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Which is a better solution?

Personal or credit insurance. Which is a better solution?. Total amount of household debt in Canada in the first quarter of 2011:. $1.51 trillion. Source: “A Driving Force No More: Have Canadian Consumers Reached Their Limits”, Certified General Accountants Association of Canada.

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Which is a better solution?

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  1. Personal or credit insurance Whichis a better solution?

  2. Total amount of household debt in Canada in the first quarter of 2011: $1.51 trillion Source: “A Driving Force No More: Have Canadian Consumers Reached Their Limits”, Certified General Accountants Association of Canada

  3. Credit Life Insurance • In 2011, Canadians paid a total of $1.86 billion in premiums for credit life insurance bought through their financial institutions.* • Obviously, people are concerned about leaving a debt burden to loved-ones upon death. • Is Credit Life Insurance the best solution? • Let’s compare with personal life insurance policy such as FlexTerm and FlexOptions. *Source: Canadian Life and Health Insurance Facts, 2012 Edition, CLHIA

  4. Which insurance do you want?

  5. Personal life insurance You are the policyholder. As the policyholder, you determine the beneficiaries. Beneficiaries are free to use the death benefit as they see fit. Credit life insurance The bank or credit union is the policyholder. The bank or credit union is also the beneficiary. Who’s the policyholder?

  6. Personal life insurance Your policy stays in-force even if you switch lender. You decide whether you want decreasing or level insurance. Credit life insurance If you switch lender, you lose your insurance and have to apply with the new lender. Higher premiums when you switch. Will your health be the same at every switch? Portability and Flexibility

  7. Portability and Flexibility • When it comes to protecting your mortgage in case of death, a personal insurance policy gives you the liberty to move your mortgage to take advantage of a better deal without worrying about: • New and higher premium rates • New health issues that could affect your insurability

  8. Scenario – Moving the mortgage around A 31-year-old individual gets a $200,000 mortgage from RBC with a 5% annual interest, 20-year amortization and 5-year fixed term resulting in payments $1,314 per month. Five years later, at age 36, upon renewal, the individual switches his mortgage balance of $159,721 to Scotiabank. We assume the interest rate and payments remain the same. Five years after that, at age 41, upon renewal, the individual takes his mortgage balance of $115,119 to TD Canada Trust for the remaining 10 years.

  9. Scenario – Moving the mortgage around Total premium cost over the duration of the mortgage Banks* (over 20 years) • RBC – 5 years $1,560 • Scotia – 5 years $2,017 • TD – 10 years $4,394 • Total cost $7,971 Cost is the same for a man and woman. FlexTerm – 20 years • Female non-smoker $4,882 (based on monthly premiums) • Male non-smoker $5,832 (based on monthly premiums) Level insurance amount *Premium rates taken from each bank’s website on August 3rd, 2012. Sales tax apply to banks’ mortgage insurance in some provinces.

  10. Which insurance do you want?

  11. Credit life insurance Only the borrower (no one else!) Personal life insurance Anybody within the required age range can apply for life insurance. Example The new boyfriend who moves in the girlfriend’s house can apply for life insurance even if the mortgage is in the girlfriend’s name only. Who can apply for life insurance?

  12. Personal life insurance Underwriting process occurs at time of application. Field underwriting – broker starts process with medical questionnaire (further tests may be required). Clients know they’re insured once they start paying the premiums. Credit life insurance “Post-claim underwriting” Could result in nasty surprises and financial hardship as seen in certain news stories over the years. When does underwriting take place?

  13. http://www.cbc.ca/marketplace/in_denial/

  14. Personal life insurance Convertible to permanent insurance. When temporary insurance needs no longer exist, there are still reasons to maintain insurance protection: Final expenses Income replacement Taxes Legacy Charitable donation Etc. Credit life insurance No conversion options Conversion

  15. Which insurance do you want?

  16. Personal life insurance can cover more than the mortgage • A mortgage is just one type of loan you don’t want to leave behind. Very often, there will be car loans, personal loans or lines of credits. • With a personal life insurance like FlexTerm and FlexOptions, the amount of insurance is not limited to one loan. • You are free to apply for the amount you want to cover all of your debts and other temporary needs such as childcare.

  17. Examples of insurance needs other than the mortgage • Other loans • Home Buyer’s Plan reimbursements • Daycare fees for kids • Kids’ education • Replacing income of deceased parent • Etc.

  18. Life insurance used to protect a collateral loan for business purposes. Are life insurance premiums tax deductible?

  19. Deductible Premiums - Conditions • When a personal life insurance is used as collateral to secure a loan, the “Income Tax Act” (ITA) permits a limited deduction under the following rules: • The assignment of the policy must be required by the lender as collateral for the loan. • The lender must be a bank, trust company, credit union, insurance corporation or loan company. • The interest paid on the loan must be deductible in computing the borrower’s income. • The amount deductible may not exceed the lesser of the premiums payable and the “net cost of pure insurance” (NCPI) in respect of the policy.

  20. Deductible Premiums - Conditions • The amount deductible is that portion of the lesser of the premiums payable and the NCPI that may reasonably be considered to relate to the amount owing. • Example: Where the amount of the collateral life insurance is $500,000 and the average balance owing is $300,000, the deduction will be limited to 60% of the lesser of the premiums payable and the NCPI. • The taxpayer seeking the deduction must also be the policyholder. Other rules apply. To find out more, contact your life insurance provider.

  21. Credit Insurance Premiums – Not Deductible Based on the following rule: The taxpayer seeking the deduction must also be the policyholder. Credit life insurance premiums are not deductible because the owner is the financial institution selling the insurance. Therefore, the borrower is not the policyholder.

  22. After taking into consideration all of this information,which insurance do you want?

  23. A better kind of mortgage insurance Available terms: 15, 20 and 25 years Build-your-own term and disability insurance Available terms: 15, 20 and 25 years

  24. Life Insurance

  25. Life Insurance

  26. Life Insurance Age at issue : 18 to 65 Age at issue • 15-year FlexTerm 18 to 65 • 20-year FlexTerm 18 to 60 • 25-year FlexTerm 18 to 55

  27. Decreasing scale The insurance amount stops decreasing when it reaches half of the initial face amount. Decreasing insurance coverage is based on a 6% mortgage loan.

  28. Disability Insurance Your choice of disability benefit used as: - loan payment replacement; or - income replacement.

  29. Disability Insurance

  30. Disability Insurance

  31. Eligible loans for DI (loan payment replacement) • Loans with a remaining duration of 5 years at the time the insurance application is signed and an initial amortization period of at least 15 years. • Eligible loans include mortgage loans, personal loans, leases on an asset, Home Buyers Plan. • Lines of credit and all other financial obligations with a variable or unascertained amount or reimbursement period are not eligible for DI.

  32. DI Benefit Periods “24/48”: Payment period ends after 24 monthly income payments for same disability or 48 monthly income payments for different disabilities or the end of the policy or, for the “loan payment replacement” only, the end of the loan if earlier.

  33. Disability definition Disability means a condition resulting from an illness, an injury or a nervous disorder that prevents the insured from performing his regular duties in regards to: • the occupation in which he was engaged immediately before the date he became disabled; • his principal occupation; • any occupation for which the insured worked at least 20 hours per week for at least 8 weeks during the 12 months immediately preceding his total disability.

  34. CriticalIllness Insurance

  35. Critical Illness Insurance • Minimum coverage: $10,000 • Maximum coverage: $25,000 • All critical illness rider coverage for a single insured cannot exceed $25,000. This maximum amount will not take into account CI coverage before 2014 and still in effect. • Joint policies - each insured can apply for a CI coverage amount of up to 50% of the amount of life insurance coverage, without exceeding $25,000 • A pre-existing 12-month clause may be applicable

  36. What critical conditions are covered? • Cancer • Heart attack • Stroke • Coronary bypass • Kidney failure • Blindness • Major burns • Organ transplant • Awaiting major transplant • Coma • Aorta surgery • Replacement of heart valves • Aplastic anemia • Bacterial meningitis • Paralysis caused by an injury/ accident and not an illness • Accidental dismemberment

  37. Get all the product details on Assumption Life’s Producer’s Corner www.assumption.ca

  38. Thank you! Thank you!

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