Video Transcript: What is Life Insurance? Part 1

Video transcript- What is Life Insurance? Part 1

Welcome back. This is Alex Barron with World Heritage and Financial Freedom and Success Institute here to discuss the financial security seminar How to Become Your Own Bank. 

We're now going to focus in on why life insurance and what is life insurance aconsistfter all, how does it work? Life insurance is simply a contract between yourself and the life insurance company. There's three factors that are going to affect well, let me go back. What, what does this contract consists of this,t consists of that you're going to be sending some money into this life insurance company. And they're going to protect your family in case something happens to you and you pass away. 

Okay, so what are the three factors that affect the cost of a life insurance policy, there's three main factors.The main one is Age. If you're fortunate enough to get a life insurance contract, when you're young, you could end up saving lots and lots of money. Why? Because the probability of you passing away at a young age are very small. If you're an older person, it's going to cost you a lot more money. So we really encourage people to get one of these types of insurance policies as young as possible. 

The second thing that affects the cost of a life insurance policy is your health. Clearly, somebody who exercises and who is not overweight, is going to have a much better health than somebody who smokes, doesn't exercise and is overweight. So we really encourage you to focus in on your health. 

And lastly, your sex is going to affect what the cost of the life insurance policy is. What I mean by this is that generally speaking, the life expectancy of a woman is longer than that of a man. So therefore, men get to pay more money than a similar aged woman for the same policy. So the three best things you can do to have the cost of your insurance go down, is to be young, healthy, beautiful woman, right? Now, if you're a guy, it's okay. But you know, we're gonna have to pay a little bit more. 

All right, so why is it that we would want life insurance? Well, there's a several reasons why people want life insurance, but the main one is to take care of their family. None of us is guaranteed existence here on planet Earth. I've known several people who passed away when they're pretty young, sometimes in their 30s, sometimes in their 40s. Not everybody necessarily makes it to the time when they're 70, or 80 years old. 

So if you have a family, or if you think you're going to have a family in the near future, it makes all the sense in the world to protect them. Because essentially, what a life insurance plan does, is to provide a large sum of money to protect your family and replace the income that you would have provided for them. And it doesn't cost very much to do so. 

The second thing is that this money, for example, if you're a man and you pass away prematurely, your wife can use this money to pay off your home, to pay your children's education, and to have money to live off of while she gets back up on her feet after basically, the funeral. The second thing is, while you're alive, you don't have to necessarily just wait till you pass away to enjoy the benefits of having one of these policies. One of the most important and often most often overlooked benefits of having one of these policies is that you can basically, use the money that you're putting in there to create a savings plan to pay yourself first, as we said in the Financial Freedom program. 

But the money that you're putting in there is helping you basically acquire a savings habit so that you have a safe and reliable place. Where do you put your money that's not going to be exposed to risk. And it's not going to be going up and down. Instead, it's going to be going up consistently. When you have that money there for 10,20,30,40, maybe 50 years, it's going to grow tremendously as we're going to show you an example here pretty soon. And that money is going to start to pay you an income in your later years when you don't want to work anymore. It also has the advantages that the money that your beneficiaries would get back in the form of the death benefit, or that you're able to borrow out of the policy and can be tax free. So that's a huge benefit not having to pay taxes on this money. 

And lastly, in case you were to get sued Many in many states, life insurance offers protection from creditors, and from predators who can't touch this money. As I said before, you know, taking care of your family, I think is one of the main things that we should be focused on. as good stewards. You know, we're responsible for our family, we should love our family. And we should really do everything that's in our power to do what we can to protect them in case, we were to pass away, either now, or later on down the future. 

We're all gonna die someday, it's just a matter of when some people have no life insurance. And for those people, I would say, at least get yourself a term life insurance, because those don't cost very much money. But if you want to really think longer term, I think I'm going to make a case that you ought to be considering a permanent form of life insurance, because the term at some point is going to end. And if you don't pass away within those 10,20 or 30 years that you purchase, or if you get fired from your job, you're gonna end up losing everything that was paid into that policy. So what I would encourage you to do is make this a protection, make this a priority. And sorry, don't leave your family with protection, especially if you're young, it's not going to cost you very much as we're going to show you. 

Now there's four parties to the contract to life insurance contract. The first one and the most important is the owner. That's the person who starts a policy and that's the person who is going to be responsible for making the payments. The owner is also the person who gets to decide who is the beneficiary, and who gets to basically make a lot of decisions and choices about what happens to the policy. Now, you can designate one or more beneficiaries, the beneficiary is the person who gets the money in case the insured person passes away, the insured is the person or the life who's going to be underwritten, who is going to be analyzed and who's basically going to be covered by this policy. 

And lastly, we have the insurance company who's the one that manages the whole process. They're the ones who tell you how much money you need to pay into the to the policy, they're the ones who administer that money, who invest that money, who lend you the money, and ultimately, who pay out the money in case something happens. So we see a diagram here that basically explains this, we have the insurance company, they create the insurance policy, we have the owner over here, who's the one who pays out the premiums month after month, year after year, we have the life of the insured person who could very well be the same person as the owner doesn't have to be, but he could be. And then we have the beneficiary who's the one who's going to receive the death benefit once the insured person passes away.

So there's several components to the life insurance policy. First of all, we have the premium This is the amount of money that you're going to pay every month or every quarter every year on a consistent basis, 

Then we have the death benefit, which is the amount of money that your family or your loved ones are going to get when the insured person passes away, which could be used. In the permanent life insurance policy, we have what's called cash value and cash value is the amount of money that's available for you to borrow as a limit each at the end of every year. 

And lastly, we have what's called dividends, dividends, the way to think about it is basically a form of Return of Premium or a form of interest that you get back at the end of every year. This is based on how the company performed and how it did relative to their expectations. And typically a dividend is not guaranteed. But it is tax free because it's a return of your premium. 

Now, who can you write an insurance policy on? It has to be what's called an insurable interest. So insurable interest is simply a person that you have every reason not to hope that they pass away anytime soon. Typically, it's somebody that's very close to you could be your spouse, it could be your brothers. It could be your children, it can be your grandchildren, it can be your parents, it can be somebody that's related to you. In a business setting, it can be your business partner, or your employees.

There's four basic types of life insurance. There's what's called term life insurance, which is temporary. This is the best way to think about it. It's something that you rent for a period of time could be 10 years, 20 years, 30 years, something like that. Or it could be year by year. There's Another form of insurance that many people have called universal life insurance. Typically, we recommend to people not to get this type of insurance. Because what happens, it starts off cheaper in the beginning, but it becomes more expensive and prohibitively expensive. The older you get until eventually, you can't afford it anymore. So we don't recommend this type of insurance. A whole life insurance is something where it's permanent, but the cost remains flat throughout the duration of the contract. And at some point, the payments are limited. 

And lastly, the one we think makes the most sense, is a combination of the first and the third, in a special way, which we're going to show you called Become your own bank type of policy type of insurance. Essentially, what it does is it combines the best features of a term life insurance in that it's less expensive. It combines the best features of a whole life and that it's permanent. And it has an extra writer, which we're going to talk about in a minute called paid up additions, which allows the policy to expand and to grow over time, which is where the banking features really highlighting themselves in command. 

Let's talk about what are the pros and cons of having the term life insurance. Many of the gurus on TV, they say, you know, that whole life insurance is no good and that you should buy term life insurance? Well, they're right and that the cost of insurance is low. The death benefit is relatively high for that cause, the death benefit is tax free, and you do have peace of mind. But what are the cons? The cons are that because you're only insured, typically, in a period of time when you're young and healthy. The insurance companies essentially making a bet that they're not going to pay out on that death benefit. And if you don't die, therefore, what that means is that all the money you paid in is going to be lost. 

Now, if you do happen to renew this policy, after the initial period, the costs are going to go way up, as I'm going to show you here pretty shortly. So generally, when you need it the most, which is at the end of your life, is when this policy is going to be gone, because most likely you're going to cut it off. You can't even borrow against it because it has no cash value. So we think having the term life insurance is better than having no insurance. But in general, we don't really recommend it for the long haul. 

Now, just to give you an example of how this works, let's say you're a 40 year old man, and you get a term life insurance for $200,000 for 20 years. So what that means is that between the age of 40, and 60, if anything happens to you, your family is going to receive a sum of $200,000. But if you pass away after the age of 60, they're going to get zero, they're not going to get anything. 

Now how much does it cost to have one of these policies, typically, the costs are fixed. In this case, it's $30 a month, or $457 Each and every single year. Now, if you add it up, at first, it doesn't sound like it's a lot of money. But once you start adding it up over 20 years, you're gonna end up paying any, I'm sorry, $9,114. So if nothing happens to you, that's $9,000, you're never going to see, bye bye, you know that money's gone. 

Now, what happens if you want to keep this policy for one more year, if you want to keep it for one more year, the cost is going to jump almost 10 times from $457 to $33,894, just for one extra year of coverage. If you want to keep it on for one more year, that's an extra $4,000 $4,300, and so forth. So you can see here, every year, the cost just keeps going higher and higher. Because the insurance company is basically hoping that you cut this off. So if you look at it in the chart, as we have it here, the cost of the premium start off pretty low. But if you don't die within this period of time you want to keep it the cost is going to skyrocket tremendously. 

The term offers a death benefit that's fixed for a period of time, and if you don't pass away, it's going to drop to zero unless you decide to renew it. A term policy offers no dividends throughout the period that you have it and it offers absolutely no cash value. As we said this is typically good to have in your early years while you establish a more permanent form of life insurance. Let's talk about Long Life Insurance for now, if you have any questions about anything that we're talking about, go ahead and send them in. And we will address them at the end of the segment. A whole life insurance essentially has some benefits and some cons as well. The main benefit is a death benefit that you get is permanent, and it grows over time, and it's tax free. 

So therefore, you're going to have peace of mind not just for 10 years, or 20 or 30 years, you're going to have peace of mind for the rest of your life. Because there's never this benefit never expires. A whole life insurance is also going to pay you dividends, which can be reinvested every year, or you can receive them as income, the cash value of the policy is going to grow by a minimum guaranteed rate. But it's possible it can grow more than that. And you're going to have it around when you need it the most, which is at the end of your life, you don't lose all the money that you put into it like a term life insurance, in fact, you get it back and then some. And after a few years, you recover the money. And it also offered a legal protection in case you are sued, or in case of creditors or in case of creditors. And part of the money that's in the in the policy can be borrowed back after sometimes just a few years. And basically it creates a savings discipline. 

The cons, essentially is that the cost of having one of these plans is much higher than that of having a term life insurance. So some people argue, well, that's because the commission is high, and that's true, much higher. And lastly, the cash yield is relatively low. So some people say, well, a whole life insurance is a bad investment. Reality is that it's not an investment. It's meant to be insurance. And investment is something that's subject to risk here and there is no risk. And that's the whole point. The whole point instead, it's to offset risk. And it's meant to give you protection.

 So if we look at how a whole life insurance works, essentially what we have here is a plan that's going to cover you for a period of time. For limited costs, and after that the cost is going to drop to zero, the death benefit is going to go up over time, the cash value of this policy is also going to go up over time. And it's also going to be paying you dividends over time. 

So if we look at this here, essentially the cost stays the same. But as I said, the death benefit goes up over time. And so that's how that works. So what's better, is it better to have term insurance, or to have whole life insurance? Well, each of them have their own benefits. And they said, the term insurance, the cost is going to go up a lot to renew it right at the time when your health is going down. And right at the time, when it's more certain that you're going to pass away. If you don't die within that period of time, you can lose all the money, and you're gonna have nothing to show for it a whole life basically cost more. So that's the downside, but it's going to be there throughout your whole life, it's going to be generating cash value, in addition to the death benefit. And when you are older, you're able to receive a portion of this money, tax free income. 

Now, there's a third and better concept than either a term or a whole life all by themselves. So this is what Nelson Nash call this concept, infinite banking, becoming your own banker. What this consists of is essentially a way to get the best of both worlds from the term and the whole life. And then even third component that's even better. It does require a capitalization period, which basically means in the initial stages, you've got to put in a little bit of money before it starts to give you back. But the main benefit is that you can borrow against your policy. And you can pay yourself back with interest instead of paying back banks with interest. 

So let's kind of look at the benefits of this concept and some of the cons.The main benefit, again, is that the tax benefit is death free. You have peace of mind for life because the benefit never expires. The dividends that you receive in these policies can be reinvested. The cash value is going to start growing faster than in standalone whole life. And you're going to have this policy around when you need it most. You're not going to lose all the money quite the opposite, you're going to recoup the money within a shorter period of time, usually half of the time it takes to get it back in a whole life period, it does offer legal protection, you can borrow the money, sometimes even after just a couple of months of starting this plan, it acts as an automatic savings plan, the commission is much lower that the agent makes. So that means the more money is going to work for you. 

The death benefit is going to grow quickly, especially when you buy what's called paid up positions, which we're going to explain in a minute what those are. And essentially one of these plans can replace the need for you to have a 401 K and IRA or any type of traditional insurance, or college savings plans. The only downside is that very few agents know how this works, and therefore are not able to offer it to people. It does require medical examination, same as a whole life policy. And typically, it takes about three to four weeks to get approved by one of these insurance carriers. But we think that the pros definitely outweigh the cons. And so we're going to show you an example, that it makes economic sense for everybody to have on these types of plans. 

So how do these plans work? Well, essentially, these plants have three components. They have whole life, which serves as the base, we like to use the analogy of having a building. So it's basically the foundation of the contract is the whole life portion. 

It has a term life policy, which is a temporary component, sometimes it can last 10 or 20, or 30 years. What this does, though, is it gives you time and ability and capacity to be able to buy the third component, which is called the paid up additional insurance coverage. It's optional, it's not mandatory to have this but you really do want to have this, because this is what allows a policy to grow significantly over time. 

Now, these types of policies function in three basic ways. First, it offers, it works like life insurance, because that's what it is. So it offers protection in case you die in case you have a terminal illness. It offers you the ability to save money in a safe environment, which grows consistently in continuously overtime in a compounded manner. But it also offers you a line of credit, where you can borrow against the cash value of your policy.

So we kind of do a comparison of all these three components. We can see here in the red, how much money is going into the term, we can see here in the blue, how much money is going into the whole life. And we see that the majority of the money is going to be going into the third component called the paid up editions writer, we also see that the death benefit from the term is the red is going to be there for a while and then it's going to go away, the whole life is going to be there with you. 

But the component of insurance that's coming from fetal position is going to start off small, but over time, it's going to grow very quickly and continuously. And that's where the power really is. We also see that the dividends are coming from these data physicians are going to grow tremendously over time, especially as we put in more money. And that the cash value components coming from the paid up position is also going to be growing they're consistently. 

So let's look at a specific example. Just so you can get an idea what we're talking about. So if we consider a man who's 40 years old, there's different ways of ensuring him, let's say he wants $200,000 of death benefit in case something happens to him. And so that his wife can pay off the home where they live for maybe for 20 years, he might have this policy sorry, that should have said here's and the cost of this insurance would be about $9,000 but paying $457 for those 20 years, he's going to have no cash value, he's going to have a death benefit only for 20 years. So after those 20 years, he's going to have how much? Nothing, right? So let's say what happens by the time he's 75 years old, he's going to have nothing. How much money did he pay over those 20 years? 9000? How much have you gonna get back from those 9000? Nothing. 

So basically, this only offers you protection in the first 20 years. We're assuming here that maybe if He's smart, he's going to try to put away some money into some type of investments, like the gurus recommend, you know, maybe into a mutual fund. This is how much money he's probably going to have available to him if he goes with that plan versus going with this plan. The question is how Well, is this investment going to do for him? Is it really going to do as well as he might think? Maybe yes, maybe no. 

Now, let's say that he had gotten instead of whole life plan, whole life plan for a 40 year old male of $200,000, it's never going to expire, it's going to be with him the rest of his life, that's a good thing. But look at the cost, the cost of this plan is $4,670, for 35 years, right, so that's more than 10 times more expensive than this plan. 

So over those 35 years, he's going to end up spending $163,000, that might seem like a lot. But at the end of that timeframe, let's say when he's 75, how much money he's going to give back, he's going to have $261,000, so he's gonna get more than he put in almost $100,000 more. 

Now, if he passes away at 75, how much money is his family going to receive, his family's going to receive $375,000 tax free. So the benefit of having this plan versus this plan is that here, you're gonna have nothing coming from the life insurance plan, and you're only gonna get whatever you're able to invest in, however, that investment is able to do. If you have a whole life permanent insurance plan, you're gonna have a sum of money that's significantly larger than what you put in, right, and then the cash values. 

Now, let's compare the point of having the whole life versus having banking and yourself or become your own bank type insurance plan. When you have one of these plans, you're going to start off with the same $200,000 death benefit. However, look at the cost of these plans, this cost is going to be 15 and 33 per year, that's the minimum you can put in, however, you have the ability, not the obligation, but the opportunity or ability to put in an extra $6,000 per year as a maximum sum total. 

If you do both of these, which is about $7,500 times 20 years, you're going to be investing roughly $150,000 into one of these plans. Now, how much is this money going to turn into at the end of those 35 years that you've put this plan? This money 150,000 is going to try? And two $382,000? How much death benefit would you have at the end of the 75 years $549,000. That's more than three times what you put in.

So if we look at these plans, here's the temporary life insurance. Right? Here's the whole life insurance, which is better. But if you look at the become your own bank, life insurance plan, the death benefit is significantly larger, as well as the cash value, even though your cost of this insurance plan is significantly lower. How much better is it than the whole life? Well, in terms of the cost, it's only going to be about 3%, more, over 75 years, that worth 35 years period that you have, the cash value is going to be 46%. More that final death, and it's also going to be 46% Higher. But this one has a much more flexible payment plan, you're only required to put in 389 a month. As much you can make it as much as like we said, an extra $500 a month. I'm sorry, this is the whole life in this time, you're only going to have to put in 138 a month, you can make it up to 638 if you want if you put into the fetal position, but you're not required to do so. So there's a 67% less obligation month after month. However, if you do take advantage of putting in the maximum amount, the cash value even from year one is going to be 971% higher than you're able to borrow bank or have access to from one of these types of plans.

So hopefully this helps you to understand why we're so excited about this concept of becoming your own bank, and why we really believe that this is something that every family, at least here in America should be able to have. Now I want to be clear that these types of plans may or may not be available in other countries. In order to buy one of these plans, you have to be a US citizen, or a US resident. If you live in another country, check with your local life insurance agent and ask them if they have something like this. I know that in Mexico, there's something similar, it's not quite the same, there's a few differences. And I know that in Canada, there's also something that acts very similar, but mainly in the country where you live. And there may not be exactly something like this. 

But if you live here in the United States, and you're interested in getting one of these plans, reach out to us our website as wellheritage.com. My number is 915-637-5040, where you can reach us and we can help you, structure one of these plans we're licensed here in the United States. And we would be more than happy to help you structure one of these plans and discuss it so that it can be suited to your personal needs. 

Now, I'd like to just check in and see if there's any questions. For us at this time. We have a student named Wendy from Minnesota that says she's followed Suze Orman and Dave Ramsey for a long time. And she wonders why they never talk about something like this. Well, the problem is that those people don't really understand how this works. Even though they're supposed to be experts. The reality is that they're miles and miles away from understanding this type of life insurance plan. In fact, they always poopoo them, and they say that you should stay away from whole life insurance. And sadly, they push people to focus in on term life insurance. But as we said, term life insurance is going to end at the end of 10 or 20 years. Or if you have it through your job, the minute you walk away from your job, or they lay you off. So I don't understand why they haven't really researched this. But, you know, there's a challenge out there that they would get paid $100,000 If they can show why this doesn't work, or why they have a better plan. To this date, they haven't answered that challenge. But I really think that they do a disservice to people who watch them by not really taking the time to research this concept. Because since they have such a large audience, they really would benefit a lot of people if they would actually do this. But it's precisely because they teach the wrong things that I'm doing this today. I really believe that the goal is to make families more self sufficient, and more independent and financially free. And that implementing one of these strategies into their lives would really make a huge difference in terms of setting your family up for success, rather than just giving them a temporary solution. 

The other thing that they teach, which is incorrect, is that if you put the money into mutual funds, you're gonna get 10 to 20%. To they said, That's a complete fallacy that's totally unverified, I can be happy to show you how that's not true. But essentially, you know, they teach some good things like get out of debt. And that's good. I teach the same thing. But I do believe that protecting your family and setting you're setting yourself up for retirement is also very important. And the way to do it is not through mutual funds. But doing it through a plan like this, which is going to cause your input your money to go up consistently every single year, rather than exposing it to risk where it's going up and down every year. And where by the time you get to 65 or 70 years old, you might not even have any idea how much money you're going to have. So again, if you'd like to discuss this more for your personal situation, reach out to us at wellheritage.com, or phone number is 915-637-5040 but thanks for your question. I hope that answers it. Anybody else?