How Mortality Rates Affect Life Insurance – Episode 356

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[00:02] Hello, Kim. Today, high mortality rate is the topic. Are you ready to jump in? Yes. So we are talking in March of 2020. And there are many, many people that are dying because of our unbelievable physical health oriented environment right now. And even if you don’t know anybody that is, you’re hearing about it in the news. And so that is causing people to be conscious of death in a way that we, especially Americans, are normally not. I learned something interesting recently from a Canadian. Canadians are very fearful people. And literally when they get, as an example, pregnant, they rush out to buy life insurance because they’re aware that they’re already a parent, even if the baby is not born yet, especially since the baby is with the mom, of course, the

[01:00] unborn baby, the dad in particular wants to have the insurance. But it’s the women that are buying it because they’re afraid that their husbands might pass on even before the baby’s born. And in America, we don’t do that. In fact, I remember sitting with a family, this is long ago when I actually did business face to face. And I do mean long ago because I’ve been working virtually literally since the internet began. But I was sitting with a family and they were friends. And then mom, my friend was already pregnant for the with their first child. And they were completely cavalier about death. Like, you know, yeah, if we die, like, she’ll figure it out. I mean, I couldn’t believe it. And I wasn’t strong enough at the time to put my foot down and say, no,

[01:45] you’re already parents, even though the baby’s not born yet. Wow, that’s strange. It is strange. Well, guess what? In America, we are now much more focused on this and concerned about it and thinking about it and talking about it. And frankly, I think that is a good thing. Because in America, we have been very cavalier around death. But what about the life insurance companies that are paying the death claims? That’s really your question, correct? It is absolutely. So life insurance companies and the life insurance industry, depending on when you pick its starting point, is between two and 600 years old. And what’s so neat about it is if you actually go back and read about the people that created the major

[02:33] life insurance companies that are here in America, it was one of the most selfless, entrepreneurial acts that I can imagine. And I think that once we wake up as America is going to be doing these days and realize that we must be about serving others, people will appreciate those acts even further. And of course, as we are often aware, they the life insurance companies were created to help families when death occurred. And there are times now that we need to be conscious of this. In fact, as GoFundMe reports, one of the largest use of GoFundMe activities is to help families where a death has occurred and there was no life insurance. And that’s wonderful on one hand and very sad on the other, because it is so inexpensive to get some

[03:34] term insurance in place. You don’t even have to get into the whole life discussion to insure a family. And these life insurance companies for centuries have been dealing with death. They have actuarial tables and actuarial science is one of the highest, most specific science areas in our world. I mean, if you think about an actuary and the training that they go through, it’s more than CPAs and enrolled agents and CFAs, Chartered Financial Advisors, all of that type of work is superseded by the work that is done by an actuary. In fact, there’s a joke that says actuaries know how many people are going to die. Only the Italians know who. Like for the mob, right? Well, you know, we can laugh about this and laughter is

[04:33] helpful and death is a serious thing. And yet again, laughter is helpful. So the death claims that the life insurance companies are going to be dealing with what they are prepared to deal with. And while yes, in 2020, we will probably have a higher than normal death claim. That is okay. We got on the phone last week with all of the five or six major insurance companies that we work with. And every single one of them said we are not anticipating problems. We are prepared. We are ready. In fact, many of them went and these are huge companies went to virtual work so fast because they a lot of them are based in New York and they had dealt with the Sandy hurricane recently. So they were ready to go. And they’re

[05:21] ready to pay death claims and they do not expect it to impact because they can go back to many of the pandemics and epidemics. I don’t really know the difference between those two words. Do you? No, I don’t actually. They’re both just big amounts of death. I know that they can go back to those in the past and look at the positive results that they got. And so we can be confident in this space. Now, what it is going to do going forward is that they’re going to be more particular about people’s current health environment. And so that’s fine. They are shifting their business models. As an example, people are able to get insurance now at higher rates without having to go through a physical exam, higher

[06:14] amounts, I should have said. In other words, it used to be you could literally only get maybe 100,000 of life insurance death benefit I’m talking about without going through a physical exam like the blood sample and the urine sample and medical questions, height, weight, etc. Well, as we are all aware in this social sharing age, all a lot of that information is available. In fact, if you sign a form, they can grab what’s called the Medical Information Bureau, which has a lot of information about your health. They can also grab your driving record, which is very important. And so the need for them to do the physical exam has actually lessened. And two, three months ago, up to about a million dollars at some companies you could get without a physical

[07:02] exam. Well, those numbers have been raised again, again, because the insurance companies don’t need the physical physical exam to do the work of what’s called underwriting, which is the approval process. Yet, if anybody has been traveling extensively, that’s going to be an immediate either postponement or decline, or where they might then go ahead and require the physical exam. So just like all businesses are these days, the insurance companies are going to shift. And yet they have the capability, the wisdom, the history to deal with this. And what’s most important also for people to know is that if you already have life insurance, they will pay, they can’t not pay because of a pandemic. They cannot pay for suicide, that’s in the contract first two years.

[08:05] And then here’s an interesting fact around mortality 911. So when the 911 event occurred, especially a lot of the companies who are domiciled in New York and have major New York offices, as you can imagine, that was a very high death claim year for the life insurance companies. Absolutely. And that did not interrupt them one bit. That was literally a blip on the radar that they just went right on through. In fact, I believe I have the facts correct in stating that those death claims were paid out of their cash, like out of their checking accounts, not even out of their reserves, which are there for death claims. That’s the whole point reserves are there for death claims. And the reason that they

[08:57] did that is they didn’t want to impact the dividend that they owe when they’re profitable to all of their other policyholders. So if you’re curious about this, we talked at length on the podcast episode right before this about dividends and cash value and that kind of thing. And we’re confining our discussion today to death claims and mortality issues. And yet, again, the business model of a life insurance company, a mutual life insurance company, is to collect premiums and pay claims carefully underwritten or approved. So while they’ll be more careful in the future because of if you’ve traveled or if you’ve had this particular virus or been exposed or what have you, that may cause them to delay or decline your policy. If you have a policy already and you

[09:59] die, the death claim will be paid. And if you get approved for a policy in the future and you die, the death claim will be paid. And what I’m grateful for at this time in our lives is that in America, death has not been something that we’ve talked about, not been something that we focused about. And that’s unwise. And now it’s in the forefront. And we can talk about it. And we can focus about it. Absolutely. You know, as we’re having this dialogue back and forth, there’s a couple of, I hate to use the word, but strategies that come to my mind that I think I want to address with you because they may be questions that listeners have as well. So one, before any of these changes occur, meaning if

[10:50] there’s an auto decline because of extensive travel or whatever that, one of the strategies that you often talk about is locking in with your term policies now and then converting to whole later. Can you touch on that? Yes. So term life insurance really should be called death insurance, because that’s all it’s there for. And term is indicating a term of time used either have a one year or five year or 10 or 30 or something like that. And it’s a very, very valuable product. And I want to take a moment and address the clients of ours, the listeners of ours that have gotten involved with this infinite banking idea, sometimes from the Palm Beach letter called a 770 account. And it’s utter focus on maximum cash value and minimum

[11:42] death benefit. And that was all fine and good. It really helped put mutual companies whole life products on the radar screen. It got a lot of people energized and excited about whole life insurance. And that was all good. What was not so good about that is that many, many people stopped there. And they didn’t go on and add the term insurance, which of course is literally zero cash value and high death benefit to their life insurance portfolio. And I am just as guilty of not helping people understand the value of term insurance during this overt focus on cash value, because cash flow is the fun stuff to talk about. And so I might have been a meeting with you as a listener in the past, just enabled you to get the cash value and the quote, low death

[12:41] benefit, and not encouraged you to add the term insurance to it. And that is something that I am dedicated to doing a better job of going forward because term insurance pays a death claim just the same as whole life insurance does. And there is something called a human life value calculation, which indicates the maximum amount of life insurance that you can have. And we’ve done some previous podcasts on this but just to cover it quickly and then wrap back around to fully answering your question on the conversion of term insurance, you got to have the term insurance in place though. And so let’s say for example, somebody’s earning $100,000 a year, their human life value is typically 15 to sometimes up to 30 times their income, let’s just do 15. So

[13:31] that’s a million five. Well, maybe their cash flow only enables them to have a $500,000 maximum cash minimum death benefit policy. Well, then they need to have a million dollar term insurance on top. Now they can just go on the web and get cheap term, there’s nothing wrong with that. But if they want to pay a little bit more, they can get what’s called convertible term. And convertible term insurance is switchable or convertible to whole life. So it looks like this, you go ahead and take your million dollar of convertible term, you pay just a tiny bit more for it for the right to convert or switch. And it locks in your health. And of course, if you die during that timeframe that the term is on the books, then that death

[14:19] claim will pay. If you don’t die, you can convert or switch portions of your term insurance to whole life. So what that would look like is you start your half a million whole life that we already talked about. And let’s just say you’re paying $10,000 a year for that. And remember, that’s building cash value in your emergency opportunity fund and all the good things that we know. And then two or three years later, you might convert a portion of your million dollar term to whole life. So let’s say you convert $250,000 of the million dollar term. And let’s say that is a contribution of I don’t know, eight grand a year. So now you’re saving even more. And that’s awesome. And now you have a second policy of 250,000. And your

[15:05] term that was 1 million is now 750,000. And then let’s say a few years later, you convert another portion. And then a few years after that you convert the rest. So as your whole life policies, and policies plural, so your first policy 500, your second 250, your third, however much and your fourth, as those are growing, your term insurance is shrinking. And that conversion or switch ability locks in your health, it does not lock in your age. So the policies like this is why people like me, I have a policy when I’m 24, another one when I’m 26, one when I’m 30, and I don’t know the exact years, but you get the idea. And those subsequent whole life policies are age related, but based on the health of when I

[15:56] bought the first term insurance policy. Does that answer the question? It does. And it’s remarkable that you can actually go through multiple instances, not just a one time. Correct. Now somebody may come along and convert the entire million of term, but that doesn’t happen very often. And so this idea of a portfolio of policies is so, so valuable. And it’s why people like me end up with 20 of them because every two or three or four years, if your income is raising, you want to buy another whole life policy on somebody. It could be on you, it could be on a spouse, it could be on a child, even an adult child. And that is what builds a portfolio policies. And then of course, after a while, you

[16:40] start also looking at key people. So I own three different key person policies on people in our companies that are super valuable to us. And that is an additional way to get policies added to your portfolio. So it’s one you’ve established, taking care of it individually, now family, and then growth over what we’ll call legacy plans. So we have different phases here. Correct. Okay. Now, because we have this conversion ability for listeners right now with some of the unbelievable times that we’re having, I am looking at the policies that I have. And I’m saying, okay, there are some choices that I want to make because I don’t know what it’s going to look like in a few years. And I think many of us are going to have

[17:30] questions. The best thing that I would suggest is just reaching out and the email is hello at partnersforprosperity.com. Is there any other ways that you would like to address this, Kim, that would help people’s or a certain ebook or a newsletter or something like that? Do you think that could address these? Absolutely. Couple things. You use the word legacy. So we’ve always talked about the cash value of life insurance as the emergency opportunity fund and the death benefit is the legacy. So you have an emergency slash opportunity slash legacy product. That is valuable. And the go to beginners book for this space is Live Your Life Insurance. It’s available as an audio book, it’s available as

[18:15] a Kindle book, or you can get a physical book. And so liveyourlifeinsurance.com is the easiest place. Or if you just go on to Amazon and look it up, if you are unfamiliar with this product, that’s the best place. If you are familiar with the product, that is the best place because the book was originally written to be an owner’s manual or a user’s manual, if you will, for this whole life insurance product. And it does address term insurance and the human life value idea as well as the convertibility of that term insurance. Wonderful. All right. We’ll put those links inside of the show notes. This was a longer episode, but we really got into some great details. So thanks, Kim, for explaining this today.

[18:58] Absolutely. 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.