Industry Update – Winter 2014
By Jason Watt, CD, CLU, RHU
In my last article, I wrote about the proposed tax measures introduced in Budget 2013. We have had some significant developments with regard to both those sets of measures, and to the changes to the Exempt Test proposed in Budget 2012.
On the 10/8 front, it appears that the government is going to proceed with its plan to put a stop to the deductibility of interest and the application of a Capital Dividend Account (CDA) credit where there is a fixed relationship between the insurance policy and the loan. Rather than a December 31st drop dead date for exiting these arrangements, the government is giving taxpayers until April 30th of 2014. The more significant development is that at least one insurer has introduced a policy that seems as though it will allow the 10/8 arrangement to continue, but under a new policy. This policy will de-link the policy from the loan, allowing a sort of ad hoc 10/8 arrangement. It actually appears that this will result in a loan with an interest rate of around Prime+4 and a policy with cash values growing at a rate of around Prime+2. For those who have clients in 10/8 arrangements, this is probably good news.
It appears that no substantive opposition was mounted to the end of leveraged insured annuities. Existing arrangements are grandfathered, with the understanding that no further deductibility applies to any new lending arrangements.
The changes to the exempt test that were proposed in Budget 2012 are now en route to becoming law. The exempt text changes are as originally expected. However, there are two further changes in the same section of legislation that will have impacts. The first is that the Insurance Investment Tax (IIT) on level cost-of-insurance universal life products will be increased. This will likely result in a modest premium hike sometime in 2014 for these products. This fixes a long-recognized deficiency in the taxation of these products. The second change will affect planning concepts that rely on a combination of a decreasing death benefit with a yearly renewable term universal life insurance policy, followed by a collateral loan against the cash values to fund retirement. These arrangements are variously known as ‘insured retirement plan’; ‘insured retirement concept’; and ‘insured retirement strategy.’ In all cases, the maximum tax actuarial reserve (MTAR) limit will be based on the lowest death benefit associated with the policy, not on the death benefit at the time the policy is issue. For the more aggressive applications of these concepts, this is going to have an impact. Existing arrangements will be grandparented.
On a different note, we are well over 300,000 views on our YouTube page, and also over 450 subscribers. The videos are designed to help those pursuing all types of financial services exams, and there is some good, general, refresher information there as well. Some interesting statistics that are drawn from the Google Analytics function are:
- 10,800 videos watched from Oct 13 to Nov 11;
- 56,656 minutes of videos watched;
- The life insurance needs analysis videos remain our most-watched videos;
- 94% of pages are watched in Canada, but the US, UK, Philippines, and India round out the top 5.
- 52.5% of views are by males; 47.5% of views are by females.