Business Loan Protection

Business Loan Protection

Protect the business you’ve built and the people you love

Are you a business owner with a business loan? Have you considered what will happen if you pass away earlier than expected? What if you or a key employee experience a failure of health? We never enjoy thinking about these scenarios, but the risk is real and it could create a major problem for your business and/or loved ones if you do not have adequate protection.

It can be difficult to obtain adequate debt financing for a small business. Creditors will often require you (the business owner) to personally guarantee a loan. Your death or the death of another key executive/employee may cause creditors to demand immediate repayment of outstanding business debts.

This can place a significant burden on your business and force the liquidation of key business assets at fire sale prices at a time when business results may already be severely impacted by the death. In addition, if you have personally guaranteed the debts incurred by your business, you or your estate may be liable for any outstanding debts that your business is unable to pay.

If effective planning hasn’t taken place, your business may not survive your death or the death of another key executive/employee. A solution is for your business to purchase an insurance policy on your life and possibly other key executives/employees. Proceeds from the life insurance policy are tax free and may be used to pay down the outstanding business debts.

Creditors occasionally require small business’ to purchase collateral life insurance to protect the creditor’s interests, particularly if the death of the business’s owner could affect the value of business assets used to secure the debt. Even if a collateral assignment is not required, the business owner may still want to ensure that business debts will be fully repaid if he/she passes away, to minimize financial risks for heirs and to permit the business to continue free of debt.

Generally, life insurance premiums paid for business loan protection are not deductible for tax purposes. However, if a life insurance policy has been collaterally assigned to a restricted financial institution, a portion of the premiums may be deductible.

A life insurance policy purchased for business loan protection can help a business negotiate loans and repay business debts with tax-free life insurance proceeds when a business owner or another key executive dies. It can also prevent business owners or their estate from becoming personally liable for the business debts if the owner dies.

As a small business owner, you are the most important asset. Should something happen to you, there are a lot of people who could be impacted. The right insurance coverage can offer the comprehensive protection you need by providing funds to cover business overhead, lost income and medical expenses.

If you have any questions or would like to chat about protecting your business; I would love to sit down with you to uncover your needs, determine how much is enough, and design an insurance plan tailored to your specific business needs. Protecting yourself and your business with insurance does not demonstrate a lack of faith but rather prudent planning.

Blessings,
Ryan Van Niejenhuis
Credential Financial Strategies Inc.

Credential Financial Strategies Inc. offers financial planning, life insurance and investments to members of credit unions and their communities. The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This article is provided as a general source of information and should not be considered personal advice. Please speak to your Credential Financial Strategies Representative or personal financial representative before making any financial planning decision or implementing any strategy. Your insurance contract will provide details of the coverage available under the plan you choose. Restrictions may apply.

Life Insurance & Diabetes

Life Insurance & Diabetes

This article was written by one of our insurance partners, PolicyMe and is used with permission.

Learn More About PolicyMe

Are you a person with diabetes who’s looking for life insurance? Let’s talk about what you can expect when applying for it. 

Many people with diabetes think that life insurance is out of reach because their medical condition will make life insurance too expensive. 

But the good news is that this usually isn’t the case. If you have diabetes, there are lots of ways to get affordable life insurance. Seriously, these opportunities exist. You just need to know where to look—and what life insurance carriers are looking for. 

Regardless of the type of diabetes you have, when you developed it, or how severe it is, you’ll almost always secure a better rate if you can show signs that your diabetes is being adequately treated and under control.

Why does diabetes matter to life insurance companies?

A life insurance company cares about the chances that you’ll pass away during the term of your life insurance policy, especially the chances that you’ll die when you’re still young. After all, if you’re more likely to pass away while your policy is active, the insurance company is more likely to have to pay a claim. And that translates into higher costs.

But what exactly is the impact of diabetes on life expectancy? Does having diabetes make you a higher risk than someone without it?

How diabetes affects life expectancy

Diabetes is a chronic disease. And for most people with diabetes, the chances of dying at a younger age are higher. This is especially true when people develop complications of diabetes or when their diabetes isn’t well-controlled. After all, uncontrolled diabetes can lead to heart disease and other problems with circulation (vascular disease), which can cause a heart attack, a stroke, and occasionally, the loss of a limb. And for insurance companies, that spells R-I-S-K. 

The tables below show the risk levels for a person with diabetes (depending on their age and the number of years since diabetes was diagnosed). Note that the key word here is “average." Consistently normal blood sugars, lower than average blood pressure, lower than average cholesterol, and normal exercise can lead to better than average life expectancy for people with diabetes!

Type 1 Diabetes
Age Range <5 years since diagnosis 6 - 15 years since diagnosis 16 - 25 years since diagnosis >25 years since diagnosis
20 - 30 yrs old  Severe  Severe  Severe  Extremely severe
 30 - 40 yrs old  Moderate  Severe  Severe  Severe
 40 - 50 yrs old  Moderate  Moderate  Severe  Severe
 50 - 60 yrs old  Moderate  Moderate  Moderate  Severe
>60 yrs old Moderate Moderate Moderate Moderate
Type 2 Diabetes
Age Range <5 years since diagnosis 6 - 15 years since diagnosis 16 - 25 years since diagnosis >25 years since diagnosis
20 - 30 yrs old Severe Severe Severe Severe
30 - 40 yrs old Moderate Moderate Moderate Severe
40 - 50 yrs old Moderate Moderate Moderate Moderate
50 - 60 yrs old Mild Moderate Moderate Moderate
>60 yrs old None Mild Mild Moderate

The above is based on Welcome to Know the Risk, an educational website that contains valuable medical and non-medical underwriting information for insurance professionals.

According to the Public Health Agency of Canada, “People with diabetes are more likely to die prematurely than people without diabetes in every age group. In younger Canadians (aged 20 to 39 years), all-cause mortality rates were 4.2 to 5.8 times higher among individuals with diabetes. In the 40 to 74 year age group, all-cause mortality rates were two to three times higher among people with diabetes."

How do insurance companies price a policy for a diabetic?

If you apply for life insurance and have diabetes, your insurer will be particularly interested in these pieces of information:

Age at diagnosis

The younger you were when you were diagnosed with diabetes, the more likely it is that you’ll have to pay a higher price. As a rule of thumb, the longer you’ve had diabetes, the higher your rates will be.

The type of diabetes (type 1 or type 2)

People with type 2 diabetes usually have an easier chance of getting standard rates. That’s because type 2 diabetes is generally seen as more manageable than type 1. 

Complications

Underwriters will also be on the lookout for diabetes-related complications, such as diabetic retinopathy, diabetic neuropathy, and proteinuria. If you have these conditions, they can raise your rates. This is why it’s so important to make sure your diabetes is well-managed when you’re looking for life insurance.

Blood sugar control

During the underwriting process, your insurer will also want to better understand your blood sugar control. To help judge this, they’ll probably look at your A1C levels, which they’ll get from doing a blood test. An A1C level of 6.0–6.9 will be very favourable, a 7.0–7.9 may raise your rates somewhat but still keep them relatively affordable, and an 8.0 or above will give you a riskier classification and, therefore, higher premiums.

Other medical conditions 

Your life insurance premiums will increase if you have any other medical conditions, such as obesity, cardiovascular disease, or smoking history. After all, if you have multiple medical conditions, that raises the odds that your insurer will have to pay your death benefit sooner than expected. 

What can help your case

Your chances of getting a better rate will be higher if you can show any of these:

  • Consistently normal blood sugar
  • Lower than average blood pressure
  • Lower than average cholesterol
  • Normal exercise test 
  • What might hurt your case

Similarly, your chances of getting standard or ’healthy’ rates will drop if you have any of the following medical conditions. In some cases, they could even result in your life insurance application being declined:

  • Obesity
  • Poor blood sugar control
  • Hypertension
  • High blood lipids
  • Smoking
  • Diabetic complications (i.e., retinopathy, nephropathy)
  • Cardiovascular disease
  • Microalbuminuria
  • Proteinuria
     

Life insurance quotes for people with diabetes

There are many places to get life insurance quotes. Many companies even offer instant life insurance quotes online.

But remember, these quotes are only based on 3 factors – your smoking status, your age and your gender. They are not personalized to your specific health situation. You’ll need to undergo the life insurance underwriting to get your personalized price for life insurance.

For most diabetics, expect 1-2x your life insurance quotes.

The underwriting process

When it comes to clients with diabetes, we find that it usually takes a bit longer to get approved for life insurance. (Expect it to take 3–4 weeks.) 

Your insurer will probably have additional medical requirements for you after reviewing your application. This comes in the form of a quick nurse visit to assess your vitals and collect fluid samples. But don’t worry—your advisor can schedule this on your behalf when the request comes in. 

Your insurance company may also ask for a report from your doctor. 

The final word

Don’t get discouraged if you have diabetes and are looking for life insurance! There are plenty of ways for people with diabetes to get affordable coverage. You just need to know where to look and what life insurance carriers are looking for.

Plus, applying for life insurance is a no-cost, no-commitment process. You don’t have to make a final decision until you get your final price from your life insurance company. 

So when you’re shopping for life insurance, the most important thing is to never assume that you’re uninsurable. With the right treatment and the right carrier, getting affordable life insurance is well within your reach.

Will You Outlive Your Money?

Will You Outlive Your Money?

Are you one of the many concerned about outliving your retirement savings? Thanks to medical advancements we are living longer than our ancestors. Today’s retirees can expect to live approximately 25% longer on average in retirement than their grandparents, to age 87 for men and 88 for women. What’s more, about 20% of us will live to see our 95th birthday or more.

Most of us would like to live a long and healthy life, but that can create some financial challenges. You may find yourself in a situation where you do not have sufficient retirement savings to support your desired lifestyle. What can we do to remedy such a predicament? A well planned annuity strategy can ensure that even if you live to be over 100 you will have sufficient income to cover your retirement expenses.

Annuities may be the best retirement product that we rarely discuss. An annuity is basically a DIY (Do It Yourself) Pension. Not all of us are blessed by having an employer that provides a fully funded defined pension plan. For those of us without a fully funded pension, an annuity may be the perfect fit to cover our fixed expenses in retirement. Annuities are designed to be one part of a larger retirement income plan. Typically it is recommended to annuitize around 25% of your retirement savings; this gives you guaranteed income for life and the flexibility to spend your other money as you wish. If you like the guaranteed income that a pension can provide, then an annuity may be a perfect fit for you. Studies have shown that retirees with pensions and/or annuities are more content.

Graph comparing an annuity with a GIC (or Term Deposit)Many experts say the “sweet spot” for buying annuities is around age 70. One option is to gradually annuitize over three to five years. For example if you plan to annuitize $300,000, you might buy $100,000 of annuities at ages 70, 72 and 74. This timing works great for retirees, since they must convert their RRSPs into either RRIFs or annuities by the end of the year they turn 71. It is important to note that if you purchase annuities with registered funds (from an RRSP) the entire payout is taxable exactly the same as RRIF or RRSP withdrawals. With non-registered funds you can purchase a “prescribed annuity” which is subject to tax only on the payout’s interest portion (small percentage).

In the graph above I have compared an annuity with a GIC (or Term Deposit). As you can see, the annuity will continue to pay the same amount as long as you live, but the GIC option will run out of money around age 87. In this example we started with $250,000 of RRSP money for a 65 year old male with payments beginning immediately. For the GIC we assumed an average 3% rate of return (today our best Term Deposit rate is 2.35%). The annuity will provide an income for a minimum of 10 years guaranteed. The estimated annual income will be $15,263 before tax and $12,210 after tax.

With the right planning and the right annuity, there will be no need to worry about how long you live, and your retirement income will be guaranteed.

If you are concerned about outliving your retirement savings or have questions about annuities please contact me for a chat. Along with your financial advisor, we will discuss the pros and cons of each option and design the right plan for you. I look forward to hearing from you.

Blessings,
Ryan Van Niejenhuis, BA
Insurance Advisor
Credential Financial Strategies Inc.

Credential Financial Strategies Inc. offers financial planning, life insurance and investments to members of credit unions and their communities. The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This article is provided as a general source of information and should not be considered personal advice. Please speak to your Credential Financial Strategies Representative or personal financial representative before making any financial planning decision or implementing any strategy. Your insurance contract will provide details of the coverage available under the plan you choose.  Restrictions may apply.

Critical Illness Insurance

Critical Illness Insurance

Today I would like to discuss the importance of critical illness insurance.  Is it important for you to take care of your body and continue to have the ability to provide for your loved ones?  We all know that life does not always go exactly the way we planned.  If you are stricken with a debilitating illness will you have the resources to take care of yourself and your household?  

Critical Illness Insurance was developed by Dr. Marius Barnard in South Africa in 1983. Dr. Barnard saw a need for insurance that paid a “living benefit” to those who survived a major illness to offset lost income and pay additional expenses.  It is designed to help protect your household from financial hardship and give you the freedom to focus 100% on recovery (not worrying about how you are going to make the next mortgage payment).  Critical illness insurance will provide you with a tax-free, lump-sum benefit after satisfying the 30-day waiting period if you’re diagnosed with one of the covered critical illnesses.  It’s that simple.

If you develop a critical illness, you may need to take time off work, arrange additional care for your children, travel to specialized treatment centres and more. Help give yourself financial flexibility to do whatever it takes to get better with critical illness insurance.

Critical illness coverage can help you:

  • Replace your income
  • Manage extra costs:
    - Experimental drugs
    - Renovate your house(wheelchair accessible)
    - New custom vehicle
  • Advice/treatment from specialty doctor in USA
  • Keep up with mortgage and debt payments
  • Provide additional income on top of your employee benefits plan
  • Keep your business running and minimize disruption

Conditions currently covered in Canada include Alzheimer’s disease, Aortic surgery, Aplastic anaemia, Bacterial meningitis, Benign brain tumour, Blindness, Cancer (life-threatening), Coma, Coronary artery-bypass surgery, Deafness, Heart attack, Heart valve replacement, Kidney failure, Loss of independent existence, Loss of limbs, Loss of speech, Major organ transplant, Major organ failure on waiting list, Motor neuron disease, Multiple sclerosis, Occupational HIV infection, Paralysis, Parkinson’s disease, Severe burns, Stroke (Cerebrovascular accident)

Most people have insurance on their cars, homes, jewelry and holiday trailers and would want full replacement value if destroyed.  If you prefer to insure yourself against the loss of these items why would you not insure your health?  Sure, you could try to self-insure but why would you if you don’t have to?  The cost of coverage is very reasonable compared to the risk.  You can even choose a return of premium rider, the insurance company will return all your premiums if you do not make a claim. 

Now this might sound a little backwards but, the healthier you are the more you need critical illness coverage.  Those already in poor health have a much lower chance of surviving an illness.  Those who are healthy have a much higher chance of recovery and that is what this coverage is designed to assist with, your recovery.  If you pass away from an illness your life insurance will get paid out but if you experience a failure of health and survive it, your critical illness coverage will allow you to pay the necessary bills.  Over the years medical advancements have increased our ability to recover from serious illnesses.  This is fantastic because we get to spend more time with our loved ones here on earth and get to enjoy God’s creation for a little longer; but recovery can come at a cost.

If you are concerned about experiencing a failure of health and how that will affect your family and your financial plan please contact me for a chat.  I will discuss the pros and cons of each option and design the right plan for you.  I look forward to hearing from you.

Blessings,
Ryan Van Nijenhuis, BA
Insurance Advisor
Credential Financial Strategies Inc.

Credential Financial Strategies Logo

Credential Financial Strategies Inc. offers financial planning, life insurance and investments to members of credit unions and their communities. The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This article is provided as a general source of information and should not be considered personal advice. Please speak to your Credential Financial Strategies Representative or personal financial representative before making any financial planning decision or implementing any strategy. Your insurance contract will provide details of the coverage available under the plan you choose.  Restrictions may apply.

Charitable Giving Using Life Insurance

Charitable Giving Using Life Insurance

I am sharing this article because it recommends sound principles and may help you apply Christian values to Life Insurance. It was written by Jim Yih and used with permission.

Link to article: https://retirehappy.ca/charitable-giving-using-life-insurance/

Most often when we donate money to charities, we do it in the form of a direct contribution. Typically, someone knocks on your door or solicits you through the phone. Sometimes, we give a little by leaving our change at the cash register or even by attending a fund raiser of some sort.

Charitable gifting with life insurance is much different. The most attractive advantage using life insurance is that it allows one to make a much larger gift to a charity.

When using life insurance for charitable gifting, it is important to consider different strategies and the different tax benefits. I offer three ways in which to help charities with gifts of life insurance:

1. Designate a charity as the beneficiary of a life insurance policy

The most straightforward approach is to buy a life insurance policy where you are the owner of the policy and you designate the charity as the beneficiary. In this scenario, you would maintain control of the policy, but the charity collects the insurance proceeds upon your death. The death benefit qualifies as a tax credit on your final income tax return. In this scenario, the premiums for the life insurance contract are not eligible for a tax credit. Since there is a direct beneficiary designation, the life insurance death benefit would bypass the estate and avoid any probate fees. If you have an existing life insurance contract, you can simply change the beneficiary to your charity of choice.

2. Name your estate as the beneficiary

This scenario is similar to the first scenario in that you are the owner of the policy. However, instead of naming the charity as the beneficiary, you name your estate as beneficiary and simply leave instructions in your will that the proceeds of the life insurance policy will be paid to your choice of charities. Again, the life insurance premiums would not be eligible for a tax credit. However, the death benefit would qualify as a donation giving your estate a tax credit on the final income tax return. It is important to note that the proceeds would not be protected from probate fees, as the death benefit becomes part of the estate.

3. Transfer ownership of the policy to the charity

In this scenario, if a life insurance contract is set up so that the charity is the owner of the life insurance policy, the premiums for the contract will qualify for a tax credit. However, since you are no longer the owner of the policy, the future death benefit will not qualify for a tax credit. If you have an existing life insurance policy with cash values, you can transfer ownership to the charity and name the beneficiary as the charity. Under this scenario, a tax credit is available for any cash surrender value that exists at the time that the policy is transferred. In addition, a donation tax credit will also be available for future payments of life insurance premiums. Since an actual disposition has been triggered at the time of transfer, there may be a tax liability if the cash surrender value exceeds the adjusted cost base of the policy. You will need to weigh the tax credit against the tax paid as a result of disposition. Also, since you’ve relinquished control, you will no longer have any rights (such as the right to change the beneficiary) in the policy.

Which solution is best for you?

Every situation is different. In most cases, you would choose scenario 1 over scenario 2 simply for the fact that you gain the benefit of probate fee protection. The outcome of both of these scenarios is virtually the same.

Other than that, the two most crucial issues are control and when you want the tax credits.

  • Control. With scenario 1 or 2, you maintain control, as you remain the owner of the policy. As the owner, you can change beneficiaries whenever you want. In scenario 3, you relinquish your control when you make the charity the owner of the policy.
  • Tax. It is important to determine when you want to utilize the tax credits. If you want to have tax credits every year while you are alive, you will need to take a hard look at scenario 3. You give up thecontrol but you get to use the premiums in paying less tax every year. However, if you have a significant amount of accrued tax liabilities in the estate, you may be better off saving the tax credits for thefuture by using scenario 1 or 2.

There is no right or wrong and the decision depends on your personal needs.

Credential Financial Strategies Inc. offers financial planning, life insurance and investments to members of credit unions and their communities. The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This article is provided as a general source of information and should not be considered personal advice. Please speak to your Credential Financial Strategies Representative or personal financial representative before making any financial planning decision or implementing any strategy.

Life Insurance Mistakes to Avoid

Life Insurance Mistakes to Avoid

1. Buying too little–under insured

A general rule of thumb is to purchase around 10x your annual income. But everyone’s circumstances are different so I always recommend completing an insurance needs analysis. If you would like to complete one on your own I suggest using www.insureright.ca.

If you are the primary source of income for your household, then your spouse and children will need financial support for a certain number of years. I usually suggest until your youngest child is 16 -18 years old. The correct amount of coverage will allow the surviving spouse/children to live comfortably and maintain their lifestyle until they figure out the next steps in their lives.

Don’t forget to insure the stay-at-home spouse as well. Both spouses fill a role in the household; whether they stay at home or go to work, both need to be insured.

2. Waiting Too Long

Don’t wait until it is too late! Believe it or not, you can only qualify for life insurance while you are alive. The older you get the higher your term insurance premium will be. Also, as we age our risk of health concerns increases. This can inflate your premiums and even make you uninsurable. If you have dependents in your household you need to purchase life insurance now. Don’t leave your family vulnerable.

3. Buying Life Insurance from Multiple Sources

Banks and mortgage brokers may offer you mortgage insurance or creditor insurance to protect your mortgage/loan. Airlines offer accidental death and dismemberment if you die or are injured in a plane crash. Car rental companies and even credit card companies offer various insurance plans.

What does one do?

If you have not had the opportunity to sit down with a licensed insurance advisor professional to discuss your insurance needs, then it may be best to activate this coverage immediately to ensure you have some coverage today.

Generally speaking though, paying for insurance through all these alternative sources can add up. A standard term-life or whole-life policy will cover these expenses — mortgage, car payments, car accidents, credit card debt — with perhaps better coverage at a lower cost. As such it is recommended that you meet with a licensed insurance advisor professional. This advisor can assist you uncover your insurance needs, review your existing coverage and tailor a policy to cover those specific needs.

4. Naming minors as beneficiaries

Parents leaving money to their young children can be a big mistake, since minors are not allowed to receive proceeds from an insurance company. No one will have access to the money until the child is 18 years old; at that time they will receive a lump sum. Some 18 year olds may choose to spend the money frivolously instead of wisely. Listing a trusted adult as the trustee of the insurance money will solve this problem. The trustee will have access to the money and be able to use it as needed for the children.

5. Failing to Review or Update Your Policy

It’s always a smart idea to go over your term life insurance policy to make sure you have exactly what you need for your current situation. Your coverage might have been fine 10 years ago, but that doesn’t mean it works for you now. Many life events warrant a review of a life insurance policy.

Make sure you have enough insurance to take care of your changing needs. Maybe you had a child, bought a new home, got a raise at work, quit smoking, or had other health improvements. These life-changing events can either help you save money or require additional coverage.
Updating your beneficiary is also very important. Occasionally ex-spouses are recipients of policies, or subsequently born children are missing from policy beneficiaries. Review or update your policy after such events as the birth of each child, a marriage, or a divorce. Also update your policy after the death of
a beneficiary.

Generally, it is wise to review or update a policy every three years. If you bought term-life insurance, be aware of when the term is up and renew your policy in a timely manner to avoid gaps in coverage.

Blessings,
Ryan Van Nijenhuis, BA
Insurance Advisor
Credential Financial Strategies Inc.

The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This report is provided as a general source of information and should not be considered personal advice. Your insurance contract will provide details of the coverage available under the plan you choose. Restrictions may apply. Credential Financial Strategies Inc. offers financial planning, life insurance and investments to members of credit unions and their communities. ®Credential is a registered mark owned by Credential Financial Inc. and is used under licence.