What’s the first thing that you think about when you hear the phrase “life insurance?” Especially in regards to the standard American Retirement Life Insurance company.
Most people think of death. Why?
Because that’s what we think life insurance is about!
When you get a corporate job, life insurance is commonly offered as a benefit. This is because the life insurance that comes along with a corporate job is only about your death. The lump sum paid out to a beneficiary is a benefit—for them, not for you. But when you insure your own life as an income-producing asset, much as you protect your other assets like your home or your car against loss, life insurance becomes an asset.
That life insurance is a death-related benefit is just one more of the myths and misconceptions that so many people live by, and that make it so much harder to get their financial lives in order than it ought to be. I am going to talk about life insurance in the context of life. I want to dispel the myth and finally wake people up to the realities of our financial industry so that they can take advantage of this knowledge for themselves.
What Life Insurance Really Is
Pretty much everyone thinks that car insurance is for accidents, home insurance is for fires (and other catastrophic events), and life insurance is for death.
That’s just incorrect. Car insurance and homeowner’s insurance are products. A product represents a net financial loss. You may never see any return on the money that you invest in these insurance products, and even if/when you are unfortunate enough to have a major car accident or a house fire, over the lifetime of these products, you will not recoup as much money as you invested in them. That is simply a fact. After all, insurance companies are businesses, and businesses operate in order to make a profit. If most of their customers ultimately received back more money than they paid into their plans then none of these companies could stay in business.
Term life insurance is also a product, because you only pay into it for a specified period of time, 10, 20, or 30 years, during which you are statistically unlikely to die. When the agreed-upon term ends, so does your coverage, and you are left with nothing but the loss of the $25, $30, or $40 a month that you spent on that product over the term. Permanent life insurance, on the other hand, is not a product. It is an asset class. Real life insurance is about insuring the potential of a life, not securing a lump sump at the end of a life.
Compare this to real estate as an asset class. Everybody thinks real estate's a great investment: pat yourself on the back, you finally bought a home. In fact, the government even incentivizes real estate for military and veterans with the VA loan, like it's some sort of hot deal. Well, sure, relative to what the average American gets, yeah, it’s a sweet deal. But mortgage lenders abuse the VA loan by using it as a form of sales pressure. They give veterans this cheesy line: “You served your country, so you deserve to own a part of it.”
That makes it seem like owning real estate is only about being a homeowner and living in the home you bought. Most people believe that owning a home is an investment, and that their home is an asset. It’s not. An asset is anything that can be owned or controlled to produce value. The home that you buy for yourself to live in is a product. Why? First, because if you are going to see any gain from owning the property it will only be at the point at which you sell it. Second, most people won’t even see a net gain anyway. They will put far more money into their home than they ever get back out of it. Few realize this. When calculating what they have “earned” from their “investment,” they don’t look beyond doing math at the surface level. If they buy a home for $250,000 and sell it for $300,000 twenty years later, they think, “Great! I made $50,000!” But that’s probably not at all an accurate accounting of what has occurred.
For one thing, real estate transactions are complicated. When you initially complete the purchase, a lot of players are taking a piece of the pie in the form of various fees. This means that right from the get-go your house costs you more than the actual asking price. Every month you pay a mortgage, a large chunk of which is interest to the bank. You also have to pay property taxes and insurance premiums every month. Not to mention that over the course of 10, 20, or 30 years, shit inevitably happens. Roofs, HVAC systems, appliances—these things all have lifespans, and when that lifespan is up, there’s no landlord to call to take care of these things for you. When you own a house, you are continually funneling money into it. That’s the norm. In the scenario above, the best case would be that the homeowner broke even on the sale of their home; the reality is that they have probably spent more than they gained.
Furthermore, real estate can be a lot of trouble. Have you ever owned a property and had your kitchen flood? Or had the market drop right when you're trying to sell? Or been trying to sell a house in another country that you are no longer living in? Owning real estate often limits your mobility and your flexibility to use your money. It does not give you freedom and liberty. I’m not saying that you shouldn’t own property, I’m saying that home ownership should really only be used later in life when you know where you want to stop. Until then, you've got more important and more productive things to do with your time. You could earn more income or add more value that will bring you more income later on. I mean, that's just the truth.
What, you might ask, does this have to do with life insurance?
Buying a home you intend to live in is like buying a term insurance policy. More likely than not, over the long haul, it will be a net loss for you. Real estate investing, like purchasing a permanent insurance policy as an investment, is another animal completely. When you buy real estate as an investment (if you’re doing it properly), you go into the transaction with different criteria for the property than if you intend to make the property your permanent home. You don’t invest in real estate by hoping a neighborhood maintains its market value as you are paying off the bank and sending property taxes to the government. A real estate investment includes a certain element of control; you don’t make the investment without first designing how you will profit.
When you purchase real estate as an investment, you’re leveraging a financial institution based on your ability to qualify to use their money. That’s the exact same thing that can happen with life insurance if you think of it as an asset class. Most people only buy insurance to protect against a potential catastrophe. But the reality is, life insurance isn’t about death, its about LIFE! Life insurance is an asset class that insures the income-producing potential of an individual life, which means you don’t have to die to use the asset.
Another thing that the life insurance industry and the real estate industry have in common is that they tend to attract horrible communicators (sales people) who are told by their firms to aggressively sell the products based on fear of missing out. Poorly trained insurance agents and financial advisors learn scripts to convince people to purchase death insurance out of fear. “What if you died tomorrow, Mr. Johnson? Your family would be destitute.”
No shit. That’s not helpful, and it’s not motivating someone to see opportunity.
That’s why I’m writing this article, to COMMUNICATE that what you have probably been led to believe about various asset classes has only been part of the story. Because financial advisors and realtors are constantly failing out of the industry, there are always new guys. Of course they aren’t in the industry long enough to truly become experts, and anyway, their firms don’t want them to be experts, they just want them to sell! They also lie to them about being a self-employed business owner, but that’s another story.
What It Means to Insure Your Life with a Modern American Retirement Life Insurance Company
Veterans coming out of the military have options. They can get a job. Or maybe they don’t want a traditional job; maybe they want their independence and freedom, which means they want money and time. I think that those who recognize the opportunity right now will see that in the long run, getting a traditional job is the more difficult route. When your primary focus is to get your time back, then you start thinking about what you’re going to do with that time that you want so desperately. And for a lot of people, the process of figuring out how you are going to make that happen allows creativity to come out.
This is because they inevitably find that they want to spend that time providing value, and that means creating. That's what the human species is here for. Some people create things directly, and some are more creative at doing the hard work that’s needed to help other creators get their work out to the world. But we are ALL creators, and the difference between the traditional job and the entrepreneurial path in most cases is the difference between working to realize someone else’s vision and creating your own.
Once you start to create, you're producing something. You're giving back to society, whether you’re making a widget, painting, or whatever you’re doing. You are an income-producing asset, and as such, you have a financial worth. How much money do you make in a year? How much money do you make in ten years? What if you invest a portion of your income every month? If you were no longer able to make that monthly investment, what’s the potential for loss there?
You probably think that I’m asking these questions within the context that you might die suddenly and unexpectedly, but that’s not why I’m asking at all. I’m asking because what if you decide you don’t want to work anymore? Or what if you decide you want to change fields and start a new career? Or travel the world? I’m talking about insuring yourself as an income-producing asset so that YOU can reap the benefits of the insurance policy (i.e., access the money you have put into it and which has subsequently grown) while you’re still alive.
So many people think that they are stuck in jobs that they hate. And they are, in a sense, because if they quit their job, they are cutting off their income. They haven’t insured their income in a way that can benefit them. But if we get our priorities right, then we can have so much more control over our lives. Insuring the income-producing asset—YOU—is mobile, cheaper, and easier than other kinds of investments like the stock market or the real estate market. It’s no different from a retirement plan or a real estate strategy in that it’s simply another financial vehicle that you can leverage to build your portfolio.
Are You Overlooking Insurance?
If you’re not thinking about insurance as an asset class then you're missing a whole aspect of your financial life. You’re just completely ignoring it. It’s kind of ridiculous that we've taught everybody to do that. I'm thinking it's because of all the shysters in the 80s. You know they existed, but so did stockbrokers, and so did the whole subprime mortgage real estate bubble that was just over a decade ago.
I think insurance has been ignored because the insurance companies were being smart and innovative from places like Des Moines, Iowa. They weren't being flashy. They weren't running Super Bowl ads. They weren't trying to beat the stock market. They didn't have any Bernie Madoff situations. They didn't have any Lehman Brothers situations. Heck, they didn't even have any Mom and Pop credit union FDIC takeover situations. They were just sitting nice and quiet. They're not good at marketing themselves. And frankly, they need people like me to recognize their value and apply it in such a way that we can get this asset class into the hands of more of the right people, and finding the right people is key.
Reputable financial advisors―real fiduciaries―should be giving their clients better long-term advice. They should be educating all the new butter bars out there who have an extra thousand dollars a month and who want to go buy a Ford Mustang on the other, better things they could be doing with that money, things that will increase its value rather than draining value out of it. Because there’s going to come a time when they are going to need that money. Look at it this way: military life is about following orders. All kinds of things might cross your mind that you might like to do, but they are all inevitably met with a big NO while we are in the military. So the one thing we have to look forward to is transition, and when we approach transition with fear because we don't know what to do with ourselves, we’re in the completely wrong mindset. And if we haven’t prepared for it at every level―emotionally, spiritually, socially, and financially―then at transition we hear a whole lot of NOs all over again; at least we think we do. And we say a whole lot of NOs.
At that point, transition becomes all about money. It retroactively redefines our service to our country as having been just a job, when we signed up to serve.
I mean, you can talk about compound interest, what Einstein called the eighth wonder of the world. But we've been on the wrong side of compound interest. We just kind of ignore it, and the opportunity cost of that negligence is like a tax. Overpaying for some things is a tax. We're all overpaying for our insurance in the military since for the most part, most people are healthy. Those dollars that are taken out of your paycheck for insurance every month are kind of redirected in a weird way, but they essentially go straight into the pockets of a government contractor. Why not privatize that stuff? Why not prepare our servicepeople to be veterans by giving them the freedom to choose and use their own tools and resources instead of just teaching them a cookie-cutter approach to financial planning?
A veteran is no longer in the military. We get bonuses, but we don't have to follow orders anymore, nor should we. So our thesis is to reposition financial strategy, or portions of it, for veterans who have a very, very opportunity-focused mindset, and show them how to leverage the new financial industry technology that's been made available over the last two decades and perfected in the last few years, specifically on the insurance side. We recognize how it's creating opportunities for veterans and military spouses to live a more intentional life, whether they're starting their own online business, want to tap into the new cannabis industry, or just want to learn what it is.
Check Out the NEXT ARTICLE in this series about redefining the life insurance asset class.