How Should You Design a Whole Life Insurance Policy?

So overfunding is essentially where you are putting as much cash in as possible and getting as little insurance as possible. If something happened to me, I want my family to live the same lifestyle, if not better. Sometimes that might be like you lose flexibility being just minimum funded, and that's a risk.

Hey guys, this is Caleb Guilliams. First off, debt is a function of your... Which insurance should you buy? I'm talking life insurance. And there's so many videos and philosophies, from variable life to universal life to index universal life to whole life to term and invest the difference. Some gurus and people on TV, you should never buy anything but term insurance. Other people think there's no reason to have insurance at all. Who's right? Who's wrong? Why don't we actually dive in and look at some of the numbers?

So, I brought a youngster with me that somehow grew a beard. I'm working on it. Wrote the book the AND Asset, speaking to his event coming up, and I just thought, hey, let's pull up your computer, look at some of these numbers and check this out. Like, the first argument is a lot of people, I think, misclassify life insurance. Totally. They think they're comparing it to investing. Totally. And I don't look at like my allocation towards my life insurance as an investment. Yep.

At most, I might consider an asset allocation decision where I would put money there versus a bond, right, in some situations. But ultimately, I look at that as like my short to medium-term storage of my cash that's available when I have opportunity. Totally. And if there isn't opportunity because I'm focused on other things, it's doing better and giving me more benefits than if I would allocate that to other places where people have liquidity and safety and some of those factors, right?

So like, some people like, well, I don't want to pay tax, so they use municipal bonds. But in today's interest rate environments where they're increasing, that lowers the value of your municipal bonds if you're already holding it. So that creates what's called capital depreciation risk, as you know. Other places people put money is a CD, but that's taxable. Yep. So I'm not a huge fan of that, and it's at banks. I'm here to tell you, like, I feel much more comfortable with mutual life insurance companies, right, than I feel with a bank right now in a higher interest rate environment. So, let's just take a look at like this as a savings vehicle and the multitude of benefits that come along with it. So, I see you have it.

Well, and I first of all, I just want to take a step back and you set the stage really well in saying what asset class are we talking about? The biggest criticism that people give life insurance is it's a bad investment, it's a horrible investment. And so what they're saying is they're comparing it to other investments and they're making the "or" conversation. They're saying this or real estate, this or the market. And I think you even talked about municipal bonds. We have to look at the utility and the results that come from having one asset versus the other.

And so I think the biggest epiphany that I had was life insurance as a paper asset is not an investment. When I realized that it could either be a foundational asset for entrepreneurs and people that want to invest, or it could literally be a part of someone's portfolio and it could be a multi-use asset that they could have as a part of their portfolio. Kind of takes the step back, and we're not saying, like, we're not bad mouthing any other asset class.

Let's talk about just people that are savers, right? So people that just like to save money, right? But they're scared because of the risk of all the different things. They're afraid of crypto. They're afraid of the market. They're afraid of real estate, whatever it might be. Like, if you're just going to save money, this is not a bad place at all to save money, right? From a stability standpoint, an availability standpoint, and a tax advantage standpoint.

Like, I think the majority of people that go through their lifetime investing, and there's ups and downs, and they let that, you know, impact their emotions, and then they cash out at the wrong time. So they need that money. So they go and have to, you know, because it's usually when the markets are down that people need the money, because that's when the economy's starting to have restriction and problems. And then all of a sudden when we look at it, by the time we account for inflation and fees and taxes and volatility, they're just not getting as far ahead as they hoped. And they would be better off in a lot of situations just saving it, not going through the emotional turmoil of this, right? And having it available.

I think two things, and we actually had, we were talking yesterday and we were going through all kinds of crazy content of what people are telling about retirement. For the people that subscribe to the whole retirement for the long haul, all that stuff, they should look at life insurance and they should literally take out bonds and use life insurance. And I'll say very confidently into the camera that an equities life insurance combo will beat an equities bond combination from a standpoint of short-term and long-term.

You and I both don't like the whole put money in and just let's see what happens for the future. If you're an entrepreneur and investor, you need to look at this as like a safe place, like you said, short-term and medium-term storage. Taking so much risk in their business, calculated risk often, and risk that they can actually mitigate and manage because they're involved in it. And this is what's an insane philosophy for a lot of business owners. All right, I just don't have time to deal with my finances. So, I have a financial planner. I just give them my money. They invest in something they know nothing about. They call it, oh, this is a diversified portfolio. I like to use ETFs and index funds and I'm in it for the long haul.

And they just ride that volatility, right? And I'm like, but how much frustration does that cause when that's down when you've worked hard, and how's that performing versus improving cash flow in your business or focusing on being more efficient? So, you're saving tax and having the right tax team, or you're saving on, you know, interest rates, because a lot of times if you have this, like if I have a cash value, I could save on interest rates. I've done that multiple times during different interest rate environments, or reducing your insurance cost in

...other areas like long-term care insurance. There's ways to reduce that cost or there's ways to reduce your term insurance costs because term insurance is one of those things that rarely pays out. We pay money into it. It may be low premium now. It gets to be high premium at the time that you might use it in older age, and so it gets phased out, and then people have their assets having to become their insurance, which means they can only live off their interest. They're now subject to the volatility of interest rates, subject to the insecurity that comes with inflationary periods, and they're subject to tax hikes that can start to confiscate their fixed income.

And so this notion of you're going to have this dream life at retirement if you just save enough and sacrifice enough and then finally you can enjoy life. People haven't had that enjoyment often because of markets, because of economies, because they're now going, "Well, this isn't what I expected. It didn't perform how I wanted it to." And as they find out it's not performing that well, they now have to add more money to something underperforming to try to get there, and they lose that time value of money.

I think that we discount stability, right? And certainty. And ultimately, if we have more risk-free capital outside of our business and then take the calculated risks in there, I think that's a different opportunity. And then even if there are great opportunities, which I think everybody has great opportunities that come their way. Yep. Just really great opportunities, they're often not liquid enough to do anything about it, and they often don't have the right mindset to even be able to be prepared because all their money's tied up and they're conditioned in how to think, right?

I think here we are in 2023 and interest rates have increased substantially, and people buy property often on payment, not on purchase price, in general. Maybe not investors, but just someone that's looking to buy a home. We're going to watch a pretty big dip in real estate in several ways. And those people with cash or access to cash are going to be able to do something about it and get those distressed assets before they have to short sell or go bankrupt and kind of help bail people out without the government having to get involved. Therefore, both parties win versus, you know, all of a sudden taxpayers have to lose in order to solve this problem. So there's a win-win in this as well.

So I think what we could do is almost walk through what is life insurance? Because the other big problem that a lot of people have is life insurance is a horrible place to put your money. You have no cash value in the first couple years, high commissions. We're going to cover all of that, including showing numbers, because I think if people understood, okay, the bad side of the life insurance industry, they would have more empathy for why you and I are up here saying like, you got to be very careful. People are using your books, they're using my books all day long to push their agenda. And unfortunately, they're using what would the Rockefellers do and then selling a product that's actually not what the Rockefellers would do, which is very frustrating to see. But that's why these videos are really key, because you probably know more about that than I do. Yeah. Yeah. Sometimes ignorance is bliss.

But so this, and you know, I'm sharing my computer here, the slide is essentially showing a person, a contract, and a company, because all life insurance is at the end of the day, it's a unilateral contract between you and the insurance company pretty much, which means if you keep up your end of the bargain, the insurance company from day one is on the hook to provide those promises not just now but in the future. And so not all contracts are created equal and not all companies are created equal.

Yeah, that's, I mean, a lot like where insurance gets a bad reputation is first off health insurance is awful. It sucks. Like, you know, second is disability insurance has been this contract where a lot of people thought they had something, it turned out they really didn't. And the key is when we're talking about a life insurance contract, what contract you sign is what you have. It's unilateral, right? They can't just go make changes later on and that kind of stuff, right? And what company you work with is important.

So the majority of insurance companies out there are stock, which means the owners of the company are not necessarily the people that have policy, right? And the stockholders take the priority to generate value for that stockholder over the policy holder. That's just the way that we've watched in the stock market for how long? How many reports and quarters have we heard about companies giving, you know, false reports or inflating their numbers or making short-term decisions to keep up their stock price? And so if they have a dividend that they're going to give and that would go to a policy holder and a stockholder, we're now splitting that dividend.

Yeah. So that's part of the problem. Or what's going to happen to that dividend in a situation where, you know, they got to do something for a stockholder. And if we want the best thing for our money, wouldn't we want all the financial benefits? It's like we don't want there to be a conflict of interest between one party or the other. We want there to be all the interest on us.

So you're about mutual companies. Mutual companies, you should have ownership and there should be no, you know, other alternatives there. The ratings have to be good and you want to work with companies that have been around for a while. If Gary Henderson starts up an insurance company, be careful. You know, they got to be around for over a hundred years, and that's like the minimum. And the rating. I mean, the problem with the rating is if you ever saw The Big Short, where they were basically outing the rating companies for not giving true ratings because they were getting profits by giving higher ratings. Like if they're not in the A's, for, you know, A's, AA, A, like it's like you can find some term insurance companies that are in B that you would never want to own a permanent policy with that kind of company.

A common question that we'll get is how safe, you know, at the time of this recording, banks are, you know, teetering. And here's the deal. Banks. And we could have a whole video on this. Let's go back...

To '08. Let's look at what happened in '08. Yeah. Right. Banking crisis, $5.5 trillion to bail out all the banks, right? How much money went to life insurance companies? Mutual insurance companies, not a single mutual insurance carrier that we're, you know, that are in our world ever was even close to failing, right? Because they're not fractionalizing at the same level, right? Because banks are getting money from the Federal Reserve, right? And they have these reserve requirements and they're lending out dollars more than once.

I mean, it's kind of a complex thing. I've written articles about it and stuff, but like that's part of the concern. We also have this rising interest rates. So, they have these portfolios of treasuries with low interest rates and when interest rates rise, if there's a bank run or people want their money for their bank, like we saw with Silicon Valley Bank, they now have to sell those bonds at a loss, therefore putting them in an illiquid situation. And high interest rates are putting banks at risk.

So banks have less than 10% of reserve. Meaning if there's a bank run, they only can reserve. You know, insurance companies have over 100% of the money. Like if everyone went to the insurance company and wanted their money out, the insurance company would have enough to pay everyone out and have an... Let's talk about how they create that profitability. That's an important notion, right?

First thing is they're very profitable in their term insurance portfolio. Correct. So people that are buying insurance that they're never going to use. Second, people buy permanent policies and then cancel them early, which creates an arbitrage for long-term policy holders because there's higher expense in those first years. There's reserve requirements, there's commissions to agents, there's, you know, underwriting costs and all that kind of stuff. So the fact is, you know, insurance companies didn't love it when all of a sudden there was stranger owned life insurance, investor owned life insurance, because they saw, hey, we're going to make a profit upon the, you know, when people die, this money is going to come in. It's going to be more than what was spent. So that's another factor.

Yeah. And also in our world, if you're accredited investor, you might get access to better deals than the, you know, ordinary, right? So what these insurance companies can buy... Oh. Because they can hold a longer term bond. Then they don't have to liquidate a bond. Silicon Valley Bank liquidated. When you have billions and billions and billions of dollars, you get deals that you and I don't even know exist, right? They're not public deals, right?

So you have that. They're also mortality. So all the insurance products are profitable. Hence why you want to be a mutual owner and participate in those profits. And yeah, I mean insurance companies are also playing the long game. They're also the only institution that's hedging both interest rate and mortality. Interest rate and mortality. That's why they can, you know, play the long game.

They're essentially pretty much a business around your death, you dying. So they're hedging that risk and they're also getting benefit of interest rates. And so when we say later when we show you that like you can borrow against your insurance policy and not have to pay that back, there's no other institution that allow you to do that because they're only in one element. They're playing the interest rate game. So they need your cash flow to come back. The insurance company is going to get your money when you die because that's something that will happen, so they can play the death benefit will pay off that loan, right?

So it's just one of those, like insurance companies are positioned for hard times and they're also not overpromising. And during 9/11, when there was, you know, people that died in New York City, insurance companies set up tables where people could go and start the process expedited for death claims. They were in a strong enough position because if you remember, 2000 was a really rough year for the stock market. I think you were two years old that year. You know, it was a really rough year for the stock market. 2001 was already a rough year for the stock market. We had two double digit losing years and they were still, you know, fine handing out that money and making those claims.

So like this is a different modality. Like could insurance companies go under? Absolutely. There are guarantee associations in each state that basically protect a certain amount of cash. Yeah, in some that's more than the FDIC is protecting. Yeah. And like the states that I'm in right now, they've never tapped into a single dollar, not one dollar in that guarantee association.

When I think back to 2008, I was like the FDIC isn't going to have enough money to handle IndyMac going under, Countrywide going under, all these major institutions are going under. I was like, what are they going to do? I guess you're just going to tax and raise funds for it. And that's what they did. They basically borrowed and bailed out these institutions where these insurance companies didn't need to be bailed out. They've been stable for much longer. They're not, you know, so that's an important consideration, too.

So, back to the person, contract, company. Obviously, the company needs to be important. There's probably only about 15 companies that we would work with that do this special cash flow banking and AND Asset style. So, if you look at the thousands of insurance companies out there, you can see why many gurus are like, I'm not going to get into the weeds. Life insurance is a bad thing. You shouldn't overfund it because it's just... Let me give a couple rules I have. Yeah. I would never have a life insurance policy with a company that did property and casualty insurance.

There you go. So, let's just talk for example, even if there's different divisions. Yep. That's really good. Let's just think, okay, Florida has floods, they have hurricane, they have all these issues, and that's tapping into Allstate. That's tapping into State Farm. We had a massive winter in Utah. Like so many claims are like that is a problem that you're creating additional risk, right? So that's one of my rules. I would never own. And second, like we're talking stock companies, a lot of those.

And I also get suspect if there's massive amounts of advertising. Now, I own policies with at least three life insurance companies I see ads for. Yep. But they're like here and there. Not like State Farm, which is on every single hour block of every channel, but

They're also doing PNC. And this is not a hit on State Farm. State Farm is a wonderful company for PNC, but they can't design permanent life insurance. Like I would never own State Farm for myself, because I go with companies that don't advertise, that have much like, but not everybody has access to those companies.

But I know that if I have a claim, like my wife got in a car accident and we had to make a claim, and you know, first talking, and then when I said the company I had, "Oh, they'll pay your full claim." Like they thought I was just one of those other companies and knew that they were going to try to like talk their way down. So that's the problem. They're better at commercials than they are at claims.

Yeah, that's good. That might need to be, we might need to go into that more. So when you talk about a contract, not all contracts are created equal. There's term contracts and there's permanent contracts, and there's some people that believe they have a permanent contract that's built upon a term chassis, which means the cost of insurance goes up year by year. And unfortunately, when there's cash value associated with the term chassis, the term is usually, I found, 20% more expensive than just a normal term policy.

Here's what I'll say, because it's hidden. Here's what I'll say. Garrett and I do not believe life insurance is an investment. We don't believe that your end all be all is to park your money. And so the people that are selling these term chassis, index universal life, universal life, they like to sell you the dream.

And here's what I'll say, is it may or may not work. All I'm saying is I want a place to store my capital with as little levers as possible. And so I don't want to roll the dice with something that should be so safe and no-brainer. That's my two cents on index universal life. If you're going to invest, go invest. Don't use the insurance to try to efficient.

Because the way that those universal life policies work, whether it's indexed universal or variable universal life, they're all just like, the difference between the three is variable is sub accounts that act like mutual funds, universal life is fixed interest, you know, year by year, and then index universal life is basically a crediting process that works based upon some corridor what the market performs as, but it's not a direct index that goes exactly what happens. Like there's some provisions in there, as you read, they can change the rules. But all of three of those, what the issue is, as you have more cash value in relationship to your death benefit. If you use a fixed level death benefit, your cost of insurance can decrease based upon the net amount at risk. But they're also looking at your mortality experience for the people in your group. That's called your bundle.

And that bundle has to do with similar age, similar health. But as that group gets older, what will happen is the healthiest people often jump ship to new policies. The least healthy people end up staying in that group. We're talking 20, 30 years down the road, which increases the mortality experience, which then increases your cost of insurance combined with your increased age. So you have the mortality experience and just the fact that you're older. Those two factors are working against you for your cost of insurance, which often is more expensive than a term policy.

So in those cases, you have to look at those policies and say, am I using this as a place to use cash along the way, or am I using as a death benefit? It's hard to have that be an AND Asset because you start to jeopardize your guarantees. Now, I'll get agents that will get really frustrated with me on this point, because they're like, "No, no, you can have those guarantees." I'm like, "But what if you miss a payment? What does the contract say? And how much is that rider to give you that guarantee? And once you pull money out, is it considered change your net amount at risk, or is it considered a loan that doesn't change?" Like these are the questions that have to be asked.

And in the 80s, a company that I have a whole life policy with had universal life policies that they started coming out with new ones all the time, because the 80s was very new to the universal life game. What happened was everybody did jump ship to the ones with new bells and whistles and that were better over time. And those people that held the policy 30 years ago, yeah, 40 years ago, you know what happened to them? The cost of insurance went to the guaranteed cost, not the current cost. And so that's one thing you can see on the illustration. There's the current cost versus the guaranteed cost.

Now, the guaranteed cost is never going to be happening in the early years. That would be like act of God, crazy things are going on, everybody's in trouble, but that can slowly creep in. And now at the point where it's most critical, and one of the psychological things that happened, Caleb, is people have a really hard time understanding who they're going to be 30 years from now. Correct. And they have a hard time having that kind of compassion and that connection to themselves. We almost see ourselves as like more immortal when we're young, and then we get older, we're like, "Oh crap, I didn't think through these things."

Yeah. Because I looked at a piece of paper that seemed like it illustrated better without knowing the levers that could be pulled for cost of insurance or for, you know, whatever. I think the big frustration thing that I have is when people sell IUL, they're selling it for income. They're selling index universal life, just index universal life. They almost sell it for income because they're looking at arbitrage and all these things.

And so on an illustration 20 or 30 years from when you're actually going to quote unquote utilize it, they're showing amazing numbers. And you and I both know that's not going to happen. It's not going to be a fraction of what you think it's going to happen. And that's the problem with IULs and certain variable universal lives, is they can make something variable worse. Yeah. They can make something look incredible, but they're not factoring in caps coming down, like are you not hitting, and they're all like, "We're going to be conservative and only show 6%." But then it's like 6% every single year, and then

They're showing arbitrage. But what happens when we have a down year and then you're getting nothing, and then the up year that's higher that you're not getting that full upside, and then you're getting the year where it was 6%? Like, they're missing those other corridors because of what's called caps. But variable universal life has another unique problem. So it's still the same net amount of risk, but now let's say the stock market does a major dip, 20% down. It's never happened recently.

Let's say it goes down 20%. Yeah. That means your cost of insurance is going to increase during that downturn because you've changed your net amount at risk, which now you're pulling from the cash value at a time where it's decreasing, which accelerates the dip. It's a double dip, essentially.

And so, look, man, I was 18 years old and I bought a variable universal life. 50 bucks a month, minimum funded. Like, they told me, "Oh, you don't have to pay a lot of tax at 18, but this will be good for you if you just save." Sorry, it was 70 bucks a month. $70 a month. And back in the day, 40 years, yeah, 40 years from today, which at that time I was 18 and now I'm 44. So, you know, more than halfway, that they're like, "You're going to have millions of dollars."

And they showed an 18% return, which is illegal. You're not allowed to show an 18% return. 12 is your cap. But even showing 12% a year is statistically impossible for an investment to do 12% a year over a 40-year period of time. It's just never happened. You're gonna have down years and you're gonna have bigger, like, yeah.

So this is important to understand. Not all contracts are created equal, right? Not all policies are the same. Not all companies are the same. So this is why people are pissed off. This is why it's frustrating, because you're like, "How am I supposed to know all this?" And I'm telling you, Garrett, we're going to have people comments. We're going to have people that are very, very frustrated what you and I are saying.

Here's what I'm saying. I believe, I bet you Garrett and I probably missed something. There's probably a new shiny objects product out there that does something. Yeah. There's a new bell and whistle that makes it guaranteed. Here's what I'll say. If you are getting life insurance for an investment, I do not endorse that. I do not endorse you putting money into something for 30 years for your income. Like, I do not think that's going to serve you well. If you want to do life insurance for cash flow banking or the AND Asset, you want to use and store your money, have as little levers as possible and do something that's been around for over 100 years. That's all I'm saying.

Like, imagine, like when I write what would the Rockefellers do, imagine someone going to the Rockefeller family and saying, "We got this great thing called the index universal life and, you know, like you're going to be able to participate in a crediting system as the market goes up, but you don't have losses on the down." Like, and they're like, "What's the cap usually on index universal life?" I mean, it's decreasing, like 10%. So if there's a year where the market does 30%, you're getting 10, right? And so it's like, that's why just invest and make investments and, like, the Rockefeller family knows how to make money. They know how to, they have invested. They have access to. Why would you? So that's why they're using permanent policies that are guaranteed to be around a day longer than them. So it will help replenish their trust, right? And why would they take risk with that?

And look, man, I had a really, really good friend that bought whole life by someone I recommended to him. And then this other adviser who, you know, what does it say? JD is his name. Sold them on canceling that and buying an IUL. And I was like, "Dude, I just," like, and he was brainwashed. I couldn't get through to him. Yep. You know, and now I think he's frustrated with that policy, which was inevitable.

Yeah. So let's talk about overfunding, because in all types of life insurance, you can overfund and this is where the magic happens. And so overfunding is essentially where you are putting as much cash in as possible and getting as little insurance as possible. And when you do that, you're able to have a ton of cash, a lot of benefits when you, but that also reduces the commission. You have a lot more flexibility. In a lot of cases, we're able to show 85 to 92% cash value in the first year. So a lot of people that say life insurance is a horrible place to put your money. Like, yes, but if you overfund, can we even call it, like, can we even put it in the same camp as traditional?

Look, man, my first policy was baseline minimum funded. And here I am, you know, that was at 19, my first whole life, because I bought VUL when I was 18. So I still have that policy. 19 years old. I'm 44 today. You know what? That thing has performed well. Like, yeah, it took a long time to break even. Yeah, there wasn't a lot of cash in there, but that still as a place for me to park my money and not have to buy term insurance. Yeah. Was great.

That's not how I've designed my other policies later on. I just converted some term on my wife into whole life. We just max funded right from, you know, like, how much could we put in from day one. I'm just in a different financial position than I was when I was 19 years old, for example.

Yeah. And I think that one risk, like, I'm glad we're going to show these numbers, but one risk is people could fall in love with cash value and utilizing cash value and neglect to indemnify their economic value if something happens to them. And if you leave your family in a position like this is the conversation I'll have back when I was selling this stuff, would be like, "Hey, you know," and this was a long time ago, be like, "Does a million dollars sound like a lot of money?" I mean, I was talking to young, like, "Yeah." I was like, "If you could never earn another dollar, does a million dollars sound like a lot of money?" They're like, "Nah, not at all." I'm like, "So stop thinking of the death benefit as a one, like, big number. Think of it as like how

much cash flow would that create if I wasn't around?" So, Caleb, like I want to have life insurance effectively be life insurance where if something happens to me that I am creating a family like perpetual system that my family can utilize rather than have to go to regular banks. I don't want them to just, if I die I don't want them to just get money. I want them to have access to money they could borrow and pay my this trust interest rather than pay interest to an institution, that they can jump through less hoops and fund their things versus, like, I don't know, I just don't love the way the banking system is.

So but if something happened to me I want my family to live the same lifestyle, if not better. I mean, sure, I don't want my wife to just remarry and someone to come and get the money. That's why I have a trust, you know. But at the same time, like if someone went and they're like, I'm just going to max fund, I get 95% of my cash year one, and they got this massive exposure where if something happens, they only indemnified two-thirds. So they only have two-thirds of the death benefit that would have been required to replace their income. That's a problem.

Yeah. And here's the deal. Efficiency is removing any friction to get to where you want to go. And what you're talking about is this concept of human life value, and you're saying a million dollars doesn't seem like that much money, because it's not. So if you're someone that's like, hey, what's the value of you producing for the next 20, 30 years? It might be $5 million. What I'm saying is those are two separate policies.

What the problem is, what a lot of people do is they try to put everything into one policy, and you know me, know this very well. It's hard to be efficient with money and death benefit. So what we do is we just say, how much money do you want to save and let's make it efficient from cash. We call it life insurance because it is insurance. But I would never say this is all you need from an insurance standpoint.

Then the next question is, how much money do we, like how much insurance do we actually want? And if it's more, and most of the time it is more than what that this overfunded policy is going to get, we do a second policy and it could be a term insurance policy that's convertible. So it gives you optionality in the future, but ultimately it covers your greatest asset, which is yourself. And so I'm a big, big fan of human life value, lots of death benefit.

I just want it to be, so I totally understand that design and I've done that to a degree, like, but I've done times where I've done minimum PUA or overfunded so I have the provision and taken two or three years before I start overfunding it with base premium. Now, the thing is, I knew what was going to come in and what was going on. Sometimes that might be, like, you lose flexibility being just minimum funded and that's a risk. So having a term policy that you can convert can reduce that risk overall, too, right?

And with what we know about front-loading policies, and we'll show that in a second, like you could easily say buy term and then wait till you have that money and front-load it efficiently. There's a lot of different ways to do it, but the concept is, and what I'm excited about is I'm going to show you one company, same company, we're going to structure it differently and we can look at pros and cons by each contract.

All right. So, looking at my screen, and I'm going to have another screen that shows this even more detail because the numbers are kind of small. But just look at this policy, and number one, this is same company. On one side you have a typical policy and on the other side you have a max-funded policy. So let's first talk about typical policy. Typical policy means you have high base, meaning there's different types of in a policy, and I'll explain this for a second.

High base is also high death benefit. High base, high death benefit, high commission, low flexibility. It's the required premium that you need. And so it's high base, little to no cash value in the first couple years, not flexible, and it takes 10 plus years to break even. But on this, more death benefit needs to be one of those bullet points. I get these are the negatives, but like the positive is you have more death benefit.

Correct. And which is a huge asset in the future, just not today. Right. And I'll illustrate this. You put $50,000 in the first year. How much cash value do you have in year one? None. Zero. Zero and two. But you also have a permanent death benefit of 3.9 million. Meaning if you died tomorrow, that is an asset. That's a liability that the insurance company's entering into and it's continuing to grow.

And by the way, this is where you're going to find Suze or Dave Ramsey say, can you imagine, like, you know, you could just buy this $3.9 million term insurance policy for what? Yeah. Pennies. 5,000, 4,000 a year, two, 3,000, around three or four, like so much less. So they're like, why wouldn't you think about, you've just recovered 46, $47,000, like that's their narrative, and they're right in the microcosm of one year. Yep. But then the next year it's a little different, and then 10 years from now it's a lot different. 20 years from now it's completely a different narrative.

You know, it's kind of like, yeah, well, even in this typical policy, you're recapturing all the money that you've put in in 12 years, which again, it's not the most ideal from a cash value perspective, but after 12 years, you have more money than what you put in and a permanent death benefit that's continuing to grow, that's over $4.2 million, right? So for people that are selling, your 12 break even is not the worst situation. It's not amazing. Yeah. But it's, you know, not the worst situation. And this is one of those things where, imagine if this was a bond portfolio, it would be an amazing thing that you could tap into. And we were talking in a different video, you have almost 80-some thousand between year 12 and 13 of, you know, you're putting 50 of that in. But now here's, now at the end of

30 years, you have $2.7 million in cash value and 5.8 million in death benefit. So you watching this, just put that in the back of your head, because we're going to look at a specially designed policy, right? Same company. Same company. We're going to add a PUA rider. It's called a paid up addition. So it's overfunding.

We're also going to add a term rider, which just makes it where we can more efficiently stuff cash in without it becoming a MEC, which means it's a taxable contract. Yeah. So it keeps your tax benefits. And then a specially designed policy gives you a lot of early cash value, more flexibility, better long-term growth, and it pays about one tenth of the commission. The downside is, as you'll see, is the death benefit early on is a fraction of what it is. And that's not always a positive, but you can see, boom, instead of having a goose egg in year one and year two, you're putting $50,000 in.

You only have 1.3 million of death benefit, but you have almost $40,000 of cash value available. And this is a break even of year six, meaning you have more money than what you've put in. And instead of a $2.7 million of cash value, you have 3.2 million, which is almost, and the death benefit is at 5.8. And it's 5.8. So my point is, if you benefit on the other one, the death benefit on the other one was 5.8 after 30 years.

So here's my point. What if you took a term insurance policy, subsidized the death benefit early on, knowing that the death benefit long term is going to surpass a typical policy, and you have over $400,000 more just in how you design a policy? So I'm not even saying this is the most efficient way to design a policy. All I'm saying is the way you overfund a policy, not all contracts are created equal. And so it's hard when someone, you know, on the radio saying life insurance is bad, because you can see where they could come up with that concept.

And also, if we were told, okay, I want you to just beat this policy up here and say all things wrong, that'd be easy to debate and say what's wrong with it. No cash first year, no cash second year, only 25,000. You're at 75,000, or you're at $150,000 you put in, you have $25,000 to show for it, you know, and you're still alive. Like, you could, you know, so it's not hard to kind of beat up.

And if we go to stock companies, and then we go to, you know, it's actually a very good company that I'm showing, right? That's the thing. We go to other companies and it'd look even worse. And so if that's what some of these gurus that hate this stuff talking about, well, yeah, I understand what the narrative is. And remember, they're thinking about this as an investment. And this is going to be really important as we look at the compounded rate, because I think life insurance has a phenomenal rate of return, because I'm not comparing it to an investment.

If I was comparing it to an investment, I would not be a fan of life insurance. Yeah. You know, part of what investment considerations need to be though is how much time do you have to take? How much mental energy do you put into it? What's the volatility impact? You know, there's things that people aren't considering where if this is on autopilot, but again, we're going to show kind of a different system here.

All right. I'm curious. I want to talk through this because you might actually disagree with me on this. All right, let's close this debate. So I looked at a 401k, Roth IRA, savings account, and then also this is life insurance. It really should be overfunded, max funded life insurance.

Okay. So when it comes to safety, savings account, right? I think it's safe. I mean, you put a savings account in a Roth or a 401k, that could be the fuel behind it, but you still have restrictions and you also have potential changes, because they can change the laws very easily on like this. Insurance is a private contract.

Overall though, you could say that a savings account is safe, like, you know, obviously. No, I think it's mostly safe, but a 401k and IRA and a Roth IRA, it's not safe. Like your money you're putting in, in the underlying, that people are mostly putting in the market. Easily accessible, I probably, to be fair, should make this orange, because I think life insurance is, you can access it, but there is clause in an insurance policy that says worst case scenario, it could take us up to six months to get your money. So, you know, but still this could do the same thing, worst case scenario.

Competitive growth rate, I think a savings account, this is where the savings account gives you a hit. I'm going to give the benefit of the doubt for the 401k and IRA, and like, I will give the benefit of the doubt to the market and say the reason people put their money in is to grow. I will stand by the statement that I believe life insurance is a great rate of return, and we'll show that in a second.

Leverageable, I guess you can leverage against your 401k and market. You can borrow, with restrictions, but it's not, but has a forced payback and using post tax dollars to put back into a pre-tax plan, which is problematic. Life insurance is built into the contract, gives you really areas to leverage. There's guarantees in life and savings accounts. There's also guarantees in life insurance for, you know, no percentage based fees. Like there's no percentage based fees in a savings account and life insurance.

There is a commission, but that's not, it's not taxing you every time your account's growing. Free of regulation. Life insurance has some of the best creditor regulation, privacy, yeah, meaning like liability protection and that kind of stuff. Yeah. You know, no contribution limits, like there are cont, yeah, there is, because of max and because of how much you can get. Yes.

So orange, like, yeah, orange, like, because you can get policies on other people and stuff like that. What I'm saying is in a Roth IRA you have very strict regulations, or even a 401k, you can even contribute to it, right? And so what, let's talk

...about that in a second. Then you have to go to a SE IRA to, so insurance can't let you be incentivized to kill yourself, right? Okay. So if someone is not worth a ton of money and they're trying to put a massive amount of money in life insurance, the insurance company's going to say, number one, how do you get this money? Number two is, we can't create any incentive for you to be worth more dead than alive. So there is contribution limits, not based on some government agency, not based on even what the insurance company says, well you can only put this amount of money into this. It's based on how much they're willing to insure on your life. And if we reverse engineer it, we can't overpay for that. So yes, there is contribution limits, but it's a liberal technicality.

Gotcha. Creditor protection. 401ks have creditor protection. Roth IRAs have creditor protection. Savings accounts don't. Life insurance do. Deductible contributions. This is the one thing that life insurance, although I wouldn't do it, right? I know restricted property trusts would allow you to deduct part of it. Yes. Right. You could deduct part of it. There's also corporations that can use life insurance, but here's the deal. If you get a deduction on the front end, you lose your tax benefit on the back end.

Yeah. I've heard of other ways. I just haven't adopted them or believe that they're going to work out long term. Yes. Yeah. Well, more to come. And then when you look at tax free growth, tax free use, and then tax free passing it on, obviously this is where life insurance is superior in my humble opinion. Okay. So is your opinion humble though? That's the real question. It seems pretty strong. It seems like very convicted. I am very convicted. Maybe you're confused on the word humble. Okay. All right. Well, wait.

So here's this is how I am. I love this. So this, and this is another, I'm very proud of this. So, don't try to pee on my parade here. This is a picture that I believe represents when I talk about life insurance being a multi-dimensional asset. It's when set up and used properly will allow your money to grow to the day that you die. You can control and use your money while it continues to grow. It gives you future optionality and control in the future.

It protects you. And let's talk about that future cash flow for just a minute, because people will say sometimes, oh, well, why would you ever want to borrow to have to use your own money? Well, you can take dividends. Yeah, you get to take dividends out. You could take withdrawals. Like those are all possibilities, cuz I just know a few people with the future cash flow might say. I have a whole section on life insurance and retirement if we want to go down that road. It's like you will have more cash flow if you have life insurance as a part of your portfolio versus not. There's a lot of science, financial science, that can back that up.

And then also it gives you, I believe when life insurance is set up and used properly, it gives people like you and I the ability to save more because we're not having to choose between 30 years from now and now. So, we are actually able to save more to the compounding machine. And so, I like to show this picture. Give me more. Because if I have to choose to put money in a 401k, I'm now saying, "Okay, I want control of my money. So, I'm going to hedge. I'm going to have some money in my savings account, some money in my 401k." So, I'm almost diversifying my ability to compound, but I can save a lot more money into life insurance because I don't have to choose. I can borrow against that, but I now have a greater money compounding now and in the future.

Okay. So lifetime growth. So we're going to talk about, you know, in section 7702 it pretty much says when set up and used properly life insurance is a contract that allow your money to grow tax free, can be used tax free and passed on tax free. And tell them about section, because people used to call these plans section 7702, like it's just in the tax code. Yep. You know, like you're already a youngster with a curse of knowledge just assuming everybody knows what you're talking about here. My job is to be the viewer. I love it. I love it. What do you mean? Give me what those numbers mean and why you both.

It's essentially what it means is if you borrow against a loan is not considered income. And what they looked at is in an insurance policy if you borrow against that is not considered income. It's considered cash flow. So even so that's why when you get a mortgage for a house purchase you don't have to pay income tax on that mortgage. The same thing applies to life insurance as a financial product. So, we're essentially able to use money. It's not our money. It's considered a loan. And as a result, we don't have to pay taxes as we utilize capital throughout our life, all while our money in the insurance policy is growing tax deferred. And when we die, the insurance will get paid income tax free.

And you still may have. It's weird that you're this passionate about life insurance. Maybe. I don't know. I get excited mainly because I believe this is the key that can unlock things for so many people if they understand how this asset can work. I'm glad what the Rockos do is, you know, getting that message out there. Yeah. On its own. I don't know. It just keeps moving along.

Yeah. So, here's where we're really going to nerd out. All right. This is showing what's called the internal rate of return. So, Garrett, how would you explain IRR for the viewers? It's what you actually have after expenses. Yes, it's the actual rate of return. This is like, after we can say all day long commissions, all these things, these are actually the growth rate that if we're going to compare a investment to insurance, like and all we care about is rate of return, this is the column that we care about. Cool. Okay. So, this is the $50,000 policy that I was showing you and over 30 years the internal rate of return is 4.58%. And you're being conservative with that, right? Not giving the full, or is that normal? This 4.5% is a good rate of return. That's over a 30-year period of time. This is over in the last 30

years have been low interest rate environment. Yes. And today, I did this illustration over a year ago, which tells you before the interest rates rose. So yes, this is a very conservative outlook. If you're 70 years old, you're not going to get these numbers. So it's just all, you know, relative.

So it's amazing though, like you get so little death benefit, but you can fund policies older to perform pretty well. You're just going to get such little benefit, because people are like, "I'm too old to do this." Like, no, my grandparents started their first policy at 70. Actually, with their required minimum distribution they had to take from their retirement plan, they filtered it over here, because if they didn't take that out of their 401k, they were going to get penalized and my grandma's pissed. I mean, dude, we have people 75, 80 years old single pay MEC policies that are breaking even in year two.

I'm opening up a whole... So you're saying single pay MEC? It's just basically above the corridor, what the government would allow to still have full tax benefit with this. So modified endowment contract is above that. You know, they had to create that because of universal life. They were buying these policies with almost no death benefit and just stuffing a bunch of money. Right.

The point I'm making is that's a whole can of worms, but for a certain person, we call it the CD alternative. It can be a phenomenal CD alternative. What are these? What I'm... I'm taking a chapter alternative. No, CD alternative, instead of CDs. It's a better alternative. CDs, like certificate of deposit alternative. I thought like CD, like S E D Y, like it's a sketchy alternative. No, CD. Certificate of deposit. All right, young man. Just articulate and slow down. You remind me of me when I was your age.

So the idea is, and this is one thing that's really important, when people look at a 4.5% internal rate of return, what they're thinking is, "I'm finally earning four and a half percent." But you and I both know that this is representing every single year, right? And so let's look at what happens with the other benefits that they get, right? So the big question is, and Todd Langford, who's a friend of both of ours, has this question called "compared to what?" And this is where we can talk about buy term and invest the difference, is when someone says, and I'm just going to be super conservative, you're going 3.5 instead of 4.5 because I don't want people to say, "Well, this doesn't..." That's what your cash value ends up at, right, after expenses.

I'm just saying, let's assume for the moment that the next 30 years your cash value only grows at three and a half percent. Remember, right, let's compare this to like the last 30 years of savings accounts, which weren't even earning a percent. Exactly. Like, so right now we can look at a savings account like, oh, there are 4% savings accounts, and so we're comparing apples to oranges here. We're talking about a time period where interest rates were exceedingly low for an extended period of time. It was almost zero, and I'm being conservative with a year and a half ago. Okay.

So when we look at a three and a half percent and you just add taxes, because in a savings account, which people will understand. Yeah. So 30 is a good tax rate. It's not 37 and a half. We're not California, the highest tax rate. Yeah, we're not looking at all that, but it's still, you know, we're essentially saying in an alter... You got to be making decent money. Yeah. In an alternative account, you would have to earn 5% after tax, or after tax you'd get three and a half. Yes. Just to keep up with the life insurance. And if you add a fee, which could represent a lots of things, now you earn 6%. A lot of funds, you know, some people do index funds, but those even have a little bit of fees. But like managed funds, you're at least a percent. These fee only advisors, at least a percent.

And you're going to like this. I looked at the death benefit difference of that $50,000 policy. And to get a death, if we just wanted to buy a 30-year term insurance policy, it would cost almost $5,000 a year. So if you factor that into the equation, now you have to earn almost 7% every single year without a down year. Life insurance in this scenario is down, right? Life insurance is not getting you 7%. What I'm saying is in an alternative, that's what you'd have to earn to end up with the same amount of money now, right? And you can even see if we just stop there, people are like, "My investments will get a bit more than that." But we're now going to show you how you can use your money while you get this return.

And 6.9 year in and year out. Look at the DALBAR. I mean, the... What the DALBAR is? Yeah. No, there's essentially a research that showed what people are actually earning. It's nowhere near 6.9%, but I've done articles in Forbes about all that. It has a lot more to do with emotion and all that stuff. But the point is, is there anything else that needs to be said, because I am getting excited. Let's go next. Let's go next.

So the idea is, when we talk about compounding, a lot of people are killing the goose laying the golden egg, right? They're starting to take the interest, so it levels out at age 65 at the time it's going to get the most return. If you're going to commit to a compounding strategy, which I know Garrett, he just loves compound interest, commit. Great way for institutions to take your money. It's a great selling point.

So now we're going to talk about control and use. And this is where it really became alive for me, because I realized I don't have to compound. I don't have to choose between compounding and controlling. I can have both because of how life insurance is set up and used. And so I kind of think of this as like a credit card. Like anyone that is savvy with money will use a credit card, not a debit card, because of all the benefits you get. Well, because of fraud. Fraud. B. Yeah, you get some points and stuff. Yeah. I mean, yeah. So it's a really powerful thing. And so, hey, look at that. So all that to say, this is my wonderful, beautiful drawing when it comes to teaching people about how you borrow from a life insurance policy or

How you borrow against your life insurance policy. So you have your policy that's giving you all the benefits, all the check marks that we showed earlier. Now you're borrowing against, meaning the insurance company will give you a loan and use your cash value as collateral, and then you can buy whatever you want. I suggest buying, buy what I ever want, to pay the interest to the insurance company, right? Because the life insurance is compounding and it's going to give you a far greater benefit than the cost. You're not interrupting that, right? And it's not just the internal rate of return, it's talking about all the benefits, right?

So all that to say, this is kind of a drawing that I share of, like, you look at, think of a human, build up your emergency fund. We both believe six months is a minimum. Build up a six-month year reserve, and then everything above that is what you can think about it as an opportunity fund. And that can be invested and invested. So your cash value above that amount of money is opportunity when it's there. When it's not, it's cruise control. You're not worrying about it.

That's right. And so the question a lot of people ask is, when does it make sense to borrow? Because there's a lot of people out there that are like, you borrow to buy cars and you're going to be wealthy, and they're talking about your money's compounding in your policy, and I'm saying your money is going to compound. I'll say that I have borrowed to buy cars a couple times. Yeah. But the two vehicles I have now, I just paid cash for them.

And here's why. When I went to buy my first car, it was an Acura. And I was telling you this the other day, like, I was able to just take the lease rate, which was $262 less than the buy rate, right, put it in the cash value, you know, overfunded as much as I could, and then 39 months later bought out the car, which then I took all of the payment, which was the 522 plus the 262, to pay back the cash value. So after the normal five years, I was already close to, like, you know, I was like in a great place of almost paying a lot of that back.

And you're going to like this, because the answer is whenever your activity is greater than the cost of borrowing, you should do it. So you turn, but with risk, with risk considerations, and that's what most people don't consider. Yes. Do you want to unpack that a little bit more? Because, like, to me it's got to be above 10%. Even if this number says 6.9, what is the amount of time I have to allocate towards that investment, right? That's part of my consideration. What is the risk that's involved with that? Because I'm now taking fairly risk-free capital and allocating to something that has potential risk.

So this that we're in right now, I used cash value to buy this. Yep. If I didn't, I wouldn't have gotten it, because I did, I think it was like, I had five days to get all inspections done and nine days to close. And you're talking about your Yeah, those cabinets and everything. And so, like, there were other people that were wanting to have this property, right? So I was able to move quick, and someone had fallen out of their contract and decided to opt out before their earnest money went hard. And so I was like, the woman was already frustrated, cuz she's like, I don't want to, you know, so I just like, hey, I can close quick. And I did.

Now, that came because I was able to just utilize my cash value to grab this place. And then I bought a place just up the road using my cash value. I love it. So it was just, and that one closed even faster because the guy's amazing. Could you make the argument that you got better terms, you got a better value because you were able to move quick? On that one, it didn't make a difference. But on this one, it was the difference between getting the deal and not getting the deal.

And even though there were two other people that were in the process of making offers, and one of them has offered to buy this for a lot more than I paid for, even though it's not on the market, I still negotiated the price down a little bit. It was like $50,000 less, which for the grand scheme of what I paid wasn't a ton of money, but that $50,000 only existed because I could move quickly. If I was getting normal financing, there was no way they were going to budge, and they probably wouldn't have gone with me. They would have gone with someone who could pay cash.

And how much has this cabin and Wealth Labs made you, like, from a standpoint of fulfillment? Look, man, we do immersions here. People are paying $25,000 per immersion. I don't know if I would do immersions if I didn't have this place. Like, I had done immersions at offices. This is not the same thing. You know, the family memories that we have that I don't know, with the real estate market having some volatility, but I know that this was up like 67% in the first three years I owned it in value. I mean, cuz I bought it in 2018 and by 2020 I had an offer that was three quarters of a million more than I paid for it.

So, you know, I mean, so what other paper asset can you own in your portfolio that's continuing to give you all the benefits and give you the ability to do this? Like, there's not a lot. There's like some that have elements of it, right? Like you can have a brokerage account. Yep. And you can get a line of credit against that brokerage account at a preferred interest rate, but you could also have a margin issue where if the market goes down and you have that loan out, you have to then pay back part of that loan so that you're back in balance. So that's a concern, and there's no death benefit that comes with it, and those brokerage accounts are not tax advantaged unless they're in muni bonds.

So this chart from a financial perspective is something for you to look at. But going back to what you're talking about, I wouldn't use my policy to buy a 12% investment because I value control more than what I could make. So explain what you mean by control.

User cost here. Okay. So when I talk about control cost, it's the cost. It's the borrowing. It's the cost of actually controlling other people's money. Yeah. So five, in this case scenario where you're using a 5% loan cost. If it's only 2%, you're at a loss. Yeah. You're financially, 5%'s break even, but you're still spending time and all that kind of. 7%? Yes. You have a auto if you're, if you can get, if you're paying five and you get seven, it's like buying something for five bucks and selling it for seven bucks. That's a 40% markup. Yes. That's the number you're using. Yes.

And then, you know, a 5% control cost to earn 12%. Yes. On paper again, that's like buying a $5 hammer, selling it for $12. It's 140%, because your money is growing in your policy. And so that's the concept of, like a lot of people use this in option trading and other things. You're using leverage and so on. If you trade, you're not doing any good for society. You should just, you should literally just stop doing it. It's stupid.

And so this is, I just like, I'm going to move on. I'm going to move on. And then this is the picture that resonates with a lot of people. It's my version of the cycle of creation, is you know, have you have money that needs to be created, build up an emergency fund, have an opportunity fund, and the emergency fund and opportunity funds, all your cash value, it's just which percentage, right?

All right, to summarize here, this is what it looks like. You want a company that is a mutual company, been around for over a hundred years, worth multi multi multi multi multi-billions of dollars, if not a trillion. There's one that I have a policy with that's worth a trillion. You want to overfund, so you're putting a base premium with PUAs so you have more cash value. You want to make sure you have the right amount of death benefit that could either be in one policy depending on your cash value, or a term rider or an additional term policy in addition to this overfunded policy. As that builds up and you have at least your, you know, 6 months liquid, everything above that, when the right opportunities come for investing, you can utilize this cash to capitalize on that.

And then, you know, like I remember I bought this real estate where it was in bankruptcy. They hadn't, it was land, and I bought out from bankruptcy and then I developed the two fourplexes and then I used my cash value for that development and then I used the rental income to pay back the policy over time. So I was getting the real estate, it was paid off other than the loan I had against with the insurance company. Then those renters paid back that over time. So that's one of the strategies.

So we looked at what happens when you don't overfund versus when you do overfund. We've looked at the numbers, what happens when you get the benefit of not having to pay for term insurance and you don't have to pay for the taxes and what starts to look at. We compared this to savings accounts or Roth IRAs or 401ks and, you know, where's the green light versus the red light. And I think Caleb's going to add some orange lights to this after, you know, I give him a hard time. But ultimately, hopefully this gives you a more comprehensive vision and view of how insurance could work for you.

And you can then have a death benefit that we haven't even got, like, you know, I recommend picking up What Would the Rockefellers Do, The AND Asset. Like I would go to the chapter where I talk about buy net worth, build cash flow, because that's going to unlock the value of this death benefit when you're older and how that could increase your cash flow 20%, 30%, 40%, in extreme situations up to 50%. And for those people who plan on being successful rather than buying term, investing the difference, and then all of a sudden not having insurance and having an estate planning attorney go, you're going to have an estate tax problem, you need to buy insurance, and now you're in your 70s and you might not have the health for it. Like, let's just plan properly now and have it be a turn or a cycle of your money, so that cash flow that goes through this and funnels through this brings that death benefit along for the ride so it feels like it's no additional outlay and it doesn't harm or diminish your overall assets. It actually becomes a tool that enhances it.

How'd I do on my summary? I think you did amazing. Thanks for showing us some numbers here, man, and for, you know, giving them plenty to think about. Thanks for interrupting me when I'm in my flow. Well, if you're going to have me here, that's the. Well, I used to get comments all the time like, Garrett doesn't listen. It's like, it was very true. I felt like I've gotten better at listening. Yeah, you have. You have. You know, I mean, there was nowhere other to go than to get better. But yeah, there you go. Bars said somewhere. Thank you guys.