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It's natural that if we're successful, we want to give something back to the less fortunate and help them. Not many people know, but life insurance plans provide a way in which you can make larger gifts than you might though possible. In this article, you'll learn about some of the different ways you can benefit your favourite charity and minimize your tax burden using life insurance as a charitable gift. Here are a few good ideas:
  • Designate the charity as beneficiary on a new or existing policy.The estate of the insured will receive a charitable tax receipt for the face amount of the policy. The charity receives a substantial donation and the tax deduction can be applied by the estate in the year of death, and carried back to the preceding year.
  • Transfer a new or existing policy to the charity with a pledge to pay the premiums each year. You receive a charitable tax receipt for the amount of the premiums paid each year. No receipt is issued for the proceeds of the life insurance on the death of the insured.
  • Buy a life insurance policy equivalent to the value of your RRIF or RRSP, and designate the charity as beneficiary of the RRIF or RRSP. On your death, the charity issues a charitable tax receipt which offsets the tax impact of the RRIF proceeds.
  • Wealth Replacement Insurance. This is a creative option which allows you to donate a large asset or lump sum of money to charity. In return, you receive a charitable credit for the donation which results in tax savings for the year the donation is made. You can then invest these tax savings in an insurance policy that potentially results in enough proceeds to replace the value of the gifted property.
    Let's look at an example of the last method.
    Mrs. Jones own a piece of land that originally cost her $100,000. It is now worth $300,000. She donates the land to charity and receives a donation receipt for $300,000, which will equate to tax savings of approximately $138,000 (assuming a 46% marginal tax rate).
    Mrs. Jones incurs a taxable capital gain on the disposition of the land of $100,000 (50% of $300,000-$100,000) resulting in tax payable of $46,000. However, the net tax savings of $92,000 could be used to fund a life insurance policy on Mrs. Jones producing a potential tax free death benefit for her heirs in excess of her original donation.
Many people are unaware of the increased contribution they can make to charities by using more creative methods of giving. Careful planning can result in larger amounts being available to meet your philanthropic goals and help others in need.

Key Person Insurance

Posted by Aashish Aggarwal comments (0)


Key Person Insurance

As a business owner, you may rely on a number of key people for the successful operation of your company. Many businesses have been built around the strengths and skills of a few individuals whose capital, energy, knowledge, or experience makes them a valuable asset to the organization.
Key person insurance can help preserve the value of your business and its continuation in the event of the death of a key stakeholder in the company. Replacing the expertise and knowledge of an essential individual can take time and money and can jeopardize the continuity of the business. A key person life insurance policy offers the following benefits:
  • Help heirs meet estate tax obligations without compromising or dissolving a family business
  • Keep the business running and assure creditors and customers that the company will operate as usual
  • Reduce the financial impact of the untimely death of a key individual by covering the expense of finding and training a suitable replacement
How Key Person Insurance works
The employer would be the owner and beneficiary of the policy. The key employee would be the life insured, but would receive no benefit from the existence of the policy. Under the “Income Tax Act” no deduction can be claimed by the employer for premiums paid under a key person policy. However, any death benefit proceeds would be received tax free by the employer and would provide the liquidity needed to hire and train new skilled individuals and provide cash flow through a period of sales decline.
Example: George Smith is the owner of a growing software company that employs 20 full-time workers. He relies heavily on Frank, his manager, to look after the day-to-day operations of the business while he is out dealing with clients and looking for new business. Frank dies suddenly of a massive heart attack. Obviously this has an emotional impact on the company but it also has a financial impact.
The “key person” life insurance policy that George has purchased on Frank’s life provides the company with a tax free lump-sum payment, enabling him to overcome what might have been a deadly blow to his business. The insurance provides immediate cash to cope with reduced profitability, resulting from his manager’s absence. There will also be funds available to pay an employment agency to find a replacement and reassure creditors that company is on solid footing.
Similar type programs can be set up to protect against a critical illness or the disability of a key employee.


Life Insurance for Small Children: Sensible or Silly?

Insuring a child’s life can be a delicate subject, but can make financial sense, depending on your families financial situation.
Traditionally life insurance is used to protect an individual’s family from an untimely death; for example a couple has two small children. If a primary-income earner dies, where is the money going to come from to replace the lost income? Most young couples will not have accumulated enough capital to sustain the lost of income. Without life-insurance, the consequences can be dire – the house that the family has worked years to obtain, may be lost and the family’s standard of living is therefore drastically altered.

Again, when analyzing your family’s life insurance needs, the first order of business is to insure the primary-income earners. In most instances, excluding young Hollywood stars, children are not income earners and while a child’s death would have a huge emotional impact, it would not have a dramatic financial impact. Having said that, assuming that all of your financial bases are covered, insuring a child can make sense and can also offer many long-term benefits.

Insuring a child at a young age guarantees that he or she has insurance now and has the ability to get insurance in the future. This will protect the child’s ability to obtain insurance against future health problems, such as asthma or cancer; it will also protect the child against risky occupations such as becoming a firefighter or pilot. Most life-insurance policies give you the option of adding a guaranteed insurability rider which allows the child to upgrade his/her insurance in the future, without a medical.

Permanent policies also allow your child to lock in at very favourable rates and can be paid up in a limited number of years. The policy can generate cash value which is available in the case of an emergency or to help supplement the child’s retirement income.

For those cases, where one or both parents have hereditary health issues, insuring a child may have an added importance; for example a couple has a history of diabetes and colitis within their immediate family. Insuring their newest addition at a very young age creates a safety-net against the child developing future health issues. A child who eventually has a family of his/her own may have developed health issues in the interim and as a result, may not be able to obtain new insurance; even if it possible to obtain the insurance, a new policy may have a large sur-premium due to health issues.

Permanent policies can also give the child’s future family added financial flexibility – the cash value can be used towards a down payment on a new home or as collateral for a loan to start up a new business venture.


Making Sure Your Family Gets Paid

You bought life insurance with the understanding that if you died your family would be protected. How do you make sure those financial benefits will be there for them? Understand your contract.
All life insurance policies have an “incontestability period” – a time limit (usually two years) during which the life insurance company has the right to dispute a policy’s validity based on information provided incorrectly on the application. Even though an inspection report is obtained, and in some cases a medical examination is performed, the company relies a great deal on the answers given on the application when deciding whether or not to issue a policy. It is important to remember that if an applicant fails to disclose information that would cause a policy not to be issued or to be differently rated, the policy may be withdrawn or a claim may be denied within this period.
With the policy in force after the incontestability period ends, the insurance company no longer has the right to deny claims or rescind the contract even if a misstatement in the application is discovered. The policy owner will receive all the benefits as stated in the contract – claims will be paid and the policy cannot be withdrawn. This provision, however, does not apply in cases of fraud.
Life insurance contracts also have a suicide clause, which specifies that the proceeds of the policy will not be paid if the insured takes his or her own life within a specified period of time (usually two years) after the policy is issued.
Many people don’t realize that if they replace an existing life insurance policy with a new policy, they will be subject to a new incontestability and suicide period.
Another detail to examine when reviewing your life insurance contract is policy exclusions – an “exclusion” is a statement in a policy which describes a condition or type of loss that is not covered by the policy. A common exclusion is an exception for accidental death caused by an “act of war” or death “while in active military service.” Applicants who participate in hazardous activities such as skydiving or acrobatic flying may also have death exclusions in their policy as a result of these high-risk activities. Another exclusion to be aware of is a limitation on the policy payout if the insured is injured or dies in a restricted country. Many insurance companies will either add a surplus premium or an exclusion clause for frequent visits to what they deem to be a high-risk region. It is crucial that the policy-holder is made aware of these details by his broker, and understands the potential implications.
The application wording can vary from company to company, and this can have a direct impact on any exclusions inserted in the resulting policy. As an example, Company A asks whether “the insured has or plans to travel outside of North America in the next 12 months,” while Company B asks whether “the insured has or plans to travel outside of North America in the next 36 months.” This slight difference may result in Company B adding a travel exclusion clause to its policy, while Company A’s policy will not have one.
Buying life insurance is a prudent and selfless decision, but be sure that you fully understand the contract – its terms, conditions, limitations and exclusions – before you sign on the bottom line. Any ambiguities should be cleared up to your satisfaction by your adviser, and noted in writing.


Which insurance company is the best for you?

There are many factors to consider when choosing the right insurance company. Price is obviously high on the list, but there is more to it than simply selecting the company with the lowest premiums. Other important factors to keep in mind when selecting a life insurance company:

Product offering

Does the company offer a broad range of policies? Many insurance companies focus on certain niche products, such as Long Term Care, while others have a mandate to have a complete and competitive product lineup. If you are working with an independent broker, it may be in your best interest to insure yourself with multiple companies.

Financial stability

Life insurance is a long-term commitment, therefore you want to make sure the company is on solid footing. You can verify the insurance company’s financial stability by gathering information from rating services, such as AM Best (www.ambest.com). It becomes of increased importance if the policy exceeds $200,000, the maximum death benefit amount covered by Assuris (formerly Compcorp). Assuris protects Canadian life insurance policyholders against loss of benefits due to financial failure of a member company.

Claims

What kind of claims service does the company offer? How have existing clients been treated during the claims process? You may want to check with a national claims database to see if there are any outstanding customer complaints on the company.

Do they provide service across Canada?

Some insurance companies only operate in certain regions of the country, and this could make ongoing service difficult if, in the future, you move to an area where the insurance company does not do business.

Where is the insurance company in its business cycle?

Some life insurance companies go through phases where they are actively pursuing new business, which may be reflected in the company’s premiums and the degree to which they are accepting new business. This is where an experienced independent broker, who is in tune with the marketplace, can save you a small fortune over the life of your policy. Insurance companies often have differing guidelines on their acceptance protocol for different illnesses. If you catch a company at the right stage of their business cycle, it can mean the difference between qualifying or being declined for insurance.

Does the company employ a captive or independent sales force?

Some insurance companies have an in-house sales force which means their agents are only allowed to represent the company's products. This often skews the agent’s advice, as he/she cannot offer an unbiased opinion. Insurance companies who use the independent brokerage channel create a level playing field and provide less biased advice for the consumer, allowing their sales force to work in the client’s best interest.


What is the Best Way to Buy Life Insurance in Canada?

life insurance by Michael P
Don't bother with call centres,
get a broker working for you.
From all forms of communication available, Canadians are constantly bombarded with seemingly endless pitches to buy life insurance. Be it by phone, by mail, in-person, or online, it all begins to look the same. That's why when you're finally ready to buy a policy, it can be difficult to discern not just what life insurance policy to buy -- but the means you should use to buy it.
The following will hopefully help you seperate the wheat from the chaff when it comes to the best route for buying your life insurance policy:
Online - Many major insurance companies allow you to buy your policy online. At first glance, this may seem like an excellent option because, after all, you avoid the middleman and are buying direct.
The reality is the insurance companies charge the same premium, whether you buy online or through a broker.
Worse, you are stuck when it comes to service-related issues or deeper explanations of the different features and provisions of your policy. There is no in-person point-of-contact. Buying online will only give you access to a limited number of plans available through that insurance provider because most companies only sell term insurance online.  If your needs are better suited by permanent insurance, you're pretty much out of luck.
Via Call Centre - Buying over the phone carries the same pitfalls as buying online. The applicant is left without a go-to person if they have questions, or something goes wrong. In addition, most call centres only sell policies from one particular company. Insurance premiums often vary sharply from company to company, so making a purchase decision based on a single company may result in you overpaying by 20-30%.
Special Mail-Out - Many insurance carriers offer special accidental death packages by mail. However, the only special attribute they carry is the ability to seperate you from your hard earned money without it being very likely that you'll ever be able to claim on the policy. This is because accidental death is very rare, having a mortality rate of only 5%. Besides that, accidental death insurance usually costs more than a term life policy that will cover you no matter how you die. Just in case you're still uncertain, a 2007 Money Sense Magazine article further illustrates why I think accidental death insurance makes no sense, and truly impractical for the average potential policy holder.
Captive Agents - These are insurance advisors who just offer products from a single carrier. The premiums charged by captive agents are often much higher than those offered by independent brokers and captive agents are truly handcuffed because they generally only have access to a limited number of plans. Check out this video -- part of our Life Insurance Risks series -- where I use my ten years of experience working in a captive environment to uncover other truths about captive agents you may be unaware of as a consumer. 
Independent Brokers - An independent insurance broker has access to a full menu of insurance plans. Unlike captive agents, they are 100% free to shop the market and get you the best rate. Of course, before you deal with any independent broker, you need to verify that they do in fact have access to a wide array of insurance companies and not just two or three. You also should ask about his/her experience in the industry, credentials and be sure to get references/testimonials from existing clients.
Rest assured that LSM advisors are completely independent and haveaccess to over 15 unique insurance carriers. Best of all, you can browse our website's full library of articles covering virtually every life insurance issue. You can also get a free instant quote at our variety ofInstant Quote Pages with absolutely no obligation. When you are ready to meet with a broker, we can connect you with a qualified advisor who will assist you, in a no-pressure environment, with a plan best suited to your indvidual needs.


Should I buy term insurance or permanent insurance?

Which life insurance is best, term or permanent? This is likely the most frequently asked life insurance question. Many insurance and financial “experts” will give a uniform answer, but reality is not so simple. Life insurance is not a uniform product: the right insurance depends on the applicant’s objectives.
Term insurance offers low-cost protection for a temporary period, say 10 or 20 years. But the cost rises dramatically at renewal. A 40-year-old male non-smoker can take out $250,000 of term-20 coverage with Canada Life for $37.58 a month. But if he wants to renew it without a medical at age 60 he is in for a major shock – the premiums will jump to $502.20 a month. He could re-apply for a new plan and get a lower rate, assuming his health hasn’t changed in the 20 years since he was 40. Most term plans also expire after a certain age, usually 75–85 years. If the insured decides to cancel the plan before the term expires, there is no return of premium.
At first glance this doesn’t seem like a very good deal. But for many applicants on limited budgets, term insurance is a good fit: it provides low-cost protection for a fixed period. This can be invaluable to a young couple during their most critical years, when their debt is high and their children are small. Term insurance also makes sense for applicants who need to cover a temporary insurance need, such as a mortgage, line of credit, or business loan.
Permanent insurance is usually of two types, whole life or universal lifeinsurance. These policies have higher initial premiums than term policies, but generally provide a constant cost and lifetime protection. Depending on the plan, the policy can generate a cash value and be paid up in a set number of years.
That same 40-year-old male non-smoker can get $250,000 of 20-pay whole life coverage with Empire Life for $214.20 a month. The premiums are obviously much higher, but rather than the plan renewing in 20 years it is then paid up. The insured’s total contribution over the 20 years is $51,408. The policy also has a cash value after 20 years of $51,500, which rises to $64,500 at age 65. The insured can usually access up to 90% of this cash value in the form of a policy loan, but it would be deducted from the death benefit along with any interest.
The downside of a permanent policy is that the initial premium is higher, which may affect an applicant’s ability to obtain the amount of insurance needed. Many permanent plans also impose surrender penalties if the policy is cashed out in early years. So when choosing a permanent plan, it must fit the applicant’s budget. If possible, allow a financial buffer just in case there are unexpected budgeting issues.
Another potential solution is to combine permanent and term coverage. This can allow applicants to get the insurance they need with a permanent component at a more affordable rate. Many policies allow term coverage to be added as a rider, letting the applicant avoid paying two policy fees.


Seven life insurance sins

  1. Be wary when replacing your insurance – Many unscrupulous brokers encourage applicants to replace existing life insurance policies, simply to pad their wallets. Replacement often does make sense, as term costs have decreased across the board in recent years. But be careful when cancelling an existing whole life or universal life policy. Many such policies are locked in at favourable rates and carry heavy surrender charges.
  2. Be careful when selecting a no medical life insurance plans – These policies carry higher premiums and lower face amounts than traditional life insurance policies.  No medical life insurance plans can broken down into 2 categories. Simplified issue coverage - no medical tests and generally three to twelve health questions andGuaranteed issue coverage - no medical tests and no health questions. Guaranteed issue plans have death benefits which are limited to a return of premium plus interest in the first two policy years. Non-medical life insurance can be a very good fit in some instances but these policies are designed for applicants with significant health issues.
  3. Avoid accidental death insurance – Many Canadian life insurance companies heavily market accidental death insurance to unsuspecting consumers. Accidental death insurance is extremely profitable to insurance companies, as under 3% of all life insurance claims are paid out because of death by accident. Accidental death insurance can sometimes even cost more than an equivalent term policy.
  4. Watch out for captive agents – A captive agent is only allowed to sell his/her own company’s products. Insurance companies employing captive agents generally charge higher premiums than do insurance carriers employing independent brokers. Captive agents cannot shop for the best value for you, and in some instances may not offer the product best suited to your needs.
  5. The cheapest isn’t always the best – When analyzing your life insurance premiums remember that the overall cost is more important than the initial premium. Many insurance companies try to lure clients with low initial premiums. Term insurance policies, which offer low initial premiums that increase as the insured ages, are appropriate if used for temporary insurance needs. The problem is many brokers employ a one-size-fits-all philosophy. They don’t take enough time to assess why you are looking for insurance or how long you’ll need it.
  6. Be aware of policy exclusions – All life insurance contracts have a two-year suicide exclusion. But many contracts also carry certain travel or recreational activity exclusions if the applicant was engaged in these activities at the time of application. Each insurance company has its own underwriting guidelines, so the best defence is to pick a broker who works with multiple carriers and is up to date on the different underwriting protocols.
  7. Avoid any misrepresentations on your application – All life insurance policies have an incontestability period, generally of two years. During this period, insurance companies can contest a claim for misrepresentating or not disclosing a material fact.


Seven life insurance sins

  1. Be wary when replacing your insurance – Many unscrupulous brokers encourage applicants to replace existing life insurance policies, simply to pad their wallets. Replacement often does make sense, as term costs have decreased across the board in recent years. But be careful when cancelling an existing whole life or universal life policy. Many such policies are locked in at favourable rates and carry heavy surrender charges.
  2. Be careful when selecting a no medical life insurance plans – These policies carry higher premiums and lower face amounts than traditional life insurance policies.  No medical life insurance plans can broken down into 2 categories. Simplified issue coverage - no medical tests and generally three to twelve health questions andGuaranteed issue coverage - no medical tests and no health questions. Guaranteed issue plans have death benefits which are limited to a return of premium plus interest in the first two policy years. Non-medical life insurance can be a very good fit in some instances but these policies are designed for applicants with significant health issues.
  3. Avoid accidental death insurance – Many Canadian life insurance companies heavily market accidental death insurance to unsuspecting consumers. Accidental death insurance is extremely profitable to insurance companies, as under 3% of all life insurance claims are paid out because of death by accident. Accidental death insurance can sometimes even cost more than an equivalent term policy.
  4. Watch out for captive agents – A captive agent is only allowed to sell his/her own company’s products. Insurance companies employing captive agents generally charge higher premiums than do insurance carriers employing independent brokers. Captive agents cannot shop for the best value for you, and in some instances may not offer the product best suited to your needs.
  5. The cheapest isn’t always the best – When analyzing your life insurance premiums remember that the overall cost is more important than the initial premium. Many insurance companies try to lure clients with low initial premiums. Term insurance policies, which offer low initial premiums that increase as the insured ages, are appropriate if used for temporary insurance needs. The problem is many brokers employ a one-size-fits-all philosophy. They don’t take enough time to assess why you are looking for insurance or how long you’ll need it.
  6. Be aware of policy exclusions – All life insurance contracts have a two-year suicide exclusion. But many contracts also carry certain travel or recreational activity exclusions if the applicant was engaged in these activities at the time of application. Each insurance company has its own underwriting guidelines, so the best defence is to pick a broker who works with multiple carriers and is up to date on the different underwriting protocols.
  7. Avoid any misrepresentations on your application – All life insurance policies have an incontestability period, generally of two years. During this period, insurance companies can contest a claim for misrepresentating or not disclosing a material fact.


O.M.A Group Life Insurance vs. Individual Life Insurance

Doctors demand action
O.M.A. stands for the Ontario Medical Association and they've been offering life insurance since 1956, underwritten by New York Life. These plans fall into two categories, a Term Plus 75 plan, which is available to members under the age of 60, and the Term Life plan, which is available to members 60 to 69.
The Term Life Plus 75 plan has two unique features: a portion of the coverage (10%) is paid up for life by the age 75 and the coverage automatically increases by 10% a year, for up to 10 years. Best of all, no medical test is needed to qualify for the 10% increase.
On the other hand, the Term Life plan terminates at age 75 and there is no paid-up value. The premiums in both plans increase in five-year increments and the premiums are not guaranteed, as it is part of a group policy. To find out why this is the case, read Group vs. Individual Insurance.  
Premiums are significantly higher when stacked against individual policies, but the gap is narrowed once you factor in the O.M.A premium refunds. Though not guaranteed, O.M.A premium refunds are given when premiums exceed claims and expenses for the group.
Premium refunds on the O.M.A plan have averaged more than 50% over the last ten policy years. Coverage is available in $100,000 blocks for the insured, and/or the insured's spouse, up to $1,000,000 and is subject to a medical.
Since the O.M.A plan falls under group policy, premiums are subject to sales tax and premiums on indvidual policies are not. Recent non-smokers will also have a tough time qualifying for O.M.A's coverage because you have to be tobacco-free for 24 months. With most indvidual life policies, you only have to be tobacco-free for 12 months.
The O.M.A plans also don't offer preferred rates for those in excellent health and with an excellent family health history, but indvidual policies do, generally in the amount of $250,000 or higher.
With that in mind, let's see how the O.M.A policies stack up against individual policies. The following is a snapshot comparison for $500,000 of coverage for a 45-year-old, male non-smoker:
Male non-smoker, age 45
$500,000 Term Life Plus plan: $127.35/month*
*(Includes sales tax and doesn't include the premium refund, which has been 50% over the last 10 years)
$500,000 Equitable Life Term 10:                   $53.55/month
$500,000 Canada Life Term 10:                      $54.45/month
$500,000 Manulife Term 10:                            $54.66/month
$500,000 BMO and RBC Insurance Term 10:  $53.90/month
Even with the 50% premium refund, Individual Term 10 coverage is significantly less than the O.M.A. policy. Premiums are fixed for a longer period of time and the coverage is fully guaranteed. It is also convertable to a permanent plan without a medical.


One of the reasons life insurance is not purchased by more people is the insurance industry often does a poor job of illustrating it's true value.
Unlike other assets life insurance is not something you can touch.  Sure you have a policy with a lot of legal wording but the true value of the life insurance goes well beyond those pages.  
A life insurance policy can change the lives of an entire family. 
Family by Mark Evans
Family by Mark Evans
I remember delivering my first claim cheque more than 10 years ago.  Up until that point I was successful in selling life insurance but I was not working with a sense of passion.  I was explaining the numbers but was not properly illustrating the way life insurance can shape a family's destiny.
However, when I came to the widowers house on an Autumn morning with a cheque of $255,000 in my hands this all changed.  The mother of two teenage children was still very distraught but she had a sense of relief that there was now enough money to cover the funeral, pay off the mortgage and a few other small debts.
The situation would have been reversed if her husband had thought it was more prudent to put the money towards another investment or other household expenses. His family's future would of turned out entirely different.  His wife and children would have been uprooted from their home and they would of been confronted with slew of financial hurdles during the most challenging stage of their lives.
Life insurance can be complicated but in it's purest sense it allows an individual to defend against the unexpected insuring his/her family's dreams remain intact. 


Group vs. Individual Insurance

insurance for children by wester
Manulife's individual life policy
has an optional rider for your children.
Many employees are enticed into buying optional group insurance to supplement their individual life insurance coverage. They often are misinformed into thinking that this optional group goverage will give them a lower rate and better value, but, the reality is, in most instance group coverage is actually more expensive than equivalent term life coverage without the added benefits of an individual life policy. Below we've outlined the difference between an optional group insurance policy and an individual life insurance plan:
  1. Group life policies generally go up in five-year increments. -- Individual life insurance policies are available in 10, 20 or 30-year terms. This allows you to have a longer fixed rate than a group life policy.
  2. Group life policies can be adjusted on a group-wide basis and/or the coverage can be eliminated if the group has had a poor claims experience. -- Individual policies are owned by the policyholder and provide a unilateral contract, i.e.the insurance company cannot cancel your coverage and can only adjust your rate as stipulated in the contract. The insured can cancel their coverage anytime. Optional group life coverage has a limited array of products. Individual contracts can be either term insurance or a permanent policy, where the coverage is with you for your lifetime and can generate a cash value.
  3. Optional life plans do not offer preferred rates. -- Individual policies offer preferred rates if you are in very good health and have an excellent family health history. The difference between preferred and standard rates can be very significant, especially for term policies.
    A 40-year-old male non-smoker would pay $62.55 a month with Equitable Life for standard rates on a $500,000 Term 20 policy. The plan would cost $44.55 a month if the same applicant qualified for preferred rates.    
    4. Optional life plans do not offer riders and/or benefits -- Individual policies can have a plethora of policy riders and benefits. One example is Manulife's Children's Term Rider, which allows the insured to add a rider that grants their children the right to upgrade their own coverage up to 25 times the original face amount without a medical.


Corporate Owned Life Insurance

Key employer photo by lindsey lissau
Considering corporately owned?
We can lay it out clear.
Personally owned, or corporately owned, that is the question, especially if you're a business owner considering the purchase of life insurance. Life insurance is an important piece of any business and can be a tremendous asset to your business in the following ways:
  • Key Person Insurance - In the event that the loss of a key person would mean a monetary loss for the company. In this situation, the corporation is the owner and beneficiary.
  • Buy/Sell Insurance - Can be used to help settle a buy/sell agreement between two or more partners. In this instance, the corporation owns the policy on the shareholders and on the death of a partner, the corporation can redeem his or her shares. There are at least five ways to set up buy/sell insurance, which I will discuss in a later article.
  • Estate or Succession Planning - This will help fund the transfer of shares to charity, family, or other business partners. In this situation, you need to be aware of the rules regarding taxable benefits when the insured is a shareholder vs. an employee or when the beneficiary is a spouse, rather than the corporation.
  • Taxes Payable - Life insurance can be used to offset tax liabilities on death, which negates the need to sell your assets at an inopportune moment. The proceeds will then be typically deposited into the Capital Dividend Account (CDA) for further disposition to shareholders tax free.
  • Charitable Bequests - Finally, life insurance can insure that a charity will receive a designated amount of money.
All of these life insurance options can be personally owned or corporately owned and which one is right for you will depend on the following factors:
  • What is the purpose of the insurance?
  • Who will receive the proceeds of the insurance?
  • How quickly will the funds be required?
    A common misconception is that life insurance is an expense that can be deducted as an expense by a corporation. The CRA Document addressing this issue indicates that the only real opportunities to deduct premiums is when the policy is collaterally assigned to a lending institution, is a charitable gift, an employee benefit, or part of a Retirement Compensation Agreement (RCA).
Disposition of proceeds - Keep in mind that on death, the designation of the beneficiary will determine whether there will be tax issues or not, assuming the life insurance policy is owned and paid for by the corporation.
But to really break it down and determine whether corporately owned life insurance is right for your circumstances, you may want to weigh the following attributes:
Benefits
  • Premiums are paid by the company - While deducting the premium isn't typically possible, you can have your company pay the premium of a corporately owned policy. The benefit of this is the typical difference in tax rates that comes with small businesses.
In Ontario, the highest individual marginal tax rate is 46.41% vs. 16.50% for small businesses. An annual $10,000 premium would require the individual to earn $18,660.20($10,000/(1-.4641) before tax to pay the $10,000 premium vs. only $11,976.05, if the small business pays the premium. *NOTE* The later assumes the taxable income of the small business is under the $500,000 limit for the preferred rate.
  • Capital Dividend Accounts (CDA)'s are an option - It can be used to funnel the proceeds of the life insurance policy tax free at the death of a shareholder. As an added bonus, Capital Dividends do not reduce the Adjusted Cost Basis (ACB) of the shares.
  • Multiple Insured Parties Under One Umbrella - Often with a multiple ownership corporation, and buy/sell insurance in particular, there may be a considerable age or various underwriting premium differences in rates for the parties insured, which causes unequal premium rates between the people involved. A corporate owned policy can close the gap and solve the various inequalities in premium rates that come with each individual paying their own policy.  
  • Available for Universal and Whole Life Policies - These policies have cash values that build up over time and are considered an asset to a corporation. However, a split dollar strategy is also an option where the cash value belongs to the employee, but the death benefit goes to the corporation.
  • Peace of Mind - When asked, many business owners just prefer to pay out as much as they can from their corporate account, rather than their personal account. This is mainly because of the tax benefit outlined above. 
Things to Keep in Mind
  • There is no creditor protection - While individual life policies are creditor protected, corporate policies are not.
  • The Share Value Increases - When the insured shareholder dies, the cash surrender value of the corporate owned policy can potentially increase the value of the shares, raising the cost for family members who may wish to buy them.
  • Issues regarding the "Net Family Property" Designation - In Ontario, under the new Family Law Act,  a surviving shareholder who uses the life insurance proceeds to purchase shares from the deceased's estate, would not be able to claim those shares they bought as "net family property." However, in cases where the shareholder uses a Tax-Free Capital Dividend from the corporation, it has yet to be established whether this would be considered using the life insurance proceeds to avoid the "net family property" calculation.
  • Certain Policies Could Jeopardize the Preferred Tax Rate Benefit - CRA requires that 90% of a corporation's assets be used in an active business. It's possible that the cash value that comes with universal life and whole life policies may be considered passive and not an active business asset, which could jeopardize your ability to qualify for the preferred tax rate benefit.
Bear in mind that entire books have been written on the subject, so clearly, this only scratches the surface. Still, we hope you have enough information to at least start the conversation with your insurance advisor. We would be happy to help, so call us at 1.866.899.4849.

CAA Term Life Insurance

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CAA Term Life Insurance: Not All It’s Cracked Up to Be


When it comes to CAA Term Life Insurance, underwritten by Manulife exclusively for members of the Canadian Automobile Association, it's best that you don't believe the hype.
Manulife's website states that they offer discounts of up to 20% to non-smokers. However, when you compare the rates to the competition, the CAA premiums are significantly higher than those offered by other term life insurance carriers across Canada. The plan is also not available on apreferred rate basis. (click the link to see the difference between preferred and standard rates)
The CAA plan does have a built-in Accidental Death benefit, which pays up to half the face amount if the death is caused by a car accident where the insured is wearing a seatbelt, but it should be noted that less than 5% of life insurance claims are paid due to accidents.
The following are examples of how the CAA Term Life Insurance Plan stacks up against the competition:
$500,000 for a 40-year-old male, non-smoker with Term 5 coverage at standard rates
CAA:   $75.88/month
Sun Life: $40.50/month
Unity Life: $57.60/month
$500,000 for a 40-year-old male, non-smoker with Term 20 coverage at standard rates
CAA:  $94.00/month
Sun Life: $62.55/month
Unity Life: $63.78/month

Car Insurance in India

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A genuine chit-chat on increasing vehicles on roads will definitely provides a room for securing the possession either it may be the life or vehicle or both. Each and every segment of people dreams to own a car and the only difference is depending upon the economic feasibility they opt for i.e. either small size or midsize or luxurious cars. Whatsoever the cause may be the car they own is the result of hardly earned penny. So it is clear that the crying need of an hour is Car Insurance. In many jurisdictions it is compulsory to have vehicle insurance before using or keeping a motor vehicle on public roads. Most jurisdictions relate insurance to both the car and the driver; however the degree of each varies greatly.

Though our Nation is Democratic it is strictly autocratic when concerned about saving the lives of its citizens from drastic havoc. That too on vehicles it is stringent that no automobiles can be driven on road without any valid insurance. Car Insurance in India is mandatory and the Motor Insurance will covers against any loss, damage due to natural or manmade calamities. The natural calamities include fire, explosion, self ignition, lightening, earthquake, typhoon, hurricane, storm, cyclone, hailstorm, frost, landslide and rockslide.

Man made calamities include burglary, theft, riot, strike, malicious act and accident by external means, terrorist activity and any damage in transit by road, rail and inland waterway. Motor Insurance provides compulsory personal accident cover for individual owner of the vehicle. There also exists an option for a personal accident cover for passengers and third party legal liability. Third party legal liability includes any permanent injury or death of a person and any damage to the property.

The vehicles insurance premium varies, if they are outfitted with CNG / LPG, the CNG/LPG kit they have to be insured separately with additional premium. Usually vehicles are insured at fixed called the Insured's Declared Value (IDV).

IDV is calculated on the basis of the manufacturer's listed selling price of the vehicle after deducting the depreciation for every year as per the schedule provided by the Indian Motor Tariff. If the price of any electrical and or electronic item installed in the vehicle is not included in the manufacturer's listed selling price, then the actual value of this item can be added to the sum insured over and above the IDV.

There are two kinds of Vehicle Insurance:

Comprehensive Insurance:

Comprehensive Insurance covers risk arising out of theft or damage to the vehicle, death of the driver and or passengers in the vehicle, and damage caused by the vehicle to other people or property.
The Comprehensive auto insurance policy provides cover for damage caused to the vehicle due to man-made or not.
Extensions can be purchased on Comprehensive motor insurance policies for loss or damage to accessories, passenger accident cover, and legal liability to employees and non-fare paying passengers.
Third party Insurance:

The third party Insurance covers only damage caused by the vehicle to other people or property. These policies are valid for a year.
Your car insurance company should notify you by mail when it's time to renew the policy.
The risks covered by the Third Party policy include death or injury to a third party and damage to third party property.
Liability in the case of death or injury is unlimited.
Insurance exclusions are accessories of the vehicles; they are added separately in the insurance policy as they are not essential to the performance of the vehicle. This coverage will be included in IDV of the vehicle

Compare prices and features before buying. One policy can cost over 3 times the other!
Its quite easy to do this on an aggregator like policybazaar.com
If you have a family, go for a Family floater policy. It is more economical and gives higher coverage for each member of the family. In addition it provides the flexibility that any member can use any proportion of the floater. This is helpful because in most cases one individual gets seriously ill, rather than the entire family.
Compare the terms of the policy so you do not get a shock later. A broker will be able to provide the best advice since he is largely independent.
Do not always adopt a policy with a cashless tie up with a hospital nearby. All good hospitals can be empanelled by insurance companies. Rather look for a policy that fulfils your requirements adequately.
Find out all the hospitals that your insurance company has empanelled with and understand what their specialization is, so if you are in need you can use the appropriate hospital, rather than just one all the time.
Always it is advisable to buy from a broker, ask for their license number, and check if the details provided are correct from the IRDA website. These brokers are independent and are paid for every policy they sell, so they are not inclined to push one over the other. An agent on the other hand sells for one company only and hence will generally push that company and its benefits.
Be truthful and accurate in your declarations on the proposal form. That will only ensure payment when you have a genuine claim.
Exercise regularly and follow healthy eating habits. Avoid smoking or drinking in excess. Over time all your efforts will definitely reduce your premium while covering the risk.
If you already suffer from a disease, take the necessary precautions. Always act as if you are uninsured, even though you may be insured. This will always control your habits and will benefit you in the long run.


For example, the difference between a $250 and a $500 deductible may be 10% in premium costs, and the difference between a $500 and $1,000 deductible may save you an additional 3% to 5%. Most businesses can afford to be out of pocket $500 or even $1,000 - especially if taking this risk means you pay significantly lower premiums.
Consider using money saved with a higher deductible to buy other types of insurance where it's really needed. For example, the amount you save by having a higher deductible might pay for business interruption coverage.
Compare
No two companies charge exactly the same rates; you may be able to save a significant amount by shopping around. But be wary of unusually low prices - it may be a sign of a shaky company. Or it may be that you're unfairly comparing policies that provide very different types of coverage.
Review your coverage and rates periodically. The insurance industry is cyclical, with alternating phases of low prices and high prices. When competition for insurance customer increases in a particular field, you really can achieve savings. But don't dump a loyal agent for a few cents. Ask your agent to look around and meet or come close to meeting the competition.
You can make the cyclical nature of the insurance industry work for you. If you're shopping for insurance during a time when prices are low, try locking in a low rate by signing up for a contract for three or more years.
Transfer Some Risks to Someone Else
Here are some possibilities:
* Indemnification by manufacturer. Suppose you run a store that sells exercise equipment, and primarily from one manufacturer. If you're buying a significant amount of equipment, the manufacturer may be will to provide insurance that indemnifies your business from any claim by a customer injured by the equipment.
* Leasing employees. Some businesses lease employees at least in part because the leasing company takes care of carrying workers' compensation and liability insurance on the employees (among other things). However, be cautious - the overall cost of leasing employees may be greater than if you hire directly. You may also be able to transfer some risks by simply engaging independent contractors to handle the more hazardous aspects of your business operations.
Look For the Most Comprehensive Package Available
Look for a small business package that includes a full range of coverage. This is often much cheaper than buying coverage piecemeal from several different companies. Group plans often offer these packages.
Seek Out Group Plans
Is there a trade association in your industry? If so, it may be a source of good insurance coverage. Trade associations often get good affordable insurance rates for the member because they have superior bargaining power.
Self-insure
Using this technique, you simply don't buy insurance and hope to maintain your own reserve fund to cover likely losses or liabilities. There are a couple of obvious disadvantages though. First, despite good intentions, most small businesses don't have enough funds to set aside this purpose. Second, unlike insurance premium, money put into a reserve fund isn't tax deductible until or unless you spend it.


We all need health care from time to time, and sometimes we need serious medical help as well, which logically brings us to the necessity of health insurance. What is more, we often don't know when exactly we will need medical help and how much of it we'll require. This element of uncertainty is called risk, and we'll use this notion to explain what health insurance companies tend to do to make more money.
As the purpose of health insurance is basically to spread health care costs among many people, all consumers should be protected from very high costs of health care, and provided with necessary help when needed. However, health insurance system does not always play fair. Insurance companies try to avoid risk in order to boost their profits.
It is common practice of health insurance companies to sell insurance to so called "good risk" customers and try to leave out "bad risk" people. When we are speaking about good risk, we generally mean young people with no health problems. Bad risk refers to older people with health conditions.
For instance, insurance companies may reject your application basing their decision upon your health status. They don't want people to wait till they get sick to purchase health insurance and usually impose a pre-existing condition scheme. By definition, a pre-existing condition is a medical condition which existed before you obtained health insurance. Mind that individual health insurance plans and group plans usually differ in rules applied to pre-existing conditions.
A person with a pre-existing condition can cost an insurance company a lot of money, so they strive to exclude those who have them. In case you have some medical problem which already exists at the time you enroll in your health insurance plan, the insurance company will deny the claims concerning this medical problem.
There is usually a 9-12 month waiting period for pre-existing condition coverage, which means that in case an insurance company offers you coverage, they may not provide coverage for that specific pre-existing medical condition for the specified period of time. Insurance companies may attach riders to your health insurance policy which include a pre-existing condition waiting period or state exclusions of coverage of certain medical conditions or body parts.
Insurance companies may charge you much higher premiums if you belong to the group which is considered risky, for example, if you are older, if your work is related to some dangerous field, or if you have some health conditions.
If you are younger and healthier, insurance companies will create a high-deductible, lower-premium plan for you, and if you are an older person with health conditions, they tend to create much more expensive plans.
Insurance companies impose referrals or prior authorizations on healthcare providers before they can give a patient a diagnostic test, prescribe some medicine or recommend hospitalization , which in many cases delays medical help and care. Healthcare providers are experts who are perfectly capable of determining on their own whether a patient needs a medicine or test or not. Insurers tend to offer such a variety of different insurance plans that doctors, hospitals and their staff have to deal with loads of paperwork, billing etc.
In order to be fully covered, customers often need to pay a very high price. High prices that insurance companies charge can leave many people uninsured or underinsured.
As if it were not enough, there is also health insurance fraud against which it is not always possible to protect yourself. Many people would realize that they have fallen prey to health insurance fraud only when they submit a claim for a medical service which they hope is covered under their policy. Their claim will be denied and unattended health problems will be accompanied with insurance problems.
It is possible to spot some alarming signs when you deal with health insurance companies. Health insurance coverage which seems too good for too low a price will probably be your pain in the future. Always research the credibility of the health insurance company you are going to purchase insurance coverage from. Check with your State Insurance Commission whether the company is licensed for doing business in your state. Call your local hospital and ask whether or not they accept the insurance. Always carefully read the fine print before signing anything.
If a salesperson requires you to pay the total amount of your premium in advance and asks you to pay in cash, it should be a red flag. Protecting yourself from health insurance fraud means doing everything to prevent it from happening.
However, if you have already become a victim of health insurance fraud, act without delay, and contact your State Insurance Commissioner and file a health insurance fraud complaint. They might have other complaints about the company you were unlucky to have purchased your coverage from.
Also contact your bank or Credit Card Company in order to stop any scheduled future automatic payments. You should have all of your cancelled checks or credit card statements as well as a copy of the health insurance contract that you signed. In addition, get a copy of your personal credit report from all three major credit reporting agencies. Contact your local law enforcement agency and report the fraud fact.

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