Exploring the umbrellas, simplicity, and life planning

Welcome to the Intentional Dollar weekly newsletter — great work taking this small step to move your money forward. I’m Logan, a Certified Financial Planner™, and I’m excited you’re here!

What’s inside?

• One tool to experiment with

• Two quotes from others

• Three questions to dig deeper

• Four lines of poetry for the point

_{One tool to experiment with:}

Umbrellas:

Have you ever been caught in a rainstorm without an umbrella?

Most of us have. With good intention, we check the weather before we leave and see no rain in the forecast; we leave our umbrellas hanging at home only to be ruefully reminded that there’s a randomness to nature and weather patterns.

It typically takes us adaptive beings once to learn that we should carry an umbrella in our car, or in our bag for the off chance the weather changes. We are able to learn from this experience — we get a retry.

We can apply this metaphor to our lives — rain being the risk of an untimely death. However, in life, we only get one try — we can’t buy umbrellas after we’re gone. Life insurance is the umbrella for our lives.

If we distill life insurance down its foundation, we see that it accomplishes one objective: pay a pre-determined sum of money when someone dies. Typically, you own a life insurance policy on your life that pays someone you care about if you die.

Life insurance covers the financial loss your beneficiaries would experience should you die prematurely. Outside of covering the financial loss of you leaving early, you can also create an estate with your life insurance. This is how people with low-to-no assets can “gift” their family money when they’re gone.

For 90%+ of people, the only “type” of life insurance they will need is level term life insurance. What does this mean? The term, premium, and death benefit are all fixed at the time you enter contract. As an example, you might be able to get a 30-year term policy that provides a death benefit of $500,000 and costs you $30/month. As long as you make that monthly premium payment, the policy stays good (in force) for 30 years.

A problem with the insurance industry, and some of the agents that sell insurance, is that agents earn more money when they sell more expensive, complex policies. This is a massive principal-agent problem — and a reminder to always follow the incentives of someone selling you something.

Instead of selling a lightweight umbrella (level term) to cover you when it rains, some agents try to get you to buy personal pergolas that you carry everywhere you go. They’re unnecessary, expensive, and cumbersome anchors.

So why term insurance?

It’s the most cost-effective tool for the majority of the population. The general job of insurance is to provide money at your death. It’s not to be an investment product, it’s not to be a loan vehicle — it is to insure you if you die prematurely.

The cost of term insurance is very low if you are young and healthy. Even if you don’t have dependents or a spouse, it could be a good idea to get a 30-year term policy, in addition to any group coverage you might have at work.

“After 30 years, the policy expires and I lose the coverage?” Yes — and that’s the point.

Insurance agents will use this loss of coverage statement to create fear, but if you diligently invest what you would have spent on a permanent insurance product, you will (almost certainly) have accumulated more than the death benefit on that permanent policy — this is called self-insurance.

Complicated, expensive insurance is for the 1-5% of people that make a lot of money, max all of their available tax-deferred accounts out, own businesses, or need complex estate planning.

Always second-guess the sellers of these pergolas below:

• Whole Life Insurance

• Variable Life Insurance

• Index Universal Life Insurance (IULs)

• Variable Universal Life Insurance (VULs)

• Guaranteed Universal Life Insurance (GULs)

Again, these might make sense for a tiny part of the population, and those in unique scenarios, but not most.

* Social media has exacerbated a problem in the insurance industry, and it’s created an IUL plague. IULs are not better than 401(k)s, Roth IRAs, and they are probably not right for you — so please be careful with these.

Complexity conceals costs. Force someone to simplify and you’ll clearly see what they are selling you — umbrellas or pergolas.

_{Two quotes on simplicity:}

Complexity is often worn as a cheap mask to conceal the things we don’t know, and to convey a sense of formidable, yet false, intelligence. Simplicity is honest and elegant.

_{Three questions on life planning:}

These questions are from George Kinder on life planning — an integral element of forging our proper money path.

1. “Imagine you are financially secure, that you have enough money to take care of your needs, now and in the future. How would you live your life? Would you change anything? Let yourself go. Don’t hold back on your dreams. Describe a life that is complete and richly yours.”

2. “Now imagine that you visit your doctor, who tells you that you have only 5-10 years to live. You won’t ever feel sick, but you will have no notice of the moment of your death. What will you do in the time you have remaining? Will you change your life and how will you do it?”

3. “Finally, imagine that your doctor shocks you with the news that you only have 24 hours to live. Notice what feelings arise as you confront your very real mortality. Ask yourself: What did you miss? Who did you not get to be? What did you not get to do?”

Which question stuck with you? Questions like these are spotlights for the mind. Reply to this email and let me know which one shined light on a previously dark cave.

_{Four lines of poetry for the point:}

Contact Me:

Content ideas, questions? Reply to this email or reach out to me at [email protected]