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Catch the Financial Planning Wave With Living Benefits

Catch the Financial Planning Wave With Living Benefits. The Dual Solution. Personal Risk Management = PRM. A PRM strategy has to have the right mix in case one of the following occurs: Live too long Die too soon Incur a life altering event. 30. 40. 55. 65. 75. 85.

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Catch the Financial Planning Wave With Living Benefits

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  1. Catch the Financial Planning WaveWith Living Benefits The Dual Solution

  2. Personal Risk Management = PRM A PRM strategy has to have the right mix in case one of the following occurs: • Live too long • Die too soon • Incur a life altering event

  3. 30 40 55 65 75 85 Lifecycle: Personal Risk Management Increasing assets Retirement Growing assets Critical Illness Insurance Decreasing assets Disability Insurance Income Protection Asset Protection Life Insurance

  4. Disability Insurance The Forgotten and/or Ignored Risk?

  5. Mortgage Bills Insurance Premiums Cars Cottage Vacations RRSPs Income Is the Key to All Financial Plans! x x x x x x x x

  6. $2,187,654 The Power of Income Potential Earnings Based on Current Annual Income With 3% Annual Increases To Age 65

  7. Lump Sum Benefit$120,000 Monthly Benefit$2,950 The Dual Solution $885,000 Over 25 years

  8. Old DI Stats You have a 1 in 8 chance of becoming disabled in any given year* Sources:*CIA 86-92 Aggregate Table & 1985 Commissioner’s Disability Table A (Experience)

  9. What Changed? 1 in 7 adults have a disability* Sources:*Statistics Canada, Profile of disability in 2001, Canadian Social Trends, spring 2004

  10. Disability Among Working-age Adults(Ages 15 to 64) • Activity limitations due to pain or discomfort are most widespread • Effects 1.5 million persons age 15 to 64 • 7.5% of working-age persons are limited in their activities • Affects 3 out of every 4 persons with disabilities age 15 to 64 Sources:*Statistics Canada, A Profile of Disability in Canada, 2001

  11. Common Cause of Claims - DI Since 1996, Company ‘A’ has paid over $90 Million in Claims Musculoskeletal Accident/injury Mental/nervous Digestive Cancer Respiratory Heart Skin Urinary Other Company ‘A’ Disability Claim statistics 2000

  12. Nearly Half of Adults With Disabilities… • 1.6 million adults • Need specialized aids and services • 29% use aids but need more • 10% have none of the needed aids Cost or lack of Insurance coverage is the most frequent reason given for having unmet needs for specialized aids. Sources:*Statistics Canada, Profile of disability in 2001, Canadian Social Trends, spring 2004

  13. Adults age 25-54 with disabilities have… • High unemployment rates • 47% have personal incomes below $15,000! Sources:*Statistics Canada, Profile of disability in 2001, Canadian Social Trends, spring 2004

  14. Objections Anyone? • Here are some common Disability Insurance objection’s…

  15. The Government will look after me… Yes, the Canada Pension Plan has a disability benefit; however, the definition of disability is very stringent, and the amount of coverage is at the subsistence level. “Under the Canada Pension Plan legislation, your disability must be "severe and prolonged". "Severe" means your condition prevents you from working regularly at any job, and "prolonged" means your condition is long term or may result in your death.”1 1 Human Resources Development Website, 2004

  16. My children will look after me… One ordinary parent can support four children, but it takes four extraordinary children to support one disabled parent.

  17. The most common objection to disability insurance… • “ I have a group plan in place…” This is your best opportunity!

  18. The Approach • What is your income replacement ratio? • Coverage / income x 100% • I.E. $36,000 / $100,000 x 100% = 36% $24,000 of UNPROTECTED income!!

  19. How to Develop the Need • Group concerns: • Cap on benefits • Bonus income unprotected • Quality of coverage is not as good as individual • Most Group plans offer 2 years of ‘Regular Occupation’ – “Any Occupation’ thereafter • Individual coverage offers ‘Regular Occupation’ definitions to 65 Get the Group Book!

  20. $350,000 $250,000 $200,000 $150,000 $100,000 $0 Individual Disability Insurance Increased Salary Less Coverage = Group LTD Coverage The Opportunity - Top Up Strategy Top up of Group LTD Coverage with Individual Disability Coverage

  21. Increased Salary = Less Coverage Group Cap with Reverse Discrimination $250,000 $200,000 $150,000 $100,000 $0 Group Benefit Coverage 3 Executives, age 35, 40, 45 Earning, 150K,175K, 200K per year

  22. $100K $75K $50K Income Not Protected by Group DI Program Group Benefit Coverage 3 Executives, age 35, 40, 45 Earning, 150K,175K, 200K per year

  23. $2,850 $2,275 $1,625 Top up Each Executive’s Monthly Benefit Group Benefit Coverage 3 Executives, age 35, 40, 45 Earning, 150K,175K, 200K per year

  24. 6 Principles of Disability Insurance • Guarantees Individual Non-Cancellable & Guaranteed Renewable • Premiums, Provisions & Portability: Guaranteed • Total Disability Definition of Total Disability • Own Occupation, Regular Occupation, Any Occupation • Residual/Partial Disability Loss of time and/or duties – is it indexed? • Loss of earned income is greater than 20% • Before Disability Claim Keep policy up with inflation by including: • Additional Insurance, Premium Refund • During Disability Claim Is monthly benefit indexed to inflation? • After Disability Claim Qualified right to maintain the new benefit amount • Recovery Benefits

  25. Critical Illness Insurance The New Risk of the 21st Century!

  26. Life Insurance Death Death Life Insurance Insurance History 30 Years Ago… Heart Attack Cancer

  27. Over 80% Survive initial Event Critical illness Insurance Critical illness Insurance 1.55 million Canadians are survivors However Today… Hospitalized Heart Attack Cancer Source: Heart and Stroke Foundation, 2004 National Cancer institute of Canada, 2004

  28. Coronary Bypass Surgery

  29. Cost of Medical Technology Source: Best Doctors January 2002 with updates June 2002 Above price ranges include procedural cost, pre-op and post-op services. * Bank of Canada exchange rate on November 28, 2002

  30. In Today’s World People Have a Greater Chance... Than Dying Before age 75 Heart attack Stroke Cancer Coronary Artery Bypass Surgery Source:Munich Re Insurance 2001, Canadian Population Statistics

  31. Most Common Causes of Claims - CI Other 9% Stroke 5% Since 1996, Company ‘A’ has paid over $7 Million in Claims Heart Attack 17% Cancer 69% Company ‘A’ CI Claim statistics 2002

  32. Risk of Health Care Inflation:Next 20 Years Increased Waiting Times Decreased Access to Care

  33. 30 40 55 65 75 85 Lifecycle: Personal Risk Management Increasing assets Retirement Growing assets Critical Illness Insurance Decreasing assets Disability Insurance Income Protection Asset Protection Life Insurance

  34. Income Replacement Treatment costs Income/Investment Reserve Hiring a Replacement Cash Flow Management Relapse Reserve Travel Income Supplement Priority Reserve Critical Illness Benefits “Front End” vs “Back End” Disability – Pays the monthly bills

  35. Average Canadian $32,000 in RRSP* Sources:*Statistics Canada, Retirement savings through RRSPs and RPPs

  36. Case Study Male Age 40, N/S Assets $250,000 Liabilities $100,000 Critical Illness coverage need of $250,000

  37. X (Tax) Alternatives Funding Life Altering Event: $250,000 Sell or Liquidate Asset Insure RRSP needed = $325,000 Multiple funding alternatives • untimely disposal • may not be enough assets • not tax efficient • uncertain impact on future worth • fire sale prices • no up front cost today • secure • tax efficient • minimal impact on cash flow • cost is known • can be prepaid • cost are up front

  38. Traditional CI coverage • Benefit $250,000 • Term to age 75 • ROP and ROPD • Annual cost of $2,888 • Total Cost until expiry - $101,091 • Total ROP at expiry - $101,091 Win-Win

  39. Traditional Solution $250,000 Coverage ROPD ROP $260 / Month

  40. Affordable Solution $100,000 Coverage ROPD ROP $115 / Month

  41. Affordable Solution Income Replacement $3000 MIB FIO COLA ROP $150 / Month

  42. The Dual SolutionAn Affordable Solution Total Protection Disability Insurance Critical Illness Insurance $265 / Month

  43. 10 years down the road… IRR 15% • Reduces Critical Illness coverage to $50,000 • 50% return of premium • $3,500 • Disability coverage is prepaid using ROP no further premium obligation • Improve his cash flow • Reduce monthly premium • $265 to $63 $200 Month Internal rate of return is based on all premium payments being made as scheduled and coverage not being decreased or lapsed during the 10 year period of this example

  44. The Dual Solution Critical Illness Insurance Immediate Financial Impact Long-Term Financial Impact Disability Insurance

  45. Assets… The NEW RiskOver 1 Trillion Dollars in Assets! Boom, Bust & Echo, Demographic investing, 1996

  46. Annuity Critical Illness Policy Premium payments Diagnosis of Covered Condition On death or ROP deposit recovered Available for Distribution Assets Lump Sum Benefit Asset Preservation: Critical Illness Insurance

  47. Asset PreservationCI Scenario #1 • Male age 40 • Purchase a $100,000 Level T75 CI policy with ROP & ROPD • $128 Monthly premium for 35 years • Total Cost for Coverage: $53,760 • Purchase an Annuity to pay monthly premium • Total Cost $31,489* • Return of Premium at Expiry of CI T100 plan: • $53,760 Life 10 Annuity Guaranteeds Total income per Annum is $1,620. Taxable portion is $791.

  48. Asset PreservationCI Scenario #2 • Male Age 50 • $100,000 CI T100 plan • Monthly cost $239.00 • Total Cost for Coverage for 20 years: $57,360 • Purchase an Annuity to pay monthly premium • Total Cost $40,103* • CI Return of Premium at Year 20: • $57,360 Term Certain Annuity Guaranteed for 20 years Total income per Annum is $2,868 Taxable portion is $863, assuming a tax rate of 30.09%

  49. Asset PreservationCI Scenario #2vs. GIC Term Certain Annuity Guaranteed for 20 years Total income per Annum is $2,868 Taxable portion is $863, assuming a tax rate of 30.09% CI-Male, age 50, $100,000 CI T100 w/ ROP & ROPD

  50. Asset PreservationCI Scenario #2vs. GIC $100,000 $0 Term Certain Annuity Guaranteed for 20 years Total income per Annum is $2,868 Taxable portion is $863, assuming a tax rate of 30.09% CI-Male, age 50, $100,000 CI T100 w/ ROP & ROPD

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