Humber – The Business School

Craig Griffith

Life
Information taken from Taken from CISRO Life Insurance LLQP Exam Preparation Manual
Insurance
- Now that we have established a good base of
learning and lesson absorption methods, I will be
spending less time reading each point and will be
highlighting certain parts of the text.
- Colours used in the lessons are to highlight
information except Green – those are questions
from me to you.
- You will start to see some overlapping and expansion
of information in subsequent lessons.
- It will be important for you to pay attention to
the lessons, fill in your skeleton notes and
review any additional learning materials.
- Some in class questions will be verbal and some
will be in chat.
Insurance manages risk

🞄 Life insurers weigh the proposed risk of the person

to be insured against the fee ( ) that they
will receive.
🞄 Risk and risk management
🞄 Objective of insurance is to manage the cost of 3
predictable risks efficiently
🞍
🞍
🞍
🞂 – the probability of harm, injury,
loss, danger or destruction, occurring in
the future.

🞂 can be emotional, physical or financial

🞂 Speculative Risk vs. Pure Risk
1. Risk- has three alternatives
◦Loss
◦No change
◦Gain
2. Risk- has two alternatives
◦Loss
◦No change
 🞂 Pure Risk – 4 types
1. Risk- death, disability & unemployment

2. Property Risk- direct and indirect losses due to

material possessions

3. Risk– due to carelessness or negligence

4. Failure of others– performance of service(s)

🞂 Perils and Hazards
Losses are caused by perils
1. Peril – source of risk, i.e., death,
disability, illness, accident, lawsuit &
dishonesty

All pure risks exist because of perils.

2. – an act or condition
that increase the probability of a peril
or the severity of a loss.
 🞂 Perils and Hazards
2. Hazard – Physical, Morale or Moral
1. Physical – an object, item, etc.
2. – a persons’ attitude /carelessness that
increase probability of a loss
3. Moral – dishonest behaviour i.e. falsifying insurance
application
🞂 Insurance manages risk
Risk is measured by severity and frequency
🞄 More severe risks occur frequently
Provide an example
🞄 Look at financial implications –
🞄 most severe can cause financial ruin
🞄 while less severe may require adjustments
that result in a lower standard of living
 When the severity of a risk may lower the standard of living
– material
 Frequency may be low or medium and severity has
some financial implication but does not impact standard
of living
– minor
🞂 Risks Faced By Individuals
🞄 Loss of income during the period of family obligations
🞄 death eliminates a source of income
🞄 reduces/eliminates income temporarily or
permanently
🞄 Loss of wealth
🞄 Medical expenses not covered by provincial plans
🞄 Inadequate coverage - government health care coverage
🞄 Travel Medical expenses while travelling abroad
🞄 for the costs of assisted living in early
older ages as well as in older ages.
When can LTC income be required in younger adults or
those who are recent empty nesters, etc.?
 Risk Management
🞂 Loss ofIncome
🞄 Can occur permanently or temporarily
🞄 Permanent loss – permanent or
of an income earner
🞄 Expenses experienced by family
🞍 Final expenses
🞍 Continuing expenses
Does anyone have an example of a permanent disability leading to
someone not returning to work?
🞄 Temporary Loss
🞄 Risk of sickness or an accident creating disability is
than the risk of premature death
🞄 Living expenses and obligations continue while income is
reduced or eliminated
 Risk Management
🞂 Coverage
Private
🞄 Individual coverage through insurance companies

🞂 Group Insurance Benefits

🞄 Coverage through group policies example employee benefits

🞂 Government Insurance Benefits

🞄 CPP
🞄 CPP Offset – reduce disability benefits by amount received
by CPP
🞄 Viewed as first payor
🞄 Veterans Affair Disability Pension
🞄 Employment Insurance (EI)
🞄 Workers’ Compensation
🞂 Risk Management Strategies

🞄 Primary Strategies

1. Risk
🞍 Risk Reduction
🞍 Risk Avoidance

2. Risk
🞍 Risk Retention
🞍 Risk Transference
🞂 Risk Management Strategies

🞄 Risk Reduction
🞍 Used when low-high frequency of risk and severity is
minor, material or critical
🞍 Practiced daily – hard hats, maintenance of vehicles,
vaccinations etc.
🞍 Control may not eliminate risk but reduces

🞄 Risk Avoidance
🞍 Used when high frequency of risk and severity is critical
🞍 Since coverage would be very expensive alternative is to
avoid activity.
🞂 Risk Management Strategies

🞄 Risk
🞍 Used when low or medium frequency of risk and severity
is critical or major
🞍 Transfer financial implication to a third party

🞄 Risk
🞍 Used when low or medium frequency of risk and
severity is minor
🞍 deductibles
🞂 Risk Management Strategies

🞄 Transferring risk
🞄 Insurance financial risk from the policy
owner to the insurer
🞍 Term insurance
🞍 Permanent insurance
🞍 Disability
🞂 Risk Management Strategies
🞄 Insurer will assume risk based on its
underwriting process
🞄 will base their estimates of payout for
premium calculations
🞍 Will use statistics to calculate
🞍 Law of large numbers
🞍 Law of probability
🞍 tables
🞍 Morbidity tables
🞄 Insurers will then predict returns on investments for
the premiums they will collect
🞄 Benefits that the insurer will payout is from a
combination of and investment returns
🞂 Risk Management Strategies
🞄 Controlling Risk
🞄 Insurers control risk they assume by charging premiums
according to the risk the insured represents
🞄 Risk is classified
🞄 Preferred risk
🞄 risk
🞄 Sub-standard risk/special risks
🞍 Rated policies
🞍 Permanent or basis
🞍 Flat-dollar or increase (table ratings)
🞍 Exclusion riders or waivers
🞂 Insurance manages financial risk
🞄 Based on
🞄 tables
🞄 Potential financial impact or goals life insurance can
address:
🞍 Loss of income
🞍 Loss of caregiver
🞍 Debt coverage
🞍 Final Income taxes
🞍 Legacy creation
🞍 Education Funding
🞍 Charitable giving or endowment creation
🞍 Business continuation
🞍 Business wealth transfer
TABLE 1.1 Probability of death and life expectancy vs. age
Statistics Canada. Life tables, Canada, provinces and territories, 2009 to 2011. [online]. Revised September 25, 2013. [Consulted
January 11,
2014]. [Link]

AGE PROB DEATH (%) WITHIN YEAR LIFE EXPECTANCY (yrs)

MALES FEMALE MALES FEMALES
0 0.522% 0.449% 79.33 83.60
1 0.030% 0.021% 78.75 82.98
10 0.009% 0.008% 69.85 74.05
20 0.071% 0.030% 60.04 64.17
30 0.074% 0.037% 50.44 54.35
40 0.132% 0.084% 40.87 44.62
50 0.301% 0.197% 31.56 35.12
60 0.780% 0.485% 22.83 26.03
65 1.260% 0.782% 18.82 21.73
70 2.040% 1.284% 15.13 17.68
75 3.310% 2.146% 11.81 13.93
80 5.383% 3.654% 8.93 10.57
85 8.776% 6.338% 6.52 7.68
90 14.341 11.196% 4.63 5.35
%
95 21.839 18.849% 3.33 3.68
%
100 30.802 28.671% 2.44 2.57
%
TABLE 1.1 Probability of death and life expectancy vs. age
Statistics Canada. Life expectancy and other elements of the life table, Canada, all provinces except Prince Edward Island, (Table 13-10-0114-01, 2016 to

2018). [online]. [Consulted August 10, 2020]. [Link]

AGE PROB DEATH (%) WITHIN YEAR LIFE EXPECTANCY (yrs)

MALES FEMALE MALES FEMALES
0 0.477% 0.427% 79.99 84.1
1 0.028% 0.023% 79.3 83.4
10 0.009% 0.008% 70.4 74.5
20 0.068% 0.032% 60.5 64.6
30 0.103% 0.042% 51 54.8
40 0.140% 0.047% 41.6 45.1
50 0.295% 0.190% 32.3 35.6
60 0.707% 0.451% 23.5 26.5
65 1.231% 0.731% 19.4 22.1
70 1.807% 1.183% 15.6 18
75 2.961% 1.988% 12.1 14.2
80 4.931% 3.425% 9.1 10.8
85 8.348% 6.049% 6.5 7.8
90 14.362 10.950% 4.5 5.3
%
95 23.558 19.104% 3.6 3.6
%
100 34.271 29.681% 2.2 2.5
%
Personal Life Insurance

🞄 AKA Individual or Individually Owned Life Insurance

🞄 Either Term, Permanent or Universal Life
🞄 Term insurance is for a set period or to a age
🞄 Permanent for the most part expires when the insured
passes away and the death benefit pays at that time.
🞄 Death benefit is paid to the beneficiary if the
insured passes away before the date.
🞄 If the insured survives passed the expiry date there
are no refund of premiums and no payment as there
is generally no CSV
Personal Life Insurance

🞄 Term
🞍 Effective Date
🞍 Face amount /Death benefit
🞍 Settlement option
🞍 Policy holder (the insured)
🞍 Life Insured (the life insured)
🞂 Term Insurance
🞄 For specified period or up to specific age i.e. 1 yr., 10 yrs.,
20 yrs., or to age 65, to age 75
🞄 Generally not available for purchase after age 75
Why would coverage be more difficult to obtain the older
you get?
🞄 Relatively in early and younger years
compared to the volume of coverage you can purchase
🞄 Rate will increase over time (i.e. 1 yr.,10, 20, 30 yr. steps); can
have Level Term I.e. to Age 65, 75
🞄 Money spent on premiums has risk of
death from the insured to the insurance company
during the term.
🞂 Term Insurance
🞄 Single Life

🞄 Joint-First-To Die ( ) (sometimes has option to extend)

When could a JFT policy be used?
How would an age difference affect the rate?

🞄 Joint-Last-To Die ( )
When could a JLT policy be used?
🞂 Non Renewable
🞄 Expires at the end of the term
🞂 Renewable Term Insurance
🞄 Higher premiums at renewal –guaranteed renewal rate based on
age at renewal
🞄 Renewable of health – no evidence of insurability
🞄 Face amount is the
🞄 Premiums reflect mortality risk for that period due to the
attained age
🞂 Re-Entry Term
◦ not very common, option to prove health status for lower rates
🞂 Renewable and Convertible Option
🞄 Ability to renew and to a permanent policy available
and applicable by that insurer
🞄 Renews automatically until the end of the term
🞄 Same or decreased face value
🞄 Must be in force when application is made and can have age
limits
🞂 Level Term Insurance – majority of policies
🞄 stay the same for the stated term (i.e. 10, 20 yrs., to age 65
🞄 amount stays level for the term
🞄 Beneficiary is specified
🞄 Know exactly how much, how long and who will get paid out.
🞄 Most people do not take into consideration that their coverage amount
needs will change over time so they will be under or over insured at
different times

🞂 Increasing Term Insurance

🞄 Premiums over the term
🞄 Face amount over the term
🞄 Beneficiary is specified
🞄 E.g. lawyer starting out building a client base

🞂 Decreasing Term Insurance

🞄 Level premiums over the term
🞄 Face amount over the term
🞄 Beneficiary is specified
When would this type of policy be useful? Provide examples
in chat.
🞂 Renewable and Convertible Option
🞄 Renews until the end of the term
🞄 Ability to to a listed policy
regardless of health of the life insured
🞄 Same or decreased face value
🞄 Rate is based on attained age (not common to have Original
Age Conversion except if the policy is not very old)
🞄 Must be in place when application is made
🞄 Incontestability and suicide clause not begin
anew
🞄 Conversion normally not allowed after age 70 or other
specified age
Why choose an R&C Term Life Insurance policy?
🞄 Terminology
🞍 Incontestability
🞍 Suicide clause
🞂 Incontestability Clause

When Marie filled out her insurance application, she answered “no” to the
question about having a heart condition. However, a few years ago, Marie
went to the emergency room complaining of chest pains. The diagnosis was
inconclusive, and Marie never followed up with the recommended heart
specialist, so she didn’t think she needed to mention it. If the insurance
company discovers this fact within the first two years of the policy, it will
have the option of voiding the policy. However, once the contestability
period has passed, they cannot cancel the policy.

Taken from CISRO Life Insurance LLQP Exam Preparation Manual 2nd Edition Page 50
🞂 Advantages of Term Insurance

 Low initial cost. In the early years of the policy, the premiums for term
insurance will be
than those for permanent insurance, making it affordable for
those who
cannot afford permanent insurance;

 Premiums are over the term;

 Renewable and convertible provisions can be used to extend coverage;

 Term of coverage can be customized to meet a specific need.

🞄 Why would this be considered an entry level insurance?

🞄 What would you use term insurance for? Provide examples in

chat.
🞂 Disadvantages of Term Insurance

 Premiums and coverage are not guaranteed beyond the term or renewal
period i.e.
there is a termination date for the coverage;

 Premiums as the life insured ages, and can become prohibitive;

 Coverage is usually not available past a certain age;

 Policy is worthless at the end of the term.

 In later years term insurance can become ‘ ’

🞂 Permanent Life

🞄 Whole Life
🞄 Term-to-100
🞄 Universal Life
🞂 Permanent Life
🞄 Life
🞍 Coverage for lifetime
🞍 Premiums are usually level and guaranteed
🞍 Has a set death benefit
🞍 Builds up

🞄 -to-100
🞍 Coverage for
🞍 Policy matures at Age - premiums are not payable
🞍 Usually has lower premiums than Whole Life
🞍 Has a set death benefit
🞍 Normally does not have a cash value, but some policies do

🞄 Life
🞍 Coverage for lifetime
🞍 Has two components – an and a
component
🞍 Savings component from excess premium contributions
🞍 Tax-sheltered savings
🞂 Whole Life

🞄 Policy reserve
🞄 Early years pay more in premiums than coverage requires
🞄 Increases with every additional premium and compounds
🞄 Creates CSV
🞄 Borrow as a policy loan
🞄 Non-forfeiture option
🞂 How Premiums Are Calculated
◦ Based on assumptions about costs, expenses and
investment returns, projected over the life of the contract (can be 50-100
yrs.)

Life insurance companies have two sources of income

• Premiums and investment earning from their portfolio
• Income is used to pay all benefits that are due to policyholders and
pay operating expenses
Gross Premium = Mortality rates + Investment Income + Load
Example of expenses (a WL policy must estimate the future cost for some of these expenses)
🞂 Cost of selling the policy (e.g., marketing, salaries or commissions to agents);
🞂 Underwriting the policy (e.g., processing applications, paying for medical exams);
🞂 Issuing and administering the policy;
🞂 Paying various taxes;
🞂 Investigating claims;
🞂 Paying death benefits and the profits sought by shareholders.

Modal Factor
◦ Most policies are priced on an annual payment, paid in advance. When
the policy owner pays monthly, the typical calculation is:
annual premium x 0.09 = monthly or premium
🞂 Premium Options
🞄 Ongoing
🞍 Paying for the duration of the policy contract, until surrendered
or death of the life insured
🞍 Lifetime-pay

🞄 Limited Payment
🞍 Premium payment over a specific period
🞍 E.g. 10 years, 20 years, until age 65
🞍 Policy is then considered

🞄 Single Premium
🞍 One time payment for entire coverage
🞍 Very unusual and restricted
Why would this kind of payment be uncommon and restricted?
🞍 Must maintain integrity with Income Tax Act
🞂 Death Benefit Options

🞄 Guaranteed Whole Life

🞍 Death benefit and premiums are guaranteed
🞍 Based on insurance companies long term assumptions

🞄 Adjustable Whole Life

🞍 Insurance company may death benefit and/or
premiums up or down after the end of the guarantee
period
🞍 Reflect changes between insurance co.’s assumptions and
actual experience
🞍 premiums initially
What would cause the insurer to increase or decrease the DB
and/or the rate? Put your answer in chat.
🞂 Adjustable Premium Whole Life Insurance
🞄 Premiums change over the life of the policy
🞄 Premiums and death benefits are usually set for 5 years then adjust
🞄 New Investment yields are compared to the yields at the beginning
of the period
🞄 Increased
🞍 Sum insured increases and premiums stay same
🞍 Sum insured stays the same and the premiums decreases
🞄 Decreased
🞍 Sum insured decreases and premiums stay same
🞍 Sum insured stays the same and the premiums increases
🞄 Popular in economy with rising interest rates
🞂 Non-Participating vs. Participating Whole Life Policies
 Either a or Non Par policy, depending on how surpluses are used
 Surpluses occur
 Fewer payouts i.e. mortality rates lower than expected
 Higher investment returns
 Lower admin expenses
 Insurance company is responsible for any shortfalls based on the assumptions

🞄 Non-par policies
🞍 Uses surplus to build policy reserves as required by regulators
🞍 Excess are profits to fill reserves, then to , shortfalls
come from company’s financial resources
🞍 Based on insurance companies long term assumptions

🞄 Par Policies
🞍 Use some of the surplus for policy reserves
🞍 Excess distributed as policy
🞍 not the same as corp. dividends and are also not guaranteed
🞍 Potential to share is revenue surplus
🞍 Higher premiums
Dividends

🞄 To determine dividends insurance companies group

policies

🞄 Dividend scale then determined – very

formulas including current and future RoR,
expenses and charges, etc.

🞄 Dividend scale for illustration is guaranteed –

for illustration purposes. This needs to be made
clear to the prospect and client,
🞂 Par Policies Dividend Payment Options
🞄 Cash
🞄 Premium Reduction or premium offset
🞄 Apply the dividend to premiums payable
🞄 In later yrs. the policy dividend might offset the entire premium payable

🞄 Accumulation
🞄 Deposited into a side account and invested
🞄 Income earned in side account is taxable
🞄 Can withdraw at any time
🞄 Paid to beneficiary if remaining at time of death

🞄 Paid Up Additions (PUA)

🞄 Annual policy dividend is used to purchase whole life PUA (non cancellable by
insurer) and increases the amount of dividends received yearly
🞄 Can increase the CSV and can be surrender PUA separately
How can PUA increase the dividend paid to the policy?

🞄 Term Insurance
🞄 Can buy 1 year insurance to increase coverage
🞄 Can also be used in a hybrid plan where PUA eventually replaces the 1 yr. Term
How can a hybrid plan benefit a policy owner?
🞂 Non-Forfeiture Benefits
◦ Only for permanent policies with CSV

🞄 Policy loan
🞄 Max 90% of the cash surrender value
🞄 Interest is charged by the
🞄 If dies prior to repayment, loan and accrued interest reduces the death benefit

🞄 Non-forfeiture option
🞄 Cash Surrender Value – terminate the policy and take the CSV (taxation
may be possible)
🞄 Surrender Charges – fees charged by the insurer to offset their initial costs, will
over time and be eliminated
🞄 Automatic Premium Loan (APL)– automatically charges and
interest as a policy loan against the CSV
🞄 Extended Term Insurance (ETI) – uses CSV as a lump-sum premium to
purchase max term insurance for max term possible. Riders and other
benefits are cancelled
🞄 paid-up insurance (RPU) - uses CSV as a lump-sum premium to
purchase whole life that is paid up. Allows policy holder to stop paying premiums
and keep some coverage in place.
Advantages of Whole Life Insurance
 Premiums are guaranteed for life

 Coverage continues for life, regardless of the age or health of the life insured;

 Participating whole life policies may result in policy

 A whole life policy builds up a cash surrender value (CSV) over time

 In the later years, whole life policy premiums will likely be less than the
premiums for the same amount of term insurance on a person of the same
age

 A whole life policy may offer non-forfeiture benefits in addition to the CSV

 Policyholder may be able to obtain a policy loan against the CSV of the policy

 Compared to more traditional guaranteed investments, the dividend

payment rate on participating policies has historically had a lower standard
Disadvantages of Whole Life Insurance
 High initial cost- cost-prohibitive for people with limited cash flow

 Policyholder has little or no choice over how the policy reserve is invested

 For participating whole life policies, policy dividends are guaranteed

 There is a theory that suggests buying term insurance and investing the
difference may result in a better financial outcome (provided the
policyholder is disciplined to invest the difference); Should be based on
insurance needs – what happens if the insured passes away in the
interim?

 The way the policy reserve is invested/managed is not entirely

transparent to the public.
🞂 Uses of Whole Life

🞄 Planning
🞄 Pay capital gains
🞄 Taxes upon death
🞄 Final expenses
🞄 Provide for beneficiaries

🞄 Future Insurability
🞄 Life time protection at a guaranteed fixed price

🞄 Creditor
🞄 Suitable for small business owners, self-employed individuals or some with significant
debt
🞄 CSV protected if irrevocable beneficiary or revocable preferred beneficiaries
🞄 Death benefit protected as long as not to estate

🞄 Tax-deferred savings
🞄 Premiums add value to the policy that is not taxed annually as long as it is within
certain Income tax guidelines

🞄 Collateral
🞄 CSV can be pledged as a for loans
Term-to-100 Insurance (T-100)
🞄 Hybrid between whole life and term
🞄 To age 100 – premiums, coverage can continue or at
age 100
🞄 Some policies have no cash values (CSV) while some do
🞄 At age the policy will – depending on policy
🞍 Mature - Pay out the face amount at Age 100 or upon death
🞍 Paid –up – Payout upon death but no premiums
are collected
🞄 Lower premiums relative to other whole life policies
🞄 Not paying for certain features such as CSV, availability of
policy loans or dividends
Useful for estate planning – how?
Comparing Term to Whole Life
Insurance
Term Insurance Whole Life Insurance
- Provides insurance coverage for a specified period - Provides coverage for life
or term

- Coverage is usually not available past a certain age - Coverage is available for life, regardless of age
i.e.
75 or 80 - Term is for whole of life, but can be cancelled anytime
- The term can be selected to meet a certain duration - Premiums remain the same regardless of age
- Premiums generally increase with the age of the
life insured - Premiums are higher in early years compared to
term, but lower in later years
- Premiums are lower in younger ages compared to WL - The premiums remain constant
- As the insured ages, the premiums might become
cost- prohibitive - The policy never requires a renewal and will remain
in force even with changes in hearth, as long as the
premiums are paid
- The policy may be non renewable, non convertible
- Policy never expires and renewal will remain in
force even if the health of the insured declines
- The policy does not build up cash value – no value
when terminated or for other uses like premium
payment - Policy builds up CSV and can be received by
owner if surrendered
- Does not provide dividends - Can borrow from the policy and used as an asset
for collateral
- Cannot borrow from or use as collateral
- May include non forfeiture benefits which increase in
- Does not have non-forfeiture benefits value the longer the policy is in force
- Death Benefit can be increased without providing
- Death Benefit cannot be increased without proof of insurability and without paying additional
providing medical proof of insurability and without premiums (i.e. PUA and dividends on accumulation).
payment of additional premiums.
Universal Life

🞄 Combination of insurance and tax

advantaged

🞄 Like WL policies, may also build a policy reserve from the

account or accounts that comprise a part of
the policy.

🞄 Account value equals the total of the investment account

less deductions for the current month’s expenses
Universal Life
🞄 Management and decisions of the account is
that of the policy owner - works with advisor to
monitor policy returns vs objectives

🞄 Responsibility of the account is that of the policy owner

unlike whole life where it is the responsibility – shift of
the risk

🞄 Policy owner also chooses how premiums will be structured

and death benefit options

🞄 Adjustable Whole Life

🞍 Insurance company may adjust death benefit and premiums
🞍 Reflect changes between insurance co.’s assumptions and actual
experience
🞍 Lower premiums
🞂 Universal Life - Unbundling
🞄 Three parts – Insurance, Investments
and Expenses
🞄 Important feature for the policy holder – transparency
🞄 Can monitor investments better and have true picture
🞄 Listed separately and unbundled vs WL or Term
🞍 Cost of insurance (mortality charge applied to the policy)
🞍 Interest rate applied to the account value of the policy
🞍 Expense charge (administration, sales costs,
underwriting, taxes)
Universal Life – Flexibility

 Timing and Amount of Premiums

 premiums to at least keep life policy in force
 is based on income tax exemption test
 Frequencies – lump sum, monthly, annually, quarterly…
Why would someone choose lump sum? What issues could arise? How can the payments be
structured?

 Face Amount
 Increase and decrease face amount with satisfactory
evidence of insurability.

 Life/Lives Insured
 May be allowed to add more lives to be insured and substitute one life
for another
Universal Life – Flexibility

 Investment Options
 and can be changed

 CSV
 Receive CSV
 Policy Loans
 Withdraw a portion (unlike whole like policies)

 Death Payout
 Cash Value and face amount can be paid out
 Whole life is one or the other
Universal Life – Pricing
🞂 Mortality costing or cost of insurance (COI)
🞂 For example, Term insurance: it is the death benefit multiplied by the probability of death
🞂 COI is based on the Net amount at risk
 NAAR Net Amount at Risk
 NAAR =equals death benefit minus the account value (i.e. $500K DB -
$78K account value = $422K
 All permanent policies build up a policy reserve that reduces NAAR
 YRT Yearly renewable Term
 One year term insurance that renews every policy period
 Increased cost of insurance each year
 Level Cost of Insurance (LCOI)
 Premiums remain constant
 Based on T-100
 Higher initial premiums compared to initially but is constant
 Some policies allow a switch form YRT to LCOI
 Limited-Pay
 Set the COI for 10, 15 or 20 years
 If a client is looking for greater short-term policy fund values, he would likely be better off choosing the
YRT costing option, at least initially; Why is this?
 If a client is looking for longer-term policy values, he would likely be better off choosing the LCOI
costing option, because it locks him into a level rate for life. When could this happen?
Death Benefit Options in UL – Flexibility
1) Level Death Benefit – the face amount or the
value if more than the DB
2) Level DB plus Account Value – the original
face amount plus the account value
3) Level Death Benefit plus Cumulative
Premiums – original face amount plus the sum of
premiums paid
4) Indexed DB – the face amount for
inflation
Universal Life – Expense Component

🞍 Administration
🞍 Expenses
🞍 Sales costs
🞍 Deducted from the account monthly
Universal Life – Investment Options
 Net premiums
 Gross premium minus the premium tax, mortality charge and
policy expense deductions
 Invested within the policy’s investment account
 As mortality deductions changes so does the investment amount

 Tax Deferral
 Investment income earned within the tax-exempt investment account
is not taxable

 Investment choice
 Savings accounts
 term deposits
 Investment funds
 Mutual or Segregated funds
🞂 Universal Life – Investment Component
🞍 Deposit in addition to the premium build a pool –
account value/accumulation fund

🞍 As long as the account value can pay the mortality

charge and expenses there is not need for premium
payments

🞍 If account value is used for premium payments – value is

reduced

🞍 Premiums and deposit are invested into

investment products offered by the insurer
🞍 Savings accounts
🞍 Guaranteed term deposits
🞍 Investment funds
🞍 Segregated funds
🞂 Universal Life – Investment Component
🞍 Investment earnings grow within the account and
credited as “interest - income” and are so
not declared each year

🞍 Taxes paid when policy is disposed of:

🞍 Surrendered
🞍 Absolute assignment
🞍 Lapse
🞍
🞍 Loans
Universal Life – Accumulating Fund
Provides some options

 Surrendering the policy

 CSV = cash value of the investment account less any applicable
surrender charges (usually for up to 10 yrs.)
 Surrender charges based on a multiple of LCOI

 Policy Withdrawals
 UL is the only policy that allows for a partial surrender
 No need to be repaid
 Surrender charges and taxes may be applicable
 Impede growth of the investment account – affect long-term viability if
there is not enough cash to cover mortality costs without a deposit

 Premium Offsets
 Offset with investment income and/or extra or additional deposits to
the investment account
 Possible for the investment account to grow to a size that it can fund future
mortality costs and expenses – keeps policy in force
Why would someone choose to plan for or to select this option?
Universal Life – Accumulating Fund
Provides some options

 Policy Loans
 50% to of cash value
 Interest rate charged is set by insurance company
 If loan not paid back, it will reduce the death benefit by loan value plus
accrued interest
 Tax may be payable if considered a taxable disposition.

 Collateral for Third-Party Loans

 The cash value in the investment account may be used as collateral for a loan
by a
-party e.g. chartered bank
 Since loan is from a 3rd party, taxes can be avoided
 Repayment may or may not be needed
 3rd party is guaranteed repayment from the DB

 Leverage
 Variation of a third-party loan
 Cash death benefit and CSV are used as collateral
 No principal and interest payments on the loan
 Principal and accrued interest is paid on the death of the insured
Universal Life – Accumulating Fund
Provides some options

 Leverage Cont’d
 Use proceeds of the loan or series of loans to:
 Supplement income
 Invest with the purpose of producing
income (dividends, interest, rent)
 Interest can be tax-deductible

 **Very risky strategy because lower than

expected returns may cause the loan to exceed
the death proceeds and the bank may call the
loan.
 Surrendering the policy may leave the insured
uninsured plus the tax liability
 ADVANTAGES DISADVANTAGES
Offers considerable to the Product is and may be difficult
policyholder; for the policyholder to understand;
Policyholder can increase, decrease or even Policyholder needs to actively monitor the
suspend premiums, as long as the policy’s performance of the investment account, and
account value can support the mortality make adjustments to policy investments as
and expense deductions; needs change;
Policyholder has a choice of investment Entire premium is subject to premium tax;
products;
Offers the opportunity for tax-sheltered Policy performance is sensitive to changes
investing, within limits. in investment performance.
UNIVERSAL LIFE INSURANCE WHOLE LIFE INSURANCE

MORTALITY DEDUCTIONS AND EXPENSES MORTALITY DEDUCTIONS AND EXPENSES

• Mortality deductions and expenses are deducted • Mortality deductions and expenses are taken from
from investment account policy reserves
• Mortality deductions may be based on or
costing
PREMIUMS
PREMIUMS
• A missed premium does not trigger a premium loan;
• A missed premium will trigger an automatic premium
mortality deductions and expenses continue to be
loan.
drawn from the investment account. Policy may lapse
once the account value becomes insufficient to cover • Additional automatic premium loans will be made until
these deductions (subject to grace period) the CSV becomes zero, when the policy will lapse
(subject to grace period)
• Premiums are typically level for the life of the
policy (unless it is an adjustable policy)
DIVIDENDS DIVIDENDS
Does not provide policy dividends Policy may pay
UNIVERSAL LIFE INSURANCE WHOLE LIFE INSURANCE

DEATH BENEFIT DEATH BENEFIT

• Policyholder has options with respect to the • Death benefit is generally not affected by the
death benefit (e.g., death benefit plus account value of the investment account
value, death benefit plus cumulative
premiums)
MODAL FACTORS
MODAL FACTORS • Modal factors apply if premiums are paid
• Modal factors generally are not used other than annually.

INVESTMENT
INVESTMENT
• company chooses how the
• can choose how the policy reserves are invested
investment account is invested
🞂 Universal Life – Uses
🞍 Who does universal life appeal to?
🞍 More willing to make decisions and take risks
🞍 Estate planning
🞍 Flexibility
🞍 Cost-oriented – unbundling
🞍 Investment focus
🞍 Creditor protection
🞍 Maxed out on RRSP and TFSA – tax growth
🞍 Tax-free retirement income
In 1 word, how would you describe UL?
🞂 Supplementary Benefits and Riders to Personal Life Insurance
🞍 Policy extras - affordable solution
🞍 Riders add cost to premium
🞍 Can be attached after policy is issued – in force until a
certain age, conversion, lapse
🞍 No effect on other policy features such a cash values,
dividends etc. such as:
🞍 death benefit
🞍 Accidental death and
🞍 Monthly disability income benefit
🞍 Waiver of benefit
🞍 Accelerated death benefit
🞍 Parent waiver
🞍 Term insurance
🞂 Riders that provide additional death benefits

🞍 Paid-Up (PUA) rider

🞍 Term Insurance Riders (Term)
🞍 Accidental Death Rider (AD)
🞍 Guaranteed Rider/Benefit (GIR/GIB)
Riders to Personal Life Insurance

🞄 Paid-Up Additions (PUA)

🞄 Additional lump-sum premiums to buy paid-up permanent
life insurance
🞄 Increase benefit and CSV
🞄 Similar to PUA dividend option discussed earlier
🞄 Limits on the rider:
🞄 Minimum PUA that can be purchased at any one time
🞄 Minimum PUA that can be purchased in any one year
🞄 Cumulative that can be purchased over the lifetime of the policy
🞄 When the PUAs can be purchased
🞄 Max age of the life insured at the time of purchase
🞂 Riders to Personal Life Insurance

🞄 Term Insurance Riders

🞄 Can be added to Term or Permanent polices
🞄 Additional coverage for a limited period of time
🞄 Apply to primary insured or additional person
🞄 Additional person coverage is underwritten separately
🞄 Amount is independent of the base policy
🞄 Family coverage riders for spouse and children – units of coverage
🞄 Child coverage rider
🞄 rider can convert to individual policy without proof of insurability -
based on the premium of the child’s attained age
When would a term life insurance rider be placed in a policy?
🞂 Riders to Personal Life Insurance

🞄 Accidental Death (AD) Benefit

🞄 If insured dies by accident, an amount in addition to the face
amount is paid out
🞄 Unexpected or event
🞄 Death must occur within a specified period after – e.g., 1 year
🞄 Maybe offered as a multiple of units (e.g., $25,000 to a max) or a
multiple of the death benefit – most popular
🞄 Usually not available for those over 55 and ends at age 60
🞄 Not covered – suicide, war, riot, unlawful acts or aviation
accidents where the insured was not flying on a commercial
airline as a paying customer
🞄 Why would these events be excluded?
🞂 Riders to Personal Life Insurance

🞄 Guaranteed Insurability Benefit (GIB)

🞄 Right to increase life insurance at certain times, periods or at
certain events without evidence of insurability
🞄 Premiums based on age of life insured
🞄 Useful for those who currently don’t have a large insurance need or
cant afford a larger policy but expect to increase in the future
🞄 Restrictions
🞄 Only permitted at certain times example within a month of
policy anniversary
🞄 Limited to dollar amount or percentage of face amount
🞄 Number of times it can exercise maybe limited
🞄 Exercising the options are limited up to a certain age – usually age
40 to 50
🞂 Supplementary Benefits to Personal Life Insurance
🞄 Accelerated Death Benefit
🞄 Available as
1) Terminal illness benefit – occur within one year or 24 months
as declared by doctor
2) Dread disease benefit aka CI Benefit– if diagnosed with a
specified disease
3) Long-term Care benefit – can’t perform 2 or more of Activities of daily
Living (ADL) . Paid monthly as a small % of face value.

🞄 Parent waiver
🞄 Insurance on a child
🞄 Waives all future if parents die or becomes
fully disabled until child is certain age or end of contract
🞂 Supplementary Benefits to Personal Life Insurance
Accelerated Death Benefit
🞄 Available as
🞄 Illness benefit
🞍 occur within one year or 24 months as declared by doctor
🞍 Many insurance companies build TI benefit right into their policies
🞍 No extra premiums or possibly compassionate grounds
🞍 Max 25% to 75% and/or dollar amount
🞍 Payable to policyholder unless beneficiary is irrevocable
🞍 Benefits are tax free
🞍 Reduces death benefit
🞄 Available as
🞄 Dread Disease benefit – AKA Critical Illness or CI benefit
🞍 Most common Heart Attack, Stroke, Coronary bypass surgery, Cancer
🞍 Definitions depends on the insurance company (23-25 definitions)
🞍 Similar to individual CI coverage
🞍 Bundling will save policyholder money than individual policies
🞂 Supplementary Benefits to Personal Life Insurance

Accelerated Death Benefit

🞄 Available as
🞄 Long-term are benefit
🞍 Cannot perform 2 or more of Activities of Daily Living ( )
🞍 Eating, bathing dressing, toileting, transferring and continence
🞍 Paid monthly as a small percentage of face value.
🞍 Similar to Individual CI coverage
🞍 Bundling will save policyholder money than individual policies
🞂 Supplementary Benefits to Personal Life Insurance

🞄 Accidental Death and Dismemberment (AD &D)

🞄 Accidental death benefit along with coverage for dismemberment
🞄 Amount paid based on policy schedule
🞄 Usually limited to age 60 or 65
🞄 Paid out if the loss occurs as a result of an unexpected violent or
traumatic event within as fixed time of the event
🞄 - losses incurred because of
🞄 Self-inflicted
🞄 War
🞄 Commission of a crime
ACCIDENTAL LOSS % OF BENEFIT
PAYABLE*
• Both hands or both feet
100
• Entire sight of both eyes
100
• One hand and one foot
100
• One hand and the entire sight of one eye
100
• Speech and hearing in both ears
100
• One arm or one leg
• One hand or one foot 75

• Entire sight of one eye 50

• Speech, or hearing in both ears 50

• Thumb and index finger of either hand 50

• Hearing in one ear 25

• Quadriplegia (complete paralysis of both upper and lower limbs) 25

• Paraplegia (complete paralysis of both lower limbs) 100

• Hemiplegia (complete paralysis of upper and lower limbs on one side of the 100
body) 100
Industrial Alliance. Accidental Death and Dismemberment Insurance. [online]. [Consulted
April 17, 2014]. [Link]
insurance/[Link]? iddoc=276248
🞂 Supplementary Benefits to Personal Life Insurance

🞄 Waiver of for total disability

🞄 Premium for policy, riders or supplementary benefits are waived
🞄 Definition of total disability varies with policy
🞄 For example - unable to carry out regular employment for two
years and unable to do any job thereafter based on qualifications,
education, training or experience
🞄 Benefits continue to accrue

🞄 Monthly Disability Income Benefit

🞄 Added when the policy owner and life inured are the same person
(two-party contract)
🞄 Monthly income after a 3 -6 month waiting period to age 60 or 65
or a long as total disability
🞄 Amount linked to face amount i.e. fixed $/$1,000 face value
🞄 May also include waiver of premium benefit
🞂 Disability Income Insurance
🞄 Replaces policy owner’s income if they are unable to work because of illness
or accident

🞄 Statistics reveal that the probability of being disabled is much

than the chance of death

🞄 Although covered for medical costs of injury or sickness through provincial

or private health, might not have protection for loss of wages

🞄 Taxable as income

🞄 Over insurance must be avoided (85% All Source Max)

🞄 Provided through
🞄 Individual policies
🞄 Group insurance policies
🞄 Federal government programs
🞄 Provincial government programs
🞄 Individual life insurance contracts as a rider
ADVANTAGES DISADVANTAGES
• Can be used to customize coverage to • Additional premiums are
usually required;
meet policyholder’s unique needs;
• There may be limitations and
• Some benefits may be cheaper when exclusions on coverage;
acquired via a rider or supplementary
benefit than when acquired as a • Coverage expires when the base
stand- alone policy; policy expires;
• Conversion to individual stand- • Depending on the benefit, separate
alone coverage without proof of underwriting on the life insured and
insurability may be possible for the policyholder may be required.
term insurance riders;
• May give the policyholder access to
higher coverage later, without
providing proof of insurability (for GIB
and PUA riders), while allowing him to
pay for a lower amount of coverage
now.
🞂 Group Insurance
• Almost any group that has a sufficient number of people
with a common characteristic
• For example, group life insurance plans may be available to:
• All employees of a certain employer;
• Executives and managers of a certain employer;
• Alumni from a specific university;
• Members of an occupational association – trades, professional
occupation, union, etc.; Why would these entities offer such benefits?
Answer in chat.
• Members of a business association;
• Members of a retail association.
🞂 Group Insurance
🞄 Group insurance policies have a form and amount of
coverage that is controlled by the group

🞄 Policy is issued by the life

insurance company to the plan sponsor
🞄 Provided to employers, professionals, associations,
unions and alumni groups
🞄 Theory is that similar people band together in these
organizations
🞄 Easier for insurer to more accurately assess risk and,
correspondingly, estimate premium.
🞂 Group Insurance
🞄 Larger the group size the better
🞄 Standard group insurance begins with a group
not smaller than 2
🞄 Smaller groups are insurable but evidence of insurability
may be required because risk is not shared adequately.
🞄 Group must include 75% -100% of eligible employees
🞄 Provided as an employee benefit
🞄 All evidence of the insurance company preventing

🞄 Must be at work when the coverage starts

to be enrolled
🞂 Optional
membership for association – member
must be in good standing and chooses to join. Those that
leave the association can convert their coverage
🞂 Optional membership for
– the member choses to join
and is required to pay a portion of the cost of the insurance.
A.K.A. contributory plan because the member contributes
towards the plan. Once the probationary term is over, the
member has a defined period of time to enroll for life insurance or
E of I might be required.
🞂 membership for employees – all eligible employees
are enrolled in the group plan after they have passed their
probationary term.
🞂 Group Insurance – some of the benefits
🞄 Lower premiums in comparison to an individual
policyholder
🞄 Administrative costs are lower
🞄 Lower paid to agents
🞄 Lapse rate is lower –employers pays all or part of the
premium
🞄 Medical exams do not need to be reviewed by the
insurer
🞄 Probationary period – eliminates employees who
change job frequently
🞄 Conversion options provide
🞂 Group Life Insurance
🞄 99% of the group life insurance is yearly (one-year renewable
term insurance
🞄 Renewed by the policy owner
🞄 Contributions
🞄 Most require employer to contribute at least 50% of the
overall premiums – balance is a contributory plan for the
employee
🞄 Policy owner is responsible
🞄 for paying the premium
🞄 renewing the policy
🞄 Amount of coverage
🞍 Individual can use it as a top-up using a
policy
🞍 Individuals name the beneficiary
🞍 May have options to add coverage
🞂 Group Life Insurance
Tax treatment for employer
• If an employer (‘er) pays some or all of the premiums - deduct
those premiums as a business expense.

Tax treatment for employee

• If an ‘er pays some or all of the premiums for a group life
insurance plan, those premiums are a benefit for the employee
(‘ee).
• Premiums paid by the ‘ee via payroll

Sales Tax on Premium

• Similar to life policies subject to provincial insurance premium
tax (2%-4%)
• Unlike life policies group premiums are also subject to

sales tax – ON 8% which must also be or attributed to the ‘ee

pd
🞂 Group Life Insurance
🞄 Group Term Coverage
🞄 Yearly Renewable Term insurance
🞄 Coverage Maximums
🞄 Multiple of Earnings (1,1.5,2,2.5, etc. x earnings)
🞄 Most common
🞄 Based on multiple or fraction of salary – can have a maximum and
minimum amount of coverage
🞄 Definition of earnings includes salary or wages and can include or
exclude variable income like , bonuses, overtime, etc.
🞄 Flat Rate/Amount
🞄 Every group member receives the same dollar amount regardless of
position i.e. Flat $25,000 or Flat $50,000
🞄 Length of Service
🞄 Increasing coverage with longer tenure/time of service. Not
very common.
🞄 Combination
🞄 Usually where different classes have different schedules. I.e. Executives
have 2x All Earnings and Hourly wage employees have a Flat Life Amount of
$XX,000
🞂 Group Life Insurance
🞄 Available as
🞍 Employee Life Insurance (ETL)
🞍 Dependent Life Insurance (Dep Life)
🞍 Survivor income benefit insurance
🞍 Optional Group Life and/or AD&D Insurance (GOL)
🞍 AD&D
🞍 group insurance
🞂 Group Life Insurance – Optional Coverages
🞄 Dependent Life Coverage
🞄 Premiums are often than if personally owned
🞄 Small coverage in comparison to member’s coverage
🞄 Spouse or common-law partner
🞄 Children between the ages of 0 or 14 days and 21 years
🞄 Biological, adopted and step-children.
🞄 Coverage as long as the child continues to attend school full-time,
up to a 25
🞄 If child is disabled and unable to work coverage may be indefinite

🞄 Optional Group Life

🞄 Type of insurance is also term
🞄 Employee chooses the amount and coverage (min and
max options)
🞄 Employee pays for additional coverage
🞄 Must prove insurability (often has non-smoker and smoker rates)
🞂 Group Life Insurance
🞄 Survivor Income Plan
🞄 Provides for the spouse and dependent children
🞄 On-going payments usually monthly
🞄 Either a flat amount or percentage of the amount earned
by the deceased
🞄 Continues for a set period of time, until spouse
remarries or reaches age 65
🞄 Continues as long as the dependent child remains
unmarried, as a full-time student, or to age 25
AD&D
🞄 Can be issued as a stand-alone policy as well as added to a group policy

🞄 Benefit is usually equal to the amount of the group term life plan

🞄 Basic Plan
🞄 Insure different classes of employees at rates that can be multiple of salary
🞄 Employer pays the premium

🞄 Voluntary Plan
🞄 Option for employees already covered by a basic plan, although it is sometime offered to
employees
who do not have a basic plan
🞄 Increases coverage usually in $25,000 to max $250,000
🞄 No medical exam required
🞄 Premiums paid by employees
🞄 increments
🞄 Not covered
🞄 An act of war
🞄 Suicide or self-inflicted injury
🞄 Service in armed forces
🞄 Flying in a non-commercial aircraft
🞄 Committing a criminal offence
🞄 Driving while impaired
🞄 An accident caused by drugs or intoxicants
🞂 Group Life Insurance
🞄 Group Creditor Life
🞄 Provided to creditors to insure the lives of their . It
is and cancellable by both parties
🞄 Example creditor mortgage, Line of Credit (LoC), credit card
insurance – i.e. for debt
🞄 Creditor is the beneficiary and only the debt is repaid – no
excess balance to survivors
🞄 Premiums are level for the duration of the debt term as the balance

🞄 Premiums included in the debt payment

🞄 Basic E of I with application and full underwriting at time of claim
🞄 Possible Additional coverage
🞍 Disability - pays monthly repayment for certain time or for
full amount . Def’n of disability is usually total and has a
long elimination period (EP)
🞍 Critical Illness – pays balance of the loan if diagnosed with
covered illness (not necessarily disabled)
🞍 Unemployment – pays a specific dollar amount to creditor
for a set period of time if unemployed by no fault of their
own
 Group Life Insurance

ADVANTAGES DISADVANTAGES
No evidence of insurability is People in very good health will pay
required. Individuals who are in poor the same premiums as the rest of the
health, have a pre-existing condition group.
or who smoke will still be covered,
with affordable premiums.
The employer or plan sponsor
controls the plan and can make
Some or all of the premiums may be changes without consulting the
paid by the employer. group members.
It is convenient for the employee. The amount of coverage may not
be what the plan member needs.
Coverage may be converted to
individual coverage without proof of The premiums for individual
insurability if the policy terminates coverage upon conversion are not
or the member leaves the plan. guaranteed and may not be
favourable.

Employer-paid premiums are a

taxable benefit.
 Humber – The Business School
Craig Griffith

Taxation of Life
Information taken from CISRO Life Insurance LLQP Exam Preparation Manual 2nd Edition
Insurance
 Tax-free death benefit
 Tax on policy dispositions
 Tax on policy gains
 Adjusted cost basis (ACB)
Death Benefit
🞄 to regardless of:
🞄 How long the policy has been in place
🞄 How much the policy holder has paid in the premiums
🞄 The type of policy
🞄 Includes death benefit plus account values as stipulated in UL
policies
🞄 For example, Steven bought a JFT UL policy for $250,000
DB plus the account value with a $500,000 T-10 rider, with
his wife Zara. To date, they have paid $8,750 in premiums
and the account value is $3,958. If either dies today, the
DB would be $250,000 + $500,000 + $3,958 = $753,958.
Policy Dispositions
Policy dispositions can be actual or deemed (i.e. policy dividend)
and may result in a for the policyholder.
Examples of dispositions:
🞄 the policy
🞄 cash
🞄 Policy
🞄 payouts
🞄 Policy becomes
🞄 Absolute or policy ownership
Policy Gain
When the policyholder disposes of some or all of his/her/their policy
ownership, there might be a policy , which must be reported
as income for tax purposes the year it is received.

Policy Gain = Disposition Proceeds – Adjusted Cost Basis (ACB)

 ACB can be said to be the market value of the policy.

 Changes over time - insurance company will usually provide this
number when a taxable disposition occurs.
For example, Eric surrendered his WL policy and the proceeds from the
disposition were $18,450. The ACB was $16,300, so the gain was
$18,450-$16,300=$2,150.
ACB

🞄 Focus on the last acquired date

🞄 All policies last acquired before Dec 2,1982 are
tax exempt unless disposed (surrender,
assignment, ownership changed or lapsed)
🞄 Not subject to the exempt tests
🞄 Not subject to annual taxation
🞄 ACB is simply the cumulative premiums paid to date
🞄 Policies acquired after December 2,1982 are non-exempt
and must report income earned annually for tax purposes
ACB
🞄 ACB increases based on the portion of the premium that
goes towards investments
🞄 NCPI – – charge for the cost
of the life insurance coverage within the policy
🞄 NCPI reps the cost for the pure insurance element
🞄 NCPI every year - insurance costs
increases with age…
🞍 ACB eventually tends to decrease and can
reach 0, but never a .
ACB
ACB = Premiums- NCPI- dividends
🞄 Increase ACB to reduce taxes
🞄 Premium payments –premium paid for substandard risks
and ancillary benefits are not part of the ACB computation
🞄 Interest paid on a policy loan repayment
🞄 Policy gain previously reported
🞄 Absolute assignment – when
transaction – policy gain is taxed to the transferor and
CSV is the new ACB
 INCREASES ACB DECREASES ACB

Dividends • PUA • Paid out in cash

• Additional term
• Repay loans
Policy Loans • Interest paid (unless • Policy loan
deductible)

Policy Loan • Repayments

Repayments

Withdrawals • Depends on the

amount

Policy gains included • Gains that were

included as
as income income from loan
or withdrawal
🞂 Policy Dividends
🞄 Payment is a deemed disposition
🞄 Paid to
🞄 Policy gain reported as

Policy Gain = (policy dividend – amount used to pay an

eligible premium)- Policy’s ACB

What are some of the benefits of a policy that receives

dividends?
1.
2.
3.
4.
5.
🞂 Cash Surrender Value

🞄 Paid to policy holder

🞄 Policy gain reported as income
Policy Gain = CSV – any outstanding loans and interest or
unpaid premiums - Policy’s ACB
🞂 Partial Surrender

🞄 Can occur when coverage or when a

withdrawal is made form the fund in a
UL policy
🞄 Paid to policy holder
🞄 Policy gain reported as income

For example life coverage of $300,000 reduced to $200,000

 CSV is $30,000
 ACB is $18,000
 Partial surrender of 33.33% [(300-200)/300]
 Policy gain = (30,000*33.33%) – (18,000 * 33.33%) =
4,000
🞂 Policy Withdrawal
🞄 Same as partial surrender
🞄 Only with policies
🞄 Policy Gain = Amount withdrawn – Policy’s prorated ACB

🞄 To calculate the prorated ACB:

Prorated ACB = (amount withdrawn/cash value of
the accumulating fund) x ACB of the policy

🞄 Policy gain reported as income

🞂 Policy Loans
🞄 Loans normally limited to 90% of CSV
🞄 Taxable Portion = Loan – any premium used to pay for
policy premiums
🞄 (APL) is deemed as nil because all the loan
is for premium payment
🞄 If the loan is less than the ACB, there will not be a policy gain, but
the ACB will be reduced by the loan amount
🞄 If the loan is greater than the ACB, there will be a gain equal to the
amount of the loan, minus the ACB. The ACB will reduce to zero.
🞍 If policy loan < ACB = no policy gain
🞍 If policy loan > ACB = policy gain
🞄 If repaid in the same calendar year, no income tax consequence

For example Loan of $25,000 from CSV

 CSV is $30,000
 ACB is $18,000
 Policy gain = 25,000 – 18,000 =7,000
🞂 Repaying a Policy Loans
🞄 If the policyholder repays the loan, they can deduct the
repayment from taxable income (max up to policy gain they
reported when the loan was taken)
🞄 If more is repaid than the policy gain, it increases the ACB

For example Loan of $25,000 from CSV (from previous slide)

 Repays $15,000 ….
 Tax deduction of $7,000
 ACB increases by $8,000 (15,000 7,000)
 ACB also increases by loan interest that is not deductible**

 ** when is the interest

 For purposes of earning property or business income, not
personal use or investments that produce capital gains only
 Interest, rent, dividends, etc.
🞂 Exemption Test

◦ Applies two rules - Whether the policy is truly

life insurance or whether it is an investment
I. MTAR
II. Anti- -in
Also, refer to the date last acquired.

Why is it important for the policy to be and remain tax

exempt?
-

-
🞂 Exemption Test
◦ Applies two rules - Whether the policy is truly
life insurance, or whether it is an investment
I. MTAR Maximum Tax Actuarial Reserve
in the accumulating fund
cannot exceed MTAR
Exempt policy test
🞄 Test applied each anniversary
🞄 Compared for exemption against the accumulating fund of a
duplicate policy:
🞍 if acquired between Dec 1, 1982 to Jan 1st 2017 20-pay-life
endowment at age 85;
🞍 if acquired after Jan 1st 2017 endowing at age 90 based
on 8 annual premiums.

What typically could cause a policy to become non

exempt?
🞂 Taxation of a Life Policy
◦ Cash Values
🞄 Subject to certain rules
🞄 Rule#3 – Exemption test
🞄 If growth exceeds MTAR – days to reduce cash value
🞄 Most policies are designed to automatically implement
one of the following methods:
🞄 Death benefit can be by of the total
benefit at previous anniversary (increase in the DB also
increases the MTAR threshold)
🞄 Cash withdrawal –if
🞄 Insurer may limit deposit or redirect to (aka
shuttle account) moving forward (money can also be
redeposited CV is less than MTAR threshold)
the
🞂 Anti-Dump-In rule

🞄 AKA The Rule

🞄 Prevents large lump-sum deposits after the anniversary
🞄 Every year, beginning on the anniversary
🞄 Look backththree (3) years andth compare the cash value
(i.e., in 10 yr. look back to 7 yr., etc.)
🞄 If the fund value is > 250% than the comparison yr., the
rule applies
🞄 Issue can arise from funded UL policies in
earlier years

Why do you think this rule is in place?

🞂 What can potentially cause a
policy to become non-exempt
🞄 PUA – because of high ratio of cash value relative
to amount of coverage
🞄 Investment returns higher than projected
🞄 Extra deposits
🞄 Most insurers monitor and guarantee the policies will be
tax exempt

🞄 If a policy does become non-exempt

🞄 Deemed Disposition to the policyholder policy gain is CSV
– ACB (note not surrendered but the policy gain is taxable)
🞄 Annual Accrual Reporting of investment income
🞄 Once non exempt, it is non-exempt
Absolute Assignments
An absolute assignment changes the , control and
under a life insurance policy from a policyholder to
a new policyholder. This may cause consequences
depending upon who receives the policy and how it is done

I. General rule

II. Non-Arm’s length – other than a child or spouse

III. Spouse

IV. Child or grandchild

Absolute Assignments
 General Rule
🞍 Absolute assignment to an arm’s length party
🞍 – unrelated and acting independently
🞍 Policyholder gain is: transfer price – ACB
🞍 New owner ( ) acquires the policy with
an ACB equal to the transfer price
🞍 Exceptions
I. Transfer via a
II. Transfer from a
III. Operation of law e.g. to a successor owner or
(joint owner with right of survivourship)
IV. Transfer is to any other non-arm’s length party
🞂 Absolute Assignments
 Non-Arm’s Length
🞍 Distinguished by
🞍 Between
🞍 any two parties with common interest and
do not carry out a transaction in a way that two complete
strangers might.
🞍 Policy gain: CSV (less any policy loans) – ACB
🞍 New owner (transferee) acquire the policy with an ACB
to the policy gain
🞂 Absolute Assignments
 Non-Arm’s Length

EXAMPLE
Robert owned a UL policy on the life of his wife, Joanna, naming
himself as the beneficiary. Robert is terminally ill and, in anticipation of
his death, he assigned ownership of the policy to his brother, Jim. At
the time of the assignment, the policy had an ACB of $34,000 and a
CSV of $61,000. As a result of this disposition, Robert realized a policy
gain of $27,000.
Policy gain = $61,000 – $34,000 = $27,000
Jim acquired the policy with an ACB of $ .
Absolute Assignments

 Assigning to a Spouse
🞍 Property rollover without triggering a taxable
disposition
🞍 Spouse acquires the policy at the ACB
🞍 Can elect out of Spousal rollover if they choose.
🞍 Income Attribution Rules
🞍 Interests dividends, rents and/or capital gains is taxable
to the transferor
Example:
Noah recently assigned a life insurance policy with a CSV of $85,000
and an ACB of $32,000 to his wife, Eve.

Noah is deemed to have received proceeds of $32,000, which will

result in a policy gain of $0.

Policy gain = $32,000 – $32,000 = $0

Eve is deemed to have acquired the policy with an ACB of $ .

Noah has a rental loss of $70,000 and no other taxable
income.
If he opts out of the automatic rollover, the policy
assignment will result in a policy gain of $53,000.

Policy gain = $85,000 – $32,000 = $53,000

However, this will be more than offset by his rental loss,

so it will not result in him having to pay tax. Furthermore,
by opting out of the rollover, Eve’s ACB for the policy
becomes
$ .
Suppose that Noah did not opt out of the automatic rollover,
and that Eve later surrendered the policy when its CSV was
$94,000.

As a result of the income attribution rules, Noah would have to

report the resulting policy gain of $62,000.

Policy gain = $94,000 – $32,000 = $62,000

This happens even though Eve is the one who would have actually
received the money.

If Eve waited until Noah died to surrender the policy, she would
have to report the policy gain as part of her own income.
Absolute Assignments

 Assigning to a Child
Can occur when the child is old enough to legally bind a contract
🞍 Conditions
I. Transfer for $0 (no consideration)
II. Life insured is the child or child of the child.
🞍 Subsequent gains reported by the child if years or
older and if not, to the original policyholder i.e.
Attribution rules apply if younger than
Absolute Assignments

 Assigning to a Child
🞍 Child is defined as
🞍 policyholder’s , or
by or
🞍 Care and custody of the policyholder and dependent for
support
🞍 Conditions
🞍 The rollover must be made to the child and
not via a trust
Absolute Assignments
 Assigning to a Child
🞍 Rhonda owned a UL policy with an ACB of $16,000
and a CSV of $29,500 on the life of her daughter,
Jolene, who is 19 years old.
🞍 Rhonda gave the policy to Jolene for her 19th
birthday. Because of the automatic rollover, Rhonda
is deemed to have received proceeds equal to her
of $16,000,
so no policy gain is triggered at the time of the gift.
🞍 Jolene is deemed to receive the policy with an ACB of

$16,000.
Absolute Assignments

 Assigning to a Child

• Jolene surrendered the policy shortly after receiving ownership of it.

She realized a policy gain of $13,500.

• Policy gain = $29,500 – $16,000 = $13,500

• Because she is over 18 years of age, the policy gain will be in

her hands.
Example
Dorothy’s marginal tax bracket is taxed at 44%.
Dorothy bought a UL policy on the life of her daughter Madelyn, with the intention of
eventually giving the policy to Madelyn’s daughter Jackie (i.e., Dorothy’s granddaughter),
to help with her education expenses. By the time Jackie was 18, the policy had a cash
surrender value (CSV) of $54,000 and an adjusted cost basis (ACB) of $18,000.
Dorothy gave the policy to Jackie for her 18th birthday. The policy qualified for a rollover, so
Jackie acquired the policy with an ACB of $18,000.
Jackie immediately withdrew $15,000 to pay for her first year of university. The prorated
ACB for her withdrawal is $5,000.
Prorated ACB = ($15,000 ÷ $54,000) × $18,000
Her withdrawal will result in a policy gain of $10,000.
Policy gain = $15,000 – $5,000 = $10,000
She has no other sources of taxable income, so this will be fully sheltered by her basic
personal exemption and she will not have to pay any tax. If her grandmother, Dorothy,
had retained ownership of the policy and made the same withdrawal, Dorothy would
have had to pay tax of $4,400.

Amount of tax Dorothy would have paid = $10,000 ×

44%
Death of the Policyholder
• If the is not the insured then policy is treated as
disposed for tax purposes
• Policy gain calculated like an assignment
• Cash Value becomes part of the Policyholder’s estate
• Can rollover to spouse without tax consequence for the policyholder
or spouse
• Contingent, aka successor policyholder
 Who receives the policy at death of deceased policyholder
 the estate and not subject to fees
 Policy gain must still be reported on the deceased policyholder, unless

transfer is to spouse
Taxation of Life Insurance Strategies
1. Policy as collateral
2. Annuitizing the cash surrender value
3. Leverage
4. Charitable Giving
Taxation of Life Insurance Strategies
Policy as collateral
• Using as collateral to secure a loan from a 3rd party,
and assigning right’s and death benefit to lender
• If the loan is not repaid, the lender can surrender the policy and
receive the to repay debt
• If the borrower dies, the lender then receives the DB, if the
borrower is the same as the life insured. If it is another person, the
lender can surrender the policy for the CSV.
• Not deemed a taxable disposition
• The cash values to grow on a tax sheltered basis during
the assignment period

Why can this technique can be

used?
Taxation of Life Insurance Strategies
Borrowing For Business
• Can be for personal or business use
• Using cash value and assigning right’s and death benefit to lender
• Collateral assignment can be term or permanent
• Premiums can be deductible as long as:
I. Loan from an lender
II. Lender collateral

• Amount deductible is of net cost of pure insurance and

premiums paid
 Borrowing For Business
Heloise borrowed $200,000 from a financial institution to expand
her business.
The lender required the collateral assignment of her $500,000
universal life policy, which had an adjusted cost basis (ACB) of
$160,000 and a cash surrender value (CSV) of $250,000.
Heloise paid premiums of $12,000 annually, with a NCPI of
$3,200.
Because Heloise’s policy is for $500,000 but the loan is only for
$200,000, she can only deduct of the NCPI.
Percentage of NCPI deductible: $200,000 ÷ $500,000 = 40%

How can this benefit a

business?
🞂 Taxation of Life Insurance Strategies
Annuitizing CSV
• Using cash value to buy an annuity
• What does an annuity do?
• Policy gain = CSV - ACB
Example
George has a $500,000 life insurance policy with a CSV of
$430,000 and an ACB of $290,000.

He originally bought the policy to ensure that his family would

be cared for if he died. His children are now grown up and his
wife has died, and he feels he does not need life insurance any
longer.

He decided to use the $430,000 to buy a life annuity to

enhance his income during retirement.

As a result, he will have a policy gain of $

which will be taxable at his marginal tax rate:

Policy gain: $430,000 – $290,000 = $

Taxation of Life Insurance Strategies
Leveraging
• Insured retirement plan is collateralizing the CSV
• Series of annual loans by CSV
• On death the lender receives the death benefit to repay cumulative
loans and excess goes to beneficiaries
• Loan are tax-free
• Cash values remains in the policy to accumulate tax-sheltered
and can assist in later loans.
• Interest is paid or (i.e. allowed to
accumulate) and paid from DB
Taxation of Life Insurance Strategies
Leveraging
• Doris owns a UL policy with a CSV of $380,000. She made an
arrangement to receive a loan of $20,000 each year, secured
by her insurance policy. She receives the $20,000 at the
beginning of each year, and does not need to report it as
taxable income.
How will this affect the DB?
Taxation of Life Insurance Strategies
Charitable Giving
1. a new policy to a charity
2. an existing policy to a charity
3. a charity as the beneficiary of a new or existing policy
• Receive a charitable donation
 Claim a non-refundable federal and provincial tax credit
 Tax credits can reduce income tax
 Lower rate on first $200 then higher rate on remainder
 Example: federal 15% on first $200 and then 29% on remainder
(provincial rates vary)

 Five (5) year carry-forward

Taxation of Life Insurance Strategies
Charitable Giving
Ned wants to donate $200,000 to his favourite charity as soon as
possible.
However, his net income for the current tax year is $140,000.
If he makes the full donation this year as planned, he will only
be able to claim the charitable donations tax credit on the first
$105,000.

Amount eligible for tax credit = $140,000 × 75% = $105,000

He will have to carry forward the remaining $95,000 to claim it in
one or more of the next five years.
Taxation of Life Insurance Strategies

Assigning a new policy

 No CSV as yet therefore it is not considered an charitable
donation
 premiums are eligible for donation tax credits
Can term and permanent insurance policies be used for this assignment?
Taxation of Life Insurance Strategies
Charitable Giving
Thorsten bought a new $500,000 whole life insurance policy, and
then immediately assigned that policy to his favourite registered
charity.
At this point, the policy does not have any value to the charity;
if they surrender the policy, they will not receive anything.
Furthermore, unless someone pays the premiums, the policy will
lapse and be worthless.
Each year, Thorsten pays a premium of $ on the
assigned policy. He can claim a charitable donations tax credit on
the full $ .
Taxation of Life Insurance Strategies
Assigning an existing policy
 If Permanent – tax receipt can be issued for the CSV
 If Term - No therefore it is considered an
immediate charitable donation
 Absolute assignment – deemed disposition and the policy gain is
(CSV- ACB) and is taxable to the policyholder
Does the charity have to accept the assignment? Why would it not
want a policy assigned to it?

How can this be arranged?

Taxation of Life Insurance Strategies
Naming the Charity as a Beneficiary
 No Tax receipt
 No tax receipt for
 Policyholder can beneficiary or stop making
premiums payments
 Tax receipt issued upon death of life insured for the amount of the
(DB) and not for the premiums paid after
naming the charity and the beneficiary
Why do people assign a charity as the beneficiary?
What questions do you
have?
 Life Insurance
Business
Information taken from Taken from CISRO Life Insurance LLQP Exam Preparation

Insurance Manual

Humber – The Business School

Craig Griffith
Death, either or in age can have
profound impacts on businesses, especially small and
start up businesses that are heavily reliant on the
experience and expertise of a small number of
employees and shareholders. This can also impact
mature companies.

- - Important skills and knowledge

- - Long term business knowledge and of
specific industry
- with suppliers, customers and creditors
- Business
🞂 Understand types of companies
🞂 The risks to the people involved in
the company
🞂 Opportunities for selling and advising

🞂 How life, DI and CI can help

Business Structure
🞄 The ones discussed for the scope of this course:
🞄 Sole
🞄
🞄
Business Structure
Sole Proprietorship – the formal structure
🞄 company owned and operated by an individual or family
🞄 Owner all debts and all income
🞄 No separation of the assets, ACB, debts, etc.
🞄 They are usually the operator or the business and can have supporting staff
(i.e. trades, retail store owner, machine operator (truck or machinery, etc.)
🞄 What happens when:
🞄 The business is being wound–down?
🞄 The owner passes away?
🞄 The owner is disabled (permanently or temporarily)?
🞄 The owner suffers a critical illness?
🞄 Can the business be sold?
🞍 Who will buy it?
🞍 What does a sole proprietor really own? Client list, product or process, hard assets,
etc.
🞍 What is the fair price?
🞍 Goodwill?
🞄 How will the estate pay for any debts?
🞄 How will survivours generate an income?
🞄 Will spouse or heirs want to or are they capable to run the business?
Business Structure
ship
🞄 company owned by a or more individuals
🞄 There are types of partnerships
🞄 Partnership – not used unless it's not possible or practicable to
use another structure such as in some of the professions, such as law or accounting
or unless certain income tax results can only be obtained with this structure.
🞄 Partnership - The limited partners have limited liability (equal
to their investment in the partnership) for liabilities of the partnership. The general
partner (the corporation) has unlimited liability for partnership liabilities.
🞄 Partnership – (aka LLP) this structure reduces, but
doesn't eliminate, the liability that general partners face. If something goes wrong in
a LLP, the partnership itself can be sued, and the personal assets of any particular
partner who did something wrong will be at risk. But the personal assets of the other
partners will be protected.
Business Structure
Partnership
🞄 When a partner leaves or passes away, what will the other
partners acquire?
🞄 the partner’s interest
🞄 the partner’s property
🞄 the partner’s debt
🞄 How will they fund the purchase?
🞄 Personal debt? Will a lender want to lend to a company that
lost a partner?
🞄 What is the fair price for each partner?
🞄 Is there a partnership agreement with a valuation formula?
🞄 What happens if a partner is disabled?
🞄 Will spouse or heirs want to or are they capable to contribute
to partnership?
Business Structure
Corporations
🞄 Legal
🞄 Must have at least director and shareholders elect at
the shareholders' meeting by a majority of votes. An individual can
be the sole shareholder, director and officer of a corporation. The
corporation may also require a board of directors.
🞄 Can be or
🞄 Public corporations are on public stock exchanges like the TSX
🞄 Private corporation are publicly traded
🞄 Shareholders own and their ownership is based on the
percentage of shares they hold
🞄 Corporation is separate and distinct from shareholders who are
personally liable for the debts and liabilities of the corp. (unless
they personally guarantee those debts)
🞄 Income received by the corporation is taxed at the level
and after tax profits are either retained to increase share value or
paid as
to shareholders. Are dividends guaranteed?
🞄 Shares have values and ACB which can lead to capital or
when sold
Business Structure
Corporations
🞄 Canadian- Private Corporation (CCPC) is
a closely–held private company
🞄 Is not publicly traded, nor controlled directly or indirectly by
1 or more non resident, nor one of more public corporations
🞄 Can qualify for special rates and
(small business , enhanced
tax credits,
capital gains , etc.)
🞄 CCPC $892,218 (2021) capital gains exemption
(cumulative capital gains deduction is % of this
amount
🞄 What happens to the shares of a deceased shareholder?
🞄 Will remaining shareholders be able to purchase the shares? –
retain control
🞄 Do heirs wish to hold and participate in the company? Are they
able to positively contribute? Do surviving shareholders wish
this
?
What questions do you
have?
Impacts of death on a business
🞄 Loss of skills

🞄 Creditors

🞄 Family Interference

🞄 Equalization

🞄 Capital Gains Tax

Impacts of death on a business
Loss of Skills - Key Employee/Person
🞄 Many businesses have a key or a group of key
whose skills, knowledge and experiences are
vital to the success of the business. The business will
suffer substantially from the loss of a key person.
🞄 Owner, partner, shareholder, salesperson, executive or employee
🞄 Loss of , , , plus
additional expenses to /hire, ,
introduce to and – double
whammy
🞄 Keep disruption to business at a minimal
Celine and Marc founded their company on their own, and after 5
years have a profitable company with 8 other shareholders. Celine
managed all the office and administration duties , while Marc
developed the product and customers. They now have 6 employees,
$5Million revenue and a valuation of $25MM. A significant portion of
the value of the company is directly due to Celine’s organizational
skills and historical knowledge and to Marc’s marketing abilities.
Explain their

status as Key Employees.

Managing Business Risks Using Life Insurance

Key Person Life Insurance

🞄 Review your notes from earlier lectures about life insurance
🞄 Form of third-party insurance (what is unilateral, two-
party and third-party?)
🞄 If key-person dies the insurance proceeds are paid to the
to hire a and provide a
while the company adapts
🞄 If a permanent policy has CSV it can used as salary during
disability or guarantee a retirement income
🞄 Key employee is usually insured by an income multiple or a
percentage of the overall revenue generation of the company
🞄 Designated key person can be replaced using a
– substitute one life for another in UL
Key-Person Life Insurance

Split-Dollar Arrangements
🞄 Sharing insurance and costs of a permanent policy
between two or more parties
🞄 E.g., one party needs protection and the
other looking for tax-
🞄 UL policy
🞄 corporation could own death benefit portion to replace
key- person and key-person controls cash value and any
excess death benefits, or vice versa
What are the benefits of either arrangement?
Most common is corp. owning the DB and the employee the CSV
🞄 On retirement/termination, the corporation can transfer
to key-person the other portion of the policy. There are
tax considerations based on the and and , if
.
Impacts of death on a business
Creditor
🞄 Debts owed by
🞄 Can be lines of , loans or term loans
🞍 LoC and demand loans can be at any time with
contractual notice period
🞄 In the case of sole proprietorships and partnerships debts
are usually guaranteed
🞄 Creditors can pursue the assets of the estate for money
owed Death of a key person can make (retail banks,
private lenders, investors, etc.) and may demand
higher interest rates or return of part or all of their investment.
🞄 Life insurance can protect against this
🞄 Naming Irrevocable Beneficiaries
🞄 Arms length family beneficiaries
Impacts of death on a business
Creditor Seizure
Celine and Marc founded their company on their own, and after 5
years have a profitable company with 8 other shareholders. Celine
managed all the office and administration duties , while Marc
developed the product and customers. They now have 6 employees,
$5Million revenue and a valuation of $25MM. A significant portion of
the value of the company is directly due to Celine’s organizational
skills and historical knowledge and to Marc’s marketing abilities. The
company
has shareholder loans of $ , LoC secured through
their shareholders of $500,000 (currently running at $300,000 debt
for inventory and distribution costs) and unpaid expenses of $
. The company is about to have significant growth
and will need another $400,000 in debt to fund that growth. How
would key person insurance be used in this example?
Key life and DI/CI on Marc in case of death
to repay loans, purchase shares, hire marketing person/team. Also to
the loans from a commercial retail lender or private lender –
secures their funds in the event of something happening to Marc.
Impacts of death on a business
Family Interference
Business may have more than one shareholder. If a shareholder passes away, in the absence of a
agreement, their property is passed to their family ( , , or
even their ). Are the surviving family members able and will to become part of
the company? Are the surviving partners wanting to partner with the surviving family
member?

Abid and Farzad are equal shareholders in their software company with 28 employees. Both are
married with adult children and none of their family members are
involved in the company. Farzad
passes away and his wife Soheila inherits of his shares and as an
partner, she has Farzad’s annual income plus she places her children in management positions
within the company.
This is causing major tensions within the management of the company and a few key employees
have
left out of frustration and worry about the continuation of the company, and went to
competitors. Abid wants to buy Soheila out of the company and they cannot agree on a price for
her shares.

How could Abid and Farzad have avoided this situation?

- outlining the of the company, the disposition of a
deceased shareholders to the of the other , funding
agreement for the and a to value and /
the shares.
- What would this provide?
- for the families in terms of income, for the employees
knowing the continuation of the company, for the customers and any creditors. In
addition, the company would be able to use leftover funds, plus Farzad’s income to find
and pay for a replacement person.
Impacts of death on a business
Equality for family Members
A parent who owns a company will most probably want to treat all of their
children when it comes to the distribution of their estate. Note
that “ ” does not necessarily mean “ ”
John is the sole owner of an insurance brokerage with 38 employees and has
3 children. The oldest child does not want to have anything to do with the
business, the daughter worked in the business for a short period of time, but
later joined her husband’s business and the youngest brother is working full
time in the business, effectively managing the operation. The company has a
market value of $20MM and John would love for his youngest son to continue
in the business. John is worried about treating all his children fairly when he
passes away.
How can John ensure that all his children benefit from the business that he
built?
- He can sell the business to the youngest son for FMV (
)
- He can then assess the wealth of all the children and use life insurance to
fund the of money to levelize the of the sale and
his estate to the other siblings
- He can use life insurance to cover any final costs to
as much of his estate (properties and other assets) for his heirs
Impacts of death on a business
Capital Gains Tax

When a Canadian dies, there are for tax

purposes to have of their property at its Fair Market
Value ( ) prior to death (if there is a
rollover, there are no tax consequences). Shares received by other
person(s) may be subject to capital gains tax.
Manpreet owns a 50% interest in a business corporation that he
wants to pass on to his daughter, when he dies. The shares currently
have an adjusted cost base (ACB) of $ and a fair market value
(FMV) of $1,000,000. If he dies today, this would result in a taxable
capital gain of $450,000, calculated as (($1,000,000 – $
)
× 50%). If his marginal tax rate is 50%, this would result in an
income tax liability of $ . If his estate cannot pay that income
tax, and his daughter cannot either, then his executor would be
forced to sell some of the shares to pay the tax bill.
How could life insurance be used to help his daughter inherit his
shares?
What questions do you
have?
Buy-Sell Agreements
🞄 All types of insurance are available as with personal
insurance
🞄 Difference is in how the policy is
🞄 Based on agreements that have been structured
between parties:
🞄 Who or buy an owner’s interest in the
business upon death;
🞄 The dollar amount or
, etc.
🞄 for the purchase
🞄 Can also outline how a buyout is structured on
or or if an owner
wants to leave the business.
Buy-Sell Agreements
🞄 If a sole proprietor, partner or shareholder dies, a buy-sell
agreement funded with proceeds will provide
with funds to deceased’s interest
🞄 Specify price and terms of payment without
further negotiations
🞄 Option agreement is a variation – buyer has first option
with no established price
Buy-Sell Agreements – Why are they important?

1. Guaranteed – guarantees the sale of shares to

surviving owners or the business itself
2. Guaranteed – fixed price or formula to determine
value agreed to before the death or pending death of
an owner

3. Mandatory – protects surviving owners from

the unknown

4. Guaranteed - using Life Insurance to secure

immediate funding that doesn’t require an loans, etc.
Buy-Sell Agreements

Criss-Cross Insurance for Cross-Purchase Agreement

🞄 Owners agree to buy insurance on to cover the
cost of purchasing the shares of deceased owner
🞄 A is that the cost of insurance can vary widely
between the various business owners
🞄 Because it is not used to secure a loan for business or
investment purposes, the premiums are not but
the DB is
🞄 If buyer is policy owner and pays the premiums, the
proceeds will be received tax free
🞄 Typically funded with insurance – Why would this be
common?
🞄 Buyer of the shares is the beneficiary
🞄 Used to buy the business from the deceased’s heirs
🞄 If insurance is used then the CSV can be used
to pay the owner for the business when they wish to retire
 Buy-Sell Agreements

Cross-Purchase Agreement

Bob, Calvin and Dylan are the three shareholders of a small incorporated
business specializing in recycling paper.
They each own 100 shares, which are currently worth $10,000 per share.
They recently entered into a buy-sell agreement which says that, if any
one of them dies, the survivors will buy his shares for their current share
value as
determined by the company’s financial statements.
If Bob dies today, this means that Calvin and Dylan will each buy shares
from his estate at a price of $10,000 per share. Bob’s estate will receive a
total of $ , and Calvin and Dylan will now each own 150 shares. The
total number of shares outstanding is still , but
Calvin and Dylan now have a 50% interest, instead of the . %
ownership interest that they had before Bob’s death.
 Buy-Sell Agreements

Redemption Plan
Emily, Fatima and Gloria are the three shareholders of a small incorporated
business specializing in health products called Forest Air.
They each own 100 shares, which are currently worth $10,000 per share.
They recently entered into a buy-sell agreement in the form of a share
redemption plan with the company which says that, if any one of them dies,
the company will redeem her shares for their current value as determined
by the company’s financial statements and will cancel shares redeemed by
the company of which the total will be .
If Emily dies today, this means that the company will pay $1,000,000 to
her estate. Fatima and Gloria will still own shares each, but because the
number of outstanding shares will drop to just 200, they will now each
have a
% interest in the company, instead of the 33.33% ownership interest that
they had before Emily’s death.
Buy-Sell Agreements
Business owned insurance

Instead of the criss-cross method, the would buy

the life insurance on its owners and it will be the beneficiary.
The advantages of this method are:
- When the business is the owner of the policies, it is clear to
all owners that the premiums are being paid
- The pays a lower tax rate than the
- The individuals save the out of pocket premium expense
- If there are more than 2 owners, it will likely be more efficient
and cost effective for the business to own policies on each
member, rather than the criss-cross method
- If there are just 2 members, a policy might be appropriate
- If there is a cost difference, it is borne by the company, not
the owners
- If there are challenges, there might be
consideration given to the substandard rated member based on
the acceptance of all members – why could this happen?
Buy-Sell Agreements
Capital Dividend Account – how the DB is distributed
- The is a notional account with keeps track of inputs
and outputs for tax purposes
- A private corp. uses it to record amounts it receives on a
basis, such as the tax free 50% of capital gains
and some or all of the death benefit from a life insurance
policy
- When the account has a balance, the corp. can pay
a tax-free capital to its
- Note that only the portion of the DB that exceeds the
policy’s ACB is credited to the CDA to be paid out tax-free.
The remainder would be to the corporation
- Term insurance would have a $0 ACB but in WL or UL policies, a portion of the
DB equal to the policy’s ACB would be to the corp. This can be less
favourable depending on the situation and needs of the client for
owned policies because of the higher portion of the DB being taxable.
Buy-Sell Agreements

Jack and Alfred each own 50% of the 200 shares of Jackal Inc., a
frozen dessert company. They implemented a buy-sell
agreement funded with criss-cross insurance. Jack died shortly
thereafter.

1. Jack and Alfred pay the premiums for life insurance on each
other.
2. Jack dies, and his shares transfer to his estate.
3. The insurance company pays a tax-free death benefit to Alfred.
4. Alfred pays Jack’s estate for his shares.
5. Jack’s estate transfers the 100 shares to Alfred, who now owns
all shares, or % of the company.
Buy-Sell Agreement Funded with Criss-Cross
Insurance
Remember the Capital Dividend Account (CDA)

 account that records amounts corp.

receives tax-free. E.g. 50% capital gains not
taxed, death benefits from insurance policies.

 Keeps track of what a can payout for tax

purposes.

 Pass on to shareholders as a tax-free .

 Corporate-Owned Insurance
Suppose Jack and Alfred’s cross-purchase agreement is instead funded by
insurance by Jackal Inc. When Jack died shortly thereafter

1. Jackal Inc. pays the for insurance on both Jack and Alfred.

2. Jack dies, and his 100 shares transfer to his estate.

3. The insurance company pays the tax-free death benefit to Jackal

Inc., which is to its CDA.

4. Alfred pays Jack’s estate for his 100 shares with a note.

5. Jack’s estate transfers the 100 shares to Alfred, who now owns all 200
shares, or 100% of Jackal Inc.

6. Alfred instructs Jackal Inc. to pay him a tax-free dividend.

7. Alfred uses these funds to pay off the promissory note.

Corporate-Owned Insurance
Share–Redemption Buy-Sell Agreements
Suppose that Jack and Alfred instead entered into a buy-sell agreement
with Jackal Inc., structured as a share plan, funded by insurance
owned by Jackal Inc. When Jack died shortly thereafter

1. Jackal Inc. pays the premiums for insurance on both Jack and Alfred.

2. Jack dies, and his shares transfer to his estate.

3. The insurance company pays the tax-free death benefit to Jackal Inc., which
is credited to its CDA.

4. Jackal Inc. uses the funds to redeem the shares from Jack’s estate,
the said shares, reducing the number of shares outstanding to
100.

5. Alfred still owns the remaining 100 shares, which represents % of the
company.
Share–Redemption Buy-Sell Agreements
What questions do you
have?
 Assessing The Client’s
Information taken from Taken from CISRO Life Insurance LLQP Exam Preparation Manual 7th Edition
Situation

Humber – The Business School

Craig Griffith
Match the Policy Need

🞄 Loss of during a period of family obligation

🞄 Increased expenses
🞄 inadequacy of the estate
🞄 Inadequate income during
Many people use life insurance to provide support
for their families in the event of their death,
planning for estate needs and other financial planning
options. There is an expectation that when people are
together as a
family, the income earners will arrange their affairs so
that their spouse and dependents will be supported
if one were to die. The amount of support depends on
the nature of the relationships and the surviving spouse’s
own financial .
Where does the risk lie for each individual and to what degree?
Match the Policy Need- Understanding the Family Dynamics
🞄 Loss of income during a period of family obligation
🞄 Increased medical expenses
🞄 Financial inadequacy of the estate
🞄 Inadequate income during retirement
🞄 Varying family dynamics

 Continuation of
payments to ex-spouse
 to ex-spouse who may be
in full custody or partial custody of the
dependents
 Court-ordered insurance to ex-spouse and
dependents
 Current arrangements – cost for the
stay at
home parent
 Minor (usually to age 18 or until
finished schooling)
 Disabled
 Aging
Match the Policy Need- Understanding the Family Dynamics, cont’d
 Continuation of support payments to ex-spouse
- Court income support to ex-spouse needing to be insured
in case of premature death
 Child support to ex-spouse
- who may be in full or custody of the dependents
and the obligation needs to be insured to a specified age for
the dependents
 Court-ordered insurance to ex-spouse and dependents
- Court will often specify that sufficient life insurance is in place and the
beneficiary is the supporting spouse
 Current care arrangements
– cost for the stay at home parent
 Minor Children
- usually to age 18 or until finished schooling Usually capped at age 23 or
24
 Disabled Dependents
- Leaving funds to care for children with disability
 Aging Parents
- Adult children may be responsible for supporting aging
parent that may be and/or dependent
Insuring Against the Risk of Permanent Loss
🞄 Period and Final Expenses
🞄 years following the death of the
life insured is usually a period of
readjustment for survivors
🞄 By then the new financial structure of the family will
be determined and an adjustment to the standard of
living may have occurred
🞄 Final expenses included:
🞍 costs What would you estimate for
an average funeral to cost?
🞍 fees
🞍 payments – credit card, personal
loans, lines of credit, consumer loans,
mortgages, etc.
🞍
🞍 fund for survivors Why would this be
important?
Insuring Against the Risk of Permanent Loss
🞄 Dependency Period and Ongoing Expenses
🞄 Surviving spouse must have enough income to provide
care for the family
🞄 Generally the period until the youngest child is 18 or
25 if still in school
🞄 Ongoing expenses included:
🞍 Daily costs of living – housing costs, food,
clothes, entertainment, education, recreational
activities, etc. plus inflation as the spouse and
dependents age. Think of everything that you
and your family spends money on each day,
week, month and year. In most cases, the income
replacement needed is basically:
100% - the taxes payable - cost of work.
Insuring Against the Risk of Permanent Loss

🞄 Survivor Life Income and Future Needs

🞄 Period of time that maybe life-long for the surviving
spouse.
🞄 Financial support for the duration is required in the
case of a spouse that may: have worked; have
been out of the for an extended period of time;
have
children to look after and not planned on
RTW soon. In these cases, planning for income for
the surviving spouse maybe required.
How is Life Insurance Coverage Need
Determined?
🞄 Three phases of financial dependency
🞄 Fact-finding to establish
1. expenses and readjustment period
2. period and ongoing expenses
3. Survivor income and needs
Employment
🞄 Employee
🞄 Current Income
🞄 After-tax AKA Home Pay x the number of years needed
🞄 Future Potential
🞄 Salary increases, promotion, better job prospects, etc. If the intent is to
maintain the same standard of living, you may need to include and
increase
and account for
🞄 Stability of both the insured and beneficiary (spouse)
🞄 Do both spouses have steady and dependable income? If not,
flexibility in premiums and coverage may be needed
🞄 Group Benefits
🞄 One spouse may not be working or may not have group health care
benefits so the death of the spouse with coverage may cause the for
coverage to be purchased from the death benefit proceeds
🞄 Most Group Benefit plans have a month benefit where
coverage is extended without premium payment being required.
🞄 Most provincial health care plans also offer coverage after
certain deductibles and reduced income
🞄 Federal government CPP benefit and incomes
What about the loss of a Group Retirement plan and other retirement
planning?
Employment
🞄 Business Owner
🞄 Sole Proprietorship
- Businesses run by a sole proprietor often with their death and may or may
not be subsequently sold
- What value is the business without the sole proprietor and what will the purchaser be
buying?
- At the death of the SP, net is reported on final tax return and potentially
a large tax bill if the business and any assets are sold
- Business income stability and amounts should also be considered when looking at
the stability and amount of income the owner has from the business and is it
growing, leveled off or is the business at risk of failing
🞄 Partnership
- Business interest is deemed to have been disposed of at it’s at their death.
Capital gains can result and it cannot be reduced by the Lifetime Capital Gains
Exemption ( ) as it only applies to capital gains from the sale of a qualified small
business shares, etc. run by a sole proprietor often cease with their death and may or
may not be subsequently sold
🞄 Corporation
- The owner of a small private corporation may earn income from a salary and/or taxable
- When they die, it is deemed that their shares have been sold at FMV, which could result in
capital gains which can be reduced by the LCGE
- A corporation can survive the life insured and continue beyond death and if the
shares have been bequeathed to a beneficiary, he or she will still receive dividends
🞄 Existing buy-sell agreement
- Specifies the details sale and purchase of a corporation’s shares (who buys, who sells,
timing of the sale, calculation of the valuation, funding, and method of purchasing)
Retirement
🞄 Retirement often means that the need to
replace employment income may .
🞄 Time to retirement
– Many people, especially professionals work past age .
Why is this common?
- The income replacement need might be with
these people – planning for actual retirement age, not
necessarily age 65.
- Death in retirement may an employer pension
plan income for the surviving spouse, requiring the need
for additional life insurance
What government sponsored retirement income plans are
available?
Assess Current Financial Situation

 Existing Assets available to address the estate needs

 Final debts
 Impact on household income – continuing income
 Continuing Income versus Continuing Expenses
 Affordability – premiums that fit into budget
Part 1
Assets that can be included
 Assets willing to liquidate to meet needs
 assets is cash or property that can be quickly and easily converted to
cash, without any loss in value.
What requires immediate cash with the death of a person? costs, and ,
time off from work for , maintenance, etc.
 Assets that will not be liquidated are not included in the needs analysis.
What assets would this include? residence, , , main vehicle, assets
with an emotional attachment, etc.
 Note taxable gains on liquidation of assets
 assets can be sold but can take time (unless sold for less than market
price) for quick sale and cash. They can include real estate, vehicles, jewelry,
recreational properties, etc.
 assets store and generate wealth for future use, such as; corporate
shares; government and corporate bonds, real estate, segregated, mutual and
exchange traded funds, etc.
 Registered versus unregistered assets
 Rollover – spousal or child…
 Impact on final income without rollover
Consider value, tax liabilities, intended use and beneficiary in the analysis for assets and
potential rollovers
Final debts that can be included
 expenses
 Funeral, taxes, etc.
 Usually the single largest debt for a person or family
 Mortgage must be discharged before the property can be bequeathed
 Spouses are usually co-owners and mortgagee on the property so they must have the financial
ability to continue the mortgage
 Often the life insured and the spouse wants to be able to stay/keep the family in the house if
one parent dies
 Credit Cards and of
 Insurance should be sufficient to pay off these debts
 Lenders may allow the debts instruments to continue, but may reduce the limits with 1 survivor
 Demand loans can be called at any time with required notice
 Other loans
 Instruments like car loans must be paid off at the death of the borrower
How can this impact a family? Loan might only be in one spouse’s name because it was their car before
relationship, it was “their car” or the other spouse didn’t qualify for the loan.
 Potential tax liability
 Unpaid taxes from current or past years, probate, plus liabilities on certain assets

How does insuring the debts affect the amount of insurance needed? Insurance to cover the
debts, but more to the point, the survivor needs
Part 2
Continuing Income
 Pension Entitlements
 Survivor benefits - Pension income from an employer for a survivor is
usually minimum %, and there are reductions for higher levels of
pension amounts;
 Government programs
 Death Benefit $
 Survivor pension – factors affect the payout. Maximums are under age 65 $674.79 ; over age 65
$752.15; max combined survivor and retirement monthly payment is $1,257.13
 Children’s benefit for a disabled or deceased CPP contributor $264.53
 Old Age Security (OAS) for more details, see
[Link]
🞄 Old Age Security (OAS) pension amount is determined by how long you have lived in Canada after the
age of 18. It is considered taxable income and is subject to a recovery tax if your individual net annual
income is higher than the net world income threshold set for the year ($79,054 for 2020).
🞄 In addition to the Old Age Security pension there are 3 other benefits that you may also qualify for:
• the Guaranteed Supplement
• the
• the Allowance for the
🞄 Payment amounts for these benefits are based on your , marital and
level of . They
are not considered income.
 WSIB – can include funeral costs, monthly benefits for surviving spouse and children
 Surviving spouse’s income – will they continue working? Will they go back to work
(even in retirement?
 Investment and income
 Rental – properties or renting space in the home, line of credit or reverse
mortgage
 Other sources of income
Expenses
 Lifestyle expenses
 Shelter – , , ,
 Transportation
 Child Care
 Food
 Entertainment
 Clothing
 Life and other insurances
 Savings (RESP, RRSP, TFSA)
 Vacation

 Impact on household income – continuing income

 Continuing versus Continuing
Negative cash flow means …
Part 3
Existing Insurance
 Individual Insurance
 Face
 Type of policy – versus term, UL, etc.
 CSV

 Business Insurance
 Beneficiary – family or business
 Face value
 Taxation

 Group Insurance
 Limits of coverage
 End of date and convertibility
 Conversion to individual policy and premium rates
Evaluate Probability, Severity and Duration of Risks

 Can differ between individuals

 Age
 Example a 30 yr. old may have a low of death versus an 80 year old
 Gender
 Refer to past age/sex life expectancy charts
 Personal and Family History
 Pre-disposition to certain ailments and diseases
 Lifestyle
 Better than average or worse than average lifestyle choices
 Financial impacts
 What if something (illness, disability, death, unemployment) does happen? Will
the survivours be alright?
 How long will the risk be a from a financial standpoint?
 Duration of the risk – mortgage for 25+ yrs., car loans, dependent children, credit
card debt, etc.
Severity of Risk Probability Financial Impact
Death High

Disability Medium/High

Critical illness Medium/High

Incapacity requiring long-term care Low/Medium

Medical or dental expenses Low

Needs Analysis – Income Approach
 Replace lost income from the death of an income earner
 Assumption that as long as the income of the deceased is replace the
standard of living will be maintained

 of Lost Income
 Capitalized Value = annual income / rate of return
 Recommendation tends to be higher using this approach
 Capital will always be intact – does not deplete AKA The Capital
Method
 Beneficiaries only use the investment income
 Impact of investment returns, inflation and income tax
 Returns will fluctuate so a conservative should be used
 Income from investment will be taxed
 If replacing gross salary no need to adjust income
 If replacing after-tax income use after-tax investment income
 Income Tax – Life insurance is always received , but income
generated from any investment will be
 Inflation – loss of purchasing power
Needs Analysis – Income Replacement Approach

Weaknesses

 Does not calculate what survivors require

 Does not address how the income would have
been generated if the insured had survived
 Does not address if the insured wanted to create or
an estate
Accounting for Taxes
If the investment return is 5% and average tax rate is 25%,
the after tax rate of return is %, calculated as:
5% × (1 – 25%)
This means that, using the replacement of income approach,
adjusted for income taxes, the insured needing to provide
$8,400 per month, would need $2,688,000 in life insurance,
calculated as:
($8,400/month × months) ÷ 3.75%
Accounting for Inflation
If the inflation rate is 2% per year and the investment return is 5% per
year, the inflation adjusted rate of return is 2.94%, calculated as:

(1+0.05)
-1= = 2.94%
(1+0.02)

This means that using the replacement of income approach,

adjusted for inflation, the same insured needing to replace $8,400
per month would need $3,428,571 in life insurance, calculated as:

$3,428,571 = ($8,400/month × 12 months) ÷ 2.94%

Accounting for both and
Inflation-adjusted rate of return =

(1 + after-tax return)
-1
(1 + inflation rate)
Accounting for both taxes and Inflation
For example, the investment return is 5% per year and taxes
are 25%, the after-tax rate of return is 3.75%. If the inflation
rate is 2%, the after-tax, after-inflation rate of return is %,
calculated as:
(1 +
0.0375) – 1 = 0.0171 = 1.71%

(1 + 0.02)

This means that using the of income approach,

adjusted for taxes and , the insured
would need $5,894,737 in life insurance, calculated as:
($8,400 per month × 12 months) ÷ 1.71% =$5,894,737
Needs Analysis – Capital Approach
The Capital Needs Approach is based on the actual needs of survivours for capital and
identifies all the income and capital needs resulting from death.

 PART 1
 Income by survivors
 Employment
 Pension
 Investment income
 Government benefits….

 Ongoing
 What will increase over time (examples – expenses for children’s recreation, property
taxes, cost of living)
 What may e.g., childcare, food, clothing
 What may be unaffected e.g., shelter costs
 What may be e.g., memberships, mortgage and other debt payments,

 Income Shortfall If the income is less than the expenses

= Expenses – Income

 Capitalization of Shortfall Identify shortfall and calculate the amount needed to cover it
 Can use either the Capital Retention or the Capital Drawdown method
= annual shortfall / investment return***inflation and tax adjusted (this method can be
used for greater accuracy)
Needs Analysis – Capital Needs Approach
 PART 2
 Final Expenses
 Funeral costs
 Tax liabilities
 Debt Elimination
 Estate Expenses
 Emergency Fund
 Education Fund
 Estate
 Charitable Bequests and legacies

 Available Assets
 After-Tax value of available assets: TFSA, cash, properties, rental
income, vehicles, non registered investments, RRSP, etc.

 Existing Insurance
 After-Tax value of available assets
 What may decrease e.g. food, clothing
 What may be unaffected e.g. shelter costs
 What may be eliminated e.g. memberships , mortgage payments,

 Capital Shortfall = Total Capital Needs At Death – Available Assets – Existing Life
Insurance
Needs Analysis – Capital Needs Approach
Summary of the family’s monthly expenses, current and after death
Expense Current After Death
Spousal support X $0
Child support X $0
Mortgage X $0
Home maintenance X Increases + inflation
Car loan X $0
Property tax X Increases + inflation
Home Insurance X $0
Car Insurance X Increases + inflation
Gasoline X Increases + inflation
Vehicle maintenance X Reduces - 1 less vehicle
Cottage insurance X Increases + inflation
Cottage maintenance X Increases + inflation
Utilities, phones, internet X some reductions + inflation
Food X some reductions + inflation
Life Insurance premiums X Reduction for deceased
Clothing and personal care X Reduction for deceased
RESP contributions X $0
Recreation X Reduction for deceased
Entertainment X Reduction for deceased
Vacation X Reduction for deceased
Total Monthly Expenses Reduction and planning for
some increases + inflation
Duration of Risk
Helps determine whether permanent or term is suitable

 Term
 Mortgage - e.g., 25 years
 Children’s needs - e.g., 25 years
 Need to replace employment income – e.g., until age

 Permanent
 Special needs children
 Estate
 giving
 Extended family giving i.e., to grandchildren, etc.
 Tax upon death – realized into the future and may increase
Would permanent with increasing death benefits be usable here?
Bringing It All Together
🞂 Determine the Types of Coverage
 Various e.g., 10 year, 20 years, life,
 Coverage for Spouse - Joint to Die and Last to Die
 Coverage for Dependents
 Various beneficiaries – revocable and
When could an irrevocable beneficiary be used (except in Quebec –
why QC?)
🞂 Determine death benefits
 Death benefits per type of coverage
🞂 Determine Premiums
 Cash Flow Vs Premiums
🞄 Cash flows available to pay premiums
🞍 Can they afford permanent insurance (Need, Want, Afford)
🞍 May need to purchase term and to permanent later
🞍 May need to purchase a of term and permanent
🞍 If cash is variable, UL may be more appropriate
Insuring Against Estate Inadequacy

🞄 Principal Residence
🞍 On death it rolls over to spouse
🞍 If no spouse it is transferred to inheritor at FMV
🞄 Investments
🞍 Capital Gains (FMV- ACB)
🞍 When a taxpayer dies property is treated as if it has
been sold ( ) immediately
🞍 It can be rolled over tax-free to a spouse or
common-law partner if named as a beneficiary
– taxes deferred until their death
Insuring Against Income Deficit
🞄 Life insurance can be used to provide or supplement
and income during
🞍 CSV
🞍 Universal Life – allows withdrawals from the account
🞍 Annuities
🞂 Exclusions i.e., yr. suicide
clause, reinstatement
terms
🞂
period – first 2 yrs. for insurer to re-
evaluate its underwriting
🞂
period for overdue premiums
🞂 Right of
🞂 Policy or rider expiry
🞂 Surrender
🞂 are
often required to be signed and accompany the
applications so that the insurer’s underwriters have a clear
understanding of the coverage being applied for, including
and other features
🞂
policy illustrations shows premiums over time and
the death benefit for each year
🞂 A policy illustration list: the premium;
and death benefit; mortality deductions if
applicable (i.e. UL); guaranteed and non guaranteed
account values based on minimum and maximum
deposits; the CSV; for each year of the policy
The need for life insurance can and will over time
as personal circumstances change. The life insurance agent
will need to provide ongoing service for their clients.
Typical life events that can impact life insurance needs:
-
-
- dependents
- Dependents becoming independent

- Employment changes

- New mortgage

- Major – vehicles, properties, business

- Canada
Updated needs analysis and appropriate recommendations are
required at intervals.
Amending a policy
Changes that don’t require underwriting vs those that do
require underwriting
Does not require underwriting Requires underwriting
Changing name of policyholder Adding a life insured
Changing name of beneficiary (i.e. due to marriage) Adding Riders or other benefits
Address change Increases in coverage
Premium payment schedule Changing type of death benefit
Investment fund selection Reclassification to risk factors i.e., health or lifestyle
Changes to the dividend option
Other ongoing services
- a term policy
- Replacing a policy ( and
twisting; disclosure documents)
- a policy
- a policy
- Policy

- processing