Archive for the ‘BMO Insurance’ Category

Eurozone’s Debt Crisis Hits World Financial Markets – Again!

Can you safeguard your investments against Europe’s ongoing financial crisis?

The economic crisis in Europe continues. Here in Canada, thousands of kilometers away from the carnage, we might have thought things were OK. It seemed like France and Germany had brokered austerity deals with Greece and the rest of the P.I.G.S. (Portugal, Italy, Greece and Spain) that are all struggling to repay their crushing debts.

But no. Very much no. The crisis has only been simmering for that last year, as the populations in Greece and even France have rebelled against their governments. Elections held in Greece have now brought in a splintered government with no one party holding power. The diverse parties can’t seem to form a coalition government, and so there is no one steering the ship at present.

Greece has been awarded a second round of bailout money, totalling 130 Billion Euro, but so far the Greek government has not ratified the deal. Because the government is in disarray after the elections, there is no majority leadership to accept or decline the conditions attached to the bailout money. Greece must implement huge spending cuts, increase revenues with higher taxes, cut public sector jobs, reduce benefits, etc., etc. But the average person on the street who is suffering from the economic crisis also has a say. In the May 6 elections Greeks ousted the 2 main ruling parties – New Democracy and Pasok – because they were seen as brokering the austerity deals that have hurt the average person in Greece. More radical extremist parties have now been elected, promising to reject the austerity measures.

What does this mean for Europe. It’s not very good news. It could mean Greece leaves the Eurozone after defaulting on its debt. It could also mean that Germany and the European Central Bank (ECB) come to the aid of Greece to prevent a collapse, even if it means propping up an economy that refuses to bring its financial house in order. Both outcomes mean that Europe is in for more destabilizing financial crises and a prolonged super debt cycle.

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Debt is not just a Greek problem. France, Italy and Spain are the next on the chopping block with bloated government and household debts that need to be brought back in line. France has just elected a new socialist President, Francois Hollande, who campaigned on an alternative to French austerity measures passed by ex-President Sarkozy. Will France continue to rack up unsustainable debts under their new president? Will Germany and the ECB be forced to bailout France as well?

All this uncertainty is causing havoc on world financial markets. As European economies shrink, the demand for energy is going down, which means a drop in the price oil. This is bad for Canada. The Euro currency is also falling, which means European countries cannot afford Canadian finished goods and services. Also bad for Canada. And the retaliation against widespread austerity measures that is spreading across Europe could mean a decade or more in which Eurozone countries struggle to bring their financial houses back in order. This will continue to depress world financial markets and investment growth for a long time to come.

So, how can you as an investor protect yourself against the economic crisis in Europe? The Canadian insurance industry might have some answers to your investment woes.

GICs are no place to hide

Firstly, let’s look at Canada’s traditional safe haven for money; the Guaranteed Investment Certificate. Currently the 5 year fixed GIC rate in Canada is hovering around 2.5%. The Canadian inflation rate is running at about 2 – 2.5% at present, depending on the month. So, if you lock your money away to earn 2.5% and inflation is also averaging 2.5%, then at the end of your 5 year GIC the growth has merely kept up with inflation. At least you didn’t lose any money over the last 5 years. But you certainly didn’t gain anything either.

A Premium for Guarantees is a Small Price to Pay

If you still like the idea of investing is equities and funds, then you should really look into a segregated fund portfolio. Segregated or seg funds have guarantees attached to them so that you are protected from losing the principle of your investment. The maturity date, or length of time you must remain invested to benefit from the guarantee, is 10 years. Many segregated funds guarantee 75% of your investment will be there after 10 years, but some will offer a 100% guarantee.

And that’s not all. If you have a longer time horizon to invest than just the next 10 years, you can reset any gains you might have in the policy. If your investments do well in a given year, you can re-lock those gains and reset your 10 year maturity clock. Now your 75% or 100% guarantee of principle invested is set at the new, higher account value of your segregated fund portfolio.

You will pay more for these guarantees, in the form of a higher management fee, but it really might be worth it. Wouldn’t you like to sleep soundly at night knowing that no matter what happens to world stock markets, or how bad things get in Europe, you will never lose the money you invested.

Whole Life Insurance is a New, Stable Asset Class

For those investors who also need to buy life insurance to protect their loved ones and/or business from financial risk, a permanent whole life insurance policy can really make a lot of sense. Many investment planners in Canada and the US are looking at whole life insurance as a new asset class. The long term history (over 100 years of consistent performance of strong and stable returns) of paying excellent dividends to policy holders has made whole life insurance and extremely attractive financial product purely from an investment perspective. Coupled with your need for life insurance, and you have a product that does double duty – provides risk protection and gives you a strong investment return.

So what is the investment return of a whole life insurance policy made of? It is a dividend being paid out from the participating (par) fund. Both the par fund and the dividend payment have been explained in these two videos:

• What is the Whole Life Insurance Participating (Par) Fund?
• What are Dividends of Whole Life Insurance?

Also see an older article on Permanent Life Insurance as an Asset Class for more detail on using life insurance as an investment product.

Innovative new investment plans inside Universal Life protect against downside risk

Canada’s most loved life insurance policy that has been used for investment purposes over the last 25 years has been universal life insurance. Universal life allows policy holders to build a self directed investment portfolio inside their life insurance policy, with similar investment market returns to a mutual fund inside a tax sheltered insurance policy. This works really well when you are getting strong returns on your investment inside the universal life insurance policy, because the investment gains are not taxed and can compound more quickly.

Universal life doesn’t work very well when your investments are losing money, because the insurance company continues to extract the required premium to keep the life insurance inforce, and this can eat away at your investment account even more quickly as it is losing value. What universal life really needs is an investment account that has guarantees against downside risk – meaning you can make gains on the up markets but won’t take losses when the market declines.

Sound too good to be true? Well it’s not. One life insurance company in Canada (an soon more will follow I’m sure) has developed a unique and secure investment account as an option inside their universal life insurance policy. The company is BMO Insurance and they have a new Guaranteed Market Index Account (GMIA). This new account lets you participate in the growth of the equity markets (you get 60% of the market gains) and there is no chance of loss. So, when the equity markets are losing money, your portfolio has a 0% growth rate, but never a loss. When your investments again return to positive growth, the GMIA gives you 60% of the gains on the way up.

Again, not a bad investment option with economic uncertainty and volatile markets staying with us for the foreseeable future. And, you never lose money from your investment account, so the premiums for the life insurance protection never eat away at your investment fund as it is sliding down hill. This is excellent investment protection, and a much needed option for universal life insurance policies.

Get advanced investment advice from a life insurance broker

If you’re an investor who is sitting on the sidelines because you can’t find a safe place to put your money, maybe we can help. Contact Life Guard Insurance today to speak with a life insurance broker in your area who has access to all these products and can recommend solutions to protect your investments. The insurance industry is all about risk management, and we can protect your investments from economic risks like the Eurozone debt crisis.

The article was written by +Mitch Reynolds. If you found this article interesting or it made you think, please feel free to share your comments below. Liking us on Facebook, giving us a +1 on Google or Tweeting this article about the European debt crisis and investment risk would be very much appreciated.

Adding a Child Term Rider to Parent’s Policy is a Basic Life Insurance Plan for Children

A Child Term Rider provides risk protection today and converts to personal insurance tomorrow

Starting a life insurance plan for your children has never been as easy or as cheap as adding a child term rider to your personal life insurance policy. If you are shopping for your own life insurance plan or even if you already have one, you can add a child term rider (CTR) to the policy to cover all your children for one low price.

The most impressive feature of a child term rider is the conversion option when your child becomes an adult. This allows your child to pull the child term rider out of your policy and convert it into a much larger amount of personal life insurance without qualifying medically for the insurance. So, if effect, you are giving your kids the gift of “insurability” for their future – a gift that becomes very valuable if your child developed a health condition that made him/her uninsurable in the future.

How does a child term rider work?

A child term rider is an add-on to a regular adult life insurance policy. By adding the child term rider to their policy, parents can insure ALL their children with a level amount of benefit for one low monthly cost. Most child term riders offered by different insurance companies will allow parents to buy between $5,000 and $30,000 of life insurance coverage for each of their children.

As I said, the policy has one low cost and all children are covered. You need at least one child to be born in order to add the child term rider to your policy. Your children must be between the 15 days old and age 18 to get a child term rider. You must complete a simplified medical questionnaire for each of your children who are already born. The good news is that all NEW children you have will automatically be added to the child term rider without completing the medical questionnaire.

The child term rider doesn’t last forever. After a period of time the rider will terminate. This is different for each company. Most will only insure children until age 25. Some policies automatically cancel the child term rider after 20 years on the parent policy, while others will cancel when the child reaches age 25 or the parent reaches age 65, whichever comes first.

Let’s look at cost (maximum child term rider across a few different insurance companies):

• Sun Life – max benefit of $20,000: $8.10 per month
• Equitable Life – max benefit of $30,000: $13.50 per month
• RBC Insurance – max benefit of $30,000: $16.20 per month
• Canada Life – max benefit of $25,000: $13.50 per month
• BMO Insurance – max benefit $20,000: $16.85 per month

The conversion feature of a child term rider

The most important feature of a child term rider is your child’s ability to take over the rider as a personally owned life insurance policy when they become an adult. The child is allowed to take over the life insurance between the ages of 21 and 25 and convert it into any permanent life insurance policy available from the insurance company at the time.

The amount of life insurance that can be converted varies between companies. Most companies allow five times (5X) the base amount of life insurance to be converted without evidence of insurability. Some, like Canada Life, allow 10 times the child term rider amount to be converted. So, in the case of most companies, you could convert a $30,000 child term rider into $150,000 of personal life insurance. Canada Life would allow you to convert a $25,000 child term rider into $250,000 of personal life insurance that your child owns.

The conversion feature can be one of the most valuable financial plans you could ever give your child. If your child’s health was not good, and they developed a childhood disease like juvenile diabetes of cystic fibrosis, they would be uninsurable for a regular life insurance policy when they became an adult. The child term rider conversion option would allow them to get a large amount of personal life insurance without having to qualify for it medically.

Manulife Financial’s unique child term rider

Manulife has a unique child term rider that is different from all others in Canada. They have a small premium PER child of $2.50 per month. This can make the rider a much cheaper option if you have only one or two children. The child term rider has only one death benefit of $10,000 for each child. This is lower than the competition but the conversion feature is much better.

For each of your children you can convert their $10,000 child term rider into $250,000 of personal life AND critical illness insurance at age 25. The critical illness insurance conversion amount is limited to $100,000, but that would still leave $150,000 available for conversion into life insurance. All these conversions are done without evidence of insurability, even the critical illness insurance! The only stipulation is that your child does not have an illness that would immediately trigger a critical illness insurance claim at the time of conversion – like if he or she was currently dealing with cancer they could not get the critical illness conversion. The life insurance conversion for the full $250,000 would still be available, however.

Life Guard Insurance can set up your life insurance with a child term rider for your kids

If you are shopping for your own life insurance and would like to include your kids, or you would like to add a child term rider to an existing life insurance policy, we can help. Feel free to contact Life Guard Insurance to find out more about how to protect your children with a child term rider.

The article was written by Mitch Reynolds+. If you found this article interesting or it made you think, please feel free to share your comments below. Liking us on Facebook, giving us a +1 on Google or Tweeting this article about a child term rider would also be very much appreciated.