The #1 Mistake You Make That's Ruining Your Policies

The insurance company is not designed to operate with thousands of transactions around insurance policies. That's not really their bread and butter. It's not really what they do when setting up an insurance policy goes bad. That's something we should talk about. It does happen from time to time. And, you know, we get phone calls, we get zoom meetings that we have set up with people, and they reach out to us often. And typically people, they're going about their financial life and they end up with what I call a financial junk drawer. They go and pull open the drawer in the kitchen and they dump it out and all the loose papers and the unopened envelopes pop out. And usually in there there's a bag of mishmash of different kinds of insurance. Sometimes what we see is people who are reaching out that already have a participating dividend policy of some kind, and they've, they've set it up or they've, they've went through the experience of assuming or attempting to set up something that they could utilize the infinite banking concept with so they think they have the right machine or the right vehicle so that they can practice the concept. And then they find out one, two, three years later that things aren't all they're cracked up to be. They're running into some challenges now. Roman is with me today. So excited to talk with Roman. And you had one of these experiences very recently and you shared it with me and we thought, wow, what a great thing to maybe talk about and just, just help people understand where. Not so much where things could go wrong, however, where are the questions we should be asking or the things we should be looking for as a consumer to make sure that we are moving forward in a progressive manner around what we actually want to see happen financially? Does that make sense?

Yeah. I'm also super excited to record this with you, Richard, because this question comes up a lot in the client conversations. And how this happened was one of our viewers, the Banker's vault audience, viewers has watched something that actually clicked in his mind that the cash value in a properly designed participating whole life insurance policy should not go down. And it will not go down because this guy had actually a policy enforced with someone else. We don't know who. We don't know the story. We don't know if this advisor doesn't really, it does really understand infinite banking. If he is an authorized infinite banking practitioner. We don't know this. We're assuming he's not. When he heard this, he immediately reached out to me and said, hey, Roman, can you help Me better understand my policy that I have in place, one of the companies that I've had for a couple years. And I looked at it, I asked my advisor, and apparently what he says was that it actually is kind of going down, which in fact was not. I can explain later why, but he. He kind of saw on the numbers on the statements that it is actually going down. And he was kind of freaking out. He was kind of panicking, and he was kind of emailing me and calling me and saying, hey, Roman, how is it possible? So what is wrong with my policy? What can go wrong in general with these policies? Right. So this actually was a good reason for us to get recorded on this, on this topic and basically explain what's going on and what can go wrong with these policies.

Yeah, I love the statement you made that, you know, the question a client might ask is, what can go wrong with these policies? That's actually the wrong question. The right question is, what can I do as a consumer that can totally screw up a policy that I have? So regardless of how the policy is designed, whether it's really, really good or really, really bad, and I don't really think there is a really, really good or really, really bad. I mean, relatively speaking, it's all relative to what you. Your circumstance and what you want to accomplish. However, what can screw up a policy is the user, the policy owner, and their behavior is the number one criteria. And so we don't want to, you know, we're not. We're not calling this gentleman out. He's an awesome guy and he's. He just generally curious. He wants to solve a problem that he's identified. But the key thing is that the policy is never at fault because it's. It's not a thing. It's inanimate. It's just a contract. The thing that determines its. Its success. For virtually most of that is weighted to the behavior of the policy owner. There are some variables that are tied to the insurance company itself, but most of those variables can actually be, you know, either enhanced or you can get a. You can get a better or a worse result relative to how you as the owner participate with that contract. The things that you do makes a big difference. And again, the thing that triggered this gentleman is that he heard the statement, yeah, the cash value is always rising. And yet he was seeing something that looked different. And it wasn't that his cash value wasn't rising. It was that his capacity in the policy was going down. So the cash value is going up because it will. But because he had, he took the maximum loan available and the interest rate for the insurance company has gone up. With the, with this particular company is tied to a variable rate. So as the rates rise, they typically reset on the anniversary date. So maybe a year ago he took the loan and it was at a different rate. And then the policy anniversary comes over, it updated to the most recent rate and that number has gone up. And so what's happening is it's that loan balance, because it's so high, is eroding into the, into the availability of the policy because there's not a prudent management ratio between the asset value, the cash value, and the loan collateral against that policy. So a good way of looking at this is, you know, imagine you have a, you have a, you have a primary residence and your primary residence has a home equity line of credit on it, and you have a bunch of access to that line of credit. Then you borrow the maximum amount and you use it to go do something. You bought boat, you bought a rental property, you paid off consolidated other debt.

You went to Vegas.

Went to Vegas, yeah. Put it all on the roulette table, you know, whatever that is. And then you. It's kind of funny you mentioned that because actually next week I'm going to Vegas for a conference. So, you know, and then the following year the interest rates clip up, you know, drastically, which is, which is something that has happened in North America. And now you find that the burden of cost on that, on that has gone up drastically. The big difference is this. In a home equity line of credit scenario, the lender, which is a third party, it is a traditional brick and mortar bank institution, they are requiring a monthly interest payment because you're forced into doing it by someone else. It's kind of like, like a little bit of golden handcuffs. You don't see the true impact of it. You feel it, you know that the payment's gone up, but you don't see the true impact because you're servicing the debt, you're stopping it from growing. That is the bank and the banker who's making the rules with the loan, holding you accountable because they want to make sure that the loan doesn't go sideways. Well, if you're the banker and the bank owner people, because it's becoming your own banker, it's not build a brick and mortar bank, it's become the banker in your life. If you're the one taking the loan and you're not committing a payment back and you're not treating it in the same way, that the home equity line of credit would. Well, what's going to happen is, and as rates rise, if that is the case, and every insurance carry is a little bit different, they have slightly varying rules. This is part of where an authorized practitioner who understands the dynamics between those. It's really important to have those discussions. But if you're not putting a payment back in, well, then what's going to happen is that interest is going to capitalize and it's going to grow on top of the loan. Now, the nice thing is, is that you have control. You can decide when to make the payment. You do it once a year, you do it once every quarter, you can do it every two weeks, you can do it once a month, as long as the insurance carrier you're working with knows how to apply that payment correctly. By the way, certain carriers don't do that very well all the time. I'm told they're getting better. But I can think of one where I personally have a policy and it's been over six years. It's been a pretty abysmal experience for me as a consumer making loan repayments. It's actually been quite challenging. However, that being said, and coincidentally, this gentleman's policies with that same company. Is that correct, Roman? Okay, so. And we know it's not nothing about the company, it's just about the, the, it's about the utility of utilization and some of the challenges that arise as a policy owner when you're, when you're trying to do more transactional type activity with a policy. Insurance contracts are not banks, they are insurance contracts. The insurance company is not designed to operate with thousands of transactions around insurance policies. That's not really their bread and butter. It's not really what they do. So as the policy owner, you have to take on those responsibilities. You need to know how to communicate the payments you make to the life company, you know, templated emails, communicating with the policy number, being very specific about what you're doing, following up on some of those transactions, etc. Those are things that you need to be able to understand how to do. That's part of the training, that's part of the coaching training, mentorship process that an advisor would provide to you. And it sounds like in this scenario, Roman, this, you know, this gentleman reached out to you. You kind of indicated to me when we talked before we hit the record button, you know, maybe didn't say it directly, but there was a feeling that you had that he wasn't getting, let's say, that type of coaching or Mentorship on what to do in that communication with the life company. Is that correct?

Yeah, that's right. His advisor wasn't able to provide the answers why this is happening. He only provided the statements. And the client asked him, why is it not increasing why the capacity or loan available is not. Is going down. Basically. Right. But you made a really good statement, Richard, where you said that the insurance company is an insurance company. They're not responsible for the human behavior that can ruin your policy or that can affect the outcome. So if the, if the, if the behavior of the policy owner is not something that increases the overall cash value and increases the overall kind of growth in the policy, and then if the policy loan is still in the piece from the bank. And by the way, I wanted to share that Nelson Nash and his book becoming your own banker, talking about human behavior a lot.

Because human behavior, 30% of the entire book, 30% of the entire book for this concept, which people are excited to do and use. If 30% of the book is dedicated to human behavior, that should tell you an important signal that you should not move on or move forward with anything until you focus on the behavior first. That's why it's at the beginning of the book. It doesn't show you illustrations or how to do anything or thinking through the mindset of what it might look like for you and giving you those kind of ideas until you get the human behavior done. Because there's no reason to move on until you've done that.

It's like more like training, like mindset training. First do this first and then you go into numbers and into the design, into structures. All doesn't matter at all if you, if you don't know how to be disciplined in order how to not steal the piece. I mean, everything else will not be even relatable to you if you cannot control that. And the insurance company, if you are doing something that puts your policy at risk or your cash value at risk, or your loan availability at risk, the insurance company is not responsible for you and they cannot fix your behavior. Once you've done certain things, they cannot be undone. Once you have not paid your premium, they cannot fix it and make it better for you or improve something, or increase something or make changes. They don't really care about what's going on in your policy. Your policy is a contract and what you do with the contract is completely up to you and up to the client. There are a couple things happening inside of the policy. Like Richard, you said, there is a cash value going up and there's also, if you took a loan, there's also an interest going up and if you do not know the ratio between them, if you do not know the relation correlation between them and it's up to you as a banker to be on top of things, be on top of what you're doing with your system. If you can, if you do not control, then your policy can be something that you didn't expect.

Yeah, because like, like imagine you're a loans officer, you work at, you're like a manager at a bank, at a brick and mortar bank. That's your job, that's your role. You also work in the loans department or whatever and all of a sudden reports are being sent up to the, to the CEO of the company that in your branch there's a whole bunch of loans that aren't receiving payments and, and there's, and it's turning sideways. And so you're, you're having non performing loans build up on your portfolio as a, as a branch. Well, what's the CEO going to do? Are they going to come down and fire the person, the teller, saying teller, you haven't been helping clients come in and bring their payments in? No. They're going to fire the manager. No. Well, you're the manager of the banking system in this case. So if you're not doing that, you're the one that should be fired in your own banking system. Effectively is kind of the way to look at it.

And talking about the analogies, Nelson Nash used the different analogy. He actually used the analogy of the grocery store example. And when I was thinking about this, I was thinking, what would it look like if someone would open up a grocery store and then bought a bunch of merchandise, put it on the shelf, hired, you know, people to put everything, you know, label everything, to put the price tags and then manage everything and help customers to buy this stuff from, from the grocery store and then pay for it and be happy. So what would happen if the owner of this grocery store all of a sudden, immediately after opening, took all of it maybe to do a party, maybe to do something else with his family or maybe even friends. And then let's say he took all of the groceries or most of it and did like a big party and then just, you know, did something else? Maybe, maybe just use it, use it for his own family. His grocery store is still selling something, but the shelves are empty. There's nothing, you know, much for the attractive for the clients to actually show up and buy something. Because if, are you gonna buy something from a store that has empty shelves. Richard?

Well, that grocery store owner basically called the, the shipping company that brings the new inventory and he said, hey, those trucks that you want to send me over the next couple of months, just don't bother sending them. I don't need the extra inventory to show up because we're fine. That's essentially what's happening in this scenario. So, because, because the fella hasn't put any payments back in again, maybe there was a reason for that. And I don't know that reason. And that's, that's very possible. There is circumstances where that does happen. In fact, I was on with a girl yesterday, wonderful lady. She had a renovation on a property that she's turning into an Airbnb, but the cost was double what she expected. There's a rule in the municipality where she now can't rent it weekly. She can only rent it for 30 day increments, which she didn't know about. So there was a research problem. So these things have completely impacted the cash flow she was expecting to receive when that was done. Because of that, she's not going to be making loan repayments right now. We have to wait for some other factors in her life to be corrected before she can start returning the piece. And on this note, I want to mention something really important. This is something that Nelson told me when he was still with us. I did an interview with him many years ago and I asked him, because at the time, I think I recorded it in 2016 or 2017, there was some economic challenges happening in the province of Alberta at that time, around the oil price. Oil price had dropped like a tank. And it was, it was, there was a lot of economic uncertainty, much like there is today. And there was people in that oil business. As you know, Alberta is very oil focused where they were losing jobs, they were getting paid, pay decreases, bonuses that were, they were expecting to work with, weren't coming in. Like all these types of things were happening. And so I asked Nelson, you know, what, what, what do you do when, you know, times aren't working well and you use policy loans? And Nelson's answer was very simple. He said, roman, when times are bad, use some loans. When times are good, pay them back.

It was that simple. You know, he didn't, he didn't mess around with it. He's like, don't, don't overcomplicate things. So experiences like that do happen for people. We're not saying that you have to, like, the goal is to repay loans. There are certain periods of time in your life or certain deals or opportunities that come up where you might choose. The way that you pay the loan is different. You might, hey, maybe I'll pay that loan back with profits from a real estate deal. Maybe I'll pay that loan back. It's a private mortgage. It pays out in, you know, two years. When the money comes back in, I'll pay it off. Then you have a plan in place. Don't steal the peas means don't take a loan without having a plan on how you're going to repay it in retirement time or which is a word that we don't like. But at passive income time, you may not be paying loans back the same way as you did in the early years, in your working years. Maybe you might not pay them back at all. That's possible. You can make that choice. However, there is a plan in place. That loan will be repaid when you're dead. When the life insured passes away, the loan will be repaid. So there is still a plan. What you need to do in that scenario is you need to have a prudent relationship between the loan portfolio that the, the size of how that loan can grow, how much are you utilizing as collateral before and like tracking and thinking about what's your longevity look like. So, so if you don't have an idea of that, you could create a negative situation. You need to have prudent management. You can't avoid that. And so it goes back to behavior.

Absolutely.

Something that comes up for me here, Roman, real quick, is the. We were talking before we hit record, First national bank of Midland, Texas. On page 19 of Nelson's book, there's a chapter called creating a bank like the ones you know about. And he talks about the story of a bank that failed. And he says a case comes to mind. In September 1983, the First National bank of Midland, Texas, the richest city in America at per capita at that time, had a loan portfolio of 1.5 billion. 26% of those loans were non performing. That is, they were not getting the money back, no repayments. That's a pretty big downer on the banking business. And so he goes on to describe a little bit more that you need to have a prudent relationship between the capital in the bank and the, and the loan portfolio. And when you have 26% non performing, that's, that's a shaky bank. Well, the reason it was, it was like that is because the shareholders of the bank were borrowing the money to invest in the oil business and they Were hoping the oil business was going to return the payments. But then oil collapsed, economic shift happened and those guys went bank like it destroyed the bank is what ended up happening. So that's the same scenario that's happening here in this policy that this gentleman has because of the relationship between the loan and the repayments. Now in this case, I want to, I want to isolate. It's not just the repayments of the loan, it's also the payment of the premium. That which is what we really need to focus on in this scenario.

Yes. So on this note, I really wanted to also add to the human behavior that not only the loan that the policy owner is responsible for, it is super, super important to actually pay the premium itself and pay to the maximum as you possibly can. Why? Because the way his policy was charged and his policy appeared to be a skinny base policy, meaning that the base was very, very tiny. And the majority of his premium was actually something called paid up additions. This specific policy was actually designed so that paid up additions is 90% of the premium, which is. Design is a different topic. There's a lot of noise on the marketplace how to design a policy, but we don't design policies like that. So his policy, human behavior is supposed to support this structure too. Not only design itself has to support this structure, but also you as a policy owner need to understand, you need to realize that if you don't actually pay this 90% of your premium, which you have authority not to do because you're only required to pay basis, whatever your tiny base is, if you're paying only that and you're not paying the massive paid up addition structure every year, then you're stealing the piece. And that will actually ruin your business too as well.

The human brain sees a statement and it says, here's the amount that's required for you to put in the minimum. What we would refer to as the base. If the minimum is only so big and then there's this flexible optional amount that you can put in and you remember thinking that you wanted to do it, but you don't have to. And maybe the way the statement comes out, you don't necessarily, you know, sometimes the statement doesn't read simple and easy for you to recognize. Oh yeah, it's been a year, I'm really busy. We got, it's a time of year where it's Christmas, my policy's new and like we got other things doing. You know what, let me just pay the minimum and then I'll deal with the rest later. But then if Your life is anything like mine. And Roman, Roman, you've got like a hockey team full of kids, you know, in your house. Like you got a busy life. It's not easy to remember all these details. And so life goes on and then all of a sudden we're a year round the clock and we forgot to pay that. And it's too late now because if you don't fund it, and for some companies, in this case, this company, if he doesn't fund it within a certain time frame before the anniversary date, it won't even be applied in the previous year. It has to apply to the next year. And another really important piece of this is it varies by company. Again, whether in North America, every company has their own administrative rules, okay? Those administrative rules has an impact on how we interact with the policy that we have. In general, when you fund the paid up additions premium or the flexible premium, and you do that in the early in the policy year, at the beginning of the year or at the very start, the insurance company has the money up front right away. It buys paid up insurance death benefit instantly. So you increase the benefit of your family, the tax free potential, you force a larger guarantee of future cash flow because the cash must grow to equal that future death benefit. So several beneficial things happen immediately. The other benefit is that in general, the dividend that you would be entitled to if the, if the company releases a dividend that year will also be higher versus if you waited 360 days and you sent that amount of money in on the last day. Well, then there's no. You as the policy owner would not be entitled to the same size of dividend because you didn't contribute to the surplus in the same way in that policy year. Okay? So that's a very rational way of thinking.

Each day not paying your premium or each day not paying your paid up addition affects all future dividends moving forward. All of it.

That's correct. That's correct. And it may vary by insurance company to some degree, but in general that is the case. And you know, when I started doing this, I didn't know that. I kind of learned that haphazardly throughout the process. And so now knowing that information, I'm very meticulous about making sure that the, the clients that I serve and the people that we educate, at least at our, in our firm, are aware of that. And so they can decide there's periods of time where I've had lots of periods of time in my life where I wasn't able to make a paid up Edition premium on the anniversary date. I can tell you things have not always been rosy in Richard's world. There's been some pretty crazy and chaotic years in the past. There's been a lot of years where I wasn't making money. In fact, in the last 15 years, there's probably been three times, at least three times where I've gone almost six months or maybe more where I've barely made a dollar because of circumstance that affected my life. So you have to recover from those periods. I'm no different than anyone else.

Yeah.

And, and so that doesn't, hey, I didn't have the money to pay a paid up addition premium right away. It hasn't always been rosy and perfect for me and I don't expect it will be for everyone else. But if we understand mentally what we want to have happen and where we can, where we can control the circumstance better, we are, we have ammunition to make sure that we're, we're more focused and targeted on, on the result that we want to achieve. And we understand clearly we're in the driver's seat of that, of that. So if we don't do certain behaviors, certain things in the future will not occur. You know, so, so circling back to this particular contract, again, this is a very young contract. I think it's maybe in its second or third year. Roman. I can't recall what the situation is, but it's the second year. You know, gentleman funded the policy really good in the first year, probably got a decent okay, dividend that first year. But the policy is brand new, like it's just getting started. And if you have a small base policy or minimum premium, well, the growth of the guaranteed cash value for the base contract is also small and minimum. And so there's a reference point between those two things. This is something I think a lot of people don't understand and I think I'd like to speak on this is that cash value is, is an amalgamation of multiple line items. There's the guaranteed cash value, which is the, the cash that is created for the base policy. So we have a starting death benefit. Let's just say it's $100,000. Day one. We pay a premium. We have $100,000 of death benefit by age 100 in Canada, 121 in the United States. That cash value must grow to equal a hundred thousand dollars. Very simple, very basic. Generally, most companies, they show that on a daily basis, not across the board. It's. Every company's a little bit different, but in general that's pretty common. Then you have the paid up additions or the flexible premium. When that's funded, it instantly buys paid up death benefit and it stacks on top of the base policy. Now it will also grow in cash value and it does grow daily for most, most of the case. But the rate of speed of daily growth is much smaller because you get an instant boost. So it creates an instant boost of cash value, but then it's more of a trickle of growth until a policy matures more. The third item is dividends. So when we receive dividends, which is not guaranteed but we're entitled to, and companies we work with, Roman, they're pretty damn good at paying them for a long, long time. When that dividend comes in, it effectively does the same job as a paid up addition and the same thing as the flexible premium. It buys another little chunk of paid up whole life that's now locked in and it also produces a chunk of cash value at that time. So of these three layers, dividend cash value created by paid up additions from dividends. Paid up cash value created from paid up additions of death benefit. Guaranteed cash value created from the death benefit of the base policy. Okay, so we're stacking these things together. The rate or the speed or the daily type of accumulation that you see is different for each layer. And people don't really understand that. And so a base, the base policy in general is what's a larger daily accumulator in a policy. It's producing more of a daily growth. Again, that can vary. There's a lot of, there's a lot of policy designs, there's different insurance companies. I'm just saying, often that is the case once that, once that base starts producing cash value. So it can be, you know, it's like the, the, the leading I like to look at as okay, you have a car, you need fuel in the car. Well, it's the fuel that runs the car. And then you could do certain things to make that make the car more efficient. You can put turbo boost or some additives or you know, you can maintenance and change the oil. You can do certain things to make that car run a little bit better. Well that's like the paid up additions but the primary fuel is the base premium.

That's right. So unless you put it in, the car will not go. You can maybe drive on a very nice road versus kind of, you know, snowy like or muddy road where the car will get stuck and will, will get more cycles of, you know, breaking and accelerating that will go more into the lost efficiency of the car. Right.

It'll create wear and wear and tear on the car.

To be more efficient with your, with your fuel consumption and with the overall performance of the car. You need to drive more on highways where the car basically has, is basically going on an autopilot, where the, it's not breaking too much too often. It's not, it's not, you know, making turns. It's just, you know, I just recently bought a very nice car and the key element in the advertising of this car was that it is a highway driven car. I'm like, oh, that makes sense. So this car has very little wear and tear. So this makes me feel that the car is in a better condition. The policy can be more efficient if you put those kind of extra things to make the policy better. And those extra things are paid up additions. The more you put them in, the better the policy will perform. And the daily growth, like Richard explained, will increase. And if you're not stealing the piece, if you're not only paying the base, again, the circumstances are different if that's what you absolutely need to do. Remember, you have only certain period of window to put that in. If you're not doing that consistently on yearly basis, your overall efficiency of the policy will drastically drop in the times of high interest rates. With this particular company, the interest rate is variable, so it can actually go up. And the loan that is outstanding on the policy may actually overgrow your daily cash value growth. And that was one of the reasons why the cash value was still rising. But in his eyes, because of the interest rate offsetting the growth, the loan availability was going down.

Something that he.

Did, in fact, his access was going down even though his cash value was rising. And it was rising because he had fun. In a paid up addition, the guaranteed base policy was growing. The problem is in the following year he'd only paid the base. Let's just imagine you put a hundred thousand dollars in and 10,000 is the minimum. You did that in year one. Great. Well, you're going to have a lot of death benefits bought. You're probably going to get a pretty decent dividend. The first year you'll be able to access a decent policy loan, which is great. The following year you only pay the 10,000. But you borrowed whatever just to keep the massive. Let's just say you borrowed 80. You borrowed 80,000. Okay, so you borrowed 80 and the interest rate on the 80s gone up. And the following year you only did put in 10,000 of the base premium. You're only in the second year of the policy. The policy still trying to get efficient. It hasn't got you. Have you barely even capitalized? What are Nelson's rules? Don't be afraid to capitalize. You got to think long range. So has this person thought long range. If you put 100 in and they only put 10 in the next year and they borrowed all the money and they haven't set a loan repayment about, they haven't thought long range. Are they afraid to capitalize? Well, they might not be afraid to capitalize, but they might not understand what that actually means because maybe they're not being coached to that degree or they didn't have a good plan going in. So perhaps this policy is too big for them. If they can't do 100,000 every year, why do they have $100,000 policy? Maybe they should only have a $50,000 policy. I don't know that dynamic. But these are the questions that we need to think through before you get started. You know, just like when you're buying a car, you need to think through, okay, what are my family needs? How many seats do I need to have? You know, do I, you know, do I need a towing package? Because I have a RV there, a trailer that I need to tow. Like these are things you think about when you buy a car. It's okay to think about them when you are getting up insurance policy. A coach should be able to help you understand some of those dynamics. How often do you think you're gonna be taking policy loans? Like that kind of stuff will have an impact on some of the decision making. And there's no visibility for this individual because this, this, this company doesn't really have a client online login. They do have one now, but it doesn't really show. It just shows you have a policy. Doesn't teach you, show you in your values. So if you only pay 10,000 in the second year, but you still have this giant loan that's now grown, the policy isn't going to grow at a speed to keep up with the giant loan that you have because there isn't enough fuel that's gone in overall in the policy to support it. Now if he paid 100,000 in year two, he's going to have a lot more growth happening right away. Plus you'll have way more accessibility. He might still have a big loan, but. And it's still going to be growing. It's not going to be like amazing. But the policy in that following year is going to be even more efficient. If you did that Again, in the third year, even if he didn't send any loan repayments back, the loan will have gotten bigger, but the policy will have gotten much bigger. And now the relevance of the size of dividends each year will have increased substantially. So that level of efficiency of the policy will help it keep, I guess, keep the wolves at bay for the loan that isn't being repaid. But it's too early in the system to be that aggressive. And unfortunately, this circumstance of this gentleman, this is not the first time that we've heard this, that we're hearing this, and we're having conversations with people more and more frequently about this type of activity. So that's why it's important that we're recording this today. Because as a consumer, you need to take the time to get educated and you need to think through these types of questions if you want to embrace the problem process of becoming your own banker. It's not about buying an insurance policy. The actual insurance policy itself is less important than your education level. Your education level will determine the success of whatever policy you end up with, whether it's a small little base policy or one that's got a lot more base to it for certain reasons. And again, there's age dynamics here. There's so many different dynamics at play, not including the important dynamic of how much insurance should you have. That also has to be factored in. If you're 35 with three young kids, and you're the primary breadwinner, you know, and your spouse stays at home looking after the little ones, you might need a boatload of insurance. You know, we could probably, we should probably factor that in. Okay, so these are all components that need to be properly discussed before you get started.

Put it this way. So the probability of getting into trouble on a road, what is it dependent on? On the vehicle you drive or on the driver's behavior, the driver's behavior, and.

To some degree, the road conditions. So in our scenario, the road conditions are things like the market interest rates, the how the insurance company manages their portfolio of money, and some of their other decision making that they do. Are those decisions in alignment with the participating owners? You know, what's their bond port like, the way that they run the company and how they think about running the company. Are they focused on stockholders who own shares in the stock that they have, or are they focused on the participating owners who is the only ones that own the company? So that's the difference between stock versus mutual and the thinking process. Right. So those would be like the variables on the road conditions that we're talking.

About, the car is important. The vehicle is super important, but it is not as important even close to the human behavior. With me, you know, you may drive a very nice, very fast car or very old and. And ugly kind of type of car. Maybe, excuse me, Maybe it doesn't drive fast enough for you and you want to naturally kind of, you know, drive like a better and. And faster car, which if you don't have skills to drive, what's gonna happen? Have you ever seen those videos where someone will just put, you know, sit in a. Behind. Excuse me, behind the wheel of a nice, fast, like, sport racing car. What happens when they. When they hit the accelerator? They just get into like a big.

Huge accident right away. Yeah, I also think about it like this. I had a.

Had.

I guess I. Maybe I still have it, but I don't drive very often anymore because I work from home. I used to have a budget for speeding tickets, monthly budget for like photo radar and stuff.

Did you, did you pay with policy?

I didn't at the time. Just because transactionally it was a bit of a pain. You know. Now in living in bc, they don't have photo rater. But I also, I also just don't drive. Like, I don't, I don't get out as frequently. I don't put the miles on that. I used to when I lived in the Edmonton region, you know, so, like, you know, on. I say, I would say on average I was probably spending somewhere around $200 a month on like photo radar type tickets or whatever. That's unfortunate because there's, you know, stop light cameras, there's all these things or whatever, and usually you're just going with the flow of traffic. So I'm sure a lot of people are getting them. The good news is that my habits have changed and I also don't know, don't do that as much anymore. But for me, having a faster vehicle was actually a detriment to my success because my Colby score is I'm a high, quick start. And so, like, if I could just have a teleporting machine to get me from A to B instantly, I would use that in a heartbeat because I have a dynamic where I just want to get there. Right. And so my brain is all about the getting there. And it's so focused on that that sometimes, hey, get a bit of a lead foot. Now, that being said, great. Those habits have shifted and changed for me. But the point I'm trying to make is that a faster vehicle Wouldn't have helped me be more effective at all. In fact, it would have cost me more money. And if I ended up getting, let's say, you know, hypothetically, more tickets or stop by an RCMP or whatever and they got demerits, well, what are they going to do? They're going to impound the car or they're going to take away my license. Like, as an example, I'm just using these, these, these examples. And so that's the case. What good did the fast car do me? The issue always came down to my behavior and my interaction with how I use that car. So a fast car or something that looks nice and it's bright red or whatever versus the minivan. Yeah. It can pass some vehicles on the road if it needs to, but you can hear the engine humming pretty good if you're doing it. And you're probably not likely to do that. Right. But it's more utilitarian. It's a lot of things you could do with it. You can put a lot of people in. You can haul drywall. Like it has multiple features. So even in our book Cash Fall is a leader, we have an example of the financial minivan. I really do think that these participating policies fit that dynamic. They're not the fancy red sports car, but we don't want it to be the fancy red sports car. You want something that's, that's utilitarian. It's designed around safety components that have their certain safety features for families. They're generally, can often be reliable. They have lots of functions, different doors that open, stowaway seats. They have all these checkmarks of what they do. One of the things they don't do very well is they don't go really fast. Great. So what are some of the advantages of that in that system? Right. So this way of looking at it is, again, this is not an investment vehicle for your life. This is a system of cash flow management and control so that you can go about doing all the things in life you're already doing, which includes investing. So all that being said, like, we need to recognize that the fundamentals of how a policy is set up and how you interact with that have a direct correlation to the success that you will receive. You have to pay the base premium no matter what. If you have to pay it and you go to Nelson's book And on page 85, point number two, if you knew at passive income time that you would be getting back every single dollar you put into a system potentially tax free, would you ever object to Putting more money in it now, it's a rhetorical question. The obvious answer is no. So if you would never object to putting more money in it, why would you be scared to put money in it now? And the money that Nelson, my opinion, what Nelson is referencing here is the base premium. Because if you have a requirement to pay that base premium, then you're, you're going to churn the machine better. And a lot of things that people think about is, how can I, our brain wants to say, how can I stop paying the premium one day? That's the wrong way of looking at it. Your brain should be saying, what can I do today to make sure that I can always pay the base premium? What behaviors can I shift and change to set myself and my family up for the success, to make sure that base premium is always funded so that the machine. Because if I'm at a point where every time I put a dollar in on the base premium, I get two or three dollars back that same year, why would I want to stop putting the first dollar in? Like, it's illogical to do that. And as it builds over time, that's exactly what happens. My system is doing that now.

And if you shifted your premium to be towards paid up additions mostly, and if you're not paying it, guess what, you're not getting the result you wanted in the first place. It is super important to also have a good coach beside you who can actually guide you and educate you enough so that you don't get distracted on a road, you don't get distracted on the process of implementing this product. It's not about just a binary policy, policy is a policy, but the support and guidance from your coach who can actually remind you that it is super important to, to not steal the piece from your bank. Again, don't rely too much on the coaches. Right? So make sure that you also read the book at least once a year and, you know, you kind of remember what you started and why you do this. Think long range. And with that being said, it's a great conversation. Richard, thank you so much for recording this. I'm super happy that we have this conversation because human behavior is something that is fascinating me to think about all the time. And especially working with Canadians every day, helping them implement this amazing strategy is essential and I'm super grateful that we have covered this today.

Amazing. Thank you, Roman. And for everyone tuning in on the YouTubes, boom. You should see a magical playlist that just appeared that says, watch me because I'm good content. So go ahead click on it. It's good stuff.