David Wm. Brown CLU, ChFC, CFP, RHUTuesday June 21nd 2005

CIFPs Annual National Conference

Niagara Falls, Ontario

1. Introduction1. Disclosure, qualifications, guarantees

2. The Case for Income Replacement/Critical Illness insurance1. Personal demonstration2. Statistics

3. Definitions1. Income Replacement Insurance2. Critical Illness Insurance

4. The Comparison1. Income Replacement/Critical Illness

5. Critical Illness Insurance in Canada1. Current status2. Challenges

AGENDA

6. Critical Illness Taxation Issues1. C.R.A

2. C.A.L.U

7. Structuring the C.I. Policy

8. Prospecting1. Your doctors

2. Your clients – individual/group

3. Yourself

9. Questions?

AGENDA- Cont’d

SURVEY

STROKE

HEART DISEASE

HEART ATTACK

CANCER

Disabled as a result of an Accident or of a Sickness

?

38% of Women41% of Men

Will Develop Cancer In their Lifetime.

CANCER

Cancer 1 in 3 Canadians will contract some form of life-

threatening cancer 125,000 newly diagnosed cases per yearHeart Attack 1 in 4 Canadians will contract heart disease 75,000 suffer heart attacks each year - 1 in 2 < 65Stroke 1 in 20 Canadians run the risk of stroke before the

age of 65 50,000 suffer a stroke each year - 1 in 3< 65

Accounts for almost 1% of the total Canadian population

Income Replacement or Disability Income Insurance is designed to replace a portion of an individuals income; in the event that the individual as a result of an accident or sickness cannot work in his/her/any/own

occupation

Income Replacement Insurance

1. Elimination period

2. Monthly Indemnity

3. Benefit period

4. Definition of total disability

5. Definitions of partial/residual disability

6. Options; F.I.O; C.O.L.A

Disability Insurance Variables

Critical Illness Insurance

The Critical Illness plan provides a lump sum tax-free benefit to be paid in the event that an individual contracts a critical illness. The Critical Illness policy is designed to provide the necessary financial assistance to permit the insured and his/her family to cope with a critical illness.

Critical Illness InsuranceCovered Illnesses Alzheimer’s Disease Aortic Surgery Blindness Benign Brain Tumor Cancer Coma Coronary Angioplasty Coronary Artery Bypass Surgery Cystic Fibrosis Diabetes Deafness Kidney Failure

Heart Attack Heart Valve Replacement Loss of Independent Existence Loss of Limbs Loss of Speech Major Organ Transplant Motor Neuron Disease Multiple Sclerosis Occupational HIV Infection Paralysis Parkinson’s Disease Rheumatoid Arthritis Severe Burns Stroke

Critical Illness InsurancePlan Provisions

Lump Sum Non-Taxable Benefit Payout 30 Days After Diagnosis Guaranteed Renewable to Age 65 Limited Qualified Right to Change Premiums Guaranteed Issue (no medical requirements) Optional Individual Increase Offered (with medical

requirements) Group - 15% Discount Return of Premium on Death Portable Coverage Pre-Existing Condition Exclusion 24 months Recharge Provision - 5 Years

Extraordinary Costs of a Critical Illness

Medical Costs$ Alternative treatment$ Experimental drugs$ Out of province treatment$ Nursing care

Reduce Financial Obligations

$ Debt/mortgage repayment

Non-Medical Costs$ Leave of absence for

insured or spouse$ Home and/or vehicle

adaptation$ Childcare$ Work style changes

Critical Illness Insurance Benefits

Effectively cover the most catastrophic events Provide stable, predictable costs Give a significant lump sum payout Provide access to world renowned medical

services Fill the growing gap due to increased

morbidity Address real needs Covers real risks

Critical Illness InsuranceAssistance Services

• Expert Medical Evaluation by World-Class Physicians

FindBestDoc• Customized Search for Best Doctors Including Specialized Canadian Physicians

FindBestCare• Comprehensive Services and Access to Treatment Centers Throughout the United States

Ceridian/The Healing Journey• 24 Hour Access to Daily Living Assistance Professionals• Membership in a Self-Help Healing Program

BEST DOCTORS/CERIDIAN/HEALING JOURNEYInterConsultation

Income Replacement Insurance Critical Illnesses Insurance

Triggering

Event

Sickness or Accident Critical Illness 27+ Diseases

Definitions Inability to workOwn occupationAny occupationResidualPartial

Diagnoses of Critical Illness survival for 30 days(90 days in the case of Cancer following issue of contract)

Premiums Guaranteed/Non Guaranteed Guaranteed/Non Guaranteed

Return Of Premium on Death

Not usually applicable - 3 month survivorship benefit

Usually included

Return of Premium on expiry

Not usually applicable (May be available as a rider)

Can be included as rider

“EITHER”

OR

Income Replacement Insurance Critical Illnesses

Insurance

Other Options Future income option

Cost of living benefits

Early Intervention Benefits

Medical Assistance Benefits

Contract Terms To age 65 with possible extension Can be designated to continue for life

Underwriting Based on medical history and family history Based on medical history and family history

Benefit Payment Paid out monthly Lump sum

Adjudication Ongoing One time

Maximum Payment

In relation to income replacement tables $2,000,000

Taxability If paid in after tax dollars benefit is tax free Considered tax free

- No ruling yet -

Eligibility Needs income to qualify No income requirement

“Canadian Critical Illness sales are paltry by comparison to other countries in the English speaking universe”

Advisor.caMay 17, 2005

C.I. SALES STATS AND ANALYSYS2004

In 2004 sales increased by 11% More limited guarantees introduced Average size of policy dropped by 2% Permanent products increased over renewable products Return of premium at expiry benefit reduced by 6% Only 3% of new policies sold were for “Basic” coverage

of five or fewer conditions

Source: Limra CI Sales 2004

“If you don’t sell CI, have a huge financial indemnity policy because your client will sue you”

Bhupinder AnandAnand AssociatesLondon, England

1. No standardized definitions2. Concern over high premiums3. Advisors not aggressive enough4. Tough underwriting concerns

REASONS

DON’T TRY TO

BE

A

DOCTOR

!

CRITICAL ILLNESS UNDERWRITING Family History Smoking Height-Weight Ratio Elevated Cholesterol Medical Impairments that affect more than

one body system or organ Seemingly Insignificant Condition

“The Canadian Life and Health Insurance Association and The Conference of Advanced Life Underwriting Discussion Paper”

March 2004See Website: www.calu.com

TAXATION

IS C.I.

With/or WithoutRefund of Premium

QuestionAccident or Sickness Insurance

OR

Life Insurance

ON DEATH

ON EXPIRY

Critical Illness InsuranceTaxation

CRA has not yet clarified the Agency’s interpretation of the provisions of the Act with reference to the taxation of Critical Illness Contracts (especially with refund benefits)

The Conference of Advanced Life Underwriters is continuing to work with the Department of Finance to ensure an appropriate framework for taxation of Living Benefits

TAXATION

Canada Revenue Agency Technical Interpretation Letter

(2003-0034505, December 9 ,2003)

-Grouped C.I. Non taxable benefits and deductible premium –

~ Assumption no return or premiums

Understanding The TaxationOf Critical Illness Insurance

Purpose Structure Tax Treatment

Provides cash benefit for

1. Medical expenses

2. Pay down mortgage

3. Renovate home

4. Replace caregiver income

Insured owner beneficiary and payor

Premium non deductible living expense Benefit non taxable Return of premium on death and at expiry non taxable

Personally – Owing Policy

CRA has confirmed that it views Critical Illness Insurance Policies without ROP benefits as accident and sickness Insurance.

Understanding The TaxationOf Critical Illness Insurance

Purpose Structure Tax Treatment

Provide cash benefit to corporation for

1. Immediate cash needs (key employee)

2. Repay business debts

3. Fund buy - sell

Insured: employee or shareholder. Owner, payor and beneficiary is corporation

Premium non deductible to corporationBenefits non taxable to corporation Return of premium on death or at expiry may be non taxable

Corporate Protection

Understanding The TaxationOf Critical Illness Insurance

Purpose Structure Tax Treatment

Provides cash to the

employee for

1. Medical expenses

2. Pay down mortgage

3. Renovate home

4. Replace caregiver income

The Employee is the insured.

Owner is employee or corporation.

Payor is corporation.

Benefits payable to employee or corporation

(Employee not as shareholder)

1. If employee owned and corporate paid. Premium included in employee’s income, deductible to employer, benefit non taxable to employee

2. If corporate owned and corporate paid. Premium not included in employees income deductible to corporation as business expense . Cash benefit not taxable to corporation if paid to employee taxable in income

Individual Policy as an Employee Benefit

Understanding The TaxationOf Critical Illness Insurance

Purpose Structure Tax Treatment

Provides cash to an

employee for

1. Medical costs

2. Pay down mortgage

3. Renovate home

4. Replace caregiver income

The employee is the insured.

Owner and payor is corporation.

Benefits payable to corporation or owner.

(Employee not as Shareholder) If corporation pays on a number of

corporate owned policies, premiums not included in employees income.

Premiums are a deductible expense to corporation.

Cash benefit paid to employee non - taxable to employee (Health and Welfare Trust)

Grouped Individual policies providing Employee benefit

Standard Group Benefit Coverages

•Life Insurance•Accidental Death and Dismemberment•Dependant Life•Extended Health Care•Dental Care•Short Term Disability•Long Term Disability

WHAT’S MISSING?

Critical Illness Insurance, A Living Benefit

Without Critical Illness Insurance, will your employees be forced to…

Deplete their RRSP’s? Increase their debt load? Rely on relatives? Pass the hat around the office? Forgo access to timely medical treatment?

Perspective

Critical Illness helps refocus benefits back to providing for the most catastrophic events

Provides the opportunity to create a more “caring parent” environment and reduces the need to “pass the hat” around the office to help an employee dealing with a critical illness

Average person starting out in the workforce has a:

2.1% chance of dying prior to age 65

20.1% chance of having a critical illness

diagnosis prior to age 65

It is not a question of “if”, but rather “when”

Keeping Things in PerspectiveHow Significant are the Following Events

Your Clients Car is Stolen Your Clients TV is Stolen Your Clients Computer is Stolen You Client is Diagnosed with Cancer Your Client Dies

Rank the Significance of the Event on your clients family from 1 to 4, 4 being the greatest

What Does Your Client Currently Have Insured? Your Clients car Your Clients TV Your Clients Computer Your Clients Life The Diagnosis of Clients Critical Illness

How many of you have either a personal income replacement policy or Critical Illness Policy

Please Stand Up

Anyone who has applied for or has a Critical Illness Contract

PLEASE

SIT DOWN!

Critical Illness InsuranceSample Costs for $100,000 Benefit

Female Age 55

$235.79 monthly

Female Age 50

$178.37 monthly

Female Age 45

$134.72 monthly

Female Age 40

$103.22 monthly

Female Age 35

$79.19 monthly

Female Age 30

$63.89 monthly

Calculations based on female non-smoker status, 12 months of non tobacco use

CRITICAL ILLNESS RECOVERY PLANReturn of Premium on Death Included

MaleAge 42

Non-Smoker$100,000

A

10 Year Renewable to age 75

B

Level to Age 75

C

Level for Life

*(Optional Return of Premium)

$683.88 $1,233.96

$ 340.92

$1,574.88

$1,451.88

$ 448.92

$1,900.80

Age 52 $1,672.92

Age 62 $3,566.88

Age 72 $8,004.96

CRITICAL ILLNESS RECOVERY PLANReturn of Premium on Death Included

FemaleAge 42

Non-Smoker$100,000

A

10 Year Renewable to age 75

B

Level to Age 75

C

Level for Life

*(Optional Return of Premium)

$651.96 $1,049.88

$ 399.96

$1,449.84

$1,274.88

$ 423.96

$1,698.84

Age 52 $1,344.96

Age 62 $2,427.96

Age 72 $5,797.88

IT’S ALL ABOUT…….

CHOICE!

Thank You!

Al G. Brown & Associates

Over 60 years of dedicated service