Small Business Owners: Are you Protected with Business Overhead Expense (BOE) Insurance?

Sometimes life happens. As a small business owner, you have important protection in place including life insurance and personal disability to protect you and your family. However, during a period of personal disability, how would your business stay afloat? Would you have to make the difficult decision between using your personal disability benefit towards paying for your business lease or towards your personal mortgage? Don’t put yourself in that situation. Consider Business Overhead Expense to rest assured you, your family, and your business are protected.

Whether you are a dentist, an engineer, an accountant, or have an active storefront, your business has payroll, rent, and other monthly expenses that demand your attention regardless of your personal health. Investopedia explains in this article that Business Overhead Expense (BOE) can help cover your business expenses for a short time if you become disabled. This can be invaluable if you are a keyperson to your company’s monthly profits. Usually the duration of coverage for monthly expenses is for one or two years and will kick in after 30 or 90 days of disability. From the tax side of things, the monthly benefit is taxable, but all premiums paid towards a BOE policy are fortunately tax deductible.

Photo Credit: Insurance Journal

Neil Paton, President of Edge Benefits cautions in this article, “Small business owners walk a thin tightrope when they make the smart purchase of personal disability for themselves but rebuff guidance to also buy business overhead expense disability insurance”. Primarily for companies with only up to five employees, this coverage provides enough cash flow to stay afloat until the keyperson can get back on their feet. Mark Hardy further advises, “It needs to be understood that if they become disabled, their expenses don’t stop – the income supporting them does”.

While personal disability is an incredibly important piece of coverage for any business owner, BOE insurance may be something you should consider if you meet any of the following criteria:

1)      My business has monthly expenses like rent or payroll that I rely on my monthly profits to afford.

2)      I have a small business with no more than five employees.

3)      My business’ monthly profits would be affected significantly by my absence.

Lifeplan Financial is a locally owned Managing General Agency (MGA) in Victoria and we work hard to give advisors the tools they need to succeed across all of British Columbia.  We give our advisors the independence they need with the support they deserve. “Because Your Success… is Our Success.”

Stay-At-Home-Parents: 3 Reasons to Consider Life Insurance

You’re at home, the baby is crying, Julie wants to go next door to her friend’s house now, and Johnny needs to be picked up from school in thirty minutes. It has its joys, but sometimes being a stay-at-home-parent can be trying. Your partner is appreciative of all you do with the kids though, and so when you are both reviewing your finances, you start to consider life insurance. Advocis and financial expert Nancy share how important life insurance can be for a stay-at-home-parent.

Advocis, The Financial Advisors Association of Canada, maintains in this article that any life transition is an important time to contact an advisor for financial advice. A number of financial implications can arise in the case of stay-at-home parents. What are the tax considerations for a single income? How does this affect RRSP contribution room? A financial advisor can help answer any of these questions. Without group coverage, the need for life insurance on a stay-at-home parent becomes a priority. Take time to assess the value of what the stay-at-home mom or dad does on a daily basis. Alternative daycare, housekeeping, and peace of mind costs can be very expensive. Take the time to protect your family for every possibility.

Photo Credit: Tomorrowmakers

Nancy Anderson, expert in personal finance at Forbes, has first-hand experience in deciding to insure herself as a stay-at-home parent. She gives several recommendations for effective ways of insuring your loved ones. Firstly, stay-at-home parents provide tangible economic benefit to a family. The costs to replace what they do could be high. Nancy also suggests supplementing term insurance with permanent insurance. If the working partner passes away at any point, this can provide additional income stream in the future. For disability insurance, check that the working partner has selected the “own occupation” definition on their disability policy. Where some disability products will only pay if the client is unable to do any job, "own occupation" will ensure a stream of income if they are unable to do their own job.

There are many considerations and strategies to incorporate when insuring a Stay-at-Home Parent, but these three are crucial to address.

1. Life Transitions: Making the switch to being a stay-at-home parent is good time to meet with a financial advisor to discuss the financial implications, including life insurance.

2. Economic Benefit: Stay-at-home parents provide tangible economic benefit. Consider having to replace with daycare, housekeeping etc. That can add up!

3. Permanent Insurance: Don’t forget that this can provide an additional income stream in the future if anything happens to the working spouse at any time.

 Regardless of how you and your advisor decide to go about insuring a stay-at-home parent, just remember that any coverage is important and can provide important protection for your family.

Lifeplan Financial is a locally owned Managing General Agency (MGA) in Victoria and we work hard to give advisors the tools they need to succeed across all of British Columbia.  We give our advisors the independence they need with the support they deserve. “Because Your Success… is Our Success.”

Mutual Funds Or Segregated Funds: Which is Best for You?

If you’re meeting with an advisor for the first time, a lot of strange vocabulary can be thrown at you. Government Bonds, ETFs, Segregated Funds, GICs, and Mutual Funds are just the beginning. It can be overwhelming! Let's break down two of these commonly used investment vehicles to better understand which might meet your financial needs best; Segregated Funds or Mutual Funds.

Advocis, the Financial Advisors Association of Canada, explains very clearly in their Financial Topics the difference between Segregated Funds and Mutual Funds. In its most basic form, Segregated Funds are an investment with an added insurance policy protecting it. These insured guarantees are generally between 75% to 100% protection of the principal on both death and maturity. If you invest $150,000 into a given Segregated Fund and the market performs well, you keep the principal and the market gains. If the market tanks and the value dips below your initial investment of $150,000, your principal is still protected based on the guarantees you choose. This feature protects your investment from downhill markets and provides a safety net for your money. Historically, these investments have been much more conservative than the stock market, but they have since branched out to include a more varied series of managed funds to mirror the wide array of different mutual funds. So which is best for you?

PHOTO CREDIT: nettyandsamestes

Each Segregated Fund and Mutual Fund may be better than each other in different circumstances, so it will always depend on personal factors and investment styles. Empire Life provides a very clear breakdown of the key differences between the two products. While segregated funds offer increased protection, they can come at a higher management cost depending on how much protection or which features you choose. Mutual funds, on the other hand, do not provide such guarantees but can be cheaper to manage. Empire Life suggests that if you're nearing retirement or have a low-risk tolerance and appreciate the guarantees, Segregated Funds might be best for you. If you want a wider array of fund investment choices and don’t need the guarantees, Mutual Funds may be better for you. As always, each of these have different tax and estate planning implications, so it is always recommended to contact an advisor to get the best advice personally tailored for your financial future.

Now that you know a little more about Segregated Funds and Mutual Funds, contact an advisor today to speak with them to receive the advice you need for your future to invest with a personal plan.

Lifeplan Financial is a locally owned Managing General Agency (MGA) in Victoria and we work hard to give advisors the tools they need to succeed across all of British Columbia.  We give our advisors the independence they need with the support they deserve. “Because Your Success… is Our Success.”

Permanent Insurance: 3 Reasons to Buy Today Before Tax Changes Effective January 1, 2017.

Now is the time to invest in permanent insurance. Since 1982, permanent insurance policies have been an incredibly effective tax-sheltering vehicle for investment growth in the form of cash values. Effective January 1, 2017 however, the CRA is implementing new changes that will limit the effectiveness of using permanent insurance in this way.

 

Current Canadian Rules

John McKay, Executive Vice-President and Actuary at PPI Solutions breaks down what the current CRA rules are here. He agrees permanent insurance policies are effective due to the cash values built inside that grow tax-free. This, in turn, makes insurance premiums cheaper and more affordable. If, at any point, the values inside grow to exceed the tax sheltered limits, insurance companies will automatically modify the policy to retain the tax-exempt status by either returning cash values to you, or by increasing the death benefit; whichever option was selected at application.

These current rules will generally be carried forward (or ‘grandfathered’) if the policy is applied for, and issued, before January 1, 2017.

PHOTO CREDIT: Forbes

 

New Canadian Rules

Canada’s Department of Finance and CRA are updating these rules on January 1, 2017 to reflect current mortality rates, to limit the use of permanent insurance products as investments, and to standardize tax rules across all insurance carriers. John McKay goes on to explain that the CRA changes will increase the tax-sheltering limit within the first 10 years, but will decrease it in the long-term. SunLife Insurance adds, in this article, that Universal Life Level Cost of Insurance (LCOI) premiums will be most negatively affected with premium increases. As the Net Cost of Pure Insurance (NCPI) decreases along with mortality rates after the changes, the Adjusted Cost Basis (ACB) will increase and drive up premiums. Policy premium prepayments will also be extended from a minimum of 1 year to 8 years to prevent policyholders from dumping money in the policy at the beginning for a short period of time to take advantage of the tax-free growth.

The coming tax changes effective January 1, 2017 will, for the most part, negatively impact the use of permanent insurance products as tax-free investment vehicles.

The following are three reasons to buy today before these changes take place.

1. More Tax-Free Growth – If bought today, permanent insurance products will have more room for tax-free growth for optimal estate planning.

2. Lower Premiums – Minimum premiums will increase with the new rules; especially for Universal Life LCOI policies.

3. Deposit Freedom – There will be less freedom to deposit lump sums of money to pay for premiums as a new 8-year minimums are enforced with the new changes.  

If bought today, nearly every policy will be ‘grandfathered’ with current CRA guidelines. Contact an advisor today to discuss your specific estate planning needs and determine if incorporating a permanent insurance product could help you save for your future.

Resourceful Parents: 4 Keys to Raising Financially Savvy Kids

We want what’s best for our children, but when it comes to finances, how can we help them? Some say you should give them an allowance, but others say not always. How much financial information should you share with them?  Should you tell them how much you make?

These questions and more are answered by expert Susan Goldberg at Advisor.ca in her article which you can read here. The biggest point Sarah hammers home is that children are always watching. Every time you swipe your credit card or every time you donate money, your children are always observing and learning about how to manage money. Talk about money with your children! Less than a third of parents actually talk to their children about money, and this forces children to form their own opinions without the full picture.  Don’t just talk to them, but involve them as well. If you are donating money, help your children choose a charity. If you are buying something new for the family, let them help you find the best deal.

PHOTO CREDIT: FRAGASSON financial advisors
 

In our world today, it is hard for children to understand the concept of money when they never see it coming in and only see their parents paying with a plastic credit card. Reader’s Digest suggests that you take the time to go to the bank with your children to show them that you must put money in at the bank and not just take money out. Among other suggestions in this article, one of the other most important things you can do is to use the right words when talking about money. Eliminate the phrase, “We can’t afford that” from your vocabulary. It implies a lack of choice, whereas the phrase, “I choose not to buy that so that we can save for a new television next month”, helps teach children the importance of prioritizing our purchases and saving for the future.

While there are many things you can teach your children about finances, the most lasting lessons will be taught by your example. Incorporate these four practices into your life and your children will be prepared for their financial future.

1)      Keep to Your Values – Ensure that the things you are purchasing while your children are watching are in line with your values.

2)      Talk – Take the time to talk to your children about their finances as well as yours, when appropriate.

3)      Visit Banks – Show your children that you put money into banks, not just take it out.

4)      Make Choices – Use words that suggest you are choosing not to purchase something rather than saying you cannot afford something.

You’re probably already doing some of these key things, but with increased awareness they can become more powerful teaching tools for you as a parent. There are many things to consider when raising children in our busy, hectic world, but by being a good example of responsible finances, your children will be more prepared for their futures.

Lifeplan Financial is a locally owned Managing General Agency (MGA) in Victoria and we work hard to give advisors the tools they need to succeed across all of British Columbia.  We give our advisors the independence they need with the support they deserve. “Because Your Success… is Our Success.”