How to Avoid Life Insurance Scams | Don't Make These Mistakes

Life insurance, when it's built the right way, positioned for the right reasons, is, in my opinion, an amazing financial instrument. Creates wealth, protects families, mitigates taxes, does all of these things so unbelievably well. But just as much good that it does for the world is also the danger that it can create, right? There's a lot of life insurance, what I would call scams, that are out there. A lot of times it's just based upon education and positioning. So what we're going to do is spend a little bit of time talking about some mistakes that you want to avoid. So in this session, we're going to focus in on four things. We're going to focus in on the purpose of the insurance. We're going to focus in on the costs of the insurance. We're going to talk about the risks associated with different types of insurances. And finally, we're going to talk about the options that are available to you with insurance. And that includes using lump sums and funding it appropriately. So the first thing that we are going to focus on is what's the purpose of this life insurance? Is the purpose of it to protect your family in the event something happened to you so that their income continues like you were still here? Is the purpose of the insurance to be used as almost like a banking structure so that I can use it as to purchase alternative investments and do other things? Is the purpose to create a retirement income distribution for myself so that I need cash later and maybe not necessarily now? Or is the purpose for the life insurance to offset the potential for future estate taxes or taxes in general that are going to hit my taxable estate when I pass away? If we haven't defined what those purposes are, that is literally the first thing that we must do. We have to figure out what the premise is behind it. Why are you purchasing this? And make that as transparent as you possibly can. Do not let the insurance representative talk you into the purpose of the insurance. You talk the insurance representative into the purpose of the insurance. That is good planning. Define what it's for. Don't be uninformed about the costs that are associated with life insurance policies. There's costs with mortality. There's costs with interest rates. There's costs with sub-account charges. There's all kinds of costs that are there. There's costs including commissions. And by no means am I saying that insurance professionals don't earn every single dollar that they are paid. It is one of the most noble professions that there is. Hands down, bar none. Insurance representatives deserve to get paid for protecting families. And I will argue that until the day that I die. However, commissions, if you did not define the purpose, can derail the growth rate or the premise behind the purchase of the insurance policy. Just be very transparent and understand the purpose can then dictate cost. Everything that we do involves some risk. And risk, typically speaking, we think of with volatility. We correlate a lot of times market to risk. There's risk with anything. There's risk that I'm not getting enough rate of return. There's risk that I've overexposed myself too much in seeking higher rate of return. And we all understand that. Well, insurance is no different. There are risks with every type of insurance policy to an economic household, to a financial household. So let's talk about those for a second. First of all, term insurance. Term insurance is universally adopted as the most low cost insurance that there is. Well, look, when you're young and you're protecting a family, that's a very educated risk to take on, right? And if I have a massive income replacement that I need to create for my family, term insurance is awesome because it's priced nicely for your budget, right? But why is it priced nicely? It's priced nicely because most of the time, high 90 percentile amount of the time, that term insurance isn't going to pay a benefit to anybody. It's not going to pay a benefit to the family because what'd you do? You outlived it, right? You bought a policy when you were young. You put it into the junk drawer, moved on, lived your normal life. And then let's say it was 10-year term, nine years into it, you say, oh, that's going to expire next year. Now I'm 10 years older. Now I have to look at something else. I'll get to that when I get to that next thing you know, it lapses. Well, I'm not getting that premium that I paid back, right? So there's a lost opportunity cost with that. So I protected my family, but if I didn't have a strategy for the usage of the term so I can actually get some benefit in the future, I'm punting money, right? So we have to be very, very careful with that. There's risk associated with whole life insurance. Make no mistake about it. If I purchased a life insurance policy, specifically if I purchased a whole life insurance policy, and my anticipation was that I was going to use it as a leverage vehicle tomorrow, or if my expectations of it were that it was going to be a market, call it S&P 500 style return on cash, my expectations are not going to be met. And if I bought a policy that is going to benefit me in the long run, retirement income distribution wise, well, actually, quite frankly, it makes more sense for the costs in those policies to be kind of uploaded. That way on the backside, it can do what I wanted it to do. But if I bought one of those policies that's front loaded, right, or is more costly in the beginning, not structured the right way, and I wanted cash value in the beginning to use it, I'm going to have a bad experience. So again, define what it must do. Then it can be structured to do exactly what you want it to do. There's risk associated with index universal life insurance as well. Index universal life insurance, I am a fan of for a variety of different reasons, can create retirement income distributions, gives me a little skin in the game with growing some of the wealth in there based upon benchmarking and indexes and all those different things. But you have to be careful when you're taking a look or evaluating it from a standpoint of managing expectations. You want to make sure that when you're looking at a ledger with the index universal life, that you're not creating a false assumption that that money is going to grow at that rate each and every single year. The disadvantage that index universal life has is that it shows that there's really no way to show volatility in markets and how it impacts IUL. And then IUL has no hope but to underperform your expectations. So understand and keep measured your expectations for growth and also for risk inside of IUL and then specifically pay attention to how you're funding it. You know, I think what's always important whenever you see somebody on YouTube or you're looking to purchase something, in the space of life insurance, there are carriers that have brand name recognition that have been around since 1850, 1840, 1860. When you look at the kind of insurance to buy, you want to buy it from a mutual company that has great fundamentals. And by the way, that's who you make the check payable to. You don't make it to payable to the person around the corner. So to prevent yourself getting scammed, you want to make sure that you understand the carrier, that you're making the check payable to the carrier. And in that space, you'll be able to put yourself in a position to make sure that you're not being scammed. But remember, it's important to understand what policy you're buying and make sure it's the right kind of policy. And always have your accountant and your estate attorney or attorney double check everything you're doing. Finally, if I'm not aware of the fact that there are certain strategies that will allow me to take lump sums of money to dump into insurance policies, to really turbo charge my strategy, if I'm going to use it as a leverage vehicle or if I want to get higher compound return than what I'm getting in a bank account and get some tax free as well, as long as I stay in the confines of what's allowable to dump money into the policy. If I'm not evaluating money that is not earning a rate of return, is sitting in a bank, is losing opportunity costs due to inflation, if I'm not evaluating if shift of some of those monies into an insurance policy can benefit me, then unfortunately I'm missing the boat. Finally, it's all about funding strategies. These insurance policies give you flexibility, they give you options, they give you a baseline commitment, and then they give you also what's possible. And you can work your way in between the two of them. As long as you understand that it's a savings commitment in certain aspects, it's a cost in others, but what is that cost going to, then you're making an informed decision about the type of insurance policy that you're purchasing and why it fits inside of your household. If you need to understand more, if you have not defined the premise behind the insurance, then you might be succumb to a scam. Really it was just you made an uninformed decision. Make an informed decision. Click the link below, a member of our team will have a conversation and fit the appropriate insurance strategy into your world.