Episode 144: Don’t Get Tricked Into This Common Canadian Wealth Building Misstep 

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What if the strategy you thought would accelerate your Canadian Wealth building journey was actually slowing it down?

Many people are drawn to the idea of leveraging financial assets to build more wealth, but not all strategies work in your favor. One common misconception is using policy loans from your high early cash value participating whole life insurance policy to fund additional policies—on the surface, it seems like a way to compound benefits, but in reality, it can create inefficiencies, slow down your overall cash value growth, and introduce unnecessary risks. Instead of maximizing your Canadian wealth building potential, you could be tying up capital in a slow-moving cycle that doesn’t deliver the results you expect.

In this episode, we break down why participating whole life insurance should be viewed as a safe, liquid opportunity fund—not the investment itself. We’ll explain why stacking policies by leveraging one to fund the next is inefficient, how to properly leverage your participating whole life insurance policy for investments that actually enhance your Canadian Wealth building journey, and why, when structured correctly, your participating whole life policy can provide long-term security while still allowing you to grow your portfolio.

• Discover why borrowing against a policy to buy another policy isn’t as effective as it sounds—and what to do instead.
• Learn how to use whole life insurance as a powerful financial tool to protect, optimize, and enhance your investment strategy.
• Find out why funding your policy first before investing elsewhere gives you “free” life insurance while keeping your capital working for you.

Press play now to learn how to leverage your financial foundation the right way and avoid one of the biggest mistakes investors make with whole life insurance!

Resources:

• Ready to take a deep dive and learn how to generate personal tax free cash flow from your corporation? Enroll in our FREE masterclass here. 
• 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!
• Discover which phase of wealth creation you are in. Take our quick assessment and you’ll receive a custom wealth-building pathway that matches your phase and learn our CRA compliant tax optimized strategies. Take that assessment here.
• Dig into our Ultimate Investment Book List
• 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. 
  

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 cordporate passive income taxes at greater than 50%; or,
• …wondering whether your current corporate wealth management strategy is optimal for your specific situation.

Achieving financial independence requires smart planning, especially when it comes to growing your net worth and generating passive income. We explore conservative leverage strategies such as the Smith Maneuver to convert non-tax deductible interest on your primary mortgage to tax deductible interest as well as conservative leveraged life insurance strategies including immediate financing arrangements (IFA). For business owners, navigating the complexities of corporate structures, tax implications, and investment strategies can feel overwhelming. From understanding capital gains rules to leveraging life insurance for wealth optimization, the right approach can transform your financial future. By aligning your strategy with tax-efficient tools, you can unlock the full potential of your business and investments, ensuring sustainable growth and long-term independence.

Transcript:

Hey there, Canadian wealth secret seekers. By now, you know that we are big advocates for helping you to grow your wealth, protect your assets, and create a financial safety net, all while keeping your money working for you throughout your lifetime. However, there is a problem, and that is the rabbit hole you constantly find yourself in when you’re trying to optimize and maximize the different strategies that we share.

Sometimes it can put you in analysis paralysis. Other times it can actually get you down rabbit holes that might actually create scenarios or situations that might cause more harm than good. Today we are gonna break down a common optimization strategy that feels intuitive, like it’s gonna add rocket fuel to some of these wealth building strategies at first blush, but ultimately does the exact opposite.

and actually acts more like a weight dragging behind you and your piggy bank. What is it? Stick around and we’ll unpack this common high level plan that just doesn’t pan out as favorably as you might think. All right, my friends, we are back for another secret sauce episode and we are going to dig in here. Now, what are we talking about? Well,

It’s the foundational asset that we constantly are discussing here to help you understand how this complex tool works. But then also today, specifically, we want to talk about some of the ways that we do not want to be using this asset. Yes, it is a high cash value policy. This is a permanent insurance policy, a participating whole life insurance policy in particular. Now, while

we are putting this in as a foundational asset. It’s really important to note one of the great benefits of this tool is creating stability, creating safety, and also giving you liquidity. While we are living, we can use this tool and we can leverage against this tool in order to do other things. Now, if you’re an infinite banker, okay, and I’d like to say like this is we’re using similar strategies to infinite banking, but

very specifically, we are talking about utilizing this tool typically for asset accumulation. Okay, you can use it as a fixed income portion of your portfolio. You can also use it as an emergency fund for those who are maybe early in the journey and they wanna make sure that they have some permanent insurance in place so that when they get past that emergency fund size and cash value, they’re able to use this tool much like we’re describing here, which is

for asset accumulation. So there are different ways that we can do this. Now here is the challenge. I’m gonna share my screen for those of you who are over on YouTube, you’re gonna get the benefit of seeing this up on the screen. But ultimately what I have here is an email from a client. Here it is, it’s up on the screen. I’ve got everything, all identifying information is gone here.

But this is and I shouldn’t say a client. It’s actually a prospective client. It’s a listener of the podcast at this point. And they’re early in this journey. And they are looking to get themselves going with a policy high cash value for much of the same reasons, except here is the rabbit hole. They find themselves down as you’ll see up on the screen. Initially, they were talking about having a small policy to start.

Small policy to start is a great move because it always gives you an opportunity. always like to say like kind of stretch your legs, right? So getting yourself started, unless you have a incorporated business, lots of retained earnings and you’ve got sort of a tax issue to deal with, typically starting smaller is probably a better move than going larger, right? Why? Because you’re new at this, right? So it’s better to start smaller than go massive, right? So initially they were talking about 10,000 a year, 12,000 a year.

as the amount they were planning to put into this policy. Note that this isn’t the only investing that they’re gonna be doing, okay? So let’s make sure that we don’t get confused here unless you are a conservative investor, right? If you have everything in GICs or you have it all in fixed income type products, then hey, putting it into a policy is a great move for you because it is super safe, it’s super liquid, and you know that you’re gonna have this death benefit there as well as a huge, huge bonus.

However, for most people listening to this podcast, you’re probably not just 100 % fixed income, okay? You’re probably looking to find other ways to grow your wealth. Now, we’re not huge advocates for going 100 % equities. There’s research that would suggest 100 % equities is good for a lot of people, but there’s also a lot of research that says we’re not very good at doing it, meaning when push comes to shove, we often make bonehead moves when the markets are down. So we pull money out and…

There’s a lot of statistics that show even people that are 100 % equities tend to do bonehead moves and therefore they don’t get the actual returns that you’re seeing over long periods of time when we look at research. So we look for having a diverse strategy here and what we put at the core of it is our policy. So in this case, here’s the rabbit hole that this person finds themselves down. They’re looking, they go, you know what?

Initially, they were thinking, hey, they were gonna use this as sort of like a little bit of a cash flow buffer when they retire. They’re also looking at this thinking that, hey, if they were to fund this thing, as was described in the illustration and utilizing some of the assumptions that we’ve made, they were saying that they could start when they were about age 65, they could start cash flowing and actually using the policy to help them with cash flow during their lifestyle. You can check out our pension.

episode way back when I’ll have to dig it up and throw it in the show notes. But we have how you can use a pension to kind of recreate a pension, or how you can use a policy to recreate a pension if you want to dig into that. So they’re looking at this and like, that’s great and all but like, why wouldn’t I take that policy, start funding the policy, and then actually leverage that policy so that I could buy another bigger policy with the cash flow.

right now they’ve described sort of a very specific scenario here, but I want to talk in general why this is not a great idea. Okay, seems like it should be right because like a lot of people get the wrong idea and think the policy itself is like this magical tool that’s going to grow, you know, like Nvidia stock or whatever it is, I’m not suggesting that’s the case here with this individual. But sometimes we sort of think that the policy is going to grow at higher rates than maybe it will.

The real goal here is so that we have safety, liquidity, and the opportunity to buy other assets. Now, typically, the asset we’re looking to buy is not more foundational asset, OK? Because really, if you picture what’s happening here, if I leverage against a policy, and if we’re lucky, it would be exactly equal, right? Meaning the policy is growing at a rate, and we’re borrowing at that exact same rate. Is that going to happen in life? Probably at some times, it will.

But at other times, you might have to actually pay a little more for leverage. You might have to pay a little less for leverage. You’ll be kind of in this zone. We can’t keep it perfect. But they’ll be close enough so that that leverage is against this foundational asset. We also know that we can’t borrow more than it’s worth. So we know that we’re not going to be, unquote, underwater when we do this, which is huge. And we know when we pass on, the policy ends up being worth more tax free because of the death.

benefit and it wipes out any of the leverage and leaves the estate with more money. So said another way, if we did this well, what we’re doing is we’re leveraging a policy to buy other assets. So we still have the assets that we wanted to have. Hopefully those assets do great things, right? But with assets that have typically higher rates than say a policy or a fixed income portfolio comes probably more risk. I say probably because

depends what that asset is and how good at it you are. ultimately, at the end of the day, what we’re kind of looking to do is kind of have money working in two places at once. Plus, we get the bonus of insurance protection that we have for the rest of our lives. So meaning, if I was to buy this asset and I had this insurance, and if I was to pass before the average age of death typically, which is I’m going to use low 80s or something,

likely going to be ahead. My estate is likely going to be ahead. Now, some people may write in and they’ll be like, well, in this case, you may not be ahead. And sure, we can play with numbers. saying in general, we will be in a place where we are ahead because of that tax free death benefit. So why we do this is to kind of create safety liquidity, but also to buy more assets. If I leverage this policy to buy more policies,

What I’m actually doing is I’m borrowing at a rate around what this policy is growing at. So let’s call it a net even, but it could be net negative some years, right? And then I’m buying another policy with the real goal to leverage that and do something with that, which might be for income down the road if it’s many years down the road, or it might be to buy more assets. But in this case, it sort of looks like he’s looking to compound this policy

borrow against it. Once this policy is super efficient, right? So the longer the policies in force, the more efficient it gets. Then you leverage against it in order to open up a brand new policy. But here’s the thing about policies, which we’ve discussed before, is that policies are not efficient out of the gate, which is one of the big holdups for so many people. Like a lot of people will come in, they’ll be like, if I took

the exact same amount of dollars, you know, let’s say I took, uh, you know, uh, $12,000 and I put it into a policy versus putting that same 12,000 in the S and P 500. There is an opportunity cost upfront on the policy. If we’re looking at it as straight investments, even if I leverage that 12,000 or whatever I can leverage against it around, let’s say it’s around 10,000, you might be able to leverage out nine, 10,000 in that year one and put it in the S and P. Well,

The 12,000 is obviously going to beat the 9,000 that’s in the S &P 500. The part that we often miss is the death benefit that’s associated there as well, which is added protection and the compounding of the policy itself over time. So the goal here is rather than taking a policy that’s finally efficient, we’ve made it out of those first couple of years where there is an opportunity cost and it’s super efficient and then we offset it so we stop paying into it.

And then we leverage it in order to buy a brand new policy and start from scratch again, when we’re much older, you’re actually creating drag on the process. And here’s another nuance, insurance companies will ask you if you are leveraging the policy in order to buy more insurance, they do ask this. And of course, whether you say this honestly or not, that’s a that’s a you issue. But by doing so you’re

actually not going to be putting yourself in a better position. What’s much better is to get your policy working as efficiently as possible. So that means creating as much cash value as we can, which means making as little death benefit upfront as we can, but it’s still going to be much higher than the cash value and utilizing that tool when or as an opportunity bucket. For some people, that’s their emergency fund. It’s there just in case at first, and then it becomes their

their opportunity bucket. For others that are really conservative, they just keep that bucket. And that is very, very good for that particular type of investor, right? So ultimately, at the end of the day, the real goal here is we don’t want to see people sort of going down this rabbit hole and thinking about how do I leverage insurance to buy insurance, to leverage insurance, to buy insurance. That is not going to be a winning strategy for you.

I won’t even run the numbers on this just because it’s just, first of all, you’re creating unnecessary risk in order to leverage against a policy for another policy that isn’t going to be growing as efficiently as this one that we leveraged, right? Even if this one’s one year behind the other, it’s going to be less efficient in that year than the one that was opened the year prior. So what we want to do is we want to create this as a foundational asset that is to be leveraged for other assets.

I’m not a huge fan of opening a policy with the goal of it being your vacation fund, so to speak. However, there are people that do it and I’m not going to, you know, poo poo on anyone for that. Ultimately, at the end of the day, there are usually other buckets I can leverage in order to do things for expenses and so forth that you also will want to pay back, just like you’ll also want to pay back this policy if you’re borrowing against it for.

spending or consumption purposes. What we want to see people doing is taking that policy and when the opportunity is right. For example, I have a client, Sean, who’s closing on a policy right now. And initially he’s doing nothing with the policy. He has a big stock portfolio, but he feels like, and he’s not wrong that the market is very frothy as he would like to say. So he’s going to hold off and this policy is a large policy. It’s going to continue to build up his opportunity bucket.

So when the market has its next large dip, he’s not getting out of the market, by the way, he’s still in the market, he just wants to get ready for the next big dip for him to leverage and push in. Because we do know after the market does take big dips, 15, 20 % or more, typically the next couple of years after that are big growth years because of, of course, the big rebound that usually comes after in the years following.

So whatever your strategy is, it can be varied, but what we wanna make sure that everybody has top of mind here is that we are not going to advocate for anyone to consider or think about taking a policy, opening it up with the intention of leveraging it to buy more insurance, not a winning strategy. So make sure that we’re kind of thinking about this as a foundational tool that we can use and leverage to buy assets if and when they appear in front of you. And if you feel

confident in order to do so. ultimately at the end of the day, not all strategies that sound good actually work in your favor. This is one of them. Your financial foundation should be built on efficiency, liquidity and smart conservative leverage, not unnecessary complexity. So instead of stacking policies on top of each other and using one to fund the other, hoping for the best,

Focus on using your foundational assets in the right way as a safe liquid opportunity fund that optimizes your investments. Borrow against it only when it helps you to build real wealth. I say only, I’ve been guilty of it. I borrowed funds in order to buy things, but I’ve paid them back in order to rebuild my opportunity fund, not just to buy more of the same slow growing asset.

All right, so if this episode got you thinking, let’s connect. If you found value here, please share it with a friend who needs to hear it. And until next time, keep building, keep optimizing, and keep your money working for you. You can reach out to us anytime over at CanadianWealthSecrets.com forward slash discovery. If you want to reach out for a discovery call, we’re going to ask you a couple of questions ahead of time as well to help you out with the phases of wealth that you might be at.

So once again, head on over to Canadian wealth secrets.com forward slash discovery. And of course, for our incorporated business owner friends, leveraging insurance for you looks and sounds a whole lot different than simple infinite banking or whatever you’ve read about infinite banking. Let’s get on a call. And of course, make sure you check out our masterclass where we take you through the full strategy over at Canadian wealth secrets.com forward slash masterclass.

and you can get in there today. All right, my friends, just as a reminder, this content is for informational purposes only. You should not construe any such information or other material as legal, tax, investment, financial, or other advice. Even though I, Kyle Pearce, am a licensed life and accident and sickness insurance agent and VP of corporate wealth management with the Pancorp team, including corporate advisors and pan financial.

where I help to serve you with all of your leveraged insurance and of course just your fixed income portfolio insurance needs. We’ll 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.

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