Reacting to "NEVER Buy Whole Life Insurance!"

We know how investment salespeople, they represent investments, they actually look at rate of return or average return. And we know that it is so confusing, so deceiving that it's not about rate return, it's about the volume of interest that you are either getting or you're paying to someone. Hi, this is Roman Pushkar and Henry Wong. We are infinite banking practitioners with Ascendant Financial. And we decided to talk about a very interesting topic that we actually came across in social media. And it is a picture that is talking about whole life insurance. And it reminded me on how the industry is actually looking at whole life insurance. This is exactly why the industry, traditional industry, or in investment world, all they're talking about don't buy life insurance, buy term and invest the difference.

This message is a little bit disturbing because it kind of paints things in a very negative view and in a way it could be pretty irresponsible. So the first thing that you'll see here right off the bat, this socialized message is don't buy whole life insurance. And according to Forbes, I don't know how well they really know life insurance. This is what this particular author of a blog article is sharing and that was marketed across the social media was it would take 35 years for the policyholder's cash value to exceed what they put in. And they use an example where the person on the left, ian, is putting $300 per month in a whole life insurance policy while Isabella is investing $300 per month in an S&P 500 index fund. And the result of that is 35 years later, Ian is only going to have $126,000 in quote unquote cash value, saying there's 0% return and there's a 1.1 million of real money, a 10.5% return for Isabella. Just in the interpretation of this on the surface level, in my opinion, or in our opinion, heavily sensationalizes investing and it very much is putting down a very valuable tool and what should be in people's portfolio of risk management of a whole life insurance policy. And it's just kind of comparing the two. And first of all, just right off the bat, there's no layer or reference of real source of how these numbers are derived. So I know Roman and I are going to go into a bit of detail to dive into sort of how we may have just on the back of the envelope calculation come up with these marketed numbers here.

What comes to my mind when I see this picture is that this picture is trying or whoever put this together is trying to compare whole life insurance to an investment. And it's totally different vehicles, totally different, different things. And there's a lot of pieces that are actually missing that we don't see a lot of benefits that, for example, that whole life insurance provides. There's a lot of numbers that the author of this article or this picture did not talk or just kept silence about. Right. For example, one of them is a death benefit. What happens if Ian, for example, puts 300A in a life insurance and he dies the next very day and Isabella invests 300amonth in an index fund and it may be even performing a little bit better than what Ian's cash value is. What happens if Ian passes away and Isabella passes away? How much of her wealth her family will receive and how much will Ian's family will receive? Whole life insurance is not an investment. It is insured. It is strictly insurance. The way the industry is talking about this, basically they look at it as a savings vehicle, which it is not. We need to look at a properly designed whole life insurance even to see the numbers.

Well, even using your example, Roman, it's like taking a bicycle, comparing it with a car. A car does a different thing than a bicycle. And you're comparing a car in terms of the speed of getting to the destination. Obviously the car is going to win in that circumstance where the bicycle, maybe your objective is for exercise. Comparatively, the exercise on a bicycle is going to be far superior to compared to the vehicle. So what is the objective here? And the assumption that is being played onto your mind is that this is all for investment purposes. And one thing that we'll just say is one of the things we are really helping Canadians with, just as you are listening to this, is the utilization of the policy and the coaching of using it. And what can you do with the utilization of the policy? Everybody's circumstances are different. But if you want to be treated like a commodity and seen in that way, then maybe that is something that you feel and prefer that too. It's very interesting the perspective that is being slanted that it's completely against life insurance agents. Not every life insurance agent is the same based on that slant. It just kind of already highlights to me who's actually paying this particular writer. Is it really the banks or the insurance industries? Just quoting from the article. The salespeople who push these policies who often confusingly will call themselves financial advisors. I mean, that's the terminology that's just generally used. Whether Roman Pushkar, you're an authorized infinite banking Practitioner. I myself, I'm a cpaca and I'm also an authorized Infinite Banking practitioner. Am I a financial advisor? Sure. Am I a financial coach? Sure, Roman, if you're a financial coach, sure. Roman, you're a wealth architect. Sure. It doesn't matter. The key is we're here to help coach you. Canadians who are watching, well, tout all sorts of benefits. Tax deferred growth, infinite banking, avoid estate tax, stock market returns with no downside risk. It's an enticing sales pitch and it's all nonsense. I don't even know how to address this kind of comment here. In terms of tax deferred growth, I'm not sure what that means. When the family beneficiary receives a death benefit, Roman, is that taxed?

No. Death benefit is never taxed in Canada.

Not at all.

He is not talking about taxes. He's not talking about fees. He's not talking about how much death benefit Isabella will have. He is only talking about a rate. If you go back to the previous slide, Henry, you will see at the bottom of this picture there's a basically comparison between 0% return on a cash value and real money. So he is showing that in investment it is real money, but in cash value, it's not actually real money. What he's doing, he's comparing rate of return, 0% return versus 10.5% return, which seems to be very high. And I don't even know if this is a real number, but Nelson, in his book, he says that it's not about rate of return. Rates of return are irrelevant because they can be confusing. We know how investment salespeople, they actually represent investments. When they want to sell funds, they want to sell stock market funds, index funds, segregated funds, whatever. They actually look at rate of return or average return. And we know that it is so confusing, so deceiving, that it's not about rate of return, it's about the volume of interest that you are either getting or you're paying to someone.

When it comes to the dollars, how you have deployed those dollars, what opportunity costs are there for those dollars when you deploy it and when you deploy it in a properly designed whole life insurance policy designed for practicing a process of becoming your own banker, you're able to access that cash while it's actually increasing every single day, that's tied by a contractual guarantee with the insurance company. When you deploy capital in these investments. Now when that the capital is in that investment, Roman, can you use that money to do anything else other than purchasing the bank or the brokerage's products that they that you put it in to those accounts.

This money is basically is sitting in the investment and hopefully it is growing. But they want to access this capital. I have to sell this investment.

And I really love that you said you hope that the cash is going to be here or the money is going to be there. And I also want to kind of bring in additional quotes that this particular blog article went through. Here's the reality on the ground. But every time I see one in real life, the policyholder has paid way more money into it than than it's currently worth. And these policies are designed to crush unsuspecting young investors with fees that far exceed any upside growth potential. And trying to figure out what you'll make is like trying to figure out a carnival game that's described in a thick book of complex rules designed by the insurance company to, surprise, surprise, maximize their self interest. Investments are supposed to go up in value, not funnel fees to an insurance company. Let's kind of go unpack a little bit of a statement. Here's the reality on the ground. What ground? From the background check that we looked at this particular blog article writer, I'm not even sure this person even understands life insurance, has a life insurance license. So I'm not sure if that opinion that he's sharing actually even properly is an informed opinion that can give you an unsuspecting biased view of things. The second thing is every time this person looks at one real life policy owner, well, I mean a life insurance contract is one that is designed that allows the insurance advisor to actually construct different variables as suited and according to the individual's needs. It's not a basket of thing that you just hand to everybody. Everybody gets the same policy. When we at Ascendant Financial meet with our clients, we take a very accurate look at their life journey of where they are today compared to where they need to be. And we design the policy according to their circumstances and their goals and objectives. So it's not a standardized template that you can just copy and paste and use across everyone else. Roman, your needs for insurance is very much different than my needs for insurance. My objectives are very much different than your objectives. So you can't commoditize something that is just like that. Now the other part, this is the particular interesting part is this. These policies are designed to crush unsuspecting young investors which when you buy a policy, you're actually not investing with fees that far exceed any upside growth potential. Now Roman, you and I both own Policies for our own and building our family banking system. Do you kind of pay any out of pocket fees that you know of here?

I don't remember. I pay any fees at all, Henry.

I pay any fees either.

In fact, I'm just paying my premiums. That's it.

I just pay my premiums and that's all I do when I access my policy values that I'm able to access. I also don't pay fees on accessing it. So I'm completely fine with that and I don't see any values that happen from there. The interesting comment that I just want to highlight is when people purchase these investment pooled funds, either in the form of mutual funds, ETFs or stocks, there's fees involved to pay to the brokerage for those transactions. There's also fees involved related to the management expense ratio, the turnover ratios, all these other trailer fees that you. That to me is actually what I would describe back to him. Unpacking those fees that those funds are charging me on those returns is the carnival game. But it's not on us. It's actually on what he describes there. The balance that is held in their interest accounts. That is what they're calculating the fees on. It's the base of the portfolio. So whether your portfolio goes up or down, they're still going to take their agreed amount stated fee that you may have likely signed in a very long legal document. Here's another very interesting blog article comment. Investments are supposed to go up in value. If I were to look at last year's returns, people's portfolio values didn't go up. They say it's supposed to, but where's the guarantee that the value will go up? It isn't there. What I was able to retrieve was The S&P 500 total returns from 2023 all the way to 1926. And these are those returns of those numbers. So Robin, is the investment supposed to go up in value? Do those years go up in value?

Probably it was supposed to, but it did. It just. It just failed.

Let's say in 2008 it went down 37%.

37% down. Can you imagine like just losing one third of your portfolio?

Yeah, you just imagine putting in $3,600 a year, $300 per month or $3,600 per year. And you lost 37% of that 1/3 of it, $1,000 just rounded nicely. That's quite a lot.

Not only you lost one third of your this year's investments, but all the investments that you Actually held in this.

Portfolio in the past, right?

Yep.

And let's just look at last year, 2022. Look at that. Last year went down 18%. And again, I thought as that statement says, investments are supposed to go up. Now if I look at this return. So all I did was I just modeled that data into a visual form and you can see the total returns, zero being the zero line. Roman, when you put your money into the accounts, is this kind of how you like to see your money move?

No, I would like to see my money move only up. Only up and never down. It's interesting observation that actually you see with years volatility actually increases. You see how the ups and downs going further up and lower down. That's the volatility. That's the standard deviation on the market fluctuation. Right. With time, the stock market becomes more and more unstable in terms of the.

State of the economy and the economics. Most of that in my opinion, is due to the amount of leverage that is used to purchase these investments. Using that example of the individual who's taking $300 per month, I'm just going to choose a random year. You just put in 3600 in year 2000. If we take the 3600 and I'm not including all the past balances, the compounding balances, let's just look at it for just an isolated circumstance. And we see the 3600 and you take that and then you put that in here and. And immediately it drops 9.1%. So it falls to 3,272 the second year. Again, you can't predict what it is you hope or are supposed to go up, but it didn't. So it went down 2883. And then the next year you again don't exactly know what it's going to be. So I'm going to take it another year and that becomes taking the 22% and went down another 22% is now 2246. So you started with 3600 and now that amount that you put into the markets dropped to 2246.

So you lost like almost half of your investment actually.

Almost now, Almost. They say the stock market is supposed to go up and it only goes up. But let's take a look at the money that you initially put in because you don't know what it is. It's very random. Pretty much it is pretty random. And you put that money in at that time, how long does it take to recover back to the amount that you put in. So let's look at that. It takes one year. So the next year is 28%. So it's 2890-3205-3362-3893. So you put in the money at 2000 and then until 2006. Now you finally exceeded what you put in six, seven years and you got an extra 8% on your money. Was that a good use of seven years of your time?

What if I need this cash? What if I need to withdraw it? Let's say in a second or third year, I just need to take the loss.

What is the most common message the investment industry love to share related to when your investments go down? What do they tell you to do with your money? Keep it there. And they also encourage you to keep sending more money and keep averaging down.

Right.

As the investments now are lower because they're supposed to go up, you're buying cheaper.

You're buying cheaper.

Yeah, yeah. You're buying it cheaper. You're buying it cheaper. So you're averaging down into a lower and lower basket, but the basket is supposed to go up. Right. That's. That's what they say. The other part, just to kind of highlight is what is one of the probable reasons why the incentive is for telling you or messaging you to continue putting money despite the market going down? Well, let's just say the general industry is getting paid 2% fees.

Yeah.

If 2% is what they're getting paid every single time. Doesn't matter of what. Doesn't matter what's happening in the market, they're still going to get paid. So here's what they're going to get paid on that 3200. They get paid 65. They're going to get 57, 44, 57 or 67. So this whole time, while your money is in that market suffering that roller coaster of a ride, they earned $435 compared to Roman, how much did you make?

$200.

Just by looking at that standpoint, who's taking on the risk?

Roman, you or I am taking all the risk.

Who made most of the money, you or them?

They made most of the money. Yeah.

The question now that as you are listening to this, would you want to change this? And this is part of the reason why you're watching this video so that you can at least see what the merits of the discussion that we've just gone through. And I just want to add a few more things. If you need life insurance because someone is depending on your income to live. Buy an inexpensive term life insurance policy, Take the rest of that big chunk of money the insurance salesman wants to to charge you in premiums and invest it in a real investment like index funds. Without diving into the numbers and the methodology of how he's calculated this 1/8 ish million dollars of a 10.5 real return, that doesn't matter. Looking at the mechanics of how that is earned, how the industry is getting compensated from that amount, and that highlights a few things. First, the message is buy term and invest the difference. We would be concerned with investing the difference, but let's kind of talk about life insurance just in general and how it's not a commoditized product that you can give just whole some numbers together and just hand over. Let's go through some of that variability of what can actually happen behind that.

This author, he actually realizes that it is not appropriate to actually compare life insurance to investments. He's now thinking about, oh, there's a death benefit, okay, so you have to have a death benefit in place. So that's why you need to buy term insurance. Term insurance cost, is it on top of $300 deposit or is it included in $300 DEP? It is on top. He's not even talking about it. So when he's comparing $300 in whole life and $300 in investments, so there's a term insurance which has to be paid on top of that in order to even have the same protection in order to be able to actually compare these two vehicles. So let's look at a real case example on what happens if you structure a policy properly in order to practice the process of infinite banking. Every whole life insurance contract in Canada is different and it is not the same as just regular whole life insurance. What this person is talking about is he's talking about a traditional way to buy insurance. So when you buy whole life insurance, what you want to do, you want to buy as much as possible death benefit and you want to pay as little as possible premium. If you do that, then yeah, then the cash value accumulation will be very, very slow. We kind of try to reconstruct or reproduce a traditional approach of, you know, constructing life insurance policy. In the policies that we construct, that we build, we design for our clients, you have access to cash values in year one, so you can borrow immediately from life insurance contract because there's cash value, because the policy is structured in a different way.

And the way that we're going to show this policy is not exactly the same one that you would get because we don't know your individual circumstances when it comes to. We're just throwing in an example. And one of the things that's actually really important when it comes to life insurance is the age. What is the age of this individual for this?

We don't know.

We have no idea what the construct of the policy relates to in the terms of what riders are included, whether they're considered. We have no clue. So we're just trying to back at the envelope. Look at the process that we follow in terms of designing a policy for becoming your own banker. And we would just design a life insurance, whole life insurance product and just show that already there's just in terms of the methodology and how we would design the policy is different.

I put together here the picture that we are actually discussing and example policy. It's. It is not a real illustration. But based on assumption that this guy is 25 years old, we also have to deal with a person who is a non smoker. This is important because policy design for someone who is like 50 and a smoker will be absolutely different than non smoker and who is younger. So this is the way this guy might have looked at this policy design. So this guy is 25 years old and 35 years later he will be 60 and in 35 years. So this is how much premiums he has put in. So he's paying 300 per month into the whole life policy. It is not structured for the process of becoming your own banker. It is not structured for accessing cash value. It is not structured for using cash values to buy things in life and becoming your own banker. He cumulatively has put in $126,000 into this policy. And his cash value is actually very accurate to what this guy is showing in this picture. 126,000. So he's barely breaking even in 35 years. And the death benefit is actually $310,000. In order for this picture to make sense, there has to be additional cost of buying term for at least this amount. Would you agree, Henry?

Absolutely. Agreed. And we don't even know how old Isabella is as an example. And what If Isabella is 55? Is term insurance cheaper or expensive?

It's more expensive if you actually renew. There's term for 10, 20, 30 years. If you renew 30 years term in, in 30 years and in the last five years you have to actually pay higher premium than you will end up actually paying more for the term.

Yeah. And when it comes to insurance, generally, the amount, the age that an individual can get insured is until 85.

And if we look at the way we design policies, we don't really design policies based on the death benefit. We design policy based on how much you're willing to put into your life insurance policy so that the cash value accumulates faster and you can actually use cash value as policy loan. So the process is very simple. You just start building your cash value in the policy. You make your premium payments when you need cash. You don't interrupt the growth of your cash value, but you apply for policy loan and it is an instant approval and it is being deposited in your bank account in about three to seven business days. And what you can do with this cash, it's up to you. You can buy cars, you can invest, you can put the down payment on a mortgage, you can recapture your debt. So there's endless opportunities on how you can use this cash. So how we would design a policy for $300 per month in 35 years, Ian being 25 year old, non smoker male, will have 243,000 which is way higher than the initially illustrated. It's almost twice as much.

Let's highlight that just from the fact that from the information shared on the investment, again we can't derive how this was done. But just showing the comparison between how generally we may have applied our methodology to designing a policy compared to regular whole like policy. Which side did this individual decide to show in terms of their numbers? The stronger side or the weaker side?

And also if you think about all the opportunities that will hunt down this young guy, right? So he may use this cash value to buy real estate, to invest in private lending deals, maybe invest in something else. How much return can he get on those investments?

That is not even factored into this. And that is what we wanted to refer to as the opportunity costs. When Isabella has put money into the investment account, that first. The second part I want to just illuminate is that account could be in a different kind. It could be an unregistered account, it could be a government registered account like an rrsp. And if that money needs to be withdrawn, that money will be ended up getting taxed anyway too. So just going back to that money is trapped in holding those specific asset class products that they have purchased with the bank or the brokerage. But the cash value that you're accessing is completely available for you to utilize on the choices and advantages that you are capable on. There's no way we can capture that open ended opportunity. That is no free.

And there's so many unknowns in this picture that is sensationalized to show that hey, don't buy life insurance. But this guy is not even talking about taxes. This guy is not even talking about fees. He's not talking about death benefit, he's not talking about opportunity cost and he's not talking about risk associated with investing in stock markets.

If ian puts in $300 immediately, he would have an access to death benefit and how the policies that we've designed that death benefit grows according to the contractual design to it. Now, using Ian as example, Roman, do you think Ian's needs in his life are going to increase or decrease with.

Inflation with all the life expenses and his family is growing and he's getting older. I, I'm 100% sure he's increasing every year.

And wouldn't it make sense that the death benefit aligns in growing to match whatever his way of life that he's carrying to to get there? His death benefit today is not going to be the same as what it is in the future because his earning capacity is gonna get better. He may get better at his job, he may get earning more income, he may have more assets or he may need more things that needs to be protected. But it only makes sense that his death benefit doesn't stay stable at the same as the first time he entered the contract, 35 years, things are going to be much different for him. Whereas if we look at the general standardized whole life policy and how it's designed, those mechanics and that methodology doesn't take that into consideration as much. The blog article writer, after going through writing that article, left everyone with two lessons, as always reminding you to build wealth, you have to follow these two rules. Live below your means and invest early and often. And I wanted to say, Roman, would you enjoy earning a universal basic income on your life and living below your means, or would you like to live a life of abundance and achieving the things that you want?

Living below my means? I would love to. Instead of selling spending too much, I would love to be able to set aside money and put it in my bank rather than spending so. But I don't really like the idea of the universal income.

No, it's not about an investment. It's about owning the process of becoming your own banker. Understanding and taking the functions and the process and the roles of banking into your own life instead of outsourcing and giving it to others.