David Wm. Brown CLU, ChFC, CFP, RHU Tuesday June 21 nd 2005 CIFPs Annual National Conference Niagara Falls, Ontario

1. Introduction 1. Disclosure, qualifications, guarantees 2. The Case for Income Replacement/Critical Illness insurance 1. Personal demonstration 2. Statistics 3. Definitions 1. Income Replacement Insurance 2. Critical Illness Insurance 4. The Comparison 1. Income Replacement/Critical Illness 5. Critical Illness Insurance in Canada 1. Current status 2. Challenges AGENDA

6. Critical Illness Taxation Issues 1. C.R.A 2. C.A.L.U 7. Structuring the C.I. Policy 8. Prospecting 1. Your doctors 2. Your clients – individual/group 3. Yourself 9. Questions? AGENDA- Cont’d

SURVEY

STROKE

HEART DISEASE

HEART ATTACK

CANCER

Disabled as a result of an Accident or of a Sickness ?

38% of Women 41% of Men Will Develop Cancer In their Lifetime. CANCER

Cancer 1 in 3 Canadians will contract some form of life- threatening cancer 125,000 newly diagnosed cases per year Heart Attack 1 in 4 Canadians will contract heart disease 75,000 suffer heart attacks each year - 1 in 2 < 65 Stroke 1 in 20 Canadians run the risk of stroke before the age of 65 50,000 suffer a stroke each year - 1 in 3< 65 Accounts for almost 1% of the total Canadian population

Income Replacement or Disability Income Insurance is designed to replace a portion of an individuals income; in the event that the individual as a result of an accident or sickness cannot work in his/her/any/own occupation Income Replacement Insurance

1. Elimination period 2. Monthly Indemnity 3. Benefit period 4. Definition of total disability 5. Definitions of partial/residual disability 6. Options; F.I.O; C.O.L.A Disability Insurance Variables

Critical Illness Insurance The Critical Illness plan provides a lump sum tax-free benefit to be paid in the event that an individual contracts a critical illness. The Critical Illness policy is designed to provide the necessary financial assistance to permit the insured and his/her family to cope with a critical illness.

Critical Illness Insurance Covered Illnesses Alzheimer’s Disease Aortic Surgery Blindness Benign Brain Tumor Cancer Coma Coronary Angioplasty Coronary Artery Bypass Surgery Cystic Fibrosis Diabetes Deafness Kidney Failure Heart Attack Heart Valve Replacement Loss of Independent Existence Loss of Limbs Loss of Speech Major Organ Transplant Motor Neuron Disease Multiple Sclerosis Occupational HIV Infection Paralysis Parkinson’s Disease Rheumatoid Arthritis Severe Burns Stroke

Critical Illness Insurance Plan Provisions Lump Sum Non-Taxable Benefit Payout 30 Days After Diagnosis Guaranteed Renewable to Age 65 Limited Qualified Right to Change Premiums Guaranteed Issue (no medical requirements) Optional Individual Increase Offered (with medical requirements) Group - 15% Discount Return of Premium on Death Portable Coverage Pre-Existing Condition Exclusion 24 months Recharge Provision - 5 Years

Extraordinary Costs of a Critical Illness Medical Costs $ Alternative treatment $ Experimental drugs $ Out of province treatment $ Nursing care Reduce Financial Obligations $ Debt/mortgage repayment Non-Medical Costs $ Leave of absence for insured or spouse $ Home and/or vehicle adaptation $ Childcare $ Work style changes

Critical Illness Insurance Benefits 4 Effectively cover the most catastrophic events 4 Provide stable, predictable costs 4 Give a significant lump sum payout 4 Provide access to world renowned medical services 4 Fill the growing gap due to increased morbidity 4 Address real needs 4 Covers real risks

Critical Illness Insurance Assistance Services Expert Medical Evaluation by World-Class Physicians FindBestDoc Customized Search for Best Doctors Including Specialized Canadian Physicians FindBestCare Comprehensive Services and Access to Treatment Centers Throughout the United States Ceridian/The Healing Journey 24 Hour Access to Daily Living Assistance Professionals Membership in a Self-Help Healing Program BEST DOCTORS/CERIDIAN/HEALING JOURNEY InterConsultation

Income Replacement InsuranceCritical Illnesses Insurance Triggering Event Sickness or AccidentCritical Illness 27+ Diseases Definitions Inability to work Own occupation Any occupation Residual Partial Diagnoses of Critical Illness survival for 30 days(90 days in the case of Cancer following issue of contract) Premiums Guaranteed/Non Guaranteed Return Of Premium on Death Not usually applicable - 3 month survivorship benefit Usually included Return of Premium on expiry Not usually applicable (May be available as a rider) Can be included as rider “EITHER” OR

Income Replacement InsuranceCritical Illnesses Insurance Other Options Future income option Cost of living benefits Early Intervention Benefits Medical Assistance Benefits Contract Terms To age 65 with possible extensionCan be designated to continue for life Underwriting Based on medical history and family history Benefit Payment Paid out monthlyLump sum Adjudication OngoingOne time Maximum Payment In relation to income replacement tables$2,000,000 Taxability If paid in after tax dollars benefit is tax freeConsidered tax free - No ruling yet - Eligibility Needs income to qualifyNo income requirement

“Canadian Critical Illness sales are paltry by comparison to other countries in the English speaking universe” Advisor.ca May 17, 2005

C.I. SALES STATS AND ANALYSYS 2004 In 2004 sales increased by 11% More limited guarantees introduced Average size of policy dropped by 2% Permanent products increased over renewable products Return of premium at expiry benefit reduced by 6% Only 3% of new policies sold were for “Basic” coverage of five or fewer conditions Source: Limra CI Sales 2004

“If you don’t sell CI, have a huge financial indemnity policy because your client will sue you” Bhupinder Anand Anand Associates London, England

1. No standardized definitions 2. Concern over high premiums 3. Advisors not aggressive enough 4. Tough underwriting concerns REASONS

DON’T TRY TO BE A DOCTOR !

CRITICAL ILLNESS UNDERWRITING Family History Smoking Height-Weight Ratio Elevated Cholesterol Medical Impairments that affect more than one body system or organ Seemingly Insignificant Condition

“The Canadian Life and Health Insurance Association and The Conference of Advanced Life Underwriting Discussion Paper” March 2004 See Website: TAXATION

IS C.I. With/or Without Refund of Premium Question Accident or Sickness Insurance OR Life Insurance ON DEATH ON EXPIRY

Critical Illness Insurance Taxation CRA has not yet clarified the Agency’s interpretation of the provisions of the Act with reference to the taxation of Critical Illness Contracts (especially with refund benefits) The Conference of Advanced Life Underwriters is continuing to work with the Department of Finance to ensure an appropriate framework for taxation of Living Benefits

TAXATION Canada Revenue Agency Technical Interpretation Letter ( , December 9,2003) -Grouped C.I. Non taxable benefits and deductible premium – ~ Assumption no return or premiums

Understanding The Taxation Of Critical Illness Insurance PurposeStructureTax Treatment Provides cash benefit for 1. Medical expenses 2. Pay down mortgage 3. Renovate home 4. Replace caregiver income Insured owner beneficiary and payor Premium non deductible living expense Benefit non taxable Return of premium on death and at expiry non taxable Personally – Owing Policy CRA has confirmed that it views Critical Illness Insurance Policies without ROP benefits as accident and sickness Insurance.

Understanding The Taxation Of Critical Illness Insurance PurposeStructureTax Treatment Provide cash benefit to corporation for 1. Immediate cash needs (key employee) 2. Repay business debts 3. Fund buy - sell Insured: employee or shareholder. Owner, payor and beneficiary is corporation Premium non deductible to corporation Benefits non taxable to corporation Return of premium on death or at expiry may be non taxable Corporate Protection

Understanding The Taxation Of Critical Illness Insurance PurposeStructureTax Treatment Provides cash to the employee for 1. Medical expenses 2. Pay down mortgage 3. Renovate home 4. Replace caregiver income The Employee is the insured. Owner is employee or corporation. Payor is corporation. Benefits payable to employee or corporation (Employee not as shareholder) 1. If employee owned and corporate paid. Premium included in employee’s income, deductible to employer, benefit non taxable to employee 2. If corporate owned and corporate paid. Premium not included in employees income deductible to corporation as business expense. Cash benefit not taxable to corporation if paid to employee taxable in income Individual Policy as an Employee Benefit

Understanding The Taxation Of Critical Illness Insurance PurposeStructureTax Treatment Provides cash to an employee for 1. Medical costs 2. Pay down mortgage 3. Renovate home 4. Replace caregiver income The employee is the insured. Owner and payor is corporation. Benefits payable to corporation or owner. (Employee not as Shareholder) If corporation pays on a number of corporate owned policies, premiums not included in employees income. Premiums are a deductible expense to corporation. Cash benefit paid to employee non - taxable to employee (Health and Welfare Trust) Grouped Individual policies providing Employee benefit

Standard Group Benefit Coverages Life Insurance Accidental Death and Dismemberment Dependant Life Extended Health Care Dental Care Short Term Disability Long Term Disability

WHAT’S MISSING?

Critical Illness Insurance, A Living Benefit Without Critical Illness Insurance, will your employees be forced to… Ü Deplete their RRSP’s? Ü Increase their debt load? Ü Rely on relatives? Ü Pass the hat around the office? Ü Forgo access to timely medical treatment?

Perspective 3 Critical Illness helps refocus benefits back to providing for the most catastrophic events 3 Provides the opportunity to create a more “caring parent” environment and reduces the need to “pass the hat” around the office to help an employee dealing with a critical illness 3 Average person starting out in the workforce has a: 2.1% chance of dying prior to age % chance of having a critical illness diagnosis prior to age 65 It is not a question of “if”, but rather “when”

Keeping Things in Perspective How Significant are the Following Events Your Clients Car is Stolen Your Clients TV is Stolen Your Clients Computer is Stolen You Client is Diagnosed with Cancer Your Client Dies Rank the Significance of the Event on your clients family from 1 to 4, 4 being the greatest

What Does Your Client Currently Have Insured? Your Clients car Your Clients TV Your Clients Computer Your Clients Life The Diagnosis of Clients Critical Illness

How many of you have either a personal income replacement policy or Critical Illness Policy Please Stand Up

Anyone who has applied for or has a Critical Illness Contract PLEASE SIT DOWN!

Critical Illness Insurance Sample Costs for $100,000 Benefit Female Age 55 $ monthly Female Age 50 $ monthly Female Age 45 $ monthly Female Age 40 $ monthly Female Age 35 $79.19 monthly Female Age 30 $63.89 monthly Calculations based on female non-smoker status, 12 months of non tobacco use

CRITICAL ILLNESS RECOVERY PLAN Return of Premium on Death Included Male Age 42 Non-Smoker $100,000 A 10 Year Renewable to age 75 B Level to Age 75 C Level for Life *(Optional Return of Premium) $683.88$1, $ $1, $1, $ $1, Age 52 $1, Age 62$3, Age 72$8,004.96

CRITICAL ILLNESS RECOVERY PLAN Return of Premium on Death Included Female Age 42 Non-Smoker $100,000 A 10 Year Renewable to age 75 B Level to Age 75 C Level for Life *(Optional Return of Premium) $651.96$1, $ $1, $1, $ $1, Age 52 $1, Age 62$2, Age 72$5,797.88

IT’S ALL ABOUT…….

CHOICE!

Thank You! Al G. Brown & Associates Over 60 years of dedicated service