The most important use of life insurance has been to ensure sufficient capital in the estate to allow the deceased’s dependents to maintain the standard of living they enjoyed while the deceased was alive. Other uses of Life Insurance are to provide capital for both Personal needs as in mortgage (*see mortgage insurance) and/or corporate needs (*retirement compensation, Buy/Sell, Key Person Coverage). Life insurance is well suited to these applications, as it provides a tax-free lump sum payment upon the death of the insured.
An insurance advisor will prepare a “financial needs analysis” to determine the amount of insurance required on the death of the individual. This involves an analysis of:
- Sources of income that will continue to be available on the death of the life insured
- Capital assets that can be liquidated to provide income
- Tax and other liabilities that will arise on death
- Income needs of the dependents/corporation/partners
Should there be a shortfall between the income / capital available on death and the needs of the dependents, insurance can be used to create additional capital. We use various techniques, programs and insurance carriers to ensure the best solutions are achieved.
Permanent Life Insurance
Permanent life insurance has several variations: whole life, universal life, variable life.
All are designed to provide insurance protection for your entire lifetime, as long as you keep the policy in force.
Basic features of permanent policies:
Level premiums: Most permanent policies have premiums that remain level over the lifetime of the policy, even though the risk of death increases with age. To achieve this, the premiums charged in the initial years are higher than the risk you represent then and are invested to form policy reserves that subsidize the premiums paid in later years when you are older and the risk is higher.
Cash values: These reserves accumulate as a cash value, or cash surrender value. The cash value is available to you if you want to borrow against your policy or to cancel (surrender) it. (Usually, the cash value is not added to the face amount of the policy, which is paid out on your death.)
Non-forfeiture options: These are choices available to a policy holder if he or she discontinues premium payments on a policy. They allow the policyholder to keep the policy in force or to take a cash settlement.
Participating policies and policy “dividends”: A participating policy shares in the financial experience of the insurance company, and policy “dividends” are declared annually and paid to policyholders.
Premiums are based on conservative estimates of future expenses, death claims and interest or other investment earnings. When experience is more favorable than these estimates, a surplus is created, which allows the company to credit participating policyholders with dividends. Because dividends are based on future experience, such as costs and earnings, they are not guaranteed.
Variations of permanent insurance:
Although every permanent insurance policy is designed to provide you with coverage for your entire life, the guarantees vary in different policies. This, in turn, affects the premium you pay.
Whole life: This is the traditional policy that fully guarantees the level of premiums you pay, the death benefit and the growing cash values within the policy.
Interest-rate sensitive policies: Unlike whole life policies, which use very long term interest rate assumptions, these policies use current interest rates, which can be adjusted periodically if interest rate levels change. This offers the policyholder the potential of getting more coverage for less premium, but it involves sharing some of the risk with the insurer. Premiums could be increased if interest rates decrease. On the other hand, premiums could be decreased if the reverse holds true.
The most popular and flexible of the interest-rate sensitive policies is Universal Life. It consists of two parts: life insurance and an investment account. You decide what to do with each part of the policy, and you can increase or decrease your premiums and your death benefit, within certain limitations. Earnings on the investment account may or may not be guaranteed, depending on the type of investment chosen.
This is valuable to you because your circumstances change, and economic conditions change. For example, as a parent in a growing family, you may want more insurance coverage; as your family grows and becomes more independent, your focus may shift to investment as well as life insurance.
Universal Life can be a way to accumulate wealth on a tax-sheltered basis*. If you like involvement and control over your finances, if you want life insurance that you can tailor to your changing needs over time, Universal Life may be best for you. One very attractive feature is the accumulation of investment returns that can be paid out to your beneficiary on a tax-sheltered basis at a later date.
Variable life: Here, the premiums usually are guaranteed, but the cash values vary according to the performance of an investment fund or other index. The death benefits may be guaranteed or may vary with the fund’s performance, subject to a minimum guarantee.
Term Life Insurance
Term policies provide insurance coverage for a specified period (e.g., a fixed number of years, or to a set age) and then expire. A death benefit is paid only if you die during the term of the policy.
Term policies are commonly available for terms of one, five, 10 or 20 years, or to age 60 or age 65. The premiums usually remain level during the specified term but increase if that term is renewed (e.g., premiums would increase every five years on a five-year renewable term policy). They will also expire at a specific age that varies by company.
Most term policies are non-participating and do not include cash values or other non-forfeiture values. Hence, premium costs are lower than for permanent policies — at least when you’re younger.
TERM TO 100
Often categorized as a permanent plan, term to 100 policies provide life insurance coverage through to age 100.
Usually they don’t pay dividends or include cash values, though some may provide other non-forfeiture values. Accordingly, premiums are lower than for traditional whole life policies.
For more information please contact us at at any of our offices or email email@example.com
Should an illness or injury prevent you from working for an extended time, loss of income directly affects your lifestyle and ability to provide for yourself or loved ones. Concurrently living expenses continue and are likely to increase as assistance may be needed at home or higher medical expenses incurred. Disability or income replacement insurance makes a difference. As this coverage provides a monthly benefit should you be unable to work (due to illness or injury), your standard of living is not compromised.
This insurance is crucial within a financial plan. Those who are single and solely dependent on their earnings, often find it more relevant; however, couples relying on two salaries have difficulty imagining how to live on just one. Notably, disability strikes more often than we may think.
Though premiums may seem costly, it is important to understand that potential total benefit pay-outs can be significant. For example, a 40 year old earning $85,000/yr could receive in excess of $3,500,000 (benefits paid to their age 65) should disability strike!
Personal and Business Coverage
Disability, or income replacement insurance, is designed to replace income should you be unable to work because of illness, or injury.
Typically the insurance is designed to replace two-thirds of your regular income. This income gap is meant to encourage a claimant to return to work as soon as possible.
INCOME OR WAGE LOSS REPLACEMENT PLAN (WLRP/ILRP)
This is an arrangement between an employer and employees whereby the employees are provided an income during disability. Individual disability insurance contracts are issued pursuant to a common plan. The ILRP/WLRP is an alternative method of grouping individual disability income policies without the use of a Health and Welfare Trust and may be established for as few as 2 employees.
The Basics of an ILRP:
- The employer is the owner of the individual disability contracts
- The premiums are paid by the employer and are deductible business expenses
- The premiums paid by the employer are NOT taxable benefits to the employees.
- The disability benefits under the policy will be paid directly to the employee.
- Any disability benefits received by the employee while a member of the plan will be taxable.
Business Overhead Protection:
A Business Overhead Expense policy is designed for principals of closely held businesses or practices and owners of small businesses. It is an expense reimbursement policy covering fixed monthly expenses required to keep the business viable until the return of the owner, after a period of disability. This allows operations to continue until the insured either returns to work or decides the future of the business.
It is most vital within a business where the owner’s ability to come to work makes directly impacts business continuity. Ideal candidates are physicians, lawyers, accountants, engineers and other individuals whose firms depend on their direct ability to generate income. Premiums are tax-deductible as a business expense.
Disability Buy Sell
Funding of Buy/Sell Agreements (Disability, Life and Critical Illness coverage)
These policies are designed primarily for partnerships and professional corporations comprised of two to five principals though consideration may be given to those with 6 to 10 shareholders. Policies are designed to provide necessary funding required for the purchase of shares upon the death or illness of a partner.
For Disability Buy/Sell coverage, it is required that the business be operational, or partners have been in association, for at least three years. The business should have a net worth of at least $50,000. The policy can be owned by the corporation or partnership (entity purchase), or each shareholder may own a policy on each of the other owners (cross purchase). The existence of a formal buy sell agreement is highly recommended.
Key Person Protection
Key Person Protection is designed to provide coverage for a financial loss to an employer due to the disability of a key person. This person is one whose service is of such nature that their disability or illness would cause owner to suffer substantial financial loss. These employees offer their employer knowledge, skills or talent that few others can duplicate. Their industry or their work may be so specialized that there would be few with similar skillsets. These may not be totally acquired through education or experience but attributable in part to creativity, talents and interests.
Disability Business Loan Protection
Business Loan Protection policy is designed to make funds available to pay outstanding business loans and loan interest should the business owner become totally disabled. The company must be a partnership, sole proprietorship or professional corporation in business for at least three years with a net worth of $50,000. Eligible loans include those for equipment, property and buildings used for the sole purpose of operating a business. The lump sum plan also covers lines of credit and account overdrafts.
A sudden, unexpected accident or illness can dramatically affect one’s ability to earn an income and meet current financial obligations. This can also have a drastic impact on the ability to invest for the future. Not surprisingly, retirement savings are one of the first casualties of disability; funding is curtailed and often funds previously been set aside for the future are tapped.
No financial plan is complete without guaranteed funding for retirement. A Retirement Protection Plan assists in maintaining deposits to a retirement savings program while disabled.
For more information please contact us at at one of our locations or email firstname.lastname@example.org
Everyone knows someone affected with a critical illness. You probably know colleagues, relatives, or friends you went to school with who have undergone chemotherapy or radiation treatment for cancer, or who have had heart surgery. They have survived the critical illness and may be working, traveling and enjoying life again. But their lives, and those of their families and business associates, have often been profoundly affected.
When you survive 30 days following the diagnosis of a critical illness, critical illness insurance provides you with a lump sum tax free cash benefit.
Critical Illness Insurance was developed by Dr. Marius Barnard (brother of Christian Barnard, who performed the first successful open heart transplant surgery) in South Africa in 1983. Dr. Barnard saw a need for insurance that paid a “living benefit” to those who survived a major illness to offset lost income and pay additional expenses. Critical Illness insurance is a form of protection that provides immediate funds to you upon diagnosis of a covered condition, like cancer, stroke, or a heart attack. Unlike other types of insurance that provide income replacement if you are seriously ill, critical illness insurance provides a lump sum tax-free benefit that can be used in any way you choose with no restrictions or claw-backs to benefits.
Some Immediate Financial consequence when you suffer from a critical illness include:
Absence from work – You may be covered under disability insurance program and receive a portion of income each month you are not able to work. Disability insurance helps you to cover household expenses, but serious critical illness could be life altering. Receiving only a portion of your income may not be enough. Critical Illness can fill the gap.
The costs for home care during a period of illness and recovery – Your working spouse may need to take a leave of absence to care for you or you may have to pay for private home care. With shorter hospital stays, you may find that home and private hursing care services are required to speed the recovery.
Treatment outside of Canada or other medical costs not fully covered under the provincial health plan – Critical Illness insurance can enable you to obtain treatment outside of Canada or pay for experimental treatment not covered under a health care plan.
Children’s education – A life altering illness can impact your ability to save for your children’s education. Critical illness insurance can fund your children’s education.
Early Retirement – If a critical illness results in early retirement or even a change in careers or reduced number of hours, your RSP savings may not be enough to support you
Age to Qualify
Critical Illness insurance is available to individuals between the ages of 18 – 65
Benefits range from $25,000 up to $2,000,000
Who receives the Benefit?
Most critical illness benefits are paid directly to the individuals insured under the plan and they decide how they wish to use the benefit. Payment of benefit is based on the medical diagnosis of a certified Canadian physician or specialist for the specific condition. Payment is not dependent on your inability to work
Most plans cover you until age 75, some companies also have plans available for coverage till age 100
When are benefits payable?
The Critical Illness Benefit is pay when you are diagnosed with a Covered Condition and you survive 30 days
Other programs included in some Critical Illness Plans include: Best Doctors, and dialing living assistance
Grouped Critical Illness Insurance will allow the employer to put together a common plan whereby two or more employees are covered by individual Critical Illness policies. This is NOT a group insurance plan, as it does not consist of a single contract with several insured employees. As the employer, you are the owner of the plan and pay the premiums for the individual policies for your employees. These premiums are tax-deductible. Each employee is covered by a policy and is also the beneficiary. The premiums you pay are not taxable to the employee. The employer will determine the type of coverage and amount of the benefit received should an employee be diagnosed with one of the covered illnesses.
Advantages for Employers and Employees
Premium deductible as an expense
Non-taxable benefit where employer pays premium for employee
Way to reward current employees and attract new ones
Should a claim be made, the benefit is not taxed
Opportunity to offer a product not widely offered through group insurance plans
If the employee changes employer, the employee can assume the policy by continuing to pay the premiums at the same cost and with no modifications to the policy
For more information please contact us at (604) 687-7773 or email email@example.com