What is Disability Insurance?

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Disability Insurance provides a monthly income if you are incapacitated and incapable of working due to an injury or illness. Often called “Income Replacement Insurance”, this coverage is essential for self-employed individuals and those without disability insurance via their employer.

The risks of income loss Your ability to earn income may be compromised through injury or illness if you become disabled. Your ability to pay bills or save for retirement could remain the same. Disability insurance plans are designed to help you meet necessary income requirements enabling you to concentrate on recovering from your disability and returning to an active income-generating life.

Do you know who can be covered? Income protection can provide peace of mind for professionals such as lawyers or doctors, small business owners like plumbers or carpenters, leading business executives, and full- or part-time or home-based workers. You can also supplement the disability coverage you have with an employer or an association such as the Canadian Association of Retired Persons (CARP).

How do you collect disability benefits? Your policy contract determines how soon and for how long you can collect benefits. Generally, disability benefits are received if you can’t perform the duties of your occupation, a similar job in your field, or any job at all.

How are befits paid? Disability insurance benefits are payable every month during a disability for the benefit period of the contract, which can vary. When you recover from a disability, the policy continues, usually payable again for a subsequent or recurring disability.

I’m healthy: why should I be covered? Most people know the importance of life insurance but rarely think about having a disability despite the statistics indicating they are pretty standard. Death is inevitable, while disability is probable at any given age.

Develop your backup plan today! If you are running a business (or work as an employee), you should be covered by some form of disability insurance (income replacement insurance). Such planning is the only way to avoid the financial and emotional stresses resulting from long-term disability.

Note: Life and disability insurance taxation varies in accord with the strategies used by the life insurance specialist, changing legislation, and hiring an accountant to guide significant business strategies relative to succession or an estate.

Is Mortgage Life Insurance practical?

 

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Mortgage insurance is creditor insurance which financial institutions offer to pay off the indebtedness of a mortgage if the mortgagor died during the term of the mortgage.There is another strategy to achieve this using personally owned life insurance which offers you flexible choices with more freedom as to how you will approach insuring your mortgage liability.

Compare the mortgage insurance your bank or financial institution uses for your mortgage creditor life insurance to buying your own personally owned term insurance.

Mortgage Life Insurance from the financial institution

  • Premiums can be much higher.
  • The death benefit replaces only your remaining balance of mortgage indebtedness.
  • Premiums do not reduce when your mortgage debt is reduced.
  • The death benefit only pays off your remaining mortgage debt.
  • The contract stipulates that the financial institution is the only life insurance beneficiary.
  • You cannot alter the irrevocable beneficiary of the contract.
  • The entire amount of life insurance is lost upon mortgage repayment, or when in default.
  • The mortgage life insurance is not transferrable to another financial institution or private lender.
  • Because so few health questions are required, underwriting is often done at time of claim, resulting in denied claims.
  • When you move your mortgage to another firm, you generally lose the coverage issued from an existing institution. If you have health concerns you may not be able to buy more coverage.
  • Creditor insurance may cover two parties who jointly mortgage their property. However, it pays only on the first death, even if the two were to die. When one spouse dies, creditor insurance no longer covers any survivors.
    • In contrast, by owning your own insurance policy, two spouses or partners may each own separate life insurance death benefits. In the case where both parties die, double the benefit would be paid, thus adding increased value to the estate. If one survives, the coverage on that life continues.

 

Your own Term Insurance

  • You have full control over the type of life insurance plan.
  • You can set up multiple beneficiaries, including a fund to pay off some or all of your mortgage debt.
  • Beneficiaries can choose to not pay off the mortgage if they prefer to pay off higher interest debt.
  • You can add or revoke beneficiaries.
  • Your life insurance face benefit amount does not shrink with a reducing mortgage debt, and can actually increase with some plans. Your coverage level is controlled by you.
  • Many term plans offer level premiums for longer periods or are convertible to Term to Age 100 plans, without a medical exam, even if your health declines.
    • In time, in most cases, you can reduce your coverage to have enough for the proceeds to pay your final expenses to take the financial burden from your loved ones.
  • You needn’t qualify for new mortgage life insurance if you move your mortgage to a new financial institution. You just continue using your existing term plan, which covers you regardless where your mortgage is.
  • Once your mortgage is repaid or reduced you will have life insurance to cover other liabilities or for other estate planning purposes.
  • Term insurance allows you to look at your entire capital needs and buy coverage applicable to you total needs, in the event of death.
  • A custom life insurance plan often offer other optional benefits that you can include, such as riders which can include: life insurance coverage for children, disability coverage, and critical illness coverage.
  • More control over the cost of premiums which can go up over time if you don’t own and control the life insurance contract.
  • Your insurer underwrites your policy when you apply for it. Other mortgage life insurance from a financial institution offer you little control and may choose to underwrite your health history at claim time.
  • Ask your advisor how to shift out of mortgage life insurance into personally owned life insurance to achieve the above advantages.

Why is portfolio strategy important?

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Portfolio strategy is a method used for investment planning. Here we look at some of the sub-categories within investment planning:

Having a strategy helps you to understand your tolerance for risk.

Each of us has a personal level of risk tolerance which indicates how much risk one is willing to take while investing in markets that always go up and down. Your advisor can help you establish your own unique governing guideline.

Understand your investment time frame.

You may want to save for your child’s education, your retirement, a vehicle, or a home down payment. Each of these projects can take a certain amount of time, which is a component you apply to your calculations and potential future value with tax considerations and/or registered government tax programs.

Re-evaluation and Re-balance your portfolio holdings.
You also may want to monitor, re-evaluate, and balance your portfolio. When you consider how your assets performed, you will also need to consider any market situations that may be occurring. Some assets may have returns that are greater than their benchmarks, others may not.

While rebalancing your portfolio, you can re-establish original asset allocations. When you are re-balancing assets be cautious of any tax consequences for selling  early, or buying and selling too often.

Develop your “Investment Plan”.

Once your investment plan is written down for reference, it will provide a road map to help you attain your investment goals while not getting you off track due to analysis paralysis, or the many distractions that may cause people to procrastinate. If you find that you just can’t get motivated but know time is slipping by, call us and we will be glad to work with you to develop a portfolio strategy, within your overall investment planning. Getting assistance from a professional advisor will ease the stress of thinking about investing and help free your mind to enjoy life?

Don’t become a Chameleon.

Beware of following the investment crowd or chasing last year’s stock or fund winners. Past performance is not an indicator of future gains while investing in securities, or equity funds that invest in stocks and/or bonds.

How to prepare to qualify for a mortgage

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When you apply for a mortgage, there are several questions that a lender may ask, for which you can prepare. They will want information relating to:

The primary information they will need.

1. Employment and income

2. A summary of your outstanding debts

3. Cash reserves, bank account cash, investments, and other assets

4. The down payment that you have on the property you are purchasing, and is it your own money

5. Will the loan also be to consolidate any debts

6. What will be the use of the property

7. What is the equity you now have in your current home, if applicable

Employment and income.

  • Who is your employer?
  • How much income do you make, and can you provide payment receipts/stubs?
  • How long have you been working at your job?
  • Is your income a salary or other income such as sales commission?

Your liabilities.

  • What are your outstanding debts?
  • What commitment level per month do you have to pay debts?
  • What is the cost per month for auto loans?
  • How much of your income goes to pay off credit cards, and what is the gross credit card debt?
  • How much money will be left after you pay for your down payment and closing costs?
    • If you are refinancing debt, how much debt will your mortgage cover and reduce your equity?

What you will use the real estate for:

  • Will this be your residence?
  • Will you rent a portion of the home out?
  • Is it an investment property?

Property type

  • A condominium?
  • A duplex?
  • A single dwelling?

Replies which can work in your favour:

  • I have steady employment with the same employer for two-plus years.
  • I carry little debt with a debt-to-income ratio of 25% or less.
  • The mortgage is only for a home purchase.
  • My down payment of at least 30% of the purchase price with my own money.
  • The cash reserves will pay several months of the mortgage payments once the property closes.

Replies which can work against you:

  • Self-employed or contract worker.
  • High debt with credit cards maxed out, with a total debt-to-income ratio of more than 30%.
  • We intend to renovate the property for rental use.
  • The liquid cash situation will be tight once all expenses are paid after we close the deal.