GENESIS-IRIS COLLATERAL LOAN FACILITY

Transcription

1 GENESIS-IRIS COLLATERAL LOAN FACILITY INVESTED IN YOU.

2 TABLE OF CONTENTS INTRODUCTION TO THE COLLATERAL LOAN FACILITY 3 1. FEATURES 3 2. POTENTIAL RISKS Cash Flow Risk: Suitability: 4 3. LOAN STRUCTURES 5 4. MINIMUM REQUIREMENTS / FINANCIAL GUIDELINES FOR APPLICANTS Minimum Requirements / Financial Guidelines for Applicants: Individual Applicants Corporate Applicants Trust Applicants 7 5. LOAN UNDERWRITING Required Documentation: Applications for CLF that include Individuals: Applications for CLF that include a Corporate Policy Owner or Borrower: Applications for CLF that include a Trust Policy Owner or Borrower When should the Application for CLF be submitted? Where to send the Application for CLF 9 6. FINANCIAL UNDERWRITING PRE-APPROVAL PROCESS: SETTLEMENT OF THE LOAN CLF TERM CLF INTEREST TERM LOAN ADMINISTRATION 10 IA- Marketing Department February

3 10.1 CLF Loan Advances: CLF Loan Disbursement Period CLF Loan Amount and Loan Advances Initial CLF Loan Advance : Subsequent CLF Loan Advance : CLF Loan Advance Disbursements CLF Loan Renewal CLF Loan Interest Payment CLF Loan Repayment Situation at Death: Repaying the CLF Loan Changes of Loan Structure during the Term of the CLF Increasing the Maximum Available CLF Loan Amount Events of Default CLF FORMS AND DOCUMENTS Application for Collateral Loan Facility CLF Loan Agreement CLF Collateral Assignment Agreement CLF Movable Hypothec (For CLF issued in the province of QC only) IA CLF Corporate Resolutions Cost of Credit Disclosure Statement CLF Loan Advance Request form Annual Interest Billing Notice Statement of Interest Charges and Payments CHANGES TO THE GENESIS-IRIS POLICY 15 CAUTIONARY NOTE REGARDING POLICY CHANGE REQUESTS: 15 IA- Marketing Department February

4 INTRODUCTION TO THE COLLATERAL LOAN FACILITY The Collateral Loan Facility (CLF) is an immediate funding strategy that allows a policy owner or borrower to use a universal life insurance policy as collateral to obtain a loan. This loan facility is available to individual or corporate owners of a Genesis-IRIS. 1. FEATURES 1.1 Financial Qualification: Financial underwriting is required to determine whether the applicant qualifies for the CLF. An Application for Collateral Loan Facility (CLF) and supporting financial evidence must be provided to IA for assessment. 1.2 Policy Accounts available for use as collateral: Stabilized Return Index Account (SRIA) Fixed-Term Investment Accounts 5-Year Average Account Money Market Account 1.3 Maximum Loan: 98% of the value of the Collateral Accounts 1.4 CLF Maturity: The CLF matures 10 years from the effective date, the date of the first loan advance, and may be renewed prior to maturity subject to obtaining approval from IA. 1.5 Interest Term: 1 year fixed interest rate from January 1st December 31st IA- Marketing Department February

5 1.6 Interest Rate: SRIA Net Credited Rate + Spread SRIA Credited Rate Spread 4.50% 1.50% 4.51% to 5.49% 1.50% + ½ x (SRIA net Credited Rate %) 5.50% 2.00% 1.7 Interest Expense: Interest accrued throughout each loan year must be paid in full by the loan anniversary. 2. POTENTIAL RISKS 2.1. Cash Flow Risk: Evaluation of the Borrower s financial stability is important to ensure their ability to service the debt from their cash flow without compromising other financial obligations. 2.2 Suitability: Borrowers should seek the advice and counsel of their independent legal and financial advisors to assess the appropriateness of the CLF to their particular needs, means and circumstances. Such an assessment should include deciding on an ownership and borrowing structure for the CLF. Some structures used by Borrowers require attention to taxation-related detail, particularly where the Owner and the Borrower are not the same person or entity. After being put in place, Owners and Borrowers should review the CLF and its structure with their advisors periodically to ensure its continued appropriateness to their needs, means and circumstances. IA- Marketing Department February

6 3. LOAN STRUCTURES The CLF can be structured in various ways. The most common examples of CLF structures are as follows: Personal Policy owner Personal Borrower + or Corporate or Trust Personal Borrower + or Corporate or Trust + Corporate or Trust 4. MINIMUM REQUIREMENTS / FINANCIAL GUIDELINES FOR APPLICANTS 4.1 Minimum Requirements / Financial Guidelines for Applicants: The CLF Loan Agreement is an independent contract from the GENESIS-IRIS policy, therefore the CLF applicant s credit worthiness must be evaluated to determine whether the applicant is suitable and has sufficient cash flow to service the loan. For situations involving corporations or trusts, it is important for IA, the lender, to understand the corporate structure, type of business, financial stability, and cash flow situation for the entity or entities involved, in order to provide a financial underwriting decision. The Credit bureau should reflect favorable credit score. Reports indicating bankruptcy, past-due payments, collections or judgments will require explanation. The CLF may be suitable for a variety of applicants. Each applicant must qualify under the minimum financial underwriting requirements, which are described below for the most common type of applicants Individual Applicants High net worth individuals must be Canadian residents for tax purposes and must meet at least one of the following minimum financial requirements: Total family income of at least $250,000 and a tangible net worth in excess of $500,000; or IA- Marketing Department February

7 Liquid investments greater than $500,000 (e.g.: stocks/gics/bonds) ; or Minimum tangible net worth of $2 million. High net worth Individuals should also meet the following criteria: No bankruptcy in the last seven years; Credit utilization and debt ratio should be reasonable; Total Debt Servicing Ratio (Total Debt / Gross Annual Income) should not exceed 40%; Individual financial profile should reflect sufficient liquidity to cover cash flow requirements including CLF debt servicing: Liquid assets include such items as cash, shares listed on a stock market, bank deposits, bonds or mutual funds; Non-liquid assets include such items as business equity, primary residence, secondary residence, vehicles and RSPs Corporate Applicants Corporations must meet at least one of the following minimum financial requirements: Total income of at least $250,000 and a tangible corporate equity in excess of $500,000*; or Liquid investments greater than $500,000*; or Minimum tangible corporate equity of $2 million*. Corporation must also meet the following criteria: Canadian controlled Private Corporation with a maximum of 5 employees; Majority of shares owned directly by high net worth individual as defined above or through their holding/investment companies or trusts; External debt should not be significant relative to total assets; Corporate financials should reflect sufficient liquidity to cover cash flow requirements including CLF debt servicing: liquid corporate assets include such items as: cash (and equivalents), publicly traded stocks, bonds and bank deposits; Non-liquid corporate assets include such items as: accounts receivable, inventories, corporate properties, equipment and prepaid expenses. *IF CORPORATION DOES NOT MEET THIS CRITERIA, A GUARANTOR/SURETY MAY BE REQUIRED. IA- Marketing Department February

8 4.1.3 Trust Applicants Trusts must meet at least one of the following minimum financial requirements: Total income of at least $250,000 and a tangible trust equity in excess of $500,000*; or Investable financial assets greater than $500,000*; or Minimum tangible trust equity of $2 million* Trusts must also meet the following criteria: Personal trusts resident in Canada that do not carry on an active business. Trust has no employees Trust financials should reflect sufficient liquidity to cover cash flow requirements including CLF debt servicing, liquid trust assets include such items as: cash (and equivalents), stocks, bonds and bank deposits Non-liquid trust assets include such items as: accounts receivable, corporate properties, equipment and prepaid expenses *IF TRUST DOES NOT MEET THIS CRITERIA, A GUARANTOR/SURETY MAY BE REQUIRED. PLEASE NOTE THE ABOVE CRITERIA ARE UNDERWRITING GUIDELINES ONLY AND EACH APPLICATION FOR CLF WILL BE EVALUATED ON A CASE BY CASE BASIS. APPLICANTS WHO DO NOT CURRENTLY MEET THE MINIMUM REQUIRMENTS AND CLF STRUCTURES OTHER THAN THOSE NOTED IN SECTON 4.1 MAY STILL QUALIFY. IA- Marketing Department February

9 5. LOAN UNDERWRITING 5.1 Required Documentation: Applications for CLF that include Individuals: Application for Collateral Loan Facility (for all structures) Illustration used to settle life insurance policy (for all structures) Notice of Assessments (for individual applicant) Most recent 2 years (spouse also if joint borrower or income requirement not met by primary applicant) Asset validation (for individual applicant)* - Most recent investment statements and/or property tax assessments to support net worth documented on financial profile (Evidence should be no older than 6 months and reflect who holds the asset) * If a substantial portion of the applicant s net worth is invested in a private corporation, submission of corporate financials for that entity to support the net worth valuation is recommended Applications for CLF that include a Corporate Policy Owner or Borrower: (please also include): Certificate of Incorporation Corporate Resolution completed/signed Financial statements for the corporation (most recent 2 years) Operating company financial statements (most recent 2 years) for which the corporation involved in the CLF structure has an equity interest, if its financials do not show sufficient assets or cash flow T2s for the corporation or Corporate Tax Assessment (most recent 2 years) if financials not available Corporate organization chart (if available) Applications for CLF that include a Trust Policy Owner or Borrower (Please also include): Copy of Trust Agreement Financial statements for the trust (most recent 2 years) T3s for the trust (most recent 2 years) if financials not available IA s Trust Legal Opinion Corporate organization chart (if available) IA- Marketing Department February

10 5.2 When should the Application for CLF be submitted? The Application for CLF can be submitted at any time prior to or after settlement of the Genesis-IRIS life insurance policy. The underwriting for the CLF can be assessed simultaneously with the medical underwriting to ensure the applicant is pre-approved for the CLF. This accelerates the issuance of the CLF once the GENESIS-IRIS universal life policy contract is settled. Please note; the initial CLF loan advance must be advanced within 270 days from the date of pre-approval. Please keep this in mind if medical underwriting is expected to take some time. The pre-approval for the Application for CLF is preliminary at this point and is therefore not final. The initial CLF loan advance request could be denied in the event of a material change in the borrower s overall financial situation or if an unforeseen event should arise. 5.3 Where to send the Application for CLF For any Industrial Alliance contract Service Centre: Quebec City (Head Office) IA IRV2546 GENESIS-IRIS. Application for CLF 1080 Grande Allée West PO BOX 1907, Station Terminus Quebec City, Qc G1K 7M3 Marketing-iris@ia.ca Service Centre: Toronto Service Centre : Vancouver Individual Administration Application for CLF 522 University Avenue Toronto, On M5G 1Y7 IrisGenesis@ia.ca Life Administration Application for CLF 2165 Broadway West, PO Box 5900 Vancouver BC V6B 5H6 IRISAdministration@ia.ca IA- Marketing Department February

11 6. FINANCIAL UNDERWRITING APPROVAL PROCESS: The Application for CLF will be reviewed within 5 business days. Approval for loans in excess of $5,000,000 should be reviewed within 10 business days. If the CLF is approved, an confirmation is sent to the Advisor from IA confirming details of the approval. Settling documents for the CLF such as the CLF Loan Agreement and Collateral Assignment will be provided by IA for execution by the relevant parties. 7. SETTLEMENT OF THE LOAN All required settling documents must be executed and received by IA within 270 days from date of the CLF approval. Copies of CLF Loan Agreement and Collateral Assignment will be sent to the relevant parties for their records. The initial CLF loan advance must be advanced within 270 days from CLF pre-approval or additional financial underwriting may be required. IMPORTANT NOTICE Based on the evaluation of the financial underwriting, the minimum loan amount rule and/or other factors, the Company reserves the right to decline any CLF loan advance request. 8. CLF TERM The duration of the CLF Loan Agreement currently offered by the IA is ten years. 9. CLF INTEREST TERM The CLF interest term is a 1 year term with a -fixed interest rate based on the Stabilized Index Return account offered on the Genesis-IRIS policy. The Rate will be set on each January 1st. To find out about the CLF interest rate and the Stabilized Index Return Account credited rates, refer to IA s Genesis-IRIS website. 10. LOAN ADMINISTRATION IA- Marketing Department February

12 10.1 CLF Loan Advances: CLF Loan Disbursement Period The initial CLF loan advance should be disbursed within 48 hours when: the CLF has been settled, and a deposit of excess funds has been made to the GENESIS-IRIS policy, and a CLF Loan Advance Request form has been submitted, and the initial CLF loan advance has been approved, and IA s cheque clearance holding period has been satisfied.* *To avoid the cheque clearance holding period, the premium deposit must be made by certified cheque or bank draft CLF Loan Amount and Loan Advances The borrower can request a CLF loan advance up to the maximum approved CLF loan amount, provided the funds are available in the policy. The maximum approved CLF loan amount corresponds to the signed settle the GENESIS-IRIS policy. illustration used to Initial CLF Loan Advance : The minimum initial CLF loan advance is $25, Subsequent CLF Loan Advance : The minimum amount for subsequent CLF loan advances is $1,000 Subsequent CLF loan advances may be granted to a maximum of four per year The GENESIS-IRIS policy and the CLF cannot be in default In all cases, the Company has the right to limit its risk by denying a CLF loan advance request. All loan advances will be advanced as per the CLF structure approved and documented in the CLF Loan Agreement IA- Marketing Department February

13 CLF Loan Advance Disbursements The borrower must choose one of the following loan advance disbursement options on the CLF Loan Request form: Send the CLF loan cheque to the borrower s address on file, OR Authorize that the loan cheque be sent to the advisor for delivery, OR Direct deposit the loan proceeds electronically (EFT) to the borrower s bank account. For this option, a Direct Deposit Request form is required along with a void cheque for the borrower s account. Cheques will be issued in the name of the borrower (and the co-borrower, if any.) EFTs will be advanced to the borrower s bank account CLF Loan Renewal Renewal of the CLF after the 10-year term is not automatic. The parties involved must apply for approval of an additional 10-year term before the CLF maturity, within the term stated in their CLF Loan Agreement. The CLF loan amount applied for at the time of renewal will be supported by a current in force illustration, to ensure loan capacity requested will be sufficient. Each renewal request will be evaluated independently and will require current financial evidence from the borrower, the co-borrower and the guarantor, if any, collectively (depending on the CLF structure). The terms and conditions of the renewed CLF will be determined at that time. IA reserves the right to decline any CLF renewal request CLF Loan Interest Payment At the end of the CLF loan year the borrower must pay the amount of interest due in full by the loan anniversary CLF Loan Repayment The CLF loan balance can be repaid in full or in part at any time without notice or penalty. When a payment is made, the payment is first applied to any additional expenses outstanding, then to accrued but unpaid interest at the time of the payment and thereafter to the loan principal. IA- Marketing Department February

14 10.5 Situation at Death: Repaying the CLF Loan In the event of the borrower's death or in the event that any death benefit of the GENESIS-IRIS policy becomes payable, the CLF Loan Agreement allows the Company to request immediate payment of the outstanding loan plus the accrued interest. The borrower or the estate therefore has the option to repay the CLF loan in full at this time using external money. If the CLF loan is not repaid by external money at this time, it will be paid automatically through the death benefit of the GENESIS-IRIS policy. The residual amount of the GENESIS-IRIS death benefit is paid to the designated GENESIS- IRIS beneficiary(ies) Changes of Loan Structure during the Term of the CLF Requests for change to the CLF structure during the term of the CLF will require financial underwriting of the new party whether the borrower and/or the policy owner. To request a change to the CLF Structure, please complete an Application for CLF Increasing the Maximum Available CLF Loan Amount To request for an increase to the maximum available CLF Loan amount, please complete an Application for CLF Events of Default The CLF may go into default and the loan could be called or reduced partially or totally should any of the following occur: Surrender of the GENESIS-IRIS policy; Reduction in the face amount of the GENESIS-IRIS policy; GENESIS-IRIS policy lapse; Non-payment of CLF interest due; GENESIS-IRIS premiums due are unpaid The value of the GENESIS-IRIS policy collateral is less than the value of the CLF loan. IA- Marketing Department February

15 11. CLF FORMS AND DOCUMENTS The CLF is separate from the GENESIS-IRIS policy contract and is governed by an independent CLF Loan Agreement. CLF related forms are available on the Company Genesis-IRIS website Application for Collateral Loan Facility This Application for CLF is required to apply for the CLF and includes financial underwriting guidelines, IA s Privacy statement, an Advisor s memo to support the Application for CLF and a Notice to Insurer form CLF Loan Agreement Sample CLF Loan Agreements for the CLF are available on the Genesis-IRIS website. There are different versions depending upon the province of residence and language chosen (English or French) CLF Collateral Assignment Agreement Sample CLF Collateral Agreements for the CLF are available on the Genesis-IRIS website. There are different versions depending upon the province of residence and language chosen (English or French) CLF Movable Hypothec (For CLF issued in the province of QC only) Sample CLF Movable Hypothec for the CLF are available on the Genesis-IRIS website. There are 2 different versions depending upon the language chosen (English or French) 11.5 IA CLF Corporate Resolutions These resolutions are required to settle the CLF Loan. They are available on the Genesis- IRIS website. There are different versions depending upon the province of residence and language chosen (English or French) Cost of Credit Disclosure Statement The purpose of this statement is to provide the borrower with an estimation of the projected CLF loan advances and interest payments throughout the 10-year CLF term based on the illustration provided at the time of CLF underwriting CLF Loan Advance Request form This document is used for any CLF Loan Advance request. IA- Marketing Department February

16 11.8 Annual Interest Billing Notice Approximately 30 days prior to the CLF loan anniversary date, an Annual Interest Billing Notice for the CLF is sent to the borrower with a copy to the Advisor. As stipulated in the CLF Loan Agreement, the interest amount due on the Annual Interest Billing Notice must be paid in full by the loan Anniversary Statement of Interest Charges and Payments This annual statement, which is sent to borrowers in the first 30 days of each calendar or corporate year, is a confirmation of both the interest payments received and the interest charges accrued during the fiscal period of the borrower/co-borrower. This document is issued for income tax purposes. 12. CHANGES TO THE GENESIS-IRIS POLICY CAUTIONARY NOTE REGARDING POLICY CHANGE REQUESTS: The GENESIS-IRIS policy is assigned to IA as collateral, therefore, certain changes to the GENESIS-IRIS policy will require consent from the Company before being processed. With the exception of investment allocation changes (except transfers from the Money Market to other Collateral Accounts of the policy), all other transactions such as withdrawal, partial/full surrender, addition/deletion of a rider, face amount change, policy owner change, life substitution, beneficiary change, etc. will require consent. IA- Marketing Department February