Additional deposit option (ADO) For wholesaler use only. Don’t use this presentation with clients

Important consideration This material is for information purposes only and shouldn’t be construed as legal or tax advice. Every effort has 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 for Canadian residents, which is subject to change. For individual circumstances, consult with legal or tax advisors.

Session Agenda Additional Deposit Option (ADO) introduction Effect on underwriting (NAAR) ADO administration fee Flexibility of ADO Illustrative examples Reduce offset sensitivity Enhance your sales presentations with ADO Advisor compensation 3 3 3

Additional deposit option An introduction Additional deposit option 4 4 4

What is additional deposit option (ADO)? ADO is: Discretionary additional deposits into a participating life insurance policy Dividends the policyowner deposits into the policy These deposits immediately purchase paid-up insurance Not required for the policy to stay in force What is ADO? Optional payments in a participating life insurance policy Requirement – client can’t miss more than 36 months or two years of consecutive ADO deposits More details about ADO requirements will be discussed later in this presentation.

What does ADO do? The same thing paid-up additions (PUAs) do! Deposits of ADO purchase PUAs Increases cash surrender values (CSV) May increase DB values, depending on the dividend option chosen May shorten the duration until full is available May increase the policy’s internal rate of return (IRR)

Available ADO funding options Scheduled premium Regular premium payment Purchase additional paid-up life insurance monthly or annually Single premium One-time additional paid-up life insurance purchase Generally has a higher maximum deposit amount than scheduled premium option After issue, it may be possible to make a single-premium deposit while monthly ADO payments are in effect, provided that: Tax-free (tax-exempt) room exists Minimum amount is met Underwriting is approved 7 7 7

Important details Minimum deposit amount $1,000 annual or single $90 monthly Monthly deposits are less advantageous for client than annual deposits Available for same issue ages as the base product ADO deposits aren’t covered under any benefit or paid by automatic premium loan After policy issue ADO can only be added on a policy anniversary May require underwriting Monthly deposits are less advantageous for client than annual deposits Modal loading Paid-up additions prices are interpolated daily throughout the year Illustration software uses prices at the next policy anniversary Paying ADO annually is most cost-efficient 8 8 8

Determining max ADO deposits at issue Preset ADO maximum deposits designed to help keep the policy tax-exempt Maximum ADO at issue is the lower of either the: Preset maximum allowed by the tax-exempt test Amount for which the insured is underwritten In some situations, a partial surrender (or reduction in ADO amount) may be necessary to help maintain the tax-exempt status and this could generate taxable income. Note: Once a policy is inforce, since dividends will change through the life of the policy, the maximum amount of ADO that can be allowed at each anniversary will be the lower of the maximum amount at issue and the maximum amount that ensures that the policy remains tax exempt. This test is performed at each anniversary. 9 9 9

Effect on underwriting Net amount at risk 10 10 10

Net amount at risk and its affect on ADO Net amount at risk (NARR) Risk amount less cash value to which the insurer is exposed at any time NAAR typically increases when ADO added onto a policy Additional NAAR created with ADO since $1 of ADO buys more than $1 of paid-up insurance coverage (at most ages) 11 11 11

NAAR growth over time [CL] Example: Male, non-smoker, age 45, standard risk, Wealth Achiever 20-pay, basic premium only versus basic with ADO deposits for 20 years Younger ages see larger NAAR growth versus older ages Scenario 1 = $34,965 annual basic premium only, $1,000,000 initial basic coverage amount Scenario 2 = $62,545 total premium ($34,965 basic and $27,580 ADO), $1,000,000 initial coverage amount All scenarios use 2017 current dividend scale. 12 12 12

How does NAAR affect underwriting? ADO risk underwriting requirements determined based on the coverage amount purchased by the ADO premium Underwriting requirements output page can be selected under Report Options in illustration software (see below) How NAAR affects underwriting Underwriting requirements related to ADO risk are determined based on the amount of coverage illustrated to be purchased by the ADO premium Underwriting requirements output page can be selected in Report Options in illustration software 13 13 13

Breaking down the fees Administration fee 14 14 14

Administration fee breakdown Currently 8% of the ADO deposit 92% goes toward paid-up additions purchase Administration expenses Premium tax Advisor compensation Breakdown of the administration fee: The fee currently stands at 8 per cent of the deposit amount. The breakdown of the 8 per cent includes: 4 per cent for base advisor compensation on deposit 2 per cent for premium tax 2 per cent for issue and administrative expenses The remaining 92 per cent of deposit is used to buy paid-up additions Note the administration fee is subject to change. 15 15 15

Stop and start ADO flexibility 16 16 16

Flexibility – stop and start Clients can stop and start payments without additional underwriting Up to and including missing three consecutive annual payments or 36 consecutive monthly premiums Policyowner have up to three years to make their initial ADO deposit Not intended to be a form of guaranteed insurability option at issue Flexibility Clients can stop and start payments again without additional underwriting up to and including missing three consecutive annual payments or 36 consecutive monthly premiums Policyowner no longer needs to make the initial ADO deposit. They can choose to defer that deposit for up to three years or 36 consecutive monthly deposits Not intended to be a form of guaranteed insurability option at issue Rider terminates if policyowner does not resume payment of scheduled premiums after having missed: Three consecutive annual deposits Thirtry-six consecutive monthly deposits 17 17 17

ADO flexibility YES YES NO NO 18 1 2 3 4 5 3 4 5 1 2 1 2 3 4 5 1 2 3 4 1 2 3 4 5 YES 3 4 5 1 2 NO 1 2 3 4 5 NO 1 2 3 4 5 18 18 18 18

Maximum deposit for current year ADO flexibility If highest amount paid during four-year period is less than the equivalent of annual ADO deposit (ie. a partial payment), the amount is reset This amount becomes new scheduled maximum ADO deposit permitted without requiring further underwriting Year Actual deposit Maximum deposit for current year 1 $0 $5,000 2 5,000 3 4-8 3,000 9+ 19 19 19

ADO flexibility If a client adds ADO to a participating policy as part of a term life insurance conversion: If NAAR increases, evidence is required Testing is done each anniversary to determine the amount that can actually be deposited while still tax-free (tax-exempt). 20 20 20

Illustrative examples A case-by-case look Illustrative examples 21 21 21

Insurance payout (death benefit) – internal rate of return The relationship between ADO funding and IRR is proportionate Assumptions: Delayed value product 50MNS, paid-up additions, premium 100K

Cash surrender value – Internal rate of return The relationship between ADO funding and IRR is proportionate Assumptions: Delayed value product 50MNS, paid-up additions, premium 100K

Earliest year offset is available Based on 2017 dividend scale *Based on the 2017 dividend scale – scenario is subject to change as dividends aren’t guaranteed. The 50-year old, male Estate Achiever max ADO scenario can go on offset after five years of out-of-pocket premiums.

The right amount of ADO Move beyond the extremes of maximum / no ADO Dependent on clients’ objectives Client need No ADO Somewhere in between Max ADO Highest initial death benefit Earliest offset Increase cash withdrawals on illustrations Supplement lower cash surrender value in early years Reduce sensitivity in premium offset dates

Premium offset dates Reducing sensitivity 26 26 26

50MNS - 11 year offset at current dividend scale interest rate With Wealth Achiever use max ADO to reduce sensitivity to changes in the premium offset date. With Estate Achiever there may be some instances where you use less than max ADO to achieve an offset supported in an -2% DSIR illustration (in this case it’s at 2/3 max ADO). *Based on the 2017 dividend scale

65MNS – 11-year offset at current dividend scale interest rate Again, with Wealth Achiever use max ADO to reduce sensitivity to changes in the premium offset date. With Estate Achiever there may be some instances where you use less than max ADO to achieve an offset supported in an -2% DSIR illustration (in this case it’s not at two-third max ADO [$33,870] but a slightly higher amount of approximately $36,000). *Based on the 2017 dividend scale

Enhancing with ADO sales strategies 29 29 29

Corporate estate transfer+ 30 30 30

Case study Client information Product information Corporate tax rate: 52% Non-eligible dividend rate: 45% Estate Achiever – Max 20 pay Wealth Achiever pay to 100 $100,000 out of pocket with varying levels of ADO Premium offset at year 16 15 out-of-pocket premiums Based on 2017 dividend scale

Net estate comparison 50-year-old male, non-smoker, Estate Achiever max 20 Max ADO results in the highest NEV and IRR (from duration 15 to 40) No ADO will drive the highest initial DB Beyond year 40+ no ADO results in the highest NEV and IRR Max ADO will result in the lowest initial DB Estate Achiever – Max 20 (15 out-of-pocket premiums) – primary 2017 scale $100,000 premium Non-eligible dividend rate: 45% Corporate tax rate: 52%

Cash surrender value 50-year-old male, non-smoker, Estate Achiever max 20 ADO will provide the highest CSV at all durations Estate Achiever – Max 20 (15 out-of-pocket premiums) – primary 2017 scale $100,000 premium Non-eligible dividend rate: 45% Corporate tax rate: 52%

Net estate comparison 65-year-old male, non-smoker, Estate Achiever max 20 Max ADO results in the highest NEV and IRR (from duration 15 to 40) No ADO will drive the highest initial DB Beyond year 40+ no ADO results in the highest NEV and IRR Max ADO will result in the lowest initial DB Estate Achiever – Max 20 (15 out-of-pocket premiums) – primary 2017 scale $100,000 premium Non-eligible dividend rate: 45% Corporate tax rate: 52%

Cash surrender value 65-year-old male, non-smoker, Estate Achiever max 20 ADO will provide the highest CSV at all durations Estate Achiever – Max 20 (15 out-of-pocket premiums) – primary 2017 scale $100,000 premium Non-eligible dividend rate: 45% Corporate tax rate: 52%

Net estate comparison 50-year-old, male non-smoker, Wealth Achiever 100 Max ADO results in the highest NEV and IRR (from duration 15 to 40) No ADO will drive the highest initial DB Max ADO will result in the lowest initial DB Wealth Achiever, pay to age 100 (15 out-of-pocket premiums) $100,000 premium Non-eligible dividend rate: 45% Corporate tax rate: 52%

Cash surrender value 50-year-old male, non-smoker, Wealth Achiever 100 ADO will provide the highest CSV at all durations Although, lower no ADO keeps pace with ADO until offset Wealth Achiever, pay to age 100 (15 out-of-pocket premiums) $100,000 premium Non-eligible dividend rate: 45% Corporate tax rate: 52%

Net estate comparison 65-year-old male, non-smoker, Wealth Achiever 100 Max ADO results in the highest NEV and IRR (from duration 15 to 40) No ADO will drive the highest initial death benefit Max ADO will result in the lowest initial death benefit Wealth Achiever, pay to age 100 (15 out-of-pocket premiums) $100,000 premium Non-eligible dividend rate: 45% Corporate tax rate: 52%

Cash surrender value 65-year-old male, non-smoker, Wealth Achiever 100 ADO will provide the highest CSV at all durations Wealth Achiever, pay to age 100 (15 out-of-pocket premiums) $100,000 premium Non-eligible dividend rate: 45% Corporate tax rate: 52%

ADO enhancing a corporate estate transfer Strategy objective No ADO A fraction of the max ADO Max ADO Highest initial death benefit Provide the highest cash surrender value for all durations Reduce sensitivity in premium offset dates Increase net estate value at life expectancy Highest initial insurance payout (death benefit) – Assuming only these three options are compared. Enhancement will result in the highest initial death benefit, if selected.

Corporate asset efficiency 41 41 41

Case study Client information Product information 50-year-old male, non-smoker Corporate tax rate: 52% Non-eligible dividend rate: 45% Estate Achiever – Max 20-pay Wealth Achiever pay to 100 $100,000 out of pocket with varying levels of ADO Premium offset at year 16 15 out-of-pocket premiums Based on the 2017 dividend scale Loan information Income from age 70-85 5% loan rate 90% loan to cash surrender value ratio Maximum loan age of 90

Cash surrender value Estate Achiever – max 20 ADO will provide the highest CSV at all durations which results in the highest income 50MNS 2017 div scale Estate Achiever – Max 20 and Wealth Achiever, pay to 100 Premium:$100,000 (varying levels of ADO) Corporate tax rate: 52% Non-eligible dividend rate: 45% Premium offset: Year 16 (15 out-of-pocket premiums) Loan rate: 5% Loan to CSV ratio: 90% Max loan age: 90 Income from years 70-85

Cumulative cash flow Estate Achiever – max 20 50MNS Estate Achiever – Max 20 and Wealth Achiever, pay to 100 Premium:$100,000 (varying levels of ADO) Corporate tax rate: 52% Non-eligible dividend rate: 45% Premium offset: Year 16 (15 out-of-pocket premiums) Loan rate: 5% Loan to CSV ratio: 90% Max loan age: 90 Income from years 70-85 Cash flow from age 70 to 85

Net estate value Estate Achiever – max 20 Premium offset at duration 15 Similar NEV at life expectancy Income begins at duration 20 for 15 years 50MNS Estate Achiever – Max 20 and Wealth Achiever, pay to 100 Premium:$100,000 (varying levels of ADO) Corporate tax rate: 52% Non-eligible dividend rate: 45% Premium offset: Year 16 (15 out-of-pocket premiums) Loan rate: 5% Loan to CSV ratio: 90% Max loan age: 90 Income from years 70-85

Capital dividend account Estate Achiever – max 20 $365,000 more residual CDA at life expectancy* compared to no ADO 50MNS Estate Achiever – Max 20 and Wealth Achiever, pay to 100 Premium:$100,000 (varying levels of ADO) Corporate tax rate: 52% Non-eligible dividend rate: 45% Premium offset: Year 16 (15 out-of-pocket premiums) Loan rate: 5% Loan to CSV ratio: 90% Max loan age: 90 Income from years 70-85 residual ADO at LE for half ADO *Life expectancy is 85

Internal rate of return, net estate value after cash flow Estate Achiever – max 20 No ADO 50% ADO Max ADO 80 3.35% 3.53% 3.71% 85 2.50% 2.60% 2.70% 90 2.00% 2.03% 2.05% 50MNS Estate Achiever – Max 20 and Wealth Achiever, pay to 100 Premium:$100,000 (varying levels of ADO) Corporate tax rate: 52% Non-eligible dividend rate: 45% Premium offset: Year 16 (15 out-of-pocket premiums) Loan rate: 5% Loan to CSV ratio: 90% Max loan age: 90 Income from years 70-85

Cash surrender value Wealth Achiever 100 ADO will provide the highest CSV at all durations 50MNS Estate Achiever – Max 20 and Wealth Achiever, pay to 100 Premium:$100,000 (varying levels of ADO) Corporate tax rate: 52% Non-eligible dividend rate: 45% Premium offset: Year 16 (15 out-of-pocket premiums) Loan rate: 5% Loan to CSV ratio: 90% Max loan age: 90 Income from years 70-85

Cumulative cash flow Wealth Achiever 100 50MNS Estate Achiever – Max 20 and Wealth Achiever, pay to 100 Premium:$100,000 (varying levels of ADO) Corporate tax rate: 52% Non-eligible dividend rate: 45% Premium offset: Year 16 (15 out-of-pocket premiums) Loan rate: 5% Loan to CSV ratio: 90% Max loan age: 90 Income from years 70-85 Cash flow from age 70 to 85

Net estate value Wealth Achiever 100 Result is a similar NEV across the three ADO deposit amounts 50MNS Estate Achiever – Max 20 and Wealth Achiever, pay to 100 Premium: $100,000 (varying levels of ADO) Corporate tax rate: 52% Non-eligible dividend rate: 45% Premium offset: Year 16 (15 out-of-pocket premiums) Loan rate: 5% Loan to CSV ratio: 90% Max loan age: 90 Income from years 70-85 Roughly half the initial death benefit as a result of taking the maximum ADO deposit

Capital dividend account Wealth Achiever 100 $180,000 more residual CDA at life expectancy compared to no ADO 50MNS Estate Achiever – Max 20 and Wealth Achiever, pay to 100 Premium:$100,000 (varying levels of ADO) Corporate tax rate: 52% Non-eligible dividend rate: 45% Premium offset: Year 16 (15 out-of-pocket premiums) Loan rate: 5% Loan to CSV ratio: 90% Max loan age: 90 Income from years 70-85

Internal rate of return, net estate value after cash flow Wealth Achiever 100 Age No ADO 50% ADO Max ADO 80 3.23% 3.46% 3.68% 85 1.92% 2.19% 2.45% 90 0.89% 1.23% 1.56% 50MNS Estate Achiever – Max 20 and Wealth Achiever, pay to 100 Premium:$100,000 (varying levels of ADO) Corporate tax rate: 52% Non-eligible dividend rate: 45% Premium offset: Year 16 (15 out-of-pocket premiums) Loan rate: 5% Loan to CSV ratio: 90% Max loan age: 90 Income from years 70-85

ADO enhancing corporate asset efficiency Strategy objective No ADO A fraction of the max ADO Max ADO Highest initial DB Support an earlier offset Enhance the cash flow at all durations Enhance the NEV at life expectancy

Immediate financing arrangement 54 54 54

Immediate financing arrangement (IFA) Often implemented with an 8-15 years out-of-pocket premium payment plan Pay to 100 products are often used to access the collateral life insurance deduction while policy is on offset Potentially results in many policy durations where the contractual premium is paid using policy dividends or surrendering paid-up additions, or both

ADO and IFAs ADO: Supports the premium offset in the event of a lower dividend scale May slightly increase the net death benefit at life expectancy Ultimately adds cash value which lowers the additional collateral requirement on the IFA loan May slightly increase the collateral life insurance deduction available to the policyowner How does ADO affect the IFA strategy assuming the total annual out-of-pocket premium stays the same? Supports the premium offset in the event of a lower dividend scale May slightly increase the net death benefit at life expectancy Paid-up additions add cash value which lowers the additional collateral requirement on the IFA loan May slightly increase the collateral life insurance deduction available to the policyowner

IFA: life insurance pay policies - $100,000 total out-of-pocket annual premium – offset at year 11 50MNS 65MNS Estate Achiever Wealth Achiever 1 Basic coverage 1,314,116 1,385,130 893,502 864,076 ADO (maximum) 56,852 53,286 50,805 40,741 2 2,469,846 2,439,253 1,524,325 1,273,175 ADO (1/3 of maximum) 18,954 17,762 16,935 13,580 3 1,891,979 1,912,190 1,213,419 1,073,027 ADO (2/3 of maximum) 37,908 35,524 33,870 27,160

50MNS - 11 year offset at current dividend scale interest rate With Wealth Achiever use max ADO to reduce sensitivity to changes in the premium offset date. With Estate Achiever there may be some instances where you use less than max ADO to achieve an offset supported in an -2% DSIR illustration (in this case it’s at 2/3 max ADO). *Based on the 2017 dividend scale

65MNS - 11 year offset at current dividend scale interest rate Again, with Wealth Achiever use max ADO to reduce sensitivity to changes in the premium offset date. With Estate Achiever there may be some instances where you use less than max ADO to achieve an offset supported in an -2% DSIR illustration (in this case it’s not at two-third max ADO [$33,870] but a slightly higher amount of approximately $36,0000). *Based on the 2017 dividend scale

IFA – additional collateral required Using ADO with Estate Achiever has a huge impact on the additional collateral requirement.

IFA – additional collateral required Using ADO with Wealth Achiever doesn’t have a huge impact on the additional collateral requirement.

IFA – 50MNS Wealth Achiever max ADO versus Wealth Achiever 1/3 max ADO - collateral life insurance deduction Difference is negligible until age 79 after which there’s a wide disparity. There are two reasons why this happens: 1. The lower ADO policy has significantly larger contractual premium compared to the max ADO policy – this results in higher amounts in later durations for the lesser of premium and net cost of pure insurance (NCPI) calculation (determining the lesser of premium and NCPI in a given year is the starting point for calculating the amount that the policyowner may deduct). 2. The lower ADO policy has a lower death benefit in later durations – this results in a higher loan to death benefit ratio for determining the deductible amount of the lesser of premium and NCPI as that amount needs to reasonably relate to the amount owing.  

A fraction of the max ADO ADO enhancing an IFA Strategy objective No ADO A fraction of the max ADO Max ADO Higher early cash values result in less additional collateral Shorten the length of time additional collateral is required Reduce sensitivity in premium offset dates Increase the collateral life insurance deduction

A comparison Advisor compensation 64 64 64

Base Advisor Compensation Advisor compensation comparison 50MNS, Estate Achiever, max 20, $25,000 total premium example Scenario Base Advisor Compensation Year 1 Year 2-3 Year 4-10 Year 11-20 Cumulative to year 20 Cumulative compensation to premium ratio No ADO $12,500 $2,500 $500 $250 $23,500 4.7% Mid ADO* 9,660 2,130 623 435 22,636 4.5% Max ADO** 6,821 1,759 747 620 21,772 4.4% 50MNS standard, Estate Achiever Max 20, $25,000 PUA dividend option *”Mid ADO” scenario uses $18,827 basic premium, $6,173 ADO deposits **”Max ADO” scenario uses $12,654 basic premium, $12,346 ADO deposits *** Compensation in each year full ADO deposit made 65 65 65

ADO enhancing your sales presentations How will ADO enhance your sales presentations? Enhanced early cash surrender value May support an earlier offset Contributing more ADO premium proportionately increases its long-term policy benefits Can enhance your insurance sales strategies

Thank you 67 67