All posts by Financial Independence Hub

 Life Insurance in Canada: Have you made the correct choice for your family? 

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By Hristina Nikolovska

Special to the Financial Independence Hub

Life insurance is often something people put off until later. We understand: it’s not fun thinking about our mortality. Still, in the wake of the recent COVID-19 pandemic, it’s wise to start doing so.

You may be sure that others are. In 2017, the industry received $2.65 trillion in direct premiums. 

Not sure where to start?

In this article, we’ll give you a quick overview of the Canadian insurance market. From there, we’ll go through the questions you should ask yourself before taking out life insurance.

Current state of Canadian Life Insurance Market

Canada’s top three life insurers by assets are:

  • Manulife: Started in 1887, this giant had assets totaling CA$809.13 billion in 2019.
  • Power Corporation of Canada: Founded in 1925, PCC had assets totaling CA$23,627 million in 2020.
  • Power Financial: CA$22,286 million in 2020. 

How important is Life Insurance to Canadians?

Questions to Ask Before You Sign on the Dotted Line

How Much Coverage Do I Need?

There are a few things to consider when taking out your policy:

  • Are you the primary breadwinner? If so, you’ll need to factor income replacement into the equation. How much will it take for your family to be able to live in comfort once you’ve passed on?
  • Your financed assets: At the very least, ensure that any debt financing assets are repaid. Include the balance of your mortgage, car, and other valuable items that you’re paying off.
  • Other outstanding debt: Make provision for loans, lines of credit, and other obligations to be paid off as well.
  • Your children’s ongoing education: Hopefully, you’ll be there to see them off to college or university. If you’re not, life insurance might ensure that they’re able to attend.

Many Canadians see life insurance as a necessary purchase but underestimate the amount they require. Sit down with your partner or spouse and work out what your family’s future financial needs are.

You may, for example, wish to pay for your daughter’s wedding. Work out what your goals are for your family when you pass.

Is it a good idea to have a separate Mortgage Cover?

The finance company may insist that you cede a life insurance policy to them. These policies pay off the mortgage should you die. The finance company may offer you cheap cover, but these may not always be as good as they look.

Mortgage cover usually expires when you cancel the mortgage. It may also have a value linked to the balance in the home loan. In other words, your cover decreases as your mortgage does.

The problem with having such a highly specialized product is that it’ll cost you more in the long-term. To take out a new life insurance policy when you pay off your mortgage in 30 years will be expensive.

Should you die with these policies in place, the insurer will pay off your mortgage. There’ll be nothing left over for your family unless you have a separate policy. By sticking to one larger policy covering everything, you save on administration fees and get a better discount.

What about Funeral Cover?

Funeral cover is often unnecessary if you have sufficient life cover. It is, however, important to confirm how quickly your life insurer will pay the money out. If their claim processing takes longer than a few days, it might be prudent to have a small funeral plan as a backup.

How do I calculate how much parents will need?

Were you shocked to realize just how quickly expenses added up when your first child was born? Most people are. A good rule of thumb is to consider your current annual costs for: Continue Reading…

SPACs, NFTs and another Tech-inspired Silly Season

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LowrieFinancial.com: TechDaily/Unsplash

By Steve Lowrie, CFA

Special to the Financial Independence Hub

Is it just our imagination or has there been an uptick lately in exciting “new” trading tactics for seizing riches from exotic new markets?

After a year of sitting at home, an excitable generation of do-it-yourself traders has replaced traditional leisure-time activities with online pursuits: including aggressive, Tweet-worthy trading for fun and profit.

The result? Waves of volatile financial feeding frenzies and overnight sensations, egged on by a brood of freshly hatched social media stars and a spate of flashy new trading platforms with captivating names like Robinhood.

All this might seem new and different, if I hadn’t already seen such eerily similar circumstances so often before, with so many unhappy endings. I suppose that puts me in the same curmudgeonly camp as 97-year-old billionaire Charlie Munger (Warren Buffett’s long-time Berkshire Hathaway partner). He pulled no punches in this recent interview about Robinhood:

“[Some] may call it investing,” he said, “but that’s all bulls**t. It’s really just wild speculation, like casino gambling or racetrack betting. There’s a long history of destructive capitalism, these trading orgies whooped up by the people who profit from them.”

Speaking of Warren Buffett, a recent Financial Post article asked the question: “What would Warren Buffett make of this stock market silly season?”  The answer was that he already has weighed in on the matter many times before, including one of my favourite “Buffettisms”:

“The stock market is a device for transferring money from the impatient to the patient.”

Impatience in Action

But maybe this time is different after all? Let’s take a closer look. The current wave of “get rich quick” mentality launched in January 2021, when a Reddit-driven rally abruptly sent the prices of several unloved stocks like GameStop through the roof.

More recently, special purpose acquisition companies (SPACs) have captured a lot of attention. “When SPAC-Man Chamath Palihapitiya Speaks, Reddit and Wall Street Listen,” observed a recent Wall Street Journal column. “Amateur traders hang on [Palihapitiya’s] every word for clues about his next target: and for the insults he hurls at the high-finance elite.”

Non-fungible tokens (NFTs) have also been taking the trading world by storm. If you think of an NFT as being like a collectible — say, an autographed baseball card — but in digital format, you’re getting close to envisioning its worth. Similar to playing cards, people are collecting these pieces of code, typically exchanging them in cryptocurrency such as bitcoin.

How much can an NFT be worth if the collectible attached to it is in high demand?  However much the market decides.  In this recent extreme case, “NFT Mania” garnered $69 million for a piece of digital artwork.

Innovations vs. Investments

At least on paper, some have amassed rapid fortunes by trading into these sorts of innovations to catch a wave of risk-laden opportunity. But will these brave speculators manage to convert their good fortune into lasting wealth once today’s trends fizzle or fly? Continue Reading…

How to preach about Money

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By Emily Roberts

For the Financial Independence Hub

Many pastors struggle to preach about the topic of money. However, talking about money is more valuable than ever before. The coronavirus pandemic has led to a huge increase in the number of people finding it hard to manage financially. Thanks to this, it is important that pastors talk about money and what the bible has to say about it. Not only will this improve the spiritual health of your congregation, but it can also improve the health of the church. If you want to preach about money, then here are some of the things you need to keep in mind:

1.)  Don’t apologize for talking about Money

Money is an important part of the discipleship process. Jesus said that people’s finances and people’s hearts were connected. So, when you create your sermon, it is important to remember that you are preaching a discipleship sermon and not simply a sermon about money. You should never say sorry for encouraging your congregation to follow Jesus.

2.)  Make it normal to talk about Money

We talk about money daily, to our friends, our family and other important people in our lives. However, although money is an important topic that needs to be discussed, it is not a regular topic discussed in church. Pastors need to start talking about money with their congregation. They should talk about things like retirement, savings, debt, and insurance. They can also talk about giving money to people who need it.

3.)  Help people with their Finances

One of the best ways to preach about money and gain the respect of your congregation is to help your congregation improve their finances. Continue Reading…

An overview of Investment Real Estate

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By Matt Guenther

Special to the Financial Independence Hub

Real estate investment is the process of buying properties as an asset. The goal is to generate income rather than use it for living purposes. Typical examples of real estate investments are: office building, a commercial plot, a house for rental purposes, or an office building for running and managing businesses.

In this post by Cash for Homes Arizona, we look at different types of real estate investments and best ways to invest in them.

Different Categories of Real Estate

Real estate investments have three main categories: residential, industrial, and commercial. Each one then further has sub-categories.

Commercial Real Estate 

  • Office
  • Retail
  • Industrial

Residential Real Estate

  • House flipping
  • Vacation rentals
  • Section 8 rentals
  • Single-family rental homes
  • Small multi-family homes

Industrial Real Estate

  • Land for mining
  • Residential development
  • Commercial development

How to obtain Real Estate Investment Financing

Hard Money

It’s called hard money for the reason that the lenders would use some kind of hard assets such as property as collateral to secure the loan. These loans are typically short-term so mostly borrowers who plan on house flipping generally seek it.

As a rule of thumb, hard money covers anywhere between 70 and 80% of the property’s purchase value before it goes through any kind of renovation or construction work.

That is why it’s important that the property is worth more than the loan’s value and that in case you default, the property should be able to liquidate the cost of the loan.

Attention must be paid to the fact that hard-money lenders generally charge high interest rates, so choose wisely.

Microloans

Microloans are mostly meant to help small businesses: typically startups that need capital to fuel initial growth. Because they are ‘microloans,’ the amount up for a loan is typically smaller than what you would get via a traditional financing route from banks. Because the amount disbursed is generally lower, terms of qualifications are usually less strict in terms of credit score, etc.

Therefore, microloans are ideal for those who have limited borrowing capacities. But it’s important to consider the overhead costs involved with microloans. Also, interest rates can be higher than those imposed by standard loan programs.

Real Estate Crowdfunding

Crowdfunding is a relatively new concept that allows people to raise money from the general public for any cause they support and believe in. While popular sites like Kickstarter and GoFundMe will allow you to raise money for any cause, some sites are designed for real estate crowd funding only. Sites like Feather The Nest and Hatch My House allow raising of funds for homebuyers and investors.

Best ways to invest in Real Estate

REITs (Real Estate Investment Trusts)

You can think of REITs as companies that own, operate, and derive money from the management of real estate assets. Most REITs are tradeable on stock exchanges so if you want you can also buy stocks of one of the companies online. Real estate ETFs and real estate mutual funds are also in this category.

Note that not all stocks related to real estate are classified as REITs. Also, some of these may only be accessible to eligible investors.

Use an Online Real Estate Investing Platform

There are many real estate investment platforms available for those who want to join hands with others who want to be part of a big commercial or residential property deal. Most investments are done online through real estate platforms. The capital investment requirement is less than is needed to complete the purchase.

The upside of online real estate platforms is that interested investors can diversify their portfolios by investing in multiple projects. It also has room for geographic diversification.

The downside is that the management fees can be high sometimes with overhead costs. Also, liquidation can be difficult due to high due to lockup periods.

Rent out a room on platforms like Airbnb

Today to rent out a property you don’t need to buy one separately. Continue Reading…

Your most valuable asset

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By Michael Meyer

Special to the Financial Independence Hub

What is your most valuable asset?

If you are like most Canadians, you may answer your investment portfolio or your home. What if I said it was your time?

If you can imagine your life as a timeline, consider three milestones that are up ahead:

1.) Your healthy life expectancy

2.) Your estimated life expectancy

3.) Your 100th birthday

With diet and exercise, you are able to push out the first two, and give yourself a healthier and longer life.  In the near future, it is possible that with medical advances both one and two may exceed your 100th birthday.  These adjustments are already being considered for pension portfolios.

Now what if I said each of those future years on your timeline are not of equal value?

How should you compare your 40s to your 60s? How do you value those years differently, and how do you weigh your spending in each year for an optimal result?

Next, I want you to think about a stacked timeline, with a separate line for each of your family members.

Certain years are more pivotal than others

You will quickly see that certain years are more pivotal than others. The years your children leave the nest, or the years after the first partner hits retirement.  What about when your parents need help, and your role shifts and becomes that of the caretaker? Predicting health outcomes is a science, and a probability can be assigned to each year of your future. It is helpful for planning purposes to be aware of these milestones, and also to understand how you differ from the average person. Continue Reading…