Mike: Alright good morning everybody.
I hope everyone's having a good week here today.
As always we're with our good friend Steve Parisi from IBC Global.
Steve, how are you doing today?
Steve: Mike,
I am doing great it had some snow out this morning
when I was running, it was nice but great over here.
How about you?
M: I'm not ready to hear that.
[LAUGHTER]
M: I'm good, I'm coming in a little hot this morning
because as I was telling you I was thinking last night.
I had a friend of mine who is a long time friend
who was in the agency recently
working with one of the agents,
really pushing back hard on any kind of whole life purchase.
We are never in a position where we're trying to fit
"a round peg in a square hole"
and I'm a big believer in a well-rounded approach,
I think people who know me know that about me.
I'm not a salesman.
I really look at myself more as a consultant.
I want to see the big picture and I was really frustrated
that this individual had so many layers of
investment mindset marketing
baked into his constitution over the years
that he couldn't take a fresh look
at some of the things that we were proposing.
I know you deal with this a lot, I know that a lot of times
the folks that are coming to you
they're already looking for cash value life insurance
but when that's not the case,
what kind of conversations are you having with people?
Because I like to be well-rounded, I like my investments
and my financial world is well-rounded,
I believe there's a place for everything,
you have to diversify but I look at a product
that I represent very strongly with Mass Mutual
that is conservative, it's going to accumulate cash value,
it's not correlated to the market, it's liquid,
when I borrow money against it,
I'm going to continue to accumulate dividends
as if all that money is sitting there'.
There's s a tax-free death benefit,
it drives tax-free income,
if you look at a 25-year time horizon
all the dollars that I'm putting into my whole life policies
maybe they're going to look like a 4% tax-free internal rate of return on cash.
I mean, why wouldn't you position your safe money there
instead of a savings account, instead of a CD, instead of a bond fund?
I don't fully understand all the pushback other than
there's a lot of negative marketing propaganda out there
proposed from the investment side of the house.
So how do you talk through conversations like that?
(that was a long opening I'm sorry)
S: Yeah no, no, no. I get it a 100%.
I've heard it 1,000,000 times:
"Whole life is a scam,
I don't want anything to do with it,
if this has anything to do with whole life insurance I'm not interested."
That stuff it comes up quite a bit and you know
how I look at it from a presentation standpoint
or just a building awareness is there are really 2 sides of the fence.
You've got one side which is exactly what you just described,
individuals that have heard of whole life
or been presented whole life insurance
and they looked at it they said:
"Okay I'm purchasing this for death benefit
but cash value, cash accumulation, that is what I'm interested in."
I see a company paying a 6% maybe it's a 7% dividend rate
when they looked at it at the time and maybe they're putting in money
and they have nothing in the beginning.
It takes 10 years just to perhaps break even,
meaning get your money back your cash on cash
and they look at that and say:
"Oh okay, if this is such a good place to put money,
why does it look so bad?"
And then you've got things out there reinforcing the negativity.
If you listen to a Dave Ramsey or Suzy Orman
they've got their opinions and they're very vocal about them
so there's a lot of negativity around whole life insurance
and frankly, if it's designed in a manner
where you have nothing in the beginning
and cash accumulation is your goal you want to see it,
then it's not going to necessarily work.
M: You're not going to be happy.
S: Correct,
but then you've got the other side of the fence
and this is where the attraction is there, when you see banks,
corporations, the ultra-wealthy, a lot of business owners,
people we work with, put in tons of money into these products
and they've got cash value right off the bat.
A lot of times it's the same company, same product,
it's just designed differently, all that means is as a consumer
if I pay a $1 into a policy I can choose how much of that dollar
goes towards premium and how much goes into Riders
that accelerate the cash value growth.
So without getting into detail there, the main point is,
if the product is designed in a manner that copies or mimics
what people with money are doing and have been doing this for so long
and then you hear comments like: "I love whole life insurance."
I remember an owner of a construction company made a comment,
he had policies of 5 or 7 of them something like that
we analyzed him he showed us all of his policies
and he was "well to do" he said: "Other than the share of my business,
my stocks, bonds, all my other investments, they've produced,
but my life insurance policies have been my best performing asset."
Because that 4% internal rate of return tax-free if you do everything right,
it's just consistent regardless of what happens every year,
so it is partly a mindset. You'll see the wealthy very happy with it
but they've typically presented a policy in a manner that's cash-rich from the get-go.
Very, very, strong guaranteed cash value,
short term, long term, all that good stuff,
so I would attest it to the policy design
meaning, making sure it's designed upfront
this way if you're showing someone putting a $100,000 per year
into a policy with the same product, the same company,
and option (A) has 0 in cash in year 1
option (B) has 50% in cash value
and option (C) has 85% to 90% cash value off the bat,
same company, same out of pocket by the consumer
they're going to look at it and say:
"Why would everyone not go with option (C)"
M: Are you sacrificing
future performance with that design?
As an example, I remember years ago there were a lot of advisors
that I've worked with were very interested in the high early cash value product.
S: Yeah.
M: And
Mass Mutual has a high early cash value product
where you pay $1 in premium and you have 91 cents in cash value,
92 cents value immediately.
That product wasn't as strong a performer long term
as the other products, it wasn't that far off
but you were definitely sacrificing some future product performance.
S: With
a pure high early cash value product like what you mentioned
you do sacrifice long-term performance.
Now if you take a traditional product
that is designed for long-term cash accumulation and death benefit
you could, that would be a case where the base premium
typically gives 0 or a couple percentage points
credited to cash value in the 1st and 2nd year.
Those products can be designed, long-term products can be designed
where you have 85% to 90% cash value in the 1st year which is appealing.
A lot of people see that and say: "Okay now I can reap the long-term benefits
and it doesn't really hurt me because I don't necessarily need
all of the money I pay in the 1st couple of years.
I might not need any of it, I just like to see it there in case
something happened, an asset on the balance sheet, that kind of stuff."
But to answer your question so if you keep an Apples to Apples
with a traditional policy and all we're doing is lowering the base premium
and increasing the PUA [Paid-up additions] component
to beef up the cash values, the question was:
"Do you sacrifice long-term performance that way?"
The answer is potentially and I hate giving that answer
but the reason why is when you look at how insurance companies
pay dividends on life insurance products
over a long, long period of time 30 or 40 years,
dividends are more favorable on base premium $ as opposed to PUA $
Does that make sense?
M: Yeah.
S: Okay, so if dividends come up...
M: Not really but...
S: (LAUGHTER) M: Yeah I follow it.
S: The point
being is, let me try and do my best to simplify,
if we take less upfront the insurance company says
if we do well and our dividend rate goes up
we potentially may give you more money long term.
That's more or less what's happening
because of how they treat dividends on their pure premium piece
not Riders that accelerate cash value, which is appealing as a consumer.
It's very appealing as an agent because we can start to justify:
"Okay I can set a higher base premium
which means higher compensation and such
but the thing is, like what I've seen to be consistent
is aside from the "what-ifs" when we look at actual data
and I saw this a lot when SERPS [Supplemental Executive Retirement Plan]
are put in play for corporations and such,
they will look at historic data and they juice the policies from the get-go,
asset in the balance sheet day 1, maximum cash value
and they say: We've had this for a while and it performs
at the highest rate when we squeeze the premium down
regardless of what the illustration says."
So my thing is, obtaining more historical data is always good
but looking at real performance, can you give up long-term performance
by having more cash upfront potentially?
But in reality, I have not seen that.
I've typically seen if you max it out upfront, you max it out long term
and when you look at the guaranteed cash values that's true 100% of the time.
M: Do you
find that clients in these types of situations
are kind of Uber focused on upfront or early years cash value
or they want to look at options?
S: Good question.
They always want to see options.
Obviously, everyone's focused on the upfront
they want to see how much of a hit it's going to be
but I wouldn't want to take all of my money upfront
if it's going to really negatively impact me long term.
So we want to see the options there too, so we always will show options.
Not everyone's focused on the immediate cash value
but the thing is, if 30 years down the road if you and I look at an option
and we're going to have a $1,000,000,
an option (1) gives you nothing upfront,
or 50% of what you pay upfront and option (B) gives you the same
or very similar to that $1,000,000 in 30 years
but you've got almost all your money upfront,
it's like, why would you not take it upfront?
That way, you can use it. I mean the life insurance is great,
you've got the protection from the death benefit,
the safety, the 4%, whatever it produces on the net returns,
but using it.
I know you're involved in real estate if you want to use it for a real estate deal
that's where you're going to make your money.
M: I'm working on something right now.
S: Exactly.
That's where you're going to make your money
and the life insurance can just compliment that.
So this is a nice (what's the right word) storehouse,
but at the same time using it for other opportunities
so the more capital we have access to,
the more we can use it and accelerate everything.
M: You know what else is so important
that I think never really gets a good enough look in our business
from wholesalers and advisors is, I can't tell you how often
I'm in competition with another carrier and I've got someone who's
looking for a death benefit solution
and they're also looking at cash values,
they don't really look at the income coming out of the policy
and all these companies distribute income out of these policies.
It affects the policies in a different way,
meaning that just because my policy has $100,000 in cash value
and your policy has $90,000 in cash value
doesn't mean necessarily that I'm going
to drive more tax-free income out of my policy.
S: Correct yeah.
M: I don't think folks really understand that
or take a hard enough look at it. I think a lot of times it's like:
"Here's this cash value, here's that cash value, this one's better."
Not necessarily. It really depends on how you plan to use it,
it really depends on how the company recognizes loans
and distributes money from the policy. You know this.
S: Yeah 100%. We did a study on that recently,
we've got a video, it's a public one about
setting expectations properly on the distribution phase
where what you mentioned plays into it and we also showed:
"Hey if I'm pumping funds into a policy
and I see this much income projected, okay it looks great."
But what does it look like in a conservative dividend environment,
if dividends come down and also guarantees,
this way I can see it upfront as opposed to
thinking you're gonna have $50,000 per year
and then told after the fact you get $35,000,
that's not the conversation anyone wants to have.
M: Well
I'm glad to hear that you're delving into that.
I always thought that was interesting that it gets glossed over
and maybe an advisor can gloss over that
but from a client's perspective, you really need to understand
how that works when you're looking at options.
S: Yeah, yeah because there's so many moving parts
and it takes time to learn it or an agent that's just going to do it for you properly,
that's important, there's a lot that goes into it.
But I guess to kind of loop back around to your original question
with the individual saying: "Hey whole life not that great,
I like other investments and such."
What I've found is typically just a means of awareness
seeing the options where: "0h I didn't know I could have
that type of policy and mimic what a lot of these one-percenters do
on my in my personal situation with any amount of money that I'm paying in."
That's usually the awareness where at least what we've seen
the light bulb goes off: "Oh I didn't know that, alright show me this option."
M: And generally
I think people feel the stock market
is sexier and more exciting, not for me but for the most.
S: Yeah,
right now it's all over the place which
is definitely exciting.
I mean that's a good word to use for it.
M: Yeah not always good but exciting.
Alright, this was great, thanks Steve. I'll be talking to you this week
and if anybody is looking for, as always Steve is looking to grow,
his organization is growing rapidly during this time and
how many of you can say that so if you have questions
about what Steve does,
please reach out to him.
He's a great contact in this space.
And if you want to talk Mass Mutual, you want to talk whole life
give me a buzz, reach out via email and Steve have a great day.
S: Likewise thanks so much Mike, enjoy.
M: Thanks.