The following excerpt is from Ripple Effect - Growing your business with insurance and philanthropy, published by Civil Sector Press.
If you aren’t talking to your clients about their "big picture" goals, including the lasting positive impact they
could have through charitable giving, you are missing out on significant sales opportunities and business-building tools that can create deeper and lasting relationships with your clients, their friends, colleagues and children.
Canadians support charitable causes for many reasons: feeling compassion for others, giving back to their community, and as a result of being personally affected by events and circumstances in their lives and in the lives of those around them.
Donors claim that the least popular reason they give to charity is to gain charitable tax credits and pay less tax. As a financial advisor, I have seen how rewarding it is for clients when they know they are having a significant impact on a cause that they really believe in and I’ve also seen how people are happy to receive charitable tax credits, especially if it means they can leave more to their family.
Insurance is a powerful gift planning tool
There are many ways you can help your clients feel great about their complete financial and estate plan by including life insurance and insurance products into their asset mix. I’m not suggesting that you immediately start selling your clients on any particular insurance products. Instead, keep them in mind while presenting overall solutions to allow clients to do more of what they want to do.
Here’s an excellent example of integrating insurance and adding new business to your practice that will result in very happy and loyal clients.
Mike and Samantha, Ontarians and both aged 65, are healthy and happily retired. They live comfortably, thanks to both having good employee pensions, money in tax-free savings accounts (TFSAs), and several investments including about $350,000 in RRSPs. They have only two main legacy goals:
Through their Wills, they have designated their daughter to receive whatever remains in their registered funds (RRSPs/RRIFs) when they die. Because they don’t live extravagantly and have other sources of income, they only take out the minimum required deductions from their registered savings. They do want to leave a generous amount to Jane, but are concerned that income taxes and probate-related fees and taxes will consume about half of their registered savings, before the residue goes to Jane.
They have also assigned a $75,000 bequest to their university, which they have set aside in TFSAs. The spouse that passes away last will make the donation.
You realize that there are more effective ways for them to meet their goals. After working through various options, you realize the best is to make some no-cost changes that will allow Mike and Samantha to be much more generous to both their daughter and their university.
You advise the couple to take their $75,000 in the TFSAs, and with it buy a $300,000 Universal Life joint-last-to-die life insurance policy, assigning Jane as its beneficiary.
Sam and Mike then go to their lawyer and update their Wills, removing the $75,000 bequest to their university. On your advice, they replace it with a donation of the proceeds of their registered savings funds, which are allowed to transfer to their university upon their death.
Mike and Samantha pass away 20 years later. Because of their pension and investment income, they were able to stick to only making the minimum required withdrawals from their registered savings, which are worth $200,000. The entire amount goes to their university – instead of the $75,000 they had originally planned to give.
It is true that their estate will owe income taxes on these funds, but they are completely offset by the $82,000 charitable receipt their estate receives for their generous gift.
Their daughter Jane immediately receives the full tax-free death benefit of her parents’ insurance policy, now worth about $378,000 – instead of about $120,000 that would have resulted from the transfer of the RRSP residue, after taxes and probate were settled.
| ORIGINAL FINANCIAL PLAN | REVISED PLAN, USING INSURANCE |
| CHARITABLE GIFT | CHARITABLE GIFT |
| $75,000 from TFSA | $200,000 from RRIFs |
| + Tax credits from donation $30,750 | - Income tax owed on RRIFs ($82,000) |
| + Tax credits from donation $82,000 | |
| DAUGHTER’S INHERITANCE | DAUGHTER’S INHERITANCE |
| Balance of RRIF $200,000 | Insurance policy death benefit $378,000 |
| Minus taxes and probate-related fees & taxes: ($82,000 + $4,500) | Taxes and probate-related fees & taxes – not applicable |
| Total inheritance $113,500 received after probate is settled (about 9 months later) |
Total inheritance $378,000 received within 2-3 weeks of insurance company receiving parent’s death certificate |
*Note: The amount of insurance purchased for $75,000 will vary according to the age and health of each individual being insured. The value of registered funds upon death of their owners will vary from Canadian province to province due to different tax rates (and probate-related fees and taxes, for registered funds that are not designated as charitable donations).
How life insurance and insurance products can fulfill multiple client needs
In general, most of your clients will have a similar hierarchy of needs when it comes to their financial and estate plans. The order and magnitude may be somewhat different, yet people generally like to be sure of four things:
How much, in what order and when are the primary questions to be asked and then the answers often become a simple question of math. When it comes to financial management, you can help clients see past the obvious solutions by integrating tools that allow people to do more with what they have.
Insurance and insurance products can offer flexibility that clients can’t get with a Will, giving clients the cost- and hassle-free ability to quickly and easily change beneficiaries if priorities change, and create assurances that their funds will go exactly where they should, in the most timely and cost-efficient manner possible.
To learn more, check out Jack and Marlena's books and courses, eligible for continuing education credits.
https://hilborn-civilsectorpress.com/products/multiplying-generosity-and-ripple-effect
As a founding partner of Bequest Insurance, Jack Bergmans is one of Canada’s leading experts in integrating insurance into financial, estate and legacy planning. Jack is a Certified Financial Planner and has been in the investment industry since 1996. As a licensed insurance broker he works with individuals and organizations providing independent financial, investment and retirement advice, and is also an estate planning and legacy giving specialist.
Marlena McCarthy has worked with charities since 1982 in marketing communications and fundraising. As Founding Partner and Fundraising and Communications Director of Bequest Insurance (www.bequestinsurance.ca), Marlena works with charities to help create income streams from gifts of life insurance and insurance products by creating simple yet gripping promotional materials.
