 This is Think Tech Hawaii, Community Matters here. And guys, we are back here in Think Tech Studio in Haululu, Hawaii. Thank you guys for joining me. It's episode eight and we still haven't gotten canceled. Can you guys believe that? Episode eight, we still haven't gotten canceled. But we're going to keep it going. I think they forgot that I'm on air, but we're just going to have fun with it. But anyway guys, as always, I don't have a lot of time and I definitely know you guys don't have a lot of time. So we're going to jump straight into it. So one of the topics, the big topic as you guys can see in the description box is going to be about generational wealth with insurance policies. Now with insurance, why do I bring up the topic of insurance, right? You guys heard me recently talk about in the last episode, episode seven, the five ways you can start about investing for children. You know, the shows is that producer Chad Davis said, hey, you know what? I think it'd be a good topic. Let's go further into about insurance because in the world of investing, you hear so many people talk about investing for their future. You hear about stocks, you hear about real estate, you hear about business, but nobody talk about this thing called insurance. And I guarantee you, you would never meet a financial company that doesn't do insurance. They go hand in hand, right? And think about the insurance industry is in 2008, you're talking about the insurance industry as a whole pretty much went unscathed. You're talking about doing a great recession is one of the few industries or the only industry that stayed alive that made it through the Great Depression. Been around hundreds of years in insurance business, right? Some large insurance companies that are out there, they're doing pretty well and they are part of your financial plan as well. So I'm going to be talking about in this episode how to create or how generational wealth can be created via insurance. Like me, if you thought about insurance, you think about insurance as something that, oh man, that's something that older people do. I don't worry about it. I already got that with my job, my employer. I got good benefits, all that stuff is great, cool. But have you ever thought about what if you lost a job? Because an employer and an insurance company usually come up with a group policy to cover its employees. That's between the company and the insurance company. If they decide to drop the coverage or do whatever the case may be, you could possibly lose insurance on that, right? So long story short, what I'm saying is that don't think that you just, hey, I got a good job. I got good benefits. I'm covered. Don't worry about it. Think about it. What if you lost a job? What would happen with that insurance? Let's think about a scenario. Once if you was 18 years old, you started at a job, a corporation called ABC. You work at ABC for 20 years and for some reason at the 20 years, you lose your job. After the 20 years, now you're 38 years old. You go out to get maybe a life insurance policy now because maybe you're married now with kids or whatever the case may be, and you want to get a life insurance policy. Now, who do you think is going to pay a higher insurance policy, the person at 38 versus the person at 18? You want to be the person at 38 because fatality. You know, usually when you get older, you have a greater chance of dying. So that person at 38 is going to pay a higher insurance policy. And God forbid, if you created a, if not created, but if you came up with an illness during your 20 years, you know, let's say a life-threatening illness, that insurance company may not even cover you. Or you could have a hard time getting coverage. Or your premiums could be sky high. So when you're young at 18, young healthy body, you could have gotten pretty early. But anyway, that's just a situation. So that's why it's important. Now we're going to get into why and how you can create generational wealth to the insurance. Now there are a couple of ways you can create, when you think about the concept, the concept of insurance, they pretty much break down the two different types of policies. You have term and you have whole life or permanent. People may call it permanent, whole life, right? A term policy covers you for a particular term. Usually it's 30 years, right? It's usually like the max I've seen and heard of, 30 years. So for exactly what it would say, and it's the cheaper policy, it'll say, hey, from this time into 30 years, let's take it today, I'm 33 years old. So let's say from now into 63 years old, which is 30 years from now. If you die, we will cover you for $100,000. And all you have to pay is $20, $30 a month or whatever the case may be. It's covered me for a term. But once I turn 63 years old, if I'm not dead, the policy laps, right? Which means that I have to go find another policy or whatever the case may be. That's a term policy. That's the end. You pay a low amount. And if you die, if I die something like that, your beneficiaries, the people you put on there, could benefit from that money. Now, the thing about it is, why is this so important? How does this create generational wealth? When you look at majority of the wealthy people, not in America, but I interned at a company that I remain nameless, nothing bad with the company. It's just that maybe the company don't want to be broadcasted like that. But I interned at a company, and this company, all the clients that I saw come in, the clients were pretty wealthy. All the clients, majority of them, received the life insurance policy from someone in their family. Meaning, grandma died, dad, father, somebody died and passed down wealth to them of $100,000, $200,000. That money was passed down to them. They had a high interest, they had a great job, where they was making over six figures. So you combine those two, where the person that makes more, has the possibility to save more. So, don't mean they're going to save more, but they was pretty good with their money, they saved their money on top of the insurance policy that was left behind from their family members. That put them in a great financial situation. So it's a great way of being able to pass down money, right? So having life insurance. So we talked about term. The next one we have is a whole life. What is a whole life policy? A whole life policy does exactly that. It covers you for your whole life. Now, the thing about what's the difference between a whole life and a term, we just said a term only going to cover you for a particular term. A whole life is going to cover you up to like 125 or something like that. Your whole life. The big difference between that is a whole life policy is more expensive in the beginning years especially. Why is a whole life more expensive? One of the main reasons is a whole life carries a cash value. What is the cash value? Let's say in the previous scenario, I only got a 30 year term policy. I may only pay 30 bucks a month for $100,000 coverage. But when you got a whole life policy, I may be paying $100 bucks a month for $100,000 coverage. I got the same death benefit, but one causes me more. Why does one cost me more? Because with a whole life, that 100 bucks that I'm paying, some of that money is going towards my premium and the rest of it's going to a separate account which can depend on how you, what type of whole life policy you have can grow, it turns into an investment. So for example, if I ran into a hard time, I lost my job, I lost my income. I can use money out of my cash value of my whole life policy to pay my premiums to catch me up, right, with my policy. Let's say if I lost my job, I can't pay 100 bucks a month. But throughout the years, I put back 200, not 200, but say if I got $2,000 in my cash value. That cash value can be paid into my life insurance policy until I find a new job, right? So whole life policy covers you for your whole life, it costs more money. Term policy covers you for a term, costs less money. A whole life has a cash value and a term policy doesn't have a cash value. Those are two things, those are two big things that boils down to. Now inside of a whole life you have different types of whole life policy. You have universal, variable and variable universal. Universal pretty much says you pick how much money that you have you want to pay for your policy. Let's say you say, hey, we know what, I only have 200 bucks a month. What can I get with 200 bucks? Assurance company will say, hey, with 200 bucks, I will give you, let's say for 200 bucks I will cover you for $150,000. And for $150,000, I'm gonna cover you for $150,000. And that's pretty much it, whatever the case. You pretty much choose how much money you have to invest. And then they offer the money you have to invest, not to invest, but for your policy they will dictate and tell you how you come about which coverage you can have. Universal, a variable insurance policy is with a variable insurance policy, you have a variety of ways you can invest your policy. And depending on the returns of that goes with your debt benefits can go up and down. What do you mean by debt benefits? Means that if you die, how much money would your beneficiaries be paid from the insurance company? That's the debt benefit. So a variable means that it's accurate, a variable. I have variable ways I can make or lose money with a particular insurance policy if it's a whole life variable. Variable universal, universal variable is the same way of taking the universal, being able to decide how much money you can put in on top of the variable, which means that you can use it as an investment vehicle. Now why are these things even important? Prince, why do I care about this? What would a case mean be? Because this is the number one way wealth is transferred from one generation to another generation. Because the money that is paid into a insurance policy is tax free. For a prime example, you put your money onto the stock market, you make a bunch of money, you go to pull it out, Uncle Sam is going to say, congratulations, I'm happy that you made this money, but now I want my 30%. Versus if you take your money you put it inside of an insurance policy, build up a cash value that can track the index, right? Build up a cash value that can track the index when your parents or when you pass this down or whatever the case may be, it can be passed down tax free. It's the ways you can do it to add it onto a trust where only so much money is paid out to your family. But this is a great way to transfer money to the next generation tax free. Because when you die, your debt benefit goes to the beneficiary tax free. Your cash value can be tax free. You can pay into insurance policy at a young age and end up paying it off. And being able to use the cash value to borrow against. But prime example, it's a concept called private banking. That you probably heard me mention before. You can borrow instead of borrowing from a bank when you want your car or borrowing from your bank when you want to, I don't know, make a big purchase by furniture or whatever the case may be. You can borrow against your own self. You can borrow against your insurance policy, buy what you need, and pay yourself back with interest, right? So that's called private banking. If you went to a credit union and borrow, say, hey, let me borrow $1,000 so I can go buy a PlayStation and whatever the case may be. They're gonna charge you 10% whatever the case may be. That's what the bank does. But you can borrow against your own insurance policy that is tax free and pay yourself back, right? That concept is called private banking. And that's what you can do with a cash value on a life insurance policy. People don't know that because, I don't know. Now, I'm not here to sell you in on anything or nothing like that because I'm here in Hawaii. And yes, here in Hawaii, how do I know this? Yes, I am a licensed life health and accident insurance agent. I went and did it for the education, but insurance is regulated by the state. So if you're in Georgia, you have to go to an agent that is licensed in Georgia. If you were in California, you have to go to an agent licensed in California. If you're in Hong Kong, I don't know. But I don't know what they do overseas. I'm not 100% sure on that. But here in the States, it goes by your particular state that you're in. But this is a way that you can do, like I mentioned last week, investing for your kids. This is a way that you can accumulate wealth for your child and borrow on to pay for their college, to buy them their first car, all that type of other good stuff. Now, one thing that I thought about I wanted to get into was riders on insurance policy. What do the riders mean? What is, how does a rider work? A rider is an added feature onto an insurance policy. I thought insurance policy wasn't worth anything until a person died. I thought, hey, you work on it, and when you die, that's what a person benefited from it. No, if I develop cancer, I can use, I have an accelerated death benefit on my policy. With I was to develop cancer today, I'm on my death bed. I'm saying, hey, well, when I die, my family's gonna get $300,000. I wanna borrow against that while I'm on my death bed. I can borrow against that money to help me to supplement for my pay that I lost, things like that. You can use, those are called living benefits. You can have it where you can have living benefits to where, hey, what if I lost my job? I lost income. I can borrow against my insurance policy until I get back on my feet. But we're gonna go way more in deeper into riders, but we're gonna take a quick break. And you guys stay tuned right here on The Prince of Investing. And we'll be back with more with Generational Well with Insurance. This is Think Tech Hawaii, raising public awareness. Ted Rawson here folks, you're a host on Where the Drone Leads are, weekly show at noon on Thursdays here on Think Deck. When we talk about drones, anything to do about drones, remotely piloted aircraft, unmanned aircraft systems, whatever you wanna call them. Emerging into Hawaii's economy, educational framework, and our public life. We talk about things associated with the use, the misuse, technology, engineering, legislation with- Aloha, my name is Mark Shklav. I'm the host of Think Tech Hawaii's Law Across the Sea. Law Across the Sea comes on every other Monday at 11 AM. Please join us. I like to bring in guests that talk about all types of things that come across the sea to Hawaii. Not just law, love, people, ideas, history. Please join us for Law Across the Sea, Aloha. Guys, and we're back. If you guys haven't, if you guys just tuned in, if you haven't tuned in, we're talking about generational wealth via insurance, right? Now, one of the things who's getting into is the writers. These are ways, these are called living benefits. These are things that you can use while you're living. These are benefits of while you're living. So because people think, hey, when I get insurance policies and I die and my kids or grandkids get it, then that's great, right? But these are policies, things that you can use while you're living. You can have a terminal illness policy. You can have a long-term care policy where if you got sick or you lost your job, lost the income policy, well, you can use your insurance policy. Now, one of the greatest, one of the greatest investors of our time, Warren Buffett, always says he has two rules. Rule number one, don't lose money. Rule number two, see rule number one. The first time I read this, I said, well, that's kind of crazy. How can a person invest without losing money? You gotta be willing to risk, right? Even at the lowest risk possible, I can lose my money. That doesn't make sense. What is he talking about? Then I made it understood as I grew and I learned how the insurance industry was built, right? So, for example, you guys heard me use this terminology for, you can have, we just spoke about an insurance policy, you can have your cash value track a major index. And when your cash value is tracking that index, what you can do is have it that, hey, if the index goes up, I get some of the gains, I get none of the losses. Something you heard coined in Tony Robbins' book, Seven Ways to Match the Money. It's where you get some of the gains, none of the losses. How does that work? For example, let's say if the stock market goes up 30%, your cap could be 12%. So you get 12% of the 30%. But let's say 2008 happens, market crashes. Market crashes, you get 0%. If it goes up, the max you max out at 12, you get 0. So you have a floor of, I'm not gonna lose this, but I gain, right? That's how someone can invest with making money without absorbing the risk inside of insurance policy that is tax free. That's the way that people can invest for their kids. Now, what's the catch is, can anybody do this? No, of course not. The catch is you must qualify for a policy. You must have an insurance company that is willing to invest into you. Because when you buy insurance, you're pretty much saying, hey, I'm gonna die, or I'm gonna have a car wreck, or my house may get burned down. And the insurance company is saying that, no, I don't think you're gonna die. I don't think you're gonna have a wreck. So what I'm gonna do is take this money in, that's how you can qualify. So if you have some type of illness, not everybody may qualify for a particular policy, it depends, right? On the company they want to work with you or whatnot. Now, how does insurance companies make money? For instance, I'm sitting here listening, I can go out here and get insurance policy and depending on how this works, they're gonna pay out hundreds of thousands of dollars. They're gonna give me some of the market ups, none of the market downs. How do they make money? It's a big question I ask. It's the one thing Warren Buffet, it's his biggest investment as insurance. That's his cash flow, he owns Guyco. Now he owns Guyco, but before Guyco, he started as an insurance guy. And how does insurance companies make money? To be honest, it's statistics. Insurance companies know that 98% of the people would cancel their policies, right? They know 98% of people will lapse their policies, meaning they will stop paying on their policies. They will either stop paying on it, get rid of the policy or they'll outlive it. I covered you for 30 years, they just didn't need it. That's what they're banking on. And statistical data shows that 98% of the policies that they take in, they never have to pay out. They know that hey, if I give a policy to a person today, the likelihood of this person keeping this policy for 10, 20, 30 years is pretty slim. So the likelihood that most insurance companies don't pay out. Yes, you have people that die, yes, car accidents happen, but it's a vast majority of people that pay into an insurance policy for years and years and years and never take anything out. For a prime example, let's take me for a prime example, my personal life. So I got a whole life policy years ago, it was a standard whole life policy. And my cash value of my policy, it just sat there. It did nothing, it just pretty much was a savings account. And later on in my life, when I learned about what an index universal life policy was, I learned that my cash value could be tracking the index. Something that it wasn't doing in my current policy. So what I decided to do, I decided to surrender. Surrender means when you close out and you say, hey, I don't want it anymore. I want to surrender the policy. I want to take the cash value and I want to go into a new policy. Now what I did that, the insurance company won. Because guess what, for those four years that I had the policy, I paid into that insurance company, right? They kept that policy. And when insurance companies went every month, when you pay your car insurance, your house insurance, renter's insurance, every month they're taking their money and they're investing it somewhere else. So after four years, I said, hey, I don't want the policy anymore. They said, okay, cool. They just collected premiums that they probably could make interest off of. And that's 98% of the policies that they hand out. Most people won't use them. Even when you go into, when you go to Best Buy, they go in and say, hey, yeah, do you want to cover this for 100 bucks for a year of protection? And you're like, well, I'm buying this keyboard or computer or something. I don't want it to, of course I'm going to buy the insurance. Because they know that only 2% of the people, computer, that they're probably ever pay out on. You know the insurance that you get because you're buying your phone and when you get ready to check out, they'd be like, hey, for extra 10 bucks a month for a year, we'll cover you for whatever the case may be. And most people would be like, yeah, I want that insurance. Because insurance already done statistical data and they know that, hey, it's a small amount of people that will ever utilize this insurance. And that that's why when the recession happened in 2008, that's why when a great recession happened in 1929, that insurance companies were in pretty good hands. Now, the thing about insurance companies, they are regulated by the state. You say, Prince, what if I go out and get an insurance policy, insurance company collapse? Insurance companies are regulated at the state level. When they're regulated at the state level, they much have, they only could take a certain amount of risk. They only could, they have to keep a certain amount of cash on hand. They have all type of regulations. And with these regulations, just like we know with Equifax, and of course they had their issues, when you get your credit score like Equifax, TransUnion, and I can't think of the other big bureau out there, they have bureaus that go around and they rate insurance companies. Standard and poor, being one, AME best, being another one. You have insurance companies that go out there and you have another one called Moody. These credit agencies, they go out and they rate an insurance company of the likelihood of them being their financial stability. So you can go and Google or look up any company that you may have and see what their insurance rating is. See what their rating is. It's the same thing. It's like looking at a credit report. Before you loan money to somebody, you don't know what their credit score is, right? Guess what, you run their credit. You can do that with an insurance company before you even invest with them. You have bureaus out there that go out and look at, because I know some people say, well, what if this happens or what if that happens? What if it goes bankrupt, whatever the case may be? That's the way you can look at the financial stability of a particular insurance company that's regulated at the state level. These are great ways for a prime example. These are another added feature to passing down generational wealth. When someone passes away, this should be a way that you set your family up better than what you receive. Let's say if your grandmother died and you got 500 bucks or you got nothing or you had to go raise money to put her in the ground. How about you stop that with your generation? You say, hey, you know what? I don't want my kids to do that. So I don't have to go out here and give them a $50 million policy, but hey, I can give them a $50,000 policy or $100,000 policy that if I was to die, I can pass something over to them. Another thing insurance companies do is something called annuities. Annuities, they're three types of annuities. You have fixed, variable, and immediate annuities. Let's say if you wanted a lottery. Let's say if you came into a lot of money. Let's say if you, if my father died and he left me $200,000. And now I'm sitting back saying, well, with $200,000, you can buy a car, pay off some debt, do a couple of things. Before you know it, you can have $50,000 in your account and be headed back to work and trying to figure out what you're gonna do. Essentially, you can outlive your money. Annuities are ways that you can not outlive your money. You go in with the lump sum. Let's say if you wanted a lottery. You wanted a lottery, you got $100,000. And now that you got this $100,000, you can go in and say, hey, with this insurance company, you can say, hey, listen, I want to give you a lump sum today, I wanna get paid an X amount of dollars for the rest of my life, hypothetically speaking. Let's say if you walked in with a million dollars, you gave an insurance company a million dollars, they say, hey, if you give us a million dollars, we will give you $5,000 a month until the day you die. You say, okay, great. You give them a million dollars. Now you're getting $5,000 a month until the day you die. Because if you ask me which one I would wanna receive, what I want, 10 million, if somebody walked to me today and say, do you want $2 million a day or $10,000 a month for the rest of your life? Just ask that question. I ask, Rob, what do you got to say about that? If somebody asked you if you wanted $10 million a day, if you wanted $10 million a month, now $10,000 a month for the rest of your life or $2 million a day, which one you would probably take? No, not $2 million a day. You get $2 million a day, that's it. Here you go, $2 million. Now I'm not putting you on the spot. I'm talking to our camera guy. I'm putting you on the spot. I give you $2 million a day, or I can give you $10,000 a month until the day you die. Why would you want to take $10,000 a month? You can't outlive it, right? Because if I take the $2 million a day and I go buy a yacht, a car, especially living out here in Hawaii, get you a nice house, you might be left to a couple hundred. Oh, don't forget about taxes. So you don't even get the $2 million. You probably get like 1.5. I hear to get a decent house in Hawaii, you're gonna spend about $600,000, right? And you get the $600,000, and next thing you know, you could end up having a couple $100,000 and you could be running your money. But what you could do, you can take that $2 million and you have annuities. You have immediate annuities. You have variable annuity and fixed. Fixed being, hey, I want to fix a particular amount. Variable, you have a variable amount. Immediate, I want to get paid right away. You can say, hey, I want to pay this much into this annuity for 10 years and I want to start getting paid for the rest of my particular life. That's the way to think of it, right? So that's another investment vehicle. You can get paid, or you can have your kids being paid for the rest of their natural lives, utilizing annuities, different type of annuities. Now, another thing about a policy, let's say if you pay up, I have a particular insurance policy. I can give my insurance policy to my kid or my son as a gift, or my nephew. I can say, hey, I don't want to pay on this policy no more, I'm dying or whatever the case may be, but if you pay the 200 bucks a month when I'm dead, you can receive this. Or I have paid up this policy and I want to give it to you as a gift, then it comes to me tax-free. Now annuities do have, if you draw them after the age of below 59 and a half, they do have penalties. They're not tax-free like other insurance vehicles. But think about these insurance vehicles you just heard me talk about. Building generational wealth, having money that you cannot live, having money that you can invest without taking the risk of the stock market, all these particular ways. Now Prince, how do I apply this? How can I make this happen? Depending on your particular state you're in. If you want to reach out to me, drop a comment below to ask more questions about it. But reach out to your particular state that you're in to find an insurance agent, a licensed insurance agent. Do your research, look into it, add this to your arsenal. Just don't think about stocks, bonds, and real estate. That's the only way I can invest for my child's future. Insurance is another great vehicle that you can set up your child for the, you can set up the next generation and also set yourself up to where you can be a benefit and not a burden to the next generation. I don't want my family figuring out ways how they're going to bury me, how they're going to carry on. I want them to be, hey, you know what, dad set us up. Our uncle or my husband or whatever the case may be or my brother. But anyway guys, that's going to conclude the show. Of course I would love to talk more on this topic. I hope this was beneficial to you that you took something away from it, that you analyzed and you look into your financial plan and see where does insurance fit into it. Think about your kids, ask your parents. Does your parents have insurance? Does grandma have insurance? Things like that, these are great ways that you can earn generational wealth and pass down generational wealth within your family. Go fund me, it's not an insurance policy, right? So think about it, look into it. Things you know is not that expensive depending on who you are, but add that into there and that's a way to create generational wealth via insurance. Guys, my name is Prince Dax. This is The Prince of Investing, the number one financial literacy show here in Hawaii, episode eight. Don't forget to hit the like, subscribe, comment and share button. Until the next episode, peace, be safe, I'm out and thank you.