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.

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.

Starting a New Family? Meet Olive and Omar

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.

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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.

Mortgage Insurance...Your Second Biggest Depreciating Asset

We all know our cars drop significantly in value the second you drive them off the lot, some say you lose upwards of 20% as soon as you pull out of the dealer. I'm sure most of us are bitter about this however for a lot of us, a car is a necessary utility that we all must have. We all accept the fact that we are paying for something that is guaranteed to drop in value. 

What if I told you that more and more Canadians are out there purchasing another asset that drops significantly in value! It's nothing immediately tangible, but rather a form of insurance called mortgage life insurance.

Let me first explain mortgage life insurance. By law, every time an institution writes a mortgage, they need to offer their clients some form of life insurance to cover the balance of the mortgage. I think sometimes people feel obligated to purchase the coverage through their lender. While you’re not obligated to take mortgage life insurance from your lending institution, I strongly recommend you consider your coverage options.

Unfortunately, when you purchase your mortgage insurance you get through the lending institutions, the coverage is not owned by you. It’s an agreement between the lending institution and an insurance company. You have very little, if any, control over the agreement. If you decide to move your mortgage to another financial institution or even make changes to the mortgage within your own lending institution, the insurance coverage isn't transferable because you don’t own it. It does not move or change with you. This is significant because insurance is not purchased with dollars alone – you must qualify medically. If your health changes, you may find you have much less flexibility with lending institution mortgage insurance. Getting new coverage with a new mortgage may not be an option. With a personal insurance contract, your coverage is not tied to your mortgage in any way. So even if your health changes, you can make decisions on moving your mortgage or refinancing. Plus god forbid anything were to ever happen to you (or your spouse) the lending institution is the beneficiary to that insurance contract! So unfortunately you have no say in how that money is disbursed.

Second, I will talk about that matter of a depreciating asset. With mortgage insurance, the death benefit or amount of insurance decreases as your mortgage decreases. This may make sense to some, however the downside to this is that you are paying a level premium for the length of your mortgage, for that big depreciating asset. What we can see in the illustration below is a comparison between personally owned insurance with a level premium and a level death benefit, compared to mortgage insurance which again has a level premium however has a decreasing death benefit.

With all this being said, I challenge you to look at your policy. Did you take on the institutions mortgage insurance, or were you ahead of the game and took out your own policy? If you would like to learn about your options other than mortgage insurance I ask you to please call me. I will show you the benefits of an individually owned policy and I can also show you many more advantages of owning your own policy. Also, there are options out there where you can actually pay a level premium for an increasing death benefit!! Let me take the time to show you.

I can be reached at (905) 475-0122 x 411, by email at Scott.Loney@Freedom55Financial.com, or you can send me a message in the contact box to the right!

http://www.aaapaydaycash.com/blog/wp-content/uploads/2013/07/MortgagevsLife.jpg

"The Costly TFSA Blunder that People Keep Making"

Who Gets The Cottage?

May seem simple and I’m sure if you have a cottage, you have a succession plan. Most people today leave their cottage to their children in the form of a will split equally. Unfortunately, when your children have children of their own and begin their own family traditions, how will they agree on who gets the cottage? Another thing to think of are the tax liabilities that may be incurred from your children taking over your property. Later I will show you an example of this, an example that would result in your children in handing a $45,000 cheque to the Canada Revenue Agency (CRA).

Any assets you own at the time of the owners death may incur capital gains taxes. When we look at some cottages which have been in the family for decades, these rising prices of property could result in fairly large capital gains. With the recent real estate boom in Canada, cottages and other vacation properties have increased significantly in value. These properties are now worth substantially more than their purchase price. At death, 50% of this increased value is subject to taxation.

Are you aware of the impact this capital gains tax liability could have on your estate? A lack of proper planning could mean that your family cottage won't stay in your family. Your estate might need to sell it to pay the tax.

Let me first show you an example:

If a cottage was purchased 30 years ago for $60,000 and has now grown in value to $259,317, then the capital gains tax owing on the death of the owner or sale of the cottage today would be $45,843. In other words, if you pass away or dispose of that property tomorrow, the CRA will be knocking on your door for a cheque of about $45,000…not too nice is it.

Fortunately there are ways to lessen this tax liability and that’s what I want to show you.

First option we have is the use of the principal residence exemption which can be used to transfer or sell the cottage to family members. Without this principal residence exemption, there could be heavy fees involved in the way of taxes. The CRA states that you can have one principal residence listed per tax year. With this you can change your ‘principal residence’ to your cottage in order to get around having to pay capital gains taxes. Also, there are no stipulations on what has to be listed as your primary residence. So long as you ordinarily live there at some point in the year you can list it as your residence. However, with this option being explored, one thing to keep in mind is other property you may own and the gains that may be incurred on those properties.

Let me illustrate how you can use the exemption to your benefit.

Let’s say you have two properties you bought at the same time in 1991. You sell one of these properties tomorrow (2014), and one in 2021. If you don’t report the gain on the first property, you are assumed to have used the exemption and therefore pay no tax on the property. Then when you sell your second property, you will have 23 years of gains to pay (while you held two properties) and 7 years of tax-free growth.

The next option for covering this tax liability would be through life insurance. This can be a cost effective option to cover the tax liability by using the tax-free death benefit to cover any capital gains taxes that may occur when you pass away.

 Let me show you another illustration to see how life insurance can cover these capital gains.

Let us say we have a couple today Sally (50) and Roger (52), both non-smokers and in good health. They have a house worth $600,000 and a cottage worth $500,000. The house is listed as their primary residence and the cottage as their secondary. Let us also assume they are in at 42% tax bracket.

When they bought the cottage in 1991 it was worth $175,000 so they therefore have a gain of $325,000. With 50% of the gain being taxable at their current tax rate, we can see that they will have a tax liability upon the second death of the couple of $68,250.

This couple decides to take out a life insurance policy of $70,000 today to cover their tax liability and reinvest any dividends in their permanent policy to account for future growth of the property.

By paying $298.28 per month, Sally and Roger can cover that tax liability, and when dividends are issued within the policy, they will purchase more life insurance to ensure the death benefit keeps a reasonable pace with the growth of the property.

I have now shown you a bird’s eye view of two ways you can protect your estate for efficient transfer to your heirs. To discuss this in greater detail please contact me. I would love to show you how to protect your estate and protect your family in times of loss.

This material is for information purposes only and shouldn't be constructed as legal or tax advice. Every effort has been made to ensure its accuracy, but errors and omissions are possible. All comments related to taxation are general in nature and are based on current Canadian tax legislation for Canadian residents, which is subject to change. For individual circumstances, consult with legal or tax professionals.

Cornerstone Four: Financial Security at Death

I know we are all ten feet tall and bulletproof; however unfortunately, the fact of the matter is that someday our time will end here on earth. When that happens, what I like to do is make sure your family is now financially impacted by your loss. What I will show you first are the four changing needs for life insurance.

First, I want you to think, have you ever heard the approximate price of a funeral today in Ontario. I have heard of some as low as $4000 and have heard other stories where funerals have cost upwards of $40,000! However, the average funeral and burial cost in Ontario today is approximately $10,000. This is what we would call a final expense; something that is there no matter your age when you pass away. We see this in the light blue area above. There is a slight increase because as you age, there are additional debts to be covered, as well as taxes and fees that are incurred with your death. So think about yourself today; think about the cost of a funeral and your current debts; believe it or not, that is your immediate need for life insurance.

Next thing I want to talk about is another changing need for life insurance called income replacement and debt elimination. Over time you are expected to earn more money, not only due to inflation, but we can also assume that you are going to move up in your company and earn more and more money. If you were to pass away prematurely, think about what burden your family would be left with if they no longer had your income coming in to pay the bills every month. If you are the sole provider for your family, that impact could be huge! In addition to this, as you earn more, you spend more. You buy a bigger home, a nicer car, a nice getaway on the lake, if you have debts from those large purchases, unfortunately they do not disappear. This income replacement and debt reduction is the second changing need for life insurance as you can see in the yellow shaded area above.

I will now address the third changing need for life insurance which we refer to as your estate. As I addressed earlier, as you earn more money, you may buy more toys. They may have been in the family for a while and losing those would be a huge detriment. Through life insurance, there is actually a way you can protect your estate from all of the nasty taxes that are imposed upon the second death of a couple. Through the use of life insurance, you can protect your estate from all probate fees, taxes and any other fees that may be incurred. Believe it or not, when your kids inherit your cottage, the gains on the property are actually taxed! Let me illustrate the fees that may be associated with the transfer of a secondary property. 

Here we see a cottage that was purchased for $60,000 30 years ago; today, that property is now worth $259,317. Assuming 50% capital gains inclusion rate and a 46% tax rate, the total taxes payable on the cottage to be rolled over to your children would be $45,843! That is the total fee payable for taxes only! On top of that, you may have lawyer fees and other fees that the government may impose. Would you want to leave your dependents with that tax liability?

The final use for life insurance is using the policy to actually enhance your retirement! I am not going to go into too much detail with this one however you can always contact me to learn more about this! In a nutshell, you can use your life insurance policy to actually provide you money during your retirement and there are ways to structure this so that every single dollar would be tax free!! That is a lesson for a later date and one we should discuss in person. 

I want to close this post by talking about your insurable interest. Today, if we were to go to the insurance company with an application, they may (based on underwriting) insure you for up to 20 times your current salary. However, if you were to delay taking out life insurance for say 20 years, the insurance company may only be willing to insure you for about five times your current salary! This is due to changes in medical history, as well as your age.

The two biggest factors in taking out a life insurance policy and the cost involved come down to two things: age, and whether you are a smoker or non-smoker. So put time on your side and call me today. Unfortunately you are never younger than what you are right now!

I can be reached in the contact box to the right, or by phone at (905) 475-0122 ext. 411.