﻿I don’t normally get too emotional about certain financial products, but this one really gets me
boiling. Hi, if you are new to the channel, my name is Tae from Financial Tortoise - a channel
dedicated to helping the Sandwich Generation reach Financial Security. In this video I want to talk
about life insurance. Specifically the difference between Term vs. Permanent Life Insurance,
also known as whole or universal life insurance. It’s a pretty heated debate given there’s a lot
of money involved. Money that people pay out in premium and money that insurance
companies make on these policies. And I get personally heated with this topic given that
I’ve seen too many elderly, including my own parents, being pressed to purchase life
insurance products that they don’t need. If you are ready, let’s get right to it.
But first, let’s talk about if life insurance is even right for you. As the Sandwich Generation,
sandwiched between our aging parents and our children, we have a lot of responsibilities.
On top of emotional support, there are financial obligations that we are responsible for. It could
be the home mortgage that pays for the roof over our kids. Or maybe the extra financial support
you provide to your parents to help them make ends meet. Whatever the case, you have a lot of people
depending on you and finances play a big part in that. So, what would happen to your family and
loved ones if something suddenly were to happen to you? Would your spouse be ok? Your kids? And
how about your aging parents? Right now if you are healthy, it’s easy to not think about these kinds
of questions. However, if something did indeed happen, not being prepared for it will be one
of the biggest financial mistakes you can make. For my wife and I, since we have young children
and aging parents who depend on our income, we made it a priority to have life insurance. So,
yes. For the Sandwich Generation like us, I believe life insurance is a must.
But the next question you might be asking is, what kind? Where do I start? Should you
blindly start calling or emailing life insurance companies online? Before you do that, you want
to have a very specific criteria for what you are looking for. Why? Because life insurance is almost
always sold on a commission basis. Have you ever heard of the saying - Life insurance is sold,
not bought? The types of insurance that pay salespeople the highest commissions are oftentimes
the ones you least need. So, before you start exposing yourself to the world that you are open
to buying life insurance, you want to clarify exactly what you are looking for, so you aren’t
steered by the insurance salespeople towards a direction that is best for them, and not for you.
There are primarily two types of life insurance. Term and Permanent - also known as Whole or
Variable Life insurance. I’ll say it clearly before we even go into comparing these two. For
the 99% of you out there, the best type of life insurance to effectively protect your loved ones
is Term Life Insurance. Let me say that again, for the vast majority of you, stick to Term
Life Insurance regardless of what the insurance company is trying to sell you. I’ll go over later
in the video. There is a very rare case in which the Permanent Life insurance could make sense.
But if you take one piece of information from this video is that Term Life Insurance is most likely
the best option for the Sandwich Generation. So real quick. Why and what is term life insurance?
Term life insurance is an insurance that is issued for a specified number of years,
the term. For example, if you get a thirty year policy, you would pay a monthly premium for
thirty years and the payout, the death benefit, is guaranteed to your beneficiaries if you die
anytime during that thirty year window. If you are still alive at the end of the thirty year period,
the policy just expires. You no longer pay the premium and you are no longer covered by
the life insurance. It’s quite simple. Probably one of the simplest financial products you can
purchase - which also makes it one of the best ones to purchase because everyone understands
exactly what you are buying. Some people get hung up on the idea of the term life insurance
expiring. I remember having a conversation with my mom about term life insurance and she was annoyed
by the fact that after all she would pay in premium, there would be nothing left at the end.
What’s interesting is that we don’t think the same way about car insurance or home insurance.
Many of us pay our premiums regularly and don’t get mad when the house doesn’t burn
down and we don’t get to use our insurance. Life insurance is the same. Insurances are
tools to manage risk. The risk of something happening to us in the next 20 to 30 years,
and term life insurance gives us the peace of mind that our families will still be taken care of.
As regards to the amount, a simple rule of thumb is a minimum of 10 times your income. If
you have other obligations like debt and kids’ future college tuition, you can include them
into your calculation and aim for 15 times your income. And just because now you are clear that
you will purchase a term life insurance, don’t be careless about where you get them from. Start out
by asking your current insurance company. Where you have your car and/or home insurance. But
ask around so you get a good comparison of the quotes. For us, after having looked around, we
did feel comfortable with going with our existing insurance company, USAA. They were able to provide
my wife and I simple term life insurances at the market rate. It also made it simpler to have all
our insurance products under one company. Alright, now that we’ve talked about term life insurance,
let’s get into one of the most widely sold insurance products on the market - the
Permanent Life Insurance, also known as whole or universal life insurance. I won’t get into the
differences between the types of permanent life insurance here. There are nuanced differences,
but the basic concept is pretty much the same. And since Whole Life Insurance is the most common
type of permanent insurance policy, I’ll refer to Whole Life for the rest of this video for
simplicity's sake. but first if you're enjoying this video and you want to learn more about
personal finance and navigating life as a sandwich generation, I would appreciate it if you subscribe
and hit the like button, because that would really help out the channel. Permanent insurance or whole
life insurance, as its name suggests, is a policy that never expires. You pay a monthly premium
until your death, at which time, your beneficiaries will receive the full
amount promised in the policy. In addition to the full policy amount at death, a portion of
the premium you pay into it also accumulates a cash value. So your beneficiaries not only
get a life insurance benefit at your death, but you can also access the cash you put into
it too while you are still alive. Stepping back, this policy structure feels quite appealing. It
almost feels like you get to have the cake and eat it too. You get to access the money you deposit,
while you are still alive. And it never expires, as long as you are continuously making the
premium payments. Sounds like a pretty good deal compared to a simple term life insurance, right?
However, there's another saying that should be running through your mind. If something
seems too good to be true, it probably is. First, the insurance broker who oftentimes is trying to
sell you whole life insurance, gets quite a bit of commission by selling you this product. Much
more than compared to a term life insurance. And ofcourse the reason is that whole life insurance
pays out so much more. It makes more money for the insurance company. And this already makes me
suspicious. Highly marketed products are highly profitable. And if it's so highly profitable,
where is the money coming from? Am I getting a good deal here? Or am I the sucker?
Insurance shouldn’t be used as an investment vehicle. Remember, insurances are risk management
tools - to protect us from catastrophic events. Not wealth building tools. They are wealth
protection tools. Insurance companies are in the business of insurance, not investments. The best
way to grow your money with investments is with actual investment products like low cost index
funds, not with the insurance companies. I do give kudos to these insurance company’s marketing
departments though. They have done a marvelous job of marketing the idea that you can make money
through your life insurance. It’s so ingrained in so many people’s minds that I feel like it’s a
conversation I have with my parents almost every single year. And this is where it really gets
me boiling. I feel too many elderly that I know around me are constantly being sold these Whole
Life Insurance when it doesn’t make sense for their situation. Yes, there are very rare cases
where Permanent Life Insurance can play a role in a person’s tax minimizing strategy - however those
cases are few and far between. Most often, these whole life insurances are being sold to people
who can barely afford them. Not to people who have so much wealth, they need to deploy tax management
strategies. Let’s review a few common marketing tactics that many sales people use. Sales Pitch
#1 - “It’s also building your wealth because it has a cash value.” There are so many better ways
to build your wealth. The premium on a whole life insurance is multiple times more expensive than a
term life insurance. An average quote for a one million dollar 20 year term policy for a healthy
40 year old male is approximately $71/month. For the exact same male, a million dollar
whole life policy starts at around $1,300/month. That’s a difference of more than $1,200 dollars
that you can invest in the market and really grow your net worth. According to Consumer Reports,
the average annual rate of return on a whole life policy is 1.5%. This is barely more than
a high-yield savings account. Compare that to the stock market which has yielded a return of
approximately 8% the past 30 years. There is no comparison. The extra money you pay to a whole
life insurance policy could be invested to yield you a much greater return than the policy can.
Sales Pitch #2 - “You can pass on this benefit to your children. Even if you don’t have any
other assets, they will have this life insurance policy from you.” I just don’t like how guilt is
used in these kinds of sales tactics. And as I mentioned earlier, the monthly premium cost
just doesn’t make sense for most people to get this kind of benefit. If you really want to leave
something to your children, it makes much more sense to take the difference between what you
would pay for a whole life vs term and invest that money to grow. And the great thing about this is,
the longer you live, the longer it has time to grow, and more you can leave to your children.
Time is the real secret sauce to making money grow. Sales Pitch #3 - “Whole life insurance acts
as a tax deferral because once you put your money in, you can essentially take out a tax-free loan
for the amount.” The sales person isn’t lying. This is technically true. However, that doesn’t
mean this is the best way for you to get a tax deferral. There are many many more tax advantages
you can and should use before this option even makes sense. Tax advantaged accounts like 401(k)
or an IRA should be prioritized first. A Whole life insurance is not the only tax planning
strategy, nor is it the best. And it probably is one of the most expensive ones out there so
be cautious. If you are one of the 1% of the population and in a position where you’ve maxed
out every single pretax, tax-deferred bucket available to you and are in a strong financial
position to even consider this low-yield option, congratulations. You are truly wealthy and I’m
flattered that you are even watching my video. In such a case, I would highly recommend working with
a specialized tax planning expert to best maximize your tax options. For the rest of us mortals,
like myself, my recommendation would be to get a simple 20 to 30 year term life insurance,
10 to 15x your income. This really is the best, and I would almost say, a must for the Sandwich
Generation. You will get the peace of mind that your family and your loved ones will be protected.
Thank you guys for watching. If you found value from this video, please hit the like button,
leave a comment and subscribe to the channel so that you don't miss out on any of my other
upcoming videos. I firmly believe that being part of the Sandwich Generation doesn't have
to mean financial stress. With careful planning and preparation, we can thrive during this stage
of life. Help me spread the knowledge. Thank you again and I'll see you in my next video.