As IBC® has become more popular, critics have started sharing misinformation based on their limited knowledge of IBC®.
Yes, there are some financial advisors marketing IBC® who are not authorized or qualified to do so, who share IBC® incorrectly. Why unqualified critics feel they need to further muddy the waters is beyond me.
During the pandemic I had time to assess how well Conventional Financial Planning was delivering on its results. I questioned the truth of the financial planning narrative. Why are we putting money away in control of others for decades and decades hoping it will grow? All this at the expense of having less money available to spend on current lifestyle.
Further, I discovered actual stock market returns, after crashes, fees, and taxes are no where close to what we’ve been led to expect, that in some cases, actual whole life policy growth was better.
As a Certified Financial Planner® (CFP®), I am bound by the fiduciary oath, which states I must always put client interests above my own. Held to the highest standards, and to uphold the principles of integrity, objectivity, competency, fairness, confidentiality, professionalism and diligence.
My research shows IBC®, when compared to Conventional Financial Planning, provides individuals more of what they want. This means I am obligated to share with clients. See chart below.
Different
Being different, has resulted in a few critics defending Conventional Financial Planning, as though it’s the holy grail, by criticizing IBC®.
Free speech is great. However, free speech by those unqualified to speak on IBC® is not helpful to those wanting to research IBC® to see if it is a good fit for them. To be qualified to speak on IBC® requires you to be an Authorized IBC® Practitioner.
So let me address a few of these unfounded IBC® criticisms, not only as an Authorized IBC® Practitioner, but also as a CFP® and a Chartered Life Underwriter® (CLU®), with 40 years of experience.
The IBC® Practitioner program of study goes way deeper than CFP®, CLU® and other financial study programs.
IBC® is a better gold standard for financial planning
My research shows that IBC® is a better gold standard for financial planning, either on its own, or to complement Conventional Financial Planning.
Saying this, some think I’ve lost my marbles.
Many may be reminded of the saying: “if it sounds so good to be true, it probably is.” That’s why I always recommend people check things out because probably does not mean always.
Every individual and business owner can benefit from IBC® in the right situation.
IBC®, which is based on using a specially design, dividend-paying, high cash value, whole life insurance as its foundation, has almost two hundred years of evidence it has what people want. That deserves doing some more research rather than dismissing it.
IBC® is not a scheme. It is used by many who include the famous and the wealthy.
IBC® is also endorsed by many accountants, and economists.
That said, let me comment on some of the pertinent IBC® criticisms.
Risk vs Safe, Tax-infected vs Tax-free
Some critics say IBC® is risky. I disagree.
Conventional Financial Planning investing almost always involves risk and tax-infected RRSPs. They promote the tax savings they receive will be greater than the tax rate in retirement. In theory, yes, however, that’s not what’s been happening. Tax rates continue to increase in retirement, and will continue to increase. But its not about the tax rate differential, its about the volume of tax.
When you withdraw, or forced to withdraw, whether you need it or not, its fully taxable. While a tax-free rollover is available on death to surviving spouse, when the surviving spouse passes away, the entire account is 100% taxable. This means somewhere around 50% is tax.
IBC®, in comparison, is safe. Its growth is tax-exempt, locked-in, not forced into mandatory withdrawals at age 72, and on death tax-free.
Further, Conventional Financial Planning does not allow people to borrow from their RRSP. The same funds, if in IBC®, is available as working capital, to be borrowed from for other opportunities.
Conclusion: IBC is safe and tax-free.
Policy Loan Tax Laws
Some critics say IBC® is not tax effective in Canada. Again, I disagree.
Much of the info on IBC is U.S. based. In the United States, policy loans are tax free as an incentive to encourage people to buy life insurance to reduce the onus on government social security.
In Canada, not so. Despite every other type of loan in Canada is tax free, CRA implemented discriminatory tax rules on whole life policies, apparently to make them neutral with RRSPs.
For those who view life insurance as a terrible investment, even though it is not an investment, this is evidence that the public were buying more safe whole life insurance than were buying risky RRSPs.
As I’ve mentioned, RRSPs are tax-infected government schemes that reduce wealth from people.
Despite CRA discriminatory tax rules on whole life policies, IBC® is still more effective.
CRA rules say that policy loans, more than the policy adjusted cost basis (ACB), are taxable as income. This does not happen for several years from issue.
CRA is not totally heartless. As you repay the policy loan, they provide you with an offsetting tax credit.
Despite this being tax neutral, some still use this as a reason to discredit whole life insurance and IBC®.
Again, this is discriminatory compared to all other loans, unless you collaterally assign an asset, including whole life policies, to a bank, and they loan you money based on that security, which you can do. Doing so, means you can borrow from your policy without tax.
Which option depends on which is better in your situation. Both provide you a net tax neutral option to access your working capital.
Conclusion: IBC® is tax neutral.
Michael and John
When Michael borrows from his whole life policy directly, he requires no invasive lending qualification. It’s a simple phone call or submitting a 1-page form to the life insurance company or their advisor. Borrowing from an IBC® policy allows him to recapture loan interest, instead of the bank.
Further, if he has a financial problem, he can modify or stop payments.
When John borrows from the bank, he must qualify with a good credit score, quality assets, good income, and many other invasive requirements.
When John borrows from the bank, he must make his loan payment regardless of his financial situation.
John, when he borrows from the bank, unknowingly, contributes to inflation, due to something called fractional reserve lending. When the bank lends money in this fashion, they are lending money they don’t have. To get the money, The Bank of Canada legally must print this extra money. When they do this it depreciates the value of the Canada (your) currency, which results in what we call inflation.
Despite all the disclosure regulators require, this is never disclosed. I view this as a major omission, possibly related to a conflict of interest or collusion.
Conclusion: Everyone benefits from avoiding borrowing from a bank, by borrowing from an IBC® policy.
Withdraw or borrow?
Some critics say paying cash is cheaper than borrowing.
Conventional Financial Planning teaches that paying cash is cheaper than financing. This is wrong because of the opportunity cost lost on redeeming your savings.
IBC® is proven that you create more wealth by leveraging safe assets than cutting down the apple tree every time.
Conventional Financial Planning also encourages people to borrow from banks, and by doing so give away hundreds of thousands of dollars over your lifetime – wealth that you could keep in IBC®.
At no time does Conventional Financial Planning ever recommend you become your own bank.
IBC® has proven borrowing from your policy cash value creates more wealth than withdrawing.
This has created a paradigm for many people who are used to redeeming assets (cutting down the apple tree). Why? Because withdrawing does not require you to repay what you took plus its compound growth.
Redeeming gives you a choice to not repay. May, when given the choice, prefer to not repay. This decision means less wealth.
Conclusion: IBC® creates more wealth than Conventional Financial Planning.
Flexibility
Some critics say you don’t have flexibility with IBC®.
Many are of the opinion the only way you can access your working capital cash value from a whole life policy is to borrow from it.
That’s simply not true. You can also withdraw dividends, and even surrender the policy for its cash value.
These options are not as good as borrowing, allowing your cash value to continue to grow, and repaying policy loans.
One of the knocks critics jump on is when you redeem or surrender a policy, some or all of the loan may be taxable.
In comparison, many people have no problem redeeming their RRSP even though its 100% taxable. So, why then should people view paying some tax, if taxable at all, on a life insurance loan, withdrawal or surrender, as a reason not to buy whole life insurance, if any tax is usually at less than 100% taxable inclusion rate?
If you cannot, or choose not to, repay the loan, you can surrender the policy, which eliminates the loan.
If you cannot handle the premium, you may be able to reduce it, stop paying it temporarily or longer, or take a reduced paid-up policy.
Conclusion: IBC® provides more flexibility than Conventional Financial Planning.
Conventional Financial Planning vs IBC® Financial Planning Methodology
Below is a summary of what people want. Strategy A is Conventional Financial Planning. Strategy B is IBC®, following IBC® instructions.
Whether you use one, or the other, or both, is up to you. I offer both. 99.9% of licensed advisors can only offer you strategy A.
Qualified Advice
If you’re looking for advice on anything you need to make sure who you’re asking is qualified to provide you, specific, not general, to your question.
One example are Chartered Professional Accounts (CPA). CPAs are considered the go-to people for all things financial, because the public assume tax experts must be financial experts. If it were not for Canada Revenue Agency (CRA) mandating everyone to file a tax return annually, they probably wouldn’t be.
As such, many clients mistakenly expect a CPA to be experts on all things financial, including life insurance and IBC®. Let’s be clear, accountants are not whole life insurance and IBC® experts, and most will agree they’re not, because they are not licensed, or authorized, as with IBC®. So, clients shouldn’t expect them to, and clients should not ask their accountant for their opinion about whole life insurance or IBC®.
According to CPA website whole life insurance and IBC® are not services CPAs are trained or licensed to offer.
A CPAs role in life insurance is to help you determine how best to pay for it.
I’m happy to report many CPAs do see the benefits of whole life insurance and IBC®.
However, there are some CPAs who still don’t see its value, viewing renting coverage as an expense is better than owning coverage as an asset.
Its one thing for a CPA to say no because they don’t understand whole life insurance and IBC®, but another to say no to whole life insurance and IBC® as their personal or professional opinion based on their limited info on whole life insurance and IBC®.
I have two business owner clients in Ontario who have told me since their accountant did not recommend whole life, despite it being a great fit for their situations, told me they would not implement it, and have not.
I have many clients who have implemented whole life insurance, some who are using them as IBC®, and many who are not yet aware of how they can use them as IBC®. Many comment years later that they wish they bought more whole life insurance.
The article, The Case for An Alternate Bank, is why everyone should buy whole life insurance and use for IBC®.
I’m waiting for a client to sue a CPA, or any other advisor, who has advised them not to implement whole life insurance, for the wealth they and their beneficiaries forfeited, and the additional tax they had to pay, not having it.
Best practices
These are my new financial planning best practices:
- Create your own bank with an IBC® policy – only from an Authorized IBC® Practitioner.
- Avoid borrowing from commercial banks – stop contributing to inflation. Creating your own bank will allow you to get the bank out of your life in time.
- Avoid and unwind your tax-infected accounts before death. I can show you how.
