Let's have a show of hands - everybody who's listening today loves to buy life insurance and pay lots of money for it, right? Nobody does. Nobody likes life insurance. They don't like to pay for it. They don't like to talk about it. They get nervous when they know an insurance guy is going to try to talk to them about it.
And so that's exactly what we're going to talk about today. So diving into life insurance, you know, we typically think of life insurance as some plaid guy, plaid-suited guy with the fat tie kind of coming and bugging you and bugging you ‘til, ’til you know, you just give up and you buy something. There's so much more to life insurance than death benefit.
We think about life insurance. We think about death benefit. We we think about premiums. But the reality is life insurance does so many more things. It solves so many more problems than just death benefit for. Let's let's throw out a couple of examples. Let's say you have a business and you have a partner. You're both married and one day your partner up and dies.
Have you thought what would happen at that point? You just now got a new business partner, your ex partner that passed away’s wife. And maybe she's a wonderful person, but she doesn't know anything about your business. But she just became 50% partner in everything that you do, making 50% of the profit, making 50% of the decisions.
She might say, hey, you're going to hire our son who is even less knowledgeable in the business and maybe less capable in that case, life insurance is a great solution to make sure that if something happens to your partner or to you that your spouse is taken care of or their spouse is taken care of, and most importantly, out of the business and you're able to continue without the problems that come up with not having that planning done ahead of time.
So let's talk about some other things on life insurance in the context of what happens if I have a heart attack, the new kind of life insurance can, you know, a lot of times when people have a heart attack and they have to have that income, they may have the best health insurance in the world, but health insurance doesn't pay your mortgage.
It doesn't pay your car payment. It doesn't pay your grocery bill or now your gas bill that's so much higher than it used to be. So even though your medical costs may be covered - but there's going to be lots of other things that it doesn't cover anymore, but let's just assume everything is covered there - you have lots of other expenses that you don't have the income coming in.
So doesn't it make sense to maybe put something in to protect your income? So the new kind of life insurance today, if you have a heart attack, cancer, stroke, Lou Gehrig's disease, a whole list of different things can create income for your family to make sure that it continues. So, again, it's not just a death benefit. It's what happens in the middle and what happens when something happens to you.
You want to make sure you still have a life at the end when you get better. And a lot of people actually, unfortunately, have to go back to work early. They force themselves to go back before they're totally recovered. Wouldn't it be nice to have that time to get through it, to get healed, to get better? So another thing, let's say grandma and grandpa have a beautiful cabin and they want to leave it to the kids.
But one of the kids loves the cabin and one of the kids never goes to the cabin, doesn't want to go to the cabin, always hated going to the cabin. So mom and dad leave and they leave it 50/50 to both of the kids and it needs a new roof. Do you think the one that doesn't want it is going to be amenable to buying a new roof?
No. So it's important to have those conversations and mom and dad really want to keep it in the family so they could take out a life insurance policy and leave them half the amount of the cabin per a life insurance policy to the one that doesn't want it. So the one that wants it gets the it gets the gets the cabin and the one that doesn't want it gets the cash.
Everybody's happy. So let's assume you have an employee that you really, really like that employee and in today's world, today's working environment with employees, it's really hard to keep employees and what do you do to make sure that you can attract, reward, and retain key employees? Well, one of the things, and this is a great tool with life insurance is I can say, hey, Mr. Key Employee,hey, Ms. Key Employee, you're doing a great job and we want you to be here for a long time. If you stay and you do this, you stay till your age, 65. You stay for 20 years. We're going to do this for you. But if you leave, you don't get anything. If you stay, you get this.
It could either be a cash payout, it can be an income, it can be a lifetime income depending upon what the owner of the business wants to do and the agreement that they come up.
So the owner and the employee, the key employee, they create an agreement that if I do this, you're going to do this. And once that happens, life insurance is a great tool to fund that. So the owner puts life insurance - the owner of the business owns the policy. He's the beneficiary - he or she is the beneficiary of that policy.
And at the time of retirement, if the employee does everything they're supposed to do, he can then take income out of the policy and pay it to the employee. If the employee leaves before they've done their part, then the employer gets to keep it and use it for his own retirement. Or he can use that income to help fund another employees retirement.
But he's using the life insurance as the bucket from which the money comes out. That money is generated on a tax favored basis and the money comes out on a tax free basis to help fulfill that employee benefit, that non qualified employee benefit for the employee. And one of the things that makes this really unique and special as well is because something I just said in those words was non-qualified.
If this was a qualified plan, we were using a 401k or something like that. The employer would have to do it for everybody. And because it's a non-qualified plan, he can select which key people get. This plan he can elected to be one. It can be a certain level, but he or she gets to elect who gets the benefit.
So another great tool for life insurance, not just the death benefit, but all of the things that come with life insurance, the tax for growth and the tax free access and the tax free death benefit and the living benefits. All of those things make this a wonderful, wonderful tool beyond just the death benefit.