Frequently Asked Questions

While this discussion is relevant in the States, in Canada there are very few companies that are still mutual and that offer the right type of insurance policy for this concept. So when someone tells you that you have to use one specific company simply because it is a mutual company, I disagree… Especially because of the restrictions that the one mutual company in Canada has on her product.

If you are going to invest/save that much money into one specific vehicle/strategy, you want to make sure that you don’t have any restrictions that could impact your ability to access the money down the road. The one mutual company that is used most often for this concept does.

Additionally, right now, the only reason that this one mutual company that so many advisor recommend stands out, is because it is a mutual company. It is the only big fish… in a fish tank. Should the company decide to demutualize, it will become a small fish in a huge pond, and will have a really hard time competing with the other much bigger companies out there.

So buying a policy from that company only because of the potential value that you would gain if it decided to demutualize is a poor strategy, especially with the additional restrictions that it enforces on the policies loans or premium offset.

If your advisor is pushing that company despite those restrictions, there most likely is another agenda and that one is not about you. For example, one of the companies that promotes the concept extensively in the States and Canada, has a Canadian arm that follows up on all leads coming from online leads. These advisors are asked to only recommends this company, because the American company has managed to secure a deal that allows it to get a cut on the policies sold through their marketing efforts. This has nothing to do with you.

My priority is to ensure that the product I sell you is the best for you, not that it allows another company to make a cut on the policies I sell.

The biggest difference between the American and Canadian applications of the process is the ACB (Adjusted Cost Basis). This ACB will restrict your ability to borrow money directly from the insurance company without taxation in the late years of your policy. As you get older, the ACB is becoming the biggest limiting factor to your borrowing capacity.

So you end up having to deal with the bank to get a line of credit that is using the policy as collateral. But because you have to deal with the bank, your credit score and income will matter at that point.

The way some of the big insurance companies south of the border can design the policies is also different than what we can do in Canada. Recently one of the big insurance companies in Canada has launched a new product that is a lot more like what our counterparts can do south, but it still is slightly different, especially because of that ACB affecting it.

First, there are only 4 big contenders in Canada when it comes to choosing a whole life policy that will work for the infinite banking concept.

Each one of these four companies has two version of the whole life product. While they all have different names for them, the difference lies in the early cash value available, or the increase later cash value available after about 15 years. The one company I now use mostly because of how much stronger its product is compared to the competition, only offer one type.

But for those of you who are still being sold the other types of policies, or for those who are looking for policies on kids (the company I use for adults is different than the one I use for kids), the difference between the two version is important to understand.

The Protector, Estate Achiever or Estate Builder is the version of the product that offers higher growth after year 15, but lower access to capital (cash value) in the first 15 years, and especially in the first three years of the policy.

The Wealth Accumulator or Wealth Achiever offers higher cash value in the early years, but doesn’t grow as fast after 15 years.

So depending on what you are building this policy for, you’ll have to pick the one that suits your needs best. For kids policies, the one with higher growth in the later years is usually more logical, since you’re more looking at a longer term approach.

Again, not all products are designed the same, and not one product is the best for all situations. The benefit of working with a broker, who is an expert on this concept, and wrote a couple books on it, is that you’ll get the most efficient tool for the job you want to do, not just a tool that kind of fits all scenarios.

There are three major ways to withdraw or borrow money from your policy:

• you can either take a policy loans from the insurance company directly, which is the preferred method until such time as the Adjusted Cost Basis (ACB) starts to affect the amount available without taxes,
• you can withdraw money from the policy, in which case the amount withdrawn will reduce the size of the policy, or
• you can use the policy as collateral and approach a lending institution to get a loan.

The first one is the cleanest and easiest as long as the ACB allows it. Once the ACB starts reducing the tax-free amount available, usually in the retirement years, approaching a lending institution is the most efficient way to access your money tax-free.

This is one of the very reasons why the infinite banking concept gained so much popularity over the last decade.

Getting a policy loan is very simple, and requires only a phone call or a one-page form (depending on the company and amount requested to be loaned out).

You send the form where you’re basically telling the insurance company how much you want to borrow, and how you want to receive the money (cheque in the mail, or direct deposit). If you want, you can also specify the terms of your repayment, or leave it be until you’re ready to pay it back.

The insurance company will send you the money within 10 business days.

That’s it. No begging, no justifying your life away, no credit check, no back and forth! And nobody on your back asking when you’ll repay the loan either.

This as some slight connection to how the market does, but you can usually expect your money to grow at at rate between 4 and 4.5%.

The longer the money is invested into the policy, the better the return, especially if you only had a 10-pay or 20-pay (as opposed to life-pay).

Since you’re policy is paid up after 10 years in the first scenario, as the policy continue to grow without any additional premium required, the internal rate of return on that money continues to grow too.

Quite often, advisors who are upset that you ended up working with me for the whole life portion of your port folio (cause they don’t have the expertise in this one particular product or strategy), end up telling you that I’m only selling you the product because of the high commission it pays me….

This is simply no true.

A properly designed whole life policy, with the right amount of additional deposits, will pay me less than a Term policy would have paid me, if we consider dollar for dollar.

In order to set the policy properly so the client, you, get the most out of it, the additional deposits have to be maximized. This portion of the policy pays me a tenth of what the base coverage or a term policy would pay me. You read that right: 10 % of what I would have got paid if I had sold you the term policy, or if I had only sold you the base coverage. This is why some advisors sell policies with the base coverage only, in order to get paid ten times more… but that means you’re losing in that scenario since your interests don’t come first any longer.

Now am I getting paid well for the work I do? You bet I am. Most of the time. But so are all your other advisors who offer financial advice. The lawyer and accountant are the most common ones, but if you have an investment guy or gal, he/she gets a trail on your investment year in – year out, regardless of what the market does. If the market tanks and your investment drops, they get paid. You have negative returns, they get paid.

Same for your insurance advisors, all insurance advisors get paid the same percentage on the product sold (called First Year Commission). Then based on the expertise of the advisor, there is a bonus added to that.

My point is that, the question that you should really ask yourself is this one: what value am I getting from the advisor. What am I really getting out of that relationship.

This is a good question, that is asked pretty much every time I start looking at a plan with a prospect or client. There are two types of cash value inside a whole life insurance policy: “guaranteed” and “non-guaranteed” cash value.

The guaranteed cash value is the amount that the insurance company would give you if:

• the insurance company should they never have any profits in the future (which means not declared dividends… ever), and
• you decided not to pay for the additional deposits that were identified as part of your original budget.

Getting the guaranteed cash value is nearly impossible for two reasons: first, the insurance company has already declared dividends for the year you purchased the policy (they never missed a year yet, NEVER), second, we design your policy based on the budget you had identified. So if you decide to cut that budget in half right from the get-go, well then we just redesign the policy to accommodate for that new budget instead of settling the policy with the wrong budget.

So really, between the insurance company not being able to not make any profit (even if they tried I don’t think they could), and the fact that your budget was determined by you, you most likely want to look at the “non-guaranteed” illustration.

Now, that being said, the non-guaranteed cash value does consider that the insurance company would perform every year the way they have this year (which is what they call the current dividend scale). The chance of that number changing with the year is guaranteed. It will go up, it will go down, but it will always be something. Back in 2008, one of the companies declared a dividend of 4.8% (as opposed to 6.1% now), but still, it did have a dividend.

So being conservative means that you should look at the dividend scale minus 1 or 2 percent, often illustrated as Div -1%, or Div -2%.

There certainly is!

Both options are good though, as some prefer the easier budgeting approach of knowing what the payment would be every month, while others have sufficient money in an account (like retained earnings) and like the idea of getting a higher return on their money by paying annually.

The annual payment (or premium) gives slightly more return on the money because the insurance company gets all your money at the beginning of the year, as opposed to having to wait until the 11th month to get the last installment of the yearly premium divided monthly.

This is true for term insurance too. Usually, you can save about one month premium by paying annually vs. monthly.

This depends on the type of policy you want to purchase, or should I say, what you want to purchase it for, and who you’re purchasing it for.

There are only four insurance companies that you should consider to set up one of these policies, and out of these four, I only use two of them for 99% of the policies I sell.

There is a question above about a mutual company vs. a public company. I’ve already explained the difference. It is sufficient to say that the mutual company is not one of the two for me, because of the restrictions they enforce on the policy owners with access to the cash value.

One of the two companies I work with is better for kids policy, the other one for adults.

There are several options to choose from if you want to take a payment holiday: 

• You can surrender some additional death benefits that you purchased over the year through additional deposits.
• If you have enough money inside your cash value, you can simply stop paying and ask or expect the insurance company to use that money inside your policy to pay for the premium. That is called the automatic premium loan. When this option is selected, the additional deposit option is stopped, and only the base coverage premium is covered by the insurance company. This will “slow down” Your policy.
• You can take a policy loan and use that money to pay the premiums. Which is similar to the APL previously mentioned, but allows you to also add the additional deposits and keep the policy growing faster.
• You can drop the additional deposit yourself, which allows you to reduce the premium amount. You still need to pay the base coverage, but that could cut down your payment in half in some cases, or more.

All these options should be considered carefully as they will affect your policy, and in the worst case, force the insurance company to cancel your policy. If the outstanding loan exceeds the cash value inside the policy, it will lapse.

This is another big feature of the infinite banking concept, and why it is such a powerful tool.

The whole approach is based on building a personal bank inside your policy, then using that bank to purchase big items (through policy loans or by assigning the policy as collateral), then repay as you go. Same if you decide to supplement your retirement with a tax-free income by leveraging the policy, chances are that by the time you die, you might have quite the tab running with the lending institution or the insurance company… Which is fine!

This is the whole point of using the living benefits of these policies. Leverage them while you’re still here on this earth.

When you die, whatever outstanding loan will be paid out to the bank or insurance company first, then the balance will go to your estate or beneficiaries.

It depends.

If you want to know what the shortest duration is to have a paid-up policy, the answer is 8 years.

If you want to know what is the longest duration is for which you should pay the policy before you can offset your premiums, this could be as early as year 3 or 4. Offsetting it that quickly is not recommended, though, as the impact it would have on your policy would be significant. Every year that you can continue to make the payment, it will boost the benefits and cash value you’ll have access to later.

Most policies that I set in place with clients are 10-pay or 20-pay, which means that the payments should be completed within 10 or 20 years. People can decide to stop paying the premiums after 5 years, or 6,7,8.9… anything really. But the longer they can keep paying these, the better.

The ability to pay your policy in fewer years is also affected by the life insured's age, smoking status, and how the economy is doing (affecting the dividends declared by the insurance company).

This question was already addressed in question about guaranteed and non-guaranteed cash value.

The dividend -2% is more conservative than the -1%, as it basically means that the illustration is based on a current dividend minus 2% as opposed to the one minus 1%. For example, if the current dividend scale was 6.1%, the div – 1% would create a new illustration based on a dividend scale of 5.1%, while the illustration with div -2% would be based on a dividend scale of 4.1%.

Dividends don’t always go down. They go up and down over the years. Depending on how the economy and the performance of management of the insurance company (projections of how many people will die, reality of how many policies lapsed…).