Canadian Inflation rate double that of Term Deposit Interest

I was just checking out our Key Canadian Financial Data page and realized and was shocked to notice that the inflation rate is double what you can get on a term deposit. Inflation is at 2.52% according to the Bank of Canada.

One year term deposits are half that (from .650 to 1.40 if you have over a $1,000,000). The actual banks are a little bit hungrier for money than that and will give you 1.5% on a one year term deposit, even starting at $1000.

Given the amount of money the American government is issuing to prop up the banking system and now to car manufacturers - the Canadian government is almost certain to follow in the US footsteps, although hopefully on a smaller scale - holding your money in cash or term deposits is a guarantee of starting next year with less money than you have now.

After what happened in the stock market, there are no easy answers but several life insurance companies in Canada offer risk free tax preferred solutions  Many Canadians are unaware that Universal life insurance contracts offer risk free accounts which grow on a tax sheltered basis and with minimum investment guarantees of 4% or higher. A great feature in today's low interest rate environment

If you would like more information, give me a call at 905.248.4849 to discuss your own situation.

In a turbulent market is a Guaranteed Minimum Withdraw Plan the perfect solution?

It's no secret the stock markets are way off. The Dow Jones is under 8000 knocking off 8 years of progress.

On the other hand, life insurance companies offer guaranteed investment policies. Sounds like the perfect solution...

Life insurers have long guaranteed to return 75 per cent of a person's original capital after 10 years, or sooner if the investor dies during a period of low stock prices.

They enjoyed a flurry of sales when they stepped up the guarantee to 100 per cent and allowed investors the right to more frequent resets of their capital guarantees....

Later, in response to competition, Manulife extended the 5 per cent minimum withdrawal benefit for a lifetime, thus turning its investment funds into something closer to a company pension plan or an old-fashioned life annuity.

Investors can now be confident that a $100,000 investment will assure them $5,000 of income each year from age 65, plus they have the potential to collect a larger sum if their investments do well and thus have their income keep up with rising prices.

Not so fast.

James Daw at the Toronto Star dug a little deeper, crunched some numbers and it's not quite so clear cut:

The 5 per cent bonuses that guarantee a steady increase in the base used to calculate the minimum income withdrawals are less than meets the eye.

Bonuses are based on your guaranteed capital – the original amount invested or any increase due to periodic resets – and ignore increases due to earlier bonuses. So, this is equivalent to a lesser percentage of compound interest than 5 per cent.

"Some agents are saying to people at 50, here is what you need to put in to guarantee a certain income at 65," says Pereira.

"It sounds wise, but at the same time, over 15 years you are looking at a potential of two market cycles, in which case you are taking a one percentage point hit a year. You have the potential over 15 years to at least double, if not triple the asset base."....

"I think the product is wonderful, that it was necessary in Canada and that it is going to be around for a long time, if not become one of the most dominant areas in the industry," says Pereira.

"However, I do believe there are a lot of pitfalls due to the complexity of this product that a lot of advisers are going to burn themselves on due to misunderstanding with the client, because I don't think a lot of advisers understand what is going on with this thing."

Regardless of the extra cost, the experience with the stock markets this year may drive more clients to look for guarantees so they can sleep at night, he says.

I think Daw may be underestimating the value of peace of mind.

Guarantee Minimum Withdraw Plans (GMWP) can also be a great fit for people who want to invest in stock market but are looking for ways to minimize their risk. But Daw is quite right - these guarantees do come at a price as many of the funds have significantly higher Management Expense Ratios (MERs).

Whether a guaranteed policy fits an individual - and which guaranteed policy fits - is something which needs to be evaluated on an individual basis. It's also a question of optimism and pessimism. If you think the market is going to do nothing but go up from here, there's no point in taking a guaranteed policy.

If you think there might be ongoing long term turmoil in the economy then a guaranteed return policy is the safest place to keep your money. 

Assumption Life offers a great non-medical critical illness insurance plan

Assumption Life has one of the only non medical critical illness products on the Canadian insurance market. Applicants can qualify for coverage in 24 hours by answering “No” to five health related questions. There are no questions related to family health history. Applicants who have been declined or rated in the last two years will not be eligible – so applying to Assumption Life gives the insured a safety net if he/she is not approved elsewhere.

The coverage is available to policyholders aged 18 to 60 and is guaranteed renewable to age 75. The coverage increments are $10,000, $20,000 and $30,000 and are available on a single life or multi life basis.

The policy pays out a lump sum if the insured is diagnosed with any of the following five illnesses: cancer, stroke, heart attack, kidney failure or vital organ transplant. There are exclusions on the policy such as pre-malignant lesions, benign tumours or polyps. Sample policy documents are available for a full list of policy features and exclusions. Another terrific feature is the return of premium option on maturity. If the insured stays healthy until age 75, and a claim is not made, all premiums are returned.

The face amounts are smaller but the premiums are affordable. A 35-year-old male non- smoker applying for $30,000 of coverage will pay $30.40 a month. If the insured chooses to add the return of premium on maturity, the monthly premium is $37.09.
 

AIG is now BMO:LSM Insurance quoted in The Insurance Journal on AIG Life Insurance

When the Insurance Journal talked to insurance experts on the recent concerns about  AIG Life of Canada, LSM Insurance was among those interviewed by the magazine.

Read the whole Insurance Journal article and find out what we had to say about AIG Life Insurance and why the existing clients with current AIG policies should not switch.

City TV Consumer Investigator Star Jee-Yun Lee Talks Life Insurance With LSM Insurance

   

Get an independent quote now Term life quote

RBC Insurance is combining Term Life and Critical Illness Insurance policies

RBC Insurance has introduced an easier way to get both Term and Critical Illness insurance.

The company is now offering both solutions simultaneously as they have bundled the RBC Insurance Critical Illness Recovery Plan policy with Term 10 or Term 20.

Bundling Benefits:

• Savings for the client

• Two sales in one

• Easier process: One application

• One underwriter for both apps simplifies the process

Lorne's Comments:

This is nice enhancement to the RBC Insurance product line. Only one policy fee for both products is a great benefit. The $40 Term Life policy fee is permanently waived – this adds up to $800 savings over a 20-year period. On the top of this, two separate policies are issued so the applicant saves the policy fee down the road even if he/she cancels or makes a claim on the Critical Illness portion.

It should be noted that several other insurance companies also offer bundled Term and Critical Illness, including Empire Life, AIG and AXA Assurance.
 

Three Instant Issue Life Solutions From Assumption Life

Assumption Life has made a big splash in the instant issue life insurance market. Instant issue life insurance is a policy which is geared towards individuals who are not in optimal health but have a need for life insurance. 

These policies are issued without a medical test and with limited proof of insurability. Most instant issue plans limit the death benefit in the first two policy years but Assumption Life’s Golden Protection and Golden Protection Plus pay out from day one.

Read the rest of the article Three Non Medical Life Insurance Solutions From Assumption Life.

LSM 4 Day Work Week Featured in Globe and Mail

Our campaign for the 4 day work week turned up in the Globe and Mail last week as full page article in the business section. We were honoured that they chose Jack and Lorne as the lead photo.

We were also thrilled to see that other companies are moving to a four day work week as well. Our staff is more productive than ever. Unfortunately, for the moment we are finding that the four day work week doesn't apply to company owners.

Writer Kira Vermond analysed the Monday to Thursday work week in her piece "How Green is your four-day work week?". Some key findings: 

• 34% of workers prefer a condensed work week

• four-day work weeks are more difficult in a service business (that's us)

• many people work part of the extra day from home

• people don't necessarily go car-free on their extra day off

We at LSM Insurance will always be here to help you five days a week though. If someone is taking off Friday, somebody else is taking off Monday.

Read the full article attached below the fold.

Whole Life Insurance – A Guaranteed Investment in Uncertain Times

The recent fluctuations of the stock markets having left many investors running for cover. The equity markets historically produce generous returns over the long haul but many investors are spooked by the potential of losing 25% or more of their capital in any given year. For investors looking for a risk free alternative, whole life insurance in Canada can provide an interesting option.

The advantages of Whole Life insurance as an investment are the following:

• All premiums and death benefits are guaranteed. Non Participating Whole Life policies which do not participate in the insurance companies profits and do not receive dividends are lower in cost and are fully guaranteed. Participating Whole Life policies do participate and the insurance companies profits and do pay a dividend. The premiums on these policies are higher and the dividends are not guaranteed

• All life insurance death benefits are guaranteed

• In addition to the death benefit, whole life policies also have a guaranteed cash value and in the case of Participating Whole Life policies they have guaranteed cash value plus the cash value of any policy dividend. As stated above the dividend rates fluctuate with the insurance companies profits and interest rates. But the fluctuations are modest when compared with traditional equity investments.

The primary disadvantage of whole life insurance as an investment is that death benefit only pays out when the insured dies. If the funds are being used to pass on proceeds to a spouse or child this is inconsequential because the policy never expires so the beneficiaries are guaranteed to receive the proceeds tax free in the future. Generally 90% to 95% of the cash values on a whole life policy can be withdrawn in the form of a policy loan and it is deducted from the death benefit along with any loan interest when the insured passes away.

Below is an example of pricing for $250,000 of Whole Life – Payable to 65 coverage for a 33 year old female non smoker.

The annual premium is $1175 a year and the policy is paid up at 65. The policy has a cash value of $100,500 at age 65 and $141,000 at age 75. The policy owner maximum contribution up to age 65 is $37,600. It is difficult to calculate the policies internal rate of return because the exact date of death is an unknown variable. However what is guaranteed is a tax free death benefit payout of almost seven times the applicant’s initial deposit – this could be an even higher multiple if the insured dies before 65.

Universal Life: Buy Now!

(Universal Life: Buy Now! continued...)