Many of our clients are unaware that we are able to look after their life insurance needs, just as we deal with their investment transactions. But who better than us to act as a starting point for your protection requirements? We are already familiar with your financial and personal circumstances, and are well-positioned to extend that knowledge to insurance recommendations.
Insurance today can work well in conjunction with traditional investment programs to take advantage of certain features of insurance and tax rules. The range of innovative financial solutions which insurance can provide can be surprising. Whether it makes sense for you depends on your personal circumstances. It will take an analysis of your situation by an insurance professional working in conjunction with me, your investment advisor.
Generally speaking, life insurance policies provide protection for the dependents of the insured, so that the income needs of the dependents can be covered for a reasonable period if the insured should die unexpectedly. There are many ways this coverage can be obtained, including:
• Term Insurance — This is the logical first choice for many young people, for example: Relatively inexpensive, especially for the young, it is easy to tailor a term insurance strategy for specific protection for a given time period.
• Whole Life — A permanent type of coverage, whole life can assist in building assets while continuing to provide life protection. Whole life can also be viewed as an excellent fixed income alternative due to its low volatility and consistent returns.
• Universal Life — Another form of permanent coverage, Universal Life insurance combines a flexible with an investment component.
Insurance agents primary task today is to provide for the possibility that income will be interrupted by illness or accident.
• Disability Insurance — The insured does not die, but can no longer
work at his or her usual profession. Disability coverage provides income support to meet ongoing obligations. Disability insurance in some form may be offered by employers as part of their benefits packages. However, superior individual plans are available.
• Critical Illness Insurance — Critical illness insurance pays out a lump sum benefit upon being diagnosed with certain serious illnesses such as cancer. An extra-cost feature that may be considered is a “return of premium” where monies paid into a policy can be returned if the insured remains healthy over the life of the policy.
Estate and Tax Planning
Potential tax liabilities are often a catalyst to buying insurance. Here are some typical situations where insurance may be of assistance:
• Providing a substantial bequest to charity. A life insurance policy with the charity named as beneficiary may be a simple way of achieving your philanthropic goal without impacting significantly on bequests to others.
• Offsetting tax on Registered. Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs). An insurance policy to cover potential tax liabilities may maximize wealth transfer to beneficiaries other than your spouse.
• Offsetting tax on illiquid assets. If you own a cottage or other vacation property that you wish to see
remain in your family, an insurance policy to cover tax and other costs upon your death may make sense. Similarly, a private corporation might use insurance to ensure funds are available for tax demands that may arise on the death of the owner.
Contact us today at 204-259-2859
For those who are not yet aware of the new limits and tax changes for 2019, here’s a short summary below for your reference.
- Maximum RRSP (Registered Retirement Savings Plan) Contribution Limit – $26,500 (2019), $26,230 (2018) – Deadline March 1st for the 2018 tax year
- TFSA (Tax Free Savings Account) Contribution Limit – $6000 (2019) Total Lifetime – $63,500
- YMPE (Yearly Maximum Pensionable Earnings) – $57,400
- EI (Employment Insurance) Limit – $53,100 (EI Premiums have gone down by approximately 2.40% from 2018)
- LCGE (Lifetime Capital Gains Exemption) for QSBC (Qualified Small Business Corporation) – $866,912
- OAS (Old Age Security) Claw Back Thresholds – $77,580 to $125,696
- CPP (Canadian Pension Plan) Premiums have gone up – 5.10% for employees and 10.20% for self-employed (Will reach 5.95% / 11.90% in 2023) – Increase will go towards future CPP enhancements
Small Business Corporate Changes:
- Small Business Income Limit Increase – $500,000 Manitoba has increased the limit from $450,000
- Small Business Tax Rate – 9% – Federal rate reduction on the first $500,000 of active business income
- Passive Income Limit of $50,000 – This now comes into effect, that every dollar of passive income earned over $50,000 corporately will reduce the access to the SBL by $5.
This is a simplified list of some of the tax changes for 2019, there are other changes to tax limits and credits amounts. Now is a great time to look at sheltering additional income to try to work around passive income changes.
Written by Adam Buss, CFP, RRC, FCSI, CLU – Wealth & Estate Planning Specialist