August 2, 2024 • 35 mins
Can understanding life insurance be as simple as building a house? Tune in to Bullshit on Stilts as we promise to demystify the often confusing world of life insurance. This episode is packed with crucial insights starting with our Fab Five questions designed to empower you. We'll help you identify the different types of life insurance—term, whole, universal, indexed universal, and variable—and why knowing which one you own matters. We'll break down the essentials, from understanding why you have your policy to what your premiums are really paying for, ensuring you're not left in the dark about your coverage.
Picture your life insurance policy as the foundation of your financial house. It's something you might not see every day, but it's essential for long-term stability. We’ll discuss the often overlooked importance of assessing your policy's performance, especially for younger and healthier individuals who tend to dismiss its necessity. Learn how to measure your policy’s performance by comparing current in-force illustrations with original projections to ensure your coverage remains adequate. We'll share practical tips on interpreting these figures, so you can adjust your policy management with confidence.
Navigating the life insurance landscape can be daunting, but we're here to simplify the process. We'll delve into the debate between term life insurance versus permanent life insurance, comparing them to investment accounts like Roth IRAs and 401(k)s. You'll get a clear breakdown of how factors such as age, gender, health status, and lifestyle affect your premium costs and eligibility. More importantly, we'll guide you through a structured decision-making process, ensuring you're well-prepared when it comes time to choose a policy. With our Fab Five framework, making informed decisions about life insurance has never been easier. Join us for this enlightening episode and take control of your financial future.
We love to hear your thoughts, questions, and ideas. Send us a text!
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:01):
Welcome to Bullshit on Stilts, a podcast hosted by
two guys with vast financialbackgrounds and great bullshit
sniffers who call out the clichecrap, spackle and flap doodle,
spooed by so-called expertsacross the landscape of
financial advice Identifying asdoctors of bullshitology.
You can count on your esteemedhosts okay, maybe
(00:24):
knuckleheadsheads to bring you alively, if not deadly, mix of
serious analysis, hijinks andtomfoolery, all within a 99.1
bullshit free, safe space.
Let's get after it.
Welcome to bullshit on stilts.
Um, Mark and Kelly, we're goingto be talking about our Fab Five
(00:45):
questions that we believebrings control to consumers out
there.
Our earlier podcast, we talkedabout the Fab Five when it comes
to investments, and now we'regoing to apply that same simple
methodology to help you havecontrol of your life insurance
policies around.
The Fab Five questions as theyrelate to life insurance.
(01:05):
Whether that's you own a policy, you want to review it and get
real comfortable as what it ishow does it work or whether you
may be considering or in theprocess of purchasing a life
insurance policy.
So that's what we're going tobe doing today.
Mark, you want to lead us offon this whole discussion.
Let's do it.
Speaker 2 (01:23):
And Kelly.
I think this is a veryimportant topic.
We've reduced the complexitiesof insurance down to five key
critical questions that willshow evidence that you know what
you own and why you own it andyou have some level of
understanding to where you cansay I am in control of my
insurance needs and I can answerquestions sufficiently, to
(01:47):
where I know that I haveadequate coverage in the areas I
need coverage.
So let's review the five andthen we'll get into that with
Kelly's expertise in describingand defining and explaining each
one of these.
So the Fab Five for insurancelife insurance are what do you
own, why do you own it, how isit doing, what are your premium
(02:08):
dollars paying for and whatother benefits do your premiums
buy?
If you're able to answer thosefive questions, you are in
control, which means that you'vecircumvented a lot of bullshit
explanations or I don't knows orsplinations for stuff you just
can't explain.
Let's get into these.
(02:28):
So, kelly, the first one iswhat?
Speaker 1 (02:31):
do you own?
Yeah, so it's a great question,and we meet lots and lots of
people that have life insurancebut they have no idea what it is
.
They fumble around whether it'sa term life insurance or
permanent life insurance.
So really there, it's a termlife insurance or permanent life
insurance.
So really there's many kinds oflife insurance but it boils
down to, let's say, four typicalvarieties.
(02:53):
So one is term life, term life,I think people you think about
it as it's temporary, it's goingto be here for a little while,
maybe it's 10 years, 20 years,30 years, even 40 years but
eventually the cost of it willbe prohibitive and you'll get
rid of it essentially.
So there's a sort of a maturingdate from a cost of the
(03:13):
coverage of insurance right onterm.
The next type is whole life.
That's a permanent type ofpolicy, and whole life is a
policy that most peopleassociate with life insurance,
where it's fairly costly, butthe policy will be there forever
.
So long as you pay the premiums, as you're required to pay them
, it'll always be there.
It never goes away.
(03:33):
There's lots of guaranteesinside of it.
Universal life is a type ofinsurance policy that actually
sort of has some perspectives ofa whole life right, actually
sort of has some perspectives ofa whole life right.
It has crediting inside it.
You can build value, calledcash value, in it, just like you
do whole life.
But universal also comes withlots of flexibility the
(03:54):
flexibility to change the amountof premium you pay depending on
what's going on in life.
Also, maybe, the ability tochange the death benefit levels.
So there's lots of flexibilitythere and it's typically less
expensive than whole life.
By the way, it's also permanent.
Index universal life is anothertype of life insurance policy.
We bring it up not as it's itsown animal it's a universal but
(04:16):
the fact that it's indexuniversal.
It's the fastest and mostdominated product being sold in
the market today.
It's an interesting product andthe question is do you own it
or not?
And lastly, it's variable life.
Variable life is.
When you hear the term variable, think like it's a 401k with a
whole bunch of investment fundsthat you can put your money into
(04:37):
, and so, just like a 401k, thevalue of your life insurance
policy can go up and down basedon the performance of the
financial markets.
Speaker 2 (04:50):
So what terms would you use, Kelly?
Common everyday terms?
Would you use to compare one ofthese against another?
So how would you compare termto index?
Universal life, whole life toterm life?
Speaker 1 (05:03):
Yeah, I think that.
Well, first, the comparison isis it a temporary type of a
policy, like terms, or is it apermanent policy?
Does my need to ensure risk ofme, let's say, dying prematurely
or forever?
Speaker 2 (05:23):
Check with your insurance company on how they
define premature death asopposed to forever death and how
each may affect your deathbenefit.
Speaker 1 (05:35):
Of me, let's say, dying prematurely or forever.
Is that need a long-term thinguntil I die need or is it just
temporary, like right now?
My kids are three and fiveyears old?
I have a temporary need to havea lot more life insurance, and
so I'm going to use a termpolicy to insure against that
particular risk that I'mconcerned about, that being, if
(05:55):
I don't make it home tomorrow,is there money there to support
my kids as they grow and maybeeven when they're adults, and
that term policy can do that.
Speaker 2 (06:04):
In 30 seconds or so.
What has Indexed Universal Life?
Why is that so popular?
Speaker 1 (06:10):
It's a cool product.
It's very complicated andthere's lots of jargon in it.
But here's why the IndexedUniversal Life policy gives a
person.
Let's say these are biggeneralizations, but maybe it's
40% less expensive than a wholelife policy.
When I'm speaking about that,I'm speaking about the
participating whole lifepolicies that pay you five, six,
(06:32):
7% dividends every year.
That's a Cadillac of policies.
It also costs a lot, so IUL isoften going to be about 40% less
.
You get to have your policiescash value accumulate based on
market indexes.
But here's the catch you don'tactually invest in the index.
You just kind of monitor it andover the course of normally 12
(06:56):
months, the policy index thatyou're following.
If it ends up having a plus infront of the performance, your
policy is going to receivecredit in the forms of dollars.
So your cash value will grow.
However, here's what they sellzero's your hero.
If the index has a negativeperformance on the year, you get
no credit, you just get zero soit's like a participation
(07:20):
trophy.
Speaker 2 (07:21):
I'm a winner because I participated in the market,
but I was never a loser.
Speaker 1 (07:28):
Shut up and sit down.
So the big sale is participatein the market, have less
expensive life insurance and, bythe way, you get no negative
impacts to your cash value orpolicy values if the market
turns in a negative return.
Well, I can see the interest inthat it's huge.
(07:48):
And, by the way it's interesting, lots of investment
advisor-based planners like IULs.
They sell a lot more of itversus a life insurance agent.
A career agent will probablythink IUL, but also whole life,
because it's a more permanentguaranteed structure as opposed
to a permanent but lessguaranteed structure like the
(08:11):
universal life is.
Speaker 2 (08:13):
So in some instances a combination of these types of
policies might work.
Speaker 1 (08:18):
It might work, depending on what you're trying
to achieve.
And, as we've talked in thepast, the idea of diversifying
your investments is a big dealand everybody's kind of familiar
with that.
But diversifying how youtransfer financial risk using
life insurance is altogether acompletely different type of
stratagem.
I don't wanna.
(08:40):
And so working with people thathelp you view that and help you
truly apply the right tool forthe right purposes yeah, one
could own whole index, universaland term all combined, really
shaping how they've insuredthose risks, knowing that
they've maximized each dollarthey're spending.
Speaker 2 (09:02):
All right, so that's number one what do you own?
Number two why do you own it?
Speaker 1 (09:13):
Yeah, why do you own?
It is sort of the top linethought that I think you as a
consumer out there need to thinkabout.
Why do you own?
It comes in first of all.
What if I die prematurely and Ileave my family here or my
loved ones or maybe even myfavorite charities without a
final gift?
So life insurance can certainlyprovide protection against that
uncertainty in life, right.
But there are other things.
It could be that you want tomake sure that your kids have an
(09:34):
educational fund, as an example.
So if, theoretically, you havethree kids and no matter what
happens, if tomorrow you don'tmake it home, you want to make
sure there's at least $100,000in an educational account for
them.
Term life, great use of it, it'scheap, inexpensive, you're
young, it can be there for 20years.
And so if you pass away in thenext 20 years unexpectedly, boy,
(09:56):
you at least know that, nomatter what, kids have $100,000
tax-free money in accounts forthemselves to use in advanced
education, maybe starting a newbusiness.
Whatever the case is, you'vesolved for that.
So why do you own it?
Another reason is because I notonly want to plan for my
eventual passing.
It might be unexpectedly orwhen I'm older, we come back to
(10:17):
the permanent idea of lifeinsurance.
But it can also be that thereare other life uncertainties out
there that we all face, youknow, an illness, an injury,
alzheimer's, when we're older oryounger due to an injury, let's
say Just the ability to nothave cognitive faculties that
you need to make your owndecisions from close head
injuries and auto accidents.
So there's other reasons whylife insurance policies exist
(10:42):
and can be part of your overallreason.
Why do I own this?
Does that?
Speaker 2 (10:45):
make sense?
Yeah, that does make sense.
Staying with that.
Why do you own that?
Often we can kind of foolourselves and we've got great
explanations which might borderon bullshit.
I think most of us are truthseekers, so I don't know whether
we really lie to ourselves asmuch as we just kind of dance
around our rationalization fordoing something.
(11:06):
How often are people buyingterm just because it's cheap and
then they start rationalizingwell, nothing's going to happen
to me in 10 or 15 years or 20years.
Speaker 1 (11:17):
Yeah, right, so one.
I think it's amongst the mostpurchased type of insurance
because it is cheap.
Oh, by the way, most employergroup plans that you get just
because you're employed thereand you have a group term life
policy for $50,000 on your lifethat's a term policy as well.
It's just that the employer ispaying for it for you.
So lots of terms out there.
(11:38):
Reason is my experience has beenpeople don't like to talk about
life insurance.
They don't want to talk aboutdeath, chronic illness, injuries
and all that.
They just they're notinterested.
We're all super people.
Until life's uncertainty knockson our doors, we can't plan for
.
We don't know what's going tohappen and so often most of us
don't want to even think aboutthat happening.
So we fool ourselves by sayingI don't want to spend 50 bucks
(12:02):
on that life insurance policy.
Oh look, term for 20 years andI'm 28 years old.
Well, it only cost me $18 and70 cents.
Boy, that tastes good, I'm notgoing to waste my money.
Quote, unquote.
But the question is does thatpolicy fulfill the needs that
arise from unexpected lifeevents?
(12:22):
Obviously, top line isunexpected death due to accident
illness, whatever the casemight be so really, with the why
do you own it.
Speaker 2 (12:30):
we've got to also quantify how much you own of
something.
Speaker 1 (12:34):
Yeah.
And I think that when you'reasking yourself, why do I need
life insurance In that case, youstart simply adding up numbers.
So if I'm 50 and I plan toretire in 20 years because I'm
just going to work until I'm 70,I'm going to do that.
I want to maximize my socialsecurity retirement benefits, so
I'm going to work the next 20years.
So when you're thinking abouthow much do I own, or how much
(12:57):
life insurance do I need,figuring out, the amount that
you need comes with.
Well, if I die, how many yearsof income does my family not
receive now?
If I'm 50, I want to retire at70, that's 20 years.
And if I make $100,000 a year,well, that's $2 million.
That's not going to come intomy household.
So one can start at well, if Idie now, I'd like to replace at
(13:19):
least that that's $2 million oflife insurance.
I have $150,000 left on mymortgage.
You want that paid off?
Well, that, add $150,000 to $2million.
If you want to leave $100,000for each one of your kids and
you have three kids just in casewell, add $300,000.
All of a sudden you're in that.
Just simple example.
You've added up Best, added upBest case scenario.
If something would happen, howmuch life insurance would you
(13:41):
need?
The next step is well, can youafford it?
And can you afford it dependingon what?
Speaker 2 (13:49):
kinds of policies.
You decide to own purchase andso forth, and often it's not.
Can you afford it?
It's, do I want to?
Yeah, it's construal leveltheory, and the farther
something is away or the morehypothetical it is, the more you
get stupid.
Well, you know, it's how 20years.
Am I going to think about itnow?
Or that's hypothetical, I'm notgoing to die, sure.
So though I get the numbers onwhat I want to protect, it's not
(14:12):
a matter of do I want to affordit.
I construe it because it'seither too hypothetical or too
far out there.
I'm going to poo poo it.
So it's like saying, hey look,do you want to put out the whole
fire or three quarters of it?
So you've got that element thatcomes.
And then we start rationalizing.
Really, we just don't want tospend that and we do what
(14:32):
typically we do is spend now onwhat we want to and worry about
the consequences later.
Speaker 1 (14:38):
Yeah, I think that it's helpful for people if
they're working with aprofessional out there, does the
professional help themunderstand?
And I'm going to use this froma metaphor or analogy.
Speaker 2 (14:51):
Kelly is about to attempt the rare and extremely
difficult metaphor analogycombination to make his next
point.
Speaker 1 (15:03):
If you got to spend $25,000 on your house, would you
rather put it into thefoundation that you never see,
you never touch, but at leastyour basement's dry?
Or would you rather put it onan all season porch addition
that you get to enjoy up inMichigan eight months out of 12?
Which would you rather spendthe money on?
And so I think, when peoplecome to the table of building
their financial well-being,their health, their peace of
(15:25):
mind and so forth, lifeinsurance, any insurance, but
certainly life insurance, issort of like the well, it's not
going to happen to me.
I'm young, I'm healthy, I'm 38.
And for 38 years nothing badhas happened to me.
So it's not gonna, and so I canafford not to, because that's
sort of like putting money intothe basement, into my foundation
.
I don't see it, I don't enjoy it, I don't touch it, I don't look
at it, there's nothing toappreciate with that expenditure
(15:48):
, and I think there's a lot ofthat thought out there, which is
why I also think you seeGoFundMe all over the place.
That's become the new way oflife insurance.
Oh shit, feel bad for me.
Here's my story, and some of itis very tragic.
I don't mean to minimize that.
But for lack of your planning,you're going to everybody else
to help pay for the things thatcould have been paid for had you
(16:09):
just saved a little of yourmoney toward a policy that you
don't outgrow Usually apermanent policy of some sort.
Speaker 2 (16:16):
All right, Are you pretty much finished with?
Why do you own it?
Number two I think we killed it.
I take my gun and I go pew pew,pew, pew.
Speaker 1 (16:23):
Okay, I think we killed that horse, all right so
let's move on.
Speaker 2 (16:26):
So just to keep the flow going, here it's what do
you own?
Why do you own it?
Number three is how is it doing?
Speaker 1 (16:33):
Yeah, this is a question that it's much harder
to measure for a policy owner.
So, in taking the policy owner,how's it doing?
How do you compare that?
One easy, straightforward wayto compare it is to compare a
current illustration of thepolicy.
You ask the insurance companyor the agent that sold you the
policy.
Hey, do me a favor go ahead andrun an in-force illustration of
(16:58):
my policy, in-force being run itas of today, as of last month,
as of the current status.
So let's say you've owned thepolicy for five years.
When you say, run me an enforceillustration, that illustration
will be five years after youpurchased it.
You get that in your email.
You compare that illustrationand the projected numbers that
(17:21):
it shows today compared to theoriginal policy illustration
that was published when youbought the policy.
So it's a real cool way of well.
I bought it and in five yearsthat the original illustration
said that my $5,000 a year inpremium would equate to roughly
I'm making this up $20,000 ofcash value and a death benefit
(17:43):
of $250,000.
I'm just making this up.
Where the Inforce illustrationshows that this year I only have
$18,300 in cash value, I stillhave a death benefit of $250,000
.
Why is there such a differencecompared to the original
projection versus the current inforce actual numbers?
(18:03):
So that's a real easy way Inforce illustration and just
compare it with your originalillustration.
There's other things you cancompare it to too.
Speaker 2 (18:12):
So what do we extract from that as a practical matter
, or is it just an observation?
Speaker 1 (18:17):
Well, I think it's an observation.
One.
A practical matter is they gaveyou an assumed rate of return,
an annual rate of return of,let's say, 6.5, 6.5, 6.5.
If your cash value is lowerthan that, well, your crediting
experience may be 6.5 minussomething average.
(18:38):
Maybe it's only been 6.2.
As an example, it's good toknow, especially if you have the
option of changing how thatpolicy may receive credits next
year, like an index, universalor a variable life.
When it comes to universal,it's not going to change
anything how it credits and whenit comes to the whole life,
that's not going to change much.
But with those other two typesof policy it leads you to that
(19:01):
kind of conclusion and maybe youdon't know how to change it.
But that's a great conversationto have with your agent and I'm
sure if they're a quality,strong-handed advisor they're
going to love the opportunity tohelp you understand and make
really good decisions.
So I said that there's otherthings you can measure that by.
Well, there's this huge debatethat's been around for a long
(19:22):
time since the late 1960s Buyterm and invest the rest.
And that's a great theoreticalidea, just like buy low, sell
high in investments Great.
Not many people do it that wayand not many people actually buy
term to save money and investthe difference.
The reason why they bought theterm is because it was cheap and
they could keep on spending therest of the money that they
(19:44):
would have spent on a moreexpensive permanent life
insurance policy.
So I love to compare that to aRoth IRA, a 401k, a brokerage
investment account or even acash account, because, no matter
what, this is what people miss.
If I have a term policy or apermanent, there's a cost to
that insurance and I got to paya premium.
Fair enough, if I die with theRoth IRA and I put, let's say,
(20:08):
seven thousand dollars a yearover the last three years in the
Roth IRA, the value of the RothIRA is going to be around seven
times three is twenty onethousand plus or minus growth or
depreciation.
That's what it's going to be.
When I'm alive, it's twenty onethousand plus and when I die,
guess what?
21,000 plus period.
End of story.
If I spent 7,000 into apermanent policy, as an example,
(20:29):
or even a term policy, when Idie, the value of that policy to
me was what it cost me 21,000bucks, the value to my loved
ones, the charities that I leftmoney to or whomever else I
named as a beneficiary in myexample here.
That's $250,000 of deathbenefit, tax-free, to that
person or individuals.
No, uncle Sam, no, pasco, no,go to the court to probate and
(20:53):
get some court order saying youcan do this.
It just goes to them now.
And that what we refer tointernally as a life event
revaluation.
That's what life insurance isall about.
So when you compare it to theRoth, sure your 7,000 times 3
plus growth might be higher thanthe cash value in your whole
(21:14):
life index universal or variablepiece.
But if you die next month, whatwill the value of that
investment account be?
But if you die next month, whatwill the value of that
investment account be?
And normally in my math ittakes around 20 years before
that investment accountsupersedes the death benefit of
the life insurance policy.
Isn't that interesting?
Speaker 2 (21:31):
All right.
So what do you own?
Why do you own it?
How is it doing?
What are your premium dollarspaying?
Oh, this is a great question.
Speaker 1 (21:39):
So in investments, we ask what are your total costs
of investing?
And in insurance, it is a greatquestion.
So in investments, we ask whatare your total costs of
investing?
And in insurance it's a littlebit different, and so we phrase
it like what are your premiumdollars actually paying for?
So there are, let's say I'mgoing to simplify this there are
, let's say, three main factorsof how your policy is priced
right.
There's personal factors yourage and you get older every year
(21:59):
.
So every year you look at newlife insurance is gonna be a
little bit more expensive.
Gender matters Women lastlonger than men on average from
a mortality standpoint, sowomen's policies are priced
lower on average than malepricing is.
If you're a healthy person, youcan get what's called, let's
say, super preferred, whichmeans that your policy grows and
(22:20):
operates much more efficientlythan someone with just standard
health and operates much moreefficiently than someone with
just standard health and a wholelot better than someone with,
let's say, diabetes 2,well-managed.
It's just going to be thathealth rating will add cost to
your policy depending on howhealthy or unhealthy you may be,
even to the point of you mightbe so unhealthy the insurance
says no, we're not going to giveyou any life insurance.
Speaker 2 (22:42):
Let's stay on that for just a minute.
I think that there areindividuals who just say you
know what?
I'm not healthy, I don't wantto even try, I'm going to get
priced out because I'm unhealthy.
Yeah, my understanding is thatthere's a lot of forgiveness
regarding your health, and thereare others.
It can be quite punitive.
Yeah, give me an example ofsomebody that might be preferred
or standard.
Speaker 1 (23:02):
Sure.
So let's take a 50-year-oldmale or female, I'm not going to
pick on a 22-year-old, let'sassume they're all healthy.
So super preferred might besomeone that's within height,
weight limits, they are on nomedications, they don't do
nicotine, they don't do anyextreme sports.
They're just a healthy person.
Maybe they're a yoga person,maybe they are active because
(23:26):
they garden every day and theywalk up this damn hill, whatever
the case might be.
So that's going to be someonethat has a shot at being super
preferred.
If you're over 50, the shot ofyou getting super preferred is
lower.
Obviously, just because as weage our bodies start changing
and breaking down.
Obviously just because as weage our bodies start changing
and breaking down.
Let's compare that to someone,let's say a 50 year old, with
diabetes, to one of the mostprevalent diseases and in
(23:48):
Western diets thank you foodindustry.
That person it becomes aquestion of is it well managed
or not well managed?
Maybe that diabetes has beenlosing weight?
They're not on any othermedications.
They have an average A1C of Idon't know 6.2, let's say, and
they're not going to get knockednearly as they might even get
(24:09):
standard on a health rating,whereas someone that isn't
managing it well is on fourdifferent meds and shots and
their A1C is 7.8, they'reprobably going to get rated,
meaning there's going to bepremium attached or a higher
dollar cost for their lifeinsurance policy, because their
diabetes too isn't well managedand so all the horror long-term
(24:34):
that diabetes can do to theinternal body becomes a higher
risk to that insurance carrier.
So they're going to price itthat way, sure.
Speaker 2 (24:41):
So the difference between standard and someone who
is rating not from a dollarstandpoint but from a percentage
standpoint just ballpark, whatthe difference might be.
Speaker 1 (24:52):
I'm going to stay away from that.
Oh, what a wuss.
Just because every carrier hastheir own algorithms and own
actuarial tables and so they allkind of price it a little bit
differently.
Let's look at it from anotherstandpoint.
On a permanent policy, when youlook at the projected cash
value accumulated amount atfuture years, someone in a
(25:13):
standard rated policy will haveless accumulated cash value than
someone with a super preferredhealth rating and depending on
how long we're talking, thatcould be 0.5 percentage annually
accumulated difference, itcould be one, could it be even
two plus percentage points,depending on how long of a
timeframe we're looking atwithin those projected numbers.
(25:33):
Does that make sense?
Speaker 2 (25:35):
Yeah, that does, but I'm asking it as a consumer and
a consumer saying I'm not goingto buy insurance because I'm 10
pounds overweight.
I'm taking blood pressuremedication.
I don't want to get rated.
I don't want to be paying twicethe premium.
I mean, this is the thinking,sure, is it safe to say them,
without quantifying anythingthat if you're just like a lot
(25:57):
of 50-year-olds you got a fewextra pounds, you might be
taking a couple of meds.
It's under control.
It should be pretty affordableand not getting nicked with a
lot of ratings that might makeyou think that it's a lot more
expensive than perhaps it is.
And therefore avoiding all thebenefits that insurance could
bring you because you thinkyou're going to get priced out.
(26:18):
Yeah.
Speaker 1 (26:18):
I think a way to succinctly say that is what you
don't know can hurt you right.
Speaker 2 (26:24):
In this scenario.
Speaker 1 (26:24):
Yeah, because you're rationalizing why you don't want
to, as opposed to.
Maybe I should just know andthen decide whether I want to.
First of all, we go back to doyou need life insurance?
What's the purpose of it?
And if the purpose is rocksolid, like I don't want to
leave my family with a huge billor whatever I want to pay for
the cost of my funeral, whateverthe reasonings are, finding out
(26:45):
whether you qualify or not is agreat step.
You don't have to do anything.
You just got to find out.
And then after that, I agreewith you.
A 50-year-old that's a normal50-year-old that's put a few
pounds on, that might be on ahypertensive drug for a slightly
high blood pressure, maybetheir family history is one of
diabetes, but I don't have it.
(27:06):
All these things come into thepicture and you may be very well
surprised that you do qualifyfor insurance.
It's not that punitive, by theway.
It may be a great instrument ifyou're looking at permanent to
add a great financial instrumentfor all the flexibility it
might add to your overall plan.
Speaker 2 (27:23):
All right.
So you've covered personalfactors age, gender, health,
family, medical history.
You've also covered lifestylerelated factors like nicotine
certain hobbies.
Speaker 1 (27:40):
Sure what other factors?
Other factors including likewell, $200,000 of life insurance
is less expensive than a half amillion dollars of life, and so
how much life insurance are youlooking at getting?
How much do you want, need?
Is there a way to buy lifeinsurance and have the coverage
amount, the death benefit amount?
It grows into that amount,rather than right off the bat as
an example?
The other thing is did you addoptional features of protection?
(28:01):
They call it riders, insuranceriders, but that might be geez.
If you have a long-term careevent, like you need assistance
with daily living, then yourpolicy has a feature that you
can advance a portion of thedeath benefit tax-free to help
pay for those kinds of services.
Hell yeah, that's what I'mtalking about.
Do you have a feature as a partof your policy or is there an
(28:25):
optional feature, slash riderthat you can add to your policy
to ensure against that financialrisk exposure Could be critical
illness, could be all sorts ofother things.
Speaker 2 (28:37):
All right so let's review where we are here.
Yeah, what do you own numberone?
Number two why do you own it?
Number three how is it doing?
Number four what are yourpremium dollars paying for?
And number five what otherbenefits do your premiums buy?
Speaker 1 (28:53):
Yeah, and this is a great question and we touched on
it just a moment ago right,with these riders.
So it's easier to discuss thisin my brain by comparing it,
maybe, to policies that wereissued 10 years ago or earlier,
20 years ago, compared to morerecent policies.
So I will say that theinsurance industry does a great
job of adding features andbenefits to the policies to meet
(29:14):
current known needs.
Let's compare Riders today comein all sorts of varieties.
Certain carriers offer them,others don't offer them.
Some offer some of them, soit's really a potpourri of have
and have-nots depending on theinsurance company you're working
with, the agents you've beentalking to.
(29:35):
Here are five great riders thatcurrent policies come with with
certain carriers.
So one rider is terminalillness, right.
Lots of carriers have 12 months.
So if you're diagnosed with aterminal illness within the last
12 months in this example, youhave a right as a policy owner
to prove that terminal illnessby virtue of your physician and
(29:56):
so forth, and once you prove it,they'll give you the option of
advancing a portion of yourdeath benefit.
If you got a million dollardeath benefit, maybe they'll
advance up to 80% of that givenyour terminal illness as an
example, that's a great thing tohave Other carriers.
Terminal illness will be a24-month thing, not just a
(30:16):
12-month.
Is that important to you or not?
Good thing to think about.
The next is chronic illness.
We often refer to this aslong-term care when it comes to
elderly people, but chronicillness is an illness that robs
a person from being able to dotwo activities of daily life.
That could be can I get up andout of a chair by myself?
(30:38):
Can I go to the bathroom bymyself?
Can I shower by myself?
Can I feed myself?
There's daily activities.
Or could it be that I'mcognitively impaired?
For whatever reason, my braindoesn't allow me to make lucid
decisions anymore on my behalf.
So when that happens, aphysician confirms this and once
(30:58):
again, you present the claim tothe insurance carrier and now a
portion of your life insurancebenefit can be advanced.
For you to use the cash nowduring life on a tax advantage
basis guess what to pay forservices, help in the home or
whatever.
Maybe it's just a trip aroundthe world.
Before you know, it's your lastday and you got to get up and
(31:19):
go upstairs, so to speak.
So another one is there'scritical injury.
Think about becoming blind,doing an accident, losing an arm
, those kinds of criticalinjuries, critical illness,
stroke, aneurysm, heart attack.
So these are events where, ifit happens to you with that type
(31:39):
of a policy, once again, thedeath benefit, a portion of it,
can be advanced right now tohelp you pay for services, needs
, hospital bills, whatever youneed, because that event
qualifies you to advance aportion of the death benefit.
And lastly, there are carriersout there that now have a
specific Alzheimer-related,dementia-related rider.
(32:01):
So it's not the chronic illness, two activities a day, it's
just.
If you have a cognitiveimpairment, guess what?
You can advance a large portionof your death benefit right now
, whether in lump sum.
In all the cases, whetherthey're lump sum or periodic,
you know monthly payouts,quarterly payouts, however you
want to structure that.
So those riders essentially addjuice to the piece of meat
(32:22):
called life insurance, becauseotherwise the only way I collect
, the only way my beneficiariescollect, is if I die.
Life's not that generous.
Speaker 2 (32:30):
I'm sorry, but.
Speaker 1 (32:30):
I cannot fix this problem for you.
There are an awful lot ofthings that knock us out from
earning money from living lifebut still costs me and my family
a lot of money for the servicesand care that I require.
Speaker 2 (32:43):
So let's run through the Fab Five for life insurance
again.
What do you own?
Why do you own it?
How is it doing?
What are your premium dollarspaying for?
And, number five, what otherbenefits do your premiums buy?
I don't think anybody has evergone through this process before
.
Speaker 1 (33:03):
I agree with you.
I think most people come at itfrom a standpoint of what's the
cost, what's the death benefitand are my beneficiary's
designations correct?
Speaker 2 (33:12):
So what is the importance of this, then?
Whether I'm prospectivelylooking to purchase insurance or
I already own insurance, why isthis process so critical?
Speaker 1 (33:22):
We believe in separating financial service
decisions into two distinctsteps.
Right, we like to help peoplework through the decision
development.
What do I need?
What am I looking for?
What solutions are out there?
Does this make sense for me?
And all of that what, who, when, where, how all of that is an
isolated brainstorming process,right, and so our Fab Fives are
(33:43):
built to allow individualconsumers to think through the
decision that they'reconsidering when it comes to
life insurance in this example,right.
The second step in the processafter the brainstorming session
is okay.
The product purchase choice ordecision to us is a separate,
distinct event.
People can go out and implementit with anybody they want
(34:06):
Brother, cousin, agent they'vebeen working with their mom and
dad's agent doesn't matter, wedon't care.
But now you're prepared with abody of perspective and some
knowledge and compare andcontrasting for yourself and you
get real clear on what you'relooking for.
You don't go into the car shopsaying I don't know what kind of
car I want to buy, I just wantto buy a car today.
(34:27):
You go in with somepreconceived notions of the type
of vehicle, the features andbenefits that the vehicle comes
with.
This is what we're here to helppeople do, and the Fab Five
does just that.
It helps them think through thetop five critical pieces that
most people aren't aware of andhelps them start putting it into
perspective from theirperspective and realities.
Speaker 2 (34:48):
What I like about it also is these are they got hard
edges?
Every one of these questionsdoes.
You can't tap dance around them.
You either have an answer oryou don't.
A hundred percent.
Yeah, yeah, yeah, Good stuff.
Thanks for watching.
Welcome to Bullshit on Stilts, a podcast hosted by
two guys with vast financialbackgrounds and great bullshit
sniffers who call out the clichecrap, spackle and flap doodle,
spooed by so-called expertsacross the landscape of
financial advice Identifying asdoctors of bullshitology.
You can count on your esteemedhosts okay, maybe
(00:24):
knuckleheadsheads to bring you alively, if not deadly, mix of
serious analysis, hijinks andtomfoolery, all within a 99.1
bullshit free, safe space.
Let's get after it.
Welcome to bullshit on stilts.
Um, Mark and Kelly, we're goingto be talking about our Fab Five
(00:45):
questions that we believebrings control to consumers out
there.
Our earlier podcast, we talkedabout the Fab Five when it comes
to investments, and now we'regoing to apply that same simple
methodology to help you havecontrol of your life insurance
policies around.
The Fab Five questions as theyrelate to life insurance.
(01:05):
Whether that's you own a policy, you want to review it and get
real comfortable as what it ishow does it work or whether you
may be considering or in theprocess of purchasing a life
insurance policy.
So that's what we're going tobe doing today.
Mark, you want to lead us offon this whole discussion.
Let's do it.
Speaker 2 (01:23):
And Kelly.
I think this is a veryimportant topic.
We've reduced the complexitiesof insurance down to five key
critical questions that willshow evidence that you know what
you own and why you own it andyou have some level of
understanding to where you cansay I am in control of my
insurance needs and I can answerquestions sufficiently, to
(01:47):
where I know that I haveadequate coverage in the areas I
need coverage.
So let's review the five andthen we'll get into that with
Kelly's expertise in describingand defining and explaining each
one of these.
So the Fab Five for insurancelife insurance are what do you
own, why do you own it, how isit doing, what are your premium
(02:08):
dollars paying for and whatother benefits do your premiums
buy?
If you're able to answer thosefive questions, you are in
control, which means that you'vecircumvented a lot of bullshit
explanations or I don't knows orsplinations for stuff you just
can't explain.
Let's get into these.
(02:28):
So, kelly, the first one iswhat?
Speaker 1 (02:31):
do you own?
Yeah, so it's a great question,and we meet lots and lots of
people that have life insurancebut they have no idea what it is
.
They fumble around whether it'sa term life insurance or
permanent life insurance.
So really there, it's a termlife insurance or permanent life
insurance.
So really there's many kinds oflife insurance but it boils
down to, let's say, four typicalvarieties.
(02:53):
So one is term life, term life,I think people you think about
it as it's temporary, it's goingto be here for a little while,
maybe it's 10 years, 20 years,30 years, even 40 years but
eventually the cost of it willbe prohibitive and you'll get
rid of it essentially.
So there's a sort of a maturingdate from a cost of the
(03:13):
coverage of insurance right onterm.
The next type is whole life.
That's a permanent type ofpolicy, and whole life is a
policy that most peopleassociate with life insurance,
where it's fairly costly, butthe policy will be there forever
.
So long as you pay the premiums, as you're required to pay them
, it'll always be there.
It never goes away.
(03:33):
There's lots of guaranteesinside of it.
Universal life is a type ofinsurance policy that actually
sort of has some perspectives ofa whole life right, actually
sort of has some perspectives ofa whole life right.
It has crediting inside it.
You can build value, calledcash value, in it, just like you
do whole life.
But universal also comes withlots of flexibility the
(03:54):
flexibility to change the amountof premium you pay depending on
what's going on in life.
Also, maybe, the ability tochange the death benefit levels.
So there's lots of flexibilitythere and it's typically less
expensive than whole life.
By the way, it's also permanent.
Index universal life is anothertype of life insurance policy.
We bring it up not as it's itsown animal it's a universal but
(04:16):
the fact that it's indexuniversal.
It's the fastest and mostdominated product being sold in
the market today.
It's an interesting product andthe question is do you own it
or not?
And lastly, it's variable life.
Variable life is.
When you hear the term variable, think like it's a 401k with a
whole bunch of investment fundsthat you can put your money into
(04:37):
, and so, just like a 401k, thevalue of your life insurance
policy can go up and down basedon the performance of the
financial markets.
Speaker 2 (04:50):
So what terms would you use, Kelly?
Common everyday terms?
Would you use to compare one ofthese against another?
So how would you compare termto index?
Universal life, whole life toterm life?
Speaker 1 (05:03):
Yeah, I think that.
Well, first, the comparison isis it a temporary type of a
policy, like terms, or is it apermanent policy?
Does my need to ensure risk ofme, let's say, dying prematurely
or forever?
Speaker 2 (05:23):
Check with your insurance company on how they
define premature death asopposed to forever death and how
each may affect your deathbenefit.
Speaker 1 (05:35):
Of me, let's say, dying prematurely or forever.
Is that need a long-term thinguntil I die need or is it just
temporary, like right now?
My kids are three and fiveyears old?
I have a temporary need to havea lot more life insurance, and
so I'm going to use a termpolicy to insure against that
particular risk that I'mconcerned about, that being, if
(05:55):
I don't make it home tomorrow,is there money there to support
my kids as they grow and maybeeven when they're adults, and
that term policy can do that.
Speaker 2 (06:04):
In 30 seconds or so.
What has Indexed Universal Life?
Why is that so popular?
Speaker 1 (06:10):
It's a cool product.
It's very complicated andthere's lots of jargon in it.
But here's why the IndexedUniversal Life policy gives a
person.
Let's say these are biggeneralizations, but maybe it's
40% less expensive than a wholelife policy.
When I'm speaking about that,I'm speaking about the
participating whole lifepolicies that pay you five, six,
(06:32):
7% dividends every year.
That's a Cadillac of policies.
It also costs a lot, so IUL isoften going to be about 40% less
.
You get to have your policiescash value accumulate based on
market indexes.
But here's the catch you don'tactually invest in the index.
You just kind of monitor it andover the course of normally 12
(06:56):
months, the policy index thatyou're following.
If it ends up having a plus infront of the performance, your
policy is going to receivecredit in the forms of dollars.
So your cash value will grow.
However, here's what they sellzero's your hero.
If the index has a negativeperformance on the year, you get
no credit, you just get zero soit's like a participation
(07:20):
trophy.
Speaker 2 (07:21):
I'm a winner because I participated in the market,
but I was never a loser.
Speaker 1 (07:28):
Shut up and sit down.
So the big sale is participatein the market, have less
expensive life insurance and, bythe way, you get no negative
impacts to your cash value orpolicy values if the market
turns in a negative return.
Well, I can see the interest inthat it's huge.
(07:48):
And, by the way it's interesting, lots of investment
advisor-based planners like IULs.
They sell a lot more of itversus a life insurance agent.
A career agent will probablythink IUL, but also whole life,
because it's a more permanentguaranteed structure as opposed
to a permanent but lessguaranteed structure like the
(08:11):
universal life is.
Speaker 2 (08:13):
So in some instances a combination of these types of
policies might work.
Speaker 1 (08:18):
It might work, depending on what you're trying
to achieve.
And, as we've talked in thepast, the idea of diversifying
your investments is a big dealand everybody's kind of familiar
with that.
But diversifying how youtransfer financial risk using
life insurance is altogether acompletely different type of
stratagem.
I don't wanna.
(08:40):
And so working with people thathelp you view that and help you
truly apply the right tool forthe right purposes yeah, one
could own whole index, universaland term all combined, really
shaping how they've insuredthose risks, knowing that
they've maximized each dollarthey're spending.
Speaker 2 (09:02):
All right, so that's number one what do you own?
Number two why do you own it?
Speaker 1 (09:13):
Yeah, why do you own?
It is sort of the top linethought that I think you as a
consumer out there need to thinkabout.
Why do you own?
It comes in first of all.
What if I die prematurely and Ileave my family here or my
loved ones or maybe even myfavorite charities without a
final gift?
So life insurance can certainlyprovide protection against that
uncertainty in life, right.
But there are other things.
It could be that you want tomake sure that your kids have an
(09:34):
educational fund, as an example.
So if, theoretically, you havethree kids and no matter what
happens, if tomorrow you don'tmake it home, you want to make
sure there's at least $100,000in an educational account for
them.
Term life, great use of it, it'scheap, inexpensive, you're
young, it can be there for 20years.
And so if you pass away in thenext 20 years unexpectedly, boy,
(09:56):
you at least know that, nomatter what, kids have $100,000
tax-free money in accounts forthemselves to use in advanced
education, maybe starting a newbusiness.
Whatever the case is, you'vesolved for that.
So why do you own it?
Another reason is because I notonly want to plan for my
eventual passing.
It might be unexpectedly orwhen I'm older, we come back to
(10:17):
the permanent idea of lifeinsurance.
But it can also be that thereare other life uncertainties out
there that we all face, youknow, an illness, an injury,
alzheimer's, when we're older oryounger due to an injury, let's
say Just the ability to nothave cognitive faculties that
you need to make your owndecisions from close head
injuries and auto accidents.
So there's other reasons whylife insurance policies exist
(10:42):
and can be part of your overallreason.
Why do I own this?
Does that?
Speaker 2 (10:45):
make sense?
Yeah, that does make sense.
Staying with that.
Why do you own that?
Often we can kind of foolourselves and we've got great
explanations which might borderon bullshit.
I think most of us are truthseekers, so I don't know whether
we really lie to ourselves asmuch as we just kind of dance
around our rationalization fordoing something.
(11:06):
How often are people buyingterm just because it's cheap and
then they start rationalizingwell, nothing's going to happen
to me in 10 or 15 years or 20years.
Speaker 1 (11:17):
Yeah, right, so one.
I think it's amongst the mostpurchased type of insurance
because it is cheap.
Oh, by the way, most employergroup plans that you get just
because you're employed thereand you have a group term life
policy for $50,000 on your lifethat's a term policy as well.
It's just that the employer ispaying for it for you.
So lots of terms out there.
(11:38):
Reason is my experience has beenpeople don't like to talk about
life insurance.
They don't want to talk aboutdeath, chronic illness, injuries
and all that.
They just they're notinterested.
We're all super people.
Until life's uncertainty knockson our doors, we can't plan for
.
We don't know what's going tohappen and so often most of us
don't want to even think aboutthat happening.
So we fool ourselves by sayingI don't want to spend 50 bucks
(12:02):
on that life insurance policy.
Oh look, term for 20 years andI'm 28 years old.
Well, it only cost me $18 and70 cents.
Boy, that tastes good, I'm notgoing to waste my money.
Quote, unquote.
But the question is does thatpolicy fulfill the needs that
arise from unexpected lifeevents?
(12:22):
Obviously, top line isunexpected death due to accident
illness, whatever the casemight be so really, with the why
do you own it.
Speaker 2 (12:30):
we've got to also quantify how much you own of
something.
Speaker 1 (12:34):
Yeah.
And I think that when you'reasking yourself, why do I need
life insurance In that case, youstart simply adding up numbers.
So if I'm 50 and I plan toretire in 20 years because I'm
just going to work until I'm 70,I'm going to do that.
I want to maximize my socialsecurity retirement benefits, so
I'm going to work the next 20years.
So when you're thinking abouthow much do I own, or how much
(12:57):
life insurance do I need,figuring out, the amount that
you need comes with.
Well, if I die, how many yearsof income does my family not
receive now?
If I'm 50, I want to retire at70, that's 20 years.
And if I make $100,000 a year,well, that's $2 million.
That's not going to come intomy household.
So one can start at well, if Idie now, I'd like to replace at
(13:19):
least that that's $2 million oflife insurance.
I have $150,000 left on mymortgage.
You want that paid off?
Well, that, add $150,000 to $2million.
If you want to leave $100,000for each one of your kids and
you have three kids just in casewell, add $300,000.
All of a sudden you're in that.
Just simple example.
You've added up Best, added upBest case scenario.
If something would happen, howmuch life insurance would you
(13:41):
need?
The next step is well, can youafford it?
And can you afford it dependingon what?
Speaker 2 (13:49):
kinds of policies.
You decide to own purchase andso forth, and often it's not.
Can you afford it?
It's, do I want to?
Yeah, it's construal leveltheory, and the farther
something is away or the morehypothetical it is, the more you
get stupid.
Well, you know, it's how 20years.
Am I going to think about itnow?
Or that's hypothetical, I'm notgoing to die, sure.
So though I get the numbers onwhat I want to protect, it's not
(14:12):
a matter of do I want to affordit.
I construe it because it'seither too hypothetical or too
far out there.
I'm going to poo poo it.
So it's like saying, hey look,do you want to put out the whole
fire or three quarters of it?
So you've got that element thatcomes.
And then we start rationalizing.
Really, we just don't want tospend that and we do what
(14:32):
typically we do is spend now onwhat we want to and worry about
the consequences later.
Speaker 1 (14:38):
Yeah, I think that it's helpful for people if
they're working with aprofessional out there, does the
professional help themunderstand?
And I'm going to use this froma metaphor or analogy.
Speaker 2 (14:51):
Kelly is about to attempt the rare and extremely
difficult metaphor analogycombination to make his next
point.
Speaker 1 (15:03):
If you got to spend $25,000 on your house, would you
rather put it into thefoundation that you never see,
you never touch, but at leastyour basement's dry?
Or would you rather put it onan all season porch addition
that you get to enjoy up inMichigan eight months out of 12?
Which would you rather spendthe money on?
And so I think, when peoplecome to the table of building
their financial well-being,their health, their peace of
(15:25):
mind and so forth, lifeinsurance, any insurance, but
certainly life insurance, issort of like the well, it's not
going to happen to me.
I'm young, I'm healthy, I'm 38.
And for 38 years nothing badhas happened to me.
So it's not gonna, and so I canafford not to, because that's
sort of like putting money intothe basement, into my foundation
.
I don't see it, I don't enjoy it, I don't touch it, I don't look
at it, there's nothing toappreciate with that expenditure
(15:48):
, and I think there's a lot ofthat thought out there, which is
why I also think you seeGoFundMe all over the place.
That's become the new way oflife insurance.
Oh shit, feel bad for me.
Here's my story, and some of itis very tragic.
I don't mean to minimize that.
But for lack of your planning,you're going to everybody else
to help pay for the things thatcould have been paid for had you
(16:09):
just saved a little of yourmoney toward a policy that you
don't outgrow Usually apermanent policy of some sort.
Speaker 2 (16:16):
All right, Are you pretty much finished with?
Why do you own it?
Number two I think we killed it.
I take my gun and I go pew pew,pew, pew.
Speaker 1 (16:23):
Okay, I think we killed that horse, all right so
let's move on.
Speaker 2 (16:26):
So just to keep the flow going, here it's what do
you own?
Why do you own it?
Number three is how is it doing?
Speaker 1 (16:33):
Yeah, this is a question that it's much harder
to measure for a policy owner.
So, in taking the policy owner,how's it doing?
How do you compare that?
One easy, straightforward wayto compare it is to compare a
current illustration of thepolicy.
You ask the insurance companyor the agent that sold you the
policy.
Hey, do me a favor go ahead andrun an in-force illustration of
(16:58):
my policy, in-force being run itas of today, as of last month,
as of the current status.
So let's say you've owned thepolicy for five years.
When you say, run me an enforceillustration, that illustration
will be five years after youpurchased it.
You get that in your email.
You compare that illustrationand the projected numbers that
(17:21):
it shows today compared to theoriginal policy illustration
that was published when youbought the policy.
So it's a real cool way of well.
I bought it and in five yearsthat the original illustration
said that my $5,000 a year inpremium would equate to roughly
I'm making this up $20,000 ofcash value and a death benefit
(17:43):
of $250,000.
I'm just making this up.
Where the Inforce illustrationshows that this year I only have
$18,300 in cash value, I stillhave a death benefit of $250,000
.
Why is there such a differencecompared to the original
projection versus the current inforce actual numbers?
(18:03):
So that's a real easy way Inforce illustration and just
compare it with your originalillustration.
There's other things you cancompare it to too.
Speaker 2 (18:12):
So what do we extract from that as a practical matter
, or is it just an observation?
Speaker 1 (18:17):
Well, I think it's an observation.
One.
A practical matter is they gaveyou an assumed rate of return,
an annual rate of return of,let's say, 6.5, 6.5, 6.5.
If your cash value is lowerthan that, well, your crediting
experience may be 6.5 minussomething average.
(18:38):
Maybe it's only been 6.2.
As an example, it's good toknow, especially if you have the
option of changing how thatpolicy may receive credits next
year, like an index, universalor a variable life.
When it comes to universal,it's not going to change
anything how it credits and whenit comes to the whole life,
that's not going to change much.
But with those other two typesof policy it leads you to that
(19:01):
kind of conclusion and maybe youdon't know how to change it.
But that's a great conversationto have with your agent and I'm
sure if they're a quality,strong-handed advisor they're
going to love the opportunity tohelp you understand and make
really good decisions.
So I said that there's otherthings you can measure that by.
Well, there's this huge debatethat's been around for a long
(19:22):
time since the late 1960s Buyterm and invest the rest.
And that's a great theoreticalidea, just like buy low, sell
high in investments Great.
Not many people do it that wayand not many people actually buy
term to save money and investthe difference.
The reason why they bought theterm is because it was cheap and
they could keep on spending therest of the money that they
(19:44):
would have spent on a moreexpensive permanent life
insurance policy.
So I love to compare that to aRoth IRA, a 401k, a brokerage
investment account or even acash account, because, no matter
what, this is what people miss.
If I have a term policy or apermanent, there's a cost to
that insurance and I got to paya premium.
Fair enough, if I die with theRoth IRA and I put, let's say,
(20:08):
seven thousand dollars a yearover the last three years in the
Roth IRA, the value of the RothIRA is going to be around seven
times three is twenty onethousand plus or minus growth or
depreciation.
That's what it's going to be.
When I'm alive, it's twenty onethousand plus and when I die,
guess what?
21,000 plus period.
End of story.
If I spent 7,000 into apermanent policy, as an example,
(20:29):
or even a term policy, when Idie, the value of that policy to
me was what it cost me 21,000bucks, the value to my loved
ones, the charities that I leftmoney to or whomever else I
named as a beneficiary in myexample here.
That's $250,000 of deathbenefit, tax-free, to that
person or individuals.
No, uncle Sam, no, pasco, no,go to the court to probate and
(20:53):
get some court order saying youcan do this.
It just goes to them now.
And that what we refer tointernally as a life event
revaluation.
That's what life insurance isall about.
So when you compare it to theRoth, sure your 7,000 times 3
plus growth might be higher thanthe cash value in your whole
(21:14):
life index universal or variablepiece.
But if you die next month, whatwill the value of that
investment account be?
But if you die next month, whatwill the value of that
investment account be?
And normally in my math ittakes around 20 years before
that investment accountsupersedes the death benefit of
the life insurance policy.
Isn't that interesting?
Speaker 2 (21:31):
All right.
So what do you own?
Why do you own it?
How is it doing?
What are your premium dollarspaying?
Oh, this is a great question.
Speaker 1 (21:39):
So in investments, we ask what are your total costs
of investing?
And in insurance, it is a greatquestion.
So in investments, we ask whatare your total costs of
investing?
And in insurance it's a littlebit different, and so we phrase
it like what are your premiumdollars actually paying for?
So there are, let's say I'mgoing to simplify this there are
, let's say, three main factorsof how your policy is priced
right.
There's personal factors yourage and you get older every year
(21:59):
.
So every year you look at newlife insurance is gonna be a
little bit more expensive.
Gender matters Women lastlonger than men on average from
a mortality standpoint, sowomen's policies are priced
lower on average than malepricing is.
If you're a healthy person, youcan get what's called, let's
say, super preferred, whichmeans that your policy grows and
(22:20):
operates much more efficientlythan someone with just standard
health and operates much moreefficiently than someone with
just standard health and a wholelot better than someone with,
let's say, diabetes 2,well-managed.
It's just going to be thathealth rating will add cost to
your policy depending on howhealthy or unhealthy you may be,
even to the point of you mightbe so unhealthy the insurance
says no, we're not going to giveyou any life insurance.
Speaker 2 (22:42):
Let's stay on that for just a minute.
I think that there areindividuals who just say you
know what?
I'm not healthy, I don't wantto even try, I'm going to get
priced out because I'm unhealthy.
Yeah, my understanding is thatthere's a lot of forgiveness
regarding your health, and thereare others.
It can be quite punitive.
Yeah, give me an example ofsomebody that might be preferred
or standard.
Speaker 1 (23:02):
Sure.
So let's take a 50-year-oldmale or female, I'm not going to
pick on a 22-year-old, let'sassume they're all healthy.
So super preferred might besomeone that's within height,
weight limits, they are on nomedications, they don't do
nicotine, they don't do anyextreme sports.
They're just a healthy person.
Maybe they're a yoga person,maybe they are active because
(23:26):
they garden every day and theywalk up this damn hill, whatever
the case might be.
So that's going to be someonethat has a shot at being super
preferred.
If you're over 50, the shot ofyou getting super preferred is
lower.
Obviously, just because as weage our bodies start changing
and breaking down.
Obviously just because as weage our bodies start changing
and breaking down.
Let's compare that to someone,let's say a 50 year old, with
diabetes, to one of the mostprevalent diseases and in
(23:48):
Western diets thank you foodindustry.
That person it becomes aquestion of is it well managed
or not well managed?
Maybe that diabetes has beenlosing weight?
They're not on any othermedications.
They have an average A1C of Idon't know 6.2, let's say, and
they're not going to get knockednearly as they might even get
(24:09):
standard on a health rating,whereas someone that isn't
managing it well is on fourdifferent meds and shots and
their A1C is 7.8, they'reprobably going to get rated,
meaning there's going to bepremium attached or a higher
dollar cost for their lifeinsurance policy, because their
diabetes too isn't well managedand so all the horror long-term
(24:34):
that diabetes can do to theinternal body becomes a higher
risk to that insurance carrier.
So they're going to price itthat way, sure.
Speaker 2 (24:41):
So the difference between standard and someone who
is rating not from a dollarstandpoint but from a percentage
standpoint just ballpark, whatthe difference might be.
Speaker 1 (24:52):
I'm going to stay away from that.
Oh, what a wuss.
Just because every carrier hastheir own algorithms and own
actuarial tables and so they allkind of price it a little bit
differently.
Let's look at it from anotherstandpoint.
On a permanent policy, when youlook at the projected cash
value accumulated amount atfuture years, someone in a
(25:13):
standard rated policy will haveless accumulated cash value than
someone with a super preferredhealth rating and depending on
how long we're talking, thatcould be 0.5 percentage annually
accumulated difference, itcould be one, could it be even
two plus percentage points,depending on how long of a
timeframe we're looking atwithin those projected numbers.
(25:33):
Does that make sense?
Speaker 2 (25:35):
Yeah, that does, but I'm asking it as a consumer and
a consumer saying I'm not goingto buy insurance because I'm 10
pounds overweight.
I'm taking blood pressuremedication.
I don't want to get rated.
I don't want to be paying twicethe premium.
I mean, this is the thinking,sure, is it safe to say them,
without quantifying anythingthat if you're just like a lot
(25:57):
of 50-year-olds you got a fewextra pounds, you might be
taking a couple of meds.
It's under control.
It should be pretty affordableand not getting nicked with a
lot of ratings that might makeyou think that it's a lot more
expensive than perhaps it is.
And therefore avoiding all thebenefits that insurance could
bring you because you thinkyou're going to get priced out.
(26:18):
Yeah.
Speaker 1 (26:18):
I think a way to succinctly say that is what you
don't know can hurt you right.
Speaker 2 (26:24):
In this scenario.
Speaker 1 (26:24):
Yeah, because you're rationalizing why you don't want
to, as opposed to.
Maybe I should just know andthen decide whether I want to.
First of all, we go back to doyou need life insurance?
What's the purpose of it?
And if the purpose is rocksolid, like I don't want to
leave my family with a huge billor whatever I want to pay for
the cost of my funeral, whateverthe reasonings are, finding out
(26:45):
whether you qualify or not is agreat step.
You don't have to do anything.
You just got to find out.
And then after that, I agreewith you.
A 50-year-old that's a normal50-year-old that's put a few
pounds on, that might be on ahypertensive drug for a slightly
high blood pressure, maybetheir family history is one of
diabetes, but I don't have it.
(27:06):
All these things come into thepicture and you may be very well
surprised that you do qualifyfor insurance.
It's not that punitive, by theway.
It may be a great instrument ifyou're looking at permanent to
add a great financial instrumentfor all the flexibility it
might add to your overall plan.
Speaker 2 (27:23):
All right.
So you've covered personalfactors age, gender, health,
family, medical history.
You've also covered lifestylerelated factors like nicotine
certain hobbies.
Speaker 1 (27:40):
Sure what other factors?
Other factors including likewell, $200,000 of life insurance
is less expensive than a half amillion dollars of life, and so
how much life insurance are youlooking at getting?
How much do you want, need?
Is there a way to buy lifeinsurance and have the coverage
amount, the death benefit amount?
It grows into that amount,rather than right off the bat as
an example?
The other thing is did you addoptional features of protection?
(28:01):
They call it riders, insuranceriders, but that might be geez.
If you have a long-term careevent, like you need assistance
with daily living, then yourpolicy has a feature that you
can advance a portion of thedeath benefit tax-free to help
pay for those kinds of services.
Hell yeah, that's what I'mtalking about.
Do you have a feature as a partof your policy or is there an
(28:25):
optional feature, slash riderthat you can add to your policy
to ensure against that financialrisk exposure Could be critical
illness, could be all sorts ofother things.
Speaker 2 (28:37):
All right so let's review where we are here.
Yeah, what do you own numberone?
Number two why do you own it?
Number three how is it doing?
Number four what are yourpremium dollars paying for?
And number five what otherbenefits do your premiums buy?
Speaker 1 (28:53):
Yeah, and this is a great question and we touched on
it just a moment ago right,with these riders.
So it's easier to discuss thisin my brain by comparing it,
maybe, to policies that wereissued 10 years ago or earlier,
20 years ago, compared to morerecent policies.
So I will say that theinsurance industry does a great
job of adding features andbenefits to the policies to meet
(29:14):
current known needs.
Let's compare Riders today comein all sorts of varieties.
Certain carriers offer them,others don't offer them.
Some offer some of them, soit's really a potpourri of have
and have-nots depending on theinsurance company you're working
with, the agents you've beentalking to.
(29:35):
Here are five great riders thatcurrent policies come with with
certain carriers.
So one rider is terminalillness, right.
Lots of carriers have 12 months.
So if you're diagnosed with aterminal illness within the last
12 months in this example, youhave a right as a policy owner
to prove that terminal illnessby virtue of your physician and
(29:56):
so forth, and once you prove it,they'll give you the option of
advancing a portion of yourdeath benefit.
If you got a million dollardeath benefit, maybe they'll
advance up to 80% of that givenyour terminal illness as an
example, that's a great thing tohave Other carriers.
Terminal illness will be a24-month thing, not just a
(30:16):
12-month.
Is that important to you or not?
Good thing to think about.
The next is chronic illness.
We often refer to this aslong-term care when it comes to
elderly people, but chronicillness is an illness that robs
a person from being able to dotwo activities of daily life.
That could be can I get up andout of a chair by myself?
(30:38):
Can I go to the bathroom bymyself?
Can I shower by myself?
Can I feed myself?
There's daily activities.
Or could it be that I'mcognitively impaired?
For whatever reason, my braindoesn't allow me to make lucid
decisions anymore on my behalf.
So when that happens, aphysician confirms this and once
(30:58):
again, you present the claim tothe insurance carrier and now a
portion of your life insurancebenefit can be advanced.
For you to use the cash nowduring life on a tax advantage
basis guess what to pay forservices, help in the home or
whatever.
Maybe it's just a trip aroundthe world.
Before you know, it's your lastday and you got to get up and
(31:19):
go upstairs, so to speak.
So another one is there'scritical injury.
Think about becoming blind,doing an accident, losing an arm
, those kinds of criticalinjuries, critical illness,
stroke, aneurysm, heart attack.
So these are events where, ifit happens to you with that type
(31:39):
of a policy, once again, thedeath benefit, a portion of it,
can be advanced right now tohelp you pay for services, needs
, hospital bills, whatever youneed, because that event
qualifies you to advance aportion of the death benefit.
And lastly, there are carriersout there that now have a
specific Alzheimer-related,dementia-related rider.
(32:01):
So it's not the chronic illness, two activities a day, it's
just.
If you have a cognitiveimpairment, guess what?
You can advance a large portionof your death benefit right now
, whether in lump sum.
In all the cases, whetherthey're lump sum or periodic,
you know monthly payouts,quarterly payouts, however you
want to structure that.
So those riders essentially addjuice to the piece of meat
(32:22):
called life insurance, becauseotherwise the only way I collect
, the only way my beneficiariescollect, is if I die.
Life's not that generous.
Speaker 2 (32:30):
I'm sorry, but.
Speaker 1 (32:30):
I cannot fix this problem for you.
There are an awful lot ofthings that knock us out from
earning money from living lifebut still costs me and my family
a lot of money for the servicesand care that I require.
Speaker 2 (32:43):
So let's run through the Fab Five for life insurance
again.
What do you own?
Why do you own it?
How is it doing?
What are your premium dollarspaying for?
And, number five, what otherbenefits do your premiums buy?
I don't think anybody has evergone through this process before
.
Speaker 1 (33:03):
I agree with you.
I think most people come at itfrom a standpoint of what's the
cost, what's the death benefitand are my beneficiary's
designations correct?
Speaker 2 (33:12):
So what is the importance of this, then?
Whether I'm prospectivelylooking to purchase insurance or
I already own insurance, why isthis process so critical?
Speaker 1 (33:22):
We believe in separating financial service
decisions into two distinctsteps.
Right, we like to help peoplework through the decision
development.
What do I need?
What am I looking for?
What solutions are out there?
Does this make sense for me?
And all of that what, who, when, where, how all of that is an
isolated brainstorming process,right, and so our Fab Fives are
(33:43):
built to allow individualconsumers to think through the
decision that they'reconsidering when it comes to
life insurance in this example,right.
The second step in the processafter the brainstorming session
is okay.
The product purchase choice ordecision to us is a separate,
distinct event.
People can go out and implementit with anybody they want
(34:06):
Brother, cousin, agent they'vebeen working with their mom and
dad's agent doesn't matter, wedon't care.
But now you're prepared with abody of perspective and some
knowledge and compare andcontrasting for yourself and you
get real clear on what you'relooking for.
You don't go into the car shopsaying I don't know what kind of
car I want to buy, I just wantto buy a car today.
(34:27):
You go in with somepreconceived notions of the type
of vehicle, the features andbenefits that the vehicle comes
with.
This is what we're here to helppeople do, and the Fab Five
does just that.
It helps them think through thetop five critical pieces that
most people aren't aware of andhelps them start putting it into
perspective from theirperspective and realities.
Speaker 2 (34:48):
What I like about it also is these are they got hard
edges?
Every one of these questionsdoes.
You can't tap dance around them.
You either have an answer oryou don't.
A hundred percent.
Yeah, yeah, yeah, Good stuff.
Thanks for watching.
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