2.71%

9 41 1,507,367 3.08%

10 42 1,590,832 3.36%

11 43 1,685,211 3.63%

12 44 1,785,535 3.85%

13 45 1,892,182 4.03%

14 46 2,005,564 4.19%

15 47 2,126,128 4.32%

16 48 2,254,377 4.44%

17 49 2,390,839 4.54%

18 50 2,536,057 4.63%

19 51 2,690,528 4.71%

20 52 2,854,797 4.79%

21 53 3,029,491 4.86%

22 54 3,215,283 4.92%

23 55 3,412,912 4.97%

24 56 3,623,138 5.03%

25 57 3,846,809 5.08%

26 58 4,084,843 5.12%

27 59 4,338,276 5.16%

28 60 4,608,155 5.20%

29 61 4,895,216 5.24%

30 62 5,200,027 5.27%

31 63 5,523,602 5.31%

32 64 5,867,110 5.34%

33 65 6,231,781 5.36%

Here’s a ledger that depicts what we could accomplish with the indexed universal life insurance policy that he ultimately opted to buy.

Note: I’m obscuring some information partly to protect some of the client’s information, but also because I’ve learned over the years that The Insurance Pro Blog is equally good at teaching the insurance-buying public and agents who want to compete with us for this sort of business about all the wonderful things life insurance can do.  I’m totally fine educating the public, but free consulting for other insurance agents isn’t something we’re looking to provide.

In addition to the cash value, he picked up a multi-million dollar death benefit, which wasn’t an immediate priority but he remarked that it would be a nice thing to have once he starts a family.  I agree and it will likely save him a lot of money in premiums used to buy a specific policy solely intended to protect his future family from income loss if he dies prematurely.

Looking at the above table, his money earns a 5.36% annual return by the time he turns 65.  Some may regard this as a modest return, but he was super happy with this idea.  But there was something else I wanted him to understand about what opportunities lay ahead when opting for this strategy.

Here’s an income scenario this policy projects:

Year Age Annual Income Cash Value IRR Cash Value

34 66 -407,256 6,197,948 5.39%

35 67 -407,256 6,161,103 5.42%

36 68 -407,256 6,120,969 5.44%

37 69 -407,256 6,077,270 5.46%

38 70 -407,256 6,029,660 5.48%

39 71 -407,256 5,977,778 5.50%

40 72 -407,256 5,922,299 5.51%

41 73 -407,256 5,863,217 5.52%

42 74 -407,256 5,800,698 5.53%

43 75 -407,256 5,735,127 5.54%

44 76 -407,256 5,667,353 5.55%

45 77 -407,256 5,593,538 5.56%

46 78 -407,256 5,513,021 5.57%

47 79 -407,256 5,425,042 5.58%

48 80 -407,256 5,328,689 5.58%

49 81 -407,256 5,222,873 5.59%

50 82 -407,256 5,106,402 5.59%

51 83 -407,256 4,977,956 5.59%

52 84 -407,256 4,835,920 5.59%

53 85 -407,256 4,678,383 5.59%

54 86 -407,256 4,503,942 5.59%

55 87 -407,256 4,309,219 5.59%

56 88 -407,256 4,091,199 5.59%

57 89 -407,256 3,846,526 5.58%

58 90 -407,256 3,571,817 5.58%

59 91 -407,256 3,263,515 5.57%

60 92 -407,256 2,944,633 5.56%

61 93 -407,256 2,621,226 5.56%

62 94 -407,256 2,300,610 5.56%

63 95 -407,256 1,991,488 5.56%

64 96 -407,256 1,659,078 5.56%

65 97 -407,256 1,342,765 5.56%

66 98 -407,256 1,006,446 5.56%

67 99 -407,256 648,854 5.56%

68 100 -407,256 268,644 5.56%

He is looking at the prospect of generating around $400,000 per year in retirement from his position alone.  This completely ignores whatever else he chooses to do to prepare for retirement over the next 30-some years.  This was an eye-opening moment for him–his words, not mine.

Locking in Success

The idea here is that using life insurance as a mechanism to house a windfall secures it from future losses.  The rate of return of life insurance is strong relative to its risk profile.  And when you couple rate of return with the other many benefits of cash value life insurance, it’s hard to classify it as anything but a winning combination.

I’m aware that the population of 30-something adults who happen to find themselves in receipt of an unexpected seven-figure sum is small, but the truth is these principles work with numbers of all varying degrees.  We’ve done this vary thing with people much older and with far fewer dollars.  The principle is still the same.

We’re taking a win, a moment where everything worked out right and ensure that it we preserve it for one’s lifetime.

Now some people will approach a success with a different philosophy.  They seek to take their gains, double down and hope to turn into a win x2–or more.  I’ve known a lot of people who came to regret that decision.

In addition, the new client mentioned in this blog post isn’t done placing risky bets.  He simply isn’t going to use this money to do.  He has other funds that he will certainly use to try and replicate his earlier success, but if it never works out he knows he sitting on a multi-million dollar pot-o-money that is capable of generating a sizeable income in retirement if he wants it to.  It’s not impossible for him to squander his success at this point, but what he chose to do is going to make it a lot harder to do.

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