Episode 74: The Truth About “Infinite Banking” or “Bank On Yourself”: Is It Too Good To Be True? 

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Have you heard about the financial strategy known as The Infinite Banking Concept and wonder whether it is too good to be true or whether it is a good fit for you?

While we are huge advocates for utilizing participating whole life insurance in a similar fashion to some of those shared by “Authorized Infinite Banking Practitioners,” there are many misconceptions and misinformed individuals whose incomplete understanding of Infinite Banking and how permanent insurance policies in Canada can and should be utilized in a solid, wealth creation strategy. 

Listen in and you may realize that you may not agree with some of the “rules” Infinite Banking Practitioners preach as gospel. 

Whether you’re aiming for financial freedom or seeking savvy investment strategies, understanding the very complex financial instrument known as participating whole life insurance could revolutionize your approach to personal and corporate wealth management.

In this episode we will:

• Uncover the dual benefits of participating whole life insurance policies that serve as both a safety net and a dynamic financial tool.
• Explore how the concept of infinite banking when followed “properly” may not be right for you.  
• Gain clarity on the myths and realities of borrowing from participating whole life insurance policies to make informed financial decisions.

Tune into this deep dive discussion to unlock the potential of your financial strategies and discover how to effectively use a participating whole life insurance for much more than just its traditional purpose.

Resources:

• Book a Discovery Call with Kyle to dig deeper into the realm of permanent life insurance, better understand the good and bad of the infinite banking concept and we’ll review your personal and/or corporate wealth management strategy.
• Becoming Your Own Banker [BOOKS]
• What Would The Rockefellers Do?: How the Wealthy Get and Stay That Way, and How You Can Too [BOOK]
• Looking for a new mortgage, renewal, refinance, or HELOC? Reach out to Jon to share some options.

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 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.

Let’s Connect For A Discovery Call!

For those interested in having a review of your financial wealth plan, learning more about potential joint venture (JV) opportunities, or a mortgage review, book a free discovery call now.

Watch Now!

Detailed Episode Summary 

Infinite Banking and Whole Life Insurance in Canada

Jon and Kyle discussed the concept of infinite banking, with the intention to clarify its potential benefits and pitfalls in their upcoming podcast episode. Jon expressed interest in the tool used in this concept, recalling previous discussions about independent banking. Both agreed on the idea of financial freedom and the importance of access to capital but differed on the interpretation of the ‘infinite banking’ concept. They also discussed the benefits of whole life insurance policies, emphasizing their dual purpose as both a life and death benefit, and the potential for contractual borrowing up to 90% of the cash value.

Infinite Banking: Borrowing Sources, Risks, and Benefits

Kyle and Jon discussed the different sources of borrowing and their associated risks and benefits. They highlighted the convenience of borrowing from insurance policies but noted the potential cost implications if not managed properly. They also discussed the concept of infinite banking, likening it to managing a grocery store, and emphasized the importance of not depleting one’s capital through excessive borrowing. They agreed that a participating whole life policy can provide long-term flexibility and cash value, but it should be viewed as a long-term investment, not a quick solution for short-term financial needs.

 Discussing Mutual Insurance Company Borrowing

Kyle and Jon discussed the financial implications of borrowing money from a mutual insurance company as a policy owner. They explored the potential benefits and drawbacks, including the impact on dividends and the overall pool of funds. They also examined the concept of whole life insurance policies within the context of corporate wealth management, comparing it to a pension fund that accumulates dividends and reinforces the pool through premiums. Jon agreed that maximizing premium contributions could be beneficial to both the company and the policyholder, despite the portion of earnings that goes towards expenses and commissions.

 Borrowing Myths and Participating Whole Life Insurance

Kyle and Jon discussed two common myths about borrowing, emphasizing the importance of understanding the true costs of interest before choosing a borrowing option. They also explored the potential benefits and limitations of participating in whole life insurance as part of an emergency fund and as an investment strategy. They advocated for a logic-based, informed approach to financial decision-making, and highlighted the need to seek professional advice to understand one’s specific financial needs. 

Transcript:

00:00:00:07 – 00:00:34:21
Kyle Pearce
Hey there, Canadian Wealth Secrets Seekers. I’m sure you’ve heard about it. It’s the infinite banking concept. Some are wondering, is it all it’s cracked up to be? Some are wondering, is it a scam? And others are wondering, is this the perfect opportunity for me to be able to quote unquote, remove bankers from my life together? Today, we’re going to be digging into infinite banking and we’re going to be talking about why it might not be all it’s cracked up to be.

00:00:34:23 – 00:00:52:19
Kyle Pearce
But also, we’re going to talk about some of the things that are super value about this concept. However, we’re also going to try to dispel some of the common myths and misconceptions so that you can get your head on straight around this idea of infinite banking.

00:00:52:21 – 00:01:02:10
Jon Orr
Yes, I am excited because we’ve talked about this concept many times here on the podcast in the past and we’re going to get into it here. So let’s get going.

00:01:02:12 – 00:01:15:16
Kyle Pearce
Here we go.

00:01:15:18 – 00:01:20:19
Kyle Pearce
Welcome to the Canadian Wealth Secrets Podcast with Kyle Pearce and Jon Orr.

00:01:20:19 – 00:01:34:14
Jon Orr
We are recovering high school mathematics teachers and education consultants whose entrepreneurial spirit led us to begin multiple businesses in real estate investing, digital courses and coaching and consulting after the bell rang at dismissal time.

00:01:34:19 – 00:01:54:22
Kyle Pearce
Fast forward a decade later where we’ve grown our portfolios and our time freedom to the point where we can now help entrepreneurs, business owners and investors to grow their wealth into a legacy that lasts generations through hidden investment and tax secrets. Your financial advisors won’t believe our true.

00:01:55:01 – 00:02:24:14
Jon Orr
Okay, Kyle, So you said in the intro here, it’s like we’re going to kind of explore the myths. We’re going to take a deep dive into the infinite banking concept. And I’m curious because we’ve talked many times about this concept, We’ve talked many times about the tool that utilizes or is needed to utilize this concept. And I’m curious because we did a lot of research into this concept, I think we first got introduced hearing the term Infinite Banking and led you and me down this pathway years ago.

00:02:24:14 – 00:02:35:21
Jon Orr
And so I’m curious and I’m sure people who’ve listened for a while now are kind of like leaning in a little bit and going like, did something change? And you guys, are you really telling us it’s a scam?

00:02:35:23 – 00:03:04:03
Kyle Pearce
Yeah, we definitely tried to utilize a little bit of click bait language in the title here, but ultimately at the end of the day, I do over time would have started to recognize is that there’s some, I’ll say a wide range of what people believe infinite banking really is. And what it’s good for is some people believe that infinite banking is permanent whole life insurance, whereas I would argue that infinite banking certainly is, as they would argue, a concept.

00:03:04:03 – 00:03:33:21
Kyle Pearce
It’s an idea. And in some cases I would even go as far as to say it’s almost like a belief system. And that’s where in recent months I’ve sort of started to distance myself away from utilizing infinite banking as the term, even though there’s a lot of really good things that are going on there. There’s also a lot of misconceptions, and even I’ll argue some myths that are perpetuated by some of what you might read.

00:03:33:21 – 00:03:58:21
Kyle Pearce
And Nelson Nash’s book, Becoming Your Own Banker, Great read, worth a read as well as what some, as they call them authorized practitioners might be saying is true, but may not quite be so. And then finally, there’s some middle ground there where there’s like again, this belief system idea where it’s like, if you’re an infinite banker, then you do this set of things regardless.

00:03:58:21 – 00:04:21:09
Kyle Pearce
It’s what you do, regardless of whether it actually makes financial sense, because it’s based on a belief system that we’re going to eventually try to lead ourselves to build what they call a banking system of your own, your own banking system, where you could essentially remove bankers from your life forever.

00:04:21:11 – 00:04:44:22
Jon Orr
Sounds great, though, Kyle. So like, it sounds great that I don’t have to rely on someone else if I need access to capital because I think that’s what originally when I read the book was a huge draw to using the tool is to go look as real estate investors as real estate investors. We would we would love the opportunity to put two uses to the same dollar.

00:04:44:22 – 00:05:07:14
Jon Orr
If I could have my policy and utilize the cash value of that policy to go buy my put the down payment down on my next rental property and without going to a bank and asking for that money or holding it from this where I have to always pay this amount, I don’t get to dictate those terms. That was very freeing and I think that’s still one of the benefits of using the tool.

00:05:07:14 – 00:05:20:10
Jon Orr
That doesn’t change the tool, but is that all that the infinite bankers are saying is the philosophy. It’s like we just don’t have to want to call so-and-so and follow their terms on the loan. If I need a loan when I need a loan.

00:05:20:12 – 00:05:41:06
Kyle Pearce
Right. And I would say absolutely. And that’s one of the reasons why, again, it’s not an infinite banking idea that gives you this freedom. Of course, infinite banking kind of promotes that idea that, hey, this is why we’re going to do this. We want to essentially live our lives, be able to be financially free, be able to access capital if and when we need it.

00:05:41:08 – 00:06:05:17
Kyle Pearce
All of those things are 100% agree with. Right. But that’s a participating whole life insurance policy that creates that opportune ity. And of course, again, hats off to Nelson Nash, who came up with this idea of like taking what used to be right, Mom and dad or grandma and grandpa whole life policy was this thing that you paid into for your life and then eventually it would pay out a death benefit.

00:06:05:17 – 00:06:31:18
Kyle Pearce
That was essentially what they were for. And Nelson Nash had the creativity to be able to look at and go, It doesn’t just have to solve the death benefit aspect. It doesn’t just have to solve the problem of, Hey, what are we going to do after I move on, right? Because I’m earning income or because maybe there’s some debts that are associated with me and my life that I want to take care of, that you can actually do two things at the same time.

00:06:31:18 – 00:06:54:09
Kyle Pearce
You could actually benefit while you’re alive, like having a living benefit. And you’ll also get this death benefit down the road. So there’s sort of dual purposes that Nelson Nash brought in and the part that I really liked about it as well, along with you, John, is this idea that you contractually can borrow up to. Typically it’s 90% with a lot of the Canadian companies, Right.

00:06:54:09 – 00:07:16:08
Kyle Pearce
But of course, a company could say it’s different in a different contract. But typically 90% of what they call the cash value, that’s the present value of your death benefit. All right. Kind of weird, kind of freaky, but it starts off lower. In the early years, you’ve contributed less. But also the chance of death is much less like in term policy.

00:07:16:10 – 00:07:48:19
Kyle Pearce
And over time, we get closer and closer to the average age of death. Right? So that cash value goes up. And basically Nelson Nash came together. And you know what? If I have this opportunity to borrow against my own policy, why would I ever go to a bank? And I love the fact that I have that flexibility, but I would argue that an infinite banker, quote unquote, would say that that is the place that you should be going to to borrow money always, regardless of the scenario.

00:07:48:19 – 00:08:10:18
Kyle Pearce
Whereas I believe that actually that flexibility is amazing. And I look at it the opposite. I go, where can I get money the cheapest, right? And if a bank is willing to lend me money and it’s cheaper than what I can borrow it from the insurance company, I actually like the idea that I can borrow from the bank even though it’s a little more of a hassle.

00:08:10:18 – 00:08:38:18
Kyle Pearce
They check my credit score, they can deny you. They might give you terms and conditions like interest only every month minimum. Whereas the insurance company is like, Listen, you don’t have to pay anything if you choose not to like that. Flexibility is great over here, but they could call the loan any time they want. Like a lot of people are like, Well, of course I want to then borrow against my own policy, whereas I look at it the other way and say, if a bank’s willing to lend me money, I’m going to take it and I’m going to save my policy.

00:08:38:20 – 00:08:42:23
Kyle Pearce
For if things don’t go well, right, I lose my job.

00:08:42:24 – 00:08:43:17
Jon Orr
Or another line.

00:08:43:18 – 00:09:02:23
Kyle Pearce
Exactly. I’ve got this other access to capital that is there in the case that something were to go wrong with these other loans that I have. So I’m not saying that you borrow over here and you borrow over there, but I’m saying, listen, if you were going to borrow from your policy, why not at least see what a bank would give you?

00:09:02:23 – 00:09:18:17
Kyle Pearce
And if it’s better terms in terms of the interest rate and they’re willing to give it to you, I would rather take it from that bucket. And then I’d leave my super flexible, super accessible bucket over here for a rainy day.

00:09:18:20 – 00:09:46:16
Jon Orr
What I’m hearing you say is instead of kind of trying to be like, I’m an infinite banker practitioner, where I’m following the letter of the law and always saying I always should borrow from my own bank. It was, you know, bank on your the become your own banker, which was the title of the book, instead of just always opting in to pulling or borrowing from that source, you’re saying, I’m going to assess the risk and the need of my situation right now.

00:09:46:18 – 00:10:09:02
Jon Orr
And then I will decide who is the best creditor to go with or the best lender to go with. Based off what I need now and what the source of that money is supposed to be now, for example, because what you said is I might go to the bank and go, Hey, the bank is willing to give me this much money at this rate and that rate and maybe is the going rate.

00:10:09:02 – 00:10:37:08
Jon Orr
And if you were going to borrow from yourself anyway, you’re gonna have to pay that back. Anyway, We’ll talk about that part of Infinite Banking in just a moment. But this on this still on the idea of flexibility is you’re saying I’m going to take on some risk here because that’s really what you’re saying. If I go my policy route and borrow from that because I have the flexibility of repayment, it’s almost like and I’m going to die someday, it’s almost like I don’t have a ton of risk borrowing from that spot.

00:10:37:10 – 00:10:56:02
Jon Orr
But if I go over to the bank, I’m willing to give up or I’m willing to add a layer of risk here to go with this creditor or this lender, I’m going to follow their terms because I want to take this money and do this with it. And you’re just trying to go, Hey, why wouldn’t I take the lower payment if I’m okay with the risk?

00:10:56:04 – 00:11:24:20
Jon Orr
Or I think you’re also saying that, but you’re also saying, why wouldn’t I want more money? Like, why wouldn’t I have access to more money and go that route? Because if I go with my policy only and I max that out, do I stop? Is that it? Like I have no more access to capital because I’m not willing to go to the bank now, like you’re saying, Hey, I’m going to leave that over there as my like next in line money because it’s always going to be there for me over here.

00:11:24:20 – 00:11:31:12
Jon Orr
I’ll I’ll take what I can get over here until that’s maxed out. Then I’m going to switch. So because you’re trying to access capital.

00:11:31:14 – 00:11:50:14
Kyle Pearce
Yeah. And I bet you any real estate investors are nodding their head right now. Going like that totally makes sense because real estate investors know what this is like, right where they go. I’m going to try to borrow funds because who knows if it’s going to be there tomorrow. You know, when banks are really, really welcoming to lend you money when you don’t need it, right?

00:11:50:16 – 00:12:14:05
Kyle Pearce
When you need it, when you have an emergency, when you lose a job, when you’re an entrepreneur and your business isn’t doing well, you go to the bank, you’re like, Hey, can I borrow some money? And they’re like, Well, I’m looking at your financial situation and we might not get paid back. So no. So I’m looking at it going, Why not save this other bucket over here for an opportunity that might come after I’ve already borrowed?

00:12:14:06 – 00:12:34:02
Kyle Pearce
Because if I borrow out of this bucket over here and maybe it’s for an opportunity to buy property, or when again, this is the other piece about Infinite bank. I’m not borrowing capital on my policy for like, small things, Like I’m not borrowing it for a $2,000 purchase. That’s not worth it to me. It’s like maybe for a car if the rate makes sense, maybe.

00:12:34:02 – 00:12:51:12
Kyle Pearce
But if the car dealers giving you a much better rate and much better terms, again, I’m going to go to the car dealer. Right. I’m not going to go to my policy because I want that flexibility. I want that bucket. They’re not only for emergencies, but also for an opportunity that might come up that I need to act on fast.

00:12:51:18 – 00:13:10:15
Kyle Pearce
So we’ve talked about it in earlier episodes, often times the best deals in real estate, but also other aspects of life usually happen fast, right? So when a property comes up and somebody really needs to get out and they’re like, Hey, I got to move this thing. We got to close in eight days or four days or whatever it is.

00:13:10:17 – 00:13:30:03
Kyle Pearce
Imagine being able to go, you know, got this other bucket. I don’t need to apply for it. I don’t need to do any of that stuff. I have access to it now that I can now utilize that bucket instead of me having already been utilizing it and doing all these things over here when the bank may have been willing to lend me money again.

00:13:30:04 – 00:13:52:18
Kyle Pearce
Home equity line of credit. It’s a perfect example. It’s sitting there, it’s easily accessible. And right now, I would argue I’m going to take from my policy over a home equity line, cause my policies, the actual interest that they’re charging at the insurance company is actually cheaper than what my home equity line of credit is. So that makes perfect sense in today’s environment.

00:13:52:20 – 00:14:20:20
Kyle Pearce
However, two years ago when we were at all time or almost all time lows in terms of the overnight rate, it was way better to borrow on a home equity line of credit than it was to borrow against your policy. So again, it’s just making a rational choice about where you take money from based on your circumstance is more important than, say, the belief system of whether I am or I am not an infinite banker or a bank on yourselfer.

00:14:20:22 – 00:14:45:04
Jon Orr
Yeah, and you’re just saying I’m keeping my doors open and I’m not closing any doors. And I think that makes a lot of sense. Okay. Now let’s also talk about, I think something infinite banking practitioners will hang their hats on, which is kind of like a story that I think if you’ve read Nelson Nash’s book, you’ll remember this story because it talked about a lot of times as like the reason that you open up your dividend paying whole life policy.

00:14:45:04 – 00:15:04:11
Jon Orr
So the reason is this story about like, don’t steal the piece. Let’s talk about three stories. Let’s talk about that. Don’t steal the piece because it makes a lot of sense to not steal the piece, but fill everybody in. You give a short synopsis of don’t steal the piece lesson that Nelson Nash talks about in the book for sure.

00:15:04:11 – 00:15:21:16
Kyle Pearce
And if you haven’t read the book again, I’m not saying not to read this, but I think you should, and I really do. I’m just saying that what you take from it just makes sure that you’re being analytical about each thing. And I will argue that the grocery store example is a great example, and there’s a lot of really good ideas there.

00:15:21:16 – 00:15:39:03
Kyle Pearce
But there’s some parts that, again, that I disagree with slightly and I feel that are a little bit more nuanced. So this idea is an analogy that you own a grocery store and they’re talking about the idea of a few different ideas here. First of all, it’s like when you open a grocery store, you’re going to have to capitalize the grocery store.

00:15:39:03 – 00:15:46:19
Kyle Pearce
You don’t have to buy the cans of peas. Is the idea right by the grocery store items. There’s cost to buy by build.

00:15:46:19 – 00:15:47:14
Jon Orr
You’re starting a business.

00:15:47:14 – 00:16:01:13
Kyle Pearce
You’re starting a brand new business. And the analogy is the same is true with a participating whole life policy. In order to start the infinite banking process or what we just call is getting a policy and being able to be super flexible with it. Right?

00:16:01:15 – 00:16:06:05
Jon Orr
It explains that why the cash value isn’t 100% of what you put it totally.

00:16:06:05 – 00:16:23:12
Kyle Pearce
So it’s like you buy a grocery store or you buy real estate properties. And another great example, it’s like, Hey, if you buy a property and then you sell it three weeks later, you’re actually like going to lose money, right? There’s closing costs. All these things, land transfer tax, all those things, unless you actually added something of benefit to the property to raise its value.

00:16:23:14 – 00:16:44:04
Kyle Pearce
So here it’s like, okay, there’s that perfect that makes a ton of sense. So you’re capitalizing this policy. So in the first couple of years, you’re not able to fully utilize the premiums that you’re putting into this policy in the first couple of years. Totally get that part. That makes a ton of sense. But then they start talking about a couple different things.

00:16:44:04 – 00:17:06:19
Kyle Pearce
So they do talk about the idea of don’t steal the piece, meaning don’t like borrow against your policy and never pay it back. So they’re kind of talking about this idea of you can’t just in your grocery store every time that we come into the grocery store and we were walking down the aisles that you’re just grabbing cans of peas off the shelf for yourself as the owner.

00:17:06:24 – 00:17:23:12
Kyle Pearce
You just buy them, you bring them or you bring them home without buying them, you steal them. They’re talking about taking a policy loan and not paying it back or not paying the interest back in the early years makes a ton of sense. Like we don’t want to put the money in and immediately borrow it and never pay it back.

00:17:23:14 – 00:17:46:05
Kyle Pearce
That would not work. It’s not going to work in the long term. So I love that analogy. I love that part of it. But the part that a lot of people talk about this and they describe this scenario as like also the idea that if you owned a grocery store that you would buy the peas from your own store and you wouldn’t from a different store, right.

00:17:46:05 – 00:18:08:11
Kyle Pearce
This idea and that’s the idea of where you would borrow money from. And this comes down to the thought that, hey, if I’m going to borrow money from somewhere, wouldn’t it make sense? And I’ve heard different practitioners say this and I actually disagree with it. They say that if you’re going to borrow money, even if it’s maybe higher interest to borrow from your policy, remember you own the policy.

00:18:08:11 – 00:18:30:16
Kyle Pearce
That means that you are an owner of the mutual insurance company. You are part owner, which means that interest goes back to you. So you are actually borrowing money. Maybe it’s at 6% and maybe you could have got 4% somewhere else. It’s like it’s okay because you paid 6%, but it goes back to you and or a portion goes.

00:18:30:16 – 00:18:52:10
Kyle Pearce
But yeah, exactly. And I mean, that might make sense. If I was buying piece, I would probably buy the piece from my own grocery store. But let’s be honest and say if you’re the store owner, you probably buy the piece at wholesale price and you would take them out the back door and you would eat them and bring them home for your family because you own the business here, I’m going to borrow money.

00:18:52:14 – 00:19:13:15
Kyle Pearce
I’m going to pay more in interest. The interest goes back to the insurance company. But the reality is, is the dividends they pay on the participating policy that you have are so minimally affected by the money borrowed against policies that that is such a non-issue and ultimately a silly argument altogether.

00:19:13:17 – 00:19:43:14
Jon Orr
Wait. So I think that it was a fundamental idea of that don’t steal the piece at the back door, which is I want to use the money from my policy because I’m going to pay interest back to that policy. It’s going to go in the pot if everyone else who’s doing that. And that adds to the bottom line of the company that I’m as a shareholder of, I get distributed that money goes into my back to my dividends, which creates more money.

00:19:43:14 – 00:19:59:16
Jon Orr
It makes complete sense. What you’re saying is that it’s not a lot like the Don’t Steal the peas. Like if I think about my canopy’s, my canopy is only a couple sense. I get all of a sudden back but what I try to wrap my head around but is if everyone did that right, like if we if I did that, if I made the choice to be like, you know what?

00:19:59:16 – 00:20:18:18
Jon Orr
I’ll go buy the borrow the money from the bank instead because it’s only so small. You said it was minimal. It’s like, okay, well, the interest I paid let’s say it’s a couple hundred dollars that year, a couple of thousand dollars that year. It goes in the pot. It’s distributed across everyone, whether policy holder in a dividend, that’s not going to be a lot.

00:20:18:18 – 00:20:41:06
Jon Orr
Okay. Well, what happens, Kyle, if everybody did that, like if everyone did that, I feel like that’s the reason we do it. It’s like we do it communally. Then that pot should be big and then we all get distributed that way. So with everyone did it, does this fall apart? I think that’s where they hang their hat on, is that we are building a business together with all the other policy holders totally.

00:20:41:06 – 00:21:02:11
Kyle Pearce
And ultimately at the end of the day, it’s completely inaccurate and it’s essentially I’m going to stack it up to ignorance and not that it’s intentional misleading. That’s what I’m going to say, because I actually think the vast majority of people out there I was on a call recently, somebody who required a permanent whole life policy for their corporate wealth management plan.

00:21:02:16 – 00:21:27:01
Kyle Pearce
This person sold whole life policies for ten years and didn’t understand how they worked. And he actually didn’t understand the benefits of why we would do it inside of a corporation. There are so many misconceptions and there is so little true understanding of how they work up on the screen. For those on YouTube with us right now, I’m showing Sun Life, Canada’s oldest insurer, their participating fund.

00:21:27:06 – 00:21:34:20
Kyle Pearce
When you look at the breakdown of it, right, look at the breakdown. Real estate, 15% equities, almost 20% private fixed.

00:21:34:20 – 00:21:36:06
Jon Orr
Income in the dividend paying.

00:21:36:06 – 00:21:57:12
Kyle Pearce
Back. This is in the dividend paying pool now corporate bonds 14%, government bonds, 23 and a half percent. It basically they run it like a pension fund. What? Right. Remember we did the episode on recreating your pension? Well, the reason why it can be done so well is because a participating whole life policy actually runs a lot like a pension fund.

00:21:57:12 – 00:22:20:02
Kyle Pearce
So the Ontario teachers Pension fund doesn’t give teachers all the money they earn on the money that goes into the pool. They give you some of it. They earn way more each year than you get. So over here you’ll notice there’s a 1.2% sliver that is cash and short term funds, and that is where the money for dividends is coming from.

00:22:20:04 – 00:22:43:23
Kyle Pearce
And most companies, most insurers actually do not support the idea of infinite banking in the we’ll call it traditional sense. They do support it in what we advocate for, Right. Which is borrowing when it makes sense for opportunities, that sort of thing, but not like to fund small parts of your life or to completely remove banks out of the process because they’re not a bank.

00:22:44:00 – 00:23:06:16
Kyle Pearce
They don’t actually want you to constantly be borrowing, paying back and pouring and paying back like a home equity line of credit. So when I look here and go my interest, I paid more interest. So first of all, I paid say call it 2% more. In that case, the 6%, 4% example, total example, completely fictitious. But that extra 2% is like such a small chunk of this pie.

00:23:06:21 – 00:23:32:19
Kyle Pearce
And then it gets divided up of course, amongst all of the different policies. But here’s the crazy part is that the dividend that they pay out, right? Last year, sunlight was somewhere around 6% dividend paid out to the policy owners. Some life made in the low teens on the actual participating fund. So the idea that all the earnings is shared fairly across all of the policies is not true.

00:23:33:00 – 00:23:53:12
Kyle Pearce
It’s just like Apple doesn’t give you all of their profits as a dividend. As a shareholder. They decide what the dividend is. And of course, much like a stock, they’re not going to have it significantly drop in a year or significantly bump in a year. They’re going to try to keep it as consistent as possible, showing slow growth where possible.

00:23:53:12 – 00:24:13:05
Kyle Pearce
And it’s really heavily based on the dividend pool. So that idea that I’m going to pay more in interest. So this is Sun life, I’ll show another one here is Equitable Life. If you look at their breakdown, their breakdown is very similar. They have 2% allocated to other, right. The rest is everything else. So it’s super diversified, which is great.

00:24:13:07 – 00:24:33:22
Kyle Pearce
Equitable Life made. I think they said something like 12% on the participating fund pool and last year in 2023 I think it was 6.1% that they paid out as a dividend to policyholders. Now a lot of people would be like, Well, where’s the rest of the money? Well, ask your pension company the same thing. While they have the massive pool.

00:24:34:03 – 00:24:59:22
Kyle Pearce
They need to make sure they can pay out death benefits. They need to make sure they pay for advertising, They need to make sure they have all their expenses covered and they need to make sure that they’re paying commissions to the people that are helping you to understand policies and actually put them into place. So your policy itself actually has, I would argue, little to no impact as to where someone who owns a policy borrows the funds from.

00:24:59:22 – 00:25:18:11
Kyle Pearce
And I would argue that most companies would say, hey, listen, policyholders, if we could choose whether you borrowed against your policy or whether you didn’t, we’d prefer you didn’t, because then we could go make more money elsewhere in this pool over here where we made 12% instead of 6% in this random scenario I gave you.

00:25:18:15 – 00:25:38:24
Jon Orr
So I feel like that debunks the whole like make sure that you contribute back to the business because you’re adding to the bottom line of the business now. I guess like it’s such a fraction, like you said, it’s a minimal amount in the reports there show that it is it is a minimal amount of that sliver. You didn’t say that’s where the policy repayments are coming from.

00:25:38:24 – 00:25:40:20
Jon Orr
It was just short term loans and other.

00:25:40:23 – 00:26:09:22
Kyle Pearce
You know what would be better, Jon, with that extra 2% in our scenario, it would be better to buy more paid up additions on your policy. So the insurance company would say, listen, you want to know how you can maximize the benefit of this business. Pay the maximum amount on your policy that we’ve structured with a base premium that’s much lower and a max premium that’s up here rather than paying less in a year because you actually chose to pay higher interest on your policy loan than you did over here.

00:26:09:24 – 00:26:29:08
Kyle Pearce
Why not just maximize how much money you’ll put into our pool over here in our participating fund? Because we can make more money off of that than we can offer your interest that you’re paying us. So that would be the best way to grow the business is to contribute as much premium for as long as you can. That’s what the insurance company is saying, Right.

00:26:29:14 – 00:26:52:02
Kyle Pearce
And you’re going to get a benefit from it as well. Instead of paying higher interest for no reason. All right. Now, John, we went on a deep dive and I wanted to just take a moment to just talk about two other myths. So, first of all, well, I guess the first myth is this idea that a policy loan is calculated with simple interest and therefore, once again is way better than borrowing from the bank, even at a higher rate.

00:26:52:04 – 00:27:10:09
Kyle Pearce
I want to clarify that, because really what the real difference is is that a bank will typically charge on a home equity line, for example, every loan’s different rate. So you’d have to look. But on a home equity line, typically they’re compounding the interest every month. Right. Which means you’re paying interest on interest if you don’t pay it all back.

00:27:10:09 – 00:27:42:08
Kyle Pearce
Right. So that’s important to note. On a credit card, it’s daily rate. So that’s really bad because now you’re compounding the longer it goes. We’re going to compound on top of each other. But with a policy loan, it actually isn’t simple interest rate. As former math teachers, we know that at the end of the year they apply the interest to your loan and how you can keep it to act kind of like simple interest is by paying off all that interest by the last day of the year since you borrowed the money that would allow it to kind of act like simple interest.

00:27:42:14 – 00:28:09:10
Kyle Pearce
But the reality is if you didn’t if you chose not to pay it back in the next year, you’re now going to pay interest on the interest. That is the definition of compounding. That is what compounding is. So it compounds annually instead of semiannually, monthly, daily. So it’s still better here. But again, that’s a myth and a misconception that I hear a lot of authorized practitioners say that actually is inaccurate.

00:28:09:12 – 00:28:33:21
Kyle Pearce
And then finally, the last thing that I think is really important is just really thinking about at what point in your journey would I’m going to call it participating Whole life insurance makes sense for you, not the entire belief system of infinite banking, but like, when does this realistically make sense for you? And I’m going to argue that as an emergency fund, we have an episode on that.

00:28:33:21 – 00:28:50:19
Kyle Pearce
It’s a great move. If you were going to save money for an emergency fund, starting a small policy makes sense regardless of where you are in the journey, right? If you’re going to do an emergency fund, you’re going to contribute X number of dollars. That’s a great move because you’re going to earn interest and you’re going to grow a policy.

00:28:50:21 – 00:29:12:08
Kyle Pearce
And that’s a great, great start. But that’s not going to really serve a purpose of infinite banking right out of the gate. So the question then becomes is like, when does this make sense? And I would argue that you should at least be investing in something if it’s real estate, if it’s tax free savings accounts in RRSPs, those tax free buckets are really helpful for you.

00:29:12:10 – 00:29:39:08
Kyle Pearce
So if you have $0 of investable assets so far, I would argue that trying to go down the quote unquote, infinite banking route might not be the right move. Now, not saying it’s not a great move later. I just think that it’s not the right move now. I would get your investments going. Some people say it’s like, hey, listen, with participating whole life, you can get rid of Wall Street or here in Canada, you can get rid of Bay Street.

00:29:39:08 – 00:29:57:00
Kyle Pearce
You don’t have to invest in the markets. And I would argue that that’s a really conservative approach. The answer is yes, you could, but that is a really, really conservative approach, which means you are not going to see a lot of growth. You’ll probably just pace with inflation. And I would think that if you’re listening to this show that that isn’t you.

00:29:57:01 – 00:30:18:16
Kyle Pearce
You’re not that conservative. Yes, I would use a participating whole life policy instead of bonds instead of that fixed income part of my portfolio, whether it’s 10% or 30% or for some of you, 50% of your portfolio. I think a participating whole like policy makes a ton of sense because you get all of what you were getting out of that bond thing without the risk.

00:30:18:16 – 00:30:58:19
Kyle Pearce
When a black swan event happens because bonds and stocks only correlate when the market tanks. When it tanks, everybody dies, right? That’s not a good thing. So I would say that’s a great move there. So ultimately, I’m hoping when people listen to this episode and they think about it, we’re not bashing, participating, whole life insurance. We are not even bashing most of the infinite banking concept, but we are just trying to clarify that we don’t do sells as infinite bankers because fundamentally there are a lot of things that are going on there that we simply just do not believe and do not make logical sense.

00:30:58:21 – 00:31:21:04
Kyle Pearce
Although a lot of the I’ll say call it 75% of the idea is a great idea and it’s worth exploring. It’s worth reading the book and it’s worth digging into whether it’s through someone else or hopping on a call with us so we can take you through the rabbit hole and really help you understand how does this work and is it a good time for you to put this into practice?

00:31:21:04 – 00:31:42:16
Kyle Pearce
If you’re a business owner who’s successful, meaning you have a lot of retained earnings, that sort of thing, like then I would say that you should have put one in place already. And for those who do not have a corporate structure, there’s a specific time and place where I think putting one into place makes sense. And there’s other times where holding off probably makes more sense than just going into learning mode.

00:31:42:16 – 00:31:45:05
Kyle Pearce
In the meantime might be your best bet.

00:31:45:07 – 00:32:21:00
Jon Orr
Yeah, and I think today’s secret sauce, you know the well, secret sauce today is one of our strengths in particular is continually looking at your financial decisions with what you said, logic with analytics, thinking about what makes the most sense for where you are now and not just following dogma, not just following this is what I’m supposed to do because I identify as this type of person, continually think what is the most economical or what is the most logical or what is the most analytical decision I can make and how do I get that information?

00:32:21:00 – 00:32:35:00
Jon Orr
That’s what we try to do here on this podcast. That’s how we make our decisions. So the secret sauce today is to just follow the orthodox view of one philosophy. It’s think with appropriate reasoning before you make your decisions.

00:32:35:02 – 00:32:55:05
Kyle Pearce
I love that. That’s a great Canadian wealth secret there. Yeah. Friends, my big one for you is continuing to learn and just being aware of what it is that you need for your journey. Because reality is, is that you’re not an infinite banker. You are, you aren’t. That’s not really what it comes down to. It’s what are your specific needs?

00:32:55:05 – 00:33:20:01
Kyle Pearce
Hey, listen, if you’re passionate about hating the bank and you truly want to get rid of them, rock and roll. It’s not for me. It’s not for me. I’m going to use banks and I’m going to keep all of my doors open to try to ensure that I can better my situation all the way through the remainder of my life, even if my intent is to have so many permanent whole life policies or at least the cash value and the death benefits.

00:33:20:01 – 00:33:36:15
Kyle Pearce
So that I just feel like I have this solid capital preservation foundation. We talked about it on a previous episode where it’s like building that cement pad. I want it to be as thick as possible. That’s why I’m doing it. It doesn’t have to be why you’re doing it. I know, John. You’re doing it for a similar reason.

00:33:36:15 – 00:34:01:07
Kyle Pearce
I am a conservative person, but I have risk on assets. I’m in real estate, I do all of those things, and I just want to make sure that I have access to capital when an opportunity comes up, when an emergency arrives, or if the bank, for whatever reason, at whatever time in the future says I can’t borrow money, not because I don’t need the bank anymore, but rather because I need to access capital from somewhere.

00:34:01:07 – 00:34:25:08
Kyle Pearce
And guess what? I have it. It’s like permanent policies are like my mattress. I can shove the cash under, except the value doesn’t go down, it goes up tax free. And that death benefit is going to payout tax free. And for our corporate business owners, you have a massive advantage, like a massive advantage that you get to buy the same permanent policy that T4 employees are buying and they’re spending it 60 cent dollars.

00:34:25:08 – 00:34:54:12
Kyle Pearce
They’ve already lost 40% in taxes. They’re buying it for $68. And you’re in your corporation able to buy the same policy for 88 cent dollars and it will pay out through your capital dividend account the death benefit, tax free plus all kinds of other advanced strategies you can put into place. To me, the actual tool participating whole life insurance is a massive benefit for many people, but not all people, and not at all times of life.

00:34:54:17 – 00:35:16:11
Kyle Pearce
So hop on a call with us to learn whether it makes sense for you. Over at Canadian Wealth Secrets dot com forward slash discovery. Again, it’s Canadian wealth secrets dot com forward slash discovery and our goal is that you walk away knowing more about any tool that we’re working with you on not to try to convince you of a tool being right for you.

00:35:16:11 – 00:35:23:12
Kyle Pearce
It’s about you learning and deciding when as a tool appropriate for me to reach my wealth goals.

00:35:23:14 – 00:35:40:06
Jon Orr
All right, Canadian. Well, secret seekers, see you next time.

00:35:40:08 – 00:35:54:00
Kyle Pearce
Just a reminder, my friends, the content in this podcast, for informational purposes only, you should not construe any such information or other material as legal tax, investment, financial or other advice.

00:35:54:02 – 00:36:07:16
Jon Orr
John Or is a mortgage agent with bricks. Mortgage License number m23006803. Kyle Pierce is a licensed life and accident and sickness insurance agent and corporate wealth management advisor with Pan Corp. team, which includes corporate advisors and Pan financial.

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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