Keep business running with critical illness insurance protection today and tomorrow Thanks to medical advances, more people survive serious, life-threatening illnesses. However, recovery costs can strain the resources of businesses, and business owners. Running a business is a labour of love and a tremendous amount of work. Without proper protection, the time and money spent building a business could be at risk. Today we’re going to talk about how business owners can protect themselves, their loved ones and their business using critical illness insurance.

Agenda Business owners and critical illness insurance New material Financial protection for business while alive Critical illness insurance base policy Financial protection for beneficiary at death Return of premium at death rider New material Tool Video Diagrams Ownership considerations Case study As we explore the benefits of critical illness insurance, we’ll look at how it can financially protect the business while the insured is alive, and provides financial protection for their beneficiary when they die. We’ll also speak about a new tool that makes it easier to demonstrate the importance of this type of coverage for business owner clients.

Business owners and critical illness insurance Financial protection while alive Business owners and critical illness insurance Whether a business owner wants to insure themselves, or another key person, a corporate-owned critical illness insurance policy may be a smart choice. A life-threatening illness could affect a business owner’s ability to manage their business. However, with the lump-sum payment from a critical illness insurance policy, the business owner can keep their company operating while they focus on getting healthy.

How it works How it works: In a corporate-owned critical illness insurance policy, the business is the owner, beneficiary, and payor of the policy. That means if the business owner uses corporate dollars to buy the policy, and they (the insured) experiences a life-threatening illness, the corporation receives a lump-sum benefit, tax-free. If the corporation isn’t the policy’s beneficiary, a taxable benefit may apply. Important note: Critical illness insurance premiums aren’t deductible by the corporation for tax purposes. If the corporation transfers some, or all, of the lump-sum benefit to an individual, that person may have to pay taxes on that benefit as it would be considered a taxable dividend to the individual as a shareholder.

Critical illness insurance for your business Why have coverage? Critical illness insurance for your business

Keep business running smoothly Remain on-schedule with debt repayment Meet salary obligations to key employees Hire new key employees With the corporation as the beneficiary of the critical illness insurance policy, the business can continue to run smoothly. Some examples include: Remain on-schedule with debt repayment Meet salary obligations to key employees Hire new key employees

Safeguard retirement Can help the business continue to operate without altering planned retirement goals Business owners can rely on the critical illness policy, if the need arises, rather than relying on both corporate and personal investments to fund an illness In addition to continuing operations running as usual, using critical illness insurance can help protect a business owner’s retirement or succession planning in tact.

Protecting a business’ financial plan Critical illness insurance can protect their business assets Having insurance allows business owners to continue investing rather than setting money aside for a potential illness Critical illness insurance also allows the business to use their cash as desired, without interruption. It also means they won’t have to pull money from investments (or other insurance products) to ensure there’s enough set aside in case the business owner, or a key employee, become ill. You and your client have worked hard to create a financial plan that meets their current and future goals. Simply put, by protecting your clients’ business interests you are also protecting your own business interests.

Return of premium at death Financial protection at death Return of premium at death Many business owners may not realize that critical illness insurance can go beyond financial protection while they’re alive. They can also cover themselves or a key person if they die without making a critical illness insurance claim. The return of premium at death option is one way they can do so.

What is the return of premium at death benefit? Provides the return of total premium if a claim hasn’t been made Requires underwriting at the time of adding to the policy, unlike the return of premium at surrender benefit Benefit will reduce if the coverage amount on the policy reduces or a partial return of premium paid under any return of premium rider Payment of benefit The return of premium at death benefit will be payable to the owner if the insured dies from any cause while the rider is active. Exceptions The return-of-premium at death benefit won’t be payable if any of the following benefits are payable: The critical condition benefit Return of premium at expiry benefit Maximum return of premium benefit under the terms of any return-of-premium rider Termination The return of premium at death optional benefit rider will terminate on the earlier of: The date on which Great-West Life receives a request from the owner to terminate the rider The date the policy terminates

How it works If business owner doesn’t make a critical illness insurance claim When the return-of-premium at death option is added to a policy, when the insured person dies, the beneficiary* receives all the insurance premiums made by the business for the base policy, as well as all the premiums made for the rider. Whether or not the rider is paid for by the corporation is up to the business owner; however, in this particular case, we assume the rider is paid for personally. *Returned premiums are paid to the estate in the following provinces: New Brunswick, Newfoundland, Northwest Territories, Nova Scotia, Saskatchewan, Nunavut, Prince Edward Island and Yukon In New Brunswick, Newfoundland, Northwest Territories, Nova Scotia, Saskatchewan, Nunavut, Prince Edward Island and Yukon, returned premiums are paid to the estate.

The rider – who should pay? Personal If the insured person is the “business” Return of premiums are paid out the individual tax-free Corporate The insured person isn’t the sole owner Succession plan already in place Return of premiums paid to the corporation tax-free

Critical illness insurance for business owners New tool

Business critical illness insurance+ Shows the benefits of purchasing corporate-owned critical illness insurance Compares total costs of investments to insurance premiums Compares benefit amount Shows the client the value of adding a return of premium at death rider

Target clients The new tool is best suited for business owners with one or more of the following: No critical illness insurance Maximum life insurance coverage Key employees Money not used for business operations Financially able to self insure

Meet Doug Case study

Meet Doug 50-year-old man, non-smoker from Ontario Practicing physician through professional corporation Wants permanent critical illness insurance A needs analysis shows Doug needs $500,000 in coverage for his business

Limited pay critical illness insurance solution Example using Great-West Life’s Oasis, permanent level premium, life pay, Loss of independent existence, Second Event, $500,000 coverage $12,256 per year in premiums Doug wants the return of premium at death for his loved ones if he doesn’t make a claim Return of premium at death annual premium $1,488

The setup $12,256 Doug $1,488

Coverage when it counts Making a claim Coverage when it counts

Coverage when it counts Doug has a heart attack when he’s 60 Critical illness insurance benefit goes to business Money covers ongoing business operation costs

Weighing his options Critical illness at age 60 Annual premium/investment Total out-of-pocket cost Amount available to corporation Rate of return** Critical illness insurance $12,256 $122,560 $500,000 24.68% Corporately-owned investments* $145,616 3.11% Corporate investments: Growth rate = 4% (100% interest) Tax rate: 53.53 % Corp tax rate: 50.17% Remember the client is paying for a life pay but they are making a claim at year 10 so they’re only on the hook for 10 premium payments as the policy will end when they make a claim. *Investment using 4% growth (100% interest). **This is the after-tax rate needed to achieve with investments.

Return of premium at death What if no claim is made?

Coverage when it counts – at death Doug dies at 85, without making a claim Premiums he (and the business) paid go to his beneficiaries. These funds may be tax-free* *The current tax legislation doesn’t address return of premium at death benefit and therefore they aren’t specially treated as taxable income. The Canada Revenue Agency (CRA) hasn’t provided specific guidance on whether the return-of-premium at death benefit in a co-ownership arrangement is tax-free.

Weighing his options Death at age 85 Annual premium/investment Total out-of-pocket cost Amount available to beneficiaries Rate of return** Return-of-premium at death option $1,488 $52,080 $481,040 10.34% Personally owned investments* $75,779 1.99% Corporate investments: Growth rate = 4% (100% interest) Tax rate: 53.53 % Corp tax rate: 50.17% In this case, Doug dies at age 85 without having made a prior critical illness insurance claim. What that means is his beneficiaries receive all the returned premiums that Doug made using personally owned money, as well as what the business used to pay for the critical illness insurance policy. *Personally owned investments at 4% growth. **This is the before-tax rate needed to achieve with investments.

Options summary for your beneficiaries Return of premium at death payable to shareholder’s beneficiary $481,040 @ year 35 Investment balance @ 85 = $75,779 Corporate investments: Growth rate = 4% (100% interest) Tax rate: 53.53 % Corp tax rate: 50.17% Invest return of premium at death premium ($1,488 for 35 years): 100% F/I @ 4% tax rate = 53.53% Return of premium at death paid to shareholder = $481,040 @ year 35

Business critical illness insurance+ The benefits Business owners can financially protect themselves from critical illness costs through their business Distribute proceeds to business owner’s loved ones with the return of premium at death benefit