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INCOMPLETE … WORK IN PROGRESS … MAY CONTAIN ERRORS
Mental Leveraging
What's your best investment? Yourself. You can't over invest in being the best. As you increase your skills, you increase...
Things to review for LLQP exam
creditor protection
while policyowner is living: if irrevocable beneficiary or preferred beneficiary
upon death of the life insured (?): if the beneficiary is other...
Segregated funds have seven unique features
maturity guarantee
returns at least 75% of deposits less withdrawals 10 years after the date of deposit (policy year or policy month)
death benefit...
The policyowner transfers all rights to another party (e.g., person, charity, corporation), which then becomes the policyowner.
An absolute assignment of an insurance contract transfers the...
Health insurance is available to all Canadians through provincial health plans. The services vary and have limits. Five types of individual accident & sickness insurance help cover expenses...
Income Tax Act (ITA) section 148(9)
Adjusted Cost Base
The Adjusted Cost Base is the cost of capital property (e.g., shares) for tax purposes less fees and less expenses for improvements
includes:...
When a withdrawal is made from a segregated fund, the principal guarantee is adjusted using a
linear reduction or
proportion reduction
(1)
Linear Reduction Method ("dollar for dollar")
The...
A life insurance death benefit gives the following advantages:
Tax-free
unless the policy is held in an
RRSP: savings component is fully taxed
solution: hold the policy outside an...
An agent is a person who negotiates, solicits and places a contract of insurance on behalf of the insurer (the principal) in exchange for compensation. The agent is usually required to deliver...
You can give legal consent upon reaching the age of majority. The age varies by province and territory.
By Age
Age of Majority
Jurisdication
18
Alberta, Manitoba, Ontario, Prince Edward Island,...
previously called the “Spouse’s Allowance”
The tax-free Allowance is paid monthly to help with the difficult circumstances faced by many
surviving spouses
couples living on the pension of...
Alternative Minimum Tax (AMT) prevents the reduction of your tax liability to zero
calculate if you are using tax shelters or other tax-reducing schemes
ensures that everyone with earned income...
Analyzing your financial risks has two stages:
identifying the risks
evaluating the risks
Identify the Risks
This is where your advisor
may ask you to complete a questionnaire ("Know Your...
The annuitant receives periodic payments from an annuity contract.
There may be more than one annuitant.
An annuitant must be an individual (not a trust, corporation, etc).
An annuity provides a series of payments to the annuitant in exchange for a lump sum.
e.g., monthly, quarterly, annually
payout is a combination of return of capital (tax-free) and interest...
Annuitization is exchanging the value of your annuity for the issuer's guarantee to make periodic payments to you
e.g., for a specific period or the rest of your life
Annuitization Of A...
annuity due: investment at beginning of period (0,1,2,3,…,n-1)
Annuities are taxed on an accrual basis: as income is earned even if not received (e.g., during the accumulation phase of a deferred annuity)
Taxation depends on the type of...
Those most likely to claim are most likely to buy insurance.
So a person who has reasons to believe that death is likely will be very interested in buying insurance. The underwriting process helps...
The applicant applies for insurance and becomes the policyowner or insured once the policy is issued.
ask price = seller’s price
higher than the bid price
website: www.assuris.ca
previously called the Canadian Life & Health Insurance Compensation Corporation (CompCorp)
Assuris is a consumer protection plan established in 1990
nonprofit,...
The Attending Physician's Statement from the doctor(s) of the proposed life insured provides valuable information to the underwriters. Unfortunately, completing an APS is a low priority for most...
a consideration in income splitting
The attribution rules prevent you from avoiding or reducing tax by transferring, loaning or gifting property to a spouse or close family member
doesn’t apply...
A beneficiary is a person the policyowner selects to receives the benefits from an insurance policy.
defined under the provincial Insurance Act
cannot be the policyowner [find out why]
Note:...
Beta measures systematic risk (historical volatility of a security versus an index)
* e.g., β=1.1 means 10% more volatile than the stock market average
* e.g., β=0.9 means 10% less volatile than...
bid price = buyer’s price
lower than the ask price
go to bonds instead
debt security
represents the debt of the issuer (government or corporation) to the bondholder (purchaser)
interest is tax deductible for the issuer
Current Yield = 100 x...
go to bond instead
Investment grade bonds (highest to lowest)
Aaa
Aa
A
Baa
A buy/sell agreement is a legal contract between a buyer and seller of a private corporation (CCPC).
Setting out all the terms in a binding agreement eliminates ambiguity and negotiations at the...
Issuer has option to cash in early
often with bonds and preferred shares
government website
official CPP Payment Rates
The Canada Pension Plan took effect on Jan 1, 1966.
fully funded by contributions from employees, employers and investment income from those...
There is a special type of corporation called a Canadian-Controlled Private Corporation (CCPC). Informal names are a "small business", "closely-held corporation" or "private corporation".
A...
Income Tax Act (ITA) section 89(1)
The Capital Dividend Account (CDA) is a special notional tax account which a private corporation (CCPC) can use to give shareholders designated capital dividends...
compare with interest and dividends
Taxation of capital gains came to Canada in 1972 to replace estate and gift taxes.
What Are Capital Gains?
Capital gains are "profits" realized when a capital...
An individual (but not a corporation such as a holding company or trust) can realize up to $750,000 of capital gains tax-free from a
Qualified Small Business Corporation
Qualified Farm...
A capital property is any property that could result in a capital gain or loss upon disposition. The property could be
tangible: investment real estate, art, cottage
intangible: stocks, bonds,...
An intergenerational transfer of wealth
Your Situation
You have children or grandchildren. You have nonregistered assets you wish to pass on to them after your death.
Your Goals
You want
full...
website: cdic.ca
The Canadian Deposit Insurance Corporation (CDIC) protects your deposits if your bank becomes insolvent or bankrupt. CDIC is a federal Crown corporation. The maximum coverage is...
A "child" is defined as one of the following
your
child
daughter-in-law, son-in-law
grandchild, great-grandchild, …
your spouse's
child
daughter-in-law, son-in-law
grandchild,...
website: cipf.ca
The Consumer Investor Protection Fund (CIPF) insures clients of member securities firms against insolvency and bankruptcy. These firms are also members of the Investment Dealers...
The claimant is the person or legal entity (e.g., estate) claiming a benefit from an insurance policy contract.
Individual Insurance
Policy Type
Claimant
life insurance
beneficiary
critical...
website: www.clhia.ca
The Canadian Life and Health Insurance Association (CLHIA) represents the insurance companies.
The CLHIA helps protect you by
developing guidelines for projections (often...
A life insurance contract can be assigned to a lender as collateral for a commercial loan. Collateral life insurance can require a change to make the lender the beneficiary for the amount of the...
A lender may require you to have life insurance for the amount of a loan. An existing policy can be used or a new policy can be purchased.
There is a tax deduction for the lesser of the {premium...
compare with preferred shares
represents ownership in the company
voting rights
eligible for dividends, if declared by the Board of Directors
Ongoing distributions (e.g., interest) are reinvested.
Confidentiality of information about you is a good business practice and a legal requirement.
Confidentiality of Information
your advisor is not to discuss you with others unless you specifically...
A consideration is an exchange of value.
For a life insurance contract, the consideration is the premium paid by the applicant to the insurer.
There are many reasons for mistrust in society.
When you buy life insurance, you are protected in many ways.
Federal Regulators
Provincial Regulators
Consumer Protection Plan
Advisor Malpractice...
This wiki is a free public service started in 2006 by Promod Sharma, a marketing actuary based in Toronto, Canada. Feel free to join and help with the development
For more information about...
An insurer can make an insurance contract void during the first two years for a nonfraudulent misrepresentation. This period is called the contestable period. This is different than your right of...
The person designated to receive the life insurance death benefit if the primary beneficiary dies before the life insured. The contingent beneficiary is the secondary beneficiary.
A contingent...
The person designated by the the policyowner to become the new owner of a life insurance policy if the original owner dies before the policy ends.
The person designated to become the new owner of a...
A contract is an agreement between the parties that is legally enforceable.
A simple contract requires an offer and acceptance between the parties.
also called "mutual assent" or "bargain"
A...
An insurance policy contract is called a contract of adhesion because
the insurer writes the contract
no negotiation regarding the policy conditions ("take it or leave it")
you as the applicant...
A life insurance policy contract has numerous contractual safeguards for your benefit:
conversion provision
"free look" period
grace period
incontestability by the insurer
misstatement of...
You can convert a term life insurance policy or rider to permanent insurance without evidence of insurability for the life insured.
option ends at a specified age (e.g., 65) or date
the premium...
When a corporation is a beneficiary of a life insurance policy, the death proceeds less the ACB go to the Capital Dividend Account.
Note: The insurance proceeds are subject to the claims of...
Private corporations (CCPCs) can benefit from life insurance in various ways.
Business Uses
Buy/Sell Funding
to fund the purchase of the shares of a deceased shareholder by the corporation or...
This section concerns Canadian-Controlled Private Corporations (CCPCs). You'll get the best results with financial planning.
Three Ignored Business Risks
Oh, I can't close my eyes
And make it go...
There are three main corporate uses of disability income
replacing income of a key person
covering business overhead expenses
shareholder buyout on disability
Replacing Income of a Key...
A corporation is
an incorporated company
issues shares and is owned by the shareholders
shareholder is entitled to
receive financial information about the corporation
attend shareholder...
Chemistry is more important than credentials but credentials matter since anyone can call themselves a financial planner or financial advisor. Many do. Measures of training come from...
Life insurance products are the most creditor-protected financial products available in Canada.
Creditor protection is especially valuable for entrepreneurs, small business owners, sole...
critical illness insurance (CII) pays a lump sum if you are
diagnosed with a covered life-threatening medical condition (illness, injury or disease), and
survive 30 days
you can use benefits...
A debt security. The interest is tax deductible for the issuer.
A bond supported by the general creditworthiness of the issuer
unlike a corporate bond, no corporate assets are pledged as security
Debt securities consist of
bonds
debentures
Guaranteed Investment Certificates (GICs)
T-Bills
Advantages of Debt Securities
Income
the main reason for purchase
Safety/Security
interest...
A Deferred Profit-Sharing Plan (DPSP) is an employer-funded incentive program in the form of a trust registered with CRA.
employees cannot make contributions (mandatory or voluntary)
maximum...
Employees often prefer Defined Benefit pension plans over Defined Contribution because risks are transferred to their employers.
Pension Adjustment = 9 x Pension Entitlement - $600
employees know...
also called a "Money Purchase Plan"
Employers often prefer Defined Contribution pension plans over Defined Benefit plans since risks are transferred to employees.
Pension Adjustment (PA) =...
An insurance policy goes on the effective date.
Before bringing the policy contract to you, your advisor will have checked for errors
e.g., name, date of birth, gender, type of plan, amount of...
The price is derived from and based on another financial product.
There are four types of derivatives
Futures Contracts
Options
Rights
Warrants
Futures Contracts
buy or sell a specific quantity...
Disability insurance helps replace your monthly income if
you are unable to work (perform essential duties of your own regular occupation) due to an accident or sickness
you are getting medical...
The risk of disability is much greater than the risk of death during our working years. The consequences can be lost income and extra expenses. Consider
disability insurance to offset the loss in...
This noncommercial volunteer wiki is a public service intended primarily for Canadians outside Quebec (which follows a civil code rather than common law).
The content here is meant to be accurate....
This brief summary cannot capture the variations for
different designations
different jurisdictions
This is primarily for residents of Ontario, Canada.
Disposition means disposal of a capital property. Disposition may occur
upon death of a taxpayer
when a taxpayer becomes a nonresident of Canada
upon gifting of a property
Two Types of...
Payment of a death benefit is not a disposition of a life insurance policy (includes the early death benefit available on a Joint Last To Die policy).
Upon disposition any gain is fully taxed as...
compare with interest and capital gains
Dividends are a share of the after-tax profits earned by a corporation
Sources
Dividends are earned from
stocks
mutual funds
segregated...
Due diligence means that the advisor has a reasonable basis for the recommendations made
includes the duty to diagnose
obliged to gather and analyze all relevant information regarding your...
Compare with taxable income and passive income.
Earned income is generally net income from employment, business and rentals
excludes investment income, taxable capital gains and pension...
An insurance contract takes effect when
there has been no change in insurability of the life insured from the time the policy application was completed
the policy contract is delivered (confirmed...
Here endorsements from experts on
life insurance
critical illness insurance
disability insurance
segregated funds
Here are endorsements for life insurance.
Coopers & Lybrand
"The returns from virtually tax-free accumulation after the deduction of insurance costs, compared to taxable accumulations, can...
see variables
Here are some key equations or formulas.
Rule of 72
Present Value
Future Value
Advisors are required to carry insurance for Errors & Omissions (E&O) claims. This insurance protects consumers, advisors and insurers from issues such as
mishandling of funds
improper...
Your estate is all your assets upon your death.
Estate planning helps ensure that
funds will be available upon your death to payoff all debts (e.g., capital gains tax)
beneficiaries (e.g., family,...
An estate beneficiary means your beneficiary is your estate (as the policyowner). This designation means
loss of creditor protection
additional probate fees
It is more common to designate a...
Transfer appreciating assets (eg, to children) on a tax-deferred basis without losing control
The goal of an estate freeze is to transfer future increases in the value of an OpCo to the common...
Key component is medical information
A professional opinion based on assumptions rather than the relevant facts is usually worthless.
Fact finding is the process of gathering information about you. Questionnaires may be used to gather...
Here are some fast facts
Insurable Interest
needed by the policyowner in the life insured
Contestable Period
for material misrepresentation (no limit for fraud)
Canadian family income has been stagnant since 1980. We're keeping pace with inflation, but little more.
see full size
A fiduciary is an expert in the services provided. So a fiduciary has a legal responsibility for your welfare.
fiduciary has scope to exercise some power or discretion
fiduciary can...
Your advisor is an expert in the services provided. So your advisor has a legal responsibility for your welfare. This is called a fiduciary duty.
There are three components
act in your best...
Financial planning helps you define your goals and then work towards them, usually with assistance from a trusted advisor. Planning can be
situational, dealing with a specific pressing...
Private corporations (CCPCs) have various financial needs and opportunities.
buying out a shareholder
corporate insured annuity
freeing "trapped" surplus
providing retirement income for a key...
There are various definitions of forgery:
the making of a fake document or the altering of a real one with the intent to commit fraud
the process of making or adapting objects or documents with...
A risk which is insurable satisfies four conditions
homogeneous
insurer needs enough similar risks to estimate the claim costs using the law of large numbers
fortuitous
occurrence and severity...
In the financial world, the four pillars are
banking
insurance
securities
trusts
Or they were. Thanks to deregulation, the barriers restricting what a financial institution can sell have eroded....
Here are several definitions of fraud:
intentional perversion of the truth in order to mislead someone into parting with something of value
intentional deception resulting in injury to another...
When you receive your insurance policy contract, you (as the policyowner) sign a delivery receipt which informs you that you can cancel the contract without penalty within 10 days and receive a...
compare with present value
(1)
Disability income is available from private plans and four government plans
Canada Pension Plan
Veteran Affairs
Employment Insurance
Workers Compensation
Veteran Affairs
for veterans of...
Health insurance is available to all Canadians through provincial health plans. The services vary and have limits. Provincial health plans cover most medical expenses arising from an accident or...
Here is information about Government plans.
Canada Pension Plan
Health Insurance
Old Age Security
Canada Pension Plan (CPP)
Current CPP Payments
Rate Card page or Jan-Mar 2007 Rates...
An insurance contract stays in force for 30-31 days following the premium due date. If premium is not paid during this grace period, the policy lapses, if
term insurance, or
permanent insurance...
Health insurance is available to all Canadians through provincial health plans. The services vary and have limits. Group Accident & Sickness insurance provides additional coverage, the same...
Group Accidental Death & Dismemberment (AD&D) is available as a standalone plan or an addon to group life or group health plan.
low cost
often add coverage for accidents while traveling...
Did you know that when you leave your group plan you can convert your group life insurance to an individual term or permanent coverage without providing evidence of insurability. So even if you are...
provides income while life insured is unable to work due to illness or accident
two types:
Short Term Disability
Long Term Disability
definition of disability
very different from the...
Types
group life
term
permanent
creditor group
group health
disability income
also called Wage Loss Replacement plans
for short term and long term disabilities
accident and sickness...
Types of Group Life
There are three forms of group life insurance
term
permanent
creditor
Group Term Life
virtually all group life insurance is one-year renewable term
the group policyowner...
A Group Registered Savings Plan (GRSP) is similar an individual RRSP, except administered on a group basis
employee contributions matched in whole or in part by employer, union or...
The Guaranteed Income Supplement provides a tax-free monthly benefit to OAS Pension recipients who are resident in Canada and have little or no other income.
Eligibility
To qualify, you must meet...
guarantee interest and principal
terms up to 10 years
redeemability
redeemable
non-redeemable: can't cash before maturity except upon death or extreme financial hardship
transferable
CDIC...
There are several types of health insurance
accident and sickness
Living Benefits
critical illness
disability income
Long Term Care
Typographical Aids
→
“ ”
Colours
red text
green text
blue text
orange text
pink text
brown text
[[include http://www.sparkinsight.com/links]]
The economic value of a life depends on
spending patterns
income
obligations to dependents and others
value judgments
There are different ways to estimate how much life insurance you may...
If you are allowed to edit pages in this Site, simply click on edit button at the bottom of the page. This will open an editor with a toolbar pallette with options.
To create a link to a new page,...
immediate annuity: investment at beginning of period (1,2,3,…,n)
There are three forms of income reporting
Cash
report income in the year you receive it
Receivables
report income in the year the income is due (i.e., when you are entitled to receive...
You can save tax by diverting income to a family member in a lower tax bracket, subject to the attribution rules. Using separate bank accounts makes auditing easier.
Here are income splitting...
The Canadian Income Tax Act is accessible online here
Incontestability by Insurer
2+ years after the effective date or reinstatement date, the insurer can only void the policy contract for
material misrepresentation or
fraudulent...
Principle of indemnification: insurance can restore the victim of a loss to their original financial condition that they cannot profit from the loss
disability insurance won't pay out more than...
real rate of return = nominal rate of return - inflation rate
erodes the real value of an investment
actual gain = real rate of return after taxes
cyclical: inflation increases → interest rates...
The Inspection Report helps the underwriter by providing the following
details of any hazardous occupations or hobbies
financial data about the applicant and life insured
whether the applicant can...
Insurable interest exists if you (as the policyowner) expect to suffer a financial loss or fail to make a financial gain if the life insured dies
only required required when the policy is...
A legal contract in which the insurer (e.g., insurance company) agrees to compensate the insured (the policyowner) for unexpected losses. In return, the insured pays premiums to the insurer.
There...
An insurance contract consists of two components:
policy application
doesn't need to be attached but often is
the policy prevails over the application
the policy contract,...
The policyowner.
The policyowner can also be called
the policyholder or policy holder
the contract holder (e.g., for segregated funds)
the insured
the applicant
The policyowner
buys the...
Disability income insurance usually has integration of benefits to provide a financial incentive to return to work
limits benefits from all sources so there is a financial incentive to return to...
Interest is one of the three forms of investment return. The others are dividends and capital gains.
Sources
Interest is earned from
annuity payments received (taxable...
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Investment risk comes from two sources
principal risk
loss of principal
a conservative investor wants to at least get back the original investment
inflation risk
loss of purchasing power
e.g.,...
The topic of investments is vast.
click here
An irrevocable beneficiary effectively controls the insurance contract and must give (written?) consent before you (as the policyowner) can
alter or revoke the beneficiary designation
assign...
The issue date is the date an insurance contract is produced by the insurer. The effective date is later.
The death benefit is paid on the death of the first life insured to die (in contrast to a Joint Last To Die) policy.
If the policyowners are also the lives insured, the insurance contract may allow...
This page isn't really needed, but it's soooo hard to throw things out :)
Who can join?
Anybody and nobody.
Join!
There isn't really anything to join since this site is public. If you're...
The death benefit is paid on the death of the last of the lives insured (in contrast to a Joint First To Die) policy. Since the payment of the death benefit is deferred, the insurance charges are...
In the securities industry, the cardinal rule for an advisor is called "Know Your Client" (KYC). Your advisor must ensure that all their recommendations are “suitable” for your risk profile...
A letter of engagement clarifies what your advisor is doing. The letter typically shows
the names of the insurers represented
the name of the insurer who would issue the policy
the advisor would...
Leverage:
risk a small amount of money to get a magnified percentage return
using borrowed money to invest
Leveraging is intended for knowledgeable investors
riskier than investing with cash,...
Will I have income for the rest of my life?
A life annuity guarantees benefit payments for the rest of your life (as the annuitant) and provides the same creditor protection as life...
Life expectancy is a statistical measure of the point where half the population under study dies. So life expectancy is only meaningful for a population. It is not an estimate of how long you...
There are two other types of locked-in funds: Life Retirement Income Funds (LRIFs) and LIF/LRIFs
A LIF is like a RRIF but with maximums on the withdrawals
A Life Income Fund (LIF)
can receive...
A life insurance policy contract pays a tax-free death benefit to the beneficiary (or beneficiaries) selected by the policyowner upon the death of the life (or lives) insured.
Learn about
ways to...
Life Insurance receives special treatment in the Canadian taxation system both for individuals and private corporations.
tax-free death benefit
the beneficiaries receive the death benefit...
An insurance policy contract is based on the life insured. Some contracts allow more than one life insured (Joint First To Die or Joint Last To Die).
The life insured has no rights under the...
a variation of a LIF with no requirement to buy a life annuity
A Life Retirement Income Fund (LRIF) is a variation of a LIF
locked-in funds can be transferred in
no requirement to buy a life...
A load is sales charge you (the investor) pay to help cover the distribution costs (e.g., advisor’s compensation). Loads take away from your investment performance.
also called a locked-in RRSP
Vested benefits from a Private Pension plan can’t be received in cash until retirement. So if you leave an employee your before retirement, your vested benefits must...
How did living a long life because a financial risk?
As we live longer and healthier lives, we risk outliving out assets. We could end up in poverty, relying on the government or family to cover...
Long-Term Care insurance helps reduce the financial burden of aging by providing cash
for expenses such as
in-home health-care
care in chronic care facilities (nursing home)
medical...
To make a claim, you would generally contact your advisor for assistance.
A claims examiner confirms that
the insurance contract was in force at the time of the claim
for life insurance, that...
A Management Expense Ratio (MER) is deducted from segregated funds or mutual funds to cover the ongoing operating costs.
generally deducted daily
includes operating expenses and management...
Your marginal tax rate is the tax on your next (or last) dollar of taxable income.
rate increases as tax income increases (called a progressive tax system)
applies to investment income
For higher...
A Market Value Adjustment (MVA) may apply when you are taking money out of a fixed-term investment before maturity. There can be three components.
term rate adjustment
current rate market...
The underwriter need medical information to assess risk
medical history of the life insured, including
family history
drug use
alcohol use
etc
official website
The Medical Insurance Bureau (MIB) helps protect you from the cost of fraud (intentional or unintentional) committed by applicants for insurance.
With the written permission of the...
One party may agree to an insurance contract because it was mislead by the other party. The misrepresentation could have prevented either party from agreeing to an insurance...
An insurer cannot terminate an insurance contract for a mistake or misrepresentation of the age the life insured — even if intentional. Instead, the insurer recalculates the policy benefits based...
A mistake is made unconsciously.
There are many kinds of mistakes that can be made in the process of an applicant or insurer agreeing to an insurance arrangement. A mistake is different from...
Money laundering is moving money earned illegally into legitimate financial instruments, such as life insurance with cash values, segregated funds and annuities.
An advisor must inform the...
There are two types of money market instruments
government T-bills
terms of 91, 182 or 364 days
large denominations
issued at a discount (below face value) and mature at face value
corporate...
When you lose health, you can face extra costs and less income. Consider
* accident & sickness insurance
* critical illness insurance
* long term care
Here are the probabilities that a newly underwritten male nonsmoker will live another 10 years.
Age
Surviving 10 years
Dying within 10...
foldunfold
Table of Contents
Seven Cash and Income Needs at Death
Final Expenses
Emergency Fund
Supplement Survivor's Income
Charitable Giving
Income For Dependent Children
Education Fund
Payoff...
Must distribute most of the earnings to unit holders (interest, dividends, net realized capital gains, net unrealized capital gains)
Basics
investors who share a mutual investment objectives pool...
The Net Cost of Pure Insurance (NCPI) is the tax cost of an insurance policy.
(1)
There are different ways to define the Net Amount At Risk (NAAR), the pure amount of insurance. Here is a common...
compare with a prescribed annuity
heavier tax burden in early years
interest portion is like a mortgage (early payments mainly interest, later payments mainly capital)
as annuity grows and annual...
Old Age Security (OAS) provides a pension benefit.
Eligibility
age 65+
10+ years of residence in Canada after reaching age 18
ignores employment history
available even if working (not affected by...
official site
The Old Age Security Act took effect in 1952
means-tested
funded from general tax revenue
taxable benefits
clawback provisions
There are three benefits
OAS Pension
Guaranteed...
official website
The Office of the Superintendent of Financial Institutions (OSFI) actively monitors the solvency of federally-regulated insurance companies and reinsurers.
There are disclaimers for everything these days. Here is a collection. Emphasize has been added with a bold font..
Corporate Heavy
The material contained in this book is set out in good faith...
A business partnership is
formed by a group of individuals
least common structure
not incorporated
each partner is personally responsible for the debts of the partnership in proportion to their...
Compare with taxable income and earned income.
You receive passive income or residual income even when you are not working. Examples:
investment income
rental income
Disability insurance ignores...
Pension Adjustment (PA) = Private Pension Plan contribution + Deferred Profit-Sharing Plan contribution
Multiple claims can occur
Here is a brief overview of how personal income tax works in Canada outside Quebec.
(1)
(2)
(3)
Add CPP contributions if self-employed
Subtract other federal nonrefundable credits
Subtract tax...
When asked about financial risks, most of us think of the following
Living too long: outliving our savings
consider a life annuity for guaranteed income for life
Dying too soon: with financial...
There are numerous personal strategies
Cascade Plan for intergenerational wealth transfer
Per stirpes is a method of dividing up proceeds based on lineage. The share that a person would have received while alive can go to that person's heirs.
Using per stirpes in a beneficiary...
The federal Personal Information Protection and Electronic Documents Act (PIPEDA) protects your privacy. It took effect in January 2004. Note that the US Patriot Act takes precedence over PIPEDA...
There are three stages in planning your legacy
help yourself
the starting point is becoming financially independent
help your family
help society
there are many opportunities for...
The application for an insurance policy contract contains
personal information
medical information
provides evidence of insurability
product details
The policy application may not be attached...
There are two ways to assign a life insurance policy
absolute assignment
collateral assignment
Note: cannot assign a policy with irrevocable beneficiaries without their agreement
Compare with regular dividends on investments
A policy dividend may be available on a whole life policy.
A policy dividend is a distribution arising from overpayment of premiums
the premium...
The policyowner.
The policyowner can also be called
the policyholder or policy holder
the contract holder (e.g., for segregated funds)
the insured
the applicant
The policyowner
buys the...
Policy loans are usually available from universal life and whole life insurance contracts
you can borrow from the cash value (e.g., 90%)
the insurer deducts the outstanding loan the death...
The policyowner can also be called
the policyholder or policy holder
the contract holder (e.g., for segregated funds)
the insured
the applicant
The policyowner
buys the insurance contract from...
Here are measures of portfolio performance.
beta
standard deviation
Sharpe ratio
Beta
measures systematic risk (historical volatility of a security versus an index)
e.g., β=1.1 means 10%...
Pre-exisiting condition
started during a specified period before the policy application (e.g., 2 years)
was not disclosed to the insurer at the time of the application
Excludes existing medical...
Preferred shares:
owner entitled to
a dividend (fixed or floating) before any dividends paid to common shareholders
a stated dollar amount per share upon liquidation of the company
generally no...
The consideration paid by the policyowner for the insurance contract
required to issue the policy
required to keep the policy in force
With universal life insurance, the policyowner may have...
Individual Insurance
Insurance premiums can be paid by different parties
the policyowner
the life insured
a beneficiary
an assignee of the policy
another party
Note: The advisor cannot pay the...
Provinces levy premium tax on life insurance, ranging from 2% to 4%. The province is is based on the residence of the policyowner
premium tax included in the premium you pay (not added on as with...
compare with a nonprescribed annuity
spread capital evenly over the expected benefit period
each payment is a blend of interest and return of capital → good for tax planning
Advantages
less...
Compare with future value
A dollar you receive in the future (future value) is not as valuable as a dollar you have today. That's because the dollar you have now can be invested to earn interest....
The primary beneficiary receives the death benefit of a life insurance policy.
If the primary beneficiary is deceased at the time of the payment would be made, then the proceeds go to the...
A conservative investor wants to at least get back the original investment.
There are 10 sources of principal risk, the risk of loss of principal
business
currency (exchange rate)
default...
Your personal information (e.g., medical and financial) is very sensitive and must be
protected
used properly
whether received from you or third parties with your permission.
Under federal PIPEDA...
Private pension plans are also called registered pension plans: they are registered with CRA but as separate from RRSPs.
There are several types of private pension plans
Defined...
A legal process through which a court confirms that
your Will is valid
the Will presented to the court is your "Last Will and Testament"
that the executor has the authority to administer the...
Probate fees vary by province. They are paid to a court, usually from the proceeds of your estate.
In Ontario, probate fees are
$5 per $1,000 for the first $50,000, plus
$15 per $1,000 on the...
As a fiduciary, your advisor is required to follow professional standards to serve you properly.
Constructive Notice
Any information the agent receives from you (as the applicant) is considered to...
Here are questions to be answered. Questions are also embedded in pages with the tag "wip" (for work in progress).
Administration
Q: Can duplicate copies of premium notices be sent to the...
Page to be included panel-right-side can not be found!
What are the tax consequences of transferring a life insurance policy to another corporation (eg from Opco to Holdco)?
The transferring...
Upon liquidation of a company, here are the priorities for payment
holders of debt (creditors)
bonds (secured)
debentures (unsecured)
holders of equity (owners)
preferred shares
common...
Advantages
Leverage
you can borrow to buy (using other people's money)
Income
you can get rental income which offsets the mortgage payments
Tax Advantages
no tax on the sale of your...
There are three main reasons for establishing a Canadian-Controlled Private Corporation
transferring liability
more tax deductions
low tax rate up to the Small Business Limit
The CDA allows a...
Who can you trust anymore?
Food
Cadbury in court on hygiene charges (July 3, 2007, The Guardian)
… the chocolate-maker intended to plead guilty to six counts of contravening food hygiene...
“Redeemable”
an option to cash in an investment at a specified price (i.e., face value)
could apply to holder or issuer of investment
bonds and preferred shares:
- retractable – holder has...
Not updated for March 2007 federal budget. Visit other sites for the latest information.
Registered Educational Savings Plans (RESPs) help save money for a child's higher education.
Basics
can...
A Registered Retirement Income Fund (RRIF) is an account to which RRSP balances can be transferred without being taxed at the time of transfer
registered with Canada Revenue Agency to receive...
Registered Retirement Savings Plans (RRSPs) can be an excellent way for Canadians to save for retirement.
registered with the government as per the Income Tax Act
RRSPs can be
managed
few...
An insurance contract which lapses because premiums were not paid can be reinstated by the policyowner
request within two years of lapse
repay missed premiums with interest
provide evidence of...
Insurance is based on the principle of spreading the risk. To protect against large claims, the insurer purchases reinsurance from a reinsurer. In turn, the reinsurer may protect itself through...
statements are substantially true to the best of the applicant’s knowledge
statements not guaranteed to be exact in every detail
example: life and disability insurance
Contrast with warranty
There are five requirements for a valid insurance contract
insurable interest
legal capacity
consideration
meeting of the minds
offer and acceptance
The insurance contract takes effect on the...
To qualify for life insurance, you must be a resident of Canada.
Definition
According to the Income Tax Act, you are Canadian resident if:
you pay income tax in Canada on your worldwide income...
Here are some resources you may find useful.
Research
Are Canadian Family Businesses an Endangered Species? (1999) (The Deloitte Centre for Tax Education and Research | University of...
You can get retirement income from four sources
Government Pensions
Canada Pension Plan (CPP)
Old Age Security (OAS)
OAS Pension
Guaranteed Income Supplement (GIS)
Allowance
Private...
A Retirement Compensation Arrangement (RCA) is an extremely specialized tool for improving pension income for high income earners. Typically, you'd start with RRSPs and then Individual Pension...
arise from severance pay, sick leave credits, court awards for wrongful dismissal
included in earned income, but can transfer tax-free to your RRSP without using up the contribution...
Holder has option to cash in early
often with bonds and preferred shares
With a revocable beneficiary, you (as the policyowner) can
change the beneficary or beneficiaries at any time in writing
name the beneficary or beneficiaries in your Will
This flexibility is lost...
Risk is the probability of suffering emotional, physical or financial harm in the future.
There are two types of risk
speculative
chance of loss or gain
e.g., stock market, gambling
pure...
There are four risk management techniques
risk avoidance
loss control
risk retention
risk transfer
These techniques work for pure risks (chance of loss but no chance of gain) but not speculative...
The higher the risk, the higher the expected returns.
Risk tolerance is revealed by the investments you've already made and risks in other parts of your life.
Risk tolerance depends on...
RRSPs and universal life insurance both offer tax deferred investment growth. How else do they compare?
Item
RRSP
Universal Life
Are my contributions tax-deductible?
Yes
No
Is my investment...
see variables
How long (n) does it take to double your money at a specified interest rate (i)?
What interest rate (i) would double your money over a specified number of years...
Before you buy a segregated fund, your advisor must give you the following
information folder
summary fact statement
financial statements
and you will sign a receipt to acknowledge that you have...
Clients for segregated funds have the following profile
Risk Averse
minimum principal guarantees on death and maturity
Below Maximum Age
insurers have max issue age (e.g., 80)
not available...
Disposition of a segregated fund occurs upon
surrender
some or all units
death of the policyowner
transfer of ownership
transfer back to the insurer
a full or partial transfer of interest...
Past performance does not guarantee future results
A segregated fund ("seg fund") is like a mutual fund with minimum guarantees at death and maturity.
pool of funds an insurer holds separately...
“Segregated Fund Trust”
segregated fund deemed to be owned by an inter vivos (living) trust
trust can flow to policyowners all interest income, dividend income, capital gains/losses
tax...
Here are questions you may want to ask a potential financial advisor. The order isn't important.
What is your background?
How long have you been a financial advisor?
What designations do you...
Whether it's better to sell assets or sell shares depends on who's buying and who's selling.
Purchasers
prefer selling assets
can deduct the Capital Cost Allowance (CCA) or depreciation on...
An insurance contract is "settled" when the life insured dies. The death proceeds can be taken in several ways
lump sum (most common)
interest on the death benefit
Term Certain Annuity
life...
Effective investors consider the following inter-related items
inflation protection
investment liquidity
investment objectives
market timing strategy
marginal tax rate
risk tolerance
time...
A universal life insurance policy can be used for two purposes with different owners.
Tax-free Death Benefit
eg, private corporation needs insurance
Tax-sheltered Investment Growth
eg, insured...
Shareholder benefits can arise in different and are usually taxable.
Corporate-owned Life Insurance
Income Tax Act (ITA) section 15(1)
Suppose the corporation
owns an insurance policy
pays the...
There are two types of shares
preferred shares
common shares
Comparison
Item
Common Shares
Preferred Shares
Ownership
yes
no
Voting rights
yes
rarely
Dividends (fixed or floating)
no...
Sharpe Ratio
(real rate of return) / (standard deviation)
real rate of return = annualized rate of return – risk-free rate of return
Welcome page
Government Plans
Risks
Personal Risks
Corporate Risks
T-I-R-E
Tax
Investments
Retirement
Estate
Getting Help
Financial Planning
Credentials
External Resources
Site Map
Page...
Members:
Moderators
Admins
Corporate taxes are lower on income below the Small Business Deduction limit which was increased to $400,000 on Jan 1, 2007.
The tax rates are available from accounting firm websites.
In...
A sole proprietorship is
“owned and operated” by one person (often called a "mom & pop shop")
common
not incorporated
owner personally liable for for all business debt
owner owns all...
There are nine sources of agent misconduct.
commission splitting
conflicts of interest
fraud
holding out
misrepresentation
money laundering
replacement
tied selling
unfair trade...
Compare with earned income and passive income.
There are many sources of taxable income (alphabetically)
alimony, if awarded before May 1, 1997 (confirm date, if any)
business income less expenses...
There are four special taxation situations
personal use property
listed personal property
principal residence
spousal rollover
Personal Use Property
e.g., personal effects, clothing, cars,...
Standard Deviation variability of returns
e.g., investment returns (usually annually)
There are different types of stocks
Value Stocks
Price is cheap when measured by
profits
book value
etc
used to settle large accident & liability claims that result in serious permanent disability
less-expensive than providing enough capital to provide the income required
not considered annuity...
legal process that allows the insurer to assume the policyowner's right to collect damages from a third party
generally stated in the insurance contract
if the claim is successful, the insurer is...
Also called "special risks" or "rated"
A substandard risk has a greater probability of making a claim. About 10% of applications are substandard. (looking for better statistics)
If the life is...
A regular or reduced death benefit is available upon suicide of the life insured.
Time of Suicide
Death Benefit
within first 2 years after issue or reinstatement
refund of premium without...
Canadians are subject to various taxes.
Federal Income Tax
Provincial Income Tax
Alternative Minimum Tax
Withholding Tax
Consumption Taxes
Tax planning is our right to take advantage of each...
The death benefit is always paid to the beneficiary tax-free
Learn about the tax deductibility of insurance premiums. There is a separate section for group insurance.
Life Insurance
Since life...
Loan interest is tax deductible when the loan proceeds are used to earn taxable income, e.g., from
business investments
assets earning interest (e.g., bonds)
There needs to be a reasonable...
"Tax avoidance results when actions are taken to minimize tax, while within the letter of the law, those actions contravene the object and spirit of the law"
— CRA Taxpayer Alert
A tax credit is more valuable than a tax deduction
a $1 credit reduces tax by $1
refundable
refunds the amount of the credit even if tax is not paid
example: Goods & Services Tax...
General tax rule: if the premiums are not tax deductible, then the benefits are tax-free (and vice versa)
Learn about the taxation of insurance.
Life Insurance
premiums for individual life...
compare with a tax credit
An expense which can be deducted from taxable income.
more valuable in higher tax brackets
examples
RRSP contribution
childcare expenses
deductible moving expenses
The Canadian tax system is based on the principle of integration. The following should attract the same tax:
income earned by a corporation and distributed to shareholders as dividends,...
"A tax shelter is defined in the Income Tax Act to be any property for which a promoter represents that an investor may claim deductions or receive benefits which equal or exceed the amount...
There are three main uses of corporate-owned life insurance
defer taxes
reduce premium costs
provide shareholder dividends
Defer Taxes
deposit excess corporate capital into policy, invest and...
There are three main uses of personally-owned life insurance
defer taxes
prefund taxes
earn tax credits
Defer Taxes
investment earnings grow tax-free in exempt life-insurance policy
tax...
A T-Bill is not a bond.
issued by the federal government for terms of 91 or 182 days
in bearer form (nearly always)
denominations: $1000, $5,000, $25,000, $100,000, $1 million
pay no interest:...
also called a binding premium receipt or conditional insurance
Since underwriting and issuing a life insurance policy takes time, temporary insurance may be available.
After you (as the applicant)...
Also available from banks. Life annuities are only available from insurers.
A Term Certain Annuity is also known as an "annuity certain" or "fixed-term annuity", and may be abbreviated as...
filed by a legal representative of the deceased (usually the executor)
includes all accrued income
income accumulated during the year of death until the date of death from wages, pensions,...
Term life insurance is for temporary needs
for short-term needs such as mortgage loans or other debt
can be a less expensive than insurance from your lender
coverage runs
for specific...
Term To 100 life insurance combines characteristics of term and permanent insurance.
like term, there is generally no cash value or policy dividends
so if premiums are missed, the policy...
There are three sections of the Criminal Code of Canada which are especially relevant for agents:
Forgery (section 366)
Fraud (section 380)
Theft (section 322)
Forgery (section 366)
Forging an...
You can buy insurance without direct contact with the insurer. This is essential for financial services. The law of agency authorizes an agent to bind the principal (insurer) into a contractual...
Your agent is liable to you for the following reasons
misrepresentation of coverage
improper instructions in the event of a claim
failure to secure coverage for you
failure to secure proper...
The goal of financial planning is to identify your objectives (personal and financial) and achieve them.
There are six steps
setting your financial objectives
gathering relevant...
We each make different decisions. Which would you pickÉ
fast food or slow food
self-serve or full-serve
for gasoline or investing
snow shovel or snow blower
nonorganic or organic
also see present value and future value
A dollar you receive today is worth more than a dollar you receive in the future. That's because the dollar you receive today can
earn interest
benefit from...
welcome page
other links
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edit
edit sections
print
A civil (noncriminal) wrong.
Tort law attempts to compensate the party harmed
harm could be caused by civil or criminal conduct
harm could be to to wealth, property, person or dignity
Errors and...
A trustee acts for the benefit of a beneficiary. You (as the policyowner) can appoint a trustee as beneficiary of your life insurance policy, under provincial legislation.
Where To Use A...
A trust is a legal structure
settlor
transfers property to the trust
gives instructions to the trust
trustee
the legal owner of the property in the trust
so the residence of the trust is...
There are three types of businesses
Sole Proprietorship
Partnership
Corporation
There are three forms of investment returns
interest
dividends
capital gains
Sources
Different investments produce different types of returns.
Investment
Interest
Dividends
Capital Gains
bank...
Here are the main types of investments
debt securities
mutual funds
shares
real estate
segregated funds
Comparison Of Mutual Funds and Segregated Funds
Item
Mutual Funds
Segregated...
There are different types of life insurance for different needs. The underlying question is whether the need is temporary or permanent. Ownership can be personal or corporate.
Temporary Life...
Universal life (UL) contracts offer three types of investments
Guaranteed Interest Accounts
Market Index Accounts
Managed Accounts
You can find out more by visiting the website of your favourite...
Underwriting is the process of assessing and classifying the degree of risk expected from insuring the proposed life insured. During this process, temporary insurance may be available. Through this...
legislates individual life insurance contracts throughout Canada outside Quebec
requires standard contract provisions, e.g.,
right of policyowner to designate a beneficiary
An contract is called a unilateral contract
the insurer is bound by the terms of the contract as long as the policy is in force
the policyowner can cancel the contract at any time
Universal life (UL), the most flexible form of life insurance, was developed to overcome drawbacks of whole life. This permanent insurance combines
term insurance
tax-deferred investment growth...
Here are the variables used in the equations on Riscario (shown alphabetically).
(1)
effective interest rate in one period
input as a decimal (e.g., 8% is input as 0.08)
(2)
a period is...
requires 100% accuracy or the policy is void
example: property and casualty insurance
Contrast with representation
Here are five ways to reduce income tax (after consulting your accountant or tax specialist)
defer taxes
e.g., with RRSPs and cash value life insurance
income splitting
from higher income...
Do your dreams match reality?
Riscario helps you can learn about financial risks and ways to reduce them. In a twist, the content is written with Canadians in mind. So we'll talk about RRSPs, not...
Welcome to your new site! Please read this first!
This page is just a welcome-page and you really might want to change it using the "edit" button at the bottom of this page and delete this...
According to Wikipedia, the world largest wiki site:
A Wiki ([ˈwiː.kiː] <wee-kee> or [ˈwɪ.kiː] <wick-ey>) is a type of website that allows users to add, remove, or otherwise edit...
Only life insurance companies are permitted to sell the following
nonregistered tax deferral (eg, permanent life insurance)
segregated funds
life annuities
What happens if the life insured and the beneficiary die together or within 30 days of the same event?
In most provinces, the beneficiary is assumed to have died before the life insured unless...
Whole life insurance is the oldest form of permanent insurance
usually pays a policy dividend if there are gains from
interest (actual returns vs expected returns)
mortality (actual deaths vs...
A will is legal document in which you describe how you want your assets be distributed upon your death.
A will must be revocable in its entirety.
so an irrevocable beneficiary cannot be set in a...
Withholding tax is a prepayment of tax which applies to withdrawals from
RRSPs
RRIFs, above the mandated minimums
Amount Withheld
Tax Rates
Quebec Tax Rates
$0 - $5,000
10%
21%
$5,001 -...
Your agent is the conduit between you (the applicant) and the insurance company. The agent is required to communicate accurately and truly, providing no misleading information.
When you have...
