INTRODUCING: THE NEW WAY OF DETERMINING YOUR LIFE INSURANCE NEEDS
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Transcript of INTRODUCING: THE NEW WAY OF DETERMINING YOUR LIFE INSURANCE NEEDS
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INTRODUCING:
THE NEW WAY OF DETERMINING YOUR LIFE INSURANCE NEEDS
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Canadian families typically have a higher need for life insurance protection during the early stages of their lives, but much of their needs decrease over time.
Fact:
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1. Income Replacement
2. Mortgage/Debt Protection
3. Education/Other Temporary Needs
4. Estate Planning
The need for decreasing insurance protection
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David, a 35 year old male non-smoker, is married and has one child. He is the sole breadwinner in the family.
His financial obligations include:
Replacing family income of $75,000
Mortgage of $250,000
Future education expenses for his 5 year old child based on the cost of an undergraduate degree
$20,000 line of credit for renovations
$40,000 for final & estate expenses
Case study:
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Case study:
Mortgage decreases annually Education need gone after 15 years Credit line is paid in 5 years Each year less is needed to insure David’s income
DAVID HAS A INSURANCE NEED THAT DIMINISHES EACH YEAR:
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0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
35 40 45 50 55 60 65 70 75 80 85 90 95
Based on a borrowed amount of $250,000 with a 5.75% interest rate for a five year term. Payments are made on a monthly basis.
Total Need
Income replacement $1,102,525
Uninsured consumer debt $25,000
Education $25,614
Uninsured mortgage $250,000
Final & estate expenses 40,600
Total Need $1,443,739
David’s need Today
Today: $1,443,739
Today: $1,443,739
Today Retirement Death
Need
Insurance
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0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
35 40 45 50 55 60 65 70 75 80 85 90 95
Today Retirement Death
David’s need 11 Years From Now
Age 46: $1,373,126
Age 46: $1,373,126
Total Need
Income replacement $1,124,667
Uninsured consumer debt $0
Education $45,871
Uninsured mortgage $154,903
Final & estate expenses $47,685
Total Need $1,373,126
Need
Insurance
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0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
35 40 45 50 55 60 65 70 75 80 85 90 95
Today Retirement Death
David’s need 21 Years From Now
Age 56: $923,821
Age 56: $923,821
Total Need
Income replacement $866,615
Uninsured consumer debt $0
Education $0
Uninsured mortgage $0
Final & estate expenses $57,206
Total Need $923,821
Need
Insurance
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0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
35 40 45 50 55 60 65 70 75 80 85 90 95
Today Retirement Death
Age 80: $97,901Age 80:
$97,901
David’s need 30+ Years From Now
Total Need
Income replacement $0
Uninsured consumer debt $0
Education $0
Uninsured mortgage $0
Final & estate expenses $97,901
Total Need $97,901
Need
Insurance
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What happens if you address only your current need?
It may mean that you’re over insuring throughout your lifetime –
inadvertently creating a “need gap”
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0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
35 40 45 50 55 60 65 70 75 80 85 90 95
Satisfying only the current need
“NEED GAP”
Today Retirement Death
+$762,436+$762,436+$164,108+$164,108 +$1.3 M+$1.3 M
Need
Insurance
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What happens if we buy only what we think we can afford?
IE: Basing a decision solely on our disposable income. You say how much
can I afford “for insurance”
You could inadvertently be under insuring in the early years and over insuring in the later years – creating a different “need gap”
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0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
35 40 45 50 55 60 65 70 75 80 85 90 95
Buying only what we think we can afford
-$779,631-$779,631
-$930,711-$930,711
+$423 M+$423 M
“NEED GAP”
Today Retirement Death
Need
Insurance
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How can you address either need gap?
Solution Solution Transamerica’s Layered Insurance
Transamerica’s Layered Insurance= =
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0200,000400,000600,000800,000
1,000,0001,200,0001,400,0001,600,000
35 40 45 50 55 60 65 70 75 80 85 90 95
Current need only: Using Level What we think we can afford: Using Level
Actual need: Using Decreasing (layered) insurance
Insuring current need, what we think we can afford vs. a Layered solution
0200,000400,000600,000800,000
1,000,0001,200,0001,400,0001,600,000
35 40 45 50 55 60 65 70 75 80 85 90 95
0200,000400,000600,000800,000
1,000,0001,200,0001,400,0001,600,000
35 40 45 50 55 60 65 70 75 80 85 90 95
NeedInsurance
NeedInsurance
NeedInsurance
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Comparing the costs of each approach?
LEVEL SOLUTION LAYERED SOLUTION
CURRENT NEED ONLY
THINK WE CAN AFFORD
NEED & VALUE
Face Amount: $1,425,000
Permanent Level
$558,100
Permanent Level
$225,000 (T10)
$600,000 (T20)
$500,000 (T30)
$100,000 (Permanent with ART)
Premium: $490 $200 $200
Payment period: Lifetime Lifetime To age 65
Total cost: $382,200 $156,000 $72,000
Present value @ 6% $98,865 $40,353 $34,100
Assuming an average net return of 6%.
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Benefits of Layered insurance
Total overall cost is less Shorter payment period Better matching of protection
needs Reduces both “need gaps” Plus, includes a savings element
that can be used as emergency fund/retirement or accessed for potential future health challenges
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Canadians are spending more, and saving less
As a result, Canadians are less prepared to meet financial
emergencies than in previous years.
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How well are we saving?
Source: The Current State of Canadian Family Finances 2008 Report, The Vanier Institute of the Family
PERSONAL SAVINGS RATE – ANNUAL SAVINGS AS % OF PERSONAL DISPOSABLE INCOME AFTER TAXES
0
2
4
6
8
10
12
14
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 3Q08
13%
7%
1%
3%
United States
Canada
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Can Average Canadians Afford:
Life Insurance Critical Illness Insurance Disability Insurance Long Term Care Insurance And save for retirement?
Can average Canadians afford:
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Statistically, Canadians are unprepared for retirement
Workers aged 55+ represent 15% of the total number employed in Canada
This group accounted for 55% of all job growth in Canada since 2000
17% of those who retired returned to work
About half reported that they had returned to work for financial considerations
Source: The Current State of Canadian Family Finances, The Vanier Institute of the Family, 2007.
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The layered approach helps with savings
Adopting the “layered” approach helps with forced savings for short and long-term needs
Matching your decreasing insurance need allows you to better use the money to build a tax-free* savings account to draw from
Based on the interpretation of the current Income Tax Act (Canada) and CRA guidelines.
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0200,000400,000600,000800,000
1,000,0001,200,0001,400,0001,600,000
35 40 45 50 55 60 65 70 75 80 85 90 95
0200,000400,000600,000800,000
1,000,0001,200,0001,400,0001,600,000
35 40 45 50 55 60 65 70 75 80 85 90 95
Current need only: Using Level What we think we can afford: Using Level
Actual need: Using decreasing (layered) insurance
0200,000400,000600,000800,000
1,000,0001,200,0001,400,0001,600,000
35 40 45 50 55 60 65 70 75 80 85 90 95
Savings using current need, what we think we can afford vs. Layered
$0 savings$0 savings$0 savings$0 savings
$$ savings$$ savings
NeedInsurance
NeedInsurance
NeedInsuranceSavings
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0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
35 40 45 50 55 60 65 70 75 80 85 90 95
The savings plan that comes from a layered solution
SAVINGS GROWING AT 6%
Today Retirement Death
The Personal Savings Plan: Age 85: $124,305
The Personal Savings Plan: Age 85: $124,305
Need
Insurance
Savings
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0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
35 40 45 50 55 60 65 70 75 80 85 90 95
The Personal Savings Plan: Age 85: $266,000
The Personal Savings Plan: Age 85: $266,000
For $50 more a month see how much more you get
For $50 more a month see how much more you get
SAVINGS GROWING AT 6%
Today Retirement Death
Need
Insured
FV @200/mthPremium
Savings
The savings plan that comes from a layered solution
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0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
35 40 45 50 55 60 65 70 75 80 85 90 95
The savings plan that comes from a layered solution
The retirement zone
SAVINGS GROWING AT 6%
Almost $ 266,000 in the savings account
Almost $ 266,000 in the savings account
Today Retirement Death
Need
Insurance
Savings
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The monthly cost for basic long-stay programs not covered by provincial healthcare:The monthly cost for basic long-stay programs not covered by provincial healthcare:
Is preparing for health issues optional?
23%23%
60%60%
82%82%
Disability rate for Canadians between ages 35 to 74Disability rate for Canadians between ages 35 to 74
The chance of having 1 of 4 major illnesses (heart attack, stroke, cancer, coronary artery bypass) before age 75The chance of having 1 of 4 major illnesses (heart attack, stroke, cancer, coronary artery bypass) before age 75
The probability of a 60 year old couple needing long term care during their remaining lifetime The probability of a 60 year old couple needing long term care during their remaining lifetime
$1,614$1,614
Source: Munich Re., 2007 Ontario Ministry of Long Term Care.
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Advantages of Self Insuring:
No CI underwriting Flexible payment options More ways to claim (CI/DI/LTC) No age restrictions
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The layered approach also helps with CI, DI and LTC needs
Provides the opportunity to build a savings element that could be available on a tax-free basis via the Living Benefits provision
May help avoid qualifying for separate and expensive permanent CI, DI and LTC plans
Based on the interpretation of the current Income Tax Act (Canada) and CRA guidelines.
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Advantages of self-insuring:
Cost of a $100,000 Conventional CI Policy = $286.86/mnth
(40M NS/40F NS, level COI to age 75 w/ROP)
$286.86/month Invested in EstateADVANTAGE4 @ 5%
40MNS, 40FNS, $300FA, JLTD, Level COI, Increasing DB
Year/Age Living Benefit
10/50 $46,686
20/60 $132,901
30/70 $291,382
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0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
35 40 45 50 55 60 65 70 75 80 85 90 95
The savings plan that comes from a layered solution
SAVINGS GROWING AT 6%
*Please note, that accessing your living benefits will have a direct impact on the death benefit available.
Today Retirement Death
The “CI/DI zone The “LTC” zone
The Personal Savings Plan: Age 55: $43,919
The Personal Savings Plan: Age 55: $43,919
The Personal Savings Plan: Age 85: $265,823
The Personal Savings Plan: Age 85: $265,823
Remember the $50 of additional premium?
Remember the $50 of additional premium?
Need
Insurance
Savings
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Recap: The new way of determining our needs for insurance
Needs can be for a decreasing insurance need, not just Level
Lower overall cost over the long term using a layered approach
Layered solution greatly reduces “need gaps” Layered solution helps build much needed savings
account May help avoid need for separate and expensive CI, DI
and LTC plans by allowing access to the dollars tax-free*
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I like this idea but it seems too complicated to calculate my
decreasing needs!
Not to worry…
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Introducing:
Transamerica’s new LifeScripter
A revolutionary program designed to help you pick the right kinds AND the right amounts of life insurance.
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30 second video that outlines the importance of insurance and that there’s a way of “purchasing smart” to get the most for your dollar
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A real life case study clearly demonstrates that as your life story evolves, your need for insurance protection will decrease
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A video will introduce the “Insurance calculator”
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Tools to help make life easier!
Enter your personal information
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Tools to help make life easier!
List your debts
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Tools to help make life easier!
List remaining details
SECTION #3: INCLUDING INCOME PROTECTION/ FINAL AND ESTATE EXPENSES!!
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Tools to help make life easier!
See the results
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The customized report
Simple two page report Summarizes your “story”
(income, mortgage, debt, education burial and estate expenses)
Provides a layered, cost effective insurance solution based on the data you have inputted
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The report is then used to construct a customized insurance strategy for you!
Based on contributing $200/month until age 65.
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Provides $ when you are most likely to need things like Long-Term Care
THANK YOU!
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Notice
This presentation is prepared by Transamerica Life Canada ("Transamerica") and includes material obtained from third party sources. It is for advisor use only. Any commentaries and/or information contained herein are intended for general informational and educational use only and should not be considered specific or personal investment, insurance, estate planning or tax advice or a solicitation to purchase or sell securities or insurance. While reasonable efforts have been made to ensure that the contents of this presentation have been derived from sources believed to be reliable and accurate at the time of publication, Transamerica does not warrant the accuracy or completeness of the information contained herein. Examples given in this presentation are for illustration purposes only. The specific facts and circumstances of each case will differ from client to client. Neither Transamerica, nor its affiliates, officers, employees or any other person accepts any liability whatsoever for any direct, indirect or consequential loss(es) arising from any use or reliance on the information, general strategies or opinions contained herein.