How long do I have to pay premiums into my life insurance policy?
How long do you want to pay premiums into your life insurance policy?
For as long as you can.
As long as money is coming into the front door, then it’s going into life insurance policy because it’s the most efficient place for you to put your cash that you’re going to relinquish control of that you want to keep guaranteed, protected, and liquid.
We want you to pay into it for as long as you can.
We want you to pay that PUA into it for as long as you can. When the policy is “maxed funded” they won’t allow you to pay any more PUA into it, but you can continue to pay the base premium.
If you have that base premium coming in and you’re wanting to save it somewhere and it’s most efficient to save it into your life insurance policy, then continue to save it there.
Can you stop paying premiums into your life insurance policy? Yes.
Strategically, in an empowered way, we want you to pay into your life insurance policy for as long as you can because it’s the most efficient place to save that cash. But what are the ways where you would stop?
You may have heard me talk about reduced paid up (RPU). With RPU there are time when you can reduce the death benefit a little bit and the policy becomes paid up for life.
When you do an RPU, you are no longer able to pay into that policy if you wanted to.
When you exercise an RPU, it becomes fixed, it’s “paid up”.
The longer you’ve paid into it, the least amount you have to lower that death benefit to do the RPU.
For example, you pay into a policy 20 years, your death benefit’s worth $5 million, you have $2.5 million in cash, maybe you only have to lower that death benefit down to 4.3 million from 5 million because the cash in there will continue to grow at the guaranteed 4% plus the dividend, so you only had to lower it a little bit.
On the other hand, if you’ve paid into it for, say, 10 years, then you’re going to have to lower that death benefit more for the policy to be considered paid up.
RPU lowers the death benefit to a point where the policy is paid up and the cash will continue to grow, and the death benefit will continue to grow.
Another option is called Premium Offset. If you have paid into your policy long enough, then the premium can be offset by the interest in dividends accruing in the policy.
You can offset a portion of the actual premium that’s being paid into the policy or completely offset it to where you are not coming out of pocket anymore. The policy is going to continue to build the cash value, it’s going to continue to grow the death benefit. However not as fast because you’re no longer paying into it.
If you choose to do a premium offset, you can return to paying the full premium in the future if you want to or you can just let the policy pay for itself.
When and how do you know when to exercise an RPU or premium offset?
It all depends on what you have going on economically. We have clients that have done a premium offset, and I have clients that have done a reduced paid up on RPU.
Here is an example of an RPU:
I have clients that have retired. They’re out doing things other than exchanging their time for money in their profession, they’re deriving income from all of their assets. It’s such a great feeling that the time that you stop trading your time for money that you have all this guaranteed fixed money in your life.
A guaranteed dollar today can be leveraged in a massive way, but a guaranteed dollar in the future, when you stop trading your time for money, aka the retirement years of your life means even more to you.
When do you want to stop paying into it?
When you don’t have the cash coming in the front door. Now there’s other situations where you own your business and things aren’t going as well as they could be economically or you’re in some sort of a flux, some sort of a disruption in your life personally or professionally and you just don’t have the cash to pay into it, one of the first things that we’ll have you do is lower your paid-up additions writer. We’ll have you lower to the minimum or somewhere where you can continue to pay in a certain amount.
If you just can’t pay anything but it’s a short period of time, but you know you’re going to pull threw, we may have you do some loans from your policy. If you are 30, 60 days late on paying just even the base premium into your policy, we may have to initiate an automatic premium loan to ensure the policy says in force.