Introduction Of New 2022 Trending Deep Dive into Policy Loans
New 2022 Trending Deep Dive into Policy Loans. Deep dive into policy loans this is the last video of the series in this video we are going to look at a guardian policy that has a similar funding scenario to the last video the difference is we’re going to look at a 55-year-old female and we’re going to focus on their 10 pay product.
We have with their 10 pay policy
Now their 10 pay policy does have different limitations and different rules than all another guardian whole life insurance policies focusing on the loans what we have with their 10 pay policy is as follows when we first start the policy we have a fixed loan interest rate at five per cent so that’s just like everything else at the 10th policy year.
We can elect to change the fixed rate to a variable loan rate which has a floor and current rate of four per cent that’s the same as all other guardian products here’s the difference though whichever comes last the fixed loan interest rate drops from five per cent down to three per cent with the 10 pay product here’s the difference at the 10th year instead of the 20th year.
So it’s the latter of year 10 or 8.65 whichever comes last notice we’re looking at a 55-year-old individual so year 10’s at the same point in time but then the loan interest rate drops to a fixed loan interest rate of 3 so we can lock in that fixed rate at an earlier point in time so we are going to look at a policy loan coming out in year 11 of 300 000 in this example same funding 100k per year for five years.
The 10 pay product most guardian policies
I want to touch on something important here though when it comes to the 10 pay product most guardian policies when we design them for maximum cash value will allow a maximum of 10x the base premium each year to be paid into puas their 10 pay has different limitations specifically how it works is wherever we set that premium if it’s ten thousand dollars, for example, referring to the base premium specifically.
When we dump money into puas they will allow a maximum of 5x the base premium to be paid into puas each year which would permit you if this is your policy to pay another 50 000 each year into puas so I cannot go as aggressive 10xing the base premium each year when illustrating policies for maximum cash value they may allow that but they may allow you to go higher. You Can Also Read Insurance The Same Policy as the 1% Must Read.
But at the same time they reserve the right to cap one out at 5x the base premium in annual pue payments they don’t allow you to illustrate any higher than that except the first year we can go 50x the base premium but beginning year 2 the maximum is 5x the base there’s one other thing though that’s good to be aware of which sounds great at first but then.
It’s a 10-pay policy no premiums
When you look at the numbers it’s like it’s cool but it’s not as great as I would think from a performance standpoint is beginning the 11th year it’s a 10-pay policy no premiums are due however they will still accept pua payments if you still have a one-year term writer attached you can continue to fund 5x the base premium and poa payments if the one-year term rider has expired.
We remove it or we never had it in the first place the maximum pua payment we can often pay is up to the mech limit or whatever the base premium was so not that much with all that said that’s good additional information it’s pretty cool to see that modelled sometimes but at the end of the day it’s a good product to be aware of however a lot of people like the l95 or other products.
Where I can 10x the base premium and additional pua payments let me commit to a lower premium and just shovel money into was let’s look at some loans shall we so the first thing is first so let’s take a look at the 100k per year going in now you’ll see that relationship line up here with the 5x limitation so the underlying base premium here is what sixteen thousand dollars and change.
A traditional policy
Where did we come up with that number well there’s our base premium multiply that by five that’s your pua payment and add the two together there’s your total payment of a hundred thousand dollars per year so we’ve got a one-year term writer attached there’s the cost for that term this is a 55 year old female so still very low term cost when you look at that as we scroll down here this is the loan illustration.
We’ve got let’s take a look at the growth illustration first all right here we go so where is the money going breakdown of premium total payment now granted that this premium is higher 16 000 and change you get about 35 of that shows up in cash value right off the bat so, unlike a traditional policy.
Where you have zero of the premium show up in cash value in the first year and this guy we do get about 30 right off the bat 30 to 35 premiums higher but we see some of it come back to cash value we had about 83 per cent right off the bat 83 000 with the same 100k payment where here we’ve got 82.5 so you don’t see too much of a difference initially you will see a little bit less you see.
A clean break even of year five
We don’t have a clean break even of year five it’s technically year six when i’m positive here and she’s paid into it a total of 500 grand hundred thousand dollars per year for five years and just lets it sit and grow cuts the term rider after year seven also executes reduced paid up that’s why i see the death benefit drop and the cash value continues to grow going to the loan scenario here’s.
Where it gets cool there’s your three hundred thousand dollar loan coming out there’s your loan balance three percent would be what not 8738 do you remember what happens with guardian before i just give you the rate you have a discounted rate 2.91 that occurs if you’re paying the loan interest out of pocket so going back to this guy there we go.
What do we see here loan interest comes due and we pay it each year now if we would have taken a loan up here prior to year 10 we would have seen that 5 loan interest rate we did not take until year 11. why we did this is we’ve got a 10 pay product and we’re locking in that lower fixed interest rate much earlier now again it depends on our age and when.
Starting a policy for this person’s 55
We’re starting a policy for this person’s 55. if we’re 55 or older we can implement something like this if we’re 40 we would have to wait until when the later of 10 years or age 65 which will be 8.65 when I can lock in that fixed loan interest rate of 3 with any guardian product for that matter cash value accrual but this example, we’re paying the loan interest out of pocket indefinitely.
So let’s take a look at our comparison sheet here we’ve got the scenario where we plug money in let it sit and grow 100k goes in 82.5 in cash value next year you pay in a hundred grows from 82 to 179 so I get my 100k back minus a couple of grand there so I got less back than what I paid in next year paying a hundred thousand dollars grows from 179 to 280.
So I’ve got the 100k payment back plus almost another thousand dollars in earnings we always like to isolate the net growth rate we do not want to account for the payment we made as well and there’s the growth each year breaking even between years five and six over here annual loan age 65 300 000 loan what is the impact on my policy cash value death benefit.
If we look over here cash value death benefit we see just about a 300 000 reduction dollar for dollar we’re not quite a dollar for dollar on the death benefit we do have to account for the loan interest but as we look at this guy there’s my loan balance loan interest comes due I pay the loan interest in the first year that I take the loan I don’t pay anything toward the principal beginning the next year in purple interest comes due I pay the interest I’m also applying fifty thousand dollars toward the principal balance.
