Case Study - What To Do When Universal Life Fails

What to Do When Universal Life Fails

What to Do When Universal Life Fails

Thinking outside the box can check all the right boxes

Jerry has always tried to be a savvy investor. He knew that life insurance was a key part of a healthy portfolio, and purchased a universal life insurance policy some years back. Fast forward to 2020; while Jerry’s goals and priorities haven’t changed much, the market has. And so has the cash value of his universal life policy—for the worse. Now what?

  • Male
  • 53 years old
  • Commercial pilot

"If you're not willing to risk the unusual, you’ll have to settle for the ordinary." -Jim Rohn, Wealth Strategist

The Challenge

When Jerry purchased a universal life policy, he assumed it would benefit his family's interests for the duration of his life. Then his insurance company started increasing premiums on their universal life policies to make up for diminishing returns, eating away at Jerry's cash value. He needed a better strategy; something that would meet multiple requirements for protecting and growing his family's wealth.

In addition to a death benefit to cover the loss of his commercial pilot salary, Jerry wanted to boost his income in retirement, have cash on hand for other investments—especially real estate, and provide an educational framework for his children to learn how to manage wealth and pass on a family legacy for future generations. His failing universal life policy certainly wasn't going to be able to check all of those boxes.

It was time to explore other options.

Solution

As an investor, Jerry knew that whatever new strategy he adopted needed to be something he understood inside and out. His research into the Infinite Banking Concept started 12 months before he met with a Paradigm Life Wealth Strategist. During that time, he read Patrick Donohoe's book Heads I Win, Tails You Lose: A Financial Strategy to Reignite the American Dream and utilized the corresponding study guide to further understand the Perpetual Wealth Strategy.

Next, Jerry began listening to episodes of The Perpetual Wealth Strategy podcast where Wealth Strategist Gary Pinkerton is a recurring guest. After listening to Gary, Jerry decided he had a lot of similar goals and reached out to Gary personally for a free consultation. They discussed real estate investments, tax-reduction strategies, alternative investments like coffee farms, and how to grow multi-generational wealth. According to Gary, “It was a great connection— a perfect fit.”

Gary recommended a Penn Mutual Guaranteed Whole Life policy for each member of Jerry's family, including his wife and two children. They would also add flexible protection riders to make the policies more affordable, and paid-up additions riders to help the cash value grow quickly inside each policy. Most importantly, Jerry's premiums were guaranteed not to go up like they had with his universal life policy. Finally, Jerry was able to salvage the tax-advantaged growth of his now-failing universal life policy by utilizing a 1035 exchange.

Results

Thanks to his 1035 universal life exchange, Jerry was able to put $68k into his whole life policy in year one. Over $20k of that premium went toward paid-up additions, which bumped up Jerry's cash value and will continue to grow with guaranteed interest. Jerry plans on using this cash value for rental real estate down payments in the coming months.

In subsequent years, Jerry will owe $14,400 in annual premiums and an annual maximum of $36k in optional paid-up additions. Assuming all these payments are made, Jerry can expect to have a guaranteed cash value of over $1.1 million and a guaranteed death benefit of $2.4 million in 20 years, at age 73. Factoring for non-guaranteed earnings based on historical performance, he could potentially see a cash value of nearly $1.6 million and death benefit of $2.9 million.

Most importantly, Jerry now has more cash flow for investments, increased income when he retires, and a lasting legacy for his family.


Explore The Numbers
What to Do When Universal Life Fails