Episode 86: Who SHOULDN’T Buy A Permanent Life Insurance Policy

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Is a permanent life insurance policy right for you? Have you filled all of your tax sheltered buckets like RRSPs and TFSAs? Are you maximizing the benefits of life insurance in your wealth management strategy?

In this episode of the Canadian Wealth Secrets podcast, Kyle and Jon delve into the complexities of permanent life insurance and term insurance, shedding light on common misconceptions and providing actionable insights. Many individuals and business owners struggle with determining the right wealth building strategy to complement their financial goals. This episode explores the nuances between term and whole life insurance, offering guidance on when each type is most appropriate based on one’s financial journey and stability.

Navigating the world of insurance and investment can be daunting, especially when considering the long-term impact on your wealth management efforts. Kyle and Jon discuss practical strategies for leveraging insurance policies to build an emergency fund, manage debt, and gain significant Canadian tax benefits. Whether you’re early in your financial journey or looking for ways to optimize your existing strategy, this episode provides valuable perspectives to help you make informed decisions.

What you’ll learn:

• Understand the key differences between term and whole life insurance and how to choose the right option for your needs.
• Discover innovative ways to use a whole life policy for building an emergency fund and managing financial risk.
• Learn about the tax advantages of leveraging permanent insurance policies for retained earnings, particularly for business owners.

Tune in to this episode now to learn if permanent life insurance is right for you and uncover how it can enhance your wealth-building strategy and secure your financial future!

Resources:

• Why Permanent Life Insurance Isn’t Right For Most People
• 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 cordporate 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.

Discover how to leverage life and permanent insurance for your wealth-building strategy in this episode of the Canadian Wealth Secrets podcast. Kyle and Jon discuss the key differences between term insurance and whole life insurance, including the concept of infinite banking and how to use an insurance policy for building an emergency fund. Learn about the tax advantages for business owners using permanent insurance policies for retained earnings and the role of RRSPs in your financial plan. Tune in to gain insights on managing real estate investments and achieving financial stability.

Watch Now!

Detailed Episode Summary 

Discussing Permanent Insurance Misconceptions

Kyle and Jon discussed the misconceptions surrounding life and permanent insurance and concluded that they are beneficial for some people but not for everyone. They proposed to explore specific scenarios where permanent insurance would be suitable, emphasizing the importance of targeting their discussions to those who actually need it. They also recognized that the wealth-building journey is non-linear and people may encounter a need for permanent insurance at different stages. Kyle suggested that while some people may not feel they need permanent insurance currently, their circumstances could change, a view which Jon agreed with based on his own experiences over the past ten years.

Discussing Life Insurance Options: Term vs. Whole Life

Jon and Kyle discussed the concept of life insurance, specifically focusing on the difference between term and whole life insurance. Jon expressed the idea that whole life insurance might not be suitable for everyone, particularly those who view life insurance as a means to cover their life and provide for their beneficiaries in case of unforeseen events. He argued that whole life insurance could be too costly for this purpose. Instead, he suggested term insurance as a more cost-effective option for those who wish to cover their life. Kyle agreed, suggesting that term insurance might be the only type of life insurance needed during the early stages of one’s journey.

Life Insurance, Investment Strategies, and Financial Foundations

Kyle and Jon discussed the considerations and strategies related to life insurance and investment. They agreed that early in the journey, term insurance might be more suitable due to its low cost, while permanent insurance could be a better fit for those with more financial stability and a long-term perspective. They stressed the importance of maximizing contributions to tax-free savings accounts before considering more complex investment strategies. Jon expressed a preference for investing in properties and arbitraging interest rates, which Kyle advised could be a viable strategy if he had a good understanding of the market and was confident in his investments. They concluded that the best approach would depend on individual circumstances and that it’s crucial to start small and build up a solid financial foundation before venturing into more complex investments.

Whole Life Policy for Emergency Funds

Jon and Kyle discussed the utility of using a whole life policy as a tool for building an emergency fund. They suggested that individuals who are committed to building an emergency fund could consider using a whole life policy to not only save for emergencies but also receive bonuses and grow their cash value. Kyle pointed out that this strategy could also be beneficial for individuals with high tax brackets or those nearing retirement who want to derive risk from their portfolio. However, Jon acknowledged that some individuals may not be comfortable with using a whole life policy due to the higher premium costs and potential mindset issues regarding using other people’s money to make money.

Debt Strategies for Wealth Building

Jon and Kyle discussed the pros and cons of utilizing debt for wealth building strategies, particularly in relation to real estate investments. Jon expressed his preference for not borrowing against policies due to his aversion to debt. Kyle pointed out that interest rates often move in line with inflation, offering an opportunity for arbitrage with a potential for higher returns. He also emphasized the importance of considering the depreciating value of borrowed money over time, and the potential for the growth of assets to outpace inflation and debt. Both agreed that this strategy may not be suitable for everyone, encouraging listeners to consider their own comfort with debt before pursuing this path.

Leveraging Permanent Insurance for Tax Benefits

Kyle highlighted the tax benefits of leveraging permanent insurance policies for retained earnings, particularly for incorporated business owners in Ontario where active income is taxed at 12.2% up to $500,000. He emphasized that these policies could significantly reduce taxation on personal levels, making it an attractive option for real estate investors. Kyle also touched on the importance of considering legacy and the potential need for permanent insurance. Jon, another participant, offered to help listeners determine if permanent insurance is the right tool for them through a call qualification process on the Canadian Secrets website.

Transcript:

00:00:00:10 – 00:00:21:07
Jon Orr
In this episode, we are going to talk about who shouldn’t buy permanent or whole life insurance. We’re going to dig into different case studies of when you should add this tool to your tool belt for wealth building and when you shouldn’t. You might be surprise for a thing or two about who this tool is for and who this tool is not for.

00:00:21:12 – 00:00:36:04
Jon Orr
But we are going to dig right into that. So let’s go.

00:00:36:06 – 00:00:41:05
Kyle Pearce
Welcome to the Canadian Wealth Secrets Podcast with Kyle Pearce and Jon Orr.

00:00:41:07 – 00:00:55:02
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.

00:00:55:05 – 00:01:15:19
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.

00:01:15:21 – 00:01:34:06
Jon Orr
All right, guys, let’s get into this. And we get a lot of calls and we talk with a lot of people. And sometimes we find that when people reach out to us, maybe they’ve set their goals, maybe they’re looking at some future aspects and sometimes they’re like, Hey, I heard you talking about whole life insurance, permanent insurance, and they’re curious me.

00:01:34:06 – 00:01:50:07
Jon Orr
Like, I think that might be a good move for you. And then we’re like, It’s not. It’s not actually, it’s not a good move for you. And you’re like, Wait a minute. Like, I thought that that was your thing. I thought that you guys really think that that’s an important tool to use in your wealth building journey. And we do.

00:01:50:09 – 00:02:17:21
Jon Orr
We do, but it’s not for everybody. And in this episode, what we want to do is talk about why some folks shouldn’t consider this tool in their wealth building journey yet. And I think that’s the qualifier right now. So you’re listening to this and you’re like, I haven’t say bid off. I don’t know. I’m going to I was trying to come up with some fancy way of saying like taking a step forward or like, I haven’t bit the bullet is that I don’t know if that’s a phrase, but I mean like I just made it up.

00:02:17:23 – 00:02:29:13
Jon Orr
But I mean, I started that pathway and using that tool, you’re going to listen to this when I go, should I or maybe I’m going to rule myself out because John and Kyle said it’s not for me.

00:02:29:19 – 00:02:50:08
Kyle Pearce
Right. Right. And the part that I think is really interesting in the financial landscape out there is that now I’m not going to speak for everyone, I think, in this industry. Right. So I am licensed to do life insurance and accident sickness and all of that wonderful stuff. But I do it for very specific purposes and very specific people.

00:02:50:10 – 00:03:11:17
Kyle Pearce
And I find that and I don’t know I don’t know all the other people out there, but there’s definitely a picture that’s painted about anyone who, quote unquote, sells life insurance in a way. We’ve had episodes about how selling like this idea of selling has like a negative connotation. But in reality, what I do is I work with people who actually need it.

00:03:11:19 – 00:03:29:22
Kyle Pearce
So what we’re going to talk about here is we’re going to talk about the very specific people who actually and I’m going to use the word need permanent insurance. And then we’re going to talk about who those people are. Because if it isn’t you, then you don’t need it. And that’s okay. And I think that’s the really important piece here.

00:03:29:22 – 00:03:49:17
Kyle Pearce
So we’re all about making sure that we’re helping people to get further in the journey. And something that’s really interesting And I think what has worked really well for us and the people and the clients we serve, and actually many of those people being listeners of this show is that those who are on a wealth building journey will typically hit this.

00:03:49:20 – 00:04:07:04
Kyle Pearce
We call it a fencepost in the journey, right? Like you will hit it, but you’re not necessarily hitting it straight into your first job. You’re not going to hit it when you just had a couple of kids and a mortgage payments and the budget’s out of control and you don’t have any money to invest or it feels like you don’t.

00:04:07:06 – 00:04:30:15
Kyle Pearce
That is not when you should be buying permanent insurance. So today what we want to do is we actually want to take you through and talk to you about all of the people who should not be buying permanent insurance at this point in their journey. And here’s the interesting part, is that usually people will eventually hit a fence post in the journey where it will make sense.

00:04:30:15 – 00:04:48:08
Kyle Pearce
We’ll talk a little bit about that later because even right now, some people in your mind, the way we are thinking today, you’re going, I will never need permanent insurance. Like you may feel that way after this episode, but I’m going to say things could change later and we’ll talk a little bit more about that.

00:04:48:10 – 00:05:21:09
Jon Orr
Yeah, and they probably will. Well, not say could they will things change? That’s just how if you think back ten years ago, you are on a completely different stage. I’m sure, as we are, than you were back then. Let’s specifically talk about probably one of the big ideas around life insurance in general, because we’ve talked about this repeatedly on the podcast when we refer to term life insurance, permanent life insurance, and thinking about the mindset around insurance, like you said, like people are saying, Oh, it’s an insurance salesman, it’s rigged.

00:05:21:09 – 00:05:39:15
Jon Orr
We just got off a call with someone saying like it’s rigged in terms of the insurance company. Therefore, I am going to lose on this scenario. And so therefore, if I’m going to lose on this scenario, why would I want to give the insurance company more money than I have to? So when you think about people going, why would I?

00:05:39:18 – 00:06:01:12
Jon Orr
Maybe a term insurance is better for me. Whole life is probably not the move for me if I have that mindset. So I think sometimes it’s like a thinking about a mindset idea in terms of insurance. So for example, if I believe and this is probably an ignorance thing about whole life insurance or permanent insurance around what it really means, like we looked up on a blog and I think it was, what was it?

00:06:01:12 – 00:06:28:07
Jon Orr
Kyle It was a Nerdwallet Nerdwallet Nerdwallet was basically saying, like, if you look at the two and why you might not want to choose whole life insurance as sometimes it costs 20 times as much. And when I read that, I’m like, well, that argument here isn’t as valid as what you need to make that argument because your if you look at it as a cost and when I hear the word cost, I’m hearing like out of pocket, I will never see that money again.

00:06:28:07 – 00:06:50:17
Jon Orr
It cost me $10 to buy this thing, to buy term insurance. Sure, you’re going to pay that over the course of a term. You’re never going to see that money again. You covered your life and in case of something happening, your life is covered and your beneficiaries will get the value of that policy that you set up in terms of the term.

00:06:50:19 – 00:07:15:05
Jon Orr
So when you say like, oh, if I want that same effect, if I go into this kind of thinking going like I just want to be able to cover my life so my beneficiaries get paid out while I’m working, and that’s the way I think about my life insurance. Then you’re right. Whole life is not for you and you are looking at it as a cost because in order to get that same death benefit, you have to pay a lot more money up front on terms of the premium.

00:07:15:07 – 00:07:38:05
Jon Orr
But where that article did not elaborate at all is they’re saying sometimes it costs 20 times as much like it does, but that money’s put over there for you in the cash value. It’s still there for you. He doesn’t go away. So it didn’t cost you extra money. It may have cost you the same amount of money, but they put this little dollar amount in this bank account in a way over here for you.

00:07:38:05 – 00:07:57:05
Jon Orr
They say, hey, you still got a cash value attached to that, that you’ll always get back or you’ll always have access to and that’s the difference there. But going back to who whole life is not for is if I have that mindset that insurance from my life is just to cover my life and that is it, then you should be going term.

00:07:57:07 – 00:08:23:16
Kyle Pearce
Absolutely. And you know what? I look at it and I think like there are times in your life where term insurance, I would say early in the journey, that should be probably the only type of life insurance you have at that point, unless you have a high enough income where you can be thinking further down the road. But if you’re just trying to get things going, I mean this idea of term and invest the difference totally makes sense at that point in the journey at that early fence post totally makes sense.

00:08:23:16 – 00:08:51:09
Kyle Pearce
Now, some fee for service financial planners will say, well, listen, you could still get it to pay out because remember, if it’s a term ten, term 20, you can renew after the ten years or after the 20 years. But the Costco’s so high that typically people cancel and it actually isn’t going to pay out. So it acts like auto insurance, home insurance, these types of insurance that you hope you don’t ever have to use because of its term life insurance, it probably means that it was an untimely death.

00:08:51:10 – 00:09:11:17
Kyle Pearce
We don’t want that. Right. So we don’t want it to payout. So there’s money going in and it’s not coming back to you, whereas permanent is money that will come back to you or your estate. So that’s very different. We’re going to talk about when that might make sense, but early in the journey doesn’t make sense if you are considering terms 75 term to 100, those types of things.

00:09:11:17 – 00:09:37:20
Kyle Pearce
Just I would say, do a legit comparison because the amount of cost that you will put into those and you may still cancel and get nothing back from it can be really risky. Like you have to know ahead of time, like, Hey, how long am I going to do this and will I commit to this thing for the duration of my life in order for you to potentially be in competition there with that permanent insurance but no leverage ability.

00:09:37:20 – 00:09:55:02
Kyle Pearce
So for those people looking for the short term stuff, definitely not a good fit for you. I want to move on to the next one. And this kind of ties to a very similar fence post in life. It’s like, okay, I’ve got to cover myself for my income. I was married when I was 21, so my wife and I, I still I am.

00:09:55:02 – 00:10:16:16
Kyle Pearce
I still am. Yeah. Don’t don’t let Chantelle know I said that. But we had insurance there because we started to live a lifestyle that required When I see required we got used to right the lifestyle inflation that happens as you get used to living off these two incomes and let’s be honest, when you have two incomes in the household, it’s not like everything doubles, right?

00:10:16:16 – 00:10:35:22
Kyle Pearce
Your cost of owning your home doesn’t double. And all of those things, right? So we had some insurance to kind of cover the other in the case that one of us had an untimely death that’s term insurance. And then we started investing the rest. So what we want to say is this next fence post, it’s a very similar place.

00:10:35:22 – 00:11:03:13
Kyle Pearce
And the journey is like if you have little or no net worth or little or no net investments of any type, then permanent insurance probably doesn’t make sense for you. So specifically, those people who don’t have maybe are P’s started or significant amounts yet, or they don’t have their tax free savings account bucket full or they haven’t considered RSP hours for their kids and those types of things.

00:11:03:13 – 00:11:23:01
Kyle Pearce
Like you have to really think about permanent insurance is the idea it will be helpful as it builds of course, but you need to start taking care of these. I’ll call them the first fence posts in the road before you start flipping all of your thought and attention towards something like permanent insurance.

00:11:23:03 – 00:11:41:20
Jon Orr
Now, something that we’ve said here on the podcast is that we want as many of our dollars to go into a policy because we can put two uses to the same dollar on that policy. So our strategy is let’s put it over there first and then we’re going to take it from there, we’re going to put it in and we’re going to invest it and or we’re going to buy a property with that.

00:11:41:20 – 00:12:06:00
Jon Orr
We’re working on the arbitrage between the interest rates because we’re borrowing to make more money and therefore we should make sure our gains are higher. So because of that, let’s say you’re past the point a little bit where you’re comfortable and this might start early, especially if you are single in a way. Kyle, don’t tell my wife this, but I mean, like I felt like I had way more money than when I was young than I had when I started my family.

00:12:06:00 – 00:12:23:07
Jon Orr
Right? Like, all of a sudden it’s like I feel like it’s all spent somewhere, right? But it’s like you have your income. Let’s say you had that income and you didn’t have double income right away. You lived with by yourself for the first few years. It’s like, okay, I’m paid off. You know, I got extra income here.

00:12:23:08 – 00:12:26:11
Kyle Pearce
And you could live off Kraft dinner for. Right? You know, Exactly.

00:12:26:13 – 00:12:42:15
Jon Orr
Not wondering about all of those things that some other people and families start to care about and where there’s some of that money’s going to go in, it’s like, should I? So here’s a question. It’s like we talked about, you know, getting the hours P started getting a tax free savings account started. What about getting your whole life policy?

00:12:42:15 – 00:13:01:04
Jon Orr
So is it is it for we know it’s not a whole life or a permanent insurance policy is not for someone who is scraping by and making sure that all of their bills are paid for. But when I start to have a little bit discretionary income, obviously we’re teaching people and people teach people to kind of go, let’s put this away, put it in our tax free savings scale to start maxing those things out.

00:13:01:04 – 00:13:09:14
Jon Orr
Let’s get the RRSPs rolling. But should the first stop be the whole life policy or should we be maxing those other things out first?

00:13:09:16 – 00:13:30:02
Kyle Pearce
Well, I think, honestly, that one is really dependent on what is going to be invested inside those buckets. So it’s a great question. It’s a great wonder, and I have this discussion with a lot of people, if your plan is that you’re going to put it into a policy and then leverage it for investing, we’re 100% on board for that.

00:13:30:02 – 00:13:57:07
Kyle Pearce
That is awesome. Like, that’s an amazing strategy. Here’s where the nuance comes in is what are you investing in? How confident are you in those investments? So, for example, if I’m going to leverage against my policy, so I say I put in $12,000, or maybe I put in $30,000 into a policy over the first year, and I put that money there as the first stop, and then I leverage in order to put it into my RSP.

00:13:57:09 – 00:14:19:24
Kyle Pearce
That can work if the investments inside the RSP are going to give you a positive arbitrage. Right. So we don’t want to be borrowing against this bucket, which is going to grow tax free. It’s going to pay out a death benefit down the road, like it’s going to do all kinds of amazing things. If I’m going to leverage that 30,000, which, again, we don’t have access to all 30,000 in year one.

00:14:19:24 – 00:14:56:18
Kyle Pearce
So there’s an opportunity cost there. So then I leverage it. I leverage what I can take out of it at that time. Let’s say it’s low $20,000. I put it in my RSP, maybe I get a tax refund back to pay back towards this loan, whatever you want to do, awesome stuff. But if I’m going to put it in that RSP and then I’m going to put it into a fund that’s balanced, for example, I it’s a balanced fund earning around the same amount as what your policy’s going to be growing at right over the life of this policy’s probably going to be if it’s designed well between four ish to five ish percent tax

00:14:56:18 – 00:15:15:03
Kyle Pearce
free, if you throw it into the mutual fund and you’re earning 4 to 5%, that’s not going to be the best move. If you’re putting it into 100% equities, maybe it’s U.S. equities and you’re setting it in forgotten in the let it roll and you’re earning nine or ten on average over the life of that, then it could make a ton of sense.

00:15:15:03 – 00:15:36:18
Kyle Pearce
So it’s all about strategy and what the intentionality is about it. And remember, there’s two sides here. We have the rational side where you go, Hey, on paper, this all makes sense, but then are you going to actually do it? Like are you actually going to do it? So I’m always a little hesitant for someone, especially if they haven’t quote unquote, started the journey or they’re very fresh in the journey.

00:15:36:20 – 00:15:54:11
Kyle Pearce
I’m hesitant on getting them to do that bucket unless they’re like, Hey, I’m all in on real estate, or I’m all in on alternative asset classes if I’m going to do those types of things totally for it. But again, I’m going to say that’s not the majority of people that we run into. Even those who are listening to the podcast.

00:15:54:11 – 00:16:16:16
Kyle Pearce
It’s not everyone that’s going to go and feel super confident about investing into some of these other asset classes. So great question. And again, it really is on a case by case basis, but I’d say for most people it’s like, Hey, get those things started and then start looking at these more elaborate strategies. Because here’s the other part I see that as being one of these.

00:16:16:17 – 00:16:32:02
Kyle Pearce
You’re like throwing a big tree down on the path and blocking you from starting on the path. Like, I want that path. I want you to get down the path. I want you to get moving on the path before you start adding things that you have to sort of hurdle over on the path. Like, I got to learn about this, I got to do it right.

00:16:32:02 – 00:16:54:13
Kyle Pearce
What if I mess up? Make sure you get started. And again, permanent insurance. Probably not a good move unless you’ve consistently been contributing to those tax free buckets, at least for a period of time. And you’re actually putting them into investments that are going to give you a fair return for that type of risk you’re taking on.

00:16:54:15 – 00:17:14:05
Jon Orr
All right, Perfect. Okay. So that gives me a little bit of a clear picture of who you should be. If you’re listening to this right now and you’re like, okay, I have thought about my life insurance and I’m thinking specifically it’s for covering my life and my beneficiaries can get paid out if I die. It’s like a it’s like a just in case type of thing.

00:17:14:05 – 00:17:43:13
Jon Orr
Then permanent insurance is not for you. Or if you’re just getting started on this journey and you haven’t started these fence post steps of RS is tax free savings account, then it’s probably also not a good move to do this other thing. Yeah, let’s get those things rolling first. All right. Now what about this is the thing that I always thought about that I wished I had done is that maybe if I was that person who was getting started, you know, like I got some discretionary income.

00:17:43:13 – 00:18:04:09
Jon Orr
One of the things that we we’ve advocated here on this podcast is we do want to have that emergency fund sticking around. We do want to have that money sitting over there. And we talked about using a policy as a replacement or a tool to help us fund an emergency fund. And that might be a good spot to go.

00:18:04:11 – 00:18:28:07
Jon Orr
If I have an emergency fund and I’m contributing to my emergency fund and I’m not going to use an emergency fund, then maybe a whole life policy isn’t for you. But if you are going to use a emergency fund and it’s going to sit there and do its thing, then maybe consider using the whole life policy or the permanent policy is a good tool to build that emergency fund up.

00:18:28:09 – 00:18:51:24
Kyle Pearce
100%. So on episode 54, we talked about supercharging your emergency fund. So this would be one of those scenarios where, hey, maybe you haven’t yet gotten on the road to filling up those investment buckets that we just discussed. Right? So this is like an Asterix. You go, Listen, if I was going to build this emergency fund anyway, the reality is most people can’t just go, boom, emergency fund created.

00:18:52:01 – 00:19:25:11
Kyle Pearce
You have this goal in mind, right? You’re going, Hey, if I follow the Dave Ramsey’s of the world or even remote said, and his approach, whatever approach you’re following for an emergency fund, definitely a good thing to have. And if you’re going to do that, you’re probably going have to budget that payment in so you can kind of hit two birds with one stone by starting that emergency fund, whatever that contribution was going to be into a permanent policy, you’re going to get all kinds of bonuses, not that you’re doing it for quote unquote, the death benefit now, but imagine this world where, hey, if it’s going to take you X number of years to

00:19:25:11 – 00:19:53:18
Kyle Pearce
get to that emergency fund to the size that you want it, you can continue to you got used to that budget, continue to fund, and then now start to look at a portion of the cash value in that emergency fund as a leverage able bucket for investments. So I love that idea. One other aspect that I want to share here is the idea of those who are, say, melting down RRSP fees, for example, or maybe receiving a pension.

00:19:53:20 – 00:20:17:08
Kyle Pearce
What you’ll find is that the RSP, first of all, if we look at it and we look at it early enough, some people are looking at it and saying, Whoa, my RRSP is a big good problem to have. If I don’t start a meltdown strategy, I might actually push this thing off too far into the distance where it becomes too large and then eventually I’m giving away more than half of it in taxes.

00:20:17:09 – 00:20:32:11
Kyle Pearce
Now we run that. You have to run the numbers and look at it, because if you’re already in too high of a tax bracket, then it’s damned if you do, damned if you don’t. But if you’re like most people, you’re trying to keep that tax bracket at least under control. You don’t want to be in that highest tax bracket, of course.

00:20:32:13 – 00:20:58:01
Kyle Pearce
So when you’re taking that money out or when it converts to a riff where you have to take money out each year, then you may have more money coming to you than you actually need. I want to fill up, of course, tax free savings. I want to look at other opportunities. But then if I’m looking around and I go, I don’t have any other tax free buckets to put it in, this is another great opportunity for people to do so.

00:20:58:01 – 00:21:13:17
Kyle Pearce
They might be looking around and saying, Shoot, I’ve got more money coming in. People receiving a pension. They don’t have a choice of how much money they’re going to take. Again, good problem to have, but if you have more money coming in and you don’t have room in the tax free savings or you don’t have room over there.

00:21:13:19 – 00:21:41:14
Kyle Pearce
And here’s the other part. For a lot of people, they’re getting to a point in their life at that place where they might want to de-risk anyway. So rather than, say, selling off growth assets inside the RSP or inside the tax free savings account, this money that’s forced out, you could be opening up this other tax free bucket, a permanent policy so that that can act as your risk off sort of growth asset and then you get all the other benefits.

00:21:41:16 – 00:21:58:23
Kyle Pearce
So if that’s not you if you’re looking at your RSP and you’re going, you know what I mean? It’s not even going to provide me enough to get by if that’s you. I don’t think it’s our listeners to this podcast. But if it is, then of course a permanent policy is not going to make sense for that individual, right?

00:21:58:23 – 00:22:09:03
Kyle Pearce
You’re going to take what you need for living and that’s it. And we’re going to try to have a strategy within those tax free buckets. You already have to continue living your lifestyle.

00:22:09:05 – 00:22:41:19
Jon Orr
All right. I’m going to move on to a different reason. You may not this might not be for you. And specifically, those are the people who are not looking to leverage or have a mindset issue about using other people’s money to make money. Right. So like thinking about if I go and get a whole life policy and I have my cash value and I am paying for these premiums are larger than term premiums, but that’s cash value is going to grow and I have an issue I have a fundamental belief about.

00:22:41:19 – 00:23:11:07
Jon Orr
I don’t want to have debt. I don’t want to borrow against the policy to utilize that and go and buy real estate or use it to do something with that can help build your wealth. Then this might not be the tool for you. If you’re just looking to grow, then let’s. That’s where it’s like then definitely be maxing tax free savings account, maybe just going in and doing an unregistered account in the index funds are your thing because you can actually leverage.

00:23:11:13 – 00:23:36:13
Jon Orr
Well, I’m not going to say you can’t, but I mean it’s harder or it’s not as optimal to leverage against or common to leverage against, say, those types of assets. And most people say don’t leverage there and that might be your area to kind of build your wealth because you have that. I don’t want any debt. And if you don’t want any debt, you don’t want to be able to say, borrow someone else’s dollar to go and make another dollar if you don’t have an issue around that.

00:23:36:13 – 00:24:09:06
Jon Orr
And if you’re talking to like real estate investors, they consistently borrowed other people’s money because you got a mortgage or you’ve your loan, private money, or you’ve got other sources where you’re buying properties and then re leveraging those. And that’s common for that type of person who’s using that tool in that way. But if you’ve got that issue, this tool because you have the cash value, because banks love that class, a asset that says, I would love to have that on my balance sheet to say to lend against, for you to go and use this to leverage against and go do something else with.

00:24:09:06 – 00:24:25:07
Jon Orr
I’d love to lend you that money if you don’t want to use it in that way. This policy’s not probably your ticket. Go find something else. You probably get better returns if you go find something else. But if you’re interested in going, I’m going to put two uses to the same dollar. This is the thing for you.

00:24:25:13 – 00:24:48:03
Kyle Pearce
Absolutely. And I also want to just kind of piggyback that idea around inflation. Right. And something that is easy to forget. So when I borrow we talked about this in early episodes, you know, when I borrow a dollar at whatever interest rate, the reality is interest rates tend to move with inflation rates. Like, did you notice that like when inflation went up, all of a sudden interest rates went up?

00:24:48:03 – 00:25:09:13
Kyle Pearce
So when you think about this and you go, if I’m borrowing money, it’s like I’m borrowing it at a higher interest rate. The reason the Fed does it, the reason Bank of Canada does it, is so that you stop borrowing. They don’t want you to stop spending money. But if you’re doing it for investment and there’s arbitrage there, as you mentioned, you’re arbitrage thing, you want to get a better return than what you’re borrowing.

00:25:09:15 – 00:25:32:00
Kyle Pearce
The other reality is, is the fact that the dollar you borrow today when you pay it back next year, ten years from now, however many years from now, that dollar is no longer that year’s dollar, it’s actually worth a lot less meaning it actually becomes easier to pay back. And this is what some of the most wealthy individuals in the world have recognized as they go.

00:25:32:00 – 00:26:00:10
Kyle Pearce
When I borrow $1,000,000 to make an investment and I only have to put 20, 30% down, whatever the number is, they know that there’s like a good chunk of money there, that they’re going to slowly pay back over time at an interest rate, but it’s going to cost them less and less over time. And the growth of the asset typically outpaces, if it’s a good asset and if it’s good investment, it’s going to outpace inflation, it’s going to outpace the amount you owe.

00:26:00:10 – 00:26:29:11
Kyle Pearce
So these are really important things. But if that’s not you, if you’re like, I am not going to go down that rabbit hole, then it’s like, Yeah, then do not do this particular strategy. Two more here, John. Two more before we wrap up. If you are not an incorporated business owner who’s earning active income or even passive income, if it’s active income, you’re going to get taxed very heavily on the retained earnings coming out to you personally, If I want to spend that dollar here in Canada, that is a big issue.

00:26:29:16 – 00:26:50:22
Kyle Pearce
If you’re not an incorporated business owner, then it might not be of urgency to you. But if you are and you have retained earnings, those active dollars are taxed at 12.2% here in Ontario on the first 500,000. As you accumulate those inside of that corporation, at some point you or another shareholder of that company is going to want to spend those dollars.

00:26:51:02 – 00:27:15:02
Kyle Pearce
You’re going to get big taxes on the personal side coming out permanent policies with leverage strategies allow us in compliant ways to utilize those dollars for those who are real estate investors. John, you and I experienced this in one of our corporations where you pay passive income taxes like 50% of the upside goes away through passive income taxes.

00:27:15:02 – 00:27:44:01
Kyle Pearce
Well, guess what? Through leverage strategies, we can knock down that passive income taxes and we can increase the amount of tax free money that comes out to shareholders with permanent insurance policies. So, again, if you’re not an incorporated business owner, it’s not going to be as attractive to you, of course. But if you are, holy smokes, I could buy the same policy as John personally buys with 60% dollars after tax or 50 cent dollars after tax.

00:27:44:01 – 00:28:12:01
Kyle Pearce
And I can do it with $88 and I can use leverage strategies to minimize taxation on a personal level. That’s phenomenal, right? So those people are perfect fits. And then the final one here, John, I want to talk about is if you do not care about legacy, all right? If you do not care about how much of your estate is going to be taxed once you move on to the next world, I always say when I’m 110, then permanent insurance isn’t for you.

00:28:12:03 – 00:28:47:21
Kyle Pearce
Term is fine. You’ll cancel the term before death and there will be no payout. It’ll be just an expense of life. But if that matters to you, then you’re going to want permanent insurance to be a part of your strategy in some way, shape or form. But here’s the challenge, John. As we get older, even though today in 41 year old Kyle may not really care about legacy a whole lot, it’s very a known fact that as we get older, we start to care more and more about leaving something behind here in this place we call our world our lives, and we want that legacy.

00:28:47:21 – 00:29:01:12
Kyle Pearce
So you don’t know who you’re going to be down the road, but if you think that might be on your radar, then it might be worth considering. But if not, then again, permanent insurance. Probably not a good fit for you.

00:29:01:14 – 00:29:20:08
Jon Orr
Love it. Love it. Thanks for getting to those last two reasons that may not permanent insurance may not be your thing, your tickets to build your wealth. If let’s say you listen to this episode and you’re like me, I might need to listen to this again because I’m trying to qualify. Is this the right tool for me or is this not the right tool for me?

00:29:20:10 – 00:29:36:17
Jon Orr
And if you listen to let’s say you listen to this twice, and at the end of that second time, you’re not sure still, is it the right tool for you? We’d love to help give you that qualification. We hop on a call with us. Go over to Canadian well, secret Skype slash discovery and we’ll hop on a 30 minute call.

00:29:36:17 – 00:29:52:21
Jon Orr
We’ll kind of hear your scenario. You hear what tools you have been using, where your goals are. We’ll kind of dig in. And at the end of that call, you’ll know with certainty whether this is the right tool for you or not. It will also help you with the other tools that you could be utilizing in that call.

00:29:52:23 – 00:30:00:20
Jon Orr
And we’d love to do that. We do that every day with the listeners here on the Keeping Secrets podcast, so head on over to continue a secret account for us. Discovery.

00:30:00:22 – 00:30:31:01
Kyle Pearce
All right, my friends. Hey, listen, if you enjoyed this episode, do us a huge solid, give us some feedback on Apple Podcasts. Ratings and reviews are super helpful. And of course, motivating to keep us helping more Canadian, more secrets along their journey. We’ll see you next time.

00:30:31:03 – 00:30:52:15
Jon Orr
Just a reminder, the content you heard here today is for informational purposes only, you should not construe any such information or other material as legal tax, investment, financial or other advice. John. Or is a mortgage agent with Brick’s mortgage license number m23006803. Kyle Pierce is a licensed life and accident and sickness insurance agent and VP of Corporate Wealth Management with the core team, which includes corporate advisors and 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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