Participating life insurance

Transcription

1 Participating life insurance Wealth Achiever Estate Achiever advisor guide

2 Stability, accountability & strength What s new May 2011 New riders for Wealth Achiever and Estate Achiever max 20 Simply Preferred term life insurance rider term 10 and term 20 child s term life insurance rider (on single-life policies) guaranteed insurability rider (on single-life policies insured must be standard risk pre-astra) Business growth protection rider (insured must be standard risk pre-astra) new rider for single-life Wealth Achiever and Estate Achiever pay to 100 and max 20 Simply Preferred partner term rider Participate in the strength of Canada Life s participating life insurance products Purchasing life insurance is a very important decision that benefits your clients and their beneficiaries well into the future. This guide will help you understand how participating life insurance works and provides technical details on the Wealth Achiever and Estate Achiever participating life insurance products from The Canada Life Assurance Company. Both products are built on the strength of Canada Life s participating account. The features and benefits of each product can be tailored to help meet your clients needs for protection today and into the future. 2

3 Learn how Wealth Achiever and Estate Achiever can provide your clients with: Policy cash value that grows on a tax-advantaged basis Cash value they can access during their lifetime Dividends that can be used to pay some or all of the policy s premiums or to buy more life insurance Riders and benefits that can be added to the basic policy to tailor coverage A death benefit payout not subject to income tax Participating life insurance Participating life insurance offered by Canada Life combines permanent life insurance with a tax-advantaged savings component. It provides insurance protection for the insured s lifetime as long as premiums are paid when due and includes basic guaranteed death benefits and basic guaranteed cash values. Benefits and riders can also be added to the basic policy. Participating life insurance is particularly attractive to clients who: Have low to moderate risk tolerance Aren t interested in a life policy where they re expected to actively manage an investment component Are attracted by the historical long-term stability of the return on participating account assets (past performance is not, however, a guarantee of future performance) Are looking for guarantees Participating life insurance is flexible permanent life insurance with: Guaranteed basic premiums Guaranteed basic death benefit Guaranteed basic cash values Policyowner dividends that can be used to purchase additional life insurance or reduce out-of-pocket premiums (policyowner dividends aren t guaranteed) Tax-advantaged savings component Choice of riders and benefits that can be added to the basic policy Premium flexibility Understanding participating life insurance from Canada Life When a client purchases participating life insurance, the premiums paid go into an account called the participating account with funds from other Canada Life participating life insurance policies. Premiums and other basic values for these policies are calculated using long-term assumptions for death claims, investment returns, expenses (including taxes) and other relevant factors. The guaranteed premium, guaranteed cash surrender values and guaranteed death benefit are based on these assumptions and are in place for the life of the policy. Earnings are generated in the participating account when the actual experience for these factors is collectively more favourable than the assumptions used when establishing the guaranteed values. Canada Life may distribute a portion of the earnings as declared by the Board of Directors in accordance with the policyowner dividend policy. The amount available for distribution in any year will vary upwards or downwards depending on the actual and expected experience. The amount available is also influenced by considerations such as: The need to retain earnings as surplus to, among other things: ensure financial strength and stability finance new business growth provide for transitions during periods of major change smooth fluctuations in experience Practical considerations and limits Legal requirements and prevailing industry practices The Insurance Companies Act (ICA) of Canada contains a number of provisions that govern how the participating account is to be managed within a company with shareholders. 3

4 Dividends The opportunity to earn policyowner dividends is unique to participating life insurance policies. Participating policyowners share in the experience of the pool of participating life insurance policies through the payment of policyowner dividends. Dividends aren t guaranteed and will fluctuate from illustrated dividends, depending on future dividend scales. The dividend scale, including dividends paid under it, is affected by a number of variables such as investment returns, mortality experience, expenses (including taxes) and other relevant factors. Dividends credited to a policy have a cash value associated with them. This cash value, once credited to the policy, is vested and can t be reduced or used in any way without a client s authorization, other than to pay premiums. All premiums due or past due on the first policy anniversary must be paid before the first-year dividend is credited. Policyowner dividends are determined according to Canada Life s dividend policy for participating policyowners, and are declared by the Board of Directors. 1 Policyowner dividends can provide clients with considerable flexibility now and in the future. Policy cash value The cash value in a participating life insurance policy is comprised of guaranteed basic cash values, as stated in the policy, plus any cash value arising from dividends (dividends aren t guaranteed). All, or part, of the total cash value, less any indebtedness, is paid to the policyowner if he or she surrenders all or part of the policy. 1. a copy of the Canada Life participating policyowner dividend policy is available on request. Please contact your regional marketing centre for more information. Strength in Canada Life Performance and strength go hand-in-hand over the long term. These factors are especially important when choosing a participating life insurance policy because the net cost of a participating life insurance policy depends on the long-term performance of the participating account. Canada Life has received strong ratings on our claims-paying ability and financial strength from the major rating agencies. ** For more information on the management, performance and strength of the Canada Life participating account, see Participating life insurance financial facts (form number ). Offering choice in participating products Canada Life offers two participating life insurance products: Wealth Achiever and Estate Achiever. Both contain participating life insurance key features, but emphasize these features differently to suit your clients financial needs and goals. Wealth Achiever Wealth Achiever provides higher short-term cash values than Estate Achiever while still providing lifetime insurance protection. It provides a choice of level basic premiums payable for a maximum of 20 years, or to age 100. The choice of premium-paying period affects values such as death benefit, dividend amounts and cash values. Wealth Achiever may be suitable for individuals who: Are interested in accessing the cash value in the early years Require premium flexibility to meet changing cash flows from their business Are near retirement and want cash values they can access in their lifetime 2. as rated by A.M. Best Company, Dominion Bond Rating Service, Fitch Ratings, Moody s Investors Service and Standard & Poor s Ratings Services at the time of publication. 4

5 Estate Achiever Estate Achiever provides higher long-term growth in total cash values and death benefit than Wealth Achiever. It provides a choice of basic level premiums payable for a maximum of 20 years, or to age 100. The choice of premium-paying period affects values such as death benefit, dividend amounts and cash values. Estate Achiever may be suitable for individuals who are interested in: Long-term cash value growth on a tax-advantaged basis Estate planning and enhancing estate values Accessing long-term cash value to supplement retirement income Choice of premium-paying periods Pay to age 100 Level basic premiums payable to a maximum of age 100. Max 20 Level basic premiums payable for a guaranteed maximum duration of 20 years. Policies may be eligible for premium offset prior to the end of the premium-paying period depending on dividends declared, whether policy loans have been taken and other factors. Refer to the premium offset section for more details. The choice of premium-paying period affects values such as death benefit and cash values. Product details Wealth Achiever and Estate Achiever Wealth Achiever and Estate Achiever are participating life insurance products with two guaranteed premiumpaying periods. Issue ages The issue age is based on the life insured s age at his or her nearest birthday. Pay to age 100 Single life 0-85 Joint first-to-die and joint last-to-die Equivalent single ages (ESA): Each individual insured must be within the single life issue ages. Max 20 Single life 0-80 Joint first-to-die and joint last-to-die Equivalent single ages (ESA): Each individual insured must be within the single life issue ages. Back-dating A policy may be back-dated up to 11 months from the date of underwriting approval. All back-dated premiums must be paid with interest. No other transactions can be back-dated prior to the date the policy takes effect. The incontestability and suicide exclusion periods will be in effect from the later of the issue date of the policy and the date the policy takes effect (note: if there is a later contract amendment increasing coverage, the incontestability and suicide provisions will restart, but for the increased coverage only). Any time a policy lapses and afterwards is reinstated, the exclusion periods will recommence, from the re-instatement date. Substandard lives Substandard lives may be accepted and the substandard extra premium may be eligible for commissions see Canada Life s commission schedule for details. The guaranteed insurability rider and business growth protection rider aren t available for substandard lives. 5

6 Issue limits The minimum face amount is $25,000 for a single-life coverage and $50,000 for joint first-to-die and joint last-to-die coverage. There is no preset maximum face amount; however, a special quote is required if inforce coverage at Canada Life on the prospective life insured exceeds $10 million. For amounts over $10 million, please contact your regional marketing centre for a special quote. Premium bands Premium band Coverage Band 1: $25,000 to $99,999 Band 2: $100,000 to $249,999 Band 3: $250,000 to $999,999 Band 4: $1,000,000+ Policy fee for pay to age 100 and max 20 There is an annual fee of $35. This fee, however, isn t charged separately, but is instead incorporated within the yearly premium. Features Coverage options available Single life Joint first-to-die Joint last-to-die, premiums payable by the policyowner to first death Joint last-to-die, premiums payable by the policyowner to last death Single life The life of one individual is insured under the policy with the death benefit payable on the death of the life insured. Joint first-to-die The lives of two individuals are insured under the policy. The death benefit is payable when the first insured dies. A joint first-to-die policy can be a cost-effective way to provide income replacement, mortgage insurance, or business insurance to fund a buy-sell agreement. Survivor benefit The survivor benefit, if in force under a joint first-to-die coverarge, provides an option for the policyowner (usually the surviving life insured) to take out a new participating life insurance policy on the survivor, without evidence of insurability. Where the policyowner isn t the surviving life insured, and the policyowner doesn t exercise the option, the survivor is entitled to exercise it and be the owner of the new policy. The option must be exercised within 60 days of the date of death of the first-to-die and before the survivor has reached the insurance age 71. Under the survivor benefit, a second benefit may be payable in accordance with the automatic temporary coverage provision. If the survivor dies within 60 days of the death of the first-to-die and hasn t already exercised the optional permanent coverage, and if the survivor qualifies based on the criteria in the policy contract, an amount equal to the face amount of the policy will be paid as a second benefit. The amount of this second benefit will be increased by any life insurance in effect under the enhanced coverage option (ECO) if this dividend option was in effect at the first death. 6

7 Joint last-to-die The lives of two individuals are insured under the policy. The total death benefit is payable only when the second insured dies and therefore, generally costs considerably less than two single-life policies. There are two types of joint last-to-die policies available: 1. Premiums to first death Basic premiums are payable by the premium payer to the death of the first of the insureds. The additional deposit option (ADO) rider terminates when the death of the first of the insureds occurs. Additional payments may be required after the death of the first of the insureds to pay for ECO shortfall amounts. Premiums to first death aren t allowed if one of the life insureds is declined. Canada Life reserves the right to exclude premiums to first death from policies where one or both of the joint applicants have been deemed a substandard risk. 2. Premiums to last death Premiums are payable to the death of the last of the insureds or ESA 100, if earlier. A joint last-to die policy shouldn t be purchased if the life insurance funds are required on the first death. A joint last-to-die policy may be used to: provide funds for the payment of taxes owing on the death of the last-to-die of the lives insured preserve a couple s estate for their heirs or provide a gift for a couple s favourite charity Dividend options Canada Life offers participating policyowners a choice of five dividend options. These options give policyowners increased flexibility. If a dividend option isn t indicated on the application, dividends will be used to purchase paidup additions. Dividend options can be changed upon the policyowner s written request, subject to limitations. A change in dividend option may result in taxable income to the policyowner. Only one dividend option can be elected at any given time. Paid-up additions The paid-up addition (PUA) dividend option purchases additional paid-up life insurance with each dividend that is credited to the policy. The key advantages of paid-up additions are: Coverage increases annually without evidence of insurability. This is generally a good way to offset the effect of inflation so the value of the policyowner s coverage isn t eroded over time. Dividends are used to pay for the additional paid-up life insurance coverage on a pre-tax basis. That is, dividends that are immediately applied to pay life insurance premiums within the same policy don t attract income tax. Paid-up additions are eligible for their own dividends. Once paid-up additions are purchased, their value at purchase is guaranteed. The associated death benefit and cash value can only be reduced if the policyowner requests a partial surrender (e.g. premium offset or withdrawal) or, if the premium for the basic death benefit is unpaid, dividends may be used as specified in the policy to help keep the policy from lapsing (i.e. automatic premium loan). Paid-up addition premiums will vary by: Smoking status Substandard rating Sex Attained age The paid-up additions graph demonstrates how paid-up life insurance coverage grows over time to supplement the basic death benefit (i.e. face amount). Paid-up additions dividend option 3 Basic insurance Time Total death benefit Paid-up additions For the same premium, the paid-up additions dividend option provides higher early cash value and lower initial death benefit than the enhanced coverage option. It provides higher death benefit growth over the long term. 3. these graphs are for illustrative purposes only. Actual proportions for PUA and ECO will vary by such factors as age, risk class, amount of life insurance, out-of-pocket premium payments and declared dividends. This example is not complete without the Canada Life illustration including the cover page, reduced example and product features pages having the same date. 7

8 Enhanced coverage option Dividends are used to buy additional life insurance that is a combination of paid-up additions and one-year term life insurance. The enhanced coverage option (ECO) offers five key advantages: Premiums for the one-year term coverage are paid by dividends using pre-tax dollars. Dividends that are immediately applied to pay life insurance premiums within the same policy don't attract income tax. A portion of the dividend is used to purchase paid-up additions each year whenever dividends exceed the ECO one-year term cost. Over time, the amount of term life insurance may be completely replaced by paid-up life insurance at which time the death benefit will begin to increase. Within limits at time of issue, the policyowner can choose the amount of ECO used to strike a balance between affordability and future growth in cash value and death benefit. The ECO one-year term life insurance can be converted at the policyowner s request to any permanent life insurance policy, which is issued at the time of conversion, prior to the policy anniversary nearest to the life insured s 65th birthday (or nearest to the joint attained age 65 for joint coverages), subject to certain restrictions. If the dividend scale is increased in the future, the ECO term may be replaced at a faster rate by paid-up additions and vice versa if the dividend scale is reduced. ECO term premiums will vary by: Smoking status Substandard rating Sex Issue age and attained age ECO guarantee selected ECO Enhanced coverage dividend option 3 One-year term life insurance Basic insurance Total death benefit Paid-up additions Time ECO provides higher initial coverage for the same out-of-pocket premiums as the paid-up additions option. Enhanced coverage option guarantees The enhanced coverage option (ECO) is available with a 10-year or lifetime guarantee of the enhancement amount. The ECO guarantee (for lifetime or 10 years) states that: Canada Life will not ask for extra out-of-pocket payments to cover any premium shortfall if, during the guarantee period, current dividends are unable to completely cover the entire cost of the ECO one-year term life insurance cost. The enhancement amount will not be reduced during the guarantee period. Certain options available to the policyowner, if elected, cause the ECO guarantee to cease or be forfeited. For example, if dividends are used to support premium offset or if they re withdrawn from the policy, the ECO guarantee ceases. A policy loan doesn t affect the ECO guarantee. If dividends are insufficient to pay for the ECO term coverage and the guarantee period has expired, additional out-of-pocket premium payments may be required to pay for any shortfall, or the policyowner may choose to have his or her ECO coverage reduced. 3. these graphs are for illustrative purposes only. Actual proportions for PUA and ECO will vary by such factors as age, risk class, amount of life insurance, out-of-pocket premium payments and declared dividends. This example is not complete without the Canada Life illustration including the cover page, reduced example and product features pages having the same date. 8

9 Premium reduction Dividends are used to reduce the out-of-pocket premiums for the current policy year. A billing notice is sent for any remaining amount that the dividend doesn t cover. If the annual dividend credited exceeds the premium, the excess may be applied to one of the following dividend options of the policyowners choice -- paid-up additions, cash accumulation or cash payment. Dividends paid in cash, left to accumulate or applied to pay premiums for non-life insurance riders may be subject to taxation. Cash accumulation Dividends can be left to accumulate with interest. The interest rate is adjusted from time to time. Interest is credited on each policy anniversary. The accumulated amount is added to the death benefit. All or a portion of the annual dividend may be taxable in later policy years. Dividends paid reduce the policy s adjusted cost basis (ACB) and are subject to tax when the ACB is zero. Any interest earned on dividends on deposit is subject to tax. Clients may withdraw some or the entire accumulated amount at any time Cash payment Dividends are paid to the policyowner each year. Policy cash values equal the contractually guaranteed cash values with this option, and the death benefit remains level. Cash dividends reduce the policy ACB and are subject to tax once the policy s ACB is zero. Premium offset After out-of-pocket premiums have been paid for a number of years, premiums may be able to be paid by current dividends and/or withdrawal from any cash accumulations or surrender of any paid-up additions. Since premium offset is dependent on dividends that are credited to and retained in the policy over time (but aren t guaranteed), increases and decreases in the amount of dividends credited over the life of the policy will affect the availability of premium offset. Such increases or decreases may affect the length of time that the premium may be paid in whole or in part by dividends. The rate of growth in both the death benefit and cash value is reduced when premiums are paid by using premium offset rather than by out-of-pocket payments. Premium offset is dependent on dividends which aren t guaranteed. Thus, the premium offset date shown on illustrations isn t guaranteed. It s possible that a policy will never be eligible for premium offset or that it will become eligible and subsequently cease to be eligible. Eligibility for premium offset will be determined based on current administrative rules at the time of application for premium offset. There are a number of events affecting the date that premium offset will be available, such as: Increases or decreases in the dividend scale Withdrawal of cash accumulations Surrender of any paid-up additions Changing a dividend option Adding a rider or supplementary benefit Changes to ECO term rates or PUA purchase rates Taking a policy loan or increasing an existing policy loan Increases or decreases in the policy loan rate Increases or decreases in the interest rate on accumulated dividends Policies with the enhanced coverage option (ECO) will be affected to a greater extent by these changes than policies with other types of dividend options. Other features Cash values A policy s total cash value is comprised of two components: 1. Guaranteed basic cash values, which are specified in your client s contract. For Wealth Achiever, the guaranteed cash value is available starting in year one. For Estate Achiever, the guaranteed cash value is available by the seventh policy year. 2. Cash value arising from dividends which aren t guaranteed. These cash values accumulate in policies with paid-up additions, ECO and cash accumulation dividend options. 9

10 Accessing cash values Policy loans Policy loans are available from Canada Life secured by the cash value of the policy according to the terms of the contract. Interest on the policy loan will accrue from the day the loan is taken at a rate set by Canada Life. If the accrued interest at the end of a policy year isn't paid at that time, Canada Life will add it to the amount of the loan. The amount of the loan and the accrued interest are the amounts owed on the policy. Policy loans aren t taxable if the amount being borrowed is less than the policy adjusted cost basis (ACB) at that time. Policy loans reduce the policy ACB. When the policy ACB is zero, any additional policy loans are taxable. Repayments of policy loans that were previously taxed are eligible for tax deduction. Policyowners may borrow all or a part of the total loan value. The total loan value at any time is the amount which equals: The loan value set out in the table of guaranteed values, increased by any cash accumulations, plus 90 per cent of the cash value of any existing paid-up additions credited to the policy Less: Any amounts already owed on the policy, plus interest which will have accrued (assuming no repayment of all or part of the amounts owed on the policy) This is all determined as at the next policy anniversary or, if sooner, the next premium due date. The policy will lapse if at any time, the accumulated loan amount including any accrued interest exceeds the policy cash value. Withdrawals Policyowners may withdraw cash values arising from policy dividends without affecting the basic policy guarantees. If the dividend option is PUAs or ECO, the cash withdrawal is made available by surrendering PUAs related to that cash value. The death benefit will reduce by the PUAs surrendered. Any ECO guarantee will be forfeited by the withdrawal. Withdrawals of guaranteed cash values require an amendment to the policy, which will revise the guaranteed values in the policy including a reduction in basic death benefit. Any withdrawal of cash values, other than cash accumulation dividends on deposit, may be subject to taxation. Non-forfeiture options If a policyowner decides to discontinue paying premiums, the policyowner may elect one of the following non-forfeiture options to maintain coverage: 1. Automatic premium loan If all or part of a premium due remains unpaid at the end of the grace period, a premium loan will automatically be taken from the policy cash value to pay the premium owing. 2. Reduced paid-up life insurance A policyowner can elect to use the total cash value of the policy as a single premium to purchase participating paid-up life insurance. The amount which can be purchased will depend on the amount of cash value available less any indebtedness, the insured s age, sex, smoking status and risk class. Election of this option may result in the loss of the tax-exempt status of the policy which would result in the policyowner having to report taxable income each year. 10

11 3. Extended term life insurance The extended term life insurance option (ETI) allows you to keep an amount of insurance under this policy inforce for a period of time, without paying premiums which would become due. A policyowner may elect to purchase fully paid-up term life insurance for a term, the length of which will depend upon the amount of cash value available less any indebtedness in the policy at the time this option is exercised and the insured s age, sex and smoking status. The ETI option isn t available if any insured was rated as shown on the policy details page. Election of this option may result in the loss of the taxexempt status of the policy, which would result in the policyowner having to report income each year. The amount of ETI available will be equal to the face amount of the policy plus PUAs, less any indebtedness on the policy at the time of election. 4. Premium deferment Premium deferment allows the policyowner to maintain the basic death benefit plus any coverage purchased by the dividend option if a required basic premium isn t paid by the end of the 31-day grace period. Before the grace period ends, the policyowner must request to be placed on extended term life insurance. Premium deferment will automatically be applied when the extended term life insurance is elected between the first and fifth policy anniversaries, inclusive. Any additional benefits provided by riders aren t included under the extended term life insurance. Before the next policy anniversary after the election of this option (or before the extended term life insurance period completes, if earlier), the policyowner must restore the premium-paying status of the policy by paying back the missed premium(s) with interest. The policyowner may also restore any additional benefits provided by riders at the same time premium payment status is restored, but evidence of insurability may be required. If the policy isn t restored, it will remain as extended term insurance and the policyowner forfeits any ability to restore the premium-paying status thereafter. During the premium deferment period, charge-backs will apply to both commissions and new business credits. If the policy is restored, these charge-backs will be reversed. If the policy isn t restored before the first policy anniversary after election of this option, the policyowner may lose the tax-exempt status of the policy. 11

12 Riders and benefits Wealth Achiever and Estate Achiever riders and benefits availability Rider Issue ages max 20 policies Issue ages - pay to age 100 policies Single life Joint first-to-die Joint last-to-die, premiums to last death Joint last-to-die, premiums to first death Additional deposit option (ADO) Scheduled Single premium Disability waiver of premium Death and/or disability waiver of premium Adult 4 Payor Basic Insured Payor Basic Insured Death and/or disability waiver of premium Juvenile Death and disability waiver of premium Guaranteed insurability rider (standard risk only) Business growth protection rider 10 or 15 years (standard risk only) 7 Payor Basic Insured Not applicable Not applicable Not applicable year option: year option: year option: year option: (single life basis) (single life basis) Accidental death benefit Simply Preferred term life insurance rider term 10 Simply Preferred term life insurance rider term (single life basis) (single life basis) (single life basis) (single life basis) Simply Preferred partner term Simply Preferred partner term (single life basis) (single life basis) Child s term life insurance (rating under 200 per cent pre-astra for basic insured and insured children at issue) 15 days - 17 years Basic insured days - 17 years Basic insured Maximum issue age for payor on death is 60. Additional deposit option (ADO) The additional deposit option (ADO) enhances policy values by allowing additional premium payments that purchase additional paid-up life insurance over and above the PUAs purchased by policy dividends. The dividend option on the policy must be PUA or ECO to add ADO to a policy. For new policy issues, the ADO is available on both standard and substandard policies dated May 26, 2008 and later. ADO is not available when flat extra premiums are involved. The ADO may increase the amount of underwriting required before a policy is issued. There are two versions of the ADO: 1. Scheduled involves a regular premium payment (monthly or annual) to purchase additional paid-up life insurance. 2. Single premium involves a one-time purchase of additional paid-up life insurance. This version will have a higher maximum premium than the scheduled version. Scheduled and single premium ADO premiums aren t waived under any benefit. After the policy is issued, the rider may only be added on a policy anniversary. The scheduled ADO rider will terminate when: 12

13 A written request to terminate premiums for this rider is received Premium offset is elected The life insured reaches age 100 or the ESA for a joint policy reaches 100 for max 20, ADO can continue past the 20th policy year. Waiver of premium comes into effect A dividend option other than paid-up additions or enhanced coverage option is elected The first death occurs on a joint last-to-die policy with premiums payable to first death Reduced paid-up coverage or extended term life insurance is elected by the policyholder The policy is terminated Premium payments for this rider have not been paid for more than two consecutive years (more than 24 consecutive monthly payments) Issue ages - Scheduled ADO Pay to age 100: 0-85 Max 20: 0-80 Issue ages Single premium ADO Pay to age 100: 0-85 Max 20: 0-80 Issue amounts: Minimum ADO premium: Single premium: $1000 Scheduled: $1000 annual premium mode Scheduled: $90 monthly premium mode (the premium mode for ADO must match the base policy) There may be situations where the illustration will allow you to select an amount that is below the posted minimum. For only those cases you can go below the posted minimum. Maximum ADO premium: This is the lower of either the preset maximum allowed by the tax exempt test or the amount for which the insured is underwritten (single or scheduled premium). Preset ADO maximum premiums are designed to help keep the policy exempt from accrual taxation based on current Canadian tax legislation. In some situations, such as stopping and restarting ADO premiums, dividend withdrawals or dividend scale increases, a partial surrender (or reduction in ADO amount) may be necessary to help maintain the tax exempt status and this could generate taxable income. The preset maximum scheduled ADO premiums in the Concourse illustration software assume starting payments immediately and continuing to age 100. The maximum for the single premium ADO assumes an immediate payment. Issue maximums will vary by: Smoking status Substandard rating Sex Issue age Basic policy Premium-paying period (max 20 or pay to age 100) Rider version (single premium or scheduled with annual or monthly) Basic death benefit Policy duration when the coverage is added to an inforce policy ADO administrative fee The ADO administrative fee is guaranteed not to increase once the coverage is added. It is currently eight per cent to cover compensation, premium tax and issue and administration expenses. The administrative fee amount may differ for ADO coverage added at a later date. For annual payments the cash value at the point where the PUA is purchased is 92 per cent of the premium paid. For more details on ADO, see the Appendix section within this guide. Start and stop of additional deposit option premiums During the deposit period illustrated, deposits can stop and start again without underwriting up to and including missing two consecutive annual payments or 24 monthly (auto-pay) deposits. For example, a policyowner could pay the scheduled year one ADO premium, then miss years two and three, and then resume payment of the scheduled ADO at the start of year four without providing new evidence of insurability. If the policyowner does not resume payment of scheduled deposits after having missed two consecutive annual payments or 24 monthly deposits, the rider will terminate. Note: If the deposits stop and restart, no FYC override will be paid on the restarted deposits, unless underwriting is involved. It is a continuation of an existing sale not a new sale for restarts within three years of the policy issue date, unless basic coverage is increased. For more details on start and stop of ADO premiums, see the Appendix section within this guide. 13

14 Simply Preferred term life insurance term 10 and 20 riders The Simply Preferred term life insurance riders provide additional life insurance with a 10 and 20-year premium renewal period. The term life insurance may be converted to a permanent life insurance policy and is automatically renewable at the end of each 10 or 20-year term period until the policy anniversary nearest the insured s 85th birthday. These riders are available for all policies issued after May The rider is available on single-life coverages only. Simply Preferred term life insurance riders allow for lower premium rates for clients who demonstrate good health. Each rate class is based on specific measurable criteria. Preferred underwriting is available for face amounts of $250,000 or more. For amounts less than $250,000 our competitive gold or silver classes apply. Minimum issue amounts for Simply Preferred term life insurance riders are $50,000. Simply Preferred term life insurance term 10 to term 20 conversions All or part of a term 10 rider may be converted to a term 20 policy, without evidence of insurability. The conversion may be requested after the rider s first anniversary and prior to the earlier of rider s fifth anniversary or the anniversary nearest to the insured person s 65th birthday, whichever comes first. The new premiums are offered on the insureds attained age, calculated on an age-nearest basis and the first renewal occurs 20 years from the date of conversion, regardless of how many years the term 10 coverage was inforce prior to the change. A conversion is not available if the insured person is totally disabled and the premiums on the term 10 rider are being waived. In a partial conversion, part of the term 10 rider can be retained as a term 10 rider, provided all product minimums are met for the remaining term 10 rider and the new term 20 policy. For more information on our Simply Preferred term life insurance riders, refer to Canada Life s Simply Preferred term life insurance advisor guide (558 CAN). Simply Preferred partner term life insurance riders term 10 and term 20 Simply Preferred partner term life insurance riders provide life insurance with a 10 and 20-year premium renewal period on a spouse or common-law partner or business partner. The term life insurance may be converted to a permanent life insurance policy and is automatically renewable at the end of each 10 or 20-year term period until the policy anniversary nearest the insured s 85th birthday. These riders are available for all policies issued after Jan. 22, The rider is available on single-life coverages only. Simply Preferred partner term life insurance riders allow for lower premium rates for clients who demonstrate good health. Each rate class is based on specific measurable criteria. Preferred underwriting is available for face amounts of $250,000 or more. For amounts less than $250,000 our competitive gold or silver classes apply. Minimum issue amounts for Simply Preferred partner term life insurance riders are $50,000. All or part of a term 10 rider may be converted to a term 20 policy, without evidence of insurability. The conversion may be requested after the rider s first anniversary and prior to the earlier of rider s fifth anniversary or the anniversary nearest to the insured person s 65th birthday, whichever comes first. The new premiums are offered on the insureds attained age, calculated on an age-nearest basis and the first renewal occurs 20 years from the date of conversion, regardless of how many years the term 10 coverage was inforce prior to the change. In a partial conversion, part of the term 10 rider can be retained as a term 10 rider, provided all product minimums are met for the remaining term 10 rider and the new term 20 policy. Child s term life insurance rider The child s term life insurance rider provides increasing term life insurance coverage on all insured children in a family (subject to age restrictions and individual children and the basic insured must be rated 200 per cent or lower pre-astra when the rider is applied for). On each rider anniversary date, the coverage amount for the child s life insurance rider automatically increases by four per cent of the original amount. The coverage ceases, with respect to any particular child, on the rider anniversary following that child s 25th birthday, or the basic life insured turns 65, whichever is earlier. However, the policyowner can extend the coverage beyond the basic life insured s 65th birthday, if any insured children are still under 25 at that time. The policyowner must request this extension within 60 days of the insured parent turning

15 At the death of the basic life insured, the then existing coverage on each child is automatically converted to paidup term life insurance, convertible to age 25. The term children includes natural, adopted and stepchildren of the basic life insured. After the rider is in place, any additional children who are born to or legally adopted by the life insured prior to his or her 60th birthday are automatically included under the contract regardless of health, at 15 days of age. The initial coverage in these cases, for each added child, is the amount inforce on each of the children already covered, at the time the additional child is added. The current child s life insurance rider can be added to policies issued after Jan. 1, Issue ages Basic life insured: up to and including age 59 Children insured under rider: 15 days up to and including 17 years of age (on an age nearest basis) Issue limits Minimum: $10,000 Maximum: $25,000 Substandard: If the primary insured is rated over 200 per cent (pre-astra rating), the rider is not available. If any child born to or adopted by the primary life insured at the time the rider is underwritten, is rated over 200 per cent (pre-astra rating), they will be excluded from the rider. Additional children born to or adopted by the life insured within the limitations described above are automatically included under the contract. Premiums The annual premium is level and isn t dependent on the number of insured children. The premium-paying period is the greater of 25 years or to the basic life insured s age 65 as long as the coverage is in effect. The premium period may be extended to additional years of coverage to protect all children who haven t yet reached age 25. Conversion The coverage on each child may be converted to a term or permanent policy, either when the child turns 25, or within 31 days of the insured child s marriage, if the child marries between their 21st and 25th birthday. The amount of coverage converted may not be more than $250,000 of new life insurance. If the policyowner does not exercise the conversion option by the insured child s 25th birthday, the insured child will be entitled to exercise it in place of the policyowner and will be the owner of the new plan. Death and/or disability waiver of premium Basic premium payments (and some rider and benefit premium payments) will be waived if the individual with the waiver of premium coverage (waiver life insured) dies or becomes completely disabled for six consecutive months and continues to be disabled. For waiver of premium on disability, the disability must occur before the waiver life insured s 60th birthday. For waiver of premium on death, death must occur before the waiver life insured s 65th birthday. The policy benefits will continue as if the premium had been paid by the premium payer. Definition of disability Total disability is defined as a bodily injury or disease resulting in the following: a) During the first two years, the waiver life insured is prevented from engaging in his or her regular occupation for payment or profit b) Thereafter, the waiver life insured is prevented from engaging in any occupation for which he or she is or can become qualified by training, education or experience There are several types of waiver of premium riders available: 1. Disability waiver of premium for the owner/insured of single-life and joint first-to-die policies 2. Death and/or disability waiver of premium for the payer of single-life policies 3. Disability and death waiver of premium for either or both lives of joint last-to-die policies Where the life insured is under age 16, the waiver of premium terminates on the day before the anniversary nearest the child s 25th birthday or the waiver life insured s (payer s) 60th birthday, whichever occurs first. Where the owner-applicant (payer) is other than the basic life insured, evidence of insurability will be required. Issue age Purchase limit The maximum amount available is $50,000 of premium to be waived including any amount applied for and inforce from other companies. 15

16 Guaranteed insurability rider The guaranteed insurability rider (GIR) allows the life insured to purchase additional life insurance on specified option dates without providing new medical evidence of insurability. The additional life insurance may be any permanent individual life insurance policy issued by Canada Life at that time, with Canada Life s consent. Premiums are based on the attained age, using the same class of risk as the basic policy. This rider may be included at the time of issue or added subsequently to standard risk policies. It automatically ceases if the base policy is terminated. Issue age 0-45 Benefits and riders If the base policy includes a waiver of premium rider, then this rider may be added to the new policy without medical evidence when a GIR option is exercised. However, if the insured is disabled due to a condition that existed before exercising the GIR option, the premium for the new policy isn t waived by that disability rider. If the base policy is on the life of a minor and includes a waiver of premium rider, Canada Life s current practice is the waiver of premium rider is automatically added to the new policy when a GIR option is exercised. If the base policy does not include a premium waiver, then when a GIR option is exercised, a waiver of premium rider may be added to the new policy with satisfactory evidence of insurability. If the policy contains an accidental death benefit (ADB) rider on the life insured at the date of option, then a similar rider may be included with the new insurance plan or coverage. The amount of the new rider may not exceed the new insurance amount applied for at the date of option and must be within the maximum and minimum amounts we would then allow for the new plan or type of coverage. If the base policy includes any other rider, it may be added to the new policy with satisfactory evidence of insurability. Option amounts GIR issue amounts must be within the following limits: Minimum: $25,000 Maximum is the lesser of: Two times the face amount (including term riders) $300,000 The total life insurance amount of all GIR optioned new policies may not exceed the cumulative maximum amount allowed under the GIR option, as illustrated in the table below Issue limits Original policy Cumulative maximum of issue age all options is the lesser of: 0-36 $1,200,000 or four times selected option amount $900,000 or three times selected option amount $600,000 or two times selected option amount 45 $300,000 or one times selected option amount Option dates Option dates are the policy anniversaries nearest the insured s following birthdays: 25, 28, 31, 34, 37, 40, 45 or 50. Alternative option dates occur on the 91 st day after: Marriage Birth or adoption of a child The alternative option dates negate the next available option date. If a regular option date falls within the 90-day period before the alternative option date, it s cancelled. If an option date doesn t fall within the 90-day period and the insured purchases additional life insurance on the alternative option date, the next available option date is cancelled. Requests for other special option dates are considered. A written application must be received at Canada Life s head office within 60 days before or 31 days after the option date. Provided the insured is still living, coverage takes effect upon the later of: The option date Receipt by head office of the first premium no later than 31 days after the option date Business growth protection (BGP) rider (10 or 15-year option period) The business growth protection (BGP) rider gives business owners the option to purchase additional life insurance coverage on the life insured at their attained age, without providing additional medical evidence of insurability. Designed to make it easier for business owners to increase their insurance when their share of the business grows in 16

17 value, this rider is available to businesses and to business owners, whether shareholders, partners or sole proprietors, for a business insurance need. The business must be headquartered in Canada, and have been operating at least three consecutive years. Operations in the U.S. will be considered on a case-by-case basis. The rider is available for: Single-life policies only one BGP rider is allowed per business per policy. If the applicant has more than one business, then a separate policy and BGP rider must be issued Joint policies available on a single-life basis Each rider can cover only one life and the life insured s interest in only one business The rider is not available for substandard risks. The risk must be standard before ASTRA programs are applied. Issue age 10-year option: year option: Issue requirements The rider can be added at issue or after issue, subject to medical evidence of insurability and financial underwriting approval. At the time of underwriting, a rider option period of 10 years or 15 years must be chosen. In to the application, the business must provide: Financial statements for the company s last three fiscal years. These financial statements must be prepared using Generally Accepted Accounting Principles (GAAP) by an accountant whose qualifications are acceptable to Canada Life. Documentation acceptable to Canada Life establishing the applicant s current ownership interest in the company The valuation of the business and the life insured s share of it for the purposes of the rider will be as determined by Canada Life using one of the following methods: Asset-based valuation This method is used for businesses with low earnings, where value is based on the underlying assets. For example, a real estate holding company or construction company. Earnings-based valuation If the business has a stable track record and predictable prospects, then this method uses capitalized earnings or cash flow. If the business has fluctuating earnings or cash flow, then this method uses discounted earnings or cash flow. Canada Life may accept alternative methods of valuation. Cost Rates vary by the chosen option period (10 years or 15 years), age, sex, and smoker status. The premium for the rider is not banded. The cost is a level rate per thousand of the option amount. The BGP rider is priced on the basis that the premium remains level even as options are exercised. Option amount limits Issue minimum: $100,000 Issue maximum: $2.5 million Financial underwriting by Canada Life will determine the value of the business for an option date, based on the financial statements provided from the last three fiscal years (and other information as is deemed necessary). Cumulative maximum amount The cumulative maximum amount of new insurance coverage that can be purchased under rider is the lesser of: $10 million Four times the rider s option amount limit The life insured s ownership share of any increase in the business value measured from the rider date Increases in the option amount, and therefore in the cumulative maximum, are not permitted. Decreases in coverage are permitted, subject to the minimum amounts of $100,000 and Canada Life s then current administrative rules. Exercising an option The option dates are on each rider coverage anniversary from years one through 10, or years one through 15, depending on the chosen option period. A letter of notification is mailed 60 days in advance to remind the policyowner of the option date. The option expires 31 days after its option date. Options may be exercised to: Buy a stand-alone term 10 policy: Preferred rates are not available on the new coverage Buy a stand-alone term 20 policy: Preferred rates are not available on the new coverage 17

18 Buy a permanent life insurance policy (subject to administrative rules at that time): If universal life insurance is elected for the new coverage Additional coverage can either be a stand-alone policy or added as coverage on an exisiting policy. If participating life insurance is elected for new coverage There are no dividend option restrictions on that new insurance The additional deposit option (ADO) is available, subject to medical evidence for the ADO amount. An option may only be exercised if the financial underwriting review concludes that the value of the insured s share of the business has increased since the rider date. Typically, the policyowner would apply for and be the policyowner of the new insurance. If the policyowner doesn t wish to apply for new insurance, the rider provisions allow the life insured to apply with the written consent of the policyowner. In this situation, the life insured would be the owner of any new insurance issued. This may result in tax implications and the policyowner and life insured should seek advice from their tax advisor. The additional coverage which can be purchased at a single option date cannot be less than the policy minimums for the new insurance at that time. It also cannot exceed any of the following: The maximum option amount The life insured s ownership share of any increase in the business value measured from the rider date, minus all amounts of new insurance previously purchased under the rider The cumulative maximum amount, minus all amounts of new insurance previously purchased under the rider. Other riders and benefits If the base policy for the BGP rider includes a waiver of premium rider, then at the policyowner s request that benefit can also be added to the new policy, without medical evidence of insurability, provided the insured person is not disabled at the time of opting. If the new policy is Millennium universal life insurance, then the premium waiver amount is the minimum premium or target premium for the opted coverage, whichever is bigger. If the base policy contains an accidental death benefit (ADB) rider on the life insured at the date of option, then at the policyowner s request a similar rider may be included with the new insurance, without evidence of insurability, unless prohibited by the terms of the rider or by our then current administrative rules. The amount of the new rider may not exceed the new insurance amount applied for at the option date and must be within the maximum and minimum amounts we would then allow for the new insurance policy or coverage. If the base policy includes other riders, then they can be added to the new policy with medical evidence of insurability. Termination The rider will terminate automatically on the earliest of the following dates: Date of the life insured s death; Rider expiry date (the 10th or 15th anniversary of the rider, as applicable); Date the cumulative maximum amount has been reached; Date the remaining cumulative maximum amount is less than any available product minimums; and Date the base policy to which this rider is attached is fully converted, terminates, or lapses. Accidental death benefit The accidental death benefit (ADB) provides additional coverage if the death of the insured is caused by an accident prior to the policy anniversary nearest the insured s age 70 and within 365 days following the accident. The beneficiary will receive a death benefit in addition to the original basic life insurance amount. Premiums for this benefit are required until the policy anniversary nearest the insured s age 70. Issue age 0-65 Issue limits The maximum amount available is the lesser of: The basic death benefit plus any term rider and ECO coverage $400,000 of accidental death benefit applied for and inforce with all insurance companies 18

19 Appendix How does ADO affect the life insurance policy? That depends on the dividend option selected: Paid-up addition (PUA): additional premiums will increase the paid-up additional death benefit and related cash value. This can help provide an earlier premium offset date or help build funds for concepts that involve accessing your cash values. Enhanced coverage option (ECO): additional premiums will buy paid-up additions and reduce the term portion of ECO coverage faster. This will reduce term costs and can result in an earlier cross-over where the term is totally replaced by paid-up additions. The death benefit will then begin to increase. Paying ADO annually versus monthly PUA is purchased when ADO premiums are received. For monthly payments, an eight per cent monthly premium mode charge applies (same as for the base coverage). In addition, an eight per cent ADO administrative fee is subtracted prior to purchasing the PUA. The paid-up additions are purchased throughout the year (each month), however they receive the same annual dividend as paid-up additions purchased at the beginning of the policy year. Annual ADO payments made at the beginning of the year buy PUA using the beginning of the policy year purchase rates. Monthly ADO payments buy PUA as the money is received using purchase rates that are interpolated between the last and next policy anniversary. This means the purchase rates increase over the course of the year. For monthly ADO payments, the Concourse illustration software uses the purchase rates at the next policy anniversary. This may result in actual PUA amounts which are equal or higher than those on the sales illustration. Paying monthly rather than annually will generally result in slightly lower values. Underwriting requirements for ADO: When scheduled ADO is added at issue: the annual premium (regardless of premium mode) is used, less the eight per cent ADO administration fee, divided by the single premium purchase rate to calculate the first year face amount. This face amount is then multiplied by three and added to the base policy. When single premium ADO is added: Use the same calculation as scheduled ADO, except the face amount of the PUA purchased by one ADO premium is not multiplied by three. After issue: If ADO is added after issue, the underwriting requirements are based on the attained age and amount requirements are determined using the same approach as above for the PUA purchased by the ADO using Canada Life s age and amount table. The risk can be different than the basic coverage. Evidence of insurability is required when adding ADO, even for term conversions. Examples Stop and start of additional deposit option premiums: Stopping and restarting premium payments without underwriting is governed by the start and stop section below The ongoing scheduled ADO policy year maximum premium is governed by a review of the last three policy years as outlined in the section below. If the start and stop premium payment rules aren t met, the policy year maximum will be reset to zero. 19

20 Stop and start of additional deposit option premiums: Stopping and restarting premium payments without underwriting is governed by the start and stop section below The ongoing scheduled ADO policy year maximum premium is governed by a review of the last three policy years as outlined in that section below. If the start and stop premium payment rules aren t met, the policy year maximum will be reset to zero. Examples: Stop and start of ADO Annual Ongoing scheduled ADO policy year maximum If the highest amount paid during the preceding three policy years is a partial payment, that amount becomes the new maximum deposit amount without underwriting. Any portion of a scheduled deposit that is missed in a particular year is forfeited and cannot be recovered in a subsequent year without underwriting. This is true even if the regular scheduled additional deposit is reduced by the tax test in a particular year. Within a policy year the policyholder can top up the ADO premium to the maximum for that policy year without underwriting. Example: $5000 Scheduled ADO $1000 $0 $0 $1000 $5000 $3000 $2500 $4000 $ Months Note: The $1000 annual payment can be made at the beginning of year four without underwriting. $1000 $0 $0 $0 Year 1 Year 2 Year 3 Year 4 Year 5 Note: Maximum ADO amount in the 5th policy year is $4000, the maximum paid in the previous three policy years Months Note: As three consecutive annual payments have been missed, additional ADO payments will require underwriting. Monthly $0 $0 $ 90 $ Months Note: The $90 monthly payment can be made at the beginning of year four without underwriting. $0 $ $0 $ $ Months Note: As 25 consecutive monthly payments were missed, additional ADO payments will require underwriting. 20