Ep. 320 – Life Settlements

"Are we preying on people that are uninformed, elderly? Why don't we just inform them? Why not? Here's the thing that you guys need to help me with. This is not just my shoulders, but your shoulders now, cuz you're listening to this. We need to go to older people and say, if you have a whole life policy, you can borrow against that. You do not have to cancel it and you do not have to become a victim of these people buying it. And so, do we really want to cancel that policy when we could have just borrowed against it? Why are we canceling it? Because the accountant doesn't know. So, I really need you guys out there to help kind of spread this message with mom and dad, grandpa and grandma, whoever elderly above you is alive. If it's neighbors."

Hello, hello, and welcome back to the podcast. Thank you very much for being here. Let's talk about life settlements, what they are, and why I don't love them. So, if you guys—so, a life settlement, let's start here. A life settlement is when a company or a person buys an existing life insurance policy.

Typically, that is done later on in life. Somebody is 80 years old, 85. Oh, they need some money. These heroes are going to come in and they're going to buy this life settlement. If you listen to last week's podcast, remember Mary Jo is always rooting for the underdog and defending them. And so, this is one of those times. I don't—I just—I saw this just recently somewhere and I was like, that is I told my husband that is so dumb. That person could have just borrowed cash value. So what happens is these companies come in, they buy somebody's life insurance policy and they are like, "Oh, I'm going to continue to pay the premium. I'm going to buy it for, you know, it's typically a certain percentage over the cash value." It's not a lot over the cash value, but a certain percentage over cash value. And they give the person the money. The person signs over the ownership of the policy to the new company. And then the company continues to pay these premiums and then when the insured dies the company gets the death benefit. It's a great—it's a great money maker for the company. The thing is that individual only thought the person that is 80 85 years old they only thought hey I'm going to have to cancel this policy. If I cancel the policy, I'm going to have to pay a bunch of tax or they think I can't even get access to the money in the policy. They don't know that. They might know that there's cash value there, but I have end of life expenses possibly that I want to pay for. I've got some medical expenses, the hospital's on my back, I need to get them paid. And so instead of borrowing against the policy because they don't know they can most likely do that, these companies come in and they buy these policies.

I don't like it at all because why not just educate the insured to say, "Hey, why don't you just borrow against the policy and then never pay it back and it's okay because you're probably going to pass away anytime soon anyway. Sometime soon anyway." And if you guys are familiar with Gary Brecka, he is this human biologist is what he calls himself and he is all over online talking about nutrition and what you need to do and yada yada. Gary Brecka worked for a life settlement company. And so when Gary Brecka says, "Hey, as an underwriter for life insurance policies, I had to make sure that these people were insurable. I had to look at what they were doing." And now I've Googled this because obviously I've not talked to Gary Brecka, but I have Googled where he worked because when we underwrite policies, our underwriters and our actuaries do not know to the day when this person's going to die. Life insurance companies have a medical staff. They have a doctor that they pay to be on staff so that if there's something going on medically, they can ask those questions. But Gary was going to the extent that I've talked to people within OneAmerica that is a company I use. I've talked to their actuaries and said, "Hey, is that true?" Like, "Can you guys really see that? Can you see when somebody's going to die?" And he's like, "Not to the day." Right? But Gary's out there saying, "Yes, we can."

Well, it would make more sense that Gary said that because he was working for a life settlement company. So, if I'm that company and I'm buying a 80-year-old's policy, I want to make sure that they don't live till 95 because I want them to die sooner so that I get my money faster and I make more money because the longer they live, I may make less. And that depends if I'm buying whole life, if I'm buying universal life, if I'm b—buying variable universal life, if I'm buying an IUL, what am I buying and what does the performance of that look like?

And so we want those people have to go from my understanding I've never bought one but from my understanding those people have to go through some sort of a health exam so that we can predict when they're going to die cuz we want to see how much we have to pay in premium compared to what the death benefit is that we're going to get out. And so whole life is a great product to buy.

But again, are we preying on people that are uninformed, elderly? Why don't we just inform them? Why not?

Here's the thing that you guys need to help me with. Okay, this is not just my shoulders, but your shoulders now, cuz you're listening to this. We need to go to older people and say, if you have a whole life policy, you can borrow against that. You do not have to cancel it and you do not have to become a victim of these people buying it. Some people will say, "Well, I need that money to pay. I need more money than what's in cash value to pay for expenses."

A lot of policies have riders that are called a chronic illness rider. That chronic illness rider can be used to pay for medical expenses if there's a doctor's note that says, "Hey, they're going to be gone in the next 6 months." There's criteria for that. Everybody's company's going to be a little bit different. But if we know those things, if we just make a call to our agent, okay, or make a call to the company or keep asking until you get the answer.

Most agents are not that knowledgeable. Companies are kind of crappy at answering questions. But if you can say, "Hey, I need access to this money. How can I get that without having to sell the policy?" I really don't like these strategies. I've never liked the strategy. It was a strategy that's been talked about in our industry amongst peers forever. There are agents out there that will buy life insurance policies from people that are like, "Hey, I don't like this infinite banking thing anymore. I'll sell my policy."

Why? You're not getting that much more to sell the policy. And a lot of times, here's another little secret, people. Whatever your cash value is is not your surrender value. The amount that you can borrow is different than the amount if you surrender the policy. And so most companies, I don't know about universal life and variable and index, but on the whole life side, the companies are holding interest. So that's prepaid. So if you cancel the policy, you're going to get more than what's actually available to borrow cuz they're going to give you the interest they're holding. So when you sell it to somebody, are you actually making more or could you just have borrowed against it? Could you have taken some out if you don't want a loan and then you still are leaving your heirs with enough money to possibly bury you? Okay. I don't see a use for them.

If somebody out there listening is like, "Oh, Mary Jo, this is why"—outside of somebody else making money off of them and them not actually educating the person they're buying the policy from.

Now, if you want to buy a policy from somebody and you show them and tell them all the other ways they can access that money and they still sell the policy to you, then not a big deal, right? because the that's on the insured or the owner of that policy. They sold it with all this information in mind. But if we're not disclosing that, that's a problem. I have heard over the years that I have had elderly people that their accountant has said, "Cancel your existing life insurance policy. You don't need that anymore." Well, by cancelling it, you're going to pay gain. You're going to pay interest on any of the gains or you're going to pay oh my gosh, Mary Jo, you're going to pay taxes on any of the gains and so do we really want to cancel that policy when we could have just borrowed against it? Why are we cancelling it?

Because the accountant doesn't know. So, I really need you guys out there to help kind of spread this message with mom and dad, grandpa and grandma, whoever elderly above you is alive. If it's neighbors, okay? It doesn't have to just be friends and family. Please go sit with the guys at coffee and share this information because you have no idea who it's going to help when they are in a time of need. They are—they're going to get preyed upon. And so we don't want to have some sort of life settlement in my opinion because I've yet to see a spot where that life settlement would come in handy for the person selling their policy. It's coming in handy for the company that's buying it. And then the company that's buying it, what are they doing with it? They're just making a bunch of money. It's not like they're going out and doing some sort of nonprofit work with it. Um, so anyway, that I mean a pretty short message today, but I saw something or I had seen something and I just wanted to make sure that you guys are aware that this is a thing and it's not always a good thing.

Now, it may be a good thing if they're going to buy a universal life policy or a variable life policy or something like that, but they're only doing this if they know you're dying within a certain amount of time. I believe this is the numbers that I saw are, oh, they know you're going to die within the next 24 to 36 months or something. So, they only have three years of premium in. Yeah.

Not something that I agree with because people can just use it and they just don't know. Okay, let me know if there's a topic or anything that you want me to address and I am happy to address that. Otherwise, grab your book, schedule your appointment, and we'll be happy to talk to you. You have a fantastic rest of your day.

Thanks for listening to the Farming Without the Bank podcast. We hope today's episode has inspired you to take control of your finances in new ways. Don't forget to check out our website farmingwithoutthebank.com and engage with us on our Facebook page Farming Without the Bank. Join us next week as we smash more financial myths and empower you to accomplish your financial goals.