Insurance and A Plug for Jacob on His Birthday

My son Jacob just turned 31. He has a very big heart and has had a life that has tested his resiliency in so many ways. As I have written about before, but worth mentioning again, he experienced a devastating stroke at 25 months. May 23, 1995 will be a day that I will never forget, nor anyone else who was there during that heart wrenching day. It turned out he had a rare autoimmune reaction to chicken pox. His antibodies fought the virus so aggressively that a clot formed and cut off oxygen to his brain. His brain started to swell and we didn’t know if he would pull through. After it was clear he would survive I asked the ER doctor how close he was to death and he estimated about 30 minutes. It was definitely a wake up call for his 30 and 31 year old parents regarding the fragility of life. It’s hard to believe that Jacob is now older than I was when he had his stroke and imagining him being a father in the same situation as I was with his own child.

It just goes to show how we have to meet life on life’s terms and do whatever it takes to get through whatever situation is in charge at the time.Click To Tweet

As a result of the stroke, Jacob has no fine motor movement in his left hand and walks with a bit of a limp. These impairments have required a number of painful surgeries over the years. And while we’re at it let’s throw in epilepsy as well and associated seizures. His seizures began to break through when he was 24 and 25 as his neurologist was trying to find the optimal combination and doses of medicine that would be effective and have the fewest side effects.

For nearly two years he couldn’t drive, which for most people would be devastating, but for Jacob was just another challenge to overcome. The blessing in him not being able to drive is that his mother Roneet was someone who would go to the ends of the earth for her kids and she drove him virtually everyday to where he needed to go. This enabled them to spend an incredible amount of time together in the nearly two years prior to her sudden passing in 2018. Ironically, it was just after this happened that he was able to start driving again.

In spite of his physical challenges he still played on the varsity basketball team and he was a tremendous inspiration to his teammates. His love of the game and working with kids led him to pursue coaching at three different high schools over the past seven years or so. He also obtained a masters in sports administration.

Life is always evolving and it’s important to do our best to keep learning and growing. Recently Jacob made a career pivot to the insurance business with a focus on life, long-term care, and annuities. This is going to take some time for him to grow his business but he really is one of the ideal people to work with people in this realm.

Insurance of course is designed to help lessen the financial pressure that comes with death, medical care, and covering life’s everyday expenses. Jacob clearly knows what it means to have very significant medical needs from a young age as well as the pain and devastation that comes with the sudden passing of a parent. He also knows the value of putting money aside and generating passive income in the form of annuities and other financial products. Given this life experience, along with his care and concern for people as evidenced by the extraordinary devotion he showed to his players, Jacob is someone you really want in your corner, particularly when it comes to working with you to help secure vitally important financial protection.

A number of years ago Roneet and I made a financial commitment to the purchase of life insurance policies that had some interesting features that provide for both a death benefit and the opportunity for some of the money to grow tax free at attractive rates after the eight years of making premium payments. Given my particular needs, my representative brought in someone from another part of the country who is an expert in the type of policies we were purchasing. It turned out that he believed in the benefits of the product so much that he has personally purchased over 30 policies. He is someone who has truly been putting his money where his mouth is.

The Power of Life Insurance for Estate Planning

I was so impressed by his knowledge and the power of life insurance for estate planning, investment diversification, tax optimization, liquidity access, and overall financial flexibility, that I did a very deep dive into learning more about it over a period of six to 12 months. I read a number of books that talked about how through different variations of whole life insurance one can become their own banker. This can be done by having their premiums invested to allow for a cash build up tax free and then to either draw from this cash value or borrow against it to access capital when deemed necessary.

Here are a few interesting examples from history about how borrowing from life insurance policies made a huge difference for some extraordinary businesses..

1939, Foster Farms – Max and Verda Foster borrowed $1,000 against their life insurance policy to invest in an 80-acre chicken farm. Today Foster Farms’ products are sold all over the world.

1955, Disneyland – Unable to secure a large enough bank loan, Walt Disney borrowed against the cash value from his life insurance policy to help finance the creation of his new theme park, Disneyland. Today, The Walt Disney Company has an annual revenue of nearly $70 billion.

1961, McDonalds – When Ray Kroc bought out his partners (the McDonald brothers) he used cash value from his two life insurance policies to cover the salaries of key employees. He also used the funds to pay for the marketing campaign for his new mascot, Ronald McDonald. The franchise has since grown to over 37,000 stores in over 100 countries.

1980, Pampered Chef – Doris Christopher used a policy loan of $3,000 to start her new kitchenware company. The company was later purchased by Warren Buffet’s Berkshire Hathaway for $1.5 Billion.

In addition to the policies I purchased in 2015 I purchased a $100,000 policy in 1997. I continue to make monthly premium payments of $125.72. The current cash value as of this writing is $65,217. Although one can argue that is not a great return for the $40,356 I have invested over the past 27 years, let’s not forget that I have the death benefit that goes along with it which is now $154,620. By my calculations this generates an IRR close to 9% tax-free for my estate with virtually no risk. 

Assuming I continue to live for a while, then the cash value should continue to increase which will further increase the death benefit as well as the cash I can access if I need liquidity. The policy has also crossed the freedom line in that the dividends it pays are greater than the premium so that I’m essentially playing with the house’s money. And because I have the dividends reinvested the cash value of the policy, along with the death benefit, increases each year with the former growing more than the latter. For example, in 2023 the cash value grew by $3,979, which is a nice increase relative to my cash outflow of $1,509. And, even better, this is a tax free increase. The death benefit grew by $3,073, which is still a nice gain relative to my cash invested for the year. Any way I look at it, continuing to put more money into the policy makes sense to me given that the return I get via the increase in both the cash value and death benefit is more than twice the premium for the latter and even more for the former.

The point of providing this personal example is to show that I believe that life insurance can play an important role in one’s overall financial picture and that with patience and a long-term horizon it can actually provide a pretty decent rate of return after you pass on while also offering liquidity options during your lifetime.

It’s not easy to talk to someone about their demise. On the other hand, if one were to flip it around and ask the question, what is a more painful subject, your passing or leaving your loved ones financially impaired I think most people would say the latter. As a result, life insurance is vital for most of us. It can help relieve or lessen the financial burden of liabilities and/or recurring costs left behind as well as provide a nest egg for loved ones or cherished organizations. It can also be a very effective estate planning tool.

And when it comes to long-term care we all know how medical costs keep escalating and for most of us Medicare will probably not be sufficient to cover our full medical needs as we age. Of course the best way to lessen the chances of this is to do all we can to stay healthy when we’re younger and build nutrition and exercise habits that we carry with us and utilize for the rest of our lives so that we can have many years of quality longevity. And yet, most of us will still be facing considerable medical costs during the last years of our lives. Here is a stark introduction to a study about end of life medical costs and the importance of long-term care insurance.

Dying is expensive in America.

Healthcare expenditures from all payors (public and private) total $80,000 in the last 12 months of life and $155,000 in the last 3 years.1 Although most end-of-life expenses are paid by insurers such as Medicare and Medicaid, the amount households pay out-of-pocket is hardly trivial. Furthermore, some conditions, such as dementia, are not well insured, leaving families with potentially enormous liabilities. In this viewpoint, we discuss the current funding of end-of-life care in the US. We argue that long-term care (LTC) expenses are underinsured relative to other types of late-in-life care, such as hospital spending and doctor visits. 

The point of all of this is to help convey how important it is to have insurance for life and health, including long-term care. It can provide peace of mind knowing you can handle important financial needs and not be a burden to your children or other family members.

Jacob Carmell – My Shameless Plug

Shameless plug time. Jacob now works for Bankers Life, a very reputable insurer. If you happen to have insurance needs or just want to start the inquiry process I would strongly recommend reaching out to him at [email protected].

Jacob Carmell Bankers Life

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Happy birthday Jacob! I’m very proud of you and wish you the greatest of success in your new career.