Every individual is going to have different needs and abilities when it comes to a cash value policy. What many are not aware of is that one can choose where your money goes in a life insurance policy. You may direct dollars toward base premium (insurance expense) or a PUA Rider (cash dump-in).
Money that is directed toward Base Premium first satisfies the Death Benefit and eventually builds cash value. Money that is directed toward the PUA Rider is allocated toward cash value and is available immediately. This also purchases us additional life insurance as well and is still classified as a “Premium” from the insurance industry standards.
The spreadsheets below display different examples of life insurance policies and how/how not to fund a policy.
Scenario A is a “traditional” life insurance policy with $10,000 per year paid into the policy for 20 years. All payments are directed toward the base premium. You’ll notice $0 in cash value during the first two years in this example. We’ll often refer to this as a great example of what not to do.
Scenario B is the same policy with the same $10,000 per year for 20 years paid into the policy but designed for maximum cash value. This policy carries a $1,000 base premium, minimal term rider, and a heavy PUA allocation.
The third scenario displays a policy funded with $50,000 per year for 4 years. This policy is designed with a 10% base premium ($5,000), term rider, and heavy PUA allocation. This displays optimal cash value/death benefit results compared to the other scenarios.
The fourth scenario displays $100,000 per year paid into the policy for 2 years. This shows how to fund a policy with a lump sum into a Non-MEC policy in a short period of time (6-12 months). While the payments stop after two years, the policyholder still has the option to continue funding, at varying amounts, if desired.