Golden Girl Finance
 
Debbie Bullock
Posts (5)
 
 

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Q&A: Life insurance for debt protection, income continuation & estate preservation

April 27th, 2012 by
 

I am divorced, 52, mother of 4 grown children, moving into the next chapter of my life. I currently live with my fiance (together 7 yrs, 14 years my junior) and we are starting to build a home. I have RRSPs of $93,000 and my ex pays me spousal support of $16,800 per year. I contribute towards RRSPs biweekly, but still worry about retirement and leaving a little something to my children. My fiance and I are working on a will and prenup and I would like for him to not worry about the house and property if I should die before him. Should we get a life insurance policy on ourselves or even for just myself?

Asked by Anonymous, Winnipeg, MB

 

It is good that you are working on wills and a prenuptial agreement as you move into this next chapter of your life. From the information you have given, I have a few more questions that would need to be answered in order to give you basic insurance advice. It's also important to note that you should speak with a local insurance advisor in your province and go through a needs analysis process, so she/he understands your complete story.

At this time, I can provide broad answers to your questions. You don't mention a mortgage or whether you or your fiance have existing personal insurance or insurance through work? This would be important to know.

Insurance can have several functions - debt protection, income continuation, or estate preservation.

Term life insurance is good for debt protection and income continuation and is usually the least expensive of all options. The good thing about term insurance is that it is renewable and convertible so you can change it to permanent life insurance in the future if required. If you have a mortgage and it is in both your names, the least amount of insurance you should both have would be the amount of the mortgage. Individual life insurance has many features that creditor insurance through your lending institution doesn't offer, so it is usually the better option for debt/mortgage protection.

If you die first, you mention that you would like to make sure your fiance and your children are taken care of. Term insurance could be used for income continuation or you could look at permanent insurance to take care of those needs. Permanent can be more costly, but you have it until you die and the cost remains fixed. As such, it is good for estate planning purposes.

There is the option of getting some term insurance as well as permanent life insurance in one policy, to combine both needs. Getting a policy for which both your fiance and yourself are insured is also an option.

My recommendation is to meet with an insurance broker in your province to do a proper insurance needs analysis which will give you the best information to ensure that you, your fiance and your children are properly taken care of in the event of your death.

 

Insurance options discussed are based on Ontario rules and guidelines. Please check with an insurance broker in your province for your specific needs.

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Q&A: Will my premium be refunded if my insurance application was rejected?

August 8th, 2011 by
 

I recently applied for disability insurance and paid the yearly premium. A couple months later, I was told that my application was rejected (did not get a reason). I am now wondering if they rejected my application, will my premium be refunded?

Asked by princesspopcorn, Toronto, ON

 

Yes, you will definitely receive a refund on your premium and should hopefully have received it by now.

It would appear that your application was rejected during the underwriting process. You can find out why by contacting your advisor or the insurance company. Due to privacy legislation, you will need to sign a form for the insurance company to release the information to your doctor (if it is medically related), and you will need to see your doctor to get the information.

Your advisor or the insurance company can give you direction as to the steps that are required.

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Q&A: What insurance do I need if I became ill & had to take time off from work?

July 7th, 2011 by
 

Is there a type of insurance that would cover me if I became really ill and had to take time off work to recover? My friend is just recovering from cancer treatment, and I see how she is struggling to juggle her recovery and stay on top of things financially. I am worried that my disability insurance through work won't be enough.

Asked by Andrea, Regina, SK

 

Firstly, I am sorry that your friend is going through a very difficult time in her life; my heart goes out to her. What I really like is that you are able to think ahead. So many of us don't think about the "what ifs"; and when the "what ifs" happen in life (and they will), most people wish that they had taken a more proactive role in protecting their future.

Critical illness insurance is designed to help you recover should you be diagnosed with a critical illness. A critical illness often brings overwhelming medical and financial burdens for you and your family. Critical illness insurance can provide a lump sum, tax-free benefit if you are diagnosed with a critical illness and survive, usually within 30 days.

Advances in medical science and increasing life expectancies mean that you have a better chance of surviving a critical illness. For example, do you know anyone who has suffered a heart attack, stroke or was diagnosed with cancer, and they needed to take extended time off to recover? The bills don't stop just because you are ill. Critical illness insurance can help to alleviate the financial hardship from an illness and allow you to focus on your recovery.

Most companies cover 20 to 24 critical illnesses and the lump sum benefit can be anywhere from $10,000 up to $2,000,000. Imagine the relief you would experience in knowing that if you were to get ill from a critical illness, that a lump sum of tax-free money would be available to you, usually within 30 days.

Information contained in these answers is for general information purposes only. The information is provided by Deborah Bullock and Associates and while we endeavour to maintain the information current and correct, we make no warranties or representations of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability of such products discussed. Any reliance you place on such information is therefore strictly at your own risk.

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Q&A: Should I purchase insurance for my mortgage through the lender or on my own?

July 7th, 2011 by
 

I have just been approved for a mortgage to purchase my first home and my mortgage lender suggested that I secure life insurance to protect the amount of the debt. They have it available and can help me or they mentioned that I could get my own. I am not sure what my options are?

Asked by Pamela, Brampton, ON

 

Congratulations on the purchase of your first home! You have exciting times ahead of you. Your lender is correct in that when you finance your home, it is very important that you protect the debt should something happen to you (i.e. death or illness). Your lender will thus often offer what is most often called creditor or mortgage life insurance. You also have the option to purchase individual life insurance through an insurance broker. Let me explain what the differences are.

With the creditor/mortgage life insurance, you typically don't have any control over who the beneficiary is. With most lenders' mortgage insurance plans, the benefit that's payable at death goes directly to the lender to pay off the mortgage. The lender is thus the beneficiary. When you own the policy, however, the benefit goes to you or your beneficiaries and can be used where and when it's needed most.

With the creditor/mortgage life insurance, you typically don't own the policy. That is, when you purchase mortgage insurance from most lenders, you're part of a group policy that's owned by the lender. On the other hand, when you purchase your own life or critical illness insurance, you own the policy - so, you are in control, not the lender.

Again with creditor/mortgage life insurance, your premiums may be subject to increases at any time (i.e. the premiums and benefits usually aren't guaranteed and the terms and conditions of the policy can change). When you purchase your own policy, however, the terms and conditions of the policy can typically never be changed and, depending on the plan you buy, the premiums are guaranteed.

Another thing to consider is that the benefit decreases with creditor/mortgage life insurance, but your premium remains the same. For example, most lenders allow you to purchase only the amount of coverage equal to the mortgage. As your mortgage decreases through making your regular payments over time, so does the benefit, but your premium remains the same. When you purchase your own policy, your coverage isn't tied to your mortgage.

In short, when you take out a mortgage, it may seem convenient to purchase your mortgage insurance from your lender. Before you do, consider the significant differences between the mortgage insurance offered by most lenders and purchasing your own life and critical illness insurance from your advisor.

Information contained in these answers is for general information purposes only. The information is provided by Deborah Bullock and Associates and while we endeavour to maintain the information current and correct, we make no warranties or representations of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability of such products discussed. Any reliance you place on such information is therefore strictly at your own risk.

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Q&A: Segregated funds vs. mutual funds

July 6th, 2011 by
 

I have recently heard about segregated funds as another option for investing. How are they different from mutual funds?

Asked by J.M., Ottawa, ON

 

This is a very good question. A lot of investors are not familiar with segregated ('seg') funds, which is a shame since they offer many benefits that mutual funds can't offer.

Simply put, a mutual fund is a 'basket' of shares of various companies, held together in one fund, managed by a fund manager, and sold by the unit to investors. If you own mutual funds, you own the mutual fund units directly. Each fund has a management expense ratio (MER) that pays all the bills and expenses associated with the management of the fund.

The above definition of mutual funds is true of segregated funds as well. A segregated fund is held within an insurance policy and insured by a life insurance company. As a holder of seg funds, you - the client - own the insurance policy, which in turn holds the funds. Segregated funds have other benefits (please see chart below), but remember that these benefits come at a cost: a slightly higher MER.

Below is a chart showing the characteristics of both mutual funds and segregated funds:

Features Segregated Funds1 Mutual funds
Professional portfolio management
Diversification among asset classes and management styles
Ability to grow a portfolio while diversifying risk
Easy access to your money through daily price valuations
Ability to bypass probate and keep financial affairs private Occasionally2
Potential creditor protection for registered accounts
Potential creditor protection for non-registered accounts  
A guarantee of the principal (or a specified percentage) at maturity3  
A guarantee of the principal (or a specified percentage) at death3  
Ability to lock in market gains using resets  

 

  1. Segregated fund fees are higher than mutual funds, as they include a management fee and an insurance fee component.
  2. Non-registered accounts with joint ownership and right of survivorship only (all provinces except Quebec). Registered contracts can bypass probate when a beneficiary is named.
  3. Withdrawals reduce guarantees proportionately. Guarantees end at age 100.

 

Information contained in these answers is for general information purposes only. The information is provided by Deborah Bullock and Associates and while we endeavour to maintain the information current and correct, we make no warranties or representations of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability of such products discussed. Any reliance you place on such information is therefore strictly at your own risk.