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

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

3. 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

4. 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

5. Net Worth Cycle

6. 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

7. Investment
Insurance

8. 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

9. 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

10. 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

11. 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.

12. 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.

13. Summary at Age: 90 Additional Estate Benefit: $1,403,551 or 92.64%
Default 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 %
Equivalent Before Tax Return: 12.75%

14. 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

15. 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.

16. Summary at Age: 85 without deductibility
Default 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 %
Equivalent Before Tax Return: 6.90%

17. Summary at Age: 85 with deductibility
Default 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 %
Equivalent Before Tax Return: 7.38%