Business Innovators Radio - Interview with Retirement Consultant James Haass Discussing Life Insurance for Retirement

Episode Date: August 4, 2023

Over 40 years in financial services including 20 plus years with Northwestern Mutual Life. 15 Years as a financial advisor with large banks. Started own agency in 2015 with partner/spouse Michelle Haass, Thoroughbred Advisors.Probably the greatest gift I provide for my clients when they retire is a good night’s sleep.Learn More: https://www.BrookeQuinn.comInfluential Entrepreneurs with Mike Saundershttps://businessinnovatorsradio.com/influential-entrepreneurs-with-mike-saunders/Source: https://businessinnovatorsradio.com/interview-with-retirement-consultant-james-haass-discussing-life-insurance-for-retirement

Welcome to influential entrepreneurs, bringing you interviews with elite business leaders and experts, sharing tips and strategies for elevating your business to the next level. Here's your host, Mike Saunders. Hello and welcome to this episode of Influential Entrepreneurs. This is Mike Saunders, the authority positioning coach. Today we have back with this retirement consultant, James Hassan, will be talking about life insurance in retirement. James, welcome back to the program. Hey, thanks, Mike. I'm glad to be back. You know, I always kind of like, I view myself as a word smith.

And so as I was saying, life insurance in retirement, it also makes me think of life insurance for retirement. So I think that people need to realize that you need life insurance while you're in retirement, but also you can use life insurance for retirement. So I want to dive into all of that with you. So let's talk a little bit about how you work with your clients, giving them, good advice on considerations for life insurance as they approach and work through their retirement years. That'd be great, Mike. Well, first off, I want to touch a little bit about life insurance because there's, you know,

two basic types of life insurance. There's what we call a temporary insurance and a permanent insurance. The temporary insurance, as you know, they call it term insurance. And term insurance can be for a basic term of, five years, 10 years, maybe up to 30 years. And you can even purchase a term policy with a level premium for that amount of time. And you can actually purchase what they call a renewable term, which is the premium goes up every single year until it expires. And typically it's at around age 70 and then that policy will expire. Some go longer, but that would be around the average age.

and I just want to touch on the term versus the permanent in retirement. Although I do have clients that do have term insurance when they get into retirement, I don't have too many that purchase too much term insurance when they get older because the costs are prohibitive. And I'm working with someone right now who came to me. They had a 10-year term, and he's turning 70. and unfortunately he's had a change in his health. So for him to qualify for another policy, it's going to make it more difficult.

But if he had permanent insurance, he wouldn't have to worry about that because once they accept you with a permanent policy, no matter how sick you get, they cannot change the premium. It doesn't matter. So there definitely is a need for permanent insurance in retirement.

And the two that we do primarily are a whole life type of insurance or what they call an index universal life where you pay a premium to keep that policy and force for life. You know, I want to kind of go a teeny bit deeper on what you just said about, you know, the health and requalifying because I think people don't really take that into full consideration. They've heard the old days of, you know, buy term and invest the difference in between term and whole life. because whole life will have higher premiums. But if you did get that term and that 10-year term or 20-year term starts getting close to the end, and you want to get a new term to buy some new time, you got to re-qualify. And what if your health change, like in the example that you gave there? But with a permanent policy, I think that that's a huge opportunity there for people at any age,

but especially as they're getting toward retirement to realize once that's in force, you don't have to requalify health-wise. and if things did change health-wise, then you've got your policy in place without the worry. Absolutely. That's a great point. And if you don't, it's like, you know, it's kind of like buying fire insurance on your house. Can you imagine if you wanted to buy fire insurance on your house, you call up the insurance company, say, oh, excuse me, insurance company, my house is on fire. I need some insurance. That's kind of like, you know, trying to buy life insurance when you get older, you know, I've got cancer now,

I've got diabetes, I've got this and that. So, you know, you pay for it with money, but you buy it with your health. You need to have. It's like the old saying, if you want to go to the bank, it seems like the banks want to lend you money when you don't need it, you know,

and you want to, you know, if you could prove that you don't even need the money, yeah, we'll give it to you. But when you really need it, sorry. So that's a really great point there is the term versus permanent let's kind of get into some of those benefits of the permanent type. And there's, I know many, many types of ones. And you would mention index universal.

But talk a little bit about the kind of the phrase permanent life insurance. What are some of those benefits? Okay. Well, first off, life insurance is income tax free. How many things that you know that you can invest in that no matter how much money you make, you get it all back income tax free? I think that's a pretty good benefit. So therefore, as life insurance grows in cash value, the way these permanent policies are designed,

and what happens is the cash value builds so that the risk to the insurance company doesn't increase because let's say you have a million dollar policy. And in the very first year, you have zero cash. But let's say you're putting in $10,000 a year premium. each year a portion of that cash value will build so the cash starts to go towards the million. So just imagine the top of it is a million and the first year you have $5,000 a cash and then in 10 years you have $90,000 a cash. So it just keeps building. And that cash also builds tax-free.

And you have access to that cash while you're alive. And you can actually borrow from that cash value if you need it. And actually, you'll never pay tax on that life insurance. The only way you're going to pay tax on life insurance cash value is if your cost basis exceeds your cash that you're taking out. I mean, your cash, you're taking out exceeds your cost basis. And then if you cash it in, then the excess would be taxable as regular income. But you never have to do that because you can always. borrow your money out from your life insurance and not pay taxes. As a matter of fact,

a number of life insurance companies will set up an automatic withdrawal in a policy. Usually it's around age 60 and you can then have income coming out and they'll guarantee it for life and it'll be tax free. And what they're actually doing is they're borrowing it against your death benefit too. So if you have a million dollars of death benefit out there and and say you're taking out, you know, 50,000 of cash, then the death benefit will come down because you're actually taking the money out ahead of time and it's tax-free. So you can develop actually a tax-free income for life. And of course, you can always borrow the money any other time if you need lump sums for business reasons, for emergency or whatever. So it's a great asset to own

because you have access to these funds. And you can do that typically with index universal life or you can do it with whole life. And the nice thing about it too is, let's say you had a million dollars in your 401k and you had it all in the market. And you start taking money out and the market crashes 50% like it did in 2008 and 9 or like back in 2000. Can you imagine you're withdrawing money out and the market is going to? down. So all you're doing then is you're guaranteeing a loss on your portfolio because you're going to withdraw the money out of loss. That can't happen in a life insurance policy because if you look at the policy, it's always going to keep growing and you don't have that market volatility.

You know, that's some huge points that you bring up there because with the term policy, you get none of that. And with this permanent policy, with the cash value that you're talking about, a certain amount of each dollar of each premium goes to build up your cash value. Is there a certain aspect that you would see or recognize a rate of return? So as an example, do permanent policies pay dividends? Like you hear some stocks pay dividends or do permanent policies give a rate of return of X? You know, what kind of numbers have you seen that way? Well, it depends on which one, whole life or index universal.

life. The whole life typically, lots of them have portfolios. And a lot of those portfolios have come down in years with interest rates because, you know, interest rates had come down. Back in the 80s, when I was with Northwestern Mutual Life, our dividend rate was 11.5% in the mid to late 80s, which anyone would love to get that now. Their current dividend is like 5%. With the index universal life policies, they use that, they index it to say the S&P 500. And like the annuities, how they are indexed, what they do is they guarantee the minimum that you'll ever earn is zero. So if the market crashes 50%, you just get a 0% interest rate that year.

But as the market goes up, you're going to get a percentage. And the caps on those in recent years were 10, 11. 11, 12%, right now, a lot of companies are averaging around 9%, 9% or 10%, which means if the market goes up 10%, you get to 9%. If it goes up 15%, you get 9%. If the market goes down 40%, you get 0%, you get zero, but we call zero my hero because that will not have- You didn't lose. Yeah, that will not happen in your 401k or your higher. And the other thing that you have to keep in mind, too. When you buy Whole Life or Index Universal Life, unlike term, this is insurance for your whole life. So the actual costs and fees go down every year you own the policy.

Because we as advisors and Asians, that's where we earn the bulk of our commissions on those. And that's where they have the startup cost. So therefore, you have less cash value in the first year and then second year. But each year you pay, you'll see that cash value. build and build, and eventually the cash value is building faster than you're paying premium. And with most life insurance, after the 10th year, there's very little excess fees in a policy. It's basically just mortality costs. You're paying for a mortality that's built into the policy. So the cost, the net cost goes down the longer you have it, whereas with term insurance,

the net cost goes the long as you have it. So it all depends. If you need insurance for 10 years and that's all you need, then you should buy term insurance. But if you need any kind of insurance for a long period of time, permanent insurance, and I also want to talk about legacy. Everyone pretty much has someone that they care about and they love, whether it be a spouse or family. And many people want to leave a legacy. Life insurance offers a great leverage, meaning that let's say you have money in your portfolio, but you're saying, you know, I want to leave that to my children, but, you know, I might, I need that to provide income.

So by taking some money and buying permanent life insurance, you don't have to worry about leaving all of that money in the 401k or IRA, and you don't have to be worried about using it because that life insurance will go to your family income tax-free. And then if you're worried about if you're really wealthy and you're worried about estate taxes, you can actually remove it from your state. You can actually develop an irrevocable trust and gift the premiums into the trust and the trust buys the policy. And not only is an income tax free, but there's no estate taxes.

So there's a lot of things you can do with life insurance that are more difficult to do with other assets. And what you just described there makes me think of the picture of like the bucket with water in it And here's all these holes. And if you can do it one way, you can plug up this hole and then a different way and plug up that hole. Boy, that's that when you can save yourself from estate taxes and probates and income taxes to the family as you trench for money legacy wise. That's a huge gift that you're giving them in addition to the actual inheritance, but the gift of them not having to worry about getting hit with taxes. That's a big aspect.

Oh, absolutely. And of course, the more wealthy a person is, the more assets they own a more income, the higher the tax bracket, the more they're going to worry about income taxes. And they did change the tax law recently that now you just can't defer IRAs for your children so they can pay taxes way out. Now they've got to take all the money out of their IRA or 401K within 10 years. So, you know, transferring some of that money into life insurance makes a lot of sense. Yeah, it really does. So you mentioned a couple things, too, that I want to key in on because I think sometimes people hear all these benefits, benefits. Then it's like, ooh, did you actually say?

And I think that it's really important to think about some of the ways you can access the money that's built up in your permanent policy. So like you said about borrowing it if you needed income. Well, it's borrowing it against the death benefit. Well, that's great. You're taking it from the future and using it today when you really need it. And if you needed to buy a car, you can access your cash value. What are some of the other like addendums that can be added on to these that can give you some of those living benefits? Well, policies today offer something called accelerated benefits.

And as you know, over the years in the past, long-term care became more popular, long-term care policies. But in the last 20 years or so, the actual experience has been much greater as far as the cost goes than they anticipated. So a lot of these companies that were selling the long-term care insurance policies had to maybe increase the premiums 30, 40, 50, 100 percent. And they're still increasing them today. And now it's at the point where a lot of insurance companies have actually gotten out of the long-term care business as far as those policies go. So what's become really popular in the last 10 years is something called accelerated benefits. And what that is is if you have a death benefit and you have a need for a long-term care, which, by the way, typically is having just two activities, of daily living that you can't do. And just to refresh you here, the activities of daily living

are bathing, dressing, eating, toileting, transferring, and continents. So if you have two of those that you can't do, typically that policy will allow you then to take an advance on your death benefit in the form of cash. And these policies will typically allow you to take out, say, up to $12,000, roughly around $12,000 per month if you have a chronic illness or something like that. Even a critical illness would qualify with a lot of companies. So this is a tremendous benefit because you can actually have these benefits on policies and you're not going to pay any additional rider fees for that benefit. Because the way they do it is, let's say you have a million dollars.

policy and you turn 75 years old and all of a sudden you can't bathe itself, you can't trash. You have to be taken care of. Now you qualify for this benefit. Now they will underwrite it to see what you need. And if you just have two of these, you'll qualify for that benefit. And what they do is they give you the discounted value up to a certain amount. So if you have a million dollars of insurance, they would say, okay, well, we'll give you

$820,000 of benefit of cash while you're alive. And typically, the government does regulate how much you can take out per month. And it's right around $12,000 a month. And so that's pretty much how they do it. They also, there are policies that offer what they call long-term care riders, which you actually pay for that as a rider on the policy. And then you will get the benefit of whatever that is on the policy. Typically, it's one, somewhere's between 1 to 4% of the death benefit on a monthly basis. And you typically have to wait 90 days before you can start taking it. There's a 90-day waiting period.

So, and typically if you do this correctly, this would be income tax free, which is definitely a big advantage. So, yeah, these are some great benefits on these life insurance policies these days. You know, it's just never gets, people just never seem to like peel that onion back deep enough to go. And then here's another benefit. But what you just described there about being able to access that for long-term care makes me wonder about this. And you can answer it from a broad stroke. We don't need to get into detail. But I know that there are standalone types of long-term.

long-term care policies, and I'm sure they have wonderful benefits. But is it something where if someone purchased a long-term care policy and ended up not needing it, well, are those premiums then wasted and you just never needed the policy? Whereas in a permanent policy, if there's a long-term care availability and writer, and if you never needed to use it, your premiums are doing all the benefit we've been discussing, cash value, dividends, things like that. Yeah, that's a good point, Mike. And yes, that is true. If you buy a long-term care policy, and I have clients that I've met that have paid large premiums for many years,

and if they never need the benefit, never have a claim, that money is just all gone. Whereas if you're buying these life insurance policies, this index universal life, and it's growing in cash value, you're not paying any additional benefit. You don't pay for it unless you need it. and you may never need it. And if you don't need it, you don't pay for it. So I think, and another thing, too, is you can take what portion of it that you need, because who knows how much you're going to need or when it's going to happen. So even though, like on that example, I gave you of the million dollar policy,

and they'll give you $820, maybe you only need $300,000, maybe you only need $200,000. So therefore, you'll be able to keep a good portion of your life insurance, even if you do take benefits. You know, so when you die, you'll have a death benefit. So that's a very good point. Yes. Amazing. Well, I think there's so many things that people hear a word and they're like, nope, nope, nope, you know, they hear life insurance.

They're like, nope, I'm past. You know, I'm good to go. But if you can listen back to what we've talked about here today about the differences between term and permanent and requalifying and the cost and all that. And then all of these cash values and access and liquidity and, saving money, passing it to errors and taxes, and then the long-term care aspect, it's just really an eye-opener. And it makes me think about, well, it's too good to be true, and it must be some new kind of a thing. But these permanent types of policies have been around

for hundreds of years, right? Yeah. Yeah, over 200. It's not a new idea. I know I sell insurance for companies that were actually in business since 1840s, 1850s. So they've been around a long time. Yeah. Yeah. So this is not a new concept. In fact, I've even heard that Walt Disney got the funds to build the first Walt Disney world from his own cash value life insurance policy. So, I mean, these kinds of ways of using this is not new and it's not some pie in the sky thing.

So I think this has just been so eye-opening to chat with you about, Jim. So if someone is interested in learning more to see if this could benefit their retirement plans, what's the best way that they can reach out? connect with you? Well, they could just go to my website. It's brookquin.com. It's Brooke. It's B-R-O-O-O-K-E and then Quinn, Q-U-I-N-N. And my information on there, my contact information is on there. You can call me or shoot me an email and I will get right back to you. Well, Jim, thank you so much for coming back on. It's been a real pleasure talking with you today. Mike, it's been a pleasure and I'm glad to do it and I look forward to our next next. interview sometime. Thank you.

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