What’s Your Budget for Whole Life Insurance?

Asking someone about their budget for whole life insurance may seem odd like the conversation is starting from the end first. Typically speaking, most agents start with identifying the client’s need for a particular death benefit amount. But what if the desired outcome for the client is to grow cash value as quickly as possible?

I know it seems like a question that Fast Eddie would ask you as soon as walked onto the used car lot.  You know the drill, “What monthly payment do you need for me to get you in this car today?”

Sounds familiar to most of us I imagine.  And no, obviously that’s not what we’re going for when we interact with potential clients. But it could sound that way for sure.

What we’re actually trying to determine is much more nuanced than the question itself, “what’s your budget for whole life insurance?”. It’s not a sales tactic. We’re attempting to match your budget with your expectation and decide if whole life insurance is worth it for you.

Budgets Matter and Must Align with Goals

I was on the phone with a potential client a couple of weeks ago and we were talking about their goals, what they looked to accomplish with the whole life policy they were considering etc.

As our conversation came to a close I asked, “What’s your budget?”

Immediately I sensed that I’d said something a bit too direct.

I have no excuse.  The only explanation I can offer is that this lack of tact comes from years of conducting these types of meetings.  And honestly, I don’t mean to ask it in a way that’s trying to squeeze the most premium I can from a client but it dawned on me that it might sound that way?

This is really unfortunate because Brandon and I work really hard at adding value, not being overly sales-y.  Of course, we have to sell policies for our business to survive.  I don’t think any of our clients begrudge our capitalist motives.

Whole Life Insurance and Its Moving Parts

But here’s the reality.  If you tell me that you are looking for a participating whole life policy that has the best chance of rapidly accumulating cash value and that you need ‘x’ amount of death benefit, I’m immediately thinking of how we’re going to get you to your desired end.

However, my next question, “So how much were you looking to commit toward the policy” or “What’s your budget for this plan” or “How much on an annual basis are you looking to apply toward the policy” all mean the same thing. The only reason I’m asking is that I’m immediately thinking of the most efficient design for you to achieve what you’re looking for.

In other words, I’m slicing up the premium dollars between base policy premium, term blend, and paid-up additions.  Well, I’m not actually doing it while I’m talking to you but I will have to when I’m designing the policy.

Think about this…

For example, You can arrive at a $500,000 death benefit on a whole life insurance policy with $5,000 of annual premium, or you can commit $20,000 of annual premium and get the same $500,000 death benefit.  (Please note these numbers are purely hypothetical and pulled them out of thin air)

The Premium Budget for Whole Life Matters

If you commit to the larger premium outlay (20k/year), you accelerate the cash value growth inside your policy.  You are taking full advantage of the tax-favored status of the cash build up inside whole life insurance.  And you are able to take that extra and put into those magical paid-up additions.

On the other hand, if you can only commit $5,000 toward the policy, that’s fine, you just won’t get the same rapid accumulation on the cash value side of the ledger.

Pretty simple right?

What you have to realize is that it’s not the same as buying term insurance where you’d say, “How much will a $500,000 20 year term policy run me?

Whole life insurance has many more moving parts(and fortunately for everyone involved, Brandon and I have mastered the art of fine-tuning all of those parts to create a plan that will come as close as humanly possible to meeting all of the client’s objectives).

Here’s the Bottom Line

When we ask someone about their budget, it’s not us trying to have them pay more than is required for a particular death benefit.  Keep in mind that 99% of the time (that’s an official number) we deal with clients who only see the death benefit as a secondary concern anyway.

Most of the people we work with are looking to use cash value life insurance as a tool, a non-correlated asset…not to say they don’t need the death benefit or even want it but it’s not their primary focus.

That’s why we might think you’d be interested in committing more premium than is required for a particular death benefit.

Perfectly logical…right?

As a matter of fact, most of the time we are minimizing the death benefit to the lowest level we can get away (working hard to keep the policy from becoming a MEC) with for a given premium.  Most clients approach us with, “Hey I’d like to put $45,000/yr. into a policy for the next 20 years, then turn on the income faucet…can I do that?

The answer: You sure can.

Our job is to maximize the cash value growth to make the best use of their premium dollars.

And I’d be remiss if I didn’t close with a shameless plug.  If you or someone you know might interested in talking about the use of cash value life insurance as an alternative savings vehicle, a non-correlated asset, or just because they like to go against the flow of all the pop culture financial “gurus”, we’d more than happy to help.  Just use our contact form to get in touch with us.

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