What the Heck is a HECV?

What do you mean I can buy real estate with my life insurance policy?

What do you mean I don’t have to wait 8-10 years before there is money available for my disability, car loan, kids education, or buying my real estate investments?

What do you mean I can have a life insurance policy at a discounted rate the first 13 years, and then it can pay for itself??!

What do you mean I can borrow most of the money I pay into my life policy, yet I am still making dividends and interest on that same borrowed pile of cash value?

What??!! Please Explain how this is even possible!!

Yes, this is possible; I think it’s the best multiple use of money while simultaneously socking it away in a life insurance policy.

So let’s go definition explanation first: Whole vs Term.Whole life has these caveats:

Stable premium for the life of the policy

Borrowing capability against the cash value

Dividends earned (passive income for your real estate investors).

Term has one caveat (if you have a good agent looking out for your best interests to begin with): the ability to partially or fully convert the policy to a whole life at a later date without having to prove you are insurable. Term is never to be relied on for the intention of having an insurance policy for longer than a period of time

– and actuaries will tell you, you are unlikely to die in that time. Let’s face it; term is throwing your money down the toilet, or to the insurance company. But, it is definitely a “better than nothing” solution. For a set period of time, a term, your premium stays stable, then one day, most people thinking they are all paid up, KaBOOM! You get a bill for 8-10X what you were expecting and now, you may find you have to keep the policy because you cannot have a gap in coverage… or worse, you are uninsurable (cancer, surgery, MS). Maybe, if you lose this coverage, you have nothing. Well that is a crappy plan. And I blame your lousy agent for not caring enough to take care of you by educating you. Life insurance should be planned for by going backwards. What will you need in the later years, what can you afford in the later years, and heck, wouldn’t it be nice if your life insurance paid YOU in the later years? Think social security is going to fund your fantastic retirement you want and deserve? HAH! You need a private pension plan for that. How does one get a private pension plan without being one of the 8% of government workers? Amazingly, whole life insurance can provide for that too. Yup, I didn’t stutter. It is an AMAZING multi functioning, multi purpose life tool and you definitely get positive leverage on your money if you begin the plan by planning the way you want it to end in your benefit, not just your heirs’ benefit. Why shouldn’t you get some living benefits out of it? You are paying for it after all!

So how does it work? Simple, pay your premium annually or monthly, (quarterly and semi cost more, not worth it). If you are a real estate investor, then I recommend paying on an annual basis or you won’t reap the rewards as fast as a monthly payment. Then borrow up to 84% of your first year’s premium, invest it in real estate or let it sit for a few years. As the first 3-5 years rack up,   you may have the ability to use up to 97% of your accumulated premiums paid. Wait 6 years and you have over 101% of the premiums you paid into the policy available to borrow. At the same time if you borrowed out all that cash value, you are still earning dividends (the surplus profit of the mutual company) on the borrowed funds, and with interest rates adjustable, you pay nearly less than 2% (worst case scenario) for borrowing the money. All this time you have life insurance coverage. It’s the ability to use your dollar 3 times – life insurance, borrow to invest, dividend income which increases policy value. Oh… did I mention this is all income tax FREE? (As long as you pay the premiums with aftertax dollars)

I can hear the hecklers now, “whole life is a waste of money! You can buy term and invest the difference.” You can, but that would suck. Way too much work, not enough benefits. And do you really think Warren Buffet buys term and invests the difference? Of course not! He knows the value of not having to pay income tax on earned income and the value of rate stability in the later years, not to mention the simple concept of leveraging the diminishing value of the almighty dollar.

 

 

But, let’s appease the BTID Moron Club: Let’s say you have enough discipline and fortitude to invest the difference EVERY Month and EVERY year, for 35 years. By the time you get old enough that enough time has passed for your investments to have accrued significantly, you must pay taxes on all of it, and your term policy has exploded. Oh and you are much older, 35 years older so that term 20 has run its course, heck, the term 30 has run its course. So now, your term policy becomes an ART – Annual Renewable Term with premiums based on your current age. How much of that hard earned taxed profit do you think you’ll get to use now that your life insurance policy premiums are astronomically inflated? After tax of course. It’s a horrible plan; much too time intensive, you not only lose money, you lose precious time.

Did I go too fast? Ok, I’ll slow down, I just get so damn mad at those stoopid tv “guru’s” who think by telling you what you can afford today won’t kick your ass tomorrow.

 The Story of Stock Steve:

          Steve spends several months “educating” himself about life insurance. He goes online, he reads a few books, even watched people on tv who make their money off of tv watchers. He finally contacts an agent who goes through the differences between whole life and term. She recommends he get the whole life policy. He adamantly demands to know “why not just buy term and invest the difference” as his tv gurus have commanded. The agent, because she’s his Insurance Chick, patiently explains how he can use his money in several different capacities over the payment life of the whole life policy. Both face amounts being equal, she says, you will have your money within almost liquid reach more and more each year, thus the cost of the whole life policy will quickly become less than the term. You have access to receiving dividends annually, and right about the time your term level payment will expire & blow up, this policy will pay for itself. Whole life grows with you, giving you the ability to be the Bank of Steve                  if you need to make a car purchase for example, and the growth will provide a nice supplement to your older years, like a private pension plan. Any monies you take out of it up to the amount of premiums paid are income tax free, (FIFO) unlike annuities where the first dollar taken is taxed.

Stock Steve is so hung up on the immediate amount of the payment, he can’t see the long term logic of the plan. So he decides he doesn’t want the pay the larger premium now. He goes online and purchases a term 20 policy. In 20 years, he says to himself, I will have investments that will more than make up for the life insurance. I will have a huge pension plan. Coupled with my 401K, I will live forever on my own money.

Fast forward to 20 years later, Steve has not had life turn out the way he had hoped. A car accident has set him back. As he was out of work without an income for several months he was forced to liquidate several stocks in year 8 which affected his overall portfolio growth. His daughter did not complete college on time as he had hoped, adding an extra year of expenses. Stocks did not grow as well as he had expected, given all that he had read online – it seemed a safe investment at the time. His 401K, after taxes and being at the mercy of the current buyers market, did not yield the crop         he had relied on.  All in all, when looking at his growth chart and the looming 21st anniversary of his term policy, no longer level, 9x what he had been paying previously, he realized the huge gap he had made for himself. He quietly went to his desk drawer, pulled out a dusty old pile of paperwork and flipped through to find the yellow highlit mark. There it was, on year 20. According to his Insurance Chick, he would have almost $134,000 in cash value, a death benefit that increased $89,826 over his original purchase amount, and no taxes to pay. He looked a little further down to his age 70 numbers, and sat down hard, feeling nauseous: cash value $289,011, death benefit $524,726. I would have had complete security and peace of mind, he thought, with little to no effort. He looked over at the tax documents he would be spending the evening filling out and sighed.

Ok, I hope that drew a more cohesive picture for you. And those numbers are REAL. I took them directly off of a current client (April 2012) of the same age and numbers.

So… now that you get it, what’s the difference between traditional whole life policies and my HECV? Time and money.

Traditional Whole life insurance policies take about 8-10 years to accumulate some cash value, about 10-12 years for enough to really be of use to a real estate investor. With my program, you have that money asap. HECV – High Early Cash Value. Buy now, have your cash value available now to borrow, earn dividends on all of it now, while you borrow.    Control and access, HECV? Heck Yeah!

It’s pretty incredible.   

Call Jen, Your Insurance Chick today. I care, and you’ll know it.