Insurance – simultaneously one of the most understood and misunderstood products in the market place. Everybody needs it - especially auto and home as required by law. Life insurance and health insurance are not a legal requirement so many people tend to put it off until tomorrow whereas it should have been done today. Most insurance programs have a time element involved or a risk element. For instance, auto insurance is relativity inexpensive unless you have caused an accident - then the premium rises. The same applies to home insurance.
Life, health and other life-related insurance’s, base their risk (how much they charge for the premium) on age and health.
Common Types of Insurance
Group Insurance is usually and most often obtained through an employer. The premium is shared with all employees (which is why it is usually mandatory and less expensive than personal insurance). A risk assessment also occurs with group insurances. If a company has a lot of employees claims the premium will likely rise. If it gets too expensive for the employer, they will start downloading (sharing) the cost of the premium with employees. Larger groups seemingly get better rates - that is only because 1000 employees have a “larger share group” than 100 employees.
Health Insurance – critical illness, disability and or health benefits. Critical illness insurance is the newest member of the insurance options and likely the most expensive. Unlike disability insurance, Critical Illness provides a lump sum of tax-free cash on diagnosis (after 30 days) of one of the covered benefits. For example; a $100,000.00 benefit would pay $100,000.00 of tax-free* cash after the claim period expires (30 days) and then the policy is done. Disability insurance may pay a benefit of a $2000.00 a month -after the claim period expires - but only for as long, the disability lasts. You would receive a total of $12,000.00. The disability lasted 9 months but the claim period was three months – therefore you will only receive $12,000.00 – or 6 months of benefit payments.
This amount may or may not be taxable depending on who is making the premium payments – for instance group insurance Long term disability (LTD) is very often taxable as the employer pays the premiums. The disability policy remains in force and you may collect a benefit again at some point. Everybody’s situation is different, so the analysis is required as to what may or may not be appropriate for you – Disability Insurance OR Critical Illness - or a combination of both.
Life Insurance – there are essentially three types of life insurance – Term, Whole Life and Universal Life. Term insurance as the name suggests is temporary insurance. At age 20 it is really inexpensive but at age 50 the same policy is very expensive. The term-based insurance has different categories of periods – i.e 10-year term, a 20-year term, and a 30-year term and possibly Term to 100. Not all companies offer all these categories. For instance, one company may have 10 year and 20-year term but not a 30-year term. 10 Year term at age 20 is very inexpensive but after the third renewal at age 50 the premium starts to get onerous or expensive
Most term policies offer a chance to convert the policy to another type of insurance at some point along the path to the end of the policy date. The trick is being with a company that has something to offer from a conversion perspective. Some companies have nothing to offer for conversion and if a health condition arises making you uninsurable, insurability becomes an issue. Creditor insurance is a form of term insurance. Once you cease paying a term insurance policy the benefit ceases. It may look economical at the beginning but carried out over many years it often is more expensive than Whole Life or Universal Life.
Whole Life as you might expect from the name is for the whole of life. Most whole life policies generate a cash value within the policy. This cash value accumulates as tax-free* which makes it useful over and above the benefit as an estate planning tool. Life insurance benefits are transferred to the beneficiary as tax-free which also by-passes probate.
Universal Life is something of a hybrid permanent insurance policy but has some unique characteristics giving it value in certain situations. For instance, you can overfund UL and acquire larger cash values in the policy than Whole Life. Often you have investment choices not available with Whole Life.
Home Insurance – we will evaluate your home insurance for cost and coverage efficiencies. Many Insurance Brokers do not do so. This can save a lot of money. Insurance companies often add replacement costs to their policies which can be a good thing. However, left to accumulate unchecked you may find yourself paying hundreds of dollars of extra premium as the replacement cost has increased beyond the actual cost to replace your home. This extra cost will not pay out when you suffer a loss since only replacement costs will be paid on a claim
Auto Insurance – we will evaluate your auto insurance. Is your coverage sufficient? Do you use your auto for business or on behalf of your employer? Is it insured for such use?
Creditor Insurance – Although it may seem inexpensive, it can often be the most expensive type of insurance since the premium is only for a limited amount of coverage. The term Mortgage Insurance is a form of creditor insurance and has some serious drawbacks if taken as creditor insurance. Often these types of policies are post-underwritten meaning they are not underwritten until the time of the claim. Sometimes a pre-existing condition is uncovered – so the claim will not be paid. This type of insurance is not recommended, except as stop-gap to proper underwriting. It is preferable to know a policy will pay out rather than leaving a loved one in dire straits. It has happened!
Health Spending Accounts
Health Spending Accounts – often comes with a group benefits plan as a separate benefit but is also available to small businesses – primarily CCPCs (Canadian Controlled Private Corporations). The small business owner can write off the medical cost of the plan plus a surcharge for the insurance company making the cost 100% deductible inside the company.
Accident Insurance – often accident insurance is included with group insurance with an offer to buy more at a small charge. Not a bad benefit for an oil patch worker but for someone that works in an office – not so much. Statistically, the office worker will never collect since the risk associated with an accident is not very high; but the oil patch worker may find the extra coverage comforting. Needless to say; the policy will only pay off on an accident.
What we do: provide an objective review of all insurances and make recommendations for updating, replacing or getting an appropriate type of insurance.
RETIREMENT PLANNING: DETERMINE WHICH INSURANCE IS RIGHT FOR YOU
Insurance principles can easily be misunderstood. You will need to determine where insurance makes sense and where it doesn’t meet your needs strategically. Insurance matters become even more complicated in retirement where needs change significantly. It is important to evaluate key insurance products and determine their appropriateness based on your circumstances.
Life insurance is a great product for people who are working and have a family to support. However, it is probably not an ideal solution for retirees. There are some circumstances when life insurance can make sense. For example, when you have a good pension that your spouse is largely dependent on and the payouts to your partner will be reduced significantly when you pass away. Another example is when you have a family house that you want to pass on to your loved ones but you don’t have the resources to pay the capital gains tax. Life insurance can also be used to pay off the debt in retirement.
Long-term care insurance
People buy long-term care insurance and start paying premiums when they are relatively young. The objective is to help cover care costs that are likely to occur in the latter part of life. If you meet with an accident and become incapacitated, how would you manage your finances? This is where long-term care insurance can help you deal with financial catastrophes.
Estimates place your odds of requiring long-term care at 50%. However, LTCI (Long Term Critical Insurance) in Canada doesn’t align well with government support. You may not be weak or sick enough to qualify for the long-term care insurance payouts when you need financial help to deal with your retirement affairs. When you qualify for LCTI payouts, you are probably ready to move into a subsidized nursing home, in which case the government will cover your expenses. Again, you should consult a financial planner to figure out the best insurance solutions.
Kewcorp Financial, as the name suggests, is a financial company that helps individuals choose the right insurance products, plan and prepare financially for retirement. We analyze your current financial situation based on certain variables and propose practical solutions. Call us to learn more about our financial expertise!