Life Insurance Death Benefit – Episode 451

This transcript was auto-generated and may contain errors.

[00:00] Welcome to the Prosperity Podcast. Prosperity thinkers, welcome to the podcast. We’ve previously talked about whole life insurance, and we talked about how you’re going to be living your whole life insurance, but there’s the death benefit side. And I think this is where a lot of people get off track. So Kim, we are going to clarify. We’re going to know exactly what this looks like for our listeners today. Awesome. Picking up on our analogy of your whole life policy being the foundation of your home, it is your home of personal finances, if you will. It is also the roof. And so when you think about a house, the roof protects that house. And that’s what the death benefit does. And while you’re living in your home, you don’t think about the roof,

[00:55] but it absolutely impacts your daily life. And the death benefit is the exact same idea. Sometimes analogies sort of peter out after time, but I find this one holds really true because the death benefit can absolutely impact your life from the very beginning of its placement and all the way until you die. And as we know, death is a guaranteed event. And so having a guaranteed payment that is associated with a guaranteed event is a valuable thing. And you can bring that into your life all along the way. But let’s go back to the very beginning. Literally with the stroke of a pen and a physical exam, you are putting what most people seek out as net worth in play immediately. So here you are. You’re a 22 year old kid.

[01:48] You got your first job and you buy whole life insurance. It’s a million dollar policy. And now you have your net worth in play immediately, not as cash to use, but as a promise to pay in the future. And again, attached to a guaranteed event, a guaranteed promise to pay attached to a guaranteed event. And I think we forget how valuable those two guarantees are together. So let’s just play this story out. And again, it’s like a roof. It’s over your entire personal financial picture. It protects everything that you have. It protects your ability to work. It protects your real estate assets. It protects your opportunities that you have with investments, whether they be stocks, bonds, mutual funds, or alternatives, or you name it.

[02:38] That death benefit plays a role. And the first role that it plays is as you’re going forward, the protection of your income. And when you’re a single person, maybe not a super big deal, but holy cow, as soon as you have a significant other, you get married, you start to have children. The fact is if you had died the day before, that’s a problem for your family, and so that protection is super important and the peace of mind that goes with it is valuable. But there’s more than that. Us human beings, we tend to be pretty selfish people. It’s just the way that it is. And there’s nothing wrong with looking out for yourself. So let’s take a moment and talk about how could the death benefit, that presence of the guaranteed payment attached to the guaranteed event,

[03:23] how could it benefit me while I’m living? And so I encourage people to just utilize this one simple sentence in order to remember how this works. And it is that you, the insured, the owner of the policy can utilize your death benefit while you’re living. And that happens by the combining of strategies. And so you could combine the death benefit with a reverse mortgage. You could combine the death benefit with a pension maximization. If you have the old style pension from an employer, you could combine the death benefit with investment real estate via a charitable remainder trust. You could combine the death benefit with a stock that had a huge capital gain, maybe that was gifted from your employer or that you bought on your

[04:15] own when you were young and it, you just held onto it years and years. So again, combining the death benefit with the stock that has a huge capital gain and there’s a few others. But I think one of the more common ones is you can combine the presence of the death benefit and utilize it while you’re living in order to mitigate a lot of the downsides of the roller coaster ride of the stock market. And that concept takes a lot more to explain and it’s actually difficult to grasp conceptually. But again, if you just remember this one sentence, I can utilize my death benefit while I’m living by combining it with other assets. Okay. So you’ve helped people do this actually for decades now. Can you share a couple of examples and we’ll keep some anonymity.

[05:11] We won’t mention names or anything like that, but if you could maybe mention some examples of people that were a little reluctant to get started with it and then they had the light bulb moment and I’ll share some of mine as well. Sure. So there’s a restaurant owner on the East coast that I worked with for quite some time. And he was purchasing the insurance in his early sixties and so many people think, oh, I’m too old to do this, which is horribly inaccurate, but it is a common thought. And I helped him understand that while yes, he could absolutely benefit from the cash value, which is what he was hoping to be able to benefit from. I felt like the presence of the death benefit was going to be more valuable

[05:56] to him because he had a pension from a former employer and he would soon have to make a choice about that pension as to whether he took a single life payment for his life only from the pension or a joint life payment for his life and his wife’s life, which is a lower payment, but potentially could pay longer because of two lives. So that was a pretty big decision for them. That was a large dollar figure that they were making a decision on. Uh, it’s an irrevocable decision and I’ll hold the punchline for a moment, but is the facts of the case clear so far? Very clear. So what they did is they went ahead and took the single life pension pay out because it’s the higher amount and they were able to do some

[06:50] fun things in their restaurant. They were able to go on some trips. They absolutely had extra cashflow because they knew that when he passed on that lump sum death benefit, guaranteed claim, guaranteed event, guaranteed payment would then literally be able to set up another income stream for his wife for as long as she lived. And so awesome. They were healthy all as well. And they went forward and got to do some cool things with the peace of mind, knowing that whenever death occurs for him, she’s going to be taken care of too. Ooh, that’s wonderful. So I think that you’re what you’re mentioning here is not only the financial piece, but it’s the psychological piece. And that was the first aha for me when it was all set up because it

[07:47] was realizing, wait, I’ve now done this work and it’s not a lot of work, but I’ve now done this work and my family is going to be okay, regardless. I slept a lot better the first night I realized that. That is very cool. And I really think back to the savings ability, savings is a verb. It’s the ability to put money away and the life insurance helps us do that. Savings is a noun. It’s an account, right? that exists as an asset on our books, on our balance sheets, if you will, as individuals, and we as Americans don’t put enough emphasis on either one of those things, savings as a verb or savings as a noun, or frankly, death. And it’s something that people, they’re all either boring or they’re

[08:42] just not sexy things to talk about. And so they get shoved to the bottom of the list or not spoken about at all. And consequently, people don’t have the liquidity that provides this amazing peace of mind, and they also don’t have death day handled that also provides the peace of mind. Okay. Can you go into the logistics of what it looks like? So we’ll say you as a listener, you’ve gone through and you mentioned at the beginning of the episode by a stroke of a pen and a basic medical work in regards of your age can be for little children all the way up to, you mentioned someone in their sixties, certainly can go beyond that. But once the event occurs and sadly you or someone in your family passes

[09:36] away, what does that look like as far as that distribution and that payment? Yeah, that’s a great question. So a phone call is made to the life insurance company or to us. And a death claim is secured. And those do death certificate. Those usually take two or three weeks from the funeral parlor or the cremation place that you have handled that death day with. And then the payout is most often done as a lump sum. It’s income tax free and it takes usually another two or three weeks to get to the family. So usually in four to six weeks, the money is there. Now I will admit to you, I wish that more families would take advantage of an alternate payout structure from the life insurance company, which

[10:27] is more as a payment, like an income stream, like a monthly payment. Depending on how it gets set up, it can be guaranteed for life. It can be guaranteed for a period of time. There’s a lot of different ways to do it, but frankly, most people choose to have a lump sum paid to them. They put it in a checking account. And then if they take my advice, they don’t make any decisions for a good year or so. It’s just a tough time in a family that needs to get worked through. Really good point. So you mentioned if they take your advice, they’re not going to touch it for that for a year or whatever that time being. What do most people do? It’s not that they, that I recommend that they don’t touch it.

[11:06] I recommend that they don’t make any decisions around it. Let’s use an example of a young person that passes on. I have, interesting that I’m in the business. I actually don’t have that many death claims from clients, but there was a circumstance where about, I don’t remember a 35 year old, maybe woman had passed on and her family received $3 million and they absolutely used that money to live on for a couple years, the husband and the children just spent some time being, and I know from other people who have shared with me that are closer to me when death occurs in a family, it is really tough sometimes to get your legs back under you. And so having that time so valuable and not being forced to make any

[11:56] decisions and literally just letting the money sit in a checking account and using it for what it was intended to do, which was to replace income, super, super valuable. And so that is what most people do. Some people are fairly quick to want to invest it. And I really discourage that because you just don’t know this is money that needs to be a replacement of income for a long time and you just don’t know with investments, whether they’re going to absolutely positively for sure be able to replace that income. So there are products out there that do that like single premium immediate and annuities or guaranteed payouts from insurance companies, income for life structures that guarantee those payments for a guaranteed

[12:41] time, which could include somebody’s entire life. So it really depends. And if you’re going to be in your 20s, 30s, 40s, you’re going to make different decisions than in if you’re in your 60s, 70s and 80s when a death in your family occurs of somebody of similar age. So it is nice to know that the liquidity is there because liquidity provides peace of mind. Liquidity provides time. And those are two super valuable aspects in somebody’s life when death occurs. Yeah, absolutely. I’d agree with you. Liquidity is that huge piece to me. I’ve seen it occur with other people and being able to make decisions in terms of, we’ll call it years versus days and weeks is so different because we’ve all known or maybe have family or friends that

[13:39] didn’t set things up properly and then they get thrown into the mix and they have to make decisions when they’re not in a good state and with that comes a lot of regret and you can’t really go through the full emotions. But the second is what you mentioned, it gives you time because this is a large influx of capital that can come in and the last thing that we want to do is see someone think that they have to change their life completely, start a new restaurant or whatever it may be, and then it’s gone and the last is we also don’t want to see someone clam up and then they ward themselves away because they feel like they can’t face the world or their bills or things of that nature. Yes, it is providing a peace of mind, of time, of flexibility,

[14:30] of liquidity is amazing and for 95% of the people listening, it’s a non-issue, it’s not going to happen for a long time and that’s, I think, why whole life is so valuable is it has that other component called cash value that we get to use today and yet because we have the death benefit and the guaranteed event and all that, combining those two together makes so much sense because us as individuals, us as family members, we need an emergency opportunity fund for the rest of our lives also, so the combining of those two things, emergency opportunity fund for the rest of your life, the foundation of the house, if you will, plus the guaranteed payment at a time that is a guaranteed event, the roof of the house, all nice packaging together

[15:21] for things that have literally potentially 100 years of life. If you think about your typical 20 year old person easily could live to 120, a hundred years of emergencies to solve, opportunities to take advantage of, and that tiny little chance that yes, they might die accidentally early. So it’s the first two that most people focus on, the emergencies to solve and the opportunities to take advantage of, but that roof, that protection keeps that emergency opportunity fund from being taxed. It keeps it free from creditors in many states and it creates a forced savings habit, savings as a verb, and then an awesome savings account, savings as a noun, in order to store that cash and liquidity that is for solving emergencies and taking advantage of opportunities.

[16:21] So it is, yeah, it is a one nice package all put together that you can use for the rest of your life, which is why it’s called whole life to begin with. I’m going to end with one little piece and there’s a, our learning modalities, so we have our why learners, our what learners, we also have our what if learners, what if learner is a type of person that’s looking for the, that thing out in the left field. Hey, how is this a little bit different? And here’s a way to think about this with the life insurance and with this death benefit, that you’ve done the work, you’ve created the habit of saving, habit of seeking out opportunity. And as Kim mentioned, more than likely, you may not be the one or your spouse may not be the one actually reaping the reward of that.

[17:13] Your children and other people may. That’s why this type of foundational episode is so important, especially for them, because they might not understand the hard work that you put forward and did to set this up. That won’t be used for 20, 30, 40, 50 years. And so listening to this now with those people that could be the benefit beneficiaries is so valuable. It’s so important. I’m sure that all the time that the education of the offspring is critical. Absolutely. So I have a little quote as we wrap up and it’s that whole life turns what if into what is, and it is that is like going to be absolutely for sure your emergency fund, your opportunity fund that’s going to grow better than bank rates, that’s not going to be taxed for the rest of

[18:13] your life to know that you have that for sure that what if is taken off the table and it’s now what is just provides, frankly, a piece of mind that’s pretty tough to put a price on. Cool. That’s so well said. Thank you for sharing this, Kim. This is great foundational material to help all of us understand and hopefully none of us have to experience it anytime soon, but if you as a listener, no, you have that nagging feeling. Hey, I need to set this up now. Send an email to hello at prosperity thinkers.com. You can also listen to hundreds and hundreds of episodes that we put out on topics around us. Thank you for joining us on this podcast today. Thank you for listening to the prosperity podcast to take control of

[19:08] your money and have it work for you. Visit us at partners for prosperity.com. If you liked this episode, make sure you subscribe and leave a review.