Is Your Old Whole Life Insurance Policy Still Worth It? [Secret Sauce Ep5]

Listen here on our website:

Or jump to this episode on your favourite platform:

Have you ever wondered if that old whole life insurance policy is still worth keeping, or if it’s time to cash it out and invest elsewhere?

In this Secret Sauce episode of Canadian Wealth Secrets, we dive into a common challenge faced by many permanent insurance policyholders: understanding the true value and potential of older, low-cash value participating whole life insurance policies. We explore a real-life case study where a couple questions the benefit of maintaining a whole life insurance policy purchased decades ago. As Canadian financial landscapes shift, many find themselves re-evaluating past financial decisions to ensure they are still aligned with their current investment goals and needs.

Whether you’re looking to optimize your savings and investments here in Canada or considering a shift in your financial strategy to incorporate leverage investment strategies such as Infinite Banking, this episode provides valuable insights. By examining the specifics of one couple’s insurance policy and the options available to them, you’ll gain a deeper understanding of the nuances involved in making informed decisions about your own financial tools for building your wealth, retirement income or just to know you’re maximizing your investment returns.

What you’ll learn: 

• Learn how to evaluate the current value of your old whole life insurance policy.
• Discover strategies for reallocating funds from outdated policies to more beneficial investments or tools for infinite banking like strategies or reinvestment.
• Gain expert insights into the key infinite banking strategies that will allow you to leverage the cash value in your whole life insurance policy to optimize your investments and financial portfolio for better returns.

Listen to this episode now to uncover the best strategies for maximizing your wealth and ensuring your financial decisions are still working in your favor!

Resources:

• Like this short, “Wealth Secret Sauce” Episode? Tell us in your rating and review on Apple Podcasts. 
• Dig into our Ultimate Investment Book List
• Book a Discovery Call with Kyle to review your corporate (or personal) wealth strategy to help you overcome your current struggle and take the next step in your Canadian Wealth Building Journey!
• Follow/Connect with us on social media for daily posts and conversations about business, finance, and investment on LinkedIn, Instagram, Facebook [Kyle’s Profile, Our Business Page], TikTok and TwitterX.  
• Looking for a new mortgage, renewal, refinance, or HELOC? Reach out to Jon to share some options.

Calling All Canadian Incorporated Business Owners & Investors:

Consider reaching out to Kyle if you’ve been…

• …taking a salary with a goal of stuffing RRSPs;
• …investing inside your corporation without a passive income tax minimization strategy;
• …letting a large sum of liquid assets sit in low interest earning savings accounts;
• …investing corporate dollars into GICs, dividend stocks/funds, or other investments attracting corporate passive income taxes at greater than 50%; or,
• …wondering whether your current corporate wealth management strategy is optimal for your specific situation.

By hopping on a discovery call with Kyle, he will review your specific personal and corporate financial situation in order to determine if there are some quick wins available for you to minimize taxes personally or corporately, provide ideas for how you can increase your personal cash flow, and ensure that the net worth of your estate continues to grow in tandem.

This episode focuses specifically on deciding whether your old whole life insurance policy is worth continuing to fund premiums into, offsetting and keeping, or cancelling to take the cash value and contribute to an over-funded, high early cash value participating whole life insurance policy that will allow you to use the most important strategies from the infinite banking concept to optimize your investments and supercharge the net worth of your Canadian investment portfolio.

Watch Now!

Transcript:

Hey there, Canadian Wealth secret seekers. I’m here to answer a question that I get quite a bit, and I want to give you an example. So it’s gonna be a little bit of a case study, but I am contacted quite a bit in regards to reviewing older, participating whole life policies and helping clients to understand whether they’re worth keeping or not.

And of course, everyone’s situation is different, so there’s no one blanket answer that you can give here, but we can definitely use some of these cases to help you assess whether your old policy makes sense to continue funding, whether you want to gear back or fund less, maybe offset, or in some cases even cancel and put into other assets. Maybe it’s into a better-designed policy, who knows?

But let’s take a look at what we have here. So, I was reached out. I’ve blanked out all identifying information here, but we get a lot of discovery calls where people ask us a pretty straightforward answer. This particular client, rather than meeting them, I actually said, you know what, let’s dig in a little bit ahead of the meeting to try to figure it out. Their big question here is, they have a measly whole life policy. Their husband had it since 1980, and they want to learn if it’s possible to use it to their advantage or if they should cash it out.

So I had asked for some more information, and they were helpful in sending it along. I also asked them for a little bit of context. The policy is on the husband’s life, which he is 61, and this particular client is about 52. You can see here the income, some assets here. They own a house, no mortgage. So in my mind, I’m picturing that leverage might not necessarily be something that they’re interested in engaging in. Not to say that it’s not, we can’t blanket anything here. But they have some decent assets, but not a huge amount. They probably have some room in their buckets, specifically in their RSPs.

This year, I’m not sure yet if it’s $110 or $110,000. If it is, I would recommend that they flip that over to the RSP. But then they’ve got small pensions, a little bit of CPP, a little bit more CPP. With this statement, they had also shared the actual policy. So what I’m gonna do here is overview this policy with you. Again, it’s been enforced since 1980, and what I noticed right away in this particular policy is that there’s a whole life portion that has a face value or a death benefit of about $22,000. The monthly premium is very low for that amount, right? We could do some math on that. If we think 1980, what are we looking at? 44 years or so of $21.94. If you’re putting in $21.94, 12 months times 44 years, you’ve put in about this much money. There is some cheap accidental death on there, so not a big deal either way. An extra $22,000 waiver of premium put on there. We’d have to see which waiver of premium, like what that means. In this particular case, it might mean that if they were disabled or something, they wouldn’t have to actually continue funding.

But this is the part that catches my eye right here: there is a 10-year renewable term rider, which means every 10 years, this $100,000 rented insurance is going to continue going up in cost. Right now it’s $100 per month, or about $1,200 per year to have this 10-year renewable term rider. So the big question is, do they need that insurance just in case he was to pass away before retiring in a few years? If the answer is yes, then maybe it’s worth keeping. If the answer is no, I might recommend just getting rid of this term rider because at this point they have been doing some paid-up additional insurance, which is helpful. That means that they’re getting additional cash value is being collected or created here. It says that that’s the benefit amount. The one thing I don’t know is how much additional paid-up insurance have they contributed themselves or is that all from the dividend?

Based on that, we can see where they are. Here there’s a total cash value of about $22,000. Assuming that they just paid this amount for the actual participating whole life portion, then this cash value they’ve generated has actually been pretty awesome. Now, did they pay any additional premium along the way? That part, I don’t know here. However, my wonder is that right now they have this cash value. If they want to leverage the cash value and utilize it, they’re more than welcome to do that. They can ask the insurance company. That might make sense. However, to continue paying a small amount, say $20-25 a month to continue funding this policy could make sense. However, remembering the death benefit associated with that portion of the policy is so small, it’s only $22,000.

I don’t like that they’re putting this much money into this $100,000 death benefit. So if they feel that they don’t need this for an emergency, meaning it’s not there to protect for income, if the husband were to pass and that $100,000, if that’s not necessary, if he were to pass today or even over the next five years, I would say taking that $100 and putting it towards something else, maybe the RSP, if there’s room in the tax-free savings, that might make more sense. Or you might take that $100, and if you really like the idea of permanent whole life policies, you might consider opening a different participating whole life policy because he’s 60. Now when every 10 years that amount, that term rider’s going to get more and more expensive and eventually they’re gonna cancel that portion. So they should be able to cancel just this one line item here, and they can continue making these payments if they’d like. They could continue doing the waiver of premium. You might be able to ask, do we need to do that or not? Maybe we discontinue this and just focus on continuing this small whole life amount. Or maybe they’re taking the entire policy, the entire cash value, and putting it into that RRSP that they still have some room.

I’m anticipating that they still have some room inside that RRSP, so that would be something that I might consider recommending for them to do. On the surface, this policy’s probably not designed in the best way that we can now design policies. Could it have been designed better back then? Quite possibly. I don’t know this particular company very well. However, what I can tell you is that based on what they’re doing here, I don’t like the actual term insurance portion. They even got a note in July saying that in accordance with the terms of your contract, that 10-year renewable term rider monthly premiums going to change to $131 per month. So it was over here a total of $103. So it’s rising by $30 per month. Might not seem like a lot, but that’s $360 extra that they’re putting towards it at the end of a year. You know, that’s gonna be a lot of money that they could have been maybe putting towards their RRSP or some other type of investment rather than keeping this term rider that they will not get any of this money back from.

That would be my suggestion for this particular policy. If you have one you would like us to review, head on over to CanadianWealthSecrets.com/discovery. We’ll check it out for you, we’ll analyze it, and we’ll look at your situation to really decide where should you be putting this capital. In a lot of cases, there’s people that have permanent insurance, but they don’t necessarily have a need for it. Having a death benefit of $22,000 or even $50,000 is not really a significant amount. If I can generate a greater return in some other type of asset or vehicle, that might be the best way to go. I’m really focusing on permanent life insurance for those people who are gonna have a significant amount of estate taxes or if they intentionally want to be leveraging the policy so that they can optimize their investments such as investing in real estate or private lending, or doing some sort of alternative investment strategy. Or if they own a business and they’re looking for ways to help them get actively earned corporate income into their personal pocket over time without paying all of the personal taxes.

So, once again, my name’s Kyle Pierce from Canadian Wealth Secrets. Head to CanadianWealthSecrets.com/discovery to book your call. If you have a situation like this or if you’re a business owner and you’re looking for strategies to minimize taxes and maximize your wealth, please head on over to the website. We have the podcast, Canadian Wealth Secrets, on all platforms. Give it a subscribe, a rating, and a review. I hope to be doing some more of these for you in the future. Thanks and chat soon.

Canadian Wealth Secrets is an informative podcast that digs into the intricacies of building a robust portfolio, maximizing dividend returns, the nuances of real estate investment, and the complexities of business finance, while offering expert advice on wealth management, navigating capital gains tax, and understanding the role of financial institutions in personal finance.

OPTIMIZE YOUR FINANCIAL FUTURE