3 Tips For Making A Successful Insurance Claim

While you consistently pay your insurance premiums each and every month, when it comes time to file a claim, you may find that getting paid out for any damages could be harder than you think. But if you get in a car accident, have a house fire, or get your property damaged, you’re likely going to need the money from your insurance company to pay for the repairs or replacement. So to help ensure that you can successfully file your insurance claim and get the money you need, here are three tips you should follow when working with your insurance carrier over a claim.

Call Your Insurance Company Once You Begin A Claim

To give you the best chance of getting your insurance claim paid out, Nathaniel Meyersohn, a contributor to CNN Money, recommends that you call your insurance company as soon as you’re ready to start filing your claim. When you speak to them, ask them what the next steps you should take are and what information or actions they need you to provide. By following their rules about filing a claim, you can ensure that you don’t waste any of your own time trying to figure it out on your own. Also, if you need immediate help, speaking directly to your insurance company can help expedite certain processes, like sending out a claims adjuster.

Give All The Information Up Front

To get everything moving at a good clip for your insurance claim, it’s important that you acquire all the right information to give to your insurance carrier. Especially when you have a car accident and are injured, it’s vital that you give your insurance carrier all the information you have regarding what happened at the accident. For example, DMV.org advises giving them your name and policy number along with the date of the incident and the personal information of anyone who was involved in or witnessed the incident. By providing all the information up front, you can keep from having to go back and get more and more information, which can prolong the conclusion of your claim.

Rigorously Document Your Destroyed Belongings

In the instance of something like a house fire, it’s important that you keep track of all the damage that was done and which of your belongings you’ll need to replace. To do this, FindLaw.com recommends making a list of everything that you own and keeping everything, even the things that are ruined, until you’ve been paid out for your claim. This will ensure that you have proof regarding your belongings and give you a greater chance of getting everything you need replaced.

To ensure you get covered for all that you should, consider using the tips mentioned above when making an insurance claim.

Will Tesla Reduce Your Auto Insurance Premiums?

Tesla, Inc (TSLA) stock is trading around $326 per share heading into November, and the company has a market capitalization of $54.449 billion. The price-to-earnings ratio is -67.26, and the earnings-per-share is $-4.85. However, despite these underinflated statistics, Tesla Inc. is on the cusp of implementing major innovations. In Q3 2016 analysts pegged Tesla’s earnings estimates at $-0.54, while the actual earnings came in above expectation at $0.71. However, in Q4 2016, estimates were $-0.43, and actual earnings were $-0.69.

By Q1 2017, forecasters estimated earnings of $-0.81 with actual earnings of $-1.33. By Q2 2017, Tesla started turning things around with an improved performance over estimates ($-1.33 actual earnings versus estimates of $-1.82). The next earnings date is slated for 1 November 2017, and analysts are anticipating earnings of $-2.26. The reason Tesla’s actual and estimate earnings figures are negative is the company has invested heavily and not generated the necessary returns. As soon as Tesla starts rolling out mass production of vehicles, the EPS figures will improve. Everybody agrees that it is a value stock, with high earnings potential in the future. Consider the following revenue and earnings figures since 2014:

  • In 2014, Tesla generated revenues of $3.20 billion with earnings of $-294.04 million
  • In 2015, Tesla generated revenues of $4.05 billion with earnings of $-888.66 million
  • In 2016, Tesla generated revenues of $7 billion with earnings of $-674.91 million

As far as recommendation trends go for the stock, the consensus among Thompson’s Reuters analysts is a rating of 2.8 on a scale where 1.0 is a strong buy, and 5.0 is a sell. Most analysts regard it as a hold stock, with a high minority as an underperform stock, and a small minority as a buy/strong buy option. The recent upgrades and downgrades history for Tesla is interesting. On 4 October 2017, Nomura initiated an upgrade on the stock to a buy rating. However, on the same day, Standpoint Research downgraded the stock to a sell from a hold rating. Despite these negative performance figures, this is not a stock to be summarily dismissed.

Why Tesla Is Revolutionizing the Automobile and Insurance Industry

Despite lackluster performance in terms of profitability and EPS, Tesla remains at the forefront of innovation. The company was founded by South African born Elon Musk – an entrepreneur with bold ideas. He has been credited with founding many of the world’s most cutting-edge solutions such as PayPal, Zip2Corp (which he sold for $307 million), X.com, Space Exploration Technologies Corporation (SpaceX) and of course Tesla. The ground-breaking work and creative vision of Musk and company has raised the bar in the technological arena and is causing a paradigm shift in the way industry is operating.

Already, Tesla plans to roll out a wide range of affordable vehicles that do not run on fossil fuels. His electric cars have won critical acclaim from major industry authorities such as Motor Trend Magazine, among others. Musk is all about maximizing, harnessing and producing clean energy which benefits humanity. This is invariably going to cause tectonic shifts in the way that the automobile industry, the energy industry, and the automobile insurance industry functions. By incorporating artificial intelligence into vehicles’ navigation systems, driver safety will be dramatically enhanced.

This will naturally reduce the human error component that is an intractable component of current automobile insurance premiums. By reducing the probability of accidents through AI technology and smartcar functionality, humanity can save a bundle on automobile insurance. Already, Tesla, Google, General Motors Corporation others are working on the requisite technology to enable vehicles to self-drive. The sci-fi vision in Hollywood is becoming a reality for the masses. Flying cars may be next, and companies like Tesla are spearheading this initiative with clean energy, low cost, and maximum efficiency.

Getting Cheaper Home Insurance is Now Possible

You might worry about getting insurance all the time. You want to get it, but you are also thinking about the cost. You have to pay for it on a monthly basis so you are eligible to claim for insurance whenever you need it.

 

The price is usually the factor why you might be having a hard time with quality home insurance. In as much as you want to get insurance now, you think about how much you need to spend for the next months or so. Sometimes, you end up doing the wrong thing which is to buy insurance which is of low quality and poor coverage. You don’t have to do it. You can still get quality insurance at an affordable cost. Here’s how you can do it.

 

Install security features

Some insurance companies are willing to lower the price if you can prove that you have already installed security features at home. Getting security cameras is important. This helps in insurance fraud disputes. You can also install alarms and sprinklers to protect the property against full damage. You just have to show that you have done everything to avoid destruction and insurance companies will be willing to put a lower premium on your policy.

 

Get bundles

If you have more than one property, you can get insurance from the same company for all of them. This allows the company to give you a lower price for your insurance. There are also those that are willing to bundle different types of insurance such as car and house policies together. The goal is to stay loyal to them and you will easily have lower rates for your insurance policy.

Pay annually

This is only feasible if you can afford the really high cost. However, if you can afford to do it and the amount is quite different from that of the monthly payments, just go for it. Besides, paying annually means you won’t have to think about it again for the entire year.

 

Now that you know that rates for Insurance and Protection can be lowered, you no longer have an excuse for still not having it. You have to keep searching until you are satisfied with an insurance company and the policy it offers. You should also read reviews about the company you are to partner with. They must give you quality insurance at an affordable cost. Unless all your personal standards are met, you should keep searching for other options. Rest assured, there is an insurance policy that will surely meet your needs. Once you have found the right partner, close the deal and be consistent in paying the premiums.

3 Financial Tips For Saving On Car Insurance

Car insurance is one of those things that everyone has to have but no one likes to really talk about. However, if you did talk about it more, you may come to find out that there are some simple yet effective ways that you could be saving money on your car insurance that you didn’t even realize. This savings could equate to quite a bit of money over the course of a year, and who couldn’t handle having a bit more money to play with? To help you find some savings with your own car insurance, here are three financial tips for saving on car insurance.

Check Rates From Various Carriers

When you first got your car insurance, you likely shopped around to find the best coverage at the lowest price. Depending on how long ago that was, you may have had your driving situation changed in a way that could give you lower rates with a carrier different than your current carrier. However, you’ll never know unless you ask. For this reason, Jon Linkov, a contributor to Consumer Reports, recommends doing an annual rate check to see if you could get a lower rate by switching insurance providers. While this might mean going through some work on your end each year, this could amount to some major savings for you on a year-to-year basis.

Group Insurance Policies Together

Like was mentioned above, you may have got your insurance a while ago. Since then, if you’ve added any other type of insurance into your life through a different insurance carrier, it may be worth your while to see if you could save some money by grouping your insurance policies together. Chris Morris, a contributor to Bankrate.com, shares that many insurance companies will let you stack discounts if you choose to have multiple lines of insurance through them. Not only could this save you money, but it could also simplify your life by only having one insurance carrier for all your insurance needs.

Only Get The Insurance You Need

If you look at the details of your car insurance, you’re likely paying for quite a few types of things. Some covers the people in your car, some covers your actual vehicle, and some covers others if you happen to get in a car accident. But if you haven’t looked at your policy in a while, you might actually be paying for things you no longer need or no longer need the amount that you’re currently paying for. Barbara Marquand, a contributor to NerdWallet.com, suggests looking at your current policy and dropping certain coverages that are no longer applicable, like collision and comprehensive insurance. While this won’t work for everyone, if you can go without it, you could save yourself some money on your premiums.

If you’re interested in saving money on your car insurance, use the tips mentioned above to do just that.

How to Save Money on Your Home Insurance

Insurance is not always a top priority if you don’t have much spare cash. People often forgo insurance when they are struggling to buy food or put fuel in the family SUV.  This is understandable, but insurance should never be regarded as an optional extra.

In some instances, insurance is compulsory. In many countries, it is illegal to drive a vehicle on a public road without some kind of insurance. You won’t be breaking the law if you don’t buy a homeowner’s insurance policy, but you could end up homeless or seriously out of pocket if a bad storm flattens your property or mice chew the electrical circuits.

Taking out home insurance is sensible, so if you are looking to save money on your policy, here are some useful tips.

Compare Prices

It is always worth comparing prices when you need any type of insurance. Use price comparison websites to compare prices for the major insurance companies, but don’t forget to ring around some local insurance brokers to see what they can do for you. Local insurance agents such as State Farm Calgary are usually happy to price match a verified quite, and since they offer a more personalised service, it could be a smart move to go ‘local’.

Make Your Home More Secure

Home security is a weak spot. Many insurance claims are security related, for example, if an outbuilding is broken into and expensive tools stolen. Improving your home’s security will help to reduce the cost of home insurance, so it is worth investing in new doors and windows, improving locks, and adding a high-tech alarm system.

Check out the guidelines for each insurer to see what discounts they offer for higher specification home security.

Accept a Higher Deductible

Deductibles are the sums you agree to pay up front when you make a claim. The more you agree to pay, the lower your premium will be. However, bear in mind that a very high deductible may not bring your premiums down all that much.

Reduce the Risk of Claims

Each time you make a claim on your home insurance, it puts your premiums up. Insurers calculate premiums based on the likely risk of paying out on the policy, so if you have made recent claims, you can expect to pay more. Clearly, we buy insurance to protect us in the event we need to make a claim, but it is only sensible to take precautions against future claims.

Check to see if there is anything you can do to protect your home against bad weather or criminal damage. Invest in storm shutters or make repairs before they snowball into more expensive problems. Your insurer will thank you for being a proactive homeowner.

Ask for Discounts

Many insurers offer discounts to homeowners if they take out a second or third insurance policy. Buy your auto insurance and home insurance policies from the same agent and you should be offered a discount. If not, try a different company.

Don’t accept the first price you get. There are always ways to find cheaper insurance, but be careful not to go with a company that is rated badly for customer service.

Why no exam life insurance policies may be the right option for you

When it comes to life insurance policies there are plenty of different ones to choose from. The majority of policies will ask that you undergo an underwriting process that includes a medical exam to take place. But not all of them.

Not long ago, you would pay dearly for the right to skip the exam, not so anymore.

“Due to advancements in digital underwriting, the price gap between no exam policies and exam policies has narrowed significantly in recent recent years” – Ty Stewart – Founder of SimpleLifeInsure.com

Here are the 4 reasons why these no exam life insurance policies could be the right ones for you.

You need your coverage quickly

Usually, the underwriting process of a standard life insurance policy is between 6 and 8 weeks. Whilst some people may be happy to wait this long, there are times when this period may simply be too long to wait.

This includes:

  • When you are applying for an SBA loan, which will often require life insurance to be in place
  • When you are in the process of a divorce and it requires you to have your former spouse named as beneficiary in a life insurance policy
  • You are in the process of selling or assigning pension rights to a third party
  • You are planning to be on vacation or will be out of the country for a long period of time

In all of these situations, a life insurance policy that does not require a medical exam may be ideal.

You haven’t been able to visit your doctor for some time

You may not realize it, but the date you last visited your doctor may be the difference between your policy being approved or declined. If it has been more than 2 years since you last visited your doctors, then you may want to carefully consider applying for a life insurance policy. 

Whilst you are likely to think that you are in great health, a medical exam may uncover a medical condition that you didn’t know was there.

A great idea for you may be to apply for a policy that does not require you to undergo a medical exam. Even if this is just a stop gap until you can have your health checked over and then apply for a policy that does require the physical.

You have a phobia of doctors, needles or blood

For some people, the thought of visiting a doctor fills them with terror. If this is the case, then a life insurance policy that requires them to undergo a medical exam may not be possible.

The idea of heading to the doctor may make you feel anxious and stressed. Not only can this make it difficult to even get to the doctors, but when you get there your blood pressure could be higher than normal. Having an impact on the readings taken by the doctor.

The level of policy value you need is low

Some people may require higher level insurance coverage (in excess of $1million). For these people, you will not be able to take out a policy without a medical exam.

The average policy amount that is taken out on policies that do not have a requirement for medical exams are around $500,000. This level is suitable for a huge amount of the population.

If you are not sure whether or not a policy without a medical exam is suitable for you, then it is best to seek the expert advice of an independent broker. They can work with you to identify the best approach to take.

When you Should Go With “No Exam” Life Insurance

The idea of “no exam” life insurance can be a real problem with insurance advisors looking to decide if it is right for their client or not.

No exam life insurance typically comes with less coverage, with an average of under $400,000. These policies are also often more expensive than medically underwritten policies. Another problem with them is that the companies that offer this style of insurance tend to be less-known than larger companies. “Even though no exam life insurance is a little limited,” says TrueBlueLifeInsurance founder Brian Greenberg, “there are some occasions when it can be the right choice for your client.”

To help you gain a better understanding of whether a no exam life insurance policy is the right choice, here are five occasions when it could be.

  1. Convenience

Many clients feel that the convenience of getting a no exam life insurance policy outweighs having to pay higher premiums. Some people are just far too busy to have a medical exam performed even if they know they need it for the coverage. Instead of having to wait for the client to undergo a medical exam they can just call you or have a short meeting to go through the application. You can apply for a no exam policy in less than 20 minutes and the client will have coverage from a great company in just 24 hours. They could also choose to undergo a medical exam later on to have their premiums lowered.

  1. If they Need Coverage Quick

There are many clients who need to get coverage in a hurry. There could be any number of reasons for this including needing to secure a loan or divorce arrangements. No exam policies are great in this case because they can have their policy ready in 24 hours. If a customer needs to have quick coverage but needs to be covered for more than $400,000 they can take the approach of having a “stack policy”. If the client needs to have over a million in coverage but don’t have the time to go through the underwriting process, then you can put the client on a number of no exam policies across several companies to give them the coverage they need. Of course if you take this route you need to be honest and upfront with the other companies, because there are rules on how much coverage a person can receive. This is dependent on their income and age.

  1. If They Want a Smaller Policy

If you’ve got a client that’s only looking for a small policy then it might not be worth going through the cost and time it takes to get an underwritten policy. Younger clients in particular have less time and money. There could be a price difference between the two policies that is so small it doesn’t make sense to take the time to go through with an underwritten policy. If a client born in 1984 needed to have a policy at $100,000 for 20 years then it will cost them around $11 a month for an underwritten policy rather than the $12 a month for a no-exam policy. That is a price difference of less than 10%. Of course the client is the one who will make the final decision, but it’s a good idea to offer a client a no exam policy at this point. While a no medical exam policy might only go up to $400,000 right now things could change in the future with more coverage offered.

  1. If They are Afraid of Doctors or Needles

There are some people who just hate going to the doctor. While it’s never fun to go through a paramedical exam for an underwritten policy, some people feel that it’s almost akin to torture at the worst, and an unnecessary unpleasantness at best. This paramedical exam can involve blood and urine samples and will often require people to welcome a complete stranger into their homes to have the exam done. Even though these examiners are almost always nice and polite, the exam itself is rarely nice.

There are also people who are just afraid of needles. The most recent reports suggest that this fear of needles affects 10% of American adults. It’s also believed that the actual number is higher. This is because extreme cases go unreported due to how infrequently these people will receive medical attention. These people would see a no-exam life insurance policy as a Godsend. You should ask your clients if there are any problems they would have with being subjected to needles and a medical exam. They often have plenty of reservations about the exam itself so you should let these people know that they don’t always have to undergo a medical exam.

  1. If it’s Been a Long Time Since they Saw a Doctor

Many advisors have found themselves dealing with clients who hear some bad news after their paramedical exam. This could be anything from a diagnosis of diabetes to an irregular electrocardiograms. In any event the client could count themselves lucky they are learning about these problems now rather than later. The problem is that it causes their insurance policy to be rejected or they may be asked to pay higher premiums. You can protect your clients from this. If it’s been a long time since they saw a physician you should recommend that they apply for a no-exam policy so that they can get coverage within 24-48 hours. You can get started with the underwritten policy while giving them a no-exam policy. You just need to get them some coverage before they take the full exam.

These no-exam life insurance policies are a pretty new policy that are going to give you a valuable weapon on your arsenal of life insurance policies. While some advisors are a little hesitant about offering these no-exam policies because they are often more expensive, it is also the responsibility of an insurance advisor to get their clients life insurance coverage when they need it. While clients might be put off of getting coverage for any number of reasons, it is also the responsibility of an insurance professional to ensure that their clients understand all of their options, including the fact that they may not need a medical exam to get life insurance. There’s never been a better time to offer no-exam life insurance policies to your clients.

What’s Asset Protection Insurance (“API™”)

While many are versed on home insurance, life insurance, car insurance and health insurance, few people know about the importance of Asset Protection Insurance (API). Asset Protection Insurance protects and safeguards assets from a variety of threats including litigation and creditor claims.  Individuals and business entities use asset protection techniques to limit creditors’ access to certain valuable assets, while operating within the bounds of debtor-creditor law.

API is a completely legal strategy.  However, experts warn effective asset protection begins before a claim or liability occurs, since it is usually too late to initiate any worthwhile protection after the fact. Some common methods for asset protection include asset protection trusts, accounts-receivable financing and family limited partnerships.

In addition to protection, Asset Protection insurance is meant to bridge the gap in coverage between your firm’s Professional Indemnity (PI) insurance policy and the total amount of a third party claim. It offers far wider and more flexible protection to the partners, members or directors than additional excess layer PI insurance on its own.

“It offers a ring-fenced financial reserve, which can be called upon to meet a number of potential costs and financial exposures if the PI insurance limit is insufficient to meet a devastating catastrophe claim,” says Perkins Slade an insurance company.

You may be asking yourself, “Well, Jeffrey Lipton what are the limitations to API?”

While API is broad and offers excellent protection, it is imperative to know how it works in order to benefit fully.  Firstly, creating an Asset Protection Strategy will offer little or no protection against those litigious or creditor situations whereby the event causing the problem happened prior to the setting up of the Strategy.

Only future-oriented protection can be achieved. 

Secondly, an iron clad Asset Protection Strategy will not offer enhanced taxation benefits and will likely be, at best, tax neutral in most cases. Although some benefits may accrue to future assets, they are best ensconced in a legal tax deferral scenario.

One of the most important aspects of a successful Asset Protection Strategy is to ensure that the structure itself is transparent. The most effective way to accomplish this besides asset protection is to insure that the assets pass irrevocably as they do in the case of API.  Under  an APIscenario assets legally change title and vest in a licensed, registered, and accountable fiduciary (i.e. the trustee) for the use of the beneficiaries.

By making the asset protection irrevocable and not a structure for tax purposes, all of the elements are declared and the client can then have the ability to use the law to in fact protect the asset. The API can then withstand the scrutiny and the test of time by being a program that accomplishes these goals for several generations to come.

Who needs API?  Any one who needs to protect themselves from economic predators, be they shareholders, clients, investors, friends or even family. An API strategy is imperative for businesses that carry the potential for litigation. These are the normal at risk businessman, professionals (i.e. doctors) and others who are either in a risk profession or have assets that need succession planning help.

A strong API strategy can protect assets and businesses that have been built over a lifetime and can give business owners and executives a deeper level of protection, thus resulting in peace of mind.

Every Retiree should Have a Pension!

Written by Steve Nyvik, BBA, MBA ,CIM, CFP, R.F.P.
Financial Planner and Portfolio Manager, Lycos Asset Management Inc.

When you’re retired, it generally makes good sense to have some part of your wealth producing a regular monthly income no matter how long you live.  If you don’t have a defined benefit pension, then you might consider a life annuity.  If the annuity is funded from personal resources (as opposed to RRSPs and corporate monies) the annuity may qualify for special tax treatment as a ‘Prescribed Annuity’.  As a result, most of the monthly receipts may be considered a tax-free return of capital giving you more after-tax income than what you’d receive from bonds or GICs.  We’ll talk about how an annuity works, how it is taxed, and the pros and cons.

 

In retirement, one should have a pension that pays you an income every month covering most of your basic living needs no matter how long you live.  If you don’t have a defined benefit pension plan, then you might consider buying a pension to supplement your retirement income – one such type of pension is a life annuity.

What’s an Annuity?

An annuity is a contract providing you with periodic cash receipts (normally monthly) in exchange for an up-front lump sum payment.  Those receipts may be for a pre-determined fixed number of payments (a “term annuity”) or they may be guaranteed for your life (a “life annuity”).

Where the annuity is with a life insurance company, the annuity contract is considered to be a form of insurance and may be protected from your creditors.

If the life insurance company defaults on its payment obligation to you, your periodic cash receipts may be covered for up to $2,000 per month or 85% of the promised monthly annuity receipts, whichever is higher through Assuris[1] (formerly Compcorp).

Where we expect to buy annuities that pay more than $2,000 a month, we might buy annuities from more than one insurer so that your entire annuity receipts are protected.

For an annuity, the amount of the periodic cash receipt you will receive for your lump sum purchase amount is dependent upon:

  • whether you select a term certain annuity or life annuity;
  • for a life annuity, the type of survivor annuity guarantee, if any, that you choose; and
  • prevailing interest rates and whether the cash receipts are to be indexed.

Having guaranteed periodic cash receipts is very attractive as you are assured a guaranteed return on your annuity capital and assured to receive a set amount regularly to cover part of your living expenses no matter how long you live.

Taxation of an Annuity

For Canadian tax purposes, annuities purchased with monies from a registered plan (eg. RRSP, RRIF or DPSP) result in the entire amount of annuity receipts to be taxed as income when received.

For annuities purchased out of “tax-paid dollars”, the receipts represent a blend of capital and interest.  The capital component being non-taxable and the interest component taxed as ordinary income.

For personal annuities purchased out of tax-paid dollars, you may choose the annuity to be taxed as a “Prescribed Annuity”[2].  In a Prescribed Annuity, the capital and interest receipts are fixed over the entire term of the annuity.  The estimated term of a life annuity is based on a standard mortality table of life expectancies.

So a Prescribed Annuity generates less taxable income in the early years than a non-Prescribed Annuity.  And if you believe you will live longer than your life expectancy, you may find a Prescribed Annuity may result in a lower amount of taxable income from the annuity throughout your lifetime.

Types of Life Annuities

a) Straight Life Annuity

Life annuities ensure that you receive a guaranteed income throughout your lifetime and not outlive your resources – no matter how long you live.

On your death the cash receipts will terminate, regardless of whether they were made for one week or for thirty years.

The amount of the cash receipts are based on annuity rates set by actuaries based on average life expectancies.  As women have a longer expected life span, the cash receipt paid to a woman will generally be lower than the annual receipt paid to a man.  A life annuity may only be sold by a life insurance company.

The Straight Life Annuity has the highest periodic cash receipt – but it is considered the riskiest form of annuity because of the possibility of premature death and loss of capital.

b) Joint Life Annuity

Under a Joint Life Annuity, in the event of your death, some portion of the cash receipts (such as 50%, 60%, 75% or 100% of the original cash receipt) will be paid to your spouse (or other named beneficiary) for the remainder of their life.

c) Life Annuity with Guarantee Period

Under a Life Annuity with Guarantee Period, cash receipts are guaranteed to be paid for your life but are guaranteed to be paid for at least a pre-determined number of years (typically 5, 10, 15 or 20 years).

In the event of your death occurring before the end of the guarantee period, cash receipts may continue to be paid for the remainder of the guarantee period to a named beneficiary, a trust or to your estate.  Alternatively, the remaining value of the guaranteed payments may be commuted with the lump sum paid to either your estate or to a named beneficiary.

d) Insured Annuity

Where preserving capital is also important, an Insured Annuity might make sense.  Under this option, both a life annuity and Term-to-100 life insurance policy are purchased.  Purchasing a life annuity allows you to receive higher cash receipts, but a portion of the receipts are used to make insurance premium payments.  So, on your death, part of your estate is preserved by the insurance proceeds that are paid either to your estate, to a named beneficiary, or to a Trust.

e) Corporate Owned Insured Annuity

An insured annuity can also make good sense as a strategy to reduce tax where it is owned through your private company.

If you own private company shares, on the last to die of you and your spouse, these shares are deemed disposed at market value resulting in capital gains taxes.  Taxes are payable a second time where company assets are disposed of (creating taxable capital gains) and distributed to shareholders (which might be in the form of dividends subject to tax).  So, your company investments are subjected to tax twice – once at your death and then again when realized and distributed.

If your company has surplus assets, it may be possible to reduce these taxes where the company buys a Non-Prescribed life annuity which reduces the pool of surplus assets.  Term-to-100 life insurance is then separately bought having a death benefit sufficient to replace the annuity capital.

What this does is convert surplus assets to a death benefit that can be excluded in valuing the company for tax purposes.  Most or all of this death benefit is credited to the Capital Dividend Account that can then be paid to your heirs tax-free.

The result is that through a corporate owned insured annuity you may be able to reduce capital gains taxes at death.  And this reduction in taxes can be greater than a plan to simply redeem company shares at death.

Annuity Illustration

Let’s say you’re a 65-year old man and you have $250,000 personally to invest.  You want to invest this money to provide you with regular income to meet your living needs.

One possibility (see “Option 1” on Schedule 1) is to buy a bond that earns 4.0%.  At the 40% tax bracket, your after-tax return is 2.7%.

Another choice (see “Option 2” on Schedule 1) is to buy a Prescribed Annuity for $250,000.  The annuity will pay you $19,996 each year no matter how long you live.  And as a Prescribed Annuity, only $5,431 of each year’s receipts is subject to income tax (i.e. 72.8% of the total receipts is a tax-free return of capital).  So at the 40% tax bracket, you’ll end up with $17,793 in your pocket each year.  A bond would have to pay interest at a rate of 11.86% to give you the same amount of income after-tax.

There are two reasons why you receive this big boost in yield.  First, you lose access to the capital – you’re only entitled to the monthly cash receipts.  This makes sense because the insurance company must invest those monies for the long term to generate excess returns to pay you your guaranteed return.

Second, on death, the cash receipts terminate leaving no annuity capital for your loved ones.  That’s where life insurance comes in.

This return of annuity capital (called an insured annuity) is shown under the third alternative (see “Option 3” on Schedule 1).  For a 65 year old non-smoking man, $250,000 of term-to-100 life insurance is purchased costing $656 per month.  (Note that with insurance you pay the first premium up-front).  That leaves $249,344 to buy the Prescribed Annuity.  The annuity will pay $19,913 each year of which $5,416 is taxable income.  When taxes of $2,167 and the full-year’s insurance premium of $7,872 are paid, you end up each year with $9,875 in your pocket.  A bond would have to pay interest at a rate of 6.58% to give you the same amount of income after-tax.

Schedule 1:  Comparing the Returns of Bonds to Annuities

Option 1

Option 2

Option 3

Option 4

Bonds

Prescribed Annuity

Insured Annuity

Charitable Insured Annuity

Investment Amount

$250,000

$250,000

$250,000

$250,000

Less: up-front insurance premium

($656)

($656)

Net Amount of Bond/Annuity Purchase

$250,000

$250,000

$249,344

$249,344

Interest Rate

4.0%

Gross Annual Income

$10,000

$19,966

$19,913

$19,913

Taxable Portion

$10,000

$5,431

$5,416

$5,416

Income Tax (40%)

($4,000)

($2,172)

($2,167)

($2,167)

Add: Charitable Credit

$3,440

After-Tax Income

$6,000

$17,793

$17,747

$21,187

Less: Annual Insurance Premium

($7,872)

($7,872)

Net Annual Income Receipts

$6,000

$17,793

$9,875

$13,315

After-Tax Cash Yield

2.40%

7.12%

3.95%

5.33%

Pre-Tax Yield

4.00%

11.86%

6.58%

8.88%

Note: The annuity is a life only annuity with no guaranteed years of payments based on a 65 year old male.  The life insurance is a Term to 100 policy for a non-smoker male age 65 at a cost of $656 per month.  This is an illustration only and does not constitute an offer to buy an annuity or life insurance.

One of the neat things about an Insured Annuity is that if your spouse dies before you, you can discontinue the term insurance.  As a result, your net after-tax receipts increase from $9,875 to $17,747; that’s 7.1% after-tax.  A bond would have to yield 11.83% to provide the same return.

If you need income and are charitably inclined, you can boost your income and also provide a nice endowment to your favorite charity.  Under this option (see “Option 4” on Schedule 1) your insurance premiums payments become charitable donations (as the charity owns the insurance) for which you’ll be entitled to the charitable credit.  Assuming you have more than $200 annually in other donations, the charitable credit on the $7,872 insurance premiums will be $3,440 (based on the highest tax bracket rate of 43.7%).  Here you’ll end up with $13,315 after-tax in your pocket each year as long as you live – almost double the after-tax income of the bond of Option 1.  A bond would have to yield 8.88% to provide the same return.  By your age 84, you’ve gotten your capital back and you’re still receiving $13,315 a year.  On your death, your favorite charity receives $250,000.

Disadvantages of Annuities

The main disadvantages of annuities are:

  • you generally lose control and access to the annuity capital – all you are entitled to is the agreed to periodic cash receipts;
  • if it is a life annuity, cash receipts terminate on your death leaving nothing for the estate value or survivors (you can, at a cost, build in guarantees – such as joint-life, guaranteed number of years of payments, or a life insurance death benefit to pay back the annuity capital);
  • Tax preferred Prescribed Annuities are by statute not indexed to inflation.  As such, the purchasing power of the monthly receipts is eroded by inflation.  So, you still need other investments to provide the inflation indexing and protect the purchasing power of your annuity;
  • with interest rates at historically low levels, the annuity monthly cash receipts have also dropped to relatively low levels.

Where an annuity makes good sense

In today’s environment of low interest rates, a life annuity can make good sense:

  • as an insured annuity where you’re in your 70s and you have at least $250,000 personally where you don’t need to touch the annuity capital to meet your living needs; or
  • as a corporate owned insured annuity where you’re in your mid-60s or older, in relatively good health, and have at least $250,000 corporately of surplus funds not needed to meet living needs.

Summary

We suggest you consider having most of your basic living needs covered by an income guaranteed to be paid no matter how long you live.  The amount of pension income you might consider buying might be:

  • your monthly living needs in retirement (say $5,000), less
  • CPP, OAS and any defined benefit pension benefits you receive.

Let’s say that the amount of pension income to buy came to $2,000, then you might consider buying a life annuity paying you $2,000 a month.

We have found that clients who have most of their living needs met with pension income are generally less stressed about their investing.  They also tend to act more rationally by emotionally being able to invest for the long term through adding to equities when they are down and taking profits when they are high.

Where an annuity doesn’t make sense for you because you require more income or require leaving an estate, then you might consider investing with Steve who follows an investment philosophy of generating income through selecting income oriented quality stocks and bonds.

The Next Step

If you would like more information about life annuities or if an annuity makes sense for you, please call Steve Nyvik.  Financial Planning is included as part of Steve’s service to his clients.  Steve can be contacted by calling: (604) 288-2083 or by email: Steve@lycosasset.com.

 

[1] Assuris is a non-profit corporation that protects Canadian policy holders against loss of benefits due to the financial failure of a member company.  All life insurance companies authorized to sell insurance policies in Canada are required, by the federal, provincial and territorial regulators, to become members of Assuris.

[2] Here are some of the conditions for an annuity to qualify as a Prescribed Annuity:

  • The annuity must be purchased with non-registered funds (not with RRSP/RRIF or corporate funds);
  • The owner and the person entitled to the payments (payee) must be the same and may not be a corporation [i.e. the owner may be an individual, testamentary trust or spouse trust];
  • The payments must begin in the current or next calendar year;
  • Annuity payments continue for a fixed term or for the life of the owner;
  • If there is a guaranteed or fixed term of payments, the guarantee cannot extend beyond the annuitant’s 91st birthday;
  • If a joint and last survivor contract, the annuitants are limited to spouses or siblings of each other;
  • The annuitant cannot surrender or commute the annuity, except on death;
  • The payments must be level (indexing is not allowed) and made at regular intervals, not less frequently than annually.

Decline the Bank Mortgage Insurance

“Would you like fries (mortgage insurance) with that (mortgage)?”
– A McDonalds sales technique

Written by Steve Nyvik, BBA, MBA ,CIM, CFP, R.F.P.
Financial Planner and Portfolio Manager, Lycos Asset Management Inc.

When you go into the Bank to finalize your mortgage, a bank employee will most likely as you to consider purchasing mortgage insurance protection.  You may be told – “it will pay your mortgage if you die; just a few medical questions; it’s inexpensive”.  While that Bank person may have had the best of intentions, he or she probably lacked the training needed to make you aware of important contractual details and how Bank coverage compares with other insurance protection options.

Here are some important things you should know about most mortgage insurance policies:

Bank, Credit Union or Trust Co. (“Bank”) Mortgage Insurance Characteristics

1. Policy ownership

Bank mortgage insurance is a Group Policy that is owned by the bank, not by you.  As such,the Bank can, in certain circumstances:

(i) cancel your coverage without your consent.

If your health worsens but then on mortgage renewal or in the event your mortgage needs change, you then may have to re-qualify for insurance (you may then be declined for insurance).  What if your financial situation worsens (let’s say you fall behind in payments) but still need insurance?

(ii) increase your premium – i.e. it is not guaranteed to be fixed for your lifetime

(iii) Coverage may terminate at age 70 even if you still have an insurance need.
(Most Banks restrict mortgage insurance to clients age 65 or younger, with coverage terminating at age 70).

2. Policy cost

(i) The cost is based on the entire group of the Bank’s insured mortgages. Generally, no distinction is made between smokers and non-smokers.  Non-smokers and healthy individuals are penalized with higher premiums!

(ii) The Bank is not providing you mortgage insurance policy quotes from several competitors.  As such, Bank insurance premiums tends to be less competitive.

3. Qualification for Coverage

(i) Policy is underwritten after death! Generally, at time of your death, your qualification for insurance is then reviewed and your application scrutinized.  As such there is no guarantee of mortgage repayment.

(ii) You may be required to re-qualify upon renewal of your mortgage.

(iii) Mortgage insurance is only in effect for as long as your current mortgage contract.  If you renegotiate your mortgage (maybe you want to finance a large renovation) or move to a new lender, you’ll likely lose your protection.  Hopefully you are healthy at that time.  You may also be subject to the current rate charged by the new Bank which likely may be substantially higher.

Personal Term Life Insurance

1. Policy ownership

You own the policy:

(i) You have freedom by not being tied to your lender – you can move your mortgage whenever and wherever you can get a better rate without jeopardizing your coverage.

(ii) Your insurance premiums may be guaranteed not to change over the life of your policy

(iii) Your policy may be non-cancellable

(iv) You may be able to modify your coverage to fit your changing circumstances – examples:

  • You have children and want additional monies available for them in the event of your death
  • If you become diagnosed with a terminal illness, coverage can be maintained for life where the coverage can be fixed and not decline with a declining mortgage balance.

(v) You choose your beneficiary and may be able to change the beneficiaries in the future

2. Policy cost

(i) The cost is based on your individual health. If you qualify for insurance, the cost can be substantially cheaper – could be as much as 40% cheaper

  • If you are a non-smoker, you benefit compared to the bank which doesn’t distinguish between smokers and non-smokers
  • If you live a healthy lifestyle, you may benefit by getting specially reduced premium

3. Qualification for Coverage

Underwriting (qualification of insurance) is done at time of application.  Once qualified, you are not at risk of losing your insurance in the future because of a change in your health.

The Next Step

See the difference?  Tell the bank you need to think about it and come see me.  After we get you better coverage for less, you can go back to the bank and tell them NO THANK YOU!   You can reach me at: (778) 878-6643 or by email: nyvik@shaw.ca