Tag: Insurance

Life Insurance That Changes With You

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Before we leave all the insurance talk,  I wanted to draw your attention to a few of the opportunities with life insurance.

Despite life insurance paying out on death, it does have the ability to not only support the lives of your loved ones when you are not there, it can also provide you with several living benefits.

Living Perks of Life Insurance
All life insurance policies can be assigned to a lender.

We often see this where a bank, offering a sizeable business loan for example, will request that key persons for the success of the business be insured. Best practice is to set up personally or corporately owned insurance as the case may be, rather than creditor insurance, which does not provide you with flexibility down the road.

In addition, you can also borrow directly from the cash surrender value of a permanent life insurance policy. This can be set up multiple ways and can be a great source of funds to help set up your business expansion while maintaining insurance coverage and offer an alternate source for income in retirement.

How Does Life Insurance Change with You?
The more advanced concepts of using life insurance to provide benefits while you are still alive is often something that doesn’t become relevant until your mid or late career.

In many cases, the initial cost of permanent life insurance premiums deter clients from setting up these policies at the beginning of their career.

As a result, most clients will purchase more premium affordable short term life insurance early in their adult lives. In order to create a policy that can change with you, you will want to ensure your term insurance is both renewable and convertible.

Renewable Term Life Insurance
Renewable term insurance means that after your initial purchased time period of insurance coverage, say ten years, the policy will automatically renew for a new term at the contracted new rates, up until it’s expiry, usually at age 85 for term life insurance.

These rates are printed in your policy so you are aware of how the premiums will change with your increasing age. Renewing a term life insurance policy also means that you don’t need to undergo the application process again. This is especially valuable if your health has changed since your initial application.

Convertibility For Changing Needs
On top of any need for ongoing life insurance to financially assist your loved ones, you may also find yourself looking for additional long-term strategies as your career advances.

In addition to the above mentioned living perks of life insurance, you may need final taxation management and estate strategies, such as maximization, equalization and charitable giving.

Convertible term policies will permit you to change your plan to permanent insurance, thereby moving from a rental form of insurance to life long coverage (as long as the premium requirements are met).

And like renewability, you don’t have to undergo the application process again, risking premium ratings or a decline of coverage due to changes in your health or family health history.

Business Owned Life Insurance
We often speak about “savings buckets” and since the 2017/2018 CRA changes, saving for retirement in a corporation is no longer the benefit it used to be. Permanent life insurance is still one way that you can create tax efficient savings in your corporation.

In addition, this can help preserve your small business tax rate from passive earnings erosion. Remember however, if you are planning to sell your corporation down the road, you don’t necessarily want to sell this asset with the business, so it will be important to structure this strategy efficiently so that it will truly achieve your goals down the road.

Products That Serve You Today & Tomorrow
Life insurance is one product that not only serves your immediate needs, but if structured properly can serve you well into the future. Understanding how life insurance can be an asset class onto itself will help prepare you for the future you are dreaming of.

Read Previous Article – DISABILITY INSURANCE: MORE THAN INCOME REPLACEMENT

Advisory
As your Chief Financial Officer, I am here to help you understand your money and assist you in making smart decisions about your debt repayment, insurance protection, tax management and wealth creation. I work as your fiduciary to ensure that your best interests are always placed first and foremost.

Have more questions than answers? Educating you is just one piece of being your personal CFO that we do. Call (780-261-3098) or email (Roxanne@C3wealthadvisors.ca) today to set up your next conversation with us.

Roxanne Arnal is a former Optometrist, Professional Corporation President, and practice owner. Today she is on a mission of Empowering You & Your Wealth with Clarity, Confidence & Control.

These articles are for information purposes only and are not a replacement for personal financial planning. Everyone’s circumstances and needs are different. Errors and Omissions exempt.

ROXANNE ARNAL,

Optometrist and Certified Financial Planner

Roxanne Arnal graduated from UW School of Optometry in 1995 and is a past-president of the Alberta Association of Optometrists (AAO) and the Canadian Association of Optometry Students (CAOS).  She subsequently built a thriving optometric practice in rural Alberta.

Roxanne took the decision in  2012 to leave optometry and become a financial planning professional.  She now focuses on providing services to Optometrists with a plan to parlay her unique expertise to help optometric practices and their families across the country meet their goals through astute financial planning and decision making.

Roxanne splits EWO podcast hosting duties with Dr. Glen Chiasson.

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Why Would I use Insurance as an Investment?

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Did you even know insurance can be an investment tool? Why would you ever want to do such a thing? Well, the simple answer is taxation.

Permanent Life Insurance
Two general forms of life insurance can help build your wealth.

Universal life insurance is like a term to age 100 policy that has a side investment account. You have the option to use the side account at any time. This is a great feature as you can secure the life insurance coverage you need today and hold onto the investment contribution room until you have excess cash to deposit.

Similar to purchasing mutual funds, a universal life insurance policy usually has a small selection of funds to invest in.

Whole life refers to a life insurance policy that has a dividend. The dividend can be set, often called non-participating, or it can be variable and dependent on an investment pool created and held by the insurer, called participating.

There are many dividend options to pick from and you should review your selected option from time to time to ensure the policy is still meeting all your needs. In most cases, a paid-up addition dividend option will help your policy values increase and typically outpace inflation so that the purchasing power of your benefit is maintained at the very least.

When you purchase a permanent life insurance product, you will be provided with an illustration that shows how the cash values might grow in the future.

Like any investment, there is no guarantee of long-term performance and typically these policies are designed for the long term as we want you to live a long and fruitful life. It is therefore important to also see the illustration of values showing 2% less growth so that you have a better understanding of some of the risks.

Risk?
All investments have risks. Having said that, the risk built into a life insurance contract is typically far less than the traditional marketplace.

Because the insurance company relies on their own investments in order to take your premiums and grow them to a point where they can pay claims, they tend to select lower-risk investments, have access to institutional funds, and lower management fees than many individuals do on their own.

Beware of illustrations that show you a high rate of return and minimize your premium payments by showing a high dependence on policy growth. It was quite common before the end of the last century to illustrate policies with double-digit growth.

The reality however was that most companies had to greatly reduce their growth payments and these policies started to implode. That policy that you thought would be there for life and provide a retirement supplement, was quickly disappearing to cover the base insurance cost.*

*If you think you might have an imploding policy, ask your advisor for an in-force illustration using the current growth rate and another showing 2% less. There are options to salvage what you have left if you act sooner rather than later.

Can Insurance Create Retirement Income?
Here is where things get interesting. A healthy life insurance policy with a decent investment side account can serve to not only cover your estate taxes at death, clear your debts, and provide a legacy to your family or charity, it can also be used to fund your lifestyle or other expenses while you are alive.

Typically, the value of the policy can be used as collateral for a bank loan, a policy loan (where you are your own banker), or partial surrender. There are various options depending on your need and long-term desires.

What About the Taxes?
When investments grow inside a life insurance policy, as long as the deposits stay under the contribution line, they grow tax-free. Keep in mind, that how you remove the money later in life may create a taxable event. Typically, if you access the money through a collateral or policy loan, there is no taxation.

Business Owned Policies
Here is where it gets really interesting. Growth from investments held by your business are deemed passive income and are taxed at the highest business tax rate. So being aware of the tax-saving opportunities for business investments is important.

Using life insurance can provide a great option for sheltering some business funds. Again, how you access these funds may trigger taxation – so you need to be aware of all the ins and outs of what you are trying to accomplish.

We didn’t even mention how investing in your life insurance contract can help you preserve the small business deduction tax rate on your active income!

When using a business-owned policy, you also need to be aware of how this investment and your life insurance coverage would be impacted by a change of business ownership.

Advisory
As your Chief Financial Officer, I’m here to help you understand the various tools available to you and your business to build your wealth. There are many factors to consider and understanding your goals is key to building a plan that serves you today and well into the future – as your life changes.

Have more questions than answers? Educating you is just one piece of being your personal CFO that I offer. Call (780-261-3098) or email (Roxanne@claritywealthadvisory.ca) today to set up your next conversation with us.

Roxanne Arnal is a former Optometrist, Professional Corporation President, and practice owner. Today she is on a mission to Empower You & Your Wealth.

These articles are for information purposes only and are not a replacement for personal financial planning. Everyone’s circumstances and needs are different. Errors and Omissions exempt.

ROXANNE ARNAL,

Optometrist and Certified Financial Planner

Roxanne Arnal graduated from UW School of Optometry in 1995 and is a past-president of the Alberta Association of Optometrists (AAO) and the Canadian Association of Optometry Students (CAOS).  She subsequently built a thriving optometric practice in rural Alberta.

Roxanne took the decision in  2012 to leave optometry and become a financial planning professional.  She now focuses on providing services to Optometrists with a plan to parlay her unique expertise to help optometric practices and their families across the country meet their goals through astute financial planning and decision making.

Roxanne splits EWO podcast hosting duties with Dr. Glen Chiasson.

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Marginal vs. Average Tax Rate – Say What?

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Tax Burden

Roxanne Arnal, Optometrist and Certified Financial Planner© has made her article available in audio format.

Click the play button below to listen.

 

Dr. Roxanne Arnal, CFP®

The Canadian Tax system is one of the most complicated in the world, so it’s no surprise that several tax terms used may feel unfamiliar and confusing to you.

We’ll start with some of the basics of personal taxation, more specifically tax rates. Personal tax rates in Canada are banded which means you will pay a different percentage of tax on different amounts of your income dollars. Let’s break it down –

Federal Marginal Tax Rates (Federal MTR)

At the time of writing, the federal tax rate on your first $49,020 of taxable income is 15% which means for every $1 of income you earn, you pay 15 cents in federal tax (excluding deductions but we’ll get there!). Band two (income between $49,021-$98,040) increases to 20.5% tax rate which means you will pay an extra 5.5 cents per dollar earned in tax! At the highest level of federal tax every dollar amount earned over $216,512 is taxed at 33%.

Provincial Marginal Tax Rate (Provincial MTR)

This works much the same as the federal MTR, but many provinces and territories in Canada use different income cut offs. For example, if you earned $100,000 depending on your province this would place you in the 11.16% MTR for Ontario, the 10.00% MTR for Alberta, and a whopping 17.5% MRT for Nova Scotia. Curious based on your existing income level? Here’s a super handy chart (LINK MACKENZIE Form)

Combined Marginal Tax Rate (Combined MTR)

Based on the above example, if you earn $100,000 while living in Ontario, your combined marginal tax rate would be 37.16%.

Average Tax Rate (ATR)

This describes the overall average amount of tax you pay. Because of banding and in recognition that higher dollars are subject to higher amounts of taxation, your average tax rate will be less than your MTR. What’s your ATR on $100,000 of earned income? Hold tight, we’re getting there.

Deductions

To make this just a little more confusing, there is also a myriad of tax credits and deductions. These too can be very different federally, and by each province. The basic personal exemption that applies to nearly every tax paying Canadian, for 2021, means you won’t pay any federal tax on the first $13,808 you earn and you won’t pay Ontario provincial tax on the first $10,880. But remember, I said “nearly”. There are exceptions to most of the rules. Federally, the basic personal exemption is subject to a gradual reduction for those earning over $151,978, until it reaches only $12,421 at an income level of $216,511. And then there are different rules provincially. See what I mean by complicated!

An Ontario Example

For illustrative purposes, we are going to assume you earn $100,000 of employment income in Ontario. This table illustrates the actual tax rates from both the federal and Ontario Governments and total tax dollars that apply to each band.

At $100,000 of income, your combined MTR is 37.16% while your average tax rate is 22.8%, or $22,798/$100,000.

A Few Other Notes

There are a large number of federal and provincial tax credits and personal deductions that may apply to you and I encourage you to become at least somewhat familiar with them. Some of the more common ones include: childcare expenses, RRSP deductions, disability tax credits, professional dues deductions, moving expenses, charitable donations, the list goes on and on. You can find these easily on government websites and are not included in our above example.

Why Does it Matter

Knowing your MTR is key to understanding how best to strategize your investments (for example your TFSA, RRSP and non-registered savings contributions), amongst other financial planning components to help support your overall wealth creation and minimize taxation. MTR is used to describe how much income tax you are going to pay on your next dollar of taxable income.

Understanding your ATR will help you plan your cash flow. As per the above example, after income taxes, you have $77,201.35 to spend on your debt repayment, housing, savings, expenses and entertainment.

Have more questions than answers? Educating you is just one piece of being your personal CFO that I offer. Call or email today to start your plan.

These articles are for information purposes only and are not a replacement for personal financial planning. Everyone’s circumstances and needs are different. The values provided here are subject to change and should not be construed as fact. Errors and Omissions exempt.

Federal Link: All deductions, credits, and expenses – Personal income tax – Canada.ca

ROXANNE ARNAL,

Optometrist and Certified Financial Planner

Roxanne Arnal graduated from UW School of Optometry in 1995 and is a past-president of the Alberta Association of Optometrists (AAO) and the Canadian Association of Optometry Students (CAOS).  She subsequently built a thriving optometric practice in rural Alberta.

Roxanne took the decision in  2012 to leave optometry and become a financial planning professional.  She now focuses on providing services to Optometrists with a plan to parlay her unique expertise to help optometric practices and their families across the country meet their goals through astute financial planning and decision making.

Roxanne splits EWO podcast hosting duties with Dr. Glen Chiasson.

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Salary or Dividends?

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Roxanne Arnal, Optometrist and Certified Financial Planner© has made her article available in audio format.

Click the play button below to listen.

Dr. Roxanne Arnal, CFP®

The age-old question for corporation owners. Do I take salary or dividends?

First off, congratulations – you are earning enough money in your corporation to pay yourself! If you started your business cold, this is a day to celebrate. If you are fortunate enough to have sufficient profits to support your lifestyle, you are now asking one of the most common tax questions.

And the answer…it depends.

RRSP Contribution Room

The tax deferral benefit of a Registered Retirement Savings Plan is greatest when you expect to be in a lower tax bracket in retirement than the one you are currently in. This isn’t an easy calculation, because you also have to remember that retirement income is not all taxable, and actually, some forms of retirement income can have a greater negative effect than others [think Old Age Security (OAS) Clawback]. And, we really don’t know what the tax rates will be like in the future.

In order to deposit to an RRSP and defer taxation, you need to create RRSP contribution room. RRSP contribution room is created through earned income. Dividends and capital gain sources of revenue are NOT earned income and therefore do not create RRSP contribution room.

There is also an annual cap on the amount of new contribution room you can create in any one year. For 2021, this cap is $27,830, which corresponds to earned income of $154,611.

If you take dividends however, you will not create any RRSP contribution room. And, for good tax and retirement planning, I don’t recommend an all or nothing strategy for any client.

CPP Contributions

The Canada Pension Plan forms part of the basic framework of the Canadian retiree social system. It is designed, along with OAS, to provide Seniors with a base living allowance. I typically use this base as the safety net for my retirees. Everyone, even my super high net worth clients, like having a safety net.

CPP won’t likely make up a large part of your retirement income, but the program also has disability benefits that kick in for those that suffer severe and long-term disabilities preventing gainful employment. An additional top up to your personal income replacement plan.

Salaried income is subject to CPP contributions. For self-employed individuals, you are essentially paying both the employer and employee portions. For 2021, this rate is 5.45% for each side, for a total of 9.9%. I know this sounds like a nearly 10% additional tax hit, but there is a cap on this amount. For salary earned above $61,600, no further CPP contributions are required. Hence, for a salary at the RRSP contribution maximum, CPP accounts for just over 4%.

 Ideal Split

In all reality, most clients benefit from a split between salary and dividend income from their corporations. Finding the right balance between excess lifestyle withdrawals for additional investing vs corporate investing needs to be reviewed on an ongoing basis.

Where lifestyle needs exceed the after-tax income created from an RRSP contribution maximum, $154,611, then I always recommend you pull the excess as dividends.

Let’s look at an example

Say you need $10,000 a month of spendable cash to cover off your mortgage, student loan payments, property taxes, utilities, groceries, and a little fun.

In Summary

There are several factors to consider on a salary or dividend split for those owning professional corporations. Part of it involves a conversation around your goals and retirement dreams. As a family CFO, I review all aspects of these decisions with my clients and work toward creating plans that meet your desires today and your dreams tomorrow.

This article should not be construed as personal financial advice.

ROXANNE ARNAL,

Optometrist and Certified Financial Planner

Roxanne Arnal graduated from UW School of Optometry in 1995 and is a past-president of the Alberta Association of Optometrists (AAO) and the Canadian Association of Optometry Students (CAOS).  She subsequently built a thriving optometric practice in rural Alberta.

Roxanne took the decision in  2012 to leave optometry and become a financial planning professional.  She now focuses on providing services to Optometrists with a plan to parlay her unique expertise to help optometric practices and their families across the country meet their goals through astute financial planning and decision making.

Roxanne splits EWO podcast hosting duties with Dr. Glen Chiasson.

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Should I invest in a RRSP or a TFSA?

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Roxanne Arnal, Optometrist and Certified Financial Planner© has made her article available in audio format.

Click the play button below to listen.

Dr. Roxanne Arnal, CFP®

Good question. Let’s start with some general information. What is an RRSP and a TFSA? Both are account types that have been given special tax treatment with the CRA. Both account types, along with open accounts, RESP and RDSP accounts for example, can hold a number of different kinds of investments within them.

RRSP

An RRSP is a Registered Retirement Savings Plan. It was designed to create a personal pension and really came into favor when businesses took a step back from offering those juicy Defined Benefit Pension Plans (DBPP). If you know of anyone who works for the government, chances are they still have a nice DBPP. For the rest of us, it is really our own responsibility to build a retirement nest egg that will allow us to live the lifestyle of our choosing when we no longer want to see patients in the little dark room. (You should also be aware that there are a couple of special withdrawal programs tied to an RRSP, such as the Home Buyers Program (HBP) and the Lifelong Learning Program (LLP). These are topics for another day.)

An RRSP at it’s core is a tax deferral vehicle. It allows you to take some of your income from today, invest it according to the program, and on withdrawal, pay tax at your then current rate. So from a planning perspective, an RRSP works best when you anticipate moving from a current high tax rate to a future lower tax rate.

Of course, there is no way to know what the future tax rates are going to be – so yes, this is a bit of a gamble. But historically, the income tax banding system used in Canada doesn’t change significantly and typically, year over year, they are adjusted for inflation. Planning does require various assumptions, and the future tax regime is one such set of assumptions we use.

TFSA

A TFSA is a Tax Free Savings Account and takes your current after tax money on deposit. In this case however, the investment growth is 100% tax free on withdrawal. Sound enticing? Well it should be! A TFSA works especially well if you are currently in a lower tax bracket and expect to be in a higher tax bracket in the future. And I don’t just mean in retirement.

Contribution Room

Both a TFSA and a RRSP have contribution room maximums that are calculated completely different.

You start to earn TFSA contribution room the year you turn 18 (provided you turned 18 on or after 2009 when the program started). Currently, the annual increase in your contribution room is $6000. Your contribution room continues to grow every year you are alive. When you make contributions, the room for future contributions decreases. When you make a withdrawal, the contribution room is returned to you the following January. This makes TFSA accounts a great place to park money for future large expenses, short and mid term goals. However, their very best use remains for retirement.

The contribution room in a RRSP is based on your annual tax reported income. So if you started filing tax returns at 14, you were already creating a contribution room pool based on 18% of your annual income, up to the annual maximum. Your annual income is defined as regular income and does not include dividend or other investment income. This of course opens up the question for self employed people – do you take salary or dividends? Yup – that’s a topic for another day.

But which one is best?

For most of my clients, we utilize both account types. The split is really dependent on how you create your cash flow, manage your tax strategy and organize your goals.

There are some general tax guidelines, but what you want your money to do for you should always be the most important guiding principle in how you invest. Your goals provide the framework for all the planning work we do together – because at the end of the day, it’s all about you!

If you have any questions, please don’t hesitate to reach out.

ROXANNE ARNAL,

Optometrist and Certified Financial Planner

Roxanne Arnal graduated from UW School of Optometry in 1995 and is a past-president of the Alberta Association of Optometrists (AAO) and the Canadian Association of Optometry Students (CAOS).  She subsequently built a thriving optometric practice in rural Alberta.

Roxanne took the decision in  2012 to leave optometry and become a financial planning professional.  She now focuses on providing services to Optometrists with a plan to parlay her unique expertise to help optometric practices and their families across the country meet their goals through astute financial planning and decision making.

Roxanne splits EWO podcast hosting duties with Dr. Glen Chiasson.

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Getting a tax refund is exciting, but should it be?

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Roxanne Arnal, Optometrist and Certified Financial Planner© has made her article available in audio format.

Click the play button below to listen.

Dr. Roxanne Arnal, CFP®

It’s that time of year again – when most of us have had to open up our wallets and make a special contribution to the CRA. As many optometrists receive income in multiple formats such as salary, dividends, and self-employment, we typically find ourselves owing additional taxes at this time of year. But not always.

If you haven’t strategized your annual tax bill well in advance, you may have found yourself with a refund coming your way.

Do you get excited when you hear you are receiving a REFUND? I’d like to challenge you to think differently about this.

Strategize your Tax Bill

What? You mean I can strategize my tax bill? Yes you can! Every year after you file your taxes and receive your notice of assessment from the CRA, I highly recommend that you spend some time with your Certified Financial Planner working out the best strategy for your income draw over the balance of the current tax year.

Adjusting your RRSP contributions is one simple task that everyone should review annually. Reviewing your tax installments is another. Salary and dividend splits need to be reassessed on an ongoing basis. Although your accountant has calculated your tax contributions for the coming year, this does not mean these figures are written in stone. Yes, there are CRA guidelines, but these are based on your tax bill from your previous two years of filing.

Your tax contributions for the year can always be adjusted based on a number of projections that we review in our annual tax meeting. Will your RRSP contributions increase or decrease this year? Have you had your payroll deductions adjusted for variances from the standard table? Do you anticipate placing a hefty medical expense submission on your next tax return? And on that note, do you know that medical expenses are any 12 consecutive months and not tied to the calendar year? Changes to your charitable contributions? Disability tax credit qualification change? Has there been a fundamental shift in taxation that will directly impact you?

We all know these things matter when we submit our paperwork to our accountant annually, but have you taken the time to plan for them earlier in the year and adjusted your tax contributions accordingly?

Why does planning ahead matter?

We all appreciate the social services that Canada offers. If you’ve ever been sick or seriously injured, you recognize the value of our health care system. Pandemic? Well you probably appreciated several of the government programs. Free highway access – yes please. Our social services are part of what makes this country great. But they do come at a cost and our tax system is designed to fund these costs – in one form or another.

So yes, pay your taxes, but don’t go donating extra to the government. When you make installments in excess of your tax bill, you are actually lending the government your money for free. FOR FREE!

With all due respect, if we owe them money, we will be charged interest and penalties. So don’t just ignore those tax installments, but adjust them to make them closer to target.

Do you like getting a tax refund? Well I don’t know about you, but I don’t like lending out my money interest free. Savings accounts might be paying dismally low interest right now, but they are still better than zero and maintaining the control of your own money is directly linked to opportunity flexibility,

Let’s get smarter about our money.

Need help planning your next tax year? Start with your tax return and an understanding of your year ahead – and let’s talk.

ROXANNE ARNAL,

Optometrist and Certified Financial Planner

Roxanne Arnal graduated from UW School of Optometry in 1995 and is a past-president of the Alberta Association of Optometrists (AAO) and the Canadian Association of Optometry Students (CAOS).  She subsequently built a thriving optometric practice in rural Alberta.

Roxanne took the decision in  2012 to leave optometry and become a financial planning professional.  She now focuses on providing services to Optometrists with a plan to parlay her unique expertise to help optometric practices and their families across the country meet their goals through astute financial planning and decision making.

Roxanne splits EWO podcast hosting duties with Dr. Glen Chiasson.

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Asset Protection Analysis

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Roxanne Arnal, Optometrist and Certified Financial Planner© has made her article available in audio format.

Click the play button below to listen.

Dr. Roxanne Arnal, CFP®

My last article addressed your greatest asset and I introduced the concept of an asset protection portfolio. But what is an asset protection portfolio?

Essentially, it’s a plan that outlines how you will manage various risks to your assets.

For example, Professional Liability Coverage manages the risk you carry of causing real or perceived harm to your patients. In our increasingly litigious society, this coverage is vital to ensure that our livelihoods, our businesses, and our personal lives are not ruined due to a possible misjudgment along the way.

Review your Risks

Comprehensive financial planning includes a review of your potential risks and discusses the strategies to manage those risks.

  • Identify the risks that could threaten your financial security.
  • Quantify the risks.
  • Determine if there is some way to mitigate the risks through planning.
  • Transfer the remaining risks that you are unable or unwilling to assume yourself to an insurance company.

For significant life changing events, like premature death or developing a debilitating illness for example, it may be prudent to transfer as much of the financial impact as possible.

Where transfer is not done, you would ultimately assume the financial burden of unexpected, and potentially catastrophic events. This can have a significant impact on your assets – both on you as the asset generating machine, but also on the physical assets themselves.

From a health perspective, given todays ever advancing care, we often survive, what in the past, would have killed us. Both my husband and I are proof of  how advancements in health care save lives, where previously premature death was inevitable.

As a result, it is more important than ever to ensure that we don’t drain our savings in our fight for survival. Transferring risk permits us to adapt to our new situation while maintaining a manageable standard of living for us and our families.

Asset Protection Process

  1. Evaluate the impact of the risk. Consider: would the risk be of:
    • Minor consequence?: Where the potential financial loss is very low, it is likely very manageable within your overall financial situation. Think of smashing your cell phone. Annoying? Yes. Does it create a financial stress on your family? Likely not.
    • Substantial consequence?: Where you would face serious financial difficulties that would lead to a reduction in your standard of living, you will want to ensure you have reviewed risk transfer options.Your inability to work for six months after an accident is one such example.
    • Dire consequence?: Where it would result in significant financial loss that could lead to bankruptcy or the disposition of most assets, you will definitely want to transfer the risk.The everyday example we live here is the risk of malpractice.
  2. Review the probability of the risk occurring in relation to the impact it would create, and allocate premium dollars accordingly. For example, what are the odds of your house catching on fire? There were only 5,951 residential fires in all of Ontario in 2014. The odds of you developing a critical illness? 26% for a non-smoking 35 year old male before the age of 65! (You can review your own risk through the Insure Right Calculator by Manulife.)
  3. Select the appropriate asset protection strategy. There are 4 basic strategies:
    • Risk Avoidance – can you avoid the potential risk? For example, you can avoid the risk of an ice mountain climbing injury by choosing not to ice mountain climb.
    • Risk Reduction – can you reduce the probability of the risk occurring? For example, you can use your seatbelt every time you travel by vehicle.
    • Risk Transfer/Sharing – can you transfer the cost or share the cost of a risk occurrence with another party? For example, you can’t afford substantial time off work and support your family should you suffer a major injury. You may have an emergency fund equal to 3 months of expenses, but it’s highly unlikely you have sufficient savings to cover your needs until age 65. Perhaps a disability income replacement policy would be wise.
    • Risk Retention – for all risks not avoided, reduced or transferred to a third party, you ultimately retain the risk yourself and assume full responsibility for the financial impact it may have. Replace that broken phone? An inconvenience, but it won’t create financial ruin for years to come. Suffer a stroke? Well that’s a different story.

Have you analyzed your areas of risk and how you will handle them? As your personal CFO, I’m here to help you figure it out and explore the different options so you can make smart financial decisions with confidence.

Business risks? Well, that’s a topic for another day.

 

References:

Manulife Insure Right – What’s your Risk? Which references: Critical illness probability based on combined incidence rates for Cancer (“New cases for ICD-03 primary sites of cancer: 2002-2007”) and the Heart and

Stroke Foundation of Canada (“The Growing Burden of Heart Disease and Stroke in Canada, 2003”).

Fire Statistics in Canada, 2005-2014, published by Statistics Canada, September 2017

ROXANNE ARNAL,

Optometrist and Certified Financial Planner

Roxanne Arnal graduated from UW School of Optometry in 1995 and is a past-president of the Alberta Association of Optometrists (AAO) and the Canadian Association of Optometry Students (CAOS).  She subsequently built a thriving optometric practice in rural Alberta.

Roxanne took the decision in  2012 to leave optometry and become a financial planning professional.  She now focuses on providing services to Optometrists with a plan to parlay her unique expertise to help optometric practices and their families across the country meet their goals through astute financial planning and decision making.

Roxanne splits EWO podcast hosting duties with Dr. Glen Chiasson.

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