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This question is one of the more common questions I get when talking to people for the first time about whole life insurance. In fact, I just heard this again the other day from someone I was visiting with and thought it would be an important point to share with you.
When I hear this question my answer is NEVER.
We have all heard you will not need life insurance after age 65 and I just recently wrote another blog on how Bad Advice You will Pay For, talking about why you should not surrender your whole life policy later in life. However, in that blog, I did not address the point of why you should continue paying your premium through the life of your policy (which is normally age 100 or 121). IBC Don’t Stop Paying Premium Blog
Are They Crazy or Are You Crazy
Pay for life insurance until I die, are you crazy? Who is the crazy one, you for paying it or the life insurance company for expecting you to pay it? That is a good question and I am going to let you determine your own answer by showing you an illustration.
Before I do that please keep in mind this illustration is setup using the Infinite Banking Concept and is not the traditional
sold life insurance policy. If you have not read the blog, Traditional Life Insurance vs Infinite Banking Policy Setup
In order to keep things easy, I am going to use the same policy illustration I have used in my last couple of blogs. No reason to switch things up on you. If you want to see bigger numbers then just add a zero and you will get the idea. Infinite Banking Policy Setup, then I encourage you to do that so you know why this illustration is going to look better than what you’ve heard about.
OK, back to who is crazy. On this illustration (click to download illustration) you will see two important columns.
- Contract Premium – this is the amount of premium you have agreed to pay each year.
- Increase in Net Cash Value – this is the amount your cash value will increase each time you pay that contract premium. Again, this is money that is yours to use for whatever you like, whenever you like.
You are looking at this and already asking, where and why would I pay $2,500 in premium when I am over 65 years old. As your need for insurance may not be there, you will have the need for money.
The Rest of The Story
As Paul Harvey would say, let’s look at the rest of the story. (Yes I am old enough to remember Paul Harvey. He was a daily addition to our family.) Don’t stop at the premium column, go on and look at the Increase in Cash Value column.
At age 70 you have paid your $2,500 premium but your cash value increased by $14,063, then at age 80, it increased by $17,799 and again at age 90 by $20,013. You gave them $2,500 for premium and they turned around and
Now look at the earlier years, the same thing was happening from year five on. Every year you paid your premium, your cash value increased by more than you paid. It gave you $14,000-$20,000 each year!
Why on earth would you stop paying the premium? Much less later in life when they are giving you far more then you pay and you have put nothing at risk.
Again, the next thing I hear is “how can I afford this after I retire I have no income?” The answer to that question can be a blog post in itself but I am going to simply say, how will you afford anything when you retire? How are you going to make your home insurance payment, car insurance payment, electric bill, purchase groceries, buy the grandkids things and go traveling?
You are most likely going to do all those things through your retirement planning and budgeting. This concept should be added to that planning and you should be sitting down with your insurance agent or financial planner to see if they can help you with this. If you get the answer that you should stop paying and surrender the policy you should run not walk out of their office. That proves they do not understand how this works.
There is more than one way to skin a cat and strategy planning is so important for retirement. Most think they have to cut their budget to stretch their money. Yes, that is one way but there are others and I hope, for your sake, your planner knows those.
These policies are called whole life and permanent insurance for a reason. They are not a get rich quick scheme and they are not for short-term use. If you plan to stop paying this premium you can do that, but there really is no sense in purchasing this product if you do not see the true value and understand the real reason in the first place.
Look beyond the premium to see the longer you have these policies the better they perform without risk. Do not throw away the opportunity to increase your retirement funding later in life. There are guarantees here where you may not have those some guarantees elsewhere. Security is important and with correct planning, you can have your cake and eat it too.
If you want more information or your own numbers run please contact me. I would be happy to help any way I can.