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While many of us find the topic of life insurance one that is ‘complicated and expensive,’ it couldn’t be further from the truth. If you consider what it means for your family, the right life insurance plan helps loved ones in your absence and protects the assets you’ve worked your life for.

Death often comes is unexpected – that’s a fact. But designing a plan that works with your portfolio only makes day-to-day living easier for the people you care about and gives you peace of mind.

In this episode, I discuss how to overcome the stigmas of life insurance and why you should be using it as a financial tool for your family today.

Show Highlights Include:

  • Plato’s understanding of the human mind and what it means for how our emotions impact the life insurance decisions we make. (1:40)
  • What a near-death experience reveals about your life insurance and how to immediately take the financial pressure off your community and family members. (6:08)
  • How the LIMRA study strips any stigmas of life insurance being “too expensive” and the three factors that determine what you pay today.  (12:30)
  • How risk management helps you chooseplays a role in your life insurance and designning a plan that preserves your assets and protects your family for generations to come. (15:02)

To schedule your free retirement tracking meeting, specifically for first responders, head to http://pensionattention.com/ or call us at 805-409-8150.

Read Full Transcript

Welcome to Pension Attention, the best show for first responders who want to take control of their finances.

After advising Los Angeles city firefighters for over 12 years, financial advisor, Brad Barrett now shares how you can grow your wealth, build your legacy and enjoy a life of freedom. And now here's your host, Brad Barrett. [00:19.9]

Brad: Welcome to Pension Attention, the show for you, first responders who want more out of their deferred compensation and pension plan. My goal with this podcast is to reach you where you are at whatever stage in your career you are in, to provide my nearly 15 years of experience working with both active and retired service members on their investment and retirement planning. My team of fiduciary advisors here at ONE Fire and Police are dedicated to ensuring you take control of your finances and build the life you deserve. To find out more about me or my team here at ONE Fire and Police, you can go to our website at PensionAttention.com, or you can give us a call. You can call us at (805) 409-8150. If you go to our website, go to the media tab and you can click subscribe, make sure you get every week, the Pension Attention episodes. And if you don't go to the website and you want to go to anywhere you download your podcast, whether it's Google or the Apple podcast app, just type in Pension Attention, hit subscribe, leave a comment, let us know what you think. I've been doing this now for a couple months and would love to hear feedback on how we're doing here at Pension Attention on the show around you guys. The show around what pension means, what drop means, how you deferred compensation plans into it. And a lot of the planning topics we talk about that are more vast, if you will, the cashflow topics, the debt management topics, and today's subject matter of insurance. [01:42.6]

And I want to preface this today by understanding and doing this for a long time, almost 20 years. And I know that a part of being a great advisor and that's what I strive to be. We here at the firm strive to be great advisors. And a part of that you've heard me say this before is something called holistic planning. Take a look at the entire, the whole picture. And a part of that has to do with risk management and risk management is insurance. Now the problem with insurance comes down to is a lot of professionals out there, if you will, that are calling themselves financial representatives or using the word financial, but really, you're just selling insurance products. I want to insist on this today. That is not what today's topic is about. It's about the overall aspect of risk management and how that plays into building a great retirement plan. [02:31.7]

And I want to start by asking a question, something we've all thought about, I'm sure. Like, did you ever imagine a world different than the one? You know, if you have, and if you're maybe weird like me, sometimes you probably contrasted it to your reality. Maybe you imagine a better world. Maybe you see something worse or maybe a little bit of both, but at times we might lament, if you will, over things that we should have done, usually aided by, you know, 2020 hindsight experience will do that to you as well. And we replay the past wishing that we could have done certain things differently and our emotions might slip into a state of regret. We all know there are certain things I should have done, but we didn't. And there are a whole bunch of things that we know we should be doing, but we don't. For example, we all know we should be going to the gym, but how many of us really do on a regular basis? I know I don't. We all know there are certain foods that we shouldn't eat, but we eat them anyways. The other week I horsed down an entire pizza to myself. I don't know why maybe it was the weather. [03:30.8]

So why do we act like this torn between what we know we should do and what we actually do. Well as the Greek philosopher Plato once said the mind is pulled by an emotional elephant and a rational pony. I love that. Our emotions tend to dictate our behaviors rationally, right. There are a whole bunch of things that we know we should be doing, but our emptions compel us to do something else. So rather than getting out of bed and going to the gym on a cold morning, like recently we pull the covers over our heads and we'll retreat into a deeper sleep. And an hour later when we get out of bed, we feel guilty. A psychologist might say that we might have, what's called cognitive dissonance. You know, we're torn between two contradictory beliefs. We know that we should get out of bed yet we sleep. It's kind of like someone who smokes yet knows the fully well, the ravages of cancer, your emotional mind, if you will, is at odds with your rational mind. [04:24.0]

A few years ago, I was traveling on an airplane for work. I was attending a meeting back East for the client. And when I boarded the plane, you know, I sat in my seat. I had my magazine with me as a newspaper at the time, and it was The Wall Street Journal and looked out the window and I was kind of just going through my typical pre-flight routine. And about three hours into this flight, we had a little bit of turbulence, actually very quickly it turned into a lot of turbulence. And then I'm sure many of you who've traveled for me, had this experience before. And I remember, I remember such a look of concern on the woman next to me, her face. And she was sitting right beside him. I mean, she was really, really scared. I'm not saying I wasn't, but I remember seeing her almost made me more scared. Then there was this loud noise and the worst thing in my mind that could have happened at the time was the oxygen mask fell from overhead. So, the expression on this woman's face turned from concern to absolute panic. I could feel my heart racing and the palms of my hands were literally sweating at this point. I was pretty nervous I have to admit. Of course, a thousand thoughts were racing through my head, all in a split second. Mostly though at the time I thought about my wife and at that time, my one-and-a-half-year-old and my literally brand-new baby girl. Would I ever see them again? That where some of the thoughts that were going through my mind. [05:34.6]

But as usual and the reason I'm talking to you today, right. In a matter of moments, the turbulence stopped. It's subsided. The plane seemed to gain strength, stability, and the captain, it came over the PA system and he was calm and reassuring. And he announced that everything was all right. You know, the flight attendants helped passengers remove their oxygen masks and everything went back to normal, but it was quite a flight; one that I'll always remember and why I brought it up today. More importantly it was an experience because it really got me thinking about my mortality, if you want. I was a young guy, you know, at the end of the day, we all know rolling on this earth for a limited amount of time. I don't have to tell you that you do a job. You run into burning buildings, you run into violence and criminals daily. So, it's just a fact that everyone who has been born in the history of mankind has died at some point. [06:20.9]

We know that Ben Franklin quote, the only true thing is death and taxes. You know what no one lives forever, yet many of us, if we're being really honest with ourselves, many of us think that we will; I suppose it's natural to deny our own mortality. In a way it's probably a defense mechanism maybe for me to deny my own mortality at this point in my life to keep us from getting too depressed about the thought of our own demise. But you know, when I got off that airplane, I wasn't thinking so much about my own mortality, I gotta be honest with you. Rather, I was actually thinking about my impact of the death that would have on my wife and my children and my church community and my clients. How would they survive emotionally and financially? Now I'm not saying I'm this epicenter of everyone's world. I'm just saying each of us play a role in our community. And I wonder how my kids would remember me. What would my wife do? What would, what would everyone have time to, to grieve and heal? You know, at the time I was in my late twenties, early thirties, I had some money in the bank, but not a King's ransom. And I asked myself at things, worked out differently on that plane, how would my family financially keep a float? Would they need to sell our home, the home we just bought? Would they need to move maybe to a lesser community? Would the kids need to change schools? And on top of all those concerns, how would they emotionally heal? [07:39.3]

I'm a fortunate guy. Sometimes when I think about these stories and what I want to share today, because I feel that I get to work in the financial services industry. I also feel fortunate that God impressed upon this, when I was 16 years old, this is what I wanted to do with my life. And I've shared this with many of you who are listening, who are my clients and have known me for as long as I, they know me is that I've been doing this since I was 16. I've been doing this almost 20 years now. This is what I feel like I was born to do. And I feel very fortunate that because I work in the financial services industry, I've always understood the value of life insurance. And I've always carried life insurance, whether through my firm or privately. And I have the comfort of knowing that things worked out differently on that plane, if that plane never landed where I was going financially, at least my family would be okay. They would've been provided at that time, you know, the financial wherewithal to remain in their world. There would be no financial pressures allowing them the time they needed grieve and heal. [08:37.3]

But different than me, many people have cognitive dissonance back to that fancy terminology as a psychology might say, when it comes to the topic of life insurance, they know they should probably own some, but because they deny in a way their own mortality, they don't purchase a policy. You know, over the years I've heard all the excuses and I'm going to go with that. It sounds like a strong word excuses, but I'm going to, I've heard it all. I can't afford life insurance. My family will be fine. And of course, I'm not going to die. That one's a little more rare, but I have come across those, believe it or not. Well, when I think back to that scary flight, as the planes, passengers were literally strapping on oxygen masks, at that scary moment, I wondered how many people were experiencing cognitive dissonance with respect to their decision, to not purchase life insurance. [09:24.4]

Do you know how much you should be contributing to your deferred compensation plan? Are you getting the most out of your current investment options? Looking at entering or about to exit the drop program? Go to www.pensionattention.com to find out how we can help. [09:41.1]

And as always, I like to provide some context and some history around the life insurance industry, because I want to be very open about something. We here at ONE Fire and Police and myself as an advisor, I'm not out there trying to sell life insurance products. In fact, I don't believe that you should just lead and sell with a life insurance product. Sadly, many of what they would consider colleagues, but I would not will go out and try to sell something that is, if it's supposed to be the end, all be all, you know, the cat's pajamas, the second coming of financial services situations where you buy this annuity, you buy this life insurance product, or what have you, that all your problems will be solved. And that's just false. I'm sorry. A proper planning and a well allocated diversified portfolio fits into that, but you need to insure that. Just like you insure your house or your cars, right, you need to insure your investments. [10:34.5]

So, when we hear as wealth managers talk about insurances, it's not about the product itself. It's about understanding the risk management tools around why insurance or better yet how insurance will impact your life and how your insurance will impact those that you love and care for. And a lot of people feel that paying a premium for insurance is an expense. And I often look at it as more of an investment. You're investing in the insurability of the asset you're protecting. And if you do a permanent policy, which something we're not going to discuss today, but we'll talk about if we meet together about the relevance, as it may work for you in your planning. If you're in a permanent policy, you actually have an investment that goes in there of cash value. So, there are aspects that these fit in, but it's not a one size fits all. [11:23.6]

And as I mentioned before, to put the impact of life insurance into better perspective, think about this, in 2008 and 2009, a little over 10 years ago, when the United States economy fell into recession, the government stimulus package pump roughly $800 billion into the US economy. Everyone thought this was a, an enormous amount of money and it was, and it was hoped this would be a big enough financial commitment to jumpstart the US economy to get America back on track. Well, what I want you to understand, and probably most people know this according to the publication national underwriter, the total value of life insurance death benefit in force for individual and group policies combined is $19.3 trillion. Just think about that $19.3 trillion, hard to fathom. That number simply dwarfs the great recession stimulus package. Just think about it $19.3 trillion, waiting to be injected into the US economy just when it's needed most upon a death. [12:20.2]

What type of stimulus impact would that have? Did you know, to that $1.5 billion is paid out by the life insurance industry every single day, roughly 150 million Americans own individual life insurance policies, which is a little less than half the country. Now, according to LIMRA, which is a life insurance research organization, 95 million adult Americans have no life insurance whatsoever. None. Now I wonder how many oxygen masks fell from above, if I walked up and down the aisle of the plane, offering people, life insurance policies, how many things would take it? Sad joke, but a reality. What's really interesting too is other people who own life insurance, $48 million say that they don't currently have enough coverage, they want more they're under-insured. But oddly, almost 90% of people say they haven't purchased life insurance because it's too expensive yet. When asked how much they think it costs, they overestimate its cost by two-fold. They think that it's twice as expensive as it actually is. I've seen this firsthand; you know, it seems that almost everything in the world gets more expensive every year. Cars, houses, colors, tuitions, but there's one notable exception life insurance. It's cost, believe it or not have been decreasing for decades. So why does that happen? [13:32.8]

Well, there are a few primary reasons. And again, I like going into the history of insurance as I do with any valuable strategy when it comes to our advising, I want our listeners here at Pension Attention, our clients at ONE Fire and Police and all of our active and retired service members to know background on strategies. And that's what I want to do, I’d like to educate along the way. And the few primary reasons that life insurance has actually decreased in cost is first Americans are living longer than ever before. Life expectancies are increasing, which means that life companies can hold onto your premiums for longer statistically longer periods of time before they're paying a claim. Second, like every other industry life insurance companies have become more automated, especially during the last few decades. Technology has made them way more efficient. Their hallways are no longer filled with, you know, accountants and green visors as we all envisioned it with pencils tucked behind their ears, you know, crunching numbers all day. It's now all done by computers. And thirdly underwriting has gotten much more accurate, another benefit of technology by the way. So, assessing risk is much more streamlined and precise and due to these other factors, frankly, life insurance rates have actually decreased. It’s one of the few products where you'll pay less today than you did, maybe 10 or 15 years ago. [14:50.9]

You know, over the years, life insurance proceeds have had a profound economic impact on our countries. It's families, it's businesses, it's charitable organizations. And I want to share a story today from a client. A dear dearly loved client of mine who passed away a few years ago, retired within a year, had passed away. Between the pension retirement plan and all the assets that had been accumulated to live the life that the wife and the kids were accustomed to the only way that that happened was because of the $800,000 life insurance policy that he had purchased. Now, you've heard this story before. You've probably heard it maybe with friends or colleagues or in a vacuum, but I have probably a dozen of those stories. And over 15 years of doing this business, that is so important and to share it. Because of compliance reasons, I won't share names or values, but these are people, these are your brethren that this has happened to. And for us to think that it couldn't happen to us, I believe is somewhat naive. Maybe even ignorant. [15:53.3]

Now I'm not trying to call anyone out by the way, I'm included in this as well. But understanding the risks and the perils that lie in this world, which are everywhere. I mean, I mentioned this before, but risks, 30 years ago, meant opportunity. Risk now just means fear. I think we all can agree whether it's political, governmental, environmental, economic, I mean, you name it. We have more fears and more anxiety around the risks that we face. So, when I talk about risk management or when we here at the firm talk about advising on our client's assets inherent in that is a fiduciary responsibility that we take to make sure that we bring topics like ensuring those assets up. It doesn't mean you have to do them. Our job is just to be a good advisor to you to make sure that, Hey, we have these assets, you've built. You have a pension you're about to get you're about to go into drop entrance. Okay, you're going to get this list of options there about by ups. I mentioned that on last week's episode, whereas my example last week was if you have a $10,000 a month pension, which is something happens to you, God forbid in retirement, 55% of go to your spouse. And then if something happens to her, it goes away. Well, you can actually buy it up where instead of receiving $10,000 a month, you received $9,000 a month, but now a hundred percent goes to your spouse. Again, these are rough example numbers. [17:15.3]

Well, I usually advise or recommend take the higher amount, take a portion of that and go buy your own insurance. Why? Number one, it's cheaper. Number two, it goes not only to your wife, but then to your kids, because on pension, it stops at your wife, nothing to the kids. And third life insurance proceeds go tax-free. So, it's got a lot of benefits there and you can see how one little topic of life insurance fits in right in line with many of our clients, when it comes to their pension planning and insuring again, protecting the asset that you've built. You may think, Brad, what are you talking about insuring your dropper to for comp plan. You insure that properly diversifying the portfolio, hiring someone like us to manage that account relative to your overall planning, that's in a way, risk managing that asset. When it comes to your pension, you don't have control of those assets, right? You've paid into it for let's say, 30 years and the benefit, the payment that's coming out to you, you're insuring what happens to you God forbid something, God calls you back up, right? We can insure that. And that's the ability to what I call pension insurance. You can use life insurance in different ways. And the idea with proper planning and that holistic planning I mentioned is to do it specifically and correctly for you, not for your colleague, not for your AO, your engineer, your captain, or your dues or whoever else you're talking to at the station, right for you. [18:34.2]

That's the main thing I’d like to drive home here on Pension Attention, what we do at our firm. ONE Fire and Police. If you haven't gone through that with someone you haven't found that advisor to connect with that partner, to help you both in active duty and into retirement, give us a call. You can call us at (805) 409-8150. You can also go to our website at PensionAttention.com. [18:56.2]

And for a moment as we end today's episode on insurance, we're going to be talking about, it's going to filter through many other episodes here on the show, but for a moment, think about your own life and imagine the impact of your mortality on your family. And I'd ask you, is it better to go to heaven with, or without life insurance. Better yet, why don't you ask your spouse, your children about that? Involve them in this conversation. It doesn't need to happen for everybody. I'm not saying it's right for you. What I am saying is you haven't discussed it more than just, Hey, I got coverage through the department, it's an important topic to bring up. Do a life insurance review, if you have current policies as well. A lot of times I spoke about this on our earlier episodes of the show. And I talk about us heavily with new clients. You may have bought in whether it's from friends or colleagues or you're, you're going through the drill tower, right. And you're signing Conseco policies and cancer policies, right? But those are, that may be eight, nine, 10 years ago. Take a look at how those impact you. What are you paying today? Do what we call it a policy review. We'll do that for you, cause we know how to speak that language of insurance. So, if you do have it, take a look and make sure it still works for you. Believe it or not, it can be outdated. Some of the stuff that you may have needed, then you the need more of now, or you may not need as much of. So, it's important to a policy review as well. [20:12.4]

So, insurance is a topic most people like to avoid. And I wanted to have an episode on it on this show because it is something we bring up with our clients. It doesn't work for everybody and it's not needed for everybody, but it is important to understand how it works and to not shy away from it so much, just because all someone's just trying to sell you something. I promise you, we're not, we're trying to provide a strategy to make sure we insure again, the assets that you've worked your tail off to earn. [20:36.2]

Thanks for listening to pension attention before acting on it. I think discuss today. Remember, speak with a financial advisor near you about your specific situation. Or again, if you'd like our help, you can visit us at PensionAttention.com or give us a call at (805) 409-8150. Next week on Pension Attention, we're gonna be talking about savings specifically. How much of your income should you be saving for short-term mid-term and long-term savings? I'm looking forward to it until then stay safe. [21:06.9]

The information in this podcast is educational and general in nature and does not take into consideration the listeners personal circumstances. Therefore, it is not intended to be a substitute for specific individualized, financial, legal, or tax advice.

To determine which strategies or investments may be suitable for you consult the appropriate qualified professional prior to making a final decision. [21:30.7]

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