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.

Well that something has been done and it's a dozy. AIG Life of Canada has been sold to the Bank of Montreal for $375 million in cash.

How does that affect existing AIG Life of Canada policy holders?

It's great news.

Your insurance policies are still backed by Assuris in a worst case scenario, but first they are backed by the Bank of Montreal who has over $416 billion in assets. So you don't hold the greater of $200,000 of 85% of your original policy any more (worst case) but 100%.

It's also great news for us and future policy purchasers, as we like AIG Life of Canada policies. If the Bank of Montreal keeps the current policy packages more or less the same, that's another set of superb and balanced policies out in the Canadian insurance market available to consumers.

In my opinion, the sale was really the best move possible for all sides, as:

• AIG Life of Canada was struggling to attract the same volume of business as in the past and risked significant internal downsizing and a loss in value.

• The Bank of Montreal needed a substantial insurance purchase to be able to compete effectively in life insurance against other major Canadian insurance players.

• Canadian consumers need multiple strong players in the life insurance market.

• Independent brokers benefit from confidence in the insurance market.

Let me know your own thoughts or if you have any questions.

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.