A Unique Whole Life Plan

The life insurance industry has seen tremendous change over the last 5 years.

Many industry pundits are calling today’s conditions the perfect storm of historically low interest rates. This negatively impacts an insurance company’s profitability on permanent plans since it’s combined with increased reserve requirements that have caused a very significant increase in premiums on guaranteed permanent policies.

Many carriers have increased rates between 25 per cent and 30 per cent on their universal life level-cost term 100 policies and whole Life policies, while some companies have gotten out of selling universal life plans altogether. One plan, which remains untouched for the moment, is Industrial Alliance‘s Ultra 15 whole life insurance plan. This plan has four key benefits compared to traditional-non participating whole life policies:

1. A return-of-premium on death: The death benefit is equal to the basic face amount plus a return-of-premium. Note that this amount excludes any policy fees, modal premium factors, rated premiums, and premiums for riders or benefits.

2. The surrender value of the Ultra 15 is much higher than other non-participating whole life policies: This gives the insured a possibility of recovering the equivalent of 50 per cent of the initial death benefit when the insured reaches either age 65 or the 20th anniversary of the policy.

3. The policy is 100% Guaranteed.  Unlike Participating whole life policy the cash values and benefits of the policy are not subject to changes in interest rates and dividend rates.  Many people take great comfort in the fact that policy has no variables or risks that are to be shared with the policyholder. Many Particpating Whole Life policies have been under pressure in recent years as dividend rates are beginning to sag in response to decreasing bond yields.  Low interest rates are great for people with a mortgage but not good news for people with a Particpating Whole Life policy.

4. Has a unique enhancement option for children who purchased the policy. Children who are between the age of 15 and 20 who are non-smoker get a bonus [free of charge] upon request to increase the coverage by 40% without a medical. A $100,000 life insurance policy would increase to $140,000. The insured simply has to declare that they are a non smoker and submit satisfactory proof of insurability.

The following is an example of the plan’s pricing (as of June 2016) for a 40-year-old male applying for $200,000 of Ultra 15 coverage.

Annual premium: $4,114
Paid-up death benefit after age 55: $260,810
Guaranteed surrender value at age 65: $100,000

This plan has some unique features for business owners.  

Take the business owner who is under the age of 55.  The  policy could be set up with the company as the owner and premiums paid for the first 8 o 9 policy years and then transfer to personal ownership. The premiums should should not be counted as a deduction for income tax purposes.  There is no cash value in this policy until year 11.  Therefore the fair market value. The individual could than pay the premiums for the remaining 7 years. The policy cash values now belong to the individual and not the corporation. Another option is to the use the cash value within the policy as a colateral to secure a line of credit.  No tax implications if the money is not taken out.  You would simply pay interest on the line of credit.

Disclaimer:  Please note the above strategy is an advanced tax and financial planning strategy and subject to interpretation therefore you should discuss this with you tax advisor and financial planner. For more details on Whole Life Insurance in Canada, please call us at 1-866-899-4849 or visit our Whole Life Insurance Quote Page.

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  • Kalen
    April 2, 2014 at 11:49 am

    Can this plan be corporately owned and does the impact the premiums.

    • LSM Insurance
      April 2, 2014 at 11:56 am

      Hi Kalen, The premium are the same regardless if the policy is corporately or personally owned. You may also find this article interestinghttps://lsminsurance.ca/tips/general/corporately-owned-life-insurance