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Which Term Life Insurance is Right for You?

by Foresight Financial | Sep 1, 2025 | Blog, Insurance, life insurance

Once you have decided on how much life insurance you need, your next decision is whether you are going to use term insurance or permanent insurance to provide it. For many Canadians, while permanent cash value life insurance offers a significant opportunity for them, many initially utilize renewable and convertible term life insurance. Most life companies in Canada offer 10-year, 20-year and 30-year renewable term policies. In deciding which one is right for you, attempt to match the need to the term. While 10-year term might have the lowest entry level cost, the renewal premiums will be substantially higher. If you have a young family, ask yourself, will I still need protection beyond the 10th year? If that answer is yes, then a longer renewal period is more appropriate.

In making your choice, it is important to understand how renewable term policies function. In Canada, the renewal of the coverage is automatic (unless you decide not to renew) and guaranteed. The premium on renewal, however, will increase dramatically. Anyone who has 10-year renewable term insurance, instead of renewing it, should rewrite the policy for a new term period. This, of course, will require the individual to provide medical evidence that he or she is still in good health. If the insured has become “uninsurable” he or she still has the option of the guaranteed renewal. To protect itself from being left with only “poor risks” the life insurance company builds a hedge into the guaranteed renewal premium.

For example, Dave, a male age 40 who is a non-smoker can purchase a 10-year renewable term policy with a death benefit of $1,000,000 for $570 per year. At the end of the 10th year, the guaranteed renewal premium for that policy is $ 3,970 per year. If Dave was still a standard risk, a new $1,000,000 10-year term policy would cost $1,310 per year at his age 50. The problem is, what if he was no longer insurable due to an adverse change in his health or other factors? If Dave still needed the coverage, and he didn’t want to convert the policy to a permanent plan such as Whole Life, he would have no other option but to pay the $3,970 annual premium.

Let’s look at Dave’s situation and see if we can come up with a better solution for him. Dave is married and has two children ages 7 and 9. He and his wife have concluded that they do need $1,000,000 of life insurance but their current finances only allow them to consider renewable term insurance. With the ages of their children, it is probable that the coverage will be needed for longer than 10 years, but it is hard to ignore the very low premium on 10-year renewable coverage even though 20-year coverage is more appropriate. Dave studies the numbers shown above and compares them to the 20-year plan which costs $940 per year for 20 years.

In a perfect world, if Dave were able to re-write the 10-year term policy in year 11 (assuming the same premium rates are still available) his policy in year 11 would cost $1,310 per year. His average cost over the 20 years would be $940 per year, the same cost as the annual premium for the 20-year term. The risk Dave would be taking with the 10-year coverage, however, is if he had to accept the renewal premium in year 11. Then the average cost per year would rise to $2,270 over 20 years.

If Dave was still not in a position of having the necessary cash flow to support the higher 20-year premium, all is not lost. Many 10-year renewable term policies now have a provision that the policy can be converted to 20-year term in the first 5 to 7 policy years without a medical. When Dave’s income rises or some of his debt is reduced then the increased cash flow can be used to change to policy to a longer term. Remember, while the longer term is more appropriate for most individuals the important thing is to have the proper amount of coverage.

Depending on circumstances, in many situations 20-year term coverage may not even be long enough. Terms of 30 years or longer are available. One common and recommended strategy is to layer your coverage. For example, in Dave’s case, even after 20 years when his children have grown, been educated and left the house (hopefully), there will probably still remain a need for some life insurance to protect Dave’s spouse. With this in mind, Dave could start with a foundation of longer term or even permanent coverage and add to it coverage with a shorter-term period.

Let’s discuss your circumstances, objectives and cash flow to enable you to build an insurance portfolio that will best suit your needs.

As always, please feel free to share this article with anyone you think would find it of value.

Rates shown are from a major Canadian Insurance company and are current at the time of this article.

SIX IMPORTANT REASONS TO HAVE A WILL

by Foresight Financial | Aug 1, 2025 | Blog, Estate Planning

It has been said that a Will is the last message you will leave your family. Having a Will can provide clear direction as to what your wishes are and who will get what. Die without a Will (known as dying intestate) and chaos will likely be the result. Having a Will allows you to provide for certainty instead of chaos.

Most of the reasons to have a Will have to do with what happens if you don’t have one and that often will depend on what province you reside in. Each provincial government has its own Wills and Estate legislation which also provides for the rules regarding intestacy. The following are some of the reasons to have a Will and what could result without one.

1. Informs your family how and when your property is to be distributed

Your Will affords you the opportunity to give clear instructions as to whom will receive your wealth. It also allows you to make bequests of certain items such as family heirlooms which you may wish to leave to a specific individual. For those who wish to leave funds to a charity, the Will allows you to do this. Without a Will, this opportunity may be lost. The bottom line is that you make the call. Dying without a Will means that the provincial government will make the determination on how your estate is to be distributed depending on the intestacy laws.

For example, if there is a spouse and children, the spouse will usually receive a specified amount. That amount can vary between $200,000 and $300,000 depending on the province. Any amounts over that are, for most provinces, split between the children and the spouse. The amounts due to the children, however, are not received by them until they reach the age of majority. Up until then, those funds are administered by the provincial government. If you reside in Alberta, the children receive nothing, and all goes to the spouse.

If you die without a spouse and without children, then the assets will be left to parents, siblings, nieces and nephews, in that order. The government will receive all if there are no relatives. And remember those family heirlooms that you could dictate to whom they went in your Will? Without a will those and other similar assets will most likely have to be sold so the estate can properly be distributed.

2. Allows the testator to name an Executor

The task of the Executor is to administer the estate and ensure that the testator’s wishes are carried out. Without a Will, there is no Executor, and an administrator must be appointed by the government. Usually, this will be the spouse, but if the spouse is not willing or capable then someone else will have to be found to carry out this function. Regardless, the result usually will be unnecessary delays and increased expenses.

In administering estate assets, the role of an Executor also helps to ensure that there is no loss of estate assets due to lack of oversight prior to the assets being distributed.

3. Protects a common law spouse

British Columbia, Saskatchewan, Manitoba, North West Territories and Nunavut recognize common law marriages where the parties have lived together for more than 2 years. In these jurisdictions common law spouses have the same rights as a married spouse. In all other provinces, however, they are not recognized and as a result are entitled to nothing. There may be exceptions where a dependency claim can be made to the courts, but that could prove to be expensive and result in significant delays. It also could result in other family members making objections to the court. With a properly drafted Will, the rights of a common law spouse are protected.

4. Naming a guardian for your children

Having the choice as to who will look after your children should you die is an extremely important reason to have a Will. This is especially true in the case of a common disaster involving both parents. Consider the unimaginable scenario in which the decision as to who should be the guardian of your children was left to the courts.

5. Leaving instructions for your funeral, burial or cremation

A Will affords you the opportunity to leave concise instructions regarding your funeral arrangements. Dying without a Will or with no clear directive could cause stress and family discord.

6. Proper estate planning can result in income tax savings

Estate planning, including a properly drafted Last Will and Testament, may result in tax savings. On the other hand, dying intestate will see this opportunity lost and administrative costs increased.

It is unfortunate that many Canadians do not have a Will. While there may be some circumstances where a Will is not necessary, for those Canadians who are married and have children, a Will is vital and should not be overlooked. Ideally, a Will should be drafted by a lawyer who is acquainted with all the technical requirements and contingencies that come into play.

If you are without a Will, talk to a professional who can assist you as soon as you can.

If you found this article helpful, please share it with others who might benefit from it.

Retirement – Are You Prepared?

by Foresight Financial | Jul 1, 2025 | Blog, Retirees, retirement, rrsp, Tax Free Savings Account

Whether you are decades away from retirement or if it is just around the corner, being aware of the planning opportunities will take the fear and uncertainty out of this major life event.

Blue sky your retirement plans to get clarity

As you approach retirement, preparation and planning become extremely important to help ensure that this period of your life will be as comfortable as possible. If you are like most, you have spent considerable time contemplating the type of retirement you wish for yourself.

Is extensive travel your dream?
Do you have an expensive hobby or two you want to take up?
Will you stop working totally or continue to do some work on your own terms using your life experience and skills to supplement your income?
Will you remain in your house or will you downsize to smaller, easier to care for premises? Or perhaps housing that will be more compatible with the challenges of aging?

There are many lifestyle issues that need to be considered but to realize these dreams you must also be really secure in retirement, so the financial issues must be planned for as well.

The big question – How much will I need to retire?

Recent studies reported that middle and upper-middle-class couples spend approximately $50,000 to $60,000 per year in retirement. If this seems a lot lower than what you and your spouse are spending now, it probably is. That is because most retirees no longer have the same level of expenses around housing, education and raising a family.

According to Statistics Canada, the average age for retirement in Canada is just shy of 64 years. For self-employed individuals that rises to 68 and for federal employees (love those pensions), it is 61½. Many financial advisors use a rule of thumb that says you will need a nest egg of approximately 25 times your post-retirement spending.

The average CPP retirement pension is approximately $8,800 per year or approximately $17,600 per married couple (if spouse qualifies for income at the same rate). Assuming a 4% withdrawal rate and adjusted for inflation, this means that a middle-class couple would require a retirement fund of approximately $810,000 to $1,100,000. If you do not qualify for or wish to ignore your government benefits, you would require between $1,250,000 and $1,500,000. For those lucky enough to have participated in a company pension plan, you may already have sufficient retirement income.

8 Retirement planning tips

Review your sources of retirement income

Registered plans -including RRSP’s, corporate pension plans, TFSA’s
Government programs – CPP, QPP, OAS, etc.
Non-registered investments – stocks, bonds, mutual and segregated funds, cash value life insurance, prescribed life annuities
Income-producing real estate – including proceeds from the sale of principal residence if downsizing.

Eliminate or consolidate debt – Try to avoid carrying debt into retirement. If interest rates rise and your retirement income is limited or fixed your lifestyle could be negatively affected.

Understand your government benefits – Review what government programs you are eligible for.

Know your company pension plan – If you are a member of a company pension plan review your pension handbook or meet with the pension administrator to understand what options are available for you. This should include reviewing the spousal survivor options.

Reduce or eliminate investment risk – Consider reallocating your investment portfolio in contemplation of retirement to eliminate or reduce risk. You may want to shift away from primarily equities in an effort to provide more stable returns.

Protect your savings and income – Also, consider effective risk management to avoid depleting assets in the case of a health emergency affecting yourself or a family member. There are many insurance options available to help you do this including Critical Illness, Long Term Care and Life Insurance.

Know your health benefits – Determine how you will maintain your dental care, prescription, and other extended health costs through retirement.

Review your estate planning strategy – Are you still on track or do modifications have to be made to wills, trusts, tax planning, shareholder and other agreements?

Tax planning in retirement

Tax planning most likely was part of your investment strategy during your working years and you shouldn’t abandon that now just because you are retired. Tax planning is just as important as it was pre-retirement.

Pay attention to the following:

Mark your calendar for your 71st birthday – By the end of the year you turn age 71, you must convert your RRSP’s into RRIF’s or annuities. There will be adverse consequences if you do not so be sure to take note.
Defer your taxable retirement income until age 71 – Since your income from your RRIF or registered life annuity is fully taxable, try to bridge your income from date of retirement to age 71 using non-registered funds. Your TFSA is a perfect vehicle to accomplish this so try to contribute the maximum (or exercise the catch up) for you and your spouse during your working years. Also, taking income from your segregated or mutual funds will also be an effective way of bridging your retirement income until age 71 at a very low tax rate.
RSP contributions in year you turn 71– If you have unused RRSP contribution room you can make a lump sum contribution until December 31st of the year you turn 71. Your resulting RRSP deduction can be carried forward indefinitely and will allow you to spread out the deduction over any number of years reducing the tax on your future retirement income.
Try to avoid any claw backs – Your objective should be to effectively reduce line 23400 on your income tax return (net income before adjustments). Paying attention to how your investment income is taxed will assist with this. For example, the type of investment income that creates the most impact on line 23400 is dividend income which is grossed up for income purposes to between 115% to 138% of the dividend received. On the other hand, for capital gains only 50% of the gain is taxable.
Continue to obtain professional advice – Continue to work with your advisors to find ways for you to reduce your post-retirement tax bill to allow you to keep more dollars in your wallet.

Planning for a healthy retirement both financially and physically will ensure that you can enjoy a long and well deserved retirement on your terms.

Why an Advisor Makes a Difference in Net Returns Over DIY Investors

by Foresight Financial | Jun 2, 2025 | Blog, Investment

It’s a common question in recent times, especially in an age when technology and algorithms can make decisions at a fraction of the cost. Is it worth it to hire a financial advisor? Or is it better to save the fees and go for a DIY strategy?

It depends who you ask but there are many – often not so obvious – factors that could make a difference to your net returns when putting your trust in a financial advisor.

Proper financial planning goes beyond how and where you invest. Good financial planning can increase your standard of living throughout your life.

Even for a complete novice it is possible to start investing in products without the help of professionals. The problem with this option is the lack of knowledge. Knowledge is crucial when it comes to investing.

Financial advisors analyze and study the markets on a daily basis and know which factors are likely to influence which part of the economy in a positive or negative way. This knowledge and expertise will have a huge impact on your net returns in the long run.

Just like in any other industry, some advisors will be more competent than others. Additionally, future economic markets are far from certain and financial advisors can only advise on the most appropriate strategy for your finances, they cannot guarantee any sort of return or success. Ultimately you are responsible for your own money and can decide whether or not to take the advice. However, saying that, it is still more prudent to rely on even the most average of advisors than following your own DIY investing approach.

You can study up on as much financial data as is humanly possible but actually putting a sound financial plan into action is not always that easy.

Most DIY investing strategies will focus on index funds which aim to mirror a specific market index. This might be a safer, less complicated strategy but it will also be reflected in the returns you are likely to see. When you invest in a market index for example, it’s obvious that you can’t beat that market. When you engage with a financial advisor however, they are able to propose various alternatives that are not just focussed on one strategy. This has the potential of resulting in excess returns, higher than related benchmark indices.

An advisor will also look at your situation and can recommend investment in specific stocks and securities, depending on the market and company performance indicators. More risky, yes, but that’s why you hire a financial professional. And again, the increased risk will be reflected in your returns which are likely to be higher.

Above we mentioned that an advisor will look at your personal circumstances and design a course of action based upon that. This is important because we are not all the same and we are all in different stages of our lives. The problem with DIY investing solutions is that in most cases it provides a blanket strategy with very little option for personalization. That’s where the personal advice from an advisor becomes invaluable. They can adjust your financial strategy according to changes in your situation and the economic markets to maximize returns.

Your situation is also less likely to get any simpler as time goes on. In fact, it’s bound to grow more complex. You might have children, receive an inheritance and start thinking about retirement. All of a sudden, there’s a lot to think about. If you have access to an advisor, you can discuss this with them and they can advise you on the best possible options. Instead of keeping track of it yourself and potentially losing out on profitable returns.

Managing your own money can be an emotional experience for most people. Believe it or not, emotions can have a detrimental effect on the ROI you are likely to see. Especially if you’ve had negative financial experiences in the past or currently find yourself in a difficult financial position. This is true even for experienced financial individuals. A neutral third party is therefore essential in situations like these. Financial advisors will have your best interest at heart while still being able to make wise financial decisions, without emotions clouding their judgement.

There’s a misconception that advisors are only for the rich and wealthy. Yes, there is a charge for their products and services. But the potential for higher net returns more than makes up for the money spent in the long run. There is great value in a comprehensive financial strategy and informed financial decision making. There’s also more to it than just merely choosing between different investment options.

Protecting Estate Values When Your Investments Decline

by Foresight Financial | May 1, 2025 | Blog, Estate Planning

The total net value of your estate represents what you will leave to your family when you die. It may include the following:

Your residence;
Cottage or other recreational property;
Investment real estate;
Stocks, bonds, mutual funds and commodities
Life insurance;
Any other assets you wish to leave to your heirs.

After paying off any liabilities, taxes arising at death, last expenses etc., what is left over is what your family will use to maintain the lifestyle that you created for them.

Two easy ways to make sure debt and investment losses do not impact the estate you leave for your family

Insure your debt
Insure against market drops and other investment losses

Consider life insuring your debt and investment declines so that your heirs are not burdened by outstanding liabilities and market fluctuations.

In 2008, many investors experienced a decline of 40% to 50% in their equity portfolios resulting in a significant reduction in the amount of the estate to be left to their beneficiaries.

A greater problem was experienced by those that had used bank loans to leverage their investments. The value of those investments may have declined by up to 50% but the loan balance didn’t decrease at all.

Even if the investments are not leveraged, there is always a risk to the estate should the equity markets decline.

Be Prepared – The risk of waiting to insure for losses

Of course, you could always top up your life insurance when the market declines right? Not necessarily. If you have lost all or part of your insurability due to health that could be a problem.

Consider hedging against possible future decreases in your investments by purchasing life insurance specifically for this reason.

For hedging purposes, any form of life insurance can be used. Term insurance is an inexpensive way to insure for shorter terms such as 10 or 20 years.

Participating Whole Life Insurance should be considered for protecting your investments through diversification and building in stable returns. It is the only type of life insurance that is guaranteed to increase in value and death benefit regardless of equity market conditions.

Other benefits of Participating Whole life include

Can be used as an investment in place of bond or GIC-type investments.
The cash values of these policies grow on a tax-deferred or tax-free basis.
If funds are required for unforeseen expenses or to make additional investments, the policy can be borrowed against either from a lending institution or directly from the insurance company.

Using Participating Whole Life insurance satisfies two objectives – providing a hedge against equity values declining prior to death and adding additional stability and less volatility to the overall portfolio.

Summary of how to manage the risk of estate shrinkage due to adverse equity market conditions:

Hedge the estate value of your investments

Select a percentage of your equity investments that you wish to protect if you die when market values have fallen. Purchase life insurance for this amount. For example, if you have $2,000,000 of equity investments and you wish to hedge 40% consider buying $800,000 of life insurance.

Life insure the loan in a leveraged investment strategy

It’s always a good idea to life insure debt. This is particularly the case when insuring leverage loans to protect against investment values falling prior to death while the loan is still outstanding.

Consider Participating Whole Life as a method to optimize your estate

Unlike equity investments, the values of a whole life policy cannot decrease. As long as the premium is paid the cash value and death benefit will continue to increase. This provides stability in your investment portfolio and reduces volatility. The increasing death benefit will optimize the value of your estate for the benefit of your family and heirs.

Combining your investment portfolio with an effective life insurance strategy to maximize the value of your estate is a prudent means to provide for your family. Great comfort comes with the knowledge that even if your investments decline your family will be adequately provided for in the manner you wished them to have.

Connect with me if you wish to discuss this further. As always, please feel free to share this with anyone you think will find it of interest.

Life Insurance and the Capital Dividend Account

by Foresight Financial | Apr 1, 2025 | Blog, business owners, corporate, Insurance, life insurance

Many business owners are unaware that corporate owned life insurance combined with the Capital Dividend Account (CDA) provides an opportunity to distribute corporate surplus on the death of a shareholder to the surviving shareholders or family members tax-free.

Income earned by a corporation and then distributed to a shareholder is subject to tax integration which results in the total tax paid between the two being approximately the same as if the shareholder earned the income directly. Integration also means that if a corporation is in receipt of funds which it received tax-free, then those funds should be tax-free when distributed to the shareholder.

The Capital Dividend Account is a notional account which tracks these particular tax-free amounts accumulated by the corporation. It is not shown in accounting records or financial statements of the corporation. If there is a balance in the CDA it may be shown in the notes section of the financial statements for information purposes only.

Generally, the tax-free amounts referred to, are the non-taxable portions of capital gains received by the corporation and the death benefit proceeds of life insurance policies where the corporation is the beneficiary.

Life insurance proceeds received by a private corporation

The death benefit of a life insurance policy that is owned by a private Canadian corporation less the adjusted cost basis (ACB) of that policy, can be credited to the Capital Dividend Account. The government’s reasoning in deducting the ACB from the CDA credit is that if the corporation had paid the premiums to the individual shareholder to pay for the insurance, those payments would have been taxable.

In calculating the ACB, the following factors are taken into account:

Premiums or deposits made to the policy increase the ACB;
Policy loans, paying of dividends in a participating policy and partial dispositions reduce the ACB;
Repaying policy loans, purchasing paid-up insurance and adding any term insurance riders increase the ACB;
The annual net cost of pure insurance (NCPI) reduces the ACB.

The NCPI is the pure mortality cost of the life insurance and is contained in a table in the Income Tax Act. The NCPI, which increases each year with age, is applied to the net amount at risk in determining the reduction of the ACB for that policy year. The net amount at risk is defined as the total death benefit minus the cash value of the policy.

Normally, the ACB of the policy increases each year ultimately resulting in a total erosion. Once the ACB reaches zero, the full amount of the death benefit is eligible for Capital Dividend Account credit.

Frequently asked questions about the Capital Dividend Account

Does the corporation have to be Canadian controlled? No. It is only required that the company is a Canadian private corporation.

Can the corporation be publicly owned? No. Only private corporations qualify.

What is the tax treatment of a Capital Dividend paid to a non-resident shareholder? Capital dividends paid to a non-resident shareholder are subject to a withholding tax. In the absence of a resident of a country without a Canadian tax treaty the withholding tax is 25%. With a tax treaty, the rate will be reduced. For an individual living in the U.S. for example the withholding rate would be 15%. The capital dividend would most likely be taxable to the non-resident in their own country.

Does the company still get a CDA credit when a policy is assigned to a bank and the death benefit is paid directly to the lender? Yes. Although the proceeds of the life insurance policy may never actually be received directly by the corporation, it still creates a CDA balance equal to the total death benefit minus the ACB of the policy.

For many business owners the ability to have life insurance paid with lower taxed corporate dollars and still be able to have the proceeds eventually flow to their families on a tax-free basis is an opportunity that should not be overlooked.

As always, please feel free to share this article with anyone you think would find it of interest.

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