INTRODUCING:
THE NEW WAY OF DETERMINING YOUR LIFE
INSURANCE NEEDS
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1
Fact:
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.
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The need for decreasing
insurance protection
1. Income Replacement
2. Mortgage/Debt Protection
3. Education/Other Temporary Needs
4. Estate Planning
3
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Case study:
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
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Case study:
DAVID HAS A INSURANCE NEED THAT DIMINISHES EACH YEAR:




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
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David’s need Today
Today:
1,600,000
$1,443,739
Total Need
Income replacement
1,400,000
1,200,000
$1,102,525
Uninsured consumer debt
$25,000
Education
$25,614
Uninsured mortgage
1,000,000
$250,000
Final & estate expenses
40,600
Total Need
800,000
$1,443,739
600,000
400,000
200,000
Need
Insurance
0
35
40
Today
45
50
55
60
65
70
75
80
85
Retirement
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.
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90
95
Death
David’s need 11 Years From Now
1,600,000
Total Need
Age 46:
1,400,000
Income replacement
$1,373,126
$1,124,667
Uninsured consumer debt
1,200,000
$0
Education
$45,871
Uninsured mortgage
1,000,000
$154,903
Final & estate expenses
$47,685
Total Need
800,000
$1,373,126
600,000
400,000
200,000
Need
Insurance
0
35
40
Today
For internal use only
45
50
55
60
65
70
Retirement
7
75
80
85
90
95
Death
David’s need 21 Years From Now
1,600,000
Total Need
Income replacement
1,400,000
1,200,000
1,000,000
$866,615
Uninsured consumer debt
$0
Education
$0
Uninsured mortgage
$0
Final & estate expenses
Age 56:
800,000
$57,206
Total Need
$923,821
$923,821
600,000
400,000
200,000
Need
Insurance
0
35
40
Today
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45
50
55
60
65
70
Retirement
8
75
80
85
90
95
Death
David’s need 30+ Years From Now
1,600,000
Total Need
1,400,000
1,200,000
1,000,000
800,000
Income replacement
$0
Uninsured consumer debt
$0
Education
$0
Uninsured mortgage
$0
Final & estate expenses
$97,901
Total Need
$97,901
600,000
400,000
Age 80:
$97,901
200,000
Need
Insurance
0
35
40
Today
For internal use only
45
50
55
60
65
70
Retirement
9
75
80
85
90
95
Death
What happens if you address only
your current need?
It may mean that you’re over insuring
throughout your lifetime –
inadvertently creating a “need
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gap”
Satisfying only the current need
“NEED GAP”
1,600,000
+$164,108 +$762,436
+$1.3 M
1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
Need
Insurance
0
35
40
Today
For internal use only
45
50
55
60
65
70
Retirement
11
75
80
85
90
95
Death
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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Buying only what we think we can
afford
“NEED GAP”
1,600,000
-$930,711
1,400,000
-$779,631
1,200,000
1,000,000
800,000
+$423 M
600,000
400,000
200,000
Need
Insurance
0
35
40
Today
For internal use only
45
50
55
60
65
70
Retirement
13
75
80
85
90
95
Death
How can you address either need
gap?
Solution
For internal use only
=
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Transamerica’s
Layered Insurance
Insuring current need, what we think we
can afford vs. a Layered solution
Current need only: Using Level
1,600,000
1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0
What we think we can afford: Using Level
1,600,000
1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0
Need
Insurance
Need
Insurance
35 40 45 50 55 60 65 70 75 80 85 90 95
35 40 45 50 55 60 65 70 75 80 85 90 95
Actual need: Using Decreasing (layered) insurance
1,600,000
1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0
Need
Insurance
35
For internal use only
40
45
50
55
60
65
15
70
75
80
85
90
95
Comparing the costs of each
approach?
LEVEL SOLUTION
CURRENT
NEED ONLY
Face Amount:
$1,425,000
Permanent Level
LAYERED SOLUTION
THINK WE CAN
AFFORD
NEED & VALUE
$558,100
$225,000 (T10)
Permanent Level
$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?
PERSONAL SAVINGS RATE – ANNUAL SAVINGS AS % OF PERSONAL DISPOSABLE
INCOME AFTER TAXES
14
12
13%
10
8
6
7%
Canada
3%
4
2
1%
United States
0
90
91
92
93
94
95
96
97
98
99
00
Source: The Current State of Canadian Family Finances 2008 Report, The Vanier Institute of the Family
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01
02
03
04
05
06
07
3Q08
Can average Canadians afford:
Can Average Canadians Afford:





Life Insurance
Critical Illness Insurance
Disability Insurance
Long Term Care Insurance
And save for retirement?
20
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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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Savings using current need, what we
think we can afford vs. Layered
Current need only: Using Level
1,600,000
1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0
What we think we can afford: Using Level
Need
Insurance
$0 savings
1,600,000
1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0
Need
Insurance
$0 savings
35 40 45 50 55 60 65 70 75 80 85 90 95
35 40 45 50 55 60 65 70 75 80 85 90 95
Actual need: Using decreasing (layered) insurance
1,600,000
1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0
Need
Insurance
Savings
$$ savings
35
For internal use only
40
45
50
55
60
65
23
70
75
80
85
90
95
The savings plan that comes
from a layered solution
SAVINGS GROWING AT 6%
1,600,000
1,400,000
1,200,000
1,000,000
800,000
The Personal Savings Plan:
Age 85: $124,305
600,000
400,000
Need
Insurance
200,000
Savings
0
35
40
Today
For internal use only
45
50
55
60
65
70
Retirement
24
75
80
85
90
95
Death
The savings plan that comes
from a layered solution
SAVINGS GROWING AT 6%
1,600,000
1,400,000
1,200,000
1,000,000
For $50 more a month see
how much more you get
800,000
600,000
Need
The Personal Savings Plan:
Age 85: $266,000
400,000
Insured
FV @
200/mth
Premium
200,000
Savings
0
35
40
Today
For internal use only
45
50
55
60
65
70
Retirement
25
75
80
85
90
95
Death
The savings plan that comes
from a layered solution
SAVINGS GROWING AT 6%
1,600,000
1,400,000
1,200,000
The retirement
zone
1,000,000
800,000
Almost
$ 266,000 in the
savings account
600,000
400,000
Need
200,000
Insurance
Savings
0
35
40
Today
For internal use only
45
50
55
60
65
70
Retirement
26
75
80
85
90
95
Death
Is preparing for health issues
optional?
23%
Disability rate for Canadians between ages 35 to 74
60%
The chance of having 1 of 4 major illnesses (heart attack,
stroke, cancer, coronary artery bypass) before age 75
82%
The probability of a 60 year old couple needing long term
care during their remaining lifetime
The monthly cost for basic long-stay programs
not covered by provincial healthcare:
Source: Munich Re., 2007 Ontario Ministry of Long Term Care.
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$1,614
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%
Year/Age
Living Benefit
10/50
$46,686
20/60
$132,901
30/70
$291,382
40MNS, 40FNS, $300FA, JLTD, Level COI, Increasing DB
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The savings plan that comes from
a layered solution
SAVINGS GROWING AT 6%
1,600,000
The “CI/DI zone
The “LTC” zone
1,400,000
Remember the $50 of
additional premium?
1,200,000
1,000,000
The Personal Savings Plan:
Age 55: $43,919
800,000
The Personal Savings Plan:
Age 85: $265,823
600,000
400,000
Need
200,000
Insurance
Savings
0
35
40
Today
45
50
55
60
65
70
75
Retirement
*Please note, that accessing your living benefits will have a direct impact on the death benefit available.
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80
85
90
95
Death
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



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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
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 LongTerm Care
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THANK YOU!
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.
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