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Most advisors have likely discussed life insurance with clients to help cover estate expenses and tax bills at death. However, if you aren’t also talking about insurance lending solutions, you’re missing out on an opportunity to grow your business and better serve your clients.

While these lending solutions aren’t new to the market, there are some niche strategies you may not be well versed in. Equitable Bank, for instance, offers a suite of three insurance lending solutions.

“We like to operate in unique spaces and have a philosophy of not doing what every other bank does,” says Tom Schiersch, Director, Insurance Lending and Wealth Solutions Sales, at Equitable Bank. “We pride ourselves on a high level of broker and advisor engagement, as well as customer service.”

Equitable offers two cash surrender value (CSV) lines of credit: the FLEX and the MAX. The FLEX is designed for older clients (aged 50-plus) who simply need access to a lower percentage of the CSV, and there are no required monthly interest payments. Meanwhile, there is no age requirement for the MAX line of credit, and clients can access 90% of the CSV, paying monthly interest only. Learn more about each solution here.

Another insurance lending solution that Equitable offers is an Immediate Financing Arrangement (IFA). And, unlike other lenders, Equitable doesn’t require excess collateral to fully secure the loan.

An IFA is designed for high-net-worth clients who have a large whole life insurance premium, typically $100,000 or more.

“They’ve experienced success in their business and life in general, and that has resulted in a big impending tax bill at death,” explains Michael Pilz, Head, National Sales, CSV Lending, at Equitable Bank. “The insurance they purchase is going to help preserve the estate, cover taxes, et cetera.”

In adding an IFA, clients may get full liquidity to the premium value of the insurance, he adds. “It’s a strategy to allow them the best of both worlds. They’re going to buy the insurance policy and pay the premium. But in working with a lender, like Equitable Bank, they may be able to borrow back that same premium dollar to use for whatever alternate purpose they wish, like reinvesting back into their business, for example.”

Case study

Let’s apply this strategy to a hypothetical client scenario to better understand how it works. The client’s details are as follows:

Applicant: Corporate borrower with a guarantor Age: 46 Profession: Real estate developer Assets: $3 million Permanent Whole Life insurance premium: $150,000

In this situation, Jackie Uy Ham, Vice-President, Growth Businesses, at Equitable Bank, explains that an IFA would be beneficial for the client. They’d gain access to the full $150,000 premium, which they could reinvest in their business to generate returns.

“The client is able to purchase their policy and pay minimal, basically interest-only, payments on an ongoing basis,” says Uy Ham. “Then, with an IFA, they instantly unlock all of the cash that they’ve just put into the policy. It’s a smart play for many affluent individuals.”

Further, this client wouldn’t be required to provide excess collateral to secure the loan, which can be difficult for developers who own many properties, she says. That’s because many lenders will not accept real estate as excess collateral because there are still mortgages on the properties, so clients don’t own them outright.

“Even though this client may have 10 properties, each worth $1 million and maybe only $1 million in total mortgages, each property has $100,000 on it, it may not be acceptable collateral for other lenders,” adds Pilz. “There is no need to worry about this with us.”

Equitable also offers competitive rates. “The rate a deal qualifies for is based on many factors. The major ones being how large is the loan and how secure is it. In many cases, we expect these main factors to improve as the IFA strategy plays out over subsequent years. That being the case, a borrower could expect that their rate will improve over time as well,” he says.

Discussing IFAs with clients

Ready to bring IFAs into conversations with affluent clients? First, ensure you identify an IFA opportunity; the client must have a big insurance need.

“If the client is hesitant and says, ‘I make more money when I have that dollar in my business or investment account,’ that should be a trigger for the advisor that the client has a potential IFA need,” says Pilz.

He adds, “There are a lot of advisors interested in the IFA space because of the larger premiums involved. However, IFAs are an advanced concept, and advisors would do themselves and their clients a huge service by ensuring they are well versed and educated on all the associated aspects. IFAs are part insurance, part lending, kind of married together. Advisors need to ensure they have the knowledge to identify opportunities, ensure client suitability, and be able to work with both the insurance company and lender to ensure success.”

Ready to learn more about Equitable Bank’s insurance lending solutions? Contact our team at wealthsolutions@eqbank.ca or visit equitablebank.ca.

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Helping clients better understand the benefits of IFAs

Insurance lending products can, unfortunately, be complicated and confusing for many clients. Immediate Financing Arrangements (IFAs) are a prime example—we’ve found that even sophisticated, high-net worth families often misunderstand the benefits of an IFA. They fail to recognize that insurance lending cannot only boost their insurance coverage, but also bolster their long-term financial goals.

To explain the ins and outs of this lending solution, we’ve compiled a list of common questions and answers to reference in your client conversations.

1) What is an IFA and how does it work?

An IFA is a lending solution that helps clients borrow up to the amount of the insurance premium they’ve already paid. Borrowers must first purchase a permanent (whole) life insurance policy. Then, once they’ve made their first premium payment, they can assign the plan to a third-party lender who advances the funds to them, with the policy’s cash surrender value (CSV) serving as collateral. The borrower is required to service the accrued interest on the loan on a monthly basis. And as subsequent premiums are paid by the borrower, the lender can choose to lend back additional amounts as well.

2) How much money can I actually borrow back?

Generally speaking, IFAs allow you to borrow up to 100% of the client premiums already paid. However, the percentage that’s actually advanced will depend on the lender and circumstance of the individual borrower. Each lender will adjudicate these loans independently based on specific criteria to determine the amount clients will qualify for.

3) Does the lender take ownership of my insurance policy?

No. This is a common misconception, but the lender does not become the policy owner in any way. The actual policy holder, whether it’s an individual or corporation, remains the owner for the life of the IFA. Instead, the lender assumes all the rights of the policy holders, which can be exercised in the event the borrower defaults or the life insured passes away. Assigning the policy as collateral provides security for the lender—and gives clients the peace of mind that they’re policy will remain intact.

4) When does the loan become due?

Lenders may structure their facilities differently, but generally speaking, the outstanding balance becomes due upon the death of the insured party, resulting in the redemption of the policy. And while monthly interest payments are required on an IFA, policy holders do not typically have to pay down the principal loan amount. Since these are open credit facilities, repayments can be made at any time without penalty. That being said, bear in mind that IFAs are also demand credit facilities, which means the lender can demand repayment at anytime, and they can also collapse the policy and recover what is owed through the CSV should the borrower default.

5) What will the beneficiaries receive when the policy is redeemed?

When the loan becomes due upon death, the lender first receives a sum equal to the outstanding balance of the loan. Once that’s paid off, the remainder goes to the beneficiaries. It’s worth emphasizing that the death benefit will always exceed the cumulative total of the premiums—so there’s always residual money to pass on, notwithstanding interest, fees and other incidental charges.

6) Are IFAs only beneficial to ultra-high net worth clients?

Not exactly. IFAs are a complex financial tool, and should only be used by sophisticated clients and their Advisors. However, you don’t need to be an ultra-high net worth to be financially savvy. At Equitable Bank, we view IFAs as a solution that can be used across a wide range of clients and prospects. As a rule of thumb, $100,000 is viewed as the minimum annual premium to qualify for an IFA, but that being said, we review each scenario on a case-by-case basis.

7) What other collateral is required for an IFA?

At Equitable Bank, we only require the policy itself. Many lenders ask that borrowers pledge additional collateral—such as financial or hard assets—to close the gap between the CSV and the loan amount. Our underwriting process is simpler, and more streamlined, to allow Canadians to apply without any extra assets or money down. We’re truly confident in our IFA lending practices.

We hope you can use one or more of these questions and answers to help your clients better understand the merits and benefits of an IFA. These can also be used as conversation starters if you want to proactively broach this topic and ensure a more meaningful and productive discussion. If any additional questions arise, feel free to reach out to us for assistance.

Ready to start the conversation? Follow our step-by-step plan and provide your contact details to learn more. Contact our team at wealthsolutions@eqbank.ca.

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Talking to your clients about the benefits of an IFA

When talking to your clients about their overall financial plan, some topics are easier to discuss than others—and insurance is often at the bottom of the list.

An Immediate Financing Arrangement (IFA) can help ease into this challenging topic, setting the stage for a more positive conversation. Rather than focusing on sad possibilities that could happen sometime in the future, you can emphasize how an IFA reduces the financial and emotional strain involved in protecting loved ones. But how exactly do you kick-start the dialogue?

At Equitable Bank, we’ve devised a four-step process to help you broach the subject. This plan should act as a guide on how to position the IFA in various client scenarios:

1. Identify

First, complete a standard discovery to determine whether your clients’ current insurance coverage is sufficient based on their family needs and financial objectives. Look for any gaps that require additional coverage, and from there try to understand if the client would be willing to take on debt to pay for this coverage, or if they would be more comfortable paying for it out of pocket. Additional credit can help many effectively manage their finances, though some may be uncomfortable taking on this additional debt

When reviewing your clients’ insurance needs, it’s important to identity if they’re the right type of borrower for an IFA. Normally, this solution is geared to ultra-high net worth clients (UHNW), and while we believe it should be more widely available, it is not a fit for everyone as the ideal IFA client is still a sophisticated, affluent investor or business owner with robust insurance needs.

Case Study: While speaking to your clients, John and Helen, you discover that they haven’t updated their insurance coverage in over 10 years. During that time, they’ve had three children, which has drastically altered their financial plan and insurance needs. Additional insurance is a must for them, and an IFA allows them to expand their coverage without impairing the cash flow that’s needed for their growing family.

2. Educate

Having confirmed your clients’ insurance gaps, you can now have a more in-depth discussion about their finances. Often, clients don’t realize they can leverage their whole life policy as a new source for cash. You can educate them on the many benefits of doing so, including the ability to borrow up to 100% of the premiums on your policy without requiring any additional collateral or security.

Once your clients understand they can monetize their insurance policy in such a tangible way, you can open up a discussion on why an IFA may be the best option to maintain or improve their cash flow and provide them with greater financial control.

Case Study: John would need to liquidate some of his non-registered investments in order to pay his new insurance premium. However, he’s reluctant to cash-in higher yielding investments, as they’re performing so well right now. With an IFA, he wouldn’t need to liquidate these assets. Instead, he could simply tap into an IFA to recoup his premium payment while also safeguarding the future of his family.

3. Align

Many clients don’t realize there can be tax advantages associated with an IFA, depending on their particular situation. It’s a great idea for you to spearhead a meeting with their accountant or lawyer to determine the optimal use case, which only further demonstrates your value-add.

Case Study: Based on the advice from his advisor, John meets with his accountant to discuss the best way to structure an IFA. His accountant recommends that it would be best to hold the policy within his corporation since the premiums could then be paid from corporate earnings on a pre-personal tax basis, thereby creating a capital dividend credit upon the death of the insured.

4. Simplify

At long last, they’re ready to start the application process. This can be a fairly daunting step in many cases, and, as a trusted advisor, you should focus on making the execution as simple and straightforward as possible. This is where your choice in an IFA lender becomes extremely important.

At Equitable Bank, our sales team can provide you with qualification amounts, competitive rates and the financial requirements upfront, preventing any back and forth. We can also complete the underwriting at the same time as the insurer, ensuring the policy placement and loan advance occur at around the same time to expedite things. Finally, our ability to lend solely against the policy without the need for collateral makes the process much easier—and accessible.

Case Study: Focused on ensuring a smooth process from start to finish, the Advisor contacts Equitable Bank. Our team provides all the requirements – all at the same time – enabling you to easily retrieve the necessary financial information from the borrower.

Ready to start the conversation? Follow our step-by-step plan and provide your contact details to learn more. Contact our team at wealthsolutions@eqbank.ca.

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Whole Life Insurance: A Valuable Financial Tool at Every Life Stage

For Canadians of all ages, the decision to purchase life insurance is often seen as a necessary evil—and rising inflation only accelerates the problem.

With prices jumping by 5.7% in February, 2022 to a 30-year high, the pressure to curb expenses is only growing stronger.² In these scenarios, clients may question the benefit of spending money on something they hope to never use, even if they recognize the importance of protecting their loved ones. This bias for the present can create obstacles for Advisors looking to discuss insurance with their clients.

This topic can become especially contentious for young families just starting out. On the other end of the spectrum, it can also be a difficult conversation with older clients who are approaching, or already in, retirement. In both cases, clients may struggle with inflation given they live on a fixed income.

When speaking to your clients, it’s important to educate them on the reality that life insurance can do more than protect against a “worse case scenario”; there are additional cash flow benefits they can derive from this offering—at any stage of their lives.

A Young Family

During the early years of starting a family, people want to focus on building wealth. Yet, at the same time, they recognize that beneficiaries need to be taken care of if the worst occurs. For these client types, an Equitable Bank Immediate Financing Arrangement (IFA) can come in handy—particularly one that requires no excess collateral, since a young couple would not want to tie up other assets as part of a loan. They can simply buy a whole life policy and use the policy as a basis to borrow back the annual premiums. This can be a significant benefit to young families with tight cash flow concerns, giving them the dual benefit of insurance coverage while helping to maintain income.

Aging Canadians

As policy holders age, their financial circumstances and insurance policies mature as well. Eventually the CSV of their whole life plan outgrows the cumulative premium amounts, enabling them to take out an Equitable Bank CSV MAX Line of Credit. The CSV MAX is structured as a revolving line of credit, enabling clients to access how much they need, whenever they want.³ Instead of tapping into other taxable assets, your clients can use the CSV MAX as a liquidity backstop during inflationary periods, for big ticket items or to finance unexpected purchases.

Retirement/Estate Planning

Finally, Canadian seniors can take out an Equitable Bank CSV FLEX Line of Credit to supplement their retirement income. Using the whole life policy as collateral, the loan provides tax-efficient funds without the need to make ongoing payments. Of course, these arrangements don’t happen overnight. They need to be planned out well in advance to ensure the policies will mature before your clients need to access the funds. So, remember to start the process as early possible. Also, setting up a new life insurance policy in advance can help individuals with complex estates—especially business owners—manage the wealth transfer from one generation to the next.

Matching Circumstances to the Right Solution

Financial decisions are rarely simple or straightforward, regardless of whether your client is living in retirement, just starting out, or somewhere in between. Inflation can make ordinary expenses feel overwhelming, but rather than allow it to change their budgets and priorities, you can offer an innovative solution that balances their insurance and cash flow needs.

Now is a great time to speak to your clients about a whole life policy—and insurance lending solution— that can put them on stronger financial footing for the future.

Equitable Bank’s Suite of CSV Lending Solutions

• CSV FLEX Line of Credit: Provides Canadian residents 50 years of age and older access to a maximum 90% of the CSV of their whole life policy. No payments are required as long as the account remains in good standing, thus creating a great retirement income solution.⁴
• CSV MAX Line of Credit: This offering has many of the same benefits as the CSV FLEX. Monthly interest payments are required with this line of credit, which is available to whole life holders who are Canadian residents and have reached the age of majority. 
• Immediate Financing Arrangement (IFA): Canadian residents who have reached the age of majority can access a maximum of 100% of the CSV without having to provide any additional collateral.

Ready to refer? Provide your contact details and an expert will reach out soon. Contact our team at wealthsolutions@eqbank.ca.

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¹ Equitable Bank is in no way providing tax or financial advice. Advisors should consult with their clients to discuss their unique tax situation and the tax-free benefits of an IFA. ² Kevin Carmichael, “Inflation surges to 5.7%, adding pressure on Bank of Canada to accelerate rate hikes,” Financial Post, March 16, 2022. ³ The Equitable Bank IFA is a demand credit facility and subject to certain conditions. ⁴ The Equitable Bank CSV Line of Credit Suite offerings are demand credit facilities, meaning Equitable Bank can demand payment of all or part of the outstanding balance at any time. The outstanding balance on Equitable Bank CSV FLEX/MAX Lines of Credit must remain below 95% of the cash surrender value of the policy.

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A practical cash flow solution in inflationary times

Inflation has hit Canadians particularly hard over the past quarter, with more pain likely to come over the remainder of 2022.

The impact of that shock to system has been felt everywhere—at the gas pump, the grocery store and on the energy bill. According to Statistics Canada, the latest January numbers show that prices have accelerated more quickly than at any time in the past 30 years, coming in at 5.1%. Food prices have spiked 5.7%. And, it’s important to note, this was the tenth consecutive month that prices rose beyond the Bank of Canada’s target range of 1 to 3%.²

This new economic reality also impacts life insurance providers. For instance, two major issuers recently announced that they will raise premiums to offset the costs associated with inflation. Where does that leave your clients?

Typically, consumers have two choices when dealing with a product that’s been affected by price hikes: pay more, or buy less. If the cost of a whole life policy is too expensive, they may choose not to buy one in the first place. Conversely, if they decide the need is too great, then the hit to cash flow is worth it to adequately protect their loved ones. At Equitable Bank, we think there’s a third option—one that results in sufficient coverage without tying up too much of your clients’ capital.

Equitable Bank’s Immediate Financing Arrangement (IFA)

To help improve cash flow, it may be helpful to educate your clients about a hidden source of liquidity: the Cash Surrender Value (CSV) in a whole life insurance policy. Money held in the CSV can be accessed now, well before the death benefit is paid out, using specialized lending products such as Equitable Bank’s Immediate Financing Arrangement (IFA).

If your client is looking to secure a new policy, an IFA provides the ability to borrow back 100% of the premiums immediately.³ Meanwhile, if they have an existing policy and simply need cash flow to allocate elsewhere during inflationary times, they too can use an IFA to extract premiums that were previously paid. So long as the policy is kept in good standing, the only ongoing cost is the interest on the loan.⁴ Better still, there are no excess collateral requirements, they can apply to borrow additional premiums on an annual basis, and the value of the whole life policy isn’t impacted.

It’s clear that the current economic environment is creating considerable complexity. As the volatile climate is expected to remain for at least for the remainder of this year, your clients may be turning to you for creative solutions to meet their financial needs and safeguard the things most important to them. An IFA can be just the answer they’re looking for, one that ticks all the necessary boxes of protecting their loved ones and preserving their liquidity.

Ready to refer? Provide your contact details and an expert will reach out soon. Contact our team at wealthsolutions@eqbank.ca.

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¹ Equitable Bank is in no way providing tax or financial advice. Advisors should consult with their clients to discuss their unique tax situation and the tax-free benefits of an IFA. ² Julie Gordon and Ismail Shakil, “Canadian inflation hits fresh 30-year high in January, rate hikes loom,” Reuters, February 16, 2022. ³ Subject to internal underwriting and discretion & projected year end CSV must be equal to at least 70% of the premium amount. ⁴ The Equitable Bank Immediate Financing Agreement is a demand credit facility, meaning Equitable Bank can demand payment of all or part of the outstanding balance at any time.

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A business owner’s secret to efficient wealth transfer

As Benjamin Franklin once said, “Nothing in this world is certain except death and taxes.”² And for many Canadian business owners, that’s exactly what is top of mind.

They’ve worked hard, built a thriving business and hope to pass on the wealth to their children. But how do they do it tax-efficiently?

Step 1: Secure a whole life policy

Whole life insurance policies have emerged as a powerful solution to this problem. After the client passes away, their assets typically transfer to the heir – along with the estate taxes.

However, if a client holds a whole life policy, the impact of potential capital gains can be minimized by the death benefit and cash surrender value. This gives the beneficiaries a way to inherit while keeping most of the funds intact.

There’s only one catch: costly premiums.

Policies used for high-net-worth estate planning are often expensive. And even if clients can afford the policy, the drain on cash flows may prevent an Advisor from suggesting the strategy. Enter, the Immediate Financing Arrangement (IFA).

Step 2: Apply for an Immediate Financing Arrangement (IFA)

An IFA is the missing puzzle piece. It enables the policy holder to borrow up to 100% of the premium as soon as the policy is put in place.³ They can effectively add insurance to cover them– and optimize the estate plan – without negatively impacting their liquidity.

Let’s consider a real-world example: Richard is a 75-year-old business owner with a wife and two adult children. He wants to leave the company to his sons when he passes, but is nervous about the significant capital gains that would be triggered upon his death. Moreover, he’s hesitant to pull any capital out of the corporation at this time.

To mitigate the eventual tax bill, Richard buys a corporately-held whole life insurance policy with a premium of $500,000. He’s then eligible to borrow back the funds through an IFA – thus structuring his estate and ensuring the business has enough capital to continue on.

Step 3: Borrow back 100% of the premium

After a quick underwriting process, Richard qualifies for an IFA of $500,000. There are no restrictions on the use of the funds, and other than paying the ongoing interest on the loan, the borrower must keep the policy in good standing at all times. He can also apply to borrow back additional premiums on an annual basis, if the need for capital continues.

The Equitable Advantage

While IFAs are offered by multiple lenders, Equitable has gone further. We allow policy holders to access up to 100% of the premium, with no excess collateral! even if the cash surrender value (CSV) of the policy lags behind. For example, the CSV could be worth only $350,000, but Steve would still be eligible for $500,000 (the full premium amount).³

Other benefits include:

• Low minimum – only $50,000 in annual premium required
• A hassle-free process for additional credit limit increases
• Easy to navigate underwriting and adjudication process – limited back and forth
• Competitive rates & fees keep your costs low⁴
• No principal due until the insured party passes away⁵

Most importantly, we respect the advisor-client relationship. Our involvement is solely as a lender, and our objective is to help advisors and clients achieve their financial goals.

Ready to refer? Provide your contact details and an expert will reach out soon. Contact our team at wealthsolutions@eqbank.ca.

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¹ Equitable Bank is in no way providing tax or financial advice. Advisors should consult with their clients to discuss their unique tax situation and the tax-free benefits of an IFA. ² NCC Staff, “Benjamin Franklin’s last great quote and the Constitution,” National Constitution Center, November 13, 2021.  ³ Subject to internal underwriting and discretion & projected year end CSV must be equal to at least 70% of the premium amount. ⁴ Rates are subject to change at any time. ⁵ Equitable Bank CSV Line of Credit Suite offerings are demand credit facilities, meaning Equitable Bank can demand payment of all or part of the outstanding balance at any time.

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Sure-fire opportunities

When clients undergo significant life events, their need for insurance coverage often grows accordingly. Marriage, home ownership, parenthood – any number of transitions could drive them to seek extra protection, and the result is an interesting opportunity for advisors as well.

Using a niche lending solution known as a CSV Line of Credit (‘Cash Surrender Value’), advisors can create strategies that enable their clients to buy the protection they need without a major outlay. (Interest payments only.)

Imagine that your client has contributed to a whole life policy for several years. Through steady premium payments, the CSV in the policy may have grown into a tidy sum, but the real reason for holding the policy would still be the death benefit – which is significantly larger and would be advanced to the beneficiaries in event that the insured party passes away. As the client’s circumstances shift, and the initial amount may no longer be sufficient to protect their loved ones, they could feel compelled to increase the total payout for greater peace of mind.

The only constraint is cost. An expansion in coverage requires higher premiums, driving up expenses at the exact moment when the client may want to tighten their belt. This is where a CSV line of credit becomes useful; it enables your clients to leverage their existing policy’s cash value, and the proceeds can be used to purchase more insurance, thereby giving them the assurance that their loved ones will be cared for, even if the worst should occur.

Delivering extra coverage – and value

Equitable Bank partners with many of Canada’s leading life insurance carriers to offer an innovative solution where the whole life policy serves as collateral for a loan. Based on a simple, hassle-free underwriting process, the policy is assigned to Equitable Bank as collateral, enabling us to advance credit directly to the policy holder while you, the Advisor, provide critical support and guidance. There are no formal applications or transaction fees, no impact on the client’s borrowing capacity, and the money available through the line of credit is tax-free.¹

Unlike other lending solutions, the loan is secured against the policy alone, requiring no other collateral in order to be granted. It’s also important to remember that the facility is a revolving credit facility, so borrowed amounts can be repaid and made available later if circumstances change. That said, clients do not have to make any principal payments while the LOC is in good standing.² When used to purchase additional life insurance, this would have the net effect of increasing their death benefit with the only cost being the monthly interest payments.

Moreover, the policy’s value continues to grow after the loan is created. So, when the policy holder eventually passes, the outstanding amount of the loan is repaid from the death benefit, with the remaining amount going to the beneficiaries.

Of the two products within our CSV suite, the Equitable Bank CSV MAX Line of Credit is ideally suited for younger clients beginning a new phase of life. Whether they’re growing their family, getting married or buying real estate, you can deliver an innovative approach to broaden their coverage. It’s a win-win scenario, where you can ensure clients receive maximum protection for their loved ones and enjoy the added bonus of growing your book.

Who’s eligible?

Canadian residents who are the age of majority and have:

• A whole life insurance policy with one of Equitable Bank’s insurance partners
• Adequate cash surrender value available in their policy
• Met financial qualifications to ensure interest payments can be made

Ready to apply? Get in touch with your financial advisor or insurance broker today to discuss how you can balance coverage and cash-on-hand.

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Need more information?

Contact Mike Pilz, Head, National Sales, CSV Lending at mpilz@eqbank.ca and 647-600-7559, or email our team at wealthsolutions@eqbank.ca.

¹ Each borrower has unique tax situations which may impact the tax-free benefits of an Equitable Bank CSV Line of Credit. ² The Equitable Bank CSV Line of Credit Suite is a demand credit facility, meaning Equitable Bank can demand payment of all or part of the outstanding balance at any time. The outstanding balance of your loan must remain below 95% of the cash surrender value of your policy.

The upside for Advisors

Advisors dealing in Whole Life insurance may miss an opportunity to grow their business if they leave this niche borrowing tool off their product shelf – the ‘Cash Surrender Value’ line of credit (CSV LOC).

As you can read in our previous articles, the use cases for a CSV LOC are widespread. For clients approaching or in retirement, the Equitable Bank CSV FLEX Line of Credit¹ can be used to balance CPP, OAS and RRSP income; assist adult children with a mortgage down payment; and cover any retirement shortfall. Meanwhile, if you’re dealing with a younger set, or those looking to maximize the amount they can borrow, the Equitable Bank CSV MAX Line of Credit is the more appropriate tool for creating an IFA lite strategy, or bridging to a premium offset scenario. Fortunately, both approaches only require minimal input and ongoing guidance from an Advisor.

So, what’s the upside? In our experience, there are 5 key advantages:

• Educate clients about their long-term options. During the first conversation about a whole life policy, you can illustrate the “borrowing” scenario with the confidence that Equitable will be there to lend. Need cash flow projections to make it real? Simply reach out to one of our CSV experts, and they will assist you with any required materials.

• Generate new policy sales. Having this tool available on the product shelf broadens your service offering to prospects, and educates existing clients about the benefits of a whole life policy. This can be especially helpful for people who believe the premiums will either monopolize their cash flows, or become unsustainable over the long term.

• Add alternate income streams. Though not a core revenue source for most Advisors, the product offers supplemental cash flows that require very little effort to service. It’s low risk, medium reward – and it would otherwise go untapped. Advisors are paid 0.20% annually² for as long as the line of credit remains outstanding.

• Fulfill a promise to existing clients. Many current whole life policies were sold with the intention of clients borrowing the cash later in life. Now, 10 to 15 years later, appropriate lending options are few and far between. Equitable is striving to improve the product suite for Advisors in this wealth decumulation phase, so you can meet the expectations laid out for clients at the start of the process.

• Maintain AUM within your book. If clients have cash needs, the liquidity must come from an existing source, such as their deposit accounts or investment portfolio – or from an innovative solution like the CSV Line of Credit. The latter would ensure that assets held within your book are maintained, continuing to grow undisturbed while clients receive the funds they need.

Under the hood

As a unique lending solution, the CSV Line of Credit provides an alternate, tax-efficient source of cash for Canadians with a whole life policy. Here’s how it works: policy holders borrow up to 90% of the cash surrender value (CSV) of their policy, keeping the rest of the policy intact and growing.³

There’s no application or transaction fee, and the only collateral that’s required is the policy itself. And for the CSV FLEX, the interest on the loan continues to capitalize, so that proceeds are ultimately repaid by the death benefit, with the balance left for the beneficiary. Find out which line of credit is best suited to your client. 

The CSV FLEX is designed for Canadian residents 50+ years who have:

• A whole life insurance policy with one of Equitable’s approved insurance partners⁴
• Adequate CSV available in their policy⁵

On the other hand, the CSV MAX is ideal for any Canadian resident above the age of majority who has:

• Same as above
• The financial qualifications to ensure interest payments can be made

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Need more information?

Contact Mike Pilz, Head, National Sales, CSV Lending at mpilz@eqbank.ca and 647-600-7559, or email our team at wealthsolutions@eqbank.ca.

¹ Visit www.equitablebank.ca/lines-of-credit/csv to learn more and  decide if the Equitable Bank CSV Line of Credit is the right solution for your client.. ² Paid and calculated monthly off the minimum outstanding balance. ³ The Equitable Bank CSV FLEX Line of Credit offers access to tax-free cash while the policy continues to grow, and payments are not required as long as the line of credit remains in good standing.  This is a demand credit facility, meaning Equitable Bank can demand payment of all or part of the outstanding balance at any time.  The outstanding balance must remain below 95% of the cash surrender value of the policy.  This option allows your client to access up to a maximum of 90% of the cash surrender value of their  policy (evaluated on a case-by-case basis).  Credit limits are subject to deductions based on required premium payments. For the CSV MAX Line of Credit, borrowers are eligible for credit limits totaling 90% of the cash surrender value of the policy, provided that monthly interest payments are made. Equitable Bank is in no way providing investment advice. ⁴ A full list of partner insurers can be found on the Equitable Bank website. ⁵ The amount of capital made available depends on the projected growth of the policy and the age of the borrower.

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Unprecedented change for retirees

The average lifespan of Canadians has increased dramatically in recent decades, inadvertently leading to a new set of retirement planning challenges.

Case in point: a 2020 survey shows that 70% feel they’re not saving enough,¹ and another poll reveals that three out of five people are unsure how much they’ll need.² Even for Canadians with robust financial plans, there’s a budding concern about maintaining quality of life through the Golden Years.

This retirement shortfall is made worse by prevailing macro conditions, such as the persistence of low interest rates. Retirees with substantial investment assets often rely on yield income to fund their living expenses. However, the low-rate environment has greatly weakened the earning power of fixed income, which is typically held as a core position in retirement portfolios. The result is that Canadians have grown anxious about living longer on less income.

As Baby Boomers move into retirement en masse, Advisors may notice this issue becoming a common theme in their client conversations. The number of people above age 65 is expected to surge to 60% over the next two decades, according to Statistics Canada. So the question is: are there alternative sources of income to address the savings gap?

Source: Statistics Canada, Projected population, by projection scenario, age and sex, as of July 1, 2019, medium growth scenario.

Unlocking tax-free cash with ease

Equitable Bank’s CSV FLEX Line of Credit³ offers a tax-efficient source of cash for Canadians with a whole life insurance policy. Here’s how it works: Policy holders borrow against the cash surrender value (CSV) of their policy, unlocking tax-free funds to supplement their retirement savings, CPP and OAS.

The underwriting process is deliberately streamlined to reduce hassle; there’s no application or transaction fee, and after an initial inquiry the loan does not report to the credit bureau. Add to this, the only collateral required is the underlying policy, and interest continues to capitalize so that proceeds are repaid by the death benefit, with the remainder going to the beneficiary.⁴

Ultimately, the core benefit to the policy holder is peace of mind. Clients who are either retired or retiring can use the CSV FLEX to delay collecting pension payments, help their adult children with a mortgage down payment or pay for home renovations. The key factor is they avoid making a choice between sustaining their lifestyle and outliving their savings.

This post-retirement of the client life cycle has often been neglected by the financial services industry, with greater focus being directed to the “peak earnings” years. At Equitable Bank Wealth Solutions, we aim to balance the scales with innovative new solutions tailored specifically for the decumulation side of your book. Get in touch with us at the number below to learn more.

Who’s eligible?

Canadian residents 50+ years who have:

• A whole life insurance policy with one of Equitable’s insurance partners⁵
• Adequate CSV available in their policy⁶

Use the Equitable Bank CSV FLEX Line of Credit Qualification Calculator to assess individual eligibility amounts and begin the application.

Ready for quick tax-free cash?

Learn how to leverage whole life insurance policies to achieve financial flexibility, and start the application process, or call our Senior Business Development Manager at 647-600-7559 for more information.

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¹ 70% of Canadians Think They Won’t Save Enough for Retirement, Scotiabank Poll; February 11, 2020. ² RRSP savings rising, but Canadians still unclear on goals, Wealth Professional; February 07, 2020. ³ Visit www.equitablebank.ca/lines-of-credit/csv to learn more and connect with your financial or insurance advisor to decide if the Equitable Bank CSV Line of Credit is the right solution for you. ⁴ The Equitable Bank CSV FLEX Line of Credit offers access to tax-free cash while the policy continues to grow, and payments are not required as long as the line of credit remains in good standing.  This is a demand credit facility, meaning Equitable Bank can demand payment of all or part of the outstanding balance at any time.  The outstanding balance must remain below 95% of the cash surrender value of the policy.  This option allows you to access up to a maximum of 90% of the cash surrender value of your policy (evaluated on a case-by-case basis).  Credit limits are subject to deductions based on required premium payments. Equitable Bank is in no way providing investment advice. Consult your financial advisor to discuss your unique tax situation and the tax-free benefits of an Equitable Bank CSV Line of Credit. ⁵ A full list of partner insurers can be found on the Equitable Bank website at www.equitablebank.ca/lines-of-credit/csv/our-partnered-insurers. ⁶ The amount of capital made available depends on the projected growth of the policy and the age of the borrower.

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Canadians who own a whole life insurance policy often buy in with the expectation that policy dividends will eventually cover their entire premium amount. This “premium offset” scenario is useful for Advisors looking to manage cash flow within their client’s financial plan, yet there’s a potential roadblock that many fail to consider: What if dividend scales fall over time?

Remember, policy dividends are forecasted with major assumptions about key risk factors, including longevity, expenses, taxes, inflation, lapses and investment returns. So when economic conditions change, so do insurers’ dividend scales. For example, Sun Life Financial reduced its scale to 6.00% from 6.25% this past April 1,¹ citing lower interest rates and improvements in mortality, following Canada Life’s downward revision in July 2020.²

These shifts can often disrupt a policy owner’s expected cash flow by adding years to the out-of-pocket payment schedule. Case in point: If a client had anticipated paying premiums for the first 10 years – with the policy dividend taking over from there – the reduced dividend scale could push their timeline to 13 years, adding a greater burden to the client than previously anticipated.

What options are available to manage this risk? Some holders can simply choose to access a policy loan, but given the high interest rates involved, we believe a safer option would be to borrow against the cash surrender value (CSV) of the policy.

How to limit out-of-pocket expenses

Equitable Bank’s CSV MAX offers an innovative and efficient solution to this problem. Consider the example above: a client whose premium offset timeline changed from 10 to 13 years. They may have expenses starting in Year 11 that make it impossible to continue covering the premium amount, such as school fees for children or a new business that requires start-up funds. To bridge the gap, the CSV MAX helps them borrow against the CSV value held within the policy – tax-free.

These funds can be used to meet ongoing payments until the premium is covered by the policy dividend. Add to this, the solution does not report to the credit bureau after the initial screening. The process is hassle-free, designed to use the CSV value as a solitary source of collateral. No other assets are required and interest is serviced monthly, at rates much lower than those available for policy loans, and far below the cost of paying the premium itself.

The CSV MAX is also a revolving facility, so borrowed amounts can be repaid and made available should circumstances change. Best of all: the policy continues to grow uninterrupted, and the outstanding balance on the loan is taken directly from the death benefit, with any remaining proceeds directed to the beneficiaries in question.

Who’s eligible?

Canadian residents who are the age of majority and have:

• A whole life insurance policy with one of Equitable Bank’s insurance partners
• Adequate cash surrender value available in their policy
• Met financial qualifications to ensure interest payments can be made

Ready to apply? Get in touch with your financial advisor or insurance broker today to discuss how you can balance coverage and cash-on-hand.

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Need more information?

Contact Mike Pilz, Head, National Sales, CSV Lending at mpilz@eqbank.ca and 647-600-7559, or email our team at wealthsolutions@eqbank.ca.

¹ Sunlife, Dividend scale history, as of May 31, 2021. ² Canada Life announces 2020 participating policyowner dividend scale, May 14, 2020.