Other Services

Critical Illness Insurance

No one anticipates getting a life-threatening disease in their lifetime, but the truth is, many of us will. The financial burden of coping with a disease is detrimental to families. Depending on the illness, you may need to take time off work to seek treatment or to recover. The loss of income could be substantial for your household, not to mention the emotional strain of taking care of a sick loved one. In anticipation of this unfortunate life event, critical illness insurance is a wise investment. 

Critical illness insurance covers some of the costs of living when you’ve been diagnosed with a disease. It supplies you with funds to reduce your debt and replace your income while you’re sick, hire additional help for your family and household, and explore alternative healthcare options not covered by our public healthcare system. Having the funds to do these things can be crucial during a time of stress. 

One of the biggest benefits of critical illness insurance is the promise of receiving a lump-sum of cash payment should you survive your illness for a set amount of time. There are over 30 serious critical illnesses that this insurance product applies to, such as some cancers, heart attack, and stroke. Some policies come with the option to convert into long-term care insurance should that need arise. 

Other Uses for Critical Illness Insurance

In corporations, critical illness insurance (CII) can act as an enticing motivator for key employees to stay with your company. When used as a shared benefit, CII adds value to the key employee’s life while also allowing the company to retain one of their top people. In this situation, the employee would buy a CI policy and name themselves as the beneficiary for the health benefits section. For all the other sections, the corporation would be named as the beneficiary and would pay the premiums each month for the policy. These premiums could be deducted as a business expense for the company’s taxes while also providing a taxable benefit to the employee. This split dollar arrangement can also be structured between the corporation and its shareholders. As long as it doesn’t impoverish the company and the shareholder maintains coverage until the company is dissolved or shareholder retires, it can be a mechanism to extract retained earnings tax effectively. 

Disability Insurance

Disability insurance (DI) provides you with financial aid if an unexpected injury or accident leaves you unable to work. It can provide between 60-85 percent of your income for a specific amount of time. You’re eligible for DI if you become temporarily unable to work due to disability or permanently unable to work. However, developing a permanent disability doesn’t mean your insurance will cover you for life. Some employers provide disability insurance but you can also purchase it independently.

Short and Long Term Disability Insurance

Short term DI provides you with benefits for up to 6 months while you’re injured or sick. Long term DI begins when your short-term DI runs out, your sick leave benefits from your employer run out, or your Employment Insurance benefits run out. However, all DI plans are different and provide different levels of coverage.

Disability Insurance and Taxes

When you pay the premiums for your policy yourself, the benefits you receive are tax-free. However, if your employer pays the premiums, you will have to pay taxes for the benefits you receive. In many cases, it’s better to purchase your own DI insurance to avoid taxation. Remember that having multiple sources of DI benefits will cause them to offset each other. You won’t get a 60-85 percent income benefit from each policy you have.

Employee Benefits

Employee benefits are goods, services, and monetary amounts given to employees as part of an employee benefits plan. When your company offers benefits, you can attract a higher calibre of talent as well as enjoy some tax benefits for providing your employees with them. The most common employee benefits are medical coverage, life insurance, disability insurance, and retirement savings.

Investment Planning

Two common types of investment funds are registered accounts and non-registered accounts. Non-registered accounts are useful in both short and long term investing. They’re very flexible and include no contribution limits. Non-registered accounts provide some tax benefits on certain types of returns such as capital gains. Capital gains are not taxed until they are realized. When capital gains are realized, only half of the gain is taxed at the individual’s marginal tax rate. Investment income is fully taxable. 

Registered accounts, on the other hand, are registered with the federal government. They include accounts such as RRSPs, TFSAs, and RESPs. RRSPs and RESPs grow tax-free until you withdraw the funds. However, TFSAs are not taxable when held in the account or withdrawn. There is a limit on how much you can contribute into each type of account any given year.

Individual and Family Pension Plans

Individuals between the ages 40-71 can maximize their retirement contributions with an Individual Pension Plan (IPP) from the Canada Revenue Agency (CRA). This defined benefit pension plan allows individuals to increase their savings for retirement. Any expenses incurred in the management and administration of the plan are deductible to corporations which enables assets with tax-sheltered growth.

Like an IPP, a Family Pension Plan (FPP) is a benefit plan that increase the savings of a family. In IPPs, assets remain active in the plan until the remaining spouse passes away. In FPPs, assets remain active in the plan until the last remaining family member of the plan passes away. 

IPPs and FPPs allow for larger contributions than an individual can make into an RRSP. In addition, they are contributions made directly by a corporation, creating a deduction against the corporation’s income. This also bypasses the need for a shareholder or key executive to claim a higher income inclusion for personal deposits into a retirement plan such as an RRSP. The tax savings can be very attractive to the corporation and its shareholder(s) or key executive(s).