The Get Ready Money Podcast
The Get Ready! Money Podcast with Tony Steuer features insightful conversations with financial experts who are changing the way we think about money. Listen each week to catch up on the latest financial trends and hear practical advice from Tony and his expert guests aimed at demystifying the complexities of finance, so you can build healthy habits that ACTUALLY work.
Each episode will leave you with tips for implementing small changes that can have a big impact on your financial future. Tony’s podcast is perfect for listeners seeking to get ready, be prepared, and transform their financial future.
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The Get Ready Money Podcast
Debunking The Top 10 Life Insurance Myths Featuring Luke Rother
On this episode of The Get Ready Money Podcast, I was joined by Luke Rother, the Managing Partner at Yetworth Collaborative to talk about busting the top 10 life insurance myths and what advisors need to know.
Here are the myths we busted:
- Life insurance is only for people who are working/ people who have kids.
- Life insurance is too expensive.
- I have health issues, so I can’t get life insurance.
- Group life insurance takes care of life insurance needs.
- Always buy term, never buy permanent insurance.
- Life insurance policies are set it and forget it. You don’t need to review them.
- Life insurance is an investment (nope, it’s insurance with an investment component)
- You can be your own banker.
- Indexed Universal Life policies are a ‘scam’.
- Fee based products (no-load policies) are always better options than commission based products.
Luke Rother, CLU, CEPA is a life insurance specialist that has a passion for collaborating with trusted advisors to develop and implement risk protection related strategies to enhance the value that advisors bring their clients. He entered financial services after working in the nonprofit sector following in the footsteps of his father, Randy, who has been a life insurance specialist for over 40 years. After working with a large insurance carrier, and working with his Dad, Luke decided to join the Yetworth team to expand his product expertise and to launch a dream business that caters to fee-only advisors.
Connect with Luke Rother, CLU, CEPA:
LinkedIn (here)
Yetworth website: (here)
The Get Ready Money Podcast and its guests do not provide investment advice. All content is for educational purposes. Guest opinions do not necessarily reflect the opinions of The Get Ready Money Podcast and Tony Steuer.
Are you looking to get ready, be prepared and transform your financial future? Then you've come to the right place. This is the Get Ready Money Podcast with Tony Stewart, where Tony has insightful conversations with financial experts who are changing the way we think about money. Catch up on the latest financial trends and hear practical advice from Tony and his expert guests so you can build healthy habits that work, Be empowered with tips for implementing small changes that can have a big impact on your financial future. So sit back and get ready to hear from today's guest.
Speaker 2:Welcome to the Get Ready Money podcast, changing the way we think about money. I'm pleased to be joined today by Luke Rutter. Luke and I are creating a solution to help financial advisors review their clients' life insurance needs. With Yetworth Collaborative, luke is the managing partner and I'm the chief advocate. In this episode, luke and I will be busting the top 10 life insurance myths and sharing what advisors need to know. Luke, welcome to the Get Ready Money podcast.
Speaker 3:Thanks for joining us today.
Speaker 2:Thanks for having me, tony, excited about it. Yeah, you know. I mean, you've got some great viewpoints that you know. I'm looking forward to getting into this, you know. But let's start out. What is your origin story?
Speaker 3:Yeah, so I grew up, born and raised College Station, texas Grew up, came into the business honest, my dad has been in the life insurance world his entire career, so over 40 years now he has only done life insurance. He's one of the rare birds that never ventured into financial planning or asset management but decided early on in his career that he wanted to do one thing and be an expert in that area and so grew up with him. Seeing him do that and run his own business there and that was an attractive thing for me. You know seeing him how he was able to be involved in our lives as kids, you know coaching our sports teams and just the flexibility that the industry allowed them to have was attractive to me.
Speaker 3:So, fast forward, went to Texas A&M for college, studied psychology.
Speaker 3:I thought I wanted to be a therapist and quickly, once I started in grad school and studying that, decided that wasn't going to be the route for me.
Speaker 3:So I went into financial services. So started out working with Equitable, worked with them for a couple of years, decided, similar to my dad, I wanted to be an expert in one area and went with life insurance because I knew I could be trained well from him, seeing as he'd been in the industry for a long time, so decided to do that, went and worked with my dad's firm for a few years and, being the I guess you could say adventurous one of the family, decided I wanted to start my own trajectory, and so I ended up fast forward, ended up working with Yetworth, joining Max at Yetworth as the life insurance expert, and then from there, max and I, along with you, tony, launched Yetworth Collaborative, which is, in short, a service for fee-only advisors, where we operate essentially as a fractional insurance office for where we operate essentially as a fractional insurance office for advisors to collaborate and provide value and advice for them and their clients.
Speaker 2:Well, that's awesome, and you know, you mentioned therapists. I don't know about you, but I've often felt like a therapist to some of my clients. Absolutely, absolutely.
Speaker 3:There was enough. There was a good dosage of that in this business, so it was a good fit. But definitely relational and I love asking questions and learning, learning about people and their lives and a lot of what we do, as you mentioned, can venture into that therapy realm, I would say venture into that therapy realm.
Speaker 2:I would say yeah, 100%. And just for the watchers and listeners, it's just Max who Luke is referring to. Our other partner in the Yet Worth Collaborative Venture has been on this podcast, maxwell Schmitz, and you can check out some of my conversations with Max in the past if you want to learn more about Max. So to get back into it, you know, before we bust into the top 10 life insurance myths is you know? You mentioned curiosity. Do you think that's a missing component, that people aren't curious about life insurance?
Speaker 3:Absolutely, and I think a big reason for that is is an honest reason. I think you know permanent policies or you know different strategies, you know utilizing premium finance or whatever the hot ideas of the moment, and so I think a lot of times life insurance has gotten a bad rap because of those things and when that happens, you know, you just tend people tend to write things off versus becoming curious about them. And so, yeah, I do think that that is a component that's lacking in a lot of planning is that curiosity piece, and not only on life insurance products, the industry, but really in the strategy behind things, and you know client fact patterns and asking the right questions and what's important to people. So I would say curiosity is lacking, but not only, you know, in just that one product lane, but across the board, from the client to the situation onward.
Speaker 2:Yeah, I'm with you 100%. I think that's one of the best things we can do for consumers is to help them become curious about their financial services and products and, as well as planners to become, you know, to move outside your comfort zone with products that you're not comfortable with, to learn a little bit more, and that's the purpose of this episode. As we get into the top 10 life insurance myths, is that these are not only for advisors, but for everyone who has a life insurance policy. You know to think about that. We hope these are ideas and concepts that will help you with that. So, without further ado, let's get into the number one life insurance myth, or myth number one Life insurance is only for people who are working and people who have kids. What do you think about that, luke?
Speaker 3:kids. What do you think about that, luke? It is a myth, because that is not the case. There are other situations where life insurance is integral to the planning process. I think more than anything, that's where life insurance is thought about the most. That's where life insurance is thought about the most, and for good reason. You know, if you're working, have a family that's reliant on income and something happens, obviously there needs to be a death benefit that can cover, you know, that cost of living and can help moving forward.
Speaker 3:But there's so many areas where life insurance is needed as well in planning. You know you think about businesses. You know they have a buy-sell agreement that needs to be funded and you know that can be funded with life insurance or disability insurance. You think about estate planning, which is an area that we work a lot in. You know, sometimes if a client has a taxable estate, life insurance can be a key component to that estate plan and wealth transfer plan. So I would say that's a myth. That's where most people think of life insurance is to cover that income need. But there are a lot of other needs that life insurance can cover as well.
Speaker 2:Yeah, 100%. You know, to me where I come down on this is that you know, as you said, with estate planning or buy-sell, it's where there's going to be a financial impact, with the loss of the insured is. I think that's it, and I think the most common place where this comes in is for most families. If you have a non-working spouse who's busy running around the kids, you know, running the household, doing all these other things, is that we have to take a look at and go okay, well, is this person's death going to have a financial impact? And, as you point out, it could be in a business situation with a partner where maybe it's not a direct impact, but they're ones who brings in client. Maybe the rainmaker in the firm is somebody whose death is going to have an indirect financial impact. Absolutely yeah, so that's awesome. Myth number two life insurance is too expensive.
Speaker 3:Two life insurance is too expensive. This one's funny because it depends on your definition of too expensive, right? But I think ultimately you have to look at from a perspective of, yes, the premium may be expensive, but what is to your point earlier, what's the cost if something happens? So, while a premium may seem expensive, it's going to be much more costly and much more expensive sometimes to not have insurance.
Speaker 3:In that situation, you know, I think of car insurance, right, no one likes paying their car insurance premium, but if you get in an accident you're sure glad you have it. And so it's similar for me in the life insurance space. No one likes paying a monthly premium or an annual premium, but when that insurance is needed, people are glad they have it. And secondly, I would say too is make sure you understand your options for paying a life insurance policy. You know sometimes people are pitched policies that you know could be a level pay premium and they don't understand that. You know those premiums could increase if it's a permanent policy or you know they could stop paying premiums if the policy is performed well. So make sure you understand the mechanics of the policy as well and what your options are to change the way that that policy is paid.
Speaker 2:Yeah, I think that's so important is for people to understand how the policy actually works. And to your point about whether or not it's too expensive, that's the wrong question. The question is whether it's worth it to you to provide for the risk, because insurance is really just a leverage tool and, you know, is that, you know? Does it make sense? As you know, I often times take a look at you know, say okay, well, if the life insurance premium is more than 4% of the death benefit, yeah, then it gets expensive. But you know, $100 premium doesn't seem like a lot. But if it only gets you $1,000 life insurance, then it becomes pretty expensive. So it's all perspective. So love.
Speaker 3:That it is yeah, and what's important to the client.
Speaker 2:Exactly and what works in the sense of the overall financial plan. How does it fit in? Does that provide what's needed to make sure that the plan is protected? I mean, that's all insurance really is. It's a safety net of if something bad happens. It's protection. Right right, so all right. Myth number three I have health issues, so I can't get life insurance.
Speaker 3:Okay, yeah, this is a tricky one, and I would say this myth particularly points to the value of being able to shop around a different carriers right as a major problem, and another carrier might not weigh that problem as high as the other carrier.
Speaker 3:And so you know, we've worked with clients who have been declined for life insurance and just assume, moving forward, they wouldn't qualify for life insurance anywhere. And what I always tell people is we don't know until we find out right. And so, let's you know, get together your medical records, let's look at those records and go to different carriers and ask how they'll treat it, because I've had clients that have been declined by six different carriers and one carrier offers them best class. And so this is one of the things that you never know until you try right. But also make sure that you're trying on a preemptive basis, not a let's apply directly here and not look anywhere else. And so having the ability to do the else, and so having the ability to do the preliminary underwriting process, where you go and shop to different carriers and see how they would treat it, that's a very important aspect to looking at life insurance, especially when you do have health issues.
Speaker 2:Yeah, I think exactly the same thing is that each insurance company has their own way of underwriting risk, and it's oftentimes said that underwriting is more of an art than a science and that really says it all.
Speaker 2:And you know, and again, with health issues, it even gets into what we were talking about earlier with the too expensive. It just depends into what we were talking about earlier with the too expensive. It just depends. You know, the obvious thing is, if you're terminally ill, of course you're not going to be able to get life insurance because at the end of the day, the insurance company really doesn't want to pay a claim anytime soon. You know that's they need to pile up the premiums to do that. But they all have their own way of looking at and interpreting like okay, well, you know, this person may have had a heart attack, but they're taking really good care of their body, they've had clean heart tests or making all their follow-up appointments. We don't see a problem with it.
Speaker 3:So that's a myth. Right it is. It is All right.
Speaker 2:Number four group life insurance takes care of all life insurance needs.
Speaker 3:Yeah, this one. That's a big no in my mind. Typically, you know, when you look at your group benefits, your group life insurance is usually going to cover, you know, maybe one, you know, to two to three times your salary, so it could provide a pretty substantial death benefit. The issues there, though you know one. You don't own that policy, so you leave that employer. You don't typically get to take that policy with you. There are exceptions to that, sometimes you can, but I would say majority of the time that's not your policy. And then two people don't understand that it's only a limited death benefit, you know, and they haven't run a needs analysis on what type of death benefit they need. Is it a great benefit to have?
Speaker 2:Sure, but make sure it's not the only one you're relying on. Yeah, you know there's a couple things there. For me, of course, is one is it doesn't continue when you leave your employer, typically. The other thing, too is that it's not necessarily cheaper is if you are in good health, you can probably get better rates out on the marketplace, because group health insurance is designed, you know, on a standard risk basis, not to differentiate out better risks, class.
Speaker 3:And I'll give you an example on that. We are working currently with a client who came to us. He has a group policy. You know it's become more and more expensive as he's gotten older and he wanted to see what a policy would cost if he just bought it on his own and he's saving about $100 a month from switching from his group policy to a personally owned policy. So, and you know, obviously he received best class on his personal policy super healthy guy but he was paying a lot more than he needed to for that group policy versus what he could get on his own.
Speaker 2:So that's a great point to keep in. Yeah, and so it gets back to what you mentioned earlier. Is you have to shop around and evaluate your options, right? All right. Myth number five Well this one we could probably talk about for an hour. Yeah, but we've got to go quickly on it. Always by term, never by permanent insurance.
Speaker 3:I, like I always enjoy conversations in the gray areas. So anytime I hear always or never my flags, you know, the red flags go up and again it goes back to the situation. Right, term insurance is going to be a great solution in a lot of situations. You know, if you have cash flow problems or you know you're early in your career and don't have a bunch of savings saved up, you know, yeah, it's more often than not it's going to be a better idea to buy a term policy rather than a permanent policy. But again, it goes back to the need and the purpose of why you're acquiring this insurance and so and the purpose of why you're acquiring this insurance. And so, again, anytime, I see, always and never I want to push back and there's going to be situations where permanent insurance is important.
Speaker 3:You know, for example, I just had a client who passed away recently and she had bought a term policy several years back and, you know, was diagnosed with cancer, unfortunately, and was in remission actually, and you know we were reviewing her coverage and found the conversion options and decided, with her cancer history, hey, it's probably a good idea to convert this to a permanent policy. You know, we don't know what's going to happen, and thankfully we did. And unfortunately her cancer came back and she passed away recently. But the good news there is you know we had that term policy. That was a good option for her in the beginning but ultimately, due to life changes, a permanent option was needed as well, and we're able to get that. So you just never know what's going to happen and having those options is helpful.
Speaker 2:Definitely. Well and I think you know you nailed it is it depends if you have a permanent need, like if you're taking care of the state taxes that needs not going to go away in 20 years. So you know there's a need for permanent life insurance in that situation. Or if you're taking care of a child with special needs, that needs not going to go away. You know, sometimes maybe a buy sell might go away when partners retire, but it could be a very long-term need.
Speaker 2:So it's always need-dependent and I think that's what's running through all these myths so far is that you know each situation is independent and you know the answer will depend, but you need to evaluate the options.
Speaker 3:And I'll give another example. There too is and you mentioned buy-sell agreements. A lot of times it makes sense to fund buy-sell agreements with permanent insurance. And again, it's dependent on you know what type of company is it and what are they doing, how long. You know how old are the owners. But a lot of times permanent insurance can provide you know the liquidity needs that a company might need from a bonding perspective, right, you know if we're working with a construction company or a paving company and for certain projects they need to have a certain level of bonding capacity, well, utilizing permanent insurance is a great way to keep those premium dollars on the books, because they're building up cash value and that can go on the books as an asset right and not a liability. And so, again, it's dependent on the situation. So, again, it's dependent on the situation. I know we could probably do a whole podcast on this one topic and go through all the different examples, but yeah, I mean never say always and never say never. That's it.
Speaker 2:Love it. Was that a James Bond movie? Never Say Never, yeah, maybe All right. Myth number six life insurance policies are set it and forget it.
Speaker 3:you don't need to review them I don't know if anyone would necessarily agree with this, but the practice of it is rampant in the life insurance space. So so and there's. We could go into the reasons why it is that way. Why insurance? You know agents don't review policies, but I would.
Speaker 3:I'm a strong advocate, no matter the type of insurance, whether it's term or permanent, that reviews are very necessary. From a term perspective, you know products change, pricing changes, needs change for the client and you need to be reviewing why your clients have this insurance right. And then, on the permanent side, you know obviously those need to be side. You know obviously those need to be reviewed as well.
Speaker 3:A lot of policies that were sold, you know, 10, 15, 20 years ago, different regulations didn't exist that exist today to protect the client. So policies could be sold with showing very high returns that are needed to keep that policy enforced and alive and those policies haven't generated those returns. And so you're going to see a lot of policies that are in jeopardy of lapsing or that need extra funding to keep it in force. Insurance carriers can change their cap rates, their participation rates, and what you're being credited in your policy isn't what you originally thought you could be credited. So again, from term to permanent insurance, every policy needs to be reviewed, and I'm going to all die on that hill for sure.
Speaker 2:Well, and as everybody who watches and listens and knows anything about me, this is something I have talked about for the better part of 30 or 40 years about the importance of reviewing life insurance policies.
Speaker 2:I just want to clarify a couple of things you were talking about is, when you refer to cap rates, that's the maximum rate that can be credited on an indexed universal life policy, and participation rate is how much you can participate. So you know where you're going with that is that policies are complex and things can change, so you need to stay on them. And one of the things that you know I would also add on is unfortunately we haven't had this issue in years is carrier financial strength. You know that can become an issue. So if you're talking about a permanent policy that's going to be enforced for 60 years or 70 years, things can change with that carrier. So you know that alone is something to take a look at. Or if you're doing policy loans or whatever, it's important to take a look at these things and as an advisor, you owe to your clients to make sure they're reviewing it, and just as a consumer with any financial service or product review, because, as Luke said at the top of this conversation is things change your needs change you know.
Speaker 2:So make sure the policy is still serving your needs, because that's what this is really about is taking care of your need for life insurance.
Speaker 3:Right yeah. And on top of that you know from a client perspective, financial goals can change, Family dynamics can change, Divorce happens, Things change that affect the original purpose of why you bought a policy. On top of that, tax laws change that can affect your financial plan. So there's so many different moving pieces whenever you look at life insurance and financial planning and where it fits in a financial plan and it just needs to be reviewed. It's a part of your overall plan and it needs to maintain its purpose, and those purposes change.
Speaker 2:So very important. Yeah 100%, 100%. So myth number seven. This is another one we could spend a lot of time on, so myth number seven is. Life insurance is an investment Okay.
Speaker 3:Hmm, this one's interesting to me because, first off, the name life insurance indicates what it is. It's insurance. It exists to protect against a risk right. It always needs to be seen through that lens, in my opinion. On the other side there are components. You know insurance carriers have spiffied up these contracts and, you know, included investment components internally inside these contracts.
Speaker 3:So there can be an investment component to the policy, but life insurance itself isn't necessarily an investment you know Now where I would say it could merge into that realm is, you know, when you're looking at it from an estate planning standpoint.
Speaker 3:You know you want to understand what is the you know IRR on this death benefit compared to the premiums I'm putting in and the tax equivalent IRR as well. So you need to understand that component. But again, the reason for purchasing that insurance is to cover a risk and so, first and foremost, it needs to be seen from that lens. But the investment piece of it doesn't need to be neglected either. So this is an interesting one because I think it's become a very trendy thing and I think we'll talk about a couple of these in a minute, but it's become a very trendy thing on social media. I've seen recently of you know, hyping up these life insurance contracts as an alternative to retirement portfolios or something like that. Anytime you see that, I'm, you know, going to shut that conversation down pretty quick because, first and foremost, it needs to be understood from a risk mitigation standpoint versus an investment standpoint.
Speaker 2:Yeah well, I'm with you 100% in what you said at the lead is you know, you open up a life insurance policy and the first page says this is a life insurance policy. There's no ambiguity there and, as you point out, the investment components are simply that. They are components that add to the policy, but you're always going to be paying for the life insurance at the end of the day. So if you don't need insurance, you're almost always going to do better just going out and getting the investment that you want to get. Right, right, right, right. So, but it can, as you point out, it can definitely combine the two, yeah, and give you an investment flavor to your life insurance policy yeah, so the next one.
Speaker 3:oh sorry, I'm gonna add one more thing and I would add to that. You know, I think there are situations they're very, they're going to be a lot more rare, but I think there are situations where it's a fit for a client to use it as a, you know, investment type vehicle, but those are going to be much fewer and far between, and it's going to be specific to an individual, a fact pattern, you know their understanding of what they're doing, understanding of all those components, but those are very rare situations, I would say.
Speaker 2:Yeah, and I've been involved with some of those, but usually they're an advanced planning technique. You know where we've done it as a non-qualified deferred compensation package and sometimes there's a death benefit that goes to the corporation. So, like you said, there's they can be sophisticated planning techniques where you know it does definitely have a place. But again, at its core it's still using an insurance policy to serve multiple needs. So the next one is this is the big one on social media. Myth number eight you can be your own banker.
Speaker 3:Yep, yep, yeah, this one's funny to me because it has gained a lot of popularity and you and I have talked about this elsewhere before as well. My understanding this became popular with the Rockefeller book, understanding how the Rockefeller family utilized life insurance to create, essentially, a family bank to borrow against these giant policies, and it worked for them right. So if it works for the Rockefellers, why can't it work for me? Obviously. So, yeah, this is interesting because from a conceptual standpoint, the concept works.
Speaker 3:It's the practicality of it and the again, going back to the needs analysis and where it fits, it's not something that fits for majority of fact patterns and, knowing psychology as well, majority of people aren't going to keep up with this policy, pay back loans how they should even understand how the loans work. So I would say this is a very dangerous myth. Right now that's become very popular is these 20-somethings are buying up whole life for index IUL policies for this purpose and 90% of them are going to crumble, you know, within 10 years. And so this one scares me a lot just because it is so popular and it doesn't fit majority of people's situations.
Speaker 2:Yeah. Well, I think it gets back to what we were talking about with myth number seven is you know, there can be some very specialized planning circumstances where maybe you can make this work, but for the majority of people one, you can't afford to fund what you need to fund to make it really work, like the Rockefellers Remember, they're the Rockefellers, we know about them for a reason, because they had a whole lot of money, so they were able to do a lot of things.
Speaker 3:And they have a whole deal of people who are monitoring this and doing it for them. You know they're not having to do that. So, yeah, I mean, I think the old Warren Buffett.
Speaker 2:You know what he says repeatedly, like if you've ever read the Berkshire Hathaway letter. The first thing he pretty much says is don't do what I do, listen to how I. You know my reasoning. Don't do what I do, and I think that's a takeaway here. And you know the one thing I'll say about be your own banker that's a huge misconception is a whole policy loan thing, and you started to go down that road and I just want to expand on it. You're not borrowing your own money, you're borrowing money from the insurance company and you will pay interest on that loan. So you know that's probably the biggest illusion you need to remember. So you're not really your own banker, because if you were borrowing money from yourself, you wouldn't be charging yourself interest, or at least I hope you wouldn't be charging yourself interest Right.
Speaker 1:And if you are.
Speaker 2:We probably can't help you on this podcast.
Speaker 3:Yep, yep, exactly, exactly.
Speaker 2:All right, Myth number nine and again, this is one, so Luke and I were talking pre-show. We're going to do a whole episode on this, so don't worry, because we're going to pass over this one pretty quickly. Myth number nine indexed universal life policies are a scam.
Speaker 3:So with this one I think I go back to that term and permanent conversation we have Anytime I see a always or never, or everything is a scam, always or never. You know everything is a scam. I'm going to push back on it. It's funny with IUL, again, I think these policies have become, you know, trendy, if you will, on social media as well, and I'm just going to stay in the gray area. I think IUL policies are a great option for some people if they understand the mechanics of it.
Speaker 3:I do think a lot of insurance brokers sell these policies and they don't understand what they're selling and they don't know how to explain it. And I've done that in the past. You know, early on in my career I sold a lot of IULs and I didn't understand the mechanics of it and I regret that. Just not knowing I didn't know what I didn't know. But there's going to be a time and place where IULs can be a part of the conversation and sometimes they don't need to be a part of the situation and sometimes they don't need to be a part of the situation. So there's a lot of nuance that I'll always lean into. But I would not say they are a scam, but they're not the end. All be all either.
Speaker 2:Yeah, I'm with you 100%.
Speaker 2:I think the challenge with indexed universal life policies, as with so many financial products, is that people start using them for things that they're not intended for and sometimes they miss the complexities.
Speaker 2:The challenge with indexed universal life, particularly in my book, is that they're complex. They have lots of moving parts, so you need to carefully monitor them, and if you're not carefully monitoring them, then, yeah, they're not going to work out. But if you get an index universal life policy, you understand what you're buying, you set it up correctly and you monitor it. It can provide you a lot of value, and there are a lot of people who get significant value from indexed universal life policies, whether that's the right thing for you or not, or for your clients or not. Again, that gets back to what we've been talking about. It's an individual analysis, but if you don't have the time to manage it or the wherewithal it's just like trying to manage a basket of stocks You're probably better off buying a mutual fund like a whole life policy or a guarantee level premium term policy, where you don't have to monitor it.
Speaker 3:Because that's the thing it needs monitoring. Yeah, and it's understanding the client well. It's understanding their own risk tolerance. And some clients love the flexibility of IULs and are comfortable with taking on the risk that's associated. But they need to understand that there is a risk associated, right? You know? Same with a variable universal life policy. You know some clients that fits perfect for them and they understand the risk that they're taking on. But they need to understand that it can't just be assumed that they do. You have to explain it 100%, 100%, all right.
Speaker 2:Myth number 10. Myth number 10 is fee-based products, also known as no-load policies, are always better options than commission based products, and I'm throwing the word always in there, just for you.
Speaker 3:Yeah, thanks, I appreciate it. This one's interesting as well, I think this is you've seen in the last few years the rise of this idea, especially among, you know, fee only advisors and the quote unquoteunquote fiduciary world who don't take commissions and think commissions are evil, which that's a whole other conversation as well, and this just simply isn't true. Sometimes it could be a good option, but I've read through several studies now showing that long-term fee-based products could actually be much more expensive than commissionable products. The commission-based products, the fees associated with those products, come out in those first, you know, 10-ish years Fee-based products, you're going to be paying a level fee for majority. I mean the life of that contract. So you know, over time, if someone lives the life expectancy they could be paying a lot more in fees for a contract like that over a commission-based product. So could it be a good option? Sure Like, does it need to be looked at? Yeah, it can be looked at as an option, but it's not always going to be the best option in my opinion.
Speaker 2:Yeah well, there's a couple challenges for me. One there's not a wide variety of fee-based products, so you don't have much of a selection. And that gets back to some of the things we were talking about earlier is having more options, especially if you have health issues, and the cost that you're going to be paying is the major cost in the life insurance policy is not the commission. In a first year maybe there is a high commission, but the major cost in a life insurance policy is providing life insurance and that cost of insurance charge is going to be the same. Whether you have a no load, a 200 commission product, a five percent commission product, it doesn't matter. The cost of insurance is still going to be the same. This insurance company is still going to have their administrative costs. They're still going to have all those other costs and fees associated with providing you the insurance that you know.
Speaker 2:The commission, yeah, it matters and it can have that short-term impact, but, like you mentioned, that is offset by the surrender charge over the first few years of the policies and the companies amortize it over the first few years of the policy.
Speaker 2:So, if your agent is making 100% commission yes, some agents do make 100% commission or more on a first year premium. The company is not charging you more on that, because wouldn't they be charging you more if they were taking out 100% of the commission out of your premium? But they're not because that's not really how life insurance commissions work. And I think when you take a look at real estate, people say, okay, well, I know how real estate commission works. If it's 6%, they take 6% of the sales price. Well, that's easy. Life insurance policies it's not working that same way. So saying that it will or won't, like you pointed out, is you have to project both and you have to take a look at both, because sometimes they may be a better deal, sometimes they're not. But I think it goes back to the point that you've made maybe once or twice, always and never not good rules. Stop right.
Speaker 3:Yep Absolutely, absolutely.
Speaker 2:Yeah. So, Luke, you know. To wrap up, what is your number one takeaway for people on, you know, busting life insurance myths.
Speaker 3:I think what you just said always and never is not a good rule to live by and, I think, too understanding.
Speaker 3:We all have preconceived notions about things and you know, especially in the financial services world, there's a lot of preconceived notions surrounding life insurance, and you know disability and long term care especially, and so working with somebody who's an expert in that area is very important, because there's a lot of misconceptions and the industry is constantly evolving and changing, and so it's hard to keep up with those changes. You know, even doing this full time and only working in the life insurance space, it's a full time job keeping up with the changes in life insurance space. And and so, yeah, I think the biggest takeaway there is we all all know we all don't know what we don't know. Right, you know I'm not going to go out and give investment advice to people because I'm not an expert in managing money, Right, and I think a lot of times, people give advice surrounding life insurance but they don't really understand the advice that they're giving fully surrounding life insurance but they don't really understand the advice that they're giving fully.
Speaker 2:Yeah, I agree with you 100% and unfortunately, I think there's a lot of people giving up advice life insurance, not life insurance they really shouldn't give. So you know, whenever you get advices, you should always look at the source of that advice and whether they're qualified to give you that advice. But you know, in terms of life insurance particularly, I think, as you've talked about, you know, during this episode, is that policies can be really complex and they have a lot of moving parts.
Speaker 2:And so, yeah, you know you can take a look at a guaranteed level premium tariff policy and that's pretty simple. Somebody passes away, a death benefit is paid. We know what the premiums can be each year. But once we get beyond that, there's complexity. You start adding in policy loans or withdrawals or interest rates or dividends and dividend options. You know things you know. The more you add in, it's with anything. The more factors you add in, the more possible outcomes you could have. Right, this is awesome.
Speaker 3:Yeah, yeah, there's a lot there, that's for sure. I think there's several of those we had that could be entire episodes on their own.
Speaker 2:Yeah, 100%, 100%. Luke, thanks for joining us today. Where can advisors learn more about you? Where can they connect with you and where's a good place for people to learn about Yetworth Collaborative and what we're up?
Speaker 3:to there? Yeah, absolutely. I would love to connect with anybody that wants to learn more about Yetworth Collaborative, what we're building there, our website yetworthcom great place to start. Would love to connect with people on LinkedIn pretty active on LinkedIn as well, and then email, you know if you reach out. Would love to set a call with any advisors that want to discuss any of these myths or learn more about Yetworth. I would love to connect with you via email and set up a call, but my email is luke at yetworthcom Pretty easy.
Speaker 2:Awesome, awesome. And for everybody watching and listening as always, I'll have links to Luke's LinkedIn profile and to the Yetworth collaborative website in the show notes. So, luke, thanks for joining us today on the Get Ready Money podcast. Thanks, tony, I enjoyed it. Yeah, and thank you everyone, as always, for tuning in to this episode of the Get Ready Money podcast. If you learned something today to change the way you think about money, please be sure to subscribe and tell a friend, and, of course, a review for the show is always welcome. Until next time, let's change the way we think about money. You.
