Insurance Primer

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

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Insurance Primer

  1. 1. Life InsurancePrimer<br />Tom Feigs<br />
  2. 2. Managing risk of death<br />Provisions of life insurance<br />Relative cost of life insurance<br />Individual vs Group<br />Temporary vs Permanent<br />Guarantee - Issue<br />Agenda<br />
  3. 3. Avoidance<br />Retention<br />Sharing<br />Life insurance shares the risk of death with others making it an affordable way to replace loss of income and capital<br />Risk Mitigation<br />
  4. 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<br />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<br />Mortality cost = death benefit X probability of death in that year<br />Risk of Death<br />
  5. 5. Who<br />The person earning income that ceases upon death - the insured<br />What is the need<br />Temporary or permanent<br />Provisions<br />Flexibility, options<br />When<br />Does the cash flow need end while alive or persist until death?<br />Why<br />To support the lifestyle of people you leave behind - the beneficiary<br />How much<br />Capital need + Income need over a given time<br />What Clients Need to Know<br />
  6. 6. Death benefit<br />Joint life<br />First-to-die, Last-to-die<br />Grace period of 31 days<br />Reinstatement<br />Catch up on premiums<br />Proof on insurability<br />Suicide clause<br />generally pays the death benefit after 2 years<br />Waiver of premiums<br />Living benefit<br />Term Life Provisions<br />
  7. 7. Application form<br />Medical screening<br />Incontestability<br />Insurer gives up the right to dispute a claim after the policy is in effect for 2 years<br />Underwriting<br />
  8. 8. Non-Renewable<br />Issued for the current term and terminates at end of contract<br />Renewability<br />Guaranteed renewal<br />Renewal exceptions<br />Re-entry<br />Requalify as medically insurable<br />Convertible<br />To permanent life policy<br />Without evidence of insurability<br />Renewability Provisions<br />
  9. 9. Mortality Table<br />Levelized<br />Relative <br />Cost<br />T10<br />T10<br />T10<br />T10<br />T10<br />Age<br />
  10. 10. Individual vs Group<br />Group Insurance <br />Generally available as part of a company benefit plan<br />Premium tends to be lower for group insurance but there is a greater risk of ending up without insurance<br />Average length of coverage is 7 years due to mobility or workforce<br />Can be converted to individual insurance within 30 days of termination of employment without evidence of insurability<br />Individual life insurance stays with the insured regardless of employment status<br />
  11. 11. Permanent Life<br />Breakdown of Premium<br />Tax paid payment <br />from insured<br />$100 <br />premium<br />2% <br />provincial tax<br />$2<br />$98<br />net <br />premium<br />To investment <br />account = $9<br />Tax Exempt<br />Investment Growth<br />$91 <br />Commission to agent, <br />operating margin,<br /> mortality, admin<br />Death Benefit<br />+ account value<br />- o/s loan<br />Beneficiaries<br />Insurance <br />Company<br />
  12. 12. Permanent Life<br />Breakdown of Premium<br />Tax paid payment <br />from insured<br />$100 <br />premium<br />2% <br />provincial tax<br />$2<br />$98<br />net <br />premium<br />Insurance <br />Company<br />Commission to agent, <br />operating margin,<br /> mortality, admin<br />$91 <br />Death Benefit<br />+ account value<br />- o/s loan<br />Investment <br />account<br />Tax Exempt<br />Investment Growth<br />Beneficiaries<br />$9 <br />
  13. 13. Term 100 Life<br />Breakdown of Premium<br />Tax paid payment <br />from insured<br />$100 <br />premium<br />2% <br />provincial tax<br />$2<br />$98<br />net <br />premium<br />Insurance <br />Company<br />Commission to agent, <br />operating margin,<br /> mortality, admin<br />$91 <br />Death Benefit<br />Beneficiaries<br />
  14. 14. Term 10 Life<br />Breakdown of Premium<br />Tax paid payment <br />from insured<br />$100 <br />premium<br />2% <br />provincial tax<br />$2<br />$98<br />net <br />premium<br />Insurance <br />Company<br />Commission to agent, <br />operating margin,<br /> mortality, admin<br />$91 <br />Death Benefit<br />Beneficiaries<br />
  15. 15. Change death benefit<br />Change the life insured<br />Add additional lives<br />Pay the cost of insurance based on yearly term or level term rates<br />Have a guaranteed or variable cost of insurance<br />Make any amount of contributions as long as minimum cash value covers insurance cost<br />Flexibility of Permanent Policies<br />
  16. 16. Long-term capital gains tax exposure<br />Business succession planning<br />Guarantee of estate amount to specific beneficiary<br />Avoid probate fees<br />Tax-advantaged growth (if no TFSA contribution room left)<br />This is hampered by fees<br />Who Needs Permanent Insurance<br />
  17. 17. Revenue Canada<br />Bank debts<br />Mortgage debts<br />Car loan<br />Spouse & children<br />Order of Estate Payout<br />
  18. 18. The amount returned to the policy holder when a permanent life insurance policy is cancelled<br />Penalty for cancellation in first 10 years<br />Generally nullifies your investment contributions and growth in early years<br />Cash Surrender Value<br />
  19. 19. No medical screening<br />Mail order<br />High premium, low benefit<br />Purchased by consumers that can’t pass medical screening<br />www.cpp.ca<br />Guarantee-Issue Policies<br />
  20. 20. Life License Qualification Program<br />Canadian Institute of Financial Planning<br />References<br />

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