Truth Concepts is about showing clients the truth of ALL things financial. Whole life insurance is often left out from financial software because it’s notoriously difficult to calculate in a reliable way. That’s why Truth Concepts put in the work–so that you have a way to prove how whole life insurance can interact with your client’s financial portfolio, from stocks to loans and more.
One of the reasons life insurance is difficult to capture is because there are many moving parts. Truth Concepts enables you to look at ANY of those parts, for example: calculating the monthly premium cost from an annual figure (and no, it’s not quite as simple as dividing by 12).
The reason it’s not so simple as dividing by 12 is because making an annual payment to the insurance company is cost-saving. When you pay monthly, you end up paying just a little bit more, and so our calculations must include those hidden costs. That’s why, to be more precise, we use a Rate Calculator to find the “hidden” costs” of monthly debit charges.
Using the Rate Calculator to Find the Costs
Once you have your Rate Calculator, put the annual premium in the Present Value as a negative number (which changes it to Loan Balance) since the money is flowing away from you and to the insurance company.
Then change the mode to “M” for monthly and “Beg” for the beginning of the year, since premiums are due at the beginning of the period. Put the monthly premium payment in the Monthly Payment box and the Months as 12.
Once you have all these variables, the Rate Calculator will spit out an interest rate. This rate represents the “markup” on the monthly premium.
In the following example, the interest charge the company assesses you for paying monthly is 6.5%.
Your Clients’ Personal Economy
While 6.5% is not an insignificant interest rate, it doesn’t mean that paying monthly is a bad thing. The course you and your client choose should have more to do with their personal economy. For example, they may not be a particularly diligent saver, so they only have the monthly cash flow to contribute to a premium. They’re doing this purposely, to create savings with whole life insurance that shows up like a bill.
Maybe, in the future, they get to a point where paying premiums annually makes more sense. So they make the switch and save a bit of interest cost this way. In the meantime, they’ve still been doing something meaningful with their money, and are better off than if they’d done nothing at all.
Interest is something to be aware of, as in the above example. However, it should not be something that scares you or your client away from making a beneficial decision. We need to move toward financial literacy that helps us stay informed without acting out of fear (like avoiding insurance because you’re scared of the 6.5% on the monthly premium).
To try these whole life insurance calculations on your own, or otherwise play around in Truth Concepts, we invite you to sign up for our 30-day Free Trial.
