[Chronique de Sandy Lachapelle] Payment, repayment of insurance premiums?

Buying insurance is usually not a euphoric decision. Most of us insure our property and our homes without actually asking ourselves.

However, when it comes to personal insurance, decisions can be more complicated. It’s as if protecting your income and assets is more voluntary or less normal than insuring your car or mobile device (here, everything currently offered to all consumer goods). See Extended Warranty!). However, if you are 40 and have an annual income of $ 72,000 and cannot work until you retire as planned, your disability will deprive you of a potential income of approximately $ 3,350,000.

This week, we’ll answer a question from reader David who is wondering about the benefits and benefits of personal insurance. “I don’t like the idea of’paying insurance in a vacuum’and he writes to us thinking that there is nothing to come back to me in the end. I like products that involve some kind of investment, such as refunding insurance premiums at the end of the contract. Is it a good strategy to get this on my payroll insurance? »»

First of all, thank you for your interest in payroll insurance. What we call “life benefits” in jargon helps protect the ability to generate income in the event of a disability (personal or business protection) caused by an illness or accident. diagnose.

Statistically, such events are more likely to occur than premature death before age 65, jeopardizing security and financial goals. For example, a 42-year-old non-smoker reader is five times more likely to be diagnosed with a serious illness and 3.6 times more likely to die for a long-term disability (90 days or more). ..

endorsement

Let’s reestablish the important facts first. Contrary to common beliefs and some sales reps claim, premium refunds mentioned by readers are not a real investment.

This is an endorsement that can be added to a variety of basic insurance such as disability insurance, serious illness insurance, overhead insurance and loan insurance.

Different products have different redemption terms, but the logic is the same. If you make few or no claims during the period determined by the contract, you will receive a reimbursement of your premium. Therefore, there is no financial risk. Collect the premium paid at the end of the insurance period.

So, in my view, this is a health lottery, not a real investment. In fact, this approval raises your premium, so you will pay more if you need to claim your disability or diagnosis.

Also, a factor that reader David should consider is that he needs to spend more cash to pay higher premiums. This opens some questions. What is his tax rate, and does he maximize his RRSP contribution room each year? Does he have children? If so, did he open a RESP to benefit from generous government subsidies? Are there any non-deductible interest-bearing consumer debt that would benefit from accelerated repayments on the same budget?

Premium refunds may be comparable to unregistered guaranteed investments, but if their yields are more attractive, this argument holds water when compared considering the tax efficiency of the same investment. plug. RRSP or TFSA account.

Is it relevant?

These questions show that in situations of limited liquidity, paying more for this approval entails the opportunity cost of each person assessing according to their values, needs, and financial reality. I am. Therefore, we understand that the final recommendations are based on many factors. For example, there are several situations that justify an interest in this option.

Like the pollen in the air these days, payroll insurance understands its importance, but it can make breathing difficult. However, if you agree to this approval, you will not be left unprotected for “allergic” reasons and will be able to settle with your choice.

Do you have a company for you and a group of your employees that you can pay with payroll insurance (a protection plan that deducts that interest)? Please note that some of the premiums related to premium refunds may be paid by the employee.

Do you insure your employees or groups of employees to provide competitive benefits through the income substitution plans you have created? These premiums are deductible for the company.

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