BiggerPockets Money Podcast - 139: Everything You Never Wanted to Know About Life Insurance (But Absolutely Need To) with Joe Saul-Sehy

Episode Date: August 24, 2020

Life Insurance is the most exciting topic on the planet! Just kidding. But just because it isn’t a super exciting topic doesn’t mean you don’t need to know about it. Today, Joe Saul-Sehy, host of the Stacking Benjamins podcast, joins Scott and Mindy to talk about Life Insurance. Joe comes from a background as a financial planner and was licensed to sell every type of insurance product available. Joe is here today because he understands how life insurance works - how it's priced, how you can use it, the pros and cons of the product - but he has no skin in the game whether you buy life insurance or not. He's the perfect person to explain this product from a factual standpoint and let you make the decision of what type - if any - is best for you, based on facts, not commissions. Joe walks us through the basics and shares how life insurance actually covers you - from term, to whole, to universal life. There's no bad product, only different ways of paying out. If you're struggling with how to figure out what life insurance policy is right for you, this episode can't be missed. In This Episode We Cover: How life insurance works How to incorporate life insurance into financial planning What bucket of insurance should people be thinking about How does life insurance gets price Whole life insurance versus term life insurance Universal life insurance What decreasing term policy and level term policy are Things that affect insurability Tax triangle Is life insurance payout taxed What age should you get life insurance What makes good life insurance policy Common reasons for being denied in life insurance And SO much more! Links from the Show BiggerPockets Money Facebook Group BiggerPockets Forums BiggerPockets Money Podcast 40 XY Planning Network Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to the Bigger Pockets Money podcast, show number 139, where we interview Joe Saul See High from Stacking Benjamins and dive deep into the super fun topic of life insurance. People are convinced to have insurance on their kids. Well, for most of us, the reason why you have insurance is to protect against the loss of a paycheck. Hello, hello, hello. My name is Mindy Jensen, and with me as always is my premium co-host, Scott Trench. Mindy, you always insure a wonderful opening adjective. Thank you so much. Scott and I are here to make financial independence less scary, less just for somebody else, and show you that by following the proven steps, you can put yourself on the road to early financial freedom and get money out of the way so you can leave your best life.

That's right. Whether you want to retire early and travel the world, go on to make big time investments in assets like real estate, start your own business or shut down that sleazy life insurance salesman will help you build a position capable of launching yourself toward those Scott, today we have Joe Sal Cahy from Stacking Benjamins. And while you learn nothing from his podcast, you will learn a ton from this one today. Joe is like a walking encyclopedia of life insurance, how it works, how you can decide whether it's right for you and what type of policy is right for you. And he really just kind of changes the viewpoint that you look at life insurance from.

I wasn't sure if I needed life insurance or not going into this show. And just listening to it has cemented my decision. Yeah, I mean, it's just Joe is a former life insurance, you know, financial planner, and he sold life insurance as part of that, right? And he's just one of the sharpest guys in the finance world today. And so getting his perspective as somebody who really knows the industry and he's no longer selling life insurance, I think is really, really valuable because he understands. the ins and outs, and I think you're going to get an incredible framework for making decisions

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Beyond audiobooks, you also get Audible Originals, podcasts, and a massive back catalog across business, health, parenting, and more. All accessible in one app. If you're looking to turn everyday moments into real progress, Audible has been indispensable for me over over 10 years. Kickstart your well-being journey with your first audiobook free when you sign up for a free 30-day trial at Audible. dot com slash BP money. Joe Salcie, hi. Welcome back to the Bigger Pockets Money podcast. I'm so excited to have you on the show today.

You last joined us way back on episode 40, and this is show 139. Where have you been, man? What have you been up to? I'd just been sitting by my phone waiting for you to call Mindy. I've done nothing between last time I was here and then. So I'm so happy. Mom started crying when you finally call.

So life is good. Hi, Mom. Hi, Joe's mom. So a lot of people don't know this, especially if they listen to your podcast, but you're actually a smart person well qualified to give financial advice. I'm sitting right here, Mindy. But those of you who don't know, Joe, he was a fee-based financial planner for 16 years, and he had all the licenses to trade stocks and sell every type of insurance.

Joe, I'm so happy to have you back on the show because I wanted to talk to somebody who knows about insurance and specifically life insurance, but doesn't have any skin in the game, because life insurance can be super confusing, but it can also be difficult to talk to somebody and get some straight answers because they kind of have a stake in the outcome. So I'm pleased to welcome you to our show to talk about life insurance. And I'm not the only person who's confused about this. I pose this question in our Facebook group, and I got like a hundred and twenty-two responses. So Joe, I want to know everything there is to know about life insurance. Go. I'm just kidding. So, you know, what is it? Why do you need it? Do you ever not need it? How does it work?

You know, all of those things. So before we jump into all of that, though, let's start at the very beginning when it comes to life insurance and insurance in general. How does it work? How is it priced? How do I incorporate it into my financial planning? Can I incorporate it from my financial planning? I think the first thing, Mindy, is that you have to start with subtraction, right? I think a lot of us have that are heads filled by different sources on insurance. And we all try to just cut to the chase with insurance, which on one hand is good because there's people who know insurance and they'll tell you, well, do this or don't do this.

And that's all fine. But I feel like insurance is important enough. And the basics are actually easy enough that it's, frankly, not that hard to understand to get our head around it. But we can't get our head around it if what I'm going to say, because people that think they know insurance, I think today, some of them are going to want to strangle their device and throw it at me, sometimes during our conversation.

But if they just stick with me, I think they'll get a much fuller view. And so let me go through a few of those things. The first thing is, and this is what I hear all the time, is that one type of insurance is better than another. Everybody says you should always have term insurance, or my insurance salesperson says, you have to have to have a whole life policy. You have to have this. There is no product that is better or worse. Now, when I'm talking about product, I mean product type. There are companies and there are salespeople who are taking round pegs and putting them in square holes.

They're doing it wrong and they're doing it for the wrong reasons. They're doing it because of commissions. They're doing it because it's the only thing they sell. They don't sell the right thing. They're doing it because they use shorthand and they've been taught by other salespeople that this is the right way to go. But we've got to get rid of all that. And instead, I think if you understand how insurance is priced and then how it works, I think we get a much better idea. So let's start with this. Insurance is sharing the risk with a bunch of other people. And instead of thinking about giving your money to an insurance company, think about this. Scott, Mindy, and I, we're all standing around a barrel and we decide that, listen, if one of us can't make some money one paycheck,

that the rest of us will pitch in. And to do that, we decide about how often we think somebody might miss a paycheck. And so we take that number, we figure out what it is, we then divide it among the amount of time that we think we will all have paychecks, and we take that off the top and we throw it in this barrel, right? So everybody's throwing money in the barrel. And then let's say that Scott needs a break. and he's not going to get a paycheck that time. So he reaches in the barrel to get the money. When he reaches the barrel to get the money, there better be enough there first. And so he goes in and he grabs the money. What's cool about that is instead of Scott missing a paycheck,

so in this case, we're talking about disability insurance, right? Instead of missing a paycheck or not getting any money during that time frame, Scott takes a little bit every paycheck and puts it in the barrel. And then if he needs it, he takes it all out. So with less, life insurance, it's the same. We know we're all going to die at some point. We put money in the barrel. Then when somebody passes away, we reach in and we grab an amount of money, which is the death benefit. So when we think about insurance, we have to think about two things. We have to think about probability, number one. How often is this really going to happen to me? And I'll give you an example of where this is important. It's not life insurance. When we look at car insurance and we look at

homeowners insurance, which one of those two assets for most of us, hopefully, cost more money? Your house, right? But which insurance, hopefully, right? But if, but which insurance costs more? Car insurance costs a lot more than homeowners does. Why? Because even though your house is way more expensive, the chance of you having something bad happened to your house, much less for most of us than something happening in our car. So it isn't just about the asset, it's about the probability. When it comes to life insurance in particular, the way that they sell it is everybody, actually let me back off that last sentence, because I want to explain one more thing. There's one more key thing to know about this barrel of money

is that instead of the three of us doing it, a lot of people understand there's this law of large numbers and that the more people we have throwing money in, the easier it's going to be for a company to guarantee that they can cover the risk. Like if Scott needs money out of the barrel, and then Mindy needs money the next week out of the barrel, and Scott just took it all, we have a problem. But if we have tons of people throw money in the barrel, you can start to statistically figure out how this happens. So what happens is companies got into this business of co-risk. And what they do, think about it this way. They have a scoop. And that scoop is the price that they charge all of us collectively to run this pooled risk that we do. So if we give money to all state, let's say,

I'm just throwing out a company or Progressive or whoever, when we throw money into that barrel, Progressive takes their scoop and they scoop money out to pay their people and make their profit. Now, they make sure they make a profit. Don't get me wrong. But whenever I hear this thing about companies ripping people off with insurance, does it happen? Yeah. But does it happen as often as you think that it does? No, for two reasons. Number one, that scoop is regulated by states. Companies can't run afoul of the state insurance divisions. And to do that whenever they change their pricing on contracts, they have to submit that through different states. By the way, it's a pain in the butt for insurance companies because instead of it

being a federal thing, it's 50 different states they have to do it through. But the state kind of looks over their shoulder, number one. But number two is they're not the only one with a scoop. They know that there's other companies that have scoops as well. So whenever you use the state, think that you're getting ripped off by insurance, it probably means that you have the wrong type for you. It doesn't mean that you're getting ripped off. Maybe it does, but in most cases, what I saw was people were shopping for insurance in a place where they really might not need it. Let me think about, like, I guess there's a lot there, and I think that the concept is really helpful. We understand, hey, it's pooled risk and it's based on the size of the potential claim and the

probability of that potential claim. And the more publicly I agree together, the more accurate we can get over time. I think that's great. How do I as like an individual, like I don't even know life insurance, right? I'm looking at this as, you know, I'm going to get married later this year, but I've never had life insurance. I figured it's for people with kids and families to protect the families in the event that you die. How do I even begin thinking about it? What bucket of insurance should I begin going after from life insurance perspective? Yeah, the best way to think about that, Scott, actually, is to reframe the question and make it larger because you're asking the question, I think, that the insurance companies have taught us to ask, what insurance should I go for? Which is not the

question. A good financial planner will tell you that you want to widen that discussion and instead say, where is my Achilles heel and how do I cover it? Because once I ask the question differently about how do I cover it, it might not include insurance at all. And so a lot of insurance people want to limit it to just insurance products. But if you're financially independent and you and your spouse can do okay without each other's paycheck, why do you need insurance? There is no reason for you to have insurance. I'll give you an example of where I think there's some flawed arguments going on with a lot of people. People are convinced to have insurance on their kids. Well, for most of us, the reason why you have insurance is to protect against the loss of a paycheck, right? Is your five-year-old

out making money that's contributing to the family budget? No. So if, I mean, maybe. The answer is that one kid who like reviews toys and has a YouTube channel of like that has billions of dollars a year and income. That's super common. I would be that kid's dad. Yes. Is it Daphne you going to retire from school? Yeah. That's right.

Yeah. Independent by age eight. Yeah. But if you're more like the average kid, you're not contributing to the family budget. So all that parents need to worry about is this horrible event where you're burying your child and what do burial costs. add up to. And frankly, the second that you get a good emergency fund, a good cash reserve, you don't need insurance on your kids. Insurance on your kids is a horrible thing. The reason a lot of people get it, though, is because it's cheap. And so I think the next thing we should go over,

Scott, to answer your question is, how does life insurance get priced? Because a lot of people wonder about whole life, which people, some people call a rip-off, other people say you need it, universal life or term insurance. Like, what's really the difference? So here's, the deal. Imagine that you walk in, Scott walks into an insurance store and there's these boxes. And each box represents a thousand dollars worth of insurance. I thought they were barrels. So when you buy insurance, you're buying it. I'm going from barrels. I'm mixing my metaphor. All right. I thought this was a bad joke. You're buying these boxes of insurance and they're in thousand dollar increments.

And so Scott goes in and when he looks at his situation, let's say, that Scott's working and his spouse isn't. The first thing to do is figure out where's the shortfall? How much money will my spouse earn after I pass away? How long does she need to earn that money? And if I present value all that to today, so that she has financial independence, whatever age she wants, and she makes enough money to live to fill in the gap in the budget,

what's that shortfall? And that's the amount of insurance that you go to buy. So let's say that number is $300,000. I don't know. If it's 300,000, Scott is buying 300 units of $1,000 worth of insurance. That price, the first question they're going to ask is how many units? The second question they're going to ask is how old Scott is. Because when it comes to life insurance, it's all based on your age. Because actually, Scott, at Scott, whatever young age you're at, whatever disgustingly young age you're at versus me, is going to be very cheap. But every time you have,

a birthday, that cost per thousand goes up because, well, I'm 52. If I go in and buy insurance at age 52, it's going to be fairly expensive versus buying it for a 30-year-old because the probability that I'm going to die more quickly is way, way bigger than it is for a 30-year-old. So once again, back to that law of large numbers. That's important because when you start looking at insurances, this is why term insurance makes a lot of. of sense for people. The insurance company not only is selling insurance to people when they're younger because you're going to buy it when you're young, a term insurance policy also only guarantees that it's going to last for a certain term. When you look at actuarial tables, people are going to die

much more statistically after 60 to 65, right? All of a sudden, deaths in America at those ages really start ramping up. Well, the cool thing about term insurance is you're getting rid of it. between 60 and 65 years old. And if we go back to that basic question people ask, which is, how do I cover my risk? You think about the risk that you're not going to have enough money after 60 or 65. Hopefully, if you've done a good job of planning, if you're listening to this show, you've done a great job of planning. You no longer have any need for insurance. There's no more coverage that you need, so it's okay for the insurance to go away. So not only does that barrel of money we're throwing money into have a lot less people taking money out because frankly people are

dying. They're just dying after the insurance expired. Second, people are buying it younger, which means the chance of them dying during that process is less. So term insurance is less expensive for whole life for a very basic reason. A whole life insurance company is guaranteed to be there when you die. A term insurance policy will probably not be around when you die. The vast probability is that it's going to be long gone. So insurance companies can offer you a much cheaper policy than they can on a whole life insurance just because of the way it pays out. Okay.

I have 10,000 questions. First of all, if I am, I guess, clarifications, not questions. If I am understanding you correctly, whole life insurance means that I am buying a policy from XYZ company and they guarantee a payout. whenever I die. Yes. Okay. No matter what age you are,

you're 85, you still have the policy. Yes. I don't just buy the policy once. I pay every month. There are premiums to pay every month? You can pay however you want. And this is actually, Mindy, brings up a great thing. Remember how it sold per thousand?

Let's say you buy a whole life policy that's $100,000. Okay. Let's say that you put $40,000 into that policy immediately. The price, then the amount of risk the company has, because whole life policies have this thing called a cash value. Now, here's the crap about cash value. A lot of people are going to tell you cash value is a great way to save, right? The reason cash value is created in the first place was to reduce the cost of this expensive insurance. Because imagine if the insurance is going to be around when you die, and every year that cost per thousand is going up every time you have a birthday, the

company, whenever you put a premium in, the company you're paying for that year's insurance. So if the insurance were priced the way that you're really paying for it, at your age, Mindy, it'd be because you're super young, the policy would be very inexpensive. Then next year, you'd get a bump up in your price. And then the next year bump up, the next year bump up. Well, what happened was, of course, nobody can afford that, right? They get to 65, 70, 75, 80. These policies would be lapsing, meaning people would have to let them go.

they can't afford the insurance anymore. So insurance companies came up with cash value for this reason. So you could prepay some of the future cost for those ages when it's going to be really expensive. Prepay them when you're young so that that insurance is less likely to go buy by by when you die so that they can have a guarantee. Now, the funny thing is they've done this all on the inside with a whole life policy so you don't see, you don't actually see the mechanism, but it truly is the mechanism they're using. Let's say your cost per thousand is a dollar and you're buying a hundred of them, so your cost is $100 for the year.

They might charge you $500 for the year. $100 covers this year's insurance, $400 goes into the cash value, which is not a savings plan at its heart. It's pre-buying insurance for when you're 90, 95, 85, 80 years old, back filling these super expensive years so that you don't see these massive price increases as you go on your insurance policy. That's why, by the way, when insurance people, and this is where insurance people get really messy, a good insurance person when it comes to a type of flexible insurance called universal life, if somebody needs a universal life policy, a very good insurance person is going to

tell you, they're going to say, listen, Mindy, take as much money as possible and shove it in this policy now. Because if you put $40,000 into a $100,000 policy, you're doing two things. Number one is you're only buying $60,000 worth of insurance. Where the hell does $60,000 come from, Joe? Well, you put $40,000 that you've just self-insured yourself. So the outstanding amount, the insurance company's only liable for is the rest of that, $60. So you're buying a hell of a lot less insurance by shoving a lot of money in it. The cool thing, by the way, is that money does get a tax break. It is tax-sheltered money. Now, it's not as great as it sounds because the insurance company is going to sock it to you in fees so we can get back to that. But the money's

in this cool tax shelter. And then from now to the time you die, you've bought a lot less insurance. So when it comes to legacy planning and some of this long-term planning, I'll see groups online where people go, my insurance agencies has told me to take $15,000 and put in this insurance policy. And I'll see 45 million people jump on that statement going, they're ripping you off. They're ripping you off. They're ripping you off. And I'm the other guy going, no, they're doing the right thing. Because the more money you stick in this, the less insurance you're actually going to buy. And the insurance you buy is going to be cheaper because of the fact that the outstanding number of thousands that you're purchasing over time are less.

I don't know if that makes any sense. But once you get this, little change, it kind of changes that game. Well, before we even get to that, can you define whole life and you've defined term? Can you define universal life? Yeah. So universal life, Scott, great question. Is a hybrid of the two? Because what happened was with a whole life policy, it was so stayed and you're kind of locked

into all the provisions. And they don't show you these inner workings that I'm talking about. I'm buying how many thousands and my cash value is doing what? I really, it's hard to understand what's going on in the inside. But the cool thing about it is it comes with locktight guarantees. If you buy a whole life insurance policy, the insurance company is guaranteeing that that money will be there when you die. So because of that, whole life insurance is the most expensive type of insurance that you could possibly buy of all the types. And the reason is just, if they have to guarantee it, they're going to make sure that you

put tons of money into it so that they can guarantee that it's going to last and that they make a profit. Universal life unbundles all that. Universal life says, okay, Scott, how many thousands do you want to buy of insurance and how much cash do you want to put in? And we can run some projections that will show you that this will last. And we could also maybe a variable universal life policy will put mutual funds inside of there, things that look like mutual funds instead of just cash or we can have it be a high interest money market account. We could have it be some S&P 500 look-alike thing. So universal life is where they unbundle all these pieces and they say, okay, how much money you want to put in it? And if you can't cover the amount of the basic premium,

they'll tell you, no, that's not enough. At the very least, you need to put X in it. But you can put more than that in it in a given year. You can put less in it in the next year. But also, the problem there is if you don't put enough money in it and that insurance keeps getting more expensive every year, every time you have a birthday, now they're digging more and more into the cash and into your premium and the policy is much more likely to lapse. So Universal is a hybrid of term insurance paired with cash value, but that term is going to last forever, meaning it's very expensive term insurance because it's guaranteed to last until you die. Got it. Okay. Well, I don't know if I fully get it, but I'll have

to go and noodle on that and research a little bit more of that. Where can I do that, by the way? Where can I go and like if I want to dig into these and maybe spend another hour thinking through these, I can really unpack them and grasp these concepts fully? You know, my favorite book about insurance of all covers all of financial planning. I think it's one of the most even-handed books on financial planning out there is Rick Edelman's the truth about money. Rick Edelman, of course, is a big name in the industry. He's been Barron's top advisor many years in a row has a radio show. But his book, The Truth About Money, is very funny and very even-handed. And you'll see where I got my analogy of us standing around

a barrel with a scoop, because that's directly Rick Edelman. And that's when I got it. The $1,000 increments thing, he also explains in much more detail. Awesome. Yeah, I think it's been very helpful and a lot of really good frameworks for me. I'm going to need to spend a little more time on the universal life insurance, I think, to nail it and understand those concepts. Well, and actually what's cool about that, Scott, is that now, knowing what you know, then we take a look at what do you really need to know? Because the cool thing is we just went through the basics, but you don't need to know everything about everything. If you're trying to replace income, if your gut is that I'm just trying to replace income, and I'm a good saver, there's no reason to look at universal life. because universal life is guaranteed to last forever,

and you're not going to need to cover a risk forever. You're not going to need whole life because of the fact that I don't need this thing to last my whole life. So then that gives you one option, which is term. And term comes in a few basic varieties, but if you know the $1,000 at a time concept, they're pretty easy. I mean, let's just go back to this from a concept level, right? So if you're listening to this show and you're a bigger pockets money listener

and you're trying to save up, you're probably thinking about, hey, by the time I reach retirement age, I'm going to be, you know, 65, I'm going to be ready to retire, right? At the very, like, that's just, I think, I think it's probably a given for most of us here listening on the show, right? And I'm ideally going to be able to retire significantly in advance of that, maybe in my 50s, maybe my 40s, maybe even for some of the ambitious folks, the 30s or 20s, right? So when I think about it from that perspective, that says to me that what I want is,

a term policy, and I want to decrease the amount of my term policy each year as I get closer and closer to financial independence, right? Yes. So I'd want, hey, if I'm, if I'm 30, and I've got two kids and a spouse, and, you know, I got $100,000 net worth. I might want a $900,000 policy, you know, right now because I'm really important to the household spouse. A spouse doesn't work with it. But each year, as I get closer and closer to that million dollars, maybe by 40, I'm at $900,000 in net worth. Now I just need a $100,000 policy, right? Yeah. So what product could I use to go about solving that problem? Exactly. They're just decreasing term policies. And you know what? When you look when you're young, the cost difference between a decreasing term policy and just a

level term policy, not a lot more. And this is where you might opt to be a little more conservative and go, you know what, I know I'm not going to need all this. The cool thing with the term policy, though, is you can cancel it anytime, right? There's no cash inside of it. Cash really only exists to make sure the, when they first created it, cash only existed to make sure it lasted forever. So there's term insurance, it's not meant to last forever. So because there's not that, you could probably buy a level term at a young age,

just in case things, just in case life throws a wrench in your plan, and it's not going to cost that much more. and you're still going to, if things go poorly, be adequately insured. So what I would always recommend when I was an advisor was we would take that last time we needed insurance and we'd just add a couple years. We'd add a few years just in case something happened and life got in the way. Maybe instead of having it ended at 60, we'd have it end at 65. And with the cool thing being, if we're going to retire at 45, I can dump it at 45.

Nice. So can you go through that one more time and define the level term concept, the buckets within term? Yeah. So a level term concept just means that I pick an amount of time and the price is going to stay the same. So going back to my analogy of every year, the price gets more expensive. And on the inside, it truly does. The insurance company just figures out what it's going to cost on the back end, which is going to be a lot more. later years and what it's going to cost now. And instead of charging you less now and more later, they just charge you a level amount. They also, because they're getting more money up front now, they also give you a slight discount on the money because they know it's not going to take as much of their money to fund you the whole time. You're actually prepaying a little bit when you

buy level term insurance. And you can pick any time frame you want. You know, depending on the company, they might have 10-year level, 20-year-year-level, whatever it might be. But Joe, I'm an aggressive now and informed client, thanks to your great discussion earlier, right? I'm sitting here and thinking, hey, I'm 30 and, you know, I'm going to be retired in a couple of years. And I only want it for five, 10 years. I might get there much faster because I'm going to house hack and, you know, and box and start, you know, doing all the things we talk about on Bicker Pockets money. So I don't want a 20-year level term that I'm locking into for the same thing.

I want to pay the lower price now, go aggressive and then hopefully not need it five, 10 years later. Is there a product that works for that? Well, and that's just one year. That's just one year term insurance. Great. So I could just go back every year to my broker and ask for that. You don't even have to. You just get a policy that the price is only guaranteed for one year,

and every year it goes up, like your homeowners or your car insurance, your health insurance changes every year. You get the thing that says, hey, my homeowners is more this year than it was last year for whatever reason. It's the same thing. Just say, nope, I want one year. Now, there are companies out there that will sell you that type of but they'll guarantee that they won't cancel you for 10 years. So you might want something like that

where the price changes every year and you're okay with that, but they can't cancel you for a number of years. The cool thing is, Scott, what I love about the aha that I'm seeing is once you understand that every year I have a birthday, the cost goes up, you then start realizing all these shortcuts people have kind of get in the way. Like it really is a much more fun discussion when you know exactly how insurance gets priced. Well, here's the other thing too is, like, yeah, every year, the price is going to go up because I'm getting older. But ideally, if I'm good with money management, the price is actually going to go down because I'm going to need to purchase less $1,000 units.

Because you're purchasing less. $1,000 units of insurance, right? Because I don't need that anymore. Right? And it sounds like there's a pretty, your probability of diet at 30 versus 31 is probably not that much larger. The probability of dying at 70 versus 30 is going to be very vast, right? And so that the pricing changes aren't going to kick in too much between certain, you know,

year to year, right? No, it is very much a slow curve that becomes a huge curve in those later years. Much, much, much bigger change between 60 and 70 than between 20 and 30, as an example. Sounds very expensive to buy a 30-year term insurance plan or a whole life policy if you're looking to become a financially independent at early age. It is surprising how cheap 30-year term really is, especially for somebody who's 30. If you're 30 years old, I mean, and that's why companies buy it, right? Companies have term insurance on you because they know that you're probably going to leave at 60 or 65. And so they're able to get these insurance policies incredibly cheaply through work. And by the way, that's why I like workplace policies, but I also, because of the way people hop around from job to job, this is where some of the important questions come in. And I know that we got some questions about insurability. The reason why you want to have a policy that lasts for a. a longer period of time isn't just betting on today. It's also you're betting on your future insurability. And if you're very insurable now and something happens to you, no fault of your

own, something happens, you might not be insurable later on. So locking yourself into a policy that they can't take away from you for a 10, 15 year, whatever period it is, it also becomes an important and a little bit more conservative factor. Can you walk us through that? What are some things that affect insurability? Well, anything that affects the fact that you would pass away early. So if in your family, you have a history, if your family history has cancer all over it, insurance companies, you know, wonder about that family history. And if you have had anything to do with cancer in your history, that's a problem. Mindy is pretending she's smoking right now. That's the number one thing. And by the way, don't fake this stuff. When I was a financial plan,

The number one thing that smokers especially would say, they go, oh, what if I just didn't smoke the week before my, my, you know, they're going to send somebody out to probably do like a blood, urine type test. So for most of the testing that these guys do, if you don't smoke for a week, they're not going to see it. However, here's the problem. There's this thing called a two-year contestability period. And if you die during those first two years, they go back and they look at every single thing in your lifestyle. And if they find cigarettes anywhere in your lifestyle, they don't pay your bet in fisheries anything. So I would rather go in with the truth than risk the first two years. And the cool thing is, if you lie and you get away with it for two years, you're Scott free.

You could say, Scott, that you are a 12-year-old woman. And because women live longer, and because 12-year-olds are younger than you, you could get an hella cheap insurance. And if that insurance passes two years and they haven't discovered that you're really you, you're locked in. But I'm not, I would never, ever, ever play that game. I think, well, hey, it's just fraud, number one. But number two, you're also messing with the whole reason you have insurance in the first place. This is a stupid question, but I'll ask anyways. Like, hey, you know, once a year, twice a year, I can have a cigar. Does that qualify me as a smoker in the eyes of the insurance

policy? No, but I would still disclose it. I would still say, I have a, I have a cigar once every couple of years, and it's not going to be a big deal. Okay. And if, by the way, it says, are you a smoker? Yes, no. Most of the time, the insurance company will define that. Do you smoke more than X amount per day or X amount per week?

Okay. Scott would say, no, I just burst into flame. I don't smoke. That's right. Just think about anything that will shorten your life. If there's anything that will shorten your life that's in your family, history or in your history, that's when you're going to have a problem. Tax season is one of the only times all year when most people actually look at their full financial

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Get more with Northwest Registered Agent at Northwest Registeredagent.com slash money-free. Okay, a few moments ago I said I have 10,000 questions and then Scott jumped in and started asking all of his questions. I'm not done yet. Joe, you said that this, you mentioned taxes. You said this is a tax shelter. What does that phrase mean in case somebody's listening who doesn't understand that? And then also is life insurance payout taxed? So Scott has bought $100,000 for his beautiful wife, Virginia.

Does she only get 50? Like when you win the lottery, you only get basically half of what it is? Or does she get all 100? I'm going to answer that second question first, because it depends on how the premiums get paid. So if a company pays for the premiums and they write those premiums, off, then the benefit is taxable. But in most cases, you'll see that you're actually buying from a flex benefit plan or they're having you contribute to insurance where they've negotiated a lower rate because they're giving you the insurance company, the entire company. If you're paying for it

and it's coming off your paycheck, I've never seen it as a pre-tax deduction. It's always an after-tax deduction. If you buy insurance with after-tax dollars, the benefit, the death benefit to your beneficiary is tax-free. There will be no tax taken off that $100,000. Now, that money inside, and this is where the salespeople start coming in, right? Because they start talking about this is a great place to save. So there's this thing that I used to look at when I was a financial planner called the tax triangle. And if you imagine a triangle in these three circles on the sides of the triangle, everybody can kind of do this at home, you can look at how well your triangle set up. The first side of the triangle is money goes in toward the triangle through this corner,

and the money is pre-tax, and when you pull that money out later during retirement, that money gets taxed. What type of investment is that? A retirement investment. Yes. That'll be like a pre-tax 401K or a traditional IRA where you're taking the tax right off right now, right? So that's bucket number one. By the way, that's the bucket most people, especially older people, have really filled up,

which is why a lot of us tell people to look at bucket number two. Bucket number two is where money goes in after tax. We're taking money that's already been taxed from our paycheck or wherever, and we're funding whatever the investment is and we pull it out, it's going to be tax-free. This will be your Roth IRA. This would also be municipal bonds, even though there can be some problems with Social Security municipal bonds, but still largely tax-free, the interest on those. And then the third place is actually life insurance. Money that goes into life insurance policies, if you pull it out correctly,

you can also pull it out without having taxes come out of that money. So this ends up being another tax shelter. And the problem with that, so everything I told you right so far is true, but I used a few words, which is if you pull it out correctly, the insurance companies have figured out ways to make sure that you don't pay tax on the way out. But man, is it complicated? It is, in fact, it's so complicated that I can't think of many times for the average person where adding life insurance makes sense. And I'm going to get back to that because people are wondering what the third bucket is.

The third bucket, by the way, is where money goes in is no tax advantage on one hand when you put it in, and it's not tax advantage when you put it out, and you're going to throw off taxes a lot, right? This is your regular brokerage account, savings account, that type of thing. So you want to have somebody that's flexible, somebody that gives you tax advantages later. That would be Roth IRA, munis, and maybe life insurance, and then money that's pre-tax where you get the bird in the hand today tax-wise. So those are your three different tax pieces of the tax triangle. But life insurance, when it comes to the fact that it's tax-advantaged, the only time I've seen this be a really good deal

is when somebody has maxed out everything they can do tax-wise. And then they get to the point that still they have these goals that are way far in the future, and they don't want to throw off a lot of taxes today. You can do the very kind of complicated math. It's funny that I'm sighing as I've been saying this. You can do the complicated. math and shoving money into a life insurance policy wholesale, just shoving as much money in

as you can, is a way better idea, way, way, way better idea than putting money in an annuity. Way better. Because the money goes in after tax, the money comes out tax free with an annuity. The money is going to come out tax deferred, right? Also, the fact that with annuity, it's last in first out the way it gets tax. So people are afraid to take money out of an annuity because they're going to get hammered the second that they touch their annuity. With life insurance, you'll never pay tax

as long as you can keep the policy in force. So I would tell you, when I was a financial planner, I would use life insurance as a tax control vehicle. But I would use it maybe once a year, once a year. And this is a person who's making like $800,000 a year and they're spending $200,000. And we're just trying to figure out where the hell to stuff money.

Let's just stuff money in as many different buckets as we can. So, yeah, it sounds like the use case for this is a, hey, I just came into like $5 million through an inheritance or something like that. And I don't know anything about investing. And I want the most guaranteed tax-advantaged income stream I possibly can find. And this isn't a way to go about solving that issue, for example. But both this and an annuity would probably be less efficient for long-term wealth. creation, I would imagine, than investing in an index fund long term in a after-tax brokerage account,

pre-tax vehicle, or Roth IRA or real estate, you know, those are other types of options. But that could be a good option for that guaranteed income or a stable income source and the tax advantages in that situation. Is that one appropriate? Almost. I'm just trying to think about it. Almost. I would say this, Scott, if it's a low-cost policy and it's a variable, it's a variable policy, meaning that you have an index fund inside of that life insurance policy, you look at the internal rate of return on that, especially if you max, if you shove as much money as you can, so you minimize that cost of insurance, right? You want to shove as much money as you can. Then it becomes a very, very efficient place,

because what we're trying to do is we're trying to make the cost of insurance less than what the tax would be that you pay. And if we can do that. And if you pass away, we also are able to take it out of the estate. I mean, this is where we're getting into some heavy duty planning. But then we're taking it out of the estate because the death benefit, if we set it up correctly, that isn't a part of your estate. If we can do that too, then we've done some incredible tax planning. Okay. So this is for a very high-income earner who is in a high-tax bracket,

which makes the tax advantage as that much easier to realize. And we're getting pretty complicated. And this is not what you should be buying from your salesperson, giddy insurance broker, who confuses you with a lot of terminology. This is with your fee-only financial advisor who helps you work through a really tax-advantaged approach to sheltering a lot of income. Is that a fair way to?

Yes. Yes, and you are bathing in money. You are bathing in money. And really, the only takeaway point is that universal life insurance isn't bad. I see it used incorrectly. I'd say 99% of the time, Scott, 99% of the time it's somebody that doesn't have very much money. they've been sold it by somebody who sells insurance because it pays a nice commission.

And now they have this permanent policy where they're not going to need insurance for their entire life. They're funding it minimally, right? Because they don't have any cash, which means it's making it even more expensive because they have to buy more thousands using it just awfully. But I'm going to go back to my first statement when we first started. The policy isn't bad. It's the round peg square hole that's actually bad. I just think that if you hung around the FI community, you've inevitably come across the guy that we're describing here, the salesperson who talks about this vehicle, and it's over everyone's head, every listener's head,

and all the host's head, whatever this happens, and you just can't figure it out, and it's like, that seems like there's something there. I don't really understand it. So most of us shy away from him, I'm sure. But thank you for coming in and explaining this in a way that we can kind of generally grasp, right? And by the way, this is universal life that we're talking about here.

This is the third one, not term or whole life, right? Yeah. No. And listen, and whole life is good. I'll tell you where whole life comes in, in well, Scott. I would invariably, I'd say once every five years, I would have a client who said, I just want no risk at all around my insurance. And I would explain to them about how they're paying through the nose for this thing.

And they'd say, yeah, I understand. I just want to make sure that no matter when I die, this is there, that that is what I want. And I just wanted to be very clear that my client knew ahead of time you're paying through the nose, you're paying for all these guarantees. And I felt really good about that for those people, because those people went in with their eyes open. They knew exactly what they were buying. But it was what was important to them, which I think is an important way to think about your risk management. There you go. Okay, good. I'm glad you clarified that because I actually thought we were talking about whole life. That's the universal life policy.

is the cash value. And now, is that the one, this came up a lot, the cash loan options and the velocity banking and the infinite banking and all of that stuff? I'm not sure that's related to life insurance, but I know that I just know enough to be dangerous. I know that policies from a thousand years ago, if my parents would have taken out a policy on me when I was a kid, that would be valuable to me to borrow from now. but policies issued now aren't the same, right?

Am I close to correct? Before Joe goes here, I just want to chime in that on the same subject, I feel like I have a very large amount of skepticism about all of those items, but not a framework to be able to challenge the salesperson screaming all of these benefits in the face. So I want to just throw that context to there before Joe answers. Yeah, because there's a lot of different things, Mindy, that you threw up. but let's start with infinite banking first.

Because infinite banking means that you're going to buy one of these life insurance policies. You're going to stuff it full of cash, right? Because you're stuffing it full of cash, you can then take loans from that money. So you're going to have a cash reserve. If something bad happens to you, you will have a death benefit, which is also pretty cool, because then your heirs end up with money. But if you live, which is what we're all hoping for, yay. you take out this money as loans,

meaning that all this money that the thing's making is tax-free. It gets a little more complicated than that. It works. It actually works in less. In less, think about how many things you're betting on. If you take out that loan, you can't continue to put a paycheck into that policy to continually fund that cash value.

The second that cash value begins draining, what happens? if instead of you having $40,000 of cash in a $100,000 policy, you go down to $30,000 of cash next year. Not only are you a year older, which means that each $1,000 is more expensive, you're buying $10,000 more insurance. So when these infinite policies go bad,

they tend to go bad in a hurry. Like when they unwind, when your life unwinds, everything unwinds with that. type of a policy. So I'm reticent to do it, not because the concept doesn't make sense. They can tell you the concept all day and you're looking for the flaw, Scott. There is no flaw. The only flaw is if you can't continue to keep that cash portion funded and you keep having birthdays, which you can't stop having, it's going to unravel in a hurry if you can't continue to fund it. So what you really need to have happened, you need to be able to guarantee that the future is going to continue to

look as good as the present. And most of us like doing that. I just don't like doing it around my... Or that you're going to die. Yeah, or that you're going to die. Right. Immediately. Right. So, yeah. Okay, just making sure I have that right. Yeah, there's just too many variables. I prefer to plan on a life where things are going to change, right? It isn't flexible enough for me. And the chance of it going wrong means I'm going to end up paying a lot of fees that I wouldn't have paid. If I just did the straightforward thing, you'll come out ahead if everything magically works out. But the bad news was over 16 years of being a financial planner,

the number of times that we had emergency meetings because things weren't working out the way that we thought they were leads me to believe that we should probably plan for flexibility not to lock things in. Okay. So just to recap, the cash loan or the policies that are being issued today are the same as the policies that are being issued. when I was a kid, except that just has more time to build up the cash that I could borrow from?

Is that? No, policies have definitely changed over time. And insurance companies have been very reactionary. So let me, you know, I mean, we can just do, I'm sure it didn't happen exactly this way. But, you know, companies are all selling this approach about, hey, we pool this risk. I can do it for you. This is a great thing that everybody has. hey, let's do this. And then somebody walks up and goes, yeah, but what if I die? What if I die

much, much later? Like, you're trying to charge me at 80 years old for this policy. I can't afford it. Oh, well, let's make the policy level and let's have you put money in. Well, with whole life insurance, that gets really difficult. And you can't sell that to a 25-year-old. A 25-year-old, when you look at the amount of risk they're going to have of dying over their entire life, they're going to go, come, why would I buy this? I'm spending so much money for insurance as a 25-year-old because I'm pre-covering when I'm 80. This isn't very affordable. So like, okay, here's what we're going to do. We're going to make some of this go into a cash value, right? Make some of it go to a cash value so that your policy is, quote, paid up. So you'll pay even more now. But here's the cool thing.

When you get to 60, your policy is completely guaranteed. And what they're really saying is, you've pre-purchased all these thousands ahead of time. So yeah, the price is even higher. but it's only going to be a short-term pain and then your policy's guaranteed forever. Well, so then insurance guy is walking around trying to sell these things. And during the 60s, 70s interest rates go through the roof, right? And people like, listen, why don't I just invest in these CDs paying 10%? Forget about your cash value. I'll go ahead and do this myself.

All of a sudden, the insurance guy goes, oh, I got to change that game. Well, how about if we did this? What if we can make that instead of a guarantee? What if we float that interest rate that you get? So if we float the interest rate, now it becomes a savings vehicle. And now you've got all these insurance salespeople going, hey, Scott, you can insure your family. And if you need the money early, check out what interest rate it's earning.

It's not that old whole life thing. It's now this thing that pays a higher interest rate. And then as inflation lowered in the late 80s and mutual funds became a hot thing in the 90s, insurance guys walking in going, hey, this pays a good rate of return. Like 4%, are you kidding me? My mutual funds are killing it. So insurance companies go, what do you can do to compete? I know we'll do.

We're going to stick mutual funds inside of these insurance policies. That'll do it. That'll be great. And so policies have always evolved, but the bad news is that I think you get my point, they've always been reactionary to what's going on around them to try to make sure that they continue to stay relevant. Yeah, I don't know if I'm misunderstanding this or just finally getting like super clarification, but I wasn't all that excited about life insurance before I talked to you and now I'm even

less so. I see Scott thinking, oh, this could be, this could be. And, you know, Scott and I are in different places in our lives. but I don't think that I need life insurance. When do I know that I don't need life insurance? Or, I mean, does everybody need it? No, it's very easy to do the math. If we start off not with life insurance, but what's my risk?

I always start off with what's my risk. So if I get disabled today and I can't work anymore, how much money does that take off the table? Can my investments be enough for me to live on? Not just now, but with inflation forever, right? So if that happens, then I don't need disability insurance. Same thing with life insurance. If I have enough assets that if I pass away and my family can do okay without me,

I don't need life insurance until this is the other side of the equation, until we get so much money that now I have these really onerous estate taxes. When I get a huge nest egg and I've got estate taxes, insurance then becomes a very effective way. way to solve that because instead of paying a one and a half million dollar insurance bill by myself, I could maybe put $100,000 into a life insurance policy and that's at a million and a half dollars. And now my life insurance policy is going to cover a million and a half dollar estate tax that I can't get rid of, but I only had to put $150,000 toward it because it only cost me

$150,000 to pay that tax. So there's two times you need insurance. protect your income for most people and your value to the family, which is something else that we should address. And on the other side, protect you from estate taxes. Well, okay, so now I got another question for you. So, Middie, here's what's going through my head, right? Is I'm thinking, hey, you know, let's zoom forward a couple years and suppose I have a couple of kids, right? And I think my spouse to be is going to be as a very competent person and could manage my portfolio and those types of things, right? But the kids couldn't. So the way to protect them is not through insurance, but figuring out a mechanism to ensure that the portfolio can cover their expenses and anybody

who would take care of them in that particular. So I'm not thinking I need insurance. What I'm thinking is so arrogant is this, is, hey, if I'm doing off to a pretty good start here around 30, then, you know, maybe it's time to talk to an estate planner about what happens if my portfolio balloons to eight figures over my career, nine figures over my career. And what are the implications of that and planning for that potential outcome? And maybe that's something that I need to start thinking about now if I think that that's reasonably likely. So how's that for absurdity coming out from my perspective out of this discussion? Well, and I was going to ask that same thing.

You know, who am I talking to to help me plan this? Who doesn't really have a horse in the race? Who's not going to be like, oh, yeah, you should get an annuity. By the way, I don't like annuities. I think they're horrible. Well, what's funny is, again, I don't think there's a bad product. I think annuities serve a fine thing. I think there's people selling them horribly, and there's companies that are ripping people off.

But I think if I told you, you could get a pension that you created yourself that you cannot live, you go, damn, that's cool. Then I say, oh, that's an annuity. You go, oh, that sucks because of the, you know, the way that they've been sold. So I'm not anti-annuity. I'm anti-annuity salespeople hocking high-fee crap. Ooh, okay. Maybe that's a better way to phrase it. Let's talk about annuities after this.

But who does, let's say somebody's listening to this and they're like, okay, you know, I listen to Joe, explain how life insurance works. I don't think that I need a policy to benefit my or protect my income. Who do I talk to about getting one for as like a, I don't want to say tax dodge, tax shelter. I'll use your word. Oh, yeah. I think when you get to that point, find a fee-only financial planner who can help you with that. I think that for most people listening here, I think it is even far more important to get the amount of insurance right. And I don't like Mindy the rule of thumb around, hey, five times your income or 10 to me, that's crap.

It's easy to figure out what the right amount of insurance is. And it really is a range. And it's two things. Number one, there's an analysis that we used to do called a capital needs. analysis. And that means Mindy passes away what expenses are there that there weren't before. And by the way, this is also a reason why sometimes in some families that have very few assets, somebody who doesn't bring home any money, can have an insurance need. Because if you're a stay-at-home spouse who is taking care of the family, there's no way that your spouse is going to be able to

do all this work without you. They'll have to hire somebody or they'll have to figure it out. So we have to figure out in monetary value what that was. And so often we would have stay-at-home spouses that we would recommend that they get insurance because of the economic value to the family, not just the paycheck they brought home. But anyway, so we figure out all of these needs. And then we add up those needs. We present value them. We then figure out where's that money going to come from? Well, you've already got $400,000 in the 401k or $50,000 or whatever it is. You've got a Roth IRA, you've got the HSA, you've got money and savings, you add up all of these things, and then you take that money off of the money that you'd need, and then the rest of it you cover with insurance. And then you go through the types based on how long you think that money's, you're going to need that. So like Scott said earlier on, maybe it's decreasing term. Wherever year, it's less and less term coverage for 15 years or whatever the amount is. I would be conservative with it, especially if you're doing this young. And by conservative, I mean, I would have it go a little longer than you think because the cost

difference is not that big a difference. This is awesome. That just makes so much sense the way you're framing it. So I appreciate it. Yeah. And where can somebody find a fee only financial planner? You know what? I like the CFP organization. They have a list of all the CFPs that are out there. Not all CFPs are fee only. There's a couple of great organizations. You know, personally, I really like and have had a good relationship when they've come on our show with advisors that are affiliated with with XY Planning Network. I think, you know, I look at many of those advisors. Very straightforward. They'll charge you a fee for their time. And a lot of the time, Mindy, especially when it comes, if you're just worried about planning, I always like having smart

people in my corner, so I'll always advocate for an advisor, whether it's a licensed advisor or not. I just like people pushing me to do better. So I always want to be the dumbest person on my team. But if you're just looking for insurance, you can go to most of the term insurance companies and you can use some of their calculators to figure out what the numbers are. By the way, I said there's two sides to this. Number one was that capital needs analysis of how much is it going to take. The other side of the field goal, we call it, was what's called a human life value, which is if Scott passes away, he's going to earn X amount of money over his entire lifetime, if we present value that money and he died today, how could we replicate

his paycheck forever? That obviously, that number is going to be way too high. But the problem I have with the capital needs analysis of so-and-so makes so much and I've got this level of debt and I'm going to grow my assets at this rate, those numbers all blow in the wind. So if I get a capital needs analysis that tells me that I need $250,000 and I've got a human life value of a million, I might buy $350,000 worth of insurance. I'm not going to put it right at that $250. And by the way, most of the term insurance companies out there will have these calculators right on their site.

When you think about those, I'd much rather use that calculator than use a rule of thumb. Great. I want to kind of jump back to a couple of questions that came from the Facebook group here. One of the questions is, what to do when companies refuse to pay out a policy? And I want to qualify that with the context, I think, is likely behind that question where,

hey, if I get into an automobile accident, right? And, you know, it's the other guy's fault. Then my insurance is the one that goes after their insurance for the claim, right? And so it's nice to have your insurance provider figuring that out for you and all that kind of stuff. With the life insurance, it's your beneficiary against the insurance company, right? Yeah, I think you started to answer this question before because of the two-year thing. But I just wanted to get your framework for answering that. Yeah.

Yeah, the only reason that they would do that are two reasons. Number one, most have a suicide exclusion, which usually is also for the first couple of years if you commit suicide. So you go buy a million dollars worth of insurance just before you plan to commit suicide. They're not going to pay. And then also, if you lied on your application, generally that's also two years. So it's because you did something that violated the term of the contract is the only reason why they wouldn't pay. Got it. What medical conditions have the most impact on your rates and when does it make sense to do a no exam policy? I am not a health expert, but based on everything we said, I can answer this really easily.

Anything where the insurance company thinks you're more likely to die is going to impact it the most. If that's going to push that number up and make it so that the probability of you dying quicker is much more evident than they're going to charge. you more. They are not allowed by law to discriminate. I'm not saying that they do or not. I'm not on the inside, but they're by law, they're not allowed to discriminate and say, no, I just don't like Mindy and I'm going to charge her more money. Can't do that. Because of that, you think about that. If I'm an insurance provider and you tell me that you don't want to tell me about your health condition, what I'm going to do then is I'm going to maybe insure you. And if I do, you're going to go in the

dirtiest part of the pool. You're going to be standing around that barrel of money with people that all have to throw a lot of money in. So generally, I would much rather tell people what my health is and hope like hell I'm not in that last barrel than the not. But if I'm awfully sure that the question is, are they going to insure me or not? And I know I'm going to be in that worst barrel. I'd rather be in the worst barrel if I need insurance than be excluded completely. Another thing to be clear about too. Insurance companies by law are allowed to exchange information. So it's much like when you apply for a credit card, it goes on your credit report that you applied so you don't apply for five credit cards at once. If you have a health condition,

realize that every insurance company is going to know that. If you put it on one insurance application, there's no way the other ones aren't going to know. They all work together when it comes to fighting fraud on applications. Okay. And what about extracurricular activities, like riding motorcycles or skiing or snowboarding or skydiving or like that sort of thing. I don't skydivet, but. Different companies have different exclusions, but you need to tell them that if you are going to, because there will be provisions in the in the fine print of the policy that say that if you die skydiving or if you die, if a big one on a company that I used to really like was

about auto racing. If you're involved in auto racing, they would, you know, and it was all, by the way, it was all types of racing. If you race automobiles, motorcycles, boats, like, they went through all the list that you have to disclose that. So this is where I would ask the insurance company specifically before you start filling out the form, because once it's on the form, then you're declaring this is the truth. I would ask a person out loud say, hey, I race motorcycles. Is this going to be a problem? And is there anything that I might not think of? I mean, obviously, if I may race motorcycles, I am at an elevated risk of dying a horrible death. Is there anything that I would not necessarily

think of that would be an issue? I can't. I can't think. You know, the weird ones that I always saw was that statistically, and this will frustrate people because I know there's probably a lot of people out there that use chiropractors, but a lot of there have been so many problems with chiropractors that if you're applying for disability coverage and you have a chiropractor, that's one that always threw me for a loop. I would have to ask people, do you have a chiropractor? And they'd say, well, yeah, I go, you know, once a month or three times a year for an adjustment or whatever it might be.

I would tell them right away. I'd say, you're going to get a horrible rate for disability coverage. And say, well, but my chiropractor is a lifesaver. And it's not your chiropractor. It's that there's enough claims against chiropractors in that business overall. that insurance companies really have a, that one always surprised me. But I can't think of anything else. Yeah, I can't think of anything else, Mindy, that really surprised.

Oh, I know another one. Everest travel to dangerous countries, those types of things? Yes, yes. Are you going to travel and where specifically are you going to travel to? They'll ask that on the form. The third thing is, if you have a trampoline in your backyard, the number of trampoline accidents in backyards are, even if you have that net around them,

I mean, the number, if you, I remember if you've a trampoline in your backyard, insurance companies would go, eh, especially again, homeowners companies really didn't like trampolines. What about pools? Homeowners companies also have issues with pools, especially if you've a pool and a kid, yeah. Oh, okay. Mass cars? No, but that's going to be your auto insurance. Your auto insurance, it's funny that the type of car you have, you know, and if it's red or not.

makes a difference. I told Carl that I specifically did not want a red sports car because they get pulled over. Scott, come join us on this side of 40 and your rates plummet. Nice. Yeah, look forward to it. Okay, can I take a policy out on my spouse even if he couldn't be bothered to finish the paperwork on his own? What I would do is I would fill out the entire policy and just have them sign it. Very specific phrasing of that question.

Yeah. Well, let's be clear. You can't take out a policy on your spouse and then feed them poison mushrooms. So you can't do that. Yeah, sorry, Mindy. I got to change what I'm making for dinner then. Now, oh, could I take a policy out on Scott? You can, but there has to be evidence of a reason why you need that insurability. So companies will have key man insurance. So inasmuch as Scott is a key man. man in bigger pockets and he is, you know, it's going to take a new CEO time to get up to speed.

Companies will often take out a key man policy on key people to make sure that they still have money coming in. That's a good business planning policy. But to finish answering that first question, you can take it out, but they have to sign it. They have to sign it. They have to know they're being insured. You have to have a reason to do that. So a spouse can fill out the entire application. So if they're really lazy, you just fill it all out for them and have them just sign it. Okay. Yeah, no, I asked, Scott said, oh, I don't know, I don't have life insurance. Yeah, you do. Bigger Pockets has a policy on you. Perhaps. Let me guarantee that. They don't know about my travel plans to, like, I don't know,

Mount Bad Nepal for my Everest expedition. Oh, yeah, yeah, I definitely want to get a policy on you before you go to Everest. Okay, Joe, I think this will be the last question, because you've kind of answered a lot of these just in the general conversation. What criteria do I look for in a good life insurance policy and how can investors find resources or connect with the right life insurance companies? So I think we kind of cover the criteria part of that. But how do you find a good life insurance company? I think there's a few things that you're looking for. So you want a hybrid of two things. You want an insurance company that's been around for a while because of the fact that the big

important thing about your insurance is that they're going to be there when you need the benefit. Like, the whole reason you get insurance is to get that benefit later. So I see people just look at price. And if I've never heard of the company, and I'm not sure if they're going to be around tomorrow, I'm not sure that I want to give them money. By the way, the precedent has always been, just to be clear before you get a bunch of hate mail, is that when a company does go under, other companies step in and take their book of business and insure their book of business. So the chance of that happening still is remote. You could probably go with the cheapest insurance and get away with it.

I just don't want to take that risk. This is risk management that I'm doing. So I want them to be around for a long time. And at that point, it should be pretty competitive. Now, I had an insurance agent tell me one time that insurance companies all have a group of people they work with best. But that changes as you age. So let's say that is an example, progressive for car insurance, really likes you between 25 and 35.

And at 36 years old, you're much better with Amika or you're much better with, you know, whatever the Allstate or whoever the company may be, that may be their niche. So whenever you have a birthday, when it comes to things like your auto insurance, that's a great time to look. With life insurance, you're going to make this decision one time. So I think then once you know that the policy's been around a while, if it's a term policy, you can specifically look at two things. Do they offer the policy that you want? Scott was talking about decreasing term policy where it's less coverage every year. Some companies don't offer that.

So you want to ask, do you have that particular policy? Then the second thing is, if they do, if two companies do, then it just comes down to price, right? Who's offering the lowest price? And by the way, you're going to find out. this idea that companies are ripping you off, again, is a lot less than you think. The difference when you go through all of this decision-making process and you're truly comparing an apple to an apple is way, way, razor-thin margin versus what people think it is when they're arguing about it on Facebook. Wait, wait, all the experts don't discuss this on Facebook? It's unbelievable.

So I should have said hashtag spoiler. I think every random person who discusses life insurance on the Facebook groups, you know, really kind of nail it right in the head. So, um, anyways. It's way more fun, Scott, to say they're all ripping you off. They're all ripping you off. That's right. They, they know it intimately. Yeah. All right. Well, is there anything else? We're coming up on our time here. Is there anything else that we should know about or questions that we haven't posed yet that we should be thrown out there on that you can think of or common things before we kind of wrap up here? No, I think that's, that's the main stuff. I really like when you, really, I think to encapsulate everything we talked about, Scott, to throw away the, the, there's one

type that's best, realize that your situation is unique, and focus on your situation and the fact that there's thousands, you're buying it per thousand, you want to buy it for a set amount of time, and then work backward. And I think you're going to make a much, much better insurance decision than using a rule of thumb. Perfect. Love it. Joe, this was super helpful. And this really helped explain to me what exactly is going on with life insurance. And just defining the whole term and universal life insurance policies is very, very helpful how it works. And like all of that. I really appreciate your time today. If somebody did want to actually reach out to you and talk to you more, how could they find you? Well, you can find me. I'm on Twitter, average show money.

Come talk to me there. You can, of course, find me at a show where you're not going to learn anything close to what you learn here. The goal of our show is, and never teach anything ever. So you'll find me at stacking Benjamins every Monday, Wednesday, Friday. Stacking Benjamins is a great show. It's very fun. There's a lot of learning going on there, even that JoJo kind of tricks you over time

into absorbing lots of information about complex financial concepts. So definitely go to check back in Benjamin. You're going to ruin my reputation, Scott. You've got to stop that. Yeah, he has some fun guests on from time to time as well. We listen to you whenever we clean out the garage. I mean, my husband listens like every time. but I listen when we're cleaning out the garage, which is very frequently.

And I just always associate you with the garage and not the basement. But Joe does actually record in his mom's basement. Yes, mom's basement, which has been moving around a lot lately. We've been nomadic here for a while. Mom and I moving around the country. Well, this has been great. Thank you. I think I just want to say that this has been a premium episode of the Bigger Pockets Money Show podcast.

So we appreciate it. Joe and your time and all your insight here. And yeah, thank you. Thank you guys. I appreciate it. It was a ton of fun. I love nerd and out about insurance. Woohoo. Clearly, clearly you love this. You're going through the history. I'm like, oh, wow. Either he made that up on the fly, which is really impressive, or he actually knows that, which I'm hoping, which is also really impressive. Well, like I said, it may not have happened that way exactly, Mindy. but I think it helps explain how reactionary that industry is. Well, that's still very, very helpful. Okay, so you mentioned a couple of books,

and you mentioned your show and your Twitter and all of that, and we will include all of these links in our show notes, which can be found at biggerpockets.com slash money show 139. I guess we'll see you in 100 more episodes, Joe. 99. I hope so, guys. I'll be waiting until then. I'm not going to breathe until then.

Oh, don't do that. Okay, and until then, you can find Joe at his show. He's got 87 million episodes, so you will get no shortage of Joe. Okay, we are out of here. I have no good insurance pun. Bye.