life insurance

Without a doubt, life insurance is valuable protection provided by your employee benefit plan, but should it be the only life insurance coverage you have? Probably not, if you want to ensure you have sufficient long term protection to cover all your family’s financial needs should you die unexpectedly.

Without a doubt, life insurance is valuable protection provided by your employee benefit plan, but should it be the only life insurance coverage you have? Probably not, if you want to ensure you have sufficient long term protection to cover all your family’s financial needs should you die unexpectedly.

In a recent study conducted by the Life Insurance and Market Research Association (LIMRA), it was reported that 61% of Canadians hold some form of life insurance. Surprisingly, it also revealed that only 38% of Canadians own an individual life insurance contract. This means that almost 40% rely solely on the life insurance provided by their employer. This can be problematic. The disadvantages of having your employee benefit plan as your only life insurance protection include the following:

It is probably not enough to pay off your mortgage and/or provide income for your spouse and family.

The amount of life insurance protection provided by group insurance in most cases is equal to only one or two times annual income. If this is not enough to do the job, the addition of individual life insurance should be considered.

If you lose your job, you may also lose your life insurance protection.

If you are currently employed in an industry or with a company that may be at risk due to economic conditions, you may find yourself with no life insurance at all.

Upon retirement, or if you leave your job, in most cases you will lose your group insurance. While group life insurance usually contains an option to convert to an individual plan, the plans that are offered are usually restrictive or very expensive.

What place should group life insurance hold in your planning?

To answer that question, let’s first look at the differences that individual life insurance has compared to group. Individual life insurance comes in two forms– term life insurance (which expires at a certain age) and permanent life insurance (e.g. Universal Life or Whole Life) which provides protection for one’s entire life and can also build savings through a cash value.

One can consider the specific type of life insurance, therefore, as being one of three categories:

• Permanent life insurance – the type you own. By paying your premiums each year you build up equity in your insurance. At some point in time, the policy may be fully paid up or self-supporting. You can even take advantage of your equity in the policy by borrowing – similar to borrowing against the equity in your home.

• Term life insurance – the type your rent. Term life insurance usually has a renewal period which could be ten years, twenty years, or even longer. At the end of this period, your “lease” renews for a higher premium (“rent”). When you rent a home you never build up any equity and this is the same with term insurance. After paying all those rental premiums the policy expires at a certain age with no cash value.

• Group life insurance – the type you borrow. You, the insured do not have a contract with the life insurance company as that arrangement rests with the employer. The employer and the insurance company retain the right to cancel the entire benefit plan. As a result, the analogy can be made that your employer is “lending” you the coverage.

In reviewing these three types of coverage, it is advisable that you should have a base or foundation of permanent coverage which would provide protection for life at a fixed cost. This also provides the added advantage of creating equity which could be borrowed against should a future need for cash arise.

You could then consider layering lower cost term insurance to protect a growing family and ensure that there would be enough capital to retire debt and provide for family income. With a family, there is a very high dependency period when the children are young, and the expenses are high. Low cost temporary insurance is used to provide adequate protection during this period. Term insurance also comes with the bonus of being convertible to permanent coverage should you become uninsurable with a far greater choice of options than those with a group life conversion.

Lastly, for those with group life insurance, this coverage can be looked upon as forming part of the term insurance needed or as a top up to provide for contingencies.

Give me a call if you would like to discuss restructuring your life insurance coverage to provide the maximum result. As always feel free to share this article with those you think would benefit from this information.

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Owners of very successful private corporations are well aware of the importance of cash flow. Many are protective of how they allocate corporate capital so that business ventures are adequately funded and investment opportunities are not missed.

Owners of very successful private corporations are well aware of the importance of cash flow. Many are protective of how they allocate corporate capital so that business ventures are adequately funded and investment opportunities are not missed.  

The Immediate Financing Arrangement offers an opportunity to provide life insurance coverage and accumulate wealth on a tax-advantaged basis without impairing corporate cash flow.

What is an Immediate Financing Arrangement (IFA)?

An IFA is a financial and estate planning strategy that:

·      Combines permanent, cash value life insurance with a conservative leverage program allowing the dollars allocated to the life insurance premiums to do double duty by still being available for business and investment purposes;

·      In the right circumstances and when structured properly so that all possible tax deductions are used, an improvement in cash flow could result.

Who should consider this strategy?

IFA`s are not for everyone. For those situations that best match the necessary criteria, however, significant results can be achieved. The best candidates for an IFA usually are:

·      Successful, affluent individuals who are active investors or owners of thriving privately held corporations who require permanent life insurance protection;

·      Of good health, non-smokers, and preferably under age 60;

·      Enjoying a steady cash flow exceeding lifestyle requirements;

·      Paying income tax at the highest rate and will continue to do so throughout their life.

How does it work?

·      An individual or company purchases a cash value permanent life insurance policy and contributes allowable maximum premiums;

·      The policy is assigned to a bank as collateral for a line of credit;

·      The business or individual uses the loan advances to replace cash used for insurance purchase and re-invests in business operations or to make investments to produce income. This is done annually;

·      The borrower pays interest only and can borrow back the interest at year end;

·      At the insured’s death the proceeds of the life insurance policy retire the outstanding line of credit with the balance going to the insured’s beneficiary;

·      If corporately owned, up to the entire amount of the life insurance death benefit is available for Capital Dividend Account purposes.

Proper planning and execution is essential for the Immediate Financing Arrangement. However, if you fit the appropriate profile, you could benefit substantially from this strategy.

If you wish to investigate this strategy and whether it can be of benefit to you, please contact me and I would be happy to discuss this with you. As always, feel free to use the sharing icons below to forward this to someone who might find this of interest.

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Statistics Canada states that over 350,000 Canadians 65 or older and 30% of those older than 85 will reside in long term care facilities. With increasing poor health and decreased return on investments, the fear of facing financial instability in your declining years is real.

(Back to Back Long Term Care)

Will your family be affected by the costs of caring for an aging loved one?

Statistics Canada states that over 350,000 Canadians 65 or older and 30% of those older than 85 will reside in long term care facilities. With increasing poor health and decreased return on investments, the fear of facing financial instability in your declining years is real.

How will this impact your family?

Caring for an aging parent or spouse takes its toll emotionally and financially. Adult children with families and job pressures of their own are often torn between their obligations to their parents, children and careers. This often results in three generations feeling the impact of this care.

Is it important to you to have control over your level of care?

Consider this:

·      The cost of providing for long term care is on the rise

·      While many Canadians assume that full-time care in a long term care facility will be fully paid by government health programs; this simply is not the case. In fact, only a small part (if at all) of the costs of a residential care facility will be paid by government health care programs

·      28% of all Canadians over the age of 15 provide care to someone with long term health issues

·      For the senior generation, the prospect of the failing health of a spouse puts both their retirement funds and their children’s or grandchildren’s inheritance at risk 

·      Capital needed to provide $10,000 month benefit (care for both parents) for 10 years is $ 1,000,000 (if capital is invested at 4% after-tax)

Case Study

Norman (age 64) and Barbara (age 61) have three children, aged 32-39. While still in good health the family does have a concern for their future care.

To safeguard against failing health it was decided that they purchase Long Term Care Policies to protect their quality of care and a Joint Last to Die Term 100 Life Insurance Policy to recover the costs.

The Long Term Care policies would pay a benefit for facility care in the amount of $1,250 per week for each parent. The monthly premium for $10,000 per month Long Term Care for both Norman and Barbara is $544.17.

The Premium for a Joint Last to Die Term to Age 100 policy with a death benefit of $250,000 is $354.83 per month.

Upon the death of both parents $250,000 is paid to the beneficiaries (children) tax free from the life insurance policy, returning most if not all of the premiums paid.

 

Advantages of the Long Term Care Back to Back Strategy·      Shifts the financial risk of care to the insurance company

·      Allows for a comfortable risk free retirement

·     Preserves estate value for future generations

When is the best time to put this structure in place?

·      Remember, the older the insured, the higher the costs

·      Do it early while you are still insurable!

Please call me if you think your family would benefit from this strategy. Feel free to use the sharing icons below to forward this to someone who might find this of interest.

Should you wish to learn a little more about long term care, the Canadian Life and Health Insurance Association (CLHIA) has published a brochure which can be downloaded here

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