Whole Life Insurance and Flexibility
No longer an Oxymoron
Lengvari & Associates prides itself as having a reputation of thorough analysis of life insurance contracts.
As part of our normal activity we recently analysed an insurer’s new Whole Life contract. We wanted to see how it compared to its peers and whether all the promotional hype was justified. Was it all hot air or was it really a ground-breaking product?
First, the peer group comparison showed that in certain age bands the new product out performed the competition at life expectancy. It outperformed both on death benefit and on cash surrender values by a substantial margin. In some age bands, the cash surrender values were greater than a peer group's policy death benefit. Deposits into the policies were about the same.
Second, a feature to stop and start additional deposits and not be underwritten again is a departure from traditional Whole Life contracts. For a business client this could have flexibility and tax planning benefits.
Third, although a contract is issued for an initial death benefit amount these new contracts allow for the acquisition of significant additional insurance over time without further underwriting. This is better than a conventional guaranteed insurability rider.
Who should consider such a contract?
One answer is those that are looking to avoid crossing the Passive Income Small Business Tax threshold. The tax-exempt status of these contracts offers an excellent sheltering opportunity for small business owners looking to keep the Small Business Tax rate. Of course a need for insurance protection needs to exist. Once established the many tax advantaged characteristics of life insurance shouldn't be overlooked.
These new Whole Life contracts illustrate long term rates of return that many would be happy getting from equities but at a lower standard deviation. In addition, the ability to access the cash on a tax-free basis should not be overlooked.
We are helping tax and financial advisors across Canada determine which contracts and the most cost-efficient structures work in tax and business succession planning.
Why not see if we can help?
