I Bought Permanent Life Insurance, Now What? – Episode 293

Is buying permanent life insurance a permanent mistake? On this episode of the Dentist Money™ Show, Ryan and Matt look into the debate that surrounds whole life insurance. Agents say there are benefits to support purchasing permanent insurance, but are their points valid? Ryan and Matt explain why mixing insurance and investments in the same financial instrument might not be the best strategy.

 

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Podcast Transcript

Ryan Isaac:
Hey, everybody. Welcome back to another episode of the mighty Dentist Money Show, brought to you by Dentist Advisors, a no commission, fiduciary, dentist only comprehensive financial advisor for dentists all over the country. Check us out at dentistadvisors.com. Today on the show, Matt and I are talking about a question we get all the time from people who purchase life insurance before they meet us, specifically whole life insurance or permanent life insurance, and it’s kind of the question of, “I bought this life insurance policy, now what do I do?” People who feel stuck, maybe confused about their decision, maybe regretful about their decision and they want to know, what are my options? How can I change it? How do I make it a better part of my life? Or get rid of it altogether?

Ryan Isaac:
That’s what we’re talking about today. If you found yourself in this situation at all or you thought about it, this is the episode for you and probably some helpful tips in here. And if you have any questions when this is all done about what you’re doing with insurance at all or anything else really, go on to dentistadvisors.com, click the book free consultation link and book a consultation with us. We’d love to chat with you about your situation or post a question for us in our very great, very illustrious Facebook group, the Dentist Advisors discussion group on Facebook. We’d love to hear from you. Post a question, we will post an answer. Thanks for being here, everybody. Enjoy the show.

Announcer:
Consult an advisor or conduct your own due diligence when making financial decisions. General principles discussed during this program do not constitute personal advice. This program is furnished by Dentist Advisors, a registered investment advisor. This is Dentist Money. Now, here’s your host, Ryan Isaac.

Ryan Isaac:
Welcome to the Dentist Money Show where we help dentists make smart financial decisions and avoid the bad ones along the way. I am a guy named Ryan Isaac and I’m here with another guy who we affectionately call the Hollywood mountain, Matt Mulcock. What is up, Matt?

Matt Mulcock:
Hey Ryan, how are you? Good to be here. I don’t know if it’s affectionate.

Ryan Isaac:
For our listeners, we are recording on a weekend.

Matt Mulcock:
It is a weekend edition.

Ryan Isaac:
Because we had to get the episode out and I don’t know if vibes are strong, if energy’s high or if energy’s low. I don’t know right now.

Matt Mulcock:
I don’t know.

Ryan Isaac:
You never know.

Matt Mulcock:
I’m going to just, I’m going to say this right now. I’m sitting here in a swimsuit and I’m not lying. I was just swimming earlier.

Ryan Isaac:
The vibes are high then.

Matt Mulcock:
Swimming with my two year old.

Ryan Isaac:
It’s a combo. Two year old swimming, you’re very tired, but that’s good tired though.

Matt Mulcock:
Definitely. It’s good times.

Ryan Isaac:
Well, this weekend edition has brought us to a very big question that we are going to discuss today. It’s been a topic a lot of times at the show, it’s a recurring theme among dentists’ financial lives over and over and over again and we have discussions. How often would you say we talk about this subject, Matt, between advisors?

Matt Mulcock:
Oh, between advisors?

Ryan Isaac:
Someone’s saying, “Hey, my client’s dealing with this,” same subject, how often does this happen?

Matt Mulcock:
Multiple times a month.

Ryan Isaac:
Yeah, for sure. Easily. It’s a Q and A, it’s a pinnacle. Pinnacle, it’s a foundational piece of good, basic finance and risk protection, mitigation, all this stuff. We’re talking about life insurance, specifically permanent life insurance. And here’s the situation. We’ve talked a lot about dos and don’ts, avoid this, do this.

Matt Mulcock:
As in don’t do it.

Ryan Isaac:
As in, please don’t do it in 99% of the cases out there. But we often meet clients or who sign up with us, who already bought a policy, a permanent life insurance policy of some kind.

Matt Mulcock:
And they come to us very sheepishly.

Ryan Isaac:
Yeah. They’re like, it is kind of a funny thing when we have strong opinions on certain subjects and someone’s like, all right, look, I already did this.

Matt Mulcock:
Don’t be mad. It’s okay. I’m not your dad, I’m not going to yell at you or give you this fatherly chat. It’s okay.

Ryan Isaac:
We’re going to get through this together. I don’t know, the working title of this is going to be something like I bought permanent life insurance, what now? That’s it.

Matt Mulcock:
What now? Or now what?

Ryan Isaac:
Now what?

Matt Mulcock:
We’ll let the editors figure that out.

Ryan Isaac:
I like now what actually.

Matt Mulcock:
Now what?

Ryan Isaac:
I bought permanent life insurance, now what? You know what that reminds me of? It reminds me of two situations in my life where I felt like that. One, I don’t know if it’s appropriate to relate it to actually bringing children home, which is a total awesome life event. But I remember bringing my first child home, the whirlwind in the hospital and all the lead up for 10 months and then you open the front door, you put the little baby carrier on the floor and you just look at the thing and you’re like, Now what?

Matt Mulcock:
You’re like now what?

Ryan Isaac:
Now what?

Matt Mulcock:
You’re leaving the hospital and you’re like, so no one’s coming home with us?

Ryan Isaac:
Is anyone going to follow me home?

Matt Mulcock:
You’re just letting? Do I have to sign anything? Do I have a license for this? Or I just go home? These are an instruction manual? No.

Ryan Isaac:
Nothing.

Matt Mulcock:
You just go home.

Ryan Isaac:
It’s a very now what feeling? I felt a little bit the same way when we got our first puppy too. A lot of lead up, the process and you see pictures and you pick it up and then you go home and you’re like, oh, now what? Just squirting pee.

Matt Mulcock:
It’s peeing and pooing everywhere. Keeping you up at night.

Ryan Isaac:
Yeah, people feel this way with their life insurance. We’ll talk about why people get into this situation. Maybe that’s where I’d like to begin actually.

Matt Mulcock:
Wait, did we just compare children to life insurance? Whole life insurance?

Ryan Isaac:
That’s why I said it’s not appropriate. It’s not an appropriate question.

Matt Mulcock:
At some point we feel like kids pay off, kids have some positives where we’re like, yeah. At some point you’re going to be enjoying this.

Ryan Isaac:
If you hold it long enough, it might reap some dividends.

Matt Mulcock:
Yeah, it’s probably a good comparison.

Ryan Isaac:
But mostly someone just talked you into doing it and you weren’t really convinced but you did it anyway because you felt pressure.

Matt Mulcock:
Children are sold to you, you’re not buying that idea. It’s sold to you.

Ryan Isaac:
Man, this is definitely a weekend edition. It is off the rails. But we just compared bringing children home from the hospital to buying permanent life insurance.

Matt Mulcock:
At some point it turns out okay.

Ryan Isaac:
It is wholly inappropriate, whole life inappropriate. Let’s start with this. Let’s let’s just begin with, Matt, when you talk to people about this, you’ve probably had this conversation a 100 times before, maybe more. Why are people buying this? And we’ll be nice about it.

Matt Mulcock:
Yeah, of course.

Ryan Isaac:
What are the conversations between an agent and a dentist that makes them interested in this in the first place that you hear from people?

Matt Mulcock:
When I’m going through a balance sheet or talking to someone about their assets and their debts and just all their financial life. I ask why a lot.

Ryan Isaac:
Well about everything.

Matt Mulcock:
About everything.

Ryan Isaac:
Why do you have this savings account here? What is this brokerage account for? What’s this life insurance policy? What is it? Why did you do it? Give me context.

Matt Mulcock:
Yeah, exactly.

Ryan Isaac:
Tell me the story.

Matt Mulcock:
The great words of Walt Whitman through Ted Lasso, “It’s I’m curious not judgemental.” I’m doing it from a place of being curious. The same thing with your permanent life insurance, I’m going to just ask why and 10 out of 10 times, we’ll say 9.9 out of 10 times.

Ryan Isaac:
That’s a real statistic. You did the math.

Matt Mulcock:
It’s real, studies show.

Ryan Isaac:
Yeah, studies show.

Matt Mulcock:
I’ve gone back and I’ve done the math myself. It comes back and it’s always, it was sold to them in some way, meaning they didn’t seek it out. It was sold to them by a salesman that pitched them on some idea usually around tax strategy or be your own bank. You can take loans from this or it’s not correlated to the financial markets.

Ryan Isaac:
Can’t lose money.

Matt Mulcock:
Something along those lines. Risk free growth, I hear a lot of that. Risk free and tax free growth. It’s usually sold to them with these taglines that I understand if I’m a dentist, I’m sitting there being like, okay, this sounds awesome. I’m going to go for this. And so that’s usually what I see is it’s at the end of the day and it depends on how long it’s been as well. If it’s been a couple years removed, usually they’re like, man, I don’t even know why I bought this. I totally forgot. It sounded great at the time.

Ryan Isaac:
It was a family member, it was a friend.

Matt Mulcock:
I don’t even understand it.

Ryan Isaac:
Yeah. Let’s recap those real quick. These are the reasons you’re talking about. And we’ll explain how these, because here’s the problem is the benefits that they use to pitch these products, they’re not untrue but it’s not the whole story. And that’s the problem. Number one, we’ll get to the whole story in a little bit but a tax free retirement. The idea is that you can save money in something that will grow and when it comes time to pull the money out to live on it in retirement, you can pull it out tax free. Huge advantage. That’s fantastic. I’ll take it. What was the other one you mentioned? Risk free.

Matt Mulcock:
Yeah, hear that a lot, risk free.

Ryan Isaac:
What are they describing when they mean risk free?

Matt Mulcock:
What they’re referring to, again more times than not from what I am told from people and the pitches that I’ve heard from insurance, being in this industry you hear all these things. They really hit hard on this it’s not correlated to the stock market. When they talk about risk free, they’re talking about the risks and the uncertainties and the ups and downs of the stock market. You’re not dealing with that in a permanent life, permanent policy.

Ryan Isaac:
I get bothered with that because again, it’s not untrue, that permanent life insurance shields you from volatility to stock market but it’s always pitched with such misinformation about the stock market, horrible misinformation, extreme, just crazy opinions, huge amounts of misinformation about the stock market. And it’s always things like the 401(k) is going to ruin you one day and all these things that’s just so hard to, it’s just man. But you understand why someone feels that way? Because oh yeah, that is scary. I hear those stories all the time. All right, we have tax free withdrawal. We have risk free growth.

Matt Mulcock:
Be your own bank.

Ryan Isaac:
Be your own bank. This is the funny thing about the permanent life insurance industry, this is one of the biggest selling points and it has a new, what are the other names you’ve heard?

Matt Mulcock:
Infinite banking.

Ryan Isaac:
Yeah, there’s a new one that one of our advisors was talking about.

Matt Mulcock:
Be your own bank, premium banking, I think is one. But all these kind of there’s different nuance to these different strategies but they all always have this really fancy name but it always comes back to you can finance deals yourself. You don’t have to deal with a bank. And again, I understand the draw there because as a dentist, they’ve been dealing with loans and banks forever. Their whole career is based around having to deal with banks and loans. And so that I’m sure is probably a really great selling point. I don’t want to deal with a bank anymore.

Ryan Isaac:
Yeah. I’ll be it.

Matt Mulcock:
They get sold on that.

Ryan Isaac:
Can you think of any others that are the main, there’s legacy gifting, leave a legacy.

Matt Mulcock:
Oh yeah. Which I’ll just say right now, this is probably the only one that I, as a planner, that I’m like, okay, that’s a legitimate argument that I will actually say we could talk about. At least we could discuss there are legitimate legacy planning things that you can do with permanent policies that I’m like, that I will have a conversation around. The other stuff when it comes to investing and how it’s sold as an investment, you’re going to have a hard time pitching me on that being a good thing.

Ryan Isaac:
Totally agree. Trade off, the cost and then the return of guaranteeing a certain lump sum of money through insurance for legacy gifting, not bad. Not bad. And it can be done appropriately where it’s not really mixed as an investment but it is purely for legacy gifting.

Matt Mulcock:
Or liquidity for estate planning.

Ryan Isaac:
There you go.

Matt Mulcock:
For sure.

Ryan Isaac:
Paying estate taxes. Kind of what they’re really good for but no one ever buys it for those things.

Matt Mulcock:
No. No.

Ryan Isaac:
It’s usually be your own bank, avoid the stock market and have a tax free retirement. Let’s talk about the full context of those things. What I want to end with this, where I want to get to with all this is what can someone do about it? Because that’s the thing, hey, I bought one of these, now what? Where do we go from here? What do I do? Let’s just bring a little context here. This isn’t new. We’ve talked about this a lot in other podcasts but just to recap on it. Tax free retirement, what’s really happening? What do they mean by this? What are the logistics of it? And is it exclusive to life insurance?

Matt Mulcock:
No. What they’re referring to generally speaking, is you’re putting money into this policy, it’s building a cash value and then over a certain period of time after it’s built up enough of a cash value, you can access the funds. And generally it’s going to be via a loan, a loan to yourself because you’re being your own bank.

Ryan Isaac:
Yeah, there you go.

Matt Mulcock:
You’re loaning the money to yourself. And we don’t need to get into the details of logistics of how it all works basically. But just want to keep this high level, that what they’re referring to is you build up this cash value just like you would in a savings account or another brokerage account or whatever and then go to get money out and again, you take a loan and if done correctly, it’s not going to be taxed to you. That’s why they talk about with tax-free money down the road. And it’s technically been growing within that policy, then you couldn’t get access to the funds via a loan and not have taxes. It’s a very simplified version of how that all works. Because it is not that simple all the time. And I’ve actually had horror stories, heard horror stories and seeing things myself, where it gets blown up and not done correctly. And it’s a massive tax event.

Ryan Isaac:
It’s a problem.

Matt Mulcock:
It’s a problem. To answer your second question of is this the only place you can do that or get tax free growth? Absolutely not.

Ryan Isaac:
Yeah. What you’re describing is what is referred to, that’s been around a very long time is a margin loan, which is essentially all that’s happening, a margin loan is when you have an after tax investment account and the institution lends you up to a certain percentage of your balance at the time in the form of a loan and they charge you an interest rate and you pay your own account back the interest rate and that’s it. It’s a margin loan. We’ve had clients use margin loans out of their brokerage account for many years, for all kinds of reasons. It’s seamless. It’s pretty easy. It’s always, I don’t know, it gets me a little bit, when I hear this strategy, so I’m like, man, that’s just a margin loan and it’s been around. You can just do it. You can do it by yourself with no help at all. Open a brokerage account anywhere and then have enough cash. And see that’s the thing about being your own bank though. You’re only a good bank if you’ve got a ton of money.

Matt Mulcock:
Yeah, of course. And at that point, you don’t need to be your own bank because you’ve got a ton of money so you don’t need the loan.

Ryan Isaac:
Anyone’s going to lend to you or you can just buy it. It’s kind of a funny thing. That’s what’s happening, is what people have heard and what is really going on. It’s just the insurance company has an investment piece in their investment account just like you get by yourself anywhere else and then you basically get a margin loan against it. But you’re right, in an insurance policy it’s so much more complex because you have to, in a lot of policies, keep paying premiums or you have to keep enough in there to keep the policy alive. And if anything goes wrong, the policy can be canceled and lapsed and then you’re left with a taxable gain as if you just had an investment, sold it and paid taxes on it. It is tricky.

Ryan Isaac:
I will say just anecdotally, we have quite a few clients that we met who bought these things years before they met us, who are now in their sixties and older who have not even started borrowing from these things. Luckily most of our clients who have them don’t need to but they don’t even want to begin the process because it’s so complex and messy. It’s funny to see this in action. It’s a 30 plus year old policy. Luckily they have other assets but we’ll bring that to them, here’s how we would do it. Do you want to access this money? And they’re kind of just like, not really. What a pain. No, just leave it. We’ll just deal with this later.

Matt Mulcock:
Not to mention people don’t realize the interest rate on these policies, I’ve seen it. I’ve seen several when I’m going through these with the clients and the going back in their policy and looking at the fine print. It’s not exactly cheap.

Ryan Isaac:
No, they’re not cheap rates.

Matt Mulcock:
You’re paying an interest rate. It’s not like you’re just giving yourself an interest free loan. A lot of these are not cheap loans and you are paying an interest rate on this to the insurance company.

Ryan Isaac:
You’re right. And the argument is, well, the insurance company is also paying me a dividend that’s going to cover at least the cost of insurance but that is not always the case at all. Anyway, that’s the story people are told and then we’re just giving the fuller picture of context to what the full part of the story is, the tax free retirement.

Matt Mulcock:
This is always my biggest problem with these is they’re not talking about the alternatives and the alternative directions that you can take this and really what comes down to opportunity costs. That’s usually the biggest cost when it comes to using these as an investment is you’re not thinking about, okay, 20 years from now or 30 years from now, what are the alternative histories here that I should have considered? And would I be in a better position than if I would’ve bought this? And the answer to that almost every time is absolutely yes there’s another alternative here. And it’s usually not investing or using these things as an investment. It’s usually going a different route. They’re not giving you the full picture. They’re just trying to sell you a product.

Ryan Isaac:
I love that you bring that up. One of my favorite things about being an advisor is that feeling of empowering people with options and feedback and context. So often I wonder if people think that having an advisor is just having someone tell you what to do all the time. And certainly some people are like, I don’t know, just tell me what to do.

Matt Mulcock:
Yeah, just tell me.

Ryan Isaac:
We have experience and answers and this is our job so we do have things to tell people but oftentimes it’s just giving people context of all of the decisions you can make and the trade offs of all of them. And it’s kind of cool to watch people feel empowered with more knowledge and then feel more confident in the decisions in the paths that they do take.

Matt Mulcock:
Yep, exactly.

Ryan Isaac:
Because they knew for themselves, they’re like, “I was educated on this. Thank you.” There’s different types of permanent life insurance policies. Th this line is probably not used on life insurance policies that have variable investments where you can invest in stocks and bonds and mutual funds. That’s not a line that’s used, but this is it’s a line that’s used very often with whole life insurance because whole life insurance, true does have a kind of a floor of returns. It can’t go below zero. You can’t technically lose money, I guess. Although I could argue that pretty easily. But the bigger picture is that all the insurance company’s doing, what do you think happens when they’re guaranteeing you no losses? They’re investing, they have to guarantee that. They’re investing in things that are very, very conservative. These insurance companies are investing in bonds and some real estate portfolios and a lot of cash instruments. Very, very safe conservative portfolios that allow them to still pay a low interest rate and then guarantee no losses.

Ryan Isaac:
And what’s happening when people are told this, it’s true but also you could do the same thing by yourself in a brokerage account, you can invest very, very very, very conservatively to really mitigate any downside you could ever experience, your upside will be very small. It will be totally limited and you can be your own bank and you can lend yourself money and have tax free withdrawals from your account. You do this stuff all outside of insurance. And I think that’s really just what we kind of want to point out when we talk about this stuff is those benefits that are sold up front, that’s part of the truth like you said, Matt, but it’s not the whole thing. And that’s kind of what’s happening on the investment piece inside of this.

Ryan Isaac:
And here’s the other thing, we talk about this all the time too. Unless the life insurance policy allows you to invest in actual securities, stocks, bonds and mutual funds, most of these policies will not even break even because of the high amounts of administrative and commission costs that are built in, especially in the first year. The first year is so egregious and the subsequent years after that, that often most of these policies will take at least a decade, sometimes upwards of 15 years to break even, 0% rate of return, breakeven. Up until that point, you have a negative rate of return for sometimes 10 to 15 years. I have seen it happen a little sooner. For example, if someone buys a policy where they’ll call them a 10 pay or a 20 pay or something.

Matt Mulcock:
They over fund it.

Ryan Isaac:
They’re accelerating the payments, they’re over funding it or it’s a policy that allows them to buy mutual funds. And if they chose good mutual funds, which also the investment selection is terrible in these policies and happen to be during a time where there was growth, sometimes the break even point’s a little sooner but it is very common that break even is a decade to 15 years in these things. And so that’s the full picture of the investment. Yes, they can help you not lose money but that’s the other side of the story. And then when you run the math on a policy that’s been around for 30 years, you’re looking at a three to 5% rate of return, which is like holding a portfolio of bonds.

Matt Mulcock:
Yeah. To me, I tell people this all the time, it comes down to really insurance is critical in a total financial plan. Investing is critical for a total investing or a financial plan. Mixing the two generally does not work out in your favor.

Ryan Isaac:
A mix. A mix.

Matt Mulcock:
And the other thing I’ll tell you is there’s generally a direct correlation to complexity and something not being in your best interest.

Ryan Isaac:
Good call.

Matt Mulcock:
If you think of it as a scale or a spectrum, the higher up on the complexity scale you get, generally you can think the more complex this becomes, the less it favors me as the investor.

Matt Mulcock:
On the Dentist Money Show, we teach dentists how to make smart financial decisions.

Ryan Isaac:
You’re correct.

Matt Mulcock:
Is that all it takes, Ryan, to make smart financial decisions, listening to our show?

Ryan Isaac:
Matt, it’s a good first step but to put your financial future on the fast track, the next smart decision is to go to dentistadvisors.com. What you do there is you click on the book free consultation button right in the middle of the home screen and then you schedule a time to talk with one of our very friendly, dental specific financial advisors today.

Ryan Isaac:
Okay. If you found yourself in this situation, which many of our clients do, they buy the stuff, then they hire us and then they’re like, oh crap. What should we do?

Matt Mulcock:
I feel like this happens every time, by the way, Ryan. We start talking whole life and we’re 20 something minutes in and we can’t stop railing on it even though we said we were going to be nice about it. I feel like we were nicely railing on it.

Ryan Isaac:
We were nicely telling the truth. That was the whole story. It takes 20 minutes to tell the whole story of life insurance, it just does.

Matt Mulcock:
Now we’re saying, 20 minutes in we’re saying, okay so you didn’t heed our word up to this point.

Ryan Isaac:
It’s fine.

Matt Mulcock:
Now you’re there, you have it.

Ryan Isaac:
Now what?

Matt Mulcock:
Now what?

Ryan Isaac:
You brought the baby home, it’s sitting on your living room floor.

Matt Mulcock:
Now the essence of podcast.

Ryan Isaac:
Now, what do we do? It’s a great question. We have options. Let’s list some of these options and the pros and cons of each. One option is to get rid of it.

Matt Mulcock:
Close it out.

Ryan Isaac:
Surprisingly, this is something people do all the time. Usually it’s hard to do, but man, I’ve sat in some heartbreaking, eyeopening discussions where people are putting five, six, $10,000 per month into these things and they don’t know. They assume everything they were told is true. Big returns, no risk, come on.

Matt Mulcock:
Of course.

Ryan Isaac:
Tax free, all this stuff and we order a sheet. By the way, here’s one thing you can do right now if you’re listening to this, push pause, well listen to this and then push pause and do this. Don’t push pause yet.

Matt Mulcock:
Yeah, finish up. Finish up.

Ryan Isaac:
Yeah. You can call your insurance company if you have a permanent life insurance policy and order from them, what is called an in force ledger or sometimes they’ll call it an in force illustration. This is different than the sales material they show you up front that our projections that are so unregulated. The things I’ve seen people illustrating 12, 14% guaranteed.

Matt Mulcock:
With no risk on the downside.

Ryan Isaac:
No risk. Come on. In force illustration, in force ledger, you can call them and they might be a little hard to read but call. And then here’s what you want to do. If you want to see what’s up with your policy, order that and then have it and then go to dentistadvisors.com, click on the book free consultation link and have a chat with an advisor and let’s go over it together. And we’ll tell you what the math is actually going on. And so I’ve been sitting with people where they’re putting in five grand a month, 60 grand a year and we’re five years in there. That should be $300,000 or just short of it. Some of it went to pay for the insurance but it should be more than that because it grew. It got a dividend. And we’re looking at these in force ledgers and there’s a 120 grand in there and there should be 300.

Matt Mulcock:
Weird.

Ryan Isaac:
And those have been really tough conversations for people to see. Option one, you can run the numbers, you can run the math and you can go look, I’ve already taken a big loss in this thing and you can see a pretty clear projection of when you’re breakeven. If you’re year five and your break even’s year 15, it might be, consult an advisor, might be to your advantage to cancel it, take your loss and move on and not wait 10 more years to get to zero. When people decide to close a policy because it’s still underwater and will be for quite a long time, usually there’s no taxable event because you have less money than you put in there.

Matt Mulcock:
Yeah, your basis is lower.

Ryan Isaac:
I’m telling you, man, you’ve seen this too that that is a tough conversation to show someone that when they fully believe that there’s hundreds of thousands of dollars in a policy and there’s 70 grand in there. It’s tough, man.

Matt Mulcock:
Yeah. No, I’ve had those conversations and you just show them the numbers and it’s right here.

Ryan Isaac:
It’s frustrating.

Matt Mulcock:
And then they talk to their, a lot of times they’ll reach out to the person that sold it to them and it’s usually like, oh, you just, and then they write back some big, long convoluted mess of an email.

Ryan Isaac:
Expect that too.

Matt Mulcock:
That basically comes down to oh yeah, you got to expect that. But it usually comes down to oh, you just got to wait for this or that. Or give it 15 more years and you’ll finally break even. That’s usually top three from your top one or two choices to at least present to say, “Here’s what it would look like if you did close this out.”

Ryan Isaac:
We can cut the losses and move on. And mathematically, it’ll probably work out in your favor to do that. If you don’t want to close a policy, other things you can do, so it depends on the type of permanent life insurance it is. Some types of life insurance will allow you to reduce the death benefit so that will make it cheaper. Maybe your premium’s four grand a month and we can bring it down to a 1,000 bucks a month. Reasonable.

Matt Mulcock:
Yeah. Because I guess we should highlight this, that when you pay a premium for a permanent policy, the premium that’s going in is covering a couple of things. Number one, the cost of insurance, just like any other policy.

Ryan Isaac:
Yeah. Got to pay for it.

Matt Mulcock:
It’s also covering…

Ryan Isaac:
By the way, let’s stop there. The cost of insurance for permanent insurance because it’s permanent insurance is very expensive.

Matt Mulcock:
Much higher.

Ryan Isaac:
And you might not, many dentists, this is a whole other subject, many dentists don’t need indefinite insurance unless it’s like purposeful, intentional legacy planning.

Matt Mulcock:
In fact, the idea is that for our clients and hopefully for all of you out there, the idea is that you self insure someday.

Ryan Isaac:
At some point.

Matt Mulcock:
You don’t need to deal with insurance. Not only can you be your own bank, you can be your own insurance company.

Ryan Isaac:
You can be your own insurance.

Matt Mulcock:
That’s what we should be pitching is don’t be your own bank, be your own insurance company.

Ryan Isaac:
Yes. And many dentists in pretty average careers end up in that spot. Cost of insurance, you were saying broken up in two places. Cost of insurance is one.

Matt Mulcock:
Yeah, so it’s covering the cost of insurance. Now, like you said, it’s more expensive and well, so I’ll say this, cost of insurance and then it’s building a cash value. A part of it is building this cash value in the account, just like going to a savings account. And then there’s extra fees. There’s usually part of it it’s covering the broker that sold it to you. That’s why again, it’s a little bit more, or I shouldn’t say little, it’s a lot more expensive. Part of that is usually going to just fees for the policy.

Ryan Isaac:
Yep. Administrative fees are pretty high. A lot of people aren’t aware that usually the way that these brokerages and the agents get paid, it’s usually a 100% or more sometimes. They front load these things of the entire first year’s premium.

Matt Mulcock:
Plus the residual.

Ryan Isaac:
Plus residual. To my people who have put five grand a month in, 60 grand in a single year, that was the amount of commission that got paid to the brokerage and the agent in the first year, which is why your return lags for 10 years. Because when you put 60 grand into something but it actually doesn’t go there.

Matt Mulcock:
It doesn’t go there it goes to the broker.

Ryan Isaac:
Doesn’t go there.

Matt Mulcock:
It’s in his pocket.

Ryan Isaac:
And then the next year you put another 60 in and you think you’ve got 120 but now the 60 in the second year, you had to pay some cost of insurance and the commissions are still pretty high. Year three, you think you’ve got 180 and you’re at 40 grand. That’s how it works, it’s bad.

Matt Mulcock:
And honestly, is that bad sometimes. I literally will look at it and show them the numbers.

Ryan Isaac:
It’s frustrating.

Matt Mulcock:
It’s really easy to show what they put in. Hey, you’ve been putting in 50 grand a year for five years. You should have 250 grand.

Ryan Isaac:
Or close to it.

Matt Mulcock:
But you don’t. Or close to it. And it’s like, oh no, you only have a 150. Where’d that a 100 grand go?

Ryan Isaac:
What you were talking about, that’s where it goes, the cost of insurance and then it to the investment piece. And so in these insurance policies, some of them you can reduce the death benefit, make it cheaper. Another thing that you can sometimes do is if there’s cash value in there, you can just call them and say, “Hey, just take the cash value that’s sitting there and just buy me however much insurance that’ll buy me forever.” Maybe you’ve put in 500 grand and there’s 200 sitting in there, which is just heartbreaking. You could call them and say, “Take my 200 and just buy me insurance forever,” which would be, that’s a little aggressive. That’d be a little bit too much insurance, but you can do that. You can say, “Take the cash value and just buy me insurance and then I’m done paying premiums forever. Just pay it up, buy it up.” And then what it is.

Matt Mulcock:
Or it might work out to say, “What would it cost to pay this up?” You might have some excess leftover that you then receive.

Ryan Isaac:
Take the rest. There’s ways to not have to close it. And I’ve actually done that. And that’s worked out favorably where people didn’t totally want to get rid of it. Some people like the idea of having a little chunk of insurance around for forever, because that’s kind of nice that when someone passes one day that there something, even if it wasn’t totally needed. But they’ll reduce it so that the premium’s smaller and then it’s more reasonable. Lower your premiums, lower your death benefit. Use the cash value inside to buy up some insurance permanently and then just stop paying premiums or just cut your losses and get it done with. I guess another option, there’s canceling. There’s altering it. There’s keeping it.

Matt Mulcock:
Yeah, I was just going to say.

Ryan Isaac:
There’s always the do nothing.

Matt Mulcock:
You just keep it.

Ryan Isaac:
People who do this are usually on the cusp of finally breaking even, they’re in year 10, 12, 13 and they’re about to break even. And it’s kind of just like, okay. But what’s funny is most of the time when people are that close, we still do alter the policy somewhat so that so much of their money isn’t paying premiums forever. I don’t know, what’s your experience with people who are right on the cusp? And what do they choose to do with it?

Matt Mulcock:
Yeah, it’s funny. I think I was going to say, when we talked about canceling it, the people that I see most often say, “I just want out of this,” are usually on the bookends of that timeframe. Meaning they’re there in year one or year two and then they hired us and they’re like, what do you think? Can we go through all the numbers? And I’m like, you’re a couple years into this. Here’s what it looks like.

Ryan Isaac:
No question.

Matt Mulcock:
And they’re just like, I don’t want to keep paying into this thing. I’m going to cancel. But then on the other end, they’re in year like you said, 11, 12, 13, whatever. Maybe they’ve just broken even and now they are just a little bit positive.

Ryan Isaac:
It feels fine, you’re right.

Matt Mulcock:
And then they’re like, okay, I’m fine getting out of this. I’m at least getting my money back.

Ryan Isaac:
Got my money back.

Matt Mulcock:
And I’ll go put it somewhere else.

Ryan Isaac:
Which for 10 years.

Matt Mulcock:
I know it’s so sad.

Ryan Isaac:
A kick in the gut.

Matt Mulcock:
Again, the opportunity cost is a punch in the face. But I will talk about that with them and saying, “Okay, now you’ve got that cash value there that at least is up equal to what you put into it. Maybe we just alter the policy, lower the cost and keep it in place, keep your money there.” But a lot of times just say, “Okay, I’ve gotten back to even, I want out.”

Ryan Isaac:
Let’s go. Let’s get out of this thing. You’re totally right. Those are the three main ones and one of those will work for you. If you’re in a situation where you bought a policy and you just, you don’t want to keep it around anymore, there’s something you can do. Here’s the thing though, the agent who sold it to you, probably isn’t going to educate you on all these options and what’s really best for you. No way.

Matt Mulcock:
They’re going to tell you it’s the biggest mistake of your life to cancel it. That’s what they’re going to tell you.

Ryan Isaac:
Oh man, we’ve seen, maybe our emails are dramatic too. I don’t know. But I’ve seen, you’ve seen some pretty dramatic, very long emails about, it is religion, canceling this thing, you got to believe in it and support it and let it go. Just whoa.

Matt Mulcock:
And you know what? I’m going to give them the benefit of the doubt that they truly believe it.

Ryan Isaac:
It’s true. Yeah, you’re right.

Matt Mulcock:
I’m going to have to just do that because my first reaction is dude, this is just you’re losing money if they cancel this, I get it. And sometimes it’s because some insurance companies, if they cancel in a certain period of time, they will actually lose that part of that big first bonus, that commission.

Ryan Isaac:
You’re talking about agent.

Matt Mulcock:
The agent who sold it to you.

Ryan Isaac:
What you’re talking about is the rate of what do they call that in the insurance industry? It’s just how long the cancellation rate basically.

Matt Mulcock:
Surrender periods.

Ryan Isaac:
Surrender periods. And many of those companies offer really great pension packages and bonuses and vacations and benefits but it’s a huge metric that their careers are based on is retention of those policies. And cancellations within two to three years are very high. You said it earlier, man, it’s insurance is insurance, investments are investments. They don’t mix. You just don’t mix them up. It’s too messy, too expensive. And it’s just, it’s not the most optimal or beneficial way for anybody to do it. Okay, so you got the do nothing, keep going option. You have to alter the policy option a or you have the cut your losses, close the insurance option. We will stress again, all of these things are very nuanced and they require a lot of context around so much more than just the insurance policy themselves.

Ryan Isaac:
You should be consulting with a comprehensive fiduciary advisor who is not being paid to whether you keep this stuff or not. And probably a tax advisor as well in case there’s any tax implications for closing or changing a policy, getting any cash or anything like that at all. Always have those people in your corner when you’re having those conversations. But this is really common, man. People buy it, they hire us and they’re like, I don’t want it. What do we do? And that probably covers it. Anything else that you would say if someone says, “I bought this, now what?”

Matt Mulcock:
I’d say, “Don’t beat yourself up. Don’t feel bad about it. Don’t don’t let us,” because I know there’s people out there that believe in this. Not just brokers.

Ryan Isaac:
Totally.

Matt Mulcock:
Or people selling it, listeners probably, they have it.

Ryan Isaac:
Yeah, the like it. It’s fine, they like it.

Matt Mulcock:
They like it. And that’s okay. I always tell people, “Hey, diverse opinions are what makes this world work the way it does.”

Ryan Isaac:
Yeah, it’s great.

Matt Mulcock:
And it makes the market work the way it does and all of these things efficient and effective. That’s great. And I don’t want anyone to ever think that we’re shaming them or blaming them or making them feel dumb for having a different opinion. We have a different opinion than possibly, well than a lot of people out there on this topic and that’s okay. And don’t be afraid to call us and be like, “Hey, I just want to talk about this.” Because again, I always laugh when clients hire us early on in the process and they’ll always be like, really nervous.

Ryan Isaac:
You’re going to hate me. You’re going to kill me.

Matt Mulcock:
Yeah. You’re going to hate me. I’ve got something to talk to you about. And don’t be afraid. We’re not going to judge you. Again, we were curious, not judgemental.

Ryan Isaac:
I love that, man. Okay. If you’re listening to this and then this sparks any questions about your own insurance making decisions or decisions you’ve made in the past, let’s chat about it. This is what we exist for. That’s why we’re on the planet.

Matt Mulcock:
It’s what we do.

Ryan Isaac:
It’s what we do. A couple good ways to get in touch with us, always the website dentistadvisors.com, click on the book free consultation link and we’ll have a chat with you. If you’ve got documents you want to go through, we’ll spend 15 minutes and 20 minutes and just give you some context, some insight, point in the right direction. Happy to do that. Leave a little goodwill in the industry, if you will. You can also go to the Dentist Advisors discussion group on Facebook, post a question about insurance, we will answer it and we’ll answer over a video very specifically, if you want to. Dentist Advisors discussion group on Facebook. Matt, thanks for being here on a pool Saturday to talk about insurance.

Matt Mulcock:
A pool Saturday. My swimsuit is finally dry. It’s dried out during this conversation, so we’re good to go. I’m going to go hop back in the pool.

Ryan Isaac:
Time to get back in. Thanks everyone for tuning in, listening. We’ll catch you next time. Thanks. Bye bye.

 

Insurance