Business Innovators Radio - Interview with Steven Stratton, Principal of SMS Insurance & Financial Services- Importance of Life Insurance

Episode Date: November 28, 2023

From 1979 to 1984 I owned a small transportation company in Southern California. I lost my business partner in a tragic auto accident. Unfortunately had an “Unfunded” Buy-Sell agreement and I was forced to sell our company to pay his family and fulfill my partnership obligation. I have leveraged this experience and other life events to assist my clients and colleagues since 1984.Since 1984, I have been a licensed Life Insurance, Long Term Care and Disability Income Specialist. Additionally, I am an RIA, Registered Investment Advisor representative working with Individuals, families and small business owners concerned with protecting those they love, care about and are responsible for. I focus on the design and implementation of protection and wealth accumulation strategies.Investment Advisory Services are offered through Cornerstone Securities LLC.Influential Entrepreneurs with Mike Saundershttps://businessinnovatorsradio.com/influential-entrepreneurs-with-mike-saunders/Source: https://businessinnovatorsradio.com/interview-with-steven-stratton-principal-of-sms-insurance-financial-services-importance-of-life-insurance

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 with us, Stephen Stratton, who's a principal of SMS insurance and financial services. Stephen, welcome to the program. Hello, Michael. Hey, thanks for coming on.

I'm excited to talk to you because every time I talk to someone new, there's always nuances and lessons and philosophies and visions that people have of serving their clients. And I always just love learning about that. So get us started first with what is your story and background and how you got into financial services? Well, in the late 70s, I owned it. a small trucking company in Southern California. We moved motion picture film around Hollywood, and I had a business partner, and we had a buy-sell agreement. And one day, unfortunately, my partner perished in a car accident, which triggered our buy-sell agreement. But because I was in

my 20s, I didn't have an advisor, and I didn't have insurance to fund that buy-sell agreement. So I had to pay my partner's family for his portion of the business, went to the bank to try to borrow money and they wouldn't give it to me. I tried to factor my receivables and that didn't work. And so I ultimately had to sell my business to my best customer, which was an air freight company, and give the proceeds of that sale to my partner's family. And that was the beginning or the genesis of my transition into financial services because it was a crushing blow as a young man, entrepreneur, starting his own business. And that's pretty much how I began my, experience in the life insurance and financial services industry.

Really interesting because you didn't know all the nuances of that. You thought things were taken care of. And then when something happens and you lived through what you had to set up and do and the pain and the confusion, I'll bet you purposed at that point to say, okay, I'm going to learn all there is to do about this and help other people and prevent them from going through this and help them to use. that canestri strategically? That's correct. At the time, my life insurance agent, well, this is later, this is later in a few years later, but my life insurance agent said, hey, have you ever thought about coming into the life

insurance industry? And I was so taken back by the loss of my company that I decided to make a career change. And so I explored the industry. I started as a customer service clerk being of service first. I'm working with orphaned policyholders. Those are people who have insurance but no agent. And that's really how I began my career as being of service first. Yeah, you know, I love, I'm a big book reader, and I'll bet you are as well.

And one of my favorite books is written by Bob Berg. The name of the book is The Go Giver. And, you know, it's like when you take that mental shift of being of service and giving value and giving first before doing anything else, all of a sudden now the tables have shifted. You're not coming from a give me give me take perspective. You're teaching and educating and advocating for other people and being of service. And then all of a sudden now it's like, okay, now we can talk because I know where you're coming from. So talk a little bit about what you've mentioned here, the importance of life insurance, you know, as a whole, but in a financial and retirement plan. Well, candidly, life insurance is probably one of the most important parts of protection. one's assets and accumulation strategies. It can be used for both. Oftentimes, we'll ensure our car, but we won't insure our life or we won't ensure our income. At least individuals aren't talking with somebody to explore those things. Life insurance beneficiaries never ask what

kind it was. So the kind it is isn't that important. The amount is what's important. A beneficiary never says, hey, you know, was it whole life? Was it universal life? was it this, that, or the other. They just want to know that the insured person paid the premium. So I start as a fundamental cornerstone of planning to make sure that, you know, people have homeowners insurance and auto insurance and they're efficient with what they're purchasing and then to make sure that they have life insurance to fulfill their promises to others. And that's really what life insurance is about. You know, it's interesting, as you were mentioning that, it made me think of like the the proverbial example of the bucket with holes in it.

And you might think, oh, yeah, but, but Stephen, I'm talking to you about my retirement. Why are you talking to me about various insurances like car insurance? Well, if you don't have the right kind of car insurance with the right kind of maybe umbrella policy and something happens, that could cost you a chunk of money, which you might have to dip into that money you've set aside for retirement. So all of these things kind of trickle down and have a domino effect. So talk a little bit about when you're saying, life insurance. I can only imagine people cringe when they hear that because it's like,

I've got it. I'm fine. But I think that there's a lot of confusion around life insurance because there's different kinds and how to use them. So talk a little bit about how much life insurance people would need and then what types they should consider. Okay, well, the industry has come up with what we call human life value. What is your economic contract? to your household or to your business. And typically, it's a multiple of your income. So if you make, you know, $50,000, it would not be unreasonable for you to have 10 times your income, which would be $500,000 in this case. So, you know, just as a fundamental basis, whether it's group insurance from work or whether it's individually owned coverage, anywhere from 7 to 10 times your income,

you're certainly not overinsured by any stretch. When it comes to what kind, that is really a financial planning conversation. What cash flow do you have that will permit that pretty much directs what kind you'd be able to purchase? Those instruments, those life insurance policies that have accumulated buckets in them, cash value, as we call it, are more expensive because they have an accumulation component built into them. So in the beginning, determining how much you should have is what's important. And then we look at your cash flow. And if it's term insurance, we buy enough term insurance to fulfill your promises to your others or your business partner, your family, etc.

So I really do focus on making sure you have enough coverage to fulfill your promises. And then we can determine what kind. And yeah. And then the kind then gets into a little bit of play. Because like you said, to me, my ears perk up when I hear cash value because, you know, like we were mentioning, we were mentioning homeowners insurance or car insurance. Well, if you pay your car insurance all year long and do not have a wreck, you can't get your premiums back. So that's a, that's an expense. And you have nothing to show for it if you didn't use it.

Whereas some kinds of insurance, like permanent kinds, if you don't use it, you know, good because that means you did not pass away. but then there's benefits there all the way through. So talk about some of those living benefits. Well, most of the time when there's something of value, you would like to own it rather than renting it. So you own your home, or if you're a skier, you would own your own skis, or if you were a fisherman, you would own your own equipment, right? term insurance, you're basically renting the coverage for a specific period of time. And the reason it's so inexpensive, relatively speaking, is that actuarially, most insurance companies believe that you'll outlive your term insurance.

So you'll have it for whatever number of years you select, and then they're off the hook when the price goes up. Whole life insurance or universal life or any variation thereof has an accumulation component to it. and therefore you are not only the insured person, but you're the owner building value. And these values can be used to supplement retirement, fund college savings for your children, any number of different reasons why you would want permanent insurance. And it's quite common that people would have a little bit of term insurance and a little bit of

permanent insurance. So when the term insurance expires, like when your kids get older, you have permanent insurance that had you bought it 30 years from now would be way more expensive that it is today when you're younger. Yeah, that's a really, really good point. And, you know, you mentioned insuring your life and income. So I think a lot of times people think of life insurance really is death insurance, you know, when you pass away, then it triggers and your beneficiaries get a certain sum of money.

But if you're insuring your life, there are life events that you can use insurance for. And also, like you said, cash value and growth and talk a little bit about some of the financial benefits and opportunities, because I've even heard you can, you know, borrow against it for, you know, things that you need like college or cars and things like that. Yeah, there's a concept called be your own banker or infinite banking where you can use your life insurance as a place for you to accumulate money and borrow from yourself. You can design it that way. You can design it to supplement your existing retirement plans at work if you want to do that. It really is an outstanding vehicle with great tax benefits for accumulation, free access, no taxes on accumulation, as long as you keep the policy in force.

And the insurance industry is constantly innovating. And so now many of these products have what we refer to as living benefit riders. And these are no-cost riders that in the event that the insured person gets in an accident, accident and can no longer work, that they will make available the death benefit in advance of actually passing away to help you take care of yourself, provide you with some durable medical equipment, et cetera. There's critical illness riders, there's terminal illness benefit riders, chronic illness riders, and so on. So someone who hasn't looked at their insurance policies recently would be quite interested in some of these new innovations.

Yeah, and I think that's interesting too because if I'm hearing you correctly, some of these living benefit writers, like if you needed some long-term care, you can tap into that one of those writers. Well, that's something that I think a lot of people would kind of have raised eyebrows about and go, ooh, now that's interesting because I didn't pass away to trigger a benefit, but this is a benefit that I need while I'm still alive. And not that there's anything wrong with a standalone long-term care policy, but I kind of think and correct if I'm wrong,

but if you get a standalone policy like that, pay into it for a year, two, three, four years and never use it, then that's money that's gone. Whereas if it's a writer on one of these kind of permanent policies and you didn't use it, then those are building up dividends and cash value. So you never feel like it's that, expense per se. Yes, and many people think that long-term care is only for seniors, but, you know, I've had many clients over my 40-year career that have been injured or have gotten sick and they

were unable to work. And these benefits have been made available to them. It's not uncommon that when you get in a car accident, that there is some period of time that takes you to recover and you might need some long-term care, you know, six months a year, year and a half before you recover, learn how to walk again, or whatever the health circumstance is for you. So it's just, you know, these kind of benefits are not just for seniors. And frankly, a long-term care event can absolutely evaporate anything that you've accumulated in your retirement plan or savings account. You know, we've been talking about a few of these fundamentals of planning using life insurance. and I want to come full circle about how you and got into the business with this buy-sell

agreement. So maybe hit rewind and go back to that and say, well, if it was done differently or if you had known differently or maybe speak to business owners, entrepreneurs now saying, here is some key things you need to realize about a buy-sell agreement using this kind of a investment life insurance. What are some of those fundamentals that they can be planning for? Well, a buy-sell agreement is agreement between two parties that in the event something happens either through death or disability that it triggers provisions of the agreement and it protects the other business partner. In my case, I had the agreement, but no way to fund it.

Typically, these agreements, and I would encourage our business owners who are listening not to engage in a buy-sell agreement unless it's funded, the mechanism for funding it is intact. and typically in the event of death, life insurance pays at the death, and that's when the money is due. There's also provisions for disability income. In the event that the person gets sick and is unable to do the main duties of their occupation, there's provisions that you can put into the agreement for that, and those should also be funded. You certainly don't want to take operating income to pay those kinds of obligations. So these products can be used to address those issues in your buy. sale agreement, but also, if properly designed, they can be a way to supplement an executive's

retirement plan or for the business owner to create a golden handcuff for a key employee that they want to keep around. They can create this as an addition to any other retirement plan assets. We call it as the golden handcuff. You know, golden handcuff kind of sounds like constricting, but I also think that that can be an enticement to recruit top. talent because if a business owner is trying to get a VP of whatever and they're competing against some top recruit, they could be choosing another company over them. And if they had this kind of a, you know, self-funded pension plan per se to kind of call it that, that could be an enticement that would make them look that much better, right? Absolutely. In the top tiers of

America's corporations, these kind of agreements are quite standard. And these, these kinds of programs are designed for, you know, bankers and executives and so on to, to give them reason to continue to stay with the company because when they leave, sometimes depending upon when they choose to leave, that account stays with the company and doesn't go with the executive. Right. So it's a great way to attract talent, retain talent, et cetera. Yeah, that's a really good point.

And I think that as with any business, we all need a competitive advantage to help us stand out. And sometimes when you are looking for that competitive advantage to have a top recruit choose you, this can be it. And then also, boy, there is a huge fee or not fee, but fees when top talent leaves you because they disrupt the flow and now you've got to find someone new and it costs money. So maybe this type of buy sell agreement or this kind of structured tool will help retain top talent as well. So I think that's a huge thing for entrepreneurs and business owners to keep in mind. There's another component or a writer that you can get on your policies. It's called waiver of premium. And not too many people talk about it, but in the event of a disability, the premiums that were scheduled are waived by the insurance company.

and all those accumulated assets continue to grow. So in certain circumstances where it's appropriate, waiver premium rider is really, really significant. And I've had a number of cases during my career where someone got disabled and many years, 25, 30 years of whole life premium has been paid because they were disabled. As opposed to a traditional quote unquote bill

where a monthly bill comes in, you better pay it or it's going to expire or something, that waiver premium is a nice piece of mind aspect to know that those benefits are still there and growing. And one of the first things to grow go when someone's disabled and their income is drastically reduced is their life insurance. They'd rather have food on the table, their mortgage paid, et cetera, then pay for the life insurance premium. So when you add the cost of that not being in your program or your plan, it's pretty significant. It sure is. Well, like I said, I always love these conversations because I tend to pick up new nuances. So thank you so much for coming on today. If someone is interested in learning more about you and what you do and reaching out connecting with you, what's the best way that they can do that. Okay, great. I've been at this for 40 years. I typically answer my cell phone, which is 408-391-0782. My email is Stephen with a

at S as in Stephen, M as in Michael, my last name, stratton.com, Stephen at S.M.straton.com. I have clients all across the country, so Geographic is not an issue. And with the onset of Zoom technology, having a Zoom call works as well. You know it. You feel like you're in the same room. Well, Stephen, thank you so much for coming on today. It's been a real pleasure talking with you. Well, thank you, Mike. I appreciate this opportunity. You've been listening to Influential Entrepreneurs with Mike Saunders. To learn more about the resources mentioned on today's show or listen to past episodes, visit www.com.