When to talk about permanent insurance during estate planning

By: Guillaume Poulin-Goyer, February 2023

Going beyond investments with clients remains a good way to add value, particularly in down markets

Permanent life insurance is a staple of many estate plans.

However, not every estate plan requires life insurance, said Sam Rook, senior portfolio manager with Rook Wealth Management Group, a division of RBC Dominion Securities in Toronto.

Rook, who was speaking at the Inside ETFs Canada conference in Toronto on Tuesday, said a good rule of thumb is to begin talking to a client about permanent life insurance when their terminal tax bill is expected to at least be 15% of their assets.

“Then you start to have this real discussion: ‘Does it matter to you that your beneficiaries — your children, your grandchildren — get everything that you have?” Rook said. “Because the government’s going to get their pound of flesh regardless — you’re just getting the insurance to offset what they take.”

Speaking during the same session, Greg Phillips, financial advisor with Catalyst Asset Management, Raymond James Ltd., said he may bring in an insurance expert even at lower thresholds, so the client’s beneficiaries know he’s discussed all options.

Phillips said including an insurance expert in his estate-planning conversations helps avoid unpleasant surprises for clients and their heirs. He cites the case of a client who has a prospective tax bill of $400,000 because his RRIF is worth $1 million.

“When we talk to the beneficiaries, they’re not going to get excited about $400,000 going to the government when some strategies could have been used earlier to offset that,” Phillips said.

Rook and Phillips emphasized the importance of using financial planning as a way to add value for clients — particularly when returns are down and clients are more stressed.

“Keeping your client focused on what their net worth is, what their asset level is relative to their actual plan will take their mind off a lot of ups and downs in the markets. If they know they’re on track, they’re happy,” Phillips said.

Rook agreed that clients respond better in downturns when he’s able to pull out their plan and show them they’re still within its range.

“It takes down the stress immediately,” he said. “If you’ve only ever talked about investments and they’re only worried about investments, they’re focused solely on their returns. And they’re anchoring to the highs of November last year.”

Rook acknowledged that providing personalized financial planning to a large portion of clients can be time-consuming without proper resources, but said that digitizing administrative parts of his practice has helped.

He used to have two people on his team doing administrative tasks, for example, but now one of them is strictly devoted to financial planning.

Despite the benefits of financial planning, however, some clients won’t want to engage in it. Rook said some clients object to what they see as being put on a budget.

This could free up time to offer a financial plan to those clients for whom it can make an outsized difference: small account holders and younger clients, Rook said. “A 40-year-old client has 40 years of all the compounding of that advice and that planning to really make a difference.”