Richard Canfield compares term life insurance to renting and permanent whole life insurance to owning a home. Term policies have fixed costs that rise at renewal, while dividend-paying whole life builds cash value, gives you ownership in the insurer, and lets you control your money long-term.
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Permanent insurance is just like homeownership. It's like owning the house. Term insurance is like renting the house. You, you get a lease for a year or six months or two years to rent that house. And at the end of the time of the lease, usually the rent gets jacked up.
Why is it important to understand the difference between permanent insurance versus term insurance? I'm Richard Canfield, an authorized infinite banking practitioner with Ascended Financial, and I'm glad that you're here. There's a ton of misinformation out there in the marketplace about what permanent insurance is. What are the different kinds of permanent insurance and how is it different than term insurance? So I'm going to talk about these using an analogy today. I think analogies are some of the best ways that we learn. And I'll ask you a question. So if you, if you could choose between owning a home, roof over your head, the primary shelter, shelter being one of the basic human needs. If you could choose of owning that property versus renting it, a lot of people choose to have ownership. And there's a variety of reasons why they choose for ownership. They choose it because they can build equity. That's very important. They have some control. If you want to change the paint color, change the walls, you want to defer some maintenance, do landscaping, all these kind of things you can do gives you choice. And, and that's a really powerful feeling versus maybe when you're renting a property, you gotta ask for permission. Maybe you're not able to make a lot of those changes and adjustments. And even if you did wanna make those changes and adjustments because they would make you happy or, you know, give you some kind of a positive feeling, there's nothing in it for you other than that you would be covering some of the expenses, but you'd have nothing left over at the end of the day. Whereas when you own the property, hey, if you develop the basement and turn it into a income property, you have a basement apartment or a basement suite that can generate revenue and it increases the value of the property. You can go and create that outcome and maintain the ownership and the advantage of doing it, making that capital investment, making that time investment. So this is one of the reasons why people often choose or want the dream of homeownership because, because of all the advantages, again, building equity ownership control, the ability for a possible appreciation that happens there. When you actually make a mortgage payment, you're buying the principal down, so some of that can come back to you down the road, et cetera, et cetera. There could even be some possible tax advantages. Depending on where your jurisdiction is versus in the renting situation, you may not have a lot of those benefits. Here's the other thing. At the end of the day, one of the reason that people choose ownership over renting is that if something changes or happens, they can, they can still maintain their home versus a lot of times in a hot rental market, like what's happening in the last number of years in the Ontario marketplace and again in the Lower mainland and Vancouver area, you know, really hot real estate market. What it's doing is it's pushing the prices of rent up quite a bit and people, the landlords are selling properties and they're handing out eviction notices to the tenants. So if you're a tenant in that situation, you're happy, your kids, your family's there, you're in the right school district, all it's close to work, it has all the amenities that you want in the nearby area that you're happy with. You've been living there for two, three, four, five years now, all of a sudden that property gets sold from underneath you and you have to go find another one. In a competitive marketplace, that takes away a lot of your options. That takes away a lot of control. So why am I talking about houses? We're supposed to be talking about insurance. Well, here's the reason why. Permanent insurance is just like home ownership. It's like owning the house. Term insurance is like renting the house. You, you get a lease for a year or six months or two years to rent that house. And at the end of the time of the lease, usually the rent gets jacked up. Well, when you're getting term insurance, you're getting term for a period of time, typically 10 years, 20, 20 years, sometimes 30 years, usually. You don't see a lot of differences there. It's usually 10 and 20. So whatever place you're at on the age scale, let's say you're 30 years old or 40 years old, you get 10 year term insurance. Well, that only covers you for the next decade. At the end of that time Frame now you're 10 years older. And so the price or the quote unquote lease has to jump up, the cost has to jump up, because from the insurance company's perspective, you're 10 years closer to death. Sorry. Hey, death is creeping up on us on every day. It kind of sucks. But that's how the game operates. We have a finite period of time on earth and there's a cost associated that when it comes to insurance, it has to be actuarially assessed. So as you get closer and closer to imminent death, the pricing on that term insurance has to go up. For a lot of people, when that price jump happens at the 10 year or the 20 year mark, the price is such a surprise, it's often astronomical that we forgot that's what we were told was going to happen a decade ago. And now we end up canceling that policy. We don't have, we let the term insurance go because of the price increase and then we don't have any coverage anymore. And meanwhile the insurance company got to keep all of our money. Well, here's the cool thing. If you own permanent insurance, if you own specifically there's multiple kinds of permanent insurance, we prefer, you know, our channel, all our videos promote using dividend paying, participating whole life insurance, which is a form of permanent coverage. And the reason we like that coverage is because it's the one that we believe gives you the most amount of control and it has the historic guarantees attached to it for dating back 200 years. It's pretty good history. So long track record. When you own that type of permanent insurance, you're a part owner, you are participating owner in the insurance company. So that means that all their profits centers are being split up and divided amongst the, you know, the end of the year they call the accountants in and said, how do we do this year on all of our policies? Hey, well we made a bunch of money on term insurance because we didn't have any payouts. We got to collect and keep all those premiums. Hey, that adds to our bottom line over here for our par owners and it offsets some of our other expenses. So that's part of the advantage of ownership. Just like the idea of owning a house. And it's really about control. It's about the peace of mind and the feeling that you have knowing that, hey, I can go and paint the wall whatever color I want. If I want hot pink. I'm not sure why you would want to do that in your house, but if that's what's what turns your crank, then knock your socks off, go to the paint store, get some hot pink, paint those walls. You do you and you get the, you have the ownership, so you have the ability to do that. When you have the term insurance or you have the rental property, you don't have that type of control, make those kind of adjustments. So that's a way that we kind of use the analogy of real estate to, you know, transpose it into the insurance realm to see the difference between permanent versus term insurance. Now there are other forms of permanent insurance. You've probably heard of universal life. We do have some videos that you can flip through on that. There's different kinds of that as well. And there's also basic regular whole life insurance. Well, that regular whole life insurance or referred to as non participating whole life insurance. Pretty simple. It's pretty basic. Yes. It's there for your whole life. You have a fixed guaranteed premium, but it doesn't generate and create lots of cash values. It doesn't give you that participating advantage of being an owner in the company. It still can be okay depending on your circumstances, but it's not the type of machine that's going to give you the same type of equity and utilization of that equity throughout your lifespan like participating dividend paying whole life insurance will. So there you go. There's a couple differences between permanent and term insurance. Hope you found this useful. We have a ton of other videos available on our Bankers Vault channel. We also have tons of stuff available on our Wealth Without Bay street podcast. Make sure to check both of those out. Take a look at the playlist that just showed up for you. Continue your journey of learning and we hope to see you soon on one of our events and we hope to see you commenting more on our channel.
