A 68-year-old client wanted a whole life policy he'd fund for seven or ten years at $30,000 a year and then stop. Stopping that way is called reduced paid-up, which means no more premium is due and the death benefit drops to whatever the cash value already pays for. He wanted to see both versions, so I built a third one as well and posted the side-by-side comparison for a 68-year-old.
Design one was $30,000 a year for seven years, $210,000 in all, with a $350,000 death benefit. It reached break-even, the point where cash value passes what you've paid in, in year six. After year seven it went reduced paid-up, and the death benefit dropped to about $331,000. He could still borrow against it, and the dividends would keep buying more paid-up insurance. The projected cash value at age 100 was about $445,000.
Design two was $30,000 a year for ten years, $300,000 in all. To take in that much premium, the policy needed a bigger death benefit, so the base premium went from $2,775 to $3,600. Break-even moved out to year nine. At age 100 the projected cash value was about $589,000, so the extra $90,000 he put in turned into about $145,000 more.
Why did spreading the money out hurt? These designs blend whole life with term insurance to keep costs down. The term part is annual renewable term, which means its price resets every year based on your age. It's cheap when you're young. At 68 it isn't, and the cost climbs faster after about 75. Paid-up additions, which are extra premium dollars that buy small pieces of fully paid insurance, replace that term coverage over time, and a ten-year schedule keeps paying for the term three years longer. Why a high cash value policy often has term insurance inside it covers how the blend works.
Design three put roughly the same $300,000 in over seven years, at $43,000 a year, with a $3,910 base premium and a $502,450 death benefit. Break-even came back to year six. By age 100 it projected about $50,000 more cash value than design two, for about $1,000 more in total premium, and a higher death benefit the whole way.
He could only spare $30,000 a year from cash flow, on an income of about $110,000. He also had a home equity line of credit, so the plan was to borrow the extra $13,000 a year from that line of credit or from the policy itself, at about 6%. Over seven years, that's about $91,000 borrowed. Worst case, if none of it were paid back in that time, the interest would add about $21,840. At year seven, design three projected about $308,000 of cash value against about $205,000 for design one. Subtract what he'd owe, and design three was about $10,000 behind at that point. Its advantage shows up later, as the bigger policy keeps compounding, and only if the borrowed money gets paid back. A policy loan reduces the cash value and death benefit until it's repaid, and the interest is real money.
He also asked about the worst case. The guaranteed column assumes no dividends at all. On those numbers, the seven-year designs broke even in year ten, and the ten-year design in year fifteen. Dividends aren't guaranteed, illustrations are projections, and at 68 the health rating you qualify for changes every one of these numbers.
Before you settle on a short-pay schedule past 60, have the same total premium illustrated over seven years and over ten, and check the guaranteed column for the year each one breaks even.