Getting Your Financial House in Order

A financial plan gives new calls a firm foundation for the future. Here’s some tailor-made advice for a new call about insurance products and investment strategies to build financial security.

1. Insurance

Insurance is the foundation of any financial planning pyramid, says Peter Harrison, an authorized representative for the CBIA and CBA Financial Services in Eastern Ontario. He says Jane should consider three types of insurance products: an employee health benefits package, disability insurance, and critical illness insurance.

Employee health benefits:

“One of the most under-rated programs available to people out there is an employee health benefits package or health care plan. What’s generally covered is prescription medication, therapies and specialists like chiropractic and massage therapy and physiotherapy and many plans include dental coverage.[…]

Another thing that’s often overlooked is emergency medical travel insurance that often forms part of an employee benefits package. You don’t want to travel to the U.S. certainly without emergency coverage.”

Disability insurance:

“That is probably the most important benefit and often overlooked. People have worked very hard to complete their studies, they’ve been in school a long time and the future is extremely bright. […] I’ve always said that the greatest asset that anybody has is not a car, a house or a cottage, it’s their ability to go to work every day and earn income.[…]

Disability insurance kicks in after a specific waiting period, say 60, 90 or 120 days and provides a monthly income replacement if Jane is unable to work due to illness or injury. The trigger of the claim is actually whether Jane is unable to work or not.

On Jane’s income, she would qualify for approximately $2,600 per month of after-tax monthly benefit. The main premise with disability insurance is you can’t be worth more lying in bed than you are at work. So, they limit the amount that you can buy based on your income. For someone like Jane, you’re looking at approximately $55 per month and for a male, you’re looking a little bit cheaper, about $32 to $35 a month for that amount.”

Critical illness insurance

Critical illness insurance pays a one-time lump sum of money, 30 days after the diagnosis and survival, specific illnesses only. You could probably guess that the top claims would be paid out on illnesses such as cancer, stroke, heart attack, MS, etc. There are approximately 18 to 25 illnesses, depending on the type of program that we put in place. 

The monthly benefit can assist with bill payments or medical, or lifestyle expenses. It allows someone to focus on recovery, reduce their stress, even allows a spouse to take a leave of absence from their job, just to focus on getting better at a time when there’s a lot of upheaval, both physically and emotionally, within the family.

1. Debt versus investments

Paying off non-deductible debt is very important, but people need to remember that putting even a small amount aside for savings will pay off down the road, Harrison points out. He recommends Jane consider two vehicles to begin with: the Tax-Free Saving Account (TFSA) and an RRSP.

Tax-Free Saving Accounts

“The TFSA is a new government program designed for people to put up to $5,000 per year into an investment that grows tax-free. When withdrawals are taken out of the account, the proceeds are received tax-free. So, unlike RRSPs, the contributions are not tax-deductible but the growth in the TFSA is. This is a significant advantage over any other type of investing which generally attracts tax on the growth. It’s a tremendous thing that someone can get started and, again, the sooner you get started the more money is going to be in there later on.

In terms of retirement savings programs, which we’ve all heard of, or RRSPs, Jane could even go into BarFinancial.com and begin a $25 per month monthly contribution even to get her started. Starting with a small amount, we can increase it in the future if circumstances dictate that, but it certainly can mean tens of thousands of dollars more on her account ready for retirement when she’s ready if she starts young. And of course, with RRSPs, for the dollars that go in, you receive tax credits on an annual basis, up to limits on our contribution room.”

The bottom line: Jane can get good insurance protection and make a small contribution to RRSPs for a total of about $188 per month.

This is an edited version of a podcast available on cba.org. Sarah Klinger, chair of the Young Lawyers section of the CBA, spoke with Peter Harrison of CBIA and CBA Financial Services in Eastern Ontario.

– Published in National Magazine's 2011 Student Edition.