Having Numerous Policies As A Financial Strategy – Episode 307

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[00:01] Welcome to the Prosperity Podcast. Welcome to the Prosperity Podcast. Today, we’re going to be talking about having numerous policies that will help you with your financial standing. Now, Kim, you are the go-to expert for this, and I’m going to be asking you a ton of questions today. Are you ready? I am. Well, excellent. So first, oftentimes, we hear people taking the primary step, which is term, and then if they term insurance, and then sometimes they take that step, which is whole life insurance. And I’ve heard people say, I’m good. That’s it. And that’s just like getting started, right? So let’s jump into it. It is interesting. When I first bought my first whole life policies, in my, I’m going to say mid 20s, I believe, I too thought I was quote, done. But I realized

[00:55] very quickly that as my income rose, I needed to save more money, I wanted to save more money. And so it was important that I have the ability to buy more whole life insurance, because that is what is the easiest way to save, save as a verb, save money as a monthly commitment. And paying the premiums, and when I could the pay to petition writer, which is just a way to put in extra money, caused me to save. And if I needed more savings ability, then I needed more policies. So you start with the logical ones, yourself, your spouse, you add again, yourself, your spouse, you add again, two or three years later, as income rises. And then when children come on the scene, you add those as well. And this is just a normal natural thing for people to be doing when they own life insurance,

[01:56] when they understand life insurance, and they have the ability to save more money, then they should be buying more policies. Okay, so take us back, I would love to hear because you had a paradigm shift of saying, you know, you got yourself on the path. And then one day you said, wait, if this thing is so good, and I started it, shouldn’t I have more? Tell us, what was that policy like? Walk us through that. It would be really interesting to hear. Well, it’s interesting, I too, like many of our clients, started a whole life insurance, based on as much research as I could do, but then an act of faith. And it wasn’t until three to four years in that I really saw the proof that it was working. And so that’s what gave

[02:42] me the confidence to take the second policy out. Now, in this instance, I was not putting a lot of money into the pay to petitions. I was mostly just starting the policies with base premium, and using pay to petition capability sparingly, because I did have the desire to have the higher death benefit. I was having children at the time, just circumstantially. And so it was important that the death benefit be rising all the time. And so with that, as my premium capability built, in other words, as I started to make more money, then I would just buy policies. And I did quite a few in million dollar increments. So like my first policy was very small, $50,000, and then $250,000, and then $500,000. And then

[03:33] I bought three or four at million dollar increments, some on myself, some on my husband at the time. Again, just paying the premiums and adding pay to petition monies only as I was able. And that’s, I think, a really efficient way to do it, because now I have those policies locked in. At this point, I’m in my late 20s and early 30s. And those can never ever be taken away from me. Yeah, that is wonderful. And there’s one thing that you did that’s really smart. And I want to ask if it was an accident or on purpose, but oftentimes people try and eat the whole elephant at one time, but you staggered these out. So it makes the payments a lot easier to handle. And it’s also changing with the situations of life,

[04:21] is that correct? Yes. So over the course of time, I started my policies and or backdated them when appropriate. So that at one point, literally, I had a premium due every single month on purpose. And now it’s really helped us because as we all know, you make money over the course of a year where we my husband and myself are in what one would call a commission only business. And so it is nice to have those premium obligations spread out. And when I’m starting with a brand new client that has a lot of capability, I usually recommend that they at least pick two different times during the year, three or four, if possible, to purchase their policies so that those premium obligations are spread out through

[05:09] the course of the year. And because the date of the anniversary that you start the policy is when your largest pay to petition opportunity is you then by nature spread out your pay to petition opportunities as well. And so you’re right. I did it sort of just because I think I figured out fairly early on that this was going to be a lifetime thing. And so even though with my very first policy, I wasn’t as confident by the time I was getting into my third and fourth and fifth, I was very, very confident that that was going to be a really good way to make things work. And so from there, we were able to really build a solid foundation, which is what I want people to realize that they have a solid foundation with life insurance

[05:59] and that and asset to grow and grow and grow and grow from. And the larger you want your overall finances, the larger foundation you want to have. It’s just like building a house. You’re not going to build a 6,000 square foot house on a foundation for a 2,000 square foot one, unless you want many, many stories up. And most people don’t. A couple stories is fine, but most people don’t want three and four story homes. So the larger you build your foundation of the life insurance, the stronger you can then build your net worth on top of it, which of course we know then can be parlayed into cash flow. And then you can get cash flow in to contribute to cash flow out cash flow in from investments to contribute to cash flow out,

[06:49] which is your premium payments. And now the whole thing just operates in a circle going over and over and over again. Absolutely. So I think some of the next questions that I think of are when will a person know that it’s time to get another policy and how much should they buy it off? Yeah, that’s a great question. So every time your income rises substantially, then you want to buy another policy and you always want to tackle a bite that you know you can do. And so using that 20% savings goal, if you can get it’s, you know, maybe it’s starting at 10 or 15 or maybe you’re at 20 and you’re going for 30. That’s a really good starting place. And so I always just ask people, well, how much can you save? Like, can you say 500 month, a thousand month? Great. Let’s do that.

[07:43] Maybe your numbers are bigger. Maybe it’s 5,000 a month. And now you’ve been saving five grand every month and you can bump to eight grand. Okay, great. Then let’s take another 3,000 a month and make that the policy. And you can add zeros as it’s appropriate, but really it’s just a function of cashflow. And I believe that the best premium payments are sources of earned income, could be investment income, could be income from work. And then from there, you pay your premiums and build up the lump sums of cash, which you can then parlay into investments because the really good investments don’t want monthly dribbles. They want large lump sums. So you do your monthly dribbles into the life insurance policy and then borrow against those to do your lump sum investing.

[08:33] And how long should a person be looking at this before they actually start to touch the money that’s in there and use it for any type of alternative investments? Well, the first job of the cash value is life insurance is the emergency fund. So cash value life insurance equals emergency fund. Whatever number that is for your family, that money should be left alone and only touched in the event of emergency. Frankly, in my mind, every dollar above that should be borrowed against for opportunities. However, you have to pick your opportunities carefully. And there’s definitely some misunderstanding in the life insurance community, both agents, advisors, as well as clients, where they think that just borrowing against the cash value is going to do the job.

[09:19] No, that’s not where the job is done. The job is done by borrowing against the cash value and investing in something that will earn more than your borrowing costs. So as an example, one of the things that we do with our Truth Concepts real estate calculator, if somebody has a real estate deal that they’re analyzing, we need to put an interest rate on that real estate deal. And there’s just not very many real estate calculators out there that do this. So we take the real estate deal, we run it through the calculator, we get the calculator to give us an interest rate. Let’s say it’s 10%. Real estate deal A will get you 10%. Well, then of course, you can borrow against your cash value at five or six or whatever the interest rate is and invest at 10. That’s going to work all day

[10:04] long. Let’s say alternatively that the real estate calculator tells you that this particular real estate deal that you’re doing, this is not like a bridge loan, this would be something that you would be buying yourself is only earning 6%. Well, you’re not going to borrow against your cash value at 6% and invest at 6%. That does not make sense. So you have to be analyzing your deals carefully and make sure that you are earning more than your borrowing costs. So one, I think a lot of people are under a lot of misconceptions of what their return on investment is because they’re not factoring in all those pieces. Have you seen that be the case most of the time? Oh gosh, yeah. The real estate arena is just

[10:46] fraught with miscalculation. For sure it is. The broker said it was a good deal. Well, of course the broker said it was a good deal. Exactly. You need to analyze the deal such that you can get to a bottom line interest rate. I just don’t know very many analyzation tools that do that. Do you? No, I don’t. I think what happens is you’re also not factoring in… One of the big pieces is you’re not factoring in the time, which often skews everything. You’re not factoring in the true costs that are happening, the interest pieces, the tax implications. There are so many to it that when you think you’ve got it right, then you throw something else in and you’re like, okay, great. I’m wrong. Well, we’ll put in the show notes a link to the real estate calculator.

[11:40] I’ll send it to you now. Okay. I’m just delighted to share it with people. People can buy it for a couple hundred bucks. That’s one option. If you’re a client or interested in becoming a client of ours, I’ll do a real estate deal for you so that you can see. There’s even a case study that Spencer can link to in the show notes that will show how the real estate calculator is used and how helpful it is. Then just as we’re wrapping up here, I want to share something that I think will help a lot of people. That’s that the cash value of life insurance in today’s world, so we’re talking the middle of 2019, is earning right around 3% to 4%. It used to be at 5% or 6%, it used to be at 7% or 8% or 9%. It’s down right

[12:23] now. Fine. Accept that and compare it to the right things. You’re not comparing your, let’s just call it 3.5%, internal rate of return on your cash flow. Now, internal means after all the costs to your 8% real estate deal or your 10% bridge loan, you’re comparing your 3.5% cash value internal rate of return to what other liquid monies could earn, which as we know, is basically banks. We’re talking 1% taxable, whereas this is 3.5% without tax. It’s very important that you know that your cash value of life insurance is a liquid asset and must only be compared to other liquid assets. Very, very true. We’ll make sure to put all of the links inside of the show notes so that you can do true comparisons. If you have a more complex situation, the best thing to do is just send an

[13:28] email to hello at partnersforprosperity.com. I’m sure Kim is delighted to answer those for you. Absolutely. Wonderful. Well, thank you for spending time with us on the podcast today. If you like what you hear, one of the things that would really help out is to leave a review so that you can let us know what you think. We absolutely read those reviews and we are grateful for every single one of you that are spending the time with us today. Thank you. Super cool. 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 episode, make sure you subscribe and leave a review.