When it’s Time to Move to a Different Policy – Episode 313

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[00:01] Welcome to the Prosperity Podcast. On this episode of the Prosperity Podcast, we’re going to be talking about your next critical step and when it makes sense to get another policy. So Kim, we would love to hear from you when you feel it’s the next critical step for people. I love this discussion. So we’re talking about the act of saving into a life insurance policy, specifically whole life, because that is the best place to store cash. And when you are ready to save more money, then you are ready to tackle a second policy. So this is really a function of cash flow. So think about you start out, you learn about the life insurance, you want to go slow and start small on that first policy. Most people do anyway, some are ready to take a

[00:51] bigger step. But for the most part, I find that people are willing to take action if they go slow and start small, which means that fairly quickly, I’m thinking two to three years after they buy their first policy, they should be ready to start a second policy, again, purely as a function of cash flow and the ability to save. So if you’re young and you’re saving 100 a month, but you can save 200 a month, well, then let’s double the policy and you have your first policy that’s 100 a month and your second policy that’s another 100 a month. If you’re older and you’re saving 1000 a month or 10,000 a month, and now you’re able to save 1500 or 15,000 a month, then you’re going to buy a second policy, half as big is the first

[01:39] policy. The first policy was 1000 a month, now we’re at 500 a month. So the computer software enables us to take your 500 a month as an example, put your age and gender in it, and then it tells you what size of policy it is because for you, it’s not really important what size of policy it is. What’s important is the amount of money that you are able to save every month or every year if you’re doing it that way on a consistent basis that drives that decision. Okay, so there’s a couple of things that I would love to dive into because there are actual psychological triggers. And what I mean by that are there are psychological triggers of savings. After you’ve saved for a certain amount of time, you’ve created a

[02:28] tipping point. And then there are psychological triggers of seeing success or should call it seen results in advance from a policy and that can happen that to your market. So help us understand that. So it is interesting at the end of the second year, typically, especially if you are putting in your maximum paid up additions, which are the extra dollars that go in to make your cash value grow a little faster. At the end of the second year, we could call it the beginning of the third. When you pay your premium and your paid up addition at the beginning of the third year, you will see a equal amount of cash value approximately. So back to my earlier example, you’ve been saving a thousand a month now or

[03:15] annually either way. Now you’re ready to pay that third premium and paid up addition combo, you’ll see a thousand a month increase in cash value. So that’s very psychologically helpful because you see immediate results and us human beings in America in particular are very interested in immediate results. So writing a check for a thousand and seeing your cash value grow by a thousand is very, very helpful. It gives you confidence, helps you know that what you learned is actually accurate because I’ll admit it, there’s a lot of clients that buy life insurance and don’t really fully understand it till they start to see the results, which are around that third year. Now, if you’re not putting in paid up addition,

[04:00] it might be more like the seventh or eighth year, but this space that we’re talking about, I call the annual breakeven point. And what I mean by that is on a single year basis, so year three, you are putting in an amount of money and it’s growing by approximately that same amount of money. So that’s annually breaking even. And that is a really important psychological trigger. Help me remember what the first part of it was. So I think there’s a psychological trigger for actual savings. And have you seen that person developing the savings habit that takes them X amount of months or years? Got it. So yeah, that’s an interesting thought. And I think that some people are truly natural savers from the get go, possibly

[04:48] because of the way that they were raised, possibly. And actually that raising could have been a negative or a positive experience, but something caused them to realize the importance of saving. Others have to develop the habit. And so as we all know, yeah, it’s supposed to take 21 days to build a habit. But when you’re talking about saving money, especially saving money monthly, it’s going to take a good year or two. And because the life insurance does have a slow start, in other words, the first year, you don’t really see a lot of results psychologically, that can be tough. And so it’s when you’re saving as a habit and you’re seeing results that I think you get excited about saving more. And so you may actually

[05:34] have the capacity to save more earlier on. And yet many people don’t just because they’re not seeing results yet. So when you start to see results, you get excited about saving more and you might make even what I’m going to say, more specific choices about, hey, let’s shave a little off here. You know, maybe we go out to eat, but as not as nice of a restaurant or maybe we get an extra job or we work a little harder at work to have extra income so that we can save more. I think that that’s easier to do when you’re excited about the act of saving and you’re seeing the results from the act of saving. Yeah, that makes a lot of sense. So when a person’s thinking of that second policy, they’ve already understood it. They’ve been involved for a couple of years and maybe

[06:26] they’re starting to see those results. There is a often a fork in the road and they can decide to go a couple different ways. And I would love your insights where they can decide to get multiple policies on themselves. But oftentimes, we’ve seen it where that’s the point where they decide to set up policies for their children because maybe they haven’t already done that. Is that a case? What happens often? It is. So I always ask people to start with the oldest generation first, which is typically themselves. Sometimes that does mean parents or grandparents, but typically, you know, our client base, they’re working, they’re active, they’re earning income, so they’re going to start insuring themselves.

[07:07] And ideally, they have a smaller whole life and smaller is relative, you know, small for some people is not small for others, but they have a smaller whole life policy and a larger term insurance policy to fulfill their human life value. Not all people have that and that’s fine. And yet, as they go about looking at their second policy, one option would be to convert some of the term insurance to a second whole life policy on the parent generation, if you will. And another option would be to go ahead and start policies on children. And I do often see that the quote second policy is done on children. So now we’re talking somebody age zero all the way up to 18 as an example. And that is a pretty logical second step.

[07:57] Again, it depends on cash flow. So the nice thing about starting a policy on a child is you can do it with 100 or 200 a month and it’ll actually make a difference. Whereas if all you have to save is 100 or 200 a month, that’s not going to make a big impact on a 40 year old. If you either got more serious about savings or got a bonus or got a different job or an additional job or somebody went back to work and now all of a sudden you have 500, 1000, 10,000 to save per month, then it probably makes more sense to have that quote second policy on the income earner that’s creating that income. Because you’re not going to be able to put 500, 1000, 10,000 dollars per month in a child’s policy. I would say rough rule of thumb 500 bucks a month is probably the top end unless your family

[08:51] is pretty wealthy and there’s quite a bit of insurance on the parents already. 500 a month is a top end on a child’s policy. Now you mentioned that oftentimes people will get a term policy so that they lock in their current medical records and their current health and then at some point in the future they decide to convert that to a whole, is that correct? Right. So that’s called convertible term insurance. It’s typically done at the large mutual companies that have whole life insurance. That’s different than what I call cheap term insurance, which is exactly what it sounds like. Cheap term on the web, at a shopping service, probably not convertible to whole life. It might be convertible to universal life. We don’t count that. That’s not convertible in our eyes. So there’s nothing

[09:39] wrong with cheap term. A lot of our clients have it. I encourage it. Group term is somewhat similar. It’s just term insurance. Take it. It’s fine. There’s nothing wrong with it, but understand what it is. Whereas this convertible term insurance is something that you’re going to pay a little bit more for and you’re going to have the option as you identified to without health considerations, convert or switch to whole life. And I know we’ve got some other podcasts on this subject. If you’re curious about digging into this a little bit more, what I’ll say today is that the ability to convert all or a portion doesn’t have to be all of a convertible term policy to whole life, very, very valuable provision.

[10:22] It is not an age saving device. It’s a health saving device. And it does enable you to take what was a bit of an empty paper bag, if you will, this term insurance policy and start to fill it with cash, which is what the whole life is, is that place to store cash and the term insurance will be converted with the stroke of a pen or it will be switched, if you will, or moved over to whole life with just a simple application, single piece of paper, very simple thing to do. And then you start paying the higher premiums, which then of course, builds that cash value. So I think what it comes down to is understanding the cash flow of a family and the budget of a family. And then you can make the decision to move forward for

[11:14] multiple policies or policies of your children, correct? Absolutely. And I’ll just use my own situation as a good example. So I bought my first policy when I was 24, 50 bucks a month, probably a year or two later, bought a second one, 100 bucks a month. A couple of years after that, now we’re at a thousand a month, three, four, five years after that. Now we’re at another thousand a month. Now we’re at children at a couple hundred a month, maybe another child, couple hundred a month, back to the adult three or four years later, another thousand a month, et cetera, just progressing through my life. If you look back at the dates of my policies, they tend to be every three, four years apart, sometimes five, six years apart,

[11:57] just depending on what was going on with the cash flow. Okay. That makes total sense. So I think for our listeners, the best thing to do is this, to realize that your situation is unique and it may depend on what the current cash flow is. But if you already have a policy and you’re seeing that it’s working and you know that you’ve had some wins so far and you’ve kind of got to the top of that first mountain, next step is to find out how you can optimize even more and probably sending an email to hello at partnersforprosperity.com is the best. I’d say that’s probably the best thing to do. Would you agree? Absolutely. And I’ll throw a challenge out to our listeners. And that is why you would want life insurance on young children.

[12:44] And there is massive disagreement in the marketplace on this subject. But I can tell you, I bought life insurance on my kids when they were one and two. I did it again when they were six and seven. They did it on their own when they turned 18. So if I can do that, when I can see the inside and the outside, the good and the bad of our industry and this product, why don’t other people? So that’s a fun question for you to think about. Why would you want life insurance on your young children? Great question. And listeners, thank you for spending time with us today on the podcast. We hope that you’ve learned something. And if you already have a policy, we hope that you can see that you’ve had some success,

[13:26] some wind in your sails and now you can travel on and do even more. 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.