All the different names and descriptions you hear still fall into these two categories.
The good news is that, regardless of the two types and variations offered; you don't need to choose just one. You may be surprised to know that, on average, people buy life insurance 5-7 times in their lifetimes because there are many "job descriptions" that a life policy can hold. There is no need to feel like you need to pick one type or make one decision. As your life changes so will your insurance needs. Also, any type of coverage can be customized, whether it's to protect your family or business. That's where an advisor can guide you.
Whether you are planning ahead, buying a house, wanting to protect your family, assets or business; we can customize a solution that is right for you!
We all like to believe that we live healthy lives; we exercise, make wise
food choices, limit, or have no vices yet sometimes a health crisis is beyond our control. I'm sure you've heard "cancer doesn't care" and it doesn't. Cancer, heart attacks and strokes occur more often than any of us would like to think about. Recovering is key and having the financial resources to do so will make all the difference in the world in choosing the type of care and treatment you would like to receive vs accepting what is publicly available, along with the wait times. Depending on your needs and budget you can provide the protection you need with the option of having all your premiums returned to you at a pre-determined time if you are fortunate enough to not make a claim. How great is that? Never needing it is the goal but not having it can be devastating to your financial well being which ironically will only add more stress to your physical, mental and emotional well being. All these elements will make recovery even more challenging. Critical illness insurance, health insurance
When our health is on the line (definitely when it is our child's) money is not a consideration; we will cash in whatever it takes to get well. Let an insurance company pay those bills instead.
Investing is not saving. Saving is what your parents did. Simply "saving" just wont work today. Cash & liquidity are vital for short term goals and "emergency funds" but won't serve you long term.
Investing is the only way to achieve your long term financial goals. There are many investment vehicles available including real estate and whole life insurance contracts in addition to what may initially come to mind like mutual funds, ETFs or stocks & bonds. Today, investing works most effectively by attaching a goal to each investment strategy. The way you invest for retirement may be very different from how you invest for your child's education, your first home purchase or that vacation property. Your lifestyle goals may be very simple or maybe having the ultimate Golf membership or yacht in retirement is something you don't want to compromise on. You decide! The ongoing and ultimate taxation of your investments is vital to consider and is often overlooked. Let's meet virtually to explore the difference incorporating goals and strategies will make, not only in growing but also in transferring your wealth. As a CFP professional I take a holistic approach when it comes to guiding you with investing.
Think about what the "job" your investment should be, then think of another "job you'd like it to do etc
Most people understand how a company pension plan or CPP/OAS will provide them with a regular, often increasing, monthly income but what about private funds that were accumulated through a RRSP, TFSA or non-registered (open) investment? Most realize that RRSP plans must become RRIFs by the end of the year they turn 71 but don't realize that those funds (and the others) have many options in how their income streams can be designed. Let's explore:
Annuities– there are different types available but given the topic; we are referring to Life Annuities. A life annuity is an income stream guaranteed for life-no matter how long you live, in exchange for a lump sum of money. The catch-it is a one time deal. Once you purchase an annuity then you cannot change your mind and get your money back. The insurance company also can't do anything about you living longer than they expected! Annuities are best suited for those looking for a secure base that will take care of lifetime fixed expenses such as housing, food and transportation. Typically your early 70s would be the ideal time to explore this option although every situation is different. Expenses in the earlier years of retirement like travel, golf memberships and more elaborate entertainment expenses would be set up from different sources.
Guaranteed Investment Funds (GIFs) with Lifetime income payment guarantees-GIFs themselves are further explained in our Estate Planning section, here we focus on their ability to create an income for life without giving up your capital & thereby allowing for greater flexibility than annuities. Like annuities, the guaranteed income component is meant to be for fixed basic living expenses but in the earlier stages of retirement it is especially unlikely that you would want to forfeit your capital or make any permanent decisions with it so a GIF with a guaranteed income stream may be the best fit.
T-SWPs with Non registered funds– You're probably thinking T-what?
T-Systematic Withdrawal Plans. These options are the least well known. They allow you to set a withdrawal rate. as a percentage (that you can change as desired), to draw from your investment, thereby creating an income stream. When coupled with Corporate Class Mutual Funds they have the added benefit of being able to defer taxation. Normally there is no deferral on the returns your non registered funds earn each year and depending on what type of assets you hold and they timing of your withdrawals there would be interest, dividend and capital gains to declare. Taxation can really eat into your returns and market values over time. T-SWPs can be set up to defer all capital gains to a point in time where all your principle has first been paid out to you. You can't get taxed on your own money-it's just getting paid back so all the growth is pushed to the back of the plan in that it won't be paid out until the very end...which, depending on your lifespan, may only happen upon your death. There's obviously more to explain and understand with regards to how these work and sitting down with a financial planner before decisions are made is the best time to explore these options. Ideally; before retirement is just around the corner.
Life Insurance Cash Values leveraged for tax free loan income-This is always the one that makes people say "what? That can't be true!" Well, it is but you need a little more than pocket change to make it work. By seeing a whole life insurance policy for the incredible asset it is you will see that, with at least a 20-30 year window before it's needed, you are able to accumulate substantial cash values which can be used as collateral under special agreements in place with financial institutions that will provide you with the equivalent of a secured line of credit. Essentially, you write yourself cheques as needed and because loan income is tax free then there's nothing to report. The same strategy is used for business owners who have lots of money "trapped" in their corporations. The catch-the loan accumulates with interest and is paid off first upon your passing. Don't worry though, it's always designed to still provide a sizeable death benefit to your beneficiaries. You really can have your cake and eat it too!
The way you pay yourself in retirement will affect not only being able to minimize taxation but also being able to maximize government benefits, especially OAS. Too often "claw backs" occur due to a lack of information and planning.
GIFs, also know as Segregated Funds, are investment funds held by insurance companies that are "segregated" from their insurance assets. Their holdings and returns mirror the performance of an index or a mutual fund available in the open market. What makes them different is that insurance contracts enjoy more favourable tax treatment than investment company or bank held assets in that non registered assets can be assigned a beneficiary (like a life insurance contract.) They are credit proof* which is particularly beneficial for business owners (funds must have been invested in good faith, not with the intent of hiding them after there was the threat of, or intent of bankruptcy or an impeding divorce etc*) Because they flow directly to a beneficiary, rather than publicly through your will, the assets remain private by-pass probate fees and allow for more control. "Control from the grave" sounds odd but if you have a beneficiary that you are concerned would go on a "spending spree" with their inheritance then Guaranteed Investment Funds are worth considering. I'm not even touching on the guarantees right now because they are an added bonus. When designating a beneficiary you have the option of structuring how they will receive the funds without needing to set up and have a trust fund managed upon your death. An example would be that you would want a certain amount paid out over 10 years versus all at once or perhaps 20% spread over the next 5 years. It is up to you and your advisor to design the beneficiary designation that is right for you. Have a "special someone" or cause that you'd like to leave money to without it becoming a matter of public record? That's where the privacy factor really stands out. Only your beneficiary need know that you have made them a beneficiary (so they can claim). Sometimes it's as simple as wanting to leave money to your brother whom your partner can't stand! That's okay, they don't need to know.
Life Insurance purely for Estate Planning-when it comes to life insurance most realize its value in protecting a young family but few realize the tremendous benefits of using it in estate planning. The wealthier you become the higher the taxation and probate fees your estate will face; leaving less for your beneficiaries. Real Estate and Business holding really drive up the values as do all your registered assets (RRSPs/RRIFs) which are taxed as income in the year of death, really wrecking havoc. Sometimes people say "I've done enough for my family, they can enjoy what's left." Fair enough but do you realize you've just benefited the CRA instead? Taxes need to be paid, probate fees can be lessened but by using pennies on the dollar with insurance premiums you are not giving up a chunk of what you have worked so hard for to the CRA. Instead, your premiums will be the sliver you pay so that an insurance company can assume the responsibility of paying off those taxes upon your estate, preserving more for those that deserve it so much.
Capital gains taxes and Registered assets will truly shrink an estate. Find out how GIFs and Permanent Life Insurance can restore those values.
Not to be confused with Scholarship Education Plans whose funds are pooled together; An RESP can be set up for an individual or as a family plan and is fully controlled by you-the Subscriber. As soon as your child has a SIN you can start their plan but don't wait past age 15 (the rules are trickier). You invest into mutual funds, decided upon according to your risk tolerance with your advisor and contribute as little as $25 month or a lump sum of $500 without any further commitment. Of course, monthly contributions are best-why not use part or all of your child tax credit? RESPs have come a long way, as has the need for some post secondary education. If you have, or plan to have, more than one child then you will definitely benefit by the increased flexibility of a family plan if one child doesn't go to school at all or only for a short time where the other may sign up for 7 years of schooling! The plan can stay open for 35 years because sometimes it takes a little longer to find an interest to pursue. The EAP-educational assistance payment, not the full withdrawal, is taxed in the student's hands each year that they make a withdrawal, once enrolled in a qualifying institution. So, unless they are earning much more than their allowed personal exemption each year then they will not have any tax to pay. The subscriber can change the beneficiary to anyone, including themselves, to use for post secondary education. It is highly unlikely the plan would not get used but worse case scenario; the subscriber would take back what they contributed tax free (it was your after tax money) but the grants would need to be returned to the government and the growth would be taxed back to the subscriber at their marginal rate and a 20% penalty so in this case they'd be best rolling those amounts into their own RRSP, assuming they have the room. Working with an advisor will ensure that the right decisions will be made along the way.
For every dollar you contribute (up to $2500 year) the government will kick in a 20% grant. Didn't start right away? Carry forward one unused year's room and double the grant from $500 to $1000 on a $5000 contribution (until you are caught up). Maximum lifetime grant is $7200.
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