by John Moakler | May 12, 2021 | Uncategorized
May 12, 2021
I also cover this subject in a YouTube video. Click here to watch!
What is Whole Life Insurance and how does it work? Well, by the end of this blog I’ll give you all the important facts on Whole Life and your other options available to you, so you can make an informed decision before you decide what is best for you and your family.
Now, in all honesty, I really see life insurance as a necessary evil. You can’t escape death and so the question is, what do you want to do while you’re alive and what do you want for your beneficiaries upon your passing? And more importantly, is one of your estate goals to make sure that Revenue Canada is not the biggest beneficiary of your estate?
Well, I hate to pull down the curtains, but the answer to this question is Permanent Life Insurance…the next question is, what is the right coverage?
In Canada you have 2 choices for Permanent Life Insurance – You have Universal Life or Participating Whole Life. Both are permanent insurance policies, but each one has pros and cons associated with it. If you are only interested in minimizing your estate taxes and maximizing your estate for your beneficiaries, then perhaps Universal Life is the way to go. You can pay the minimum amount of premium, don’t overfund it, and you will achieve your estate goals.
However, if you also want guarantees associated with the life insurance and the ability to tap into the cash value while you’re alive, then Whole Life is the preferred choice. Whole Life has been around for over 150 years and it comes with guarantees that Universal Life does not have. Every year, like clockwork, providers of “Par Whole Life” declare a dividend to their policy holders, and once the dividend is declared, they become vested, and they cannot go down in value. Where else can you get an investment product – that’s correct, Life Insurance as an investment product – that provides you with a Dividend each year, and once that Dividend is declared it is guaranteed and it cannot go down in value?
Universal Life does not have these same guarantees. Whole Life companies in Canada have been declaring Dividends for over 150 years and so even during WW1, WW2, 911, and even in 2008 when the stock markets went down 35% to 40%, the Cash Value inside a Universal Life policy also saw a similar decline of 35% to 40% – however, the average Whole Life Participating policy in Canada in 2008 had a Dividend of 8%.
I usually refer to a Whole Life policy as the Fixed Income Anchor in your overall investment plan.
Think about this for a second – It’s better to have life insurance and not need it, than need it and not have it.
Now, Whole Life insurance comes with 3 components – Premium, Death Benefit and Cash Value Accumulation (savings aspect). When you pay your premium, a portion is applied to the death benefit and cash value.
Depending upon how you design it, for the first 5 to 10 years a majority of the premium is usually applied to the death benefit, which is referred to as the cost of insurance. However, over time the cash value will receive a greater portion of the premium and this will build up a bucket of money that we can tap into when we reach retirement.
When the Federal Government overhauled the insurance industry in January 2017, new unique products started to emerge in the Whole Life space. I don’t know about you, but I don’t want to be paying premiums on my life insurance policy for the rest of my life, so I have a Pay-10 policy. What that means is that if I make the following payments over that 10-year period, then the insurance company guarantees that my policy is paid up in 10 years and no more premiums are required. However, the policy and the Cash Value will continue to grow and as I reach retirement, the Cash Value is designed to grow like a hockey stick curve…up and to the right. Which means I will have more money to tap into, on a tax-free basis, during my retirement.
If you have at least 20 years prior to retirement, then a Pay-20 Whole Life Policy is the preferred way to go. In the Greater Toronto Area, I have a client who is a female business owner in her early 40’s and she has a Pay 20 Whole Life policy. When she turns age 65, the policy is designed so that we could turn on an annual tax-free paycheque of $239,000 until age 90 – or if she waits until age 71 to turn it on, similar to when we have to convert our RRSPs to a RRIF, then the annual tax-free retirement paycheque will be $345,000 per year to age 90. So while she was alive, she took out $6.9-million in a tax-free pension plan, and when she passes away, her beneficiaries will still receive the balance of the death benefit.
Want to learn more about a Corporately Owned or Personally owned Whole Life policy, designed for maximum cash flow in retirement? Contact me at the coordinates below to apply to become my client.
Thanks for reading and always remember: when we design financial plans for our clients, we make sure that your money outlives you in retirement.
For the best life insurance advice and information, subscribe to my YouTube Channel and hit the notifications bell to be notified when we post new videos. The channel allows me to share my passion for personal financial planning and I produce content that I would want to watch – and because of that, I promise to give you 110% effort in every video that I make.
By John Moakler, BMath, CFP, CLU
President and Senior Executive Financial Planner
Moakler Wealth Management
info@moaklerwealthmanagement.com
1 416 840 8544
by John Moakler | May 5, 2021 | Uncategorized
May 5, 2021
I also cover this subject in a YouTube video. Click here to watch!
Do you think you know everything you need to know about Disability Insurance? Well, by the end of this blog I’ll give you all the facts so you can make an informed decision – because if something happened to you and you couldn’t work anymore, what’s your game plan?
If you own a home or a car today, chances are you have insurance on both of these assets and you might even think they are your most important assets.
WRONG!
In fact, your most important asset is your ability each and every day to get up and go to work to earn a living.
And so, if something had happened to you last night and you couldn’t work today, the question I always ask is…
What is going to be your pay cheque?
If this happened to you, the best way to address this issue is something called Disability Insurance and it will step in to become your paycheque for the rest of your working life.
Now, most people who have a group disability plan at work probably haven’t even read the benefits manual or even fully understand their group disability plan. I know I didn’t when I worked for corporate Canada. However, every group disability plan in Canada has one huge flaw with it and I am going to share that flaw, and more importantly, I am going to educate you on how we can correct that flaw.
Disability insurance premiums should always be paid for with personal tax dollars. So even if you are in a group plan and they provide you with “flex dollars” to pay for your benefits, make sure that you direct those flex dollars only to your dental benefits – because if you use any of those flex dollars to pay for your group disability insurance, unless your company makes sure you receive this as a taxable benefit on your T4 slip, then if you ever went on disability all of the income that you receive would be taxable income. But that’s only if you only pay for the premiums with personal dollars and not flex dollars – then, if you ever went on disability, all of the income that you would receive would be “tax-free income.” So this is so very important.
Also, if you are an incorporated business owner, you must make sure that you pay for your disability premiums with personal tax dollars. Otherwise you would have the same issue of taxable income versus tax-free income if you went on claim.
So, here are the stats for Canada. One in 3 people, that’s 33%, will at some point become disabled during their working years. Also, 50% of all mortgage foreclosures can be traced back to the person not having a disability policy. This is real. So you have to take Disability Insurance coverage very seriously, because it is the most important insurance coverage to protect your current and future paycheques.
Must Haves
When designing a disability policy, you have to look at certain features that are “must haves” in order to fully protect yourself.
The 1st feature is called “Own Occupation”. If you don’t have this feature, then 2 years into the disability benefits, the insurance company can force you to do any other job that you are capable of doing. But if you have the “own occupation” feature in your plan, then the insurance company can’t force you to do any other job than the job you were doing the day before you became disabled.
This is the flaw I mentioned earlier with Group Disability plans. Every group disability plan in Canada only has “own occupation” for the first 2 years and then after the 2-year time period, the definition in the policy gets changed to “any occupation” – so after 2 years, the insurance company could force you to do any other job that you are capable of doing. And the pay that you would receive from that job would be subtracted from the benefit that the insurance company owes you.
Now here is how we fix that problem with your group plan. You can purchase a “cheap and cheerful” individual disability policy…however, I would include a 2 year waiting period before the benefit kicks in….so your group plan would cover you for the first 2 years and then when the definition changes in the group plan, we turn on your individual disability insurance plan with “own occupation” to solve this problem. This is very cost effective because of the 2-year waiting period.
Now back to designing your own individual plan. In addition to “own occupation” you should also have a feature called Cost of Living or COLA – because if you went on claim, you want to make sure that your monthly benefit is keeping up with inflation.
And the 3rd feature you should look at is FIO or Future Income Option. This feature allows you to purchase additional monthly benefit, as long as your income has gone up, but you do not need to undergo any future medical underwriting. This feature can be exercised every year on the policy anniversary. If you choose not to take the benefit increase, then the amount is carried forward to the next policy anniversary.
The final feature we should look at is called the Return of Premium or ROP. You should do a calculation as to the cost of this feature versus the payback. How this works: every 7 years like clockwork, if you haven’t filed a disability claim, then you get 50% of the premiums back that you paid and you receive this money tax-free. So, either you get a disability and you receive the monthly benefit or you get 50% of your money back.
Thanks for reading and always remember: when we design financial plans for our clients, we make sure that your money outlives you in retirement.
Want to learn more about Disability Insurance? Already decided that you need to get the coverage in place? Contact me at the coordinates below to apply to become my client.
For the best life insurance advice and information, subscribe to my YouTube Channel and hit the notifications bell to be notified when we post new videos. The channel allows me to share my passion for personal financial planning and I produce content that I would want to watch – and because of that, I promise to give you 110% effort in every video that I make.
By John Moakler, BMath, CFP, CLU
President and Senior Executive Financial Planner
Moakler Wealth Management
info@moaklerwealthmanagement.com
1 416 840 8544
by John Moakler | Apr 28, 2021 | Uncategorized
April 28, 2021
I also cover this subject in a YouTube video. Click here to watch!
Do you think you know everything you need to know about Critical Illness Insurance? Well, by the end of this blog, I’ll give you all the facts so you can make an informed decision before you implement this strategy into your financial plan.
Did you know that Critical Illness insurance was developed by a Medical Doctor in South Africa more than 30 years ago? Think about this: 30 years ago if you were diagnosed with cancer, heart attack, or a stroke, 80% of the time you would die and 20% of the time you would live. Fast forward to today and the numbers have flipped….80% live and only 20% pass away. However, if you haven’t protected yourself and put the necessary “bumper guards” in place, even though you might survive cancer, you could face financial ruin. That is why a doctor by the name of Dr. Marius Barnard invented Critical Illness Insurance.
In Canada, only 5% of Canadians have Critical Illness coverage. But 85% of Canadians worry about getting a Critical Illness, and 58% of Canadians have admitted they would be in financial trouble if they were diagnosed with one.
Most people believe that if they get cancer, their Disability Insurance coverage would kick in. Wrong!
Cancer, heart attack, stroke…these are all Critical Illnesses, not disabilities – and so your disability policy will not kick in. There are at least 25 conditions covered under a Critical Illness policy and if you design the policy correctly, you can also include coverage for “Loss of Independent Existence,” which means if you can’t do two out of the six daily activities of living, then the Critical Illness policy will also cover you. In order to qualify for the payout, you must be diagnosed with a Critical Illness and you must live for at least 31 days after the diagnosis.
When we design CI policies for our clients, we design what I call a “guaranteed policy.” What this means is that you are either going to get a CI and the policy will pay out, or if you do not get a CI, then you can have 100% of your money back. This feature is called the “ROP” (Return of Premium) and Canada is one of the last countries in the world still offering a ROP feature.
If you are an incorporated business owner, there are additional strategies on the table for you. One option is just to purchase the CI policy and have it corporately owned – and if you get a covered Critical Illness, then the benefit would be paid into your corporation and you could dividend the money out to yourself to pay for any medical treatments. This is a very cost-effective approach, because you would be using corporate dollars taxed at the small business rate of 12.5% versus your own personal average tax rate of say, 35% to 40%.
The 2nd option on the table is kind of cool: it is called a “split dollar” CI policy. This means that a portion of the premium is paid for with corporate dollars and a portion of the premium is paid for with personal dollars. However, once you qualify and you have decided to cancel the policy and ask for 100% of your money back, you would get both the corporately paid portion as well as the personal paid portion, 100% tax free. So, this is a great strategy for getting money out of the corporation tax-free and at the same time, protecting you and your family in case you are diagnosed with a CI.
How do you determine how much coverage you need to put into place? For most men who contract a CI, their recovery period is around 12 to 18 months. For most females, the recovery period is around 18 months. So you need to take a look at what your “net” annual paycheque is after taxes and then multiply it by 1.5. For example, if your next annual income is $200,000 per year, you will need at least $300K of Critical Illness insurance coverage.
An estimated 50% of Canadians will develop cancer in their lifetime. That’s one in every two Canadians. Most people know at least two or three people who have been diagnosed with cancer and survived. An estimated 25% of Canadians will experience coronary artery disease, heart attack, or stroke – so the message here is this: get the coverage in place while you can still qualify.
Want to learn more about Critical Illness Insurance? Already decided that you need to get the coverage in place? Contact me at the coordinates below to apply to become my client.
Thanks for reading and always remember: when we design financial plans for our clients, we make sure that your money outlives you in retirement.
For the best life insurance advice and information, subscribe to my YouTube Channel and hit the notifications bell to be notified when we post new videos. The channel allows me to share my passion for personal financial planning and I produce content that I would want to watch – and because of that, I promise to give you 110% effort in every video that I make.
By John Moakler, BMath, CFP, CLU
President and Senior Executive Financial Planner
Moakler Wealth Management
info@moaklerwealthmanagement.com
1 416 840 8544
by John Moakler | Apr 21, 2021 | Uncategorized
April 21, 2021
I also cover this subject in a YouTube video. Click here to watch!
Do you think you know the difference between Term life and Whole life Insurance? Well, I’ll give you all the facts so that you can make an informed decision before you sign on the dotted line.
Life insurance is one of those necessary things in life, because life happens, and we can’t escape death…we just don’t know when it is going to happen.
Think about this – it’s better to have life insurance and not need it, than need it and not have it.
Term life insurance provides coverage for a specific amount of time, usually 10 to 30 years. If you or your spouse pass away during this time period, your beneficiaries will receive a tax-free payout from the policy.
Term life insurance is much more affordable than Whole life. Typically, this works out to about $7 per month on a 20 year Term policy versus about $95 a month for Whole life cash value.
However, Term life has no cash value until death occurs, so it’s not worth anything until you need it, which is I guess why you purchased it.
After you read this blog or watch the video, check out the video I created titled “How to tap into the cash value in your Whole life policy” to learn when is the best time for you to get started.
A lot of people say “why should I buy life insurance? It only benefits my beneficiaries.” Let me introduce you to Whole life. The way we design it, we want you to live so you can tap into it during retirement.
Whole life is a form of permanent life insurance which comes with three components – Premium, Death Benefit and Cash Value Accumulation (that last part is the savings aspect). When you pay your premium, a portion is applied to the death benefit and cash value. Every year like clockwork a Whole life policy receives an annual dividend. Right now, the current dividend is around 6% to 6.25% and insurance companies in Canada have been paying annual dividends for over 157 years. I usually refer to a Whole life policy as the Fixed Income Anchor in your overall investment plan.
Now, depending upon how you design it, for the first 5 to 10 years a majority of the premium is applied to the death benefit which is referred to as the cost of insurance… however over time the cash value will receive a greater portion of the premium and this will build up a bucket of money that we can tap into when we reach retirement.
Beneficiaries are only entitled to receive the death benefit portion of the policy when you pass away.
You can cash in or surrender your policy at any time to get your money out, but you would lose the insurance coverage. In my next video, I will educate you on how you can tap into the cash value without losing the insurance coverage.
If you’d like to get either a Term life or a Whole life policy, designed for max cash flow in retirement, click on the link below to apply to become my client.
Thanks for reading. Let’s make sure that your money outlives you in retirement!
For the best life insurance advice and information, subscribe to my YouTube Channel and hit the notifications bell to be notified when we post new videos. The channel allows me to share my passion for personal financial planning and I produce content that I would want to watch – and because of that, I promise to give you 110% effort in every video that I make.
By John Moakler, BMath, CFP, CLU
President and Senior Executive Financial Planner
Moakler Wealth Management
info@moaklerwealthmanagement.com
1 416 840 8544
by John Moakler | Dec 23, 2020 | Uncategorized
December 23, 2020
From Chapter 5 of Heal Thy Wealth: How Doctors Are Misdiagnosing Their Own Financial Health And What They Can Do About It. HARDCOVER NOW ON AMAZON. Click here: https://amzn.to/3mkXAu6
Turning Personal Costs Into Corporate Tax Deductions
Why pay for healthcare costs out of your own pocket when you can have your corporation pay these expenses?
A doctor running an MPC is like any other small business owner who is challenged with how to pay for drug, dental, and extended healthcare costs. If you do not have access to a group plan through your spouse, you will have to pay for these expenses out of your pocket using after-tax income. This is where a Health Spending Account (HSA) is of great value to you and your family. You will no longer have to pay for these expenses personally; all you need to do is to set up an HSA, and any contributions by your MPC are 100% tax deductible to the MPC while all eligible medical expenses are reimbursed to you and your family tax-free.
HSAs are less expensive than group insurance policies. With group insurance, the costs are based on the previous “experience” in terms of claims filed, plus the insurance company’s fees and profits.
What Is A Health Spending Account?
An HSA is a self-insured Private Health Services Plan (PHSP) setup by the employer (doctor) as a benefit for their employees. Expenses that are covered include both health and dental care expenses. Below is a sub-list of some of the other expenses that are covered:
• Acupuncture
• Dentures
• Naturopath
• Orthopedic Shoes
• Psychotherapy
• Ambulance
• Dermatologist
• Nursing
• Orthopedist
• Radium Therapy
• Artificial Limbs
• Drugs
• Neurologist
• Osteopath
• Massage Therapy
• Blood Tests
• Eyeglasses
• Obstetrician
• Oxygen
• Sterilization
• Braces
• Fertility Treatments
• O.R. costs
• Pediatrician
• Vaccines
• Chiropractor
• Guide Dog
• Ophthalmologist
• Physician
• Vasectomy
• Contact Lenses
• Hearing Aid & Bat.
• Optician
• Physiotherapist
• Viagra
• Crowns
• Hospital Bills
• Oral Surgery
• Psychiatrist
• Vitamins
• Crutches
• Insulin Treatments
• Organ Transplant
• Psychoanalyst
• Wheelchair
• Dental Treatments
• Laser Eye Surgery
• Orthodontics
• Psychologist
• X-Rays, etc.
For a more detailed list, you can visit the Canada Revenue Agency (CRA) website: www.cra-arc.gc.ca
CRA Eligible Medical Expenses
How Does A Health Spending Account Work?
From a visual perspective, picture a health spending account like a type of piggy bank for your drug, dental and extended healthcare needs. Money deposited by your MPC can be used to cover all CRA-approved eligible personal medical expenses. All contributions are 100% tax deductible to the corporation and they are 100% tax free to the employees.
An employee pays for the health or dental service up front and then submits the expense to an automated claim process using my website at www.moaklerwealthmanagement.com. First, they click on the button labelled “Client Login” and then they proceed to click on “My Health Spending Account.” Once the expenses have been submitted and verified, the money is then deposited into your personal bank account on file approximately three business days later. You do not need to mail any paperwork, but the plan does call for you to keep your receipts in case of an audit by CRA.
An HSA can be set up for a one-person business or multi-employee MPC as a cost-effective alternative to an insured drug and dental plan.
From Chapter 5 of Heal Thy Wealth: How Doctors Are Misdiagnosing Their Own Financial Health And What They Can Do About It. HARDCOVER NOW ON AMAZON. Click here: https://amzn.to/3mkXAu6
By John Moakler, BMath, CFP, CLU
President and Senior Executive Financial Planner
Moakler Wealth Management
info@moaklerwealthmanagement.com
1 416 840 8544
