Transcription
The biggest problem that I have when I start talking to people about insurance, if they've done a lot of research on YouTube University, is there's a lot of bad math out there. I think as advisers, we need to be very accurate on the math and tell the truth.
Hey, here's your savings account: the first three years you put money in, nothing happens. We keep it all. After that, it makes 1.2%, and when you die, you lose your money. No one would put money in there. I agree, that's fair. That's a whole life policy, so nobody ought to put money in a whole life policy.
Ninety-five percent of how people sell whole life is something that we actively call people out on. There's probably people in the life insurance industry that hate us more than people that are not in our space because we're exposing them on the PS.
All right, guys, the time has come. We're going to be reacting to five videos that the team has whipped together. I think some are going to be pro-life insurance, and some are going to be very anti-life insurance. I know that because we have a Dave Ramsey video in there, and then there's a couple other people that I've recognized.
We got Dom, we got Dem, we got Alden, and we're in the Better Wealth studio. We've done reactions, but I don't think we've ever done a four-person in-person reaction, and I can't wait.
So, to knock this thing off, we got our boy Chris Cron. I've never seen this video, but let's tee it up and see what he has to say.
Get a whole life insurance policy. I'm not talking about insurance to invest in your death or for your loved ones to get some money when you die. I just do term insurance for that. But I'm talking about whole life, and what whole life means is I can take every month my leftover money and I can put it into an insurance policy that I can access.
It's a high-value early cash-out policy. Write that down. It's a special type of policy that your average insurance broker will not pitch you to. They don't make a whole lot of commission pushing this product, but it's very intelligent for you.
So every month, I roll and write a massive check that automatically debits out of my account, and it will go into my whole life policy. I can borrow this money, I can use it, I can bank it, but in the meantime, it's growing at 6 or 7%. It's also untouchable.
I feel like, which company is he with? No, what did he say? He's like, it's a high cash value, like cash-out policy. He used all the keywords, put it together, yeah, his own special product. So he's getting 6 and 7%.
Here's my thing, Chris, if you're watching this, I would love to see your policies. Let's do something. Let's see what you have. Because I'm sure he's doing this; I just don't know how much he, like, you know, how some people get a name about themselves that they overhype something or over-pitch something or maybe over-exaggerate.
Sometimes I get the sense that he does that in a lot of different areas, but it is really cool that he's a fan of this, and I'm sure he has it. It would be really curious to see how he actually uses it.
What was the part that you feel like he overhyped? That he writes massive checks to the insurance company every month? I just don't think that's what he actually does. I call cap on that, but I believe he has written massive checks, just not every month to insurance companies that are high cash value.
I think he has probably used them for real estate, so I'm sure. I just, and I could be wrong; he might be doing it. That's just my initial reaction when he says that. I feel like you get less credibility when you say things like that because those of us that know what's going on are like, "Are you?" Maybe, but are you?
What are your guys' thoughts on the 6 and 7%? I mean, in my high-value cash-out policy, I make 15. So, not investment advice, not investment advice.
It's funny because I think what he's exactly quoting is likely to declare a dividend rate. Actually, now that I say it out loud, I don't know any sevens. So maybe this is, to be fair, this was a while ago. I think he looks a lot younger than that.
It's either that or it's the taxable equivalent yield or something like that is what he's trying. I'm not saying he's right; I'm just saying that could be what he's doing.
Math in his head or misleading? Yeah, I think part of the biggest problem that I have when I start talking to people about insurance, if they've done a lot of research on YouTube University, is there's a lot of bad math out there.
I think as advisers, we need to be very accurate on the math and tell the truth. Now, Chris is an adviser, so I'm not going to throw him under that bus, but it's something that if we're going to be talking about this as insurance professionals, it has to be factual and it has to be accurate.
If it's not, it's unethical in my opinion. I think from a marketing perspective, this conversation is very hard to describe the return on whole life in general. So I understand why he may have picked this number and said, "This is the thing that I'm going to die on the sword with."
But I think over time, we have tried to learn how to speak about it in a way that we feel proud about. Some of the language that Caleb and I have used over time is "long-term," and we use the word "long-term" because if you look at life insurance in general, the first year we know it's a negative return.
So we say long-term, you can see roughly on the conservative side close to 4% IRR. Because if you talk about IRR versus rate of return, depending on any year, it could be a lot different because your IRR could be very low early on.
But realistically, when you put a dollar in, there's a point in time, not that too long, where you're going to get $2 back, and it actually could be like 100% rate of return for dollar-for-dollar for cash on cash.
So it's slightly different depending on what topic we're talking about, and you know that's why it makes marketing very complicated. But for us, it feels very slimy, which we don't like.
I got to admit, I feel like sometimes when we use the term IRR, it's like we had to learn how to explain it ourselves. And then when we tried to explain it to a consumer, especially for the first time, it's like people don't think of rate of return in the way that IRR is calculated.
So that's just something that we have to take into account. People normally look at it from a cash-on-cash year-to-year perspective, which, you know, depending on where you're at in the policy, maybe it's getting somewhere around 6%.
But I wouldn't want to push that because IRR is a better metric in terms of total cash in return. Exactly, total cash in versus how much do I have.
To give Chris a little bit of benefit, you can say long-term if you have an income rate of return of 4.5% or 5.5%. Sure, with a taxable equivalent, meaning like this, if you had to factor in taxes, if you had to factor in other things, that's where you could say life insurance gets a 6, 7, 8, 9, 10%.
The point that we're all making is it's just a slippery road. We know people that literally use the dividend rate because that's what he really is doing. He's looking at the dividend, and that's just it.
I don't love when people quote dividends; I feel like it's very misleading. It makes everybody look bad because the consumer, when you're hearing you're going to earn 7%, what do you hear? You're going to earn 7%.
And when you're not, that's it. It feels like you just lied to me, and they have a good point. Then whole life becomes a scam.
Yeah, it's like just tell it how it is, and people who want it will be attracted to it. People who don't will be repelled from it. That's fine; it's like the N marketing.
Okay, on to the next video. If I start pitching you a savings account on TikTok and I said, "Hey, here's your savings account: the first three years you put money in, nothing happens. We keep it all. After that, it makes 1.2%, and when you die, you lose your money."
No one would put money in there. I agree, that's a whole life policy, so nobody ought to put money in a whole life policy.
Kind of policy, I think he done built. You know, I mean, it's pretty apparent. It's like an all-base policy of what we would call it, right?
So I'm just going to start with, because I'm not going to get into the logistics of how life insurance works, I'm sure you guys will be better off suited with that. But what I would say is when we're listening to Dave and you listen to Chris, they're both using marketing but in the opposite direction.
Chris is over-fabricating what life insurance does, and Dave is under-fabricating what life insurance actually is. Yeah, right, that's absolutely true.
It's comical to me for a couple of reasons. There used to be a clip of Dave Ramsey on his show talking about his permanent life insurance policy that got removed about five years ago.
I think there's an aspect to, I should say, there's an aspect to truth to this that I think Dave is talking to his market, and his market needs to hear this in his opinion.
Like you're saying, it's a marketing thing, but to the design side of things, a whole life insurance policy averaging 1.2% return long-term policy that's not a mutual company because the dividends would be kicking in, it's way better than that long-term.
Even if you designed it, even if you design it with all base insurance, no paid-up additions, no bells, no whistles. So I think in a vacuum, the statements that he's making could be true for a very, very small...
Can we all agree if that was what whole life insurance was, we wouldn't be selling it or owning it? We'd be in a different career.
Yeah, I mean, I'm 100%. So what he said, nothing for the first three years earns 1.2%, and then they steal money when you die.
Yeah, I would love to talk about that aspect of it as well, but all three of those things could be refuted pretty clearly.
Is it possible to have early cash value in the first three years? Yes. Is it possible to get 400% greater return than what he's promoting on this in a life insurance policy? By the way, Dave, no risk, you know what I'm saying?
Like he's all about factoring risk, and then do they steal your money when you die? No, no, no.
And let's talk about this because they say you don't get the cash value, so why don't they steal your money when you die? So this is a question I got a couple days ago, actually, and we were looking at a policy where we're doing 10 years of payments.
All right, in the first 10 years, the death benefit doubled, and in the latter 30 years, it tripled. So you're buying in this, I don't remember the exact numbers, but let's say you're buying $100,000 of permanent life insurance.
But because of the way it's structured and because of the company, that company ultimately grows your death benefit. Let's say it's a million dollars by life expectancy. You're paying for $100,000; it grows to a million.
The fact that there's cash value is a byproduct of a permanent life insurance policy. So your cash value in, you know, 20, 30 years could be half a million dollars, but your death benefit has also been pushed really, really high up.
So of course, they're not going to give you both the death benefit to your beneficiaries and the cash value because the cash value is the net present death benefit.
But what if, Alden, they could, what if they would say instead of increasing the death benefit, we're just going to pay you the initial death benefit plus your cash value? What would be better from a taxation standpoint?
The death benefit. This is an easy, easy thing. If I could get an income tax-free death benefit, sure, or I had my cash value, which then I would have to pay some type of tax on the gain, most likely dead.
But no, you hear what I'm saying? Like there's a world where, and where it's so interesting that what you're saying is the death benefit will grow.
Like it's really not, they're not stealing your money. I don't know why this is still a talking point. You actually get more money than what you've put in, but the fact that you don't get cash value very much like the other side, they'll take a talking point and, in my humble opinion, misrepresent what's actually going on.
But to be fair, Devil's Advocate, you pull out an illustration. Nobody that knows nothing about life insurance, and you look at it, all three of those can be true. You can design an all-based policy, the first couple years, no cash value.
You essentially have an IRR that doesn't break even until year 7, 8, 10, 11, 12. That's still 0%. By year 14, you may now get like 1% to 1.2%.
And you ask the question, "Hey, do I get the cash value and the death benefit?" The answer is no. So in theory, to Dave's point, if you look at it, the uneducated person would say Dave is correct.
Yeah, come work with us. The links below if you want education or want to talk to someone that doesn't get you a policy like this. That's why we're in business, I guess.
All right, let's tee up this next one. Some people are peddling whole life insurance like it's a good investment for everybody, but you know better because you follow me, Vivian, your Rich BFF, your favorite Wall Street girly who can break it down.
There are two main types of insurance: term life, you're probably familiar with. You pay money so when you die, your family gets a little something. Whole life also has this death benefit, but also has an investment component that allows its value to grow over time.
A lot of scammers on social media are selling whole life insurance, IULs, NPIs, whatever they want to call them, as a good investment for everyone. But in reality, these are only good investments for high-net-worth folks because the upfront fees are so high.
In fact, MetLife determined that a 30-year-old male could pay $672 a year for 20 years of term life insurance and $832 a year for whole life insurance. For the average person, the upfront cost of whole life insurance would be better invested in the stock market, seeing meaningfully higher returns.
And for all the times that whole life was touted as this amazing investment, they miss one big caveat: it only makes sense if you already have a lot of money.
I mean, I got to give her flowers; she's incredible. Like, you're doing a good job. Good job, you're wrong, but you're doing a good job.
Well, I mean, she's not like all wrong from a standpoint of like it's not like good for everyone per se. I will say she is wrong when she said it's only for "rich people" or whatever she said there.
It seems like she was taking the standpoint of the death benefit specifically because she was comparing the cost of death benefit. It's like, well, sure, if it just depends on what you're getting the policy for and how long you need it and if you care about legacy and things of that nature.
So when you say she's wrong, what areas in the video was she wrong in? Well, I think for the first part when she's talking about the different types of life insurance, term life, whole life, then within whole life, there's IUL, there's, you know, all these other buckets.
There are many different types of permanent life insurance. Whole life is a singular product. Beyond that, I think from a perspective of the death benefit coverage, right, comparing term insurance to permanent insurance is, I think, a very wrong comparison because one is guaranteed to pay out, period.
The other one, you could think of it, I think I've seen another one of her videos where basically term insurance is you're still gambling on you dying, but it's a lot cheaper because you are gambling on when you're going to die.
As far as the death benefit being paid, permanent life insurance is permanent. It's going to be there whenever you need it as long as you pay your premiums, and so it's a huge difference in the value of those products.
And so I think the just isn't fair. Yeah, I honestly have a hard time watching TikTok videos now for this reason, and a lot of it has to do with, you know, we were on Bobby Samon's podcast, and well, he was on ours, and he came on the show.
He said that people like you guys need to be on TikTok more because you guys need to fight the good fight because there's too many TikTokers that are on there sharing information that just doesn't make sense.
To all of the points, right, we could argue all day of like this is good, not good, etc. The problem that I have with this is the lack of context, and essentially she's doing black-and-white answers on what is true and what's not.
She said that S&P 500 investing is better across the board 100% for better people, like with a definitive answer, and we know that that is not correct based off of the individual and who they are, what they're trying to accomplish.
If we give blanket advice across the board, you can get people into trouble and, at the end of the day, prevent people from actually showing up and living their one life.
Yeah, no, I agree with what you guys are saying. It's very interesting to me that she's making statements, and for the most part, I think we agree with these people more than we disagree because that's what makes us different in the space.
I mean, we actively call people out on 95% of how people sell whole life. Correct, and that's why there's probably people in the life insurance industry that hate us more than people that are not in our space because we're exposing them on their BS.
So I think there's, so the first and all, like sometimes we can almost make these people the quote-unquote enemies, but I actually think it's like, actually, no, this is why we're doing what we're doing because if life insurance is going to make sense, it can't look like that for obvious reasons.
And that's why we're in business. So, yeah, I think I really appreciate what she's up to, and even she said it doesn't make sense for unless you have a lot of money.
Could it actually be true? Because we have limits. What we say is if you can't at least save $110,000 a year or more, this might not be right for you.
Well, how many people in America can actually save more than $10,000, right? I mean, that tells you how privileged we are to even think like we're not wealthy, but we can save over $10,000 a year, where most people aren't.
We would all tell them if they called in saying, "Alden, I want life insurance. I want permanent life insurance," and we look at their situation, we wouldn't even sell them or let them buy it from us because we wouldn't.
So in a way, like, yeah, she might not agree with that. She might think like you need to be worth 1 million. I don't know what she doesn't, you know, say anything more here, but I think there's actually more that we agree.
It just is unfortunate because these people have to make videos because there's such bad information out, and because we're nerds, and then we can be like, "Well, actually, if done properly, this is how it could be an asset."
But the problem is if you don't have that asset, people are going to get peddled garbage. So, yeah, there's my Rich BFF, Vivian. I'm a fan of Vivian. I like that name.
Here's life insurance explained in seconds using a third-grade stick figure. All right, this is Don. Now he makes $75,000 per year with his job, and he has a son named Kingston, a daughter named Snow. One's 2 years old, one's 8 months old. He has a wife named Dana; she's 29 years old.
Now they have a mortgage of $600,000 and also a credit card debt of $5,000, a car note of $26,000, and ongoing living expenses of $40,000. Now Don gets hit by a truck, and he dies unexpectedly. Extremely sad.
Dana goes to the funeral director; his name is Fred. Fred the funeral director says, "Hey, it's going to cost $10,000 to bury Don," and she's like, "What? I didn't even know it was this expensive."
On top of that, you still got the $600,000 mortgage, you still got the $26,000 car, and she has to figure out how to replace Don's salary at $75,000 per year. But Don was smart before he died; he bought a life insurance policy for $750,000, and guess what? Life insurance is tax-free, so Dana got $750,000.
Yeah, man, I first of all love the hustle, love the pictures. I think it's a good example of how life insurance death benefit can be essential for growing your family.
I think if people have never understood how life insurance actually works and see that picture, it's like, oh, they start to put themselves potentially in that person's shoes. They may want to get themselves a $750,000 life insurance policy.
Yeah, I'm doing the math, and it's like I wish our boy Don got more life insurance. Let's walk through that math real quick.
So if I can squint here, we got $600,000 of a mortgage, we got $26,000 a car, and we're trying to also have to pay for burial, $10,000. So right there, we got about $650,000, and then we're also trying to replace one year of income for his wife and his kids.
That's the problem I have. So let's break that down. Someone could look at that and say, "Don, great job! You didn't leave your family in a burden." But I think you would have a different take.
Yeah, so two takes. One, in this situation, they may have a paid-off house, but they have no income, so they got to sell the house and move out anyway. The other way is, okay, well, maybe they stay in the house; they take that $750,000 to pay the mortgage and their expenses just to get by.
In my opinion, when I do planning, there's a couple things that I want to see. If we're looking for a death benefit protection, I want to make sure that the kids at home can get into and out of high school without having a big financial problem.
If something were to happen to the key breadwinner, paying off existing debt, at the end of the day, when you're walking through the death of a loved one, death of a friend, those types of situations, you don't want to be really worried about money.
You want to be able to just move on and take care of the situation you need to take care of. So in my opinion, this isn't enough death benefit protection based off his salary.
I look at this, if we do the 4% rule, which is like a typical rule that people use in retirement planning, if he's earning $75,000 a year and we're not assuming any inflation adjustment, that's a $1.8 million.
Essentially, $1.8 million, $75,000 at a 4% rule would produce about $75,000. And so to your point, the criticism would be what is more valuable, a paid-off home or the actual ongoing salary?
And if you're going to do proper life insurance protection, you should look at your current obligations, but then you also need to look at the asset, which is your life.
We can all agree that your ability to earn and create is your greatest asset. That would be like, I love this example, and I love it a lot because it breaks down the power of life insurance.
The only maybe tidbit that we could add is Don needs at least one more million on top of that, and then you could show how it pays their liabilities and supplements the income for a period of time.
So the question is, is whole life for this guy better? I think it would depend on his cash flow, right? So if we're looking at a pure protection play, I think life insurance exists to protect families, preserve capital, and provide stability.
It's something Bobby Samon said; I think it's amazing. So from a protection standpoint, if what we're looking for is death benefit to mitigate the risk of a passing, we can do that in the cheapest vehicle possible for the shortest amount of time possible.
But what happens when that term is gone? Right? Let's just say he has $10,000 of cash flow in this example. Should he have gotten whole life instead?
I think it's possible to consider whole life, and if our minimum is $10,000, that's what we're talking about. I think whole life could still be a great asset because I don't think maybe they mention the age of the kids here; I missed it.
But if you think about it, if you're putting in, if you have the ability to save, let's say $10,000 a year from age 2 up until they're 20, that initial death benefit, if we're focusing on cash value, is probably going to be pretty small.
But by the time that the kids are out of the house, now we have a much larger death benefit, and oh, by the way, we could probably be able to pay for their college.
So the cash value aspect is still very important. So I think what we know now, whatever Don gave him the most money when he got hit by that bus, was going to be the best option.
If we were going to do whole life, I think it would be important to be like, well, we still need to hit that $1.8 million death benefit. So that would be like the thought process is let's get there.
But let's play this out. Let's say he had $750,000 term. Don, which Don do you want to die? Okay, this Don or the Don that does whole life, and you're automatically going to have more death benefit tied to it.
So I think it's going to be like, it's not, I think it's not an either or; it's an and. But I think the real takeaway in this video is just because you have life insurance doesn't mean that it's the right amount.
Maybe that's the call to action: get more life insurance. If, yeah, know, maybe that's... and was your question to Alden, like if they had $10,000 to put into life insurance, is that what you asked?
Yeah, based off cash flow, if you had $110,000 saved annually, should we put it into whole life, or should we just get term, or what should be the solution?
What I've taken away from listening to everybody here is that, and what you really said at the end, which Don do you want to be? You don't know; you only have one life, and it could be tomorrow.
So you have to prepare for today and also for the future. The proper risk management accordingly makes the most sense, and looking at all the solutions and being able to talk to somebody who knows what they're doing to ask the right questions really is important.
Because trying to do this alone, it becomes very complicated. And I'll say this from a life insurance perspective. I think, you know, us being in the life insurance world, I think it's oftentimes we want to talk about how much life insurance does one need.
I'm like, the necessity only comes into play after you have the conversation about what you would want from a life perspective afterwards. Right? So it's like, hey, I want my income to be replaced for the next 15, 20, 30 years.
Well, it may necessitate you getting enough coverage regardless of the type. Unfortunately, most people do what I call "Sugar Daddy planning." You pass away; your wife has to find a sugar daddy.
So the fact that he's got insurance, the day that really threw me for a loop. I can't believe Alden said that to that person. Good for him.
So he's not just making that up, ladies and gentlemen; he actually says that in meetings. I mean, you think about it. I don't know if it landed as well as you thought.
It's funny, though, because that's the other side of it. The spouse is like, "Well, I don't want to have this massive death benefit because if I die, I don't want her to take all that money that I had and go run off with another sugar daddy."
Anyway, so there's two sides of the coin. Two sides always. I mean, there's legacy planning that you can do. You're insecure; you always find reasons not to do decisions.
But to Demetri's point, too, you could put trust and other systems in place to help mitigate some of that if you really wanted to.
Yeah, if you get married, all this money goes away. All right, only 2% of term policies ever pay out. People think, "Well, life insurance companies make money on whole life." No, they make money on term because you pay all that money in and you don't die in that term.
Less than 2% of whole life policies pay out. That's a... I've never heard that statistic. That's amazing. I can sell term all day long and make more money than I make on whole life.
Only 2%? Oh, Mary, don't do this to me. All right, such high expectations. I want to start by something, and it's something that I think actually would be a very good video that I would actually love to do some more research on and come back to.
Bobby Samon actually did a very intensive blog and intensive research sharing that the 2% of payouts on term insurance is actually a myth, and it's just one of those things that just gets shared in the industry.
Just a future play layup, I'm going to figure out why that is because I, for higher or lower, I don't know. That's a good question. Probably higher, I would say.
Yeah, everyone just uses the 2%, and it's like, who? How do we actually know that? What's funny is, I mean, I haven't questioned that a ton, but it makes sense that Bobby brings that up.
So what are your guys' thoughts? Well, I think it's hilarious that she says I can make more money selling term insurance than whole life. Bro, no.
Me? Why do you think she said that? So there's something I've noticed in the insurance industry, especially if you do what we do as far as building cash value-focused policies.
We do take a commission hit on those as compared to a permanent life insurance policy with the same premium. So I think some people lean, "Look at me, I'm taking this big hit; I could make more."
So you should trust me. Yeah, for example, in a lot of cases, the commission on a term policy is whatever you put in that first year.
So if I put in $1,000 on a term policy, the commission would be about $1,000. And the way that we design it is, yeah, the premiums are going to be higher.
So if you put in $10,000, you're going to get a... you're not going to get $10,000, not the way that we design it. You're going to get a percentage of what we call the base, which is low.
But in almost every case, you're going to get paid more for permanent life insurance in the first year and ongoing versus term. It doesn't really pay you ongoing at all.
So it's just, I think you're right to give her the benefit of the doubt. It's like that, "Hey, I make less money," but it's like those kind of things that I go, "Why do we say that?"
And I probably said things like that in the past, but it's like, why do we say that