Life Insurance Canada News:

News from 2017

Why Genetic Testing Has Insurance Companies Up In Arms

October 19th, 2017

Life insurance companies in Canada are once again initiating new measures to help protect consumers from discrimination based on their genetic profile. Critics, however, are not convinced the changes will ensure fair treatment.

The voluntary pledge states that people applying for a life insurance policy of up to $250,000 will no longer be asked or required to provide information about previous genetic tests. Insurance companies are still allowed to use this information when applicants seek larger amounts, but consumers won't be asked for the results of the tests if done for medical purposes and the person has not been informed of the outcome. Family members of the applicant won't be required to undergo genetic testing.

According to Frank Swedlove, president and CEO of the Canadian Life and Health Insurance Association, “What we wanted to do is ensure the vast majority of Canadians would be able to buy life insurance and not need to worry about this issue of genetic test results.”

The issue of genetic discrimination has increasingly become a contentious topic in Canada as scientific advances and lower testing fees make it possible for anyone to know in advance if they may have a gene predisposed to certain diseases, cancer or other health conditions. Every year the number of diseases that can identified through genetic testing increases.

Proponents of the federal bill banning genetic discrimination content the new measures don't reach to the root of the problem. Canadians could still be targeted by insurance providers, employers and others.

Liberal MP Rob Oliphant, who sponsored the bill in the House said, “Legislation is needed to protect Canadians from being unfairly targeted because of their genes. I don't think voluntary efforts, when it comes to discrimination, are ever appropriate. The reality is there is a power imbalance.”

Noah Shack, director of policy at the Centre for Israel and Jewish Affairs stated, “They've known about the problem of genetic discrimination for years and chose to really do nothing until the 11th hour. Insurance is only part of the issue. Canadians need protection from the host of ways companies, landlords, employers and others may use genetic testing results.”

As of January, 2017 life insurance companies in Canada stopped requesting or using genetic testing information for new life insurance applications up to $250,000. The latest insurance industry policy is slated to become effective as of Jan. 1, 2018 and would only apply to life insurance, not critical illness or other products.

Wendy Hope, vice-president of external relations with the Canadian Life and Health Insurance Association, stated in an e-mail, “Such products are directly related to health status and that not using or having access to genetic testing information would make the cost of these products prohibitive.”

Mr. Swedlove said the commitment made by the industry will meet the needs of the 85% of Canadians with life insurance coverage of $250,000 or less, therefore new rules aren't needed.

“The bill isn't really necessary to meet the needs for the vast majority of Canadians,” he said.

Mr. Swedlove went on to say that the bill could present serious harm because applicants genetically predisposed to critical health conditions could drive up the costs for everyone if they are allowed to enter the “pool” or category from which premiums are set.

Bev Heim-Myers, chair of the Canadian Coalition for Genetic Fairness, said capping life insurance without genetic testing requirements at $250,000 is discriminatory in and of itself and unfairly targets those who might want or need more coverage.

Insurance issues aside, she said legislation is necessary because without it, Canadians may forgo genetic testing that could inform them of potential health risks and allow them to take preventive action. According to MedCan, the majority of people who have had genetic tests make proactive life changes such as healthier diets and more exercise.

“This is about the health and well-being of Canadians,” Ms. Heim-Myers said. “This is about Canadians being able to make their own choices.”

Debate is About More Than Genetics

Insurance companies fear that a potentially high-risk client – someone genetically predisposed to breast cancer, for instance – could buy a large insurance policy at the same rate as someone without the cancer gene. With the ban in place, the industry might feel it's necessary to increase premiums across the board.

The side in favour of the bill, like the Canadian Coalition for Genetic Fairness, fears that being forced to disclose genetic testing and the results, will discourage people from being tested. This could lead to a delay in diagnosis and treatment. It could also discourage Canadians from getting life insurance due to the high premiums for being a higher-risk.

Timothy Caulfield, director of research at the Health Law Institute at the University of Alberta speaks of other fears: The rash of horrific predictions regarding the evils of tampering with genetics and the fears that followed the decoding of the human genome, such as an army of clones, designer babies and the creation of a genetic underclass.

Full human genomes can now be decoded for about $5,000 and there is data on over 32,000 genetic predispositions. However, the link between genes and the development of diseases is very complex.

In Policy Options, Professor Caulfield writes, “There is little evidence to support the idea that genetic discrimination is a big problem. If it does happen, it certainly doesn’t happen on a scale that would classify it as a pressing policy dilemma,”

From an insurer’s perspective, if an individual’s genetic information is available, then you could argue that it should be shared with an insurance provider to accurately assess risk as this form of testing can be very helpful in determining the probability of a future disorder. In this sense, genetic testing results are part of your medical history.

From the consumer’s perspective, there are obvious concerns about discrimination, even though it is difficult to determine the number of cases that have occurred. However, the main benefit of genetic testing is that you will understand the risks you are exposed to and will be able to take preventive actions much sooner.

Legislation is Not Necessary

CLHIA president Frank Swedlove says legislation is not necessary. The industry is responding to concerns raised about the amount of personal information insurers can gather.

He says self-regulation pre-empts federal legislation. The industry doesn't require new genetic testing during the application process, but customers must disclose all medical information and history when buying a new policy – including genetic tests.

Swedlove says collecting genetic test results for insurance policies of $250,000 or more is necessary in order to manage the industry's financial risks.

“Our goal is to continue to ensure that all Canadians can access insurance at fair and reasonable prices,” Swedlove says.

Pros to Consumer and Cons to Insurance Companies

Bill S-201, the Genetic Non-Discrimination Act, seeks to revise the Canada Labour Code and the Canadian Human Rights Act to make it illegal for employers, insurance companies and anyone else entering into a contract or providing goods or services to require anyone to undergo genetic testing or to disclose the results of a genetic test.

The bill was designed to ban discrimination based on a person's genetic makeup. For example, if tests reveal you have the Huntington’s disease gene, you could be fired or denied employment or insurance. Proponents of the bill, initiated in 2015 by Liberal Sen. James Cowan, argue that fear of such repercussions may prevent people from getting genetic testing.

The insurance industry disagrees with this legislation arguing that it could impede access to insurance for some Canadians and thereby severely compromise the viability of the industry. In theory, if a person knows he is genetically predisposed with a life threatening disease, he could buy millions of dollars worth of life insurance at essentially discounted rates, without telling the insurance company he may die early.

The concept of equal information is absolutely at the core of insurance,” says Stephen Frank, senior vice-president, policy, at the Canadian Life and Health Insurance Association (CLHIA). “The rule is, if we’re going to offer you insurance, both of us need to understand the risk that we’re taking, so that we can enter into this in good faith. And this type of approach would break that chain.”

The industry states that if the bill passes the result would be higher premiums for everyone. “You’d have to write a lot of $300,000 policies to make up for a couple million dollars of unexpected loss,” says Frank. He points to a Canadian Institute of Actuaries study that estimated, over time, passage of the bill could result in 50% premium increases for women and 30% for men.

Others believe the impact would be less severe. The Office of the Privacy Commissioner of Canada, citing 2011 and 2012 studies, concluded the legislation “would not have significant adverse impact on the viability of the life and health insurance industry,” and that premiums would likely not rise more than about 3% overall and the industry could absorb this increase.

Dr. Michael Hoy, an economics professor at the University of Guelph who specializes in insurance market information, says, “No one can predict the precise impact of such legislation. The insurance industry is justified in arguing that people possessing devastating genetic information would be prompted to buy more insurance.”

But the thing is,” he continues, “there aren’t very many people in the population who have such devastating information that they can keep [it] private from insurance companies.” Given that applicants would still have to disclose personal and family medical histories, insurance companies would know if someone had a strong family history of, for example, breast cancer or Huntington’s disease, and would rate policies accordingly.

So, if you spread those extra costs across the entire insurance pool,” continues Hoy, “they probably won’t lead to very substantial increases. I’m not saying that 30% or 50% increases couldn’t someday be a sensible set of assumptions, but I think that’s very far down the road.”

Toronto insurance consultant David Wm. Brown is less sanguine. “Genetic testing is at its embryonic stage. Eventually, we’re going to be able to test for everything,” he says. “If we get to that point, and applicants can have more knowledge than insurance companies on almost every question they ask, then it completely skews a system based on mutual disclosure of information.”

Frank says insurance companies voluntarily agree not to ask applicants or existing policyholders to undergo genetic testing. And beginning January 1, 2018, CLHIA members won't ask for the results for policies worth less than $250,000, which is about 85% of policies issued. Any amount over that, he says, “we would still want to understand why you are asking for so much coverage.”

He continues to say these measures take into account the importance of genetic privacy to Canadians. “It’s a compromise that will allow the industry and the market to be sustained at a price point that people find affordable, but that will protect industry from being taken advantage of by people who have information they are not disclosing.”

The way the bill stands now, insurance companies are not allowed to ask applicants for genetic testing results. Should legislation pass as it currently written, says Brown, advisors would be put into murky water pertaining to disclosure and ethics. The insurance application, he points out, directly asks agents if they know of any factors that might affect underwriting.

If I know that somebody has had genetic testing, then I personally believe I am obligated to inform the [insurance] company that I do know that information. We have a certain fiduciary responsibility to both the provider and the purchaser, and I think anyone who wants to do the right thing has to disclose what they know. How [the legislation will] deal with that, I don’t know,” he says.

Liberal MP Randy Boissonnault has put forward several motions to amend Bill S-201, effectively removing the insurance industry from its scope. The amendments and the bill are up for vote in the House of Commons in early April.

In the meantime, the Genetic Non-Discrimination Act points to a more systemic problem for the insurance industry – public perception that insurance companies are predators.

It’s a bit of a mis-perception from the advocates, that we use genetic tests as a way to say no,” says Frank. “Insurers want to write business. We’re in the business of covering people. So we’re never going to be looking for reasons to say no.”

Brown agrees. “People still don’t understand the concept of insurance as a spread of risk among a common ground of people,” he says. “All they see is, ‘The bad insurance companies want to get more information in order not to pay claims.’” He argues that Bill S-201 could pass solely on this emotional argument, which, ironically, could have negative repercussions for the industry and consumers alike. “We need to do a better job of explaining insurance to the public.”

We’ve Got The Answers: How Can I Motivate My Clients to Take Action?

October 18th, 2017

Today's Life Insurance Question: how can I motivate my clients to take action?

This question came to me while I was thinking about The Raptors season starting tomorrow (and it just so happens I am prepared with my Raptors shirt today!). I thought about a challenge that Coach Casey faces- how does he motivate his players?

As advisors, we face the same challenge and that is getting our clients to take action, especially with something such as life insurance, which is an intangible product. A big part of dealing with this challenge, in this case, is showing your clients the need- why they need the product and what the product can do for them. 

Life Insurance is a very valuable product that can change peoples lives and it's our job as advisors to show people the value and what it can do for them and their family. This is how you motivate people to take action!

Have more life insurance questions? We have more answers for you here!

 

 

We’ve Got The Answers: How Will Diabetes Impact my Life Insurance?

October 11th, 2017

Today's Question: I am a diabetic, how will that impact my life insurance?

Diabetes certainly has a large impact on your life insurance, but thankfully, insurance companies are a lot more lenient today than they were in years gone by. If you are a diabetic, obtaining a life insurance policy is relatively easy and like anything, it depends based on various factors.

 

Factors such as your weight, any medications you are on, your blood sugar reading, whether or not your diabetes is insulin dependent or not all impact the premium on a traditional fully underwritten policy.

If the individual is an insulin dependent diabetic or if their diabetes is not under control, they may want to look at a simplified issue policy. These policies have a short series of health questions and no medical tests. The more question that you can answer no to, the better the rate. 

It is best to speak to a broker who understands all that restrictions and limitations when it comes to any health problems, that way you get the best possible policy for your particular situation.

Have more life insurance questions? We have more answers for you here!

 

What Makes IA Excellence Different- Q & A with Jaclyn Nemethy

October 10th, 2017

IA-Jackie-Nemethy

I recently reached out to Jaclyn Nemethy, Regional Sales Director at IA Excellence to give a breakdown on what makes IA Excellence so different.

Can you tell me a little bit about your background. How did you get started in the insurance industry?

Jaclyn Nemethy is a graduate of the University of Toronto with an Honours degree in Human Biology. She joined IA Excellence as the Inside Sales Associate and has been a Regional Sales Director servicing Ontario for the past three and a half years. Jaclyn's experience includes three years as the Ontario representative of North America's leading provider of laboratory services for medical underwriting. Jaclyn is known for her thorough knowledge and providing her advisors with exceptional support and training on all the living benefits solutions IA Excellence can offer. She sits on the Advocis Toronto Chapter Board as a Director. She recently attained her CHS designation and is now working towards her CLU designation.

What are some of the things you find most enjoyable about working with IA Excellence?

IA Excellence is a relatively new brand outside Quebec. I enjoy working with our agency and broker partners in developing their awareness and skills in growing and servicing a DI marketplace. There are endless prospects with living benefits in Canada today and I enjoy being there to help brokers develop their skill set to uncover this massive opportunity.

What are three things a lot of consumers and brokers may not know about IA Excellence?

Living Benefits - At IA Excellence, our main focus is living benefits. Our product is designed to offer robust DI and CI solutions to an under-served middle market.

Largest Guaranteed Renewable DI Provider in Canada - According to the LIMRA.

Paperless - IA Excellence has moved to a paperless platform called Assure&Go. This platform has allowed for customers to obtain insurance immediately through a simple non-medical application process. It also allows brokers to contact more clients and offer solutions because applications can be done non-face-to-face.

Can you give a quick rundown of the different Disability Plans at IA Excellence?

We have a few flagship products:

Disability
1.  Acci-Jet – Simple issue Income Replacement up to $6000 per month.  Only 3 questions for the Accident and Soft Tissue coverage.  You can also add illness with another set of questions found on the application.
2.  Superior – Underwritten Income replacement up to $10,000 per month.  Accident and illness coverage. 
3.  Universal Loan – Creditor Insurance
                                        i.    Up to $5000 of tax-free monthly benefit based on client debt rather than income (Example – mortgage, car loan, line of credit, corporate loan…)
                                      ii.    The entire amount applied for is non-integrated with any other income DI (Example – group DI, WSIB, EI, CPP…)
                                    iii.    We pay the insured directly (we do not pay the financial institution where the loan is).
                                    iv.    Underwritten at time of application (not like bank insurance that is underwritten at time of claim).
                                      v.    Policy is completely portable between different loans and different financial institutions.
4.  Acci-7 – Accident Insurance for all Ages (15 days old to age 80)
 
IA-Excellence-Table
 

25 Life Insurance Traps To Avoid

October 9th, 2017

Getting life insurance is important, however it can be tricky. There a few traps some people fall into. As with any contract, always pay close attention to the fine print! That tiny font could have a serious impact on your life – and the life of your loved ones.

A little common sense and careful planning can help you avoid making mistakes with your life insurance and ensure your family is properly protected. Watch out for the following fine print “traps.” 

Trap #1 Pre-existing Medical Conditions

Not reporting pre-existing medical conditions can void your policy. Leaving out vital information is the same as lying. When your insurance company determines that you have lied on your application, your claim will most likely be denied.

Trap #2 Conditions for Renewal

Having a policy for many years does not mean you will automatically be accepted for renewal. Some policies may have an automatic renewal option, but this will likely be at a higher rate because you will be older and your health may not be what it was when you first applied.

Trap #3 Special Insurances

There are instances when you may need specialty coverage but beware of unnecessary insurance such as mortgage and accidental death coverage. Naturally, you want your mortgage to be paid off in case the major breadwinner dies (your lender will insist on it), but your traditional life insurance policy should be enough to cover your outstanding debt, including your mortgage, without the need and expense of special mortgage coverage. Special accidental coverage only pays when the insured dies in an accident, whereas a traditional policy pays no matter how the insured dies.

Trap #4 Your Job

Some jobs are more dangerous than others (mining, construction, etc.). A dangerous job could put you into a higher risk category. If you change jobs after your application was accepted, your claim may be denied on the basis of this new, more dangerous job.

Trap #5 Your Hobbies

You may be declined life insurance coverage if you participate in extreme or dangerous sports. If you like to sky-dive or race cars, read your policy very carefully because chances are you will not be covered. If you don't mention these hobbies on your application, your claim may be denied.

Trap #6 The Waiting Period

Many people don't realize that they are not covered the minute their application is accepted. Some policies, especially guaranteed issue life insurance policies, have a 2-year waiting period. A non-accidental death within the first 2 years generally results in a refund of premiums and nothing more. This is to prevent insurance fraud.

Trap #7 Frequency of Payments

Paying your premiums annually can save you money. Annual payments mean the insurance company can save administrative costs and may pass these savings onto you.

Trap #8 Your Driving History

Hiding your driving record, especially serious accidents you may have caused or repeated traffic violations, can cause your claim to be denied. Dangerous driving puts your life at risk which means higher premiums. Not disclosing your driving history could be interpreted as insurance fraud.

Trap #9 Rate Increases

A term life policy with a level premium guarantees a set premium for the life of your policy. However, the fine print may include an automatic renewal clause. The renewed premiums can be much higher than what you have been paying.

Trap #10 Affinity Groups

Many professional associations have created group life insurance plans for their members. These plans save you the hassle of shopping around for coverage, but won't necessarily save you any money. To enjoy the group rates, you must be a member of the association. The annual dues of the organization may eat up any savings you may get from lower group premiums.

Trap #11 Beneficiary Designations

When you buy life insurance, you choose who will receive the benefits in the event of your death. It's important to look at your policy once in a while to ensure the beneficiary you chose in the beginning is still the person you wish to designate. Many people forget to update old policies when they remarry.

Trap #12 Estate Tax

If you are the owner of your life insurance policy, benefits may be considered part of your estate and subject to estate tax. This isn't usually the case, but read the fine print carefully to make sure your beneficiaries will receive all of the death benefits tax-free.

Trap #13 Crummey Letters

An Irrevocable Life Insurance Trust can help to avoid estate tax. You can transfer the ownership of your life insurance policy to the ILIT or the trust can buy the policy. You can add to this trust fund with annual exclusion gifts. The owners of the fund must notify your beneficiaries of the exclusion gift with what is called a “Crummey letter.” These notices allow the beneficiary to withdraw the gift right away. Without the Crummey letters, your gift is rolled into the balance and doesn't qualify as an exclusion gift.

Trap #14 Relying Solely on Your Group Plan

A group life insurance policy is a nice benefit offered to most full-time employees. Unfortunately, the coverage amount is usually not enough. Plans generally pay a death benefit of 1 to 2 times your annual salary. If you have a large mortgage and small children, this may not be enough. Plus, coverage ends when you leave the company, which means you have to try to obtain a new life insurance policy and could end up paying higher rates.

Trap #15 Naming Your Estate as Beneficiary

Certain types of life insurance are an important part of estate planning, however it is not usually a good idea to name your estate as your beneficiary. When your loved ones are not an option, it is generally better to name a trust, a charity or an organization. If you name your estate, the money could be tied up for months or years, not benefiting anyone.

Trap #16 Naming a Minor Your Beneficiary

Most people buy life insurance to help their children, but naming them as the beneficiaries when they are still minors is not wise. Insurance benefits can't be paid until the court appoints a legal guardian for the children. This takes time and money. It's better to name a trusted adult as the beneficiary (someone who will use the money to raise the children) or to set up a trust fund.

Trap #17 Not Shopping Around

The internet provides easy access to every insurance company in the country, so there is no reason not to shop around, but some people still don't bother. Life insurance premiums for the same amount of coverage can vary widely from one company to another. For example, a $500,000, 20-year term policy for a 30-year old non-smoking male can range from $240 to $650 a year. Read the fine print. There is more to consider than just price – read carefully to see exactly what you get for your money.

Trap #18 Waiting too Long

No one wants to think about dying, but putting off buying life insurance won't prolong your life. All you will get is higher premiums and a greater chance of being declined. Your age and health are two major factors in determining your eligibility and cost of premiums, so the longer you wait, the more it will cost, if you can still qualify at all.

Trap #19 Not Buying Enough Coverage

Deciding how much coverage you need isn't easy. It is one of the most frequently asked questions we encounter. The most important factor is taking the financial burden of your death off your loved ones. Calculate your debt, your obligations (college tuition, raising your children, etc) and the amount of time you want your income to be replaced.

Trap #20 Not Choosing the Right Type

There are different types of life insurance – term, whole life, universal life, disability insurance, critical illness, guaranteed issue and group plans. Your needs, budget, health and various other factors will determine the type that's best for you. An experienced insurance adviser can help you choose the right type of coverage for your situation.

Trap #21 Keeping Your Policy a Secret

Personal finances are just that – personal and private. Many people don't like to discuss their finances, not even with family members. However, you must let somebody know about your life insurance policy or your beneficiary won't be able to make a claim in the event of your death. Besides your spouse or adult children, other people you might want to let in on your secret include your attorney, executor or financial advisor.

Trap # 22 Under Insuring Yourself

A term life insurance policy can be quite affordable. A young, healthy individual can get a great policy for just a few dollars a day. That is a small price to pay for the piece of mind of knowing your loved ones will be provided with some financial security.

Trap #23 Getting the Wrong Term

Term life insurance is convenient and sufficient coverage for most people, however how do you know how long you will need coverage? One school of thought is to out live the need for life insurance – which means that your mortgage and all of your debt is paid off and you have enough savings and investments to last for the rest of your life and maybe the lives of your children. Can you achieve this in 10, 20 or 30 years? At the end of each term, your premiums will increase dramatically because you will be older and your health will likely have deteriorated – you may even have been diagnosed with a serious illness since your last policy renewal, which could mean you will be denied coverage.

Trap #24 Cancelling Your Policy

Cancelling a life insurance policy is easy, but getting it back is not. Think very carefully before you decide to cancel your policy. This decision could be very costly in the long run.

Trap #25 Buying Term Insurance and Not Investing the Savings

Permanent life insurance policies combine insurance coverage with tax-sheltered investments. The premiums are higher with this type of insurance, but the investment and cash value portion of the policy makes it worth while. You may think that you will save the extra cost of premiums and invest the difference yourself. This sounds great in theory, but will you really invest the difference?

We’ve Got The Answers: Which is the Best Life Insurance Company in Canada?

October 4th, 2017
Which-Company-Is-Best-In-Canada

Today's Question: Which is the best life insurance company in Canada?

This is quite a loaded questions, like most of the questions I get and there are many different components to the answer. Choosing which company you want to purchase your insurance from is similar to choosing your policy. There are a plethora of factors that will play a role in determining which company will best suit you.

 

Certain companies will benefit certain individuals and needs more so than others. It really depends on the person's age, the amount of coverage they are looking for, their smoking status, the type of plan there are looking for, and any health issues. All these variables come into play because certain insurance companies really specialize in certain markets.

One company may be great for a 35-year-old male looking for a million dollars of term 20 coverage, whilst another company may be more beneficial for a 65-year-old female looking for fifty thousand of permanent coverage. Another company may also be better for an individual who has health issues stuck as cancer, stroke, or heart disease, to name a few, or perhaps someone who has had past drug issues or travel issues.

The reason I mention the various different factors is that a lot of insurance companies have their own underwriting protocols that can differ from company to company.

It's best to work with a broker who is experienced in all these areas and can ensure you get the best life insurance policy from the best company for your particular situation.

 

Have more life insurance questions? We have more answers for you here!

 

 

We’ve Got The Answers: Is Life Insurance Worth the Money?

September 28th, 2017
Is-Life-Insurance-Worth-The-Cost

Today's Question: Is life insurance worth the money?

Like many intangible purchases, many people question whether or not life insurance is worth the money. A lot of people question if it is really necessary at all. Determining whether or not life insurance is worth your money depends on your individual needs and lifestyle.

If an individual is single with no dependents, and no current need for life insurance, it's likely not going to be worth the money (unless you want to leave money to loved ones, of course). However, for someone with dependents, anyone who relies on the individuals income, a mortgage, and/or small children, life insurance is certainly worth the cost.

Life insurance can provide you with a lot of value because what it does is it allows you to protect a big need for pennies on the dollar. What that means is that you are going to be covered and/or your family is going to be covered for a lot of money in the future and you can do so whilst paying relatively small premiums.

Premiums can be paid on a monthly basis or on an annual basis. A good tip to keep in mind is if you can afford to pay annually, do so because you're going to save a significant amount on your overall life insurance premium.

You are going to want to ensure you work with a broker who works with all the different life insurance companies, knows all the different policies and can shop around to make sure you get the best possible rate for your individual needs.

Have more life insurance questions? We have more answers for you here!

Charitable Giving with Life Insurance

September 25th, 2017
Promod-Sharma

As we approach and enter retirement, planning our legacy becomes more pressing. Philanthropy becomes more important. The biggest gift we can give is our time, with money as a close second. When we’re gone, we can’t give charities our assistance in person but we can still leave them a lot of support through life insurance.

Why Life Insurance?

There are 6 major reasons to use life insurance for charitable giving:

1. Leverage: small insurance premiums buy a large death benefits, especially when you’re younger and healthier

2. Privacy: your donation escapes scrutiny when you bypass your Will and estate by:
a. naming a charity as your beneficiary, or
b. transferring your policy to a charity while alive

3. Flexibility: you can receive tax credits at three different times
a. today: by donating your policy now
b. annually: by paying the future premiums on the donated policy (which the charity will appreciate)
c. at death: to reduce the taxes payable on your estate (or the estate of your surviving spouse since some assets transfer tax-free and are taxed at the second death)

4. Recycling: You can donate life insurance you no longer need instead of cancelling it. You then get a tax credit based on the actuarial Fair Market Value of your policy. This can be higher than the cash surrender value (if any).

5. Proven: Life insurance donations form an important and well-established funding stream for endowments

6. Certainty: You’ll have peace of mind knowing you’ve left a lasting legacy.

Three Ways to Donate

You can use life insurance charitably in three ways, each with their own characteristics:

1. You own the policy and name the charity as the beneficiary: this gives you the most flexibility and control.
You continue making decisions about your coverage. You select the beneficiary and can change your mind. The charity receives the death benefit and provides a tax credit to your estate. You avoid probate fees (called Estate Administration Tax in Ontario) because the beneficiary designation bypasses your estate. However, you don’t get any tax credits for the premiums you pay.

2. You own the policy, name your estate as the beneficiary and give instructions in your Will: ideally you would designate a charity directly.
Donating in this way has no advantages over the previous method. Instead, there are many disadvantages. Since the death benefit forms part of your estate, probate fees apply and creditors can make claims. Estate litigation can reduce the amount the charity ultimately receives. You also lose the privacy associated with a direct beneficiary designation.

3. You donate a new or enforce policy to a charity: this is the ideal method if you’d rather receive an annual stream of tax credits instead of a one-time tax credit for your estate.
When you transfer the policy to the charity and continue paying the premiums, you receive tax credits for the premiums. However, the final death benefit does not give rise to a tax credit since the charity owns the policy. You also lose control over the choice of beneficiary, and the ability to change the policy. You can never regain control of the policy, either.
The actuarial Fair Market Value of your policy at the time of transfer also generates a tax credit. If your preferred charity only accepts fully paid-up policies, you won’t get ongoing tax credits.

In Practice: A Case Study

Here’s a recent case with adjustments made to protect the privacy of the clients. Steve is 67 and his wife Shirley is 65. Both are healthy, retired and regular donors. They have $3 million of assets including their principal residence. They have four independent children between the ages of 25 and 39. When they’ve both died, they want a charity to receive $1,000,000 and have the rest shared equally among their children.

Steve and Shirley discussed their estate plan with their children. The children loved the idea of giving but couldn’t agree on which charity. They asked if they could each be given $250,000 and choose the charity. The parents agreed.

Since Steve and Shirley already have $1,000,000 to donate, they didn’t initially see a need for life insurance. We showed them:

● their donation could be multiplied
● making the beneficiaries revocable allows future changes
● they don’t need to worry about investment returns
● one policy can have multiple beneficiaries and is cheaper than having one policy per charity
They agreed.

What if a child decided against making a donation or decided to delay their donation? Life insurance solved this problem too because the donations would go directly to the chosen charities.

An annual guaranteed premium of $18,948.48 bought $1,000,000 of permanent level cost life insurance (BMO Universal Life, in this case). That’s about 1.9% of the face amount per year. Their maximum outlay is $663,197 if premiums are paid until Shirley is 100. That’s when premiums end but coverage continues.

The tax credits at death allow extra cash to go to their children. Another option was to use the full intended donation of $1,000,000 to buy more life insurance. The family mutually agreed on this second choice.

We structured the insurance so that the full $1,000,000 will be used up in the year Shirley would turn 100. This meant they could invest $28,571 per year in premiums, which buys $1.5M of BMO universal life – a 50% increase from their original donation! The charities win, and most importantly, Steven and Shirley have peace of mind knowing they are leaving a beautiful legacy.

In Conclusion

You can benefit from using life insurance for charitable giving just like Steven and Shirley did, and reap the same rewards. Solutions can be tailored to your unique circumstances and goals.
 

Promod-Sharma

Article written by: Promod Sharma

Promod Sharma (“pro-MODE”) is an actuary who developed life & health insurance products and later supported advisors. He now helps people in the Toronto region transfer financial risks with insurance. He’s written 800+ blog posts, recorded 250+ podcasts and published 100+ videos.

He’s a member of the Conference for Advanced Life Underwriting (CALU), a Fellow of the Society of Actuaries (FSA) and a Fellow of the Canadian Institute of Actuaries (FCIA). Promod serves on the board of the Western University Alumni Association. You’ll find more details on LinkedIn. You can find more about him here.

 

We’ve Got The Answers: How Does Depression Impact My Premium?

September 20th, 2017
Depression-Life-Insurance-Premium

Today's Question: How does depression impact my life insurance premium?

Depression can definitely have an impact on your life insurance premium depending on the severity of the depression. If it is your standard depression that is well controlled, things are stable (i.e. medications), and you have not been hospitalized in the past 10 years, there is a good chance you could qualify for standard rates.

On the other hand, if an individual has bipolar depression or other more serious forms of depressions with stronger medications, that can certainly have an impact on the premium. Individuals could be paying two or three times the standard rate or they may not be able to get a traditionally fully underwritten policy at all. Those individuals are going to want to take advantage of what is called a preliminary inquiry. A preliminary inquiry allows the broker to tentatively ask the insurance company if the individual would be able to obtain life insurance based on their current health issues. Keep in mind, it is not a formal application, so if the insurance company says no, you have not been declined for life insurance. This is important to note because getting declined can vastly limit your options.

For more serious forms of depression, you are going to want to look at a no medical type policy. That could be either a simplified issue type plan, where this is a short series of health questions, or a guaranteed issue type plan, where there are no medical questions. You are going to want to look art the simplified issue type plan where you can answer no to as many questions as possible. This will result in you getting the best possible rate. If you are unsure about the various policies, it is best to speak to a broker who is familiar with them as well as all the companies; this will ensure you get the best value for your situation.

Have more Life Insurance questions? We have more answers for you here!

Healthy Eating in the Office

September 18th, 2017
LSM-SSQ-Rawlicious-Lunch

It's no surprise that healthy, clean eating has a massive impact on your overall health, but does it impact your work as well? Believe it or not, healthy eating does play a large role in productivity. A study done in 2012 conducted with about 20,000 employees found that those who ate an unhealthy diet were per cent more likely to report productivity loss. 

How exactly does this work? Diet has an effect on your cognitive performance. Nutrients such as carbohydrates, glucose, and protein are all essential for optimal brain function. This article from The Globe And Mail breaks down the importance of cleaning eating in relation to productivity and what you can do to ensure you're getting the most out of your food.

We decided to put this play in action thanks to Barry Rubin of SSQ. Barry sponsored a
great lunch at our office for the LSM team and friends. The best part? Every item of food was clean! The best part? Every item of food was clean! We enjoyed a vegan lunch from Rawlicious packed with flavour and no side of guilt! From tacos, to vegetable pasta, to delicious desserts, there was no shortage of tasty, healthy food.

Although this was more of a "once in a while" type of thing, I cannot stress enough the importance of healthy eating, especially when working in an office environment. It is easy to become lackadaisical when you spend a majority of your day sitting in a chair with nothing but a computer screen in front of you. It's not only important to prepare healthy meals, but also, to prepare enough meals. Just like unhealthy eating, not eating enough can leave you feeling lethargic and this ultimately has a negative impact on your brain function. Stay hydrated, prepare meals ahead of time, and ensure you have enough; this will aid you in adopting a healthier routine and ultimately, help you improve your productivity.

Another strategy that I use to enhance productivity as well as positivity in the work place is what I call the Four Day Work Week. Not only does this allow staff to have an extra day to themselves and for their family, it also means they have more freedom to choose when to work from home and when to attend the office. This concept alleviates stress some workers may have when it comes to sitting in traffic, paying for transit/gas, or having minimal time to themselves which in the long run, boosts overall productivity. If you want to learn more about the Four Day Work Week, you can read all about it here!

A big thank you to Barry Rubin and SSQ for putting together a great, healthy lunch for all of us over at LSM!

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