Because TFSA’s aren’t taxed on withdrawal as RRSP’s are, and the withdrawals aren’t treated as income and thus affecting your other government benefits, TFSA’s may be a very attractive option in conjunction with or in addition to RRSP’s. They’re less beneficial right now (since you receive a tax deduction for RRSP contributions but not TFSA contributions) however after retirement they have some very attractive benefits.

Unlike some other investments you cannot deduct interest costs if you borrow to contribute to a TFSA. You will likely be able to invest in similiar investments to RRSP’s once these savings accounts become available.

Upon death, your estate will receive the funds from the TFSA tax free. Alternatively (and probably a better idea) you can specify a spouse or partner as a successor account holder - pretty much a beneficiary. That transfer won’t affect their existing TFSA.

So, TFSA’s sound like a great idea in conjunction with RRSP’s. They give us additional ability to grow our retirement savings in a tax sheltered fashion and they won’t decrease our other benefits and income when we withdraw them after retirement.

Coming soon: a TFSA calculator.

The answer is short, but the underlying philosophy is a bit longer. The short answer is that I don’t see the insurable need. What does that mean? Proper insurance need should be purchased to cover a potential financial loss that could be devastating. And that means that when I recommend insurance coverage I want to be able to point to a specific amount that we lose when the event happens. This concept is fundamental to all insurance.

Would you pay 50 cents to insure the loss of a loonie? Most of us wouldn’t. Would you pay $500 to cover the potential loss of a million dollars? Most of us would. This illustrates the idea that the potential financial loss should be devastating. It’s the same reason we have deductibles - if the loss is small enough you should cover it yourself.

Critical Illness policies are being sold these days for amounts of hundreds of thousands of dollars up to millions. Now stop and consider this before you buy a critical illness policy…..exactly where have you lost $250,000 if you should get a critical illness? Can you write it down in a list and add up the numbers to arrive at $250,000? I can’t.

However, the idea of getting $250,000 should we get a critical illness is extremely appealing to most of us. So is winning the lottery. And just like winning the lottery, the emotion behind buying critical illness is one of creating wealth rather than protecting it. Even the industry marketing material that crosses my desk touts emotional sales.

If you can’t write down specific numbers that you lose should you develop a critical illness, then in my opinion, it’s not insurance. It’s a lottery.

Let’s look at what others have to say on the subject. From the Financial Services Commission of Ontario:

In determining your need for critical illness insurance, you should consider benefits that may already be available to you through other insurance policies, such as life insurance and group health insurance. For example, the benefits offered through your employer’s group disability plan may provide appropriate and adequate coverage in the event of a critical illness.

You should also consider your personal circumstances and the added financial strain that could be brought about by dealing with a serious illness or disease. Public and private health insurance plans typically do not provide coverage for day-to-day living expenses such as travel to and from treatments, home care and child care.

They’ve been very careful to not provide a real breakdown of why one might need Critical Illness Insurance. I have however bolded the relevant sentence. And I agree - go ahead and add up your day to day living expenses, home care and travel care. What’s the upper limit on that? Now, how much are you willing to pay to cover those costs? And did those numbers come anywhere near $250,000? or 2 million? I’m sure they didn’t.
For most of us, those expenses would be difficult. But devastating? Not in my opinion. And if you’re that close to the line financially that you can’t cover your travel expenses, then I would suggest you consider how you’re going to pay the insurance premiums.

Here’s another take, from RBC:

If you are diagnosed with a covered critical illness or condition and satisfy the survival period, your plan will provide a lump-sum benefit to be used any way you wish. For example, you can pay for daily expenses related to your recovery, reduce or pay off debts, make alterations to your home or vehicle, seek specialized medical treatment, fund a leave of absence and more.

Notice that again there isn’t any well defined need created for insurance coverage to the tune of hundreds of thousands of dollars. Are those valid expenses they’re defining? Perhaps. Are they something you need to buy insurance for? Again, I’m not so sure.

There are two other needs thrown out by the insurance industry to define the amount of CI insurance. The first is that it can help pay for getting medical treatment in the US. I don’t dispute this, or even that for some folks it’s a good idea. But the fact is, what’s being highlighted is a problem with the Canadian health care system. If our public system is so bad that we have to go to the US for treatment, we need to fix the healthcare system, not by insurance. Call your MP, not your insurance agent.

The second big one is a potential loss of income. BINGO! This is very important and something you should definitely consider. If you become critically ill, you may not be able to work. You need a replacement income. I couldn’t agree more.

Except that Critical Illness Insurance is not the way to cover this need!

For most of us, financially and insurance speaking, we are a paycheque. If we suffer the loss of our paycheque, this is a large and devasting loss that we absolutely need to insure. There are two ways we can lose our paycheque as a result of not being able to work. We can die. And outside of the Canadian senate, that basically means we lose our paycheque. Secondly, we can be unable to work due to being disabled. The way to cover the first need is via life insurance. The way to cover the second need is via disability insurance.

If you have proper disability insurance and become disabled you recieve a replacement paycheque. You’re covered! Now it’s not perfect, but with proper disability insurance coverage you should be able to get by.

If you develop a critical illness there’s two things that can happen to our paycheque. We can continue to work (some folks do). So in my opinion you only need to cover the limited items mentioned above - is insurance needed? Not in many cases, since you’re still drawing a pay. Or you could not be able to work. With proper disability coverage you would now have a replacement income.

More importantly, critical illness only covers you if you develop the specified conditions. What happens if you get run over by a bus and can’t work? CI insurance won’t cover your loss of a paycheque. Disability insurance will. In other words, Critical illness focuses on and covers the condition, disability insurance focuses on and covers your loss of a paycheque - irregardless of any narrow list of conditions.

In summary, you should first and foremost - critically in fact - ensure you have proper life insurance and disability insurance. If you have both of those, have some disposable income and want to consider coverage for some less potentially devasting financial losses then I’d be happy to discuss critical illness coverage for you.

There’s a number of reasons for recommending two individual policies (or one policy, with individual coverage on both spouses). First, you’ll probably find that the difference in premiums is a lot less than you would expect. The reason for this is that the risks aren’t all that much different. The insurance company on a JFTD policy now has to look at the risk of when the earliest is that either one of two people will die instead of just one person. Clearly this is more likely to happen earlier when covering two people at the same time.

Think of it this way. How likely is it that one person will die tomorrow? Not likely. How likely is it out of a million people, that one of those million people will die tomorrow? Pretty good. So the more people we insure on the first to die basis, the greater the likelihood the insurance company will have to pay - and thus the higher the premiums.

Secondly, in the event of a divorce there is no effective way to seperate the life insurance policy with a JFTD. With two individual policies it’s almost as easy as changing your beneficiary.

Thirdly, because insurance companies use a ‘combined’ age calculation your renewal rates will be sky high. As you age, life insurance premiums don’t go up in a straight line, they increase in an upward sloping curve. So let’s say you’re both 30 years old, and the insurance company calculates your ‘combined’ age for the joint life insurance to be age 40. If the policy renews in 10 years, you’re going to be renewing at the rates of a 50 year old when in fact you’re both 40 - and as I noted, rates as you get older get higher, fast.

The same is true should you decide to convert your joint first to die term policy to a permanent policy in the future. Conversion is a feature of many term policies that allows you to convert to a permanent policy in the future. If you convert a JFTD policy in the future, you’ll being doing so at the older (and thus higher rates) age that the insurance company uses for your combined age.

In short, if you have two people you need to insure, JFTD is not likely to be the way to to if the intent is to save money. JFTD policies do have their uses, but those uses are dictated when the the financial need is primarily upon the first death, and not just when you’re trying to find the least expensive policy.

If you’re looking to cover two people, determine the proper type of insurance and amount, then shop it out amongst companies - that’s the right way to find the cheapest policy.

Well, there’s no firm answer; or more appropriately there’s no answer that can be easily calculated. However we can make some educated estimates as to how much life insurance you should be considering. In a situation like this I prefer to think in ‘ranges’ with an upper and lower amount selected. Then you can choose where in that range you feel most comfortable.

The first thing to consider (and this is true for anyone purchasing life insurance) is what exactly is lost. Once the loss is determined we can start to estimate how much life insurance is needed to cover that loss.

With stay at home moms we don’t neccessarily lose any direct income. What is lost however is the value of the work done by stay at home moms. And that is something we can use to start to estimate how much life insurance you need. To replace the work done by a stay at home mom, you’re typically going to be looking at least at daycare, and quite possibly a homemaker. Now lets say we need to pay $25,000 a year for a homemaker (and that’s likely on the low side). Using a how much life insurance do I need calculator I can see that replacing $25K for 25 years and assuming 3% inflation and 5% interest, that it takes just over $500,000 of life insurance to produce that income. And that’s with nothing extra or left over.

On the lower end of the scale that same calculator shows that if the same assumptions are made but over 15 years then $328,000 of life insurance is needed to produce that income.

So now we’ve got a range, based on some assumptions. In this case you should be looking at between $325000 and $500000 of life insurance for a stay at home mom. And that fits in with what I typically see - most stay at home moms that I work with are looking at between $250,000 and $500,000 of life insurance.

Rather than buying mortgage life insurance through the banks you should also consider an individual term life insurance policy.  There’s two main differences between mortgage life insurance and an individual term life insurance policy:

1. Individual life insurance is generally cheaper than mortgage life insurance
2. Individual life insurance is generally a better product than mortgage life insurance

Let me expand on those points a bit.

Individual life insurance tends to be cheaper than mortgage life insurance.  Why?  Well, I believe it’s possibly because individual term insurance products are priced more competitively because consumers shop prices more frequently.  Companies that want your business price themselves competitively.  How many comparisons do the banks tend to offer when you’re looking at life insurance?  Only 1, whatever product they’re offering.  There may be other reasons as well, but ultimately when you shop it out expect to be pleasantly surprised at how much cheaper an individual term product can be (see the sidebar on the right here if you want to run a life insurance quote).

Secondly, individual life is generally a better life insurance product.  Here’s the reasons why:

• Mortgage life insurance is decreasing term.  Your premiums stay level but as you pay down your mortgage the amount of insurance you’re actually buying decreases as well (it’s only ever as much as your mortgage is).  Individual term life insurance products from most companies have death benefits that remain level.
• With mortgage life insurance the bank gets the money should you die.  With individual life insurance you can specify whoever you want as the beneficiary.  They can then if they choose pay down the mortgage and still have whatever insurance proceeds remain.
• Mortgage life insurance comes up for renewal every time your mortgage does. If you have a 5 year term on your mortgage in five years you’re looking at getting a new life insurance policy.  If you’re uninsurable at that time you likely don’t have a lot of options.  Most term life insurance policies in Canada are guaranteed renewable until somewhere between ages 75 and 85.  While the term life premiums will increase at intervals, as long as you pay the premium the insurance company can’t retroactively increase your rates or decline you based on some future health problem.  You own the policy, you pay the premiums, you’re covered as long as the policy is renewable.
• Term life insurance from most companies has a ‘convertibility’ option.  This allows you to convert your term policy in the future to a permanent life insurance policy without evidence of insurability.  This is a great fallback/worst case scenario option available on many term policies in Canada.  To my knowledge, mortgage life insurance offered through the banks do not have this feature.
• Term life insurance is far more portable.  You can change beneficiaries in the future, decrease your face amount if needed, and it’s with you no matter where you bank or where your mortgage is.

If you are shopping for mortgage life insurance, you should consider running a term life insurance quote using the quoting system in the right sidebar of this page.  Compare for yourself the differences in prices.

The answer is not quite as easy as that - it’s both and neither. Consumers who compare product types at the front end of a buying decision like this are risking either overpaying or buying the wrong type of insurance.

The answer to this is that the product should not drive your decision. The reason you’re buying life insurance should dictate the type of life insurance you buy. In other words, determine why you are buying life insurance and that will point you at the type of life insurance that is ‘better’ for your situation.

Term life insurance is less expensive than whole life insurance when you first buy it. It also expires or lapses (it’s called ‘renewable to’ by the industry) at a future age. Typically that’s between ages 75 to 85 for most Canadian companies. And term insurance premiums increase at set intervals (every 10 years for 10 year term life insurance for example).

Whole life is a subset of ‘permanent insurance’. Permanent insurance in Canada encompasses three types of life insurance; whole life, term to 100, and universal life. Permanent insurance premiums will be more expensive than term insurance initially but the premiums do not increase generally speaking. If a term and a permanent insurance policy were purchased at the same age, eventually the term life insurance premiums would increase past the permanent insurance premiums. At that future point the permanent insurance would actually become cheaper. And over the long haul, the total premiums paid for a permanent insurance policy should be less expensive that term life.

So which product should you buy? Again, that depends on your needs. Lets say you have a young family, mortgage, and other expenses. That means you’ll need a fair amount of coverage right now, and likely inexpensive premiums are a priority - cheaper ‘now’ is more important than ‘cheaper over many years’. In that case term insurance would be a better match. The future premium increases are offset by the assumption that you will need less insurance in the future as your mortgage is paid down, the kids leave home, and so on. In this scenario you are trading the risks of that future need decreasing and the future premium increases in exchange for cheaper premiums now.

If on the other hand you have estate needs, taxes due upon death, or want burial insurance, then you have a situation where you’ll need life insurance no matter what age you die at, and a need that does not decrease. In that case some form of permanent insurance would typically be recommended. You’ll pay higher insurance premiums now but they will remain level for life. As you age, those initially high premiums will start looking very cheap in comparison to what term premiums become in the future.

There’s also a third option - a blend of both. It’s possible to buy a permanent insurance base plan with a term insurance rider to top up the amount of insurance. For example you could buy $100,000 of permanent insurance with $400,000 of term insurance rider. That would give you a total of $500,000 of life insurance initially. Then as your needs decrease you can drop or decrease the $400,000 of term insurance rider and still keep the $100,000 of permanent life insurance. This combination of insurance types in one insurance policy is another viable option for those looking for a blend of high insurance amounts now but seeking insurance to cover final expenses in the future.

No matter what type of pilot license you hold most companies will ask you to complete an additional ‘Aviation Questionnaire’ when you apply. This form simply investigates in more detail what and how you fly.

If you’re a commercial pilot you will likely recieve standard rates for your insurance. In other words, your job as a pilot won’t affect your insurance rates. In fact, your job may in fact help your rates. Commercial pilots typically are required as part of their job to be very healthy, exercise regularly, and recieve regular medical checkups. That means generally commercial pilots may recieve ‘preferred’ rates that are slightly less expensive than regular rates for the average consumer. This is of course dependent upon individual underwriting at the time of the application.

For private pilots or those that fly as other than a regular fare paying passenger insurance companies will want to handle this in one of two ways. While your base insurance rates will be based upon your individual underwriting and health, your flying activities will demand some type of rating. In that situation insurers typically offer two options.

The first option is a ‘rating’. This means they will charge an extra premium to cover your flying activities. The second possibility is an ‘exclusion’ where the insurer will cover you as normal for all activities except for flying. Should you die while flying or piloting an aircraft you would not be covered.

In short, if you’re a commercial pilot you can expect to be treated as if you are in a normal risk career. If you fly small aircraft you can expect to be rated. That makes it even more important to shop the various carriers to ensure you’re recieving the lowest rate.

In most cases putting life insurance on children doesn’t make financial sense. Paycheque earners have a need to financially protect their families in the event of their death. Not so with children. There are any number of sales techniques used to promote the sale of individual policies on children, but that’s what they boil down to - sales techniques.

Now, there’s one instance where I do recommend insurance on children. And that’s when it covers a small need and is dirt cheap. CPR covers both of those well.

Here’s the way most CPR riders work. For a small premium - typically about $50 a year for $10,000 - the insurance company will cover all of your children whether that be 1 child or 30. And they’ll cover them generally from the ages of 15 days old to somewhere between 18 and 25; that varies a bit by company.

In addition once the children are old enough not to be covered under CPR any more, some companies will let them purchase their own individual policy without evidence of insurability. So if one of your children became uninsurable in the future but was covered under your CPR rider at some point they could still have their own albeit small life insurance policy.

Here’s the neat part though - the insurer will cover all of your kids for the one single premium. The same $50 (or so) covers all your kids regardless of how many you have. Have more? In most cases they’re automatically covered once they’re 15 days old without any additional cost.

So while I rarely if ever think insurance on children is a good idea, with all those great features and in conjunction with a very low cost, I do recommend the purchase of a CPR rider for most people.

Disability waiver or premium (WP) is intended to waive your premiums should you become disabled. More specifically this rider will pay your life insurance premiums after generally 90, should you become disabled per the definition of disabled in the life insurance policy.

Now that initially sounds like a good idea. You become disable, you still have your life insurance. And in fact the idea that you want to keep your life insurance should you become disabled IS a good idea. But this rider isn’t the way to pay for it.

Rather than buying disability insurance piecemeal on every little debt, a wise person should have proper disability insurance to protect a percentage of their entire income. For example, should you become disabled a good disability policy might pay 2/3’s of your regular income. That income can then be used to pay for your insurance policy as you would normally. And pay your mortgage. And make the car payments. And maybe buy some groceries. In other words, a proper disability plan should allow you to continue to meet your obligations and not just a small subset of your obligations.

Waiver of premium riders on life insurance policies, while they do work, are a bandaid solution to potential disability. Proper disability coverage should be taken out to cover your income, not just a small portion of your monthly outlay.

In short, like the accidental death benefit rider, disability waiver of premium rider is another option that I don’t normally recommend.

The Accidental Death rider pays out an additional death benefit should you die as the result of an accident. That may sound nice, but it’s important to remember that this rider costs money to buy; it’s not free.

I don’t recommend Accidental Death life insurance and here’s why. If done properly, you should know how much life insurance you need. If you die as the result of an accident do you all of a sudden need more life insurance? I don’t know of a single instance where more life insurance is needed because of ‘how’ you die. If you’re buying mortgage life insurance you don’t need more life insurance because you died as the result of an accident. If you’re planning estate needs, those needs don’t change because you died as the result of an accident.

In short, if you need additional life insurance, buy it. If you don’t need additional life insurance, don’t spend your money. The amount of insurance you need doesn’t change as a result of how you died.