Cash Value Explained: The “hidden” Power Of Permanent Life Insurance

In this episode of the Broadcast Retirement Network, Phillip Snyder, CLU from The Warner Companies shares a focused, practical approach to retirement planning—centered on building reliable retirement income, protecting your financial plan from risk, and making smart decisions that can last for the long term. If you’re looking for clarity on what matters most (and what to stop overlooking), this conversation is built for you.

Jeffrey Snyder, Broadcast Retirement Network

All right, welcome back to the program. Philip Snyder, he is the senior vice president with the Warner Companies and for full disclosure, he's also my dad.

Dad, great to see you. Thanks for joining us this morning.

Phillip Snyder, CLU, The Warner Companies

Once again, Jeff, it's my pleasure always. Good to see you.

Jeffrey Snyder, Broadcast Retirement Network

Yeah, it's good to see you as well. Let's talk about life insurance, Dad. You know, I think it's interesting because I've seen life insurance studies come out.

Usually, Limbra, other associations put out the information. And generally speaking, I think people understand the concept of life insurance. But what I've seen happening is a trend towards people like not being satisfied with all the benefits of a life insurance policy.

I want to get your reaction to that.

Phillip Snyder, CLU, The Warner Companies

Well, I mean, fundamentally, life insurance is designed to pay a benefit when one dies. But you could limit that definition to term insurance, obviously, because term insurance has no intrinsic value, generally provides few, if any, additional benefits other than a death benefit. And it's typically inexpensive and continues for a term of years, 10 years, 20 years, 30 years, and so forth.

So that fulfills to me a specific need. I have an obligation, a mortgage, whatever, a business obligation or something like that, that's relatively short term or over a known duration. So that's the purpose of term insurance.

But I think what you're leading toward is what else can people buy in the way of life insurance that can deliver other benefits?

Jeffrey Snyder, Broadcast Retirement Network

And do you think the expectation, Dad, has changed? And if you're a product manufacturer out there, I mean, you're actually interacting with the product manufacturers. In some cases, you're actually helping to construct unique products.

But is that expectation that people have, like they're paying into something that, candidly, if you're paying in for yourself and you die, you're never going to see anything, but you're going to lose out on all the premium. So is that expectation a real expectation?

Phillip Snyder, CLU, The Warner Companies

Yeah, I think so. Yeah, it's but I think it is. And I think it is if people knew more, they'd know how to fulfill that expectation because there's more to a permanent life insurance policy than the death benefit.

You can build cash value in a policy or investment value, depending on the nature of the policy. And those monies can be available at any time throughout the duration of the policy. They can be used to pay educational expenses.

You could pay down a mortgage. You could take a vacation with those funds. Or you can use them to supplement your retirement.

They're just money sitting in a policy. The advantage to creating cash in a life insurance policy is the growth on that money, in effect, the earnings on that money is not taxable so long as the money stays in the policy. And if you take it out later on, there are ways without getting too deep in the weeds here and time limitations to get that money out, in many cases, with no income tax.

Can't get it all out without income tax, but you can get a large percentage out via withdrawals and or loans from the insurance policy. So there are ways to create value in a favorable basis, in effect, create a separate asset class, as it were.

Jeffrey Snyder, Broadcast Retirement Network

Sorry to interrupt you. My apologies to you. I think we kind of did it to each other.

We're both excited here. But with permanent life insurance, it's almost analogous to like a 401k or a retirement plan where you're putting money away and then there's certain reasons you can get it out early, some of it without tax penalties, et cetera. So when you're looking at permanent life insurance and you're trying to decide between term life and permanent life, when you're working with a broker or advisor, I'm hoping that they explain those differences and intrinsically, you kind of get, as a holder of the policy, you get an understanding about what you really get.

Phillip Snyder, CLU, The Warner Companies

Exactly. Well, that's all part of the discovery process, as it were, when you're talking to someone. You can put out all the ideas you want to put out in front of them.

But until you really know what their thought process is or what they don't know that you can help them to understand, you really can't describe and build the proper solution. You have to have the kind of information. And there are other things that can be added to permanent policies.

For example, you can add a long-term care rider to a policy and that rider will distribute a fixed percentage of the face amount of the policy if and when you incur the cost of long-term care services. That typically wouldn't happen until retirement years, although obviously there are exceptions to that. But that's a feature.

You could add a a critical illness benefit. A critical illness benefit pays out a fixed sum. They're not huge payments, but a fixed sum in the event you contract cancer or heart disease or a whole list.

Typically, that varies company to company, but a list and it kind of pays you a tax-free sum of money, maybe $25,000, maybe $50,000 to help offset the cost. That's a feature that could be included. You could add a benefit that would insure a spouse under the same policy and maybe even children.

So these things exist in the insurance world. Whether people know about them is a different story. Whether they're properly informed, excuse me, what's available, but those things exist.

In terms of what's on the horizon, I don't know. There are some limitations because it is an insurance policy. It has tax-favored advantages when the death benefit is paid under a life insurance policy.

It's paid income tax-free to the name beneficiary or beneficiaries. So there are specific advantages to buying life insurance and particularly permanent life insurance.

Jeffrey Snyder, Broadcast Retirement Network

What's the difference in premium if you buy permanent life versus term life? And this is going to vary by individual because they're all rated based on the individual behaviors and then you do an extensive workup. But generally speaking, for a 50-year-old male in relatively good health who's paying for term life, what is the comparable?

Is it five times, 5x, 10x? What can you expect to pay more than you would for a term policy and still get the features that you're talking about?

Phillip Snyder, CLU, The Warner Companies

Probably five to 10x is a good estimate. Probably something greater than five, maybe closer to 10. Because remember, a permanent policy is permanent.

You can keep it until death. You just have to make sure you're funding it properly and it works. A term policy runs out.

You can convert a term policy to a permanent policy within certain time limitations prescribed by the insurer. So it's in effect an exchange, as it were, without having to go through medical underwriting. But by and large, term insurance typically might be 10% to 20% of the cost of permanent insurance.

And those are real broad parameters.

Jeffrey Snyder, Broadcast Retirement Network

Yeah, I don't think anyone's going to hold you to that. It just seems to me that people don't really understand that. It seems that there's a lack of education about what the two categories of products are, what they mean.

And one of the benefits, I think, of the permanent life insurance policy is it's a financial instrument where you're actually invested in things that look like mutual funds. So you have an asset allocation, right?

Phillip Snyder, CLU, The Warner Companies

Yeah, but that depends on the product. I'm sorry to interrupt you again, but we're squeezed for time a little bit. That depends on who the buyer is.

Because those kinds of products where you have investment choice within the product, you have to be a qualified investor and you have to have pretty extensive experience in investing money. Obviously, most people don't fit that bill. So those kinds of products may not be available, but there are other products, for example, index products that provide a return based on the performance of an external index, like the Standard and Poor's.

And there's typically a cap and there's typically a zero floor. Those kinds of products, you have no potential for loss in any given year, even if the market collapse, but you do have some upside. So those kinds of products might be better suited for people who don't have the investment acumen.

Jeffrey Snyder, Broadcast Retirement Network

Let me just go back to the decision between permanent and I'm going to say term. There are certain actual terminology, but that decision is an important one. But let's talk about the employer for a second.

So people can certainly go to someone like yourself, a broker, an advisor, a fiduciary or whatever to buy products. They go through the process. Does the employer have the ability to offer either a term or a whole life, excuse me, permanent product?

Phillip Snyder, CLU, The Warner Companies

Sure, sure. Employer, we call them voluntary benefits. Effectively, we do that in our practice.

We communicate things for the employer and we offer coverages that the employer and the employees collectively feel might be beneficial, could be pet insurance. It could be whole life insurance. It could be additional term insurance.

And normally, most of those products come with some level of guarantee issue. So they're not underwritten. In most cases, they're portable.

So if you leave the employer, you can take them with you. So sure, those products exist, but they don't exist in very small employers because you can't get guarantee issue with a very small group of employees.

Jeffrey Snyder, Broadcast Retirement Network

Yeah. And what would be the threshold? Is it 100 lives or less?

Phillip Snyder, CLU, The Warner Companies

Certainly less than 100. But if you're an employer and you have two or three employees, if you're able to get any kind of guarantee issue, it's going to be very minimal. You're going to need 25, 50 employees to make it worthwhile at least.

And every product is different and every company has different rules. So people who are in that business know where to go to find the most suitable, most favorably priced and most accessible product for that group of employees.

Jeffrey Snyder, Broadcast Retirement Network

Let me close out. I'll just give you my understanding and then you kind of take it away and you close out and then we'll close the show. So the way I think of term life is a way to mitigate risk, meaning I'm going to pay in if I have a loved one, a spouse, children, cats, responsibilities.

I'm paying premium. I'm going to get something back if I pass away. So I'm mitigating the risk.

The way I think about permanent life insurance, though, is mitigating risk, but it's also building its investment. So it's an instrument that I can build a cash value with. And that may be in addition to or above the premiums that I pay.

And therefore, it's not only a risk mitigation strategy, it's also a investment strategy. I'll let you close out the show, Doug.

Phillip Snyder, CLU, The Warner Companies

But generally, I'd say term insurance is a death benefit only for the most part. And so if you need a death benefit and you want to spend as little as you can or need to or have the ability, then you buy term insurance. There's nothing wrong with it because you're covering things that the lost income and lost future assets that you would have otherwise accrued during your working lifetime will be replaced by the life insurance.

Certainly, everybody would try and pay for their home and their education if they live, but if you don't, you create the funds for that. Permanent insurance offers a much broader array of choices. Doesn't mean it's perfect for everyone.

And then you have to be somewhat knowledgeable or work with someone who is knowledgeable to figure out what's the right type of product for you. There are various products.

Jeffrey Snyder, Broadcast Retirement Network

Yeah. Well, Dad, we're going to have to leave it there. Obviously, you didn't get through the different products.

Maybe next time we'll do that. I don't know. There's lots of things that always come up in the life insurance world.

Great to see you as always. Thanks for joining us. And we look forward to having you back again very soon.

Phillip Snyder, CLU, The Warner Companies

My pleasure. Take care. Have a good afternoon.