Things you may or may not know about Registered Education Savings Plans

Things you may or may not know about  Registered Education Savings Plans

 

When learning about the lingo of RESP’s you will find some useful information within this article that will catch your attention, as most people who invest in their children do so, because they understand the need to help in the future. Although, they most likely will not understand the ins and outs of the program that they have been investing into for the future. We at Henley Financial & Wealth Management are always here to help you understand the process.  Please contact us with any questions you may have.

Let’s begin…

The CESG contribution limit is different than the RESP limit. The maximum annual amount of Basic CESG (Canada Education Savings Grant) that can be paid in any year was increased to $500 from $400 (and to $1,000 from $800 if there is unused grant room from previous years). The lifetime CESG for each child is still $7,200.

You can create a family plan or an individual plan. If you have one child, and intend to have more children, a family plan can be an attractive option. You can name one or more children as beneficiaries (the child using the funds in the future), and add or change beneficiaries at any time. If one of your children decides not to attend a post-secondary institution, your other children can make use of the funds.

With a family plan, all beneficiaries must be related to you. They can include children, adopted children, grandchildren, and brothers and sisters. You cannot include an unrelated person in a family plan.

A portion of contributions to the plan must be allocated to each beneficiary, although not necessarily equally. For example you can allocate a greater percentage to an older child who becomes a beneficiary a few years before university to quickly build education savings for that child. Meanwhile, younger children could be allocated less because there is plenty of time until they attend college or university. Contributions for each beneficiary can be made until the beneficiary turns 31.

The CESG is paid into the family RESP in the name of each beneficiary until that beneficiary turns 18. Most RESP’s, family or individual must be collapsed on or before the last day of their 35th year of existence. This should provide enough time to meet education savings needs of most families, including those with children of substantially different ages.

An important thing to know regarding RESP and CESG…

In the RESP world, $7,200 is an important number.  It’s the total amount of RESP grant money that can be paid to any one child.  This means that once a child has received $7,200 of grants – any future contributions will not receive any grant money. Meaning if there is a $50,000 maximum contribution to a RESP, only $36,000 of that RESP contribution will be credited with the 20% ($7,200) CESG.

This rule also applies to the RESP withdrawal phase. When you are making payments to a student – that child cannot receive more than $7,200 worth of grants.  Any excess amount of grants paid to a child will have to be returned to the government.

All withdrawals of contributions from an RESP account can be sent to either you (subscriber) or the student (beneficiary).  If you request a withdrawal of accumulated income in the form of an EAP (educational assistance payment), the money has to be sent to the student.

Specify if the withdrawal is to be from contributions, non-contributions or both

There are two parts to an RESP account:

  1. Contribution amount.  This is the total amount of all your contributions to the account.
  2. Accumulated Income.  This is all the money in the RESP, which are not contributions.  RESP grants, capital gains, interest payments, dividends are all included in the Accumulated Income portion.

Example of contribution amount and accumulated income amount 

Let’s say you contributed $2,400 per year for 15 years to an RESP account. 20% grants were paid on all the contributions and the investments have gone up in value.

  • Account is now worth $50,000.
  • Total contributions are $36,000 (15 x $2,400).
  • Accumulated income amount is $14,000 ($50,000 – $36,000)

You can make two types of withdrawals from an RESP account if your child is attending post secondary school:

  1. PSE (Post-Secondary Education Payment) is a withdrawal from the contribution amount.
  2. EAP (Educational Assistance Payment) is a withdrawal from the Accumulated income.

Some interesting facts about PSE and EAP:

  • PSE payments are not taxable income and there are no limits on withdrawals.
  • EAPs are taxable in the student’s hands.
  • There is no withholding tax on EAPs.
  • The financial institution at the end of the year will issue a T4A slip for any EAP made during the year.
  • There is a $5,000 limit for EAPs in the first 13 weeks of schooling.
  • When doing a withdrawal, you will have to specify how much of the money will be coming from contributions and how much from accumulated income.

So you now have some of the ins and outs of making contributions and withdrawals to and from an RESP. The rules can be confusing and complicated so when in doubt, seek the help of a financial advisor to guide you through your options.

How should I invest my tax refund?

How should I invest my tax refund?

You may soon find yourself with a tax refund.

  • How should you spend it?
  • What is the right answer for you?
  • Would you be interested in a value added idea?

Presented by Henley Financial & Wealth Management – please continue to read you may find this of some value.

The average individual tax refund is between $1,500 and $3,000. Not everyone will get a tax return essentially a return means that you paid the government too much in tax during the year and now they want you to have it back… For the chosen few people that do lend the government their own money to invest during the year on a tax free basis, that’s the biggest chunk of discretionary income they’ll see in a year. There’s a lot of temptation to spend this cash as is not readily accounted for so it’s essentially free money.

What would you do with that cash if was suddenly given to you?

Hmm, A Trip, Newest Phone, Clothes, Shoes, Dinner and Drinks (well more drinks than dinner), Raptors Tickets, Concert Tickets and a host of many other ideas come to mind.

Once you see the cheque or the deposit in you bank account a spending rush will come over you. Earning 1% in a high yield savings account does not seem very appealing. Investing in your portfolio for future returns that cannot be seen for years to come does not give you that warm and fuzzy feeling.

You could take a trip of a lifetime. How could that be a bad investment? The experience alone is worth a lifetime of memories. This will subside next month when you realize that you spent the return and then some and have to pay for those memories. Hopefully you took some beautiful pictures to share with your face book and instragram friends. Those will more than make up for the sticker shock price of the trip.

The other items or ideas mentioned are all short term memories but definitely worth the time spent if that’s what you want. Just remember there is a difference between needs and wants.

So what should you do with your tax return? Here is an idea that will work but isn’t sexy at all. Double up on a mortgage payment. Or Pay down a credit card bill as it is the highest interest debt that you are carrying. Either is a good choice…

If you think about it paying down your mortgage with your return you are one month closer to paying off the principle on your house. This is one of the biggest assets you own in your portfolio especially with today’s housing market. Since mortgage rates are historically quite low, you could potentially make more money by investing that return in the market but as we know the market can be very volatile.

In any case it’s just a thought and the value to you in the long run is a great basic investment in yourself and your family.

 

The greatest compliment we receive is being introduced to family, friends and co-workers. Let us know if you would like to introduce someone to Henley Financial and Wealth Management. Contact us Henley Financial & Wealth Management.

 

Are you Missing out?

Are you Missing out?

A tax-free compounding account… In your portfolio that has been overlooked.

Check us out… Henley Financial and Wealth Management

The tax-free savings account is starting to grow up.

Introduced in the 2008 federal budget and coming into effect on Jan. 1, 2009, the TFSA has become an integral part of financial planning in Canada, with the lifetime contribution limit set to reach $52,000 in 2017, provided you were 18 at the time it came into existence.

Remember when you thought $5,000 did not amount to much as an investment. You would have another $60,000 to $70,000 for each husband and wife if you have been maximizing their contribution and based on the market’s return since 2009.

Used correctly the TFSA can supplement income lower your tax base during retirement. As the gains made in the TFSA are tax-free, and so are withdrawals —Did you know that the money coming out of the account does not count as income in terms of the clawback for Old Age Security, which starts at $74,780 in 2017.

The TFSA has also become a great vehicle for dealing with a sudden influx of wealth. For people sell their house or receive an inheritance. That money is already tax-free you don’t want to make it taxable in the hands of the government again.

With that in mind, and the new year limit increase upon us, here are eight things Canadians need to know about TFSAs.

How did we get to $52,000?

The first four years of the program, the annual contribution limit was $5,000 but that increased to $5,500 in 2013 and 2014 under a formula that indexes contributions to inflation. The Tories increased the annual contribution limit to $10,000 in 2015 but the Liberals quickly repealed that when they came into power and reduced annual contributions to $5,500 for 2016, still indexed to inflation. The annual number increases in increments of $500 but inflation was not riding high enough to boost the annual figure to $6,000 for 2017 so we are stuck at $5,500. That brings us to the current $52,000. The good news is even if you’ve never contributed before, that contribution room kept growing based on the year in which you turned 18.

Eligible investments

For the most part, whatever is permitted in an RRSP, can go into a TFSA. That includes cash, mutual funds, securities listed on a designated stock exchange, guaranteed investment certificates, bonds and certain shares of small business corporations. You can contribute foreign funds but they will be converted to Canadian dollars, which cannot exceed your TFSA contribution room.

Unused room

As the TFSA limit has grown, so has the unused room in Canadians’ accounts. A poll from Tangerine Bank in 2014 found that even after the Tories increased the annual limit, a move that ended up as a one-time annual bump, 56 per cent of people were still unaware of the larger contribution limit. In 2015, only about one in five Canadians with a TFSA had maximized the contribution room in their account, according to documents from the Canada Revenue Agency.

Withdrawal and redeposit rules

For the most part, you can withdraw any amount from the TFSA at any time and it will not reduce the total amount of contributions you have already made for the year. The tricky part is the repayment rules. If you decide to replace or re-contribute all or a portion of your withdrawals into your TFSA in the same year, you can only do so if you have available TFSA contribution room. Otherwise, you must wait until Jan. 1 of the next year. The penalty for over-contributing is 1 per cent of the highest excess TFSA amount in the month, for each month that the excess amount remains in your account.

Is the Canada Revenue Agency still auditing TFSAs?

The Canada Revenue Agency continues to investigate some Canadians — less than one per cent — who have very high balances in their accounts. Active traders in speculative products seem to be the main trigger. Expects an appeal of the current rules regarding TFSA investments to be heard in February.

Be careful on foreign investments

If a stock pays foreign dividends, you could find yourself subject to a withholding tax. While in a non-registered account you get a foreign tax credit for the amount of foreign taxes withheld, if the dividends are paid to your TFSA, no foreign tax credit is available. For U.S. stocks, while, there is an exemption from withholding tax under the Canada-U.S. tax treaty for U.S. dividends paid to an RRSP or RRIF, this exemption does not apply to U.S. dividends paid to a TFSA.

What are people investing their TFSA in?

People are still heavily into cash and close to cash holdings. A study from two years ago, found 44 per cent of holdings in TFSAs were in a high-interest savings accounts. Another 21 per cent were in guaranteed investment certificates. If you want to see your money grow you also have to respect your risk tolerance. You may want to look at your investment horizon.

TFSA vs RRSP

It’s hard to generalize which is better for a typical Canadian. RRSPs are generally geared towards reducing your taxable income when your marginal rate is high and then withdrawing the money in retirement when your income will theoretically be much lower. The answer is easy if you make $10,000 a year and you’re a young person — the TFSA is better — but the deduction you get from RRSP contributions are only part of the equation. It also depends on the flexibility that you are looking for. Once you get to the higher marginal rate that deduction is attractive but nothing stops you from taking that deduction and putting it in a TFSA and getting the benefit of both.

 

The past does not predict the future…

The past does not predict the future…

After the last debate for the presidency of the United States of America, it’s hard to imagine that these are the best two candidates to lead a world power for at least the next four years. You would think with all the people in the political ring you would have someone who cares about our future generations and not about what happened 20 years ago and how that makes you unfit to lead. If having a skeleton in the closet means you will be called out when you run for office. Then you would never have a leader in the free world as we have all done something that would consider us unfit to lead a country.

Henley Financial and Wealth Management brings you this article with consideration of what might happen moving forward.

Predicting what will happen in the stock market is hard. Nope, scratch that. It’s pretty much impossible. But in light of the looming November vote, I took a look at what happened in the markets over the past few decades in relation to US presidential elections. However, before I get to that, I would like to emphasize that when it comes to markets, the past does not predict the future. And so I am not making any predictions here about what will happen on  November 9, 2016, the morning after.

What happens in the markets during the lame duck session between an election and the inauguration of the new president? The performance of the stock market between Election Day and Inauguration Day might be taken, in part, as a statement of investor confidence — or lack thereof — in the incoming administration.

The line of thinking is that Republicans are better for the markets because they tend to push for more pro-business policies, such as lower taxes and less regulation. However, the stock market has historically performed better under Democratic presidents. American presidents since 1945 show the average annual gain under the blues (Democrats) was 9.7%, while under the reds (Republicans)  was 6.7%.

The only two presidents who saw negative market returns during their tenure were Republicans: Richard Nixon, who was in office during the Arab oil embargo, and George W. Bush, who closed out his second term as the Financial Meltdown in 2008.

Taking it a step further, both poor and good stock performance in the year before or after an election had less to do with the president’s party and more to do with what was going on in the actual economy.

As for Obama, he took office the year after stocks lost nearly 40%. And notably, days before stocks touched their lowest in March of 2009, the president stated, “What you’re now seeing is profit and earnings ratios are starting to get to the point where buying stocks is a potentially good deal if you’ve got a long-term perspective”. Stocks are up by about 209% since he said that. Is it because Obama was a great president and his policies changed the world?

No the strong performance of the market from 2009, was not due to the election of President Obama and retention of a Democrat-controlled Congress in 2008. It resulted instead from a recovery in the economy after the Great Financial Crisis.

So what does this mean for November 8?

The result of that election is unlikely to have a major bearing on the performance of the US stock market.

The markets don’t like uncertainty, as the market sees it, Hillary Clinton is a known player whose policies are expected to be largely a continuation of the current administration.

Trump and his economic positions, however, are less predictable and do not always follow the party, he is for tax cuts and deregulation, but against free trade. Thus, he is perceived as more of a political risk in the market.

That sort of emotional response to a political shock is actually quite typical of investor and, more broadly, human behavior. Unexpected and potentially destabilizing political events tend to make traders and investors nervous, which then sometimes leads to volatility in financial markets. But as history has shown time and time again, these events generally do not have a sustained impact on markets.

Yes, investor sentiment in the immediate aftermath of the election can affect the market. And, yes, presidential policies affect the economy, which then, in turn, can affect the markets.

However, there are a bunch of other factors not wholly connected to presidential policies — such as oil-price shocks, productivity shocks, and things like China’s devaluation of its currency — that all influence what happens with the stock market. In any case, perhaps the most telling historical debate with respect to the relationship between presidents and the stock market (or lack thereof) is the following. Stocks saw their best gains under Republican Gerald Ford — but he wasn’t elected president, and he wasn’t even the original vice president on Richard Nixon’s ticket in 1972.

So whoever wins this circus act called the US presidential election of 2016, the markets will continue to perform based on solid economic performance until that performance is upended by a real economic event.

Growing Old is Inevitable, Growing up is Optional! But we do have to deal with it…

Growing Old is Inevitable, Growing up is Optional! But we do have to deal with it…

It’s that time again Labour day has come and gone the kids are back in school meaning that summer has unofficially ended. We are back and will have some helpful insights for you to read over the next few months.  All the best from Henley Financial and Wealth Management. www.henleyfinancial.ca

Over the last year, I have been dealing with my mother who has decided that she would like to see my father again. The problem is he died 30 years ago. Yes he left us at the age of 52, the loss was hard but at that time my mother had lots of friends to entertain and years later I started a family. So she always busy and felt needed. Up until a few years ago, my mother was needed as she helped with my children. That has all changed, the girls are now teenagers and don’t even want my help and her friends have passed or moved on so she has been left feeling as though she is no longer needed.  A few years ago, I was telling everyone that she would outlive me. But things changed, life changed, she took her final trip, a trip she had asked me to go on when I was a teenager and of course I refused. It was at a time when I was involved in sports and could not leave my teammates behind. She has traveled extensively but this was her dream destination a month-long trip to China.

 

She has always been a good saver and lives minimally, as she gets older, you can see she is overwhelmed by the costs of things. Her generation is very concerned about finances it is the way they have come through life. Most people over 75 have filled out forms that are 20 pages in length, or do their own income taxes, they live on small incomes, there are Guaranteed Income Supplement forms to fill out, and in her case, a small pension my father left her.

 

As it turns out I have found to maintain their independence, older seniors like my mom need a lot of help with their finances—even if they have healthy savings. Home-care services need to be paid for, bill payments need to be set up, and investments need to be managed. It’s a balancing act and the process is time-consuming, but it needs to be done if you want your parents to age comfortably. Unfortunately, my mother is not aging comfortably as she is suffering from kidney failure and a poor heart. She would not go to the doctor when she was sick she did not think it was necessary… she felt she is no longer needed.

 

Handling elderly parents’ finances is made even tougher by the awkward role reversal. Aging parents are often reluctant to even share financial information with their children, let alone relinquish control. My mother is that in a nutshell. She continues to refuse help on any level. In many cases, you may have no choice but to pick a neutral person to oversee a parent’s finances.

 

That’s why it’s important to do some advance planning before your parents become incapable of managing their money themselves. Every family should have a plan to safeguard their elderly parents’ finances when the time comes.

 

If your parents are having trouble handling their finances, don’t expect them to come to you for help. If they’re like most parents, they don’t want to be a burden. So be on the lookout for subtle signs they may be having problems. Can’t remember if they paid a bill or think they did pay the bill. If they repeat things often, or forget conversations you recently had. I do that to on occasion I guess that comes with age but you will start to notice the signs.

 

Ideally, communication between parents and siblings should start well before a parent needs help. The best time is when parents are starting to talk seriously about retirement. It’s just an intellectual activity then. The longer you leave it, the harder it will become.

 

Understand that total trust doesn’t happen overnight, I have not always had a good relationship with my mother but as an only child there is not much choice. In many cases, it’s hard for siblings to work well together. One often feels another is taking advantage. The key to making it work is transparency on all fronts.

 

Have frequent family gatherings or communicate by email or phone constantly speak candidly about retirement and old age. It will happen it’s not a secret. You should also talk about what happened in the meeting that transpired with lawyers, accountants, and advisors. Then you will be able to understand the process in the future.

 

Gather information

Find out where your parents keep their safety deposit box and important documents. Make a list of their bank accounts and investment accounts, insurance documents, wills and the names of their accountant, lawyer, and financial advisor.

Open a joint bank account with your parents, deposit their CPP and OAS checks into it, and take over all bill payments. You should also find out where your parents’ income comes from, including government and employer pensions as well as RRIF withdrawals and any income from their investment portfolio. Find out who their beneficiaries are, what their financial wishes are, and how they want funeral arrangements handled.

 

Get legal power

While both parents are alive, make sure all non-registered accounts are held jointly: otherwise the surviving parent will need a will and death certificate to access those accounts. Also, ensure your parents have an up-to-date will and estate plan. A loss of capacity either suddenly, such as through a stroke, or gradually as with Alzheimer’s, may mean they never have the opportunity to clarify their intentions.

That’s why it’s also key to know if your parents have in place a power of attorney (POA) for health care as well as for finances and property. A POA will often name a child as a substitute decision maker. That person can sign documents, start or defend a lawsuit, sell a property, make investments, and purchase things for the parent, the POA usually comes into effect as soon as it’s signed and witnessed, but a parent can put a clause in saying it doesn’t come into effect until they’re incapacitated.

 

More than one person can be named as a POA: that way no one can act opportunistically and without accountability. If you’re concerned about mismanagement of funds, make sure your parents include a clause in their POA document that requires the decision maker to submit periodic financial statements to your parents’ accountant, adviser or lawyer.

 

10 key questions to ask your aging parents

You can start by asking your parents these key questions to ensure your family is prepared for the road ahead.

  1. Where do you keep your important papers—wills, investment account statements, life insurance policies, and others?
  2. Do you have a current will? Where do you keep it and when was the last time you updated it?
  3. Have you prepared a power of attorney (POA) documents? A POA designates who will take care of your affairs if you are unable to do so because of illness or cognitive decline. Your parents can designate one person to handle health decisions and another for financial decisions, or they can designate one person for both roles.
  4. Do you have a safety deposit box? If so, at which bank, and where do you keep the key?
  5. Where are your bank accounts? If you are incapacitated, where would I find the PIN and account information?
  6. Do you have credit cards and if so, who are they with? Have you been paying the balance off every month?
  7. Do you have a financial adviser, lawyer or accountant, and what is their contact information?
  8. Do you have life insurance policies? Who is the contact agent?
  9. Do you have any debt and if so, with whom? How much do you owe?
  10. Does anyone owe you money and if so, who?

Hopefully, this will help you start that conversation. I know from experience that once they get sick they have no interest in sharing information.

 

The right job!

The right job!

So while I was skipping through news articles I came across this one. I decided that this is a way of life for many people and occasionally I may have fallen into this trap for various parts of my life. I have taken out the names and the rest is, as it appeared I think it is worth the read.

Hello!

I’ve spent this last year trying to figure out the right career for myself and I still can’t figure out what to do. I have always been a hands-on kind of guy and a go-getter. I could never be an office worker. I need change, excitement, and adventure in my life, but where the pay is steady. I grew up in construction and my first job was a restoration project. I love everything outdoors. I play music for extra money. I like trying pretty much everything but get bored very easily. I want a career that will always keep me happy, but can allow me to have a family and get some time to travel. I figure if anyone knows jobs it would be you so I was wondering your thoughts on this if you ever get the time! Thank you!

Hello,

My first thought is that you should learn to weld and move to North Dakota. The opportunities are enormous, and as a “hands-on go-getter,” you’re qualified for the work. But after reading this a second time, it occurs to me that your qualifications are not the reason you can’t find the career you want.

I had drinks last night with a woman I know. Let’s call her Claire. Claire just turned 42. She’s cute, smart, and successful. She’s frustrated though because she can’t find a man. I listened all evening about how difficult her search has been. About how all the “good ones” were taken. About how her other friends had found their soul-mates, and how it wasn’t fair that she had not.

“Look at me,” she said. “I take care of myself. I’ve put myself out there. Why is this so hard?”

“How about that guy at the end of the bar,” I said. “He keeps looking at you.”

“Not my type.”

“Really? How do you know?”

“I just know.”

“Have you tried a dating site?” I asked.

“Are you kidding? I would never date someone I met online!”

“Alright. How about a change of scene? Your company has offices all over – maybe try living in another city?”

“What? Leave this city? Never!”

“How about the other side of town? You know, mix it up a little. Visit different places. New museums, new bars, new theaters…?”

She looked at me like I had two heads. “Why the hell would I do that?”

Here’s the thing. Claire doesn’t really want a man. She wants the “right” man. She wants a soul mate. Specifically, a soul mate from her zip code. She assembled this guy in her mind years ago, and now, dammit, she’s tired of waiting!!

I didn’t tell her this because Claire has the capacity for sudden violence. But it’s true. She complains about being alone, even though her rules have more or less guaranteed she’ll stay that way. She has built a wall between herself and her goal. A wall made of conditions and expectations. Is it possible that you’ve built a similar wall?

Consider your own words. You don’t want a career – you want the “right” career. You need “excitement” and “adventure,” but not at the expense of stability. You want lots of “change” and the “freedom to travel,” but you need the certainty of “steady pay.” You talk about being “easily bored” as though boredom is out of your control. It isn’t. Boredom is a choice. Like tardiness. Or interrupting. It’s one thing to “love the outdoors,” but you take it a step further. You vow to “never” take an office job. You talk about the needs of your family, even though that family doesn’t exist. And finally, you say the career you describe must “always” make you “happy.”

These are my thoughts. You may choose to ignore them and I wouldn’t blame you – especially after being compared to a 42-year-old woman who can’t find love.

 But since you asked…

Stop looking for the “right” career, and start looking for a job. Any job. Forget about what you like. Focus on what’s available. Get yourself hired. Show up early. Stay late. Volunteer for the overtime. Become indispensable. You can always quit later, and be no worse off than you are today. But don’t waste another year looking for a career that doesn’t exist. And most of all, stop worrying about your happiness. Happiness does not come from a job. It comes from knowing what you truly value, and behaving in a way that’s consistent with those beliefs.

Many people today resent the suggestion that they’re in charge of the way the feel. But trust me. Those people are mistaken. That was a big lesson I learned it several hundred times before it stuck. What you do, whom you’re with, and how you feel about the world around you, is completely up to you.

 

Good Luck

 

What plan do you have?

What plan do you have?

Life insurance a cheaper alternative to mortgage insurance, experts say

This excerpt released by CBC news network. We wrote about this same program a few months back, it’s always nice to see different perspectives on life or mortgage insurance

Canadians looking to wrap up new home purchases might find that life insurance is a more flexible and less pricey alternative to mortgage insurance obtained through a bank, say personal finance experts.

While most agree it makes sense to cover large debts with insurance, some argue when it comes to mortgages, most consumers treat it as an afterthought and don’t realize that buying through a bank can be a “costly mistake.”

Contact us at info@henleyfinancial.ca we will provide the expertise you need to make an informed decision with better rates than the banks are providing. Saving you money to spend or save in other places within your circle of wealth.

It is important that people know that mortgage insurance is just another piece of a comprehensive financial plan.

When you are not dealing with a professional, unfortunately, you can have surprises and those surprises can come up at the worst time.

Part of the problem, he said, is that most consumers take out mortgage insurance when they close their financing deals with the bank without doing any price shopping ahead of time.

The reason is because they [the banks] ask the questions at the time of the purchase: Would you like to have your house paid off if you die? Would like to have your house paid off if you get sick?  Who is not going to answer ‘yes’ to that?

Possibility for shortchanging

That emotional response, coupled with a lack of knowledge about alternatives, means that some consumers could be shortchanging themselves in the long run.

With mortgage insurance obtained from a bank, coverage decreases with every mortgage payment but the premiums show no corresponding declining balance.

The amount of coverage of their mortgage protection decreases as the mortgage is reduced, however, the premiums stay the same and increase over time.

That means their costs [per $1,000 of coverage] actually goes up as they bring down their mortgage debt. Whereas the amount of protection, when you own personal life insurance, remains fixed throughout the term.”

Additionally, while mortgage insurance pays off the loan’s outstanding balance, only the bank gets paid. In contrast, life insurance will relieve that debt while often leaving something over for loved ones.

Owning on your own life insurance, you have options, noting the leftover money could be used to pay for items such as a child’s education, taxes, and other expenses.

‘Portable’ Insurance

It is also “portable,” meaning that consumers don’t need to requalify for coverage during the term if they buy a new home or switch mortgage providers.

By contrast, those who purchase mortgage insurance through a bank would likely need to requalify with the new financial institution: Potentially, when they do this, they could be older, they could unhealthy and rates could be higher. Which means they may not even qualify.

Homeowners who are healthy and have a good family history can also receive discounts of up to 25 per cent on life insurance premiums. A renewable and convertible term policy can be converted to a permanent product at any time without a medical exam.

Moreover, life insurance is not subject to provincial sales taxes the way that mortgage insurance is.

Going apples for apples, life insurance owned personally is less expensive!

That’s why people really need to go to a professional to see how the insurance fits into the overall plan.