RPF0173-Economic_Basis_of_Life_Insurance
00:00:00.000 | As a parent, you know it's not just baby talk.
00:00:05.000 | Somebody's hungry.
00:00:06.000 | So talk with your baby's doctor about invasive pneumococcal disease, or IPD,
00:00:10.000 | and ask how Prevnar 20 pneumococcal 20-valent conjugate vaccine can help protect them.
00:00:16.000 | Children under 2 are at increased risk,
00:00:18.000 | but Prevnar 20 can help them develop more immunity to 20 strains of bacteria that cause IPD.
00:00:24.000 | Prevnar 20 is approved for children 6 weeks and older
00:00:26.000 | to help prevent infections from 20 strains of bacteria that cause invasive pneumococcal disease.
00:00:31.000 | Do not get Prevnar 20 if your child has had a severe allergic reaction to the vaccine or its ingredients.
00:00:35.000 | Those with weakened immune systems may have a lower response to the vaccine.
00:00:38.000 | Talk to your health care provider before vaccination if your baby was born prematurely.
00:00:41.000 | Side effects may include irritability, pain, redness, swelling at the injection site, drowsiness, muscle pain,
00:00:46.000 | decreased appetite, headache, and fever.
00:00:48.000 | For full prescribing information, please call 1-855-213-2138 or visit Prevnar20.com.
00:00:55.000 | Ask about Prevnar 20 for your baby. Visit AskforPrevnar20.com.
00:01:00.000 | Today, I have a question for you.
00:01:03.000 | How much are you willing to pay for your education?
00:01:07.000 | Answer the question in your mind.
00:01:11.000 | How much are you willing to pay for your education?
00:01:15.000 | Now, I don't know what you're willing to pay for your education,
00:01:19.000 | but I learned years ago from Brian Tracy that it's a good idea to invest about
00:01:23.000 | 10% of my income back into myself, back into my education,
00:01:28.000 | and I've done my best to do that, although I've never followed through all the time.
00:01:33.000 | So, consider that and consider this as you listen to today's show.
00:01:41.000 | How much is the education that you're about to receive worth to you?
00:01:46.000 | There's no such thing as a free lunch in life.
00:01:49.000 | You pay for things somehow, and there's no such thing as free education.
00:01:55.000 | But just ask yourself, how much is this education that you're about to receive worth?
00:02:03.000 | Today on the show, we dig into a topic that has been much requested, life insurance.
00:02:10.000 | But we're not going to get immediately to what are Joshua's opinions on the term "insurance"
00:02:15.000 | versus "whole life insurance" or what's the best type of equity-indexed universal life insurance policy
00:02:20.000 | for you to buy or to not buy.
00:02:22.000 | Rather, we're going to talk about the basic fundamentals of why you should even consider having life insurance.
00:02:32.000 | [Music]
00:02:48.000 | Welcome to the Radical Personal Finance Podcast.
00:02:50.000 | My name is Joshua Sheets, and I'm here as your guide and as your teacher.
00:02:56.000 | And I'm excited that we finally get to get into one of the topics that I most enjoy working in, which is life insurance.
00:03:04.000 | Now, yes, I'm a nerd. Very few people actually enjoy life insurance, but I do.
00:03:09.000 | And it's hard for me to think of a better way to impact the world than with the topic of life insurance.
00:03:15.000 | [Music]
00:03:21.000 | This is actually one of the most requested questions, most requested topics that I receive here via email and from listeners.
00:03:28.000 | Everybody wants to talk about life insurance.
00:03:30.000 | And we'll get another day into why that is because so much has been done wrong.
00:03:37.000 | Life insurance is a very contentious subject because people have very, very strong feelings about it.
00:03:42.000 | I used to have – well, I still have very strong feelings about it, but I used to be part of the contention.
00:03:46.000 | I used to be part of the arguments.
00:03:48.000 | And over time, as I personally have learned more about the topic of life insurance and studied the subject in depth,
00:03:55.000 | I've come to be a little bit more relaxed about it.
00:03:59.000 | And my hope is that I can share some of that relaxation with you.
00:04:03.000 | And my hope is that I can equip you with some knowledge that will help you to feel comfortable with the topic.
00:04:10.000 | I promise at some point we will get into the most frequently asked questions, such as what type of life insurance policy should I buy?
00:04:17.000 | Should I get rid of all of my whole life insurance and buy term insurance?
00:04:21.000 | Should I buy term insurance and invest the difference?
00:04:23.000 | What should I invest the difference in?
00:04:25.000 | What type of annuity should I buy?
00:04:28.000 | Yes, annuities are a type of life insurance.
00:04:30.000 | Those kinds of questions.
00:04:32.000 | I will answer those, but we can't start there.
00:04:34.000 | And that's the problem is most people start there.
00:04:36.000 | We've got to start a little bit farther back because if you can gain some background knowledge, those answers will be simple.
00:04:41.000 | I promise.
00:04:43.000 | They'll be completely simple.
00:04:45.000 | And they'll in many ways be self-evident.
00:04:48.000 | What will happen is you'll think about a set of facts.
00:04:52.000 | Perhaps they're the facts in your own life or if you're a financial advisor of some kind, there will be a set of facts in a client or prospective client's life.
00:04:59.000 | And you just simply sit back and look at this set of facts and you go to your knowledge bank and the answer will emerge almost in a self-evident way.
00:05:08.000 | Then you can just simply step forward and make a simple recommendation and that recommendation will be appropriate.
00:05:15.000 | Or in some cases, you might need to think a little bit more.
00:05:20.000 | There might be a few different options and so you'll make a list of the different ways to satisfy the needs of the facts that are in front of you.
00:05:27.000 | And then you'll look through those different needs and think about the advantages and disadvantages of each one.
00:05:34.000 | Think about the costs and the opportunity costs of each choice and then the answer will emerge.
00:05:40.000 | It's pretty simple.
00:05:43.000 | But I've got quite a task in front of me.
00:05:45.000 | I've got to give you that background.
00:05:47.000 | I can't do it in five minutes.
00:05:49.000 | I might be able to do it in five shows.
00:05:51.000 | It might be 15.
00:05:52.000 | It might be 50.
00:05:53.000 | I don't know.
00:05:54.000 | But I can't do it in five minutes.
00:05:55.000 | So if you're looking for the five-minute answer, go somewhere else, ask another pundit or just go ask a life insurance agent and ask them to teach you and explain to you what is appropriate for your situation based upon what they have to say.
00:06:09.000 | But today we can't start with five-minute answers.
00:06:12.000 | And today I want to give you a little bit of the background and the fundamental foundation of why we think about life insurance and then also what some of the uses are in a personal family situation for life insurance.
00:06:27.000 | And I'm going to be accomplishing this partly by giving you a technical framework but also partly by selling you a little bit on the concept of life insurance.
00:06:39.000 | In our modern world, the concept of salesmanship or good selling has been utterly destroyed through unprofessional salespeople's actions.
00:06:50.000 | But I do need to sell you a little bit on the concept of life insurance.
00:06:54.000 | And if you're sold on it, you won't view your insurance premium payments quite so negatively.
00:07:02.000 | See, what's happened is in the past – well, first, life insurance didn't exist and then it did exist, but people weren't really aware of it.
00:07:10.000 | And so the life insurance industry employed an army of life insurance agents who went out and aggressively sold the concept of life insurance and sold people on why it was such a value to them.
00:07:22.000 | Then over time, it simply became accepted as normal that, well, of course, every prudent man and every prudent woman would have life insurance.
00:07:32.000 | And now we've almost passed that to where, yes, many prudent people have it, but very few people take much joy in having life insurance.
00:07:39.000 | And frankly, although I get that a little bit, I don't quite get it because I see it a little bit differently.
00:07:45.000 | Let me tell you first why I have life insurance before we get into the framework of academic construct of why life insurance.
00:07:55.000 | So here's the deal for me and my family.
00:07:58.000 | I have a bunch of very aggressive financial goals.
00:08:02.000 | I have a vision of where I want my life to go and where I want my family's life to go.
00:08:10.000 | I have a vision of a lifestyle that I'm working every day to create for me and for my family.
00:08:17.000 | I have dreams, hopes, aspirations.
00:08:22.000 | I have things I want to do with my 1-year-old son, things I want to do with a 10-year-old son, things I want to do with a 20-year-old son.
00:08:30.000 | My wife and I are expecting a daughter.
00:08:34.000 | I have a vision of what I want her to look like at 15 years old and at 20 years old and at 30 years old.
00:08:42.000 | I have a vision for what I want my life to look like in 30 years, 40 years, 50 years.
00:08:47.000 | I have a vision of what I want to see when I'm 70 years old, what I want to see when I'm 80 years old, what I want to see when I'm 90, and what I want to see on the day before my 100th birthday.
00:08:58.000 | My hope is to die on my 100th birthday.
00:09:00.000 | I actually have a great-grandmother who died on the morning of her 100th birthday, and I've always thought that would be about right.
00:09:05.000 | But I have a vision of these things.
00:09:08.000 | Now, every one of these hopes and dreams involves money, not necessarily because it's something specific, an item, a doodad, a gizmo or gadget that I need to buy, but rather simply because there's a price tag associated with every one of my hopes and dreams.
00:09:27.000 | If I'm going to have a certain experience with my kids or with my wife, I need to have the economic freedom to have that experience, whether it be a small cost or a larger cost.
00:09:38.000 | And here's the deal.
00:09:41.000 | If I'm here, I will continue working day and night to fill that vision.
00:09:51.000 | But if I'm dead and gone, I can't do it.
00:09:57.000 | If I'm dead and gone, I can't work to provide the financial freedom that my family needs to fulfill that vision.
00:10:10.000 | But do I want that vision to die with me?
00:10:13.000 | I don't.
00:10:15.000 | That vision is a vision that my wife and I have together.
00:10:19.000 | It's a shared vision.
00:10:20.000 | So my hope is that if I'm dead and gone, she will continue on to fulfill that vision.
00:10:25.000 | I hope she's able to find somebody else that can live her life with her.
00:10:30.000 | But if she's not, I still want to make sure that she, as a widow, is still able to fulfill the vision that we have for our family.
00:10:39.000 | But if I'm dead and gone, I can't do that.
00:10:44.000 | But life insurance gives me a little bit of an ability to help protect her and to protect our vision.
00:10:56.000 | It's frankly as simple as that.
00:11:00.000 | And if I were sitting down and listing out in order the different goals that I have, if I need to take some money away from my retirement fund and put it into life insurance, I'll do that every single time.
00:11:13.000 | Because here's the deal.
00:11:15.000 | Let's say that I'm working toward a traditional retirement.
00:11:17.000 | I'm 65 years old, and I don't quite have enough money to retire.
00:11:22.000 | What am I going to do with that time?
00:11:25.000 | I'm just going to work for a few more years.
00:11:27.000 | Now, is there any reason why my work should interfere with my ability to fulfill that vision?
00:11:32.000 | No.
00:11:33.000 | My work is what's giving me the ability to fund that vision.
00:11:37.000 | So what's the problem with just working a few more years?
00:11:39.000 | If I'm alive and I can still work, I'll just work for a few more years.
00:11:44.000 | But if I'm dead and gone, I can't work and provide for my family.
00:11:56.000 | Life insurance allows me to assure that some financial support is still there.
00:12:04.000 | Think of how powerful it is, the idea that you can assure your family's financial security from beyond the grave.
00:12:15.000 | That is incredible.
00:12:18.000 | That is an incredible, incredible concept.
00:12:23.000 | It's amazing that we can do that with something as simple as a life insurance contract and a few dozen dollars a month.
00:12:32.000 | Throughout human history, prudent men and prudent women have always cared for their families.
00:12:38.000 | They've always set aside and planned and prepared.
00:12:42.000 | I always think – personally, I often think of, "Well, if I don't have this tool here to meet this need, how would I do it in another way?"
00:12:50.000 | So I think if I didn't have life insurance or I couldn't get life insurance, either because I'm living in the year 1100 AD
00:12:58.000 | or whether I'm living in the year 2015 but I have some kind of health condition that's keeping me from buying life insurance, how can I meet this need?
00:13:12.000 | I personally like the 1100 AD or who knows, the 1100 BC example because I can imagine some – I always think of a farmer because a much more agrarian lifestyle.
00:13:21.000 | Let's go to 1100 BC.
00:13:23.000 | So I imagine a farmer somewhere thinking about his family and looking at his house and looking at his children and looking at his wife and that farmer thinking to himself, "If I'm dead and gone, is my family provided for?
00:13:35.000 | Have I laid up the resources of production?
00:13:38.000 | Have I established a business that will allow them to continue on?
00:13:42.000 | Is my family unit strong and grounded such that they'll be able to pull together?"
00:13:50.000 | It's amazing that we can use life insurance as one more tool in our toolbox.
00:13:56.000 | It's not the only tool because, see, if you only have life insurance and you forget about all the rest of that stuff, your family will break apart.
00:14:03.000 | Your kids won't love one another.
00:14:05.000 | Your spouse won't care.
00:14:08.000 | If you just try to cover the band-aid over with money, it doesn't really do a good job.
00:14:13.000 | But if you can attend to all of those other things, building the shared family vision, making sure that you're building a strong family unit with a multigenerational vision, "Here's who the Sheets family is.
00:14:29.000 | Here's who we are.
00:14:30.000 | Here's what we stand for.
00:14:31.000 | Here is the impact that we're going to have on this world."
00:14:38.000 | And you can combine that with the funding, I believe that's powerful.
00:14:47.000 | Now, you can't actually get them out of order because, again, if you had that vision, if you had that shared and you didn't have the funding, the family would continue on.
00:14:56.000 | History is filled with stories of families where the father has died and left a wife with many children penniless.
00:15:06.000 | And yet they've banded together and built things.
00:15:09.000 | In fact, the heroes of the US-American culture, some of them were orphaned as an early age and had to go out and provide for their family.
00:15:19.000 | And perhaps in some ways it could be argued that that is better, perhaps.
00:15:26.000 | But certainly, of course, history is filled with families that have disintegrated because of the economic hardships of the death of the breadwinner.
00:15:34.000 | But my point is not to get into those things but just simply to say that it is an incredible privilege to be able to protect your family financially in the case of your death.
00:15:46.000 | It's a privilege.
00:15:50.000 | And it's a way of assuring and ensuring that your family is able to continue on in the family vision even without the economic contributions and support of a breadwinner.
00:16:06.000 | I have one other comment on the subject – two other comments on the subject before I go to my outline.
00:16:15.000 | The comments are these.
00:16:20.000 | Life insurance is cheap.
00:16:24.000 | Today, if you are healthy, you can buy inexpensive term life insurance for a few dozen bucks a month.
00:16:34.000 | You'll often hear me be a little bit cavalier with the amount of life insurance that is needed.
00:16:40.000 | It's not that I don't know how to sit down and accurately calculate an exact number.
00:16:46.000 | I do, and I'm going to teach you that.
00:16:48.000 | I'll do an entire show on specifically how to calculate each and every number.
00:16:52.000 | But the reason that I'm cavalier is because it doesn't cost that much.
00:16:59.000 | It doesn't cost that much.
00:17:03.000 | Depending on your age and depending on your gender, again, inexpensive term life insurance can be had for 20 bucks a month.
00:17:13.000 | You're really going to tell me that you are so careful with every dollar that 20 bucks a month doesn't just flit and float out of your life?
00:17:21.000 | It does for all of us.
00:17:24.000 | Be generous.
00:17:29.000 | This is my final comment, and specifically at the moment I will talk to the men who are in the audience.
00:17:36.000 | You men who are so parsimonious with providing for your family, I don't get you.
00:17:45.000 | I really don't.
00:17:47.000 | You'll very rarely hear me be critical of people in this way.
00:17:52.000 | Again, I do think you do as you like, but those of you who sit down and say, "Well, let me think.
00:17:59.000 | I'm going to provide exactly two years of income for my wife, so I need $168,000 of insurance, and I'm willing to spend five bucks a month."
00:18:06.000 | I don't understand it.
00:18:08.000 | Do you not want your family to be well provided for?
00:18:12.000 | Right now I have $2.5 million of life insurance.
00:18:15.000 | I don't have $2.5 million in the bank.
00:18:17.000 | I don't have half that in the bank.
00:18:20.000 | But do you know how great it makes me feel and how great it makes my wife feel to know that she is abundantly provided for?
00:18:32.000 | Do you know what that does for my marriage, for her to feel the confidence and security of knowing that I have well taken care of her?
00:18:41.000 | Do you know the pride that gives me to know that even though I may not be able to lay out the finest mansions and the most beautiful coaches for us to cruise around in,
00:18:51.000 | that I can still make sure that if I'm dead and gone, she doesn't have to worry about money?
00:18:57.000 | If you've never been there, try it.
00:19:00.000 | If you're one of these guys who's sitting around counting every cent and saying, "Well, I think I'll have about $200,000 of life insurance," buy a million.
00:19:08.000 | Have it for six months or a year and see how it makes you feel.
00:19:13.000 | It'll change your world and it'll change your marriage.
00:19:18.000 | I've heard every single line from just flat out cheap men.
00:19:28.000 | And I often ask, "Do you not even care about your wife?"
00:19:31.000 | Women usually, to your credit, women are usually far more generous with their husbands than sometimes husbands are with their wives.
00:19:40.000 | I've heard every story in the book.
00:19:44.000 | The one that annoys me the most is, "Well, I don't want to pay for her to go off and marry some new guy."
00:19:48.000 | Come on!
00:19:50.000 | If I'm dead and gone, I've told my wife, "Man, if you find somebody who can take care of you, marry them in an instant."
00:19:57.000 | There's somebody I have read on the internet.
00:20:01.000 | It was actually a guest on the show, James Wesley Rawls.
00:20:03.000 | He was the guy who runs Survival Blog, the survivalist.
00:20:06.000 | He's been on two shows.
00:20:08.000 | And I read a story actually of – it's on his blog, a story about his wife.
00:20:14.000 | And his wife got sick and she was – it was a terminal illness.
00:20:19.000 | She knew that she was going to die.
00:20:20.000 | And she actually wrote a letter and was prospecting and recruiting for a new woman to marry her husband when she was dead and gone.
00:20:32.000 | Most remarkable letter.
00:20:33.000 | Maybe other women throughout history have done that or maybe other men have done that.
00:20:38.000 | I don't know.
00:20:39.000 | But I was so impressed with that just as a thought that here she was.
00:20:44.000 | She loved her husband so much that she wanted to make sure that the woman that he married when she was dead and gone was well chosen for him.
00:20:53.000 | It's hard for me to imagine a greater and more generous act of love for another person.
00:21:02.000 | I'm not sure that I would be able to do the same thing.
00:21:06.000 | Maybe I would.
00:21:07.000 | But think about that.
00:21:09.000 | Think about caring for your spouse so much and caring for their happiness and for their well-being that you will do everything you can to assure their long-term happiness and their well-being.
00:21:21.000 | But here's the flip side.
00:21:23.000 | And again, I'm talking to the men in the audience.
00:21:27.000 | Do you want your wife to run out and marry the first guy she can because she needs money?
00:21:33.000 | I don't ever want my wife to be in a situation where she's ever, if I'm dead and gone, where she's ever even considering the financial potential of a new husband.
00:21:47.000 | I want her to be strong and independent and able to make that decision for reasons other than money.
00:21:56.000 | Money will come and go, but those other reasons continue.
00:22:00.000 | So a bit of a rant there, but I do feel – again, in the years that I worked as a life insurance agent, I've heard every one of those things.
00:22:08.000 | And sometimes I've wanted to slap some of you men across the table.
00:22:11.000 | And of course in a professional setting, it's hard to reach out and slap somebody across the face.
00:22:16.000 | But at least here with the podcast, I can give you a verbal slap.
00:22:20.000 | So consider the irrationality of your position.
00:22:26.000 | It's a vast minority of the listening audience, but perhaps there's one person who can hear that.
00:22:31.000 | It might do wonders for your relationship to care for your spouse a little bit more than you do.
00:22:42.000 | So now that I have given you a bit of my personal sales pitch, let's get into some of the more technical components of this.
00:22:52.000 | And I do want to point your attention to the new website.
00:22:58.000 | And I just want to mention to you what I'm actually going to be covering today.
00:23:02.000 | On the new website, you will see a dropdown menu called Topics.
00:23:06.000 | And I'll be releasing a completely separate show at some point going over my organizational method for these topics.
00:23:18.000 | But if you click that dropdown menu and you'll see on the right, you'll see something called Formal Financial Planning Topics.
00:23:23.000 | And you'll see a section called Insurance Planning.
00:23:26.000 | Under that Insurance Planning section, you can see a bit of the outline that I have set up for myself for topics that I'll be covering with regard to insurance.
00:23:36.000 | And life insurance is one component of that.
00:23:38.000 | But there are many different aspects of life insurance, both technical and policy design, policy features, and there's also just kind of a general overview.
00:23:47.000 | So today, specifically in this outline that I've created, this has been in my files as far as the working outline that I'm coming from.
00:23:54.000 | And over time, I hope to have every one of these things covered and there are plenty more things that are not on this outline yet.
00:23:59.000 | But I'll cover each and every one of these topics in the fullness of time.
00:24:03.000 | But today, we're just going to talk about the basic background of life insurance.
00:24:08.000 | I'm going to briefly mention the three different approaches to life insurance.
00:24:13.000 | Then I'm going to talk about the needs for a family that can be fulfilled and funded by a life insurance policy.
00:24:20.000 | With every insurance transaction, there has to be an economic component, an economic justification for that transaction.
00:24:30.000 | Human life is valuable and most of the value of human life is not economic.
00:24:37.000 | Values such as somebody's – just their worth as a person.
00:24:43.000 | I personally am a very strong proponent of the value of human life, the value of human life at every stage.
00:24:51.000 | I despise how in the US American culture, we do not value the people at either end of life.
00:24:59.000 | It seems as though about the only people that we actually value in our US American culture are beautiful, slender, rich people with celebrity status who are in their 20s and 30s.
00:25:11.000 | We despise babies. We murder millions of them every year.
00:25:16.000 | We hate children. We lock them away into basically a prison all day and we give them over to the state for the state to indoctrinate them.
00:25:26.000 | We've got to get them away from anything relating to human life, any social function.
00:25:32.000 | You never see children at a formal professional social function because they might ruin it with a cry.
00:25:37.000 | You walk into the majority of social functions of churches and if your baby cries in a church service, it's like the worst thing ever.
00:25:45.000 | We do everything we can to have the smallest families possible, many people choosing not to have any children, many people not choosing not to have children.
00:25:55.000 | We do everything we can to restrict the size of our families.
00:25:58.000 | We do everything we can, again, to keep children locked away for a very long period of time.
00:26:03.000 | Then they enter that slight brief productive phase where we're acceptable in societies in our 20s and 30s if we're wealthy and healthy and good-looking.
00:26:12.000 | But we marginalize all the ones that look a little bit different, that act a little bit different, that don't conform quite so much to society's standards of what perfect looks like.
00:26:22.000 | We make people feel shunned and degraded.
00:26:27.000 | And then as soon as you start showing the slightest bit of maturity or wisdom as expressed with wrinkles and gray hair or as evidenced by wrinkles and gray hair, not causation there, but correlation of wisdom and gray hair,
00:26:43.000 | then we immediately start marginalizing and discriminating against you and tucking you aside in the corners of society.
00:26:50.000 | And ultimately, we lock all the old people up and if we had our say about it, we'd probably pretty much just do away with them as quickly as possible.
00:26:59.000 | It seems to be the trajectory that society is going on.
00:27:03.000 | So, all of those things, in case you can't tell, bother me, because human beings are incredibly important and incredibly value just for their existence.
00:27:14.000 | Now, I'd say that from a biblical worldview, man is created in the image of God and that's why man is inherently valuable.
00:27:23.000 | But you don't have to accept that worldview.
00:27:25.000 | I'm just saying that's why it is, and that applies at every stage.
00:27:29.000 | That applies, again, for the preborn baby and for the elderly incontinent person.
00:27:37.000 | Every person is valuable.
00:27:41.000 | Every person is valuable.
00:27:45.000 | Every person is valuable.
00:27:50.000 | We should be defenders of human life on all hands.
00:27:54.000 | And there should be no inconsistencies in our position as defenders of human life.
00:27:58.000 | We should defend human life against injustice, against war, against murder, against marginalization, against discrimination.
00:28:08.000 | At every stage, we should be consistent with defending human life.
00:28:12.000 | Sorry, I got a little bit going there, but that's not actually what I'm here to talk about today.
00:28:18.000 | Forgive me.
00:28:19.000 | I feel a little bit passionate about that topic.
00:28:22.000 | Today, though, in life insurance, we obviously can't do that from the perspective of life insurance, and life insurance is not based upon any of that.
00:28:31.000 | Forgive me for getting off track.
00:28:34.000 | Life insurance is based upon the economic productivity of a person.
00:28:38.000 | That's the fundamental basis of life insurance.
00:28:41.000 | Life insurance as an economic contract is only concerned with the economic value of a human life.
00:28:52.000 | An economic value is connected to a person's earning capacity and their dependence on other people's earning capacity.
00:29:00.000 | So that's what life insurance is about, and it comes out that dependence can come out either through the context of a family relationship or through the context of a business relationship.
00:29:09.000 | Today, we're focusing on the family uses of life insurance.
00:29:14.000 | Now, if a person doesn't have any dependence, any financial dependence, then if their life stops, then there's really no economic need to perpetuate – they're not fulfilling any economic or monetary need.
00:29:35.000 | So this is why most people that don't have any dependence – well, you often say, "Well, I don't really need to have life insurance," and that's valid.
00:29:43.000 | There are a few reasons to consider potentially having life insurance if you feel like you might have dependence in the future.
00:29:51.000 | But at the end of the day, if you don't have any dependence, then there's no economic need for your life to continue, which is what a life insurance contract does.
00:30:00.000 | Think carefully though because even if you don't have children or even if you're not married, even if you don't have a specific business relationship, you might still have goals and things that you wish to make happen, support causes that are important to you or organizations that are important to you.
00:30:17.000 | And so those types of things might be a reason for you to consider having life insurance, but topic for another day.
00:30:24.000 | In the context of a family unit, we usually have a division of labor of some kind, and part of the division of that labor is toward earning income.
00:30:36.000 | Part of the division of labor is attending to the other needs of the family.
00:30:40.000 | And so especially for those who are earning income to provide for the family, in order to maintain the integrity of the family unit and to maintain the economic security of the family, we need to make sure that that is cared for.
00:30:55.000 | That's the economic argument.
00:30:58.000 | There might also be the idea of a moral obligation which you should consider.
00:31:04.000 | Most people who have families and who have children assume the responsibility of providing for those children, providing for the support and maintenance of their dependents.
00:31:16.000 | And most people do that happily with pleasure.
00:31:19.000 | Our legal code actually recognizes that moral obligation to provide for the support of your spouse and your children.
00:31:28.000 | That's why if – in case of divorce or separation, that the legal structure of the court will assure that there is a level of financial support there for dependent children and alimony payments for a dependent spouse.
00:31:44.000 | And in some cases, those payments will – are legally required to continue beyond the provider's death.
00:31:53.000 | That's laid out in the divorce decree in some cases.
00:31:59.000 | That's the moral obligation.
00:32:03.000 | And that is a challenging moral standard to meet because it requires you as the provider to lower your own standard of living to provide and care for others.
00:32:14.000 | But it exists anyhow.
00:32:17.000 | I'd like to read you a quote from one of my textbooks here, and this is a quote from Dr. Solomon S. Huebner.
00:32:25.000 | And Dr. Huebner was actually a very influential figure in the development of the modern life insurance, I guess, planning world.
00:32:35.000 | He was – he's been honored in a number of different ways.
00:32:39.000 | I first came into contact with him through my coursework at the American College of Financial Planning up in Bryn Mawr, Pennsylvania.
00:32:48.000 | And he was actually the founder of – well, in honor of him, he – one of the major programs that he founded was something called a Chartered Life Underwriter, which is a financial planning designation that I hold, which is specifically focused on life insurance planning.
00:33:02.000 | But he was a – really influential in the early days of life insurance in building – in professionalizing the industry and building new models.
00:33:13.000 | So this is just a quote from him in one of my textbooks here that I thought was well said to drive this point home.
00:33:21.000 | "From the family standpoint, life insurance is a necessary business proposition which may be expected of every person with dependents as a matter of course, just like any other necessary business transaction which ordinary decency requires him to meet.
00:33:38.000 | The care of his family is man's first and most important business.
00:33:43.000 | The family should be established and run on a sound business basis.
00:33:47.000 | It should be protected against needless bankruptcy.
00:33:51.000 | The death or disability of the head of this business should not involve its impairment or dissolution any more than the death of the head of a bank, railroad, or store.
00:34:02.000 | Every corporation and firm represents capitalized earning capacity and goodwill.
00:34:08.000 | Why then, when men and women are about to organize the business called a family, should there not be a capitalization in the form of a life insurance policy of the only real value and goodwill behind that business?
00:34:20.000 | Why is it not fully as reasonable to have a life insurance policy accompany a marriage certificate as it is to have a marine insurance certificate invariably attached to a foreign bill of exchange?
00:34:32.000 | The voyage in the first instance is, on the average, much longer, subject to much greater risk, and, in case of wreck, the loss is of infinitely greater consequence.
00:34:44.000 | The growth of life insurance implies an increasing development of the sense of responsibility.
00:34:50.000 | The idea of providing only for the present must give way to recognition of the fact that a person's responsibility to his family is not limited to the years of survival.
00:35:01.000 | Emphasis should be laid on the crime of not insuring, and the finger of scorn should be pointed at any man who, although he has provided well while he was alive, has not seen fit to discount the uncertain future for the benefit of a dependent household.
00:35:19.000 | Life insurance is a sure means of changing uncertainty into certainty and is the opposite of gambling.
00:35:27.000 | He who does not insure gambles with the greatest of all chances and, if he loses, makes those dearest to him pay the forfeit.
00:35:38.000 | That was from Dr. Huebner's classic text entitled Life Insurance.
00:35:43.000 | That's the basis of life insurance.
00:35:47.000 | Now, how do you actually go from recognizing that there's an economic and a moral obligation, an economic justification and a moral obligation to continue, and how do we go toward figuring out how to put that into the terms of a life insurance contract?
00:36:02.000 | In order to properly compare and create an insurance contract, we need to understand what is the actual economic value of a productive man or woman's contributions.
00:36:17.000 | And this is a real challenge.
00:36:20.000 | In order to do this in the technical and correct way, it's so complex that it's not actually useful.
00:36:28.000 | In order to do this properly, what you would do is you would take and you would estimate somebody's earnings for each and every year from their current age forward to the date of their retirement.
00:36:42.000 | And you would need to factor in the variation of their earnings based upon their own personal skills and abilities and also based upon their industry.
00:36:55.000 | Additionally, you would need to take into account the inflation, the general inflation in society.
00:37:00.000 | Then out of each year's income, you would pull out all of the costs that are incurred for their own personal maintenance, all of the expenses that are specifically associated with their own personal expenditures.
00:37:14.000 | You would need to pull out the cost of life insurance premiums.
00:37:18.000 | You would need to pull out the cost of their personal income taxes.
00:37:21.000 | And then you would need to figure out what that residual income is for each year, back it up, and discount it at an assumed rate of interest and also create an adjustment for the possibility of it not being earned due to job loss, etc., other risk factors.
00:37:43.000 | And then back it up to whatever the sum of those present values is discounted back to today.
00:37:51.000 | It's an extremely complex calculation to actually do it properly.
00:37:58.000 | And it can actually be done to some degree, but it needs to be simplified and able to be done.
00:38:04.000 | In order to actually simplify it, you can simplify it into a five-step process.
00:38:10.000 | And if you're trying to figure out what is the human life value of somebody, the economic value of a human life in terms of their productivity, you're going to estimate their average annual earnings over the years of expected earnings, the years that they're expecting to keep working.
00:38:27.000 | Pull out all the taxes, the insurance premiums.
00:38:31.000 | So let me give this to you in step-by-step directions.
00:38:34.000 | Step one, estimate their average annual earnings over the remaining years of their financial productivity.
00:38:40.000 | Number two, deduct the federal and state income taxes, life insurance premiums, and their own costs of self-maintenance.
00:38:48.000 | Then determine the number of years between their present age and the contemplated age of retirement. Take a discount rate and select a rate of interest to discount by. And then multiply the average annual earnings times the present value times the rate of interest, and that will come up with the number that you need.
00:39:07.000 | Now, that is a very difficult calculation to do, especially for most people who are not competent with even what any of those terms are.
00:39:17.000 | And it's also hard to estimate, and so we've developed new methods of accounting for this.
00:39:25.000 | And what I'm about to do is I'm going to give you three major methods of calculating how much insurance somebody should have.
00:39:33.000 | The first one is the one I just gave you, which is called the human life value approach.
00:39:38.000 | And, again, in essence, the human life value approach is to average what the actual economic impact is to a family of a breadwinner.
00:39:47.000 | The second approach is called a needs analysis or a needs approach where we sit down and we figure out, "Okay, let me not worry about my family."
00:39:55.000 | The first approach, how much is Joshua likely to earn over the course of his lifetime? Hard thing to do.
00:40:00.000 | Well, the second way is to say, "Well, let's ignore what Joshua's likely to earn and let's calculate what Joshua's family actually needs," and that's a needs approach.
00:40:07.000 | And then the final category is what we call rules of thumb, such as a multiple of income.
00:40:13.000 | And rules of thumb approaches are woefully inadequate and practically useless.
00:40:18.000 | I'll cover that in just a moment.
00:40:20.000 | But we're essentially going through these three areas.
00:40:23.000 | When it was originally created, the human life value approach was a very useful approach, and you could find some approximation of it that is more doable than the calculations that I just went through.
00:40:37.000 | But the needs analysis approach is better.
00:40:40.000 | So let me give you just a quick outline of what that is.
00:40:45.000 | The needs analysis approach is to sit down and say, again, if Joshua died, what does his family need?
00:40:50.000 | Well, they probably need just some amount of money, a cleanup fund of some kind to make sure that any final expenses are taken care of.
00:41:00.000 | They need some amount of income to account for the readjustment of the family, other income for his kids for a certain period of time until they are financially independent, income for his spouse, income for his kids' education, et cetera.
00:41:15.000 | We can sit down and we can actually calculate that.
00:41:17.000 | And that's one of the things that is so useful is it's so easily calculated.
00:41:21.000 | The problem with the – let me go ahead and just give it now.
00:41:24.000 | Sorry.
00:41:25.000 | The problem with the rules of thumb and the most famous is the multiple of income.
00:41:30.000 | Go out and buy ten times your income of life insurance.
00:41:33.000 | The problem with those is it doesn't actually take into account any actual facts of the actual situation.
00:41:38.000 | If you've got $10 million in the bank and you go out and you're earning $200,000 a year and someone says, "Well, you should buy $2 million of insurance," what for?
00:41:50.000 | You have $10 million in the bank.
00:41:52.000 | Assuming you have no debt, you have little need for life insurance in that scenario.
00:41:57.000 | So that doesn't – the rules of thumb don't account for any kind of accumulated assets or any kind of actual situation and they don't account for what any individual family might actually want to accomplish.
00:42:11.000 | If I have a goal of leaving a certain amount of money behind to each of my children for a certain reason or to leaving my money behind to an organization that I support for some reason, I can't accomplish that with just a multiple of income.
00:42:25.000 | So although I do support the use of the multiple of income approach, if it takes somebody from having $0 of life insurance to having some life insurance, that's good.
00:42:36.000 | But beyond that, it's basically a useless approach.
00:42:39.000 | Now I'd like to give you some of the different uses of life insurance for individual families.
00:42:47.000 | This will be a fairly exhaustive list, but it's intended to A, give you the framework because you, if you are a professional, you need to know these things.
00:42:56.000 | If you're a CFP practitioner, you need to know these things.
00:42:59.000 | Or if you're just thinking about your own situation, here are some of the different individual uses of life insurance.
00:43:04.000 | Again, comprehensive and exhaustive, you just simply pick and choose.
00:43:09.000 | But this is ultimately what you're trying to provide for in figuring out a calculation of how to actually do this.
00:43:16.000 | So I'll do an entire show on how to actually calculate for yourself and do a needs analysis.
00:43:22.000 | And we'll probably do it manually.
00:43:23.000 | Normally, that's much easier with software, but I'll probably teach you how to do it manually with a financial calculator.
00:43:30.000 | So the first valuable use of life insurance money, why you should consider having life insurance money, would be to have some amount of funds available immediately for the family.
00:43:41.000 | Now, this is one that very few people, unless you've been through the death of a close family member, very few people appreciate.
00:43:48.000 | Many people think, "Well, I have plenty of money.
00:43:51.000 | I have lots of money in my IRAs.
00:43:53.000 | I have lots of money in stocks.
00:43:55.000 | I own a bunch of rental properties.
00:43:56.000 | So therefore, I don't actually need life insurance technically."
00:44:00.000 | Technically, that may be true.
00:44:02.000 | But the problem is many of those assets are not quickly and easily and cheaply liquidated to have money.
00:44:11.000 | And so oftentimes, there are some immediate expenses for the surviving family, that month's – this month's mortgage payment, this month's rent payment, this month's car payment.
00:44:23.000 | There may also be expenses incurred with your death or the death of the person involved.
00:44:30.000 | So the funeral costs, medical costs, those types of things, repairs and replacements of equipment, somebody died in a house fire.
00:44:40.000 | Now, the house is burned down, so we got to fix the house and do that or the car accident, things like that.
00:44:45.000 | Having money immediately available at the date of death is incredibly valuable and incredibly important.
00:44:51.000 | I never really realized this until I walked through it with a client.
00:44:56.000 | This was not a life insurance policy that I had originally sold.
00:44:58.000 | It was one that I was servicing and this client was an elderly client.
00:45:02.000 | He and his wife were fairly wealthy.
00:45:04.000 | They were millionaires.
00:45:06.000 | They were living a good lifestyle but they were fairly wealthy.
00:45:09.000 | His wife became ill and then through a series of circumstances, a very strange illness and was quickly hospitalized and wound up dying about two months later.
00:45:19.000 | But because I was involved, we had been doing some other planning when she was ill.
00:45:23.000 | We had been doing some more idealistic retirement planning.
00:45:26.000 | We had been doing some simplified estate planning, changing out some documents and changing out some beneficiary designations and all of a sudden, she just disappears into the hospital and never came out.
00:45:37.000 | And then she died.
00:45:39.000 | Now, these clients were quite elderly.
00:45:42.000 | They were at the stage of life where they didn't need insurance from the perspective of living expenses.
00:45:49.000 | In fact, the actual – some of the actual planning things we had been working on was we were changing some of the beneficiary designations from her life insurance policies to go to the children instead of to her husband.
00:46:03.000 | We hadn't actually finished that because we were making some changes with the trust documents.
00:46:08.000 | But I was glad that we hadn't done it.
00:46:11.000 | We were waiting on the trust regardless to be changed.
00:46:14.000 | But I was glad we didn't do it because when she died, the husband was largely left penniless.
00:46:20.000 | Now, it sounds strange because he was going to be the beneficiary of the money – of the assets.
00:46:26.000 | But the assets were tied up in a real estate in Florida, real estate in the northeast where they had made their home for many years, and the majority of the liquid assets were tied up in a trust.
00:46:39.000 | And the trust was uncertain in terms of its transfer from her being the beneficiary to him being the beneficiary, which is why we were changing the trust.
00:46:49.000 | It was an old trust.
00:46:50.000 | It was no longer appropriate for them.
00:46:52.000 | And so we were making some changes to it.
00:46:54.000 | But he all of a sudden was left wanting to fund a funeral and not having any money, literally didn't have money to make just the – excuse me, not mortgage payments.
00:47:02.000 | They didn't have mortgage payments.
00:47:03.000 | All houses were on debt-free.
00:47:04.000 | But – and these were expensive houses, but he didn't have the money for just the normal cost of living.
00:47:10.000 | And he provided – paid for a funeral for her here in Florida with their Florida friends and then up in the northeast where they spent their summers with their friends in the northeast.
00:47:21.000 | It was a very small relatively life insurance payment of under $100,000.
00:47:26.000 | It was too old, mature, whole life insurance policies they had purchased decades earlier.
00:47:32.000 | But it made a world of difference for him because if you haven't been through this process, what will happen with most insurance companies is most insurance companies – many insurance companies will settle as long as there's no indication of any reason of fraud, any reason why they would contest the claim.
00:47:50.000 | Most insurance policies will generally settle the claim very quickly.
00:47:53.000 | And oftentimes in order to settle it, they'll just simply send out a checkbook.
00:47:56.000 | And the checkbook has – is tied to an account that has an amount of money in it that is equivalent to the size of life insurance policy.
00:48:04.000 | So he received a checkbook with $100,000 in the account and he was able to use that and you can write a check to your own account for $100,000 and transfer it all or you can just leave it with the insurance company, which by the way, at some point I should do an entire show on that.
00:48:19.000 | You should be careful with transferring it out of the insurance company.
00:48:23.000 | There can be compelling reasons to transfer it and there can also be compelling reasons not to transfer it, especially if you are in a contentious circumstance.
00:48:31.000 | Let's say that you are in arrears on your payments.
00:48:36.000 | You are subject to the claims of creditors.
00:48:38.000 | You want to make sure you keep that money with the life insurance company so that you can – so it doesn't immediately be – so it's not immediately commingled with your personal assets such that it's subject to the claims of your creditors.
00:48:50.000 | So having money available is incredibly valuable.
00:48:54.000 | Just having a large sum of liquid assets available immediately is very useful.
00:48:59.000 | Next, you need cash just to meet the normal needs of daily living.
00:49:05.000 | The survivors of a deceased one will be faced with all of the normal expenses of a household, food, transportation, utilities, mortgage payments, rents, etc.
00:49:17.000 | It takes time for things to be worked through.
00:49:21.000 | Also, it's likely that your family is not working in the case of your death.
00:49:26.000 | I recently walked through with a friend of mine the death of their child and the family members took a good bit of time off of work just simply working with the death of their child.
00:49:39.000 | That's normal.
00:49:40.000 | If my wife or if my child died, there's not a chance that you'd be receiving episodes that week.
00:49:47.000 | It would take me quite a while to be able to put my life back together.
00:49:52.000 | Consider not only the costs of the funeral but also the costs of things like gravestones, especially parents with children, loved ones, your spouse.
00:50:04.000 | Many people – we all want the best for our families.
00:50:08.000 | And so often that comes with a price tag.
00:50:11.000 | Even though those expenses can be substantial, there are also the expenses associated with settling an estate.
00:50:18.000 | Most people, if you haven't served as the executive of an estate, most people don't think about these, but they are substantial.
00:50:25.000 | There may be fees charged by the executive of an estate, an administrator of an estate, fees for the assistance of an attorney.
00:50:33.000 | There may be court costs for probate if there's a will.
00:50:38.000 | Also, the costs of managing an estate.
00:50:42.000 | Many people who have not developed a sophisticated or complex estate don't think about this.
00:50:47.000 | But even in a relatively simple scenario, assume for a moment that you have five rental houses and that's it.
00:50:55.000 | That's not a very complex estate, and yet there will be fees and costs associated with the management of that property.
00:51:03.000 | The cost of finding heirs, dealing with bureaucratic red tape.
00:51:08.000 | It's a real challenge.
00:51:10.000 | Now, of course, this would depend on – these costs all depend on how complex is an estate.
00:51:16.000 | And certainly if you have a very simple estate, there's no need to consider all of those.
00:51:21.000 | There's no need to pay – set aside funds for the administration of a complex estate, but you need to at least consider it.
00:51:28.000 | There can be additionally expenses for emergencies and repairs and replacements.
00:51:36.000 | You die in a fiery car accident.
00:51:38.000 | Where does your family get the money to replace the car?
00:51:40.000 | Even if it's insured, it may not be enough to replace.
00:51:45.000 | There may be a lawsuit involved.
00:51:49.000 | Perhaps there is property that was damaged by the accident that had a – that it needs to be paid for.
00:51:58.000 | There are lots of times in which there's property that's not covered by insurance.
00:52:04.000 | Think about something like flood claims, flood damage based upon a hurricane or tornado that came through and took a life.
00:52:11.000 | But there's no benefit because the primary reason for the insurance claim is because of flood.
00:52:20.000 | The nice thing about life insurance is the money is available very quickly, and that can be a tremendous – make a tremendous impact.
00:52:30.000 | So in addition to those immediate needs, you also need to consider income needs.
00:52:36.000 | And so most people, we think quickly about dependents.
00:52:41.000 | Obviously, this would include our spouse, also our children, making sure that the children are properly cared for.
00:52:48.000 | And then that can have other considerations.
00:52:51.000 | Sometimes it's fairly simple.
00:52:53.000 | Sometimes many families today have blended families where there are children from multiple marriages.
00:52:59.000 | Working through how much is provided for each child is a very important part of planning.
00:53:04.000 | Additionally, if you have a disabled child or a child with special needs and you need to provide for ongoing care, you need to think about that and factor that in.
00:53:14.000 | Another aspect to consider is things like caring for your parents.
00:53:19.000 | I owned life insurance before I was married and before my wife and I were engaged.
00:53:24.000 | I did that for two reasons.
00:53:26.000 | Number one, I was a life insurance agent, and so I had a personal interest in owning life insurance because I was selling it.
00:53:34.000 | I do know life insurance agents who were in my situation that didn't own life insurance, but I didn't feel good about that.
00:53:40.000 | And so I did have that reason to buy some.
00:53:43.000 | But the second reason was I was responsible – I felt responsible to care for my parents.
00:53:50.000 | I think most normal children will feel that responsibility to care for their parents.
00:53:56.000 | There's an economic component of that.
00:53:58.000 | My parents were not wealthy, and although I didn't know for sure that they – that I had to do it, I have other siblings that could care for them, but I feel a responsibility.
00:54:09.000 | So it's nice to be able to ensure that responsibility to know that if I died, they would be cared for.
00:54:18.000 | Again, I freely admit that it was because I was a life insurance agent, but after buying the policy and owning it, experiencing the feelings of it, I learned.
00:54:30.000 | And in working with some young single clients, I asked them, "Is there anybody that you're supporting now or anybody that you would want to have money?"
00:54:40.000 | All of a sudden, we found out that – just a simple question.
00:54:43.000 | I said, "Yeah. You know what? Actually, my parents or my niece or my nephew.
00:54:47.000 | There may be many people in a family who are not actually dependents at all but for whom you have a care and you want to provide."
00:54:56.000 | With the concept and idea that life insurance is a way to fill out a financial dream, to finish and fulfill a financial dream, sometimes you can do that.
00:55:09.000 | Now, it's easy as a life insurance agent to present the sales side of it, but hopefully in this context where there's no pressure, you can actually consider it.
00:55:17.000 | And my feedback from several young people that I worked with was that once they owned life insurance, it changed how they felt.
00:55:28.000 | And they just felt better about knowing that if I die, mom and dad have a couple hundred thousand dollars.
00:55:34.000 | Change their perspective.
00:55:36.000 | Consider carefully if you need some funds set aside to repay debts.
00:55:42.000 | Many people have debt at the date of their death, and here's what's challenging.
00:55:48.000 | Depending on the agreement – and this is where you need to look through and understand the legalities of it.
00:55:55.000 | Depending upon the agreement though, you are going to owe your debt.
00:56:00.000 | Your estate owes your debt when you are dead.
00:56:03.000 | If you don't have any assets to cover the debt, then ultimately unless there's a recourse of some kind in the debt agreement or unless there's a co-signature of some type, then ultimately the creditor will be left without payment.
00:56:17.000 | That may be the case.
00:56:20.000 | But it's also likely that your estate will need to come up with the money to pay off and satisfy your creditors.
00:56:29.000 | So make sure that you account for the funds needed to repay debt.
00:56:34.000 | Consider any funds that are needed to pay death taxes.
00:56:38.000 | In the modern era of 2015, most estates – the vast majority of estates will not incur death taxes.
00:56:46.000 | The federal estate tax exemption amount is in excess of $5 million for an individual.
00:56:52.000 | It's relatively simple to do planning that will make sure that those taxes can be avoided.
00:56:59.000 | Most of the states that had lower amounts are adjusting their exemption amounts to match up to the federal estate tax exemption.
00:57:06.000 | So those numbers are changing.
00:57:09.000 | If you were to go back 15 years to the year 2000, that estate tax exemption amount was only $675,000, which means anybody with assets in excess of $675,000 would immediately owe taxes.
00:57:26.000 | Their estate would owe taxes on the value in excess of that number.
00:57:30.000 | Interestingly, this also affected the problem of life insurance and how you held and owned your policy because personally owned life insurance policies – the face amount of the life insurance policy is includible in the gross estate.
00:57:43.000 | So it was a very different scenario just 15 years ago.
00:57:46.000 | At the moment finally, after years of instability, at the moment finally, estate tax exemption amounts have stabilized.
00:57:55.000 | The laws are stabilized and they're not subject to this massive yo-yo action.
00:58:01.000 | But all it takes is a move of Congress, a stroke of a pen, and rates change again.
00:58:07.000 | So you need to be aware of that.
00:58:09.000 | Again, finally we live in a more stable environment than we did five years ago, but it still matters.
00:58:15.000 | You want to consider any funds that you would need for your dependents' educational needs.
00:58:21.000 | Consider private schooling, college expenses, post-college expenses.
00:58:28.000 | Consider the amounts.
00:58:30.000 | Additionally, you want to consider funding any kinds of trusts that you have established or trusts that you would like to establish.
00:58:39.000 | Do you want to provide your children with money down the road?
00:58:46.000 | Consider this. Let's say that for me an additional million dollars of life insurance costs – let's see.
00:58:53.000 | At my age, 30, so let's say a million bucks a term life insurance costs me 30, 40 bucks a month.
00:58:59.000 | So I pick up another million bucks and I set it aside and I go ahead and stroke it right out of trust that would say here's what this money is intended for.
00:59:07.000 | My children are going to be the beneficiaries of the trust or not, however I do it, and then I fund it with a life insurance policy.
00:59:13.000 | For 40 bucks a month, I can do exactly what multi-multi-millionaires do.
00:59:19.000 | It's not that tough to do.
00:59:22.000 | Consider if there's a trust you'd like to fund.
00:59:24.000 | Consider charitable donations.
00:59:26.000 | I previously served on the board of – the alumni board of my university.
00:59:31.000 | Be fairly simple and considerate of me to set aside and say I can't give you a million dollars today, but I can purchase a life insurance policy and make you the beneficiary of it.
00:59:43.000 | Ultimately, that would have some major value for them.
00:59:47.000 | Consider also any gifts to other people that you would like to make that are not just simply a charitable organization.
00:59:55.000 | Do you want to be the favorite uncle of your nieces and nephews, the favorite aunt?
01:00:02.000 | Consider supplementing retirement income for a spouse.
01:00:07.000 | Consider replacing retirement income for a spouse.
01:00:12.000 | If I am the beneficiary of a defined benefit pension plan but yet I've chosen an option that would have a reduced payout of my death or even no payout, then I may need to supplement that with a life insurance policy.
01:00:26.000 | Consider funding a nursing home stay or home health care expenses with a life insurance policy.
01:00:32.000 | Long-term care insurance is an interesting aspect of planning, but policies have changed over time.
01:00:38.000 | The current policies are not nearly as attractive as they were five to ten years ago.
01:00:43.000 | One perfectly satisfactory way of planning is to say, "Well, I'm not going to purchase a long-term care insurance policy, but I am going to purchase an additional life insurance policy to replace the assets used up for long-term care or potentially used up for long-term care at my death."
01:01:01.000 | That could be a very valid way of planning.
01:01:05.000 | Interestingly also, there's a massive growth in what are called hybrid insurance policies where there's a combination of a long-term care insurance policy and a life insurance policy.
01:01:13.000 | We'll cover those at some point.
01:01:15.000 | Consider transferring assets to younger generations or equalizing assets.
01:01:19.000 | Consider just simply as a grandparent caring for your grandchildren or as parents, again, equalizing an estate.
01:01:28.000 | You have two children and you have a house.
01:01:31.000 | Well, Johnny wants the house and Susie then is left without an inheritance.
01:01:36.000 | Well, perhaps you just simply buy a life insurance policy of the value of the house and leave that to Susie.
01:01:42.000 | Then finally, consider discreetly providing for confidential needs.
01:01:48.000 | The nice thing about life insurance is it's a simple contract and so it can be done in privacy.
01:01:55.000 | There's no need to disclose to the court, to a probate court, even the value of a life insurance contract or who it goes to.
01:02:04.000 | Depending on the ownership arrangements, you would need to be careful with the ownership arrangements, but it can be done in a private way as a private contract.
01:02:13.000 | So if you need to provide quietly for the support of your mistress or your paramour, life insurance can be an effective way to do that.
01:02:26.000 | If you have a so-called illegitimate child that you need to care for, that you don't want to be made public knowledge, it can be done with a life insurance contract.
01:02:38.000 | It's a very useful tool for things like that.
01:02:43.000 | So these are just some of the things for you to consider.
01:02:45.000 | Now, ultimately, you'll need to consider your own situation and what you actually want to do.
01:02:49.000 | But by breaking it down into categories, I'm providing you with a way to think.
01:02:56.000 | Ultimately, what this can be used for is it can be used for a needs analysis.
01:03:02.000 | You can figure out that, yes, indeed, I do need to want to leave behind some living expenses for my wife.
01:03:08.000 | I do want to leave behind some living expenses for my kids.
01:03:10.000 | I do want to make sure that I cover their college education.
01:03:12.000 | I do want to make sure that my parents get $200,000 at the date of my death, make sure that they're okay.
01:03:17.000 | And I need to replace the value of, you know, I'm a firefighter.
01:03:22.000 | I haven't fully earned out this pension payment, so I need to make sure that my wife gets the benefit of that pension payment in the case of my death with life insurance.
01:03:30.000 | And so now we can sit down and calculate an actual amount of insurance that would be useful.
01:03:35.000 | That's the first step.
01:03:37.000 | That's the goal ultimately of this, and that will be a future show where we'll actually walk through the calculations on how to do it.
01:03:43.000 | But I hope this is helpful for you.
01:03:45.000 | I hope this is a useful introduction.
01:03:47.000 | I really do.
01:03:49.000 | I really – I love life insurance.
01:03:51.000 | It's an incredible tool, and it's an incredibly flexible financial tool.
01:03:55.000 | Now, while you've worked as a financial planner, sometimes maybe you might not fully appreciate the value of flexibility, but flexibility is so valuable.
01:04:05.000 | Many times people forget about it.
01:04:07.000 | But just having money is key.
01:04:10.000 | And it doesn't have to be large amounts.
01:04:12.000 | I'm prone to using large amounts in my examples, you know, a million dollars here, a million dollars there.
01:04:17.000 | $100,000, $50,000, $500,000 put toward the right scenario can be a massive impact.
01:04:25.000 | It's as simple as that.
01:04:27.000 | You want to leave behind $100,000 to your alma mater?
01:04:31.000 | Buy yourself a simple little life insurance policy.
01:04:34.000 | Fifty bucks a month, you pay for it.
01:04:36.000 | They're the beneficiary.
01:04:37.000 | At some point in time, it's going to be set aside to them.
01:04:41.000 | Life insurance is an incredibly valuable tool because right when you need it, the money is available.
01:04:47.000 | So hopefully this will be a useful introduction.
01:04:49.000 | I promise we'll get into the weeds.
01:04:51.000 | We'll get into all the different policy designs.
01:04:52.000 | We'll get into the advantages, disadvantages.
01:04:54.000 | We'll get into the investment aspects, non-investment aspects, tax aspects, ownership.
01:04:58.000 | I promise it's coming little by little.
01:05:01.000 | I've got – I shared that list of topics that I've got in our private Facebook group that we use for the irregulars,
01:05:09.000 | which is where I spend most of my time interacting with the members of the community,
01:05:13.000 | answering their questions personally and things like that, which by the way,
01:05:17.000 | if you're interested in that, radicalpersonalfinance.com/patron.
01:05:19.000 | Join at the irregulars level, which is $25 a month, and that's one of the many benefits that you get.
01:05:23.000 | But we were talking about this and I posted that list in there and I said, "1,184 topics,"
01:05:28.000 | and considering these are the topics that I primarily focused on for the Wednesday shows,
01:05:32.000 | I've got a lot of work to do.
01:05:34.000 | It's not quite 1,184.
01:05:36.000 | A lot of these topics can be combined in multiple topics in one session.
01:05:40.000 | But I do have a lot of work to do. That's the point.
01:05:42.000 | So thank you all so much for listening.
01:05:44.000 | Back to the question that I asked you at the beginning, how much was this education worth to you?
01:05:52.000 | Hopefully at least a few bucks.
01:05:54.000 | Here's how you can let me know.
01:05:56.000 | Go to radicalpersonalfinance.com/patron and whatever amount this education was worth to you,
01:06:02.000 | type that amount in the box and click "support" and support the show with that number, radicalpersonalfinance.com/patron.
01:06:11.000 | Thank you for listening to today's show.
01:06:13.000 | If you'd like to contact me personally, my email address is joshua@radicalpersonalfinance.com.
01:06:20.000 | You can also connect with the show on Twitter @radicalpf and at facebook.com/radicalpersonalfinance.
01:06:27.000 | This show is intended to provide entertainment, education, and financial enlightenment.
01:06:34.000 | But your situation is unique and I cannot deliver any actionable advice without knowing anything about you.
01:06:42.000 | Please, develop a team of professional advisors who you find to be caring, competent, and trustworthy,
01:06:51.000 | and consult them because they are the ones who can understand your specific needs, your specific goals,
01:06:59.000 | and provide specific answers to your questions.
01:07:03.000 | I've done my absolute best to be clear and accurate in today's show, but I'm one person and I make mistakes.
01:07:10.000 | If you spot a mistake in something I've said, please help me by coming to the show page and commenting
01:07:16.000 | so we can all learn together.
01:07:18.000 | Until tomorrow, thanks for being here.
01:07:20.000 | Hey parents, join the LA Kings on Saturday, November 25th for an unforgettable kids day presented by Pear Deck.
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