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Mortgage Insurance vs Life Insurance

Posted 6/19/2018

Mortgage insurance generally is bank owned, you can buy your own Mortgage Insurance, but what I'm talking about here is when you buy a new home and are signing your mortgage agreement they slip in a mortgage insurance application. You are already signing and initialling so many things anyway you're pretty much just trusting your mortgage agent and signing whatever they tell you. Especially for a young person buying their first home, you're putting a lot of trust in this person. This is the only reason the bank is able to sell any mortgage insurance at all. If you were to sit down and look at your options I don't think anyone would choose Mortgage Insurance over Life Insurance. 

Mortgage insurance is owned by the bank so if you switch your mortgage over from one bank to another you'd have to purchase a new mortgage insurance policy. With Life insurance you own your policy and you can move your mortgage whenever it makes sense to do so.

Mortgage insurance only covers your mortgage so as you pay off your mortgage your coverage also decreases. Your weekly or monthly payment doesn't decrease, but the amount that the mortgage insurance company has to pay out decreases. A life insurance policy keeps the same amount of coverage over the term of your policy. If you have a 250,000 life insurance policy and your mortgage is down to 100,000 your beneficiary gets the entire 250,000 and can pay off the mortgage and still have 150,000 left.

Which brings up the next point which is your beneficiary. With Mortgage Insurance it's easy, the Bank is your beneficiary. Your beneficiary with Life Insurance is your choice. Whoever you choose will get a tax-free lump sum of money. You pay for either policy so why not choose who the money goes to?

I understand that it's so easy to buy mortgage insurance and it seems like the prudent thing to do. You buy the warranty on everything else so just check the box and sign it's so easy. They have a few questions, but not extensive. Life insurance applications on the other hand have many questions and they may even have a nurse come over for vitals and other medical tests. This is because most life insurance is medically underwritten before you get approved for coverage. Which means if you do pass away you have the peace of mind that your policy will pay out. The reason there are less questions and no medical tests for Mortgage Insurance is because most times it is underwritten at time of claim. Meaning if you were to die they'll look into everything and if you happen to check a wrong box,(i.e. you said you were a non-smoker even though you do occasionally smoke at parties) they could very well deny your claim and your family would still have a mortgage as well as funeral costs and the loss of your income all while mourning your passing. A trusted Life Insurance agent will be asking you those questions and make sure the application is filled out correctly so that in the unfortunate event of your death, your loved ones will get the money that is so needed at that time.

Protect your family, there's more than just the cost of your mortgage, so don't just buy mortgage insurance, take the purchase of your house as an opportunity to assess how much money your family would actually need if you passed away right now. Would you want it to cover all your debts including your mortgage? Cover funeral expenses? Even more importantly cover the income you provide for the family for a length of time (usually until your youngest child is 20-25yo). This can be done with a Life Insurance policy, but not with Mortgage Insurance.

You can also renew or convert your term life insurance policy. Renewing meaning to extend the term and converting meaning converting your term life into a whole life policy, I'll talk more about Whole Life Insurance in my next blog, but the important take away here is that you have options because you own your policy. You're paying for it, you should own it. Mortgage Insurance is generally more expensive than Term Life Insurance too! I hope this helps, all the best!

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Critical Illness Insurance

Posted 6/18/2018

Critical illness insurance is best described as a Tax-Free Health Care Plan. It provides you with a tax-free lump sum of money if you get one of the illnesses covered by your policy. Most policies have 25 covered illnesses, but the Big 3 are Heart Attack, Stroke and Life Threatening Cancer. Over 80% of claims on CI policies are for those 3 illnesses.

People are starting to realize that they should have some protection, because younger and younger people are getting these dreaded diseases. An estimated 206,200 new cases of cancer and 80,800 deaths from cancer occurred in Canada in 2017. This means that 125,400 people survived and had to struggle to pay bills and keep their lives a float while battling this terrible disease. More and more people are surviving which is wonderful news, but how can they afford to live? Most people take money from their RRSP's (if they're lucky enough to have them), but why should your retirement suffer? Protect your retirement funds and buy a Critical Illness Policy. 
People without a nest egg are even more at risk. I recommend Critical Illness Insurance to all of my clients because whether you have money or you don't an unexpected illness will upset your financial plan and a tax-free lump sum of cash is just what the doctor ordered. You don't need the extra stress at that point. Put your mind at ease and protect your finances!

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RESP's

Posted 6/15/2018

I am a fan of the RESP. You put money into it and the government puts in 20% up to $500 per child per year(e.g. if you put in 2,500 they add 500). They also back pay one year. So if you missed last year no problem you can put up to $5,000 in your son or daughters RESP and the government will put in 1,000. Other grants are available when you open an RESP. They may contribute more than 20% on your first $500, up to 40% dependent upon your income.

There is also the Canada Learning Bond with a lifetime maximum of $2,000 that gives you 500 for the first year of your child's life and 100 every year after that until you reach 2,000 or income increases above their limits. They also back pay so if you start an RESP when your son or daughter is 3 as an example he'll get 700 to start. Another nice thing about the Canada Learning Bond is that most companies will allow you to open an RESP without putting any money into it and if you qualify for the CLB you still get the grant! So even if you don't have any money today to be putting away in your children's education fund, start one up and let the CLB grow. Every little bit helps!

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TFSA's and Why more People Should be Using Them

Posted 6/15/2018

The TFSA, Tax-Free Savings Account, was introduced in 2009, but is still largely misunderstood. I think that name is the source of the confusion. Banks also sell them as High Interest Savings accounts, which seems right because it goes with the name so well. Your TFSA could be a high interest savings account, but it could also be a GIC, a Mutual or Segregated Fund, you could be invested in Stocks, Bonds, even certain shares in small business corporations. You could own all of those things without it being a TFSA. The TFSA, much like the RRSP, is just the wrapper or package you put around your investment to Register it with our Government so that they don't tax your earnings.

So a little more information on the TFSA. You are eligible to start a TFSA in the year that you turn 18, you don't need to be working. The government sets the limit each year. It started at 5,000 in 2009, went to 5,500 in 2013, then in 2015 it went to 10,000, but was back to 5,500 2016-2018. Your limit is accumulative though so if you haven't used your TFSA and you were at least 18 at some point in 2009 you have 57,500 of contribution room in your TFSA(plus indexation, but no need to go into that).

Earnings inside the TFSA grow Tax-Free, much like your RRSP, the differences are how your money is taxed in the year of contribution and in the year of withdrawal. In the year of contribution your TFSA contribution doesn't change your income level. Your RRSP reduces your earned income dollar for dollar. So in the year of contribution,  you lower your tax bill with the government. However you only defer that tax bill until the year of your withdrawal. Which is great if you're in the top (or a high) tax bracket and you retire in a lower tax bracket. A lot of times without proper planning people take too much out of their RRSP in retirement and that pushes them up into the highest tax bracket, which leads to people being upset because they are paying more money now then they would have paid in the year they earned the income. 

However your TFSA is not included in your income when you withdraw it in retirement. One of the biggest complaints I hear is the percentage the government gets when you withdraw money from your RRSP. Proper RRSP withdrawal planning aside, this is not an issue when it comes to your TFSA. You get 100% of whatever is in your TFSA and it doesn't trigger any OAS Clawback or any extra tax burden because it doesn't bump you into a higher tax bracket! 

Long story short, everyone should be taking advantage of this great tool for accumulating savings. The RRSP is right for some people talk to your advisor if it is right for you, but if you are 18 or older I guarantee the TFSA is right for you. It's so flexible, simple and can be powerful. Start using it today, you'll thank yourself tomorrow!

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When I win the lottery I'll give you a call

Posted 2/28/2017

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I hear this all the time, but you don't need to win $26,000,000 before calling a financial advisor. Why should you use a Financial Advisor? Most people seem to think they need big money to sit down and talk to a financial advisor. "When I win the lottery I'll give you a call." Is a comment I hear all too often. The misunderstanding is wide spread so I thought I should take a minute to explain what it is I actually do.

As a Financial Advisor my job is to be your guide through the pit falls (sometimes free falls)  as well as upswings in your financial life. I'm trained to help you be prepared for life events such as but not limited to getting married, buying a house, having children, planning for retirement and making sure you can leave a legacy if you so choose.

The best time to talk to a Financial Advisor, besides today, is when you get your first job. You can lay out a financial plan from where you are now until retirement. I know a million things are going to change between your first job and retirement, but that's why I recommend meeting with your advisor at least once a year and more often if a major life event like a wedding is coming up, that way you can make the small or large adjustments necessary to keep you headed towards your main goals in life. As I said though, the best time to talk to an Advisor is today! It's never too late to get back on track. Let a professional make your financial plan as bullet-proof as possible. Give me a call or send me a e-mail, it'll be easier than you think!

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Why use a Financial Advisor?

Posted 2/22/2017

Why should you use a Financial Advisor? Most people seem to think they need big money to sit down and talk to a financial advisor. "When I win the lottery I'll give you a call." Is a comment I hear all too often. The misunderstanding is wide spread so I thought I should take a minute to explain what it is I actually do.

As a Financial Advisor my job is to be your guide through the pit falls (sometimes free falls)  as well as upswings in your financial life. I'm trained to help you be prepared for life events such as but not limited to getting married, buying a house, having children, planning for retirement and making sure you can leave a legacy if you so choose.

The best time to talk to a Financial Advisor, besides today, is when you get your first job. You can lay out a financial plan from where you are now until retirement. I know a million things are going to change between your first job and retirement, but that's why I recommend meeting with your advisor at least once a year and more often if a major life event like a wedding is coming up, that way you can make the small or large adjustments necessary to keep you headed towards your main goals in life. As I said though, the best time to talk to an Advisor is today! It's never too late to get back on track. Let a professional make your financial plan as bullet-proof as possible.

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Insurance services are provided by Kirk Edward Davidson.