What other successful Okanagan families are doing

They came looking to save $20/month and after going through our MAPP process they left saving $20 per month and took themselves from buying insurance to, implementing a plan like Canada’s wealthiest families.

Okanagan Family
Husband (age 48)
Wife (age 41)
2 children (ages 11 & 14)

The husband originally came to me through a referral because he had a 10 Yr Term life insurance policy he was originally “sold” 10 years ago.

Since the policy had a fixed premium for 10 years it was renewing (increasing premium) in the next month. He wanted to see if he could get a better rate on his coverage and possibly explore other firms for certain reasons. (Does your agent work and implement a financial plan or just sell you product.) This business owner was slightly skeptical when he came to us but since he was referred from one of his close friends (who is one of our AAA clients) he wanted to at least see the experience through. Little did he know that he was about to experience, a level planning that wasn't focused around the product but around the long term and short term goals he desired…

I explained I had all the resources to help them “buy” insurance” but I wanted to take a step back and walk them through our proprietary MAPP process. The main focus of the MAPP process is to address all financial and non financial aspects of someone’s life so a proper recommendation can be made when implementing a financial plan.

You can find more on the MAPP process at: www.serviss.ca

After I explained our confidentiality agreement we had a great 20 minute open conversation and I quickly learned there was a lot we could help this family with.

Let’s dive right into the details:

He owns a business with a partner, it has a great track record and everything is humming along nicely (steady and consistent cash flow). His partner and him handle separate departments but are both instrumental in the success of the business. (Partnership coverage)
Their family’s lifestyle did not require all of the money to be removed from the business which meant money was starting to accumulate inside the company. (Invested in GIC’s and high interest bank savings accounts). (Corp Funded Wealth Strategy).

Their residence mortgage was $425,000. When I asked the husband why he wanted life insurance; he explained he was most concerned with covering the debt, maintaining the family’s lifestyle for approximately 10 years if he was gone (he joked his wife was beautiful, smart and educated, she didn’t need a lifetime lottery payout, she would figure it out by then), he wanted to take care of the children’s education (or a portion of it) and give the kids a small down payment for a house. (Husband Life Insurance)

Since his wife actively manages accounts and “does the books” the husband would be lost with out her. In asking him what he would do if his wife was not helping he came to the conclusion he would have to hire, train and find someone else to fill her position. Not only would this require his time but it would take away from his normal duties which essentially drive the success of the business. (Wife Life Insurance)

When I asked about their family health history I learned that she had a healthy family but he had a family with 2 immediate members being cancer survivors… Due to business expansion projects and paying off vehicles they have only a small nest egg (personal savings) built up for an emergency fund. He quickly realized due to his family history and the above savings situation there was a gap in their plan. If he became ill or injured and could not work, not only would they lose his income but her income tap would be turned off as well. At this point the couple realized that if they became sick, injured or passed away it would affect the ultimate retirement goals of the family. No income meant no saving for retirement, pretty simple. (Critical Illness Coverage)

I switched gears slightly and asked about their current retirement strategy. He mentioned that part of their retirement plan was to sell the business and use the sale proceeds to live off of. The success of the business hinged on the two partner’s activity so the business would be worth more if the partners were living and the business was chugging along as a going concern, sounds fair right. Remembering the retirement plan was to sell the business I had to address a number of issues.

If he passed away before the sale of the business do you think someone would pay more or less for the business…? The husband would not be there to train or manage for the 1st year with the new owner etc etc… This would mean the wife would receive less in sale proceeds, affecting her retirement lifestyle. The other issue is the living partner would become partners now with the deceased husband’s wife. If she does not want to be part of the business or the partner does not want to be partners with her, he needs to find liquid money to pay her off in the amount of the deceased husbands share…. (Partnership coverage and wife retirement enjoyment).

If everything went as planned what would you invest the sale proceeds into…? (Value Partners).

If you would like to see the complete plan and the step by step process to implementing the plan please call or email me your name, phone number and email address. In summary the numbers looked something like this, using his annual salary of $100,000:

Option #1 (Current plan) - $100,000 salary and small life insurance plan

Option #2 (our proposal – 4% of earnings) - $96,000 salary but after certain point the savings we found would get the family/business to a break even point…

If he or his partner passed away they would have a life insurance policy that kicked in and paid the other partner. The living partner would use those life insurance proceeds to pay off the deceased partner’s wife for the share of the business. We built in a strategy that will allow the partners to use those life insurance policies while they are living to accomplish the following: accumulate wealth in their Holding Company, provide bullet proof fixed income in retirement and flow essentially tax free assets out of their corporations if/when the pasted away.

Simple mortgage life insurance to help each spouse cover (the debts, education funds and dependent children cash needs) if one was to pass before they were paid off or saved.

A protection plan that will keep them on track to retirement when they get seriously ill or seriously hurt. Built into this we utilized a Business Overhead Coverage option – It is a tax deductible coverage that allows for normal business expenses to be taken care of when the owner becomes disabled. (Expenses like: office leases or rent, utilities, non partner employee salaries and a number of other monthly expenses related to the business). We also built into the illness portion, if he passed away before claiming the estate would receive a refund of his premiums… Too bad ICBC never offered that.

Through our Peacock Sheridan Group specialist network we were able to align this family/business up with:
- A more sophisticated tax planning specialist.
- A commercial insurance broker who specialized in the field this family’s business was in. The broker was able to save the family a significant amount on their commercial coverage and the E&O policies.

As a value added service to my readers and clients I make myself available to act as a sounding board. You might have a friend who asks about me, or you may feel compelled to make an introduction to help someone out. If that happens, I guarantee I will make the time to offer objective advice that they can use to make an informed decision.

Dustin Serviss
Kelowna Financial Advisor

Buy other policies at a discount

Life Insurance investment strategy...

Find an AIDS victim, buy their life insurance policy for less than the death benefit, wait till they pass and collect the death benefit... It happens in the US. Definitely controversial. Or find a cash strapped senior citizen that has a life insurance policy, you offer to give them cash up front for the irrevocable beneficiary rights to their policy... When they pass away you get the full death benefit (obviously less than you paid them). I am not recommending this strategy at all but I found the concept very interesting.

Buy someone's life insurance at a discount...