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Types of Insurance:
What is Term Insurance?
Most people have some type of temporary insurance either as a term insurance policy, mortgage insurance, or group insurance policy (likely through work or an association plan like an automobile club). Some also have permanent insurance either in the form of whole life, insurance, universal life insurance, or Term to 100 Insurance. ce.
The purpose of this insurance is usually for a short term or temporary need (to age 55 or 65 while the family is growing up and you are saving for retirement. It is to provide cash in the event of your death so those who depend on you will have the money to:
Settle your debts - mortgages, loans (business & personal), remove guarantees, make up for the income you provided to the family - Remember the impact of inflation when doing this calculation. At 3% inflation, a need to supplement income by $25,000 will grow to $50,000 in 24 years.
Provide for children's education, marriage etc.
Complete the funding for your spouse's retirement plan - very important and why many need some term insurance to age 65 - this can also be a consideration for those looking for permanent insurance as well.
For businesses, it can be to fund a buy/sell agreement or to provide insurance on a key employee to provide cash to find a new person, absorb the financial shock of the loss and have additional funds to pass on to the family.
You can see the temporary nature of this insurance. It has a specific relatively short term purpose which will no longer apply by at least age 65. This insurance can be very inexpensive for the amount you are purchasing ($1 million can cost between $60 and $100 per month depending on age, sex and smoking habits) because most people will never collect it. It is purchased to cover you life when you are relatively young and the need is frequently gone by age 55 or age 65 for some of those concerned about saving for retirement.
It generally comes in 5, 10, 15, and 20 year terms. This means that the premiums are guaranteed for that period of time and they will automatically renew at a higher rate for the next term period. For example, a 10 year term policy has guaranteed rates for the first ten years and then you can renew it for another ten years without a medical at a set rate contained in the policy. Do not renew it if your health is good as the renewal rates can be 25% to 100% more than the premiums if you shop around for a new policy. The assumption is that you only renew if you are too sick to get a new policy.
Over half the people renew term insurance and pay these high premiums - get a new policy - with preferred term rates it might be less than you were paying.
At one time, insurance premiums were divided into smokers and non smokers. However, the companies now have statistics that enable them to determine those who are least likely to die based on lifestyle, family history and blood pressure and some measurements they get from blood samples, such as cholesterol levels. About half the people will qualify for a preferred rate. At the time of this writing, a 35 year old should be able to purchase $500,000 for about $35 per month at regular rates but preferred rates would be in the $25 per month range. Some companies also offer a preferred smoker rate for those who would qualify for a preferred rate but they smoke.
Finally, there is the issue of convertible. You will see most policies are renewable which means you can renew them for another term of say 10 years and convertible. Convertible means you have the right to convert all or part of the policy to a Permanent Policy at any time during the term without a medical. You just pay whatever the rates are at the time of conversion. If you policy was issued on a preferred basis some allow you to convert on a preferred basis if they have preferred universal life insurance rates. This is an inexpensive option that is usually built into the policy cost and worth the extra price. A few companies will offer policies without this conversion option for a small savings.
Money Saving Tips
:* Ask for preferred rates. Refer to the sample questionnaire to see if you would qualify at Preferred Insurance Levels.
* There are significant differences between some companies in the percentage of people who will qualify for preferred rates ranging from under 50% to over 75%. Ask me about this.
* If you are a smoker of cigars or enjoy a pipe, some companies will consider you to be a non smoker. Make sure you get this rate.
It is not expensive to move the financial risks to your family of your death to an insurance company and it is the responsible thing to do.
Remember, the impact of inflation when doing this calculation. At 3% inflation, a need to supplement income by $25,000 will grow to $50,000 in 24 years.
What is Permanent Insurance
Most people have some type of temporary insurance either as a term insurance policy, mortgage insurance, or group insurance policy (likely through work or an association plan like an automobile club). Some also have permanent insurance either in the form of whole life, insurance, universal life insurance, or Term to 100 Insurance. This article will discuss the purpose of Permanent insurance with some examples as well as considerations when purchasing it as well as 4 money saving tips.
Estate planning and retirement planning is the main purpose of Permanent Insurance The primary difference here is that the need is not temporary and you want the insurance to pay when you die - hopefully at a very senior age. About 40% of insurance sold is permanent insurance. In this case, many clients did not know they had a need until we had spent considerable time discussing what these people wanted to have happen on their death and discovered some major differences between what they thought would happen and what would really happen.
It serves the purpose of saving taxes Some other issues we addressed was how to structure things so that a second wife of husband would not strip out assets they wanted their current children to get, ensuring that if a child married and it did not work out that the inheritance was still with their child. The reasons for choosing this type of insurance follows
To ensure you spouse will have sufficient money to retire even if you spend more than anticipated during your retirement - this was my reason for purchasing a permanent policy "I wanted to ensure that my wife or spouse has sufficient cash when I die to enjoy her retirement regardless of what we spend in retirement"
To guarantee that you will leave some money to children - it goes to them tax free and probate free if the beneficiaries are set up properly.
To leave money to a charity - there are some very interesting tax strategies around charitable giving. Please email me for a brochure on this issue.
A major use is to provide money to pay capital gains or estate taxes so that your beneficiaries can keep the assets or property on your death and not have to sell some to pay the taxes. This does not apply to your spouse in most cases as assets flow to them tax free.
Part of a tax planning strategy to transfer money in an RRSP (Canadian) which will be taxed at over 40% on death to an insurance policy that will pass tax free to the designated beneficiaries on death with no probate or executor fees. This is frequently done as part of the previous strategy for covering capital gains taxes - I have an article on this with an example using a joint last to die policy.
Maximize your pension. Many of those who have pensions will need to decide whether they want to set it up so their spouses will continue to get a pension (about 66 to 75% of your pension) when you die. Obviously, the pension will be a lot less if you choose this option as the Pension Plan will have to pay out money for a longer period of time. For many, there are advantages to taking the higher pension (where it stops when you die) and purchasing a life insurance policy with some of the difference which will provide a pool of capital when you die and your spouse to live on. I can email you more information on this if you wish.
Business owners use Universal Life Policies for a developing a corporate pension plan that is very tax advantaged
Business owners can also use a Universal Life Policy to get retained earnings out of a company tax favored basis
These are just a few of the uses for Permanent Policies. They can also be set up so that premiums are only paid for a set number of years - usually 1 to 20 years after which the policy is fully paid up or there is sufficient funds in it to pay the premiums for life. Term to 100 Insurance is frequently used when all you want is a basic permanent insurance policy that you pay for until you die and then the beneficiary collects the money. It is usually the cheapest solution for this need.
Whole life has been around for years but has been replaced by Universal Life Insurance in most cases. Please refer to the article on the difference between Universal and Whole Life policies for more information.
Money Saving Tip 1:
Permanent policies frequently have assumptions about the returns you will get within the policy for Universal Life or dividends for whole life. These are generally not guaranteed so be careful that they are reasonable and that you understand that if they are not achieved, the outcome could be very different from the illustration. Ask to see several illustrations with different assumptions so you understand what could happen.
Money Saving Tip 2:
Universal Life Policies also have various bonuses built in that can increase the returns by 1.5% or more under certain circumstances. These circumstances usually relate to how much you are putting into the policy (referred to as funding), and how long the policy has been in effect. There are very significant differences between companies so ask to see illustrations from several companies.
Money Saving Tip 3:
Universal Life Policies may have an opportunity to purchase riders like Critical Illness or Long Term Care Insurance and term insurance. There can be some real tax advantages to doing this if you are able to over fund the policy or you have a large amount to put into the policy to start. The funds inside a universal life grow with no taxes on the profits. If you are paying for these other policies with funds outside a Universal Life policy you need to pay taxes on the income before you pay the premiums.
Money Saving Tip 4:
A few companies now offer preferred rates for Universal Life Policies and if you qualify, the savings can be very significant. Check out a typical qualifying questionnaire for Preferred Insurance. Also some companies consider pipe and cigar smokers to be non smokers.
While some uses of Permanent Insurance, such as providing extra cash for a loved one, is relatively straight forward, the use of an independent life insurance broker for most situations is recommended as many options are generally not known to the general public and even financial professionals like accountants and lawyers may not be familiar with some of them.
These types of policies have some real benefits and should be considered. You are about to sign up to pay a lot of money for a number of years so ensure you get good advice. If your term insurance policy is convertible, you can convert to a universal life policy without a medical.
LIFE INSURANCE FUNDAMENTALS:
Whole Life Compared Insurance Explained
Why You Need To Know the Difference
I once wrote an article about the use of Universal Life Insurance Policies for those who had used up their RRSP limits or whose taxable income was so low that they did not get a meaningful tax credit for RRSP contributions. The article elicited a number of questions about the difference between traditional "Whole Life" Policies and the new "Universal Life" Policies. I felt that the discussions I have had with several clients might be of interest.
First, there are essentially four parts to both whole life and universal life insurance policies.
Mortality Cost - the part of the deposit that covers the pure cost of the life insurance death benefit. We recommend that this cost of insurance be level or the same over the insured's lifetime.
Administration charge - this is the charge for administering the policy and premium tax.
Savings or Investment. This is what is left from your deposit after the above two charges - the cost of insurance and the administration charge are deducted. You will have been provided with an illustration of how your savings will grow - it is frequently referred to as the "Cash Value", "Fund Value" or "Cash Surrender Value" of your policy.
Return on the savings - this is the interest rate that is credited to the cash value in your account each year.
In addition, some policies guaranty that the above costs will not change and a minimum return on investments.
Whole Life Policies were designed to provide permanent insurance (the kind that you plan to have when you die) plus have a savings component at a single monthly premium. There has been a lot of this product sold over the years.
Whole Life Insurance has a level cost of insurance where the costs do not increase each year - what you pay in the first year is the same as in the last year but they do not disclose the cost of insurance. They also do not disclose the administration costs. After the "cost of insurance" and "administration costs" are covered, the balance of the premium is the savings or investment portion. The returns on the savings or investment part is dependent upon excess interest and investment earnings, savings in mortality costs, the operating expenses and the will of "the insurance company board of directors" - they choose what they will pay.
To summarize, apart from a minimum guaranteed return, the policies do not disclose the cost of insurance, the administration costs, or how they calculate the returns on your savings portion. You can not choose where the money is invested and they do not disclose the return you are receiving. You will have an illustration showing a guaranteed "cash value" and another cash value which reflects non guaranteed projected returns.
Universal life insurance policies were designed to provide an answer to the advice that you should "buy term insurance and invest the difference". In addition it provides an answer to some of the complaints about Whole Life Insurance's failure to disclose how the premium is allocated between the cost of insurance, administration costs, and investment portion and to provide investment options that you can choose.
In a Universal Life Insurance Policy, the mortality charges are disclosed and, as mentioned before, I recommend that they should be level (they do not increase as you get older). The administration charges are also identified and frequently guaranteed not to change for the life of the policy. They are generally in the $100 to $125 per annum range. Consequently, the cost of insurance and administrative costs can be shown on the illustration.
It is the investment options inside a Universal Life Policy that have grown dramatically over the past four years. While some of the older policies did not disclose how the returns were calculated, the newer ones are offering a list of investment options that have similarities to mutual funds. In fact, some are designed to provide returns that mirror well known mutual funds and they are managed by mutual funds managers. Examples include, Standard and Poor Index Accounts, Canadian Index Accounts, Canadian and American Equity Index Accounts, Bond Index Accounts, and 1, 5,and 10 Year GIC Type Accounts.
The returns inside an insurance policy are generally slightly lower than mutual funds will generate but they have four significant advantages compared to mutual funds.
The funds grow tax-free - you do not pay any income tax on the growth. This is similar to an RRSP, however unlike RRSP's there are ways to have the use of the money on a very tax favored basis. This was the subject of my previous article on Leveraged Deferred Compensation Plans. I would be pleased to forward a copy of this article to those who feel that it might be of interest.
You can invest 100% of the savings/investment component in an index where the returns are based on the performance of an index outside Canada. Options include S&P Indexes, American and Global Equity Indexes, and Bond Indexes. Some indexes are tied directly to the performance of well known mutual funds with one policy offering access to indices that emulate over 400
The funds are "creditor proofed" if the policy is set up properly. Creditors can not get at the funds inside this policy, which is important for many business owners and others who are concerned about lawsuits.
If the policy is set up properly, the entire investment account plus the face value of the insurance policy goes to the beneficiary tax-free on death of the insured. There are not even any Probate Fees. The same applies to a whole life policy but the cash value may or may not be in addition to the face value depending on the type of Whole Life Policy
Let me provide an example of the different tax treatment on money in an RRSP and a Universal Life Insurance Policy on death. Let us assume that Peter had $100,000 in the investment part of a Universal Life Insurance Policy and $100,000 in a standard mutual fund and died. The entire investment account of $100,000 would pass to Peter's beneficiaries (provided they were identified in the policy) together with the face value of the policy with no taxes or probate fees. Further, the cheque could be issued within a few days of proof of death. The same applies to the Whole Life Policy with the caution of point 4 above.
The mutual fund $100,000 would be subject to both income taxes (likely at a tax rate of about 43%) and probate fees and the funds may not be released until after the estate has gone through probate and has been settled.
It is my experience that Universal Life Insurance Policies are being used for estate planning as much as they are for meeting traditional insurance needs. There are numerous tax saving and estate planning strategies that utilize this type of insurance.
It may be advantageous to stop contributing to an RRSP when you believe that you already have sufficient RRSP funds for retirement and set up a Universal Life Policy. It should be noted that consideration of whether this strategy would be of benefit and then when to start it, should be part of your retirement and estate planning process.
The face value of the policy can cover anticipated estate taxes and a savings component grows tax-free and will pass on to your beneficiaries without the probate fees and a potential 50% tax hit that the RRSP funds experience. You can still get at the money in the savings portion if it becomes necessary but in a significantly tax favored basis compared to withdrawing money from an RRSP. The downside is that you do not have the tax credit on your RRSP contribution but it still may make sense from an estate planning perspective.
This is a complex subject and I could have written a small book on it but I hope that you will find this overview of benefit.
Purpose of Visitor Insurance
It provide coverage for the following:
- Emergency Medical Insurance for Canadians traveling out of province, and out of Canada.
- Visitors traveling to Canada.
When traveling outside your home province, unforeseen emergencies can happen. Travel Insurance can give you the peace of mind to know you will be looked after.
Probably everyone has crossed the border or traveled outside of their Province without Travel Insurance.
However, if you have an accident or become ill outside of your home Province, your Provincial Health Plan may not cover all your medical bills. Without Travel Insurance you may end up paying thousands of dollars in medical expenses from your own pocket.
Fortunately Travel Insurance is a bargain. A $1 million policy for a healthy individual only costs a few dollars a day.
Canadian Family Medical Plans are dedicated to finding you the best Travel Insurance Policy for your needs. Whether you are a frequent flyer looking for an Annual Travel Policy, or an excited traveler going on your first vacation in years, we have the right plan for you. We shop several reputable suppliers, saving you time and money while providing you with peace of mind.
Quick Money Saving Tip: Check your health insurance plan to see if it includes Travel Insurance. Some health insurance policies include $1,000,000 to $5,000,000 of travel insurance coverage. On many medical plans, travel insurance is an optional add-on. Check your medical plan to see if you need to purchase travel insurance.
Introduction to Travel Insurance
All of us know about unexpected travel medical emergencies which result in delayed treatment and financial stresses. Provincial health insurance plans and other travel insurance like credit cards and employee group benefits may not adequately provide the coverage to handle these travel emergencies. Many make you pay up front and then submit claims or take far too long to approve your recommended treatment when the emergency occurs. One of the travel insurance companies has provided the following real-life scenarios - make sure you have the travel insurance to deal with these types of events.
A Medical Emergency Insurance
A 50-year old woman on a cruise ship in the Caribbean had a medical emergency and collapsed. The ship board doctor recommended that she be taken to a hospital at the next port of call. It cost $50,000 for the hospital, emergency air ambulance home, and emergency air transportation for her family. Would your emergency accident and sickness travel insurance cover these costs?
The travel insurance company paid her medical costs and in addition, they were reimbursed $10,000 for the lost a portion of the pre-paid cruise.
However there is more, would your travel insurance also cover a translator to work with the hospital's physician and your family doctor to develop the best plan for treatment, provide an air ambulance to bring her home, provide transportation for the family, and even ensure there was a hospital bed waiting for her return.
Finally, their travel insurance company arranged to pay all the medical bills directly to the suppliers, their out of pocket costs were minimal.
Trip Cancellation Insurance:
This applies to prepaid vacations - Mexico, Cruise, Disney etc. A family purchased a $12,000 tour package that included return flights to Orlando, hotel accommodation and theme resort day passes to Disney. The father was involved in a car accident two days before the trip and was hospitalized. The travel packaged offered no refund as it happened within two days of departure.
The trip cancellation insurance refunded the entire amount including the day passes.
Trip Interruption Insurance:
Newlyweds in Montreal purchase an Alaskan Cruise including air fare to Vancouver but bad weather causes their flight to be delayed and they miss their departure.
They made one call on their trip interruption insurance, and arrangements for hotel catching up with the cruise or a return flight home are covered plus the value of any lost days on the cruise are reimbursed.
Lost Travel Documents Insurance:
When we travel we use fanny belts but it is stressful keeping all the documents. A senior traveling in Spain lost her passport and travel tickets.
One call to her travel insurance company looked after getting everything replaced. Can you imagine what it would be like in a foreign country not speaking the language to get new tickets and documents? Very time consuming, stressful and possibly costly.
Travel Insurance Conclusion
You have a couple of choices when you travel. You can pay say $6,000, $12,000 or what ever your trip costs and be self insured, rely on credit card travel insurance, group travel insurance or you can pay a little more for peace of mind and completely remove that risk and stress from the vacation. Why take the chance?
Disability Insurance
�In Today�s world, everything goes fast. Everyone is not running but racing. What does
it mean? Eevery one of us knows. It�s horrible to see when an accident
where anybody could be hurt and turn out to be physically handicap in the aftermath. There could be
no one to stand as help for the daily expenses.
No work.....No money
Disability Insurance Provides you with the replacement of your income during the period you are unable to work.�
Brief Overview:
Disability Insurance is primarily intended to provide income replacement to the self-employed and working independently who cannot afford to miss extended periods of work and are not covered by an employer�s insurance policy.
Whether you own a business or have a partner, the financial risks to your business and family are very significant if you suffer a serious accident, injury or illness that prevents you to run your business. Not only does your current income gone, future income also stops and, usually, many of the business and personal expenses you face. There are leases, loans, salaries and other commitments to be met out facing a NO income phenomenon.
If you got Workers Compensation, it pays only 8% of disabilities compensation if the accident occurs off the job or if it turns out to be an illness. These payments are meager amounts to serve your purposes. Survey shows that One of the leading causes of divorce in our society, is the financial stress that accompanies long-term illnesses
EVERY BODY ON THIS EARTH KNOWS
HEALTH IS WEALTH
Health and Dental Insurance
IS A MUST FOR YOUR ATTRACTIVE BODY AND A SMILING FACE
Are you one of many Canadians looking to supplement your Provincial Health Plan?
Thousands of Canadians are seeing the need to supplement their Provincial Health Plan with a private health insurance plan that will support them should the unforeseen happen.
Usually, common health care expenses due to various reasons including eye glasses, prescription drugs, ambulance services and dental work � among others - are not covered by most Provincial Health Plans. These unexpected expenses you could be reimbursed if you are covered under a health and dental plan.
Canadian Family Medical Plans can help you find the authentic health insurance plan for you. We shop around several Canadian Health Insurance suppliers which guarantee you the best rates available in the market. With our knowledge and expertise we can find the plan that �fits� your particular needs.
Our service is free to our clients, and there is no obligation. Just fix up an appointment with us anywhere you like and get details of all sorts.
Whether you are recently retired, self-employed, an employer looking for a Group Health Plan, or an employee with inadequate Health Insurance, we have the right Health and Dental Plan for your needs.
Can you predict when you can get involved in the following curses???
Heart Attack
Stroke
Coronary Bypass Surgery
Breast Cancer
Prostate Cancer
Other life threatening cancer
Multiple Sclerosis
Parkinson's Disease
Major Organ Transplant
Other life threatening illnesses
Gain peace of mind, and save with the lowest premiums
Canadians can now receive financial protection during the emotional time of a diagnosis of a life threatening illness, such as cancer, heart attack, stroke or permanent disability
Our team are specialists in critical illness coverage and can work with you to arrange an appropriate plan with the lowest premiums in the country. We have direct contact with almost all the top Canadian Companies providing coverage. As independent insurance brokers, we can shop around best of the best plan for you and your family. Let them compete for your business, and in the process get the best quality at the lowest price.
What do you think $100,000 or $200,000 would have done for their financial and emotional Peace of Mind?
The proceeds can be extremely useful for adapting to a new lifestyle caused by a critical illness, also one can begin helping support the family financially. Now you have the option to get treatment in the United States.
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