Is It Legitimate?

Yes, the contract is legitimate, and no, that does not settle whether the strategy suits you. A specially designed, high-cash-value, participating whole life insurance policy is an insurance contract, governed by provincial insurance law, issued by an insurer whose solvency is supervised, and sold by agents whose licences you can look up yourself. The financing approach known as The Infinite Banking Concept® is a way of using that contract: you fund the policy, let its cash value build, and ask the insurer for advances against that value when you need money. Whether the approach is sound for you depends on three things no law decides for you: whether you want permanent coverage for its own sake, whether your surplus survives an ordinary year, and whether you can leave the money in place for a long time.

Both halves of that answer are true at once. The contract is ordinary regulated insurance, and a good deal of the way the strategy around it is sold deserves the suspicion it attracts. What follows separates the two so that you can check each one yourself, without taking anyone's word for it. The wider case against the approach, including the arguments that are correct, is set out in the honest case against.

What are you really asking when you ask whether it is legitimate?

The word is doing three jobs at once, and each job has a different answer.

1. Is the product lawful and regulated? Yes. A specially designed, high-cash-value, participating whole life insurance policy is issued under provincial insurance law by a licensed insurer, with its terms, its guaranteed values and its loan provisions written into a contract you can read before you sign. Nothing about the contract is new or unusual.
2. Is the strategy built on it sound? Sometimes, for some households, under conditions that are demanding. It is not sound for everyone, and a presentation that suggests otherwise is the first thing to distrust.
3. Was this particular sale appropriate? The question that matters most to the person asking, and the one no general article can answer. It turns on your cash flow, your horizon, your need for coverage and whether the contract was designed for the purpose it is being put to.

A reader who was badly sold a policy can reasonably feel that the whole thing is a scam. That feeling is about the third question, expressed as a verdict on the first. It is understandable, and it is aimed at the wrong target: a lawful contract can still be sold to the wrong household, and the remedy for that is different from the remedy for fraud.

How does the arrangement actually work?

You, as the owner, buy a specially designed, high-cash-value, participating whole life insurance policy from a life insurer and pay premiums. In exchange, the insurer promises to pay a death benefit when the person insured dies, whenever that happens. The contract also builds a cash surrender value: the amount the insurer would pay if you ended the policy. Part of that value is guaranteed in a schedule inside the contract. Policy dividends, which the insurer declares at its discretion from the results of its participating business, can add to it, and they are not guaranteed.

The strategy uses that cash value as security. When you want money for a purchase, you can ask the insurer for a policy loan: an advance from the insurer, made under the contract and secured by the cash value. You owe the insurer. The insurer sets the interest rate and may change it as the contract allows, and the interest is owed to and paid to the insurer. It does not come back to you. Depending on the contract, unpaid interest can be added to the balance, and some contracts change the dividend credited on the borrowed portion, so ask where yours says so.

There are two other ways to pay for the same purchase, and each puts a different party in the role of lender:

At the death of the person insured, a policy loan balance and its accrued interest are deducted from the death benefit before the beneficiary receives the rest. With a collateral loan, the lender, as assignee, can be paid from the death benefit. If you use money from a policy loan to lend to a relative, two debts exist: you owe the insurer, and your relative owes you. How a policy loan is priced, repaid and reported is set out at how policy loans work. The rest of the contract's mechanics are in policy basics.

What exactly is regulated, and by whom?

Three different things are regulated, by different bodies, and knowing which is which saves you time when you want to check something.

• The insurer's solvency. Supervision follows the insurer's charter: the Office of the Superintendent of Financial Institutions (OSFI) for a federally incorporated insurer, and the home province for a provincially incorporated one, which in Quebec means the Autorité des marchés financiers (AMF). OSFI itself says it supervises some life insurers, and that the provinces and territories regulate insurers' licences and track how they market their products. An insurer's annual report names its regulator.
• The contract. A life insurance contract is governed by provincial insurance law; in Quebec, by the Civil Code of Québec.
• The person selling it. Agents are licensed province by province: by the AMF in Quebec, the Financial Services Regulatory Authority of Ontario (FSRA), the Insurance Council of British Columbia, and a licensing body in each other province. The licence brings conduct rules about what may be said, to whom, and whether a recommendation suits the client.

The strategy itself is not a product, so there is nothing for a regulator to register or approve. What regulators do reach is how an agent presents it. A description that misleads is a conduct matter, whoever wrote the slides, which is why an overstated pitch is a real exposure for the person making it and not a question of style.

Is the money protected if the insurer fails?

The guarantees in the contract are obligations of the insurer that issued it, not of any government, and CDIC deposit insurance does not cover life insurance. Behind the insurers stands Assuris, which describes itself as an independent, not for profit, industry funded compensation organization. Every life and health insurer authorized to sell insurance in Canada is required by the regulators to be a member.

If a member insurer fails, Assuris states that a whole life policyholder keeps up to $1,000,000 or 90% of the promised death benefit, whichever is higher, and up to $100,000 or 90% of the promised cash value, whichever is higher. Both are calculated on the net values, after policy loans are deducted (Assuris, whole life protection).

Illustrative example. Assume a death benefit of $1,500,000, a cash value of $300,000 and a policy loan of $200,000. The net death benefit is $1,300,000; 90% of that is $1,170,000, which is higher than $1,000,000, so under the published limits $1,170,000 would be protected. The net cash value is $100,000, which is within the $100,000 limit, so it would be protected in full. The figures are chosen to show the arithmetic, not taken from any contract, and Assuris's own pages are the authority on how a claim is calculated.

Protection against an insurer's failure is not protection against a poor purchase. Assuris does not make a contract suitable, and it does not restore what you gave up by surrendering in the early years.

How is it taxed, in plain terms?

Tax is where a partial answer does the most damage, so here is the fuller one. Exempt status comes first. A policy that meets the exempt test in Regulation 306 of the Income Tax Regulations is not taxed each year on the growth inside it. That is a rule in Canadian law, not a marketing feature, and it governs annual taxation only.

Getting money out is a separate question. Under section 148 of the Income Tax Act, a policy loan from the insurer is a disposition of an interest in the policy (subsection 148(9), definition of "disposition", paragraph (b)). Only the part of the loan proceeds above the policy's adjusted cost basis immediately before the loan is income (subsection 148(1)), and the loan lowers that basis. Repaying the loan restores the basis and can give a deduction in the year of repayment, up to amounts previously included in income (paragraph 60(s)). The other cases you may meet:

• Borrowing from an outside lender against the policy. Assigning the policy as security for a loan from another lender is not a disposition (paragraph (f) of the same definition).
• A death benefit. A payment under an exempt policy because of the death of the person insured is not a disposition (paragraph (j)).
• A full surrender, or a lapse with a loan outstanding. For tax, the proceeds are the cash surrender value less the policy loans owing, so the cheque you receive is not the figure that decides the gain. Income arises only to the extent those proceeds exceed the adjusted cost basis, and it can arise in a year when little or no cash reaches you.
• Losing exempt status. A policy that ceases to be exempt is deemed to have been disposed of (paragraph 148(2)(d)), which can create income.
• Loan interest. Interest can be deductible only when the borrowed money is used to earn income from a business or property, and then only as the insurer verifies it on CRA Form T2210. Interest on money used for personal spending is not deductible.

Federal rules apply everywhere in Canada, and a Quebec resident also files with Revenu Québec. That is our reading of the provisions, not a ruling. Before you borrow or surrender, ask the insurer in writing for the adjusted cost basis and what it expects to report, and have an accountant review anything above the basis. How the exempt limit works is set out at the exempt test.

Where does suspicion become deserved?

Not at the product. At specific practices, which you can recognise while you are still in the room:

• Only the illustrated values are shown, and never the guaranteed column.
• A projection arrives without its assumptions: the dividend scale used, its date, and what a lower scale would do.
• Nobody can explain clearly what happens if premiums stop.
• Someone claims the interest comes back to you. A policy loan is an advance from the insurer, and the interest is paid to the insurer.
• A comparison adjusts one side for tax and cost and not the other.
• Returns are described as guaranteed, or the contract as sheltered from economic conditions.
• A replacement of an existing policy is proposed before anyone has examined the policy you already hold.
• There is urgency, in any form, about a decision measured in decades.
• The answer turns vague when you ask who should not buy this, or how the advisor is paid.

Any one of these is a reason to slow down and ask. Several together are a reason to leave.

How is the advisor paid, and what must be disclosed?

An insurance advisor paid by commission receives it from the insurer when a policy is issued. Commission is not billed to you separately, but it is not free either: the premium you pay funds the contract and its costs, and distribution is one of them. That gives the advisor a financial interest in whether you buy and how much you commit. Knowing it is not a reason to distrust a recommendation. It is a reason to test one.

So ask. Ask how the advisor is paid on the contract being proposed, and when: at issue, over the years, or both. Ask whether anyone is paid if a loan from an outside lender is arranged alongside the policy. Ask which insurers the advisor represents. A clear answer, given readily, is part of what you are evaluating.

The rules differ by province. In Quebec, the Act respecting the distribution of financial products and services requires a representative in insurance of persons, before offering a product, to disclose the names of the insurers whose products of that type he or she is authorized to offer (section 31). It also requires an insurance representative who places a risk with an insurer with which he or she, or the firm, has business ties to disclose those ties (section 26). The regulation on information to be provided to consumers says the section 31 disclosure is made verbally or in writing at the request of the person the representative deals with (CQLR c. D-9.2, r. 18, section 4.6). The same regulation's rules on written disclosure of fees and commissions apply, by their own terms, to damage insurance agents and brokers (sections 4.1 to 4.5). Our reading is that these Quebec texts do not set a dollar figure a representative in insurance of persons must state. That does not make the question improper, and nothing stops you from asking it. Outside Quebec, each province sets its own disclosure rules; ask the advisor which written disclosures apply in yours, and ask for a copy.

How do you check the advisor and the firm?

Every claim an advisor makes about licensing can be checked in a public register, free, without contacting the advisor.

• Quebec. The AMF keeps the register of firms and individuals authorized to practice, which shows whether a person or firm has the right to advise on or sell the product being offered.
• Ontario. FSRA's life and health insurance page links to its list of agents licensed in Ontario and of licensed insurance companies.
• British Columbia. The Insurance Council of British Columbia publishes a licensee directory showing licence status, class and the agencies represented.
• Other provinces. Each has its own insurance licensing body with a public record of licensees.

What to confirm: that the person is licensed now, in the province where you live, for life insurance. A licence in one province does not extend to another, and an advisor may hold personal licences in fewer provinces than the firm serves. Then search the firm separately, under its legal name rather than the name on a website. The firm behind this site is Canadian Wealth Creation Centre Inc.; IBC Financial is its education name, and a register lists companies and people, not banners.

A licence and a designation are different things. A licence is granted by a provincial regulator and gives the authority to sell; acting without one is unlawful. A designation or certification is granted by a private body after study, an examination or sometimes a membership fee, and it gives no authority to transact. Both can be legitimate, and a designation can reflect real study. The problem is blurring them. Ask which of an advisor's credentials are licences and which are certifications. An advisor who can say so in one sentence understands the difference, and one who is uncomfortable being checked has told you something the register would not.

What would a regulator look at in a sale?

The question "is it legitimate" has a more precise version: what would a regulator examine if a sale were questioned? The list is public in substance.

• Whether the person was licensed for the product, in the province where the client lives.
• Whether the representative asked about the client's situation, identified needs and advised adequately. In Quebec, section 27 of the distribution Act says so. Section 28 adds a duty to describe the proposed product, before the contract is concluded, in relation to the needs identified. The representative must also state the nature of the coverage.
• Whether material risks were explained: the early-year values, the non-guaranteed nature of dividends, what happens if premiums stop, and what a lapse with a loan outstanding produces.
• Whether the presentation, taken as a whole, left a misleading impression.
• Whether the disclosures your province requires were made, such as the insurers represented and any business ties.
• Whether an illustration was used properly, with guaranteed and non-guaranteed values kept apart.

One Ontario case shows where regulators look. On 22 December 2022, FSRA announced a compliance order against Greatway Financial Inc., a managing general agency, which consented to it. FSRA had earlier issued a notice of proposal. It alleged that Greatway was committing acts that might reasonably be expected to result in a state of affairs constituting an unfair or deceptive act or practice under Ontario's Insurance Act. Its concerns focused on the training Greatway gave the life insurance agents contracted with it. FSRA alleged that agents trained by Greatway may provide consumers with information and advice that is inappropriate, inaccurate or misleading about the terms, benefits or advantages of certain insurance policies, including universal life policies sold under an insured retirement plan strategy (FSRA announcement). Under the order, Greatway would deliver revised training to its agents. It would also send existing universal life policyholders information to help them assess whether the policy suited their circumstances. These were allegations, the product named was universal life, and the order was not a ruling on participating whole life. What the case shows is that presentation and suitability are where scrutiny falls.

A firm that would pass all six tests above is operating correctly. That is a floor, not a recommendation.

What should you ask to see before you sign?

An illustration answers the legitimacy question for your own contract, provided you know which rows to read. Leave the figures to the insurer. What matters is that each of these is on paper before you sign.

Five terms make the table readable, and each has a fuller entry in the glossary:

• Cash surrender value: what the insurer pays if you end the policy, less any loan owing.
• Guaranteed values: the cash values and death benefit written into the contract's schedule. They are owed whatever dividends are declared.
• Policy dividends: amounts the insurer declares at its discretion from its participating results. They are not guaranteed. Depending on the option chosen, they can buy additional paid-up coverage.
• Adjusted cost basis: the tax figure that decides how much of a loan, a surrender or a lapse is income.
• Policy loan and collateral loan: the first is an advance from the insurer. The second is a loan from an outside lender, with the policy assigned as security.

Who should not do this?

Ask the person selling it to describe who should not do this. The question is simple, which is what makes it revealing. An honest answer comes quickly and is specific:

• Someone whose surplus depends on a good year rather than an ordinary one.
• Someone who might need the money within the first ten years.
• Someone whose capital does not exist yet, or who carries high-rate debt.
• Someone who does not want permanent coverage for its own sake.
• Someone whose need for coverage is temporary, which term insurance can meet for much less.

An advisor who cannot produce that list, or who treats the question as an objection to be handled, has told you what you needed to know. Being on the list is not a judgement of anyone. It means other tools suit you better today, and circumstances change.

Registered plans are a separate conversation. A TFSA, an RRSP or an FHSA does a different job from life insurance, and contributions and premiums can draw on the same surplus dollars. This practice gives no ordering between them and a policy; take the registered-plan side of the question to a professional licensed for it.

What does legitimacy leave unsettled?

A lawful product can be the wrong one for you. A licensed advisor acting correctly can still recommend something that does not fit, because suitability is judged on the facts you provided, and those may have been incomplete. Legitimacy is a floor. The question above it is whether this contract fits your cash flow, your horizon and your need for coverage, and no register answers that.

So replace the question. Instead of asking whether it is legitimate, check the licence and ask who should not buy it. The first step takes a few minutes in a register; the second takes one sentence from anybody who understands the product. Together they tell you more than any amount of reading about whether the product is real, and neither requires you to trust anyone.

A response that cannot name anybody who should stay away has described a product that does not exist. A response that names people quickly, including perhaps you, is describing the real one.

Who is writing this, and how is the firm paid?

Reading here is free. The firm behind this site, Canadian Wealth Creation Centre Inc., is paid by the insurer, by commission, if a policy is bought through it, as the author page states. An article arguing that a product is lawful, written by a firm that is paid when it is sold, deserves to be read with that in mind. That is why the criticisms are set out in full and why every check described here is one you can run without us.

A participating whole life contract is an insurance product and it is not an investment. It is legitimate. Whether it is right for you is a different question with its own answer. Decide it on paper before you decide it in a meeting.