LLQP Review - Life Insurance

0:01 there you go so in the Life Insurance uh module there's a few things um in chapter one of the textbook it talks about um you know what is a mortality rate you guys will see something called a mortality rate what a mortality rate basically is uh the mortality rate is just remember insurance companies are basically insurance companies are basically making a bet and a insurance is just basically a guessing game right insurance companies are guessing how many people are pass away um what's the risk of death based on uh many things history Health family history of Health smoking status job income age gender all of these different things right so what the insurance companies do they look at the risk of a certain person and look at

0:49 what what their probability of death is look at their life expectancy and then will charge you uh based on a formula and that charge we call that a premium so the price that you pay for insurance is called a premium um you know it's all the same for all insurance doesn't matter if it's home insurance car insurance life insurance premium is basically what you pay the word for premium is what the insurance company charges you on a monthly basis yearly basis don't matter uh that's what the amount that you pay to the insurance company now why do people get life insurance specifically uh because there's a few things that happen upon somebody's death when God forbid if someone passes away there's a very very severe Financial problems that a family has to deal with number one the biggest one is a loss of income right as you

1:36 guys know people you know let's say let's take an example of a family husband and a wife you know they bring in money every single month so not only you know is someone a mother a wife they're also a money-making machine because you know husband and wife let's just say the husband brings in 5,000 a month the wife brings in 5,000 a month this family can survive on 10,000 a month of income now if for whatever reason God forbid something happens to the husband well how does the family live on half of the income that they're used to very very problematic right this is where it's a big financial problem life insurance would be used to replace income in that event okay another problem that people don't even think about is losses loss of a caregiver now we have some people that

2:23 say oh I'm a stay atome Mom I don't really work so I don't have an income problem uh but they forget that they're a stay-at home mom taking care of young children that is a full-time job guys taking care of a child is the most difficult thing the most important thing to do in the world but also if that mother for example if that wife were were no longer around somebody's going to have to pay for child care daycare all of these different things right so that's the second reason why you know a second risk a financial impact the other one is debt when someone passes away if they leave behind debt the family might be burden to uh to pay it off for example mortgage car loans credit card all these different things um if someone passes away and there's a mortgage balance left

3:09 on a home how is the family going to be able to afford the mortgage payments and the mortgage if the income is cut off right and the last one is taxes taxes becomes a problem because in Canada as you guys know he's talking about last time when somebody passes away the government puts everything all of your assets into what we call an estate and then from there you got to pay taxes and income taxes and capital gains taxes and all these different things life insurance would cover and protect all of these areas okay and there's a few different strategies that insurance uh there's a few different risk management strategy see insurance is basically risk management so you're just protecting your risk the risk of what someone passing away so let's let's

3:55 for example let's pretend that we're driving from here from Calgary to Toronto it's in the middle of winter what are some risk management strategies that we have well the first risk avoidance right what risk avoidance is we just avoid uh driving that far why not just fly a PL go on a plane or do something else maybe don't drive in the in the winter maybe do that road trip in the summer that's you avoiding the risk altogether because it's very dangerous going in there in the winter it's a lot of driving the roads are not the best very very dangerous if you've ever driven there I dri I drove in the winter from Toronto to Calgary last year in the middle of November it was not a fun experience okay another one is a risk reduction so maybe we're still going to drive from Toronto to Calgary but what

4:41 we're going to do is we're going to drive slower we're going to um you know make sure we have winter tires on make sure our our vehicle is mechanically sound we can now reduce our risk right that's another risk management strategy another risk management strategy is just retaining the risk you say you know what it is what it is we're just going to go who cares let's do it and we're just going to go pray fingers crossed pray that nothing happens right the last strategy is having what we call a risk transfer risk transfer means you know what you're going to pay an ins uh somebody else they're going to take care of your risk and if something ever happens to your car they will fix it and they'll pay for it that's what we call

5:26 insurance so insurance is actually a risk uh transfer strategy right CU what do you do with insurance with car insurance well you pay the insurance company 200 a month uh you know this is what we call a what a premium right and if something ever happens to your car let's just say there's a hail damage flooding car accident someone rear ends you in a light right if somebody rear ends your car at the light guess what's going to happen you go to the insurance company and say Hey you know you've already transferred your risk so the risk is you transferred over to who the insurance company so the insurance company you've transferred all your risk to them they're the ones that will be responsible for this risk so you pay the

6:13 200 a month you have a $50,000 car your car is a write off guess what the insurance company is now responsible to give you a $50,000 check or whatever the cost of the repairs are okay those are the different risk management strategies that's just the fundamental concepts of all Insurance not just life insurance insurance but all Insurance in Canada in in the world okay now that we know that if there's no questions um like I said if there's a question just unmute guys right in the chat box I have I'm monitoring it the other thing that we want to learn about going into specifically life insurance is what we call term insurance okay so this is very very important that you guys understand term insurance is when you buy insurance for a specific term a specific

6:58 time now maybe this is 10 years 15 years 20 years 25 years 30 years 35 years right but your insurance your your life is insured within that term okay um and so it's a very very this is what we call Pure Insurance it's the easiest form of insurance to understand because just like car insurance you keep paying your car insurance if you're ever in an accident they'll fix your car if you don't have the car insurance and you get into an accident well there is no car car insurance right there's no car policy there's no coverage so uh most term policies have an age limit that means they're not going to give you new policies usually around age 75ish 70 to 75 I know primar at age 70

7:44 uh if you don't already have insurance you cannot get a brand new policy after 870 um because the risk is just way too much the policy holder is just whoever owns the contract okay whoever purchases and their responsible for the uh for the choosing the beneficiary the coverage cancelling activating all of these things that's we call a policy holder okay life insured is whoever the life insurance policy is based on so this means whose life are we protecting think about this in a car insurance in a car insurance you say which car are we protecting are you are we going to protect like if there's two people in a house if two cars in a household are we protecting the Honda Civic right or are

8:32 we protecting the Toyota RF 4 Life insured is exactly that so who specifically are we covering are we covering the wife Mary or we covering the husband Bob that's what we call a life insured and remember they can be different people because the husband can own the policy and the wife can be the insured or vice versa or sometimes the policy holder and and the life insured are the exact same people so this person who's control of the policy is also the life insured okay hopefully that makes sense death benefit is a fancy word for insurance coverage fancy word for insurance coverage sometimes they try trick you on

9:18 the exam and they call it a face amount okay on the exam you're going to get tricked they're not going to say you know coverage sometimes they just call it face amount okay face amount is a fancy word for how much is your insurance going to pay in the event God forbid of a death okay beneficiary as you guys already know who receives the who is entitled to the death benefit okay then on term policies you can also buy joint policies okay joint policies remember is One Insurance on two people one Insurance on two people so there's only one contract so there's only one policy contract but there's two people that are covered okay I'm just going to write covered two people that are

10:04 covered now on a joint first we have a joint first and a joint last to die on a joint first to die when the first person dies the insurance will stop because the death benefit will be paid when the first person dies death benefit is paid insurance is cancelled done okay a joint first of ey policy would be recommended as for the textbook for people two or more people that share the same debt together what's an example of let's say a husband and a wife okay just a typical husband and a wife what is an example of a debt that a husband and wife would share together what do you guys think what would be an example of a debt obligation that you share together

10:51 morget Bingo mortgage the most common one is a Mortgage Debt right so a joint first to die policy would be great to cover a mortgage balance why because let's just say husband and wife they both owe 400,000 to RBC Bank God forbid one of them more to pass away this the surviving spouse gets to 400,000 pays off the RBC and they're mortgage free right or what or whatever they want to do but that's usually in that situation a joint last to die is when the first person dies there's still no payout okay imagine if there husband and wife husband passes away the wife doesn't receive anything when the wife passes away when both after two of them have

11:38 passed away then the insurance is going to pay so the way that you remember this is when the last of the two people passes away then it pays on a joint first to that when the first of the two people pass away they pay on a joint last it's when the last person dies now why is this good for this is usually good for tax liability or tax planning why because when someone passes away especially husband and wife the tax burden would be rolled over to the spouse right and so for example if you own a home uh and the husband passes away there's really no tax issues on that okay because the wife just takes care of everything but when the spouse when this when the wife now when both of the husband and wife passed away the

12:23 children will now be responsible for any tax liability there is okay because if you have assets like multiple rental properties right then you got to worry about paying capital gains taxes right in Canada I don't know if you guys knew this but your primary home is always going to be tax-free I don't know if you guys knew that even if you buy a home for $100,000 and when you passed away the the house was wor was worth $2 million because you lived in the house for 30 years you're uh nobody pays tax on that but if it's a secondary property rental property investment property whatever the case may be when you pass away if you if there's a gain the family will

13:10 have to pay you know a capital gains tax okay which we've talked about capital gains tax multiple times now again 50% of the profit will be calculated against your marginal tax rate right so those are two different types of joint policies we have then we have um in terms of the level in terms of the coverage we have level decreasing or increasing very very straightforward level decrease increase level means the coverage will be the same forever so it looks something like this if you're to draw a graph if this is a 30-year term and I have a $400,000 policy and I pay $60 a month my coverage will be level so that means for the next 30 Years it will be the same so if some if the client passes away on year 1 year 10 year 29 year 25

13:59 still give me the same 400,000 a decreasing term would look like this a 30-year decreasing term it actually work like this so what's happening if the person pass if it's a $400,000 policy and they're paying $60 a month if something happens on year 15 will they get 400,000 well based on this graph the answer is no because maybe 20 years later there's only $180,000 left on this uh coverage so the family will only get be paid whatever it is at that time because it's decreasing each year okay a common example of a decreasing term insurance and the real world is what who can give me an example of a a real world decreasing term type of

14:45 insurance and you my gu might run into these types of policies when you're licensed we can take a guess K said mortgage there you go King is got it King is's right on the ball mortgage life insurance guys is a decreasing term cuz how does a mortgage life insurance work well when you originally buy your home you're worth you you owe 400,000 to the to the bank you pay 60 a month and they ensure your loan okay they ensure your mortgage loan if this client passes away on the 20th year their loan is not going to be 400,000 20 years later it's going to be

15:31 less right because we're always going to pay off the mortgage every month that's what we call a mortgage life but here's the big catch the big catch with this um the big catch with this is the premium stays the same but the coverage is going down so on a mortgage life insurance policy on a mortgage life insurance policy the premium stays the same however what's happening to the coverage the coverage is a decreasing term uh Miss said you don't have to take mortgag to the bank uh correct I I think that says you don't if if that's if you said you don't that you're yeah so the banks will always offer you mortgage life insurance the banks will always

16:18 offer you mortgage life insurance but it's no good um here's here's another reason why it's no good let me ask you guys another question since you guys are very very um great at the this and you guys are learning so quickly you guys are digesting a lot INF I'm so proud of you guys who is the beneficiary of the mortgage life insurance Bingo the lender the bank so that's why mortgage life insurance is crap like it's no good because why would you want to why would you want to pay 60 a month to protect the lender What can you instead of a mortgage life insurance well you can just buy a

17:03 level term insurance an individual level term this is the key that is not tied to a bank or a mortgage it's just based on your life and you know you pay the same money but here's the important thing if anything were to happen on your 20 the family still receives the 400k okay now the key again here is who is the beneficiary well the beneficiary is whoever you choose it's your family so your family receives the money and not the bank directly which is way better than the bank directly getting the money right so that's an example of a decreasing term insurance that we see in the real real world when it comes to term insurance okay very very good um now again how do insurance companies

17:50 term insurance companies um yeah and M is right you actually pay less with individual absolutely individual life insurance insurance is actually cheaper and better than mortgage life insurance so a lot of the banks the mortgage brokers and the mortgage agents are trained to sell those mortgage life insurance policies because they get a commission on them right but it's not really good for the client great for the bank not really great for the client because they can be getting more insurance for the same or Less Price Right absolutely right um okay so how are premiums set like how does the insurance company determine how much you should pay well very very simple the insurance company is a business and all businesses have expenses that they got to take care of

18:36 right so they got to figure out okay how much do they have to pay for uh cost of selling the policy how much is underwriting how much is paying the death benefit how much is admin how much is all of these different things so they do their calculations say you know what this policy is going to cost me this much and that's how they can tell you how much the premium will be this is a for you don't have to know that how they calculate but just know how what the process looks like right uh actuaries we call them actuaries there's actually a degree you can study four years in University to figure out how do insurance companies Set uh premiums it's very very mathematical very very complex um but that that that thank goodness we don't have to worry about that right so then the the other thing is what we call a proof of insurability this is what

19:22 this is the important things you need to know proof of insurability is a fancy word for medicals okay whenever you see the word proof of insurability don't get too scared all that means is they got to do a medical test because remember an insurance company needs to find out how risky you are based on your medical so they're going to ask you to do a medical test right they send you a medical nurse they take blood work urine sample height and weight whatever the case may be they send it to a lab and they're looking for major medical um you know issues um and and if there is no major medical issue or whatever the case is then they'll know how much risk they're dealing with right um so that's what we call Medicals proof of insurability is a technical

20:08 term Medicals is all you got to know medical test okay some insurance companies come directly to you they pay they pay a company to come to you some smaller insurance companies actually get you to go to your family doctor and then do medical test right but most companies now in Canada are very competitive they actually will send their nurse over to your home beautiful now the other thing that you guys need to understand is term insurance comes into two different types so we have two different types of term insurance renewable term non-renewable term just like the word renew it's inside of the word renewal there's the the the the word Renew at the end of the term you can renew for another Term

20:54 Policy so you can exchange almost you take your old one get a new one right but here's the big catch without what evidence a proof of insurability which is what without Medicals now this is very very important right because imagine if you buy a non-renewable term what does that mean your 20 years expires and you have to do a brand new medical in 20 years now that's not going to be really good because we know for sure in 20 years your health will not be the same as it is today because human beings generally speaking the older that we get the more medical problems we're going to incur just naturally speaking right so a renewable term is really desired a

21:41 non-renewable term is really in the real world not that useful right because imagine you're basically restarting Fresh So in a non-renewable term when your term ends you have to restart the entire process all over again brand new medical brand new contract brand new policies as if it's your first time ever getting insurance now there's one problem with non-renewable term like why why is that a problem because what if I was 50 years old when I got this and I had a 30-year term okay and now I am age 80 and I have a non-renewable term what is the big risk that I have at age 80 when I'm when I have a non-renewable term who can who can who can explain

22:28 like logically what what would be the big risk aside from the medical like we know obviously when I'm 80 years old um you know health is not good but aside from the medical what else there you go Misty has got it King has got it nobody will give you another new insurance policy so you get trapped into never being able to get insurance again that's the biggest problem with nonrenewable term now the policies that we sell at Primerica we do term insurance our term insurance is 100% renewable we don't even offer a non-renewable term so we don't even have this right so all of our policies are renewable till age 100 so do means even if your term ends at age

23:14 80 you're all good to go even if your term ends at age 90 you can still renew till age 100 right so that's the biggest thing that people need to understand um we've had clients in the past say hey how come I got a quote for the same term insurance and it was cheaper than the one you've gave me we looked at the contract in the fine print it said nonrenewable term so yes you might find cheaper insurance term insurance elsewhere because a non-renewable term will be cheaper than a renewable term right make sense the other type of policy we have is what we call a convertible term a convertible Term Policy allows you to when your policy expires allows you to be able to uh convert your policy to a whole life

24:01 policy a whole life term to 100 or universal life without uh proof of insurability right without proof of insurability because some insurance companies don't allow you to renew your term up till age 100 maybe they'll only allow you to R till 870 and some clients might be like you know what 870 is still not enough because what if I'm still alive until I'm age 85 well that specific insurance company will be useless for you if that's the case so then what do those company's offer well it says no problem get it with us right now and then we'll allow you to go buy a whole life or a universal life when you're 70 years old and the whole life will take you till age 100 right remember the term that we offer goes till age 100 so we don't so we eliminate the need for a convertible term we don't need to convert if it's going to take

24:47 you till age 100 right statistically speaking guys no insurance company will ensure you over a 100 years old yes there's people alive after age 100 and hopefully we all on this line have a great healthy long life however statistically speaking guys age 100 would be like a huge Miracle right um so so that's that and then every single Insurance in Canada doesn't matter what company it's with doesn't matter when you get it has something what we call a incontestability period okay you guys might have heard this in the exam or sorry in the course every insurance company for the first two years if there's a claim or if there's anything thing that happens in the first two years they have every single right

25:32 to do a full investigation and look for you know look for any discrepancies any issues anything like that full investigation and if they find anything different any error or any lies or anything like that they have the right to deny a claim or deny the contract but that's 2 years from when the was issued okay and you know you know sometimes there's an error by mistake or int unintentionally then you'd have to prove it but other than that if it's something done on purpose then that would be what we call fraud if you're trying to do insurance fraud guess what they can come

26:17 back and cancel a policy at any time so fraud is anytime Mis uh misrepresentation or like you know not telling the full truth during underwriting is two years like maybe they ask you a question within the last 10 years did you uh were you ever hospitalized in the last 10 years just as a random example right and you honestly forgot that oh yeah you're in 2016 um you know in 2016 you were hospitalized once because you had a little uh accident and you totally forgot honestly because it was nothing serious you totally forgot you know something like that would be in the first two years but if you're doing insurance fraud what's insurance fraud

27:03 saying you're not a smoker but you actually are a smoker right like you're you're a you're a chain smoker and you say on the policy that I've never smoked well we know that that's actually a true that's 100% a lie right so for those different things they can come back and cancel at any time okay then they also have something called a suicide exclusion or suicide clause again two years the suicide clause is also two years so if anybody commits suicide within two years of a policy being issued the insurance company does not have to pay the policy guess what the insurance company is going to do at that time they will however refund the premium to the beneficiaries so if this person paid 100 a month for 24

27:50 months um or let's just say 20 months right so they committed suicide on the 20th month this client paid $2,000 to the insurance company the insurance company will probably just return the 2,000 to the family and say listen we never wanted this policy because of the suicide exclusion we're not allowed we're not we're not going to be we're not going to be required to pay but we'll still give you we'll still give you the 2,000 kga said no tax of course um life insurance never ever ever ever will be taxed it's the only thing in Canada that has never will be taxed ever life insurance so you never have to pay tax on any kind of a life insurance death benefit right grace period is 30 days they pay you if you've ever missed your premium they they'll give you 30

28:37 days to catch up but after the 31st day they have the right to basically cancel the policy for nonpayment just like your car insurance guys right your car insurance has a grace period if you miss paying the insurance you know they can go and cancel it after that right so that's term insurance very straightforward very low cost premiums are guaranteed over the term you can get it it's cheapest um you know what are some disadvantages that people talk about well um um some policies if it's especially if it's non-renewable term might get you in trouble in the later years like if they don't renew after past a certain age you're going to be in big big trouble and it can be very very expensive at age 70 and Beyond right and

29:22 so another reason why people use term insurance is because they would rather instead of buying expensive permanent insurance they would rather buy cheap insurance and then invest the extra money in investment such as rrsps or tfsas in Canada this strategy would mathematically make you more money than buying a permanent policy that does that has like cash value which we're going to talk about here shortly right this is called by term invested difference if the clients are disciplined enough to do this they can build a lot of wealth um you know and be better off right in the exam who are some typical clients young couples limited financial budget has a mortgage need um you know all those different things okay that's all term

30:08 insurance really is very very straightforward level term decreasing term uh renewable term non-renewable term convertible term those are the basics term insurance is Pure Insurance guys okay any questions on that so now if you guys have a question just uh you know just unmute or just write in the chat box okay so now let's move on to the more complex stuff let's move on to the whole life stuff so what is a whole life policy okay a whole life policy um is a mixture of savings and insurance mixed together so it actually looks like this a whole life policy from if I were to draw something would actually look like this if you already to give you a

30:53 visual if you're if you give the insurance company to $200 your money will go into two buckets one of the bucket is the life insurance okay that'll pay for the life insurance the other bucket is what we call a cash value so let's just say mathematically if the life insurance cost you $100 then that means mathematically $100 goes here this cash value is a policy Reserve that the insurance company keep keeps now let me explain to you what that means so if you if you guys understand um if you understand um uh whole life the premium of a whole life

31:38 is always level so the premium stays the same so and they can give you insurance to age 100 so then you got to ask yourself well how does an insurance company going to guarantee me to pay the same amount of money forever well here's why because they are creating a policy Reserve so the insurance company is creating a policy Reserve now what does a policy Reserve mean in the early years you are actually overpaying for insurance and in the later years that money that you've overpaid for the first 10 years is going to save up into a cash value then when you're old and the cost of insurance is higher

32:24 they're going to use the cash value to pay for the cost of insurance does that make sense guys so let's so let's let's look at this so this cash value you see right now let's just say the person is 35 years old and the actual cost of insurance is $40 a month for the for this year mathematically 160 a month saves here now they are 45 years old and the cost of insurance is now $50 a month so that means only 150 goes here now they're in their 50s and the cost of insurance is $70 so now that means less and less and less goes into here however you are always going to pay what the same fixed

33:11 price fixed premium for for how long they will never come back and ask you to pay more now how is this mathematically possible it's possible because in the beginning you're actually overpaying for insurance and then when you're 80 years old how much do you think insurance will cost for an 80-year old well maybe the cost of insurance going to be $400 a month well you don't give them 400 a month so guess what they're going to do they're going to deduct $200 from here send it there to keep it alive and this is all happening behind the scenes but that's how a Whole Life

33:59 policies work in the beginning you overpay in the end the insurance company uses that overpayment to pay for insurance as they get older that's how they can guarantee Insurance till what age age 100 hopefully that makes sense guys if you're confused just unmute let me know so we can we can help you with it okay that's all whole life is very very at the very very basic level okay let's continue so that overpayment is going to create uh create a reserve so how can you pay for whole life very simple ongoing premiums just like monthly this is the most common one

34:45 single premium I've never seen this ever in my life single premium means you pay for all of your insurance once like it's like you pay off Insurance like you you write the insurance company a $90,000 check one time and then you stop paying Insurance forever because you have enough money to pay for insurance for the next 40 years you know what I mean like you're just buying all of your insurance at once imagine you could like instead of paying 100 a month for your car insurance for the next 40 years you just give the insurance company a $50,000 check and then the insurance company never ask you for a monthly premium ever again that's called a single premium right the ones that we've been seeing a lot that's becoming very very popular guys is something called limited pay um insurance agents are again really really good at selling these what a limited pay is is they just just say pay for 10 or 20

35:30 years and after that the policy will be paid up which means you've paid off your insurance and will not require any more premium so it works like this a single pay let's just say a a sorry a ongoing premium this insurance will cost you 200 a month okay and you pay this forever let's just say the person is uh is 50 years old so they're going to pay until age 50 uh from 50 see till age 100 they'll pay for 50 years okay 200 a month or here's another option if you just pay for 20 years $800 a month after the 20th year you can actually stop paying and the policy will

36:17 still be what active so what's really happening you're just paying more in a shorter time well obviously just like anything else if you pay more in a shorter time you can finish paying it off sooner think of life insurance as a loan okay here's how you simplify this think of life insurance as a as a loan imagine if you're 50 years old and you got to pay till age 100 and today you're 50 you have to pay 200 a month but what if you want to make this loan get paid and you have to pay let's just say $50,000 over your lifetime so the cost of insurance over your lifetime is 50 Grand so if you pay 200 a month you can slowly pay off this insurance loan uh

37:04 over 50 years but what if I told you that if you just pay till age 70 but instead of 200 you got to pay 800 a month and you just pay for the first 20 years and then everything here will be what they say will be free but let me ask you guys a question you guys are all smart mathematically is the insurance actually free said no exactly it's not free because what did you do you just paid more in a shorter time it's like me saying okay you have two choices for your mortgage let's just say I'm a mortgage broker and I say I have this genius

37:50 idea instead of you paying 25 years for your mortgage paying 2,000 a month that's boring what if I have a better plan and here's my better plan if you can pay 4,000 a month for your mortgage you only have to pay for 12 years and then after the 12th Year I'll make sure your mortgage will be free if you just pay 4,000 instead of 2,000 I'll make sure your mortgage is free free in half the time isn't that a great deal well mathematically it's the exact same thing you're just paying it off sooner so insurance agents are getting very CL uh clever and selling these limited pay hole lives as if it's free insurance and

38:38 you got to remember that there's no such thing as free insurance anywhere in the world right so they're just basically tricking people it's a marketing it's a marketing strategy and saying oh if you just pay for 10 years it's free uh you know but that's not entirely the truth you're basically just paying way more than you should have normally yes it's you can stop paying for the insurance but you're out but the reason why you sto paying is because you've already paid for it right so hopefully that makes sense on how the premium works then the other type of whole life we have is we have two different types of Whole Life policies participating and non-participating okay to exp to understand what this means is let's go back to an insurance as a to insurance as a business if you're running an insurance business every business has profits and

39:23 loss okay when word for profit like like give me some ideas um in what scenarios would an insurance company experience a profit there's a few there's a few things that must happen for an insurance company to experience a profit I'll start with one make it easier for you guys less claims paid than expected right because remember what are insurance companies doing they're basically making a guess okay King said

40:09 more money came in there you go so um Investments did better than expected Investments performed better than expected another one is lower expenses you know they paid less taxes or their administrator Administration was cheaper whatever the case may be see insurance company was expecting remember all insurance companies do is just guess every year um let's just say I was an insurance company and I expected 10 people to pass away this year mathematically speaking but only five people passed away that means I had to

40:54 pay less money this year right that would be a profit mathematically and what do insurance companies do with the premium that you're giving them whenever you're giving them the premium they keep the money in a safe right they invest the money right away so if they're taking 200 a month from a thousand different clients right that's 200,000 a month they're not going to just take that 200,000 keep it cash and just watch it they're going to invest it so if they invested somewhere and the investors did better than they expected they're making more money or what if the expenses were lower right they thought they're going to have to spend $100,000 of of expenses this year but their expenses were only 60,000 at the end of the year well that would result in a profit now the same is

41:41 true for a deficit the same is true for a deficit the opposite okay well what would be a deficit well more claims right it's just the opposite of that more claims worse Investments performance right and higher expenses if these things happen the insurance company will lose money because there's less money that came in that will stay everything else everything else was a loss now in a participating policy okay now that you understand how insurance companies work a participating policy okay will if there's ever a surplus a

42:29 participating policy is going to give you some of that Surplus back to you in the form of a policy dividend okay this is different from a stock dividend this is what we call a policy dividend if it's a non-participating policy then if there is a surplus Revenue if there is a profit they don't they don't give you anything okay now a participating policy is going to have a policy dividend right if the insurance company has a shortfall which means they lose money they take the hit alone they're not going to ask you for more money okay the insurance compan is going to take the hit alone and you only participate in the growth so if the insurance company lost money they're not going to ask you for more money because remember in a

43:15 whole life policy the premiums are set for life right but here's the thing you got to remember a participating policy paid you a dividend why because more money came in just like kga said right so there was more money that they kept and whose money are they keep or whose money is coming in well the client's money so if you really think about it a policy dividend in a whole life policy is basically a refund of your money that they overcharged you because the insurance companies needed to insurance companies needed to charge you more money because they thought they have to pay more money but they paid actually a lot less so the policy dividend by definition this not

44:00 my definition the insurance company's definition it's not me making this up a policy dividend is actually a return of your own money they took too much and they say oh you know what you gave me $4,000 this year your share of of Premium was $4,000 I actually needed $3,000 from you because we because our investments did a lot better we have paid less claims I actually didn't need 3,000 from you I'm actually going to give you $1,000 back as a policy dividend right so that's what a policy dividend is Miss says why would anyone choose nonparticipating very simple why would anybody choose non-participating one word and one word only premium is [Music]

44:46 lower participating policies cost more right so you cost more to have that feature so hopefully that makes sense guys right par policies cost more because of that so now when you get a dividend but then why would you choose whole life a great question Miss is asking all the right question why would anybody buy whole life well I don't know you tell me I mean mathematically speaking whole lives don't really make a whole lot of sense wait till I show you guys how they actually work and then you ask me that question in a half hour I think I'll give you the answer to that question about a half hour Misty so watch this when when you get a dividend for a participating policy you have five options okay so let's just say

45:34 I took 4,000 from you you're my client I I I thought I needed four grand from you in reality at the end of the year I just actually needed three so guess what because you're a great client of mine I'm going to say you know what Misty we're going to give you ,000 back as a policy dividend thank you so much for your great business you've been a fantastic client of mine I'm going to take care of you now your $1,000 is going to be paid once a year let's just say it's paid on December 31st of each year okay you have five options to choose from one is you take that money in cash which is very simple you take a $1,000 check ,000 deposit done or you use that $1,000 dividend as

46:20 a premium reduction so if your insurance cost was $4,000 a year next year you got to pay four again right because it's 4,000 4,000 4,000 4,000 a year next year instead of paying 4,000 in the year 2025 we're going to give you a discount because we're using your dividend to to reduce the price you only pay us 3,000 for the year 2025 because we're using your 1,000 to pay less to pay off your premium okay that's one option reduction of Premium another option is called an accumulation which means they're going to take your $1,000 dividend save it for you if you don't have the discipline to save money yourself don't worry I'll do it for you I'm such a great insurance company I will save your money for you you don't have to because I know you're

47:06 going to probably probably spend the money on a new TV and a new PlayStation and a new iPhone and you're going to blow your $1,000 just give it to me and I'll put it in a side account you know in a somewhere else in the insurance so that you cannot see it but if you ever need it we'll give it to you you have access to the site account at any time but it's not going to be in your checking account okay that's one option another option is what we call a paid up addition Pua paid up addition means they're going to use your $1,000 dividend to buy more whole life insurance now what does that mean so let's just say we have a participating policy that paid us $1,000 dividend and our life insurance cost us 300 a month like the insurance would

47:53 cost you 300 a month so that means 300,000 $300 month goes into two places right one it goes towards the insurance one is towards the cash value but let's just say your insurance cost is 150,000 our whole life so this is what we call our what our face amount face amount is a fancy word for what coverage okay so here's what we're going to do with that $1,000 dividend we're going to take that $1,000 dividend and we're going to buy more whole life coverage so maybe ,000 can afford you $10,000 extra so now your new coverage you're going to have 160,000 see we're basically using your money to

48:38 buy more life insurance isn't that great we're using your money and you're going to have more and more and more and more and more coverage each year that's one the other option they have is what we call a oneyear term so we're going to take your money the same $1,000 we're going to buy term a one-year term so if you die with within that one year you're going to have you're going to have a policy P from term and from the whole life so here's how that works so we're going to take that same $1,000 and we're going to buy let's use a different color we're going to buy with that $11,000 term insurance why would we buy term insurance well because term is cheaper than whole life whole life is usually about four or five times more expensive than term instead of buying 10,000 whole life we can maybe buy 75,000

49:27 of term because term is a lot cheaper than whole life so now if the client dies this year there's 15 from the whole life and there's 75,000 from the term so they now have a lot more coverage than normal okay does that make sense guys on the different options for uh partici policies any questions on that a simple way to um a simple way to remember is This Acronym right here crap one C stands for cash R for reduction of Premium a for accumulation P for paid up one for one year term if you ever forget

50:14 your options just think of this crab one okay now here's the other thing whole life uh insurance has a few opt options okay which we're going to talk about one of the options they have is what we call the cash value okay the cash value is basically the money that you've been overpaying remember in the beginning you overpay for whole life the money that you've been overpaying saves into a account called a cash value account and the insurance company is going to invest that money for you and I'll talk come back to to what that means then we have something called an automatic premium loan okay one of the other nice features of a whole life policy is if you ever miss

51:00 your let's just say your insurance cost at 300 a month let's just draw this again here the insurance cost you 300 a month you pay for insurance and you pay for cash value if you ever miss your you know your premium and let's just say in this cash value we now have accumulated $10,000 there's a $110,000 balance and for whatever reason next month you didn't have enough money in your checking account what they're going to do is and this say the cost of insurance is $200 they're going to deduct $200 send it towards the insurance to keep the insurance alive so they're going to do this so that your insurance doesn't cancel on you this is what we call an automatic premium loan APL

51:46 automatic premium loan so what they're going to do they're going to automatically send money from the cash value to the insurance to keep this policy alive and active now here's the thing convenience doesn't come for free it comes at a cost so when they do this they're essentially loaning the $200 okay they're going to loan the $2 200,000 out of the 10,000 and as you guys know what do all loans have not just in you know every single Loan in the world not just not just an automatic premium loan but all loans have interest right so they're going to do that but they're going to charge you a fee an interest fee to do that

52:32 okay and here's the other thing if you want to use the cash value you can however the only way that you can use this money is through what who can take a guess in the if you want to unmute or write in the chat how can I use this 10,000 so my agent told me that I can use this 10,000 if I ever need it to like in today I need to buy a new car my car just broke down I need I need about10 ,000 today um to go buy myself a new car how can I use my $10,000 well see you guys are you guys are on it the only way that I can use this $10,000 is through what we call a policy loan policy loan why is it a loan

53:17 because you're not actually withdrawing the $10,000 do you guys get it you're not going to make a withdrawal you cannot withdraw the money in the cash value why can't you withdraw the money in the cash value who can tell me why that is why blown it instead of just withdrawing it what do you guys think is it because it's a life policy yeah but that doesn't really explain why why um like why can I just with not withdraw like why why am I not allowed

54:02 to just withdraw why do I need a loan I mean it pays out on death because close close not quite because remember let me ask you this question what was the Cash value's whole entire purpose the whole purpose of a cash value is for what investing not really not from the insurance company close not investment something else it's a policy Reserve remember the insurance company overcharged you kept money in the

54:47 reserve now that Reserve they cannot risk losing that Reserve why because insurance is becoming more expensive as they get older the risk of them paying out gets higher and higher does that make sense so they need this money when you get older because when you're 70 years old and you're paying them 300 but the actual cost of insurance is $800 they're going to need to subtract um $500 here every single month to use it for premium exactly syvia got it right the reserve is meant to pay for premium in the later years so they cannot risk touching this money so here's what they'll do

55:34 instead they'll use this 10,000 as a collateral collateral is another word for what what's collateral mean collateral means we'll give you a loan but if you don't pay back the loan we're going to take it from where you're going to cancel your policy and take it from the cash value so you're going to get a loan and use the cash value as a collateral just like if you get a mortgage they use the house as a collateral what happens if you don't pay your mortgage they take the what they take the collateral they take the house in a whole life policy if you take a loan you don't pay back the money they're going to take your cash value so they're not actually going to

56:21 give you the 10,000 if you need it they're going to give you another $10,000 loan this money in the cash value is still there it's not going anywhere it's still there but they're just giving you a new $10,000 loan and obviously um and what happens like I mentioned because it's a loan what happens if you don't pay it and the client passes away like let's just say this is a $100,000 whole life policy this is the face amount client uses 10,000 as a loan God forbid something happens they pass away what happens to this loan so-called Loan cash

57:11 value get the difference pay the less there you go there you go so what they do is actually they reduce the the the from the death benefit they take the 10,000 so the family is only going to receive $90,000 um if you take colone is there interest absolutely um there is interest 100% there's interest um just like anything in life just any any loan there's you're always going to pay interest absolutely the insurance compan is not going to do this for free they're going to charge your interest now here's a very very difficult and question I have for you this is think about this a very difficult question whose money so it' be less than 90,000 correct in theory

57:56 it would actually be $10,000 plus the interest um so if we think that the Le interest was let's just make up a number the interest was $1,000 so you would actually just get $ 89 correct in reality it would actually be 10,000 plus the interest that will be subtracted from the death benefit but every company has a different rate like some companies charge you 8% 9% 6% 7% it depends on uh every single insurance company right cuz when they're doing this giving you this feature they make their own rates now here's another question I have for you guys whose money was in the cash value like whose money was being accumulated in the cash value it's your money

58:42 yes right there's got it it's your money because who was funding the cash value all along it was your $300 a month payments so when you're paying the 300 a month you your money a portion of it went into the cash value so now let me ask you guys this logically does it make sense logically to have to borrow your own money to utilize and then if you ever pass away they subtract it from the death benefit this is crazy to this day nobody can answer why nobody can answer me why mathematically I should borrow my own

59:28 money now if this was a credit card I don't mind paying interest on a credit card but why should I go and borrow my own money I was the one who funded this policy I was the one who gave my $300 why are they coming back to me after 10 years saying pay me money to use my own money it's very very crazy let's say if you go to your bank and you have $1,000 in your check in account and you say you know what I want $500 deposit I want to withdraw $500 and the bank says no problem we're just going to charge you a 8% interest to use your $500 and you're going to say what the heck what do you mean you're going to charge me 8% this was my own money and they say yeah I know but this is how we do things around here that's basically what the insurance company is saying why would the insurance company do that very very simple it's very very

1:00:16 very profitable for the insurance company the insurance companies love that because they're making money from multiple different areas they're making money from the interest they're making money from the premium they're making money if you don't pay it back all of these different things they're making so much money off of and because the insurance compan is making more money the agents who sell the whole life will be they can afford to pay the M more commission and because the agents are making more commission they're now um enticed to sell more whole life to more clients you guys won't even believe this but earlier this week no joke we had a

1:01:02 client that came into the office somebody from another company sold a whole life policy for a threeyear old baby premium $80 a month death benefit 68,000 and they're paying for six uh since 2018 now let me ask you guys a question why would a three-year-old baby need life insurance that's insane this family had no clue why they were paying $80 a month and the agent told them that this is better than saving money in an Reb that an RP and education saving plan for your children are no good but a whole life is actually better for your

1:01:48 children could you believe that and the sibling which was a 99-year-old also uh he was they were paying 100 for him two kids two policies they're paying $180 a month for infants and the client had no education no idea and we just we just canceled the policy earlier this week on Monday um and the client had no idea what they were paying for that's crazy guys that's what they're doing why would they do that a lot of money because imagine guys here's what happens in the insurance business if you sell a Term Policy average Term Policy you might make a 300 $100 commission if you sell a whole life policy you're probably going to make a $1,500 commission that's the difference guys three four times more so if if if

1:02:36 they're going to pay three four times more most agents they don't care about the clients they don't care about their reputation they're just looking to make the most amount of money and because they know that most clients will never even understand what's going on behind the scenes they sell you those crappy policies and hope that you never ever ever uh find out okay so that's uh so again there you go there's a policy loan which we which we've talked about um yeah those are the advantages and disadvantages of a whole life they're very very expensive in the beginning it has cash value you're paying up a policy Reserve if you can so um oh what if you cancel the policy so here's a question what if um you don't pass away like the client doesn't pass away and they say you know what I don't even want this

1:03:22 policy anymore I I I've done my numbers I've done some research I don't don't even want this anymore I just want my $10,000 what would happen in this situation the money that they've paid for these 10 years they've accumulated 10,000 in their uh cash value what would happen to that $10,000 you'll be charged for counseling okay good and what is that called um cut surrender close you're very very close you have half of it you're right the wording is off the wording is just a little bit off there's something that they do

1:04:08 there's there's there's the surrender is correct you're just missing this it's called a surrender charge Des surrender charge which is basically a penalty so it's basically a penalty so if you ever need to cancel if you ever wanted to cancel cancel this maybe you have a $2,000 surrender charge so what is going to be your cash surrender value so that's what the word cash surrender value means guys the value of your cash after surrendering is going to be $8,000 see so if you ever wanted to cancel it you will have to pay a surrender charge and the contract will

1:04:54 tell you how much the surrender char charges would be that's all there is about whole life guys we're done whole life that's it does that make sense whole life is you pay the same premium for Life premium never changes because you're overpaying in the beginning to build a cash reserve a a policy Reserve called a cash value and that cash value will be used in the future to pay for your premium even when you get exp when you get older so the insurance compan is never going to ask you for more money because they've already um because they've already gotten enough money now why would this be a great deal for the insurance company now why would this whole cash value mechanism this entire thing like how how is this even profitable for the company like why is this a good deal not

1:05:40 to you but to them what do you guys think from a business perspective they have more money to invest best and they get the interest if you borrow the money Bingo that's the key because remember in the beginning you're overpaying right imagine you overpay them for 10 years in a row that means the insurance company is using your money in the cash value for the first 10 years to invest make as much money as they can off of it and then pay for your insurance as they get older so as they get older they going to guarantee your

1:06:26 insurance because if they've already made their money that's why this whole cash value thing even exists they can just find out they just figured a way to make a lot of money okay so that's what whole life is for good till age 100 get the you can you have to borrow your own money and if you don't pay back the borrowed money they're going to deduct it right now here's another question what if I don't borrow and I pass away and the 10,000 was just sitting there like you know I had a 10,000 or whole life um the cash I was paying 300 a month the cash value was worth let's say 20,000 okay I had 150,000 or whole life policy this is my death benefit DB let's just called DB

1:07:12 for short death benefit um I passed away what does the beneficiary or how much does the beneficiary receive there you go King miss you guys are all r on the money the insurance company only receive here's the warning guys they're going to get the greater of death benefit or cash value and so which one is greater of course this is greater so here's the question if the family receives this what happens to

1:08:02 this what happens to the cash value what do you guys think what happens to the cash value in that time there we go yeah you guys are right money goes back profit so say that again there the insurance company records it as profit exactly so they keep it on their balance balance sheet so the insurance company keeps that money uh for themselves now do you guys see why mathematically a whole life policy never really makes sense if you look at the math mathematically these policies don't make a lot of sense for the client it does make a lot of sense for the

1:08:48 insurance company however okay now you guys AR going to now you guys will slowly understand why they're being sold in in Canada right they're being sold in Canada because they're so profitable like you can make a ton of money as an insurance company doing this but you're doing it at the expense of the client and this is why Financial education Financial education is so important because so many people are getting ripped off and they don't even know it they they're paying for a cash value that they're going to lose one day and they don't even know that they're going to lose the cash value but they're happily paying for it because they don't even understand how these things they don't even read their contract that's why it's so important what we do right the other type of permanent policy we

1:09:34 have is a T2 100 very very basic think of a term insurance but that goes on to age 100 nothing else no cash value no end the story now let's go on to the fun stuff the even more complex stuff okay um can you change your whole life policy into something else or you got to cancel well you can't really change a whole life policy you just got to basically stop cancel whatever the case is replace a lot of times what we do misy is we replace policies so or we cancel the old one once the new one is issued we basically cancel the old one and the client can um if there is cash value they get the cash surrender right they'll pay a surrender fee and then they they um they go and fix M well here's the thing a lot of people have

1:10:20 whole life and they're getting ripped off without even knowing it what you got to do and it'll be a really really good training for you Misty ask your uh family if they have a contract of the policy of the of the whole Universal of the whole life it would be very very good Training for you to actually take a look at the contract and learn to read the contract and get a sense of what's going on in the policy and then from there you actually can tell what to do right so you actually uh most of the times what we do if they're still insurable you can still save them but there's here's the sad part sometimes you're going to meet somebody that is uninsurable meaning they cannot medically qualify for insurance those are the worst cases we've had a lot of situations like that where the client was not insurable they were basically

1:11:06 stuck with their whole life or their universal life CU we could never give them a new policy because it's been too there it's now too late they're too old um Health isn't there anymore that's the inform part so hopefully you can go after and take care of your family before it's too late okay so here's the

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