Have any of you bought a Single Premium Life Insurance policy?

[Brett]

When I said " 'they' can't take away my policy "
what I am referring to is having to spend your money down before the government's programs would kick in, should something happen to you.

So, at the end of your life, say 5 years before you die, you get seriously ill, needing many forms of health care, facilities, etc.
You would have to spend down your money; which I understand.

But, when that money gets to zero, or near it, you would have a paid policy (and benefit) in effect, when you die.

sure, just like any other asset when you die. The "government programs" would still recognize a paid life insurance policy

 

[bizaro86]

Since your location says Calgary, I am assuming you are a Canadian citizen and resident. If so, please be aware that single-premium life insurance policies have not generally been available in Canada since 1982. Since they are "offside" under CRA regulations for tax deferral, they would normally be subject to accrual taxation on the annual growth of the cash values.

There are ways around this, such as purchasing an annuity with a lump sum to fund the annual premiums until the policy can support itself. There would be some tax on the "interest portion" of the annuity payouts until it is fully sheltered inside the life insurance policy. You should consult a financial advisor with expertise in tax and estate planning and particular understanding of the workings and uses of permanent life insurance policies. In the right tax bracket they can be a very effective tax and estate planning tool. They generally work better the earlier you start them. You may not necessarily want to wait until your term policy renews.

Super helpful, thanks! Given that it was mainly the simplicity of a single premium policy that appealed to me, I probably won't go ahead with that.

I'm interested to hear that annuities are available earlier in life - I didn't know that either. I'm in my 30s, and a deferred annuity with a 40-50 year deferral period would be a tempting proposition. If interest rates weren't so low I'd likely go ahead with that, as I think my lifespan is likely to be longer than what they would use to calculate the risk.

Anyway, thanks for posting, I always learn something!

 

[DrQ]

Super helpful, thanks! Given that it was mainly the simplicity of a single premium policy that appealed to me, I probably won't go ahead with that.

I'm interested to hear that annuities are available earlier in life - I didn't know that either. I'm in my 30s, and a deferred annuity with a 40-50 year deferral period would be a tempting proposition. If interest rates weren't so low I'd likely go ahead with that, as I think my lifespan is likely to be longer than what they would use to calculate the risk.

Anyway, thanks for posting, I always learn something!

The devil in the details with annuities are back end fees.

Being up in age, we eat many free dinners from annuity pushers.

 

[CanuckTravlr]

Super helpful, thanks! Given that it was mainly the simplicity of a single premium policy that appealed to me, I probably won't go ahead with that.

I'm interested to hear that annuities are available earlier in life - I didn't know that either. I'm in my 30s, and a deferred annuity with a 40-50 year deferral period would be a tempting proposition. If interest rates weren't so low I'd likely go ahead with that, as I think my lifespan is likely to be longer than what they would use to calculate the risk.

Anyway, thanks for posting, I always learn something!

Based on your previous and most recent comments, I am concerned that you are reading a lot of US sources for your financial planning. As a Canadian, that can be downright dangerous with potential unintended tax consequences. Our financial institutions, financial products and tax rules, while in some cases resembling what is applicable in the USA, can be quite different. I am a Canadian CPA, CA, CFP, CLU and CH.F.C. and own a financial planning firm in Toronto.

What follows does not constitute specific advice for any individual, but is designed to be general information only for Canadians, concerning some of the differences in Canada. You should not rely on this advice for any personal financial decisions.

@bizaro: Since you are in your thirties, it is an appropriate time to be seeking a properly credentialled financial planner or advisor in your province of residence to help you understand your choices, so that they can guide you in implementing them at the appropriate time. They will also ensure any tax and financial planning advice is appropriate to your specific situation.

First, deferred annuities (with a single new exception), like single-premium life insurance policies, have not been available in Canada since the federal government budget of December 1982, when the accrual taxation rules changed. The one new exception was outlined in the federal budget of March 2019. It has proposed the approval of Advanced Deferred Life Annuities (ADLAs) as an option for deferring income in registered accounts, such as Registered Retirement Savings Accounts (RRSPs) or Registered Retirement Income Funds (RRIFs).

Currently tax deferral must end at the end of the year in which the taxpayer turns 71. Any registered money not already in a RRIF, annuity or payout pension by that point must start paying out income. The budget proposal would allow an option to transfer up to a lifetime maximum of $150,000 (indexed after 2020) of such registered money to an ADLA and the income withdrawal on those funds could be deferred to as late as age 85. With the fall 2019 election no approvals are currently in place and as a result no insurance company is currently offering an ADLA.

Since 1982 there have only been two basic choices on annuities in Canada, whether purchased with registered funds or cash. There are life annuities and term-certain annuities. Each of those may be either on a single life or joint basis, with or without indexing, and with various guarantees and survivor options. The maximum deferral period for when the income must commence is one year from date of purchase, so they are not deferred annuities. They can be purchased at any time, but life annuities, with current low interest rates, normally only make sense at older ages.

The devil in the details with annuities are back end fees.

Being up in age, we eat many free dinners from annuity pushers.

"Annuity pushers" as seem to exist in the USA, do not really exist in Canada. To offer annuities in Canada you must be a licensed agent and are subject to rules concerning client best interests. The agent must be able to demonstrate why the product was recommended and how it was appropriate, given the analysis of the client's financial situation and needs. That documentation must accompany the application. I am also not aware of any annuities in Canada that have back-end fees. Not even sure how those would work, since annuities are generally non-commutable, once issued and approved. Commissions paid for sale of annuities in Canada are paid up-front on placement and must be disclosed to the client prior to purchase.

 

[DancingWaters]

We decided to each get a life insurance policy that is for 20 year term. It will last til we are 85 years old. We checked term long term care policies which we found are expense. We wanted a life insurance policy to help defray the cost should we spent much time in a nursing home. My $100,000 policy I pay $63.00 a month for, my husband $125,000 we pay $113.00 a month. This is peace of mind for me. Yes, we are “self insured” but wanted to replace some of the cost for the other. This was a huge decision, but I’m glad we did that.

 

[bizaro86]

Based on your previous and most recent comments, I am concerned that you are reading a lot of US sources for your financial planning. As a Canadian, that can be downright dangerous with potential unintended tax consequences. Our financial institutions, financial products and tax rules, while in some cases resembling what is applicable in the USA, can be quite different. I am a Canadian CPA, CA, CFP, CLU and CH.F.C. and own a financial planning firm in Toronto.

What follows does not constitute specific advice for any individual, but is designed to be general information only for Canadians, concerning some of the differences in Canada. You should not rely on this advice for any personal financial decisions.

@bizaro: Since you are in your thirties, it is an appropriate time to be seeking a properly credentialled financial planner or advisor in your province of residence to help you understand your choices, so that they can guide you in implementing them at the appropriate time. They will also ensure any tax and financial planning advice is appropriate to your specific situation.

First, deferred annuities (with a single new exception), like single-premium life insurance policies, have not been available in Canada since the federal government budget of December 1982, when the accrual taxation rules changed. The one new exception was outlined in the federal budget of March 2019. It has proposed the approval of Advanced Deferred Life Annuities (ADLAs) as an option for deferring income in registered accounts, such as Registered Retirement Savings Accounts (RRSPs) or Registered Retirement Income Funds (RRIFs).

Currently tax deferral must end at the end of the year in which the taxpayer turns 71. Any registered money not already in a RRIF, annuity or payout pension by that point must start paying out income. The budget proposal would allow an option to transfer up to a lifetime maximum of $150,000 (indexed after 2020) of such registered money to an ADLA and the income withdrawal on those funds could be deferred to as late as age 85. With the fall 2019 election no approvals are currently in place and as a result no insurance company is currently offering an ADLA.

Since 1982 there have only been two basic choices on annuities in Canada, whether purchased with registered funds or cash. There are life annuities and term-certain annuities. Each of those may be either on a single life or joint basis, with or without indexing, and with various guarantees and survivor options. The maximum deferral period for when the income must commence is one year from date of purchase, so they are not deferred annuities. They can be purchased at any time, but life annuities, with current low interest rates, normally only make sense at older ages.



"Annuity pushers" as seem to exist in the USA, do not really exist in Canada. To offer annuities in Canada you must be a licensed agent and are subject to rules concerning client best interests. The agent must be able to demonstrate why the product was recommended and how it was appropriate, given the analysis of the client's financial situation and needs. That documentation must accompany the application. I am also not aware of any annuities in Canada that have back-end fees. Not even sure how those would work, since annuities are generally non-commutable, once issued and approved. Commissions paid for sale of annuities in Canada are paid up-front on placement and must be disclosed to the client prior to purchase.

Thanks! Prior to annuitizing anything, I would definitely get competent advice, as those decisions are irreversible. I had thought that deferred annuities were available in Canada as long as the tax deferral period ended prior to turning age 71. Since I'm in my 30s, that would still be a huge amount of time for compounding to occur prior to taking payouts. Obviously this would need to be inside an rrsp. Interesting that isn't the case. I had found indicative quotes for deferred annuities. https://lifeannuities.com/deferred-annuity-rates/male.html
Although that could be a bit of a buyer beware situation if you end up paying tax on accumulated value during the deferral period. Highlights the need for good advice.

I was familiar with the ADLA changes, but dont have a burning desire to be the Guinea pig on that. No reason for me to be in a hurry. Given the lifetime limit, buying early has a certain attraction, but might as well wait to see how it work.

 

[CanuckTravlr]

Thanks! Prior to annuitizing anything, I would definitely get competent advice, as those decisions are irreversible. I had thought that deferred annuities were available in Canada as long as the tax deferral period ended prior to turning age 71. Since I'm in my 30s, that would still be a huge amount of time for compounding to occur prior to taking payouts. Obviously this would need to be inside an rrsp. Interesting that isn't the case. I had found indicative quotes for deferred annuities. https://lifeannuities.com/deferred-annuity-rates/male.html
Although that could be a bit of a buyer beware situation if you end up paying tax on accumulated value during the deferral period. Highlights the need for good advice.

I was familiar with the ADLA changes, but dont have a burning desire to be the Guinea pig on that. No reason for me to be in a hurry. Given the lifetime limit, buying early has a certain attraction, but might as well wait to see how it work.

The link you provide, as is unfortunately often the case, is designed to get you to talk to them. It leaves out important caveats. I did not want to get into all the permutations and combinations involved with annuities. Since you are in your 30s, a deferred annuity would not work for you for several decades. In 1982 the rules were changed to disallow long-term deferrals, which are available in the USA and to which I was referring. Outside of the new ADLA proposal, deferred annuities are permitted, but with very limited deferral periods.

Registered money can be used to purchase a deferred annuity with a maximum deferral period of 10 years from date of purchase, but no later than the end of the year in which the annuitant turns age 71. Non-registered money used to purchase a deferred annuity, where full accrual taxation has been elected once the income commences, can be deferred at least 10 years and in some cases up to 15 years from date of purchase. Non-registered money used to purchase a deferred annuity, with "prescribed annuity" treatment elected (level taxation during the payout period), have a maximum deferral period of December 31st in the year following the year of purchase. Here is a good chart from Sun Life that outlines the current choices in Canada.

Maximum deferral periods

Sun Life Financial can help you build and protect your savings with investment products, life insurance, health insurance, and financial advice.

www.sunlife.ca

 

[bogey21]

All this has me thinking. My goal is to die broke thus I having been using my excess income for the benefit of my kids and ex-wife as opposed to leaving an Estate. Right now I'm pretty short of ideas. I think I will check out the benefit and cost for me to buy a Deferred Annuity kicking in at age 75 for my 41 year old Son. Any suggestions for where to buy this...

George

 

[#1 Cowboys Fan]

C My goal is to die broke thus I having been using my excess income for the benefit of my kids and ex-wife as opposed to leaving an Estate. Right now I'm pretty short of ideas. I think I will check out the benefit and cost for me to buy a Deferred Annuity kicking in at age 75 for my 41 year old Son. Any suggestions for where to buy this...

George

Well, I'm glad that "....All this has me thinking."

I am thinking too, and thinking that what I originally posted might still be what I am inclined to do.

 

[VacationForever]

All this has me thinking. My goal is to die broke thus I having been using my excess income for the benefit of my kids and ex-wife as opposed to leaving an Estate. Right now I'm pretty short of ideas. I think I will check out the benefit and cost for me to buy a Deferred Annuity kicking in at age 75 for my 41 year old Son. Any suggestions for where to buy this...

George

http://immediateannuities.com You can get a quote without needing to talk to someone. They are really easy to work with should you want to move forward.

 

[Luvtoride]

Well, I'm going to disagree with that. Life insurance can serve different purposes at different stages of life. Life insurance can serve as a potential source of tax free retirement income later in life.

There are really only 3 sources of tax free income that I know of:
1. Municipal bonds - but unfortunately, interest rates are very low now. In the current interest rate environment, it's very difficult to generate much retirement income from munis.
2. Roth plans (IRA and 401k) - but putting money into a Roth plan, or Roth conversion, means biting the tax bullet now. And a large $ Roth conversion will bump you into a higher tax bracket.
3. Life insurance - you can borrow tax free from certain whole life policies (but not from term policies). The word for this is a LIRP, a Life Insurance Retirement Plan. It's a complex subject and way too much to explain here. There is a short book on the subject: "Look before you LIRP," by David McNight (available at Amazon).

And no, I am not an insurance salesman. My wife and I seriously looked at a LIRP when we were in our early 60s. Anyway, I digress, because this was quite different than what the OP is asking about.

I had explored the LIRP strategy a few years ago and it is complex but can work. What I found to be the key was buying insurance policies in the names of children and grandchildren (where the cost of life insurance was much lower) and paying in larger premiums that went to building the cash value of those policies. They had the features of deferred indexed annuities in that built investment return based on certain indices while protecting your downside by limiting return to ZERO in down index markets. You then start borrowing against these policies creating an income stream. The loans do not have to be paid back but obviously will drain the cash value. At the end of the model periods, even if the cash value is depleted, you still have in place a fully paid life insurance policy for your child or grandchild. I may explore these again as I near retirement by using funds from my 401k plan to purchase. There are many options to explore, just be careful and get educated on all of these products.

Brian

 

[bogey21]

You can get a quote without needing to talk to someone....

I'm not sure I like the answer. Probably a function of today's low rate environment. i need to dig into this further...

George

 

[VacationForever]

I'm not sure I like the answer. Probably a function of today's low rate environment. i need to dig into this further...

George

I like it this way because I don't want to talk to someone or get nuisance soliciting calls.

 

[geekette]

You can’t depend on social security to keep paying out. You can’t depend on the government to keep paying a pension that they owe from federal employment or my 20 years in the Navy. You can’t depend on your house value to keep going up or stay the same. I was supposed to receive $30,000 a year from Aloha Airlines pension fund, but now only get $5000 a year. You can’t depend on the stock market to keep going up or your financial planner to give you good advice. Also, most state pension funds are underfunded and when the market goes down, things will get ugly. What can you depend on? It is just a plan and only a small part of my portfolio. I am not worried about it. If there is another 1929 depression, everything will crash.

Yes, you can rely on yourself only. Life is a crapshoot, that's why any plan needs at least one contingency plan, while mine is multi-layered. Good thing, too, as I hit a mighty life pothole that definitely impacted alignment, so anticipating potential sideways slide was simply good planning in looking after myself, just in case. Nothing is guaranteed. I do find it particularly troubling that so many pensions just aren't there for people that relied on them being there. PBGC is getting far too stretched so it's going to get harder as this trend continues (I refer to corp pensions, I do not know that teachers, firefighters, etc., pensions have PBGC protection but taxpayer bailout instead).

Frankly, if single premium insurance fits your needs, do it. I understand the 'taking' part and if you can insure against that, do it. I'm not to the point of figuring out what assets are "safe" and which go, except that this house will likely be traded for my room and board somewhere else.

 

[Cornell]

Glad to have found this thread as I met w/my financial planner yesterday to go over options for LTC insurance. He suggested these "hybrid" life insurance policies. They are expensive but have the benefit over traditional LTC policies which are "use it or lose it". The hybrid policies allow you to withdraw the death benefit if you need long term care. If you don't, then there is a nice chunk of money for your beneficiaries. I was a but stunned by the premiums and haven't yet made up my mind as to how I want to proceed but I was not aware of these policies until yesterday.

 

[b2bailey]

Glad to have found this thread as I met w/my financial planner yesterday to go over options for LTC insurance. He suggested these "hybrid" life insurance policies. They are expensive but have the benefit over traditional LTC policies which are "use it or lose it". The hybrid policies allow you to withdraw the death benefit if you need long term care. If you don't, then there is a nice chunk of money for your beneficiaries. I was a but stunned by the premiums and haven't yet made up my mind as to how I want to proceed but I was not aware of these policies until yesterday.

25 years ago I took out a life insurance policy because my teen daughter had a baby. Kept the same payment for 20 years. Then, at age 65 my premium doubled to $125/mo. Considered quitting, but for two reasons: (1) was assured premium would never raise again and (2) discovered my agent had included a Living Needs benefit. That thrilled me.

 

[Cornell]

25 years ago I took out a life insurance policy because my teen daughter had a baby. Kept the same payment for 20 years. Then, at age 65 my premium doubled to $125/mo. Considered quitting, but for two reasons: (1) was assured premium would never raise again and (2) discovered my agent had included a Living Needs benefit. That thrilled me.

My mother has dementia and now lives in assisted living. She has a LTC policy -- thank god. She lives in a wonderful facility that I feel really good about. I hope that if I ever have a need like this that my daughter will feel as comfortable about my living arrangements as I do about my mother's.

 

[bogey21]

I think I will check out the benefit and cost for me to buy a Deferred Annuity kicking in at age 75 for my 41 year old Son.

FWIW I did check this out. In today's interest rate environment it doesn't make any sense. I'd do him more good it I used the money to pay off his car loan...

George

 

[bogey21]

My mother has dementia and now lives in assisted living. She has a LTC policy -- thank God.

It has been a long time since I looked into LTC policies but my recollection is that they only pay out for a set number of years. Has that changed...

George

 

[rapmarks]

I like it this way because I don't want to talk to someone or get nuisance soliciting calls.

totally agree, i would like to explore the new estate planning tools, but it is like volunteering for a timeshare sales pitch.

 

[#1 Cowboys Fan]

Glad to have found this thread as I met w/my financial planner yesterday to go over options for LTC insurance. He suggested these "hybrid" life insurance policies. They are expensive but have the benefit over traditional LTC policies which are "use it or lose it". The hybrid policies allow you to withdraw the death benefit if you need long term care. If you don't, then there is a nice chunk of money for your beneficiaries. I was a but stunned by the premiums and haven't yet made up my mind as to how I want to proceed but I was not aware of these policies until yesterday.

Cornell,

Not sure what your age is----and I was always told NOT to ask a woman her age!!!!

I am in my 60s, and the OP to this thread---I still haven't done anything yet, still researching.

I did see something about policies that offered some policies with LTC----I guess I'll have to start all over again.

BTW, I was seeing rates of about 50% Lump Payment---like 26k for 50k policy, 48k for 100k, etc. for my age.
That's for Preferred (quite GOOD Health, like 2 on a scale of 1-10); I think I might be on the next rung down, which is quite a bit higher.

Pat (male)

 

[rapmarks]

Cornell,

Not sure what your age is----and I was always told NOT to ask a woman her age!!!!

I am in my 60s, and the OP to this thread---I still haven't done anything yet, still researching.

I did see something about policies that offered some policies with LTC----I guess I'll have to start all over again.

BTW, I was seeing rates of about 50% Lump Payment---like 26k for 50k policy, 48k for 100k, etc. for my age.
That's for Preferred (quite GOOD Health, like 2 on a scale of 1-10); I think I might be on the next rung down, which is quite a bit higher.

Pat (male)

Oh man, bad health, old, I guess I can forget about it.

 

[VacationForever]

Cornell,

Not sure what your age is----and I was always told NOT to ask a woman her age!!!!

I am in my 60s, and the OP to this thread---I still haven't done anything yet, still researching.

I did see something about policies that offered some policies with LTC----I guess I'll have to start all over again.

BTW, I was seeing rates of about 50% Lump Payment---like 26k for 50k policy, 48k for 100k, etc. for my age.
That's for Preferred (quite GOOD Health, like 2 on a scale of 1-10); I think I might be on the next rung down, which is quite a bit higher.

Pat (male)

My husband bought a policy that does that. A lump sum payment of $100K with a decent LTC amount and if use of LTC exceeds $100K, then the policy will pay out $10K at the end, otherwise if LTC is not utilized, beneficiary gets back $110K. I think it pays something like $5K a month, with an inflation rider and pays for 5 or 10 years... I am a little fuzzy without going back to the papers.