Case Study – True Story with Names Changed for Privacy

Mr. & Mrs. Smith are business owners of an incorporated business, in their late 50’s and in good health.

We contacted these clients because Mr. Smith had a term life insurance policy that was renewing that month and his rates were going to triple in cost.

Mrs. Smith asked us to come in and review their entire insurance portfolio and wanted to know what kind of insurance Mr. Smith currently has, and if it is the best value for him based on their needs today.  Since they have not had a review of their insurance programs and needs for some time now, there may be better options for them than what they currently own.

Current Insurance Portfolio

1. Term insurance with Great West Life for $150k – this policy was renewing
2. Permanent life insurance with Transamerica Life for $750k with cash values
3. Joint last to die life insurance with Manulife for $2 Million with cash values

Problem

1. All policies are owned and paid for personally
2. Cash values which represent $300k are locked inside the policies
3. Transamerica Life policy increases in cost every year and over the long run will become too expensive to maintain
4. Manulife Policy is being paid by the cash values, so over time all the locked in cash value will disappear.

Solution

We applied and put in force a new insurance policy for Mr. Smith which incorporated all the family needs into one program and which combined a smaller amount of permanent insurance with a larger amount of term insurance. The rates are guaranteed to remain the same for the life of the policy.

We cancelled the old Transamerica Life policy and received $100k of cash value.  Since some of the cash value was taxable upon surrender, they decided to deposit half the monies into their RRSP.  This way the tax was offset by the RRSP deduction at the end of the year.

We withdrew all the cash value from the Manulife policy over $200k and the entire amount was tax free. The Smiths decided to pay off some debt and invest the remainder in their current investment portfolio.

Lastly we decided to have the corporation own all the insurance policies moving forward so that the premiums would be paid with corporate dollars and not personal dollars.  This way it costs the Smiths less every year for their insurance, but all the proceeds will continue to be received tax free to their family!