Do you want to know the best-kept secret to financial planning? It’s participating in whole life insurance from the right companies! In this episode, Tom Wall, the author of Permission to Spend, talks about insurance-based strategies, specifically using whole life insurance as an asset. Tom has established a reputation as an award-winning advisor and top-notch sales, and marketing leader with 20 years of experience in selling whole life insurance and competing against alternatives. He believes in incorporating actuarial science, aka insurance-based strategies, as a permission slip to spend and enjoy those years of investments that you’ve accumulated. He talks about these things in his books, mastermind, and now on this podcast. Tune in to learn more from him.
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Whole Life Insurance: Unlocking The Power Of Whole Life As An Asset With Tom Wall
This episode is about the topic of whole life insurance and unlocking the power of whole life as an asset. I’m so excited to introduce to you my guest. His name is Tom Wall. Tom has established a reputation as an award-winning advisor and top-notch sales, and marketing leader with twenty years of experience in selling whole life insurance and competing against alternatives.
Tom is now a sought-after coach and consultant hosting the whole life mastermind study group, and authoring game-changing books and content. He’s a thought leader in the space and firmly believes that participating in whole life insurance from the right companies is the best-kept secret in financial planning. Without further ado, welcome to the show. Tom, how are you?
I’m fantastic. Thanks for having me, Dale. I appreciate being here.
For my audience that doesn’t know you yet, where are you based geographically?
In the Boston area.
How did you get into the life insurance business? What’s your overall story of how you got to be where you’re at?
I joke around that no little boy grows up expecting to be the life insurance expert for life insurance advisors, but here I am. It’s how a lot of people get started in financial services. I was plucked right out of college by one of the big major mutual life insurance companies. I got licensed to sell life insurance under the guise that I would become a financial advisor talking about all the different investments and ways to grow wealth over time.
Shortly after that, I joined another Fortune 100 company’s home office and became their in-house life insurance expert. They call them a wholesaler in my business. I spent a long time doing that, maybe 10 to 15 years. I worked with thousands of advisors all over the northeast toward the end and beyond. A few years ago, I made the decision to leave Corporate America from a relatively cushy role.
I took a big risk and said, “This is a story that needs to get told.” The industry is not telling it very well. There are a lot of people telling the story online incorrectly and in misleading ways that are not good for the consumer. I thought I’d leverage my skillset, my background, and years of experience in a way that could serve investors and clients, but also help advisors tell the story in a way that was both responsible and meaningful to clients.
What kind of folks do you work with? Do you work directly with clients or advisors? Do you work with both?
I’ve recently published my first book called Permission to Spend. That’s my first foray into the consumer aspect. Most of my career has been working with advisors, getting into the nuts and bolts and some of the deep technical aspects of the product, how to make it work, and how to fit it with a client. My next phase, which is beginning now, is taking a lot of those messages and boiling down very complex messages in easy-to-understand ways for clients. This book called Permission to Spend is my first foray into that.
For Permission to Spend, who is your target audience for that? Is it someone looking specifically for whole life insurance or is it somebody trying to get more financially educated?
The whole reason behind the book is there’s a big problem that most people don’t know they’re going to have. Most people are saving money actively in their retirement accounts. Maybe they’re doing some real estate investing, but the vast majority of people are going to work and just saving. The problem is when you get to retirement, you’re going to be terrified to spend that money. Even if you have $2 million, you’ll be terrified to spend that money because that’s the last money you’re going to earn.
Essentially, if you lose a lot in the market, you’re spending money, and now you’re pot of money is less, you’re going to get scared very fast. This is for the pre-retiree folks, people of any age, but 40s, 50s, and maybe 60s who are preparing for retirement and trying to figure out what their overall strategy is. Incorporating actuarial science aka insurance-based strategies as a permission slip to go spend and enjoy those years of investments that you’ve accumulated.
For folks that are new to what life insurance is about, give a high-level overview of life insurance, because I know there are different types. There’s whole life, term life, and universal life. I know that your main focus is on whole life and the strategies around there. Can you explain high-level why focus on whole life?
There are two major types of insurance. There’s temporary term insurance, and then there’s permanent life insurance. The first one pays out if you die. You buy a 20-year term, so if you die in the first 20 years, your family gets paid. That’s usually pretty inexpensive and everybody should own it if they love other people in this world that are dependent upon them.
The other one is permanent life insurance. It pays out when you die. That will pay out 80 years from now if that’s when you finally die. Because it’s a guaranteed payout later on in life, that tends to be a much higher premium payment, but as part of that package, you get cash value. This is when you think about alternate investments and where a lot of the press has been around. It builds a cash value on a tax advantage basis. As it grows, you don’t pay income taxes on it. As you start to recognize gains on it, you don’t pay income taxes on it.
That cash value early on is relatively small based on what you’ve paid in. over time, there is a point in time where that cash on a guaranteed basis will exceed what you’ve paid in. There’s a handful of companies doing it well. They’re participating in dividends, where over time those dividends will get reinvested back into the plan. You can see 4%, 5%, and 6% annual returns on that without any taxation and without a lot of risks.
There’s universal life and there’s whole life insurance. These are all different flavors of permanent life insurance. Personally, on all my experience and all that I’ve seen, I focus on whole life insurance because of the guarantees. You can’t actually lose money in it. It must go up in value. The only question is, “How fast?” Whereas some of those other flavors out there, there are a lot of good sales pitches around them, but none of them have any guarantees over the long term. If you’re going to be putting hundreds of thousands of dollars into these things over time, you want some certainty, especially when it’s a plan called insurance.
Let’s say somebody has a different type of policy such as a universal life policy or whatnot, how does it work? Can they convert some of that or all of that to a whole life policy or do they have to start a brand new whole life policy?
It’s not a conversion. If I can correlate it to the real estate world, there’s a 1031 exchange. You sell a property and you can roll that into a new property. It’s the same thing with the insurance base, it’s called a 1035 exchange. If you decide that there’s a different type of permanent policy that you want, you can transfer all of your cash and your cost basis over to a new policy, depending on how your risk tolerance or objectives have changed. You absolutely can do that.
In terms of getting started in a whole life policy, where do you recommend that people start a whole life policy, and when do people most oftentimes end up doing it in their stage of life?
I find that there are two different people that fit the bill. There’s the crowd I talked about, the pre-retiree crowd, the 45 to 65-year-old crowd, roughly speaking. These are folks that are getting into it. Oftentimes, they have very big death benefit needs. They have kids that are put through college. They have dependents. They have reasons to own life insurance for sure. What they’re doing is they’re building an asset that’s guaranteeing a legacy to their family and maybe guaranteeing funds to pay for potential long-term care claims and retirement. It’s building a war chest of cash.
I hear this a lot. People try to say, “Should I do the whole life insurance or invest in stocks or real estate, or pick investment?” The answer is, “It’s not the right comparison.” Whole life insurance is a better alternative to cash and maybe bonds. Very safe, conservative, and accessible stuff. Because of the tax advantages and the guaranteed growth, that’s where it fits.
Going back to your question, if you’re talking about the pre-retirement crowd, even if your 40 and you’re super aggressive, there will come a day when you’re not going to be that aggressive because you’re closer to retirement. You’re going to want to start taking risks off the table and moving money to cash. That’s where whole life insurance is a great fit. Because it’s giving you bond-like returns without the risk and because of the guarantees, you can be more aggressive or stay more fully invested longer.
The other crowd, especially if it comes to real estate or just making business investments in general, we find a younger crowd in the 30s or 40s looking at whole life insurance over-funded designs as a way to build cash aggressively almost as an investment. Although, life insurance is the first piece and that’s always important. What I mean by overfunded is I talked about the tax advantages, these policies have incredible tax advantages. Meaning the money is going to go in after-tax like a Roth IRA.
You will pay income taxes before it goes in, but if it’s structured properly, you’ll never pay taxes on any of those gains ever again for the rest of your life. Even if it’s 80 years from now and you’ve multiplied your money by 10 times, the IRS won’t get a nickel of it. That’s the amazing tax advantage. Unlike retirement accounts or other vehicles, you don’t have to wait until 59.5 to access it. You don’t have to wait until retirement or use it for a specific purpose like college. You can pretty much get it whenever you want.
In this market, not necessarily younger markets, but any age, what they’ll do is they’ll fund these policies way above and beyond what’s required up to the IRS thresholds of what’s allowed to get these tax advantages. That’s what I mean by over-funded. Essentially, you’re paying more than you are required to for the death benefit on purpose because of those tax advantages for cash.
What folks will then do is they’ll use that cash to then make a down payment on a property, and then use a policy loan provision and pay it back, or they’ll use it to make a business investment. On the individual side, there are a lot of applications on the business side and estate planning. For the bread and butter individual investor side, those are the two big markets that we see.
I do have a handful of friends that use their whole life policy as a placeholder. It’s pretty much almost like their own form of banking. They can pull money from it as needed because the rate of return is a lot higher than you would get at any bank account. What I’m liking from whole life versus a lot of the other stuff is the fact that it doesn’t go down in value. Along the same lines, what is your take on that infinite banking concept? Even a lot of real estate investors talk about this concept, and that’s how I’m familiar with it too. What’s your take on it overall?
My issue with infinite banking isn’t so much the concept. It’s all of the phrases and the wording that goes around it, including the words “infinite banking.” It’s not a bank and it’s not infinite. You are subject to IRS limitations and what you can afford for sure. There are a lot of terminologies that get tossed around like you’re borrowing from the policy and you’re paying yourself back. You’re really not. You’re paying some of that interest to the insurance company. There are a lot of nuances around it.
That said, I haven’t had a dollar in my savings account for the last fifteen years because I own substantial amounts of whole life insurance. I use my whole life insurance essentially as an alternative to savings. Right now, on my policy that’s now 15 years old, when I look at my annual statement year to year, my cash values are growing at about 5.3% this year, last year, the year before, and the year before that.
It’s very predictable and stable. I talked about loans. This is probably the biggest stigma when it comes to life insurance. For the uneducated, they’ll say, “Wait a minute. You have to borrow your own money and pay interest? That sounds crazy.” Essentially, the concept of infinite banking is when you have a mature whole life policy like mine, it’s been in place for 15 years and it’s growing north of 5%. I borrow against it at 4% to 5%, whatever the number is. It’s usually pretty similar to the growth rate over time. It fluctuates over time. It’s usually pretty similar.
The idea is that policy and loans are treated as tax-free transactions in the IRS’s eyes. Just like if you borrow money on a credit card or borrow money elsewhere, you’re not going to pay taxes on that loan because you’re paying it back at an interest rate. That’s the magic of these strategies. If you can borrow against your asset at rates similar to the rate it’s growing at, that’s the infinite piece. You’re essentially putting money in and out, rinse and repeat. Over time, you’ve always got this life insurance benefit. You’ve got an underlying cash that’s growing and you’ve got dividends that are being paid.
I think it’s a phenomenal strategy. It’s way better than having money at the bank earning next to nothing, and then you’re paying taxes on the next to nothing that you’re getting. Otherwise, if you want to get yield, you’re probably going to be buying bonds or taking some sort of risk. Again, you’re paying taxes on that and it’s a much more elegant way.
The other piece is in some of my studies academically toward the end, I started doing some research on whole life insurance as a fixed income alternative. Essentially, an alternative to owning bonds in a portfolio. What you’ll find are these big mutual life insurers. The dividends and the growth that they’re paying on these policies are all based on essentially what they’re earning in their investment accounts.
They have a big pot of money. They’re hundreds of billions of dollars invested mostly in long-term corporate bonds and such. Through the life insurance contract, they guarantee that your values are going to rise on a year-to-year basis, but then they’ll give you outsized performance on top of that based on what essentially their giant bond portfolio is earning.
Through the contract, you’re getting essentially bond-like performance over long periods of time, but the company has insulated you from loss through that contract. I’m careful with the term infinite banking because the big companies don’t like that term. They don’t like it because people sell these policies as cash first and they ignore the fact that life insurance exists. In reality, you’re paying significant costs inside all of these plans no matter how you set it up for that life insurance. If done properly at a younger age just like myself, you oftentimes will get to a point where you don’t even need to have a savings account anymore. It can be that.
I’m glad I brought you on the show because this is the first time I’m having somebody talk about life insurance in general. A lot of the stuff that you’re teaching is not talked about or a lot of people don’t have a lot of education on it because there are not so many trusted resources about it. Where would you recommend that consumers go to get even more information about this? Are there sites or books? How does somebody go about learning even more?
That’s essentially what I’ve done. With my book, you can go to PermissionToSpend.com. Over the course of my years of working with thousands of advisors, I have a handful of advisors nationwide that I’ll refer people to that are very familiar with these strategies and how to set them up properly. If you don’t want to talk to me, that’s fine.
Generally, what I would say is if you want a good whole life contract, go to one of the big mutual carriers or Fortune 100 companies. Northwestern Mutual, MassMutual, Guardian, or Penn Mutual. These are big mutual companies that have been around for more than 100 years. They’re strong and stable. The key is they’re participating.
When you own a policy with them, as a policy owner, you’re almost an owner of the company. That’s what the word mutual means, The company operates for the benefit of its policy owners. There are no shareholders that are also taking profitability off the table. That’s what you want to look for. Their websites will direct you to folks, but I can direct you to folks as well through my website.
What do you think that’s not talked about as much of this concept? You need to go to a specialist to even hear about it, more so than it being talked about as commonplace knowledge. What’s your take on that?
I think it’s becoming more commonplace when you think about how it’s being used. It’s definitely widely marketed. At the end of the day, it’s life insurance. It’s not the sexy hot topic. You’re not going to see people bragging about their 40% returns in it. No one is going to tell you how to double your net worth overnight using it. Frankly, it’s boring. I jokingly say that every well-constructed portfolio needs a mix of different assets to diversify. Some of that portfolio has to be boring stuff. Stuff that you’re not going to brag about but it’s going to go up every year.
Whole life insurance is the best boring money you can buy right now. It has the best tax advantages that are going to give you bond-like returns. People lost a lot of money in bond funds in 2022. They were surprised when the whole life insurance went up. It always goes up. That’s where it fits. You don’t see a lot of marketing around that.Whole life insurance is the best boring money you can buy right now. It has the best tax advantages that will give you bond-like returns. Click To Tweet
The other piece is it’s life insurance. Frankly, it’s illegal to market it for its cash value first. It’s a life insurance contract. Death benefits should be marketed first. The big companies are not running commercials saying, “Check out our cash value.” It’s against regulations to do that, so you’re not going to see them do that. It’s truly one of the best-kept secrets in the business for exactly that reason.
The ancillary benefit of the tax advantages wrapped around that cash value is one of the best-kept secrets in the business. It’s more impactful for investors who are either more conservative, particularly older investors, or conservative investors who need that significant cash allocation to feel good and sleep at night. Also, tax-averse individuals or high tax bracket folks. That’s where a lot of those tax advantages play well.
A lot of people here are business owners. What can business owners do in terms of strategic use of the capital as it relates to whole life?
What we find is a lot of business owners have insurance needs. They have key individuals on their team. Think about if you’re a small business and you have your top salesperson. They were with you from the start and they have all the relationships. What if that person died? What would happen to your business? You might lose customers. Even if you can retain the customers, it’s going to be very expensive for you to hire somebody else to take their place.
What we see is a lot of key person coverage for those needs. That’s a life insurance need first. If you’re a business that is keeping cash on the books, you can do double duty. You can essentially ensure the life of that individual who’s a key to your team. There are also reasons to buy insurance for business partners. If your business partner were to pass away, then there are ramifications there. The cash value of the policy can be held on the business books.
It’s an alternative to savings. In the short term, it’s not going to beat your savings account. In the long term, as you roll it year-to-year, it’s going to start to perform much better with some great tax advantages. We see business owner clients being probably the top clients for it because they have the cash load to fund it and they’ve got a lot of different reasons to own the insurance.
I wanted to also talk a little bit more about your book, Permission to Spend. How can our folks access a copy of it? Is it available online? How do they go about getting it?
In Amazon. It’s available in all formats, including audiobook if you want it. We talked a lot about the cash value and the investment aspect of life insurance in the last few minutes. The book is driven by the retirement crowd. All of us are investing, accumulating wealth, saving, and working toward a number. Everyone has a different number. At some point, you’re going to hit your number and say, “I’m ready to retire. I have enough money.”
Very few people, including advisors. A lot of advisors don’t even recognize this issue well enough. Someday you will be at retirement’s doorstep with whatever you’ve been able to accumulate and you’ll say, “I did it. I’m here. I accumulated my millions. How much can I spend?” It’s a terrifying question and you’re going to be afraid to spend. You might not think about it, but you will be terrified to spend that money.
We see it time after time. Retirees are way underspending what they probably could because you’re not making money anymore. You’re not working anymore. If you spend too much and you start invading principle, then the market crashes or something bad happens, and you’re going to be terrified to spend. It’s a tragedy because 99% of the time, tragedy doesn’t strike. We see retirees getting richer in retirement, which sounds good. What it means is they’re not spending their entire life saving.
The book is all about shifting risk. It’s all about guaranteeing a legacy for your kid. It’s all about putting strategies in place to cover those unexpected health claims. It’s about providing a source of liquidity so that if the market crashes, you can stay invested in the market and have another place to pull from in those years. It’s all about strategy done well.
If you employ those strategies 10 to 15 years before retirement or more, you’ll have way more flexibility and choice in how you spend your assets. You can as much as double your lifestyle if you do it properly based on the study. The book on a very high level goes through that. Somebody told me that they read it on a four-hour flight, so it’s not a heavy lift. It’s available in all formats on Amazon. You can always go to PermissionToSpend.com too if you want to connect and dive in deeper.
How would you respond to somebody that says that whole life insurance is a bad investment?
It’s not an investment. It’s an insurance policy. We talked about the best boring money can buy. Whole life insurance is an optimal replacement for cash and a bond component of a portfolio. That’s it. If you’re thinking about it in terms of whole life versus stocks over the long run, stocks win every time. Real estate will win. Starting your own business will win.Whole life insurance is not an investment. It's an insurance policy. Click To Tweet
Any prudent portfolio, no matter who you are, should have some cash allocation and bond allocation, particularly as you get older or as you get closer to certain goals. Even college funding, as you get closer to funding your kids’ college, you’re going to take risks off the table because you want to make sure that money is there and not wiped out by a market crash. That’s whole life. It’s simple as that.
When people say it’s a bad investment, I think that they try to paint the industry with a broad brush. There are a lot of different policies out there. There are whole life policies I never would buy, but if you’re buying a good, well-crafted one, probably a little bit over-funded from one of those big mutual Fortune 100 companies, you can’t lose. Your worst-case scenario is you may have done a little bit better elsewhere, but chances are, given enough time, that won’t happen.
I have some final questions for you as we wrap up. My first question is this. What are you excited about in your business right now?
This book is my first foray into the consumer side. I’ve spent a lot of my career working with advisors and helping them tell the story. What I’d like to build out is a set of resources and concepts that individuals can tap into and advisors can share with their clients. I think there’s not a lot of that in the industry. You mentioned that a lot of people haven’t heard about this.
There are some good reasons for that and there are some bad reasons for it too. There are a lot of bad actors out there putting out misinformation. There are people that say it’s a bad deal because some people are misselling it. I’m looking forward to building upon the work that I’ve done. Creating more for clients to consume. Creating resources for advisors to use to educate their clients. That’s where my strength lies. That’s what excites me for the most part.
What does the word success mean to you?
Success means living life on your terms. There are successful people that can live off $20,000 or successful people that can live off $2 million. For every person, it’s going to be different based on how you want to live. Financial success and financial independence, which is where I come from, are all about living your life by design. To the extent that you can build a plan which gives you permission to spend what you’ve accumulated on your terms the way you want to live your life, to me, that’s success. It’s going to vary by person.
Is there anything that I forgot to ask you that I should have or any final words for the audience?
I don’t think so. If there’s one thing to take away, that is if you have heard about whole life insurance, there’s a lot of misinformation out there. You mentioned that some people may have heard it’s a bad investment or it’s a bad tool. In my experience, there’s no such thing as a bad category. Categories of vehicles are generally created for a reason to solve a need. It’s when you misapply them. It’s when you have a vehicle that’s applied to do something that probably isn’t best suited for it.
A good example is whole life insurance. There are some people that oversell it and they’ll say, “This is the only financial vehicle you’ll ever need to own,” which is ludicrous. There are great ways that have been proven over decades or even centuries to generate a lot of wealth like real estate, equity investing, starting your own business, and things like that.
Whole life insurance is meant to be that safe conservative piece of your portfolio because the advantages when you unlock how it works are just unlike anything else out there. The key takeaway is to stop with the either/or-mindset and start with the and-mindset of we’re going to own a bunch of different things that work in harmony. In my opinion, that’s where we’re seeing the most successful clients excel.
Good words. Good advice. How can somebody get a hold of you?
My personal website is TomWallTalks. I do a lot of speaking as well. That’s how you would find me individually. You can also tap into me at PermissionToSpend.com. That’s there as well. You can pick up the book or consume any of that content through Amazon.
Tom, thanks for joining me on this episode. That’s a wrap. I do appreciate all your knowledge and insights about whole life insurance. I know my audience will definitely get a lot of value from this episode. To my audience, feel free to reach out to Tom directly should you have more questions. Also, thanks for checking out this episode of The School of Cashflow. Remember to leave a review as it helps me attract even more great guests just like Tom. Until next time, live life abundantly. Thanks, Tom.
- Tom Wall
- Amazon – Permission to Spend
- Northwestern Mutual
- Penn Mutual
About Tom Wall
Tom holds a Ph.D. in Retirement Income Planning, with original research on Whole Life as a Fixed Income Alternative under the advisement of industry thought leaders Wade Pfau, Michael Finke, and Stephen Parrish. His focus on academics and selling from a place of integrity come from a 20-year career of positioning whole life insurance and competing against its alternatives. Starting in college as an award-winning advisor with Northwestern Mutual before moving his practice to MassMutual, he subsequently grew his career in prominent home office roles in sales and marketing leadership. He has been a well known storyteller at perennial company conferences and firm meetings nation-wide. Tom now coaches and consults with financial advisors, hosts the Whole Life Masterminds study group, and is authoring multiple pieces of original thought leadership, books, and other content.
Tom distills decades of experience into simple language, concepts, and thought leadership that advisors can immediately take to their clients. He believes whole life insurance is the Best Kept Secret in financial planning, and has refocused his career on driving organizational growth and inspiring a cultural shift among investment oriented advisors. Tom lives in the Boston area with his two boys aged 11 & 8, and wants nothing more than to make a profound impact on your team.