Latest / Rock My Finances / Why Life Insurance?: What It Is, How It Works, and Which Type Is Right for You

Transcript

Why Life Insurance?: What It Is, How It Works, and Which Type Is Right for You · Rock My Finances

• 0:00
  Speaker 1: Investment advisory and financial planning services are offered through Simplicity
• 0:03
  Speaker 1: Wealth LLC and SEC Registered Investment Advisor. SEC registration does
• 0:09
  Speaker 1: not constitute nor endoorse of the firm known. Does it
• 0:11
  Speaker 1: indicate that the advisor has attained a particular level of
• 0:14
  Speaker 1: skill nor ability. Investing involves risk of loss. Insurance, consulting
• 0:19
  Speaker 1: and education services offered through Diamond Life Fanning is a
• 0:22
  Speaker 1: separate and unaffiliated entity from Simplicity Wealth. This information is
• 0:26
  Speaker 1: provided as a general information that is not intended to
• 0:28
  Speaker 1: be specific financial guidance. Before you make any decisions regarding
• 0:32
  Speaker 1: your personal financial situation, you should consult a financial or
• 0:35
  Speaker 1: tax professional to discuss your individual circumstances and objective.
• 0:39
  Speaker 2: Welcome to the Rock My Finances show on k for
• 0:42
  Speaker 2: HD Radio and Talk for TV, where we put the
• 0:45
  Speaker 2: fund in finance joint powerhouse Jeffer Jos CDFA CMC and
• 0:51
  Speaker 2: private Wealth Advisor as she collaborates with you to create clarity,
• 0:56
  Speaker 2: control and companies with your money, your web. It's not
• 1:00
  Speaker 2: about the zeros. So what is it all about? Let's
• 1:03
  Speaker 2: find out. Now here's your host and weekly friend, Jennifer Jose.
• 1:09
  Speaker 1: Okay, today we are going to talk about life insurance.
• 1:12
  Speaker 1: You're here on Rock my Finances, and I can tell
• 1:14
  Speaker 1: you that this is the most understood investment type of
• 1:18
  Speaker 1: tool that there is out there. Life insurance can be
• 1:21
  Speaker 1: very confusing, overwhelming, and it's full of conflicting advice. So
• 1:25
  Speaker 1: hang on, we're going to talk a little bit about
• 1:27
  Speaker 1: each one, how it works, what it is, and what's
• 1:29
  Speaker 1: right for you. So you might hear people say by
• 1:32
  Speaker 1: term invest the difference. You might hear other people say
• 1:34
  Speaker 1: whole life is the way to go, and you might
• 1:37
  Speaker 1: have younger people saying, hey, what about indexed universal life.
• 1:41
  Speaker 1: So we're going to figure out what's best for you.
• 1:43
  Speaker 1: At the core, life insurance is very simple. It's just
• 1:48
  Speaker 1: transferring risk, transferring financial risk to an insurance company in
• 1:52
  Speaker 1: case something were to happen to you and the money
• 1:55
  Speaker 1: would stay behind or your people whoever is going to
• 1:59
  Speaker 1: be your beneficiary. But I know it gets confusing. So
• 2:02
  Speaker 1: why does life insurance matter? Well, it's not just about
• 2:05
  Speaker 1: death right, It's actually about when you're gone, what people
• 2:09
  Speaker 1: are going to use financially for anything. If you're married,
• 2:14
  Speaker 1: what's your spouse going to do keeping the lifestyle that
• 2:17
  Speaker 1: they're accustomed to. If you have children. How are your
• 2:20
  Speaker 1: children going to be raised? Who's going to take care
• 2:22
  Speaker 1: of them? If you're wanting them to go to college,
• 2:26
  Speaker 1: who's going to pay for that? It protects your family
• 2:29
  Speaker 1: for sure. It replaces your income for your family. It's
• 2:33
  Speaker 1: covering maybe some debt and expenses that you might have,
• 2:36
  Speaker 1: and it's creating stability in a hard time because, let's
• 2:39
  Speaker 1: face it, grief sucks, and when someone doesn't wake up
• 2:43
  Speaker 1: the next day and is not in our lives, it
• 2:46
  Speaker 1: already sucks having to go through the whole grief process.
• 2:49
  Speaker 1: So we want to make sure that we can help
• 2:52
  Speaker 1: people financially as much as they possibly can. Now you
• 2:55
  Speaker 1: all know my story about my kids passing away. I
• 2:58
  Speaker 1: did not have I did. Let me rephrase this, I
• 3:01
  Speaker 1: did not receive the death benefit that I should have
• 3:03
  Speaker 1: received in my opinion, But I did not receive the
• 3:06
  Speaker 1: death benefit from the family I was supposed to get
• 3:08
  Speaker 1: like a buyout, and that just never really happened. So
• 3:11
  Speaker 1: I had to start completely over and my family had
• 3:13
  Speaker 1: to step in and help me quite a bit. So
• 3:17
  Speaker 1: what is term insurance? That's start right there. It's simple,
• 3:21
  Speaker 1: it's easy. It's coverage for a specific time ten twenty
• 3:25
  Speaker 1: thirty years, and it's cheaper, the most cost of effective
• 3:29
  Speaker 1: insurance that you can get. It's easy and it's just
• 3:31
  Speaker 1: pure protection. So you buy it for ten years. You
• 3:34
  Speaker 1: don't pass away. You just threw away your money. It's
• 3:37
  Speaker 1: just insurance, just covering it. But it could be very inexpensive.
• 3:40
  Speaker 1: The downside is there it expires right, there's an expiration date,
• 3:44
  Speaker 1: and if you are still alive, which most people are.
• 3:47
  Speaker 1: They say, if you want to live, just buy term
• 3:48
  Speaker 1: insurance because most people are alive. So it's just for
• 3:51
  Speaker 1: a certain amount of time. You might want to buy
• 3:53
  Speaker 1: a twenty year policy if you've got kids until they're
• 3:56
  Speaker 1: twenty something like that. There's no cash value. It is
• 4:00
  Speaker 1: over when it's gone. If you outlive it, it doesn't
• 4:03
  Speaker 1: do anything. You don't get the money back. You're done.
• 4:07
  Speaker 1: Term is like renting insurance. It protects you for a
• 4:10
  Speaker 1: a certain period of time, but it does not build
• 4:12
  Speaker 1: anything else. Next, they came out with whole life insurance.
• 4:15
  Speaker 1: This is permanent insurance. This goes permanent means it goes
• 4:19
  Speaker 1: until someone dies, like it is permanent insurance. Now, whole
• 4:23
  Speaker 1: life is also have a built in savings component, so
• 4:26
  Speaker 1: it builds a cash value. People love it because it's
• 4:29
  Speaker 1: got guaranteed coverage for life, and it's stable and predictable,
• 4:33
  Speaker 1: and it has a predictable growth. And it's just a
• 4:36
  Speaker 1: flat fee every month until you die. Period. That's just
• 4:40
  Speaker 1: the way it is. So it can tend to be
• 4:43
  Speaker 1: more expensive and there's less flexibility. You can't like, miss
• 4:48
  Speaker 1: the payment here and there, you have to make all
• 4:50
  Speaker 1: the payment. The lower growth can lower growth compared to
• 4:54
  Speaker 1: the index Universal Life and other strategies, but it does
• 4:57
  Speaker 1: have a small, slight growth and it's got some guarantees
• 5:01
  Speaker 1: that a lot of people like. Now, Whole Life is
• 5:04
  Speaker 1: all about the guarantees, not for growth. Next we have
• 5:06
  Speaker 1: Universal Life. What is it permanent insurance with flexible terms.
• 5:10
  Speaker 1: Because now we look at term insurance we say, okay,
• 5:13
  Speaker 1: that's just throwing things away. And then we look at
• 5:15
  Speaker 1: Universal we say, okay, we're stuck to a rigid plan
• 5:17
  Speaker 1: for the rest of our life. And now we said
• 5:19
  Speaker 1: we want some flexibility. Okay, permanent insurance with flexible premiums
• 5:24
  Speaker 1: and adjustable coverage. People love the flexibility, They love the
• 5:28
  Speaker 1: ability to change their payments throughout the years, and they
• 5:32
  Speaker 1: love to build a cash value. That's great. So the
• 5:35
  Speaker 1: downsides to universal life is it requires monitoring. It can
• 5:39
  Speaker 1: underperform if it's not structured properly. Universal gives you the flexibility,
• 5:43
  Speaker 1: but it comes with responsibility, so you've got to keep
• 5:46
  Speaker 1: an eye on the policy. Next, we have indexed universal Life,
• 5:49
  Speaker 1: one of my faves, and this is the type of
• 5:51
  Speaker 1: universal life then tied to the market, say like an
• 5:54
  Speaker 1: SMP index. It's tied to the index and you have
• 5:58
  Speaker 1: protection from losses. So we can't lose our money because
• 6:01
  Speaker 1: it's not in the market. It's just tied to the market.
• 6:04
  Speaker 1: But we have the growth potential if the market goes up,
• 6:07
  Speaker 1: which is great. So we have downside protection, upside potential,
• 6:11
  Speaker 1: and it has tax advantaged situations if you structure it properly.
• 6:17
  Speaker 1: So what I always say, if you're going to go
• 6:18
  Speaker 1: to these life insurance planning opportunities, which they are life
• 6:24
  Speaker 1: changing for a lot of my clients, you must do
• 6:26
  Speaker 1: it with a financial plan or not just an insurance agent,
• 6:29
  Speaker 1: because there's a lot of ways that this needs to
• 6:31
  Speaker 1: be structured for you as the client to come out
• 6:34
  Speaker 1: in the right space, more money, more flexibility of the
• 6:37
  Speaker 1: whole thing. So the downside to index universal Life is
• 6:40
  Speaker 1: it is complicated. You do have to understand how it
• 6:44
  Speaker 1: works so that you can take advantage of it. It's
• 6:45
  Speaker 1: kind of like being your own bank, but you have
• 6:47
  Speaker 1: to understand it. Next, it needs to be designed correctly,
• 6:50
  Speaker 1: and not all policies are equal, so you have to
• 6:52
  Speaker 1: look at the different policies. Your advisor has to know
• 6:55
  Speaker 1: you so that we know exactly what you're looking for.
• 6:58
  Speaker 1: So on an EUL indexed Universal Life, it can be
• 7:02
  Speaker 1: very powerful, but only when it's built correctly and used intentionally.
• 7:06
  Speaker 1: Hope that makes sense. Okay. Next, we have variable Universal Life.
• 7:10
  Speaker 1: That's what we used before index came out, and it
• 7:13
  Speaker 1: is insurance with a direct market investment, so you have
• 7:17
  Speaker 1: sub accounts that are directly tied to the market. There
• 7:20
  Speaker 1: is no downside protection. You go up, market goes up,
• 7:23
  Speaker 1: market goes down, you go down. That's the way it is.
• 7:25
  Speaker 1: It's just a higher risk and you can lose your money.
• 7:28
  Speaker 1: It's more volatile. You can make more money, but you
• 7:31
  Speaker 1: can also lose more money. So this is where insurance
• 7:33
  Speaker 1: and investing fully merge, and that comes with more risk
• 7:38
  Speaker 1: than say the IUL, the indexed universal life that does
• 7:41
  Speaker 1: not have down risk. Downside risk, you do not lose
• 7:45
  Speaker 1: your money. In that type of a policy, you might
• 7:48
  Speaker 1: not get as high a potential as you could with
• 7:50
  Speaker 1: the variable universal life. But most people purchase life insurance
• 7:54
  Speaker 1: for a conservative investment portion of their portfolio, not a
• 7:59
  Speaker 1: risky portion of the portfolio, so it makes sense. So
• 8:02
  Speaker 1: the biggest issue with life insurance is not the product,
• 8:05
  Speaker 1: it is actually how it is explained and sold. So
• 8:10
  Speaker 1: that's why I say you need to look at your
• 8:12
  Speaker 1: whole financial plan and get it from a planner and
• 8:15
  Speaker 1: not just an insurance agent, because that's all they know
• 8:18
  Speaker 1: is their product. They know that very well, but that's
• 8:20
  Speaker 1: all they know. They don't know the tax consequences later
• 8:23
  Speaker 1: if you change your mind and stop funding your policy.
• 8:26
  Speaker 1: They don't know what's going to happen twenty years from now.
• 8:28
  Speaker 1: If you get a divorce and your spouse wants half
• 8:30
  Speaker 1: of the cash value, what is the policy going to
• 8:32
  Speaker 1: blow up. They don't know a lot about what can
• 8:35
  Speaker 1: happen in the future if you get an illness, if
• 8:38
  Speaker 1: you can't be insured down the road, if you come
• 8:40
  Speaker 1: into a lot of money and you want to use
• 8:42
  Speaker 1: this as a tax shelter, like it's great to be
• 8:45
  Speaker 1: able to have tax deferral of your money while it's growing.
• 8:50
  Speaker 1: So there's lots of ways that we can look at this.
• 8:53
  Speaker 1: So life insurance isn't about one size fits all, but
• 8:56
  Speaker 1: it's often sold that way. It's often sold the easy
• 9:00
  Speaker 1: one liners and it's not. You want to make sure
• 9:03
  Speaker 1: that you have an extensive appointment about this, okay, So
• 9:08
  Speaker 1: instead of asking what's the best policy, it's better to
• 9:11
  Speaker 1: ask what am I protecting for? How long am I
• 9:13
  Speaker 1: protecting it? Do I need temporary coverage or permanent coverage?
• 9:17
  Speaker 1: Do I want protection only? Or do I want some
• 9:19
  Speaker 1: growth and some flexibility? Do I want to be my
• 9:22
  Speaker 1: own bank? Do I want to have this savings account
• 9:24
  Speaker 1: down the road that if it's structured correctly, it actually
• 9:27
  Speaker 1: could be tax free income or at least tax advantaged income.
• 9:30
  Speaker 1: I should say so the right policy is the one
• 9:33
  Speaker 1: that fits your life and not someone else's strategy. Common
• 9:37
  Speaker 1: mistakes people buy little bit little to coverage and they
• 9:40
  Speaker 1: don't understand what they're buying, and they're not reviewing it
• 9:43
  Speaker 1: over time. I do life insurance reviews for free all
• 9:47
  Speaker 1: the time every year. Like we need to look at
• 9:50
  Speaker 1: other policies because life insurance also changes over time, like
• 9:53
  Speaker 1: I've even had my own clients change their investments over
• 9:57
  Speaker 1: time to get something better. The confusion leads to in
• 10:00
  Speaker 1: action or worse, the wrong decision. We do not want
• 10:03
  Speaker 1: in action. I mean, I don't know about you, but
• 10:05
  Speaker 1: how great would it be? And maybe some of you
• 10:07
  Speaker 1: have received this. Did you get a nice, fat, tax
• 10:09
  Speaker 1: free check when one of your family members passed away?
• 10:12
  Speaker 1: It really helps the grieving process if you don't have
• 10:16
  Speaker 1: to worry about work or a job, and you can
• 10:18
  Speaker 1: just absolutely take the time out to grieve, especially if
• 10:21
  Speaker 1: you have got young children or if you're still working
• 10:24
  Speaker 1: full time. So life insurance can be tremendous and also
• 10:29
  Speaker 1: it can pass on generational wealth. Like I want my
• 10:32
  Speaker 1: children to definitely get a fat check when something happens
• 10:34
  Speaker 1: to me, and it's tax free to them, right, and
• 10:37
  Speaker 1: I'm paying a small amount compared to what they're going
• 10:39
  Speaker 1: to receive. Also, those of you that are faith based
• 10:43
  Speaker 1: or nonprofits, that is a great way to pay a
• 10:46
  Speaker 1: monthly stipend to your life insurance policy so that when
• 10:50
  Speaker 1: you pass, your church or your nonprofit that you love
• 10:54
  Speaker 1: gets a huge benefit from it. And it's not just
• 10:57
  Speaker 1: what you could survive, not just what you could have
• 11:00
  Speaker 1: forward while you're living, but actually you are cultivating that
• 11:03
  Speaker 1: generational wealth for that company or your church, and your
• 11:08
  Speaker 1: consistuentcy in that church. It's really really great. So life
• 11:11
  Speaker 1: insurance doesn't have to be overwhelming when you understand what
• 11:14
  Speaker 1: it is and how it works and how it fits
• 11:15
  Speaker 1: into your life, it's great. You move from confusion to clarity,
• 11:19
  Speaker 1: avoid from avoidance to control, and from uncertainty to confident,
• 11:23
  Speaker 1: and that's how you live your diamond life. So I
• 11:26
  Speaker 1: hope you enjoyed our little talk about life insurance. It's
• 11:29
  Speaker 1: a quick one. There's lots and lots and lots of details.
• 11:32
  Speaker 1: Reach out. I'm happy to talk to you more about it.
• 11:35
  Speaker 1: I love life insurance, I love what it does. Absolutely
• 11:38
  Speaker 1: we do not need to be over insured in this
• 11:39
  Speaker 1: country at all. However, a little bit goes a long way.
• 11:43
  Speaker 1: So I hope you enjoyed what we did today. And
• 11:46
  Speaker 1: I want you to be able to look at this
• 11:48
  Speaker 1: as one of your investment buckets, and I want you
• 11:51
  Speaker 1: to be able to say, I rock my finances.
• 11:55
  Speaker 2: We appreciate you joining us today, and don't forget to
• 11:57
  Speaker 2: subscribe to the rock my Finance YouTube channel for more
• 12:01
  Speaker 2: engagement and bonus content. Tell me, what is your money story.
• 12:06
  Speaker 2: Let's find out with Jennifer right here on K FOURHD
• 12:09
  Speaker 2: Radio and Talk for TV. It's not about the zero,
• 12:13
  Speaker 2: It's about the F word. Feelings, feelings. Jennifer can't wait
• 12:17
  Speaker 2: to explore with you next week. Until then, let's all
• 12:20
  Speaker 2: say I rock my finances.