Your $6,000 Annual Premium Grows to $843,000? Here’s How (Ep. 366)

"We have to remember, cash value is doing the same thing. It does not matter what policy. Age will affect it a hair. Health will affect it more than anything, but your death benefit is what normally gets affected the most. The cash value would look almost identical. The death benefit would be different. And so some people will say too, well, I'm 55, it's too expensive. The way we look at life insurance is how much money do you want to put in? We are going to solve for death benefit. But if you want cash value, expensive isn't the terminology to be using, because we can still create the cash value we want."

Hello, hello, hello, and welcome back to the podcast. Thank you very much for being here. New setting today. I'm at my desk, because we're going to be getting into some real numbers.

I just did a podcast about the fact that you don't have to have a ton of money to get started. But I had a client case today that was such good numbers that I wanted to share. It wasn't that the numbers were, like, I made the numbers good — it's just the numbers. But it proves that you don't have to have a ton of money to make a large impact.

And these particular clients are young. I forget how old she is, but he's 27, and I'm gonna use the numbers on him so that you guys can see you don't need a ton of money to get started with something. And I'm finding — I met with three people this week alone that read the book five years ago, seven years ago, heard about it 15 years ago, and they're waiting to get started because they just didn't think they were ready financially.

Now, if you're not ready financially, we will tell you that. We're going to tell you, hey, you need to go do X, Y, and Z before we can start a policy. But in all of the cases this week, they could have started smaller and just started more policies, because everything you do is not gonna be just done in one policy.

You're going to have to have multiple policies over your lifetime — unless maybe you're 65, okay? But if you're 30, 40, 50, we're gonna be adding policies. And so getting it right the first time is not really a thing, okay? We're gonna have to add. If you understand how to actually utilize this, we're going to have to add some stuff.

So let me share my screen so that you guys can see an actual illustration, and I'll go through it with you so that you can see exactly what they're gonna have and kind of what everything means. If this is what's been stopping you from kind of setting up the meeting and pulling the trigger, ideally you're gonna have a little more insight than if you come into the meeting without it.

Now, all of this stuff is in the book. Both books have case studies. The actual illustration numbers are in the book. However, people still think, oh, those numbers are too big, I can't afford that. So let's look at some stuff and let's walk through it together.

All right, so what we're looking at here is a policy on a 27-year-old male, and this is just standard health. This individual did not get preferred health rating — just standard health. And I want you to see that, because then if you say, well, I'm not healthy, Mary Jo — well, that doesn't matter. We can still do it, okay? Just that your numbers are gonna change a little bit, but that doesn't mean that it's not gonna be doable.

So let's look: $6,000 a year of premium, okay? This is not an astronomical amount of money for a 27-year-old. For some 27-year-olds, it might be a lot of money, but I talk to a lot of people in this age range. We have a lot of 20- to 35-year-old clients, and this is fairly normal for them to be able to afford $500 a month.

And so let's just walk through kind of what the illustration shows. This particular client, $6,000 a year, they would have a death benefit of $597,000, okay? Now, they could, if they wanted, they could put extra in year one. So they could put $17,000 in year one, and I'm going to show you that, but first let's start with six.

Year one, they put $6,000 in. Cash value is $4,400 minus any interest that is due, okay? When you borrow cash value, you are going to have to pay interest to the insurance companies. They will hold that interest in advance. You're essentially prepaying it. If you pay it back early, they will prorate back to you what they did not need, to the day, and they prorate it back to principal. So it actually helps you pay down your loan faster. So $4,400 minus any interest that's due.

Year two, they pay $6,000. They now have access to $8,900 if they've not borrowed year one's money. Now they have access to $8,900 minus the interest, but this column right here will show you what the available cash value went up by. So they paid $6,000. They would have access to about $4,500 of that by the end of the year if they paid the full four, okay?

Year three, they pay $6,000. Cash value goes up by five. So now they've got $14,000 if they don't have any money borrowed. Year four, they pay $6,000. Cash value goes up by $6,000 by the end of the year when the dividend's paid. So now they've got $20,000.

What I want you guys to watch here is every year after year four, the cash value is going up by more than what they're paying in premium. So if premium is $6,000, which it is, it's going to go up by more than that every year. That is compound interest and dividends working.

And so in this particular scenario, they can pay $6,000 for 28 years. Then the premium is going to go down to $1,620. Why? Because if they continue to pay the $6,000, this policy is going to become a modified endowment contract. It's going to MEC, and it will all grow taxable. So now they're going to have to pay tax on all the growth. We don't want to pay tax on all the growth, okay? So now we've filled it full and we have to back off. You see this in my books as well. We're paying premium for so long and then we have to back off.

Now, the death benefit is growing here. So every single year they're paying premium, death benefit is growing. When this particular individual is, let's just say, 82 years old, they've paid in $211,000 of premium, cash value is $843,000, death benefit is about 1.1 million, okay? It's $1,074,000.

So we've paid in $211,000, we've got $843,000 we can borrow against. So along the way, some people might say, what's that rate of return? I don't frankly care what the rate of return is. Oh, what is the rate of return with the $800,000 that I've had in the last 55 years to use? Did I buy cattle? Did I buy a ranch? Did I buy land? Did I buy equipment? What did I buy? Did I buy rental properties? What did I buy that was possibly a cash-flowing asset — ideally a cash-flowing asset? And now that's also making me money, okay? So we've got the use of the money, it's earning uninterrupted compound interest and dividends.

So no matter what — this particular client said, well, Mary Jo, can you run an illustration showing, let's just say that in year 15, I've borrowed $100,000. Can you show me how that's gonna affect the policy? Yeah, it's gonna do exactly what it's showing here. The money never leaves your account. It's still gonna be $800-and-some thousand dollars at 82 years old, okay? It does not matter.

Some people might notice, if you're really paying attention, you're going to notice that this death benefit stays the same for a while. That is because I have some term insurance on there. As that term insurance converts to whole life, that death benefit's gonna stay the same. In this scenario, by the time you're 49, now the death benefit starts to grow again. So what we've done is, because of the term, we put it on there so the policy won't MEC, and we put it on there so we can get more money to cash value, and it's providing a little extra death benefit up front, okay?

This is if all they do is pay $6,000. But ideally — and this is what a lot of people don't know, because I don't have this strategy in the book — ideally, what they will do is they will put extra money in year one for premium. Now again, I don't have that in the book, but it's a strategy that I do all the time, every day of the week. I just could not do it at the time that I wrote the book.

So here's what it looks like if they take advantage and they pay the extra $11,000 year one. Do they have to pay it on day one? No, they have 12 months to get that money into the policy. So if we issue a policy today in July, but they don't sell cattle until October, November, December, or they don't sell grain until November, December, January — now when they sell grain, they can get it in, because they have from July until July to do that, okay?

So in this illustration, we've got $17,000 going in year one. Now pay attention to what's happening here. On the other illustration, they didn't cash flow until year four. Here they're also gonna cash flow year four, but I think it's — if I remember correctly, it's about $500 more, okay? So not a ton, but more.

They are going to have, at 82 years old, instead of $800-and-I-think-it-was-50,000, they've got $942,000. So they've got about 90 — if I remember my numbers correctly, I should have wrote them down — they've got about $80,000 to $90,000 more just because they put $11,000 more in. Why not? If we're gonna put that extra money in, we're gonna get access to 90% of it in 10 days, and then we're gonna borrow against it.

And so I know that I'm going through this a little bit fast, but I want you guys to see this. If we go back up to the beginning, they're going to break even — which means the amount they've paid in versus what they have to borrow equals one another — at year seven. They've paid in $53,000 of premium, they have access to $53,000 of cash value.

So now, a lot of people think, well, it's gonna take me 20, 25 years. Yeah, old-fashioned whole life, traditional whole life, will take 20, 25 years. But we're accelerating it with that paid-up additions rider. Their death benefit also is gonna start to grow at year 19 instead of down here at year 23 or 24. Because we put extra money in year one, it makes all that converting of term happen faster. So if we have the ability to put extra money in, it does make sense to do that in most cases. Now, some cases, maybe not — most cases it does.

So again, we don't have to have a super ton of money to be able to start a policy. If you think $6,000 is too much, cut the numbers in half. $3,000 — just cut all the numbers down the middle. It will look exactly the same.

The problem is, is we say we just can't get started because it's too little, it's not gonna matter. That's what I heard yesterday. Oh, it's not gonna matter, it's too little. Well, when I get down to 82 years old and I've paid $222,000 of premium and my cash value is $942,000, I have $720,000 extra. Okay, I'll start with six. Even if you think six is too small, I'll take the $700-and-some thousand dollars. Like, I'm not gonna squawk over uninterrupted compound interest and dividends.

So we have to — Nelson had 49 policies, and he had those policies, why? Because he had to keep building his banking system. We are doing the exact same thing. We are slowly building our banking system.

And I would not be doing these podcasts — I'm not doing them to beg you to call me. Okay, that's not the case here. I'm doing them because what I'm finding is, from January to now, I've probably — I'm gonna guess, I don't know for certain — I've probably had about 10 meetings with people that read the book five years ago, three years ago, 15 years ago, eight years ago, and they've all been waiting because they didn't think they had enough money, or that a little bit wasn't going to matter. And a little bit does matter.

Guess what? If that person was 40 with $6,000 a year, the cash value would look almost identical. The death benefit would be different. We have to remember, cash value is doing the same thing. It does not matter what policy. Age will affect it a hair. Health will affect it more than anything, but your death benefit is what normally gets affected the most.

And so some people will say too, well, I'm 55, it's too expensive. The way we look at life insurance is how much money do you wanna put in? We are going to solve for death benefit. But if you want cash value, expensive isn't the terminology to be using, because we can still create the cash value we want.

I had somebody today that was not a good health rating. It was a fairly crappy health rating, okay? And the wife was perfect, and so he's going to do the majority of the insurance on his wife rather than himself. He already has a death benefit elsewhere, but the cash value was massively different on her policy because of health. So it can be affected, but we have to have a major health difference, okay? Like a really bad health rating for that to matter.

Now let's say that that individual was not married. Well, then what do we do? Then we do the policy on him. It is what it is, right? If we're not in the best of health, we want a policy that grows cash value.

Yeah, it's nice to break even at year seven. That's fantastic, we get access to all of our money. But if it takes us 15 years to break even, that's still better than buying a traditional whole life that's not going to break even for 30 — because I did that with him. That wasn't going to break even till year 30. So breaking even at year 15 is better than breaking even at year 30. It's all relative to what we're looking at, what we want. But you don't know what that is until we have the meeting.

So hopefully that helped. If I have to do more of the sharing of numbers and whatever, I'm happy to do that, because these are the numbers. If that's what it takes for you guys to understand it, even though I have it in the book — whatever. I do this all day long, every day. I'll show numbers, because those are the numbers.

Are those guaranteed numbers? No, because it's the dividend. The dividend's been paid for 147 years. I'm going to look at it. But no, it wasn't 100% of only guaranteed numbers. But it is the same. It's the same as saying, hey, Mr. Universal Life, what am I looking at? Indexed, ULs, whatever. They're all assumptions — no lock on anything. So the only flexibility we have over here is a little bit of the dividend.

Anyway, let me know if you have comments, questions, concerns — happy to answer any of those. I am not, like, if you guys break this apart, email me and say, hey, what about this at year whatever? You guys, I'm not going to go back and spend a bunch of time answering those kinds of questions. This is an overall, this is how it works. This is what $6,000 would look like for cash value. If you want to break apart illustrations and you want to look at super specific things, then just schedule an appointment with John or I, and we will be happy to go over that with you.

Okay, you know the routine. maryjo@withoutthebank.com, john@withoutthebank.com. You can email either one of us. Or if you've not gotten your book yet, get your three-book bundle. If you buy my books, if you're getting Life and you can get — hold on there, I'm at a desk — if you can get Farming and you can get BYOB together, or you can get all three of them together, I would recommend that.

I've also had a lot of meetings lately where I'm talking about the stock market. There's a lot of stock market stuff in Life that is not in Farming. So if you are somebody that is putting money away in a 401(k), or somebody is telling you you're an idiot because you're looking at life insurance and the stock market is better — there's a lot of stuff in there to give you information on that.

Just let me know. Again, happy to help. Get your book, schedule your appointment, email us, whatever. But you know, you guys know the routine. You've been here before. Okay, you have a fantastic rest of your day.

Thanks for listening to the Farming Without the Bank podcast. We hope today's episode has inspired you to take control of your finances in new ways. Don't forget to check out our website, farmingwithoutthebank.com, and engage with us on our Facebook page, Farming Without the Bank. Join us next week as we smash more financial myths and empower you to accomplish your financial goals.