The Great Insurance Debate - Whole Life vs. Term

The death benefit stays level and the cost goes up. So I'm not knocking term insurance. I'm just saying term is a temporary solution. If he still feels like he needs it at 60, maybe he's going to live past 80. You're now hoping that you don't outlive the insurance, which really is not a positive outlook. There's a conversation going on out there. You might have heard this before. Hey man, like whole life insurance, it is like way too expensive. Why would you ever buy whole life insurance Canada when you can go and buy this thing called perm insurance? It's way cheaper. You may have heard of this process called becoming your own bank or the infinite bank concept. If you've ever consumed any of the content on our channel, I will maybe touch base. Taran and I might touch base on that. But this is actually an insurance conversation. We're just going to talk insurance and I just want to invite people to rethink their thinking as it relates to insurance planning. So Taran, let's just have a general conversation about the benefits of term insurance and the benefits of whole life insurance and why, if you are a life insurance advisor, you need to be talking to your clients about a permanent life insurance solution. Because the last time I checked, is death a permanent problem or a temporary problem?

Oh, it's a permanent problem and it's a problem that we don't know when it's going to happen either.

We don't know our best before date. Right. This is not a video that is going to knock term insurance and say that it's really bad and don't get it and buy whole life insurance and yada yada yada. That's not what we're going to do here. What we're going to do is we're actually going to educate you as a potential policyholder and and help you better understand how life insurance actually works and what the benefits of it are and why you should be thinking about permanent participating dividend paying whole life insurance. Yeah. For the process of banking. So you can consume some of our videos or go to watchibc.com that's watchibc.com where you can learn how to become your own banker and actually benefit from the living benefits of dividend paying participating whole life insurance help you control the financing function in your life. But today we're just going to talk about some of the death benefits and how they actually work and what that'll do for your family if you use term insurance or whole life insurance or possibly.

Both. I picked a 40 year old male, non smoker, unbiased. I just picked that because I'm pretty close to that. And fortunately for you, Taran, you got a little ways to go before you get there. So what I've done here is I've created two pretty simple examples of an annualized premium. So the deposit would go in one time per year. You can make premium deposits monthly if you prefer. But let's not worry about all that right now. What I want to do is just a quick comparison and point out some of the benefits and some of the misconceptions about these two types of insurance and how they can actually work together so that you and your family can win long term. So the first things first, if we think about, you know, let's say most 40 year old males, maybe they have a couple kids, maybe they have a mortgage, maybe they earn a decent income. Generally speaking, we're not going to get into all the nuances of doing a life insurance needs analysis. If you're talking to a life insurance advisor, they should probably walk you through that and make sure that they give you a recommendation on how much insurance you should have. Now ultimately it's going to be your decision. But these are the kind of things that we take into consideration if something are to happen to me, God forbid, but I have made certain promises to my wife and my kids that I'm going to do for them financially. I don't know how much time that I have to do that, Taran, unfortunately. So if I live a long life, I'm going to fulfill on those objectives. We're going to create a lot of wealth. But if I don't, God forbid, I need to put some kind of a program in place to make sure that if I'm not here, money is going to show up when it's needed the most. And that is what term insurance is really, really good for. What we're looking at here is basic, what's called a 20 year renewable and convertible term insurance. Now we don't have time to talk about what I mean by conversion, but basically when you're, you're going to see here, when you own term insurance, it's like renting insurance because it's only. That's right, it's not going to last you forever. So what this means 20 year term, the annualized premium is just shy of $1,100 per year. In this example we have $1,066.67. That's the annualized premium. Now here's something that you can look at Right away. What does that say?

Average protected to age 85.

Age. We talked about this on one of our last videos. The likelihood is if you're a healthy 40 year old male today, you're probably going to blow right past age 85. You'll notice down here, you see this says the coverage is from age 4120 years. A million dollars and it's a thousand bucks a year. What happens if you're 60 and maybe you've accumulated some assets? Maybe there's a terminal tax liability, Maybe you still have a partner who might be dependent. Maybe you have some ambitions for your grandkids or your kids, you want to leave an estate to them. There's other purposes for insurance than when we're young and we have high debt and we have lower income and we have mouths to feed. That's the general purpose of insurance. But when you get older, there's estate planning. And I don't care who you are, if you are broke, God forbid, or if you're wealthy when you pass or anything in between when you pass away. Not if, but when, regardless of when that happens. It's going to cost money, whether that's the government needing money, whether that's final expenses. I just paid $10,000 for my dad's funeral. That was a little bit uncomfortable. That was my role. That's what I had to do. Well, it came from my policy system. That's the good news. Financed it through my own bank. But I had to finance my dad's funeral. He didn't have life insurance. Right. So there was costs that were associated with the fact I had to fly to New Brunswick. Like there I took time off work. There was a lot of costs associated with doing that. And if there was a life insurance benefit in place, a permanent life insurance benefit in place, it wouldn't have been nearly as burdensome on me and my family. When you're young, we get this million dollars. Now what happens when the guy turns 61? First thing I'll point out is did that death benefit change?

Nope.

That benefits the same Taren, on our last video we just talked about this, isn't the cost of living probably going to go up? Taxes, price of goods, right?

Yeah. Not only that, but you just alluded to the fact that he may have some other assets, he may need some other protection. Maybe he wants to leave an estate for his, his children or grandchildren, as you mentioned. Meaning a million might not be enough.

A million might not be enough. And a million is probably going to be a lot less then than it is now on top of that, look what just happened to the premium. It jumped 20 times. It's $21,000 per year versus the thousand. So the death benefit stays level and the cost goes up. So I'm not knocking term insurance. I'm just saying term is a temporary solution. If he still feels like he needs it at 60, maybe he's going to live past 80. You're now hoping that you don't outlive the insurance, which really is not a positive outlook. Right. So this is a good temporary solution. If this Guy at age 40 was to purchase this million dollar term insurance and let's just say he bought just $100,000 of permanent participating divide whole life insurance. See, people look at the whole life insurance and they go, oh my gosh, like I'm only getting 100,000 of coverage for 2,500 bucks almost. It's 2,500 bucks a year, man. Like that's crazy. I can get a million for a thousand bucks a year. Well, let's see what happens. First of all, can you confirm for me that this premium actually never increases, does it? Let's go 20 years down. What happens in 20 years?

Premium's still the same. No doubles, no 20 times, nothing. It's the same as it was the previous year, year after year after year after year.

Yeah. Now one of the things that comes with a dividend paying, particip bid and whole life insurance contract is guarantees. And the guarantee is that the cash value has to rise to match death benefit. Now keep in mind, Canada, this is really important if you're a numbers person. This is not an optimal design for implementing the process of becoming your own banker. This is like a minimum funded policy. We are not capitalizing here for the purpose of building cash value to implement the becoming your own banker. There is no additional premiums. This is all just what we call base or required premium. So you can see that the dividends are actually growing. This is your share of the profit. Now these dividends could fluctuate, they could be higher, they could be lower. But once they get paid into the policy, they're vested and they're guaranteed. And you can see that this is guaranteed values. This means they're not including dividends. This is the total cash value which includes the dividends. Okay, now what's happening to the death benefit, Taran?

It's rising.

It's rising, it's rising. So each year that goes by, you're actually further protecting your family. Or let's go to the estimated age of mortality. You're further protecting your estate. This is a $330,000 guaranteed death benefit. That's tax free. And every 10 years, if we round up to 2500, we're putting 25,000 bucks in every 10 years, right?

Yeah, approximately. If you're putting it in for 45 years up to age 85, so that's $110,835 exactly. Going in.

Okay, so we put 110,000 in. How are we doing for total death benefit?

Three times that. That looks damn good.

How are we doing for cash value?

Even better.

So if this person needed to tap into some cash at any time in their life, could they not just borrow from their existing cash value, borrow from their future dead self to solve that problem and maybe pay it back later so that they can still or not the death benefit or not the loan, Right?

Absolutely.

This person could actually spend every dollar that they put into it and still leave over $200,000 to their family income, tax free. What if this person, every few years, what if they just layered in a new 2550, $100,000 whole life policy? Wouldn't that start to eliminate the need for the term insurance?

Absolutely. They would meet their need for the insurance that they require and it gives them better benefits.

Maybe they get a tax return every year, maybe they get a bon year. Maybe they get an income increase every few years. As they do that, instead of getting used to the new money, they could put more into their whole life policy plan and then after the 20 years, they could probably get rid of the term insurance and they would actually have permanent insurance, a lot of cash value, and they would have an estate preservation. So this is an example of why you need to rethink your thinking again. This has nothing to do with the process of becoming your own banker. This is just an example of insurance planning and thinking long range and why Term insurance is amazing for a term, but it is not a permanent solution. For a permanent solution, you need a whole life solution which will stay with you for your whole life.