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Insurance is one of those topics that can bring a sigh of relief or a cringe of annoyance.
Either way it is a topic that needs to be discussed with your parents. No one wants to live
life in constant fear that something bad will happen but we can plan that if something
does happen, we can reduce the affects it may have on our parents and the family overall.
Generally speaking, one must always be careful as to the amount and need for different
types of insurance. My experience is that insurance professionals are the best trained
salespeople there are. They truly believe in the products they sell and translate that
passion to the sales process. Contrary to public perception, insurance professionals truly
feel that they are providing a valuable and needed service to their clients. And they are.
However, because of the complexity of many insurance products and the resulting
difficulty the average person will have to understand them, people are inclined to accept
the proposed insurance product on the basis that they like and trust the salesperson. As a
result, people and elders in particular are prone to purchase insurance with very little
actual understanding of the product itself. This could result in coverage that is too rich,
inadequate or simply not required. Insurance needs may also have changed since the last
time your parents’ coverage was updated. As such, it will be important to develop a good
working relationship with your parents’ insurance advisors. A relationship where you
can ask for explanations on the coverage in order to avoid future insurance problems.
This chapter is meant to provide you with a framework to assist in your understanding of
your parents’ insurance needs and to familiarize yourself with some of the basic
components of each type of insurance.
Generally, the following types of insurance should be considered:
1 Life
2 Property and casualty
3 Health insurance for travel
Life Insurance: Dimes to Dollars
I have a client who had a major argument with his wife. He wanted to buy enough
insurance in order to leave a nice little estate for his children and grandchildren. This
was driven by his need to leave a “legacy” from which he and his wife would be
remembered and appreciated. His wife, however, did not want to spend the money on the
yearly premiums and felt they had done enough for their children. After all, their
children were well educated and successful in their own right. She wanted to ensure she
and her husband could live a full life by using the money for exotic vacations. She wanted
to buy only a minimal amount to cover off their funerals and other expenses so as not to
leave any financial burden to the kids. I must say the argument they had in my office was
hysterical. He is a mountain of a man and she is a petite woman. After making his point
rather loudly, she felt compelled to stand on one of my chairs to speak directly to his
face. I was proud of the fact that in spite of my need to laugh uncontrollably at this sight,
I maintained my professional demeanor and helped diffuse the situation.

Both of my client’s had legitimate points and this showed the importance of
understanding your parents’ feelings and desires before making purchase decisions.
People will have different views on what insurance represents to them. One individual I
knew truly needed a significant amount of life insurance due to various complexities in
his life. Various life insurance professionals had tried to convince him his needs were
very real. He was always polite and in agreement as to why he needed the coverage but
he never purchased any. After a few, some would say quite a few, drinks at a wonderful
Italian restaurant, he confided that he felt that if he purchased life insurance he would die
soon after. Now this may seem silly to many but it was a very real fear to him. In fact,
this is quite common among many Europeans. We must always be sensitive to our
parent’s feelings on this topic. Before discussing specific insurance products and
opportunities, first get to understand your parent’s feelings on insurance over-all. What
does it mean to them and what do they hope to accomplish with it. This will set the path
towards the proper type of coverage – if any.

You can contact Louis Sapi for consultation on insurance matters at 905-678-2740
Generally, life insurance is purchased for one of 3 basic reasons.
1 To create an estate for the beneficiaries. In essence, insurance acts as an
investment towards leaving a legacy for a dependent spouse, your children or
grandchildren or even a dependent parent.
2 To protect the estate by providing enough cash in the estate in order to pay the
taxman.
3 To help your parents’ executor of the will by providing enough cash to help
distribute the estate as per your parent’s last wishes.
Life Insurance as an Investment
Here is a story I heard one day while listening to a presentation a colleague of mine had
invited me to attend. One of the presenters was an experienced, and, as I have come to
know, excellent insurance salesman and advisor. A businessman had once told him that
life insurance was the worst investment that one could make. He replied with a story that
simply illustrates how important an asset life insurance could be: “Imagine,” he said,
”that your spouse is sitting in a room with a collection of advisors after your death.
There is a lawyer, an accountant, an investment advisor, and the Taxman1. The Taxman
is sitting beside a rat-hole. Now, imagine that, after all the planning had been done, all
of your advisors agree that there is still a tax liability. The Taxman demands that he
must put the correct amount of tax down the government rathole, and it must be done
immediately. In this scenario, the Taxman has all the power because tax must be paid. If
we leave the decision up to him, he will liquidate your best assets and throw them down
the government rat hole. If there is some cash available, he will leave your best assets
alone, take the cash and throw it down the rat hole. The question remains for your
spouse: Do you want your best investments or your worst investments to go down that
rat-hole?”
I understand the use of “taxman” is gender specific, but please allow me this indulgence now and in the
future, and refer to the Beatles song of the same name for my defense. After all, if it was good enough for
George Harrison, a music god no less, it should be good enough for me.

As I have stated, life insurance products are often seen as an awkward and difficult to
understand. However, the final question above is a poignant one, especially for some of
your parent’s, whose traditional response to owning life insurance is that it is a “poor
investment.” While it never will be the best investment they ever make, it will protect
your best investments by guaranteeing that there is cash in their estate to pay any taxes
that may arise, regardless of any estate planning that is done beforehand. For many, the
difference between a proper estate plan can be the difference between having to liquidate
a family heirloom, like the cottage, to stuff down the taxman’s rathole, or having life
insurance to stuff down the rat-hole.
Keeping the rat-hole story in mind, a life insurance contract is still a sound investment,
besides the fact that it provides cash, at death, when the estate needs it. It also can
provide some modest but rewarding returns to the estate. Take as two examples a 65-
year-old male and a 65-year-old female, both of whom do not smoke2. If we take their
average life expectance at that age, we find that paying annual premiums until statistical
life expectancy will give the estate an 11.2% and 8.4% return to the estate, free of taxes.
While the rate of return is not the reason to purchase life insurance, these numbers do
prove that life insurance is an effective asset to own. (See Below)
Male – 65 Female – 65
Insurance amount $ 500,000 $ 500,000
Premium $ 14,635 $ 11,910
Life Expectancy 80 84
L.E. Return 11.27% 8.25%

You can contact Louis Sapi for consultation on insurance matters at 905-678-2740
Estate Creation and Liquidity
For many, a small amount of life insurance may be a simple answer to creating an estate
that, upon their death, has both liquid and non-liquid assets within it. In practical terms,
your estate has cash. In this case, it will become much easier for your parents to plan if
and how they chose to pass their assets on to the future generations or to other
beneficiaries such as foundations and charities. Even if your parents do not wish to give
any particular assets away, having some cash in the estate will keep the taxman away
long enough for the executors of the estate to sell the assets in a timely manner. This will
allow them to receive a fair value for the assets, and not lose any value to a forced sale, or
“firesale.” This type of firesale can seriously reduce the value of assets in the estate, and
it will threaten that value of all that your parents have worked so hard to accumulate
during their lives.
2 $500,000 life insurance, face value. Premiums: male, $14,635, Life Expectancy 80; female, $11,910 Life
Expectancy 84

Tax-deferral and Investment Planning
In many cases, these sometimes awkward discussions about life insurance, followed by
properly executed plans of action, can result in a real benefit to your parents during their
lifetime. If your parents have more sophisticated planning issues, such as their own
businesses, they may have the opportunity to do some planning which can increase their
monthly income during retirement. There are some strategies that use life insurance to
fund retirement instead of the cash that is trapped in your parent’s business. By not
touching the cash in the business it allows both an income to your parent’s, and secure
the value of the business. These issues are complicated and are too involved to be
discussed here. However, you can bring the opportunity to your parents’ attention, and
then seek out an appropriate advisor to consult with your parents on the available options.
Furthermore, if your parents are younger, or still working, they may be able to take
advantage of strategies that can significantly increase the pension income they take
throughout their retirement. Brian, a close friend of mine, once asked about this concept
while we were watching a hockey game on TV. His father was about to retire and they
were wondering how to increase his monthly income. I explained to him that most
private or public pension plans will allow you to chose if you want the pension to
continue onto your spouse after your death. Brian said, but I’m not married. I said, I
am talking about your parents. Brian’s a great guy but he doesn’t follow conversations
all that closely – especially during a hockey game. Now the insurance companies are not
stupid, I explained. They do not want to pay out more then they have to. So, if for
example your dad wanted the pension to continue on after his death then the insurance
company will pay your dad a smaller amount each month starting with the very first
payment to him. Your father may feel that this is better in order to protect your mom
and, therefore, takes less money while he lives. Brian said something about Mats
Sundin and I gave up the conversation. Later, during the intermission he brought the
topic up again. I explained that there is a relatively simple way to increase his monthly
pension income while both his parents live. This involves having his dad change his plan
to not continue on after his death and then combining his pension plan annuity (an
annuity is a preplanned monthly payment) with either an existing or new life insurance
contract. (See example) Essentially, this strategy allowed his dad, who owns the pension,
to take the maximum benefit from his pension while he lives, instead of taking a reduced
payment that continues until the death of the surviving spouse – Brian’s mom. With the
increased monthly income, it is often, but not always, more cost efficient to now purchase
simple term life insurance on the life of his dad who is drawing the pension. This leaves
both a higher monthly income for your parents while they both live, and ensure a
continued income to his one surviving parent. Of course this example assumed Brian’s
mom would outlive his dad. If this is not the case, then his dad benefited from having the
higher monthly pension income throughout a long life. At this point, I noticed Brian’s
eyes glazed over as he listed to Don Cherry rant about some Swedish hockey player.
Suffice it to say, I simply took another drink and explained everything a second time after
Don was finished. Brian got the message – I think. However, let me say, yet again, I am
not an expert in this field and you should consult the appropriate professionals to discuss
this type of planning.

You can contact Louis Sapi for consultation on insurance matters at 905-678-2740

Types of insurance
There are as many life insurance products available to the consumer today as there have
ever been. Rather than try to understand each different product, it is more helpful if we
look at the main types of life insurance and determine how each product can be used to
work towards some good. Again, and I sound like a broken record, I highly recommend
you consult an insurance professional who will help you investigate different insurance
options. The purpose of the following is to give you some understanding so as to identify
opportunities.
There are essentially two different categories under which life insurance can fall:
temporary and permanent. Let’s start by discussing temporary insurance – or term
insurance – which we will define as any contract that is designed to stop coverage after a
certain age or policy year.
Term insurance is designed to do exactly as the name implies. The insurance covers the
individual for as long a period of time as they chose. To put it bluntly, it is designed to
pay out insurance only if your parent dies. It transfers the risk of your parents’ untimely
death to the insurance company. However, there are usually maximum age limits on term
policies that state that the company won’t insure the individual past a certain age, usually
75 or 80 years old. This type of insurance is extremely effective for people who have
either a large liability (like a mortgage) or who know that the risk to them and their loved
ones has a short-term time horizon. However, for estate planning purposed, term
insurance may be impractical because it is designed to expire before the life insured’s life
expectancy and thus was a very expensive purchase with no ultimate benefit.
However, most term insurance plans have the ability to be converted to permanent plans
within the same insurer. If this is the case, your parents may think that their temporary
insurance needs are settled as they reach retirement age, as their mortgage is hopefully
paid off and they don’t need to provide for lost income to their family. Yet canceling the
policy could be a mistake, as their health may have deteriorated since obtaining the
insurance in the first place, and they may not be able to get coverage again. The best
route would be to discover whether or not they had any permanent insurance needs, and
convert the appropriate amount to permanent insurance. Since estate and insurance
planning for the elderly can be an unpredictable event, one must consider a more secure
and predictable benefit, as the benefit must be present when needed.

Unlike temporary, or term, insurance, permanent insurance is designed to be bought and
owned for the lifetime of the life insured. In contrast to term insurance, it is designed to
pay out when you die. It allows the insurance company to assume the financial risk of
your eventual death. In the early years of the policy, the premiums are higher than those
in the term insurance contract are, but the benefit is guaranteed regardless of the age of
the life insured. There are more types of permanent insurance than term insurance, and
for simplicity, we will lump them into three categories: Term to100, Whole Life, and
Universal.
Term to 100 is insurance that has no other value to the estate of the life insured, other
than the eventual payout of the death benefit. This type of policy is priced with a level
premium, so that the cost to the person buying the insurance will never change, and they
will keep paying until the person who is insured passes away and the policy pays out.
This is often the most cost efficient solution in the short-term, but the policy provides no
choice: if premiums can’t be paid in the future, the insurer will cancel the policy.
Depending on your parents’ financial position, a possibly more desirable solution is to
find an insurance policy that has an investment component within it (or what is referred
to as a “cash value”). This cash reserve within the policy can be used to pay future
premiums should the estate not be able to, or chose not to, pay any more premiums.
Until the 1980’s, Whole Life insurance policies were the traditional favourites for
permanent insurance, as they offer consistent and dependable performance on the “cash
value” that grows within the policy. The cash value of a policy is simply surplus cash or
a cash reserve that is a required actuarially calculated reserve that is held inside the
policy. The cash values can be used like any cash account, in at they can be withdrawn,
used to pay future premiums, or in some cases, borrowed against. The problem that
many have with the traditional whole life plan is that it has very limited investment
choices for the cash reserve within the plan. The investments are usually safe but low
yielding interest bearing instruments like bonds. Essentially, the insurance company
invests at their discretion in a large balanced fund, and pays dividends into the policy
based in that fund’s performance. For many, and I include myself here, the ability to
make choices as to which type of investments their cash reserves can make led them to
the more flexible permanent policy: Universal Life.
Universal Life policies are functionally the same as Whole Life policies, in that they are
designed to provide insurance when the person passes away. Now, after reading the first
draft of this chapter, my editor suggested I insert another story here. She may be bossy,
but she made sense so here goes. Many years ago I picked up a new client whom shall be
known as Ed. He had come for various financial advice and the topic of universal life
came up. I explained to Ed that the main difference between a universal life policy and a
whole life policy is that with a universal life policy there are more choices as to how your
surplus cash reserves are invested. Most policies will allow you to invest in any
combination of a variety of options linked to current interest yields or market indices.
This product has become more popular in recent years, as careful management of the
policy can traditionally make for higher returns over the same period of time than a
comparable whole life policy, even though the management fees are higher (more choice
makes the policy more expensive). Ed understood immediately.

You can contact Louis Sapi for consultation on insurance matters at 905-678-2740

I also explained to him, that in light of the above choices, it can be confusing as to which
kind of insurance should be purchased. That is a difficult answer, and it varies depending
on each situation. However, when planning with his parents, insurance will be used to
provide liquidity when they pass on, most likely to allow for an orderly transition of
assets from generation to generation. If this is the case, temporary coverage will not do.
In most cases, some form of permanent insurance must be used in order to ensure the
benefit is there when it is needed. I explained he effectively had the following options:
1.) Term to 100 is the most cost effective in the short-term, but can get cumbersome in
the later policy years;
2.) Whole life is “boring” but offers the most peace of mind, requires little management
time, and has a cash value to help fund premiums in the later years;
3.) Universal life has the same properties as whole life, but is much more flexible with its
investment options. Another note to consider for the elderly: a universal life plan is a
slightly more aggressive policy that requires some careful management in order to
maximize its performance.
Now here was the cute part to this story. Ed had purchased universal life insurance on his
two children aged 5 and 7 at the time. Knowing that this type of plan requires hirer
premiums, I asked why? He said he wanted a savings plan for the kids and an insurance
salesman friend of his suggested this. After some discussion, it appeared this was not the
best option. He cancelled the plan an purchased mutual funds for the kids. There was
some other tax planning we did, which I won’t bore you with, but in the end we saved
him almost $15,000 per year in after tax premiums. I was pleased with the outcome.
In all cases, consultation with a proven insurance professional will allow you to discuss
all of your options and decide which is the best solution for your parents insurance
planning needs.
Other features of life insurance
There are many other features of life insurance, and the most potentially beneficial is the
ability to purchase insurance on two people’s lives and have the death benefit pay out at
the second of the two people’s deaths’. Since all assets transfer free of tax from one
spouse to the other, this is often a very cost-effective method to keep the premiums lower
and still meet the tax obligations. If one of your parent’s health is not that good, it may
make them uninsurable or insurable with a heavy cost. By having both parents insured
under the one contract, the healthier parent’s health will keep the cost of insurance down.
There is also the option to have the premiums payable only until the death of the first of
two lives insured. This ensures that the surviving spouse does not at have to worry about
the cashflow burden of paying premiums, even though the benefit will be paid out in the
future. The policies are referred to as “joint-and-last-to-die.”
This type of interesting planning with a “twist” simply shows there are all sorts of options
available to your parents. Find an insurance advisor who is proven and smart. They can
make all the difference in the world.

You can contact Louis Sapi for consultation on insurance matters at 905-678-2740

Tax Considerations for life insurance
When considering the purchase of a life insurance contract, there are some tax issues that
an individual must know. First, the premiums of a life insurance contract are not tax
deductible in almost all situations, but the insurance benefit is paid out tax-free to
beneficiaries. Furthermore, the proceeds of the insurance go to the beneficiary free of
provincial probate fees (yet another completely unfair tax grab), and are not available to
creditors of the life insured. All of this makes life insurance an attractive estate-planning
tool. Another important, and may I say great, tax consideration for universal and whole
life policies is that the investment within the plan (cash values) grow on a tax free basis.
This means that as long as the investment grows within the policy and does not exceed a
government specified limit, the growth of the cash value will remain free of tax until the
policy pays its death benefit. At the time of the life insured’s death, the cash value
becomes a part of the proceeds and is also paid out free of tax. It is probably the only
free tax ride your parents, you or me have left. The cash values are only taxable if your
parents had to take the cash value out of the policy during their lifetime.
Insurance Plans for next generation
Life insurance policies can be used as an effective method of gifting assets to the next
generation, particularly grandchildren. For instance, the grandparent can purchase a life
insurance contract for their grandchild and make deposits to the plan on their behalf. In
this case one would purchase a universal life contract. Since the cost of insurance is so
low for a young child, the dollars put into the plan can accumulate a significant cash
value for the grandchild’s use later on. For many, these policies become a valuable asset
that the beneficiaries own for a lifetime. Furthermore, there is no risk of any of the
growth within the plan being taxed in the hands of the grandparent or on the transfer of
the ultimate death benefits to the grandchild. Another valuable feature of this strategy is
it allows the owner of the policy (in this case the grandparent) to remain in control of the
transfer of assets until such time as they deem it is appropriate for their beneficiaries to
start to use them with their own discretion.
1.) Personal vs. Corporate planning
2.) Insurance Planning Checklist
Property and Casualty Insurance
This is the type of insurance required to protect you from damage or loss to
your home or possessions. It is fairly basic and straightforward but can also
be ignored once purchased. Keep in mind that you do not want to have over
or under coverage for your parents’ possessions. Review of the coverage
required each year is a good idea. Further, my experience is that many of
our parents have accumulated valuable items over the years with little
records remaining as to worth. You should help take an inventory of your
parents possessions. It is one thing to purchase enough coverage. It is an
entirely different matter to collect monies from the insurance company with
little proof as to the existence or value of a certain heirloom. The easiest way                                                                                                                     is to walk around your parent’s home with a video camera, pad and
pencil. You will video the entire house, room by room, and use close-ups
for particularly valuable products. If your parents need to make a claim, the
insurance agent will need to write a report of the items. The video will help
immeasurably in recalling what they had. You should keep the receipts of
any new valuables since the insurance company will want proof of value.

You can contact Louis Sapi for consultation on insurance matters at 905-678-2740