The Biblical Wealth Podcast

Why You Shouldn't Buy Whole Life Insurance... Yet.

January 12, 2022 Jared Williams Episode 58
The Biblical Wealth Podcast
Why You Shouldn't Buy Whole Life Insurance... Yet.
Show Notes Transcript

This episode answers three common and important questions regarding life and long-term-care insurance. 

Questions Answered:

  • Should I buy group term life insurance from my employer?
  • When should I buy whole life insurance?
  • When should I buy long-term-care insurance?  

Click here to download the Risk Spectrum and find all the resources from The Biblical Wealth Podcast.

Ep 10 - The Low Down on Whole Life Insurance
Ep 19 - Intro to Long-Term Care Insurance with Linda Caruthers

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Welcome to the biblical wealth podcast. This is the place for Christian families learn to achieve financial freedom for God's glory. I'm your host, Jared Williams, founder of biblical wealth solutions. And I'm here to answer your questions, introduce you to leading experts. And to help you transform how you think about stewarding your money. I'm going to teach you how you can create freedom of time, and then how to use that freedom impacting the lives of others, for the glory of God. Did you know that the ideas I share on this show are things we actually specialize in helping you implement? If you want to better protect your family, have more control over your money, and invest for cash flow now? Then I want to invite you to sign up for a free biblical wealth coaching call with myself or someone on my team by visiting biblical wealth Again, that's biblical wealth. We look forward to talking with you soon. When should I buy whole life insurance? Should I buy Group Term Life Insurance from my employer? And when should I buy Long Term Care Insurance? Thank you for listening to today's episode of the biblical wealth podcast. As you can see, we're going to be focused on some insurance questions that I'm asked very often in this episode. In Washington tech, there's a little bit out of order. So let's go ahead and just and dive in. The first one, and I'm ordering these because I think they'll build on each other well, but the first question I want to answer today is should I buy Group Term Life Insurance from my employer. So I'm sure you've certainly had a job at some point in time when you had the option to buy Group Term Life Insurance from your employer or not from your employer, but through your employer. You know, many times companies will offer you some like one year salary or two year salary or something like that as a just a benefit. For your employment, there are benefits of Term life insurance, but they often give you the option of buying more. And you can have 50,000, or half million or whatever, of Group Term Life Insurance from your employer, or rather through your employer. And so should you do that? Does that make sense? Or does it make more sense to buy your own life insurance outside of this offering through your employer? So the answer, as always, almost always is that it depends, but I'm going to help give you some ideas to think about and help you decide whether that does in fact, make sense. Or if you have a Group Term Life Insurance today, whether it makes sense to continue paying for that, or if you should consider replacing it with something else and then canceling it. So here are some principles to think through, you know that the first thing that I often refer to when we talk about insurance protection is the risk spectrum. And you know, if you've not seen that before, I'm gonna have a link to that in the show notes, I definitely encourage you to look at that I did a recent episode about it, I forgot to pull up which episode that was before I begin recording this, but not far before this episode, there was an episode on the risk spectrum specifically. But what it does is it breaks down different risks into columns of the degrees of loss. And so a, you know, a loss to early death would fall in that most catastrophic seven figure loss category. And, you know, that's obviously the only thing that a Group Term Life Insurance policy would protect from so. So that's what we that's what we would be looking at. So based on what we know, in the risk spectrum, we definitely do want, you definitely should want to have life insurance in place to protect your, your family, any other loved ones for them, you know, the loss of income, and potential, you know, left behind a debt and other things like that from and early death. And what we also want to remember is we definitely want to have, we want to focus on getting the right amount of death benefit first. And so we'll get into this somewhat. And the second question about whole life insurance. But before you're looking at, what type of life insurance you should buy, or what company you should go through or what rider should be on it or any of those other questions. The first most important question is how much life insurance do you need. And your goal should be to get as much of as much death benefit as you can first protect your family first, then we can get into other things and worry about other things. So the way that Group Term Life insurance works is it is very, it's generally the most inexpensive term life insurance you can buy today. But because it doesn't lock in premiums over time, those premiums can grow and grow and grow and so it can be one of the most expensive Ways to have life insurance long term. So let me give you an example. I didn't create analysis or anything for today's episode to show you I actually did this years ago, it's been more than 10 years ago? Well, no, it's definitely been more than 10 years ago now that I first made this analysis. But when, when I first began in the life insurance business, you know, as, as everyone in the life insurance business does, you began talking to family and friends and people, first co workers. And, and so I had a number of co workers, you know, at the place where I was working. And so I had their, you know, employee benefit information. And I was really, for my own sake, and obviously, for them, doing an analysis to find out how did Group Term Life Insurance compare to buying a, you know, a private or personal, you know, term life insurance policy from any life insurance company out there, essentially. And so what I found was that if I looked at, say, a 20, or 30 year term that you could purchase from any life insurance company versus the Group Term Life Insurance, pricing that was available, let's say, for a million dollars, I don't remember the numbers in the pricing itself. But the Group Term Life insurance was much less expensive today, because the premium wasn't locked in. Whereas for a 20, or 30, year, the premium today was quite a bit more expensive, maybe double, you know what the the group term was, but that price was locked in for say, 20 or 30 years, whatever you decided to purchase, the Group Term Life Insurance, the way that it worked, it was based on your age, there wasn't a lot of other medical underwriting, oftentimes, there's a few questions and you, you may be excluded. But otherwise, there's not, you know, preferred or preferred. Plus, with these different writing systems, you're just either in or out. And there may be exceptions to that. But that's generally what I've seen. And so it's it goes by age bands. And so every five years, you know, you get into a new age bracket or age band, and the premium increases. And in fact, what I saw was that the premium almost doubled, you know, every age band that I looked at. And so over the course of a 20 year comparison over the course of a 30 year comparison, the Group Term Life insurance was way more expensive than buying a, you know, a personal term life insurance policy, just through any company out there, and keeping it for that length of time. So here's how I would kind of bring all this together. If you're in a position where you can only afford the Group Term Life insurance, and it's that or nothing, you can afford to lock in your premium for, you know, 10 or 20 or 30 years, then buy the Group Term Life insurance, you know, having the protection for your family today is the number one priority, being able to buy, you know, the right amount of protection today is the number one priority. But if you're in a position where you could afford to pay more today, and have the personal the private term life insurance policy, and you can continue to pay that over, you know, the next 20 or 30 years, or however long you need it, that's going to by far the cheaper option in the long run. So if you're not super strapped for cash, I would definitely recommend for not only that reason, but generally there's some other riders and other benefits to having it yourself and locking in your insurability. And, you know, having good health today. But even at a pure cost standpoint, it will make much more sense to buy your own personal life insurance policy that you keep, and you take with you whether you leave that employer, you know, whatever happens, even if you you know, have a health issue down the road, you've got that locked in, you're not going to be in a position where you're going to be excluded from even a group term policy down the road. But again, if you are really strapped for cash, and you know, maybe you're newly married or whatever, and it's by this route by nothing, then definitely buy the group term. And you might have to do some combination, maybe you can afford to put a quarter million of death benefit in place personally. And then you can supplement that with another quarter million of in a Group Term Life insurance, and then just in a couple years, you know, begin replacing it. So that would be a certainly an idea to consider if you're wanting to have your own, but you can't afford all of it, you know, buy some of it personally and buy some of it from the group term provider as well. If you currently have Group Term Life insurance, and you'd go out and shop it, and now you're going to find the same thing, you're going to find that your group term policy is probably cheaper today than anything you could buy elsewhere. But again, if you're not, you know, very near retirement, and you're probably going to have life insurance, you know, even a term life insurance for the next, you know, 10 or more years, then it would probably makes sense. Unless you know, health prohibits it, it probably makes sense to go and shop again and consider buying it yourself and comparing it not just today, but comparing it to what is your total premium outlay going to be in 10 years or 20 years or 30 years. And I bet you'll find that you're much better off if you can purchase it yourself. So I think that is it. That is enough on that question. I think that really addresses the should I buy Group Term Life Insurance my employer just don't really know if you can afford to buy it elsewhere. That's almost always going to be the case. But it does have its place. And that's how I would think about it. So moving on to the second question for today's episode, and that is, when should I buy whole life insurance? Now, if you've been listening to me for a while, you know, I'm a big fan of whole life insurance, specifically from mutual whole life insurance companies, and Mutual Life Insurance Companies. And there are a number of reasons why I'm a fan of whole life insurance. Now, we're not going to go into great detail on about that today. If you want to hear my thoughts on it, I did three episodes, three, part three part episode series, on specifically whole life insurance, why I think it makes sense for nearly everyone. Why it is great for protection, white is great for growth. And those were episodes 1011 and 12. So early for the early episodes, 1011 and 12. You can you can listen to those. And I've had really good feedback on those. So if that's something you're interested in, I think there's a lot to learn. And then there's some other episodes sprinkled throughout the podcast addressing the impact of whole life insurance to investing and other questions like that. But the question that I often get, and I don't think I've answered is, when should I buy whole life insurance. And in fact, recently, we had someone reach out to us about purchasing whole life insurance. And, you know, we told him to wait, we told him not now. And, you know, that's not common, most people who, you know, sell a fair amount of whole life insurance want to sell it to a lot of people. But, you know, I really care about making sure that we do this the right way. And frankly, it it can be a fairly significant investment. And certainly, even if you are kind of a minimum premium level, it's still a long term commitment. So let's talk through that. Unlike term insurance, which I would equate to renting your life insurance, you know, whole life insurance is more like owning your life insurance, or specifically owning your death benefit. And we talked about that in those previous episodes, that really the purchase of whole life insurance is the purchase of an asset, and that asset is the permanent death benefit, the death benefit that will be there. So long as you pay premiums, everything, you know, though, it will be there until you die regardless of age, regardless how long that takes, regardless of health, it will be there. And there are a number of benefits to having a permanent, yeah, benefits to having a permanent death benefit. Advantages might be a better term. And again, Episode 11 specifically talks about those advantages, or why it makes sense to purchase a permanent death benefit. And with a policy like this, what you're doing is you're purchasing it over a long period of time, it's very similar to a mortgage. In fact, I would say it's better than a mortgage. But it's similar in that you get to make use of this asset today, but you get to pay for it over a long period of time. Now, anyone who's ever looked into whole life insurance understands that it is quite a bit more expensive than term life insurance. And that's because it's you know, the stats are 2% or so of Term life insurance policies ever pay out. Whereas, you know, permanent life insurance pays out whole life insurance is going to pay out unless you choose to do something different with it, otherwise, it will pay out. And so of course, it has to be more expensive, because it is a permanent liability on the books of the life insurance company. So it doesn't make sense to purchase whole life insurance until you are confident that you can maintain that policy. The last thing we want to see people do is to you know, purchase a policy for a year, or for two years. And then something happened and they're unable to continue making those payments and you know, the possibility of lapsing, the policy you're having to cancel the policy is certainly there. And while there is cash value that builds up, you know, everyone knows it's not as significant in the first years, and that we generally don't structure them where they're zero in the first years. But you wouldn't get all your money back so to speak, you wouldn't be getting a refund. And and if there's any question of your ability to make those payments, then I think it makes sense to wait and purchase whole life when that's no longer the case. So taking our risk spectrum and our you know, biblical and better path to financial freedom process into consideration. I would encourage people if whether they have life insurance or not, at this point when they come to us, we want to first like we said in the in the previous question, we want to first make sure they have the right amount of death benefit in place, that they're not leaving their family unprotected. And if they can't afford at this point to purchase all that death benefit and a whole life insurance policy, then they shouldn't they should buy term life insurance, they should possibly buy, you know, Group Term Life Insurance, as we discussed if they need to, whatever they need to do to get that, you know, death benefit in place to protect their families today. That is priority number one. And so, you know, I often we often have conversations where people come to us and they've heard you know what I've talked about whole life insurance and they're there Ready to invest. So they've heard someone else talk about infinite banking or some other, you know, term out there for, you know how to utilize the cash value of whole life insurance, and they want to go ahead and get a policy. And we slow them down and say, Okay, we, you know, obviously, we love to help you with that we think it's a great product, we know we make money when that happens. So we'd love to hear from that standpoint, but let's slow down and make sure that you are not only, you know, mentally ready, but financially ready for this purchase. And so, you know, we want to look at their current death benefit. And if it's not there, then we're going to start with term, even if they only have that term policy for six months, it doesn't matter, you're renting it, it doesn't matter whether you have it for one month, or, you know, six years or whatever, it doesn't matter. We want them to have it in place. And then we can begin looking at everything else. Let's look at the other protection components. Let's make sure that those other seven figure losses are there, do you have an umbrella policy? Do you have the right type of auto liability policies do you have, you know, some kind of small Long Term Care in place potentially, which we'll talk about in a moment, we want to make sure those other components are there. And when the you know, the protection strategy is in place as inexpensively and efficiently as we can do it without sacrificing protection, then we move on into the you know, the safe or looking at permanent, you know, life insurance. And then that's when we want to talk about purchasing a whole life insurance policy. And even then, we may often recommend a smaller policy than someone wants, they may want to be putting in a lot of cash. And we want to talk about, you know, your job or your business and how secure is that? What is the likelihood that you can, you know, very much coming out like you were to a mortgage making these payments. And so we may encourage him to start small, let's buy a minimum policy, let's buy, you know, something, that's half of what you plan to put into it. And we can even structure it in a way that you're committed to half the premium. But the other half, you don't have to pay if you don't want to, it's optional. And so that gives them flexibility. And if after, you know a year or two or whatever, they've been able to make the full amount, then it may make sense to buy a second policy either for a spouse or for a kid or for themselves. But over time, you know, increasing that amount, they're putting toward whole life insurance as both a very efficient protection product and a very efficient savings product. And so I just want to put that out there that we often slow people down on their, you know, their desire and their process to buy whole life insurance is not something if you've heard other podcasts, if you've heard other webinars or whatever, about, you know, infinite banking, and you can see demonstrations that you know, the ride, they show how you know, valuable how advantageous it can be. But it often makes sense to slow down. And let's look at this over the long picture. And let's look at this with the whole picture and make sure that we're doing it right. And then you know, when that point is reached, then we're happy to help folks put, you know pretty significant amounts of money into their whole life insurance policy into their permanent death benefit asset into their death benefit equity, also known as cash value, and then teaching them how to use that to, you know, invest and grow their money in a far more significant way than they probably have been able to do in the past. So with that, let's move on to question three, when should I buy long term care insurance? Now, if you've if you've followed a lot of Christian financial education out there, you may know the answer, or at least think you know the answer. And that is at around age 65. That's when people are often told that's when many of the, you know, well known financial educators out there talk about beginning to look at and purchase long term care insurance. And I'll tell you, I think that's a huge, huge mistake for a variety of reasons. The first one being that you can have long term care costs and and risk long before you retire long before age 65. It really could happen at any age, any kind of sickness or injury that causes you to need some type of non medical long term care. And there are many of them out there. In fact, you know, Linda Carruthers, who I've had on the show, she's an expert that I work with, for long term care, talked about someone having complications from a pregnancy, or from a delivery and that lead to needing long term care. I have personally known people in their 30s and 40s, who had various things happen, and they needed long term care whether it's four months or sometimes four years. You know, again, we're nowhere near age 65, and most likely didn't have any type of Long Term Care coverage available. And so it's it's been a huge disservice to suggest that we don't look at this until we're near the age when we're going to need it. And if you understand anything about insurance, the the higher the likelihood that you're going to need it, the higher the cost. And so that brings up the second reason why you shouldn't wait on it. And that is it's going to cost way more when you are near age 65 If you can even get it and the truth is I talk to people frequently who no longer qualify to get it because they their health has already, you know, reached a point where they're too great of a risk, you know that the likelihood of them needing it is almost certain, unless there's a relatively sudden death, then it's almost certain don't need it. And so a life insurance company is not going to put themselves on the hook for it. And so they're, you know, again, almost certainly going to have to bear that cost themselves. So when should you buy Long Term Care Insurance? My answer is as soon as you can, again, it's not my top priority, I would definitely look at death benefit and disability insurance. First, I would make sure that, you know, again, based on our risk spectrum, I would make sure that all of our seven figure losses in that column have been taken care of first, but long term care, you'll find in the six figure loss column. And so it would be kind of phase two of protection and looking at those now, it's possible that it could go into seven figures, if you're young and have a lifelong condition that doesn't, you don't pass away from that you could be looking at a seven figure loss. But generally, it's more gonna fall into the, you know, six figure multiple six figure loss column. So that's where I put that. But once I had all of my seven figure losses covered, I would be seriously considering long term care for, you know, for protecting that there are multiple ways to protect against long term care costs. We talked about that in Episode 19, with Linda Carruthers. So you can definitely listen that to learn more. You know, there are actually some fairly inexpensive ways of doing it, if you're young and healthy. It's much like you know, buying term life insurance, it can be surprisingly affordable, if you aren't 65 or older and beginning to look at it. And there there are, you know, there are longer term permanent policies you can put into place. There are certainly pros and cons to each of those. And so I can't say you should buy this policy, this policy or whatever, to podcast. But certainly, we can help people figure out, you know, which one makes the most sense for their specific circumstance. The the big takeaway that I want to say for this episode is, you know, despite what most Christian financial education says, you should not wait until 65 To purchase long term care. Now, some listeners that may already apply to you may already be 65, and haven't purchase long term care. And I would say you still should do it. Now. Don't wait till you're 66 or 70, to purchase long term care, because it's going to just continue to increase in cost. So whatever age you are now, you know, this is again, where we want to help coach people through this process, we want to help build their financial model and see what they do and don't have, you know, we may want to just make some small changes home and auto insurance First, look at life insurance, and then it makes sense to have a conversation about long term care. And depending on your situation, it may make more sense to look at that in conjunction with some type of whole life insurance policy or a specifically designed, you know, long term care slash life insurance policy. Again, there's different ways of doing it. And what's right for you will depend upon your specific circumstance. But you definitely don't want to wait too long to look at this. We've had clients who, even in their 30s and 40s, have had some kind of condition come up and they no longer qualify for traditional long term care. Thankfully, we can often go and look at a whole life insurance policy, and it has some benefits that could still come into play. In fact, being able to access most of that permanent death benefit for long term care is usually going to be available even if someone doesn't qualify for long term care insurance again, at whatever age and so that can be a great alternative option. Looking at all this, my big takeaway from these three questions is, you should begin looking your protection strategy as early as you can, especially because so many of these are based upon health and age. And just the longer you wait, the more expensive they get. It makes sense to you know, lock in those low premiums and get that protection for you for your family as soon as you can. That's all we've got for this episode. That is a wrap. Thank you for joining me today. People often ask me, what's the first step to becoming financially free. And if that's you, or someone you know, you've come to the right place, because I've put together for you a short, free video course, to help you get started. Just visit biblical wealth In it, I'm going to show you a simple, profound strategy that can make a massive difference in your financial future. So go ahead and visit biblical wealth to start and we'll see you there. That's all we've got for this episode of the biblical wealth podcast. One thing that would really help the show and other new potential listeners is for you to rate the show and leave a comment in iTunes or wherever you listen. Also, make sure to link up with us at biblical wealth or on social media. And please just Share, share, share this podcast with anyone who you think might enjoy it and Till next time, remember, you can achieve financial freedom and then use that freedom for God's glory. 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