When BMO Insurance entered the whole life market in 2017, it initially did so with a focus on providing long-term value and growth for policyholders. But more recently, it has cast a wider net through the introduction of a new whole life policy option.
“Our new Wealth Accelerator option, which was launched earlier this year, allows us to have access to another market: clients who are looking for higher short-term cash values from their insurance policy,” said Daniel Walsh, vice president for Business Development at BMO Insurance.
According to Walsh, the firm’s flagship Whole Life Estate Protector option was designed for personal or corporate clients who want an effective way to transfer assets to the next generation, and accordingly have a long-term view on their financial investments and assets. But as the COVID-19 pandemic has driven more people than ever to re-prioritize toward the short term, BMO found a way to address the emerging need.
“An unexpected event can put financial stress on someone's family or business partner,” he told Life and Health Professional. “That's why many Canadians rely on life insurance to help protect their financial futures.”
Aside from insurance needs, Walsh said BMO Insurance’s whole life policies are ideal for both corporate and personal clients who are looking for ways to diversify their investments in a tax-efficient manner. This may apply to individual Canadians who have maxed out their RRSPs, TFSAs, and RESPs, as well as corporate clients who have corporate surpluses or investments.
The Wealth Accelerator option in particular, he said, can provide added peace of mind to personal or corporate clients in the form of higher short-term cash values. While they do not necessarily have any plans of surrendering their insurance policy in the near term, they may appreciate having the opportunity to do so.
“The current COVID crisis, we've been living for the past six months may create more uncertainty for Canadians, and therefore an option which offers better short-term cash values likely makes people feel more comfortable and secure,” Walsh said.
As for many of the company’s other life insurance products, those who wish to apply for the Wealth Accelerator Whole Life offering may quality for accelerated underwriting under certain conditions. Clients 50 and under may be eligible for accelerated underwriting – which would not require further medical tests or other requirements – to get coverage of up to a million dollars. Those aged 51 to 60 may also be considered for accelerated underwriting, though they would only quality for a maximum insured sum of $300,000.
“Given the current environment and reliance on digital tools, we also have an electronic application called SmartApp that clients can complete with the support of their advisor,” Walsh said.
The types of needs that BMO Insurance anticipates from whole life clients can include income replacement, death protection, estate planning, and funding capital gains taxes, to name a few. With respect to business owners, life insurance policies may also be used to fund a buy-sell agreement, something that’s surely more top-of-mind now as heightened health concerns make business continuity and succession planning a priority.
“We would expect from a higher profile point of view, client be insurable from a medical standpoint as well, and have an investible asset personally or corporately,” Walsh said.
BMO Insurance’s whole life product, Walsh said, offers different options for guaranteed-level premium payments, including life pay, 20-to-pay, or 10-to-pay. Whole life policies also come with contractual guaranteed cash values that typically rise over time.
“A performance bonus is calculated on each policy anniversary using a performance bonus rate that's declared annually,” he said, adding that the performance bonus rate will vary yearly but will never be negative.
According to Walsh, the performance bonus rate takes into account the credited net rate of return of a portfolio that’s part of the company’s general assets, which consists of fixed-income and enhanced equity investments designed to target higher overall portfolio yields. BMO Insurance also uses a smoothing formula to reduce year-on-year fluctuations of the performance bonus rate and generate more stable, longer-term returns.
“The performance bonus is used to purchase additional paid-up insurance coverage, what we call Paid-Up Additions, which increases the amount of the death benefit and the cash value available on the policy at no cost above the premiums due for the basic coverage,” he added.