I received an email from a prospective client asking this question in the past week and thought I'd share my reply.
"How Much Is The Interest and Dividend Components in a Whole Life Policy?"
All Whole Life policies have a base guaranteed contract rate. The majority including Lafayette are at 4% guaranteed over the life of the policy. From there dividends, not guaranteed, are paid out from the surplus profit. Each company pays dividends differently…. Non-direct or direct. Then it gets further into the weeds. Some companies pay dividends after expenses. Some companies pay dividends before expenses. The point being dividend payout varies slightly from company to company but are usually in very close range of each other.
Because of the different methods used to calculate and pay dividends there is no concrete way to compare companies by their dividends. In my experience dividend rates leads to much confusion and interferes with the reason why owning an Infinite Banking policy is so important to your long-term financial benefit. Instead of aiming to solve for your own banking function and remove traditional banks from your life, we end up people striving for the best rate of return like they are investing in a mutual fund. This is not an investment. It's much bigger than that!
But for those that want a simple comparison, it’s internal rate of return or IRR, which is the growth less expenses and taxes. All the whole life carriers are going to be around 4.5 to 5.5% depending on age, health, and amount of premium funded.
Keep in mind though, the company with the highest IRR today will not be the company with the highest IRR tomorrow. They are all within a small range of each other because they all invest exactly the same way.
Most important is the structure of the policy. Is it designed correctly? Secondly, are you with a reputable carrier that supports #IBC/Bank On Yourself designed whole life policies that has a 100+ year history of paying dividends uninterrupted?
If the answer to both questions are yes, you are good! The rest is minutia that seem like important details in order to get the best policy but it’s hearsay… one person stating opinions or even a life insurance company stating they have the best dividends (perhaps but for how long, and are dividends before expenses or after, direct or non-direct, etc….)
I appreciate the question because it helps to highlight what’s most important. 😊 Try to keep it simple.
Here are the most important rules:
- Think Long-Term
- Don’t Be Afraid To Capitalize (Get Started and Keep Saving!)
- Be An Honest Banker (take loans, pay them back)
- Repeat steps 1-3
The rest is contractually guaranteed to take care of itself (even while you use the money someplace else!). What investment can do that?
Thank you,
John
John A. Montoya
JLM Wealth Strategies, Inc.
(925) 386-6639 Office
(888) 472-9757 Fax
Bank On Yourself® Authorized Advisor
IBC® Authorized Practitioner
CA Life#0C42222