Insurance and RRSPs

In a Canadian Life and Health Insurance Association (CLHIA) survey conducted a little over two years ago, 75% of respondents said they look to their financial advisor for estate planning advice and on average it had been five years since they were approached to review their needs, coverage.

Five years!?

Dually licensed advisors have a unique opportunity, as well as a fiduciary responsibility, to work with their clients to help them find the right balance of the percentage of disposable income that should be appropriated to wealth accumulation goals and what percentage needs to be directed to products that can protect and preserve the goals or the wealth already accumulated.

With only a few days left in Canada’s RRSP season the focus is clearly tilted to the “wealth accumulation” conversation, but RRSP season is also the perfect time to bring up the insurance conversation for the following reasons:

• To broaden the conversations around RRSP and Investment loans to include a look at all minimum funded Universal Life (UL) Policies because 85% to 90% of all UL sold in Canada has been sold on a minimum funded basis. Is there an opportunity to deposit money into the UL contract instead of putting it into an RRSP or in addition to the RRSP contribution?
• It’s a perfect time to remind or educate your UL clients of the 250% rule (also called the “anti dump-in rule”) which changes the ceiling known as the maximum tax actuarial reserve (MTAR) down to 250% of the total fund value in the 7th policy year. This 250% rule or test is applied every year and looks back to the total fund value 3 years prior to cap any contributions at 250% of that value. This rule stays in effect until the policy owner is age 85. The 250% rule puts the spotlight on the total value of UL contract in the 7th policy year.
• To ensure that your RRSP advice is being given judiciously with a holistic approach. Without a look at the option or need to contribute /do a dump-in into a UL contract versus their RRSP – or in addition to an RRSP contribution your client doesn’t have all the facts.
• The Do Not Call Legislation is keeping a fence around your clients so they are not likely getting this information from any other advisor.
• Use your RRSP meeting to arrange a follow up meeting for you to do a full review of their other asset class – their insurance coverage.

With about two thirds of the population not having reviewed their estate planning and life insurance needs for five years and with the majority of UL policy owners not taking advantage of the tax deferred investment growth offered in UL contracts, many will only have 2 more years to take action!

Remember life insurance is unique in many important ways not the least of which is that the owner of the contract is in complete control and has the flexibility to change the named beneficiary(s) at will and to whom the proceeds are paid privately.

Regardless of the product name or type, life insurance can be summed up in five simple words – tax free money at death.

Helena Smeenk Pritchard has over 36 years of experience in the insurance industry and is the Principal of Helena Smeenk Pritchard & Associates, a leader in “Insurance Know-How” training. Helena publishes a weekly free ‘Did You Know’ newsletter on her site.