Personal Finance

Life Insurance Q&A - w/ FAQ Section

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Jr. Member
Jul 27, 2009
116 posts
74 upvotes
limall wrote: Sorry I do have a question as I don't trust my financial advisor since I feel that he has alot to gain and I have alot to lose. I am incorporated and have been advised to invest in UL policy through my corporation in order for me to defer corporate tax and allow my corporate investments to grow tax free. He wants me to sign up for a 5 million dollar policy . So I am wondering if it is the right thing to do given the fact that theres the 2% premium tax on each deposit. In addition, he did not even mention if I would be charged an annual MER fee for the policy. So therefore with a 5mil policy I would be doing yearly payments of $258,168 through my corporation which then apparently allows my family or heirs to receive the money tax free when I do die. Please note that my family really doesn't need any of my money and I am 30, single, and a non-smoker. What do people think about this?

Thank you for you question. Without knowing your personal and financial circumstances, as well as your company, it is hard to tell whether this product is appropriate for you. Where are you located?
Newbie
Mar 25, 2005
19 posts
3 upvotes
I am located in Alberta or will be next year. I will provide more details below. I will have a small business corp.
Estimated yearly corporate income: $700,000
Expenses: $125,000
I currently do not have any debt but I may plan on purchasing some property in the next year or so as well. I have 300K in the corporate account right now while my accountant sorts through the paperwork. I decided to meet with a financial advisor through a friend(yea I know don't mix friends with money). I have already maximized my RRSP contributions and TFSA. Immediately, they tried to sell me a 10million life insurance policy saying that I should fund it through my corp as a tax deferred investment vehicle. In addition, they tried to sell me critical illness saying that my corp could pay the base amount and I could pay the premium personally and that I would be able to withdraw the total amount put in tax-free after 15yrs( Is this true?). They were extremely pushy about it claiming that things have to be done now because I am so busy and have so little time to meet(********). Then they even tried to sell me Long-term care insurance when I told them I already have disability insurance so theres really no point! I then asked them how much commission they would make just to test and see if they would be honest with me and they said only 40K(liars!). As mentioned before, I absolutely do not need critical illness nor life insurance from a personal or family standpoint so really anything I do with them would have to demonstrate a significant tax advantage for me. Oh and incase you want to know who I met with, it was Sun-Life, which I had expected more professional behavior from.
Member
Sep 14, 2010
287 posts
281 upvotes
This is a tuff question to answer here. But I'll give it a shot.

I've been working with privately held corps (mostly medecine professional corps) for the number of years. In many cases we have put together a strategy that uses UL investing as a tax shelter. In the corp you will have the federal tax (16%) and the provincial tax (32% in Ontario - which is where I am) on all corp. investment income. So that a 48% hit.

Seeing that a UL is strictly a tax play, then you can't get thrown off by the less important issues like MER or Premium tax. The real issue is "Net performance" - WILL THE TAXES DEFERRED IN THE UL PLAN OUTWEIGH ALL THE COSTS ASSOCIATED (MER, Premium tax, and Cost of Insurance)? This is the real issue. Have that advisor show you an illustration using 4-5% ROI in the UL compared to 5-7% alternative investment which is taxed annually. Seeing that you are young, then the long term compounding effect of the tax deferred in the UL should be amazing, but you will lose a ton of flexibility in the mean time so you might consider scaling it back if you go ahead with it.

So, besides net performance, do you have an insurable need?.....

no dependents
no debt
no need

Again, I've put together a lot of strategies like this working with the client's accountant in EVERY case. This is a highly complicated TAX strategy and because of your personal/corp situation everything should be secondary to a solid tax plan (annual plan for dividends/income, retirement income (when to hit the RRSP, etc..., charitable giving, etc...). If your advisor is not in communication with your accountant, then don't take another step forward. If your insurance advisor wants what's best for you, he should set a meeting up with you and your accountant to ensure that there aren't conflicting strategies. If he's not a good advisor, this will send him running.

I've had clients referred to me by an accountant in my network who have bought the insurance from someone else without consulting the accountant and cleaning up the mess is expensive...it's very punitive to modify a UL strategy in the initial 10 years, so get it right the first time.

I hope this helps.
Member
Sep 14, 2010
287 posts
281 upvotes
limall wrote: I am located in Alberta or will be next year. I will provide more details below. I will have a small business corp.
Estimated yearly corporate income: $700,000
Expenses: $125,000
I currently do not have any debt but I may plan on purchasing some property in the next year or so as well. I have 300K in the corporate account right now while my accountant sorts through the paperwork. I decided to meet with a financial advisor through a friend(yea I know don't mix friends with money). I have already maximized my RRSP contributions and TFSA. Immediately, they tried to sell me a 10million life insurance policy saying that I should fund it through my corp as a tax deferred investment vehicle. In addition, they tried to sell me critical illness saying that my corp could pay the base amount and I could pay the premium personally and that I would be able to withdraw the total amount put in tax-free after 15yrs( Is this true?). They were extremely pushy about it claiming that things have to be done now because I am so busy and have so little time to meet(********). Then they even tried to sell me Long-term care insurance when I told them I already have disability insurance so theres really no point! I then asked them how much commission they would make just to test and see if they would be honest with me and they said only 40K(liars!). As mentioned before, I absolutely do not need critical illness nor life insurance from a personal or family standpoint so really anything I do with them would have to demonstrate a significant tax advantage for me. Oh and incase you want to know who I met with, it was Sun-Life, which I had expected more professional behavior from.

you shouldn't be able to withdraw the CI overage tax-free personally...I guess it could go back to the corp though.

At this point you're basically self insured with your corp cash for Critical illness, but some coverage wouldn't be too expensive for your age and it's a good hedge against burning your investments out of the corp to pay for personal medical bills. You might want to consider a health and welfare trust (health spending account). I'm not sure how they work in Alberta, but they are usually only a few hundred dollars to set up, then you can pay for all personal medical expenses from the corp and have it as a write off for the corp and not a taxable benefit to the shareholder (i.e. you). This would allow you to use corp case in the event of an expensive critical illness without getting hammered in taxes....but it wouldn't help with income :(

If anything, tell them that you don't make any major decisions "in a hurry". As if you should work on their schedule! I hate this lame type of posturing. If they are good advisors, they'll make time for you and give you as much time as you need to decide. Some red flags going off for me here.

Sounds like these guys are "sales guys" and love commission way more than they love advising. stay away.
Newbie
Mar 25, 2005
19 posts
3 upvotes
Don't worry I told them I wasn't prepared to agree to anything for several months considering the fact that I will be moving after all and want to see exactly how the cashflow within the corp plays out and whether or not I even want to be there, who knows it may be unbearable to the point where I will want to leave. They were pretty unhappy when I said that but honestly if they were thinking in my best interest how could they not agree? I also found out that I would be eligable for Critical illness discounts in Alberta through my professional association which I am sure would beat out the rates they showed me. Plus, now that you mentioned it, a health account sounds like a pretty good idea too, I have really lost my interest in the critical illness portion ever since you told me that there is no tax-free savings attached to it. BTW, they couldn't explain exactly how that would work either, they just told me it would work.
Member
Sep 14, 2010
287 posts
281 upvotes
limall wrote: Don't worry I told them I wasn't prepared to agree to anything for several months considering the fact that I will be moving after all and want to see exactly how the cashflow within the corp plays out and whether or not I even want to be there, who knows it may be unbearable to the point where I will want to leave. They were pretty unhappy when I said that but honestly if they were thinking in my best interest how could they not agree? I also found out that I would be eligable for Critical illness discounts in Alberta through my professional association which I am sure would beat out the rates they showed me. Plus, now that you mentioned it, a health account sounds like a pretty good idea too, I have really lost my interest in the critical illness portion ever since you told me that there is no tax-free savings attached to it. BTW, they couldn't explain exactly how that would work either, they just told me it would work.

I'm glad to help.

Not many Canadians are sold UL correctly, but yours is a situation where it might not be a bad idea eventually BUT timing is everything (with the exception of the tax plan).

All the Best and continued success!
Deal Fanatic
User avatar
Sep 13, 2005
6905 posts
417 upvotes
Ottawa
Jonathan M wrote: I'm glad to help.

Not many Canadians are sold UL correctly, but yours is a situation where it might not be a bad idea eventually BUT timing is everything (with the exception of the tax plan).

All the Best and continued success!

I wish all more agents were like you Jon and a few here that I really respect. So many bloody shady ones that it makes the profession look bad :(

I'm glad that limall got a second opinion and knows what he's dealing with. Depending on the agent, that Sun Life agent may be one of those that only sell Sun Life products aka they work purely for Sun Life. Usually those agents are under a lot of pressure to perform too since they don't have a choice of selling other carrier's products! I can't say that should excuse their behaviour but it adds to the problem in the profession.
Deal Addict
User avatar
Sep 26, 2007
3960 posts
146 upvotes
SC
Jonathan M wrote: You're 100% correct and I'll back that for 98% of people, term insurance is the best bet. UL should be considered only if the following criteria are ALL met...

1.) There is a need for permanent insurance - quantifiable
2.) RRSP and TFSA are already fully employed - except for corporations.
3.) There are significant long-term unregistered cash assets.
4.) Will the tax savings of a UL be greater than the costs of insurance (assuming a rate of return no higher than 6%)?

I've used UL a lot with clients that meet all of the above criteria. Usually wealthy Canadians with holding corporations.

Crappy advisors sell UL on "rate of return" showing the 7% with a 2% bonus which is highly unrealistic. It drives me nuts that the client is inadequately insured and overpaying!!!

I like both products, but they have to be used in the right context...do your homework Canada and if you're unsre about which type of insurance to buy....go with Term. It can always be converted to UL or WL with no medical tests. You can't scale down a UL without some punitive costs.

I wrote an article on this recently. http://www.canadianlifequotes.com/unive ... n-and-why/

I love this post, great little article as well.
the focus seems to be on 3.) and 4.) but i think all are important to consider though those in particular separate it from term.
Sr. Member
User avatar
Jan 8, 2009
830 posts
66 upvotes
GTA
setell wrote: I wish all more agents were like you Jon and a few here that I really respect. So many bloody shady ones that it makes the profession look bad :(

I'm glad that limall got a second opinion and knows what he's dealing with. Depending on the agent, that Sun Life agent may be one of those that only sell Sun Life products aka they work purely for Sun Life. Usually those agents are under a lot of pressure to perform too since they don't have a choice of selling other carrier's products! I can't say that should excuse their behaviour but it adds to the problem in the profession.

There are bad apples everywhere. You just have to avoid them somehow ;)
Insurance & Financial Advisor

All posts on this forum are for information purpose only and can't replace your policy contract. Please contact your own broker, agent or company before acting on my suggestions. There is more to insurance than just price!
Jr. Member
Jul 27, 2009
116 posts
74 upvotes
FAQ section is updated. Added some info on Critical Illness (CI) Coverage. Follow the Link

Questions and comments are welcome!
Sr. Member
User avatar
Jan 8, 2009
830 posts
66 upvotes
GTA
Thank you for making this a sticky!

This should keep all life insurance questions in one place
Insurance & Financial Advisor

All posts on this forum are for information purpose only and can't replace your policy contract. Please contact your own broker, agent or company before acting on my suggestions. There is more to insurance than just price!
Newbie
Nov 26, 2010
26 posts
2 upvotes
vancouver
Just found this thread, really neat that everyone is sharing all of this helpful info!
I know this has been said a tonne, but I as well only believe in term.

What about having to renew it, or premiums increase over the years?
Well once your term ends, the idea is to have enough invested to not need insurance anymore. Why do you need a policy to invest your money for you, when you can do it yourself?
It seems hard at first to know where and how to invest, but it becomes much easier as you learn about it.

before you ever get life insurance and you are a smoker, think hard about quitting!! the premiums are insanely higher, even for term. (I only sell term)

If anyone needs a reliable quick quote I don't mind at all. And don't worry I can't promote myself, I only sell locally.
Sr. Member
Jul 18, 2004
902 posts
Toronto
wesboag wrote: Its not the insurance in its self that is bad, it is the way some of these independents are compensated by the companies that can cause a conflict of interest. Hence why one should use an advisor for their insurance needs and not a broker. IMO

lol wesboag from earl haig.
Deal Fanatic
User avatar
Sep 13, 2005
6905 posts
417 upvotes
Ottawa
I guess for folks in the industry there is no surprise as to how agents are paid. That is why it's very important for you to find a agent that will recommend you the BEST product for you and not the best product for the agent! There is a huge conflict of interest and for a lot of agents it's very easy to get swayed by the goodies that the insurers give.

I personally think your advisor can be anybody. Whether this agent is contracted with a broker, MGA, AGA, IDA or whatever does not matter as it's the fudiciary duty for the agent to recommend the best product vs the product from the insurer with the coolest reward vacation for the client. If the advisor is shady whether it's an independant or with a broker does not matter! You should be careful of independants too as these guys get a lot of vacations too!

I wonder if I'm a blunt person but if a client asked me how much I am compensated for that sale then I would be totally ok telling them. I personally believe any advisor that isn't comfortable telling their client the commission then there is a bigger issue of trust not being there. Plus if you're smart the commission scales are easily found online ;)
Newbie
Jun 21, 2005
39 posts
8 upvotes
If people don't like the idea of commissions....they have to think a little harder. Every job in the world, how does it get paid? off the production of that job. No matter what, somewhere down the line, there is a client, and the way everybody gets paid is THAT client doing business with the company. Now either you get paid salary or commission, no matter what the cost of paying either way will come from the clients. Even based on commission, its not like the client is paying the commission nor is the cost for the client increased because of the commission.

And I've seen some people refer fee based advisors/planners as an alternative. Not that they are not good. But most fee based FA's still take a commission. So i don't know what the argument is when they are basically double dipping, hourly/flatfee and commission.
wesboag wrote: Its not the insurance in its self that is bad, it is the way some of these independents are compensated by the companies that can cause a conflict of interest. Hence why one should use an advisor for their insurance needs and not a broker. IMO
Sorry wesboag, I don't quite understand your comment here. All types of insurance agents and brokers work based off of commission compensation. No matter where you go. Some may have small salaries + small commission or some are pure commission. This does not affect the quality of what they offer. If you are referring to conflict of interest, independent BROKERs should have the least amount of conflict of interest. As brokers usually carry a wide range of companies, they have access to more options and can actually provide the best information and opinions to clients. While agents that work directly for a company have a conflict of interest because they can only offer the products that they are allowed to promote. (Ie: Manulife agent can only offer you manulife products) So I do not understand why you say that a broker is a bad idea.
Newbie
Jun 21, 2005
39 posts
8 upvotes
Doesn't matter what you want to call it. Financial Advisors ARE either Brokers or Agents. The term "Financial Advisor" is not independent from being a broker, and also does not limit their ability to provide a service. No matter what kind of Financial Advisor you go to, they go through the same basic licensing program and any additional designation is what defines them. Stuff like ARMS, CFP, ChPSW, etc is what you look for in getting advice. Even then, a good strategy of managing your finances does not require a significant amount of certification, it just requires an intelligent use of tax laws, investment vehicles, and having the clients best interest in mind. On that note, Clients ARE Customers. You speak to a FA about something, he recommends a strategy and then products, you use those products through him, you are his client but you are also a customer of the company that offered that product. These terms on synonymous and should not be separated.
Deal Fanatic
User avatar
Sep 13, 2005
6905 posts
417 upvotes
Ottawa
I think people should find an advisor they are comfortable with and make sure that advisor has their best interest at heart. I guess since I know the industry well I am probably more anal than the average person. What I liked about my current advisor is that he was willing to do an application for more than one insurer to see who comes back the cheapest. We can do quotes but the final prices is after underwriting and things may change after it's gone through underwriting. I appreciate an advisor trying to find the best deal for his client and respected him for it as well. Maybe I got special treatment since he knew he can't pull ***** on me but I hope he's like that with all his clients since I would never recommend him if he weren't like that with others that's not knowledgable in life insurance.

Again, my humble opinion is that an advisor is the agent and can be either independant or part of a brokerage. If you're shady it doesn't matter who you're with since you'll be shady regardless. Just a caution for folks to find a trustworthy advisor working for their best interest.
Newbie
Jun 21, 2005
39 posts
8 upvotes
Hey Setell, I myself do the exact same thing for my clients most of the time. I know from experience which company is better based on premiums, health check etc. But usually I encourage them to fill out a few applications first, send them in, and on the application there is usually a section that says "Does the proposed insured have another insurance application pending" and i make sure to fill that out and have the company's fight over the premiums. On average I submit 2-3 per client. But on the inside, I usually already know which company will have the best premium. But this is usually just for peace of mind for the client.

But even if the FA is independent, he still needs to be offered a contract by every company he wants to carry. Whether or not hes part of a brokerage, hes still considered a broker.

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