Group & Individual Disability Insurance in Canada

Group & Individual Disability Insurance in Canada

March 17, 2022

I also cover this in a YouTube video. Click here to watch!

What is the difference between Group Disability Insurance coverage at your place of work versus an individually-owned Disability Insurance policy? Well, in this blog I’ll be sharing with you the key differences between the two plans, so you can make sure you have all of the important features. 

Now, if something happened to you last night and you couldn’t work today, the question I always ask is… what is going to be your monthly paycheque?

If this happened to you, the best way to address the issue is something called Disability Insurance – it will step in to become your paycheque for the rest of your working life.

With a Group Disability Plan at work, you are limited to the features that have been negotiated by someone in the Human Resources Department or the Benefits Department. Depending on where you work, you might have what are called “Flex Dollars” that you are allowed to use when designing your Benefits package. These Flex Dollars can be used to purchase Life Insurance, Disability Insurance, and Dental or Medical Plans.

The key mistake I sometimes see people make is that they use some, or all, of their Flex Dollars to pay for their Group Disability Plan. This is such a mistake because if you use your Flex Dollars to pay a portion or all of your Group Disability Plan, and then you go on a disability claim, any money that you receive would be fully taxable as regular employment income. However, if you don’t use any of your Flex Dollars to pay for your Group Disability premiums, and then you go on claim, then any money that you receive would be 100% tax-free money

So this is a huge no-brainer: would you rather have fully taxable income or tax-free money?

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.

Both plans usually allow you to add in a Cost-of-Living Allowance – otherwise known as COLA – which means that once you go on claim, your benefits each year would go up by the Cost of Living and would be indexed to inflation. This is good.

 

HERE’S THE THING: every Group disability plan in Canada has one huge flaw with it – it is called “Own Occupation.” Now, most of you reading this blog probably haven’t read your benefits plan in years, but if you read the fine print in your Group Disability Plan, you will find that if you go on claim, then you have “Own Occupation” for the first two years of your claim. That means that in the first two years of your claim, the insurance company CANNOT make you do any job other than the job that you were doing the day before you became disabled. 

Here’s the catch: in all Group Plans in Canada, after being on claim for two years, your definition of “Own Occupation” changes to “Any Occupation,” and the insurance company can now force you to do “Any Job” that you are able to perform, and with it, any money you make is subtracted off the Disability Benefit that you are receiving.

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 two-year waiting period before the benefit kicks in – so your Group Plan would cover you for the first two years. 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 turns out to be very cost-effective because of the two-year waiting period.

Only an individual plan can have the following feature: Return of Premium (ROP). I recommend you do a calculation of the cost of this feature versus the payback. This works like clockwork: every 8 years, 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.

If you are a professional, like a doctor or dentist or you have a university degree or a Masters, then you will qualify for additional discounts on your Individual Disability Insurance.

If you’d like to learn more about Disability Insurance or if you have 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

How does a Return of Premium work?

How does a Return of Premium work?

March 24, 2022

I also cover this in a YouTube video. Click here to watch!

 

So, what is the super cool feature called Return of Premium and which insurance products offer this coverage? By the end of today’s blog I’ll have not only shared with you how you can get this feature, but I will also warn you about some of its potential pitfalls.

I find insurance policies a necessary evil – but if we can purchase policies that protect us and our families, plus give us an opportunity to get a portion or 100% of our premiums back… Well, sign me up!

 

There are 3 common Return of Premium options in the marketplace: 

  1. Return of Premium on Death. This is somewhat obvious in how it works, meaning the pitfall is that you have to die to collect. So really this means the money is going back to your estate. 

  2. The Return of Premium that allows you certain risk management products, or in other words the “50% Return of Premium after so many years of coverage.” I will explain later how you can take advantage of this offer

  3. Finally the Return of Premium that says “Give me 100% of my money back after a certain time period.”

     

So for Critical Illness Insurance – otherwise known as CI – you can add on the feature of Return of Premium on Death. You’re either going to get a covered policy and receive the CI benefit, or if you die while it’s being processed, your estate will get 100% of the premiums that you paid back, 100% tax-free.

A Critical Illness Policy can also be designed with a term to the age of 75 – meaning you will have coverage from now until 75, and you can add on a 15+ years ROP on Surrender. So while you are alive, after paying premiums for 15 years, you can decide to either continue to pay the premiums each year, or you could ask for 100% of your money back tax-free. In this case, you are either going to get a covered CI benefit, and if you don’t, you qualify to receive 100% of your money back. This is what I call the Cadillac version of CI.

 

There is another Critical Illness Policy for business owners that is kind of cool. 

It is called Shared Ownership CI. This means that the Corporation pays the premium for the CI benefit and you personally pay the premium for the ROP on Death and the ROP on Surrender. Why is this cool? Because after 15+ years you can decide to surrender the policy and not only will you get back all the premiums that you paid personally, but you also get back all the premiums that the corporation paid – you get them all back personally and it is 100% tax-free money.

With Personal-Individual Disability Policies you can add on an ROP feature that allows you to receive back 50% of the premiums that you have paid if you haven’t claimed on the Disability Policy. This feature usually kicks in for every eight years you own the Disability Policy, and continues all the way up to the expiry date for the coverage. So if you haven’t contracted this policy, and you hit your eighth, 16th, or 24th anniversary, then you will receive 50% of your premiums back. The best part? That is 100% tax-free money.

If you’d like to learn more about how you can incorporate the ROP feature into your Risk Management Coverage or if you have 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

Are you working with a Real or Fake Financial Planner

Are you working with a Real or Fake Financial Planner

March 31, 2022

I also cover this in a YouTube video. Click here to watch!

 

Now here’s a question you may have never thought of needing to ask yourself: are you really working with a Financial Planner or just somebody who calls themselves a Financial Planner?  Well, by the end of this article I’ll have supplied you with all the necessary information needed to determine if your current Financial Planner really knows what they’re talking about – and if the recommendations they’re making to you and your family are correct.

 

Right now, in so many provinces across Canada, anybody can call themselves a Financial Planner and get away with it. 

As an industry, we are asking for reforms and regulations to protect the public from rogue people who pretend to be Financial Planners – the ones whose sole pursuit is selling products, moving onto the next opportunity and leaving many mistakes behind.

When I am in need of a doctor – a specialist – I want to find a doctor that has a number of degrees and designations after their name. I am seeking out someone who has gone to school for a number of years, someone who is a real expert in their field. Ultimately, I’m looking for someone who knows what they are actually talking about.

This same practice should be used when seeking out a Financial Planner to work with. We have similar acronyms after our names that you should be looking for to ensure the person that you are sitting down with is actually a Financial Planner.

So – you want to make sure the person has a business or a math background; additionally, they should have at least their Certified Financial Planners designation (CFP), which is the gold standard when it comes to Financial Planning. The second designation you should be looking for is the Chartered Life Underwriter (CLU) designation. The CLU designation really focuses in on working with business owners and complex estate planning. Those two designations – either the CFP or the CLU – are what’s really required in order to call yourself a Financial Planner.

Starting this year, if you want to enroll in the CFP program, you must already have a university degree – just like lawyers and accountants need to have a university degree, so will Financial Planners. This is just one step of many that the industry needs to take in order to protect the public.

Currently, I am working on a number of client files and you can see during the information gathering process that many business clients have no clue if they are maximizing the effectiveness of their corporation, and whether or not they are paying way too much in taxes to Revenue Canada.

 

Just to give you an example… 

One client I dealt with had a Critical Illness Policy that they owned, but when I reviewed the documents, I noticed that the brother was listed as the beneficiary of the policy. Now, if this was a Life Insurance Policy, that might be correct, but this was a CI policy. So, I explained to the client that they were making the premium payments, but if they contracted a critical illness, the payout would be going to the brother. Boy, were they displeased when I showed them their own documents. Needless to say, they fired their previous Financial Planner since they clearly didn’t know what they were doing.

 

Life insurance is a no-brainer to have inside a corporation. Time and time again I see business owners owning life insurance policies personally instead of corporately and that is just not being wise. 

Why would you take money out of the corporation – paying 30% or 40% in personal taxes in order to pay for the life insurance premiums – when that policy could be inside the corporation?

Plus, depending on which province you are in, you’re using 11-12% corporate dollars to pay those life insurance premiums. And, if you did pass away unexpectedly, the death benefit would be paid into the corporation, at which point your accountant would prepare paperwork to declare a “Capital Dividend” and the life insurance proceeds would come out of the corporation tax-free. What I’m trying to say is: there is no downside to owning the Life Insurance Policy inside the corporation.

So, again, I ask the question: why are business owners still owning Life Insurance Policies personally? Part of the answer is that the person who “sold” them the product didn’t know what they were doing.

 

Cash flow management is key to running a successful business. However, during my analysis of many client files, I find out that their current Financial Planner has never taken the client through a Cash Flow Management exercise. Never! 

In a more recent client engagement, once we took them through a Cash Flow Management exercise, we were able to save the client $33,000 a year in personal cash flow – which meant we reduced their personal taxes by at least $10,000-$15,000 each year. If we hadn’t come into their lives, they would have continued to make Revenue Canada rich.

If you’d like to learn more about working with an actual Financial Planner, and not somebody who is just trying to sell you products, 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

What is a Needs Analysis and why do you need it

What is a Needs Analysis and why do you need it

What is a Needs Analysis and Why Do You NEED It?

April 4, 2022

I also cover this in a YouTube video. Click here to watch!

Let me ask you a question

If something happened to you last night and you passed away unexpectedly – would your family be fully protected?

Let me ask you another question

If you were at home cleaning out the gutters or washing the windows, and you fell off the ladder and hurt yourself so badly that you could never go back to work – what would be the value of your monthly paycheque for the rest of your life?

Let me ask you one more question

If you were not feeling well, you went to see your family doctor, they ran some tests and then told you that you had stage two or stage three cancer – what is your game plan? And, are you protected?

All of these questions lead to something called a “Needs Analysis.” In this short article, I’ll be giving you all the necessary facts you’ll need to consider when making an informed decision for you and your family about why you need one.

A Needs Analysis is something my team runs so that if life happens and you get hit by a curveball, you can rest assured that you and your family are protected.

In the case of death, the Needs Analysis calculation needs to take into consideration all of the family debt, your children’s future post-secondary education costs, the financial contribution that you make to the monthly budget, and of course, your funeral costs. Depending upon how old you are and the ages of your children, it could mean that you need to have $2M to $4M of life insurance coverage in order to make sure that if you passed away unexpectedly, your family can continue to live their current lifestyle. Now I know your spouse will wear black for a number of weeks, but they also need to get on with their lives, so you want to make sure there are no financial worries.

In the case of injury, where you cannot return to work, the Needs Analysis calculation needs to take into consideration the financial contribution that you make to the monthly budget. So, if your monthly budget is $10K or $12K and your “net pay” makes up 50% of this number, then you need to make sure you have at least $5K or $6K per month in Disability Insurance coverage. If you don’t, then pressure will start to rise and you will need to find another job that you can do in order to survive.

In the case of critical illness – like cancer, heart attack, or stroke – the Needs Analysis calculation needs to take into consideration that we are starting to survive these critical illnesses, but we are off work for a period of time while we recover. So, if you are making $100K or $200K per year after taxes, then for the average male you will be off work for 18 months and will need at least $200K to $300K in Critical Illness Insurance coverage. For the average female, they are typically off work for 18-24 months, and so they will need at least $300K to $400K in Critical Illness Insurance coverage.

A Needs Analysis calculation takes a number of factors into consideration. As you can see, depending on what happens in your life, you need to make sure that you are working with somebody who actually knows how to calculate a Needs Analysis… otherwise, you might end up with a gap in coverage and have to tap into reserve funds in order to survive.

Covid-19 has taught us a lot when it comes to the recognition of front-line workers and our own mortality; make sure you’re protected, and that you get a proper Needs Analysis done for you and your family.

If you’d like to learn more about getting a Needs Analysis for you and your family, 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