2009 Tax Return Tips

Hello Bloggers!! It’s everyone’s favourite time of year again: Tax Time!  Although I don’t hear much cheering, I do know almost everyone has to file, and absolutely everyone loves to save money on their returns.  So, here are some great tax saving tips and tax credits that may apply to you to either increase your return or lower your payment to Canada Revenue Agency (CRA).

First off, if you are filling a return and are over 18 years of age, make sure you apply for the GST/HST Credit.  Only one person can claim per married or common law couple, so make sure it’s the person with the most tax owing.  If you have children under 18, you may be eligible for the Child Tax Benefit.  Both you and your spouse must file returns to get the credit, and the credit is paid out in monthly, non-taxable installments.

Then come the deductions from income.  You need to review your own personal situation to see if you qualify for each deduction.  If you have children, you may be able to claim Child Care Expenses, private school tuition fees, and moving expenses if your child moved away for continuing education.  If you made any investments in 2009, you may be able to write off interest expenses for money borrowed to produce income from business, investment or property.  And don’t forget to write off your safety deposit box; it qualifies as an investment expense!   If you moved in 2009 and it brings you at least 40 kilometres closer to work, you may be eligible for the Moving Expense Deduction.  These can include travel costs such as meals, temporary lodging, legal fees and more.  Make sure to review your situation to find exactly which deductions you qualify for.

Next come the non-refundable tax credits.  Remember these are not deductions from income, but are used to reduce federal or provincial taxes payable.   Everyone who earns income in Canada can claim the Employment Amount.  So make sure you do! Some others tax credits apply to children such as the Child Tax Credit for children under 18 and the Children’s Fitness Credit for sports and activities that keep kids active. If you received any dividend payments in 2009, you may be eligible for the Dividend Tax Credit.  Check with your financial advisor to see if you qualify.  Also, if you have a parent or grandparent living with you, you may be able to claim the Caregiver Amount.  There are also several credits for disabled persons, so make sure to talk to your accountant/advisor to maximize those claims.

And let’s not forget charitable donations.  If you gave money to a registered charity in 2009, you may qualify for the Charitable Donations Tax Credit.  Remember some donations receive larger credit amounts, such as any contributions to a Federal Political Party, and you may combine your donations with your spouse or common-law partner to maximize your credits.  Be sure to talk to your advisor or accountant before transferring amounts.  Also, the Home Renovation Tax Credit gives people who renovated a qualifying home a credit of up to $1,350.  This can only be claimed for 2009 so make sure you get those credits this year! 

You may also qualify for the Medical Expense Credit, which can help people cover some of their yearly medical expenses.  There is a threshold based on 3% of your income for the year, so make sure you’re above it! This credit must be claimed by the spouse with the lower net income, with some exceptions, so talk to your advisor to figure out the best strategy for claiming. 

It would be impossible for me to cover in any great detail all of the credits and deductions available to all Canadians. The key is to identify the ones available to you personally, and try to maximize them to your advantage.  I would strongly recommend talking to your accountant or financial advisor before claiming, as some credits and deductions can be complicated to apply in certain situations.  If you would like more detailed information on any of the above topics, feel free to contact me via email and I would be happy to answer any questions you may have.  Some of these topics are also covered in great detail on my blog, so be sure to check it regularly for money saving tips!  

Until next time,

Adam Myers

Financial Advisor

Professionals for Independent Planning, Ottawa Ontario

Email: adam@pfip.ca

Phone: 613-224-5511   X108

www.pfip.ca

Writen by Adam Myers

Financial Advisor, Ottawa Ontario

                                                                                                       Adam Myers, Financial Advisor

Hello Every body!!!  Although its very cold here in Ottawa, I just wanted to take this opportunity to wish everyone a happy and successful 2010!  And with the New Year still ringing in our ears, maybe it’s a good time to make a new resolution.  A “Financial Resolution”.  Please don’t confuse this with dieting or starting back up at the gym. Think of this as a simplified financial plan for 2010 that can help you reach your goals for the coming years.

Did you achieve your financial goals this past year?  How about this past decade?  Whether you did or did not, this may be an excellent time to make up a new plan, updated to include any changes from the past years.  Did you buy a new house? Get married? Have children? All these things can have a large impact on your financial situations, so make sure to adjust your plan accordingly.

The main goal of a financial plan is financial freedom.  I think most people would agree with me on that.  So what does financial freedom look like to you?   Take a minute and picture where you want to be in 10 years, then 20 years and so on till you have a clear picture of where you would like to be.  Then sit down and try to imagine how to get to that first step.  Proper money management is crucial to the maintence of your plan, so don’t be scared to ask for help.  Your financial advisor is a prefect place to start.  Here are a few ideas to get you started…

Cash flow

It’s a good idea to keep track of the money coming in and out of your accounts.  Look at where the majority of your out flow is heading and see where you can save money in your spending.  Budgeting is a huge aspect of financial freedom.  Also review your portfolio to see if your investments are inline with your goals.  Some plans were set up years ago and should be reviewed regularly to ensure they are still on course. 

Insurance and Emergency Funds

Protecting yourself and your family’s lifestyle are another important aspect of your plan.  Have an “Insurance Needs Review” done to make sure you’re properly covered; especially if there have been any major changes in your life.  You can find these on many insurance web sites if you don’t have an insurance broker you can talk to.   Also, start an emergency fund if you don’t have one, as unexpected events can be managed when you’re prepared.  A good place for this may be the “tax free savings account”, and with the New Year comes more contribution room, so be sure to look into this option.

Tax planning is not just a year end topic.  Tax planning and preparing can be done through out the year and are important factors to a financial plan.  The type of investments you hold and the tax bracket your in will influence your return, so examine these components carefully and make sure that taxes are working effectively for you, and not against you.   It’s also a good idea to keep careful documents of all your transactions and purchases so when tax time does come around, you have all your necessary information handy.

Financial Education

How about some plans for increasing your financial knowledge? Even the most experienced investor needs to keep up on changes to tax laws and new government incentives like the “tax free savings account”.  You can find a wealth of information at your local library, on line threw blogs and financial websites, and in many magazines and newspapers. 

And many others…..

There are many factors to consider when drawing up a financial plan that I haven’t mentioned, such as risk tolerance, mortgage payments, estate planning, etc…  So it may be in your best interest to ask for some help from a qualified financial advisor.  I am simply hoping to get you thinking about your finances and to get you started on your way to a healthy financial future.  Remember financial freedom is the goal, so stay on track and update your plan regularly.

Adam Myers

Financial Advisor

Professionals for Independent Planning

Email: adam@pfip.ca

By: Adam Myers

Charities and non-profit groups work on behalf of Canadians to provide the services and support that contribute to quality of life in our communities. We need to increase Canada’s donor base to ensure organizations working across the country and around the world can meet the growing demands of the individuals, families and communities they serve.

A recent Ottawa newspaper article has raised a troubling issue: Canadians, among some of the most privileged in the world, give a relatively small mount of income; on average 1.2%, to charities when compared to our American neighbours who donate a full 2% of income.   However, we have to factor in the difference in tax rates to see a clear picture. Americans pay considerably less taxes then we do, and after paying federal, provincial, municipal, sales and property taxes, people just do not have the money left over to donate to charity.   Or do they……?

With federal and provincial tax credits, charitable giving can actually be a tax reducing financial strategy.  The current federal charitable tax credit works like this: 15% on the first $200 donated and 29% on the remainder. The Ontario provincial credit for 2009 is 9.44% on the first $200 and 17.41% on amounts above.  So if you’re in a lower tax bracket, this can actually reduce your taxes owed at year end.  And with the ability to combine total donations with your spouse or common law partner, it’s even easier to get over that $200 mark. Just remember you can only claim up to 75% of your income from the year.

Ways to Give

There are several ways to donate, let’s take a quick look at a few of the more common choices:

Cash gifts - Probably the easiest way to support a charity. Most charities issue receipts for amounts $10 and over. The Income Tax Act allows you to carry forward donations in excess of the annual limit to any of the five following years.

Donations of securities - Gifts of qualifying securities (stocks, mutual funds, etc…) are not subject to capital gains tax.  You can donate securities that have built up capital gains, pay no tax, yet receive a tax receipt for the full value of the donation.  (This is a great tax strategy, but fairly complicated. If your interested send me an email and I would be glad to explain this in full.)

Through a will - Charitable donations made through a will are made in the year of death and the estate claims the tax credit on the final return.  A life insurance policy is a great way to carry this out. (Just be careful, a downside to estate made donations is the probate fees)

Tax Strategies

Here are some tax strategies to maximize your tax credit return.  For those of you that may be donating less than $200/year, try combing your totals with your spouse or common law partner.  Another option is to carry forward your donations for up to five years (remember the key is to get those donations over the $200 mark for the year of claim to maximize those credits)

For those of you who are donating higher amounts, you may want to donate stocks or mutual funds instead of cash.  Donating stocks to charity will result in 0% capital gains and a tax credit for the market value. If you have a large capital gain in your portfolio and you want to sell, you can donate a portion of your gain to charity to reduce your capital gains tax to zero.   (There is a formula to calculate the exact amounts required, which is a little over the scope of this material, but again, if anyone is interested, send me an email and I would be more then happy to explain it in full detail)

In conclusion, the need for donations is always present, but especially in the winter months.  So why not make a difference in your community, feel great about helping out and save your self some tax money in the process.  Find a charity that you feel deserves your donation, and help them help others this holiday season.

Adam Myers

Financial Advisor, Ottawa ON

Professionals for Independent Planning

Long-term care insurance addresses the health, personal and financial needs of those who can no longer take care of themselves.

We’re living longer in today’s society then ever before, and all data tells us this trend will only continue to increase.  But as we age, many of us will confront illnesses such as Alzheimer’s, diabetes, stroke, heart disease and cancer. And what happens when we can no longer care for ourselves or our parents or other loved ones?  This is when long-term care insurance comes in.

Do you know someone already in private or public care?  Almost half of Canadian workers have eldercare responsibilities that impact time and financial resources, even with government aid. So it’s no surprise that the financial implications of long term care need to be addressed. 

Long-term care insurance helps cover the costs of in-home care or a long-term care facility should you no longer be able to care for yourself. It can help you and your family members maintain your desired lifestyle, independence and financial security.

While there is a degree of public care available for long-term care, government programs are not all-inclusive and certainly not “top of the line” when compared to private facilities. Long-term care insurance helps to fill these gaps in care that government plans leave open.

Some experts recommend purchasing coverage between the ages of 50 and 55. Generally, the minimum coverage provides benefits to pay for health and personal care services for those living in a long-term care facility. Additional coverage can also be obtained to cover in-home care. This would include help with everyday tasks such as cooking, cleaning and shopping.

With long term care you have the option of selecting benefits that cover you for one year, two years, five years or for your entire life.

Not only can long-term care insurance help you in dealing with the financial responsibility of providing ongoing long-term care, it can also help to ease the financial burden that may fall upon your loved ones - while preserving your savings and investments you worked so hard to accumulate.

Living in a long-term care facility (depending on the type of room, care services, facilities etc. and the government funding available in your province) can cost anywhere from $800 - $5,000 a month.  Homemaking and personal care can cost about $15 - $25 an hour.  Nursing home care can cost anywhere from $25-$65 an hour.  These costs are just general estimates and can range much higher if you choose upper levels of standards of care.

As far as costs are concerned, you can get basic plans for as little as $1 dollar a day, or more complex plans for about $5 dollars a day.  These numbers vary based on age and health.

We like to think of long term care as a tool to help preserve your life savings and RRSP’s at the time you need them most.  At $5000 dollars a month, savings can’t last long, and with many boomers looking to pass on inheritances to their children or grandchildren, this may be the perfect tool to ensure those wishes are granted.  So prepare today for a healthy, sustainable future with long term care insurance.  I would be happy to help explain this matter in full detail.  Feel free to contact me at:

Adam Myers

Financial Advisor

Professionals for Independent Planning

Email: adam@pfip.ca

Phone: 613-224-5511   X108

www.pfip.ca

 Adam Myers

Financial Advisor

As millions of Canadians hit the roads and book flights to criss-cross the globe for the holidays, an alarming percentage don’t fully understand key aspects of their insurance coverage or their need for out of province travel insurance. An accident can happen to anyone, even during a short business or recreational trip. Some health services are not insured by the province and you may have to pay the full costs for those services.  Many health services outside Canada cost much more than coverage by OHIP, and you are responsible for any difference in cost.  Let’s take a closer look….

OHIP will pay very limited amounts for physician services and hospital facility services if certain conditions are met. OHIP will only pay for insured, emergency out-of-country health services that are rendered to an insured person.  To qualify as an ‘emergency’ there are a number of criteria that must be satisfied.  The treatment must be medically necessary, and the treatment must be performed at a licensed hospital or licensed health facility, and the treatment must be rendered in relation to an illness, disease, condition or injury that is acute and unexpected, and arose outside of Canada, and requires immediate treatment.  A lot of “ands” I know, let’s take a look at what they won’t cover.

OHIP does not cover treatment that is not medically necessary, health services that are completed at a facility that is not a licensed hospital, treatment that is generally accepted as being experimental, treatment rendered for an illness or injury that arose inside Canada or ambulance services/transportation costs.  That last one can be a real burden.

Back in Canada, your provincial health insurance plan looks after your hospital and medical expenses and you rarely see a bill. But, once you travel outside of Canada or even outside of your own province, coverage under your provincial plan is limited, and only some of these expenses may be covered. The good news is that the difference can be made up by travel health insurance.

Travel health insurance is designed to pay for certain unexpected costs that may arise when

you are traveling. These can include emergency hospital/medical costs, trip cancellation, lost baggage and accidental death insurance. But, not all plans cover all of these components.

For instance, the trip cancellation insurance you buy when you book your holiday may not include health insurance. Be sure you understand what protection you are buying, and whether it meets your specific needs.

When purchasing travel insurance there are a few key questions you should ask, such as:

• Will your policy cover you for the entire length of your trip from Canada or your home province? If you decide to extend the length of your stay, can your policy be extended? How would this be done?
• What types of restrictions and limitations does this policy have?
• Does your policy deny any benefits if your medical emergency arises because of a pre-existing condition?
• Are there exclusions about specific activities/events i.e., sports, war, suicide, substance abuse?
• What maximums, deductibles and/or co-insurance would apply in the event of a claim?
• Does your policy pay for emergency return home?
• If you are traveling with family or friends, does each individual need a separate policy, or can one policy cover everyone?
• Are there certain countries that are not covered under the policy?
• Does your policy provide for trip cancellation, baggage loss and other damages?
• If you have out-of-country coverage through your group plan at work, are there any restrictions? Does it cover you for business travel only?

So where can you find travel insurance? Well there are a number of places you can go, such as you credit card company or through you group health insurance.  But it is generally recommended that you talk to your insurance advisor or broker to guarantee you get proper coverage customized to cover all of your travel insurance needs.  So whether it is a day out of the province or a year out of country, make sure you’re protected with travel insurance.

Adam Myers

Financial Advisor

Professionals for Independent Planning

Email: adam@pfip.ca

Phone: 613-224-5511   X108

www.pfip.ca

News from The Globe and Mail

Five reasons you should be nice to your insurance agent

By TIM CESTNICK

00:00 EDT Thursday, July 23, 2009 Page B10

Special to The Globe and Mail

A good friend of mine, Greg, works in a high-stress job on Bay Street. In the summers, he and his wife like to get out of the city to go camping in their motorhome. He finds it very relaxing, but this summer they have found their peace and quiet disturbed by well-meaning, but unwelcome, visits from other campers. Greg has devised a plan that pretty much guarantees they will have privacy. Now, whenever they set up camp, Greg places a sign on the door of their RV that reads: “Insurance agent. Ask about our new term life package.”

That does it - every time.

I know that insurance advisers get a bad rap sometimes. But let me say out of the gate that there are some characteristics of life insurance that make it useful as a tax and estate planning tool, namely: Benefits are paid out completely tax free when the insured individual dies.

Further, it’s possible to accumulate investments inside an insurance policy on a tax-sheltered basis - not quite like your registered retirement savings plan, but similar.

Next, if a corporation is the beneficiary of a policy on a life, a portion (often 100 per cent) of the benefits paid out upon the death of the insured individual will be credited to the company’s “capital dividend account” (CDA). Amounts in the CDA can be paid out as tax-free dividends to shareholders of the company. It’s primarily this combination of characteristics that creates many uses for insurance.

The key to buying insurance prudently is understanding three things very clearly: First, what is the purpose of the life insurance you are buying? Second, how much is the right amount of coverage? Finally, what is the right type of life insurance to buy? If you can wrap your mind around the answers to these three questions, you should have confidence in the investment you’ve made in insurance.

Let’s address the first question. There are many reasons why you might consider buying life insurance. These will generally fall into one of five categories:

Provide for Others

If you have dependants who will otherwise face hardship financially if you pass away, it will be important to buy insurance on your life to provide the capital necessary to generate an income for those dependants. In addition, you might want to leave money to others who have needs, such as your favourite charities.

Cover Final Disbursements

When you pass away, there will be costs and debts to pay. Who is going to pay for these? Think about the following types of disbursements: Funeral costs, legal and accounting fees, income taxes, executor fees and probate fees, as well as outstanding mortgages, credit card balances, lines of credit and other loans. You could leave your spouse or others in a bind if you saddle them with the requirement to pay for these things out of their own pockets.

Provide Equitable

or Larger Bequests

If it’s your desire to treat your kids equally, life insurance can make that possible. For example, suppose you leave your cottage to your daughter who uses it, and your investments of equal value to your son. Suppose also that the cottage gives rise to a tax bill on your death. Where will the cash come from to pay the taxes? Potentially from your son’s share of the estate. This could leave him shortchanged. Life insurance can provide the cash to equalize the estate.

Alternatively, perhaps you just want to leave your kids more than you could otherwise without insurance.

Shelter Income From Tax

As I mentioned, life insurance policies can provide tax-sheltered growth. You won’t be taxed annually on income earned inside the policy. Now, there are relatively low provincial income taxes paid by the insurance company on investment income inside the policy, but you won’t see that tax - or feel it much.

You can expect slightly lower returns inside an insurance policy because of this tax, fees and administrative costs, but historically the returns in some of the whole life insurance policies have been quite stable - and tax sheltered. Speak to an insurance adviser about the performance of participating whole life policies.

Maintain Business Health

As a business owner, consider insurance to provide cash for a surviving partner to buy out the estate of a deceased partner, maintain stability in the business if a key person dies, pay off debts of the business if a key person dies, or repay the business for any significant costs incurred (such as pension contributions).

© The Globe and Mail

As the markets continue to climb in recent months, the process of portfolio rebalancing is becoming a hot topic among investors and advisors.  Rebalancing is primarily about risk control, or making sure your portfolio isn’t dependent on the success or failure of one investment, asset class or style.  Rebalancing is the process of restoring your portfolio to its original asset mix or objective. 

You don’t have to do anything to your portfolio for it to change. That’s because some of your investments will go up as other investments go down.  This is the market as we know it. Those investments that have done well will begin to take up more of your portfolio than those that haven’t done so well. And you don’t have to do a thing for that to happen.

But every so often, you need to readjust your portfolio to restore its original balance or mix.  If your investment goals haven’t changed, your portfolio’s mix shouldn’t either. But thanks to market forces it almost certainly will. Hence the need for rebalancing.

And this doesn’t have to feel like pulling teeth.  Follow these steps to an easy rebalance:

Step 1: Figure out your target portfolio mix

This was the blend of asset classes and investment styles that were going to allow you to reach your investment goal.

Step 2: Compare your target mix to your current mix

Compare you cash and bond holdings to your equities.  Evaluate if you’re still on course, comparing risk and returns, as well as types of income for tax purposes. 

Step 3: Determine where your investments are out of line with your original target

Begin by seeing how your cash and bond positions have shifted compared to your equities. Very often, your positions in these areas will shrink relative to equities because, in general, equities as a group outperform cash and bonds.

Then, consider your sector exposure. Although you may not have built your portfolio with a specific sector in mind, you want to be sure that you aren’t overexposed to one industry.

Finally, look at your investments, one by one. Which ones have performed the best? These investments may now be taking up more of your portfolio than you originally intended.   

 Step 4: Readjust

Remembering your target mix, line up your risk and return blend to match your goals and objectives.  Sitting down with your financial advisor can help ensure the proper allocation of assets.

Effective rebalancing doesn’t mean keeping daily tabs on your portfolio. Instead, follow these guidelines:

Guideline 1: Rebalance every year or so. We’re not saying you should only look at your portfolio once a year. But resist the urge to tinker when you do. You’ll save yourself unnecessary labour and possible administrative costs.

Guideline 2: If you rebalance just one thing, make it the equity/cash split. Your cash and bond stakes are vital to keeping your portfolio in check. So if you don’t want to rebalance your entire portfolio on a regular basis, at least restore your cash and bond positions to their original levels yearly.

Guideline 3: Be a tax tactician. Keeping your portfolio in line isn’t satisfying if it means you also wind up with poor after-tax returns.  Try rebalancing less frequently, to avoid gains taxes.  Use new money to top up the holdings that are down, rather then selling the ones that are up.  And if you have the choice, switch securities in the same fund family, rather then selling to avoid capital gains taxes and administrative fees.

Rebalancing can become difficult and ineffective without proper knowledge of the markets, so make sure you understand what you’re doing before making any rash decisions.  A financial planner can help you make the right choices that will help you reach your goals quicker and more efficiently.

Adam Myers
Financial Advisor, Ottawa
PFIP-IPG
Email: adam@pfip.ca
Phone: 613-224-5511   X108
 
www.pfip.ca
www.joinipg.com

Registered Education Savings Plans

A Registered Education Savings Plan (RESP) is a tax efficient savings vehicle to help you save for your child’s continuing education costs. The current estimate for one year of post secondary education is $4000 per year, not including rent and daily living (http://www.statcan.gc.ca/daily-quotidien/060426/dq060426c-eng.htm), and most programs are 3 - 4 years long.  As costs increase and inflation rises these estimates can only climb in years to come.  That’s why it may be a good time to consider opening an RESP for your children.

Starting an RESP today allows you to start saving for a child’s future post-secondary education immediately.  If you’re wondering how much to save and when to start, the answer is: save as much as you can afford and start today. By starting early, tax-sheltered earnings on your savings have the potential to grow surprisingly quick.

In addition, the Government of Canada will help you with saving incentives that are only available if you have an RESP, including the Canada Education Savings Grant and the Canada Learning Bond.  That means free money towards your child’s education savings.

All your child needs is a valid social insurance number and some one to contribute money.  That’s it!  You can open an RESP through your financial advisor or through your local bank.  Anyone can open an RESP and anyone can contribute to it. This includes parents, grandparents, aunts, uncles, and friends.  This can be a great idea for gifts that actually help a child’s future.

The total RESP lifetime contribution limit for each RESP beneficiary is $50,000.  The maximum annual RESP contribution that will qualify for the 20% grant is $2,500.  These numbers are maximums and people should remember that with tax sheltered growth, even a little contribution goes a long way.  So even a $100.00 deposit gets a $20.00 grant from the government.  And these funds are invested in stocks, mutual funds or cash products of your choice, which could mean quick, tax efficient growth.

Contributions can be made up to the year your child turns 17 to receive the grant, with some restrictions, and the plan must be collapsed after its 35^th year.  Although you can still contribute and grow tax free until the 35^th year, you can only receive grants till the 17^th birthday.

Withdrawals are taxed in the hands of the child with drawing the money for education purposes, which means they are still in school and probably in the lowest possible tax bracket.  The money doesn’t necessarily have to be used for tuition, as it can be used for rent, bills, textbooks or any other issue that may arise.    But what if your child decides against post-secondary education?

You have all kinds of options available should your original beneficiary decide not to pursue a post-secondary education. You can:

1. Decide to select another beneficiary if it’s permitted by your plan.
2. Make a tax-free capital withdrawal of all the money you contributed to the plan. However you will be required to pay back the government grants.
3. Withdraw the earnings as cash (subject to income tax in the year it is withdrawn, along with a 20% penalty).
4. Transfer up to $50,000 of the earnings in the RESP to your personal or spousal RRSP, provided you have unused contribution room. With this option you will avoid paying income tax on the income withdrawn.
5. Donate the earnings from the plan to a qualifying educational institution.

There are two types of plans available: the family plan and the individual plan.  Anyone can open an Individual RESP and anyone can contribute to it. This includes parents, grandparents, aunts, uncles, and friends, but the individual plan can have only one beneficiary.  For Family RESP’s, the contributor must be related by blood or adoption to the beneficiaries, but can have multiple beneficiaries. 

There is so much to cover with RESP’s and there can be some complicated issues that arise as well, so careful planning by a professional advisor should be involved.  If you have any questions or require more information feel free to contact me any time at:

Adam Myers

Independent Planning Group

202-223 Colonnade Road South

Ottawa Ontario, K2E 7K3

Phone: (613) 224-5511 x 108

Email: adam@pfip.ca

Mortgage Insurance VS Life Insurance

Consider your options…

When buying a home or renewing a mortgage, many people think they are obligated to sign up for their banks mortgage life insurance. Don’t rush into buying your bank’s insurance policy until you’ve looked at all the possibilities. You could end up saving money and get added life insurance coverage at the same time by considering a life insurance policy instead.

What is mortgage insurance?
Mortgage life insurance or creditor insurance is offered by most banks and lending institutions. It is a life insurance policy that pays the balance of your mortgage to the lending institution if a person on the mortgage passes away.

How does life insurance cover your mortgage?

Life insurance covers you the same way mortgage insurance covers you.  If a life insured passes away, you use the death benefit to pay down the mortgage.  There are several benefits to life insurance for your mortgage, why don’t we compare……

Extra coverage with life insurance
Life insurance policies give you added coverage and flexibility over a mortgage life insurance policy;

• One of the major disadvantages of insurance purchased through the bank is the ownership of the policy. The bank owns “your” policy and has total control over it. The bank also happens to be the beneficiary of your life insurance policy. That means you have no say in who gets the death benefit or what the death benefit is used for. When you die the bank is going to use the proceeds to pay off your mortgage. However with life insurance your family receives the payout from your life policy directly. It may be more advantageous for your surviving spouse or children to use the proceeds to invest and simply continue to pay the monthly mortgage payments. (This would be most appropriate if the current mortgage interest rate is much lower than current investment rates of return. They could simply invest the proceeds and use the investment income to the mortgage payments on a monthly basis.)
• Mortgage insurance policies only cover you for the amount of your mortgage you owe to the bank. As you pay down your mortgage, your coverage amount decreases with it. This is called a reducing balance. With a life insurance policy, you have a constant level of coverage for the whole term and are getting better value for your monthly payments.
• With mortgage life insurance, you have to reapply any time you switch lending institutions. But with life insurance, unless you want to increase your coverage or terminate your plan, your policy is stays in force with no medical questions asked in the future years (when some are unable to be covered due to health issues).

Shop, compare and save
Depending on circumstances such as age and health, the premiums on mortgage life insurance can be much higher than what you would pay for a life insurance policy. Compare the cost of a life insurance policy to a mortgage insurance policy. Chances are you’ll find a life insurance policy will have lower yearly premiums and offer more coverage and flexibility than a mortgage insurance policy.

*All amounts shown are based on a fixed annual premium rate. Does not include

Provincial Sales Tax - Ontario (8%) and Quebec (9%). * The Lenders’ group life

mortgage insurance premium shown is based on the average rate quoted in a survey of

Scotiabank, Bank of Montreal, TD Canada Trust, Royal Bank of Canada, and CIBC conducted

December 30th, 2008 by Empire Life.

While getting mortgage insurance through your lender is convenient, a life insurance policy might be the way to go if you’re looking to save money.  I believe it’s an easy choice, so whether you’re looking to save premium dollars or cover more than just your mortgage, a life insurance policy may be the right choice for you.  Dare to compare? I can get you an instant quote today.

Adam Myers

Independent Planning Group

202-223 Colonnade Road South

Ottawa Ontario, K2E 7K3

Phone: (613) 224-5511 x 108

Email: adam@pfip.ca