When reading a text about mortgage insurance, I came across a comment made by an insurance agent with the name of Jesse at mortgage insurance
Jesse is the type of insurance agent I have been fighting against throughout my whole career in the insurance industry. This type of snake oil salesman will say anything to make a buck and it works. This is the type of agents who will be the big earners for the insurers…These are the type of agents who will win the sales trophy and be showered with sales incentives by insurers.
The challenge in choosing 5 stupid things that Jesse the Snake Oil agent said in his comment was to limit myself to 5 choices. So here it is.
The Buffet thing…
(Every time a financial advisor makes a reference to Buffet, I come one step closer to prove that the intelligence of a financial advisor is inversely related to the number of references he has made to Buffet. Richard Proteau 2016)
Jesse: If in doubt follow the Leader. Smart people view term insurance as an after-tax expense that increases over time. That’s it. It robs you of your wealth.There’s a 3% chance you ‘win’ and die and a 97% chance the insurance company wins ie. Wealthy people such as Warren Buffett. Does Warren Buffett buy term insurance? No. Does Warren Buffett by insurance companies? Yes.
Based on this type of reasoning, since Buffet buys POP companies such as Coca Cola, I should start drinking Coke. And you can bet your life that if Buffet buys insurance, it is not for the same reasons than most Canadians. If Buffet dies tomorrow will his wife and children found themselves homeless because they are unable to pay their mortgage? I don’t think so. However for most Canadians, if they die, their loved ones will suffer a financial loss. As a result they need the insurance to cover this loss.
The rule is simple for good life agents. You first sell the insurance that a client needs ( and this is term insurance) before bringing up the option of buying the insurance they might want!!! And in most cases the average Canadian will never be in a financial position where they might want insurance.
Promoting tax avoidance...
Jesse: For Business Owners (shareholders of CCPC’s ) Permanent insurance 32% in income taxes with HOLDCO owning cash value, OPCO owning the DB or shared ownership with the corporation owning the death benefit as well as being the beneficiary of the death benefit and the individual owning the cash value. The company can find the majority or all of the premiums in the owner can receive the benefits of the cash value tax-free.
By the way Jesse the Snake oil salesman, promoting tax avoidance is illegal. If the owner does not pay the premium associated with the cash value of a life policy, then there will be a taxable benefit assessed to the owner when he starts using that cash value. Any other scenarios represents tax avoidance. Having participated in creating this concept and having discussed this concept with Finance and RCA, the question has always been how to determine the value of this taxable benefit and I can tell the value of the taxable benefit was never closed to NULL.
Saying anything to make a sale…
Jesse: Permanent insurance allows wealth to accumulate tax free, it has virtually zero risk and typically what I’ve seen over 1000 times is it’s the only smart passive investment wealthy people own…o you pay 11.5% tax now and never pay tax again. It grows every single year guaranteed, there is no tax on the growth and it spends tax free in retirement.
It’s amazing to see how so few words contains so many lies. Permanent insurance does not allow wealth to accumulate tax free. The owner pays a hidden tax call the IIT which is not added to the cost base of the policy leading to double taxation.
We would think that Jesse is talking about Guaranteed Whole life since he states that the policy grows every year guaranteed. But as we will see below, he is talking about Participating Whole Life which are NOT guaranteed. This makes this intentional statement a fraudulent misrepresentation. If Jesse was licensed in Quebec, I would only have to send this statement to the AMF and investigators would be at his office the following day.
If you are taking your cash value tax free it is because you will be leveraging your policy and taking loans as retirement income. You are replacing taxes that need to be paid to the government by interest that need to be paid to the bank. The magic trick employed by Snake Oil salesman like Jesse is that they never mention this interest cost or mention that the interest rate of the loan is not guaranteed and the interest cost on any loans could be X times higher than any Income Taxes owed on the cash value.
Permanent insurance is better than RRSPs…
Jesse:Who still buys RRSP’s? Sorry folks. What we are honestly saying here is Ms. Or Mr. Client, we can do one of two things. I can put you in scenario A # where neither of us has any control over it its completely at risk, We have no idea what your return will be and your partner with the government along the way because they’re going to takeA third to half of The money when you want to actually use it. Oh also we will try to but you and safer investments at the right exact time near your retirement but not too soon because then you will get no return on the money and you’ll be burning up your capital quickly in retirement.
What can I say here? If you were to make this public statement in Quebec, you would be facing charges for unethical conduct. There has been many charges laid by the Syndic of the Chambre Financiere in Quebec in regards to selling insurance as a substitute to RRSP, and in every case the life agent was found guilty the decision of the tribunal was upheld by the Court of Quebec.
How ignorant a life agent can be? Just read the next statement…
This is so bad. Stating that a participating whole life beat the market with no risk…Manulife produced a very interesting marketing piece (one of the few) which compares the return of the PAR fund against other investment using standard deviation as a measure of volatility. Historically the standard deviation proved that the PAR fund had a lower risk but it certainly did NOT have no risk as stated by Jesse the Snake Oil agent.
And a word of caution, such analysis was based on PAR fund where mortality experience was share with policy owner which is not the case today. So using this analysis to sell the new PAR products is wrong and the dividends to the Participating whole life are certainly NOT guaranteed…
I could continue on and on. It is of no use. Jesse the Snake Oil agent will continue to prevail in the insurance industry and next time, if you attend a sales conference from one of the insurance, he will be upfront to receive a trophy and the thanks of the insurer.