Self Insured? What does that event mean...? What Dave Ramsey Is Missing

Should be any second.

Okay, we're on the, we're on the.

Stream yards, perfectly on time. Exactly as expected.

Well, we were trying to get logged on to the tool. So let, I want to address this topic of self insured.

In relation to what? Because we could talk about two different variations. There's like self insured in Nelson's book, which is not what you're talking, not what you're about to lose your mind and like start, start chopping down like trees or whatever on today, in today's rant.

Yeah, I'm referring to what, what I've heard over the years from financial sectors. Yeah. And entertainers. Let's just say, hey, when you get to a point where you're ready to retire, you should have put yourself in a position where you're self insured. And here's what's interesting. Warren Buffett. Warren Buffett famously comments that if you want to become wealthy, do what the wealthy do.

You can attest to that wealthy must all be self insured.

AJ and he shares, he also shared, he was asked this question decades ago. He was asked this question around what should people, whether you know, people are maybe in a lower middle income class or maybe poor. And Warren Buffett also remarked if someone who's in the lower middle class or who's poor doesn't want to be poor or in the lower middle class anymore, begin to do what the wealthy do financially and you will gradually and incrementally work your way into much more abundance financially in your life. Basically. And I heard this was, gosh, it's been just about a week now. I saw on social media somewhere there was a discussion, a conversation and Dave Ramsey was talking about the topic of self insurance and just went on a, you know, just a complete tirade about how you should be self insured by that point in your life. And it just got me thinking because you know, everything begins with the way that we think. So it just got me thinking.

Why.

Would it be that the largest purchasers of dividend paying participating whole life insurance in that age range 65 plus, why would it be that the largest purchasers of dividend paying participating whole life insurance in age 65 plus are wealthy? Wait a second. If Warren Buffett says if you want to become wealthy, do what the wealthy do, then the wealthy, like Warren Buffet, never said that the people who are doing that are stupid. That wasn't part of his frame of reference or advice. So the wealthy who are doing that more so than anyone in that age category are either really stupid or they know something that the majority don't. Which one do you think it is? Self insured. So when you're dealing with someone who's wealthy and affluent, they have more money than they'll ever need, their passive income alone exceeds all their expenses, but yet they're lining up to purchase this form of permanent life insurance. Why would they be doing that?

It's clearly not because they're self insured.

Aren't they self insured?

Yeah. If they have enough revenue and assets and whatever to, to quote unquote, take care of all their final bills and stuff, then yes, there would be, according to the, the, the Ramsey style definition, self insured. Here's the thing that drives me batshit crazy is the idea that you're going to go so first off, the whole premise of becoming self insured rests and hinges on the ability for someone to generate a reasonably consistent rate of return in a very sketchy marketplace. I don't care what marketplace it is. If it's the real estate market, if it's the stock market, if it's options trading, like whatever, pick a market, like I don't care. But because every market is slightly different and the timing is always different, there's no like, there's no just like perfectly steep incline hill that takes you to the promised land. I haven't seen that. Have you seen that one, Jay? That doesn't show up on the, what did Nelson call it? The mountain wave graph of lies. When you look at the index and the stock chart over a period of time, that's what he called the mountain wave graph of lies.

That's exactly what he called it.

And so yeah, sure, if you're for the long haul and you started at blank time and then you went all the way to this time and you looked at the graph and you were at this point and the graph was way up here, you probably did okay. But if you were any one of those other little points in the graph, you might have just been totally hosed. Like a lot of people are finding out right now. There's people who turn 65 this year and just got flipping obliterated in the marketplace and they're sitting there wondering like, huh, my term insurance is about to ride out. I'm supposed to be self insured. Oh, where'd all my asset base goes? It's apparently it went bye bye with the market and people. So there's no more self insurance available. And so now they have, not only do they have not enough for their retirement, they also have, they're fighting against increasing inflation plus increasing interest rates and they have nothing left to leave behind for their families. It sounds like a perfect scenario, doesn't it?

People want to preserve their entire estate value, not a portion of it. And just strikes me if you look at the, just think about this from a completely different vantage point. Take, take the insurance element right off the table.

Okay.

If you're dealing with the current CEO of Apple, Tim Cook, right, that's his name. Apple's got $48 billion of cash this year.

48 billion seems like a pretty good opportunity fund.

And they still finance their day to day operations using someone else's money, aren't they? Self funding. Right. You know Tim Cook, imagine that he sits down with all the key shareholders and the board of directors of Apple and he says, listen, I was listening to Dave Ramsey on one of his shows and he told me that I need to self insure. And so I thought to myself, I'm going to take this a step further. We're going to self fund Apple. We're going to use Apple's own cash to finance the operations of this business. Not only would he not be CEO any longer, he'd probably be committed for a three day, 72 hour psychiatric evaluation by the board of directors to get his head examined. Because that would never make sense to anyone on the board of Apple or any primary shareholder of that organization. And so when you're thinking about your personal or corporate balance sheet and you want to bolster that balance sheet, there would never be a period of time in your life where anybody whose job it is, whose job it is to really serve you. Not someone whose job it is to never commit to or even seek to understand how this works, whose job depends on not knowing how this works. Like you would never experience a period of time in your life where anyone with logic and reason could sit down with you and say, you don't need that. My dad retired and fell into the self insured characterization. His financial advisor told him, you don't need that insurance. Oh, so right. So he surrendered it.

Was it like a separate plan or was it like the group plan carried over from standalone plan?

You don't, you don't need this anymore. And it wasn't a participating whole life policy that you could engineer today. It was the vanilla flavor.

Oh, it was a whole life policy. Yeah.

100% base, no paid up additions, nothing like that. And his advisor said, Bob, you don't need this anymore. You're retired, you got a great pension. Your pension is more than you're spending and yeah, I know you want to go out and buy all those. Like, my dad got into, like a variety of activities all at once. He wanted to be a. He wanted to go from retired on day one to a pro golfer on day two to a professional snowmobile race driver day three to professional angler on day four. So he needed all the equipment and all the stuff to go and do all those things because all he knew how to do was work. So the moment he retired, he filled his calendar with a bunch of stuff that kept him busy all day long. Where did, where do you suppose he got money for a lot of these things? Cash surrender value.

He got the cash render value and cancel his policy.

Yeah. And almost a year to the day.

He probably had a pretty big taxable event when he did that probably too.

And almost a year to the day that he retired, he died. And so you could turn the snowmobiles and the boats and the golf clubs and all that back into cash, but you're not selling it at fair market value. And so that to me was just really bad advice, knowing what I know now. And so it just, it inspired me just to share that today because I agreed with the gentleman who kind of rebutted what Dave was saying. And you know, Dave, Dave, have you ever seen the video of him walking on water? You should, you should watch that. It is, it is a marvel, it is a miracle that he is the only human being on planet Earth that can never be wrong, that can never do wrong, and can never, ever, ever even dream at night of saying that he has something new to learn. He's learned everything there is to know. It's quite remarkable being the only human being on the planet that's done that. And God forbid if you disagree with that human being, but this gentleman berates.

You verbally on his radio program as though you're a bad person. And he's, you know, he's the, he's an angel of some nature. Right. And so it's frustrating that, you know what 30 second sound bites of financial advice is, is like kryptonite to people.

Yeah, I'm just, I've never met, you know, the individual that anointed him as being the smartest financial human being on planet Earth. It's, it's an interesting thing to be bestowed upon you. And what's interesting, even more so I agree completely with the gentleman who rebutted and said so, just so I understand, like, because again, it spoke to the Apple example that I used because, you know, Dave is very much a Proponent of you should never go into debt for anything. If you need to spend a dollar, you save it and spend it and that's it. Like, and he's purchased millions of dollars of real estate allegedly by paying cash, using his own resources, never financing anything good for him. You know, there's, there's different ways to go about achieving a financial objective that just happens to be his way.

Good for him.

But to, to say something that could really, really cause significant lost opportunity and significant financial harm is not only irresponsible, frankly, it's offensive.

And he's told people to get rid of insurance on, over the telephone all the time. Like what if there's whole life insurance or whatever? And like you have no earthly idea if that person's insurable. What if they go and follow your advice and call them, got rid of the policy the next day. Maybe they have a taxable event because its policy is matured enough that it should materialize as a death benefit. Maybe they're uninsurable, they can't get new insurance. You didn't instruct them to go get a new piece, new coverage first and verify their insurability before canceling. The old one doesn't know anything. And a lot of times people, people don't even know what they have. They might tell someone that they have a whole life policy, but how often do we hear that we find out that's not what they have, they have something else. They have, they have the evil step cousin of life insurance or whatever. Like so, so people don't often even understand the insurance that they already own. And there's many reasons for that. Sometimes it's like maybe that insurance company got bought out and sold and it got repackaged by like, like there's lots of reasons why people don't fully know and grasp what type of coverage they have presently. But to go and cancel insurance without having a good assessment, have someone look at the statements, maybe maybe see the details of the policy to get clarity. Like is there some extra riders on there? Is there some things that you should be aware of that you know, either you're entitled to or that you would stand to lose. Like it's, it's severely damaging advice to have to know that people are canceling a policy willy nilly without any, any second thought or consideration at all because of the whims of some entertainer who, who, who generates, far as I can tell, generates his revenue from 30 second sound bites and yelling at people, which is what entertainment is these days. It's like it's like it's like Jerry Springer Financial basically. Yeah. On a radio program. Yeah.

It's just, it's just so crude and not productive and really not helpful. And so I'm just.

There's another really crappy thing about this, Jason. I'm going to jump in here and that's, you know, if you become self insured, the only way that you've done that is if you've put all of your assets are now in taxable accounts for the most part. Like in the period of time that, that's been predominant advice up until recently, at least in Canada, when there's, when there is a, a government sponsored plan that is tax free and it's earning potential, there's a limited amount of money that you can put in that account anyway. But for the, the bulk of time that the idea of this buy term, invest the difference, self insure yourself at the point in time when you, you would be okay to waive goodbye to your, your typical term insurance. That is not, I mean that idea hasn't been around for multiple generations. I mean it's really only 45, maybe 50, kind of 50 years in the making. And so it hasn't even really gone through a proper cycle of lifespan. And now everyone, you're self insured but you put all your, all your money is in most, for most people who followed that advice earlier on, it's in registered accounts which is fully taxable or it's in some other type of taxable account, which means you might have the value that's equivalent to the insurance that you might have had, but you don't have the net value because the net first of all depends on the market condition the day that you kick the bucket, which you don't control. And secondly, it depends on the tax rate at the day you kick the bucket, which you also don't control. So those two items can hack that insurable value down pretty substantial basis.

All good points. And there's a reason why we use fancy words like liquidity. You know, you can, you know, you can hang out with the folks on Bay street if you know the meaning of that word. Like if you, if you just examine your net worth and you look at all of those assets and you examine it closely to say, okay, I know that liquidity means in essence how quickly can I turn this asset into cash? But we expand on that to say how quickly can you turn that asset into cash without, without triggering any tax and without reducing any of the assets value. So if you examine all those assets on your balance sheet Your personal balance sheet and you say, okay, can I turn that into cash without triggering tax and without reducing any of that property's value? If the answer is no, move on to the next asset. Can I turn this asset into cash without triggering tax and without reducing any of the asset's value? It probably wouldn't be surprising to know that of everyone that we've ever went through that exercise with, the result is less than 5% liquidity every single time. And so if you've done a great job, you've worked hard, you provide for your family, you're saving money, you're storing that money inside of a tax deferred tax postponed account and you think you've done really well, understandably so. And then you get to that stage in your life where somebody's indicating to you, boy, you're self insured now. And then death comes and the only way to turn that asset into cash is to trigger significant tax and to reduce the asset value. Whereas the proceeds of the life insurance policy show up as a windfall of tax free money and you haven't reduced the value of any of the other assets in your estate. Somebody should purchase. Whatever Mr. Ramsey's favorite cup of coffee is and sit down and have an adult mature conversation about something as rudimentary as that. Do you believe that the affluent, the ultra high net worth person has any difficulty taking care of a tax bill? The majority don't. Many do. But do you believe that the ultra high net worth, affluent, wealthy individual sleeps well at night knowing that the only way to take care of the tax bill is to liquidate assets by triggering the tax and reducing the asset value? How do you think they became wealthy to begin with? They follow. They follow rules like Warren Buffett sets out. Rule number one, don't ever lose money. Rule number two, don't ever break or violate rule number one. You want to become wealthy? Do what the wealthy do. Berkshire Hathaway loves insurance, creates an enormous cash float so they can go out and buy other sustainable, durable companies. Shocker. Could you imagine Dave Ramsey having a conversation with Warren Buffett about how stupid Warren Buffett is for being so highly insured? I think Warren Buffett would probably die from laughing so hard that nobody would allow that interview to happen. And so it again, it just validates what Nelson told us time and time and time and time and time again. Everything begins with the way that we think. And if you understand the problem, the solution will become clear. And if you really truly understand what's going on, you'll know exactly what to do.

There we have it. And that's how we should, that's how we should end this, with a little, little wisdom from Nelson. And if next time you hear someone mentioning that you should just be self insured, don't be a jerk about it. But feel free to laugh at least under your breath a little bit.

Great comment from one of our, one of the one listeners that's listening here tuning in from planet Earth. Thank you for tuning in. When I read byob, I was so mad that I was following a Dave Ramsey said about whole life insurance. I had two whole life policies when I was in my mid-20s and surrendered them. Oh, that hurts. Just saying that. Although not IBC policies now in my mid-40s, started the process two years ago. All of my family is insured. Congratulations and kudos to you. Kudos for rethinking your thinking and for understanding the problem so that the solution became clear to you and you knew exactly what to do. Kudos to you for doing that.

Another comment. I don't remember who said it, but if everything that you knew turned out not to be true, when would you want to know about it?

As promptly as possible.

Soon as possible. Awesome, man.

Okay, Jay, this was fun today. This was good, good chats. I think we covered a few more yards.

We're trying, we streamed them, we're trying to, we're trying to switch from, from Friday lives to Monday lives. And so since we made that decision, this is the first Monday live that we've been able to do well.

And you know, we should, what we should do is we should and we'll kind of reach out to our community. Wonderful community by the way. We're so grateful for is should we put together sessions that are titled AMA Ask Me Anything.

Huh?

You like that, eh?

Can I get my car towed too? That's different. Ama. Sorry, Got it.

Sorry. Yeah, different organization. Yeah, this is an acronym and the one person tuned in on planet Earth right now of, of the eight plus billion human beings on the planet, we have one person tuned into our Facebook Live right now. This is so awesome. And that person said, yes, we should do that. So we're going to do that.

It's, it's funny. I remember when we first started using Streamyard, it would actually show up like people's names. But now, like for whatever reason, for Facebook, it doesn't really do that.

Well, no, Ken. Ken's here. Hey, we got number two. Ken. Hey, Ken. Stay. Awesome. That's. We spent the whole segment talking about you and you missed out on the whole thing. You got to go back and listen to it now. And Shelly's on. Shelly's awesome, too, by the way. Great musician, too. You gotta check out her stuff. Talented. Like playing the guitar, singing the songs, Jamming. That's what.

Good doing.

That's what we're doing right now. We're jamming.

Yeah, yeah, we're just.

We're just verbally jamming. And we'll play a little air guitar.

My. My air guitar strings were actually broken. I don't think I want to damage it any further today.

All right, well, to all of our listeners, thank you so much. And Ken, seriously, stay awesome. Like, your engagement in the community is excellent. Keep it up. Okay? Have a great rest of your day, everyone.

Cheers. Peace out.