389: Back to School: Maybe This is All You Need?

So far in our back-to-school series, we have covered asset protection, estate planning and my capital allocation strategy. Wouldn’t it be great if you could hit all these important concepts with a single investment? Well, as it turns out, you sort of can. Let me back up and tell you a story. When I was fresh out of surgical residency and started to make some money, I started looking for advice on what to do with it. One of the questions I had was about life insurance. I was a newlywed and had a baby on the way (she just started high school by the way). So, I started asking the guys I was working with if I should buy term or permanent life insurance. One of the younger surgeons was a bit of a know-it-all. He had a lot of advice about everything and most of it was not good. His facelifts weren’t good either as I started revising them just a few months later. Nevertheless, I listened to what he had to say and he told me quite confidently to “buy term and invest the difference”. In other words, don’t buy permanent life insurance. Stick to term life insurance and, with the money you don’t spend on permanent life insurance, throw it into the stock market. The older guy had very different advice. It was 2009 and he was planning to retire until the financial meltdown kicked his butt. He told me he wished he had bought more permanent life insurance because that was pretty much all he had left. And while his situation was illustrative, I felt like I needed to do the opposite of whatever this guy suggested because I didn’t want to end up like him. So, I ended up buying term and didn’t think about it again until a couple of years later when I had started my own practice and was making a lot of money. At that time, I was part of a mastermind with a bunch of high net worth business people. At some point life insurance came up and several of them talked about premium financed permanent life insurance policies. It occurred to me that a lot of high net worth people actually were buying permanent life insurance despite what that know-it-all young surgeon told me. Anyway, a few years later, I decided to look back into my options. What I discovered was that both of those doctors that were giving me advice viewed permanent life insurance as something that it did not need to be: a poor yielding but stable investment. The reason for that was that most professionals only get to see poorly designed policies that are primarily created to maximize commissions for those who sell insurance. What they think of as permanent life insurance is not the permanent life insurance of the rich. PERMANENT LIFE INSURANCE MEANS DIFFERENT THINGS FOR THE MIDDLE CLASS THAN IT DOES THE RICH. The policies that the high net worth group had were designed very differently and optimized for investment purposes. In fact, in the high net worth world, these policies have a special name: LIRPs. That stands for life insurance retirement plan. Permanent life insurance in this world plays a role in not only risk mitigation and estate planning, but also retirement income and asset protection. The more I learned about these strategies, the more they became no-brainers for me. The guys that taught me most about this stuff are Rod Zabriskie and Christian Allen. They designed all my policies and now design policies for many of you as our Wealth Formula Banking partners. On this week’s Wealth Formula Podcast, a couple of guys from that team are going to take us through the basics. If you haven’t heard about this stuff before, chances are that you are going to be blown away and wonder why you don’t already own a policy.