The Wealthy Physician

Canadian Edition

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The Wealthy Physician – Canadian Edition
The physician’s guide to building wealth in Canada

Book Content

Start your Journey to Building, Growing and Protecting your Wealth

The Infinite Banking Concept has grown a lot in popularity over the last decade, and while a lot of resources are available in the States, the Canadian market still suffers from a lot of misinformation.

Physicians work hard.

You chose a profession that requires extensive studying and seemingly endless training. However, none of that education included anything about how to manage the income that it would allow you to earn.

You spend countless hours learning how to best manage your patient, but such little time learning how to manage your money. Whether you like it or not, you all have two jobs, the one you train for and also money management. You can be like most people and ignore your “2nd job” or you can train and study for this job just like you did for your first job.

But, where do you find this education or the time? What is the best strategy?

Concepts discussed in the book

Learn how to properly invest in the market. Understand why moderation is key when investing in the market.

Understand the truth about rates of return. Learn how fees & commissions impact your ability to grow wealth.

Learn how to minimize your tax burden while continually growing your wealth year after year.

Learn the types and amounts of insurance needed to protect your ability to earn a high income.

Understand asset protection and why it is necessary for all doctors and their practice.

Learn how to create a financial legacy for your family that lasts generations.

Rempp Financial

Co-Authors of the Wealthy Physician – Canadian Edition

The Infinite Banking Concept for doctors

image 306

Antoine Rempp

Wealth Coach

Antoine Rempp is a Medical Professional Financial Strategist.

Growing your wealth is only one piece of the puzzle, accessing and protecting that wealth matters just as much!

Antoine Rempp is a Medical Professional Financial Strategist. His expertise and passion are to work with professionals on growing and protecting their wealth, while minimizing the amount of taxes they will pay during their working years, retirement, and estate transfer. Getting the proper insurance tools to protect one’s income is vital, but why not use these very same tools to reduce your tax bill and enjoy your lifestyle and leave a greater legacy?

There are efficient ways to reduce the tax you pay. “The Wealthy Physician – Canadian Edition” is an amazing book for physicians, medical professionals in general and business owners. “Live Your Life Insurance – Canadian Edition” is for anybody who finds life insurance confusing and complicated and wants to learn how to get more out of their policies.

While he works with business owners and professionals in general, he has a passion for the medical field. His dad is a doctor (along with his uncle and cousin), and his mom is a nurse (along with several aunts and cousins), so he witnessed firsthand the sacrifices his dad made to build his home-based practice: long days, few weekends off, exhaustion for “family time”… While he felt his dad wasn’t available much for him when he was young, he understands and appreciates what he had to sacrifice to help others and provide for his family. However, his lack of financial knowledge, which is quite common among doctors in general, reduced his ability to really prosper and reap the rewards at the end of his career.

Doctors think they are supposed to be experts in their fields, but not on money. I disagree, you’re working hard, your money should work just as hard, or ideally, much harder!

P.Eng. by trade, he left the engineering industry to focus on his financial practice, which he started back in 2010. Certified Executor Advisor, Certified Cash Flow Specialist, and first Canadian to obtain the Infinite Banking Practitioner designation offered by the Nelson Nash Institute, he’s one of the leading experts in Canada on the Infinite Banking Concept.

Life insurance doesn’t have to be boring or complicated. Let him show you how it can actually be exciting, and how the LIVING benefit of that amazing product can change your life. When combined with a proper cash flow plan, you will be able to achieve some results that you didn’t think were possible.

You’re working hard, your money should work hard too, and that is how you’ll be able to leave a legacy and change your family tree.

See Full Bio
Rempp Financial

Chase Chandler

Author

CHASE CHANDLER is a driving force in the financial industry.

Original Author of The Wealthy Physician, published in the United States

CHASE CHANDLER is a driving force in the financial industry. He is the founder and CEO of Chandler Advisors, LLC. Mr. Chandler has extensive experience in working with physicians and medical professionals and works with medical practitioners and hospitals around the country. He has shown resolute commitment to finding the most effective financial solutions for the medical market.

Chase began in the industry in his early 20s with one of the largest financial planning firms in the country, and has only become more convicted of his and his team’s competence and value to clients. Through holistic planning, he was immediately one of the rising stars in the profession. Chase was featured as a ‘Mover and Shaker’ in the Arkansas Business Journal in the summer of 2009. After spending a number of years with one of the nation’s largest financial and insurance firms, Chase became the founding member of Chandler Advisors, LLC.

Chase speaks around the country about financial, economic and motivational topics. Chase is married to Beth Chandler, who runs various strategic operations of the firm. Chase holds a B.B.A. from Harding University.

See Full Bio
Rempp Financial

Douglas Guest

Canadian Co-Author

Douglas Guest obtained a Bachelor of Commerce with Major in Finance from McGill University, and has a psychology degree focused on Family Systems

Douglas Guest obtained a Bachelor of Commerce with Major in Finance from McGill University, and has a psychology degree focused on Family Systems Theory. Raised in a financially successful family that provided a sound knowledge of money and investing, he has been investing and following the markets on a personal level since 2000, directly managing a personal portfolio and taking control of his own finances. By entering the industry as an advisor after having been courted as a client for numerous years, he has a unique perspective on money management.

Having owned a properly designed Whole Life policy for nearly fifteen years, he has come to consider it one of the most powerful financial tools that someone can have in a well-structured portfolio. He also thinks that its long-term nature and its hassle-free accumulation of wealth make it one of the best tools that any family can use to make their dreams come true.

His passion is to help educate his clients so that they can make their own informed financial decisions. He is eager to share what he has learned throughout his lifetime in regard to finance, so people can build their own wealth. He wants to see people’s finances support their lives, rather than people constantly spending their entire lives trying to support their finances.

See Full Bio
Rempp Financial

Live Your Life Insurance

Canadian Edition

Book Content

Challenging ourselves to bring new and original ways of thinking

“Live Your Life Insurance—Canadian Edition” is the Canadian version of the original book of the same name, written by Kim Butler. The book has been adapted to fit our Canadian laws, especially when it comes to taxation, and will show you exactly how you can take advantage of one of the most common, but misunderstood, financial tools.

In it, you’ll discover exactly how you can use your life insurance to benefit you while you are alive — and help you build financial security.

In addition, it will reveal ways to make the best of your policy no matter what age you are. Most people don’t realize what a powerful tool they have in their life insurance policies — this book will be your guide.

Featured on Amazon.ca

“Live Your Life Insurance – Canadian Application”
An Age-Old Approach Revitalized

Rempp Financial

Concepts discussed in the book

When properly set up, your policy can literally become your own bank. In order to get the most out of it, and prevent frustration down the road with the flexibility or access to money or funding sources, you have to make sure that the policy is well-designed, with the right company!

The money that is deposited into the policy is protected from the creditors, which is a perfect way to ensure that your money will be there when you need it. Nobody can foresee what could come down the road, and having a secure and safe place to park your money is worth its weight in gold.

There are three main ways to optimize (reduce) your taxes:
– first, once you have deposited money into a policy, it will grow tax-free.
– second, when you go to access it or leverage it, you can do so without any taxes (you’ll pay interest on the loan, but no income tax),
– finally, with a properly designed policy, your biggest tax bill (when you die) is avoided by a direct transfer of the money to your heirs either in the form of a death benefit, or in the form of a policy containing a large cash value (equity).

RESP are good in the fact that they do offer the potential to add 20% to your savings, which shouldn’t be overlooked. The challenge though is that they are usually very regimented, and won’t allow you to access the money for any other reasons.
With a properly designed life insurance policy, you can create an education fund, but you can also access the money for any other reason that might be more critical than the education that you’re trying to save for.

I briefly touched on that in the tax topic above, but a properly designed whole life insurance policy will offer significant estate transfer benefits.

Either in the form of a death benefit, which is basically the transfer of a large amount of cash without any taxes, or in the form of a policy with a certain amount of money held into it, similar to equity in a property. Regardless of the amount of money sitting inside the policy, the transfer down the generation happens without any taxes.

Setting up a legacy of infinite banking can spread over a couple of generations, but once established, it can continue to grow with amazing speed and efficiency.

Co-Author of Live Your Life Insurance – Canadian Edition

image 306

Antoine Rempp

Wealth Coach

Antoine Rempp is a Medical Professional Financial Strategist.

Growing your wealth is only one piece of the puzzle, accessing and protecting that wealth matters just as much!

Antoine Rempp is a Medical Professional Financial Strategist. His expertise and passion are to work with professionals on growing and protecting their wealth, while minimizing the amount of taxes they will pay during their working years, retirement, and estate transfer. Getting the proper insurance tools to protect one’s income is vital, but why not use these very same tools to reduce your tax bill and enjoy your lifestyle and leave a greater legacy?

There are efficient ways to reduce the tax you pay. “The Wealthy Physician – Canadian Edition” is an amazing book for physicians, medical professionals in general and business owners. “Live Your Life Insurance – Canadian Edition” is for anybody who finds life insurance confusing and complicated and wants to learn how to get more out of their policies.

While he works with business owners and professionals in general, he has a passion for the medical field. His dad is a doctor (along with his uncle and cousin), and his mom is a nurse (along with several aunts and cousins), so he witnessed firsthand the sacrifices his dad made to build his home-based practice: long days, few weekends off, exhaustion for “family time”… While he felt his dad wasn’t available much for him when he was young, he understands and appreciates what he had to sacrifice to help others and provide for his family. However, his lack of financial knowledge, which is quite common among doctors in general, reduced his ability to really prosper and reap the rewards at the end of his career.

Doctors think they are supposed to be experts in their fields, but not on money. I disagree, you’re working hard, your money should work just as hard, or ideally, much harder!

P.Eng. by trade, he left the engineering industry to focus on his financial practice, which he started back in 2010. Certified Executor Advisor, Certified Cash Flow Specialist, and first Canadian to obtain the Infinite Banking Practitioner designation offered by the Nelson Nash Institute, he’s one of the leading experts in Canada on the Infinite Banking Concept.

Life insurance doesn’t have to be boring or complicated. Let him show you how it can actually be exciting, and how the LIVING benefit of that amazing product can change your life. When combined with a proper cash flow plan, you will be able to achieve some results that you didn’t think were possible.

You’re working hard, your money should work hard too, and that is how you’ll be able to leave a legacy and change your family tree.

See Full Bio
Rempp Financial

Kim Butler

The original author of the American version of the book
Kim Butler is not your “typical financial planner.” Founder of Partners for Prosperity, LLC.,

Kim Butler is not your “typical financial planner.” Founder of Partners for Prosperity, LLC., a federally Registered Investment Advisory Firm that works with clients in all 50 states, Kim is a leader in the Prosperity Economics Movement.

She is also the author of Busting the Retirement Lies and Busting the Financial Planning Lies.

Kim’s identification and articulation of the Seven Principles of Prosperity has changed the way that thousands of people think about their finances and create freedom as well as wealth.

See Full Bio
Rempp Financial

Douglas Guest

Canadian Co-Author

Douglas Guest obtained a Bachelor of Commerce with Major in Finance from McGill University, and has a psychology degree focused on Family Systems

Douglas Guest obtained a Bachelor of Commerce with Major in Finance from McGill University, and has a psychology degree focused on Family Systems Theory. Raised in a financially successful family that provided a sound knowledge of money and investing, he has been investing and following the markets on a personal level since 2000, directly managing a personal portfolio and taking control of his own finances. By entering the industry as an advisor after having been courted as a client for numerous years, he has a unique perspective on money management.

Having owned a properly designed Whole Life policy for nearly fifteen years, he has come to consider it one of the most powerful financial tools that someone can have in a well-structured portfolio. He also thinks that its long-term nature and its hassle-free accumulation of wealth make it one of the best tools that any family can use to make their dreams come true.

His passion is to help educate his clients so that they can make their own informed financial decisions. He is eager to share what he has learned throughout his lifetime in regard to finance, so people can build their own wealth. He wants to see people’s finances support their lives, rather than people constantly spending their entire lives trying to support their finances.

See Full Bio
Rempp Financial

Terminologies Discussed in the Book

A

Absolute Assignment
Additional Deposits
Adjusted Cost Basis
Automatic Premium Loan

B

Beneficiary

C

Cascading Life Insurance
Cash Surrender Value
Cash Value
Cash Withdrawal
Collateral Assignment
Creditor Protection

D

Death Benefit or Face Amount
Direct and Non-Direct Recognition
Disposition – Partial Surrender
Dividends

F

Financial Underwriting

G

Guarantees

I

Insured Retirement Program/Plan
Interest Cost on Policy Loans

L

Life Insured

M

Medical Underwriting

N

Net Cost of Pure Insurance – NCPI
Non-Forfeiture Clauses

O

Opportunity Cost

P

Paid-Up Additions – PUA
Participating Whole Life Insurance
Policy Loan
Policy Owner
Premium Offset
Premiums

R

Reduced Paid-Up Insurance – RPU

W

Waiver of Premiums-WP

The waiver of Premium (WP) is a special feature that can be added to your insurance contract for an additional fee. It ensures that the life insurance policy continues to grow if the payor (usually the owner of the policy) becomes disabled and unable to continue the payments. It comes into effect if the payor becomes disabled for a minimum period of time, depending on the company. It can also cover the premiums in the event of the payor’s death, for example if a parent owning a policy on a child dies prematurely. The waiting period is usually six months, and the coverage period often extends to age 60 or 65, with various definitions of disability (usually total disability) .

With most companies (but not all), the Waiver of Premium will not cover the Additional Deposits Option. Further to this point, some companies will flat out terminate the Additional Deposits option if you exercise the Waiver of Premium option. You may be able to potentially restart the Additional Deposits, but you will be subject to underwriting approval… and as you would be coming off a major disability, you most likely would not be approved at that point.

The Waiver of Premium is not a disability insurance. It will take care of your policy premium expense if you are disabled, ensuring that your Cash Value continues to rise along with your Death Benefit (as long as Dividends are being declared by the insurance company every year), but it won’t replace your income. To ensure the best degree of flexibility and protection for your Premiums and Additional Deposits option, you may want to consider a standalone disability insurance policy if your budget allows it.

Not everyone gets approved for this Waiver of Premiums, so if you do, you should accept it, or at least ensure that you have some outside disability insurance to be able to continue to pay premiums if you ever become disabled. Whole Life insurance is a great product and has a number of built-in guarantees, but if you cannot pay for your premiums as scheduled, the policy will not perform at its best and in a worst case scenario, it could lapse leaving the client without coverage.

Additional Deposit is an option that can help grow your policy faster and more efficiently. It allows you to purchase additional paid-up insurance over and above the Paid-Up Additions purchased by policy dividends. This process is also often referred to as “over-funding” a policy, or as a “boost”.
For this option to be available, your dividend option MUST be either Paid-Up Additions or Enhanced Coverage. The Additional Deposits are usually paid with the same frequency as the premiums (monthly or annually), and come above and beyond your base premium.
They can be paid on a one-time basis (subject to availability and policy limits), for as long as you’re paying premiums, or even after you’re done paying premiums depending on the insurance company you’re working with. To enable all of the features discussed in this book, your policy should be set up initially taking full advantage of all the additional deposit room available.
 
Most companies allow flexibility with the Additional Deposit option, and provide the opportunity to suspend the payment (also referred to as payment holiday). But in that second case, you have to make at least one payment over every 24 month period, to ensure you don’t lose this option altogether. You could re-apply for it later, but it would most likely require a medical exam to re-establish the Additional Deposits.
 
You can also make a partial payment, knowing that if you decrease the amount paid in as an additional deposit, it might affect the amount you will be able to pay in the future (again, this varies depending on which insurance company you work with). You can increase it back up to the original amount within a year. With certain insurance companies, the ongoing additional deposit yearly maximum is governed by a review of the last three policy years (three policy year payments only cover a two year calendar span, with your first payment on day one, the second one year later, and the third one at the end of the second year). If the highest amount paid during the preceding three policy years is a partial payment, that amount becomes the new maximum deposit amount moving forward without requiring medical underwriting. If you wanted to increase it back to its original amount, or to re-establish it after the policy had lapsed, you most likely would have to go through a new medical underwriting process, which means that you could possibly be refused if your health had changed by that time.
 
Regardless, this is a client-oriented environment. Once you are approved, the Additional Deposit option is one that you control one hundred percent within the set guidelines of the company and Revenue Canada (as determined by an Exempt Test which determines the level at which your policy can grow to, without becoming a taxable investment).
 
Note: As mentioned above, Additional Deposits can be made either monthly or annually. When choosing monthly deposits, be aware that you will be paying an additional “monthly modal factor” (or monthly load fee) which will reduce the amount of your additional deposit actually making it into your policy. This can be a personal preference because monthly payments are easier to make and maintain (as they are smaller), whereas an annual payment will avoid the monthly modal factor, but will require a much larger sum once a year.

The Adjusted Cost Basis (ACB) of a policy is a number used for income tax purposes. The significance of the ACB to most clients is that it quantifies the amount of cash that can be borrowed against the policy (as a policy loan), or withdrawn from the policy (as a withdrawal or possibly a complete surrender of the policy), before you start paying taxes.

It acts very similarly to the ACB of a stock investment or mutual fund, except that it remains relevant even if you leverage your policy through a policy loan.

To keep it simple, this number is calculated by adding all the money that was put into the policy as premiums, Additional Deposits and loan repayments, minus the cost of insurance (called net cost of pure insurance or NCPI) and minus any outstanding policy loans.

The ACB not only affects the tax-efficient access to cash, but it can also limit the size of potentially tax-free policy loans that can be taken to fund major purchases or investment opportunities during the middle years of the policy.

That doesn’t mean that you can’t borrow against your policy or withdraw money if you have the necessary cash value and the ACB is less than the amount of money that you wish to borrow or withdraw, it just means that the portion exceeding the ACB will be taxed.

The ACB usually decreases over the life of the policy, to eventually reach zero. When this happens, any amount withdrawn or borrowed is fully taxable. That is why is it recommended to maintain a good relationship with your bank account manager to set up a line of credit that would use the policy as collateral (see “Collateral Assignment”).

Cascading life insurance is a concept based on the grandparent or parent buying a life insurance policy on the life of a grandchild or child.

As the owner of the policy, the grandparent or parent retains full control of the policy until he or she feels that the grandchild or child is responsible enough to maintain it. Grandparents and parents can easily work together to split the premiums, or in many cases the grandparents would start paying for the premiums, and the parents would take over when their financial situation improved. As the owner of the policy, not only does the parent or grandparent decide how and when to transfer the policy down the generations, but as the owner, the parent or grandparent also controls the money inside the policy, and can decide to borrow or withdraw from it at any time. Only when the policy ownership is transferred to the child or grandchild (see “Absolute Assignment”), will the control of the policy be passed over.

This approach is called “cascading” because the ownership of the Whole Life policy can cascade down through the generations within a family. In an approach similar to many longstanding families of wealth such as the Rockefeller’s or Rothschild’s, grandparents can buy policies on the life of their grandchildren, effectively helping to replace each generation of wealth and enabling each new generation to access money through a powerful financial tool.

This is an amazing way to leave a legacy and allow the child or grandchild to benefit from a policy that might have been set up as early as two weeks after birth (as soon as baby turns 15 days old). Insuring a two week old baby is pretty easy, and once the policy is in place, it is there for life and has the opportunity to grow tax free within the policy over an entire lifetime. Should the child develop a medical condition later in life, or get hurt in an accident, the coverage will always be there.

Another advantage of this concept is that unlike other investments that can lose a significant part of their growth to annual taxes and estate transfer taxes, the values within a Whole Life insurance policy grow tax-free and are passed down the generations tax-free. Once a policy is transferred tax free to the younger generations, they will have access to the cash value to borrow or withdraw money, thereby initiating the creation of a “Family Bank” (see “Phase 5 – Setting Up a Family Bank” of the “Live Your Life Insurance” book for more information).

The cash surrender value is the amount of money that you would receive from the insurance company should you decide to cancel an existing permanent policy. This value is calculated by the insurance company based on how long you’ve had the policy, how well you’ve funded it, how many outstanding loans you have on it, and how much money you’ve withdrawn from the policy over the years.

The insurance company identifies the cash surrender value on the policy’s annual statement, and this number is the one you would use to determine the size of policy loan you can take. You can also ask your advisor to confirm what that value is anytime during the year. Depending on the ACB (see “Adjusted Cost Basis”), the cash surrender value might be partially or possibly completely taxed at your Marginal Tax Rate, which could represent a significant tax bill. Your advisor again should be able to provide this information before you decide to cancel a policy.

Please keep in mind that the more mature a policy is, the more efficient it gets. This means that as the policy matures, for every dollar of premium paid, the cash value inside the policy grows by more than a dollar.

That’s why there usually are some better alternatives to cancelling a policy, like putting the premiums on offset (see “Premium Offset”), or setting the policy as reduced paid up (see “Reduced Paid-Up Insurance”). These would allow you to avoid triggering taxes, while still receive some value out of the asset that you’ve built over the years.

Finally, keep in mind that by surrendering a policy in the very early years, you will likely get back less than what you’ve paid in, as these policies are not get-rich-quick schemes and take time and discipline to grow.

One of the big differences between a Term life insurance policy and a Whole Life insurance policy is the accumulation of cash inside the policy. With Whole Life insurance, as long as you pay your premiums as required, the cash value is guaranteed to never lose its value while inside the policy. Once the cash value amount is printed on your statement, regardless of what happens with the economy, it is yours to keep and will never go down (unless you take money out of the policy voluntarily or offset your premiums).

With any Whole Life policy, the cash value will grow every year, even if the insurance company should not declare any dividends (while dividends are not guaranteed, the companies we work with have not missed a dividend yet, and some of them have been in business for over 150 years).

If your policy is set up properly, you can accelerate how fast the cash value can grow. A new “floor” (minimum amount of accessible cash value) is set annually on the policy anniversary date, and it can never go down (as long as the premiums are being paid).

Another key component of the Whole Life product is that by age 100, the cash value is guaranteed to equal the total death benefit. This total death benefit includes the original death benefit amount (when the policy was started) along with all increases that were purchased by policy dividends or Paid-Up Additions.

The two most common methods for accessing money from your policy are cash withdrawal and policy loans. Each method comes with unique rules and tax consequences. A cash withdrawal from a Whole Life insurance policy is typically achieved by surrendering Paid-Up Additions (see “Paid-Up Additions”) that have accumulated over time. The surrender of Paid-Up Additions is considered to be a “Partial Surrender”, which is a disposition for tax purposes and will result in taxes payable in most cases.

Note: if dividends were set to cash accumulation, then cash withdrawals would come from that account rather than the surrender of Paid-Up Additions.

Once money is withdrawn or removed from the policy, it cannot be replaced or paid back, so the transaction is final. This will, of course, reduce the cash value in the policy but will also affect the future growth of the policy. Also, it should be noted that because a portion of the Paid-Up Additions are being surrendered to provide you with your cash, your death benefit will be reduced by an amount greater than the actual amount of the cash withdrawal. Each Paid-up Addition holds its own guaranteed cash value, which corresponds to an amount of death benefit typically larger than its guaranteed cash values.

It is for all these reasons that we would advise accessing your money needed on an ongoing basis through policy loans, instead of cash withdrawal, allowing the full amount of your cash values to keep growing over time. Your advisor should be able to assist in choosing the best way to proceed.

A collateral assignment is a term used when you take your policy to a third-party institution (ie. the bank) and use your policy and its cash value as collateral for a loan, typically in the form of a line of credit. A primary advantage of doing this is that all monies advanced are considered loan proceeds (instead of income) for income taxes according to present day tax laws. The use of a life insurance policy as collateral for a loan involves the policy owner executing a collateral assignment. As an assignee, the financial institution does not become the owner of the policy, however, it can prevent any action under the policy that would diminish its security interest.

If the borrower defaults on the loan while the insured is still alive, the lender has remedies it can exercise, including a surrender of the policy for its cash value in order to recover the amount that it was owed. The lender also has the right to the proceeds up to the loan balance at the time of the insured’s death if the loan remains outstanding at death.

When you collaterally assign your policy to the bank, the bank has a special collateral assignment letter for you to sign which will be registered with the insurance company. The letter basically acknowledges that you have received a loan and have pledged the policy as security. This approach is usually preferred to directly withdrawing cash from your policy (see “Cash Withdrawal”), and it can be more advantageous than a policy loan depending on the ACB (see “Adjusted Cost Basis”).

One unique feature of life insurance is that it has a built-in provision for creditor protection. This means that the money (cash value) within a life insurance policy is supposed to remain free of claim from any creditors should something unforeseen happen to you. In most cases, if you wish to take advantage of the potential creditor protection, you should look into assigning a direct family member (parent, spouse, child or grandchild) as the beneficiary.

Note that if the beneficiary is a corporation, then the policy is not protected from creditors in the event of bankruptcy.

Also please be aware that this creditor protection has been challenged more and more recently in courts and any amounts deposited within 12 months of a creditor claim will likely not be protected. At least, rest assured that a creditor must prove their claim and why they should access your insurance values as opposed to the onus being on you to prove that they should be free of creditor claims.

If creditor protection is important to you and your situation, please consult your advisor about your unique circumstances to ensure that you get the most out of the creditor protection that a Whole Life insurance policy may provide.

The death benefit is just what it implies: you die, and the company pays your beneficiary(ies) a guaranteed tax-free death benefit. “Face amount” is just another term for death benefit.

With a properly structured Whole Life policy, the death benefit amount increases every year through the policy dividends and Additional Deposits that purchase Paid-Up Additions over time. Having a constantly growing death benefit provides a hedge against inflation, which in turn helps protect your standard of living (travel, top-notch medical care, schooling, etc…).

You’ll want your death benefit to be increasing at a faster pace than inflation to build wealth and adapt to a potentially growing need for capital during your lifetime.

It is this increasing death benefit amount that drives the increases in your cash value. The death benefit amount on any policy anniversary indicates the potential cash values at age 100, should you live long enough. In this way, the death benefit indicates the potential of your Whole Life insurance policy as a savings vehicle.

Your cash value will always equal your death benefit by age 100, hence if your death benefit keeps growing every year, it forces your cash value to keep growing at an accelerating pace to ensure that the two values equal each other by age 100. Of course, if you don’t live to age 100 to see your cash value equal your death benefit, that amount still gets paid to your family since the primary purpose of a life insurance policy is to provide financial help to your beneficiary(ies).

Note: If you die within the first two years of setting up your life insurance policy, the insurance company reserves the right to ensure all of the information that you provided was indeed true and that the contract was properly put in place. After these initial two years, the policy becomes incontestable (assuming that all the information you provided was truthful to the best of your ability). Attempts to defraud the insurance company are not subject to the two year incontestability period.

There are two different methods insurance companies use to handle the loaned cash value: direct recognition and non-direct recognition. When someone takes out a policy loan, the money comes out of the insurance company’s pool of money, and the policy owner can decide how much, how quickly and when the loan should be paid back. The insurance company charges interest on that loan, which accrues every year, but the policy owner could decide never to repay the loan until the time he or she dies.

In a non-direct recognition company, it doesn’t matter if you have any outstanding loans, the earnings rate on cash value through policy dividends is totally unaffected.

In a direct recognition company, the earnings rates on loaned cash value through policy dividends is affected, typically negatively, when the policy owner has some outstanding policy loans. The company is basically saying that if you don’t pay the loans back, the money is not working as efficiently as it would in the pool of money managed by the company, and therefore will impact the dividends on your policy. This is to encourage loan repayments.

In Canada, most companies are non-direct recognition loans, but it is still worth knowing the difference.

A partial surrender is the term used to describe withdrawing cash out of the policy as a direct “cash withdrawal” (see ”Cash Withdrawal”). Its name comes from the fact that you are surrendering a little (or maybe larger) piece of your policy when you withdraw money out of it.

When properly set up, a Whole Life insurance policy is constantly growing because of the Paid-Up Additions or PUA added each year. When you withdraw cash directly from your policy, you are surrendering a portion of these PUA to create the cash value to be withdrawn. The death benefit associated with these surrendered Paid-Up Additions will be reduced by an amount very likely to be greater than the amount of the cash withdrawal. This is really the only time that you will experience a decrease in the cash value balance or death benefit amount inside your policy, when money is withdrawn, or when you take a holiday on paying your premiums (called “Premium Offset”).

Keep in mind that once the money is withdrawn from the policy through a partial surrender, the withdrawal cannot be replaced or paid back, so the transaction is final. Once this cash is removed from the policy, it will not only reduce the cash value inside the policy, but it will also affect the future growth of the policy by reducing the amount of future dividends that will be received.

Typically, we would advise accessing your money through policy loans, allowing the full amount of your money to grow over time (your advisor should be able to confirm what the best option is in your particular situation).

Policy “dividends” are a unique feature of Participating Whole Life insurance unlike any other product. The word “dividend” in this context is a confusing term since it does not perform like a stock dividend. Policy Dividends are technically a return of overpayment of premiums. All policy owners‘ premiums go into a segregated account to form the reserves, and are invested and used to pay out death benefit claims. While this money is held in the segregated account, the money is invested to help grow some additional safe returns. Keep in mind that all investment risk is borne by the insurance company as any investment losses do not get passed back to the policy owner, like normal investment accounts or Universal Life. Any excess returns or cash value on hand at the end of a year, based on what the insurance company had projected at the beginning of that year, can be subject to payment as policy dividends.

Most companies have five dividend options to choose from, and you can change them as often as you like: 1) Paid-Up Additions, 2) Enhanced Coverage, 3) Premium Reduction also known as Premium Offset, 4) Cash Accumulation, and 5) Cash Withdrawal Account (meaning they send you a cheque every year). Each option has its advantages, but for the concepts featured in this book, the Paid-Up Additions is the one that we prefer.

With “Paid-Up Additions”, the dividends purchase a miniature policy (that gets added to the base policy) that has its own guaranteed cash value, earns its own dividends, and has its own guaranteed amount of death benefit. And all these additions will be added annually, adding to your base policy values. No further premiums are required for these permanent additions and they help drive growth of your policy over time.

While the dividend amount may fluctuate and is not guaranteed, most companies have never missed paying some sort of a dividend payment over the last century. This period dates back to the confederation of Canada, the US Civil War, the first and second World Wars, the Great Depression, and even more recently the Great Recession of 2008. Once policy dividends have been paid, they become guaranteed and cannot drop in value. They are not taxable as long as they are left in the policy and they are added into your policy death benefit and policy cash value.

It is important to note that dividends that are paid out in cash not only will most likely result in taxes payable, but more importantly, they will reduce the future growth potential of the policy. This is part of why we do not recommend this type of policy dividend option if you are looking to make full use of all of the features in this book.

Note: The “Enhanced Coverage” dividend option is an option that could be considered in very unique situation. In short, “enhanced coverage” means buying a certain amount of Whole Life insurance and using a one-year Term insurance rider or option (this amount renews automatically each year for one year only) which will provide additional coverage up to the full death benefit amount needed. This can be attractive if buying the entire need of insurance need as a Whole Life insurance coverage is too expensive to undertake initially. Using the “Enhanced Coverage” option makes this easier. Over time, as your policy dividends, in part, pay for the additional one-year Term insurance that will provide the additional coverage up to the full amount of death benefit amount required. This amount renews automatically each year but as the whole life portion of your policy grows each year, the amount of one-year term insurance needed each year eventually falls to zero. Over time, you will own 100% whole life insurance and your dividends will purchase “Paid-up Additions” for their full amount going forward.

When someone wants to buy a life insurance policy, he/she has to go through a double process: a medical underwriting, and a financial underwriting. The financial underwriting is the process that the insurance company follows to ensure that the payor of the policy (usually the owner) can afford the premiums (payments) long enough for the policy not to lapse.
 
Quite often, as people start to realize how good the infinite banking concept is as a financial tool to grow and protect their wealth, they want to allocate more and more money towards it. This is true for juvenile policies (on kids), where we sometimes wish we could start bigger policy in order to create a bigger savings vehicle.
 
While we agree about the benefits of funding a policy properly, the insurance company doesn’t see it that way. At the insurance level, what matters is the need for insurance, not how much money you want to deposit into it. This is especially true for those kids’ policies we just talked about. Hard to justify to an insurance company that the child should have $500K of life insurance, because this allows us to funnel more money through it. Especially if the parents doesn’t have that much insurance on themselves.
 
There is a way to increase your level of funding into the concept, even if the insurance company doesn’t want to approve a big enough policy on yourself or your business. You can open multiple policies, on yourself and also on your dependents or even business partners.

A major part of the reason why Whole Life insurance is such a great wealth building tool, is the guarantees that it provides. In our current investing world, there are very few things that can promise any degree of a true guarantee. Whole Life can not only use the word “guaranteed” with its product, but many of the guarantees are written directly into the insurance policy contract. Whole Life is built upon a contract that possesses guaranteed level premiums for life (or 10 or 20 years if you set it that way), guaranteed cash value, and a guaranteed death benefit as long as you pay your premiums.

Additionally, your cash value is guaranteed to never lose its value and your cash value is guaranteed to always be accessible. Also remember that by contractual design, your cash value will equal your death benefit by age 100, so it is constantly telling you exactly at least what your cash value will be, if you live long enough and continue paying your premiums. And if something happens to you before that age, it will still pay out the death benefit.

In today’s world, there just isn’t any other product like Whole Life insurance.

Many affluent Canadians use Whole Life policies to accumulate retirement savings beyond what is allowed within their registered plans such as the RRSP. The Insured Retirement Program (IRP) uses the life insurance policy as collateral security for a line of credit, which then can be used to create a stream of tax-efficient income during retirement. The IRP is therefore an insurance concept designed to meet both the need for life insurance protection, and the need for cash flow in retirement.

The IRP is appealing because it not only allows the policy owner to borrow money tax-efficiently, but it also doesn’t require repayment of the outstanding loan until the policy owner dies. Typically, the loan is designed to provide a stream of a certain amount of income available each year, as opposed to simply attaching a collateral line of credit to your policy. Interest on the line of credit can be capitalized back into the loan, so you don’t need to make monthly payments if you choose not to.

The IRP provides the cash you desire, and under current tax law, you could possibly receive it tax-free. When the insured person dies, the tax-free death benefit is used to repay the outstanding loan. Once the loan amount is repaid, any remaining death benefit is paid to the policy’s beneficiary.

Note: Many institutions that offer an IRP will only offer it on policies for which the owner is the life insured. When the owner is not the same person as the life insured (for example when a parent buys and owns a policy on a child), the IRP is generally not available to the parent. The insurance company wants to know that they will get their money back if the owner, who also owns the debt, dies. In the situation where the life insured is not the same as the owner, the insurance company is not necessarily guaranteed to get paid upon the death of the owner, making the IRP much more risky for the insurance company.

Interest costs as it pertains to Whole Life insurance is the amount the insurance company charges you, when you borrow their money through a policy loan. Yes, you are borrowing THEIR money; your cash value is the collateral. The loan interest rate that life insurance companies use is usually a variable rate tied to the Prime Rate in some fashion.

Do you want the companies you do business with to be profitable, and maintain sufficient cash flow to cover all of their expenses (ie your death benefit)? Since you probably answered yes… let’s think about why the insurance company charges you interest when you borrow against your cash value. Your death benefit is actually secured by an amount set aside in a reserve as mandated by law, but the insurance company still needs to make good business decisions to be able to service all of the insurance clients that they sell to. Money always has a value and if they do not operate a business recognizing that fact, they will not be in business very long.

The most common question from a client usually is, “Why do I have to pay interest to use my own money?” The answer is, you don’t.

You can withdraw your money out of the life insurance and go on your way. Or you can leave your money in the policy to compound and grow uninterrupted in a vehicle that allows tax-free growth. You would then borrow the insurance company’s money secured by your cash value, a similar approach to a GIC-secured loan. You pay the insurance company an interest rate for the use of their money, much like you would pay a bank to use theirs. Meanwhile, your money continues to grow uninterrupted in your policy and that growth is not eroded by taxes every year. Paying an interest charge is almost in all cases better than paying income taxes on that amount.

“Why pay 5% to a life insurance company, when I can borrow at 4% from a bank?” you may ask. Micro-economically, looking at the question in a vacuum, you shouldn’t. But macro-economically, looking at the big picture, sometimes paying a higher interest rate is worth the increase in flexibility. In your particular situation, you may not be able to get a loan from the bank and may really need the cash. In this case, access to cash from the insurance company may be tremendously helpful even if it might have an interest rate that is a slightly higher than what banks can offer.

Since you control the loan at the life insurance company (unlike at the bank), choosing to pay 5% gives you freedom and flexibility to skip payments, or take longer if necessary to pay it back. The insurance company will not default your loan if you miss a payment but rather, they will capitalize the missed interest payment and simply add it to your loan balance. Not that you should make a habit of this, but it is nice to know that you control the repayment terms and that you have the freedom to miss a payment if you needed to. Additionally, in times of extreme need, if the bank will not loan you any money, you may have no other options to get cash in times of extreme need except from your insurance policy.

There are four main parties to every life insurance contract: the life insured, the policy owner (could be the same person as the life insured), the beneficiary and the insurance company. As part of the application process, the owner of the policy sets up one or several beneficiaries. The beneficiary(ies) will receive the proceeds or death benefit should the life insured die while the policy is in place.

The beneficiary(ies) can be changed at any time, provided that they are not set up as an “Irrevocable Beneficiary”; in which case, you would need their written consent to remove them as beneficiary or make any changes to the actual policy terms like borrowing or withdrawing money, or assigning the policy as collateral with a bank. It is wise to set up a contingent beneficiary, for the unforeseen circumstance where the life insured and the beneficiary were to die at or around the same time (could be two spouses passing in a car accident).

Sometimes, a beneficiary may die first, and if the advisor is not aware of this fact, the policy may not get updated to designate a new beneficiary. If there is no surviving beneficiary(ies), the death benefit is then paid into the estate,which means it has to go through probate,which often can take months to be processed and also make it susceptible to additional taxes.

There can be any number of people or businesses or even charities named as a beneficiary. If the beneficiary is a charity (and is set irrevocably), the premiums are then tax deductible to the policy owner as a charitable donation. In most cases, if you wish to take advantage of the potential creditor protection, you should look into designating a direct family member (parent, spouse, child or grandchild) as beneficiary.

Note that if the beneficiary is a corporation, then the death benefit is not protected from creditors in the case of bankruptcy. Please be aware that this creditor protection has been challenged and any amounts deposited within 12 months of a creditor claim may not be protected. In setting a child or grandchild as beneficiary, it will allow you an opportunity to transfer your wealth down the generations tax free (see Cascading Life Insurance).

Be sure to give careful thought to who you set as a beneficiary in your policy.

The Automatic Premium Loan (APL) is the most commonly used of the built-in “Non-Forfeiture Clauses” within a Whole Life insurance policy. The APL ensures that the client’s policy doesn’t lapse or get cancelled, should the client ever come into cash flow difficulties down the road. It may go by a different name at different companies, but this feature can help you in times of cash-flow challenges. By literally recycling existing cash value already in the policy to pay for the premiums, it allows the values inside the policy to keep increasing as if the premiums were paid normally.

It works the same way as taking a regular policy loan, but instead of the money going to you, it goes to the life insurance company to pay the premiums. That is why your cash value can still increase, but so does your outstanding loan balance.

This can work well to alleviate a short term stressful situation, or change in cash flow, but should not be counted on to purely fund a policy over the long term. Eventually, the loan balance can eclipse the total cash values within a policy. And if you have not built up a sufficient cash value, or have borrowed too much money already, these loans may not be available to cover the full amount of premiums, at which time the policy could lapse.

There are four main parties to every life insurance contract: the life insured, the policy owner, the beneficiary, and the insurance company. The life insured is the person on whom the policy is written. Every insurance policy must have a person whose life is associated with it, to determine when a death benefit gets paid. When this person dies, the death benefit is paid.

It is pretty common to have the life insured and the policy owner be the same person. However, when the life insured is a different person than the owner, the life insured does not have any rights to the policy (see “Policy Owner” for more details on those rights).

Some examples of policies where the owner and the life insured would be two separate individuals or entities are the juvenile (child) policies that are usually owned by the parents or grandparents, or the key employee insurance typically owned by the company. The life insured can become the owner of the policy if that ownership is transferred by the current owner of the policy (see “Absolute Assignment” and “Cascading Life Insurance”). As long as the policy is transferred down the family tree: ie grandparent to parent or parent to child, this transfer would have a tax-free rollover through an absolute assignment. In other cases, there would very likely be some form of tax consequences.

The Adjusted Cost Basis (ACB) of a policy is a number used for income tax purposes. The significance of the ACB to most clients is that it quantifies the amount of cash that can be borrowed against the policy (as a policy loan), or withdrawn from the policy (as a withdrawal or possibly a complete surrender of the policy), before you start paying taxes.

It acts very similarly to the ACB of a stock investment or mutual fund, except that it remains relevant even if you leverage your policy through a policy loan.

To keep it simple, this number is calculated by adding all the money that was put into the policy as premiums, Additional Deposits and loan repayments, minus the cost of insurance (called net cost of pure insurance or NCPI) and minus any outstanding policy loans.

The ACB not only affects the tax-efficient access to cash, but it can also limit the size of potentially tax-free policy loans that can be taken to fund major purchases or investment opportunities during the middle years of the policy.

That doesn’t mean that you can’t borrow against your policy or withdraw money if you have the necessary cash value and the ACB is less than the amount of money that you wish to borrow or withdraw, it just means that the portion exceeding the ACB will be taxed.

The ACB usually decreases over the life of the policy, to eventually reach zero. When this happens, any amount withdrawn or borrowed is fully taxable. That is why is it recommended to maintain a good relationship with your bank account manager to set up a line of credit that would use the policy as collateral (see “Collateral Assignment”).

When someone wants to buy a life insurance policy, he/she has to go through a double process: a medical underwriting, and a financial underwriting.
 
Quite often, as people start realizing how efficient the infinite banking concept is for growing and protecting their wealth, they ask how big of a policy they can purchase. Because of the nature of these policies, the health of the life insured is really important. The insurance company is basically going to look at the data they have gathered over the years on ten million lives, and be able to estimate with fair accuracy the probability of your longevity. There obviously always are accident that are completely random, but the percentage of these accidents is very low, compared to the number of people who die from a disease or poor habits.
 
The insurance companies love selling term insurance, since the risk of them having to pay a death benefit is around 3%. With a whole life policy, the risk for the insurance company is much greater, as these policies don’t expire, and the premiums don’t go up every 10 or 20 years, encouraging the policy owners to cancel the policies. This is why these permanent type policies are following a more restrictive underwriting process. They’re going to check your health and finances a lot more before offering you the coverage.
 
Young people tend to be very healthy and easy to insure, but not to have the money to fund big policies, as they haven’t had a chance to build enough savings yet, or have too many other obligations that drain their coffers (like kids). Older people tend to have accumulated more wealth that they can redeploy into a policy, but might not be healthy enough to qualify any longer. The solution to get around the medical underwriting, is to open policies on dependents or business partners who are more healthy.

The Net Cost of Pure Insurance, or NCPI, is a very important feature of a whole life insurance policy, as it directly impacts the Adjusted Cost Basis (ACB), which in turn impacts the amount of money you can withdraw from your policy, or borrow against your policy (policy loans) without triggering any taxes.

I won’t go into many details about the ACB, as there is a definition for that concept. The net cost of pure insurance is one of the big factors in drinving the ACB down, which is one of the biggest reasons why the Canadian application of the infinite banking concept, and the American application, differ so much.

The older the life insured gets, the higher the risk to the insurance company. Since the insurance company is in the business of managing risks, if the life insured is older, and logically closer to his/her demise, the insurance company will charge a higher cost for the coverage. Every year, the NCPI goes up. Slowly… but surely. And as the life insured get past 60, the cost increases becomes more dramatic.

Each Whole Life insurance policy contract contains what are called non-forfeiture clauses. These are designed to keep the policy in force if a client is unable (or unwilling) to pay the required premiums.

Since insurance companies actually want you to keep your policy in force, rather than lapsing it completely (lapsing means cancelling), these non-forfeiture clauses are here to help out. While the specifics may vary between companies, the premise is usually the same.

The “Grace Period” allows you 30 days to catch up on a payment before the policy lapses. So if your payment is due on the 15th of the month, and you don’t have the money immediately, you have 30 days (typically up to the 14th of the following month) to come up with the money and catch up with your payments. After your 30-day grace period, there are still options to keep your policy in force, and the insurance company will default to the Automatic Premium Loan assuming that you have the required cash value (this is only available with a whole life insurance policy, not a term policy).

There are three main clauses that are already detailed in this glossary: the “’Automatic Premium Loan” or APL, the “Premium Offset” and the “Reduced Paid-Up Insurance”. We won’t expand on those here as they are already detailed under their own categories.

Opportunity cost is what you lose when you let dollars go unnecessarily to a financial institution (possibly in the form of fees), the government (possibly in the form of income taxes), or any third party (possibly in the form of having money locked-in or simply being spent), and are missing a better investment opportunity. Paraphrasing Heymann and Bloom in Opportunity Cost in Finance and Accounting, “the value of a resource is determined by its use in the best alternative given up.”

If you read the book Live Your Life Insurance, we cover a story about Mark & Mary’s and their desire to set aside money for their children’s education. If they had used an RESP (Registered Education Savings Plan), they would have had that money locked-in until their kids went to university and then that money would have gone to the college and it would have been gone – causing themselves a large opportunity cost, as that money and all its future growth that could have benefited the family for many future years, was now at the college instead of in their own account.

Money has its present day value but also provides an opportunity to produce a regular income off of it for many years. A zero account balance, after paying all the money to the college, can no longer provide any future income or growth towards future retirement goals.

By borrowing against their life insurance cash value to pay for their children’s education, Mark and Mary can educate their children, while at the same time keeping their own family assets growing. Once university costs were paid back, the policy still had its full value and all of its growth, as if they had never taken the loan in the first place. If they had paid for college with their RESP, all of that money would have been gone, and they would now need to restart a savings plan for future goals.

This is the policy dividend option that we recommend to enable all of the options and concepts in this book. You could choose a different policy dividend option, but in doing so, you would change how your policy operates and grows over time. The Paid-Up Additions are what the dividends buy, and they do so automatically each year (assuming you choose this as your dividend election).

“Paid-up” means that no more payments are due on it. Think of this like a house being the equivalent to your base coverage and an addition to the house as a Paid-Up Addition (PUA) that you build one brick at a time. With each additional brick, your house is getting bigger and more valuable. The PUA are the “bricks” being used to build up your insurance values, making it bigger and more valuable each year.

Eventually, the total value of the PUA will likely be worth more than the face value of the policy that was originally purchased. The Paid-Up Additions are what really make the building up of wealth and the growth of the Whole Life Insurance policy possible over time.

There are different forms of Whole Life insurance serving different purposes. Participating (PAR) Whole Life insurance is a type of insurance that shares in the profits of the policyholders (same as policy owners), through a policy dividend. In the United States, the mutual company is favored for this type of insurance for the fact that the participating policyholders share in all profits of the company. In this structure, there are no shareholders to the company so in essence the participating policyholders own the company.

In Canada, following a wave of de-mutualizations in the late 1990s, most companies are now stock corporations (ie publicly traded companies on the stock market). These companies are completely accountable to the shareholders.

In these “public” companies, the Participating Whole Life policyholders have all of their premiums and corresponding reserves held in a segregated account separate from the company’s general reserves and operating accounts, as mandated by industry and government regulations. As such, all monies paid into a Participating Whole Life policy are held in this segregated account, and consequently all returns and gains from investing this money, or the efficiencies of managing life expectancy projections, remain in this account and become eligible to be paid out to the policyholders as dividends. It is this “participating” nature that creates the dividends to be paid out to policyholders.

If investments go bad in this segregated account, dividends may decrease or stop altogether, hampering future growth. But it is the responsibility of the company, not the policyholders, to ensure that the proper capital reserve requirements are met to ensure proper and timely payouts of all death benefits when they are due. The values in your Whole Life policy can never decrease as long as you maintain your premiums as scheduled and do not withdraw money from the policy by cash withdrawals or premium offset. The losses are owned by the insurance company who is responsible for re-establishing reserves, but the gains in this account are shared with policyholders through policy dividends.

It is pretty nice to have the downside protection against losses, yet be able to participate in the gains and future profits of the segregated account.

Policy Loans are the preferred way to access money from your Whole Life insurance policy. By accessing your money through policy loans (as opposed to cash withdrawals), you allow the policy to continue to grow at its full potential, as if you never took your money out of it in the first place. For example, think of a Registered Retirement Income Fund (RRIF) where constant cash withdrawals eventually cause the account to decline, sometimes significantly, not only due to the withdrawals themselves, but also because of the lost opportunity cost on those withdrawals.

In Canada, most Whole Life policies contractually allow for the policyholder (policy owner) to borrow against the policy’s cash value from the insurer (insurance company). Borrowing money from the insurer allows all of your money to continue to grow at its full potential, free of taxes, within the policy. The maximum amount that can be borrowed through a policy loan is usually around 90% of the net cash value (“net” means your cash value adjusting for any existing outstanding loans and interest on those loans).

When contemplating any policy loans or cash withdrawals, please consult your advisor first to see what impacts each option will have on your policy or on your income taxes payable. Policy loans can trigger a taxable event if the loan balance exceeds the Adjusted Cost Basis or ACB.

Policy loans will reduce the ACB of your policy by the amount of the loan requested, but the repayment of the loan will replenish the ACB back to its current full accessible balance. Over time, the ACB is driven down by the Net Cost of Pure Insurance.

Accessing your money through a series of policy loans is a unique benefit of this type of policies. This concept can be hard to grasp initially but can provide much more efficiency with the growth of your money over time. Also, please note that some insurance companies do not allow policy loans if the premiums are offset (see “Premiums Offset”), or do not allow premium offset if there are some outstanding policy loans.

There are four main parties to every life insurance contract: the life insured, the policy owner, the beneficiary and the insurance company. The policy owner is usually the person who pays the premiums, and often the same person as the life insured. When the coverage is for business purposes (key man insurance, business partner), or when the policy is designed to create a multi-generational wealth transfer (typically when the parents/grandparents purchase policies on the kids/grandkids), the owner and the life insured are two separate entities. The owners, in these cases, can transfer the policy at any time (see “Absolute Assignment”), giving up ownership to the person or entity it is transferred to.

If this is done corporately, there are likely tax consequences. But when it is done through the family, the transfer down the generations can be done on a tax-free basis (see “Cascading Life Insurance“).

The policy owner controls the policy, and therefore is the only person who can borrow against the cash value or modify any of the policy’s working parts. All of the benefits listed throughout this website are for the benefit of the policy owner to exercise as he or she sees fit. This is important to point out for those people that may not be able to get life insurance on themselves due to health difficulties, and who would fail the medical underwriting. You can always own a policy on someone else’s life (such as a family member or business partner) and still take advantage of all the benefits of a well designed whole life insurance policy.

After out-of-pocket premiums have been paid for a number of years, premiums may be able to be paid by the current values of your policy. This process is known as “Premium Offset”. Premiums may be able to be paid either by current dividends, and/or existing values within your policy through the surrender of a portion of the Paid-Up Additions. If you have your dividend set to accumulate cash, premium offset can be paid from these cash accumulations too.

It is important to note that the growth rate in both the death benefit and the cash value are reduced when premiums are paid by using premium offset, rather than by out-of-pocket payments. Also, be aware that most insurance companies will automatically cancel the Additional Deposits option when premium offset is selected, which will further impede the future growth of the policy. Typically, we find that the premium offset is not recommended, if at all possible, because of this loss of growth potential within your policy.

Since premium offset is dependent on dividends that are not guaranteed over time, increases and decreases in the amount of dividends credited over the life of the policy will affect the availability of premium offset. Such increases or decreases may also affect the length of time that the premium may be paid, in whole or in part, by dividends, or change the potential offset date shown on the original illustration. It is possible that a policy will never be eligible for premium offset, or that it will become eligible and subsequently cease to be eligible, based on dividends received.

Additionally, some insurance companies in Canada will restrict or prevent the access to policy loans if the premiums are offset, or refuse to offset the premiums until all outstanding loans have been paid back (with interest). It is recommended that you talk to your advisor about how this might impact you and your policy, before opting for premium offset. It can be a great option but it can also unintentionally severely hamper the growth and performance of your policy.

Whenever you purchase any life insurance policy, the payment that you make to the insurance company is called a premium. You can set it up to be monthly or annually (you can always change that option down the road, too). With Whole Life insurance, your premiums to the insurance company eventually end up in your cash value. Also, the amount of these premiums is guaranteed to never increase over time.

A regular payment, whether monthly or annually, helps self-impose discipline, and helps money move (which is a critical principle in causing it to grow). Think of paying a mortgage with a fixed payment that eventually over time allows you to own your house. In this case though, instead of paying all that interest to the bank, you get to accrue it in your own policy for your own benefit.

Also, keep in mind that with the infinite banking concept described in the two books that I’ve published, we are recycling our cash for guaranteed cash values plus a guaranteed death benefit. The effect is that one premium dollar will enable you to do multiple jobs: primarily building up guaranteed cash value, creating growth through Paid-Up Additions, and all the while, increasing the death benefit and providing the ability to leverage the growing cash value.

Reduced Paid-Up Insurance is a “Non-Forfeiture Clause” built into most all Whole Life insurance policies. This is the “end of the rope” savior, in the event that cash flow simply dies and you don’t see a light at the end of the tunnel for many years.

This is another reason why you should always be using Whole Life insurance instead of Universal Life insurance to implement the Infinite Banking Concept. Why reduce your options when you don’t have to. While we hope never to have to use that feature, it is nice to know that it is available.

The insurance company reduces your Death Benefit and makes your policy “paid up”, so no more Premiums are required nor allowed. It’s not a strategy you can undo, but it will keep you from losing the money you’ve paid in so far. This amount of coverage varies over time and is typically much smaller than what your existing policy would cover, but at least this would allow you to know that regardless of what happens, there is an option for keeping some degree of permanent insurance in place. This is like an insurance policy on your insurance policy, so that even in worst case scenario, you would still have some permanent life insurance coverage in place.