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

2. 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.

3. 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

4. Additional deposit option
An introduction
Additional deposit option 4 4 4

5. 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.

6. 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)

7. 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

8. 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

9. 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

10. Effect on underwriting
Net amount at risk 10 10 10

11. 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

12. 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

13. 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

14. Breaking down the fees
Administration fee 14 14 14

15. 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

16. Stop and start
ADO flexibility 16 16 16

17. 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

18. 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 41 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

19. 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

20. 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

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

22. 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

23. 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

24. 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.

25. 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

26. Premium offset dates
Reducing sensitivity 26 26 26

27. 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

28. 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

29. Enhancing with ADO
sales strategies 29 29 29

30. Corporate estate transfer+30 30 30

31. 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

32. 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%

33. 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%

34. 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%

35. 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%

36. 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%

37. 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%

38. 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%

39. 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%

40. 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.

41. Corporate asset efficiency41 41 41

42. 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

43. 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

44. 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

45. 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

46. 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

47. 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

48. 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

49. 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

50. 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

51. 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

52. 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

53. 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

54. Immediate financing arrangement54 54 54

55. 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

56. 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

57. 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

58. 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

59. 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

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

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

62. 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.

63. 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

64. A comparison
Advisor compensation 64 64 64

65. 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

66. 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

67. Thank you 67 67