# Manulife Whole Life Insurance



## jman123 (Jan 28, 2015)

Greetings,

I am 65 years old , soon to be 66, and have term life insurance ($150K for me, $15K for my wife) that I bought 10 years ago (term 95). My wife is 64 years old. My premium has now quadrupled and I have decided to not continue with the insurance since my kids are adults now and we live mortgage free with no debt. Have about $1 million in RRSPs and $200K in non-registered accounts (TFSA,etc...) between the two of us. 

I have delayed taking my OAS and will probably do the same for my wife. I collect QPP ($11K), still work part-time but will probably retire this year. My wife also works part-time with minimal income ($15-$20K/year) but not sure for how long. No QPP taken yet but will be small.

My plan is to supplement our income using our RRSPs drawing down on them till I need to convert to a RRIF.

I was thinking that life insurance would be a good mechanism on paying down any taxes on my estate upon our deaths leaving more for our 2 kids. 

With that in mind, I contacted my financial advisor who suggested a product called "Manulife Par". 

For $150,000 life insurance, joint last-to-die, it would cost approximately $13K per year for 10 years and then be completely paid up.

According to the table provided, after 20 years there would be a cash value of $229K plus a total death benefit of $303K. 

My advisor says I can take 90% of $229K at that time tax-free and upon our death would pay off any taxes resulting from the liquidation of our registered accounts 

I'm not sure if this makes sense financially.

Your opinion please?

Thank you


----------



## OptsyEagle (Nov 29, 2009)

I am not familiar with that particular product but it sounds like a run of the mill "whole life" participating policy. Probably why they call it Manulife Par. If it is, and it sounds like it, none of that stuff, except the premium amount and the initial death benefit is guaranteed. Even the premium discontinuing in 10 years might NOT be guaranteed. The cash value definitely is not guaranteed AND I find it highly unlikely that it is tax free. Perhaps your broker thinks that a policy loan is tax free like any other bank loan. They are not. A policy loan is the same as a policy cash value withdrawal, when it comes to taxation. Taxation is not the reason for taking a policy loan over a policy withdrawal.

Anyway, the reality is, you do not NEED insurance. Perhaps you want it, but you need to understand the reasons to want it. Forget about paying estate taxes. Insurance does not pay estate taxes, money pays estate taxes and insurance creates money. Hence there is no such policy that guarantees to pay your estate taxes, because it cannot be done. Now you may think paying estate taxes or creating money to pay estate taxes are the same thing but they are not. What you are actually trying to do is to INCREASE the size of the after tax estate.

In my experience, if you want to create the maximum amount of money, in your estate, for the least amount of premium paid, the best product out there is: a minimum funded, level cost, joint last to die, universal life insurance (UL).

What a mouthful that is. The above is also known as a Term 100 permanent policy. The funny thing is that if you bought $300,000 of Term 100 or $300,000 of Term 100 acquired inside a UL policy, the latter will be cheaper. In either case these policies have none or almost no cash value. They are pure estate policies. The reason they provide the largest bang for your buck, if you want to increase your estate values, is because they have no cash value. You see, if you ever decide to cancel the policy, you get absolutely nothing back but the saving of future premium payments. Why is that a good thing. Well, you can assume the insurance company is putting away some of the premium to pay those eventual death benefits (called a reserve fund). If you cancel your policy, before the 2nd death, the insurance company does not need to pay out any of that reserve. If they had it their way, they would just keep all that money, but since we live in a very competitive insurance market, they actually use their estimate of lapses (known as the lapse subsidy) to reduce the premium you need to pay. So, as long as you do not lapse your policy, other customers who do lapse theirs, are actually subsidizing your premium costs. Add to that the tax free nature of the death benefit and you will probably find that there is very little else you could invest in that would turn into the same amount of tax free cash for your heirs.

The par policy you quoted would not have a lapse subsidy. That cash value they are willing to give you, if you cancel your policy, is most of the reserve they would be setting aside to pay the death benefit. Hence it is not available for use in reducing premiums for other customers. Obviously if you cancel your policy, the Par one would be better but if you die with it, the one I suggest will outperform it by a wide margin. So are you using this for yourself or for your heirs. If for yourself, all insurance is a bad idea and if for your heirs, the one I describe will give you the most bang for your buck.

Just make sure your broker gives you a few quotes. The range of prices across all the insurance carriers will vary widely at your ages. You want the one that is cheapest, not the one that pays the largest commission to your broker.


----------



## jman123 (Jan 28, 2015)

Thank you for your response.

I am a bit confused to say the least. I have always gone with term insurance in the past so this is all new territory for me. 

When you state 

"You see, if you ever decide to cancel the policy, you get absolutely nothing back but the saving of future premium payments. Why is that a good thing. Well, you can assume the insurance company is putting away some of the premium to pay those eventual death benefits (called a reserve fund). If you cancel your policy, before the 2nd death, the insurance company does not need to pay out any of that reserve"

If I cancel the policy then obviously I get nothing and do not pay any future premiums, right? 

Then you state : 

"The par policy you quoted would not have a lapse subsidy. That cash value they are willing to give you, if you cancel your policy, is most of the reserve they would be setting aside to pay the death benefit. Hence it is not available for use in reducing premiums for other customers. Obviously if you cancel your policy, the Par one would be better but if you die with it, the one I suggest will outperform it by a wide margin. So are you using this for yourself or for your heirs. If for yourself, all insurance is a bad idea and if for your heirs, the one I describe will give you the most bang for your buck."

Not sure what this lapse subsidy is. Are you saying that my premiums will or could go down over the years because other customers cancelled their policy?

Do you have an idea what the annual premium for $300K Term 100 or Term 100 within a UL policy would be? If not, could you suggest a website that could help?

Thanks


----------



## OptsyEagle (Nov 29, 2009)

The lapse subsidy is the process where the insurance company estimates how many people will cancel their policies before they die. Since they owe no money back to those people, because it was a cashless policy, they use the money they were setting aside to pay the death benefit for those people who cancelled, and use it to reduce everyone's premium they need to pay. So your premium is lower because others will cancel their policies after they have invested a fair bit of money into them. That is the lapse subsidy. 

In the policy you quoted they cannot do this since the money they were setting aside is the cash value and they owe it to the owner of that policy if they cancel it. If they don't cancel it they use that cash value to pay the death benefit. You only get one or the other. If you withdrew it on a policy loan or withdrawal, the amount you take will reduce the death benefit to your estate.

Obviously that doesn't happen with the UL policy because it would have no cash value anyway.

Roughly, a male and female, 66 and 64 respectively, joint last to die, level cost insurance can get a $300,000 UL policy for around $6,500 per year. That premium would be on the plan for life, it would never change and the policy would never expire. In a UL policy you can "overfund" it, where you pay more then $6,500 and the difference goes into a side fund that can be used later to pay future premiums. The good news with UL is this side fund gets added to the death benefit if it is not used for future premiums (with the Manulife one above you only get one or the other). Anyway, this stuff gets confusing enough without adding more bells and whistles to it. If you can afford $540 per month now you can probably afford it forever. Whether you pay future premiums from some non-guaranteed side fund inside the policy or some non-guaranteed fund you have in any other account you own, it makes very little difference. That is a personal preference kind of thing.

The only important question is could you take $540 per month and turn it into $300,000 tax free by the time you and your wife die. Obviously without knowing how long you will live it is difficult to answer but suffice to say, using guaranteed investments, since this is fully guaranteed, it would be very, very difficult to achieve and impossible to achieve with certainty, in any other way.


----------



## OhGreatGuru (May 24, 2009)

You aren't going to find much support for whole life insurance on this forum. Of course you agent is in favour of it - agents make buckets of money in hidden fees on whole life, compared to term insurance. At $13K per year, you and your spouse could put nearly all of that into your TFSA's if it is surplus income; and have $130K + 10 years of earnings at the end for your estate. (I'm too lazy to work out the Future Value, but I think it would be more then your $150K Insurance.

PS. Unless I have done something wrong, I get FV of about $185K for $13K invested annually at 5% for 10 years.


----------



## jman123 (Jan 28, 2015)

Hello OptsyEagle,

If a UL policy has no cash value then what differentiates it from term insurance? If UL is the same as whole life I was under the impression that part of your premium goes for insurance and part is for the savings plan of the policy?

Hello OhGreatGuru,

In the Policy Values table for this Manulife product there are two columns, one for "Guarenteed Values" and one for "Non-Guarenteed Values". For the non-guarenteed values after 10 years , the total cash value would be $141,353 and the total death benefit would be $290,542. 

The product talks about a "dividend scale" and a "dividend scale interest rate" and has a "table of average annualized return since 1985" of 8.8%. 

In any case, I think all this is for nothing. I've come to the point where I've had enough of saving for the future (in this case my death, as opposed to the last 40 years for my retirement) and spending some of this nest egg without further expenses such as the $6500/year for life for UL or $13K/year for 10 years. 

Thanks


----------



## Onagoth (May 12, 2017)

jman123 said:


> Hello OptsyEagle,
> 
> If a UL policy has no cash value then what differentiates it from term insurance? If UL is the same as whole life I was under the impression that part of your premium goes for insurance and part is for the savings plan of the policy?
> 
> ...


UL, term and WL are all different insurance vehicles. Term is term...it will run out. Chances are when the renewal comes up it won't be affordable at your age (it'll be better to go through underwriting again and get a new term policy, but age restrictions may become a problem). UL and WL are permanent insurance...as long as you pay your premiums, coverage will not expire.

Whole life has fixed premiums which contribute to a savings element within the policy plus the cost of insurance. UL is a truly flexible insurance solution with a savings element. The primary benefit of UL is that you can pay whatever premiums you want up to a limit defined by either the income tax act or your insurer, the only minimum required is the COI charge. As you can imagine, UL doesn't often include minimum guaranteed cash values. 

UL and WL used to be quite a bit different, but in a low interest rate world the investment potential is pretty similar between the two. In theory, UL is better during high interest rate periods and WL is better during low rate periods....in theory. Don't be sold on UL unless you think you'll have the discipline to fund the illustrated premiums....if you don't the product itself becomes incredibly costly. WL has forced discipline because if you don't pay the minimum premium your policy goes into grace and will eventually lapse.

At Manulife, their primary WL policy is Performax Gold. Their new hip UL policy is Manulife PAR. PAR is designed to operate like a participating life policy, but it is not a participating policy. The dividend scale is set annually if I remember right.

You mentioned in the OP about being able to withdraw cash before death....be very careful about this. The illustration your advisor gave you shows an ACB of your policy and it gets quickly eroded. Simply put, some of that cash withdrawal might be subject to tax. So when your advisor says you can take tax free cash 10 years from now....take that with a huge grain of salt. Many advisors do not understand how the taxes apply to an insurance policy.

Keep in mind that insurance advisors rake in upto 50% of the first year premium in commissions...sometimes more. So you're advisor is being compensated to sell you the product. I'll let you decide if you think that's a conflict of interest.


----------



## lonewolf :) (Sep 13, 2016)

You dont need life insurance. When your young starting out with a family & life insurance is way way cheaper life insurance is more suitable. When older annuities pay out more @ a cheaper cost. The correct way to use insurance is life insurance when young annuities when older. Though insurance is not for everyone. With all the socialist programs in Canada insurance probably not needed in a lot of cases.


----------



## OptsyEagle (Nov 29, 2009)

jman123 said:


> Hello OptsyEagle,
> 
> If a UL policy has no cash value then what differentiates it from term insurance? If UL is the same as whole life I was under the impression that part of your premium goes for insurance and part is for the savings plan of the policy?


A UL policy can have cash value depending on how much money you want to put into it. If you put $6500 per year, for example, it would have nothing or almost nothing for cash value. If you put more then that, then the extra overfunding, would go to a side fund inside the policy and would grow. That cash value would be available for withdrawal, policy loans, or can be used to pay future premiums. Upon death it would get added to the death benefit and payout completely tax free.

That said, I would not overfund the policy. You would get more bang for your overfunded buck by simply buying more pure insurance. For example if $6500 buys $300,000, then $13,000 would buy $600,000 of life insurance. You could, however, put $13,000 into the $300,000 policy if you wanted to. That extra $6500 per year would go into a policy side fund and you could invest it inside the policy anyway you wanted. If you died in the 1st year your death benefit would be $306,500. The question one would ask, if they wanted to put $13,000 per year into this policy, is would the heirs get more by overfunding a $300,000 policy or minimum funding a $600,000 policy. Because of the lapse subsidy provided by the base insurance, along with the poor investment options (high MER fees) offered by most UL policies, I would minimum fund as much insurance as you can afford, if maximizing the estate is the primary objective.

So to complete the answer to your question, in theory a UL policy minimum funded is almost identical to a permanent term policy. If you overfund it, it starts to look more like a whole life policy. What it actually is, is a very FLEXIBLE policy that allows you to do almost whatever works best for you.  The others are what they are. Their options are pretty set, in advance, giving very little ongoing control to you.


----------



## Longtimeago (Aug 8, 2018)

All insurance works the same way. You bet the item (including yourself in the case of life insurance) will not last as long as expected and the insurer bets it will last longer than expected. Life insurance is no different than insuring a TV.

I always find it amusing to think that when someone buys life insurance, they are in fact betting they will die sooner than expected. That does as some have noted here, make some sense when you are younger and want to cover that eventuality, especially if there are kids to consider.

But other than that, you have to weigh the fact that no insurance company is in the business of losing money and THEY are the ones setting the terms of the insurance, not you. So obviously they set the terms in a way that favours them, not you, just as a casino with a roulette wheel pays out on numbers 1-36 but then has 0 and 00 which gives them a decided edge on every spin. 

So if you invest your money and do live to or beyond the average age that the insurance company actuaries tell them is to be expected, you will end up with more money than if you bought insurance. The only way you WIN with insurance is if you die sooner than expected. It's your money to bet obviously but I personally have hard time betting against myself living.


----------



## OptsyEagle (Nov 29, 2009)

Permanent Life Insurance is a little different then that. Term insurance works closer to that bet, a bet the insurance company wins almost all the time.

Permanent insurance is a bet that both can win, the insurance company and the insurance owner. Sounds too good to be true but the reason they both win, is two groups lose. 

The 1st losers are the tax payers. It is the tax free nature of growing monthly premiums into large lump sums to be paid to the estate that is one of the 1st advantages of life insurance. For the rest of us, taking monthly savings and growing it into large lump sums is a very taxable event. Make that policy a corporate owned policy and all the deferred taxes on the possible millions of dollars of retained earnings, can disappear in the blink of an eye as that business passes from one generation to the next, when using life insurance.

The 2nd losers are the people who buy permanent life insurance and pay many years of premiums and then cancel it for the sole reason of getting out of paying future premiums. That is like a mutual fund investor who puts $200 per month into a mutual fund for 10 years and then gets satisfied to walk away from the entire account to simply stop having to put $200 per month into it anymore. The people that cancel their policies, significantly increase the amount of money the people who don't, can create, by way of the lapse subsidy. The ones who buy and cancel are the losers. Much better to have never bought at all.

Because of those two losers, a permanent life insurance customer is usually always a winner, except for one small detail. They can never see the final benefit. That requirement where the EKG line must be completely flat, can really take the fun out of this investment strategy. You would think that having the money go to their loved ones would overcome that, but for 95% of us, it does not. All they see is their money disappearing from their own accounts, from the large premiums required and they never get to see the actual benefit it provides. I think the insurance company estimates that over 50% of UL policies will lapse before the insured dies. At some point, someone, perhaps the surviving spouse or the concerned child, asks the question "why did dad buy this stupid insurance policy. He didn't need insurance. What load of garbage did that commission salesman sell him". They then call the insurance company to cancel it and it is done. Mom gets to save $540 per month, let's say, and the insurance company pockets hundreds of thousands of dollars, that was sitting in a reserve fund that is not needed to pay any death benefit, anymore.

Don't ever expect to get transferred to the high pressure salesman in charge of saving this insurance business. Life insurance companies are the only companies out there that actually want their customers to go away. Not right away, but some day. It is part of their plan.


----------



## jman123 (Jan 28, 2015)

Correct me if I am wrong but in this Manulife PAR insurance I need to pay $13K / year for 10 years and after that no need to pay further premiums so my policy would not lapse or expire. If I never take out any cash from the plan (which seems to be a loan where I pay interest and possibly taxes) then our heirs would have the maximum value of the plan.
If we both die within the next 10 years it seems , from the table provided, that the total death benefit would be between $162,765 (Year 1) and $304,454 (Year 10) and a total cash value between $8,953 (Year 1) and $148,897 (Year 10). Question ... Would my heirs get both (the total cash value and the total death benefit)?

Like I mentioned before there are these "Guaranteed Values" and "Non-Guaranteed Values" columns. My financial advisor said to look at the non-guaranteed column. In the guaranteed values table the guaranteed annual premium is $8,211 for 20 years, the guaranteed death benefit is always $150K and the guaranteed cash value starts at $3,849 in Year 1, $65,138 in Year 10, $112,139 in Year 20, etc... These are much lower numbers than the non-guaranteed ones. I'm assuming that the non-guaranteed values are based on the history of their dividend scale? 

If I go this UL route at $6500 / year then that would have to be paid till both of us die and there would be a chance that after the first one dies the second one (or our children) may not want to continue paying the policy.

Maybe it's best to get it done over with in 10 years? Find the $130K from my TFSAs and some from our RRSPs and just put it away in a 5 year GIC ladder to be whittled down $13K per year.


----------



## OptsyEagle (Nov 29, 2009)

Sure. Your policy does not have any lapse subsidy (because of the guaranteed cash value upon cancelation) so the insurance company would be happy to see you keep it until death. The longer the better. It is hard to advise on your quoted policy because too many things are not guaranteed. Perhaps the premiums will be done in 10 years, perhaps not. It sounds like your advisor is taking a 20 year plan and turning it into a 10 year plan. I can turn the UL policy into a 1 year plan, where you take a really big honking amount of money and drop it in when you buy it and never have to deal with it again. It would not make it anymore guaranteed. The insurance company would still be taking $6,500 from the side fund to pay for the insurance and as long as that big honking amount of money you put into it lasted, there would be no problem. If it didn't there would. I suspect your PAR policy is a little like that.

The non-guaranteed side is based on projections, not necessarily history. If you took that same policy out in 1999, I can guarantee you that the dividends did not work out as well in reality as they would have been projected to work out in an illustration, at that time. That I know and have seen. No one expected interest rates to go down as quickly and as far and stay low for so long. That said, the customers expected it even less because few understood how much their estate plan was depended on it.

I say forget the games and projection. *$6,500 per year...$300,000 when you die. Fully guaranteed. Any questions? 

*Yes, I can make it more complicated but that is just because it is so flexible. If you don't want complication and baseless promises, take the above. Fund it with your own investment account instead of using the black box of the insurance companies investment account to do it. Make sure everyone involved, wife, beneficiaries, lawyer, your will, etc., understand what this is. Explain to them that canceling this plan is identical to walking away from an investment account, where you have built up thousands of dollars of value over the years, just to save a few dollars a month. That is not a smart frugal thing to do. The problem is that no one understands this stuff, including the people that sell it and especially the people that buy it.

But what can you do?


----------

