¶ Insurance and Tools for Small Businesses
All right , everybody , we're back again with another episode of Big Talk about small business , and I'm here today with my two friends , teresa Delatosh and Micah McFadden , and we're going to talk about a lot of stuff , as we usually do , but we're going to talk about insurance and some tools that these guys have that can help small businesses with their working
capital needs , and so we're going to get into that in a minute , but don't have my co-host with me today , eric Howerton . He's off on another one of his adventures and we are also breaking in a brand new studio today , so this is the first time we've ever done anything here .
Guys , you can tell it's Eric's taste , though he always says everything is like black and chrome . Every room in this place is black , so it sort of reflects everything he does . He drives a black truck , he's got a black motorcycle and he loves black , but anyway . So , teresa , why don't you tell us a little bit about yourself ?
Where'd you grow up and how'd you get into this business ?
Well , my family goes back seven generations in Northwest Arkansas .
Wow .
Yeah , my sixth great-grandfather was Simon Sager , who founded the town of Salem Springs . No kidding , yeah , and so I grew up in Salem Springs and I married a boy from Mississippi . That's how I got the last name Dilitesh Married him 34 years ago next month Okay . I had five beautiful children , all grown , one grandson .
He calls me Gigi , he can have whatever he wants . And I did a crazy thing in 2005 . I started a business new course financial because I had read Nelson Nash's book and it was called Becoming your Own Banker . And it was this way to finance your entire life or your business , using cash value life insurance .
You know the big boogeyman that everyone tells you is too expensive and you shouldn't get . But that book economically made so much sense and I couldn't find anyone to help me . So I called Mr Nash , the author , and I said will you help me find someone ? And he goes . Well , I've just found her . He goes love .
You need to go get your life insurance license and become the expert , and he was a fantastic mentor to me . Fast forward years later . I helped different agencies and brokerages . I taught their agents how to properly structure cash value life insurance so that it could be used like a private bank .
My parents were small business owners and so he had financed his entire business with his cash value policy and I was looking for a business partner and couldn't find anyone but a hooligan .
And that's how you end up with Micah no fast forward to what was it ?
2019 . This guy walks through the door because we have a little guest house and his sister was going to live there for a while and we hit it off and I realized that's my business part .
Oh , it's funny how those things work , isn't it ?
No coincident .
No , you know , I got five daughters myself and one grandson , but so I'm in a similar mode , except I've got a range from 12 to 36 in my kids . Oh my goodness , it's a pretty big spread there . What did you do before you got into this insurance ?
I was a full-time stay-at-home homeschooling mom . Really Like my days were full Wow .
Okay , and this just was such a passion for you , you were so into it that it just made you start a business .
Well , I was always an avid reader .
Okay .
I was the kid in junior high and high school that while everybody else was out , you know , doing something or listening to records in their bedroom , my dad and I were watching ABC World News . Tonight I was reading you know , reading all of his books by Napoleon Hill .
Oh , think and grow Rich . My dad bought that for everybody in our family . I know .
I was a total geek when it comes to all things . You know you can't make stuff .
Wow , that's great , though you know reading , see , you can learn anything if you're willing to read . I mean anything .
You know , the first thing I taught our children was how to read , Because I knew they could read , they could learn . And I turned out Well , I'm a college graduate , so Good for you .
You know , I used to own them with my first wife . We had a reading clinic and it was a method that she developed and that's what she always said .
It's that you know , a lot of times kids are struggling in math or science , it really is because they can't read , so therefore they can't do the problems and all , and so the reading is the basis of everything . But it really is critical .
But unfortunately it seems like today very few people actually read anything that has more thick longer than about 30 seconds . A lot of this goes on . Yes , and the old days we called that the Blackberry Prayer . You know , I was like you know , but no , it's really true . But , micah , now tell us a little bit about yourself .
Yeah . So married 23 years now , three children , sophomore in college , junior in high school and seventh grader , 13-year-old . Got started in the business in 98 after college , got my securities license and what I would call a traditional financial advisor .
And as I went through the realm of that , I went out and had a person that I met that was kind of a mentor . That was like you know , micah , you can go talk to an individual and get one , yes , or you can leverage your time and go talk to business owners and get access to talk to 20 , 50 , 100 employees .
And so I got into the 401k realm and as I went through that , as I went out and contacted and tried to talk to business owners , the first question everybody asked is the retirement plan is great , but can you help me on my health insurance ? Right , I'm a big concern , sure Early 2000s .
Well , prices kept going up and one strategy a lot of small businesses use was just change every year . You know , get the new company to buy your business and then the next year the rates are going to go up , so go find somebody else . It seemed like a lot of businesses did that , but it's painful for the employees Really is they hate it .
Yes , and it puts the business owner in a bad situation of you can have a good year claims-wise Right , and then , as a broker and insurance agent , you come in and hey , by the way , mark , you're going to get a three , five , 7% rate increase , even though nobody did anything wrong , because you're pulled . And so I got into that side .
I didn't do the health insurance very long because I hated bringing bad news to groups every year .
I believe it , yeah .
I transitioned into more of the supplemental benefits and more into the enrollment services , I saw that there was a real need for education for the employees , because as we went in and we talked to groups and talked to an employee like , you can tell me a little bit about your insurance and then we'll kind of start from here .
What's going to be new or what the change is taking place ? Sure , most people didn't know what they had . They might know they're deductible , they might know their copay yeah , maybe the maximum out of pocket , maybe a prescription copay but that was really all they knew about their medical insurance .
And so I kind of transitioned to that , into the dental vision , disability , cancer , all sorts of things and did that very successfully . Had a great run with that and that marketplace , though I partnered with a lot of health insurance brokers . I let them handle the headache and the nightmare of the health insurance .
They came in and helped communicate the changes that they had to deliver . So we were kind of the messenger , not the bad guy , if that makes sense moving forward and so got a lot of experience in visiting with business owners and understanding their needs , the employees' needs , everything , yeah .
And then I'm going to look at the guest house for my sister Teresa's Right . We hit it off and she starts you know what do you do , what do you do ? And she starts telling me about all these things .
And I'm like okay , at that point I had been about 20 years in the business and nobody had ever in the financial services round , the employee benefit round , the life insurance round . I'd never heard all the things that she had talked about , and so we immediately hit off the marketplace I was in .
There was more and more competition in the supplemental insurance world and the enrollment services Right , and the broker marketplace went from . I used to have 108 different insurance agents across about a 300 mile radius . That I chased . That did . Health insurance was down to about 11 .
Wow , I didn't realize there was such a consolidation in that business .
They were either run out of the business or pushed out . They were forced X number of lives to keep contracts and so many merged or joined in or were bought out and became these big conglomerates . So it's that you know , it kind of goes back to that buying power , for sure , and that so yeah , and hard to distinguish yourself .
then if you have all that competition out there , right , Right , and so I was really looking for a change and it was like okay , here's Teresa . I mean , I was just intrigued because it was so different , and not really against , but just really different from anything I had been taught that first . You know , 1920 years , wow .
So why don't you guys tell us a little bit about exactly what you do for your clients and how it works and helps them ?
Oh my goodness . Well , just knowing what my parents' small business experience was , they were always looking for someone to say well , you know , who do I use for this , who do I use for this ?
And so we don't want to be the Jagaval trade , but we just try and bring multiple strategies to the table for our clients that aren't in the traditional box of all things financial planning .
¶ Cash Value Life Insurance and Benefits
People have forgotten that cash value life insurance was the first guy to show up . You know , term is a relatively new concept . It has a great fit for a lot of people .
So that's so great . When you get to be my age , it gets really expensive .
I know .
So this is why we're trying to preach to the younger crowd . I'd have do it early .
Something in place .
Yes .
But it is a tier , one asset out of five asset . And so , if you go to the bank , what does that mean ? Well , there are five classes of assets . The first is cash , cash equivalencies and cash value , life insurance .
So it's liquid . Basically it's super liquid .
That's why the bank will always ask you on a loan for you know , do you have cash value life insurance . But people don't understand how easy it is to properly structure a policy so that you have a high early cash value in that policy , how easy the process is to use , sign a form , get a loan from your policy .
It's actually a loan from the carrier with your death benefit as a guarantee for that .
Can you borrow more than the cash value ?
No , so there's no over loan danger . But no one understands too that the insured , the owner of that contract , is the owner of that contract and the life insurance carriers the administrator .
Right , so you're borrowing from yourself . It was all over .
From yourself and paying yourself back . Now , if you're a business owner , it gets even better because there's I'm no CPA , I'll just say that right now but , I do know there is a bit of a tax reduction strategy , because you can write off interest right .
Right , so we don't provide legal and accounting advice . But no , I understand . So interest is tax deductible .
However , and so for a small business owner and mediums , I don't care how big your business is or how small it is , it's just it shouldn't be the only thing you do , it should just be one more tool in your portfolio to help you create two jobs for every dollar , so that you're always getting right of return constantly .
So do you all so ? Well , what if I don't have a whole life insurance ? I'm a business owner . I don't have any insurance I can go borrow against . Do you all sell them that ?
Yeah , so there's . I think there's a couple of key things you kind of mentioned whole life , in particular .
Okay , and there's universal life , obviously , that which is sort of a variant .
Yeah , we really kind of specify an indexed universal life particularly Okay , and whole life .
Okay .
We kind of compare those to the tortoise and the hare . All right , with whole life , it is slow and steady , wins the race . We know returns 12 months in advance Right , and we can do a lot of planning on that . Indexed universal life is more like the hare in that your money is not actually invested in the market . It is mirroring the index market .
So if your money is in the market , you experience the highs and the lows , the ups and the downs Right Within indexed universal life . You're mirroring the market with options . When the market goes up , you capture and get rewarded those gains . When the market goes down , you have a zero floor .
So your principal's always safe , okay , but we like to capture like the hare . We like to get those big gains or those big speed swings on that so that we can increase the opportunity for those cash value growth take place and so so we're not all experts in insurance .
I mean certainly I don't consider myself one . I guess my understanding with the universal life , whether it's indexed or not , is typically you kind of front and load those things right , you pay more upfront and then over time you don't have to necessarily even pay premiums on them or the premiums may go down . Is that correct ? Is that a good assessment or no ?
Whereas whole life I know it's level typically right .
Well , you can just going to use your term front and load both whole life and indexed universal life , and Nelson Nash always used to say his thing was why do people want to quit paying premiums ?
Because you're just depositing money in your bank that's getting a rate of return and it's still going to get a rate of return when you pull it out and go use it for something else or to acquire an asset , so you can make an end game where no more premiums are required .
We've had three or four clients in the last few months decide to no longer pay premiums . Those cash values will still continue to grow . There is some flexibility with both types of those policies to where . Okay .
So 2008 , nine and 10 , none of my clients lost their business or their home and just talked with a client this past weekend and he abruptly got fired from a job a very criss-drop that he had in .
So I always tell people having a job is risky , Right , you know you can get fired .
Do no fault of your own , and it wasn't I mean , this guy is solid , he was a great guy , but he had a great amount of cash value . He said we didn't lose sleep at night and it allowed me to pay our expenses so that I didn't have to take a job I could choose to take a job .
Sure , how do you like ? How do you guys make money ? Because if I have a whole life policy , I can go borrow against that myself . I don't need you to do that for me . What is it exactly you all do to help these people ?
We have to be licensed , okay , you have to have continuing education , and so the carriers compensate us .
I see .
Yeah , so our clients don't pay us .
Okay , I think one of the most important things on life insurance policies , particularly cash value life insurance , is if it's structured properly . Those are the two most important words I can think of if somebody asked me why would I do permanent life insurance , particularly with you all , with what you're telling us to do ? The policy has to be structured properly .
There are a lot of agents out here that do a good job , but if they may sell a permanent life insurance policy to try to acquire as much death benefit , if you came to me and you said , what can I get for $10,000 a year in premium versus putting this into a term policy on here , we might be able to just , for example , get you a $2 million death benefit
. When we go to structure policies , most of the time , if someone's looking for cash value accumulation or retirement benefits down the road and we can talk a little bit about that in the future they want to , or we want to , structure that to solve for the minimum death benefit . But the maximum accumulation I got it .
That's gonna make the biggest difference in the world on what that's going to look like .
Well , you're basically using less of their money to go buy insurance , in effect , and more is just invested .
Absolutely .
So what kind of returns do people get on these policies ? Just set a curiosity what would be like a typical ? I'm sure it changes based on the economy and the stock market and inflation and everything else but interest rates . What's typical right now ?
Yeah , I would say that I mean we see like whole life typically kind of studies around Five percent , four and a half to six percent , something around in there .
Indexed universal life has a lot of different variants in that sometimes carriers , to have that zero floor where your principal can never go down , they give you a cap so it may cap out at 12 and a half percent , for example . Okay , we'd like to do a mixture or a blend .
If we're doing indexed universal life to where we may have some uncapped indexes , I say you may have some capped indexes so that if the markets do rebound and we see a 25 , 30 percent increase we can capture .
¶ Cash Value Life Insurance for Business
It's like a portfolio and investment portfolio within this insurance policy basically , and that's sort of a balanced portfolio .
It is , and two things with that that you just say with that particular term , cash value , life insurance is an insurance product , not an investment tool . That is . The biggest difference on that is that we don't have clients in market risk where they can lose money . Therefore , it's not really an investment , it's an insurance product .
It allows them as well to have access to one of the best assets out here . In my opinion , it's the top assets you can get because it checks liquidity , safety , low cost , good rate of return and it's tax efficient . Right Dive into as much of those as we want to .
As we talk to these individuals , particularly these business owners , because I see so much as a small business owner , having been in the 401K realm and in the employee benefit world realm small business owners have to wear all these different hats .
Right , and we're not good at all of them , right , let's face it . I always found you gotta get the specialists in , whatever it is you need . Don't fool around with the generalists , whether that's lawyers , insurance brokers , all of them . Okay , yeah , so .
And I didn't have . I didn't just wake up one day and go , hey , I don't want to be a life insurance agent . You know , I actually kind of fought and struggled with that whole idea . But my husband's a great guy and he's like you know what , you've got this , you go do it . And he really helped me get my business started .
But I did understand why you would want to have cash value life insurance and multiple policies in your portfolio , whether you are paying for weddings we have four daughters paid for a lot of weddings and prom dresses taking policy loans . Braces all of my kids had braces .
And I got two of them in it right now . Three , so you know Three . What am I saying ? Three in it . One of them's my wife . She decided to go get the Invisalign .
Yes , I believe there is a local orthodontist here that I personally probably sent his children to college .
I won't mention that I may know who it is . It's probably a friend of mine if it's who I think it is . But so obviously though , you had a mind for the math .
Yes .
I mean , and just that's . I'm sure that's been a big part of this , for you is understanding that . But then the risk too , I think , is that's obviously something that you understood to get into this I wish I had . If I could go back 25 years , I would have done more universal life policies than term , because they were great .
For , as you said , I'm sitting there paying 800 bucks a month in a year for 500,000 or whatever , and then one day you wake up and you get a bill for $9,200 , which I just got this morning , so it's well-timed on a term policy , you know .
Well , and here's the thing .
Here's my age , shit that .
Here's the thing that we hear all the time . We always hear what in ? Someone teach me this 20 years ago . And then with the younger crowd , you know the folks in their 20s and 30s and even some 40 year olds they think they're gonna live forever . Right , we found out . You're not guaranteed that .
Right , yeah .
And then Micah had a health event , and it was right after we had decided to form a partnership , and I'll , I mean , that day scared me to death . Sure , I'm thinking I finally found him , you know , and help what's gonna happen .
So Listen , and accidents . I lost a friend of mine who was an insurance broker about a year and a half ago . He was 40 . And then I lost another friend of mine who was 31 years old in a car accident here recently . Entrepreneur so it does happen . Yeah , bad stuff happens . But this whole idea of the ? So let's go back to . I'm a small business owner .
Okay , let's just say I've got a business , I'm doing it in $10 million a year in revenue . I make a million dollars a year for all practical purposes . I've got all kinds of term life . You know my bank wants me to have it . I probably got $2 or $3 million for the term life out there . I got my 401K you know whatever variant on that retirement fund .
I got maybe a stock portfolio . That's got some stuff in it , right . Maybe I got a little cash but truthfully , most of my money is sitting in that business , all right . It's hard for me to justify investing in the public market when I know my own company generates a 30 or 40% return on invested capital year after year . So I call one of you up .
How do you help me ?
I think the first thing is to try to get a good picture of the situation and you just kind of laid out some examples is to find out what all they're doing . You know what their plans are . Do they have an exit strategy ? Are they going to try to pass this business on to a family member ? So a lot of analysis on the front .
It's kind of like I use the analogy of going to the doctor . If you say you have a headache , I can give you a Tylenol and send you on down the road .
But we don't know what's causing the headache , right .
Yeah , but we don't want to go to the extreme of okay , well , mark , let's come in here in two days we're gonna cut you open and look in the brain and see if there's something else going on .
We try to find that happy medium between if that makes sense , but then that there are so many things that I've seen with small business owners , particularly on this , is a lot of times I feel like they're maybe kind of neglected Right , not by saying any names again , but I had a lot of the brokers that I worked with that only targeted groups with 100 plus
employees .
Yeah , I don't want to mess with financial sense . Yes , I believe that , entirely Right . I've seen so many businesses that serve business that have that attitude of we only want to deal with somebody if they're at a certain threshold and then that lesser group is underserved , right , right , yeah , I believe that .
So we do an analysis . We see a lot that these business owners have put everything into the business . They may not even have some of the things you just mentioned . They may have that term policy .
Yeah , if I'm 40 years old , I probably don't have anything other than the business , right ? It's , maybe the 60 year olds are in a little better shape , but yeah .
They've neglected retirement for themselves . Right , they might have put something in place for the employees as a retention tool because they want to try to keep them . A lot of times they don't even do that because there's so much administration , so many regulations . If you do this for one , you have to do it for all , right .
So we really kind of look at are there things that you could do you may be doing good ? Are there things we could do better on ? Okay , and so we look at from the cash value , life insurance side . It checks a lot of boxes for them in that it gives them that permanent life insurance . We talked about a moment ago that you've got this bill .
As you get older , it's larger now .
I mean , it goes up way higher than people think . It's not like it went up a little bit , it just like went up 10 fold overnight .
So one to most people . They let it go Right there or they can get the death benefit down so low that it helps lower that cost . 97% of term policies are not used .
I've done both of those things myself at various times , both yeah .
And so it checks the box of providing them death benefit Right . It can give them tax advantaged income in their retirement years because during their working years they have a lot of these different deductions that they can qualify for they may not have looked at . Okay , I make 100,000 a year .
If I put 15,000 in a tax deferred retirement program , I'm gonna get a $15,000 off of my gross income this year . Sure , some of them do it some adult , because it's in this conglomerate of all these other deductions that they take on here . Yeah , this gives them an avenue to have tax-free retirement when they retire .
It also gives them , as Theresa mentioned and her father used this a liquid fund that they can go pull money out of and use to grow their business . And this is probably the biggest thing with cash value life interest . Most people don't realize .
If you have $100,000 in cash value sitting there when you pull 50,000 out , you're not pulling 50,000 out like you would out of a money market or an IRA .
Yeah , because the return stops on the 50 , I take out of the retirement fund . Plus I pay a penalty . Absolutely yeah , and I pay taxes on it , absolutely yeah . So From cash , value life insurance .
When you pull 50 out , the insurance company is actually loaning you 50,000 . I see You're getting to collateralize against the money that you have in there Right . So now you can make money on your business real estate , like with you or anything else .
If the markets go up 10% , you still get credit in that example for the full 100,000 sitting there , even though 50 is out doing something else . I see you can do small numbers , big numbers with that , whatever .
I can see why people are . I'm sorry , I didn't mean to interrupt you . I can see why people get confused about this , though you have to really show the effect and the tax aspect of it is really critical , and where you end up with the pot of money that you can use , I can see that makes a lot of sense . So , like you know , let's just say $100,000 .
For the sake of this example , let's pretend I'm a 45 year old non-smoker , reasonably good health , you know , maybe my cholesterol's too high or whatever . So how long is it gonna take somebody like me to get to where I got this 100,000 bucks sitting out there that I can pull from typically , and what would that cost me to get there ?
I know it varies right .
It does , because you know a part of our job is to look at your overall financial snapshot and determine can we take inefficient money and move it from this side to that side and make it now highly efficient money so we can make recommendations on ?
Well , you know you've got money sitting in a money market earning 2% when we know we're getting 4.5 to 6 in a whole life or who knows what , in an IUL , depending on what industry we've chose . And so it's just , we try and help the client find the money so they're not having to come up with extra dollars . We're just redirecting .
And so , if you're , I'm just gonna use one of our clients as an example .
¶ Business Insurance and Financial Strategies
He's a 41 year old guy . He doesn't own his own business but he makes good money as an engineer and he has been . He was a client of mine before I even met Micah , because he had whole life policies . He was referred by another client and so we were talking and I've showed him , if you do , he had an extra , I think he did .
He did one lump sum of $25,000 and then $10,000 a year . Okay , and I told him . I said you know , if you do this , this will help you fund real estate purchases for investments or by equipment for your farm or whatever he said . That will not work . That will not work . What are you talking about ? He's a spreadsheet guy .
Right , so an engineer .
Yes .
Black and white . It's logical .
He had to tear it apart and build it back three times to prove to you that now he can , now he understands this . He called me three days later and he goes we need to talk . So he started with that first policy . He got another whole life policy . He comes back to us was it last year ?
And so he's added indexed universal life into his portfolio because when he started running the numbers he realized if he put you know a good sum in there , that he could retire eight years earlier .
Wow .
Yeah , and run his farm and go hunting and do the things he loved .
So that's a great success story then .
We have so many clients who are great success stories , and so I'm 10 years older than Micah . You know I want to finish . Well , I want people to say you know , when they come to my end of life celebration .
You really helped him .
She really did something great for my family . And my kids and grandkids are going to have generational wealth that we otherwise wouldn't have . That's the story I want .
Yeah , yeah , that makes a lot of sense , seems to me . Like you know , again , I've worked with small businesses basically my entire career , 44 years , some of them larger than others and been involved in every aspect of it .
I find one of the biggest problems with these small businesses is they don't have the cash flow they should have because they do a really lousy job with their billing and collection , Just needlessly like .
They finish a job on the seventh of the month but they send their bills out after the first of the following month and maybe that waits 10 days before they go . They just lost use of all that money and they basically need more working capital in the business than they should need and that would free up some funds maybe to do some of this other stuff .
I mean , do you guys ever get into that level of assistance with these clients to really understand , like , the capital needs of their business ?
Yeah , we actually had a conversation yesterday with the charitable organization out of Georgia and they're looking for some guidance and some structure . They've done well , they have some revenue . They're like okay , we know this was referral from one of Theresa's other clients and said she said to talk to you , what can we do better or what can we change ?
And so we did kind of an analysis and a discovery call yesterday . We're working on putting some things together . They're working on putting some more numbers together , like what you're saying , the finances and analytics of how this business is working , and we will structure for them a start . We've talked about 10,000 and 100,000 and all this .
We have a lot of clients that put $150 , $250 a month in . That's what they can afford . We've looked at their finances and they get a start . We have one particular client that did that right when I first met Theresa and then they've come back now and there's some cash value building built up there .
Let's look at what else we can do and their business has grown . So now they have some more funds they can put into this . They understand the momentum that has started within these cash value policies and now they want to figure out what else they can do . They made . Look at , we've talked about moving money from the right pocket to the left pocket .
Most people when we start talking about life insurance as well . I don't have any extra money I can do , money flowing out of both pockets . But there's both payments and Hutton clubs and whatever the case may be on here a country club members , there's money , the stopping and buying coffee every morning .
Oh yeah , people waste . I take my kids through Starbucks and it costs us 20 bucks in the morning . It's insane , absolutely insane for two of them . I'm like this is crazy . So , but let's go back to getting the money out of these policies .
So I know you just make a phone call or you check the box online or whatever , and you got your account set up in there , or however it works , and they wire it to you or whatever the deal is . But do you have to pay that money back , or is that a withdrawal ? How does that work , you ?
don't have to .
Okay .
You'll get an interest statement and a policy loan statement from your carrier . Okay , but we encourage you to because if you are paying yourself back , especially if it's for a business expense , you wanna pay yourself back .
You wanna pay yourself interest , and most carriers typically charge around a five to 6% interest rate , depending on what kind of policy it is and what policy year it is . It's not . There's very little volatility .
Right now that's a great rate , obviously . Yeah , you can't borrow money at that . If you wanna get a commercial building loan , it's 8.75 if you got really good credit .
So , yeah , yeah , I always have encouraged clients yes , you own this , yes , it's your money , but pay it back Cause , cause , money in motion is money that's not stagnant , so pay it back and wait for the next thing and go buy the next property .
We have a lot of real estate investors , their client and they've all either paid down payments or purchased properties out of their cash fund .
Remodels .
But if you're a tiny small startup and you wanna do this , you're 30 year old with a great idea , but we really just don't have the funds we're gonna get you a very inexpensive term policy with one of the carries that we know has a great permanent policy that you can .
Conversion yes .
Without any more pricks or prawns .
Right , yeah , I'm sure that's a big concern for people , because the older you get , the more likely you are to have problems that will disqualify you for being able to get more insurance later . So that conversion is great .
We also have a lot of carriers that do rapid or express underwriting Notice . There are a lot of gentlemen who are afraid of needles . We have several clients that just don't wanna give up .
That never bothered me that much . I had one of my daughters was a phlebotomist at one point , but she's not doing that now . I never let her practice on me .
I would say as well , to continue on the question that you asked about how do we get money out of these . I really say there's a smart way , a not so smart way and a sad way to get money out of a cash value life insurance policy . Smart way is policy loans .
If we go borrow money from a credit union , from a bank , from a financial institution , from a private lender , whatever the case on this , we're going to pay that back . We're going to structure a payment schedule on there . I have a promissory note Policy loans are tax free . Right there . We pay them back . We're increasing the cash value of our policy .
If we have something out and we borrow 50 of the 100,000 and then we unexpectedly have an event like your friend or my friend , our friends or could have been me that we pass or they pass , then that loan comes off the death benefit . The not smart way of pulling money out on this Cash it in Tarz this could be or even just withdrawals .
The money you've put in is after tax , so that's a cost basis , but any growth that is taking place is taxable . So if we take withdrawals , we're also just like we would pull it out of a money market account .
It's no longer there working for us and then the sad way is we meet our demise and then that money goes to a beneficiary but we don't get anything out of
¶ Policy Loans and Premium Flexibility
it . So I wanted to kind of clarify or answer on your question for the ways that we pull money out of a policy .
So let's just say I took 100,000 cash out of one of these index universal life policies that I built up over however many years . I had it and I'm playing on paying it back . But do I get like a payment schedule ? What if I can't afford it ?
What if disaster strikes the business and I'm supposed to be paying them a thousand bucks a month or whatever and I can't afford it now ? So what happens then ?
For the loan . I guess how it two marks to the bank . This is a loan , paying the loan back or paying the premiums for the policy , so on paying the loans back on here , you don't have to pay those . Those can continue to accrue .
So I could just sit there and not pay that month and then go back to paying after that if I wanted to . Okay .
So let's do an example . Let's say that with your money that you've paid in over the years , you have a million dollar death benefit . Right , you've borrowed a hundred thousand out . Yeah , they know , if you pass your hundred thousands , coming off the million that would go to your beneficiary , you show another 900,000 . That's there , right , I understand that .
Yeah , well , that kind of answers aside . On the loan , the premium is important too , because we talk about flexibility of premiums in these cash value life insurance policies you have . Without getting too technical , you have a cap .
There's really two limitations to life insurance Can you qualify medically and how much can you put in before it becomes a modified endowment contract or the whole thing becomes taxable ? We try to get our clients right up to that , right , that's the smart yeah . Yeah , tax consequences and tax efficiency on here .
Well , if we're paying $10,000 a year in annual premium for a million dollar death benefit , the premium for that million dollars may be $2,500 , the $7,500 cash value .
Yes , I understand that .
As a business owner , we run into or we face challenges . We may not have the 10,000 one year in a down year . Well , as long as we pay that 2,500 , we keep the policy in force . I see , okay , Any year moving forward , we haven't paid the full 10,000 , we can make up that difference . So the next year we could put 17,500 into the policy .
So you have a lot of flexibility with the premiums .
Yeah , just like today I told you , I actually got two insurance bills . One of them is on a universal life policy and I thought that I put enough money in there when I got it that I wouldn't have to put anything in there . Okay , because I only got it last year . So I wrote a pretty big check . Initially , all right .
So now I don't know , because I just bought another house . We haven't put our house in the market and we have to do a rehab on the new one and then we're gonna sell . So we're gonna be facing some big outflow right now and I thought to myself gee , do I have to pay all this right now ? I don't know .
I just sent a note to my insurance broker to find out the answer to that .
I think an important aspect of that is goes back to . I mentioned earlier two key words properly structured cash value , life insurance . When I first started in the industry in 98 , I sold a lot of variable universal life policies . That's what the company that I worked for . I remember those . Yeah sure , we were trained man .
This is the best thing since sliced bread , michael . You go out here . Well , 2000 , 2001 , 2002 hits and all of this money that the excess over the turn cost was all in the market . Right and it evaporated sure I had a lot of angry clients . I did not like that .
We do not set up any type of policies like this anymore because we don't have anything that is subject to risk .
It's also important to understand and we do annual reviews with each one of our policies our policyholders , to make sure if they're having that off year or I've got this great year , where can I put this money , those types of things , to keep that line of communication open so they don't get into a situation like you are thinking well , I thought I was gonna be
good and now all of a sudden I'm needing to dump all this extra money into this . Could something like that happen ? Potentially , but most of the time , having these ongoing conversations , they know if that problem's going to take place six months , 12 months in advance . They can address it before it comes to a reactionary .
I'm sure I probably did too , but I mean , I got so many things on my mind and this is just one . You know what I mean ? It's just one thing of many , and so I think a lot of people don't really understand this insurance . There's no question in my mind . I bet it's rare you run into a client that actually understands all this truthful .
Why it's so important , if they touch with the client , to constantly remind them here's what you have .
Yeah , that would be helpful .
Here's what . Well , let me go back to 2008 and nine . I could see that would be helpful . In 2008 and nine , all of my clients were taking policy loans and it was a couple of years before they kind of got back into the yeah . And I said it was almost like weekly policy reviews at them .
But I just reminded them , like I said , you've got a base premium Right To pay to keep it in .
Sure .
Let's pay some policy loan interest , but let's not worry about the policy loans or funding the cash value rider right now . And every single one of them kept their policies . Nobody lost their business , nobody lost a house .
So it all worked out , yeah .
Yeah , we all went through that .
So obviously there's lots of people that somebody can buy life insurance from and you guys say you don't even really sell it , you just direct them to other people . Or do you sell ? Okay , so you do , but you're not married to any one client , company , insurance company , so you can basically sell whatever you want then Is that right ?
We just try and look at what the client needs , what their goals are , and you know . Then we look at our carriers and and just try and make the absolute best recommendation for them and we don't have any um , we don't care what the client wants to accomplish , we just want to help them get there .
If you're 25 years old and you're just starting your business , we're going to put a term policy place for you . Let's go back to your example of the guy that's 40 years old , 10 million in annual revenue makes a million dollars .
Well , you might need a lot more life insurance than you think If you've got 10 million in revenue and 50 employees let's see if we need to do a financed policy . You know banks will finance large policies .
I found I hit the limit at one point . I think I had about six or seven million and I couldn't get any more Because they said well , you're worth more dead than you're alive . But my banks wanted it because I had about 19 or 20 million in debt out there . They wanted me to have everything I can get Um , so it was a problem .
We do get calls from local banks from time to time , um , or clients that they've , you know , sent our direction , sure . So , um , yeah , I just , I love this school that you just can't have too much . If you have family , if you have charities that you love , that you want to bless on your way out the door , then yeah .
I think it goes into an aspect as well . When talking to them about retirement planning from life insurance , so many business owners I feel like kind of neglect retirement . They're like , oh , I'm just going to sell the business one day and that's exactly right .
That was always my thought process , absolutely Right .
And that that can work . Sure , but then what happens ? Or ? Or we'd like to have our clients have a firm foundation , just like building a home or anything it's like what if that doesn't ?
work . What else ? What's your backup ?
Right , exactly . And so this , this cash value , life insurance , can help fund their business , projects , equipment , whatever the growth that takes place , so forth . But then it also is that safety net there for them If something doesn't work out or the business fails , or you know , think about blockbuster , for example .
Yeah , sure , I mean that started small and grew up and then all of a sudden Red box and then streaming . And I mean , yeah , who would have ever ? I would have never thought of something like that . Yeah , just as an example so .
The technology just totally wiped it out , basically . So what do you do if , if somebody wants to get a hold of you all , how would they do that ?
Uh then , go to our website , okay , newcoursefinancialcom .
So how is that ? N-e-w-c-o-u-r-s-e Financialcom ? Okay , newcoursefinancialcom , all right .
And mine is Micah , a little different M-I-K-A at NewCourse Financial for the email and Teresa's is with T-H-E-R-E-S-A At at .
NewCourseFinancialcom . Newcoursefinancialcom . Newcourse Excuse me NewCourseFinancialcom . So how often do you talk to your clients ? I mean , teresa , you said , like some of them , you talked to weekly during bad times .
I mean , what would I expect if I because I can tell you when I bought this policy I got like , whatever it was a year ago or two years , I don't remember I'd never heard from the guy since I bought it , not one single thing .
That's why our industry is such a bad reputation .
Such . That's why I don't know whether I have to pay this or not , or anything at this point
¶ Insurance Policy Review and Payment Practices
.
It doesn't have to be an annual policy review . I mean , if you have a term policy , it's gonna you're not gonna have a long conversation , right , but when it comes time to convert , that that's gonna be a good conversation . But if you already have cash value in place , you should be talking to that client twice a year .
I did , and you know I never heard from anybody on my term policies either . I just get a notice in the mail that , by the way , it's gone from 800 a year to 9,000 plus or whatever . They just send me no communication whatsoever . I think so Is that typical .
Well , I think it's common . I think so many life insurance agents , if we want to kind of call it that it's a transactional event that takes place , right , our big difference , I feel like , is we really try to make it more of a relational event that takes place because the young individual , like we've talked about , there needs change over time .
We want to have those conversations . You got married , you have a child now , right , have you know ? Your business is growing . All of this we need to . You've brought on a business partner . He-man Paul is the structure . I mean all these different types of things . So even on the term side we have a lot more .
I feel like contact with our clients , on our clients that have an understand kind of like the engineer . He is referring business left and right because he gets it . He is asking when can I do my next policy ? Well , it's demonstrated .
It works for him . He's sold , he's now , he's out there , you know , as an evangelist for you .
He is and he wants to help his friends , family members and all those other things , and so that's that ongoing and growing relationship that I feel like takes place with our clients , versus that transactional event . I always have kidded people for years when I did , you know , retirement planning and employee benefits and enrollment services , and all of this .
When I walked in and met with a small business owner , I said can we , can we put the shield down for a minute , because I know that insurance agents are viewed as attorneys , use car salesmen and the scum on the bottom of the pond , and I said just give me a chance .
I don't know if it's that bad , but it is sometimes , and so I always just tried to say you know , give me a chance to explain what we do differently , if that makes sense , and then you make an educated decision if this makes sense for you on theirs .
I have clients husband and wife and they have been with me since 2007 . He passed away two years ago last week , and he had a very large life insurance policy that they bought multiple cars with and built their home from the cash values of that policy and it was such a bittersweet day to Deliver that check .
But just knowing that she got a huge check and I've never been there hugged so hard in my life and I cried like a baby sugar . her husband was such a good man All right but what I , what I was able to deliver , you know , when no one expected it . It was very sad sure . And there's three grown children bear hugged me and thank you in that noise .
And so you know I I love dealing with the young folks , just trying to teach them , but I also know , with the hard part at the end , sometime is coming . It's why I have a younger business partner , because someday I'm gonna walk away .
I get it . No , I get it . I've . I made that transition myself , so I understand . Yeah , I think you know , as a , as a business owner , my strategy always was to find people I trusted and just deal with them forever . Okay , I did that with accountants . I did it with different lawyers for different purposes .
I did it with my matter of health insurance Provider . I don't want to have to switch horses all the time . I would rather have that long-term relationship of trust and mutual respect , and then there's no use car salesman thing going on . One last question for y'all do you look at the , at the payment practices of the insurance companies that you deal with ?
I always think about that . That John Grisham book , you know , I think it was the client where there was great benefit life . Yeah , that just decided not to pay anybody for a year or two . We just don't pay any claims .
And Do you look at that with these insurance companies that you guys put people into , like how Good they are about paying the benefits if needed ?
There's writing .
Okay , are those good or they generally ?
yeah , they're there's a lot on , but you have to work at things like how long have they been in business ? All of the companies we deal with most of them are mutual companies . They've been in business for well over .
Yeah , versus the fly-by-night that cooked up in North Carolina three years ago or whatever .
But here's something that Mike and I paid close attention to . A lot of people aren't aware of . We're banks put their money . They're using your money , but where are the banks putting theirs ? Well , there's a term in the internal revenue called bullied bank old life insurance in the billions banks .
Okay , so you can look at the companies they put their money into and figure that's pretty safe . Then Exactly , yeah , that makes sense .
I would also say , to tie in with that , we worked with companies that go above and beyond what they have to . What I mean by that is in in this life insurance industry , most companies are required to have a dollar and five cents on reserve for every dollar that they would have to share out .
Most of the carriers we work with , especially a couple of the bigger ones that we really like and feel that are safe , have five and $7 on reserve for every dollar they would have to pay out . I'm not worried about them going under .
Yeah , no , that makes that makes a lot of sense . So well , that's good to know that you do think about that , because I see these ads for like auto insurance . It's like I saved 812 dollars , by God , but who knows if the company is any good . So if they fight every single claim , you didn't save anything . You know what I mean ?
It's not just a matter of the premium that people pay . It's the quality of the what's behind it , if they're actually gonna pay off .
Yeah , I . I've had a great run with carriers . I've not had Any claim . I haven't had a lot of claims , but not one of my clients claims have ever been denied Life insurance carriers or they function a bit differently than health insurance carriers and you're with life insurance carriers . You're dealing with the old , conservatively run , you know .
Well , actually .
The only reason I say this ? Because my sister's husband died 1985 . He was a manager of a Merrill Lynch office . Okay , falls over dead at the age of 40 from a heart attack and so it leaves her with two little kids . They were like seven and nine . He had a life insurance policy that was less than two years old . That was his biggest term policy .
That was not paid and the reason was when they did an inventory of his car there was a cassette tape in the tape player from Alcoholics Anonymous . Now he , he wasn't a drinker . Okay , he'd never gone anywhere for treatment . But they said you lied on your application that you have sought treatment .
They considered the cassette tape treatment for alcohol Addiction and she was denied . Now Maybe she could . She could have gotten a good lawyer , fought that , I don't know , but I'll never forget that . It really stuck in my head . They were looking for a reason not to pay that claim , to go to that level .
So , and there I will say , there are carriers out there that you have to be aware of . Yeah , we've got a client right now in South Arkansas . That was you know , and this was an annuity , but at the same time , is still an insurance product . Yeah sold eight years ago and that company has changed and been bought out by three different companies .
That is a red flag and that's a train about to go off a cliff , in my opinion .
What can you do with it ? Can you pull money out of there and put it in something ? We're moving to a more
¶ Small Business Insurance and Financial Advice
secure company . Yeah , yeah , I do think that's something a lot of people don't think about . They just look at the premium . It's just like , oh , it's cheaper , it's all the same thing . Now , it's not . Sometimes you get what you pay . Yeah , all right guys .
Well , listen , it's really been fun talking with you and I hope our listeners have learned something today about insurance and how they can use this tool .
And once again , new course , financial comm is the place to find out more information and for everybody else , we welcome your questions and comments at big talk about small business calm , as well as any suggestions for future guests . We're always open to that . We don't take everybody .
We need to make sure that you've got something to offer our listeners , but we'd love to hear from you . So , thanks again , and this has been another episode of big talk about small business . I'm Mark Swig and I'll see you next week . You , you .