Risk Management

Insurance Planning

Achieving financial success or financial independence requires effective planning.  This involves the careful consideration of key events.  These key events can be categorized into two major classes: controllable events and uncontrollable events.  Examples of controllable events are buying a house, establishing an RRSP, or planning for your children's education.  Uncontrollable events could include real eventualities such as premature death or disability.

While the timing or occurrence of these uncontrollable events is unknown, proper risk management can offset the financial losses should tragedy strike.  Insurance is a tool that can be used to manage the financial risk associated with these uncontrollable events.  Wealth managers can help you decide whether to insure a risk (and determine whether appropriate insurance even exists), and how much insurance protection to obtain.

Individual Life and Health Insurance

In determining how much life insurance you need, my analysis takes into consideration the immediate, ongoing, and indirect effects of the loss of life.  Some of the major cash and income needs at death include;

• Paying mortgage expenses
• Income for dependent children
• Replacing the deceased's income for a period of time and/or providing retirement income for the surviving spouse
• Funding children's education
• Resources for emergency use
• Paying taxes and probate fees upon death

Life Insurance also plays an important role for small businesses.  Life insurance has four main roles in business planning;

1. It is a vital component of succession planning which helps ensure the business is adequately funded to carry on after your death,

2. it is used in buy/sell agreements to ensure that dependants receive full value for the business and that surviving partners carry on the business without influence of the deceased's family,

3. Small private corporations have key employees whose death would place the business in financial jeopardy.  The business can be the owner and beneficiary of such policies.  The death benefits can defray the costs of hiring a replacement and replace lost corporate earnings,

4. Death benefit proceeds to a corporation are tax-free which can lead to a tax-free capital dividend to shareholders in a small business corporation.

In addition to life insurance, risk management also incorporates individual disability and accident insurance.  My role is to make you aware of the five basic categories of individual disability and accident and sickness insurance, when you might need them, and how much coverage you will need.  These categories are:

• Individual disability insurance policies which compensate workers for income lost during a period of disability
• critical illness insurance, to provide lump-sum benefits for those insured who suffer a catastrophic injury or medical condition and survive
• long-term care insurance, designed to help cover expenses for those who can no longer care for themselves
• individual health insurance policies which reimburse the insured for medical and related expenses arising from illness, injury or medical treatment (over and above benefits provided by government plans)
• travel insurance, designed to protect Canadians traveling outside their province of residence, or outside Canada

Group Insurance

Small business owners have a need to attract and retain good employees.  Group benefit plans  such as group life and health insurance and group retirement plans can be used to help meet this need.  My role is to make the small business owner aware of the various options that can be chosen, the potential costs, and how both the employer and employee can benefit.

The advantages to employers of group benefit plans include:

• expenditures towards group benefits are tax-deductible as a business expense
• the benefits help attract and retain qualified employees
• the benefits help improve employee morale, productivity, and efficiency
• the benefits supplement monetary compensation

The advantages to employees of group benefit plans include:

• benefits received under group plans may not be considered a taxable benefit
• there is less need to use after tax money to purchase various types of insurance
• individuals are not usually required to provide medical evidence of insurability
• insurance is less expensive to obtain under a group plan than for an individual policy

Group insurance plans often include these elements:

• basic life insurance for the employee
• dependant life insurance
• survivor income benefits
• optional additional life insurance for the employee
• accidental death and dismemberment benefits
• short and long term disability
• accident and sickness (i.e. health) coverage
• dental care coverage
• employee assistance programs

The Need For Insurance

As mentioned above, there are many cash and income needs at death.  If you think you really don't need insurance coverage, just think about situations that may affect you such as:

• If you are in a personal partnership (usually marriage), how much do you contribute to the family budget? If you were to die prematurely, suffer a disability, or critical illness then how would your survivor(s) get by, especially dependent children?
• Does anyone else depend on you financially, such as a parent, grandparent, brother or sister?    How would they be taken care of upon your death, disability, or critical illness?
• If you are in a child custody situation, what level of support payments are you making or getting? How would these be kept up in the event of the contributor’s death, disability, or critical illness?
• If you have a mortgage on your home, do you want it paid off in the event of your death, disability, or critical illness?
• If you have children, do you want to put aside money to complete their education in the event of your death, disability, or critical illness?
• Are there any other family members or  charitable organizations to whom you would like to leave money?
• How does your business or farm succession plans factor in death, disability, or critical illness?  How would these affecting funding?
• How do you pay the taxes incurred when capital property (e.g. retirement savings, cottage etc.) is transferred from one generation to the next?