Understanding Whole Life Insurance: Cash Value vs. Death Benefit Explained

[@jjsoccer1010]

You two always make it so simple to learn the basics about Whole Life Insurance and how it works. Well done again! 😊👌👍

[@Tier1Capital]

Thanks JJ!!!!

[@thefinancialcowboy]

​@@Tier1Capital I agree. The way you explained it does make it simple

[@rikallen8051]

If we cash the policy out early (I am still alive). Are there any tax implications? Is the payout tax free?

[@Tier1Capital]

Tim, it depends on how much cash is in policy and how much you paid into policy !!

[@firecraig]

Yes, if your cash value you receive is more than premiums paid.

[@AngellLevey]

I think investors should always put their cash to work, especially In 2024, we'll start to see more market diversification. I'm hoping to invest about $350k of my savings in stocks against next year. Hope to make millions in 2024

[@JosephGodwill9h]

Since risk is at an all-time high right now, perhaps you should be a little more patient and return when it has decreased. Alternatively, you can consult a trained financial expert for strategy.

[@DanielNoahD3w]

Yes true, I have been in touch with a brokerage Advisor. With an initial starting reserve of $80k, my advisor chooses the entry and exit commands for my portfolio, which has grown to approximately $550k.

[@Wlad-v2w]

I’ve been looking to switch to an advisor for a while now. Any help pointing me to who your advisor is?

[@DanielNoahD3w]

Nicole Anastasia Plumlee can't divulge much.. Most likely, the internet should have her basic info, you can research if you like.

[@Wlad-v2w]

Thank you for this tip. it was easy to find your coach. Did my due diligence on her before scheduling a phone call with her. She seems proficient considering her résumé.

[@Beautifuluproductions]

What If you didn't know you were beneficiary and the state has policy . But the insurance company wont give me information on the policy

[@Tier1Capital]

It depends, meaning that if cash surrender value is less than total premiums paid there should be no tax. If cash surrender is greater then cumulative premiums paid , there should be tax on gain over basis, let us know if you want more clarity

[@michaelderosa3544]

Does the death benifit increase over time if your over funding the policy. So my death benefit is currently 100k now but i am over funding the policy will continue to do this increase the death benefit years down the road?

[@Tier1Capital]

Yes, because by “over funding” ( technically not the correct term) you are literally purchasing paid up additional death benefit which is layered on top of your $100,000 policy , so yes if you continue to do this your death benefit will grow considerably , hope that helps.

[@michaelderosa3544]

@Tier1Capital yes thank you. I want to leave my family a substantial amount of money but I have a low paying state job and am 50 years old so nobody is gonna insure me for a million dollars. I feel like whole life gives me financial flexibility during life while also building toward the death benefit I want to leave behind. I get there are pros and cons but I don't understand why guys like ramsey hate it

[@JohnPaul-ol5zl]

​@@michaelderosa3544 If I am not mistaken, Ramsey doesn't like it because of the Risk in how much you "loose" in the scenario where you live very long, say till you are 80, 90, 100 years old. There are multiple factors that go into determining how much of an overall benefit you/your Heirs receive at the time of your death. The longer you live, the less overall amount of money you receive. Factors like how much you pay each month towards the life insurance, how long you have paid into it when you finally die, what the Total coverage is, etc.

[@smokenojoke8182]

@@JohnPaul-ol5zlthat makes a lot of sense. 30 year old paying $451/monthly for a $500k policy would’ve payed nearly $400k by the time they are 100yrs old.

[@thefinancialcowboy]

​@@smokenojoke8182 at 451/month the base death benefit for a healthy 30yo male would be $651k. But the purpose of whole life is having permanent coverage and growing cash value you utilize for other things whole you're alive. Because you're borrowing against the death benefit and not withdrawing the cash value, you still gain uninterrupted compounding interest on the cash value. So you can use that money, buy a home to remodel, make a profit and pay the loan back. Meanwhile that cash value was still making money for you and it's full amount. If you're not going to utilize the cash value in a policy, then you do not need to get a whole life policy. Best to buy term. Or even do an IUL if you are looking at wanting to have guaranteed income for life when you retire. But that's a entire other concept. Lol

[@SerguioBarba]

Face value 150K (Cash value 90K). I needed a loan of 30K, but I passed away during the time I was supposed to pay back the loan. There is still a Cash value of 60K. Will the loan be deducted from the Cash Value or the Face amount to the death benefit, leaving them with only 120K?

[@Tier1Capital]

@@SerguioBarba Great Question, at Death the outstanding loan is deducted from Death Benefit , Hope that helps

[@MineshBaxiYT]

simple point- buy term life insurance, not Trash Value

[@Tier1Capital]

Hope that works out for you!! Wishing you all the best

[@danielkelley4364]

If I take a withdrawal from the cash value, does the death benefit decrease or does it stay the same?

[@Tier1Capital]

Yes, the death benefit is reduced by the outstanding loan balance. As the loan is paid back the death benefit gets restored, hope that helps,

[@PaulPNewell]

⁠@@Tier1Capitalso you pay for 2 “products” but only get one

[@frankglover4560]

Very informative video

[@Tier1Capital]

@@frankglover4560 Frank, glad you liked our content !!!

[@pgppe9488]

Run people run from whole life insurance. Age of maturity 100, or 125????

[@TheJARLATH1000]

You don't have to wait that long to pay it off. You can have it fully paid off in 7 years and it continues to grow for life without any premiums.

[@EduardoRodriguez-ot6nb]

Say I never borrowed against my policy , can I cash out everything at the end of my retirement?

[@Tier1Capital]

Sure. You would receive the cash surrender value of the policy if you cash it out BUT you would lose that death benefit.

[@Bondbeer]

My universal life policy has a death benefit that includes both the cash value and insurance.

[@rukiddingmeNJ]

Well, not really. Initial DB + cash - loans = net DB.

[@JohnPaul-ol5zl]

​​@Tier1Capital say I purchase a $1,000,000 Whole Life Insurance policy. I pay, just for discussion purposes as I don't know real numbers, $500 per month towards the life insurance based on what the insurance company has calculated. I purchased it at age 40, and pass away at age 70. Do my beneficiaries receive the full $1,000,000 or less or more?....specifiy if either of the 2 latter ones.

[@Tier1Capital]

John-Paul, Based on the example given the premium seems very low for a 40 year old. But, in general if policy is still in effect, beneficiary would receive face amount of policy ( $1M, in your example) plus any dividends MINUS any outstanding loans. We hope that helps, if not , let us know.

[@JohnPaul-ol5zl]

@Tier1Capital understood. What would be a realistic Average premium based on the scenario I provided? Also does the premium amount vary based on which state one lives in when initially purchasing the policy? I assume health status plays a factor as well?

[@Tier1Capital]

John-Paul, my understanding is that premiums do not vary by state. You are correct in that health does play a factor. The premium for $1,000,000 for a 40 year old will vary based upon your goals. For example, if you want policy paid up in 10 years ( 10 Pay) your premium will be higher than a policy paid up at age 65 ( 25 years paid up) or age 100 ( paid up in 60 years). Additionally, premiums can vary based on your goal, meaning that if you want to accelerate the cash value by putting “additional “ premiums in that will impact the amount you pay. Feel free to set up a zoom meeting by going to our website and we would be happy to discuss various scenarios with you. Of course, there is no cost, no obligation , and no pressure to do so, Regards, Tim

[@iamokay5676]

What will result in a larger sum of wealth in the long run? Buying whole life insurance or buying term for the same amount and invest the difference?

[@Tier1Capital]

That is a very good question, many studies have been done, and the answer is , it depends! Meaning it depends on the time period ( did the market or investment you chose lose money? How much? How often? What time period are you measuring? And here is the point , most of those variables in the buy term invest the difference scenario, you have zero control over, in whole life scenario you have control, you have guaranteed cash value growth, guaranteed death benefit, We hope that helps, we can discuss further if you want , just let us know

[@iamokay5676]

@Tier1Capital Why wouldn't you have zero control if you are the one investing your money? In whole life insurance, the return is a lot lower because it is an expensive product. I don't think permanent/cash value insurances are right for the majority of people. This is from the Money Guy Show and I think I agree with them more.

[@JohnPaul-ol5zl]

​@@Tier1Capital say I purchase a $1,000,000 Whole Life Insurance policy. I pay, just for discussion purposes as I don't know real numbers, $500 per month towards the life insurance based on what the insurance company has calculated. I purchased it at age 40, and pass away at age 70. Do my beneficiaries receive the full $1,000,000 or less or more?....specifiy if the 2 latter ones.

[@ericchen1205]

If the goal is to use whole life insurance (via ILIT) to pass wealth to beneficiaries with least estate tax, then it seems the cash value element in insurance is useless for that purpose, right? Why should I care about maximizing the cash value with products like IUL if the beneficiaries are not going to get that but only the death benefit portion?

[@Tier1Capital]

Eric, the cash value is never useless because it is a key component of keeping the policy solvent, the less cash value you have the more “fragile” your policy becomes, meaning higher susceptibility to policy lapsing . I think you are misunderstanding the role of cash value and its relationship to the death benefit, I would be happy to discuss further to clarify for you. Finally, you are correct in that having policy in ILIT restricts accessibility to cash for insured. Hope that helps !

[@ericchen1205]

@@Tier1Capital Thanks for the explaination. So if the insured has no problem keep paying the premium and only intend to use UL for passing weath to beneficiaries, then cash value doesn't have "direct" help in that purpose other then using it to pay for the premium. It seems GUL or similar kinds with biggest death benefits and least cash value serve the estate planning and estate tax saving purpose the most.

[@thefinancialcowboy]

​@@ericchen1205IUL is best used for retirement planning and giving you guaranteed income for life after retirement. There are a lot of things missing in the information given that leaves out developing cash value to increase the death benefit, building substantial wealth to pass on for generations

[@gregbell422]

Please discuss the cost differences of $150,000 while life and 150,000 term policy.

[@Tier1Capital]

Hi Greg, Great question . In general, term insurance will have a lower cost per year initially, but if you need to continue the insurance over a longer period of time the cost can become signicantly higher . Whole life will have a higher cost initially, but over time with cash accumulation and dividends can become less costly . We would be happy to show you specific cost differences based upon your age , let us know if you want to see specifics.

[@CesarFinanzas777]

NEVER get a Life insurance policy with cash value without talking toma licensed securities agent. Typically he or she should be a licensed life insurance agent as well and will followmhis/her fiduaciary roll. If not, you will regreat it. Period.

[@markf.2050]

​@@CesarFinanzas777 Whole life agent as a fiduciary? That's an oxymoron!

[@CesarFinanzas777]

@@markf.2050 Yes, That is why you study Ethics when getting your life license. If you sell IULs you should be ashame of yourself.

[@thefinancialcowboy]

So many things left out. Cuz you actually do get both cash value and death benefit. Yes the stated death benefit is what you get but if it's level then calculated to where more of the premium goes to the COI at the beginning of the policy and less to the CV. Meaning that if it they pay only the policy minimum or would build no cash value and the COI would eventually cause the policy to expire. That's why eventually the DB will start increasing to avoid the tax. No CV. None of that happens. With increasing death benefits, it withs the same but the amount of premiums that go to COI and CV remains the same throughout the policy. When you die. Beneficiary gets the stated benefit, which will be equal to the initial death benefit plus the CV. CV is already factored in to the death benefit. So yes, you do get the cash value and the death benefit paid to the beneficiary when you die. Now legally, they have to say you do but get both because then the carrier would have to pay out the listed death benefit plus the amount of cash value that's in the policy.

[@Tier1Capital]

You do have a point. You pay for the base death benefit, but if your dividends go towards paid up additions you're death benefit will increase as the policy matures. With or without dividends, the cash valise has to increase as the whole life policy ages. Thanks for your perspective.

[@smokenojoke8182]

Seems like there’s more downside to whole life. I don’t get to keep my cash value (which is my money) and if I pass away before paying it off they deduct it from my beneficiary policy. He used the wrong home analogy in my opinion. If I pass away and my family gets my home they don’t start with zero equity.

[@Tier1Capital]

But if you have a loan out against the home, the family would have to pay that off. It's the same with a life insurance policy... If you tap into the policy's equity, the company satisfies that debt before paying out the death benefit.

[@happywong1671]

Oh no, I always thought we get both death benefit & cash value at the time of death.

[@Tier1Capital]

You receive the Total Death Benefit which is comprised of initial base policy face amount ( Death Benefit)

[@Tier1Capital]

Plus any term rider death benefit Plus the Paid Up Additional life death benefit purchased from PUA rider premiums and Dividends paid as Paid Up Additions. Let us know if you want further discussion we would be happy to explain

[@markf-2051]

If you want both, then buy a term policy for about 15X less money and invest the left over money instead. You shouldn't need life insurance when you get past 70 anyway. At that point you will have a much higher net worth that can take care of you in your old age.

[@ericchen1205]

@@markf-2051 But my goal is to use insurance with ILIT to pass wealth to the beneficiaries and pays least estate tax, so the statement of "ou shouldn't need life insurance when you get past 70 anyway." isn't true, right? Also, term life insurance does nothing to help the esate planning, right?

[@Rew123]

I doubt you have enough wealth to even trigger the inheritance tax... ​@@ericchen1205

[@samsciascia4004]

Net Amount At Risk + Cash Value = Net Death Benefit

[@Tier1Capital]

Sam, yes, that is correct!!!

[@Jonavideos3]

What happens of the cash value exceeds the death benefit?

[@Tier1Capital]

By definition, if you choose Paid Up Additions as your dividend option, the cash value cannot exceed the death benefit .

[@thefinancialcowboy]

​@@Tier1Capitalthe cash value will never exceed the death benefit, if it gets to the point where the cash value catches the death benefit which it never should, then the death benefit will start to increase, even on a level DB.

[@markf.2050]

Whole life is touted as great life insurance AND AND AND a great savings plan. But when you die, you are left with ONLY ONLY ONLY the death benefit. Comparing a whole life policy to a house is ridiculous. I don't have to die to reclaim the equity in my house. However, buying a whole life policy is like buying a house and then having to pay rent to live in it. The "living" benefits of a whole life policy involve BORROWING against your own cash value and paying interest to the insurance company. WOW, what a benefit! Whole life insurance assumes that, of course, people need life insurance well into their 60s, 70s, 80s, and 90s, and should be willing to pay for that as well. The truth is that they don't, and that may be why about 80% of those that buy whole life end up surrendering their policies early, with a huge financial loss. At least they cut their losses early as well.

[@Tier1Capital]

Mark, if I didn’t know any better, I’d think you don’t own any whole life , that’s a shame , obviously you have OPINIONS on Whole Life that are not rooted in truth . If you want to discuss or ask questions we would be happy to chat with you and give you the clarity you need.

[@markf.2050]

@Tier1Capital Opinions not rooted in truth? What were the untrue opinions I mentioned? It is true that I don't currently own any whole life insurance. I used to, but I was one of those 80% that came to my senses and surrendered it early. I have never regretted that decision. I directed my money towards real investments and bought term insurance instead. Now I dont need life insurance any longer, and I have "access" to money that I don't need to borrow. I simply take it and spend it. If I die, my investments won't disappear. They will go to my heirs.

[@iamokay5676]

@markf.2050 I agreed with you 100%. I used to own a whole life policy and it is a n expensive product. These policies are usually pitched to financially illiterate folks and it is a shame. 99% of the time, if you can consistently invest in the market for the long run, you will always end up with more money!

[@ericchen1205]

@@markf.2050 But it seems whole or universal life insurance via ILIT can be a great way to pass wealth in estate planning, right? Love to know what you think about that purpose?

[@markf.2050]

@ericchen1205 If your estate is greater than $13,600,000 then a cash value life insurance product may have some benefits to you as a loophole around the estate tax laws. If not, then there are far better ways to pass wealth from real investments to your heirs. It's a matter of how much you want to pass to your heirs or have to spend in your retirement. The only ones recommending cash value insurance are the ones that sell it or have other personal financial interest. Commissions and fees with those products are very lucrative for them. They've invented a whole set of misleading talking points to try to convince you to give them your money.

[@jcrockett870]

Death benefit is the value of the house... cash value is the equity in the house.

[@Tier1Capital]

We like that analogy

[@chrismulcahy2364]

Heres a great example of whole life from the horses mouth. Well known company in the industry, long time on you tube. Low views and all the comments are against the model. Glad there are two hosts but even though one has a heart of a teacher and the other assertively mansplains, it ain’t helping. I’ll stick with those Tennessee “gurus”.

[@Tier1Capital]

Thanks for watching!!!