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Landmark Supreme Court Decision Opens Door to Sue Banks Selling Creditor Life Insurance

November 27th, 2014
The new Ontario LIF laws will give freedom to account holders  by bloomsberries
The Supreme Court of Canada ruled that
the way creditor and mortgage insurance
is sold is illegal. Photo by bloomsberries

If you're a frequent visitor to this page, you know that LSM Insurance is not a big fan of creditor life insurance and mortgage life insurance.

Though these policies are meant to cover the remaining balance on your credit card or mortgage in the event of your death, often it's very difficult for family members to actually receive the payout they are expecting because the banks who sold their loved one  the policy engage in post-claim underwriting.

This is when the policyholder is seemingly automatically approved for the policy and pays the premiums over the course of their lifetime, but then, when they die, they are evaluated to be ineligible for the payout they've been paying for all along because of their changing health circumstances at the time of their death, which leaves their family holding the bag when it comes to their remaining mortgage or credit card balance.

When families discover this, they are understandably irate and many try to sue the bank over the lost payout, saying they were never made aware of the post-claim underwriting stipulation by the bank employee who sold them the policy.

"I've had lots of potential claims that I've seen with respect to credit insurance," says Harold Geller, a lawyer for the Financial Advisory Services Group at McBride, Bond, Christian LLP in Ottawa. "Every lawyer I know was turning away these sorts of cases, unless there was something that took them outside the norm, because we didn't think we had a chance of recovery."

(Landmark Supreme Court Decision Opens Door to Sue Banks Selling Creditor Life Insurance continued...)

LSM Insurance Announces their 2nd Annual Bowling Night Benefiting Lupus Ontario

November 25th, 2014
bowling
Join Chantal Marr and the rest of LSM Insurance
for a night of bowling benefiting Lupus Ontario.

Earlier in 2014, LSM Insurance held a bowling night, raising $2,000 for Lupus Ontario. The event was so successful that they're doing it again in 2015.

"LSM Insurance is extremely proud to once again working with Lupus Ontario and sponsoring our second Lupus / LSM Charity Bowling Event. They are terrific group of people who are working hard every day to try and improve the quality of life of people living with Lupus," says Chantal Marr, President of LSM Insurance.

Lupus affects one in every thousand Canadians, which breaks down to nine women for every one man diagnosed. According to the Lupus Ontario website, Lupus is an auto-immune disease where a person's own antibodies attack the person's own body tissues. This causes symptoms of extreme fatigue, joint pain, muscle aches, anemia, general malaise, and can result in the destruction of vital organs. It is a disease with many manifestations, and each person's profile or list of symptoms is different. It is often referred to as “The Disease of a 1000 Faces.”

The 2014 event even drew the attention of Ontario Premier Kathleen Wynne after she received an invitation to attend. In a letter thanking LSM for the invitation, she wrote the following:

(LSM Insurance Announces their 2nd Annual Bowling Night Benefiting Lupus Ontario continued...)

Is Whole Life Insurance a Good Investment?

November 20th, 2014
is whole life insurance worth it

Arguably, the most debated issue among life insurance consumers is whether whole life insurance is a good investment or whether you should instead go with a term insurance plan. This is the "To Be, Or Not to Be?" of the life insurance industry, as life insurance experts and personal finance columnists come down on either side of the issue with equal vehemence. 

In an effort to bring clarity to the two opposing views and try to clear up the cluttered debate so that the layman can understand it, we've taken the liberty of clearly outlining both sides below.

(Is Whole Life Insurance a Good Investment? continued...)

The Financial Cost of Cancer and What You Can Do About It

November 18th, 2014
medical 10
The cost of a cancer is a burden for many patients.

It's not hard to guess that cancer is the leading cause of death in Canada, accounting for 30% of all deaths.

It's probably no surprise to any of us that 191,300 new cases of cancer and 76,600 deaths from cancer will occur in Canada in 2014. This includes 40,000 Canadian men and 36,600 women. If you break it down 524 Canadians will be diagnosed with cancer everyday and 210 die from it.

It's an incredibly high cost on society -- losing good people -- and that's not counting the emotional cost that impacts the person fighting the battle and their loved ones who go through it with them and are left behind when they die. But we know the health costs, the emotional costs and the huge loss to society at large.

What doesn't get talked about as much is the financial cost of a cancer diagnosis. Rob Carrick, personal finance columnist for The Globe and Mail, tackled this issue at the end of October 2014 in a video interview with Pamela Bowes, manager of program development at WellSpring Cancer Support Network, who pointed out that research shows 90% of people living with cancer have faced a financial impact due to their diagnosis.

She's right, the Canadian Cancer Action Network and the Manitoba Division of the Canadian Cancer Society joined forces in 2011 and found that because people are surviving much longer after an initial cancer diagnosis (62% of those diagnosed are expected to survive five years or more) and because the newest innovations in cancer treatment keeping them alive are getting increasingly more expensive, many more people are facing increasing financial hardship while fighting cancer. Let's not forget that those who beat cancer once may face a recurrence of the disease, which will further interrupt their earning power.

The main problem is lost income for both the patient and caregiver. If you need proof, the same study reports that in 2009, new cancer cases resulted in $3.18 billion in lost wages. Other costs, as stated by Pamela Bowes in that Globe and Mail interview, include medications that aren't covered, childcare, physiotherapy, hospital parking, medical supplies and even long distance calls to family.

"The biggest myth about cancer is that people think if I'm diagnosed with cancer, everything just falls into place. The money is there, the services are there and the costs are not going to be felt by me, but that is not true," says Bowes.

So why is this? The Canadian Cancer Action Network and the Manitoba Division of the Canadian Cancer Society acknowledged in their research that government income stabilization programs "are badly out of step with the needs of Canadians affected by cancer, the realities of today’s cancer journey and the changed cancer care delivery system." They admit that, "Until governments make major policy changes to address these issues, the financial hardship of cancer will not be fully resolved."

So when you can't rely on the government, who can you rely on to lessen the impact of the financial burden? Though critical illness insurance is a more expensive insurance option, the expense is absolutely worth it. Cancer is always a covered illness on most critical illness policies and there are even some critical illness policies that are cancer exclusive.

For those in need of review, critical illness provides a lump sum of the policy amount upon diagnosis of any critical illness listed on the policy, including heart attack, stroke and multiple sclerosis in addition to cancer. The lump sum can be used for any expense at the discretion of the patient including all of those talked about by Pamela Bowes in her interview.

However, critical illness can be just as prohibitively expensive as the medications, treatments and other expenses that are part of the financial burden cancer creates and LSM Insurance knows this, which is why our president, Chantal Marr, recently wrote an article outlining several ways you can save money on critical illness insurance. These include getting a life insurance and critical illness combination policy, keeping yourself in good health and not smoking, getting a policy early while you're young, working with an independent broker who can shop around, cutting out the benefits you don't need and more. There are over 40 tips in the article, so you are bound to find at least one strategy that may work for you. 

If you are still struggling with finding an affordable critical illness plan, try partnering with an independent broker who has the ability to shop the market and compare prices and features on your behalf. One of LSM's top brokers, Andrew Burdi, recently wrote about the best critical illness providers in Canada and the unique features they offer with every plan.

For example, Manulife offers a 10% advance on their critical illness payout ahead of the typical 30-day waiting period that comes with most critical illness plans. In addition, Burdi pointed out that Manulife offers a 25% payout for less severe Critical Illnesses that are more easily treatable, such as early stage prostate cancer, breast cancer and angioplasty. Many other companies offer this feature, but Manulife beats them with a higher percentage of the benefit payout. Other companies profiled as far as their critical illness offering goes are Empire Life, Canada Life and RBC Insurance.

So, the financial burden of cancer can be lessened and critical illness policies can be made to at least be more economical if not completely affordable, thanks to the features available in some of the best plans. Plus, given that more than half of Canadians will be diagnosed with some form of cancer in their lifetime, you may half to weigh the expense of the insurance against the larger expense and financial burden of having cancer or any other critical illness for that matter.

Besides, we're well aware that critical illness insurance is only one comprehensive way to deal with the financial burden of cancer. Of course, there are community supports and private foundations as well that you can draw support from, but critical illness insurance will give you the most autonomy and independence regarding where the money goes.

High Net Worth Executives and Disability Insurance

November 10th, 2014
Middle Age Man in Suit
High Net Worth Executives and Disability Insurance

Louis Gosselin began his career in the special risk field in 1974 and worked as an underwriter for three different insurance companies, until he formed his practice in 1988. He worked mostly with high income earners in the sports, leisure, corporate and entertainment industries, traditionally difficult classes of risk mostly handled by Lloyd's.

Over the years, he convinced his underwriters at Lloyd's that the same principles of disability insurance covering a person's own occupation could be extended to doctors, lawyers and heads of corporations, especially when looking at disabilities of a permanent nature where a lump sum settlement comes into play.


What are challenges that high net worth executives and professionals have when it comes to disability insurance?

Group insurance has a low ceiling for maximum monthly benefits and, to some extent, so does individual insurance. Someone in need of $20,000 per month in benefits will simply not find those kinds of high limits in the domestic marketplace. The other challenge is to secure a definition of disability covering the inability of the person to engage in their own occupation. In general, that is only available for the first 2 years of disability under group insurance but is commonly available under individual plans.

Since most high net worth individuals have some level of disability insurance and can carry the cost of a short term disability, we often concentrate on lump sum payments in the event that, after 12 months of the onset disability whether through accident or sickness, the disability is deemed to be permanent and beyond hope of improvement, thereby preventing the insured person from permanently engaging in the main duties of their occupation. This is often referred to as PTD or catastrophic disability coverage.


How does Lloyd's plan compare to traditional disability plans?


This plan is, to our knowledge, unique to Lloyd's especially since we can reach limits of multiple annual income from five to tenfold depending on age and maximum amounts of some $80,000,000 per person. Our PTD contract has a rather broad definition of disability. Many other policies state that you need to be prevented from engaging in all the duties of your occupation or simply from engaging in your own occupation. While our policies clearly state that you simply need to be prevented from engaging in the major duties of your occupation.


In regards to our PTD contract, we don’t have a clause which states that you must not be earning compensation or profit from any other source or that the benefits are integrated with any other benefits the claimant might be entitled to. The client qualifies, buys the coverage and if the peril occurs, we pay. As an example, if the client is a surgeon earning $500,000 per year and is unable to perform surgeries anymore, yet still able to go on to teach and earn $250,000 or more per year, he or she would still be entitled to the lump sum benefit.


One great benefit found in most individual policies is a guaranteed renewable clause which, by nature of its structure, Lloyd's are unable to offer but we have designed an easy three year renewal process involving a simple declaration of health.

Can Lloyd's plan supplement a traditional disability policy and how would this work?


Our plan can indeed offer a "top-up" to a person's current disability plan. This provides monthly limits of insurance above what is provided by the primary disability insurer for a period of 24 months with the addition of a lump sum PTD payment at the end of two years if the disability ends up being of a permanent nature. The client needs to justify the sum insured, which can easily be done through their accountant, and we would never want to see a client receiving more than 65 per cent of his or her net income from all disability policies in place. Once the amount of PTD lump sum is established and justified, (3 to 10 times annual earnings depending on age) that is the agreed amount payable in the event of a claim.

Do other companies exist in Canada for this market and what separates Lloyd's plan?


Many excellent domestic companies offer disability insurance, whether group or individual, but as we saw earlier, they have limitations. No domestic companies, to our knowledge, offer the high limits and the PTD lump sum concept we have detailed, with exception to Great West Life and Manulife who will only do it when there is reciprocal insurance in place such as in a partnership buy-out arrangement with limits not exceeding $2,000,000.
In addition to being a well know brand and fully licensed to transact insurance business in Canada for the last 75 years, Lloyd's have a simpler and faster underwriting process than most domestic companies. Also, my 30 plus years of experience with them have demonstrated they care about their brand image in their transactions of hundreds of millions of dollars and they treat all clients with utmost good faith.

Do you have an example of where you insured a high net worth executive?


We have provided insurance to several key executives and professionals over the years either on a first party or a third party basis and age is an important factor when it comes to premium cost. We usually recommend that our clients proceed with a three year policy payable in annual instalments, thereby guaranteeing their insurability for three years at a time. As long as the client is healthy and can produce a clean declaration of health, we then cancel the policy every year on anniversary and re-write a new 3 year policy every year.

To give you a quick example, we recently had the situation of a three year policy written through a professional corporation for a 47 year ophthalmic surgeon earning $500,000 per annum as follows:

Lump sum CAD 2,000,000 Accident/Sickness Permanent Total Disablement 24 hour cover
12 Month waiting period

Annual Premium:
Year 1 CAD 9,500 Year 2 CAD 10,000 Year 3 CAD 10,750
 

Sheryl Smolkin | Journalist, Retirement Redux

November 7th, 2014

Sheryl Smolkin
Journalist, Retirement Redux

1.What type of disability insurance do you own?
I am self-employed and almost ten years into an “encore career” after taking early retirement and starting a pension at age 54. Therefore I “self-insure” any future disability. I do have $25,000 in critical illness insurance through my husband’s workplace benefit plan.

2.What factors did you consider when determining the coverage amount?
See above.

3. Do you think people underestimate the importance of disability insurance, and if so, why?
I think that many people do underestimate the importance of disability insurance. Everyone is healthy until they are not. It can happen in a minute. The table below printed on the Sun Life Canada website illustrates the odds of becoming disabled at various ages.

Chances of becoming disabled for 3 months or longer before age 65*

* Derived from 1985 Commissioners Individual Disability Table A.
Percentage 58% 54% 50% 48% 40% 30% 23%
Age 25 30 35 40 45 50 55

4. What limitations or exclusions should people watch out for?
Whether people are covered under a group or individual disability plans they should be aware of benefit maximums and consider if coverage should be increased when their salary increases. Also, more people are working beyond age 65 and they may not realize their employer-sponsored disability coverage will not continue beyond that age.

5. If you had to choose between critical illness and disability insurance, which one would you choose and why?
Disability insurance wins hands down, particularly for those people with big mortgages and young, dependant families.

Sheryl Smolkin is a retired pension lawyer who over the last 10 years has developed an “encore career” as a freelance journalist writing about pensions, benefits and workplace issues. For three years she blogged on moneyville and wrote a column called At Work for the Toronto Star. “Real retirement” is getting closer, but Sheryl is still trying to figure out what that means for her. Her new blog RetirementRedux: Reinventing Retirement is part of her transition to “life after work.”

<Back to Disability Insurance – What The Experts Own

MoneySense Retire Rich 2014 Recap

November 5th, 2014
MoneySense Retire Rich 2014
MoneySense Retire Rich 2014

MoneySense, Canada’s best-selling finance magazine held an event last weekend titled Retire Rich. The four featured speakers were Bruce Sellery, Duncan Hood, Malcolm Hamilton and Dan Bortolotti. Each person brought something different to the topic of retirement.

Bruce Sellery started the event with his panel on how retirement is not an activity but a life stage. The key to retirement is that you make plans and execute on them. Bruce wanted everyone that attended to do one thing in the next 24 hours to aid your retirement plans.
 

Next up, Malcolm Hamilton delve into the discussion of how much do you need to retire. Right away, Hamilton immediately counted out the 70 per cent of your income rule. Instead, Hamilton suggests that retirement is about having a similar standard of living. Hamilton gives the advice of start planning your retirement even though it may be decades away.


 After that, the editor-in-chief of MoneySense, Duncan Hood  moderated a Q&A with Rick King. King’s take away message for retirees was to live within your means and enjoy life.

Lastly, Dan Bortolotti from Canadian Couch Potato gave seven steps to a perfect portfolio. He believes that investing is not about the right products but the right process. Below are his seven steps.

  1. Set Realistic Goals
  2. How much of a risk can you take?
  3. Choose your asset allocation
  4. Select your ETFs
  5. Place your ETF trades
  6. Rebalance your portfolio
  7. Stay the course

If you could not attend the event, MoneySense was live blogging the event on Twitter. Here are some of the highlights.

Are Robo-Advisors The Future Of Investing?

November 3rd, 2014
 
money 7
Robo-Advisors could be the Future of Investing

The world of financial investing has changed. More people are getting involved with personal financial investments and they are not using financial or banking advisors. Some people do it themselves and others are acquiring the assistance of robo-advisors.

Robo-advisors have been around since 2005 and have now started to gain traction in Canada over the past year. These advisors are computers that run algorithms which will determine the best investments for you using your own wants and goals. This algorithm examines your ETF portfolio and weighs the maximum risk you are willing to take against your idea of long-term investing.

Computers are getting smarter. The most famous computer in existence, IBM Watson, is learning how to diagnose patients with increasing accuracy. If Watson is able to diagnose patients as well as a doctor can, it is easy to imagine a computer that will be able to instantly provide accurate, safe and unbiased advice just as well as a human can or better.
Financial advisors already use management programs and models to help them with their job. In this aspect, robo-advisors are able to perform the same type of work with the same quality with a lower cost. Robo-advisors that operate today are cost effective for the end user because the companies that run them do not charge exorbitant amount of fees. In fact, companies like Wealthsimple do not charge commission or administration fees at all.

Below are four robo-advisors operating within Canada. Listed are their prices, minimum balance required and their availability.

Wealthsimple

This robo-advisor will guide you through a process that involves a wealth concierge that will help you build a customized portfolio.

Pricing
First $5,000 No management fee
Standard Account - $5,000 - $100,000 - 0.5%
Premium Account $100,000 - $250,000 0.5% plus tax-loss harvesting included
Gold Account $250,000 - $1,000,000 0.4% plus tax-loss harvesting included
Platinum Account $1.000, 000+ 0.35% plus tax-loss harvesting included
No trading commission fees or administration fees
Other fees include investment products; according to their website is 0.25%/year, and currency conversion.

Minimum
The minimum required to work with Wealthsimple is $5,000

Availability
At the time, Wealthsimple is only available to residents of Ontario and British Columbia. However, they have plans to roll out their service across Canada soon.

ShareOwner

ShareOwner has been around since 1987 and has decided to step into the ring of robo-advisors this year.

Pricing
Accounts under $100,000 pay 0.5% of their balance on an annual basis
Accounts over $100,000 cost $40/month

No trading fees or rebalancing fees.
Investors pay the cost of holding the ETFs.
Administration fee is waived for RRSP/TFSA/and non-registered accounts.

Minimum
ShareOwner’s model portfolio structure does not require a minimum balance.

Availability
ShareOwner is available across Canada.

WealthBar

Pricing options are more expensive than Wealthsimple but WealthBar does not require a minimum balance.

Pricing
First $5000 no management fee
5,000 – 150,000 0.6%
150,000 – 500,000 0.4%
Over 500,000 0.35%

The management fee covers your rebalancing, insurance needs analysis, discounts on financial services and trading fees.
RRSP accounts have a $50/year registration fee for accounts less than $15,000 are suggest you to hold your savings in a TFSA or basic account.
There is also a fee for internal costs of ETF investment products that are in your portfolio. This can cost between 0.4% - 0.45%

Minimum
There are no minimums required to have an account with WealthBar. However, if you have less than $5,000 to invest your funds will be held in a simple money market ETF with no cost.

Availability
WealthBar is available in Alberta, British Columbia and Ontario.

NestWealth

NestWealth has taken to the idea of offering a discount towards those under the age for 40 however require having a minimum investment of $25,000.

Pricing
Unlike the previous robo-advisors NestWealth charges an $80/month advisory fee. However, if you are under the age of 40, the fee is $40/month.

Minimum
The minimum amount of investment required is $25,000 for those under the age of 40. If you are over 40, the minimum amount you can invest is $50,000

Availability
NestWealth is only registered in Ontario but plans to give access to potential clients in other provinces soon.

What does it mean for financial advisors?

Robo-advisors are taking over, there is no denying this. The service that robo-advisors offer appeals to an untapped market of people starting to invest and do it yourself investors. The cost is significantly cheaper than having a human advisor. Also the pressure from bank advisors and sales representatives is non-existent.

Considering the fact that robo-advisors are both just as accurate as humans and cost significantly less, robo-advisors are, without question, the future of investing.

Sheryl Smolkin | Journalist, Retirement Redux

October 27th, 2014


 

Sheryl Smolkin
Journalist, Retirement Redux

1) What Type of Life Insurance do you own?

My workplace life insurance which was twice my salary ended when I retired at age 54 from my corporate job. I have continued to pay for a $15,000 policy available as part of my retirement package. My husband’s workplace coverage is similar and will also end when he retires. We have sufficient assets at this stage and a paid-up house so we do not view life insurance as a priority.

2) What factors did you consider when determining the coverage amount?
Probably we did not put enough thought into the amount of life insurance we needed as we raised our family. We simply accepted that the coverage at work was sufficient. We also did not have mortgage insurance. I guess we were lucky that it all worked out.

3) Do you believe in life insurance for children?

No. We had RESPs for both children.

4) What is the biggest life insurance mistake people make?

I think that people who fudge their medical questionnaires or do not disclose information about pre-existing conditions are just asking for trouble. Another BIG mistake is when people forget to change their beneficiaries in the case of divorce. It’s an invitation for future litigation when your ex and your new spouse claim the benefits on your death. Finally, never buy mortgage insurance for a whole bunch of reasons, including the fact that the premiums on mortgage insurance stay the same throughout the term (five years, for example), but the payout, if there is one, shrinks with the mortgage.

5) Outside of life insurance, what other types of individual insurance
are often overlooked?

Many people think that OHIP pays for everything. In fact, if you do not have workplace coverage you will have to pay for your own drugs, dental bills, physiotherapy etc. Particularly when you have a family or you are retiring, supplementary health coverage is vital. And of course, disability coverage is a must, particularly for the self-employed or independent business people.

Sheryl Smolkin is a retired pension lawyer who over the last 10 years has developed an “encore career” as a freelance journalist writing about pensions, benefits and workplace issues. For three years she blogged on moneyville and wrote a column called At Work for the Toronto Star. “Real retirement” is getting closer, but Sheryl is still trying to figure out what that means for her. Her new blog RetirementRedux: Reinventing Retirement is part of her transition to “life after work.”

<Back to Life Insurance – What The Experts Own

CRA Rules Seg Funds Not Tax Deductible

October 24th, 2014
money 7
Use caution when it comes to seg funds.

The Canada Revenue Agency has ruled segregated funds are not tax deductible. 

"A segregated fund policy is a contract of insurance...not a share or security," said a statement from the CRA confirming the decision.

The ruling was made in response to a question asked at the Conference for Advanced Life Underwriting (CALU) spring meeting. CALU has responded with disappointment by saying that the CRA definition is a narrow view of how insurance investment products should be defined.

The CALU has  further noted that they understood further submissions were being made on this topic that they hoped will lead the CRA to take a more expansive interpretation.

Jamie Golombek, CIBC's managing director of tax and estate planning and frequent guest on The Marilyn Denis Show, sides with the CALU, even though he says the CRA is technically right.

"The CRA is technically correct in saying that the fee is not deductible since seg funds are not a security. That being said, we all know that investors see mutual funds and segregated funds as very similar investment vehicles, sometimes, even interchangeable and therefore for clients who pay investment counseling fees for the seg fund investments are clearly at a disadvantage compared to securities’ investors."

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