Life Insurance… Secure The Secure Investment Alternative Presented by: Pam Budway, RHU Regional Marketing Consultant The Canada Life Assurance Company

Alternative Investments… THE DOWNSIDE

What comes to mind when you hear the word “investment”? Stocks Bonds Mutual Funds Properties Volatile, High Risk Low Returns GICs

Stocks The 25 Year History TSX on total return basis information taken from the Report on Canadian Economic Statistics , published by the Canadian Institute of Actuaries, September 2001

Stocks Requires precise market knowledge Timing is everything 100% of your attention

Bonds Ontario Savings Bonds Rates Source: August 2002

Bonds Low returns Long lock-in terms Inflation can have a corrosive effect When interest goes up, INTEREST BOND PRICE bond price goes down

Mutual Funds Stocks vs. Mutual Funds (Fidelity Balanced) Courtesy of Yahoo Finance, August 2004 FBALX: Fidelity Balanced FundDJI:Dow Jones GSPC:S & P 500IXIC:Nasdaq

Mutual Funds Rate of Returns (Fidelity Balanced) Courtesy of Yahoo Finance, August 2004

Mutual Funds Requires precise market knowledge Timing is everything 100% of your attention Very similar risks as Stocks

Properties Poor choice in tenants Downside market trends Uncontrollable risks i.e.: Fire, flood damage, etc. Market saturation

GICs Low rate of return Not tax-sheltered Long lock-in terms

Life Insurance… ADVANTAGES

Why Life Insurance? Death Benefit free of probate, executor and legal fees Potentially Creditor Proof Excellent investment choice for business owners

Stocks, Bonds, Mutual Funds, Bank GICs ??? Fund Distribution Up to 12.5% Potential Estate Costs No Death Benefit Guarantees No Creditor Protection Potential Public Record ** Privacy 2 – 5% avg. Accounting/Trustee Fees 3 – 6% avg. Legal Fees Up to 1.5% Probate Fees Stocks, Bonds, Mutual Funds, Bank GICs Subject To: ** Where probate sought

Why Life Insurance? Tax Free Death Benefit Peace of mind Proceeds paid directly to the named beneficiaries, bypassing the will Policy value accumulates Tax Sheltered

More on Tax Sheltering Is one of your client’s financial objectives to increase their net worth by accumulating additional assets through annual savings? Are they thinking that those assets could be passed on to their heirs – children or grandchildren?

More on Tax Sheltering What you may not know… The income tax your clients will have to pay over their lifetime on non-registered savings may be equal to or more than the actual amount saved! Your clients do not have to give up control of assets earmarked for grandchildren to avoid paying taxes on the growth!

More on Tax Sheltering Section 148 of the Income Tax Act A life insurance policy that qualifies under this act is an excellent planning tool that can be used to create a tax advantaged account Account is totally accessible and under your client’s control while they are alive

More on Tax Sheltering Case Study E.&O.E. Insured Male, age 40, non-smoker Insurance Product Universal Life, $2,250,000 face amount $300,000 single premium 6% projected annual growth rate Alternative Investment  GIC 47% Tax Rate on Interest 6% projected annual growth rate

Investment Results Tax Sheltering Effect GICU.L.Estate Benefit Diff. Age After Tax Estate Benefit Fund Value Estate Benefit UL vs.GIC (difference) % Increase Using Life Insurance 40 $300,000 Investment Amount 50410,276504,5921,795,7001,385,423338% 65656,1591,390,2682,200,7671,544,608235% 75897,3562,652,5773,432,3352,534,980282% E.&O.E. V 7.0 Male, Age 40, N/S, $2,250,000 Millennium UL w/ Bonus, 6% net of MER, Increasing DB, YRT to age 85

What does this mean? Case Study Over a 25 year period, your clients can potentially earn at least 3.35 times more with Life Insurance than a GIC Investment!

Life Insurance… OPTIONS

Using Life Insurance Strategies for Wealth Management 1.Cascading Life Insurance Strategies 2.Insured Income Strategies 3.Retirement Income Strategies

Three important questions to ask your client… 1.Are you planning to leave an inheritance to your children and grandchildren? 2.Are you concerned about the security of this legacy? 3.Are you paying too much income tax?

The Situation Age 60 – 75 Unregistered funds set aside as inheritance for children and grandchildren Unlikely to ever need capital for living expenses

The Problem Don’t want tax burden and probate fees to be part of the inheritance Concerned about access to funds Paying too much income tax

The Solution Cascading Life Insurance Strategy Transfer unregistered assets into exempt life insurance policy Child is life insured and contingent owner Grandchild is beneficiary

Subsection 148(8) of the Income Tax Act Allows transfer of ownership of a life insurance policy to any taxpayer’s children free of tax “Child” includes any natural or adopted child, a grandchild, step-child, or a son- or daughter-in-law Child is only life insured on policy Policy is transferred for no consideration Must be a direct transfer

Attribution of income on property transferred to a minor If the child realizes income from a transferred policy prior to age 18, income is taxable Included in income of transferor Subsection 74.1(2) of the Income Tax Act

How does it work? Transfer unsheltered assets into policy Set up tax-exempt life insurance policy Child is life-insured and contingent owner Name grandchild as beneficiary Enjoy reduced annual income tax bill At death of parent child becomes owner

Cascading Life Insurance Strategy The Result Reduce current tax burden Tax-sheltered accumulation Immediate estate enhancement Tax-free transfer of assets to future generations Tax-free death benefit paid directly to beneficiary Funds remain accessible and under client’s control

Cascading Life Insurance Strategy Benefits for Grandparent Generate after-tax estate value instead of unnecessary income Reduced income tax payable Maintain control Access to funds in policy if needed

Cascading Life Insurance Strategy Benefits for Child Life insurance protection Becomes owner of policy on parent’s death Flexibility Access to funds if needed Reserve policy for child

Cascading Life Insurance Strategy Benefits for Grandchild Parent has life insurance protection Beneficiary of tax-free death benefit No probate fees Significant growth of death benefit over long term

Isn’t that the way it should be? C C R A X Enjoy reduced annual income tax bill At death of parent, child becomes owner Grandchild is beneficiary

Life Insurance… OPTIONS

What if the child needs access to immediate funds? C C R A X Enjoy reduced annual income tax bill At death of parent, child becomes owner Grandchild is beneficiary

Insured Income Strategy Life insurance protection Tax-sheltered accumulation today Tax-free access to funds in the future Generating Additional Income Using a Leveraged Millennium Universal Life Plan

Use the universal life policyMaximize premium deposits Set up loan or line of credit Balance of death benefit paid to Grandchild Assign policy to bank as collateral Loan is repaid out of death benefit How Does It Work?

Insurance policies provide excellent tax sheltering capabilities, with a tax-free benefit! Insurance Premiums How Does it Work? Beneficiary Ins.Company Tax Sheltered Effect Tax-Free Benefit Insurance Policy as Collateral Bank Loan $$$ Insured Use Proceeds to pay off bank loan upon the death of the Insured. Tax-Free Death Benefit (after paying off the bank loan) Bank

Benefits Tax-free income stream Tax-sheltered investment growth Permanent life insurance protection Tax-free death benefit Choice of investment options Flexibility

Income Options Single loan Series of loans on an annual basis Line of credit

Repayment Options Capitalized interest Monthly interest payments Repayment of principal

Life Insurance… OPTIONS

Retirement Income Strategy Using Life Insurance Case Study Male, age 40, Non-Smoker Requires life insurance Looking for tax-sheltered growth on investments Needs retirement income at age 65

Set up a life insurance policy and pay premiums for the first 20 years (to age 60) Upon turning age 65, receive an annual retirement income from your policy Upon your death, remaining tax-free cash value and death benefit are paid free of legal and probate fees directly to your beneficiary, bypassing the will Retirement Income Strategy Using Life Insurance

Premiums Payable for 20 Years $51,759 income from age 65 - age 95 Male, age 40, N/S, $700,000 CLA Accelerator, Dividends buy Paid-Up Additions, Maximum Income from age 65-95

Living Benefits: Total Premiums Paid from age 40 to 60: $342,400 Total Potential Retirement Income from age 65 to 95: $1,552,770 Total gain to age 95: Retirement Income Strategy Using Life Insurance $1,210,370

Death Benefit: At age 96, TAX-FREE benefit to beneficiary: $760,175 Retirement Income Strategy Using Life Insurance

CLA Dividend History

The Historical Return graph shows the stability of the Par Fund’s dividend interest rate compared to yields from Canadian bonds and equities.

CLA Dividend Stability CLA Dividend Rate Long BondsTSX91 Day T-Bills Consumer Price Index Average Standard Deviation Notes: Long Bonds and TSX on total return basis information taken from the Report on Canadian Economic Statistics , published by the Canadian Institute of Actuaries, July Average (compounded) and Standard Deviation are based on data.

* Futures, equipment, miscellaneous income, partnership investments, cash and short term investments * CLA Participating Fund Asset Mix as at June 30, 2004

Retirement Income Strategy Using GIC Using the same scenario as the life insurance Male, age 40 Rate of Growth – 6% Marginal Tax Rate of 47% Deposit $17,120 for 20 years (to age 60) Withdraw an income of $27,197* * $27,432 = $51,759 minus 47% tax

Retirement Income Using GIC Growth Rate: 6.00% Marginal Tax Rate:47.00% Annual Deposit of $17,120 Annual Income of $27,432 begins at age 65 Annual Income of $27,432 Exhausts at age 90 At age 96, the GIC has a negative estate balance of - $97,670

Retirement Income Life InsuranceGIC $760,175$0 >Annual income to age 95 >At age 65, the estate benefit is $1,708,715 >Death Benefit at age 96 is >Annual income runs out at age 90 >At age 65, the estate benefit is only $519,428 >Death Benefit at age 96 is

Recap of why life insurance is the better investment… Death Benefit free of probate, executor and legal fees Potentially Creditor Proof Tax Free Death Benefit Proceeds paid directly to your client’s named beneficiaries, bypassing the will Policy value accumulates Tax Sheltered

Life Insurance truly is… Secure The Secure Investment Alternative

Canada Life, helping you achieve marketing and sales excellence. Thank You.