Did you know that RRSP season is a great time to remind your Universal Life (UL) clients of the 250% rule? Because 80% – 90% of all UL sold in Canada has been sold on a minimum funded basis, RRSP season is the ideal time to consider the advantages of “dumping in” money into these minimum funded contracts.
The 250% is worth repeating, and repeating and repeating. People forget and need you to remind them. Years go by quickly and you don’t want your clients being surprised when they find out that at the 10th policy anniversary of their UL contract that their discretionary contributions or “dump ins” are going to be limited to 250% of what their total fund value was in the 7th policy year. In year 11 the 250% deposit limitation will be based on the total fund value in the 8th policy year and so on until the policy owner is age 85.
If we all knew when we are going to die the decision to contribute available funds to an RRSP or to a UL plan would be a lot easier. But as it is, the short term gain of the income tax deduction on the RRSP contribution often looks more attractive than depositing the same money into a life insurance contract where it can grow in a tax sheltered environment and be distributed tax free on death to one or several named beneficiaries.
p.s. If you haven’t done so already, use each customer contact during RRSP season to get express consent to continue to service your clients by phone and e-mail.
p.s.s. Click http://www.insuranceknowhow.ca/life-insurance-training for 2011 new training sessions, dates and locations!