Your Insurance Analysis and Recommendation

Your Insurance Analysis and Recommendation

Why we’re recommending whole life insurance

Whole life insurance is a type of permanent insurance. Another type of permanent insurance is universal life insurance. The main difference between the two is that when you buy whole life, the insurance company looks after managing any assets that belong to the policy. With a universal life policy, you, the policy owner, are responsible for making the investment decisions.

A whole life policy generally provides guaranteed cash values as well as offers you the potential to earn additional, non guaranteed cash values through the dividends or performance credits the policy may receive. With some universal life policies, the cash values are not guaranteedand are directly linked to how well the investments you selected within the policy perform.

It’s an age-old question whether a client is better off with a whole life insurance policy where the company manages the assets or a universal life policy where the policy owner controls the assets. We believe that over the longterm there will be very little difference in the performance of the investments that back both types of policies, if the investments are well managed; however, there could be very significant short term differences.

Based on our discussions and our review of your situation, we are recommending a whole life insurance policy.

What’s an illustration and is it important?

When you are considering purchasing life insurance, you are given an “illustration” that shows how your policy could perform in the future based on certain assumptions. The illustration is an important document because it shows you how your policy could perform in the future. However, it’s very important to note that an illustration is not a contract and isn’t guaranteed.

Each insurance company develops its own type of illustration and each company can choose how its products will be illustrated. While in some cases, the product that “illustrates” best may be the product we’re recommending, in some cases it is not.

Outlined below are the key factors we believe clients should take into consideration when purchasing life insurance – factors, in fact, that sometimes aren’t part of the illustration. Basing an insurance recommendation solely on one factor, such as price or the one with the “best” future illustrated values is, in our opinion, unprofessional and not necessarily in the best interest of our valued clients.

Key factors when choosing a life insurance policy

1. Financial stability of the insurance company
2. Asset mix of the investment portfolio backing the product
3. How well the company manages these assets
4. Flexibility of the policy
5. The insurance company’s other resources

Financial stability of the insurance company

There are a number of ways you can measure the financial stability of an insurance company. Certainly its size, assets under management and return on shareholder equity are key measures. However, we also look at how independent rating organizations measure the company. Here are the ratings for some of the companies we considered.

A.M. Best / Standard & Poor’s
Company A
Company B

We also looked into whether or not the company is Canadian or foreign owned,as well as whether we believe it has indicated a commitment to be a long-term player in the Canadian market. A life insurance policy is a long-term commitment and we want to be sure the insurance company you choose is committed to your policy and its long-term success.

The asset mix of the investment portfolio backing the product

When you make payments for a whole life insurance policy, the insurance company puts the money into a participating account or investment fund. The money is used to pay things like operating expenses and death benefits for the policies. What remains is invested.

The assets are managed to meet the long-term needs of the policy owner with the objective of achieving stable, predictable long-term performance. Insurance companies typically limit the assets to four main investment groups:

• Equities
• Real Estate
• Bonds
• Mortgages

Each insurance company has its own approach to the weighting it gives to each of these asset classes within the participating account or investment fund. Based on the most recent information available, for the companies we reviewed, here is their asset mix:

Company / Equities / Real Estate / Bonds / Mortgages
Company A
Company B

How well the company manages the assets

With any investment, it is understood that past performance is not indicative of future performance. However, we don’t think it’s unreasonable to look at the track record of how the insurance companies have done in managing the fund’s assets.

To do this, it’s a good idea to look at the average yield of the participating account or investment fund over a certain period of time and the yield’s standard deviation, which is a measure of the volatility of the performance. A low number for standard deviation means less volatility.

Other ways to track the past performance include comparing how the participating account or the investment fundhas performed against other indicators, such as the S&P/TSX Composite Index, a 5-Year GIC and the Consumer Price Index.

Here is the annualized return and standard deviation of the participating account that XXXX maintained for the XXXX policies it sold between 1985 and 2008 (as of Dec. 31, 2007).

Par FundYield 1 / S&P/TSXCompositeIndex 2 / ScotiaCapitalUniverseBond Index 1 / 5 Year GIC 3 / ConsumerPrice Index 2
AnnualizedReturn
(since1985) / 10.0% / 8.8% / 9.6% / 6.4% / 2.7%
StandardDeviation
(since 1985) / 1.8% / 13.6% / 6.6% / 2.9% / 1.4%

Sources: 1. Manulife Financial 2. Statistics Canada 3. Bank of Canada

Beginning in 2008, Manulife established a new investment fund for the reserves it sets aside for its Performax Gold insurance product. Manulife has committed to manage this new fund in the same way as it manages it previous Performax participating account, using the same investment managers, the same mix of assets and the same accounting methods for reporting investment returns. Just as it is understood that past performance is not indicative of future performance on a given fund, the past performance of Manulife's Performax participating account is not indicative of this future performance on the new Performax Gold investment fund. However, we believe it is not unreasonable to look at the track record of the old fund, especially given the commitment from Manulife to manage and report on the new fund on an identical basis to this previous fund.

Policy flexibility

As we mentioned earlier, buying a life insurance policy should be considered a long-term commitment. The policy you choose should have enough flexibility and options to allow you to customize a plan that meets your needs today … and in the future.

Several whole life policies, including the one we are recommending, allow you to make additionalor optionalpaymentsto increase your policy’s value. These additional payments are used to purchase extra amounts of life insurance. This can significantly increase the amount of both the death benefit and the cash value within the policy. It can also decrease the number of payments you need to make out of pocket to pay policy costs.The best time to make these optional payments is in the early years of your policy to allow the return on the payments to compound, thereby increasing your policy’s values even more.

There are rules about how often you can make these payments and other factors to consider that we can discuss if you choose this option.

The whole life policy that we are recommending offers a guaranteed load on additional payments and a guaranteed policy fee that ends in 15 years.

The insurance company’s other resources

This is a very important factor to consider when choosing a policy … and it definitely won’t show up on an illustration. How the company manages and maintains its policies is key to the policy’s – and your – long-term success.

Another factor is the range of services the company provides. Some companies provide professional “in-house” tax, legal and actuarial support through teams of accountants, lawyers and actuaries.

Depending on the complexity of your insurance needs, this team of professionals is available to work with your own financial and legal advisors to develop a customized solution for you. In recommending that you choose a policy with XXXX we have taken into consideration these additional resources that are available, as well as how well we believe the company communicates with its clients.

An advantage to the type of policy we’re recommending is that it allows you to “borrow” money from the cash values or, alternatively, to use the policy as collateral for a line of credit. You may not be thinking of doing this at this time, but if the need ever arises, it’s important to know that the company you choose can offer this option.

In closing

Comparing life insurance policies can seem a complicated and daunting process. We hope our analysis has helped you make a sound decision. You can rest assured that our analysis has been fair and thorough.

We believe that XXXXis a strong company with an unwavering commitment to its policy owners.

If you have any questions or concerns, or if you require more information about XXXX or this recommendation, please do not hesitate to ask.

Signed,

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Advisor name Date

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Client Name Date

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