Affiliated with Sentinel Life & Sentinel Financial Management Corp.
September/October - 2001
Commentary - Hans H. Mathisen
Where's The Money? - For the month of September, LIFE LETTER deals with a subject we are all interested in: Saving money. Many are not aware of the several money-saving features associated with having their money invested with life insurance companies, rather than other financial institutions. When one’s money is invested with a life insurance company, legal and probate fees are avoided, and the money is protected from creditors. Please call me for more details.
Term Insurance or Permanent? - October’s LIFE LETTER re-visits the question: Which alternative is least costly: renting or buying? The answer is: “It depends “. For a short-term need, term insurance solves the problem. But, since we all hope to live a long and healthy life, many of us will be so “unfortunate” as to outlive our term life insurance, which expires when we reach age 65, 75, or, in some cases, age 80. At that point in our lives, our health may have deteriorated to the point where we can’t buy new insurance. Or, even if we qualify health-wise, life insurance bought at these higher ages could prove to be too expensive for us. Since some of our financial needs and obligations are temporary - while others are permanent in nature - maybe we should carry both kinds of life insurance? Should we meet and talk about your particular situation?!
THE STOCK MARKETS - In the aftermath of the September 11 massacre, the markets have recovered remarkably well as of this writing, on October 5, 2001. Many of my clients are asking me, “Should I change my portfolio?" My answer is, “No, sit tight, and invest more money now, if you can”. In support of this statement, I’m enclosing a copy of Garth Turner’s column in the Saskatoon Star Phoenix on October 1, 2001. I’m so pleased Garth Turner agrees with me. He says: Let‘s wait. Time is on our side.
Fortunately, Lillian also had a life insurance policy. The claim forms for the life insurance were mailed to the insurer on August 5th and cheques were delivered to the named beneficiaries, in person, on August 20th.
Money on deposit with a life insurance company is treated the same as a life insurance policy. This means that a beneficiary can he named and proceeds will be paid directly on death without the need for probate or the services of a lawyer. A beneficiary designation can be changed at any time avoiding the cost of re-writing a Will. Deposits with a life insurer can also be protected from creditors by using certain beneficiary designations.
Rose used a named beneficiary as an estate planning method to make sure that her money was left to who she wanted without them going through the costs and delays of probate. When she died, her wishes were granted within a matter of a few weeks. And there was no cost to her estate or her beneficiary.
When Herman and Trish filed for personal bankruptcy, their bank accounts were seized, including their RRSPs with the bank, even though these had named beneficiaries. Their life insurance RRSP and non-RRSP plans were not seized. As life insurance policies with each other named as beneficiary, they were untouched. As husband and wife, they are “preferred” beneficiaries, which is one of the reasons their plans with the life insurance company were protected from seizure.
Dwayne has other concerns. He worries about his beneficiary’s ability to manage money and wants to make sure that the insurance proceeds will last a long time. He also wants to avoid the cost and potential tax issues of establishing a trust after he dies. He was able to address his concerns, so far as his life insurance RRSPs and policies were concerned, by utilizing a special beneficiary arrangement. It enabled him to direct that the death benefits would be paid out over a period of years (or, had he wished, over his beneficiary’s lifetime).
Providing income instead of a lump sum may be more appropriate in certain situations. Another option is a lump sum for part of the proceeds (to provide for immediate cash needs) and the rest paid out as income.
© 1999 Bowen Financial Inc. and Donald F. Pooley, Inc.
Want to protect some of your assets and
reduce estate costs?
Insurance or Permanent?
Instead of thinking about life insurance, think about acquiring a place to live. You have three choices. You can rent, buy on time or buy outright.
Renting is cheapest over time short term. If you can’t afford to buy the home you want, you have no other choice. Renting requires less responsibility than buying and you can move out when you feel like it. But your landlord can move you out, too, if you forget to pay the rent. And he can raise your rent, perhaps to a level you can no longer afford.
Buying is cheapest over the long term. And buying outright is cheaper than buying on time because it avoids mortgage interest. Of course, both require more cash than renting at the outset. Given enough time, the home you buy can be worth more than you paid for it.
One advantage of buying is the equity you build up that can be converted to cash later on. Another is that you own it, so you’re much less likely to be evicted. Yet another is that, unlike rent, your mortgage payments don’t always increase. In fact, they can decrease (or stay the same and shorten the paying period) if interest rates drop. Of course payments cease altogether when your mortgage is paid off.
Apply the same thinking to life insurance. Term insurance is hike renting a home, cheaper initially, but more expensive over the long run. Like a lease, it is for a limited term (hence the name). But forget to pay a premium and you lose it. As with rent, your Term premiums increase every so often, eventually to a level you may no longer afford or want to continue paying. Term insurance is temporary. Although its name describes it, many people do not realize that it lasts for only a set number of years or to a certain age.
Permanent insurance is like buying a home, more expensive at first, but cheaper over the long run. Its premiums don’t increase, but can decrease or even cease completely. You also build up an equity (as in buying a home) that can be converted to cash later. This equity can be more than all the premiums paid. The cash in your Permanent policy can even be used to keep your coverage going if you need to miss a few premiums.
The truth about life insurance is the same as the truth about renting or buying a home. The product is the same in each case, life insurance or a place to live. The difference is how the product is paid for. The so-called advantages of one over the other simply relate to the method of paying premiums.
© 1999 Bowen Financial Inc. and Donald F. Pooley, Inc.
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When the stock market has its worst week since 1933 and the Bank of Canada boss is forecasting recession, you know it is a dangerous time for your money.
In the aftermath of Sept. 11, anything can happen - bankruptcies, disruption, war. It seems there has never been a time of such deep uncertainty or widespread anxiety. Many investors are paralyzed while lots of others arc fleeing from their stock market-based mutual funds into cash.
What to do?
Probably nothing. Certainly this is no time to sell any assets, especially those that have fallen in value. Maybe it’s time to buy. It definitely is a time to reflect.
Have things ever been this scary before!
Many people compare Sept. 11 to Pearl Harbor. I don’t know, since I wasn’t there in the 1940s, when Canada was already at war. But, like many of you, I have gone through a few tough times that stick in my mind.
In 1955, I was six years old. At school my teacher insisted each week that we practice crawling under our desks in case a nuclear strike took place during the day. We all hoped it would happen when we were home, since most families (including mine) maintained and stocked basement bomb shelters.
In October of 1962, the Soviets and the Americans played chicken with the world over the installation of nuke-tipped missiles in Cuba. In my neighborhood, air raid sirens were installed and civil defence drills were common
On the fourth day of May in 1970 my girlfriend (now my wife) and I were catching a ride with my father, taking an afternoon away from university studies to visit Niagara Falls. On the car radio came news that a number of students at Kent State University, in opposition to the Vietnam War, had been shot and killed by members of the National Guard. The American economy was in crisis as the war drained resources and the U.S. teetered on the brink of bankruptcy.
On Oct. 19, 1987, I was a newspaper columnist and editor in Toronto as the New York Stock Exchange lost 22 per cent of its value-in a single day. It was without exception the worst crash in history, ushering in the end of a decade that was marked by runaway inflation, 20 per cent interest rates and $800-an-ounce gold. It looked like the end of capitalism as I headed for the newspaper library to see what photos I could find from the Great Depression to use as a reminder of what readers should expect.
In 1991, I was a Member of Parliament walking into the government lobby of the House of Commons. The prime minister came in and, in a hushed voice, called MPs over for a briefing. Standing on a table he told us that Canadian CF-18s had just been ordered to take part in the bombing of Iraq.
The Gulf War shot oil prices sky-high and had, an entire world glued to nonstop coverage on CNN. The horror was addictive.
Today there is more horror, uncertainty, conflict and an unknown outcome to the events that are breaking all around us.
If history is any guide, at least from my five decades on this earth, then what is shocking and unnerving today will pass tomorrow. The economy and the stock market that tracks it have absorbed every shock, and eventually moved on.
Setbacks like the, Cold War, the Vietnam War and the Gulf War evolved into more stable, and improved situations.
Financial crises like the 1987 crash, the Asian flu, the Mexican peso collapse and Y2K were all followed by substantial gains and the creation of wealth.
Despite today’s terrorism and war, and the corporate and market carnage it’s engendered, things will’ get better.
Stocks will rise. The economy will grow.
Technology will advance. Inflation is still in check, interest rates are falling and governments have tots of cash. There is no reason to turn a paper loss into a real one by bailing out of falling investments.
There is no sense to running out and buying gold coins, as many people are doing. If you did not move to protect your assets before Sept. 11, it is too late to do it now.
Just wait. Time is on your side.
Watch Garth Turner’s investment Television, Sundays on Global.
Mutual confidence is the power that binds together all harmonious human relationships.