97: The Best Mindset to Start a Whole Life Insurance Policy

097 Best Mindset to Start Whole Life Insurance

John Montoya: [00:00:00] Hello everyone. Welcome to Strategic Whole Life, formerly The Fifth Edition podcast. Episode number 97, titled The Best Mindset to Start Whole Life Insurance. John, welcome back from the think tank and from across the pond. Always good to reconnect with you. In today's episode, we're going to discuss how to get lucky with whole life and the benefit of locking in your cost basis essentially locking in your insurability.

Let's go ahead and get started. I I wanted to start with. The two ways that we get lucky with whole life. And I think the mindset that is needed is really actually quite simple when we break it down, it's a number one curiosity and two courage. And I'll start with curiosity because it seems like everyone we meet. Has an opinion on whole life and what those opinions are will [00:01:00] vary from one person to the next. But I think what's most important is the time that people actually spend prioritizing learning about whole life. Because when people think about life insurance, I think it's very easy to overlook all the benefits that.

Come wrapped in this envelope of a whole life policy that it's it becomes very almost generic. It's like for most people, oh life insurance is just about the death benefit and how much do I need? And what's the cheapest way and easiest way that I can obtain enough for my family.

And there really isn't enough curiosity to be, to go beyond the death benefit. And. Because of that, I think people miss the bigger picture, the bigger perspective on everything that a whole life policy can provide. And so for a [00:02:00] lot of reasons, I think people who not only delve deeper and take action, really, I term these people lucky because they took the time to dismiss at a, I would say a generic level there.

Their conceptions of life insurance. And I was going to say misconceptions. But I think misconceptions is probably the right word because one of my favorite sayings is that what most people think they know about life insurance is someone else's misunderstanding. And so to have enough curiosity to get lucky with whole life it it really takes a person who has a I'd say a.

Intrepid, intrepid spirit to to continue to learn. Nelson calls it the arrival syndrome. Most people just stop and, never pick up a book after a certain age and their mindset [00:03:00] doesn't continue to grow. And to really have the best mindset in getting started with whole life insurance curiosity definitely required.

John Perrings: It sure is required. Whole life insurance is a different type of asset. When you look in at different asset classes, you've got stocks, bonds, real estate, and cash treasuries, CDs, and then you have life insurance. Life insurance is just another asset class, but it works very differently than your typical type of investment.

And that's why we say whole life insurance is not an investment. It's really a cash asset that is all designed using actuarial science. So you have this, the actuarial math that goes behind developing these insurance products and it gives us a little blink into the future about, how much can be used and when it creates a product that really can't be replicated without it.[00:04:00]

And so what's interesting is it's a pretty simple product when you get down to it in terms of what you get out of it. But it requires a little bit of a different. Mindset, like you're saying, it requires the curiosity to understand what you're actually buying and why and not only why you're buying it, but why it works.

You get a lot of the I don't know, the typical social media stuff out there. And it's really just this, Vulgar cash value conversation where it's like, Hey, look at the cash value you get and look how fast you can borrow against it. And it just bleeds dry the life insurance policy at the earliest possible time.

And if you actually really understand what you have it, it's an asset that you just can't get anywhere else. It's a long term approach to strategic capital accumulation that will create just much [00:05:00] bigger and better and more secure and safer outcomes than what you can do, with anything else on its own.

And a lot of that has to do with the fact that you can use whole life insurance. And create value inside the whole life insurance policy and through the policy loan provision, use the cash value or leverage against the cash value to use that cash in something else. You're doing more than one thing at the same time with the same money, essentially.

John Montoya: Yeah, and all that learning, everything that you're talking about comes after you, you figure out that, wait, that this is a policy that that, does more than just provide a permanent death benefit. With a fixed premium, you mean that there's all these additional benefits? We had the author of The Fifth Option, I think episode 95, talking about how whole life adds to retirement income [00:06:00] options.

This is a completely, And the new way of thinking of how to get even more value out of whole life policies. And the fact that the majority of people, including financial advisors, aren't aware of this, or if they are, they're not bringing this up more often in order to provide more options for clients.

It It definitely is a requirement for people to their own best advocate. I think we've said before, and this comes back again to just being curious enough. To understand why people continue to buy life insurance, specifically whole life, nearly 200 years after this product was created.

We, you and I have heard for quite a long time that whole life is outdated and it's boring and a poor investment and all the bad things that people can label it with. But here it is [00:07:00] working like clockwork for nearly 200 years. And I really think people ought to ask why is it still working? And I think what you would find is that it it works because it's based off of math, right? Two plus two equals four. That makes sense. And when you have a whole life policy and you get down to the bare mechanics of it, and you understand that the cash value today must equal the future death benefit tomorrow and every day out to age 125 or 121, excuse me, maybe someday in the future, 125.

It's just math people. It's not like. What people are accustomed to, which is an investment and they're thinking, Oh how can I 10 X this number over this timeframe? What type of risks do I have to take? Here's a contract. Like you said, it's not [00:08:00] an investment. This is guaranteed to perform two plus two.

The cash value is going to equal the death benefit. And there's only one type of contract. That spells us out and guarantees that what you want to have happen will happen. No luck, skill, or guesswork required, but be curious enough to understand why this happens, how it happens. And when you do that, it all makes sense.

John Perrings: Yeah. And the insurance companies will just put the numbers, right? On a, in a table for you in black and white, net of all costs, commissions, fees, et cetera. Whereas, what we're used to getting is maybe a statement at the end of every quarter or every year that gives us this kind of arbitrary.

If you're looking for a life insurance policy, you get a ledger, a year by year that tells you exactly what's going on. And if you're looking for a life insurance [00:09:00] policy, you get a ledger, a year by year that tells you exactly what's going on. What's going to happen on a guaranteed basis.

And it'll tell you what it will have exactly what will happen on a non guaranteed basis using the current assumptions, assuming, all the premium payments are paid and all that stuff. So it's a, it's just a night and day kind of difference. And so you really just back to the idea of being curious, you really have to care enough to be curious, to look into what's really happening with a life insurance policy.

And. Get away from the investment type of mindset. Because when you look at this as an investment, rather than a life insurance policy it starts to skew things and it starts to skew why you'd want to pay a premium. Whereas when you're looking at this as a strategic source of capital, you can't wait to pay premium.

You, and you never want to stop paying premium because we always need a place to store cash[00:10:00]

John Montoya: That's right. That this becomes ultimately a way for you to allocate capital across your entire life and do so with the ability to really, it's called becoming your own banker for a reason. You're, you've got the sovereignty to decide how you want to deploy your capital and repay that over the, any timeframe that you choose eliminating the middleman, which is, The traditional fractional reserve banks that we're all conditioned to think we have to use to build wealth.

And that's just not the case. One, be curious too. I say in order to be lucky with whole life, you also have to be courageous. You have to be courage to, you have to have the courage to act differently because let's face it. If you. If you are curious enough to delve deeper in understanding how whole life policies work, that's not enough.

[00:11:00] That really isn't. Because you really have to have the courage to take action. And that means paying a premium and to hit on what you just said, John you look forward to it each year, but it might not be natural to you at first, but the further along you get into having your whole life policies, the More than one eventually the more you realize the power of every premium of getting that to work for you and being able to accumulate capital that is completely under your control without needing a, a banking, a trusted banking third party to to, basically.

You have to ask permission in order to get a traditional loan. None of that really takes place with a whole life policy. You basically ask two questions. You know, how much can I get? And it's going to be up to your available cash value. And the insurance company will ask where [00:12:00] would you like it sent?

And it's pretty much that simple. They don't need to know your credit scores, your income, what you do for work and. It's a private contract between you and a private life insurance company. It's a beautiful thing but it requires the courage to take action and, go a bit against the grain, especially if you're stuck on the narrative that these types of policies are, are a scam or a fraud or, more labels that that people who don't understand whole life, let alone practice what we're talking about it's easy to label.

Getting lucky with whole life. Curiosity and courage.

John Perrings: and everyone has a. brother friend, boss, a wife or a husband, or, someone in their life who's standing by ready to tell you how whole life is a horrible investment or something like that. And all the news and the, mainstream financial information. It's pervasive.[00:13:00]

And. It's really baffling as to why, because again, we just talked about this. What else has the type of growth that you have with Whole Life and still have guarantees? Like it's it's mind boggling to me how the. Standard, financial advice has really gone against whole life.

It really, it doesn't make any sense. So what I'm saying though, is be ready for that and, be steadfast in your belief that, Hey, I'm buying this rock solid guaranteed asset that. Can never go down. It's got an almost 200 year track record better than anything in the markets. That's for sure.

And it's got the liquidity that you need and it's got a, the ability to leverage it all backed by the insurance company. The underlying collateral is guaranteed by the insurance company anytime you use a policy loan. You know, don't get [00:14:00] too dissuaded by the By the typical people out there and their typical thinking, somehow a lot of people have been brainwashed into the idea that you have to take risks to get higher, take on high risk, get a high return.

And the only thing that matters is high returns. Again, if you can create three, 5 percent returns with no risk That's a 15 percent return. And that's the kind of thing you can do when you have the access to capital that you can keep recycling over and over again, and getting the use of your money in more than one place at the same time.

So rather than putting your money in one place, trying to take on high risk to get a high return, you can take no risk and use it in multiple places and get the same, or even a better return on your money, especially over the long run. But that takes courage. A lot of, people will tell you're crazy.

Your spouse will not understand it. It gets, and that actually gets back to the curiosity piece, where if you have [00:15:00] someone in your life, who's not curious enough to, try to learn and understand what's going on. It can be difficult. So you gotta. Pull your pants up, put on your bracers and, uh, draw your sword, put on your shield and get ready to go.

And so that's that's what I got on that side.

John Montoya: You're talking about velocity of money and creating wealth. And it made me think of how people who create wealth and do it very well they, they do it faster by being smart with leverage. Now for the typical investor. They'll do it through Wall Street or through accumulating real estate.

And we've talked on recent episodes about margin loans. And, people are familiar with going out to a traditional bank to obtain financing to purchase loans. Real estate or businesses, and in both cases, we're talking about different forms of [00:16:00] leverage, and I think it's really important to understand that with whole life and practicing, IBC, you have the ability to control the banking function, that lending function, and to control the leverage.

In a superior way that, that can't be duplicated by borrowing someone else's money, by borrowing bank money, by borrowing money on margin because Both of those examples carry risk risk that you don't have when you take a policy loan, because think about it very simply, when you take a policy loan, what is your collateral, right?

It's the cash value that you've already put up. All right. So the life insurance company doesn't care whether you take two months, 10 years, or maybe you're going to use it for income in retirement. If you ever pay back that loan at all. Now we do educate people and caution them about, being responsible.

[00:17:00] You want to when you're working certainly to repay those loans and restock the shelves, so to speak. That way you can take future loans. You want to be an honest banker is what Nelson would say. But. The core of what I'm trying to say here is that you have the ability to leverage smartly and, in a safer manner that otherwise wouldn't exist if, to the theme of this episode, unless you have the curiosity and courage to get started with whole life and realize the benefits that you have in these policies.

John Perrings: Yeah, that's awesome.

John Montoya: Let's do this. Let's I think we've covered curiosity and courage to get started in the mindset. The benefit of actually taking action and getting your first policy. Going what what does that do in terms of whole life compared to everything else, John? And I'm speaking to the cost basis here.

John Perrings: Sorry. You mean, I'm not sure what you're, where you're [00:18:00] going with that. So you may need to take that one.

John Montoya: Oh, I just wanted you to talk about the importance of cost basis.

John Perrings: I don't really understand what you're talking about with cost basis. Sorry.

John Montoya: Okay. All all right. So we've we've covered curiosity and courage and the mindset to getting lucky with whole life. What we next want to delve into is the benefit of taking action. All right. You under, you understand that in order to proceed with getting started with whole life requires curiosity, courage but what's the benefit of actually getting started doing this for as long as that I've been doing this, I hear it over and over again that I wish I would've got started 20 years ago.

And what's one of the biggest reasons why people say this is because they realize the value of locking in their insurability. The cost basis on their life, if you will, because when you have a whole life policy that you have issued on your life, it locks in your [00:19:00] age from that date forward, your premium is guaranteed never to increase.

So in investment terms, when you make an investment, the amount of capital that you put up, that is your cost basis. When you start a whole life policy, there's only one type Of permanent life insurance policy that actually locks in your cost basis. And they do that with a whole life policy by locking in your current age.

There, even though there is another type of quote unquote permanent life insurance policy that you can buy, it's called a universal policy and there's different flavors of it. There isn't a one universal policy. That actually locks in your age and guarantees you that your premium will never increase on you. Only a whole life policy will do that. A a universal policy basically is [00:20:00] an annual one year annual term policy that renews every single year and gets more expensive. So on a permanent basis, yes, if you continue to pay the premiums, if you can afford them over the long run you will have your premiums.

Your universal life permanently. But that's if you can afford to keep it. And if, you get a little bit lucky, I should say because, if the interest earning capacity of that possible is able to stay ahead of the increasing cost of insurance you gambled and won. But you didn't have to do that with whole life and whole life completely removes that.

Aspect of having to stay ahead of these increasing future costs. And so that, that's what I mean about the importance of establishing this cost basis. It really, in layman's terms, it's just, it's locking in your insurability.

John Perrings: That's an awesome point. And it's like a mortgage, a lot of people are really [00:21:00] interested in pre paying their mortgage or paying their mortgage off as quickly as possible. Like a 30 year mortgage, when you pay that over 30 years with inflation, that payment gets less and less and really starts to work in your favor.

And the same thing happens when you're, making premium payments to a whole life insurance policy. The, everything is guaranteed based on that premium that you started with and so it's really never going to increase. And, with those universal policies that Montoya was just talking about, he mentioned that the, it's a annually renewing term insurance that is the chassis of the whole thing.

The important thing to understand with that though is the word renewing. So that renews every year and we don't actually know what the cost will be. We know it's going to go up, but it could actually go up more than what was used to illustrate the policy when you bought it because it renews.

So the insurance company decides what the new rate's going to [00:22:00] be for that term insurance portion of it every single year. In that respect, locking in. Your insurability and locking in the cost basis. That's a huge deal because it's not necessarily the returns of a UL that's going to cause the problems, it's the costs.

And with Whole Life, everything is baked in and, We probably ought to make a little caveat that there could be some term riders that change that story just a little bit some more than others, but so just be aware that if a term rider is being used that could add some variance to that, but for the most part, whole life insurance, just locking in all the costs all the way through, everything's baked in and everything on the ledger is net of all costs, insurance costs, fees, commissions, all that stuff.

John Montoya: Yeah. And I can't tell you or emphasize enough how many times I've talked to people who think they have a whole life policy only to turn out, they had a universal policy. And they're so [00:23:00] utterly disappointed.

John Perrings: Yeah.

John Montoya: And it's because, they've reached out and they can't figure out why their premiums are getting more expensive every single year.

And, that's not the way a whole life policy is supposed to work. Well, you read the fine print on your contract and it's not that hard to find. It's a universal policy, not a whole life. And. It it just really makes me realize how blessed people are who get started with whole life and know for, with certainty that what they have. Is a whole life policy compared to a universal policy. And, the idea that I had in, in scripting out the notes for the show, getting lucky with whole life, it really came to fruition from that experience and talking to people who had the unfortunate experience of coming to the realization that they had a [00:24:00] universal life policy.

They they were unlucky in a way or so to speak, because what they thought they had wasn't and in working with them, in most cases I'm able to rectify it if their health is such that they can, requalify. And there's ways to do a 1035 exchange if that's optimal, but and that's moving cash value from one permanent policy to another, if you're unfamiliar with a 1035 exchange.

But getting lucky with Whole Life is really in that regards, once it's in place, it's coming to the realization that what you have, once it's locked in, It really can't ever be taken away from you because it's guaranteed to perform. You've got really one responsibility at that point, and that is capitalizing it.

John Perrings: I think what I'm hearing is getting lucky with whole life is really what you're saying is you don't need any luck with whole life. You need all, you need luck with everything else.

John Montoya: And I [00:25:00] would add that you need a little bit of luck to get started. Because going back to the mindset if you're not curious, or maybe curious enough, you're going to dismiss it. And you're going to dismiss it until you have an event in your life. That makes you perhaps question your own mortality or makes you question, why is this successful person I know, why do they have a whole life?

But everyone else has told me in my life that I should just buy term. so it requires more curiosity at that stage, but you're willing to look deeper into it, or at that point, now that you've done the homework you're ready to, take action and, be different, be like that successful person who has a whole life and, sometimes also, There are people that whole have, there are people that have whole life policies and don't even realize what they have.

And I've been on the opposite end of those conversations too, where I remember this [00:26:00] gentleman this is a long time ago, but he had a number of whole life policies that he bought in his late twenties, thirties when he was just starting his career. And I talked to him when he was in his sixties and he'd been thinking about his policies just for the death benefit.

And can you imagine for decades, not even though we all get an annual statement and it says the cash value on it, for some people it, the annual statements, it's just a, like a premium notice and here's your death benefit. And they don't realize that the cash value.

Is liquid and it's accessible and you can utilize it. And at that point when he reached out to me, he had racked up almost six digits worth of debt and with one fell swoop, he wasn't a client of mine. But I can tell you and share with you the gratitude that he had for me, just explaining how he could pay off six digits worth of debt at double digit interest rates with his policy [00:27:00] loans, and redirect that money back to himself.

He never knew this he, he had this capacity within his whole life Pol policies. So in another way, he got lucky. He had the right policy and he had been funding it for decades.

John Perrings: that's an awesome story. And Nelson Nash used to say, the infinite banking concept is often more caught than it is taught. So getting lucky with yeah. The aware, finding the awareness to do the two things you're talking about, have that curiosity and the courage to look into something.

So it's almost like getting lucky and catching the idea. That's pretty good. I'll just add one more quick thing just on the side of. How you don't need to get lucky. Um, I just had a call today where, someone was talking about, correctly designing a policy, which is talked about quite a bit on YouTube and social media, talking about [00:28:00] correctly designed IBC policies.

And the reality is you don't, there is nothing like that. If you buy a whole life insurance policy, even if it's not designed for IBC at all, it's straight whole life. It's still an amazing, incredible asset. Just to your point, John, I bet that guy didn't have a PUA rider or a term rider on there. He probably just had straight whole life policies and now, and he had an incredible asset.

So it's got to get lucky in terms of yeah. Being in the right mindset and the right place at the right time to catch this idea, but you don't have to, no luck, you said it, this is your line, Montoya, so I'm stealing it. No luck, skill, or guesswork required when it comes to actually buying a policy.

It doesn't really matter in the grand scheme of things. All that said, we do design policies for IBC to build cash value in the early years, but if you don't get one, you're not unlucky. You still have one of the best assets you could possibly own.[00:29:00]

John Montoya: 100%. Yep. That's all I have, John. You want to wrap this one up?

John Perrings: Absolutely. If any of this has resonated with you and you'd like to learn a little bit more about how this could apply in your life specifically, you can head over to www. strategichollife. com, and you can book a free 30 minute consultation with us right there on the website. And we can talk about you specifically and what's going on in your life and how this could apply for you.

And if you're one of the type of people. Like I was that likes to just learn as much as you can before you talk to anyone. You can get access to our online course, IBC Mastery at strategicwholelife. com and learn all there is to learn in there before talking to anyone. And you can either talk to us when you're done or talk to your advisor when you're done either way.

I think that's it. Thanks, John Montoya.

John Montoya: Awesome. Welcome back and thank you to all the listeners. We'll connect with you on the next one. Take [00:30:00] care.