It was almost five years ago when we
wrote about a new Canada Life - ABC Funds Universal Life
insurance product. As we explained then, Arnie Shell, a long
time ABC Funds unitholder and respected veteran actuary and
financial planner came to me with an idea. The concept he
presented was to link a major insurance company's universal
life product to the ABC Funds.
Arnie explained that universal life is
a flexible, tax-sheltered insurance/investment product. The
universal life policy has a face amount which is payable to
the beneficiary on a tax-free basis upon the death of the
insured. Funds are deposited into the policy by the insured
and are invested in any of many investment options as
selected by the policy owner. Unfortunately the menu of
investment options offered by most insurance companies tends
to be index-related. Arnie pointed out that the ABC Funds
being a purist fundamental value vehicle would be ideally
attractive to long-term universal life policyholders.
Arnie further explained that the
timing and amount of deposits of universal life premiums is
completely flexible but subject to a minimum and maximum.
Any investment funds that have accumulated are paid out
tax-free on the death of the insured. An interesting
wrinkle, Arnie added, was as long as the investment funds do
not exceed a regulated maximum amount or "exempt
line", the investment earnings inside a universal life
policy do not attract current taxation. That is, the funds
grow on a tax-deferred basis just like the investment
earnings in an RRSP. With this latter information I became
very interested. I told Arnie that I would be the
"guinea pig" and if the concept held up to serious
financial scrutiny, my wife and I would buy the first policy
linked to an ABC Funds investment.
Arnie surveyed the market and helped
set up a Canada Life - ABC Funds alliance. Canada Life then
added the three ABC Funds to its investment menu. Upon
serious analysis of this proposed alliance I realized that
it was a very fair and attractive financial investment. As
ABC Funds portfolio manager it offered me new clients who
would be utilizing the ABC Funds as long term insurance
investments. This would make the ABC Funds easier to manage
knowing that people were in the fund for the long haul.
Combining this product with Canada Life, a top-notch
insurance company, also was a big plus. Arnie outlined a
number of different applications of this ABC investment
concept for high net worth clients such as "second to
die life insurance" and the creation of tax effective
alternatives to existing term insurance programs for
financial planning.
The end result was that my wife and I
purchased the very first policy. We chose a second to die
joint insurance policy, which was completely invested in the
ABC Fundamental-Value Fund. I was very proud to announce
this new Canada Life - ABC Funds relationship and I believed
this product would offer ABC clients an interesting
investment and financial planning option.
It is now almost 5 years later and I
would like to share the results of my Canada Life Universal
Life - ABC Funds purchase:
$5,000,000 Second to
Die Universal Life Policy
The policy effective date was May 28, 1999
An initial deposit of $201,546 was
calculated by Canada Life to be the amount required to fully
fund this policy assuming that the ABC Fundamental Value
Fund earned at least 6% per annum after the Canada Life
management fee. The investment earnings in this program grow
on a tax-deferred basis and they will completely escape tax
in the event that the fund value is ultimately paid out as a
death benefit, which was our original intention.
|
|
Total
Amount Deposited Since Inception
|
Estimated
Fund Value
|
|
May
27, 2000
|
$201,546
|
$207,214
|
|
May
27, 2001
|
$201,546
|
$226,291
|
|
May
27, 2002
|
$201,546
|
$261,870
|
|
May
27, 2003
|
$201,546
|
$206,590
|
|
March
31, 2004
|
$201,546
|
$282,148
|
The most important observation is
that my original $201,546 investment in the ABC Fundamental- Value Fund
has fully funded 5 years of insurance premiums on this $5,000,000
Universal Life policy. But more significantly, this sum has grown to a
tax exempt $282,148.
If anyone wishes to explore this
product further, please contact our office. We will arrange for Arnie
Shell to explain the details.
Irwin A. Michael, CFA
