The Universal Stress Test
In the world of high-net-worth planning, information is abundant, but context is scarce.
- You may be wondering if a complex insurance proposal you’ve received is safe.
- You may be an independent advisor auditing an insurance proposal to protect your client.
- You may be exploring a strategy for the first time.
At Taxevity, we design, stress-test, and implement solutions. Like any architect, we must test the soil before we pour the foundation.
We use our proprietary Insurance Feasibility Study to audit the viability of any strategy for each client, checking if it passes through Four Feasibility Gates.
These are binary checkpoints. If your situation fails at any gate, we stop. We do not force a fit.
Whether you are looking to build a strategy from scratch or stress-test a proposal you already have, this is the logic we use to evaluate.
The best time for a feasibility review is before you apply for coverage. If you already have life insurance, problems can be costly to fix.
Gate 1: Health
Your health and lifestyle qualify you for insurance. Either could lead to higher premiums or denial of coverage. At a certain point, the insurance is simply too costly.
We conduct a Preliminary Insurability Review. If you have health issues, we submit an anonymized profile of you to insurers to gauge potential underwriting outcomes.
- Proceed: You are likely to qualify for Standard or Preferred rates, or recieve a minimal rating (requirement to pay additional premiums).
- Pause: You have uncompleted medical tests and would likely be approve at Standard or Preferred rates otherwise. We can revisit after the tests are completed.
- Stop: You are likely to be highly rated or declined.
- The Pivot: We explore insuring a different life (e.g., a business partner, spouse, or adult child) or using Joint Last-to-Die coverage.
Gate 2: Finances
You must be able to comfortably fund premiums with after-tax, unborrowed dollars.
The safest approach is to cover the premiums not from cash flow, but by reallocating non-registered assets you already have.
We perform a Financial Capacity Review. We look at your current investible assets (retained earnings or personal non-registered savings) and how much you add to them annually.
- Proceed: You have “True Surplus”—capital that will never be needed for lifestyle or business operations, even in a 30% revenue downturn.
- Pause: You are adding a significant amount to your retained earning annually, but are unsure if you will require those funds in the future. Further analysis will be done in this case.
- Stop: The premiums would consume more capital than is comfortably available.
- The Pivot: We shift to a low-cost Term 10 policy. This locks in your insurability (health status) and premiums (which increase with age) today, with a contractual right to convert to a permanent corporate strategy once you have more capital available.
Gate 3: Temperament
Your patience, tolerance for risk, and philosophy dictate what designs suit you best.
Here are some questions we consider:
- Do you prefer predictable returns even if they may be lower than those of a more volatile strategy, or the other way around?
- Are you prepared to stick to a strategy for decades and focus on long-term appreciation rather than short-term downturns?
We match your temperament to viable strategies. There are many ways to approach wealth with insurance: creation, protection and distribution. A combination of strategies can achieve your goals.
- Proceed: You have a good grasp on what you are and are not comfortable with financially, and the designs we have are compatible with your mindset.
- Pause: You like some of what our strategies can do, but have reservations or feel there are shortfalls. More modelling and discussion can help you decide if you want to Proceed or Stop.
- Stop: We don’t have strategies that are a fit for you right now.
- The Pivot: We remain available to discuss insurance if it becomes more appropriate for you in the future.
Gate 4: Goals
It’s important that the strategies you select mesh with your goals.
For instance, if you plan to sell your business in 3 years and leave Canada, a corporate policy becomes a massive liability—an “anchor” that complicates your exit.
If instead you want to ensure that as many of your assets as possible pass to your heirs unhindered, that same corporate policy could be a major boon.
Are you focused more on enhancing wealth for your own use, for your heirs, or both in equal measure?
Every situation is unique and there are likely ways insurance can assist in yours.
We clarify what your goals are. We ensure that you have a strong reason to get insured.
Proceed: You have a desire to increase your Impact (Heirs/Philanthropy) or your net worth’s long-term after-tax Growth.
- Pause: You are still considering what you want to do in the future. We can show you how insurance has helped people in situations like yours.
Stop: Your goals are all oriented towards the short-term.
The Pivot: We remain available to discuss insurance if your goals change.
The Architect's Promise
If you pass all four gates, we move to the Design Phase.
For those holding an existing proposal from another firm, passing the gates leads to a rigorous Assumption Audit. We compare the proposal against the standardized assumptions we use for our own clients to expose hidden risks.
We frequently find that sales proposals obscure risks by:
Hiding Faults: Hiding poor performance years or omitting key columns.
Skewed Baselines: Artificially inflating the insurance advantage by using aggresively optimistic assumptions for insurance projections and comparing them to unfairly pessimistic projectections for other products.
- Selective Disclosure: Comparing to other options only at the most favourable years or not showing how a product performs past life expectancy.
The Missing Half (IFA): Omitting the outside investment portfolio (funded by the borrowed money) in IFA illustrations.
Frequently Asked Questions
1. Do I need to fire my current advisor to run this stress test? No. We can audit the strategy you currently have on your desk. If the strategy is sound, we will tell you, and you can proceed with your current advisor with confidence. If it doesn’t pass through the Gates, you have the data to make a different decision.
2. Is there a cost for the Feasibility Study? The initial Feasibility Study is complimentary. We view this as a necessary due diligence step before any formal engagement. Comprehensive planning or implementation may involve fees or commissions, which will be disclosed transparently if we proceed to the Design Phase.
3. What information do I need to provide? For the initial check, we do not need sensitive tax documents. We simply need a general understanding of your assets, your goals, and a summary of your health history.