Increased Life Expectancy in Canada and Life Insurance
“Live long and prosper” is the English translation of the Vulcan greeting, dif-tor-heh-smusma. Both the phrase and the language were made famous by the character Mr. Spock (actor Leonard Nimoy) in the Star Trek television and movie series. What we are focusing on is increased life expectancy.
Perhaps Mr. Spock was onto something. The good news is we are living longer. The bad news is that we are living longer and many of us are worried that we will outlive our savings. To respond to our increased life expectancy, in 2015, The Canada Revenue Agency (CRA) lowered the annual minimum amount that must be withdrawn from our Retirement Savings Plans. This is good news for Canadians.
However, as we can see from recent changes to how the tax free benefits from insurance will be calculated, the CRA is also focused on the country’s prosperity. What does this have to do with increased life expectancy? Starting in 2017, the mortality tables used by CRA will be updated from the 1969-1975 mortality tables of the Canadian Institute of Actuaries (CIA) which we now use, to the CIA’s 1986-1992 mortality tables.
Other factors influencing this change include the, “Adjusted Cash Basis” of your policy and the, “Net Cost of Pure Insurance.” The meaning of both of these terms are interrelated and somewhat complicated. In a nutshell, a life insurance policy may be considered to be an investment product rather than a risk management product if it accumulates more money than the rules allow. Going forward, the tax free benefits from life insurance are going to grow more slowly for policies set in place after January 1, 2017, than for those in effect up until December 31, 2016. All of these changes were inspired by our longer life spans (as the insurance will pay out later).
There is a good reason for you to care about this. Life insurance can be used to pay down debts, tax liabilities and other estate costs at death and preserve estate assets for your heirs. In addition to what it does for your heirs, life insurance offers you the potential for tax-deferred growth and borrowing against the cash value in the policy. If your policy is in effect before the end of this year, it will be “grandfathered” in under the old rules and the tax deferral will occur sooner than if the policy comes into force next year or later.
You may believe that you don’t have the cash flow to pay for life insurance premiums. However, as a Financial Advisor and a Certified Cash Flow specialist (CCS™), I can work with you to identify a financial independence gap in your current income. Many clients are surprised when I find as much as $1500 extra in this gap per month. A Cash Flow Plan is personalized to each client and may help you fund not just insurance but other meaningful financial goals that will help you deal with your increased life expectancy.
The actuary tables tell us that we are living longer. If you want to also prosper, take action quickly. It costs nothing to apply. Being eligible for insurance does not automatically mean you will be approved for it by the insurance company. The application process may be as long as two months from start to finish.
Mr. Spock was a man of science. I believe he would say it is logical to investigate options around life insurance sooner rather than later. Contact me at firstname.lastname@example.org to find out how.
It’s just good advice.
* Average life expectancy for women is now 84 years of age, up from 79 in 1981; for men it is 80, up from 72.