Life and Critical illness insurance 

Depending on the premium frequency chosen by the Client, payments can be made on a monthly basis through our Pre-Authorized Chequing (PAC) process, or annually by cheque. If PAC is chosen, monthly payments are deducted automatically from the payor's account and applied to the premium owing. If the payor decides to pay annually by cheque, payments can be sent to our head office before the anniversary of the policy date.

If the Client chooses to pay monthly by PAC, you need to include either:

  • void cheque with a completed E75 PAC Authorization form, or
  • instructions on the application to withdraw the initial premium by PAC along with banking information.

If the PAC will be a paid by a third party, the third party payor’s signature is also needed on the application or the PAC authorization form.

For Par and Universal Life products: Information about the third party payor must be included in section 2 of the 4830 for individually owned policies. If the policy is owned by an entity, the information about the third party payor must be included in section 3 of the 4831 form.

Note: A third party is anyone other than the owner of the policy, including a spouse.

For payment on delivery applications, payments will not begin until the delivery documents have been signed and completed.

  • If the application is declined or rescinded, a full refund will be sent for any premiums paid.

If temporary insurance is applied for we need the first month’s premium to secure temporary insurance. If the Client chooses an annual payment frequency a cheque for the balance of the annual premium is required to settle at the time of delivery

Any money paid with a SunUniversalLife II application will be invested on the settle date in the savings or investment option selected. If an investment is not selected, payments will be invested into the Daily Interest Account.

Internal funding refers to the process where a new insurance policy is funded by transferring funds from another existing in-force policy. Depending on the source of the transfer, this type of activity can create risks for the client, the advisor and the company.

All types of transfers can have risk; however, some types of internal funding arrangements pose higher risk, especially those that involve the following types of transfers from a permanent insurance policy:

  • policy loans
  • withdrawals from the policy fund of a universal life plan
  • surrenders of paid-up additions

These transactions can have adverse tax consequences that are difficult to project into the future, especially when such transfers are repeated over several years. In addition, it is difficult to project when the existing policy will be in a lapse position in the future as a result of such transfers. As a result, we no longer allow newly issued insurance policies to be funded from one of these three sources.

Tax implications

These transactions can have adverse tax consequences, especially if they persist over several years. In general, a policy is not in a taxable gain position in the first 10 years or so. But over time an increasing percentage of the cash value will be taxable if surrendered or withdrawn. Eventually 100% of the CSV is taxable if surrendered or withdrawn. Withdrawals are taxable on a proportionate basis. For example, if in year 17 of the policy 50% of a cash value is taxable, and the client withdraws some money from the UL policy fund, then 50% of that withdrawal is also taxable. The same is also true for the surrender of paid-up additions.

Policy loans for amounts that are less than the adjusted cost basis (ACB) of a policy are not taxable. Over time though, the ACB of a policy reduces and eventually becomes zero. Therefore, eventually policy loans become fully taxable.

While Sun Life can provide an advisor or client with information about how much of a current withdrawal or policy loan is taxable, an in-force illustration can't project the future tax position of such transactions. This can make it difficult for clients to understand the future tax risk associated with these types of funding arrangements.

Jeopardizing In-force Status of Existing Insurance Business

Taking policy loans from an existing policy can also jeopardize the in-force status of such policies, especially if the loans are repeated over several years. As policy loans accumulate with interest over time, they may reach a point where they exceed the cash value and the policy will be in a lapse position unless the loan is paid back. Some products have adjustable cash values and if there are decreases in the future cash values, such policies may be in a lapse position much sooner than anticipated. Unfortunately, in-force illustrations can't project the impact of repeated policy loans. This can make it difficult for clients to understand the future lapse risk associated with using a policy loan funding strategy.

The same applies for taking repeated withdrawals from a universal life policy, especially if the policy has a yearly renewable term cost of insurance structure.

Surrendering Paid-up Additions

The surrender of paid-up additions (PUAs) can also have adverse tax consequences. In addition, it is important to recognize that the death benefit is reduced by a multiple of the amount of cash value of the PUAs withdrawn. For example, a withdrawal of $1,000 of cash value of PUA may reduce the death benefit by $3,000 to $7,000, depending on the age of the life insured.

  • A wire transfer may be acceptable depending on the source country. However, it must be coordinated with the Case Manager before the payment submission.
  • Internet banking payments are not accepted for new business applications.
  • Credit card payments are not accepted for life insurance, critical illness or Retirement Health Assist (RHA) premiums.
  • Bank draft, money order or counter cheque are acceptable as long as the following is provided:
    • The memo/stub must reference where the funds came from. For example, the account of <insert account holder(s) name(s)>. They must mention all account holders of the source account and it must be printed, not handwritten, after the bank draft, money order or counter cheque was issued.
    • A signed letter drafted by either a bank employee or the investment advisor (not the estate planning specialist). It needs to confirm the account holder(s) name(s) from which the bank draft/money order was purchased or it needs to confirm the account holder(s) name(s) from which the counter cheque was issued.
    • A copy of the Client’s account statement showing the purchase of the draft or money order or cashing of investment to issue the counter cheque. We only need to see the name of the account holder(s) and the purchase of the bank draft/money order and/or cashing of the investment.

If the account holders (where the source of funds came from) and the policy owner do not match, section 2 of the Identity verification, third party determination and politically exposed persons (PEP) form must be completed (4830 – individual, 4831 – corporate ).

A letter of direction from the account holder(s) is not acceptable.