Episode 104: Mike Hollister

Mike Hollister is an expert in the field of life insurance, working in well-respected positions his whole career with highly-rated life insurance companies. While designing, developing, and assisting producers with life insurance was a major part of his life, he has now settled down on Virginia’s Eastern Shore with his lovely wife and grandchildren that come and visit frequently. In his partial retirement from the big, he is now helping current insurance producers assist their clients with all of their legacy planning needs.

Transcription

Kenny: Yeah, Hey this is going to be fun today. Welcome to KP's BlackBox. I'm here with one of my great friends in the financial services industry, Mr Mike Hollister and I i got to give you a round of supplause, applause here. Supplause? What kind of word is that? 

Mike: Hey.  [Crowd Yays]

Mike: I haven't heard that much. 

Kenny: Well. How about that? [crowd boos] Your wife asked me to hit that button. So Mike and I go back a number of years. Uh, he's been in the insurance industry for 43 years? 

Mike: 41 years. 41 years this July.

Kenny: You look like 43 years 

Mike: Yeah I do. 

Kenny: but you know, good looking guy. 

Mike: From working with, yeah, working with producers it puts some major. 

Kenny: It puts some years on you, right? 

Mike: Right.

Kenny: Yeah, when's your wife going to trade you in?

Mike: Never.

Kenny: Never? 

Mike: Met her at age 17 and she was 16. 

Kenny: Jeannie, you're awesome.

Mike: She is awesome. 

Kenny: How many years you guys been married?

Mike: It'll be 40 this, uh, this September. 

Kenny: Wow.

Mike: Right? 1980 and yeah, it'd be 40 years. Thanks for asking. I—I didn't even realize that. Yeah, it’s 40 years. 

Kenny: That’s a reminder, you owe me another bottle of Johnny walker for reminding you. Jeannie, I'm helping him out. So, 

Mike: Cheers.

Kenny: Cheers, today this is going to be interesting and fun having a conversation with ya.

Mike: Thanks for the good drink.  

Kenny: Actually, I think you you bought this bottle. 

Mike: I did, and actually I purchased it. 

Kenny: You did? Wow? Out of your piggy bank. 

Mike: Myself. Out of my own.

Kenny: Did you, did you borrow from your life insurance policy to do that? 

Mike: I did. I borrowed from my old whole life policy from way back in the day.

Kenny: Wow. We're gonna have to scold him for that later. Hopefully you're paying that back at interest. We'll talk about that.

Mike: I am not as disciplined as I should be there.

Kenny:  Yeah. Well, look i'm not your priest so you don't have to confess to me today, all your 

Mike: I don't know 

Kenny: atrocities.

Mike: whether I have a priest anymore but okay.

Kenny: We can talk religion today too. 

Mike: I always enjoy that.

Kenny: Yeah, it is. It's a great conversation. So our podcast today, you know in KP's BlackBox. What we're going to do is really try to make this as entertaining as possible and talk about a financial product called life insurance, and that that's one of probably the most misunderstood products on—on the planet wouldn’t you say Mike? It’s, it's up there maybe in the top three of misunderstood products?

Mike: Even if you’re in the business it’s misunderstood.

Kenny: Well put. So, everyone has an opinion about life insurance, from Dave Ramsey to Kenneth Porter and my firm Kenneth Porter & Company, to my friend Mike Hollister here and even off camera we were having a conversation today um about the values of that financial product and the disadvantages of that financial product. So, we're going to spend a little bit of time today just deep diving kind of the KP BlackBox of how life insurance works whether you're renting it aka term insurance or if you're buying it, permanent life insurance. And there’s, there's a universe of products in between those two chassis we'll call them of renting term insurance to owning permanent life insurance and I wanted to bring Mike on because 43 years in the business 

Mike: 41 but i’ll stick around for two more.

Kenny: I said 40. Yeah I don't know what’s going on. What’s—what's wrong Ian?  Ian: Mike, can you bring your mic closer? 

Kenny: Oh, yeah. Yeah, you got to put that thing in your face Mike. 

Mike: Oh yeah sure. Alright sorry. 

Kenny: Yeah, I know that gets a little uncomfortable sometimes having that big thing in your face.

Mike: I don't know I feel like Sinatra.

Kenny: You sing like Sinatra.

Mike: No, not really.

Kenny: No? Alright. So, you know, you just recently retired from a company that in my financial services practice Penn mutual. You were with them for a number of years, a great mutual company, that we like to use with our clients on the financial side but before that, take me back to this young college graduate and kind of how you fell into this crazy world of the the insurance industry?

Mike: I'd be happy to. Well back in 1979, I graduated from a university in Philadelphia called, Philadelphia University, I think now it’s been purchased by Jefferson so I'm sure they're going to rename it and—

Kenny: The university’s been purchased?

Mike: Well they merged with Jefferson Hospital University because the physical. what is it—physician’s assistance has become in vogue

Kenny: Yeah 

Mike: and they had a big program there at Philadelphia university, so they're kind of taking a hospital university and merging it together and yeah it—it’s a really nice school, Philadelphia university, and I think it's a good match with Jefferson so/

Kenny: What did you study? 

Mike: I took business administration and you know marketing, accounting and all those type courses.

Kenny: Yeah. 

Mike: My father was an accountant for at the time it was Ernst & Ernst, now it's I guess, Ernst & Young and so— 

Kenny: That explains a lot of your problems in life. 

Mike: Right, Right.

Kenny: Analyticals. No that's good.

Mike: But my father always told me I should get in sales, because I had so many friends growing up. So I—he really led me into more of—I have an associate's degree in real estate and appraise— 

Kenny: I did not know that. 

Mike: Not too many do. Matter of fact I just told—

Kenny: So, things we find out on podcast deep dive black box.

Mike: I just told my daughter-in-law that yesterday and she did not know that. Because they're getting their home appraised for a refinance and she goes “I did not know that”, and I said, “well I thought I'd be in the real estate world” and I took an associate degree. And it was during the late 70s and the economy wasn't great and my lovely wife, at the time she was my girlfriend, had said “well why work? Why don't you just go for another two years and get your bachelor's degree?” and so I, I went for another two years and I got my bachelor's in business administration. Then came the interview process. I was actually interviewed on Action News in Philadelphia right after I graduated. Because I was one of the first people to walk up and down market street, as a new college graduate, knocking on doors and dropping my resume and they happened to be doing a story that night and someone at an employment agency said interview this kid

Kenny: Yeah 

Mike: and they interviewed me on tv. And so I was right out, you know, right out of college and—

Kenny: We are talking about a time before the internet, aren't we? 

Mike: Oh

Kenny: Mike! 

Mike: 1970. I had I resumes. I had 250 resumes and—

Kenny: Did you have the big rectangular briefcase? 

Mike: I did actually.

Kenny: Flip the little buttons and—

Mike: Well, I didn't have one, I didn't have one right away. But it's funny you mentioned that when I went through—I uh—needless to say I was hired by this company, who was also a mutual company at the time. Manulife Financial out of Toronto, Canada. And I went through a program, I'll go back to the program, but when I left that program and I got shipped out to St Louis, Missouri to become the office administrator there they did give me one of those big square James Bond attache case type looking things as my going away present. But, anyway, I was, I was you know, I got interviewed with them. I went through I think at least four interviews to get the position, because it was a national interview process. That they would hire eight to ten of us throughout the country. And they put you in the biggest sales offices of the Manulife Financial system and you would train there for two years. And then they’d ship you out to an office that needed an office administrator. And I remember telling my mother, you know, I was living at home at the time and I said my interview with this general agent was at 11 o'clock in the morning. So I interviewed at 11 and by 11 after 11, I was in the lobby calling my mother to give her the update.

Kenny: And that update was?

Mike: Well, at the time. That was only in my second interview. I had two more after that. But she said, “what are you doing on the phone? I thought you had an interview at 11.” And I said, “Mom, it's over.” And she goes, “well how'd you do?” I said, “I have no clue. This gentleman asked me,”— I mean he was a big shot in the industry. He—he led the company or that GA led Manulife Financial at the time, nine out of ten years. His office was the size of our home. 

Kenny: Wow.

Mike: He had a his own bathroom. The phone by the—by the bathroom, it was very impressive. All, you know, cherry furniture everything. 

Kenny: And as a young college graduate—

Mike: I was overwhelmed.

Kenny: Awestruck, yeah? 

Mike: and he asked me, i'd say, no more than three questions. And he’s—then after the questions were answered, which I gave him answers to everything, one stumped me. But he said, “okay. Thank you.” You know, “The existing office manager, for him, will give you a call Thursday.

Kenny: Just one of those stoic interviews. Like you’re like what just happened here? 

Mike: Oh, I probably, I was sweating bullets. I just didn't know how—the question that really stumped me, at the time, which maybe would lead into other questions that you might have of me today, is he said “If you wanted to find out information on Manulife Financial, where would you go to get that information?” Well, I prepared a little bit, very little bit, for this interview because I wasn't certain whether it was a sales job or was it a truly administrative job or what, what the role was. And I just remember my father. And this is, he was you know an accountant. And he’d always talk about Dun & Bradstreet. I don't know why. He would say, “Well I did a Dun & Bradstreet on that company.” “I did a Dun & Bradstreet” and I don’t—I mean I know what a Dun & Bradstreet is now. It's like you know Moody's report or analysis of a company.

Kenny: Right. 

Mike: And I said, “well the first thing I’d do, is I’d do a Dun & Bradstreet.” And I think he was impressed by that but I had no clue what Dun & Bradstreet is. Keep in mind I was 22 years old. 

Kenny: Fresh out of college. 

Mike: Yeah and he said, “well, no, I was really thinking where would you look for us, on what stock market?” So I said oh this is a trick question. So I figured it can't be the New York stock exchange, it's got to be the American stock exchange and not knowing it was a mutual company. Because at the time, I didn't know the difference between a stock company a mutual company. 

Kenny: Can you take a minute and tell folks the difference between a mutual insurance company and a stock company? I-i know the answer but this is your test today. 

Mike: Yeah. This is a test because you know, I know the difference, but to try to explain it that everybody would understand me would be. Well stock company is is owned by stock holders.

Kenny: Okay.

Mike: And as the company gets profits and those, a portion of those profits go back to the people that took the stock— 

Kenny: to the stakeholders 

Mike: to the stakeholders. Stockholders.

Kenny: Not necessarily the customer? 

Mike: Definitely not the customer. Okay.

Kenny: Okay.

Mike: I mean because the stockholders wouldn't want that to go to the customer.

Kenny: Right.

Mike: I mean profits—you know—right, so.

Kenny: Understandable.

Mike: And a mutual company is owned by the the policy holders and if there is a profit it comes comes back to them in the form of a dividend.

Kenny: Okay.

Mike: At the time, I mean if there was—

Kenny: Is it just a dividend or could it be like a reduction of cost like your term insurance, helping keep term insurance premiums low? 

Mike: That's a very good question. Yes it could be. Because you do see some of the mutual companies as time goes on and they come out with a a value-added enhancement of a product. They'll go back to previous policies as long as there's not anti-selection, they’ll improve upon that. They might add a chronic illness benefit but the chronic illness benefit might be—they might not do that without some minor underwriting. But, you know, if they improve some mortality rates, they would make that available, if they added a different settlement option. You know, a joint survivor settlement, they would they would give that.

Kenny: And we'll get into that in the show. So I don't I don't want to I'm sorry to disrupt your story but going back, so you're having this conversation with this GA, general agent.

Mike: His name is Len Day, great guy. 

Kenny: Hi Len. 

Mike: Well, he’s long gone.

Kenny: He heard me in heaven. 

Mike: Yes, and anyway he—I didn’t—you know, you probably did a course in college on insurance like you would or at least a chapter. But it really never, if it describes stock and mutual, like most people in America, you don’t didn't really pay any mind to it. So, he did stump me on that. But I think the fact that I do and did listen to my father and he threw out Dun & Bradstreet, I threw that out there and it, and it worked. I got a third interview. I got a fourth interview and the rest is history. I mean I, I joined Manulife Financial in an administrative training program where I went through every aspect of a life insurance office. Now keep in mind, back in the day there was computer punch card systems but there wasn't computers in the sense of of you just had one on everybody's desk.

Kenny: Yeah. 

Mike: So if you had to or you needed a cash surrender value on an existing contract you either called up to Toronto Canada or you you put a what they called a twix a message

Kenny: Yeah 

Mike: off to get the cash value and then two days later the cash value would come back by way of a computer message. 

Kenny: Some of these insurance companies still have it seems archaic systems like that they operate in and— 

Mike: Yeah. I don't think they're quite as bad. Oh we had also had a fiche system where you could, you could take—there would be a fiche

Kenny: Like a fish sandwich?

Mike: and yeah. It's like a fish, no microfiche. That you could go in and see the previous year's cash value.

Kenny: Yeah.

Mike: So that, I was properly trained. They would make us calculate the cash value by hand and then save that for the two days and see if it matched what the corporate head office would deliver to you and then if it was off, you'd have to figure out why your calculation was off. So I used to calculate all the surrender values, loan values, prorated dividends, those types things by hand. So it was a great training and the goal was that once they trained you, they would—they would ship you out to an office a smaller office and you would—

Kenny: So that's why I wanted to have you on the show, Mike, is you you are a, and I say this with all love and due respect, but you're a dinosaur 

Mike: I am a dinosaur

Kenny: in the industry. You're a young dinosaur. You're not, but, and you're fit. I mean, we'll talk about this later but I mean you hike and you run and you want to keep up with your kids and grandkids. Which is awesome. So very fit guy, but, you've been around the industry for a long time and you've seen a lot of iteration. You've seen a lot of change. If you could take, take a couple minutes, where you went through this process with manulife, a mutual company, out of out of Canada that established business in the U.S. and then later became John Hancock? Way, way later. 

Mike: Well Manulife, actually Manufactures Life, marketed themselves as Manulife Financial. 

Kenny: Yeah.

Mike: And then they demutualized. I'm going to say 1998, 1999.

Kenny: And when you demutualize it means they became a stock.

Mike: It became a stock company. They went to all their— 

Kenny: So now they’re in business for the stock holders not the mutual policy holders.

Mike: Right. They sold it.

Kenny: I know I'm putting you in the hot seat a little bit, so. 

Mike: No, they sold, they sold that process and—and there was a lot of reservations about it. They sold that to their mutual holders as it’s a, it's a better thing. It's going to allow them to diversify, grow, acquire business and at the time you know travelers in city corp and all these companies were being merged together and if you wanted to keep up with the the big conglomerates you had to demutualize. And they were very good to their mutual policyholders, in the sense that, they gave a tremendous amount of stock for per, per guaranteed cash value and matter of fact at the time it was in the, um, I think it's the Boston Globe. If I remember right there was uh

Kenny: Zach fact check him on this. 

Mike: No, I think, I'm probably going to be correct. Well, I'm pretty sure I'm correct. At the time, Manulife financial was demutualizing and John Hancock was demutualized and, by the way, at the time mass mutual was even exploring demutualizing. And the insurance commissioner of Massachusetts, why Mass Mutual backed out, they said, “you can either demutualize” I think Mass Mutual wanted to become a mutual holding company. 

Kenny: Okay

Mike: “You can either demutualize or you can stay a mutual company, but we have no mutual holding companies in the state, so you have to do one or the other” and John Hancock decided to demutualize and at the same time Manulife Financial, the operation I worked for in Toronto Canada, was demutualizing. They both happened to be run by D’Alessandro, Dominic D’Alessandro and David D’Alessandro. Yet, they had no family connection. 

Kenny: Interesting. 

Mike: And the Boston Globe, going back to the the answer to what you asked me there was, they put in the Boston Globe that one D’Alessandro was treating their policy holders correctly the other was not. I’m paraphrasing here but 

Kenny: Yeah

Mike: um basically you've got, you've got a fair amount of stock in Manulife Financial per dollar of guaranteed cash value, in your participating whole life. And I funded most of my son’s college education, at a private college, with those stock options. So for, for me it did work out in a sense because of the stock options, that I—that the stock I got in that policy, because, I was a big believer in permanent whole life so. But in the long run I don't think it works.

Kenny: Can we get that recorded again? You're a big believer in permanent whole—wow. 

Mike: Well I mean—I 

Kenny: Because off camera, we were—we were kind of going back and forth on all these different types of products and where they fit and which one's best, um.

Mike: Well I mean, I think, I probably said that previously it changed. Depends on the client. So when I speak with a client for, on behalf of a representative, if I know they don’t have, the wherewithal to pay a whole life premium, but I know they need the death benefit and let's just say it's a a young father of a handful of children. I want them to buy as much term they can afford so at least he's covered. If they are disciplined and have discretionary money and we can, you know, plow it into a traditional whole life. I—i believe in, I believe in that.

Kenny: So I want to come back to your story in a few minutes, but, let's go ahead for the sake of of time and in our podcast today. Let's kind of break down an insurance policy for our listeners. Because what I've found in other interviews when I'm interviewing and trying to do the deep black box dive on other financial products whether it be a mortgage or an investment or an annuity or any of these financial products that are out there that are marketed to consumers. Have you found a silver bullet in any financial product in the marketplace?

Mike: I would say, a silver bullet? There’s—there’s bullets in all different products and one is it’s more appropriate for that. 

Kenny: And I'm glad you said that and I—I love the pregnant pause there because what you're effectively saying is what I've learned in 27 years of being in the business, there's not a silver bullet. That there needs to be a process that you can use financial products in a process that will

Mike: Sure 

Kenny: you know, for lack of a better term, maybe make a “silver bullet plan.” You know, an iron clad plan would be ideal but every product has disadvantages, every product has its advantages, so it really comes back to the structure around the individual, right? It should be customized for that individual situation. Would you, would you agree with that?

Mike: Yeah, customize. I usually say, you know this product here, that we're doing is the same product someone else might be purchasing. It’s how we're going to manage this product, you know, so we're going to—we’re going to manage it. It's traditional whole life but we're going to overfund it. We're going to offset it. We're going to put it on a reduced payday basis. We're going to use it for a supplemental retirement plan and it's just the same product but we’re going to manage it. So yeah I would. I would—I would agree with that. 

Kenny: So if we're looking at this these chassis of insurance products that's in the marketplace today. Correct me if I'm wrong, please. Term insurance. There's a term insurance product still in the marketplace.

Mike: Yes. 

Kenny: Universal Life. 

Mike: Universal Life. 

Kenny: And we’ll—I want to go back and kind of break some of these down. Uh, guaranteed universal life. 

Mike: Correct.

Kenny: Uh 

Mike: Equity index. 

Kenny: Equity indexed or uh indexed universal life. Variable universal life and, in full disclosure, my favorite is a participating whole life. And not all whole lifes nor all ULs or VULs are created equally. Would that be a fair assumption?

Mike: Oh no. They’re quite different. You got to read all the fine print and try to figure it out.

Kenny: My mom used to say, “The large print giveth and the small print taketh away.”

Mike: There you go. I mean it, I mean, I think you know you and I have a lot of experience in the industry and—and generally you can—you can tell by the name of the carrier or the type of product. You know what, you and I, can probably figure out how that's all working but you know, just this week, I had a—a no lapse guaranteed UL that stumped me, a product specialist at another company, and someone else as to how that wording—what are they really saying there? that what's really behind that whole structure?

Kenny: And I was shocked. That was a mouthful. so—a no lapse. Guarantee. 

Mike: Oh yeah, guarantee UL. I'm sorry. Because I—you. But you know that's big that's our—that’s our industry. We use a lot of acronyms and we also assume that everyone is in our same wheelhouse, the client. So that is a flaw. 

Kenny: So let's break that down for a minute. No lapse. What is that supposed to mean?

Mike: Well it actually could lapse. Right? So it says, “no lapse” but you could lapse the policy.

Kenny: Okay and lapses meaning that your coverage expires?

Mike: Your—your coverage expires because of lack of premium or lack of equity existing in the policy. There's no more equity there, so it’s, it just has no more value.

Kenny: So, the consumer’s death benefit that they may have been purchasing or all the features and benefits in the contract are now gone and you no longer have a relationship with that company.

Mike: Gone, baby, gone. You, you have a point in time of roughly, I'm gonna—normally I'd say 30 days, but you have roughly 45 days, to reinstate that policy without evidence of insurability but once you’re beyond that, all bets are off.

Kenny: If you want to reinstate the policy you could do that but it may take—

Mike: Go back through 

Kenny: medical underwriting?

Mike: Yeah 

Kenny: And things may not be what they used to be. 

Mike: I dealt with one of those this week. In—in that you know a woman lapsed her policy and she's coming back 11 years later and basically once she told me all her issues in her life, I said there’s, we really have to go down a different path because there's just no way you're going to get coverage.

Kenny: Right. 

Mike: But bring me back to what the— 

Kenny: So the—the no lapse. If we're breaking down these products. 

Mike: Oh no lapse. Yeah the guaranteed no lapse. Well it's no lapse in that the insurance carrier whether it's a mutual company or a stock company is promising if you do x we will do y. Which means this policy will never fall apart or lapse on you and the death benefit will be there. And the x being you're paying a set guaranteed premium either for the entire life of the contract or for a duration. That you—that might be me with the table there. I'm sorry.

Kenny: It’s a little bass drum going there. 

Mike:  I'm pushing down. It would maybe, you know, would not lapse if you pay the set 10 payment, 15 payment, or pay for life type product. So that’s—that's really what I meant by that.  

Kenny: So we see that happen a lot in the industry. Is that, a client has a perception that their insurance is going to be there for their lifetime, or for at least a period of time that they have preconceived, based on how maybe an agent had proposed it or sold it years before. And what I've found is that people will try to set it and forget it, and just not even think about it anymore, and then years later when the conversation comes up or review happens and then they find what I call these uh-oh clauses. Like “uh-oh, I-I didn't know that was in there” “I didn't know that was the language” and then the agent ends up looking like a schmock and sometimes many of them are. And you know, it's the responsibility of both people, one the agent, to be able to give full disclosure and make sure that they're understood. Not misunderstood. But the consumer also has a responsibility to understand what it is they’re purchasing. And so, I remember in the book, I think it was The Lexus and the Olive Tree by Tom Friedman. He had this statement called ‘systematic misunderstanding’ and I think that happens a lot in the insurance industry because there's this nomenclature and we expect these consumers, who've never had a finance degree or never had an insurance course or maybe never had an investment course, and we throw all these big words at them.

Mike: Right. 

Kenny: And this vernacular, that we expect them in one or two meetings to understand. So part of what I want to do in these podcasts is really just deep dive some of this nomenclature. And I knew having you on today I was going to have to stop you and go “okay Mike, no lapse guaranteed universal life?” 

Mike: Yeah. We all—we all do it in the industry. We just assume everybody is keeping up with it. I guess just like a physician would say COPD and you're just supposed to know it’s, you know, yeah chronic obstructive pulmonary disease. We do— 

Kenny: Wow. That.

[Mike Tyson audio]  “it would happen to any fighter throwing what can I say hydrogen bombs” 

[Cheers audio]

Kenny: Didn’t mean to hit that button. You’re throwing hydrogen bombs on us, man.  

Mike: No. It's just like, and I know I do that a lot, and we all do that in the industry. We say, “offset” or “no lapse guarantee” but you know, I kind of stay in my lane, and this is my lane is life insurance, you know—I’m getting off topic now. But I have a lot of siblings and they always ask me everything about insurance and I keep having to tell all my brothers and sisters, “you know, I'm a life insurance guy.” “I don't know anything about property casualty.” “I'm really not an annuity guy.”

Kenny: Yeah. 

Mike: So you, you get your expertise and then it is what it is. But going back to the differences of products that we're starting to go down that path. Again, I went for business administration, I'm not an actuary. People from my high school algebra class would las—laugh that they heard Mike Hollister talking about numbers and mathematics. But, you know you you learn to survive. 

Kenny: Or your dad would being in accounting.  

Mike: My father would also. He would be blown away. “Wait, wait, wait, I got all these kids and Michael's talking math?” Yeah, no. But it starts with, forgetting term insurance for a second, and you know permanent—permanent life insurance.

Kenny: And permanent should be by its, by the name, does that mean it should last your entire life? 

Mike: Yeah permanent life insurance, should be permanent. So that, when you die that death benefit is paid, no matter whether you die—

Kenny: To a beneficiary

Mike: To a beneficiary. 

Kenny: Okay.

Mike: Well, the industry starts, everything that's permanent people think is whole life or they—you talk to a client, I'm sure you have this experience. “Oh I have whole life.” I said, “Well, do you have whole life? or do you have permanent?” You know and so I’ve—we've gone down that. 

Kenny: Because universal is a permanent life insurance contract. Variable universal is a permanent life insurance contract. Guaranteed universal is a permanent life insurance contract. But it doesn't mean that it lasts all the way out to actuarial tables of 121 years. 

Mike: Correct.

Kenny: Which is our current mortality tables

Mike: Right

Kenny: for the industry. Which you’ll probably make 121, Mike. So.

Mike: Well my mother's 92. So that’s. Is she 92? I think. Yeah, 90, 92. So she—and she's in great shape. I don't think I'll make it that long, but anyway, there's really only two types of life insurance. It's term and permanent.

Kenny: Okay.

Mike: And then under the term umbrella, we have one year term. Some people call it A.R.T. Annual Renewable Term, one year term. We have five-year, 10-year level premiums. They’re either convertible, which means you can without evidence of insurability say, “I want out. I want to go to a permanent chassis type now” and those carriers let you. 

Kenny: And you can do a conversion or a switch over to

Mike: Switch over without, without going through— 

Kenny: the nurse showing up at your house or asking for blood or urine or any of that crazy stuff in order to qualify and all the embarrassing medical questions that go along with it. Right?

Mike: Yeah. It's getting stuck with blood, you know. 

Kenny: Right. And that's changing in the industry now, too, right? Where these crazy physicals that you used to have to do.

Mike: It’s amazing you would never—I would never in a million years, 

Kenny: Yeah so 

Mike: thought we’d come this far that. 

Kenny: We can thank, you know, google and all the big analytical technology firms that have brought data to the marketplace at the snap of a finger.

Mike: It's amazing.

Kenny: It's scary what the internet knows about you and I. Zach, let's look up some stuff on Mike Hollister and see what we can find.

Mike: I don't think you'll find much on me. I’m kind of a under the radar.

Kenny: Really? You’re the dinosaur again. Right, so you'd have to dig deep. Right? 

Mike: Well, there's no facebook. Zach: He’s an athlete in the CrossFit Games. 

Kenny: Athlete in the CrossFit Games. Wow.

Mike: That, that would not be me. 

Kenny: It’s your doppelganger?

Mike: That is. Yeah it is. And I wouldn't know what that was, except, my son used that terminology a couple years back on a on a fella and he does look like me. So.

Kenny: That’s funny. Yeah, all right, so we digress there but—

Mike: What I think consumers should know, is that, and I think they do realize this but every single product out there is filed with the insurance commissioners of each state. 

Kenny: Yeah. 

Mike: So if if we're talking about a whole life product, that whole life product— 

Kenny: So insurance is regulated by the state not the federal government?

Mike: Do—I guess the rules around, the like, the MEC issues would be regulated by the federal government but you’re right its state approval by the, the products. 

Kenny: The Internal Revenue Service sets the rules in terms of how taxation works, 

Mike: Right 

Kenny: but the states regulate what companies can do business and what type of products they can sell to their uh 

Mike: Clients 

Kenny: clients within that state border.

Mike: And part of my role in my, somewhere in my career, was trying to get those products approved for different carriers, in different states. So I'd been down to the insurance commissioner's offices in, in particular the state of Connecticut, because a good portion of my career was up there in New England. Whether it's Manulife Financial, Penn Mutual, I represented Transamerica, different carriers you know. They're all filed with insurance commissioners. So generally if I'm speaking, speaking in front of a client I would tell them that you know, this—this product is filed by 49 insurance commissioners. I know—reason I say 49, a lot of times it's a separate product for the state of New York, because they're a little—little weirder about product approvals.

Kenny: Hey, easy on the New Yorkers there.

Mike: Well I mean, I did—hey they just are—usually you'll see the carriers will have a separate company. 

Kenny: They are complicated.

Mike: Yeah they're comp—they just have

Kenny: complex people

Mike: It's a little, I don't know, a tougher system but it's a for the most part—So I and I go through that, that you know, xyz is calling this product the protection 2000 product. You know. So it’s it's kind of like, you know, the Ford Focus or whatever, it's okay. So it’s a, it's a, it's a universal light product called the protection 2000 whatever, but, it's really filed with the insurance commissioner as a flexible premium life product

Kenny: Okay. 

Mike: Or it's filed as a traditional whole life product or is filed as a flexible variable life product, a flexible index product. So, and then there's the names that the insurance carriers put on. And then I would explain to them the differences or the risks and the rewards. But it’s essentially, there's an actuary, who's far smarter than me analytically, that they can—they priced for this risk how much you have to put into this contract to be there, hopefully, when you're a 100 or 121.

Kenny: Which they would refer to as “the cost of insurance” or “a mortality factor” like pricing the probability of someone living or dying or dying too soon compared to their their class or their group.

Mike: Right and it's more than just mortality because they're going to, you know, price on how many of these policyholders that are sold today are are going to let these policies wither away or lapse. How many are going to take maximum loans and suck all the cash value out of it so eventually it lapses. So there's all kinds of pricing in it, far beyond my expertise, but they make those assumptions.

Kenny: Yeah. 

Mike: So when I'm describing a flexible premium product, some actuary has to sit there and say of this book of business, that we're selling, how much of it is going to stay on the books and how much of those policies are going to be funded at the right level to stay on the books.

Kenny: Okay. 

Mike: So, so the flexibility is really on the client, not the insurance company. You have to fund it. The flexibility, if you want to fund it. So I would go into, you know, the pros and cons of that, if—if somebody were asking me about. 

Kenny: So, you know thinking about the industry as a whole. And we went back to, there's different types of products; from the term to the universal to the variable universal to the permanent life insurance, that most people think of as the whole life chassis. Those are issued by different companies. And just as a side note guys, we got to fix our table next time. I'm doing the annoying sound here. So these products are designed by a company's product design team, actuaries, portfolio managers and they come together to issue these products through the states, through the state insurance commissioners. And they get approved at the state level to be able to be issued in that state. So now we come down to, okay, we've got this product that's available in the marketplace and as an example, like here in Virginia, you you have a term product. Is there a maximum number, so if I wanted to to buy some term insurance, is there a maximum that a person can get? 

Mike: You talking about coverage, total coverage? 

Kenny: Yeah. 

Mike: Yes. There's a maximum. They have to have financial justification and so there's a max set by you know the insurance carrier but I also believe that's set by insurance commissioners on insurable interests.

Kenny: Okay. 

Mike: There are insurable interest rules. 

Kenny: Okay. 

Mike: So a lot of times when you have somebody that want to buy tremendous amounts of face amount coverage. The carrier themselves can't write it because it would be against the law. There's not enough insurable interest on that person and so they set it based on the their net worth, their annual income, the value of their business and there’s parameters around there. And I would, I would suspect, again that I don't price products, that some of that is set by the reinsurers that help support the carrier that's also taking the risk. They're telling those carriers— 

Kenny: Yeah. Reinsure means there’s someone out there who's in the business of shoring up each insurance company by assuming some of that mortality risk but they want some of the premium.

Mike: Right.

Kenny:  Some of the profit. So there's this term that's been around for years called ‘human life value’ and it's probably as going back as early as I've ever researched, into the early 1900s, and there's this economist named SS Huebner who talked about human life value. So that's still used today, it's even used in trials when there's a wrongful death of an individual. A court will try to calculate or have an expert calculate, human life value of an individual. And so, a lot of folks, especially the guys that I work with in my industry, like to start with that in mind. Where we use this human life value approach, when you come to the purchase or the renting of an insurance policy. Where if we can get the max 

Mike: Right 

Kenny: and minimize the cost, why wouldn't you? And so, when you think about that, Mike, as it relates to coverage a lot of times you'll see guys in the industry who will give the client the opinion through some needs analysis of how much insurance a person should buy. What do you think about the idea of using human life value as that calculation, saying what's the maximum that an insurance company would issue you? And then ask the client, “well of the maximum, how much do you want?” Do you subscribe to that type of money philosophy? What—what’s your opinion there on the calculation? How you go about “what—what should I buy?” and I hear that all the time, “well how much should I have?”

Mike: I—i think you got to educate the client on that. I mean it wasn’t the insurance industry that came up with after 9/11 the value of all those executives that—that perished in 

Kenny: in the world trade 

Mike: the world trade center. I mean it came up—I’m just remembering headlines it's 2.1 million - 2.4 million per life. You know, so I don't think people view that they are walking ATM machines. You know if you're working, you have a career, and you're you're able to to make a—a very attractive income then yeah I do prescribe to that then. And then you get down to do they have the wherewithal to pay for it? Do we buy portion in term insurance? You know, can they discipline themselves instead of buying the next new hot car to put some money into a permanent whole life type product versus

Kenny: Yeah. So you bring up a, you bring up a valid point here, is that most people look at insurance as a pure cost, as an out-of-pocket cost, as a an expense to their cash flow, but if if properly funded, right? Sometimes you could use assets or maybe dividends or gains or capital gains that would otherwise be taxed, there are strategies there that could be used to fund paying for or making premium payments that don't necessarily disrupt your cash flow.

Mike: Right.

Kenny: Um and so when you're thinking about these products and what you've run into in the marketplace. you know being that you've been around the business for 41 and I tried to make it 43 years. you've seen a lot of rule changes happen in the industry. Um what I'd like to bring you back to, is around 1983 and 1986, there was this rule change in how, we'll call them the Rockefellers, how these wealthy people would make premium payments or make contributions into their life insurance policy through this technique of over funding. Giving the insurance company more than what was required, and many times they would do that with a single premium life insurance policy prior to 1983. And can you address that and why folks would do that back then and what what that concept was used and how it was utilized?

Mike: Well they were—they’re—it’s arbitrage. They're putting that money in and getting a fairly safe yield on that. I mean it was a very safe yield. 

Kenny: Very safe yield, but,

Mike: But not—not an aggressive yield. 

Kenny: Yeah. 

Mike: But then they had the leverage on the death benefit of it being, coming to them income tax free by—by the definition of life insurance. So you saw them putting in 500,000 dollars to get, you know, a million five of income tax-free death benefit to their heirs.

Kenny: Yeah.

Mike: And that arbitrage, and that leverage, eventually the IRS said, “we—we

Kenny: They said, “hey time out. Yeah, we kind of understand what you wealthy people are doing.” 

Mike: And they put some parameters around it thus the modified endowment. 

Kenny: So, there are two acronyms up, the TAMRA DEFRA acts, those tax reconciliation acts.

Mike: Were you in the business then?

Kenny: I was coming into the business right at the the tail end of those massive changes.

Mike: Yeah, I was a little younger. I mean, I would have only been in the business four years. I remember

Kenny: Yeah

Mike: it really did devastate, you know, our sales force at the time and we did have a a single premium product. So I do remember all that.

Kenny: so what I remember, and going back, and and the way I was taught by an economist to fund these contracts, was if the irs sets limits on insurance carriers for what's the maximum you can put into an insurance contract. And that is designed across no matter what U.S. company, or even a company that may be in Canada licensed to do business in the US, that there are guidelines that the Internal Revenue Service sets under these, um, tax acts that gives the consumer a guideline for, and the insurance industry, for what an insured or premium payer can put into an insurance contract and that’s typically referred to today as the MEC limit. Modified endowment contract.

Mike: Right. 

Kenny: So today what are you seeing with, with consumers today? Are people still buying insurance the old way? Like they’re—they’re buying term insurance or renting the coverage and then letting it go away and the death benefit goes away? Or are you seeing folks lean more into that “hey you know what I think I actually want to own it and I want it to be here over my lifetime.” What do you see? What’s kind of your pulse on the economy?

Mike: It's just my, my opinion I—I find discipline buyers are buying permanent life insurance. I mean they’re, they're disciplined. They're disciplined. And then if they're even more disciplined they’re buying traditional whole life. If they, they like the word flexibility, you might see them buying an index universal life. I don't see a lot of variable life sold. Which we went through a crazy period of that.

Kenny: And that variable life is just a contract that allows the policyholder, that if they want to have access to underlying investments, like mutual funds, they're able to buy these variable contracts. Which means the death benefit and the cash value vary based on the performance of the underlying securities?

Mike: The policyholders take the risks of the investments in their segregated accounts so instead of be—calling them mutual funds or segregated accounts, managed by the same name brand fund managers. MFS, T. Rowe Price, Fidelity, Templeton and they go in, in, you know, in step with the insurance companies to to deliver that. And every financial institution takes a piece of the the pie, so you know, T. Rowe Price is going to get their fee. The insurance carrier is going to get their fee 

Kenny: So it could be

Mike: You're basically buying

Kenny: one of the most expensive ways to buy an underlying investment, compared to, maybe just going and buying that investment straight from the fund company or the ETF. So there’s some underlying expense that you have to be aware of there?

Mike: Well when I—I—when it first came out in the, boy I don't know mid 80s. It first came out, it might have came out earlier than that in Europe or Great Britain or I'm not sure where—when it actually came out. But you had insurance companies that historically took that money in and managed it and then delivered dividends or profits to stockholders and now the public is clamoring because the markets were going crazy for access to higher yielding investments. So you know, you put the different mutual fund managers into your chassis of life insurance. Well where that money was once sitting in the insurance company's coffers and letting them to manage it, came in through here and then went back out to T. Rowe Price or Fidelity. Well insurance companies don't want the cash to come in and just leave and just become a administrator and taking mortality risks, they want to be able to manage that money as they see fit too. So there was more charges on them. So they got their piece of flesh 

Kenny: yeah

Mike: if you—is a way of me saying it. I don't know whether that’s—they got their profit and then T. Rowe Price or Fidelity got their profit. So it it it actually 

Kenny: Well insurance companies are like 

Mike: was very expensive. It got very expensive. And I remember a fund manager gentleman, really sharp guy, UCONN graduate and he said, “you know Mike, I'm not selling variable life” he says, “it's just too fat now. Let this industry go through some process and then I’ll—I'll come back to it down the road” and and he actually was right. Because then, then it kind of—the bloom fell off the rose a bit when there was bad performance in the market. 

Kenny: You know it brings the thought up for me. The way I was taught as a young advisor, putting that hat on for a minute, and having that conversation with my clients and consumers. Is that the way I was taught was that insurance companies, banks, mutual fund companies, money managers, have four rules. Number one they want our money. Number two they want it on a regular and ongoing basis. Three they want to hold on to it for as long as possible and then four, when you and I want some money back these institutions want to give us back as little as possible. And as much as I love insurance and how it can work inside an overall strategy or plan, we have to be aware that they're also a financial institution, that as you said, there's some fat in there. They have profits. We need them to be profitable in order to be in business to pay the underlying death benefit or you wasted your money. 

Mike: Right. 

Kenny: but what i've found is that if there's a way to manipulate those rules for how they benefit you as a consumer then you can win in that relationship, or in that partnership, with an insurance company. Which is why I think you and I have a high favor of mutual companies, and not that there's stock companies are completely horrible, but I do like the idea that with a mutual carrier I have an opportunity for them to pay a portion of those profits back to me versus the stakeholder and me being the policyholder.

Mike: Right.

Kenny: And you know there are probably 10 carriers in America that I would tell my clients to look at and consider as mutual carriers. And I'm not going to promote any of them today. We'll do that on a different podcast. We'll talk about them. But when it comes down to the design, and we go back to this rule change of 1983/1986, if you want life insurance to stay on your balance sheet for you selfishly as the consumer.

Mike: Right.

Kenny: If you want that benefit to be there for your entire life. You and I have had these conversations for years and even off camera today. The most efficient way to do that, in in my opinion, how we design them, is this feature of over funding. Meaning you're giving the insurance carrier more than what's necessary for the underlying death benefit, if you were renting it,

Mike: Right

Kenny: or aka using term insurance. 

Mike:  You’re just sticking more octane in there initially, yeah. 

Kenny: and what that does to a contract is that it turns on those dividends in year one versus in a lot of contracts it doesn't turn the dividend on, if they're not funded properly, until maybe year four in many insurance contracts. So, the design is more important than the product, I would say. And sometimes so your process, how you design that product, for how it fits your individual wants and needs. Would you agree with that?

Mike: Well I certainly agree with it. I mean that’s— 

Kenny: And we are on camera here. You get a chance to object to my opinion. So 

Mike: Well I don’t think it, I think that's a sound opinion. Is that you know the, the design is really the key to it. I mean it’s that, when do you want to put that money in? When do you want to stop paying premiums? Like I said earlier, I can't remember whether I said it here on the podcast or before we met, is that that you have to manage the policy, once you—but it's the same contract that you, you know, that the next person could buy. It’s just how you want to fund it and when you want to put that money in.

Kenny: Yeah.

Mike: So a carrier is going to build a product that will stack up against its competitors, but, if you want to over fund it early and then have that in cash value accumulate even quicker, they're going to—they’ve built chassis or mechanisms where you can upfront some of those premiums and costs and then you have—that you're taking advantage of their performance 

Kenny: Yeah

Mike: of better mortality, better yield, keeping their expenses under control. You know all those. 

Kenny: And if funded properly, Mike, the access to your premium and to those dividends, if you follow the tax rules and if you follow the guidelines that the internal revenue service has put in place, there's access to your cash and dividends inside the policy through a couple different features, right? Surrender of basis?

Mike: Surrender. You could change

Kenny: Policy loans?

Mike: You could change your dividend options to be paid in cash if you didn't want to accumulate. You can do that at any time or you could take policy loans and generally most carriers will have a very attractive loan provision after you get through some of the earlier years. Usually, it will kick in by the sixth or eleventh year. They’ll basically, you're borrowing from yourself. You hear these, you know, you “be your own bank” type expressions.

Kenny: And I want to be careful with our listeners out there that when you’re borrowing money, you're not really. We use that term in our industry a lot. But there's a misnomer there. We're really leveraging our policy. We’re borrowing the insurance companies money off their balance sheet, leveraged against the cash surrender value in our policy, and I know it sounds like a semantics there but when we do a policy loan it's the insurance company loaning us the money off their balance sheet.

Mike: Right.

Kenny: Or general ledger. But it’s leveraged, or a lean is placed against the cash surrender value of our policy. 

Mike: Correct. 

Kenny: And if the the person dies that death benefit pays the loan income tax-free, in most cases. 

Mike: That's why they're not getting the 1099-r, I mean, it's it's a loan. It's a loan. 

Kenny: Yeah and the surrender basis is just a return of your after tax dollars that you'd use to to pay this. So it becomes tax. Where you're not getting taxed on those dollars again. So there's benefits there that really need to be examined and how that compared to maybe being somewhere else on your balance sheet. Or looking at insurance, in some cases, I’ve heard some people refer to it as a an additional asset class. Like you have equities, you have bonds, and if you can understand the use of life insurance as an asset class. And Zach, remind me, we'll add a report to this podcast today, by one of my professors, that were at the American College, Dr. Wade Pfau. He wrote a great report on looking at life insurance under that scope and did some really great comparisons. It’s really not—I don’t know if you've ever read it Mike. So— 

Mike: I think you sent that to me. 

Kenny: Yeah, it’s a great academic read. A little, little weighty and you know that disclosure to the podcast. 

Mike: Yeah I remember. I remember when you—I do believe you shared that with me. 

Kenny: But it helps validate or maybe even answer questions for consumers and that you know “should I use a permanent life insurance policy or a participating whole life policy in my overall retirement strategy or retirement plan?” And what we have found over and over and over again with our clients in our firm, is overwhelmingly it’s, it's a product that should be considered in their overall process. And you know sitting down having these conversations with you, helps me validate, that a guy like you, thats been around in the industry for 41 years and you've seen products come and go. You've seen industries change those products, but, there seems to be two core chassis that are out there that haven't changed a whole lot in 100 plus years and that's a plain old chassis of a term insurance policy 

Mike: Right

Kenny: and the plain old chassis of a participating whole life contract. Participating means that there's dividends being paid to the policyholder or inside that contract. That can grow tax deferred. Access to it tax-free, if you utilize the contract right.

Mike: Right and you add to it now that, you know, with these—the turning down of the the economy and where to put your money in a safe spot. Where—where can you go that you’re going to have a guaranteed growth?

Kenny: Yeah.

Mike: You know and these products are priced at, you know, four percent underlying guaranteed rates, which is phenomenal. I mean 

Kenny: Yeah

Mike:  I mean—it’s—I think you mentioned, you know, 

Kenny: And what's reversed out of that is mortality costs, right?

Mike: Mortatlity costs. It's going to be filed in 49 states with a guarantee rate of four percent. you're going to have that, you just talked about there, we talked about there with the loans, you know, you can access policy loans on a very favorable basis. You get income tax-free death benefit. You got, now have a chronic illness benefits are now attached to them, because if someone's chronically ill, the insurance carriers will all let you draw down from that death benefit prior to death, if you have a chronic illness and you never receive a 1099-r.

Kenny: That’s interesting for folks to take a look at. If you're listening today or if you're watching us, if you have a contract issued prior to 2008? 

Mike: I would say eight, 2009, most—most institutions, the IRS, now allows you to, the insurance companies, to price a chronic illness rider on this policy.

Kenny: Into the contract.

Mike: Up to the IRS perdium.

Kenny: So, it’s not an additional cost? It's priced into the overall chassis the product.

Mike: It’s like, you know, a wiper on the Mercedes headlights. It just comes with the vehicle.

Kenny: Yeah. 

Mike: I mean and so this is coming with the, with the permanent product, that you know as a perch—as a buyer someone's going to receive this this benefit. 

Kenny: yeah 

Mike: You're either going to receive it as a chronic illness benefit you're going to surrender it or annuitize it, you know, with a settlement option or you're going to you're going to pass it on to your heirs.

Kenny: So if you have a contract issued before 2008, there was no chronic illness rider. Accelerated death benefit riders were maybe in a few of the contracts out there? 

Mike: Yeah there’s an accelerant. Which is you're gonna access, if you’re terminally ill, within the the next year you can access 50 percent of your face amount early. 

Kenny: So you know speaking to those riders, other things that consumers should be looking for, especially if you're going to try to maximize your internal build up of cash value and maximize the death benefit over your lifetime. If you're a young person in the early premium payment paying phase and where you're making these contributions premium payments to an insurance company. If you're younger than 55 years old there—a lot of companies have a rider that is an additional cost but something they should consider and that that's a waiver of premium rider? 

Mike: Yeah that would be an extra. That's it's gonna, it's not gonna be hidden, it's gonna be actual additional cost.

Kenny: Line item costs.

Mike: Line item cost, exactly, and it's going to waive their annual commitment, their premium, if they become totally disabled. 

Kenny: Yeah.

Mike: Which is a really nice feature to have. 

Kenny: So where else can you have a savings plan, on the planet, that you could have a waiver of your savings if you became permanently disabled? And it's important to look at the definition of disability in these different contracts.

Mike: Most of your major insurance companies, like well you know, the, the ten you mentioned. The big mutuals. They're all gonna have terrific definitions that, you know, if they're totally disabled, that premium is gonna be gonna be waved for the rest of their life. And you know, I ran into a gentleman, actually was an engineer from one of the big chemical companies. Dupont. And he purchased whole life insurance for his three sons and he was purchasing some from Penn mutual. and I said, “do they have any existing coverage in force?” And he went through and he listed probably three or four of the major mutual companies that you and I would would bring to the table. And he had waiver premium. I said, “can you tell me, what made—what he makes—you what are you doing this for?” 

Kenny: Yeah.

Mike: And he said, “well I've been very fortunate in my career that I have worked for an employer that's going to give me a defined benefit plan. That I have a defined benefit I will get when I retire and I have no confidence that my three boys are going to have the same thing. So, I'm building a defined benefit plan and because of the waiver on it, it’s contractually guaranteed.

Kenny: Yeah

Mike: So that when these young men you know become adults. They might have their 401k, they might have their portfolio, whatever” but he’s built them permanent. It was actually a brilliant, brilliant concept and he did it all on his own. And I've actually stole that idea a bit and shared it with individuals. That why not for somebody young like you just were talking about, if they put a waiver on there, now they have if they're disciplined. They're paying that premium. They’re going to have that guaranteed net stack there—nest egg there, which would be their defined benefit plan.

Kenny: You know it's interesting you bring that up because it made me think of your your son-in-law who works for the FDIC

Mike: Yes. 

Kenny: And they're regulating these banks. And one of the line items that banks are required to disclose is what, where and what, they're doing for their officers. And they're highly compensated and you can go to fdic.gov pull up any bank's financials that you want to, and in full disclosure, in their financial you'll see a line item for executive life insurance that sits on their balance sheet. That’s there is a benefit for these executive officers in the future when they go to retire as a non-qualified defined benefit plan.

Mike: Right and more and more you're seeing those programs go back to traditional whole life, because, they did do those in the late 80s with this flexible premium type policy and they’re coming up short. Where you know I've taken what this engineer, he said, “look, Mike, this has contractual guaranteed values here no matter what.” So if you go down the line there and you get to this young man that's 21 years old, the father’s funding it, when he gets to be 55/57 there's a pot of money there that’s guaranteed. 

Kenny: Right. 

Mike: As long as it's from you know, a triple A rated type, you know, I'm assuming. 

Kenny: A quality company.

Mike: A quality company. You know, so, and that's all he, he basically put his sons with—and I thought—and now with adding what you said about waiver premium, if, if something were to happen they could waive that premium and it's still going to be funded at the same level and and so.

Kenny: Well, I have a personal story to that. 1997, one of my close friends when I I started at  a captive agency early in my career. A buddy of mine moved up from Miami, had some professional sports players and some professional physicians, doctors, and one of these doctors was a neurologist. This neurologist oddly enough ended up with MS. And actually had, I think five years prior, bought a permanent life insurance contract from my buddy, a guy named Tim. And Tim said this guy ended up buying waiver of premium inside his contract that would, we would refer to in the industry as being max funded. Meaning he was putting the maximum he could into the contract.

Mike: Right

Kenny:  Into that policy based under IRS, non-met guidelines, modified endowment contract. And long story short, what ended up happening is around year five this neurologist, of all people, came down with MS, could no longer do brain surgery but what ended up happening is the insurance company continued to make his premium payment of 75,000 bucks a year. 

Mike: Wow. 

Kenny: Big number.

Mike: Yeah. 

Kenny: But it doesn’t matter if your premium 75,000 or 7,500 or 750 bucks, if you have a waiver premium rider and if you're under age 55 I would say “hey that's something to really consider looking at.”

Mike: It's so reasonable. 

Kenny: Right. It's really inexpensive that you add this rider to your savings.

Mike: Especially if you're using that vehicle really to accumulate cash if you're disabled. That’s— 

Kenny: Yeah and a personal—my—one of my best friends, a guy had a big paint contract company and he was my first death claim. It was it was horrible. But the guy ended up with stage four esophageal uh esophageal cancer. Am I saying that right?

Mike: Esophagus?

Kenny: Esophageal cancer. And hit him like that. It was just snap of a finger. Two years prior he was top of the rating class, out of what we would call in the industry preferred plus rating. Super healthy. Bodybuilder. And two years later he’s diagnosed with a terminal illness.

Mike: Right.

Kenny: Six months later, passes away, but during that period he had waiver premium on his contract. Going all the way back to when that diagnosis happened the insurance company waived that premium. And his family 

Mike: Right

Kenny: was taken care of 

Mike: You don't see—

Kenny: big ways.

Mike: You don't see insurance professionals recommended it as much as it should be 

Kenny: Blows me away, for young people. 

Mike: Yeah it really, I think everybody's just gotten lazier.

Kenny: Yeah. 

Mike: But to explain it. But it makes sense, especially, if you’re you're going with a really strong permanent policy and you’re, you're with a paid up additions rider, that you're sticking some additional cash in up front there the first year, the first five years, why not put the waiver premium on it? 

Kenny: So if I can, you know, bring it back to Mike personally. Off camera we were talking and you know, you’ve, you've been a great steward of your own industry and, you know, you shared with me a little bit about personal stuff you're doing. And I won't give people numbers, but, you've had one of these funded policies for years that you’ve been putting premium into and putting money into and we were talking about that, that yield and we—I don't want to throw numbers out but it's substantial the return on cash that you're getting from the premium payment that you're still willingly paying today.

Mike: I couldn’t—I didn't even know you were going to ask me, that before the podcast, and I—I’m racking my brain to figure out what the premium was. I-I purchased that policy, you know, my son turns 33 tomorrow, that was 1987. It was somewhere around then I purchased it. You know, it's when most people buy their coverage, is when they either get married or a mortgage or they have their first, you know, child. You really don't get serious about life until you, you bring somebody else into the world and I just remember I bought a permanent whole life plan, and just going by memory, I think it’s like it was three thousand dollars. Twenty eight hundred dollars. Something like that. It wasn't a huge face amount.

Kenny: And today, thirty some years later. Beginning of your premium if, is three thousand, your guess, and I'm not holding you to this. 

Mike: Yeah. I’m saying 

Kenny: This is not verified, but— 

Mike: I’m saying the contractual guaranteed cash value is probably increasing by 3500 dollars a year 

Kenny: Wow

Mike: And or maybe more. 

Kenny: Plus the dividend? 

Mike: Plus the dividend. Plus the annual dividend. And you know that did take me through, I did do some borrowing. I think I shared that with you. You know, when my, my wife had a great job with the federal government and when we had our our daughter, our second child, I—you know, I'm one of nine children. I have four brothers and four sisters. My mother—

Kenny: Sound like my mom and dad. My mom was one of nine. My dad was one of nine.

Mike: Really? Oh well, my, my mother.

Kenny: 27 freaking kids between our generational— 

Mike: Wow so my, my mom had nine children when my youngest brother went out to first grade, she went out to work. 

Kenny: Yeah. 

Mike: And one of my older sisters kind of managed the house when she was still working and we were coming back from school. Anyway, I'll get to my point here, but, she had nine children. She ended up being the head purchaser for the institute for cancer research in Philadelphia and she retired with a higher pension than my father who was with Ernst & Young. And it was a he was an accountant for all his life. So when my—we had our our second child, I said to my wife I said, “listen you do whatever you like, but, if you want to stay home with the children we'll figure out a way to make this work.” Right? Because she was making a good income, but I said, “I just don't want you to wake up when you're 40 or 50 years old and you, the kids—the raising the children went by and you missed out on it.” I said, “you can have it both ways because my mother had nine of them and she had it both ways." I mean, if you plan accordingly, you can do both. You can be a career person. And just by the—my luck—I did better in my career but initially I racked up some policy loans to go from earning two salaries to not having two. So, I-I did tap that whole life policy and I still do have a loan on that policy of something that I should pay off which I will pay off. 

Kenny: Thanks for confessing. We’ll work with you.

Mike: Yeah. Right. Right. But I mean that's the beauty of it. Is that, you know, when you when—when it’s appropriate you, you take the loan. I’ve always paid my premium, I didn't like not pay a premium to create that loan, which happens a lot of times. People don't pay their premium and inside that policy is a non-forfeiture option that allows it to automatically borrow and then you wake up and the policy lapses. No I have a loan and I pay the interest and I just have not moved enough money over to to pay it all.  

Kenny: I’ll work on you with that, Mike.

Mike: Right. 

Kenny: We’ll beat you up on it, but, no that’s—that's one of those features and thanks for sharing that personal story. And I think so often, consumers look at their insurance as a cost versus a cost recovery and even though you're still paying a premium today, it sounds like you are still paying that premium. 

Mike: I don’t have to pay that premium. I mean, I could pay off the loan, but you're right that it would offset. It's strong enough, the annual dividend, to pay that premium.

Kenny: Yeah. 

Mike: I think it's just, I'm just used to paying it, you know.

Kenny: Yeah and it's probably that, that 41 years of just ingraining in you that, yeah you know, you're doing something that is not only for you but for—it’s a deposit well the other to the legacy. 

Mike: Right. The legacy. And you know, I—if I spent this long in the insurance industry, I certainly want to make sure I have permanent life insurance to leave to my, my heirs. 

Kenny: Sure. Yeah. How cool. 

Mike: Because I believe in it.

Kenny: You know we were talking off-camera too, and we want to try to close out the podcast. I always ask folks, you know, what they're reading right now. What’s—what's on your kind of your top list of things to read? And I thought it interesting that before all the stuff that's happened in society and you know at the time we're recording this we're still going through a COVID 19 and we're in phase 2 now. But throw on top of that, social unrest, where we had just some horrible, horrible things happened to some folks in Minnesota and down in Georgia and I can't remember where the young lady is from, I'm sorry, but just some bad things happen in our society, where people were unjustly, what appears to be right now, unjustly. Their lives were taken. 

Mike: Right. 

Kenny: But that was interesting that correlation is that there was a book that you're getting ready to crack open called The Conspiracy of Lincoln?

Mike: Yeah. My wife asked me, you know, what I wanted for father's day. You know, you like a good book while you're sitting on the beach and, and I said I'd like to see—get that new book by Brad Meltzer.

Kenny: Brad Meltzer. Yeah. 

Mike: The Conspiracy of Lincoln. There was actually a conspiracy when he was first elected, as you remember. There was three candidates at the time and he didn't win with the majority. I don't know whether he had 30 some percent of the vote. I’m really not a historian, but my wife and I, did take an evening course at University of Richmond on Lincoln because we found him interesting. And the—the president of University of Richmond, at the time, was a scholar on Lincoln and he brought people in from Great Britain. I don't know whether you realize but Lincoln is, other than christ, there's been nobody—no many—no one would been written more about than Abraham Lincoln. 

Kenny: I did not know that.

Mike: Yeah, and that, someone shared that to me. Which is pretty fascinating. And I just was in the car and listening to a radio program and someone came on and started talking about this book, that there was a conspiracy after he was elected, well before John Wilkes Booth that he was going to be assassinated and that was before the— 

Kenny: I got to read this

Mike: I didn’t—I too. I was fascinated by it. I said, “really?!” I said—so my wife asked me, “what do you want for father's day?” And I said, “listen I don’t want you—if you can find a used book go on amazon, I don't know,” but I said, “don't spend a lot of money.” But I said that's what I’d like to read this summer while sitting on the beach and I just find that kind of stuff fascinating. If I do read books, I generally do read kind of nonfiction, kind of stuff and um. 

Kenny: There’s enough boring insurance stuff in your life that—

Mike: Yeah. Yeah I guess so, I guess so.

Kenny: Uh so, we will put that link in the podcast. 

Mike: Okay. Yeah. I really don't know how it's being received, but, I-I did hear the author in the interview and it sounded fascinating to me that they had—it might have been the advent of really supping up secret service and watching the president because there was this conspir—conspiracy. 

Kenny: Yeah. 

Mike: Um, the um, so that's what I'm looking forward to this summer.

Kenny: Well cool. Off camera I'll come back and check in with ya and make sure it's a good read. So you’re going to get it over father's day?

Mike: I assume I am. I mean that’s

Kenny: All right Jeanie.

Mike: Yeah.

Kenny: Yeah. So, you know, that's the book you're reading right now. In terms of, you know, habits that you have. A little, you know, one of these things you told me is that you're restoring like a 19th century house that over off Cape Charles. Kind of the little gem of the Eastern Shore that not

Mike: Yeah.

Kenny: Until today not many people knew about.

Mike: Yeah I have a 1916 American foursquare that Jeannie and I purchased about 12 years ago. I'm not a handyman but we've been playing with this home. It was a 10-year game plan, I'm now into 12 years.

Kenny: You showed me some pictures. It’s actually pretty nice.

Mike: Yeah and actually, I invited you to use it the one weekend.

Kenny: Is that—and that that's gone forever?

Mike: That's gone. Well and I don't know forever, but, if we're not there you're welcome to use it. The, so, it just became our, you know, it basically—I gave up all my 50s to that home. All my weekends, in time. Everybody has hobbies and some like to golf and some like to fish and I just—we’ve always—living in in Philadelphia and then in New England, we just got accustomed to history and old homes. And what we found neat about the Eastern Shore and Cape Charles in particular is this, it's this little town, that kind of is like Americana with these old, you know, Victorian American homes. And we really found that quite charming. So we we purchased one in in 2000 late 2007. I was a nervous wreck when the meltdown happened in 2008, whether I could pull this off with the second home in Richmond and actually just moving down to Virginia in 2007. I actually had two homes in, in the state of Virginia and I had just moved from from New England, but, it act out you know. It felt right in my gut and I usually go with my gut and unfortunately I was correct.

Kenny: So we'll close out with this then. Going with your gut, if you had one financial product, that you had to buy. Well you don't even have to buy that's maybe not phrased the right way but if there was one financial product that you could own what would it be? You could only pick one. 

Mike: Well…

Kenny: And you don’t, you don’t, you don't have to say insurance.

Mike: Well it would be, it would be insurance, because when you take all my financial products that I do have. I have more insurance contracts than I do annuities or portfolio, you know, most of my portfolio is is in my qualified plan. So I think I have four insurance products and of course I have one on my wife and I have one on my son. I did, I did not buy one of my daughter and she's gonna now find that out now. Right now, I guess. 

Kenny: You are loved less honey, I'm sorry.

Mike: But anyway my son’s is going anyway. It doesn’t matter. The—it would be it would be life insurance of some nature. You know and you know a—

Kenny: I will put myself on the record of saying I would personally own and do personally own permanent, participating, dividend paying, properly funded, whole life, life insurance. And I'm very unapolo—apologetic. 

Mike:  I'm not apolo—I’m not apologizing. I'm not—I do. My first policy I ever purchased was just that and that's the one I still own today. And as I mentioned before, I did at the ripe age of 40, buy a huge term insurance contract. That

Kenny: Yeah

Mike: it was—it was levelized 30-year term. Super preferred, because I was at my peak and it was dirt cheap.

Kenny: Your marathon days. 

Mike: And I would get rid of it, but, it—it was so, it's so reasonable. And then I have a permanent second to die contract on my wife and I.

Kenny: Which means the death benefit doesn’t get paid. Let's say, if you pass first, nothing happens. No death benefits paid. 

Mike: Right.

Kenny: Your spouse or Jeannie would have to pass if it happened in that order. 

Mike: Right. 

Kenny: In order for the death benefit to go to your, your heirs, your beneficiary. 

Mike: And, you know, I'm married to an Italian that's going to live forever, God willing. And I figured that she's going to outlive me. And the strategy was that when we’re both gone, there'd be additional cash, so that my two children will keep the home in Cape Charles forever and ever and help them fund it and keep it there. So that's what that's all about in a sense of additional octane at the bottom of the ninth to keep that, that property that we’ve all enjoyed. 

Kenny: But there's a an accumulation or build up of of cash inside. 

Mike: There is—there is cash value in there, so that, if I ever needed to I could. But the other additional thing is I have a permanent product that has, as we mentioned earlier, a chronic illness benefit on it for myself. But if I pre-decease Jeanie, I'd like her to have, or for my family to have a chronic illness benefit for her to access and that second to die policy in addition to providing the cash to maintain the vacation home on the Eastern Shore, it has a chronic illness benefit for her. I am a big—

Kenny: Which for listeners, is like using—it’s effectively like a long-term care right or long-term care benefit.

Mike: Right and I—

Kenny: Providing if you can't meet two of your six activities of daily living and look at your provisions inside your contract to make sure it’s designed. 

Mike: And I’ve never been a big long-term care fan, back when I was in New England I remember being at a meeting and publicly stating, that I was not a long-term care fan because there is no guarantees in a lot of these products.

Kenny: Oh man, people have seen their premiums go through the roof.

Mike: And I—I again, I'm not an actuary, and but I knew that just innately that, that no I don't want that product because there's no guarantees and I've seen contracts in in the life insurance industry that self-destructed because of the lack of guarantees. I wasn't about to that's typically a market you're going to promote to more of a mature clientele and no sooner than you sell it to them and you’re starting to pull the rug out from one of them. So I really love the chronic illness benefits that are available today in your permanent policies.

Kenny: Something consumers should look at for sure.

Mike: Right, exactly.

Kenny: Yeah so sake of time today and boring people to death with life insurance conversations. Let’s—let’s get you back one day man. We’ll have a conversation again and there there's an actuary, I don't want to say his name yet, or put him on the hot seat, that I know, at a very large mutual carrier. That I asked him that question asked you, if there was only one financial product that you could own which would it be? Which would you give your your mother? And his answer to me was, a properly funded whole life, life insurance contract. And this is a designer of contracts. I'm gonna put him on the hot seat and make him say that. Not make him, but, ask him to say, “hey, why?” and let's talk about that from an actuarial point of view. Of why you would pick that product in your process. Not to say that all of these other choices are are bad or right, you know. Some are just indifferent. But from the features and the benefits that are provided in those contracts, I would say, that would be a pretty strong statement coming from an actuary to say that that’s his product of choice is a participating whole life contract that's properly funded. So if you want to know more about how to do that, follow the links inside the podcast here, and we'll link you up with some folks who can help you with that. Including on my side, in my firm. Mike's also someone who helps in the business so we'll give the ability for you to contact Mike. We'll put your your info on the website too. 

Mike:  I appreciate that.

Kenny: Conspiracy of Lincoln that sounds like an exciting read that— 

Mike: I think it's gonna be interesting. I mean, I don't ask for many books so that that one caught my attention and I don't know, I think, I think that’s going to be a nice read for the summer.

Kenny: Awesome. Well look, hey thanks so much for taking the time out of your day to come hang out with me.

Mike:  My pleasure.

Kenny: I hope your family are proud of you, when watching this podcast, and you know, your son was giving you some—

Mike:  I'm sure I'll get some some jokes about me. Yeah. 

Kenny: Tell him to come see me. We’ll chat with him. We'll put them on the hot seat. 

Mike: I talked with one of your associates before we came in here. That I was actually asked to do a tv program, probably about 15 years ago, where you can rent time and video and then be on at 11:30 at night and talk about and that thing never aired. So 

Kenny: Why? 

Mike: Well I assume I didn't do a great job.

Kenny: Did you have your clothes on?


Mike: Uh. I-I-I don't know he was—

[Booing] 

Mike: I think he focused more on medical underwriting during that program and I think that was— 

Kenny: 11:30 at night? Who decided that programing?

Mike: I think that might have been a little boring and you know.

Kenny: Yeah. 

Mike: But, I don't know whether this is boring or not but.

Kenny: Uh, hey, I enjoyed it. And you know we’re gonna put it out there for people to listen to and watch and if if they get something of value from it, they'll be able to tell us. And if they hated it you can, you can, tell us that in our—our feedback as well and if I get feedback that they hated it, I'm gonna be sure to let you know. 

Mike: Yeah, I'm sure you will.

Kenny: Yep, so, hey look. Cheers to you.

Mike: Thank you, Kenny. I'm flattered you even asked me to come in.  

Kenny: God Bless you. I drank all my Johnny but thanks for buying this for me last year and you can see, I’m on— 

Mike: Thank you. 

Kenny: Every podcast, I do a little, a little, little thing here. And all of my guests so far, I beat them to the punch, while you're gabbing, I’m over here getting sauce. So. 

Mike: Well you know I never had Blue Label until I met you.

Kenny: What?

Mike: No, I never did and you ordered that one time in, in Maryland. 

Kenny: Yeah. 

Mike: And, um, you turned me on to it so,

Kenny: It's my poison. I don't drink much of it. 

Mike: I was a Jameson guy I still drink Jameson but Blue Label is very, very good. 

Kenny: Johnny Walker Blue Label, you heard it here, so hey uh, Johnny Walker. There you go. We are plugging the crap out of you guys today. Show us some love. There you go, all right.

Mike: Thank you for having me.

Kenny: It was awesome having you. Best to your family.

Mike: Thank you. You too.