Tag: Insurance

Life insurance enables policyholders to replace the income of a lost loved one in the event of their death. It is a critical safety net to ensure that the surviving family members can maintain their standard of living. Navigating the intricacies of purchasing and maximizing life insurance is complicated, so we have written this article to break down the basics about life insurance as well as some of the best ways to use it.

Term Life Vs Universal Life
First, we need to review the difference between the two major forms of life insurance: term life and universal life. Term life insurance provides basic coverage for a specific amount of time. Its main benefit is that it is cost-effective for a short period of time. Coverage is generally available for 5, 10, 15, or 20 years, or to age 100. Premiums stay the same for the term but term life insurance’s main downfall is cost increases as one ages, since new policies must be purchased after the previous one expires. Therefore, with time, repurchased life insurance(s) may involve paying much higher premiums. Furthermore, there is the risk that by waiting, one’s health may worsen resulting in trouble getting approved. As term coverage runs out, there is the possibility that one has purchased the insurance without collecting a benefit from it.

Universal life insurance lasts for the policyholder’s lifetime and is quite flexible in how it operates in terms of insurance and investment options. Premiums stay the same so long as the policy remains in effect. These premiums build up cash and/or dividends. Universal life is more expensive than term life, but it also offers additional options and coverage.

What applies for both forms of life insurance is the value of purchasing it as early as possible. Whether term or life, the younger a policyholder is, the cheaper their premiums generally are.

Important Questions to Ask
A policyholder’s life insurance portfolio can be as individual as our situations. Some important questions for finding the best setup are: Does the policy meet my current needs? Will the policy provide flexibility for my future needs? What does the policy cost now? What are the policy’s expected lifetime costs? These are all questions that we ask our clients as they consider life insurance options.

Save the Cash Value
Universal life insurances includes an accumulation account, meaning that part of your premium payment is held in an account to earn interest and/or dividends. When the policy pays out, the full amount in the cash account is added to the benefit amount. This means that beneficiaries get the policy’s face value plus the cash.

Buying Several Policies
There are several strategies that use multiple policies—as opposed to one large one—to achieve higher payouts with lower premiums. The most popular strategy is to take out a universal life insurance policy and a term policy. Term life insurance has an expiration date and therefore costs less when taking out large policies. This is because the insurance company’s risk is lower due to the policy lasting a limited number of years. Therefore, they offer better rates. This strategy enables policyholders to insure themselves during the years when there is a mortgage to pay, children to provide for, etc. with a large term life policy, and once it runs out and those high risk years pass, the universal policy is still there to protect them. The result is lifelong coverage with a larger payout during the years the policyholder needs it most.

Do Not Cancel or Let Policies Lapse
Unless absolutely required, never cancel life insurance or allow coverage to lapse. Taking out a future policy will almost always mean higher premiums and doing this often requires a new medical exam. The best way to add more coverage is not to cancel existing policies and purchasing new ones but instead to add onto the existing life insurance.

Using Life Insurance to Maximize Wealth
Once a family has minimal debt and grown children, one might wonder what good life insurance does them. The good news is that life insurance can be used as a way to maximize wealth.

First of all, life insurance is tax efficient because the proceeds from it are paid out tax free. And remember the accumulation fund within universal life policies we mentioned earlier? It can be used to offset future premiums, allowing them to be offset with pre-tax dollars instead of after tax dollars.

Next, life insurance is a risk free asset. Unlike a portfolio of stocks or funds, life insurance policies are guaranteed and therefore lack the downside risk. However, the downside to this is that the money contributed to an investment portfolio can be accessed while the owner is alive, but that is not the case for the face amount on a life insurance policy.

Life insurance is a critical component of our holistic approach to a balanced portfolio. If you or someone you know is interested in exploring life insurance options, please call us at 514-934-0586 (Montreal), 403-228-2378 (Calgary), or email us at inforequest@rothenberg.ca.

The magnitude of the relationship between health and retiring early is surprising: around 70% of retired Canadians did not stop working on the date they had planned to, and among them, 41% cited personal health as the primary reason for having needed to retire early.

The possibility of becoming seriously ill is real. Although recovery is the number one priority, it is our duty to understand the potential effects on client assets and retirement plans to ensure their continued financial success. One of the tried tools to safeguard clients’ financial interests for the long term is including critical illness insurance in the strategic planning.

The good news is that if someone gets sick but has secure coverage from critical illness insurance, the impact of that illness on retirement income can be reduced.

How Illness and Disease Affect Retirement Income

Managing finances while battling an illness or disease can create a lot of stress. Worries about whether one’s income will be enough to make payments and paying for living expenses while managing recovery-related expenses can be very daunting.

One option is to draw from funds already set aside for retirement. However, there are downsides to using retirement funds. Any sums withdrawn from an RRSP are subject to a tax.

What can be done?

An option is to purchase a critical illness insurance policy. Critical illness insurance helps policyholders protect their assets when illness strikes by providing a lump-sum payment when they become seriously ill. Depending on the policy, there may be no need whatsoever to withdraw funds from investment portfolios, leaving all investments intact while the client recovers.

Critical illness insurance can be used to replace reduced or lost income for the ill or their spouse if time is taken off for recovery or enable policyholders to afford additional help.

Is Critical Illness Insurance Necessary, How Much Does it Cost, and How Can it be Claimed?

It is important to consider all benefits available to you with your other insurance policies to conclude if there is a gap in coverage. Next, you should consider your personal circumstances and the financial strain that serious illness or disease would bring. Most life insurance plans do not provide coverage for day-to-day living expenses such as travel to and from treatments, home care, and child care, but critical illness insurance can.

Generally, the younger and healthier you are, the lower the premium. It also depends on medical history, family history, the amount of coverage and the number of illnesses covered by the policy. Being brokers for over 25 different insurance companies enables us to shop around for you to find what the best rates.

Claims can be made if a physician, licensed in Canada and specializing in the illness at hand, diagnoses the policy holder with an illness or disease covered by the policy. Payment is generally a lump-sum and paid within 30 days. There are no restrictions on the use of the money, and once the claim is paid, the policy ends. If a claim is never made and the policy holder dies for a reason not covered by the policy, the premiums paid may be refunded to a named beneficiary, and depending on the policy, some insurance companies return a portion of the premiums if the policy matures without a claim having been paid.

Although coverage varies between plans, typical illnesses and diseases covered by critical illness insurance include cancer, stroke, blindness, kidney failure, organ transplant, multiple sclerosis, Alzheimer’s, heart attack, severe burns, Parkinson’s, paralysis, loss of speech, deafness, and more.

What about Disability Insurance and Long-Term Care Insurance?

Long-term care insurance policies provide for personal care such as assistance with daily living activities. They generally reimburse, to a limit, the expenses incurred for care such as in a nursing home or home health care, and they pay a predetermined benefit amount on a regular basis.

Disability insurance policies provide monthly income replacement benefits if the policyholder becomes disabled and can no longer perform the normal duties of their work. The benefit is usually limited to a percentage of their previous salary and ceases with new income or if the policy-holder no longer meets the definition of disabled in the contract. Unlike critical illness insurance, disability insurance policies may have a waiting period from the onset of the disability and the benefit may be affected by other income or the policyholder’s recovery.

What Now?

Critical illness insurance can be a wonderful safety net, especially with its flexibility compared to other forms of insurance. It is designed to reduce the impact of critical illness or disease on a policyholder’s overall financial situation. If you feel that critical illness insurance is important to you and would like to learn more about your options, please call us at 514-934-0586 or 403-228-2378 to arrange an appointment.

When I first started my career, it began as a salesman, selling life Insurance products.
Wow, I remember what Woody Allen said:
“What’s worse than death – being stuck in an elevator with a life Insurance salesman”.
Not very flattering or image boosting.

However, I prevailed and I recall my first client death experience very vividly even to this day, forty years later.

I had sold a $100,000 policy to a young married man with two young children. We both knew that he needed a lot more, however, that’s all he could afford. Less than one year later his wife called me and told me the shocking news. Even though, he was only thirty-three years old, he had a massive heart attack and died.

She was crying and pleading with me to help. She was being bombarded with funeral expenses, regular monthly bills, which she had never even looked at in the past, and was completely overwhelmed.
A few days later I rang her door bell and handed her a cheque.

She cried again, and explained how every time she answered the door there was someone there with their hand out, for some bill or other that hadn’t been paid. I was the only one that stretched out his hand with a cheque in it for her, $100,000.

So imagine if you would, her husband being a very special machine in the basement. And every Friday she could go down, and press a big red button on this machine and out popped a cheque for their weekly needs. Now that machine has stopped working. No more weekly cheques.

Insurance can be that machine which provides those weekly cheques.

How much life insurance do I need

For this illustration let’s assume there is only one breadwinner and the other partner being very involved with the upbringing of the young children. The breadwinner brings home net after taxes, $45,000 or $865 weekly. His or her annual gross income is $75,000.

So the question is, how much life insurance would provide $45,000 net after taxes, if that life insurance lump sum could be invested at a reasonable rate of return. In my opinion, 5% return on capital would be a very achievable rate, with reasonable risk, without over stressing one’s stomach level. $1,500,000 invested at 5% would produce $75,000.

Consisting of some capital gain and dividends, the taxation would be more favourable than if it were actual earned income and would give the beneficiary a larger net amount than $45,000. This extra amount could be added, each year, to the initial investment of $1,500,000 and could help compensate for the effects of inflation.

In my next dialogue I will cover the different types of insurance policies that are available along with insurance for specific needs, such as university for the children, the mortgage outstanding on your home, and rental property that you might own, such as a triplex.