We operate as John Hancock in the United States, and Manulife in other parts of the world. 3 Mistakes Every Business Owner Must Avoid Leigh Aslanis, CPCA, EPC, CHS Director, Living Benefits

Read the paper… The Globe and Mail

Case Study ▪ Mark, 46, $125,000 - Owner, Build Me Inc. ▪ Andrea, 44, $125,000 - Owner, Build Me Inc. ▪ John, 32, $75,000 – Designer ▪ Build Me Inc. – Architecture & Design firm ▪ Specialize in commercial space ▪ Looking for disability insurance (brother of Andrea had a “scare”)

Current Situation ▪ No group LTD ▪ Leave funds in the business every year ▪ Allocate funds for risk management ▪ $2,000,000 of T10 life insurance sold 2 yrs. ago ▪ No critical illness ▪ No disability

Mistake #1: Shareholder agreement not funded for DI ▪ “What does it say?” ▪ “What is your definition of disability?” ▪ “Is it signed?” ▪ “Is it funded?”

Why Life Buy-Sell and not DI?

▪ If the disability lasts longer than 90 days, ▪ the average length* will be: Age years Age years Age years Age years *1985 Commissioners Individual Disability Table A

Disability buy-out ▪ Disability insurance can be used to fund a buy-out on the disability of a shareholder ▪ DI can provide a lump sum or monthly payments ▪ Various strategies using DI are available to fund a buy-out: ▪ Cross purchase ▪ Share redemption

Corporate redemption method Build Me Inc. AndreaMark Corporation owns insurance on each S/H Insurance 50%

Build Me Inc. Mark 100% Andrea Insurance $$ Shares $$ Corporate redemption method – after disability

Corporate Redemption method ▪ Tax treatment: ▪ Premiums paid directly by the corporation are a non-deductible expense ▪ Proceeds received by the corporation tax free ▪ Sale of shares results in a taxable deemed dividend to disabled shareholder Next step…need income replacement policies…

Buy-Sell funding ▪ Build Me Inc. valued at $1,000,000 ▪ Corporate Redemption method used ▪ $500,000 Lump-sum after 365 days ▪ Andrea = $3,065/yr. ▪ Mark = $3,450/yr. ▪ Total = $6,515

Mistake #2: Low Income Replacement Ratio Solution: Income Loss Replacement Plan ▪ Group together individual policies ▪ Insuring salary/employment income only (employee benefit) ▪ Need at least 2 people ▪ Must cover everyone in the same class ▪ Tax-deductible business expense ▪ Benefits are grossed up because they are taxable

Income Loss Replacement Plan Build Me Inc. Insurance Employees Board Resolution Owner & Payor

New Income Replacement Ratio Current income replacement ratio ▪ Andrea: 0% ▪ Mark: 0% ▪ John: 0% Proposed income replacement ratio ▪ Andrea: $8,440/m = 81% ▪ Mark: $8,440/m = 81% ▪ John: $5,310/m = 85% ▪ Total cost of: $8,608/yr

Mistake #3 – Business Expenses not covered ▪ Owners have dual need: ▪ Income replacement ▪ Expense replacement Personal ExpenseBusiness Expense MortgageLease/Rent UtilitiesTelephone GroceriesAdvertising Kids sports/activitiesAdmin Salaries GasLeased equipment Car (gas, insurance, etc.)Accounting Fees Cell phonesBusiness loan repayment

Office overhead DI coverage ▪ Corporation = owner, payor & beneficiary ▪ Reimburses expenses incurred or paid during disability period ▪ Premiums are deductible ▪ Benefits received are taxable ▪ Expenses incurred are deductible ▪ Ends up being a wash

Covered Overhead Expenses

Overhead DI ▪ $3,350 MEB each – 30 day EP, 12 m BP ▪ Total + Residual disability ▪ Tax-deductible business expense ▪ Mark = $881/yr. ▪ Andrea = $1,148/yr.

Summary ▪ Earned close to $20,000 in commission ▪ Premium commitment from the client was $17,152 ▪ Received 7 referrals from these clients… ▪ Who do you know? ▪ What DI do you have in place for yourself?

Sales language 1. “ What is your executive compensation strategy for your key executives?” 2. “Do you have a shareholder agreement? Is it funded?” 3. “If you can’t go to work, how will you keep the lights on?” ▪ Opens the door for ILRP, BOE, BS+, Critical illness ▪ Group insurance opportunities – add a baseline of CI? ▪ Investment & Life insurance opportunities with key exec’s

Thank You!