Personal Finance

Life Insurance Q&A - w/ FAQ Section

  • Last Updated:
  • Nov 10th, 2017 3:52 pm
Member
Sep 23, 2013
237 posts
110 upvotes
Windsor, Ontario
tsinoboy wrote:
Sep 27th, 2017 10:06 pm
Is Desjardins CI and Term Life Insurance a good insurance products? Which insurance company is better in terms of coverage, term/conditions, payout & affordability for CI and Life Term Insurance?
Also, anyone heard about SOLO Loan Insurance? any loan insurance to recommend?

Just need to have protection from mortgage 350K$. Thank you.
Their CI and Term Life insurance is competitive with the top 5 companies in all aspects you brought out, so yes it's a good insurance product.

In terms of SOLO Loan Insurance, Desjardins does have a decent product, I'm just not a fan of disability loan insurances in general for a few reasons. To start, they're a decreasing term, the premium you pay for $350k to cover the mortgage remains the same when there is only $100k left on the mortgage. Another thing, if you have disability and critical illness insurance to cover your paycheque and you budgeting and cash flow is afloat, an extra disability payment, while nice, is unnecessary.

One good thing about the SOLO loan insurance is that it covers a wide umbrella of loans, so even if you pay off the mortgage and incur other debts, it will cover those.
Newbie
Feb 6, 2011
71 posts
15 upvotes
Thank. What are income protection insurance products you recommend ?
Member
Sep 23, 2013
237 posts
110 upvotes
Windsor, Ontario
tsinoboy wrote:
Oct 2nd, 2017 4:36 pm
Thank. What are income protection insurance products you recommend ?
Are you self employed?
Newbie
Feb 6, 2011
71 posts
15 upvotes
Employed. Company with Long Term Disability and Short term disability.
Member
Sep 23, 2013
237 posts
110 upvotes
Windsor, Ontario
tsinoboy wrote:
Oct 3rd, 2017 12:08 am
Employed. Company with Long Term Disability and Short term disability.
Sorry I must have missed this, if you have Short and Long Term disability through work, I wouldn't recommend any other type of disability replacement insurance. Work on getting that life and critical illness insurance in place, if the price is right add a disability waiver rider. Look at to put any extra money that would have gone into disability income replacement product into an emergency savings account on a monthly basis, that way should you suffer an injury that isn't supplemented by a critical illness policy, you'll have cash saved up in a savings account.
Member
Apr 10, 2017
377 posts
98 upvotes
Are Cash Surrender Values taxable?

Hopefully someone can answer my question here.Pretty unique situation here (well, as far as I'm concerned it is):

I recently transferred to another life insurance term. My term used to be:

20 yrs (was 10 yrs in before it was recently transferred)
$60/monthly

Anyway, I got my cash surrender value back from closing the old term insurance and I'm now wondering: is this taxable?

The insurance company told me it isn't taxable (took about a day to answer so I'm guessing they really looked into it). I tried calling CRA a million times today to get a definite answer (AFTER ALL, they'll be the one chasing me down in the future if it was taxable) but this damned automated system won't let me go through to speak with a real person. Just wondering if anyone knows anything about this.

Thanks
Member
Sep 23, 2013
237 posts
110 upvotes
Windsor, Ontario
Biscayne05 wrote:
Nov 1st, 2017 9:58 pm
Are Cash Surrender Values taxable?

Hopefully someone can answer my question here.Pretty unique situation here (well, as far as I'm concerned it is):

I recently transferred to another life insurance term. My term used to be:

20 yrs (was 10 yrs in before it was recently transferred)
$60/monthly

Anyway, I got my cash surrender value back from closing the old term insurance and I'm now wondering: is this taxable?

The insurance company told me it isn't taxable (took about a day to answer so I'm guessing they really looked into it). I tried calling CRA a million times today to get a definite answer (AFTER ALL, they'll be the one chasing me down in the future if it was taxable) but this damned automated system won't let me go through to speak with a real person. Just wondering if anyone knows anything about this.

Thanks
Cash surrender values are tax free. That being said, are you sure your old plan was a term plan and not a whole life plan?
Sr. Member
Jan 15, 2013
697 posts
80 upvotes
Mississauga
SteveDfsin wrote:
Nov 1st, 2017 10:04 pm
Cash surrender values are tax free. That being said, are you sure your old plan was a term plan and not a whole life plan?
What would make a plan a "whole life" plan? You can point me towards an internet link.
Sr. Member
Jan 8, 2006
947 posts
228 upvotes
Brookside05 wrote:
Nov 1st, 2017 10:11 pm
What would make a plan a "whole life" plan? You can point me towards an internet link.
AFIK "term" insurance is like car insurance you don't get anything in return. If something happen during the term you have the benefits and that's why it's cheaper.
Member
Sep 23, 2013
237 posts
110 upvotes
Windsor, Ontario
Brookside05 wrote:
Nov 1st, 2017 10:11 pm
What would make a plan a "whole life" plan? You can point me towards an internet link.
Whole life insurance is a plan that lasts for life, premiums are higher because you are locking in the premium until death. Whole life has cash surrender values as cash reserves build up (different policies build up differently), keep in mind, you can only get the cash surrender value by canceling the policy. There are other options also attached with whole life.

Term insurance is a temporary insurance plan that lasts a set period of time. A 10 year insurance plan for example locks in the premium for 10 years, at which point you have to either renew at a higher price or reapply to get another plan. The longer the term, the higher the premium.
Deal Addict
User avatar
Sep 15, 2009
2700 posts
1002 upvotes
Toronto
Biscayne05 wrote:
Nov 1st, 2017 9:58 pm
Are Cash Surrender Values taxable?

Hopefully someone can answer my question here.Pretty unique situation here (well, as far as I'm concerned it is):

I recently transferred to another life insurance term. My term used to be:

20 yrs (was 10 yrs in before it was recently transferred)
$60/monthly

Anyway, I got my cash surrender value back from closing the old term insurance and I'm now wondering: is this taxable?

The insurance company told me it isn't taxable (took about a day to answer so I'm guessing they really looked into it). I tried calling CRA a million times today to get a definite answer (AFTER ALL, they'll be the one chasing me down in the future if it was taxable) but this damned automated system won't let me go through to speak with a real person. Just wondering if anyone knows anything about this.

Thanks
From what you wrote I assume your previous (now canceled policy) was a permanent “pay 20” policy, meaning the premium “term” was for 20 years, which you canceled after 10 years.

You either had a Universal Life or Whole Life insurance policy. In essence whole Life insurance (and Universal Life more or less) is a permanent life insurance policy with an investment component, similar to a savings (investment) account. You deposit money into the life insurance policy in the form of premiums, the insurer uses a portion of your deposits to pay for the life insurance benefit and the remainder is invested (tax sheltered). If you pay for enough years, your policy builds up a cash surrender value, or CSV. If the CSV is more than the adjusted cost base (ACB) – which is cumulative premiums, less the cumulative cost of pure insurance, less policy dividends that were not used to purchase additional life insurance or pay premiums for the policy, and less any policy loans taken out in the past, upon surrendering the policy (canceling it), the excess is indeed earnings and thus taxable income.

Whether or not you personally pay taxes on it will depend on the particulars of your policy and what your adjusted cost base (ACB) is/was. The insurer told you that yours would not be taxable (likely because your ACB was equal to or greater than the CSV), but this doesn’t mean others who cancel will not face taxation. CSV is subject to taxation, but whether you owe or not is based on one’s particular policy, how long one has owned it, etc.

As always, this is my opinion and not a recommendation and/or should not be construed as specific advice.
Jr. Member
Jul 1, 2008
117 posts
10 upvotes
Can some help me with selecting Insurance "term or Univeral Life or Whole Life?
I am 29 and my wife is 30 and our kid 1 year old. We have 450k on the mortgage

Which one should we get and how much coverage is good?
I was thinking about UL or WL since they cover for lifetime or term for 40 years which will cover us until we are 70

Can someone recommend any company or banks we should deal with
Sr. Member
Jan 15, 2013
697 posts
80 upvotes
Mississauga
wesboag wrote:
Nov 3rd, 2017 11:24 am

From what you wrote I assume your previous (now canceled policy) was a permanent “pay 20” policy, meaning the premium “term” was for 20 years, which you canceled after 10 years.

You either had a Universal Life or Whole Life insurance policy. In essence whole Life insurance (and Universal Life more or less) is a permanent life insurance policy with an investment component, similar to a savings (investment) account. You deposit money into the life insurance policy in the form of premiums, the insurer uses a portion of your deposits to pay for the life insurance benefit and the remainder is invested (tax sheltered). If you pay for enough years, your policy builds up a cash surrender value, or CSV. If the CSV is more than the adjusted cost base (ACB) – which is cumulative premiums, less the cumulative cost of pure insurance, less policy dividends that were not used to purchase additional life insurance or pay premiums for the policy, and less any policy loans taken out in the past, upon surrendering the policy (canceling it), the excess is indeed earnings and thus taxable income.

Whether or not you personally pay taxes on it will depend on the particulars of your policy and what your adjusted cost base (ACB) is/was. The insurer told you that yours would not be taxable (likely because your ACB was equal to or greater than the CSV), but this doesn’t mean others who cancel will not face taxation. CSV is subject to taxation, but whether you owe or not is based on one’s particular policy, how long one has owned it, etc.

As always, this is my opinion and not a recommendation and/or should not be construed as specific advice.
Youre correct, my CSV is less than my ACB.

This kinda leaves me in a limbo unless they issue my a T-form correct? Am I thinking correctly here? I just dont know where to put it now.

I could really use half of my CSV at the moment and the other half sheltered somewhere else.
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User avatar
Nov 2, 2002
1137 posts
121 upvotes
Toronto
I have a whole life insurance policy which I took back in 1991. It’s for 100k (which is now about 140k with dividends) however I am single, mid 40s and don’t plan to get married and will certainly never want to have kids so an insurance policy is useless for me and looking at cashing it out. Trying to understand the tax implications in do so.

My total cash surrender value is about 26k (about 20k is guaranteed while the rest is dividends) and I have been paying around $55/month for the past 26 years.

I’d rather take the cash and pay down my mortgage and car loan rather than pay/keep insurance no one will benefit since I will never have any dependents.

What is the best approach to determine the tax amount? I feel the info I get from the insurance company may not be in my best interest.
Celebrating 15+ years on RFD!
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User avatar
Sep 15, 2009
2700 posts
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Toronto
wysiwyg wrote:
Nov 7th, 2017 7:47 pm
I have a whole life insurance policy which I took back in 1991. It’s for 100k (which is now about 140k with dividends) however I am single, mid 40s and don’t plan to get married and will certainly never want to have kids so an insurance policy is useless for me and looking at cashing it out. Trying to understand the tax implications in do so.

My total cash surrender value is about 26k (about 20k is guaranteed while the rest is dividends) and I have been paying around $55/month for the past 26 years.

I’d rather take the cash and pay down my mortgage and car loan rather than pay/keep insurance no one will benefit since I will never have any dependents.

What is the best approach to determine the tax amount? I feel the info I get from the insurance company may not be in my best interest.
wysiwyg,

The best way to find out your tax implications for canceling the policy and subsequently taking the cash value is to begin by calling your insurer and asking them for your ACB - Adjusted cost base and have them send you that on paper. As mentioned in my previous post, this will help determine the amount subject to tax. The portion between the ACB and the total cash surrender value will be subject to tax. If you have an advisor, they can help in this matter - and get you an answer likely faster than you can on your own.

While you may not need life insurance (no dependents, don't expect any in the future) it can also be a looked at as an alternative "fixed income" portion of your overall retirement portfolio - but that's a different discussion all together.

That said, ultimately the value in the insurance policy is the death benefit - for which you have no financially dependent beneficiaries I would imagine given what you have mentioned, so that's up to you what you do with it. Further to that however, while Life insurance may not be a priority, I would consider critical illness insurance as an alternative to the Life (as this is a living benefit and thus you are the beneficiary). A serious illness can limit your ability or desire to work, can cost a significant amount (over and above what may be covered by your provincial health plan as well as your group plan at work if applicable) and can have a larger impact on ones financial well being than can death. A profound and prolonged illness can bankrupt someone without significant resources. The sheer number of "Go Fund Me" campaigns on Facebook are a testament to this.

As always you want to make sure there are no (or limited) gaps in coverage for yourself from all angles of risk - especially as you are on your own, you are the sole bread winner and beneficiary of your future. I encourage you and everyone who reads this thread to know exactly what they have through work benefits (if applicable) and personally owned coverage to protect themselves accordingly.

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