Get the answers to your questions.
Insurance FAQ
Life Insurance
What is life insurance?
In simple terms, life insurance is a tool that helps to reduce the risk of financial loss or hardship. It is a contract between an individual and insurance company, where the insurer promises to pay a specific amount of money known as the death benefit, to the designated beneficiary upon the death of the insured person. To get this benefit the policy holder needs to pay a premium to the insurance company.
What are the different types of life insurance?
There are several types of life insurance, including term life insurance, whole life insurance, and universal life insurance. Depending on the type that is suitable and peculiar to your need, each type has distinctive features and benefits.
Why do I need life insurance? What are the benefits?
Life insurance can provide financial protection for your loved ones in the event of your death. It can help cover final expenses like funeral or cremation costs, outstanding debts, mortgage payments, replace lost income for dependents and fund children’s education. Insurance can assist with business and/or farm succession and transition planning.
What are the factors that determine life insurance cost?
Factors that determine life insurance cost include, but not limited to policy type, age, sex, smoking or vaping, health, occupation, family medical history, and lifestyle.
Do I need life insurance as a single person with no dependents?
You may still need life insurance to cover funeral costs, pay outstanding debts, bequeathing a legacy to a loved one or charity.
Is Life insurance benefit taxable? / Will my beneficiary pay tax on the proceeds of life insurance policy?
When you name a beneficiary on your life insurance policy, the death benefits are not taxable. However, if you name your estate as the beneficiary or if all beneficiaries die before you, it may incur estate fees.
How much coverage do I need?
The amount of life insurance you need depends on your annual salary, expenses, financial goals and the purpose of the insurance.
What happens if I stop paying my premiums? / What if I cannot pay my premiums?
Depending on the type of policy and the terms and conditions set by the insurance provider, non-payment of premium can result in your policy being canceled after the grace period.
Can I cancel my insurance policy?
Yes, but should you? Have you thought about the Risk? Replacement?
It is important to consider the risks and the potential consequences before making a decision and it is always recommended to have a replacement insurance policy in place before cancelling your existing one. This ensures you are always protected and prepared for any unexpected event.
Can I borrow against my insurance policy?
Certainly. Depending on the type of policy, such as Whole Life Insurance or Universal Life Insurance, there may be a cash value component included. These policies allow for cash accumulation over time. In contrast, Term Life Insurance typically lacks such features and can only be utilized as collateral if it meets the lenders requirements.
Critical Illness
What is Critical illness insurance?
Critical illness insurance is a type of insurance policy that provides a lump-sum payment to the insured if he or she is diagnosed with a covered illness specified in the policy.
Why do I need Critical illness insurance?
Critical illness insurance can provide financial protection by offering lump-sum payout to cover expenses related to a critical illness such as medical bills, loss of income during recovery, treatment costs, etc.
Why do I need a Critical illness insurance when I have health insurance?
Critical illness insurance can serve as a valuable supplement to health insurance, offering additional coverage. It proves especially beneficial upon diagnosis of life-threatening illnesses outlined in the policy, providing financial assistance for both covered and uncovered expenses throughout the recovery period.
What illnesses does critical illness insurance cover?
We have the Basic plan which covers heart attack, cancer, and stroke which are common critical illness in Canada and the Enhanced plan which covers at least 25 critical illnesses.
Disability Insurance
What is the essence of disability insurance?
Disability insurance is to provide financial safety in a period when an individual is unable to work due to illness or injury and generate income. It pays a percentage of an individual’s salary during this period, and this serves as an income which can be used for medical expenses and living expenses.
What are the types of disability insurance?
We have short-term disability insurance, long-term disability insurance, and disability mortgage insurance.
Short-term disability insurance provides temporary income replacement, usually three to six months coverage based on the policy, for an individual that is unable to work due to injury or illness.
Long-term disability insurance offers income protection to an individual unable to work or return to his or her daily work life due to a chronic illness or severe injury. This type of disability can be from a year up to age 65. The insurer usually monitors the insured in order to retain the long-term disability benefits.
Disability mortgage insurance provides financial protection for insured individuals in the event of disability, rendering them unable to work and make mortgage payments. This policy offers coverage for either the entirety or a portion of the mortgage amount on a bi-weekly or monthly basis. A waiting period of 60 days from the onset of disability is typically required before benefits are received.
What determines the type of disability insurance to get?
This depends on the kind of coverage you need, your occupation, the cost of the policy, your budget and income.
Segregated Funds
What are the benefits of Segregated Funds?
Segregated funds offer highly diversified investment opportunities, professionally managed to maximize returns. They provide potential creditor protection against bankruptcy or other liabilities, ensuring the safety of your investments. Additionally, benefits are paid tax-free directly to beneficiaries, streamlining the process without unnecessary complications. The guarantees and reset options inherent in segregated funds make them particularly unique, offering added flexibility and security for investors.
Who sells Segregated Funds?
In Canada, only licensed insurance advisors affiliated with insurance companies have the authorization to sell segregated funds to the public.
What are the fees and costs associated with buying Segregated funds?
Typically, segregated funds tend to have higher Management Expense Ratios (MER) compared to mutual funds. These MERs encompass management fees, operating costs, and insurance fees, all of which are integrated into the funds.
What is the guaranteed aspect of Segregated Funds?
The fund provides between 75% to 100% maturity and death benefit guarantee of the principal invested after keeping it locked in till maturity. It depends on the option you choose on your contract.
How are segregated funds managed?
Segregated funds are managed by professional fund managers in an insurance company.
Investment FAQ
Registered Retirement Savings Plan (RRSP)
What is an RRSP?
An RRSP is a tax-advantaged investment account available in Canada to help individuals save for retirement. Contributions to an RRSP are tax-deductible and investment income(s) are tax deferred.
Who can contribute to an RRSP?
Canadian residents who have earned income, either employed or self-employed, and filed tax return can contribute to an RRSP until the age of 71.
How do I know my annual contribution limit for RRSPs?
Contribution limits are determined by the individual’s earned income and can be found on the Notice of Assessment from the Canadian Revenue Agency (CRA). According to the CRA, the contribution dollar limit for 2024 is $31,560 and a computation of 18% of the previous year’s earned income up to the stated amount by the CRA.
What type of investment can be held in an RRSP?
An RRSP can hold various investments such as cash, gold, Guaranteed Investment Certificates (GICs), bonds, mutual funds, Electronic Funds Transfers (ETFs), and stocks. However, it cannot hold commodity futures, real estate or precious metals.
What are the benefits of RRSPs?
RRSPs have many benefits such as savings growing tax-free in the account, tax deferral on income, tax deductible contributions, conversion to RRIF or annuity at retirement, reduction of tax burden using Spousal RRSP, and borrowing to secure first home under Home Buyer’s Plan or Lifelong Learning Plan.
What are the different types of RRSPs?
There are four major types of RRSPs, we have the individual, spousal, group and pooled RRSPs.
What is Individual RRSP?
This account is registered in a personal name. The investments held in it and tax benefits are only for the person whose name is on the account. The investment portfolio in an individual RRSP can be self-directed (managed privately) or handled by a professional.
What is Spousal RRSP?
This is an RRSP registered in the name of your spouse or common-law partner. It is only the registered spouse that has control over the account. The contributory spouse can only contribute to the account and get tax deduction based on the contributions made. It is an ideal way for a high earning individual to reduce tax and practice income splitting.
What is Group RRSP?
This is a registered account created for eligible employees of an organization by the employer to save for retirement. The contributions to the plan are directly deducted from payroll and the investment decisions are determined by the employer.
What is Pooled RRSP?
This is a registered plan designed for self-employed individuals or employees of an organization who do not have workplace pension and are willing to save for their retirement.
Tax Free Savings Account (TFSA)
What is TFSA?
A savings and investment account available to Canadian residents aged 18 and older. Contributions to a TFSA grow tax-free and withdrawals are tax-free too.
What are the benefits of opening a TFSA?
A TFSA allows earnings such as interest, dividends, and capital gains tax-free for life. Withdrawals can be done at any time without penalties, depending on restrictions of investment type, and it is tax-free.
What type of investments can be held in a TFSA?
A TFSA account can hold different types of investments such as GICs, mutual funds, stocks, bonds, and EFTs. The term of the investment may restrict access to funds.
How much can I contribute to TFSA?
The contribution limit is set annually by the Canada Revenue Agency (CRA) on behalf of the Canadian government. The 2024 contribution limit is $7,000. Unused contribution room accumulates and can be carried forward to be used in the future.
Are contributions to a TFSA tax-deductible?
Contributions to a TFSA are not tax-deductible but earnings or investment growth in it are tax-free.
Can I have multiple TFSA accounts?
Yes, you can have multiple accounts at different financial institutions but your contribution limit on all these accounts cannot exceed your available contribution room for the year.
What happens if there is an over-contribution in my TFSA?
Over-contributions to a TFSA are subject to a penalty tax of 1% per month on the excess amount until it is withdrawn.
Registered Education Savings Plan (RESP)
What is an RESP (Registered Education Savings Plan)?
RESP is a tax-advantaged investment account in Canada designed to help save for a child’s post-secondary education.
What are the benefits of opening an RESP?
Contributions are not tax-deductible and investment income grows tax-deferred until withdrawn. In addition, the beneficiary may be eligible for the Canada Education Savings Grant (CESG) and Canada Learning Bond (CLB). Another benefit is that contributors (mostly parents and grandparents) can withdraw their contributions tax-free.
How much can I contribute to an RESP?
There is no annual contribution limit but there is a lifetime limit of $50,000 per child.
What happens if the child does not pursue post-secondary education?
The RESP (Registered Education Savings Plan) can remain open for up to 36 years, giving the beneficiary ample time to pursue eligible post-secondary education in future. Additionally, the RESP can be transferred to another sibling of the original beneficiary. However, if the contribution is withdrawn, it will be tax-free, but the Canada Education Savings Grant and Canada Learning Bond must be returned to the government. The investment income portion in the account will be subject to taxes and penalties.
What is the Canadian Education Savings Grant (CESG)?
The Canadian Education Savings Grant (CESG) is a grant the Government of Canada provides directly into a beneficiary’s Registered Education Savings Plan to help with eligible post-secondary education expenses. It is managed by Employment and Social Development Canada, and the Federal Government will contribute an additional 20% per child per year to a maximum of $500 per child per year. If the child you have been saving for chooses not to go for higher education, your contributions will be returned to you, while the CESG can be used for an eligible sibling’s education or returned to the government.
What is the Canadian Learning Bond (CLB)?
The Canada Learning Bond (CLB) is a program offered by Employment and Social Development Canada to help low-income families save for their children’s post-secondary education. The CLB must be returned to the government if the child does not pursue eligible post-secondary studies. It is important to note that only children born in 2004 or later are qualified for this program.
Can the RESP be transferred to another child?
Yes. If a child does not pursue post-secondary education, the RESP can be transferred to another eligible beneficiary.
When can withdrawals be made from an RESP?
Withdrawals from an RESP can be made once the beneficiary enrolls in a qualifying post-secondary education program. The funds can be used for tuition, books, tools and living expenses.
What are the types of RESPs?
We have three types of RESPs: individual, family, and group. Each has its own unique features and eligibility criteria.
What are the different RESP investment options?
An RESP can hold various investment products including cash, mutual funds and fixed income investments such as Guaranteed Investment Certificates (GICs) and bonds.
Are my contributions to an RESP tax-deductible?
No, contributions to RESPs are not tax-deductible. However, RESPs offer tax-sheltered growth on contributions and government grants.
Is there a contribution limit to an RESP?
RESPs do not have an annual contribution limit, but there is a maximum lifetime contribution of $50,000 per beneficiary. If you exceed this limit, you will be subject to a 1% monthly tax on the excess amount contributed.
Can an RESP be used for an apprenticeship?
RESP funds can be used for full-time or part-time programs, including apprenticeships, trade schools, colleges, and universities.
Registered Retirement Income Fund (RRIF)
What is a RRIF?
A RRIF is a registered retirement account that takes over your RRSP contributions and savings tax-free. It is an account that does not accept contributions but must make withdrawals yearly to the owner. These withdrawals serve as an income at retirement that must be filed in your tax return.
I do not want to convert my RRSP to RRIF, what should I do?
When you reach the age of 71, you must convert your RRSP to an income option, such as a RRIF or an annuity, as per Canadian tax laws. However, you also have the choice to cash out your RRSP. It is important to note that cashing out your RRSP is not usually recommended as the entire amount will be considered a taxable income in the year you withdraw it, and you will miss the tax-sheltered growth benefits.
However, if your spouse is under the age of 71 and you are still earning an income, you may contribute to your spouse’s RRSPs — assuming you still have contribution room available. Not only can this lower the tax payment as a couple, but you will also benefit from the initial tax deduction.
When can I start withdrawing from my RRIF?
To start withdrawing from your RRIF, you must wait until the next calendar year after converting it. For instance, if you converted your RRSP to a RRIF in 2023, you must begin withdrawing funds in 2024. It is important to note that all RRIF holders must withdraw a minimum amount of funds each year.
Do I have to pay tax on my withdrawals?
When you contributed to your RRSP, you only delayed the taxes you would eventually have to pay. The funds you withdraw from your RRIF each year are considered income and are taxable in the year of withdrawal. It is important to note that the RRIF is fully taxable upon death unless rolled over to a spouse or financially dependent child.
Registered Disability Savings Plan (RDSP)
What is an RDSP?
An RDSP is a Canadian-registered account specially created for people with disabilities for the purpose of long-term savings and getting disability benefits such as Canada Disability Savings Grant (CDSG) and Canada Disability Savings Bond (CDSB) from the government.
Canada Disability Savings Grant is a matching grant provided by the government to the plan based on the beneficiary’s family income and amount contributed. The maximum CDSG grant per year is $3,500 and a lifetime limit of $70,000.
Canada Disability Savings Bond is a contribution from the government into an eligible RDSP account which does not require prior deposit. The maximum yearly bond is $1,000 and a lifetime limit of $20,000.
Who can open an RDSP?
A person living with a disability (also known as the plan holder), a family member or friend of the person living with the disability can open this type of registered account.
Who is a beneficiary of an RDSP?
The beneficiary is the plan holder- the person living with a disability who will receive the funds in future.
How do I know my contribution limit to an RDSP?
There is no annual contribution limit but the lifetime contribution limit for a plan holder is $200,000 and contributions can be made until the beneficiary reaches age 59.
Are contributions to the plan tax-deductible?
No. Contributions to the plan are not tax-deductible. However, savings and investment income grow tax-free while in the plan.
First Home Savings Account (FHSA)
What is an FHSA?
First Home Savings Account is a specialized savings account designed to help individuals save for their first home in Canada. It offers certain tax benefits and incentives to encourage savings.
Who is eligible for opening an FHSA?
In Canada, the person must be 18 years or older but not more than 71 years old with a valid residency and must be a first-time homebuyer or intending to purchase or build their first home.
What are the benefits of the FHSA?
FHSA allows you to make a tax-deductible contribution and investment income in the plan grows tax-free. It offers high interest rates when compared to a regular savings account, and sometimes receives government incentives.
What is the contribution limit on an FHSA?
The maximum annual contribution limit is $8,000 and lifetime limit is $40,000.
Can you carry forward unused contribution?
Yes, you can carry forward your unused FHSA contribution room.
What happens if there is an over-contribution in my FHSA?
Over-contributions to an FHSA are subject to a penalty tax of 1% per month on the excess amount until it is withdrawn.
What type of investment can be held in an FHSA?
You can hold Guaranteed Investment Certificates (GICs), mutual funds, stocks and publicly traded securities, and Government and corporate bonds in your FHSA.
How can I withdraw from my FHSA?
Withdrawal from an FHSA can be done tax-free for the sole purpose of purchasing or building a qualifying home.
Are there any limitations on an FHSA?
Yes, there are restrictions on contribution limits, withdrawal conditions and eligibility criteria. An example is penalty for early withdrawal from the plan that is not used for purchasing or building a home.
How long can I have my FHSA open for? Or when will my FHSA be statutorily closed?
According to the legislation, an FHSA can be opened for 15 years after an individual opened the account or until the owner turns 71. The account will be closed on December 31st of the year if either of the two eventualities stated earlier occurs.
What are the options available to the contributions in the account before closing?
Funds in an FHSA can be transferred tax-free to an RRSP or RRIF and it does not reduce the RRSP contribution room.
Estate Planning FAQ
Estate Planning
What is Estate Planning?
Estate Planning is the process of making decisions about the management and distribution of an individual’s assets after passing away or being incapacitated.
What is Probate?
Probate is the court-supervised or legal process through which a deceased estate and assets are distributed to the beneficiaries.
What is a Will?
A will is a legal document that allows a person to specify the management and distribution of assets to beneficiaries.
Why have a Will?
A will is a crucial document containing asset distribution, executor appointment, power of attorney, guardianship for children, special instructions, burial, and funeral instructions. A will ensures your wishes are followed rather than having a stranger handling your estate.
What is Trust?
A trust is a legal arrangement that allows a testator to transfer assets to a trustee who manages those assets on behalf of beneficiaries.
What is an Executor?
An executor is a person or a trust firm appointed by the creator of a will to carry out the terms of the will and administer the estate after the testator’s death.
What are the key responsibilities of an executor?
An executor handles probate administration, asset management, debt settlement, tax compliance, beneficiary communication, and legal representation.
What is Power of Attorney (POA)?
A POA is a legal document that grants a representative the authority to act on your behalf in personal, health, property affairs, financial and legal matters while alive.
How can I make my Will?
Making a will is a straightforward process with several options available to you. You can confidently choose to draft a handwritten will (holographic will), work with a lawyer, use an online will service or purchase DIY (Do it yourself) Will kit to ensure your wishes are legally documented.
What is dying intestate?
This means a person died without a Will.
What happens if a person died intestate?
The law through the jurisdiction court decides how to share his or her assets and estate to the surviving spouse, child(ren), parents, or other relatives.
When is the right time to make my Will?
The right time to make a Will is now. More importantly, if you have assets, property and dependents. This provides clarity and guidance for your loved ones and ensures your wishes are carried out accordingly after you pass away.
How often should I review my Will?
It is advisable to review and update your will periodically (i.e., every few years), especially after significant life events such as marriage, birth of children, divorce, acquiring substantial assets or even changes in tax laws and other regulations.
I have no will – what do I do?
1. List all your assets or real property and liabilities.
2. Have a discussion with your spouse or common-law partner.
3. List your beneficiaries and choose your executor.
4. Nominate a guardian for your children (if they are minors.)
5. Think about how your final wishes should be and write them down.
6. Gather all documents needed for the Will.
Glossary
Familiarize yourself with common terms related to insurance, investments, and estate planning.
Administrator – If there is no Will, an Administrator is appointed by a court to manage or administer a decedent’s estate.
Beneficiary – A person or entity named in a Will or financial or insurance contract as the inheritor of property when the property owner dies. A beneficiary can be a spouse, child, charity, or any entity or person to whom the property owner would like to leave his or her possessions and assets. Caution must be exercised when someone other than a qualified beneficiary has been named on registered plans such as RRSPs or RRIFs.
Benefit period – A time that you can receive disability insurance benefits.
Bequest – The act of giving or leaving personal property by a Will; something that is bequeathed; a legacy.
Contributor – A person who contributes something (esp. funds) to achieve a goal.
Estate – The net worth of a person at any point in time. It is the sum of a person’s assets – legal rights, interests and entitlements to property of any kind – less liabilities at that time. The estate of a deceased person consists of all the property, whether real or personal, owned by the person at the time of death.
Estate administration – Process by which the deceased person’s personal and financial affairs are brought to a close.
Executor – An executor (female form = executrix) is the person or entity nominated by the testator (or Will maker) in the Will to carry out the directions of the Will.
Grant of probate – A document sealed by the court which legally authorizes the executor named in the Will to proceed with the administration of the estate. For example: to close their bank accounts, to sell their property and pay their debts and expenses of the administration of his estate. The grant also proves the validity of the Will.
Holographic Will – A handwritten Will created and signed by the testator.
Intestate – Not having made and left a valid Will. A person who dies without leaving a valid Will. If there is no Will and thus, no executor, in Canada the law says how their property will get distributed, and who has the right to “administer” their affairs.
Jurisdiction – The practical authority granted to a legal body to deal with and make pronouncements on legal matters. The term is also used to denote the geographical area or subject-matter to which such authority applies.
Liability – An obligation that legally binds an individual or company to settle a debt. Legal liability is the legal bound obligation to pay debts.
Liquidate – To convert to cash.
Personal representative – In common law jurisdictions, a personal representative is the generic term for an executor for the estate of a deceased person who left a Will, or the administrator of an intestate estate.
Prescribed – To set down as a rule or guide; to establish rules, laws or directions.
Probate – The legal process by which a person’s Will is reviewed and, if valid, authenticated by the court as the individual’s “Last Will and Testament” or in the case of no Will, the court will appoint someone to act on their behalf.
Real property – A classification of property in common law that refers to land; also termed realty, real estate and immovable property.
Term of Investment – Lifespan of an investment before maturity.
Testamentary – Traditional Last Will and Testaments, also known as a Testamentary Will, is a legal document used to transfer or bequeath a person’s assets to beneficiaries after death.
Testamentary trust – A trust created within a Will which does not take effect until the death of the testator.
Testator – A deceased person who created a valid Will and Testament.
Will – A legal declaration by which a person, the testator, names one or more persons to manage their estate and provides for the transfer of their property at death; a document or legal instrument in which a person specifies the method to be applied in the management and distribution of their estate after their death.