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Participating life insurance for Business Owners

Tax Exempt Insurance for Business Owners

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Page 1: Tax Exempt Insurance for Business Owners

Participating life insurancefor Business Owners

Page 2: Tax Exempt Insurance for Business Owners

Additional advantagesFixed income asset

Features of participating life insurance

Stable performance, low risk

Access to cash value

Low fees

Professionally managed

Diversified

Immediate estate

Tax-advantaged growth

Vesting

Bypass estate

Continue

Potential creditor protection

Page 3: Tax Exempt Insurance for Business Owners

Immediate estate enhancement

Important note on immediate estate enhancement

Page 4: Tax Exempt Insurance for Business Owners

Tax-advantaged growth

Yearly taxes on growth can reduce total asset value by almost half

Page 5: Tax Exempt Insurance for Business Owners

Tax-advantaged growth

Page 6: Tax Exempt Insurance for Business Owners

Tax-advantaged growth

Page 7: Tax Exempt Insurance for Business Owners

Bypass estate

Page 8: Tax Exempt Insurance for Business Owners

Potential creditor protection

• Especially valuable for business owners and professionals

• During lifetime, personally owned policies with named beneficiaries could prevent creditors from accessing policy values

• At death, benefit is paid directly to named beneficiaries• Creditors of the estate do not have an interest in the

policy benefits

Important note on potential creditor protection

Page 9: Tax Exempt Insurance for Business Owners

Investment performance

Important note on dividend scale interest rate

London Life annual dividend scale interest rate

Page 10: Tax Exempt Insurance for Business Owners

Investment performance

Important note on dividend scale interest rate

London Life dividend scale interest rate Average return: 8.7%. Standard deviation: 1.7%

Page 11: Tax Exempt Insurance for Business Owners

Smoothed returns

Simplified example See data

Page 12: Tax Exempt Insurance for Business Owners

Dividend scale interest rate

Low volatilityCurrent rate 5.9% rate for 2015

Historical performance for periods ending 2014

6.8% 10-year average, since 2005

7.7% 20-year average, since 1995

8.7% 30-year average, since 1985

7.4% 60-year average, since 1955

1.7% 30-year standard deviation, since 1985

Page 13: Tax Exempt Insurance for Business Owners

Policyowner dividends

• Distributed every year since 1886• $783 million in 2014• Estimated dividends for 2015: $830 million

• For 2014, approximately, • 60% derived from investment performance• 30% from positive mortality experience• 10% from other factors such as positive expense and

tax experience

Page 14: Tax Exempt Insurance for Business Owners

Example of client policy’s performance

Policy year

Cash surrender

value

Internal rate of return on

cash surrender

value

Required rate of return on other asset classes due

to tax

Total death

benefit

Internal rate of

return on death

Required rate of return on other asset

classes due to tax

1 $11,911 $782,464 3,029.86% 5,653.77%

5 116,545 973,909 78.53% 146.53%

10 278,683 1.97% 3.67% 1,185,993 27.30% 50.94%

15 485,085 3.15% 5.89% 1,360,369 14.94% 27.88%

20 754,721 3.77% 7.04% 1,600,069 10.13% 18.90%

30 1,183,452 4.15% 7.75% 1,945,043 6.51% 12.15%

40 1,748,203 4.10% 7.65% 2,351,658 5.07% 9.46%

45 2,064,148 4.00% 7.46% 2,579,949 4.63% 8.64%

All values before tax Important note on illustration examples Assumptions

Page 15: Tax Exempt Insurance for Business Owners

Vesting

For guaranteed cash values and for dividends

Once credited, they are•Fully vested•Fully protected from downside market risk•Cannot be used or reduced except as authorized by the policyowner, or to pay premiums as per the policy

Page 16: Tax Exempt Insurance for Business Owners

Access to cash value

Cash values• Guaranteed• Dividends• Accumulate over time

Access• Policy loans• Withdrawals• Leveraging

Page 17: Tax Exempt Insurance for Business Owners

Low fees

• Benefit from synergies with London Life’s overall asset management

• Low investment expenses• In 2014, the participating account’s investment

expenses were 7.4 basis points, or 0.074%

Page 18: Tax Exempt Insurance for Business Owners

Professionally managed

The participating account• Managed by London Life’s investment division• Broadly diversified• Managed as fixed income account• High quality investments• Detailed investment reports

Page 19: Tax Exempt Insurance for Business Owners

Professionally managed

Private placements• Unique lending opportunities• Potential for higher returns than other fixed-income

investments• Same dedicated investment managers who manage

London Life’s assets• Actively managed

Page 20: Tax Exempt Insurance for Business Owners

Professionally managed

Detailed investment reports

Total account Public bond holdings Private placement holdings

Mortgage holdings Equity holdings

46-5041

46-5042

46-5044

46-5043

46-5045

Page 21: Tax Exempt Insurance for Business Owners

Diversified

Account compositionThis account composition is for total participating account assets.

As of December 31, 2014

Page 22: Tax Exempt Insurance for Business Owners

Comparing life insurance vs. bonds

Bonds Life insurance Difference at death

Policy year

Bond Investme

ntAnnual growth

Tax due on

growthValue of bonds Premium

Total policy death

benefitCash value $ %

1 $25,000$1,000

$464$25,536

$25,000 $782,464 $486,911 $756,928 2,964%

5 $25,000$5,219

$2,422$133,271

$25,000 973,909 $491,545 $840,638 631%

10 $25,000$11,021

$5,115$281,453

$25,000 1,185,993 $528,683 $904,540 321%

15 $25,000$17,474

$8,109$446,213

$25,000 1,360,369 $610,085 $914,156 205%

20 $25,000$24,648

$11,439$629,405

$25,000 1,600,069 $754,721 $970,664 154%

30$30,471

$14,141$778,111

- 1,945,043 $1,183,452 $1,166,932 150%

40$37,670

$17,482$961,952

- 2,351,658 $1,748,203 $1,389,706 144%

45$41,884

$19,438$1,069,570

- 2,579,949 $2,064,148 $1,510,379 141%

Important note on illustration examples Assumptions

Page 23: Tax Exempt Insurance for Business Owners

Comparing life insurance vs. bonds

Important note on illustration examples See data Assumptions

Page 24: Tax Exempt Insurance for Business Owners

Important notes

• Immediate estate. This example is based on average illustrated permanent life insurance death benefit values from four of Canada’s largest life insurance companies. Values illustrated include guaranteed and non-guaranteed values. Actual results vary with age, gender, health, return provided in the policy and other factors.

• Illustration examples. Examples provided are not complete without the London Life illustration, including the cover page, reduced example and product features pages, all having the same date. Read each page carefully, as they contain important information about the policy. Values illustrated on slide 21 and slide 22 are based on London Life’s 2015 dividend scale.

• Dividend scale interest rate. The dividend scale interest rate is the interest rate used in determining the investment component of the dividend scale. It is only one factor that contributes to an individual policy’s performance.

• Potential creditor protection. In 2014, for example, 60 per cent of dividend value was derived from investment performance through the dividend scale interest rate. The actual cash value growth in any policy varies, based on a number of factors, such as type of product, product features, premium-paying period, issue age, rating, dividend option, the dividend scale and others. Performance data is provided for illustrative purposes only and represents past performance, which is not necessarily indicative of future performance. Creditor protection depends on court decisions and applicable legislation, which can be subject to change and can vary from each province; it can never be guaranteed. Clients should talk to their lawyer to find out more about the potential for creditor protection for their specific situation.

Page 25: Tax Exempt Insurance for Business Owners

Assumptions