TGCI 30: Investment that Survived Pandemics, Civil War, World-Wars, Great Depression and the 2008 Financial Crisis

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Episode 30 – Investment that Survived Pandemics, Civil Wars, World Wars, Great Depression and the 2008 Financial Crisis

Show 30 - Episode Art

Summary

In today’s show, we are joined by Rod Zabriskie and Ben of the Gold Collar Investor Banking team to discuss an investment strategy that is particularly relevant right now in the wake of the coronavirus outbreak. Today we talk about investing in life insurance.

We start this show by discussing the different kinds of life insurance policies. You will learn that not all policies are structured in the same way. Did you know that a properly structured policy can earn you guaranteed returns of 4% and above in these turbulent times? 

Also known as “Gold Collar Investor Banking”, investing in life insurance is safer than keeping your money in a bank. This show will be particularly interesting for investors looking for some good capital preservation strategies.

Tune in for some excellent insights! 

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Pancham Gupta
TGCI 30 - Rod zabriskie
Rod Zabriskie
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Ben Lonsdale
Show 30 - quote art

Timestamped Shownotes:

  • 00:35– How has the coronavirus impacted economic activity and businesses across the world
  • 01:41– How are you managing your financial planning during these trying times?
  • 02:38– Which investment has survived pandemics and even the world wars and the Great Depression?
  • 03:53– Pancham welcomes Rod and Ben to the show
  • 05:20– What is term insurance?
  • 06:14– What is whole life insurance, and how are the premiums structured?
  • 09:26– What is universal life insurance? What are some cons of investing in a universal life insurance policy?
  • 13:07– What is the guaranteed minimum rate for a whole life insurance policy?
  • 14:46– Are returns earned completely tax-free?
  • 15:17– Have insurance companies been consistent in paying dividends?
  • 17:06– How can insurance company afford to pay higher returns compared to banks?
  • 19:10– Do insurance companies invest in real estate?
  • 20:23– Red flags to watch out for when investing in a whole life insurance policy
  • 22:45– Can you generate good cash flow by investing in a whole life insurance policy?
  • 27:50– Pancham shares his own experience of investing in life insurance
  • 29:07– Should you work with an insurance agent?
  • 30:05– Are insurance companies safer than banks?
  • 33:03– How you can make your money work into two different places by taking a loan against your life insurance policy
  • 35:41– What is direct recognition?
  • 37:14– Common riders that you can consider adding to your insurance policy
  • 43:05– Pancham sums up the many benefits of “Gold Collar Investor Banking”
  • 45:10– Taking the Leap Round
  • 45:29– When was the first time you started investing outside of the Wall Street?
  • 47:28– Can you share one investment that did not go as expected?
  • 49:09– What is one piece of advice that you would give to people who are thinking of investing on the Main Street?
  • 50:13– Rob and Ben share their contact information
  • 51:13– Wish to learn more about gold collar investor banking? Sign up for our forthcoming webinar

3 Key Points:

  1. How investing in life insurance can earn you guaranteed returns of 4% and above
  2. Common riders that you can consider adding to a life insurance policy
  3. How can life insurance companies afford to pay you higher returns than banks?

Get in Touch:

Read Full Transcript

Welcome to the Gold Collar Investor podcast with your host Pancham Gupta. This podcast is dedicated to helping the high paid professionals to break out of the Wall Street investments and create multiple income streams.

Here’s your host Pancham Gupta.

Hi, this is Russell Gray, co-host of The Real Estate Guys radio show and you are listening to the Gold Collar Investor podcast.

Pancham: I’m recording this at the end of March. Who would have thought that the entire world would come to standstill in a matter of months? All the economic activity around the US and world has stopped so quickly. If you think about it, there was very little time to react for individuals and or businesses. It was like you’re driving at a speed of 100 miles per hour and suddenly someone pulled the handbrake and floored the brake paddle at the same time and the car started spinning before it came to a halt. That is what happened to our economy, to our busy life, to our kids lives, to small businesses like restaurants, cleaners etc. Most small businesses do not even have liquidity to survive more than 25 to 30 days. We are experiencing a true Black Swan event. It is natural to have fear, uncertainty or doubt cloud our thoughts and judgment. However, it is a great time to start reflecting on different aspects of our lives and see what is really working and what is not working. One such aspect is the financial life. We are somewhat forced to start reflecting on the performance of our investments in the wake of what’s happening. The idea of wealth preservation becomes the top most priority in times like this. We will prevail over the situation and come out from the other end just like we have in the past, pandemics and recessions and crisis and civil wars and all that. How is this recent market crash and the fear of recession making you feel that is very, very important for you to internalize? How is it making you feel about your finances? Make sure you internalize those feelings so that you can plan your next moves to be more resilient. So that the next time when this happens, you are very well prepared. One such resilient strategy that has generated positive returns every year since the Civil War is the whole life insurance or permanent cash value insurance when it’s structured the right way. We discuss just like we discussed in the Gold Collar Investor Banking/show5. There is probably. No other more resilient option for your crash. After all, it survived the Civil War, the world wars, the Great Depression, the financial crisis of 2008 and everything in the middle. I dive deep a bit into the strategy with the examples in more detail in the Ask Pancham episode, show number 23. Now whether you decide to implement the strategy is up to you. However, now is the time to learn about them and see if it is a good fit for you or not. It has been a cornerstone of many wealthy families that I know of. I would highly suggest to listen to the podcast episode number five. To learn more, I have invited Rod and Ben from the Gold Collar Investor banking team to discuss some of the major objections that I have heard about this strategy or you will find on the internet over the years. Welcome Rod and Ben to the show.

Rod: Thanks. Great to be here.

Ben: Yeah, Pancham. Glad to be here.

Pancham: Great. Are you guys ready to fire up my listeners break out of Wall Street investments?

Rod: Yeah, that’s why we’re here.

Ben: We are ready. Let’s do it. 

Pancham: That’s great. That’s great. Last time it was show number five when I had Christian and Rod from the Gold Collar Investor Banking team on the podcast. We discussed the details and the basics of the Gold Collar Investor Banking. Listeners, I would highly encourage you to listen to that show. If you haven’t done so, you can do so by going to thegoldcollarinvestorbanking.com. I have invited the team back today to discuss some of the details again as we are living in interesting times. Gold Collar investor banking is just another name for max funded life whole life insurance policy. What I want to discuss today is some of the background and the structuring details behind the scenes. And why it is a great diversification strategy. However, before we get into those details, can one of you, Rod or Ben explain? What are some of the major different types of life insurances that are out there? And at a high level, what are the differences? Sure.

Rod: Yeah, I’ll go ahead and take that one. This is Rod. But to begin with, I think I think most people would be familiar with term insurance. And that’s your most pure type of insurance. Basically, it’s saying if I die anytime in the next 10 years, 20, 30 years, whatever the term is that we set on that policy, then the life insurance company will be paying out a death benefit to my family or my estate or a charity or whoever I designate as the beneficiary. And pretty straightforward. Right? I pay a monthly or annual premium for that. And I think it’s fair to say that if when I set up the term policy, I’m not planning on dying. The insurance company’s not planning on me dying. And so the premiums are pretty cheap on that those kinds of term policies. When we get into this other side of life insurance, then we have what’s called permanent insurance. And there are a few different types inside of that broader category. One of them is called Universal Life. One of them his whole life. And then inside of those are some additional subcategories. But let’s kind of talk between the difference between those two. Whole life is the first type of insurance that ever was, and way back when it was kind of being developed, there was a problem that they were trying to solve, and that was that, understandably, cost of insurance goes up as we get older, right? And so if I’m 25 years old, and I’m paying for a million dollars insurance, it might cost 50 bucks a month. Whereas if I’m 80 years old, and trying to pay for that million dollars of insurance, it might cost me several thousand dollars a month. Right? And so what they did was to kind of fix that problem. They created whole life. And that was so that I’m paying more than I need to when I’m younger, to build up a cash value inside the policy. So that I can continue to pay the same level amount of premium for the rest of my life. And in those later years, I can pull on this, this cash value to help me cover it as the costs get higher and higher. And so that was kind of where it came from. Then back in the 90’s when income taxes come around, they wanted to give favorable treatment to cash value life insurance because it serves an important purpose. And so that’s where that’s where things started to develop, where the cash value was important and it was accessible and available, but there also became an important task benefit to cash value life insurance. And so it kind of has morphed into some of what we’re going to talk about here in a bit. Where we use life insurance for more than just the pure death benefit reasons.

Pancham:Right. So how long ago was this? Like, when was the first whole life policy written? You know….hundreds of years ago?

Ben: Yeah, it’s been a long time. It’s been around a long, long time.

Pancham: Okay. In 1800s? 

Ben: Even before that.

Rod: Yeah, earlier than that.

Pancham: Oh, wow. 

Ben: Yeah, you must have read about the richest man in Babylon. It actually talks about it there. I’m not sure if I know it was. I don’t know that goes all the way back to Babylon. But, but a long time ago.

Pancham: Okay, got it. Go ahead. So now you were talking about universal life?

Ben: Yeah. And so with whole life, it’s based on a guaranteed interest rate plus a dividend which if we’re using a mutual life insurance company, for growth on what will we use as we are starting to build up inside of the cash value of the policy. And so those were the two options term and whole life for a long time. And then in the late 70s, interest rates were quite high. Right. And so people felt like maybe they weren’t capturing the kind of growth inside of the life insurance policy as they otherwise could if it was built differently. And so that’s when universal life was came around. And, and it was more closely tied to the prevailing interest rates on the one hand, and there was another version of it called variable universal life where it was actually tied to the stock market. And so you would have the equivalent of like a mutual fund portfolio inside of your policy, and it acts exactly like your brokerage account would. So that your cash value, the value of your account would fluctuate depending on the performance of those investments in the equivalent of mutual funds.

Pancham: So can I ask a question? I often hear, you know, negative things about universal life. It gets a bad name. Why is that?

Ben: Okay, good question. I think the main catalyst for that, well, there are probably two main things. Number one is with the variable universal life, you can imagine if the markets going great, then you’re loving it, right? Because you’re capturing more through the market than you could through the types of guaranteed rates that you get in whole life or things like that. But the problem is, the market is not doing so well, then you lose value. And if you start to get in a place where the costs inside the policy make it prohibitive for the policy to even stick around because you’ve lost value and your cash on that account value, then it can get to be a problem. So that’s one thing that trying to tie the market to a life insurance policy that has become a little bit of an issue. The other one is the other extreme where it was called just more traditional universal life. And it was tied to prevailing interest rates. Well, in the 80s, interest rates were quite high. Right? So people might be paying 12 to 15% on their mortgages. And so when a life insurance agent was running a projection on a policy, they might be thinking they were being really conservative to run it on a 10% interest rate. And, and that was, you know, whereas most people were running it on that 12 to 15. Well, I mean, you can see where we’re going here. Right? Run based on 10%. And the premium is set with that assumption. Well, 10% didn’t stick around for, you know, much past 30, 90 days. And so what happened is these policies that were built on that assumption that within 10 to 15 years, all of a sudden, the company’s you know, contacting the policyholder and saying, hey, if you want to fill this policy to stay alive, you need to put more money into it. And they’re like, wait a minute. Wasn’t the deal right out that you gave me a premium and I’ve been paying. That is what what’s going on here. And so there was a big issue that just naturally arose as a result of that. And so they’ve made some changes with the more traditional universal life they have few more guarantees associated with it. And so if you’re paying the premium that was agreed upon, regardless of what happened with interest rates and the death benefit sticks around and some things like that. So it’s better today than it was, but well, we had to go through some turmoil in order to get there in order for both the policyholder and quite honestly the insurance companies to realize the mess that that those assumptions created.

Pancham: Okay. Okay. So we are here going to talk about mainly the whole life insurance which has been there for almost over 100 years. Right. And you mentioned few things there that it has a guaranteed rate? So what is guaranteed rate? And how much is it today, in 2020?

Ben: Now, I’ll take that this has been. So each company really has, you know, they set their own guaranteed rate. So you’ll see different guaranteed rates with different companies. Typically, you’ll see it right around 4%, which is what is pretty common out there. So you have a contract. You will get a guaranteed rate that you’re going to get within your cash value between you and the insurance company. And then, of course, on top of that, you then have the dividend which is then paid because you are a shareholder in the company because these are mutual life insurance companies. And then that’s where you get the return. The total return that we’ve talked about in the past, right? So, guaranteed minimum rate which is 4%, like you said, and then there is some dividends. 

Pancham: So overall, it comes out to be on average…in last couple of years at what number, like 5%-6%?

Ben: Yeah, so you’re looking at, you know, 6%, which is what some are doing right now. Some are a little higher, some are a little bit lower. They set that that dividend rate annually. So at the beginning of each year, that dividend rate is going to pay for the, you know, for that entire year. And then each year resets. They can change it. The companies that we work with really changed those very rarely. I think the last time there was a change, I think we had like eight or seven years, and then they made a small adjustment. So it’s not common that they change that dividend.

Pancham: Got it. So this is also tax free. Right? Both the guaranteed minimum rate and dividend that you get on top of that. 

Rod: Yeah, as long as long as it’s handled correctly. So I want to just throw that caveat in there. Because, yeah, correct.

Ben: Yes. The idea is that it’s after tax dollars going in and then anytime we access money after that, that it’s tax free. Coming to us, but we have to do it in the right way or else it could become taxable. Correct? 

Pancham: Correct. So for how long this you said that it’s contractually guaranteed right to be minimum 4% for how long these companies have been paying this dividend? 

Ben: Oh, some of the companies that we work with…. 1849 I think was the first dividend that they had paid out and haven’t missed since. So, and that’s going to be consistent with because there are there are a lot of different companies that we could consider. But the only ones that we’re willing to consider those that have been very consistent paying that dividend are very strong financially.

Pancham: So basically these companies have been paying this all through the different downturns like the 1929 depression to the world war two or even before that Civil War. Even civil war and then 2008 crisis and 2001 .com bubble. All of that, right? They’ve been paying this all through that and they’ve never missed a payment. Is that right?

Rod: Yes. Yep. So that their dividends going to fluctuate. So like Ben said around six. Some of the companies are as low as five when you combine the guaranteed four plus the dividend, that’s where they are currently. 

Pancham: Right. 

Ben: So that’s going to fluctuate and it’s lower now than it than it was and, and that’s because interest rates have been low for so long.

Pancham: Right? Yeah. So that brings me to the next question. And you’re kind of hinting at that like before the rates were high and now the rates are low and this has gone lower. One question that you know, I get a lot is that how are these companies are able to generate rate of 4% or and then on top of that, the dividends that they are able to generate given that 10 year Treasury floats around one to 2% and, and the banks where they are keeping their money is giving them you know, whatever, like 1% and online savings account 2%?

Yeah, yeah, it’s a fair question. And really, it goes back to just the nature of what these companies are, though. For example, let’s say we’re signing up a new person that’s 40 years old on one of these policies. And it’s meant to last as long as he lives, right? Whether it’s 40, 50, 60 years, regardless. The right policy is going to be there. That means the insurance company has to be ready to pay out the death benefit at whatever time that is decades later. And so they have large amounts of reserves that they have invested in places to plan for these long term commitments that they’ve made. And so they can participate in the types of investments that use individuals couldn’t. 30, 40, 50 year-types of bonds and notes and those kinds of things. And so, quite literally, even today, these insurance companies have on their books things that they were taking out in the 80s when interest rates were high. Right? And as they’re replacing those. Then that’s why you see the dividend rate slipping over the last 10, 15 years as interest rates have been low. Right. But still, you know, to think that they’re continuing to pay 5 and 6% per year. And even given the recent interest rate situation is pretty impressive, right? 

Pancham: And, also on top of that, being an apartment syndicator myself, I know we don’t do this, but I know these companies also go on the debt side and give out money and invest the same dollars in like commercial real estate, and they’ve done that for many, many decades. 

Rod: Yes, and, you know, and they might be, you know, getting very, very high dividends or cash flow from those properties, which is one of the reasons they are able to pay high dividends, right? 

Pancham: So right, yeah, absolutely. If you go into any of the big cities, you’ll see some of the high rises have the insurance company names on them. New York Life or you go into Cincinnati, and they’re three or four big life insurance companies there. 

Rod: So yes, real estate. Absolutely.

Pancham: Got it. Got it. Okay, so I want to cover one more question that I get a lot, which is, you know, if you go on internet and you just Google a whole life insurance policy or permanent life insurance or any of these things, you’re going to get so many negative reviews on that and most common term over there is that, you know, buy term and invest the difference. And a lot of my listeners are, you know, in their 30s, mid 30s and 40s. You know, we’re searching for these things and you know, when they listen to a show like this, and they go on and then and search for this policy they get that, you know, everyone is suggesting buy term and invest the difference, right? So that advice is good for some people and not good for other people, right? But when you go on these websites, it’s generically given out to anyone who’s searching. Right? So what are your thoughts on that?

Ben: Let me give my thoughts and then and then I’d love to hear Rod’s, but part of it is that there’s actually more than, you know, one way to write a whole life insurance policy here. You know, with our company, we write whole life insurance policies with a laser focus and a design around alternative investments and utilizing the capital. Like Rod said in the beginning of the show, that we’re using that for investments, we’re using that money, you know, to take out and utilize what people have probably experienced when they see that online. What they are, where they are coming from is, you know, those are probably whole life insurance experiences where they’ve written whole life insurance, or the sole purpose of death benefit. So you don’t get a lot of performance. You don’t have a lot of access to your cash value because all that cost is going into a large death benefit. Now, that agent is just doing what he thinks is best. He’s trying to give you a very large death benefit at the, you know, at the end of the day. And so you’re paying a lot of money for that. And so, yeah, if you compare something like that up against, you know, most investments, you know, you are going to say, you know, don’t put your money there. It doesn’t perform well and you don’t have access to it. You know, all the things that might be wrong with a “vanilla whole life insurance policy”. And it’s just has to do with the expertise of the agent that you’re working with and what you’re trying to accomplish. And it can be much different.

Rod: Yeah, exactly.

Pancham: Got it. Got it. So in other words, what you’re saying is, and Rod, you can chime in after that, like, basically that advice is correct, depending on how the policy is structured, but the way you guys structure it is in a completely different way and especially for people who are making, you know, high incomes and they are trying to use this as a vehicle…as a store of value or a magic bank account, they can leverage it in a much different way. And for them, it could be a very good option versus for others. It may not be when it’s structured differently.

Rod: Yes, absolutely. Right. That makes a big difference. And then I think another thing that happens is there’s a fundamental difference in the mindset of somebody who has the focus on investing in Wall Street in 401K’s, IRA’s, you know. All those kinds of things that are just tied in with the market versus the mindset of the person who is in the alternative space. And, and so what we see is we actually get the privilege of watching this transformation of people who have been in the more traditional investment side. And all of a sudden their eyes are open to these other possibilities of investing in real estate or businesses or notes or other things. Cash flow types of investments. And it becomes this mind shift, because what happens is when you when you start to deal in that world, then cash flow becomes a huge piece of what you have to manage. And so what we’re…what we’re doing here with this Gold Collar investor banking strategy, is helping to solve a specific issue that most of America doesn’t have…with if they’re investing in this kind of long term, buy and hold in the market strategy. And so when we see that shift when people are moving into the alternative space, they want to solve this cashflow problem, then what we’re doing is we’re giving them a better option than just funneling money through their savings account which is what most people end up doing.

Pancham: Right, right. Yeah, no. A lot of people ask me, is it a good investment? My reply is, you know, it depends on how you use it. It could be a good investment for someone who just keeps money in their checking account or savings account, and doesn’t do anything with it. And for a person who is investing that money, and generating high returns from it either by investing in real estate or notes or what have you, and for him, it could be it may not be as good of an investment. But it’s a good diversification and a good store of value. I view for that person, it being a good savings account….like magic savings account. That’s what I call it. 

Pancham: So yeah, so that’s great. So let’s talk about like, how do you structure this policy for a person who wants to use it as a bank account or a store of value which he can use to borrow against and invest in, let’s say, different things?

Ben: The beauty of the way that we structure it is that it works for all those people. We work with a lot of people who have had large amounts of money just sitting in CDs, or the savings account just for safety purposes. And we end up creating a policy like this, they move it over, and they don’t have an intention of using loans. They like the fact that they can if they choose to, but their plan is not to do that the plan is just to let it grow and do this, you know, get the guaranteed interest, get the dividends over a long period of time create a basically a 5% net return that’s tax free, right? Yeah. And we’re building this policy in the same way for that person as we are for the investor who’s trying to maximize and really enhance the investing they’re doing and so the idea is simple. It’s that we’re going to minimize costs and utilize all the different tools, riders….things that are that are at our disposal with the policy to maximize the cash growth inside of the account. And so it sounds kind of funny that we have life insurance, and yet we’re minimizing the insurance part of it so that we can enhance the living benefits, so to speak, the growth, the cash value, but that’s quite literally what we’re doing.

Pancham: Okay, so let me try to break it down. What you’re saying is that when you structure it, you try to minimize the cost. What that means is that the cost that it incurs the insurance company to write a policy like that, right? You try to minimize that cost by structuring it in a way where the cash value is the highest, but the cost is the like, is as low as possible, as allowed by the IRS guideline right? And then once you get once you hit that number, and that’s how you structure it, because you have maximized the cash value, and you minimize the cost. And then you can just use that cash now for other things. Yeah, and it will start growing at four or five, six%.

Rod: Yeah or put it another way…we’re minimizing the insurance part of it and then over funding it dramatically. In other words, we’re putting a lot more money into the policy than we need to for the sake of just the insurance piece so that we can take advantage of all those things the growth the tax free the access the loans, and with more dollars than just would go in if it was a vanilla insurance policy.

Pancham: Right, now, so I can speak from my personal experience. So since I’ve created this policy, I feel you know, and this crash hit early end of February, early March of 2020. And you know, obviously, I’m I trying to diversify quite a bit across all different investments. And this part of my portfolio hasn’t moved back and still having 4, 5, 6 percent.  Whatever it has to and, and still, you know, and I feel that my money is still there if I need to get it versus having the fear of banks going bankrupt and not getting that money. Although that’s a very far-fetched possibility, but it did happen in 2008. And I know internationally there are…you know, I’m from India. There is this one bank that went belly up actually very, very recently. And people were standing in lines to get their money out and there was a maximum that was put on…so you will not even able to get the money your own money out. Because whatever the bank went bankrupt. So that part actually makes me feel much more protected in a way. That, you know, at least some part of the portfolio is there and structuring is the key there.

Ben: That’s why it’s so important to work with, really the agents that specialize in this, you know, as we strike the balance between how much insurance and how much cash value. And then, you know, we also strike the balance between, you know, taking as much insurance out of it, but then still having enough room to make it efficient for the, you know, for the person doing the investing, and, you know, and having all that experience and how to build that policy. Not everybody knows how to do that, like we do. And so it’s a great benefit. And, and I think it’s important to note, we come across it all the time, or we see policies that have just have not been built well and, and just are not efficient and are just too heavy on expenses and, and just aren’t performing like they should. So I want to make sure that that was that was noted.

Pancham: No, that’s great. Rod, do you have to something to add?

Rod: Yeah, the thing I would add is it kind of goes back to something we were already talking about earlier. But as you were talking through kind of what happened has happened with that bank in particular, but obviously a lot of banks in 2008, 2009…these insurance companies are substantially different in just the way they’re structured. And so working with the right companies….because someone might say, well, you know, the insurance company can go out of business as well, right? And it’s absolutely true. And yet, what we’re going to do when we when we are picking the right insurance company to work with, our first-level sifting is to only work with those companies that are financially strong, were around for a long time, and are consistent in paying a dividend. A-rated companies by these independent rating agencies. And so, to begin with, we’re, from our position, we’re putting people in the right place as far as the company goes as well and where the right design is available to us for those clients.

Ben: Absolutely, because that’s the next level, right? Where once we’ve once we’ve sifted out and there are, you know, 10 to 12 companies that fit that first level, then we’re going to compare all of the products among the companies. And so that when we show somebody an illustration, we’re saying, hey, this is the best company available for what we’re trying to do here.

Pancham: Right? Like, great. So, you know, going back to that advice that you get on the internet, which is applied, supposedly should apply to everyone? Which is buy term and invest the difference. 

Ben: Doesn’t really apply. Just like you don’t have….It is like saying buy a seven-seater car, or you know, it may or may not fit your need. Yeah, but like for who I would ask, you know, for who is that advice for? And you have to see whether it works for you or not?

Rod: Yeah, I think they just need to get informed, right? If you’re going to go to the Chevy dealership and then you’re like, hey, what’s the best car to buy? They’re going to say Chevy cars are the best cars to buy, but you need to go to the Audi dealership and do your own homework and learn for yourself what really falls into that category come and learn about, you know, the different, you know, the different options here.

Pancham: Right. All right now, this is great. So let’s talk about now how once we have set up this account, let’s say we create this policy, and you have some cash value sitting in there. So one way to use it, like you said, people who have it in CDs, and they have an online savings account, they come and put the money here and just let it sit there and then it grows over time, tax-free and they get these dividends. So that’s one way and how, how can people use the power of this on top of this, you know, where we alluded to this before, but like how can people take the money out from this policy and actually create an effect that would make it seem like that my money working in two different places, right? 

Rod: Yeah. So what happens is and what’s unique with life insurance policies is that just by virtue of the fact that I have a life insurance policy, I now have access to the general fund of the insurance company. And so this huge bucket of money is now available. And so what happens is, let’s just use numbers. Let’s say I have $100,000 built up inside of my cash value of my policy, and I want to go and invest in a syndication. So instead of taking the money actually out of my account, what I’m going to do is take a loan against my account. But the money comes to me is actually coming from the general account of the insurance company. And then I take that and I go and invest with it, it creates this cash flow, this return, and all the while my full hundred thousand dollars that I had in my cash value stays there and continues to grow and compound and so quite literally, I am creating value in in two places at the same time. Compounding growth in my policy and growth benefit toward what I’m doing in the investing time.

Pancham: Got it? So when you say…I want to clarify one thing here. So when I take hundred thousand dollar loan against this policy and then let’s say invest in a in a deal which is generating 10%, that’s on that hundred thousand. So I’m making 10,000 a year on that deal, but my hundred thousand is still growing inside this policy in a compounding way. Right. So is that interest? Do I get the same interest on that as I would get? If I would not to take any loan against it? Like do I get the same guaranteed minimum? 

Yes, that’s a good question. And that depends on the policy and the company that we work with. So okay, among the companies there, there’s what they call direct recognition, and then non direct recognition. And so depending on the policy, they will determine whether there’s a difference or not. But getting back to really it I think the core of your question where you were saying, do I still have guarantees and things like that? The answer is yes. So even if it’s a direct recognition, and there’s a little bit of a different way that the company calculates the growth on that portion that’s acting as collateral now against my loan, right? Fact is that I still have those same kinds of guarantees associated with it, right? It’s not that I’m not losing the ability to grow that money by the fact that I have loaned against it.

Pancham: Right. Okay. Can you quickly explain for my listeners and just short sentences, what that means? Direct recognition and non-direct recognition?

Ben: Sure. So direct recognition is saying that because I have a loan, and they have this portion of my cash value that’s acting as collateral, they’re going to draw a link, a direct link between the interest that I’m paying on my loan and the interest that I’m earning to the policy that’s acting as collateral. The non-direct is that there is no link so I can have a loan out. And there’s no difference in the way that the cash value grows, regardless of whether it’s a person that’s acting as collateral or not, I’m going to continue to earn the same interest rate and dividend on it.

Pancham: Got it? Got it. Well, thanks for explaining that. So now, you know, I want to kind of switch gears and talk about some of the riders that we can add on this policy. And I’m sure that because depending on the person, those riders will change, and I just want to make sure that people are aware that they can use this policy when they’re creating it. And if they have those needs, they can easily add on those riders which we can talk about, but adding those riders can increase the cost of insurance and your cash value may go down but nevertheless, you will have all those riders available to you if you need them. So, you know, you and I have spoken in the past about some of these riders. For example, I can add, child, you know, for my children riders related to those or long term disability riders or illness riders. Yeah. Can you talk about some of those common riders that people can add to these policies if they want to?

Rod: Sure. I’ll hit on a few. And then Ben, what if you hit on some of those that that we just add on without having to add cost? 

Ben: Yeah, yeah, that’d be great. 

Rod: The portion that would add cost to…like the child term rider. So for example, if I have an insurance policy, regardless of how much the death benefit is on me, and I want to have a little bit of additional insurance that’s added to it for my kids, then I can add that child term rider so that if heaven forbid any of something happened to any of them, then there would be a five or 10 or 20 things. Thousand dollar insurance payout on that. And so, you know, I might pay an extra five bucks a month or something to have that rider on there. The disability one is interesting because the idea behind that one is if I’m committing to this premium on a regular basis but something happens to me and I become disabled, and I’m no longer able to work and earn the income, then what this, they call it a disability waiver of premium waiver. And so quite literally what’s happening is, is if I qualify, if I become disabled qualified, then the insurance company will cover the premium for me. So that the policy stays intact and continues uninhibited, so to speak, moving forward. So now in the context of the types of policies that we build, we don’t see many people use the disability waiver rider. Right? And the reason is because we’re over funding it already. And so it might be something that would be could be more important in the early years. I’d see before we’ve built up much of the cash value. But by the time we built up much of, you know, some kind of critical mass of cash value in the policy, then that itself could take care of covering the ongoing premium because again, we were keeping it as low as we can to begin with. And so relative to the cash value, it’s pretty small. So that it can take care of itself. If something happens to me and I become disabled. But you know, in the short term, it could be something that could be valuable. Got it.

Ben: So and then we have the one that you alluded to, and a long term care rider. It’s actually called a critical illness rider. And there’s actually no cost for this rider. It goes on for some of the companies that we work with. It just goes on automatically. And what that writer does is it really, it provides an acceleration of death benefit available to The policy you know, beneficiary or owner, excuse me, if anything should happen to them down the road. So if you lose you know any of you, I think any two of your six essential activities…if you if you lose any two of those, then you qualify to then go and have an accelerated access to the death benefit of your policy to use however you want, you know. There’s no restrictions. You can you can build a ramp. You can, you know, use it for the long term care of a caregiver in your home. It’s one of the great things about, you know, that’s seems to be a constant theme with our policies that you know, you really have control the money when it comes to you. So that’s the cool thing about those is that the insurance company is committing to pay out an insurance claim, right? The idea is that it’s death benefit, but for so for them, to make that available, like Ben said, accelerate that toward living benefit. It’s pretty easy for them to build it into their model. And so more and more people are seeing that as different kind of value but potentially better value than the more traditional long term care insurance. Only from the standpoint that I could pay for long term care policy for a long period of time, but I may not ever use it. 

Pancham: Right, right. 

Rod: Statistically about 50% of people who have long term care policies actually use them. And so in this case, I’m paying I know at some point, either I’m going to get the benefit, or my kids are going to get the benefit, but it’s not a matter of putting up money for something that’s just never going to come around. 

Pancham: Right. So any other riders that we can add on or you see the common rider on the policies…. 

Rod: Some of the companies also add one, it’s the terminal benefit rider, and it’s very similar to the one Ben just talked about. But in this case, I don’t have to qualify from the standpoint of those actions. He’s a daily living. If I’m ever given less than a year to live, then I can use the same kind of accelerated death benefit rider. And so, you know, if I want to take my family on a trip or I want to go you know, somewhere else where I can get some alternative care to just try to kick it, you know, I can have access to a portion of that death benefit to do it.

Pancham: Got it. So great. Ben and Rod, this is awesome. So great information again. And I think in the times like this, people start looking at you know, their portfolios and they see what’s happening and people are very heavily invested in the stock market. I always say that diversify outside of it and you know, invest in multiple streams of income and I call this one if you will, and use it in the right way. And for me, I call Gold Collar Investor Banking as a safe store of value or magic savings account with so many different benefits. And to summarize, those benefits are being able to leverage the power of compound interest in the real world. Basically, the money is compounding. And you can use it in, you know, two different places like you explained, Rod, and then all of this growth is actually tax free which is amazing. And then it is creditor protected, which means, you know, the money is protected from the lawsuits against you. But again, every state law is different. And if you’ve taken loan against it, it may not be protected. So you have to see what state you’re in and what law governs that. But nevertheless, that benefit is there for you, you know, depending on the state, and then on top of that, you have all these different riders that we were talking about that you can add which is cherry on the cake, right? If, you know, like in your later years, if you get terminally ill, you can avail some of these benefits sooner. And after all of this wasn’t enough, you also get life insurance from the life insurance benefits. So, Ben, anything I missed in any of those benefits set just talked about?

Ben: Now I think it’s great. And the beauty is that you don’t have to pick and choose right by setting it up in the right way. It just makes all of those things available to us. 

Pancham: That’s great. Yeah, so we’ll come back after this message and move on to the next round. If you want to know the top six reasons on why you should consider diversifying outside of the Wall Street, then you are in the right place. I have written a free report for you. It goes into not just the top six reasons why investing in stocks for one case may not be the sound strategy, but also what are the alternatives. Get your free report today on thegoldcollarinvestor.com/download. I repeat thegoldcollarinvestor.com/download. Let’s move on to the next section of the show which I call Taking The Leap round. I asked these four questions to every guest on my show. I know Rod, you have been here before. So I will ask them these questions and all right. Are you ready, man? 

Ben: Yeah, I’m ready. 

Pancham: Great. So my first question for you is when was the first time you invested outside of Wall Street?

Ben: Yeah. So I think big leap that I did, investing outside of, you know, traditional investing in the market was probably in 2009 when I did an investment in a trucking company that I actually named after myself.

Pancham: Wow, amazing. Yeah, that’s good. That’s nice. What fears did he have to overcome when you did that, like when you invested in that trucking company that you named after yourself?

Ben: Yeah, because my last name is Lonsdale. And so I named it Lonsdale Lines trucking, but I actually  learned a lot. But what it was is, for my career, I worked in investing from very early. You know, I was a stockbroker. I worked with broker dealers. We had a pretty substantial fund of about 600 investors who worked with us. And we were always looking for someone to tell us, you know, where was the right place to put our money, and what was the right company, you know to give our money to and who was, you know, who was smart at running their company so we could invest in it. And, you know, the fears to overcome was, you know, it’s time to it’s time to learn for yourself and make decisions and get some bumps and some bruises. So you actually truly learn about, you know, running your own life and understanding it and so I had to overcome that, hey, I was going to put my own money on the line and dive into, you know, dive into an industry… that I was going to have to become an expert at and if I was going to be successful. So yeah, I had to overcome that. You can’t just look to other people and just continually try to follow them. You had to learn for yourself, I had to learn for myself.

Pancham: That’s great. Great. And so they’re definitely thank you for sharing that. Can you share with us one investment that did not go as expected?

Ben: Yeah, I’ve had I’ve had a few investments that haven’t gone as expected, but that trucking company was actually one. We ran it for two years, and it was going well, but ultimately, you know, we just couldn’t we couldn’t keep up with the drivers that we were hiring. We didn’t have a good, you know… we didn’t have a good screening and hiring process in place. So we were losing a lot of control as these drivers were going out. And also we didn’t understand…what I mean, I won’t get into the details, but we didn’t understand a lot of things about the business and ultimately, you know, had to close the doors. I was glad to close the doors early before, you know, I lost too much money into it. But to this day, I do not regret starting that company, going through all the stress and, you know, losing the money and all that time. I don’t regret it at all, because I learned so much myself about picking what to do with my time and understanding opportunities and understanding the people and the kind of people I want to work with. Yeah, I would say it’s a bad investment but a great experience which  is how I like to look at it.

Pancham: No, that’s a great way to look at it. I always say that you get good seminars. It’s like real life education. You know, people pay college to get college degrees, and this is your way of getting a degree and, you know, I myself have started two companies that have lost money. So I know how that feels but again, I do not regret it. So for the same reasons and that’s great. So my last question then for you is what is one piece of advice would you give to people who are thinking of investing in Main Street that is outside of Wall Street?

Ben: I think the one piece of advice is take it as seriously as your current career, you know, get involved. Learn as much as possible. You know, like, if you’re listening to this seminar right now, or this, this podcast right now, that means you’re doing that and you’re getting out there you’re learning and jumping in and not taking anybody’s word for it. And I think that advice is also the advice that we follow here at our company. Our main objective of everybody that we meet with is education and that they understand and they understand how it fits within their life. So that’s my advice is, is dive in, put in the effort and put in the time, do the math and make sure that you understand it and understand And how it’s going to fit, you know, into your goals.

Pancham: Hey, thank you for sharing that, Ben. Yeah, but Rod and Ben, thank you for your time here and how can listeners reach you?

Ben: Yeah, so they can go to goldcollarinvestorbanking.com where we have a webinar that gets into a little more detail on the specific strategy and so some examples and we’re also available at team@goldcollarinvestorbanking.com if you want to go ahead and reach out and email us we’re more than willing to get together and talk through a person’s situation and give any thoughts. We try to be realistic with it. We’re not real pushy or salesy. In our approach, like Ben mentioned earlier, we’re very much educational, and the way we go about this and so if it’s a fit, and if there’s a way that we can help somebody to enhance what they’re already doing, then then we’re that’s what we’re wanting to do.

Pancham: Thank you both for your time today and very, very timely episode.

Rod: Thank you, Pancham. 

Ben: Perfect. Thanks for having us.

Pancham: I hope that you got some value from the show if you have questions regarding this strategy in particular, I would be doing a live webinar to go into the details and address some of the questions. If you’re on my list, I will send an email with details about the webinar. And if you’re not you can sign up by going to the goldcollarinvestor.com or you can email me. My email is p@thegoldcollarinvestor.com. I repeat p@thegoldcollarinvestor.com. Thanks for listening. See you next week.

Thank you for listening to the Gold Collar Investor podcast. If you love what you’ve heard and you want more of Pancham Gupta, visit us at www dot the gold collar investor.com and follow us on Facebook at thegoldcollarinvestor. The information on this podcast are opinions as always. Please consult your own financial team before investing.




Show 30 - Episode Art

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