Posts Tagged ‘life insurance’

Why are employees leaving free pension money on the table? – The Globe and Mail.

Fred Vettese is the chief actuary at Morneau Shepell, a human resources and actuarial consulting services firm.

Canadians are forgoing as much as $3-billion annually by not taking full advantage of employer matching contributions within their company defined contribution (DC) pension plans, according to a recent Sun Life Financial report. One has to wonder why employees would pass up free money when there are no strings attached.

Employees in most DC plans have the option of contributing extra, and if they do, the employer makes a matching contribution on their behalf. Sometimes it is a partial match, such as 50 cents for every dollar contributed by the employee, and sometimes it is a full match. Employers offer contribution matching to encourage employees to save more for retirement.

To gain some insight into why a significant percentage of DC participants balk at contributing more, I analyzed data from a number of DC pension plans for which Morneau Shepell does record-keeping. My investigation, which encompassed tens of thousands of employee records, turned up the following:

  • About one third of participants in a given plan do not make an optional contribution, even if it is 100 per cent matched by the employer.
  • Up to two thirds will not make an optional contribution if the basic required contribution they are already making is high, such as 4 per cent of pay or more.
  • One would expect older employees to contribute more since they will get their hands on the employer’s money sooner. But it turns out the impact of age is quite minimal, especially if we correct for salary differences. In some groups, a fifth of the employees in their 50s do not make optional contributions.
  • Salary level has a big impact on optional contribution rates but only up to the average national wage level – the low $50,000s. In one case, nearly half of employees in their mid-40s who were earning under $50,000 opted not to contribute versus only 18 per cent of employees in the same age group who were earning over $50,000.
  • In plans where the range of optional contribution rates is limited, the employee’s decision is practically binary. The vast majority either contribute enough to earn the maximum employer matching or they contribute nothing. This suggests that deciding how much to contribute is not based on ability to pay or on perceived retirement income needs, but rather on whether or not one understands the idea behind the optional matching.

What is noteworthy is that many of the employees who elect not to make optional contributions to their DC plans still contribute to their own Registered Retirement Savings Plans (RRSPs). According to Statistics Canada data, over half of the participants in pension plans, including DC plans, also contribute to RRSPs. A rough estimate is that several hundred thousand DC plan participants are forgoing employer matching contributions in their DC plans and instead make personal RRSP contributions that are not matched.

Read the rest of the article here…

Why are employees leaving free pension money on the table? – The Globe and Mail.

How to transfer cottage ownership – and reduce the tax bite

TIM CESTNICK

Special to The Globe and Mail

Published Wednesday, Jun. 11 2014, 5:38 PM EDT

Last updated Thursday, Jun. 12 2014, 2:21 PM EDT

 

Cottage memories are like none other.

If you’re visiting a friend’s cottage this summer, here are a few tips that will be sure to create lasting memories for everyone: Bring four very large suitcases (store one in each bedroom if necessary), bring at least two dogs (those with digestive problems are best), start a fire (preferably outside the cottage, and big enough to burn a picnic table), roast marshmallows (bring those mini ones with toothpicks and see who can stand the heat) and scare the kids (ghost stories to give them nightmares for three days can add to the fun).

How to transfer cottage ownership – and reduce the tax bite – The Globe and Mail.

Critical illness insurance is a type of protection that provides you with a lump sum payment if you are diagnosed with a covered critical illness and survive a waiting period (which is usually 30 days). With the advancement of technology more people are fortunately surviving these conditions but are often unable to get back to their pre-condition potential.

What’s the difference between disability and critical illness insurance?

Unlike disability insurance (that pays out a percentage of income as a monthly benefit), critical illness insurance actually pays out the entire tax free lump sum immediately, giving you flexibility to use the money as best needed. That’s where the critical illness benefit comes in—you are free to spend the money as you wish—such as to help cover lost income, to pay for private nursing or out-of-country treatment, for medical equipment or even to pay off your mortgage. It can help you where you need it most so you can focus all your energy on recovering.

NOTE: I have seen the benefits of this coverage first hand when my partner Tom suffered a heart attack in 2007 and fortunately had this coverage in place (although he didn’t take us to Hawaii like he said he would!!)

Could A Critical Illness Really Happen To Me?

(not the funnest facts but definitely an eye opener):

80% of heart attack victims survive
2 in 5 Canadians will develop some form of heart disease during their life time
Half of heart attack victims are under 65
153,000 new Cancer case in Canada in 2006
1 in 3 develop cancer in their life time
There are 40,000-50,000 strokes each year in Canada
One third of stroke victims are under 65
300,000 Canadians are living with the effects of stroke
Approx. 75% of all Canadians that suffer a stroke will survive but will be left with some form of disability
Sources: Heart & Stroke Foundation (2006), Canadian Cancer Society, Canadian Cancer Statistics (2006), Veterans Affairs Canada (2006)

As an independent insurance broker with Manion.ca,  we have contracts with all the top insurance carriers allowing us to shop the market to find the right critical illness insurance product for you at the best price.

Need more information?

For more information on Critical illness insurance in Maple Ridge & Pitt Meadows BC please 

What is critical illness insurance?

Answer: Critical illness insurance is a form of health insurance that provides a lump-sum payment should you become seriously ill.

What are the types of illnesses covered by critical illness insurance?

Answer: Although they differ from company to company, typical illnesses and diseases covered by critical illness insurance may include:

  1. cancer
  2. heart attack
  3. stroke
  4. blindness
  5. Alzheimer’s
  6. multiple sclerosis
  7. organ transplants
  8. kidney failure
  9. paralysis

Coverage can also vary according to the degree of severity of, or conditions associated with, an illness or disease. For example, if you are diagnosed with a type of cancer that is treatable and that results in minimal “down time”, you may not be eligible to make a claim. Coverage cannot be purchased for a pre-existing condition or illness. It is important to ask your insurance representative to provide you with a complete explanation of your coverage.

Do I need critical illness insurance?

Answer: Almost certainly, Yes! The risk of suffering a critical illness or disability is unbelievably high.  Calculate your risk here.  You should also consider your personal circumstances and the added financial strain that could be brought about by dealing with a serious illness or disease. Public and private health insurance plans typically do not provide coverage for day-to-day living expenses such as travel to and from treatments, home care and child care.

How much does it cost?

Answer: Generally, the younger and healthier you are, the lower the premium (cost). However, the cost varies depending on your age, medical condition, the amount of coverage, the number of illnesses covered by the policy, and the insurance company. When shopping for a critical illness plan, you should consider your income, financial obligations, dependants  and health care needs.

How can I make a claim?

Answer:You can make a claim if a physician, licensed to practice medicine in Canada and specializing in your particular illness, diagnoses you with a critical illness or disease covered by your policy. Generally, a lump-sum benefit payment will be made to you 30 days after the claim has been approved. There are no restrictions on how you use the money. Once your claim is paid, your critical illness insurance policy ceases.

What if I never make a claim?

Answer: If you die for a reason not covered by the critical illness policy, the premiums you paid may be refunded to your named beneficiary. Some plans will return the premium or a portion of the premiums paid during the life of the policy if the policy matures and no claim has been paid.

Is long-term care insurance the same as critical illness insurance?

Answer: No. Long-term care insurance provides for personal care on a long-term basis if you need supervision or assistance with daily living activities due to a chronic illness, disabling condition or cognitive impairment. Long-term care policies generally reimburse, up to a specified limit, the expenses incurred for various types of care, such as nursing home or home health care; or they pay a pre-determined benefit amount on a daily or monthly basis.

Is disability insurance the same as critical illness insurance?

Answer: No. Disability insurance, also known as “income replacement” insurance, provides a monthly income replacement benefit if you become disabled and can no longer perform the normal duties of your work. Generally, the benefit is limited to a percentage of your regular income and ceases once you earn an income or you no longer meet the definition of disability in the contract.  Unlike critical illness insurance which provides the full policy benefit in a lump sum payment on diagnosis of a critical illness, long-term disability policies may have a waiting period from the onset of disability. Unlike critical illness benefits, long-term disability benefits may be affected by other income you receive or by your full recovery from the illness.

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Everyday on the news we are reminded that the Canadian health care system is in a state of crisis.  Those who have family or friends on long-term care waiting lists or in a facility already,know that the situation is becoming desperate.  The shortage of long-term care beds is so severe hospital beds, already in short supply, are occupied by those awaiting transfers to long term care facilities. Often that wait can last years.  Even 20 years ago when my great grandfather waited for placement in suitable facility given he had Alzheimer’s, the wait was over a year.  That was 30 years ago, today the situation is far far worst!

With growing pressure from an ageing population, the system simply cannot handle the increasing burden. Consider this:

  • In 1900, 7% of all adults were over age 65
  • Currently, 17% are over age 65
  • By 2020, over 23% will be over 65
  • The number of Canadians aged 80 and over will double in the next 20 years – and triple in the next 40 years
  • The number of seniors in Canada has increased by one million in the last decade
  • By the year 2036, it is expected that there will be between 4.6 million and 5.1 million seniors with disabilities
  • By 2020, there will be as many seniors as children!

Currently we are spending $4.1 billion each year on Alzheimer’s and dementia. In 20 years, the number of seniors afflicted with some form of dementia will more than double, to 750,000.  With an ageing population comes the increasing costs.

Our medical system is already unable to deal with this. Even in general, the system is overburdened.  Have you had wait in an Emergency Room lately?  How about wait for an appointment with a specialist?  Or how about the dreaded surgical wait list?  Do to the increased demand and pressures there has been a shift towards “less costly” community-based care and a dramatically increase in the demand for home care.  At the same time the average number of home care hours you might have received a few years ago has dropped from over 20 hours per week to just 2-4 hours per week!

Again, those of us who have elderly parents and friends might be forgiven for feeling somewhat cynical about the current debate surrounding two-tier medical services. When it comes to long- term care for our loved ones, it is readily apparent that a two-tier system is already well entrenched. In short, the services are available, if you can write the cheque.

So…what are the chances that you will need long term care? It’s true, we are living longer – in fact, in 1996, life expectancy at age 65 was 18.4 years, 5 more than in 1941. But the other side of the coin is that of those 18 years, on average, 9 are relatively healthy, and the other years include 3 years each of slight, moderate, and severe disability. In fact, it is estimated that at least 40% of all people over 65 will need some form of long-term health care services.

Traditionally, we have counted on the government to provide for our medical needs, but when it comes to long-term care, you can expect the following from our medical system:

  • Long waits, up to three or four years just to get into a facility,
  • Outdated and overcrowded facilities,
  • An annual financial assessment, to determine the level of subsidy received,
  • No choice of location, both in terms of which facility and which community! (You could end up in a town awy from friends and family)
  • Reduced services.

The combination of high cost for private home care or facility care and public care or financial assistants being based on an analysis of your financial means… You could find your retirement savings liquidated in a few short years.  Consider the following:

  • Current home care costs about $30 per hour, and up to $50 per hour for some services
  • Even a government facility will cost you from $750 to $1500 per month, in addition to the subsidy
  • Private facilities range from $2500 to $7000+ per month! And don’t forget, this is the cost per person, not per couple.

There is an option to help protect your choices and your finances.  Long-term care insurance covers virtually all of the expenses of long-term care, either in your own home or in a facility, for periods ranging from a few years to lifetime coverage.

Those of us involved in financial planning, long-term care insurance may be the most important financial tools available to Canadians.   Long term care insurance may be the only option to protection us from the loss of our lifestyle, our independence, and our control over our health and finances.

As I once heard it so eloquently put , “Most people want to choose where they go, instead of having to go where they are taken…”

How do you determine the amount long term care insurance you need, given the future is so unpredictable?  Simply buy as much as you can afford.  The demand for and costs of are going to increase and increase a lot!

Dollar cost averaging

Dollar cost averaging is a technique designed to reduce market risk through the systematic purchase of securities at predetermined intervals and set amounts. Many successful investors already practice without realizing it. If you participate in a regular savings plan, you are already using this tool. Many others could save themselves alot of time, effort and money by beginning such a plan.

 Dollar cost averaging can lower an investor’s cost of investment and reduce his risk of investing at the top of a market cycle.

The beauty of dollar cost averaging is that you buy more shares when prices are low and fewer shares when prices are higher. The result is an average cost that is better than trying to time the market with your investments.

What is Dollar Cost Averaging

Instead of investing all his money at one go, the investor gradually builds up a position by purchasing smaller amounts over a period of time. This spreads the average cost over the period, therefore providing a buffer against market volatility.

In order to begin a dollar cost averaging plan, you must do three things:

  1. Decide exactly how much money you can invest each month. To be effective, you should have sufficient funds to continue investing through the market cycle.
  2. Select an investment (index funds are particularly appropriate) that you want to hold for the long term, preferably five to ten years or longer.
  3. At regular intervals, weekly, monthly or quarterly, invest that money into the security chosen.

An example of a Dollar Cost Averaging Plan

Here’s how it works. The principle is simple: Invest a fixed amount of money in the market at regular intervals, such as every month, regardless of whether the market is up or down.

Let’s assume you have $12,000 and you want to invest in a stock. You have two options: you can invest the money as a lump sum now, walk away and forget about it, or you can set up a dollar cost averaging plan and ease your way into the stock.

You opt for the latter and decide to invest $1,000 each month for one year. Assume further that the stock started at $10 per unit and reaches $16 per unit a year later.

Had you invested your $12,000 at the beginning, you would have purchased 1,200 shares at $10 each. When the stock closed for the year in December at $16, your holdings would only be worth $19,200!

Had you dollar cost averaged into the stock over the year, however, you would own 1,643 shares as shown in Table 1; at the closing price, this gives your holdings a market value of $26,228.

 

Why Dollar Cost Averaging Works

The system works because it takes the emotion and temptation to time the market out of the process. You establish an amount that is comfortable for you to invest and let the market work for you. The system takes the decision-making elements of how much to invest and when to invest out of your hands. Dollar cost averaging solves this problem by eliminating the need to predict an entry point.

Chart 1 shows what happens when you invest $1,000 per month for twelve months in an investment that fluctuates in price. The average market price per unit is $8.08. Look at Table 1, your average cost per unit = $12,000/1,643 which is approximately $7.30. Thus, the example shows that you don’t have to guess when to purchase shares to get a better price.

Will dollar cost averaging guarantee you a profit? No system can do that. However, if you buy quality investments and continue dollar cost averaging over a long period, you will have a much better chance of success than trying to get in and out of the market at the right times.

Buy Low, Sell High

For long-term investors, dollar cost averaging is a powerful tool that takes much of the emotion out of investing and lets the market work for you. One of the major problems facing individual and professional investors alike is determining when to buy a particular stock or, in other words, how to find the bottom of a price swing. The problem is that no one is consistently correct in calling this point on individual stocks and certainly not on the whole market. If you miss this point and the stock begins to move up, you have lost some of the potential gain by not buying at the right point. Very few people buy at the bottom. Those who do, typically happen to have been averaging all the way down.

Market timing is a dangerous game, especially when practiced by beginners, who typically tend to over expose themselves to the market. Market timing is an attempt to predict future price movements through use of various fundamental and technical analysis tools. The real benefit of knowing what is going to happen is that your return from buying a stock before it takes off is better than if you had bought the stock on its way up.

Market timers are the ultimate “buy low and sell high” traders. Day traders, who move in and out of positions in minutes or hours, are the extreme market timers. They look for small profits by the dozens each day by capitalizing on swings in a stock’s price.Most market timers operate on a longer time-line, but may move in and out of a stock quickly if they perceive an opportunity.

There is some controversy about market timing. Many investors believe that over time you cannot successfully predict market movements. Market timing becomes more of a gamble in their opinion than a legitimate investing strategy.
Market Timers and the Next Big Thing

Some investors argue that it is possible to spot situations where the market has over or under valued a stock. They use a variety of tools to help them predict when a stock is ready to break out of a trading range. Usually, the market proves them wrong. Stock prices do not always move for the most logical or easily predictable of reasons.

An unexpected event can send a stock’s price up or down and you cannot predict those movements with charts. The Internet stock bull market of the late 1990s was a good example of what happens when investors in the excitement of the moment, consciously or not, overpay for their investments. Those who bought then are not likely to have made much money.

Everyone has a hot tip about the next “big thing” and investors are always jumping on stocks as they shoot up. Unfortunately, most of these collapse just as quickly as many investors typically hold on way too long. The disastrous result is usually the exact opposite of what they were hoping for. In the end, it is usually a case of “buying high and selling low”. For most investors, the safer path is sticking to investing in solid, well-researched companies that fit their requirements for growth, earnings, income, and so on.

In conclusion, dollar cost averaging takes the emotion out of decision-making and is a useful tool for the individual investor who wants to buy and hold a stock for the long term. Over time, it will usually result in a better entry price than timing when to buy.

If you look for undervalued stocks, you may find one that is poised for moving up sharply given the right circumstances. This is as close to market timing as most investors should get.

Learn how this strategy can help a cause and save tax for your heirs

Philip Porado, Jul 9, 2012

Most people don’t know how they can use annuities and insurance to boost their charitable giving.

“People are saying, ‘Don’t buy annuities now because interest rates are low,’ ” says John Jordan, CFP, an insurance and estate planning specialist. The other common argument is that life insurance is expensive, but Jordan asks, “Expensive compared to what?”

Insurance may be pricey at the front end, but it hedges against a person’s longevity and inflation by obtaining a policy for a larger sum than you would be able to amass in cash.

via Gift Insurance to Charity | Canadian Capital.