INTRODUCING: THE NEW WAY OF DETERMINING YOUR LIFE INSURANCE NEEDS For internal use only 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. For internal use only 2 The need for decreasing insurance protection 1. Income Replacement 2. Mortgage/Debt Protection 3. Education/Other Temporary Needs 4. Estate Planning 3 For internal use only 3 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 For internal use only 4 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 For internal use only 5 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. For internal use only 6 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 For internal use only 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 For internal use only 10 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” For internal use only 12 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 = 14 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%. For internal use only 16 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 For internal use only 17 Canadians are spending more, and saving less As a result, Canadians are less prepared to meet financial emergencies than in previous years. For internal use only 18 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 For internal use only 19 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 For internal use only 20 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. For internal use only 21 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. For internal use only 22 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. For internal use only 27 $1,614 Advantages of Self Insuring: No CI underwriting Flexible payment options More ways to claim (CI/DI/LTC) No age restrictions For internal use only 28 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. For internal use only 29 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 For internal use only 30 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. For internal use only 31 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* For internal use only 32 I like this idea but it seems too complicated to calculate my decreasing needs! Not to worry… For internal use only 33 Introducing: Transamerica’s new LifeScripter A revolutionary program designed to help you pick the right kinds AND the right amounts of life insurance. For internal use only 34 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 For internal use only 35 A real life case study clearly demonstrates that as your life story evolves, your need for insurance protection will decrease For internal use only 36 A video will introduce the “Insurance calculator” For internal use only 37 Tools to help make life easier! Enter your personal information For internal use only 38 Tools to help make life easier! List your debts For internal use only 39 Tools to help make life easier! List remaining details SECTION #3: INCLUDING INCOME PROTECTION/ FINAL AND ESTATE EXPENSES!! For internal use only 40 Tools to help make life easier! See the results For internal use only 41 The customized report For internal use only 42 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. For internal use only 43 Provides $ when you are most likely to need things like LongTerm Care For internal use only 44 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. For internal use only 46