A hearty welcome to “Grandma’s Wealth Wisdom” with your neighborly hosts, Brandon and Amanda Neely. This is the only podcast that helps you take charge of your cash flow and leverage your assets, simply and sustainably, the way Grandma used to.
Amanda: There are a lot of people out there with a lot of opinions about whole life insurance. Today we want to tell you stories about whole life insurance.
Brandon: And especially our stories.
Amanda: Our stories, yeah, and we've got a few stories. Kind of the idea behind this is that even people who hate whole life will agree that there are some circumstances that whole life is good for that they might say, Okay, go ahead and look at it, decide if you want to do this, and we're going to tell three circumstances that we found ourselves in that made-- [01:01.0]
Brandon: Three. A lot of it. That’s a lot of circumstances.
Amanda: Not just us, but members of our family that made whole life made sense. Then we're going to share kind of three big red flags of when you want to choose not to do whole life insurance. Okay, so we're going to kind of tell our stories of why we chose it and then three things of why we wouldn't choose it as well.
Our experience of whole life started with us personally, and then we're going to talk about two other members of our family and why they chose whole life, not my dad, but actually something that happened after he had graduated to the heavens. Brandon is going to kick us off with our own story.
Brandon: Yeah, so we are business owners. We're entrepreneurs and we had a coffee shop with a lot of debts. If anybody says starting a business is easy, especially a brick-and-mortar business, in order to start that business, it takes a lot of effort. It takes a lot of energy. It takes a lot of capital to do that. In all of that, we didn't have rich uncles that just gave us a loan that could say, Oh, yeah, here's $200,000 and whatever. [02:11.8]
We did it on our own. We did it after 2008, so if you know, back then getting loans for a business, especially a coffee shop, they wanted to see history. They wanted to see all kinds of stuff. And if you're an entrepreneur, guess what? You don't have any history when you start. You have to build it. So, we took on a lot of credit card debt and we were naïve entrepreneurs thinking, Man, it's going to turn around in six months and we'll be able to pay those.
Amanda: Right, they were zero-percentage interest for six months. We thought, Oh, we'll easily have these paid off.
Brandon: Easy, easy.
Amanda: Not the case.
Brandon: Yeah. Then the interest rates started to show up and it was--
Amanda: There was all of our profit. Anything that we had was going directly to the interest.
Brandon: And at the same time, we were taking on a lot of risks being an entrepreneur, and I think in our time now, there's going to be a lot more people who are going to be forced into entrepreneurship, not because they want to, but because they lost their job or who knows. Anyway, that's beside the point. [03:15.5]
Amanda: Yeah. I don't think at the time we realized how much risk we were actually taking, but looking back, we took on a lot of risk to get started and, at a certain point a couple of years in, we got up close and personal with that risk and realized just how on the edge we were.
Brandon: And what we had figured out, too, was we weren't taking care of ourselves. We weren't setting up a plan for our future, and so we had met a friend of ours who's now a good friend and said, “How do we plan for the future? If we know we're taking on a lot of risks, how can we reduce that risk?”
Amanda: Reduce that risk, yeah.
Brandon: And so what is insurance? Right? [04:00.0]
Amanda: Yeah. The definition of insurance is the transfer of risk and that's what was initially attractive to us about this idea of whole life insurance. It was that it could be a transfer of risk, the risk that one of us died, obviously. The business would have been kaputs, right, without any kind of protection that way. But we could have chosen term life.
Brandon, what was appealing to you about whole life in that moment when we realized or we were confronted with the risk we were really taking?
Brandon: I think some was still that idea of saving. We needed to be saving for our future. There was no…I mean, you go and try and get a savings account and see how much interest you can make off that. Hardly any.
Amanda: Especially and including in 2013 when we were making this decision.
Brandon: And so we were like, What do we do here? And the idea of building up some cash value in our policy and that's where it's very different than just a typical whole life policy. [05:00.0]
We wanted to start building up a reserve, an emergency reserve, and eventually, hopefully, we could use it to pay off some of that credit card debt that we had or at least lower that to a five percent interest as opposed to…
Amanda: Or whatever, yeah. A lot of people that are already familiar with whole life, you have all these alarm bells going off saying, No, no, no, you can't do that. You can't pay off your credit card debt, at least not right away. You’ve got to wait 10 years. How could this be an emergency fund for you?
That doesn't make any sense.
We want you to just set those aside for a second. We're not going to get into the details here. We're just telling you part of our story, and when we get to the end or we're at those three red flags, we'll get into more of that now. Let your spidey senses kind of simmer for a second.
What we've found as we went on this journey working with this gentleman that helped us do this, we found we are to pay off those credit cards in two and a half years. We have that emergency fund, so when we had a big flood in our business, we were able to get through that and still arrange for that business to be sold, going on a trip to Ireland, all within this six-month timeframe. And then we had a kid, right? [06:13.2]
But really for us that there was that, getting on the debt part, there was that, or actually becoming better than debt-free part, there was the emergency fund part, but really when we looked at all of our different options, the risky return high-return-on-investment, no risk, no reward element of our portfolio was our business. What was missing from our portfolio was that stability, that security, that thing that we knew this money was safe and could be there if we needed it.
That, when we looked at those options, it's like a savings account with very little interest, a CD, but then you’ve got to wait a year or two in order to access it, whereas whole life had this other element to it that made it immediately accessible, and still safe and potentially growing more than just a savings account would, at least in 2013 and probably still today, depending on what kind of savings account you're using. [07:10.7]
Most people don't like whole life as an investment. We were not looking at it as an investment. We are looking at it as a safety, a security. Our investment, our high risk, high reward hopefully was our business. Reward never actually came.
Brandon: But we got some rewards. There was a lot.
Amanda: An occasional reward, but not really. We didn't make millions of dollars or anything and, I would say, we probably would have made more had we stayed in our comfy cubicles, but that's a different thing. That's one critical thing for us. To boil it all down to nutshell, the reason we chose whole life was for that stability and that transfer of risk and still having liquid accessible cash that was growing.
Brandon: Yeah, a wealth stabilizer.
Amanda: Stabilizer, yeah.
Brandon: Yeah, and so that was us personally and we're still growing in it. We are doing multiple things. We want to increase our wealth. As our wealth is growing, we need a bigger base to stabilize and we will make probably bigger risks and all of that. [08:10.5]
But, again, a lot of people get it twisted. It's upside down where they're risking more and then things happen, and that's actually what happened with your mom.
Amanda: I'm going to get into that story.
Brandon: Oh, okay. Here you go.
Amanda: Back in 1980, my parents did have whole life. That's when they got married. I was born in 1984. When I was three or four years old, so late-eighties, my dad actually cashed in his whole life insurance policy and they used the funds to go watch my brother graduate from basic training from the military. Really great experience. We still tell stories of driving down the interstate and I had an Alf doll that was back in the…and all of the semis would honk at us because they saw this Alf and my dad thought they thought that was a funny-looking dog. Great experience, but no life insurance, except maybe through my mom's work. She might've had some coverage. [09:03.3]
Then, in 2014, my dad got his wings.
Brandon: Let's back up a little bit. We were running a coffee shop.
Amanda: Right. I’m going to tell that part.
Brandon: Go ahead.
Amanda: Just before then, my parents had moved in with us. We took them in and we're caring for them, helping cook their meals, do all the things. When my dad graduated, all that my mom got was a little bit from social security that they give everybody. It's 500 bucks or so. My mom then had to live on just her pension. She actually doesn't qualify for social security herself, things like that, so if she had to have been living on herself, then she wouldn't have been able to and that's part of why they moved in with us, because they knew that something could happen to one of them. My dad had already had a heart attack and survived cancer. My mom had had a stroke. They had these health conditions that they were like, something could happen.
In this moment, a few months after my dad had passed, he had always taken care of the money, so she now had this opportunity to make some decisions, to decide how to best use the funds that she had. [10:12.2]
She had a very little bit in savings from the equity they'd built up in their home before they sold that home to move in with us and that was their emergency fund, and that would be gone like that if she got a disease where she needed to go into a nursing home or get some in-home health care, or even just a big emergency room bill that wasn't covered by Medicare or was only partially covered by Medicare. So, when we started looking at what could whole life do for her and actually what could any financial product do for her?
Brandon: Yeah, and we were looking at all kinds.
Amanda: All kinds. The thing we found about whole life was that the kind of policy we were looking at had, what's called, the technical term for it is called accelerated benefits and there are all kinds of different names that different life insurance companies have for this. [11:03.2]
But essentially it takes or it allows families to access a portion of the death benefit for those kinds of needs, like a nursing home or in-home health care. Let's say, you have a $100,000 death benefit. You might be able to access 70,000 of that if you get diagnosed with cancer or Alzheimer's or something like that to help cover the expenses, and then your family still gets that other 30,000 when you eventually do get your wings, cover those final expenses, that kind of thing.
What was interesting from my mom when we started looking into it, if she could take that amount that she had in savings and do a onetime transfer into the life insurance policy, she'd automatically get a greater death benefit and get these accelerated benefits that could help cover the those things, because that was really our biggest as a family is. If she needed those things, how were you going to pay for them? Her pension wouldn't cover it, right?
Brandon: It would be us.
Amanda: It was barely covering her living expenses. We'd have to not work. Our income would be decreased substantially if we had to do 24/7 care, right? That was our biggest risk as a family. [12:12.5]
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Brandon: And we had already experienced some of that with your father and that was one of our, I guess, biggest frustrations and regrets. I mean, I’m the son-in-law. He didn't have that set up for his wife and I think that as a loving thing for your family, spouses, is to make sure that they are taken care of when you're gone. [13:09.6]
This isn't just an investment vehicle. It's looking at what is your legacy that you're leaving, especially for females because females typically outlive the males.
Amanda: Right, and it's the female daughters that are often the ones taking care of the aging parents. Really, the big reason in her sixties why she chose whole life was to make sure she was able to care for herself and care for loved ones that might have to care for her. Even if I didn't leave my job, my work, and take time to take care of her, she usually used that accelerated benefit to pay me, so that I could still feed myself and pay my rent and stuff like that.
In a nutshell, that's the main reason and, in the meantime, that chunk that she put into the policy, she still has access to a majority of that and within three years typically people have access to all of it and then some, and so she does have something where she needs to take out a little bit and she can totally do that and it's not going to totally collapse the policy. [14:16.1]
Okay, so that's my mom's story. Now we've got another family member that we want to share his story with whole life and he was a little too young to choose whole life for himself, but it's really why we as a family chose whole life for him.
Brandon: Yeah, we chose using whole life for our son.
Amanda: When he was three months old, when we finally were out of that fourth trimester, so to speak, we did the paperwork, we started the policy, and really the primary reason was so that no matter if he gets diabetes or cancer or any of thing, he's got life insurance that can't be taken away from him for the rest of his life. It's a really low premium when kids are that young and he's building up this cash value that he can then use or we. [15:05.3]
It's technically ours, right, the adults, so we have to do this for him, but we can use to help pay for his college, help him buy us first home, help him start his first business, whatever it is, and it's that little bit over time that starts growing for him and can be there for his future, and we can pass on to him to give him the ability to start saving when he does have that stable income for himself. Then he can use that to save for his own retirement, to help protect his kids and grandkids, to use throughout his life, as well as provide all those other benefits that could be there.
Brandon: Yeah, and the numbers are amazing as he gets older.
Amanda: As he gets older, yeah.
Brandon: It's mind blowing.
Amanda: Yeah, so those are the three stories.
Brandon: Yeah, those are our three stories.
Amanda: Our three stories.
Brandon: People have so many stories and I would love to hear yours. Again, everybody is different, but I believe this is a wealth stabilizer that almost everybody I think should have or at least consider it because-- [16:09.8]
Amanda: Yeah, but let's talk about why not.
Amanda: If you were going to go and talk to a whole life agent, right, someone that sells whole life insurance, what are some red flags to look out for that you might want to think twice. There are, again, from our personal experience, why we would not have considered whole life for ourselves, for my mom, for our son, and we would have been like, No, n to, no, run as fast as you can in the other direction.
Amanda: The first one is zero cash value in the first year. If you're looking at the numbers that they share with you and you see a zero for the cash value in the first year, run. Run away, at least in our opinion. That means that the person selling you the policy is getting a super-high commission. You're getting the highest benefit they possibly can get you for the highest premium. [17:03.4]
The kind of whole life insurance that we found that really appealed to us, we had about 40 percent cash value. Of what we paid in, we had about 40 percent accessible from the first month, right, and through the first year. Now, that's going to be different. Depending on your policy, you might have more, you might have less, but our first policies, that's how it was and it's because of how it's structured, which we could do a whole video about, about good structure for full life insurance. There's a great boat analogy and all of that. We don't want to get technical here. We're just telling some stories.
But if you do see that big old goose egg and cash value, then you might be looking at the really old whole life that's more like a rotary phone than the more modernized whole life that have these special writers help boost that cash value and get it going. Starting to get technical now, but that’s the number one red flag and that's the kind of whole life that a lot of people hate, and we hate it, too. We wouldn't have chosen whole life if it was like that. [18:02.0]
Brandon: And I think that's the type of whole life that people would say, the Dave Ramsies or whatever, they're comparing that to what is now. I think, again, as a person is thinking about this, you wanted to find the right people that understand and have the right framework, right?
Amanda: Yeah. The second thing, when they're showing you these data tables and things is, if you look at the guaranteed numbers and you see the guaranteed go to zero at some point in the future, maybe when you're 70, 80 years old, what you're likely looking at there is what's called universal whole life or variable whole life.
These are touted as doing the same kinds of things that the kind of whole life that we chose to do and in a lot of ways they function the same, but, again, their structure is very different. They are actually structured more so buying term insurance and then having a side investment vehicle. [19:03.5]
These are the kinds of whole life that are very much more investments. They're putting your money at risk. You are actively following an index in the market. They might have some guarantees, but they also have really high fees, so you might be guaranteed a one percent interest growth on your investment side, but the fees and the different things that are involved can actually deplete that investment side really quickly. That's when you look at the guarantee numbers. You see that it does go to zero because those fees can increase over time.
So, be sure you're not just looking at the cash value at the beginning, right, and if you haven't got that goose egg, that might be a red flag, but also look at that guaranteed cash value in guaranteed death benefit. See when they go to zero and including if you stop making premium payments, right, because eventually you might retire, you might want to stop making premium payments, ask those kinds of questions. What happens if I stop funding this? What are the guarantees? Those kinds of things. [20:00.5]
If you see that those guarantees disappear, that might be a red flag for you that if those go to zero, you might be looking at an investment kind of whole life, rather than a saving kind of whole life or this wealth stabilizing that we've talked about.
Brandon: And, again, it might have its place in somebody's plan, depending.
Amanda: Same with the typical whole life with zero cash value at the beginning. Might have a place for some people, but, yeah.
Brandon: And the same with term insurance and other things. It’s just a matter of not everything, again, going into these videos, just watching them and saying it's all a blanket statement that, no, everybody is different, but I do think there is a guarantee that we will probably pass away, more than likely.
Amanda: The third red flag is that someone, when you talk to them, they want you to put everything into whole life insurance.
Brandon: Or anything.
Amanda: Or anything, right. They want you to go all in on this index, all in on real estate, all in on whatever. When we talk about whole life insurance, we always try to talk about it as a part of our portfolio. It's not the end all, be all. It's the stabilizing part of our portfolio. [21:10.5]
Whenever you're going to work with someone who's going to help you develop whole life, we love that we got to work with someone who was looking at everything, right? Was looking at what are our hopes and dreams? What do we currently have? Where do we want our money to go in the future? What do we believe is going to happen with taxes? How much risks are we currently taking and how much do we want to be taking?
All kinds of things like that are part of making sure that you're using whole life in the right way for you, how much of your portfolio should be there, the difference between saving and investing and what kind of mix of that is unique for your situation. If all they're doing is trying to talk to you about whole life, sell you a product, they're not taking that holistic view and you might get stuck with something that doesn't actually fit your unique circumstances. [22:00.1]
Brandon: And even looking at that, based off goals, based off concerns, based off all kinds of factors, really makes the person who's helping set it up decide what maybe is the best policy, best company, best all kinds of things, and so asking those questions is a very important piece. Each strategy that we shared or each story, personal story, they had different reasons and different outcomes.
Amanda: Yeah, and we actually have, even with life insurance companies, there are three different life insurance companies for each of those scenarios that we shared, so you want to be working with someone that can represent multiple companies. At least that's been true for us. That has been really good.
Again, if you've been following Grandma's Wealth Wisdom for a while, you might know that we talk about whole life a lot, and just to be totally transparent, we now are licensed life insurance agents in multiple states and we do this as part of our thing, but we didn't choose whole life in order to sell it. [23:12.5]
We chose that for ourselves because it was the right thing for us from our perspective, and then we use debt for about five years, four to five years, and experienced all these benefits right away, and so when we were selling our former business and looking at, How can we really help people? What's this next opportunity that we can make a difference in people's lives? we thought that was meant for us, how that can help other people, so that's why we got into this.
Brandon: Yeah, and it impacted our lives.
Amanda: Yeah, I’ve got to say one more thing about that. Even though we're licensed and we're brokers and can represent multiple companies, you should take this video as just our stories and you should dig in. Sure, go read those articles that hate whole life online, but also take a serious look, whether…hopefully, you'll do that with us. [24:02.1]
But the only way to decide if this is right for you or wrong for you is to actually get a financial analysis, go through the process, find out what this could look like for you. Maybe it fits in now, maybe it fits in the future, but get that unique, personalized feedback. Don't just make a decision before you do that. Don't take our advice or our comments, our story in this video as personalized financial advice. You need to work with a professional that knows your unique situation in order to do that.
Brandon: Yeah. I mean, I think you said a lot there. I think, again, the reason we got into this is because it made a difference for us. If we would have known some of the haters and so much that's out there…
Amanda: We probably would never have done that.
Brandon: But, again, I look at our economic climate and I look at where people are at now and saying, Man, we have a lot of work to do and how are we protecting the people we care about the most?
Amanda: And ourselves.
Brandon: And ourselves, yeah, and I think that's a challenge. We are going to be facing more and more challenges and, again, we're going to be in more and more entrepreneur-like spaces. So, how do we do that? That's part of why we created this. [25:16.7]
Amanda: And we'll catch the next time to help you break through to a smart, stable, financial future, using the time-tested wisdom of the greatest generation.
The topics presented in this podcast are for general information only and not for the purposes of providing legal, accounting or investment advice. On such matters, please consult a professional who knows your specific situation.
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