Tuesday 16 September 2014

Critical Illness Coverage...Leaving the Dent Out of Your Financial Timeline

Critical illness insurance may provide you with a source of funds at a critical time in your life. Let's talk about how a critical illness or condition could affect your family, and how you can include critical illness insurance in your financial security plan.

Unfortunately the odds are stacked against us:
  • 1 in 2 men and 1 in 3 women are expected to contract a heard disease at some point in their life
  • 1 in 2.3 men and 1 in 2.6 women are expected to develop cancer in their lifetime
  • 70,000 Canadians suffer heart attacks every year
  • 40,000 to 50,000 Canadians suffer a stroke each year


However, due to medical advancements:
  • 80% of hospitalized heart attack patients survive, the percentage is higher for those with their first heart attack, and lower for those with recurrent heart attacks
  • 80% of stroke patients survive the initial event
  • The relative cancer survival rate has almost doubled since the 1960s*

In addition to these survival rates, individuals today are living longer!

Changes in Life Expectancy
1920
1950
2003
Men (ages)
59
66
77.4
Women (ages)
61
71
82.3

If you need immediate treatment the wait time may be long and could cause a financial drain if you need to seek treatment elsewhere. As of 2007, the median wait time for Canadians is 18.3 weeks. This doesn’t take into consideration our aging population and increased strain on our health care system.

This chart shows how much out of country treatment may cost based on treatment at the Mayo Clinic in Canadian Dollars:

Out of Country Treatment
Canadian Dollars
(Assumed CAD/USD exchange rate of $1.07)
Heart Transplant (2-4 weeks in hospital)
$283,500 - 449,400
Coronary Artery Bypass (1-4 vessels, 5-7 days in hospital)
$74,900 – 90,950
Radiation Cancer Therapy (for 6 weeks)
$53,500 – 74,900


Now think, do you know someone who is suffering or has suffered a critical illness? Do you think it had an impact on his or her lifestyle? These types of illnesses can lead to loss or reduction of income, increased living expenses, lifestyle changes, loss of choice and independence, jeopardized retirement goals and dreams, and a risk to your children’s future.

Think of your current situation, if you were faced with these financial stressors, how would you pay for them? RRSP withdrawals? Borrowing? Selling personal assets? I work critical illness coverage into all of my client’s plans, that way there will not be a dent as large as this in your financial timeline.

Let’s sit down and talk about critical illness coverage. Not only will you protect you, but you will protect those around you from the financial burdens of these catastrophic events.


 Sources: Heart and Stroke Foundation, 2006
                National Cancer Institute of Canada: Canadian Cancer Statistics 2008
                Statistics Canada 2006
                Transplant Financial Services/Mayo Rochester 2008
  The statistics provided in this post have been developed by identified sources and are not based on the definitions of critical conditions contained in the Oasis policy. They are provided for general information only.
 * In the 1960s an individual with cancer was 33% as likely as an individual without cancer to survive another five years. Today an individual with cancer is 59% as likely as an individual without cancer to survive another five years.

Tuesday 26 August 2014

What are Segregated Funds?

You may have heard of Mutual Funds before. Mutual funds are a form of a pooled investment which inside may hold a series of bonds, stocks, other funds, or a series of other investment vehicles. Each fund will have an associated risk level associated with it from low to high risk. 

What you may not heard of are segregated funds. Essentially, what segregated funds are, is the insurance company's answer to mutual funds. The purpose behind segregated funds is the same as mutual funds, they provide a diversified investment vehicle that can be tailored based on risk tolerance. It's possible to have a mutual fund and segregated fund which both contain the exact same investment holdings, however, they work differently.



The first major different is that segregated funds (as I mentioned) are an insurance product. One of the big features of segregated funds is the potential for creditor protection. This feature may be specifically appealing to those who are self employed or professionals who may work independently because it could provide protection should a bankruptcy occur.

Another appealing benefit to segregated fund policies is their death benefit guarantees. Depending on the type of contract you have entered into, you may find that up to 100% of a segregated fund, minus any withdrawals are guaranteed if you die or if a certain time period has elapsed. There are also options which would reset the death benefit guarantee at certain intervals as it grows over time. This guarantees your original investment AND locks in the growth of your investment. This is a huge benefit that a lot of clients see value in as no matter where the markets are, they are always guaranteed that their principal amount will be there.



One last benefit of a segregated fund policy, is that since there are named beneficiaries, and since you are essentially locked into an insurance contract, when you do pass away, your investment bypasses probate. This allows your beneficiary to have access to your funds in a timely manner. Mutual funds on the other hand work differently. They are not an insurance based product, and do not have the same features of these segregated fund policies.

I would like the opportunity to sit down with you and see if segregated funds are right for you. Do they fit your current situation? Do you already have segregated funds? Call me today at (905) 475-0122, ext. 411 or contact me by email at Scott.Loney@Freedom55Financial.com or by leaving a message in the box to the right.

Monday 25 August 2014

4 Ways to Maximize Your Income Today

4 WAYS TO MAXIMIZE INCOME TODAY

jumping-businessman-on-money
The problem with the typical retirement plan is that it focuses on long term savings. This approach emphasizes getting high returns on investments, and cutting back on expenses to create a bigger pool of savings. Instead, the key to creating sustainable income is to use current income to create more money today and in the future.
Of course, market and interest rate risks are still a consideration. But the following concepts are about cash flow, not growth. So investment returns are minimal, and the overall concepts are less volatile. Flexibility and access to cash is the objective.
1. Leverage existing assets. If you can borrow money at a rate that’s slightly less than what you can earn on an income producing investment, then you create a cash flowing investment. This can be used to build an income producing asset. The spread between borrowing and investing can be as little as 1%. The key is that the investments are not invested for growth. They’re strictly for cash flow. If you do get a bit of growth, that’s a bonus.
Aim for long term returns in the range of 5%. So if the cost of your investment loan is $100 per month on interest only, and you can earn $125 to $140 per month from income, then the extra $25 can be applied towards the principal on the loan or towards reducing non-deductible debt.
A client recently used this strategy. He had home equity but minimal cash, so he set up a line of credit for 50% of the value of his home and then invested 75% of that into an income producing segregated fund. This income covered the interest,  plus some principal, on the line of credit. The client had access to cash to fund his lifestyle, and the line of credit paid for itself in 15 years with minimal tax implications.
2. Use savings to reinvest. A 60-year-old single, self-employed entrepreneur had $60,000 inside an RRSP. There was no way she could save enough to provide her with the $40,000 she currently needed for her lifestyle expenses. But, she could do this:
  • Withdraw from her RRSP over five years for a net, after-tax monthly income of $792;
  • Direct $500 per month of the net RRSP income towards an investment loan at 3.5%, and invest the $170,000 proceeds at 5% into a segregated fund; and then
  • The net after-tax income on the investment is $500 per month, leaving a total monthly income of $792 per month. Finally, she can use these funds for lifestyle expenses, and to develop a product for her business so she can create additional income.
Her alternative to accumulate savings to provide $792 in passive income is to direct $1,589 per month at 5% towards her RRSP for five years. She’d end up with $170,000 that could be withdrawn over 45 years and would be fully taxable. But she’d have to sacrifice income today, and would not be able to invest in her business.
3. Insured retirement. This concept is one I learned over 20 years ago. It’s not relevant for everyone, but it can provide a cash flow solution. The concept is to direct the money a client is currently spending on life insurance towards a whole life or universal life policy. For example, if the insurance cost was $100 per month for $100,000 of life insurance, the cash value inside the policy over a 25-year period could amount to $50,000, or more.
This is the amortization many people have for their mortgages. So include the insurance/savings discussion when you’re talking to your client about a mortgage. Suggest buying term insurance, and investing the difference. Or create a complete package that builds an asset inside a policy, which can be used as collateral for a loan. This would provide your client tax-free income from the loan, as well as death benefits that would pay off any outstanding balance during the life of the mortgage.
4. Bank on yourself. This is another insurance concept involving whole life insurance. Funds are directed into the insurance policy for a short period of time. Then they’re used as collateral for a loan that doesn’t require conventional bank credit qualifications, and has flexibility on how and when it’s paid back, as well as what it’s used for. Plus, the money that remains inside the policy continues to grow.
Remember, this is a cash flow strategy. Say your client creates an asset inside the policy for $10,000. Then that asset can provide borrowing power for, perhaps, a car, an education or a holiday.
These are just a few approaches that reduce the emphasis on growth, and decrease expenses to plan for financial independence.
Tracy Piercy, CFP is the founder of MoneyMinding. She is an author, speaker and financial educator providing books, training, courses and materials for both advisors and clients to help create sustainable income and increase financial capacity.
Originally published on Advisor.ca

Thursday 21 August 2014

Starting a New Family? Meet Olive and Omar

Getting insurance for a new family: Olive and Omar's story


Getting insurance for a new family: Olive and Omar's story

When baby Zoe came into their lives, Olive and Omar knew it was time to get serious about life insurance.
They had three main goals:
       1.      They wanted to be sure that if something happened to either one of them, the other would be alright financially. For example, they wanted at least enough insurance to pay off the mortgage. This would make it easier for the other person to carry on.
2.      They wanted to make sure they would be able to pay for Zoe’s education if something happened to one of them. They didn’t think they’d be able to save much for that on one income. 
3.      They wanted to start saving more for retirement. They were worried that if they spent too much on insurance, they wouldn’t have enough left over for their later years.
How could they take care of all those different goals? First, they looked at their current policies from work. They had some term life insurance, critical illness insurance, and disability insurance. Was it enough?
It was a good start, but it wouldn’t provide enough money if one of them died. The good news was that they could buy more coverage through work at a fairly low cost. This would leave them some room in their budget to begin saving for retirement. And, if something ever happened to either of them, they would have enough money to pay off their mortgage, and create a college fund for Zoe.
Lesson learned: It pays to review your insurance when life changes. If you can buy insurance through work, it may cost less. Just make sure you get the right insurance for you. Get expert help if you need it.

Retrieved from: http://www.getsmarteraboutmoney.ca/en/managing-your-money/investing/personal-insurance/Pages/getting-insurance-for-a-new-family-olive-and-omars-story.aspx#.U_PnlMVdUQU

Throwback Thursday!




Tuesday 19 August 2014

What is Critical Illness Insurance?

Critical illness insurance basics

Critical illness insurance provides a cash payment if you are diagnosed with a major illness. This money can help pay for extra expenses during your recovery.



​Critical illness insurance can protect you financially if you suffer a serious illness. It provides a tax-free cash payment upon diagnosis of a serious medical condition.

4 key features

  1. Covers major illnesses – Policies generally cover illnesses such as cancer, heart attack, coronary artery bypass surgery, stroke, blindness, deafness, paralysis, kidney failure and multiple sclerosis.
  2. Short waiting period – You must survive your illness after diagnosis for a short time period – typically about 15 to 30 days – to receive the payment.
  3. Paid regardless of ability to work – Unlike disability insurance, the payment is not linked to your inability to return to work.
  4. Use the money for any purpose – The payment is made in a tax-free lump sum, and you can use the money any way you want.

Survival rates increasing

With improvements in medical treatments, people are recovering from serious illnesses – such as heart attacks, strokes and cancer – that would have been fatal in the past.
For example, according to the Canadian Cancer Society, in the 1940s, only about 25% of people diagnosed with cancer survived. Today, the survival rate is over 60% and higher still for many common cancers, such as thyroid cancer with a survival rate of over 90%.
While the survival statistics are encouraging, a serious illness can still lead to significant additional costs that aren’t covered by our universal healthcare system or employer health plans.

Potential costs of a major illness

  • Replacing your lost income
  • Moving to a new home or renovating your existing home
  • Having a spouse take time off work
  • Seeking medical treatment outside Canada
  • Hiring a nurse or other caregiver

A living benefit

Critical illness insurance is called a “living benefit” because unlike life insurance, the payout goes to you, the policyholder, rather than a beneficiary. So you decide how the cash can best be used – whether it’s to cover additional costs or provide an extra perk after or during recovery, such as a vacation.

Pay Yourself First!



When I say 'pay yourself first' I am not talking about buying that new pair of shoes, or the latest gadget. The way I like to think of paying yourself is through a me tax; and think of that me tax as being paid to The Government of YOU!

What do you do after you get that money deposited into your bank? Go to the mall? The grocery store? Gas station? You are not alone. 98-99% of Canadians today get their paycheque and immediately go and spend their money on their needs and their wants. Then if there is any money left over, they put their money into some sort of a savings plan. You may remember from my prior post on the first cornerstone of financial planning we talked about two separate people; Person A and Person B. Let's look at these two people again.

image

Like I just discussed, we can see that Person A receives their paycheque and immediately spends their money on their needs and wants, then if there is any money leftover they then save.

However, Person B is who I strive to get all of my clients to become, it doesn't happen overnight, but through taking baby steps we will be able to move you more and more towards the financially independent Person B.

Every paycheque we are all used to seeing a certain percentage of our income deducted by the wonderful government, after all the other deductions we may have (CPP, EI, benefits etc.) we are finally left with our take home pay. Person B receives their paycheque and immediately takes a percentage off the top (like to government) and deposits it into some sort of a savings plan; this is why we refer to it as a me tax; think of that account as 'The Federal Reserve of You!'. 

The most effective way to set this up is so it is virtually automatic; the timing should be perfect here. What I like to do is set up your withdrawls so that they happen the same day you get paid. That way, the money is deposited, then withdrawn, and you barely even realize it was every there!

So I challenge you, set up a plan to pay yourself first! Better yet, call me and we can set up a rock solid plan! If you are already doing this, great! You one of very few people who are doing this! But where is your money going? Is it truly the best option for you?

If you would like to contact me, please send me a message in the box to the right. You can also reach me at Scott.Loney@Freedom55Financial.com or by phone at (905) 475-0122, ext. 411.