Life vs. Mortgage Insurance


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Detailed analysis of the different types of insurance and a comparison of mortgage and life insurance

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Life vs. Mortgage Insurance

  1. 1. By: Aleem Visram, HBA, MBA, IFIC, LLQP MIRFP Financial Planning Owner & Financial Advisor (647) 986-9163 Life vs. Mortgage Insurance
  2. 2. AGENDA 1. Introduction & Background 2. Why do you need insurance? 3. How much insurance do you need ? 4. Life Insurance or Mortgage Insurance? 5. Insurance 101 6. What are the different options?
  3. 3. About Me  Certified Financial Advisor by the Investment Funds Institute of Canada (IFIC) & Life License Qualification Program (LLQP)  Investment & insurance seminars conducted for Qualified Financial Services Canada, Carte Wealth Management, Economic Planning Board of Ontario, Network of Indian Professionals (Net IP Toronto)  Award winning Part-time Professor at the Schulich School of Business at York University  Keynote speaker for the Ivey School of Business Alumni Association & Schulich BBA and MBA Case Competitions  Over 10 years of Management experience with several Global fortune 100 companies, including Pfizer, American Express, Kraft, Novartis and Tata Beverages  HBA and MBA Graduate from the Richard Ivey School of Business
  4. 4. Why MIRFP Financial Planning? Multi Insurance Retirement & Financial Planning (MIRFP) has a proven track record of success with nearly 20 years in the Financial Services industry serving over 1,000 satisfied clients and over $17 million of investments  Full Service Financial Planning firm, covering Wealth Management, Tax, Retirement & Estate Planning and Insurance  Group of Independent Financial Advisors that work with nearly all the banks, mutual fund and insurance companies in Canada  We provide sound, unbiased advice and a customized Financial Plan that meets your individual needs and goals, based on your personal risk tolerance  We don’t charge any fees for consultation or service, so all of your money goes directly to your investments (the companies pay us directly, so nothing comes out of your pocket)
  5. 5. MIRFP Financial Planning As Independent Advisors we work with all these companies: We will provide you with the best rates available in Canada
  6. 6. Why do you need insurance? What would you do if something happens to you, how would you protect or cover the following costs?  Mortgage & Debts: You need insurance to protect your mortgage and debts, otherwise the bank or creditors can seize your assets  Monthly expenses: How will your family cover ongoing monthly expenses (rent, electricity, food, housing , entertainment, clothing, etc)?  Income: How will your family support themselves without your income? You need insurance for 10 times your annual income to support your family  Dependent children: how will your family cover the costs of daycare (average $10,000 per year), school, activities/ sports, toys/ gifts, healthcare , etc?  Education: the average cost per child for a post secondary education will be over $100,000 by 2015  Final Expenses, Probate & Executor Fees: average funeral costs are over $15,000 and probate & Executor fees are 3%-7% of your asset value  Inflation: average inflation of 2% per annum
  7. 7. Why do you need Insurance? Life Insurance gives you and your family protection and piece of mind in the event of your death  For a low monthly or annual fee, you can protect your family and ensure that they have enough money to survive when you’re gone without having to change their lifestyle or dip into their savings  Death benefits are paid TAX FREE in a lump sum to the beneficiary  With Permanent Insurance, you can accumulate retirement savings tax free and borrow against your insurance policy cash value Assume you have an income of $60,000 per year ($5,000 per month), how much insurance would you need just to cover your income?  At a 10% rate of return, you would need $600,000 of insurance, but at a 5% rate of return you would need $1.2 million of insurance to cover your $60,000 annual income
  8. 8. Mortgage vs. Life Insurance Example: $500,000 Insurance Coverage The value of mortgage insurance declines as the mortgage is paid, while Life Insurance coverage remains the same over the period of insurance Insurance Value over 25 Years $- $200,000 $400,000 $600,000 Years Mortgage Life Mortgage $500,000 $400,000 $300,000 $200,000 $100,000 $- Life $500,000 $500,000 $500,000 $500,000 $500,000 $500,000 1 5 10 15 20 25
  9. 9. Mortgage vs. Life Insurance Item Mortgage Insurance Life Insurance Policy Ownership Bank owns the policy You own the policy Beneficiary Bank is the beneficiary You choose the beneficiary Proceeds on death Bank uses the proceeds to pay for the remaining mortgage Beneficiaries choose to use the proceeds any way they like Insurance Rates Only standard smoker/ non-smoker rate options Preferred and elite rates make term insurance up to 33% cheaper than mortgage insurance Underwriting Post claim underwriting, increasing the risk of a claim being denied Coverage is underwritten at the time of the application and cannot be denied once approved Coverage value Coverage automatically decreases as the mortgage is paid off without any decrease in costs Coverage can only be decreased by you- any decrease will reduce the cost Options Limited options with banks as they only use one carrier Ability to shop around with multiple carriers for cheaper rates Selling property/ buying a new home Insurance ends once house is sold. Need a new mortgage insurance for a new home. Insurance coverage remains once property is sold. The owner gets the value of the house sold AND keeps their insurance coverage Guarantees Banks can increase rates or cancel the coverage on a group basis Rates and coverage amounts are fully guaranteed once approved
  10. 10. Mortgage vs. Life Insurance Item Mortgage Insurance Life Insurance Insurance Value Insurance value is ONLY for the mortgage value (i.e. $300,000) Unlimited insurance value up to $2 million per person Selling property John will lose the $300,000 mortgage insurance once the property is sold John will sell the house and make the $300,000 PLUS keep the insurance value (e.g. $500,000) Buying property John must reapply for a new mortgage for $500,000 to cover the house cost. Since he has a heart problem, he will not get approved or his annual premiums will be very high. $500,000 Life Insurance continues for the period of insurance (i.e. life) and the premiums will not increase. John will not need to apply for extra coverage. Example: John is a 63 year old who is retiring and has a property worth $300,000 that he wants to sell to buy a house for his children and grandchildren worth $500,000. He was recently diagnosed with a heart problem.
  11. 11. Life Insurance 101 TERM INSURANCE: Insurance coverage for a fixed period of time (e.g. 10, 20 or 30 years) as a low cost option to cover a specific need (e.g. mortgage). PERMANENT INSURANCE 1. Whole Life: owner pays a fixed guaranteed premium for the whole life of the insured with potential guaranteed cash values and reduced paid-up insurance. Additional flexibility to manage the premiums, coverage and investment component for retirement planning. 2. Universal Life: fixed or variable premiums to provide insurance for life. Cash values are based on investment returns.
  12. 12. Life Insurance 101 Item Term Whole Life (WL) Universal Life (UL) Pros - Cheaper option for younger age - Option to covert to Permanent Insurance with no additional medical - Guaranteed level cost option for life that doesnt increase - Potential guaranteed cash values -Lifetime coverage with tax free savings and dividends as cash values -Guaranteed death benefit with option to pay for 20 years or for lifetime - Can use cash value or dividends to pay for insurance premiums - If insurance is cancelled, you can get cash values refunded or reduced insurance coverage for life (paid up additions) -Insurance doesn’t cancel if payments missed- option to use cash values to pay for insurance -Guaranteed level cost option for life that doesnt increase - Lifetime coverage with tax free savings and investment returns as cash values - Guaranteed death benefit with option to pay for 20 years or for lifetime -Can use cash value to pay for premiums - If insurance is cancelled, you can get cash values refunded -Insurance doesn’t cancel if payments missed- option to use cash values to pay for insurance Cons - Increasing cost with age - No cash value - Cancelled if payments are missed - Expires at age 80 when chances of illness and death are higher - More Expensive than Term - More expensive at a higher age - More Expensive than Term - More expensive at a higher age
  13. 13. 19 67 175 446 2,240 10,287 31,336 63,451 10 Year Term 20 Year Term 28 6,756 203 31,160 45,803 Whole Life (WL) Min Pay 64 7,693 15,386 23,079 30,772 43,081 WL 20 Pay 109 26,253 Cash Value 15,400 34,100 58,300 COMPARING INSURANCE METHODS Male Non Smoker Age 44 $100,000 Insurance AGE 44 54 64 74 80 100 3,381 Monthly Cost Total Cost Source: Empire Life Envision software 2012
  14. 14. For a FREE Consultation, contact: Aleem Visram, HBA, MBA, IFIC Co-Owner & Financial Advisor Cell: (647) 986-9163 E-Mail: Website: