It’s one thing to decide that you love what a whole life policy can do for you, but it’s a whole other thing to find the money to pay for it. Ben was perplexed by this. For years he had done what all the financial talking heads said to do with his money, but he didn’t really feel like he had any extra money. How was this going to work? He was a bit concerned, but he also knew that his adviser had told him that everyone’s situation was different and that there were often ways to find money that he had been trained not to see.
Apparently most everyone has strategies to manage their money better if they just focus on learning what those are. It was a relief to know that he wasn’t the only one who felt lost with his finances.
After looking over his finances, Ben decided that stuffing so much money into 401k’s and IRA’s where he couldn’t touch it didn’t seem to be all that it was cracked up to be. As a matter of fact, although his account seemed to grow most years, he began to realize that most of that growth was due to putting money in and not so much because the accounts had grown at all.
Ben and Kim had also been overpaying their mortgage, but when thinking about it they realized any money they sent towards the mortgage was dead money that would never grow, and they are living in a time when the government is actively trying to destroy the value of the future dollar with obscenely low interest rates. This strategy made no sense when there were other safe options available.
By making some changes in these areas and by tightening up a little where they knew their spending had grown out of control, Ben saw that he could redirect $30,000 a year towards a new policy without really changing their lives very much. And he knew something had to change, or he could not expect different results! Everything he was coming to learn about whole life policies made sense, so he began deciding how to fund his policy.
Ben quickly realized that there are many choices when deciding what kind of whole life policy and how to fund it and he knew that everyone is different so what makes sense for one person would be totally different than what makes sense for another. He worked with his adviser through some different possibilities and ended up deciding to pay for a whole life policy with $30,000 over 6 years with the maximum that the government would allow over that time before taxing his growth. He understood that if dividends stay the way they are now forever, this would fully pay for the policy forever, but if interest rates and therefore the dividend went down, they might need to pay more in because this was paying less than the guaranteed minimum payment. But he also knew that they planned on being active users of this policy and would end up paying much more in over time as money came in and out of it.
Because of the extra amount being put in over and above the minimum required by the life insurance company, this amount only bought $1,092,767 death benefit to begin with, but he did still have some other term coverage, and with all the other circumstances in his life, this made the most sense at this time for what they were trying to do.
One benefit they were able to see is that he was able to immediately drop the term coverage he had just bought which saved him $657/year. This was an immediate 5% return on the $13,231 base cost of his whole life policy that he was able to invest elsewhere! He was already seeing a return and he had just begun!
We’re going to walk alongside Ben and Kim as they begin to use this new policy for the many real life situations that they experience. Will you join us?
One additional note: Everyone is different. To you, this might be an enormous amount of money. To others, this could be a smaller amount than they wish to use. We picked this size policy for our story because it allows us to use one policy to do a number of different things. Most people start with one or two policies and add more over time, but since we’re making up a story, we wanted it to be as simple as possible to illustrate all of the uses.
This is Part 3 in the story of Ben’s life using Whole Life Insurance in a variety of ways. You might want to read the introduction to this series which will link to each post in the series explaining how whole life works as well as linking to each post in this series on Ben’s story.
Photo credit: Tyler Willoughby