# Life Insurance Suitability?



## JulianZA (Dec 13, 2016)

Hi,

I am a 31 year old recently arrived Dr in Canada (Alberta) looking to take out some life insurance and was hoping to get some objective advice from professionals other than those I'm dealing with.

I have a medical corp that is billing approx. 35k a month which (after salary and other expenses), some of which I intend to invest via the corp in life insurance. While the death benefits are obviously attractive, I am more concerned about having a decent income after 20 years.

The model I have been offered by an advisor from Investors Group is Estate Achiever Max 20 by Canada Life. The annual is $55k ($31 Premium, $24 Additional).

My particular points of interest are;


Is the proposed amount suitable for my circumstances?
Is Estate Achiever Max 20 a good option for me or are there demonstrably better alternatives?
Does it make a difference if I take this policy out with anyone other the Investors Group or are they all obliged to offer the same terms?

Any feed back re the above or any other points that come to mind would be greatly appreciated.

Many thanks.


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## lonewolf :) (Sep 13, 2016)

Keep investments & insurance separate no universal/whole life insurance go with term . If you have no dependents do not buy life insurance. If have dependents save 10-30% by not getting lump some payout i.e., instead of getting 500,000 all @ once spread it out over 10-20 years.


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## carverman (Nov 8, 2010)

JulianZA said:


> I am a *31 year old recently arrived Dr in Canada *(Alberta) looking to take out some life insurance and was hoping to get some objective advice.
> I have a medical corp that is billing approx. 35k a month which (after salary and other expenses), *some of which I intend to invest via the corp in life insurance.* While the death benefits are obviously attractive, I am more concerned about having a decent income after 20 years.
> 
> The model I have been offered by an advisor from Investors Group is Estate Achiever Max 20 by Canada Life. The annual is $55k (*$31 Premium, $24 Additional)*.


What will be the monthly premium you would be paying again? 
"K" is the defacto standard for $1000 dollars.
so, are you saying the Canada Life annual life coverage insurance ( and part investment) would be $55.000 lump sum payout on your death during the 20 years you have the policy? 
For a monthly premium of $31 + $24 for the investment portion = $55 per month =
($372 yearly for life insurance premiums
and $288 yearly for their investment vehicle?)




> My particular points of interest are;
> Is the proposed amount suitable for my circumstances?


You have to sit down and project what your income and your doctor's business wouild be worth in 20years at age 51 first, and then what the *investment portion* of this combined life policy (life insurance + investment vehicle) would be worth at that time.

If something happened to you where you could no longer work at your profession, you could use the cash value as income.
This is assuming you did not take any money out of the investment vehicle part of this policy in the 20 year period, but let it grow.
How much cash value (taxable in your hands if you withdraw it), would be worth at that time? 
You or someone needs to calculate that.



> Is Estate Achiever Max 20 a good option for me or are there demonstrably better alternatives?


Insurance companies can generally invest your money at some "mid interest" growth averaged out over the years, but perhaps you need to look into other investment purposes..like a self directed RRSP..provided you have the time and desire to manage it yourself. 



> Does it make a difference if I take this policy out with anyone other the Investors Group or are they all obliged to offer the same terms?


Every large insurance company will offer different products with different payouts and premiuns depending on your age and health, so you really need to look at least 3.....ManuLife, SunLife as well, to get a better idea which plan would be best for you in your situation.

Best not to be hasty in accepting any Life Insurance/Whole Life policy offerings. Take the time to deliberate and consider each on on it's merits.

Not only for the premium cost per thousand of life insurance, but also how much the invested portion wll return on your investment in 2 year, 5 years, 10 years and 20 years, compared to other safe investments out there. 

Heres what I found online about this product: *Canada Life Estate Achiever 20*


> The performance is in the dividend and the associated option should be based on the purpose of this policy. Canada Life has paid out a dividend (averaging over 8%) for the past 60+ years. Recently it has dropped of course. It’s about 6.9% now, as of last year at least. The standard deviation of Canada Life’s dividend within these WL policies has had a standard deviation of just 1.7% over the past 60 years.
> 
> *Paid up additions*, I believe in most cases, is the best use of this product as a portion of that dividend goes to purchasing more term coverage above and beyond your 50k. *This amount once purchased cannot decrease*.
> 
> ...


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## JulianZA (Dec 13, 2016)

Hi, thanks for the responses.

The premium is $55,000 annually.



> Keep investments & insurance separate no universal/whole life insurance go with term . If you have no dependents do not buy life insurance. If have dependents save 10-30% by not getting lump some payout i.e., instead of getting 500,000 all @ once spread it out over 10-20 years.


The advise I am getting from both the Investors Group (taken with pinch of salt) and CPA (more objective) is that this type of policy is an effective tax shelter.



> Every large insurance company will offer different products with different payouts and premiuns depending on your age and health, so you really need to look at least 3.....ManuLife, SunLife as well, to get a better idea which plan would be best for you in your situation.


I appreciate different companies will offer different products; what I meant with Q3 is will buying the specific product (Canada Life Estate Achiever) from the Investors Group advisor involve the same costs as buying it through any other advisor.

Thanks again.


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## Nerd Investor (Nov 3, 2015)

JulianZA said:


> Hi, thanks for the responses.
> 
> The premium is $55,000 annually.
> 
> ...


As a young doctor with the level of income you're describing, can I highly recommend you consider moving on from Investor's Group? The IG advisor you deal with may be great, but his tool box is going to be very limited compared to the Wealth Management arm of one of the big banks (or even a boutique Wealth Management firm). The fee savings alone over time will be worth it. 

Having said all that, permanent life insurance is a very effective tax shelter from high net worth individuals particularly through a corporation. I would have liked to have seen them shop a few different carriers and options for you, although I have to say Canada Life is generally one of, if not the best for whole life insurance. I'll echo carverman though, you should really have some planning done to figure out what amount of coverage is appropriate. While it's true you can borrow against the value of the policy in the future, ask yourself how comfortable you are taking on debt as part of your retirement plan? It's valid strategy, but there are a lot of unknown future variables. 

Personally, I prefer to look at permanent insurance as a tax shelter for redundant money (a portion you know you're never going to spend) or as a tax efficient means to achieve a particular estate goal (ie: you want to leave at least $XXX to the next generation. This is where a proper financial plan will become extremely important.


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## lonewolf :) (Sep 13, 2016)

JulianZA said:


> Hi, thanks for the responses.
> 
> The premium is $55,000 annually.
> 
> ...


 Does CPA sell the product huge commission on these products. Suze Orman top 5 never ever buy universal life insurance on you tube search Suzy Orman universal life insurance. A lot of different you tube videos she explains to different phone callers why get term instead.


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## carverman (Nov 8, 2010)

lonewolf :) said:


> Does CPA sell the product huge commission on these products. Suze Orman top 5 never ever buy universal life insurance on you tube search Suzy Orman universal life insurance. A lot of different you tube videos she explains to different phone callers why get term instead.


Term insurance is the cheapest 'bang for the buck" and if all the OP needs is just life insurance and no other income growth over the next 20 years, that would be the way to go as the life insurance premium he
starts paying at age 31 will remain the same over the next 20 years.
However if he also wants to have some additional money at his disposal at some later point in his life
where the accumulated growth would help, he really needs to investigate 
what "simple to manage" investment is out there these days.

He could always put the $24 a month into ladder style GICs as a SAFE investment, but these are not paying that much these days at the current interest rates and you have to lock your money in to even earn what
little growth is in GICs these days. 

$288 a year for year one, isn't that much initially, but at 10 years, $2880 principle with the interest growth of the insurance company's more effective investiment, will probably yield more ROI than if he had to manage this himself.

The other main issue with GICs is that you have to lock in your money for a specific period of time to even get the meagre returns that most FI offer these days.


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## kostya (Jul 26, 2016)

JulianZA, it sounds like you have several objectives:

1) Determine appropriate life insurance coverage.
2) Ensuring you have good income in 20 years time
3) Income tax minimization
4) Make sure you are getting appropriate instrument for the job
5) Make sure you don't overpay the price

If so, for 1,2 and 3 you need to find someone qualified to create a detailed financial plan for you. You have a complex issue at hand and you are about to invest a lot of money to address it. It may cost you a couple thousand to create a comprehensive plan in your situation, but it will pay off greatly if you get someone to first run all the numbers for you and makes sure they add up. Words like "good income" and "tax sheltering" sound great, but you need to make sure that there is an actual meaning behind them.

To address 4 and 5, you need to do some cross-shopping and get some quotes. But I would encourage you to make sure you've done your homework with 1, 2 and 3 and then worry about 4 and 5.

In terms of who should do the planning for you, ask for refferals from your colleagues with similar situation. For health care professionals, I've heard MD Financial Management to be a popular choice for financial advice, though I don't have much feedback about them. Fee-only, advice-only professionals are also good choice for people who want to avoid conflicts of interests.

I hope this helps.


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## JulianZA (Dec 13, 2016)

> can I highly recommend you consider moving on from Investor's Group?


I found IGs management fees too high and will not considering them for anything other than this particular product - which is why I asked if it makes a difference whether I purchase this product from them or elsewhere.



> permanent life insurance is a very effective tax shelter from high net worth individuals particularly through a corporation


This has been explained to me in passing but clarification of how this works would be greatly appreciated.


With regards to what my colleagues are doing or speaking with MDM, they are mostly all with MDM but this is because it is connected to AMA (Alberta Medical Association). When I spoke with them I felt they somewhat take our business for granted. I am going back to them with the model presented and asking them for their alternatives.


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## Nerd Investor (Nov 3, 2015)

JulianZA said:


> I found IGs management fees too high and will not considering them for anything other than this particular product - which is why I asked if it makes a difference whether I purchase this product from them or elsewhere.
> 
> 
> 
> ...


Here's how it works in a nutshell:

You deposit your $55K per year for 20 years. This buys you a large guaranteed death benefit (which your annual premiums of $31,000 per year cover) and the other $22,000 get invested within the policy to grow tax free. Assuming it's a participating policy, you are also eligible to receive policyholder dividends (a bit like being a shareholder receiving dividends) and these can be used to buy more coverage or reduce premiums. By 20 years in, the idea is that the $22,000 per year that's been growing tax free is now large enough to cover your premiums while continuing to grow itself. When you pass away, the death benefit + the "investment" balance + any additional coverage you've purchased gets paid to your corporation tax free. Most of this money can than be paid out to your estate as a tax free capital dividend. 

If you contrast that with putting $55K into a taxable account for 20 years, and your money is growing, but you are getting taxed at high corporate tax rates on your investment income, and when the money comes out it will generally be taxed as a dividend to your estate. 

At the end of the day, you evaluate the life insurance like an investment. They should be able to show you your rate of return if you live all the way to 85, 90, 95 etc. The math is usually pretty compelling.  Make sure as well to get illustrations with lower dividend scales (ie: -1% and -2%). Lastly, but most importantly, ask yourself how much money you want to tie up into this policy as this is going to work best if you can leave the money alone. This is where a detailed financial plan will be extremely important. 

I'm not sure if there's a particular disadvantage to holding the policy with Investors Group, other than it would be nice to purchase it through someone who can do some financial planning for you first and be able to shop a number of different insurance companies.


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## ian (Jun 18, 2016)

Investors Group has a reputation for very high investment management fees...especially on the back end when you try to get out. This may not be the case now but you should check. A colleague of mine got burnt on the way out.

Like others, I would never buy a product that ties life insurance and investments together. Keep it simple. Keep them seperate and then shop for the best 
offer. 

There is an old saying in my former business....where there is mystery there is margin. This is especially with combo insurance/investment business.

There are lots of places to get on line term insurance quotes or other lines of insurance that meet your requirements.


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## JulianZA (Dec 13, 2016)

Nerd Investor said:


> Here's how it works in a nutshell:
> 
> You deposit your $55K per year for 20 years. This buys you a large guaranteed death benefit (which your annual premiums of $31,000 per year cover) and the other $22,000 get invested within the policy to grow tax free. Assuming it's a participating policy, you are also eligible to receive policyholder dividends (a bit like being a shareholder receiving dividends) and these can be used to buy more coverage or reduce premiums. By 20 years in, the idea is that the $22,000 per year that's been growing tax free is now large enough to cover your premiums while continuing to grow itself. When you pass away, the death benefit + the "investment" balance + any additional coverage you've purchased gets paid to your corporation tax free. Most of this money can than be paid out to your estate as a tax free capital dividend.
> 
> ...


Thank you Nerd, you have been incredibly helpful!

Just to address two of your points, I was provided with a -1 model as well as the primary one and yes, it is a participating policy.

Earlier in the thread, you said


> While it's true you can borrow against the value of the policy in the future, ask yourself how comfortable you are taking on debt as part of your retirement plan?


This caught my eye because the IG guy had mentioned that borrowing against the policy was a low tax way of getting an income out of the policy after 20 years.

So, after 20 years I have $1,750,000 ($1,580,000 in -1% model) Cash Value which increases to $1,853,000 ($1,658,000) in year 21 - if I want to take $70k of this increase (and keep doing the same thing every subsequent year), how does the borrowing method help me get it released to the corporation and then on to me personally?


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## lonewolf :) (Sep 13, 2016)

ian said:


> Investors Group has a reputation for very high investment management fees...especially on the back end when you try to get out. This may not be the case now but you should check. A colleague of mine got burnt on the way out.
> 
> Like others, I would never buy a product that ties life insurance and investments together. Keep it simple. Keep them seperate and then shop for the best
> offer.
> ...


 There is a you tube video of Suzy Orman where a guy phoned in was paying 14,000 for universal life insurance Suzy asked him how much commission he thought the broker was getting he guessed about 1000 Suzy then told him about 10,000 was going to the broker. Suzy said she was is a licensed insurance broker in every state except I think it was Hawaii & she has never sold anyone a universal policy because they are not good for her clients. When she does the math of viewers who have phoned in holding whole life insurance they always have a small account value compared to the amount paid in. Buying term investing the rest they always would come out a head.


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## JulianZA (Dec 13, 2016)

lonewolf :) said:


> There is a you tube video of Suzy Orman where a guy phoned in was paying 14,000 for universal life insurance Suzy asked him how much commission he thought the broker was getting he guessed about 1000 Suzy then told him about 10,000 was going to the broker. Suzy said she was is a licensed insurance broker in every state except I think it was Hawaii & she has never sold anyone a universal policy because they are not good for her clients. When she does the math of viewers who have phoned in holding whole life insurance they always have a small account value compared to the amount paid in. Buying term investing the rest they always would come out a head.


Orman comes across as a bit a fanatic and is generally speaking to individuals rather than corporations.

I get that a lot of you are on the Term and Invest Difference side, but that begs the question invest it how? An Alberta corp has no tax breaks for investment income.


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## kostya (Jul 26, 2016)

JulianZA said:


> I get that a lot of you are on the Term and Invest Difference side, but that begs the question invest it how? An Alberta corp has no tax breaks for investment income.



1) Have looked into retirment accouns for business owner like IPP?
2) Have you considered bying some other businesses or invesments that will grow in value and don't provide regular income like dividends, interest, etc?
3) Have you considered making business loans?
4) Have you exausted all eligible income splitting opportunities that corporations provide?
5) Have you insured yourself and your business against temporaryly or permanent disability?

Get yourself a good financial planner and consult with your accountant about tax implications of different options. There is a ton of opportunities that exist, just make sure they are not questionable from legal and CRA's perspective, and they are within the scope of your risk tolerance and your personal goals.


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## Nerd Investor (Nov 3, 2015)

JulianZA said:


> Thank you Nerd, you have been incredibly helpful!
> 
> Just to address two of your points, I was provided with a -1 model as well as the primary one and yes, it is a participating policy.
> 
> ...


The corporation owns the policy, so the corp would borrow $70K (which is tax free to the corp since it's just a loan), and then pay it out to you as dividend. You just have to hope you have enough of a cushion that if you keep borrowing for several years that cash value grows quickly to stay far enough ahead of the loan throughout your life time. That's what I meant by being comfortable with the fact that you are taking on debt to fund your retirement. It always looks good on paper. 

Personally, I prefer this type of planning with money you are reasonably certain you will not need during your lifetime and that cash surrender value becomes an extra safety net you _can_ borrow against in later years. That's a personal preference of someone who is a bit more risk averse though when it comes to debt in retirement.


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