Author: teamseo

https://www.youtube.com/watch?v=48JCThIKbJE

Tyler, what type of company do we choose?

I was speaking earlier about the different types of product. In regards to the company, the importance of the company is you would want to focus and look at a mutual insurance company versus a stock insurance company. A mutual insurance companies are where the policy holders are basically the owners of the company.  Whereas the stock insurance there’s actual stock, and  shareholders are the ownership of the company. So there’s a conflict of interest there. There are basically four large performing mutual insurance companies where they have a proven track record on actual payouts not just illustrations and those for New York Life, Northwestern, Mass Mutual and Guardian are the top four companies when looking for that.

Again, it’s not only the company itself and each company has maybe its own different quirks and pros and cons. I don’t want people to get so caught up on the actual company because it’s the product. The process is also much more important than just the company itself. Policies within the same company or products within the same company if they’re not designed correctly will not serve your purpose. Might not be beneficial for you.

So the mutual insurance companies are those four that you mentioned?

Yeah.

Is there like a website we can go to? Where it’s like they are rated.

I think you could just go, you could Google top rated insurance companies, mutual insurance companies. A lot of times it’ll be a blend of the stock insurance and mutual insurance. It’s how they rate the companies could be different and even though at the top four a lot of them have their quirks. Some have flexibility in the sense of funding period allows a lot of flexibility there. Others have funding each within the year. You’re flexible. Some of the loans are handled differently between the companies. Some of them have different online portal so it’s not just the product itself. There’s some of those soft things that maybe make a company stand out for you personally.

And so the mutual insurance company is the ones that we’re used to. And I think some people will say, oh, they found this other company that has less requirements on the health screening and stuff like that. Those are like your lower level ones.

Very worried about a insurance company that doesn’t have a stringent underwriting process because it has a policy holder for a mutual insurance company. You are the owners of that, you want the insurance company to do well because you receive that back in dividends. And there may be some smaller insurance companies willing to forgo, maybe under medical underwriting, take  a little bit more risky clients on. But that may hurt in the long run as far as the policies overall.

If you guys have questions on this particular question, type it into the chat.

https://www.youtube.com/watch?v=vYF5AaASUgk

Importance of policy design.

Touched about it earlier. As mentioned within the company, there are different products. There are limitations. The first one is an IRS limitation. Again, it’s still an insurance product. It has to be considered an insurance product in order for it to maintain its benefits.

You’ll hear it and if you exceed that it will become a modified endowment contract and it’ll lose those tax benefits. That’s something I mentioned earlier about MEC or the MEC. Then how you design the specific product, I think  for IBC or at least for a lot of the investors there, the main goal is to have the maximum cash value.

The death benefit is a feature of the product and it does help with generational wealth and legacy planning as well. But as far as the main design efforts, you’re designing it for maximum cash value. And the death benefit is a secondary benefit from that. Versus traditionally, when you design insurance products, you’re looking at what kind of death, the maximum death benefit you can get for the smallest amount of premium. IBC turns that upside down and says,  “how much funding do you want to put in for maximum cash value growth?”  and the death benefit is a requirement needed in order to maintain those taxable or the favorable tax requirement.

And so it is very counterintuitive and this is why Dave Ramsey says that whole life is a scam. He doesn’t know the legal way differently. And then the other lever that you can play around with is you can make a policy where you get big, higher interest rates. If you’re doing like an IUL policy comes in order for her to be able to talk about today. That’s when you start to skew the policy more for higher returns, the stock market. But when you do that, then you give up what the whole point we’re doing that for, which is to maximize the cash value to invest in deals and stuff like that.

Yeah! One more part. I did add down there with flexibility especially with investors and maybe non steady income, the flexibility becomes a huge aspect as far as what you need to fund annually in order to keep the policy enforced. You want me to have some flexibility in that year to year to help you withstand maybe some of the unknowns or the maybe large capital events that happened if we’re investing in syndications, for example.

https://www.youtube.com/watch?v=5L9LH9t1_WE

Next question here, the two main policy Clements. Maybe define the MEC, what is MEC?

The MEC limit is really something that came out in the eighties from the IRS. That prior to the eighties, before the 7702 rule, you’ll hear that also is that there was no limit as far as the amount of funds you could put into a policy. The IRS put a cap on it and it’s really just a calculation based on the person’s age, gender, and death benefit. And it’s a ratio basically how much death benefit is needed. For that policy amount and it’s a seven year. And so they’re saying over that seven years, this is how much, the maximum amount that one can put into a policy with this death benefit and still be called and be considered a insurance policy versus prior to that law, someone could just put in a dollar premium and then put a $20,000 of paid up additions or the cash value part of that, and still be considered insurance. IRS put a limit on that. So that’s the big IRS limit that we do not want to mess around with in that sense. And it is a seven year lock so that’s where it may be called a seven pay lock or a MEC limit. Those are all basically the same.

Yeah so I’ll explain it a little bit different. I don’t know if this is the true story. All these politicians are making these laws to find ways not to pay taxes and they created this life insurance, but then they start to stuck all their money away. It’s like insurance policies, but that’s where the equipment strengths of this stuff at the whole thing.

The second limit and this is company derived. It’s the paid up additions limit so you have that the MEC limit and then what you hear is the paid-up additions limit. Two main companies we use, those limitations usually is one company is 10 times base. So if for base premium say at $10,000, you could put up to 10 times that in paid up additions  which is basically a cash dump. So you could put in $10,000 of base premium PUA, you could put in another a hundred thousand and PUAs  and that’s the company limit. Another company we use a lot it’s the 10-90. It’s 10%. It’s not really 10 times so it’s the 10-90 split is the max. If you have $10,000 of a base premium, you can put in up to 90,000 in PUAs. So it’s slightly less, but again, those are policy or insurance company limits. And then there is some flexibility. And that’s what you mentioned or Nash mentioned earlier that we’re just testing that out because essentially if you have a longer funded period that you’re able to maybe put in a little bit more and the companies have allowed you to do. Granted, you’re still locked into the target amount.

For Nash’s example, 116,000 for 10 years, that’s 1.116 mil total of funds who wants to put into the policy. If he puts in 150,000 year one, which is under the MEC limit, he’s not going to be able to continue to do that for all 10 years. So the maximum would still be 1.116 mil. So in those later years, he’ll be putting in less why he’s doing that would be because you want to front load the policy, have the compounded dividends start earnings earlier and it’ll have a greater effect down the road. So that’s one of the benefits to it.

https://www.youtube.com/watch?v=–yDzBkzT5s

We had a question here, follow up question. This doesn’t apply with EPP. Maybe define what that is too.
I think every company cause has different names for PUAs. So I’m mainly familiar with guardian and mass mutual, they call it unscheduled and scheduled PUAs. That guardian mass mutual has ELAR additional life insurance rider or Lisser life insurance supplemental rider.

Matt, can you explain the EPP PUA? Is that like a scheduled PUA? 

It was my question but  from what I understand a PUA is that it was with Penn mutual, but they’re saying like what the EPP PUA, you said like their traditional would be seven or eight years pay then after that you stopped that.

But what the EPP PUA, you’re able to keep the max fund or a longer amount of time. Let’s just say, you put with an EPP PUA where you do a maximum of a hundred thousand and after that seven year, eight year limit, you can’t do the maximum anymore. You can only do a certain amount of that. But with EPP you can set up for a longer period of say, 20, 30 years, if you wanted to.

To me, it just seems simple. if you plan on using this as a bank account for the long run anyway, for investment purposes, that would make sense just because you already have a policy open, you can just keep funding it for the rest of your investing years.

Got it! I would say mass mutual is something similar in the sense that their funding period is flexible, where you can go lock, 20, 30 years flexible.

I think it’s just different. They call it different things. I would have to look specific at that and I have some pen-pal I’ll go look at the true definition and probably reach out specifically without, or send it out to the group.

I think, as Tyler said, like all these companies have little nuances, right? Like I got a Penn and I’m aware of this,  like you say, you can keep paying it for awhile after your initial period of six or 10 years, whatever you set it up based on your situation. But the downside that they have is that you got to keep putting to it every year where like a guardian, they don’t have that long-term flexibility. But you can choose not to pay the rider one year and take a break. It’s different. I think this is where you have to look at multiple policies and figure out based on your situation. Some people in the group are business owners, right? Business owners have a lot of variability in income. Whereas if you’re just a straight up salary guy, you may want that more. Their cashflow is very stable. Therefore you’re not going to have these big fluctuations so you would rather do that arrangement where you don’t have that flexibility, but you have that long-term flexibility in that respect and policy is changed too. 

When I was choosing between, or when I was building my policy, I looked at both or I spoke to the agent about doing both an EPP and EPP PUA. Both of them, you have to make the payment so that the premium don’t lapse the contract. They both had the same catch-all provision where you have one year, where if you don’t make your fee, you can fill it up the next year too. If you were to not do it, then you would lose it. In terms of losing that rider and had to average a certain amount over any three year rolling period. It’s not really where you can have if you were to miss it one or not. It’s an average over three years, but I opted with the EPP PUA  because my funding, I could max out my PUAs for 62 years. So I started when I was 34, I can put in 120 K every year until I’m like, a hundred. And what I was told was the ROI is 0.1% about 0.1% less, but that  will essentially make up for it in some flexibility of making the payments and being able to do it for longer. A sacrifice for a little bit of return for more flexibility and being able to max stuff more.

Yeah.  I think I might’ve talked to the agent about the same thing and he pretty much said that if it came down to it and you really wanted to stop paying, you can say after the eight year mark or whatever, just say “This is paid up now and I’m not going to make any more additions to it”. Obviously, then you can’t add anymore, but that’s where the flexibility is.

And I think, truly, it’s the policy design, because the flexibility means different things or has different values. Someone wants to have flexibility of the different amount of being able to put in different amounts throughout the year, or they want to be able to put it in for a long time. Those are the main two different flexibilities. And I think there’s multiple companies. Each company has its different benefits based on their policy limits. Just keep in mind that for that long funding period, I think as Lane mentioned it and Matt also it’s yeah, three years. I think they do a look back three years on that average. So say maybe you, you had the ability to fund it a hundred thousand if over that three years, that average you only funded it to 30,000. From that point forward,  the max you can fund, it would only be up to that 30,000. It drops down. Just be aware of that. Now I get it, I don’t think there’s one pro or con there there’s one better than the other. It’s really what your goals are and what you want to achieve that. 

The good thing all you guys have set up and it gets always constant. It’s always there. I don’t know. Personally, I always like to move stuff around every so often. It’s the more radic so that kind of just fits my style.

I don’t want to speak bad about any other companies. I would say there is a company where you’re able to not have that three year look back and still have a pretty long funding flexibility, and maybe not 60 years that 20 or 30 year mark, where that’s a pretty good funding period for the purposes of this.

My question directed to what we were talking about was, you were talking about being able to stuff a little bit more. You have those new fixed funding periods and I think in that other scenario where you have the long funding period, that the same thing doesn’t apply. You’re already at the max. You’re hitting the max every time.

Got it!

I think some people, they just don’t want to get a another health screening cause they’re freaked out about not passing or something like that or they just don’t like health screenings so I could see why some people don’t. We just want to set it, forget it.

Or if you’re going to plan on getting out of the policy, you would have to pay expenses all over again.

https://www.youtube.com/watch?v=dA8Iv8zJON4

Next question impact of the 7702 rule IRC.

This is the IRC change rule that just came out in December of last year. It goes into effect. Now, basically the insurance companies, they were mandated to provide a guaranteed gross 4% rate that will no longer apply for products in the future. The companies will be able to choose anywhere between two or 3.75% so it allows some flexibility for the insurance companies. Now, again, this is the guaranteed rate, and this does not talk about the dividend rate. So dividend rates for all insurance companies are that above and beyond the guaranteed all strong insurance companies have been paying dividends over the past 140, 150 plus years.

So no insurance company has really been operating in the guaranteed environment but the true impact may not really be seen. But the insurance company is now no longer needed to provide that 4% guarantee. The true impact is also still hazy for most of the insurance, the whole life products have not come out with their new product yet so this is a relatively big change. The insurance companies are figuring out what to do with it. What may happen and what people are starting to see is that it made decrease the cost of insurance premiums may go down and this could also increase the MEC limits which may seem good. But again, for our purposes, we’re trying to stuff in, I think, desired amount of funding if the MEC limit increases.

So that means that I can buy more death benefit with less premium when we’re qualifying for insurance, that there is that income limitation. So it’s not, if I only make a hundred thousand a year, I can ask for a $15 million death benefit that there is some qualification, as far as income with a higher MEC limit or lower premiums, someone making a hundred thousand. Typically when you’re in your thirties, you can have a death benefit 30 times that when you’re in your forties and fifties, that drops down to twenties. And when you’re older, that drops down to 10 times. For an older person, you can only get 10 times your annual income. So if I’m making a hundred thousand, the death benefit I can get is only a million now.

And because your premiums are lower, you can’t stuff in much money. So it may seem like it’s a good thing. It may limit how much funds one could put in if they’re on that threshold. But it also may not have impact to most people, that it may just have a smaller impact than what people are anticipating.

Companies do need to have a product out by the end of this calendar year. And usually when a big change like this happens, anyone who recently got a policy and it may be looking back as far as having one issued in 2021, you’ll have the choice of shifting over to the new product if you want to.

There probably be also a grace period as far as when new products come out. There’ll be maybe a month or two, where if someone applies. Yeah. In that time period, there’ll be able to choose the old product or the new product. At this point, a lot of the four major, or even with mixed plan into that, no one has come out with any product as of today.

And we’re looking at probably the end of August for the first ones to start coming out with that.

Typically these newer products aren’t as good as them?

Yeah. Typically you may add some flexibility. So for example, the P wave limitations, those are things that have dramatically got more stringent over the years, purely because insurance companies are recognizing that they’re not making a lot off of it. That’s just a cash dump. So they’ve started to limit those rather drastically. And as Lane mentioned, usually newer products are not as favorable as the older products.

Best time to invest as yesterday. It’s time to make an IBC was yesterday. My guess is like the rates are lower today. Overall people are starving for yields. That’s just my quick guess lie that grades are drop.

This helps definitely the insurance companies and so again, with a mutual insurance company that gets transferred back to you in the form of dividends. It’s not all bad. There’s bullies coming out, bank owned, life insurance products. Those have come out already on the new law and people are not seeing as much impact as what they thought it was going to be. It’s pretty much in line.

Part of that has to do with a guaranteed is just a guaranteed rate but that’s not the dividend. Maybe you can talk through when people are looking at big paper, like they’re looking at the guaranteed rate and there’s actually rate that is  paid.

The guarantee is I guess the worst case scenario and like the company declares no dividend typical dividends of the insurance companies right now range between five and a half to 6%. That’s not four plus five. That’s just the difference. So like one and a half to 2% over the guarantee is the dividend. What the companies are providing above the 4% as mentioned earlier, no company has been operating in the guaranteed or only  providing zero dividends since existence. And you’ve always been paying out dividends through all the, the down cycles. We did not anticipate a company saying they’re not going to be providing any dividends. So even if a company claim their guaranteed rate drops to 2%, it’s not saying that their dividend rate will drop by that amount also Dividends will probably remain pretty close to the same.

Explain this to me, some people, they show me their policy and then it’s like a high rate, but then I look at this company is like some random, like no documented medical screening company. There can be like a bait and switch right on that rate that they show on the paper.

When a company says 6% is their dividend rate and another company says 6% as a dividend rate. The actual pay out or the actual return may be different, even though the stated dividend rates are the same. The reason for that is because these are gross rates what’s embedded in, it is company expenses, mortality costs, commissions, and each company handles that differently.

And that’s really the proprietary black box that even as an agent or broker, we don’t really have privy to that. Those costs vary even though illustration may show a strong return. That’s why those four mutual companies are what we heavily use, because those have actual performance. The actual payouts have been more in line with the illustrations versus just illustration that may look good and the actual performance may not be the same.

https://www.youtube.com/watch?v=IAFHII8yBdQ

I can take this one. People are asking why don’t I do like an IBC policy for my kid, or they hear us talking about using this in lieu of the 5 29 plan, which I’m not a big fan of for their college savings or education. The big thing here is yeah, it’s cheaper to buy insurance per kid, but the problem is like a lot of these insurance payouts is based on how much money you’re making today, based on your pay stubs or salary or tax. And your baby, in this case, or a young kid doesn’t make any money so they can’t get very much. It doesn’t make much sense because you’re not going to get any too much of anything.

And I’ll just add, so that limitation of 50% of the parents total death benefits so what they’ll look at is they’ll look at the parents and see how much total death benefit the parents have. One example we recently just did as a parent had $1.6 million death benefit so that the child’s policy could be no more than an $800,000 death benefit. Their cost of insurance is very low. What that results in is a very small amount that you could contribute so that resulted in seven grand a year, max, that this person could put into that policy for the child in order for it to have the maximum cash value, growth and dollars, only over five years. Doing it over the over seven years, it would drop. They could only contribute four to 500 a year. Not really much in the sense of cash value and utilization of a cash value, but it does have a benefit that it’s a policy on the child.

My personal recommendation would be maximize policy on yourself. You’re able to maximize your dollar and have it grow throughout your life. And then also when you pass a death benefit, then can transfer a generation earlier and having it on your child. Your child can still access and use it and have access to the cash value and benefit from it that way, even though they’re not the ones being insured.

Sure. Yeah. Another con would be, the kid has access to the cash value where you have to be careful with that. Of course! And then another thing it’s very similar to people talk about, oh, I’m going to pay my kids a salary or put them on my taxes. And this is a big video or like podcast episode that people like use as clickbait just to sell views and listeners. In which is a strategy where it works, you pay your kids, really? What are you gaining from this? So you can pay five to $6,000, which is the standard deduction where you don’t have to file taxes, but like at a 20% tax  bracket did all this work and in the book effort for what, 1500 bucks. And it’s not worth the effort. And most of the people doing these IBC they’re putting at least 25,000, $50,000 a year. A kid probably maxes out or would you say four or five grand a year? It’s not worth it.

No, that was on a newborn. And I would say if you have a child who is putting an income, once they started putting in an income, decent income in their twenties or so. Yeah, for sure. I think starting policies on them would be a good. At that point, this example was for people asking for their newborn or a one-year-old and starting the policy now.

Well, but then the danger is that now they have access to it. Go buy whatever they want with it.

So the parents would be the owner until they’re 18 at least.

Got it!

Like when I thought about this the point is instead of a 5 29, it’s a way to fund the kids’ college. So if you’re putting in $7,000 from when they’re zero to seven, that you’ve put in 49 grand, what does that look like when they’re 18? Because it may well be more than enough to still fund their college education or whatever they choose to do at that point.

My recommendation would be that time period would be the same if you did a policy on yourself or when working. You’d be able to more at same amount or have it be more cost efficient policy and then access your cash value to do the same, even though it’s not in their name. But I don’t know if that made sense.

Yeah, it’s not like you’re saving much and just the time. Time is more valuable than money as I see it. So just get it in your own name and it’s easier to access too. I feel like it’s your retirement funds don’t need to be an a sole 401k self-directed IRA. It doesn’t need to be in a retirement account. It could be in your savings account. We can still call it retirement account.

Same thing here. Like your kid’s college savings doesn’t need to be in their infinite banking could be in yours. It could be an altoids’ tin in the backyard too.

https://www.youtube.com/watch?v=ECJ4QRdoahk

The underwriting process. This has been all over the place.

What’s involved?

There’s a medical questionnaire. They’ll be looking at based on the information and pride on that. They’ll be also looking at your resident history, your driver’s record. They’re really looking at how you answer those questions, which should be truthful, but based on those questions, determines if you have a follow on health exam or not. Also the ability to pull your current medical records from your current primary care provider.

And as far as how long that has ranged from a week and a half to having a policy delivered, approve and delivered to eight weeks. And the variable in there, most of the time is access to the ER providers, medical records. A lot of times, you know, that’s the unknown variable. A lot of us, the agent or even the client, has very little ability to help that process along that individual. Where it took eight weeks and we kept on calling the provider’s office. They said they had it. They said, there’ll be working on it. There are some back and forth, but that has been the biggest variable and really out of the hands of the insurance companies or the agent and so just be aware of that.

Income documentation. So we also had our recent lesson learned on that. You’ll hear the $10 million mark is kind of that magical limit where below that, as far as the death benefit of stated income documentation is not required. It requires a verification signed by the agent and the client below 10 million. However, if there is something that doesn’t make sense. So say for example, the client is a janitor per se and they’re trying to pull off $6 million death benefit policy. That’s going to raise a lot of flags and at that point, what we’re seeing is the underwriter’s asking for tax returns to show that even though maybe that janitor is married to a real estate investor and has a large net worth that they’re looking at really the annual income of the individual. And I even stated that person is married to someone who has multiple extensive real estate portfolio and then the tax returns, they’re going to look for the AGI on there or the gross income numbers to match the claim. So just be aware of that. We can kind of push the limits, but you’re applying for life insurance and you would want the companies to do proper underwriting because that’s the risk that they’re taking. Again. I think it can get frustrating, but basically part of the company, you can appreciate that they’re doing their due diligence correctly.

Oh, that example sounds really familiar. My wife is not a janitor. But yeah, what do you do with if a lot of the people are business owners and they’re really good at making their income go down to nothing? So they’re a really good passive real estate investor. And the ATI is like 25,000 until at that point.

Well, it had all the time we do what a cover letter, and we can present a story just ahead of time and it may all make sense. And as long as we can present that story, it’ll go through, I think doing it upfront that way is a lot more beneficial and believable than kind of after the fact than coming in and saying, oh, but this and this, that’s a big lesson learned when we have those types of policies that we’re trying to get through we really want to just create a strong story. We’ll write a cover letter, provide maybe some documentation ahead of time just to show, and they’ll be more favorable that way and more likely to go approved.

And then going back to the other question just a little while ago on putting the policy on your kid or their little baby, think about getting it on your spouse, especially if your spouse is a woman, because they live  longer than guys. They’re just cheaper to insure too.

https://www.youtube.com/watch?v=o6yYgxmYD8U

So there’s a question on reduced paid up. So a lot of times when we design policy, there is a certain desired funding period be it 5, 7, 10, or 15 years. To cut that funding period to the desired amount we do, what we call a reduced paid up. So that basically eliminates all future premium payments. It takes the existing cash value of the policy and it buys a single premium pay policy at that point. Now this is for policies are set older than seven years and it has to be beyond that the max limit or that seven paid look back. So it can be done at start of eight years or longer. It truly does eliminate all future premium payments. That’s good in the sense that it eliminates the expenses, but it does limit you in the sense of what you can now contribute to the policy.

It’s an option that you can choose to exercise. Again, you don’t have to exercise it, but if you don’t exercise it, then the policy premiums would be, do you know, until you exercise that reduce paid up most insurance products. But the typical ones we use are either 15 pay and pay until you’re age 95. Those are long funding periods, and premiums would be due unless you do a reduced paid-up. And just be aware that at least for the companies we work with doing the reduced paid up and beyond that the PUA limit, as mentioned earlier, that 10 times or that 9 to 10 really it goes away and at times put up only one times your base premium. So if your base trim is 10,000, you can just put another 10,000 in PUA beyond that at that point. So there’s some limitations. There are different companies in different products where if the desire is to have a long funding and that option and flexibility to fund the longer we would be using different products and not do a reduced paid-up.

https://www.youtube.com/watch?v=Ko_ASBr5ls8

Age, it does have a impact on the cost of insurance. But again, one way I particularly design it is that you’re minimizing the base premium anyway. It doesn’t have as much of an impact as one would think on the overall cash value performance of the policy. Again, a older person has less time for the compounding dividends to take into effect and grow in the later years.

But as far as the early or performance of it,  they’ll usually even a 60 year old. We can get break even point a year, five maybe or six, but most of them by year five or what breakeven point and still have growth there. Again, it’s just that it doesn’t have the compounding the years of the compounding for it to really take off on the later years. 

On this, just one little example when I was like 35 and my friend was 50. We both did the same policy just to see what the numbers would look like. Like with a hundred thousand dollars per year, we looked at like the cash value. The first year we got back and it was pretty simple, I won the bet. Because I said it wasn’t, it didn’t make much of a difference and it didn’t, it was pretty negligible. But I think if he smoked cigarettes, then that would have be more noticeable. Yeah, for sure.

Yeah, that is true health. And again, I link touched on it earlier. You don’t always have to be the insured person within your family, a spouse, a working child. You can always, maybe have them be the insured person versus yourself, if you’re older or you have maybe some underlying health conditions.

And to me that didn’t make sense in the beginning because you know, these are important factors, but then again, the way we’re configuring that it’s not for really the depth payouts. When you think about like that, this makes sense it’s for more, for the liquidity of putting money in here and withdrawing it right out.