A common question we get, whether it be from a client starting his or her first policy or from someone interested in learning more about dividend paying, high cash-value whole life insurance, is, “What do I do with a policy once I have it?”

So that you will get maximum benefit and enjoyment from your new policy, here are some guidelines to keep in mind:

Earn, save (pay premiums), strategize and borrow (for investments, opportunities, emergencies), repay, repeat.

  • Pay your premiums first. This is how you pay yourself first. Each premium payment keeps the policy in force. Additionally, PUAR contributions add to the cash value and increase the death benefit. Your premium might be split between base premium and PUAR premium. If that is the case, prioritize your premiums:
    • You must pay your base premium in full and on time. If you cannot, contact us.
    • Pay any lump sum PUAR premium that will expire the first year. After the first year, you will more than likely not be able to contribute to the lump sum PUAR.
    • Pay your ongoing PUAR as illustrated. Most riders are flexible and will allow less PUAR than illustrated down to a minimum. Pay at least the minimum to keep the rider in-force. Do not pay more into your PUAR than what was illustrated as this may cause the policy to become a modified endowment contract (MEC). Contact us if your plans change.
    • Pay your premiums in accordance with the frequency illustrated. This ensures the policy will adhere to MEC guidelines. If you want to change your payment frequency, contact us.
  • Let your policy grow. Even high cash-value policies need time to grow. Your policy may have been funded with an intended strategy of taking a policy loan soon after issue. Otherwise, the more time you allow the cash values to grow, the more you have available for opportunities, investments, and emergencies. Always consider keeping a reserve of cash value available in case of unexpected large expenditures.
  • Have a strategy in place before taking out a policy loan. The guaranteed policy loan feature is powerful. It allows you to leverage your cash value for multiple opportunities while your money continues to grow. Use your policy for investments, opportunities and emergencies that you cannot pay for with monthly cash flow, but always have a plan to pay the loan back. Your wealth strategist can help you determine a strategy that is appropriate for your situation.
    • It is important to note that any outstanding loan balance will be subtracted from the death benefit paid at the insured’s passing. This should also be factored into your strategy.
  • For unexpected, large, and necessary expenditures, see #1. By paying your premiums first, especially your PUAR’s, your money gets to work for you in the policy right away. Then, take a policy loan to cover your large expenditure. The order in which you do this matters. Premiums first means you are paying yourself first. Then, you finance your expenditure. Contact us if this situation applies or if you won’t have enough cash value to cover the expense.
  • Repay your loans, see #3. A policy loan allows you to set the payback schedule. While the insurance company will charge interest, there is no penalty for non-payment. If left unpaid, your loan will accrue interest and could eventually exceed the cash-value causing a policy lapse. Unless you are matching the loan repayment with a specific investment payoff, paying interest-only will ensure the loan balance does not exceed the cash value. Remember, paying your loans back means that cash is available to you again for other opportunities.

***There may be times when you have enough cash flow to pay your premiums or make a loan repayment, but not both. Pay your premiums first using the priorities listed in #1 above. If the loan balance is going to exceed your cash value, contact us for assistance.***

Earn, save (pay premiums), strategize and borrow (for investments, opportunities, emergencies), repay, repeat.

Your whole life policy from a mutual insurance company is a Tier One Asset. It serves as the foundation of your financial strategy. It is one of the most reliable, flexible, tax-advantaged and diverse financial tools available. Keeping the guidelines discussed here in mind will enable you to maximize policy benefits for your entire life.

As always, contact us with any specific questions or ideas concerning the use of your policy, or if you are interested in learning more.

Thanks, and please share this with anyone you think would find it valuable.