Can ROP replace fixed income?

This week let's talk about a concept that gives your client protection against a critical illness and 0% GIA.

The concept is to replace non-registered fixed income savings with critical illness insurance with return of premium. 

Let’s suppose we have a 45-year-old client who's saving $1,500 per month where $500 of that savings amount is going into a bond fund. What if we replaced the bond fund savings with the premium for Manulife Lifecheque T75 with ROP at death and expiry? As you can see from the illustration, the cost is $512.76 per month for $250,000 of coverage.

Now, let’s think of the ROP as a 30-year GIA paying 0%. At the 30 year mark the client gets their premiums back ($512.76 x 12 x 30 = $184,594), tax free, if there has been no claim. If something unfortunate happens to the client’s health, they will receive a $250,000 tax free benefit. The opportunity loss here is the after-tax growth in the bond fund. The plus is CI coverage and potentially all the premiums to be returned when the client reaches age 75.

A very interesting idea that is cash-flow neutral to the client.