Tag Archives: financial plan

Long-Term Care Insurance 101–Part 2: The Dos and Don’ts

In my last blog post, I introduced you to Jennifer Jacobs, the top living benefits specialist in Canada, and sat down with her to discuss the essentials of long-term care insurance. To quickly recap, a long-term care insurance policy is essentially a security tool used in the event that you encounter a serious injury or that hinders your ability to perform day-to-day activities. The policy provides you with an added tax-free cash flow that allows you to maintain your ability to continue to financially run your household.

Today, I want to introduce the pros and cons of the various plans available, as well as to point out their most exciting features. In addition, I will also reveal a bit more detail on being “physically dependent.”

pros and cons

Jennifer tells us that a key aspect of a long-term care insurance policy is to apply early and get an offer back from the insurance company first. They will look at your medical records to check that everything is in order. In some cases, further medical testing could delay the process for up to a few months. In other scenarios, a couple may learn that only one party can be approved, thereby causing them to consider other financial plans. So it is important to put in an application early because you never know what the insurance company is going to say or how they view things. Applying early for a long-term care insurance policy is beneficial as it allows clients to stay informed on their situations in case there are delays. This way, there will be no surprises.

A long-term care insurance policy has a number of exciting features that appeal greatly to the mass public. The first feature of this policy is the payment period. In the majority of cases, we are looking at situations where the client is aged 35 and above. One of the options available is for you to deposit into the plan for 20 years and then be covered for life with no further deposits required. This is a very beneficial advantage because it not only protects the younger self in the event of an injury, but it also creates a fully back-loaded retirement plan with a cash flow protection plan in place once you have reached an older age. If you do make a claim in the first 20 years while you are depositing to the plan, your required deposits are waived during your claim, and the amount of time you have collected on this policy will not be added on to the deposit period. It will only simply lessen the amount you paid into the policy.

The second feature is interesting in that it is unique to a long-term care insurance policy. Extended term insurance provision is a feature that incorporates the acceleration of your payments by a bit so that you are pre-paying in advance. This action prevents you from missing a payment and protects you from the risk of losing your policy. Typically, this action does not come into effect until after the five-year mark of the policy being put into place, but the upside of this feature is that you can choose to stop your payments, yet the coverage will remain enforced for anywhere between five and fifteen years from the time you stopped the payments.

Long-term care insurance policies have a lot of flexibility, making it possible for them to be tailored to each specific client’s needs. This is the reason why it is smart to be informed on the optional benefits available and extra features that can be added on to these policies. I do not actually recommend them in most cases as they easily become drawbacks in the cost versus benefits examination. However, it is still important to take note of these options in order to stay knowledgeable about financial planning for the future.

One such optional benefit is inflation protection, which is highly discouraged in many cases due to the high cost and poor rate of return in the feature. For example, if you decide to purchase $2000 in monthly benefit, and add the inflation adjuster to keep things in line as time went on, the premium would go from $100 to $180 for the inflated product. At a 2% inflation rate, it would take 30 years before it is worth $4000 a month. Alternatively, you could have bought $4000 a month right now for the same price as adding the inflation adjuster and waiting for the benefit to catch up.

This feature then seems, in most cases, unnecessary. However, there are two scenarios in which an inflation adjuster may be beneficial. The first situation occurs when the insured is given a limit on the collected amount; inflation protection is the only way to have more insurance when an unlimited benefit is taken away.

The second time in which this feature is used is with executives, high earners and very young, wealthy clients. Because these types of individuals recognize the need for insurance coverage in spite of their wealth, inflation protection becomes a less expensive way of protecting their future cash flow. Unless you find yourself in either of these situations, I strongly discourage adding the inflation protection feature to your policies.

Another feature of optional benefits arises when people express concerns about wasting money or buying something that they may not need—they wonder whether premiums can be returned if the insured passes away without making a claim. I will make a note here and say that you are more likely than not to use a long-term care insurance policy based on actual medical experience.

This feature essentially gets the insured to spend more money in unnecessary places by declaring that the insurer would return the premiums paid, less any claims, in the case that the policy is never used. However, you usually only need to collect for six months to a year in your whole lifetime for that amount to equal the 20 years of payment paid for the policy. Risk is a factor that we need to consider, but I assure you that the chances of you using long-term care insurance are very, very high.

Lastly, I want to talk a little about comprehensive and facility insurance coverages. As the names suggest, one covers care facilities such as retirement homes or hospitals, while the other encompasses cases regarding the mental ability, such as brain injuries, regardless of where care is needed. Remember what I said in my previous post about being “physically dependent.” For this policy, a claim can be made as long as you are in need of either physical or mental assistance; you do not require both.

In addition, the policy does not differentiate between temporary or cognitive impairment, either. However, it is extremely important to note that you CANNOT make a claim with long-term care if factors such as work stresses, anxiety or depression occur because they do not render you dependent on others—these are situational issues. Being “physically (or mentally) dependent” in daily activities is not an insurance company’s definition; it is a standard medical assessment that is critical to an income policy that is essentially based on you and your body.

I hope that you will take advantage of a long-term care insurance policy, a very beneficial security tool that will help you and your family in the long run. Talk to a financial planner today to speak to a specialist in this field. It is never too early when preparing for the future.

Related Links

Long-Term Care Insurance 101—Part 1: The Basics
https://www.ironshield.ca/articles/long-term-care-insurance-101-part-1-the-basics/

Find Out if You Have the Right Type of Insurance Plan
https://www.ironshield.ca/services/insurance-plan/

Health and Dental Insurance
https://www.ironshield.ca/online-healthdental-insurance/

Four Mistakes to Avoid When Creating a Retirement Income Plan
https://www.ironshield.ca/articles/four-mistakes-to-avoid-when-creating-a-retirement-income-plan/

Long-Term Care Insurance 101—Part 1: The Basics

As a company, IRONSHIELD has embraced the need to include long-term care insurance as part of an overall comprehensive benefit plan. This has brought us in touch with Canada’s most talented experts in the field. I had the pleasure of speaking with Jennifer Jacobs, a top long-term care insurance specialist, who had provided us with an excellent overview of what long-term care insurance encompasses.

Today, I want to share with you Jennifer’s expertise. In Part 1, I will give a brief description of what long-term care insurance is and dispel some of the most common myths surrounding this type of insurance coverage. In Part 2, I will share some insight into the various plans available in the market today and talk about some of their pros and cons.

Long-term care insurance is something that people don’t tend to think about when they are young because they feel that there is no need to. This is precisely the first myth that I wish to dispel in today’s post. Until a while ago, I had never been injured and never thought that I would have to think about long-term care. But then, I was involved in a serious water skiing accident and suddenly, I found myself changing the way I thought about long-term care and how it would benefit my family.

The misconception on long-term care comes from our association of the term with long-term facilities, when in fact, the two are not related at all. A long-term care insurance policy is essentially a security tool that allows you to go through life with confidence in the event that you encounter a serious injury or a situation in which it hinders the daily activities of everyday life. This type of insurance coverage protects your entire financial plan and provides you with an added income that would help maintain the life choices of your household.

When we are young and involved in various activities, we never quite imagine the chances that we may be taking. We are logical and presume that the possibility of injuries is something that we don’t have to consider until we are much older. It is only when we do experience a potentially life-threatening situation that we realize the affects of our injury could be financially devastating. For example, you may require assistance with routine tasks while you are injured, and whether it is by hiring a service or reallocating the task to another family member, the action will affect your overall income in some way.

A long-term care insurance policy is simply an income benefit. By acting proactively and securing an insurance policy in place, you are giving yourself the protection you will need in the future. However, it is important to understand that long-term care insurance is not a replacement for disability insurance. The second myth that I want to dismiss is that a long-term care insurance policy would affect the other various plans you already have in place. This is not the case with this particular type of coverage. The difference with this policy is that it isn’t asking whether or not you can do your job; it is asking if you can live independently. There are very strong overlaps between long-term care and disability plans, but rest assured that you are able to collect on both.

The third myth that I want to discuss is what it means to be able to live independently. While long-term care is strictly about whether or not you need help with your daily living, there are a few criteria that must be met before a claim can be made. First of all, there is a short waiting period to prevent small claims, such as sprains or strains. This ensures that the policy is effective for more severe circumstances, such as fractures, recovery from surgery, and incidents that actually affect you for typically more than 30 days. Secondly, the long-term care insurance plan will provide you with the income no matter what injury you have or how it happened. The only restriction here is criminal acts, such as drug use and the like, for obvious reasons.

In short, the whole purpose of a long-term care insurance policy is to promote your life into the stable state in which you want to maintain it. This type of policy is so unique because it has an unlimited status on it, which means there is no limit on the number of times you can collect in your life time. An unlimited status makes the long-term care insurance plan absolutely one of a kind in the Canadian market today.

To ensure that you are protected financially in the event of a serious injury, don’t forget to check back for Part 2, in which I will discuss the various plans available, as well as a little bit more detail on what counts as being “physically dependent.” I will also talk about the pros and cons of these plans, and point out their most tempting features. I strongly advise you to take the initiative and learn more about securing this very beneficial insurance plan. Its long term effects will certainly prove to be most rewarding in the future.

Related Links

Find Out if You Have the Right Type of Insurance Plan

https://www.ironshield.ca/services/insurance-plan/

Health and Dental Insurance

https://www.ironshield.ca/online-healthdental-insurance/

Why did Charles Wilton sell Citi Bank and buy John Deere?

Charles Wilton

In today’s episode, I chat with Charles Wilton, Portfolio Manager with the Private Investment Management Group at Raymond James.  We talk about the recent deposition and acquisition in his portfolio.

IRONSHIELD Financial Planning’s “Fly On The Wall” update call.
These calls are recorded by Scott Plaskett and allow you to get a behind-the-scenes look at one of his professional update calls. Watch and listen as a “fly on the wall” and get some of the most valuable information you will find on the Internet.

Mike Flux – General and Investment Alternatives Update Q2 2014

MichaelFlux_1000x1230

In this video, I speak with Mike Flux, Senior VP of Connor Clark & Lunn Private Capital to chat about their investment outlook from Q2 of 2014. We also discuss how to interpret the current events, and how to properly position portfolios to take advantage of these market events.

In this second video, Mike gives an update on the alternative strategies that they are using in their portfolios to help reduce the effects of the current volatility without sacrificing returns.

IRONSHIELD Financial Planning’s “Fly On The Wall” update call.
These calls are recorded by Scott Plaskett and allow you to get a behind-the-scenes look at one of his professional update calls. Watch and listen as a “fly on the wall” and get some of the most valuable information you will find on the Internet.

Four Mistakes to Avoid When Creating a Retirement Income Plan

Today, I want to talk about the four common mistakes that retirees should avoid making when creating a retirement income plan. These are:

  1. Not factoring in inflation

  2. Not factoring in income taxes

  3. Poor structure of investment management fees

  4. Believing in the myth that your fixed income exposure needs to match your age

First, let’s begin with the mistake of not factoring inflation into your proposed retirement income needs. It is extremely important to consider inflation because how long your money lasts is a direct result of how much it is going to cost you to live your life each year.

For example, you determined that life is going to cost you $5,000 each month. This amount will be used towards food, clothes, etc. But don’t be fooled into thinking that this is the same amount of money that you will need in the future. Things will get increasingly expensive, and your cost today is not going to match your cost tomorrow.

During your working years, it is much easier to anticipate inflation, and most salaries keep pace with the general increase in prices. However, inflation can become a real problem when you are on a fixed income, and your standard of living can be affected if you haven’t properly planned for it. If we factor a Canadian average inflation of 2% a year into the above example of $5,000, it will cost you $7,430 a month to live the same life in the future.

In addition to the effects of inflation, mistake number two is not factoring in income taxes. If you need $5,000 a month to cover living expenses, you will need to withdraw more than that amount in order to have enough to pay the income tax bill as well. Failing to factor income taxes into the retirement plan could exhaust your portfolio before expected.

The third mistake to avoid when creating a retirement income plan is to make sure you are not poorly structuring the investment management fees that are paid to your investment management team. Chances are you’re investing in mutual funds, and will need to pay a fee to the mutual fund company for their services. On average, you would pay 2.5% for this fee. What this means is that if your portfolio generates an 8% gross return, you would only see 5.5% instead.

There is a little trick that I would recommend to reduce the impact of the management fee without changing your portfolio. Instead of having the MER paid before you see your distributions, you can ask your advisor to have the fee unbundled. This means that they will first pay the full 8% gross return generated, and then subsequently charge the management fee. By separating the two, you will be able to earn a tax deduction for the amount that you paid for investment counselling as dictated by the CRA.

Lastly, the final mistake to avoid is thinking that you need to match the percentage of your portfolio allocated to fixed income to your age. For example, it might seem logical to have the majority of your portfolio in bonds at an elder age. However, you will be setting yourself up for a major drop in income due to the low return expectations on fixed income, making it more difficult to counter the combined effects of fees, inflation and taxes that I mentioned earlier.

No matter your age, a sound asset allocation program starts with one’s net worth, expected income needs and risk tolerance. Everyone’s circumstances are different and believing in the myth could lead to underperformance and interfere with you achieving your financial goals.

I strongly invite you all to make sure that you account for these four variables when creating a retirement income plan. Contact your investment advisor to adjust the way you pay your portfolio’s management fee. Make smart choices when planning for your future.

Charles Wilton – Why It Was Time To Sell Walgreens

Charles Wilton

A new interview with Charles Wilton, Portfolio Manager with the Private Investment Management Group at Raymond James.  In today’s episode, we talk about the recent disposition in his portfolio and why he decided to sell Walgreens.

IRONSHIELD Financial Planning’s “Fly On The Wall” update call.
These calls are recorded by Scott Plaskett and allow you to get a behind-the-scenes look at one of his professional update calls. Watch and listen as a “fly on the wall” and get some of the most valuable information you will find on the Internet.

Important Steps To Financial Freedom: Expenses, Debt and Diversification

In order to come up with a solid financial plan that focuses on your financial freedom you need to get clear on where you stand right now so you can determine whether or not your current financial state will support your lifestyle after you leave the work force.

Paying particular close attention to your expenses and your debt levels and gaining clarity on what it will take to clear those debts as quickly as possible is paramount to a successful transition. Transitioning from working to not working with debt can be challenging unless you have a clear plan on how to manage your debt requirements.

You also need to look at what your revenue streams will be during your post-working years and how diversified they are. Taking a look at these items will not only help you transition with confidence but will also protect you by ensuring you are not reliant on a limited number of cash flow sources during your retirement years.

Get clear on your current financial position (your assets and all your liabilities/debts). In my previous post I listed the nine things you need to know before you can experience financial freedom. It is important to go through this list so you can gain a clear understanding of what you need your financial picture to look like.

When you go through this exercise it’s going to allow you to say to yourself one of two things.

You’re either going to say, “yeah, my revenue sources are going to be quite varied and so I’ve got a safer diversified revenue stream”…

Or, you are going to find that your revenue sources are not diversified and all of your revenue is going to come from one or a limited number of sources.

Having limited sources of revenue puts a lot of reliance on those sources to make sure they can keep up with your current and future cash flow needs. (Don’t forget the negative effects of inflation – also known as the “silent killer” to financial plans). Knowing how your revenue streams stand up is important and allows you to take action and make changes if you need to. Your financial advisor can help you with this.

Are you clear on your current financial position? Where does your money go right now? Do you have debts you are making payments on? What are your expenses? You want to get very clear as to what your expenses are now, what they’re going to be going forward and whether or not those expenses are going to continue with you all the way through until after you leave work.

Are you going to be carrying debt into retirement? Having complete financial freedom does not involve debt but if you do have some it is all about getting focused and getting a plan in place.

So here’s the thing. If you have a long time between now and when you leave the workforce, put a plan in place to get those debts paid off by the time you stop working.

I have no doubt there are certain people who will go into retirement with debts and that happens. It really just means that at that point you need to be very, very clear as to what the plan is for getting rid of those debts. Obviously getting those monkeys off your back during retirement would just allow for a much more solid financial footing.

So getting clear on what your expenses are going to be, what your fixed expenses are, what expenses are going to stop is going to allow you to truly live a life that is financial free.

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Also read:

Retirement Plan

Why Your Financial Plan is Missing the Mark (And How You Can Fix It)

Financial Goals VS. Financial Objectives

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Get a retirement income plan in place so you can see what your future holds. This will provide you with a tremendous amount of confidence going into retirement.

In my previous post, I asked the question “What kind of planning you are doing?” to help you gain clarity on what you need to see in your financial plan. Developing a base plan simply tells you whether or not what you’re trying to accomplish is financially doable. This also answers the most important question, which is, can I find financial freedom with the lifestyle I’ve become used to?

Having a financial planner is an important part of your overall plan and finding the right one for you takes time. To help you in this process, I encourage you to read How to Choose and Work with a Financial Planner You Can Trust. This is a free Consumer Awareness Guide that you can download instantly.

What Kind Of Planning Are You Doing For Your Financial Freedom?

In my last blog post I talked about the nine things you need to know before you can retire comfortably. Make sure to check out the link and read that blog post when you get a chance, there is a wealth of information in it. There is a lot to think about when it comes to planning your financial freedom. I just want to quickly run down the list of those nine things here so we’re all on the same page.

 

1. What is your net worth today?
2. Where is all your money going to come from?
3. What are your retirement expenses going to be?
4. What is your debt management plan?
5. What does your base plan look like?
6. What are the “what if” scenarios?
7. What kind of planning are you doing?
8. What about risk management?
9. Are you planning for how your estate will be distributed?

Today I want to go back and take a closer look at number seven on that list above. We want to look at the kind of planning you’re doing.

There are two different types of planning: there’s goals based planning and cash flow based planning. The two types of planning are used at distinctly different times.

GOALS BASED PLAN

So, for example, if you have a long period of time between now and when you plan to stop working, that’s where we would use a goals based plan. It’s basically when you say to yourself, “what do I need to do today so I can stop working at age 65 with a certain level of income?” The goals based plan answers that question.

Goals based financial planning provides you with a clear idea of what you need to do to retire at a certain age with a certain level of income.

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Also read:

9 Things You Need To Know Before You Can Retire Comfortably

Financial Goals Vs. Financial Objectives

Why Your Financial Plan is missing the Mark (And How You Can Fix it)

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Cash Flow Based Plan

A cash flow based plan takes into account a different set of variables and it answers the question, “what type of cash flow can I expect after I leave the work force?” We’re no longer focusing on a long term accumulation goal but focusing on a cash flow goal.

Cash flow based financial plans do a much better job of mimicking your actual income when you reach financial freedom and the taxes associated with the cash flow received from your plans.

One of the biggest differences between the two plans comes down to taxes. If you go ahead and use a goals based solution to answer a cash flow based plan you are going to be way off the mark. The main reason for that is taxation. With goals based planning you’re assuming an average tax rate over the life of the plan but with a cash flow based plan you need to take a look at the tax on the cash flow every given year.

Don’t forget a financial advisor can help if you have any questions about what kind of plan you’re using now or should be using. Remember, the goal of any financial plan is to reach the desired finish, no matter what the finish line is. Only you can decide the finish line that is best for you but a financial advisor can help you along the way, help you decide what questions you need to ask and help you answer those questions. Be sure to check out my guide called “How to Choose and Work with a Financial Planner You Can Trust” to help you find someone who fits with you to help you map your path to financial freedom.