Episode 221: Permanent Life Insurance

Of course, you want to protect your family and your savings from unforeseen consequences, but is life insurance the best option? Can life insurance be an investment rather than a cost? In today’s episode of the Rational Reminder Podcast, we take a look at everything life insurance and dig into some hard-hitting research on the subject. We break down the various insurance products available and unravel the nuances regarding returns, dividends, and the associated fees. We discuss why there is so much confusion regarding returns and associated risk, how your contribution can affect your returns, and why you may not get the payout you expected. We also delve into what makes each insurance product different from the next, whether predictions on insurance policy returns are possible, and how insurance compares to other asset classes. If you’re looking for insight into the potential tax benefits of life insurance and a breakdown of the different scenarios where life insurance is needed, this is the episode for you!

Key Points From This Episode:

• The main topic of the episode: permanent life insurance. (0:04:29)
• Defining insurance and how it is typically structured. (0:04:44)
• ‘Term life insurance’ and how it works. (0:05:41)
• A brief outline of the differences between term insurance and permanent insurance. (0:07:37)
• Details about term life insurance and the benefits to the policyholder. (0:09:37)
• Another type of life insurance: universal life insurance. (0:11:05)
• How investments within a life insurance policy are designed. (0:13:20)
• An interesting insight Ben came across while researching insurance. (0:14:38)
• Non-participating whole life insurance and the associated cash value. (0:16:00)
• A breakdown of participating life insurance and what makes it different. (0:18:42)
• The basis for performance and premiums on participating insurance. (0:21:43)
• Whether or not it’s possible to predict returns from insurance products. (0:25:25)
• Reasons for the obscurity surrounding insurance products and expected returns. (0:25:49)
• The policy illustration software that many insurance companies use. (0:29:35)
• Insight into post-tax returns of permanent insurance on death. (0:35:23)
• An overview of when you would need life insurance. (0:40:58)
• The long-term expected death benefits compared to other assets. (0:43:03)
• Insight into the commission incentive associated with insurance policies. (0:45:47)
• Highlights of a recent presentation that Ben gave at an IAFP conference. (0:46:53)
• Feedback received about the Jonathan Berk and Jules van Binsbergen episode. (0:49:01)
• A summary of recent news about rate changes and developments at Vanguard. (0:56:23)
• This week’s review of The Art of Gathering, about meeting more effectively. (01:00:55)
• An honourable mention of another book, Your Investment Philosophy. (1:06:22)

Links From Today’s Episode:

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Rational Reminder Website — https://rationalreminder.ca/ 

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Benjamin on Twitter — https://twitter.com/benjaminwfelix

Cameron on Twitter — https://twitter.com/CameronPassmore

‘Bad Advice: Explaining the Persistence of Whole Life Insurance’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1786624

‘The Long-Horizon Returns of Stocks, Bonds, and Bills: Evidence from a Broad Sample of Developed Markets’ — https://business.unl.edu/academic-programs/departments/finance/about/seminar-series/documents/MikeODoherty.pdf  

‘The Sensitivity of Life Insurance Firms to Interest Rate Changes’ — https://www.chicagofed.org/publications/economic-perspectives/2013/2q-berends-mcmenamin-plestis-rosen

‘The Canada Life Assurance Company (the Company) Participating Policyholder Dividend Policy’ — https://www.canadalife.com/content/dam/canadalife/documents/insurance/par-whole-life-insurance/en/Policyholder_Dividend_Policy.pdf

‘Canada Life open participating account: Historical investment related performance’ — https://www.canadalife.com/content/dam/canadalife/documents/insurance/par-whole-life-insurance/en/46-11488Z_FF_CL_Historical-PAR-Financials_Brochure_AODA_FINAL.pdf

‘A Dissection of Mutual Fund Fees, Flows, and Performance’ — https://www.osc.ca/sites/default/files/2021-09/rp_20151022_81-407_dissection-mutual-fund-fees.pdf

‘Equitable Life: Understanding Participating Whole Life Insurance’ — https://equitable.ca/media/92738/1038_final.pdf

‘Lower for even longer: what does the low interest rate economy mean for insurers? Zurich: Swiss Re Institute’ — https://www.swissre.com/dam/jcr:034ab136-3b5b-47a0-9021-56513647c6aa/expertise-publication-swiss-re-institute-low-interest-rates.pdf?msclkid=a8f5ca5cb5b111ecaf3f180f204d4bd5

‘Behavioral Aspects of Household Portfolio Choice: Effects of Loss Aversion on Life Insurance Uptake and Savings’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2924196

‘Understanding the Shift in Demand for Cash Value Life Insurance’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2752193

‘Your guide to participating life insurance’ — https://www.sunnet.sunlife.com/files/advisor/english/PDF/810-3596.pdf

‘Policyholder Exercise Behavior in Life Insurance: The State of Affairs’ — https://scholarworks.gsu.edu/cgi/viewcontent.cgi?article=1000&context=rmi_facpub

‘Long-Horizon Losses in Stocks, Bonds, and Bills: Evidence from a Broad Sample of Developed Markets’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3964908

‘Finance: Function Matters, Not Size’ — https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.27.2.29

Books From Today’s Episode:

The Art of Gathering: How We Meet and Why It Matters

Your Investment Philosophy: A Guide to Managing Wealth & Protecting it from Fraudsters, Marketers & Doom Merchants

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