5 Things to Watch for When Buying a Policy (Ep. 367)

"I got an email that somebody said, 'Mary Jo, I went to another agent. I bought this policy. Now should I do this with it, this with it, or this with it?' And I'm like, 'Why are you asking me how to use your policy when you decided to go to another agent?' I don't know how you should use your policy. I didn't have an hour-and-a-half meeting with you. I didn't get to know you. I didn't have another hour meeting with you. Usually, we're spending two and a half, three, four, five, eight hours with a client, just depends, so we can get to know them, and then we can strategize. So you want strategies from me, but you did not want to buy your policy from me. How can I help you? Not only how can I help you, but why would I help you? I'm a nice person, and I love helping people, but why would I help you and give you advice when I don't know what to give you advice on? That's craziness to me."

Hello, hello, hello, and welcome back to the podcast. Thank you very much for being here. Okay, today we are going to talk about a lot of details on whole life insurance, what to look for when you're buying it. So we're going to nerd out just a little bit, and I'm gonna do that on purpose, because I had a client ask, "How do I know if I'm buying the right thing?"

And they had gone to somebody else first, and a lot of people do that. They read the book, and they're like, "Oh, I'm gonna go to my local agent first." And you don't always get exactly what you're supposed to have set up for the infinite banking concept — and I say that loosely. You don't always get it. I mean, very rarely do you get it. Because most agents have no idea what they are trying to sell. They just wanna sell it so they can make some commission.

So here are some things to watch for.

One, it needs to have cash value year one. If you are buying a policy where 50 to 75% of your premium is not showing up in cash value available for you to borrow right away — and I mean right away, meaning maybe 10 days, maybe 30 days, maybe 90 days. Every company's a little bit different. But if you don't have that, then what you have is traditional whole life. It's gonna take about 20 to 25 years to get to the point where you're gonna break even, meaning what you've paid in premium is what you have in cash value. You don't want that. You want something where there's cash value right away, and so you need to look at that.

You also need to make sure there's a paid-up additions rider on there. I have a new client who bought a policy years and years ago, and the agent said, "Oh yeah, I know how to set that up for infinite banking." Dad knew about me, but he did not come to me to set these policies up, because he thought, "Oh, I'm gonna go to a local agent, someone that I can talk to."

Well, the local agent sold him a policy but did not sell him a policy with a paid-up additions rider. If you have read Nelson's book or even my book, you know that the paid-up additions rider is super important. That is what is going to allow us to build that cash value very quickly. So we can have a policy without a PUA rider, but what is that gonna do?

Now, every company has a little bit of a different name as well for PUA riders, but you want that paid-up additions rider to be on the policy. Again, if you see zero cash value year one, then you don't have a paid-up additions rider.

Now, let me clarify this, too. If you go to some of these bigger companies, that start with Ns or Fs — so some of these bigger companies, which I'm not gonna name their names — they do not have paid-up additions riders. They will sell you a 10-pay policy or a 20-pay policy. What that means is, I'm only gonna pay premium for 10 years or 20 years, or maybe I'll only pay premium till I'm 65. It's paid up at 65.

What happens with those policies is all the money goes to the base portion of the policy, which buys whole life death benefit. That's what that portion of the policy is. It's an old-fashioned, traditional whole life policy. But it looks like it has a PUA rider on it because there's cash value quicker, because it's a shorter-pay policy.

Is that the best option for you? Probably not if you're young. If you're 60 and older, okay, fine. But if you're 30, why are you paying premium for 10, 20, or only until you're 65? When that thing finally starts to get good, now the premium stops? That doesn't make any sense at all. And so we want to make sure that whatever we're buying makes sense.

So look for that too. Does premium ever stop? Does it say it's a, you know, whole life 10-pay, or whole life 65? If it's whole life 65, that means we're only paying till we're 65 years old, and then premium stops. So as soon as that thing start— starts to compound, now premium stops.

The other thing is, people will write with these other companies, and they'll say, "Well, Mary Jo, I do have PUAs." Well, if you're writing with a dividend-paying company, the dividends are going to buy paid-up additional insurance, but it's not the PUA rider. That's two different things. That's where the dividends are going. That's not where you can put extra money out of pocket if you want to.

So you want to make sure there is a PUA rider. You also wanna make sure that you can understand what's your flexibility with the PUA rider. I write the majority of my stuff with OneAmerica, and the reason why is because their PUA rider is extremely flexible. So you can put 120 bucks a year there, and that rider will just stay on your policy forever.

Some companies will say, "Oh, well, if you don't pay $120 for seven years, then it's gone," or three years — they have this rolling three-year evaluation period, and we're gonna average it out and all this kind of stuff. And so you want to make sure that your agent understands the flexibility of that rider as well. So something else to think about.

A lot of times I will put a term insurance rider on my policies so that we can get more money in year one. Okay? Not every company allows that. We do a larger amount year one — especially now with cattle prices kind of high, it's nice to have the ability to stick in some extra money. Or if we're selling some extra grain or something, we can stick in some extra money year one. In order to do all of this stuff without crossing the taxation line of the modified endowment contract, without doing that, we have to put that term rider on there.

What term rider is on there is also important. So there are term riders that I used to use in the past that were what we just call level term. It stays at that level for 10, 15, 20 years, and then it drops off the policy. When you do that — we're 10 years past me doing that, okay? So I have quite a few clients from 10 years ago that now we're at the point where that level term is dropping off the policy.

What happens? Their entire death benefit goes down.

So an example, I had a policy on my husband. I had a half a million dollars of term on that policy. Well, I get a letter in the mail a year ago that says, "Oh, guess what? His term is going to either double to triple in price, or you can convert it to more whole life, or it just drops off." And I'm like, "Well, dang it, I don't wanna lose a half a million dollars of life insurance on him." Like, that sucks, but it happens overnight.

And so now I went from having a half a million dollars more death benefit to a half a million dollars less, literally overnight. Because it's term insurance, it's only for a certain period of time, and that is all I could do back then when I did policies. That's the only option I could have.

And so now we had to start another policy on him. Now, that's great for us, but I have a bunch of other clients that that's happened to, and they're not starting new policies because they don't have the money to. They don't really probably maybe understand. Maybe they're not using their policy the way that they're supposed to be, but all of them have been left with less death benefit, which is not good. I knew that, but I didn't at the time understand the importance of that.

So again, having a seasoned veteran in the industry is also important as your agent. And so I won't write policies like that anymore.

And here's the other thing. I could say, "Hey, we're gonna do this level term and the death benefit's not gonna drop off," or, "The death benefit's gonna drop off, but are you okay with that?" And you're gonna say, "Yeah, I'm totally fine with that. No big deal," until you die, and then I have to deal with your family saying, "Well, he told us he had a million dollars of death benefit, and you're telling us he only has a half a million dollars of death benefit."

And then I have to go back and explain to you how I structured the policy and why your dad, for example, wanted a policy like that. Well, that is maybe not the best option, and I don't wanna have to have you upset because he told you he had a million and he did not have a million dollars of death benefit. He had a million at the time. He was not incorrect.

Or, 20 years down the road, I explain to you, "Hey, your death benefit just dropped. Do you wanna do another policy?" And you're like, "Mary Jo, where am I supposed to find money to buy another policy when I'm 20 years older?" Because it's going to be more expensive for that same half a million dollars of death benefit.

That is not the case for everybody, and so it's just not the best idea. If you have an agent that you're working with and they're putting extra money in year one, and they're putting a bunch of money to the paid-up additions rider, and it's not MEC-ing, the only way they can do that is by adding term insurance. So if you look, your death benefit eventually may drop off. You need to be okay with that.

Now, in some cases, that might be totally fine. Let's say that we have somebody who does not have children, they have no heirs. They are like, "Hey, you know what? I absolutely do not care about the death benefit at all. Who cares if it drops down when I'm likely to die?" Then that scenario might work well for them. But you need an agent that's going to really understand what it is that you need and know kind of what policy they should put you in.

Now, I'm sharing this information because you guys want it. However, I don't think you need to be licensed life insurance agents. You should be able to trust the person that's selling it to you. But if you're not gonna come and see John and I, I'm not gonna trust that you're going to somebody that understands it, because I don't ever see good things come out of that in most cases. You need to know enough to say, "Nope, this is not what Mary Jo said it should be. This is not how it should be structured for infinite banking. I guess I'm gonna need to go see Mary Jo or John."

The other thing that you need to understand is dividends. Is the insurance company paying dividends or not? There are mutual companies that do not pay dividends, or they've demutualized. And so, are they paying dividends? What's happening with those dividends? Are they going in to buy more paid-up additional insurance, or are they coming to me in cash? You can do either one of those things. It's totally up to you.

The other thing that you need to be concerned about is, are they talking about a rate of return? If you are buying a life insurance policy and they are talking about a rate of return, and they're talking about the stocks that it's invested in, that is not a mutual company. That's not a dividend-paying policy with a mutual company. That is most likely some kind of universal life, indexed, variable universal. I have a million podcasts on it. I'll probably do a million more of why I don't like those.

But if they are focused on a rate of return, they don't understand infinite banking, they don't understand whole life. They're probably not selling you whole life. Some people in the whole life world will talk about a rate of return. That is absolutely ridiculous, in my opinion, because we are doing this for liquidity, control, uninterrupted compound interest, right? And the guarantees. What are we doing outside the policy to make that rate of return? And so if you're seeing, like, an assumption rate of return on your illustration, then you need to look at that.

Now, I did a podcast right before this one — I think it was last week. It'll be in here somewhere, 'cause I'm recording ahead of time. But I will have a podcast for you, either the one before or shortly the one after, that I'm actually looking at an illustration. I'm showing you guys what to look at. That should help you kind of read the illustrations a little bit when you get them, if you get them from another agent. Then if it says some sort of assumption rate of return, that's not a whole life policy. That person is selling you a universal life policy. So make sure that you are looking for that.

So those are kind of the five, like, warnings maybe, or the five things to look for when you're buying a policy.

Is there cash value right away? If there's not, it's just traditional whole life. It's not set up for infinite banking.

Is there a paid-up additions rider? If there is, how flexible can it be?

Is there term insurance on there? If there is term insurance on there, does it fall off at a certain period of time? Are you okay with that? Look at your death benefit. At the end of the day, there's death benefit as well as cash value. You're gonna have to decide which one you want.

Do they pay dividends? If they are, where are the dividends going? Okay. Do they pay dividends? There is one company out there in the farming world — they have different kinds of life insurance companies across the country. You have your southern one, you have some on the east, you've got some on the west, and some of those have quit paying dividends. So make sure that you're looking at that stuff.

And then the fifth one is, are they talking about a rate of return? So those are the five things to watch for.

If you just wanna know that you've got the right policy structured correctly for your needs, then just schedule an appointment with John and I. It really is that simple. Like, do we sell life insurance? Yes. Do we teach the infinite banking concept? Yes.

I got an email just last week, I believe it was, or maybe it was the week before, that somebody said, "Mary Jo, I went to another agent. I bought this policy. Now should I do this with it, this with it, or this with it?" And I'm like, "Why are you asking me how to use your policy when you decided to go to another agent?"

I don't know how you should use your policy. I didn't have an hour-and-a-half meeting with you. I didn't get to know you. I didn't have another hour meeting with you. Usually, we're spending two and a half, three, four, five, eight hours with a client, just depends, so we can get to know them, and then we can strategize.

So you want strategies from me, but you did not want to buy your policy from me. How can I help you? Not only how can I help you, but why would I help you? Like, I'm a nice person, and I love helping people, but why would I help you and give you advice when I don't know what to give you advice on? That's craziness to me.

So if you're willing to ask me or John for advice on how to use your existing policy, but you're not willing to have us sell you the policy — what is the broken thought process there? 'Cause to me, there's some broken thought process. You don't just get us to say, "Hey, we're gonna sell you a policy." No, no.

Just before I recorded this, I got off a call with a client who wants to start another policy, but she's like, "Hey, Mary Jo, can I just run by you how I've been using the policy? And should we borrow our cash value to use it as a line of credit, or what should we do?" It was a 45-minute conversation of what are you doing? What are you buying? What are your current loans? Like, we had to catch up. It's been a year since we talked. We had to catch up and really look at what is she doing. We had to strategize over that. Now, I already had all of her information.

That is what John and I are here for — is to make sure we can help you understand how to implement the infinite banking concept, not just sell you a policy. So if you want it correct from day one, then come see us. If you don't and you wanna take the risk and go to a local agent, then these are the five things that you need to be concerned about.

Let us know if we can help. We are happy to help. maryjo@withoutthebank.com or john@withoutthebank.com. Email us. Happy to look at illustrations of what you already have or what somebody is proposing to sell you, and we'll tell you if it's good or not. We'll tell you what the things are that you need to watch for. Okay? So you can email those over. Happy to take a look at it.

Otherwise, grab your books. Get your Farming Without the Bank book. Get your Becoming Your Own Banker book. Get it as a bundle, and then we can sit down and have that conversation, so we're both on the same page. You know the drill. Email us, and then have a fantastic rest of your day.