Retirement- Are You Prepared?

Whether you are decades away from retirement or if it is just around the corner, being aware of the planning opportunities will take the fear and uncertainty out of this major life event.

Blue sky your retirement plans to get clarity

As you approach retirement, preparation and planning become extremely important to help ensure that this period of your life will be as comfortable as possible. If you are like most, you have spent considerable time contemplating the type of retirement you wish for yourself.

• Is extensive travel your dream?
• Do you have an expensive hobby or two you want to take up?
• Will you stop working totally or continue to do some work on your own terms using your life experience and skills to supplement your income.
• Will you remain in your house or will you downsize to smaller, easier to care for premises? Or perhaps housing that will be more compatible with the challenges of aging?

There are many lifestyle issues that need to be considered but to realize these dreams you must also be really secure in retirement, so the financial issues must be planned for as well.

The big question – How much will I need to retire?

Recent studies reported that middle and upper middle class couples spend approximately $50,000 to $60,000 per year in retirement. If this seems a lot lower than what you and your spouse are spending now, it probably is. That is because most retirees no longer have the same level of expenses around housing, education and raising a family.

The average age for retirement in Canada for males is age 62 (females, age 61). At that age, normal life expectancy is another 22 years. Many financial advisors use a rule of thumb that says you will need a nest egg of approximately 25 times your post-retirement spending.

The average CPP retirement pension is approximately $7,600 per year or approximately $15,000 per married couple (if spouse qualifies for income at same rate). Assuming a 4% withdrawal rate and adjusted for inflation this means that a middle class couple would require a retirement fund of $875,000to $1,125,000. If you do not qualify for or wish to ignore your government benefits you would require between $1,250,000 and $1,500,000. For those lucky enough to have participated in a company pension plan, you may already have sufficient retirement income.

8 Retirement planning tips

Review your sources of retirement income

Registered plans – including RRSP’s, corporate pension plans,TFSA’s
Government programs – CPP, QPP, OAS etc.
Non-registered investments – stocks, bonds, mutual and segregated funds, cash value life insurance, prescribed life annuities
Income producing real estate – including proceeds from the sale of principal residence if downsizing.

Eliminate or consolidate debt

• Try to avoid carrying debt into retirement. If interest rates rise and your retirement income is limited or fixed your lifestyle could be negatively affected.

Understand your government benefits

• Review what government programs you are eligible for.

Know your company pension plan

• If you are a member of a company pension plan review your pension handbook or meet with the pension administrator to understand what options are available for you. This should include reviewing the spousal survivor options.

Reduce or eliminate investment risk

• Consider reallocating your investment portfolio in contemplation of retirement to eliminate or reduce risk. You may want to shift away from primarily equities in an effort to provide more stable returns.

Protect your savings and income

• Also consider effective risk management to avoid depleting assets in the case of a health emergency affecting yourself or a family member. There are many insurance options available to help you do this including Critical Illness, Long Term Care and Life Insurance.

Know your health benefits

• Determine how you will maintain your dental care, prescription, and other extended health costs throughretirement.

Review your estate planning strategy

• Are you still on track or do modifications have to be made to wills, trusts, tax planning, Shareholder and other agreements?

Tax planning in retirement

Tax planning most likely was part of your investment strategy during your working years and you shouldn’t abandon that now just because you are retired. Tax planning is just as important as it was pre-retirement.

Pay attention to the following:

Mark your calendar for your 71st birthday

• By the end of the year you turn age 71, you must convert your RRSP’s into RRIF’s or annuities. There will be adverse consequences if you do not so be sure to take note.

Defer your taxable retirement income until age 71

• Since your income from your RRIF or registered life annuity is fully taxable try to bridge your income from date of retirement to age 71 using non-registered funds. Your TFSA is a perfect vehicle to accomplish this so try to contribute the maximum (or exercise the catch up) for you and your spouse during your working years. Also, taking income from your segregated or mutual funds will also be an effective way of bridging your retirement income until age 71 at a very low tax rate.

RRSP contributions in year you turn 71
• If you have unused RRSP contribution room you can make a lump sum contribution until December 31st of the year you turn 71. Your resulting RRSP deduction can be carried forward indefinitely and will allow you tospread out the deduction over any number of years reducing the tax on your future retirement income.

Try to avoid any claw backs

• Your objective should be to effectively reduce line 234 on your income tax return –total income. Paying attention to how your investment income is taxed will assist with this. For example, the type of investment income that creates the most total income on line 234 is dividend income which is adjusted for income purposes to between 125% and 138% of the dividend received. This compares with 50% for capital gains and approximately 15% or less for prescribed annuities.

Continue to obtain professional advice

• Continue to work with your advisors to find ways for you to reduce your post retirement tax bill to allow you to keep more dollars in your wallet.

Planning for a healthy retirement both financially and physically will ensure that you can enjoy a long and well deserved retirement on your terms.


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The Estate Bond Growing your estate without undue market risk and taxes

Often we see older investors shift gears near retirement and beyond. Many become risk averse and move their assets into fixed income type investments. Unfortunately this often results in the assets being exposed to higher rates of income tax and lower rates of return – never a good combination.

Or maybe the older investor cannot fully enjoy their retirement years for fear of spending their children’s inheritance.

The Estate Bond financial planning strategy presents a solution to both of these problems.

How does it work?
• Surplus funds are moved out of the income tax stream and into a tax exempt life insurance policy.

• Each year a specified amount is transferred from tax exposed savings to the life insurance policy

In essence, we are substituting one investment (the life insurance policy) for another (fixed income assets).

The result ?
• The cash value in the life insurance policy grows tax-deferred and may also increase the insurance benefits payable at death.

• Since the death benefit of a life insurance policy is received tax-free by the beneficiary this strategy results in a permanent tax shelter.

In other words, there is an increase in the funds available to heirs and beneficiaries after death and a decrease in the taxes payable before death.

The Estate Bond in action

Robert, aged 60,and his wife Sarah, aged 58 are satisfied that they will have sufficient income during their retirement years. They used the Estate Bond concept as a means to guarantee their legacy to their children and grandchildren.

Investment:$30,000 for 20 years into a Joint Second-to-Die Participating Whole Life policy which is guaranteed to be paid up in 20 years

Immediate Death Benefit:$892,078

Death Benefit in 30 years:$2,160,257 (at current dividend scale)

Cash Surrender Value in 30 years:$1,582,934 (at current dividend scale)*

* If surrendered, the cash surrender value would be subject to income tax but there are strategies that could be employed to avoid this tax.Assumes using Participating Whole Life illustrated at current dividend scale. Values shown in 30th year at approximate life expectancy.

Alternative investment in action

Investment: $30,000 for 20 years in a fixed income investment earning 2.5% AFTER tax

Immediate Death Benefit: $30,000

Estate Benefit in 30 years:$1,005,504

It should be noted that obtaining this rate of return in today’s fixed income environment would be challenging.

Additional benefits of the Estate Bond

• The estate value of $2,160,257in 30 years is not subject to income tax
• The proceeds at death, if paid to a named beneficiary, are not subject to probate fees.
• If the beneficiary is one of the preferred class (spouse, parent, child or grandchild) the cash value and the death proceeds areprotected from claims of creditors or litigants during the insured’s life time.
• The use of life insurance with a named beneficiary also results in a totally confidential wealth transfer.
• Robert and his wife can both enjoy their retirement without affecting their family’s inheritance.

The Estate Bond strategy is designed for affluent individuals who are 45 years of age or older and who are in reasonably good health. For those who meet these criteria and have surplus funds to invest, this concept can provide significant benefits and results.

Please call me if you have any questions about the Estate Bond strategy or would like to determine if it is right for you. As always, please feel free to use the social sharing buttons below to forward this article to someone that would find it of interest.


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There isNothingsoCertain as Death and Taxes

Or so the saying goes. This certainly is true in Canada where there is a “deemed disposition” when a taxpayer dies. What this means is that a taxpayer is deemed to dispose of all his or her assets at fair market value immediately preceding death.

How does this affect your assets?

• For certain assets (e.g. stock investments, company shares, revenue property, collectables), if the fair market value is greater than the adjusted cost base then capital gains will result.
• Fifty percent of capital gains are included in the deceased taxpayer’s income.
• Revenue property could also attract additional tax in the form of recaptured depreciation.

There are some exceptions

• Assets which are left to a spouse will have the gain deferred until the spouse dies or disposes of the asset.
• A principal residenceis not subject to capital gains.
• Shares that the deceased owned in a Qualifying Small Business Corporationmay qualify forthe Lifetime Capital Gains Exemption where the first $800,000 of capital gain is exempt from taxation.

Registered Funds receive different tax treatment

RRSP,RRIF,TFSA and Pension Funds

• A spouse who is left registered funds by her husband or his wife may roll those funds into his or her Registered Savings Plan or Retirement Income Fund and avoid paying income tax.
• Registered funds left to anyone other than a spouse or qualifying disabled child are fully taxable as income. Some rules also apply to minor dependent children which involve spreading the tax by purchase of a qualifying annuity for 18 years less the age of the child at the time of acquiring the annuity.
• Amounts paid to a beneficiary of a Tax Free Savings Accountare not subject to income tax.

Other fees and costs

• Funeral and other last expenses;
• Probate fees;
• Administrative costs and possibly legal fees.

Reduce or avoid the impact

Estate planning and life insurance solutions

Freezing the estate which has the effect of fixing the amount of tax payableon assets upon death and passing future growth to the next generation;

• In conjunction with the above, the use of a family trust with the objective of multiplying the number of Lifetime Capital Gains Exemptions on shares in a Qualifying Small Business Corporation distributed to other family members.
• The use of joint accounts. This strategy should be used with careful consideration and professional guidance.
• Effective use of life insurance, both personally and corporately owned, which can provide sufficient liquidity at death to pay taxes with insurance proceeds rather than “hard dollars”. This can be especially true by using JointSecond-to-Dielife insurance which will provide proceeds to pay the deferred tax upon the death of the surviving spouse.

While we often complain about the cost of living, the cost of dying can also be extremely high and could create significant problems for those we leave behind. With sound advice and planning the financialimpact on your family and business partners can be softened and, sometimes, even eliminated.

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The Honourable Bill Morneau, Minister of Finance, recently announced the federal budget for Canada for 2016. We've put together an infographic to outline the highlights of the federal budget and what it means for families, retirees and business owners.

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Estate Planning for Blended Families

Avoid Disinheriting Your Children

In today’s family it is not unusual for spouses to enter the marriage with children from previous relationships. Parents work hard at getting these children to functionally blend together to create a happy family environment.  Often overlooked is what happens on the death of one of the parents. In most cases special consideration for estate planning is needed to avoid relationship loss and possibly legal action.

Typically spouses leave everything to each other and when the surviving spouse dies, the remainder is divided amongst the children.  The problem? Even with the best of intentions, there is no guarantee that the surviving spouse will not remarry and inadvertently disinherit the deceased’s children.

6 Estate Planning Considerations for Blended Families

The Family Home

  • In the situation of the family home being owned by one parent prior to the marriage, the other spouse may consider purchasing an interest in the family home. In this situation, consider owning the home as tenants-in-common to allow for each spouse to manage their interest in the home separately.
  • Provisions can be made in the will for the surviving spouse to remain in the home until the time of their choosing (or death) before passing on the interest to their respective children.

Registered Retirement Savings Plans

  • To take advantage of the tax free rollover from their RRSPs each spouse should consider naming each other as beneficiary. If there are no additional investments or assets to pass on to the children, consider using life insurance as the least costly way to provide a legacy for the children.

Other Assets and Investments

  • If each parent has other assets or investments that could provide income in the event of death, a qualifying spousal testamentary trust could direct that the surviving spouse receives all the income from the trust with the possibility of making encroachments on the capital for specific needs. Upon the surviving spouse’s death, the remaining trust assets will be distributed to the appropriate children.

Choose a Trustee Carefully

With trusts being vital to effective estate planning, careful consideration has to be given as to whom will be a trustee.  For blended families, children of one parent may not be comfortable with the choice of the trustee for their inheritance.  Some situations may call for multiple trustees or perhaps the services of a trust company.

Although effective, using testamentary trusts might result in some children not receiving their inheritance until the death of their step parent.  Life insurance may be the ideal solution.  Proceeds from life insurance will guarantee that the children will be taken care of upon the death of their parent.

Advantages of Life Insurance for Blended Family Planning:

  • Can be an effective way to create a fair division of assets when one spouse enters the marriage with significantly more wealth;
  • Death benefit is tax free and could be creditor and litigation proof;
  • Ability to name contingent owners and beneficiaries (including testamentary trusts);
  • Death benefit could be used to create a life estate under a testamentary trust, providing income to a surviving spouse with the capital going to the appropriate children at the surviving spouse’s death;
  • With a named beneficiary proceeds pass outside of the will so cannot be challenged under any wills variation action;
  • Provides for a significant measure of control and certainty as to when and where the proceeds will end up.

The Elephant in the Room

It is important to remember that whatever planning options are used, total and open communication within the family is essential to maintain family harmony and ensure everyone is aware of the state of affairs.  Full discussion will avoid misunderstandings and reduce uncertainty as to what the future may hold for everyone in the family.

Planning for blended families should involve professional advice in creating solutions that satisfy the objectives of both spouses and their respective children.  Call me if you require help in this area or use the social sharing buttons below to share this article with a friend or family member you think might benefit from this information.

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Ease Your Retirement Worries with Immediate Annuities

The majority of Canadians work hard to accumulate a retirement fund and many are averse to exposing savings to unnecessary market risk after they retire.

In today’s prolonged low interest rate environment, immediate annuities are often dismissed or overlooked as a viable vehicle for providing retirement income. Perhaps they shouldn’t be.

An annuity is an investment that provides a guaranteed income stream for a set period of time or for the lifetime of the annuitant. While annuities may not be for everyone, for those trying to find a way to guarantee income in retirement Immediate Annuities may be the answer.

3 Retirement Risks to Avoid

Outliving Your Savings

No one wants to outlive their retirement fund or leave their surviving spouse without resources. An immediate life annuity either on a single life or a joint life basis could be the answer for those looking to ensure that their monthly living expenses are taken care of for the rest of their lives.

If you are a member of a company or government pension plan, you will have the option of structuring a regular pension income for this purpose and to select survivor options for your spouse.

If your retirement savings are in the form of a Registered Retirement Savings Plan, you have the option of converting your RRSP into a RRIF (Registered Retirement Income Fund) or purchasing an immediate life annuity.  This must be done no later than age 71.

Market Risk and Volatility

While you are drawing income from your RRIF you remain invested for the undrawn balance. Seeking higher yields involves a measure of risk. A downturn in the market, such as what happened in 2008, could prove disastrous to a retirement plan. An immediate annuity is not subject to this market risk.

High Rates of Income Tax

The income you receive from a registered source (i.e. RRIF’s, pension, or registered immediate annuities) is all taxable.

You can use your non-registered savings (such as TFSA’s) to purchase a prescribed immediate annuity which will be taxed at a much lower rate than traditional income producing investments (such as GIC’s, bonds etc.).

There are a number of conditions to be met for an annuity to be prescribed, the main ones being:

  • The owner of the annuity must be the annuitant;
  • The owner is an individual, testamentary trust or spouse, alter ego or joint partner trust;
  • The purchase of the annuity is made with non-registered funds.

Annuity income from a prescribed annuity is a blending of interest and return of capital.  This results in less tax payable.

Changes are coming

Unfortunately, the advantage of prescribed annuities will be greatly reduced after January 1, 2017 as the government is changing the factors in determining the taxable portion of prescribed annuity income.  Existing arrangements will be grandfathered meaning only new annuity purchases will be affected after this date.

Also, as of January 1, 2016, the only Testamentary Trusts that will be allowed to purchase a prescribed annuity are testamentary spouse or common-law partner trusts, or a Qualified Disability Trust.

Retirement Scenario A
Protecting Against Market Risk – Certainty of IncomeConsider the circumstances of John and Mary who are aged 73 and 72 respectively.  They have done well for themselves in accumulating wealth for retirement but, after living through a number of bear markets, they realize that they must stay conservative in their investment approach in order to protect their future income.

They have determined that they require a guaranteed monthly income of $1,800 pretax in order to meet their day to day living expenses.  To give them peace of mind, they purchase an immediate joint life annuity that will pay them $1,800 per month for as long as they live.

John and Mary transfer $344,947 * from their RRIF to pay for a registered immediate annuity providing $1,800 monthly income. This will provide them with a predictable and sustainable income for the rest of their lives. The guarantee income period is 10 years which means if they should both die within this time the balance of the 120 guaranteed payments would go to their beneficiaries.

Retirement Scenario B
Reducing Taxable Income with Prescribed AnnuitiesRoger is a 74 year old widower who has non-registered funds invested to produce income.  He has GIC’s and bonds totaling $250,000 which provide him with an average return of 3%.  This results in $7,500 per year annual income which after tax gives him $ 4,875 spendable income (assuming a tax rate of 35%).

If he were to use the $250,000 to purchase a prescribed immediate life annuity he would receive an annual income of $19,915.* Of this, only $1,255 per year would be taxable.  His after tax spendable income would be $ 18,660 per year.  The income from the annuity would be paid for the rest of his life but should he die within 10 years his beneficiary would receive the balance of 120 guaranteed payments.

By providing lower reportable income, prescribed annuities can also be effective in reducing the chances of a clawback of OAS and Guaranteed Supplement Income payments from the federal government.

8 Key Facts to Know About Immediate Annuities

  1. An annuity can be an important component of a balanced financial plan;
  2. It can provide predictable and sustainable income for the life of the annuitant(s), regardless of market conditions or interest rate fluctuations;
  3. The rate of income provided by an annuity is generally higher than other guaranteed income vehicles;
  4. Annuitants can chose the frequency of their payments and also include indexing to help keep pace with inflation;
  5. Annuities are backed with assets to match the duration of the payments. This means that when interest rates are low, it is possible to lock in higher long-term interest rates with an annuity;
  6. Choosing a guarantee payment for the annuity income means that if the annuitant dies prior to the balance of the guarantee period, the beneficiaries will receive the balance. Otherwise the annuitant receives the income for life;
  7. For those over the age of 65, taxable income from an annuity will generally qualify for the pension income credit;
  8. For prescribed annuities, after January 1, 2017 the government changes in how the non-taxable portion is calculated come into effect and after that date will not provide the significant advantage that they do now.

If you or someone you know shares the concerns of protecting income throughout the retirement years, an immediate annuity might provide a solution to some of those concerns.  Please feel free to share this information with your friends and family.

*Annuity rates shown are those of BMO Life current as of August 14, 2015;
** For prescribed annuities purchased prior to January 1, 2017.
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A Lifetime Gift for Your Grandchildren

The Cascading Life Insurance Strategy

If you are a grandparent wishing to provide an asset for your grandchildren without compromising your own financial security you may want to consider an estate planning application known as cascading life insurance.

How does the Cascading Life Insurance Strategy work?

  • The grandparent would purchase an insurance policy on his or her grandchild and funds the policy to create significant cash value;
  • The grandparent would own the policy and name their adult child as contingent owner and primary beneficiary;
  • The cost of life insurance is lowest at younger ages, allowing the grandparent to establish a plan that allows the cash value in the policy to grow tax deferred;
  • When the grandparent dies his or her adult child becomes the owner of the policy.

What are the benefits of the Cascading Life Insurance Strategy?

  • Tax deferred or tax free accumulation of wealth;
  • Generational transfer of wealth with no income tax consequences;
  • Avoids probate fees;
  • Protection against claims of creditors;
  • Provides a significant legacy;
  • Access the cash value to pay child’s expenses such as education costs. (Withdrawal of cash value may have tax consequences);
  • It’s a cost effective way for grandparents to provide a significant legacy.

Case Study

Let’s consider an example of the Cascading Life Insurance Strategy.  Grandpa Brian is 65 and has funds put aside for the benefit of his grandson, Ian.  He purchases a participating Whole Life policy on Ian for an annual premium of $5,000 for the next 20 years. Brian’s daughter, Kelly is named as contingent owner in the event of Grandpa Brian’s death and beneficiary in the event of Ian’s death.

If Grandpa Brian were to die at age 85, the policy now passes to Kelly with no tax consequence.  The cash value of the policy (at current dividend scale) at that time is approximately $ 154,000 and the death benefit of the policy is approximately $800,000.

As a result of Grandpa Brian’s legacy planning, Grandchild Ian, now age 31, has a significant insurance estate that will continue to grow with no further premiums!

Please call me if you think your family would benefit from this strategy or use the social sharing buttons below to share this article with a friend or family member you think might find this information of value.

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Is it Time for Your Insurance Audit?

Has it been awhile since you last looked at your insurance portfolio?

Are you a little vague in your recollection of all the coverage you have and why you have it?

Are you uncertain as to whether or not your portfolio reflects your current situation?

Just like going to the dentist for regular checkups is a necessary evil, reviewing your financial plan and products on a regular basis is also recommended.  Circumstances can change over time and making sure your protection is keeping pace is a worthwhile exercise.

A comprehensive audit should review the following:

  • Is the total death benefit of your life insurance appropriate to your needs? A current capital needs analysis can help to determine this.
  • If your current coverage is renewable term insurance should the policy be re-written before it renews at a substantial increase? Premiums for new coverage can be significantly lower than the renewal premium of an existing policy.
  • Is your need for life insurance permanent? If that is the case, you should ensure you have at least some of your needs covered by a permanent plan.
  • Are you nearing the end of the conversion period on your term policy? If yes, this may be the time to consider converting to permanent insurance.
  • Is your disability protection in place consistent with your current income? If you have changed jobs does new group coverage impact your personal plan?
  • Are the beneficiary designations still valid for your current situation? Has there been a re-marriage that may require changing the beneficiary or ownership of the current policy?

In addition, the following are important to note:

  • If your policy is a Universal Life policy with cash value are the investment options still appropriate to market conditions and/or your risk tolerance?
  • If the policy is a Whole Life policy are the dividends adequate to now fund the premium should you wish to take a premium holiday?
  • If your policy was assigned to a lender as collateral for a loan and that loan has been repaid make sure the assignment has been removed.
    • Does your existing policy qualify for a reduction in premium?
    • If you have you stopped smoking you may qualify to have the premiums reduced to those of a non-smoker.
    • If your policy was issued with a substandard extra premium and your health has improved you may qualify to have the rating removed.
    • If your policy was rated as a result of participation in hazardous activities, e.g. flying, mountain climbing, heli-skiing this rating can be removed if you no longer are active in these activities.

If the current policy is for business purposes the following should also be reviewed:

  • If the policy was to fund a Shareholders’ Agreement or Partnership Agreement, does the amount and type of coverage still satisfy the terms of the agreement?
  • Are the ownership and beneficiary provisions of the policy still valid for Capital Dividend Account planning?

Reviewing your coverage on a regular basis is recommended.  If you think it would be beneficial to you, call me to arrange a time to do an Insurance AuditAs always, please feel free to use the social sharing buttons below to forward this article to a friend or family member you think might find this information of value.

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If you have a mortgage it makes good sense to insure it. Owning a debt free home is an objective of any sound financial plan. In addition, making sure your mortgage is paid off in the event of your death will benefit your family greatly. The question is should you purchase this coverage through your lending institution or from a life insurance company? A good rule of thumb to follow when searching for advice? Ask an expert!

If you have a mortgage it makes good sense to insure it. Owning a debt free home is an objective of any sound financial plan. In addition, making sure your mortgage is paid off in the event of your death will benefit your family greatly.

The question is should you purchase this coverage through your lending institution or from a life insurance company? A good rule of thumb to follow when searching for advice? Ask an expert!

So, while it might be convenient when completing the paper work for your new mortgage to just sign one more form, be aware that it might be a costly decision.




8 reasons to purchase your mortgage coverage from a life insurance advisor


Term life insurance available from a competitive life insurance company is usually cheaper than mortgage life insurance provided through the lender. This is especially true if you qualify for non-smoker rates.


If you have some health issues, the lenders mortgage insurance may not be available to you. This may not be the case with term life insurance where competitive underwriting and substandard insurance are more readily attainable.

Declining coverage

Be aware that the death benefit of creditor/mortgage insurance declines as the mortgage is paid down. Meanwhile, the premium paid or cost of the coverage remains the same.

With term life insurance the death benefit does not decline. You decide how much coverage you want to have. This gives you the flexibility to reduce the amount of coverage and premium when the time is right for you. Or keep it should another need arise or in the event you become uninsurable in the future.


Term Life insurance is not tied to the mortgage giving you flexibility to shift it from one property to the next without having to requalify and possibly pay higher rates.


Unlike creditor/mortgage insurance term life insurance can be for a higher amount than just the mortgage balance so you can protect family income needs and other obligations but pay only one cost-effective premium.

When you pay off your mortgage you will no longer be protected by creditor/mortgage insurance but term life insurance may continue.  Also, unlike mortgage insurance you are able to convert your term life insurance into permanent coverage without a medical.

The beneficiary controls the death benefit

With creditor/mortgage insurance there is no choice in what happens to the money when you die. The proceeds simply retire the balance owing on your mortgage and the policy cancels.

With term life insurance your beneficiary decides how to use the insurance proceeds. For example, if the mortgage carries a very low interest rate compared to available fixed income yields, it might be preferable to invest the insurance proceeds rather than to immediately pay off the mortgage.

Can your claim be denied?

Often creditor/mortgage insurance coverage is reviewed when a death claim is submitted. Creditor/mortgage insurance allows for the denial of the claim in certain situations even after the coverage has been in effect beyond that 2 year period.

Term life insurance is incontestable after two years except in the event of fraud.


Your bank or mortgage broker can advise you on the best arrangement to fund your mortgage but advice on the most appropriate way to arrange your life insurance is best obtained from a qualified insurance advisor who can implement your life insurance coverage according to your overall requirements.fblogo3

Your mortgage will probably represent the single largest debt (and asset) you will acquire. Making sure your mortgage doesn’t outlive you is the most prudent thing you can do for your family.

Contact me if you think it is time to review your current insurance protection or please feel free to use the sharing icons below to forward this to someone you think may benefit from this information.



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What is “critical illness” insurance?

fblogo3This report is abridged and modified from a variety of original discussions that appeared in professional journals read by FB FINANCIAL & Associates.



Introduction . . .earth

  • The concept of life insurance is fairly straightforward: your loved ones and/or business partners would suffer financially as a result of your premature death, so you take out insurance that will provide for them in your stead.
  • Critical illness insurance (or “CI” for short) takes the idea of personal risk management one step further — instead of paying if you die, this kind of insurance policy pays so that you can live — offering protection should you fall victim to a serious illness.

How it works . . .

  • Instead of having to take out a bank loan, drain your retirement savings, or rely on family members while you recuperate from a disease, critical illness insurance will pay you a lump sum benefit to help speed your recovery.
  • For example, a critical illness insurance policy might pay you $100,000 should you be diagnosed with cancer or have a heart attack.

History of the product . . .

  • In the 1980s, a doctor in South Africa named Marius Barnard noticed that although many of his patients were able to physically recover from surgery, their bank accounts never returned to normal. Working with an insurance company, Barnard helped to create the world’s first critical illness policy.
  • The idea spread first to the United Kingdom, where people were anxious to find a way to pay for private care rather than going through the under funded National Health Service. It soon became one of the most popular types of insurance coverage in Britain. The product is now gaining ground in North America.

CI’s place in your circumstances . . .

  • Critical illness insurance is not a replacement for adequate life insurance or disability insurance coverage. Life insurance protects against your untimely death and disability insurance provides a regular income should you become unable to work.
  • Critical illness insurance is a complementary product that is meant to help you overcome the large, one-time expenses that may be associated with a significant illness.

Uses . . .

  • You are free to use the lump sum, cash benefit from a critical illness policy in any way you see fit. You could, for example, use the money to pay off your mortgage, renovate your home to make it wheelchair-accessible, fund a business buy-sell agreement, take a vacation, or even jump the medical waiting list in Canada and pay for private care in the United States. It’s up to you.

Types of coverage . . .

  • There are a wide variety of critical illness insurance products on the market, covering a range of illnesses. Most policies will pay should you be diagnosed with cancer or suffer from a heart attack, blindness, kidney failure, or a stroke. Some offer protection for more obscure diseases, such as the West Nile virus, E. coli bacteria, and meningitis.
  • The definitions of what constitutes a “critical illness,” however, can vary from insurer to insurer — so it may take some research to determine which product is best in your situation.

Refund of Premium . . .

  • Many critical illness insurance policies offer a return of premium or “ROP” feature. This means that if you don’t make a claim, you will receive some or all of your money back upon reaching a certain age — usually age 65 or 75.
  • Adding this feature will increase the monthly cost of your insurance, but it does appeal to people who like the idea of getting their payments back should they never need the product.

Qualifying . . .

  • Critical illness insurance is sometimes subject to very stringent underwriting, and can be difficult to obtain.
  • Depending on the amount of insurance you require, you may be asked to take a medical exam and those who already have a history of illness may not obtain coverage at a favourable rate.
  • Generally speaking, it is best to obtain CI while you’re still young and healthy so that you will have coverage in force in later life, when you may be more liable to fall victim to a serious disease.
  • Obtaining coverage at an early age may also allow you to “lock in” your premiums at a guaranteed rate.

Next steps . . .

  • What are your concerns? Are you worried about the financial damage an illness could do to your retirement savings? If you had the money available, would you jump the lineup in Canada and get immediate treatment in the United States?
  • The position of critical illness insurance coverage should be assessed from two perspectives . . .


  1. how it assists in the management of risk in your fiscal and personal affairs;
  2. how it integrates with your comprehensive cash flow considerations – including your accumulation strategies as you endeavour to address both shorter and longer term goals and interests.


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