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347: Will an AI Market Crash Affect Your Whole Life Insurance? · Wealth On Main Street

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  If the AI bubble bursts, does that mean your cash value in your whole life policy will go down with it? Will it go down with the ship? Well, we're going to talk about that and a variety of topics about how this all works around building capital in a participating whole life insurance policy. Today, a lot of talk about the AI bubble, so we're going to focus on that. So everything about your family and your business and the opportunities you want to be prepared for, Well, a bubble or the perception of a bubble would be one of those things. So these are valid questions. Now, insurance companies have a variety of different things that they invest money in. Artificial intelligence and data centers isn't at the premier level of what they're doing. So understanding that a little bit and having more clarity and getting an idea of what they do in their mindset when it looks at investing money for a participating account specifically to meet their long term objectives is really what we want to focus on. So I've got a variety of high level questions here. I'm going to read the questions out. Some of these have come through some of our conversations, our chats, through our YouTube channel or, or different, you know, content that we put up there. But additionally there's some articles that are coming out now and it's kind of a hot topic. I mean, AI in general is a bit of a hot topic. So we're going to walk through some of those key elements now. I'm going to do some quick hits on these and I'll just kind of riff on it a little bit. So stick with me. If you have a great question or comment, leave it down below. If there's something we didn't cover here, love to get a chance to try and cover it for you. So make sure you let us know. I mean, by all means, that's part of what we're here for. We want to help you learn more about these things as best as we can and give you ways of thinking about it, perhaps that you hadn't considered. So let's start with the first question. I began with. If the AI bubble bursts, again, we're assuming that there's a bubble, does my whole life policy burst with it? The answer is no. The AI bubble, if there is one, and if it does burst probably will have very little to almost no impact on your whole life policy. And if there is going to be an impact, if an insurance has a particular company, again, there's a one off scenario there where that like could be the case that there might be some kind of an impact to the investment component of the overall PAR account. It would probably be very small and you would, you wouldn't even feel it or notice it because it would be absorbed and essentially spread out or what they refer to in the insurance world as smoothed. They smooth out returns both up and down across a period of years so that the PAR account itself or the PAR doesn't really feel that impact and they barely even notice that it's happened. That's part of the structural design behind how they manage these PAR accounts and the way that they construct the payment of dividends, the mathematical way that they look at actuarially assessing people when they get policies. So all these things are fundamentally engineered and they're designed to be kind of like smooth as glass. So. So if you think about throwing a rock in a pond and it can have a really big ginormous splash and then there's ripples that, that happen later on. And the farther out from where the, the epicenter of the splash is, the smaller and the smaller and the smaller those ripples become to the point where you almost don't even notice them.
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  Right around there on that part of the edge of where the ripples are. That's where the PAR whole life accounts live. That's where PAR PAR accounts are managed and live fundamentally. So those ripples are very moderate. There might be a giant splash in the overall marketplace like an AI bubble, air quotes, and that might affect a lot of things around it, but where it affects the PAR owner and the way they manage the PAR fund is very little. We're on that outer ripple phase once the big splashes happen. So I hope that's a good visual for everybody. So the next question is my whole life insurance policy, or if I'm practicing The Infinite Banking Concept, is, is that the same as the life insurance in, in the articles that we've been seeing about this? Because there are some companies that, that are insurance companies that may be invested in some of those things. Well, the reality is generally not. Insurance companies are very big companies and they're very big in the United States, they're pretty big in Canada and they have different areas. They have, if they're a stock company, which many of them are, in fact, most of them are in North America, then they have money that they manage for stockholders, for things that they do to grow the company.
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  And they have different products that they offer there, a wide variety of products, group benefits and you know, disability plans and just like things all over the map, long term care. So there's a lot of things that they might offer and a mutual company may also offer those things, but they may offer them differently and they may assess them differently and they look at them differently. So there's some fundamental distinctions there. And then they also may have some rules, even some regulations about how they can look at managing money and the degree that they might be able to put some at risk. So that certainly in Canada is absolutely the case.
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  So again, is that something to be concerned about? It really, really isn't, in my opinion is base. So next question, is basic life insurance exposed or something else? In other words, what type of products are most likely affected by some of these types of investments in large AI things or AI data centers? Well, first off, we're making some assumptions here. And you know what they say about assuming things. It makes a bit of an ass out of, out of you and maybe out of me. So we need to be careful when we're doing that. But you know, if there is a consideration that we're in a bubble scenario and there could be a busting of that bubble, which those happen all the time. If you look at the trend and the track record of most companies that offer participating whole life insurance, not just regular whole life and not other types of permanent coverage or other types of insurance. But if they specifically offer participating whole life, and they have an extremely long track record of doing that, and there's been large consistencies in doing that. Well, they've seen massive recessions, massive ups and downs, huge financial upheaval of every type, all over the sun for many companies for more than 75 years and for some companies for greater than 175 years.
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  So they've gotten really good statistical data of understanding. How do you weather the storm now in Canada, it gets cold here sometimes. And when winter's coming, if you ever watch like Game of Thrones, you know everyone's talking winter is coming, right?
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  You put on a parka, you put on a jacket when you go outside, you prepare for the cold weather. You know, you put a shovel and an emergency kit in your car to prepare for maybe going off the road on black ice, things that could happen.
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  Well, the same way that you would prepare as a human for that scenario is the same way that the management company of A participating fund looks at preparing for winter, preparing for those types of events. They even do pandemic modeling. So, you know, again, is this something to be concerned of? In my opinion, it's really not fear and it is there to help us understand that we need to learn more. We need to understand things. You know, there's an expression for fear, an acronym, future events appearing real because it can only exist in the future. Does that make sense? You can't fear something in the past because it's already happened. It's just data at that point. So recognize where that's coming from and be willing to challenge it and ask better questions is what I would encourage. So next question we've got here. How much of my insurance company or insurer's money is in AI or data center? Do you want to leave more than memories to your kids and your grandkids? Imagine your wealth growing steadily inside of your own family for generations, completely protected. Grab the free book. Don't spread the wealth@don'tspreadwealth.com that's don'tspreadwealth.com and you can start building a lasting legacy today. Well, the answer is I don't know. I don't know what company you're with or, or whatever. Are you with a stock company or mutual company? Do you know that company? Do you know their history? What type of a policy do you have there? And more importantly, if you wanted to know that, well, it's really simple. Almost all of these companies publish their annual reports, many of them publish quarterly reports. But you have to recognize is if it's a stock company versus a mutual company, which report are you getting? And are you getting it for the right area of the company are you getting it for specifically in relation to their participating account? Now, if you have other types of insurance, well, first of all, it's term insurance doesn't have any cash value anyway, so it doesn't matter. Like the insurance company has an obligation to be able to pay their claims and so forth. And also these insurance companies, both in US and Canada, although in Canada, I'm more familiar, we have very robust rules around the management of those things. So if an insurance company runs into some financial challenges or hot water, the insurance, I believe it's called the ombudsman, essentially steps in and they begin to help stabilize that company and they often will take some policies and they'll move them to a more solvent insurer so that the company can be re stabilized and recapitalized properly and they have a Measuring stick right now it's called the licat ratio. So L I C A T. You can go Google and learn about it. And it's a measurement of the strength of the insurance carrier. At least that's what they use in Canada. They have a different metric that they use in the United States to measure their, that carrier's ability to pay claims. And you know, the, the companies in Canada are extremely robust and strong. All of them across the board, some a little bit better than others where they have a really tremendous ability to weather any financial storm because of how well they're structured and capitalized. So again, not a concern in any way that I would be worried about. And feel free to Google these terms. You'll learn about it. Next question. What percentage of the portfolio is in an eye? So as an example, the a gentleman I believe is a gentleman wrote a comment. You know, 1% versus 5 or 10% can make a big difference essentially. So the concentration.
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  Insurance companies don't concentrate things, they spread risk out. They're in the business. You have to understand the fundamental business model of insurance versus say you know, a typical company or some other organization. The fundamental structural business model on the whole purpose of insurance is the management of risk like at a top down level. Even if they're a bad insurance company, like if they're not very good or they've, they haven't done the best job as you know, company A versus company B at a, at a hierarchy level, at a fundamental premise. Their whole business structure is based around the management of risk and the pooling of risk. So by pooling risk and spreading it out amongst a lot of people across a large environment, we're able to minimize the risk for all parties. It doesn't eliminate risk is never eliminated. It's minimized and it's, it's essentially stretched across the law of large numbers. That's kind of how they operate to, to a large degree. Okay, so how, next question. How does the insurance company decide where to invest? So again many companies even have like a webcast or a video where they'll have their par fund managers talk about some of these things. So go to your, your insurance carrier. Look on their public site they'll publish their annual reports. You can read through them. They'll publish quarterlies often of what's going on with their par fund. And, and many of them will even have some commentary like quarterly commentary about what they saw in the, in the past and what they might be thinking about is happening over the next quarter. So they're still Looking at those things. But they're not doing any one individual thing based on a quarterly or a one year turnaround time. They're looking at everything in 5, 10, 20 and 30 year time horizons and some in some places even longer than that. So if they buy a piece of real estate, a commercial real estate building in downtown, you know, whatever, New York or something, or Toronto, well, they own that asset of real estate and they rent it out to tenants and they receive cash flow. So there's a difference between value, you increase of an investment and cash flow from an investment.
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  So bonds, bonds produce a steady stream of recurring, of income, of cash flow. And they can do an awful lot with that recurring capacity because they can put it back to work. So that's the type of way they look at these things. It's more like, you know, as an example, the Canada pension plan is a pension fund. Pension funds are actuarially designed. They look at actuarial time frames to be able to make the payments to the people who are drawing from the system versus what's coming into the system. And, and there's, there's engineered design around these things. Now there, there could still be bumps on the road, but they are planning for those bumps. Like they're not assuming everything's rosy, they're actually assuming everything is not rosy. And they're preparing for the worst case scenario at almost every single turn. That's literally how they operate at a fundamental level as companies when they're looking at investing.
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  All right, next question.
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  What do bonds, equities and private placements mean? So these are a lot of things you'll see if you look at the annual or the quarterly. You'll see bonds, you'll see corporate bonds and government bonds, you'll see private placements and equities. When I talk about equities, sure, that might mean they have a bundle of some stocks, but usually they're not like directly owning it or they're not saying like I own a big chunk of Tesla, you know, like 1% of our entire power fund is invested in ABC company. That's not what they do. They might have an index fund or large funds that are institutionally managed. Like large players.
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  They may have some, they may have a couple of small individual stocks, but like nothing too crazy like that, that's just not their focus.
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  So while it might be considered equities because it's a generalized term, a lot of the things that they're doing is again with things like bonds, government bonds and corporate bonds, things that have a Steady stream of repayment and so forth. And when they have a bond that redeems and they receive capital back and then they go and they buying a new one, well it might be a 5 year, 10 year, 15, 20 year bond as an example. So maybe they're getting a lower interest rate on that now, but they could put more capital to work. So they maintain a similar capital deployment structure where cash flow is coming back in and then they're putting that cash flow to work in other areas. So, so these things are ebiting and flowing. It's not one thing like a typical, you know, household looks at investing their capital. It's extremely different. And because they have new monies coming in day from premiums and so on and, and, and bond payments and loan payments, they do private debt. They, they might own mortgages and they have money coming in from mortgage, they have rent coming in from commercial tenants. All this is coming in and then they can place it back to work again very quickly. So there can be a degree of speed of implementation that the typical household just doesn't have capacity for. We're running a household like we have a lot to do. All right, another question we've got here. What does a company look for before making a private loan? Do you want a clear and focused way if The Infinite Banking Concept is even right for your family? It's simple. Download our free 7 Steps guide at 7 Steps CA. It's a very smart time saving roadmap that'll help you evaluate this process fast so you can move forward with total confidence. In fact, once you complete step four, you will know if this is even the right fit for you. Find out now. Get it at seven Steps ca. So every company and their PAR management fund is going to have different take on this. They'll have similar mindsets. If they're doing private debt in some way. Well, they're looking for a structure where they can have consistency of repayment. Maybe they can, they can take collateral. They're looking in the same way that a bank is looking. Like if you want money from a bank you're often told no because you don't have the right dynamics. Well, an insurance company is going to make a place money on private debt or on some loan instrument. They're going to ask similar questions and they have a department of people who look after that like it's not just like there's one guy who says oh we're going to make this deal, we're going to lend money here.
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  You know, it's, it's it's, it's a, it's a group of individuals that are communicating regularly about how they're placing things to work. And if it's a larger organization, they might have a separate kind of debt management area that's looking after that. And then the different groups, so you have an equities group and they have a real estate group and then they're communicating together and then they're making decisions as a team based on the direction that's been set by the power fund manager. So it, it's, again, it's not, it's a very, very defined and robust process. These are not just, you know, people sitting here pulling levers every day. Sell this, sell that. It's not like when you see the, the news articles and the news videos of like the Toronto stock or the New York Stock Exchange where people are just running around with paper saying, oh my God, do this. Like we talk about these large funds and we see, we often have these visuals in our mind of, you know, Chicken Little in the sky is falling scenario, like, like on the stockroom floor when it's just total pand and noise and chaos.
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  That's not what it's like at the insurance company. It's very calm and relaxed and they're, they're having basic boardroom meetings and they're going about their day and they're looking at long term time horizons. So the fundamental basis of how they do things is just completely different than what most people might anticipate.
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  Okay, another question we have here. Are insurers holding our premiums in trust? No, they don't hold premiums and trust premiums go into the par fund, the par count and they go to work. They get put to work with everything else. They have to put premiums to work in order to guarantee their benefits. So the number one focus that they have that most insurance companies have is that number one, we need to meet the guarantees of our product.
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  Number two, we need to create a stable long term dividend output or dividends for our participating policy owners, not our shareholders, not the people who buy stock on the stock exchange. Participating owners. That's especially the case with mutual insurance companies. Okay, another questions here. Does smoothing make investment losses disappear? So there's a thing called smoothing. I use air quotes a lot. Smoothing is essentially where they take highs, where we have better gains either in investments or we paid less death claims than we expected. That means we have more money left over. We had lower expenses of operation, so we have more money left over. These are gains. So if you Imagine a straight line and there's things that were above the line and then there's things that were below the line. So maybe we had more death claims and then we expected that year we budgeted for this amount, you know, we budgeted for a 1 and we ended up with, you know, negative 0.8. So we had, we had more death claims as an example. So are you above the line or below the line based on how we price these products? Well, they can then take that across all these different areas. Because there's multiple areas. They get it all put together and say, okay, well across the year we, we had a good year or we had, you know, a bit of a downer. First of all, it's never like an extreme good year and extreme downers, usually not the case. And then they take those higher ups and the lower downs and what they do is they spread them out over time. So that affects how they calculate dividend scales. And then dividend scales in turn determine dividend amounts that you actually receive as a policyholder. And they have a formula for that is proprietary for every company. But the general premise is essentially the same. That's what smoothing is. And so it doesn't make losses disappear.
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  It means losses and gains are absorbed effectively across both. So that it, it's that ripple as I was talking about. You're at the end of the ripples. It's just smooth as glass on the water, very little adjustment taking place. And you can see that from any insurance company if you look at their, they always have a chart of their history for the last, you know, 25 or 30 years. It shows these giant, you know, roller coaster spikes of the S&P 500 or whatever in the stock market of where it's way up and way down, way up and way down. And then it'll show the, you know, the five year bond rate and it'll show five year variable, like all these different things.
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  The consumer price index is usually listed on there. And then it'll show the participating account and it's just, you know, nice and stable, nice and steady. Little, little rise, little drop, little rise. But it just blends everything else. Smooth as glass. It's really quite phenomenal. It's, it's part of the design feature of how these things are structured. That's why they're so safe.
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  They've been doing this for hundreds of years really effectively. They've got it down to a pretty sweet science. You know, they say boxing is a sweet science, right? I wouldn't say actually, you know, insurance Participating insurance actuarial design is the sweet science from my vantage point. All right, so another one here.
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  Could my insurer collapse like the banks did? Like in the past there's been bank failures. Is it possible? Anything is possible. Is it likely? It's on the, it's on the extremely unlikely category. But again every insurance company is different. And what are we talking about? Are we talking about an insurance company who even sells these products? Are we talking about an insurance company who is now who's stock owned and they're, they're creating new products and they're testing the waters and new things that could create some risk in that company that, that really the stabilizing force is actually their par fund and then they're doing some risky stuff outside of it. Hey, that sort of thing has happened in the past. I mean that happened AIG in 2008 because they were, they were ensuring CDOs, credit scene default swaps and things of that nature and they created an insurance product for those things and that almost crushed the business. What saved the business and stabilize it was actually their life block.
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  So the, the category that mattered, that was stable is what actually allowed that business to maintain staying, staying together because of where they were placing risk in other areas. Again stock company, different scenario. So is it possible? It's possible. It's highly unlikely. Now we have a great video. Hopefully we can point to it here somewhere where we talk about Assurus A S S U R I S Assurus in Canada Assurus CA you can learn all about the additional benefits the guarantees on top of the guarantees of life company that exist in the Canadian industry. It's very unique and we have some great information about that. And there's also some, I think some guarantee associations as well in the United States.
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  Next question. Can I still take a policy loan during a downturn? The answer is yes. If you've got cash value you could take a policy loan. If you've taken all the loans that's available and you haven't been paying loans back and you have no capacity, then you've used it all that's on you. That has nothing to do with the insurance company. Cash values grow because they have a contractual obligation to go. They don't grow because of investment returns. They're not linked in any way. If it is a bubble, where should my money be? Well, I'm not going to answer that. We're not giving investment advice. If there's a bubble that you're worried about, you should be worried about in their day to day Investments and what your, you know, your stock market stuff. And you should, if you're worried, then you should make adjustments. Like if you're worried, do something about it. Don't like, you know what I mean? Like has, it has no bearing on par whole life that you own. That's fundamentally the case.
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  Can I use my policy to buy assets at a discount? Well, you could. More importantly, you could use a policy loan as long as you have the capacity. And you could take a loan. And if you think that something's at a discount price, you're making an investment decision. You should know what you're doing. And if you see it at a discount price because you understand it, by all means. You know, Nelson Nash would say opportunities of high caliber come to those who are well capitalized. That means you have to have access to capital. If you have access to capital through a policy loan, you take a policy loan, boom. And you pounce on your opportunity.
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  You have to recognize you're making a decision there. And that decision, whatever that turns into, could have a loss arrangement or could have a huge gain that's on you. The part around the policy that's just going to keep doing its thing and you should make an arrangement to repay the policy loan. That's a behavior base.
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  Okay, and next one I've got on here. How do I find out if my insurer is investing in AI or is there a way to find out if the life insurance company that I'm working with, or maybe I'm working with more than one, has been investing in AI? Well, well first off, they're investing in AI in a very different way. They're not investing in it in the perspective of owning stocks in like anthropic or you know, Xai. That's not their focus where they're investing. It is actually on processes, procedures, ways to optimize their staff and their systems so that they can be leaner and more efficient. And by doing that they can increase their prediction algorithms, they can increase their ability to actually make their products stronger, which actually supports long term dividend scales. So there are investments in AI that are actually beneficial that you're looking at is the way that they're using or thinking about using it. They're investing in technology at the, at their unique level and a proprietary level so that they can take what they already do really well and do it even better. And through that mechanism, it has a way of driving cost down expenses of operation. If they can drive costs down, that has a direct impact to participating dividends long term. If they can use that to be more effective as they go forward, launch new products and so on, and they can actually increase maybe the amount of sales, the amount of money coming into the PAR fund, well, that has a direct impact and benefit to everyone who's a PAR owner. So instead of thinking about the quote, unquote investments in technology companies and AI companies recognize the value proposition that's being created when these companies make strategic initiative decisions about investing in technologies that allow them to be leaner, more effective and more efficient and provide more value to the policy owner because that impacts and has a positive impact on dividends for everyone that's involved in that particular insurance company's participating pool.
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  There you go. That's a quick summary. Hope you guys enjoyed that. Feel free. Make some comments. Let us know what other questions you have about this. And what's one takeaway you have from this particular video that you learned that you didn't know before? Let us know down below.
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  See you on the next episode.