Yesterday marked the onset of the Vernal Equinox on March 19th, ushering in a season of increasing daylight hours until September 22nd. As we transition into these “Sunshine Rich” days, I’m excited to delve into a sales idea using an Early Cash Value Rider, also known as an early liquidity rider.
Today, I’d like to discuss how we can leverage this rider to enhance cash value accumulation and expedite access to funds for our clients. By tailoring the policy design effectively, we can demonstrate to clients how they can maximize their cash value growth with this strategy.
Let’s explore an illustrative example
For this illustration, I’ve used a 43-year-old male, Preferred NS 12k annual funding. We dialed down the death benefit to the minimum needed to accept the premium.
In our design, we’re constrained to maintain the $12,000 annual premium for just four years. Beyond that, in year five, the policy can only accept a maximum contribution of $5,802.85 without becoming a Modified Endowment Contract (MEC). This example does not include the early cash value rider, but the design gives us a break even point (when premium equal the Accumulation value) at year four. This means that at this point, the total premiums paid, amounting to $48,000.00, are almost exactly matched by the accumulation value, oft $47,825.
Below is the same policy but with the Early Cash Value Rider.
As you can see, by using this rider, the accumulation and cash value are equal beginning in year one. With the policy structured this way, clients can typically access loans of up to 90% of the cash value. Notably, if the index credits outperform the loan rate, clients essentially leverage their money at no cost. The amount they could borrow in year 3 is about $30k having only put $36k into the policy.
It is important to point out that while providing early access to cash value, it may result in somewhat diminished returns or performance compared to alternative approaches.
This strategy is great for prospects that may want to utilize early loans to pay off debt, finance new purchases, or to pay for college for a child.
If you have clients that would like to see the highest and earliest cash value, reach out to me and let’s design something that can help you close more business.
