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685-Friday Q&A: Business Liability Insurance, Life Insurance for Fat People, Short-Term Savings, Dividend Investors

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Today America personal finances Friday and like any good Friday that means QNA Take radical personal finance show dedicated to providing you with the knowledge skills insight and encouragement. You need deliver rich and meaningful life. If now while building a plan for financial freedom ten years or less my name is Joshua I'm your host and this is Friday which means live call in show Tha Combination of it calls. Sometimes I take written questions. I'm hoping we have some time today to get some written questions. And these calls are open to patrons of the show people showing Patriae on never know what they are. It's kind of like live radio but here we go if you would like to gain access to one of these shows sign up sports show on Patriots go to Patriae torreon dot com slash radical personal finance patriots dot com slash radical personal finance. 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If you'd like to get on the email list the best way to do that at the moment is to go to radical book list Dot Com if you go to radical book list Dot Com. Tom I will send you my recommended reading list for financial freedom twelve books. I've read some great feedback just from that list alone several listeners of written to me and said that some of my book recommendations there have not hyperbole have changed their life have helped them in some really meaningful ways. So that's another thing you can do. And I encourage you to radical booklets dot com sign up therefore book reading list. You'll get a series of emails with explanations on each of the books that I recommend that you read just to start to start you on your financial freedom education but they're twelve books on that at list and if you begin with those twelve bucks I can promise you that your twenty twenty will be starting off on a very different foot twelve books there one book a month. That was a really good good habit for you to set. And how would I believe that all twelve of those books Will Serve You well and I've thought carefully about the order that I even present them to you I begin with books that most people wouldn't recommend in a personal finance reading list. But that you will really want as you think about your twenty twenty goals And even consider this next decade. Now let's go to the phones. We begin with an in Maryland and welcome to the Cubans. Show how can I serve you today. Hi Jessica thank you for taking my call First of all I really I want to say I really love the lyrics of the song for this conference call. It makes me WANNA dial again. Yes just just just because the audience doesn't get a chance to hear that on the U.. Her to when when people call in. There's a funny song when you're waiting on. Hold for me to show up and start the start the conference call for the live Q.. Rene and so it is. It is very funny but how tell you. What if you WANNA do that? GO TO PATRIOT DOT COM slash radical percent financed. Sign Up. And join me on the next call. You can hear the lyrics that ends alluding to. Yeah Yeah I love listening. That's why I call so frequently so My question is I would like for you to let me think about liability insurance I am. It's one of the topics that is very difficult for me to decide on And I can give you a little bit of information That may be pertinent and then feel free to ask any other questions that you think are important so I have one member. LLC and this is my Primary source of income for myself It's not the only source of income for my household. But that's what I have and Obviously oviously many people. I know they have liability insurance and all sorts of insurances in I listen to if some of your podcasts. About insurance is about Asset Protection Planning and so on and so forth and I am Kind of I can't decide side. What do I need should consider And what do I really need at all. So let's let's begin here. Tell me just a little bit about your business. You don't have to give specifics unless you want free advertising but what kind of work are you doing. And what is the liability that you're exposed to write So my businesses service business it's essentially a consulting In that particular Sam Yeah I do not provide consulting that usually That is associated with liability for example. I do not recommend Insurances or I do not do any regulatory work that has to do with appropriate communication None of that. It's more of a if you worship. Think about let's say market research. That's probably the closest to what I do in terms of liability Yes so in other people who are in your line of work do they. Regularly purchase liability insurance are there policies available that are tailored to your marketplace It's a good question because I spoke with several consultants who have been in this business for some time and what they have is only an umbrella policy quantum cells and they do not have any other specialized insurance red. Okay do you have a physical business location where your clients come and meet with you or where members of the public it come in to that physical business location. No and do you have any physical employees that are actual employees working on premises or hire some contract work here and they're only contract war so the short answer is I think than with what you're describing describing I would not really pursue liability insurance unless there's something that specifically marketed to your To your are your occupation and you say wow this is a perfect fit for me. And I'll I'll explain how I get there. We begin with a disclaimer. I I have never worked as a liability insurance agent I have spoken to some but I have never worked in that and probably if I worked in that business I would i. It would probably be more scared than I am. So you're just getting kind of a a knowledgeable layman's perspective on on this Rather than liability the insurance agents perspective and I would encourage you. This would be a good conversation to speak with a liability insurance agent over In that for anybody that would really be I call. Insurance agents are generally in my experience very willing to be speak to people and they're the ones who really understand their marketplace but now here is my understanding which will hopefully give you a little bit of insight as you make a couple of calls locally. Let's begin with a philosophy of insurance wants Insurance is a wonderful tool for managing risk. But it's not necessarily the perfect tool for managing all risks Way Back in the archives of radical personal finance just a moment. I'm going to find the show number right there. It is So back in episode ninety one of radical personal finance radical Preston Finance episode ninety one first published on October twenty nine two thousand fourteen fourteen. The show is titled Do. I need insurance. A mental model to analyse methods of dealing with risk in that show I I talked about a model of framework that you can apply to assessing whether you need insurance to manage risk and we talked about The different the different ways to look at it. There are some There are some forgiving. There are some methods of risk management. There are some risks that we face that are If we build a quadrant we can build Elda four-part quadrant and one access. We'll talk about is the is the the frequency of risk low or is the frequency of risk high. And then we we can build on the other quadrant of our x y graph. We can discuss whether or not The impact of the risk is low or the impact of the risk skits high and then for each quadrant. We will develop an appropriate strategy for how to manage that risk and I talked through in that show. Oh a talked about risk avoidance LOSS PREVENTION LOSS reduction and non insurance transfers. We talk about whether how you should handle each of those types of risks so I don't I'm not going to repeat that show. It's an entire show and then go back and listen episode ninety one they'll give you that framework that mental until model that you can use to handle risks so when you when you begin with that you recognize that insurance is a really good tool for handling some things and what insurance works works really well at is controlling for the risks that are very infrequent but yet have a very high potential damage and then we look. Oh can say okay is there is what are the risks that were worried about. Well some of the obvious risks are the things we insure against all the time. That's why I ask you about. Do you have business. Premises MRIs If you for example if you have a storefront that's open to the public and somebody comes in and they slip and fall on slippery slippery floor because water was left there. Well that can be a risk that you have liability. And it's a very low like the low frequency quincy risk but it's something where if somebody who successfully for massive injuries that they've suffered as a result of your negligence and having a slippery floor. That could be a very big financial cost to you. So what can you do. Well you of course put in place proper structures to make sure that you don't leave you. Don't leave a slippery floor you wipe up spills you make sure there's proper rugs and such at the entrance then of course you manager legal liability. That's why one of the reasons that people put out signs so people put out signs to say slippery floor. That does two things number one is worn someone. The floor may be slippery which hopefully will help someone to be more careful and avoid the slip and fall but then it also helps to mitigate the legal risk that it shows was that the shopowner is not being negligent that they're indicating that there could be a hazard here and how all that works out in court. I don't know Depends on this. That's not not my area of expertise but something like that can be properly insured for and so you would absolutely if you opened opened a storefront to the public. You would absolutely maintain an insurance policy that would have provisions for the liability that exposes you to now in your case you've done something a little simpler just simply not have a storefront so you don't need insurance for that. If you don't have a storefront similar things would involve dealing with employee. If you have employees you now are exposed to certain legal risks as a business owner could be the same exact type of things. What happens if your employees falls slips and falls while they're at work well that's where you have have liability insurance and that's where you have things like workers compensation plans what about If your employees alleges that they've been harassed or sexually harassed in the workplace place that exposes you to liability and so the simplest way to avoid that is to not have employees which is a model that I like if you can do everything with contractors actors at dramatically limits your liability makes for a very flexible business. It's it's a little bit easier but not all businesses can be built with contractors or you you need need to ensure for those risks so when you have employees you put all those proper insurance programs in place to protect you from the liabilities that those that those employees expose you to and so in your situation. You've met minimized your your liability exposure. So then we go down to specific areas of of liability ability When I was a licensed financial advisor back in the day we always carried arrows and emissions insurance because the specific professional fashioned liability that I was exposed to was if I give a recommendation and I make an error or omit some material fact act in my client suffers a financial loss? Then because due to that risk I need to be protected from that so you buy an Arizona Missions Insurance policy that standard ended practice for attorneys sorry for accountants for professionals giving professional advice in that context Other kinds of risk That's insured I've in the financial business. There was there's insurance for broker dealers and where where people who are defrauded by the broker dealer. They have access to the Civic Insurance Program To protect people from fraud by broker dealers or by insurance agents depending on which I insurance which part of the financial business they're involved in now if you're primarily involved as a consultant giving advice that it is a little bit more general. You don't quite have that same risk Because you're probably not exposed to that same legal liability the legal liability for a financial advisers pretty substantial. Because you're giving advice on potentially large amounts of money and your clients could suffer. Significant amounts of loss oss. Now it's not that your advice is not important important or that. Somehow they couldn't suffer loss. But I think your liability is much more limited it's especially just simply limited based upon legal doctrines involved in that space. So I did you. Did you do the best that you that you can did you. Did you give advice that you thought that was right in the decline of what they expected. I can't on the on the spot go through all of those The the legal standards that would be used. But I'm not so worried about it with a model that you're describing. I don't think you have such a significant risk so the way that I would look at it is I would say hey I what are my risks and your situation you probably don't have many significant risks And good of course to to speak to an adviser speak to an attorney and to see if there's any risk that I'm not aware of but you probably don't have any real significant cases that somebody somebody could make due to liability risk. Your most likely risks would be things like perhaps a breach of contract or or fraud things like that so if you avoid Making fraudulent representations to somebody if you avoid breaching contracts than you do your best job. You've really minimized. Most of those risks What I don't think that there is a significant risk that would need to be protected against for a business like you're describing And then you get to well. What are the tools are available other than insurance? If insurance is available you should consider it but the fact that you didn't come with specific insurance policy tells me that probably no one's marketing to your your industry and I don't even know if it's even available so then you get to. Well how can I protect myself in my personal assets and the simplest solution there is not an insurance policy. Let's see it's to use the business structure now in this case the only thing that is is concerning modestly concerning is the fact that you're involved in a single member. LLC is that right yeah okay so so a single member. LLC does protect you legally speaking from some of the risks and so the idea is if you're operating under a business infrastructure operating under your you're operating a business through a limited liability company that company has to stand good for the any claims against that company so if you're operating in your capacity as a as a an employee or manager of that limited liability company and the company does something that's wrong and and somebody sues the company and they sue the company for two hundred thousand dollars then they win the lawsuit than the company assets have to stand good for that particular Giller lawsuit and And and in theory. If the limited liability company operates as it should in theory Then it should protect your personal affairs in your personal assets from the operations of the company and as long as you don't have personal liability in your your conduct in some way. Then that should protect some of your other assets. Now here's where it gets tricky. That's very easy to teach when we're talking about the value of limited liability the limited liability company but my understanding is that basically If somebody's going to sue your company they're all automatically going to name you you as an individual as a as a defendant in the lawsuit as well they're gonNA they're gonNA sue both you and your company and so most of the way that I would manage risk if I were in situation like you is to make sure that you're very careful about maintaining a a clear wall of separation between the business of the company and you as an individual and this is where a lot of people really do breakdown especially with small closely held company. Where your the problem? You're the only person operating in that company. It can be a real danger here for you to For you to be too who closely associated with that company. So here are a couple of practical best practices that I think you. CAN YOU WANNA make sure first anytime you're doing business. It's very important that you always are very clear that this is the LLC itself that is contracting with somebody for for the work You never sign contracts yourself. You always make sure that the LLC and you are a representative of the LLC that's who is actually signing joining the contract You make sure that all your paperwork clearly indicates that they're doing business with a limited liability company And and that your name is just simply Lee here and there as a as a representative of that company but that everything is with the company. Your website is four with the company all your documents with the company. The Business Card is with the company. I think that it's important to do things like make sure that you have separate email account so you would never send you. Don't interact with clients as an individual you interact with clients underneath your company. Email account. I think that It's important to do things like have separate phone numbers separate phone lines It's it's worth it in my opinion to carry two cell phones if you need to want as the company cell phone your cell phone. Don't mix those things because if you're careful about following those simple rules the the money goes into the business account the business account pays you as the member of the LLC a salary or an income but everything is carefully nothing is co mingled. Then you do a good job of building that strong corporate wall and you dramatically minimize the risk that a judge would come along and would be willing to pierce the Corporate Vale and try to come after you personally. Now the reason I asked about the single member. LLC It's unclear to me I do know that when you get to the perspective of asset protection a single member. LLC is not as robust as a multi-member LLC a single member member LLC is is the most is the very best in simplest LLC that you can that you can do from the sheer ease of operations And so they're great to set up their fastest setup. They're easy the. IRS completely disregards them. They're totally disregarded entity. So that makes your attacks in your business structure very very simple but they. They are have a higher exposure of risk and higher ability to be pierced by a judge then a Multi-member Multi-member LLC or some other form of corporation. So I think that if you were talking with an asset protection attorney and that attorney were giving you advice what that attorney would like to see is that that attorney would like to see some intermediary that is not a single member. LLC BETWEEN YOU and the company is that worth it in your situation. I have no idea but we're we're just kind of going through the theory. The theory is that if you're gonNA operate as a single member. LLC It might be smart to go ahead and have another entity owned that single-member LLC and make sure that there are multiple people involved involved in that of other entity because Because that that that adds a greater structure to it and then W- and then the other thing that you have to look at it just simply looking at your personal assets do you. Are you in a place of our vulnerable. Are Your other assets vulnerable. You listened to my asset protection series if your assets. Let's say that you have a home and that home is is in your living state where you've got significant homestead protection laws. Your other assets are in qualified accounts that are protected by federal law or perhaps IRA's and such that are protected by your state. You don't have a lot of a lot of money exposed so that even if someone did sue you'd be very hard to collect on. I think that you make a judgment call and say I'm pretty good here but if all of a sudden you have actually you know ten million dollars in that. Ten million dollars is sitting in a checking account and then now all of a sudden it becomes worth it go ahead and add in another corporate layer with multiple members and we want to put a lot more little more distance between us. And this business that we're operating so my guess is my hunch is you don't need liability insurance For the reasons stated you probably fine operating through the business entity but be be a good student and make sure number one talk to a liability insurance agent. See if there even is an insurance policy. That could protect you from any risks that you do have Be Very very careful about running your affairs cleanly most of the times when a corporate Liability structure breaks down down. I think most of the time. It's my understanding that most of the time that's due to carelessness by the business operator said don't be careless. Make sure that your materials are clear. Make sure contractor clear. Make sure it's very clear that you are not doing business as an individual that rather you're doing business as a representative of this limited liability company and then think about your personal risks and if those things are simple and you're good with keeping your corporate formalities etc Then I think I think you're probably safe enough safe enough and I wouldn't. I wouldn't worry too much about it. Thank you yeah it seems to. It seems to me that I do follow all these rules with a few very calm. You know recommended to look into and do you think that sometimes. I'm not sure whether something can be done even cleaner or maybe something something. Maybe it's a conversational with my accountant. Deceive they think that everything looks just like it should be or if if I could make it better There's an endless. Yes you should have those conversations. Here's the challenge you've gotta that'd be practical about it. There is an endless amount of things that you could do to make it better but every every step to making it better. Ads cost cost and complexity and hassle. So it's a judgment call as to where is the right balance between this is good this this should work and this is smooth and simple and streamlined. And this this will work effectively There's there's no bright line between these it's a judgment call if I were involved in a very risky business something that had significant amounts of liability and so. Let's talk about things that would increase. If I have come running a restaurant where now all of a sudden I have massive passive exposure to the public. And I've got a lot of employees your risks just who go way up compared to what you're doing or if you're operating equipment equipment You're dealing with you'RE A. You're running a road construction equipment company with millions of dollars of heavy heavy equipment that could crush somebody Who runs into it on the side of the road or that some careless employees back over somebody behind them? Those are things where the liability just goes up through the roof and so your whole profile changes and now everything becomes much much more important but from what I'm hearing from your situation. Your situation is fairly simple. And so I think the the a natural limited liability of the limited liability company that's the goal of an LLC is probably sufficient now. I would not keep tons of money in the company unless you need. You have to have enough money in the company needed. But I wouldn't keep tons of assets there I wouldn't commingle my activities in this business with my activities anywhere else. You WanNa make sure there's clear separation there. You WanNa make sure that you're just working in one line of business in this particular company but as long as you're doing those things things I think you're probably okay but you but continually solicit professional advice on on the subject okay. One less very small point I actually thought that maybe keeping Sufficient amounts of capital in the company is actually a good thing. But you're saying maybe don't I mean again. We don't know what sufficient is a conman but I thought that if there is but then you know significant amount of money in the company that it kind of shows the capitalization of the company and also Maybe despise the claims of you know whoever is going after the company and I felt okay. If it's very little than they may not be satisfied and they would wanna go off to Curson and tried to find any way to pierce the corporate veil. Don't you you are correct in that one of the hallmarks one of the things. That judges will look at when deciding and Whether or not to respect the corporate structure or whether the pierce the corporate veil one thing they will look at is was is the company sufficiently capitalised in an appropriate way for that company. So when you capitalize a company you need to make sure that you capitalize it to an appropriate appropriate level for that company now operating a consultancy That number is probably thousands of dollars not hundreds of thousands of dollars but on the other hand if you are operating something that has a very large working budget. The Union to capitalize that company to an appropriate level the key is just needs to be appropriate and then as long as it's appropriate for your industry for the company type etc.. Then you're good but that absolutely is one of the things that that somebody will look at you. Additionally then of course would want to keep an appropriate amount of working capital in the company. If you're going to operate this clearly as as a separate entity this is not your money that you're you're this is the company's money and just like you would always make sure that you have enough money in your checking account to do the business. The company needs to have enough money in their checking account to do business. But if with a consultancy perhaps your business expenses are a few thousand dollars per month. Then it doesn't there's no need to have hundreds of thousands of dollars in a business checking account some thousands or perhaps ten thousand dollars should be sufficient. What I would caution you yeah about is is exposing Assets unnecessarily to liability so one of the principal ideas of of asset protection action. Planning is anywhere there is liability. We try to seek to constrain that liability to a structure that doesn't doesn't have a lot of assets and we in anywhere there's a lot of assets we try to make sure that that that that structure doesn't have a lot of exposure so so the simplest example would be back to the heavy equipment example. If you as a you're operating a business it has a lot of liability and you are You've got a million dollars of heavy equipment for road construction company. Well that's a big asset. That's a lot. AWW equipment right there and you've got tremendous liability that is going to be created by the operation of that company you've got liability exposure her for employees you've got liability exposure to customers you've got liability exposure for you know onlookers by standards property damage etc.. And and you've got a million dollars of equipment sitting here in this company so the simple solution is somebody could sue the company and it would and they could take the you could assess the million dollars of equipment as part of what they could collect on. They may not be able to pierce all the way through to the owner's personal assets assets. But they could access this million dollars of equipment and so my understanding what an attorney would recommend in situation like that is you would try to segment the liability to structure with fewer assets. And you would try to move the assets into a structure where it's not GonNa be liability created and so instead of the company that's doing the operating company owning all the equipment you would have a holding company separately owned by a few different people and and hopefully some of those people are not involved in the business so say my wife and I were running a road construction business. I think we would set up a family holding company that owned equipment. And that's it's the family holding company that owns all the equipment for the business for for the for business but then we would establish leasing contracts and that quick released to the operating company so now now that million dollars of assets are not necessarily exposed to the operating companies to the operating company itself. Now there are we we get good legal advice. My understanding legal advisers would make recommendations such as having multiple unconnected people involved in the the leasing company that would be intelligent from tax strategy as well so my wife and I might be shareholders that company my children might also be shareholders in that company. We would also possibly lease company to lease equipment to other companies so that we weren't so it wasn't just so it wasn't this simply that this was our only customer fine if it's our primary customer but we don't want it to be our only customer and been following those those those practices practices. We've now made a really economic a really good case that these assets should not be exposed to the liability that's being generated inside the operating company anymore than the fact that are operating company. We go to another big commercial leasing agency and we Lisa Bob Cat for the day. The company is leasing. Bobcat doesn't have any liability for what we do with the Bob Cat. They're just simply leasing the bobcat to us so you look at liability and you see how do we How do we constrain this liability inside of a company with fewer assets that are at risk? And how do we make sure that. In the companies that we hold assets in and that we don't generate liability risks inside those companies One one more example. You do the same thing with employees. One of the big risks is to have is employees employees can bring tremendous liability risks to a business operator and so through a variety of mechanisms. You try to move that employees risk to structure that doesn't have a lot of a lot of assets so you see this with employee leasing companies. You see this with using contractors for Labor instead instead of employees and then you keep the assets. TUCK decide where they're not where you're not going to generate liability inside of that company so there's all has to be done at appropriate scale L. But those are the basic principles that are applied to your situation. All this sounds unnecessary as long as you follow good corporate formalities which by the way one of the one of the areas of weakness is people because LLC's are so simple to create And because you don't have the same requirements of love corporate record keeping of annual meetings all those things People often very lax with that and they basically run the LLC. See as an alter ego I think creates danger and I think that if somebody is prudent you should run your LLC exactly like you run a corporation and keep the same struck cheap the same habits in place because that that helps you in the in the worst case scenario if you're ever in front of a lawsuit that's that's my answer. End Thank you. That's very good. Thank you so much my pleasure anything else. If you only only have one go ahead go ahead. I've got I've got two other colors online but I I've got time for one more. Go ahead. Okay one more. This is probably a bit probably doesn't matter are but the fact that mile is tax as S. Corporation. Does it change anything in terms of what you said. Ah for. It doesn't really matter at all because it's only know that doesn't change anything. The Tax Corporation status is simply an arrangement with the IRS and that is independent of these principles. These legal principles that we're discussing. That's what I thought. Well thank thank you so much my pleasure all right we go on now to looks like James James Welcome to the show. How can I serve you today? Hey Joshua can you hear hear me sounds good. Go ahead excellent all right so this has to go back to a couple of weeks ago when you did the episode the first episode it on your podcast about Your your dealings with dieting. An overweight Being overweight like different periods. Start Your life by question and About that is First statement that I can relate And that I I am overweight and have been different degrees of overweight. Throughout all my life and but relatively healthy no no chronic health issues related to my weight I have had trouble getting insurance. And I remember distinctly. I was driving when I was listening to your gas. You said something along the lines of like you've always had premium top of the line life insurance Prince I met him said Health Insurance Bill there but I meant life insurance And I wanted to ask you to unpack that if you don't mind because I I have a family with a young child and I definitely want to make sure that I have coverage whether it's through work or not and I just want to know maybe what my options were given that I share some similar physical History Yeah so this is one of the areas areas where working with a good insurance agent. Should solve this problem so just curious when you when you have applied for insurance before did use agent did use website website. What did you do previously? It was always through like I got a new job. I'm signing up to get my benefits and I'll sign up for life insurance milk say You know based off of the information you input about yourself like we can give you up to a certain amount like a low amount with two hundred thousand dollars or something arthritis and Essentially I kind of just felt like I was not going to get any more insurance from them and I kind of just took it as like. Okay okay well I'm overweight and that's the way things are but obviously I wanNA revisit that right so my other caller dropped off. So I'm going to give you a little bit of time and I'm GonNa give you a mini mini lesson on. How how you a young father Should go round getting insurance and it'll be a refresher for others who need this as well. So let's begin with I personal versus group Insurance Many People Bhai Life Insurance and all of this is about life insurance. Every line of insurance is different dental insurance and health insurance life insurance and disability insurance. These are all unique lines of insurance. And there's different advice for each and every one of them so we're exclusively here talking talking about life insurance when it comes to life insurance Many people by their life insurance through their job The the way that you have done I that is not ideal and the reason is not ideal is for is reasons that it's not ideal is these he's I if you buy life insurance through your job then if you leave your job you lose your life insurance. Some policies will have conversion privileges privileges. Sometimes you can take with you for the most part though you can't or at least you can't take it with you. At a rate you can afford so for example some life insurance That's issued through a group contract will be issued at a As a term insurance policy but then when you leave yeah you can keep the policy but you have to convert it to do a permanent life insurance policy whole life policy and you probably can't afford that increase in premiums so Joshua's first rule of life insurance. Don't buy life insurance through your job. Always buy life insurance through a personal policy. That is underwritten for you. Personally unless you can't get life insurance or you can't get life insurance a good at a good rate personally and then you go and look to see if you can get life insurance through your job. There are a few different ways that life insurance its policies are are underwritten. So you have policies that are fully underwritten so if you decide to go out and then you contact an insurance agent you say I want to own a million dollar life insurance policy. That insurance agent will underwrite the policy insurance agents rationally called field underwriters. It's not really used anymore. But the ideas that the first method of underwriting that the insurance company uses is the individual life insurance agents life. Insurance agent is is keeping their eyes open when they're in your house for fraud They're keeping their eyes open for. Are you telling the truth. And they have a legal duty to the company when they fill out an insurance application that the information on that application is truthful and they don't have any additional knowledge about any reason why the applicant is reporting information. That is not truthful but when the company does that they fully underwrite the policy on a personal basis. And so what they do his. They will send a nurse out the medical exam that medical example involve a full medical history questionnaire. Where you you respond to all these detailed questions since they will solicit all of your doctor records from any doctor visits usually by the last five to ten years but if it's significant they can go back farther than that and they'll collect collect all your medical records and the underwriter in the Home Office of the Insurance Company will read all those medical records? All your medical information will go into a centralized is Depository of Of Health information that the insurance companies access and then the individual nurse will take current current measurements. That pajamas scale. Find Out. What your current weight is that? Take your blood pressure. Depending on the amount of insurance They will take a urine sample. Del Take a blood sample sample. If you're applying for several millions of dollars of insurance there'll be a heart. EKG They'll do an ekg They'll do field. EKG When you're underwriting very large policies they'll bring somebody in put them on a treadmill do some of the stress tests and very advanced tests depending on the amount of insurance. Now when you're dealing in the million two million three million dollar range of insurance those things are fairly simple. If you're buying small policies of of a few hundred thousand dollars awfulness just a a urine sample and blood pressure. If you're buying very small policies the insurance agent will do the whole thing themselves so when I if I I didn't sell much because I could usually get somebody at least a half a million dollars of insurance but you never know if you sell a one hundred thousand dollar insurance policy. They would do a mouth swab and so in the mouth. Swab has some information and we can carry kit in the back of my car so if I needed to do it right there. I'll do the medical history questionnaire and a mouth swab and that's good enough for a hundred thousand dollars of insurance but all of those policies are underwritten on an individual basis. Where the company Buzney has the right to decline the coverage if they don't like it or they have the right to rate the coverage meaning? They'll charge you whatever you want to be charged. Whatever they decide they want to charge you and and you'll know that eventually before you accept the policy you'll know exactly what the rate is going to be based upon the individual underwriting of the insurance company now there there are other ways however of covering insurance of providing insurance? There is a standard of insurance called simplified issue and what simplified simplified issue means is the insurance company is going to offer insurance policies to a group of people they're usually needs to be an affiliation of some kind nine so this is often people all working at a company or all part of a certain group of people and you just simply have to answer some basic questions. Maybe your height your weight eight little bit of your family history. But they're not gonNA make you go through the full line of underwriting and that's simplified issue in simplified issue they still have the opportunity to charge charge you more so if your weight is a little bit too high. They'll say we're going to increase your premiums because of that or if you have a bad family history. We're going to change your premiums because of that that's called simplified issue and then the third is what's called guaranteed issue where the insurance company guarantees that we will issue a contract life insurance policy on everybody who is within this affinity group usually accompanying and with guaranteed issue. They don't ask you any questions. They just simply say we'll we'll give it to you now. With guaranteed issue you can recognize denies. There's a tremendous liability exposure that the insurance company has. Let's say that I've had a I've I've I've smoked eight packs of cigarettes a day. My father died of cancer at at forty two. My mom died of cancer at forty three. I've had six heart attacks and I have four stints and all of a sudden I'm forty one and I decided that I want to go and I want to go in and get a life insurance policy. Well if I just go down to XYZ company and I come into that XYZ company. And and I say hey here here I am now. You've gotta give me half a million dollars. A Life Insurance Company that could destroy the integrity of the Group of insurance that the insurance company has and so they want to guard against that all the way the guard against that is usually by limiting those guaranteed issue contracts to relatively small face amounts of insurance usually fifty two thousand dollars. Maybe two hundred thousand dollars has got to be small. You generally don't get those with millions of dollars. Sometimes depending on the affinity group because of the basic characteristics of the group an insurance company will be a little bit more liberal with the size of the contracts. They'll issue see. You'll see this with things like a bar. Association Association or a CPA group something like that lawyers accountants and lawyers. These are often relatively low. Risk people And and they're out they're out of fairly low risk of dying people are usually intelligent and so if somebody's going to be an a an attorney There are lots of attorneys that smoke cigarettes but on a class basis. I would bet you five bucks that there are far fewer attorneys who smoke cigarettes everyday. Then there are our construction workers then there are janitors etc because the kind of person that becomes an attorney has a different health profile than the kind of person and who takes an entry level job so the the insurance company knows this and so sometimes they'll offer higher simplified issue or higher guaranteed issue shoe policy amounts to some of those very low risk groups And that's that's one that's how it works now back to you as an individual versus group. If you can get insurance yourself you should always by yourself and the first reason that already said was that you can that you can and take it with you when you leave your job and you can maintain your insurance coverage the second reason why or a second reason why you should buy the policy. Individually visually is that you can often get better rates because of the risk that the insurance company faces of the Potential for for adverse selection people who know they're sick and they're going to die coming to that company and intentionally getting it that's called adverse selection because of the risk. She's been smoking too many cigarettes today. Because of the risk that the company faces the they will often the the group policies issued at higher rates to protect the company. So sometimes you can save a lot of money as an individual by simply having a policy that's underwritten for for you as an individual versus through your group contract. I've seen that many times. Where if you're just buying standard term insurance contract you can save significant money by buying that policy yourself through the group you some that you don't really get much group benefit? As far as there's not a lot of there's not a lot of benefit to the insurance company of taking on those group contracts. They liked to have more insurance. They like to sell more business so there is some ability. They don't have to pay as many agent commissions as they do in the individuals side. I took maybe some cost savings but the risk of adverse selection. The undoes a lot of those things so depends on the person depends on the company. All of this is highly variable but you can often save money as an individual as compared to a group and then also there's often very little incentive to buy group insurance The company that offers you benefits can give you a tax free benefit of of to fifty thousand dollars of life insurance term life insurance and so many companies will automatically give fifty thousand dollars as A. It's a nice group benefited a tax-free benefit but anything more than that. You have to pay for and if the company is paying for it and that's a taxable benefit to us so that's not particularly Louis favorable in many group benefit plans because of the tax structure that changes when we move into executive benefit planning Where oftentimes sometimes a healthy life insurance executive benefit can be carved out but just for most people who are involved in most aspects of the group benefits marketplace marketplace in the United States Life Insurance? You're not going to get a lot of life insurance benefits at work so always by yourself as an individual and you get the opportunity when you buying it yourself as an individual to have full underwriting don that takes into account totality of your circumstances now next part of Joshua's lecture on Insurance Insurance agent verses website or something like that I see I see no benefit to ever buying from a website versus working with local insurance agent. I I'm not aware of any specific companies although I have this nagging feeling in the back of my head that there are at least a couple of insurance companies that are now selling insurance policies without commissions. But it's not a meaningful part of the market insurance marketplace at all so insurance insurance comp insurance companies pay commissions to agents who sell their policies and those insurance commission rates are basically basically the same no matter who sells the policy. Basically I won't go into the exceptions basically is good enough so I can sell insurance in two ways. I can be an individual life insurance agent and I can say go ahead and come in and I'll work with you as an individual or if I want to make a lot of money in the insurance business I simply. We set up an insurance website. I get licensed agents who work in my insurance agency but our method of marketing is through a website and through the phone own. But you often don't get as experienced agents or as knowledgeable agents and that kind of marketplace as you do with an individual agent life insurance agent. WHO's made their career out of life insurance? When I was doing this business I was a was a life insurance agent? I knew far more about life insurance than anybody would would ever be working a phone at a at a website and I could bring that expertise to my to my clients and so if I sold a policy you could go to who term life insurance dot com witness. Generic name for whatever website is out there in that life. Insurance General Agent would have established an agency agency they established contracts with a half a dozen different policy with half a dozen different companies might be banner might be prudential might be axe. Whatever the companies are of the day and so they would sell those policies but I had exactly those same companies that I was contract with? But the difference was the access to the knowledgeable agent versus says the sometimes basic all in all the telephone representatives. They're knowledgeable enough to pass an insurance exam but that doesn't mean that they're deeply knowledgeable in in the space and I get paid the same commission as the owner of that agency gets paid. So why wouldn't somebody want to come and work with me as a knowledgeable life insurance it's agent instead of working through the website. There's no cost savings that can be gotten by the by. The customer is just simply a marketing operation for the be for the company. I don't have there's nothing I don't have any problem with that business model but as an individual I can't make a make a clear recommendation. You should go and use a website as your primary source of searching for insurance. I don't see the benefit you don't save any money and you. I don't think you're going to access access as high of a of a caliber of insurance agent through that system the people that would be representatives at that kind of company company at a website based company are people who are intelligent enough to pass the To pass the life insurance exam. They got to be licensed agents. But they're probably not going to be committed necessarily to the life insurance business They're not going to be as aggressive. They're not going to be as They're not gonNA have the incentives to become as knowledgeable as I think an individual agent Could be now. You measure that for yourself. That's my personal experience and I'm biased. Because of the path that I took I'm sure there are excellent excellent insurance agencies that are doing most of their business through Colin business etc.. But with my experience I don't see any reason to go that route which brings me now to through these specific. Answer to your question. One of the things that have important when you're getting insurance. Is You want the ability to work with an insurance agent who has access access to a broad number of companies and who has knowledge of those different companies underwriting standards and there are different ways that insurance companies underwrite policies so for basic purposes. Most insurance companies will have a tier of premiums that they charge based on something like they have a standard rate than they may have preferred rate or a super preferred rate substandard is. Here's what a standard person of standard health and Standard family history and standard weight. bub-bubba gets his data. But then the preferred is. If you're skinnier or your healthier your parents are older or super preferred you. Everything is in your favor. And then they have. What are called their table ratings? Might be Table One table to table. Three all the way down to ten twelve fifteen whatever and so you say well. I had a cancer diagnosis eight years ago. But since then everything is is good. All right. We're going to give you table able one on your premiums are adjusted based upon. Where you where you come? In at this level on these on these tables no different insurance companies though have different ways that they arrive at their at their rating based upon their their inside actuaries experience and so speaking simply the basically basically fall into two different categories. Some insurance companies models will kick you down to a lower rating if you fail one certain thing so this sounds like what happened happens to you. Based upon the underwriting methodology that you went into they said Hey James has his heart is great. No history of heart disease. Mom and dad didn't have heart disease. Mom and dad is still alive and their ninety nine years old. James doesn't smoke. That's great. James has great blood pressure. James is is totally healthy a little bit fat. BMI over this number and because of that because the BMI is over that that automatically drops James from He's is not super preferred that automatically puts him into standard rates but other companies use a whip appointing system point system. Where they'll say all right everybody starts? It's at standard and James is mom and dad are ninety nine years old and they're in perfect help health so plus ten points plus ten points. James has perfect bloodpressure plus US eight points. James has no family history of cancer. Plus four points James Runs. James doesn't drink alcohol plus plus but James's BMI is. He's a little bit fat. Okay minus six points toilet. All we came up to forty two points so that puts James Right in our preferred category. Forty two forty points in a bob is still preferred and that gives a little bit of wiggle room. Nobody except that. The the the companies and experienced people know each of the different Each of the different companies structures. So what I prefer that you do. Is You contact a knowledgeable agent and then you and you apply with knowledge you go through the underwriting process and then if you get rated aided with one company look to see if there's another company that is willing to make you an offer of of of a better a better a UH better better quote and so that way you at least know if you're gonNA get rated rated with twelve companies are fifteen companies or whatever instead of just the one the company that the kicked you out so back when I was an agent with big mutual company That was always what I would do. Is I would always start with. I was in northwestern. Mutual agent I I would start with northwestern mutual and put people do that and start with that Unless then if somebody got rated with northwestern mutual I'd take that policy and I would shop a bit to other companies and see what quotes we got back and then come back and see well. What would the opportunities there? And what I what I often found was a lot. aww variability in the offers that we would get and so in in one of the reasons is based upon this system of underwriting so with my life insurance one northwestern mutual was one of those points based companies. Where they would they would do it? Based on the totality of points I had a stellar family history. I had stellar bloodpressure. I'd Stellar Eller. I'll cholesterol all the rest of the stuff. I have no history of chronic disease whatsoever in my family very long high longevity so even though my BMI was high. I always prefer Whatever their premier I guess it was northwestern mutuals name for IT I? We've got the best rates because of that and it was due to some of this inside insurance industry. The stuff that we're that we're talking about here so the end of the day you gotta find a company that's willing to make you an offer but but but you shop around you can get good rates and just because you're a little bit fat doesn't mean that you can't get a better That you can't get a better price now. Of course you you know. Stop being fat if you can Work hard on getting less fat and then go ahead and get it better and that would also be. That's also one of the important things that you should do so back when when I did this business profession that business professionally and I would talk to people say okay. Well this company you gotta preferred rating here. But here's your target. The reason we got a preferred in writing we talked to the underwriter. The underwriter would say. Here's why this person got or standard rating but if you can go from standard to preferred it'll drop your your your your premiums by forty dollars so Mr Client here is my challenge for you. Drop your body weight forty pounds and if you can drop forty pounds then we can apply for reconsideration in in one year two years or whatever and that's the other thing is that whenever an underwriter rates policy they'll tell you whether there's reconsideration available or not and so sometimes was significant Somebody getting policy for somebody with his history of heart attacks or history of cancer. They'll say rating table one. No no reconsideration available but if somebody has a high BMI they'll say okay. It's going to be right now. A standard rating for now but reconsideration available in one year or two years and so then then the person should get the policy because if you are getting rated life insurance company. That's a good clue that you need more life insurance. 'cause they're they really want WANNA sell the policy and if they're going to charge you more they're charging you more because the risk of your dying soon is is a lot higher. So there's my sales pitch for how to sell rated policies. If you're an insurance insurance agent if you get raided by insurance company the need for life insurance just went up And so that's why you should definitely by it I if you got rated It doesn't always work but it's true and so often people find that Persuasive but then a challenges lose forty pounds. Keep it off and apply for reconsideration in a year. And when you do that we can drop you up or bump you up to the next health classification. Your premiums will drop by five hundred dollars a year and now that should give you some additional channel incentive to lose fat so that's Joshua's mini lecture on Life Insurance James. It's going to be a matter of finding a knowledgeable agent and finding finding somebody who is willing to put in that legwork for you and the same thing applies if somebody has risk factors. Same thing applies If you have a bad family history or or or had cancer at Sarah the key is to shop around there are thousands but realistically in their hundreds of life insurance companies and most life insurance agents that do it professionally or are contracted appointed with at least a couple dozen And so you WANNA work with somebody who's GonNa shop around and and get you the best deal and a lot of times. This is where competition really can Can play a role that was extremely educating. Thank you good good I I I have one more one more clarifying question because I occasionally listen to Dave Ramsey and he talks about uh-huh like term versus whole And I I will admit I don't really understand what I should be having given my situation so it could you touch on that. If you have a minute. Sure so in general the rule is very simple. You buy term life insurance for all insurance needs. That are temporary. That's what term life insurance is for and so for somebody in a family stage like yours. The vast majority eighty or the entirety of your insurance need is temporary and so you should buy term life insurance and you always solve insurance agent you always solve for death. Benefit fit needs with term life insurance. Because that's the cheapest solution now. So let's say you go through an insurance analysis and you come out with that you have in need need of one point five million dollars a term life insurance well one point five million dollars. How old are you James? Thirty one point five million dollars of term life insurance for a healthy thirty five year old Non Tobacco Mail probably in the range of fifty to seven dollars a month. Something like that sixty bucks a month so you can buy a million and a half dollars insurance for fifty or sixty bucks a month. Not that big of a deal to sign up for not GonNa Break Your budget etc you go around you try to buy one point five million dollars of whole life insurance. It's going to cost you twelve grand a year. You can't afford that so you solve for your death benefit need for your family with term life insurance. That's first it and foremost over time. Your insurance need should decline because every year that goes on you now have more money. You've saved more money and your obligations your financial obligations. Ideally will go down if you have one child and you don't have any more children then you move to a situation where Five years from. Now there's five years of living expenses that you need so you can drop your insurance at that point in time or is you save more money if you needed one point five million dollars of life insurance but your net worth increased by half a million dollars. Then you're in a situation now where you can drop rob your insurance coverage from one point. Five million dollars to one million dollars. And one. Dave Ramsey's a big proponent of the idea that you become self insured the way that you become self insured is by having enough money that your family would be okay if you didn't need insurance and there's nothing wrong with that Can it be done an absolutely It can be done now. If you have a need for life insurance that is permanent that will last for your entire life then you need impermanent life insurance you need life insurance. That never goes away and what are some needs that would last for your entire lifetime. Well one example would be something like I want. I WanNa make sure that there's money available to bury me and so if you know you'd like to have money to pay for a funeral or for burial expenses then in a permanent life insurance policy that will pay out if you die at thirty six or diet. Ninety six is nice to have now what Dave would say if he were on. This conversation is Dave would say up at funerals. Don't cost that much and it should be easy for you if you've got a million dollars in an IRA when you die it should be easy for your family to come up with twenty thousand thousand dollars for your funeral expenses. He's not wrong. I think that's true but I've had some experiences show me that a lot of people don't necessarily always do that one experience or another example of something that would be nice to have insurance no matter when you die. I had an experience with a client wasn't a client that I originally originally sold insurance policies to it was a client that I picked up as who was a client of the company and I worked with them and the client's wife got sick and died and one one of the things that really that I noticed that was new for me because I used to preach preach Bhai term invest the difference The very hardest moral quandary that I had when thinking about going into the life insurance industry was could I ever sell whole life insurance When I was thinking about joining northwestern mutual I interviewed dude with a with a couple of different companies but but I interviewed in the same week with Primerica which is the current name for the company started by AOL Williams Williams L. Williams built his career on buy term invest? The difference that someone should only buy term life insurance and PRIMERICA accompany only sells term life insurance insurance based upon that philosophy l Williams the ultimate expression of the the buy term invest. The difference for him it was a moral crusade of of of watching people be sold old far too much whole life insurance and then die without having enough insurance and I I enjoy that. That's I think that's happened. In many cases in some great stain on Life Insurance Business But then I and then I interviewed the same week with northwestern mutual which was one of the biggest sellers of whole life insurance of any company out there New York Life in northwestern mutual Joel mass mutual guardian huge amounts of their business or made up in life insurance. And I didn't know if I could ethically sell life insurance So I I had that idea then then but these clients have met with fairly early in my career and it really the this. The details are fading a little bit at this point but the clients were were wealthy but but they had spent a lot of money on his wife's health care and they had spent a lot of money on their retirement and they had assets but those assets were tied up and the I think it was a rental property. they'd spent down their IRA's and they didn't have a lot of money and so when the wife died the life insurance payout although it was only one hundred fifty two hundred thousand dollars and then like that was was such a blessing to the husband Because he was totally cash poor. He wasn't poor but he was cash. Poor and he was able to use the money to have a funeral for his wife which was important him and then he was able to use the money to see him through the time for him to go ahead and liquidate the real estate mood mood with out of the big family house and move into a smaller place that would be good for him for an ongoing from from an for for the rest of time and seeing the massive blessing of of those whole life insurance policies changed me and it made me realize that although I may have the best laid plans that I'm going to have so much money and I'm always gonNA keep liquid burial fund and make sure that I always have liquid assets because I'm going to be smarter than everyone else. I realized that you know it doesn't always work out like that. So it would be another example of value of of having a whole life insurance policy payout when you die as just simply liquidity and I would want to make sure if I die and I'm ninety years old and my wife is ninety years old. I would want to make sure that she had plenty of quitting that. She didn't have to worry about money. In the short term and there's nothing better than a life insurance payout for that with Life Insurance Company. Often do Depends on every company. How they do that claims but they'll send If I died they this and my widow checkbook and the checkbook has a a- an account associated with whatever the amount of amount of insurance what millions of dollars life insurance. My wife immediately has access to a checkbook with millions of dollars in it and she can just write checks she she can write a a two and a half million dollar check to her personal checking account if she wants boom all the money's there or she can just write little checks to To other people now there are other interesting situations that you can get into things like creditor disputes Let's say that somebody has money but there in the middle of a creditor dispute because Joshua did something stupid he went he created a big business is going to be his last Hurrah. All of a sudden the business failed and now there's fifteen million dollars of claims outstanding and Yeah Josh take a couple of million bucks but But when he was old but now all of a sudden his assets are tied up. Well the life insurance policy can come in there Other Scenarios Barrios When we get into more other areas of financial planning things like buy-sell arrangements where? Let's say that I own a business with a business partner and our businesses worth worth two million dollars. My share is a million dollars but we want to make sure that if I die or my business partner dies then we can buy each other out so that neither of us has to be in business with each each other's widows and so we put in place of buy-sell arrangement and we can go ahead and fund that with a whole life insurance policy and then the nice thing about a whole life insurance policy all see when funding a buy-sell arrangement in business is that we have guaranteed death benefit at death but then we also have cash value. That accumulates over time and that cash value a segregated aggregated from the business assets and that cash value is very stable it grows slowly but it grows guaranteed and that cash value can be available as an asset to to pull pull the money out and by the business if one of us wants to retire and by each other out at retirement or due to some whatever our cell arrangement says and so the actual scenarios go on and on and on. This is not the kind of financial planning this free. The Dave frequently talks about this is not the kind of financial planning this kind of entry. Level One planning. This is more complex but those are some of the types of of areas. We're whole life. Insurance really does really does shine so those those are just be examples now in your situation probably none of that is necessary. Always start figuring out your insurance need Begin before you ever by life insurance by disability income insurance far more important life insurance then by term life insurance and you have money leftover consider buying some small amount out of whole life insurance. If you want some make sure that you're not You're not not funding your Roth. Ira Not not funding your 401k. To buy whole life insurance buying some small mall amount of whole life insurance. I'm happy for young people to do it. As long as they have income and they can sustain the policies. Now after those things are done you got disability income insurance. You got lots of term life insurance. You're funding your qualified account if you still have money leftover now let's go to your investment plan and then that's where you can start looking at a cash value policy and say does this. This is a component of the investment plan. Answer is always it depends. What else are you gonNA invest in? What's the opportunity cost? What do you have things that are better etc but Those are the. That's how I would approach your your question For a young father you need lots of term life insurance Lots and lots of it and so just get that but get. It was a company that you wouldn't mind converting a term life insurance over to a whole life insurance policy at some point in time as well thank you so much. Yeah I think I know where I'm going to seek out a local agent as well. I never did that. I just always assumed that they were more expensive. And you know had is just against it. So I'm happy to hear your Erin I will accept checks from all life insurance agents who get business from me go ahead and you can just send Joshua Contribution Because it is true. There's no difference in cost there's not And so on this one I. It's for me. It's a big deal. I see no reason whatsoever to in today's marketplace ten years from now something may change Because of the success of the no commission communal fund industry there have been companies that have been trying to sell no commission life insurance but in my current knowledge. If you if you find differently email me and tell me that I'm wrong. I'm happy to know that. But in my current knowledge none of those companies are are really are really making a big difference. uh-huh and and the reason is because life insurance still seems to be something that has to be sold by an agent whereas people want to buy mutual funds they want to fund their IRA's etc and so the vanguard revolution was more doable in the world of investments but the vanguard revolution has not happened in life insurance. It's now if any listener can start the vanguard revolution in Life Insurance and get people insurance at lower prices great But it seems to be the case that most people need to be sold life insurance by somebody WHO's motivated to come out and sell it to them and so in order to get companies to sell their people to sell their products insurance earns companies pay commissions and so the prices are the same whether that commission is paid to an individual are paid to A guy running website or advertising on TV Theodore Advertising on You know a radio show Zanderinsurance sure does a great job But the end of the day you don't get any discount by calling Zander Zander Versus calling your local life insurance agent Zander has to make up all of the The costs of sponsoring Dave's program and and sponsoring all of their advertising and all of their training etc.. And so there's there's no savings to you all you know when you go to Zander is you're GONNA get a term insurance policy you're not gonna get a whole life policy and so in my opinion that's that's very shortsighted but for those who are deeply convicted of I'm only going to buy term and invest the difference. Fine it'll it'll work as well as anything else. James I WANNA expand my pleasure. I'M GONNA WANNA give you one more or less than unexplained you how insurance underwriting works so that you can understand Understand your options especially as you're trying to work through your ratings are potential ratings when you go to a life insurance agent in your your and you're talking to a life insurance agents and you say all right life insurance agent I WANNA buy a life insurance policy. The the life insurance agent can put the policy in force in what's called a conditional basis and a life insurance contract the remember these fancy words is a a Non Alley Tori contract of adhesion. I think that's the Think I got that right of the technical which meaningless to you but what it means is that in in order for a life insurance contract to be fully enforce both you as the insured and the Insurance Company to come to an agreement that you're both willing to accept the contract and so the way that that happens though is is is unique where the insurance company the insurance agent can bind the contract If certain things happen so you'll go to an insurance agent. The insurance agent will run quotes. They'll talk to you about different policy designs things you can do by the way James Go back in the shows I've done some shows on this but you should buy at your age. You should buy a type of insurance. You should not buy level term insurance policy in your thirties you should buy. Annual renewable term insurance also called yearly yearly renewable term insurance. Because it's more flexible for the long term and it's cheaper now When you get to your mid forties and fifties that's when you start buying level term insurance but when you're younger within that by yearly renewable term insurance so you go to the insurance company agent insurance agent goes over some different policy designs you say you go through some calculations try to figure out how much insurance you want on how much you can afford etc and you come to an agreement you say hard insurance agent? I'd like to buy a million dollars of life insurance. If you'll do three do things you can put the contract into force right away and those three things are filled out completed signed con application insurance application. The second thing is a payment for the first month's premium and then the third thing is a medical exam or whatever medical underwriting requirements required by the company once. Those three things are done where you've given payment for the contract you've given a medical exam and you fill out an application once. Those three things are done. The insurance contract goes in force on a conditional basis. What it means is basically the insurance companies stops the clock from the time that that that is that those three three things are done and then they go into underwriting so if you do those three things and then you die the very you get a car accident the next day and you die unless less your car? Accident was due to some fraud or or something that you that you didn't disclose it has to be materially connected into the cause of death then the insurance contract the insurance company will still pay now. The underwriting process takes anywhere from a few days to a few weeks to months. I I've I've had. I had some that. Were six months of underwriting because of okay. They've got to get this. Dr Record here in your records are all over the place and they need this one etc.. You have a very simple medical history. It's fast if you have a complicated medical history. It takes a long time sometimes and so the insurance company will finally say all right. We're willing to issue the policy. And here's what it is and we'll issue at this rate and so let's say you applied at standard rates. But they charge you table to. They'll send out the policy with table to rates on it and the insurance agent will get it and then the insurance agent has to come and deliver it to you now. At the time of delivery he'll go over any changed premium rates or any costs or anything associated with it. And then he'll deliver the policy if you choose to accept it if if you accept it you have in most states. A what's called a two week. Free Look period for any reason two weeks after you accept the policy the Then you can return it and you'll receive all your money back so it's basically a no risk application for you when you're going through this process S. so So get with an insurance agent and and go through some options. Whatever they think you do think is the best then go ahead and apply and buying the coverage average? So at least you've got the coverage started on that date then. If something happens during underwriting find out it's going to be expensive. The insurance agent will start looking looking around. We'll try to get some quotes from other companies and there are a couple methods of the insurance agent will use. Sometimes they'll submit what's called an informal inquiry which means the insurance patient will. Have you fill out a form. That just simply authorizes the agent to release your medical information to a number of different companies. They'll send it right to the underwriters. The underwriter to look at your medical information and say all right. Well well we like this Here's what we think we can do. Of course we won't give a solid answer until we get an application. But here's what we think we can do and so they can collect quotes and do it that way. Sometimes you'll go ahead and do multiple applications applications and so the insurance agent might bring you two or three other applications say are we're GONNA apply to we we we applied the company a they raided you. So we're GONNA apply to c the F. and G. over here and see if we can get a better offer there because you don't have to accept all of them you just have to you just want to see what's the best the best rating so when you work with an agent is well. It's better before you because you can. You can get coverage at least on a temporary basis through that process while they're working their way through trying to figure how to get the best rates so in my ex are their bad life insurance agents out there of course there are. Is there a CD side of the industry. Of course is there is but I think that a lot of that stuff was really overplayed and most life insurance. What I've just all this long speech? This is one this is life insurance agent. WanNa want you work with a guy who's been in the business for two months. He knows all this stuff And he'll he'll work with him he he'll do that. Work your way through so get your get your insurance and there's a little bit of Knowledge to get you started. Joshua feels better indeed. Thank you very much. All right. I've got to written questions from patrons that I'm going to answer here and then we'll be done for today. Oleg writes in Joshua won't be able to join the live Q.. In but I do have a question even if you have time to answer it on the show what would you do with three hundred thousand dollars in cash that you went preserved liquid asset for a possible future business opportunity one month to three year horizon Bryson high yield savings two percent vanguard prime money market see ladder to two point six percent. It may be acceptable to lose up to ten percent of the cash. If there's a good possibility really for a much better return. This answer is very simple. Make it fast. I'm not aware of anything that that would be acceptable under those parameters of potentially losing ten percent of the cash for a higher higher return. Basically you need cash or cash equivalent and so high yield savings fine vanguard money market. CD LADDER FINE I would just consider buying just straight t-bills three hundred thousand dollars. Just go to straight just by straight t-bills do it at sometimes you can do if if you have a brokerage account somewhere. Ask The ask them. Especially now that many of the big companies have eliminated commissions ends you. You can just simply fund t-bill account by t-bills directly through your brokerage or go to treasury direct and set up an account there and just by T.. Bills t bills are the gold gold standard. That's what I would do. I wouldn't take any risk with it if there's a possible future business opportunity. I think it'd be silly to try to chase half a percent I mean. What are we talking about? Let's let's do some math here. So three hundred thousand dollars. Let's say we're chasing fifty basis points half a percent fifteen hundred dollars all the a bunch of Shenanigans going here going going there to try to get an extra fifteen hundred dollars over a year when you're talking about a one month a three year horizon on three hundred thousand dollars if it's a three year horizon and we're we're we're we're trying to get an extra fifty basis points. We're talking an extra forty five hundred dollars if it's a three year horizon maybe there's something better but if it's truly one month to three years I wouldn't take the risk of losing my business deal for that so I would I would. I would put a straight into t-bills Kevin Asks Joshua Joshua. My question is in the realm of total returns versus dividends but not on which one is best etc another investing podcast interviews many folks from the world of high finance. It's abundantly clear. These folks looked down upon the plebes who liked dividends one in particular was the founder of Morning Star who didn't use the words words although his tone was crystal clear is this dislike of dividends taught an advanced finance schools like the CFO or CFP. Am I missing missing. Something glaringly obvious. Any fool can know the point is to understand Albert Einstein quote. Please help me understand. I guess most of the time I wanNA get this right. Let me be careful for with my words. Many people who are basic simple people do not Ducey Lucy dividends as different than total return And and for for anybody WHO's unfamiliar with these words base. Could the ideas companies are supposed to make profits and the idea is they pay those profits out to their shareholders as a dividend. So you can look at the dividend rate of a stock or or you can build a stock portfolio at dividend portfolio that you're gonna live on the dividends which means you never share. You'd never sell any of your shares. You just simply Spend the dividends that are are sent to you in the form of a quarterly check. Total return means well. If you want a thousand dollars you can get a thousand dollars based upon a thousand dollars dividends but you can also get a thousand dollars simply based upon the stock price going up and then you sell a share or a few shares or to take a thousand dollars in the same thousand dollar In your pocket. Same thousand dollars in your pocket so when you look at total returns usually it's a combination of those things and it's interesting when you look at the companies companies that pay dividends versus the companies that pay total returns. And so I think most people don't who haven't thought it through who haven't worked at through probably do tend to think that dividends are are simpler because they like the idea of not selling their assets. Now it's my opinion that actually planning a dividend only financial plan as it's a really powerful plan that's a really powerful mental structuring of your affairs that you Never WanNa spend principle you only wanNA spend profits and that's really easy to do with dividends. It's one of the reasons why I like real estate so much. If an investor buys some rental houses and you tell them you can live on your rents but you can only only live on the rents and you can't put mortgages on these properties you have to have them paid off. You now have a built in budget that somebody can follow and they can budget their fares and you know they will never be broke because they only living on income they'll never spend the capital. Never spend the principal. I think that's really powerful. The problem comes into stocks because when you look at returns earns some of your best performing companies often don't pay dividends and I think there's a really good argument for that perspective. Why would I wanNA company to pay me a dividend right? Now if they can reinvest that that money into growing their business. I'm investing in the company because I want them to grow the business. So why should they send me. Shares of the Prophet When they can grow the business I think that's a good argument? I think there's also a good counterargument though the dividends represent actual prophets and there seemed to be a lot of companies who are so good. Ah Chasing growing business that they never get around to making all that much money I get. Why worry about this? With some of the companies that are very prominent in the US stock market. Right now and I wonder are the This is a scam. These companies that just seemed to get bigger and bigger and don't actually make very much money. They're not proving that they're actually profitable and yet the share price keeps going up people. Keep buying it. That was something that was at the core of the DOT COM BUBBLE DOT COM. I was simply that everybody said we're going to get huge selling pet food online in selling all this stuff. But the companies didn't make profits but the stock price has got pumped up pumped up pump up pumped up because there is demand for them and so it looked like everything was working but they they weren't actually profitable so there's a there's a balance there. That's that's correct. I'm not aware of anything being taught in the FAA or CFP. There's nothing that's explicitly taught that would account for that if your analysis is true if you hear this You know knows knows turned up. High mindedness among high finance professionals. If that's true I my reason as to why it's true. Is this the companies that pay dividends are boring. They're boring businesses. They're old they're developed and they're boring and the companies that generate AH prophets via total return with increasing stock. Prices are exciting their new growing like crazy and they have tremendous opportunity in the future Now again I'm not sure your assessment is true if it is true though that's why it is. It's a whole lot more fun to think about Tesla or apple or Amazon John. These companies of the future that are growing like crazy have these huge increases etc.. This is exciting world of finance versus boring old utility company boring old. coca-cola Things like that and so that same interests that people have have. There's one stock that probably more individual more people have is some companies like apple. You feel like hey this is great. And it's a great business I was stunned to see somebody to write up on the Apple. Air POD business and I I don't pay much attention to that world but I was just stunned they were talking about. How revolutionary a technologist simple as the apple airport the wireless ear buds? That apple came out with and they said if that business alone just the revenue from from that business were were its own standalone company. It would be the nineteenth largest company on the stock market. That's how revolutionary that is and. I've often often bidden disdainful of apple in the past but man I'm I'm my invive. Respect is increasing. Because what they seem to be really good at doing is taking these. Things seem very simple and making a gazillion dollars off of them in doing it very reliable way. I'm listening to the The biography of Steve Jobs I right now now the Walter Isaacson biography and just been so interested in thinking about it. It's pretty remarkable. So that's my best guest. Any listeners. Have a better guests than the combined. Tell me it's an interesting question but for practical purposes. I'm convinced the total return. Argument is the way to go but yet for planning purposes I can't get away from loving just spending prophets just spending dividends and I you know I'm not financially independent to the point where I can just live on the income income from my portfolio. But I'll tell you what as much as I like to. Pride myself on being a clear thinker and saying I'm not GonNa make things emotionally I find the dividends story really compelling I really do I find it really compelling Just the idea you have just living. On dividends now tax efficiencies other thing dividends are not tax efficient whereas gains are so we can tell a lot of stories too complex discussion and I think the key is come down individual individual but I love the simplicity of. You can't outspend your principle. You just live on your income that to me is the lesson that we all can use today and I can guarantee you this if you were to. If you would ask my wife that question she would she would much rather be a dividend invest. My wife doesn't looks at stocks as basically fake money doesn't actually exist unless it's creating income and she's not stupid is she just It's her way of looking at it. And I I like that. It makes sense to me and so if viewed if you gave her the choice of saying how would you like to figure out your budget. Would you like to use this sophisticated analysis. That's taking into account total market. Return selling some shares over here Taking some dividends income and then some shares over here is income or would you like to just have enough money to live on the dividends knowing that that no matter that way you can totally ignore the share prices and just ignore them. Live on the income off to ask that when I get finished with the show Alaska but My bet is she'll take income. It's hard for people to make that transition of going from living on an income their whole life to spending money and then trying to figure out how to make not to be confident that the money's going to last for the rest of their life when somebody is an accumulator and to save her to all of a sudden now be a d. accumulator in a spender. That can be difficult. And so Oh if if it helps someone to feel more comfortable living on dividends. I'm not GONNA fight it. Thank you so much for listening to today's show. If you'd like to join me on next week's show go to Patriot dot com slash radical personal finance patriot dot com slash radical personal finance. Sign Up Sports. Show there and you will gain access to next week's QNA show. If in the meantime meantime GO TO RADICAL BOOKLETS DOT COM. Sign up for my reading list. It'd be a good reading list to guide you through two thousand twenty one thing you can do read more learn more read more and my reading reading list will set you on the right track with a good overview with some really useful concepts that will set you right for how to build financial freedom in ten years or less us have a great weekend. Everybody I'm back with you on Monday morning with an exciting announcement. Be Back with me early Monday morning.

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