Insurance

Pitfalls of the Insured Retirement Strategy

Pitfalls of the Insured Retirement Strategy

Back in mid-1990’s the insurance industry came out with a new concept called the Insured Retirement Strategy. The idea is that you build tax-deferred investment values inside a life insurance policy during your earning years. Upon retirement, rather than withdrawing funds from the insurance policy (which would trigger taxes) you instead use the policy as collateral for a bank loan. In other words, you get your cash from the loan instead of the policy, thus minimizing taxes. The loan simply accumulates and is paid off by the proceeds of the life insurance policy when you pass away.

Here’s an example

You purchase a Universal Life Insurance policy at age 45. Over the next 20 years you accumulate $1,000,000 inside the policy, tax sheltered. Upon retirement, you use this million dollars as collateral to withdraw $50,000 every year. The $50,000 is of course tax free (because it’s a loan). The loan accumulates with interest and when you pass away your $1,000,000 insurance policy pays the bank off for the loan.

The pitfalls of the Insured Retirement Strategy

If you are being pitched with this concept, it’s important that you assess the risks. The insurance industry will provide you with lots of information on the benefits of this strategy so I’ll skip that. Instead lets look at some of the risks and pitfalls that you should consider.

  1. High MER’s and DSC: The life insurance policy investments used in this strategy can have much higher MER’s (expenses) than comparable investments outside an insurance policy. They also frequently have deferred sales charges (DSC). In layman’s terms that means you make less money and have less flexibility.
  2. RRSP’s and pensions are better: Insurance industry brochures will suggest that Insured Retirement is suitable for those who have maximized their RRSPs. The corollary to that is that you should only consider Insured Retirement strategy after you’ve ensured your RRSPs, TFSAs and pensions are all brimming full. To put it another way, Insured Retirement should not be a pillar of your retirement planning it should only be a secondary or additional option.
  3. CRA Risk: The strategy works because you’re accumulating funds inside a tax sheltered investment and then effectively accessing them without triggering taxes. The CRA has some stringent rules about doing stuff that takes advantages of tax loop holes. The insurance industry suggests you can mitigate this risk by ensuring you have an actual need for the life insurance. Still, the CRA could change the regulations in the years between now and when you retire and prevent you from using the insurance policy as collateral. How likely is that? There’s no way to measure, however it may be worth noting that you can’t use an RRSP as collateral on a loan.
  4. Interest rate risk: It’s clear to most of us that there’s some risk inherent in the investments as they grow. But what about the interest rate on the loan upon retirement? The banks will only let your loan grow to a specific percentage of your collateral. With a high interest rate on the loan at retirement, the amount of the loan could outstrip the value of the insurance policy, forcing the bank to call the loan. Now instead of taking a tax-free annual payment, you’re stuck coming up with a huge chunk of money to pay off the loan early – probably requiring you to cancel the policy and pay the taxes on all that money you’ve been sheltering.
  5. Bank risk: You diligently build the investments over 20 years, then hop into the bank to take your first loan. The bank informs you that the rules have changed – and not in your favour. Perhaps instead of letting you take a loan of 75-90% of the value of the policy they now cap it at a maximum of 50%. Or maybe they’ve been burned at some point and simply refuse to use a policy as collateral. Either way, what’s going to happen with taxation, banks, and insurance in 20 years is unknowable, and that brings some risk into the process.

In the end, Insured Retirement Strategy can look attractive for the right investor. But be careful that you have the financial wherewithal to weather the storm if things change to your detriment. If you’re looking at the strategy, remember this should only be considered as a secondary strategy after RRSP’s and TFSA’s. And always do a worst case scenario check – what happens if none of this comes about as projected?

Comments

  1. John Haver

    Great analysis, its very true that the only people who should consider this will have already maximized their other retirement investments. Typically these people have the financial smarts to see that there are other alternatives with lower costs (MER etc) that offer similar benefits.

    • vighnesh

      not true bank have there own reason to say maximise rrsp and tfsa..they get bigger cut from rrsp and tfsa. as they never tell you do your maths with financial planner you will get that right
      why bank say that maximise rrsp first

      • Kuya Eddie

        No, no. The fees charged from a bank to hold a TFSA or RRSP are minor – think $25 to $100 or zero per annum depending on the size. Where banks and fund companies make money is from trading fees and management fees, and they will apply wherever your assets are held – in an IRP or a TFSA. And bank advisors often recommend a TFSA first for a low income earner. IRP proponents tend not to mention TFSA’s at all, probably because they demolish the rationale for investing in a whole or universal life product for the amount the government allows you to contribute, which is now $6,000 per year.

  2. Joem Weinkauf

    Very well explained.

    The sad part is some insurance brokerages sell this product through multi-level marketing. The new immigrants/ financially uneducated esp the Filipinos are being sold by this product.

    They are told by the insurance agent that if they will sell this product to their friends and family they will have a huge commission for a $200/mos premium they will receive $2500.

    Clients and prospect clients are being promise of 18% or 8% return of their investment and told that these return are guarantees.

    I wonder how to stop these unethical and misleading practices.

    • Elle B

      Hi! I am an advisor from the MGA you are referring to, and yes I’m here to get some facts straight (some because, well, we dont really have much space here)

      First of all, an MLM’s model is to pay a percentage of a recruit’s sales towards his/her ‘upline’. FYI our commission is 100% ours, whether you are a seasoned advisor or someone who just started. Instead of getting a percentage from our downline’s sales, we are given bonuses. (Sweet!)

      Second, we NEVER promise an 18% return of investments (is that even legal??)
      We follow protocols from the companies we represent who are VERY STRICT in making sure that we do not overpromise to our clients.
      (our represented companies have huge reputations at stake after all)
      We do stress tests and show them worst case scenarios (the reason why our client’s policy explanation takes TWO GLORIOUS HOURS!),
      show then RORs of 6% and lower, and yes, we also let them know that bank loan policies may change in the future (that may, of course, affect their retirement income. Duh.)

      The commission is sure big (it’s not actually $2,500. It’s even more;) BUT we never ask them to pay anything upfront until after the policy delivery. Because if, after stating all the benefits of IRP and the client decides it’s not for him, he can definitely decline the plan.
      It’s his money after all.
      If he does like it then great! But while most advisors disappear after a done deal we are REQUIRED to make at least an annual visit to explain our clients’ statements. We face them (yep. Including those times when the market is low) because that’s how advisors are supposed to do it. It’s a way for us to assess whether they need to make some adjustments with their monthly premiums. Or if the need is greater. Or referrals! (Yay!)

      I will not claim that I am an expert in every financial matter but Insured Retirement Plan is definitely my specialization. We’re not here to replace RRSP and TFSA. Rather, we want to show everyone another choice for their future money planning. Compare them, and then let THEM choose.
      And of course, to somehow educate the financially uneducated.

      We don’t force our clients to get IRP, besides, not everyone is qualified to have one. As I said, it’s the client’s money anyway. That is why we always encourage our clients to do their due diligence. (Which I hope the writer did before coming up with this article)
      I mean, he does have great points. But only to his level of understanding (well this has been a few years ago, I sure do hope he knows more now)

      But because he didnt do his research and apparently the balls to maybe ask us and get as much information as he should have then he should have known why the cash value would not be ‘eaten up’ by the cost of insurance. (and why there is a lot of Filipino clients).

      It’s a shame to assume something you have not much information (and worse, publish it!)

      All you had to do is simply ASK and you shall receive (thy answers!)

      • Beth

        Bravo??

        • Snakey

          You are highly educated… not only financially but morally and ethically.

          • Tim

            Great response Elle B, this poor guy really doesn’t know much about a Corporate Insured Retirement Program at all! It is sad that people forget (or neglect)to do their homework before they complete such articles. There should be several compliance issues with the article he wrote.

            You forgot several benefits however, if Whole Life Insurance, such a Manulife PAR is inside Corporation, using 60 cent dollars to build wealth, as the business owner would be using pre-taxed Corporate dollars, which at death the majority can be paid out through the Capital Dividend Account tax free on death based on CDA Credit in policy. The Manulife PAR product’s current Dividend is 6.25% (recently announced remaining same Sept 2019 to Sept 2020). We illustrate at Current minus 1.0% (or 5.25% currently. Not sure where 18% came from?

            Of coarse there is interest to pay to Manulife Bank, or whatever Bank chosen and terms can change, but in a low interest, low growth environment, the dividend is great and interest rates should remain, tame, this is however a risk to consider. The great thing about Manulife Bank, is the interest can capitalize over time and be paid off by the Beneficiary at time of death, with the majority, if not all being tax free proceeds. In most cases, a policy of the size the writer is speaking of, there is normally a much larger death benefit than what is owing on the loan at the end, providing a boost to their estate.

      • Joem.balbiran

        Hahaha I find you funny Elle you are very defiant seems like you are hiding something….hmmm

        The advisors I’m referring too, I have evidence of their hand-writing promising to their clients about guaranteed return, guaranteed COI.

        Me and the clients even phoned the insurance companies and true enough the promises they told the clients are not in the policy and not what the insurance Headoffice are saying.

        So if you are doing your due diligence then good for you.

        One thing for sure I’m a number person and I see the whole picture and if you Google look at BMOIRp page 4 and look at their primary market you will wonder why you have to give a client who is not yet maximizing their rrsp, tfda any of the government plan to think even the insurance company say so.

        So what I can say let us see 10 years from now because there might be class lawsuit to those advisors selling promises not in line of what the client needs….I might be a lawyer by then and hunting those unethical and uneducated advisors.

        Kawawa naman mga Filipinos nandito na sa Canada naloko.

        • Elle B

          Lol Joem. If what you are saying is true regarding the insurance company that you called then they would have put our contracts with them on hold. And no, we cannot and do not guarantee rates other than rates sent by the company TOGETHER with the policy. Oh and fyi, we have plans which are more than 10 years old already. If you would like to see the statements of account, you can send me a private msg at [email protected] so you can see for yourself. I’ll wait:)

      • Presca

        100% agree with Elle’s clarification.
        👍

      • Kuya Eddie

        A sweet business indeed when you can get $2,500 for a 3-hour presentation.

        You say that you are not replacing TFSA’s or RRSP’s but that is exactly what Greatway Financial advisors are doing! After all, you can’t make that kind of money telling people to open a TFSA. The Bank of Montreal prospective for the IRP that Greatway sells states very clearly that the IRP is totally unsuitable if you are not a high income earner and have not maxed out your RRSP’s or TFSA’s. It is a rich man’s investment that Greatway sells to low income people who can’t get the benefit of it.

        One of my worries when I see this product being sold to people I know is that they can’t afford to buy enough insurance through these universal life policies. They should be getting 10 times as much coverage if they have a mortgage and family to protect, and that is only affordable if they get a term product.

    • Clive Caburnay

      Allow me to elaborate the Pittfalls and give a better qualified opinion from me, a Long-term Practitioner of Accounting, Taxation, Auditing, Life Insurance Advisor and Mutual Fund dealer.

      1. High MER’s and DSC. If high MER means 0.5 to 1% higher than convenstional Mutual Funds, I rather stick to IRP.
      With all its tax-free benefits both on Death Benefits and Refirement Fund, I can sacrifice 1% or $10.00 per $10K of investment. I wonder why the author mentioned DSC, there is no applicable DSC because we are not making actual withdrawals in IRP. The retirement is in a form of a bank loan with no actual withdrawal on the Fund Value, which also an indication that the author might not be a well-rounded advisor.

      2. RRSP’s and pensions are better. How can it be better when they are all taxed at the 21% at least. It may also be a cause of Pension claw-back on both OAS and GIS.

      3. CRA risks. Yes possible, but for now, it is just a mere “What if”. It may not happen. So are you gonna make a lifetime decision based on fear. On the other thought, do you think CRA has no power over changing the rules in RRSP & TFSA, surely they can ammend its rulings if deemed needed. So Conventional investments are not CRA proof either.

      4. Interest rate risk:. Collateral bank rate is based on Prime rate. Meaning higher interest rate only mean higher prime rate. Which also has direct impact on Mortgage, fixed loans, business loans and car loans. On your own opinion, do you think overall market growth will not be adversely affected if Bank of Canada will not control the rapid increase of lending rate. So if that happens, such drastic effect will also impact any Market Invested Funds such as RRSP, TFSA and Company Pensions. In Conclusion, higher bank loan could also destroy your RRSP and other conventional investments.

      5. Bank risk. Collateral loan is actually one of the most favored loan by banks, due to the nature having adequate security. Again, this pittfall is a pure “What If”, it may not happen. Why so parranoid on circumstance that had never ever happened in the past. The banks and other lending institution has always maintained a ratio of 75% allowable loan based on total Fund Value. However, most IRP are projected either on 60% or 65% ratio, so there is enough room for possible adjustment.

      If I have not addressed anything yet, feel free to ask.

      • TW

        Keep in mind that depending on the type of policy used total MERs can exceed 3% and sometimes 4% p.a. in some of the universal life plans. When it comes to lending against these policies, most banks will only lend up to 50% of CSV due to volatility. With whole life (stable asset) up to 90%. However, the client still has to have good credit and no lender will lend against a 50K CSV usually. There are also fees involved. When using whole life, the interest risk is mitigated, as the non-guaranteed CSV usually grows with rising rates. So, unless rates rise quickly, that should not be a big issue. The biggest issue with Corp IRP is political risk. Future governments can change the rules. But, then they could do that on RRSP, TFSAs etc. Sometimes a calculated risk is worth it. I would only suggest IRP and CIRP to wealth individuals. Never to regular clients, as these plan never work for them, unless they can make 8% net. Anything less and they fall apart due to the high MERs. Exceptions are Manulife UL and iA EquiBuild, due to total MER on their funds of 1% p.a. I work for neither and this is not a solicitation….lol

        • Marvin

          Bingo. Equibuild has a rising death benefit, and level cost of insurance. These “advisors” think that the concept is so simple with IRP/CIRP’s that they plug in wishful market returns to generate a desired number to entice the working class client to bite. Good on you for actually trying to educate people on this plan. The plan only works with the proper market, and a competent CFP/financial advisor that knows his/her stuff

    • clive

      Hi Joem,

      What’s unethical is writing up this article without doing proper research. It is a one-sided opinion without soliciting necessary facts from qualified professionals.

      It’s just unfortunate that we can post anything over the internet without being scrutinize or reviewed by a regulatory board.

      Insured Retirement Plan on the other hand has been legalized, supported, studied and approved by the regulatory board under the umbrella of the Ministry of Finance as well as CRA. There is an entire 8-page literature in CRA website about Collateralized loan on Life Insurance. The writer should have read that first before posing the “No. 3 CRA Risk”. It is not considered a tax loop-hole because CRA is actually fully aware of its existence and recognizes its validity.

      Maybe on your own UNQUALIFIED opinion, you may consider IRP as unethical and misleading probably because this unique financial concept itself is beyond your level of understanding or expertise. The fact that you mentioned an 18% return, indicates that you are not doing a proper research because nowhere in our IRP presentation we guarantee an 18% rate of return.

      I am, on the other hand a long-term practicing corporate and tax accountant, so among everyone, I should be the one who has sufficient level of expertise to scrutinize this financial concept. Which is why, all my 5 children, including my new born baby girl have IRP, because it is truly good and I am certain that they will thank me in the future for a very good effective financial plan that I set for them at the early years of their lives.

      The above 5 Pittfalls mentioned, are just mere “WHAT IFs” meaning, they may not happen at all.
      I don’t want to limit my financial potential simply because I am always in fear or in constant parranoia.

      In my own qualified conclusion, the main reason why the writer had come up to this ideas was maybe because he is an advisor from other company which in direct competition of companies promoting IRP. It is an easy attempt to smear an image of the competitors just to gain clients.

      Well we don’t operate like that. I rather give facts to those who are truly interested to know about the true value of IRP.

  3. swami Sharan Aggarwal

    Thanks Elle ,
    I am joining Greatway financial. You have done a good job. Most people have negative attitude and write negative without proper information. i do not find anything wrong with IRP. I was with other financial company—i am not expert but know–if we compare with other products–this is the best. Where there is an investment–risk is always there but here ,it is a calculated risk. Even in the worst case-nothing to loose. But everything is not for everyone–IRP is given to those persons, who are eligible and they need it. Thanks

  4. phil

    Leave me a good and honest answer. Most of the big banks would only offer this to those people that have excess cash. They would also note that people who have not maximixed their RSP and TFSA are not really a potential client. People they are targeting are high net worth client. Why are they not offering this to ordinary people like me? are they wrong in their study that IRP should also be offerred to ordinary people like me? Can you please enlighten me on this matter.

    • Joaquin raphael

      Hi Phil, in the bank they would offer this to someone who can save $20k annually for 15 years( just an example). And who can only do that,rich!
      Thats why insurance company offers this to people who can only put $600 minimum and above annually ( depends on their age)…
      Even if the bank says we cant accept it as a collateral or even the government put tax on it ( because of its growth capability) and also, for me its still better to have something than having nothing! …
      Every financial product in the market is amazing. Cant compare them apple to apple they have their own feature. Determine your financial goal then check which one would one would benefit you most.

      IRP is RISKY ( but how risky is Risky, numbers doesnt lie!) and NOT guaranteed ( guaranteed investment only guarantees capped potential growth!). Ex. Which ine is better guaranteed 8% ROR from 1950 till 2018 or risky and not guaranteed( s&p 500) numbers doesnt lie.

      $ money under your pillow 20 years less buying power.

      $ inside savings in the bank 72 years before it will double.

      $ in TFSA no tax but how about the growth plus inflation.

      $ in RRSP tax on withrawal but you can put it in RIFF( but what is the max allowable withrawal). Plus clawback with your CPP. And hows the growth capability.

      $ IRP is RISKY and NOT guaranteed!
      But always remember this NUMBERS doesnt LIE! I can explain more about this if you are willing to listen?…

      So choose above which one will you benefit most in relation with your financial goal. Thank you.

    • TW

      First of all, this solution cannot be offered in a bank branch, as it always involves an insurance policy. It is usually offered by the IIRO arm of a bank. Even then, due to the issues involved (see my other post), it makes no financial sense to do this for people that don’t have significant excess cash flow or corporate retained earnings. Too often, these clients don’t have an emergency fund. If they have to access their low level IRP UL YRT policy, that is usually a taxable event and often the policy collapses. Another thing that hasn’t been mentioned is that these personal IRPs are usually set up as YRT cost structures. The costs explode exponentially over time and unless returns (after MERs) are consistently high, the policies lapse. If done right and IRP/CIRP is a great tool. If done wrong, like so many i have seen and fixed in the past they only seem to have one purpose….you can guess what that is…..

    • Kuya Eddie

      Phil, a poor man can’t benefit from investing with an IRP the way a rich man does. This is because the rich man has already maxed out his TFSA and RRSP which are both more effective at sheltering savings from tax, deferring tax, and growing the value of invested assets than an IRP. Usually the rich man looks at an IRP for certain special purposes, e.g. if he has a lot of extra money lying around that he would like to turn into a tax-free estate when he dies. The rich man doesn’t use an IRP as his primary retirement savings and you shouldn’t either. Learn from the rich man!

      For anyone else, the $6,000 per year you can put into a TFSA annually as of 2020 is usually the best starting point for retirement savings. You can buy excellent low cost investments in your TFSA that don’t have sales fees and have very low annual expense ratios under 1%. When you retire (or before) any or all of the funds can be withdrawn for your retirement use without any taxes or other expenses. Why borrow and pay interest to use your own money as you do with an IRP when you retire? Makes no sense! That interest rate risk rate is real – historically, rates have been 5 – 10% and went to 20% in 1981!

      When you buy that IRP from Greatway the commission to your kababayan (countryman) might be $3,000. Guess where that comes from? YOU. When you enroll in a $250 plan with them, you are giving him/her a year’s worth of your contributions. Looking at it another way, that is 10% of what you contribute in the first 10 years! These are enormous fees that really whack your investment growth. You also pay a provincial tax ranging from 2 to 5% depending on the province that comes off every contribution you make. With a TFSA there is no tax and no bank will charge you a sales commission to open a TFS account and deposit funds into it. The worst thing they may do is charge you a small admin fee of a $100 or less.

  5. Grace

    I came across your article and gave me some important insights about IRP. Thank you. It’s true that brokers would most likely to emphasize only the good side of this strategy which I understand is mainly its tax sheltered environment. Bottomline, if an Advisor is only motivated to sell/endorse this product; or at the first analysis goes on to talk about IRP and present a UL right away, because of the high commission attach to it, then they are doing a disservice to their clients. Sad but this happens a lot.

  6. Mel

    Im getting confused.. I was offered an IRP and the offer is good though I found it too good to be true.. I’m not really aware of this IRP and other insurance but I’m in doubt of investing and if the deal will really happen after 20 years..

    • Clive Caburnay

      Mel, you are offered a very effective plan, stick to that.
      You understood how it was explained to you by your advisor. Hold on to those information.
      Don’t be distracted by these people who impose their opinion on something they have never taken time to study.

      IRP is above and beyond conventional approach of Personal Finance, which is why it is very effective, but unfortunately, were beyond understanding of other advisors.

      The 5 pitfalls that the author had mentioned are just mere “WHAT IFs”
      Meaning they may not happen in the future.
      So, are you going to plan out your life based on fear?

      But for RRSP, it will absolutely be taxed, very certainly. And since it will be an income upon withdrawal, much more chance of you losing portion of your Government Pension due to significant increase of your income.

      IRP is a smart way of diversifying your retirement funds in a way that it provides Tax Free Survivor benefit to your beneficiary, while maintaning the tax-free retirement fund.

      RRSP on the other hand is very effective investment tool as far as tax planning is concerned of your current income. But it will surely bite your a$$ in the future especially when you retire if you completely rely on it alone.

  7. Megan

    Insurance is not an Investment that’s it. Insurance needs to an Insurance Investment needs to be an Investment never ever combined the two or you will loose one!

  8. Mina

    Your Family will never ever get the Investment part if the insured die, oh you can but you have yo add additional payment like wow..!!!
    That’s your Investment so your Family cannot get it unless you add additional payment tsk tsk
    INVEST WISELY PEOPLE
    Insurance is Insurance
    Investment is Investment
    Listen to a Real Financial Advisor not to an Insurance Agent their different.

    • Clive Caburnay

      Me, I am an accountant, a tax accountant, a CPA and licensed advisor for more than 8 years. In my professional opinion, IRP makes more sense if carried out properly.

      Your opinion on Investment is Investment, Insurance is Insurance is a conventional approach to Finance.

      IRP is a above conventional, and in my opinion, Mina, you are not in the position to make qualified opinion on certain matters beyond your knowledge or field of studies.

      Have you taken time to learn the very details of IRP?

      Because me, I have been very well exposed to the conventional type of investing and taking insurance plans, but the 2 products are not working together. Meaning, your RRSP will remain taxable, regardless. Then you are going to pay your life insurance lifetime.

      With IRP compatible Universal Life Policies, the investment(Cash Value) generates a bonus (free money from insurer) which will eventually pay the future premiums of the plan. Meaning, your life insurance will eventually be paid-off just out of the fruits of the Cash Value over a certain period of time, without the need to reduce the cash value. So by then, you have the option to stop your contributions, or still continue so as to have a bigger pension, Do you want your insurance plans to be free? Because I do.

      Then if in case you’ll retire. Thru the IRP concept, then your Cash Value will be utilized as supplement to your Retirement Fund tax free because you are not making an actual withdrawal, you are making bank a bank loan. It is a smart way of legally avoiding tax and possible pension clawback. In RRSP, as I mentioned, there is nothing you can do more it. You will pay tax no matter what.

      • Marvin

        Bonus? The UL Bonus you speak of ranges from a minimum of 0.3% to 1.04%. You think that measly percentage will be enough to cover the rising cost of insurance throughout the life of the policy of the policyholder?

        • Elle B

          The reason why it’s important to overfund the policy.

          • Marvin

            Ah yes, overfund. Great insight, again with no numbers. Just ideal, general statements: “overfund the policy”. That’s great news for your client. Great news for the middle class client. When what they need is cost stability, you tell them to overfund the policy even more, to keep up with the rising costs. When Canadians have been more in debt than ever before, you would rather propose to put their money in one basket, a UL policy that will “save” them. By the way, I’m still waiting for your response. How does 250 a month grow to 1 million at retirement. Using your ideal mathematical average return of 12% annually for 40 years as a 25 yr old, the future value comes to roughly 190. Please explain. That seems a little too far from your projection.

          • Marvin

            Inputted the numbers wrong. But nonetheless, your growth index funds since inception returns about 6 percent, not 12%. So plugging those numbers in brings the fund to roughly 464k, still not close to a million dollars. This doesn’t take into account the rising COI that can potentially eat away at the clients cash value.

          • Elle B

            Which growth index? And based on what figures?

        • Clive

          Marvin, I suggest try to get a plan for yourself.

          Because you can never test the water not unless you dip your one foot in it.

          1% of $300,000 Cash Value is $3,0000
          Yes, that is more than enough to cover the cost of Insurance for the UL type that we offer.

          Always remember that UL type insurance is not generic. There are different versions of UL. The UL which you probably have in mind is different that the UL type compatible with IRP

          • Marvin

            Elle – Might want to look at the fund facts you’re trying to sell to see more detail. Based on what figures? Figures in the fund facts and by using Time Value of Money. Something you have yet to explain to me.

            Clive – Bonus structure:
            Years 2- 16: Maximum 0.60%
            Years 17-26: Maximum 0.74%
            Years 27+: Maximum 1.04%

            If market performance is subpar when bonuses are paid out, only the minimum bonus of 0.40% is paid out to the policy. Combined with ART, how can the cash value not be eaten up by the COI? You are now then asking the client to pay more in the later years just to keep it in force. Aging alone can increase the premiums. Also, what if the client develops a health condition? Are you certain that $3000 will cover the monthly premiums for a year?

          • Marvin

            Also, My wife and I haven’t filled our RRSP’s and TFSA’s. We do not need an IRP. That plan will not benefit us whatsoever until we have our net worth up and get our debts paid down. We are both accountants so we know that filling our registered investments is more beneficial than parking our hard earned money in your lousy, borderline irresponsible advice. Both of you have yet to give me detailed responses with calculations. Your fellow agent over there didn’t even know what I was talking about. I feel sorry for your clients. You best hope I don’t come across any of your policy holders because that BS you both are selling are getting converted real quick. Make sure your chargebacks won’t haunt you and put you in even more debt, just my 2 cents.

  9. Beth

    This people who sell IRP is a big scammer. They didn’t know exactly what they’re selling. They only sell IRP for commission.
    That’s it money money
    i used to sitdown with one of their agent and she is really forcing me to get one and like she didn’t even explained it what is the IRP all about she keep on saying that i can retire with $300,000 after 20 yrs, cause I have buly that time i already stop paying my Insurance and after that my money is already accumulate $300,000 in 20 yrs. Like how? If I will only pay $200 a month for my IRP how it will turn out 300k for 20 yrs?

    • Clive Caburnay

      Hi Beth,

      I have more than 20 years of experience in Corporate Financial Accounting, Auditing. I am also a Tax Practitioner in Canada and other foreign country. I am a Certified Public Account.
      I also happened to work in a prestigious law firm on my past career.
      I am a promoter of IRP as well as conventional investments such as RRSP, TFSA, RDSP and RESP.
      All banks offer IRPs as well, it is their websites.
      There is also 8 page literature in CRA website about Collateralized Loan on Life Insurance which technically is IRP. You can search that.

      Do you think we are all scammers?
      Or you might just be ignorant to the benefits of the IRP.
      I suggest, have an intensive discussion with Advisors who specialize in IRP before you impose your unqualified judgement.

      Who knows, you are like me few years ago, I was ignorant of the benefits of IRP, but when I’ve learned its true benefits, I regretted why it took me longer to study this amazing Financial Concept.

      All my 5 children have IRP because I know for sure, they will thank me in the future once they matured and realize that I have started a very effective plan for them at the early stage of their lives.

      • Mark

        Your kids have a UL set up for IRP? God help them. If you are a true accountant, you would know to stay away from IRP unless they are a high net worth individual because the whole purpose of it is tax deferred growth as an added basket to their portfolio. Second of all, you are not a CPA, you aren’t in the CPA directory. Did you even talk about the annual renewable term on the UL policies you sell? You’re under Primerica too, what an absolute joke. Take your sales pitch somewhere else and actually sell the product to right market.

  10. Emman

    This Insurance Agent only show their Illustrations not the Real Policy.
    Illustrations is different from the Policy period.
    Don’t show Illustrations to get a clients show them what’s inside the policy because the policy will tell all. Be transparent and will see if this people will still get Insurance from them.

    • Marie

      Very interesting comments. When you go to college or university you will never learn much about financial education. You graduate and learn how to best find a good paying job. That is why when ignorant people heard about different strategies on how to save money to supplement your retirement income, this sounds alien to them. That is why Canadian statistics says; 53 percent among the 65 years old are financially broke,14 percent are still working, only 9 percent are financially well off. Who takes control of your money and savings right now? The banks is controlling your money and earning from your money. How about you? You work so hard like a cow until when 70 yrs old? And still ends up broke when you retire. All because of ignorance and lack of financial education. Do your research people. Why the rich people don’t have rrsp or tfsa but they have millions in their Insured Retirement plans, why is that? Don’t bother to learn you will be working till 70 yrs old anyway.

      • Macs

        “When you go to college or university, you will never learn much about financial education.” That’s subjective. In fact, going to university or college is crucial to understand the big picture. I’M QUESTIONING THIS PLAN BECAUSE I ACTUALLY WENT TO UNIVERSITY HERE IN CANADA AND EARNED AN ACCOUNTING DEGREE.

        “You work so hard like a cow until 70 years old” Go take your self serving opinion somewhere else!

        Watch who you call ignorant.

        • clive

          Hi Macs,

          That’s really good that you have a solid Accounting background, it will be easier for you to understand the plan.

          I left my contact info below, allow me to lay out to you the benefits of IRP in a manner that may satisfy your curiosity. At least we can talk in a level of our technical knowledge since we both have solid Accounting Degree

          Don’t worry, it will not be a sales pitch, purely informative.

          You can never understand IRP not unless you have tried it, not just by listening to some presentations.

          I just dont want you to miss out a good plan simply because of some misconceptions.

          If you are not in Ontario, I also conduct Skype meetings.
          Once you understand the plan in its entirety, trust me, you’ll favor this plan more than conventional investment.

          Or if you truly believe that IRP is dangerous path towards retirement instead, then please enlighten me!

          [email protected]

      • Mimikyu

        You are all being conned BIG TIME by Greatway. They always make it sound like taxes are EVIL and BAD yet all of you guys reap the benefits of the other people’s taxes and rip off the Hovernment of Canada.

        Nice teaching there Greatway! You guys should be fined and jailed by the Government of Canada.

        • Mimikyu

          Typo, it’s *Government

  11. Clive Caburnay

    The analysis on the Pittfalls of IRP is yes informative, yet quite misleading. Yes it will be bad if all the 5 points mentioned above will happened altogether. So, as yourself, what is the likelihood of them happening altogether?

    Let’s say one or two of the points may eventually occur, it is still better than being taxed so much upon retirement if your option is only RRSP or other Taxable Pension Fund.

    Plus our approach in IRP is simply an alternative to an Insurance Product. Instead of the client buying an insurance plan, why not bump it up to an Insured Retirement Plan so that in a way, the client may have an option in the future to evolve the plan as a “Tax Free” source of retirement.

    All the above risks are actually present to RRSPs with exception to the No. 4 & 5. Some RRSPs have high MERs too. CRA may change their rulings on RRSPs as well in the future. But one thing certain on RRSP and Pensions, they are all taxable and may have pension claw-back.

    But other benefit of IRP, just in case we don’t live longer throughout retirement, at least the insurance package will give the beneficiary a tax-free death benefit, which will also be credit free.

    With IRP, I rather pay between 3 to 5% interest than paying over 20% tax with inherent reduction to Government Pension.

    I have a client who died with $192,000 in RRSP and TFSA, the wife only inherited net $70,000 because the client has so much debts and his savings were just utilized for the debt payment before the fund has been given to the wife, plus the wife did not have enough room to accommodate her husbands’ RRSP roll-over. So a huge chunk of the RRSP was just paid to tax.

    If the husband had taken IRP, then the wife would take the death benefit, hassle free. Death Benefit on the Insurance is mostly higher than the Investment (Cash Value) of IRP or even RRSP.

    • Marvin

      You’re still not talking about the fact that the UL policies you sell have yearly renewable terms. Failing to mention the rising cost of insurance eating away at the “investment” portion of your client’s policy is a damn shame and disservice to your client. You imply that they hold on to this policy as they age. Given the fact that health deteriorates over time, don’t you think the cost of insurance will be so great by the time they retire that they are left with no choice but to drop the policy because they can no longer afford it? You’re great at sounding intelligent by throwing big words and numbers at people, yet you fail to realize on your own that you are a disservice to your clients. Sell this product/strategy to high net worth people. They can afford doing this strategy for tax deferred growth. Problem is you don’t have the balls, the credentials and the network to even step in a room with the wealthy that this plan is actually designed for.

      • Elle B

        You’re right about the Yearly Renewable Term, wrong about assuming we don’t inform our clients. We do. That is part of our policy delivery service that we do before the client decides to accept his/her policy. We show them scenarios of very low market returns and the effects of it on their plan. We show them there are possibilities that it will lapse, thus, losing their coverage.
        We show them the terms and conditions regarding IRP because just like any other plan, it has its own share of downsides. Full disclosure is very important for us.
        We do not qualify every client we have, especially older clients or those who cannot afford it. We don’t sell for the sake of selling.

        Many big banks also offer IRP but only to high network clients. But there’s no law surrounding IRP that it should only be offered to them.
        That’s why there’s Greatway. We want to make the middle class aware of an alternative plan that may be more beneficial for them. We spend atleast 2hrs to discuss IRP with them without the assurance that they will take it. THAT is client service.

        If you want to know more you are free to go to any of our offices all around Canada. You can go there and ask without being pressured into “buying.”
        Im sure you would like to be educated more.

        It’s not wise to make assumptions without taking the time to really know what you’re talking about. You do sound smart, if only you didnt rely your points based on google results.

        • Marvin

          There is no law stopping you from selling this product to the middle class. My point is there’s no benefit to be selling it to that market. The point of the IRP is for tax sheltered growth when all other investment baskets are filled. I didn’t just google search this, I know my stuff. Explain to me in numbers how can someone that hasn’t filled their RRSP’s and TFSA’s benefit from this IRP plan. How does your client earn the outrageous 1 million, 1.5 million at retirement by just dropping 250 a month on insurance? Do you know Time Horizon? Do you know Time Value of Money? Do you know the difference between Annualized Total Returns and Average Returns? Don’t embarass yourself.

  12. Kevin McGoldrick

    Home › Insurance › Pitfalls of The Insured Retirement Strategy

    Pitfalls of The Insured Retirement Strategy
    Written by Glenn Cooke

    Hello Glen! Do you have anything to say to these comments?
    Your silence is deafening

  13. Clive Caburnay

    Mr. Glen is silent because he knows he cannot counter my valid points!

    He should have done due deligence by proper research and solicit qualified opinions by different sectors within the Financial Industry.

    This article is pretty obvious to smear the image of IRP which is inevitable gaining much more popularity!

  14. Clive Caburnay

    If you want to discuss further Insured Retirement Plan/Strategy, feel free to email me.

    If you may have read my comments above, I have stress out certain QUALIFIED/VALID points coming from an unbiased Finance, Accounting, Taxation practitioner.

    email me at [email protected]

    • Mimikyu

      I hope you guys realize Greatway is not that great, and tax evasion is fraudulent. If you guys do not want to pay taxes, please do not live in Canada. Thanks.

    • marie

      Hi Clive,

      Please show us your diplomas and certificates of personal financial planning, or cfp, (not just your university degree from the philippines) and maybe your points will be valid.

  15. Macs

    So what are your credentials exactly Clive Caburnay? Don’t you work at Macs? It’s not hard to look up your Linkedin account. Geez.

    • Clive Caburnay

      Hi Mac, I have given my email address if you are truly serious in getting to know me more…
      I actually commend your research skills.

      I am more than happy to meet you in our office, but not in MACS.
      If you are not in Ontario, I also do Skype meeting.

      My linkedin account has not been updated for years, I forgot my password which is why I have never accessed it since. In fact i can no longer remember the last time I used Linkedin.

      The fact that I have given my full name and possible contact information indicates that I am not hiding anything, that every word I wrote in my comments above are true and accurate.

      Dont get me wrong, I am not boasting or flashing my credentials, I just want the readers to understand that publications of certain discussions on Financial Matters should be done with proper research, and not to mislead readers by imposing one-sided opinions.

      • Macs

        Hello Clive,

        I do not think this article was meant to mislead readers but to enlighten them with the variables that might affect this plan.
        The IRP is meant for people who are between the ages of 35-55, are in good health, are high income earners, have maximized their RRSP contributions, foresee a gap in their retirement income needs, have excess cash and are comfortable with carrying debt (as per BMO IRP target market).

        Personally, I don’t check any of those qualifying factors so I’ll pass for now.

        Think about it… Why would the bank place these qualifying factors when they could be making money from selling it to anyone?

        Thanks for your time.

      • Macs

        If every word that you wrote on your comments above are indeed true and accurate, how come I cannot find your name in the CPA Ontario directory (unless you’re a member in another province?). Please correct me if I’m wrong.

        Thank you

        • clive

          Hi Mac,

          Oh sorry if I may have misled you with my designation.

          What I meant for CPA is Certified Public Accountant, not Chartered Professional Accountant in Canada. My designation is from another country. I chose not to continue my CPA/CGA program in Canada because my interest has now been shifted to Personal Finance, more than Corporate Accounting. I also used to have Mutual Fund License but I also did not renew it after 5 years of keeping it simply because I don’t use it. If my clients would want pure investments, I just offered them Seg Funds instead.

          But whether I have full accounting designation in Canada or other country, it doesn’t matter because we adopt the same accounting principles and practice anyways.

          As to your question as to why the banks would put qualifying factors before availing IRP? Simple, they make more money in selling investments that selling insurance! Why? Because most banks don’t have insurance companies of their own, they utilize another company’s insurance products and rebrand/labeled as their own.

          While Investment products are of banks’ full control. They can utilize clients’ investments and leverage it through lending and fractional banking.

          Always remember that banks are very smart, they are the leaders of the “Finance Game”.
          Think about it, all of their products and services have to be at their best interest first, before anyone else.

          Again, if you truly are serious on your claims about IRP, feel free to meet me, I’ll be glad to share with you my in depth understanding of the this innovative financial strategy.

          Believe me, I once was your shoes 3 years ago. I was also apprehensive on the approach of using insurance as retirement tool. But believe me, the Universal Life that we used with our Insured Retirement Strategy is not the same UL that you might have in mind.

          The only difference maybe between me and the other advisors is that I am more open-minded when in comes to new information. I rather investigate, inquire and research before I jumped into conclusions.

          I just hope you’ll do the same thing. You seems to be smart and knowledgeable. I’m sure you’ll be able to grasp my views too.

          • Macs

            Hi Clive,

            Insurance as a retirement tool is a valid strategy.. for the right market. You’d rather leverage as a retirement tool just for the sake of saving money for tax purposes? Why not save and invest using traditional methods and then go do strategies like this? Canadians are more in debt nowadays and selling this to the middle class introduces even further risk to their financial future. You just gave me an entire spiel about how banking works. That didn’t answer anything as to why they put qualifying factors for this plan. They put these factors because it will only benefit the wealthier class of clients. Because the middle class cannot afford to take this risk.

          • Marvin

            HAHAHAHA. Fractional Banking? Leveraging? Yes, that’s how banks make their money. Thanks for explaining how my chequing account works. That doesn’t answer the question the person asked. Why are there pre-qualifying requirements agents SHOULD do before offering this product? Keep slinging those words and running around in circles. You’ve yet to explain to me as well in numbers how this more beneficial than an RRSP and TFSA. You’re an accountant! You should know.

            Kawawa mga kababayan natin

  16. Clive

    Marvin, I have email address there, book an appointment..

    I’ll run the numbers with you…

    • Marvin

      No need, I’ve given you numbers here, with explanations. You could do the same and refute them but you keep resorting to “set up an appointment”. What are you going to show me? Illustrations? The numbers don’t lie. This plan will never make sense for the average person (myself included). Also, sidenote – Insurance is and always will be an expense, treat it that way. That’s the same with US GAAP and IFRS standards. Like seriously consider this, you purchase the UL and pay monthly premiums (expense), some portion of money is set aside and invested while inside the policy (asset), the asset is exposed to risk, then you take out a loan (liability) JUST FOR TAX FREE MONEY? And all greatway/primerica/transamerica/WFG does is sell this to THE MIDDLE CLASS?!

      I’m done explaining. Have a great day.

      • clive

        Now it all ends up to opinion based conclusion.

        You want to associate IRP for rich people only?
        So, if that’s the case, I rather associate myself and my clients to products and services initially available for the wealthy only. Somehow, I’d love to be in the shoes of the wealthy and all get the benefits they are enjoying.

        That’s the problem with so many people, they limit their financial potentials simply because from the very beginning, they already accepted their defeat in the Finance Game. We always label people in accordance to their classes.

        Conventional investing has been adopted by so many, but facts don’t lie. 70% of the seniors now are retiring poor. Your strategy has been in placed for more than 50 years, yet a lot of people who had saved in their RRSP and conventional investing are now retiring poor while their families may be left with almost nothing, because their retirement plans are deficient in nature.

        And now, there is a possible breakthrough from that stigma and yet, all you guys say is that “IRP is only for Wealthy” How unfortunate!

        Well, I wish you all the best. I would have wanted to give the facts with pre-calculated figures and projections, but it is difficult to challenge opinions, especially if they are trapped within a closed boundaries.

        Regardless of whatever finance strategy someone may take, monitoring is still the biggest player of our success. I’m always cautious with my finance and so are for my clients which is why our brokerage has fired so many advisors, even the producers because they never followed protocols. We are mandated to do review and monitoring with our clients every year and our company never hesitates to fire us if this is not done.

        I would have wanted to make you as one of my clients or associates, to be honest. I like people who challenge me, they make me grow and be better in my craft, they are my check-and-balance.

        • Macs

          Hello Clive,

          You really seem to have it backwards. Do you?

          “I’d love to be in the shoes of the wealthy and all get the benefits they are enjoying”

          – Again, the strategy works for the rich because they can afford the RISK. Selling this plan to the middle class will just introduce financial distress.

          “That’s the problem with so many people, they limit their financial potentials simply because from the very beginning, they already accepted their defeat in the Finance Game. We always label people in accordance to their classes”

          – You really are a salesman. LOL. Instead of cruching numbers, you guys would resort to irrelevant emotional comments.

          “I would have wanted to give the facts with pre-calculated figures and projections, but it is difficult to challenge opinions”

          – You still have the opportunity to give us FACTUAL numbers, yet you’re the one spieling your OPINIONS here. Just give me a simple TVM Calculation.

          N:
          I/Y:
          PMT:
          PV:
          FV:

          It’s not hard. You took accounting right?

          Get a real job. Pathetic con artist. Thank you very much.

          • Clive

            Funny though because the calculations you are asking from me are formula of actual withdrawals, which is not IRP.
            Obviously you don’t understand truly what IRP is and sorry pal, you are like a dog barking on a wrong ghost!

      • Clive

        Hi Macs,
        If your opinion is not qualified with no calculations, realistic projections or even verifiable facts, then for me you are just spreading rumors. I don’t even know your credentials!

        “Always remember… Rumors are carried by haters, spread by fools, and accepted by idiots.” ― Ziad K. Abdelnour

        There are far too many negative minds in this society and I refuse to be part of such idiocy!

        • The "accountant" from Macs

          “Funny though because the calculations you are asking from me are formula of actual withdrawals”….. aren’t you selling the IRP because it provides tax-free income for individuals when they retire? That formula is essential to figuring out how much cash value you can have in future years. You and your colleagues preach this all the time! Get an IRP, be a “millionaire” when you retire! You and your colleagues even put 12% as i/y right? Surely this formula is relevant to the IRP. You’re blinded by your own idiocy.

  17. Marvin

    HAHAHAHAHAHA. Same old swan song. I want to associate IRP with Rich People? You’re damn right I am. The rich can afford to take the risk of such strategies. I see you read the recent BDO report and I ask you this. You think that the problem here is that people are limiting their “potential” by not taking on your superb plan? Did you even read the article? It says there people live paycheque to paycheque. People are taking on more debt and can’t pay it back. 38% of retirees say that they can’t afford to save for retirement. This is an income and lifestyle issue. People are spending too much. The cost of living is also rising. It’s harder to save money. It’s harder to invest money when you don’t have enough for bills alone. Tell me how can a regular joe “OVERFUND, OVERFUND, OVERFUND”. Tell me hotshot, can you – and do you overfund and make deposits of 50k annually into your own IRP plan? Don’t be surprised that when the time comes and you retire you actually ended losing money over time. Also, you should probably read up on investor profiles. Taking out a collateralized loan for retirement just to “avoid” the tax bill is quite a big deal without consulting a person’s risk tolerance.

  18. Macs

    Also, let me add…

    Upton Sinclair once said, “It is difficult to get a man to understand something, when his salary depends upon his not understanding it.” Another version of it goes, “It can be very hard to understand something when misunderstanding it is essential to your paycheck.”

    Best of luck!

  19. clive

    Macs & Marvin,

    Gush you guys are totally rude!
    Damn!

    There is no need though!
    We may different opinions but no need for name shaming…

    Gush!

    • Clive

      Hi Macs,
      If your opinion is not qualified with no calculations, realistic projections or even verifiable facts, then for me you are just spreading rumors. I don’t even know your credentials!

      “Always remember… Rumors are carried by haters, spread by fools, and accepted by idiots.” ― Ziad K. Abdelnour

      There are far too many negative minds in this society and I refuse to be part of such idiocy!

  20. IRP Holder

    Good thing i learned about IRP and i am sharing the knowledge. My family and I are enjoying the growth of our investment. You guys can write your bad comments about IRP, that’s OK. You will never understand IRP unless you learned what IRP plan is.

  21. Willy

    Good thing i learned about IRP and i am sharing the knowledge. My family and I are enjoying the growth of our investment. You guys can write your bad comments about IRP, that’s OK. You will never understand IRP unless you learned what IRP plan is. OK

    • Marvin

      Sure pal, come back and remind me 20 years from now if you really got ahead with your plan.

      • cliveC

        Funny that you mentioned that! If you check the history of life insurance industry, a lot of people during the 1800s and 1900s when it was firstly introduced were skeptics and chose to let it pass. But eventually regretted many years after when their friends and families were started dying, and children were actually receiving the death benefits.
        While those skeptics realized that their children would be penniless upon their death.

        Buddy, we are in Canada, not in a 3rd world country. Canada has one of the highest regulations when it comes to Finance and will never tolerate any form of unfair professional practise.

        • Marvin

          Buddy you sound like an idiot. I understand you can’t let go of your stupid plan now because of the sunk costs so it’s all good buddy. Thanks for explaining to me the importance of insurance. I already knew that. I addressed and questioned the MIXTURE of both insurance and “investment” for the middle class – I didn’t question the importance of insurance. The question of legality and unprofessional/unethical methods are two different things. You can be unethical but still be within legal limits buddy. Didn’t you know that buddy? Moron.

          • R.H.C

            Hello Marvin & Clive.

            Thank you for sharing your knowledge and expertise.
            I have read all your messages/comments. Its very informative.
            Both of you deserves 👏.
            Im just wondering about ” annual renewable term” which mentioned repeatedly.
            I may not have the same degree level of you both, but i was wondering why it was not explained properly.

            People have been saying ” fund value will be eaten up eventually , because as we age our COI increases as well”

            I am not siding on either of you here. But i would like to point out the very basic of all this.
            How to calculate Cost of Insurance?
            COI = net amount at risk x rate ÷ 1000

            How to calculate net amount at risk?
            Death benefit/Face amount – Fund Value = NAAR

            Does UL really have a high COI?
            Basic knowledge:
            Types of UL:
            1. Level – where the Insurance coverage/death benefit does not increase
            2. Increasing – where the insurance coverage/death benefit increases as fund value increases

            Types of Cost of Insurance:
            1. Level – where the premium stays the same ( commonly high/ expensive). The risk or cost from beginning to end is averaged
            2. Increasing / yearly renewable term – which increases every year ( as we age )

            Q&A:
            Is it really going to be expensive in the end?
            A: based on the formula mentioned, that all depends on how your advisor structured your plan. Based on the convo above( marvin and clive) ,
            If IRP is structured as Level type of UL with Increasing/ yearly renewable term,then the answer will be yes and no

            NO – eventually the COI in this type of structure is definitely less expensive compared to others and or decrease. In result , it accelerates your fund value . If the market and or fund value together with the bonuses( if there is, ) increases overtime, then clearly the NET AMOUNT AT RISK ( which is the basis of COI) decreases. Even if the rate/1000 increases as we age, remember the cost is now based on the difference between the Death Benefit – Fund Value.
            Note: read about optimization

            Could be YES –
            In cases where
            1. the market went down and so as your fund value,
            2. If there is withdrawal made in the account that caused the fund value to decrease,
            3. Any loans made etc.
            Note: understand all the risks that could cause your fund value to decrease

            Again, understanding the basic calculations will help us decide as to what plan would be best for us as clients. At the end of the day it is our money, it is our future, and most of all ,its our life.

            Everyone has their own opinions and views about everything. Ignorance excuses no one. All this knowledge and information , we owe it to ourselves. So let us not depend our decisions from someonelse’s opinion but instead figure it out yourself. Its your future that is at stake anyway. 😊.
            Spread love instead of hatred.
            Peace be with you all😇

  22. Jake M

    I have read all comments from above and from what I understand on how it was explained to me seems to be different. I have been told that “my investment” will be used to buy some stocks in the “stock market” for a particular “stocks”? I was told that my investment will be put in a sister company of CPP (I forgot what the name is). And the interest rate that will be added to my investment will be based on how the market would go in a month. That is how your money or investment would grow. That is the reason why I am in doubt to get an IRP. Stock market for me is a hit or miss kind of investment. And if the stocks goes down so bad you would end up loosing all your investment. Can somebody explain this to me further?
    TIA

    • Marvin

      First off, good on you for realizing the IRP is not worth your time. The real issue with IRP’s is the annual renewable term rider that’s part of the policy. The cost of insurance goes up as time goes on while your investment could potentially be eaten up by the rising cost of insurance. This would prompt you in the later years to increase your premiums to keep the policy in force. All in all, there are too many moving parts in this plan that does not make sense for a working class family/individual. If you want to save money, put your money in a TFSA and RRSP.

      Anyways, your investment will be used to buy FUNDS (these are a combination of stocks to hedge risk and maximize returns based on your risk tolerance). Don’t worry about stock market fluctuation because that is a given. The important thing is to fill out an investor questionnaire to figure out what type of asset mix suits your risk tolerance. There are usually four types: Conservative, Balanced, Balanced Growth and Aggressive. This can also be done for TFSA’s and RRSP’s. Hope that kinda helps

      • Wecky

        Hi Marvin,
        I am so happy with your comments. I had a friend who tried to sell me this IRP and I told her that we are still doubting our stay in Canada but she still pushed for it. Anyway, I found it a disservice from her end because a good financial advisor could have offered first a TFSA for someone with my doubts and had just lived in Canada for less than a year. She is an agent in one of the Insurance companies mentioned above and true enough all those big words and numbers are appealing but something such as this I doubt what the government has to say. In a nutshell, I did not get this IRP, moved out of Canada and super happy I still have the cash I saved up with me. As I read, IRP is for the wealthy and not for those like me earning the base wage in Canada so I am saddened by the disservice done to me. I think for every Filipino it is best to learn from the Chinese. They are very rich in Canada and in Australia. There are lots of other investment vehicles so it is best to research first and get hold of the right information from the right people with the good and honest intention.

        • Marvin

          Our Filipino community is largely a working class community. We all work hard for our money and the community needs to be educated on proper information especially regarding money/saving. It is very important to identify what the needs are for every person and not push one product when it clearly doesn’t suit their needs. Thanks for your reply and please relay the information to your friends etc. living in Canada.

        • Clive

          Hi Wecky, I have a question, did you understand what IRP is?
          Do you think that the 30-min presentation is enough for you to gauge the totality of the plan.

          If the advisor had sold you TFSA only, and you die early, will that $100 TFSA contribution be enough to for your funeral?

          I have a personal acquaintant who refused the plan, then the husband died few months after with no insurance, imagine the regrets they had. Newly immigrant, and their life-savings were just utilized for funeral, if they had taken the plan, then guaranteed $500,000 would have been given to the surviving family.

          The advisor who sold offered IRP truly cared for your welfare. IRP is Insured Retirement Plan, meaning an insurance plan but can be utilized as well as retirement plan. The monthly payment is flexible anyways. But at least the clients have insurance coverage immediately, they can always lower their contribution momentarily while establishing their economic stability in Canada, then later on increased the contribution once capable. I have done that multiple times, meaning lowered my contributions and just catch it up later.

          When it comes to Chinese as your example, the wealthy ones don’t need to carry Life Insurance because they already have hundreds of thousands or even millions in their multiple bank accounts. They can even buy house cash in Canada.

          But for Filipinos, we need Life Insurance and also wants to retire, so why can’t we combine into one product. Imagine buying a car, which can be transformed later on into a mini-van or bus later on. If you can’t relate that to IRP, that means you don’t really understand what IRP is.

          You don’t know what you are missing for.

          • Macs

            Shut up already. I already destroyed your arguments above a long time ago. Stop sounding so damn desperate. You think the noise and information around your stupid strategy is unwarranted? The victim complex is strong with you. Is this what your great butcher mentor instructed you to do? Such a shame an “educated” man like you can be easily manipulated. HAHAAHAHAHAHAAHAHAHAHAHHA

  23. Angelika

    As I am learning finance in order to get my degree in business administration, and I’m aspiring to become a financial adviser at the same time, I want to share my thoughts as well in a student perspective. I’m 19 years old, young, and I’ve seen value in both Insurance and Investment. just to let you know, as I am learning Finance and business, Insured Retirement plan is not introduced in FNCE 1125: Personal Finance.

    It is worthy to note that RRSP and TFSA are income tax strategies. If you simply put money on both accounts, your taxable income for the current year will be deducted. It means, low income, low taxes paid. Both RRSP and TFSA are offering you an enjoyable moment of paying LESS tax right now if you have an account.

    Enjoy now.
    suffer later.
    that’s how a tax story of both are being told.

    both Retirement plans are insured by CDIC, which is the one insuring the banks.

    IRP or Insured Retirement plan belongs to the Insurance Industry insured by Assuris.

    different industries…
    different degrees of safety…

    another thing is that,

    NOT EVERYONE CAN GET IRP.

    There are strict qualifications to get an IRP.

    if you bank at TD, BMO or at Scotia, they offer IRP. and you’ll be surprise how much money they need for an individual to put annually to qualify for IRP.

    Manulife actually stated that affluent canadians are using IRP.

    when we say affluent, we say, those who are rich,
    the ones receiving huge amounts of dividends from their investment portfolio that has no room for RRSP or TFSA. because RRSP and TFSA are having this maximum amount to put on.

    usually, people with huge dividends exceeds the maximum amount of their RRSP and TFSA accounts.

    where do they put their dividends received from investments in stocks?

    figure it out…

    because I bet, and I understand why affluent canadians with multiple investment portfolios put it on Insured Retirement Plans to supplement their retirement income in the future.

    Insurance industries somehow modify the availability for other canadians to retire comfortably with access of a tax-free income.

    we are expected to be financially strong as we retire. if we say, we can’t get rid of taxes, that’s true. but there’s a legal way to refrain from it.

    IRP. it’s legal. definitely interesting…

  24. Clive

    About the negative reviews, I’ve noticed one thing common, almost all of them really don’t understand IRP and some are obvious competitors whose intentions were only to defame. They are not long-term clients, so how can we validate their opinions? Don’t you think that the very people who are credible enough to complain about being scammed or ineffctive are the actual clients who are plan holders of IRP?

    But on the contrary, the noisy ones are those who are totally IGNORANT of the plan. They had only seen a 30-minute presentation and then act like experts imposing their opinions, defaming licensed professional advisors who are regulated and acknowledged by the Government of Canada. Me as an Accounting and Finance major, it even took me few more visits with the broker for me to fully grasp the totality of the plan.

    My suggestion, explore the company, visit their offices, talk to their brokers and ask questions. Have a first-hand information rather than just soliciting unqualified reviews online. YOU DON’T KNOW WHAT YOU ARE MISSING FOR!

    • ^ This guy is NOT an expert

      The problem is, you aren’t an expert. Because if you were really an expert, you would know that the market you’re trying to sell to does not need such plan. You’re selling this to folks who earn the average income or lower. What they need is to save and invest their money in traditional investments as well have proper life insurance SEPARATELY to protect their loved ones. Show me statements of these clients of yours truly benefitting from this plan. A lot of negative noise comes from the company you work for because frankly most of you are incompetent at best. Tell me is there anyone that really got rich from putting their money in an insurance strategy? Fact is, rich people only use this strategy you’re selling for tax planning. They aren’t using this as their main vehicle to be rich and have a secure future. Yet you’re telling Betty over there earning 40,000 a year to dump their hard earned money into a plan that will never make sense for them in the long run. Give your head a shake mate.

  25. Gazelle Cummings

    IRPs are not good for the Client. They are only good for the insurance companies and the Agents that get massive commissions. They are not the best solution for the Client. It is unfortunate that people would sell their souls for money at the expense of the client. Bottomline, during the buildup years, the client’s beneficiaries only get the life policy. Plus, in the first few years of withdrawals, the face value of the policy goes down. If the person dies before that the policy’s upturn, then the beneficiaries would get less than their face amount. In insurance, you can’t eat your cake and still have it.
    The best solution is to UNBUNDLE insurance from investment. The Client can get a regular life insurance policy separately. Then do a Tax Free Savings Account separately. Even in a case where the person is paying $600 per month, unbundling could mean they divert 500 to a TFSA which is TAX-FREE, and GROWS TAX-FREE, and they can keep BOTH the TFSA and the life policy. Everything is kept. Plus, there are no bank loans to worry about which saves them additional interest rates on bank loans.
    People! UNBUNDLE!!!

  26. Kuya Eddie

    Ah, so much passion and so much misinformation.

    Let’s take a simple example. You are 30 years old and can afford to put aside $200 a month for retirement at 65. If you put that into a balanced stock and fixed income portfolio by means of say, a couch potato portolio based on ETF’s you should realize a long term return of some 6%. The investment fees in these ETF’s that you can buy and hold through your bank’s investment arm in a TFSA account can be in the .3% range, i.e. very low.

    In 35 years, at 5.7% (6 – .3) you could reasonably expect to have roughly $290,000 in your ETF portfolio on reaching 65. And $200 per month or $2400 per year is well within the limits of what you can contribute to a TFSA, since in 2020 you are allowed to contribute $6,000. You can withdraw this money tax-free on reaching 65! Yes, no tax which is what you want. Moreover, TFSA withdrawals don’t count as income if you are trying to qualify for GIS.

    But when you put the same funds into an IRP, the fees could be 3%, so that would reduce your portfolio to around $150,000. Actually, it would be even less since there are also provincial taxes of as much as 5% when you make IRP contributions. And your advisor will get $2,500 or more of your money upfront that doesn’t get invested. But to get that money at 65, you have to borrow money against the IRP value. So you don’t pay tax but you do pay interest! Why would you possibly buy the IRP if you can only save $200 per month?

    Aha, you say but I am getting insurance too! But that is not free. If that $200 is the investment amount, it may cost you say, another $50 per month for the insurance. And the insurance cost is very high, maybe 10 times as high as buying term insurance in the same amount. It is said that the insurance becomes free as the IRP matures, but it is not – money is moved from your investments to pay for the insurance. So that reduces your investment funds.

    Most people like to have a lot of insurance when they have young families and a mortgage. But when you are 65 your house should be paid for and your kids out of the house. At that point you may just want a $10,000 policy to cover a funeral. So in general, you should buy the term insurance when you are young and ADD the savings from doing so to your TFSA! That will do more than handle your funerals.

    With a TFSA you can withdraw some money anytime for a family emergency . Do that with an IRP and you will incur those nasty deferred sales charges! A TFSA is so much more flexible!

    IRP proponents like to bash RRSP’s. The premise of an RRSP is that you lower your taxes when you have high earnings and a high tax rate and you take out the money on retirement when you have a lower income and tax rate. This strategy works best for high income earners. In my own case, I got tax refunds of 35 – 47 % on my RRSP contributions during my peak earning years, but now that I am retired and able to do income splitting with my wife, our 2019 income tax payable was 13% of our taxable income! It worked for us but for a low wage worker the benefit will be much less. E.g. If your working and retirement incomes are under around $49,000 you will be at the same income tax levels. That is why RRSP’s may not work as well in this case. But even if you get only a 10 – 15% refund you can add that refund to your TFSA where it will grow tax free and it won’t incur taxes when you take it out. The other thing is that you may really need that RRSP refund when you are paying a mortgage and raising a family. So deferring the tax can be a good thing for you, even if you eventually have to pay it. Keep in mind too that an RRSP is normally converted to a RRIF and the income from an RRIF qualifies for income splitting with your spouse, if he/she has a lower income than you. That could save you a lot of tax – it does for me!

    By the way there is misconception that the lowest income tax rate is 20% (Ontario Provincial plus Federal). But that doesn’t taken into account the basic personal deduction that offsets that. There is a basic personal deduction of $12,000 as well as an additional senior deduction if you qualify. And you also have deductions for medical expenses and charitable donations. So 13 – 15% or better is a more reasonable estimate.

    • Macs

      Kapwa Pinoy that gets it. Cheers Kuya Eddie.

  27. TFSA vs IRP

    Very good information Kuya Eddie. How about the following,

    – Does TFSA offer creditor protection?

    – Does TFSA give the beneficiary or death survivals 100% tax free and probate free savings/investment?

    – What if the bank where we have TFSA becomes bankrupt? Isn’t only up to 100k covered? Whereas assuries covers up to 85%.

    On a side note, what are your thoughts about mortgage insurance vs term insurance?

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