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There are a lot of people that will try and sell you products wrapped up inside insurance-based products with some type of investment component. In this highlight, we discuss what those are and how they work and give you our personal take on whether those are good or bad.
For more information on this topic, check out this show called, “How Do I Tell Someone That Buying Whole Life Insurance is a Mistake?”
Mo-heed has a question. They say, a financial advisor suggested that I invest in an investment engine with death benefits instead of a backdoor Roth IRA. What could that be? I did some digging and it appears this is an index universal life insurance policy that tracks the market. Is this a good idea?
“So, Mo-heed has run into someone and said, ‘Hey, I’ve got this great solution for you instead of investing in a Roth IRA, you know those stinky old things. Let’s put you in something where you can mimic the market, but when you die, there’s still a benefit for you.’ What do you say?” As well as a universal index life insurance policy, something like that, it’s an equity. It’s one of the right, ratchet it up without the risk.
There are tons of products wrapped inside of insurance-based products where you have some sort of investment component, and we’ve done countless shows on the ins and outs of those, how they work, what they are. I’m going to give you sort of the Bo Hansen big overview of what I don’t like about it. I don’t like when you combine financial products because I think when you start combining them, neither of them can do the thing that they’re supposed to do really, really well. So when you combine, like life insurance is supposed to be there when you die. So what do I want when I buy life insurance? I want the maximum amount of money to go to my family at the lowest cost of me while I’m living. That’s what I want. With all my investments, I want the maximum amount of growth over the longest time period possible. When we end up putting those together, what you get is a subpar solution on both fronts. You get really, really expensive life insurance and really, really expensive poor-performing investments. So I am of the opinion, let your insurance be insurance, and let your investments be investments, and in my experience, when we do that, we often find ourselves in a better position. We do things like buy term and invest the difference or whatever the thing may be. I really love doing it that way. You agree, disagree, think it’s more nuanced than that?
I love insurance. I mean, because I think there’s definitely a time and a place for making sure that you’re protecting yourself from catastrophic type things, whether it’s disability or death. You do need to have coverage on that type of stuff, but that’s different than investing. So, let’s isolate those things. Because I have found that most people, most things, and products aren’t good at everything. Let’s find somebody, let’s get the best of class on everything we do. I’ve told you how much we love index investing. I told you how much we love term life insurance and we love buying disability. Why not go get industry leaders in each of those categories instead of getting something that’s lukewarm, that probably isn’t going to serve your purpose in a purposeful way except for the person that sold it to you? I bet if you ask them how much they make off of it, if you saw the number, you might be a little surprised.
Let me say one other thing. I know this question is going to go a little bit long, but maybe you have someone in your life saying something along the lines of, “Well yeah, but wealthy people invest in insurance products. Wealthy people do that.” Well, this is a solution for wealthy people. As two guys here who literally work with wealthy people for a living, it’s not. It is true a lot of other folks do use insurance products as a means and a mechanism to serve a specific purpose. Maybe they have businesses or they have illiquid land. There’s some reason that they have an estate tax purpose. It is a very small percentage of folks that actually end up having to do that. Then you get this thought, “Oh well, maybe there’s people that build it up and they borrow from themselves.” That right there is a premise of itself that I can’t get over. Why on earth, when I’m trying to build financial independence, would I want to be held to an insurance company? I have to borrow money from myself, and the only way that I kind of win in that scenario is if I die, right? Like if I die before the money runs out or I got to start putting money back into it. I think a lot of people, because they’re complicated and they’re difficult to understand, it’s just putting this black box of “this is what wealthy folks do.” I don’t know that I would agree with that.
Yeah, I just, you know, I know we’ll take some flack because we do have some really good insurance people that follow us, and they’ll be like, “guys, I wish you wouldn’t pick on us” but I would just tell you, make sure that when you’re doing the due diligence with your clients and your prospects, that you actually really are doing what they need. That’s the big thing. I think if your business will flourish if people can tell you’re not selling product, that you’re actually trying to be a technician and giving people the guidance that they need.
For more information on how to maximize every dollar, check out our Financial Order of Operations course.
