A short video discussion (hosts Dan Allen and Liz Lamind) explaining why life insurance — specifically whole life — should be considered a savings vehicle (safe, low-risk, guaranteed cash value) rather than an investment. They contrast term vs whole life insurance, emphasize whole life’s cash value and policy loans (liquidity without interrupting growth), and promote the concept of “becoming your own banker.”
When I think of savings, I always think of, you know, that's something I can put somewhere it's going to be safe. And that's one of the difference between it and investing, usually with an investment. And I think you'll all know that to really get a rate of return with an investment that you feel good about, you usually have to take some risk.
Life insurance is not an investment. We're going to talk about that today. Why life insurance is not an investment. So we're going to start off by talking about just two types. There are lots of different types of life insurance, but we're going to talk just about two types of insurance today and define the difference between the two. So the first one I'm going to speak to is term insurance. And term insurance is put in place for a period of time and when that term runs out, it can either be renewed or it will just expire. So a lot of people put term insurance in for a purpose, but there's no value that's built up into it, except that if you pass away during the term, then there is a tax free death benefit that gets paid out. So that in itself is not an investment, it's just a tax free death benefit to solve some kind of financial issue that may occur if you die earlier than expected. We also have whole life insurance and that is in place for the whole of your life. And that has some components to it which we're going to talk about a little bit later. But it is growing some cash value. So people often wonder whether it's an investment and think about it in that way. And we're going to talk about why that's not the case. So I'm here with my colleague Dan Allen. I'm Liz Lamind. And Dan, let's talk first about savings and investments. Like what's the framework around that? Just so that people know what we're talking about with this, I think that's.
A good thing for people to get an understanding of because when you think of true savings, and I've looked into this, and it really should be something that you put away where it's safe and it doesn't have a lot of risk associated with it. So some of the ones that come to mind for that is like a gic. So it's a guaranteed investment certificate. It's guaranteed. That's a safe place to put your money. And that's very similar to like whole life. It is a very secure place to put your money. In fact, the risks of that ever defaulting are extremely Low, all you got to do is look at history and there's actually protection out there, regulated protection that if something would happen to the life company, that puts you in a great position. In fact, it's even better protection than you get from the Canadian Deposit Insurance Corporation when it comes to having your money in the bank. Now as cash values grow over $100,000, well that's where the bank limits out. And, and with whole life insurance, that's not the case. So it's one of the very safe places to put your money and have very low risk. Because we can never say there's no risk in anything because there's always some small risk related to whatever you do. But when I think of savings, I always think of that's something that I can put somewhere it's going to be safe. And that's one of the difference between it and investing. Usually with an investment, and I think you'll all know that to really get a rate of return with an investment that you feel good about, you usually have to take some risk. So typical ones we talk about are like putting an investment in the stock market. There's a multitude out of them out there. It's real estate, there's always some risk and it's usually higher. And the higher the risk usually the, the potential for gain is usually higher. So people chase bigger returns usually come with bigger risks. So when we talk about savings versus investing and why don't we get into why whole life insurance is not an investment? Because it's not, it's a place to store your money safely and it's not about investing. So when we talk about those two things, just keep in mind the difference between those two.
Investing versus savings is related to risk.
That brings us into our next point, which is something that you can do with a whole life contract is you can use that in combination with your investing. So there is a capacity to take a policy loan against the value in your policy and in doing so you can have access to liquidity without interrupting the growth of your money. So that's a really, really important point because if we take money, for example, in a tax free savings account and we're investing it and we take it out to use it for some other purpose, then the balance in that account goes down and therefore the growth of whatever we had it in to be growing is going to be hindered by the fact that that money is now going to some other purpose. So the really important component of the whole life contract is that your guaranteed growth continues while you still have access to that liquidity. So in terms of buffering the things that Dan was talking about with more of the risk with investments and things like that, it gives you a longer timeframe to be able to look at those other investment activities. So it's actually really important that our whole life contract not an investment. We need it to be that solid, stable ongoing growth for us such that we have more capacity to weather the inevitable ups and downs in other activities that we're doing to grow money and so using it as an and asset. So really, really important. It's a really great combined tool with the other things that you're doing because it is not an investment and it has some guaranteed components to it.
We both teach a very specific concept and it's called becoming your own banker. And one of the things that we'd be coaching you to do because even with whole life insurance, you could pull your value out of it and stop the growth. And what we would be coaching you to do is hey, take a policy loan. That way you haven't taken your money out so you're going to enjoy that ever ongoing compound effect of your value. And that's really a huge difference for you. And you haven't stopped the growth. And that's just one of the great attributes of a whole life insurance policy. What I would encourage you to do is just take in some more of our content. Like we've got lots of great content out there. It helps give you insight into the process.
Call becoming your own banker. And again, if you don't have a copy of that book, I'm going to encourage you to get one. The other thing I'd really love if you would do is if you have thoughts or questions related to what we've said, just put them in the comment section. We'd love to have those and we'll reach out and we'll do our best to answer your questions.
That's a really good point, Dan. And I think it brings up the need to make sure that you work with somebody who understands how to optimize this process and put the correct kind of policy in place. Because as we talked about at the beginning, not all policies are exactly the same and it needs to be structured correctly and you need to continue to work with a coach who can guide you on how to use a policy and you know the nuances around taking policy loans instead of withdrawing the value. All those are really important components. So as you learn more, working with someone who can give you that good guidance and help you to understand how to optimize the use of that with the other activities that you're doing. Click on the links beside the video to learn more and so that you can watch more about how you can create this in your own life.
