insurance

What if critical illness strikes?

(photo from flickr)

We all wonder and fear what would happen if we were diagnosed with one of many critical illnesses or suffered a heart attack or stroke.

You work hard to achieve personal and financial goals during your lifetime. Your plan is working and you have accumulated savings and investments, using tax-efficient investment strategies such as your registered retirement savings plan (RRSP). If you have to sell investments prematurely or stop investing in order to manage recovery costs, your future plans may never recover. So what should you do?

The survival rate of these critical illnesses has risen over the years and we are now most likely going to survive “the big one.” In Canada, these are the statistics: 63% likelihood of surviving at least five years after a cancer diagnosis, 90% will survive a heart attack, and there is an 80% survival rate after a stroke and hospitalization.

Here’s the problem

The issue is that there are significant costs associated with the treatment and recovery from such an illness. There can be large medical bills that are not covered by our various healthcare plans. In Canada, many will want to pursue treatments offered by private clinics at home or abroad, which can be extremely costly.

In addition to these costs, we often neglect to consider the other realities that people face, such as not being able to work. The most obvious is the loss of income suffered when one cannot work or run the family business or professional practice for an extended period of time. This might also affect the income of the spouse and other family members, those who are needed to provide home care.

What are the options?

To deal with the unexpected costs and loss of family income there are really two choices:

One may choose to self-insure, meaning that one accepts the risks and has put money aside to cover the eventuality, or
One may purchase critical illness insurance, which provides a lump sum after one is diagnosed with one of the critical illnesses covered in the policy.

The options in more detail

Removing the costs and lost income from one’s financial plan is a considerable setback to the financial plan. The projected retirement income is suddenly reduced and, for most people, it will never be made up. The impact is even greater if one is forced to withdraw from RRSP accounts, as these amounts are fully taxable as income.

As an example, if one needed to cover $100,000 of costs and had to withdraw it from a RRSP account, at a marginal tax rate of 50%, the person would have to withdraw $200,000 of savings intended for retirement.

The eventual impact on one’s projected retirement must be considered carefully, taking into account the income tax issues based on the source of funds, plus the loss of compounding that will no longer be enjoyed on the growth of those funds from the time of the critical illness until the time one planned to retire.

Suffice it to say, the decision to self-insure needs to be taken very seriously. Unfortunately, there are statistics that reaffirm the risks of falling ill with a critical illness are significant.

Critical illness insurance is sometimes referred to as “new insurance,” as it is a newer solution than traditional life insurance. In the past, before the many medical advancements we have enjoyed, life insurance was the solution because it was more rare to survive the illnesses.

Critical illness policies are designed to pay out a lump sum, say $100,000, typically 30 days after the diagnosis. The illnesses are defined and one can purchase a basic plan that covers heart, stroke and cancer, or the more comprehensive plans that have up to 25 covered conditions and include long-term-care insurance as well.

As of the end of 2019, one major life insurance company reported the following statistics:

It has paid out $520 million on 5,360 claims. In 2019, 67% were for cancer, 13% for heart attack, four percent for strokes and the remainder for coronary bypass, multiple sclerosis and other illnesses. The average age of claimants was 53 for women and 55 for men.

The lump sums paid out are used to cover medical costs, replace lost income, retire debt such as loans and mortgages, cover salaries within a business and often pay for time off and bucket list-type vacations.

There are programs available where, if one has been fortunate enough to not have made a claim, in other words, not have fallen ill with a critical illness, the policy can be canceled and all the premiums refunded. The only cost, in that case, is the time value of money on the premiums, as 100% is refunded.

It is even possible to model such a plan where one uses funds earmarked for a RRSP contribution to cover the premiums. This is more effective than one might first think, as the refund of premiums is tax-free.

The first step is to identify and understand the risks to one’s retirement plan. The second step is to consult a qualified professional to consider what protection works best for you.

Philip Levinson, CPA, CA, is an associate at ZLC Financial, a boutique financial services firm that has served the Vancouver community for more than 70 years. Each individual’s needs are unique and warrant a customized solution. Should you have any questions about the information in this article, he can be reached at 604-688-7208 or [email protected].

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Sources: Manulife Insurance – Critical Illness: Asset Protection: Keep Your Retirement Savings for the Future, and Critical Illness: Retirement Protection Handbook.

Disclaimer: This information is designed to educate and inform you of strategies and products currently available. The views (including any recommendations) expressed in this commentary are those of the author alone and are not necessarily those of ZLC Financial. This information is not to be construed as investment advice. It is for educational or information purposes only. It is not intended to provide legal, taxation or account advice; as each situation is different, please seek advice based on your specific circumstance. This commentary is not in any respect to be construed as an offer to sell or the solicitation of an offer to buy any securities.

Confidentiality clause issues

Typically, an insurer will bring a “standard” form of release to a mediation to be signed. (photo from pxhere.com)

Most of my cases against insurance companies settle, often at mediation. Typically, the insurer will bring a “standard” form of release to the mediation for my client to sign. If not, when the insurance company’s lawyer sends me the cheque, it will be accompanied by a form of release that my client must sign in order to receive the settlement funds. In either case, the release will always contain something not usually discussed – a confidentiality clause.

A confidentiality clause seeks to prohibit the parties to a settlement from disclosing the settlement terms, and sometimes more. Confidentiality raises numerous problems.

It is routine for the confidentiality clause to permit the settlement amount to be disclosed to tax preparers, accountants and legal or financial advisors. Not so routine, although perhaps it should be, is a carve-out that allows a client to reveal facts from the underlying claim to industry regulators.

Clients often object to confidentiality because they are frustrated and angry about what has happened to them and, specifically, what the insurance company did. Insurance companies always want confidentiality, often because of the feared perception of guilt that accompanies a settlement. That secrecy itself may be adverse to public policy and protection of the public, as it can allow wrongful conduct to continue.

As lawyer Ronald L. Burge wrote in a 2012 paper for the American Bar Association: confidentiality clauses are “bad for clients, bad for lawyers and bad for justice.”

Confidentiality prevents the public from knowing about wrongful conduct. It can also prevent regulators and government agencies from performing their duty to enforce the law and protect the public. The role of the court is to evenly administer justice to all, so that all are protected by the law. When violations are hidden by confidentiality, the legal system itself is thwarted from fulfilling one of its fundamental purposes – to protect the public from wrongful conduct.

Equally important is the fact that the legal system is funded by the public. The use of government employees, monies and buildings entitles the public to openness in all aspects of the legal process, including settlements that are achieved through use of the legal system.

Society would be better off if all settlements were public knowledge. Wrongful conduct would be exposed not just for the economic justice of the client, but for the broader societal purpose of curbing such wrongful conduct. Lawmakers and the public could see where problems exist, both in products and service suppliers, and act appropriately. Fundamentally, the settlement of a lawsuit should be a public proceeding, just as a trial is a public proceeding.

The conduct of insurance companies is governed by laws and regulations. It is likely contrary to public policy to require confidentiality of facts that may disclose the violation of laws and regulations governing the insurer’s conduct.

Moreover, the legal system does not belong to any industry, certainly not the insurance industry. It belongs to the Canadian public. Courts function best in the daylight of an open, transparent administration of justice. Otherwise, people cannot observe and understand what is going on and how the courts protect everyone by their fair administration of justice. Secrecy protects repeat offenders and harms everyone else. Openness is consistent with basic principles of the rule of law.

Secrecy in settlements also prevents lawyers from properly serving their clients. A lawyer cannot place a fair and reasonable value on a case when the lawyer cannot compare it to other known cases. It is particularly harmful to inexperienced lawyers who may be most prone to undervaluing a case. The secrecy allows insurance companies, with their vast resources, to assess a claim’s fair value, while preventing many clients from doing the same.

Finally, confidentiality does not actually promote settlement. The vast majority of cases already are settled without trial.

Governments should specifically limit the use of confidentiality clauses in the settlement of lawsuits involving wrongful conduct by insurance companies. This should be done for the protection of the public, to improve the industry and to preserve the effectiveness and integrity of our legal system.

Jan A. Fishman is a lawyer practising in Vancouver. He mainly acts for individuals who have been wrongly denied insurance benefits. He has held numerous elected and appointed positions in the legal profession and currently sits on the editorial board of Civil Jury Instructions. He also volunteers in the Jewish community and is active in his synagogue.

Financial future of next generation

(image by ZLC Financial)

One of the few things in life that we can absolutely count on is change. Therefore, no matter what age or stage in life, just about everyone has a need for insurance. It is especially important to have a review-revise-repeat approach when it comes to planning for you, your family and your ever-changing lifestyle and situation.

Do you have assets that you don’t plan on spending in your lifetime? Do you want to leave an inheritance but are worried about leaving your family with a large tax burden? A cascading life insurance strategy is a simple way to preserve your wealth for the generations to come.

Cascading life insurance is an intergenerational transfer of wealth, allowing grandparents to provide a significant legacy to their grandchildren without giving up control during their lifetime. It is an efficient tax-advantaged way to preserve your wealth for those you love by taking advantage of the tax-sheltered features of permanent life insurance.

The best way to be prepared is with a well-thought-out plan. Let’s take a closer look at how to use cascading life insurance. Here’s how it works.

Purchase a permanent life insurance policy with your grandchild as the life insured. If your grandchild is not the age of majority, their parent (your son or daughter) can be the contingent owner. When a contingent owner is named, the policy ownership will automatically transfer to the contingent owner without tax.

You or your son or daughter can be named as the beneficiary. Similar to the ownership structure noted above, you can be the beneficiary and your son or daughter can be the successor beneficiary.

Some of your non-registered assets will be used to fund the policy, thus reducing your future annual tax burden. The funds invested in a life insurance policy will allow for accumulation of cash value inside the policy, and you don’t have to pay income tax on its growth. Upon your death, the ownership of the policy is transferred to your adult child as contingent owner (or your grandchild, if the age of majority) without your estate paying any tax on the cash value growth. The transfer is free of probate, executor and legal fees.

The cash value in the policy remains completely accessible and in your control while you’re alive in the event that you do require additional income.

Meet Brian and his family

Brian is 66. He has $300,000 invested that he doesn’t need to meet his own costs of living. Brian wants to minimize the amount of tax he pays on his non-registered portfolio. In addition, he wants to shelter those assets from tax and probate fees when the assets are transferred to his grandson James, Janet’s son, who is a minor today.

Brian purchases a permanent life insurance policy and deposits the $300,000 into the policy over a 10-year period. Brian is the owner of the policy, and he names Janet as the contingent owner. The insurance is placed on his grandson James’s life and his daughter Janet is the beneficiary of the policy.

When Brian dies, Janet will become the owner of the policy, since she was named as the contingent owner. Janet can continue to own the policy indefinitely or transfer the policy to James when she thinks he is fit to be the owner.

The cash value will continue to accumulate in the policy and will be eventually owned by James.

Now, here’s the important part: the policy, when transferred from Brian to Janet and eventually from Janet to James, will pass along with its cash value, free of tax and probate fees.

James will have a few options:

Access cash value from the policy (a taxable event),
Borrow money using the investments in the policy as collateral, providing him with tax-free cash flow, or
Change the beneficiary to his children, ultimately creating a lasting legacy passed down through four generations.

Insurance is a valuable and creative tool that can help provide peace of mind for you, your family and their financial future. The cascading life insurance policy provides several benefits:

Permanent life insurance protection and control of capital in a tax-exempt life insurance policy.
The ability to accumulate tax-exempt cash within the life insurance policy.
The ability to transfer the policy’s cash value growth tax-free to your grandchild, who is the only life insured on the policy.
Death benefit proceeds are paid out tax-free to named beneficiaries at the death of the life insured.
Probate fees are not applicable on the life insurance proceeds upon the death of the life insured with a named beneficiary other than the estate.

The cascading life insurance strategy is designed for individuals who have annual tax obligations from non-registered investments, who would like to reduce the tax burden upon their death and are interested in legacy planning (family and charity).

אפליקציה סלולרית ברכבים

אפליקציה סלולרית ברכבים: חברת הביטוח דז’רדינס מציעה לעקוב אחרי הנהגים תמורת עשרים וחמישה אחוז הנחה בפוליסה

לקוחות של חברת הביטוח המקומית דז’רדינס שיסכימו לתת לה אור ירוק לעקוב אחר נהיגתם, יקבלו בתמורה הנחה משמעותית בפוליסת הביטוח, בשיעור של עד עשרים וחמישה אחוז. כך החליטה חברת הביטוח לאחרונה, במסגרת קמפיין חדש כדי לעודד נהגים לנהוג בזהירות, כך שהדבר יגרום להקטנה משמעותית של מספר התאונות והנזקים בנפש וברכוש.

ד’זרנדיס היא בעצם חברה הראשונה בקנדה שמציעה ללקוחותיה ממש בימים אלה להתקין אפליקציה במכשיר הסלולר שלהם, שתאפשר לה לעקוב מקרוב אחר התנהגותם בכביש, כאמור תמורת הנחה בביטוח. האפליקציה תספק לדז’רנדיס מספר נתונים משמעותיים. ובהם: מהירות הנהיגה של הרכב, מרחק השמירה מהרכב שנמצא מקדימה, כמה פעמים לחץ הנהג על דוושת המעצור, באיזה יום הוא נהג ובאיזה שעה הוא נמצא על הכביש. עם סיום הנהיגה האפליקציה מסכמת את הנתונים ומעניקה לנהג ניקוד על צורת התנהגותו והתנהלותו בכביש, שמועברים למאגרי המידע של חברת הביטוח.

אחת מעובדות של חברת דז’רדינס שמפעילה את האפליקציה במסגרת ניסוי שמתקיים מאז חודש ספטמבר, מציינת כי רק מעצם השימוש בה היא כבר הפכה לנהגת יותר זהירה ומבוקרת שמקפידה על חוקי התנועה.

אך יש גם לא מעט שמבקרים את הפרוייקט החדש וטוענים שהאפליקציה תאפשר בעצם לדז’רדינס להשיג מידע אישי על לקוחותיה, ומי יודע לאיזה ידים הוא אף יכול להתגלגל. בדז’דינס שוללים את הטענות האלה ואומרים בתגובה, כי הם יאספו רק מידע על התנהגות הנהגים בכביש, והוא לא יועבר לשום צד שלישי. אגב גורמי אכיפת החוק יוכלו לקבל את המידע מחברת הביטוח רק אם יציגו צו בפניה מבית המשפט.

אפליקציה סלולרית במסעדות: מסעדות מוכרות מראש כרטיסים לשולחנות למנוע הפסדים מהזמנות

כמה פעמים הגענו למסעדה ונאלצנו להמתין בכניסה בתור ארוך ובלתי נגמר עד שפקעה סבלנותנו. ומה שעוד יותר מרגיז שראינו לא מעט שולחנות שפשוט עומדים להם ריקים וגלמודים עם השלטים מאירי העיניים “שמור”, ואף אחד לא יושב סביבם.

מתברר שהשולחנות “השמורים” האלה מעצבנים לא פחות גם את בעלי המסעדות, שמפסידים כסף רב מהתופעה הנפוצה הזו. הרבה לקוחות שמזמינים שולחנות מראש מאחרים מאוד להגיע, וחלק מהם אף לא טורח בכלל לבוא ולהודיע על כך למסעדות.

בעלי מסעדות בקנדה החליטו שהגיע הזמן לעשות מעשה ולשנות את רוע הגזרה, של מכת השולחנות הריקים. חלקם בחרו בפתרון קל ביותר והם ולא מקבלים עוד הזמנות מראש. התוצאות מורגשות היטב בשטח. אחוז תפוסת השולחנות גדל בשיעור משמעותי של למעלה מעשרים וחמישה אחוז, ובהתאם לכך ההכנסות הולכות וטופחות. ישנם בעלי מסעדות שמנסים אף “לחנך” את הלקוחות, וגובים פקדון מכובד עבור הזמנת שולחנות מראש, שלא יוחזר אם לא יופיעו.

ואילו ישנם בעלי מסעדות אחרים, בעיקר אלה שנמנים על הדור הצעיר יותר, שהחליטו לחפש פתרונות יצירתיים מבוססים על טכנולוגיה, כדי לאפשר ללקוחות להזמין מקומות מראש, אך במקביל גם לא להפסיד גם כסף. הם החלו לאחרונה להפעיל אפליקציה במכשיר הסלולר למכירת כרטיסים מראש עבור השולחנות, בדומה למה שקורה בענף האירועים. מחירי הכרטיסים משתנים בהתאם לרמת התפוסה המסעדה, מועד ההזמנה (למשל: באיזה שבוע מדובר, באיזה יום מדובר ואפילו באיזה שעה מדובר), מיקום השולחן וסוג התפריט. האפליקציה מדווחת גם בזמן אמת ללקוחות פוטנציאליים, מהו זמן ההמתנה לשולחנות באותו יום ואם יש בכלל שולחנות פנויים. כך שכולם יוצאים מורווחים מהאפלקציה הזו.