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Levelizing taxes on fixed income investments
A smart strategy to promote with clients
Many clients choose fixed income investments because they are more stable and predictable than other investment types. However, there is a downside to this approach that many don’t think about – taxes, which increase as the investment grows. As an advisor, you can help clients reduce some of the money they pay in taxes by suggesting a different approach.
In most cases, fixed income investments are taxed yearly. To pay these taxes, clients usually take out some of the interest income earned, and leave the rest invested. This in turn increases the tax that must be paid on the interest earned the next year. As a result, a large amount of the investment income earned each year goes straight to taxes with a growing amount of tax that must be paid each year. You can show clients a solution that can help lower total taxes they pay on their fixed income investments.
The tax challenge
Using participating whole life (WL) insurance as part of a financial solution, you can help clients levelize their annual tax payment. And lower the cumulative tax they must pay on their fixed income investments.
The solution: levelize the tax
Each year the client takes out the full amount of the interest earned on the fixed income investment. They leave only the principal amount. Part of the interest income withdrawn is used to pay the taxes on the fixed income investment. The remaining amount is used to pay premiums for a participating WL policy. Because the client is leaving only the principal amount invested, the tax they pay each year is a levelized amount. This reduces the cumulative taxes they pay over the life of the fixed income investment.
How it works
With this solution, the value of the fixed income investment along with the potential value provided by the participating WL policy, can mean a higher estate value. And a lower cumulative tax bill than what can be achieved through only the fixed income investment.
The participating life insurance not only provides valuable life insurance coverage, but also offers tax-advantaged growth and the potential for dividends.
To help explain this concept to individual clients, feel free to share Levelize the tax on your fixed income investments with participating whole life (1799).
This concept also works with corporate owned participating whole life policies. Feel free to share Levelize the tax on fixed income investments with corporately-owned participating whole life (1874).
This solution isn’t just about lowering taxes. It’s about helping clients grow their money, plan for their future, and protect what matters most. As an advisor, guiding clients toward solutions that address both immediate and future needs can set you apart and help build trust.
Why it matters
Contact your wholesaler to learn more. - [pdf] Benefits of segregated funds in a TFSA
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Equitable Life Group Benefits Bulletin – February 2022
In this issue:
- Update: Alberta biosimilar coverage changes*
- Preferred Biosimilar Program*
- Responding to Quebec’s biosimilar policy*
- Dental fee guide updates*
- Reminder: Review manual allocations for HCSAs and/or TSAs*
- Mental health resources for plan members*
Update: Alberta biosimilar coverage changes*
In 2022, Alberta’s provincial drug plan is adding four originator biologics to its Biosimilar Initiative. It has ended or will end provincial coverage of these drugs for some or all conditions, as follows:
Four originator biologics added to Alberta Biosimilar Initiative- Lovenox: Jan. 10, 2022
- Humalog: Feb. 1, 2022
- NovoRapid: April 1, 2022
- Humira: May 1, 2022
Patients 18 and over who are using these drugs for the affected conditions will be required to switch to biosimilar versions of the drugs to maintain coverage under the province’s government drug plan.
How we are responding to protect our clients
To help prevent this change from resulting in additional costs for our clients’ drug plans while still providing plan members with access to safe and effective medications, we will no longer cover these originator biologic drugs for plan members in Alberta.
Effective May 1, 2022, claimants currently taking these drugs will be required to switch to a biosimilar version of the drug to maintain coverage under their Equitable Life plan.
This is a continuation of the Alberta biosimilar switch program we launched last March, when the province first introduced its Biosimilar Initiative.
Do my clients need to take any action?
No action is required by plan sponsors. Plan members taking these targeted originator biologics will be contacted directly to allow them ample time to transition to a biosimilar. Any cost savings associated with the change will be factored in at renewal.
Groups that opted out of the biologic coverage changes we made last March will automatically be opted out of these coverage changes, as well as any future changes to our Alberta biosimilar switch program. This means that their drug plans will continue to provide coverage to existing claimants for any originator biologics we stop covering as part of our biosimilar program.
Advisors with clients who wish to opt out of our Alberta biosimilar program, or who previously opted out and want to opt back in, should speak to their Group Account Executive or myFlex Sales Manager.
Communication to plan members
We will be communicating these coverage changes with affected claimants in early March to allow them ample time to change their prescriptions and avoid any interruptions in their treatment or their coverage. Thus far, the transition to biosimilars, has been smooth and continues to be successful.
What is the difference between biologics and biosimilars?
Biologics are drugs that are engineered using living organisms like yeast and bacteria. The first version of a biologic developed is known as the “originator” biologic. Biosimilars are also biologics. Biosimilars are highly similar to the drugs they are based on and Health Canada considers them to be equally safe and effective for approved conditions.
Questions?
If you have any questions about this change, please contact your Group Account Executive or myFlex Sales Manager.Preferred Biosimilar Program*
As part of our ongoing efforts to help ensure the sustainability of your clients’ drug plans, we continue to engage in strategic partnerships with pharmaceutical manufacturers.
We are pleased to announce a partnership to make Hyrimoz our preferred biosimilar for Humira. This partnership will generate additional savings for plan sponsors.
Plan members will still have the choice to use Humira biosimilars other than Hyrimoz. However, in the absence of alternative sources of reimbursement, this may increase their out-of-pocket amount.
The Preferred Biosimilar Program will take effect March 1, 2022 for all new claimants across Canada who start using a Humira biosimilar. It will take effect May 1 for existing claimants in Alberta who switch to a Humira biosimilar, to align with changes to the provincial plan.
Questions?
If you have any questions about this change, please contact your Group Account Executive or myFlex Sales Manager.Responding to Quebec’s biosimilar policy
Last year, the Quebec government announced it is phasing out coverage of biologic drugs. Beginning April 13, 2022, patients in Quebec using originator biologics will be required to switch to the corresponding biosimilar covered on the province’s public plan in order to maintain coverage.
The following populations are excepted from this new policy:- Pregnant women, who should be transitioned to biosimilars in the 12 months after childbirth.
- Pediatric patients, who should be transitioned to biosimilars in the 12 months after their 18th birthdays.
- Patients who have experienced two or more therapeutic failures while being treated with a biologic drug for the same chronic disease.
We are actively investigating the impact of this new policy on private drug plans in Quebec. We plan to implement further enhancements to our biosimilar programs in Quebec later this year to help prevent this change from resulting in additional costs for our clients’ drug plans. We will provide more details in the coming months.Dental fee guide updates
Each year, Provincial and Territorial Dental Associations publish fee guides. Equitable Life uses these guides to help determine the reimbursement limits for dental procedures. For your reference, below is the list of the average dental fee increases for general practitioners that will be used by Equitable Life for 2022.*
Dental fee guide increases over 2021*
*Data for all provinces and territories was not available at the time of publication. This chart will be updated on EquitableHealth.ca as more information becomes available.Province/Territory Average Fee Increase Alberta 3.9% British Columbia 7.35% Manitoba 5.79% New Brunswick 5.9% Newfoundland and Labrador 5% Nova Scotia 7.05% Northwest Territories 3% Nunavut 3.1% Ontario 4.75% Prince Edward Island 4.75% Quebec 5% Saskatchewan 5.99%
Reminder: Review manual allocations for HCSAs and/or TSAs*
If your client’s Health Care Spending Account (HCSA) and/or Taxable Spending Account (TSA) has manual allocations, they need to allocate these amounts to plan members each year. Please review all your plan members’ profiles on EquitableHealth.ca to ensure they have received their allocation(s) for the current benefit year.
If your clients have Plan Administrator update access on EquitableHealth.ca, they can update these amounts online by doing the following:- Select “View certificate”
- Select “Health Care Spending Account” or “Taxable Spending Account”
- Select “Update Allocation” in Task Center
- Enter amount in “Revised Allocation Amount”
- Override Reason – “Plan Administrator Request”
- Select “Save”
- Select “Reports”
- Select “New”
- Select “Next”
- Select “HCSA” or “TSA Totals by Plan Member”
- Select “Next”
- Enter end date of “12/31/2020”
- Select “Next”
- Select “Finish”
- View “Report”
Mental health resources for plan members*
As the COVID-19 pandemic continues to evolve, many Canadians are experiencing increased levels of stress, anxiety, and depression. Through our partnership with Homewood Health®, all of our clients and their plan members have access to a number of health and wellness resources designed to provide guidance and support. These resources include a number of webinars which discuss various COVID-19 and mental health-related topics. The webinars are pre-recorded so plan members can stream them at their convenience.
Understanding the Impact of COVID-19 on Your Mental Health
English webinar
French webinar
COVID-19: Loneliness & Isolation Fatigue - Self-Care Strategies
English webinar
French webinar
COVID-19: Dealing with Seasonal Affective Disorder
English webinar
French webinar
Reducing Anxiety & Managing the Transition Back to the Classroom - for Teachers
English webinar
French webinar
COVID-19: Specialized Mental Health Support for Health Care Professionals
English webinar
French webinar
COVID-19: Supporting Children’s Mental Health
English webinar
French webinar
Additional resources, including articles, tools, videos and podcasts, are available at Homeweb.ca/Equitable. Please encourage your clients to share these resources with their plan members.
- [pdf] B2B Loan application process for Equitable Life of Canada
- [pdf] Gradual Inheritance Strategy
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Welcome Fidelity to Equitable Life’s Pivotal Select segregated funds lineup
Equitable Life® is pleased to welcome Fidelity to its Pivotal Select™ segregated funds lineup.- Equitable Life Fidelity® Special Situations Fund Select
- Equitable Life Fidelity® Tactical Asset Allocation Income Portfolio Select
- Equitable Life Fidelity® Tactical Asset Allocation Balanced Portfolio Select
- Equitable Life Fidelity® Tactical Asset Allocation Growth Portfolio Select
These new funds are available on all the Pivotal Select load types and guarantee classes, providing you and your clients with even more choice and flexibility.
To learn more about Fidelity, click here. To learn more about the funds, click here.
Speak to your Regional Investment Sales Manager today about Equitable’s segregated fund lineup.
Equitable Life and Pivotal Select are trademarks of The Equitable Life Insurance Company of Canada.
Fidelity and Fidelity Investments are registered trademarks of 483A Bay Street Holdings LP. Used with permission.
- Recent Updates
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Calming client fears about inflation and market volatility
Watch any news report or read any social media feed and you will see stories about inflation and market volatility. Inflation is one of the reasons that investing in equities is important - they can help to provide long-term returns that offset the effects of inflation. Help your clients stay on track during periods of market volatility and elevated inflation by following a few key investment strategies.
Time diversification through dollar-cost averaging
Volatile markets can provide opportunities. While your client may be skeptical, remind them about the benefits of dollar-cost averaging. Dollar-cost averaging adds time diversification, meaning your client buys into the market at different points in time. Regular investing can even allow your client to see growth during times of volatility. To learn more, click here.
It is time in the markets, not timing the markets that works long-term
Investing for the long-term allows your client to ride the waves of the investment market. The S&P/TSX Composite Index, for example, has had a compound annual return of approximately 7.8% over the past 25 years.[1] These returns account for the most recent financial crisis and the dot-com bubble. Previous market declines have offered buying opportunities for clients who have funds to invest. To learn more, click here.
Keep your clients invested with segregated funds
Segregated funds, like Equitable Life’s® Pivotal Select™, offer additional benefits beyond those offered by mutual funds and Exchange Traded Funds. Segregated fund guarantees (maturity and death) can protect your clients’ money during periods of market stress. A segregated fund guarantee will provide your client with the better of the guaranteed amount or the market value at the maturity date or date of death. A Pivotal Select segregated fund guarantee can give your client the confidence to stay invested during market uncertainty. To learn more about using Equitable Life’s segregated funds to keep your client invested, click here.
To learn more about the advantages of investing with Equitable Life, click here.
® Denotes a trademark of The Equitable Life Insurance Company of Canada.
[1] Annualized S&P/TSX Composite total return from January 3, 1995, to February 28, 2020. -
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