What Critics Get Right

Several of the standard criticisms of this approach are correct, and they are worth reading at their strongest before anyone shows you an illustration. Of the nine set out below, five are conceded as stated. Three are conceded in part, with the limit named. The ninth, on tax, is correct under Canadian law and misfires only when it borrows American rules. None of that makes the product unlawful or useless. It makes it narrow, and it leaves the decision with your household's figures.

The approach is the financing approach known as The Infinite Banking Concept®, set out by R. Nelson Nash: fund a specially designed, high-cash-value, participating whole life insurance policy, let the cash value build, and use policy loans for large purchases, repaying them on a schedule the owner sets. The product underneath is insurance. It is not a savings account or an investment, and no deposit insurance applies to it. The wider case against, and what it gets right, is set out in the objections and risks section.

How does the arrangement work before anyone criticises it?

Every criticism below turns on four roles, so it helps to name them. The owner holds the contract and makes its decisions. The person insured is the life the contract covers. The owner and the person insured can be the same person, or two different people. The beneficiary receives the death benefit when the person insured dies. The insurer issues the contract, pays that benefit, and is the party the owner borrows from.

A policy loan is an advance from the insurer, made under the contract and secured by the policy's cash value. The contract sets how much can be advanced. The insurer sets the interest rate and may change it as the contract allows. You owe the insurer, and the interest is paid to the insurer. Depending on the contract, unpaid interest can be added to the balance. While a loan is outstanding, the insurer deducts the balance and the accrued interest from what is paid when the person insured dies. If the balance grows past the value securing it, the contract can end under its terms.

Two more points sit inside the contract. Some contracts change the dividend credited on the borrowed portion of the value, and some do not; ask where yours says so. And the dividend scale interest rate an insurer publishes is one input to the dividends it declares. It is not the return on your policy.

There are three ways to pay for a purchase, and they differ in who lends and who is owed:

The AMF describes the same mechanics for Quebec readers: a policy advance is a loan that bears interest, and you can instead borrow from another institution with the insurance as security (AMF, in French). The details are at how policy loans work.

What is the verdict on each criticism, at a glance?

Where a criticism is conceded, no rebuttal follows it, because a concession with a rebuttal attached is not a concession.

6. Should registered room always come first?

The argument. Unused TFSA or RRSP room should always be filled before a permanent policy is considered as a way to build savings.

Verdict: conceded in part. What holds: premiums and contributions can draw on the same surplus dollars, so a policy can displace registered room, and a presentation that never asks whether it would is incomplete. Selling permanent insurance for accumulation while ignoring a household's other options raises a serious suitability concern. Whether a particular recommendation was improper depends on the facts and on the provincial rules that govern the advisor.

What does not hold is the word always. A TFSA, an RRSP or an FHSA does a different job from life insurance. This practice is licensed to place insurance of persons and is not registered to advise on registered plans, so it gives no ordering between them and a policy, in either direction. A general rule on that ordering, whichever way it points, is a sales argument rather than advice. Put the registered-plan side of the question to a professional licensed for it, and the tax side to an accountant, with your own figures in hand.

7. Does the vocabulary overstate what the owner controls?

The argument, in the critics' own words. The name The Infinite Banking Concept® and the title of Nelson Nash's book, Becoming Your Own Banker®, are marks of Infinite Banking Concepts, LLC. Critics say they promise something a contract cannot deliver: an institution of your own, and independence from lenders.

Verdict: conceded in part. The criticism of the language is correct. The words name a body of literature, not anything a Canadian licensed advisor provides. What the owner holds is a contract, administered by the insurer under its terms. Nobody becomes an institution.

The limit is that the feature underneath is real. The contract gives the owner a right to request an advance from the insurer against the cash value, up to a limit the contract sets, without applying to an outside lender. The insurer sets the rate and may change it, and the contract, not the owner, governs the conditions. That is a genuine difference in access. It is not independence, and it should not be described as if it were.

8. Are illustrations treated as forecasts?

The argument. A document showing values decades out is arithmetic under assumptions. Dividend scales move. Presenting a projection as an expectation misleads, whether or not anyone intends it.

Verdict: conceded in part. The misuse is real. The limit is that an illustration also carries a guaranteed column, and that column is contractual. It is not unconditional, though. The guaranteed values assume every required premium is paid and nothing is borrowed or withdrawn beyond what the illustration shows. They are the insurer's obligation, so they depend on the insurer standing behind them. Values that depend on future dividends, including paid-up additions not yet purchased, are not guaranteed.

If a member insurer fails, Assuris states that a whole life policyholder keeps up to $1,000,000 or 90% of the death benefit, whichever is higher, and up to $100,000 or 90% of the cash value, whichever is higher, both calculated after deducting policy loans (Assuris, whole life).

The practical answer is to ask for three things side by side: the guaranteed column, the illustration at the current dividend scale, and an illustration at a reduced scale. The gap between them measures how much of the picture is assumption. Once the policy is issued, check the guaranteed figures against the schedule in the contract itself.

9. Are the tax advantages overstated?

The argument. The tax treatment of a policy is narrower than sales presentations suggest. Some versions of this argument reason from American rules: the modified endowment contract rules or section 7702 of the US Internal Revenue Code.

Verdict: correct under Canadian law; misdirected when it relies on American rules. The American rules do not govern a Canadian contract. The Canadian rules do, and they carry their own cautions, which are the ones a Canadian reader needs:

• Growth inside a policy is not taxed each year while the policy remains exempt under Regulation 306 of the Income Tax Regulations. A policy that ceases to be exempt is deemed to have been disposed of (paragraph 148(2)(d) of the Income Tax Act).
• A policy loan is a disposition (subsection 148(9), definition of "disposition", paragraph (b)). Only the part of the loan proceeds above the adjusted cost basis immediately before the loan is income (subsection 148(1)).
• The loan lowers the adjusted cost basis, so a later loan can find less basis left. Repaying restores it and can give a deduction in the year of repayment, up to amounts previously included in income (paragraph 60(s)).
• Assigning the policy as security for a loan from another lender is not a disposition (paragraph (f) of the same definition).
• A surrender, or a lapse with a loan outstanding, can produce income to the extent the proceeds exceed the adjusted cost basis. For tax, those proceeds are the cash surrender value less the policy loans owing, so a small cheque does not mean a small gain.
• Loan 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.
• A death benefit paid under an exempt policy because of the death of the person insured is not a disposition (paragraph (j)).

Federal rules apply everywhere in Canada; Quebec residents also file with Revenu Québec. That is our reading of the provisions, not a ruling, and your accountant should apply it to your figures. How the exempt test works is at the exempt test, and the other ways American material misleads a Canadian reader are at American videos and Canadian law.

Is it a scam?

No. A specially designed, high-cash-value, participating whole life insurance policy is an insurance contract governed by provincial insurance law, including the Civil Code in Quebec. It is issued by an insurer whose solvency is supervised according to its charter: by OSFI for a federally incorporated insurer, and by its home province for a provincially incorporated one, which in Quebec means the AMF. It is sold by agents whose licences appear in public registers kept by the licensing bodies, such as the AMF, FSRA in Ontario and the Insurance Council of British Columbia. There is no recruitment structure and no return paid out of later buyers' money, and the terms are in a document you can read before signing.

The word scam describes fraud. Applying it to a regulated contract makes the real criticisms above easier to dismiss, which helps nobody. Lawful is still not the same as suitable. The longer answer, including how to check a licence, is at is it legitimate?

Does the insurer keep the cash value when the person insured dies?

Partly, in the sense critics mean. When the person insured dies, the beneficiary receives the death benefit, not the death benefit plus the cash value. The AMF says so plainly: the surrender value is not payable on death; the amount of insurance is. On that point the objection describes the payout correctly.

What it misreads is the structure. The cash surrender value is not a separate account sitting beside the contract; it is a value inside the same contract. As it grows, the insurer's amount at risk, the death benefit minus the cash value, shrinks. The cash value is part of what funds the death benefit, so nothing extra is taken at death, but the pure insurance protection does shrink over time. Dividends used to buy paid-up additions can raise both figures, depending on the dividend option chosen. Any policy loan and interest owing are deducted from what is paid.

Contracts differ at advanced ages, and no single pattern describes them all. Some are designed so that the guaranteed cash value reaches the face amount at a stated age; others keep the coverage in force past 100 on terms the contract sets. The maturity of a policy is a disposition for tax (subsection 148(9), definition of "disposition", paragraph (c)). Ask for the guaranteed cash value and death benefit rows at ages 85 and 100, and for the clause that says what happens at 100. Whether the whole is good value is a fair question, and the contract, not the slogan on either side, answers it.

Is buying term and investing the difference the better route?

Sometimes it is. When the need for coverage is temporary, such as a mortgage or children who will become independent, term insurance can do the insurance job for much less, and saying so is the honest position.

Stated as a universal rule, it assumes four things: that the difference is actually invested rather than spent, that it stays invested through a bad market, that the term coverage is renewed or replaced when it ends, at an older age and a higher price, and that you are still insurable then. Where the need for coverage is permanent, those assumptions carry the weight of the argument.

Both routes need discipline: investing the difference for one, paying premiums for decades for the other. A fair comparison puts both under the same assumption about whether you will keep going, prices the death benefit on both sides, and uses your own figures.

What do critics and practitioners both accept?

More than either side admits, and it is the ground a reader can stand on:

• The costs are front-loaded, and leaving early is expensive.
• Dividends are not guaranteed.
• A household without durable surplus has cheaper places for its money.
• Illustrations are projections, and they are misused when read as forecasts.
• The product needs a horizon measured in decades.
• Some policies are sold to people they do not suit.

None of the six depends on an opinion about the method. They describe the contract, how it is priced and how it is distributed. A reader who holds these six is well equipped to weigh anything either side says next.

What should an advisor tell you before you ask?

Some things are true of this product and belong in any presentation, whether or not the buyer raises them:

• The first-year numbers look poor. A policy's guaranteed cash value in its early years sits well below what has been paid. Attention directed only to year twenty skips the years in which a change of mind costs the most.
• A current-scale illustration alone is incomplete. Insurers can illustrate values at a lower dividend scale. Ask for one, because it shows how the picture changes if dividends fall.
• An early surrender leaves you with less than you paid. Ask for year-by-year surrender values and a stop-paying scenario at year four or five, so the cost of changing course is on paper.
• Compensation paid at issue shapes behaviour. Ask how the advisor is paid on this policy, and when.

None of that makes the product wrong. It makes distribution the weak point, which is what the fifth criticism already says.

What do the nine criticisms not establish?

A list of concessions can read like a verdict. It is not one.

None of the nine shows that the product does not work. Together they show that it is expensive as a way to grow money, unforgiving of an early exit, hard to compare on cost, and sold to some people it does not suit. A product can be all of that and still be right for a particular household, which is what suitability means.

None of them addresses the death benefit, which is the thing actually being bought: a sum paid when the person insured dies, whenever that happens, that no portfolio provides.

And none of them is an argument about you. Every criticism here is general. Whether any applies to your situation depends on facts that only your household and your contract hold, which is why the next section lists them.

What should you collect before you decide?

Start with your own facts. The criticisms land hardest where one of these is missing:

• A real want for permanent coverage for its own sake, not only for the cash value.
• Surplus that survives an ordinary year, and a poor one, not only a good year.
• No need for the money within the first ten years.
• No high-rate debt outstanding.
• An emergency reserve outside the policy.
• Insurability: the underwriting result, since a rating changes the cost and a decline ends the plan. The outcomes are at rated, postponed or declined.

Then collect the contract's facts. Leave the figures to the insurer; what matters is that every row is on paper before you sign:

Each question has someone who can answer it:

Which questions test a presentation against the nine?

Five questions cover the nine, and none needs technical knowledge:

1. Which of the nine applies to what you are showing me? An honest answer names at least one without prompting. This covers criticism 1, and the follow-up is what you would compare against if you would have paid cash.
2. What does the guaranteed column show at year three, and at a reduced dividend scale? This covers criticisms 3, 4 and 8 at once.
3. Would this policy take dollars I might put into registered room, and who can advise me on that side? This covers criticism 6.
4. Who lends on a policy loan, who receives the interest, and who sets the rate? This covers criticisms 2 and 7, and it separates someone who understands the mechanics from someone repeating a phrase.
5. Who should not buy this, and how are you paid on it? This covers criticism 5. A straight answer names categories of people and states the compensation.

The reaction to the questions is as informative as the answers. A description that can carry its own strongest objections has told you what it is.

What if you think a policy was described to you inaccurately?

There is a route, and it works better when started early. Ask for a copy of your application and the illustration you were shown, and for the records the insurer relied on; a privacy access request can reach the rest of your file. Keep a copy of everything you send and receive.

Speak to a lawyer promptly, or in Quebec a lawyer or notary, because deadlines apply.

Who is making this case, and how is the firm paid?

Criticism of this approach comes from different places. Some comes from people who sell competing products and have an interest in the conclusion. Some comes from independent analysts with no stake at all. Some comes from households who bought a policy, were disappointed and are describing a real experience accurately. The source is worth knowing, and it settles nothing. Test each argument against the contract, the statute or the arithmetic.

Apply the same test here. Reading is free. The firm behind this site is paid by the insurer, by commission, if a policy is bought through it, as the author page states. The concessions above are published because they are true, and because a household that buys on an overstated case has no reason to stay when reality arrives, and leaving early is expensive in this product. Whole life insurance is insurance, not an investment, and a slow decision ages better than a fast one.