Why Life Insurance is The Ultimate Investment

All right. So today we're going to jump into why life insurance is the ultimate investment. But before we do that, what I'm actually going to do in this video is show you why life insurance isn't even an investment. So let's first talk about some of the common types of investments, right? We have stocks, we have bonds, there's savings accounts, real estate, life insurance. There's a whole gamut of financial products that are out there. So when we think of investments, you know, especially with the stock market, we think about things that go up. But if we look back even to 2022, we see that the markets also come down. One thing that is inherently different with life insurance that's not the same with real estate, that's not the same with the stock market, is that there's guarantees built into it. With a guarantee, that makes it inherently not an investment. So let's look at NerdWallet, right? And NerdWallet had kind of said a couple of things on the average return on the stock market. So average return on stocks is 10%. But again, that's highly volatile. If we look at 2022, the S&P 500 at some point was down about 30%. I think from January to December, it was down about 20%. So if you think about that in context to your portfolio, if you had $100,000, and you were down 30%, that means your $100,000 turned into 70 grand. And when that was happening, a lot of people were scared and running for the hills. But if you have a long-term game plan, and you understand that the stocks aren't your only piece of your overall financial mosaic, you can be much stronger and have much more staying power because you understand different things are going on there. If we look at savings accounts, it's funny because right now NerdWallet's saying the average savings account is about 2.3%. Somebody off camera was just talking about how excited they were because their sister was getting 3.5% in a savings account. But that being said, right now inflation's at 6.5%. So really they're losing 3% on those dollars. It's not as bad as it was, but it's still, you're losing 3%, right? So got to think about all the different areas that you're putting your money. If we're looking at bonds, bonds average according to NerdWallet is about 1.6%. Again, way under the inflation side of things. Real estate, this average according to NerdWallet is 10.6%. I've seen other averages that say from 1960 to 2022, home inflation rate was about 4.1%. So you got to check the sources and see how they're building these statistics. But again, real estate can also be highly variable. If we look at the run-up between the early 2000s to 08, home prices went crazy. But what happened? They came down really, really drastically in different areas, got pummeled. And these real estate prices took years and years and years to recover. So again, these are all things that fall into your financial plan. But one thing that didn't happen, and according to NerdWallet, the average return in a life insurance plan is about 3.5% plus the death benefit. But looking at that, life insurance has a guaranteed rate of return, a guaranteed growth on it, especially if you're in the space of whole life insurance. Other policies like a term policy, no guarantee, other than if you die, you get the death benefit. If you outlive that term, well, then your family gets nothing. If you have an IUL, there's no guarantee on that growth, right? There's no guarantee that the insurance company doesn't come back and ask you for more money to keep it in line as a life insurance plan, right? But with whole life, there's inherent guarantees. So that's why I would say whole life is not an investment. But if we look at it, what happened in 08 when the stock market was down and the bond market was crashing and the real estate market was going berserk and people were losing their houses, money was drying up in the system, life insurance companies and a lot of the good mutual life insurance companies, not only did the cash values in those plans stay steady, but those companies paid a dividend in that year and that dividend increased the growth and increased the cash value. So again, going back to investments, I think if something has a guarantee in it and it pays dividends, I don't know if I see it as an investment specifically. I see it more as a part of the overall strategy and something you really want to think about considering. But also let's look at the liquidity side of things, right? If you're in the stock market, stocks have relatively good liquidity unless you're in like a penny stock, right? And then you might not be able to sell out of it. Same thing kind of happened with crypto where people bought into a lot of these alternative coins and then couldn't get out of them when things started to go south. So you got to look at the liquidity whenever you're making investments. But the thing you really want to understand is if you're in a stock and that stock price falls, do you want to sell it when that price falls? Because when you do sell it, if you're selling it for less money than you bought it, well, now you've just locked in losses, right? So you got to think about these things in terms of liquidity. If we look at a savings account in a bank, yeah, there's tons of liquidity in that, right? You could just go to the bank and get your money out. You can move it from your savings account to your checking account. There's a lot of liquidity in that. But in that high liquidity zone, you're not getting a lot of growth there. With bonds, bonds usually want you to hold those bonds for a duration. And if you sell those bonds within a certain time frame, meaning you don't hold them to maturity, you're going to end up losing out on principal and interest, right? You can actually end up selling them for less money than you bought them for. And so while bonds have this mystique of being a safe investment, if you hold them long term, but if you look at bonds and look at the bond market just last year, things were down, right? So got to think about all these things. Real estate, extremely low in liquidity. I'll give you two examples. One, if you want a liquidity event, the first one that you can have with a property is to sell it. Well, how easy is it to sell it? Are you going to get the asking price? What's the market look like? Are people able to get loans at the time when you're trying to sell it? So that's number one for liquidity, right? So we don't know what that time frame to sell is. The second one is you could have a home equity line of credit. That's where you go to the bank and you ask them to borrow the equity against your home. But guess what? The bank doesn't have to approve you. And that could become a problem. There's people that we've worked with in the past who have sat down and had a fully paid off home, went to the bank because they wanted to invest in more properties. But the bank said no, right? They don't care that the home was fully paid off. Why? Debt to income ratio was off. And because the bank said debt to income was off, no, they weren't able to access that money. So now they're only left with the idea of, hey, I'd have to sell this property if I want to get money out of it and go invest in other things. So these are things that you really, really want to consider because what you're going to hear is all the good stuff when people want you to buy stocks, when they want you to buy real estate, when they want you to go into IULs and do all these other things. But they're not necessarily telling you about the disadvantages of those products. So I think we've covered a lot of that here. With life insurance, if you're using a whole life insurance policy, you have the contractual right to have access to the cash value in that plan. That's contractual right. So yes, it is a loan that you're doing in whole life insurance, but that loan, they can't deny you access to that money, right? So this is your contractual right. It's very easy to get that money out of there, a couple of days to move it over into your account and you have a very good liquidity in that. Now, when I say good liquidity, you also want to make sure that it's designed properly because some agents will bring you a policy and there's not a lot of cash value in there in the first couple of years. So that's also something you want to think about when you're getting into these. And then last, let's look at the risks associated with all these. I think we talked about a lot of this, but obviously the stock market has a ton of risk in it. We have no control over what that market does. So when you put money in there, you're kind of just hoping that it does what they tell you it did, which is average 10% over the last 30 years or whatever that is. But let's factor in inflation. Let's start to factor in capital gains. Let's start to factor in all the different things that actually erode wealth. And if you look long-term, maybe that 10% over that period of time really wasn't 10%. So you got to look at the real rate of return, not just that nominal rate that they talk about. Savings accounts, very low risk. There's FDIC insurance that protects that money. So I think from a risk standpoint, you don't really have to worry too much about your money in the bank. When we're talking about bonds, again, we don't see too many bonds defaulting in the marketplace, but it is always a concern. Why? Because bonds are you giving a company money, you're purchasing their debt, and they're paying you back on that. So instead of owning an equity stake in the company, where you own a piece of the company, what you're doing is you're loaning them money and they're paying you interest back on that money. So there is risk there that they may default on that. And that doesn't just go for corporate bonds, but let's look at states. Let's look at municipalities. Let's look at all the different things that are out there because some of these areas, it's a little dicey in some of these states, right? It's a little dicey in the fiscal responsibility of some of the different municipalities. So these are things you want to take a look at when you're getting into bonds because the mystique is that, oh, they're low risk. Well, let's take a look and see if they are really low risk and then real estate, right? We just covered that real estate is inherent with risk, right? Not just the risk of maybe the property value going down, but what happens if you buy a home and you need to put a lot of money into it because it's in disrepair, or you miss something like in the inspection that got overlooked. And now all of a sudden you're having to fix the foundation or the roofs coming in, right? There's a lot of different things that can go into real estate far beyond just the appreciation or depreciation of the property. And then lastly, life insurance. I think life insurance, like we talked about again, it's a lower risk vehicle. It has inherent guarantees. Each state has its own insurance division that backs up all of the life insurance policies. So because of those guarantees and the nature of the business, we don't really see insurance companies going out of business either. What we do see is some insurance companies that maybe aren't doing such a good job managing their risk being acquired by larger ones that can take on that risk so that there aren't defaults inside of that area. And they're not having to go to the states to pull out of that fund that they all put money into. So because of those guarantees, you're going to see a lot lower risk, much similar to the banks, right? And the money in the savings account, except over the long term, you're going to get more growth in that life insurance policy and multiple uses of your dollar when you're structured it the right way and when you're accessing it properly. And last, we got to look at the tax liabilities, right? So when you have stocks and depending on where they're at, right? If they're in an IRA, 401k, we don't have to worry about selling stocks and worry about capital gains in those areas. But what we do have to worry about is the tax on the distribution on the way out. But if you're in a brokerage account and you want to sell your stock and you have a large game, well, what does that mean? You may have to pay capital gains and at what rate that's going to depend in the year that you sell it, right? So definitely things to think about. There are, you know, people get 1099s on their savings account. I know it's kind of insulting when it's a 1099 for a penny or two, but people do get 1099s on their bank savings accounts. Same thing with bonds, right? Bonds are taxable if they're not a municipal bond and it's not done in the right certain fashion. So definitely things to think about. Look, with real estate, there are ways to avoid paying that tax today and you can, you know, do different things like a 1031 exchange and those sorts of vehicles. But at the end, if things are getting sold off, there is going to be tax to pay. And with life insurance, one of the great things is if you maintain the contract as a life insurance policy, well, what happens? The money that you take from it is income tax free. The money grows deferred from taxes the whole time. And when you pass away, you'll pass it on to your heirs income tax free as well. So from a tax liability standpoint, this is another area where if you have life insurance, you can build it into your overall financial mosaic because down the road, we don't know where tax rates will be. And this will help you play the tax code to the most efficient way for you. Right? So again, a lot that we covered in this video, if you want more information on how to make life insurance work for you, how to, you know, figure out what is the right mix of these different styles of investments, click in the link below one of the members at Epic here will reach out to you and they'll help you to build out a game plan so you can determine what's the best strategy for you.