Breaking Down the Canadian IBC Tool (Cash Value GROWTH)

That by age 100, your total cash value must match your total death benefit. So as you're putting the premium into policy, insurance companies start to grow cash in this policy for you. That cash is your money, it invests with you 100%. And that cash is grown so that it matches the death benefit by age 100.

Breaking down the IBC tool in this video, we're going to talk to you about the tool that we use to implement the process of becoming your own banker. And that tool is a participating dividend paying whole life policy. Sarbalo, let's dive in.

Let's dive in, Peter. So the tool is called participating.

Dividend paying.

Whole life.

So the word participating means by virtue of you owning the policy, you participate in the profits generated by the insurance company. Or in other words, you become a co owner of the insurance company and that profit is credited to you as a policy owner via dividends. That's why it's called participating dividend Paying the word whole life means it's good till the end of time, it's good till your whole life, and it is permanent life insurance.

The premiums in a participating dividend paying whole life policy, the premiums cannot go up. The premiums could go down and the policy owner, or as a policy owner, you can elect to reduce your premium. And if you reduce your premium, your benefit will also change. But from insurance company standpoint, the premium and the participating whole life policy, their premiums can never go up. The other contractual guarantee is that by age 100, your total cash value must match your total death benefit. So as you're putting the premium into policy, insurance companies start to grow cash in this policy for you. That cash is your money, it vests with you 100%. And that cash has grown so that it matches the death benefit by age 100. So I repeat, the contractual guarantee in this policy is that total cash value, which is your money in the policy must match the total death benefit by age 100. Now to demonstrate that, I'm going to annotate that for the benefit of the viewers and I'm going to use an example. Let's assume that the person who's applying for life insurance is male, age 45. And based on the premium and how the policy is designed, their starting Death benefit is $500,000. So I'm going to go back into my annotation screen and I want to demonstrate this individual's policy growth. So the individual is age 45, male.

Non smoker. Let's just assume it's non smoker. And then the starting death benefit on the policy is $500,000. So this $500,000 is the starting death benefit in the policy.

This is what happens in the policy. So in the bottom in this graph, you can see this is age. So it starts at age 45. It goes till age 100. Now, the starting death benefit in this policy. So this block, I'm just going to redo this. This block represents the starting death benefit, which is $500,000. So they put in the premium, and their starting Death benefit is $500,000. So by contractual guarantee, which is by age 100.

Total cash value.

In this policy.

Must equal to total that benefit in the policy. This is a contractual guarantee. So immediately, insurance companies start to grow cash in this policy. And that cash has grown every single day because this person ages every single day closer to age 100. So the cash has grown so that it matches $500,000 by age 100. So every single day as you age, as you get one day closer to age 100. Peter, what is happening to the cash values in the policy?

Every single day, the cash values are increasing.

Cash values are increasing. Now, can that cash value be less than what it is today?

No, it can't.

It can never be less than what it is today. Can stock market impact the growth in the policy in a negative way? Stock market manipulation up and down in the stock market, the stock market turmoil, can that impact impact the policy in a negative way?

Not even that. It's not going to stop the cash values.

It won't. Now, can any future pandemic impact the growth, or can any future pandemic reduce the cash values in the policy?

I think you said it's a contractual guarantee, so it's going to happen.

So no stock market manipulation can stop the policy from growing in terms of cash value, no future pandemic can stop the cash and the policy from growing every single day. None of the external factors impact the cash value growing in the policy because of the contractual guarantee by the insurance company that by age 100, your cash value must match your death benefit. So, Peter, how much risk does a policy owner have by putting money as premium in this policy in terms of growing the cash in the policy?

Well, your only responsibility is to put the money in. The responsibility to grow the money is all on the insurance company.

Exactly. So all the risk is away from the policy owner to the insurance company to grow the cash in the policy in its contractual guarantee to happen. All right, let's go back to the screen here. Now, if that contractual Guarantee is good, Peter, in terms of cash values increasing every day to match death benefit. So we put the money in, the cash grows. If that is good compared to what, and if that isn't good compared to what, what else is out there where we can put money in and just grow the cash just by virtue of us aging every day?

I don't know if that's a rhetorical question, but it is a good question. Yeah. If anybody knows, please let us know. This is why we use this for becoming your own banker. Yeah.

All right. So now, so this is a participating dividend paying holder policy, as I mentioned right here. And the dividends are credited to policy one time per year on your policy anniversary day. So it's credited to your policy on your policy anniversary day. Now let's assume that this policy started on May 8th of this year, May 8th, 2020. So your policy anniversary is May 8th. So May 8th of 2022. So today is 2021. So May 8th of 2022, that's when you're going to receive the dividend in the policy. So this person is now age 46, he's had this policy for one year and now they received a dividend. Now they can do many things with a dividend. So Peter, what can a policy owner do with a dividend?

Well, they do have options. They can take it for cash, they can use it to pay towards their premiums, or they can also redeploy it back into the policy to buy more death benefit.

Exactly. So there's many options with the dividend. And as a policy owner, you decide what to do with the dividend. What I'm going to show you is the best effective use of dividend when it comes to implementing the process of becoming your banker. And Peter just mentioned that. So what we do with the policies, the way we design policies for ourselves and our clients, is we take that dividend and we roll it back into policy to buy something called a paid addition. So I'm going to share my screen and I'll bring that up. So age 46, they receive a dividend, they take that dividend and then they roll it right back into policy.

To buy something called a paid up addition. A paid up addition is additional death benefit that you're able to buy in the policy at no extra cost. It's just a dividend that is required to buy that extra block of that benefit. So what that extra block of death benefit is called paid up addition. Or in short, some insurance companies and some advisors call it pua. What it stands for is paid up.

Addition.

So paid up, meaning the dividend is all that's required to buy this extra block of death benefit. No more future premium is required. And it's called addition because it's in addition to what you already started. So starting Death benefit is $500,000. We receive dividend at age 46. Let's assume we roll that dividend back into policy to buy a paid up addition. And the value of that paid UP addition is $10,000. So now your death benefit has increased by $10,000. I'm just using arbitrary numbers, not exact numbers, just to make a teaching point. So now your death benefit has increased by $10,000. So your total death benefit in the policy is 500,000 plus the $10,000. So if death occurs, that is what the family will receive. 500,000 plus the $10,000. Now this extra block of death benefit, which is called paid up addition, this has its own cash value which must match $10,000 by age 100. So, Peter, what's happening to the cash compound the cash in the policy, is it compounding now?

Yeah, absolutely. If you continue that process, it's only going to get better.

Yeah. And what's happened to the death benefit? The death benefit also growing in the policy.

Now, what you're paying for premium, you're paying to buy this block of death benefit. That's what your premium is doing is buying that block of death benefit. This extra block of death benefit was purchased by dividends. So let's fast forward to another year. So age 47. Now, the policy owner is two more years into policy. It's two years into policy and they receive another dividend. Now here's the best thing about structuring the policy the way you're seeing right now on the screen. When you receive that dividend, in this case at age 47, you will receive a dividend on this block of death benefit, but you'll also receive a dividend on this extra block of death benefit. So, Peter, the dividend that this policy owner will receive at age 47, is that going to be higher than what they received at age 46?

Yeah, mostly. Certainly should, because it's a bigger number that you're working with right now.

What they do is they take their dividend and we chunk it right back into policy to buy another block of paid up addition. And let's assume arbitrary number again, that this extra block of death benefit is $20,000. Now, what's the total death benefit?

Now, Peter, you've got the $500,000 plus the 10, plus the 20, for a total of $530,000.

And what are they actually paying for?

They're just paying for the 500.

Yes, the premium is paying for $500,000. Those extra death benefit was purchased via your dividend, but your total death benefit now, like Peter mentioned, is $530,000. So your death benefit has gone up. Now this block of paid up addition that you buy, this extra $20,000 that you see on the screen, now this has its own cash value which must match $20,000 by each 100 contractually guaranteed by the insurance company. So now you can see in a matter of three years, we've compounding the death benefit, which has compounded the growth in the policy, the cash values, which will also increase your future dividend. Because the dividend that this person is going to receive at age 48 now, now they're three years into the policy, the dividend that they're going to receive is not just on this block of death benefit which they started at, which is what they're actually paying for from their pocket. They would also receive that benefit or dividend on this block of death benefit, plus on this block of death benefit. So this, that dividend that they receive at age 48 is going to be more than what they received at 47 and 46. And they're going to take that dividend, chunk it right back into policy to buy additional paid up addition. Let's assume arbitrary number again, it's $30,000. Now that block of death benefit has, has its own cash value which must increase contractually to match $30,000 by age 100 based on insurance company's contractual guarantee. So if you tally what's happened three years into policy. So Peter, what was the starting debt benefit? I'm going to write that down on the top of the screen. The starting death benefit. What was the starting death benefit?

Initial was $500,000.

What is the total death benefit?

That benefit, the total with all the paid up additions will be $560,000.

So that benefit has gone up, but what are they paying for?

They're still paying the same original amount that will get them when they started the policy. Policy, Your premiums never go up in this structure.

So your premiums are paying for that $500,000 of starting that benefit. Everything else was purchased by your dividend. So you can see by structuring the policy, the way we structure your death benefit goes up, which is great from the estate value standpoint because nobody has a lease on life. We all have our best before dates, we just don't know what that date is. So by making sure that we have that extra death benefit for the family, which is great, so we structure the policy so that your death benefit goes up. But because of structuring the policy this way, your future dividends increase. Your cash values also increase going forward in the policy.

Yeah, I think that was a great overview in terms of understanding how to how we break down the IPC tool, which is the participating dividend paying whole life policy. For more information on becoming your own banker, the tool is great, but really we highly recommend reading this book Become your own banker. Unlock the infinite banking concept. We'll leave a link where to purchase that as well. On the Banker's Vault we have lots of videos. In terms of how to become your own banker, what I would recommend is the masterclass to really get you started.