Estate Professionals Mastermind - Probate and Senior Real Estate Podcast

How the rich use life insurance while alive - Equity for real estate investing

November 11, 2022 Chad Corbett and John White of Northwestern Mutual Episode 100
Estate Professionals Mastermind - Probate and Senior Real Estate Podcast
How the rich use life insurance while alive - Equity for real estate investing
Show Notes Transcript Chapter Markers

Using equity and cash value from life insurance to build wealth | Estate Professionals Mastermind Podcast episode 100

Can you create a permanent life insurance plan that creates equity and cash value? YES!

IN THIS EPISODE: Choosing the right plan, at the right amount, at the right time.

Full show notes:
Watch on YouTube:

You’ll Learn:
🔵Do you really need life insurance?
🔵When is the best time to get life insurance?
🔵When should I buy term life vs. whole life insurance?
🔵What are some reasons NOT to buy life insurance?
🔵How to use life insurance while alive
🔵Best life insurance to build wealth
🔵How the rich use life insurance
🔵How to use life insurance cash value to buy a house
🔵Can you use life insurance as a bank for real estate investing at scale?

🕛🕛Timestamp Navigation 🕛🕛
0:00 What role does insurance play in wealth?
4:20 What age should you get life insurance?
9:08 What type of life insurance should I start with?
14:11 What insurance benefit amount should you choose?
22:43 Is term life convertible to permanent life insurance?
25:59 How to access the cash value of your permanent life policy
29:31 Building wealth with life insurance

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All right. Welcome everybody to another of our Ask the Expert series. Uh, today I'm really excited to introduce you to a friend and professional contact of mine, John White, who is probably one of the most prominent insurance experts in, in the United States, focusing mainly on the more advanced and higher net worth end of the spectrum. But he didn't exactly start there, right? Everybody has to start somewhere. So I wanna take this convers, take advantage of the time that he's willing to give our community and kind of talk about the personal uses, and how you should be looking at insurance on a personal level, but also at a business level. So we'll kind of start with the basics of what it might look like in your family. And then move more toward what it might look like in a business setting and if it's a good fit for you. So, John, welcome to the community. thank you Chad. Pleasure to be here. First of all, no one wants to talk about insurance... no one wants to talk about estate planning. No one wants to really talk to attorneys, and no one wants to talk to insurance people[laughs]. You know what I mean? It's kinda that necessary evil, but at the same time, with the right partners in the right mindset, that can be a true asset for you and your family in the planning. And so, you know, number one, if we just think about money and making money, what's the purpose of making money? It is to have the ability to buy goods and services or experiences in our, in our lifetime. And then what's the purpose of saving and investing in wealth building? It's so that we don't forever have to work for the money that we earn. And hopefully that we can live a life of freedom and still have the income to do the things that we want. And then what's the purpose of creating wealth on top of that? Maybe this is to have greater experiences or maybe it becomes a generational place. So it's like, Hey, the next generation doesn't have to be wealthy, but they have a better place to start than the previous generation. I think most people would agree if they have a family or they have children, that they would want to give them a little better start than they had. Yeah. Even if they don't wanna leave them a bunch of money. Right. but early on, and kinda the first layer of thinking about wealth building is also understanding how do we earn income? And for most of us, pretty much all of us, the way we earn income is we have to go to work. And so when we think about insurance, we're really protecting, we're preserving and protecting, the possibility that we are not able to go to work. That we are not able to provide financially for our family or just people that we care about. You know, if we're not able to go to work, then we're not able to earn income, which means the impact we were gonna create in our lane or in our community is not gonna be made. And so ultimately insurance is protecting our income. Homeowner's insurance is protecting our house. And normally we would say our home is our greatest asset. Some people, maybe it's our truck is their greatest asset and their rent where they live, right? Uh, as we, as we both know, people like that, but it's protecting our true greatest asset, which is our income. It's our ability to work. And so if someone makes $50,000 a year and they're gonna work for 30 years, they're gonna make $1.5 million of income. That means they're a $1.5 million asset walking around that's cash flowing 50,000 a year, not counting increase for bonuses or, you know, things like that. And so if we compare a $1.5 million asset, which is our income, which is us to, you know, our truck or home that we live in, you know, obviously most likely our home isn't worth 1.5 million. Right. And so just helping people understand, number one, we are our greatest asset. So back to where's the greatest place we can invest in ourselves. If we make $50,000 a year and we have 30 years of work and we're really already worth$1.5 million, our mindset would be we're already a millionaire, we just haven't earned that income yet. Which I think is an incredible way to think about it. So then what's the insurance for? We're protecting that income that we haven't earned. Right. And that, and I'm, I'm married even if I wasn't married, I have three children. I don't want them to have everything in the world necessarily cuz they need to earn their own way. But I am going to create things for them and experiences. Cause I'm, cause I work and if I'm not here because I'm disabled or die unexpectedly, which we all know people that's happened to, they're forever changed. So in the first step, that's what insurance is, is protecting that income and the value that we're creating. And I also believe the sweat equity that we have put into our businesses or into our careers, we have to be around to capture that. And so insurance is protecting, and life insurance and disability insurance is protecting essentially our income. I mean, not only do we not like to think about our demise or any of the negative possibilities or probabilities in life, oftentimes It doesn't even occur that those things are probabilities until you're into, most people are into their fifties and sixties, at which point their premiums are sky high. So, working with families in probate, I had no idea how much it would help me from a financial and legacy planning standpoint, because I had, you know, they had the unfortunate opportunity of being in precarious positions. I had the fortunate opportunity of helping them unravel that and learning from it. And so for me, in my early thirties, I put together an aging plan, a long term care plan, and a legacy plan, including disability, chronic illness, terminal illness, um, you know, uh, long term care. All of those things cuz it, I looked at it that way. Like it, it created that, that experience with working with those clients really shifted my thinking. One of the things that shocked me when I first started looking was less than 45% of Americans at that time. I haven't looked at the stat lately. I would say it's not any better, but I think it was 45% of Americans had any type of life insurance policy. And that's lumping in like the $1,500 life insurance that's thrown in with a checking account onto community bank, right? It's not really there, it's not really gonna protect much. It might pay for a headstone after you pass away if that. but it, that was eyeopening to me how few, even high net worth individuals, people who have accomplished a lot in life, they don't look at it the way you presented it as a risk assessment. So how do I mitigate the risk of, of the unknown? And I would just encourage you guys: Consider the possibilities. Think about all the GoFundMe accounts you've seen on Facebook. That's the net result of somebody not having a plan, not protecting their assets. And I personally, I have no problem. I drop a thousand bucks every time a friend is is sick or a GoFundMe account. Like it's something, it's what I can do because I, I had a plan and, and I've protected mine. So I, I still feel an obligation to help. Not say, See, he told you so you shoulda had a plan. Mm-hmm.. Um, but we've all seen people go through it, and I'm guessing the majority of people watching this, you're probably one of those people I'm pointing a finger at. Like, so have an open mind as, as we progress through the conversation and think about what do you have to lose if you can't type? If you can't walk, if you can't drive? You know, I had a friend just simply riding a dirt bike. He's one of the best riders I know, an AA rider. He's never had, like, he gets out of every accident, but he's in the ICU with a eight broken ribs, a fractured femur and, and a punctured lung. And it was just, you know, it was a slow crash in the woods. Like unlikely. But he's now in this position. Like, so there's lots of different insurance products. It can be really overwhelming when you start, when you really dive into this, if you don't have somebody like John to guide you through it, it's pretty easy to overwhelm yourself. And I think that's what often happens with estate plans and insurance in general. Like people, they, they feel that, that feeling inside that says, you know, I gotta do something about this. I know I have a responsibility to my family. But then they're like, Oh my god, information overload. I can't make a choice. Like, what is, you know, these things are so similar, I don't know which one to choose. And that's a lot of money. If I make a mistake and they go back to whatever, you know, Oh shit, the Auburn game's on and they go watch football. And so, I, I would just ask you to have an open mind in this, in this conversation and consider. Put yourself in that position. What if, and then there's, there's more exciting sides of insurance too. Like it's not all preparing for the worst things in life. Like the insurance can be really fun and it can, you can use it to prepare for really awesome things like lending lend, like lending yourself money, borrowing interest free, receiving massive gains tax free. Like, there's lots of exciting things on the, on the receiving end of insurance that aren't so exciting on the planning end. It's pretty scary on the front. So, so my families in this business, I saw my mother deliver a death claim, a insurance proceeds check to a lady when I was a child. And I'll never forget that lady said, this will get the bank off my back, as she cries in front of my mom. And in my own personal family, my cousin died in a car accident when he was 22 years old. My aunt is already on disability. She was a school teacher, had some health issues. My cousin's father had not really, I mean, he wasn't, I mean he wrote a Harley maybe he may, I think probably 40,000 a year. Not a lot of financial means. And there was a dispute. There was a argument where were they gonna bury my cousin? You know, where is it where his mom wants him or is it where his dad wants him? My mother who had the insurance policy, I'll never forget, she went in the funeral home. She said he will be buried where his mother wants him, which is her sister, because I have the checkbook. Right. Money is empowering. All the different things that this money can create, whether it's insurance or not, it can create decisions and freedom, and freedom of decisions and insurance is, insurance is no different. Many of the wealthiest people, some of the smartest people, including even institutions in the United States, have life insurance. So there's this notion of like, one day I won't need life insurance anymore. I would recommend for almost all listeners, first and foremost: like term life insurance is a simple, most easiest way to just get insurance protection in place is not gonna last forever. It is like traditional insurance. You only use it if you, if you need it, God willing, we don't need it. But it's cheap, it's inexpensive, it's simple, you can't really make a mistake by getting term life insurance. So I kind of say that, say that first and foremost and then you kind of get over to the other side where there's this notion of being self-insured. So at some point we won't need life insurance cause we'll have enough assets for our family possibly. Or, maybe we don't have children. Maybe we may have some nieces and nephews, but maybe we don't. And you know, we just don't really need life insurance. And there are a lot of people out there who would not have a traditional need in the way that we've discussed so far. But they use it as a tool and as an asset and as a financial instrument. And that is because life insurance has unique tax treatment from the IRS because if you think about the IRS and the government, they want people to protect their families. They want you to own a house. They want people to have a place to live. So the two most favorable tax advantaged assets that exist is life insurance and real estate. So, how do we use those to our advantage? Um, and, and life insurance is one of those tools that that can be done. So, let's call it the basic starter pack. Like what insurances should someone consider at the most basic level, even if they're not into their, their prime earning years, all the way through? Like, let's look at it as a progression. So as you enter your career and as your, you know, your wealth develops, what's the right time so people can start to kind of self-identify where they are on that spectrum. Let's talk about it as a spectrum from the day you decide to be a white collar professional all the way through the day, you pass away and, and your legacy goes on to somebody else. Sure, sure. So I would say almost everyone, while you are doing education you should have term life insurance. And so you can have a couple hundred thousand dollars of term life insurance. I mean, we're talking about maybe $12 a month of, premium cost. And there's two things that happens: immediately, it protects future income, right? It could be, Hey, my parents invested in me. They gave me a great place to live as a child. Or, I got someone else, you know, a mentor, someone took care of me as a kid. You know, if something happens to me, I wanna give back to them now. But our vision's much bigger than that. So it's not like, Oh, well, you know, I, I'm anticipating passing away at 20 years old, but that's the place to start is that term policy, a couple hundred thousand dollars of protection. You know, a million dollars of life insurance. A million dollars feels like a lot of money, but it's really not in the big picture. Remember to make 50,000, 30 years 1.5. So, you know, a million dollar term policy can be a couple hundred dollars a year potentially, depending on someone's age. But that does two things. It solidifies kind of your estate value immediately. So the moment someone has a million dollar term insurance policy, your estate value is a million dollars, immediately. Now that's not really gonna benefit you. And we can kind of say that as a joke or it's gonna benefit people we care about, but it also does another thing. It protects your insurability. So one thing that's different about life insurance than any other asset is you have to qualify based on your health. And so early on in life is typically gonna be our healthiest. You know, Usually you're the healthiest when you're younger. And so we can lock in that protection when we're young, lock in our premiums cause it's based on our age and our health. So is, this is a rabbit hole, but I was pissed. I'm most people know I'm six seven, like 265 and, and pretty good shape. The damn life insurance company knocked me from whatever the top tier rating was, like premium plus they knocked me down cause I wasn't on their chart. Like I have, I had zero medical records for the last 12 years. But , even though I was young and healthy and hadn't been to, you know, I had no, no issues. They still docked me down because I was off their height and weight chart. And I'm like, that's unfair, but.. We can talk about that. Cause there's some companies doing a little bit different now. So, um, I was the same way. My first insurance policy, I was the second best health class and it was kind of based on height and weight. That's what I, I ended up hitting. I don't remember the grades, but they, they docked me down one. I'm like, Why? And they're like, You're too heavy. You should, And they told me I should weigh like two 15 . I was like, I could turn sideways and hide if I weighed two 15 . Seriously. So there are companies now that do what's called whole underwriting. They kind of look at everything, you know, blood work and everything. And, uh, so maybe there's an opportunity for that to be a little bit better next time. And that's always evolving too with, with technology. But once you have that policy, whatever, whatever rating it is, and that's locked in, you know, that can't be taken away from you. And so that creates a lot of opportunities. There are a lot of people that either, you know, I mean, they're given a medication at some point later in life, doesn't mean they can't get life insurance. It just means it may cost a little bit more at some point. that just cause someone's on medication doesn't mean that's gonna be true. So just all these factors matter. But yea, the stats on term life insurance is, is only, uh, 2% of the policies are ever paid. In terms of the benefit. Wow. Biggest misconception is people think insurance companies make money on all these big commission, or they at least perceived commission, whole life and universal life. And all this.. Insurance companies actually make money on term insurance. That's where they make their profit because we're gonna, we're gonna have that policy and pay our premium and 98% chance, God willing, we're gonna live. And then they just keep all our money. That's great for a lot of reasons. One, only 2% of people actually need it. But it also, that's, that's why you're print, That explains to me, I actually didn't know that. I'm, I'm learning something here. So the reason a term premium can be so low, it's just... It's math, right? So if they're only, if 98% of those don't, aren't redeemed, or you know, they don't have to pay that, that death benefit, then they can afford to lower the premiums for everyone else. So, What advice would you give to someone to pick the amount, the ins, the, you know, the death benefit? Should this be a one time decision you make early or is it okay to add layers of insurability as you progress through? It's like, it's likely gonna be a little bit of a, a lifetime evaluation. You know, things change in life, incomes change, assets change. So it's not as if like you buy a policy when you're 22 and you're never gonna ever think about this again. And so I think kind of the first layer would be just be, uh, debts. So maybe debts would be forgiven, But, a mortgage, car payment, student loans? Do we want our parents, or aunt, uncle, do we want anyone dealing with our probate to have to come up with capital? Who inherits that asset or inherits that debt? And then depending on someone's situation, is there another layer of cash that we would want available for someone to kind of get through this season of like a life altering experience, Right? That might be six months of expenses. You know, we just want, you know, them to have six months of expenses. That might be a year's income. It might be two years of income to just kind of weather the storm, what's going on. So at first, later, especially if someone's married to it, even if they're not, I say, Hey, whatever, whatever, or whomever I care about, I don't want 'em to deal with any debt and I want them to be able to take some time or to be able to have some additional cash. If I'm married, possibly, or married young, we don't have children yet, and I'm not making a lot of money, but I am gonna earn that 1.5 million over 30 years at a minimum, and it's really not gonna be 1.5, it'd be closer to three 4 million if you count inflation and progressing in careers and things like that. And so then you begin to say, Okay, well, would I like 1.5 to protect all of my income on top of what we just discussed. And so all of a sudden you can get into about 2 million life insurance pretty easily. It's like, Yeah, well I would want that, but, but can I afford to pay for it or do I want to pay for it? So at that point, I, it comes back to a budgeting decision. That's what I always tell everybody. It's like, Sure, let, dream big for what we want to create. Let's dream big for protecting what we want to create that might say we need, uh, three or 4 million of life insurance and let's just see what that would cost. And immediately to go, you know, that's just too much for my budget right now. No problem. Then we scale down to what is in the budget, you know, So it's really gonna end up being a budget decision. How do we optimize our budget? And then just execute on whatever that budget is today. When I was trying to sell myself on life insurance, You know, I have a, I have a truck and I worry about, you know, running over the hill, somebody hitting me, whatever. You've got a $85,000 expense, right? So you'll pay a thousand dollars a year, to insure an $85,000 vehicle. Never had a claim and never had an accident. It's just, it's the risk, the state you're in and the record of other drivers, uninsured motors, things like that. But, you know, since I've been 15 years old, I've just been stroking those checks. It's like, no big deal because we're obligated to do it. The government says, this is too big of a risk, It's too big of a problem. You're obligated to buy this insurance. So it eventually becomes accepted and everyone just takes it, and it's just a, it's a cost of living expense. Right? I had never looked at it as, okay, well if I'm gonna live to be 70 years old, I've got 55 left. That's $55,000 in auto insurance. Right? Think about the lifetime premium or the 20 year premium, or whatever your term is. Think about the accumulated value of those premiums, as the risk for you today. And look at the reward to your estate if that has to be redeemed. It's a tilted risk reward. And that really helped me. It's kind of changed my perspective. I'm like, holy crap. And the same way with estate planning. I mean, you know, the average estate costs four to 7%, or the average probate is four to 7%. Well, we know, I mean, you can set up a basic living trust for as little as 1500 bucks. If you get really advanced, unless you're doing like advanced asset protection planning, you're probably not gonna break through 10 grand. But What would be the next thing to think about? Like as, as people progress through their careers, what do you think a lot of folks overlook and really every, every business owner should have? so let's imagine for a moment someone had a 200,000 on house, which where I grew up is a, one of the nicest houses in the area, right? Yeah. And so you just imagine for a moment you had a 200,000 house. And imagine for a moment it was paid off. So there's no mortgage. Would you insure that home? Yeah. Cause it could burn down. Lightning hits it. 200,000, boom, gone. Right? You're not required to, The bank's not gonna require you to insure your home is paid off cuz you own it, right? We have a mortgage. The bank requires homeowner's insurance. Almost everybody would say, I would still insure my house. Right? Ima and what if we have 200,000 of cash in the bank and a 200,000 in our house paid off? We would we insure our house then? I think most people would say yes, but we have 200,000. So that would be an example of being self-insured. I think it's the biggest misunderstanding of life insurance or insurance in general. If I have 200,000 in the bank and a 200,000 on paid off house, but I don't have homeowner's insurance, I can't spend my 200 in the bank or else I'm upside down on my risk. So I have to, I can't spend that money or invest it. But now if I insure my $200,000 house for, you know, a couple thousand, couple thousand a year of homeowner's insurance, I just freed up, let's say$198,000 to then go invest. Right? And so life insurance is, even as, as professionals begin to kind of get a little bit more of their balance sheet built. The reality of being self-insured and is just really not understanding insurance and not understanding, reallocating of risk to then go build in another space. And I would say this is just as important as understanding wealth building in general... But to, to your point. So we're getting started out. We have a negative net worth. We have term insurance that cover that, but now we begin to have some cash flow. We pay off kind of our immediate, you know, high interest debt, may still have a mortgage, may still have a truck payment, may have a boat payment. But now we're kind of saving on top of that. Typically at that point, we still want to focus on assets that have liquidity, or we want to focus on assets that have tax advantages. This might be retirement accounts, 401ks, Roth IRAs, things like that. But eventually, kind of back to that budget, if we have a little bit of margin left over a hundred dollars a month of margin, we eventually want to change that term policy to a permanent insurance plan. And remember, permanent insurance plan, yes, it's gonna require more premium for the amount of insurance because it's permanent. We could potentially invest that money somewhere else. But if you do it correctly and the best it can be done, there's certain policies where your premiums go to an asset value.. And now that premium's gonna go to cash value. So that could be a hundred dollars a month, it could business could be a thousand dollars a month. But this premium is gonna go into the policy and then that majority of that premium is gonna go to a cash balance. That cash value balance inside the insurance policy is gonna earn credited interest. And there's different types of policies that can work different, but in concept, they're gonna earn interest and the IRS does not tax that interest in that year. So now I maybe have paid 10,000 in premiums over a few years, and now I'm getting interest over and above what I would get kind of in my bank accounts or just having it in cash. I'm getting tax free interest. I have the ability to use that capital and it's still gonna transfer. And so in that case, now life insurance is, you have to be careful kind of from a compliance standpoint how you really say this, but it's essentially free because you're paying the interest accrued is covering the insurance, not paying money to the institution that we're never gonna get back. And that's kind of what wealth building is, is putting money into assets that are going to create equity on your balance sheets. Mm-hmm., it's permanent life insurance plan creates equity and cash value. That's gonna be equity on the balance sheet. That's also still gonna give long term protection, which is gonna help with wealth transfer. And kind of other insurance statement is, the only insurance that matters is the insurance is in force when someone passes. I've never had a term policy. I've got blind spots there. I just never, I don't have kids and I don't have debt, so it didn't really seem to make a lot of sense to me at the time. I went for the more advanced products from the get go cuz it just fit who I am and what my goals were better. so I, I guess I have some blind spots and I'm sure others do too. When, when you originate that term life is, are most of those convertible and what is that period usually? What is the, the conversion term on most of those? So if someone is 18 years old and they're like, All right, this guy convinced me I need to do this for myself. They've paid that a hundred dollars a month premium. How long do they have to make that decision to move to the next level of, of insurability? Yeah. So, so back to, um, you kind of get what you pay for in a lot of cases. So, so term life insurance, uh, you know, every insurance company has the same actuarial data. So if our life expectancy is 88 years old, every insurance company has the same actuary data. So their pricing on term insurance for across the board is pretty much the same. Now, this could be within like 10 or 15, maybe even 20%. So one company might be a thousand dollars, one's, 900 one's, uh, $1,100. You know, they're kind of all in the same ballpark. What's gonna be different is convertibility to what you're saying. So will it convert? Can I convert it to a permanent plan? Which what that means is, uh, shift or change my type of product without any more medical underwriting questions. I have seen this to be proven to be incredibly valuable. Maybe someone now they like a good dip when they play golf and they didn't dip at the time that they did it. It could be that they have blood pressure medication that they didn't have when they got the term. So none of that is subject to your new permanent plan, which will keep premiums low. So convertibility and the others, what's called waiver of premium, if I become disabled, the insurance company will pay my premium. So some companies have low convertibility periods and don't have waiver of premium, so that might be that $900 plan. Where's a thousand or $1,100, which is, you know, real money, but not a huge difference. You're gonna get a longer convertibility period. You're also gonna get a convertibility to a, probably a better permanent product usually is what you'll see. And so, those companies, you may be paying an extra 10%, but your convertibility period is probably closer to 10 years. Could even be 20 years, It could even be 30 years depending on the type of policy. So typically term is you have a level premium for 10 years, or a level premium for 20 years, or a level premium for 30. It's kinda typically what you see. Mm-hmm. So how do I get as much value out of my money? And having a great convertibility period is one of the greatest ways to get value out of your term policy. So for a young professional, hey, we're gonna lock that in lo premium, but we have convertibility options. So a couple years down the road, we got some. Credit cards or certain school debt paid off, now we're ready to convert and start building equity in our insurance. Let's continue with that storyline. I mean, hypothetically. So we've got the young professional, they agreed, they said, Yes, I need term. And at some point they're like, Okay, I'm, I'm gonna take, take advantage of this while I have the opportunity. And one of the other advantages would be converting earlier than later because you can accumulate and access that cash value. So now let's talk about that. How do you set a proper expectation for a client? Like, listen, this is, you're investing in your future. Here's how you access that, or Here's how you can, you know, the advantages of this. Yeah. I would say also anyone who's still awake that we have haven't put to sleep insurance. So yeah, number, number one. I mean, I think there are ways to access the premiums early so you could fund a policy the next year, access your premium, But in, in, in, in, in the correct viewpoint, in my opinion, is that this should be deemed a long term asset. So this should be deemed as like not something I'm doing and this is gonna be where all my money's. So there's tons of insurance professionals out there. It's like, Oh, you save however much you can say, put it all into life insurance. You know, stop, run from those people. Yeah. But whenever we have a portion of our allocation, we should still view this almost as like the way we review our retirement accounts, our 401ks. Like, Hey, I'm putting this over to the side. It's gonna create value for me. One of the values is there's no IRS rule around when I can touch the money, but mentally it's kinda in my long term bucket. So kind of financial planning, a little bit money that you may need in the next 12 months. You're typically gonna have in cash money in the next 12 months to 36 months. You may have in more of kind of a higher yielding, uh, bucket possibly. But three years in beyond this is in that three years, really even, almost 10 years in beyond bucket of like long. Uh, savings, but there's no restrictions on when you can use it. If you have $10,000 in cash value, you can use it at any time for any reason. In the way strategically, this isn, the only way, but strategically and mathematically you would borrow against the policy. So these insurance companies, there's different types of insurance products, tons of insurance companies, some kind of speaking In general terms, typically you can borrow 90 to 95% of the cash value and the assets. So if I had $20,000 of cash value, I could borrow about 17, $18,000 and I can use it for whatever I want. It could be shortterm income as I'm merging jobs, it could be to, to buy a car and I can cashflow and pay myself back. Uh, the best use is probably using it to make money. So I'm flipping a property, I'm flipping a classic car. Hell, I'm flipping a tractor. Like it's like, Hey, I'm using the money short term to make money. That's the, that's the best use. So I have borrowed against my cash value to buy real estate. And then we need to put that money back. Not cause we have to, but just because financially, you know, cash flow, the money back to build and then do it, reborrow it again. Like, the first part of this was really for context because someone who doesn't, hasn't been introduced to this concept typically is resistant to it. It's like, ah, that sounds too good to be true or too complicated for me. And it's, it's really not. It, it can start with just a simple basic plan and you progress into this. And that's why finding a professional like John, or if you're in, in one of the states that he writes in, I would, you know, you might be a good fit, but like finding the right professional that it, that, that it really views a lifelong relationship and they grow with you. Like your relationship grows as, as your, your net worth grows. That's what's super important. I, I did it the self-educated way. I had, I dug in and learned all this stuff so when I first met John, I was like a moth of flame. I'm like, he likes to talk about insurance! Um, . So this is where it can get exciting. And, and you know what I'll, I'll, I'll say never ever borrow against life insurance to spend money. You should only borrow against it to invest money. If you can agree to that black and white rule, it's an amazing tool to help you build wealth, especially in environments like we're in right now. How cool would it be to say, I don't give a what mortgage rates are. I can, I can write myself a loan! I'm gonna go buy that house. So you've got the, the buyers competing are, are compressing prices across the country. We've got downward price pressure on real estate cuz they're competing with higher monthly payments because of the interest rates and tighter underwriting standards. So that is putting downward price pressure on real estate. Now you're a cash buyer at this point. You might be using debt, but it's self bank debt. So now you can like, let, let the competing debt push the prices down and then you come in and actually use a, a, a better form of debt to actually take a, the position of a cash buyer. And that's a, that's the best example. I like one of the best examples of a, a really safe way to actually use the cash value of your life insurance. And it's, it's all about compounding. Like you need to understand when you borrow 90% of that, that cash value, well now you're compounding your balance. Your, you know, in that account is only 10% of what it was. So it's not going to be growing at the same rate that it was. So bec don't use it, recklessly use it. My advice would be using on cash flowing assets that, that, you know, can give you reasonably quick liquidity or your family could still benefit from inheriting. Don't go buy Bitcoin with your damn life insurance. Like there's, there's a place for that in your portfolio, but it, it's not. Don't buy, buy proven assets that are income producing assets as a safe bet. And that's where, like in, in the context of this community, what, what I really want to, to get through to you guys, like, there's a whole world of finance out there that most people never, they'll, they'll finish their careers out in real estate and they'll never even know that this existed. And there's way more benefits than, than self banking. Like it protects your family, it protects all the work you've done. It protects like the work that you might not be able to do in the future, but it also becomes one of the most, like one of you can gain so much velocity as an investor if you use these tools correctly. This is where we're getting to in this story. so let's assume that, that this person is now a middle aged real estate professional. They have paid premiums. Let's say 10 years. Then they decided to access the cash value in a high interest rate environment with prices. They're like, Hell yes, I'll catch a falling knife. So they buy that house and they're, using all of the cash flow to repay back in, as long as we don't hit the modified endowment contract. Right. If we're not making too big a payments, and we don't have to go down that rabbit hole on this, but what's the next step? Like as, as they progress and they, they now have, let's just say they've got to accredited investor status. They've got a million dollars net worth. They've started a family, they've got a couple of small businesses and a real estate portfolio. Now, what are the things that, that they should be looking at from an insurance standpoint? Yeah, well, back to even, it's really the more velocity of wealth creation you have, the more velocity of wealth creation you have to protect, if you care. Right? Yes. I mean, insurance is, you're thinking of it as a leverage. Just like we have cash to buy a property in cash, but then we might still put debt on it as strategic leverage, right. Why? We have the money to do it? Well, that frees up more capital to keep things at work. So self-insured insurance frees up capital number one. Well, as we're moving forward, accessibility of capital, of cash is gonna determine what kind of deals we can do. If I have access to$50,000, I got certain types of deals I can do. If I've got access to $150,000, kind of another layer of types of deals I can do. If I've got access to a million dollars of cash, my partners and deals, opportunities change, right? I tell people say our clients tend to carry more cash than the common person, not cause they love cash. They wanna keep cash at work, they wanna be putting it in cash flow and properties, but it's nature of the beast. You gotta have cash to have capital to invest. So now we're looking at this long term, where's our best place to hold cash? Because when we put it in the bank, the bank is using us to put money in their institution and they're loaning it out to other people. They're making the money on the interest. And so we can begin to look at, well, where do banks hold their money? A lot of them actually hold a portion of their safest capital in insurance companies. It's called Boldly Bank own life insurance. So if we understand banks use insurance companies, banks don't even really need insurance. It's because of yield and tax treatment. How can we maybe for a segment of our cash, not all of it, but a segment kind of bypass the bank and we go straight to the insurance companies? Via an individual personal life insurance policy. And so the way I be would begin to view at that point, outside of continuing to protect future net worth, you're using it as a cash alternative asset. So number one, it is life insurance. It's not an account, it's not a bank account, It is life insurance. It's not an, it's not really, not even an investment. It's an alternative to cash as a warehouse that I can then use to go deploy on deals. And I think that's kind of another thing that's misunderstood. A lot of insurance people and just people in general would, would mention insurance is a bad investments. Like, well, it's not really an investment if it's done correctly because you have downside protection and investments typically have upside and downside risk. Biggest thing is how it's used. Like I would say debt is a bad investment, right? unless you're, unless you know how to arbitrage, and you're making more than you're paying an interest. So it's, it's too general to say life insurance is a bad investment. It depends on whose hands it's in and what assets they're buying. Like if you're using life insurance to buy, you know, timeshare Yeah, that's a stupid ass investment. Like you could have done a lot better. We're gonna have to warehouse our capitals somewhere. Yeah. What are our options? And then of our options, life insurance fits in there as probably the most efficient, the most strategic tool to have a portion of it. Cause there's still reason to have operating capital in the bank and things like that. But, you know, when you're talking about creating leverage on the dollar, how can we create, how can $1 work for us in multiple ways? That $1 in the insurance policy is creating insurance, it's creating a tax free interest for that year, It's creating accessibility and it's protecting our family and it's giving us downside protection. And then we put it into cash flowing assets, they're gonna cash that money back. If it were sitting in the bank and we go put it into an asset and we get cash flow, what are we gonna do with that? We're gonna put it back into the bank. So it's also understanding, are we borrowing from ourself? not really. We're borrowing against our asset, right? Mm-hmm. so people will kind of sometimes, Question. Like, what, Why would I borrow money from myself? That's stupid. I'm paying interest back to myself. But we're understanding, really the loan is a function of continuous compounding interest and not paying tax. And wealthy people loan money from entity to entity all the time to not pay tax. It's a way of transferring money, but no tax. So this is a way, transferring our equity from our insurance policy into our asset without paying tax. And then we're just gonna, Oh, I think countries do it too. We've had currency swaps going on for about 18 months now. Absolutely. Like, just move, move the cups. It's all Shell game. That's right. One of the things that, that started happening, like as we've entered this bear market, a lot of, like, you know, people in their fifties and sixties who have watched me come from practically nothing, a negative net worth into, you know, a much different situation. A lot of people come to me and ask advice, What, what, what do I do? What do I buy? Because they've, they've been sold, you know, 401k, 401k, they, they've been using that store of value that you talked about, the warehousing of cash. Like a lot of people were using IRAs or 401ks, cuz it's all they, it's what they were told to do. So they're just plowing every, every extra dollar they can in these garbage mutual funds. And then someone talks them into buying something, you know, in a taxable account and they, they look at that and say, Well, you know, life insurance isn't an, or insurance in general isn't an investment. Well, Look at the protection, look at the benefits. I would encourage you the next time you put money into a taxable account, like into something like a mutual fund or an etf, think about your risk. Think about this bear market where we've had already a 25% correction and likely with a few earnings reports and some layoffs. We're going way the hell below this. But think of the downside risk in that and think that, they're still getting paid if they lose your money. Whoever sold you that product gets paid a percentage of the gross amount of what's left, even though they lost 25 or more percent of it. It's easy for me to say, Alright, my warehouse for cash is safer.... insurance is a safer warehouse to me than mutual funds. Or, you know, the other things that people commonly invest in. But the biggest reason, like, there's so many other advantages. For me it's I'll pile 20 grand a year into that easily as a segment of my net worth. Because I know I have long term care insurance, I've got chronic illness, terminal illness, I've got, you know, my nursing homes paid for. I can point at the one on the hill and say, I want to go to the nice one. I have that choice. But also, you know, another example guys, I, I don't, thankfully, I mean, other than going to get blood panels, I don't really use healthcare at all and I haven't had to in 40 years, which I'm really grateful to be able to say that. So I'm part of a low risk pool. I actually buy health insurance through life insurance companies because I'm underwritten on my health, not the bad health of so many other people. Mm-hmm.. But I know that there's a chance, one in four chance that I will actually get a terminal illness. Like I, there's a one in four chance that I could have major cancer and those, that private, plan can actually kick me out. I have 18 months, but, and at the end of 18 months they could kick me out and then I have to fall back on way more expensive premiums or maybe pay a lot more out of pocket by both of those things. So for me it's also a healthcare plan contingency. There's just, there's so many advantages, so many reasons that I'm willing to invest money there versus let it sit in cash or, or gold or Bitcoin or anything else. Cause I mean, look at what gold is doing right now. That's, our historic store of value. It's not behaving the way it should. It seems to be tethered to, to risk assets. And there's a chance that it could go back to, to industrial metal, you know, levels. But your life insurance, depending on the product. If you, if you buy a good product from, from a, a qualified professional, there's a lot of garbage in the marketplace too. Guys. Be careful who you do business with. Um, well, I couldn't believe how much crap there was. You need someone to help you navigate it.. But to me, there's just so many things that protect my family, my business, my net worth, everything I've ever worked for. and those surprises like getting cancer or, you know, having, you know, MS or als or, you know, those things that, that are a reality for any of us. Uh, we're human. Like insurance can bring you to peace, like knowing, okay, I've, I've planned for all of the worst outcomes. Now I can relax and just go live life at a hundred miles an hour if I want to, like, go live your life. But for me it was a lot of, it was scary as hell in the front, I won't lie, like to commit to a 20,000, $18,000 and, and in annual insurance premiums when I knew for me, my mindset was, I don't touch this for 10 years. It's in my 45 year old bucket. So I bought it at 35. It becomes part of my investment strategy at 45. I'm not, I will not touch it before then because that was kind of the, the way it fit into my thesis. So, it's, it's scary as hell at first to write $18,000 in annual premiums and on the front end, you know, it's just, you guys understand amortization tables, like in, in a mortgage, it's all interest in the beginning. So you see higher fees in the beginning and you're like, Oh, that guy made all kinds of money off of me. It balances out over time just like mortgage interest does on an amortization table. You know, that portion of your premium that you don't have in cash value early, sure there's a commission page to the advisor, but he, he's not getting all of that money. Think of it this way. Yeah. The insurance company has risk. So it's like, Chad, if I'm the insurance company, it's like, hey, you're, you're paying $18,000 and a meaningful amount of that is not in your balance the first year. Well, why? Well, well there may be, I don't know how much life insurance it is, but like a million dollars, 2 million of insurance, whatever, whatever, 500,000, whatever the number is, that's my risk if something happens to you. So I can't afford to support our policy holders if I give you a hundred percent cash value t he first year. I have to hold a little bit. Now, in year two, you pay a premium, we withhold less. And it's kind of crazy thing about like, cuz you're still here, so you're three, you're still here withholding less. So then eventually it's like the insurance company's kind of giving you your money back, theoretically as you continue to be here and their risk is going down. And then especially when we're young, we know the probability hopefully, that you're gonna be here when you're 45. Hopefully there's protection if you're not, but hopefully you are. So at that point now you are, you are winning every year moving forward because you are getting, you've got access to all of your capital. You're getting whatever interest is crediting, is compounding, is not being taxed. You are playing, you're playing chess, and everyone else is playing checkers. And that's what people don't understand. you're borrowing against yourself. Instead of the bank taking advantage of this, you're getting the permanent insurance inside of an asset that, or long term asset, instead of paying to and losing and losing all your money. And then all of a sudden the IRS wants to tax, you know, interest on other safe assets and now you're removing their tax. So it's like we beat the irs, we beat the banks, we beat the insurance. You know, it's like I'm in the insurance business, like nobody likes insurance companies, but so you have to learn, understand the game the insurance companies are playing, understand the game the banks are playing, understand the game, the irs, and they all have to win in their way, but they do give us the opportunity that we can win as well. And that's what, that's what your policy does for you. Yeah. So I wanted to bring that up just from a mindset standpoint. I think it was Einstein that said, if you, if you judge a fish by his ability to climb a tree, he'll always be an idiot, right? when You're looking at insurance products, if you're saying, What the hell, I invest $20,000 a year and in five years I only have$10,000 if I change my mind? Like you have to have the right long term mindset. This is when you get to this level, and remember, we're on a progression. I'm not suggesting anybody start with these types of products like an index universal life. You grow into these like as, as you grow as a professional, as your net worth grows, as your level of understanding and sophistication grows, these become really, really valuable leverage tools. But if you're at that point where you're, you're doing well, but there's still a surplus, that's when you start to look at and you know, you guys have heard me challenge people: what kinda man are you in 20 years? And this is part of that conversation with yourself, like, I'm the kinda man that has rock solid, financial foundation for me and all those around me, and it will be easier and easier and easier every day as my net worth compounds. If you have that type of mindset, if you're, if you're in that point in your story, then it's time to look at things like this and start investing now for a new highly advantaged strategy 10 years from now, or 15 years from now, or 20 years from now. But you've gotta have the right mindset of, I'm gonna pay my dues, I'm gonna pay up front, I'm gonna be patient, I'm gonna be consistent. And then you'll have a huge advantage on the other side of that. Whatever that vesting period is, that's where you really unlock the advantages. So some insurance you can buy with a short term mindset, I just need something today to protect me tomorrow, and I just need the basics. As we move toward these more advanced products, you need to have a long term mindset, like what kind of person are you in 20 years and does this get you closer to that or further away from? If you already have real estate portfolio, you've got multiple streams of revenue, you've got consistent business in your small businesses and there's still a surplus, that's when you know you're better off. You're, it's gonna get you there faster. If you have an extra $5,000 a year and you buy this before you make any other investments, then that's probably not the wisest thing. So I just want you to understand, like identify where you are on this spectrum and understand that that, you know, one insurance product is a great fit for somebody like me, And it's a terrible idea for somebody who's 18 years old with 25,000 in student loan debt. Pay off the damn debt first before you, you use a product like this. There is a scripture that is exactly what you just said. It's Matthew six of the New Testament 24 says, therefore whoever hears these sayings deemed them to be a wise person because a wise man who built his house on a rock, when the rain, when the rains descended, the floods came and the winds blew and beat on the house. It did not fall because it was founded on a rock. and then yet everyone else, the foolish man built his house on sand. So the rains came and the wind blew and the house fell down. If we are on our way and we don't have insurance or we have wealth, but we don't have cash and we don't have protection and preservation of capital, all of that is built on sand and we don't have to go back very far to 2008. And we found out whose house is built on sand. Yeah. And we're about to find out right now whose house is built on rock, right? And so the insurance and the cash value is essentially the foundation or the rock of someone's plan, of someone's wealth plan. And in my opinion, like that really can't, mathematically, that can't be argued because of all the values that you mentioned, cash, tax, insurance, healthcare, all these things compared to just cash sitting in the bank, you know, or debt is out of control. So, you know, anytime if someone could be worth a hundred million dollars or negative net worth, it could all be built on sand. And I think that's kind of as you're evaluating your balance sheet and your plan is thinking about understanding, where's my rock? How do I build a strong foundation so that all the bricks I'm stacking on top, no matter the marketplace, no matter the storm that it doesn't, it doesn't like crumble down. and so, and, and that, and to me that that's financial wisdom. Yep. And that's, that's a great metaphor and a good segue too. We are, we're at top of the hour. I don't, don't wanna take too much of your time. I do want to ask though, You know, I said I had to self-educate in this space and I've spent hundreds and hundreds of hours, you know, studying this and figuring out what was right. Unfortunately we didn't know each other a decade ago. But, what would you say is for someone who's like, at least intrigued by this conversation, and they've made it this far, so you surprised you, you win the gold star for being as big as a geek as we are, or being so like, so financially driven, Like you're so clear on your passions and purpose that you're still here, so kudos to you. But for someone who, who's intrigued by this but not ready to, to they don't understand it enough to make a a decision, what would you say is the best educational resource where they could learn more on, on their independently? And also if you want, you could feel free to, you know, let them know how they can get ahold of you to, to get this, that one and the same, or to, you know, they can educate themselves and then have you fill in their blind spots. Sure. Well, the, be the beauty of technology, I mean now on YouTube you can find just about everything that, that we've talked about, you know, And that doesn't mean that it's all like, Perfect. But there's a lot of really, a lot of really good content. So just kind of referencing anyone understanding: keyword here is overfunded, but overfunded, IULs index, universal life, understanding overfunded whole life, overfunded whole life, kind of the same, utilizing self banking or banking on yourself or just kind of those concepts. Infinite banking is terms, I'm just giving you, terms that you could type into YouTube and you probably get some pretty good content. You'll hear sort of the same from everybody and you'll hear different perspectives. You know, you're really looking for the concept and from that point then it's all about the right person to help you. And maybe there's a great person there locally. The, I think always the best thing to do is ask someone, you know, ask Chad, ask somebody else who's done it, who you know. Who do you recommend that I speak to? as far as my information, probably best would be email. It's So john dot m as in Michael dot white, like the color at nm like nancy And so, you know, I'll do whatever I can to educate.. All this comes to the point of the right plan for the right amount at the right time. And there's nothing wrong with doing homework even before and preparing for moments that that will exist in the future. You know, just like learning real estate, even before you really have the capital to do it, you know, look at someone be doing now is now's an opportunity to educate yourself. And eventually, most of the time, someone who's a millionaire, especially self made without a big income, is they're also self educated. And you don't have to know every answer. You just need to know enough, and you need to know who to talk to yep. Well, John, listen, I appreciate you being one of those people that, that give access to, to my community. I would somewhat disagree with your advice to go to YouTube so what I'll say to you guys is just be careful who you take advice from. I don't take it lightly who gets invited to actually share their opinions and their knowledge with you guys. And you really shouldn't any out outside of this forum. You shouldn't either. Underwrite the people you listen to before you take their information is truth. The one thing I found a lot of people think they understand overfunded and life insurance, self banking, IULs.. there are products out there that, that aren't great. And there are people who really don't understand what they're selling. They're just looking for commissions. And I will absolutely vouch for, for John that he is not one of those people. We didn't do this to sell you guys anything. It's just something that. I, I have realized so few people know about, and that's really not okay with me because I think it's such a powerful tool. If you use it in the progression that we talked about here today. Start with what makes sense. Start building your rock before you start building your house, and otherwise don't build, you know, you're not gonna have a stable, a stable house ever. So, hopefully this has been intriguing for you. Hopefully your, your gears are turning, Yeah, thank you. Don't, don't execute off YouTube. Just sort of like, that's like the very high level observation. Yeah. After that, it's the who, it's always the who's always the answer. You know, who do I know that knows the next who? You. Yeah. And there's some, there's some prominent people out there that could show up on YouTube that are gonna say, life insurance is the absolute most garbage thing you could ever buy. But some of those people also say, using credit cards is stupid and I make thousands of dollars back packs free on, on rewards points. So, um, yeah, be careful. Even, even if they're celebrities, even if they, they have a sterling reputation who gave them that reputation. Among who, is it among people you wanna be like, or do you see yourself being more successful than those people? A lot of advice, a lot of bad advice is given with good intentions and it's meant for a certain audience. So you have to, again, like we said in, in this spectrum of where are you and your story. Who are you in 20 years and who should you be taking advice from? And you know, that's like, so that we, we, we could go all day about that, but there is a lot of great information out there, even if it's just for entertainment purposes. I don't know how many hours I've watched on finance and, and insurance and other things. Like I don't watch sports, but I'll watch, I'll watch this show for an hour and talk about insurance. Right. Pro. That's what pros do. Well, John, thanks so much. Very grateful for your time and uh, I'll talk to you soon. Yeah, thank you Chad.

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