Affiliated with Sentinel Life &
Sentinel Financial Management Corp.
- Hans H. Mathisen
LETTER for July explains How to get Cheap Dollars to Pay
the Tax Man. It's worth keeping in mind that sometimes dollars can
be purchased for pennies a piece. Let me show you how.
The August LIFE LETTER asks: "Is
Mail Order Life Insurance a Better Deal?" After reading this
you are in a better position to decide for yourself.
And the Bonus LIFE LETTER from the veteran financial
expert Donald F. Pooley asks the question: "FIRE
YOUR BANK?" This is a crucial question because Canadians are
accustomed to life insurance contracts containing certain guarantees.
These guarantees are not always found in-life insurance coverage purchased
from banks and other lending institutions. I'll be pleased to explain
how you can get coverage with all the guarantees you must have. You
deserve to have the best coverage available, especially when that coverage
costs less than you pay for the bank insurance without guarantees.
STOCK MARKETS - By the end of August, the Canadian stock market's
12-month performance is barely positive. The money you invested in the
TSE 300 Index a year ago has "grown" by 1.6%. Just a touch
better than keeping your money under the mattress!
By comparison, the Dow Jones Index grew 23.8%, the Standard & Poors
500 Index increased 22.0%, and the NASDAQ is up 45.2% for the same 12-month
period. Way to go!
And you can now have all your RRSP money outside Canada without having
to worry about the 20% Foreign Content rule. Let me show you how this
can be done. I want you to be a winner, while at the same time lowering
the risk factor of your portfolio.
Hans H. Mathisen
Cheap Dollars to Pay The Tax Man
Bob and Betty, now in their fifties, realize they've
done quite well financially. They own their own home and summer home,
debt-free, and have accumulated a nice sum in their RRSPS. They also
realize that Revenue Canada will gobble a big chunk of their achievements
when they die.
The cottage cost them about $75,000 and their estate
planner projects it to be worth about $200,000 at their life expectancy.
As the increase in value will be treated as a capital gain at death,
75% ($93,750) of the $125,000 growth will be included in the final tax
Their RRSPs will grow to about $1 million by the
time they retire and their RRIFs will still have about $600,000 in them
at their life expectancy. This money is fully taxable at death adding
at least $600,000 to the deceased's taxable income. As there will be
other income this $693,750 total will most likely be taxed at the highest
possible rate, about 50% in most provinces. So $350,000 cash will then
be needed for Ottawa.
Bob and Betty don't have a problem while they are
both alive, or even if one of them dies. Thanks to some good estate
planning advice, there won't be much of a tax grab on the first death,
as everything goes to the survivor. Assets can pass tax free from one
spouse to another on death, thus postponing taxes until the second death.
The big tax bite will occur on the second death, because the income
tax on deemed capital gains and RRSPs has been postponed until then.
That's when about $350,000 will be needed, in cash.
Their executors choices will be limited. They can
sell property. But Bob and Betty want the family home and cottage kept
in the family for use by future generations. They can borrow the money,
but loan payments have to be repaid with after tax dollars, which, with
interest brings the cost well above 100 cents per dollar of death taxes.
Besides, they don't want their children to remember them by leaving
them with a huge debt load to pay the taxes on their inheritance. Or
the executors can cash in the RRSP/RRIF, and pay the taxes at 100 cents
on the dollar, probably the cheapest of these three alternatives.
There is another answer that requires mere pennies
on the dollar, but it has to be set up in advance. A unique type of
joint life insurance policy that is more economical than usual because
it doesn't pay off until the second death. A joint-second-to-die policy
is ideally suited to Bob and Betty, because it will deliver tax free
money at the exact time that it is needed. And the annual cost is only
a penny or so per $1.00 of future taxes.
So Bob and Betty can pay their inevitable future
taxes at 100 cents (or more) on the dollar by doing nothing. Or they
can pay them with pennies on the dollar by taking action today. Which
would you do?
Copyright © 1999 Bowen Financial
Inc. and Donald F. Pooley, Inc. All rights reserved. Illegal to copy
without written permission
Is Mail-Order Life Insurance a Better Deal?
Chris received his Visa statement in the mail with a brochure pitching
mail-order life insurance. No need to see an agent - just complete and
sign the application, pay the premium and, if he's accepted, he's insured.
Sounds like a good deal, but is it really? The experts
William A. McLeod, an outspoken critic of the insurance
industry says in his book, The Canadian Buyer's Guide to Life Insurance,
"You would think that, by eliminating the sales person, companies
could sell their policies at a lower rate than the competition, but
such would not appear to be the case."
Chris discovered a number of reasons that mail-order
insurance isn't such a good deal. The insurance companies must pay the
credit card companies for mailing their pitch pamphlets with the statements.
After all, postage isn't free and the credit card companies are always
looking for ways to offset their costs. Also, the insurance
companies expect more claims from mail-order life insurance. Some companies
reduce their premiums by not covering certain causes of death or not
paying benefits if death occurs in the first two years.
It's easier for a company to reject a claim when
the original applicant is dead and there is no qualified, objective
witness to the true state of his health at the moment he signed the
application. It's not so easy when an agent helped him to complete the
form, witnessed his signature to attest to the validity of the answers
and completed a report on the applicant's condition. And is also there
to help the widow through the claim process.
The sole advantage of buying mail-order life insurance,
not dealing with an agent, is also its disadvantage. If Chris wants
the insurance company to pay up without quibbling, then he should deal
with a licensed agent. After all, the reason he's buying life insurance
is so that his family can avoid financial hassles when he dies.
George Brett compared costs of mail-order life insurance
with that obtained through agents in a Dollars and Sense column
in the Toronto Star. His conclusion was that you can get a better deal
from an agent. He also said, "Rather than getting a one-sided sales
pitch from a pamphlet, why not get an insurance professional to explain
the choices available to you?"
There is a cost to distributing any commodity, including
life insurance. When costs are the same from different suppliers, the
shrewd purchaser looks for added value. If one choice includes the services
of a qualified advisor and ongoing financial advice, while the other
doesn't, which one is really the better deal?
Copyright © 1999 Bowen Financial Inc. and Donald F. Pooley,
Inc. All rights reserved. Illegal to copy without written permission
FIRE YOUR BANK?
While a Mississauga firm negotiated its line of credit
the bank "pressured us to have our corporate lines life-insured
by them. 7here was the implication that if it were not done the line
wouldn't be there. We
have since fired this bank. I know darn well that I can get the identical
product for at least 35-45% less from any one of 20-25 major Canadian
life companies. "
This businessman is right. Bank
insurance is expensive. As a customer explained to his bank, "Your
letter states that you have 'negotiated a highly attractive life insurance
package'. You further state 'because this is group insurance prices
are extremely attractive'. After looking at comparable rates per 1,000
for my age, I find that instead of paying $3.84 for one year, $5.52
for 5- years, and $ 7.80 thereafter, I can buy term insurance with a
large insurance company for $2.3 7, and that premium will remain constant
for a full 10 years. How
can you say your rates are competitive let alone attractively priced?
This is distorting the facts. Is this the kind of thing we have to look
forward to if the banks are allowed into the life insurance business?"
But the Mississauga businessman is wrong in thinking
it is "the identical product". It isn't, as a B.C. couple
discovered a few years ago. They had been banking at the same branch
for over 15 years, and had a 5 year mortgage, life insured by the bank,
which they kept renewing. At each renewal new medical evidence was demanded
for the insurance. Just before they renewed their mortgage for the third
time the husband was diagnosed as having cancer, and the bank refused
to renew his life insurance. When
he died there was no insurance to pay off the mortgage.
Despite this apparent shortcoming bankers love their
life insurance. You pay the premium and they collect the death benefit.
It also locks you in as their customer. Its sole advantage to you and
your family is that it will pay off the debt, if you die while you are
Is that really an advantage? Or would your family
be better off if they collected the insurance, and then decided whether
to pay off the debt? If it's a mortgage, and they decide to sell the
house, isn't it easier to sell it with a mortgage? What happens if you
increase your mortgage, or sell your present home to buy another with
a higher mortgage? Or decide to switch banks? You need new life insurance.
But, what if you can no longer get it, like the B.C. man?
The answer is to have a
policy which belongs to you instead of the bank, which is paid to your
beneficiary rather than the bank; and which also does not require new
medical evidence every time you renegotiate a loan, switch to another
bank, or buy a new home.
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