Ep 106 – Life Insurance’s Place In a High Inflationary Environment | with Chris Reid

The news abounds about high inflation, high interest rates, and everything going up, up, up. Some assets thrive in this environment. Others fade away. A well diversified portfolio rides out times like these very well.

Adam Schroeder talks with Chartered Financial Consultant Chris Reid about how investors can utilize index universal life insurance in their portfolio to both protect their family and give themselves an asset that can be beneficial for future investing.

Learn more about Chris Reid on our Team Page HERE

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Transcript:

Adam
Hey Rent To Retires. That’s Adam Schroeder here with another episode and we are once again joined by our life insurance extraordinaire. This is Chris Reid is a chartered financial consultant. And we are here to talk about the sexiest subject around that is life insurance. Thanks for joining us again, Chris.

Chris
Yeah, no problem. I do know that little boys the world over don’t dream of being firefighters or jet pilots. Mommy, mommy, life insurance man. How do I break in?

Adam
[laughs] I can’t tell you how many times my kids have come up to me and said that, that’s their plan.

Chris
LeBron James? No. Give me that Life Insurance License.

Adam
You need us some trading cards. That’d be good for ya. Little bubble gum packs.

Chris
[laughs] Yeah, we’re going to stand in line here for a while..

Adam
So we’ve talked before about kind of, you know, in general, investing in life insurance and why it’s a good idea. Just break down for people just kind of as quickly as, honestly as quickly as you can. But just the general terms of how you’re using the, or how you’re helping people use whole life to kind of set themselves up for the future, and then we’ll dive into our topic of the day.

Chris
Yeah, absolutely. Um, so I mean, life insurance is just part of any financial planning component as it ChFC. Actually, like insurance is a component of all my clients financial plan. So I love working with you guys love working with rent to retirees who call everybody’s so open minded, this whole space is full of people who want to get really educated and dig in and find out all these, you know, different strategies to try and leverage and create their wealth, passive income. And it’s just awesome. So I love working with you guys. But my actual nine to five is really money management. And, you know, we dabble in real estate, and not nearly to the extent that you guys do but, but the insurance is an important component. And really, the first and foremost thing is I end up talking to all the reg retires about how we’re going to use it to leverage and be an investment tool that we can take loans out and do essentially, infinite banking is kind of how it’s commonly known. But the very first component is just protection. I have plenty of mutual clients with you guys who call up and they’re like, Hey, that sounds fancy. But I just had a new baby. And if I don’t make it home today, bad things happen to my family’s financial future, because we’re trying to do all these things. I want to buy a 15 a year guys, Cape Coral, you know, houses and just cash flow into retirement. But if I go to get the mail in the mail truck gets me nothing happens not for my wife, not for my two kids, not for my mortgage payment that has to be paid to college, it has to be paid like all that money and everything into the future. So like you said, sexy is not its name, but just the death benefit of life insurance is the first step honestly, and making sure that your family’s taken care of. If you get hurt. After that, then we can actually get very intricate and esoteric and like how we set up the most advanced policies. And that’s everything from like leveraging for infinite banking for buying real estate. To like I play on with some of the older clients that I’ve met with you guys are my financial planning clients, there’s actually like a long term care benefit. So people’s name, needs and their financial position where they are in life really kind of plays into how you tailor each individual specific policy to that person. So I mean, that’s really it fits a lot of different niches. Most money guys like me, we want to tell you all everyone about all our stock picks and how bitcoins doing in our portfolios, and they’re aggressive or money, they’re aggressive and I outperform this other guy, but I’ll tell you there is no product on my Schwab Advisor Platform that I can put into somebody’s portfolio that can do everything they didn’t actually properly structured permanent life insurance policy can do

Adam
You need to go on CNBC and be on those those stock shows with them.

Chris
What’s that, what’s the, “buy, buy buy!” I’m pretty sure being on CNBC means you just help people go broke, but they pay you a paid consultant.

Adam
So speaking of you know, the market, we’ve seen the market have some interesting turbulent times over the past few months, made a lot of money, lost a lot of money, lost more money, lost more money, made a little bit of money. How has has that had any impact on that or so how is the market in terms of the life insurance Investing gone with those portfolios?

Chris
Yeah, yeah, real interesting, honestly, and I preach, diversification is a financial buzzword again watch CNBC, it’ll come out about 15 times, most people think, well, I own Twitter stock and I own Pepsi stock, I’m diversified. That’s not the case, I own Berkshire Hathaway bonds, and I own like the s&p 500. That’s not diversification, all my financial planning clients, I hammer on asset class diversification. Because if you give me a million dollars, I can’t tell you in 30 years, whether the stock market and insurance policy or real estate is the best place to be, you can’t tell me that nobody can tell you that anyone can is lying to you to say something. So my all my financial plans come with, Hey, we’re gonna have money in the stock market in your 401 K IRA, whenever we’re going to probably put money into some sort of insurance product. And then real estate, I’m like, Hey, hit up Zach and Adam and get some of those Cape Coral properties or whatever else you guys are doing now. And like get that going, and why this inflationary period is the perfect example. So forever easy money people bought can borrow when you have easy money, it drives up housing prices really good for the real estate market. So that part of people’s portfolio from an equity standpoint was just crushing. Inversely, right. Increased property prices mean cap rates standard means your cash on cash is gonna be a little bit low. So it does different things. So then economic uncertainty, the stock market is driven by two things fear and greed. Right. So now home prices are going up, everyone thinks it’s 2008, the gigantic sell off, people lose 30% of their portfolio value in the last seven lines. Right. So since we’re talking about the insurance, you know, kind of part of my holds asset diversification platform is very interesting, technically, from the internals, and I call that whole life at the beginning. And I’ll let you get away with that one day, we will do a one day pass where I’m going to finally like kick that dead horse one time until it’s finally gone. But Indexed Universal Life, which is the one you actually want. The cap rates, the participation rates, the spreads, all the things that increase the amount of upside potential there is based on market returns, they actually do much better in a higher interest rate environment. So holistically, higher rates, real estate was the place to be I will tell you from my own personal portfolio, real estate was the place to be for the last five years, really, I mean, let the last two years were crazy. But even before that, it was it was pretty darn good. Well, now, I will tell you, again, from personal experience, our real estate portfolio is still fine, but it’s not what it was in the last two years. But now, whereas life insurance policies, the upside have lagged behind because the stock market as well in the last two years, actually since. Right, right at the beginning of the previous administration, was it was fish in a barrel shooting fish in a barrel. All my investment clients thought I walked on water. Well, I was a little bit of what I did, but let’s be honest stocks were going double like 20% a year. So in the last five years, you want to you want the stock market and real estate you always want all three components going so insurance policies for the last five years, my clients are enrolled the S&P 500 did 15% This year, and my insurance policy did 10. And I’m like, Well, Jim, guess what? It’s a well diversified portfolio. Just hold the phone for me for two more seconds until the government screws this up and the S&P 500 tanks, and then we’re going to reconvene and have this conversation, right. So from a technical standpoint, now, your upside is 1015. I mean, I’ve seen insurance policies doing really well. I don’t want to get too noncompliant here but really well.

The second thing is an indexed universal life policy is a complete market hedge. So it’s a life insurance policy. It’s kind of squishy and weird. There’s a lot of different things that it’s doing. But at the end of the day, but it’s what it is, it’s a place to stuff money, where you want it to grow. It’s an account. It’s like a checking account or an Edward Jones account or your 401k. It’s an account you log into with money that’s available to you. The main main difference and where my those insurance. People who took my advice are very, very happy today. For the last seven months, because of the way the money is traded by the insurance companies, they’re essentially just money managers acting on your behalf because of the way they trade. Your account value. Insurance Policies and fixed index annuities do not lose money when the stock market goes down. They make money so over the last five years, they’ve been making money every single contract you’re in Your anniversary, and every single contract anniversary, all your games are locked in. So all my clients whose games were locked in, in 2021, they locked in 2022 turned over, they didn’t lose a dime to the stock market. So those, it’s very odd that inflation can actually be like a really big positive, but in just indexed universal life policy, it’s just a real big positive.

Adam
Nice. So right now, you know, if you have an indexed universal life. And let’s say you’ve got enough in there now, it’s been long enough, you’ve got the assets in there that you want to start pulling out to get real estate, do you know, roughly because I mean, we’ve seen in insurance, insurance, we’ve seen interest rates rising in the mortgage market, have they been rising? For people borrowing against their life insurance? You know, are they still kind of flat? Or what are people seeing there?

Chris
Good question. Actually, you know, we I don’t think we’ve ever talked about this one of the best parts about indexed universal life policy with the correct company. You can’t just go online and Google all you’re gonna get, you’re gonna get sold something from someone who’s captive and just get they get the highest commission for selling that product. Right? Anyways, so that’s another conversation with no grade point, the best companies actually have kept loan interest rates. So my policy, I actually started my policy when interest rates are very low, so their cap was very low on the on my loan, interest rate. So I’m guaranteed in my contract forever, for the next however many years forever mean, I mean, I’m going to end up taking a ton of money out of that thing via policy loans tax free, my interest rate forever, is capped at like four and a half. So if interest rates go to 15 20%, just like the 80s, I’m going to have an account that I can poke around and get some money out of and pay four and a half percent maximum interest on so yeah, great point.

Adam
That’s a, that’s a pretty solid spread there. Fantastic. So what do we need to know? Like when, when it comes to, you know, the getting started? I know, we had one where you broke down numbers a whole lot. And I asked you once, at one point, you know, like, my wife and I were looking to get started, you know, who should we cover? And you said, you know, the youngest female list of the two of us? Yeah. What run through your advice, again, for people who are just starting to get started, you know, we have a lot of people that I’ve talked with who are saying, you know, I don’t know what to do first, you know, there’s properties, there’s asset protection, there’s, you know, there’s everything you can possibly think of get started. So where does this fit in? Is it all at the same time? Is it? Do you recommend doing it kind of after you’ve done something before you’ve done something?

Chris
It’s anyone who’s ever signed on and booked an appointment with me knows this. Here’s a simple question. Why did cursory just give me a half hour long lecture on financial philosophy? Right, like, it’s a bit, but it’s. So I would like just from an accumulation standpoint, what that really comes back to is like, what are we and I just had a conversation with a great lady, she’s in the Navy. And she’s like, Hey, I’ve got all this free cash flow. It’s like seven grand a month. And again, in this industry, if someone looks at you, and they’re like, Oh, you have a you have $182.45 per month to save, you should put $182.46 into this whole life policy. You’re dealing with someone who’s selling you something to pump their commission is not good for you. The real answer is that every financial tool has costs and benefits. I’m not in stock, I told her, you could you could put the money in a taxable investment account. And if the market does 20%, the next year, that’s going to be the best place for you, because then you can turn around and take it back out. So that’s the plus side is the upside of illiquidity. Now, the downside of a taxable investment account is you could put that money in there and we could go down 20% for the next year. Now you lose a bunch, or if it does go up, you sell those stocks, and you go to do a real estate deal with that, but now you have a tax consequence, right? So it’s not that the the stock market is better than the insurance policy. Because in the insurance policy, you get all the upside, no downside and tax free distributions, but the insurance policy takes a while to accumulate cash one thing that people who sign up to come talk to me through our partnership here that they do not like, and nobody likes this, because we’re Americans and we want it now and we want it tomorrow and I want my rent producing incomes and I get it is it’s not a get rich quick scheme. There are marketing campaigns for whole life insurance that are entirely built around the premise of make one premium payment and turn around and take 90% of a guaranteed cash value out, like the next day, or in the first year? Well, if anybody else from any other product told you that you can pay for this product, and I’ll just turn around and give you 90% of that back. If they told you that in anything else, you, you would know that they were telling you snake oil, but these guys put out tick tock videos and like they write books and the whole nine yards and I get it. Um, that’s not even the question you asked me. How did we get here? Oh, what would you do?

Adam
I don’t know if you’d like TikTok too much.

Chris
I don’t have TikTok, this guy from Arizona got sold something on TikTok, and it just stuck in my craw. So really, here’s, here’s what I do with the life insurance as part of a financial plan. Someone comes to me with an excess investable cash, I look at their holistic picture. And I’m honestly, the basic answer is do a savings account, put it in saying you’re not gonna make anything but you’re also not going to pay taxes you lose in the market, right? When if we want to go the safe route with a life insurance, if it’s a bit, I say you pick a number that’s comfortable. And I don’t care. I have a client. Good dude. He was like 23, he was working at Jiffy Lube down in a town south of me. And he’s like, Man, I just got to save 250 bucks a month. And I’m like sign here, right? Just do it. Just get it in the account and get it growing. Because I’ll tell you I did that policy for him like seven years ago. And he’s got like 40 grand in there now that he would have otherwise had because he got it in growing in the stock market got out of his bank account. For if you live right down the street from me sandwich between Microsoft and Amazon. And your spouse is at Microsoft and you’re at Amazon at both companies give you a $50,000 quarterly stock grant and you just literally have 100 grand a quarter to do something with you can do that too. Right? So the not the long answer to your short question is if you gotta get started, you just got to kind of do something and what you initially started with, with all the different things on the buffet is you can’t get analysis paralysis. Do the tax shelter, get your state stuff fixed with you guys buy that property in Florida? Buy, right? Do a fix and flip house hack, live in the townhouse? Put money in insurance policy. I kinda don’t care what you do. But you got to do something, right? Because time time is both your friend and your enemy.

Adam
All right. And that’s a good good guidance from the chartered financial consultant there.

Chris
You got you got me on my soapbox today.

Adam
[laughs] I just brought a step and set it out there and said, Hey, go for it. Right. So is there anything on the horizon? I mean, there’s a whole lot of talk out in the country and in the legislation, legislators about they’re going to change this law, they’re going to do this, they’re going to do that. Has there been any discussion at all about anything that might impact the life insurance policies like what you’re doing? Or is that pretty much something that nobody bothers even discussing? Because it’s so enticing? And so at the top of their mind?

Chris
No, I’m I kind of thought that too. I was like, who in Congress thinks about life insurance, cash value life insurance. So Congress can always change whenever they want, they can rearrange a tax code to say no more policy loans, or whatever I will tell you contract law in this country is is the oldest type of lots of this. It’s very, very strong. So if you enter into a contract now, and this is actually based on historical precedent, because they’ve they have actually changed the policies. So they they’re paying attention, but the last time they changed him caught, these are called contracts of adhesion, once two parties agree to it, not even a third party, not even the government, really, I mean, we can we can always do whatever they want, but they can change it. So but the last time they changed the I’m sorry, the kind of the first time they changed it. It was being seriously abused as a tax shelter, because that’s kind of I mean, I know, Mr. Insurance Commissioner, I only do this product for the death benefit to make sure people’s families are protected. I’m not using it as a tax strategy. But the first time Congress change it, they came out with Tamra tephra. They just essentially what they did was they put goalposts on it. So now we just have to fund it a certain way to maintain the positive tax treatment. So they can change it they have but on the flip side of that the last time that they actually changed the guidelines for cash value life insurance was under the previous administration. And they actually allowed you to put in almost twice as much cash or conversely by half of the death benefit required to maintain positive tax treatment. So the internal charges causing fees and everything actually got slashed, like there’s never been a better time than right now to actually start putting money into one because you can actually put into twice as many dollars of cash per dollar of death benefit which just I mean I switched my own personal policy because of it so yeah they can they can change and I mean finally you got to assume this hello everybody in Congress Bernie Sanders has been there making 100 grand a year for like 117 years and the guy has the guy has three houses you if you think that the wealthy people in this country who pull the levers of power are just sitting there doing a six grand and a backdoor Roth every year? Absolutely not. So will they ever take away their own favorite little play joint? I doubt it.

Adam
Well, there are a bunch of spry young bucks who are worried about the the rest of their life right now. Right?

Chris
You just listen. Two. Two keys to success in this country marry a senator and just drive drunk anywhere you want apparently. Sorry, a little pop culture for the listeners. [laughs]

Adam
[laughs] Well, is there anything else you feel we shouldn’t touch on today? I mean, I think we we hit the high points of what’s going on. But is there anything else you feel the listeners need to know before we wrap it up here?

Chris
No, not really. I think our next interview will be able to get oh, there’s something called premium finance that we’ve been doing lately, which is it’s the wild bands leverage. So maybe we’ll cover that next time but no for now.

Adam
We’re going to talk cowboy investing next. Is that what you’re saying?

Chris
No, I’m just saying like this even this one pushes my like comfortability zone. It’s it’s a pretty interesting leverage tool. I will put it that way.

Adam
All right. Well, I look, I look forward to that. Again, folks. This is Chris Reid is a chartered financial consultant. You can find him and you can book a call with him through the rent to retirement website. Just go to the about a Meet the team and he is right there on that page with his beautiful mug there with a link to schedule a call with him that’s at renttoretirement.com. Really appreciate everybody listening to the show today. Please, if you have any questions, email us podcast@renttoretirement.com. That’s podcast@renttoretirement.com. Don’t forget to leave us a review on whatever podcast platform you utilize. We greatly appreciate everyone who has done it and everyone who will do it. We appreciate you too. And we’ll talk to you on the next episode.



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