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Most of us take for granted that we will be able to get out of bed every morning and go to work to earn a living. We base all our financial plans on this seemingly obvious statement. Our most valuable asset is the ability to earn an income. Unfortunately, it is also one of the most vulnerable and most of the undesirable things that can affect it are beyond our control.

You have life insurance, a medical and dental plan, and full coverage on your house, cottage and vehicles. But have you secured your most valuable asset against the greatest risk? The threat of a disability is greater than the other risks you routinely cover. Look at the risks we face each day and the chances of them happening:

1 in 88 homes catch fire in a year (1)
1 in 21 vehicles is involved in an accident (2)
1 in 7 people in Canada are disabled (3)

A disabling injury or sickness that lasts too long can be catastrophic. The principal breadwinner of a family, instead of being a major source of family income, becomes a drain on its remaining resources. And these resources may already be strained by other family demands.

The facts tell us that a substantial number of us are destined to have the ability to work taken away by a period of disability. For example, a 25-year old has a 53.7% chance of becoming disabled for 90 days or longer before age 65. A 35-year old has a 50.3% chance and the likelihood for a 45-year old is 44.3%.(4)

Many mistakenly believe that most disabilities are accident-based. Nothing could be further from the truth. In mid-career, age 45, only 25% are due to accidents. Even at the higher-risk age of 25, just 46% of disability claims are accident-related. By age 62 this has dropped to a mere 12%. As less than one in sixteen of such accidents occur in the workplace, few are covered by Workers’ Compensation. (4)

Other government plans, like Canada Pension Plan (CPP) and Employment Insurance (EI), may pay you if you become disabled. However, the benefits are minimal (maximum $1185.50 per month for CPP and $485.00 per week for EI as of September 2012) and may be short-lived (just 15 weeks for EI).

If you become sick or hurt and cannot work, how will you pay your bills? How long will your savings last? Who will support your family? Can your family support you? Can you afford to stay in your present home? What will happen to your retirement plans?

If you do not have satisfactory answers to any of these questions, you should consider protecting your paycheque with disability insurance.                                                                                                                                                                                                      – M Dumond

Come in and speak to one of our Insurance Specialists that can show you what’s available.

(1) National Fire Protection Association: Residential Fires (2011)
(2) Insurance and Liability Resource Centre for Nonprofits (2004)
(3) Statistics Canada, as reported by www.disabled-world.com (2008)
(4) Canadian Life and Health Insurance Association Disability Tables, Society of Actuaries 1985 Commissioner’s Individual Disability Tables, A Health and Activity Limitation Survey

Though it may seem otherwise, financial planning actually consists of only three fundamental steps:

The first step plans for the unpredictable – events that can occur at any time, without warning, and can wipe out earning ability or assets, such as death, disability, critical illness or property destruction.

The second step is planning for events that are expected to happen at some future date, such as retirement and death.

And the third step is planning for the things you hope for – your ‘bucket list’ – such as having more money than you can ever hope to spend, or perhaps total financial independence.

Too many people get the order of these steps mixed up and devote too much time, energy and money to step three, and fail to give enough attention to the first two. Their plans, if you can call them that, often rely on luck in the lottery or stock market. Sadly, by the time they realize these methods don’t work, it’s either too expensive or too late to recover by going back to the first two steps. As a Dutch farmer once said, “We grow too soon old and too late smart.”

Planning for the unpredictable is the first step because unforeseen events can wipe out assets or earning ability, leaving destitution in its wake. An often seen TV-news item is the family whose home is destroyed by fire or flood, and is wiped out because it was not insured.

Rarely seen on TV, perhaps, because it happens too often to even be news, is the family left destitute because a breadwinner, destroyed by critical illness, disability or death, was not adequately insured.

Steps one and two have a common goal – income replacement. The most valuable family asset is actually the income-earning ability of its breadwinners. How much income will be needed if or when this ability no longer exists, if an income earner becomes seriously ill,
dies, or is forced to retire?

The common aim in each step, therefore, is to determine how much income is needed when such earnings are no longer available. The method of replacing that income then differs for step one and step two.

In step one, the income of an income earner is replaced through insurance against the unpredictable possibility of death, disability or critical illness. In step two, wages or salary are replaced after retirement by pensions and other assets.

Only after the first two steps are planned and the plans put into action can step three be properly considered. Achieving financial independence prior to retirement, for example, is best approached when you know that if all else fails, you will at least have achieved it at retirement.                                                                                                                                                                                            – M Dumond

But first things first. Have you taken the first step? If not, what are you waiting for? Give the office a call at 705-798-2105 and Michael or Susan will be more than happy to start you on he right path.

“If I had my way, I would write the word Insurance over the door of every house, because I’m convinced, for sacrifices that are inconceivably small, families can be secured against catastrophes which would smash them up forever.” Winston Churchill (1874-1965 British Prime Minister)

We are here to help. As always we are accepting referrals, please feel free to share with your friends.

Most people check the weather forecast every day before leaving home in case they have to protect themselves from possible weather conditions. So, if rain is forecast they can bring an umbrella or raincoat with them. Sadly, most people are not prepared for the financial storms that will attack.

If it makes sense to protect a few hundred dollars’ worth of clothes and your body from the elements, doesn’t it also make sense to be prepared for an attack on your lifestyle?

Emergency Fund    

This is probably the cornerstone of financial preparedness. It is recommended that you have at least three to six months income set aside for this. If a need arises to use some of the funds, they should be replenished as soon as possible. Some of the reasons for access may include:

•Temporary period of unemployment.
•Cash needs during the waiting period for disability insurance benefits.
•Legal fees required to deal with an unexpected problem or conflict.
•The deductible for vehicle or home insurance at claim time.
•Medical costs not covered by Provincial Health Care or health insurance.
•Accommodation costs if the need arises to evacuate your home. Remember the flooding in Southern Alberta in June 2013?
•Vehicle rental costs if your vehicle is awaiting repair or replacement.
Some of these may be reimbursed at a later date and these proceeds should be put back in the fund.

Accident & Sickness Insurance – Can you take a six-month vacation right now? If you became sick or hurt and couldn’t work for that length of time, what would happen to your lifestyle if your income suddenly stopped? What if it was even longer? Many mistakenly believe that their group benefits will take care of them. Review your benefits with your financial advisor to make sure they are adequate, actually in effect and that the definitions don’t increase the possibility of non-payment when a disability does occur.

How would your lifestyle be affected if you experienced a serious illness, like cancer, heart attack or stroke, and made changes to your work schedule to help the healing process? What if you couldn’t return to your usual work position?

Life Insurance – Life insurance provides cash at the exact time it will be needed most after someone dies. The proceeds can be used to pay-off debts, pay for expenses that arise on death, and replace an income for those that rely on it.

Property & Casualty Insurance – Vehicle and home insurance is generally required by law or by a lender that financed the large purchase. Review this coverage regularly to make sure it is adequate and that the deductible fits with your ability to pay it.

Retirement Savings – You probably don’t want to work for the rest of your life. If you don’t send some dollars ahead for your retirement income, you may be forced to make a serious lifestyle change to get by on the relatively meager government benefits.                                                                                                                                              – M Dumond

We are here to help. As always we are accepting referrals, please feel free to share us with your friends.

As much as we’d like to believe that if we stick to a solid financial plan all will work out, things often beyond our control may derail our plans.  For lack of a better word, luck, both good and bad, plays a role in our financial future.

Relationship Breakdown – There are lots of statistics to choose from, but according to ottawadivorce.com, “it’s expected that 37.7% of all Canadian marriages will end in a divorce before the 30th anniversary.” Second marriages are even more likely to fail and the failure rate of common-law relationships is even higher.  A financial do-over can be emotionally and financially devastating, and set back and derail  financial plans for many years or even decades.

Periods of Unemployment – It is recommended that we have a minimum of three to six months of income set aside for emergencies.  A short interruption in employment can wipe out these savings very quickly.  All too often, a lifestyle is established based on 100% of an income, assumed to remain at a certain uninterrupted level, “if life were like that we wouldn’t need visa”.  However, life isn’t like that and a financial strain is swift with even a short period of unemployment, that emergency fund can disappear.

Accident and Sickness – According to the 1985 Commissioner’s Individual Disability Table, a 35-
year old has a 34% chance of becoming disabled for a period of 90-days or longer before age 65.  Ask yourself, can you afford to take a 90-day vacation, starting right now? How about 6-months or a year?

Critical Illness – Statistics compiled from various sources for the same 35-year old indicate a 26% chance of suffering from cancer, heart attack or stroke before age 65.  While survival rates from these conditions continually improve, the financial impact can be severe.

Death – With the average life expectancy about age 80 (slight differences by gender), this means statistically we have about a 50-50 chance of living to this age.  Death at younger ages when starting a family can mean financial catastrophe.

Investment Returns – Extremely low current interest rates and several memorable market corrections
have affected just about everyone’s retirement savings.  Employer pension plans are not what they used to be, either.  Low interest rates have contributed largely to the high debt levels Canadians are servicing today.

          The reality is life is not fair.  Some will experience more good luck than others and vice versa.  There are some bad luck events we can be prepared for while others, like divorce, may just have to be dealt with when they occur.

          John worked at the same job for 35 years and benefited from a very good pension plan.  He was fortunate to remain married for the entire time and did not experience any unemployment or disabilities.  Paul worked in the same occupation for 35 years but with several employers and used his savings when unemployed.  He was disabled for two years in his thirties and only accumulated a small pension.  Insurance paid a benefit while he was sick and some of his RSP savings provided a guaranteed income. The end result for these two  is worlds apart. With the correct type of insurance products and amounts it didn’t have to be.                                                                                                                                                                                                                                                                      – M Dumond

Come and talk to one of our Insurance Specialists we can help you decide what coverage is best suited for your needs.

Many people dream of some day owning their own home. For many it is already a reality.  In the long run, it is generally the least expensive way to put a roof over our heads unless living in a tent appeals to you.   Buying a home is one of the biggest emotional and financial decisions you’ll ever make.  Some things to consider to make sure the dream doesn’t turn into a nightmare are:

Down-payment – According to the Canada Mortgage and Housing Corporation (CMHC) website, “Mortgage loan insurance helps protect lenders against mortgage default and enables consumers to purchase homes with a minimum down payment of 5% with interest rates comparable to those with a 20% down payment.  Mortgage loan insurance is typically required by lenders when homebuyers make a down payment of less than 20%  of the purchase price.” Effective May 1, 2014, the premium that will need to be paid by the borrower for a mortgage of between 90 and 95% of the home value will increase to 3.15% of the borrowed amount.  So, a home purchased for $400,000 with 5% down means a mortgage of $380,000 and a CMHC premium of $11,970 paid by the buyer.  If added to the mortgage, $391,970 is actually financed which means interest will also be paid on the CMHC insurance premium.

Too much house – According to Consolidated Credit, your debt-to-income ratio should be 36 percent (of before-tax-income) or less.  Salary.com states that, “Most lenders will finance buyers whose monthly house payment (including loan payment, property taxes and insurance) will not exceed 28 percent of their gross monthly income.”  It can be very tempting to go right up to the maximum to get into that so-called dream home.  The mortgage may become difficult to manage if there is an interruption in employment or if interest rates increase beyond a certain point.  It may be better to start with a smaller home and move up to larger ones as equity is built up and incomes become more stable.

Needs vs wants – According to the CMHC website, “Once you have a good idea about your finances, you’ll need to think clearly about the home you’d like to buy.  Try to buy a home that meets most of your needs for the next 5 to 10 years, or (choose) a home that can grow and change with your needs.”  It is critical to sort out ‘needs’ from ‘wants’ when choosing a home.  If something won’t really be needed for 5 years or longer, today it is just a want. In life the only thing that remains constant is change, At every stage in life our needs and wants change for various reasons such as increase or decrease in income, a change in health, proximity to work, retirement, marriage break down, addition of children to name a few, Just remember. it’s your next house not your last.   

Cost of ownership – Along with other debts that are being serviced, there will be ongoing costs to keep your home operational and maintain the property value. After all your home is an investment. You want it to increase in value not  decrease. Remember, as a home owner, the responsibility will be entirely yours, including: property taxes, utilities (power, water & sewer, heat, cable, phone), property insurance (usually required by lender), neighborhood
fees (condo and/or homeowners), repairs and maintenance, landscaping and fence (if a new home), renovations, etc., up grades and improvements

Lifestyle protection – As your home could be your largest financial commitment ever, it is important to protect you and your family from losing it in the event of accident, sickness or early death. Having the correct type and amount of insurance is critical.                                                                                                                                                                                                                    – M Dumond       

Speak to your insurance advisor before you buy a home.      

We are here to help.