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The Cost of Waiting

Updated: Sep 3, 2023

This blog goes into depth on the cost of waiting when it comes to getting an Indexed Universal Life policy. By comparing the same scenario at Ages 25, 40, and 55, we can see that the individual beginning their policy at Age 25 get A LOT more bang for their buck.

Imagine you are 25. You graduated with your masters a little over a year ago, and you have landed a great job earning you well into six figures. With the new salary, you almost do not know what to do with all the extra money. After rent, utilities, and other expenses, you have over $4,000 left every single month that ends up in a low earning savings account. As in the case with many young professionals, life insurance is not top of mind when it comes to allocating your dollars. But let’s imagine you took $3,000 out of those $4,000 and put them into a max funded Indexed Universal Life policy which you paid into for only 7 years. What could a policy like that look like when you settle and have a family? How about in terms of retirement income? Let’s take a look.

Here is a snapshot of what the first 30 years of a policy could look like assuming an annual interest credit of 5.74%. In the left column, we see the $3,000 a month ($36,000 annual) premium payment. After year 7, the policy is “paid off” and no more premium payments are to be made in the future. The initial death benefit starts at $941,566, which serves as great protection to family members. All along, the accumulation value keeps growing along with the surrender value should you desire to cancel the policy. Now let’s take a look at the following 30 years.

At age 65, you decide to start taking income from the policy, all the way up to age 90. Through those years, you are taking income just short of $200,000 a year to supplement your other retirement income streams. Of course, you do not have to take these distributions. You could choose to keep the policy accumulating to leave a larger legacy for your children. The policy is flexible and the decision whether to take income proceeds from the policy is solely yours, as is when and how much you want to take. However, since we are comparing the cost of waiting, we are going to illustrate the same income period for the three different scenarios. Let’s look at the last 17 years up until age 100 as well before we move on the scenario #2.

This policy really does wonders. With a total premium payment of $252,000 and income proceeds of $5,085,080, with a remaining death benefit of over $1 million, life insurance should be an attractive option in the case of any young professional. Keep in mind that these values are not guaranteed, and are likely to be either overstated or understated. However, there are products available that boast indices averaging over 13% historically, so there is potential for even further growth.

Now let’s look at scenario #2 where you decide to max fund the policy in the same way, but you are instead of 25 now 40 years old and have just started a family. Let’s see what the same premium payment and policy structure would generate.

As you can see, the policy still performs very well, producing almost $2,000,000 of supplemental retirement income off the same $252,000 premium payment. However, that’s over $3,000,000 less than in scenario #1. 15 years of waiting therefore costs you over $3,000,000, off a $252,000 investment. Not to mention the lower death benefit in scenario #2 as well. This truly highlights the cost of waiting in an excellent way.

Now let’s look at scenario #3 where the same payment and policy structure is applied but you have turned 55.

By starting the policy at age 55, the supplemental retirement income is now down to $726,258. Death benefit is significantly lower as well. Although this policy performs great and would make sense for somebody aged 55, it is pretty obvious that the cost of waiting is massive.

Let's break the numbers down next to each other.

Policy Start @ 25:

Payment: $252,000

Initial Death Benefit: $941,566

Supplemental Income: $5,085,080

Policy Start @ 40:

Payment: $252,000

Initial Death Benefit: $630,993

Supplemental Income: $1,901,718

Policy Start @ 55:

Payment: $252,000

Initial Death Benefit: $405,293

Supplemental Income: $726,258

The cost of waiting in this case is in the millions. The sooner you are aware of the cost of waiting, the better you are off in making important financial decisions. Contact us today to make sure you do not incur the cost of waiting.

(559) 322-2230

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