2009 General Meeting ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario) 2009 General Meeting ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario) Canadian Institute of Actuaries Canadian Institute of Actuaries L’Institut canadien des actuaires L’Institut canadien des actuaires Session/séance : PD 35 How Insurance is Sold Speaker(s)/conférencier(s) :R ichard Elsmore, Estate Planning Specialist, Vice President CIBC Wood Gundy Inc.

How Insurance is Sold Insurance “Need!” DAPA Define Accept Present Accept 2009 General Meeting Assemblée générale General Meeting Assemblée générale 2009

How Insurance is Sold Insurance “Need!” Define Accept Present Accept 2009 General Meeting Assemblée générale General Meeting Assemblée générale 2009

How Insurance is Sold Insurance “Need?” 2009 General Meeting Assemblée générale General Meeting Assemblée générale 2009

How Insurance is Sold Insurance “Want!” 2009 General Meeting Assemblée générale General Meeting Assemblée générale 2009 Estate Planning Financial Planning Retirement Planning Business Planning Investment Planning

Estate Planning

Estate Assets Estate Liabilities Liability Identified The Estate Planning Process Investigation

Time of Death The Wall Funeral CGT RIF Tax Probate Admin GrossAssets Assets Reduced

Estate Assets Estate Liabilities Reduced Estate Liability Liability Identified Liability Minimized The Estate Planning Process Investigation Information

The Estate Planning Process (involves organizational strategies) Time of Death The Wall Funeral CGT RIF Tax Probate Admin Valid Will’s Power of Attorney Family Trusts Testamentary Trusts Joint Ownership Gifts while alive Bequests Segregated Funds Estate Freezes Itemization of effects Charitable bequests GrossAssets Assets reduced BUT Only By minimized costs

Estate Assets Estate Liabilities Reduced Estate Liability Estate Assets Reduced Estate Liability Liability Identified Liability Minimized Liability Neutralized Transferring a small portion of assets BEFORE they are used to pay tax into a tax sheltered estate results in even the reduced tax being eliminated. The Estate Planning Process Investigation Information Implementation

Robert and Sheila are enjoying their retirement Sheila is 62 and Robert is 64 Sheila is 62 and Robert is 64 They are comfortable with They are comfortable with their retirement income. their retirement income. They jointly own a (mortgage They jointly own a (mortgage free), house in Ottawa worth free), house in Ottawa worth $450,000. Their combined $450,000. Their combined RSP’s are valued at $385,000. They own a cottage north of Kingston which they purchased for $75,000 and invested a further $50,000 in Improvements. It is currently worth $350,000 Their personal effects have an approximate value of $75,000. They intend to leave everything to each other and on second death to their two children John (30) and Sarah (28).

ITEM ACB FMV House N/A $ 450,000. RSP’s N/A $ 385,000. Cottage $125,000 $ 350,000. Personal effects N/A $ 75,000. $125,000 $1,260,000. $125,000 $1,260,000. Deemed disposition at death Deemed disposition at death Current estate liability on 2 nd death Probate $ 18,400 Legal/Exec Fees $ 63,000 Tax on RSP’s $ 178,640 Capital Gains Tax $ 52,200 Total $ 312,240 (24.78% of estate!) (24.78% of estate!) The Estate Planning Process

ITEM ACB FMV House N/A $ 450,000. RSP’s N/A $ 385,000. Cottage $125,000 $ 350,000. Personal effects N/A $ 75,000. $125,000 $1,260,000. $125,000 $1,260,000. Deemed disposition at death Deemed disposition at death Current estate Liability on 2 nd death 2 nd death Probate $ 18,400 Legal/Exec Fees $ 63,000 Tax on RSP’s $ 178,640 Capital Gains Tax $ 52,200 Total $ 312,240 (25% of estate approx!) (25% of estate approx!) $ 13,371 $ 8,750 $ 178,640 $ 52,200 $ 252,961 (20.00% of estate approx!) To achieve this and potentially greater savings, information only is required! The Estate Planning Process

Liability Approx % of Estate Liability Approx % of Estate A) Initial estate liability = $312,240 (25%) A) Initial estate liability = $312,240 (25%) B) Revised estate liability = $252,961 (20%) B) Revised estate liability = $252,961 (20%) C) Saving for 10 years = $21, 566 total, $215,660 (17%) C) Saving for 10 years = $21, 566 total, $215,660 (17%) D) Saving for 10 years = $ 7,000 total, $70,000 (5.5%) D) Saving for 10 years = $ 7,000 total, $70,000 (5.5%) Note: B) Approximately 5% savings achieved by basic planning. C) Requires deposits for ten years at 5% ROR and 30% tax rate, (the liability is not funded by this approach for first ten years). D) Requires insurance and underwriting but provides instant liability coverage. The Estate Planning Process

Time of Death The Wall Funeral CGT RIF Tax Probate Admin GrossAssets NetAssets Insurance Tax Shelter Surplus tax- free tax- free to beneficiaries to beneficiaries or charities or charities Instant, tax efficient funding of estate liability funding of estate liability The Estate Planning Process

Investment Planning

Non- Registered Registered Mortality? INCOME REQUIRED

Investment Planning Non- Registered Registered Non-Registered Tax Sheltered INCOME REQUIRED

Investment Planning Non- Registered Registered Non-Registered Tax Sheltered Mortality? INCOME REQUIRED

Investment Planning Jul-07 GIC'sEquities Mr. & Mrs. Client Joint Life Alternative Non-Insurance Investment Universal LifeWhole Life Ten Deposits 25,000 N/A Rate of ReturnPAR Current Dividend Scale N/A (Totally different structure) ESTATE VAL5% Not "apples to apples" Y 1 Age 4124,00124,2541,158,911952,982 Y10 Age 50264,847280,4201,476,8802,329,037 Y20 Age 60345,028420,2981,650,4012,791,571 Y30 Age 70449,482648,1462,036,0913,902,897 Y40 Age 80585,5601,019,2852,745,0765,642,932 ACCOUNT VAL 5%= 2.68% After Income Tax**5% Before CGT** Tax Sheltered Investment Y 1 Age 4125,67026,25022,82513,547 Y10 Age 50283,259316,386304,621279,066 Y20 Age 60369,014515,360514,315632,188 Y30 Age 70480,730839,468900,0051,374,668 Y40 Age 80626,2671,367,4041,608,9902,845,446 LowHighMedium/HighVery Low

Business Planning

During life High up-front tax on retained earnings in fixed income On death Frequently high tax on deemed disposition of shares Possible double tax when dividends paid to heirs Shareholder liquidity issue – – very expensive to pay estate costs with a corporate dividend Tax Challenges

Tax treatment of a Holdco Redundant Assets Alive *Retained Earnings Pay Income Tax on earnings Alive Pay Dividend Tax Alive Pay Income Tax Tax Trap *Retained Earnings- defined as “redundant assets not being used to fund lifestyle.” On Death- Pay Capital Gains Tax on Share Values

Tax treatment of a Holdco Redundant Assets Retained Earnings Tax Pay Dividend Tax Pay Income Tax Insurance Contract Tax Shelter

Tax treatment of a Holdco Pay Dividend Tax Pay Income Tax Insurance Contract Insurance Co Pays Tax-Free Balance to shareholder beneficiaries Balance to shareholder beneficiaries Capital Dividend A/C Retained Earnings A/C Up to ACB Over ACB Tax-free dividend Taxable dividend Pay Capital Gains Tax on Share Values

Summary How I sell Insurance has changed –From “need” to “want” Concepts deal with - Preservation of wealth, Creation of wealth, Tax sheltering of wealth, Tax efficient funding of estate liability, Long term investment for income and growth Corporate tax planning These concepts drive larger premiums and larger sums of Insurance The focus has shifted from the death benefit to the whole package and more often with the focus on the tax sheltered account Amounts of insurance applied for are more often determined by the amount of deposit planned, securing whatever amount of insurance is required to maintain the policies exempt status The language has changed from insurance terminology to investment terminology Products are packaged within concepts and concepts are packaged within planning reports This process is actively being expanded within the high net worth community.