Next we have C's question. He says, "My friend has been pushing me to buy index life insurance and to join her business. It looks like an MLM. Is this a good idea? Do they really make how much they say they make?"
Oh man, this is gonna be... this is another rant. This could be fun. It's more of an education point. Let me start at the end of the question. Manny, do insurance salesmen make as much as they say they do? If they're slanging a lot of insurance, they do because insurance is one of the single most profitable financial products that you can sell because you can get really big commissions. Now, even on... like it didn't... you know, that doesn't... don't mishear me. Insurance salesmen are not bad people. I'm not suggesting that you'd hate yourself if you said that. I would hate myself. I said I used to do it, right? That's how I have some insight. I used to sell insurance at the beginning of my career.
When they sell a premium, it's not uncommon for the insurance company to pay them 50%, 80%, even sometimes as high as 100% of your first-year premium. Well, you can imagine that. Like if you sell somebody a premium that's a thousand bucks and at the low end, they get 50% of that, that's 500 bucks. Boom! What if you sell somebody that has a premium that's ten thousand dollars and they get 50% of that? Well, you can see how the numbers start to add up really quickly. But you can also see where the conflict of interest exists, man. If I, and sometimes it's not even intentional, I think... I think some people are well-meaning, but they just drink the Kool-Aid. Man, if I sell these expensive products, it's more profitable for the company and more profitable for me, and I've kind of justified why it might make sense for the person buying it. And you kind of go through this place. So, can you make a lot of money? Yeah, but it's hard. I mean, ask anyone who's been in the insurance business for a long time. It's hard to sell because you gotta always be looking for the next sale and going to find the next person. And especially if you don't feel very convicted about the thing that you're doing. Hey, this is why this is the best solution for you. It's going to be hard to find a lot of fulfillment in that. So, I'd even speak to other, uh, Manny. Should you be buying index life insurance? That's just some backdrop on how the insurance industry works and why the salesman on the other side might be trying to appeal for you to join their team.
Well, I'll take these in two forms. So, let's first talk about equity index annuities. These things are popular whenever the markets are in a volatile period. But here's the catch on these things. There's, first, they can control your behavior. You'll have surrender periods, typically seven, ten years, maybe even beyond that. Man, if you can't get access to your money, I know they'll tell you you can take a small percentage. But if you had a big need, like a medical expense or you just wanted to invest this money because you had a chance of a lifetime to do something, they're going to restrict how much you can take. Their surrender periods are huge. So, that's how they know they can take your money and go fully invested, and it will be okay because you can't get back to your money until, once you're into seven, ten years in the future. That's a long term. No matter what volatility is going on, they're probably going to be fine from a performance standpoint.
The other thing is participation rate. A lot of people don't realize when you look at these equity index annuities, what we get excited about investing is, you think about years like 2021, where returns on indexes exceed 20 percent. You think about... I mean, by the way, think about the '90s. I mean, man, there was a period because I remember I graduated college in the mid-'90s, and I was like, "Man, I just wish I had money. I wish I'm broke as a joke." So, even though the markets were making, you know, 28, 30 percent, I'm not making... I'm making a few hundred bucks because I just don't have a lot of money in the market, but I'm trying, you know? And then I think about equity index annuities where they capped that performance. Go look at the fine print, and it depends on how the policy is written. It might be 7 percent; it might be 9 percent. But you see how they... who do you think's keeping all that money above and beyond? And that's... it's those outsized years that really blow up your performance. Plus, think about the dividends being reinvested; all that stuff gets stripped away. So, just be careful of those because there's... yes, they're tied to the market performance with a big old asterisk, a bunch of buts of... but, you know, you can't do this; you can't do that, and you know, we're gonna restrict this; we're gonna restrict that. That's not the same as investing. So, be careful of that.
Now, let's talk about the whole... not only does she want you or he... I can't remember what you said, but they will not only want you to buy the product, they want you to go into business with them, join their team. Well, here's a cautionary tale. Ask yourself, has this person who's selling this product to me been doing this for five years or at least ten thousand hours' worth of services? The answer is no; then you are probably on their list of a hundred to three hundred people that they had to write down that are friends and family that they're now pitching within their network circle. I would ask you, before you take any job in the wonderful world of personal finance, to put a fence and a barrier around your friends and family until you have ten thousand hours. Amen. I want you to be an expert, a master of all the knowledge needed to be a success. And if somebody is asking you to call your loved ones, people who are a consideration in the contract is that they absolutely love you and want to see you be successful, then are you really doing this right to be calling them before you know what the heck you're even dealing with? I say no. That's why when we hire financial associates here, we tell them, "Let me go ahead and tell you, you're in Shangri-La because nobody here is expecting you to go market, cold call, get business. No. You turn into a technician. You become a beast in the world of financial planning. You learn from all the case studies, from all the new clients coming in, how to become the best version of yourself. After you've done this for five years, yeah, if Aunt Louise wants to come sign up, then great. But I'm not telling you to go market to her because I want you to be the best version of yourself in this industry. So do not, Manny, if you do this, don't call a friend or family for the first five years. And then, by the way, you want to ask them that in the interview. You've got to say, 'Hey, do I need to write down a hundred people I've got to call? Do you expect me to start calling my friends and family in the first few months?' If the answer is yes, I don't know, especially if you come from humble beginnings, how are you gonna do this? That's the thing I always think about. I mean, that's when I was twenty-something-year-old Brian sitting in his finance class, and I was looking around, going, 'How did... what do these people do after they graduate?' And all of them go work for broker-dealers or insurance companies, and they're selling... they're throwing pies like, 'Yeah, this is why I'm going to public accounting because I don't know anybody with any money.' You know, only... So, I moved over to public accounting, and now I'm all excited because every parent is usually a CPA that has a kid in this evening. I'm like, 'Oh, I've hit some pay dirt here because now I can go learn how to be really good at something, turn that into a skill set that then I get to go market at a later point.' That's the better way to do it. That's where wisdom, that's where knowledge, that's where expertise comes from, not just because somebody loves you, and now you're gonna go turn them into a client. For more information, check out our
free resources.
