In this article, Dean Chambers discusses how par life insurance is even better for clients in 2017.

I’ll admit it: part of my job is to create excitement among advisors about participating (par) permanent life insurance. And why wouldn’t I? These policies provide four key components — the “4 Ps”:

  • Protection – clients receive lifetime protection and the opportunity for tax-preferred growth
  • Participation – clients can “participate” in policy owner dividends that may be credited to their policy
  • Premium choice – clients can pay level premiums for the rest of their lives or pay off the policy in a specific period
  • Plus – clients can pay additional premiums to make the most of tax-preferred cash value growth.

Par life insurance can improve clients’ insurance strategies and overall finances, especially given the 2017 tax rule changes.

While the new tax rules have created consistency around the amount of additional funding room available within a policy, they’ve also created new opportunities when clients make additional payments to their par policies.

Why new tax rules = more deposit room

Life insurance policies are subject to the exempt test policy (ETP) comparison at each policy anniversary. The ETP limits the savings that can accumulate within a policy. As long as the savings component of a policy stays within the savings element of the ETP, the policy will remain exempt.

The 2017 tax rules changed the ETP, in many cases allowing for additional funding room in a policy’s early years, with a reduction in the later years:

  • Under pre-2017 tax rules – the ETP limited the savings within a policy to the amount that would accumulate, if the policy had been a 20-pay endowment that pays out a lump sum at age 85.
  • Under the 2017 tax rules – the ETP limits the savings within a policy to the amount that would accumulate, if the policy had been an 8-pay endowment that pays out the lump sum at age 90.

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This change has a powerful impact on par policies, particularly when you consider the additional funding room available with the Plus premium benefit. It’s an excellent way to take advantage of the tax-preferred cash value growth available with par life insurance.

Plus premium payments are used to purchase paid-up additional insurance, creating a new layer of protection. Each new layer of protection increases the policy’s tax exempt room. Now, when you add the Plus premium benefit, the growth of paid-up additions is compounded as the purchase of paid-up additions is accelerated, along with the additional funding room.

Benefits of adding plus premium

  • More immediate cash value growth: more rapid cash value growth makes accessing cash value through policy loans or collateral assignment more attractive to some clients, including business clients looking to support their business needs.
  • Earlier potential premium offset: with the early compound growth of the policy, premium offset may occur earlier than if the client hadn’t included the Plus premium benefit on their policy.
  • Better internal rate of return (IRR): with Sun Life’s par products, clients who add the Plus premium benefit to their Sun Par Protector II or Sun Par Accumulator II policies can experience an increased death benefit IRR.
  • Higher long-term cash value growth: par life insurance continues to be a great solution for estate preservation and estate maximization; adding the Plus premium benefit can give clients higher long-term cash value growth.
  • Higher total death benefit: par life insurance can help clients looking for solutions for intergenerational wealth transfer; adding the Plus premium benefit can give clients a higher total death benefit.

More funding room. More tax-preferred cash value growth. More death benefit. The new tax rules create more protection solutions for clients and new opportunities for your business.

Take a closer look at par life insurance

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Dean Chambers, Vice-President, Individual Insurance, Sun Life Financial Canada, has over 23 years of experience in the insurance and wealth industry where he’s held various roles in financial management, group national accounts and individual life marketing. His experience includes senior-level positions in individual life pricing and individual wealth product development.

Dean joined Sun Life Financial in 2011 as Vice-President, Individual Insurance. He is responsible for product development and pricing for the individual life and health business. Most recently, he led the re-launch of Sun Life’s Term insurance portfolio and is in the process of updating Individual life products for 2017.

For more than 10 years, Dean has been a member of the Society of Actuary’s Education Committee, participating in and chairing several committees. He is a frequent speaker at forums across Canada, including meetings of the Canadian Life and Health Insurance Association (CLHIA), the Canadian Institute of Actuaries and the Canadian Institute of Underwriters.

A native of London, Ontario, Dean earned a Bachelor of Science in Actuarial Science from the University of Western Ontario in 1992. In 1998, he qualified as a Fellow in the Canadian Institute of Actuaries (F.C.I.A.) and Society of Actuaries (F.S.A.).