Why the Guaranteed Rate of Return is the BEST possible outcome in whole life insurance

Hey everyone, Logan Hertz here with Hazeltine LLC. I'm joined as often times I am by my friend and colleague, Peter Nelson of Nelson Insurance Advisors. Peter, how are you doing? Living the dream, Logan, living the dream. Excellent. So I thought we'd talk today about something that came up recently. I was talking with someone who tried to attack whole life insurance based on the fact that the guaranteed rate of return in whole life insurance is not very good. And I think guaranteed rate of return. No, in fact, I can pretty clearly prove to you that the guaranteed rate of return in whole life insurance is incredible. It's the best, it's one of the best, in my opinion, probably the best selling point for whole life insurance and why people who attack the guaranteed rate of return in whole life really don't understand what they're talking about, or maybe they're being dishonest. Or in this, with this particular person, I think he was selling a competing product and so he's just trying to tear down a whole life anyway that he can. So Peter, let's talk about this because sometimes I think some agents don't want to present the guaranteed rate of return because obviously the guaranteed rate of return is going to be lower than what's typically projected on an illustration with the companies we work with. The guaranteed rate of return has actually never happened in over a hundred years, these companies have always paid dividends, which means the policies have always outperformed guarantees oftentimes by a pretty significant margin, but I kind of think the guarantees are one of the best selling points of whole life. What do you think, Peter? You pay your premiums, you at least have that. Now, as you know, you know, I offer to my clients, whether it be whole life, UL, IUL. So I've, I've tried to be open-ended. Okay. But one of the issues that we run into on, on, say on the universal life side is typically the guarantees may only be, let's say for 10 years. And if you actually go through an illustration with a client and you're putting in a lot of money that they do get concerned about that, especially when you're asking somebody to put in maybe 20 or 50 or a hundred thousand dollars a year, you know, and say it's a limited pay scenario and then they look at year 90 or 80 and it runs out of money and that concerns them, even though they see the midpoint and the, you know, the hypothetical over here. Right. What you're pointing out, Peter, is that people are not making an apples to apples comparison when they look at the guaranteed side of whole life and they say it's terrible. The question as always is as compared to what, as compared to what? So what are you comparing it to? So let's say the guaranteed rate of return is 2% in a whole life insurance policy, which it might, okay. It could be higher. It could be, could be 2%. All right. They're typically comparing it to some hypothetical return that they might get somewhere else. Well, that's not a fair comparison. Okay. Take the guaranteed rate of return a whole life and compare it to the guaranteed rate of return in any other asset, whole life insurance will crush it, will absolutely crush it. Right. Because again, it has to be an apples to apples comparison. We're not anticipating that the whole life insurance policy is going to get you the guaranteed rate of return. That guaranteed rate of return is a guarantee. It is a backstop, meaning that imagine I gave you two options. What right? One product, you can get some high rate of return or you could lose every. The other product, you can get some lower rate of return, but you're guaranteed to always get at least 2%. That sounds pretty good. So if you're going to compare the guaranteed rate of return in whole life to something else, you have to make it apples to apples comparison. So the worst case scenario in whole life is a 2% rate of return. Let's say what's the worst case scenario in any other asset you're comparing it in any other asset you're comparing it to pretty much the worst case scenario is negative 100%. You lose everything, right? You cannot compare the guaranteed rate of return in whole life to some hypothetical return. You might get somewhere else. That's not a fair comparison, right? Right. And what's that worth? And I many times I'll give them options and I'll, I'll exactly what you just said. Hey, here's the option. You might get a higher return over here, but here's the, you know, the, here's the con of it. Right. And as we pointed out, the guarantees have never happened, right? So with the companies we work with, they've paid a dividend every single year for over a hundred years straight, which means every single year it has outperformed the guarantees by a significant margin. Okay. That's, that's important to note. But let's, let's follow this through a bit. Cause I think oftentimes people are too focused on what's going on inside the whole life insurance policy and not what's going on outside the whole insurance policy. One of the challenges we face in this business is so much of what makes whole life insurance amazing. It's not what's going on inside the policy, but how it makes everything else in your financial picture so much better, right? It's like looking at a supercharged fuel by itself means nothing, but you add it to the right vehicle and all of a sudden you supercharge that car. That's kind of what, like what whole life insurance does. And people use different analogies for that. Right. But so let's say you do get the guaranteed rate of return in the whole life insurance. What does that mean? Well, the companies that we work with pay dividends for over a hundred years straight, all through the great depression, all through the 2008 financial crisis, World War II, the Vietnam War, World War I. I mean, you go all the way back. Okay. So if you're getting the guaranteed rate of return on whole life, that means something worse than the great depression has happened. We're talking about an economic crisis, the likes of which this country has never seen before. Which means that your 2% rate of return in your whole life insurance policy is incredible because probably everything else has crashed by 80% or more. We're talking like blood in the streets, horrendous type of economic crisis. That's what it would take. For these bellwether companies to not pay a dividend and give you only the guaranteed rate of return. So if your policy goes up by 2%, while everything else dropped by 80%, you know what that means? That means effectively your policy just quadrupled in value, right. Relative to everything else. Let's say there's some amazing blue chip stock out there that's trading for a hundred dollars. Then this unbelievable economic tsunami happens. So these mutual companies are unable to pay a dividend for the first time ever in their entire recorded history. So your policy only goes up 2% instead of 6%. Okay. Now you know what you can do. You can take out a policy loan against your policy and go and buy that a hundred dollar stock for $20. Hold it until the crisis is over. And it'll, if it just goes back to where it was, you quadrupled your money in probably a very short period of time. I would argue that if you only get the guaranteed rate of return in your whole life insurance policy, that is the best possible outcome for you. And that is the time where you will be most ecstatic to have whole life insurance, because while everybody else is getting wiped out, your money is going up. No. And you just mentioned Logan, one of my favorite strategies I like to share with people. I don't think there's enough insurance professionals, financial advisors that talk about that power where you're guaranteed to never lose any money. But at the same time, you have complete access to that money. So you can take advantage of every single government wall street and bank screw up for the rest of your life. I mean, it is, I mean, it goes back to Warren Buffett's number one rule of investing. You know, never lose any money. Right. And I think in the future, as we continue to see the debt going through the roof and all this other stuff, volatility, I ask people all the time, do you think volatility is going to be higher or lower in the future? And they say higher. Well, I say, well, isn't that an amazing, wouldn't it be amazing if you could have a strategy like this, that you wouldn't be harmed by any of the bad stuff, but you could take advantage of it every time, what would that be worth? Right. I mean, in a nutshell, that's what you just described is what you can do with it. And I don't know why you would not want a portion of your money, you know, in that portfolio into something like that. And then we could also talk about we've, as we have in the past, you know, Dr. Wade fell talks about a buffered asset. How in retirement, of course, your money will last longer. If you have a non correlated asset class, like a whole life policy to work as a buffered asset. So when the markets go down, you don't pull money out of that retirement plan. You actually pull money out of the cash value life insurance policy to do that. And it'll make your portfolio last maybe a decade or even longer. You know, and we're not even, we've already talked in the past about having a chronic illness rider to help offset a long-term care event. So yeah. Guarantees in a policy. You want to make sure that policy is there and we can guarantee that people that they're either going to use all the money in that policy while they're alive or their family business or charities going to use that money when they die, that is the power guarantees. I've never seen a whole life policy. And over 22 years of doing this ever not work as long it was, as long as it was fully funded. Right. Never. Yep. You got to understand what you're looking at, right? The guaranteed rate of return is the worst case scenario. So if you're going to do an apples to apples comparison, compare the worst case scenario to whole life insurance and whole life insurance, which will be a two to 4% tax-free rate of return. Compare that to the worst case scenario in anything else, the worst case scenario in anything else will probably be significantly worse. Okay. So the guarantees are phenomenal. And there's even a stronger argument we could make for the guarantees and whole life insurance, right? Because this, this guy who was arguing with me was saying, well, if you get the guarantees, you'll wish you had done something else, actually, no. Let's say I only get the guaranteed rate of return. And so I'm only earning two to 4% tax-free per year. Well, that's not going to ruin me, right? I mean, I, at least I did it without taking on any risk, right? And if you're not going to take on market risk, you're probably not expecting a 25% rate of return or something ridiculous, right? Um, I don't think I'll wish I did anything else. Like we said, if those guarantees do materialize, that means everything else has got an absolute crush. And I'm sitting pretty in my whole life policy, but let's think about what that means when you're talking about the infinite banking concept, because we've been talking about whole life insurance, if you're using this policy as your primary cashflow management tool, then the rate of return, it's as long as it's positive, it's pretty much immaterial. The analogy I like to use is let's imagine you're using a rewards earning credit card. So let's say you have a big family and you're spending is $100,000 a year. That's what you just have to spend to feed your family and everything. Use whatever number, but let's say it's a hundred thousand, make the math easy. And I say, Hey, instead of paying cash, why don't you use this rewards earning credit card that gives you 2% paid off every month, right? So what happens now is that $100,000 spending, you put it on that credit card and you pay it off every month. Now you just got $2,000 back without doing anything, right? You've got 2% back. Well, you wouldn't look at that and say, yeah, but a 2% rate of return is horrible. I can get better than 2%. It's like, well, wait, this is not an investment. Okay. This is a financing strategy. I'm taking things I was going to buy anyway, and I'm financing them using a more efficient vehicle. So now I get 2% back. That's kind of what we're doing with whole life insurance with independent banking. So if I only get a 2% rate of return in my whole life policy, it still makes sense because I'm not changing anything I'm doing, I'm just taking the things I was going to buy anyway, whether they be products or investments or whatever. And I'm financing them with my own private bank. So now I'm earning interest, additional interest on those purchases that I otherwise would not have earned. So what that means is I'm now earning a 2% tax-free compound return on money that otherwise would have left my personal economy had I spent at the standard. So even if I only get the guaranteed rate of return and somehow that happens without the financial crisis, I'm still coming out ahead if I'm doing it in a bank, right? Right. Yeah. So we have to know what we're looking. Right. We're not looking at an investment vehicle. That's not what we're looking. Right. And that's the, as we've talked about in the past, that's the way they try to pare it down, right? They try to compare what I call the greatest savings, savings vehicle ever created by the human mind. And they want to compare it to an investment. Oh, you're going to make 12% over here, blah, blah, blah. No, you, you can't, it's not a fair comparison. We're not saying it's an investment, never have, never will. So, but that's the only way they can beat it. Because remember another thing too, is that we just talked about accessing the cash value and the policy to take advantage of, you know, market downturns and all this stuff. We can't illustrate that. Can we? I mean, we could, but not, not in the physical illustration. You can't show that if you do that, say once every 10 years, right? Right. They're always cause they're, they can't think the way that we think big picture. They're always myopically focused on what's going inside of the whole life insurance policy and implicitly or explicitly comparing that to some hypothetical performance in an investment. And if you do that, it's always going to look bad. Right. But what we do is we situated inside your overall financial picture to your point, Peter, when you understand how it fits in with your overall financial picture, you understand how it's making everything else so much better. It's not just what's going on in your whole life policy. It's how it makes everything else better in your, in your financial picture and understanding that as an example, if you're doing it to have banking, which is one of the ways you could use whole life insurance. This is replacing your bank account, right? If you compare the benefits of whole life insurance to the benefits of a bank account, it crushes it every day of the week. Right. I mean, you could just say because the leverage death benefit, right. That would be the permission slip to spend most or all that money while you're alive in the minute you died, the death benefit actually replenished most or all that money you use so that the people that took care of you could be taken care of as well. I mean, that's right there. You, you can't go find me a savings account outside of a cash value life insurance policy, a whole life policy that can do that. Okay. I've just instantly blown up, you know, their whole scenario. Yep. Find me any asset out there that is guaranteed to go up in value every single year, no matter what. Find me one. The guarantees are the best selling point for whole life insurance and infinite banking. And if those guarantees materialize, that's when you're going to be most excited to have whole life insurance, not because of what's going on inside the policy, but because of what's going on outside the policy, because if those guarantees are paid and these companies for the first time ever in their entire recorded history, don't pay a dividend. That means something significantly worse than the great depression has happened. And so you will be super happy to have cash value in your life insurance policy that went up. That's protected while everybody else is getting wiped out. And now you can be like the Warren Buffetts of the world who's sitting on the sidelines with cash. And when everyone else is getting wiped out, you can come in and buy assets at ridiculously low prices. If you would come in at the depths of the 2008 financial crash, in the depths of the COVID crash, you could have pretty much closed your eyes and bought just about anything in the stock market, right? And we're talking like blue chip stocks, not specular ones. Right. And pretty much doubled your money in a year without really even trying. By the way, in March of 2020, you could have bought NVIDIA at $12 a share. It's now at, I believe, one 44. You would have 12 X your money in four years. You would have quadrupled your money by the way, to safe, the safe stock, like Exxon Mobil, you could have four, four X than four. Could you have met this is. And by the way, dividends were just so we're clear, dividends were paid even during those times of severe economic dislocation, so it would have to be something worse than those crashes for only the guaranteed rate to be paid, which is when you would be super excited to have a whole life, right? Right. I mean, people just don't realize the power of it because they're told all these other lies, right? We've already gone through a multiple times and it's a shame. We're not saying, by the way, you can have a good chunk of your money in cash, but at least take a portion. Okay. Let's just say 30% that, and I'm using that number because that's the Ernst and Young report that we've talked about in the past has talked about that, but imagine how that will help you grow the other portion of your, of your assets. People, if they all realize we might actually, by the way, we've talked about this, we might be out of jobs by the way, if people realized how good it actually was, they'd please, I need to, I need to get some of this now. Right. Yeah. And I, and, and we haven't even talked about the massive intangible, the very important psychological benefit of having certainty, right? The guarantees means that you have certainty that your policy is going up no matter what. If you put your money into some other asset, it might go up and it might go up at a faster rate. Of course you wouldn't have all these other benefits like the death benefit, the policy loan, all the creditor protection, all that other stuff, but hypothetically could go up more or faster, the problem is you don't have certainty. And that means now you have some psychological pain, so to speak, that you have to manage. Right. And that can cause people a lot of heartache, right? So when you look at the people who become rich, right. It's more like looking at people, financial fitness, physical fitness. Okay. Well, you can have the best physical fitness diet and exercise plan on paper, but that doesn't matter. What matters is your ability to execute on it. And that's a psychological question, right? So it's much better to have a plan that's manageable, where you can actually, you know, lose weight, get in shape, stay in shape and so on. Rather than putting something on paper that looks amazing, but you can't really execute on it. Exact same thing applies to finances. Okay. In the book, the psychology of money, he talks about having a high assault tolerance, right? Every good engineer, if you're designing any system, you want a system that is as simple as possible and as robust as possible, you don't want complicated. Okay. And so the psychological benefit of whole life insurance is that it gives you certainty. And now at the beauty of it is if you do go and put your money into risk on assets, you at least have a foundation that you're building on that's guaranteed. So it reduces the psychological distress and it gives you more of the capability to be patient and disciplined when you do invest your money. And you won't have to go and raid those investments when things are bad because you have this other safe asset that you can draw from, right? So when you look at the reason people become rich, it wasn't so much that they had a better plan on paper with lots of numbers and spreadsheets and complicated analysis. It was more about their psychology, right? They're not the plan, but their ability to execute on the plan, right? And with whole life insurance and infinite banking, and we could also say velocity banking, which is separate, it works with human psychology rather than against human psychology, right? It, it, it is a really good for savings plan where the money is still liquid. You still have access to that money via the policy loan, and you can use it without interrupting the growth in the policy. So there's an enormous psychological benefit where a whole life insurance instills in you the right habits as opposed to the other sort of standard conventional way of doing things where it works against human psychology, right? And it's very hard to execute on a successful, you can, but you now you're having to work against your psychology. I mean, I've never met anybody in all the years. I've done this, that they said I bought too much whole life insurance. I've never met anyone that said that I've said I've met plenty of people that said, yeah, I wish I would have done that sooner. Right. Because as you always like, as you talk about, and I steal from you is you got to let this stuff age, right? You really do. Okay. Now, unless, you know, we have a big lump sum of money and maybe we decide to do a. A single premium whole life and just do a Mac right up front. Sometimes there's a place for that, but you really do got to let this stuff season. So yeah. Yep. And if you wait, you are eliminating the best year of the policy, the last year policy, you'll still have the worst years, the one, two, three years. Right. But if you wait one year, you've just eliminated the worst, the best year of performance in your policy, which will be the last year. Right. So that's, that's another topic conversation, but yeah, I just want to reiterate, I think the guarantees and whole life are the best, best possible feature of it, and if those guarantees do materialize, that's when you'll be the most ecstatic to have whole life insurance. And let me just add one. Yeah. Logan, what do you want to add? One final closing here on limited pay scenarios. I actually think the, the guaranteed part is even more important. Okay. Because I've, I designed so many policies, both whole life, universal life chassis. And the thing that always concerns me the most is the short pace scenarios on a universal life chassis, because that, that policy is really built to be honest, to fund it for continuously, whereas if I take a, yeah, a universal life policy can never be fully paid up, whereas a whole life policy can. Right. So I, I just presented one, a beautiful 10 pay scenario with, with one of the largest mutual companies out there. You know, you pay in for 10 years, boom, I'm getting, I could walk away after 10 years, have all my money back. And that thing is fully funded. It continues to grow. I can't, I get concerned when now if it's structured properly, I still believe I can do it on the, on the universal life chassis side, but I'm probably going to, at some point have to take advantage of some external opportunities. Okay. With the whole life, the 10 pay option, even if I decide not to take advantage of external opportunities by accessing the cash value, that policy is still going to perform right. So I just wanted to mention that the short pay scenarios concern me the most, and that's where those guaranteed values are beautiful. Absolutely. Okay. Well, thank you so much for your time, Peter. This has been great. Really appreciate it. And we will look forward to the next one. Thank you. God bless. Godspeed.