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# LLQP: QuickFact Formulas

Basic life:

## (Premium rate x rate per \$1,000 of coverage in the policy)

+ Policy fee = annual premium
Assume the premium rate per \$1,000 is \$11.13 and there
is a policy fee of \$121. Then the annual premium for a face
amount of \$300,000 would be \$300,000 x \$11.13
\$1,000 = \$3,339 + policy fee = \$3,339 + 121 = \$3,460
multiplied by the modal factor for monthly premium (also
called the PAC factor).
e.g., if the annual premium is \$3,460 and the modal factor
would be \$276.80 (\$3,460 x 0.08).

approach):

## e.g. if assets = \$5,000, final expenses = \$10,000, continuing

income = \$40,000, continuing expenses = \$50,000, interest
rate = 4%; then: step 1: \$5,000 - \$10,000 = \$5,000 cash
needed; step 2: \$40,000 \$50,000 = \$10,000 income
needed; step 3: \$10,000 4% = \$250,000; step 4: \$250,000
+ \$5,000 = \$255,000 insurance needed

## For misstatement of age:

amount = amount of insurance
For special risks:
Flat dollar increase: \$/\$1,000 of coverage
Table rating (percentage increase): %/\$1,000 in coverage

Basic life:

Benefits

## face amount of the policy + extras, as entitled policy loan

and interest to date of death outstanding premiums =
net death benefit

## Accidental Death Benefit (ADB) rider:

face amount x 2 = ADB benefit

## earned income x 60% (assuming a 60% benefit payment)

12 = monthly disability income benefit
(pre-disability income earned)
residual benefit

## Capital retention (capital needs approach):

Four steps:
1: assets final expenses = cash needs
2: continuing income continuing expenses = income
needs
3: income needs interest rate = capitalized value
4: capitalized value +/- cash needs* = insurance need
* add cash needs if a negative sum; subtract
cash needs if a positive sum

## Amount of Disability Insurance

Need is based on earned income calculation of benefit. See
column on left.

INVESTMENTS
Segregated Funds (IVICs)

Disability:

Residual disability:

annual income

pre-disability income =

Group:

## STD: annual salary x 60% or 66 2/3% 12 = monthly

benefit
LTD: annual salary x 60% (employee-paid premium) or 75%
(employer-paid premium) 12 = monthly benefit

Deductibles
Single deductible:

## claim (\$) deductible (\$) = reimbursement (\$)

e.g. if claim = \$250; deductible = \$50; then: \$250 -\$50
= \$200 reimbursement

Co-insurance:

## claim (\$) x co-insurance (%) = reimbursement (\$)

e.g. if claim = \$250; coinsurance = 90%; then: \$250 x
90% = \$225 reimbursement

Deductible + coinsurance:

## claim (\$) deductible (\$) = net claim (\$) x

co-insurance (%) = reimbursement (\$)
e.g. if claim = \$250; coinsurance = 90%; deductible = \$50;
then: \$250 -\$50 = \$200 net claim x 90% = \$180
reimbursement

Family deductible:
claim (\$) (family deductible [\$] single deductible

## [\$] already paid) = reimbursement (\$)

e.g. if claim = \$250; family deductible = \$100; single
deductible already paid = \$0; then: \$250 (\$100 -\$0) =
\$150 reimbursement

## deposits x (guarantee amount, i.e. 75%) = guaranteed

payment 10 years from date of deposit
e.g. if deposits = \$10,000, guarantee = 75%; then:
\$10,000 x 75% = \$7,500

## Segregated Funds Withdrawals (reduce guarantees):

Linear reduction method:
Deposits withdrawals = contract value on which
guarantee is based
e.g. if deposits = \$1,000; withdrawal = \$500;
then:\$1,000 -\$500 = \$500 contract value

## Proportional reduction method:

Three steps:
1. withdrawal value of units = no. of units to be
surrendered
2. original no. of units no. of surrendered units =
new unit balance
3. (new unit balance original no. of units) x original
value of fund = contract value on which guarantee is
based
e.g. if withdrawal = \$5,000; value of units = \$10; original no.
of units = 1,000; original value of fund = \$2,000 ; then:
step 1: \$5,000
\$10 = 500 units; step 2: 1,000 500 =
500 units; step 3:(500 1,000) x \$2,000 = \$1,000 contract
value

Rates of return:

## Nominal: return (%) = nominal rate of return (%)

Real: return (%) inflation rate (%) = real rate of return

TAXATION

## Before December 2, 1982

After December 2, 1982
Premiums net cost of pure insurance (NCPI)
dividends* = adjusted cost basis (ACB)

## e.g. if premiums = \$5,000; NCPI = \$3,000; dividends = \$100;

then: \$5,000 -\$3,000 -\$100 = \$1,900 adjusted cost basis
*if applicable

## Taxation of Cash Surrender Value (CSV)

Before December 2, 1982
CSV (premiums dividends*) = taxable gain
After December 2, 1982
CSV (premiums - net cost of pure insurance [NCPI]
dividends*) = taxable gain

## e.g. if CSV = \$10,000; premiums = \$5,000; NCPI = \$3,000;

dividends = \$500; then: \$10,000 (\$1,500) = \$8,500 taxable
gain *if applicable

## Policy Loans and Taxation of Policy Loans

Loan: CSV x 90% = max. policy loan

## Tax on loan: loan adjusted cost basis (ACB) =

taxable portion of loan

## e.g. if loan = \$5,400; ACB = \$4,000; then: \$5,400 - \$4,000 =

\$1,400 of the loan is taxable under certain conditions

Tax Deferral
RRSP Contributions:
Basic: earned income x 18% = contribution limit to a
maximum dollar limit for the year (2014 = \$24,740;
2013 = \$23,820)
With Pension Adjustment (PA): basic contribution

Taxation of Investments

Interest:
interest income x investors marginal tax rate (MTR) =
tax on interest income

## e.g. if \$1,000 earned in interest and a marginal tax rage of 26%;

then: \$1,000 x 26% = \$260 owed in interest

Capital gains/loss:
market value of capital property cost of capital property
= capital gain or capital loss on capital property
e.g. if \$6,500 selling price - \$500(cost) = \$6,000 capital gain;
if \$6,500 selling price - \$8,000 (cost) = (\$1,500) capital loss

## Capital gains tax:

market value of capital property cost of capital
property = capital gain x .5 = taxable portion of gain x
investors marginal tax rate = capital gains tax
e.g. if \$6,000 sale and a marginal tax rate of 26%: then:
\$6,000 x .5 =\$3,000 x 26% = \$780 owed in capital
gains tax

Stock Dividends:
The dividend tax credit and the dividend gross-up
amount are changing each year as of 2010. For
this reason, the calculation of taxation on stock
dividends is no longer being tested.
Segregated Funds (tax consequence of withdrawal):
Three steps:
1. amount of withdrawal fair market value of contract =
percentage of disposition
2. fair market value of contract adjusted cost basis =
basis for taxation
3. basis for taxation x percentage of disposition =
capital gain
e.g. if withdrawal = \$1,000; fair market value of contract =
\$5,000; adjusted cost basis = \$2,500; then: step 1: \$1,000
\$5,000 = 20% of contract being disposed; step 2: \$5,000
\$2,500 = \$2,500 basis for taxation; step 3: \$2,500 x 20% =
\$500 capital gain

## With Past Service Pension Adjustment (PSPA):

basic contribution PSPA for current year

## MORE INVESTMENT FORMULAS

Present Value
present value (PV) = future value (FV) (1 + interest
rate [i])n
e.g., if future value is \$50,000; interest rate is 3.1%;
and n (number of compounding periods [typically the
number of years]) is 3; then:
PV = 50,000 (1 + .031)3; PV = 50,000 (1.031) 3;
PV = 50,000 (1.031 x 1.031 x 1.031)*;
PV = 50,000 1.096; PV = \$45,620.44
*(remember to solve the calculation in the brackets first)