红利保险（Pension Insurance, Par Life Insurance）

[abcde123]

I pulled out the financial statement for the Year 2009 of Canada Life participating life policy for your reference.

http://www.canadalife.com/web5/groups/common/@public/documents/web_content/s5_009628.pdf

(Again, just as an example of such policy)

You can see on pg.11 the historical average returns. It is slightly on decline.
But then we know the reason behind that. For those that are old enough, you would remember the double digit interest rates in the 80s.

See: http://www.bcrealtor.com/d_bkcan.htm#bkcannow

I did not attend the seminar but what the speaker was saying is not false. However, one must keep in mind that past performance is not indicative of future results.

If and when you decide to purchase any sort of financial products, just make sure that you understand the products fully and know your other options.

A lot of people say that insurance people are liars. I am sure some choose not to disclose every bit of details to consumers like you and me but that does not make them liars if we opt not to fully understand the products. We, as consumers, have to be smarter about this and take responsibilities when we make any financial decisions, too.

Remember, nothing is too good to be true.

Also, there are reasons why any products exist in today's market place. You just need to make sure that these products are right for you before you buy.

Caveat Emptor, right? Let the buyer beware.

 

[mooncake]

什么红利保险不就是分红保险吗，顾弄玄虚。虽说分红保险是个好东西，但是瞎忽悠就不厚道了。

照“友安”说的确保那么高的回报，人们不早就打破头了？人们都打破头了，“友安”忙都忙不过来哪还有空跑这来忽悠？纯粹胡说八道！

舍近求远从多伦多跑到这来，显然在多伦多混不下去了。

to enjoy the tax shelter, it has to be some kind of life insurance. That said, the annual amount will be well above 10K to cover your life insurance and growth. This 10K is after tax money, and such payment last for 15~20 years. It is not an easy thing for someone to decided that he/she could support such amount of net cash out flow for such long term. That is the hard part. One must have family annual income above 150K to be considered as potential marketing target.
If 10~15K is too high, your best option is TFSA.

 

[abcde123]

I agree with the previous post. Looking from the tax free growth side of this product, one could argue that TFSA would do the same thing with much more flexibility.

But life insurance is life insurance. It is important to keep in mind the two aspects of any permanent life insurance policies (insurance portion + cash value/investment portion).

So if you have some about 10K after tax money to invest every year in your family, and there is a need for some life insurance, 2 TFSA (yours and your spouse's) + term life insurance might be something you can consider. Again, this is not to say that this is the same as getting a whole/permanent life insurance like participating life insurance because they are just different. There are still many fundamental differences between a term and a whole life policy.

Also, it is good to understand the insurance needs are really needs, instead of wants.

Don't forget other registered accounts such as RRSP, RESP, and RDSP... Given a finite disposable income for most families, you need to decide where that income is going before getting tempted to buy some other financial products that may or may not be what you need/want.

 

[lazycatcat]

The insurance product was advertised as risk free, whereas there was substantial risk due to its locked term plus market fluctuation.

The locked term is the chief risk here. They try to hide it by advertising guaranteed return.

This is the whole point and the dishonesty in disclosure.

 

[mosonk]

Many thanks for all your posts, which have been keep my brain busy! I try my best to understand much as I can from all your kind, sharp, and professional advices. I wish I chose the financial field as my career many years ago! It is not easy to digest for us, the natural science guys, to chew over the financial terms.

1. Now that we know a few insurance companies carry the Par Life insurance, such as Canada life, Sun Life, London Life, and Manulife. After the just passing financial crisis, we know everything can happen during the down time. Even the world insurance giant AIG almost disappears. So, what is the risk if I made a bad choice in the insurance company? If the company went for bankruptcy one day, would their customers lose everything? From this view, which company would you like to recommend?

2. Is there a significant difference in the return rate among the Insurance Companies? Which company’s par life give a better perform and less volatile?

3. The Canada Life give a more transparent and reasonable explanation about the policy of their Par Life Insurance. I suggest anyone who is interested in this type of products go to read it before you make the decision. Thanks abcde123 for your very professional comments and the links. You know a lot.

5. Lazycatcat, you are my hero. I thank you a lot.

6. Mooncake, your brief words remind me a lot. Thank you.

I haven’t made my mind yet. But, things are getting clearer day and day with all your help plus my hard study:glowface:.

I STILL LOOK FORWARD TO HEARING FROM YOU, PLEASE:tip::tip::tip:

 

[lazycatcat]

Based on my knowledge (may not be correct), life insurance is heavily regulated but is not guaranteed by government. This is different from deposit with banks.

For home and auto insurance, any loss is pooled among industrial players. So, if insurance A is under, any claims against A by the insured is pooled by all auto or home insurers in the country.

There is no magic about life insurance. It is generally designed with two major features:

1. Term Life Insurance: This type of product typically states a sum for pre-mature death. Say $1 M if one dies before age 65 etc. There is no coverage after the contracted age and premiums were not returned.

2. Investment Life Insurance: This product essentially is a long-term investment plan. There is no guarantee whatsoever of returns or pre-determined lump-sums.

3. True Life Insurance: This product pre-determines a lump-sum payout on death of the insured. I don't normally hear about this product in Canada but let me know if you know.

In US, due to estate tax, product 2 and 3 might be attractive. Since there is no estate tax in Canada, this aspect of advantage doesn't exist. There might be some deferred tax benefit.

Product 1 and 3 make sense. In general, Product 1 has low premium and people buy it to guard against accidental death. Product 2 also makes sense but premium is a lot more expensive. You can use premium schedule to determine the assumed annual return by the insurers.

Product 2 is normally a "hoax" if promoted by financial advisors. Where are you going to find the advisor after 20 years ?

Warren Buffett has been buying up life insurance (product 3) from people who don't or can't continue to donate to their life insurance plans. At a discount, of course. I don't know the priority of claim if an insurer goes under. Obviously, Buffett must have taken these into consideration.

As Buffett used to say, if you have steady cash flow or don't need the money for long time, if stock market just crashed and you still had the cash, it was probably the superb time for broad index based investment for regular people. Of course, rise and fall forever accompany stock market.

There is a term I find very insightful. There is something called highly uncertain but low risk. Like betting $1 against $0.50 for a fair coin when next throw is head. This game is highly uncertain but of low risk if played on without stop ....

 

[abcde123]

mosonk: You are right. After what we saw happen to AIG, we knew that nothing is too big to fail. I feel, though the value of your policy is not at a great risk.

For example, the life insurance policies from AIG Life Canada got sold to BMO Insurance. I am guessing that life insurance policies are money makers for the insurance companies because the risk in which policy holders is to die has been carefully calculated by the insurance companies. (These companies are here to make money, don't forget).

But I still think it makes good sense to stay with the bigger insurance companies if I have to choose.

The rate of returns from these participating life insurance policies are probably quite similar. You can compare what I sent earlier on Canada Life with what I found on London Life's participating life insurance as well: http://www.londonlife.com/web5/groups/iiiplifeinsurance/@public/documents/web_content/s5_008228.pdf

Note: London Life, Canada Life are both under the same parent company, Great West Lifeco - which is indirectly controlled by the Power Corporation.

I personally would more or less ignore the rate of return from this decision making process. In my humble opinion, I think you need to first decide whether you need/want life insurance given your financial situation. If yes, then decide whether you would choose between the much more expensive permanent life insurance (such as this one) or the inexpensive term life insurance (and invest the difference in your registered and/or non-registered accounts). If at this point, you still think participating life insurance is what you want (I doubt you'll need it) ** knowing exactly the pros and cons of different things **, then you find the big insurance companies that can give you the best bang for the buck. If the rate of returns are similar enough, it probably makes sense to go for one with the lower premium that provides the same initial insured amount for the coverage.

I say 'initial' because one of the most useful features of this product is that you can use part of the dividend payout to purchase extra life insurance. Many call this "paid up addition". This means that over time, your policy may grow its cash value (due to the annual dividends deposited) and its life insurance coverage.

As you know, a dollar today is not the same as a dollar in decades to come.

** Again, past performance does not guarantee future returns - despite of what anyone tells you **

** Also, don't get too caught up chasing the rate of return .. Once you decide to buy this product, you are really locked in for many years to come. There are likely some 'flexibility' in terms of paying the premiums but all of that depend on future returns that no one can possibly guarantee today.

I recently did a quick calculation for a family pre-tax income of 100K in Ontario just to see what disposable income is left after some typical after-tax expenses (assuming two young kids).

After-tax Expenses per year:
* 2 TFSA Contributions: 5000 x 2 = 10,000
* RRSP Contributions: 18% of earned income, max 20,000 approx
* 2 RESP Contributions to maximize CESG grants: 2500 x 2 = 5,000
* Mortgage: 25,000

Scenario 1: Two income earners of 50,000 each.
* RRSP Contributions: 9,000 x 2 = 18,000.
* Estimated income tax, after RRSP deduction (9,000) in each return = 6,000 (per person) x 2 = 12,000
=> 100,000 (total pre-tax income) - 10,000 (TFSA) - 18,000 (RRSP) - 5,000 (RESP) - 25,000 (Mortgage) - Income Taxes (12000) = 30,000

Scenario 2: One income earner of 100,000.
* RRSP Contribution (just one): 18,000
* Estimated income tax, after RRSP deduction (18000) = 20,000
=> 100,000 (total pre-tax income) - 10,000 (TFSA) - 18,000 (RRSP) - 5,000 (RESP) - 25,000 (Mortgage) - Income Taxes (20000) = 22,000

So roughly 22-30K after-tax income to do the other things we would like to do:
* Emergency fund (a few months of pre-tax income saved away)
* Non-registered investments
* Vacation
* Daycare, extra curricular activities, etc.
* Other private insurances (long term disability, etc.)

The biggest risk for a permanent life insurance is what-if your disposable income is reduced and you are still on the hook if you want to keep the policy in force to really maximize the value of having this sort of life insurance policy.

In most life insurance analyses, you should focus on how much life insurance you need and then find a reputable insurance company that can provide you with the coverage with the best premium cost to you (assuming the policy terms and conditions are similar).

Due to the high premium for these participating life insurance policies, you definitely want to take your family cash flow into consideration.

Don't forget to consider the "buy term, invest the difference" idea.
Just make sure that when you do this, make sure you do invest on the regular basis, especially in TFSAs. It's the buy-and-ignore that fails the test of time when it comes to investment performance.

 

[mooncake]

I recently did a quick calculation for a family pre-tax income of 100K in Ontario just to see what disposable income is left after some typical after-tax expenses (assuming two young kids).

After-tax Expenses per year:
* 2 TFSA Contributions: 5000 x 2 = 10,000
* RRSP Contributions: 18% of earned income, max 20,000 approx
* 2 RESP Contributions to maximize CESG grants: 2500 x 2 = 5,000
* Mortgage: 25,000

Scenario 1: Two income earners of 50,000 each.
* RRSP Contributions: 9,000 x 2 = 18,000.
* Estimated income tax, after RRSP deduction (9,000) in each return = 6,000 (per person) x 2 = 12,000
=> 100,000 (total pre-tax income) - 10,000 (TFSA) - 18,000 (RRSP) - 5,000 (RESP) - 25,000 (Mortgage) - Income Taxes (12000) = 30,000

Scenario 2: One income earner of 100,000.
* RRSP Contribution (just one): 18,000
* Estimated income tax, after RRSP deduction (18000) = 20,000
=> 100,000 (total pre-tax income) - 10,000 (TFSA) - 18,000 (RRSP) - 5,000 (RESP) - 25,000 (Mortgage) - Income Taxes (20000) = 22,000

So roughly 22-30K after-tax income to do the other things we would like to do:
* Emergency fund (a few months of pre-tax income saved away)
* Non-registered investments
* Vacation
* Daycare, extra curricular activities, etc.
* Other private insurances (long term disability, etc.)

The biggest risk for a permanent life insurance is what-if your disposable income is reduced and you are still on the hook if you want to keep the policy in force to really maximize the value of having this sort of life insurance policy.

In most life insurance analyses, you should focus on how much life insurance you need and then find a reputable insurance company that can provide you with the coverage with the best premium cost to you (assuming the policy terms and conditions are similar).

Due to the high premium for these participating life insurance policies, you definitely want to take your family cash flow into consideration.

Don't forget to consider the "buy term, invest the difference" idea.
Just make sure that when you do this, make sure you do invest on the regular basis, especially in TFSAs. It's the buy-and-ignore that fails the test of time when it comes to investment performance.

变成英文论坛了，呵呵。
感觉上大家考虑退休时忽视了一个非常重要的因素：年龄。比方说上面的几个scenarios都没有把年龄考虑进去。如果上面那对夫妇年龄在35岁或以下的话，存满RRSP很可能会导致退休后税率高于退休前，尤其是50K+50K那个个案，存满RRSP几乎可以肯定是错误的理财方式，除非想利用HBP这个vehicle。由于RRSP收入算作“income"，过多的RRSP会导致退休后丧失其它福利。（中产阶级的痛苦，钱不多，福利不少，可惜正好得不到）
还有一点可能很多人都不知道，就是只有employment income才有RRSP额度。如果您经营小生意获取红利，那是没有RRSP额度的。所以LZ所说的保险还是有一定市场的。当然TFSA一定程度上冲淡了避税这个需求。

 

[闲得慌]

我一年前买了2种：
Manulife： fix premium, fix survivor benefit, but based on the statement, the survivor benefit increased 1% （from 500K to 505K， premium is 6k/year for 15 years）
Equitable: 红利保险， 4% return last year

 

[cmah]

我一年前买了，Manulife的， 回报不错。

大师，说细点行吗？

俺也是去年吃了口MFC.to，到现在还赔着呢。 没听说过哪家保险公司出过事，可偏偏俺一进去，垮碴。。。

 

[闲得慌]

大师，说细点行吗？

俺也是去年吃了口MFC.to，到现在还赔着呢。 没听说过哪家保险公司出过事，可偏偏俺一进去，垮碴。。。

你买的股票 MFC.to？

 

[cmah]

你买的股票 MFC.to？

是啊。

 

[闲得慌]

是啊。

"Never Buy Another Stock Again": An Investing Guide for the Rest of Us

 

[闲得慌]

I wrote to my agent to ask why I had 4% only just now, he sent me a piece of paper. Part of it is as follows:

 

[lazycatcat]

我一年前买了2种：
Manulife： fix premium, fix survivor benefit, but based on the statement, the survivor benefit increased 1% （from 500K to 505K， premium is 6k/year for 15 years）
Equitable: 红利保险， 4% return last year

There must be an age ceiling on the Manulife contract. For this type of contract, one can easily calculate the assumptions made by Manulife:

1. Assuming 8% normial return (i.e. including inflation).
2. Donating $6,000 each year for 15 years will yield $170K at the end.
3. Assuming another 20 years before payout, total would grow to $790K

Payout of $500K leaves Manulife with around $300K profit. This is a fair game as all assumptions are transparent.

Not so sure about the equitable plan. Chances are buyers will pay a heavy price and it will be years later that they will start to realize ...