0:14 hello and welcome to trust and Estates weekly I'm your host Kevin bemel and we're here every Monday morning at 10 o'clock uh Pacific time I should say and 1:00 on the east coast and we talk about all things related to estate planning managing trusts settling Estates and and dealing with probates um both from the standpoint of your personal finances as well as that of professionals who can help you with all of the various um
0:50 matters associated with u preparing um you know preparing for what's going to happen when you're no longer here and um and making sure that you're your wishes are carried out as as well as possible so this morning um I have as my guest David Cotler uh David is is a lawyer and um is best known as the life insurance doctor and uh uh David and I had a had a conversation about this a few weeks ago um really a a unique
1:26 individual um in in the estate planning area and uh and so I I I said to David I have to have you on the show this is these are this is something that people really need to know about and uh so uh so without you know further Ado David first of all welcome to tr trust and Estates weekly thanks for coming on thanks for the invite Kevin my pleasure so let's let's start off with um just talking a little you know most people think about um life insurance as um something they
2:03 get to make sure that if they die prematurely um there will be um some money there to help their um those surviving them their family or or other people um be able to continue their lives um if you would tell us your perspective what what is the purpose of life insurance why should we um even you know deal with it as part of our estate planning um you know as someone who's been involved in in in
2:38 this uh you know particular Financial instrument for a long long time well I that's a it's a short question with probably a lot of answers I think that as I I as I think back to my days in law school we actually had a course in insurance law and the definition of insurance is basically Shifting the risk um that's why people buy you know Property and Casualty Insurance or all the other types of insurance they have to buy with whatever their careers or something is you know here it's a known
3:15 risk because everybody's gonna die they say you know you can't get out of this world without without dying so you know for those that care about their family or care about their community insurance is is an outstanding way to to preserve um the lifestyle and the needs of their loved ones and their community and uh everybody knows you know markets go up and down values go up and down life insurance is one of the
3:53 just the most safest Investments I'm G to call it an investments in a policy if and that's a big if if it's handled properly and um the the way that uh I actually you know got got the idea for the life insurance doctor was after having worked several years with a prominent Estate Planning and tax attorney Legacy planning attorney in the Chicago area and he saw what I was able to do to help either fix it's either fix
4:29 repair replace or sell you know one of those or nothing you know not every policy need needs work so 30% of policies that are out there are okay probably 65 to 70% of policies need to be reviewed because otherwise there will be some probably unpleasant surprises for the policy owners and there's a lot of reasons for that but to go back to the purpose of insurance the purpose of insurance is to provide liquidity that liquidity again could be used to support
5:04 a family where the the bread winner if that's the case is no longer bringing in any income maybe he's not gener maybe the assets aren't what they or H to be sort of the failsafe way to do it is to have a life insurance policy which is funded properly and designed properly that's going to last to maturity maturity being the death of the insured and this is where the huge problem comes in because 90% of insurance policies do not last to
5:39 maturity and people go no that can't be yeah that's that's the statistics and I liken it I sort of made an acronym DOA Deb on arrival for what I see as the three biggest factors in not having life insurance policies last to maturity call a DOA you know D for design flaws how you design a policy is very very important especially for those types of policies which a whole different area of
6:18 of planning goes into and that's for retirement income uh it's become very popular and and for good reason that insurance policies are used to augment retirement income because life insurance has several large tax benefits which no other Investments do the growth inside an insurance policy is taxfree the ability to distribute dollars out of a properly funded retirement insurance policy are tax-free
6:56 the distributions are tax-free h there there are some provisos you know like you you cannot let a policy that you have borrowed money from laps laps means the policy run out of money the policy terminates because that would leave you with a with not only no insurance but a very unpleasant tax impact because the government will view for given debt equates it to ordinary income a lot of people are not familiar with that but that's that's what happens
7:32 if somebody borrows so much money out of a policy that the policy cannot sustain itself or the policy owner is not willing to put as much money in as it would take to sustain it that that leaves a very nasty tax impact again ordinary income for the amount of the debt forgiveness and the insurance carriers are required to notify the government if such if such an event has happened happened where there's been a forgiveness of income so um if we break down the
8:08 purposes of insurance and I'd say the simplest way to do it is two categories one category is going to be for providing estate and tax benefits post death you know that's for in in the bequest area and this is you know um a very very large portion of the purchases are for that purpose the other purpose though is again to augment retirement income because there are all kinds of um people that want to invest and there's all kinds of people selling
8:44 these types of policies we call them ilul or uh indiv individual universal life index universal life and the unique thing about index Universal Life Products are that you have the ability to participate in the market without the market risk that's where a lot of these products have gone recently which is great for consumers again if it's designed properly but it's great because how would you like to have the ability to have what we call a floor guarantee no matter how bad the market
9:22 is or was in any given year you're not going to go below zero on the investment component of your insurance policy so these are in indexed Universal Life they're indexed to the SNP or to any of the other you know um ETFs that insurance carriers are using and they generally have a cap rate the highest you can earn on it but the but the big Advantage is that there's probably a two to three% benefit on an overall return in
9:59 the market if you have floor guarantee versus no floor guarantee so people find these policies which again if if if people have sufficient income and they want to augment for retirement purposes you know a lot of people call it like a Roth on steroids with Roth there's all kinds of contribution restrictions but the Roth does operate in the same way once you get the money into the Roth once you get the money into the policy you have that dual tax benefit of taxfree growth and
10:34 taxfree distribution so it's a very appealing thing and then of course which always happens in the insurance industry people will take a good idea and try to leverage it to make it even better and leverage can make good things good or bad things worse so uh you know if all you have to do is is look at the papers today and see a slew of people that have been sold something like we call Premium financed life insurance where we want to leverage
11:10 that result so we're not going to use our money we're going to borrow money from a thirdparty bank and they're going to fund the policy and the the buildup is going to happen inside the policy because we have this Dynamic where if you design the policy properly there's usually an Arbitrage two or 3% between the the borrowing rates the interest borrowing rates that you would have versus the crediting rates well in the last two or three years we've we've been the recipients of
11:46 some very bad news with in with interest rate increases and that has really thrown a monkey wrench and these types of arrangements and we've had choppy markets so you've had of that perfect store storm where you have a lot of people that entered into contracts to augment retirement income or even if they were they were financing it even just to um for purpose of Estate Planning and liquidity um you have these policies that are what we call underwater so you know we had a situation recently where we had it was a
12:23 very large policy client had a $50 million policy that he had premium financed um at the end of two years he was already $2 million what we call underwater so in other words he had borrowed more money for premiums and the cost of course the cost of interest from the Banks two million in the whole on his program and yeah he was not not very happy and you know part of the work I do as the doctor is to analyze these types of
13:00 situations and we have a variety of third-party relationships strategic relationships and strategies to help people that have problems so we we we partner with a a private Equity Firm that is a huge believer in the efficiency of cash value inside a life insurance policy so that's what I wanted to try to highlight it's like uh the example where a knife okay a knife could save a life if it's in the operating room but a knife could kill somebody if
13:35 it's in the hands of a of a thief or or a robber so it's like life insurance can be fantastic fantastic investment fantastic property or it can really hurt you financially and so my work has been directed you know it's just my nature I like to solve problems for people and in this in this regard for people that if they're listening or they may know somebody that has a situation like this where they've gotten call it upside down call it underwater call it simply they have much more money borrowed out uh than than
14:12 what the what the value is we have what we call a rescue program for these kind of people where we can help them retain a lot of the death benefit they have they're going to have to pay the bank what they're in the hole where you know there's no free lunch but for a relatively small sum of money over and above that we can help them because we we're you know that we have this partner who's a funer that strongly believes in the value of properly designed life insurance and what you can do to generate good returns within the policy
14:47 so long as that policy is funded properly so so you mentioned DOA um as being an acronym for the three um problems with with um with life insurance so D is design what are what are o Anda what are what are o Anda problems then so oh would be the Omission to pay the proper amount of premiums okay okay a lot of people you know like I even have CPA as have said to me well I thought you know once we buy a policy you know we put it in the
15:22 drawer and that's it we just pay the premium every year or we don't have to look at it well you're talking about a financial instrument that has so many moving pieces that is market rate sens interest rate sensitive and market rate sensitive and mortality cost sensitive and uh insurance carrier profitability sensitive these are all the factors that go into how how how a carrier will price their policies and maintain them as they go and every every carrier is different you got some that are A+ and they're really very legitimate in the way they do it and you got some that'll rob Peter
15:57 to pay Paul which leaves the people that are you know not getting the benefit of an increase that they should have gotten or a decrease in some regards because they're trying to buy a new business so the a is a lack of a proper review so we have design flaws we have the Omission to pay the proper premiums and a is is a lack of a proper review why why do you have to do review because of all these multiple facets to an insurance policy and and and and an accurate Insurance review is not the three or four sheets
16:33 of paper they send you at the end of the year which is a very very tiny concise snapshot of a few of the factors that go into how is a policy performing you know to put it in the medical analogy it'd be like if you know you're ready for your top executive workout and you go to the clinic and the doctor say just give me a few drops of blood you know we we'll we'll figure out the rest that's how you want I I wouldn't recommend that as a uh as a health alternative
17:08 so you know to to get the proper analysis what we do is we we require obtaining u a number of what we call illustrations inforce illustration inforce means the policies already enforced now we need to test test how it's how it's performing what happens if this what happens if that where are we at today so it it it takes it takes analysis um and it's it's to be it's the CR it's it's the critical first component toward gauging the health of
17:43 the policy you know an educated consumer is far better off than one that has no idea and you hear stories just every day wow my premiums just went up 30% or I I'm out of cash in my policy how did this happen or you know things things of this nature so um as a public service to a degree you know we offer a a cursory review for policies that are $500,000 or higher and uh we don't charge for that
18:18 and we we will let clients know what the health of their policy is at least a from a you know from a A Brief Review standpoint hey everything is good or maybe you should do this or add this again sometimes probably at least 30 35% of the time there's no major problems with it it's the other ones that have other major problems but we've been able to um I had I had some clients from this attorney that I was working with and they had already put in like close to 200 or
18:53 $250,000 into a retirement policy like what we were talking about and they get they getting ready to drop it because they said it's it's not performing at all the way it was supposed to perform and I said well let's let's get on the phone with the carrier I see some problems with the way it was designed I want to see if I can work with them to redesign the product so that we reduce the amount of death benefit because you're not buying this for death benefit you're the purpose for which you're buying it for is retirement income okay so if you want to
19:29 maximize your retirement income you don't mind reducing your death benefit because what you've done is taken a lot of the costs out of the policy your mortality costs they they go up every year and they can get extremely high well at the end of like let's say less than a half hour we were able to redesign the product to show them where we found literally found I mean we we created a quarter million dollarss of retirement income for them projected on a policy they were going to throw in the garbage
20:05 they going to cash it in they weren't happy and that was what they were going to do so so it it sounds like the the types of policies that that you're finding value in you're talking about things like whole life um universal life variable policies those kind of things where where there's some kind of um value um being um accumulated in the policy um what about something what about term life where you know there's just it's
20:40 really just you know you you you pay your premium and your your life is insured for you know the term of the policy whatever it is 10 20 years um what do what do you see as as um the you know potential problems with with a term life policy um um which which seems like you should just be able like you were saying the account and you buy it as long as you pay your your you know your premiums each year you just throw it in the drawer well so you you bring up a very good point I I was I got on this topic of retirement planning and and whatnot
21:15 but there's a whole another area of work that we do which are called Life Settlements life settlement came about 20 25 years ago some very smart people figured out wow the consumer is really getting sort of cheated because they had no choice if they didn't want their policy anymore the only choice they had to deal with it was turn it back into the carrier that issued the policy that almost be like oh I bought this house 30 years ago now I want to sell the house no you got to sell back to the guy that built it or sold it to the original for
21:51 for like a loss so so this whole industry got developed it's a multi-billion dollar industry today but probably a a tiny percentage of seniors are taking advantage of the opportunity to convert their policies to cash if they're at a certain age and this could either be term policies or permanent kind of policies I'll separate those two issues simple on the term policy side
22:28 there's two things that have to be in place for a Term Policy to have any value one is that the policy itself is convertible to a permanent policy because a buyer who that that's what we're talking about with life settlement these are third party buyers Warren Buffett there's a lot of TV advertising you see for various huge hedge funds buying policies these are the buyers of the policies no one is going to buy a policy that may not last as long as the insured does because then they've
23:03 they've wasted all their money right they policy they know for certain the policy will be there if it's properly funded uh when that when that insured passes away then it's viable that you could sell it so first it's got to be convertible secondly there has to have been a change usually fairly significant in the health of the insured one of the benefits of term insurance for most people that get it is that they buy it with a convertibility feature to it
23:38 which every carrier is different the standard seems to be about 870 you can convert up to sometimes this less if you bought the policy and you're over 60 or 65 when you purchased it you may only have five years but in general 70 or 75 seems to be the Cinderella date where past that you cannot convert it so we had a case recently it was a a friend of a friend and unfortunately um the Mother-in-law had U
24:13 gotten brain cancer and she had a Term Policy a group Term Policy from Walmart actually and um you know so she had paid very very little money into it it was a a Term Policy maybe she had paid $5,000 into it I think it was a $150,000 Term Policy that was able to be converted to a permanent policy well once she once she converted that policy to a permanent policy we were able to get them like close to $100,000 tax-free
24:49 so over half the value you know she had a a two-year life expectancy so you know the buyer you know they they they go by the medical records you know there's no some people live longer despite what the records say and obviously some people die sooner but the standard is they'll they they there's there's a record taking process and there's a report that you have to buy called the a life expectancy report but this was you know like you know very very helpful to them because she had to go into a much higher
25:24 care facility which was six or 7 a month and they wanted they couldn't have her at home she needed the extra care she had this policy it could be converted to cash no tax on the on the sale even though she'd only put in less than $5,000 they they receed close to $100,000 on that so that's an example of how we can find money value in a Term Policy again it's convertible and if the if there's been a health change I Le she had a big Health change M the other
25:59 aspect of settlements is where you have a permanent policy maybe it's run out of cash there's a lot of reasons why people want to get rid of their policies and the it's a staggering amount of of dollars and policies each year that laps that are senior owned where the people don't take advantage of the potential for selling it for money that they can well use you know it's it's a very slow educational process there are are these companies out there that are doing an enormous amount of T TV advertising on it but the but the seller it needs to be
26:35 beware in those situations because the people that are spending a million dollars a week on TV advertising are paying low dollar to the sellers right you know they're not they're they are not setting up an auction process the way a broker does an then buyer is buying for his own purpose so when you you buy something for yourself what do you want you want it for as little as possible right if you're a broker and you're charging a success fee based on success being the amount of cash that you're getting on the policy versus what
27:11 the what the return value would be then you're interested in the highest and the best price so one is buying for himself the other is buying for 20 or 30 or 40 other potential buyers right and that's where that's where people can get caught up in and not being careful about where they go to get rid of their policy if they don't want it anymore if someone sells a policy that they that has um um where where the the money borrowed on the policy basically
27:48 renders the value of the policy zero if they're still able to sell that policy then they're not is it the case they won't be tagged for debt relief by the RS yes wow yeah well plus we have this private Equity partner that will step in and bail people out of loans if the underlying policy is a valuable policy so there's there's you could either get a loan and get out of the problem or you could sell it and get out of the problem and right so even if you get zero out of the policy the tax savings alone could be
28:24 could make it worthwhile it sounds like yeah but you know it generally we'll get them it won't be just like walk away with nothing be walking away with getting rid of the problem and some money in their pocket wow yeah that's that's a great program well we're we're gonna we're going to be advertising it more in LinkedIn and you know we want people to come again if it's if it's they realize you know i' I've had situations where we'll start spending one hour two hours 10 hours 20 I said you know you got to
28:59 pay the hourly charge if we're going to get into this extensive analysis and you want all this but I can I can I can give you 80% of the of of where you sit or 90% of where you sit it doesn't take me that long we we review hundreds of policies and it's on it's on my website lifeinsurance dr.com all they need to do is go there we have a book a meeting we have a calculator that can actually anticipate what the value of a policy if you're looking to sell it is um I should make the statement that
29:36 policies where the insured is is has a has a long life expectancy by long I generally mean 20 years or longer could even some companies are more particular 15 years or longer it starts losing value to the buyer because if they're paying money up front they want to return on their money if they're waiting 15 or 20 years to get their money it depresses the value sure so to to qualify you know a like a sort of just a general guideline are men who
30:13 are you know 73 just for example an older have a policy women that are maybe 77 because women you know tend to live at least four years longer than men right you know um and have a policy they they're sort of have a good chance of having some value somebody's 50 or 60 that's in good health no that's not going to have a settlement value they may qualify for a loan program they may qualify for a rescue program but that's what we want to be I want to be a provider of a variety of services to deal with whatever the issues that may
30:50 exist are great great well the the the half hour unfortunately just zoomed by we're actually we're actually over time so um you know we I'll have to have you on again to to talk some more about this there's obviously we've just kind of Hit the the the surface here but there's there's there's much more to this so so David thanks so much for for coming on the show I appreciate it very much um and um you mentioned your website um um it's Insurance life insurance dr.com yeah life insurance spell that
31:26 life insurance dr.com okay and I'll put a link to your um website in the show notes so for those of you who are watching whether you know live with us now or or you you you know you're watching it recorded if you look down into the show notes you'll see a link to I'll put a link both to David's um LinkedIn profile but also to his website where you can go and you can get information about how um David can help you with your with your life insurance policies so um dve David thank thank you very much for joining me today
32:01 I'm going to have you um hang tight while I just kind of wrap things up here and we'll we'll we'll talk after I um take us off live so that's our show for today I thank you very much for joining us uh tomorrow 10:00 a pacific time is my show business lessons from the military we're going to be continuing our discussion about applying the rules of military intelligence to our professional lives um we're and we're going to be talking about uh what is it um boy I forgot forgot what the specific
32:37 topic is but if you um if you if you go to um our our Eventbrite page again you'll see the links in the show notes um you'll you'll see what the specif specific topic is um for tomorrow and then on Wednesday is again at 10: a.m. all our shows now are at 10 o'clock in the morning so you can visit us at the same time each each morning so my guest is William Elkins ivth and he's gonna talk about how he parlayed being a an Uber driver into starting and running his own
33:14 private car service so that's people making money 10 o'clock uh Pacific Time on Wednesday and then of course seven days from today we'll be back for the next edition of trust and States weekly so thanks again for joining us wishing you a wonderful rest of the day and looking forward to seeing you later this week signing off as I always do Marie you are my bell thanks so much folks