My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned. Please note the blog posts are time sensitive and subject to changes in legislation or law.

Monday, December 18, 2017

The "Hole" In Life Insurance - Part Two


This is my last post for 2017 and I wish you and your family a Merry Christmas and/or Happy Holidays and a Happy New Year. I will comment on the recent Liberal revisions to the "income sprinkling" proposals in my first blog post in January. The timing of these proposals (just before the Christmas holidays), the subjectivity still remaining in these rules and the fact the passive income rules are still apparently a couple months away has left the small business community seething and still pretty much paralyzed (in many cases, dividend planning is intertwined with the future passive income rules). 

Last week in Part one of this two part series on Life Insurance, Doug Leyland and Jordan Matters two Chartered Professional Accountants who deal full-time in insurance solutions for Leyland Insurance Solutions Inc, discussed the basics of Term and Permanent insurance and in which situations you would typically utilize these two types of insurance.

Today, Doug and Jordan move from your insurance needs to possible insurance strategies for Permanent Insurance. I thank Doug and Jordan for their insightful posts.

As noted last week, please keep in mind that these two posts are Doug and Jordan's opinion and there may be insurance advisors and accountants who may have differing opinions on whole life insurance.

The “Hole” in Whole Life Insurance

By Doug Leyland and Jordan Matters

Last week we left off just after we explored some of  the various needs for permanent insurance. Today, we conclude with planning for the appropriate strategy and product, once your needs have been determined.

When illustrated and presented, Par permanent insurance strategies definitely look attractive. However, in our opinion, a deeper dive into the workings of a Par policy exposes some often-aggressive assumptions that will most likely lead to actual outcomes being materially lower than illustrated. Where the strategy’s goal is to solve a specific need, or maximize an estate, a fully guaranteed UL contract provides a better option in our opinion.

We can spend a lot of time reviewing the inner workings of Par policies, but that’s for another day (if Mark invites us back). In short, the performance of a Par policy is highly dependent on the dividend scale applied by the insurer. Dividend scales for insurers across the board have been on a steady decline because of the low interest rate environment.

If we were to present historical charts for the various insurers, they would reflect a declining trend of dividend scale being paid to their own Par policies. In the early nineties, dividend scales were over 10% and today they are around 6%, depending on the insurer. We believe that this downward trend will continue and this belief is backed-up by literature published by various insurers.

The uncertainty of future dividends creates a problem when trying to position a Par contract into a life insurance strategy designed to solve a specific need.

When considering a Par policy, it is essential to illustrate the projected values at the current dividend scale, current -1%, and current -2% in order to understand the variability associated with the policy.

Typically, you already have enough risk in your traditional investments and business interests – why add risk to your insurance contract?

We strongly recommend the use of minimum funded UL contracts in strategies that require the guaranteed outcome that UL insurance provides, including funding a future tax liability, estate maximization, estate equalization, or share redemption.

When structured properly, UL insurance contracts pass all investment risk to the insurance carrier and can be illustrated on a guaranteed worst-case scenario basis.

From a Cost Perspective


In almost every scenario we have considered, premiums for Par are more expensive than guaranteed UL when comparing the same guaranteed death benefit and funding time horizon. Therefore, you can fund a specific estate need at the lowest cost through UL. The savings in premiums can be invested in your existing portfolio at your direction.

Whether you are a successful business owner or individual, you have worked extremely hard to accumulate and preserve your wealth and it is likely that you would like this wealth to benefit future generations. It’s no secret that the two guarantees in life are death and taxes, because the government will always want their pound of flesh. Upon passing, wealth is allocated among three beneficiaries: 1) Your heirs, 2) Charity, 3) Canada Revenue Agency. A properly structured permanent life insurance strategy can minimize the amount of your wealth allocated to the CRA in favour of your heirs and those organizations you care about.

We always advise clients to consider the permanent life insurance policy in concert with their overall asset mix as an estate bound investment, whether it is UL or Par. As with any investment, it is essential to fully understand the associated risks. Mark comment: I have been told by some very astute investors, that they consider "investment" money they put into a life insurance policy as a fixed income component of their portfolio. i.e. They don't worry about the insurance cost of the policy as long as the return after policy costs/funding is superior to that in which they can receive on other fixed income products.

Doug Leyland CPA, CA, MBA & Jordan Matters CPA, CA work together at Leyland Insurance Solutions Inc. in Burlington, Ontario. They assist their clients with insurance based tax and estate planning strategies. If you would like to get in touch with Doug or Jordan, their emails are dleyland@leylandinsurance.com and jmatters@leylandinsurance.com or you can call them at 905-331-2885.

The above blog post is for general information purposes only and does not constitute legal, insurance or estate planning or other professional advice of any kind. Readers are advised to seek specific legal, insurance or estate planning advice regarding any specific issues.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation. Please note the blog post is time sensitive and subject to changes in legislation or law.

Monday, December 11, 2017

The “Hole” in Whole Life Insurance

One issue that confounds most accountants and their clients alike is life insurance. The products can be complex and you are always concerned whether you are being sold something you don't need or something more than you need.

Today and next week, I have guest posts by Doug Leyland and Jordan Matters two Chartered Professional Accountants who deal full-time in insurance solutions for Leyland Insurance Solutions Inc. I am hoping you find their posts help demystify term life insurance and permanent insurance (whole life and universal life insurance) for you, or at least clarify what you should be looking for in an "investment" insurance policy for you personally or your corporation. I thank Doug and Jordan for their efforts.

Please keep in mind that these two posts are Doug and Jordan's beliefs and there are insurance advisors and accountants who may not necessarily agree with their opinions.

The “Hole” in Whole Life Insurance

By Doug Leyland and Jordan Matters

What is your opinion on life insurance? Chances are it is good, bad, or ugly with no middle ground. Is this opinion based on personal experience or what you have heard from friends and colleagues? There is a vast array of life insurance strategies and products available and this can make the landscape appear to be somewhat complex. Some people base their opinions on a limited understanding of the various applications and benefits that life insurance can offer, especially for business owners. The goal of this post is to provide insight on this and simplify things for you.

The need for insurance and the related tax-free proceeds a policy can provide arises from the undesirable economic consequences of either a premature death or an estate liquidity need (i.e. your estate needs to sell real estate in a down market to raise funds to pay income tax for the estate of the deceased person).

Typically, a term insurance policy is used to cover a premature death, while an estate need is most often satisfied by permanent insurance, either Participating Whole Life ("Par") or Universal Life ("UL"). All types of life insurance are simply a promise to pay by a third party in the event of death.

In the next couple paragraphs we will provide some background on these various insurance options.

Term Life Insurance


Term coverage represents insurance in its most traditional and simple form – transferring risks that are too high for you to accept to an insurance company in exchange for a fee.

If the insured does not die during the term, there is no residual benefit other than the ability to convert the contract to either Par or UL without a medical or to renew the term coverage at contractually specified amounts. In many cases, these polices are left to lapse and are not renewed in any form.

Let us ask you this simple question. What might the financial implications be if you were to die prematurely?

This question leads to a needs analysis that considers the following important issues:
  • How do you replace the decline in a business’ value (Goodwill or Key Person insurance)?
  • How do you ensure there are funds available to buy out the shares of a deceased business partner?
  • Do you wish to have insurance to pay off a mortgage or other debts?
  • Do you wish to ensure there is funding for your children/grandchildren education?
  • Do you want to replace your lost income and provide spousal support, if applicable, to avoid having your spouse needing to find employment?
If your objectives are listed above, a term life insurance policy is likely the most appropriate for you.

Permanent Life Insurance


There are significant differences between Par and UL contracts. Understanding the differences is essential because they will have a profound impact on the premiums required to fund the contracts and the likelihood that your estate financial objectives will be achieved. The key take away here is to understand which party to an insurance contract assumes the investment risk of turning premium dollars into a paid promise.

With a Par policy, the risk is shared by the policy owner and insurance company (this represents the “hole” in whole life). With certain forms of UL, the risk falls entirely to the insurance company (i.e. minimum funded Level Cost of Insurance (COI) and Limited Pay UL contracts).

Where the goal is to fund an estimated estate liquidity need, in our opinion, this risk should be third partied entirely via a minimum funded UL contract.

Once again, please consider the following question. What are the liquidity implications for my estate or spouses estate, when I, and/or my spouse, die near life expectancy?

This question about your liquidity requirements causes you to consider some of the common estate needs detailed below:

1. How do I fund capital gains taxes?
2. How do I ensure Estate Equalization (For example, when some heirs are in the business while others are not)?
3. How can I use insurance to assist with my succession planning (Transfer assets to the next generation tax free)?

Other economically beneficial strategies using permanent life insurance include:

1. Life Insurance as an Investment – Estate Anchor & Maximization
2. Charitable Giving
3. Retirement Income

Now that we have explored some of  the various needs for insurance, next week in Part 2 we will discuss some of the appropriate strategies.

Doug Leyland CPA, CA, MBA & Jordan Matters CPA, CA work together at Leyland Insurance Solutions Inc. in Burlington, Ontario. They assist their clients with insurance based tax and estate planning strategies. If you would like to get in touch with Doug or Jordan, their emails are dleyland@leylandinsurance.com and jmatters@leylandinsurance.com or you can call them at 905-331-2885.

The above blog post is for general information purposes only and does not constitute legal, insurance or estate planning or other professional advice of any kind. Readers are advised to seek specific legal, insurance or estate planning advice regarding any specific issues.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation. Please note the blog post is time sensitive and subject to changes in legislation or law.

Monday, December 4, 2017

Let Me Tell You! Marriage Tips From a 30 Year Expert

As I noted in October, I am planning to write occasional blog posts under the title “Let Me Tell You” that delve into topics that may a bit more philosophical or life lessons as opposed to the usual tax and financial fare. Today I share some great marriage tips from a friend.

This summer my buddies and I hosted a dinner at my house to celebrate the engagement of our friend's daughter. We had a great time and some of us gave toasts to the future couple. One of my friends, Monty Warsh, a well-known leasing lawyer for Aird & Berlis, came equipped with multiple que cards for his toast (hey he is a lawyer after-all).

Monty who has been married 31 years to his lovely bride, presented a David Letterman like top ten tips to keep your marriage strong. I was not expecting much (sorry Mont) but was so impressed with his list that I asked for a copy to post on my blog.

Top Ten Tips for a Successful Marriage


Without further ado, here are Monty's top ten tips for a happy and enduring marriage:

10) Maintain Your Independence - Don’t give up who you were and some of the activities and pursuits you had before marriage. Continue to pursue those hobbies and friendships that make you happy.

9) Compromise - You are not always right and neither is your spouse. Find a middle ground that both of you can live with.

 8) Do Not Cross Enemy Lines - Do not make a practice of confronting the in-laws with issues, but rather go through your spouse to communicate the message. Blood relatives are more easily forgiven.

7) The Unexpected Celebration - Celebrating birthdays, anniversaries and Valentines day is nice, but very commercial. Bring home flowers or gifts on non-holidays and for no special occasion.

6) Vacation - Put some money away for a holiday or there will always be somewhere else to deploy your money. It is important to get away and relax and re-energize.

5) Sense of Humor - Laughing releases the tension…..and we all like to be around happy positive people and laughing is contagious.


4) Don’t go to Bed Angry - Things can fester and blow out of proportion if you do.

3) Communication - No one is a mind reader….let your other half know what you are thinking. Don’t be afraid to show vulnerability if it means being transparent.

2) Date Night - Preserve the passion and avoid the trap of slipping into regular and sometimes boring routines.

1) Yes Dear - Guys, sometimes you just have to do it.

There you have it, 30 years of wisdom and common sense. As someone who just celebrated his 30th anniversary, I think Monty has provided some great advice and marriage tips.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation.