Better Your Life by Exploring Whole Life Dividend Options – Episode 350

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[00:01] Welcome to the Prosperity Podcast. On today’s episode of the Prosperity Podcast, we’re going to dive into some of the details, somewhat technical pieces, but insightful to help you understand and navigate the world of the whole life dividend options. How about that for a mouthful? That is a mouthful because there are lots of dividend options. There are. And I think for any typical user, it can be overwhelming. And so what we want to do is hear you simplify this and help us understand how to navigate. Yes, happy to. I love to simplify things. And this will be as an additional recording in the Whole Life 101 Academy that we have prepared for all people, for our clients, for our prospects, for our subscribers, for our listeners, etc. So we’ll hit it now.

[00:58] And then if you want this like printed out or in some larger form, then it will be there for you as well. Perfect. Well, let’s dive into it. Well, the most commonly used dividend option. So we’re talking about a dividend that comes from a life insurance company, which when it is used as it most often is, purchases paid up additions, then you can never lose your dividend. And that is not accurate if we talk about dividends like from a stock company. You know, if you own Coca-Cola and they pay a dividend and you reinvest, which is essentially what paid up additions are doing, and then your Coca-Cola stock goes down, you’ve lost your dividend value, right? Like the money that was there is in stock that is no longer worth

[01:46] what it was. So you lost it. Poof, gone. Exactly. Exactly. Like could literally be the next day. And with a whole life insurance, that cannot happen. Now, you know, of course, if you cancel your policy and whatnot, then yes, but whole life is called whole life for a reason. It’s because it’s supposed to be there for your whole life and to be used in lots of other ways. So the paid up additions dividend election or choice, if you will, is literally like reinvesting. And when done sets a new floor for guaranteed cash value that will never go down again. Now, the dividends being paid in the future, those are not guaranteed. But once a dividend has been paid, it becomes a part of the guaranteed cash value.

[02:35] And so this is a very, very important dividend election. Most people choose it. And yet it’s nice to know that they do have a choice and that there are other choices for you to choose for your dividend to do. Because it’s a choice, is that often where you see people staggering or confused to make a decision? Well, I think early on, everybody’s really clear that paid up additions is the way to go. And so, no, I don’t see a lot of staggering. What happens is later, what do you do with it? So let’s say that you are now 80. You know, you’ve had your whole life a long, long, long time. And so now I’ll rattle off some of the other dividends that you might use then. And then I’ll come back around to ones that you might use on the front end.

[03:22] So as an example, you can take your dividends in cash every single year. And I would never recommend that you do that on the early phase, but it’s a completely legitimate thing to do in your late 70s and 80s and 90s and on. And so you would get your dividend as a payment into a checking account and it would not be taxed as long as it was up to your basis. Basis is how much money you’ve put in the policy. So let’s say your cash value is 250,000 and you put in 120,000. You could take dividends in cash up to 120,000 without tax. And then as soon as you crossed over that $120,000 number, you would be taxed on those dividends, taxed as income, full on income. And that’s okay because that’s profit.

[04:15] And you would be able to do that as long as there was cash value there to do that. Okay. That makes sense. But you said most, and we’ve seen this in all, not all, but let’s say the majority of situations, everyone understands the reason why they’re setting this up and they’re setting up with the paid up additions. But it’s down the line is where it gets a little bit confusing. Correct. Other than a couple ones that are on the front side as well. Yes. Which we’ll cover here in a minute. Excellent. Well, let’s jump into those then. Well, let me hit a couple other on the long-term side because I just think it’s helpful to know the front end and the back end of what’s the most common. So I’ve covered those

[04:54] two. The paid up additions on the front end, cash on the back end. But there are a couple others that are on the back end that I would consider more common than some of these on the front end. And one of them is to reduce premium. And the reason that I bring it up is because it’s absolutely a strategy that a lot of typical life insurance agents recommend and I don’t. Unless you really, really are short of cash flow and you absolutely need to have your premium reduced, which happens, of course, it is much, much, much, much better for you to be paying your own premium and let your dividends go to either cash or paid up additions than to reduce your premium. The reason other life insurance agents use it is because they

[05:42] view life insurance still as a necessary evil and they want you to put in as little as possible. Whereas we view life insurance as an awesome, helpful emergency slash opportunity fund and we want you to put in as much as possible. Interesting. That’s how you see it. And I can see also there’s one other component, which you have a truth concepts calculator that helps you see it both logically and then you’ve seen it with people over the years. Absolutely. Yep. Numerically proven and I guess we could say conceptually vetted. I like that. Numerically proven and conceptually vetted. There you go. So another option, just so people are aware of it, I can’t imagine where it would get used, but you can leave your dividends to accumulated interest.

[06:31] It’s a taxable account. So I don’t know why you would do that. I think paid up additions are way better, but anyway, that is a choice. And now we are back to what you had asked about what are some of the things that I might do up on the front side in order to make my policy better or different because I want a particular rider as opposed to somebody else who might not want that particular rider. So dividends can be used to get a variety of term insurance. Now, sometimes this is necessary. It depends on the company in order to get maximum paid up addition, but sometimes it’s not. And so there’s definitely a school of thought out there that thinks you always have to have a term rider to get maximum paid up addition. That’s

[07:16] not accurate, but nevertheless, it is a way that can be used. It’s not wrong or bad. It’s just not necessary all the time. So there’s a couple of different things that you can do with one year term riders that are valuable. They do increase sometimes the cash value capability. I like to see people have separate term policies, because I think when you add the riders, it makes the policy itself a little more complex and a little harder to understand. And so I prefer to have separate term policies, but sometimes it does make sense and is necessary to have term riders on an existing whole life policy. And you can use some of your dividends to buy that term rider. Interesting. It’s one of those subjects where it’s not typical what we’re going over,

[08:08] and it’s not as clear cut. So that’s why it’s a little bit more challenging. Very true. Very true. And yet it’s so important that we continue to self-educate these days. That’s supposedly the newest hottest business model in the market is self-education. And amazing to me, people will dig in and learn all this stuff about the stock market and their mutual funds and all these terminologies and strategies and pieces and parts. But for whatever reason, we’re just really resistant to learning stuff about insurance and some of its terms and pieces and parts, etc. And we need to get over that. As a society of consumers, we need to understand this product, because it is one that is valuable to us. I’m not saying you need to have your license and know every in and out,

[08:51] but there’s just a few terms that are necessary to learn at terms as in words. And I think that it’s very important that we learn those terms and words and understand what our policies are doing for us, especially because we will use them our whole lives. It’s not like, now, this information is good for a couple of years, and then it’s not good anymore. It’s good for the rest of your life. I think you can spend a few minutes learning about it. Now, you mentioned this is a part of an entire course and education system you’ve created, correct? Yes. Whole Life 101, our academy that is purchasable on our website and available for anybody to buy. And you know what’s really funny, Spencer? It was made for clients, but we have a lot of advisors that buy the course because

[09:40] the life insurance companies are not doing as good a job these days teaching the underlying aspects of the whole life product. They’re teaching people how to sell it, but not really how it works. So we’ve had a lot of advisors sign up and pay for our course, which is kind of cool. Yeah, absolutely. And also I think there’s a lot of legal speak, which can, if you are intimidated by that information or just completely overwhelmed, most of the time people just raise their hands and say, done, I’m not going to look into it. I’m not going to try. And so you’ve created something that’s going to be a useful tool for many people. Certainly tried to for sure. So a couple other decisions that you might

[10:22] make on the front end around dividend options. There is a long-term care dividend option. So there’s a long-term care rider, but then separately, and yes, I agree, this can get complex. There’s the dividend election of a long-term care rider. Those are two separate things in most companies. And all it does is just beef up your long-term care rider a little bit. So that’s cool. And then there’s, like I said, a whole bunch of term ones. So I’m going on my little cheat sheet here. The other one that I want to talk about, there are two others actually, are on what I would say the medium term timeframe of the policy. In other words, not typically done at the beginning. In fact, not ever done in the beginning and not something

[11:09] that we would want to do way later, but more in the middle of our use of it. One of them is premium offset. So premium offset is different than premium reduce. Premium offset is when you’ve had the policy for maybe 20, 30, 40 years and you’re literally not going to pay premiums anymore. And you want your dividends to pay the premiums for you so that you still get the benefit of a premium being paid. Because when a premium is paid, cash value rises. So you can use dividends to do that. Now you don’t have to wait for your dividend to be big enough to do it in its entirety, but you should. So again, if you’re having extreme cash flow problems, this is an option that you can turn to. Ideally, however, you’ll continue to pay

[11:56] your premiums as long as you’re earning an income. And for a lot of our families, you’ll continue to pay premiums past that because you have investment income that is greater than your expenses. And so you’ll want a place to put that extra investment income. And the payment of a premium is a perfect place to put it because at that point, all those dollars are going $1 in and $1.5, $1.10, $1.15, $1.20 of increase in cash value. Absolutely. Great point on that one. Yeah. And then the last one to talk about, and this is super valuable as well, is you can actually elect for your dividends to repay your loan. Now, as a general rule, I wouldn’t do that. However, if you borrowed against the cash value to invest in something

[12:43] and then lost the money, which is clearly not what we hope happens and not what we ever want to have happen, but does happen sometimes. Maybe you did a real estate deal and it just went sideways. And so you either didn’t get all of it paid back or you didn’t get any of it paid back. Then using the dividends to help you repay that loan, because repaying the loan is important, is a legitimate and valuable strategy. So it’s kind of a safety net. There you go. That one works. Safety net. Yeah. For getting your loan paid back if by chance you lost the money in an investment. So what you’re saying, now that we understand this and we’ve unpacked it a little bit, we can see that there’s different options for different times, phases of life.

[13:28] And knowing that and navigating it properly helps you get the most value out of using it, correct? Correct. Absolutely. And it’s a list that we have available. It’s generic enough to be accurate in most companies. And so if somebody is really, really wanting it, they should jump into the course because there’s so much other good learning that they will get from that and then they can get a download of that list. Perfect. And we’ll make sure to put a link to that inside of the show notes. Again, that is at wholelife101.com. Is that correct? I think it’s whole life course. Whole life course. Okay. We called it 101 because I do intend to do a 201 and a 301. And maybe, maybe someday a 401 for some really, really advanced life insurance strategies,

[14:20] of which I will definitely be getting Todd’s help on. Nevertheless, right now, I think it’s just wholelifecourse.com. Perfect. We’ll put that in the show notes. And for you listeners, if there are specific questions, here’s what you can do. Because in the future, Kim intends to create additional courses, send in some of those difficult questions. Oh, I would love that. That way we have material to work from. Does that sound like a plan? Yes, that would be fabulous. Excellent. Okay. And you can send those questions to hello at partnersforprosperity.com. We’ll put a link to that in the show notes as well. Beautiful. Excellent. Well, thank you for being such a clear communicator and helping us understand.

[15:00] Seriously, some of the stuff, I mean, I’ve owned businesses for years. And a lot of it, I want to raise my hands and say, I’m done. I don’t want to learn. And then I stay in and I say, I’m so glad I did. So thank you, Kim. It’s a joy to do always. Thank you for listening to the Prosperity Podcast. To take control of your money and have it work for you, visit us at partnersforprosperity.com. If you liked this episode, make sure you subscribe and leave a review.