My content is usually about leveling up tech/infosec careers and helping people negotiate more money.
Your stories about promotions, firing bad bosses, negotiating 5-6 figure sign-on bonuses, and securing >50% salary increases have been some of the proudest moments of this journey.
However, those money conversations are incomplete without learning about how to make your money work for you. We’re also in a pandemic, so we all need to be reviewing life insurance coverage for ourselves and loved ones.
Many of us come from environments where the topic of money is taboo or uninformed because no one in our circle of influence ever went beyond work, pay bills, and survive. There is more to life than that, and you deserve better.
I’ve spent quarantine revisiting my financial literacy skills and goals. Why? Because just like tech skills, there is always more to learn.
I’m not a fan of the Dave Ramsey type of finlit that focuses on scarcity, shaming people about coffee habits, and depriving yourself of small pleasures in pursuit of being debt free.
The good news: there are people promoting the abundance mentality, #StackSeason, and #OwnSomeShit. Shoutout to the GOAT @ayeshaselden!
There’s an unlimited supply of insurance and financial advice out there, but this curated content is about an IG live hosted by Beez @capital_sb
I started following her because she publishes content about tech careers, investing, and building generational wealth. She also wrote the book Financial Starter Kit. I’ve read it + gifted copies to several people, and I highly recommend it (see links at end of post).
The November 20th #FinanceFridays IG Live with @capital_sb and @roncaruthers was timely. They covered the boring but necessary subject of life insurance as an investment strategy.
You know, the strategy your agent never told you about despite collecting premiums for years.
I took notes during the IG live because the way my memory is set up…😊 I also knew others could benefit from the knowledge sharing and having the info easily accessible in writing.
Get your coffee (or other adult beverage) and settle in. The overachiever in me took control of my idea to organize the notes and I ended up with all these details to share (>1k words).
Here’s a recap of their IG live:
Terms Discussed During Episode:
- Term life insurance: a type of life insurance that guarantees payment of a death benefit during a specified time period. (Investopedia)
- Universal life insurance: Universal life (UL) insurance is a form of permanent life insurance with an investment savings element plus low premiums. (Investopedia)
- Indexed Universal Life (UIL) Insurance: Indexed universal life (IUL) insurance allows the owner to allocate cash value amounts to either a fixed account or an equity index account. Policies offer a variety of well-known indexes, such as the Nasdaq-100 or the S&P 500. (Investopedia)
- Split Dollar Life Insurance: employer agrees to loan dollars to an employee…that are invested in a cash accumulation life insurance policy. Unlike a traditional life insurance policy…this approach minimizes policy charges and allows the policy’s cash value to grow as rapidly as possible…the policy cash value can also be accessed by the employee income tax-free. (Financial Advisor Magazine)
- IRS 7 pay rule: The seven-pay test determines whether the total amount of premiums paid into a life insurance policy, within the first seven years, is more than what was required to have the policy considered paid up in seven years. (Investopedia)
- Taxable brokerage accounts: These accounts don’t have any tax benefits, but they offer fewer restrictions and more flexibility than tax-advantaged accounts such as IRAs and 401(k)s. (Investopedia)
Benefits & Use Cases:
- Money accumulates tax free & can be borrowed against tax free in Universal and UIL policies.
- Entrepreneurs use cash value policies to fund real estate projects, equipment purchases, etc.
- Banks use insurance too. In 2017, Bank of America real estate totaled about $10 billion; the cash value of cash value insurance benefits they own was $18 billion.
- If you need an asset, buy cash value insurance. If you need death benefit, buy term insurance.
- Index performs better, but universal provides more predictability.
Financial Aid Impact:
- 529 plan balances count against you when applying for financial aid for college.
- Cash value life insurance doesn’t count against financial aid.
- Families are investing in cash value policies to pay for college because they offer more flexibility to achieve the same goal.
Key Differences Between Cash Value Insurance & Roth IRA:
- Unlimited contributions to cash value policies vs Roth IRA has annual contribution limit.
- Flexibility to move money in & out of account cash value account before age 59.5.
- With index life insurance, you get upside of stock market without downside.
Questions When Shopping for Insurance Agents as Part of Investment Strategy:
- Can you explain max funding?
- Are you familiar with infinite banking principle?
- What do you think about LIRPS (Life insurance as retirement plans)?
- How do I know this is set up correctly?
- Can you show me the policy breakeven point in year 7-9.
- How did they learn about it (they should be familiar with terms and/or resources above).
General Advice About Insurance Products & Agents:
- Don’t rely solely on references provided by agents (perform due diligence).
- Beez confirmed that she uses Ron Caruthers as her agent.
- Look for companies that specialize in insurance as investment vehicles (Ron works with several).
- The higher the death benefit, the higher the cost.
- Commit to a number (premiums & benefit) that you are comfortable with for at least 5 years.
- Good practice to have both term life and an insurance investment vehicle.
- Life insurance cash value is an asset line item in many business loan applications and personal financial statements.
Ron’s Formula for Financial Success:
- Contribute to get 401k match, nothing more (you’re only postponing paying taxes).
- Have an emergency fund.
- If income is stable, get a cash value life insurance policy for accessibility & flexibility.
- If you’re unsure, get a Roth IRA.
- Open taxable brokerage after completing steps above.
- Invest in real estate.
- He advocates 30 year fixed mortgage instead of 15 year mortgage
- Invest the difference in what would have been paid in 15YF vs 30YF mortgage payments
- He demonstrates the math in Twitter threads
- His colleague Ian Wright @eazy253 can advise on how to get around PMI without 20% down payments
Using Universal Index Policy to Invest in Real Estate:
- You can take a loan from it and pay yourself back
- Tax deferred and/or exempt growth
- Deductible contributions
- If you borrow and pay yourself back, your money continues to earn interest
- Exempt from creditors in most states
- Educate yourself about how money works.
- Pursue tax-advantaged investment vehicles first (401k with employer match, Roth IRA, etc).
- Learn how life insurance fits into your overall investment strategy.
- Life insurance offers more than death benefits and can help you reach financial goals as part of investment strategy.
- Invest in professionals to help you achieve your goals (Ron & Beez offer consultations, see their websites for details).
- If you want the flexibility of accessing the funds you invest, cash value insurance policies and taxable brokerage accounts can help.
- Taxable brokerages like M1 Finance allows you to borrow against a percentage of your portfolio once account value reaches $10k.
- Low cost index funds are great option for beginner investors.
- Ron is going to come back on @capital.sb’s IG Live to do a full show on mortgages (date TBD, follow them for announcements).
Resources & Recommended Reading:
- Sign up for a M1 Brokerage account, get $10 just for signing up, and start investing today.
- If you’re new to investing using M1, Beez published a Free M1 Finance Investing Guide
- Financial Starter Kit: Gain Financial Literacy and Avoid the Pitfalls of the American Dream is a book for gaining a complete understanding of financial literacy. It is easy and fun to read with actionable tips for beginners to experienced with managing money. The direct deposit allocation strategy was a game changer for me.
- Interested in learning how to be your own bank one day? The Infinite Banking Concept was recommended on the show.
- Interesting story about how Michigan coach Jim Harbaugh received $2 million pay increase via life insurance premiums
- Here’s a story explaining Why College Coaches Are Being Paid With Split-Dollar Life Insurance. Hint: the tax benefits to secure their wealth.
- @roncaruthers on socials, website roncaruthers.com. He also invited participants to email him firstname.lastname@example.org. He works in financial services and you can see his pinned tweet for a summary of what he offers.
- @capital_sb on Twitter, website capitalsb.com
Thank you again to the hosts for providing such valuable information on this important topic.