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Adorama, the photographer's source for gear. Shop Adorama.com today. It's Friday. On Fridays on Radical Personal Finance, we do live Q&A. I've got the call open. Let's see what comes up today. Welcome to the Radical Personal Finance podcast. My name is Joshua Sheets and I'm your host. Thank you for being with me.

This is the show where we work hard on figuring out the strategies and tools to live a rich life now while building a plan for financial freedom in 10 years or less. Fridays we do a live Q&A, which is open to patrons of the show. At the moment, I know we're going to talk about buying property in an LLC or an S corporate.

We're going to talk about life insurance and disability insurance. We'll see if anybody else jumps on the phone while we're in the middle of recording this show. Basically, the way it works is on Fridays I show up to a phone line. I actually record on the day before. On Fridays I show up to a phone line and I open the phone line up and I see who's there and see what we want to talk about and we just hit record and go from there.

Today, we've got some interesting questions online. If you'd like to join a show like this in the future, this is going to be your best way. If you'd like to talk to me about something, it's anything that you want to talk about. I don't censor the topics. I don't censor the discussion.

Anything you want to talk about. If you'd like to join a call like this, become a patron of the show. You can do that at radicalpersonalfinance.com/patron. You will find all those details. Then you'll get access to the call in number and the time that I do the call so you can call in and join the call.

Let's jump right to it. Jim in California, welcome to the Q&A call. Let me know how I can serve you today. Hi, Joshua. Thank you very much for taking my call. In episode 346, you had Jules Hasson, a real estate attorney. He spoke about buying property in an S-Corporate LLC.

I'm interested in your take on that from not buying rental property or other business property, but rather your own personal household. He mentioned trying to protect yourself from a liability perspective. I'm wondering about buying property in that sort of structure or just on your own as a private person and maybe where liability insurance will come into play with that.

Okay. It's a good question. My answer will be – I'll tell you what I know about it and what I think about it. The challenge is that this will be heavily state-dependent. So let me answer from my perspective first. I know you're in California. It's very different. But here in Florida, we have an unlimited homestead exemption from the claims of creditors.

So in Florida, in the state of Florida, if you own your own house that you live in, there's no dollar limit as to how much of that is protected from the claims of creditors for any reason. I could own a $30 million property. I could have no assets whatsoever.

Somebody can win a judgment against me, win a lawsuit against me, and they can collect – it's their judgment fair and square. But I can continue to own that $30 million of property without any limits on it from the claims of creditors of liability perspective and also from the perspective of bankruptcy.

So this is a really useful thing – feature in the state of Florida. Now, I believe that Florida is the only one – only state that has that unlimited exemption where there's no maximum dollar amount. There are about a handful of states that have very high limits. I don't know the states off the top of my head.

I know Texas comes to mind. I don't know anything about your California laws. But some of them do have fairly high limits and then the other states kind of filter in. So for me in the state of Florida, I would not put my personal residence into any kind of entity because if I did, I would lose that very valuable protection that I've just mentioned.

I would always want to make sure that I own my property as a homestead and that I own it in my name. I would also want to make sure that if I'm married, I want to make sure that my spouse and I own it in our names together so that we can also get the benefits of a joint tenancy – tenancy by the entirety I believe is the standard in Florida so we can get the benefits of that joint tenancy of ownership.

That benefit to me in Florida trumps anything else. It is – that's the biggest benefit to owning real property as a personal homestead in the state of Florida. Now, if I were in another state, what I would do is I would need to check what those limits are in that state and you would look and you would see.

Most states will protect your personal residence to some degree. Generally, there would be few advantages to putting a personal residence into an entity. So that would be what I would check. I don't know about California law. Do you know anything, Jim, before I go on? Do you know anything about California law with regard to the homestead exemptions?

I don't. I just recently moved here in the last two years when I retired from the military so that's something I need to look into. But I have had rental property in the past in Virginia and one of my neighbors helped me unload something out of a pickup truck one day and came over and said that he hurt his back helping me unload it and he would like to make a claim against my homeowner's policy.

I thought the guy was a pretty good guy overall and so that's what prompted me as soon as I had to rent that house out to make sure that I had a liability policy in place just as extra protection because it was no longer my primary residence. It was a rental property.

So that's why I've kept that liability policy. Even after getting rid of the rental property, I kept the liability policy just as a general good measure because a million dollars of liability is so cheap to get these days. So I just kept that. But my wife and I are about to buy a house out here in California so I just thought I'd start looking into that.

So great answer and I thank you very much. A couple quick ideas. I did look into the California number while you were talking and here is the homestead exemption amount for bankruptcy in California. In California, system one, single homeowners who are not disabled may exempt up to $75,000 of the equity in their home or other property covered by the homestead exemption.

You may exempt up to $100,000 if you live with a family member, $175,000 if you are 65 or older or physically or mentally disabled, $175,000 if 55 or older, single and earn a gross annual income under $25,000 or are married and earn a gross annual income under $35,000 and creditors seek to force the sale of your home.

So there we've got that. Now in California, you also need to remember that you are a community property state and so you need to – that has a little bit of a unique twist. California is a community property state. So that should answer the question there. I generally – beyond that, I don't know about liability limits.

The challenge – and here's where I could be stepping on thin ice but as I understand the intent of the law and I welcome any of my listeners who are subject matter experts to come by today's show on the blog page and correct me if I'm wrong. But in general, entity selection will work well for things like rental properties because you're actually operating a business.

So if you desire to put a piece of property into a trust, you're operating a business and so you can make the argument that this is a separate entity and it should be treated as a separate entity. But if I'm just simply owning a house and I'm just doing it purely from the – with the idea of a liability protection scheme of some kind, the problem is I don't have a real reason for that entity to exist.

And so in the legal world, they call it piercing the corporate veil. Just because you have a business that is operating – that has a business name, but it doesn't mean that you're going to be exempt from the claims of creditors. Now, different states have different rules as to when they'll pierce that corporate veil.

But they will actually go in and say, "Look, you're just simply you. You're operating as you. You're not operating here as a business." And my guess would be that that's the kind of thing that would apply in a personal property situation from the perspective of liability. The simplest thing to do if you wanted to disconnect yourself for some of the reasons of having an easier transfer, the simplest thing to do would be to set up a living trust and consider just simply buying the property within a living trust.

That way, you get some of the benefits of – you get some of the benefits of easy transfer if you're doing this for planning, which is not just liability concerns, but also for planning and it's a little bit simpler. Beyond that, we've reached the limit of my knowledge and I invite any listeners who are more knowledgeable to come by and comment on the question.

So, that helpful, Jim? Anything else? Yes, very helpful. No, that's it, Joshua. Thank you very much and keep having a great podcast. Great. Thank you so much. All right, Nick, you're up next. How can I serve you today? Hi, Joshua. I got a quote from a Northwest Mutual agent for disability insurance and some different options for life insurance.

He came over, talked to us, took an accounting of our assets and did, I guess, a needs analysis. The disability insurance I'm looking through and it's fairly straightforward. It'll be on top of whatever I have at work. The whole idea was to get something external to work. But the life insurance part, I'm a little confused about based on some of my previous conversations with you.

I understand there's needs analysis and we have some money saved up and we're trying to pursue financial independence here. But the need that came up was he gave a whole life policy and a level term 20-year policy option for both me and my wife, but it was only for $125,000.

I remember having a conversation with you at some point where you said, and maybe I'm getting it mixed up, but basically that anything under a million dollars isn't really worth talking about or worth pursuing when it came to insurance. So either I'm confusing some things or my needs are much less than it's worth pursuing with insurance or maybe I'm just very confused about the whole thing.

Yeah. So the way that – and I'm going to steer away from any specific commentary on product selection here just due to the nature that in a context like this, I'm not as a financial advisor. I'm not working as a financial advisor. I'm not licensed as a financial advisor.

I'm not licensed to sell insurance. But I can help you with talking about a big picture so that in working with an actual agent that you'll be able to figure out what the right solution is for you. The way a needs analysis works, it's the best way to determine life insurance, appropriate life insurance coverage.

What you do is you say, "Okay, if I died, what would be the expenses that my family has?" The software that an insurance agent will use, there are various software packages, but the software that the insurance agent will use, they'll go ahead and put in the expenses and those expenses will involve a number of things.

They'll usually – if you've given an insurance agent the information on any debts that you have. So for example, you have a mortgage. You have a car payment. You have various debts. They'll put that information in there. They'll also put in information of your personal expenses. One of the challenges with people who are very focused, very focused on financial independence is that challenges – and I say this is a good thing, but challenges from the perspective of understanding the needs analysis is that generally, the expenses are being held under tight control.

So let's pretend. Let's make up some numbers. It wouldn't be unusual to have somebody who's pursuing financial independence, working hard, working diligently. It wouldn't be unusual to have somebody who's earning $7,000 a month and spending $3,500 a month. Now when you put that into a software package at $3,500 a month, you're going to get a relatively low amount of money that's necessary.

Now the next thing that plays into it is that the software packages will usually incorporate Social Security benefits to the maximum level. So that will include widow and orphan benefits and it will also include retirement benefits. So when you run a needs analysis out using that type of software from age – from age say 35 to age say 90, what you'll see is you'll see a lot of inflow and a lot of income coming in from Social Security both now and in retirement.

And so with these things, when you take a high income and high income drives a high Social Security payment and you filter in a low expense number into the software and then you filter in any other existing say group insurance, things like that that you already have in force and then you filter in the assets, it's not unusual for somebody who has been working hard and saving and accumulating not to need very much insurance.

And that's probably what came out in this context. When the life insurance agent did the needs analysis, did they include in their Social Security income, widow and orphan benefits and retirement benefits for you? Michael: Yes, I believe so. Aaron Ross Powell: Okay. So that's a million-dollar inclusion. And it's absolutely the right thing to do to recognize it.

But now you have to look at it and you have to say, "Do I want these benefits to be included for the purposes of my life insurance?" Now also, did they run, did you tell the agent that your expenses were a low number? Did you give them your current expenses but as compared to your income, did you give them that lower number of your expenses?

Michael: Yes, I did. And I did not, I did mention that these were our expenses as I'm currently working and able to work at my current job and that they would go up if we took care of, or they would go up if I, you know, something changed, you know, and we had to pay for healthcare outside of my work.

But he was taking the situation as it is now. And the reason I think he didn't factor in the expenses with our mortgage was because part of the plan was paying off the mortgage if I die or my wife dies. So that was already kind of built in there.

So I basically gave them just the expenses which were, yes, very low. So… Aaron Ross Powell: Correct. So the way those software packages work is when you're doing a needs analysis, you input the amount of the immediate cash flow needed to do something like pay off a mortgage. And then you put in there a cash flow need coming in for a certain period of time.

So the answer to your question is if you have done a good job, you're aggressively pursuing early retirement, financial independence, and you've done a good job saving money, your need for insurance is – for life insurance is relatively low because if you have – let's just make up a number.

Let's say you have a million dollars sitting in the bank. A million dollars sitting in the bank spending – you know, having – with a paid off house and putting in say $2,500 a month for expenses plus if you counted or didn't count any income for a working spouse, that's another thing that makes a big difference.

That goes a long way. So you don't actually need that much life insurance. And so the $125,000 number is accurate based upon the calculations used. Now here's what – if I were still an insurance agent, if I were working with you, here's what I would do. I would question those assumptions.

And if I were coming back to you in – given the circumstances you're describing, I would give you – I would start with the same needs analysis that that agent already discussed with you. But then I would explain to you how the numbers work and I would explain to you that I might want to do something a little bit different.

The reality is that term life insurance is very cheap. And so I said, "Let's do this. Let's take out Social Security or at least take out Social Security for retirement." Okay? Because that's a huge deal and Nick, you're pretty young, right? You're in your 30s? Nick Loper: Correct, 36.

Aaron Ross Powell, Ph.D.: Okay. So Social Security will not look – if Social Security exists when you go to collect on it, it will not look the way that it collects now. Okay? So I would pull Social Security retirement benefit out. I wouldn't necessarily pull out a widow and orphan benefit.

Although I would adjust those because the widow and orphan benefits are pretty simple and they're based upon your current earnings record. But I would pull the Social Security retirement benefit out of the software and I would explain I'm uncomfortable with this being in here and I'm uncomfortable – I'll mention it again for two reasons actually.

The first one is I'm uncomfortable about predicting it. At the very least, I would never show somebody in their 30s a Social Security retirement benefit under current assumptions. At the very least, I would drop it to 50% of the current benefit. Nick Loper: Yeah. I think we went to 75% of current.

Aaron Ross Powell, Ph.D.: Good. Good. Okay. So you've got an agent who's doing a good job. This is good news. Okay? They're working on this. Okay? But I would – I personally would go to 50% but now we're hemming and hawing and I can't prove that. It's just – it's your guess against my guess.

Who knows how to predict the future? The next thing that I would do, the problem with the Social Security analysis is the computer software in these needs analysis packages are predicting that you're going to work until 65. Was that the assumption that you gave him that, "Hey, if I want to see a retirement scenario showing that I'm going to work until 65," was that accurate?

That's the assumption he used but we discussed how that might not be the reality. But he ran with that assumption under – looking more normal. And I was okay with that just to get the first number but we're going to have a discussion actually at 2 o'clock. So I want to go over some of this stuff with him and see if we can tailor it a little bit more for the longer needs I might have.

Okay. So the problem with that assumption is if that's in the software as a retirement package and then now the same software is converting over and looking at your life insurance plan, what it's assuming is that you're going to keep working at your current rate of income with an increase based upon an inflation rate, usually 3%.

And then it's taking those highest 30 years of earnings and it's using that to drive your primary insurance amount which is then also being used – which is being used throughout. So the point is that I think it's a high assumption and so I get a little uncomfortable about using the social security.

To cut to the chase, if you are well on your way towards financial independence, if you died, you would not leave your spouse destitute. So if I were working as a financial advisor, what I would say is, "Listen, you don't need a lot of life insurance. But I'll tell you what.

It's pretty cheap and you might just sleep better knowing that you had an extra million dollars of insurance for the next five to ten years. Your rate is X number of dollars a month. Will you feel better knowing that there's an extra million dollars of life insurance?" And a lot of times when I put it like that, I know it's not so precise.

The reality is that that's why you're buying life insurance. You're buying life insurance to feel better that you know that at least if you're going to carry it for the next decade or so, you've got plenty of extra money. Do you technically need it? No. And the needs analysis will demonstrate exactly precisely how much you need.

That is the trustworthy figure. But it's only as good as the assumptions that you put into it. And so the assumption of saying, "We're always going to live on this lower amount of money," might not be accurate. Maybe in the future you might want to spend more. The assumption about Social Security might or might not be accurate.

Maybe in the future it will be less. Maybe it will be more. All these assumptions, the assumption about paying off the mortgage, maybe you go get another house and now you'll have another mortgage. All those assumptions play a role. And so I wouldn't personally, if I were an agent, I would say, "This is what the number is.

Do you want to buy a million bucks? It costs you $40 a month, $50 a month, something like that. Do you want to have a million dollars of insurance?" And I would just let you decide on that basis. Do you want it or not? Yeah. A couple of things.

I was balancing the need to tell him, obviously, I want him to have true assumptions with the fact that I didn't want to get insurance on the... I didn't want to lie to him and say, "Oh, I'm going to work my whole life," because I know there's something to be said there about you have to have intent of working to get these kind of...

Or maybe that's for the disability insurance or something. I have a desk job now. I have no intention of quitting my job, but one day I would like to. But I know I can get a certain rate because I'm a desk job right now. So I think that's why I was having trouble balancing how to tell him I might have a shorter than normal or average working cycle.

And the other thing about the assumptions, when I talked to him, I would like to tell him, now that I have a baseline quote here, I can tell him, "Okay, I think if either me or my wife died, either of our lives would become much more typical than they are now because we're leveraging each other to be able to do this kind of extreme saving or somewhat better saving rate than maybe is typical.

But I think if either of us died and had to deal with the children and life and working and all that, our needs would start lining up much more typical with an average person's, and the savings rate would obviously go way down. So those are the kind of things I think I need to help him update the assumptions with.

- Right. So a financial plan or a needs analysis is always just simply a draft document, and you should treat it as such. You should always treat it as a draft document. The difference between you, Nick, and most people is in most insurance sales presentations, the needs analysis is simply used as a sales tool.

It's simply used as a tool to say, "Look, I've done something that looks fancy." Most people don't read them. They don't use them. You give them to them and they just toss it in the corner of the desk and they don't ever look at it again because most people, they look at numbers and their eyes glaze over.

So that's the actual reality that most insurance agents and most financial advisors get used to is when they're constantly – the stuff is constantly ignored. So what a financial advisor learns to do if they want to be effective at sales is they learn to point to the pictures and not to the numbers because the numbers make most people's eyes glaze over and you can see it.

When you're in a sales presentation, you can see you – you can watch the client or prospective client get lost. So you learn. You point to the number. You point to the pictures and you try to skip past all the pages of text. The questions you're asking are all about all the pages of text and that's good.

So what you need – what I would recommend that you do is articulate the fact to the insurance agent. Articulate to them, "Hey, I'm not just looking at the pictures. I'm looking at the numbers and I want to really understand these assumptions. Let's go over this together and let's just figure out what is the assumption that is correct and what's the assumptions that's not correct." The insurance agent can take that same tool that he's using and he can create a very detailed, carefully oriented solution for you based upon your situation.

So if you want to suppress social security, suppress social security. If you want to demonstrate that you're retiring at 35, demonstrate that you're retiring at 35. You can change every one of those assumptions. Just make sure that you go over with them what are the assumptions being used in the plan and then now how do we apply them to my situation.

The software is good. It helps with the calculations but software is only as good as the data that's input. So spend a lot of time talking to the agent about your actual data that's being input and at the end of the day, you very well might just simply come up like I said of, "Hey, how much is it?

I know I only need $125 or $300 but let me just go ahead and buy half a million or buy a million." The reason that I said on a previous show of I don't really take it seriously when people say I want to buy a million dollars, I'm not talking about that in the context of somebody who's saved a million dollars.

I'm talking about that in the context of people who are saying, "Well, I want to – I'm flat broke. I'm making $60,000 a year but what I want to do is I just want to provide an extra $2,000 a month for the next three years to help in a transition plan." Okay.

You can find that but I never really worked with that type of person who was kind of looking at those lower numbers. Term life insurance is so stinking cheap that I just don't see the reason why for young families not to have a lot of it. That's not a mathematical calculation.

We can figure out the precise mathematics. I'm just saying if you see it as valuable, you'll feel better having a million dollars than having a hundred thousand. Yeah, yeah. I understand that. That sounds good and I think I have some good stuff to follow up with him about. Great.

Well, I encourage you and I'm glad you're taking advantage of opportunities like this Q&A call to talk about it and if you're – it sounds like your advisor has had a good start for you and may they continue to serve you. Any other questions you want to ask Nick before we hang up on you?

Is there anybody else who has a question or – Go ahead. You're the last caller on for right now so go ahead. I mean I guess this one's going to be kind of tough because I don't think you can answer this kind of stuff directly to my situation but in a theoretical situation like mine, would you tend to gravitate towards term or whole life?

I know they have different – they're completely different products with different advantages but like you said, the term is so much cheaper. Of course, I'm really minded but I've heard you talk about the advantages of whole life insurance in the past and I am trying to kind of rectify that with is that something that would serve me or not as far as a product and I'm really not sure which way I'm leaning right now but I know that gets very specific and I'm not sure if you're able to answer that.

So let's cover term or whole life right first. So this is the first thing that people often struggle with. Should I buy term life insurance or should I buy whole life insurance? The best metaphor to understand this would be the metaphor of how you should operate a car. You can rent a car, a cheap economy car in any city in the world for what?

20 bucks a day. Sometimes you can get it on sale and it's cheaper but $20, $30 a day in the US at least. I shouldn't say any city in the world. So it's a lot cheaper for you to go and rent a car for $20 or $30 a day than it is for you to go and pay $30,000 to buy a car, right?

Ryan: Right. Paul: Okay. Now, you can also lease a car. You can lease a cheap economy car in the United States for $150 to $250 a day. Excuse me, $250 a month depending on what deal. Honda is doing their 000 and you go $199 for a new Honda Civic.

Great. That's a lot cheaper to lease a car for $199 a month than it is to go and pay $30,000 for a new car, right? Ryan: Correct. Paul: Okay. Now, does that mean that you should always rent cars or lease cars and not buy cars? The answer is obvious.

No. Ryan: No. Right. Paul: The question of whether you rent or lease or buy is determined upon how long do you need to drive and what are your needs. So in a situation where you're looking at – well, let's see because I know that you are working hard towards early retirement.

In a situation where you're saying, "Hey, I'm working hard towards early retirement. I think I've got – I'm just going to make up a number, 10 years left on this thing. In 10 years, I'm going to be in a situation where I'm going to be well-suited to provide for myself for the rest of my life." When you're going to own life insurance for 10 years, you don't buy a whole life insurance for that.

You lease that thing. You buy a term insurance policy. Now, whether you buy a 10-year term insurance policy or a 15-year term insurance policy or a 20-year term insurance policy, those are details that you've got to work out with an insurance agent because do I want an extra 10 years?

Do I need to have the flexibility? What if my plan doesn't work? Is my plan predicated upon stock market returns or is my plan predicated upon me selling a business? Do I want to have the flexibility, etc.? That's where a life insurance agent will work through that. But the point is if you're going to own a life insurance policy for 10 years, that's a term insurance policy.

That's a perfect fit. Young family, my kids are going to be 10 years older. You've got 10 years of expenses in the rearview mirror. Term insurance all the way for any kind of short-term need, term insurance. Just like if you're going to rent a car for a five-day trip, you're going to rent the car.

You're not going to buy it. So term insurance is the perfect solution for any kind of short-term insurance need. Now is whole life insurance the ideal solution for a short-term insurance need? No. It's a terrible, terrible solution for any kind of short-term insurance need. Just like buying a car generally is going to be a very bad move for any kind of short-term thing because you're going to pay taxes on the purchase.

You're going to have transaction costs. You don't buy a car and then sell it. Normal people, non-dealers, you don't buy a car and then try to turn around and sell it in an instant. You buy cars when you're going to own them for a relatively long period of time.

So if you said to me, "Hey, I've got an insurance need that goes beyond 10 years. I've got an insurance need that goes beyond 20 years," now we start to look in a situation where we're going to start to compare the cost of a whole life insurance policy to the cost of a term life insurance policy.

Now, these types of insurance needs are generally going to be smaller. If you're looking at a million dollars term life insurance versus a million dollars of whole life insurance, I mean your premium differential is you're looking at $50 a month for a term life insurance policy and $850 a month for a whole life insurance policy.

So there'd be no reason for somebody with a young family to try to fund the need of protecting a young family with whole life insurance. That's a bad move. But if you were looking at your situation, you said, "You know what? I think I'd always like to have some insurance around forever," whether that's just a burial policy or whether it's just to make sure that I have some liquid cash at the time of my death, then you said, "Okay.

Well, I'll go ahead and here's a $100,000 policy. Here's a $50,000 policy. I'm only going to have this thing around – this thing is going to be around forever, but this is the type of life insurance policy I'm going to want to carry for decades." Well, in that situation, that's not really a term insurance solution.

That's a whole life insurance policy. When you're dealing with a normal young family situation like that, if you've got the disposable money and if you would value having a life insurance policy that's there forever, then that would be the situation that you would look at that because you can't have term life insurance until you're 100 years old.

That's a whole life insurance solution. Now, let's talk about capital value. You do not make your decision between term life insurance and whole life insurance based upon investment returns. You make them based upon insurance because when you buy an insurance policy, you're buying an insurance policy. You're not buying an investment.

Now, when deciding where to get the money from, you look at and understand with a life insurance agent the specific attributes of a whole life insurance policy or if you're looking at a universal life insurance, here's what it is, how it works, what's it invested in, what's the rate of return, etc.

How does it work in my situation? If you desire to have any of the benefits of it – so for example, one of the reasons why I own whole life insurance, if I desire to have a very steady, stable source of cash that's not going to go up and down but it's going to give me slightly better return than I can make in a checking account or in a savings account or in CDs, it's going to give me a little bit better than that.

It's going to be primarily a bond return but it's going to be owned within the context of a life insurance policy. So there are some attributes there where it's more flexible. If I can design a policy that's flexible and that has good cash accumulation, well, in that situation, it's an okay place for a little bit of my money.

I wouldn't make that my primary source of my investing but I definitely have valued and appreciated having some very, very stable money that's not in the stock market but that's money that's protected and set aside. It gives me a lot of confidence to know that I can access the money anytime I want to but generally, it's just part of my long-term safe savings.

It's not a big component of my financial life though. So if I were talking with somebody and if they were talking about, "I want to put a couple percent of my income into something like that," okay, fine. If someone says, "I'm going to make this my primary investment vehicle," I would be very uncomfortable with that, me personally.

So that's how I approach it. The trouble with whole life insurance is you've got those two things compounded and people mix up the conversation and that's why it always goes so cattywampus. First, you decide what is the nature of the insurance policy that I want to need. Then, if you're looking at it from an investment perspective, then you understand what is the situation, what is the reason why I've done it.

When I was an insurance agent, I sold whole life insurance policies into both of those situations but the approach is very different. This is where the individual has to make up the difference. If you're just buying a $50,000 policy, I'm not going to go on and on and on about the cash value and how investment return and any of those things.

It's just a whole life insurance policy. It's going to have some cash value. It's going to have an okay rate of return, probably less than your stocks, probably about equal to your bonds. Maybe it could be a little bit better, a little worse depending on how the company does.

But you're just buying a life insurance policy to have forever. That's different than some of the situations where – I can think of a couple of situations where I was specifically selling it for the benefit of the cash value. In those situations, there was one where we're coming in, we're talking, okay, putting hundreds of thousands of dollars of premiums into the policy.

Well, there, it's a little bit about the death benefit but there, it was primarily about the cash. So you've got to do a rigorous analysis of it and that's how you should look at it in your situation. Why am I buying the policy? You don't buy a million dollars of life insurance early in your life when you don't have a lot of money of whole life insurance just because of the cash value.

No, you buy term life insurance to protect the needs of your family. If you want a small policy that's going to last forever, that's the best move. It's better to get it when you're younger. But if you're going to look at it from an investment perspective, it's a different conversation and term isn't even in the question there.

So disconnect the decisions. Okay. Yeah, that makes sense and that kind of lines up with what I was kind of feeling in my gut even without having done a spreadsheet of all the costs. But like you said, I think the need was for term initially. The benefits of the whole life did seem attractive but the cost of it far outweighed.

I mean, what's the point of having cash flow from a whole life insurance later if it means my plan goes from whatever, let's say it goes to plan and like I said, it is relying on some fortunes of the market and all that stuff. But if things go well and it goes from, let's say it goes from 10 years to 20 years just because I have this now large expense, which would be my second largest expense I think by far after my mortgage, it doesn't make sense to add that for the minimal benefit and extending the real goal out almost double.

So, and that's just kind of like my gut feeling about how much farther that would extend it out. But yeah, that makes a lot of sense. I think I'm, I know where to focus my questions now on term and also the assumption of the needs. So I appreciate it very much.

Thank you. For sure. Talk to the insurance agent and ask the difficult questions. The only key to remember, they're not the same. They're not the equivalent. You're not trying to decide between a blue car and a red car. You're trying to decide between a pickup truck and a Maserati.

Now, I'm not comparing either. I'm just saying they're very different. So the question is not should I pick either or? The question is what's appropriate for my situation and the goals that I have? And if you understand the benefits of each and then ask yourself, do I value these goals?

Signing up for a life insurance payment that's going to be a huge component of your budget, that can be very, very frustrating to have. And personally, if I were an insurance agent, having learned the hard way, I would probably discourage you from that because you would probably bail on the policy in too short of a time.

But it doesn't mean, it just means identify the situation. And that's what it is with all financial planning. So wish you the best and I hope this information sets you on a good foot for your conversation with your agent. Yeah, I think it certainly will. I appreciate it. I'll be focusing on disability insurance next week.

So in the next few weeks, I'm going to start looking at this stuff. I'm trying to take it one bite at a time. Great. Awesome. I wish you all the best, Nick. Thank you all so much for listening to these Q&A shows. I hope that they're interesting and give you a useful tool in your pocket to think about some of these things.

Key piece of advice when you're working with people, with financial people, ask lots and lots and lots of questions. If you ask lots and lots of questions and you're working with an agent or with an advisor of some kind, you will start to see and hear the different approaches.

People are very leery and very wary of insurance agents, financial advisors, etc. And I think it's probably a deserved reputation. But just because you're leery of them doesn't mean that you can't educate yourself. You can't take the information and then apply it yourself and make a good decision for yourself.

Don't be intimidated by people. Just ask lots of questions and then understand what the benefits are and ask yourself, "Do I value this?" And hopefully you'll be able to make better decisions. If you'd like to join a call like this in the future, become a patron of the show, radicalpersonalfinance.com/patron.

If you would like to consult with me individually, I do have that option available for you. You can consult with me individually on your personal situation. If you don't want your financial details broadcast like in a show like this, you'll notice a lot of times with callers, I'm intentionally being vague and just trying to give them a little bit of privacy.

But if you'd like to talk about personal details with me on something, I'd be happy to consult with you. I'm not an insurance agent nor am I a financial advisor, so I can't make any specific recommendations on anything that you should or shouldn't do with an insurance policy and I can't make any specific recommendations on whether you should sell out of the market at the high point or get rid of this stock or things like that.

But the good news is the vast – that's the tiny minority of financial decisions. Everything else in your personal situation, I'd be happy to consult with you on. As long as it doesn't involve the sale of security or the sale of insurance product, I'm cool. So if you'd like to have information on that, go to radicalpersonalfinance.com/phonecall and you can book a personal consulting call with me.

And in the meantime, I wish you all the best. Have a great week and be back with you soon.