introducing: the new way of determining your life insurance needs

For internal use only 1

INTRODUCING:

THE NEW WAY OF DETERMINING YOUR LIFE INSURANCE NEEDS


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.

Fact:


1. Income Replacement

2. Mortgage/Debt Protection

3. Education/Other Temporary Needs

4. Estate Planning

The need for decreasing insurance protection


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

Case study:


Case study:

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

DAVID HAS A INSURANCE NEED THAT DIMINISHES EACH YEAR:


0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

35 40 45 50 55 60 65 70 75 80 85 90 95

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.

Total Need

Income replacement $1,102,525

Uninsured consumer debt $25,000

Education $25,614

Uninsured mortgage $250,000

Final & estate expenses 40,600

Total Need $1,443,739

David’s need Today

Today: $1,443,739

Today: $1,443,739

Today Retirement Death

Need

Insurance


0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

35 40 45 50 55 60 65 70 75 80 85 90 95


David’s need 11 Years From Now

Age 46: $1,373,126

Age 46: $1,373,126

Total Need

Income replacement $1,124,667

Uninsured consumer debt $0

Education $45,871

Uninsured mortgage $154,903

Final & estate expenses $47,685

Total Need $1,373,126

Need

Insurance


0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

35 40 45 50 55 60 65 70 75 80 85 90 95


David’s need 21 Years From Now

Age 56: $923,821

Age 56: $923,821

Total Need

Income replacement $866,615


Education $0

Uninsured mortgage $0


Total Need $923,821

Need

Insurance


0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

35 40 45 50 55 60 65 70 75 80 85 90 95


Age 80: $97,901Age 80:

$97,901

David’s need 30+ Years From Now

Total Need

Income replacement $0


Education $0

Uninsured mortgage $0


Total Need $97,901

Need

Insurance


What happens if you address only your current need?

It may mean that you’re over insuring throughout your lifetime –

inadvertently creating a “need gap”


0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

35 40 45 50 55 60 65 70 75 80 85 90 95

Satisfying only the current need

“NEED GAP”


+$762,436+$762,436+$164,108+$164,108 +$1.3 M+$1.3 M

Need

Insurance


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”


0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

35 40 45 50 55 60 65 70 75 80 85 90 95

Buying only what we think we can afford

-$779,631-$779,631

-$930,711-$930,711

+$423 M+$423 M

“NEED GAP”


Need

Insurance


How can you address either need gap?

Solution Solution Transamerica’s Layered Insurance

Transamerica’s Layered Insurance= =


0200,000400,000600,000800,000

1,000,0001,200,0001,400,0001,600,000

35 40 45 50 55 60 65 70 75 80 85 90 95

Current need only: Using Level What we think we can afford: Using Level

Actual need: Using Decreasing (layered) insurance

Insuring current need, what we think we can afford vs. a Layered solution

0200,000400,000600,000800,000

1,000,0001,200,0001,400,0001,600,000

35 40 45 50 55 60 65 70 75 80 85 90 95

0200,000400,000600,000800,000

1,000,0001,200,0001,400,0001,600,000

35 40 45 50 55 60 65 70 75 80 85 90 95

NeedInsurance

NeedInsurance

NeedInsurance


Comparing the costs of each approach?

LEVEL SOLUTION LAYERED SOLUTION

CURRENT NEED ONLY

THINK WE CAN AFFORD

NEED & VALUE

Face Amount: $1,425,000

Permanent Level

$558,100

Permanent Level

$225,000 (T10)

$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%.


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


Canadians are spending more, and saving less

As a result, Canadians are less prepared to meet financial

emergencies than in previous years.


How well are we saving?

Source: The Current State of Canadian Family Finances 2008 Report, The Vanier Institute of the Family

PERSONAL SAVINGS RATE – ANNUAL SAVINGS AS % OF PERSONAL DISPOSABLE INCOME AFTER TAXES

0

2

4

6

8

10

12

14

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 3Q08

13%

7%

1%

3%

United States

Canada


Can Average Canadians Afford:

Life Insurance Critical Illness Insurance Disability Insurance Long Term Care Insurance And save for retirement?

Can average Canadians afford:


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.


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.


0200,000400,000600,000800,000

1,000,0001,200,0001,400,0001,600,000

35 40 45 50 55 60 65 70 75 80 85 90 95

0200,000400,000600,000800,000

1,000,0001,200,0001,400,0001,600,000

35 40 45 50 55 60 65 70 75 80 85 90 95

Current need only: Using Level What we think we can afford: Using Level

Actual need: Using decreasing (layered) insurance

0200,000400,000600,000800,000

1,000,0001,200,0001,400,0001,600,000

35 40 45 50 55 60 65 70 75 80 85 90 95

Savings using current need, what we think we can afford vs. Layered

$0 savings$0 savings$0 savings$0 savings

$$ savings$$ savings

NeedInsurance

NeedInsurance

NeedInsuranceSavings


0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

35 40 45 50 55 60 65 70 75 80 85 90 95

The savings plan that comes from a layered solution

SAVINGS GROWING AT 6%


The Personal Savings Plan: Age 85: $124,305


Need

Insurance

Savings


0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

35 40 45 50 55 60 65 70 75 80 85 90 95



For $50 more a month see how much more you get

For $50 more a month see how much more you get



Need

Insured

FV @200/mthPremium

Savings



0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

35 40 45 50 55 60 65 70 75 80 85 90 95


The retirement zone


Almost $ 266,000 in the savings account

Almost $ 266,000 in the savings account


Need

Insurance

Savings


The monthly cost for basic long-stay programs not covered by provincial healthcare:The monthly cost for basic long-stay programs not covered by provincial healthcare:

Is preparing for health issues optional?

23%23%

60%60%

82%82%

Disability rate for Canadians between ages 35 to 74Disability rate for Canadians between ages 35 to 74

The chance of having 1 of 4 major illnesses (heart attack, stroke, cancer, coronary artery bypass) before age 75The chance of having 1 of 4 major illnesses (heart attack, stroke, cancer, coronary artery bypass) before age 75

The probability of a 60 year old couple needing long term care during their remaining lifetime The probability of a 60 year old couple needing long term care during their remaining lifetime

$1,614$1,614

Source: Munich Re., 2007 Ontario Ministry of Long Term Care.


Advantages of Self Insuring:

No CI underwriting Flexible payment options More ways to claim (CI/DI/LTC) No age restrictions


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.


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%

40MNS, 40FNS, $300FA, JLTD, Level COI, Increasing DB

Year/Age Living Benefit

10/50 $46,686

20/60 $132,901

30/70 $291,382


0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

35 40 45 50 55 60 65 70 75 80 85 90 95



*Please note, that accessing your living benefits will have a direct impact on the death benefit available.


The “CI/DI zone The “LTC” zone





Remember the $50 of additional premium?

Remember the $50 of additional premium?

Need

Insurance

Savings


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*


I like this idea but it seems too complicated to calculate my

decreasing needs!

Not to worry…


Introducing:

Transamerica’s new LifeScripter

A revolutionary program designed to help you pick the right kinds AND the right amounts of life insurance.


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


A real life case study clearly demonstrates that as your life story evolves, your need for insurance protection will decrease


A video will introduce the “Insurance calculator”


Tools to help make life easier!

Enter your personal information



List your debts



List remaining details

SECTION #3: INCLUDING INCOME PROTECTION/ FINAL AND ESTATE EXPENSES!!



See the results


The customized report

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.


Provides $ when you are most likely to need things like Long-Term Care

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.

introducing: the new way of determining your life insurance needs

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