Three giant insurance companies dominate the Canadian industry Manulife Financial, Sun Life and Great West Life and over a hundred businesses sell insurance from these companies, with some products even available through banks.
That s just one of the essential insurance facts that farmers may or may not know. More to the point, they also may not know some of the strategies that can help make life insurance a better deal on the farm.
Life insurance can be used as a tax shelter, says Ted Clysdale, financial planner at Peterborough, Ont. What you invest and what you earn are exempt from tax.
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Types
Permanent life insurance has an investment component that term doesn t. Moreover, you can access some of the growth and not report it on an income tax report.
If you re using life insurance to cover your loan, you can claim the premiums as an expense. With the creditor insurance you buy at the banks, the premiums are buried in the interest payments amount on your statements so you just expense it all.
Life insurance premiums are deductible for tax purposes if the insurance is required by a financial institution as security on a business or investment loan, says Brad Gee, accountant with Stewart Gee and Associates in Saskatchewan.
” Whole life is the traditional insurance in which you pay a premium and when you die, your estate gets a little windfall. A whole life policy is a guaranteed investment but is not flexible with premiums and it s expensive. Part of the premiums go for insurance and a portion goes into an investment, mostly bonds. Today, whole life policies are generally smaller and are often used as a means to cover funeral expenses.
” Term insurance is generally the cheapest, particularly at younger ages. This covers you for a specific time and once this time is over, your insurance coverage is over too. Premiums usually are fixed for five, 10 or 20 years at a time, increasing at each age block. T-10 means the premiums are fixed for 10 years at a time, so every 10 years the premiums increase. You ll still continue to be covered until the term ends on the policy, usually age 70, 75 or 80.
” Term life is really a permanent product. Sometimes referred to as Term 100, it is a permanent form of insurance that lasts for the lifetime of the insured. In the last 25 years, less-expensive term insurance became popular with the philosophy that it would be wiser to just pay for your life insurance and invest the portion of money that a whole life policy would have invested for you. It s generally used to handle temporary needs, says Clysdale. And it gets more expensive the older you get.
” Universal life (UL) is a new type of insurance that recently emerged on the Canadian market. A UL policy is a blend of investment in mutual funds and term insurance. The return on the investment portion is not guaranteed but the term insurance part is. The premiums are more flexible and can be designed to meet individual needs for premium payment. This is because the investment portion can be switched on and off or it can be expanded or shrunken, and it is accessible tax-free.
