Retirement Income Alternative

What if what you thought to be true wasn’t true? When would you want to know?

Life Insurance as an Asset

Three Kinds of Money

Three Kinds of Money A

Three Kinds of Money L

Decisions

Decisions – NEEDS vs. WANTS

Three Kinds of Money T

Three Kinds of Money T Transferred ($)

Transferring away from you unknowingly and unnecessarily. Three Kinds of Money T Transferred ($) Transferring away from you unknowingly and unnecessarily.

T Kinds of Transfers Credit Card Taxes Term Insurance Costs Deductibles Mortgage Payments Loan Investment Final Expenses RRSPs Claw Backs on Government Benefits

The Ideal Investment Tax Deferred Growth Tax Free Distributions Competitive Return High Contributions Limits Additional Benefits ( WP ) Collateral Opportunities Safe Harbor

The Ideal Investment No Loss Provisions Guaranteed Loan Options Unstructured Loan Payments Liquidity , Use, and Control By Pass Estate

Human Life Value This is the estimated lump sum needed to replace a lifetime income and services you provide for your family based on a multiple of your income

Client profile Need / Want life insurance Have assets they will not use in their lifetime Are ready for a long-term strategy Want to diversify Non –Registered assets growing with tax Alternative retirement strategy Like Dividend performing stocks Which clients can benefit most from participating life insurance? First of all, they must have a need for life insurance. They should be able to qualify for the life insurance, financially and medically. They should have assets they will not use in their lifetime They should be ready for a long-term strategy. It takes a while for the policy’s cash value growth to accumulate. In the first few years, the cash value is generally lower than the cumulative out-of-pocket premiums paid. The cash value usually exceeds the premiums paid between years 15 and 20, or as early as in the first 10 years, depending on the client’s age and how the policy is structured. This growth often outperforms other asset classes. It is based on guaranteed and non-guaranteed values from the current dividend scale, which will vary. Actual policy results will also vary. Clients also need to maintain the premiums over the long term. They should be looking for diversification. We’re talking about using participating life insurance to provide diversification from other fixed-income asset classes. Now let’s take a closer look at the features of participating life insurance that make it a unique fixed-income asset. (Go to next slide.)

Tax-advantaged growth Tax-exposed Non-registered investments Tax-deferred Then taxable Registered investments Tax-advantaged Then tax-free to named beneficiary Participating life insurance At the most basic level, most clients divide investments into two types – registered and non-registered. Non-registered investments are generally taxed while living and become part of the estate upon death. Registered investments are tax-deferred while living, but fully taxable upon death of the owner, or of their surviving spouse. However, there is another asset class that’s not commonly understood. It’s participating life insurance. This asset provides a tax benefit during the client’s lifetime and for their estate. Like RRSPs, its growth inside the policy is not taxed while living. Unlike RRSPs, however, it becomes tax-free to the named beneficiary upon death.

Tax-advantaged growth This illustrates the tax-advantaged room inside your client’s participating life insurance policy. Each policy has: A minimum premium, which must be paid to maintain the death benefit A maximum premium. This is the largest premium permitted for the policy to remain exempt from annual taxation, according to Regulation 306 of the Income Tax Act. The room between these limits is an opportunity for clients to accumulate cash values that are exempt from annual accrual taxation. Clients can make additional premium deposits to take advantage of this opportunity, by using the additional deposit option. What tax-advantaged growth means . . . For your client, this means they can take steps now that will reduce their taxes for years to come. It means more of their money is working for them, instead of for the CRA. For you, this means you can show your client you are not only increasing their ultimate net worth, but also reducing their taxes each year.

Stable performance, low risk Dividends reflect stable performance, low risk Investment performance Smoothed returns Effects of mortality, expenses, taxes How investments contribute to dividends When we think of participating life insurance as a fixed income asset, we can ask, “How does it perform and with what risk?” The key is policyowner dividends, their stable performance and low risk. Let’s look at: Investment performance Smoothed returns Effects of mortality (death rates), expenses, taxes and other factors And to start, let’s look at how investments contribute to dividends. (Go to next slide.)

Access to Total cash value Cash values Guaranteed Dividends Accumulate over time Access Policy loans Withdrawals Leveraging Clients build up two kinds of cash value in their policies. Basic cash value. This is guaranteed. It starts in year 1 or year 7, depending on the policy selected. Cash value from dividends. There is no guarantee dividends will be credited every year. However, once they are credited, their value is guaranteed. In the early years, the accumulated cash values are generally lower than the amount paid. It takes a while for them to match and exceed the amount paid in, usually between year 15 and year 20. Life insurance is for the long term. Of course, life insurance is not an ATM. However, clients can access their accumulated cash value in several ways. Policy loan. The policy values continue to grow as if there was no loan. However, any unpaid loans will reduce the policy benefit. Withdrawals. These can result in a taxable disposition to the policyowner and reduce the policy benefit. Leveraging. Third-party lenders may lend up to 90 per cent of the cash value, if the client qualifies. What this means . . . For clients, this means they will acquire an additional source of funds, which they can access without disrupting their investments or selling at a bad time. For you, this means it will be easier for you to keep your clients invested, if they need cash in the future. (If needed in response to a question about the available loan amount:) The total loan value at any time = the loan value in the policy’s table of guaranteed values, PLUS any cash accumulations, PLUS 90 per cent of the cash value of any existing paid-up additions credited to the policy, MINUS any amounts already owed on the policy, MINUS any interest that will have accrued, assuming there is no repayment of all or part of the amounts owed on the policy. All determined as at the next policy anniversary or, if sooner, the next premium due date.

Additional deposit option Reasons to pay more than the basic premium Optimize tax-advantaged growth within policy Reduce annual taxes on growth of assets outside policy Accelerate accumulation of cash values Increase guaranteed values Increase payment flexibility Clients can use the additional deposit option to pay more than the basic premium. But why would anyone want to pay more than they have to? Clients can grow their assets faster and pay less tax. Instead of leaving their money in investments where it is eroded by annual taxes, clients can deposit more of it in the tax-advantaged room inside the life insurance policy. Free from tax erosion, the assets can grow faster. There are limits on how much clients can deposit. Clients can accelerate the growth of their cash values. Clients can reduce the number of years they need to pay premiums out of pocket. Clients can protect more of their assets from market risk. That is, the additional deposits increase the amount of potential dividends, which become guaranteed when they are credited. Clients gain flexibility. When their cash flow fluctuates up, they can deposit the additional amount. When their cash flow fluctuates down, they can reduce their payment to the basic premium.

Eroding Factors $500,000 Planned Obsolescence Taxes Lost Opportunity Costs $500,000 Inflation Technological Change Interest Rate Declines Propensity to Consume Market Risk Interest Charges and Loans

THANK YOU Questions?