Underfunded vs Fully Funded: Side‑By‑Side Cash Value Comparison

If I plan to fund a life insurance policy with $50,000 per year for five years, what happens to the growth if I only fund the minimum starting year three? The answer is, you'll be fine. The cash value will still grow at a very attractive pace. So, what I'll show you are several things. First, we'll look at the original plan of funding $50,000 per year for five years. If that's what your plan is, we want to use that as the baseline illustration so you can compare that with the other examples. The second example we'll look at is what does the policy look like if you fund $50,000 for years one and two, and then not just the minimum starting the third year, But zero, then we'll look at exactly what you asked for, what does it look like if you fund 50k for two years, and then the minimum, which will be about $5,000 per year for years three, four and five. And then I'll show you something cool. So let's take a look. We'll start with the original plan, which is 50k per year for five years. So we've got a MassMutual 10 pay policy. There's your funding. And if we look at a breakdown of where the money is going, Up here, you've got your underlying base premium. We've got a term insurance rider attached as well. And when you add the base premium plus the term, the all-in minimum is about $5,000 per year with this particular example. So you've got a total of $50,000 per year. Which allocates the bulk of the annual deposit into your PUA Rider. Cash value looks fantastic just about 90% in the first year break even between years three and four. So this is the plan what does it look like if you fund less than planned? Exact same policy but the difference here is $50,000 goes in years one and two and after that nothing. Now you'll notice that the cash value is identical for the first and second year. I'm going to pull up a side-by-side comparison in a little bit so you don't have to go rewind and then come back to this. But after the second year you pay nothing and earlier I mentioned you'll be fine if you can't pay anything after the second year. And I say that because when you look at the cash value here it continues to appreciate. The key is really max funding the policy for the first year. If you're able to do it the first and second year, that's what puts you in a position where if life happens and you can't pay anything, you'll be fine. Where we see the cash value continues to grow, it'll continue to grow even if we cut the dividend in half. Let's look at exactly what he requested, which is 50 for the first and second year, followed by just the minimum premium, years three, four, and five. He could keep adding money beyond the fifth year but he started with a five-year funding plan so we just kept it five years. And then I said we'll look at something cool. So let's look at the three examples we just looked at side by side and then I'll show you the cool example. So here's your plan funding 50k per year for five years. You can see the break-even point falls between years three and four and that cash value just comes over time. Then you've got the example where we fund 50 years one and two, followed by 5K per year through the fifth year. And then you've got 50K years one and two and nothing thereafter. When do all three of these policies break even? Year four, all of them, meaning it's not dependent on you continuing to pay 50K or even the minimum premium. Again if you're able to fund 10x your minimum premium for two consecutive years with a whole life insurance policy you are going to be in a solid position where if life happens like what we see here and you can't pay anything that cash value will continue to appreciate. The reason why is because when you're not paying anything like what we see here that premiums still do. You may have noticed that. on the illustration, but you're not paying it. What's happening here is the premium is being paid through the dividends and interest. If the premium is low, that creates, call it, less drag on the policy. So there is less drag or less weight so the policy can continue to move at a very fast pace. If you had a high base premium, it could be a different story. That's going to slow down the growth. Sometimes we even see it's a situation where we have to pay something or we could go backwards. Now on to the cool illustration. So it's going to be the exact same policy but check this out. So there's your funding. Here's one and two. There's the plan. Years three and four, there's the minimum. Then what? In the fifth year, we made up for lost time, where we threw $140,000 into the policy. Your base premium stays the same. What we're doing here is making a huge catch-up contribution. We're specifically doing this with MassMutual's Lisser Rider. That allows us to make big PUA catch-up payments without any underwriting. We're also utilizing their ALER, which is another PUA rider. If you have a whole life insurance policy or if you're interested in one, you don't need to know all those ins and outs. Your agent does. But let's look at the side-by-side comparison. So as we look at this guy, here we go. So let's just compare this with the original plan, which was $250K over five years or $50K per year. For five years. Over five years, you got the exact same amount in. It was just paid in over a different time frame. Where through the fourth year, you only got 110 in. And then in the fifth year, you made up for all that lost time. As a result, what you will see with this example is over the long haul, there is a little bit less in cash value. For example, year 20, you're at 574 compared to the example where you paid 50K per year for five years consecutively, you're at 591. So a little bit of a gap. And the main reason why is because with the example to the left, the full deposit is earning dividends and interest each year you make the deposit. Whereas here, that 140 doesn't begin to earn dividends and interest until year five when you make the deposit. But in any event, you often can make up for lost time, like what we see here, as long as a policy is designed the correct way. But to go back to the original question, if I plan to fund $50,000 per year for five years, but starting the third year, I only pay the minimum, will that affect the cash value growth? The answer is yes, because you will have paid in less money. But from an overall performance standpoint, not really. You'll still be happy with it where you will still see it grow at an attractive rate. And the main reason why is because you stuffed that policy during the first and second year. If you do that. There's a very, very good chance you're going to be okay, meaning you're going to be happy with the policy moving forward because we see everyone who does that is typically happy with the policy. Hope you enjoyed this video. Let us know if you have any questions at all and we'll see you in the next one.