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March/April 2011

Commentary - Hans H. Mathisen

I'm sorry, but until further notice, my usual commentary will not be available. However, I can still provide you the valuable benefits and financial insight of LIFE LETTER and LIFE LETTER MATURE:

Life Insurance 101 - LIFE LETTER for March offers some insight into the reasons for life insurance. Do we want to financially burden the loved ones we leave behind?

Income tax strategies for 2011 - February's LIFE LETTER discusses tax avoidance, or the legal right of Canadians to pay as little income tax as possible.

LIFE LETTER MATURE - tells us "the three critical estate documents you need" and provides us with an "estate planning checklist"?

HAPPY INVESTING!
Sincerely,
Hans Mathisen


 

 

 

LIFE LETTER

Life Insurance 101

Life insurance is an essential financial tool. It is meant to provide money when someone dies to cover last expenses, pay off debts and replace income. Unless you already have all the cash necessary to cover these obligations, you need life insurance.

Term Life Insurance

As the name implies, this form of life insurance is in effect for a certain term. Like your auto and home insurance, the premiums for term life insurance generally increase at regular intervals as well. The most common policies today have premiums that "renew" every 10 or 20 years and the coverage term is only to a certain age, often age 80. Most term life insurance policies can be converted to Permanent Life Insurance at any time prior to a certain age, usually five years before the term expires.

Initially, the premiums for term life insurance are very low. Remember that premiums will increase regularly and may ultimately become difficult to pay. This type of life insurance has the greatest risk of automatically terminating. Because there is no value building in a term life insurance policy, if a premium is not paid on time, the policy will expire thirty days after the due date. You will have to pass a medical again in order to get the coverage back.

Term life insurance does have a place in many financial plans. Because it is essentially temporary coverage, it is ideal for temporary needs, like mortgages and other debts, and while there is still someone dependent on your income. It also fits well for for those just starting out or with limited cash flow for a short period.

Permanent Life Insurance

The premium for permanent life insurance is higher than the initial premium for term life insurance, but generally will never increase. In other words, the initial premium is as bad as it will ever get. Many companies offer a guaranteed premium period policy as well. This means that premiums are only payable for a certain number of years (usually 10, 15 or 20), yet the insurance will remain in force for the whole life of the insured.

There is a term life insurance policy that provides level coverage and level premiums to age 100 that is also known as permanent term. The risk with this type of policy is that if a premium is missed, the policy will terminate 30 days later. A permanent life insurance policy usually has a build up of cash value that can pay a premium so coverage won't lapse.

Permanent life insurance can be an ideal solution for our long-term cash needs. No matter when we die, there will be certain last expenses that need to be paid and usually very soon after death. These include funeral and burial costs, legal and probate fees, and outstanding debts. Many Canadians are building substantial amounts in their Registered Savings Plans (RSP) and other tax postponed investments. When a large RSP balance gets added to your final tax bill, as much as 50% (depending on province of residence) will be owed to the government for income taxes.

 

Life Insurance - Because it's the right thing to do. Call today!

Call Hans Mathisen today at (306)242-7042.
or email -
hans@mathisen.ca

Copyright © 2011 Life Letter. All rights reserved

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LIFE LETTER

Income tax strategies for 2011

Every Canadian tax payer has the right to pay as little income tax as legally possible, known as tax avoidance. The Canada Revenue Agency (CRA) has a very long and detailed list of rules, known as the Income Tax Act, which specifies what you can do to accomplish this. Straying outside these rules is called tax evasion and has severe consequences.

It is up to each individual tax payer to claim all their tax deductions and credits. If you miss any, CRA may not advise you. However, if you miss claiming any of your income, they will certainly let you know and then collect the taxes. Remember, you have the right to arrange your financial affairs in the most tax-efficient manner possible.

Consider:

Pension Income Tax Credit - Daphne has continued working after age 65 and postponed her pension and RRSP income until she retires. To take advantage of the Pension Credit, she converted just enough of her RRSP into a RRIF to generate $2,000 per year of income. This federal tax credit makes the income taxfree, so she deposits the money to her Tax Free Savings Plan (TFSA). This helps Daphne reduce her taxable income a little more when she does retire.

Make Monthly RRSP Deposits - Many Canadians find it difficult to come up with a lump-sum to deposit to their RRSP each year. Ben decided to make regular monthly deposits directly from his bank account. He also submitted a Form T1213 to CRA for approval to have his employer deduct his RRSP contributions from his income before calculating his taxes. This gives Ben an instant, ongoing tax break.

Children's Fitness Amount - You may be able to claim up to $500 per child for fees paid that relate to the cost of registering a child in a prescribed program cereal of physical activity. The child must have been under 16 years of age (under age 18 if eligible for the disability amount) at the beginning of the year in which an eligible fitness expense was paid.

Public Transit Amount - You can claim the total amount paid for public transit passes, or for the cost of passes for multiple transit systems. This includes the cost of monthly passes or of longer duration such as an annual pass for travel on public transit. There is specific criteria required to support your claim.

Canada Employment Amount - If you reported employment income, you can claim the lesser of $1,051 and the total of the employment income you reported. The Canada employment amount provides recognition for work-related expenses such as home computers, uniforms and supplies. Sorry, selfemployed individuals are not eligible for this amount.

Home Buyers' Amount - You can claim $5,000 for the Home Buyers' Tax Credit (HBTC) if:

  • you or your spouse or common-law partner acquired a qualifying home; and
  • you did not live in another home owned by you or your spouse or common-law partner in the year of acquisition, or in any of the four preceding years (first-time home buyer).

Tradesperson's Tools Deduction - You may be able to deduct the cost of eligible tools you bought to earn employment income as a tradesperson (including apprentice mechanics). This cost includes any GST and provincial sales tax, or HST, you paid. You may be able to get a rebate of the GST/HST you paid. Certain conditions apply.

Not intended as specific income tax advice. Rules may change, so please consult with your tax advisor.

Minimize the taxes you pay - because it's the right thing to do.

Call Hans Mathisen today at (306)242-7042.
or email -
hans@mathisen.ca

Copyright 2011 Life Letter. All rights reserved

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Mathisen Financial, Inc.
335 Redberry Road
Saskatoon, Saskatchewan S7K 4W5
Bus. (306) 242-7042 Fax. (306) 242-4314
Email:
hans@mathisen.ca