Invest by paying yourself first

Some people never pay themselves first.

After most people have paid for their necessities, there seems to be little left over for investing.

Determine your perspective on investing. Always spending and never investing is a serious dilemma often based on a certain mindset that can easily change for the better.  Do you view yourself as a consumer or an investor?

If you see yourself as a “consumer”, you may experience that there is never enough paycheck left at the end of the month for investing. However, is this caused by a lack of income or your own spending patterns? The first barrier to investing is a “perceived lack” of investment capital, often not reflecting reality. Unfortunately, what we think often becomes our reality.

Investors have personal discipline Conversely, “Investors” take an honest mathematical look at their expenses, separating discretionary income from what one needs to live on, knowing that impulsive buying decisions, even to purchase many small things on sale can add up.

This disciplined viewpoint allows them to have money to invest. Once paid, the first “consumption” decision can be to purchase an investment suitable to their goals and objectives.  The rest of their paycheck is then spent with no worries on required consumption for the rest of the month.

Investors get good advice, and then act. Many people are impatient or confused when it comes to the science of investing.  True “Investors” all have a key characteristic that makes for success — taking the right action with professional advisory assistance.  They also understand that without experience and knowledge, investments decisions can be made in haste, and potentially destroy an otherwise good investment plan.

How can I find more cash to invest?

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One thing is true about building wealth. The discipline of spending less money is the surest path to saving more. But you may have to reform your way of thinking—we do not deserve to buy something now if we can’t afford it today. Here are a few suggested ways to help you spend less:

• Shop with cash. If you carry a debit or credit card, it is too easy to escalate your buying when out at the mall. Better to put a budgeted amount of money in your pocket and spend no more—make sure you include enough for a treat at the café.

• Clean your clothes at home. Try to buy clothing that can be washed at home, using caution not to shrink your fabrics.

• Don’t fire up a temptation. Don’t bother browsing the catalogs, the clothing racks, or the car lot if you don’t have an honest need.

• Look for freebies. Use your own bank’s ATM to save the $1.50 service charge. Try to avoid all the little service charges that hotel chains are starting to slip onto your invoice. Try to include extras with your vacation packages. Buy vacations in domestic dollars if you can. Plan to attend one of the numerous festivities that municipalities pay for and provide in the summer holidays. Consider that many entertainment venues offer discounts just prior to the show.

• Borrow DVDs and CDs at the library. Try your library for movies or music—you may be surprised at the free access they provide.

• Take portable picnic coolers to avoid eating out. This can save you hundreds of dollars per month. Picnics are great getaways in the summer and can be carried in coolers in your car.

• Learn the skill of cooking. It is easy to rack up over $50 with a tip when two eat out one meal per day. By learning to cook, you can add the artistry and relaxation to your own fine dining experience. When you do go out on the town, consider splitting larger meals with your partner. Avoid supersizing fast-food which may cost more and add calories.

• Limit prepaying your taxes. Adjust your income tax deductions at work, to make sure you aren’t pre-paying too much.

• Do a “needs analysis” by asking, “Do we need it?” This is where your partner can help you be honest and accountable by simply discussing every purchase, at say over $50—set your own dollar figure, at a point where you involve the other’s advice. Make lists and discuss your real needs.

• Don’t prepay phone charges. Some long distance residential plans and/or cell plans are priced so high that the average caller will not benefit by a higher pre-paid monthly plan. Long distance and cell phone minutes are better paid by a flat rate, per second, for restrained use as needed. However, some good plans allow you to use VOIP online where prepaid amounts stay on the books, and more minutes can be added as needed. Note: LINKSYS by Cisco Systems offers inexpensive hardware under one hundred dollars at computer stores, which allows two lines to regular phones.

• Liquidate if you have too much stuff. Space costs money so consider what is essential. Go over your furniture, books, general stuff, to determine what you don’t or won’t use in the next five years. If you don’t love it, sell it, or give it away.

• Invest your raise. Avoid spending up to any increase in your income. Rather plan to invest it.

• Assess the unit price and buy in bulk. Most everything is sold in quantity and can be compared with a competing brand—either by ounce kilo, or serving, etc.

• Buy depreciated cars. Avoid the biggest depreciation that occurs among assets. Buy vehicles used after a year or two, with the factory warranty still on it.

• Reduce your vehicle’s weight. Unload excess vehicle weight that can cost in gas consumption. Similarly having your tires carry the correct PSI will offer better gas mileage.

• Know that it all eventually goes on sale. It makes sense to wait it out for the seasonal sales. Stores begin to sell their seasonal stock, including clothing, often prior to the need. So if you are savvy, mark in your calendar the best times to buy. This is true also of travel bargains.

• Pay cash only for groceries. Have you ever spent double what you intended on items that can be eaten? If you pay cash you are forced to budget regardless of how hungry you are, sticking to the necessary items.

• Know where the quality brands are. Don’t purchase items that will wear out prematurely and will have to be replaced; instead buy quality, but shop around for the best prices.

• Buy more when it is really cheap. If you can buy tuna, salmon or spaghetti at 30% less than usual, why not stock up on it? But don’t make the mistake of buying multiple “on sale” items if you don’t need higher quantities.

• Make fun fast food. In many ways, you can make your own fast food, such as fruit or vegetable trays for drives, hikes, or stay-overs.

• Use public transit. By not driving all the time you may save some money. Many municipalities offer cheap bus transportation. Some prefer not to drive if they live in a large city such as Vancouver or Toronto. They can unload insurance, fuel, and repair costs on top of any lease or loan payment (along with the interest). There are car-sharing co-operatives in larger cities. Car rentals can be cheaper in the winter and on weekends.

• Cut your hair between main cuts. Sometimes a minor home trim will add another week before you’ll need to visit the barber or hairdresser.

• Utilize the secondary market. If you are a bookworm, Amazon.com or Abebooks.com may help you find the book for less than a dollar, or perhaps find a camera on eBay at 25% off the cost. Most of the world literature is available online for under $5 for the entire life-work of an author, sold on Amazon Kindle.

• Make the park your gym. Why not walk around the park’s pond and get outside as a bonus.

• Adjust your thermostat. By juggling temperatures by one to two degrees on your thermostat (wear sweaters or shed clothing) you can save a few hundred dollars per year.

• Know how and when to return merchandise. Many admit mistakes or displeasure with a product and promptly return it according to policy—in the free market that is more than fair! Ask about return policies when shopping. Often it is wise to reassess a purchase in a day or two.

• Pre-pay certain vacation costs. Prepaying for a resort food plan in domestic dollars to avoid paying later for dollar-exchange loss, can make budgeting sense because you’ve got to eat anyway. Likewise prepaying museum ticket passes can save money and side-step long line ups.

• Just stop—don’t shop! Tell yourself to stop shopping when you have no imminent need. Try walking, sitting in a café or reading instead.

Is probating an estate expensive?

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It is a significant job for the executor to probate a will. The original will must be submitted with an inventory listing the estate’s assets recorded at their fair market value to the court in the jurisdiction where the deceased last lived. There may be increased fees if a lawyer is retained to cross-examine the asset list or if the executor charges a percentage of the asset base to do the work.

Probate fees are paid from an estate to the provincial court. These fees are approximately .5% to 1.5% of the estate’s assets, depending on the size of the estate and the province. Provincial lawyers complete the necessary ‘letters of probate’ or ‘grant of probate document.’ In Ontario, they are now referred to as ‘the certificate of appointment of estate trustee with a will.’

Because probate is calculated on assets, regardless of liabilities, an estate with assets of $1 million and liabilities of $200,000 would pay probate on the entire million. In addition, if these same assets are transferred to your spouse, probate fees may be due again the second time around when these assets are transferred through his or her will. These fees are paid with after-tax dollars, as they are not deductible on the final income tax return. There is no law stating that a simple will and estate needs probating.

How can I minimize the need for estate probate?

There are a few tactics whereby you can reduce the need for an estate to be probated by the government:

Defer possible probate by holding assets jointly. Probate fees may be charged when that asset is transferred later through the will of the second spouse.

  • Establish a person as a beneficiary on your life insurance policies independent of the estate. This way, all monies pass to the heirs tax-free. If the estate needs probating, this portion of the assets will not be included in the estate, as the death benefit will flow directly to the heirs circumventing scrutiny. Life insurance strategies are excellent financial tools to circumvent probate on larger wealth transfers to heirs. Family wealth can be positioned to pass through life insurance policies, delivering tax-free benefits without probate. This method has frequently been used to transfer inter- generational estate wealth in the millions.
  • Name your beneficiaries on your RRSPs and RRIFs. Insurance companies’ products will allow you to sidestep probate in this way. To protect themselves, banks and trust companies will probably require probate or a letter of indemnity from the estate’s lawyer if the assets are significant. If your spouse is your beneficiary, consider a secondary beneficiary should your spouse die at the same time you do.
  • Consider setting up a spousal testamentary trust in your will to avoid double probate. When the second spouse dies, the assets can be distributed via the trust directives as opposed to a will.
  • With your spouse, set up mutually owned property as ‘joint tenants with rights of survivorship to transfer these assets automatically outside of the will.

Once the will has been probated (if necessary) and the executor confirmed, he or she could start transferring assets as directed by the will. Some assets can be transferred easily within a short period of time. Others have to wait until the estate expenses have been paid, including any final income taxes due to Canada Revenue Agency (CRA), after which they will issue a tax clearance certificate.

Note: The Estate Administration Tax (ETA) in Ontario, will replace some of the previous probate processes, and may add more complexity to the above scenarios. If your estate is large, it would be wise to seek the advice of a good tax accountant.

Life insurance to protect heirs from debt

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The expansion in the growth of using credit is partially due to lower interest rates. The paradox is that low-interest rates lessen the interest payments to reduce debt while at the same time motivate people to assume much more debt.

Beware of little expenses; a small leak will sink a great ship. Benjamin Franklin

Debt Affects Family Savings Increased spending is often supported by increasing debt loads. When debt overburdens your resources to repay what you owe, you may need debt counselling that may lead to debt consolidation.

Do Your Math If your expenses exceed your income, you will increase your debt if you rely on credit. Amassed debt can undermine otherwise healthy finances and the ability to invest for retirement. Saving indicates a stewardship that respects the fact that money is the only symbol of trade for a company’s goods and services exchanged for an individual’s energies.

Reduce Debt and Save More The amount of savings often advised is based on the age-old recommendation to save 10-20% of your disposable income.

Interest rates on borrowed money can always increase so it important to realize that low-interest rates do not last forever. Always plan to service the debts that you take on today.

Beware of the potential consequences of taking on significant debt. Life events such as loss of employment or income, a change in family status or a serious illness, can cause a huge drain on finances.

Life insurance protects your heirs It is important to insure all your household debt with life insurance as these liabilities can be paid off tax-free in the event of death. If you are one of the main breadwinners in a family, call your life insurance specialist today.

Talk to your advisor about life insurance to protect your heirs.

Education planning has serious financial consequences

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As parents, we need to consider the effect that education will have on the future income and lifestyle of our children. When Steve Jobs of Apple knew he had a short time to live, he became assertively interested and vowed that he would do everything in his power to ensure that his son received a good education.

As the Internet brings many changes quickly, we are seeing many manufacturers moving plants overseas. Stephen Covey, the best-selling author of The 7 Habits of Highly Effective People, predicted a need for technological education several years ago, echoing what we see everywhere: manufacturing increasingly calls for brain work rather than metal-bashing that empower the industrial age — further making a point:

The winds of education reform are beginning to stir once again. Our collective conscience is being nudged. And there’s a good reason. The world has moved into one of the most profound eras of change in human history. Our children, for the most part, are just not prepared for the new reality. The gap is widening. And we know it.

Parents see the chaos, the economic uncertainty, the stress and the complexity in the world, and know deep down that the traditional three “R’s” — reading, writing, and arithmetic — are necessary, but not enough.

Today robotics and artificial intelligence call for another education revolution. This time, however, simply cramming more schooling in at the start is not enough. People must also be able to acquire new skills throughout their careers.

The following grid estimates the effect of educational decision-making on a child’s education. Income and future lifestyle can be severely affected by poor choices. When a child has the capacity and talent for a higher level of educational goal-setting and achievement, this needs to be developed appropriately.

What ways can we plan for our Child’s education? Consider using both the traditional Registered Educational Savings Plan (RESP) and the Tax-Free Savings Account (TFSA) as an educational savings vehicle. A TFSA offers parents another tax-efficient method to provide for education planning.

Using the TFSA for Educational Planning

Canadian residents age 18 or older can contribute up to $5,500 annually to a TFSA in 2018; and $6,000 in 2019. This is of particular interest to those who invest in stocks and equity funds since when the money is withdrawn, there is no tax consequence.

Using the RESP for Educational Planning

  • You can save for a child’s education using the RESP. The Government of Canada will also help you save money through the Canada Education Savings Grant (CESG).
  • Your advisor can help you understand what RESP options is available to you in your province.

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 can Segregated Funds benefit an investor?

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How Segregated (Seg) Funds Work

Segregated (seg for short) funds are professionally managed investment funds holding pooled investments, with a life insurance component.

With predefined investment objectives and policies, a professional manager selects the assets the seg fund will hold. Many individuals pool their money for the purpose of investing in stocks, bonds, and other kinds of securities by purchasing shares or units. The price per unit fluctuates in relation to the market price of the securities the fund holds.

Fund investors get a share of the fund’s ongoing investment earnings or losses, based on the number of units they own. When they redeem or sell units, the redemption value or price they get depends on the number of units redeemed, the unit price at the time of redemption, and any applicable fees.

The advantages of segregated funds during market turbulence Seg funds can offer growth when the market increases in value. Seg funds allow investors who have only a little capital or limited investment knowledge to invest in a diversified portfolio of assets. Individual investors share the expenses of running the fund, such as employing a professional manager who buys and sells assets. They are very liquid; in other words, individual investors can cash out at virtually any time by redeeming their units with the fund issuer.

1. Diversity can reduce investor risk The more diversified a fund is, the greater the mix of assets it holds in its investment portfolio. As with all investment products, there are various kinds of investment risk, such as inflation risk, declining market risk (referred to as bear market), default risk, currency risk, interest rate risk, and political risk.

2. Safeguards certainties The most compelling reason for buying a seg fund policy is capital protection. While GICs also offer a guaranteed return, they are limited in their growth potential. Since seg funds are invested in capital markets, they have a greater capacity for appreciation. Segregated fund contracts have special features offering certainties over and above those offered by other investment funds.

3. A maturity benefit The seg fund’s contract at maturity date, or at death, may guarantee a minimum percent of your invested capital to be returned (by a life insurance company). Typically, at the time of maturity set in the contract, some companies permit a resetting of the new guaranteed capital amount and a renewed maturity date.

4. Money security options Regardless of market performance, at maturity you are entitled to receive most or all of your initial invested capital back (or more if the market has performed well), less any withdrawals. Note: Examine the conditions of the contract.

6. Estate planning benefits As with the certainties of the maturity benefit, some insurance companies allow individual contract owners to reset the death benefit periodically to lock in increases in the value of the segregated funds the contract has invested in, equal to at least a percentage of gross contributions.

This benefit is payable directly to the beneficiary of the contract upon the death of the insured person. If a beneficiary is named and the death benefit paid to him or her, monies can be protected from probate, government estate administration fees, and any attending legal fees incurred.

7. Why seg funds appeal to senior investors This is of particular value when an investor is nearing, or has begun, retirement and cannot afford to lose capital invested during a volatile market. Even if the fund’s actual unit value declined, your seg fund investment contract may guarantee that you will get back a very high percentage of the initial capital invested.

Also, at maturity, you will get back the guaranteed minimum amount or, if the market has risen in value, a higher amount. This means less worry, as you will know with certainty the minimum amount of money you will have when the contract matures (some return up to 100% of the original capital invested). This is particularly good for those who intend to pass the money on to the next generation if it is not needed for income or emergency during any period of market devaluation.

8. One or more beneficiaries Segregated fund policies allow you to designate one or more beneficiaries, much like a life insurance policy. At the time of your death, the proceeds from your seg policy may not be included with the rest of your estate. The proceeds from your segregated fund policy pass directly to your beneficiaries.

Note: The provisions of a seg fund contract, such as the guarantee periods and the MER, may be dependent on age and insurance underwriting. There are many new seg funds being developed offering various guarantees (and periods related to those guarantees). You should note that individual contracts have their own restrictions on the age to which you can invest. In addition, the level of payout can vary depending upon your age.

9. Potention creditor-proof investments Depending on jurisdiction, some seg fund policies might be protected from creditors for an investor’s lifetime if the policyholder ever faced a lawsuit or bankruptcy. This is because seg funds include insurance-related contracts. There must be an irrevocable or preferred beneficiary (or multiple preferred beneficiaries)—a child, grandchild, parent, or spouse—named on the contract. This can be beneficial for self-employed small business owners who take more financial risk (such as consultants, dentists, lawyers, and accountants). Equally, since those who own a significant number of shares in a corporation or serve as an officer or director of a corporation may be liable if lawsuits are filed against that corporation, they also can benefit from this creditor protection. For example, a sexual harassment or environmental lawsuit could affect a small business owner or corporate officer. Losing a serious lawsuit can put both your business reserves and personal investments at risk.

Note: Subject to certain restrictions, these strategies should be discussed with a qualified financial advisor. The creditor protection is allowed as long as money was not placed in the seg fund with the intent to protect the capital from an impending financial crisis. In most cases, however, the creditor protection is valid when the lawsuit or bankruptcy (in the case of both personal and business situations) is unexpected. Recent court rulings have shown that creditor protection may not always apply. You should seek legal advice to determine under what circumstances (especially intentional quick-fix shielding of money) a seg fund policy might not offer such protection.

Seg funds are best suited for the investors involved in long-term  wealth creation and preservation of capital.

Capital protection appeals to a variety of people, including:

• Everyday investors who are conservative and yet want higher returns than GICs offer;
• Pre-retirees who need growth but can’t afford to lose money;
• Seniors who require estate protection and certain capital guarantees; and
• Businesspeople who have exposure to personal liability and want to protect their assets.

 

What is an investor risk/reward trade-off?

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Understanding investor risk/reward trade-offs.

The risk/reward concept states that the higher the risk of a particular investment, the higher the possible return. Although there is usually risk with any equity investment, assessing just how much risk your portfolio should carry is important. Risk involves the potential for gain or loss of monies invested.

Many people take on more risk, hoping to achieve a higher return without regard to cyclic markets. If an investor expects higher returns based on the past, he must understand that markets can go through gain and loss periods.

In theory, many think that the higher the risk, the more you should receive for holding the investment. With cyclic markets, this is not necessarily true. Conversely, in theory, the lower the risk, the less you should receive. Unfortunately, the dilemma is this: a higher potential for above-average returns comes with a higher risk of below-average returns. Conversely, safer investments, such as cash and bond instruments, have a lower potential for high returns and a higher potential to not keep up with inflation.

While choosing investments for your portfolio, you need to be conscious of risk/return trade-offs and risk tolerance. Different types of securities have associated levels of risk. Every investor’s goal should be to find a balance that allows you to not experience undue anxiety in the markets and achieve your long-term financial goals at the same time.

How can I get serious about successful investing?

There are four basic types of people, each  with differing mindsets when they approach investing; the Sideliner, the Gambler, the Hobbyist, and the True Investor. If you want to be a serious and successful investor, you will need to mindfully recognize the erroneous attitudes of the Sideliner, the Gambler, and the Hobbyist.

The Sideliner Sideliners aren’t afraid to take action as long as they are in the audience where they won’t ever get bruised. They shout, stand, clap, loving the action of a bystander. Sideliners love the excitement of stock market news and the investor’s game. They often look at how the indices or a stock or a fund performed. Observation alone, never gets you in the game of investing. Sideliners may feel it is dangerous in the arena of the investor.

The downside Sideliners are analytical who love running numbers hoping to reduce most of the risk, comparing return percentages, yet out of a paralysis of information, fear sets in and they make minimal purchases just to play it safe. The sideliner is a silent observer possessing discernment for weighing facts, yet who witnesses other people’s investment success without taking any action to enjoy investing personally.

The Gambler These people are sanguine thrill seekers, who unlike the Sideliner, enjoys the casino, horse race, or scratch and win tickets. He or she confuses play gambling with risk tolerance, spends recklessly, considers that investment principles are for misers, and doesn’t seek the guidance of an advisor and consequently has a retirement portfolio that looks broke.

The downside The Gambler is comfortably numb and usually gets punished with frequent losses for taking above-average risks. They might buy an investment based on listening to the talking heads in the trading media, buy penny stocks, or low-priced failing company stocks — all based on uncredentialed hearsay. Because they think that they might make some fast money, they think they are investing, but they are not. Rarely does a Gambler stay invested for the long term.

The Hobbyist He or she buys things and investments on the basis of their emotional value, more than on investment value. As collectors they buy for popularity status, notions of status, aesthetic gratification, and pleasure.

The downside Hobbyists, when excited, may jump to buy anything that is referred to them by word of mouth or a talk show host. They may own all the British Royal plaques on a wall or the top “500 must see movies before you die”. Financial perspective gets lost because several investment funds may be bought by virtue of historic popularity instead of the potential for future gains. Because collections have been known to go up in value, they think they are investing. They do not understand the old latin proverb “Non Quantum Sed Quale”, meaning it is not the quantity, but the quality that counts.

The True Investor Utilizing an advisor’s wisdom, they buy good investments. Unlike Sideliners, they act. Unlike Gamblers, they minimize risk. Unlike Hobbyists, they buy on the basis of investment value. Investors are defined by their knowledgeable expectation for financial gain employing a principled process to minimize financial risk. Many also make it their practice to utilize professional managers and advisors when investing.

True investors act the part, with a vision to achieve excellent returns on their investments while exposing themselves to mitigated risk that suits their investor profile while enjoying the actions that lead to real financial success. It all comes down to how you think and if you’re thinking towards taking investment action.

What types of life insurance are available?

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Life Insurance Plans for Individuals
Life insurance is a type of coverage that pays benefits upon a person’s death to designated beneficiaries. A small premium gives you immediate coverage and provides for a significant death benefit payable upon the insured’s death to provide capitalization to pay an income for dependents. In some cases, there may be a maturity date where the insured, if still living, can receive the proceeds.

Tax deferral is allowed with some types of life insurance to offer insurance with an investment component, allowing increased funds to pass to heirs. Tax specialists can maximize an estate’s value while using life insurance. And the investment after achieving growth can enhance retirement income.

Types of Life Insurance
Life insurance has two primary classes:

1. Term Life Insurance Term Life is less expensive, but most term periods are generally temporary. Many people choose term life insurance (or term rider on a permanent plan)  when beginning a family, as they try to keep costs lower while covering many liabilities.

Term Life Insurance plans include:
The death benefit coverage continues for temporary terms set in 5, 10, or 20 years; or a lifetime level term to age 100.

  • Other periods can run to age 65, 75.
  • The premium remains constant for these terms.
  • The low cost of insurance for a certain level of death benefit is the essence of this plan, generally with less emphasis on a cash value.
  • You can buy more term coverage for less premium, which does increase upon each term period renewal (for example, a five-year term rises in cost in the sixth and eleventh year and so on).
  • Term insurance can generally be converted to Permanent Life Insurance coverage without medical underwriting, but check with your advisor about renewal and conversion options when you plan to buy a policy.

2. Permanent Life insurance The coverage continues to the time of the decease of the insured or pay one a level or an increasing lump sum at a certain age of maturity (usually age 100), or offers cash value or premium pre-payment incentives. Where there are cash values associated with a Permanent plan, the insurance cost can be lowered as the increasing cash funds accumulating in the program replace the level of insurance needed.

Permanent Life Insurance plans include:

  • Whole Life, can offer a level premium and a cash value table in the policy in some cases, guaranteed by the insurer;
  • Limited Premium Payment, is a policy that can be paid up fully in a specific period of time (such as over 10 or 20 years; or paid up at age 65).
  • Endowment Life is where the cash value grows to a level equal to the insurance coverage.

Life insurance premiums vary according to the policy type. In some cases, paying a little more premium offers enhanced benefits. Tax-deferral strategies may change due to legislation.