Financial & Insurance Advice Blog

A father wanted his daughter’s 30 year old husband to get life insurance (inexpensive for a healthy 30 year old). The husband decided to talk to his father (an actuary who deals in mathematical probabilities). The husband’s father, the actuary, told his son that at age thirty, the chance of anything happening was remote and that he should save his money!

Needless to say, something did happen and the husband passed away in a year. He left behind his wife with a young child. The wife besides losing her husband, of course lost the income that her husband was bringing in.

Enter in the father of the wife and grandfather of the child. He had saved for and was planning to retire. He has now given up on retiring and started helping to support his daughter. How sad is it that one decision wipes out a life time of hard work and retirement?

A husband and wife, in their own business, decided to take out life insurance for each of them in 2001. The husband already had critical illness insurance and they both had long term disability insurance. In 2006, the husband had a heart attack and required quadruple bypass surgery. He was able to claim against his critical illness insurance, collecting $500,000. This allowed him to keep their business going and pay bills while he recovered to full time work.

In 2008, the wife came down with cancer and had to quit working altogether. She was able to receive an regular income through her disability insurance.

Early 2010, she passed away at the age of 48 from the cancer. She left behind her husband to care for and raise four daughters aged 5 to 14. The life insurance that they had purchased in 2001 paid out $3,500,000 to the husband allowing him to work less, to devote needed time to his young family, and to set up a legacy for his daughters from their mother.

The bottom of an obituary in a local newspaper read “contributions to pay for the funeral appreciated”.

In two of these real life experiences, there was no planning. In one there was. Which most closely applies to you?

Two brothers bought for each of themselves the identical houses separated only by a driveway. They each paid the same price, putting down the same down payment and mortgaging the same amount from the same lending institution. You’re probably thinking “don’t they do anything on their own or what kind of childhood did they have”. Nevertheless, the first brother, Allan, checked off “yes” to the little box that asked “do you want mortgage insurance.” The second brother, Bruce, checked of “no” to the same question, a seemingly innocuous question that is answered in 3 seconds with very little thought. Here are the ramifications of that little question.

The first is that Bruce, who checked “no”, can now go to an insurance broker and get mortgage insurance from an insurance company. The insurance company does not care who his lending institution is. Therefore he can change lending institutions to his heart’s content, as many times as he wishes and carry his mortgage insurance with him without any changes – portability. Of course it goes without saying that if Bruce had chosen me as his broker, he would be showing incredible good taste and be rewarded with the best pricing and excellent service.

Allan, who checked “yes”, on the other hand can also change lending institutions as he wishes. However he would have to take out new insurance with new each institution. As insurance is priced by attained age, therefore he would end up paying more with each change as he grew older, assuming his health stays the same.

The second ramification is price or premium. Insurance companies will reward you with lower premiums for not smoking and a healthy lifestyle. Lending institutions have one price which is akin to rates for a smoker.

Third is that lending institutions will insure only the mortgage with them as the beneficiary. As your mortgage goes down, so does the amount you are insured for but not the premium or the price you are paying –declining balance. With an insurance company, the coverage and the premium stay the same regardless of what happens to your mortgage, with whoever you designate as beneficiary. What this means is that should you pass away having a mortgage, a lending institution would tell your heir “the mortgage is paid up.” “Thank you very much , however there may be a small penalty of 3 months interest because your loved one died in the middle of the term and not at the end.” You think you could have planned things better, not to die midterm of your mortgage!

On the other hand, the insurance company will issue a cheque for the total coverage you had taken out payable to your beneficiary. Your beneficiary has the option to invest the insurance proceeds and continue monthly mortgage payments or pay off the mortgage balance. This is you and your beneficiary controlling your finances.

Fifth, the insurance company will underwrite (approve your health and status) at the time you apply. The lending institutions will underwrite you when you make a claim for the insurance money. Now we all know that health deteriorates as you age, sometimes faster, sometimes slower. Wouldn’t you want to know that everything has been taken care of when you are healthy and younger than waiting until something terrible has happened in the future when health may be questioned?

Lastly, wouldn’t you want to deal with one experienced person and one phone number than a clerical position with someone who changes every 6 months who does not know you from Adam.

That little box at the end of the mortgage insurance question is very important. Mark it “no” and give me a call.

I want to be known more for the problems I solve than the products I sell.

You were always told to save. Saving is the act of putting money aside to grow for a time when needed. It is hard work, onerous, and requires discipline. The purpose of saving is to increase your wealth to allow you to purchase or to protect yourself from adversity or to plan for when you will not be working. Saving had to be done because disaster and misfortune were just around the corner. The only way to save was to take the money out of funds that were earmarked for spending on lifestyle. Lifestyle is the car you drive, where you live, the movies and restaurants you go to, the vacations you take. It is everything that makes up daily life.

What if you could increase your spending and saving at the same time with the same amount of money you are now earning!

How much money are you now spending unnecessarily and unknowingly. This is the money you don’t know you are spending nor do you have to spend it. This is also the money that can be funnelled into savings without taking away any additional money from your lifestyle.

Let me show you what I mean. You have decided to pay off your mortgage quicker so that once mortgage payments are out of the way, you can start saving. To do this, you are now going to make mortgage payments every 2 weeks and not every month. Your dollar payments every two weeks are now half of the former monthly payments. This now means you are making 26 payment of ½ the monthly payments or a total of 13 monthly payments. This will on average cut your mortgage from 25 years to 19 years. You are saving 6 years.

If you kept to the old monthly payment and since you were willingly to spend it anyway, invest the 13th month payment in whole life insurance, after 19 years you would have a cash value in the policy equal or close to the mortgage balance. In other words, you would be able to pay off your mortgage in the same time period.

However you would have saved the cost of getting mortgage insurance. You would have savings to use at your discretion. You would not have waited to pay off your mortgage (19 years) before starting to save. Lastly, if you chose after 19 years not to pay off your mortgage but continue until year 25, you will be 19 years ahead towards retirement planning.

All this was done without taking money from your lifestyle and without any additional out of pocket spending. I want to be known more for the problems I solve than the products I sell.

Two identical houses sit across from each other divide by a common driveway. They are identical in every way. They were bought at the same time by twin brothers for the same price. They differ in only one way. Both brothers had the same amount of money. The first brother decided to pay cash for his. The second brother put a down payment of 5% and took a mortgage of 95%. Which house do you think appreciated more in value?

Of course, the houses appreciated the same amount at the same time. The way you structure the debt on your real estate does not influence value. What it does influence is your ability to save.

The first brother put all his savings into his home. His equity in his home is not going to grow any faster or greater because of this. The second brother put very little into his home. His equity is going to grow the same as his brother. However he can invest what he did not put into his home somewhere else. He can watch not only his home but his investment grow and appreciate. At some point his mortgage will shrink and his investment will grow so that they will equal each other. He can then pay off his mortgage or continue saving. The first brother has a non liquid asset while the second brother has the same but also a liquid investment which he is controlling and available if needed.

So what is the rush to pay off your mortgage? If anything, the rush should be to save. Too many people decide to pay their mortgages every two weeks instead of monthly. This means 26 payments of half of what you would pay monthly. This works out to a total of 13 monthly payments instead of 12. You should explore how much you would save by investing the 13th monthly payment instead. You would be surprised how much would be saved over the course of your mortgage.

So what the rush? Well I am told all too often that “we will be able to do things once we get our mortgage debt off our back. We will be more secure.”

By constantly paying the minimum required and by saving the extra you would have paid to retire that debt “earlier”, you will accumulate the funds to do exactly that faster.

You have to decide whether security to you means no debt or it means debt with enough money accumulated to pay off the debt at any time of your choosing.

I want to be known more for the problems that I solve than the products I sell.