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When you’re in the market for buying life insurance, one of the first is determined by your personal insurance needs. It’s a factor of a few main variables:

1. How much life insurance do you need
2. How old are you – age matters
3. Do you smoke – yes smokers have to pay more, but it’s a lifestyle choice that costs lots of money in many ways
4. How is your health? Good, average, bad – cheaper, standard price, extra premium.

In this article we will discuss the first point, “How much life insurance do you need”. When making the basic analysis of your insurance needs a good Life Insurance Advisor will take you through what is often called a Financial Needs Analysis. This is a calculation, using simple math, of how much tax free income your beneficiaries would need if you died tomorrow.

Step 1 – What do you have?

The first part of the insurance analysis should look at the assets you have today. This would include any existing insurance policies, cash savings, equity in property that could be sold, etc. Remember, not all your assets are in the form of cash or can be easily turned into cash, and even if they are, not all of them should be earmarked for emergency spending. Here are some things to think about before including your assets in this basic analysis.

• If you have retirement savings, especially tax sheltered savings like a 401K in the US or an RRSP in Canada, would you want that money liquidated at death and used as emergency cash for your family? Your spouse could really use that money for his/her retirement plans, and if liquidated there would be a lot of taxes owning on your accumulated savings. Taxes could reduce your nest egg savings by 25 – 35%! It’s best to keep retirement savings intact for your spouse, and buy a little extra insurance to protect it.

• Are you thinking you could get equity out of the house for an emergency? Well, this would typically mean selling the house. If you sell, where would your spouse and kids live? Will they be forced to downsize or become renters because there was not enough personal life insurance? What standard of living do you want to provide for your family if tragedy struck? If living in your family house means stability for your spouse and children, then keep them there – don’t force them into moving homes if you died.

• Business assets and other real estate. What will you do with these? If your spouse is not going to take over your business, or wants to run rental properties, etc. then you need to plan on selling them if you were to die. Be conservative here. If the housing and/or business market is booming the price you could get for your business today might look very good. In a few short months things can change rapidly and you could see a major housing price drop or local business activity dry up. What will your assets be worth then? Plan for a realistic and somewhat conservative number when valuing your business and real estate assets, and take brokerage fees into account for making the sale for your survivors.

• What will happen to cash savings that are set aside to achieve a certain goal? If you’re saving now for things like a cottage/vacation property, would that dream still be on the table if something happened to you? Would your spouse and kids still want to have that vacation home at the lake? Decide if this is a luxury or something worth insuring.

Step 2 – Cash needed immediately

The next step is to determine the immediate amount of cash your family would need over the first 6 to 12 months to get their affairs in order. This is called the Immediate Cash Needs, and covers the following areas:

• Final expenses – this includes funeral costs, legal and executor fees, and any other closing costs to your estate. For most families this is rather simple, and a number of $15 – $20 thousand should be planned for. If you have a large estate, plan for 3-4% of your total assets being eaten up by these final expenses.

• Paying off the loan on the house – make sure that major debts like your mortgage are paid off. Have enough insurance in your plan so that your spouse can decide whether or not to pay off the mortgage or invest the money. Life insurance, unlike mortgage insurance, gives the tax free cash to your spouse to do with as he/she wants. If interest rates are presently higher than your current mortgage rate, then it would be wise to invest the money and keep paying down the mortgage. At renewal, when the bank wants to increase your rates, you can then pay it off.

• Other loans and debts – if you have a business loan, family line of credit, student loans, etc., make sure these are all paid off in the event of your death.

• Education funding for children – many parents are trying very hard to save for their kids’ future education. It can be very hard to save the money each month, but if you’re doing it then you know it’s important. Even if you currently can’t afford to save the money each month for your kids, wouldn’t you like to know that if you died, there would be enough money paid out by the life insurance company to send your kids to college/university? Plan on at least $40,000 per child for education funding in your life insurance plan.

• Replacing a stay at home caregiving parent – if one of the parents stays home to take care of the children, there is still a very high cost to losing this household contributor. The cost of bringing in a home worker or live in nanny is huge – $1,500 – $2,000 per month (that would usually include room and boarding costs). Could the income earning spouse still do his/her job without someone home to look after the kids? With small children at home the cost to replace the unpaid work of the stay at home parent could run as high as $250,000 over 10 years. Think about putting a child care number into your life insurance plan.

Step 3 – Replacing lost income

For many people, they think their most valuable asset is their house. It could be worth $300, $400, $500 thousand dollars or more. Even if you are still paying your mortgage, the equity in the house and the size of that asset seems like it the biggest thing in your life. Actually, the most valuable thing you own today is YOU. Think of yourself as a money printing press for your family. You can work, earn an income, and churn out money for many years to come. How much would your family lose if you died tomorrow? Here is an example of long-term economic loss:

If you were 40 years old today, making $75,000 per year, and you worked until you were 65, you will make $1,875,000 over the next 25 years. But wait, it isn’t that simple. There’s inflation, investment returns, and salary increases to budget for. If you expected to have average salary income increases of 2% per year for the rest of your working career (keeping up with inflation) and your lump sum capital could make 5% interest over the next 25 years, how much money would you need today to generate the lost $75,000 of income? The answer is $1,280,000 of tax free insurance proceeds now to replace your lost income over time.

The life insurance calculation can be a little more complex than that, based on your wishes. Do you want to replace your entire life’s income potential for your spouse, or would you want to make sure the children are raised and then your spouse can downsize and return to the working world? These are things to think through with your life insurance advisor when doing the financial analysis.

Step 4 – Final Result

The final result for the financial analysis is your total life insurance need. It is a quick plus/minus calculation.

Immediate Cash Needs + Replacing Lost Income – What You Have Now = Total Life Insurance Need

This is the amount of insurance your advisor should be recommending you buy. Less would mean you are under-insured, and then the advisor has not put adequate protection in place. More insurance and you would be over insured and paying premiums for insurance that is excess.

Be sure to ask your personal life insurance advisor to complete a basic analysis with you. If they can’t, don’t know how, or want to just pick an amount of insurance out of the air, get another advisor. You can and should get more qualified advice when making an important decision such as protection the future for your family.

Article by Mitch Reynolds, MBA
President, Life Guard Insurance
http://life-insurance-calgary.com

So, you’re buying your first home, upgrading to a new house, or refinancing with a new bank/financial institution. Out comes the paperwork, and they show you life insurance protection (and maybe a disability or critical illness policy) as part of the monthly payments. It looks like it is included in the price of your mortgage/monthly payments, and you have to sign to decline your coverage and NOT be insured.

Is this type of life insurance coverage best for you? When evaluating all your life insurance protection options, does a mortgage life insurance plan offer you real value? Frankly, the answer is NO! There are many reasons why this type of life insurance is one of the most dangerous forms of life insurance protection you can buy – and is just a huge profit maker for the banks or mortgage lenders.

You pay the premiums but the financial institution is protected, NOT YOU

Mortgage insurance does offer some life insurance and maybe health insurance protection, but who is it protecting? If you think you are the one being protected you are very wrong.

The bank/financial institution lends you money to purchase your home. If you die, are injured or sick and can’t make payments, the bank/lender risks having a loan in default. The mortgage insurance policy is designed to protect them if you can’t pay. The financial institution is then free and clear of the creditor, but your beneficiaries have no cash in hand. With property taxes due, heat, water and electricity bills piling up, how does owning a piece of propery help with cash-flow needs today? Your family might have to sell the home to meet lifestyle needs; likely not what you had intended.

Rising premiums and no portability/convertibility

If you are young you might find the monthly or bi-weekly premium for your mortgage insurance rather low. As you enter your late 40s or 50s this is no longer the case. Mortgage life insurance premiums become very steep as we get older, and are often two or three times more costly than personal life insurance protection. The banks have priced their product well for young homebuyers, but the chances of young people dying are much lower than when they are older. Combine this with rising premiums; most banks structure their group mortgage insurance to rise every five years as you age, so the low price you are paying today might increase sharply as you age.

What are portability and convertibility?

Portability is having a policy that can travel with you, from home to home and bank to bank. Mortgage insurance is not portable ; it is only available on the home you are buying/refinancing now and only with the bank/lender that is doing the lending. If you move homes or move bank/financial institutions, the mortgage creditor insurance does not go with you. You would have to reapply with another bank/lender at higher rates because you are now older. What if your health has changed for the worse and you can’t qualify for life insurance coverage any longer? By moving banks or homes you would lose your insurance coverage altogether!

Convertibility means that your Term life insurance policy (mortgage creditor insurance is Group Term insurance) can be switched into a Permanent life insurance plan later on if you so choose. This gives you planning options that a mortgage creditor insurance product never will.

Declining coverage – fixed/increasing premiums

Think about this; every time you make a mortgage payment you owe less on your principle. This is great news, as you are reducing the debt you owe the bank. The bad news is that your group mortgage insurance coverage has also just gone down. The smaller your mortgage balance, the less life insurance protection you have – but your premiums have not gone down. They have remained constant during those years, and in some cases have gone up as you have gotten older. This is truly unfair! Why pay a premium for a plan that gives you less and less coverage? Shouldn’t the premium also go down?

For example, if you owed $400,000 when you first bought the house and your mortgage life insurance premium was $150 per month that seemed like a decent price for coverage on a couple in their early 30s. Fast forward 20 years. Assume you have stayed with the same bank all those years and your insurance premiums have remained the same – you are still paying $150 per month but for only $40,000 of outstanding mortgage debt. In comparison, the cost for $50,000 of life insurance today (for a couple aged 55, non-smokers) is as low as $40 per month. You are paying almost triple the going rate for life insurance protection!

Underwriting at time of death – possible decline of your claim

Another major flaw in mortgage life insurance is that you are only underwritten when a claim is filed. This means you are qualified for life insurance coverage only when you die. Your original application had three or four broad questions to rule out candidates with insurable, serious health conditions. Often these questions are asked by the lender, not a licensed insurance professional. When you die, the insurance company offering the mortgage creditor insurance will look back to see if you had any pre-existing health conditions. If you had something serious, like diabetes, heart disease, cystic fibrosis, etc, they could deny the claim and return the premiums. Even less serious things, like elevated cholesterol and high blood pressure could cause a denied claim if you died because of complications from these conditions. You may think you are fully insured with mortgage insurance, but the truth is you may not be – only when you die is your policy approved (claim paid out) or denied.

Your best alternative – personal life insurance coverage

When considering where to buy your life insurance you should speak to a licensed and professional insurance advisor, like our team at Life Guard Insurance. We can evaluate your debt risks, and all other personal risks you might have. We can design a short term life insurance plan for you, with fixed premiums for a 10, 20 or 30 year term. Or you could look at a permanent cash value policy that will act as a savings/investment product while providing you life insurance protection. You should consider all your options, and get a policy that pays your family, not the bank, if you die. Get a plan that has level coverage for a level cost. Have a plan that is fully underwritten at time of application, so you know you are properly protected.

To review your current group mortgage insurance policy, or review any insurance planning, please contact us at Life Guard Insurance.

(403) 209-3800 ext. 224 OR (403) 680-7730 in Calgary, Alberta, Canada.
www.lifeguardinsurance.ca

Article by Mitch Reynolds
President, Life Guard Insurance
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Creating a legacy for you might be as simple as leaving money or assets behind to make sure grand-children get a good education. You might want to help your adult children out so they have a brighter future, or you could have grander aspirations. If you have more accumulated wealth that you can use in your life-time and want to pass on, either inside your family or to charitable and/or educational organizations it should always begin with a strategy and a plan.

This article will outline a few common scenarios where you can plan for simple estate plan creation or you can use Trusts for more complex situations. The process of creating a legacy could get fairly complex and is beyond the scope of an insurance advisor alone. If your plans for giving gifts or inheritance becomes complex in any way, look for a team of professionals, including an Estate Lawyers, Tax Accountants, and a qualified Insurance Advisor to help design a comprehensive plan that meets your needs.

Simple Legacy Giving

If your estate is mainly for immediate family, and your will is up to date naming beneficiaries and heirs then you are most of the way there. A fundamental piece of the plan would be taxes owing of your assets at death, and how much will be lost to the Canada Revenue Agency (CRA). Do you own assets that have gone up in value over the years? How much is your business assets worth today vs. the price you originally paid for it? Very often you can offset high capital gains taxation like this very affordably with permanent life insurance. You might be able to buy $1.00 of tax free death benefit for $0.15 or $0.20 of premiums, all in. That would create a guaranteed, locked in benefit for your estate to alleviate future taxation.

Another major planning issue for you might be that you want to enhance the value of your estate and give more to your family. Must you settle for giving what you have saved to date? Are there ways to enhance your gift today? The answer for many Calgarians is YES – there are options through life insurance to enhance your gifts to family on a fully guaranteed basis and with a reduction of taxes and final expenses.

Family Business Continuity Planning

If a major part of your legacy is the business you have built up over the years, and that business is to stay in the family, some serious planning needs to take place to minimize the taxes due and expenses of transitioning the business. If your business is a family farm there are special tax roll-over laws that allow family farms to pass within the family at their original cost base – and no capital gains on land need be realized. This is a special taxation exemption that applies only to family farm property (in Canada). If your family business is not a farm, the entire capital gains of that business will be crystallized at death (can be rolled over until the death of the last spouse, but taxes due when passing to children). these taxes could be in the hundreds of thousands of dollars, and unless the business is sitting on a lot of retained capital, there might be a situation where assets liquidated just to pay the tax man. That is now way to pass on a successful business.

There are a number of options here. One common one is using a Family Trust to create an Estate Freeze on all assets today, lock in the taxation owing for the future and deal with the single problem via a life insurance policy to offset the future tax burden. That last sentance had a lot packed into it – and needs to be unpacked for you with the help of legal and accounting advice. Your family bussiness is unique and will be planned out according to your needs. In the end, the savings your estate will see from this type of planning far outweighs the professional advice fees or insurance premiums paid to design the plan.

Estate Equalization Planning

This type of estate planning is very common among family farm corporations and family businesses. Imagine, you own a business that is worth a lot of money in assets, but does not hold large amounts of cash on reserve. In order to make money you invest back into the business. Now imagine you are getting older and one of your children is being groomed to take over the family business, yet you have one or more other children who have moved on to have lives of their own and are not involved. By giving the one child the assets of the business he/she will get the lions share of your estate, with only small gifts given to your other children through the will. Is this fair? Would you like to give more of an inheritance to your children not involved in the family business?

If the answer is yes, you have an Estate Equalization problem. Remember, fair does not mean equal. The child taking over the business has put sweat equity into that business to date, and has earned more than an equal portion. He/she is also taking on all the future financial risk of running the business while the other non-involved children have no risk. The amount of inheritance that is FAIR should be worked out via a family discussion where there is general agreement on the division of the estate (in this case the value non-involved children will be getting while the other child inherits the business).

Once you have arrived at a number, life insurance is usually your best investment to make this plan a reality. It provides a guaranteed tax free benefit for the non-involved children, payable immediately upon death, and avoids the estate where it would be reduced by probate, legal and executor fees. The tax freeproceeds of the life insurance policy could be built into a family agreement as a part of the will to remove non-involved children from making a claim on the assets of the business.

Dealing With Complex Families

Not every family situation is so clean cut. As we know, families are messy – and that mess can create major legal and financial issues upon death. Some of the most common messy situations are blended families, remarriages after you are gone, or children who are irresponsible or have an abuse problem. How do you deal with your estate in these situations, and create the legacy for your heirs you really want.

Just drafting a will usually does not solve these issues. A will can be contested at your death, and your assets could become tied up in the courts for years while families fight over them – and no one except the lawyers win in that scenario. There are two excellent ways to design your estate for these situations to make your wishes a reality. Either create a Family Trust while you are alive, or pass your assets into a Trust established at your death through your will. You can set out terms of how you want the assets in the trust to be administered, by whom (the Trustees) and who will benefit from the assets in the trust (the Beneficiaries).

All this complex planning is done mainly with an Estate Lawyer to establish the trust agreements, and with a Tax Accountant to value assets and make sure they all pass into the trust, with the proper paper trail for the eventual CRA audit. It is highly likely that some form on permanent life insurance plan will be included in the final plan to create liquidity for the trust and/or pay off taxes owing. This is where a professional insurance advisor can be of service to you. Designing a permanent life insurance policy to enhance your estate is a wise and cost effective financial product.

For more information about Estate Planning and Legacy Giving in Calgary or Alberta, please visit Life Guard Insurance:
http://life-insurance-calgary.com

Life insurance is very important to protect us. It is good for your family and kids if anything happen to you. We cannot expect what will be happen to us on future. So what should we do while we still alive? Taking life insurance is the best decision for you. You must still need the low price for insurance expenses every month right? How is it?

Keep always your body in a good condition. Stay healthy in your life. Stay healthy will help your to reduce insurance policy payment every month. Always check your body condition with your medical assistant to ensure you are keep health. Then you can prove insurance company while start taking life insurance coverage.

Stop bad habit before you taking insurance life. Most dangerous bad habit such as alcoholic and smoking. Insurance company are really care about this 2 habit. If you one of them, your life insurance will be higher rather than non alcoholic or smoker.

If you have any disease, evaluate your condition before taking life insurance. Take a full report from your medical insurance to ensure the current health condition for you. It important, if you just predict you health condition it may increase your insurance fees.

Get a free online application for insurance life. Get the quoation online such from lifeinsure.com. This site will give you an idea for your future insurance life. It practical but still worth it for you.  Follow this idea if you need get a lower insurance policy.