OSU Alumni CME Conference Spring Fling OSU Alumni CME Conference Speaker: Kyle J Christensen, CFP™ Owner of Unique Advantage Disclaimer: The views and opinions given are solely those of the presenter, and do not represent the views or opinions of Oklahoma State University or any of its affiliates.

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Whole Life Insurance The Secrets of Questions? Email me at Kyle@uniqueadvantage.biz

What is whole life insurance? Basic Types of Life Insurance Term Life Insurance Death Benefit - stays level for life of policy. Premium - increases over time, exponentially. No refund, no equity Value / Cost DB Level 20 yr Time 80 yrs old

Whole Life Insurance Death Benefit Premium Cash Value Dividends - increases over time, due to dividends. Own the death benefit over time. Premium - stays level for life. No other costs. Cash Value - cash that builds within the policy. Guaranteed to earn at least 4% per year. Guaranteed to exceed premiums paid. Grows tax free. Dividends - paid to policy holders, as “owners” of the company. Not taxable. Value / Cost DB CV Div Prem Time

A Few Words About Universal Life Insurance - Usually purchased as a “permanent life insurance policy”, and is anything but guaranteed. - Is really a term policy with a cash account. - Has exponentially increasing costs within the policy, called “Monthly Costs of Insurance”, which are taken from the cash value each month. - If the cash value is ever insufficient to pay the Monthly Cost of Insurance, the policy enters the “Grace Period”. If the additional premium is not paid, “the policy lapses with no value”.

Rules of Financial Institutions 1- They want our money. 2- On a regular an ongoing basis. 3- Hold on to it as long as possible. 4- Give you back as little as possible. Why is it important to know this? What does that have to do with life insurance?

The Idea of “Self-Insure” Secret #1 The Idea of “Self-Insure” What does it mean? Who benefits? Is it the least expensive way to insure? Why is it promoted? Insure means that you have insurance to “replace” an asset VS Self-Insure means that you don’t have insurance, and therefore use an existing asset to “replace” another asset.

What are the effects of Self-Insure? Consider this… Why do you want insurance? - The lender requires it. - You want to protect your investment. - You want to protect your personal belongings. Would you ever consider not having insurance on your house?

What if your home was paid for? What if you had enough money in the bank that you could use that to insure your house? Would you still want insurance on your house?

Self-insure leads to locking up your money? If you use your money in the bank to insure your house, what else can you do with that money? If you spend it, do you have insurance anymore? If you put it at risk in an investment, do you have insurance anymore? Remember the goal of financial institutions? Self-insure leads to locking up your money?

When does self-insure make sense? When doesn’t it?

So what are “they” talking about when “they” tell us to self-insure? Life Insurance What does life insurance insure? Our income. Our assets. Our Two Most Valuable Assets

What happens in retirement? Self-Insure Strategy Insure Strategy - Try to live on the interest only of assets. - Can spend principle and interest of assets. - Choose joint-survivor options on pensions or annuity payouts. - Can choose “single life” benefit on pensions and annuity payouts (maximum benefit). - More subject to interest rate fluctuations. - Less subject to interest rate fluctuations. - More subject to tax increases. - Less subject to tax increases. - If you spend the assets, you have no insurance. - Have a mechanism in place to replace any or all of the assets you might consume. Which insuring strategy is the most expensive? Self-insure

“Life insurance only benefits someone when I die.” Secret #2 “My spouse can work if I die” “My spouse won’t need life insurance” “Life insurance only benefits someone when I die.” Lies and False Ideas, Volume I “When I retire, I won’t need life insurance” “Life insurance is a bad investment” “My wife will just remarry” “Permanent life insurance is expensive”

The Living Benefits of Whole Life Insurance 1- You will insure, no matter what. The question is, what will you use as your insurance. 2- Whole life insurance, while it requires the highest initial premium, is the lowest actual cost. 3- I have use and access to ALL of my premiums paid, plus interest, throughout my lifetime. 4- No other guaranteed liquid savings will outperform life insurance cash value over time. 5- I can use my cash value for any purpose, at any time, tax free and penalty free. 6- The Accelerated Benefit rider provides for early payout of up to half of the death benefit while living, in the event of terminal illness, chronic illness, and even in some cases home health and assisted living. 7- The permanent death benefit allows me to utilize my other assets more freely, without concern for running out of money. 8- Permits maximum benefits and income from pensions, annuities, retirement plans, and other assets.

Example: Retirement Income Maximization Person A – Buys Term and Invests the Difference Person B – Buys Whole Life Insurance and Has the Ability to Invest Everything Assets: $1,000,000 Assets: $1,000,000 Life Insurance: $1,000,000 Level 20 year Term Life Insurance: $1,000,000 Whole Life Insurance Retires Retires Life Insurance: Cancelled Life Insurance: Continues (premiums can be reduced or eliminated via RPU) Income: $1,000,000 @ 4% = $40,000/yr Income: $1,000,000 @ 4% (paid down over 20 years) = $72,718/yr (30 yrs = $57,290/yr) (Lives on the interest only. Attempts to preserve principle of the assets to pass on to surviving spouse) (The ability to pay down assets is a powerful tool to substantially increase income in retirement, without adding risk)

How are you going to pay for that? Example: Long-Term Care Average costs for care: $6,965/mo for a private room in a nursing home. $3,293/mo for assisted living. $21/hr home health aide. (longtermcare.gov) How are you going to pay for that? Choice #1: Self-Insure - Will utilize income from assets, or eventually use principle of assets to pay the expenses. Will likely cause a major loss of assets if prolonged. Choice #2: Long-Term Care Insurance – The insurance premium is expensive, and increases over time (no guaranteed premium). There’s a chance you won’t need it, and in such cases are wasting your money. Choice #3: ABR/Care4Life Rider on Whole Life Insurance – Pays up to half of your death benefit, tax free, while living, for terminal, chronic, and in some cases (i.e. Ameritas Life) assisted living and home health care. If you don’t need it, you still don’t lose a dime because the death benefit will still be paid to your beneficiary.

Example: No Other Savings Will Outperform Whole Life Insurance Cash Value Over Time Person A: Saves $10,000 per year into Ally’s online savings (@1 % current interest). Person B: Saves $10,000 into a whole life insurance policy (rates based on actual current rates). After 10 years, Person A has $105,125 in the bank account. After 10 years, Person B has $108,729 in cash in the life insurance policy. Person B does not pay taxes on the interest earned. The account earns a total of $5,125 in interest. The net interest earned is $8,729, which is more than twice as much as person A! After taxes of 25%, the account only earns $3,844 Oh yeah, Person B also has $466,866 of permanent death benefit.