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Product Overview and Sales Ideas in Life Insurance. Quick Facts. Quick Facts. 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.
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Today we will look at • Whole Life a real sales opportunity…making a 20 pay a 10pay??? • Term Insurance in particular T30
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 $ 30 000 death benefit Monthly Death premium Benefit $ 24.62 $ 60 000
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 Reduced Death premium Paid-up benefit Insurance Year 11 $ 24.62 $ 33 000 $ 60 000 Year 12 $ 24.62 $ 36 000 $ 60 000 ... Year 19 $ 24.62 $ 57 000 $ 60 000 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.
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 $ 4 475 $ 7 960 $ 860 Years 31 to 40 $ 11 740 $ 7 960 $ 16 770 Years 41 to 50 $ 39 130 $ 44 040 $ 16 770 Years 51 + policy expires policy expires $ 16 770
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 • 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 Standard Preferred Preferred Plus 3 689 $ 3 346 $ 3 068 $ Standard Preferred Preferred Plus 3 689 $ 3 346 $ 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!
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? Male 45 NS, Sum Insured: $250,000 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 47 529 $) - $22,918 • Taxable amount (CSV-ACB);97 000 $ - 49 471$* $ = 47 529 $ • After tax CSV $74,082 * ACB at the end of year 20
Term 20 or T100 Platinum? Male 45 NS, Sum Insured: $250,000 T20 T100 Platinum • Annual Premium $625 $3,628 • Total premiums after 20 yrs* $12 500 $76,188 • After tax CSV after 20 years $0 $74,082 • Net Cost after 20 years $12 500 $2,106 A difference of $10,394 . * In the case of the T100 Platinum 21 premiums were paid
Options available in 20 years • 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) • Reduce the sum insured to the $25,000 floor • The annual premium goes down to 430.25; • A proportional cash value will be paid out of $66,674 after tax • Reduced paid-up: $166,250 • 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
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%
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.
Most economical products for conversion Male Sum Insured: $100,000
Most economical products for conversion Female Sum Insured: $100,000
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?
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. Case Study : Insured Annuity with a twist ERIC AND SOPHIE “How can we supplement our retirement income?”
YOUR SOLUTION A Personal Insured Annuity with a Twist ERIC AND SOPHIE “How can we supplement our retirement income?” Case Study: Insured Annuity with a twist THE NEED • Supplemental retirement income
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 ERIC AND SOPHIE “How can we supplement our retirement income … while leaving something for our children?” Case Study: Insured Annuity with a twist
Insured Annuity GIC Investment @ 3% Capital/single premium $100,000 $100,000 Annual Income $6,571 $3,000 Taxable amount ($681) ($3,000) Tax payable @ 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 The numbers: a compelling case 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).
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. Eric & Sophie “This solution works well. We have a stable income, and a guaranteed amount will be paid to one of us.” Tax efficient strategy for maximizing retirement income Personal Insured Annuity Solution
Net annual Cash Flow Equivalent Rate of Return Joint first-to-die $3,081 5.11%Life expectancy 20 years Joint last-to-die $2,986 4.85%Life expectancy 34 years Single life female $2,965 4.81% Life expectancy 28 years Single life male $3,070 4.98% Life expectancy 25 years Comparing alternative Insured Annuity strategies
Insured Annuity GIC Investment @ 3% Capital/single premium $100,000 $100,000 Annual Income $6,571 $3,000 Taxable amount ($681) ($3,000) Tax payable @ 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 The numbers are even more compelling at the maximum tax bracket 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).
Net annual Cash Flow Equivalent Rate of Return Joint first-to-die $3,073 5.92%Life expectancy 20 years Joint last-to-die $2,851 5.51%Life expectancy 34 years Single life female $2,834 5.47% Life expectancy 28 years Single life male $2,960 5.72% Life expectancy 25 years Comparing strategies at the maximum tax bracket (48.22%)
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. And if Eric and Sophie were 65?Insured Annuity with a Twist ERIC AND SOPHIE “How can we supplement our retirement income?”
Insured Annuity GIC Investment @ 3% Capital/single premium $100,000 $100,000 Annual Income $7,758 $3,000 Taxable amount ($433) ($3,000) Tax payable @ 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 The numbers are still compelling at age 65… 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).
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. Eric & Sophie “This solution works well. We have a stable income, and a guaranteed amount will be paid to one of us.” Tax efficient strategy for maximizing retirement income Personal Insured Annuity Solution
Net annual Cash Flow Equivalent Rate of Return Joint first-to-die $3,174 5.03%Life expectancy 17 years Joint last-to-die $2,955 4.80%Life expectancy 29 years Single life female $2,913 4.73% Life expectancy 24 years Single life male $3,092 5.02% Life expectancy 21 years Comparing strategies at age 65
Insured Annuity GIC Investment @ 3% Capital/single premium $100,000 $100,000 Annual Income $7,758 $3,000 Taxable amount ($433) ($3,000) Tax payable @ 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 …and at age 65 assuming the highest tax bracket 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).