|Posted on 10 December, 2018 at 16:35||comments (0)|
Parents and Grandparents -
Have you thought about the legacy you will leave for you Children and Grandchildren?
Is leaving a legacy important to you?
I often think about the legacy I will leave behind. I think about how my Children and my future Grandchildren will remember me, and what I would like them to remember me for. I also think about the financial legacy I will leave my family. Not just my children, but my grandchildren, and their children and so on. I would love to be able to impact future generations in a positive way, both personally and financially.
The idea of leaving a legacy comes to mind more often around Christmas, The Season of Giving.
Most gifts we purchase are material and for the immediate, but do we think about the future? Do we think about leaving a lasting gift that will bless not only our children and grandchildren but future generations? I do. If I can, I would love to provide for my children and grandchildren when I’m older and even continue to provide for them when I’ve passed away.
A great proven way to leave a financial legacy – and one that Amy and I personally use - is to give our children / grandchildren the lasting gift of a Dividend Paying Whole Life Insurance Policy.
What Did I Just Say? What Kind of Gift is a Life Insurance Policy? Answer: One of the best possible gifts to give.
Let me explain.
Dividend Paying Whole Life Insurance is a permanent insurance policy, so first things first you’ve insured the next generations. You've protected their income and their future families. That’s a gift in and of itself.
This policy however, is not just a death benefit (which already is a great asset). It also grows cash values every day within the policy which can be used throughout the insureds life. It’s basically a GIC on Steroids (cannot lose value, and guaranteed to grow) that your loved ones can use for education, a down payment on a house, to travel and even to use as tax-free income in retirement. That's right, Tax-Free!
(With Government Debt now at over $664,080,990,000.000 (try saying that 5 times as fast as you can) and Baby Boomers hitting retirement, the words tax-free are becoming more and more important)
This entire policy grows every day. The policy stays in force and grows in value every day. whether the loved one you’ve insured lives until age 45, 85 or 105. When they pass it transfers to their loved ones – a spouse or children, whomever they choose.
You - parent or grandparent - can help the next generations in your family through post-secondary school, buy their first house, travel the world, be prepared financially for retirement, and take care of their future families, all with the gift of a small premium (level premium that doesn’t increase, that can be fully paid in 20 years, and that can be paid monthly or annually) towards a whole life insurance policy.
Think about this: You purchase a small whole life insurance policy on your grandchild when they are 1-year-old. Your children know of the gift you bought for their children. Your grandchild grows up and has a family. Your children buy their new grandchildren a small gift of dividend paying whole life insurance, following in your footsteps. Your own grandchildren use the policy you’ve purchased for them to help fund their retirement and when they pass away their death benefit goes to their kids as an inheritance. Now, their kids use part of that death benefit to purchase a life insurance policy on their grandchildren, and use the rest as they please - opportunity. And the cycle continues. For generations you’ve built a legacy of giving, a legacy of opportunity, and a legacy of family wealth. Years and years after you’ve passed away, you are still impacting your family’s lives. All from one gift! Pretty incredible.
Amy and I are very interested to see how our children will use the life insurance gift we’ve given them and what kind of difference in will make in the lives of them and their future families.
If you’d like to learn more about this gift and how to go about giving this gift to your children and/or grandchildren, we’d love to help. Contact us here.
Merry Christmas and a Happy New Year,
From Fresh Ground Financial.
|Posted on 9 August, 2018 at 0:40||comments (0)|
One of the Most Effective, Underused and Risk-Free Money Making Strategies that Everyone Should Use.
Today’s blog is all about one of the best strategies for making money. I will warn you however, that this strategy is perceived negatively by some, mostly due to a misunderstanding of the concept. With that said, if this strategy is structured properly, it is - as the title says - one of the most effective, underused and risk-free money making strategies that everyone should use.
For now, we’ll use a few letters to name this strategy - DPWLI. So what makes this DPWLI strategy so great?
1) Guaranteed Growth that actually gives a decent return.
The most frustrating thing about investing is that we generally have to risk our money in the markets if we want a return that keeps up to, or surpasses inflation rates. If we do not want to risk our money, our best option seems to be GIC’s. GIC’s usually give a return somewhere around 2%. Inflation rates are around 3%. With GIC’s, we are losing money value.
The DPWLI strategy works likes a GIC on steroids. It offers - over the long term - an annualized rate of return around 4.5%. Now that may not seem all that high but let me explain something. Most people see the Average Rate of Return on their investment statement. But I said Annualized Rate, and Annualized Rate of Return and Average Rate of Return are quite different. You can expect to need an Average Rate of Return of about 2% higher to have the same amount of money in your account as what an Annualized Rate of Return will give you. If you have money in the markets (ex. RRSP’s in mutual funds or index funds), you would need an average rate of return of about 6.5% to match the 4.5% Annualized Rate of Return that the DPWLI strategy offers. You may be thinking to yourself that 6.5% isn’t all that great. That may be true but it’s already better than the return most people are getting. There’s more to consider however… point 2.
2) It’s all Tax - Free
When the DPWLI strategy is structured properly, all the money you take out to use - now or in retirement – is received tax free. No Taxes! At all!
When you have your money in an RRSP, your retirement income is fully taxed. Taking into consideration the tax implications of this type of investment, you would now need an average rate of return around 8.5% over the investment’s lifetime to have the same amount of money in your account as the annualized tax-free 4.5% rate of return that the DPWLI strategy gives you.
Tax Free Savings Accounts also offer tax-free income, but you are significantly limited to how much you can invest in a TFSA, and you need to find a place to put your TFSA. Most people leave their TFSA at the bank gaining 2% (again, losing value). If you have your TFSA in the markets, you are dealing with the risk of loss.
3) You can use it during your life time and the value keeps growing.
One of the most amazing things about the DPWLI strategy is that you can use the money that has grown using this strategy without losing the value of the investment.
Albert Einstein said “Compounding interest is the 8th wonder of the world. He who understands it, earns it… he who doesn’t, pays it.”
I think most of us understand this statement to some degree. None of us like taking money out of our investments (our RRSP’s, TFSA’s, etc.) because when we do, we are taking away the opportunity for our money to grow on itself. We are depleting the value and potential of our investment. We do not want to do that. This leaves us with two choices to ensure that we have money to deal with emergencies or issues that come up, or for opportunities that arise.
The first option would be to save money in an emergency or savings fund.
The problem with this strategy is that we now have a pool of money that is not working for us. This “emergency” fund is just sitting in an account making 1%, waiting for something to happen.
The second option is to borrow money from the bank.
There are a few problems with this strategy. First, we need to qualify to borrow from the bank. Second, the bank controls the whole arrangement. You’ll have set payments and interest to pay. And finally, plenty of issues arise if something unfortunate happens and you cannot continue your monthly payments, even if only for a short period of time. Your credit score will drop, and you will start paying interest on interest on interest.
With the DPWLI strategy, you are in control. You can use the money that you have gained and the value of your fund does not decrease. It actually continues to grow in value, even if you have used it. The principal of your investment continues to grow interest on interest on interest, increasing the value of your policy and you can use that money for emergencies or opportunities. This strategy relieves you from the need to have an emergency/savings fund, and helps you avoid the bank for loans.
4) The moment you put any money into the DPWLI strategy someone you care about is guaranteed to receive a large sum of money - tax-free.
This strategy has an inheritance - a guaranteed death benefit - attached to it.
The DPWLI strategy allows you to grow money at a decent rate in a guaranteed and safe manner. It allows you to receive all the money gained through its lifetime tax-free in retirement and to use that money in your lifetime – for emergencies and opportunities - without losing any value. And it allows you to give people you care about an inheritance.
DPWLI stands for Dividend Paying Whole Life Insurance. Most people view Life Insurance as an expense, but it doesn’t have to be. When your life insurance policy is structured properly, it is an asset. It is an investment, a TFSA account, an emergency and opportunity fund, a retirement account, a legacy for your family. It’s like a GIC on steroids wrapped in Life Insurance. And it’s all guaranteed whether you live till 40, 70, or 105.
To top it all off, the value of your life insurance policy - the death benefit - increases in value every year too.
Now, you may be thinking “what if I wouldn’t qualify for life insurance?”
You do not personally need to be healthy/insurable to use this strategy.
Or maybe you’re thinking “I’m too old for this, it’ll be too expensive.”
Not true. You can still do this with a very small investment amount.
This truly is one of the most effective, safe, predictable, underused, and all-encompassing money making and family wealthy building strategies available.
Interested? Let’s talk.
There is no charge to meet with us, so it’s probably worth it!
|Posted on 25 July, 2018 at 15:45||comments (1)|
Children’s Future Career Choices and their Impact on Insurances.
A few weeks back I helped a client in their mid-twenties apply for $600,000 of life insurance at a monthly premium of just under $30 a month.
This client is a licensed pilot, but currently doesn’t have all that many flying hours and is currently not working for a reputable company.
When the insurance company contacted us with their decision, my client was given two options:
He could continue with the $30 premiums but aviation would be excluded from the policy. This, of course, meant if he passed away while flying the insurance company would not pay the $600,000 benefit.
His other other option was that he could include the aviation benefit in the policy but his monthly premium would increase from $30 to over $200. Yes, you are reading that right - a rate nearly 7 times higher than initially applied for.
This is just one example of an occupation that hugely impacts peoples ability to get good life insurance coverage to protect themselves and their families well. Roofers, Farmers, Construction Workers,Truck Drivers, Firefighters, and Police Officers are just a few of the people with occupations that can cause premium increases or there may be exclusions on their insurance policies.
Many of us teach our kids that they can do whatever they want to, become whatever they want to become. The reality is some of these career decisions can have a major impact building a healthy financial plan and protecting our families when life doesn’t go as planned.
There are many great reasons to insure your children and the ability for your children to choose any career they want, become whatever they want to become, without it impacting their ability to get insurance is one of them. By insuring your children you have ensured that they have insurance coverage for life at a monthly premium that will not increase, giving them the ability to pursue any career opportunity that interests them without it impacting their ability to take care of their future families, if something unfortunate happens.
When your children become adults, you can transfer the insurance policy over to them and they become responsible for the policy. This way you do not have to worry about the policy any longer but you’ve ensured that no matter what your children choose to do with their life, they are insured, and taking care of the ones they love.
If you’d like to learn about the many benefits of insuring your children, We’d love to talk to you.
|Posted on 16 July, 2018 at 10:40||comments (1)|
A few years ago you decided to open a business. It’s been steadily growing since opening day and you’re finally making some money. Maybe you’ve even got a few staff. Things are looking up and the expectations are high for the upcoming year.
You go to the doctor for a checkup and he tells you that you’ve got cancer. There’s a good chance for survival but you must start treatment right away and you realistically won’t be able to work for at least half a year.
Your take a weekend canoe/camping trip with family and friends. You hurt your back, can’t do the required tasks of your job and it takes nine months for you to become healthy enough to work full time again.
What’s going to happen to your business?
Can the business sustain itself without you there?
You are in a partnership and one of the two above scenarios happens to your partner.
Can you handle the work-load by yourself while your partner is away?
Can you afford to hire someone to replace your partner in the meantime?
Your partner passes away.
Do you have a way to buy out their share of the business?
These may seem like unlikely events, but statistically they are not.
Currently in Canada about..
1 in 2 people will be diagnosed with cancer in their lifetime,
1 in 5 will have a heart attack,
1 in 9 will have a stroke.
There is also nearly a 50% chance that someone 40 years of age or younger will go on disability for more than 3 months during their lifetime. If that occurs, the average time on disability is anywhere between 2.5 & 3 years.
When this happens to someone owning a business the consequences can be detrimental and many businesses are ill-equipped to deal with a situation of this nature.
Is your business equipped to handle a situation of this nature?
Have you thought about how to prepare for such a situation?
Did you know there are strategies available to protect your business if something unexpected and unfortunate happened?
There are too many businesses in Canada that are not prepared financially to deal with the fall-out of any of the events above.
Here are a few solid strategies to protect your business from unexpected illnesses, injuries or deaths. A couple of these strategies can even help you build wealth now and for the future.
1) Disability Insurance & Business Overhead Expense Insurance
Disability Insurance protects you - the business owner - if you are unable to work due to an injury or an illness. It typically covers about 60% - 70% of your pre-tax income - tax-free, and will help you continue to cover expenses such as bills, groceries, and family needs. Often business owners are not actually taking much of an “income”, but insurance companies will work with you to ensure your personal needs can be met.
Business Overhead Expense Insurance protects your business. This is great for Sole Proprietors, as you are often responsible for earning much of the business’s profit. If you are unable to work, Business Overhead Expense Insurance covers the monthly expenses for your business - such as wages, office space, and supplies - so it can stay afloat while you are on the mend. Having Business Overhead Expense Insurance ensures that you do not need to dip into your savings or increase your debt load to maintain the business while you’re injured or ill.
2) Shared Ownership Critical Illness Policy
This is a great financial strategy for a business to protect the business owner, and to receive retained earnings tax-free in the future.
Personal Critical Illness policies pay a large lump sum of money when the insured person has a Critical Illness. The major four illnesses are Cancer, Heart Attack, Stroke, Coronary Artery Bypass, but about 25 illnesses are covered under these policies.
With a Shared Ownership Critical Illness Policy, the policy is jointly owned by the corporation and the business owner. Both parties share in the monthly premium payments, but the corporation pays the majority of it. Because you are both the corporation and the owner, this strategy allows you to benefit financially, no matter what the outcome.
The three possible outcomes to this strategy are:
If the owner is diagnosed with a Critical Illness, the corporation gets paid the large lump sum of money.
If the owner passes away, the corporation gets their premium payments paid back to them, in full.
If the owner stays healthy for a set period, say 15 years, the owner will receive all of paid premiums back – both the corporations share and their own – tax-free.
Using this strategy, you protect your business financially in the case you get ill, if you pass away your corporation does not lose a dime, and you’ve created an opportunity for yourself to receive your retained earnings as tax-free income in the future.
3) Dividend Paying Whole Life Insurance
A properly structured Dividend Paying Whole Life Insurance policy acts like a guaranteed tax-free GIC on steroids.
This is a great strategy for business owners to protect their families, to build a tax-free pension for themselves, and to finance their needs - personal or business - throughout their life without dealing with a bank.
How it works:
Once you’ve purchased this life insurance policy, your family is automatically guaranteed a death benefit. It is a permanent insurance policy, so if you pass away - no matter what age you are - your family or other loved ones are provided for financially. Your policy will also be earning interest and dividends, so your death benefit is guaranteed to grow every year.
In the meantime, cash values (savings) are also guaranteed to grow within your policy on daily basis, which can be used throughout your life for emergencies, business or investment opportunities, and anything in between.
Come retirement time these cash values can be withdrawn against your policy - tax-free. Your pension.
This can be structured so all premiums are paid through the corporation but you, the owner still have all the control.
4) Immediate Financing Agreements
Lots of business owners like the idea of, or at least know they should have life insurance but would rather put their earnings back into the business instead of using it to protect themselves.
An Immediate Financing Agreement allows you to purchase a life insurance policy but receive the entire annual premium back immediately to invest in your business at a low interest rate from the bank.
This is an awesome strategy for all business owners that qualify, as it ensures that you are insured and that your family and business are well protected. The insurance policy is creating a healthy tax-free pension for you in the form of cash value growth, which we spoke about under strategy 3. Every dime that you paid into the insurance policy as a premium payment, will also be immediately given back to you to use for, and grow your business.
5) Funding Buy-Sell Agreements.
Insurances - especially Disability Insurance and Life Insurance - can and should be used for buy-sell agreements for businesses with partnerships. Many businesses will have buy-sell agreements in place in preparation for unexpected situations, but do not actually prepare for how to fund these agreements.
If your partner passes away, do you have the cash to buy out their shares?
Do you have a plan in place to buy out your partner if they become disabled and can no longer function in their leadership role?
Purchasing Insurance policies on partners is a simple and wise way to fund buy-sell agreements.
Bob and Jane each own 50% of their business worth $500,000.
Bob buys a policy on Jane for $250,000, making himself the beneficiary. J
ane unfortunately passes away. Bob receives the $250,000 benefit to buy out Jane’s shares of the business and provide for her family.
This of course would also be done by Jane, in the case that Bob passes away.
Protect your Business
It is hard work to start a business, to make it sustainable, and then successful. It’s tough to watch people go through so much to create and sustain a business they love, only to see it disappear because they were unprepared for an unfortunate event like an injury or illness and didn’t have the cashflow to hold it together. And it happens all too often.
When we meet with clients and their families to build a healthy financial plan, one of the first things we tell them is that their greatest asset it not their house, or their business, or their car. It’s their HEALTH!
Without your health you are unable to work, to bring in an income and provide for yourself and loved ones around you. The foundation to any healthy financial plan should be insurances, because insurances protect what you already have and ensure that an income is always coming in, even if you can’t provide it.
It’s the same for your business. Protect what you have.
I love watching small local businesses pop up and grow. I also hate watching them fail. This is especially true when it could have been avoided by simply protecting the themselves and their business.
If you’d like to learn more about these strategies, we’d welcome the opportunity to sit down with you to discuss how you can protect yourself and your business, save some taxes and interest, and build a tax-free retirement income.
|Posted on 29 May, 2018 at 14:30||comments (0)|
Your Financial House
Part 1: The Secure Foundation - Insurances
As most of us already know, building a house upon a strong foundation is important. I recently read an article about building a house that read: “A proper foundation does more than just hold a house above ground. It also keeps out moisture, insulates against the cold, and resists movement of the earth around it. Oh, and one more thing: It should last forever.. without a good one, you’re sunk!”
When it comes to our financial houses, the foundation to build our house upon is the personal insurances. These insurances are Life Insurance, Critical Illness Insurance, and Disability Insurance. Just like a proper foundation of a house allows it to stand strong when elements out of its control are happening around it, insurances allow our financial houses to stand strong when things we cannot control happen to us and around us. And as we all know life doesn’t often go as planned and things that we don’t want to happen, happen all the time. If are foundation isn’t built properly - just like a house without a proper foundation - we’ll be financially sunk.
The role of all three insurances is to protect you, your family, your income, your current lifestyle, and offer you financial stability in the midst of hardship. Most people view insurances as an expense but they really are investments in yourself and your family, ensuring financial stability no matter what happens. And the younger you get them cheaper they will be.
Life Insurance is designed to protect your loved ones in the case you pass away. This applies to both the income earner and the stay-at-home parent. The stay at home parent does a lot of work that has ecumenic value, and thus replacing their efforts would cost a significant amount of money. Would the income earner be able to afford those extra costs? The wage earner makes a lot of money in their lifetime. How will the family live without that income for years to come? A good rule of thumb for life insurance is 10 x ones annual salary plus all debts owed. Realistically, the rule of thumb is still not enough to match most peoples economic value.
Term insurance is cheap to start but gets expensive later on in life, however, often we need a lot of insurance when we’re young and this can be a great way to make sure your family is well protected at a affordable cost. Permanent insurance lasts forever - like a strong foundation should - and it grows in value every year if properly set up, so this is can also be a really great option.
Death is mandatory, so ensuring you have a well valued life insurance policy is a good way to start building your strong foundation.
Disability Insurance (DI) is designed to protect you and your loved ones in the case you cannot work due to a disability or critical illness. Stay at home parents unfortunately do not qualify for DI, but it would be very wise of the wage earner to ensure they have a disability policy that covers their income. DI pays 60 - 70% of ones gross monthly income tax free, on a monthly basis. This ensures that ones needs and expenses can be met whether it’s groceries, bills, daycare costs etc. Six months of disability can wipe out 5 to 10 years of retirement savings. Having a monthly income from an insurance company helps protect those savings or prevents going into debt, when your typical paycheque is not available.
Critical Illness Insurance (CI) - just like DI - is designed to protect you and your loved ones in the case you are diagnosed with a critical illness. Cancer, Heart Attack, and Stroke are the 3 major illness but most policies will cover 20 - 25 different illnesses. This pays out a lump sum of money (starting at $25,000) when diagnosed with a critical illness. This lump sum payment allows you and your loved ones to cover the costs of the illness without having to use regular income, retirement savings, or borrow. You can use the money however you choose: pay for medications, for personal care, travel for specialized treatments. It can also allow a loved one to take time off work to support and provide care without having to worry about their own income. A good rule of thumb for CI is 1 to 2 times your annual salary and - if set up properly - CI can last forever, and if you don’t ever use it your family can receive all the premiums back - meaning that in the long run you haven’t lost a penny.
When something unexpected happens insurances provide financial stability, allowing us to continue paying off debt, meeting todays’ needs, and saving for the future. It also allows us to deal with the emotional turmoil of such an occurrence without having the financial stress. When uninsured or under insured, an unexpected illness, disability, or family death can have a tremendously negative and lasting impact on our finances.
Session 1 of our Summer Series Financial Planning for Young Families will dive deeper into all three of these insurances, and more. Check out the Financial Education page for more information and to register.
|Posted on 27 April, 2018 at 16:55||comments (0)|
*Note* - Our next 4 session Free Financial Education Courses are starting May 2 in Steinbach and May 17 in Winnipeg. Head to Financial Education tab for more information and to register.
Live Life Prepared
The True Value Of A Death Benefit
MAY 1, 2017 NOAH KELSCH
My perspective about life insurance was changed forever when I was looking up into the faces of my family from a hospital bed. We didn’t know if I was going to make it one more day or live to see my next birthday, let alone having a long life. I had been diagnosed with cancer and was in the hospital receiving a bone marrow transplant. For anybody who doesn’t know, that’s a one-way street. You either make it or you don’t. During my stay in that wing of the hospital where they only do bone marrow transplants, four other patients didn’t walk out.
One of the things that was weighing heavy on my mind was how my loved ones’ lives would change if I never made it out of this hospital. What standard of living was my family going to have if I wasn’t there to provide an income? At that time, more than any other in my life, I realized that, although I had provided a good living for my family throughout, I had neglected to protect my family in the event something happened to me.
Often, when life insurance is considered, it is mistakenly put in the same camp as other types of insurance, ie. Auto, home, disability, health etc. Here’s the thing – all other insurance is based on the “possibility” of a loss. Auto: in case there is an accident. Home: in case there is a fire, flood or earthquake. Health: in case we get sick.
I have never met anybody that got out of this life alive. We are guaranteed to die. It’s just a matter of time.
So why is it that when it comes to insurance, while the greatest majority protect their homes, cars and health with insurance, far less cover the event that is guaranteed to take place?
It’s like placing a bet where you know the odds of winning are 100%. It probably has something to do with the human genetic makeup and the fact that a part of our core survival mechanism is to deny our own mortal fragility and the fact that any one of us could die at any time for a multitude of reasons. This outlook is for the best, as it would be pretty bleak if everybody just waited for the inevitable to happen.
What if we took a different approach to life insurance? What if we approached it from an abundance mindset, rather than a mindset of fear?
If we were to look at the death benefit as a way to protect our loved one’s standard of living, whether we are with them or not, then we could justify owning enough life insurance on ourselves and our loved ones that they would not have to struggle financially in the event of our “sooner than expected” passing.
Instead of “Till death do us part,” we take the approach of “In life and in death.” Perhaps, the first thing we would look at before we buy that first house together, is to own adequate life insurance that we can both stay in the house, even if something were to happen to one of us.
Life insurance is something you have when you love someone else. It is a gift of love that will be delivered when everything else in life feels chaotic or is crashing down.
It will be the calm in the storm and the path to be able to move forward. It is the peace of mind that allows a family to sleep at night, knowing that the standard of living that they have become accustomed to, will not suddenly disappear without warning. No one will ever get rich from a death benefit. The allowed coverage is based on one’s ability to earn over a specified period of time and is a multiplier of income. That means it is NOT possible for a person to be “over-insured.”
|Posted on 21 February, 2018 at 17:05||comments (0)|
So you’ve bought yourself a house and you need insurance to ensure your loved ones can cover the cost of your mortgage in case you pass away. It only makes sense to get Mortgage Insurance. It’s easy to get, after all. The bank just gave you a Mortgage and they are now offering you Mortgage Insurance. All you have to do is fill out a small form and there you have it, a Mortgage Insurance policy. You are now insured.
This is a regular occurrence for those buying a house. And it’s not all bad. It’s important to have insurance. Mortgage Insurance financially protects those you care about in the event you pass away. It helps them cover a huge financial expense. And I do believe everyone should have insurance, but my question: Is Mortgage Insurance the best option?
I would suggest that rather than purchasing Mortgage Insurance, instead you consider purchasing your own personal Life Insurance Policy.
Here are 3 major reasons why - if you’ve already got Mortgage Insurance, or are planning to get Mortgage Insurance - you will be better off by switching to or choosing Life Insurance instead.
Life Insurance Is Cheaper
A Term Life Insurance policy is almost always cheaper (sometimes significantly cheaper) than Mortgage Insurance.
One simple reason: Underwriting.
Underwriting is the process that Insurance Companies go through to assess your health. This includes a health questionaire and maybe some minor tests, including blood and urine (these tests will happen on larger policies). They do this before they offer you a Life Insurance policy, so they know what kind of risk you are to them. This way they know the likelihood of needing to pay out the benefit and can offer your an accurate rate. If you are healthy, your life insurance policy will be cheap because the insurance company knows that your risk is low.
Banks do not underwrite beforehand. They do not know what kind of risk you are to them. Because of this they increase the cost of the monthly premiums. They have no idea if you are healthy or not and putting them at more risk. More risk equals more cost.
This process alone makes a huge difference in the cost of your policies. We have had clients switch from a Mortgage Insurance Policy to a Life Insurance policy and their monthly premiums were nearly cut in half.
We all love a good deal.
You walk past your two favourite stores. You can only go into one. Store 1 has a 40% to 50% off sign in the window. Store 2 does not. Which store do you choose?
The first and most obvious reason to choose a Life Insurance policy is because it’s going to save you money.
2) Life Insurance Has A Greater Benefit Value (most of the time)
What many don’t realize when they purchase Mortgage Insurance is that the policy's benefit will decrease in value as your mortgage value decreases. Now, if you have mortgage insurance through a credit union this may not be the case, but generally it is.
The Diagram Below Compares the value of a typical Mortgage Insurance Policy and a personally owned Life Insurance Policy.
With either policy - Mortgage Insurance or Life Insurance - your monthly premiums will stay the same over the course of the term (but again the Life Insurance premiums will likely be significantly cheaper), however you’ll notice that the value of the policy differs dramatically.
In the diagram example, you've got a $100,000 Mortgage Insurance policy (we're using easy, low numbers). As your mortgage value decreases (The blue dotted line), the value of your Mortgage Insurance policy also decreases (The solid red line).
Let’s say you pass away in year 19 of your mortgage. Your initial $100,000 mortgage now only has a value of $60,000, the bank receives $60,000 but you’ve been paying the same monthly premiums for 19 years.
With a personally owned Life Insurance policy of $100,000 the policy value will not change (the solid blue line). The policy keeps a value of $100,000 throughout the entire term.
So just like with the Mortgae Insurnace example, it's year 19 of your mortgage. Your mortgage now only has $60,000 left and you pass away. With your own personal Life Insurnace Policy your beneficiary receives the full value of the policy - $100,000.
This leads us to point number 3.
*Side note: Can you believe that mortgages are so front loaded with interest that 19 years into your mortgage you could still have over half your house to pay off? There are other options. We'd love to discuss them with you.*
3) Life Insurance Gives You Greater Flexibility
Because your Life Insurance policy does not decrease in value and YOU get to choose the beneficiary (with Mortgage Insurance the bank is the beneficiary) there is much more flexibility for those with such a policy. Your beneficiary could be your spouse, a child, your parents and the beneficiary(ies) you choose decide what they would like to do with the money they receive.
So let’s go back to the example where your mortgage now only has a value of $60,000.
With Mortgage Insurance, the bank gets the money and that’s that. Your loved ones receive nothing.
With your own personal Life Insurance policy the beneficiary of your choice will receive the full $100,000. They can choose to use $60,000 of the benefit to pay off the rest of the mortgage if they want too. If they do that they would be left with $40,000 to invest, to replace the income they lost in your absence, or go on vacation. The choice is theirs. If they are able and would like to continue paying the mortgage payments, they could do that aswell and keep the entire $100,000 for themselves to do whatever they want with it. Your beneficiary of choice has all the control as to how they use the benefit they’ve received.
Owning a personal Life Insurance policy offers you cheaper premiums, a greater death benefit value, and greater flexibility, so we would encourage everyone to go this route.
Mortgage insurance is a better option than having no insurance though.
For those of you who already have Mortgage Insurance, switching is Life Insurance is a fairly easy process. The steps are 1) Apply for your own personal Life Insurance policy with an Independent Insurance Broker. 2) Cancel your Mortgage Insurance policy, BUT ONLY once your Life Insurance policy is in place.
Another thing to note: Because there is no underwriting done prior to being given a Mortgage Insurance policy, receiving the benefit can be much more difficult as well. We encourage you to click on the the link below and watch the 2 videos on Mortgage Insurance for more information on the difficulty of receiving Mortgage Insurance claims.
If you have any questions, if you would like to learn more about Life Insurance, or if you would like to apply for a Life Insurance policy, we would love to assist you.
|Posted on 14 December, 2017 at 0:30||comments (1)|
Your Financial Foundation
Most Financial Advisors will tell you that protecting yourself with insurance is the first step when building a healthy financial plan. We at Fresh Ground Financial like to call it the foundation of your financial house. Just like you would build a house on a strong foundation, you want Insurances to be the strong foundation to build the rest of your financial plan upon. They are what keep your financial house standing, yourself and your loved ones taken care of when life throws things at you that you might not be expecting.
When most people think of purchasing insurance, they think of insurance in case of death – Life Insurance. In the unfortunate case that you would pass away prematurely, your loved ones will receive a death benefit, giving financial stability during an emotionally difficult time. This is a good start. If one thing is certain it’s that we are going to die at some point, so life insurance is a key piece of the foundation to your financial house.
But where is the money coming from if something unfortunate and unexpected happens to you, and you live? What if you become disabled? What if you are diagnosed with a disease? What if these things force you out of work? What will you do then? Do you have enough savings to keep your family afloat? Do you have other means of monthly income? How are the bills going to get paid? How are the groceries going to be purchased?
Statistically speaking 7 of every 10 Canadians - at some point in their life - will be diagnosed with cancer, have a heart attack, or have a stroke and nearly 1 in 2 Canadians 35 years of age or under will be disabled for at least 3 months in their life time. If the disability lasts longer than 3 months, the average length of time off is about 3 years. These statistics alone – I believe - make it a very good idea to have answers and a plan for the questions I asked above, and even more so if you know someone who is a part of these frightening statistics.
Disability Insurance and Critical Illness Insurance could be the answer for you. They are a vital part of a strong financial foundation as they ensure that a pay cheque continues to be received to take care of yourself and your loved ones, even if the unfortunate and unexpected happens.
So what do these insurances do for you and how do they work?
Disability Insurance is designed as pay-cheque insurance to help you cover your regular expenses if you ever become disabled. If offers around 60% of your gross income, tax-free on a monthly basis. This insurance is there to help you continue to pay your mortgage, your vehicle payments, your groceries, clothing, heating etc. when you no longer have an income yourself to provide for these regular needs.
Some people will argue that Disability Insurance is unnecessary because they have Workers Compensation, however only about 5% of Disabilities happen while at work. The other 95% happen while you’re fixing something on your house, playing in the park with your children, enjoying your extra-curricular activities.
Critical Illness Insurance
Just like Disability Insurance, Critical Illness Insurance is insuring your pay-cheque. However, unlike Disability Insurance – which is designed to cover your regular household expenses – Critical Illness Insurance is designed to cover the costs of the illness without dipping into your regular income or savings.
Critical Illness pays out a lump sum of money if you are diagnosed with an illness. This insurance covers between 20 and 25 illnesses but over 80% of claims are for Cancer, Heart Attack or Stroke. The costs that come with these illnesses can be tremendous and having Critical Illness Insurance can help you pay for things like home care, extra medical costs, travel for specialized treatments, whatever you need really.
So often people will head back to work much too early after becoming disabled or ill because they cannot afford to take time off work. Having Disability and Critical Illness Insurance will allow you to take the time you actually need to recover from your disability or illness because your household will be financially secure.
Our Greatest Asset:
One thing we always must remember when making our financial plan is that our greatest asset is our health. Without it, we are unable to provide for today, never mind financially prepare for tomorrow.
We insure our house, our car, our cellphones, the things our pay-cheque purchases but do we remember to sufficiently insure the person providing that pay-cheque? Do we have a plan to continue paying for those things if the pay-cheque every stops coming? It’s worth thinking about.
Taking a few extra bucks each month to ensure that no matter what life throws your way you and your loved ones are financial secure, may in fact be the one thing that keeps your financial house in order. While most of us expect to live healthy and vibrant lives until we are 80, 90, 100 years old, it’s very rare that life goes exactly as planned. Critical Illness and Disability Insurance take care of you when it doesn’t.
I hope this offered some helpful insight to you.
We would love to help!
If you are interested in learning more about Disability and Critical Illness Insurance, we’d love to help you learn how to protect yourself well today so that you can prepare well for tomorrow, no matter what happens.
|Posted on 20 October, 2017 at 16:20||comments (0)|
Hi, It’s Brendan here.
My wife Amy and I have two young children. Our son Wyatt is nearly three years old and our daughter Oakleigh is 10 months old. We purchased a life insurance policy on Wyatt just before he turned one year old and will be purchasing the same type of policy on Oakleigh in the next few weeks.
Lots of people wonder why we would decide to purchase a life insurance policy on our children when they are so young. Aftrer all, it kind of seems like a waste of our money. Those thoughts are fair, and at first glance I'm sure it does seem a bit strange to insure someone so young, but I believe there are many good reasons to insure your children as early as you can, and you can read them below:
1) They will be insured for Life
When we purchasea Life insurance on our kids, we purchase a permanent life insurance policy on them. This means that the policy lasts forever and the death benefit is guaranteed to be paid out. With childhood cancer and other childhood illnesses constantly increasing, no matter what might happen, Wyatt and Oakleigh will be insured for life. This protects them from the risk of every becoming uninsurable, prior to having a life insurance policy.
Because they are insured for life, the beneficiaries named on the policy receive the full death benefit no matter what age they pass away, whether it be at age 23, 50, or 95. This means that buying insurance on our children is also protecting and supporting their future families.
2) The cheapest Insurance they will ever get
The younger you insure your children, the cheaper it will be. Insurance will not be cheaper for anyone tomorrow because tomorrow everyone is one day closer to passing away. This cost only increases with age.
Buying Life Insurance on really young children is a cheap way to protect them for life and to ensure that when they have families of their own, they will be protected and taken care of financially. This is especially important when they still working and providing for their family.
3) You can buy an insurance policy that’s worth only a little, but it can grow to be a worth a lot.
if you structure your policy properly, the value of their life insurance will grow every year.
We'll use an example of a properly structured policy with a $35/m premium, that has a starting death benefit value of $27,000, on a child who has not yet turned the age of 1. If you continue to pay your premiums every month using a properly structured Life Insurance policy, by the time your child is 20 years old their death beneifit could be worth $90,000 and by the time they reach 60 years of age, their death benefit could be worth over $300,000.
Another advantage here is that for only an extra few dollars you can purchase a rider that allows your child to increase the value of their death benefit up to 5 times, to a maximum of $500,000 during their adult years. This means that despite their health, they can increase the value of their life insurance policy at the price of someone who is healthy. I think that is so awesome!
4) My kids can use their policy in their life time – to pay for education, travel, etc.
When structured properly, the insurance company guarantees that the policy my children have will pay a death benefit and that cash values will grow inside their policy that they can use during their lifetime. These Cash values can be used to pay for their university education, to purchase a car, to travel the world, whatever they want. To discuss this idea in detail could get confusing but in its basic form, it acts like a savings account that they have access to throughout their life.
5) I can transfer the policy to my children any time after they reach the age of maturity.
Let’s say in 20 years’ time I decide that my children are responsible enough to take care of thei policy or I’ve just gotten tired of paying the premiums, I can transfer the Life Insurance policy over to them at no charge, giving them full control of the policy and leaving them to pay the premiums. Because they have full control they can choose their own beneficiary and when they use their Cash Values.
As mentioned above, I believe there are many advantages to insuring your children as early as you can. There are definitely more than the 5 good reasons I mentioned in this write up. I didn’t even touch on the tax advantages, the interest savings, or the opportunities a properly structured life insurance policy can offer in regards to retirement income.
If you would like more information on insuring your children or if you want to apply to do so, we can help!
We can even help set these up on adults too, as many of the same advantages are still available in adulthood.
Brendan Peters: [email protected] or 204.996.9271
Merv Peters: [email protected] or 204.415.9074