Creating Your Ceiling and Floor with Life Insurance – Episode 587

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[00:01] Welcome to the Prosperity Podcast. Prosperity thinkers, welcome to the podcast. Today, we have a special guest, Teresa Sheridan. And if you have contacted Kim or some of the other people at Prosperity Thinkers, you’ve met Teresa. If you haven’t, this is a treat because this is an education, we’ll call it like a very intense education piece that we’re going to cover today. So Teresa, can you hear me loud and clear? I sure can. Hi, Spencer, thanks for having me. Thank you. So what’s really cool is before we hit record, we were navigating what the conversation would be about. And you mentioned that how much you love to educate people through the life insurance process. And what we’re going to get that’s unique in this conversation is that

[00:57] you are taking things from the inception and going through the illustrations and the application. And then you’re doing the follow-ups and renewals and usage. So like the full gamut. So first off, let’s just get a quick 15, 30 second background of who you are. So we have context and then let’s get into education. Is that cool with you? Absolutely. So tell us a little bit about yourself. Yeah. So I started with Kim and Prosperity Thinkers back in 2005. So it’s been, it’s going on 20 years and I have the good fortune of talking to the clients all over the world about life insurance, whole life specifically, usually. And that is how it will benefit them and how they can use it. And I help them apply, get approved, go to insurance underwriting,

[01:49] medical underwriting approval. And then I help them look at it and design a policy that makes sense for them. That’s awesome. Very cool. I’m going to ask maybe this, like when you’re helping people go through this process, where is it that you often see people get hung up? Maybe it means that like they are fearful or they start asking a ton of questions, or maybe they’re just like, ah, and they stop. Where is it in the process? I think usually we can get people started pretty easily because they’re not committing to anything at the outset. They are, are agreeing to get approved, right? Where’s, but they usually have questions all along the way, usually a lot of questions. And the thing is, Spencer, I’ve been doing this for 20 years, like

[02:38] I said, or I’ve been around it for 20 years, and I still learn things every week, it’s a complicated topic. And there’s, even though I get common questions all the time, I often get new ones too. And so it’s never dull. But I think to answer your question, it’s more, once they’re approved, they were actually trying to figure out what they’re really going to do. And one thing about whole life is that the premium can be a little bit higher than other life insurance products. And so getting somebody past that and to really understand what that premium is doing for them and how it works is sometimes the biggest hurdle. Okay. And is it because of their looking at cost against cost, or is it just because they don’t fully understand like the long-term value of the

[03:29] plate that is, what is it, what’s an assumption you have? Yeah, I think it’s key that they understand how whole life works and what it’s really doing for them and what it looks like and grasping the fact that it’s on long-term product for them. You don’t want to look at it. Guy get asked all the time, how soon can I stop paying this? And usually the answer is four or five years, but should they? No, they want to plan on paying it as much and funding it as much as they can for as long as they can. And they really want to look at it as a longer term product, looking 20, 30 years down the road. So yeah, I would say that’s probably the reason. And they might be looking at it by term invest a different strategy or a

[04:12] different product that might have a lower premium, but really doesn’t have the guarantees and the liquid tax-free savings, the wealth accumulation and all the benefits that a whole life policy has, including long-term care in the form of an ABR writer, which is my favorite writer, because it is a free long-term care, basically, should you have the need. So I just love talking to people about that. As we hear people going through this process, you’ve mentioned by term invest the difference, which a lot of people talk about the long-term thinking of this, and then you’ve been able to find those special writers, things that will help them. That’s the education, meaning once they all of a sudden get it,

[04:58] they get it, like the light is on. So can you give us a couple of examples of when you have seen people all of a sudden have that aha moment? Well, a lot of what I do, Spencer, is helping them design a policy that makes sense. So we look at things like affordability. And I always say that the base premium on a whole life policy is your floor and you want your floor to be affordable for five to 10 years, if at all possible, barring emergencies, a short-term emergency. And then you have your taxable limit of optional cash that you can add into the policy. And that’s really why most of our clients are utilizing this product. And so you want that maximum limit. That’s what I call the ceiling. You want that to be high enough so that they have enough room to

[05:46] put in it, what they want to accomplish or how much they want to accumulate in a certain, maybe they have a target, like, for example, maybe they want to buy a house in five years and they want to have the down payment. Or maybe they have a child go into college in 10 years and they want to have tuition. Or maybe they just want to have a certain amount accumulated for their emergency opportunity fund. And so I help them decide and understand how it’s going to work. What are their options going to be? How flexible is it? What is it going to look like in the future? And does it make sense to add certain riders such as a term rider, perhaps? Like if somebody says, I have a lot of money right now.

[06:27] I want to put into this policy, but in 10 years or 15 years down the road, I’m going to retire and I’m not going to have as much income, the term rider scenario might be perfect, depending on where that floor and ceiling lands. Does that make sense? Yeah. And so the matrix conversations I’m having with them is more about the nuts and bolts of how this exactly is going to work in their lives and how exactly the policy works. I really like this. I like the floor and ceiling framework. And then you let out with the keyword, which is affordability. And I think for our entrepreneurial audience, and I’m just speaking in general terms, so like no one throw daggers here, but for the entrepreneurial audience, they tend to be a lot more optimistic

[07:16] or over optimistic at times. So we’re like, oh, things are great right now. Let’s 10X this. And then you’ve got other people that are more like conservative saying, oh, well, hey, I’m in a corporate job. I know that’s, that path is certain for the next 20 years, we’ll say. And so you balance that affordability. Would you mind just like giving me a peek into how you educate with affordability in regards to ceiling and the floor? Yeah. So you’re right. I try to build in, obviously it depends on the client and what the client situation is and their career and all that and their family. And their goals with the policy. But in general, we tried to build in maximum flexibility. So one way we do that is by utilizing convertible term either on the side

[08:11] or as a term writer, so that once let’s say right now we determine that for the next five years X amount is affordable. Okay. Then we look at is the natural taxable limit of cash that you can contribute into this policy. Is it high enough that you can, that that’s what you aim to save each year or each month. If the answer is yes, then the additional amount that we can get approved for that they’re eligible for, we might look at doing some convertible term because in five years from now, if their income goes up and they need a new place to put cash, they can just switch some or all of their term to whole life without approval very quickly and easily, and now they have a new wealth accumulation account.

[08:59] And so that might make sense. That’s one example. And so you’re looking at, and you mentioned the word maximum flexibility. That was one example. Can you share another one? Yeah. So let’s say somebody is working and they want to protect the policy with a disability writer. They might have that writer on at the outset. We usually asked to get approved for it, and then they decide whether or not they want it right before we issue their policy or policies. Well, let’s say they want to go ahead and issue it with that protection. If they do, that’s great. It might make sense to do that. However, I want to make sure they understand that they can remove that writer. So as soon as they’re no longer working in their career, as soon

[09:42] as their kids are grown or whatever the case may be, they can just remove that writer and that way they’re removing the cost because the policy can be reduced or taken away from, but without too much trouble. But it cannot be added to or increased by the policy itself once it’s in force. Okay. That makes total sense. Well, other than the fact that the permanent death benefit increases whenever you add extra cash. Which is, and you mentioned at the beginning for language of our audience, you’re referring to the, what they call paid up additions, correct? Correct. Paid up additions is what a lot of the mutual companies call it. Other terms are A-L-I-R writer. A decimal life insurance writer, some of them use that.

[10:26] I think that if we extract the principles out of our conversation, what we’re able to get is that you are able to look at this as one large picture and you’re having a lot of different conversations with individuals and families. And one, you’re taking a snapshot of, okay, here’s where we are today. And then you’re maybe drawing a vision of where it may be in the future. And then you are planning for that maximum flexibility. And then from within there, you’re, you’ve almost like, you’ve taken the snapshot of what the puzzle is and you’re just now putting the pieces into that puzzle. Is that a kind of a good way to map it out for you? Yes, I like that. Yeah, we want to make sure they’re very comfortable and they kind of have a game

[11:21] plan once we take out a policy, what it’s going to look like and what they’re planning on doing with it. And a lot of times the illustrations do not, we have to run a new enforce every year because they are, they are illustrating a dividend rate in the future that is based on the current year dividend rate. And if that’s the case, we can’t, we’re usually conservatively projecting the available cash in the policy on the illustrations. But that said, we can just run a new enforce every year and kind of get new projections. And so when we meet with clients a year or two or three down the road, we can get an even more accurate picture of where they are based on current values, based on current dividend rate of the company.

[12:08] And then kind of based on what their situation is, has it changed? Do they have additional need for another place to put cash? Do they have additional need for debt’s benefit for their family? What are they wanting to do with it? Do they have a need to utilize the cash value for something? That kind of thing. That makes total sense. I think for me as an outsider, because I’m not an advisor, I’m not a licensed securities agent or anything like that, what I’m hearing as the ears of an entrepreneur is that one, you just have to raise your hand and have a conversation. And two, that there are a lot of options and the ceiling and floor framework was really helpful for me. And then to know your decades of experience, you’re able to find a

[12:57] variety of tools that can maximize it, meaning, hey, kids will be out of the house at some point. So that is a puzzle piece that we can move or, hey, income is predictable for the next five or 10 years, but, you know, maybe that’s going to change and that can move. And so this was a really helpful conversation. And I think for any of our listeners, it kind of unpacks some of the uncertainties and it really just makes it say, first thing to do is to have a conversation and get as many puzzle pieces as possible. So this was helpful, Teresa. Yeah, you’re right. I mean, Kim’s first book was Live Your Life Insurance. It’s a living, active, usable product. And we want to make sure people understand how they’re going to do

[13:42] that when we set them up with it. So it’s structured for maximum cash value or however that makes sense. Well, I think you explained it very well. Thanks for taking the time with us. And for any of you listeners, if you want to have a conversation with Teresa, just to understand your ceiling and floor and those puzzle pieces, there is a special email for podcast listeners. It’s hello at ProsperityThinkers.com. And it will go to Kim or it’ll go to someone else on the team. They can put you in touch with Teresa. But hey, this was an enjoyable conversation. I know talking about illustrations and all that’s not usually fun, but I enjoyed it. Thank you. So we appreciate it. Thank you so much for talking with me.

[14:24] Definitely. Have a great one. Thanks. Thank you for listening to the Prosperity Podcast. To take control of your money and have it work for you, visit ProsperityThinkers.com.