Integrated Insurance Planning Options

If you are depending on long-term disability coverage in a group long-term disability or association coverage, be careful as you may be in for a surprise at the time of claim.

Obtaining a personal disability policy has several advantages:

• Definition of disability you may qualify for—Own Occupation, Partial Disability and Residual Disability.
• To meet the conditions of your waiting period, the days do not have to be consecutive and can accumulate over 24 months.
• “Total Income” includes income that is attributed to you which may be inside your holding company or a professional services corporation.
• The contract is guaranteed and will follow you when you change jobs.

These are some of the more important provisions of a personal plan in addition to others.

At one time getting life insurance was much simpler than today. Laws have changed and taxes never go away. I am a believer in integrated planning where I am part of the client’s professional team. We work together with the client, including everyone in the same meetings.

You may be wondering “What type of insurance coverage should I have?”

Disability Insurance?

Critical Illness Insurance?

Life Insurance?

All these coverages can be customized to meet your needs.

Disability Insurance

You may have disability insurance through your group benefits plan, if it includes long-term disability provisions. Typically, only salary income is recognized, and bonuses and dividends are not able to be insured. The definition of disability for you to qualify to receive a benefit is two years where you are unable to perform your “own occupation”, then inability to perform “any occupation”. Partial and Residual disability are not covered by group plans.

“Total income” can also include income you earn from a company or a professional services corporation in addition to a salary you make.

A disability insurance contract is guaranteed and will follow you when you change jobs.

Critical Illness Insurance

This product is perhaps least known by the public, which is perhaps due to statistically only 22% of insurance agents provide information to their clients about this valuable coverage.

When looking at claim statistics of disability insurance, critical illness insurance and life insurance, before age 75, you are most likely to experience a critical Illness, such as cancer, a heart attack or stroke. 

Diagnosis of one of twenty-four conditions qualifies the insured to receive a cheque after 30 days of prognosis of a covered condition. Your ability to work is not a determining factor for a critical illness claim like it is for disability insurance.

It is possible to qualify for both disability and critical illness insurance. Let’s say you have a heart attack like I did at age 51, disability individual policy will pay and critical illness policy will pay as well.

Once a critical illness policy pays a claim, the policy is finished.

Life Insurance Term

Term insurance is for a limited term, and can renew at different intervals - 10 years, 20 years or 30 years. When you live past age 80 or 85 most of these policies expire. You may convert (change) a term policy to a permanent policy from a Renewable and Convertible plan with no medical evidence of good health.

When the initial period of a term policy renews, you will not need to prove that you are in good health, however the premium increases generally 10 times or more from your initial premium.

If you still want a term policy when your policy renews and you are in good health, I suggest you consider an independent insurance broker. You will likely be able to obtain the same policy at least 50% lower premium.

Many term policies do not pay a claim because they get converted to permanent plans, are no longer required or people do not renew due to premium increases.

Whole Life

Whole Life insurance is permanent insurance that never expires. Cash values grow on a “tax deferred” basis while inside the policy.

Some death benefit policies increase as dividends are paid on the yearly anniversary of the policy into cash value, escalating life insurance protection when the plan is properly designed.

Whole Life has several options:

• Pay the same premium for life, referred to as “minimum premium”.
• Pay the maximum allowed premium to accumulate maximum cash value inside the policy and maximum increases in death benefit without you having to prove good health.
• Shortened premium payment, referred to as “premium offset”, where dividends pay your future premiums. A 10-Pay option means you pay premiums for 10 years; then the policy is fully paid-up and coverage continues for life. Similarly, a 20-Pay option sees 20 years of premium payments; then the policy is fully paid-up and coverage continues for life

Universal Life

A Universal Life policy is also permanent lifetime coverage.

Unlike a Whole Life policy which may pay a dividend every anniversary without your involvement, Universal Life allows the policy owner to manage where her/his cash value grows tax-deferred inside the policy and cash value grows based on “account value.”

This type of policy may require management of investment choices by the policy owner on an annual basis.

Universal Life can be designed on a “minimum premium” where coverage is for a lifetime at the same level of premium.

A “maximum deposit” policy allows the policy owner to deposit more than the minimum required to cover the cost of insurance, which is added to the cash value and can grow tax-deferred up to a certain limit, known as the Maximum Exempt Premium.

This policy allows you to custom design coverage premium payment in the same way as Whole Life where your accumulation cash value can pay for future premiums.

You may be told about “tax-free” cash value inside the Whole Life policy or Universal Life which is a false statement. There is no tax to pay while cash is inside the policy until you withdraw it; growth is tax-sheltered.

Case Scenarios

A corporate lawyer introduced his client to us to give him a second opinion on a proposal made by an insurance person who was referred by their investment advisors, both working at the bank. They were advised to deposit $100,000 of yearly premium into a life insurance policy for a 10-year deposit, and were told they could use the $100,000 as a business expense inside the corporation. There are strict rules, and this level would not be a tax deduction.

I was reviewing a disability policy of a physician when I discovered she did not have “own occupation” protection but rather had “any occupation” definition. Own occupation covers you only if you cannot do the “material and substantial duties of your job.”

We were introduced by a partner of an accounting firm to complete an audit of their business owner's client’s insurance.  After completing a careful analysis, we discovered that the client was oversold coverage and saved his corporation over $100,000 in yearly premiums.

Insurance Planning

When working with an advisor be sure a full analysis is completed and bring other professionals into the integrated planning process.

Life insurance coverages protect you, your family and your business.

Life insurance can be a valuable tool to pay future taxes on death and critical illness, do not overlook the advantages.

Milan Topolovec, BA, TEP, CLU, CHS, RCIS President & CEO, TK Financial Group Inc. milan@tkfg.ca,  TKFG.ca