Oh, life insurance. This is something that gets sold like it is the cure all to everything about wealth. And so I'm going to break it down for you here because I want you to have the truth. I am not an insurance salesperson, so I've got no axe to grind here. My focus always is and always will be your financial future. Your ability to control your financial future and not be beholden to commissions, transaction costs, fees and that kind of thing. It is the very reason that I do not sell
products. I do not sell insurance. I do not sell investments because I want to be unbiased and give you some of the truths that I see them as an advisor, as a mentor, and as someone that has been doing this for decades now. That might piss off some insurance people when they hear what I have to say. But my job is to make sure that you're safe and that you're building
wealth in the most effective, efficient way possible. So I'm going to break down these twelve lies and give you some of the things to focus on, and I'm going to break down some numbers for you so you can actually see what's happening with this, and then you can make the right decisions to fit your life and your circumstances. The first, the first thing that people will say is, you know, it's a lie of
everyone needs insurance. Well, that isn't the case necessarily, but if you're talking to a insurance salesman, guess what? The only thing they got to sell is insurance. So in their eyes, everyone needs insurance. Let's go back and ask ourselves, why do we get life insurance in the first place?
And it really isn't to make your heirs rich. I mean, you could do that, but the reason you actually get life insurance is to replace the income from the person that's generating the income to take care of the people that depend on the income. Here's what I mean. If you have a traditional household where one spouse is, is working, the other spouse is a homemaker taking care of the kids and the spouse that's working, if something happens to him or her, there's no income coming in,
how do they take care of the kids? So it's to replace that income. Now, having said that, that doesn't mean that the person that is staying home with the kids has no value either, because the fact that the spouse is home with the children is giving the opportunity for the other spouse to go to work. So there's value there too. The key is this. Life insurance is meant to supplement a gap in income to allow the survivors to be able to continue
to live. Okay, so when we look at it from that context, does everyone need life insurance? No, not necessarily. Because if there isn't someone depending on the your income, if there isn't someone depending on that cash flow, then maybe you don't need it. Now, I'm not talking about insurability and all these other things that are benefits of getting insurance, even if someone's not depending on you. Because just to explain that term is that
when you're young, you're typically healthier. That means that getting life insurance is cheaper. Getting life insurance is easier as you get older, if you start to have problems health wise, life insurance gets expensive and it may be impossible to get. You know, it may be difficult to get. I'm not gonna say impossible to get. It maybe difficult to get. So if you got insurance while you're young and healthy, you keep that insurability as long as you keep that
policy. Okay. So that there is that benefit. But when we talk about this general statement of everyone needs life insurance, the answer is no. Life insurance is a piece of the puzzle. To protect your wealth machine, to protect your money machine, and to protect your family and the people that depend on you. But if you don't have that, maybe you don't need it right away. So it's not a blanket statement that should be used. So that, that is number one. Number two, and this
one's going to irritate a few. Life insurance agents are financial planners. And here's, here's the reality. They're insurance agents. That's what they do. They are salespeople and their product is insurance. They will see their solutions through an insurance eye, set a lens. Okay, they might do some financial planning, but are they financial planners like CFPS? This is what they
do. They do financial planning and they have at their disposal all the products, all the investments and things to make sure that the plan is perfect for you. Because here's what we want. There are two standards in the investment industry. There's a suitability standard and there's a best for you standard, a fiduciary standard. Suitability means that, hey, is it suitable for you? Yeah, there's a lot of things that are suitable, but is it
the best? And if it's not the best, we probably shouldn't have it. So we don't want suitability, we want the best. And life insurance agents, if that's all they do, that's all they do. They're not planners. They sell insurance and every road will lead to an insurance policy doesn't mean it's wrong, doesn't mean it's bad. Just understand it's the tool that they have to solve the problem. But there's a lot more tools to solve your wealth problem than that. Leads me to number three.
All insurance or life insurance is the same. And it's not. All these policies are different. We'll talk about term versus whole life policies in a moment here. But, but you have all these nuanced policies. Index universal life, variable life. You've got these different provisions and riders you can put in. So they're not the same necessarily, as a policy goes. Do they do the same thing? A life insurance policy is there to pay when someone passes
away. That's what they do. General terms, yes, they're the same, but the specific terms of how they, how they execute, how they apply, what provisions are in there, the exceptions, all those things are, can, can be different. So you've got to look at the insurance contract to make that happen so that it isn't just plain vanilla in doing that. And when you look at whole life versus term, it's different. Term is the
easiest policy. It's basically you pay for insurance for a period of time, and while you're paying for it, that that's what you have. It's, it's like the insurance on your car, the insurance on your home. You pay for it, you hope you never use it, but it's there if you need it. Whole life is something different. We'll talk more, more about it. In fact, this next, this next lie has to do with that.
And that is that whole whole life insurance is better because now here's what they say, because it guarantees you a death benefit. It guarantees you a death benefit, in other words, when you get a whole life. And the other way that they say this is that there's term insurance and whole life insurance, or they'll say term insurance and permanent insurance. They say that whole life insurance is permanent because you will be paying the premiums
pretty much all your life. And that means that you will absolutely have a death benefit when, when someone passed away. Whoever the insured is, it will pay out. You will get, you will get money out of it. The whole life policy is meant to be permanent. And there are reasons to do it, very specific ones. Not, it's not for
everyone. Term insurance. The difference with term versus whole life is you pay for a term just like it says now you're gonna pay for it for ten years, 20 years, 30 years, and after those 1020 or 30 years, it's gone. You got no death benefit and you have no insurance. And in fact, the statistics show that 90% to 95% or so of these policies, term policies,
never pay out. And people will say, the insurance salesperson is gonna say, well, that's a waste of money because you're throwing money at a policy that you never get a benefit of. Right? That's one way to look at it, and we'll look at the numbers here and see how that plays out. But the other way to look at it is if the term policy doesn't pay out, it's because you didn't die, so you're still living. That's actually a good thing. All right, so
you look at it through those eyes. So a whole life policy does guarantee a death benefit as long as you keep it in force. Is that. Does that mean that it is better? I don't know. When we look at the numbers, you'll be able to look at it. Life insurance. There's number five. Life insurance is a great investment. Okay, I have some strong opinions about this. Okay? Insurance is insurance. Investments are investment. The
two don't mix well. In fact, if you look at the statistics on a life insurance policy, the average rates of return over time only average between one and three and a half percent. One and three and a half percent I can get in the s and P 500 in an index fund or an ETF, an average of 8%. Life insurance is not a great investment. It's a tool to be used in your wealth journey when you have circumstances that match with it. Well, but it isn't
an investment. But it gets sold as an investment, as, as these agents kind of put it out there. And there's a lot of people that are selling this right now in a very pushy way and not necessarily transparent. All right, this leads to number six. Number six is life insurance is a wealth building tool. They might have say it is because if you get a whole life policy, you build this cash value, but you'll see in a moment
that the cash value isn't yours. You can use it to collateralize a loan, but it's going to get paid back. So it isn't to me, it's not a wealth building tool. It's a wealth protection tool. Yes. And there is a fit for it in your overall financial plan when you do that and use it correctly. But it's truly not a wealth building tool. It's a protection tool more than anything
else. Number seven is you have to be in perfect health to get life insurance and the answer to that is no. But most of the time you'll have to go, depending on your age and circumstance, go through some sort of medical exam. And that medical examined may in most cases not deny you insurance is just going to prorate or change your premium. So there's typically insurance available. The question is, do you want to pay the price based on
your health? So it's better if you're in perfect health, but it doesn't mean that you can't get it. Okay. And so that's the way I kind of look at it. Now, when you look at number eight, it looks at, it says the premium, the premium is really there for protection and cash value in a whole life policy. But the premium is going towards your protection. Well,
it is. And I'm all for people getting paid, but the substantial portion of the premium, especially at the beginning of, of the policy, is going to fees, going to commissions and going through that. And so you actually, the amount going towards the insurance at the beginning in a whole life policy is very little and the amount going to the commissions is much higher and the amount going to the cash value, I should say,
is very little. Okay. And so we need to look at it through, through that perspective leads me to number nine. Life insurance payouts are tax free. Here's, here's the thing. Can they be tax free? Yes. But are they tax free? It depends. Okay. It depends. Most life insurance payouts are tax free. But if we get certain disbursements or we take dividends or we take cash value withdrawals, those may be taxed. So it's not automatic that it's tax free, but it's structured typically to be tax
free if done properly. So you just got to be aware of it, that there are ways that a life insurance policy or anything you take from the life insurance policy could end up being taxable. And so you want to make sure that, that I'm talking about income tax and not estate tax because that's a whole nother question that I'm not going to get into in this video here. So then number ten, number ten is when you get older, the life insurance is too expensive.
It's too expensive. Now here's the thing. As you get older, life insurance is going to get more expensive because the tendency is as you get older you have more medical problems. You are getting closer to the point in which the life insurance is going to pay off. Look, let's look at it through the eyes of the insurance company so we understand what they're doing. They're collecting premiums from all of the insureds. So they're taking premium from you?
They're taking premium from me, your neighbor, all that stuff. They get all that money and they put it in investment and they grow the investments. They know that at some point some of those policies will lapse and they don't have to pay out, but some of them will be enforced. And someone dies and they have to pay out the half a million dollars, the million dollars to them. The insurance company is playing the probability
game that not everyone dies at the same time. And they don't have all these payouts. And they can stagger it in a way that the investment returns carry it and that they actually make money on the fact that they don't have to pay out all the time. And so when we start to get life insurance in our later years, the insurance company looks at you and say you're much closer to that point of payout. Therefore the premiums are going to be higher. Does it make it unaffordable? Maybe. Could be. I don't
know. So I just got a quote for an insurance policy for me that went up from $1,000 a year for a million dollars to 912 thousand dollars a year for a million dollars. And that was on a term policy, not a whole life policy. Okay, now why was that? Well, a couple things. One, I'm in, I'm 63 years old. Two is that I am a cancer survivor, but I'm still in that five year window. So I had some things that caused the premiums to go up. Now, I'm self insured,
I don't need the insurance. So we aren't doing it. And I'll show you why we're not doing it. When I run through the numbers here in a moment, so know that that is possible. And this leads me to number eleven. If you have an illness, you can't get insurance, okay? If you have an illness now, there may be situations where you can't get it. However, like I said, a lot of times, like, I can still get the insurance. It's just gonna cost me, you know, more because I've had
cancer. Now, once I get past the five year window and I'm technically in full remission, that may change. But in my case, then they look at it and go, well, by the time you get past the five year window, you're in mid sixties. Now the age thing comes into play. But the lie here is that if you have a serious illness, it's impossible to get life insurance. No, it's possible. It just may be more expensive. Just know that it is typically possible. The last, the last lie is this, is that your
employer's insurance is enough. The employer's insurance is typically like a 50,000 or $25,000 policy as part of the group medical type of a thing. It's not enough to cover your needs. It is enough to maybe cover funeral expenses, end of life expenses, that kind of thing. But remember, the gist of the policy is meant to replace the income for those that are dependent on the income, $50,000, my guess, isn't going to be
enough to replace the income. And so this comes back to this idea of my book, building your money machine. One of the reasons that I talk about building your money machine is that you're no longer beholden to the earnings treadmill and you're no longer beholden to something else or someone else to provide, like a life
insurance policy. And this is why I said I'm not renewing my insurance because I have a money machine that actually will fund everything, including taking care of my spouse and my kids and my grandkids and all of that stuff, because it was built right. And so when I look at the insurance, the reason I got the insurance in the first place, I got it when I was a single full time dada. My son was dependent on me. He was young at the time. I wanted to make sure that the house
got paid off. He had a college education and certain things were in place. I needed the insurance to take care of him. Hes now 34 years old. Hes self sufficient. Hes married to a 32 year old amazing woman. Two kids, four homes, a multimillion dollar net worth. They are doing fine. They dont need insurance. My wife, is she dependent on my income? She is, but she isn't because she is an amazing executive in her own right and earns her own income and
all that stuff. So our existence isn't dependent on my income or her income because we built a money machine that produces the income to take care of us. Now, I tell you that because I want to go through a quick numbers analysis here to compare whole life policies against term policies and kind of give you my thoughts on why I see things this way. And in order to do that, I'm going to assume that we're going to get a million dollar life insurance policy for a 35 year old, in this
case, male. That is healthy. Okay. The policy premium for a 30 year term policy that when you look at policy genius for a healthy male is about $62 a month for a term policy, for a whole life policy, which builds cash value, and we'll talk about that in a moment. Is $930 a month. So a very big difference. So the analysis that I'm going to walk you through is something where I said, all right, let's assume that I'm going to
compare these two options. I can go spend the $930 a month to get a million dollars of insurance, and that insurance will be there for the rest of my life as long as that premium gets paid. Okay. Or I'm going to go pay $62 a month to get a million dollar policy. I have to pay that premium for 30 years. And after the 30 years is up, the premium is gone and I have no insurance. And so there I am. So if we look at it as a 35 year old, I'm talking from 35 to
65. So let's just look at some numbers. So you see where, where this, this how this plays out. As a 35 year old, the whole life policy, like I said, is 930. We're going to work on this column here. $930 a month. That means the total premiums paid for 30 years is $334,800. Okay? That gives you a death benefit of a million dollars. Now, let me be clear. I am not taking into consideration cash value here, although the insurance company would tell you
that, hey, it's building cash value. But you know what? When you look at the terms of the policy, you actually do not get the cash value. I know they're going to argue with me saying, oh, you can borrow against it and you can take that money out. But if you take that money out or you borrow against it and it's not paid back, they will take it off of the million dollars. So the way the policies typically work is you get the greater of the cash value or the
death benefit. So I'm assuming that the cash value is less than the million dollar policy. If. If it's more than that, which is not likely with a one, one to 3.5% return on investment, based on historical averages, then, then you would get the cash value. But you do not get both. It's not an and world. So what the insurance company has you doing is paying higher
premiums to build this thing called cash value. That, yes, there's a benefit to taking it out in a loan and not paying taxes on it and that kind of thing, but you never get the cash value. Your family never gets the cash value. The only thing they're entitled to is effectively the death benefit, unless the cash value is greater all right, so I look at the whole life policy, say $930 a month, 30 years, $344,800 in premiums you're going to pay.
And at the end of that, that 30 years, you have a policy that will pay a million dollars. Now, you'll continue to pay it if you live beyond age 65, and we'll see what happens there. Now, let's look at the term policy. Remember I said the term policy is dollar 62 a month, and we're going to get a 30 year policy. That means that I have the policy for 30 years, 30 years in a day. I ain't got
no policy unless I renew it. All right? Now, the policy that I get is the same million dollar policy, but I'm paying $62 a month for it. That means my total premiums is $22,320, very different than the 334,000 that the whole life policies. So the way I did this analysis, I said, okay, so instead of $930 a month, I'm paying 62. Let's take the difference between the two and invest it in an s and p 500 index fund. Historical average
8% rate of return. So I said, let's take the difference, invested at 8%. And now let's look at the investments, what the value of that is compared to the whole life. So in 30 years, if I invest it, then what happens? Even though that the policy goes away, I still have a million three in investments. The whole life maxes out at a million, okay? Unless the cash value is going to be greater, which is typically not based on the historical rates of return. So now here's where
the beauty is. This is, if I. If I'm at age 65, what happens if I live longer to age 707-58-0859 this million three is still going to be investing and growing in another five years. The million three, if you put nothing more away, the million three goes to a million nine by age 70. At that 8%, at age 75, it's 2,000,009. At age 80, it's 4.3 million because of the compound effect. So my point is, is that if we do this right, we get the death benefit from a term policy based upon the time we
need it while we're building the money machine. And when we have that money machine in place, it will self fund, which is what's happening in my life, okay? Is that we're self insured through the money machine because we took the term policy and we invested the difference between the two and kept control of the investment instead of giving it to an insurance company that's gonna hit it with fees, commissions, and expenses and then invest it and give you what's left over.
Okay. And do it from that perspective. So I hope that this kind of gives you a perspective of how to look at life insurance in a different view. Like I said, I don't sell life insurance. I don't sell investments. I just want to give you the right plans, the right principles, the right things to manage your path to financial freedom. That's what I'm here to do. It's why I wrote my book, building your money machine. It's why I do have my show and my
channels and all the work that I do. So I don't want to be tied down to some conflict of interest, because the only thing that I sell is insurance, or the only thing I sell is a specific kind of investment. The question really is, is it good? And then the second question is, is it good for you? And the third question is, is the best thing to put in building your money machine? All right. I hope that this helps. I hope this gives you some food for thought,
some way to look at it. I know that it's probably going to rub some insurance folks the wrong way. I'm cool with that. All right. And that's all right. But in the process, this is what has worked for decades with my clients, with myself, with my family, and I am speaking from the reality of the road traveled. All right? I hope that this has helped. And if you have questions or anything comes up, do me a favor, reach out to me, let me know. I want to be here to help you. That's my
mission. It's to help you to master your money, eliminate the financial stress, and give you the possibility of a life of choice. All right. Till I see you in another episode or maybe out on the road as I'm speaking. Always, always drive the little light that I lose you soon. Thank you for listening to the affluent entrepreneur show. With me, your host, Mel
Abraham. If you want to achieve financial liberation to create an affluent lifestyle, join me in the affluent entrepreneur Facebook group now by going to melabraham.com group, and I'll see you there.