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Live Life Prepared - The True Value of a Death Benefit

Posted on 27 April, 2018 at 16:55 Comments 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.”

When Should I Start Saving for Retirement?

Posted on 16 April, 2018 at 15:20 Comments comments (0)

I recently read an article about a survey that examined the financial situation of seniors in the U.S. The article opened with this line: "When it comes to building a comfortable retirement, proper preparation is key. But as a new survey suggests, people tend to set aside too little — and realize their mistakes too late.

Below you can read the rest of the article which offers insight into why most American seniors are not set up to have a comfortable retirement and a few things that we can learn from their mistakes to increase our chances at a lifestyle in retirement that we feel comfortable with. Below the article, I'll also offer some insights as to when, how, and where to save your money.

"In its latest poll of 1,000 senior citizens aged 65 or older, US-based student loan platform LendEDU examined the financial situation of older Americans. Among the respondents, 55% said they haven’t saved enough for retirement, 27% felt that they have, and 18% said they weren’t sure." 

The survey also asked respondents to name some financial decisions from their 20s that they regret today. Not saving enough for retirement was the biggest mistake for a plurality of respondents (21%), followed by spending too much on non-essentials (17%), not investing their money (12%), and incurring too much debt (10%).

“I put off starting to save for retirement … until I was a bit over 31 years old,” Timothy Wiedman, a senior and professor at Doane University, told LendEDU. “I justified this by telling myself that I could always "catch up" later on my long-term financial plans after establishing a solid career and seeing my income increase. But the earning power of compound interest is based on time, so an initial delay can have severe consequences.”

One question asked what seniors know or understand about personal finance today that they did not at 25 years old. The top answers included “how to live within my means” (29%), “how to budget” (26%), “how to save for retirement” (16%), and “how consumer credit works” (15%).

Because of their lack of retirement savings, many respondents in the poll said they were critically dependent on social security (69.1%) as well as life insurance (46.9%)."

Now while this is an American survey, I would suggest that we as Canadians are in a similar situation. Currently, the average debt for Canadian seniors is around $15,000 (not including mortgages), 30% of retirees report growing debt, and government data shows that the number of Canadians working past the age of 65 continues to rise. 

Here are a few thoughts for everyone - whether you are 20 or 50 - that can help you be better prepared for retirement. 

1) Start Saving Now -  55% of the survey respondants said they had not saved enough for retirement. Start saving. The earlier you start saving for retirement the better. As mentioned in the article "The earning power of compound interest is based on time, so an initial delay can have severe consequesnces." The more time you give your money to work, the more it will grow. 

2) Pay Yourself First. Try to save 10%. The more you save, the more prepared you will be. Warren Buffet said "Do not save what is left after spending, but spend what is left after saving." Paying yourself first is key. Make saving money for yourself your first priority. You'll thank yourself later. Warren Buffett also said "If you cannot control your emotions, you cannot control your money." Take control of your emotional spending (a coffee here, a burger there, whatever it may be) and make saving for yourself a discipline. 

3) Grow your money in places that offer Tax Free Retirement Income as much as possible. Many people love the idea of saving on taxes now by putting money into RRSP's, but you are actually just  deferring your tax bill. If you plan to have a similar or better lifestyle in retirement as you have now, and all your retirement income is taxable, you could pay all the taxes you "saved/deferred" back to the government in only a few years. And in retirement you'll likely no longer have all the other deductions that you do now. Research has proven over and over again that people who have at least a portion of their retirement income coming to them guaranteed and tax free are happier and live longer. 

It can be difficult to think about retirement in our younger years (20s to 50's) as we've got other things to worry about like buying a house, raising kids, building our business, and enjoying what we have. These are all valid, but I would bet the last thing we'd like to do is take a pay cut come retirement.  I think most of us would rather continue in retirement with a similar or better lifestyle to the one we had during our working years. 

If you'd like to chat about some good strategies to prepare well for your future years, we'd be glad to help. 



Why You Shouldn't Get Mortgage Insurance (and if you have it, why you should get rid of it)

Posted on 21 February, 2018 at 17:05 Comments 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.

Why?

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.
http://www.freshgroundfinancial.ca/mortgage-insurance

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.

Disability Insurance. Critical Illness Insurance. Why Bother?

Posted on 14 December, 2017 at 0:30 Comments 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?

The Stats

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

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.

 

The Many Advantages of Insuring your Children

Posted on 20 October, 2017 at 16:20 Comments 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

Or

Merv Peters: [email protected] or 204.415.9074

A will? Who needs that?

Posted on 17 April, 2017 at 14:50 Comments comments (1)

About half of Canadians do not have a will. By doing no planning, a person gives the province the right to decide how things should proceed and how things will be distributed. This is not a healthy approach.

Without proper planning, you have left a mess for your loved ones to clean up.


As is the Canadian way, if you die without a plan, the government creates one for you.

Drawbacks of dying without a plan:

You have no personal control over the distribution and subsequent use of your property.

You have no control over the naming of an executor (the person legally authorized to handle your estate).

You have no opportunity to appoint a guardian for minor children.

Your estate will still have to go through the probate process.


If there are people in your life who you love, one of the greatest gifts you can give them is to have all of your affairs dealt with in a well designed and organized plan long before something happens to you.

BEWARE of Bank Offers!

Posted on 6 March, 2017 at 18:05 Comments comments (0)

We are all aware that banks know how to make money and they make a lot of it.

For those of you that have attended my course, you know that I make comments to the fact that banks may not be working in your best interest. They are a business and a business tries to be as profitable as possible. The bank generates most of its profits from us, the consumer.

I have also commented that it is not the person at the counter helping you that is the issue. They are simply doing what they have been asked to do. They are part of a large system.

I have included a link to an article that highlights this issue. This was making the news this morning. Bank employees are under pressure to sell products and services that do not really benefit you or that you do not need. I personally know of people who have left the banking industry because they felt they were always under pressure to sell. What they were asked to sell may not benefit the consumer but would generate additional revenue for the bank.

As one teller states - "I will do anything I can to make my goal." If the goal isn't met, it can mean the end of their employment.

It's a long article but well worth the read.

Here's the LINK

Fresh Ground Financial - Money Minutes: One

Posted on 4 March, 2017 at 19:25 Comments comments (0)

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