Insurance companies are part of a multi-trillion dollar industry. The
backbone of America and the world. One of the last dominoes to fall if
everything went to heck in a handbasket. In this episode, I'm going to address
the commonly asked question "How safe are insurance
companies to put money into?" And I'm going to share some things with you that
you probably didn't know and why I would consider them far
safer than most banks and credit unions because this
is where many banks and credit unions put their money for liquidity
and safety.
So, my name is Doug Andrew and I've been using max-funded
indexed universal life insurance since 1997.
I've been using regular universal life since it was first introduced in 1980.
I have recommended this as a safe repository for your serious cash. Money
you don't want to jeopardize. You don't want to risk for goals such as
retirement or college funding for your children or
what have you. And I do it because the insurance
industry is deemed one of the safest places to put money.
Do you know that many pensions like school teacher pensions, police officers,
firemen; many pensions are invested into
insurance companies because of their safety. Now,
let me explain in general the legal reserve
insurance system. The insurance industry has legal reserve requirements
where they have to keep money cash on hand
in liquid and safe investments in case of a
run on the bank, a panic. And so, they have to be very very careful.
And their legal reserve requirements are far more stringent
than banks and credit unions and brokerage firms and so forth.
And so, this is why they weathered the great depression (for example) with flying
colors. So, they have their money in a very safe, liquid
environment and they manage trillions of dollars. In fact, it's a...
It's the largest industries the backbone of America and the backbone of the world.
This is where governments go to for help when they get
hard up for money. Did you know that? In fact, one insurance company where I
put some of my money manages about 4 trillion dollars
which is as much as the IRS clicks in income taxes in an entire year.
One insurance company. So, can you see how huge they are? Now,
what happens is the money is in these insurance
companies and they diversify it into triple a and double a
bond. Sometimes in mortgages on skyscrapers or shopping malls and they
only loan maybe 50, 60 percent loan to value. They don't loan 80 and 90
like the banks do because if they ever have to foreclose or if there's a
recession, they usually come out smelling like a
rose. And so, what has happened historically because of this
is like in the great depression, there was some real estate that dropped
80 percent in value. Did you know that? Banks closed. 40%
never reopened again. Guess how many legal reserve insurance companies went
under in the great depression? Zero. They came through with flying
colors usually crediting back then about 2.5 to 3.5
percent. We look at another critical time period
2008. Now, most Americans don't realize how close we were in america to a
total financial collapse. And so, in 2008, there were 400 banks that totally went
under. 900 more were on the brink. They were on
what was called the watch list. At that time in 2008, guess how many
legal reserve insurance companies went under? Zero, okay?
If ever there is an insurance company that gets overextended somewhere or
there's a run on the bank like there was with a couple like American general for
example, I actually had a client, he was 77 years
old and he wanted to leave behind two million dollars tax-free to his
church. And he took out a policy just a year
and a couple of months before that and he died .tTat insurance company
that was temporarily insolvent paid that death claim. The death thing was actually
2 million dollars to his church. And they did it within 3 weeks. Well, if
the company was insolvent, how do they do that?
It's because of the cross insurance. See those insurance companies cross-insure
each other. So, if I have an insurance policy with
XYZ insurance company in my state and they are temporarily
insolvent, all the other insurance companies that
have to file annual reports in the state, i have to cough up. They have to sort of
ante up. Their proportionate share of the money
that's in insurance in that state. They may cough up a half percent or
1%. And so, it doesn't matter. New York Life,
metropolitan prudential, they all have to anti-up
until that insurance company becomes solvent again or has
cash flow. And that company did within a few months.
If an insurance company is deemed insolvent,
many times there's tons of other insurance companies that come in
and immediately want to buy them out. So, there's never been
ever a legal reserve insurance company that has not honored a legitimate death
claim or or claims for legitimate amounts of
accessing the money out of their annuities or whatever
because they cross insure. To me that is way safer than paying a premium from a
bank to the federal government for FDIC. Now, FDIC
technically ran out of money when they bailed out the savings and loans. But see,
some people think, "Well, the government can raise taxes. They can print money."
Yeah, that's true. But I like the multi-trillion dollar insurance industry
because it doesn't rely on federal bailouts. What it relies on
is cross-insuring each other. And so, they have legal reserve
requirements. In fact, in 2008, when those 400 banks went under 900 more were
on the brink, the federal government actually asked
the 5 major banks in America to disclose where they had their tier
one assets for liquidity and safety. Guess where they had 30 to 40 percent of
their tier one assets for liquidity and safety?
In insurance companies. Oft times in BOLI, b-o-l-i means bank-owned
life insurance. People go, "Banks own life insurance on who?"
Doesn't matter. The owner of the insurance policy gets all the tax-free
accumulation and benefits. They own it on their stockholders. Or
many times banks will even buy insurance policies on a secondary market from
people who don't want their insurance anymore
because they know the math when they finally pass away, they get the tax-free
benefit. But the living benefits are incredible.
And so banks and credit unions are borrowing our
money and paying us 1% in a savings account.
Because when you have your money in a a bank or credit union, it's in a lended
position. They're not just a benevolent
institution paying you interest because it's sitting in a vault.
They're taking our money that they pay us 1% and they earn
5% in the insurance company without even linking to an index.
How much more is 5%, than 1%? Don't say 4%.
It's 500% more. Every million, they pay 10000 in interest a year, they make 50,000.
Hello? Would you buy a widget machine for 10 grand that made you an extra 50 grand?
that's a 500% return on equipment cost. Would you hire
an employee for 10 grand that made you an extra 50 grand?
That's a 500% return on employment cost. I'll do that all day long.
And so, this is the magic behind having money into an insurance
contract that is safe. That can weather the economic storms and what have you.
And it's probably one of the last dominoes to fall. And
let me tell you what i mean by that. So, let's take a worst case scenario.
This never happened but it could. Let's say that we have
a tremendous downturn in the market. What would happen first? Well, as happened
in the past, you would have a lot of banks failing. They would start to go
under in credit unions. And people would be panicking and pulling their money out
of the market. You'd have a use huge stock market crash. If you saw that
happening, you would have a lot of time to
take your money out of your insurance policies out of the insurance company.
But let me ask you a question. Where would you put it?
People say, "Well, I want to get to my money." Well, if it's that
bad, the insurance industry is a multi-trillion dollar industry would be
the last domino to fall. So, let's say you got your
money out because it was horrible like that. Where
would you put your money? People say, "Well, I'd put it in my
mattress." No, the American dollar would be worthless.
You better be able to grow carrots in your backyard. People say, "Well,
I would buy gold." No. You can't eat the gold
when it gets that bad. People invest in gold and all gold has done is kept
up with the inflation rate during the time. See, at the time of Christ,
an ounce of gold would buy you a nice a tunic, a nice
set of clothing. Today an ounce of clothes will buy you a nice custom-made
suit. I mean, basically gold just sort of through the
years goes with the ebbs and flows and it keeps up with inflation but you
can't eat the gold or the silver at the end of the day. You've got to convert it
to somebody who wants to exchange the gold for
food. And so, that's why I choose the multi-trillion dollar
insurance industry as a place to put my serious cash.
Because if things got really bad, it would be the last domino to fall.
And if it did, it wouldn't matter if I had my money. I need to have a backup
plan with food or whatever if things were
that bad off. And so, this is why I use my
insurance policies as a safe repository for serious cash for retirement and what
have you. And this is where the other institutions
put their money for liquidity and safety. So, take a
lesson from them. So, if you want to learn about this and
choose insurance companies based upon their
safety ratings, there's organizations out there that
rank insurance companies that give them a rating.
S&P, Duff and Phelps, Moody's, Wise, all of these different ones.
I usually subscribe to what is called a Comdex score.
And I choose insurance companies generally that score 90 or
higher. The highest you could get would be 100. I want to put my money in an
insurance company that is ranked in the top 90% of all
insurance companies. If you want to learn about this, I would
implore you to study my most recent book The Laser Fund. And you don't need to
pay for this book, I'll buy the book. If you go to laserfund.com,
you can claim a free copy as a gift from me
by contributing $5.95 towards the shipping and handling and i'll pay for
the book. And I will fire out a copy to you. And
you can learn more about why I consider insurance companies
some of the safest places to put my money where I do
not want to lose. I can sleep at night. And if things got
really bad, they would be the last domino to fall.