RICH VS POOR: 401(k) vs Life Insurance - Which One?

This is a financial tax strategy, legally in the tax code, that they're taking advantage of. How do you create a drain of assets to a life insurance company? People gotta die. Where do you see the risk? Where's the risk here? COVID was an opportunity for the insurance industry to be stress-tested. And guess what we found out? If you want to be rich one day, you want to be wealthy one day, you got to follow the habits of rich people, of wealthy people, successful people. And so this is a... Jordan, let's take a look at this. So this is a proxy statement from a publicly traded company called GE. Okay, I don't know if we can see this too much, but let me see if I can zoom in there. Okay, so these are the C-suite executives of this. This is GE, okay? GE General Electric, okay? These are the CEOs. So let's take a look at what they're putting inside their retirement plans. Inside their retirement plan, they're putting $94.50 a year. That's the match. Yeah, that's the match, okay? So they're getting paid $94.50, $94.50, $94.50, all the way down, okay? Of course, look at this. I could use the private jet, lease cars, financial and tax planning. These guys are using financial and tax planning money to help them with their personal finance. Look how much money they've invested. So you want to find out what rich people do? Find out where they put their money. Life insurance premium is $136,456, $62,000, $227,000, $226,000, $107,000, $153,000, $172,000 going to life insurance premiums. But Jesse, that's why I don't buy life insurance because it's so expensive. What's the misunderstanding when people see this type of number? You know, what's interesting, Coach, is if you look at this, that $94.50, that's the match. And they shape us and they say, put up to the match in at a minimum. You put your $94.50 like your 401k. Because it's free money. However, if we look at it, it's really not free. Because all that company is doing, because every dollar that company matches that person, dollar for dollar, that employer is taking it as a tax deduction that tax year. So essentially what they're doing is they're shifting the income tax liability away from them and on to you. You're going to have to pay taxes on the money 20 years from now. Now, do you feel taxes are going up or going down in the future? Then what they do, so that's a win for the company because it's tax deductible to the company every dollar. But here's the other cool thing. Those hundreds of thousands of dollars they're putting in life insurance, it's also tax-free to the company. And it's tax deductible to the company and tax-free to the employee because of the type of life insurance it is. It's not your ordinary term life insurance. It's not the stuff you get online? It's not whole life insurance. It's your permanent universal life insurance. Yeah, it's universal life insurance called an executive bonus plan. So when people are looking at this, it's not I'm trying to get the least amount of premium for the most amount of death benefit. No, this is a financial and tax strategy legally in the tax code that they're taking advantage of. Correct, yeah, because there's three tax codes. I think there's a three. I mean, I may be a little biased, but there's a three strongest tax codes in the US tax codes. There's 72E, which is you can put your money inside a life insurance tax-free. 7702 says you can access your money tax-free. And section 101A says that you can transfer your money to a beneficiary upon your passing tax-free. The question is, well, why? Why would they buy life insurance, permanent life insurance? This is not term insurance. This is permanent insurance, more specifically not whole life, more specifically universal life or in some instances index universal life insurance. Let's take a look. Let's unpack a insurance company asset allocation. Insurance premium is 2020 to 2021 commission fee negative income revenue. Okay. More importantly, I want you to take a look at this. Okay. This is where the asset allocation here is of this particular insurance company. This is not secret information. This is public information. One of the companies we do business with National Life Group. This is their asset allocation. So where's the majority of the money? Bonds. Not risky investments. Correct. Not crypto. Not stocks. Not even real estate. Look, they have commercial real estate. And the commercial real estate is buildings that they own. Okay. Asset and mortgage-backed securities, private placements. Look at this. Government securities. Limited part. Where do you see the risk? Where's the risk here? Where's the stocks? There might be a little bit of risk here if you consider mortgage-backed securities. It depends on the asset class. Because here's another thing too as well. Here's one thing to look at too. Is banks have what they call, where is it here? NAIC rated bonds. Okay. This is the assets. They have NAIC 1 through 6 rated bonds. 47% of this insurance company's holdings is in NAIC 1. Let's define that. The NAIC through its securities valuation office has its own credit rating scale for the insurance industry. Running from NAIC 1, low risk, to NAIC 6, highest risk. All securities insurance portfolios use these designations as a related factors to assess solvency capital requirements. So basically, the more risky it is, it's more the higher asset class. The less risky, more predictable one. So 79% other assets are in NAIC 1 and 2 assets. So what they're showing is, hey, your money is safe. You see most banks are B plus rated. Life insurance companies are A plus rated. That's three to four more levels of security than your local bank. So when people ask me, do I leave all my money in the bank? Just sitting there getting less than desired interest? Or do I put that money to work for me? I just point them, the number one rule of money is keeping in motion. Because if it's just sitting there, it's dying off. And you need your money to make as many babies as possible right now if the government's going to continue to print off trillions of dollars. So I want to show here another article here. Let's see, where is it? Speaking of banks. Bank-owned life insurance. So in other words, banks, the institution actually owns life insurance. It's called BOLI. Bank-owned life insurance continues to be a popular investment choice for a variety of banks as of December 31st, 2020. 3,137 banks nationwide reported, not death benefit, but cash surrender values on their regulatory filings. 67.6% of banks nationwide with assets between $100 million and $1 billion currently own BOLI, bank-owned life insurance. So if you look at these banks, $210 billion in life insurance cash value. What is some financial expert saying on TV? Trash value? Well, banks don't think so. Banks don't think so. Banks don't think it's trash value. So, listen, you know, this is how a bank is looking to securitize and minimize their risk to pass on interest to their banking customers by ownership, not just in real estate ownership and, you know, debt instruments that they're lending you, but also ownership in cash surrender value, cash surrender values, bank-owned life insurance. By the way, any thoughts on BOLI? It's very interesting. So BOLI is, I was actually speaking with a person who's a branch manager at a bank the other day. Was it like a community bank, regional bank? I can't remember the name of the bank. It was community bank. They want her to be the regional manager, but she's just the district manager. I was asking, I said, why would I walk in as everybody's senior vice presidents? And it's because they buy life insurance on all the employees of the bank. So that's what BOLI is. It's bank-owned life insurance. Bank-owned life insurance. And you see COLE, corporate-owned life insurance. Corporate, so corporations do it too as well. Just not banks. Before I wrap up this portion of our conversation, I just want to remind everybody, the reason why people got worried about SVP Bank is because there was a run on the bank. A bunch of depositors, people had bank accounts there, started withdrawing. That's what the run means. They were running their money out. They're withdrawing their money from the bank, depleting the bank's assets to therefore expose the bank to risk. In this case, regulators shutting down that bank. Now, the flip side of the story, if we're talking about, you know, where is my money safe? We have a conversation we have all the time. I'm not an investment advisor, but I have a rule of thumb. I call it the four homes of money. I want my money where it's liquid. I want my money where it's safe. I want my money where it's earning a higher rate of return beating inflation. And number four is where it has tax advantages. So we're talking about, well, now, how safe is the life insurance industry? Well, how do you not have a run in the life insurance industry? So if there's a run in the bank, which means what? People are withdrawing money from the bank. So there's a drain of assets. How do you create a drain of assets to a life insurance company? People got to... Mass murders. People got to die. You got to die. Basically, a major war hits the West Coast, hits the East Coast, where all these people who have policy with insurance companies are now asking for a claim. So basically, a major catastrophe has to happen. War basically has to happen. And the people that go to war have to have insurance policy with that particular insurance company. And what potentially may have exposed the weakness of the life insurance industry in the last three or four years? What was it? What was that situation we just all went through with masks and vaccines and all this stuff, lockdowns and shutdowns, essential, non-essential? The pandemic, COVID. And COVID was an opportunity for the insurance industry to be stress test, to see people dying from COVID. Would they create a run on the life insurance companies? And guess what we found out? It didn't. Did people die? Yes. Did people die with life insurance policies enforced? Yes. But guess what's not created? A run on the life insurance industry. So if you like that clip, please watch this one right here. If you want to see the full podcast, click right here.