Using Life Insurance Before Death – Episode 006

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[00:01] Welcome to the Prosperity Podcast, fresh alternative personal finance talk for independent thinkers who prosper outside of Wall Street. Here’s your hosts, best-selling author, Kim D.H. Butler and No BS Money Guy, Todd Strobel. Hi, everybody. Welcome to another edition of the Prosperity Podcast. This is No BS Money Guy, Todd Strobel. Once again, we’ve got our co-host and best-selling financial author and president of Partners for Prosperity, Kim Butler. How are you, Kim? Wonderful, Todd. Thank you much. And I’m looking forward on picking up on a conversation we started in our last podcast, and that is to work on using your life insurance while you’re living. We’ve talked a lot about how to do that in your 30s, 40s, 50s, 60s, 70s, but let’s

[00:48] talk today about how to do that in your 70s, 80s, and 90s. Sound like a good subject? Super. And again, we’re talking about life insurance, particularly we’re talking about whole life insurance, certainly permanent life insurance. And I guess, first of all, we want to make sure that we stress the fact that life insurance is to benefit the next generation, so don’t skip that part of buying life insurance. Can you just touch on that for just a minute? Of course. You know, the age-old buy term and invest the difference versus buy whole life discussion that so many people have, we completely disagree with and say that what you should be doing is buying term insurance and buying whole life insurance.

[01:34] Buy the term insurance on the early side when you need large values to protect your family in the event of death, but buy the whole life when you need it on your own individual side so that when you are in your 80s and 90s, you still have something that you can use while you are living. Term insurance should be called death insurance. But life insurance truly is life insurance, and it is to be used while you’re living not only the cash side, but our conversation today, which is the death benefit and how you can use or spend or take advantage of your own death benefit while you’re living. Super. I think maybe the easiest way to understand this concept would be for you to give us a working example.

[02:21] Sure. So I briefly mentioned in our last podcast the idea of a reverse mortgage. That’s a real obvious example in that it is taking a home and enabling that death benefit to pay off the reverse mortgage after the person dies. And that leaves the family in control. We always talk about control as one of the seven principles of prosperity. And we also talk about our dollars doing lots of jobs. That’s the seventh principle, multiply. And a reverse mortgage can create some tax-free income. So that’s one nice additional job. And then that death benefit can come in, and the family gets a choice. They can either take the death benefit, give the home to the bank, and let it satisfy the reverse mortgage.

[03:06] Or if they want to keep the home, they can use the death benefit to pay off the reverse mortgage and keep the home and the family. So that’s one example of how to use or spend your own death benefit while you’re living. But I want to share another one, and it’s available in another document that we have called permission to spend. And so if that’s of interest to you, you can reach out to our special website called ProsperityPeaks, ProsperityPeaks.com. And it has an opt-in for the article called permission to spend. So we’ll verbalize it a little bit today. And if you want a more specific look at the actual numbers, you can grab that permission to spend report. It’s about 17 pages off ProsperityPeaks.com.

[03:51] Again, reiterating our main website is partnersforprosperity.com, but we set up a special website for that report. So this idea of permission to spend takes an account, typically a taxable account. So I’m not talking about IRAs or 401k rollovers or that kind of thing. But let’s say you’re in your 70s or your 80s and you have a stock market account or you have a bunch of life settlements or you have a hard money loan account. You’ve got, let’s just say, a million dollars. You could do it with 100,000. You could do it with 10 million. It doesn’t really matter. And your option in your 70s and 80s is basically one of two things. If you’re going to use that account for income, you either spend interest only,

[04:33] which is the option that most people pick, or you spend interest in principal. And the advantage of spending interest in principal is that you get your principal back without taxes. The disadvantage, of course, is that you start to erode that principal and you erode that wealth. And that’s a very scary thing for a lot of people to do. So we will see people in their 70s and 80s and even 90s all the time only spending the interest off of their money, which basically means that the money is not theirs to use. The money is being used by the brokerage house or the bank or wherever that money is being stored. So to use easy math, let’s say you were able to get 10%. We certainly have cash flowing investments that pay 10%.

[05:19] You have a million-dollar account, well, that’s $100,000 of income. So let me get this straight. It’s your money, but you’re only using 100,000 while the bank continues to use a million? That is not a good strategy. When people have life insurance in force, they can give themselves a permission to spend the million dollars, to on purpose take that million dollars and over a course of time, 10, 15, 20 years, purposely erode the principal in a good way so that they are actually pulling down principal every single month, every single year, and with that permission to spend, enabling the life insurance to come back and play a role either upon their death when that money then would go on to the kids or the charities that they had identified

[06:14] they wanted that principal for, or it may even play a role before death in backing up the income stream. Maybe it can provide dividends or a loan or a chunk of cash to invest again or what have you. Now, this permission to spend idea can be combined. So we talked about reverse mortgage. That’s one way to spend or use your death benefit while you’re living. We also have then this permission to spend idea applied to your after-tax account, and there’s three or four additional ways that that can be used as well, the death benefit can be used while you’re living. But those are two really concrete examples. Help me make them clearer. Do you have questions about those? No, I just, particularly on the reverse mortgage conversation, having

[07:02] been through many of these, it’s important to keep in mind that what you leave behind after your death is not your home. It’s your house. The home is what you made while you were there and your family came and spent time with you. And that’s something that you take with you and leave in memories. And we certainly encourage you to create as many of those memories as possible. But the physical house that you’re leaving behind is just that. And this is a great strategy to help with that. We did have a question on prosperity peaks. So I want to clarify that it is P-R-O-S-P-E-R-I-T-Y. Peaks is P-E-A-K-S dot com. Just a couple of ways you could spell peaks. And also partners, the number four, prosperity dot com.

[07:45] And then I’ll let you kind of go from there. Well, thank you for the clarification. Yes, there is a couple of ways that you can spell peaks. And I suppose it could be legitimate either way, because that’s what we’re giving you is a peak P-E-E-K into that particular strategy. And you certainly don’t have to have the life insurance in place at the immediate time. It’s something that can be put in place. And we have clients up into their 70s and even early 80s still buying life insurance for the sole purpose of this permission to spend idea. They don’t intend to have its cash value be used while they’re living at all. They simply intend to use the death benefit while they’re living. And that can be a very helpful and expansive tool, because it can

[08:34] take, let’s say, a $2 million estate. And that may seem big to some or small to others. But it can make $2 million act like $4 million. We have software that we use. It’s called Truth Concepts. You can take a look at that at any time. And there’s examples of it in the report at prosperitypeaks, dot com, that prove that we can make the estate literally act as if almost double in size because of the presence of the life insurance, the use of the death benefit while people are living. And it is a tricky concept. And it does have to be fairly personally applied. That’s why we took the time to write out the special report. But we really encourage people, whether they have life insurance or not, to take a look at that and see if maybe life insurance can play a role for them.

[09:29] We’ve mentioned that typically it is whole life that we like to work with because it’s going to pay that guaranteed death benefit. If you do choose to use universal life, or maybe you already have universal life in place, that becomes trickier because universal life does not have a guaranteed death benefit. But there are some strategies that we can employ to shore up the universal life policies that people typically own and make them a little bit stronger. We can’t make them guaranteed like we’d like, but we can certainly make sure that they will pay that death claim because that’s what matters in this case. It’s not about the cash value. It’s about that death claim being paid and making sure that that’s there to

[10:13] complete that permission to spend. Super one other question that has come in, and I think it’s a good one, is if you are one of those people who are comfortable living on the $100,000 in our example, you could use this same concept of insurance as a permission to give to charities that you believe in while still giving to the next generation, your children and grandkids, correct? Oh, I love that. That is a great twist on those words and a very positive sense. I remember my mom always used to tell me, Hey, give a good time instead of, Hey, have a good time. When I was going out to do stuff with friends or what have you. So yes, we always want to be focused on ways that we can give. And some people are more so than others, but giving while you’re

[11:04] living is so much more fun than giving upon your passing. Now people may want to do both and that’s fine, but yeah, what a joy to know that you had a little bit of extra income every month or every year that you could then use for charities and see those charities grow and benefit right now while you’re living. And you can be around to watch. That’s a great additional thought. Thanks for adding it. Super. I think we’re pretty close here. If you want to just wrap us up a little bit. Certainly. We’ll just again, make the offer that the report is there. 17 page permission to spend report available with an opt-in at prosperitypeaks.com prosperitypeaks.com. And then our main website partners for prosperity with the number four.com

[11:52] and our ability to operate nationwide helpful to anybody that we can happy to see your emails. And boy, if we’re not responding to you, call us and let us know. It must’ve got stuck in the spam filter somewhere because we do want to help. Super. Well, this is no BS money guy, Todd struggle for the prosperity podcast. Once again, saying a special thank you to Kim Butler. Take care everybody. Thank you for listening to the prosperity podcast to take control of 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.