Kim’s Story – Episode 220

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[00:03] Welcome to the Prosperity Podcast, fresh alternative personal finance talk for independent thinkers who prosper outside of Wall Street. Here’s your host, bestselling author Kim D.H. Butler and No BS Money Guy, Todd Strobel. Hey everybody, welcome back to the Prosperity Podcast. This is No BS Money Guy, Todd Strobel. Once again, we have bestselling author Kim Butler with us today. Kim’s also been the co-host from the very beginning of the Prosperity Podcast and finally today after all this time and all of these episodes, I don’t know why we’re waiting so long, we’re going to talk about Kim’s personal story with some of the strategies and the products that we’ve talked about that have done so well with our clients.

[00:55] Important to me and of course causes a lot of respect, I think, is the fact that you went out and lived it first before you sold it, not just kind of did it as well it’s supposed to work. Well thank you, Todd. While we’re looking back at history and we’re over 200 versions, that’s episodes, episodes is the right word, 200 episodes of the podcast, I really have to thank you because I know that there’s so much value in the good questions that you ask, the causes that you bring forth in our discussions, the fact that you and I can play off each other and you’ve got a lot of wisdom about the work that we do and you’ve also got a lot of wisdom about the world, you’re a very broad reader so you bring to our podcast

[01:44] a lot of the things that I wouldn’t pick up out and about out there in the marketplace and I’m also just super grateful to have a co-host because I think it makes our podcast so much livelier and full of good back and forth and it’s easier to listen to and the whole bit. Awesome, well I appreciate that. Well how did this whole life thing get started? Well I heard that podcasts were becoming more narrative, like the cool thing is to tell your story and we’ve always heard about the importance of story but I will readily admit I’m a private person and I also really feel that humility is a very important aspect to have in one’s life and that I didn’t want the podcast to be about me or our family’s finances but it dawned on me

[02:36] over time that there is some good learning there and that I can in an appropriate way, still with humility and still of course keeping our privacy, share with our listeners literally my whole life story around whole life. Awesome, I think I’m excited to say that you have me tremendously beat on volume but I believe I did buy a paid-up edition of writer before you did, I can go back to 87. Now that is impressive, I just looked my first one is 1996, I’m looking at the list, nope, 91, yeah, 1991, so you’re right you got me beat. That’s kind of fun. So and you know what this is even more interesting, Todd Langford’s first is 1992. Now he may have had some term insurance prior to that that has since been converted

[03:40] and is no longer on my list but I think the beginnings are really important because in 91 I was 26 years old and what I think I have shared with the listeners that’s really interesting is when I was about 23 or 24 years old I had a bank job, I was in the downstairs lobby, the bank was in the lobby of this huge office building and there was a New York Life agency somewhere up on the fourth or fifth floor and I got to be pretty good friends with one of the guys up there and at some point he finally said hey you know I’d really like to come over to your house and talk with you about your personal finances and so okay fine and he said you know are you concerned what would happen if you had died yesterday

[04:31] and I said no. I was married at the time, no children. Are you concerned about what would happen if you became disabled yesterday? I said no. Are you concerned about your retirement? Like you know do you think about do you want to start saving for retirement? I said no and he wisely I mean to this day I give him credit for it. He said you know what I don’t think there’s anything I can help you with and you know we called it quits. He went on of course you know we still had professionally dealings back and forth. I referred him clients, he referred me clients but he was wise enough to know to not try to convince me that I should have been concerned about all three of those things and you could argue like oh my gosh that’s his

[05:20] professional duty like he blew it. He should have tried to convince you but I really give him credit for not trying to convince me. The harder he would have tried to convince you the longer it would have probably taken you to accept it. Yes very well said so fast forward to 1991 and I’m now in the business about a year and I absolutely was a believer that you needed to walk the talk that you needed to buy what you sold and so as soon as I got past the really scary days of am I actually going to be able to earn enough money to feed our family. I mean my husband had a job and was working also but he was also all commission at that time both of us were and so as you’re well aware when you have two people we had a home with a mortgage

[06:17] you have two people on all commission work that’s a pretty scary environment so fine we get past that and I decide that I needed to buy some life insurance and buy some disability insurance and of course get a will because I felt like those were the three foundational things that were important to have so I went forward I got some term insurance again no children so I wasn’t overly concerned about human life value at the time got a little term insurance and then I bought and putting it on record today as unproud of this as I am I bought some variable universal life. We all did it. Yes we didn’t know any better did we we really didn’t know any better. Did you think you were doing the best that you could

[07:09] when you bought yours? I had because as part of my religion the Knights of Columbus has its own insurance company and the Knights came over when I was getting close to graduating from college towards towards the end and just sat down and sold me what everybody was supposed to have and it happened to be a whole life policy with a paid-up additions writer it was completely by accident. I’m so jealous. And five years later when I intentionally went after insurance I bought indexed universal life and yes it imploded in about three years. Oh gosh well it is interesting this variable universal so for our listeners understand that it’s universal life that has the problems the variable part actually just made it worse frankly but this was early 90s and the stock

[08:10] market went up for a good I don’t remember five six seven year period there and so my variable universal life policy did okay and thankfully fast forward again about another four years and I was introduced to the difference and get this in the early 90s I truly even though I was training in the industry I did not understand the difference between whole life and universal life nor could I have anybody explain it to me very well I went to a couple different companies during that period and nobody could explain the difference between universal life and whole life in a way that I could understand until about 1995 when I actually got it together and started to understand the difference and at that point

[09:01] bought my first whole life policy super and then I mean and at the time what you know when you first started buying your whole life policies where were you at then were you working at the bank still or were you out on your own at this point no I was out of my own so I left the banks in 19 so I did bank 88 to 90 and then late late literally like December of 1990 I started in what I would call the insurance slash financial planning industry and then and I had a couple different companies during the next five years actually four years so 91 to 95 where I was getting trained and learning all the aspects of the industry and this is the time like I said when nobody could explain to me the difference

[09:50] and then in 1995 I switched companies again because I was really trying to break through this ceiling of complexity which is a great Dan Sullivan word from strategic coach and I just didn’t feel like the current situation that I had was going to enable me to do that and I also want to say interestingly enough that that situation had started out very very well for me because it was the one agency and this is 1991 it’s not like this was the 70s but the agency that I started in was the one agency where I knew I could go in and as a 24 24 year old female be treated seriously as an agent slash advisor and not immediately thrown into the secretarial pool awesome and and you know at this point you are not only selling this to yourself you’re also selling the same method

[10:48] that you later discovered you didn’t like to the public correct absolutely so it’s during that time I got my certified financial planner designation I got my all my licenses my series 6 and 63 and in time my series 7 I was inside a broker dealer I was doing mutual funds some managed money and of course all of the life insurance work under the guise of a financial plan and it’s about 1995 when I had had it and so this whole like just bumping up against the ceiling complexity the complexity of the financial plans which I thought were a joke the complexity of not being clear on which insurance product was best and then it took me a little longer to get clear around the investments that I started to dislike in the late 90s I

[11:44] think because sometime in there I need to pull a history when did we have a market crash was it like 97 or 98 something like that I think so yeah r01 maybe yeah whenever that was it was kind of like the second reminder to me that I didn’t like the whole mutual fund managed money environment but nevertheless just keeping the story mostly to the whole life policies I’m just looking at this list of policies that I think is kind of interesting and it’s fun because most clients don’t look at their life insurance or any of their insurances this way but in the coming months for some of our listeners we’re going to have an option to enable you to look at your life insurance more like the asset that it is

[12:29] because your typical mint dot coms and your quicken in your quickbooks and you know the you need a budget websites and the various other websites that are out there they just don’t know how to deal with insurance properly especially whole life insurance so but I want to give a little history here because I’ve got a list of my policies by policy date I can sort them in a couple a couple different ways and and that’s one of them so in 1991 as we said we had the universal life or the variable universe life and I had two or three of them and then in late 95 and 96 we had a bunch of whole life purchases and that’s because I really started to understand what whole life was the difference that it played a role how

[13:21] it played a role its use of a storage location for cash etc so 95 96 and 97 there were a variety of whole life purchases not only on myself but on my husband and then in 96 and 97 on my two children that were born early in those years and then later in those years I purchased whole life insurance on them so that was a whole foundation that we chose as a family to build and I did the bulk of our financial work my husband really wasn’t involved with it that much and then skipping forward again there’s a period of time you know two or three year break in there just exactly like I guide clients to do right now like get one and then give it two or three years and then we have a purchase of one in 2000 another one in 2001 and another

[14:21] one in 2001 and at this point I’ve started to figure out that it’s very helpful to have different policies with different anniversary dates in the course of a year in other words some in January some in June some in September etc so I went forward again in 2004 and remind me to come back to that one that one’s got a fun story oh you know what I see one in 2002 so back up a minute so then 2004 and then I am seeing another 2004 so again we go from 01 essentially to 02 and then to 04 and then let me just finish out this calendar so I can do it with people’s ability to pay attention to the whole thing then we go quite a bit of a jump to the year 2013 and so that’s got some interesting story around it as well

[15:26] and then again in 2016 and another one in 2016 and another one in 2016 and then that was a backdated one so that was 2017 but it looks like 16 because we backdated at six months the point that I think is valuable for listeners is that I went in the early stages buying a policy waiting two or three years buying another policy waiting two or three years buying another policy and again it was some on me some on my children some two of those policies on key people in our company and then as we went forward again then it started to stretch out then it was maybe five or ten years in between all because of cash flow because in 2008 our family went through a horrendous cash flow disaster based on a couple different very specific things

[16:25] and so we had to go through quite a period of not buying a policy at all and then I’ll pause before I come back to the story of 04 is what I’ve said made sense so far yes the only thing I want to clarify is you mentioned the importance of having different months of the year that your policies renew and I just thought maybe I’m assuming your explanation for that is that it gives you a place to store money because your money comes in at different amounts at different times so it gives you an option of placing money at different times of the year is that correct that is correct so every time you have an anniversary date that’s the largest opportunity for paid up additions and it’s also obviously when your premium is due and it’s always

[17:12] been our goal to pay premiums annually when we can we can’t always do it just like every family we have cash flow issues so sometimes we’ve paid monthly in fact many times we’ve paid monthly but in having the anniversary dates spread out the opportunity for paid up additions writer additions in other words adding more money to that manual writer is spread out throughout the course of the year and that’s just valuable from a cash flow standpoint and also because we use our whole life insurance policies to store all of our tax money and so having kind of quarterly capability just like you would pay your taxes quarterly we pay money into the policies quarterly and then we borrow against that pay the taxes and

[17:55] then spend the next year paying that back so that the following year we can do it again one more quick question before we move forward we talk so much about the dividend rates of the policies today and a lot of times we’re talking about three four and five percent and they’ve been relatively stable with that for the past few years but i’m gonna put you on the spot here what were some of the dividend rates that you were getting on these policies back in like say 2000 yeah happy to share they were easy in the seven eight percent range and that’s net net net in other words net of the cost of the taxes of course the cost of the death benefit and the cost of the commission to the agent which arguably yes i understand that went to me

[18:39] but it still went and so yeah seven and eight was fairly common to see and that is to restate what you just said that’s dividend so that’s not the guaranteed part that also was more robust although the guaranteed cash value always functions around the four percent interest rate it’s still higher as a dollar figure around times like that when the dividends are higher and then something else that’s interesting that i share a lot the fixed loan rates have always been at the eight percent mark some of them six now but during that time when the dividends were up in the seven eight we might have even seen nine i can’t remember the loan rates were eight nine ten eleven i remember for sure an eleven percent variable loan rate from an

[19:31] life insurance company against cash value and so it’s something that’s super important for people to understand if you have a fixed rate loan against your life insurance cash value at six or eight percent that’s fixed forever like fixed period and variable the ones that are down now at four or five percent absolutely were as high as ten eleven in those early two thousand years or even late 1990 years i i think that’s great because you know i think we stress the safety of the whole life policies but you know if you look back through the economy not only have they always maintained their safety but you know there’s a good chance to i mean i i think there’s a great chance that we’re going to have to see higher interest rates

[20:19] hopefully i live long enough to see it and those are going to reflect in the dividends as well correct absolutely yes the the interest rates which are dividend rates converted to an interest rate on the down side are going to go down probably a little slower than they do at the banks and we’ve always if you look back over history like a hundred and some years of history we’ve always seen that the life insurance companies pay a little bit better than banks when the interest rates in our economy start to go back up the insurance companies are going to lag behind a little bit they lagged behind on the way down they’re going to lag behind on the way up and yet i believe again based on history that they will still always

[21:05] outpace banks there there may be a little bit of a temporary crossover there but the insurance companies because they have such a long like 30 to a hundred year span a point of view as they look at their finances insurance companies do a more stable job of keeping those dividends at a decent level and you’re you’re sitting on you know you have your home equity you have cash and you have cash inside the policies so i mean really whichever you had to borrow against to get you the best rates in other words if interest rates just all of a sudden got even more ridiculously low than they have been you could borrow that off the policy loan at any time couldn’t you absolutely yep the only thing difference would be

[21:55] at a bank you’re going to have required payments whereas your life insurance policy cash value loans don’t have required payments and yet that would be worth having the obligation to get the lower interest rate for some people you know not for everybody it’s going to depend on the situation super why didn’t i’ve got a reminder here you got to tell us about 2004 yes so there was a policy that was bought by my family in 2004 and it was not mine i wasn’t involved at all other than being the agent and in uh somewhere in the 2000 probably 10 11 12 range i’m going to say 2010 that policy had been borrowed against borrowed against and not ever paid back and that family was not able to pay it back was not able to pay the

[22:50] premiums and the policy lapsed in other words the loan was so heavy on it that the interest cost of the loan caused the policy to implode and we talk about the negative aspects of universal life imploding and we don’t very often talk about the negative aspects of whole life imploding because it just doesn’t happen very often but it can and it’s when the loan interest gets so high no premiums were being paid no loan payments were being paid no loan interest payments were being paid and this policy survived and survived and survived and then it finally cratered from the inside there is a very little known law or rule that most life insurance companies have that you have up to five years to get a surrendered

[23:53] or cancelled policy back if it was cancelled as this one was in other words it fell apart rather than the person cancelling it and taking any cash surrender value it there wasn’t any value there it just literally fell apart from the inside or imploded and so this family in like let’s let’s just pretend this happened exactly in 2010 for easy math so in the year 2015 is five years later right well this family doesn’t have the ability to buy this policy back because upon buying it back you have to pay all the back premiums and then you still have the loan to deal with so we chose to buy it for them or from them if you will we had finally saved up a little bit of money and our own policies we had lost some as well and they

[24:48] were gone they were longer than five years so there wasn’t anything that could be done but this policy was smaller and so it had a loan on it as i’ve said and then it had the back premiums but the back premiums were also smaller so we were able to come up with the back premiums for the five years and let’s just say they were ten thousand dollars that immediately created ten thousand dollars of cash value because these were premiums not in year one two and three and four of the policy but in year uh let’s say i said 2004 to 2010 they were in years six seven eight nine and ten of the policies and so we paid the premiums we immediately had that cash value we didn’t do anything with it but it was there as a cushion

[25:33] and then in so this was the year 2015 in the last couple years we’ve worked on reducing that loan now we haven’t made a lot of inroads against it but every little bit when we get a little bit of extra money we pay that loan back and of course now we are paying the premiums on the policy so that it doesn’t lapse again and we’re paying the loan interest on the loan out of pocket so that that loan doesn’t get any bigger and so that’s a really cool story in my mind and i think it also tells our listeners how valid how proof oriented the goodness of whole life is because why on earth would i take literally some of the only dollars that we had to save and buy an existing policy on somebody else if i didn’t absolutely

[26:28] believe and have the proof and the knowledge that this product this whole life product has been around a couple hundred years is without a doubt the absolute best place to store cash now just for housekeeping is there any re-verification of eligibility to to do this or this is just a financial transaction i mean did you have to have medicals done again no there may have been a quick questionnaire i can’t remember and i believe that if you know it’s a really good question shoot i wish i knew the answer i believe if there had been a medical occurrence like you know maybe the insured had a heart attack or something like that i believe that then there may have had to been some underwriting there

[27:20] but this person’s young and healthy and has no medical condition so it was a non-issue and i believe there were only maybe five quick questions that had to get answered but that is a really good question and so i’m i’m guessing that if there had been a medical occurrence that we might not have been able to get it back but i’m not certain and it’s always worth checking without a doubt yeah i was just thinking for some people who’ve you know had health situations that won’t allow them to purchase or makes it so expensive now you know that five-year window to be able to reinstate something from five years ago with knowing what you know today could be a huge opportunity for the right situation absolutely that is correct okay carry on well that’s really the end of the story and that

[28:13] we now have so i should count them up here in a minute i’ll do that i’m gonna just say at first glance there’s about 20 plus policies and i definitely have lost some and i’m bummed about that but they are gone so and they’re past the five years nothing can be done about it and yet with all that list there there’s so much good and i’m so grateful and i just want everybody to learn about whole life insurance as the best place to store cash it has blessed our family in so many ways because during that time in 08 it absolutely gave us money to deal with lawyers in the way that we needed to to stave off a potential problem and to deal with some real estate messes and literally to put food on the table and and pay mortgage payments

[29:01] and that kind of thing as we worked through those messes and so i’m grateful it it just it you know i have a little saying that savings saves families well our savings in the form of cash value of life insurance saved our family can’t say it any better than that now i think this would be a good place if somebody wanted to get a little more detailed or more detailed information on whole life perhaps your book would be the best next resource absolutely so the live your life insurance book that’s on amazon there’s an audio version as well nice little hundred page summary of what life insurance can do for you while you are living and there’s stories in there of clients that have gone through the various phases that

[29:49] our family has gone through and there’s also just enough i think technical information for someone that’s curious and so again live your life insurance and if they want to see a little video there is one at liveyourlifeinsurance.com super well kim we appreciate you sharing your story today and we appreciate all the work that you do for our industry we also appreciate all of our listeners for taking time to listen and keep asking questions gosh we love your questions we’ll see you all again real soon this is the no bs money guy for the prosperity podcast thank you for listening to the prosperity podcast to take control of your money and have it work for you visit us at partnersforprosperity.com if you liked this

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