What Type Of Life Insurance Should You Get?
Life Insurance is always a topic of interest. It has been for hundreds of years! In fact, life insurance is so interesting mostly because there is so much information on the topic. I will break down for you the different types of life insurance and which ones I personally recommend and why.
The fact is, most people do need life insurance. The only ones who don’t are those who don’t plan on being an asset. What do I mean by that? Life insurance is designed primarily to replace your income. If you realize you are your greatest asset, you will then think with the mindset to make sure that asset is reinforced. That’s what life insurance is for.
What are you protecting your ability to generate income against?
Death
Income Taxes
Inflation
Market Volatility
Long Term Care Costs
Estate Taxes
There are 3 main types of life insurance.
Whole Life Insurance
Term Life Insurance
Universal Life Insurance
Each of them do different things and work in different ways. It’s important to know what you want the life insurance to do for you before you select the type. One thing to keep in mind, never choose one based on a blanket statement you heard from someone else, whether that be a friend or family member, an agent, or a financial expert or radio personality. Be intelligent enough to know what you want it to do and select the one that does that for you the best.
That being said, I want to first share with you what I want my life insurance to do for me and why. I’ll start by saying, I’m not interested in providing a death benefit for my family out of fear of what will happen to them if I die. My wife and I don’t believe we are victims, even in that scenario, and we also constantly learn how to improve our ability to generate income. If I die, she will be fine. Now, I do have a death benefit and it will go to her, but she knows to pay off any consumer debt that we have, cremate me, and use the rest to go buy income real estate.
I primarily want my life insurance to act as a Sacred Account to save 40% of my income into while protecting me from income tax, which I wholly believe to be theft. I expect the account to never lose money. I also expect decent growth out of it to outplace inflation. I expect for my money in the life insurance to be liquid and accessible for me to use for real estate investing. I also expect to be allowed to do what is called “fractional reserve banking” with my money, which means that I can leverage the money in the account to be multiple places at once.
Next, I expect my death benefit to be around permanently so that when I die, my estate taxes are wiped out by my death benefit.
I’m not worried about using any of it for Long Term Care costs because the income generated by my wealth will pay for that.
I also expect my death benefit to grow faster than inflation so when I do die, the money is not reduced in buying power. It is also foolish not to establish the policy so that my legacy gets more money than I actually had when I die. It doesn’t cost anything more to do this and it is a dynasty move.
Notice, nowhere in there did I mention owning insurance out of fear, or to protect against my death, or buying the lowest cost possible. I also didn’t mention retirement.
I want to put money in, never lose it, grow it, avoid taxes, and use it for real estate without losing out on the interest paid to me by the insurance company. I want it to excel my legacy and also protect my wealth against estate taxes.
Now that we have established what I want it to do, let’s talk about the types of insurance.
Term. This is level coverage for a set period of time. This only provides temporary death benefit coverage for a set number of years before the policy expires. At that point it can be renewed at a new rate. Term insurance completes none of the objectives that I have for my life insurance, therefore I do not own any. Term insurance is a good idea if you only want to replace your income if you die, for a shorter period of time at the lowest cost possible. You can have increasing term, decreasing term, or level term. Statistically only 2% of term policies are ever used by the insured during the life of the policy.
Universal. This is a customized policy with a combination of Annual Renewable Term life insurance and a underlying account that offers fixed, indexed, or variable returns. This also accomplishes none of my objectives, therefore I don’t own it. This insurance is primarily marketed as a retirement alternative. The reason I don’t own any is because I don’t particularly like how these policies are designed. A person contributes money to the policy and a portion of it pays the premium for the Annual Renewable Term insurance costs. These costs start extremely low and go up each and every year. The remainder of the contribution goes towards the underlying investment account. This can be a fixed account, an account much like an indexed annuity, or essentially an account much like a mutual fund. This account typically offers high fees, low or inconsistent growth, or unproven returns. As the cost of insurance rises, either less of your contribution goes towards the investment account, or the increase is taken from the investment account to offset the increased cost. The result? Less growth for me, and ultimately the risk is that the policy will lapse because the premiums will increase to an exurbanite amount that neither my contributions nor account value can sustain and I will lose the policy. Unless I want to add a rider that protects against this for another fee, which lowers my performance. Also, the policy is not liquid for about 10 years, has high surrender charges, and does not allow me to leverage my money in multiple places at once.
Whole life. This is a fixed cost of insurance for the life of my policy. This means the insurance will not go away and the cost will not go up. Properly structured, I can contribute to the policy and have up to 90% of my contribution available for me to use for investing or paying off debt immediately, with no surrender charges. There is also a 4% guaranteed minimum dividend that is paid to the account, which another 1–3% in addition to that if my policy performs well, and historically it does. I can earn these dividends even when I withdraw my money, which gives me my leverage. The death benefit grows over time, protecting me against inflation and estate taxes. Lastly, the money contributed is tax free, protecting my hard earned money from being stolen by the IRS. This policy meets all of my needs, which is why it is what I own and us personally and for my business. In fact, in my budget, I don’t even count it as an insurance cost. I account for it as a savings cost because it is much better than any savings account I could put money into.
5 years ago you never would have gotten me to own Whole Life Insurance. I was a Dave Ramsey Endorsed Local Provider in over 5 different states and I preached that term insurance and mutual funds were the only place to put money. Once learning how to properly structure Whole Life Insurance to be used as a place to store money for real estate investing, I cancelled my term insurance and purchased my Whole Life Insurance. Today, I put 40% of my monthly income into my policy and use it the same way the top 1% of wealth have for centuries.
If you’re interested in learning more about how you can use life insurance the way I’ve described it, click here to setup a phone consultation to get more information.
Own Your Potential,
Jerry Fetta
Grant Cardone Certified Coach
Jerry Fetta helps his clients build wealth so that they can eradicate poverty in their own lives and own their potential.
He believes scarcity and abundance cannot co-exist and that the way to end poverty is to help you build wealth.
You were not created to spend 40+ hours per week serving the 40-year-to-life sentence trading your precious time for money just to live in mediocrity.
However, the truth is that time and money must be exchanged. It just doesn’t need to be you making the exchange.
Jerry helps his clients create wealth that exchanges time and money on their behalf. The only way to do this is to make more money, keep it, and then multiply it.
He has helped clients double their income, save $100,000 tax-free, and secure 8–12% fixed annual returns on their assets.
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