Can clients use an IFA to combat inflation?

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A practical cash flow solution in inflationary times

Inflation has hit Canadians particularly hard over the past quarter, with more pain likely to come over the remainder of 2022.

The impact of that shock to system has been felt everywhere—at the gas pump, the grocery store and on the energy bill. According to Statistics Canada, the latest January numbers show that prices have accelerated more quickly than at any time in the past 30 years, coming in at 5.1%. Food prices have spiked 5.7%. And, it’s important to note, this was the tenth consecutive month that prices rose beyond the Bank of Canada’s target range of 1 to 3%.²

This new economic reality also impacts life insurance providers. For instance, two major issuers recently announced that they will raise premiums to offset the costs associated with inflation. Where does that leave your clients?

Typically, consumers have two choices when dealing with a product that’s been affected by price hikes: pay more, or buy less. If the cost of a whole life policy is too expensive, they may choose not to buy one in the first place. Conversely, if they decide the need is too great, then the hit to cash flow is worth it to adequately protect their loved ones. At Equitable Bank, we think there’s a third option—one that results in sufficient coverage without tying up too much of your clients’ capital.

Equitable Bank’s Immediate Financing Arrangement (IFA)

To help improve cash flow, it may be helpful to educate your clients about a hidden source of liquidity: the Cash Surrender Value (CSV) in a whole life insurance policy. Money held in the CSV can be accessed now, well before the death benefit is paid out, using specialized lending products such as Equitable Bank’s Immediate Financing Arrangement (IFA).

If your client is looking to secure a new policy, an IFA provides the ability to borrow back 100% of the premiums immediately.³ Meanwhile, if they have an existing policy and simply need cash flow to allocate elsewhere during inflationary times, they too can use an IFA to extract premiums that were previously paid. So long as the policy is kept in good standing, the only ongoing cost is the interest on the loan.⁴ Better still, there are no excess collateral requirements, they can apply to borrow additional premiums on an annual basis, and the value of the whole life policy isn’t impacted.

It’s clear that the current economic environment is creating considerable complexity. As the volatile climate is expected to remain for at least for the remainder of this year, your clients may be turning to you for creative solutions to meet their financial needs and safeguard the things most important to them. An IFA can be just the answer they’re looking for, one that ticks all the necessary boxes of protecting their loved ones and preserving their liquidity.

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¹ Equitable Bank is in no way providing tax or financial advice. Advisors should consult with their clients to discuss their unique tax situation and the tax-free benefits of an IFA. ² Julie Gordon and Ismail Shakil, “Canadian inflation hits fresh 30-year high in January, rate hikes loom,” Reuters, February 16, 2022. ³ Subject to internal underwriting and discretion & projected year end CSV must be equal to at least 70% of the premium amount. ⁴ The Equitable Bank Immediate Financing Agreement is a demand credit facility, meaning Equitable Bank can demand payment of all or part of the outstanding balance at any time.