BMO buys AIG Life of Canada: What does it mean for existing AIG life insurance policy holders?

I've sold a lot of AIG Life of Canada policies to my friends and clients over the last three plus years. They are great policies from a historic giant of the insurance industry. But I have to say that I was pretty shocked when AIG's parent company in the US needed to be bailed out in September 2008.

The risks to policyholders are minimal as I wrote to you then as AIG policies are covered by Assuris which means the greater of $200,000 or 85% of policies face value is guaranteed by Assuris in the case of insolvency.

But the bloom was off the rose and our AIG sales have nosedived since the bailout. Clearly AIG Life of Canada was losing ground quickly and something needed to be done to maintain the value of the business.

Tax Free Savings Account

Starting in 2009 Canadians age 18 and older with a valid Social Insurance Number can save up to $5000.00 a year TAX FREE in the new Tax Free Savings Account (TFSA).  It is important to understand that contributions to the TFSA are not tax deductible for income tax purposes but interest and dividend income as well as capital gains earned inside the TFSA will not be taxed, even when withdrawn.

The money can be withdrawn at any time for any purpose. It should be noted that certain investment accounts may charge penalties to withdraw the funds within a certain time period.  The amount withdrawn from the TFSA can be put back in without reducing the investor's contribution room.

Some other interesting features of the TFSA: unused contribution room can be carried forward to future years; neither income earned in the TFSA nor withdrawals will affect the investors eligibility for federal income-tested benefits and credits (this is potentially great news for seniors and low income families looking for a place to stash a little extra money) and contributions to a spouse's TFSA will be allowed and TFSA assets can be transferred to a surviving spouse upon death.

If you would like more information, please give me a call at 905.248.4849 to discuss your own situation.