How to Manage Your Whole Life Insurance Policy

How to Manage Your Whole Life Insurance Policy

Since 2007, we have had the tremendous opportunity to work with thousands of clients to help implement the Perpetual Wealth Strategy and set up their Wealth Maximization Account. We get lots of questions and we have addressed a lot of those in this initial introductory series of the show. We’re going to address another one and it has to do with having multiple policies and how to manage them. Clients often come with the concern of not wanting to lose sight of why they set these valuable assets up in the first place and wanting to continue maximizing their value. I thought about a few guys that would do a tremendous job explaining how they manage their own policies, but also teach their clients how to manage theirs. You’re going to learn from some of my best guys, Will Street and Chad Hanson. They’re going to take over this episode and share with you best practices, tips, advice, as well as their real-life stories and also stories from their clients about how they’ve done that and ultimately mastered this idea of policy management. Without further delay, Will and Chad, go ahead and take it away. Welcome to the show.

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Thanks, Pat. We’re excited to be here. I’m Chad Hanson with Will Street. We’re wealth strategists here at Paradigm Life. We’re just two of the many great strategists here doing strategic wealth management. We were paired up by chance to do this episode, but it happens to be the perfect marriage. Will and I have very different backgrounds. Will came from another professional industry and came into Paradigm from the consumer side. I was working for the big bad wolf that we call Wall Street and came in from the professional advisor side. Those unique perspectives will go together in this episode as we talk. Will, your background is different from mine, but it’s so intriguing. You’re married and you’re starting your family. You start this great professional career. You’re doing great. All of a sudden, you pull a 180 and took a totally different direction. Tell me about that. What happened?

I practice law. My profession was as an attorney. Coming out of law school, I had my dream job. That was how I would’ve described it and did describe it to friends and family, “You must be excited. I’ve got my dream job.” That’s how I felt. I was excited to jump in and have a long, fruitful and productive careers as an attorney. I loved it. I started with the firm that I was with a good, big regional law firm in 2007. The wheels started to come off in ‘07 and ‘08.

We think about the real estate market was going over the mountain and down the other side.

The bubble is bursting. The market is in absolute free fall. I had the advantage of being a younger guy starting out. I didn’t have a lot to lose with what was happening in the market. I wasn’t losing much. I had student loan debt and hadn’t saved. I was getting started. I was in a pretty fortunate position. What happened was I looked around at other people like the attorneys in the firm, staff, people who had spent 25, 30 years saving and doing what it is that we’re told to do. They’re the ones that are experiencing the brunt of that market crash. We are having to make some heart-wrenching decisions as to whether they can retire or not because of the values that they were losing.

Probably because their entire wealth strategy was to throw your money in your 401(k).

Everything hinged on what the market was doing. For me, that was a fortunate opportunity to observe a very clear red flag. I don’t know that I want to go down that road because if I’d ask other people, “What would you do if you were me?” They’d say, “Good thing you’re young. Write it out.” For me, I was like, “That didn’t work for you. That’s bad advice.” I don’t know that I have a lot of faith in that answer. I started to look. I felt like there has got to be other strategies out there. There’s got to be other ways to strategically manage your wealth. Right around that time period, I read a classic Robert Kiyosaki, Rich Dad, Poor Dad, which completely expanded my horizon.

I went from thinking that the only way that you could have wealth is so long as it’s a security and it’s tied to a stock of some kind. All of a sudden, I started to think in terms of different asset classes, passive income, cashflow, those types of things. New terms that all of a sudden that completely weren’t there before and I was like, “Light bulb goes off.” There’s a whole world out here that I am not aware of. I poured myself into it, but as I learned about it and knew that I wanted to let’s say acquire cashflowing real estate so that I could have passive income. I felt like, “Everything that I’m doing in my 401(k) is impacting my ability to do all of this other stuff that I feel like I need to do.

Everything is hinged on what the market is doing. Click To Tweet

The building blocks of a 401(k) is you put your money in. Is it liquid?

No, not at all.

It’s stuck until you’re 59.5. It’s the worst place you can put money if you’re trying to find opportunities. How much control do you have? Zero.

As I was setting up my 401(k), I may have had fifteen different choices in terms of target date, retirement funds, this mutual fund or that mutual fund. It’s not like I had this diverse selection of choices and the reality is money goes in, money stays in. Money is not doing anything other than sitting in that one fix position.

It can potentially grow or potentially disappear.

As I started to continue to learn, read and study, fortunately, I made the connection with Paradigm Life. A good friend of mine was a client and eventually became an advisor here. He brought me in and said, “You’ve got to check this stuff out.” As I started to jump into what it is that we do, which is strategic wealth management. There is strategy involved. Instead of putting it there, hope and pray for the best. I felt like this is what I’m looking for. It gives me the ability to save and then have the opportunity to utilize that savings in a way that is meaningful to me, which is slowly and systematically acquiring assets to cashflow. That was my priority. You come from a completely different angle.

I started back in 1999 in Wall Street. I was a stockbroker, registered investment advisor, retirement planning counselor, estate planning counselor, registered fiduciary. I was a group benefits specialist and play benefits consultant. I was the guy going out there to companies setting up 401(k) plans. I was the guy trying to convince people that they needed to invest their money with me, pay ticket charges, trade charges and management fees and all these expenses to manage their wealth. Unfortunately, I did that but it didn’t work. If you think about 1999, what was happening?

We had Y2K and the dot-com bubble burst.

That sets the stage. When I started in the business, things were rocking right at the end of 1999. We were doing great. We could throw a dart at the Wall Street Journal, pick any stock and it would go crazy. That was nice for the first year. All of a sudden, things changed. Markets started to slide. We tried everything we could to revamp the portfolios and we’ve done everything right. We diversified the portfolios out as far as we possibly could. We’re making tweaks and adjustments. We were powerless other than that. We’ve done everything we could and we still lost money. I was charging people fees to lose their money. That’s painful. I wasn’t strategically building and managing wealth. I was strategically losing wealth, then 9/11 hit. We’ve made some changes. Markets are going up again. We’re thinking we can do this.

40% to 60% of our portfolios were gone overnight. I’m completely powerless. I could do nothing and I felt awful. Right then and there I decided that this has got to change. I’ve got to do something else. This is not working. Fortunately, back in ‘99 and 2000, I had been convinced that I needed to buy some permanent life insurance for my family. I did buy some life insurance policies for my wife and I. Over that first decade in the business, I looked back and I was amazed. My top-performing asset class was my life insurance. I was like, “This should not be happening. I’m a stockbroker. I’m a registered investment advisor. This is stinking life insurance stuff, what the heck?”

It was my absolute best performing asset class. I could not beat it. It was mind-blowing. I was like, “There’s something to this.” That’s when I started doing the same thing, reading the Rich Dad, Poor Dad, and going down all these different avenues, changing, morphing my career and doing the same for my clients who I unfortunately take them down the wrong path. I had to say, “Please come back.” Most of them didn’t, unfortunately. They were like, “You burned me. I’m not coming back.” I don’t blame them. I was part of that Wall Street machine. It’s my bad.

I’m doing the best I could, but traditional and conventional wisdom doesn’t work. Strategic wealth management is not throwing money in some stocks, cross your fingers and hope it works. That’s what traditional advice is, but it doesn’t work. People are not able to retire on time or in style. If you look at the average American, they can’t do it. All their money is in this 401(k) plan that they have no control over. The market has been pounding them over and over. They spend their entire time trying to dig out of the hole. They’re not making any progress. That’s not the way to build wealth.

The topic is now that we’ve got these life insurance policies, what do we do with them? Furthermore, that topic is what do you do in the short-term if your wealth strategy is, “What am I going to do with this now, the next year or the year after,” or if your strategy is more long-term? Looking back on mine, mine was a little more of a long-term strategy. I didn’t touch my policies for ten years. They’re twenty years old and I can do all kinds of things with it. That brings another perspective that we want to touch on. Maybe yours is a little more short-term. Tell me what you’ve been doing about that.

Maybe continuing the story from where I left off, once all of this stuff became clear and apparent to me, it was a no-brainer to make the shift. Starting and funding that first policy that I did, I had the Kiyosaki philosophies in the back of my mind that not only do I want to position this capital in something like the Wealth Maximization Account, which protects it, preserves it, allows it to safely and predictably grow. Because we have access to it, I felt like there’s my answer to be able to preserve, protect and grow in a steady way. At the same time, you use it to acquire these other types of assets that I’ve read about and I’ve had my eye on. Now I feel like I can do it. Strategically, building a wealth plan, building something that I’m putting together piece by piece. When I funded my first policy, within two weeks, I had acquired my first two rental properties. Since that time, instant access to my cash, instantly creating cashflow and then taking that positive cashflow and having it funnel right back into my policy towards the loan balance that I use to acquire the property.

It wasn’t just buying a policy. It’s now managing life insurance policies, putting that as part of your strategic wealth strategies.

All of a sudden, I refer to it as my opportunity fund. I’ve got this pool of capital that, “If I’m not using it, that’s okay. It’s still productive.” As opportunities come along, I can strategically keep an eye out and deploy that capital as those opportunities present themselves. Long story short, over the past few years, I’m up to nineteen properties now. I have seventeen single-family homes and two commercial buildings. It’s cashflowing on average 14% to 15% cash-on-cash return each year funneling right back into that bottom layer. That was my short-term, I want to get this out, get it rolling and start to piece by piece build a portfolio of cashflowing properties.

The beauty of creating a wealth maximization account is that if the opportunity comes, you can use it. Click To Tweet

You said, “When I funded my first policy.” A lot of times when managing their life insurance policy or policies, they’re talking in multiples. How many policies do you have now?

Between my wife and me, we have four. I think of each policy as being like a bucket. When you create that bucket, initially it has capacity. It has a certain structure. More importantly, it has a certain capacity. You can fill it up to a certain point. As your income increases, as your expenses decrease, as your ability to fund changes over time, you may find that you need to expand capacity. This is a very common thing for our clients. I found that to be true. Within about the first maybe 3 or 4 years was typical for me. In speaking with my clients seems to be pretty typical where you find that bucket, that’s awesome and it’s working well. Let’s add another bucket and expand capacity, a longer-term perspective because you’ve got a little bit more runway than I do. How many policies do you have?

I have ten. For many years, about every other year, I’ve had another policy. I filled up that bucket, maximized the policy to its fullest extent and I wanted to do more. I now have a policy on all four of my children. I have four policies on myself and I have two on my wife.

How are you using those? You’ve got a daughter in college.

People always ask, “Why do you have policies on your kid?” That was an afterthought for me in the beginning. I thought, “I may as well protect the whole family.” Many years looking back, I’m thinking these were the best things I ever did. This one-year-old that I bought the policy on many years ago is now in her second year of college. I’m using her policy. I use it to buy her a car. I’m using it to pay for her college expenses. The reason I did that over a state-sponsored 529 plan, especially being a broker, I should have had one of those. I was setting those up for my clients, but I didn’t do it myself. It is what it is. The differences are tremendous. If you put money into a 529 plan within your state, regardless of what state it is, they all work very similarly. How much access and control do you have over those accounts?

Hardly any.

Can you use it for off-campus housing? Can you use it to buy her a car? Can you use it to pay for their weddings?

No. You’re stuck.

It is only to be used for college tuition and maybe books and fees.

I had a 529 plan in the beginning before making the transition. I was so disappointed because I thought, “Tax advantages, contributions, tax deductible, a portion is, but that’s it. I was like, “This isn’t what I thought that I thought it was.

These policies I’ve set up for my kids, I can use the money tax-free, completely open-ended. I can do whatever I want with them. I thought that is so much better. There’s no way I’m doing a 529 plan, locking up my money like that when I can have all this access and control. I can use it throughout life to do many things.

The thing that is so cool about your story is it’s your daughter’s policy that is funding her college education. How cool is that? What a sense of ownership of her education and all of that?

I bought all the policies in my name. I’m the owner. I’m the premium payer. I’m funding it. I control it. When she gets married someday, I’ll assign ownership over to her and now she can change the beneficiary to her new spouse and her children. It’s a multi-generation plan here. We’ve taken a simplified wealth strategy to strategic wealth management to now managing these life insurance policies into the future and doing phenomenal things with them. I bought a new home too. We’ve just moved in. It’s been crazy. It’s the same thing. I use my ten life insurance policies as collateral.

You can use it as business collateral, personal collateral or whatever to secure the new deal and get me into the house. I’ve used my policies for all kinds of things. Paying my staff, buying laptops, iPhones, equipment, to buying businesses and real estate. It’s been a phenomenal tool. That’s something I did not realize early on. You were fortunate you came in and you got it done right here at Paradigm. I did not. I was buying mine in the secondary markets in Wall Street. I didn’t know how to use my policy.

The first ten years, I let it sit there. I funded it, but I didn’t do anything with it. It’s only been the last decade that I’ve started seeing how amazing these things are and taking advantage of their full potential. It’s been so eye-opening and amazing. I share that with my clients and help them do the same thing. Some of them are very fortunate to get it done right out of college in their first careers. Others are doing it in their 60s and 70s and it’s okay. It still works. Everyone always says, “Where were you twenty years ago?” Unfortunately, twenty years ago, I would have steered them in the wrong direction. I say you wouldn’t want to meet me twenty years ago, ten years ago. That’s the common theme you hear is, “I should have done this 10, 20 years ago.” Don’t beat yourself up on that. Start now. Manage these life insurance policies to strategically grow your wealth. Do wealth management from a whole other level, from a whole other plain, and looking into it with completely different eyes with a paradigm shift.

What we do as wealth strategist is we help people do that. We’re going to teach you and educate you. This is how we’re going to change your life through education. The paradigm shift is when your mind is finally blown and your eyes are open to see that this stuff works. It’s not just fluff or rhetoric. It works. It’s the only place you can preserve and protect wealth. I can’t do it anywhere else and I’ve seen it all. I tried it all and I failed. With all the tools, all the resources, all the training, all the education I had in Wall Street, that was completely powerless to truly preserve and protect wealth.

When taking out a policy loan to acquire a property, allow the cashflow to pay back the investment. Click To Tweet

It’s crazy to think about that. The vast majority of Americans are still in that same mindset. They have advisors who they think are managing their wealth. They’re doing exactly the same thing I was doing many years ago. They’re throwing them into certain diversified portfolio of mutual funds, ETFs, stocks, bonds and maybe some other derivatives and saying you’re in it for the long haul, buy and hold. Weather the storm, you’ll be okay. That story is not working. It’s a travesty.

We can help you understand cash value of whole life insurance. The thing that is interesting about what you talked about in the beginning was the differences in our perspective. The reality is both works. Whether you have a short-term focus, the beauty of the policy, the beauty of creating a Wealth Maximization Account and having accessible cash value means that if the opportunity comes along, you can use it. You don’t lose sight of the long-term perspective either. As you need to expand capacity, as the size of that original bucket becomes inadequate because income is increasing, discretionary ability to capitalize, set aside and save improves or increases, add an additional bucket.

Maybe even some of those comfort level too. We have some clients who say, “I want to start small. I want to put everything on this one.” I’m like, “That’s fine. You can always add another policy.”

I would say to that point too, for me, a lot of my conviction came after I funded that first policy. You almost take this step of faith and when you discover that, “My foot landed on solid ground. My faith was rewarded.” It’s like Indiana Jones and the Last Crusade where he steps out on the leap of faith from the lion’s mouth, the pathway shows up. I felt like that was true with me. It was like, “That faith and the commitment in what we do is absolutely galvanized from that point on.” Thinking about it from a longer-term perspective, I want to get where you are, which is policies on kids. We’re getting there, but my runway is not quite as long as yours at this point. I’ll get there. Whether as a client, whether you’re a shorter-term perspective or a longer-term perspective, stay the course and it works.

I encourage our audience, talk to your wealth strategist and discuss, “How do we manage these life insurance policies? What do we do with them? I’m thinking about this investment or that investment. How does this policy loan work?” We’re here to do that. We don’t just set it up and kick you to the curb?

I can genuinely say that’s one of my favorite conversations to have. When you get an email or a phone call or something from an existing client, they say, “I have this opportunity. Can I run something past you?” To have that conversation, to help and offer a perspective, to see them take it and do it for the first time and experienced that same leap of faith from the lion’s mouth, it’s awesome. It’s so rewarding. I love it.

That’s what we’re here for. Use us and abuse us. We love it when people call us and ask us questions. I get all kinds of weird questions. People call me from a lot of the car dealer, “I’m thinking about buying this car. How should I buy it?” I’m like, “It’s not exactly what I do, but it is exactly what I do.” I give them some pointers and that’s fine. We love it. Please use us and abuse us. That’s what we’re here for. We pride ourselves on education. We pride ourselves on customer service. We’ve got a huge staff here behind us to take care of you and support us in this endeavor. Patrick does an amazing job.

Something that’s relevant as part of this conversation is policy loans. For most people, when we’re thinking about opportunity fund and using me maybe as an example here, it’s the policy loan that you’re using, that you’re taking advantage of to acquire a piece of real estate. I assume it’s probably policy loan that is covering the college tuition and that sort of thing on your end. Maybe let’s talk about some of those best practices around taking policy loans and how we go about that.

Maybe for me, best practice is you don’t have to worry, you don’t have to stress about paying it back. Relax is the first concept. You’re not getting a monthly statement. It’s not like a credit card bill where you have to pay this amount every month or you are toast. The first thing is to relax. You’ve got as long of a runway as you need. With that in mind, I have the sense of urgency inside of me to pay that back as quickly as possible. I don’t know if there’s a rule of thumb, but my general policy loans typically don’t last longer than a year. I buy a property or business or an item or a car or whatever. I take out the policy loan and I try and pay it off as soon as possible. I freed up all that cash to use again for the next opportunity. Was that what you defined as well?

What I would say, maybe for me it depends a little bit on maybe the purpose of the policy loan. For example, the way that I distinguish it is if the purpose of the policy loan is consumptive. In other words, I’m using it towards something that isn’t going to generate a direct rate of return like a car. It’s depreciable assets. It’s not cashflowing. It’s not generating positive return, then I absolutely do that. The alternative would be if I’m using it towards something that is generating a positive return or is cashflowing like a business or real estate. What I’ve done is I allow the cashflow or the return being generated by the investment to dictate the speed at which the policy loan is paid back. Take a policy loan to acquire a property, the property cashflows, I allow the cashflow to pay back the investment. What that has done for me is I create this closed-loop system where a policy loan allows you to create a stream of income, the stream of income funnels back into the policy towards the outstanding loan balance. By doing it that way, I’m letting that loop continue to spend and the policy loan is getting paid back.

The cashflow from the asset is what is paying back your policy loan.

It’s not diverting or detracting from our family budget. It’s not coming out of my pocket. My wife isn’t feeling any level of anxiety thinking about I wasn’t planning for this in the budget. It’s self-contained and the income from the asset is paying it back. The bottom line is it’s flexible. That’s the beauty of the policy. Maybe another key point there would be we can help. We want to be and strive to be the one-stop-shop whereas you want to request a policy loan, we can help with that. We have support team who requests policy loans. Loan proceeds are deposited electronically into your bank account so that they’re immediately available to be used. It’s good as maybe a best practice, keep track of your outstanding policy loan balance. Generally, the insurance companies, carriers will help with that obviously, but it’s a good idea to know where you’re at. They’re flexible. Most offer the ability to make payments towards your policy loan online now or over the phone. It’s super easy and super flexible.

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Chad and Will, thank you both for being here, for taking your time and sharing your wisdom and your expertise. Thanks to all of you who have read and taken the time to expand your knowledge to best utilize what you have established here at Paradigm Life. Don’t forget to visit our website, ParadigmLife.net for all of this episode’s content, as well as other helpful resources that you can utilize as you move forward, continually maximize the benefits within the professional wealth strategy. It’s hard to believe that our next episode is the final in this welcome series. We’ve covered tons of information and most fundamental foundational advice. With myself and all the other wealth strategists unpacking all of the experience, the wealth of knowledge that exists here.

I hope you have enjoyed it. For our final episode, we wanted to let some of our clients do the talking. Next, you’re going to learn from several fellow clients of Paradigm Life. They will be joining us to share their personal experiences, their successes in applying this strategy to their own unique set of circumstances and to help them achieve their goals. It could be small business, investing, real estate investing, family finances, legacy planning, family offices, growing personal wealth but also planning for a potential part-time or full-time retirement. We’ll get to learn directly from them. You are going to enjoy this episode. We’ll see you then. Thanks again for all of your support.

Important Links:

• Will Street
• Chad Hanson
• Rich Dad, Poor Dad