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Use Life Insurance to Enhance Your Retirement

Life insurance is typically thought of as something that only benefits your family, not you.

Although the above statement is accurate, it can also benefit you…today. Many Canadians have used life insurance to supplement their retirement income through what’s called an “Insured Retirement Program” (IRP). An IRP is a financial planning strategy that usually offers tax-free supplemental retirement income through tax-exempt life insurance.

Typically with an IRP, the client buys a permanent life insurance policy (for example Universal Life or Whole Life) and deposits monies above and beyond the premium charges associated. The excess annual deposits are invested and benefit from tax-deferred growth. Upon retirement, the insurance policy is used as collateral to secure a loan through the bank, set up much like a Line of Credit. The lender then provides the borrowed funds tax-free to the client to supplement their retirement income.

Your Take-Away: If you are looking for a way to supplement your potential retirement income, have come close to maxing out your RRSP’s or simply don’t like them, and need a place to put some extra cash above and beyond your RRSP savings, this may be the perfect strategy for you.

If you fall into any of the above categories, you could benefit in the following ways:

Again, this is not a one size fits all strategy, but it can be very useful for those in specific situations. After all, it’s always better to save a dollar in tax then to increase your income by a dollar, isn’t it?

Until next time, have a Magnificent Monday.

Chris & Elisseos

is Now a Good Time for a Variable Rate Mortgage?

One of the most common questions we are asked when it comes to choosing a mortgage is “Should I go with a fixed rate or variable rate mortgage?”

With what he have seen over the last six months, and specifically on Tuesday of this week, a variable rate mortgage seems to continue to make more and more sense. I can say in my own personal experience that my mortgage payment has decreased by over $200 since November and prior to Tuesday’s Bank of Canada decision, and will drop yet again based on my choice to choose a variable mortgage. The question remains however, is it right for you?

Your Take-Away: Before you decide one way or the other as to which type of mortgage you will choose, it is important to explore more then just your cash flow needs today. It would be worth your time to seriously consider the following questions:

Although these questions won’t necessarily give you an exact answer in terms of what type of mortgage to choose, they will help you to explore some of the issues you may be forced to deal with if the current rates were to change abruptly. We believe that a variable rate mortgage can make a lot of sense for a lot of people, but by no means is it a one size fits all product.

Until next time, have a Terrific Tuesday.

Chris & Elisseos

RRSP’s Can Create a HUGE Tax Burden

It is commonly accepted that RRSP’s are the single greatest investment vehicle for Canadians saving for their retirement.

A recent article was just written talking about the substantial tax burden that RSP’s can create during your retirement years. In the article, Frank Witington states “Many people approaching retirement have been savers all their life. When they go into retirement, they don’t increase their spending, they just reduce their lifestyle.” The real problem with this situation is that the tax burden on your heirs can be significant considering the majority of your RRSP account, and some times the entire amount, will be taxed at the highest level leaving your recipients with a substantial tax bill. 

Your Take-Away: There are a number of strategies that one can take advantage of such as withdrawing larger amounts during your retirement years or even purchasing a life insurance policy to pay the tax bill on your death and thus leave your entire account to your heirs tax free. Additional tax planning can play a big role as you accumulate this asset because there may be other ways for you to actually create a tax deduction similar to your RRSP, and also ensure your investment account is transferred a little more tax effectively to those you care about.

No matter how you cut it, an RRSP can be a tremendous investment vehicle in the immediate future, but don’t forget that with the pro definitely comes a con. Proper planning could potentially save you thousands if not tens of thousands of dollars!

Until next time, have a Magnificent Monday.

Chris & Elisseos

“You’re Broke Because You Want To Be”

I often read personal finance books that appeal to me or grab my attention so that I can pass them along to clients and friends if I believe it to be a good read.

That said, I recently finished Larry Winget’s book entitled “You’re Broke Because You Want To be”. I found the book a definite wake up call and a read that will definitely make you rethink your opinion of money, and of course, the “extra” things we enjoy in our lives. If there is one theme that Larry continues to hammer home, it is that the first and most important step in getting your financial affairs in order is to start taking responsbility for your situation.

Take a quick look at the video below and definitely don’t hesitate to read the book if you feel you could benefit from a bit of a shake up and some practical steps to get yourself back on the road to financial recovery.

Until next time, have a Fantastic Friday.

Chris & Elisseos

What is Critical Illness Insurance?

Recent reports of individuals whose medical costs were not covered through provincial or personal medical insurance plans have caused many to wonder about their financial affairs in the event of a serious illness.

Unlike traditional life insurance that pays a lump sum at the time of death, Critical Illness Insurance (CII) pays a lump sum benefit upon the diagnosis of a critical illness, such as cancer, heart attack, or a stroke. It was designed to help meet the high costs associated with serious illness, and to help you maintain your lifestyle during and after recovery. Upon diagnosis of a critical illness, there is a brief waiting period – often as little as 30 days. Once this expires, the policy pays out a lump sum cash benefit. The choice of how to use the benefit is yours, and it is tax-free.

Your Take-Away: It has been reported that 1 in 4 Canadians will be diagnosed with Cancer prior to their 65th birthday. If you happen to be one of those unlucky Canadians, the last thing you want to have to deal with as a family are the high medical costs that can be associated with getting better. Because your benefit is tax free, you can choose to use your payout in the following ways:

  1. Taking advantage of special treatments, alternative therapies or immediate surgery that may only be available in other countries such as the U.S.
  2. Modifying your home or vehicle to meet any mobility requirements as a result of the illness
  3. Allowing a spouse or family member to take a leave of absence from work
  4. Reducing overall financial stress

This product, although not new, is something that has only recently been gaining significant press in Canada.  I can say without question that this is something you and your family should be looking at in order to protect the financial future of those you care about.

Until next time, have a Terrific Thursday.

Chris

How do Life Insurance Ratings Work?

A fantastic article at Canadian Business Online was posted entitled “Life Insurance: On The Edge”.

The author Dan Bortolotti tells two stories of individuals who applied for life insurance. One applicant was declined for life insurance because of evidence in his medical stating that he may have diabetes which was news to him, that he later confirmed was the case. The other applicant was told he would be heavily rated for life insurance based on his personal hobby of flying planes. The basic premise of the article is that understanding what life insurance companies look for is essential prior to applying for coverage.

Your Take-Away: According to the article, approximately 60% of applicants are provided with standard rates which should be the premium your Advisor or Broker is quoting you. On the flip side, almost 30% of applicants will actually be considered a preferred client and will pay a smaller premium then a standard policy. What’s scary though is that the remaining 10% of applicants will be outright denied coverage or given a rating based on their health.

The long and short is that if you do end up one of the unlucky few that is declined or rated when applying for life insurance, my recommendation is that you shop the market first, and then take your best offer. After all, the insurance company will look at issues such as your own personal health, your personal hobbies and your family history which means they are making a very educated decision. If you’re rated, it’s probably because you need the life insurance coverage more then the average person.

Until next time, have a Terrific Tuesday.

Chris & Elisseos