Toronto Named North America’s Fourth Largest City as Debt Looms

Toronto may be the fourth largest city in North America, but a Statistics Canada report calculated the average Canadian household owed a record $164.97 in market debt for every $100 of disposable, after-tax income they earned in the fourth quarter of 2012.

Seniors hold more debt than they ever have before. A Harris-Decima poll for CIBC last August found that only 35 per cent of Canadians in the 55-to-64-year age group are debt-free and that 8 per cent of respondents believe that they will be in their 70s before clearing their debts. Another 10 per cent have no hope of ever becoming debt-free.

“In today’s environment — not like our parents environment — there are a lot of people retiring with a mortgage or perhaps a long line of credit or they’ve signed for their kids to get their house,” says Lee Mosley, president of Ottawa-based Lee Mosley & Associates and 29-year veteran of insurance brokerage. “There are a lot of reasons today for seniors to be worried. They don’t have a debt-free environment anymore.”

Another common problem is that the estates of baby boomers’ might face unexpectedly high tax bills. In the prototypical scenario, parents bequeath the family cottage to their children along with a massive capital gain thanks to soaring vacation property values.

According to the LSM Insurance Team, some aim to shield beneficiaries from their debt. They simply want to make sure that debt is paid off when they pass away. Carrying debt to the grave and unexpected tax bills illustrate the importance of term and permanent insurance in a senior’s protection portfolio.

But not all insurers provide coverage at the top of the age brackets, and for a broker with a large proportion of senior and pre-senior clients, this can affect the choice of insurers with whom to write contracts.

Tracking differences can be a challenge since there are over 2,400 life insurance products and variations, according to LifeGuide Professional software. Plus, seniors usually don’t qualify for traditional life insurance due to their advancing age, but that doesn’t mean their aren’t some guaranteed issue or simplified issue options available.

In the term insurance category, some insurers will not underwrite policies after the individual turns 65. However, many will renew term coverage up to 85 years of age when the policy ends, and a rare few will renew term coverage up to age 100.

Renewal costs on a term policy average four times the original premium. For those with additional risk factors like tobacco use, renewal costs can rise to six times the original premium.

If the insured individual has remained in good health, the broker may be able to get an entirely new policy at a lower cost than the renewal cost.

“Applicants that are still in good health should look at applying for a new T10 with medical evidence rather than just letting the [existing] policy renew on its own,” the LSM Insurance Team says, adding that this process should be concluded before the old policy lapses.

However, changing policies means exposure to a new two-year term of incontestability and the suicide exclusion.

In the permanent insurance category, underwriting age limits vary between companies and product lines.

The number of companies providing T100 has decreased in recent years, and some companies that currently offer T100 are expected to drop it from their lineup since underlying costs have proven higher than originally calculated.

Selling insurance to a senior who is already concerned about her debt level might sound like a tough job, but demonstrating the effect debt and taxes will have on her estate can be highly persuasive.

Mosley also recommends reminding clients that survivor benefits on some pension plans provide only 60 per cent of the original payment to the surviving spouse after the plan-holder deceases.

Given that the end beneficiary of the policy is often the senior client’s adult children, it might make sense for them to purchase the policy on their parents to shield their inheritance on their parents’ decease.

“They own the policy,” Mosley says. “They can use it to pay the taxes or keep the cottage.”

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