Q: What is the difference between Term Insurance and Permanent Insurance?

Term insurance is in force for a defined period. You pay a fixed premium and the coverage is in force for the term of the contract, which are typically 5, 10, 20 or 30-year periods. There is no cash value and at the end of the term your policy is up for renewal.

Permanent insurance is a fixed premium plan where the policy is in force your entire life. These policies have paid up options and in some cases, can accumulate cash value through the distribution of dividends from the life insurance companies.

Q: How much life insurance do I need?

There is no simple answer to this. It is important to make sure if you pass away suddenly, your family does not have to cover the following costs:

* Funeral and final expenses

* Outstanding debt

* Sending your children to post secondary school

* Making sure there is a sufficient amount of income replacement, so your loved ones do not need to work in a time of grieving

Q: Why do I need insurance if I am healthy, young, single and have no dependents?

Those that are healthy, young, single, with no dependents and minimal debt, often think there is no need for insurance. However, as more Canadians are becoming disabled and/or getting some type of critical illness, there has become a surprisingly large need for living benefits insurance.

Both Critical Illness Insurance and Disability Insurance cover a need while you are still alive. If you become sick or unable to work, your expenses continue to grow and the need to replace your income will rise. Critical Illness and Disability Insurance help eliminate the stresses of being sick or out of work by paying you a living benefit.

Q: Why does my spouse need life insurance if they are not providing financially for our family?

If there is a situation where one spouse’s main role is to provide care for the children, that role is a very important one. It ensures your children are looked after and that plays a huge part in the growth of a child. If something were to happen to the caregiving spouse, it would have a large impact on the amount of hours the financially providing spouse would be able to work. This would lead to a drop in income or an additional expense of paying for a caregiver. At the end of the day, insurance on both spouses is an essential security net.

Q: Why do I need insurance if I am covered through my work?

A: Coverage through work only goes so far, as it usually ends at age 65. As well, there is always the chance you may decide to leave or are asked to leave your current employer. During this period between leaving and starting a new job, you will have no coverage.

Q: What is the difference between an independent financial advisor and one at the bank?

It is a common misconception that independent advisors and bank advisors do the same thing. An independent advisor is able to offer a wide range of insurance and investment products, comparing them amongst all major Canadian insurance companies, while a bank advisor is only able to speak to their specific company product.

Q: My parents work with a financial advisor, why not work with them?

It is important to have a strong relationship built on trust, when working with any financial advisor.  For this reason it could be incredibly beneficial to work with your parent’s advisor.

However, are they taking you on as a client as a favour to your parents, or are they genuinely concerned with your financial plan?  Are they approaching retirement? What happens to your plans once they retire, or leave the business?

Most people prefer to work with an advisor that is around the same age or younger, as it increases the probability of building and adjusting financial plans.

Q: What is a Financial Plan?

A financial plan is a road map throughout your life.  It includes your current and expected income, life goals, milestones, and contingency plans.

Financial Plans are not a one time creation. As you get older, priorities, and lifestyle change. It is important to regularly review your financial plan, as well as inform your financial advisor of any significant changes to your life (i.e. marriage, new child, change of job, or an inheritance).

Q: Should I contribute to my TFSA or RRSP?

While both can be incredibly beneficial, there are significant differences.  For this reason the answer depends on several factors including current income, projected income in the near future, and cash flow.  Either way, if you are putting money away for your future, you are already ahead of most of your peers.

Q: What is the difference between Variable and Fixed?

For fixed rate mortgages, the interest rate is locked in for a pre-set amount of time – between half a year to a decade. The benefit of fixed rate mortgages is that you have complete knowledge of the amount you will be paying for your mortgage term.

And then there’s variable rate mortgages.

This type of mortgage involves payments that are fixed for a specific period, usually a year or two. During this time, while your payment remains the same the interest rate on the mortgage may go up and down as market rates shift and fluctuate. What this means for your payment is this: if interest rates take a nose dive, then more of your payment is used to reduce the loan principal, lowering your total costs. Meanwhile, if rates shoot upwards, then a bigger chunk of your monthly payment is used to pay for the interest, adding to your mortgage cost.

Q: Why use a mortgage broker?

A mortgage broker has access to over 50 lenders across Canada. A broker can shop your mortgage to banks, credit unions, financial companies and insurance companies and find you the best deal on the market. Your mortgage broker works for you, not the lending institution. Take advantage of the relationships your broker has developed with the lenders and receive unbiased advice.

Q: What is my credit score? How is it determined?

Your credit score is based on the following:

1) make your payments on time. Even if you just make the minimum monthly payments, this will help your score increase. Untimely payments are the number one factor in a bruised credit score.

2) try to keep your balances at below 65% of the limit.

3) many credit checks in a short time span.

Q: How can I pay off my mortgage faster?

Just because your mortgage has a set life span doesn’t mean you can’t pay it off ahead of time. Remember, the longer a mortgage runs the more it accrues in interest payments, so wiping out the loan out early can result in significant savings. And thankfully it’s not impossible to do.

Some good ways to wipe out a mortgage early include:

→  Making payments more frequently. Don’t just accept the payment schedule given to you at the start of the mortgage, but tweak it to shorten the time between mandatory payments. One thing to think about here is making payments equal to the monthly amount every two weeks instead of every four.

→  “Double-up” your monthly payments. You have the option of paying an additional set amount on your regular mortgage payments. This money will go straight to paying off the loan’s principal – shortening its lifespan and the overall mortgage cost.

→  Annual prepayments. Lenders will also give you the option of making a special once-a-year payment that goes to the loan’s principal. They will have rules about how big this can be, but it can normally be up to 10 percent of the original principal amount.

→  Choosing a shorter loan period when a mortgage is renewed. This gives you some flexibility when it comes to taking advantage of changing interest rates, with any drop in the rates lowering your financial hit from the mortgage.