Term conversion+ Compare. Convert. This presentation is intended for advisor use only and is not to be used with clients. If you already have term life insurance policy clients, there’s a tool that gives you a reason to reconnect with them. And if you’re looking to meet clients’ short-term insurance needs, this same tool works for that purpose too. Term conversion+ allows you to work with new and inforce policies, offering you a helping hand to make new sales and to service and provide more customer service to existing ones.

Other information This material is for information purposes only and should not be construed as providing legal or tax advice. Reasonable efforts have been made to ensure its accuracy, but errors and omissions are possible. All comments related to taxation are general in nature and are based on current Canadian tax legislation and interpretations for Canadian residents, which is subject to change. For individual circumstances, consult with your legal or tax professional. This information is provided by The London Life Insurance Company and is current as of March 2018. London Life and design are trademarks of London Life Insurance Company.

Agenda Features of term life insurance policies Changing needs for life insurance Converting term life insurance Term conversion+ tool Case study Why term conversions are important to you Next steps Agenda Features of term life insurance policies Changing needs for life insurance Converting term life insurance Term conversion+ tool Case study Why term conversions are important to you Next steps

Features of term life insurance Temporary or short-term focus Lower-cost insurance coverage initially Payments stay the same for a set period of time Ability to renew coverage Ability to convert the policy without having to answer additional health questions When it comes to life insurance, clients have two choices: term life insurance or permanent life insurance policies. Both are great choices to protect clients and their families, but each offers different features. Term life insurance is temporary, lower-cost insurance coverage initially, where payments stay the same for a set period of time. When the coverage time’s up, clients can renew their policy or convert it without having to answer additional health questions. With it’s low-initial cost and simplicity, term life insurance policies are a foot-in-the-door for you to help clients with other products in the future.

Short-term needs Term insurance can help: Protect family’s lifestyle Cover outstanding mortgage and debt Protect children’s education Support a career change Protect a business Some short-term needs clients may be looking to protect include the following: Protect family's lifestyle Term life insurance can help protect the client family’s lifestyle by replacing future income in the event of an unexpected death. Cover outstanding mortgage and debt Client-owned life insurance policies (versus lender-owned policies) may allow clients to meet more of their family’s needs, including continuing to live in their current home or to keep their vacation home. Their coverage isn’t reduced by a decline in mortgage or loan balance. And clients may switch their mortgage or loan to another lending institution, without jeopardizing life insurance coverage. Protect children’s education Term life insurance can function as a financial foundation to protect the lifestyle of clients’ children now and in the future, and help ensure their children can pay for college or university in the event of a premature death. Support a career change A client’s current employer may offer group life insurance, which may be convertible to permanent insurance. However, depending on their budget, purchasing a term life insurance policy may be more affordable than converting to a permanent policy. If a client has no group coverage, term life insurance coverage can go with them as they change careers. Protect a business Term life insurance can help fund your client’s future succession or business continuation plans. The unexpected loss of a key person, particularly one who’s a driving force behind business operations, may create numerous problems that can threaten the viability of a client’s business. Key person insurance can reduce the financial impact by ensuring there’s an injection of liquid capital. This helps give family or management time to find replacement management or recover the cost to the business of the lost person.

The changing need for life insurance As we know, life is continuously changing and the journey can bring surprises along the way – sometimes good and sometimes bad. Since time doesn’t stand still, clients will experience different insurance needs during their lifetime. What might be important to clients today might not be a concern later on, or there may arise new items of importance needing protection. As clients go through various life stages and accumulate more wealth, insurance needs change and may perhaps shift from immediate needs to those that are more long term, such as succession planning, leaving a legacy or preserving their estate. Therefore, as advisors it’s important to speak with your new and existing term life insurance clients to discuss where they are financially, and what types of needs they still have, or have just acquired. During your annual review, meet with clients to assess whether their insurance needs are best fit by continuing their coverage, or if a term conversion is a better fit.

Options available to clients Term conversion Options available to clients Although term life insurance policies are often purchased because of their ability to cover a wide variety of short-term needs for a low-initial cost, the insurance conversation doesn’t start and end there. Term life insurance has the added benefit of being convertible without clients having to provide more medical evidence.

Term 10 life insurance converted to Term 20 life insurance Single-life insurance policy Joint first-to-die life insurance policy Coverage expiry – term life insurance Age 85 Policies issued between 2008 and 2016: Coverage expires at the policy anniversary nearest to the oldest insured age of 85. Policies issued on or after 2017: Joint attained age 85. Conversion expiry – term 10 to term 20 life insurance After the first anniversary and before the seventh policy anniversary or the anniversary nearest to the life insured’s 65th birthday, whichever is earlier. After the first anniversary and before the seventh policy anniversary or the anniversary nearest to oldest insured’s 65th birthday, whichever is earlier. After the first anniversary and before the seventh policy anniversary or the anniversary nearest to the joint attained age of 65, whichever is earlier. For term 10 life insurance to be converted to term 20 life insurance, it’s important to note the conversion expiry periods. Converting from one term life insurance product to another doesn’t mean a change in coverage, but it could mean a difference in payments – potentially savings over the new coverage period – as renewals would then only happen every 20 instead of every 10 years.

Term life insurance converted to permanent life insurance Single-life insurance policy Joint first-to-die life insurance policy Note: This can be converted to either a joint first-to-die or joint last-to-die permanent policy Coverage expiry – permanent life insurance Continues for life, as long as premiums are made. Continues for life until first insured person dies, as long as premiums are made. Conversion expiry – term to permanent life insurance Age 70 (for a policy with an issue age 68 or under). Age 70 of older insured person (for a policy with an issue age of older insured person 68 or under). For term 10 life insurance – Two years from issue date (for a policy with an issue age of 69 or greater). For Term 10 life insurance – Two years from issue date (for a policy with an issue age of older insured person 69 or greater). The rules for converting either a term 10 or 20 life insurance product to permanent life insurance have a longer conversion expiry date. In order to convert the policy without medical evidence, the conversion must occur before age 70 (for a policy with an issue age 68 or under) or two years from issue date for policies with an issue age of 69 or greater.

Is conversion right for your client? Term conversion+ Is conversion right for your client? If policy conversion is right for your client depends on their situation. If they’re in the seventh year of a term 10 life insurance policy currently and they’re sure they won’t need term life insurance coverage three years from that point, converting may not be for them. On the other hand, if the client wants term life insurance protection for more than three years (to protect a mortgage, for example), converting to term 20 life insurance now may save them money. Also, if a client wants to continue coverage or have the opportunity to grow cash value but they may no longer be insurable, converting to permanent life insurance may suit them best. In order to evaluate whether converting a term life insurance policy works best for your client, the Term conversion+ tool can provide insight.

What the tool shows A tool for illustrating single life insurance policies: New and in force Term 10 to term 20 Term 10 to permanent Term 20 to permanent Term conversion+ lets you take new or inforce term 10 and term 20 life insurance policies and see how they’d compare if converted to another term or permanent life insurance policy for any given year.

What the tool compares Term 10 to term 20 conversions Annual premium over time Total cost Term life insurance converted to permanent insurance Coverage Cash value Cost per dollar

Case study – Meet Pam 35-year-old female, non-smoker Annual income of $70,000 Recently purchased family home for $450,000 One young daughter named Phyllis Current investments of $245,000 Growth rate of 3% Tax rate of 40% Current life insurance coverage Group life insurance at 2x her annual income Let’s look at a case study to see what it might mean to a client if they converted their term 10 life insurance policy into a term 20 one or permanent life insurance.

Case study – Meet Pam After meeting with Pam, we know she’s interested in insurance to cover her mortgage as well as to replace income potentially. Now that we know a little about Pam, we can dive deeper using the Needs analysis calculator. Using the calculator we can see she has a total life insurance need of $1,443,646. Having savings and group coverage brings her outstanding suggested insurance need to $1,058,636. Assumptions used: Debt: mortgage of $450,000 Income replacement for dependent for 20 years: $48,000 annually Current investments: $245,000 (she has no spouse so there’s no roll over) Income: $70,000 annual Group insurance coverage: two times income Tax rate: 40 per cent Investment growth rate: four per cent

Case study – Immediate solution for Pam Face amount: $1,000,000 Coverage type: Term 10 life insurance Monthly premium: $36.00 This presentation contains values taken from one or more corresponding illustrations that accompany it. To fully understand how some of the values shown in this presentation may vary, it is necessary to read the presentation together with the illustration(s). This presentation is incomplete without the corresponding illustration(s). With a suggested insurance amount, we can begin looking at insurance solutions for Pam. Pam wants to cover her initial short-term needs and have sufficient coverage to cover her daughter’s care until she’s in university (20 years from now). After meeting with Pam and doing a plan comparison, a Term 10 life insurance policy fits best with her budget. It’s important to remember that term life insurance isn’t just a one-time conversation and purchase. It’s important to consider options such as conversions that can potentially keep costs lower than continuing renewals.

Same coverage, different costs Pam, now 41, has been recently promoted at work Her income has increased and she would like to lock in her premiums for the next 20 years Six years have gone by since Pam purchased her Term 10 policy. Now at 41, she still needs insurance protection but her promotion at work has given her the confidence to lock in her premiums for the next 20 years. Using the Term conversion+ tool, we’re able to see what this means to her total-out-of-pocket costs.

Same coverage, different costs With Term 20, you save $35,273 Comparing the premium payments for term 10 life insurance only, to one where Pam converts to a term 20 life insurance policy, actually means savings to her for the same amount of coverage.

Same coverage, different costs Term 10 converted to Term 20 at age 41 Term 10 Term 10 converted to Term 20 Total cost $55,145 $19,872 Coverage amount $1,000,000

Same coverage, different costs Term 10 converted to Term 20 Term 10 Policy year Age Monthly cost Total cost Monthly cost Total cost 1 41 $36 $432 $83 $994 Policy renews 2 42 $36 $864 $83 $1,987 Policy conversion 3 43 $36 $1,296 $83 $2,981 4 44 $36 $1,728 $83 $3,974 Policy expires 5 45 $183 $3,920 $83 $4,968 6 46 $183 $6,113 $83 $5,962 7 47 $183 $8,305 $83 $6,955 8 48 $183 $10,498 $83 $7,949 9 49 $183 $12,690 $83 $8,942 10 50 $183 $14,882 $83 $9,936 11 51 $183 $17,075 $83 $10,930 12 52 $183 $19,267 $83 $11,923 13 53 $183 $21,460 $83 $12,917 14 54 $183 $23,652 $83 $13,910 15 55 $437 $28,901 $83 $14,904 $83 $15,898 16 56 $437 $34,150 17 57 $437 $39,398 $83 $16,891 18 58 $437 $44,647 $83 $17,885 19 59 $437 $49,896 $83 $18,878 20 60 $437 $55,145 $83 $19,872 21 61 $437 $60,394 $1,175 $33,977 22 62 $437 $65,642 $1,175 $48,082

Longer-term planning Pam is now 60 Recently married to Jim Pam is no longer insurable She has been left with an inheritance She wants to maintain insurance coverage but wants to avoid the upcoming renewal on her term 20 life insurance policy As Pam has experienced, clients can convert their term 10 life insurance policy into term 20 life insurance. There’s also the option to convert the policy into a permanent one. As a proactive advisor, we’ve kept in touch with Pam, assessing her needs as well as her financial situation throughout the years. Now at age 60, she’s recently gotten married to Jim. Unfortunately, Pam has health concerns and issues that make her uninsurable. She still has her term 20 life insurance policy, to which she converted when she was 41 and it continues to have a coverage amount of $1,000,000. With her parents death a couple of years before, she’s been left with an inheritance. She wants to avoid the upcoming renewal on her policy but still wants to retain her insurance coverage.

Longer-term planning When looking back at the Changing needs diagram, we can see Pam’s position has shifted. With her recent inheritance, growing and aging family, she’s now concerned with tax planning, succession planning, leaving a legacy and estate preservation.

Internal rate of return Longer-term planning Premium Number of years paid Cumulative premium Death benefit at age 85 Internal rate of return Universal life insurance – level cost of insurance $20,990 30 $629,694 $1,045,193 3.09% Universal life insurance – limited pay 10 $45,786 10 $457,857 $1,052,711 3.30% This presentation contains values taken from one or more corresponding illustrations that accompany it. To fully understand how some of the values shown in this presentation may vary, it is necessary to read the presentation together with the illustration(s). This presentation is incomplete without the corresponding illustration(s). With Pam planning on retiring in the next five years, she would like to avoid contributing a significant portion of her inheritance up-front for insurance, and she isn’t interested in taking on a substantial amount of insurance risk. With wanting to avoid the upcoming renewal of her term 20 life insurance policy, she’s able to convert it to a universal life insurance policy without having to provide additional medical evidence.

Longer-term planning: Solution When we look at the universal life insurance level cost of insurance option to that of investments, we see that her estate could potentially be $292,845 higher than with her investments at age 90. Tax rate: 50 per cent Investment growth: Four per cent Universal life insurance – limited pay 10: Assumptions are found on previous page

Converting to permanent life insurance Term has expired Comparison age: 90 Term 20 Term 20 converted to permanent life insurance Difference $ % Total cost $512,750 $457,857 $54,893 10.71% Coverage amount $0 $1,037,159 N/A Cash value $365,369 Cost per dollar of coverage $0.44 Now that Pam’s interested in universal life insurance and its level cost of insurance, we can compare it to her existing term 20 life insurance policy using the Term conversion+ tool. Her Term 20 life insurance policy expires at age 85, and leaves her with no coverage for the remainder of her life, should she live longer than 85. But a permanent life insurance policy continues to provide her with coverage, something that she wants.

Why they matter to you and your next steps

Why term conversions should matter to you Reason to contact clients at annual review and renewal Conversion opportunities Proactive retirement planning Referrals Term life insurance may be the right option for some clients today. Many of you may discuss and offer term life insurance to clients because it’s simple, inexpensive and can be positioned as a short-term needs product. However, there are more benefits to term life insurance for you and clients. Contacting clients at renewal gives you an opportunity to discuss options you may not have considered at time of issue. For example, the possibility of converting to permanent life insurance when clients are older and perhaps better positioned to afford permanent life insurance coverage. Conversions are a key feature of term life insurance. Whether it’s a conversion from Term 10 life insurance to Term 20 life insurance, or conversion to a permanent life insurance policy, conversions avoid the potential complications of underwriting because they’re available without having to worry about changes in a policyowner’s health. The original rating is applied to the new policy. Think of how relieved a client who just suffered a heart attack would be, knowing they can convert to permanent life insurance coverage without having to worry about their change in health. Term life insurance can also go a long way in contributing to proactive planning for retirement needs. Many clients may be participants in the enormous inter-generational wealth transfer that’s about to happen in Canada. If planning is done early, you can position term life insurance as valuable short-term protection for a lower initial cost that can be changed to permanent insurance in the future, if any inheritances come their way. Their term life insurance coverage can be converted to permanent life insurance when they have more money available. They’ll then have the means to accumulate a portion of their wealth on a tax-advantaged basis. Finally, referrals from satisfied clients are always a bonus that can help build your business. If you’re already offering term life insurance to clients, the possibility they’ll put other business with you is highly likely. They’ll also be more likely to refer you to their family and friends.

Next steps Review your book of business Develop a sales story Adapt your term life insurance sales presentation to include conversion possibilities Download the Term conversion+ tool So where do you go from here? Review your book of business to identify clients whose needs would be best suited by converting their term life insurance. Develop a sales story using the images and positioning within the report to help explain the value of permanent life insurance. Adapt your term life insurance sales presentation to incorporate term 10 to term 20 conversion discussions. Download and start using the Term conversion+ tool.