How to buy life insurance. Let me count the ways

By Sheryl Smolkin

If you asked me how to go about buying life insurance, only two thoughts would come to mind: directly from a life insurance salesman or an online purchase. Therefore I was interested in a recent column on insureye which discussed the pros and cons of purchasing life insurance in several other ways.

Here are five of the most common ways of purchasing life insurance noted in the article you will likely encounter, plus I’ve added one of my own.

  1. Captive Agents
    Buying through an insurance agent is the familiar way to buy life insurance. You talk to an agent who represents an insurance company, you get a quote and you purchase your policy.

    PROS CONS
    You might know an agent personally because somebody from your family has already dealt with him/her. Captive agents work for one company and can sell only the products of that company. If an agent’s compensation is linked to sales performance, he/she may try to sell you as much as possible. Captive agents often have pre-determined sales quotes. They cannot compare offers across different providers so you may lose out on policy features or a better price point that an independent broker can offer.
  2. Banks
    Though banks were not significant vendors of insurance in the past, they currently sell a variety of insurance products. As required by law, their insurance business is separate from banking activities.

    PROS CONS
    You know the brand and already trust the bank with your money. Limited to the bank’s products and will not compare features, price against other offerings. May only offer simple products like term life. Do not also offer complimentary products like disability or critical illness insurance.
  3. Insurance Brokers and Financial Planners
    Insurance brokers and financial planners typically offer products from multiple providers since they work for many companies and can compare rates and products across multiple providers.

    PROS CONS
    Independent insurance brokers work for multiple companies and are less motivated to sell products from only one company. Find out how many companies the broker works with. Depending on your health, their knowledge of companies with special offerings for pre-existing conditions, poor health etc. may be more robust. Not all brokers are created equal you’re your research and get references or opinions from past clients before you commit to a broker
  4. Online aggregators
    Online platforms allow you to get life insurance quotes across multiple providers, and subsequently connect you with insurance providers or insurance brokers.

    PROS CONS
    Available 24/7. You can easily compare different quotes and find out the best offer, or change your criteria to see how that affects the policy and the price. It is important to find out how many providers an aggregator works with since comparison across three companies is not the same as comparison against 30. Lack of personal advice. Aggregator platforms offer online tools, but not all offer online chat or personal assistance. However, in most cases, aggregators connect customers to insurance brokers who can respond to any questions or concerns.
  5. Direct Call
    In most cases, purchase of insurance consists of several steps: the initial quote, medical tests (including blood and urine), a questionnaire, and the policy purchase (potentially for an adjusted price that reflects your health condition). In some cases, you can purchase insurance directly via a telephone call, without any further interactions. Generally however, the product would be a guaranteed issue or simplified issue insurance policy. These products do not require medical tests.

    PROS CONS
    Easy and fast. You call, in some cases answer a few questions and you are done. That is much simpler than have a nurse visit your home, conduct your health check and take your fluids. Since there are almost no insurance checks, an insurer automatically assumes that you are a high-risk customer (e.g. pre-existing conditions) and thus will charge you more than other customers who agree to medical tests. A telephone call will get you only a limited amount of coverage e.g. $10,000 or $20,000. Do not expect coverage of $1,000,000 of coverage in guaranteed or simplified issue policies.
  6. Group insurance
    If you are employed, some group life insurance may be offered as part of your employee benefit package. Since employer-paid life insurance premiums are a taxable benefit, you may be required to pay all or part of the premiums via payroll deduction. You may also be offered additional optional group life insurance for you and family members.

    PROS CONS
    Because group life insurance is easy and often fully or partially paid for by your employer, it’s a “no-brainer” for most people. An added advantage is that for the basic amount, no medical examination is required. Term insurance only. If you need coverage for an extended period, group insurance premiums are often more expensive than individual rates since group rates tend to increase annually or on an age-banded basis while individual life premiums remain the same for a specified period. If you leave your employer you must arrange new coverage. “Follow me” policies that do not require medical evidence are available from most carriers but they may be more expensive than comparable individual coverage.

For the pros and cons of optional group life insurance, see Should you buy extra life insurance at work?

However you choose to purchase life insurance, it is important to ensure your family is adequately covered. You can calculate how much life insurance you need here.

May 25: Best from the blogosphere

By Sheryl Smolkin

Due to the holiday Monday (yeah!) and other days away from my desk for random reasons, this issue of Best from the Blogosphere is being written super early. So, on no particular theme we present some great content from the last several weeks.

The Apple watch has received a bad tap from many reviewers, but Retired Syd reports on Retirement: A Full-Time Job that the device works for her. She likes being able to do all sorts of things without digging in her purse for her iPhone like paying for coffee; listening to music; getting directions from Siri; dictating error-free texts; and just lifting her arm to display her boarding pass.

In a guest post on the Financial Independence Hub, Michael Drak writes about one thing he wishes his father had taught him. While he learned about the need for working hard, saving and eliminating debt as quickly as possible, his Dad didn’t teach him about the important concept of Findependence (financial independence) and how it could positively impact his life once it was achieved.

Freedom Thirty-Five is authored by a nameless late-twenties male living in Metro Vancouver. He recently wrote about succumbing to lifestyle inflation. It seems he’s ahead of schedule by one year to reach financial freedom by his 35th birthday. So he has decided to succumb to lifestyle inflation and increase his food expenses from $100 to $150/month; eating out from $25 to $50/month and phone and entertainment from $75 to $100/month. Could you get by on these modest amounts?

Boomer & Echo blogger Marie Engen says unless there is room for occasionally splurging in your budget, becoming too frugal can ultimately undermine your budgeting efforts. Don’t banish nice things from your life. Occasional guilt-free splurges can help you stay on budget if they don’t detract from your other goals. When you don’t feel deprived you will likely find it a lot easier to stick to the plan.

And finally, on Brighter Life, I wrote a piece about Five smart ways to use your tax refund. You can start an emergency fund; top up your RRSP; pay down credit card debt; pay down your mortgage; or, open a Registered Educational Savings Plan for your child.

Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere?” Share the information with us on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.

10 things you need to know about buying a home

By Sheryl Smolkin

Buying a home is probably the most significant purchase most people make in their lifetime.  Whether you are buying your first house or you are a seasoned homeowner, it is important to understand your legal rights and obligations.

Buying and Selling a Home by The Public Legal Education Association of Saskatchewan (PLEA) and Buying or Selling Real Estate in Saskatchewan written by lawyer Kevin Rogers for The Lawyers Weekly are both excellent resources.

PLEA suggests that you keep the following 10 things in mind before you go house hunting.

  1. What can you afford? Generally mortgage lenders suggest that the cost of your mortgage payments, property taxes, heating and condo fees (if applicable), make up no more than 32% of your household’s monthly income before taxes. Lending institutions generally look at keeping total debt payments below 40% of a household’s gross income.
  2. Mortgage costs: It’s usually a good idea to shop for financing before you start house hunting to determine the maximum amount of money you can borrow and discuss payment schedules. Your lending institution may commit to a certain size of mortgage at a set interest rate. This is called a pre-approved mortgage and it will help you determine your price range.
  3. Down payment: Generally speaking, you will have to come up with a down payment of at least 20% of the purchase price to qualify for a mortgage. However, if you can obtain mortgage loan insurance through government programs such as Canada Mortgage and Housing Corporation (CMHC), or private mortgage insurers you may be able to obtain a mortgage with as little as a 5% down payment. Some restrictions apply.
  4. Ongoing Costs: In addition to mortgage payments you should budget for annual property taxes plus heating water and electricity bills. Therefore, the energy efficiency of the home may be one thing to keep in mind when you are considering properties. You may also have to buy furniture, appliances, window coverings and tools to do repairs and maintenance work.
  5. Closing costs: Closing costs are additional expenses that must be paid before the purchase is complete. Generally, buyers should budget 1.5% to 4.5% of the purchase price for these costs. Some of the closing costs include legal fees, including disbursements; pro-rated property taxes for the portion of the year the vendor paid for when you will be the owner; the GST for new homes or homes that have been substantially renovated or re-located; property insurance; mortgage life insurance; and, utility deposits and hook up charges.
  6. Real estate agent vs private sale: Generally speaking real estate commission is paid by the seller and free to the buyer. The advantage of using an agent is he/she can show you all of the suitable listed properties in your price range and preferred area. However, you can buy property directly from a seller and the price may reflect the fact that the seller does not have to pay a commission. But if you do purchase a home privately, have a lawyer review or draft the offer or any other documents to ensure that they are legally sound and contain only the terms you have agreed to.
  7. Caveat emptor: Generally when buying a home, the rule is “buyer beware.” Check out the home carefully and make the offer conditional on a home inspection. However, the seller must tell you about any defects he is aware of that could not be discovered by a reasonable inspection of the property. Things like past problems with water in the basement, windows that leak when it rains or faulty plumbing would likely be included in this category if the seller knows about the problem.
  8. Farmland or other non-residential property: Each type of purchase involves its own unique considerations. If you are considering the purchase of farmland, acreages, commercial, recreational or rental property, there may be additional things to find out about the property before making an offer to purchase. You should seek advice from a real estate agent or a lawyer to ensure that all the relevant factors are adequately considered.
  9. Building /renovating: If you are planning to purchase land where you can build a home, have the land inspected to ensure that it is suitable for the type of construction planned. Whether considering new construction or major renovations, it is important to find out if there are any municipal bylaws that may limit building plans. Whether you will be doing all or part of the work or using contractors, it is important to seek legal advice before signing contracts for materials or services.
  10. Condominiums: Condominiums are typically made up of individually owned units and common areas used by all the owners, as well as common areas that are set aside for the exclusive use of particular units (such as dedicated parking spaces). The cost of maintaining these common areas comes out of the condo fees all owners pay. The fund for major repairs is called the Reserve Fund. Satisfy yourself as to the state of repairs of common areas and the health of the Reserve Fund. Otherwise you may be in for a nasty surprise when you have to pay an unexpected levy of thousands of dollars.

Also read: Owning a home in Saskatchewan became more affordable in Q4 2014, RBC Economics

May 18: Best from the blogosphere

By Sheryl Smolkin

Over the last few weeks, the Globe & Mail has featured an interesting series on debt, and how it is affecting both individuals and the economy. If you haven’t been following it, take a look at some of the stories below:

A taste for risk: Looking into Canada’s household debt

In deep: The high risks of Canada’s growing addiction to debt

Are you drowning in debt? See how you compare to other Canadians

Laurie Campbell: Credit Canada CEO shatters debt myths

I particularly like Rob Carrick’s article There’s no such thing as good debt. Mortgages, investment loans and student loans have traditionally been characterized as “good” debt. Carrick agrees borrowing for each of these purposes can be a rational thing to do and you may end up wealthier as a result. But he concludes there are too many pitfalls today for any one of them to qualify as a no-brainer financial decision.

Big Cajun Man (Alan Whitton) on the Canadian Personal Finance lists several articles about the evils of debt among his personal favourites. In 2008, he wrote Debt is like Fat. He says that just like his weight gain occurred a little at a time over 14 years, if you are not careful, debt build up can occur slowly without your noticing it.

If you are facing a mountain of debt and don’t know where to start, take a look at How I Paid Off $30,000 of Debt in Two Years, The Blog Post I’ve Been Waiting to Write  and What a Year of Being Debt-Free Has Taught Me  by Cait Flanders, who blogs at Blonde on a Budget.

In 2013, Krystal Yee at Give me back my five bucks wrote  How do you fight debt fatigue?. Debt fatigue is a mental state that can happen when you’ve been in debt for so long that you think you’ll never dig yourself out of the hole you’ve created for yourself. She quotes financial expert Gail Vaz-Oxlade who often tells people on her television shows to try and make a plan to get out of debt in 36 months or less – because anything more than three years, and you’ll likely suffer from some form of debt fatigue.

And finally, in a guest post on the Canadian Finance blog, Jim Yih from Retire Happy wrote that Debt Can Be A Problem For The Baby Boomers’ Retirement Plans. He says baby boomers who are getting ready for retirement need to get serious about planning for the best years of their lives.  Part of getting serious is addressing debt head on and taking the necessary steps to develop good habits around debt. His five tips on how boomers can deal with the debt epidemic are: stop overspending; increase your income; get support; focus on you before your kids; and, take one step at a time.

Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere?” Share the information with us on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.

10 things you need to know about selling your home

By Sheryl Smolkin

One sure sign of spring is the “For Sale” signs sprouting on lawns across the country along with the dandelions and tulips. Whether you are downsizing or upsizing, you want to get the best possible price for your home.

If you live in a house long enough it is easy to overlook the watermark on the ceiling where the shower leaked or the wear and tear on the kitchen cabinets. But prospective buyers will notice everything. Unless you spruce the place up a bit, your house may take a long time to sell and the proceeds of sale might be much lower than the listing price.

Here are 10 things you can you can do to increase the odds that you will get top dollar for your house:[i]

  1. Internet ready: Most prospective buyers let their fingers do the walking first on the Internet and they want to see pictures. That means you have to make ensure your home is photo-ready and even hire a professional photographer.
  2. When to list: Spring and fall are typically the best times to list. Families with children often prefer to move at the end of the school year. The curb appeal of homes can be higher in these seasons and buyers may be more in the mood to house hunt when they don’t have climb through snow. However, in prime time there also may be more competing listings in your area.
  3. Improve curb appeal: Take down the Christmas lights. Put away snow shovels. Make sure the grass is cut and either plant flowers or buy flowers in pots. If the paint on the outside trim or the garage door is worn, arrange for touch-ups. House hunters will very quickly form a first impression of your home when they drive up.
  4. Clean it up: Wash carpets, walls, dust the chandeliers, clean bathroom grout. A 2010 Home Sale Maximizer Survey by the blog HomeGain estimated the cost of scouring and organizing a house at about $200 and the resulting expected home price increase at $1,700. That’s an 870% return on your investment!
  5. Declutter: The larger and more open your home appears, the easier it will be for buyers to imagine living there. Get rid of piles of magazines or newspapers. Thin out the books on your bookshelves. Put away or store kitchen appliances that take up scarce space on your counters.
  6. Paint: If your paint job is in poor condition or you currently have distinctive or dark colours, consider a paint job in a neutral colour or white. It will make your home look larger, cleaner and brighter.
  7. Stage right: You may have either too much or too little furniture and other stuff on display. Take the advice of your real estate agent or a staging professional. Put items in storage if necessary and change the layout of the rooms. Get rid of small items on coffee tables and side tables. If you have moved out, rent furniture so prospective buyers can envisage where their things will fit.
  8. Upgrade the hardware: Are your light fixtures outdated with burned out bulbs? How about the handles on your kitchen and bathroom cabinets or the mirrors? Upgrading small things at a small cost can often enhance the look of your home.
  9. Relocate the pets: Fleecy and Fido may be much-loved members of your family, but that doesn’t mean somebody else’s family will feel the same way. During the period your house is for sale, give your pets a vacation. And make sure all sign of them like balls of fur growing in corners and the kitty litter are removed.
  10. Fresh smells: If your house smells musty, of cigarette smoke, pet odours or last night’s dinner, buyers will be turned off. Air out the house. Get rid of old smelly carpets. Avoid air fresheners because many people are allergic to scents or find them offensive. A real estate agent once told me to boil cinnamon or bake cookies (and leave them on a plate) before an open house.

[i] See Get top dollar for your home

 

May 11: Best from the blogosphere

By Sheryl Smolkin

Turning over the calendar from April to May brings out the latent gardener in all of us. Beautiful shrubs, flowers and home grown vegetables are highpoints of summer even in parts of Canada when the season is short.

How to Start a Home Vegetable Garden – Benefits & Saving Money by Heather Levin on Money Crashers discusses the benefits of a home garden including relieving stress and saving money. Gardening can also be a family activity.

The Irish Food Board extols The Economic Benefits of a Well-Kept Garden. They include enhanced curbside appeal of your property and increased productivity of workers in offices and industrial buildings with landscaped areas.

Twenty expert tips to make you a better gardener by Canadian Gardening has all kinds of useful hints. For example, never plant trees that will become large with age too close to your house and set your lawn mower blades at 7.5 centimeters or higher to allow your lawn to go dormant during periods of drought.

Sheridan Nurseries offers great suggestions for growing roses. Roses should be watered regularly through the summer, every few days if there is no rain at ground level and not by overhead sprinklers. Avoid wetting the leaves as this promotes disease. Early morning is the best time to water as late evening watering also promotes disease.

And finally, if you have a small planting space, check out Rodale’s Organic Life’s 7 Secrets for a High-Yield Vegetable Garden. Did you know that you can get maximum yields from each bed if you avoid planting in square patterns or rows? Instead, stagger the plants by planting in triangles. By doing so you can fit 10 to 14& more plants in each bed.

Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere?” Share the information with us on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.

Also read: How to plant an inexpensive, maintenance free garden

Will you be working at 66?

By Sheryl Smolkin

Findings from Sun Life’s 2015 Canadian Unretirement Index released earlier this year received extensive media coverage. The seventh report in an annual series tracks how workers’ attitudes and expectations about retirement are evolving in response to economic, health and personal factors affecting their lives.

The question central to the ongoing study is “Will you be working at age 66?” This year for the first time, more Canadians expect to be working full time at age 66 (32%) than expect to be fully retired (27%).

As indicated in past years, those who plan to work past 65 fall into two camps. Forty-one percent say they’ll do so because they want to while 59% feel they will need to. The gap between the two has been gradually widening since 2011 but closed significantly this year. In addition, another 27% say they will be working part-time, while 12% aren’t sure.

Nevertheless, on average, Canadians say they expect to retire at 64. That’s the lowest figure reported since 2009. Canadians anticipate working past 65 – either by choice or necessity – but that trend is offset somewhat by a significant number who expect an early retirement.

Compared to current retirees, working Canadians are two and a half times more likely to believe they are at “serious risk” of outliving their retirement savings. The actual average retirement age among current retirees was 61 and a whopping 88% retired before age 66. They intended to retire early (at 62 on average) and for the most part, they did so.

But their experiences differ markedly from today’s workers. Three-quarters (76%) benefited from a workplace retirement plan (68% had their own and another 8% were married to a plan member). By comparison, just 68% of working Canadians have a workplace plan (55% have one of their own, 13% will benefit from a spousal plan).

Retirees are significantly more confident about their government pensions (94% vs. 72% among working Canadians); their government-funded prescription drug benefits (82% vs. 68%respectively); and their employer pensions (71% vs. 65% respectively).

Indeed, working Canadians are more likely to be “not at all confident” than retirees about:

  • Having enough money to enjoy the lifestyle they want: 36% working Canadians vs. 20% retirees.
  • Having enough money to pursue their hobbies and interests: 33% working Canadians vs. 17% retirees.
  • Being able to take care of medical expenses: 28% working Canadians vs. 11% retirees.
  • Being able to take care of basic living expenses: 19% working Canadians vs. 5% retirees.

Nearly two-thirds (63%) of retirees are very/somewhat satisfied with their retirement savings. Only 44% of today’s workers say the same. When it comes to outliving their retirement savings, 55% of today’s retirees are unworried, 31% are unsure and 14% are worried. Contrast this with 30% of workers who say they are unworried. One-third (35%) are unsure and 36% are worried.

It makes sense that current retirees would answer more positively about retirement planning. Many of those who did not achieve their financial goals have adjusted accordingly. But clearly, there is more to this story.

Today’s workers have experienced a prolonged period in which low interest rates, volatile capital markets and a drop in employer-funded retiree benefits have combined to make retirement planning more challenging.

More than ever, working Canadians have to plan, save and take full advantage of whatever plans their employer provides. The onus is on the individual to an extent current retirees did not experience. It is also on the financial services industry to support consumers with investor education and innovative product design.

All Canadians over age 18 are eligible to participate in the Saskatchewan Pension Plan which is a defined contribution plan with a fund return history of 8.2 % since inception (29 years) and 9.1% in 2014.

You can calculate your own personal Unretirement Index score, which measures your outlook on retirement, at www.sunlife.ca/unretirementindextool. My score is that I am “Clear and sunny, fully confident in my retirement and the countdown is on.” Since I was born in 1950, that’s not surprising. But I will probably be one of those people still working at least part time at age 66, not because I need to, but because I love my job. 

Also read: More people planning to work beyond age 65

May 4: Best from the blogosphere: Federal Budget Edition

By Sheryl Smolkin

FEDERAL BUDGET

Prime Minister Harper’s 2015 pre-election budget included several goodies for both people who are saving for retirement and seniors in the deccumulation phase. As you probably know by now, annual TFSA contributions have been increased from from $5,500 to $10,000/year and seniors will be permitted to withdraw money more slowly from their RRIFs so their savings will last longer.

If you are already a senior, you will be happy to know that Rob Carrick at the Globe and Mail characterized seniors as the runaway winners in the Budget. You got more elbow room to manage withdrawals from your RRIFs and a new tax credit to make your homes more accessible. Older Canadians are also major beneficiaries of the new $10,000 annual contribution limit for tax-free savings accounts and there is some financial help for people who look after gravely ill relatives

One of the sources of controversy after the budget was passed is whether it is safe to go ahead and top up your TFSA for 2016 before the budget is actually passed by Parliament. My take was that this is a majority government and there is no way the budget provisions will not become law. Jonathan Chevreau quoted me in Experts: go ahead and make that extra $4,500 TFSA contribution now: I just did.

And  since then Canada Revenue Agency has clarified the timeline of new TFSA limit. In a statement, they said:

“This proposed measure is subject to parliamentary approval. Consistent with its standard practice, the CRA is administering this measure on the basis of the budget announcement. Financial institutions may immediately allow existing and new account holders to contribute up to the proposed maximum.”

In a Maclean’s article, Stop pretending the TFSA expansion won’t be felt until 2080 Kevin Milligan notes that the most important feature of TFSAs is that room accumulates through time, starting at age 18. The annual limit started at $5,000 in 2009, moved to $5,500 in 2013, and the budget has now moved the limit to $10,000 from 2015 forward.

This means that 10 years from now in 2025, every Canadian who is age 34 or older will have full possible contribution room of $141,000. For a couple, that would be $282,000. The net result he believes is that very few people in the future will have any need to pay much tax on investment income as TFSAs will provide almost total coverage of assets.

Finally, Gordon Pape says in his Toronto Star column: RRIF withdrawal changes – it’s about time. His preference would have been for Ottawa to eliminate the minimum withdrawals entirely. After all, everything in an RRIF will eventually be taxed when the plan holder or the surviving spouse dies. The feds will get their share sooner or later — they always do. But he will take what he can get!

We will discuss the RRIF changes in more detail in a future blog on savewithspp.com.

Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere?” Share the information with us on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.