Tax-Exempt Insurance An opportunity for strategic diversification and distribution of your business and investment assets

Insurance Planning Continuum Asset Substitution / Estate Equalization Strategic Investment Diversification Investable Income or Assets Tax-Preferred Alternative to Fixed Income Replaces Lost Earnings Capacity

Diversified Assets – Integrated Value Note: Different asset groups vary in their features and characteristics. It makes sense to evaluate how these differences can be managed and applied to your best advantage. These asset groups are not in competition… they complement each other. TOTAL NET WORTH Fixed Income Investments Equity Investments Business, Real Estate, etc. Life Insurance Growth/Risk Tax Treatment Accessibility Distribution Life Insurance Characteristics A conservative instrument Growth is tax-preferred* Retains value when owner dies Death Benefit is tax-free Can provide additional cash resources Low volatility Optimized Personal Net Worth & Estate Values

Where it fits Permanent life insurance as part of an overall portfolio Equities Fixed- income assets Fixed- income investments Life insurance Key Messages:   A client’s overall financial portfolio may look like this. Typically a portion goes to fixed income assets. Within fixed income assets, participating life insurance is not a fixed income investment. However, in many ways, it is like a fixed income asset and can have a place as a unique asset within the fixed income portion of a client’s overall portfolio. The following criteria are key components of a good fixed-income asset. Stable performance Low risk Diversified, low fees Professionally managed Access to cash values Additional benefits that make participating life insurance attractive to clients are: Immediate estate enhancement Tax-advantaged cash value growth Vesting Ability to bypass estate Potential creditor protection. Other Cash

Net Worth Cycle

Cash Value Insurance Participating Life Universal Life (with overfunding) Investment component + Insurance = Cash Value Insurance The “package” has cash value like an investment tax treatment like life insurance

Investment Insurance

Why offer participating life insurance? There are many parts to the participating life insurance story. Competitive advantage Strength Facts History and performance An overview Where it fits Historical returns Where policyowner dividends come from Asset mix Agency ratings Vesting Private placements Smoothed returns Policyowner dividends Surplus Historical dividend scale interest rate Client needs Rates and bonds Size and strength

Key Insurance Strategies Corporate Insured Asset Transfer to shelter income Corporate Enhanced Retirement Income Strategy Funding Future Tax liability Insured Charitable donations to reduce taxes

Example (Corporate Insured Asset Transfer) Mr Client, age 70 non-smoker Spouse, age 65 non-smoker Mr Client owns preferred shares in opco with fair market value of $10,000,000 Significant investable assets in holding company A portion of assets will not be needed for retirement Residual assets are intended to pass to next generation

Traditional investment planning Corporate income retained in traditional investments Excess funds in your business that aren’t needed for operations are generally left in the business and invested in passive income-earning investments or withdrawn for personal use. Investment income does not generally qualify for the small business deduction and may be taxed at high corporate tax rates. When these funds are passed through to an individual, they’re taxed again at the personal tax rate for the income or dividends received (corporation may be able to claim a refund from the RDTOH account to prevent double taxation). 2. The refundable dividend tax on hand (RDTOH) account helps prevent double taxation of investment income earned in a private corporation. The private corporation pays additional tax when it earns investment income. It can recover this additional tax at a rate of one third of the taxable dividends paid to shareholders.

Corporate Insured Asset Transfer Corporate life insurance at death Permanent life insurance typically increases the amount of money available upon the death of the owner, compared to traditional taxable investments. When the death benefit from the corporately owned life insurance policy is paid to the Canadian-controlled private corporation (the designated beneficiary), the proceeds in excess of the adjusted cost basis are credited to the capital dividend account (CDA). The corporation can then pay tax-free capital dividends, up to the balance in the CDA, to surviving shareholders or the estate. This can provide funds to address succession and taxation issues.

Summary at Age: 90 Additional Estate Benefit: $1,403,551 or 92.64% Default Strategy @4.00%: Cumulative Deposits: $2,000,000 Remaining Cash Value: $2,476,489 After-Tax Estate Benefit: $1,515,044 Insured Strategy: Cumulative Deposits: $2,000,000 Remaining Cash Value: $2,605,276 After-Tax Estate Benefit: $2,918,595 Additional Estate Benefit: $1,403,551 or 92.64% Equivalent Before Tax Return: 12.75%

Example (Corporate Enhanced Retirement Strategy) Mr Client, age 45 non-smoker Annual savings of $300,000 inside holding company Time horizon on a portion of savings is mid-to-late retirement

Corporate Enhanced Retirement Strategy Corporate life insurance while living This diagram compares taxation of life insurance in a corporation to taxation of fixed-income assets. Payments to shareholders are taxed the same way for both types of assets. The corporation can reduce the tax it pays each year on the growth of fixed-income investments, by using some or all of its passive assets to pay premiums for a permanent life insurance policy. Tax-advantaged growth may increase the funds you can access for: Taking advantage of business and investment opportunities Paying additional expenses Dealing with unforeseen emergencies Financial options for accessing the cash value in the life insurance policy include: Collateral loan Partial surrender of cash value Policy loan Full surrender of the policy 3. For more details on these financial options, ask your financial security advisor for information on accessing the cash values in your life insurance policy.

Summary at Age: 85 without deductibility Default Strategy @4.00%: Cumulative Deposits: $600,000 Cumulative Income: 521,489 After-Tax Estate Benefit: $216,240 Insured Strategy: Cumulative Deposits: $600,000 Cumulative Income: $521,489 After-Tax Estate Benefit: $789,284 Additional Estate Benefit: $573,044 or 265.00% Equivalent Before Tax Return: 6.90%

Summary at Age: 85 with deductibility Default Strategy @4.00%: Cumulative Deposits: $600,000 Cumulative Income: 679,073 After-Tax Estate Benefit: $528 Insured Strategy: Cumulative Deposits: $600,000 Cumulative Income: $736,299 After-Tax Estate Benefit: $612,026 Additional Estate Benefit: $611,498 or 115736.16% Equivalent Before Tax Return: 7.38%