Product Overview and Sales Ideas in Life Insurance

Quick Facts

Today we will look at Whole Life a real sales opportunity…making a 20 pay a 10pay??? Term Insurance in particular T30

Whole Life Case Study for a juvenile

Let’s look at Lisa’s case Lisa is a young 8 year old girl; Her father wishes to provide her with a whole life policy with an insured amount of $30,000; He would like that the premium for this policy be paid up in 10 years; An additional amount of insurance may be required in the future.

BMO Insurance suggestion... Does BMO Insurance have a Whole Life 10 Pay product? What could BMO Insurance offer for under $26 per month?

BMO Insurance 20 Pay Life $ death benefit Monthly Death premiumBenefit $ $

Lisa – after 10 years After 10 years, namely at 18 years of age, it is guaranteed that $30,000 is paid up thanks to the reduced paid-up feature. The owner can, however, choose to continue paying premiums for an 11th year. The death benefit will remain at $60,000; The reduced paid up insurance will go up to $33,000 (5%).

Years 11 to 19 Monthly ReducedDeath premium Paid-upbenefit Insurance Year 11 $ 24.62$ $ Year 12 $ 24.62$ $ Year 19 $ $ $ After 20 years, the total $60,000 is paid up. The policy still benefits from cash values which increases every policy anniversary.

After 20 years Lisa now has a $60,000 policy which is completely paid up. The premium was lower than the 10 pay policy; The cash value increases and reaches $60,000 at age 100.

Bmo Insurance Term 30… a value-added term insurance

Value Added Term Insurance Alan is a single Dad of two children; Alan (35) has a 500,000 insurance need He may have a need for insurance at age 65

Value Added Term Insurance

Standard Non Smoker Rates $500,000 sum insured Term 10 year 20 year 30 year Years 1 to 10 $ 285$ 470$ 860 Years 11 to 20$ 1 980$ 500$ 860 Years 21 to 30$ $ 7 960$ 860 Years 31 to 40 $ $ $ Years 41 to 50 $ $ $ Years 51 + policy expires policy expires $

Considerations when choosing between 10, 20 or 30 year term How long is the insurance need for? Does the client qualify for Preferred or Preferred Plus? The possibility of qualifying for insurance in the future at standard rates –Family History? –Travel? –Lifestyle? It is cost effective to purchase Term 10 every 10 years but you must not only qualify but obtain the same risk category.

Value Added Term Insurance Term 30 with guaranteed T100 rates at renewal Standard Preferred Preferred Plus 860 $ 770 $ 675 $ After 30 years (age 65) the client is faced with 4 options if he wishes to remain insured: 1) Apply for a new policy; if he is insurable; 2) Convert into a permanent product offered at the time; 3) Keep his existing policy at guaranteed T100 rates; 4) Reduce the insurance amount (guaranteed T100 rates).

Value Added Term Insurance StandardPreferredPreferred Plus Annual3 689 $3 346 $3 068 $ Monthly332 $301 $ 276 $ It is possible to reduce the insurance amount to the 100,000 minimum Rates are guaranteed for 100,000 at age 65

Permanent Products currently available for conversion; actual premiums at age 65 StandardPreferred Preferred Plus $ $3 068 $

Value Added Term Insurance…In other words.. If we were to use a house analogy: –Term insurance is like renting –Permanent insurance is like owning –BMO’s Term 30… …like renting with the option to buy at a guaranteed price!

Value Added Term Insurance Standard Preferred Preferred Plus Rate of return with 4.44 %5.16 %5.74 % insured annuity Based on a prescribed annuity (monthly), with no guarantee, for a 65 year old male, beginning in one month as of Janary 31 st 2012, assuming a monthly insurance premium (modal factor of.09). Marginal tax rate: 48,22%; for an amount of 100,000. Rate of return assuming an insured annuity concept

Term or Perm? The age-old question…

People want economy and they will pay any price to get it. Lee Iacocca Former CEO of Chrysler Corp.

Case Study Male 45 NS Has an insurance need for the next 20 years; There is a possibility that the need may become permanent; The client has strong cash flows and he loves getting a deal!

Term 20 or T100 Platinum? T20 T100 Platinum Annual Premium $625 $3,628 CSV before tax - $97,000 (after 20 years; i.e.beginning of year 21) Tax (48.22 % of $) - $22,918 –Taxable amount (CSV-ACB); $ $* $ = $ After tax CSV $74,082 Male 45 NS, Sum Insured: $250,000 * ACB at the end of year 20

Term 20 or T100 Platinum? T20 T100 Platinum Annual Premium $625 $3,628 Total premiums after 20 yrs* $ $76,188 After tax CSV after 20 years $0 $74,082 Net Cost after 20 years $ $2,106 A difference of $10,394. * In the case of the T100 Platinum 21 premiums were paid Male 45 NS, Sum Insured: $250,000

Options available in 20 years 1.Continue paying premiums in order to keep the policy in force -The cash values in the Platinum T100 will continue to grow by $4,375/yr on average while the premium remains at $3,628; -Convert the T20: Premium is $8,630/yr (T100 Plus) 2.Reduce the sum insured to the $25,000 floor –The annual premium goes down to ; –A proportional cash value will be paid out of $66,674 after tax 3.Reduced paid-up: $166,250 4.Reduced paid-up to the $25,000 floor –No additional premiums required; –A proportional cash value will be paid out of $62,942 after tax

Permanent products currently available at age 65

Return The client will have $3,003/yr of forced savings (T100 premium of $3,628 – T20 premium of $625 ); –The net return is 1.58% (assuming a marginal tax rate of 48.22) –The equivalent annual rate of return is 3.05%

Conversion Considerations

Products currently available for Conversion Life Dimension Universal Life T100 Platinum T100 Plus 20 Pay Important: Currently, Pure Term 100 and Life Provider Universal Life products are not available for conversion.

Wave Software

Most economical products for conversion Male Sum Insured: $100,000 Age Non-Smoker Annual Premium Non-Smoker Monthly Premium Smoker Annual Premium Smoker Monthly Premium 50 Life Dimension 55 Life Dimension T100 PlusLife Dimension 60 Life Dimension T100 PlusLife Dimension 65 T100 PlusLife DimensionT100 Plus 70 T100 Plus

Most economical products for conversion Female Sum Insured: $100,000 Âge Non Smoker Annual Premium Non Smoker Monthly Premium Smoker Annual Premium Smoker Monthly Premium 50 Life Dimension 55 Life Dimension 60 Life Dimension T100 PlusLife Dimension 65 T100 PlusLife DimensionT100 PlusLife Dimension 70 T100 PlusLife DimensionT100 PlusLife Dimension

Insured Annuity with a twist

A few thoughts on the subject of the insured annuity Under what conditions does an insured annuity yield the best results? - Client is in the highest tax bracket - Client is willing to give up his capital for life - Client is over the age of 70 - …and is in excellent health despite age How many clients actually meet this criteria? Could the insured annuity yield an interesting return –For a healthy client that is a little younger than 70? –For a client in a lower tax bracket? –For a client who is looking for a little more flexibility regarding his capital?

Case Study : Insured Annuity with a twist Eric and Sophie are both 60 Taxable annual income of $42,000 They are considering an early retirement They like the idea of an Insured Annuity but are pre-occupied with the idea that interest rates may increase over time. “How can we supplement our retirement income?” ERIC AND SOPHIE

Case Study: Insured Annuity with a twist YOUR SOLUTION A Personal Insured Annuity with a Twist “How can we supplement our retirement income?” ERIC AND SOPHIE THE NEED Supplemental retirement income

Case Study: Insured Annuity with a twist STEP 1 Joint first-to-die life insurance policy Pure Term 100 policy from BMO Insurance Annual premium: $2,935 STEP 2 Purchase a prescribed joint annuity (no guarantee period) with non-registered funds; the annuity ceases upon the first death. Single premium: $100,000 “How can we supplement our retirement income … while leaving something for our children?” ERIC AND SOPHIE

The numbers: a compelling case Insured AnnuityGIC 3% Capital/single premium$100,000$100,000 Annual Income $6,571 $3,000 Taxable amount ($681) ($3,000) Tax 38.4 % $262 $1,152 Cash Flow Before Life insurance Premiums: $6,309 $1,848 Life Insurance Annual Premium: $3,170 0 Annual Net Cash Flow: $3,139 $1,848 Additional annual Net Cash of $1,291 or that’s 70 % more! Equivalent rate of return 5.11% The annuity is payable monthly. Insurance premium is monthly (includes modal factor).

Tax efficient strategy for maximizing retirement income Provides $3,139 annual income until either Eric or Sophie passes away 70% more annual net cash flow vs. a 3% GIC Taxable Investment Upon the first death (Eric or Sophie) $100,000 of tax-free proceeds from life insurance policy flow to the survivor. “This solution works well. We have a stable income, and a guaranteed amount will be paid to one of us.” Eric & Sophie Personal Insured Annuity Solution

Comparing alternative Insured Annuity strategies Net annual Cash FlowEquivalent Rate of Return Joint first-to-die$3, % Life expectancy 20 years Joint last-to-die$2, % Life expectancy 34 years Single life female$2, % Life expectancy 28 years Single life male $3, % Life expectancy 25 years

The numbers are even more compelling at the maximum tax bracket Insured AnnuityGIC 3% Capital/single premium$100,000$100,000 Annual Income $6,571 $3,000 Taxable amount ($681) ($3,000) Tax 46.8 % $320 $1,430 Cash Flow Before Life insurance Premiums: $6,251 $1,570 Life Insurance Annual Premium: $3,170 0 Annual Net Cash Flow: $3,081 $1,553 Additional annual Net Cash of $1,528 or 98 % more! Equivalent rate of return 5.94% The annuity is payable monthly. Insurance premium is monthly (includes modal factor).

Comparing strategies at the maximum tax bracket (48.22%) Net annual Cash FlowEquivalent Rate of Return Joint first-to-die$3, % Life expectancy 20 years Joint last-to-die$2, % Life expectancy 34 years Single life female$2, % Life expectancy 28 years Single life male $2, % Life expectancy 25 years

And if Eric and Sophie were 65? Insured Annuity with a Twist What if Eric and Sophie were both 65? Taxable annual income of $42,000 Considering retirement at age 65 They like the idea of an Insured Annuity but are pre-occupied with the idea that interest rates may increase over time. “How can we supplement our retirement income?” ERIC AND SOPHIE

The numbers are still compelling at age 65… Insured AnnuityGIC 3% Capital/single premium$100,000$100,000 Annual Income $7,758 $3,000 Taxable amount ($433) ($3,000) Tax 38.4 % $166 $1,152 Cash Flow Before Life insurance Premiums: $7,592 $1,848 Life Insurance Annual Premium: $4,483 0 Annual Net Cash Flow: $3,109 $1,848 Additional annual Net Cash of $1,261 or 68 % more! Equivalent rate of return 5.03% The annuity is payable monthly. Insurance premium is monthly (includes modal factor).

Tax efficient strategy for maximizing retirement income Provides $3,109 annual income until either Eric or Sophie passes away 68% more annual net cash flow vs. a 3% GIC Taxable Investment Upon the first death (Eric or Sophie) $100,000 of tax-free proceeds from life insurance policy flow to the survivor. “This solution works well. We have a stable income, and a guaranteed amount will be paid to one of us.” Eric & Sophie Personal Insured Annuity Solution

Comparing strategies at age 65 Net annual Cash FlowEquivalent Rate of Return Joint first-to-die$3, % Life expectancy 17 years Joint last-to-die$2, % Life expectancy 29 years Single life female$2, % Life expectancy 24 years Single life male $3, % Life expectancy 21 years

…and at age 65 assuming the highest tax bracket Insured AnnuityGIC 3% Capital/single premium$100,000$100,000 Annual Income $7,758 $3,000 Taxable amount ($433) ($3,000) Tax 46.8% $209 $1,447 Cash Flow Before Life insurance Premiums: $7,549 $1,553 Life Insurance Annual Premium: $4,483 0 Annual Net Cash Flow: $3,066 $1,553 Additional annual Net Cash of $1,513 or 97 % more! Equivalent rate of return 5.92% The annuity is payable monthly. Insurance premium is monthly (includes modal factor).

Comparing strategies at age 65 assuming a maximum tax bracket (48.22%) Net annual Cash FlowEquivalent Rate of Return Joint first-to-die$3, % Life expectancy 17 years Joint last-to-die$2, % Life expectancy 29 years Single life female$2, % Life expectancy 24 years Single life male $3, % Life expectancy 21 years

Calculation of equivalent rate of return 1.Net cash flow of $3,066 with $100,000 invested 2.3,066 divided by 100,000 = (or 3.066%) 3.At a marginal tax bracket of 48.22% = divided by (1 – ) = divided by Result of or 5.92%

Impact of the OAS clawback – $70,000 of taxable income Insured AnnuityGIC 3% Capital/single premium$100,000$100,000 Annual Income $7,758 $3,000 Taxable amount ($433) ($3,000) Tax 38.44% $166 $1,152 Cash Flow Before Life insurance Premiums: $7,592 $1,848 Life Insurance Annual Premium: $4,483 0 Annual Net Cash Flow: $3,109 $1,848 OAS Clawback $65 $450 Annual Net Cash Flow ( after clawback ) $3,044 $1,398 Additional annual Net Cash of $1,646 or 118 % more!

Impact of the OAS clawback – $100,000 of taxable income Insured AnnuityGIC 3% Capital/single premium$100,000$100,000 Annual Income $7,758 $3,000 Taxable amount ($433) ($3,000) Tax 45.77% $198 $1,371 Cash Flow Before Life insurance Premiums: $7,560 $1,629 Life Insurance Annual Premium: $4,483 0 Annual Net Cash Flow: $3,077 $1,629 OAS Clawback $65 $450 Annual Net Cash Flow ( after clawback ) $3,012 $1,179 Additional annual Net Cash of $1,833 or 155 % more!