Thomas A. Rogers,
CIM, FCSI, CFP
Financial Advisor for
Your Monetary Affairs 		Comparative Value Analysis
of the
Universal Life Alternatives		  
 

MATRIX-1: Maximize The Value of Your Capital This matrix provides a Comparative Value Analysis of the results estimated for the Unsheltered Investor vs. the Insured and Sheltered Investor saving $22,000 per year for 15 years. For comparative results when capital is accessed see Matrix 2.
Note: Rest and slowly wiggle your cursor on column heading items for a descriptive note.
' Click ' for more information when prompted.		( to Matrix-2 )

E. & O. E.

 
MATRIX-2: Increase the Return on Your Capital This matrix provides a Comparative Value Analysis of the results estimated for the Unsheltered Investor vs. the Insured and Sheltered Investor saving $22,000 per year for 15 years. For comparative results when capital is not accessed see Matrix 1.
Note: Rest and slowly wiggle your cursor on column heading items for a descriptive note.
' Click ' for more information when prompted.		( to Matrix-1 )

 
E. & O. E.

 
Net base rate -> 6%
" Basic Sheltered Investment Account Return after MER and I.I.T."

Net Base Rate: The rate of return (before bonus) assumed for calculation of growth of the Sheltered Investment Account. The rate is derived from the behaviour of a selected index or combination of indices such as bond or stock indices designated for such measurement within the policy's options. It is subject to reduction by the Management Expense Ratio and the Investment Income Tax withheld. The return is calculated and credited daily on indexed investment accounts and compounded daily to be credited monthly on fixed rate investment accounts.
Management Expense Ratio ( MER )On most indexed investment accounts, the daily percent change in the index is reduced by 1.20 basis points. One basis point = 1/100 of a percentage point. (e.g.: assume a 2% daily change with a 1.2 basis point reduction, the calculation is :
( .0200 - .0012 = .0188 or 1.88%) to determine the rate for credit that day.
The basis rate reductions vary from 1 to 1.29 basis points, depending upon the index or fixed rate option(s) selected. On an annualized basis of 254 business days, 1.20 basis points amounts to 3% per year. (254 x 1.2 = 305/100 = 3.05%). This reduction to the rate of return constitutes the Management Expense Ratio. It is comparable to the MER of most mutual funds when portfolio trading commission costs are included.
Investment Income Tax ( IIT ) In addition, the policy is required to pay an Investment Income Tax of 15% of the net income (after all charges) credited to the Sheltered Investment Account. Accordingly, a credit of 1.88% would become (1.88% - 0.282%) = 1.598%. The IIT withheld is proportionately refundable on taxable withdrawals for non-health needs such as augmentation of retirement income, but not on non-taxable withdrawals for health needs such those made for Long Term Care and Critical Illness needs nor on the ultimate death benefit. Some policies will offset (reduce) the IIT somewhat on the basis of anticipated withdrawal and lapse experience, but will not refund the IIT in the case of taxable withdrawals for non-health needs.  
Policy Charges: Incurred in the early years, policy charges provide for initial policy set up costs including assessment of insurability and sales commissions. The rate determining the policy charge is 4% of the Annual Deposit (Premium), of which 2% constitutes a provincial premium tax charged to the insurer. The remaining 2% is retained as well as an annual policy fee of $120.  
Bonus Interest: After ten years, the policy will receive an additional continuing fixed return of which can range from .5% to 1.5% depending whether the determinate Base Interest Rate applicable at any moment is derived from a deposit interest rate or from a securities market Index such as the S & P 500 Index respectively. The Bonus serves to offset to a significant extent the Management Expense Ratio (MER) referred to above.

Return to: Matrix 1  or,  Matrix 2

Data derived is based on an insurance investment offered by a leading well known Canadian financial service group. Depending upon your age and circumstance a like investment may be secured to suit your needs. Results will vary among policies of different insurers owing to differing policy variables. E. & O. E.

 
Liquid Value after tax
" Sheltered Investment Account + I.I.T. refund after tax at Marginal Rate."

Liquid Value after tax: Value of the Sheltered Investment Account plus refund of Investment Income Tax withheld is the net amount available for withdrawal at any time prior to death for uses other than for qualified Long Term Care or Critical Illness needs.
Such withdrawals are taxable at the owner's marginal tax rate.
In the first 11 years of a policy based on a yearly renewable term insurance rate an Early Liquidation Amount (ELA) is deducted in determining Liquid Value. In the main, this ELA amount adjusts the insurance cost in relation to what it otherwise would be under a level for life cost of insurance.
In addition, the 2% Ontario tax on Premiums (deposit amounts) paid into the policy is absorbed during the early years when the owner is funding the policy.
The combination of these costs result in an unfavourable comparison when total policy surrender is considered during the earlier policy years. This emphasizes the required attitude of viewing the Universal Life Policy as a long term investment to serve identified insurance and future income needs.

Return to: Matrix 1  or,  Matrix 2

 
Total Life Benefit
" Insurance Value + Sheltered Investment Account Value payable tax free to Estate."

Total Life Benefit Might otherwise be referred to as "Total Estate Value". This is the amount to be received by the beneficiary(s) upon death of the insured. It is the sum of the Insurance Value plus the Sheltered Investment Account. The Investment Income Tax withheld is not refundable, however the combined balances are paid out without further tax being withheld and the beneficiary is not taxable on this benefit either.
In this "efficient" policy, as the need for insurance diminishes in light of the growth in value of the Sheltered Investment Account, less insurance is purchased each year until it is eliminated entirely allowing for maximum allocation of funds into the Sheltered Investment Account. This insurance elimination is evident by comparing the Total Life Benefit values with the Optional Life Benefit values. (The Optional Life Benefit values are in fact the Sheltered Investment Account values.)

Return to: Matrix 1  or,  Matrix 2

 
Optional Life Benefit
" Total payable tax free for Critical Illness or on death of one person in a joint policy."

Optional Life Benefit: Represents the amount that can be drawn free from tax as a policy benefit if insured is diagnosed as having a Disability, Critical Illness or Critical Condition which includes qualification for Long Term and Home Care. In such circumstance an Investment Income Tax refund is not available and is limited to the value of the Sheltered Investment Account.
Also included as a potential benefit is the ability of the survivor within a joint policy to receive a one time ‘Optional Life Benefit' up to the Sheltered Investment Account value - if requested within 90 days of the other's death.

Return to: Matrix 1  or,  Matrix 2

 
Advantage Liquid Value
" Net after tax Cash Surrender Value less Unsheltered Investor Account Value. "

Advantage Liquid Value: In the first 11 years of a policy based on a yearly renewable term insurance rate an Early Liquidation Amount (ELA) is deducted in determining Liquid Value. In the main, this ELA amount adjusts the insurance cost in relation to what it otherwise would be under a level for life cost of insurance.
In addition, the 2% Ontario tax on Premiums (deposit amounts) paid into the policy is absorbed during the early years when the owner is funding the policy.
The combination of these costs result in an unfavourable comparison when total policy surrender is considered during the earlier policy years. However, in the 11th year a 1.5% bonus is added to the annual growth rate achieved by the Sheltered Investment Account. This emphasizes the required attitude of viewing the Universal Life Policy as a long term investment to serve identified insurance and future income needs.

Return to: Matrix 1  or,  Matrix 2

 
Policy Draws after tax
" Draw from Sheltered Investment Account + I.I.T. refund after tax at Marginal Rate"

Policy Draws after tax This represents an estimated net amount that would be realized from within the policy after the recipient, i.e. the owner, will have incurred liability for a corresponding income tax cost at his or her marginal tax rate. Income tax is applicable if the draw is for uses other than for qualified Long Term Care or Critical Illness needs.
The net amount thus estimated is determined such that the capital available at age 99 would equal the capital maintained by the Unsheltered Investor's Account. It is worthwhile noting that the capital available from the policy exceeds the Unsheltered Account until equality at age 99.
The Draw is taken from the value of the Sheltered Investment Account plus a proportionate refund of the Investment Income Tax withheld resulting in the 'pre-tax amount' prior to application of a tax estimate based on the owner's marginal tax rate.

Return to: Matrix 1  or,  Matrix 2

 
Cash for Critical Illness
" Total payable tax free for Critical Illness or on death of one person in a joint policy."

Cash for Critical Illness Represents the amount that can be drawn free from tax as a policy benefit if insured is diagnosed as having a Disability, Critical Illness or Critical Condition which includes qualification for Long Term Care and Home Care as specified in the policy. In such circumstance an Investment Income Tax refund is not available. Also included as a potential tax free cash payment is the ability of the survivor within a joint policy to receive a one time payment up to the Sheltered Investment Account value if requested within 90 days of the other's death.

Return to: Matrix 1  or,  Matrix 2

 
Health Income tax free
" Annual Tax Free draw for Disability or Long Term Care & Home Care needs."

Health Income tax free Represents the annual amount that can be drawn free from tax as a policy benefit if insured is diagnosed as having a Disability, Critical Illness or Critical Condition which includes qualification for Long Term Care and Home Care as specified in the policy. The net amount thus estimated is determined such that the capital available at age 99 would equal the capital maintained by the Unsheltered Investor's Account. It is worthwhile noting the capital available from the policy exceeds the Unsheltered Account until equality at age 99.
The Draw is taken from the value of the Sheltered Investment Account without proportionate refund of the Investment Income Tax withheld.

Return to: Matrix 1  or,  Matrix 2

 
E. & O. E.

Errors & Omissions Excepted (disclaimer) The explanations and interpretations herein are solely those of Thomas A. Rogers and are based on information he believes to be reliable, but can not be guaranteed by him or any company, other entity, or person with whom he is associated. The insurance policy contract and any additional information available from the insurance company should constitute an investor's primary and sanctioned source of reference material such as a "Policy Information Package" and "Information Summary" including the "Insurance Contract" itself explaining the product , its risks and guarantees .

Return to: Matrix 1  or,  Matrix 2