Every year, the cost of living increases as a result of inflation. In fact, the Consumer Price Index (CPI) increased 4.1% year over year in August 2021, according to Statistics Canada. This rise in living expenses can significantly reduce the value of your clients’ investments.
“Simply saving isn’t enough,” says Philippe-Olivier Dumas, Head of Product Development, Guaranteed Investment Funds and Annuities at Desjardins Financial Security Life Assurance Company. “Pre-retirees’ savings need to retain value if they want to leave behind as much as possible to their beneficiaries, their kids, and their spouses.”
It’s important to help clients protect their investments from inflation risk, which in turn will help advisors respond to their clients’ concerns. But how can you help clients do that?
Let’s take a typical example of a 55-year-old pre-retiree. He’s married with children in their 20s. He has worked hard his entire life as an executive at a world-renowned firm, and wants to ensure his children and spouse receive as much of his hard-earned money as possible.
One of the solutions that could ensure clients like this achieve their planning goals is Guaranteed Investment Funds (GIFs), which are funds that are guaranteed at maturity and death, and contain a mix of equities and fixed-income investments.
To ensure inflation protection for that pre-retiree, Desjardins offers two types of guarantees: 75/100i or 100/100i within Helios2 insurance contracts. Each offers inflation protection—up to the client’s 75th birthday—through automatic annual resets of the minimum death benefit. Each year, the amount will be reset based on the greater of the inflation-adjusted value and the market value. So, despite market downturns, the death benefit won’t decrease*.
For instance, let’s say the 55-year-old pre-retiree makes a $100,000 deposit. Desjardins will follow the inflation-adjusted value of the contract, and each year the issuer will increase the amount according to the CPI.
So if inflation is 2.5% per year, for example, the compounded inflation-adjusted value of the contract will be $102,500 after Year 1, $105,063 after Year 2, $107,689 after Year 3, and so on.
“Each year at the contract anniversary until age 75, the guarantee will grow by at least the amount of inflation. You’re guaranteed that your estate will not lose value in regard to inflation and purchasing power,” says Dumas, adding that Desjardins is the only issuer in Canada to offer inflation protection through its guarantees, according to Desjardins internal data as of October 2021.
Looking at the example above, let’s say the client dies in Year 12 of the contract. He’d get close to $130,000, notes Dumas, whereas without inflation protection, he’d only get around $120,000 from the previous market value reset in Year 7 near the peak of the market.
“It’s really close to $10,000 more in his pocket,” he explains. “It’s better to have inflation protection than to have only a reset to market value.”
Remember, having inflation protection is always important, adds Dumas, since it ensures your clients are able to leave as much as possible to their loved ones.
Aside from inflation protection, many clients also want access to higher returns when the market is up. Both Helios2 – 75/100i and Helios2 – 100/100i offer this benefit.
If the market is up and above inflation, the annual market value reset will make sure the client locks the increased value into their minimum death benefit.
“Also, the contract value is always at least equal to the market value of the funds the client has selected,” says Dumas. “This is true for the maturity and death guarantee. The client will receive the higher of the market value or the guaranteed amount. If you have good market performance, you’ll add it at the end. And that’s thanks to the strong emphasis we put on manager selection and performance.”
Additionally, many pre-retirees want to ensure their beneficiaries receive as much of their estates as possible in a quick and efficient manner. The Helios2 contract offers creditor protection and bypasses probate fees (must meet certain requirements to be eligible).
“Probate fees can be as much as 10% of the value of the investment, so it’s something that’s significant,” says Dumas. “The benefit is paid to beneficiaries within five business days, which means they have quick access to the funds (must meet certain requirements to be eligible: death certificate/beneficiary).”
Again, your clients want to ensure their estates are protected against inflation risk and can pass on to beneficiaries quickly and easily. GIFs that offer inflation protection could provide solutions for your clients and, in turn, can help advisors respond to their clients’ concerns.
Learn more about Desjardins Helios2 – 75/100i and Helios2 – 100/100i.
* Given no withdrawals are made
 Desjardins Helios2 Contract, Guaranteed Investment Funds, Representative’s Guide, page 16: https://www.webi.desjardinsassurancevie.com/en/DocumentsWebi/13185E.pdf
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