RPF0199-Whole_Life

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00:00:30.680 | Today on the show, whole life insurance.

00:00:55.680 | Welcome to the Radical Personal Finance Podcast. My name is Joshua Sheets. This is episode 199.

00:01:01.680 | We finally get the whole life insurance. We're digging our way through the concepts of insurance.

00:01:05.680 | We're going to work our way through the five types of life insurance policies.

00:01:08.680 | And today I'm going to explain to you what whole life insurance is, how it works, what the policy options are.

00:01:16.680 | This will help you to be able to understand it as a useful financial tool.

00:01:20.680 | [Music]

00:01:27.680 | Many times the problem with people who enter in and start talking about insurance and start talking about different merits and the demerits of different courses of action is you don't fully understand – many people don't fully understand the nature of what it is that you're describing.

00:01:42.680 | And whole life insurance is kind of a complex beast.

00:01:45.680 | There are a lot of moving parts. Insurance is impenetrable for many people.

00:01:50.680 | And when you add in all of these ideas and these concepts that people aren't used to talking about – I'm going to talk about the non-forfeiture options and ordinary life and all of these different words – it can be a little bit intimidating to start to dig into this.

00:02:05.680 | But I'm not intimidated by it and so therefore you shouldn't be.

00:02:08.680 | And I'm going to explain it in plain language and lay this out.

00:02:12.680 | And so what we've been doing is proceeding in an orderly way across the spectrum of insurance.

00:02:18.680 | We started with what's the value of life insurance? Why should you have it? What are some of the uses? How do you figure out how much?

00:02:24.680 | Now we're working our way through the concept of different types of policies.

00:02:29.680 | Once we get through – and life insurance is a huge subject.

00:02:34.680 | Think about it this way just for me as a point of recognition.

00:02:37.680 | I hold a designation called a chartered life underwriter.

00:02:41.680 | This is equivalent in many ways to a master's degree.

00:02:45.680 | I think it was eight, nine classes. Nine or 11 classes.

00:02:48.680 | Anyway, a bunch of classes, all of which have their own textbook and all of which are basically associated with some aspect of life insurance.

00:02:56.680 | So it might seem exhausting to you, the idea that it's taking Joshua 10 or 15 shows to work through this.

00:03:03.680 | But trust me, I'm giving you the briefest, most cursory of overviews of the subject and digging on exactly the topics that are applicable to consumers.

00:03:13.680 | Now you don't actually need 15 topics.

00:03:16.680 | You can usually – 15 shows.

00:03:19.680 | You can usually get probably what you need from a little bit less.

00:03:22.680 | But for those of you who've always wondered what is going on with these crazy debates and why do I see so many people that are so opinionated on every side of the issue?

00:03:31.680 | And if you were like me where I spent a lot of time wondering why, this is designed to help you.

00:03:36.680 | Radical personal finance does not appeal to people who are surface level interested.

00:03:42.680 | Rather it's – and it's not also – it doesn't appeal to those of you who are financial planners who are pretty hardcore interested.

00:03:47.680 | I'm working in that middle segment and that's what this show is intended to do.

00:03:51.680 | So today's show is going to lay out for you how whole life insurance products work.

00:03:56.680 | We're not going to touch at all on the comparison of whole life insurance versus term.

00:04:02.680 | Specifically we're not going to do that because whole life insurance – one way of describing a whole life insurance policy is that it's level term life insurance until age 100.

00:04:11.680 | That's basically what it is.

00:04:13.680 | And so we'll describe that.

00:04:15.680 | But I'm going to primarily describe the features of it.

00:04:18.680 | And then you'll be able to look at your own plan and in the same way that every different type of financial tool has different pros and different cons, every college degree has different benefits, whether or not you invest in a hotel or the frozen yogurt franchise next door to you or in your buddy who's starting a boat repair business or you start flipping cars or you start buying diamonds or you invest in gold coins or you buy life insurance policies or you're flipping viaticals.

00:04:47.680 | Or you're buying and selling viatical payments or anything.

00:04:51.680 | These all have different unique attributes.

00:04:54.680 | So that's what we're focused on today is describing the attributes.

00:04:58.680 | I think this will be a good entry place for you.

00:05:01.680 | Once we get through whole life insurance, universal life insurance, and we'll touch briefly on endowment contracts, then I'll lay out for you the whole debate about whole life insurance and describe to you how you can structure a policy if you're structuring it based upon cash accumulation, which is what usually the sales pitch is that most people are focusing on.

00:05:18.680 | I want to buy this so I get tax-deferred growth on cash values.

00:05:21.680 | I'll teach you how to structure the policy for that.

00:05:23.680 | Or if you're using it and structuring the policy for death benefit, then I'll teach you how to structure the policy most advantageously for that.

00:05:31.680 | But you need to understand the fundamental constraints of the contracts and so that's where we are today talking about whole life insurance.

00:05:38.680 | The fundamental difference between whole life insurance and term life insurance, which we recently covered, is that whole life insurance makes sure that there's a payment when death happens regardless of when that is.

00:05:54.680 | The meaning of whole life insurance is specifically and most importantly the concept that the insurance is in force for your whole life.

00:06:08.680 | This does not refer to how long you're going to be paying premiums for the contract.

00:06:14.680 | It does refer to how long the contract is going to be in force and this is the fundamental distinction that you always have to consider.

00:06:24.680 | Term life insurance is always in force for a specific term, an amount of time that is established at the inception of the policy.

00:06:35.680 | It will not continue beyond that amount of time.

00:06:39.680 | If you die during that amount of time, the contract will pay.

00:06:44.680 | If you live, the insurance company will keep the premiums.

00:06:48.680 | Whole life insurance, however, is in force for your whole life.

00:06:54.680 | So whenever you die, as long as the contract's in force and you pay the premiums, whenever you die, the policy will pay out.

00:07:04.680 | This is incredibly important because it is the fundamental defining characteristics of insurance policies and yet most people forget about it.

00:07:14.680 | If you need a policy that's a contingency policy for a temporary need, a temporary contingency, you buy term insurance.

00:07:24.680 | If you need a policy that's a certainty policy, I want this policy in force when I die, you buy a whole life insurance policy.

00:07:32.680 | That's what you need to know.

00:07:35.680 | Now, there are other situations in which, as I talked about in the term life insurance show, maybe you are not sure.

00:07:43.680 | Well, in that case, you're still buying a contingency policy, a term policy, but you're buying yourself the additional contingency, maybe something with a conversion period, where you can switch to whole life insurance.

00:07:54.680 | Or maybe you don't have the money yet or maybe you're not sure.

00:07:57.680 | But the key fundamental distinction is if you die versus when you die.

00:08:06.680 | This distinction can be exploited as an advantage either way.

00:08:10.680 | That's up to you.

00:08:12.680 | It's just if versus when.

00:08:14.680 | Now, as far as dividing whole life insurance up, we can make two broad categories, and these categories are not based upon how long the insurance contract is in force, but rather these categories are based upon how long you pay premiums.

00:08:30.680 | Category one in the insurance marketplace is referred to as ordinary life insurance.

00:08:37.680 | This is not a consumer-friendly term, so most of you will not see it, although if some of you own whole life insurance contracts, if you read them and you look at the name of the policy that will be written on the cover or on the front page, many of you will actually see this because historically the policies have been called that.

00:08:54.680 | Today, they're fancier names for them, but historically many of them are called ordinary life insurance.

00:08:59.680 | So the first category is ordinary life insurance.

00:09:02.680 | The second category is limited payment life insurance contracts.

00:09:07.680 | So ordinary life insurance and limited payment.

00:09:09.680 | The key concept here is that an ordinary life insurance policy is calculated based upon the idea of the premiums being paid until death.

00:09:20.680 | This is the fundamental assumption of an ordinary life insurance policy.

00:09:26.680 | The policy will continue until death and the premiums will continue until death.

00:09:32.680 | This doesn't necessarily mean that you'll have to pay the premiums until death, which is what I'll cover in just a moment, but it does mean the premiums are calculated as though you're going to pay the premiums until death.

00:09:45.680 | This is in contrast to the limited payment policies where from the inception of the policy, the premiums are calculated on a different basis.

00:09:55.680 | They're calculated on a shorter time period of paying premiums.

00:09:59.680 | It should thereby be intuitive to you that the premium payments for a limited payment policy will be higher than the premium payments for an ordinary life insurance policy.

00:10:12.680 | In the same way that you buy a house, you get a mortgage, if you stretch those payments over 30 years, those payments are lower than if you stretch them over 15 years.

00:10:21.680 | That's the same example that's applicable to life insurance.

00:10:24.680 | If you are 30 years old and you're buying a policy and you expect it to last until age 100, your payments over 70 years for that policy are going to be less than – excuse me, your annual payments on an annual basis are going to be less than if you're paying that policy over the course of 30 years.

00:10:41.680 | So if you need a whole life insurance policy that's going to be enforced for your entire lifetime, the lowest annual payment will always be an ordinary life insurance contract because the payments are stretched over the maximum amount of time.

00:10:57.680 | Like I said in the intro, one way that you could describe a whole life insurance policy, an ordinary whole life insurance policy would be as a level premium term life insurance policy to age 100 because that's essentially what it is.

00:11:12.680 | You have a policy. It's enforced until age 100 and your premiums are level and it's going to pay out when you die, anytime between now and age 100.

00:11:20.680 | This is an incredibly valuable feature of life insurance.

00:11:24.680 | Most people will want or need to have some amount of insurance enforced for their entire lifetime and the best bang for the buck when comparing annual premiums to permanent insurance will always be in terms of ordinary life insurance policies.

00:11:43.680 | Most people will not need millions and millions and millions of dollars worth of insurance enforced until death.

00:11:49.680 | I have much larger financial responsibilities upon me at this phase of my life than I anticipate having at – when I'm 85 years old.

00:11:58.680 | But most people will want or need to have some amount of life insurance enforced for their whole life.

00:12:04.680 | If they do, you'll want – or if you do, you'll want to consider having a whole life insurance policy.

00:12:10.680 | One thing while talking about the cost of premiums that you do need to be aware of is that all life insurance policies are actually calculated based upon – all whole life insurance policies are calculated based upon the numbers from ordinary life insurance policies.

00:12:24.680 | From the perspective of the insurance company, they're working from a table that says here is the statistical probability of a person matching these characteristics dying at any specific age.

00:12:36.680 | Whether or not you are choosing an ordinary life insurance policy or a limited payment life insurance policy, the policy internally is going to have the same expenses.

00:12:47.680 | But there is going to be an adjustment in the premium based upon the discounted premiums if you're paying it up front versus going over time.

00:12:55.680 | But internally, the insurance company is working from the same table.

00:12:58.680 | So they have to provide some additional benefits to get you to be interested in choosing a limited payment life insurance policy.

00:13:05.680 | With a whole life insurance policy, you have something called cash values.

00:13:11.680 | In the insurance lingo, they'll also refer to this as the accumulation element.

00:13:15.680 | But most people think of them as cash values.

00:13:17.680 | What cash values are is the reserve of the policy that in the fullness of time will be enough to pay the policy death benefit.

00:13:28.680 | These cash values are the reserves that the insurance company is setting aside to pay the death benefit.

00:13:36.680 | And they're calculated based upon an aggregate pooling of policies.

00:13:41.680 | That's why they can afford at – let's say that you buy a policy and you die at – you have a $100,000 policy.

00:13:48.680 | At the age of 60, you have say $40,000 of cash values and you die.

00:13:52.680 | Well, the insurance company is paying out the $100,000 and they're taking the $40,000 that were saved in the reserves of your policy.

00:14:00.680 | They're also taking the interest that has been accumulated in their general account and they're taking the reserves from other policies to pay out the money.

00:14:08.680 | And when you put together the risk pool in aggregate, that's how they're able to make up the difference, to pay you the $100,000 check when you die, even though you don't have more than the – whatever I said, $30,000 or $40,000 in your policy.

00:14:21.680 | But your policy is calculated so that at the age of maturity, traditionally age 100 used to be age 95, sometimes age 96, now sometimes age of 120.

00:14:31.680 | But at the age of maturity, your cash values are calculated to equal your death benefit.

00:14:38.680 | And so as you get older and as the statistical likelihood of your dying in any given year increases, the insurance company has a higher and higher amount of reserves set aside to pay the claim when you die.

00:14:52.680 | That's how level premium life insurance works.

00:14:55.680 | However, the benefit to you is you additionally have access to those policies – excuse me, to those cash values.

00:15:04.680 | You have a few options of getting it out after you cancel the policy or you have options to be able to get the policy out while you keep it in force.

00:15:15.680 | Let's start there.

00:15:16.680 | The first way that you do that is with what's called a policy loan.

00:15:20.680 | There may be various reasons and various times at which you would like to have access to the cash values in your life insurance policy without actually surrendering the policy.

00:15:31.680 | You may have a temporary need for the money.

00:15:34.680 | In this case, that's accomplished with taking a policy loan.

00:15:38.680 | This has happened to me at different times.

00:15:40.680 | I actually used the cash values from one of my whole life insurance policies to buy my wife's engagement ring.

00:15:48.680 | I needed the money. I didn't have all of it saved and I took it out from the life insurance policy to pay for my wife's engagement ring.

00:15:54.680 | That was one of the ways that I used my cash values in one of my life insurance policies in the past.

00:16:00.680 | The key factor of this loan is that you're able to take the money from the cash value without surrendering the policy.

00:16:10.680 | One of the big reasons why you can – or why that might be important is you still want to have the insurance.

00:16:17.680 | You want to be able to pay back the money in the future and you want to make sure that you don't have to apply for a new policy in the future.

00:16:24.680 | One good general rule to keep in mind with life insurance policies is this.

00:16:29.680 | The older the policy, the more carefully you treat it.

00:16:33.680 | Life insurance policies have a lot of costs and a lot of expenses that are associated with them and the majority of those expenses are upfront expenses.

00:16:40.680 | In the same way that when you buy a house, you have a lot of expenses upfront, you go and you have realtor's commissions and you have mortgage inception costs and you have inspection fees and all this stuff.

00:16:52.680 | You have a lot of expenses right when you buy the house or in the same way that you buy a car and you have a bunch of expenses upfront, you have all the tax.

00:16:59.680 | You have the tag fees. You have the title fees.

00:17:01.680 | You may face a bunch of depreciation upfront.

00:17:04.680 | In the same way, life insurance has a lot of expenses upfront.

00:17:08.680 | So you don't want to get into a situation where you're constantly getting another life insurance policy and then surrendering that one and getting another one and surrendering that one and getting another one because upfront in a life insurance policy, the agent gets paid a commission.

00:17:22.680 | That's a hefty portion of the first year's premium.

00:17:25.680 | That percentage ranges depending on companies but often it's anywhere from 50% to 100% of the first year premium depending on the carrier and depending on the stripe of the policy.

00:17:35.680 | So that's a hefty commission that comes out upfront.

00:17:38.680 | That's expenses.

00:17:40.680 | The insurance company goes through expenses for underwriting the policy.

00:17:44.680 | They pay for a medical exam.

00:17:45.680 | They pay for their underwriting fees to actually establish it.

00:17:49.680 | And so generally, whole life insurance contracts are a very bad short-term move.

00:17:53.680 | So you wouldn't want to get into a situation where you get a policy and then three years in, you take the money out and you cancel the policy and then you get another one and then you take the money out and you cancel the policy and then you take another one and you cancel the money, etc.

00:18:04.680 | Bad move.

00:18:05.680 | So you can have access to the money through the form of a loan.

00:18:07.680 | Now, a loan is not without cost.

00:18:09.680 | All policy loans will incur an interest expense in the same way that when you go and you buy money from a bank, which is what you do with getting a loan from a bank, and you're going to pay for that money with interest, same thing happens with your life insurance policy.

00:18:25.680 | So you can request a policy loan from the life insurance company.

00:18:29.680 | You can do that and the policy – the insurance company will give you the money confidentially.

00:18:35.680 | It's not disclosed to anybody.

00:18:37.680 | They'll send you the check and you can have the funds wired into your account.

00:18:40.680 | They'll send you a check.

00:18:41.680 | They'll overnight it to you.

00:18:42.680 | They'll send you a portion of the cash values and give you immediate access without having to terminate the policy.

00:18:48.680 | It's generally a pretty simple process.

00:18:51.680 | For most policies in most companies, basically up to about 90 percent of the existing cash values can be available in the form of a loan.

00:19:01.680 | So I think of this sometimes as things like bail money.

00:19:04.680 | Let's say that I need – I have $100,000 in a life insurance policy and all of a sudden my kid does something and I got to bail him out of prison.

00:19:13.680 | Well, I need $30,000.

00:19:15.680 | Well, I can go ahead and I can call up the insurance company and for many of them, within 24 hours, I'll have $30,000 of cash sitting in my checking account and I can use that for bail money.

00:19:29.680 | That's a really valuable feature.

00:19:31.680 | It may or may not be the best source of cash for a long-term basis but it might be a valuable source of cash on a short-term basis.

00:19:39.680 | I've seen clients do this when negotiating house purchases.

00:19:42.680 | I used to handle policy loans for clients and sometimes it's like, "OK, I'm selling the old house and we're buying the new house but we got mixed up here where we've got two houses at the same time and I just need $30,000 to finish this other deal over here and get this taken care of and I wiped out my checking account.

00:19:57.680 | Joshua, send me $30,000." Done.

00:19:59.680 | The transaction closes.

00:20:01.680 | They put the money back in the policy and everything is restored.

00:20:05.680 | When that happens, the life insurance company will take a portion of that money – excuse me, they will charge an interest rate on that money.

00:20:15.680 | Depending on the company, often it's an 8% interest rate.

00:20:18.680 | That's a normal rate or it's an 8% fixed interest rate or it may be a variable rate.

00:20:23.680 | If it's a variable rate, that will usually be tied to an index of some type.

00:20:28.680 | Depending on where we are in an interest rate environment, that will depend on whether it's a good idea to take it out at the 8% rate or whether it's a good idea to take it out at a lower rate.

00:20:37.680 | Past few years, interest rates have been relatively low.

00:20:40.680 | So in general, there have been other sources of money for most people that are cheaper than taking the money out of the life insurance policy.

00:20:47.680 | You can go to a bank and if you can get a 30-year mortgage at 3% fixed, that's going to be a cheaper source of funds for you than a life insurance policy.

00:20:54.680 | And most people, if they had a loan on their insurance policy, those rates were down in the 4%-ish, 4% or 5%.

00:21:01.680 | That was cheaper than the 8%.

00:21:03.680 | I keep all of my policies at the fixed 8% interest rate so that I have the option if in the future interest rates rise.

00:21:11.680 | There are times, at least have been historically, I don't expect them in the next few years, but historically there have been times where 8% is a pretty cheap rate of interest.

00:21:21.680 | Those policy loans charge interest and as the borrower, you're the policy owner, as the borrower in this case, you have a couple of options that you can do with those policy loans.

00:21:33.680 | You can choose to pay for the interest expense in cash.

00:21:38.680 | You can send a check. The insurance company will send you a bill for the interest expense on the money and you can send in a cash payment.

00:21:45.680 | Or they can simply apply the interest cost to the balance of the loan.

00:21:52.680 | You can choose to make a payment or not make a payment.

00:21:56.680 | When you take a policy loan out of an insurance policy, there is no repayment schedule and there is no repayment required.

00:22:04.680 | Remember, they have collateral. They have the life insurance policy and that's why there's no repayment schedule and no repayment required is because there are reserves at the company.

00:22:14.680 | So you're not required to pay the interest to repay the policy loan in cash.

00:22:18.680 | It's at your discretion as the policy owner as to when you pay the money and how much you pay.

00:22:24.680 | Now, if you don't pay the loan interest in cash, then the life insurance company will take it from the balance of the loan – excuse me, from the death benefits if you die.

00:22:34.680 | So if you die and let's say that you had $100,000 life insurance policy, it had $40,000 of cash value in it, but you had $20,000 out as a loan that you had taken and bailed your son out of jail.

00:22:46.680 | If you die, they will recover the balance of the loan plus the interest from the amount of your death benefit.

00:22:52.680 | So they'll send – instead of sending $100,000, they'll take out $20,000 plus the interest cost.

00:22:58.680 | Let's just say it's accrued to be $4,000.

00:23:00.680 | They take out $24,000 and your family will receive the $76,000.

00:23:05.680 | Or if you don't die, they will recover it and you don't pay the loan back.

00:23:11.680 | They'll recover the loan balance from the cash surrender value if and when the policy is terminated.

00:23:17.680 | And in fact, the policy will automatically terminate if the policy loan balance plus the unpaid interest ever exceeds the policy's cash value.

00:23:27.680 | There is one additional feature that's associated with permanent life insurance policies that has to do with loans, and that's called an automatic premium loan.

00:23:35.680 | In this case, if you are on vacation and you forget to pay your life insurance premium payment, if the life insurance policy has cash values that are in excess of the premiums,

00:23:48.680 | the insurance company will automatically assume that you wanted to keep the policy in force and they'll take the money from the cash values to make your premium payments.

00:23:55.680 | That's called an automatic premium loan.

00:23:57.680 | And that will keep the policy in force as long as there's adequate cash value to cover the delinquent premiums that you're not paying.

00:24:04.680 | But it will terminate if or when the cash value is exhausted.

00:24:08.680 | So that is one feature that you should know about as an automatic premium loan.

00:24:12.680 | Most insurance companies and most policies will automatically include that, but you can exclude it if you needed to.

00:24:18.680 | I don't know why you ever would because if you are ever in a situation where you don't want the life insurance policy,

00:24:24.680 | you should immediately cancel it and go through one of the other options rather than letting it – what we call APL, do an automatic premium loan.

00:24:32.680 | Life insurance loans are not free and they do result in negative consequences in the benefits of the policy.

00:24:42.680 | They'll either reduce the amount that's credited to the cash value of the policy or they'll reduce maybe the dividends and they'll reduce the death benefit based upon the amount of the policy loans.

00:24:53.680 | So they're not without cost.

00:24:56.680 | The way that a policy loan is actually viewed is as an advance payment of the death benefit.

00:25:05.680 | That's what a policy loan actually is.

00:25:08.680 | If you have a $100,000 policy and you take a $10,000 policy loan, what's actually happening is the insurance company is sending you an advance death payment.

00:25:17.680 | So that's why the amount of money is recovered after your death.

00:25:21.680 | That's also incidentally why when we get to the topic of taxation, that's the reason why you can take loans against a policy without paying any current income taxes on the loan value.

00:25:34.680 | So when you get into the taxation of life insurance policy, which is usually where the smoke and mirrors and the magic happens during the life insurance presentation.

00:25:42.680 | Look, it's tax-deferred and you get the money tax-free.

00:25:44.680 | You're getting it tax-free if you cut it out in the form of a loan because of the fact that you're receiving an advance of the death benefit.

00:25:54.680 | Under US income tax law, life insurance policy death benefit proceeds are received income tax-free by the beneficiary.

00:26:05.680 | Always, regardless of amount, the benefit is received income tax-free by the beneficiary.

00:26:14.680 | If you wonder why I'm being so specific with my words, it's because there's some very important meaning to those words.

00:26:20.680 | The reason I'm saying the death benefit is received income tax-free by the beneficiary is because that is what is true.

00:26:29.680 | That does not necessarily mean that the value of the policy will not be taxed.

00:26:34.680 | For example, the value of any insurance policies that are owned are included in the owner's estate for the purposes of estate tax calculation.

00:26:46.680 | So if I own $10 million of life insurance policies and I die, my estate is credited with having $10 million of assets and that will go into my estate tax calculation.

00:27:04.680 | However, the beneficiary of those policies will receive the $10 million income tax-free.

00:27:08.680 | That's why we get into the world of owning policies and trusts, negotiating who should own the policy, which is something we'll talk about in detail, figuring that out.

00:27:18.680 | What's the name on the policy? Who should actually own it? How should it be owned?

00:27:21.680 | With life insurance policy, the ownership of the policy is very, very important from a tax perspective.

00:27:26.680 | But in this regard, talking about loans, policy loans, as the owner, you can go ahead and take out the loan and there's no tax reporting done at all.

00:27:35.680 | This can be a very useful feature with regard to privacy.

00:27:39.680 | If I have $100,000 in a savings account, I trot down to the bank and I say, "Give me $30,000," that's clearly on the record.

00:27:49.680 | Now, life insurance policy, it's also on the record, but it's not the normal banking channels, which is why life insurance agents have to go through all kinds of anti-money laundering training and whatnot.

00:27:58.680 | They're supposed to spot the drug dealers that are using life insurance policies to launder their money.

00:28:02.680 | You can't get anywhere away from the capital controls or the framework of capital controls that exists in our country.

00:28:10.680 | We don't actually have capital controls at the moment, but we have a framework for them.

00:28:13.680 | And so – and the key is you're still going to have – you're still going to get a check, so you got to deposit it into the bank systems.

00:28:21.680 | The money is going to go in the banking system. I'm not trying to say you're going to get $100 bills from the insurance company.

00:28:25.680 | But my point is you don't have to go in and give anyone a reason to request a loan.

00:28:29.680 | It's the money and you can just simply take it and use it for whatever you want.

00:28:33.680 | So what actually happens with these interest payments and why are they being charged?

00:28:37.680 | Well, think about it from two perspectives.

00:28:40.680 | First, what's happening on the life insurance company's side if you're running the life insurance company?

00:28:45.680 | Well, if you have a policy and the owner takes a loan against the policy, that's resulting in your sending money out.

00:28:55.680 | You're the life insurance company. You're sending out money to the client that you would otherwise be investing and earning investment income on.

00:29:06.680 | If the rate of the investment return on your portfolio is higher than the rate of interest that is being applied to the policy loan, then you are losing money as the insurance company.

00:29:20.680 | This is a problem as an insurance company because you need to make sure that you're treating all of your policy owners equitably.

00:29:28.680 | And even though the policy owner is paying an interest payment in on the policy, if that's less than what you could be earning, you have a problem.

00:29:36.680 | So usually what happens is the insurance company has in place some kind of system to offset those loan-induced losses so that they can maintain a comparable equity between policy owners who keep their cash values invested and those who take them out and thus keep the insurance company from being able to invest for the higher yield.

00:30:01.680 | It was not and still is not always thus. In traditional participating whole life insurance policies, the dividends were not affected by policy loans.

00:30:15.680 | But today, most participating whole life policies use a system of what is called direct recognition to reduce the dividends on policies with outstanding loans.

00:30:27.680 | This helps to adjust for the difference of the earnings, the investment earnings by the policy, and it helps to discourage policy loans.

00:30:36.680 | Because as a life insurance policy owner, it's actually in your best interest to discourage policy loans on behalf of the insurance company.

00:30:45.680 | Because you want the insurance company to be fully investing all of your money and earning the highest possible rate of return on it.

00:30:52.680 | You don't want all of the money out of the company in the form of policy loans.

00:30:56.680 | So there's a delicate tension here. If this is going over your head, ignore it.

00:31:01.680 | This is a big deal from specifics, but it's very, very dry to look through as far as direct recognition versus not and participating policies versus not.

00:31:09.680 | Just making the point that you've got to look at it from both perspectives.

00:31:13.680 | Now, not all policies are participating policies, so there are universal life insurance policies.

00:31:20.680 | Those run a little bit differently. In those cases, there's no dividends to adjust, so the insurers will compensate for the lost earnings on the money that's out on loan by reducing the earnings rate that's credited directly to the cash value.

00:31:33.680 | So they'll adjust the crediting rate on the cash value.

00:31:36.680 | But the point is that policy loans, they're not free. They're not free to you. You are paying an interest.

00:31:41.680 | And that interest payment is going into the company. They also affect the performance of the company.

00:31:47.680 | They are a useful feature, however, and they can be effectively managed and they can be a relatively low-cost form of payment.

00:31:56.680 | This is very specific as to policy design.

00:32:00.680 | This is one of those where you've got to look at an actual policy, but this can make a big difference in understanding what's actually happening on a policy.

00:32:10.680 | If you are still receiving a dividend rate on your loan funds, your net cost of interest can be relatively low.

00:32:18.680 | But you've got to be careful because there's a lot of difference among different companies.

00:32:23.680 | Loans are a useful tool. They're not a magic wand.

00:32:28.680 | You shouldn't go into a life insurance policy with the idea and the concept being, "I'm going to build up some cash values and then I'm going to perpetually loan the money out of the policy."

00:32:39.680 | That does not work because the interest accrues over time. The interest payments get larger and larger, and eventually the policy implodes.

00:32:48.680 | Many types of these policies are sold with that being the perspective.

00:32:53.680 | And there have been times in reviewing a policy, a mature policy that has a lot of money, where the client can take out a long-term loan.

00:33:01.680 | The tax arbitrage opportunity of that, having access to the money in the form of a loan without paying current income taxes, can be very helpful, but it's not a magic bullet.

00:33:13.680 | Don't go into your insurance policy with the concept of saying, "I'm going to buy this thing with a long-term series of loans and I'm just going to have this thing loaned out forever."

00:33:24.680 | It does not work.

00:33:27.680 | But if you have an insurance policy, you want to carefully consider using loans as a component of how you benefit from that policy while you're alive.

00:33:41.680 | It has two major roles in my opinion.

00:33:44.680 | Number one, if you're young and if you're accumulating money, you can use this from time to time if you need short-term uses of the money.

00:33:52.680 | Example was with my wife's engagement ring. I had a short-term need for the money. I took it out. I can pay it back in in a relatively short period of time.

00:34:00.680 | The other side is if you are older and you have a policy that's mature and you want a system of payments out of it, you want to carefully look at using the loan payments.

00:34:11.680 | And you want to carefully consider if there's an arbitrage opportunity from the tax perspective.

00:34:18.680 | It's very hard for me to describe exactly how to do it, but for those of you who are tuned into the tax, consider this.

00:34:25.680 | Pretend for a moment that you have, say, a very healthy policy. You have a half a million dollars of cash values in this policy.

00:34:33.680 | This policy is paying dividends that are far in excess of the premium payments, which we'll get to in a moment.

00:34:38.680 | And now you have the ability where you have some sources of income that are taxed and taxable.

00:34:45.680 | You have some sources of income that are tax-free, and you're helping to put together an ideal plan for that.

00:34:54.680 | Well, if in this situation, if you have it as an asset, then you would intelligently pull it in and say, "Well, I'm going to have a certain amount of Social Security payments, certain amount of IRA distributions up to this amount.

00:35:04.680 | I'll go ahead and take some of the money out from the Roth IRA because that's tax-free, and I'll go ahead and make up from time to time a little bit of money here from the life insurance policy."

00:35:12.680 | And if the costs associated with taking it from the life insurance policy are low enough, that can be a compelling situation to face.

00:35:22.680 | So hopefully this is enough of an intro to say I think this is probably the most abused thing in the sloppy sales pitches that are often delivered on life insurance.

00:35:34.680 | But there is a technical truth here as to how the loan system works.

00:35:38.680 | Just recognize what it is. It's not magic. Loans are in advance of the death benefit. They're not magic.

00:35:46.680 | They have costs associated with them. There's an interest cost, but the amount of money is still receiving a crediting rate from the insurance company based upon the dividends.

00:35:56.680 | And you need to look at the actual policy to understand how that system works.

00:35:59.680 | Let's talk about what we call the non-forfeiture or the surrender options, all this fun insurance lingo.

00:36:05.680 | When you look at what the non-forfeiture options are – oh, sorry. One more thing on loans I need to mention before we go on.

00:36:16.680 | The state laws that govern life insurance companies permit the life insurance company to delay lending funds for up to six months after it is requested.

00:36:28.680 | This is put in place as a system of protection in case there is essentially a run on the life insurance companies.

00:36:35.680 | So it's a form of protection where if the policy owners say we want our money, we want our money, we want a bunch of loans, and that gets so fast to the point where the insurer is forced to liquidate other assets at high losses to satisfy those demands, they can defer that for up to six months.

00:36:52.680 | It's important to be aware of that.

00:36:54.680 | In practice, this doesn't generally happen because to do so, to delay giving funds, would be a sign that there's a major financial weakness in the portfolio of the company and the insurance company wishes to avoid that problem.

00:37:11.680 | So even when companies have been failing in the past – there have been a number of companies that have failed – most of them have not used that right to delay those loan disbursements.

00:37:22.680 | It did happen at time after the insurance commissioner seized control of the company and some of those companies.

00:37:28.680 | But it has happened. It does have historical precedence.

00:37:31.680 | So you need to be aware of that.

00:37:33.680 | So if you're constructing worst-case scenarios and you're saying, well, this one, I always have access to the money.

00:37:38.680 | Practically speaking, that is true.

00:37:40.680 | In most companies, you can have the money in 24 to 48 hours.

00:37:43.680 | It's relatively simple to get the money.

00:37:46.680 | But in a worst-case scenario, it may not be.

00:37:50.680 | You've got to always remember this with any type of investment or any type of financial transaction.

00:37:56.680 | There are two competing interests.

00:37:58.680 | There are your interests as the investor and then there's the portfolio manager's interest as the portfolio manager.

00:38:05.680 | So if you look at something like hedge funds, hedge funds often will limit your rights of withdrawal to certain periods of time and after a certain amount of time.

00:38:14.680 | This is what gives the portfolio manager the opportunity to know they can go ahead and make an investment based upon their time horizon.

00:38:21.680 | They need to be aware of how to manage their cash because they have a bunch of people pulling out cash and they've got to sell investments at a loss.

00:38:29.680 | They're in the same situation that you are in your life as when you are saying, well, I bought this house and it was a good deal.

00:38:36.680 | But I really need the cash to go and buy this car, so I'm going to sell the house for a loss.

00:38:40.680 | You try to avoid that.

00:38:41.680 | And so you need to be aware that that law exists, that the insurance company has the legal right to delay by up to six months.

00:38:49.680 | But it's usually not put into practice and planned accordingly.

00:38:53.680 | Now let's go on to non-forfeiture options.

00:38:56.680 | When you have cash values, you have an asset.

00:39:01.680 | And originally when the life insurance industry was developing, the supervisors of the industry wanted to preserve the rights of the policy owner.

00:39:14.680 | They wanted to reserve the equity that the policy owner had in that policy reserve.

00:39:19.680 | Think about this.

00:39:21.680 | If you had, say, a $100,000 life insurance policy and you've got $30,000 of cash values and then you cancel the policy, what if the insurance company keeps your money?

00:39:29.680 | Well, that would make you pretty upset.

00:39:32.680 | So these non-forfeiture options are mandated options that must be observed by the insurance company.

00:39:41.680 | And it gives various ways to make sure that the surrender value may be taken out of the money.

00:39:47.680 | And there are three of them.

00:39:51.680 | These three options are specifically for accessing the cash values of a policy.

00:39:57.680 | They are not for accessing the death benefit.

00:40:00.680 | That's a different set of options.

00:40:02.680 | Today we're just talking about cash values.

00:40:05.680 | But there are three of them, non-forfeiture or surrender options.

00:40:08.680 | When you surrender the policy, you can surrender the policy by law at any time in exchange for its cash value.

00:40:16.680 | If you say, "I want the policy," the insurance company will send you whatever the current stated cash value of the policy is.

00:40:23.680 | That terminates their obligation and they have no duty or responsibility to provide any further service to you.

00:40:30.680 | That can be useful if you need cash.

00:40:35.680 | I cashed out the same policy that I used for the engagement ring.

00:40:42.680 | I actually later cashed out that policy and canceled the contract.

00:40:46.680 | I had funded the policy heavily for a period of time.

00:40:48.680 | I had an investment opportunity that I believed would be a better use of the money than the contract.

00:40:52.680 | I hadn't perceived the investment opportunity.

00:40:54.680 | I canceled the policy.

00:40:56.680 | I took the cash value and I made the other investment.

00:40:59.680 | So that can be useful and you should always have that as an opportunity and as an option.

00:41:06.680 | I don't think any investment of any kind should be sacrosanct with the idea being, "Well, I'm never going to sell this one."

00:41:14.680 | Everything is for sale in my life.

00:41:17.680 | Well, not everything.

00:41:18.680 | Most financial things in my life are for sale.

00:41:21.680 | It's just a matter of at what price.

00:41:24.680 | There needs to be a compelling reason why you would get rid of a good investment for a better investment.

00:41:31.680 | But you should always remember that you can always take out the cash value of a whole life insurance contract and you can cancel the contract.

00:41:39.680 | What's the problem with doing that, however?

00:41:42.680 | Well, if you do that, you don't have the life insurance anymore.

00:41:45.680 | If you needed life insurance to protect your family in case you died, you got a problem.

00:41:51.680 | Generally, you're not able to reinstate the policy without special consideration by the insurance company.

00:41:59.680 | That special consideration will involve a medical exam.

00:42:03.680 | So don't cancel a life insurance policy without knowing what your plan is for replacing the amount of insurance.

00:42:15.680 | If your term life insurance policy has conversion privileges, you can at almost any time convert from term insurance to permanent insurance without any medical problems.

00:42:25.680 | But you can never convert from permanent insurance to term insurance without proving medical insurability and buying a new policy.

00:42:35.680 | You can never do that.

00:42:37.680 | Here's why so it will make sense to you.

00:42:39.680 | If you bought a whole life insurance policy 10 years ago and you've been paying, say, $5,000 a year for this policy, then all of a sudden you find out you've got terminal cancer.

00:42:48.680 | And you sit down and you look, "Wait a second. Term insurance isn't $5,000 a year. It's $500 a year."

00:42:53.680 | Well, let me just go ahead and convert from this $5,000 policy to the $500 policy.

00:42:58.680 | That would be very much in your best interest as the policy owner.

00:43:03.680 | That would be very much against the policy – the life insurance company's best interest as the policy issuer.

00:43:10.680 | But at any point in time, you can take the policy for the cash surrender value.

00:43:13.680 | Be careful because you're not going to get that policy back.

00:43:16.680 | And that's why we have the loan feature.

00:43:18.680 | And oftentimes, the loan feature of a policy can be the best source of funds.

00:43:21.680 | Because if you get to the point and you said, "Well, I bought the policy at 20 years old and now I'm 35 and I'm going to cash the policy out."

00:43:28.680 | Yeah, but if you go back and you apply for a policy at 38, now you've got to pay premiums at a 38-year-old rate instead of the 20-year-old rate.

00:43:35.680 | And that makes a big difference in the numbers of how life insurance policies work.

00:43:40.680 | The younger, the better.

00:43:43.680 | The other problem with the cash values is taking them as cash values.

00:43:47.680 | There will be tax results of it.

00:43:49.680 | And the way that that works when you cancel a policy and you take a distribution of the cash values, your amount of money that you've returned up to the amount of – the amount of money that comes to you up to the premiums that you've put into the policy is called your return of basis.

00:44:04.680 | And that money, as with every other investment, will be returned to – every other capital gains investment will be returned to you free of income tax.

00:44:12.680 | So if you've paid say $20,000 – you're going to take a $30,000 distribution from the policy.

00:44:17.680 | You're going to cancel the policy fully.

00:44:19.680 | Nothing else is enforced.

00:44:20.680 | Total premiums that you've paid account to $20,000.

00:44:23.680 | The $20,000 will be returned to you as a return of your tax basis, a return of your initial contribution, and there will be no income tax on the money because it's a return of your capital.

00:44:34.680 | The $10,000 will be taxed to you as ordinary income.

00:44:39.680 | So any gain on a life insurance policy that's returned to you in excess of the premiums paid is a return of ordinary income.

00:44:49.680 | Be aware of that.

00:44:52.680 | Next, the next surrender option or non-forfeiture option is called taking a reduced amount of paid up whole life insurance.

00:45:01.680 | So at any point in time, if you decide I don't want to pay for these premiums any longer, then you can just simply take a lower amount of insurance that doesn't have any payments due.

00:45:16.680 | So let's say you have a $100,000 policy.

00:45:19.680 | You realize, you know what?

00:45:21.680 | I don't really want to pay for this thing anymore.

00:45:23.680 | You can call up the insurance company at any time and ask them, "How much paid up life insurance would I have?"

00:45:28.680 | And they may say, "Well, you actually have $60,000 of life insurance here."

00:45:32.680 | You say, "Go ahead. I'll take the policy paid up."

00:45:34.680 | And you no longer pay any more premiums into the policy.

00:45:37.680 | It's now paid up.

00:45:38.680 | No premiums due.

00:45:40.680 | And you have the $60,000 of insurance in force forever.

00:45:44.680 | So that can be very, very useful.

00:45:47.680 | That's one of the most underappreciated ideas and useful features of whole life insurance.

00:45:56.680 | I've used that many times with people.

00:45:59.680 | And this is one of those which – I'll tell you, one of the ones that annoys me like crazy is when people cash out life insurance policies when they don't have an alternative use of the dollar.

00:46:08.680 | So they listen to somebody and says, "Well, you should just cancel your whole life insurance contract because it's a waste of money."

00:46:14.680 | "Okay. What should you do with it?"

00:46:16.680 | "Well, you should take the money and you should put it in your savings account."

00:46:19.680 | "Okay. Well, what's it earning there in the savings account?"

00:46:22.680 | "Well, nothing."

00:46:23.680 | "Wait a second. Why don't I do an actual analysis here?"

00:46:25.680 | And if somebody says, "Okay. I actually want to have the – I actually want to – I don't really have an alternative use of the dollar. I don't have a better investment for it."

00:46:35.680 | Then one of the options you should always be aware of is just take the policy paid up.

00:46:41.680 | All of your cash values will still be intact in the contract.

00:46:44.680 | Some or most of your death benefit will still be intact in the contract.

00:46:49.680 | And if you take the policy paid up, you can always cash it out in the future.

00:46:53.680 | So it's very important that you do it carefully.

00:46:56.680 | Even if you decide I don't want to pay for the policy anymore, don't necessarily run out and cash it out.

00:47:02.680 | When you sit down and calculate how well an insurance policy is doing, you need to take into account the age and the maturity of the policy.

00:47:11.680 | It's a very different thing to cancel a policy that you bought three months ago versus a policy that your dad bought for you when you're three and you're 43 now.

00:47:20.680 | And if there's one – I try to usually be pretty restrained.

00:47:26.680 | But if there's one thing that gets my blood boiling is when people do that and people give horrible financial advice.

00:47:32.680 | Well, just go willy-nilly and cancel your life insurance contracts.

00:47:35.680 | There may be a need. There may be a bad policy.

00:47:38.680 | But there are a lot of policies that are very well seasoned.

00:47:41.680 | And when you sit down and you say, "Okay. Let me understand what's going on in this contract.

00:47:45.680 | How is it actually doing?"

00:47:47.680 | Sometimes a 43-year-old policy that was poorly designed with a bad company is today a good use of the money.

00:47:54.680 | I wouldn't have recommended you bought it new.

00:47:56.680 | But maybe if it was done, it might today be a good use of the money.

00:47:59.680 | Remember that you can always take the policy paid up.

00:48:02.680 | That can be powerful.

00:48:04.680 | All whole life insurance policies can be taken paid up.

00:48:09.680 | Depending on how much money is in them, depending on how much the cash reserves are, et cetera,

00:48:13.680 | those numbers either might be worth doing or might not be worth doing.

00:48:18.680 | Next, the third non-forfeiture or the third surrender option that you have the choice of is to take the policy as what's called paid up term insurance.

00:48:30.680 | What paid up term insurance does is it gives an option where you take the original face amount of the policy.

00:48:36.680 | So let's say it's $100,000.

00:48:39.680 | You add any dividend additions to it or you decrease any indebtedness that's on the policy.

00:48:44.680 | You take the original amount. Let's just say it's $100,000.

00:48:47.680 | You take the cash values and you figure out how many months of term insurance can be bought with this current cash value applied as a single premium payment.

00:49:01.680 | So let's say that you look at it and say, "Well, I've got $10,000 of cash values and I've got a $100,000 policy.

00:49:08.680 | I've got this $10,000 of cash values. This would actually buy me 23 years of term life insurance."

00:49:14.680 | Well, you can take the cash values and you can apply it toward that term life insurance and you'll own the policy and it will be enforced for 23 years with no more premiums due.

00:49:26.680 | If you die in the 23 years, then the insurance company will pay the money and they'll pay for the death benefit.

00:49:35.680 | If you live longer than 23 years, they will have kept all the money.

00:49:39.680 | This can be a tremendous option, tremendous option.

00:49:43.680 | Now, the fact pattern doesn't usually exist in most family situations in that they bought a bunch of whole life insurance and all of a sudden now they need that same amount of term life insurance.

00:49:54.680 | Most people aren't in that situation.

00:49:56.680 | Usually, people that own whole life insurance policies, normal middle class income families, the policies are relatively small.

00:50:02.680 | And so it's not necessarily the biggest deal.

00:50:05.680 | But this can be a very, very useful option.

00:50:09.680 | And this is another one that bugs me when people don't talk about it.

00:50:12.680 | Don't just run down and cash out the policy because you're sick and you need the money and all of a sudden you find out, "Hey, hang on a second.

00:50:19.680 | I can't afford – or I'm not able to get any more insurance."

00:50:22.680 | You can always take the policy as paid up term and run the numbers on it, find the market and go out and calculate how much your options are and what your comparable cost is.

00:50:32.680 | And what you might find is this is the best deal in the world for you on term life insurance.

00:50:37.680 | Or you might find that you can get a better deal on term life insurance.

00:50:41.680 | Run the numbers.

00:50:42.680 | I don't know which is better, but you need to have this in the back of your mind as an option.

00:50:48.680 | If you want to cancel a whole life insurance contract, and that's not necessarily a bad thing, all financial products should have a use and a focus.

00:50:55.680 | And if your need or your use for the contract is over, take it.

00:50:59.680 | As insurance agents, we usually don't want you to, but we recognize that there's a need to spend money.

00:51:04.680 | There's no reason to have money spent over time.

00:51:08.680 | So there's a right balance there.

00:51:10.680 | But remember these non-forfeiture options.

00:51:12.680 | You could take the money out in cash value.

00:51:14.680 | You could take the money out as paid up whole life insurance.

00:51:18.680 | Or you can take the money out as a paid up term life insurance policy.

00:51:21.680 | Now there are a couple of additional options.

00:51:24.680 | One of the things that most policies and most companies will allow you to do is to take the cash values and take them as annuity payments.

00:51:33.680 | So usually this would be for the purpose of something like a retirement annuity.

00:51:38.680 | This may or may not be a good move.

00:51:43.680 | It can work very well, and I love it, as a source of retirement income in terms of you've got a bunch of money here and you want to go ahead and take the money.

00:51:54.680 | You can take an annuity at age 65 and take it for the rest of your life.

00:51:58.680 | The problem is that you still have – when you take that out, you deal with the annuity income taxation where there's what's called an exclusion ratio where a certain amount of the money is returned to you as a return of your basis.

00:52:09.680 | A certain amount of money is returned to you as your interest payments.

00:52:13.680 | And so depending on how it's structured, there's probably a better use of something like a retirement account.

00:52:19.680 | It's probably more efficient.

00:52:21.680 | But this can be a tremendous option, and it can be a tremendous way to really get a lot of value out of a whole life insurance policy.

00:52:28.680 | Depending on annuity rates – and this is where you've got to check and you find out what's the annuity rate that the insurance company will pay me, what's the annuity rate that I can buy with another insurance company.

00:52:37.680 | You just run the numbers and compare the annuity rates.

00:52:39.680 | But it can be a tremendous use of a life insurance policy.

00:52:42.680 | And that's one of the things when you go through a life insurance presentation, an actual presentation, kind of a sales presentation, having this retirement income is a tremendously valuable scenario.

00:52:57.680 | Obviously, this means not using the death payment because you're giving it up and you're using the income out as well.

00:53:07.680 | But it can be a tremendous source of flexibility, and it can be tremendously useful.

00:53:12.680 | If the need for the death benefit has reduced, you can turn the money into an annuity income and a retirement income.

00:53:18.680 | We'll get to annuities as the fifth part of life insurance, the fifth type of life insurance.

00:53:23.680 | But there's a lot of bad press around annuities.

00:53:27.680 | Much of it is well-deserved.

00:53:29.680 | But here's the key that I just want to emphasize whenever you hear the word "annuity."

00:53:32.680 | Don't, like some people say, get scared when you hear the word "annuity."

00:53:36.680 | All the word "annuity" means is a stream of payments for a period of time, either for a fixed period of time or, more commonly, for your entire lifetime.

00:53:46.680 | That's all an annuity means.

00:53:48.680 | So all of us already have a number of annuities.

00:53:51.680 | We all have an annuity called Social Security.

00:53:54.680 | That's an annuity payment.

00:53:57.680 | Many of us will receive annuity payments for the sale of an asset.

00:54:00.680 | You sell a business and you receive a series of payments over 10 years.

00:54:03.680 | That's an annuity payment.

00:54:05.680 | So all annuity means is an annualized or a regular period of payment.

00:54:09.680 | And specifically, the reason it's a type of life insurance payment is because an annuity can be made to last for your entire lifetime.

00:54:16.680 | Social Security is an annuity payment.

00:54:18.680 | There's nothing wrong with annuities.

00:54:21.680 | There are just some really bad annuity products.

00:54:24.680 | So just hopefully that will help you.

00:54:25.680 | Don't do like some people do where they feel intimidated by the word "annuity" and when I say, "Well, you're going to get a period of annuity payments," "Oh, wait a second.

00:54:32.680 | Hold on. There's a problem."

00:54:33.680 | No, it's not.

00:54:34.680 | It's just a period of income payments coming in for your lifetime.

00:54:37.680 | I'm going to collect all the annuity payments I can get.

00:54:39.680 | That's my plan.

00:54:41.680 | Next, some life insurance policies, some whole life insurance policies do have rights of conversion.

00:54:47.680 | This may or may not be written in the contract.

00:54:49.680 | It may or may not be negotiated directly with the insurance company.

00:54:52.680 | But if you want to have an insurance policy and you want to make some kind of changes with it, remember that you can often use this right of conversion.

00:55:02.680 | Generally, this right of conversion will not ever allow you to go from a higher premium insurance policy to a lower premium insurance policy.

00:55:11.680 | So the idea here is that it's not – that puts the insurance company on risk.

00:55:17.680 | Wait a second. You got cancer, so you're trying to go from this $10,000 a year policy to this $2,000 a year policy.

00:55:22.680 | Uh-uh. We want to see a medical exam.

00:55:24.680 | They may let you do it, but they need to see a medical exam.

00:55:27.680 | Maybe.

00:55:28.680 | But on the flip side, if you were paying $2,000 a year and you wanted to go from the $2,000 a year to the $10,000 a year, you often can do that conversion.

00:55:37.680 | This can be useful to you as a planning tool and it should always be useful to you when you're looking at your life insurance policies, your portfolio of policies and trying to figure out if you should make any changes.

00:55:48.680 | If you have an old life insurance contract with an old life insurance company, investigate the idea of making a change to that contract.

00:55:56.680 | If you're trying to go from an ordinary life contract to a limited payment life contract, which we're getting to in just a moment, investigate that.

00:56:03.680 | And there can be reasons for doing that to pay it off more quickly, get more premiums into the policy, but that will often be better than incepting a new policy.

00:56:10.680 | A new policy comes at an older rate, older age, comes with a new set of commissions, which comes fees out of the policy.

00:56:17.680 | So generally, you often want to look and just see if you can convert a policy.

00:56:21.680 | Very few people are in the situation where they want to do it, but it is important that you know that you can, especially if you're a life insurance agent.

00:56:26.680 | You want to make sure that you're always looking and seeing, "Does this client have an old life insurance policy?"

00:56:30.680 | Unfortunately, most agents won't do that because it's much tougher to get – depends.

00:56:37.680 | It can be tougher to get a commission on the old policy with a company you might not be contracted with versus selling a new one.

00:56:47.680 | But here's where it is helpful.

00:56:49.680 | Let's say that I'm sitting with you and we're doing planning and you need some life insurance.

00:56:54.680 | Maybe we need some insurance policies and we're going to try to put – we're doing some estate tax planning.

00:57:00.680 | It's the simplest example that always comes to mind.

00:57:02.680 | So we're going to move the policy into a life insurance trust and you need the insurance but you've got some health issues and we want as much insurance in the future as possible.

00:57:10.680 | But one of the things that we can do, which is a tool, is to look and say, "OK, we can't get any new insurance, but can we pump up the death benefit of your existing policies?"

00:57:20.680 | And remember, insurance companies like to receive those premium payments.

00:57:24.680 | So if you need the death benefit, we may look at it and say, "Could we convert this to a different type of policy?"

00:57:29.680 | We'll move it into the trust.

00:57:30.680 | Then we'll start putting much higher premium payments into it and increase the death benefit up front by putting higher amounts of money into it.

00:57:38.680 | Depending on the situation, I could see that type of thing being a useful tool.

00:57:42.680 | Pretty rare situation, possible at least in theory.

00:57:46.680 | Next, let's talk about participating policies versus non-participating policies.

00:57:51.680 | This term is changed over the years.

00:57:55.680 | But what participating basically means is that you as the policy owner are able to participate in the profits of the insurance company.

00:58:06.680 | And that participation is recognized in the form of dividends paid to your life insurance contract.

00:58:12.680 | Whole life policies can be issued on a non-participating basis.

00:58:17.680 | In that case, there are no dividends paid.

00:58:19.680 | And the insurance company, if they do well, the insurance company keeps all the money.

00:58:24.680 | Or they can be issued on a participating basis.

00:58:28.680 | Historically, the non-participating policies were issued by stock life insurance companies.

00:58:34.680 | There's an important distinction that you should know between what's called a mutual insurance company and a stock life insurance company.

00:58:40.680 | A stock life insurance company functions like many insurance companies with which you're familiar.

00:58:45.680 | The concept here is stockholders come together.

00:58:48.680 | They capitalize a company.

00:58:50.680 | That company does business.

00:58:51.680 | In this case, the business of that company is selling insurance.

00:58:54.680 | Those insurance contracts are negotiated each individually based upon the type of policy with the policy owners.

00:58:59.680 | But the goal of the insurance company is to create profits, and those profits are sent to the stockholders.

00:59:04.680 | So, example, if you – many of you will own in your mutual fund contracts, you'll own something like MetLife.

00:59:11.680 | You'll own MetLife stock or you'll own Prudential stock or you'll own – anyway, there's dozens of types of companies.

00:59:17.680 | And so you experience the profits from the life insurance company as dividends paid out to you in stock.

00:59:24.680 | Unique to the insurance business, you can have something that's called a mutual insurance company.

00:59:30.680 | In many ways, this works like the difference between a credit union and a bank.

00:59:34.680 | A credit union is owned for the benefit of its members, and there's no bank.

00:59:41.680 | There's no stockholders that are receiving the payments, whereas a bank has stockholders that's owned, and it's owned for the benefit of its owners.

00:59:47.680 | A mutual insurance company is where people come together to provide mutual assurance and insurance to one another.

00:59:53.680 | They mutually fund the company.

00:59:56.680 | Now, it's not technically a not-for-profit in the sense that the company is very much focused on doing business well.

01:00:03.680 | But the profits, instead of being paid out in the form of stock dividends, those profits are paid out in the form of dividends on a life insurance policy.

01:00:12.680 | This can be truly incredible because if you were to look at a company like the company that I formerly worked with, Northwestern Mutual – Northwestern Mutual was – how old are they?

01:00:22.680 | They're in the 1850s, I think, so – anyway, they're an old company.

01:00:27.680 | Point has been around for over a century and 160 years, something like that.

01:00:31.680 | They have massive company. I think they're somewhere between like the Fortune 100 to Fortune 140, extremely profitable.

01:00:39.680 | But who gets the profit?

01:00:42.680 | The profit goes to the policy owners of the company.

01:00:47.680 | You can do this with every type of insurance.

01:00:49.680 | You can work with a mutual car insurance.

01:00:51.680 | So for example, my car insurance was a company called USAA.

01:00:54.680 | USAA every year sends me a dividend payment.

01:00:57.680 | Now, depending on the type of dividend, that dividend may be used to reduce your insurance premium.

01:01:02.680 | That's the way my car insurance premium works.

01:01:04.680 | I pay every month my premium.

01:01:05.680 | Then in December or January, whenever they calculate their dividends, they figure out here is what the profit of the company was.

01:01:11.680 | We'll calculate this out on a share per owner, per policy owner, and then they send me my portion of that dividend.

01:01:18.680 | Same thing in life insurance.

01:01:19.680 | Now, traditionally then, participating life insurance policies, participating whole life insurance policies were primarily for the world of mutual insurance companies.

01:01:34.680 | And the idea of a participating policy is that it gives the life insurance company a little bit more flexibility.

01:01:43.680 | What usually happens is because the policy owner knows that they're going to participate in the full economic performance of the company,

01:01:52.680 | they'll often be charged a slight additional premium, a little bit of extra wiggle room in the premium,

01:01:58.680 | with the goal of being – returning that premium in the form of policy owner dividends.

01:02:03.680 | So that helps the insurance company to have a little bit more cash in the bank.

01:02:07.680 | But still, after you get through a period of coverage, they can go ahead and send money back in the form of a dividend.

01:02:12.680 | So policy dividends are in essence an overcharge of premium in the beginning.

01:02:18.680 | And then once the insurance company has a favorable experience, then they go ahead and send the money back.

01:02:25.680 | So if they have lower costs than expected, lower expenses than expected, and lower mortality charges than expected, they go ahead and send that back in the form of a dividend.

01:02:35.680 | This is an interesting allegation that's often used because one of the things that you'll read about when you get into the debate,

01:02:42.680 | one of the things that's often alleged is if you talk about, "Look how strong these dividends are."

01:02:45.680 | Yeah, but these dividends are just an overcharge of premium. They charge you too much.

01:02:49.680 | It can be argued both ways. It is technically an overcharge of premiums.

01:02:54.680 | And usually what you'll find is the premiums with mutual insurance companies will probably be a little bit higher than stock companies.

01:03:00.680 | But if you understand that, then it can be a benefit.

01:03:05.680 | For example, if let's say that I need to give cash to my child or to my wife to go to the store.

01:03:11.680 | She's out of cash and says, "Josh, we need some money."

01:03:13.680 | Okay. If I hand her a $100 bill and send her to the store and she needs $6 worth of items, then to me it's to my benefit just to give her $100 because I know that she's going to give me the $94 when she gets back.

01:03:26.680 | But if she gets to the store and finds out that the item that we need is on sale and she buys the whole shelf and spends $100, I'm not displeased because she's got extra money.

01:03:35.680 | And so the cool thing about the concept of a participating insurance policy, especially in a mutual insurance company, is that there's almost this alignment of interests.

01:03:45.680 | You feel like, "Well, we're in this thing together."

01:03:47.680 | It's not you trying to make a bunch of money off of me and sending that money to the stockholders.

01:03:51.680 | It's, "No, we're in this together."

01:03:52.680 | And I don't mind giving you a little bit more money and allowing you to run your company well so that I can have a little bit more money back in the form of dividends.

01:04:00.680 | Now, because participating whole life insurance policies were so popular, extremely appealing, then stock life insurance companies started to offer participating policies as well.

01:04:11.680 | So most stock life insurance companies today offer a choice of both participating and non-participating policies.

01:04:19.680 | Almost all policies that are sold by mutual insurance companies are participating policies.

01:04:25.680 | Now, the subject of mutuality is an interesting subject for another day.

01:04:28.680 | Historically, many if not most life insurance companies were mutual insurance companies.

01:04:33.680 | But over the years, many or most of those companies have what's called demutualized, which means that they've reorganized themselves.

01:04:40.680 | They had a public offering of their shares to the public and they returned that – those funds from that public offering to their policy owners.

01:04:49.680 | And so today, most of the insurance companies still – most of the insurance companies are organized as stock life insurance companies now.

01:04:59.680 | There are arguments on both sides of this issue talking about, well, would you rather work with a mutual company or with a stock insurance company?

01:05:07.680 | From my mind and my experience, I have a strong preference and a strong bias in favor of mutual insurance companies.

01:05:15.680 | It's not to the point of being exclusive.

01:05:17.680 | I can conceive of types of insurance policies or scenarios where I wouldn't mind working with a stock insurance company.

01:05:23.680 | But I prefer the alignment of interests that comes with the idea of mutuality.

01:05:30.680 | The company has to be well run.

01:05:33.680 | It's not an automatic thing.

01:05:35.680 | But at least there it's a closer alignment of interests in the same way that I would always rather work with a credit union than with a bank.

01:05:41.680 | And if you think about it, consider just the conflict of interest of working with stockholders.

01:05:45.680 | And to me, I find this compelling.

01:05:47.680 | If you buy Bank of America stock, why are you buying Bank of America stock?

01:05:51.680 | Well, you're demanding a return on your investment.

01:05:53.680 | Otherwise, you'd rather take your money and put it in a mattress.

01:05:57.680 | So you're going to require that bank to operate profitably enough that they can return to you dividends or stock growth.

01:06:04.680 | Today we have a bias in favor of stock growth instead of in favor of dividend payments on your stocks.

01:06:09.680 | That's what you're requiring.

01:06:12.680 | So that means they need to charge a little bit higher interest on loans and take a little bit lower interest on – or give a little bit lower interest on deposits.

01:06:25.680 | Well, if you go and you look and you compare the cost of interest at a credit union, which is owned by its members, to the cost of interest at Bank of America, which is owned by its stockholders,

01:06:36.680 | almost invariably for a qualified risk, you will find a lower rate of interest on loans if you need a loan at the credit union, and you'll get a higher rate of interest on your deposits.

01:06:48.680 | I don't see it for any – anyway, I don't see any way that it can be different.

01:06:53.680 | Now, the credit union has to be well run, and there are some economies and efficiencies of scale that perhaps Bank of America can achieve.

01:06:59.680 | But I don't see any way that it can be any different.

01:07:01.680 | So my preference is to work with a credit union instead of a bank.

01:07:04.680 | My preference is to work with a mutual insurance company instead of a stock insurance company.

01:07:08.680 | And my preference is to work in places where my interests as a consumer are aligned with the interests of the owners.

01:07:15.680 | So that's the concept of participating and nonparticipating, but you can find participating policies with both.

01:07:20.680 | You're still – I think – I don't see any way for it not to be this way.

01:07:24.680 | You're still going to have a lower – even though you may have a participating policy, I don't see any way that a stock insurance company that has to take the profits and return part of the profits to the stockholders and also return part of the profits to the policy owners is not going to be less as far as dividend payments than the company that can return all of the dividends to the policy owners.

01:07:47.680 | Now, what do you do with those dividends?

01:07:49.680 | Well, the dividends are – remember what they're classified as.

01:07:52.680 | They're primarily influenced by the investment results of the insurance company.

01:07:56.680 | They're never guaranteed.

01:07:57.680 | They fluctuate depending on what's going on.

01:08:00.680 | They can go up.

01:08:01.680 | They can go down depending on the performance of the policy – excuse me, of the company.

01:08:04.680 | But you have a few different options for them, a total of five options.

01:08:07.680 | The number one thing you can do is you can use them to reduce the premium payment.

01:08:11.680 | So this is what happens with my car insurance.

01:08:13.680 | In effect, they reduce the premium payments.

01:08:18.680 | So if I have a premium payment of $100 and my dividend payment is $10, I'm actually paying out of pocket $90.

01:08:26.680 | I like that.

01:08:28.680 | Even though I might overpay in the beginning, I'm long-term underpaying in the long run.

01:08:32.680 | I price – for example, USA, I price my car insurance consistently.

01:08:35.680 | And for me, car insurance is not all about price, but I can't find – when I factor in my dividend payments, I can't find a better deal.

01:08:43.680 | Number two, those dividends can be used to purchase additional fully paid-up insurance, which is called paid-up additions.

01:08:52.680 | This is one of the ones that is the most common, but it's also one of the more confusing ways to use dividends.

01:08:57.680 | The idea here is if you have a dividend payment, you take that small dividend payment and you take it to the insurance company.

01:09:04.680 | You say, "Okay, insurance company, how much insurance can I get from you for a one-time payment?"

01:09:10.680 | So say your dividend is $1,000 and they look at it and say, "Okay, we'll give you $5,622 of paid-up life insurance, a single premium life insurance policy."

01:09:19.680 | So you then take that insurance payment that – and your amount of your policy increases by $5,622 and you also have cash value increase that's associated with that slight additional amount of insurance.

01:09:35.680 | That's called buying paid-up additions.

01:09:38.680 | Number three, you can accumulate those dividends with the insurance company at interest, almost like setting up a savings account with the insurance company.

01:09:46.680 | I've never done that.

01:09:47.680 | Number four, you can use those dividends to purchase term insurance, a certain amount of term insurance each year.

01:09:53.680 | Or number five, you can use the dividend payments to increase the premiums and make the policy paid up at an earlier age than originally anticipated.

01:10:03.680 | So you're overpaying premiums until you get the policy paid up.

01:10:06.680 | All of those are options.

01:10:08.680 | In my mind, the most common ones are – well, the most common ones are either to take the dividend in cash, which effectively is reducing the premium payment, or – excuse me.

01:10:21.680 | You could take it in cash as a cash payment or you can reduce the premium payment or you can use it to buy paid-up insurance.

01:10:26.680 | I generally – for all my policies, it's just buy as paid-up insurance at this point in time.

01:10:32.680 | That may change in the future once the dividends are to the point where they can be really useful.

01:10:37.680 | And just like you can sit back and have dividends on a stock portfolio, you can also use dividends of a life insurance policy as a little bit of excess cash value – excuse me, as a little bit of extra income payments.

01:10:50.680 | Forgive me.

01:10:51.680 | And I've done this a few times.

01:10:53.680 | You sit down with a client and you work through their options.

01:10:55.680 | You're like, "Well, why don't you just take your dividends out?"

01:10:57.680 | All of a sudden, an extra $15,000 of dividend payments that are very stable can be a real win-win for them.

01:11:02.680 | They're not burning up the cash value completely.

01:11:04.680 | They've still got it there as an emergency fund.

01:11:06.680 | They also have the death benefit in force, but they just don't need any more and they're taking the dividends out.

01:11:11.680 | It can be extremely compelling when you're doing retirement planning if somebody has mature, seasoned policies.

01:11:17.680 | It can be very useful.

01:11:19.680 | So those are the options that you have with your dividend payments.

01:11:23.680 | Finally for today's show, we're going to talk about limited payment life insurance.

01:11:26.680 | So everything that I just went over with you, many of those things are applicable to limited payment life insurance.

01:11:32.680 | Limited payment life insurance still has all those dividend options.

01:11:35.680 | It still has all those non-forfeiture options.

01:11:37.680 | But the key here is instead of paying premiums on a level basis, you can pay premiums in a lesser amount of time.

01:11:43.680 | Now, why would you want to do it?

01:11:45.680 | Well, because it fits your financial plan.

01:11:49.680 | That's the key.

01:11:50.680 | So you could do this – the most extreme form of a limited payment life insurance policy is single premium life insurance.

01:11:57.680 | You want the policy in force forever and you make a one-time premium payment.

01:12:01.680 | It's a big premium payment, but the policy is in force forever.

01:12:04.680 | Your cash values exist there.

01:12:06.680 | So if you want to take the policy out and the cash values, after a couple of years, the way they do those is they usually have a slow integration of the cash values so that you don't –

01:12:18.680 | you're not just putting it with the insurance company for six months and then turning around and taking it out.

01:12:22.680 | Usually at mutual companies, a lot of times, single premium life insurance payments will have a buy-in period to the full dividend crediting rate so that the portfolio manager has some wiggle room to be able to adjust the portfolio for the influx of cash.

01:12:37.680 | But that's the extreme point of view.

01:12:41.680 | You can talk about limited payment policies based upon the number of payments required.

01:12:48.680 | So for example, single premium life insurance would be called one-pay life under this idea of naming the policies.

01:12:56.680 | You could have five-pay life or seven-pay life or 10-pay life or 15-pay life or 20-pay life or 30-pay life.

01:13:02.680 | The idea is you pay premiums for one year, five years, seven years, 10 years, 15 years, 30 years, but the insurance is in force for life.

01:13:10.680 | So that can be useful.

01:13:12.680 | You can also have a policy that's calculated to pay the premium policies up at a certain age.

01:13:17.680 | So maybe it's 60 or 65 or 70.

01:13:20.680 | You'll hear this referred to as 65 life.

01:13:23.680 | So the idea here is I'm going to pay premiums from now through age 65 and at 65, those premium payments are guaranteed to be gone.

01:13:31.680 | It can be different ideas as well, different ages as well.

01:13:36.680 | 90 life is another one or 80 life or whatever.

01:13:39.680 | Why would you do this?

01:13:41.680 | Well, you could do it for the planning purposes of wanting your premiums to be gone, but you could also do it based upon wanting to manipulate the amount of the cash values.

01:13:50.680 | Remember that you have the life insurance benefit is going to be the same forever.

01:13:55.680 | So all you're doing when you're shortening out the premiums is putting more money in up front.

01:13:59.680 | Well, more money in up front can give the insurance company greater reserves, which means more amount and time for the money to grow.

01:14:09.680 | And the more money you put in the quicker, oftentimes you'll have larger cash values.

01:14:14.680 | And if you're using the death benefit to increase the policy, using something like paid-up additions, a higher death benefit down the road.

01:14:21.680 | Because of these returns, if you live for a long time, you'll actually probably wind up putting less in premiums into the policy because more of your payments are covered by interest than if you had an ordinary life insurance policy.

01:14:36.680 | So think about this.

01:14:38.680 | Let's say that you buy a policy and you buy an ordinary life insurance policy that's $1,000 a year and then you die next year.

01:14:44.680 | But you could have bought a limited-pay policy that were $3,000 a year and you die next year.

01:14:49.680 | Well, if you are short-lived, you're better off with the lowest premiums, which is why if you're short-lived under this scenario, you are better off with term insurance.

01:14:58.680 | But if you're long-lived, then your lowest total cost will usually come at putting the maximum amount of money into the contract up front.

01:15:06.680 | In theory, the contracts are equal in terms of the actual underlying cost from the insurance company's perspective.

01:15:19.680 | But in reality, when it comes to your situation, if you guess right, it can work out.

01:15:24.680 | So primarily, you're going to want to focus on making this decision based upon your own individual circumstances.

01:15:30.680 | I personally, if possible, I like limited-payment life insurance policies.

01:15:35.680 | So it can be – I like them to be a little bit shorter and it's a nice – many people I find like the idea of knowing for sure, guaranteed no matter what, that my contract is going to be paid off at the age of 65 when I retire.

01:15:50.680 | You do want to make sure that you understand that buying a limited-payment life insurance policy is not the only way that your premiums can go away.

01:15:59.680 | If your dividends increase even under an ordinary life insurance policy, if your dividends increase to the point where they're higher than the policy premium payments, your life insurance policy premium payments will over time go away.

01:16:13.680 | But that's not guaranteed under an ordinary life insurance policy like it is with a limited-payment life insurance policy.

01:16:19.680 | That led to – many of you have been around for a little while. One of the great black marks that's on the life insurance industry is actually a term that's illegal for life insurance agents to use now.

01:16:30.680 | It's a term called vanishing premiums.

01:16:33.680 | What happened is back in the – about 30 years ago when the – 20 to 30 years ago when the interest rates were so high, life insurance companies are heavily subject to prevailing interest rates on fixed-income investments as far as their performance.

01:16:46.680 | With interest rates so high, these policy projections look like, man, this policy is going to be self-sustaining where the dividends are higher than the premiums in no time.

01:16:54.680 | So many people bought life insurance policies under the idea that the premiums were going to be gone in nine years.

01:17:01.680 | But it wasn't the guarantee. It was the idea that if the interest rates continued, that would happen.

01:17:08.680 | Well, what happened? The interest rates didn't continue.

01:17:10.680 | As such, there were a lot of people who thought my premiums are going to vanish.

01:17:14.680 | This was common sales language for life insurance agents at the time.

01:17:17.680 | My premiums are going to vanish and when they do, I'm going to be sitting pretty.

01:17:21.680 | Well, they didn't vanish and a lot of people were stuck with some really bad policies and some companies faced some real problems and this left a massive black mark on the insurance industry, one of many, which relates to the modern world that we live in.

01:17:36.680 | But limited payment life insurance policies are guaranteed by the insurance company to be paid off at that point in time and that can be a real benefit.

01:17:46.680 | Sometimes you just want to have the bill paid in 10 years instead of paying it out over 50 years and it can be very useful from a financial planning perspective.

01:17:53.680 | That's the introduction of what I wanted to cover today with regard to whole life insurance policies.

01:17:59.680 | There are some additional ideas that we will cover in the future.

01:18:02.680 | I didn't talk about joint life insurance. I haven't talked about variations of whole life insurance.

01:18:07.680 | We'll move into universal life insurance in the future.

01:18:10.680 | I may do one more show on variations of whole life or I may go ahead and do a whole life versus term show next and kind of discuss all those arguments in either way.

01:18:19.680 | The key to remember is that life insurance policies are simple contracts and they have unique features.

01:18:26.680 | And the key function and use of whole life insurance is very simple.

01:18:32.680 | Provides long term death benefit protection for any long term or permanent death benefit needs or wants.

01:18:41.680 | And it accumulates a savings fund that can be used for different purposes.

01:18:47.680 | It's as simple as that.

01:18:49.680 | It has unique advantages and it has disadvantages.

01:18:56.680 | So hopefully some of the inner workings of the policy today will help to see some of the flexibility.

01:19:02.680 | I really like some of the usefulness of whole life insurance.

01:19:07.680 | I own whole life insurance. I think it's very, very useful for many, many people.

01:19:12.680 | It's not a magic panacea.

01:19:14.680 | It's not even the best financial product. It's just a unique financial product that has certain benefits and certain attributes.

01:19:22.680 | It is not the bulk of my wealth building plan.

01:19:25.680 | I don't think it should be necessarily the bulk. I don't think it should be the bulk of yours either.

01:19:29.680 | Even though if I were a life insurance agent, I would like you to think that. It's not the case.

01:19:34.680 | But it can be powerful for a component of your wealth.

01:19:38.680 | And it can be useful for you in building a portfolio of assets.

01:19:41.680 | And there's story after story after story of that usefulness that's happened again and again and again.

01:19:47.680 | I'll get into more of the advantages and disadvantages in a future show, kind of talk through some of those things.

01:19:51.680 | But hopefully this kind of more feature introduction will help some of you who I know get a lot of sales pitches both ways to be able to understand.

01:20:02.680 | Okay, let me slow back. Let me pull up and look and actually understand what's going on.

01:20:06.680 | So thank you so much for listening.

01:20:08.680 | I thank each and every one of you who makes the time to listen to the show.

01:20:10.680 | I hope it's useful to you.

01:20:11.680 | I would be thrilled if you value this benefit and you would like to support the show, consider going to RadicalPersonalFinance.com/patron and supporting the show financially.

01:20:20.680 | I depend on your patronage to be able to bring this show to you as consistently and as in-depth as I'm able to do it.

01:20:27.680 | So RadicalPersonalFinance.com/patron.

01:20:30.680 | Thank you for listening to today's show.

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01:21:02.680 | If you'd like to contact me personally, my email address is Joshua@RadicalPersonalFinance.com or connect with the show on Twitter @RadicalPF and at Facebook.com/RadicalPersonalFinance.

01:21:14.680 | This show is intended to provide entertainment, education, and financial enlightenment, but your situation is unique and I cannot deliver any actionable advice without knowing anything about you.

01:21:27.680 | Please, develop a team of professional advisors who you find to be caring, competent, and trustworthy, and consult them because they are the ones who can understand your specific needs, your specific goals, and provide specific answers to your questions.

01:21:44.680 | I've done my absolute best to be clear and accurate in today's show, but I'm one person and I make mistakes.

01:21:50.680 | If you spot a mistake in something I've said, please come by the show page and comment so we can all learn together.

01:21:57.680 | Until tomorrow, thanks for being here.

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