Insurance

What is Insurance and why do we need it?

Often Dan will be heard saying, “It is better to get insurance 10 years early compared to 10 minutes late”.  This is a funny little saying, but often rings true for a few different reasons.  For one, the younger you are, generally the cheaper insurance will be.  Also, if you get insurance when you are healthy, it is cheaper and easier to qualify for.  As soon as you hear you are suffering from a health concern, it makes the insurance application more difficult or more expensive.

Insurance is a tool to protect ourselves from unforeseen circumstances.  Insurance is a way to spread out your risk.  Normally something bad needs to happen to benefit from insurance.  Unlike car insurance which is required by the law, usually it is an individuals or corporations’ choice to decide to have insurance in place or not.  If coverage is in place, the insurance is designed to provide a financial protection for the owner of the policy or beneficiary.  If there is not insurance in place the individual will need to pay for the financial consequences of the circumstance themselves.  There are different types of insurance.  When working with Dan Houcher Financials’ office we will discuss and assist with the following types of insurances.

Life Insurance (LI) – Is designed to provide financial support to loved ones or lenders in the death of the insured.

  1. Term – Generally used as a temporary insurance. This is generally the cheaper option for LI coverage.  The individual normally chooses how long of a term they require the benefit for.  Common lengths of coverage would be for 10, 20 or up to 40 years.  Often term insurance can be renewed to another term or converted to a permanent policy.  Some common examples for a use of term insurance would be to cover debt such as a mortgage so that loved ones aren’t left with debt to pay off on the passing of a family member or to provide money to be able to care for kids or send them to post secondary education after a parent(s) passing.
  2. Permanent – is as it sounds, as it provides coverage for your whole life. It is more expensive than term insurance.  Permanent insurance also has many situations where it provides benefit.  Examples of needs of permanent insurance may be to provide coverage of final expenses (funeral costs or taxes owed on the death of the individual insured).  There are different types of permanent insurance.
    1. Whole Life (WL)
      • Participating (PAR WL) – includes a form of investment through dividends with-in the insurance policy to build cash values.
      • Non-participating (non-PAR WL) – does not provide dividends and normally has cheaper premiums compared to participating WL.
    2. Universal Life (UL) – provides the potential for a cash value life insurance policy. Generally, UL is designed for individuals/corporations where they like to make investment decisions and choose where their money is invested with-in the policy but may also fit other situations.

Critical Illness Insurance (CI)

CI is considered a living benefit as the insured is still alive when the benefit is paid out. CI is designed to provide a lump sum cash benefit if the insured suffers from a critical illness.  The lump sum payment can be used for anything the beneficiary (normally the insured, except when the policy is owned by a corporation) chooses.  For example, the cash could be used to cover healthcare costs, revamping a home to accommodate accessibility, cover missed income, or a trip to Disneyland to spend time with family.  There are different illnesses covered by the insurers but often include the three most common, heart attack, stroke and life-threatening cancers.  Normally the individual needs to live for 30 days after being diagnosed with the illness before the benefit is paid out.  If the individual doesn’t live for the 30 days, the individual should have had LI in place to cover expenses.  Critical Illness insurance also has options for Term 10, 20, or up to age 75.

LI and CI have different types of insurance to apply consider.

  • Underwritten – when health, health history, financial and occupation are reviewed to determine the risk of the individual to the insurance company. The underwritten process may include a visit from a health nurse to complete things like blood, urine, ECG and health and family health history questions as well as APS (attending physician statement), drivers abstract, etc.  This is the cheapest form of insurance coverage.
  • Simplified Issue – only a questionnaire is required to determine the insurability and amount of insurance available for an insurance applicant. This is a benefit to an individual who has had or is dealing with health concerns.  The application process is simple and quick.  The premiums are more than underwritten policies.
  • Guaranteed Issue – no health questions are asked. The insurable amount is generally quite low but provides a small amount of coverage to assist with someone’s risk coverage needs. Sometimes benefits are deferred a year or two to protect the insurance company from someone who is going to die in the short term.  Usually a return of premium is provided if death occurs during the deferral period.  Guaranteed Issue is more expensive than Simplified Issue coverage.

Disability Insurance (DI)

DI which is also considered a living benefit and is designed to provide monthly income to an individual who is either injured or ill and unable to work as per a physician’s recommendation (exact definitions of disabled is covered in each policy). The monthly benefit is designed to cover most of the individuals monthly regular expenses.  There are many different options to choose from when it comes to DI coverage.  DI premiums vary from the following items:

  • Occupation
  • Income
    • Monthly benefit amount
  • Elimination period – the time of being disabled before the benefit starts
  • Benefit period – how long the benefit is paid through the disability.
  • Smoker status

It is a good rule of thumb to look for DI coverage with a premium is between 2-4% of the individual’s income.  Good options for coverage are normally available in this range of premiums.  Often clients say they have group coverage through work and don’t require an individual policy.  This may be the case and you don’t want to be paying for too much coverage as you are not able to be making more money disabled as you would be if you were working.  However, there are often limitations to group plans which should be considered when looking at options for individual DI coverage.  Our office is happy to review group benefit booklets to determine top-up options for disability insurance.  It is usually best for DI coverage to have the premiums paid for by the individual.  If premiums are not paid by the individual, the benefit is most likely going to be taxed.  This is not the best situation for the individual receiving the benefit.

Health and Dental (H&D) Insurance – provides benefits for items such as prescription drugs, dental care, extended health (chiropractic, massage, etc.) and vision etc.

  1. Individual
  • If you don’t have a group plan through work, or the coverage is not sufficient, you may look at individual coverage. There are many types of coverage’s to choose from and is often decided on by the coverage desired and the affordable premium. There are also two main types of coverage:
    • Guaranteed issue – no medical questions are asked and pre-existing conditions prescriptions are covered.
    • Medically underwritten – medical questions and history are taken into account and normally pre-existing conditions are not covered. For example if you are on a prescription when you apply for coverage, this expense will most likely not be covered once the policy is in force.  A benefit to medically underwritten plans is that there is usually a higher annual limit covered.  As with any insurance, medically underwritten is designed to provide protection for something that may or may not happen in the future.

2. Group

  • When you have a business with employees and are looking for H&D coverage to provide a benefit. Each plan is customizable to provide the coverage that best suits the needs of the employer, employees and budget.  Often group plans are cost shared with the employees.

HSA (health spending accounts)

You need to have a corporation in order to have a HSA set-up properly. If you have income from the corp., medical expenses and pay taxes, a HSA likely has tbigstock-Coffee-11858he ability to benefit your situation and give some tax efficiencies.  I use Olympia Benefits personally, and you can learn more and sign up directly from this link, https://www.olympiabenefits.com/partner?8758 .  HSA’s are not insurance (may include insurance add-ons), but it a tool to assist with creating business expenses compared to personal expenses.

Travel Insurance

If you are planning a trip outside of your province and/or out of the country, you should be using travel insurance. It is normally fairly inexpensive and provides assistance when medical expenses can be very costly.  Travel insurance can be purchased for a onetime trip or as annual coverage.

Visitors to Canada also may want to look into travel insurance details can be discussed through our office if you have family or friends looking to visit Canada or through a Super Visa.