In this conversation, Richard Canfield draws on 17 years of actuarial experience to critique universal life and indexed universal life (IUL) policies as retirement tools. He explains that whole‑life products—both participating and non‑participating—benefit from a century‑plus of mortality data, whereas universal life designs have only 40‑50 years of experience, leading to numerous lawsuits as the products age. Canfield highlights that most IULs are priced with an Annual Renewable Term (ART) or Yearly Renewable Term (YRT) cost of insurance, which rises exponentially each year as the insured ages. He contrasts this with the less common level‑cost insurance option, where the cost is front‑loaded and remains stable later in life. The “hockey‑stick” curve—low premiums in youth that spike dramatically in the late 50s‑70s—is described in detail, and Canfield argues that this spike coincides with the retirement phase when policyholders need to reduce expenses, creating a fundamental mismatch. Consequently, he asserts that IULs are unsuitable for infinite banking or long‑term protection, and he would never sell them. The discussion also touches on how the level‑cost structure can improve cash‑value growth in later years, but such products are rare in the U.S.
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All policies are technically prepared and designed by an actuary. However, the actuary's job is to manage risk with the mathematical design of a policy. Now, in the whole life model, whether it's whole life that's non-participating or whole life that is participating, either way, those are slightly different products. They have historical context that they measure against, including how well they've taken money in, They understand lapse rates. They understand all of these different features that all get calculated into the end result. Same thing with universal life. They just don't have the same level of history because they haven't been around as long. All right. And actually, right now, there's, there's a lot of lawsuits because of the lack of timeframe in history. Like, we don't have 100 years of history. We have maybe 40 years of history, 50 years of history. So a lot of those policies and products haven't gone through a full maturity cycle. Timeframe of ages of life. So now we're starting to see a lot of the problems occur from when they were sold many, many years ago. And having done this now, I believe I'm in my 17th year. I have seen, roughly speaking, I'm going to take a guess here, we'll get to this in a minute, but I've seen a lot of these policies from people. I've never sold one. I never will sell one. I have no interest in ever doing that. I fundamentally don't believe that they're they're the right protection for people, and certainly they're not designed for infinite banking in any way, nor should they be. But in all the ones I've seen, almost all of them exclusively have had an insurance charge, a cost of insurance charge called ART or YRT. That stands for annual renewing term or yearly renewing term. They're the same thing. Whereas in Canada, we talked about this before we hit the record button, you can also get what's called a level cost policy, which would be much more stable, but it would increase the amount of premiums in the early years. And apparently they offer them in the United States, which we did not know until we, before we hopped on this call. And so you guys have been insurance licensed for a little bit now. You've never seen one. You've never heard of anyone talk about it. You've never seen it marketed, but we just found out that they do offer them with a few companies, a level cost of insurance option. Right?
Right.
Was that a surprise to you?
It was a surprise.
Yeah.
And can I— can we speak to that really quickly? Just so like, yeah, the— what that— all that means is that you're buying the— the love— that the, the cost insurance is included in every premium to age 100, or I guess in the US it's age 121. So there's a—
it's a— it's built on a chassis of essentially a term insurance, but instead of the term period being 10 years or 20 years, the period is wherever your age is out to age 100 or let's say 121. So we're solving for how much money does the insurance company require to take in to guarantee this original base amount of death benefit can be paid out at that future time frame.
And it's the base amount of death benefit. That's the key there. And I think it's really important to explain that, that whole life contracts are that because, and it's why sometimes when you look at a whole life policy versus say an IUL, it doesn't look as strong in cash value in the early years because it's all leveled out. But now the flip side is when we're, you know, in passive income years, as Nelson says it, I call it our Moses years because that's when he, that's when he got called to free the Israelites from Egypt at age 80. That's when it's actually performing the best because we already paid for that full term, right? And the policy is now growing a lot at that point. So it's, it's a very— it's, it's that, that fundamentally is a, it's an important distinction to draw between those, the level term and the— or sorry, the level cost and the ART, annual renewable term.
Yeah, and we need to expand on that a little bit more. So annual renewable term for the listeners, it's important to understand we need to exercise what Nelson would say is some reason, some logic, imagination, and then you would say it's also connected to prophecy, which means your future projections. What are you thinking about in the future? So annual renewable term doesn't really make any sense unless you really consider what that means. So take whatever age you are today. I know you're listening. Maybe you're 55, maybe you're 45, maybe you're 35. Wherever you are, wherever your age is today, if you were going to get an amount of insurance, let's say the insurance was $500,000 of coverage. If you had to just have the insurance for 1 year, what would the 1-year cost at your age be? So if you're 55, you would pay the cost for that 1 year at age 55. Next year you're 56, you're one year closer to death. So the cost for that $500,000 must be higher because the probability of the insurance company making the payment goes up. And so every year as you get closer and closer to eventual mortality or death, the cost goes up, but it goes up now at an exponential basis. So we use hockey sticks here in Canada. You know, they got a really nice curve at the end, right? So that's, that's the hockey stick curve. That gets created. So at the very early ages, it's so very low, very inexpensive, because year by year, the probability of paying out that death benefit in that year at your young age is very low. So the cost to deliver that benefit to you is low in that year. But we know we have to deliver a benefit as you age. The probability is exponentially increased. And so as you get into your late 50s, your early 60s, your late 60s, that starts to ramp up at an exorbitant basis. And what happens is most people at that stage of the game have also been trained and taught for the bulk of their working years, at some point in time, I'm going to be passive. I'm going to use passive income. I'm going to be retired. I'm going to be earning less money. I'm going to have to live on less. I'm going to, you know, I'm going to want less expenses, less outgoing things. So at the point in time where the cost of insurance is at its highest and growing, You're trying to stop paying for things. So like, you have an inverse relationship of putting money in because you want to stop, but the requirement for money is at its highest peak. And so those two things logically are fundamentally mismatched. That does not exist in a whole life contract.
