Love, Marriage and Life Insurance

Love, Marriage and Life Insurance

Marriage is the perfect time to start shopping for life insurance. Why? Because it’s when you start sharing your life – and your debt – with the one you love.

Here’s why life insurance for married couples should go hand in hand with saying, “I do.”

A shared life means shared responsibilities

While it’s quite unromantic to think about all the legal and financial changes that come with signing a marriage license, I firmly believe in talking about it.

The reality is that marriage comes with a joint responsibility of sharing life together, which includes debt.

Even if you have no outstanding debt at the time of your wedding, you will undoubtedly be sharing some financial obligations with your spouse down the road, whether that’s a car, a house, graduate school or credit card debt.

With this financial future ahead of you, now’s the time for you and your spouse to review your insurance coverage. Having the right type and right amount of insurance will help ensure that your finances are protected from any accidents or lawsuits down the road.

You can lock in a good rate now

In general, life insurance premiums increase with age, so the earlier you lock in a rate, the more affordable it can be.

Some plans even let you cancel later, so it’s possible to get out of a policy if at some point you decide you don’t want it anymore. The one thing you can’t do is go back in time and purchase a new policy 10 years down the road at the lower rate that you’d be able to get at this age.

If you’re starting married life with fewer financial burdens – e.g. no house, no kids – taking on a small monthly premium won’t be a significant burden on your bank account now, but it will set you up with more affordable premiums for the future when you may face more financial stress.

Purchasing life insurance when you’re healthy also makes a lot of sense as it guarantees you’ll be covered no matter what happens to your health in the future.

When it’s not always happily ever after

When you’re preparing for your wedding day, it’s natural to think your love will last forever. Unfortunately, divorce becomes a reality for some couples, and not all of them are prepared for the financial fallout.

report from the BMO Wealth Institute found that 70% of surveyed Canadians are financially unprepared when going through a divorce. What’s more, divorce can impact women particularly hard: 43% experienced a substantial decrease in household income after their marriage ended.

We hope you never have to go through a divorce. If you do, however, it’s critical to examine your current life insurance policies and any spousal coverage benefits to which you may be entitled. Your beneficiaries – the people you’re leaving money to – should also be re-examined.

Building a shared future together

Marriage is about building a life together with someone you love. And while it may not sound romantic, that includes a financial life.

Chances are you will need to buy life insurance at some point as part of your shared future – particularly if plan to have kids one day. So, as you start building your new married life together, keep in mind that this might also be a good time to apply for life insurance so you can take full advantage of your youthfulness and good health.

For a conversation about how to set your young family on the right financial path, contact us at info@rubachwealth.com or at 647.349.7070.

 

Putting your needs first: Why group insurance doesn’t cut it

Putting your needs first: Why group insurance doesn’t cut it

Employment contract? Check. Benefits? Check. Group insurance? Check. Do you clearly understand what you are covered for and are all your insurance needs taken care of? Not so fast.

If you have group coverage through your job, it can be tempting to assume that you’re good to go on the insurance front. The reality is that the group insurance benefits offered by employers often fall well short of the level of coverage we require and lack the nuance to meet our personal needs.

In this article, we explore the pitfalls of relying exclusively on group insurance and highlight how often one size doesn’t fit all.

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I’m covered, right?

When it comes to your insurance, the devil is in the details. Yes, you have group insurance through your employer, but what does it cover? Perhaps your benefits include a new pair of glasses every couple years, or maybe a few hundred dollars annually for massages and physiotherapy. These perks are nice, but they won’t do you much good if you have a serious illness or accident.

If one day you can’t work due to the loss of a limb, how will you replace your lost income? If you are diagnosed with a chronic illness and need to pay for expensive medication, where will the money come from? And if – knock on wood – you pass away suddenly and unexpectedly, will your surviving family members have the resources to pay off your mortgage?

If your group coverage includes disability, critical illness and life insurance, then you’re off to a good start. But again, it’s the details that matter most and determine the answers to the crucial questions above.

  • Life insurance. When included in a group policy, life insurance often features a death benefit of two times your annual salary. This may sound like a lot, but how long will this amount last if you leave behind a spouse who has to keep paying a mortgage, raise your kids and put them through university? Furthermore, most executives find that their bonus structure constitutes a large part of their compensation, but this bonus may not be part of the calculation of death benefit.
  • Disability insurance. Group disability typically covers 40%–60% of your salary. If you were to become disabled and unable to work, would you be able to manage with only 40%–60% of your current income? How would this impact your family’s lifestyle? Do you understand the definition of disability under your group coverage?
  • Critical illness insurance. Group critical illness insurance is often narrowly defined. This is a problem because more exclusions mean there’s a greater risk that you could receive no insurance money should you become seriously ill. This could force you to go back to work when you should be focusing on recovery.

Ours, not yours

Even if the group coverage through your employer is (currently) generous and ticks all the right boxes in terms of insurance essentials, it still has one major shortcoming: your employer owns the policy, not you.

If you rely solely on your group coverage for disability, critical illness and life insurance, then all your eggs are in one basket. If you lose your job tomorrow – whether you are laid off or resign or the company goes bankrupt – your insurance coverage will disappear along with it.

Sure, you may land another job straight away that also provides generous group insurance, but there is no guarantee. In addition, a pre-existing condition clause may apply. If a lack of individual coverage puts the financial well-being of your family in jeopardy, this becomes a risky situation. Even if you don’t lose your group insurance, your employer can change the coverage and benefits at its discretion as the owner of the policy, potentially leaving you with less security and more uncertainty.

Meeting your needs on your terms

We’re not saying that group insurance is bad to have, but chances are it is not providing you and your family with the financial safety net that you need. From insufficient coverage to the risk of losing it entirely if you lose your job, your group insurance is likely not cutting it.

With individual insurance, you can tailor your coverage to meet your family’s unique needs. If you are the family’s sole breadwinner, an individual disability insurance policy can allow you to lock in benefits covering 100% of your salary, rather than the 40%–60% offered under the group plan.

Another key advantage of individual policies is that they guarantee future insurability. For example, once you have an individual life insurance policy, this coverage is guaranteed for the rest of the life of the policy (usually age 80 or 85 or permanently, depending on the type of policy). This is in stark contrast to your group life coverage, which will disappear as soon as you change or lose your job.

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Confidence through clarity

Insurance is one of those things that most of us wish someone else would just take care of for us. That’s why it’s so common for people to think, “Group coverage through work? Great, that’s insurance taken care of.” However, as we’ve illustrated here, adopting this approach can put the financial well-being of you and your family at risk. You owe it to your loved ones to do the right thing.

At Rubach Wealth, we can help you achieve clarity on what you have and what you need so that you can be confident that your family’s financial future is secure. You need to make an informed decision. If you’d like to sit down with us to talk through your situation, give us a call today.

It’s not about ditching your group coverage; it’s about helping you make sense of your current situation and identifying gaps that can be filled with tailored individual coverage. Working well in a group is important in the office, but sometimes your needs must come first.

 

Disclaimer: This article is provided for informational purposes only and does not constitute any form of legal or tax advice. You should consult your lawyer and/or accountant prior to making decisions related to the topics covered in this article. Rubach Wealth can work with you to facilitate such discussions.

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Passing on the family cottage

Passing on the family cottage

For countless Canadians, the cottage has a special place in our heart. It’s the patter of little feet and the joyous splash of our kids running along the dock and plunging into the lake. It’s the cozy afternoon of hot chocolate and playing cards, while the thunderstorm howls outside. It’s the togetherness of family sharing stories around the dancing flames of a campfire.

Many of us assume that our cottage will stay in the family, passed on through the generations. But have you considered how this will happen from a practical and legal perspective? If you have multiple children, will they share ownership or will only one inherit the cottage? Have you thought about who will pay the capital gains tax – potentially in the tens of thousands of dollars – that may arise with the transfer of ownership when you die, and where this money will come from?

Your cottage is the backdrop of cherished family memories. However, without planning to pre-empt potential family disputes and unexpected tax burdens when ownership passes to the next generation, there is no guarantee that your children and grandchildren will be able to continue building these memories.

No tax holiday for your holiday home

When you die, your cottage is treated the same as your other assets: from a tax perspective, Canada Revenue Agency will assume it has been sold at fair market value and – assuming this value is higher than price you paid for the cottage – apply capital gains tax to half of the increase in value.

In this situation, numbers are better than words for illustrating the point: if you purchased your cottage years ago for $225,000 and it is worth $500,000 when you die, your estate could be hit with a capital gains tax bill of $61,875[1].

Will your children have that kind of cash on hand to pay the tax owing? Will they have to take out a loan to cover this amount? Or will they be forced to sell the cottage?

[1] This assumes a marginal tax rate of 45%, applied to half the increase ($137,500) in the value of your cottage.

These questions can be difficult to answer, especially when you don’t know what the future holds for you or your children. Fortunately, there are different strategies that can help you minimize the uncertainty and reduce the risk of your family losing the cottage, including the following:

  • Establish a family trust. By transferring ownership of your cottage to a family trust, you or an appointed trustee can exercise greater control over the ownership, maintenance and use of the cottage. Your children and other family members will be able to enjoy the benefits of having the cottage, but will be spared some of the financial implications of direct ownership.
  • Use a life insurance policy to cover any tax obligations. This can be a cost-effective way to cover the capital gains tax for your cottage. By using the death benefit from the life insurance to pay the tax bill, your children will not need to come up with tens of thousands of dollars on their own.

Hoping the kids will play nicely

Most of your family memories of cottage life are undoubtedly positive, but chances are there were some sibling arguments mixed in among all the sunny days. As grownups, your children will be better at resolving disagreements without wrestling, but that still doesn’t mean they will see eye to eye on everything.

If you have more than one child and want to leave the cottage to all of them, the best place to start is with an open and honest family discussion. This is an opportunity for both you and your children to share your wishes, intentions and expectations.

Even if everyone is on the same page now, it’s important to acknowledge that this may change as personal, financial and health situations evolve in the years ahead, resulting in differing views on usage and ownership. A buy/sell agreement is a useful tool for managing changing circumstances in the future.

Such an agreement lays out clear rules for what happens if one or more of the children want to sell their share of the cottage. By providing clarity, a buy/sell agreement can help prevent your family’s cottage memories from being overshadowed by tears and animosity.

Sunny outcomes require a plan

Ultimately, there are many factors to consider when passing along a cottage to the next generation and many ways to tackle this issue, but doing nothing is not one of them. Failing to plan ahead can result in hurt feelings and financial hardship among your family members after you die.

At Rubach Wealth, we can work with you to understand your priorities and develop tax-optimized strategies aligned with your wishes. If you have a cottage that you hope to keep within your family for future generations, call us today to set up a meeting. Your family has been shaped by the magic of sunsets at the lake, and we want to ensure that your children and grandkids can enjoy sparkling sunrises on the dock for decades to come.

 

Disclaimer: This article is provided for informational purposes only and does not constitute any form of legal or tax advice. You should consult your lawyer and/or accountant prior to making decisions related to the topics covered in this article. Rubach Wealth can work with you to facilitate such discussions.

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An honest look at your financial affairs

An honest look at your financial affairs

It’s February and for many it’s time for some honest self-reflection.

  • Do you consider yourself generally successful in your career?
  • Do you lead a busy life?
  • Do you ever worry about whether your financial affairs are all in order?
  • Are you unsure what kind of insurance you have and how much coverage you have under each policy?
  • Have you put off tackling important matters (e.g. creating a will) because they’re daunting or too time consuming?

If you answered yes to most or all of these questions, you’re not alone. Many of our clients at Rubach Wealth are professionals and entrepreneurs who enjoy great success in their respective fields, but struggle to find the time and mental energy to sort out their finances.

We all know the importance of things like planning for retirement, carrying life insurance and having a valid will. But if you’re busy running a business or performing surgery, dealing with these matters tends to take a back seat.

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Seeing the big picture

We understand this struggle to make financial planning a priority. A common challenge is not having a clear understanding of what you have, what you need and how it all fits together.

A key part of our role is to remove these obstacles and ease your burden. It’s fine if you don’t have the time to dive into the nitty-gritty of tax-efficient investment structures or options for critical illness coverage. But it’s not ok to simply avoid dealing with it all.

We work closely with our clients to understand their personal situation and unique needs. Once we have a deep understanding of where you are and where you’re headed, we tailor a strategy to support you on your journey, which we update as your needs and goals evolve.

Preparing for the unexpected

Why does having a strategy and ticking all the boxes of a comprehensive financial plan matter? Because life has a tendency to throw some curves in the road when we least expect them. Putting off important financial decisions or legal planning is a gamble, and when the financial security and well-being of your family is at stake, this is not a good time to roll the dice.

When working with clients to develop a comprehensive financial plan, we provide them with a binder containing details about every element of their plan. From information about wills and executors to details about insurance coverage and the banks you deal with, this binder keeps your financial affairs organized and at your fingertips.

The value of this is two-fold. First, it helps you and us to see at a glance everything that is currently in place and identify gaps to be addressed. No more digging through old emails or filing cabinets to figure out whether you actually have disability insurance.

Second, the binder will serve as a valuable resource upon your death (remember the honest self-reflection – we all must acknowledge our own mortality). Too often, surviving family members are forced to comb through their loved one’s records to piece together an understanding of their financial affairs. We simplify this process so that family members can focus on grieving.

Working as a team

Honest self-reflection includes recognizing when your efforts are not meeting your needs, and when you need to seek help from others. If you would like help tackling the daunting or time-consuming financial affairs in your life, contact us today for a discussion about whether we might be a good fit for working with you as a team.

By building a relationship based on trust and common objectives, we can ease your load and ensure that your financial affairs are in order, allowing you to focus on the aspects of your life and career that are most important to you. Contact us.

Importance of Life Insurance in Family Law

Importance of Life Insurance in Family Law

Families typically consider life insurance policies as a forward looking estate planning tool, which it certainly is. However, in case of the unfortunate life event such as a separation or divorce, life insurance can also play a vital role from a context of family law.

The Importance of Life Insurance in Family Law: Security Blanket

 

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For separated spouses, life insurance is most commonly used as security for a child and/or spousal support obligation that may be owed at the time of their death. Similarly to property insurance, that is obtained as security in the event of any potential theft, fire, or damage to our homes, life insurance is obtained in the event of a spouse or parent’s death. It can provide security to ensure that the other spouse and the children are provided for in the future. The obligation to maintain a policy of life insurance as security can be mandated by either a Court Order or a written agreement, known as a Separation Agreement.

The Court may require that in situations where a parent or spouse does not have life insurance, a new policy is purchased upon separation and the other spouse/child is designated as the beneficiary.

The two most common questions family lawyers are asked in relation to life insurance are based on the amount, and the duration of life insurance.

The Amount of Life Insurance in case of Separation or Divorce

How much life insurance is required, on one hand, to provide sufficient protection for an existing support obligation and, on the other hand, that does not result in a potential windfall for the recipient? When negotiating the amount of insurance, it is important to contemplate whether a review mechanism or an automatic discounting formula should be included in an Agreement to allow for an adjustment of the life insurance policy amount over time. To calculate your basic life insurance need, read Rubach & Associates’ previous blog post here.

The Duration of Life Insurance in case of Separation or Divorce

For what time period would a spouse be legally obliged to maintain a life insurance policy? As life insurance in this context is intended to be security for a support obligation, the duration to maintain life insurance should be consistent with the timelines for payment of spousal or child support. Such that when a party’s obligation to pay support terminates, life insurance should also end.

The amount and duration of life insurance are both important considerations as they involve the balancing of rights of both spouses/former spouses and children. This is especially important in contexts where a spouse wants to designate all or a portion of their existing life insurance to a new partner (especially where they no longer qualify for additional life insurance and/or the policy premiums are no longer affordable).

Family law lawyers, together with the assistance of a financial planner or life insurance professional, should work to assist spouses/parents with determining what life insurance policy may be appropriate based on their individual circumstances.


This post was written by Jennifer L. Valliere, a family law associate at Kronis, Rotsztain, Margles Cappel LLP, Barristers and Solicitors. 
Rubach & Associates collaborate with family lawyers when developing financial plans and strategies. Please email us or comment below with questions and enquiries.