111. How Is My Whole Life Policy Cash Value Protected In Canada? Assuris

You are listening to the Wealth Without Bay Street Podcast, a Canadian guide to building dependable wealth. Join your hosts, Richard Canfield and Jason Lowe as they unlock the secrets to creating financial peace of mind in an uncertain world. Discover the strategies and mindsets to a financial future that you can bank on. So today we are going to discuss what happens. Oh, my God. What happens if a life insurance company fails? Is it possible? How, what would happen to the capital or how would. What would happen to policyholders if something ever happened to the life insurance company? You know, we live in strange times, Jason. Yes, a lot of upheaval, a lot of concerns, a lot of financial shenanigans taking place globally. And you know, these are questions that we get from folks who are really concerned about what, what the, what's going on in the world and what if we have some economic situations that are very dire. And so as people are looking to explore the process of becoming a banker, they're looking to implement this process. They're getting, you know, they're applying and acquiring, participating whole life insurance policies. These are some of the questions that come up. And so we want to talk today about how, in Canada, how policyholders are protected. And I think the protections in place in Canada are. And I, I can't validate this because I haven't explored every other country in the world, but from what I can gather, probably some of the highest protections that exist globally exist in the country of Canada.

Well, and I would add to that, the protections are far better than what, you know, the CDIC could even ever dream of committing to. And in addition to that, we're going to talk about why is it that life insurance companies remain the most financially solvent institutions on the planet. And so we'll talk about what you just addressed and then we'll flip the coin over and talk about how they're able to remain so financially solvent. And this is gonna be a great, great episode of tons of valuable content because it's a legitimate question. I mean, you should be asking that in anything that you're doing financially. Let's examine the worst case scenario.

Let's go through it, because a lot of times people don't do that. We, we get presented. We, we all get presented. Anyone who's listening or, or watching this, we, you've been some opportunities come across your desk, an investment opportunity, whatever it is. And yes, we try to do some due diligence, but we don't ask really hard questions about what if, what happens if everything, you know, you know, shits the bed, basically, what Are we, where are we left? What do we, what do we have to work with? And in most scenarios, when you're in, you know, dealing with investment related activity, you're always putting your money at the risk of loss. When you're dealing with participating dividend paying insurance because it's a contract and there's attached to it a whack of guarantees and then we're going to have the protections that we're going to talk to about today. You're in a far, far superior position. You don't have that risk of loss potential there because you have control, you have liquidity and you have all the backing of the insurance company and the insurance company for insurance companies, which is what we're going to get into. We're going to talk a little bit about the nonprofit organization of Assurus and how they operate and how they protect Canadian policyholders.

Let's do it. Let's dive right in. Let's get, let's get sure about assurance.

About assurance. So we're going to do a screen share here. So if you're, if you're listening, you know, to the podcast episode, you'll want to eventually zip over to the YouTube channel so you can watch the screen share of this. But we're bringing up the Assurance website that's a s S U R I S CA Assurus CA and Assurance is a not for profit organization that protects Canadian policyholders in the event a life insurance company fails. So you can learn all about how you're protected. But we're gonna, you can just listen this episode, we're basically gonna tell you and we're gonna walk through some of the instances where Assurance has been, you know, called upon to do its job, to go to work in Canada and, and what's happened in those situations. So I'm actually going to jump to this page right here which talks about assurance funding and you can find it right in, there's, you know, there's a tab of menus up at top on the about us. There's, there's several components here. You can look at their financial reports and everything is kind of public there. But basically assurance has the financial capacity to deal with the failure of any life insurance company in Canada. Oh, that sounds pretty good. Assurance keeps cash on hand to meet the immediate financial needs if a life company fails. Our immediate access to cash ensures that policyholder benefits continue with no interruptions. That sounds pretty good. If I was doing a checklist of, you know, some checkboxes of things that were pretty good, I would probably check A box right there. Insurance can collect unlimited funds from our member life companies to cover the cost of providing assurance protection to policyholders of a failed life company. Assurance has sufficient funding to protect all, I repeat, all Canadian policyholders of any life insurance company that fails. That's a pretty bold statement.

Is the end of our episode.

Yeah. Thanks everybody. Thanks for showing up. Appreciate you. Catch us on the next one.

If I had a mic to drop, I would, but it is connected to a boom. Yes.

And it is a sure mic that I have. So thank goodness we're sure about assurance.

So, you know, let's, so let's. Okay, so what does all that mean? Let's take that one step further and let's look at, in some instances where this is actually showing up for people. Actually, before we do that, let's, let's talk about what are these protections. So before we look at where it's actually been utilized already in Canada, in the very few instances that it's come about, let's take a look at what these minimum requirements are. So how am I protected as a policyholder? What are those protections and how do they work? Well, first off, if you have a death benefit, 100% of that death benefit is protected up to 200 grand. Or if let's say your death benefit was $3 million, which. Well, you would have 100% of that or 85%, whichever is greater as the bare minimum. So 85 is like the bare minimum of all of your benefits that would include cash values. The death benefit, if you had a, you know, as an example, like a, like a disability plan, there's protections in place for those as well. So you have a minimum of 85% is fully protected. Now when you actually see what has transpired in Canada, you'll find that basically everyone's been protected up to pretty much 100%. So the, the likelihood is you'll have much higher than that. But the bare minimum is an 85% value, which is basically we're talking about severe, prolonged economic collapse, probably the equivalent of like a nuclear winter type situation.

And the pol. The, the policy, you know, itself important to remember, you know, know a dividend paying, participating whole life policy is a unilateral, binding contract. And so if the life insurance company fails, then your contract is ported from the insolvent life company to the solvent life company and the contract retains all of its unilateral binding elements. And so the life insurance company that receives that contract is now assuming responsibility to fulfill those contractual guarantees and to honor the elements of that contract that are all designed to protect the policy owner. And so to have the contract is already an incredible, you know, piece of armor financially. But to have it ported over to an entity by virtue of having the protection of assurance just gives you a whole other added layer of certainty. And there's no other financial instrument in the country that has this type of protection in place. It just simply doesn't exist.

I'm going to zoom in right here too. There's a great statement that every life insurance company in Canada is required by, by federal, provincial and territorial regulators to become a member of Assurus.

So they can't opt out.

They can't opt out. It's, it's, it's got to be there. Basically, if we were to summarize this Assurus is the insurance company for insurance companies.

Yeah, that's actually, that's a, that's a very fitting description.

And, and it's a nonprofit and it's, it's there to support because insurance at its core is a social good. When you know everyone who owns a private insurance company, whether it's a disability policy, a critical, a life policy, you're voluntarily entering into contract for that. You're paying a, you're paying a smaller amount than the benefit that you can receive. And you're doing that to protect and preserve things like your income or a future income if in the event of death, so that you know, the family members and the people and things you care about around you are taken care of so that we do not have to rely upon third parties such as the government to provide those goods. So we don't. That means the burden of government programs to provide things like income, income continuity, things like taking care of final expenses, etc. Paying off someone's debts when they pass away, that is not, we don't have to put that responsibility on them and have that be forced upon us through basically the vacuum cleaner of the tax man coming and sucking more money out of your bank account every year.

Yeah.

So insurance provides a social good and a social benefit. There. Now further to that you mentioned, Jason, about the contract. Now we're going to, we're going to talk more about insurance a little bit, but I want to zip over to mentioning like at ratios because the contract that you have with a participating dividend paying a contract is, already has a whack load of guarantees on it. And so these insurance companies are extremely well capitalized, extremely well capitalized. And in fact they have to go through annual testing requirements that determine does their capital availability meet Their requirements. And they have a minimum bar which is already set extremely high. And every company that we deal with, they're way above that minimum bar. And so every year they're annually tested for their capital adequacy to determine can they meet their obligations. And every company in Canada that we work with is well in excess of those minimums.

Yeah, it's pretty extensive the process. You know, they've put a ratio in place, it's called a licat ratio, life insurance capital adequacy test ratio. But what's interesting is that the money pool of the insurance company is essentially exposed to a number of mock adverse scenarios. And so this is a process known as dynamic capital adequacy testing. So the money pool itself is exposed to mock adverse scenarios such as more people dying than what the actuaries forecasted, more people lapsing or forfeiting their policies than what the life insurance company expected, Severe and prolonged economic recession, the stock market declining by 99,0% and staying there for several years.

The list goes on. Negative interest rates, you name it. A number of these mock adverse scenarios.

Pandemic modeling, things of that nature.

Well, pandemic modeling is already baked in to the product design. And so when you look at all these mock adverse scenarios, you're essentially putting that money pool through a stress test. And then that agency goes back to the life insurance company with a report to say, hey listen, here's how your money pool withstood the stress test that we put it under. And not only are you capitalized above the degree necessary to satisfy the contractual obligations that you've committed to and that you're projecting are going to be fulfilled in the upcoming year, but this dynamic capital adequacy testing report gives you a forward looking view for a minimum of five minimum. And so that gives the board of directors of the insurance company, especially when you're dealing with a mutual company who is only responsive to the owners, the participating policy owners, there's no stockholders that gives the board resolute confidence that they can declare and pay dividends because they take basically the net income. So if the net income of the insurance company was $200 million, they take $50 million of that and pay it out in the form of dividends to participating policyholders, they take the remaining $150 million and that becomes an addition to the owner's equity in that life insurance company which also serves as capital surplus reserves, which strengthens the financial balance sheet of the insurer. And, and the process continues. And so this is the, this is the reason why life insurance companies remain the most financially solvent institutions on the planet. They cannot inflate their money supply. They're not.

Inflationary in the sense that they're not creating money where no money existed before, like the commercial banks do day in, day out. And so remembering the fundamental truth that your money must reside somewhere, what better place to have it reside than inside of an entity that is as strong as the life insurance companies are and provides all those layers of added protection. Like, is there anything stupid about storing your money there?

Well, in comparison. So we just did a very high level overview of assurance. There's one more thing I want to circle back to with that, but we, we now. So again, the insurance company has capital adequacy, they've got regulated minimums, all this stuff, far superior regulations in place for them than there was for the commercial banking sector. Okay, so first off, and then secondly, you as a policyholder have all these contractual guarantees and benefits of that. Plus you have what the insurance company's been doing for 200 years really effectively and their history and their knowledge on how to do that and the predictability of it. Plus that insurance company has an insurance company for all insurance companies pooled together that guarantee a hundred percent of your benefits or at bare minimum 85 if everything was really horrendously crappy beyond everything that could. It's like ridiculous scenarios that most people probably couldn't even possibly imagine. Or the cdic, which is a Canada Deposit Insurance Corporation who now provide guarantee insurance benefits for account holders at a bank for deposits. And those guys will only guarantee up to $100,000 in a given with one individual bank. And so the, the, you know, if you're storing capital somewhere, your business account as an example, retained earnings or whatever, you're putting this capital in and you're storing it in some facility. Do you want the facility that gives you the highest, best possible potential of protecting and preserving that capital? Of course. Or the one that does the least. Well, clearly the insurance industry industry is miles and miles and miles ahead of what the Canada Deposit Insurance Corporation can do. And we don't even, don't even get us started on what's going on down south of the border and, and their, their lack of capital adequacy requirements that they have in the fdic. So we know, we, we in Canada, we do have again a lot of regulation that protects consumers on these kind of things. But you cannot beat the regulations in place and the, the methodology of thinking to protect and preserve policyholders capital and their Benefits. It's not just about their, their capital and cash values, it's about the overall benefit. Because the first primary obligation is to make sure that the money is there to pay the claim. If there's a claim, we need the capital that's there to pay that claim. Yeah, you can't go borrow it. And this is all based on fundamental actuarial science. So actuary is an engineer for life insurance. And they, I mean they do other types of things that they don't just do life insurance, but they do, most.

Engineers do, which is overbuild.

Everything they overbuild. That's the, that's how it works. So, so they understand, look, in a timeline of, of, of life starting from age 0 to age 100, everyone, well, people are starting to live past 100. But we'll just use the 100 year lifespan. We are going to lose some people each and every year. They know exactly how many people that whatever year they're born, they know how many that you're going to lose in a given year. They just don't know which one. And because they know how many, they can calculate with scary accuracy how many claims are going to be there. And they know how many policies are going to fall off the books. They understand lapse ratios because they've been doing it for 200 years. The data is there, it is very clear. And so they can make extremely predictive, very, very clear decisions on how they need to charge money for the premium to cover all their overhead, all of their costs, as well as meet the guarantees of whatever product is being sold. And they pad up some for profit like any good business does. So if the business is already padding in for profit, wouldn't you want to own some of that business that's been successful at doing it for 200 years? I think it's a reasonable thing to do.

It gives you, you know, it just helps you get, and stay relaxed financially, you know, while you're alive and you know, knowing that, you know, your family can stay relaxed financially after you're gone. And it's.

I tell you, there isn't, there isn't a single documented instance that's ever been brought to our attention of a participating policy owner ever losing money.

Since the inception of dividend paying participating whole life insurance contracts in this country. Not one instance.

And there, there are people who become policy owners, then they pass, then the next generation is policy owners, then they pass, then the next generation and so on. So much like in a restaurant, how tables turn over like this just Keeps happening over and over and over again. And if the commercial banks themselves are purchasing bank owned life insurance now the commercial banks can't utilize these policies the way that you and I can as participating policy owners. They have to maintain, you know, tier one capital and you know, to, to retain their status as a chartered bank, et cetera. But they're buying these contracts by the truckload. And so if the bank considers that balance sheet, if the bank considers that to be one of the strongest assets on their balance sheet.

Then they're either really stupid and creating a lot of wealth for stockholders or they know something that you and I don't. Which one do you think it is?

Well, and there is something that you, you touched on earlier too, Jason, about again, mutual versus stock company. And so there are. Insurance companies offer an awful lot of products now. They come up with products because marketing and they think they're trying to meet consumer demand and whatever. So at the end of the day, the products that exist, everything that's a product offered by an insurance company, it wasn't just like somebody at the insurance company woke up one day is like, boy, I think we should come up with a life insurance contract that looks like this or hey, let's offer these benefits. They were all consumer demanded. Consumers said, hey, this is what we actually are seeking. Here's the problems that we're experiencing. You know, we need, if only there was a product like this and then, oh great, hey, let's take that market demand and let's create something that, that fits that description. With, with the exception of critical illness insurance, which was actually invented by a doctor, the idea and the concept of critical insurance was invented by a doctor. And then it was worked, working with insurance companies and adopted by them that it's now a, you know, a viable product and a great product. You know, know, I was having a conversation about that earlier today. I, I personally own critical. So I'm actually making another application for some more here, hopefully in the next month. Jason, I know you, you have some because that pro that produces a payout, a tax free payout in the event that you just, you are, you have one of 25 major medical conditions, you know, loss of a limb, stroke, heart attack, you're on an organ transplant, you know, life threatening cancer, all these types of things. And again, so it's all actuarially assessed. So that is a product that will pay, pay claims for people and that requires a premium that's calculated for when those claims happen. And they have a pretty good predictive knowledge of when that's going to happen. So as more and more of those claims happen, well what'll happen is the pricing will may adjust upwards to accommodate that. So they, you know that they, they're always tweaking those things and every couple of years they might change things like the pricing of a product so that new products going forward have now, they now have more data. They take that data and they assess and they adjust relative to the data.

Yeah, love it.

It's pretty simple. And here's the other thing. This is the thing I want people to recognize and think about. Just, just, just consider for a moment. Fundamentally what business, what is the business model of an insurance company? What business are they in? Their underlying business model is the management of risk. I don't care what insurance is. It's if it's pet insurance, if it's car insurance, well let's use, let's use, let's use house insurance as an example. House insurance. For a lot of people, house insurance has been going up, you know, over the last couple of years and some people have seen some really big spikes. Well, we've also had a lot of like natural disaster related things. I don't know if everyone remembers in Fort McMurray a couple of years back, they had a big old forest fire that took out a huge chunk of the town. Hey, imagine that. Home insurance rates went up across half the nation because the companies that offer those, well, they had payouts and so they're absorbing that risk level now across the board for all the parties. Right? So, so yes there was an increase to your, your rate. Maybe it went up a hundred bucks a year or something. But because it went up a hundred bucks a year for everybody, it didn't have to go up $10,000 a year for you. You, you were able to spread that risk around amongst everybody so you could jointly share in the mutual volunteer you know, being covered for those risks. And all, all insurance is, is designed around a similar mindset around the management of risk. And who better would you want to have your capital put together with than a company that has demonstrated history, extremely long, demonstrated history, the longest in the nation for managing that risk profitably and productively. And while they're doing it for you on your behalf with participating dividend paying whole life insurance, you can access whatever is accumulating to move on and carry forward.

Yeah, I mean I'd be asking the question to myself, I mean do I want you know, profit in the, in the insurance company that I co own? Do I want the divisible surplus, the profit to be an engineered outcome or to be a volatile, uncertain outcome? Well, of course I prefer for it to be engineered. And that's why it's so important for people to realize if you look at all the life insurance companies that provide dividend paying, participating whole life insurance where.

You know, dividends meaning that the, the owners are sharing in that divisible surplus. Well, if all those carriers have been profitable every single year since inception.

Then I mean there, there, there have been instances with, with life insurance companies, you know, a few very large companies in this country where there were a few blocks of participating accounts that.

Haven'T been receiving dividends. And you know, we, we don't, we just don't do business with those companies. You know, we work with companies who have been paying dividends every single year since inception without fail. So the question becomes, okay, is it just a coincidence that all these carriers have this experience or is it an engineered outcome? It's an engineered outcome. And so again, thinking about where should your capital reside? Being able to not only use this tool as a, as a cash flow management system to help, you know, create this lifestyle, this financial lifestyle of control.

You don't need to rely upon anything or anyone.

And it's a very peaceful.

Way of life financially. It's, it's, it's just awesome.

Well, and you know, I think just, you know, kind of one of the final thoughts I have on here is again you, you touched base on the different ownership structures of an insurance company. And so you can have a mutual ownership, you can be a part of a mutual company or you can have a policy with a stock company. Now in Canada, these are again very well regulated. But even though the participating account is regulated and it is segmented in a stock company from the rest of the company. Right. The, the, the real issue is in the, the tale of two masters.

So who, who are the, who, who are the, the board of directors really trying to serve? Well, there's only one of those masters that's chasing quarterly profits because they got to make a report on the TSX and the stock exchange to make shareholders happy. And that's the stockholders. And so a lot of their decision making is about how do we look good on the next quarterly report? And that we have to, you know, issue and you know, make our stockholders happy.

And it's not a night, it's not a nice to do. Rich. When you're a publicly traded company, you have a legal responsibility to prioritize your stockholders.

It's a requirement and so again, who, who's at the forefront? Whose decisions are they more focused on? The par holders who don't even know how much power they really have, or is it the stockholders that they've got to meet these quarterly obligations and that sort of thing? And so we see that in sometimes in the design of policies or like, not policies, I should say, but you know, of new products and services and you know, how much they're trying to get into being, you know, dealing with types of investment type things that now the insurance companies are in the business of, you know, having investment products and that kind of stuff. And so we see it more in that environment. And you just gotta, you know, you gotta peel the onion, right? You gotta understand that there's layers to things, what's behind the curtain? And if you look behind it all and you start to think, okay, all right, who's at the top level here and who's making decisions and how many of those decisions are for the benefit of the participating policy owner? Well, in a mutual company, they have no other owners. The only way you can have ownership is to own part whole life. That means all decisions at the life insurance company are now made for the benefit of who the par policyholder. You're the vip, you're the top of the food chain in the insurance realm. When that's the case at a mutual life company, you're in a stock company, you're still pretty high on the food chain. But stockholders often come above in the food chain because yes, they have to make, they have obligations to make, but they're also chasing these quarterly profits. And, and they have two masters. And so who, who's more vocal as a master? It's probably the person that is, you know, the one that owns some stock in the company versus the one that owns a participating dividend account. Because most people aren't trained to understand when you have par insurance, what do you actually have? You know, a lot of the, a lot of the general public has no earthly idea the power they have and what it can do for them because it's not how the industry has taught them to recognize the power of the tool.

Absolutely. And on that note, I mean, yeah, what a great, great topic to discuss. And we know, you know, our viewers and listeners are going to get incredible value from it. But we'll include when it goes up on the YouTubes as well. We'll include in the, the notes, the link to the assurance website and the link to the, the licat information life insurance capital adequacy Testing information that you can get on the Googles and what it was great. Thank. Awesome chat and great topic too. You literally came up with this like before we hit the record button. Good, good discussion point. Because people want certainty. People want to know what is the worst case scenario. The worst case scenario.

And worst case scenario is you die. In which case you better hope you have the insurance in place. Yeah. And that's the worst case scenario, man.

You know, really important to, to be aware of these things and thank goodness we have these protections in place. And it sure feels great to be a participating policy owner, that's for sure.

I love, I love dividend day. Actually yesterday was a dividend day for me. Dividend party anniversary date on. On several policies. So I always love it when it's time for a dividend party.

Absolutely.

Anyway, so yeah, continue your journey of learning. Check out the next episode. There should be a playlist and some new stuff popping up on the screen. Make sure to keep gobbling that up. And thanks everyone for tuning in and for listening. We appreciate you and we appreciate you continuing to learn.

And we would say this as we always say now, if you find yourself thinking this is really good and you stumbled across wealth without Bay street, you stumbled across Richard and Jason, you stumbled across this great information.

If you want to take a deeper dive into the process that this tool is so effective at enabling you to implement, then just head on over to where should we send them? Do we want to go to watch ibc?

Do we want to go seven, seven steps ca.

Oh, right. Seven steps. Not one step, not eight steps. Seven steps. So that's seven steps ca. Again, that's seven steps ca. When you get there, you'll be able to download a report that walks you through guess how many steps 7 steps in the implementation of becoming your own banker. The infinite banking concept. Again, that's seven steps ca. Seven steps. That's all you're going to remember. You're going to be very irritated with me because I'm going to say it one more time. Seven steps ca.

Okay, thanks, Jason. Talk to you later, man. Thanks for listening to the Wealth Without Bay street podcast where your wealth matters. Be sure to check out our social media channels for more great content. Hit subscribe on your favorite podcast player and be sure to rate the show. We definitely appreciate it. And don't forget to share this episode with someone you care about. Join us on the next episode where we continue to uncover the financial tools, strategies and the mindsets that maximize your wealth.