The Three Question Fact Find for Business Owners (Part One)


Part 1 of 3

For the past couple of weeks, I’ve been working on a series focusing on what I call The Three Question Fact Find.  For me every new client relationship starts with the same three questions.  If you’re just joining the conversation you might want to catch up by walking through those questions and the accompanying videos here:

Question One – Do you have any Debt?  Blog and video.

Question Two – Do you have a plan to sustainably protect and grow your assets?  Blog and video

Question Three – Where do you want your money to go after you die?  Blog and video

Since I tend to work with a lot of business owners and their employees, I have found that these individuals come to the table with a unique set of circumstances. As a result, I have developed a second Three Question Fact Find for Business Owners.  Depending on the nature of my relationship with the business I may start with the original three questions and then move on to these additional questions or I may start here and circle back to the first set of questions later.  Regardless of how I get there, the ultimate result is the same, for business owners the Three Question Fact Find is six.

Question One – What happens to you, your business and the people you care most about if you or a key employee don’t make it to work tomorrow?

We aren’t talking about something minor keeping you away from work for a few days, or even a couple of weeks, like the flu or a broken finger.  We’re talking about a major, life altering event that keeps you home, or heaven forbid in hospital and unable to see to day to day operations, for several weeks or even months.  Who runs the business then?  How do you get paid?

Statistics Canada reports that people under the age of 65 are three times more likely to be off work for 90 days or more at some point in their career than they are to die.  What’s more, business owners tend to push the envelope and come back to work before they are physically ready often ending up re-injuring themselves or re-aggravating whatever ailment it was that sidelined them in the first place.

Most business owners understand the value of life insurance to protect their families and provide a way for business partners to buy out their shares.  Very few however have considered the consequences of living through a long-term illness only to watch their only source of income fizzle away.  Long Term Disability Insurance structured as either income replacement or overhead expense coverage can go a long way to keeping your business viable while you are concentrating on recovery.  Coupled with Critical Illness Insurance to offset one-time expenses associated with specified illnesses, like a heart-attack or cancer, and you can have most of your bases covered in terms of long-term health related concerns.

Each of these options can also be extended to key employees should there be people within the organization whose services can’t be easily duplicated.  What if your top salesperson for instance had a car accident on the way home tonight, heaven forbid, and needed six months of rehab to learn how to walk again?

In most cases once we’ve dealt with the personal needs of the business owner and their family the next most important question for any owner must turn the focus to the long-term viability of their business.  So, the question remains, what would happen if you or a key employee didn’t show up to work tomorrow?

For more information or help with your financial plan contact:  lauren.sheil@f55f.com or simply leave a comment below.

The Three Question Fact Find (Part Two)


Part 2 of 3 (For Families)

Continuing where we left off the other day.  The second question for the family market starts to focus in on your hopes and dreams for the future while still living your best life now.  Before we go any further though you might want to review where we came from and read the first post in this series.  Question One – Do you have any debt and watch the video on the same topic here.  Da L-Dawg Show – Episode 5 – Do you have any debt?

Now, let’s move on.

Question Two – Do you have a plan to sustainably protect and grow your assets?

I believe it was Charles Schwab who said that the only thing that matters to investors is yield.  While yield (or percentage growth) is important the key concept in my question for families isn’t how fast we grow your assets, it’s how we sustain that growth over the long haul through market cycles and the overall eb and flow of life.  Growing assets is easy, protecting them from market volatility and personal setbacks takes discipline, planning and a little grace.

Just about anyone can help you save for retirement.  Banks, Credit Unions and Investment Advisors can all provide you with investment vehicles designed to help you grow your assets but a financial plan is more that just an investment plan and making a mad rush to beat the RRSP income tax deadline every February isn’t sustainable.  A good financial plan answers two additional questions; “How much is enough?” and “What happens if I die too soon, live too long or my plans get interrupted?”

Answering the how much question is the easy part.  By looking at your current lifestyle, discussing your goals, and taking into consideration your life expectancy we can make a reasonable assessment of how much money you’re going to need, when, and for how long.  At that point it’s just a matter of reverse engineering where you are now, versus where you need to get to and determining how much money to set aside, for how long and at what yield.

Presto!  You now have an investment plan.  But that is still not a complete financial plan.

The tricky part comes in answering the second question.  If you die too soon your family could be put in a difficult situation, forced to make drastic changes just to survive.  The loss of your income due to death, disability or other economic pressures could present challenges keeping debts paid, funding children’s education or just keeping the lights turned on.  Not to mention the very real possibility of our medical system figuring out ways to keep you alive longer than your money can reasonably last.  This is were old school investment planning, the how much and now long discussion, meets insurance planning and becomes a full-fledged financial plan.  The effective use of life, disability and critical illness insurance, along with certain principle protected investment funds are an often-overlooked part of the planning process no matter your stage of life.

So, do you have a plan to sustainably protect and grow your assets?

Stay tuned for question three – Where do you want your money to go after you die?

For more information or help with your financial plan contact:  lauren.sheil@f55f.com or simply leave a comment below.

Protecting what you work for


Safeguarding your family’s lifestyle with insurance

When you first started working, you may not have given insurance a second thought. However, as you enter your peak earning years, you have a lot more to protect. It’s likely that you and your family depend on your salary for the lifestyle you enjoy – and life, critical illness and disability insurance can help protect that lifestyle if you are unable to work.

The number one cause of bankruptcy in Canada is an unexpected and uninsured illness or injury. That is why I placed “Regulate Risk” as number 2 in my Six Steps to Financial Freedom. If you haven’t already subscribed to this page and received your free copy of my e-book of the same name you can request it here.

There is a lot of confusion about the various types of personal risk insurance on the market so here is a quick primer of the three most common types of insurance and how they work. Contact us any time for more information or to schedule a FREE, no obligation consultation.

Life insurance

Life insurance is important for everyone, especially if you own a home, have children or are responsible for other family members. How much you need depends on factors such as you debts (e.g., your mortgage), education goals for your children and other income needs. Here are two of the most common types of life insurance:

Permanent life insurance (also known as whole life and universal life) provides protection for life, as long as your premiums are paid. In some cases, you can accumulate a tax-advantaged investment or cash value that may increase the amount you leave to your beneficiary.

Term life insurance provides protection at a guaranteed rate for a specific period of time, typically 10 or 20 years or to age 65. The policy is renewable at the end of the term, though the rate will be higher. This type of insurance is often used to cover a financial obligation that will disappear in time, such as a mortgage.

Critical illness insurance

Even though survival of heart attacks, strokes, cancer and other critical illnesses is increasing, recovering from such setbacks often requires weeks or months away from work. Extra costs, such as alternative treatments and accessibility modifications to your home, may not be covered by your provincial health plan.

Critical illness insurance provides a one-time cash benefit if you’re diagnosed with one of the conditions defined in your contract. The benefit can help support the day-to-day needs of you and your family while you take the time to access treatment get well and return to work.

Disability insurance

Relatively common conditions such as depression or osteoarthritis may prevent you from working for a period of time. So can a serious car crash or back injury.

Disability insurance provides monthly benefits to help replace your salary or wages after an accident or illness. This type of protection is especially important if you job is your family’s primary source of income or if you run your own business.

Do you have enough coverage?

Keep in mind that, even if you have insurance through a benefits plan at work, it may not be enough to maintain your family’s current standard of living in the event of your death, critical illness or disability. An individual policy can help top up your benefits – and stay with you if you change jobs.

Check out the insurance calculators provided on our product pages to find out how much insurance you may need and the potential costs. Contact us any time to schedule a FREE, no obligation consultation.

What If?…


If you are like most responsible people you are well on your way to meeting your retirement goals. I know, you’re not perfect, nobody is, but you’ve probably started to pay down some debts and set aside money in a retirement plan. That’s the good news but what if illness interrupts your plan?

I’m in the “what if?” business.

what if

I wrote a booklet called “6 Steps to Financial Freedom” (buy it here) in which I lay out the way I do business as a financial planner.  Contrary to popular opinion and what most other financial planners might teach step two of my plan is not to save for retirement. (Step one is get out of debt, everybody agrees at least in principle on that.) No, before saving for retirement step two is to take risk out of the equation by protecting yourself from unexpected losses like a critical illness.

Did you know a serious, life-altering illness strikes one in three Canadians in their lifetime?

If you had to withdraw funds unexpectedly from you RRSP it might be less than you expect after taxes and applicable fees. Remember RRSP money is meant to be left in long-term, you get a tax break when you put it in there but those taxes are simply deferred, not eliminated, you still have to pay the tax on that income when you take the money back out. The RRSP system is designed to give you a tax break now, when you are earning more, so that when you take the money out later you have been able to defer the tax to a time when you are presumably in a lower tax bracket. Thus saving you money both in the short and long term.  But, if you need to take the money out while you are still in the higher tax bracket you will end up paying taxes at your full taxable rate today. If you are in a 40% tax bracket and withdraw $50,000 from your RRSP you will lose $20,000 of it to tax.  Not to mention potential broker fees and deferred sales charges.

It could take years to recover from the financial loss if you have to take money out of your RRSP to live on in the event of a critical illness. That’s why Regulating Risk is Step Two in the 6 Steps to Financial Freedom. For a small reduction in your overall RRSP contribution you can purchase Critical Illness insurance that will pay out a lump sum, tax-free in the event of a critical diagnosis. If you don’t ever make a claim the program can also be set up to return all or a portion of your premium to you at a future date which can then roll back into your retirement savings as if you had been making the contribution all along. It’s a no-lose situation.

Even good plans get interrupted; why not make sure you can still continue contributing to them even if you have to take time off work to take care of yourself? For more information on Critical Illness Insurance and the 6 Steps to Financial Freedom write to themeekonomicsproject@gmail.com

 

 

5 Questions to ask yourself about the potential of a Critical Illness


sick

Most people understand why they should purchase Life and Disability Insurance but there is a third type of personal insurance most people should consider but don’t.   With all of the incredible advances made in medical science in recent years more and more people are surviving Heart Attacks, Cancer and other debilitating diseases with only temporary effects on their quality of life. The speed of recovery may not be enough to trigger a Disability claim and if you survive you certainly won’t be making a claim on your Life Insurance but the financial concerns are still significant and without proper insurance coverage could set you back severally months or even years on your retirement plan.

Enter Critical Illness Insurance or CI in industry jargon.

This insurance is designed to pay out a lump sum to cover to costs associated with treatment, recovery and lifestyle adjustments associated with the diagnosis of a critical illness that most people are expected to return from. Heart Attacks, Strokes and Cancer are the big three but CI can also be used in the event of other long term illnesses like Multiple Sclerosis, Parkinson’s or Alzheimer’s Disease to name just a few.

So here are 5 questions to ask yourself about your exposure to the risk of a critical illness and how you would deal with it should one occur in your life.

1 – Are you under more or less stress that you were 5 years ago?

Stress is one of the leading causes of Heart Attack or Stroke. If you are feeling stressed, under treatment for anxiety or just plain more worn out than you used to be you could be at increased risk for any number of Critical Illnesses.

2 – If I need to focus on the recovery from a critical illness, would I be making more or less money than I do today?

This is kind of a no brainer. If you aren’t going to work, you won’t be making as much money. A CI policy can help bridge that gap.

3 – Would my spouse also have to take some time off of work to assist in my recovery?

Even after you satisfy the waiting period on a Disability Claim and start to receive some income there, no disability policy will provide replacement income for your spouse who is not technically disabled. This is a common misconception surrounding group health plans. Many small business owners don’t think they need their own health plan if their spouse works for a large organization that offers extended benefits to family members. While it may be true that the prescription drugs will be covered by that plan, there will be no income replacement benefits extended anyone other than the employee and then only when it is the employee who is sick.  Bottom line, if your spouse takes time off work to help you, they won’t be making any income either.

4 – Do I currently have sufficient financial resources to set aside to supplement the financial loss of focusing on recovery and not on work?

Even if you answer yes to this question why would you?  A CI policy is designed to provide you with all the necessary resources  you need at a fraction of the cost.  It’s important to note the time value of money.  $5000 taken out of retirement funds at 45 years of age, represents up to $25,000 if left in a good growth investment for 20 years.

5 – Would my bank lend me more or less money, if I were not able to work due to an illness or disability?

As benevolent and sympathetic as your banker may be, banks always underwrite loan requests based on your current income. If you are off work due to an illness or injury it will be more difficult for you to obtain a line of credit or any other type of loan in order to maintain your lifestyle.

As is with all personal insurance, once you are diagnosed with a Critical Illness it’s already too late.  If you or anyone in your family has a history of Critical Illness, or if you are in a high stress occupation CI is a valuable part of the risk management puzzle you can’t afford to ignore.

For more information on Critical Illness Insurance and how it fits into the 6 Steps to Financial Freedom write to: themeekonomicsproject@gmail.com or get a copy of the booklet, “6 Steps to Financial Freedom” from the Products page.  I talk more about Critical Illness Insurance and the roll it can play in a comprehensive financial plan as part of step two – “Regulate Risk”.

 

 

 

 

 

 

Regulate Risk


Six Steps to Financial Freedom, Step Two

Quick, what’s your biggest asset?

Did you say your house, your car, or if you’re lucky your investment portfolio?

Wrong, wrong and wrong again!

The fact is your biggest asset is you.

Step Two in my Six Steps to Financial Freedom is to Regulate Risk. Since your biggest asset is actually yourself and your ability to earn and income that means your biggest risk is the risk of losing that ability. Once you have taken control of your debts and before you start investing you need to make sure you protect yourself and your family from some the unthinkable (and inevitable) events.

Here are some sobering statistics.

–          The average working individual has a 1 in 3 chance of being off work due to illness or injury for more than 90 days at least once between the ages of 25 and 65.

–          The average length of disability is 2.9 years.

–          1 in 2 and 1 in 3 women will develop heart disease resulting in a prolonged absence from work.

–          1 in 2.3 men and 1 in 2.7 women will develop cancer, resulting in a prolonged absence from work.

–          80% of heart attack patients make a full recovery.

–          100% of deaths are permanent.

Regardless of what the personal opinion and compassionate position of your banker might be, the bills will keep coming. Nothing can derail your retirement plan or increase your debt faster than an unexpected illness or the premature death of a wage earner.

As a result before you start investing I strongly recommend you carry 4 types of insurance. Depending on your employment situation not all of these products are necessary for everyone and budget is always a consideration but these are the basics.

1 – Health Insurance.

healthplan

The good news is that most employers offer some form of group health plan to their employees to cover prescription drugs, dental and other incidental health care related costs. Many health insurance plans also include a small amount of Life and Disability Insurance. In most cases however the Life and Disability portion is very small and severely restricted, read the fine print and ask a licensed insurance specialist to help you interpret what it all means. There is nothing worse than surprises when it comes time to make a claim. And of course, once you leave your employer you no longer have coverage. If you work for an employer who does not offer a group plan, or you are self-employed look into getting some personal coverage, it may seem expensive at first but believe me, no one who makes a big claim for cancer treatment or restorative dental work ever says they paid too much for their insurance.

2 – Life Insurance.

coffin

Despite what you might think dying is not a get out of debt free card. Especially for the people you leave behind. The number 2 cause of bankruptcy in North America is the early death of a wage earner. If you carry debt – get life insurance! Even if you don’t carry debt or your spouse thinks they can handle it without your income you should still get at least enough insurance to cover the cost of a funeral. The average cost of a funeral in Canada is $12,000 add to that final expenses related to a prolonged illness and possible legal fees incurred in settling your affairs and the cost could easily exceed $15,000 or $20,000. It just makes good sense to make sure the last thing your loved ones remember about you it’s how much your funeral cost.

3 – Disability Insurance.

injured

Back to point one, most employers offer some form of Disability Insurance within their group health plans but read the fine print. Most group disability coverage only starts paying after you’ve already been off work for several months and stops paying after about two years. From the stats above we know that the average length of disability is closer to three years and that’s if you’re lucky enough to even qualify under the definition of disability in your plan. Many policies define disability so narrowly that even though you can’t do your job, if you can do any job at all for any amount of pay, you don’t qualify. Think about that for a minute.

A personal disability insurance plan tailored to your income and special skills, even in conjunction with a group plan, might be the difference between making your mortgage payment or being forced to sell your house and move to a cheap apartment.

Any guesses as to what’s the number one cause of bankruptcy?

4 – Critical Illness Insurance.

sick

Many critical illnesses, cancer, heart attacks etc, have a fairly quick recovery time and as you can see by the stats above, medical science has given us a pretty good chance of surviving. You could have a heart attack and be back to work, at least part-time in less than a month. You could be taking cancer treatments in the morning and going to work in the afternoon. If that’s the case you might not be off work long enough or have your hours reduced enough to qualify for disability insurance. But the economic cost could still be significant.

Disability Insurance only replaces your income it does not cover the cost of one-time expenses like home renovations to accommodate a wheel chair or expenses associated with a long hospital stay. Things like extra commute costs or the loss of income from a spouse who takes time off to be with you for example are not generally considered in a disability insurance claim. That’s where a critical illness policy becomes valuable it provides a one-time lump sum payment at the time of diagnosis to help cover initial expenses associated with the condition.

As you can see there are quite a few areas of risk associated with your ability to earn an income that need to be addressed early in your financial plan.  When bad things happen, it doesn’t take long to wipe out a retirement nest egg if you aren’t prepared with a proper amount of insurance. The exact structure of an insurance plan is different for everyone based on your budget and how exposed you are but the bottom line is this; if you have any debt, a job or are currently breathing, you are exposed to risk that a good health, disability and life insurance plan can mitigate and you should do that before you invest a dime.

Next week we’ll look at step three, Rule Retirement.

If you have any questions or would like more information on how to Regulate Risk in your life write to themeekonomicsproject@gmail.com