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Measuring Whole Life Implementation

How do you measure something?  I would say by the tasks it does.

When I look at purchases that I have made over my lifetime, I think of them as the rewards that they will provide me, the tasks that they will be able to accomplish, the jobs that they will do for me.

Recently I received the annual statement and bill for my life insurance.  In fact, I received a bill for one of my life insurance policies because I own a portfolio of policies.  It’s very, very seldom that one life insurance policy is going to be adequate to do all the tasks that you would like them to do.  You should think of a life insurance portfolio as you would a stock portfolio, a mutual fund portfolio, a portfolio of certificates of deposit.  It’s just another portfolio in your financial life, but I happen to know that I am getting the best value for the money that I am spending.  So, when I receive my annual statement, it said I am spending “X” going into this policy, and I’m receiving “X”.  In fact, all of the money that I’m putting in, plus why.  I’m also receiving a rate of return if I don’t even take into consideration any of the other jobs that my life insurance is doing.  I’m receiving all of my money, the premium going into the policy, and I am receiving money above and beyond to actually give me an internal rate of return on the equity inside my life insurance policy, but that is not the sole reason for owning that life insurance policy, or all the other ones that I own inside my portfolio, it’s the other things it will do for me. 

So, let me just go over a few of them today so you can understand the multiple jobs, if done correctly, a life insurance policy should be able to accomplish for you:

  1. It is a storage place of cash, of safe cash, of money that I don’t lose sleep over it because it’s there today, and it’s going to be there tomorrow.  It doesn’t take the ups and downs of market.  A whole life insurance policy provides me cash, and it provides me certainty. 
  2. Now, I know that there are “ifs” inside my life, and I’m going to use the ifs of other types of insurance policies:  automobile, home owners, liability insurance.  Those are all ifs.  If I have an automobile accident, it is there to protect me.  If my house burns to the ground, it is there to protect me.  If I am named in a law suit, it is there to protect me.  But, if I had cash inside my life insurance policy that is readily available, that’s liquid, and I can access it, could that not allow me to organize the portfolio of my automobile, home owners, and liability law suit protection policies in such a way to be able to lower the premium, but maybe take on some additional up-front risk that if I needed that money, it would be available if I needed the money, but if I didn’t need the money, it could just continue to grow.  And, isn’t that what my life insurance policy would do?  So, by owning a life insurance policy, it allows me to construct better ways of handling my automobile, my home owners, and liability protection. 
  3. It also, if it is properly configured, I will have a waiver of premium benefit.  I will have the benefit of, if I were to become disabled, the money that I’m putting into the life insurance policy will continue to go in, but not from my pocketbook, but instead from the insurance company if were I were to become disabled to due to an illness or an accident.  So, it allows me to have greater disability coverage.  What a lot of people don’t realize about disability insurance coverage that they have through their employer is often times it’s only 2/3 of what their earnings were, and upon a disability, they become taxable, so it’s not even 2/3, it’s probably closer to about 50%.  Then, most plans through employers require that plan to be integrated with social security.  So, if you receive social security, the benefits that you would receive through your employer’s plan would be lessoned by that same amount.  You can’t have both, where if it is done through a whole life insurance policy correctly, it will be above and beyond. 
  4. This can also provide some additional protection regarding medical insurance.  Now, most of us hope that we will never, ever have to use large amounts of money on our deductibles.  We hope to always be healthy, always be secure, always be safe, but that is not necessarily the case.  Crap happens.  I call that the crap factor.  So, if we have money that is inside our life insurance policy, easily accessible, if we have a time in our life that we need to have accessibility to additional cash, might our life insurance allow us to be able to take advantage of that money to offset what those unexpected costs might be if there is a need to utilize high deductible medical insurance plans? 
  5. In addition, most whole life insurance policies also have something, which is referred to as an accelerated death benefit rider.  I wish that they would give this a different name.  I would prefer it to be called “Your own personal make a wish foundation”.  And the way that this works out just using general numbers – if I have a $100k policy, and if I were to become terminally ill, the insurance company would allow me, under most situations after a short waiting period of time, to be able to access 50% of the death benefit, not the cash value, which is a smaller amount, but the death benefit.  So, I might have accessibility to $50,000 available to me, so I can live my life with dignity.
  6. This also enhances social security because now I can wait for a longer period of time, and many people say, “I want to make certain that I get all of my social security.”  Now, we all know if we wait beyond our full retirement age, and until age 70, there’s an increase in monthly benefit of almost 8% per year, but there is always this fear, “what happens when I die if I don’t make it to that point in time?”  I’ve lost that money.  Could your life insurance replace that later on in life?  But the real fear that most people have is living too long, and don’t we want to have the most amount of money as possible in retirement?
  7. Your Wills, your Trusts; your life insurance comes into play whether you are young, whether you are old.  If you want to leave something to your loved ones, the best cash is income tax free.  The best cash comes immediately.  Just like any other asset, once a death claim has been filed, a death certificate is issued, insurance companies have a quick turnaround.  Most companies will do this in about 10 business days.  For many people, no life insurance, no assets, or the type of assets that they would leave, like 401(k)s, traditional IRAs will have so much in taxes that will go to the government first.  Were those the best assets for a person to pass on?
  8. Ownership arrangements – this is huge.  People worry about money being put in their names and possibly later on not being able to have that money there in the event that a nursing home comes to get it, where the state comes to get it.  Could you do some estate planning in your life that would allow you to change the ownership of this particular product so it could be outside of your estate, hence protecting it so the theory of other people, other institutions, don’t come to get the asset that you wanted to be available for your family, for your loved ones. 
  9. And, let’s just talk about life insurance.  Permanent life insurance is there in essence forever.  It’s there until the day you die or age 121, whichever comes first.  Whole life insurance is just that.  It lasts the “whole” of your life.
  10. Let’s talk about the replacement regarding where people typically put safe money.  This would be like regular checking accounts, savings accounts, savings certificates, Christmas club accounts, US savings bonds, certificates of deposit, perhaps money market accounts.  Whenever I see people with large amounts of money in any of those accounts, I always say, “so, you bought life insurance without the death benefit.”  If the money inside of a life insurance policy is safe, sound, secure and accessible, just like any of these others, the people are actually buying the life insurance by buying those products, but they have foregone the death benefit.  If you could have both, wouldn’t you want to have both instead of just having the one?
  11. Tax Deferral – The money that is inside of a whole life insurance policy grows tax-sheltered and tax-deferred.  My policies I have had for quite some time, and there is a taxable gain.  If I were to cash them out, I would have to pay taxes on them.  That’s not the plan.  The plan is, it’s easily accessible through loan provisions that I can borrow against my policy in case there is an emergency or opportunity, but the money inside my policy continue to grow tax-sheltered and tax-deferred.  I don’t have to pay Uncle Sam any money because the IRS deems that tax-sheltered and tax-deferred.  There’s a barrier between me and the government; my money and the tax man. 
  12. This could be a good replacement for a Roth IRA.  It could be a good addition to a Roth IRA.  Even in a Roth IRA, I have some accessibility after 5 years typically, but beyond the amount of money that I have inside of a Roth IRA, I still have some tax issues if I do some accessibility prior to age 59 ½.  If an opportunity comes my way, as the insured, as the person who has the policy, and it comes your way, while you are in your 20’s and 30’s and 40’s and 50’s, don’t you want all the money available to you to be able to take advantage of those opportunities?  And would you feel bad or would you feel threatened or taken advantage of if you had to pay a penalty just to access your money if there was an emergency in your life because you locked it up into a retirement plan, like a Roth IRA or a 401(k), a Traditional IRA?  In fact, you can take a loan from your 401(k), but your plan description is going to say how the money needs to be paid back, what kind of schedule, what kind of interest rate.  And people will say, “yes, I’m getting that money,” but perhaps you are paying yourself back some minimal interest rate during a period of time that the stock market is going wild, and you missed those opportunities. 
  13. The way a life insurance policy works is that you do not borrow from the policy.  Instead, what you are able to do is borrow against your policy, so it’s almost as if you’ve got money in two places.  You’ve got money that remains inside your life insurance policy, doing all the things that it always should have done, and then the insurance company using your policy as collateral.  They give you their money, so your money stays inside the policy.  Their money gets into your hot little hands, and you can use your policy to be able to have total accessibility to the resources in the event of an emergency, in the event of an opportunity.  And since it’s the type of loan that doesn’t require credit checks, or a schedule in which it needs to be paid back, it also allows you to remain in the driver’s seat.  You determine the when, the how, the why.  The insurance company contractually decides on the interest rate that will be charged, and that’s inside your policy, and it’s basically a long-term bond rate, a very competitive rate, but you dictate the other terms.  So, your money remains inside the policy doing all the wonderful things that it should have always done while you have the accessibility of the money from the insurance company because they have used your policy as collateral to give you the money so you can dream your dreams, and so you can take care of those emergencies that could come along. 
  14. Now, thinking about dreams and emergencies, let’s talk about stocks.  Let’s talk about the market – whatever the market is for you, and the market might be mutual funds, it might be individual stocks, it might be bit coin, it might be real estate investments.  The real key I want you to take away is that often times people will say to me, “I only wish that I had had money at this point in time.  The market was low, and you are supposed to buy low and sell high.  I wish I would have had opportunities to have cash available, but all my other money was locked up in 401(k), CDs with expiration dates, and substantial penalties for early withdrawal.  If I would have only had some liquidity.”  If an opportunity comes along where all of the sudden you need cash, wouldn’t it be wonderful if you had a stash of cash that was liquid, that was inside of a whole life insurance policy so you could get at it at exactly the time that you needed it?  That’s during the accumulation phase of a person’s life, but let’s talk about the other option as well.  Are there times when we are liquidating our retirement accounts where all of the sudden the market drops, and you could only stop the flow of money coming out of your investment accounts because the market is low?  Wouldn’t that be a wonderful time that you could actually access your life insurance, use the equity, use the cash value there, and take that out in the form of a loan against your policy, wait for your investments to return on the upswing, and during that interim period of time, using your life insurance as a buffer, and once the market has regained to then reload the money back that you had used in the form of a loan against your life insurance policy, so you could use that cash at a later date?  Think of it as reloading your gun with bullets, financial bullets so the chamber is always full, that no matter what comes your way, you can pull it out of the holster and you are set and ready to go.  You are always protected against the good, the bad, and the ugly in your life.

So, as you are measuring things, are the products that you buy in your life, do they have multiple purposes or do they just have one?  When I look at retirement accounts, they basically have one.  I’ve got to have money for retirement, and that’s how those accounts are set up, but they are not plans or strategies on how that is going to be done.

If you want more information about how this works, an example of how it personally works in your life, reach out to our office.  We are a virtual office.  We can get together on a Zoom Room and discuss exactly what it is that you are looking for and what we can do on your behalf.   

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