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For those who are a couple and bring your finances together, the idea of income splitting can make sense, especially from a tax standpoint.

I wanted to share an article written in the National Post on Saturday, May 21, 2011 on the topic of income splitting. The article is written by Jonathan Chevreau.

The title states: Big savings can be had by lending money to your spouse if one of you is raking in a fatter paycheque.

Chevreau says that with interest rates hovering near historic lows, there’s a historic opportunity to lock in spousal loans to split investment income for tax purposes. This income splitting strategy depends on one spouse being in a lower tax bracket than the other. This strategy is ideal for a couple where one is the breadwinner and the other is the homemaker or not paid from the workforce.

Unlike spousal RRSPs and pension splitting, which involves registered investments, spousal loans let couples split unregistered investment income. According to Canada Revenue Agency, there were 7.2 million tax filers who showed interest or investment income in 2009.

How it works is the spouse in the higher tax bracket lends the lower-bracket spouse money to buy (for example) securities, which are then taxed more favourably in the low-earner’s hands. This should be a legal, fully documented arrangement, by way of a formal loan or promissory note, that specifies the terms of repayment. It will state the interest rate sanctioned at a “prescribed rate” as sited by the CRA.

Currently the rate is 1% and may raise as early as July. When it rises it does so in 1% increments.

One of the benefits is that while the interest paid to the higher-earning spouse is taxable in their hands, it is tax deductible to the lower-income spouse.

There are 2 reasons spousal support is getting more attention:
1. low interest rates
2. know that locking in now, you can keep the low prescribed rate even if interest rates do start to soar.

We have seen interest rates as high as 14% in the early 1990s, however, rates have hovered around 1% since the second quarter of 2009.

One note of caution: you have to fund the loan to your spouse. You cannot just lend our a small fraction of it in order to lock in the low rate.

As far as the promissory note or formal loan, a lawyer or accountant can draw the agreement specifying the terms of repayment. If interest is not paid to the higher income spouse within 30 days of the end of the year, that year’s income and all future income from the loaned property will be attributed back to the lender.

One planner, Jamie Golombek, managing director of tax and estate planning for CIBC Wealth Management, says, he prefers to use fixed income investments for spousal loans. “Capital gains is only half taxable anyway, so the biggest spread will be on fixed income”.

Because 75% of tax-filing Canadians earn less than $50,000, many families with one high-bracket earner can benefit from the strategy.

Tags: CRA, estate planning, financial awareness, interest rates, lending money, spousal income splitting

Dear Jay, perhaps you can help me. I was born in Canada of Canadian parents but as an RN had the opportunity to work and live in the U.S.and for a few years in Saudi Arabia.I am 68 yrs. old and have been collecting CPP since age 60.I have moved many times due to several factors, one being that as a nurse I could easily find employment.The only documents I have to prove the years that I wasn’t living in Canada is my U.S.statement of earnings for the years that I worked and lived there. I have only had a Canadian passport since 1986 and every 5 years, the old ones are kept by the Passport office. I have had 2 green cards for the U.S.and presently live near my children in Texas.My question is why must I provide further proof of the years that I lived in Canada when they must have my statement of earnings there? If you could provide me with resources, I would be very grateful. I am alone and that extra money would be of immense help to me. Thank you.

Here is Jay’s response:

Dear Lorraine Williams,

Thank you for your email.
I apologize for the delay in responding as tax season is in full motion both here in Canada and the U.S.

I believe I understand your concern because I agree with you, it is strange for them to ask for further proof of income 8 years into CPP retirement.
I think you should have received a letter from CRA concerning the new requirements.
With your authorization, I could review it for you.

One thing that comes to mind is your tax returns could be audited and is therefore questioning your CPP retirement income.

This is an interesting case and we would be happy to assist you in any way we can.

Best regards,

Jay F. Llave
“Create and Protect Wealth”
Insurance and Financial Advisor
Creative Planning Financial Group
(416) 487-5210 ext. 5317

Tags: cpp, retirement

This is a great article, written by Jonathan Chevreau in the National Post, I came across with some helpful tips.

When making this decision you need to be aware of the full tax and estate planning consequences.

There are at least 4 options according to chartered accountants Kathy Munro and Caryn Walt.

For purposes of explanation let’s use the example of $250,000 Condo:

Option 1: Buying the condo in your own name (parents) and having the child pay you rent. Assume the parents are in the top 46% tax bracket. But if they already have a principal residence for tax purposes, any capital gains on the second property – the one being rented by the child – will not be tax-free for the parent/owners.
** You and your spouse are considered one family unit, which gets only one principal residence. So if the condo rises in value to $450,000 at your death (or sale) the capital gains tax will be $46,000 (half the $200,000 gain x 46%). The condo will also be subject to probate fees as high as 1.5% in Ontario or 1.523% in Nova Scotia.

Option 2: Gifting cash of $250,000 to the child, who buys the condo in their own name. This has no immediate tax consequences but can create problems with siblings who may naturally desire an equal portion of the ultimate inheritance. Parents can consider being open and honest how their estate will be divided prior to their death. Tax-wise, though, this condo becomes the child’s principal residence, which means tax-free capital gains if it rises in value over the years. And because the parents don’t own it, there will be no probate fees upon their death. The downside comes if the child gets married and then divorces. Under equalization family law, he or she may lose the half the value of the condo to the departing spouse – whether the departing spouse is your child or not.

Option 3: Set up a mortgage so the child buys the home and pays you back through an annual amortization process. The loan is interest-free because any interest paid by the child is taxable in your hands and the child can’t deduct the interest on his or her own tax returns. The child can pay back the principal or the mortgage can be left outstanding, providing better protection if a divorce occurs while owning the condo. There may be probate fees but as with Option 2, the child takes advantage of the principal residence exemption. This is the most popular option.

Option 4: Creating a discretionary intervivos family trust to acquire the condo on behalf of the child. Since parents act as trustees, they retain legal control over properties set aside for their beneficiaries: the children. The child cannot designate another property as a principal residence during the years the trust owns the condo. This option is more complex and costs a few thousand dollars to set up but provides more flexibility for the changing needs of the child -the beneficiary who ultimately receives the condo or the proceeds from its sale can be determined by trustees in the future.

Jamie Golombek, managing director, tax, with CIBC Private Wealth Management, favours a zero-interest mortgage, which is “easy, tax-effective and guarantees mom and dad can get their money back should they wish.”
Alternatively, you could waive principal repayments during the course of the mortgage; ultimately, the parents forgive the debt entirely, essentially gifting the loaned funds to the child.

These are some options to consider when your child is buying a house especially if you want to contribute to the home purchase in some way. Be aware of all the tax advantages so that you can give according to what makes the most sense for you! While we all go into a marriage hoping that it will last forever, the likelihood is that a large percentage will end up in divorce. To protect your child and the money you must consider what options makes the most sense for you.

Tags: buying a house for a child, creating a trust for the child, gifting, holding a mortgage, protecting your assets

This is a wonderful article in the National Post talking about how the “Piggy bank lessons” of our childhood don’t cut it anymore.

This young woman, Stacey Bowman, knew growing up she can talk to her parents just about everything. However, when it came to her university (that would be equivalent to college in the US) education, it was a different story.

She says, “they would sit down and talk to me about the birds and the bees, but when it came to investments, no. For me, and a lot of people [financial literacy growing up] was more osmotic than anything. I understood money had value, but I never had a sit-down conversation with them about these things. I just didn’t listen. If my parents had said to me when I was 14, ‘Why don’t you open up a GIC?’ I probably would’ve done that”.

What it brings to light is so many issues. First of all, we only teach what we know and for many Canadians (actually most of the world population) we do not fully understand our finances. We are making decisions that are not necessarily in our best interest for today or our future. We live in the moment in the sense – buy today, enjoy and worry later. Well, later for many came with the downturn of the market. Some to the point that they lost their homes, jobs and any financial “security” that existed.

Having two of my own children, I just put money away and not even tell them. Is that good? Probably not because they are not learning. Lesley Scorgie, a personal finance consultant and author of financial self-help books for young Canadians, says financial literacy must begin at an early age.

Kids need to learn the value of money. This comes from earning their own money and then going into their bank account and paying for something they really want. For my son’s 11th birthday he really wanted an ipod touch – the newest generation. I told him he was not allowed to go into his current bank account. Instead he needed to save money from his birthday and see how much he raised. In the end he had enough money to pay for his ipod. He knows that if he loses it I will not buy him another one.

One option is to take your child into the bank and/or bring in your financial planner and have them talk to the kids at their level and answer questions relevant to their financial understanding. Also, teach them about how money can grow when they are younger. I didn’t learn that and I spent all my money while my twin brother stashed away his money and by the time our 20s hit he was so much further ahead then me!

One lesson that I feel is so valuable is that money is just a tool – it is used to by a product or service/exchange. We, as humans, are emotionally tied to our money. I also want to teach children the more that we value our worth the more money will flow to us. Yes, the Law of Attraction however not from a “wishing place” but a real place of self worth and self love. I feel that our children today will understand this language and get it.

So, one more thing for me to guide and teach! I welcome others to do the same.

It will also be nice for our youth to come to a place of understanding and then force our government and politicians to be accountable and responsible for OUR money – not theirs. Transparency is something that also must come. When you are transparent and true — you walk your talk. Right now our government is talking about how much debt we Canadians are absorbing however they are not one to talk – look at our deficit issue.

If we are going to teach and guide our children we MUST begin with ourselves and walk our talk.

I realize there is a need and I will address it.

Please start to consider teaching your children and do so by starting with you!

All my best,

Sandra

Tags: fianncial literacy, financial awareness, how to invest, your money

AJay Llave has provided yet another informative “blog post”. RRSP’s is the investment vehicle for Canada (registered retirement savings plan – an income deferred plan) as opposed to 401(k) in the US and other saving options for other countries.

Regardless of where you live, you MUST consider your future. While I believe living in the moment you cannot choose to live in a vacuum and/or be irresponsible so that when the time comes to retiring you say, “well I didn’t know that I needed to save”. The reports indicate that Canadians are spending $1.50 to every $1 – this includes mortgage debt, credit card debt, and other debt you may be servicing. The ratio of debt to equity has shifted. The time of people putting away 10% of their earnings is few and far between. Partly because we live in a consumption, throw away society and partly because, I feel, that costs are constantly risisng (gas, oil, insurance, etc). This is not just a Canada issue, this is a global issue.

NOW IS THE TIME TO START SAVING EVEN IF IT IS $1/DAY/WEEK/ or MONTH.

See Jay’s article below:
ONCE YOU HAVE DETERMINED YOUR RETIREMENT OBJECTIVES, YOU NEED TO CONSIDER THE SOURCES OF INCOME TO SUPPORT THOSE OBJECTIVES.

You will probably be receiving benefit from the government as well as from
your personal savings and pensions.

The sources of income are:

Government Benefits

Old Age Security (OAS)

OAS is not a pension in the traditional sense but rather a social benefits program operated by the federal government.

It is directed at Canadians that have reached the age of 65.

Eligibility for OAS depends on how long you have lived in Canada. Generally
speaking, if you have lived in Canada for 40 years, you will receive the
maximum OAS benefit. If you have lived in Canada for between 10 and 40
years, you will be eligible for a partial pension.

The maximum OAS pension as of January 1, 2011 is $524.23 per month and is considered taxable income. This amount is increased quarterly to account for inflation.

The benefit amount you receive is determined by how much income you receive from other sources. If you receive other income over approximately $66,000, the OAS benefit will be reduced.

You should apply for your OAS benefits six months before you turn 65. You cannot apply for OAS online but you can complete the form online and then mail a printed copy. Here is a link to the form you need to fill out: OAS
application

When you apply you will need the following:

. Proof of age – This does not need to be submitted with the application but you must be able to produce this if requested.

. Proof of residency - If you have lived in Canada all your life, there is no documentation required. However, if you were born elsewhere, you will need to provide proof of residency status (a passport will suffice) and proof of residence history (passports, visa).

Guaranteed Income Supplement (GIS)

An addition to the OAS program is the Guaranteed Income Supplement or GIS. As with OAS, this program is income tested and is directed at low income recipients. To be eligible for GIS, an applicant must be eligible to receive OAS benefits and not exceed specified income maximums. Income will include items such as private and government pensions, RRSP payments, employment income and investment income, but will not include OAS benefits.

The amount of the benefit will depend on factors such as marital status,
individual or combined family income, and whether or not a spouse is a
recipient of OAS benefits. For example, for January-March 2011, the maximum benefit for a single person is $661.69 per month and is not considered taxable income. This would be based on income of less than $15,888. GIS must be applied for annually.

Canada Pension Plan (CPP) and Quebec Pension Plan (QPP)

The CPP and QPP are plans based on work experience in Canada. If you have made at least one contribution to the programs you will be eligible for a pension. Currently the maximum CPP pension is approximately $960 per month and is considered taxable income. This is based on someone retiring at age 65. The pension amount is adjusted each year to keep pace with inflation.

The standard CPP benefit is designed to start at age 65 but if you meet
certain conditions, you can choose to start receiving benefits as early as
age 60. In that case your pension will be reduced by 30% since the pension
is reduced by .5% for each month that you choose to take the pension before reaching 65. There are definite benefits to taking your CPP early. Let’s discuss whether this is an appropriate strategy for your personal
circumstances. You can also choose to delay receiving your pension to as
late as age 70 and you will receive 30% more.

If you and your spouse are both eligible to receive a CPP pension, you can
split your pensions. Pension sharing makes good tax sense since you and your spouse could end up reducing the taxes you pay.

You must be at least 59 years old to apply for CPP benefits. You can obtain
a paper application from Service Canada or make your application online. You will be able to submit the application online and then mail in a signature page.

Best regards,

Jay F. Llave

“Create and Protect Wealth”
Insurance and Financial Advisor
Creative Planning Financial Group
(416) 487-5210 ext. 5317
About me

Tags: cpp, oas, pension plans, qpp, retirement planning, retirement savings, rrsp

We all know their is a financial cost to both parties when their is a divorce. I have come across an article from the National Post, ” Adult Children of Divorce Face Extra Burdens”.

Not only does adult children face the idea that “everything I thought was real, isn’t” but they also face a series of financial challenges that their friends whose parents are married don’t have to deal with.

A young adult may find their college fund ravaged; they may see their family home fall into the hands of parent’s new girl/boyfriend. They may feel financially responsible for their parents at an early age, and have to care for single aging parents.

These problems are more likely to affect more young and middle-aged adults as more older couples go their separate ways. It is said that as many as one in four divorces now occur between partners for 20 years or more.

What can an Adult of Divorce do to protect themselves?

1. Do NOT neglect your own career or savings plan. As a mother I know I am no good to my children if I do not take care of myself. This is true of the adult of divorce parents. You do not know financially what will be required of you for either parent. As well, you may have been “banking” on the inheritance or parental support in your lifetime — it may not be the case any longer.

2. Introduce a financial planning component into the divorce talks. If your parents are still hammering out their agreement, let them know that, by using the latest divorce financing techniques, they can keep more money for everybody.

3. Research long-term care insurance to offset future costs.

In intact marriages, the first partner to suffer illness or decline is usually cared for by his or her spouse. Older divorced couples may not find other partners to care for them, or they may end up caring for partners that have no relationship to their own children. So children of divorce can end up with two aging parents in two different living situations and less cash to deploy hiring help.

4. Make sure each parent, especially the needier one, has good financial guidance.

Take some of the burden off of you and “force” each parent to become accountable and responsible for their decisions and what it means for each one. How are they going to live? Where will they live? Can the parent afford a caregiver if needed?

Unfortunately this has become a trend and while we all think as we get older we will have more financial security – something like this can alter your course. Know it DOESN’T have to!

All my best,

Sandra

** these points were taken from the article written by Linda Stern, National Post, January 2011.

Tags: adult children of divorce, financial planning for divorce, Katie jan Wennechuk, older couples divorcing

Welcome back to Jay Llave and happy New Year. We are in the thick of RRSP contribution time and Jay has provided us with information on Spousal RRSP contributions. While this is relevant for Canada you can check with your own state/province/country to see what are the rules that apply to spousal retirement savings contribution.

3 Reasons to Use A Spousal RRSP:

By reducing the income tax you pay in retirement, you’ll have more to spend. A spousal RRSP might just be the ticket. Contrary to what you might have heard, rules introduced in 2007 – that let retired couples split pension income – did not kill the spousal RRSP.

Here are three situations for which a spousal RRSP is still useful:

1. You’re planning to retire early.

Because pension-income splitting is largely restricted to those 65 and older, a spousal RRSP is a viable income-splitting and tax-saving tool for couples who want to retire early.

2. You need to withdraw a large sum from your RRSP.

A spousal RRSP can also help with lump-sum RRSP withdrawals.
These aren’t eligible for pension-income splitting, but couples can build up the lower-income spouse’s RRSP and withdraw from that plan at a lower rate.
**Note, however, that if you make a spousal RRSP contribution in the same year or either of the following two calendar years, the amount withdrawn by your spouse will be attributed back to you and taxed in your hands.

3.You have a younger spouse.

A spousal RRSP means you can contribute qualifying income to your younger spouse’s RRSP after the end of the year you turn 71 – when you must wind down your own plan – so your household retirement savings can continue to build.

Setting up a spousal RRSP gets you and your spouse to start your planning
well in advance. Let’s discuss whether this strategy might work for you .

Best regards,

Jay F. Llave

“Create and Protect Wealth”
Insurance and Financial Advisor
Creative Planning Financial Group
(416) 487-5210 ext. 5317

About me
Our BLOG

Tags: financial awareness, jay llave, planning your future, rrsp, spousal contribution, spousal rrsp, wealth building

I received this email from Warren Blatt, one of my financial advisors. It was helpful and yes does pertain to Canada HOWEVER please note that many countries work on the same premise that to receive tax benefits for that year (2010) you must have them in place by December 31, 2010 (or specified time).

The information provided comes from
Doug Carroll JD, LLM (Tax), CFP, TEP
Vice President, Tax and Estate Planning

Tax & Estate matters
Last 10 tax tips for 2010

This has been slightly adapted: year-end tax planning checklist to give plenty of lead-time. These tips can be time-sensitive matters that must be addressed before the end of the calendar year, and in many cases needs to be set in motion well in advance of that final stroke of midnight.

1. Capital gains/loss selling – For realization of capital gain or losses on mutual funds, allow the trade date plus three business days to settle by December 31, 2010, which means no later than December 24th and sometimes as early as December 22nd. In 2010, the last trade date is Friday, December 24th.

2. Charitable donations – In order to benefit from the donation tax credit in 2010, the donation needs to be made prior to calendar year-end: Dec. 31st. For transfers of listed securities (such as mutual funds) to a registered charity or private foundation, tax on any capital gain otherwise arising from such disposition will effectively be eliminated. While the value of the gift is determined at the date of transfer, it is the date of the settlement (see #1) that determines the year in which the donation has occurred.

3. TFSA withdrawals – The formula for calculating TFSA contribution room includes withdrawals made in the previous calendar year (i.e. withdrawal in 2009 for 2010). Therefore, if you are considering a withdrawal for the first quarter of 2011, you may want to consider making that withdrawal before the end of 2010. Therefore, in this way the contribution room credit will allow for re-contribution during 2011 (assuming that cash is available for the purpose) rather than having to wait until 2012. For more information on the tax rules and other consideration, contact your advisor. One is the provider of this information: Invesco Trimark Tax & Estate info Service – 1800- 874-6275 or advisor.invescotrimark.com

4. Spousal RRSP contributions – Income attribution to a contributor spouse will apply if the receiving spouse makes a withdrawal before the end of the second calendar year following contribution. The rule works on a last-in/first-out basis counting from the actual date of contribution, not from the tax -filing year for which the related deduction may have been claimed. For example, a contribution in January 2011 entitles the contributor to a deduction against 2010 income, but will be subject to attribution if withdrawn on or before December 31st, 2013; if that same contribution had been made in December 2010, attribution would apply only if the withdrawal is made on or before December 31, 2012.

5. Final RRSP contributions for person age 71 – A person may make a final RRSP contribution by December 31st of the calendar year that he/she turns 71. Take special note that the usual rule allowing contributions in the first 60 days of the year following the calendar year is not available. (i.e. 2011)

6. Final spousal RRSP contribution where spouse in under 72 yrs. – Despite the preceding rule, a person over age 71 may use carried-forward contribution room to contribute to a spousal RRSP so long as the spouse is under 72. Similar to that preceding rule, contributions must be made by December 31st of the calendar year the spouse turns 71.

7. RRSP/RRIF rollover on death – The plan’s value at the end of the exempt period (i.e. the period ending on December 31st of the year following the year of death) is used to determine the amount of RRSP/RRIF proceeds that qualified beneficiaries (generally spouses, related dependent minor children and dependent disabled children) can transfer into their own RRSP/RRIF/annuity a tax-deferred basis. If a death occurred in 2009, the exempt period runs out at the end of 2010.

8. TFSA rollover on death to successor holder (spouse) – The exempt period entitling a spouse to contribute to characterize received funds as a TFSA runs from death to December 31st of the year following the year of the death. For a death occurring in 2009 for which there was no valid successor account holder designation in place, an election will have to be made by the deceased’s estate and the receiving spouse before the end of 2010.

9. Spousal prescribed rate loans – This one is really a year-end-plus-30 days reminder, being the date by which interest must be paid by a borrower spouse to a lender spouse in order to escape the spousal income attribution rules. Be careful not to mistake the deadline as simply being the end of January, which would be 31 days. This error could be especially disappointing for spouses who may have taken advantage of this year’s historic low 1% prescribed rate, as such loans are forever offside from the date an interest deadline is missed.

10. Execute a Will – while the execution of a Will may not be a year-end tax-planning task in itself – the estate planning process will often highlight issues that have year-end implications. In turn, the Will can be drafted to facilitate more effective estate management through the inclusions of necessary trust powers, such as the ability to make appropriate income Tax Act (Canada) elections.

** The information provided is general in nature and is provided with the understanding that it may not be relied upon as, nor considered to be, the rendering of tax, legal, accounting or professional advice. Readers should consult their own accountants and/or lawyers for advice on the specific circumstances before taking action. Commissions, trailing commissions, management fees and expenses may all be associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

Contact:
Invesco Trimark
5140 Younger Street, Suite 900
Toronto, Ontario M2N 6X7

Telephone: 416.590.9855 or 1.800.874.6275
Facsimile: 416.590.9868 or 1.800.631.7008

inquiries@invescotrimark.com
www.invescotrimark.com
advisor.invescotrimark.com

Tags: capital gains, capital losses, charitable donations, estate planning, rrif, rrsp, spousal support, tax tips 2010

This is good news for those that want to find ways to save for their future without the concern of future/deferred taxes. Please see what Jay Llave from Creative Planning Financial Group has to say on this matter. This information does pertain to Canada. For those outside of Canada you need to find out what changes in financial policy are happening that can positively impact you!

Come 2011, you will be eligible to contribute an additional $5,000 to a
Tax-Free Savings Account (TFSA), bringing your cumulative total to $15,000 since the account was introduced. That $15,000 is a substantial amount of contribution room, which will still grow each year. This creates an opportunity for you to use your TFSA for multiple and substantial goals – no longer just for an emergency fund. Here are three possible alternative uses for your TFSA:

Goal 1: Saving for a specific goal or event with a known date. These goals
could include, for example, paying for a child’s post-secondary education or planning a once-in-a-lifetime trip. Your savings could be invested in bonds or Guaranteed Investment Certificates that come due as the occasion
approaches. Withdrawal is tax-free.

Goal 2: Saving for retirement with dividends. The Dividend Tax Credit is
wasted within a Registered Retirement Savings Plan (RRSP) or Registered
Retirement Income Fund (RRIF), since all income will be taxed at your
marginal rate when you withdraw it. However, dividend-earning stocks and
dividend mutual funds held within your TFSA will provide completely tax-free income in retirement to complement your RRIF. In addition, you can reinvest dividends on a tax-free basis along the way.

Goal 3: Generating a substantial capital gain. Higher-risk investments have
the potential to generate large capital gains, which will be tax-free within
your TFSA However, remember that there’s no capital loss deduction either.

These are just some of the many ways you might use your TFSA as contribution room grows. We can help you ensure that you’re maximizing the use of this excellent savings vehicle to reach your goals.

Best regards,

Jay F. Llave
“Create and Protect Wealth”
Insurance and Financial Advisor
Creative Planning Financial Group
(416) 487-5210 ext. 5317
Our BLOG

Tags: 2011 financial policy changes, How to save in Canada, Tax Free Savings Account

To make effective decisions for your future you need to be aware of changes that are taking in industries that may impact you. Insurance is our safe guard so that if something happens we are personally covered or perhaps for our loved ones.

For those in Ontario, Canada – I want you to be aware of changes to permanent insurance pricing:

Important news concerning upcoming insurance pricing

There are changes with permanent life insurance pricing coming in the next
few months. One Major carrier has given us advance notice that there is to
be approximately a 10% average increase in rates for all permanent life
insurance.

Also the same carrier will be implementing a 0.5% reduction to the
contractual guaranteed interest rates offered within tax sheltered policies.
(The guarantee is contractual for life).

In the past few years, there has been an expectation that insurance rates
would be increasing, as a large assumption in pricing these policies is the
interest rate environment.

With historically low interest rates, the insurance industry has been
waiting for some movement.

Other carriers will follow suit, with increases to their own permanent
insurance rates, and subsequent decreases in guaranteed interest rates.

What does this mean for you?

The 10% increase is self-explanatory – it will cost more for the same
insurance.

If you or someone you know is going to buy insurance within the next 2 years think about doing it now or at least consider the annual savings as the reason to check it off your to-do list.

The rate reduction for guaranteed accounts has a far greater impact.
i.e. For a client investing $10,000/year in the tax-sheltered accumulation
fund – and choosing the guaranteed investment option (above the cost of
insurance):

Assuming the current rate is 3.5%, a 0.5% decrease in annual credited
interest rates to 3.0% actually means they would see:

§ after 10 years, 2.75% less accumulated value

§ after 20 years, 5.44% less accumulated value

§ after 40 years, 11.25% less accumulated value

This means that quick pay scenarios will see a far greater increase than
10%.

If you have maxed out your Group plan, RRSP, TFSA, and RESP (if applicable)
this high rate of guaranteed return could mean a few more years of
retirement income that is guaranteed interest rates offered within tax
sheltered policies.

Current pricing is still available until December 4, 2010 (needless to say,
current rates are lower than they should be). Current contractual
guarantees are still available to be locked in for life on policies secured
before March 2011.

Feel free to contact us with any questions or concerns you may have with
your current insurance policies.

Best regards,

Jay F. Llave

“Create and Protect Wealth”
Insurance and Financial Advisor
Creative Planning Financial Group
(416) 487-5210 ext. 5317

About me

Our BLOG

Tags: changes, insurance pricing, permanent insurance rates

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