Managing risk of death Provisions of life insurance Relative cost of life insurance Individual vs Group Temporary vs Permanent Guarantee - Issue

1. Life InsurancePrimer Tom Feigs

2. Managing risk of death Provisions of life insurance Relative cost of life insurance Individual vs Group Temporary vs Permanent Guarantee - Issue Agenda

3. Avoidance Retention Sharing Life insurance shares the risk of death with others making it an affordable way to replace loss of income and capital Risk Mitigation

4. Life expectancy or remaining years expected to live is the average of a given age and sex. For example, a 50 year old woman has a probability of death in that year of 0.229% - about 2 deaths in 1000 - and has a life expectancy of age 83.67 Life insurance is a risk sharing tool that spreads the burden of a life insurance payout over many thousands of insured – in this case, many thousands of age 50 women Mortality cost = death benefit X probability of death in that year Risk of Death

5. Who The person earning income that ceases upon death - the insured What is the need Temporary or permanent Provisions Flexibility, options When Does the cash flow need end while alive or persist until death? Why To support the lifestyle of people you leave behind - the beneficiary How much Capital need + Income need over a given time What Clients Need to Know

6. Death benefit Joint life First-to-die, Last-to-die Grace period of 31 days Reinstatement Catch up on premiums Proof on insurability Suicide clause generally pays the death benefit after 2 years Waiver of premiums Living benefit Term Life Provisions

7. Application form Medical screening Incontestability Insurer gives up the right to dispute a claim after the policy is in effect for 2 years Underwriting

8. Non-Renewable Issued for the current term and terminates at end of contract Renewability Guaranteed renewal Renewal exceptions Re-entry Requalify as medically insurable Convertible To permanent life policy Without evidence of insurability Renewability Provisions

9. Mortality Table Levelized Relative Cost T10 T10 T10 T10 T10 Age

10. Individual vs Group Group Insurance Generally available as part of a company benefit plan Premium tends to be lower for group insurance but there is a greater risk of ending up without insurance Average length of coverage is 7 years due to mobility or workforce Can be converted to individual insurance within 30 days of termination of employment without evidence of insurability Individual life insurance stays with the insured regardless of employment status

11. Permanent Life Breakdown of Premium Tax paid payment from insured $100 premium 2% provincial tax $2 $98 net premium To investment account = $9 Tax Exempt Investment Growth $91 Commission to agent, operating margin, mortality, admin Death Benefit + account value - o/s loan Beneficiaries Insurance Company

12. Permanent Life Breakdown of Premium Tax paid payment from insured $100 premium 2% provincial tax $2 $98 net premium Insurance Company Commission to agent, operating margin, mortality, admin $91 Death Benefit + account value - o/s loan Investment account Tax Exempt Investment Growth Beneficiaries $9

13. Term 100 Life Breakdown of Premium Tax paid payment from insured $100 premium 2% provincial tax $2 $98 net premium Insurance Company Commission to agent, operating margin, mortality, admin $91 Death Benefit Beneficiaries

14. Term 10 Life Breakdown of Premium Tax paid payment from insured $100 premium 2% provincial tax $2 $98 net premium Insurance Company Commission to agent, operating margin, mortality, admin $91 Death Benefit Beneficiaries

15. Change death benefit Change the life insured Add additional lives Pay the cost of insurance based on yearly term or level term rates Have a guaranteed or variable cost of insurance Make any amount of contributions as long as minimum cash value covers insurance cost Flexibility of Permanent Policies

16. Long-term capital gains tax exposure Business succession planning Guarantee of estate amount to specific beneficiary Avoid probate fees Tax-advantaged growth (if no TFSA contribution room left) This is hampered by fees Who Needs Permanent Insurance

17. Revenue Canada Bank debts Mortgage debts Car loan Spouse & children Order of Estate Payout

18. The amount returned to the policy holder when a permanent life insurance policy is cancelled Penalty for cancellation in first 10 years Generally nullifies your investment contributions and growth in early years Cash Surrender Value

19. No medical screening Mail order High premium, low benefit Purchased by consumers that can’t pass medical screening www.cpp.ca Guarantee-Issue Policies

20. Life License Qualification Program Canadian Institute of Financial Planning References