SPEAKER_01 0:00

The consumer has been tricked into buying a product that shouldn't even be called insurance because of the fundamental flaw by design, especially on the risk side that you uh touched upon. Imagine paying into a policy for 20, 30, even 40 years, thinking that you have secured your financial future. Then you hit age 75, you retire and on a fixed income, and you receive a letter from the insurance company. That letter says that your monthly premium is doubling or maybe even tripling depending on your age. You fail to pay, and your lifelong coverage, the one thing that you bought the security for, will vanish. That is not a hypothetical nightmare. It is a financial reality faced by thousands of elderly Canadians. Universal Life is sold as the ultimate flexible insurance, permanent coverage with a cash value component that grows tax deferred. But today we're going to expose you the hidden mechanics, the rising cost, the misleading projections, and the complex fees that turn all this flexibility into a potential financial trap. By the end of the episode, you're going to understand why UL often fails and what you need to do if you own one. George, I was doing some research on the things that we're going to be discussing about, and I came across a very interesting article from the New York Times. This article is from 2016, but I think it's worth sharing with the audience, right? Because it explains what the owners of these policies potentially have to face in the later years. So this is what I found. This is the article. That is, until a letter arrived last year telling the elderly Georgia couple that's in the US, the premiums on the policy they've had for 25 years were rising sharply. They held a universal life policy, a popular type that includes an investment account that accumulates cash when interest rates are high, but with rates at historic lows, it was being drained and quickly. When the cook's daughter, Joanne Sparks, asked an expert to explain the options, she recalls, he said to me, please don't take this wrong. Not to be morbid, but your mother needs to die. And that is not the first time I hear a disgrace like that. I have another case I heard about here in Canada. I came to know about it from a client, so it wasn't anything public, but this couple were in the same situation where they were already in the 70s, they had this type of policy, and it was the same question: what is going to happen if we live longer? So just imagine having paid 20, 30 years worth of premiums for your insurance policy, and then when you need it the most, you are potentially faced with the reality that you might have to forfeit that policy or greatly reduce its coverage. Which so I know, George, I know that you understand this product very well. I know that you have seen cases around this, and you even have some personal experience, not related to the infinite banking concept, but in a not in a past life dealing with this product as an advisor. So just fill us with your wisdom, George. Let us know what you have there. Okay.

SPEAKER_00 4:02

There's a lot of things wrong with this product. So what we teach people is to implement a strategy. So our strategy is the infinite banking concept, is a strategy, and the tool that we want to use is participating whole life insurance. Now, when people research this concept and this strategy, they will often see advisors in the US and Canada promoting the use of universal life instead of whole life. So we really want to talk about why Nelson told us whole life only. This is what he taught us, and he had a great deal of experience as a sales insurance agent. And of course, he's a pioneer of the info banking concept. He said whole life only. Now, why are people promoting something that is not going to be good for their clients? So this is a problem. So, first of all, universal life is fundamentally flawed by design. Now, though those are strong words. Oh, George, there's thousands of advisors selling those right now. I know. So again, if it's not done in the best interests of the client, it can be very detrimental. So why do I say it's fundamentally flawed? The problem is if you are sold what's called yearly renewable term, YRT, it's universal life insurance, but essentially what you're purchasing is a term policy that renews each year. As you get older, what do you think is going to happen to the cost of that insurance? Of course, the cost goes up annually. Now, when you're young, not a big deal. The cost is low, the cost increases are low. And this is how it's sold. You're not told about what's going to happen in the long term. So you're ultimately going to end up having to make a choice. Your choices are you can get rid of the policy altogether and lose everything. You can pay the extra premium and keep it in force and maintain your coverage and your protection, or you can reduce the amount of your protection and therefore reduce the cost and the cost increases, and then you can at least maintain something. So this is a fundamental flaw. This is how it's designed. It's designed to work this way. The cost will go up as you age, and the older you get, and when you reach the time when you're going to need it, it's going to be too expensive.

SPEAKER_01 6:34

So when does that start usually, George? When does people start seeing the storm brewing in the horizon? Because I guess for a lot of years, everything is fun and games until the reality kicks in. And a lot of times when that reality kicks in, it's already too late to do something about it.

SPEAKER_00 6:57

Yeah. As with any life insurance, so regardless of the type of life insurance, the older you are, the more expensive it's going to be. There's no that's just the way it is. Because you're closer to that time where they're going to have to pay it out. So generally speaking, it's on the exponential curve. So that's where the increases are gradual, and then it's going to get more and more steep, and then it's going to go almost straight up. So that curve where it's starting to increase quite significantly will be in your 50s. And then as you get into your 60s and your 70s, it's going to almost be going straight up. Because you're now getting closer and closer to mortality. And life insurance is all about mortality and trying to predict that mortality. That's what it's all about. The other fundamental problem with universal life is that the risk is put onto you, the consumer, the owner. You take the risk. Whereas with whole life insurance, the insurance company takes all the risk because they provide you guarantees. So because they're guaranteeing that your coverage will not go down, they're guaranteeing that the cost will not go up, and they're guaranteeing that your cash associated with that is going to go up, they are on the hook to live up to those guarantees. They have no choice. So the risk is on them. Whereas with Universal Life, you're taking the risk because any amount of money that you put into the policy that does not go towards the cost of insurance goes into what they call an investment fund. And now your money is put into an investment. The investment we all know how investments work. They can go up, they can go down. So the way these things are sold, and this is the biggest problem with them, like any product can be good or bad if it's done the right or wrong way, right? So we're not here to bash universal life. A lot of people use it very well. But often it's sold incorrectly, low cost in the beginning, and they project these great cash values using numbers that don't follow reality. They're not in the realm of reality, they're completely made up.

SPEAKER_01 9:09

I have seen some of those numbers like 8% every year.

SPEAKER_00 9:15

Yeah. So you can illustrate a universal life policy to look great. Absolutely. But it's not worth the paper it's written on because nothing ever goes up the same every single year.

SPEAKER_01 9:27

And just and how you build that illustration speaks about the advisor. Quickest way to figure out who you're dealing with, because he only has to change a number and poof, very different illustration. And that's how you know you get hooked into that one. So beware of that.

SPEAKER_00 9:49

And so where people get into trouble, where the policy owners get into trouble as in their older ages is so you've put the money in, you've invested it, the cash has grown. And the whole idea is that cash can be used to pay those increasing premiums. So hopefully, you're not going to have to add premiums because your cash, the side fund that you've accumulated through investments, is going to be able to pay for those increases, right? That's the theory. When that doesn't happen, when that runs out and the cost keeps going up, you reach that crossover point where you have to make a choice. Do I keep it? If I keep it, I have to pay more or I have to get less.

SPEAKER_01 10:35

Which option do you want? You mentioned a keyword here. You said hopefully. Yes. I don't think anyone wants to build an insurance policy built on hope.

SPEAKER_00 10:51

No.

SPEAKER_01 10:52

It's not insurance. Like insurance, by definition, is a product, a system where you are shifting, you are basically selling risk to the insurance company. And they buy that risk, and that's their business. You pay them money to take that risk away from you. But now with this product, the consumer has been tricked into buying a product that shouldn't even be called insurance because of the fundamental flaw by design, especially on the risk side that you uh touched upon.

SPEAKER_00 11:35

Yeah. And when we talk about risk, we're not just talking about market risks. So you're any amount of overfunding that you put into the policy goes into an investment account, and then you know you're expecting that investment to grow over time, right? That's the expectation, that's the plan, that's the strategy. But the real risk is this policy going to be in force when I need it. That's the risk. There's cases everywhere. There are lawsuits in the US, there's lawsuits in Canada. These things eventually implode upon themselves because the fundamentals don't work. And it happens all the time. Yeah. All the time. Exactly. So ultimately, we want people to be aware, ask the right questions. And if you have something like this, get an expert to look at it and help you to figure out what your best options are. There may not be a good option, but there will be some options available.

SPEAKER_01 12:33

George, I want to double-click on the yearly renewable term. And I want to dissect that term to the people listening right now. People that have a term policy, if you are listening and have a term policy, those are usually sold 10 years. You pay the same premium for 10 years or 20 years. That's usually what we see here in Canada. There are all other ways of doing term, but that's usually how people do it for the most part. That is now if you do really yearly renewable term, that means that every year you are going to pay a bit more, not a bit less, a bit more. And that's guaranteed for as long as you're alive to increase because of that mortality rate. Yes. So that's key to understand. It's even worse than term in that sense. And I say worse, there's a place for everything. And there's a place for term. For example, if you don't have the means to purchase a permanent policy for in the meantime, but you need to have additional coverage for sure. You need some term. And we do that. I have term myself, which I still need because I have a young family. I'm building my permanent policies. Absolutely, right? But I don't have a yearly renewable term. That's a different story. Like I I love a 20-year term where I know exactly what I'm going to pay for those 20 years, and I know exactly what I will have to pay if I were to renew that 20 years from now. But this is a different story here. And on top of that, that's not even enough. We also have the exposure to market risk. And it's not okay if the market doesn't grow, the policy, the worst that can happen is that the policy stagnates for a year, it doesn't grow. It's not even that. Like it can you can actually lose money with this. Can you expand a bit on that? On how that works with the fund, the market fund, George.

SPEAKER_00 14:28

Yeah. So you're investing in an investment, right? The investment can go up, it can go down. So you are at the mercy of the markets. There's no doubt about it. There's a risk, right? But that cost is going to keep going up. So how are you going to cover that extra cost? And if your investments don't perform the way you were shown that they should, based on a number that someone chooses, right? They're saying your money is going to grow at 6% a year every single year for the rest of your life. That's just not reality. It is not going to happen. So your investments can go up, they can go down. If they don't keep pace with that increasing cost, then now you're in trouble. Now, there are options with universal life, such as level cost of insurance. And with that option, you have the option to choose a level death benefit or an increasing death benefit. But again, you're at the mercy of the markets. So any increase is based on what that market is going to do for you, what your investment is going to do. And the level cost of insurance is going to be, of course, higher in the beginning because it has to be, because it's not going to be able to go up over time like the YRT is. So a lot of people don't choose that option because it's considered too expensive in the beginning. And the cash values are going to be a lot less in the beginning. So it's not necessarily a popular option. So that's why YRT is so popular, because it's so inexpensive in the beginning. Your cash values are projected to grow significantly, and then all is well. But if those things don't happen the way you're shown, which you can get into a lot of trouble for sure. And it's happening all the time.

SPEAKER_01 16:16

And for the advisor, hopefully when that thing explodes, they're not around anymore. But that's not going to be good news for the policy owner.

SPEAKER_00 16:23

No doubt.

SPEAKER_01 16:24

Okay. I know there's also charges and fees attached to this. So it's not only a risk, there's also charges and fees.

SPEAKER_00 16:32

Yes. All policies have a policy fee. There are other fees associated with universal life that other types do not have. One of the bigger ones is a surrender charge. So what that means is usually for the first 10 years, if you choose to surrender that policy, there's going to be a charge. So it starts high in the beginning, gradually decreases over time, and then after year 10, it'll be zero. Normally that's how it works, but you want to make sure you understand your policy. So if you want to use the cash value that you are accumulating, what we teach people to do is leverage their capital. So if you wanted to use a universal life policy and leverage the capital, well, you now have less available to you because of the surrender charge in the first 10-year period. So that's a cost. So not only does your investment have to grow, but it has to overcome the charge that you're going to have against it.

SPEAKER_01 17:31

In 10 years, George, that's a lot of time. How do you put value on 10 years of time? Like no, thank you.

SPEAKER_00 17:38

Yeah, for sure. And the other thing is so if you want to leverage this policy, you have to take the money from the investment and put it into a guaranteed account. Because insurance company is not going to collateralize an investment that has risk.

SPEAKER_01 17:56

They know exactly like they know how you can tick.

SPEAKER_00 17:58

Now you have to take it out of the risky investment, put it into a guaranteed account, and then you can leverage it. Well, and then it has to stay there. Whatever's left has to stay there because now that has become collateral against your policy loan. These are some of the fundamental flaws associated.

SPEAKER_01 18:18

That's one of the biggest telling signs to me that this is to back up what you're saying, fundamentally flawed by design. And the insurance company understands that when they tell you that you need to shift that money to a guarantee fund if you are to leverage that. And to close down on this specific point on the risk and the market risk and all that, I want to say something. Participate in dividend paying whole life insurance policies come with guarantees, which Universal Life Policies don't have. So there's two things there on the non-guaranteed. It depends on how much money the policyholder is putting in addition of the required premium. That's number one. And number two, the dividends that this company might generate when things are going well, when the insurance company is doing profits, when it's a participating type of policy, they share those dividends back to the policy holders, which is something that you don't get with universal life. George, can we say that with something like whole life, in this case, the whole life that we do, dividend pay, participating whole life, you are guaranteed to grow all the time. And on top of that, if things go really well, it's gonna go even higher.

SPEAKER_00 20:24

So with whole life comes ownership. So this is another key factor. So only the participating whole life policy owners are the owners. Only we have ownership. UL does not have ownership. UL, you consider it an investment. You're putting your policy at risk, and you are taking the risk, not the insurance company, right? That is a huge difference. The other thing is, and this is the fundamental problem, especially with people that sell these policies. So a lot of the very well-known multi-level marketing insurance companies here in Canada focus on universal life.

SPEAKER_01 21:03

Why would that be, George? Why not term? Why not something else?

SPEAKER_00 21:07

Why because they sell it as a low-cost investment with tax deferral. That's how it's sold. Great commissions. And great commissions, and you're gonna have a cash value. And it's sold as permanents, it's sold as a permanent policy. It's not necessarily permanent, right? It may not be permanent, even though you think it is and you're told it is, it may not be. Whole life is absolutely 100% guaranteed to be permanent for your entire life, regardless of how old you turn.

SPEAKER_01 21:41

Regardless of market conditions, regardless of the interest rates going on, you don't care about that. Regardless of anything, you don't care about that. It's all the risk is on the insurance company. Your job is to pay the premiums. And the more premiums you pay, the better it gets for you. It's as simple as that. Best place where you're going to park your money, create that capital, and leverage from it. It's simple.

SPEAKER_00 22:06

And whole life also has the deferral of taxes, right? So the growth is tax-free. That when you use it, it can be tax-free, but it's certainly tax efficient. The death benefit is tax-free, as it is with all insurance. Everything has its place. We talked about term. At least with term, you know that there's a term. You know what you're getting. And because it has a term, it's a lot less expensive, right? Whereas Universal Life, it's sold as less expensive and it's permanent. But is it really permanent? This is the key. So because it's fundamentally flawed by design, you need to know all the facts. You need to fully understand what you're doing and why you're doing it. And your advisor, whoever's trying to sell this to you, needs to fully understand what they're doing and what they're selling. And you need to know all the pros and all the cons. And then you can make an informed decision.

SPEAKER_01 23:04

This is something, and I will share this with the audience. This is something I tell just recently, I got a prospective client who asked me to take a look at his universal life policy. And he is just 39, if I'm not mistaken. He's five years into the policy. He was already asked to increase the payments just a tiny bit, just five years into the policy, and he's not even 40. He out of pocket was $13,000 total out of pocket. How much he had on his fund after five years. And let me just a parenthesis here. We started talking about the policies, and he thought he had whole life. And he said, Oh, I think I have whole life. And I said, Great, you can access the cash value through loans. Really? Yes, you can do that and leverage that. It's amazing. Oh, yeah, nice. Let me see how much I have. And he thought he had whole life, but he has universal life. So five years into that policy, $13,000 total outlay. He only has $900 in that fund. $900. $900. Wow. That's not control. I don't even know how you can describe that.

SPEAKER_00 24:23

And what's the surrender charge? So he may not have much of anything, really. Right. In the end. I also have a client. I did not sell the universal policy to them, but they had one and when they became my client. And they every single year get a notice that the cost is now higher, and you need to pay this amount to keep it, and then you're going to pay this amount per month, which is higher than what you were paying. If and you keep the same amount of insurance. So this happens, this is real. People have to be aware. Because there's so many people out there selling these products, and they're selling them not giving all the information. And they're promoting things that aren't actually accurate and true. Some of these are being sold as insured retirement plans, which is not what they are. You're putting your retirement at risk if you're using this product. They're being sold as an investment and a way to grow your money in a tax-efficient way. Maybe it works, maybe it doesn't work. Do you want to take that risk?

SPEAKER_01 25:37

Why do you want to take that risk? There's plenty of options to choose from. But why would you risk your insurance policy? A permanent insurance policy? Why do you want to risk that? I will love that to be stable, to be there for me to pick me up when I mess it up with investments. If I'm a gambler, if I love the thrill of investing, I would have that insurance policy there to pick me up or to even help me buy the fire sale or double down on the stuff that I really believe in when there's the microcorrection. Because if you honestly believe in your investments, then you're going to be there to buy in the microcorrection, right? Instead of buying high and selling low, like the majority of the people.

SPEAKER_00 26:22

Let's go back to your story of your client there. Five years in, so these last five years, the markets have been very positive. That's a good point. Five years, there's not been a lot of market corrections. There's been some, but generally speaking, the markets have been very bullish. To have that amount of cash after five years in a bull market, that speaks volumes in itself.

SPEAKER_01 26:48

I don't have the full details. That that's the only number I saw was that. So there might be more to uncover there. I'll share that with you if I hear back from him. But he was interested in, he was asking me, what do I do? And I'm like, I'm I think I know, but yeah, you know what? I told him, I'm here to present you the facts. You you need to take a decision, but these are the facts. You could forfeit the policy or you be ready to pay more in the future. But you need to make it, you need to know what's and people need to be informed.

SPEAKER_00 27:20

They need to know.

SPEAKER_01 27:21

If you want to buy the UL, make sure you're informed. Because correct me if I'm wrong here, George, but there's actually some legitimate use cases for UL, like especially around estate planning, I've seen, right?

SPEAKER_00 27:36

But certainly, certainly there are. Yes.

SPEAKER_01 27:38

Right?

SPEAKER_00 27:39

And absolutely term has its place. The other thing with term can be converted into permanent, right? So you have lots of options with term. You can cancel at the end of your term, you can renew it, um, you can convert it. So there's options, and it's less expensive. There's not many options once it's in place, right? You can put more money in or you can give up. So that's really your only option. So that's important as well.

SPEAKER_01 28:08

Exactly. Yeah, I know I I know for sure, for example, in estate planning, the UL works great, but we're talking different types of policy here. Like, we're not talking about that here. I started with a family, an elderly family in the US who are struggling to pay $400 per month. Like people are smart, yeah. They know what I'm talking about here.

SPEAKER_00 28:29

Yeah. The other thing, too, is if people are doing research, right? We recommend you do your own research. If you're researching infinite banking, you're researching whole life, you're researching universal life. A lot of the content out there is American, a lot of US information. So it's important for Canadians to understand that in Canada, we do not have indexed universal life. We do not have variable universal life.

SPEAKER_01 28:54

It's IUL, it's UL for those listening.

SPEAKER_00 28:57

We have standard universal life. There are some options that we talked about within the UL that we have here in Canada, but it's important to know that there are differences between Canada and US. There's no floor. You can't have a negative return. Well, that's not the case here. We don't have those kinds of policies here.

SPEAKER_01 29:17

That's good to understand.

SPEAKER_00 29:19

Anything else you wanted to add, George, before we close this episode? Just to summarize, we are here to educate. So we want to educate as many people as possible on the strategy of infinite banking and the product of participating whole life insurance. And it's important to get the facts. So always you want to be well informed. So the purpose of this episode was to let people know that there are problems, there are fundamental flaws and problems with universal life, particularly if you want to be using it for the infinite banking concept. Big issue. Whole life only for infinite banking. We can't stress it enough. Nelson talked about it all the time. He wrote about it. He is the pioneer.

SPEAKER_01 30:09

That's where Nelson's thoughts are captured there about the feasibility of using UL for infinite banking. And the core takeaway here is that it just introduces an awful amount of risk that is not sustainable and that is not compatible with taking back control of the banking function. A bank, by definition, needs to be solid, needs to be dependable, needs to be predictable. Those three characteristics are not part of universal life. If you are listening and you have a universal life policy here in Canada, I would love for you to call your insurance company and ask two questions. The first question is: what is going to be my yearly renewable term or my cost of insurance when I hit 70 or 75? And the second question is, what is the projection of how much additional premium would I have to put in by that date? Those are two things I need to understand to see you go through a case like the ones that we have just discussed here. Like it's really close and dear to my heart because I can think about a friend that he's now in his 60s holding a UL, and I haven't been able to convince him of the urgency of making those questions and asking those questions by request.

SPEAKER_00 31:47

I absolutely agree with you. And I would even take a step back further than that, going back to your example. Find out first what you actually have. Because if you think you have one thing and you have another, that's an even bigger problem. So make sure you know what you have and then ask the questions and figure out what it's going to look like.

SPEAKER_01 32:09

Absolutely. And as always, we're here to help. If you have any questions regarding this, feel free to reach out. If we can't answer the question, we have access to teams of experts that will be able to answer basically anything. So don't hesitate to reach out. It's better to ask the questions now before you're in the problem itself. This episode of the Sovereign Capitalist Podcast was provided with the understanding that the staff and contributors of Asteris Capital Advisors are not herein engaged in rendering tax, legal, or financial advice. For such matters, please consult your own tax legal or financial advisor.