2020-10-16-Friday

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00:00:30.660 | Today on Radical Personal Finance is live Q&A.

00:00:33.160 | ♪

00:00:49.180 | Welcome to Radical Personal Finance,

00:00:50.680 | a show dedicated to providing you with the knowledge,

00:00:52.420 | skills, insight, and encouragement you need

00:00:54.420 | to live a rich and meaningful life now

00:00:56.420 | while building a plan for financial freedom

00:00:57.680 | in 10 years or less.

00:00:58.720 | My name is Joshua. I am your host.

00:01:00.060 | Today is Friday, which means it's a live Q&A show.

00:01:03.520 | Works just like Call & Talk Radio.

00:01:04.860 | You call in, we chat about anything

00:01:06.560 | that you want to talk about,

00:01:07.660 | could be any question, any topic.

00:01:09.900 | I don't know what's coming.

00:01:10.900 | I just open up the phone lines and chat with you.

00:01:13.400 | ♪

00:01:21.680 | I get really good feedback about these shows.

00:01:23.020 | They're my favorite shows each week to do,

00:01:25.280 | and you always notice that there's quite a diversity

00:01:27.420 | of topics.

00:01:28.820 | I always try to put the time stamps for you

00:01:30.760 | in the episode, so if there's a particular topic

00:01:34.020 | that you're interested in, you can see the questions

00:01:35.400 | that are covered in the time stamps.

00:01:36.600 | But of course, naturally, all of the show

00:01:39.300 | is naturally engaging and interesting,

00:01:41.400 | so I can't imagine why you wouldn't just start

00:01:43.060 | at the beginning and listen your way through.

00:01:45.000 | But I really enjoy doing these shows,

00:01:46.100 | and I know that you guys really enjoy

00:01:47.900 | hearing them as well.

00:01:49.540 | If you would like to join me for one of these

00:01:51.080 | Friday Q&A shows, I would love for you to do that.

00:01:52.740 | You can do that by signing up to support the show

00:01:54.080 | at patreon.com/radicalpersonalfinance,

00:01:56.440 | patreon.com/radicalpersonalfinance.

00:01:59.620 | And if you sign up to support the show there,

00:02:01.120 | you will gain access to these Friday shows.

00:02:03.120 | You can call in, you can talk to me about anything

00:02:04.820 | that you want to talk to me about,

00:02:05.820 | ask any questions.

00:02:06.860 | It's up to you.

00:02:08.860 | We just open up the phone lines

00:02:10.360 | and talk about anything you have going on.

00:02:13.300 | And in that spirit, John in Pennsylvania,

00:02:15.400 | welcome to the show.

00:02:16.240 | How can I serve you today, sir?

00:02:17.300 | - Hi Joshua, yeah, thanks for taking my call.

00:02:22.040 | I had two questions.

00:02:24.900 | The first one's about my disability insurance.

00:02:27.480 | About three years ago, I purchased disability insurance

00:02:33.340 | at a job that I was at.

00:02:34.640 | Had currently, or at that time,

00:02:38.120 | had covered already 60% of my disability insurance needs.

00:02:43.020 | And so at the time, I was able to buy a policy

00:02:46.260 | that covered, I believe it covered 60%

00:02:48.700 | of the remaining 40% of my salary.

00:02:52.100 | So a relatively small amount of coverage,

00:02:55.140 | but disability insurance was pretty expensive.

00:02:57.680 | So it still was a good chunk for a yearly premium.

00:03:02.040 | But I felt, I was convinced by some of your shows

00:03:05.720 | that that's a very necessary insurance to get.

00:03:08.620 | And I was happy to get it at the time.

00:03:11.460 | And now my question is, I have a new job

00:03:14.000 | where my income, at least temporarily,

00:03:17.260 | is more than 2X what it used to be.

00:03:20.800 | And I guess I'm curious if I could go

00:03:23.900 | and get more disability insurance coverage now,

00:03:26.240 | which I'm guessing is yes, and if I could,

00:03:28.980 | would the cost amount basically increase linearly

00:03:33.140 | with the coverage amount?

00:03:34.340 | Or is there other multipliers in there

00:03:36.680 | that I'm not taking into account?

00:03:38.700 | - Short answer, yes and yes.

00:03:42.380 | When your income increases,

00:03:43.860 | you're able to qualify for more coverage.

00:03:46.980 | Now what happens is the percentage of your income

00:03:50.440 | that you can cover actually goes down.

00:03:52.820 | So if you were earning $50,000 per year,

00:03:57.360 | the insurance company would do a calculation

00:03:59.420 | and they would say, well, you're earning $50,000 per year,

00:04:02.300 | we're gonna assume you pay a certain level of taxes,

00:04:04.620 | but basically at a $50,000 per year job,

00:04:07.460 | they would wind up giving you total coverage

00:04:09.620 | between your group insurance and your individual policy.

00:04:12.580 | They would wind up giving you total coverage

00:04:14.580 | that would basically be 100%

00:04:16.540 | of your pre-disability earnings.

00:04:18.780 | But if your income increased from $50,000 a year

00:04:21.480 | to $150,000 a year, you can get more coverage,

00:04:25.440 | but the percentage of your earnings

00:04:27.360 | that you can cover will go down.

00:04:29.180 | So it would probably go down at $150,000 salary

00:04:32.320 | to something like 80% or 85%.

00:04:35.840 | If your income increased from 150 to $350,000,

00:04:40.120 | once again, you could increase the total monthly benefit,

00:04:43.540 | but the percentage of your income

00:04:45.320 | that you can cover will go down.

00:04:47.560 | And so if you're at $350,000 of income,

00:04:49.900 | they would probably cover 60%

00:04:52.180 | of your pre-disability earnings.

00:04:54.240 | So the short answer is yes,

00:04:55.920 | and you can increase the coverage amounts,

00:04:59.200 | but you won't ever get up to 100% coverage

00:05:02.900 | when you get up into higher income earning amounts.

00:05:05.620 | Second question is yes, disability insurance benefits

00:05:08.600 | do go in terms of price on a linear basis, more or less.

00:05:13.600 | So if you were looking at a contract

00:05:15.720 | and you had a contract that was for $3,000 a month

00:05:19.080 | versus a contract that was for $6,000 a month,

00:05:21.760 | the price is gonna be fairly linear, not 100%.

00:05:24.920 | It's not gonna be $100 a month of premium for the one

00:05:28.240 | and then 200 for the next,

00:05:29.560 | but it'll be $100 a month for the one at 3,000 a month,

00:05:32.640 | and then it'll be $178 for the second one at $6,000 a month.

00:05:37.640 | So the coverage amount will be fairly linear.

00:05:40.480 | You do still have the other options that you can change

00:05:43.580 | other than coverage amount that will affect the premium,

00:05:46.440 | duration of benefits, when the benefits start,

00:05:49.640 | definition of disability, et cetera,

00:05:52.400 | but as long as you're in the same occupation class

00:05:54.880 | previous as you are now,

00:05:56.760 | yes, it'll work on a fairly linear basis.

00:05:59.000 | - Okay, thank you.

00:06:01.880 | And the income amount that they're basing it off of,

00:06:06.880 | does that always tie to base income

00:06:08.820 | or does that include bonuses, stock equity,

00:06:12.360 | things like that?

00:06:13.200 | Is there like a total compensation factor there

00:06:15.380 | or is it always going base salary?

00:06:17.240 | - Depends on the company

00:06:18.380 | and depends on the structure of the policy.

00:06:20.240 | Usually in a group disability contract,

00:06:23.660 | those will most often reflect exclusively

00:06:26.820 | a base salary coverage.

00:06:29.900 | They sometimes do include bonuses,

00:06:32.580 | but they will usually include just simply the base salary

00:06:35.860 | for group disability.

00:06:37.560 | However, for an individual disability policy

00:06:39.880 | that you're buying individually,

00:06:40.980 | those will usually include total income.

00:06:43.940 | Now, they don't have to,

00:06:45.180 | but most of the time you will cover total income.

00:06:48.260 | And so this is one of those things

00:06:49.620 | where an insurance agent,

00:06:51.060 | when you're talking to an insurance agent,

00:06:53.180 | if you are a person who has a large amount of your income

00:06:57.500 | made up of bonuses and commissions, et cetera,

00:07:00.860 | then you can cover those

00:07:02.120 | with an individual disability policy,

00:07:04.620 | but usually those aren't covered with a group policy.

00:07:06.960 | But yes, so the answer is it depends,

00:07:10.160 | depends on the type of contract we're talking about

00:07:12.340 | and the basic structure of your income.

00:07:14.300 | - Okay, thank you.

00:07:16.780 | I appreciate that.

00:07:17.620 | Do we have time for the second question?

00:07:19.740 | - Yep, go ahead.

00:07:20.580 | - Or should I wait till the end?

00:07:22.100 | Okay, so my second question,

00:07:24.460 | and actually part of the reason I was coming to you

00:07:26.540 | for the first question,

00:07:28.220 | is my insurance agent that I had sought out

00:07:32.100 | from Northwest Mutual,

00:07:34.180 | and I liked him a lot.

00:07:35.700 | He worked with us for quite a bit of quotes,

00:07:38.480 | and then I ended up getting a disability insurance coverage.

00:07:41.460 | He had followed up the year after.

00:07:43.540 | The next year, I think I just missed

00:07:45.020 | scheduling with him to follow up.

00:07:46.500 | And then it turns out he unfortunately is disabled himself.

00:07:51.500 | He's going through a really tragic illness,

00:07:54.800 | and he's not able to speak

00:07:57.340 | and just isn't able to follow up.

00:07:59.340 | Well, I got a call from someone who,

00:08:01.860 | I believe I said was from his office,

00:08:04.300 | and they were just kind of touching base with his accounts.

00:08:08.380 | But I sort of felt like I got a little bit

00:08:10.960 | of a bait and switch there,

00:08:12.340 | because this person is associated with Northwest Mutual.

00:08:15.600 | They do seem somewhat associated with his office,

00:08:19.040 | although I can't find a direct line for that.

00:08:21.580 | But he obviously knows my previous agent.

00:08:25.060 | But this guy is primarily a wealth management person.

00:08:29.140 | And as I was going through

00:08:31.160 | and answering a bunch of his questions

00:08:32.560 | during a casual conversation,

00:08:34.960 | I kind of felt the switch to him wanting my business

00:08:38.120 | as a wealth manager.

00:08:39.520 | And I had already given him a lot of information

00:08:44.240 | that I would have felt comfortable giving

00:08:45.880 | to my insurance agent for certain needs analysis

00:08:48.400 | and different things.

00:08:49.620 | And then all of a sudden I felt very uncomfortable

00:08:51.640 | giving it to him, 'cause I kind of felt like he was

00:08:54.620 | coming in to offer his services

00:08:56.180 | beyond just insurance quotes.

00:08:57.720 | So at this point, and on top of that,

00:09:00.840 | the guy that was reaching out to me,

00:09:02.480 | he didn't have any accreditations for,

00:09:05.800 | what is it, CLU, or he wasn't really a CFP,

00:09:10.800 | or not CFP, but one of the other designations

00:09:15.280 | for being a certified financial planner.

00:09:20.280 | So long story short,

00:09:22.680 | it's not like he was giving me any bad stuff.

00:09:25.120 | It was a good conversation.

00:09:26.520 | But in the end, I kind of just wanted to send him an email

00:09:29.560 | to say, "Can you please destroy all the notes or records

00:09:32.320 | "you have of my conversation with you?

00:09:33.660 | "Because I really don't wanna continue

00:09:36.600 | "going down this line necessarily."

00:09:39.120 | But I didn't know if writing back to him in an email

00:09:41.920 | is a sufficient way to, I don't know,

00:09:44.560 | if it's a legal requirement for him to do so,

00:09:46.720 | but I kind of wanted to force him

00:09:48.000 | to somehow maybe destroy those records.

00:09:50.700 | (laughing)

00:09:52.360 | I know it's just a bit of a privacy thing,

00:09:54.240 | but I'm not sure if there's any way to really do that

00:09:55.880 | now that I've already let that out.

00:10:00.840 | - There's really no way that you could do that.

00:10:03.240 | Could you send him the email?

00:10:07.860 | Sure.

00:10:08.700 | Would it do any good?

00:10:09.520 | No.

00:10:10.800 | Basically, the guy would read it,

00:10:12.600 | and he'd be like, "What on earth?"

00:10:15.100 | Like, all I do all day is ask people about their money.

00:10:17.820 | He doesn't really care anything about who you are

00:10:21.220 | or anything.

00:10:22.060 | And so from his perspective,

00:10:23.680 | the fact that you told him how much money you have

00:10:25.420 | really doesn't matter at all to him.

00:10:29.060 | - I had a listener of mine who bought one of my courses,

00:10:33.520 | and then he bought one of my courses,

00:10:36.440 | and he registered with a, I think it was a 33-mail

00:10:40.800 | or I think an opaque email address.

00:10:42.920 | It was like, you know, 125X57, opaque email address.

00:10:47.240 | And then he bought one of my courses.

00:10:48.840 | He didn't like it.

00:10:49.680 | He asked for a refund.

00:10:50.500 | I gave him a refund.

00:10:51.640 | And then he writes back to me and says,

00:10:53.620 | "Will you please destroy all evidence of,

00:10:56.360 | "will you please remove my records from your system?"

00:10:59.340 | And I'm sitting here looking at this email address

00:11:03.180 | that is xy472@opaque.com.

00:11:07.540 | And I'm tempted to write him back and say,

00:11:11.780 | "Are you kidding me?

00:11:13.620 | "The reason is, you're using this email address,

00:11:16.900 | "which is totally fine with me.

00:11:18.040 | "Like, I don't care what your name is.

00:11:19.480 | "I don't care who you are.

00:11:20.560 | "I just do my best to give, I don't care.

00:11:24.400 | "It doesn't matter to me at all."

00:11:26.100 | And I don't have any records of you that anything like,

00:11:29.980 | am I supposed to go to my system and manually delete you?

00:11:33.920 | So I just decided, well, it'd be silly for me to respond

00:11:37.180 | with some snarky email, that's bad form.

00:11:40.060 | So I just ignored the email.

00:11:41.620 | And then he writes me again two months later.

00:11:43.500 | He's like, "Did you please confirm

00:11:44.800 | "that you deleted my stuff?"

00:11:47.060 | And I'm sitting here looking at it again,

00:11:49.140 | just saying, "Listen, I don't know anybody out there

00:11:51.500 | "who's more sympathetic to your privacy efforts,

00:11:56.500 | "but I'm not gonna waste my valuable time

00:12:01.160 | "to go into my system and try to figure out

00:12:04.700 | "how to delete xy125@opaque.com,

00:12:09.700 | "this guy who registered with what I'm sure is a pseudonym

00:12:12.360 | "and somehow removed you from my system."

00:12:14.380 | Like, the whole point, oh, no, it was a pseudo mail thing.

00:12:17.380 | And I'm like, but this is the whole point you use it.

00:12:19.780 | If you don't wanna be in my system,

00:12:21.860 | then burn the email address and move on.

00:12:23.940 | Like, I don't care, and I'm not gonna take my valuable time

00:12:26.620 | to go and do this thing for you.

00:12:29.680 | So I gotta imagine that you would get

00:12:32.700 | a similar kind of reception from that guy,

00:12:37.300 | and he wouldn't be anywhere near

00:12:39.140 | as sympathetic to privacy efforts as I am.

00:12:41.880 | But I think that at the end of the day,

00:12:43.540 | it's a good lesson for you and for listeners

00:12:46.060 | that when it comes to your information,

00:12:49.380 | the only way to protect your information

00:12:53.260 | is not to tell anybody your information.

00:12:56.140 | And it's especially important

00:12:57.780 | even when you're dealing with things

00:12:59.740 | like dealing with financial planners.

00:13:02.780 | And I've talked about this extensively.

00:13:05.020 | Now, I don't think that for most people,

00:13:07.980 | it's that big of a risk for you

00:13:09.620 | to share your personal information with a financial advisor

00:13:12.300 | or with a financial planner.

00:13:14.060 | Most financial advisors don't care.

00:13:16.660 | Just kind of like doctors seeing naked people,

00:13:18.800 | financial advisors knowing how much money people have,

00:13:21.780 | I can't keep it straight in my head.

00:13:23.260 | It just doesn't matter to me

00:13:24.620 | how much money you have or don't have.

00:13:26.220 | It doesn't, it's just for most,

00:13:28.100 | in most situations, it's really not a big deal.

00:13:31.180 | But you need to be aware of the fact

00:13:32.980 | that when you tell somebody what you have and where it is,

00:13:35.900 | you lose control of that information.

00:13:37.660 | So let me describe what happens in the situation

00:13:40.540 | when you're dealing with a financial advisor's firm.

00:13:43.220 | All the information that you tell them is,

00:13:45.500 | in today's world, used to be it would just go into a file,

00:13:48.100 | right, somebody would write it on a file,

00:13:49.440 | and it would be, you know, pieces of yellow paper

00:13:53.040 | and stuck into a manila file,

00:13:54.560 | just sitting in someone's office.

00:13:57.160 | Now, most of the time, there's a digital system.

00:13:59.640 | And the digital systems, with any reasonable firm,

00:14:02.960 | are gonna be decently secure.

00:14:05.200 | It's gonna be encrypted in some way.

00:14:06.820 | It's going to be, it's gonna be restricted, usually.

00:14:10.460 | So a big firm like Northwestern Mutual,

00:14:12.680 | the information that's in the notes

00:14:14.500 | is not gonna be available to everybody.

00:14:16.060 | So the guy who is in one cubicle,

00:14:19.320 | that information is not available to the guy

00:14:21.240 | that's in the next cubicle unless he's assigned to them.

00:14:23.640 | But that information is available

00:14:25.860 | at every stage of the chart.

00:14:29.560 | So you've got the individual insurance agent,

00:14:32.000 | then you've got the managing director.

00:14:33.520 | Well, the managing director has an override responsibility

00:14:36.120 | for the insurance agent.

00:14:37.120 | So the managing director can see all the client notes

00:14:39.640 | for that particular file.

00:14:41.280 | Those notes can be seen by the managing partner.

00:14:43.480 | They can be seen by all of the compliance staff,

00:14:45.600 | the compliance officer of the firm.

00:14:47.340 | They can be seen by the home office.

00:14:49.180 | And so every bit of information that you give

00:14:51.520 | to a financial advisor, to an insurance agent,

00:14:53.800 | you should assume is now going to be part

00:14:56.100 | of your permanent file.

00:14:57.520 | And in that situation, if anybody is given access

00:15:00.680 | to that permanent file,

00:15:01.800 | they're gonna have access to that information.

00:15:04.040 | And so in a situation like you're describing

00:15:06.240 | where your primary insurance agent became disabled,

00:15:10.080 | what happened was, kind of internally,

00:15:13.480 | the way that insurance agencies work,

00:15:16.160 | you have a set of clients,

00:15:18.640 | and you have a specific insurance agent

00:15:21.040 | who is the primary agent who services that you as a client.

00:15:25.960 | That's been your interface.

00:15:27.400 | But in the hierarchy, you have a couple other levels,

00:15:30.420 | and these are usually called a district agent,

00:15:32.480 | depending on the terminology of the firm.

00:15:34.760 | Just the pure insurance terminology

00:15:36.720 | would be a district agent,

00:15:38.200 | and what's called a general agent.

00:15:40.040 | And so a general agent is somebody

00:15:41.900 | who goes to an insurance company

00:15:43.460 | and negotiates a geographic contract

00:15:46.320 | for to develop a particular region

00:15:49.480 | for that insurance company.

00:15:51.360 | So they say, "If you'll give me licensing rights

00:15:53.560 | "to the state of Pennsylvania,

00:15:55.520 | "or if you'll give me rights to the city of Pittsburgh,

00:15:58.440 | "then with that information,

00:16:01.320 | "I'm now going to develop this particular city."

00:16:03.840 | And they get the exclusive right to that geographic area

00:16:08.560 | and to service people who are within that,

00:16:10.460 | to develop offices.

00:16:12.080 | It's not that somebody can't move in

00:16:14.000 | and buy an insurance policy

00:16:15.100 | from a guy on the other side of the city,

00:16:16.660 | but it's that they get the exclusive right,

00:16:18.520 | the general agent gets the exclusive right

00:16:20.620 | to establish offices for that insurance company

00:16:24.580 | within that geographic area.

00:16:26.800 | Now, that general agent,

00:16:28.180 | once they establish that contract,

00:16:29.720 | it's the general agent's job to go out

00:16:32.460 | and to hire and to recruit district agents.

00:16:35.740 | And so the district agents

00:16:37.260 | also get assigned a geographic area,

00:16:39.280 | but it's a smaller geographic area.

00:16:40.920 | It's a specific neighborhood,

00:16:43.400 | or you can have this side of town over here.

00:16:46.560 | And it's the general agent's job

00:16:48.160 | to populate their geographic area

00:16:50.240 | that they've negotiated the contract

00:16:51.720 | with the insurance company.

00:16:53.680 | It's the general agent's job

00:16:54.760 | to populate that geographic area with offices.

00:16:58.280 | Those offices are going to be overseen

00:17:00.080 | by the district agent,

00:17:01.280 | and then the district agent will now go out

00:17:03.320 | and recruit insurance agents, individual insurance agents.

00:17:06.840 | When an insurance agent sells an insurance policy,

00:17:10.580 | then the insurance agent gets a commission,

00:17:13.220 | the district agent gets a commission,

00:17:14.820 | and the general agent gets a commission.

00:17:16.900 | And so the commissions get split,

00:17:19.100 | the commission that's paid from the insurance company

00:17:21.100 | to the agents,

00:17:21.980 | the commissions get split at all three levels.

00:17:24.420 | But each of the agents,

00:17:28.860 | they're all insurance agents,

00:17:29.920 | but at each level,

00:17:30.840 | they have different goals that they're trying to meet.

00:17:33.420 | So what happens is,

00:17:35.280 | when your insurance agent became disabled,

00:17:39.320 | the district agent is actually the one

00:17:41.840 | who oversees that individual insurance agent's

00:17:45.080 | book of business.

00:17:46.400 | Now that individual insurance agent,

00:17:48.600 | depending on what happened with his contract

00:17:50.540 | with the insurance company,

00:17:51.480 | whether it was his disability,

00:17:52.840 | whether they thought that he would come back or not,

00:17:55.080 | that's all kind of internal and opaque to you.

00:17:57.680 | But what happened is that if that insurance agent,

00:18:00.160 | if it was decided that,

00:18:01.080 | hey, he had a really bad illness,

00:18:02.280 | he's disabled for forever,

00:18:03.880 | he's not coming back,

00:18:05.440 | then all of those policies that are sold,

00:18:09.880 | that have been sold by that agent,

00:18:12.160 | now roll up to the district agent for servicing.

00:18:15.640 | And the district agent now wants to make sure

00:18:19.040 | that those customers of his agency are taken care of.

00:18:21.940 | And this is what happens when somebody goes

00:18:23.280 | to an insurance company,

00:18:24.120 | they work there for three years and then leave, et cetera.

00:18:26.480 | And so he takes that agent's files,

00:18:29.800 | and he divides them up among his other insurance agents.

00:18:33.120 | Because there's a huge amount of,

00:18:35.880 | number one, it's just good business, right?

00:18:37.640 | They're promising, they wanna service clients.

00:18:40.320 | But there's also tremendous financial incentive

00:18:44.200 | to service those clients well,

00:18:45.760 | because as people's needs change through the years,

00:18:48.640 | they'll need more insurance policies,

00:18:50.460 | they'll need other lines of business.

00:18:52.480 | With a big insurance company,

00:18:53.820 | it's not uncommon for an individual policy owner

00:18:56.840 | to own five, seven, 10 insurance policies

00:18:59.780 | with one particular company.

00:19:01.400 | And so that district agent wants to do a good job

00:19:04.560 | of servicing his agency's clients.

00:19:09.560 | They're called, it's not a very flattering term,

00:19:12.320 | but it's what they're called, they're called orphan clients.

00:19:14.360 | So your agent is gone, whether he left the business,

00:19:17.480 | retired, died, was disabled, your agent is gone,

00:19:20.620 | and now here you're an orphan client.

00:19:22.360 | You still have your policies with the company,

00:19:24.820 | but who's gonna service those policies for you,

00:19:27.080 | and who's gonna sell you additional lines of business?

00:19:29.680 | So the district agent takes them and divides them out

00:19:32.340 | among other insurance agents.

00:19:34.280 | And so the other insurance agents

00:19:35.840 | are basically given the file,

00:19:37.240 | and they say to them, here,

00:19:39.640 | here's John, who lives in Pittsburgh,

00:19:42.300 | go ahead and call John and introduce yourself,

00:19:45.000 | and we'll assign the file to you.

00:19:46.600 | So I used to do this all the time, right?

00:19:47.840 | I would be given, I was a high-performing agent,

00:19:50.240 | and so you're given,

00:19:51.080 | after you've established yourself and whatnot,

00:19:53.280 | then your district agent will give you these files.

00:19:56.560 | And so what you do is you call,

00:19:59.140 | you introduce yourself, and you do any service work.

00:20:01.740 | You check up on beneficiary designation,

00:20:03.760 | see if there are any policy adjustments

00:20:05.260 | that need to be made.

00:20:06.280 | But it's also a fresh opportunity for you

00:20:08.380 | to establish a new relationship.

00:20:10.840 | And now, instead of the person

00:20:12.480 | just simply having the district agent's number,

00:20:14.880 | now they'll have an individual insurance agent.

00:20:16.620 | Usually there will be now a personal relationship.

00:20:18.780 | You've met them, they've come in,

00:20:20.060 | you've provided in-force illustrations,

00:20:21.700 | you've kind of updated, see if anything has changed.

00:20:24.140 | And if you have a chance to cross-sell on something,

00:20:26.320 | then you go ahead and cross-sell on something else.

00:20:28.980 | And so what the guy is,

00:20:30.700 | what you're describing is an entirely normal process

00:20:35.700 | with any insurance agency anywhere.

00:20:38.600 | And what that guy was doing was looking to cross-sell.

00:20:41.580 | He's looking, he's talking to you,

00:20:43.740 | he's recognizing, hey,

00:20:45.300 | here's a guy who has a bunch of insurance with us,

00:20:47.380 | but we're not managing any of his money.

00:20:49.020 | Why aren't we managing any of his money?

00:20:50.980 | And is there some way that I can attract him

00:20:53.300 | and interest him in our money management business,

00:20:56.540 | our wealth management business,

00:20:57.700 | in addition to his insurance business?

00:21:00.700 | So that's how it works internally.

00:21:02.860 | And you don't really have any control

00:21:05.180 | over the information once you give it out.

00:21:08.460 | For example, when you took out an insurance policy,

00:21:11.060 | you listed on that insurance policy

00:21:12.860 | all of your individual information.

00:21:15.780 | You listed your income, you listed all of that.

00:21:17.820 | And that's now part of the information

00:21:20.620 | that the insurance company has.

00:21:22.420 | There's not a huge danger in this

00:21:25.300 | with regard to information security.

00:21:27.800 | There have been rogue insurance agents

00:21:30.320 | and people throughout the years

00:21:31.520 | who have stolen people's identity.

00:21:34.260 | There have been people who would go through the files

00:21:36.320 | and steal somebody's name

00:21:37.560 | 'cause they've got all the info there is in the file.

00:21:39.980 | You've got your name, you got your birth date of birth,

00:21:41.760 | you got your social security number,

00:21:43.300 | you got your address,

00:21:44.140 | and you've got everything you need for identity theft.

00:21:47.140 | And so insurance agencies and wealth management companies,

00:21:51.300 | the compliance officers are pretty strict about this.

00:21:54.060 | And they watch very, very carefully

00:21:55.920 | for any kind of sense of fraud or illustrations of fraud.

00:22:00.380 | That does happen on occasion.

00:22:01.820 | And if that happens, then there very clearly is a case,

00:22:05.780 | a criminal case that's brought,

00:22:07.220 | and the insurance agents prosecute those rogue agents,

00:22:10.740 | the insurance companies prosecute

00:22:12.220 | those rogue agents very hard.

00:22:14.460 | But short of that, short of actual criminal fraud

00:22:19.340 | and theft, identity theft,

00:22:21.260 | you don't have any control over the information,

00:22:23.460 | and there's no right to privacy that you have

00:22:25.620 | other than their duty to engage

00:22:29.340 | in reasonable protection of your information.

00:22:32.820 | But let's say you start going through,

00:22:34.580 | you all of a sudden,

00:22:35.860 | you told your insurance agent all about your money,

00:22:38.420 | and you applied for new disability insurance

00:22:41.100 | based upon your 2X higher income,

00:22:43.160 | but now all of a sudden you wind up getting divorced,

00:22:45.900 | and you didn't tell your wife

00:22:46.940 | that you were making 2X higher income,

00:22:48.940 | you were just trying to hide that.

00:22:50.480 | Well, if that comes out as a component of your divorce case,

00:22:53.540 | then your wife's divorce attorney

00:22:55.980 | can subpoena those records,

00:22:57.500 | and now those records will be used

00:22:59.920 | to demonstrate that you're not selling the truth,

00:23:02.040 | and you told the insurance agent

00:23:03.140 | you were making such and such amount of money.

00:23:04.900 | Which is why I have tried to be clear,

00:23:08.260 | when it comes to financial planning,

00:23:10.340 | you need to think very carefully

00:23:12.620 | about what you want to say to a financial advisor,

00:23:15.780 | and what information you want to give

00:23:17.060 | to an insurance company.

00:23:18.500 | If you're going to be hardcore for some reason,

00:23:21.100 | just due to your makeup,

00:23:22.140 | and your desire for privacy, whatever,

00:23:23.900 | if you're gonna be hardcore,

00:23:24.900 | where you don't want anybody to know

00:23:26.860 | anything about what you have,

00:23:28.460 | then not only can you not tell anybody at all,

00:23:31.860 | but more importantly,

00:23:33.580 | you're probably not gonna be able

00:23:34.780 | to even get the policies.

00:23:36.140 | If you can't demonstrate that,

00:23:37.700 | hey, I make $100,000 a year,

00:23:39.300 | and here's my pay stub,

00:23:40.140 | you're not gonna get the insurance.

00:23:41.860 | So this privacy of financial information thing is difficult.

00:23:44.740 | It's one of the reasons why,

00:23:45.580 | you know, I don't advertise my consulting services very much

00:23:49.860 | because I don't devote a lot of time to it.

00:23:54.020 | But when I have done that over the years,

00:23:56.460 | I've often said,

00:23:57.620 | I'm about the most private financial advisor,

00:24:00.220 | like I'm about the only way

00:24:01.620 | that you'll actually get a private financial consultation.

00:24:05.340 | Because I don't care what name somebody gives me,

00:24:08.380 | I don't care about any identifying information,

00:24:10.700 | you can just give me the details.

00:24:12.100 | I don't keep records,

00:24:12.980 | I don't keep notes,

00:24:13.820 | I just simply write it all down on a piece of paper,

00:24:16.620 | and at the end of the day,

00:24:17.580 | I drop the piece of paper in a shredder.

00:24:19.140 | And I have no,

00:24:19.980 | because I don't sell insurance,

00:24:21.660 | and I don't sell investments,

00:24:23.900 | I have the ability to do that,

00:24:25.700 | and it's legal.

00:24:26.540 | I just simply give information,

00:24:28.220 | just like I'm telling you right now.

00:24:30.700 | So that's an overview of the business.

00:24:32.460 | What I would say is don't worry about it.

00:24:34.540 | You can't change much about it.

00:24:35.900 | Even if you did go and change it,

00:24:37.420 | even if you requested it,

00:24:39.540 | chances are the guy would probably not delete it anyway.

00:24:42.500 | If I were an insurance agent,

00:24:43.900 | I wouldn't delete it.

00:24:45.100 | Because I would get concerned now,

00:24:46.740 | if I'm going in and I'm keeping my notes in the phone call,

00:24:49.700 | now I'm putting that into our,

00:24:51.900 | probably most, at this point,

00:24:53.420 | the vast majority of files are kept digitally.

00:24:56.220 | So I put this into client notes,

00:24:57.780 | that here's my information on the phone call,

00:24:59.380 | that John's got X number of dollars,

00:25:01.300 | and he's got this and that and the other thing.

00:25:03.420 | Well, if I go in and I delete that note,

00:25:05.300 | number one, it's not even possible really

00:25:07.060 | to delete the note.

00:25:08.100 | Because there's always gonna be electronic record of it.

00:25:10.380 | But now if I delete the note,

00:25:11.620 | my compliance officer's gonna come up and say,

00:25:13.980 | yo buddy Joshua, why did you delete this note

00:25:16.260 | about all your phone records with John?

00:25:18.220 | And so, I wouldn't worry about it,

00:25:21.660 | and it's not possible to remove it, is my summary for you.

00:25:24.540 | - Yeah, I appreciate that.

00:25:27.580 | Especially the overview of how the business is structured.

00:25:29.980 | And that's pretty much what I assumed anyways,

00:25:33.300 | exactly to the point of what you said at the end,

00:25:35.060 | where it might actually be problematic

00:25:37.580 | for them to delete notes or bring up questions.

00:25:40.780 | So I kind of figured I was screwed in that way anyways.

00:25:44.180 | And really the biggest thing that I felt sort of offended by

00:25:46.940 | was just the bait and switch of like the guy

00:25:48.580 | that doesn't even have the CLURA,

00:25:50.180 | the insurance designation came in under that guy's.

00:25:54.340 | But again, it probably isn't such a big deal,

00:25:56.500 | and maybe I should just not worry about it.

00:25:58.580 | So I appreciate it.

00:26:00.380 | One follow up, if the guy that I was working with

00:26:03.060 | was a managing director,

00:26:04.780 | would there be ways for me just to call Northwest Mutual

00:26:07.420 | and ask who his district agent was

00:26:10.180 | to see if there's someone else that is properly accredited

00:26:13.620 | to talk to about insurance products,

00:26:16.540 | or would they just point me back to the same guy?

00:26:18.420 | - Yeah, so let me talk to that for a moment.

00:26:21.420 | So obviously, as the possessor of numerous credentials,

00:26:26.060 | I think that credentials matter and they help a lot.

00:26:30.260 | And in many cases, credentials are a very good sign

00:26:33.820 | to watch for to see is this person knowledgeable

00:26:36.220 | about what they're doing.

00:26:37.460 | There can be various reasons

00:26:40.060 | why somebody doesn't have significant credentials,

00:26:42.700 | and that may or may not mean that they are a good

00:26:45.380 | or a bad agent or a good or bad financial advisor.

00:26:49.060 | I know a lot of certified financial planners

00:26:51.380 | that I would never want giving financial advice

00:26:54.580 | to my wife if I'm dead, right?

00:26:56.060 | That's always the example I use.

00:26:57.500 | I always tell her, okay, listen,

00:26:58.500 | this is the person that you go to if I'm dead,

00:27:00.540 | this is who you take financial advice from.

00:27:02.380 | I know a lot of financial CFPs

00:27:04.940 | who I wouldn't want giving financial advice.

00:27:07.540 | And I know a number of people

00:27:08.860 | who I would want giving financial advice,

00:27:10.900 | and to my knowledge, they're not necessarily CFPs.

00:27:14.180 | So I don't view that, I view it as one indicator of many,

00:27:19.100 | but not an exclusive indicator

00:27:21.620 | of everything that can be done.

00:27:23.260 | Now, what it may indicate,

00:27:25.180 | and with a company like Northwestern Mutual,

00:27:27.180 | what it often does indicate

00:27:28.540 | is if somebody has no credentials,

00:27:30.820 | the first thing that you wanna look at

00:27:32.500 | is you wanna look at actually what their,

00:27:35.260 | if you have an email from them,

00:27:36.360 | look at their email signature.

00:27:37.820 | And these big companies that mix insurance and investments,

00:27:41.360 | they'll have usually about three different labels

00:27:44.360 | that people will use.

00:27:48.440 | And if you read the disclosure language, right,

00:27:50.900 | the page and a half of language

00:27:52.220 | at the bottom of the email that they sent you,

00:27:54.060 | if you read that, it will tell you

00:27:55.700 | what the person's status is.

00:27:57.620 | And so with most of these big companies,

00:28:00.340 | the first thing that they'll have

00:28:01.500 | will be some kind of what's called

00:28:03.180 | a financial representative of some kind.

00:28:05.420 | The term financial representative

00:28:07.100 | is a term that is tilted in the lingo

00:28:10.620 | and the parlance of the financial industry

00:28:13.340 | in the direction of insurance sales.

00:28:15.540 | And so the term financial representative

00:28:18.780 | may include somebody who's licensed to,

00:28:21.620 | they will be licensed to sell insurance,

00:28:23.740 | 'cause that's the first thing.

00:28:24.840 | They may or may not be licensed to sell investments.

00:28:28.060 | And so if you read the disclosure language,

00:28:30.060 | you'll see whether or not there's an investment company

00:28:33.220 | reflected in the disclosure language

00:28:34.820 | or exclusively an insurance company.

00:28:38.660 | And so the financial representative is one business model.

00:28:42.160 | Then the second business model

00:28:43.860 | is what's called a financial advisor.

00:28:45.460 | So if somebody's business card says financial advisor,

00:28:48.080 | that's going to indicate that, first of all,

00:28:50.200 | they are licensed to sell investments.

00:28:52.860 | And more importantly,

00:28:54.460 | they're going to be licensed to sell investments

00:28:56.140 | and they can also do that and they can work as a fiduciary

00:28:59.140 | and they can also charge fees for investment management.

00:29:04.020 | So usually with a big insurance company,

00:29:07.600 | like a New York Life or a Northwestern Mutual,

00:29:09.900 | most new representatives

00:29:11.560 | will start as a financial representative

00:29:13.020 | and then they may move to be a financial advisor

00:29:15.340 | if they want to do the investment business.

00:29:17.720 | The third model

00:29:18.700 | is what's called a wealth management advisor usually.

00:29:20.980 | And a wealth management advisor

00:29:22.620 | has a slightly different structure

00:29:24.380 | where now they'll be licensed with,

00:29:26.180 | usually the trust company

00:29:27.980 | that the insurance company owns

00:29:29.540 | and they will have

00:29:31.160 | a slightly different management perspective.

00:29:33.660 | Now, these are technical FINRA regulations

00:29:37.540 | as to why there's these different names.

00:29:39.060 | It's totally opaque to the consumer.

00:29:40.580 | The consumer has no idea what any of these things mean.

00:29:43.380 | But these are technical regulations

00:29:45.020 | indicating is somebody Series 65,

00:29:47.060 | is somebody, are they operating as a fiduciary

00:29:50.420 | or are they not operating as a fiduciary?

00:29:52.020 | What exactly is their structure?

00:29:55.140 | And so, why did I go into this?

00:29:57.940 | Just simply to point out

00:29:58.780 | that what the lack of credentials might mean

00:30:02.060 | is it might mean that somebody is new to the business.

00:30:05.120 | Sometimes people will,

00:30:07.380 | in servicing these clients,

00:30:09.020 | there's no requirement

00:30:10.420 | that the district agent

00:30:11.860 | has to assign this orphan client file

00:30:14.340 | to somebody who's new

00:30:15.900 | or somebody who's not new.

00:30:17.420 | Now, usually they won't assign the file

00:30:20.180 | to somebody who's brand new

00:30:21.260 | because the person who's brand new

00:30:22.860 | is usually not good enough.

00:30:25.020 | They don't understand enough

00:30:26.100 | to effectively service the client.

00:30:28.260 | So, usually they'll assign these

00:30:29.540 | to people who are experienced,

00:30:30.780 | a little bit experienced.

00:30:32.420 | But there's a range in that.

00:30:33.740 | And so, sometimes they will assign an orphan file

00:30:36.940 | to somebody who's new.

00:30:37.860 | And remember, the district agent

00:30:39.820 | doesn't know any of the details.

00:30:42.020 | They just simply have a list of names.

00:30:43.840 | And the filing system indicates,

00:30:45.660 | hey, so-and-so insurance agent has become disabled.

00:30:49.580 | He had 1,347 clients.

00:30:52.540 | So, let's take these 1,347 clients

00:30:55.340 | and we'll assign 50 of them per month

00:30:57.220 | to these five agents in our business.

00:30:59.180 | And it's just an assignment in a computer.

00:31:01.220 | There's no individual personal information.

00:31:03.220 | Now, if you don't like the guy

00:31:05.760 | that called you for whatever reason,

00:31:07.660 | just say, I don't like you

00:31:08.940 | and I don't wanna work with you.

00:31:10.420 | And then call the district agency up

00:31:12.740 | and say, listen,

00:31:14.260 | I would actually like to talk to an insurance agent,

00:31:16.280 | but I would like somebody who has a CFP

00:31:18.540 | or has a CLU and a CHFC.

00:31:20.580 | I'd like someone with a little bit more experience.

00:31:22.100 | Will you please reassign me?

00:31:23.180 | And they can reassign you.

00:31:24.140 | And it's not a big deal to have that done.

00:31:26.540 | So, if that's what you're looking for,

00:31:28.580 | is just to have an individual agent, but someone else,

00:31:31.480 | then yeah, you always have the right to call up and say,

00:31:34.460 | hey, I'd like somebody else

00:31:35.540 | and talk to another insurance agent.

00:31:37.100 | And it does happen from time to time.

00:31:38.500 | And I think that although most insurance agents

00:31:41.740 | want their clients to be their clients,

00:31:43.640 | at the end of the day,

00:31:45.300 | my theory has always been if somebody doesn't like me,

00:31:47.780 | then you need somebody that you do like.

00:31:49.800 | And not liking somebody is totally fine.

00:31:53.140 | - Yeah, thanks.

00:31:54.180 | I appreciate that.

00:31:55.020 | And as far as the conversation with the agent went,

00:31:57.660 | or agent or the representative went, it was okay.

00:32:00.980 | But in doing, I was trying to take some of your advice

00:32:02.980 | from old shows and do my research

00:32:04.660 | on the people I'm working with.

00:32:05.980 | And I had found some less than admirable things online

00:32:10.980 | about this person as far as just old Facebook postings

00:32:14.260 | and all those things.

00:32:15.100 | But he is younger and maybe that's just gonna come back

00:32:17.260 | to haunt anybody of his age by leaving those things up.

00:32:20.420 | - It's a double-edged sword working with an agent.

00:32:22.220 | Here was how I used to do it.

00:32:23.260 | So when I started in the insurance business,

00:32:24.820 | I was 23 years old and I really didn't know much.

00:32:28.260 | You go through the basic learning process

00:32:31.660 | that you would go through

00:32:33.420 | is you take an insurance licensing course,

00:32:35.420 | that's 40 hours, right?

00:32:36.820 | In the state of Florida it was.

00:32:37.860 | It was a 40-hour class where you learn

00:32:39.500 | about life insurance, disability insurance,

00:32:41.860 | and health insurance.

00:32:44.700 | And then at the end of that,

00:32:45.540 | you get your state insurance license,

00:32:47.780 | that licenses you to be able to sell life insurance,

00:32:50.100 | disability insurance, and health insurance.

00:32:52.020 | Then you go through some form of training by your company.

00:32:57.020 | And so in my case, it was three weeks of training

00:33:00.260 | with the company.

00:33:01.180 | Most of that training will usually be tilted

00:33:03.540 | in the direction of sales training.

00:33:05.380 | There will be some basic product training

00:33:07.820 | of here's what our company's products are,

00:33:09.620 | but the company, most of the training will be sales training

00:33:11.980 | because that's what the company's in the business of doing

00:33:14.020 | is training, training, training, training, training.

00:33:16.860 | It's training, training salesmen to sell.

00:33:20.340 | Here's how you sell.

00:33:21.220 | Here's how you actively approach people, et cetera.

00:33:23.820 | So a lot of the product knowledge

00:33:26.220 | comes through the form of self-study.

00:33:28.500 | So you can't, and you can't,

00:33:30.860 | they don't give you hours and weeks and weeks and weeks

00:33:33.940 | of product knowledge.

00:33:34.780 | And then quickly you're out there in the streets selling.

00:33:37.520 | Now, when I was a young insurance agent,

00:33:40.660 | what I always looked at it

00:33:41.780 | is I would tell people who are older,

00:33:43.100 | I was like, listen, I'm new in the business.

00:33:44.740 | I don't know everything there is.

00:33:46.380 | But I'll tell you what,

00:33:47.220 | I work a lot harder than most other people

00:33:49.420 | and I'm pretty smart and I get good answers.

00:33:51.540 | And so if I don't know something,

00:33:52.900 | I'll tell you I don't know it and I'll get the answer.

00:33:55.260 | And then if I don't know the answer to something,

00:33:57.600 | I go and ask a senior agent,

00:33:59.180 | somebody who's been around for 40 years,

00:34:00.740 | and I say, hey, how does this work?

00:34:01.900 | Or I call the home office and I talk to the attorneys

00:34:03.940 | and you can speak to a product specialist and say,

00:34:06.100 | explain to me how this particular thing

00:34:07.860 | in our insurance policy works.

00:34:09.820 | And so I think there's a good argument to be said

00:34:13.500 | for working with somebody who's younger,

00:34:15.580 | who's actually much more motivated to help you.

00:34:18.780 | When I was new in the business,

00:34:21.140 | I would do anything for a client.

00:34:23.360 | Once I had a little bit of revenue built up,

00:34:25.620 | once I had a broader client base,

00:34:27.380 | I still wanted to provide good service,

00:34:29.460 | but I would not waste my time chasing down some answer

00:34:32.420 | for somebody who was annoying.

00:34:33.500 | I would just bump that person off and say, that's it, next.

00:34:36.740 | You know, I'm not gonna waste my time

00:34:39.380 | working with somebody who's annoying,

00:34:41.100 | who's sucking up all my time

00:34:42.380 | with all of these intricate questions, et cetera.

00:34:45.060 | And so that's something that happens over time

00:34:46.860 | just from the business perspective of the insurance agent.

00:34:49.900 | And so you should assess it both ways.

00:34:53.540 | I don't think that having somebody who's young

00:34:55.340 | and who's novice is necessarily a bad thing

00:34:58.020 | in the world of insurance.

00:34:59.220 | And let me be clear,

00:35:00.500 | when I'm here, I'm talking about insurance.

00:35:02.300 | And the reason I say that is because at the end of the day,

00:35:04.880 | your contract is a contract with an insurance company,

00:35:09.880 | not with an individual sales representative.

00:35:12.660 | So I could happily, at 23 years old,

00:35:15.340 | I could sell an insurance policy

00:35:18.460 | to a big, established, super rich guy,

00:35:22.060 | and it wouldn't bother him

00:35:23.980 | that I was the guy who sold the policy

00:35:25.860 | because his contract is not with me.

00:35:28.020 | He's not establishing his relationship with me

00:35:30.780 | at 23 years old.

00:35:32.060 | He's establishing the relationship

00:35:34.060 | with the insurance company,

00:35:35.520 | and I'm the salesman putting the deal together.

00:35:38.380 | I'm getting a commission, I'm gonna service it,

00:35:40.600 | but at the end of the day, it's the insurance company.

00:35:42.580 | Now, that is very different

00:35:44.000 | when we get into the world of investments.

00:35:46.060 | Now, depending on the type of investment strategy,

00:35:48.740 | it may be a little bit different or a lot different,

00:35:51.320 | but it is different when you get into investments

00:35:53.460 | because now with investments,

00:35:55.580 | especially if you're having some kind

00:35:57.180 | of fee-based arrangement,

00:35:59.120 | if you're giving some kind of authority

00:36:02.580 | to the financial advisor,

00:36:04.700 | some form of control over your accounts,

00:36:07.180 | control over your investment strategy,

00:36:09.820 | now that is one of those areas

00:36:11.980 | where you really don't wanna be working

00:36:13.980 | with somebody who's novice and who's junior,

00:36:16.180 | but in the world of insurance,

00:36:17.820 | I think you can safely and effectively work

00:36:20.080 | with a young person,

00:36:21.240 | somebody who's not particularly credentialed

00:36:23.260 | because your contract is not with them.

00:36:24.940 | Your contract is with the company,

00:36:26.740 | and if that person demonstrates themselves

00:36:29.220 | to be motivated to get the right answers for you,

00:36:31.980 | then that's a pretty good thing,

00:36:34.340 | and I think that what is common,

00:36:36.020 | what most of those companies will teach,

00:36:37.820 | and I've had friends with,

00:36:39.140 | even though I used to work for Northwestern Mutual,

00:36:41.620 | I know that system,

00:36:43.100 | or at least how it was when I was there,

00:36:44.660 | but I also still have,

00:36:45.660 | I have friends who are district agents

00:36:47.020 | with other companies and who run offices

00:36:49.300 | with other companies,

00:36:50.180 | and so what is very common,

00:36:52.140 | and you have to recognize this,

00:36:53.500 | is that people know,

00:36:55.860 | first, the individuals know

00:36:57.540 | when they get in over their heads.

00:36:59.580 | So if you are Mr. Megabucks,

00:37:02.220 | and you're looking at some complex scenario,

00:37:04.620 | and your attorney has just told you

00:37:06.780 | to buy $20 million of second-to-die life insurance,

00:37:09.900 | well, that junior agent

00:37:12.420 | is gonna be super excited about the case,

00:37:15.060 | but the first thing they're gonna do

00:37:16.540 | is they're gonna pick up the phone,

00:37:17.500 | and they're gonna call one of the senior agents,

00:37:19.780 | the guy who's been doing this for 40 years,

00:37:21.660 | and they're gonna have the team

00:37:23.420 | of advanced planning attorneys in the home office

00:37:25.460 | working on the case, et cetera,

00:37:27.100 | and so they're gonna bring in the people on the case

00:37:29.740 | that are needed to get the right answer,

00:37:31.940 | but the vast majority of stuff is not that complicated,

00:37:34.700 | and so if you've got a couple of life insurance policies,

00:37:37.900 | disability policy or two,

00:37:39.340 | there's just not that much need for,

00:37:41.220 | that's not advanced insurance work.

00:37:44.060 | You don't need somebody who's a CLU,

00:37:46.540 | CHFC, CFP, blah, blah, blah,

00:37:49.140 | to do well with buying disability insurance.

00:37:53.940 | It's not necessary.

00:37:55.220 | They will, so judge the person based upon,

00:37:58.660 | do they give me honest answers?

00:38:00.340 | Do they say, "I don't know"?

00:38:01.900 | Do they seem like they're willing to listen to me,

00:38:04.180 | or do they seem like they have an agenda,

00:38:05.820 | and it's just a matter of,

00:38:06.860 | "Hey, here's what I'm gonna pitch to you this week."

00:38:09.060 | Those things are, to me, the most important things

00:38:12.380 | when it comes to insurance,

00:38:13.860 | because they have the resources,

00:38:15.820 | and if at any point in time you feel like,

00:38:17.580 | "I like this person,"

00:38:19.020 | they listen to me,

00:38:21.260 | they're not just trying hard to sell me something

00:38:23.780 | that I don't need, they're not ignoring me,

00:38:26.100 | but I like them, but they might need a little bit of help,

00:38:27.980 | just ask them, say, "Listen, can you bring in somebody

00:38:29.860 | "who has a little bit more experience with you next time

00:38:32.460 | "and do some joint work?"

00:38:33.820 | And then that's the way you get access

00:38:36.820 | to a more senior insurance agent.

00:38:38.980 | - Okay, thanks.

00:38:41.780 | Yeah, I appreciate the perspective on that,

00:38:43.500 | and I definitely knew that was where you came from,

00:38:47.260 | and you had some insecurities about being young

00:38:51.220 | in the role early on from your previous stories.

00:38:55.060 | So yeah, good to get that perspective.

00:38:58.300 | I appreciate it.

00:38:59.260 | - My pleasure.

00:39:00.100 | It is interesting, and you gotta figure out

00:39:02.420 | where you are in the whole long,

00:39:04.180 | where you are in the chain,

00:39:06.140 | because youth can be, as I said,

00:39:08.060 | youth can be an advantage or it can be a disadvantage.

00:39:11.260 | And somebody who's young may not know a lot,

00:39:14.300 | but they'll also probably work really hard for the business.

00:39:16.780 | And once they get into it a few years,

00:39:18.700 | then most insurance agents that are successful,

00:39:22.620 | if you start to become a difficult client in some way,

00:39:27.620 | they'll fire you and move on.

00:39:29.060 | And fire you just means they just stop.

00:39:30.980 | With investment business,

00:39:33.900 | most financial advisors too will fire their clients

00:39:36.980 | if they have any self-respect,

00:39:39.220 | is you get rid of your most difficult clients constantly.

00:39:41.700 | The clients that cause you all the trouble,

00:39:43.300 | every year you get rid of your most difficult clients.

00:39:45.580 | And so in that situation,

00:39:46.940 | you actually have to physically facilitate

00:39:49.060 | the transfer of accounts,

00:39:50.800 | which means it's a more proactive process.

00:39:52.920 | With insurance agents,

00:39:53.940 | if all somebody has is insurance policies,

00:39:55.500 | they just stop calling you,

00:39:57.140 | may or may not return your calls,

00:39:58.740 | and just move on with their life.

00:40:00.500 | And so people have this perspective

00:40:04.580 | that insurance agents,

00:40:07.020 | and I was reading in an online personal forum the other day,

00:40:09.740 | and someone was talking about how,

00:40:11.300 | can't believe insurance agents selling insurance.

00:40:13.300 | And I look at it and I say,

00:40:14.140 | well, that's true.

00:40:15.440 | But there's a whole other side of it,

00:40:17.780 | where a good insurance agent is worth a whole lot of money.

00:40:20.940 | And at the end of the day,

00:40:23.260 | it's the consumer who writes the checks,

00:40:25.400 | but most insurance agents are not suffering for business.

00:40:28.640 | And so there are two sides to it,

00:40:30.540 | and both sides need to win

00:40:32.060 | in order for the whole thing to work.

00:40:34.860 | Jacob in Wisconsin, welcome sir.

00:40:36.140 | How can I serve you today, sir?

00:40:37.700 | Jacob in Wisconsin.

00:40:40.420 | - Can you hear me now?

00:40:43.140 | - Now I can hear you, you're on.

00:40:45.220 | Welcome to Radical Personal Finance.

00:40:46.260 | How can I serve you today, sir?

00:40:47.100 | - Call me this time.

00:40:47.920 | Well, as I was trying to say before,

00:40:51.340 | thanks for taking the time to do all the stuff.

00:40:54.020 | Sorry about the technical difficulties,

00:40:55.580 | I guess you'll have that from time to time.

00:40:58.380 | So I'm calling in,

00:40:59.580 | I've listened kind of on and off for a while.

00:41:02.060 | And one thing that I don't think

00:41:04.240 | I've really heard you talk much about is land contracts.

00:41:08.020 | Bringing that up because I guess the possibility

00:41:11.340 | has been presented for my wife and myself

00:41:14.580 | to purchase a family home through a land contract.

00:41:18.620 | And so I'm trying to kind of work through

00:41:20.940 | maybe the possible pitfalls of that,

00:41:23.220 | or the benefits, and that sort of stuff

00:41:25.860 | on a land contract and get your thoughts on that,

00:41:30.020 | sort of get that outside opinion.

00:41:31.780 | I've talked to a lot of family about it

00:41:33.020 | and that sort of thing.

00:41:34.260 | But sort of see what you have to say

00:41:37.020 | and maybe get into even the specifics of it

00:41:39.700 | as we kind of break that down a little bit.

00:41:41.860 | But yeah, I guess I kind of want to start

00:41:44.860 | with your thoughts on sort of the land contract process

00:41:48.060 | and if you have much experience in that sort of thing.

00:41:52.460 | - Short answer, I don't have any experience.

00:41:54.620 | I've never done one.

00:41:55.780 | I've never provided very much advice

00:41:58.620 | and I'm not an expert in the area.

00:42:01.020 | So about the most I can do is help you

00:42:03.460 | with a couple of intelligent questions,

00:42:05.460 | but I don't have any insight

00:42:08.460 | to effectively help you in that area.

00:42:11.140 | So let's start here.

00:42:12.700 | What are you concerned about?

00:42:14.780 | You've got a deal that you think is a good deal.

00:42:17.380 | You think about doing a land contract.

00:42:19.060 | Why is there a voice in the back of your head

00:42:21.220 | saying maybe I shouldn't do this?

00:42:23.900 | - Well, so I guess to give a little bit of a background on it,

00:42:27.900 | it's an older house.

00:42:29.020 | It's been in my wife's family since it was built

00:42:31.620 | and I want to say that was in the late 1800s.

00:42:34.620 | And it's her parents

00:42:37.300 | that are wanting to do the land contract with us.

00:42:40.740 | I guess terms of that deal are pretty good

00:42:43.220 | and they're talking about like $100,000 over 15 years.

00:42:48.220 | And since they're with land contract,

00:42:51.060 | they're technically like the financer.

00:42:52.860 | So that means that they set the interest rate,

00:42:55.340 | which they're doing 0%.

00:42:57.300 | And it's all stemming out of my wife's grandfather

00:42:59.420 | passed away earlier this summer.

00:43:00.660 | And so some shifting around happened

00:43:02.860 | to who was living where, that sort of thing.

00:43:05.700 | But we had, in a normal, I guess,

00:43:09.540 | getting a mortgage thing, right?

00:43:11.380 | There's always like the inspection and stuff like that

00:43:13.460 | with land contract that's not required.

00:43:15.540 | But we did that anyway,

00:43:16.380 | 'cause this would be our first house.

00:43:18.580 | We're both in our late 20s.

00:43:20.340 | And so we brought in an inspector

00:43:22.380 | and there's a few things,

00:43:24.860 | given the age of the house, right?

00:43:26.020 | That are there that need to get addressed.

00:43:28.940 | But he also kind of made comments

00:43:30.140 | that he would actually like to come back and see it again.

00:43:32.820 | And that's not something that is difficult.

00:43:35.340 | He'd almost want to do a second inspection.

00:43:37.980 | I guess some background,

00:43:38.820 | like my father-in-law is sort of a handyman

00:43:40.820 | and he does a lot of the work around there.

00:43:42.660 | And it passes for a lot of things.

00:43:44.980 | And he's definitely skilled in what he does.

00:43:47.140 | He's done a lot of stuff there.

00:43:49.580 | So a lot of stuff there,

00:43:50.420 | I think that was sort of a red flag

00:43:51.940 | from the inspector's standpoint.

00:43:53.620 | And so I think it's some of those things

00:43:56.380 | with the age of the house and that sort of thing.

00:44:00.020 | And in hearing what the inspector kind of recommended

00:44:02.340 | that has me specifically kind of on the,

00:44:06.340 | how good of a deal would this be?

00:44:08.780 | Is this maybe too risky,

00:44:10.980 | even with the terms of the deal being precedingly good?

00:44:15.900 | - Okay, so let's describe as I understand,

00:44:18.660 | your father-in-law, your grandfather had an older house.

00:44:23.300 | This is an older house, you said built in 1880?

00:44:26.580 | - It's somewhere around there, it was late 1800s, yeah.

00:44:30.300 | - Okay, so this is a very old family house

00:44:32.380 | that your grandfather owned,

00:44:34.860 | passed it on to your father-in-law,

00:44:37.100 | or sorry, your wife's grandfather owned

00:44:38.860 | and then he passed it on to your father-in-law

00:44:40.500 | when he died? - Yeah.

00:44:41.340 | - Okay, so now--

00:44:42.180 | - Well, yeah, sorry.

00:44:44.940 | - Okay, so--

00:44:45.900 | - They moved into his old house

00:44:47.460 | and then we'd be moving into theirs

00:44:49.420 | and that's where the land contract comes in.

00:44:51.100 | - And this house, the house in question,

00:44:53.540 | previously your parents-in-law were living in it?

00:44:56.500 | - Correct. - Okay.

00:44:58.780 | So now they would like to get rid of the house,

00:45:02.060 | they don't need it, they're not living in it,

00:45:03.540 | they would like to get rid of the house

00:45:05.500 | and it's a family property

00:45:07.860 | and so they could put it on the open market

00:45:09.900 | but they're looking at it and saying,

00:45:11.340 | hey, this would be a good house for you guys to own,

00:45:13.740 | we'll give you a good deal on it

00:45:15.980 | and we'll sell it to you in the form of a land contract.

00:45:19.060 | And the idea is this way, we'll sell it to you,

00:45:22.740 | you'll make payments to us

00:45:24.380 | and when the full payments are made,

00:45:27.060 | then you'll have the full title of the property

00:45:29.620 | but that will assume,

00:45:31.160 | that will mean that you don't have to go and get a mortgage,

00:45:33.300 | you can just simply make us payments.

00:45:34.900 | We're gonna sell the house to you for $100,000

00:45:37.900 | at a 0% interest rate

00:45:39.820 | and so we're gonna take $100,000,

00:45:42.020 | divide that into, what would that be,

00:45:44.060 | 180 months, 15 years

00:45:46.980 | and that's gonna be your monthly payment

00:45:48.740 | and at the end of this 15 years, you'll own the house.

00:45:50.980 | Is that right?

00:45:51.820 | - Yeah. - Okay.

00:45:54.600 | So the basic risks both ways,

00:45:57.700 | the risk number one is if you,

00:46:00.520 | if you enter into this contract with them,

00:46:04.740 | the biggest risk I guess, if you stop paying,

00:46:07.380 | you don't own anything.

00:46:09.100 | So if you go 10 years into it

00:46:11.260 | and then you stop paying on the house

00:46:13.260 | and then you leave, you don't actually own anything.

00:46:16.780 | It's not like you can sell the house

00:46:18.980 | and then pay off the balance of the mortgage.

00:46:20.740 | The contract is that you pay it off for 15 years

00:46:23.860 | and in this situation, they would be legally entitled

00:46:26.780 | to keep your 10 years worth of payments in that situation

00:46:30.540 | because you don't own anything

00:46:31.960 | until the contract is fulfilled.

00:46:35.100 | On the other hand, you know,

00:46:36.860 | even though it seems like a good deal

00:46:38.500 | and it was a house, it's 100, it's a very old house

00:46:42.060 | and you don't wanna get in over your head

00:46:45.060 | and overpay for something, et cetera.

00:46:47.220 | Is that a good summary of kind of your concerns?

00:46:50.220 | - Yeah, I think it's that.

00:46:52.740 | I mean, the hard part too is really

00:46:56.220 | the way that they got the house

00:46:58.580 | was through sort of the same manner.

00:47:00.620 | And so, you know, they're basically trying to pass on

00:47:04.400 | some equity that they have in it,

00:47:05.560 | which is roughly 50,000 according to like tax records.

00:47:08.960 | But I also don't know when the last time, you know,

00:47:12.200 | the house actually had an assessment to know,

00:47:15.080 | you know, given its condition, what it's actually worth.

00:47:17.360 | So there's sort of that risk there that has me concerned,

00:47:19.560 | especially after getting sort of the inspector's report

00:47:21.520 | and that sort of thing.

00:47:22.760 | And so like, at the beginning,

00:47:25.680 | it seemed very much like this is a great deal, obviously,

00:47:29.040 | if everything is kind of as it looks,

00:47:30.520 | but then kind of getting into it,

00:47:32.760 | there's just some of those concerns on it.

00:47:34.960 | - So do you have any reason to believe

00:47:38.840 | that your wife's parents are not working with you

00:47:42.400 | in good faith?

00:47:43.240 | Do you have any reason to think

00:47:44.400 | that they're concealing anything from you,

00:47:46.240 | that they're trying to cheat you in some way?

00:47:49.920 | Is there anything, any reason you have

00:47:51.640 | to doubt their integrity in the situation?

00:47:53.720 | - No, I wouldn't say so.

00:47:56.120 | I think they're definitely more on the really excited

00:47:59.600 | at the opportunity and I think kind of pressuring us

00:48:02.440 | to make the decision to do it simply

00:48:04.920 | to kind of get us in a house and other things.

00:48:07.200 | They know that we've been on that market.

00:48:10.200 | - Yeah, they want you to,

00:48:11.920 | this is something that they think

00:48:12.840 | is a very good thing for you,

00:48:14.400 | and so they're pressuring you to do something

00:48:15.960 | that they think is good for you, which is understandable.

00:48:18.520 | Now, as you observe your father-in-law's skills

00:48:21.880 | as a handyman, do you respect that he does things well,

00:48:25.560 | that he does things properly,

00:48:26.960 | or is he the kind of person that you have the impression

00:48:28.840 | that he cuts corners in some way

00:48:30.360 | and just doesn't do things well?

00:48:31.960 | Or does he do things with excellence?

00:48:33.760 | - You know, at times I probably put it kind of in between.

00:48:39.120 | You know, I wouldn't say it's like the best stuff ever

00:48:41.280 | 'cause his primary job, he's actually a pastor,

00:48:43.560 | so this is something that he kind of does

00:48:45.560 | to help pay the bills sort of thing

00:48:48.000 | 'cause it's a very small town.

00:48:49.040 | So he's definitely very skilled for the area

00:48:52.880 | and stuff like that, but the inspector really noted

00:48:56.660 | on some things that definitely,

00:48:57.880 | it's apparent that he's more of a handyman

00:48:59.520 | rather than like an actual general contractor.

00:49:02.040 | So just me, I'd probably put him at a little more skilled,

00:49:06.080 | but kind of I think from the outside perspective,

00:49:08.960 | that it seems more apparent that it's more

00:49:10.880 | in that sort of handyman level.

00:49:12.680 | - Do you and your wife like the house?

00:49:15.080 | Do you wanna live in the house?

00:49:16.640 | - I'm kind of in between on it.

00:49:20.720 | My wife definitely does.

00:49:22.240 | It's the house that she grew up in,

00:49:23.520 | so there's some of that, right?

00:49:25.200 | It's been in the family, so I think there's some

00:49:28.160 | pressures there that are different

00:49:29.360 | than what would be on a normal house.

00:49:31.200 | So that's sort of a component.

00:49:34.560 | - If you didn't do this deal, if you didn't buy the house,

00:49:39.120 | what would you do?

00:49:40.220 | - We'd be staying where we are.

00:49:43.560 | We're currently renting in a town probably

00:49:46.160 | 30 minutes away from there, so not really

00:49:49.680 | anything would change drastically.

00:49:52.760 | - Do you think that's a better course of action in some way?

00:49:57.720 | - I think it keeps more of the options out,

00:50:00.280 | or options on the table moving forward.

00:50:03.720 | Simply, I mean, the land contract, like you said,

00:50:06.520 | the terms are over a certain amount of years

00:50:09.000 | and you don't really have actual ownership

00:50:11.960 | until the very end.

00:50:13.180 | So there's some concerns with that,

00:50:15.520 | just if life decides, like, hey, we need to move

00:50:19.200 | somewhere else that's not the same.

00:50:20.880 | If it was a normal mortgage, right,

00:50:22.040 | then it's like, okay, you sell it

00:50:23.000 | and you take what equity you had and you move, right?

00:50:26.600 | So there's some aspects of that.

00:50:28.920 | - How much money do you and your wife have saved right now?

00:50:31.880 | - Saved, we probably have 20,000 or so

00:50:38.640 | in readily accessible cash and then probably

00:50:42.200 | another 10 or 15 for, like, retirement accounts.

00:50:45.040 | - Great, great.

00:50:46.640 | Do you think you could get a mortgage on the house?

00:50:49.000 | Have you looked into that or thought about that?

00:50:52.000 | - I have thought about that.

00:50:53.840 | And really the thing sort of keeping me from that,

00:50:58.000 | some of it is for the terms of it, right?

00:51:00.200 | Like having sort of the 0% thing

00:51:02.280 | and just looking at that from like a pure number standpoint,

00:51:04.320 | it's kind of hard to rationalize like, oh yeah,

00:51:07.280 | I do the mortgage just for the added protection thing.

00:51:10.560 | So I haven't looked to get, you know,

00:51:13.360 | like pre-approved or anything like that

00:51:14.880 | for something like that.

00:51:16.240 | We have in the past for more than what that mortgage

00:51:19.040 | would be, so it's not like an issue there.

00:51:21.560 | I know that, I don't know, something I had sort of

00:51:24.000 | talked about with, my mom works for a bank

00:51:26.320 | and so I talked with her about it early on.

00:51:29.600 | And there, there's some, I guess,

00:51:31.400 | more like tax implications, right?

00:51:32.840 | 'Cause my in-laws would have to sort of write,

00:51:36.440 | I can't remember, like a gift of equity sort of letter

00:51:40.440 | with the bank and to offset the difference

00:51:43.920 | between what the value is versus what we'd actually

00:51:47.520 | be paying and so I think there was

00:51:49.000 | some extra complications there.

00:51:51.560 | - Hmm.

00:51:52.400 | I guess here's my, here's my instinct

00:52:00.360 | and you can filter this through the actual details

00:52:03.280 | but I think if I woke up in your shoes,

00:52:04.960 | here's how I think I would approach it.

00:52:06.840 | The first thing that I would think about

00:52:08.840 | is do I wanna live in the house?

00:52:10.880 | And think about what that would mean

00:52:14.320 | in terms of your lifestyle.

00:52:16.680 | One thing that is challenging is that

00:52:19.440 | if this is your wife's family home

00:52:21.600 | and this is your wife's parents that would be,

00:52:24.760 | that are trying to do something nice for you

00:52:26.840 | and give, give, you know, give her a gift,

00:52:30.680 | you know, and allow her to live in that house

00:52:32.240 | and do something to get you guys established

00:52:34.000 | in a positive scenario, that can be a wonderful thing,

00:52:37.920 | right, it's nice to receive nice gifts.

00:52:40.680 | It's wonderful when your in-laws are generous with you.

00:52:43.560 | That can also be a very difficult thing

00:52:46.600 | if there are somehow strings attached.

00:52:48.640 | And so I would assess that, is this the kind of thing,

00:52:52.520 | are these the kind of people who in doing this for us

00:52:55.760 | and in trying to give us something,

00:52:58.720 | are they the kind of people who are simply giving us a gift

00:53:02.280 | and they're excited for us

00:53:04.120 | or are they the kind of people

00:53:05.440 | who are gonna give us something, give me a gift

00:53:08.680 | and then there's gonna be strings attached to it?

00:53:11.960 | I personally, just as a husband,

00:53:15.000 | I personally would rather walk away

00:53:17.600 | from almost anything, no matter how nice the gift

00:53:21.120 | that had strings attached, then take it.

00:53:24.360 | But I will take any gifts that's an actual gift

00:53:26.760 | but I'm not gonna do anything

00:53:27.920 | with strings attached with my in-laws.

00:53:29.600 | Not, you know, that's just a bad recipe

00:53:32.280 | for disaster in my marriage

00:53:34.080 | and a really difficult thing to handle.

00:53:36.680 | The second thing that you need to think about

00:53:38.440 | with regard to that specific house is,

00:53:40.360 | will that put you in a difficult situation in some way?

00:53:43.880 | Is that gonna be, is it gonna affect your wife

00:53:46.600 | in some negative way where she's living

00:53:48.240 | in this childhood house?

00:53:50.160 | Or is it gonna be the kind of thing

00:53:51.400 | where she's gonna be so attached to the house

00:53:53.320 | that if you believed that, you know,

00:53:55.080 | eight years from now you should move somewhere?

00:53:56.880 | No, I can't, this is my house that I've lived in.

00:53:59.600 | Again, not a right or wrong, but think through it

00:54:02.680 | before you put yourself in that situation automatically.

00:54:06.800 | It can be difficult for you as a husband

00:54:09.920 | if you're living in the same town as your in-laws are

00:54:16.200 | and your wife is in the same town that she grew up.

00:54:19.400 | And not only that,

00:54:20.240 | but it's the gift of the house from the in-laws.

00:54:22.500 | Well, now that puts in a situation

00:54:24.240 | where if there's a time of difficulty in your marriage

00:54:27.640 | or if she's unhappy in some way or you're unhappy,

00:54:31.200 | well, all of a sudden now you didn't leave and cleave,

00:54:35.240 | right, you didn't take her away

00:54:37.080 | and you guys start your own life.

00:54:39.360 | Rather, you were kind of the hanger on in the family

00:54:42.520 | that wound up taking advantage of the family largesse

00:54:45.560 | and then that turns out to bite you in some way

00:54:48.120 | in your marriage down the road.

00:54:49.480 | Now, hopefully none of those are the case,

00:54:52.060 | but if you have any suspicion or concern

00:54:54.200 | that they might be the case,

00:54:55.600 | then it might not be a good thing to do.

00:54:59.400 | And so consider that with as much objectivity as you can.

00:55:03.320 | How long have you guys been married?

00:55:04.960 | - We've been married five years now.

00:55:07.600 | - Okay, so five years, you should have had enough time

00:55:10.160 | to make sure that there's a clear separation

00:55:12.700 | from her parents, from your parents.

00:55:14.640 | You should have had enough time now to judge your marriage

00:55:16.760 | and say, could our marriage handle being this much closer

00:55:19.000 | to mom and dad, et cetera.

00:55:20.480 | So five years is good.

00:55:21.680 | If it were five months, I would discourage you against it.

00:55:23.840 | Five years at this point, you have enough left life

00:55:26.600 | as a married couple to be able to assess those things.

00:55:29.420 | The next thing that I would do is for my own sake

00:55:31.920 | is I would get an appraisal done of the house.

00:55:35.080 | Hire an appraiser, pay the fee out of my pocket

00:55:37.880 | to get an actual appraisal done of the house

00:55:40.280 | so that you have an idea of what the house would appraise at

00:55:43.880 | and get it professionally done.

00:55:45.800 | Because that appraisal number would be important

00:55:48.080 | for you to know from a mortgage perspective

00:55:50.960 | and also just from your own personal perspective.

00:55:53.800 | Now, it's up to you whether you wanna share that

00:55:56.340 | with anybody else.

00:55:57.400 | Maybe the house appraises at being worth $250,000.

00:56:02.560 | Well, probably you should share it, right?

00:56:05.560 | And it may give her father and mother just tremendous joy

00:56:09.960 | to say, look, we're giving you this awesome thing.

00:56:12.120 | Or you might say, guys, you should sell this house

00:56:14.080 | and just take the money.

00:56:15.840 | Or like figure that out.

00:56:17.220 | But I think you should at least know the number.

00:56:18.800 | You should know that if this house

00:56:20.320 | were put on the open market,

00:56:21.560 | here's the appraisal number

00:56:23.140 | that a mortgage company would use,

00:56:24.360 | here's probably what it would sell for.

00:56:26.480 | Now, most of the handyman stuff,

00:56:28.160 | I don't think that would bother me.

00:56:29.320 | If you've got an inspection, you've got an inspection,

00:56:31.160 | but at the end of the day, the house is old,

00:56:33.880 | which means that you're gonna be fixing stuff

00:56:35.880 | and updating stuff regardless.

00:56:37.520 | And so it's gonna have its idiosyncrasies

00:56:40.760 | and you can probably fix most of that stuff just fine.

00:56:44.280 | I would say that if he was living in it

00:56:46.080 | and if he's got decent skills as a handyman,

00:56:48.300 | most of the stuff is probably fine.

00:56:50.220 | And if he's genuinely done something that was wrong,

00:56:54.080 | then you can change it or redo it.

00:56:56.040 | But it may have just been a matter of a difference of style

00:56:59.000 | or a difference of the materials that we would use now

00:57:01.320 | versus what was available eight years ago.

00:57:03.640 | But a guy who's a handyman, who's fixing up his own house,

00:57:06.640 | he's not gonna do anything.

00:57:08.160 | He's not gonna intentionally do bad work on his own house.

00:57:12.840 | He's gonna do the best work that he can

00:57:14.400 | with what he's got at the time.

00:57:15.840 | So I would probably take advantage of it.

00:57:18.600 | And I think the land contract,

00:57:20.220 | as long as you understand the terms of it,

00:57:21.840 | and then I would talk with my in-laws.

00:57:26.840 | And even if it's not in the contract, I would say,

00:57:28.880 | "Listen, what would we do if we bought this house from you

00:57:32.320 | "using the land contract, and then seven years from now,

00:57:35.900 | "we decided we needed to move?"

00:57:37.240 | Or if he's a pastor, right?

00:57:38.200 | "The Lord called us away seven years from now.

00:57:40.160 | "What would we do in that situation?"

00:57:41.840 | Well, then talk about it now,

00:57:44.720 | and it won't hurt anything to talk about it.

00:57:45.920 | But it sounds to me, from what you're saying,

00:57:48.080 | like a great opportunity for you guys to have a nice house,

00:57:51.720 | to have a gift of a little bit of equity.

00:57:53.540 | If you like the area, if you think you'll be there,

00:57:56.360 | then 15 years, 0% interest on $100,000 house,

00:57:59.880 | that could be a real blessing for you.

00:58:01.800 | - I think that's, thanks for the input, I guess.

00:58:06.920 | I don't know if this is what I'm trying to say there.

00:58:08.760 | But there's a few things there I think I have,

00:58:11.160 | I can think a little bit more on that I haven't yet,

00:58:13.760 | and some of the stuff I have sort of covered.

00:58:16.400 | So, yeah, I appreciate your input and thoughts on that.

00:58:20.920 | - One thought.

00:58:21.760 | What I would look at,

00:58:24.400 | and maybe talk with a real estate attorney about,

00:58:26.200 | or a friend of yours who does land contracts,

00:58:28.240 | or something that you can find some expert advice.

00:58:30.440 | I've never done a land contract,

00:58:31.800 | so I don't know what the normal language is.

00:58:33.900 | But I would certainly look at it,

00:58:36.720 | and I would see if at all possible,

00:58:40.120 | I would put an early buyout clause in there.

00:58:42.520 | So, to give you the option of buying the house out

00:58:46.560 | at an earlier date.

00:58:47.920 | Because I think that if you could put in

00:58:49.360 | some kind of early buyout clause,

00:58:51.000 | and again, I don't know if this is normal or not,

00:58:53.360 | so we're up against the limits of my knowledge.

00:58:56.320 | But there's no reason, I don't know of any reason

00:58:58.240 | why you couldn't put one in there,

00:58:59.780 | to say that you could buy out the property,

00:59:02.200 | we're gonna sell the property for $100,000,

00:59:05.040 | which is basically $555 a month, right?

00:59:07.240 | 100,000 divided by 180.

00:59:09.760 | But at any point in time,

00:59:11.560 | you have the option to prepay the contract.

00:59:14.040 | And so then, if you're five years into it,

00:59:16.320 | and you've paid off $30,000 of the contract,

00:59:19.840 | but you still have $70,000 and you wanna move,

00:59:22.700 | then you would have the option

00:59:24.880 | to simply finish buying the contract out,

00:59:27.540 | so you hold the title, and then sell the house yourself.

00:59:30.440 | So maybe you at that time have $40,000 saved,

00:59:34.440 | and you go to another friend of yours,

00:59:35.720 | and you borrow $30,000 from a friend,

00:59:38.080 | or a mortgage company, whatever,

00:59:39.520 | and you buy the contract out,

00:59:41.200 | and then now you own the house free and clear.

00:59:43.680 | And so that might be something that I would do,

00:59:46.320 | is that they're trying to be nice to you.

00:59:49.120 | They don't need the cash right now,

00:59:51.080 | so they're trying to be nice to you,

00:59:52.480 | and say, you can pay this off in 15 years.

00:59:55.440 | But once you start it,

00:59:57.280 | then there's no reason for you not to pay it off in seven,

00:59:59.400 | and then the whole thing goes away.

01:00:01.040 | Because if it were a shorter term contract,

01:00:03.400 | and you knew that you could buy the house right out,

01:00:07.360 | then it would be a simpler thing to do.

01:00:10.200 | And I guess the final thing that,

01:00:11.480 | it would be clearly a really good move for you.

01:00:14.080 | And again, maybe that's just a standard part

01:00:16.020 | of a land contract, but if not, I would put that in there.

01:00:18.720 | The last thing that I would do,

01:00:20.200 | is I would have a real straight heart to heart,

01:00:22.720 | and I would say, listen, if we buy this house,

01:00:25.680 | it's our house.

01:00:27.160 | So I don't want you coming in,

01:00:30.700 | when we're coming in for Thanksgiving dinner,

01:00:32.720 | and you come into the dining room,

01:00:34.160 | that was decorated in your father's,

01:00:36.120 | in your mother's 1960s wallpaper,

01:00:40.040 | and you find out that we've stripped out the wallpaper,

01:00:42.920 | we've put shiplap on the walls,

01:00:44.320 | and we put a farmhouse sink in,

01:00:45.880 | I don't want you coming in and crying and saying,

01:00:47.800 | oh, but where's the rooster wallpaper that was here?

01:00:51.320 | This is our house.

01:00:52.600 | Because those things matter.

01:00:55.000 | And so you gotta make sure that when you buy it,

01:00:57.940 | that they're not gonna have the strings attached.

01:00:59.520 | They gotta make sure that they understand

01:01:00.920 | that this is gonna be our house.

01:01:02.460 | So if we want shiplap and a farmhouse sink,

01:01:05.200 | then we're gonna do that,

01:01:06.660 | and don't give us little comments

01:01:08.200 | about how it was better before, et cetera.

01:01:09.960 | Don't cross those lines.

01:01:12.880 | I think there are a lot of families

01:01:14.060 | where they're very healthy,

01:01:15.680 | and the parents understand,

01:01:17.240 | like this is my daughter, she's married to you now.

01:01:19.300 | She's not, yes, she's our daughter,

01:01:21.280 | but she's married to you now,

01:01:22.800 | and if this is your house, it's your house now,

01:01:24.800 | and we'll be glad to come over,

01:01:25.880 | but we're not gonna make comments.

01:01:26.920 | But then there's also people who are super controlling,

01:01:29.400 | and they wanna come in and cross those boundaries.

01:01:34.400 | And so I would address it in a direct way before the fact,

01:01:38.200 | and I would look him in the eye,

01:01:39.560 | I would look her in the eye,

01:01:40.400 | and I'd say, listen, we're excited about this,

01:01:42.780 | we appreciate your gift,

01:01:44.320 | but I wanna be clear that if we do this,

01:01:46.240 | this is gonna be our house.

01:01:47.520 | Are you gonna be upset if we take out the wall

01:01:50.400 | that was housing great-granddad's china collection

01:01:54.280 | or something like that?

01:01:55.120 | Like this is gonna be our house.

01:01:56.840 | Are you okay with that?

01:01:57.880 | Are we genuinely gonna sever your ownership of it,

01:02:01.280 | and it's gonna be our house,

01:02:02.320 | or are you gonna be frustrated

01:02:04.120 | that we're doing something wrong to the family property?

01:02:07.280 | So as long as you've got good, clear boundaries up front

01:02:09.720 | and good, clear lines,

01:02:10.560 | I think it sounds like a great deal to me.

01:02:12.400 | - Awesome, thanks so much for the advice.

01:02:16.680 | - And with that, we wrap up today's Q&A show.

01:02:18.280 | Only two callers today.

01:02:19.280 | I thought there would be more,

01:02:20.100 | but we had a good conversation with those two callers.

01:02:22.420 | Thank you all so much for being here,

01:02:23.600 | for listening to today's show.

01:02:25.280 | I hope you enjoyed it.

01:02:26.580 | And I guess in closing, I would just say

01:02:28.880 | that if you are a parent,

01:02:31.580 | especially a parent of adult children,

01:02:34.280 | think very carefully about your relationship

01:02:36.600 | with your children,

01:02:37.640 | and think about how you can bless them.

01:02:39.560 | And one important component of that is going to be

01:02:41.960 | can you bless them with respecting their independence

01:02:44.760 | and their autonomy?

01:02:45.760 | In my experience doing financial planning with people,

01:02:49.880 | I've seen wonderful situations

01:02:51.760 | and really catastrophic situations.

01:02:54.120 | And the catastrophic situations do often involve

01:02:57.380 | excessive controllingness by parents of adult children.

01:03:02.380 | And a lot of times the parents don't realize

01:03:04.600 | what they're doing.

01:03:05.440 | They don't mean to make their children's lives difficult.

01:03:08.500 | If my mom walks into my house,

01:03:10.240 | and if it was a family property and she said,

01:03:12.340 | oh, you took off the wallpaper.

01:03:14.940 | She doesn't mean to mean that as a negative comment,

01:03:19.100 | but a lot of times it does come across

01:03:21.560 | as that kind of negative comment.

01:03:23.260 | And so one of the most valuable gifts

01:03:25.020 | you can give your children as they get older

01:03:27.540 | is simply respecting their autonomy, their independence,

01:03:30.700 | and respecting those boundary lines.

01:03:33.420 | And then when you give a gift,

01:03:34.500 | it can be a really wonderful scenario.

01:03:36.740 | But you know as well as I know, right?

01:03:38.180 | You give your 17 year old a car,

01:03:41.180 | but then you expect him to drive you everywhere.

01:03:43.020 | Well, there's a degree to which maybe that's legitimate,

01:03:47.100 | but those kinds of fuzzy boundaries

01:03:49.540 | often make for a lot of tension in relationships.

01:03:52.060 | And tension in relationships

01:03:53.660 | has a way of ruining finances over time.

01:03:56.220 | Thank you for listening to today's show.

01:03:57.340 | If you'd like again to join me on next week's Q&A show,

01:03:59.740 | go to patreon.com/radicalpersonalfinance.

01:04:01.660 | Sign up to support the show on Patreon,

01:04:03.020 | and I would love to have you on next week's Q&A show.

01:04:05.720 | [BLANK_AUDIO]

2020-10-16-Friday_QA