Why Use Life Insurance in 2023? – Episode 497

This transcript was auto-generated and may contain errors.

[00:04] Prosperity Thinkers, welcome to the podcast. This one, we’re going to get to the why, which is the background behind why people are setting up life insurance policies and how they’re using them. Now there’s the how, the what, and the when. The why is the one that, Kim, you are so good at solving. So first, talk to us about why we’re doing this episode. Well, it is interesting. We have so much information about life insurance in so many formats, and I had a prospect just the other day who had listened, watched, read lots of our material say to me, I still don’t understand why I would do this. And so it was indicative that maybe we just hadn’t made that clear. And so I thought there’s nobody better than Spencer that I want to have this conversation

[01:02] and our podcast listeners, because they have good perspectives on things, and I know it will be valuable to them also because this product needs some reminders. So even if you are clear on the why or your why, which could be two different things five years ago, 10 years ago, one month ago, sometimes it helps to circle back and revisit it. And that’s what we’re going to do. Perfect. I think that and I’m just trying to take this from a person off the street that’s unfamiliar. We have the why as a financial component. We have the why as a death component. We have the why as I’m not going to say investment, but we’ll call it a usage component, meaning being able to use it however you want. So which of those whys do we start with as a foundation?

[01:55] I think the most easiest to understand is the usage and it’s also the most inspirational. So that’s a perfect one. And I’ll just hit it nail on the head, you know, straight on, because I feel like that’s the most valuable way to learn things. And that is that while the product is boring, it is incredibly effective in helping a family build and store emergency opportunity money. So liquid money for their entire life. The product is called Whole Life. It serves a family while everybody is living for their whole life in the most misunderstood space in the area of personal finance that is the least talked about and yet also the most valuable. And that’s liquid money, cash, emergency money, opportunity money.

[02:55] OK, so why this component, why this tool, this vehicle, instead of using the vehicle of, let’s say, dumping money into commercial real estate, then pulling out a line and then using that line of credit or having CDs, having other forms that are a little bit different and maybe more Main Street understood. Sure. Well, first of all, a good 90 percent of what is brought up is not the right comparison. So commercial real estate is a great example. Residential real estate, the stock market, your 401K and IRA, any of those types of assets, some of which you can borrow against, some of which you cannot, right, you can borrow against real estate, you can’t borrow against an IRA, have a lack of liquidity issue, even if it’s only for a moment in time, you know, take something

[03:54] like the stock market. I mean, real estate is pretty obvious, but people say, well, the stock market is liquid. Yeah, until it goes down and then all of a sudden you do not want to sell it, which means it is not liquid. So 90 percent of the things that we compare to need to be tossed off the table immediately. The other 10 percent are things like muni bonds, CDs you did mention, they’re kind of liquid, money market account, savings account, that type of thing. So the why, the question is why whole life insurance instead of money market savings accounts, et cetera? And the answer is twofold. One, it’s actually threefold. So one is there is a bit of a forced savings environment, and that is that

[04:35] there is a bill called a premium notice that either shows up online or at your house or however you get your bills and it forces you to save. And I mean, save is a verb. The act of building wealth is requiring an action on your part, ideally every month, maybe a couple of times a month, maybe annually, but a consistent ability to put away money, to save money, just to build money so that you can then store it. So point number two, now we have this place that we store it and the life insurance policy is going to earn a higher rate of return than any of those other equivalent assets. So again, CDs, money markets, that kind of thing. And then point number three is the growth is not taxed. And that is minor in the short run and huge in the long run.

[05:30] It makes a substantial difference for a family over 20, 30, 40, 50, 60, 70 years. Okay. So we’re talking the why is very admirable for this long-term. And that’s why everything you’re talking about is very long-term, meaning set up correctly. It’s passing to the next generation then passes to the next generation. So there’s another why that I want to pull in and poke the hole, which is the freedom why. So we know right now in Q4 of 2022, we just dealt with the scandal of FTX. Dealing with digital currencies. We’re dealing with banks that are starting to default. We’re having serious problems. So why life insurance, this whole life insurance as a freedom perspective? Yeah. It’s because it’s a mutual company.

[06:26] So by mutual, that means that is owned by the policyholders. It is not owned by the public markets. So the only people that have any control over a life insurance company are people that own policies at that company. So that’s a mutual structure. It’s probably most easily understood by using the analogy of a credit union. And so credit unions are typically owned by their members. They’re run for the benefit of their members only, period. And that’s how a mutual life insurance company works. So we’re talking Guardian, New York Life, MassMutual, Northwestern Mutual, Lafayette, Mutual Trust, Penn Mutual, there’s few others. So there’s probably about 20 of them. Mutual structure, mutual life insurance companies.

[07:16] That’s a big, big part of the distinction. And then this part is that the industry is state regulated. It’s not regulated by the federal government. And so our society has gotten a little bit lax in who we trust sometimes. And we tend to want to trust something like an FDIC insured account, Federal Deposit Insurance Corporation, which is not federal, has no money. There is no insurance there. It’s not a corporation. It’s an entity that is really just the taxpayer’s ability to pay. And while I’m not discounting it, and I’m certainly encouraging you at your bank to make sure that your bank is FDIC insured, the fact is that the life insurance industry just doesn’t even work in this space. It’s not a federal industry.

[08:04] It’s a state regulated industry and its backups are each other. So just like the insurance company is there to build benefit for the policyholders, the insurance companies use each other to back each other up. And so that state regulated mutual structure is completely different and something that we can be more confident in because it has been around for 150 to 180, 90 years, depending on which company you’re talking about. But all of the large mutual companies are at least over a hundred years old. Okay. You know, barring the craziness that we’re going through as a country, you know, financially and everything else, I mean, it’s very unpredictable now. Where are we going to see future catastrophes potentially happen?

[08:58] And obviously, you know, you’re not sitting in front of a crystal ball predicting everything. Well, as you and I have chatted before on this podcast, there are potential catastrophes with everything. And I’m not going to say that the life insurance industry is immune from them. Yes, they may have issues, but if you look at the very long list of catastrophes that the United States has had in its past, financial and related, the life insurance industry has not only survived, it has thrived through every single one of them, through every single one of them. It has paid a dividend, which a dividend is not something that is required to be paid, but tends to be paid every single year. And even if they don’t pay a dividend, your cash value goes up on a guaranteed

[09:48] basis, even if no dividend is get paid. So barring a extreme calamity whereby the only thing people are focused on is where their next meal is coming from, because if that’s the case, none of this matters. But barring that, I believe that the life insurance industry is prepared to weather financial storms better than any other industry, any other product, any other structure, because it already has proven the ability to weather those storms. Okay, that helps. And the reason, you know, this is the Prosperity podcast and like my question was not very prosperous of a question. But I feel it’s one of those that has to get answered for someone to understand why they do it. And so we have a pretty good foundation.

[10:44] We’re going to have additional episodes where Kim actually goes into details on the what and details on how I want to throw in one more W, which is when. So let’s say our listeners right now, they’re like, okay, I understand why I should do this. When, when should they? Yeah. So let me throw some questions back at you. Can you buy a mutual fund in a week? I mean, you can invest your capital pretty fast. Yeah. Can you buy a piece of real estate in a year? Easy. Yeah. Can you start your 401k back up or up to begin with in six months? Sure. Can you buy a life insurance policy tomorrow? You could probably buy a cheap term policy tomorrow. Assuming you have no health issues that happened today. Correct.

[11:32] And because of that, the, when is as quickly as you can make a decision. And you said it well, yes, term insurance policies. You can actually get on the book super fast. Well, life actually takes a good 30, 60 days to even get on the books. Even if you called me today and said, I want one today, that couldn’t happen. And yet that isn’t really the point. The point is that thankfully most of us are not going to have a health issue today, but the few that do cannot buy a life insurance policy tomorrow. And so it’s very, very important that people make a decision, get the education, get decided, yes, I’m going to do this and get on it or no, I’m not. And that’s a legit decision, but don’t waller in the middle.

[12:19] Okay. I like that. Uh, I’m going to ask one more W question. So we’ve got the why they should do it, when they should do it. Who? So of course I would love to help all of our prosperity podcast listeners and all of their friends and all of their family, no matter how young they are, as well as other generations, both going forward and backward and sideways. Did I miss anybody? And if for whatever reason I am not the right match, which I fully accept, then you want to ask for a life insurance agent that is going to represent you, not the life insurance company. And that’s often called the life insurance broker because they have the ability to write two or three different companies. Here’s the really critical second part to that though.

[13:11] It doesn’t really matter which company you pick. And so if you already know somebody that just happens to represent one of those mutual companies, that’s fine. Pick that person, pick that company, get on with it. But as a general rule of thumb, I think it’s wise to pick somebody that represents you, not the company, and then make darn sure that it is a mutual life insurance company and that it is, or a mutual holding. I should add that because that is kind of a sub element that still would work. And that the policy that you are buying is whole life. And there are a lot of agents out there that would say to you, this is kind of like whole life, or this is almost like whole life, or even this

[13:54] is better than whole life. And that’s indicative of just somebody that does not have full training and does not understand all of the elements and is not somebody that I would ever be comfortable working with myself. So I wouldn’t want you to either. I like it. That’s really helpful. So, uh, Kim, thank you for sharing these things. It was, uh, something where I actually learned as well. And I get to pull out my curiosity, you know, for me, and I think our listeners know I’m, I’m not an agent, like I’m doing this podcast because I’m naturally curious, I enjoy the conversations, but it was one of these things that we decided to do as a family. So we understood the why. Granted, I’m a quick start, which in Colby means like a person that

[14:44] takes action pretty fast with a minimal amount of information. And then that was my who was us. And then we first started with our kids and our entire family. And now they understand. And it will be much easier for them to teach their kids. And at that point, again, we’ve created a legacy. So that’s, I think the time, the years that we’ve known each other, you’re setting a foundation of taking action so that you can create additional legacies. This isn’t a one time. This is Kim’s a legacy worker. That’s what’s so cool about this. Thank you. Thank you, Kim.