On January 1, 2017, significant changes will become effective on insurance sold in Canada, impacting some planning strategies currently available in the marketplace. These new tax rules will affect various tax elements of policies such as the tax exempt test, the ACB and NCPI on life insurance as well as the taxable portion of prescribed annuities. 
 

What this means for your clients? 

 
Here’s a snapshot of the changes related to the exempt test.

• Maximum funding over the life of the policy may be reduced 
  • Policies with Level COI will be most affected
  • The impact on policies with YRT COI will not be as drastic 
• “Single deposit” strategies will be a thing of the past

For example:

• Male 50 Non Smoker
• Level Death Benefit, YRT 100 COI  with BMO^® Insurance’s “MaximizerElite” option
• $250,000 deposit followed by two further annual deposits of $3,639
• 5% illustration rate in a Low Fee UL ​

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In this scenario, the initial sum insured required under current (G2) rules to tax defer the stream of deposits would be $703,000 whereas under the new (G3) rules, the same client would have to purchase about $4,036,000 of coverage (almost 6 times more!) to be able to tax-defer the same amounts.

This additional amount of coverage would increase the COI and therefore drag down the fund value of the policy over the long term.
 
For a Joint Last to Die case study, please click here.  

Time is running out for clients who you believe will benefit from strategies under the tax current tax environment.
 

Get ready for 2017!
Learn more about the impact of the new tax rules by contacting
your BMO Insurance Business Development Manager today.

 
These comparisons are based on the same product features and do not reflect any changes to rates or features between the G2 and G3 scenarios.
 
MB 407 (2016/03/30)
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