Senior manager tells WP the investment vehicle is a great way to supplement retirement income with a 'living benefit'
Equitable Bank believes it is perfectly positioned to make a significant impact in the Cash Surrender Value (CSV) loan market.
Michael Pilz, business development manager, believes the loan, a way of creating a “living benefit” by accessing capital a client has built up in a life insurance policy, is a compelling opportunity for many people.
Crucially, he believes the Big Six banks’ traditional approach to facilitating this type of credit leads to a high minimum approval amount, cutting out a large segment of the Canadian population. For example, Equitable Bank’s current CSV loan offering has a low approval amount of $15,000 while the institutions are focused on high-net-worth individuals with a minimum approval amount around $1 million.
Pilz said: “We have entered this business because, in most instances, securing a cash surrender value line of credit does in fact make the most sense compared to other options, but each policyholder's situation is unique and they should consider all options with their advisor. We entered this space because we saw a big opportunity. If you look at the traditional Big Six, they operate more often than not in the very high-end segment of the market in terms of setting up loans against life insurance policies.
“We can service a wider segment of the Canadian population. We have a very low minimum approval amount of $15,000 and with big institutions it is often $1 million - it’s a big gap.
“Our current offering is true asset-based lending where we simply look at the values associated with the policy and underwrite on that basis. There are no questions about T4s or anything like that because we are very comfortable with how the policies we loan against function and the insurance companies we work with.”
Life insurance policies, for many high earners in particular, represent more than a death benefit and are viewed as an asset class because of its tax sheltering properties on the underlying investment.
Many people need or want to tap into that value, which they have built up over time. Traditionally, it’s to supplement retirement income to maintain a lifestyle of maybe to pass on some part of the inheritance to younger family members who, for example, may want to buy their first home.
Pilz outlined three ways to access this value. The first is via a policy loan where insurance companies evaluate the value of your policy. It’s easy but often subject to higher interest rates and may trigger a taxable event.
The latter is also a concern for the second method, which is a surrender or partial surrender loan, where the client surrenders a certain amount of death benefit coverage to receive the associated dollar value.
The third way is the CSV where the policy is assigned to a lender, like Equitable Bank, who will use that to secure and open up a line of credit. This is not a taxable event, not reportable as income and, in Equitable’s case, does not require servicing payments, allowing interest to capitalize over time.