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Money at a Discount

There was a time when a healthy couple in their 60’s could buy a level cost of insurance (COI) UL policy with very attractive contractual guarantees for pennies on the dollar!

In fact, I can clearly remember working with an advisor in Barrie not that long ago (2010 or 2011) with a similar profile. The advisor had clients in their 60’s who were dairy farmers. They had sold their milk quota, sold the farm, paid some tax, and were planning on travelling the world and enjoying their new found freedom from 40 years of 4:00am mornings without holidays! They had two children who they dearly loved and realized the commitment of farm life came with sacrifices. As a result, the couple wanted to leave $1,000,000 to each of their adult children upon their death. The advisor did a great job in demonstrating the value of using insurance as the most cost-effective way of leaving $1,000,000 for each child.

Although not exact, what I can remember is the solution was an overfunded UL contract that had a 3% contractual investment guarantee. 4 annual max deposits of $75,000 ($300,000) was all that was required to fund a $1,000,000 Level COI UL policy, structured in a way never to lapse all the way to age 100. Although the after-tax Internal Rate of Return (IRR) in 25 years was more than 5%, the conversation was never about IRRs! It was about buying money at a discount. They way the farmers viewed it, it was costing them roughly 30 cents on the dollar to create $1,000,000 to be paid at an unknown point in time.

Fast forward 10 years. For those of us who have been around a while, we’ve experienced wave after wave of price increases on UL contracts and more increases are anticipated to come! As a result, I consistently hear from advisors that JLTD scenarios like above just don’t work anymore and a client is better off investing the money elsewhere instead! Before you come to the same conclusion, you need to ask yourself, compared to what? Where else can you go and still get these kinds of guarantees?

A healthy couple who are 65 today can still purchase a $1,000,000 JLTD minimum funded, limited pay UL over 10 years, for less than 50 cents on the dollar, all guaranteed! See life guide quote. The IRR’s in 25 years time are still pushing 4% after tax. This is very attractive because the question should always be, compared to what? Think of this way, it’s like buying a bond that matures when you die. You’re buying money at a discount for a later date.

Now, there aren’t as many family owned dairy farms anymore, but there are still many Canadians who are sitting on cash and think it’s the safest, most effective way to leave an inheritance. Maybe its time to throw out the spreadsheets and look at it through the lens of a farmer…for less than 50 cents on the dollar!

For more information on how to create guaranteed UL solutions that still work, please reach out to a QFS Business Development team member or email and start a conversation.

Scott Morrow, CEA, CLU

Vice President, Business Development

Qualified Financial Services

This communication reflects the views of Qualified Financial Services Inc. as of the date published. The information in this publication is for general information purposes only and is not to be construed as providing individual legal, tax, financial or other professional advice. Qualified Financial Services Inc. assumes no responsibility for any errors or omissions in the information contained herein nor for any reliance placed on such information. Please seek independent professional advice before making any decisions.


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