Canadian Life and Health Insurance

Pooled Registered Pension Plan (PRPP)

2011-12-08T18:53:00.000-08:00

The Federal Government recently passed Bill C-25 also referred to as the Pooled Registered Pension Plan Act. while still in its infancy, and with many details still to be drawn up, this plan provides yet another method for Canadians to save for their retirement. Standard Life has put out a good summary of what we know thus far. I have linked it below. I have also summarized what I feel are the most important parts.

Rob's Summary

All employers will be required to offer the plan to all employees working for at least 24 months.
Employees will be "auto-enrolled" and can opt out.
Employees can voluntarily contribute a percentage of their earnings to the PRPP by payroll deductions.
The employer is NOT required to match or contribute (at this time, this could change)
The suppliers of these plans will largely be existing financial institutions such as banks and insurance companies
Investment fees are to be kept to a minimum <1%
Since fees are to be kept so low there will be a very low level of service, there is no overhead to pay for extra service or pay advisors commissions.
All contributions are LOCKED IN
Access to the Home Buyers Plan and Lifelong Learning Plan tax free withdrawals/loans are not allowed
Investments will presumably be a list of funds similar to today, but likely focusing more on Asset Allocation and Target Date/Retirement Date Funds
There is currently no default fund selected but it is expected to be a Retirement Date fund targeting retirement at age 65.
This is likely a good thing for Canadian, as our savings rate is abysmally low, however, as this is currently voluntary, it is doubtful that many employees will participate in the PRPP if employers don't match, and even then there are drawbacks to the PRPP such as the locking in provision and loss of Home Buyers Plan and Life Long Learning Plan when compared to the also voluntary RRSP.
Broker are going to hate the PRPPs. They will pay little or no commissions. Pension managers with large blocks of business are already terrified that their commission stream is going to dry up. There will certainly be a shift in how we as advisors market and sell group savings plans. Many will switch to a fee for service model, provide little or no service, or exit the market all together. It will be interesting to see how the industry reacts to this new plan and its implications on our bottom line.
Similar plans have recently been launched in Australia and the UK. in those countries the employer must match employee contributions, which some expect may come to the PRPP if adoption rates are low.

Everything listed above is correct to the best of my knowledge at the time of writing, as many details have still yet to be finalized they may change in the future. That being said take everything above with a grain of salt, as very little is concrete at this point in time.

Standard Life Summary

*edit; Spelling

--
Robert Reynolds, GBA
Certified Group Benefits Advisor
Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614
rob@hmrinsurance.ca
www.hmrinsurance.ca

E.O. E.

Long time no post, here is some marketing jargon I put together recently

2011-12-08T18:31:00.000-08:00

A more affordable Health and Dental plan

where you control the rates!

You may have heard of the recent bankruptcy of Nortel which left thousands of employees without benefits or pensions. This is because Nortel used a “Defined Benefit” plan. A Defined Benefit plan means essentially “you get this benefit, no matter the cost”. That’s how bankruptcy happens.

While the world of Pensions have long since made the switch away from Defined Benefit, and towards Defined Contribution plans. The land of Health and Dental insurance has stayed firmly in the world of Defined Benefit. A Defined Contribution plan is just that, a plan where you can control exactly how much you as an employer contribute.

Do you provide the same benefits as 10 years ago? But the price has doubled or even tripled? Double digit increases each year are becoming unsustainable for many businesses’. We have a way to put the control firmly back into your hands.

Health Care Spending Accounts (HCSA) are the “Defined Contribution” plan of the Health Insurance world. Each employee receives a defined amount of benefit dollars each year, say $1000 or 3% of salary. The employee can spend these funds on healthcare, dental care, glasses, massage etc. There is no plan design, so the benefits are entirely flexible for the employee, no more “one size fits all” insurance plans.

While employees love the flexibility HCSA’s provide, employers love the ability to budget and control costs. Since the amount of benefit is not tied to an insurance policy, there is no insurance company to raise the rates year after year. If you have 10 employees and they each get $1,000 per year, you know your budget is $10,000 year after year. No surprises at renewal time. You can increase benefits to fight off the effects of inflation or decrease the benefits to keep in sync with the profitability of your business. You are in the driver’s seat.

Health Care Spending Accounts are low cost, and low administration. Administration fees are typically 10-15% of paid claims; rather than the 30-40% overhead build into the rates of most group insurance plans. Affordable stop loss policies are also and attractive option to reduce risk in event of a catastrophic claim.

If you would like more information on how a Health Care Spending Account might be right for your business, please contact me

Robert Reynolds, Certified Group Benefits Advisor

Hendry Swinton McKenzie Insurance Services Ltd.

Toll Free: 1-888-592-4614 or rob@hmrinsurance.ca

--
Robert Reynolds, GBA
Certified Group Benefits Advisor
Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614
rob@hmrinsurance.ca
www.hmrinsurance.ca

E.O. E.

Lower EHC trend factor used for pricing

2011-08-29T10:26:00.000-07:00

Sun Life has announced today that they are joining the party started by Great West Life recently of lowering their health care trend factors. Recently GWL dropped their health care trends from 15.5% per year to about 12% per year. Sun Life has just done the same and dropped their trends a similar amount. I fully expect the other carriers to follow suit quickly.

A refresher on what is a trend factor can be found here

Sun Life Press Release

Sun Life is pleased to announce that we are lowering our Extended Health Care (EHC) trend factor used for pricing.
New Trend Factors
Our new trend factors vary based on the plan design, as indicated in this table:

Annual Trend factor for EHC plans

No Deductible 11.5%

With Deductible 13%

Why are we making these changes?
Sun Life continually reviews our financial experience and emerging practices in the marketplace to ensure our products are priced competitively. We’ve identified a lowering of our actual experience of the EHC benefit as a whole – mainly due to reduced drug spending. The reduction in drug cost is primarily a result of two factors:
Market changes: As patents on ‘blockbuster’ drugs expire, generic drugs (made with the same active ingredient) replace them at a lower cost. Simultaneously, most provincial governments have legislated lower prices on generic drugs. Together this results in a reduction in overall drug pricing.

Cost management solutions: In January 2011 Sun Life launched our Provincial Integration program, to ensure that, on a systematic basis, sponsors do not pay for specialty drugs in circumstances where the provinces have created specialty funding opportunities. Additionally, our in-house pharmaceutical team has several new initiatives in development to help sponsors manage their drug spending more pro-actively going forward. Stay tuned for details.

Timing
These new trend factors are applicable to all renewals using an experience period ending on August 31, 2011 or later. Due to the renewal cycle process, these renewals have a renewal notice date on October 31, 2011 or later, and rate effective date on December 1, 2011 or later, depending on the renewal notice period. We are using these new trend factors in our quotes effective immediately.
Questions?
For more information, please contact your Sun Life Financial group benefits representative.

As I mentioned, here, the province of BC has recently struck a new deal on generic drug pricing, this is finally starting to kick in and impact rates. Furthermore, many of the mentioned "blockbuster" drugs are coming off patent, which means generics will soon be available. This is huge news for drugs the likes of Lipitor, the best selling drug ever, which brings in over $11 Billion in revenue per year. Lipitor's patent expired July 19th, 2010 in Canada. A month's supply of "brand name" Lipitor costs about $150, and generics cost about $10 per month.

TL;DR You should start to see health care rates stabilize or at least not increase quite so fast.

--
Robert Reynolds, GBA
Certified Group Benefits Advisor
Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614
rob@hmrinsurance.ca
www.hmrinsurance.ca

E.O. E.

Worst Acting Ever

2011-06-28T11:36:00.000-07:00

bring on the hate mail

Please forgive the wooden acting, there is obviously a good reason why these folks are in the insurance biz and not Hollywood.

Sun Life has started putting up some little videos on Group Benefits. There are two up so far, the first is mostly just an introduction to the video series, don't bother watching it. The second video actually has some substance to it.

Link to Video 2's Page - Plan sustainability – Series 2

Sun Life is surveying their plan members and seeing how they would react to changes aimed to reduce costs on their plan.

The main result were as follows.

Young people 18-34 just don't care.
Everyone else is in favor of managed plans (drug pre-authorization, generic substitution, maximum drug cost limits) but very unfavorable to reductions in co-insurance, lower dispensing fee maximums and raising premiums.

Makes sense, the only question it raises for me is the level of understanding on the behalf of plan members. Especially with drug pre-approval, as I have found any time this is used it drives employees crazy. I think they simply stated they prefer pre-approval, because they don't grasp how it works as well as something simple like a lower co-insurance. Prior pre-approval has led to some of the ugliest situations I have run into with drug plans. Green Shield has a program called a Conditional Formulary, where expensive drugs need to be pre-approved. The Dr. would write a prescription, the employee goes to the pharmacy to fill it, and the computer tells the pharmacist that the drug needs pre-approval, or the plan won't pay for it. I then get angry phone calls from the employee, HR and owners.

Overall I have noticed similar reactions with my own clients, and have been recommending similar changes to help curb rate increases while keeping employees happy. My observations weren't scientific or by survey but it is nice to see them validated.

--
Robert Reynolds, GBA
Certified Group Benefits Advisor
Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614
rob@hmrinsurance.ca
www.hmrinsurance.ca

E.O. E.

Dollar Cost Averaging

2011-06-14T12:07:00.000-07:00

I highly recommend when talking to clients about investments, that they Dollar Cost Average. This is a simple strategy that can help increase your return, and lower your risk. Most people frantically try and dump a big pot of money into their RRSP right before the deadline. They buy all of their investments for the year on one day at one price. If the price is high, they buy high, if the price is low, they buy low. We all know we want to buy low and sell high.

I prefer to drip money in on a regular basis, firstly becuase you barely notice a small amount from each paycheque, and secondly to take advantage of Dollar Cost Averaging.

Because I am buying units every month, I buy a small amount based on the price that day. Some days it goes up, some days it goes down. What happens over a year is that the highs and lows average out. This average unit price is what my return is calculated on.

click to enlarge

Take this example, If someone invests $500 per month for a year, and the market falls, they are buying more units for the same $500. If the starting unit price is $10, but over a year the market drops as shown,their average price works out to around $8.75. If the market comes back up to the exact same starting value of $10 per unit, you are actually up 13%, as your average price is $8.75 and the new unit price is $10. you made a profit but the market is at exactly the same point as it was a year prior.

Gains are also multiplied, if the market increases by 10%, you are actually up 21% as your average price is low. Dollar Cost Averaging works wonders for investing in a down market. Rather than a lost year, you are up double digits.

The power of Dollar Cost Averaging can be reduced if you already have a large nest egg, and you are dripping in a comparatively small amount each month. The small drip just can't adjust the average much. It often makes sense to pull the nest egg, and redeposit it in chunks over a period of months or years. This works well when you expect a prolonged down market. I did this for several clients in the fall of 2008, when the market was in a prolonged down trend. We were able to reduce the average cost per unit, so when the market came back up to its starting point we were ahead of the game, rather than just back to square one.

TL;DR - drip money into your investments regularly, and you don't need to worry about timing the market.
--
Robert Reynolds, GBA
Certified Group Benefits Advisor
Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614
rob@hmrinsurance.ca
www.hmrinsurance.ca

E.O. E.

Insurance and LGBT

2011-05-13T12:42:00.000-07:00

I have a few clients who are Gay, Lesbian, Bisexual or Transgendered hereafter referred to as LGBT. Each time I work with an LGBT client, I find there is a lot of incorrect assumptions or misinformation about if they can get insurance.

The simple answer is YES of course you can get life, disability, critical illness insurance.

Canadian insurance companies make no distinction between any sexual orientation, and neither do I. I have clients and close friends who are LBGT and I am always happy to meet new client and make new friends. I did want to touch on a few bits of the misinformation that I have heard over the years, and just shed some light on a few points.

Do I have to reveal my sexual preference when I fill out an application?
No, there are no questions asked about orientation. The only thing that might give a hint is the beneficiary designation, as you have to indicate relationship and gender of the beneficiary. I will often use the words, “partner” or “spouse”, however, you can put down “friend”, “companion” or whatever term you like.

Do I need to be legally married to get a “joint” policy?
No, as long as there is an insurable relationship (someone stands to lose something if the other dies) anyone can get a joint policy with anyone else.

Are there any special medical questions I have to answer?
Nothing that everyone else doesn’t need to answer. Each insurance company has a list of medical questions they ask and everyone applying needs to answer the same questions.

Are there any questions that I might have a problem with?
I hazard to say it, but the only thing remotely possible is the questions regarding exposure to HIV or AIDS. As long as you have made wise choices over the years you shouldn’t have any greater exposure than anyone else. Everyone has to answer these questions.

What if I am Transgendered, what do I put down for gender?
Insurance rates are primarily based on two factors, age and gender. If you are transgendered we use the bits you were born with.

What if I am undergoing hormone therapy?
You would need to disclose that you are taking medication, you would need to provide, dosage, when you started the program, and if there have been any complications. The underwriters may rate (charge more) or decline the policy, as there are other serious medical issues which can arise from hormone therapy. I haven’t run into this situation yet personally, so I can’t say for sure.

While I am not of that persuasion myself, I am happy to work with anyone who is LGBT.

I also want to say a special Thank You to my friends Kelzey and Tryce who helped vet this post.

--
Robert Reynolds, GBA
Certified Group Benefits Advisor
Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614
rob@hmrinsurance.ca
www.hmrinsurance.ca

E.O. E.

Money back guarentee

2011-04-26T12:41:00.000-07:00

Equitable Life, a company I have a good relationship with and have enjoyed working with in the past has a new offering I wanted to touch on briefly.

They are calling it Rate Shield, and it is essentially a mini “Refund” plan. Normally Refund is reserved for 100+ member groups, and only one of two carriers still offer it. Equitable will do a Refund plan on your first renewal of a small group starting at 10 members.

It works like this.

If you claim less than your Target Loss Ratio (TLR), you get a refund of the difference. You will recall that the TLR is essentially the ratio of administration expenses and Claims Paid. So an example of a TLR of 80.5% means: 19.5% of your premium is going to admin, and the rest, 80.5% is going to pay claims.

Let’s say your Extended Health Care premium is $30,000 per year, your TLR is 80.5% and at your first renewal you actually claimed 76.5%. You claimed 4% less than budgeted (80.5% - 76.5% = 4%) so in reality you overpaid by 4%. Not any more, Equitable Life will refund you 4% of your premium (4% x $30,000 = $1200).

You get a cheque for $1200, well not quite, they do charge a $100 admin fee so the cheque is for $1100.Still pretty good. It is a shame they will only do it for the first renewal, I would love to see it as a permanent feature.

On a side note, I have always found that Equitable Life's renewal are very fair, the rates they come up with are almost always dead on what I calculate independently. This basically never happens with any other carrier, except possibly Wawanesa.

--
Robert Reynolds, GBA
Certified Group Benefits Advisor
Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614
rob@hmrinsurance.ca
www.hmrinsurance.ca

E.O. E.

How to spot a crappy advisor

2011-04-12T15:07:00.000-07:00

Every so often I am asked to review someones current personal insurance. This is a service I gladly provide for free. In some cases people are well taken care of, in others they got royally screwed by their last agent. Such was the case this week. Lets look at the situation.

Young couple mid twenties, just married, just bought a house. Mortgage of $500,000 which is co-signed by a parent. No kids yet, but perhaps down the road. No other savings, or assets, on a tight budget as they are "mortgage poor".

What immediately stands out to me is they need life insurance for the mortgage, as well as disability insurance and possibly critical illness insurance. The husband is working out of the country, so we can't insure him at the moment. If the wife dies, the parents are left with a house and a huge mortgage they cannot pay, same goes for a disability or serious illness.

What this client needs:

Affordable term life insurance to pay off the mortgage.
affordable disability policy with maybe a 24 month max benefit
affordable critical illness policy covering a year or two's income in the event of a serious illness such as cancer.

MY solution

$500,000 of Term 10 life insurance, Premium $20 a month
Disability isn't available due to occupation, so substitute with Critical Illness
Two times annual income ($50,000) of Term 10 Critical Illness with Return of Premium after 15 years. Premium $40 a month.

The other agents solution

$150,000 (not enough) permanent Universal Life (expensive) paid up in 10 years (REALLY expensive) life insurance policy. $90 per month
$250,000 (way too much) Term to 100 (expensive) Critical Illness. $180 per month.

Stuff like this makes me rage. The client is WAY underinsured for life insurance, yet they are paying nearly 5 times the premium. The policy they get doesn't fit their need as it is designed for people in their retirement and estate planning phase of life. This client has NO NEED for a permanent life insurance policy, other than possibly $25,000 for final expenses. While the life insurance coverage is way too low, the Critical Illness is crazy high. Why do they need a quarter million dollars of Critical Illness Insurance? If you are diagnosed with Cancer, you are off your feet for a year, maybe two. bonkers.

My solution, which provides them the amount of coverage they need, in the form of affordable policies and costs the client about $60 per month, rather than $270. The client could use the extra $210 to pay down their mortgage faster, save in an RRSP or TFSA, or improve their lifestyle.

Now why in the world would the other agent set this client up like this? COMMISSION.

Total commission for my solution $828.00

Total commission for the other guys solution $4,076.24

In my opinion, my solution provides better, more appropriate, and vastly less expensive coverage for this client. I get rewarded with an appropriate compensation of $800 or so dollars. I also have the opportunity to set up an investment account for this client, which can be worth much more commission down the road.

On the other hand, the other advisor's solution, leaves the client, over and under insured, costs far too much, and pays an exorbitantly high commission.

I can see the temptation to sell the big expensive policies, they provide a big commission, which feeds your family, but it does it at the expense of someone elses family. I see this stuff all the time, far more often than I like. It is usually from younger, new agents, and in the vast majority of cases, agents with a captive insurance company (Clarica, Sun Life, Freedom 55, London Life, Primerica), I am not saying all captive agents do this, but that is where I see it the most. New agents survive on new sales commissions since they have no trailers to rely on. They up-sell to more expensive policies which pay themselves more. Their managers push for higher sales, and higher commissions, so agents push these products on their clients.

How does a consumer know if they are being taken for a ride? It can be hard to know, especially since the advisor can usually make a case for the product they are selling in any situation. The best tips I can provide are:

Ask to see a market survey so you can compare rates between companies. Like this
Ask why the advisor is recommending a specific company. Is the product better, is the price better or are they beholden to only one carrier.
Ask for a second opinion. This will drive your advisor crazy, myself included, but it is the best way to be sure you are getting a fair deal.
Ask what the advisor is getting paid. If it seems extreme it probably is.

TL;DR Nice young couple gets hosed by a sleazy insurance salesman. not me ;)

Commission Calculations Below I have talked about Commissions before here

My Solution

Term 10 life insurance pays 40% of first year premium, I also get a bonus of around 130% of the base commission.

Annual Premium $240
Base commission 40% of $240 = $96
Bonus commission 130% of $96 = $124.80
Total commission: $220.80

Critical illness insurance pays 55% of first year premium, I get the same bonus of 130%

Annual Premium $480
Base commission 55% of $480 = $264
Bonus commission of 130% of $264 = $343.20
Total commission: $607.20

Other Guys solution
Universal Life pays a commission of 70% of the first year premium + 3% of excess contributions, plus a bonus lets stick with my bonus level of 130% for consistency.

Annual Premium $644.40
Base commission 70% of $644.40 = $451.08
Bonus 130% of $451.08 = $586.40
Total commission $1037.48

Since the UL policy is paid up in 10 years, they are over funding the policy this over funding is commissioned at 3% of excess contributions but paid for each year. So over the life of the policy the commission looks like this.

Excess Deposit over 10 years, $4440
Base commission 3% of $4440 = $133.20
Bonus commission 130% of $133.20 = $173.16
Total commission 306.36

Critical Illness insurance pays about 55% of first year premium, lets use the same bonus of 130%.

Annual premium 2160
base commission 55% of 2160 = 1188
bonus commission 130% of 1188 = 1544.40
total commission 2732.40

Total commission for the other guys solution, $4076.24

--
Robert Reynolds, GBA
Certified Group Benefits Advisor
Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614
rob@hmrinsurance.ca
www.hmrinsurance.ca

E.O. E.

Bonds for dummies

2011-03-11T12:27:00.000-08:00

Stocks are easy to understand, you own part of a company --> company makes money --> you make money. easy-peasy.

Bonds on the other hand confuse the heck out of just about everyone, even (especially) those that sell them. I have read countless dry, boring pages on how bonds work, prices, yields, jargon, and almost all totally uncomprehencible.

So how do bonds work? Well I think I have a understandable, if not exactly technically perfect, method of explaining bonds, here goes...

"My word is my bond"

You have all heard that saying. What does it mean? A bond is a promise, more specifically a promise to pay back borrowed money.

Say it's lunch time, your friend Jon comes up to you and asks to borrow $10 for lunch money. He promises to pay you back $11 tomorrow. His promise is his bond, he might even write it down on a piece of paper.

"I Jon will pay back Steve $11 tomorrow for a loan of $10 today."

Boom we just created a bond.

We have all the parts of a bond in the example above, we have a bond price, $10. We have a interest rate, $1 per day, and we have a maturity date, tomorrow.

Now what if you only had $10 to lend, but your other buddy Jack, also wants to borrow $10 for lunch, but Jack gets his allowance tomorrow, so he offers to pay you $12 tomorrow. The bond you bought from Jon just lost value, as the $10 you loaned to Jon for $1 could have earned you $2. On the other hand if Jack only offers $0.50 you look like a star with your bond from Jon. So as you can see the value of your bond changes with the interest rate being paid, as interest rates move higher, your bond is worth less, if interest rates move lower, your bond is worth more.

What makes interest rates go up or down? Supply and demand, mostly, but also risk. Say Jon and Jack are both competing for your lunch money loan. The one who offers the best interest rate is probably going to win; as long as they are equally trustworthy.

But what if they aren't equally trustworthy? what if Jon is a stand up, honorable, prompt, courteous and trustworthy guy and you know he is going to most likely pay you back (government bond). On the other hand Jack, is a unreliable, jerk who always breaks his promises. You might think twice about lending to Jack (Junk Bonds). Because people are not as trusting of Jack, and they know they might lose their money, they are less likely to lend to him, that is, unless he offers a higher interest rate. If you know your money is safe with Jon you might lend it to him for $1, but since Jack is less reliable, and you are taking a bigger risk lending to him, you want $3 from him before you are willing to lend to him. The quality of the borrower has a big impact on the interest rate they have to pay to attract investors.

So that's bonds, not so hard right?

TL;DR: I would gladly pay you Tuesday for a hamburger today.

--
Robert Reynolds, GBA
Certified Group Benefits Advisor
Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614
rob@hmrinsurance.ca
www.hmrinsurance.ca

E.O. E.

Sound off in the comments

2011-03-10T13:42:00.000-08:00

Google Analytics is telling me I am getting about 500 unique visitors per month, wow!

Most are being driven here through Google Searches, and most are in Canada, using Internet Explorer during office hours. Who is out there? Human Resources people? other insurance advisors? employees? business owners?

Are you finding what you are looking for? Is there something I haven't touched on that you would like to see more information on? Are you in British Columbia and you want to try me out as your benefits advisor? [shameless plug] ;)

Let me know in the comments below, you can post anonymously, no need to sign in.
--
Robert Reynolds, GBA
Certified Group Benefits Advisor
Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614
rob@hmrinsurance.ca
www.hmrinsurance.ca

E.O. E.

What is the absolute cheapest way to run a benefits plan?

2011-02-23T13:20:00.000-08:00

1) You need to be big. Rates improve dramatically when you get to above 50+ lives. Size also opens up additional funding methods such as Refund or Self Insurance.

2) Break out lines of benefits. The carrier that provides the best Life Insurance rate, may not have the best rate for Health Care. Some carriers have sharper pencils or specialize in certain areas. RBC provides really good LTD rates and coverage, but has no health or dental. Green Shield has good rates with health and dental but no pooled benefits such as life insurance. If you want the best rates the market has to offer you need to place the benefits with the carrier that can offer the best rate. This usually results in 2 carriers at least, one for pooled lines and one for health and dental.

3) Manage it yourself as much as possible: With more than one carrier this can get complex. Sure there are Third Party Administrators (TPA) which will help organize and manage the complexity but they will want a slice of the pie. Also, If you advisor doesn’t have to renegotiate renewals or fight over getting claims paid, why pay full price? Negotiate a flat annual fee, or a dollar per hour rate.

4) Embrace volatility. Pooled rates might be slightly lower if you take a shorter guaranteed of 12 months over 24 or 36 months.

5) Self Insure. Health and Dental benefits have big margins in premiums for risk premiums. By self insuring you take the risk and save the charges. You will want a stop loss policy for big health care claims however

6) Fee for service or percent of paid claims. Self insured plans are usually priced as a percentage of claims paid. IE: if a health care claim of $100 was paid, the administrator charges 10% or $10 to process the claim. Most plans use a percent of paid claims. Bare bones paper pushing can get as low as 6-8% before advisor compensation. Health care is usually more expensive than dental care. A less popular but equally valid approach is a flat fee per claim. With this method it doesn’t matter if the claim is $5 or $500 the administrator charges a flat cost to process each claim. Dental claims are usually a buck or two, pay direct drug claims are a few cents. Something more time consuming like a paper paramedical claim might be $5-$10 each.

TL;DR

Be big
Shop each line of benefit individually (Pooled lines: RBC Insurance, SSQ, IAP. Health and Dental: Green Shield, Blue Cross, Claim Secure)
Take some risk.

--
Robert Reynolds, GBA
Certified Group Benefits Advisor
Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614
rob@hmrinsurance.ca
www.hmrinsurance.ca

E.O. E.

Potential conflict of interest

2011-01-31T13:33:00.000-08:00

I just wanted to get this out of the way, I have a potential conflict of interest with regards to new Great West Life insurance policies. As I have talked about here in the past, I am paid primarily through commission for selling polices. The way the commission structure works is shown below in an example.

Say I sell a Term 10 Life policy, which has an annual premium of $1000. I get paid a basic commission of 40% of the first years premium, or in this case $400. Now, this rate is pretty standard for all carriers, they pretty much all pay the same basic commissions.

Term 10 = 40%
Term 20 = 50%
Living Benefits (CI, LTD) = 55%
Whole Life, Universal Life, Term 100 = 70%

There is a slight conflict if one were to try and up sell to a more expensive carrier for an equal product, but that doesn't really ever happen as the market pressure for the lowest rate keeps the least expensive policies on top.

Now the part where the conflict comes in, is that there is a second layer of compensation, sometimes called a Bonus or Over ride. The issuing company decides on what Override they would like to pay to an advisor, it usually ranges from 100% to 150% of the basic commission. With GWL I used to have an override of 130%. So on the sample policy above, I would make $400 in base commission and then get a bonus or override of $520 for a total compensation of $920. The override is tied to a level of production, if you don't produce for the company you get a lower bonus. If you produce a lot you get a higher bonus. I received word that my production has not been high enough recently and my override with Great West Life has been reduced from 130% to 0%. Ouch.

I would love to say that the compensation doesn't determine where I place business, and to the most part it is true. I have companies I like dealing with, which includes GWL, and others which I can't recommend. All things being equal, I will always recommend the best product at the best price for my clients, however, I have to eat, and pay my bills as well. Taking more than a 50% pay cut for the same amount of work is hard to overlook. I have put a good amount of business with GWL over the years, I like them as a company, I like their product line especially their Group, Term and Living Benefits products. However, I like Equitable's Term just as much, I like RBC's Living Benefits just as much, and I like Manulife and Sun Life's Group just as much.

So if I have an equal product from another company which will pay me twice as much I am going to have to recommend the one that pays me better. Now this is not to say that I would ever recommend an inferior product just because I get paid more. I am talking strictly apples to apples, comparisons here. Manulife's group product is just as good as GWL's, RBCs Disability policies are just as good as GWL's. The rates are often nearly identical as well. So is it wrong to recommend an equal product to a client on the basis that I know I will make twice as much commission?

In short, I won't be recommending Great West Life policies any more unless absolutely necessary.

I think the only way to solve this is to provide total disclosure on what I get paid. In the next few days I will be working on a new disclosure statement which breaks down my commissions and bonus rates for all the companies I deal with.

--
Robert Reynolds, GBA
Certified Group Benefits Advisor
Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614
rob@hmrinsurance.ca
www.hmrinsurance.ca

E.O. E.

Creative Saving

2010-12-16T14:29:00.000-08:00

I have lots of tricks up my sleeve for saving bits of money here and there on benefit plans. Here is a list of some of the creative things I can do for your company to help either reduce, or control your benefit plan costs.

One of the more creative ways of controlling benefit costs is to make your employees more savvy consumers. If they were going out on their own to purchase prescription drugs or professional services with their own money you can be sure they would try and find the best price and value they could for their hard earned dollars. But because most plans are as easy as “Swipe, and go” employees often don’t think of way to save money. It all seems free to them.

First prescription fills are often the most wasted. When an employee is prescribed a new drug there are many unknowns, will it fix the problem? Will it have side effects? Will the problem go away before the prescription is used up? Most plans have a 3 months supply limit, where the maximum amount of drugs that can be dispensed at any one time is equal to 3 months. We can set up your plan to limit the maximum supply of the first and only the first time a new drug is dispensed. This is a slight inconvenience if the member needs to go for a refill, but each subsequent refill will be for 3 months. The benefits here are that if the drug in question is has some side effects or is ineffective, only a month is wasted, rather than 3 months.

Dispensing Fees can eat up a lot of plan dollars, for small prescriptions or for prescription of some low cost drugs like antibiotics the $12 dispensing fee you might pay is more than the cost of the medication. Going hand in hand with high dispensing fees are high drug prices. Costco or Wal-Mart have low dispensing fees and often similarly low drug costs, where small or private pharmacies might charge two or three times as much to dispense the same drug, they often also charge a premium for the ingredient as well. Making the employee pay the dispensing fee firstly reduces the costs directly paid by the plan, as well as it makes members shop around for a cheaper dispensing fee (and as a result cheaper drug costs). I have a list of dispensing fees by pharmacy located at this page on my blog.

Say no to 100% reimbursement. Plans will often have 80% coverage for Drugs or dental, but will occasionally leave the professional services (massage, chiropractor, naturopath etc.) at 100% coverage. Because employees see these services as “free” they will tend to take advantage and max out their benefits regardless of if they need the treatment for medical reasons or not. Massage therapy is especially notorious for this. When the member has some skin in the game, a 20% co-pay or even a $5 user fee, they think twice before spending recklessly.

Physicians recommendations can also be added to paramedical plans, so before a claims will be reimbursed the member must provide written medical evidence, usually in the form of a prescription from their doctor. The recommendations ensure that the treatment received is medically necessary. These referrals are easy for members actually suffering a problem to

Ensuring proper Co-ordination of benefits can help improve the coverage employees receive as well as improve the bottom line of your plan. if employees have duplicate coverage under their spouses plan, ensure that they are properly setup to take advantage of Co-Ordination of Benefits. If there is duplicate coverage, some of the bills invoiced on your plan perhaps could have been paid under the spouses plan, reducing the total impact on your claims history.

Deferred Drug Cards (DDC) are a new type of drug cards which have been popular in Quebec for some time but are now just branching out to the rest of the country. Great West Life is a big supporter of Deferred Drug Cards out west. DDC work similar to a Pay Direct Drug Card (PDDC) they allow electronic claims tracking, formulary control, and other benefits brought about by a normal drug card, however, the way the member get reimbursed is different. With a Direct Drug Card the member only pays their portion of the claim as defined by their co-pay. In a plan with an 80% co-pay and a $100 claim, the member only remits $20 to the pharmacy as their share. However, with a Deferred Drug Card the member pays the whole claim cost of $100 out of pocket. The claim starts a timer, the employee will be electronically reimbursed directly to their bank account as soon as one of two conditions is met.

1) A predefined time period elapses, say 30 days from the claim.

2) A predefined out of pocket maximum is reached, say $150.

The employee is out of pocket $100 from their drug claim. Because the member had to pay upfront they take on a more consumer savvy attitude, they think before they buy. The member might decide to go to a cheaper pharmacy, purchase a less expensive drug, take a smaller supply or simply decide they don’t need the prescription filled after all. These choices all reduce the cost of the plan. Once the time period is reached, again lets assume 30 days, an electronic fund transfer takes place and deposits $80 to the members bank account. Similarly, if they incurred another claim inside that 30 day period, which exceeded the out of pocket maximum of $150, the covered portion is deposited to the members account.

All of these ideas revolve around making your employees better consumers. Take advantage of cheaper vendors, utilize other available coverage, think before you spend. None of these changes create huge savings up front, they do however help control claims and rates over time. The cost of benefit plans is rapidly increasing all the time, these are all perfect ways to slow that increase down.

--

Robert Reynolds, GBA
Certified Group Benefits Advisor
Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614
rob@hmrinsurance.ca
www.hmrinsurance.ca

E.O. E.

New ACS Buck Health Care Trends Survey for 2010

2010-11-18T10:54:00.000-08:00

I am a big fan of the ACS Buck Health Care Trends Survey that comes out each year. This year marks the 6th year of the survey. Basically they track the cost of claims paid by the major insurers in Canada to determine trend factors for drugs, hospital, professional services and dental care.

Health Care Trends Survey 2010

I use this report with all my renewals to show the rate at which health care costs are increasing each year. If you are a HR professional or in charge of a benefits plan I recommend giving it a read.

Source: http://www.acsbuckcanada.com/buckconsultantsca/Default.aspx?tabid=337

--
Robert Reynolds, GBA
Certified Group Benefits Advisor
Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614
rob@hmrinsurance.ca
www.hmrinsurance.ca

E.O. E.

New Agency Managment System.

2010-10-26T11:01:00.000-07:00

It has been a while since my last post, I have been very busy and there hasn't been too much news in the insurance world the last while.

One new item is that our agency has purchased a new group insurance software package which is making us more efficient at tracking customer interactions, requesting quotes as well as providing proposals to our clients.

Some of the nice features from my side of the desk are that I can better build and track requests for quotes. Usually when I make a RFQ one or two companies come back with either incorrect volumes or deviations in the plan designs. This makes it difficult to compare plans, as they aren't apples to apples. I can now track these volume and plan deviations much more simply and clearly so my recommendations are more accurate than ever and clients know exactly what they are going to get.

One of the best features from the clients side of the table, is that when they complete the initial employee census I need to produce a quote, I can turn this around and pre-populate application forms for their employees, which GREATLY simplifies and streamlines the enrollment process. An example is given below.

Neat eh?

--
Robert Reynolds, GBA
Certified Group Benefits Advisor
Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614
rob@hmrinsurance.ca
www.hmrinsurance.ca

E.O. E.

Youtube

2010-08-10T13:10:00.000-07:00

I am on the Youtubes

Believe it or not this was the best take out of about 10...

Olympia Trust http://www.olympiatrust.com/
Great for sole proprietors as it allows you to send in funding with claims, you dont have to prefund the trust.

Benecaid https://www.benecaid.com/
Great for employee groups as there is no setup fee, the trust can be funded monthly, quarterly or annually.

Blog Post on Health and Welfare Trusts http://canadianlifeandhealthinsurance.blogspot.com/2009/10/private-health-services-plans-aka.html

--
Robert Reynolds, GBA
Certified Group Benefits Advisor
Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614
rob@hmrinsurance.ca
www.hmrinsurance.ca

E.O. E.

New Generic Drug Reform Coming to BC

2010-08-03T10:22:00.000-07:00

A new agreement was signed between the B.C. Ministry of Health Services, the BC Pharmacy Association (BCPhA) and the Canadian Association of Chain Drugstores (CACDS). The new Pharmacy Services Agreement, available at www.health.gov.bc.ca/pharmacare/suppliers/psa.pdf will come into effect on July 28, 2010.

The jist of the new agreement is that generic prescription drugs will be price caped at 35% of the Brand Name drug starting in 2012.

If a Prescription Drug costs $100 the generic equivalent can cost no more than $35.

Implications for extended health plans in BC
If you currently reimburse for Brand Name drugs, change the coverage to Generic and save yourself a bundle.
If you currently have paper reimbursement of drugs, you automatically have Brand Name drug coverage, as the insurance companies cannot instruct the pharmacy to dispense the generic at the point of sale.
If you have a paper reimbursement drug plan, you will need to switch to a drug card to allow for a generic drug formulator.

--

Courtesy of Manulife Financial
Generic drug prices to be reduced in BC

The BC Ministry of Health Services and the BC Pharmacy Association (BCPhA) and Canadian Association of Chain Drug Stores (CACDS) have negotiated a new Pharmacy Services Agreement that comes into effect July 28, 2010. Although the agreement is not binding on individual pharmacies, it is expected that most, if not all, pharmacies will comply.

This is good news as plan sponsors will benefit from the cost-savings attributed to lower cost generics on the PharmaCare formulary. The expected savings between October 15, 2010 and July 3, 2011 is about 3.7% of drug costs. This savings will vary significantly by plan depending on the make up of the plan and demographics.

Generic drug pricing
The agreement applies to both public and private payers and the following price reductions will be phased in over the next two years:

Effective date	Description of change	Price compared to brand
July 28, 2010	Generic drugs added to PharmaCare since January 1, 2009	42% of the manufacturer list price for the equivalent brand
October 15, 2010	New generics Existing generics (on PharmaCare prior to January 1, 2009)	42% of brand 50% of brand
July 4, 2011	Existing and new generics	40% of brand
April 2, 2012	Existing and new generics	35% of brand

Dispensing fees
The Ministry also announced increases to the PharmaCare dispensing fee. These increases, although applied to the public plan, will result in a shift in marketplace conditions and will erode some of the savings to private payers.

Effective date	Dispensing fees
July 28, 2010	Moves from $8.60 to $9.10
October 15, 2010	$9.60
July 4, 2011	$10.00
April 2, 2012	$10.50

Manulife will adjust our reasonable and customary fees in accordance with these changes.

Re-investing in Pharmacy Services
The Province will gradually increase the funding available to support pharmacy in the provision of clinical services. By 2013, the Province is committed to investing $35 million annually for pharmacy clinical services.

Manulife will continue to work with the BC government and other industry stakeholders to help ensure that group benefits plans continue to be affordable.

For more information on the changes to PharmaCare in BC:
http://www.health.gov.bc.ca/pharmacare/newsletter/10-007news.pdf

--
TL;DR - Generic Drugs In BC Just got about 50% cheaper!

Group Benefits GST/HST Update

2010-06-30T17:36:00.000-07:00

Courtesy of Sun Life Focus Update

#237
PDF version

The regulations released on April 30, 2010 were enacted into law on June 9, 2010. The impact of the HST on your transactions with Sun Life depends on the nature of the arrangements that you have with us. We can now provide some information to help you better understand how the changes may affect you.

Background

The Department of Finance (Canada) released information on February 25, 2010, called “Place of Supply, Self-Assessment and Rebate Rules for Harmonized Sales Tax” followed by the regulations on April 30, 2010 providing the Place of Supply legislative framework.
Now that the regulations are enacted, we can finalize our administration processes based on the general Place of Supply rules regulations.
Sun Life previously communicated with you about the GST/HST and the Place of Supply rules. Here is a link to the most current communication for your review.

General Place of Supply rules

The overall purpose of the Place of Supply Rules is to determine in which province the supply has been deemed to occur and, therefore, which sales tax rate will apply. The new general Place of Supply rules will rely on the location of the service recipient (i.e. the plan sponsor). Previously, the emphasis was on the location of the supplier (i.e. Sun Life) when determining the applicable sales tax rate.

How will the GST/HST be applied?

For Group Benefit services where GST/HST will apply on our fees, the regulations released by the Department of Finance, as well as the June 2010 edition of the GST/HST Technical Information bulletin released by CRA (B-103 – Harmonized Sales Tax; Place of supply rules for determining whether a supply is made in a province) were used to determine that the GST/HST be applied based on the contract address of the Plan sponsor – not where the service is performed.
For details about the services where GST/HST applies, please refer to the Frequently Asked Questions (FAQ) document attached.
Examples of how the rates will apply:

If a plan sponsor’s contract address is New Brunswick, the 13% HST rate will be used for all invoices/statements mailed.
If the plan sponsor’s contract address is Quebec, then the 5% GST and 7.5% QST rates will be used for all invoices/statements mailed.
If the plan sponsor’s contract address is Alberta, then the 5% GST rate will be used for all invoices/statements mailed

Overview of GST, HST or QST rates by Province:

Province	GST/HST/QST Rate
British Columbia	12%
Ontario	13%
Quebec	7.5%
New Brunswick	13%
Nova Scotia	13% (effective July 1, 2010, rate increases to 15%)
Newfoundland and Labrador	13%
Other provinces/Territories	5% GST

Note: When a Health & Welfare Trust is also the Plan Sponsor, the GST/HST rate will be determined based on the address of that Health & Welfare Trust for all invoices/statements mailed. In situations where the invoices/statements are mailed to a foreign address, we will look at the primary Canadian contract address listed to determine the GST/HST rate.

Other Relevant Details

Ontario Retail Sales Tax (ORST) – 8%
For invoices/statements where HST will be collected, the Ontario Retail Sales Tax of 8% will not apply on the fees. However the 8% ORST will continue to be collected on:

ASO claims cost based on provincial distribution plus ASO fees where HST is not collected
Group insurance premiums

Quebec Sales Tax on Goods and Services - 7.5%
As previously communicated, the new Place of Supply rules became effective on services performed on or after May 1, 2010, in New Brunswick, Nova Scotia and Newfoundland and Labrador.
It is Sun Life’s understanding , based on documents from the Quebec Budget, that the Place of Supply Rules for the QST at 7.5% (8.5% effective January 1, 2011 and 9.5% effective January 1, 2012) will also be effective May 1 , 2010. We continue to monitor this and will update you after the regulations are published.
The new rules will only become effective in Ontario and British Columbia on services performed on or after the July 1, 2010 HST implementation date.

Other Taxes

The only change slated for the other taxes applicable on Group Benefit products and services is in Quebec where the compensatory tax rate has increased from .35% to .55% effective March 31, 2010. This change increased the premium tax rate to 2.55%.

More Information

Here is a link to the Frequently Asked Questionsdocument which may be helpful. You should also contact your tax advisor to ensure you have the information you need to be ready for these tax rates changes.

Survey your employees, find out what they really want in a benefits plan.

2010-06-28T15:59:00.000-07:00

I have recently been doing surveys of my clients employees. I have been asking a series of questions aimed at determining the areas employees value the most. the ultimate goal is to give teh employer hard data they can use to customize their plan. Dollars can be directed to benefits most appreciated by the employees and away from areas with little value.

Which benefits do you value the most? (1 = highest importance, 5 = lowest importance)
Life Insurance
Disability Insurance
Extended Health Care
Dental Care
Critical Illness Insurance

Would you be willing to contribute via payroll deductions to a health and dental plan?
Yes
No

Would you be willing to contribute via payroll deductions, to a health and dental plan if the plan you received was better than if you did not contribute.
Yes
No

If the cost of your benefits plan increased, and your employer was unable to pay the additional cost, would you...
Reduce benefits to maintain the current cost
Maintain benefits at current levels and increase your own contributions

Which Health Care benefits are most important to you? (1 = Highest importance, 4 = lowest importance)
Prescription Drug Coverage
Professional Services such as Chiropractor and Massage
Hospital and Ambulance coverage
Vision Care and Eye Exams

Electronic Drug Cards add approximately 15% to the cost of your benefits plan. Is the convenience of a drug card worth the additional cost?
Yes
No

Would you accept a more basic health and dental plan if you were given a flexible Health Care Spending Account?
Yes
No

Some of the questions are listed below. For a comprehensive survey of YOUR employee group contact me and I would be happy to provide the survey free of charge.

Care for stroke patients: $50,000 in first 6 months

2010-06-16T09:51:00.000-07:00

The Canadian Press

Date: Tuesday Jun. 8, 2010 10:05 AM ET

TORONTO — A stroke can rob victims of the ability to speak or move an arm or leg, but a new study shows it also steals from the bank accounts of those afflicted.

The national study tallied the financial cost of a stroke in the first six months -- to both the health-care system and the patient -- and found the expense adds up to an average of $50,000 per person, with about 20 per cent of that hitting families in the pocketbook.

When the $50,000 total is multiplied by more than 50,000 new strokes per year in the Canadian population, it works out to a whopping $2.5 billion or more a year, according to the Burden of Ischemic Stroke study being presented Tuesday at the Canadian Stroke Congress in Quebec City.

"We wanted to know how much stroke costs the health-care system and patients and their families, and there had never been a national study done on this prior to this," said Dr. Mike Sharma, deputy director of the Canadian Stroke Network.

"We looked at 12 different hospitals spread across the country from Halifax to Vancouver, and we took patients who'd had stroke, after they were leaving the hospital, and gave them a diary and arranged to meet with them periodically afterwards."

Sharma, who's with the University of Ottawa and Ottawa Hospital, led the study with Dr. Nicole Mittmann of Sunnybrook Health Science Centre in Toronto. They looked at the health-care costs of 232 patients.
In their diaries, patients or a caregiver tracked appointments, medications, whether they'd had to buy canes or wheelchairs, or modify homes with ramps or other features to make them safe and accessible. They also factored in how much time a caregiver had to spend away from a job.

Sharma said the grand total came as a surprise to him.
"The average cost over the first six months was $50,000 -- and this is probably about double what I would have estimated prior to this data being available," he said.

The personal tallies ranged from a low of about $2,000 for those who essentially had no disability to more than $200,000 for individuals who were quite disabled, he said.

The average length of stay in hospital after a stroke varies widely. Sharma said Ontario has worked hard to reduce the time, and it's now less than 10 days on average in the province, but "considerably more" in other jurisdictions.

In terms of a breakdown, he was also surprised to find that 80 per cent of the total cost was related to the health-care system, in particular hospitalization, while the other 20 per cent related to lost time from jobs and expenses for families.

"The times where it makes life very difficult are in those individuals who aren't covered with health-care plans, and when the primary breadwinner in the family has been affected by stroke. So there you've got the worst of both worlds. The income for that family declines while their costs go up."

After someone has a stroke, Sharma said medications are needed to prevent more stroke and for depression and sleep issues that arise.

Frank Nieboer of Calgary can speak from experience about the difficulties families face when someone has a stroke. His wife Lou had an aneurysm -- bleeding in the brain -- 33 years ago at the age of 32.
After seven weeks in hospital, she was deemed stable enough to come home, but she was in a wheelchair and had lost the use of her right arm, right leg, her ability to speak, and she was "massively depressed" and crying all the time, he said.
"And here I am, I'm 33, I've got a day job, thank you very much, and what are we doing?" he said. "It's really a learning curve."

Lou's income was wiped out because she had to resign her bank job. Fortunately, Nieboer was in a good financial position and able to get private help for physiotherapy, occupational therapy and assistance working on speech and cognitive processes.

The Nieboers formed a support group in Calgary and have helped counsel many families, hearing in the process numerous stories about the crippling financial burden of stroke.

"A lot of younger families, it results in family breakup," Nieboer said. Sometimes a breadwinner leaves a partner and young children after the partner's had a stroke, and the family must turn to social supports, he said.
Other times, a breadwinner -- for instance a trucker, teacher or lawyer -- can't work because of physical effects, or the impact on the ability to speak. Cognitive processes can also be affected.

"You may present very well from the outside, but a lot of folks have what I call invisible deficits. They can't process information. They can't quickly process and respond," Nieboer said.

Sharma said 50,000 to 60,000 strokes a year are diagnosed, but 10 times that number are covert. It's known they occurred because scars are seen on imaging, but they weren't diagnosed because there were none of the classical symptoms. They are, however, associated with dementia and long-term difficulties.

About 87 per cent of diagnosed strokes are due to blocked blood vessels, while 13 per cent are due to bleeding, Sharma said. There are effective treatments for the blockages, such as the clot-busting medication tPA.

"If we can get at it very quickly in a centre that has expertise and if we give that treatment, we know that the probability of disability is decreased by a third," he said.

"And that is what you need to do to shift that burden from somebody who is significantly disabled to somebody who has absolutely no disability, and consequently shift the cost from those very large numbers down to one-hundredth of them."

Creative Employee Benefits solutions

2010-06-09T16:03:00.000-07:00

Looking for creative employee benefits solutions? Look what some innovative companies are doing for their employees.

Published on Inc.com (http://www2.inc.com)

10 Perks We Love

Pressed for time

McGraw Wentworth, a provider of group benefits, offers on-site pickups and return of clothes that need laundering.

A free ride

Workers at Cooper Pest Solutions can use company vehicles for their commutes. Light trucks for service technicians; Toyota Scions for sales folks.

Lunch is served

Dealer.com, which helps auto dealers with their online marketing, serves locally grown organic treats in its on-site café. Employees can have their subsidized meals delivered deskside.

Swept off your feet

Akraya, an IT staffing company, sends professional cleaners to employees' homes every two weeks.

Bonus prizes

Van Meter Industrial, a distributor of automation and electrical products, awards points for activities such as participating in its Biggest Loser contest and walking campaigns. Employees redeem points for personal fitness items, such as running shoes, golf clubs, and jogging strollers.

Do your own thing

Azavea, a maker of mapping software, follows Googlesque practices of letting employees spend up to 10 percent of their time on research projects of their own devising.

Bon voyage!

LoadSpring Solutions, an enterprise software company, believes people grow by experiencing other cultures. Employees who travel abroad for vacation receive up to $5,000 and an extra week off to expand their horizons.

Bring the kids

Fentress Architects invites employees' relatives to participate in some of the evening and weekend classes offered through its in-house education program.

Dinner's on us

After five years at NewAge Industries, a manufacturer of plastic tubing, each employee receives a yearly $720 charge card to use in the restaurant of the William Penn Inn, a 296-year-old landmark near the company's headquarters in Southampton, Pennsylvania.

Helping you help out

Patagonia, the outdoor-apparel maker, gives employees two weeks of full-paid leave to work for the green nonprofit of their choice.

Source URL: http://www2.inc.com/ss/10-perks-we-love

Links:
[1] http://www.inc.com/top-workplaces/2010/profile/new-york-jets-woody-johnson.html
[2] http://www.inc.com/ss/portionpac-great-place-work
[3] http://www.inc.com/top-workplaces/2010/index.html
[4] http://www.inc.com/top-workplaces/2010/a-look-inside-the-un-factory.html
[5] http://www.inc.com/top-workplaces/2010/how-to-build-a-beautiful-company.html

Generic Drugs Vs. Brand Name Drugs

2010-05-27T09:29:00.000-07:00

I found this great Infographic on the differences between Generic and Brand Name Drugs. Hat tip to Mint.com where I found it.

The Future

2010-05-25T14:31:00.000-07:00

I have a new carrier I have been working with for about 6 months or so now. Their name is Benecaid, and I think they have one of the best product offerings availible today. They have a nifty little 7 minute video which I uploaded to Youtube that explains it all really well.

This is the Future of benefit plans.

A Benefit plan – The Basics

2010-05-21T11:53:00.001-07:00

You are a business owner, an employee comes to you and asks if you would pay for their dental bill. You agree, congratulations you just started a benefits plan.

Now what if that same employee has an embarrassing medical condition, you said you would pay for their bills, but the employee doesn't want you to know about their private medical history. We now have a need for a third party who can process the claims confidentially. These third parties are usually insurance companies or trust companies.

There is a possibility that the employee could have very expensive medical claims down the road, possibly in the tens of thousands of dollars. As a business owner that is too much of a risk to take on by yourself, you still want to provide the benefits, but not be on the hook for a huge claim. An insurance company will gladly take that risk for you in exchange for health insurance premiums.

Another way to limit your liability is to simply say that you will pay for expenses up to a certain dollar amount, but no more. This is the basis of a Health Spending Account, every employee gets a predefined amount of money they can spend on healthcare and once it is gone, the business is no longer liable.

Through both insurance and a dollar maximum the business owner can control their liability. But what if employees start to abuse the benefits? What if they start claiming expensive cosmetic procedures like Botox, or gold teeth? Plan designs can be put in place to control what is eligible and what is not eligible.

Governments like healthy citizens, so benefits payments are given preferential tax status. Paying for medical or dental claims is a deductible business expense for the business owner, and the cost is not added to the income of the employee. This way the business gets a write-off and the employee doesn't pay income tax on the benefit they receive. Because of this taxation the benefits payments are far more affordable than paying a similar raise or bonus.

Is you benefits plan in the crapper? We can help flush away your problems!

2010-05-11T17:30:00.000-07:00

I take business seriously, but I find it all too easy to make fun of myself.

This is a stupid little video I made for a friend (Chris Vleck of Strategic Insanity) who was doing a "How NOT to make a promotional video" seminar. There were other videos with poor framing, bad sound, terrible lighting and loud background noise. This just happens to be my favorite.

I never miss an opportunity for self deprecating humor!

A tooth ache can be taxing.

2010-05-10T12:31:00.001-07:00

Claims paid through a Dental Plan are Tax Free!

No Dental Plan

Salary                      $1438

Taxes (30.5%)*               ($438)

Net for Dental Claim            $1000

Vs.

Dental Plan

Dental Claim (non-taxable)        $1000

Taxes (0%)                 $0.00

Net for Dental Claim           $1000

Tax Cost Difference $438

*income of $62,000 average BC combined provincial and federal tax rate 25.22% ($12,485), Employment Insurance Employee and Employer Contribution 4.15% to $43,000 ($1784), Canadian Pension Plan Employee and Employer contribution 9.9% of $47,200, ($4672). Total taxes and deductions, ($12,485 + $1,784 + $4,672 = $18,941) effective average tax rate 30.5%

Why Price sometimes doesn't matter

2010-05-07T11:51:00.000-07:00

When thinking about how Health and Dental insurance is priced it is easy to get confused.

Because these benefits are usually "Expereince Rated", that is to say high claims beget high premiums, and low claims beget low premiums, price is really determined by the claims, not the insurance company.

If I compared two identical groups, but one claimed $10,000 a year, and the other claims $20,000 per year, there would be a direct correlation in the premium they pay. Moving the high claiming group to a different carrier isnt going to reduce their premium to $10,000. Maybe you can save a bit on Admin expenses (refer to last weeks post comparing Manulife and Wawanesa) or maybe the carrier is willing to take a loss in the first year to earn the business, but in the long run your premiums are going to be based on your claims.

Sure there is some pooling going on, and one carriers pool might be better than the next, but over time this pooling drops away, and we are never given info regarding the pool. Is the group in the fancy French springwater pool with great claims? or in stinky sewage pool?

When it comes down to it, if you are happy with your carrier and they are doing a good job you should consider staying with them. That is of course assuming "good job" encompasses things like fair renewals and efficient TLRs.

At the end of the day, if you take away the marketing dollars, the new business discounts, and the other fluff that clouds the way, two identical groups with identical claims but different carriers should see the exact same rates.

Lisa Needs Braces

2010-04-30T12:40:00.000-07:00

Group Insurance Quotes

2010-04-30T10:47:00.000-07:00

I've been busy running quotes for a few new group clients, as well as marketing a few existing groups to ensure prices are competitive. This hasn't left a lot of time for blogging. So I thought I would just post the stuff I have been working on. Below you will find a quote comparison for a group of mine, name removed for privacy. The group is currently with Benefits By Design, they are getting a 13% increase in their renewal rates, which I think is somewhat unjustified. So I have marketed the group to a number of carriers, I have included 5 in the comparison (Manulife, Equitable Life, Sun Life, Wawanesa and Great West Life). I have worked with all of these carriers and have confidence in the service and support they provide. As you can see the rates do vary from carrier to carrier, with Great West Life being the most expensive, though still providing a savings over BBD's original renewal. Manulife looks artificially cheap because they declined to quote on Long Term Disability for this group, we would need to add about $600 or so, to their premium, involve another carrier, possibly double up on some Life Insurance etc. so they have been eliminated from the running.

Sun Life is next in line, they are actually providing a savings of $278 per month over what the group is currently paying. This concerns me slightly as I think this is too cheap, I believe there is some heavy discounting going on here and that at next renewal there will be a corresponding increase. If the client is ok with the fact that next renewal will be high, than I have no problem taking the discount, but the client has to be aware of what they are getting into.

Equitable Life looks pretty good, both rates and efficiency wise. You will notice under health and dental the Target Loss Ratio (TLR) field. These number show how much of the premium is directed to claims and how much goes to admin. Ideally you want higher TLR's as this provide more money to pay claims, and less to overhead. Equitable is running 77.8% for health and 78.8% for Dental, this is far better than the current 73.4% and 75% BBD is providing. Wawanesa is the most efficient at 79.7% for both Health and Dental.

A Good example for looking at TLR efficiency is to compare the Health Care rates of Wawanesa with Manulife. Manulife has the less expensive premium of $2069 for health care, but also a lower TLR of 76%. Wawanesa looks more expensive at $2344 but has a higher TLR of 79.7%. When you compare dollars to dollars,

Manulife comes up with $1572 directed to claims and $497 in admin.
Meanwhile
Wawanesa comes up with $1868 directed to claims and $476 in admin.

So while Manulife "looks" cheaper on the surface, Wawanesa will pay more claims, and also charges a little less in admin. At the end of the day having more money funneled to claims means better renewals and more stable premiums.

Assuming the client is comfortable with a sizable renewal next year I would be recommending Sun Life for a combination of best premium, meeting the plan design requirements, as well as having good service and support. If the client isn't comfortable with the idea of a large renewal then my fallback position would be Equitable Life.

More news on HST

2010-04-14T09:32:00.000-07:00

Message sent on behalf of Nick Pszeniczny, Executive Vice-President, Distribution, and Rick Rausch, Senior Vice-President, Individual Retirement Investment Services.

Copies have been sent to regional directors, operation managers, Investment Managers and Consultants, Investments Administrative Coordinators, field management and administration personnel and staff associated with Individual Retirement and Investment Services.

Important information regarding the Goods and Services Tax and Harmonized Sales Tax – Impact on mutual funds and segregated funds

Effective July 1, 2010, expenses charged to investment funds and all investment management and advisory fees will be subject to the Harmonized Sales Tax (HST) in Ontario, British Columbia, Nova Scotia, New Brunswick and Newfoundland and Labrador.

The HST, a federally-administered tax, combines the Goods and Services Tax (GST) and the provincial retail sales tax (PST) into a single sales tax. The HST is new in Ontario and B.C., while new rules now make the tax in the existing HST provinces applicable to all funds.

What are the tax rates?

Province(s)/Territories HST rate
British Columbia        12% (5% federal and 7% provincial component)
Ontario, New Brunswick, , Newfoundland and Labrador     13% (5% federal and 8% provincial component)
Nova Scotia

15% (5% federal and 10%

provincial component)

(as of July 1, 2010)

Alberta, Manitoba, Prince Edward Island, Quebec, Saskatchewan, Territories 5% federal GST only

What’s taxable?

The HST will apply to GST-taxable services that are charged to investment funds as well as to any investment management or advisory fees that are paid outside of the fund. These services are currently subject to five per cent GST. The HST will also apply to other services already subject to GST, for example annual trustee fees for RRSPs, RRIFs and RESPs.

The HST will not apply to expenses or fees that currently are not subject to GST such as insurance premiums (including premiums paid for benefit riders on segregated fund policies).

You may have seen media coverage of a proposed change in the definition of a financial service for GST purposes that would have the effect of introducing GST on commissions related to the sale and service of investment funds. Industry associations have opposed the nature and timing of this change in policy.

Federal Finance Minister Jim Flaherty has recently stated that no change in existing policy was intended, but rather just a clarification that all services previously taxed would continue to be taxed. This clarification was required following some 2009 court decisions against the Canada Revenue Agency (CRA) in this regard. We await confirmation from the CRA of the minister’s position.

What does this mean for investors?
The HST means a higher tax rate will apply to investment funds effective July 1, 2010. This will increase the costs incurred by the fund, where such costs are paid at the fund level, and for investors directly, where such costs are paid by the investor. Only half of the increase will be felt in 2010 due to the timing of the change.

How will the tax apply?
The specifics of how the HST will apply are not yet fully known. New rules defining what rates apply have been released for some sectors and discussed with industry representatives for others. We have been working with the federal, Ontario and B.C. governments for many months to try to address the challenges of applying various tax rates to a pooled product like investment funds. Industry associations continue to express concerns regarding the effects of this tax on Canadians’ ability to save and invest for retirement and other purposes.

We will provide further detail once the government publishes the final regulations.

Ontario Drug Reform

2010-04-13T10:10:00.000-07:00

The Ontario government is bringing in some interesting new changes in connection with their pharmacy laws. Manulife has a good little writeup on what is happening. In a nutshell to get pharmacies to stock generic drugs over brand name drugs, the generic drug companies are paying kickbacks to the pharmacies. These kickbacks increase the cost of the generic drugs. The government is putting a stop to these kickbacks and as a result dropping the cost of generic drugs. I think this is a great move by Ontario, and I would expect similar legislation to come to other parts of Canada in the near future if the plan succeeds.

On Wednesday, April 7 the Ontario government announced plans to reduce the price of generic drugs*.

If the new rules are approved, the price the pharmacy will be allowed to charge for a generic drug will be reduced to 25 per cent of the cost of the brand name drug. Currently, generic drugs cost group benefits plan members (and cash paying customers) between 60 and 70 per cent of the brand name price.

The change will affect the generic drug prices paid by
the provincial drug plan,
employer-sponsored group benefits plans, and
individuals who pay for their medications out of their own pockets.
For employer-sponsored group benefits plans and individuals without a drug plan, the price reduction will be phased-in as follows**:

Date

Generic drug price

April/May 2010

Prices reduce to 50 per cent of brand price

April 1, 2011

Prices reduce to 35 per cent of brand price

April 1, 2012

Prices reduce to 25 per cent of brand price

For the public plan, regulations will be posted for 30 days at which point it is expected that the prices will be reduced to 25 per cent. Further clarification is required to determine if there will be a period for pharmacies to dispense existing stock at the old price.

Drug use in Ontario:

Brand versus Generic

Brand name drugs

76 per cent of sales

Generic

24 per cent of sales

At the same time, the government announced the following:
If approved, legislation will phase-out the professional allowances that are paid to pharmacists by generic drug companies. The government said these allowances have kept the price of generic drugs higher. Professional allowances will be eliminated on the public plan once legislation takes effect.
Dispensing fees paid to pharmacists by the provincial drug plan (Ontario Drug Benefit Program) will increase by $1 to $8. In rural areas, the dispensing fee increase will be up to $4. The additional money for rural pharmacists is intended to help maintain easy access to medicine by residents in isolated areas.
Dispensing fees paid by the provincial drug plan will then increase by 2.5 per cent annually over the next five years.
A $100 million fund will be created to compensate pharmacists for new professional services that they will be allowed to deliver to patients. This is in addition to the MedsCheck program that already exists.

At this time, Manulife Financial is reviewing the implications the changes might have on plan designs. Manulife Group Benefits commends the province of Ontario for taking these actions to help
control drug prices and give the people of Ontario access to affordable medicines,
deliver better value for tax-payers, and
protect employer-sponsored drug plans and the coverage they provide to millions of Ontario residents.

For more information visit the Ontario government website
Ontario.ca/drugreforms

*Generic is the term used to describe a drug product that has the same active ingredients as a ‘name brand’ drug but which is sold at a lower price. Laws prevent generic drugs from being manufactured until a name brand drug’s patent protection has expired.

** Based on information made available to the Canadian Life and Health Insurance Association at the time of publication.

© 2010 The Manufacturers Life Insurance Company. All rights reserved.

Manulife Financial and the block design are registered service marks and trademarks of The Manufacturers Life Insurance Company and are used by it and its affiliates including Manulife Financial Corporation.

Target Loss Ratio?

2010-04-07T12:38:00.000-07:00

In a nutshell a TLR is the ratio of administrative expenses to claims payments. Every plan has expenses, paying claims, paying commissions, printing booklets, etc. These expenses are part of the overall premium you pay. At renewal time the insurance company seperates these expenses from your claims to determine your new premiums. Aside from plan design changes, the biggest impact you can have on premiums is reducing your administrative expenses, this translates into a better or higher TLR.

As a group grows they start to benefit from economies of scale and the TLR improves. A group of 10 members might have a TLR of 70%, which when flipped around means that expenses were 30% of premiums paid. A larger group of 100 might have a TLR of 85%, so expenses were only 15% of premiums. The higher the TLR the better.

Each insurance company has a differnt level of expenses, some of the more "value added" carriers like Great West Life, and Manulife tend to have a lower TLR becuase they provide more services and benefits all of which cost money. Some of the more basic providers such as Wawanesa, who dont have as many bells and whistles, can do things for less and have a better TLR.

For example I often find the big 3 (GWL, Sun, Manulife) will have the same TLR for health care and dental care.But if you actually look at claims settling expense dental care is FAR cheaper to administrate than health care. Furthermore, dental care doesnt require a stop loss charge in the event of a catastrophic claim.

One thing I really like about Wawanesa is they are one of the only carriers I am aware of, that charges a different TLR for Health Care vs. Dental Care. The Target Loss Ratio for Health might be 80%, while the Dental Care TLR is 85%. Most carriers would charge 80% for both, and pocket the difference.

So aside from the cost of expenses, what does a Target Loss Ratio mean to you the client? It can mean lower premiums.

Lets assume that we had a group with $50,000 of health care claims. Their current carrier has a Target Loss Ratio of 75%, in other words they require 25% to administrate the plan.

We can work backwards from the claims, and the Target Loss Ratio to find the premium the group would pay. The Total Premium for the group would actually be (50,000 / 0.75) = $66,666

75% of the premium is $50,000 in claims, and 25% of the premium is $16,666 in admin.

Given the same claims of $50,000 how much could the client save if they had a better TLR of 82%?

($50,000 / 0.82) = $60,975.60
By switching to a carrier with a better Target Loss Ratio the client would save $5,691

A trick I sometimes see inolves this same princple but working backwards. I will get a quote from a competing insurance company, which is cheaper than the existing coverage, however, the TLR is far poorer than the current carrier. Even though the premium looks cheaper, there are be fewer dollars directed to paying claims. This often results in a higher renewal next year.

Example:
Current premium $10,000
Current TLR = 72%
Dollars directed to claims = $7,200

Competing premium $9,500
Competing TLR = 65%
Dollars directed to claims = $6,175

So while the competing quote looks to save 5% over the current plan, the drop in TLR actually results in fewer dollars being used to pay claims, assuming the claims were actually the $7,200 budgeted in the current plan, the competing plan would need to raise rates by $1025 (ignoring trend etc) which makes the new carrier actually MORE EXPENSIVE than the current plan.

Take a look at your Target Loss Ratio and what you are getting for your premium dollars. If you don't need all the bells and whistles you might want to look into a more budget carrier who charges less.

Renewal Reports

2010-03-30T16:56:00.000-07:00

I think I have some of the best Renewal Reports around. I have never once run into a more detailed renewal report from another adivisor. I produce a 21 page reviwing past claims, future trends, and specifics of each group. This is all above and beyond the base report that the insurance companies always produce. I include industry news, health care surveys, taxation worksheets, important reminders and a wealth of other information.

Sample Renewal (PDF)
This is an actual renewal from this month, I have redacted the name of the client for obvious reasons.

Examples of inserts
Cost Saving Plan Design Tips
Health Care Trend Survey 2009
Benefits Plan Taxation

If you want MORE information in your renewal, so you can make better decisions regarding plan design, carrier, usage etc.; Give me a call

/sales pitch

I'm having a good day today

2010-03-29T13:45:00.000-07:00

I just got a negotated renewal back from an insurance company (Sun Life) for one of my larger clients.

Current Premium $17,290.14 per month
Original Renewal $18,704.62 per month (8.2% increase)
Negotiated Premium $17,385.05 (0.5% increase)

Negotiated Savings $15,834.60 over the next year.

I love it when i can save my clients nearly SIXTEEN THOUSAND DOLLARS, it makes me feel all warm and fuzzy inside.

HST on Insurance and Investments

2010-03-24T10:17:00.000-07:00

I just received an email from Advocis, the insurance and financial services association I'm a member of. The topic was on GST/HST Notice No. 250

CRA has indicated that trailer commissions, front-end
load commissions, deferred sales charges, commissions on various
insurance products and redemption fees paid by investors do not constitute a
supply of a financial service and will be subject to GST. It is not clear at this
point in time whether financial advisors will be required to register for GST
purposes and remit GST.

Currently the insurance and investment products are exempt from PST/GST/HST. Its been this way for years. In this latest notice CRA has indicated that they have decided to remove this exemption from certain policies. That means any new insurance or investment policies will now be GST-able or in BC HST-able. That means we have gone from no sales tax to 12% overnight. There is nothing in the notice which indicates who gets to deal with this change. Do the insurance companies take over the administration of remitting the tax? Does every advisor now need to register for GST/PST/HST? Unlike some products where the CRA says HST will actually lower prices because there will be a "flow-through" of PST that will not be the case with this change. There has never been GST or PST anywhere in the supply chain so we cannot pass along any savings. Furthermore, as well as the tax, there is going to be added cost in administration of these policies so base costs will be going up as well.

I think this is a terrible idea, why would the CRA want to discourage people from investing and purchasing insurance? Last time I checked CRA makes buckets off taxes on investments.

CRA has provided some handy dandy examples of when the service would be deemed non-exempt. according to the example below. CRA doesn't clarify exactly how this will apply to real world commissions, does it impact the commissions paid to the MGA? what about overrides or bonuses?

Example 2
In the course of providing services to investors, an investment dealer arranges to purchase units of a mutual fund for an investor. A commission is paid to the investment dealer at the time the units are purchased. In addition, the investment dealer will receive a fee referred to as a "trailer commission or fee" from the fund manager. The prospectus describes these fees as being paid in recognition of the investment advice and ongoing administrative services rendered by the investment dealer to the investors. The “trailer commission or fee” is paid annually subsequent to the arrangement for the purchase of the units. The services provided by the investment dealer, including advice, arranging for the purchase of the units and on-going administrative services for which the investment dealer is paid the commission and subsequent fees would not be a supply of a financial service.

For example, If I were to invest $100,000 of your money in an RRSP, I would be paid a commission of approximately 3% or $3000 (for a back end load policy), however, the MGA I placed the business through would also get paid 2%, for a total of 5%. Now is the 3% taxable or the 5%? We are talking CRA here, so lets assume they are going to be greedy and they tax the 5% commission paid to the MGA and the advisor. In BC the HST will be 12% so we are looking at 12% HST on $5000 of total commission. That is $600 in new taxes you will have to pay. This new tax just cost you 60 base points of return.

Furthermore, CRA is proposing that these changes be effective Dec 14, 2009. a full three and a half months in the past!

Coming into force
These proposed amendments would apply to investment management services rendered under an agreement for a supply if any consideration for the supply becomes due or is paid without becoming due after December 14, 2009. They would also apply to an investment management service rendered under an agreement for a supply if all the consideration for the supply became due or was paid on or before December 14, 2009, unless the supplier did not, on or before that day, charge, collect or remit any amount as or on account of tax in respect of the supply or in respect of any other supply that includes an investment management service and that is made under the agreement.

This means every advisor or insurance company has to go back into their records, and somehow collect GST on past sales? lunacy!

More as this unfolds.

Please allow 6-8 weeks for delivery

2010-03-19T13:29:00.000-07:00

I recently read somewhere (an now I have forgotten where, DOH) that it takes an average of 39 days to issue a life insurance policy from start to finish. That's a long time, and sadly I would say it is probably accurate, if a little on the optimistic side. I personally have two policies I have been working on for well over 6 months. One of which dates back to August 2009. In the good old days, or so I am told, it used to take a work week to get a policy issued.

Day 1: The advisor meets with the client and writes up the application.
Day 2: The application goes in the mail to the insurance company.
Day 3: The underwriter reviews the application and decides to issue or decline the policy.
Day 4: The policy goes back in the mail to the advisor
Day 5: The policy arrives on the advisors desk for delivery to the client.

These days things aren't so simple or so speedy. We have all sorts of things which add time, complexity and frustration to the process. The modern day time line looks something like this:

Day 1: The advisor meets with the client and writes up the application. The client forgot their cheque book, and since insurance companies no longer accept credit cards as payment no temporary insurance policy can be issued. The client really wants the temporary insurance so will get the advisor a cheque in the near future.

Day 6: The clients cheque arrives so the temporary insurance can be issued. The application is mailed to the Managing General Agency (MGA). The MGA acts as a middle man coordinating, problem solving and expediting between the advisors on the ground and the insurance company head office.

Day7: In the mail

Day 8: The application is received by the MGA, copied, sent to the insurance company

Day 9: In the mail

Day 8: The client completes the mandatory medical examination.

Day 14: The underwriter receives the application and the medical results. There is something missing, or a question, from the medical exam. An Attending Physicians Statement (APS) is ordered.

Day 16: The doctors office receives the information request and promptly ignores it for two weeks.

Day 30: The doctor finally completes the APS

Day 32: The Insurance Company receives the APS report from the doctor. In the meantime, the clients drivers license has expired and proof of the renewal needs to be provided.

Day 35: The advisor receives the new expiry date on the clients drivers license and sends it to the MGA.

Day 36: The MGA forwards the drivers license to the insurance company.

Day 38: The motor vehicle record search with the new drivers license shows a speeding ticket within the last 3 years, a motor vehicle questionnaire needs to be completed by the client. the Insurance company sends the request to the MGA.

Day 39: The MGA forwards the information to the advisor.

Day 40: The Advisor informs the client that a driving questionnaire needs to be completed. The client is on holidays for the next week, an appointment is scheduled for 9 days from today.

Day 49: The motor vehicle questionnaire is completed and forwarded to the MGA

Day 50: The MGA receives the questionnaire and forwards it to the insurance company.

Day 56: All the outstanding items are accounted for. The policy is approved and issued.

Day 58: The policy is printed in eastern Canada, it is mailed to the MGA.

Day 61: The policy is received by the MGA, they make a copy, add a pretty cover and forward it to the advisor.

Day 62: The policy arrives in the advisors office, the date of birth is incorrect. The policy is returned to the insurance company to be corrected.

Day 70: The correct policy is received by the advisor for delivery.

Day 72: The policy is delivered to the client.

I have had each and every one of the problems listed above happen, though not usually all on the same policy. The example above is exaggerated for comedic effect, but not by much. The system in place is so slow, chaotic and error prone it makes my head hurt at times. With MGAs, AGAs, different insurance offices and the like; the time it can take to get a policy issued can seem like eons. I know why they got rid of 5 year term, by the time the policies were issued, they had already expired. I harp on MGAs sometimes, but they do keep me on track and up to date on the progress of my clients applications. The insurance companies and MGAs aren't all to blame, I screw up sometimes too. My most recent disaster involved writing up an application with a client, only to find out that the paper form was out of date, and was invalid. a second appointment with the client had to be scheduled to go through the new app which I swear was exactly the same as the "old" one. How embarrassing.

So what can be done?

Every few year there seems to be a big push by one company or another to embrace electronic applications, but they always flop. Scanning and email are great for removing postal delays, but electronic signatures are still not accepted. The incredibly low rates for insurance we enjoy these days are due in part to extra diligence of the insurance companies. This extra diligence takes extra time, be it medical records or additional questionnaires. I have started the habit of sending two copies of everything, originals to the insurance company and a copy to the MGA. This adds time and effort on my end but has thus far improved my turnaround time slightly.

I honestly don't have an answer, problems occur all throughout the chain

Advisor
Client
Courier
MGA
Doctors
Insurance company
Paramedical company
Reinsurance companies

If there is anyone working in logistics at UPS or FedEX and you want to earn a bundle in consulting fees please help us fix our system, it's broken.

Critical Illness Insurance Stats

2010-03-17T15:23:00.000-07:00

The below is copied verbatim from a stats package I recieved from Industrial Alliance Pacific on Critical Illness Insurance. I thought the page was very informative so I have simply posted it below. Original PDF is available here.

Whether it’s cancer, heart disease, multiple sclerosis or stroke, it’s difficult to predict who will be affected by these diseases.

Statistics, however, have a lot to say about those who fall ill and can be a cause for concern.
In 2007, 2,933 cancer cases were diagnosed each week
70% of cancer-related expenses result from indirect costs
In Canada, one woman in nine will be stricken by breast cancer during their lifetime
One in four Canadians will suffer heart disease during their lifetime
One person in 20 will be the victim of a stroke
60% of strokes cause long-term disability
Luckily, statistics also show that medical advances and improved lifestyles are contributing to patient recovery from these and other illnesses in addition to helping people live longer lives.
55%* of people afflicted with cancer will recover
82% of people will survive their first heart attack
75% of people will survive their first stroke
* Statistics can be higher or lower depending on age, sex, and the type of cancer.
Sources: Canadian Cancer Society, Heart and Stroke Foundation of Canada

TL;DR Critical Illness is Cancer Insurance.

Renewal maths

2010-02-18T13:14:00.000-08:00

I was talking to a rep in another company about the Manulife renewals and they looked at the blog post. He commented that I had used very very simplified math to determine the renewal. This is true, I didn't feel like getting into the nitty gritty at the time of the post. We went back and forth on how their company actuaries price renewals and how I as the advocate of the client price renewals. We have some differences but here is the email exchange to clarify how we each do it.

I originally responded with a more detailed explanation of my process, and he then responded with his comments in red.

Company rep is in RED, I am in BLUE

More detail on the math I use for renewals

Incurred Loss Ratio = incurred claims / paid premium

Incurred Loss Ratio – TLR = over-under for the year.

this one should actually be ILR / TLR = over/under for the year. Again, it'll show us making more on the good years, losing more on the bad years.

Manulife case I used in the blog
Incurred claims = 6583
Paid premium = 10411
ILR = 63.23%

ILR – TLR = over-under
63.23%-75% = -11.77%
So Manulife made profit of 11.77% this past year. The client overpaid, so they should get that back next year.

Based solely on the 63.23% number, there's actually 15.7% "extra" in last year's premium if you go by ILR / TLR. If last year's claims were 6583 with a 75% TLR, overall premium should have been $8,777 to hit the TLR, instead of 10,411. (10,411 - 8,777) / 10,411 = 15.7% excess premium instead of 11.77%.

Adding in trend factor of 8%
Past claims were 6583 x 1.08 = 7109
Next years claims should be 8% higher at $7109 if they follow trend.

The main challenge with using past claims is it doesn't reflect any of the demographic changes through the year and isn't very accurate. Don't get me wrong, EVERY group advisor uses this method ... but the only time it's correct is when you haven't had ANY demographic changes to a group over the year. Let's use an example of a 10-life group that ran right at break-even last year. So, last year they paid 10K in premiums and received $7,500 back in claims, to run right at 75%. If we had only those 10 people on the plan throughout the year with no changes and we have only those 10 on at renewal, this method works. But, let's use an extreme example of this group adding 5 new people the day before the renewal is run. Well, our claims would still be $7,500 last year, but we now have 50% more people on the plan who will use it next year. If we just said this group needs 7,500 x 1.08 for trend, we'd be 50% underfunded because of employee changes.  Because of constant employee changes, it's hard to say that claims were $7,500 last year, they'll just be 8% higher next year. What we can say is the group ran right at break-even last year, so what %age change to rates next year is required? This is an extreme example for sure, but illustrates the point.

If the TLR is 75% that means they need 25% admin on top of $7109

If TLR is 75%, that actually means 33% admin is required on top of $7,109. The 75% represents how much of each dollar of premium you collect you want to pay out in claim. So, for every dollar collected, the insurer wants to pay out 75 cents. What that means is top pay out a dollar of claim, 1.33 (1 / .75) needs to be collected.

7109 / 75% = $9478 in annual premium for next year.

This is correct, but again $9,478 is actually 1.33 of $7,109.

Drop the 11.77% the client overpaid from last year

9478 x(0.8823) = 8362

Correct, assuming NOemployee changes at all throughout the year or for next year.

So the next years premium should be $8362 (assuming I did all my math right... it’s been a long day and im kinda sleepy)

Odds are the claims will be higher than TLR but that is just the ebb and flow of the over-under funding that is going on, rates will go up the following year and vice versa, in the long run it will even out. Manulife made a profit this year, so next year it is only fair for the client to be in a winning position. That being said I know Manulife will never provide a discount that I am asking for as they know it means they will take a loss in the next year, but if I go in low they will usually give me their best rate, with their biggest discount. I don’t always get what I am asking for but as long as I get every cent they have to offer I am content with that. When I crunch all the numbers I usually end up with a lower rate than the quick/easy way, but that said even the quick way shows the client should be getting a discount, and they were asking for a double digit increase.

Again, I think your philosophy of getting what you can for the client is very solid. And, speaking purely from my perspective, when an advisor asks me to review a renewal, I'm always a lot more amenable to revise rates if the advisor actually has some form of reasoning for asking! Some still show up saying "drop your rates or I'll move the case" which usually garners a pretty quick "Have a nice day" from me, but having someone put some thought into it and saying "your rates are too high because..." usually gets a lot more love. I'm assuming it's the same with other group reps as well, so I think the way you approach it is the best way, regardless of whether the math would pass the actuary exam or not!

Its a lot of numbers but thats how I do it. Still not taking into account credibility, past experience etc but for a year over year renewal thats the process I use more or less. Again, its been a long day, and I had to fix a few mistakes I made so I might have done something wrong.

So that's my process more or less, if there are changes to the demographics or certain oddities like a sick employee or odd claims I will adjust how I do things accordingly.

TL;DR the manulife renewal I commented on previously should have ended up with a new annual premium of $8362 which is a 19% decrease, like I say above I don't expect to get that from Manulife or any carrier for that matter but I do expect close to the $9478 number which is a 8.9% decrease, a larger decrease than my original post I might add. Manulife proposed a rate increase of +10.95% which is simply not acceptable.

I do have some good news though, after talking with my Manulife rep, we were able to settle with a final rate change of -5%.

Thanks Manulife.

Look in the mirror and say their name three times: Manulife, Manulife, Manulife

2010-02-05T12:39:00.000-08:00

I think they were listening, from Google analytics of the blog. Lets see if they do anything about it. They haven't contacted me yet.

Manulife your group renewals SUCK

2010-02-03T18:37:00.000-08:00

I have been contacted by Standard Life in the past for kind words I wrote here on their behalf. Apparently they have internet monkeys scouring the inter-tubes looking for any reference of their company name, so here is hoping Manulife is listening.

I've recived three group insurance renewals in the last few days from Manulife. They have all sucked, hard. The rates they are proposing are a joke. I am used to Manulife and other carriers trying to get away with a little bit of extra fat on a renewal, but these have been a joke. Clients with good claims have been hit with increases when a decrease should have been provided. God help the clients with bad claims, they might as well just pack up and go home. I dont know if Manulife is trying to lose business or what?

For example: I'm working on a renewal right now which takes effect March 1 2010. Carriers usually provide the claims and premiums paid for the past year less a month. So the March renewal should have March 1 2009 to January 31, 2010. Maybe 2 months of lag, so claims too the end of December. Manulife's renewal only has experience to October 31, 2009. What about November or December? I know it takes time to prepare a renewal and the claims aren't always up to date but October? Come on, you can do better.

Same group, dental premiums paid $10,411.20; total claims incurred $6,568.92 or 63% of premium. Manulife says their administration is 25% of premium and trend is 8%.

Sooooo 63% plus 25% plus 8% = 96% of premium paid.

I see this and expect a 4% decrease in rates. What does Manulife ask for? 10.95% INCREASE, are you insane? That's a 15% spread who are you trying to fool?

Same thing for another group, claims are 96% of premium, ok thats bad, claims are high, the target was 75% so they are 21% over, an increase is justified. Trend is 15% for health, admin is again 25%.

96% plus 15% plus 25% = 136% of premium, so a 36% increase is justified.

Manulife wants 48.33% increase. NO just NO. I talk to an underwriter and they inform me they have already reduced the rate internally, the original increase was going to be north of 60%. I'm dumbfounded. Manulife originally calculated that they needed nearly double the rate increase I consider fair.

Manulife, if your reading this, PLEASE look at your underwriting, the rates you are coming up with are totally out to lunch. There is no way I can support rate increases like this, it is hard enough that I have to fight you every renewal to get a fair rate but when you are asking for colossal rate increases when none is justified, the client is just going to go elsewhere. You are a good carrier, one of the best, your admin and website rock, you pay claims quickly and accurately, but your pricing sucks.

Brutal.

Gamble with a guarantee

2010-02-02T15:24:00.000-08:00

Segregated Funds have maturity guarantees. This means that after 10 years (usually) if you have lost money, the insurance company has to pay you back either 75%, or 100% depending on the contract, of your money. Here is the first such occasion where our office has seen this happen. The image above is an actual RRSP statement we received recently. Personal information has been redacted for privacy reasons. As you can see the original deposit (Net Transaction) was $58,218.41 this was deposited nearly 10 years ago on Feb 25, 2000. The client had invested heavily in the NASDAQ index and we all know how that went.

NASDAQ index from 1999 to 2009 - OH GOD IT BURNS.

So in about three weeks, this client will be receiving a cheque from Industrial Alliance Pacific for 100% of his original investment, $58,218.41 A pretty terrible rate of return for 10 years of time, but far far better than the loss he would have otherwise be stuck with.

Segregated Funds, it's whats for breakfast.

Trading liquidity for certainty with an annuity

2010-01-26T11:34:00.000-08:00

Great article in the Globe and Mail on the Insured Annuity concept.

Tim Cestnick

Published on Thursday, Jan. 14, 2010 12:00AM EST
Globe and Mail

Tim Cestnick is managing director at WaterStreet Family Wealth Counsel and author of 101 Tax Secrets for Canadians.

Perhaps you've heard the story of the elderly gentleman? The story, which varies a little depending on where you first heard it, goes like this: A reporter was sent to interview a man as he turned 100 and find out if there were a formula to his longevity. "Sir, do you have any secrets you can share that have allowed you to maintain such good health for so long?" "Well, I go to bed early, get up at six in the morning, eat lots of vegetables, I don't smoke or drink, and I go for a brisk walk every day," the man replied. "There must be more to it," said the reporter. "I had an uncle who lived the same way and he died at age 60. I'm not sure how to explain that." "That's easy," the man said. "He didn't keep it up long enough."

Everyone is searching for the secret to longevity. The question is: Will you run out of income before running out of retirement? Today, I want to share a retirement income idea that can provide an increase in your after-tax cash flow in retirement, preserve your capital, boost your returns after tax and other costs, and remove interest rate risk from your portfolio. I'm talking about an insured annuity.

The idea
The insured annuity concept involves doing two things: First, purchasing an annuity to provide you with cash flow in retirement, and purchasing life insurance at the same time. Why life insurance? Simple. When you carve out some capital to purchase the annuity, those are dollars that your heirs will never receive. Once you're gone, the annuity payments cease, and whatever capital might have been invested in that annuity is also gone - nothing will generally be given to your heirs (you can purchase a guarantee so that, if you die young, your heirs are guaranteed to receive some minimum amount, but this is not generally done due to the added cost).
The insured annuity idea works well provided that you or your spouse are insurable at standard rates (if you're high risk and the insurance is more costly, the idea may not make sense).

The example
Here's an example that comes courtesy of John Jordan, CFP. Consider Mike and Shannon. Both are 70 years of age and are in good health. They're concerned that their retirement income has been eroded by low interest rates and poor investment returns. The couple has a portfolio that includes $400,000 in GICs and T-Bills, earning an average of 4.5 per cent annually. Mike and Shannon would like to keep $150,000 fairly liquid for emergency purposes, but would like to increase their after-tax returns on the other $250,000.

Currently, the couple will earn $11,250 annually (4.5 per cent on $250,000) on the GICs and T-Bills. At a marginal tax rate of 43.41 per cent (the second highest marginal tax rate in Ontario), the couple will pay taxes of $4,884, and will be left with $6,366 after taxes annually.

Mike and Shannon have chosen to implement an insured annuity strategy. Here's what they did: They used $250,000 to purchase an annuity. The annuity will pay them $20,286 annually. Just $5,042 of the annuity payments are taxable. Why? Because each annuity payment is partly a tax-free return of their original capital, and partly interest income. The tax owing annually on the annuity payments will be just $2,189, and they will recoup some Old Age Security benefits in this case as well ($527 annually) since their taxable income won't be as high, leaving $18,624 after taxes annually in their hands.

Now, Mike and Shannon will use some of this annuity income to pay for a $250,000 life insurance policy that will pay out on the second spouse's death. This will replace the $250,000 that was used to buy the annuity. Their heirs will get this cash upon the second death. The life insurance premium annually is $6,252 in this case. So, the amount left in their hands annually until the second spouse dies (after taxes and insurance costs) is $12,372. This is much higher than the $6,366 with the GICs and T-Bills. In fact, the couple is better off by $6,006 annually.

Keep in mind that you'll be giving up some liquidity with this idea; you can't pull money out of the annuity except by way of your set monthly payments. So don't invest all of your cash in this strategy. Finally, be sure to apply for the life insurance first; if you're not insurable, you may choose not to buy the annuity.

This is a great strategy if you are in good health, or if you already have a permanent life insurance policy in force. This strategy was very popular in years gone by, but with the stock market vastly outperforming GIC's and Term Deposits over the last decade;save the last 18 months, keeping liquid in a RRIF was more popular. Now that growth and income is down the tubes, the insured annuity strategy is paying the highest return in town.

Edit: Nerding out a little, I ran real quotes for the life insurance and annuity.

Best life insurance rate for a couple age 70 in good health is $5,047.50/y from Industrial Alliance Pacific

A non-reducing Annuity, (payments stay the same after the first death) will currently pay $17,917.47/y from Canada Life. Taxable portion $4964.10

A reducing Annuity, which drops to 70% after the first death is currently paying $19,773.15/y also from Canada Life. Taxable portion $4803.09

A reducing Annuity, which drops to 50% after the first death will pay $21,229.32 from, you guessed it, Canada Life. Taxable portion $4450.80

You also can't get 4.5% from a GIC right now, highest I see is 3.55% for 5 years from Empire Life, but lets assume they have some older GICs that are paying 4.5%

Going the GIC route the couple will be left with $6,366 after taxes annually.

Non-reducing Annuity $10,715.05 after taxes and insurance.

70% reducing Annuity $12,640.63 after taxes and insurance, until the first death then, $10,479.04 after taxes. There is no insurance cost as the policy is paid up on the first death.

50% reducing Annuity $14,249.73 after taxes and insurance, until the first death then, $9,648.61 after taxes. There is no insurance cost as the policy is paid up on the first death.

So which would you prefer?
One point that needs to be made, is that using a prescribed annuity, which uses return of capital to keep taxes down, starts to result in higher taxes in later years. As the original capital is paid out the the annuity more and more of the payments come from interest earned. Eventually the taxable portion will grow to the entire annuity payment. In later years the benefit from the strategy starts to reduce.

Taxation of Critical Illness and Disability Insurance Cheat Sheet

2010-01-25T10:51:00.000-08:00

Great West Life, one of the companies I do a fair amount of Living Benefits business with has a great cheat sheet for the taxation of Critical Illness and Disability Insurance. I'll let the sheet do the rest.

Edit: ~~Yay for JPEG compression,~~ better quality here Link to PDF

Edit 2: Replaced images with better quality PNG

Employment Insurance for Self Employed Individuals

2010-01-05T12:04:00.000-08:00

January 2011, we are supposed to see the introduction of the new Employment Insurance (EI) benefits for Self Employed Individuals. As a self employed person this is of some interest to me. The benefits available are:

maternity benefits;
parental benefits;
sickness benefits; and
compassionate care benefits.

Starting January 31, 2010 you can apply for the program, however, you must pay premiums for a period of one year before you can make any claim. Furthermore, once you opt in to the program you cannot opt out in the future.

Self employed people are not eligible for income replacement due to job loss, work slowdowns, business closure etc. These types of claim fall into the "regular claim" category which accounts for nearly 60% of all EI claims, yet you still gotta pay the full premium even though the benefits you are eligible for, only account for about 24% of all claims, good deal... /s

Premiums for EI are normally split between the Employee and Employer, the Employee pays 1.73% of their gross earnings to a maximum of $747.36 and the Employer pays 2.422% of the employee’s earnings to a maximum of $1046.30. The maximum benefit and premiums are based on the Yearly Maximum Pensionable Earnings (YMPE) which for 2010 is $43,200. The self employed are required to pay BOTH premiums, or 4.152% of their earnings into EI. This brings the maximum premium to $1793.66 for the year.

Let’s see what kind of disability policy we can buy for $1793.66 or $149.47 a month. But first some assumptions, for all cases we will assume that the individuals earnings are exactly $43,200 as this is the maximum that EI can provide. Individual policies can easily go higher. EI is not dependent on age, health, or occupation so I will compare to two different scenarios to see how things stack up in both best and worst case scenarios. Furthermore, I can’t actually illustrate an apples to apples comparison of EI to a Disability policy. They simply do not make disability policies that suck as hard as EI benefits do. *since I already know how this ends, I think my bias is starting to show through don’t you?

I have illustrated using as close as possible but the differences are still pretty vast. Think of this as a Crab Apples (EI) to Red Delicious Apples comparison.

Self Employed Individual EI

55% of your pre-disability income, to a maximum of $457 per week, TAXABLE

Benefits Start after 14 days of injury or illness, and lasts for 15 weeks.

Premium Cost: $1793.66

Best Case Scenario – Personal Disability

Male, Age 25, Non-Smoker, annual income $43,200

75% of your pre-disability income, to a maximum of $675 per week, Non-Taxable

Benefit Start on first day of accident or illness, and last for 24 MONTHS.

Annual Premium Cost: $1261.00 (hmm... though choice here /s)

The personal disability policy not only pays your nearly double the income after tax, it pays it two weeks sooner and three and a half times as long. Furthermore, the premium is $500 a year less expensive. If you are young and in good health the choice is obvious.

Worst Case Scenario - Personal Disability

Male age 55, Smoker, annual income $43,200

70% of pre-disability income, to a maximum of $630 per week, Non-Taxable

Benefits start on first day of accident or illness, and lasts for 24 months

Annual Premium Cost: $2051.55 (not so good)

The tides turn if you are older and unhealthy. You are still getting more income and better benefit periods but the cost has gone up dramatically. I would try and reduce the benefits to be more apples to apples, but I can’t, this is the crappiest policy my software will let me illustrate. *there is that bias again Still for an extra $35.17 a month you are getting a way better policy than what EI can provide.

So if you were contemplating the new Self Employed Individual EI plan, don’t. You can probably get a far better disability benefit from a personal policy. Even in our worst case scenario I would wager that the extra bucks are worth the better coverage. The saving grace of this new EI plan is that if you are uninsurable, you previously had no options at all. If you have a health problem that excludes you from getting disability insurance EI is now an option that wasn’t there before. The disability policy also doesn’t allow for benefits to be paid during parental or maternity leave, but these this can, usually, be planned for in advance.

TL;DR If you are self employed and were contemplating the new EI benefits for self employed individuals, you will probably be better served by a better/cheaper/faster disability policy. Unless, you are old and/or uninsurable.

E.O.&E.

Happy New Year

2010-01-04T14:06:00.000-08:00

2010 brings with it a few new changes to the benefits and insurance world. Here are a few.

Effective January 1, 2010 the Medical Services Plan of BC (MSP) rates will increase for the first time since July 1, 2005.

EFFECTIVE JANUARY 1, 2010

Adjusted Net Income	Subsidy Level	One Person	Family of Two	Family of Three or More
$0 - $22,000	100% premium assistance	$0.00	$0.00	$0.00
$22,001 - $24,000	80% premium assistance	$11.40	$20.40	$22.80
$24,001 - $26,000	60% premium assistance	$22.80	$40.80	$45.60
$26,001 - $28,000	40% premium assistance	$34.20	$61.20	$68.40
$28,001 - $30,000	20% premium assistance	$45.60	$81.60	$91.20
Over $30,000	Full Rate	$57.00	$102.00	114.00

Employment Insurance (EI) rates have also changed for 2010.

2009		New rates effective January 1, 2010
Maximum insurance earnings	$42,300	$43,200
Maximum weekly EI benefit	$447	$457

Employment Insurance (all provinces except Quebec)	2009	New rates for 2010
Maximum insurable earnings	$42,300.00	$43,200.00
Maximum weekly benefit	$447.00	$457.00
Employee premium rate (per $100 of insurable earnings)	$1.73	$1.73
Employer premium rate (per $100 of insurable earnings)	$2.42	$2.42
Maximum annual employee premium	$731.79	$747.36
Maximum annual employer premium	$1024.51	$1046.30

Benefit plans with Short Term Disability plans will likely see a slight change to benefits and premiums. Benefit plans with wording related to EI maximums will also be effected.

Annual Maximums
In addition to these government changes, most plan maximums are based on calendar year cycles, so dental, medical and paramedical limits have been reset. Vision Care is usually based on a 24 month cycle so benefits may not have reset this year.

Group RRSPs and Pensions
will have ended for the tax year, most group plans do not allow for additional deposits to be made after the year end. Personal RRSP's allows you to make deposits until the end of February and claim the deduction on last years tax return, group plans only take into account contributions made in the same calendar year.

Salary Updates
The begining of the year is often a time when raises in salary are made. remember to update employee earnings for Life Insurance and Disability plans as these benefits can be tied to an employee's salary. Insurance benefits are based on what has been reported to the insurance company and paid in premium, not necessarily what the employee is actually earning. So if you fail to report an increase in salary, and only pay premiums for the lesser amount, the employee will not receive the total benefit they are entitled to.

That is all I am aware of for now, if anything else crops up I will let you know.

Downtime

2009-12-22T08:10:00.001-08:00

I'm off on vacation, see you again in the new year.

Happy Holidays

Got Liability Insurance?

2009-12-11T11:54:00.000-08:00

I, like many professions out there, am required to hold current Errors and Omissions or Liability Insurance. If I sell a policy to a client and I made a mistake which causes the policy not to pay out I could be liable for damaged in the amount of the policy. If I sell a million dollar Life Insurance policy you can bet I am going to have a million dollars of E&O to protect my butt in case I get sued. My E&O insurance costs are about a thousand dollars a year, not a small investment by any means. If you are like me, you want to protect yourself and your company from liability. If so, here is a strategy you need to look into, and it won’t cost you a dime.

If your company were to be sued, it doesn’t really matter why, any assets held in the company are up for grabs. Many business owners keep retained earnings in their company for any number of reasons, tax sheltering, rainy day fund, float for large purchases or payday from a profitable project. Whatever the reason, retained earnings held in a bank account are vulnerable to creditors. Retained earnings are an asset of the company and therefore, up for grabs. Some business owners keep their life savings in their company, talk about a huge liability problem.

The solution to this problem is actually very simple. Life Insurance, or more specifically Segregated Funds. A Seg Fund is like a mutual fund, or other investment they can hold stocks, bonds, or even just cash. But segregated funds are also a form of Life Insurance, and life insurance under Canadian law, is creditor protected and exempt from seizure due to bankruptcy or lawsuits.

By depositing your retained earnings into a segregated fund policy, rather than a bank account or savings account your retained earnings are protected. For the even more paranoid, you can designate an irrevocable beneficiary of the funds, say a spouse. When you designate an irrevocable beneficiary, you need the beneficiaries signature and permission to do ANYTHING to the policy, include freeing up funds. As soon as a irrevocable beneficiary is named the company and the business owner now have no control of the policy, they couldn't liquidate it if they wanted too. Any changes to the Seg Fund policy have to be signed off by the irrevocable beneficiary, as long as the beneficiary isn’t a shareholder, the money is essentially untouchable. I hope you trust your spouse.

There is a disclaimer however, (when is there ever not?) this only works if there is a papertrail and proof of regular contributions to a segregated fund. If you have evidence that you have been using this strategy for legitimate purposes, IE: self funded life insurnance, you are safe and the protection will hold up under scrutiny. If on the other hand, you know of an impending lawsuit and you frantically liquidate all of your assets and slam them into a brand new seg fund policy you are NOT safe. There have been court cases where this fraudulent avoidance in the face of a lawsuit have been overruled by a judge, and the creditor protection rendered null and void.

As long as you are playing by the rules and are not obviously trying to scam the system, your money is safe. If you already pay for liability insurance why not take out an extra policy for free? Protect your capital from potential creditors or lawsuits.

TL;DR – Got money in your company? Don’t wanna loose it in a lawsuit? Stick it in Segregated Funds.

EO&E

Pharmacy Dispensing Fee's in BC

2009-12-07T15:16:00.000-08:00

Telus Health (formerly Emergis) has published a report showing average dispensing fee's from various pharmacies across BC from January 2009 through June 2009. PDF availible HERE

As is evident from the Table, the average dispensing fee across BC is $9.09 the least expensive pharmacy's are located, shock and awe, at Costco and Wal-Mart.

If your benefits plan uses paper reimbursment the plan is paying for all of the dispensing fee charged by the pharmacy. If your plan has a drug card with no dispensing fee deductible, then again the plan pays for the whole fee. If on the other hand, the drug card has a dispensing fee deductible, the plan member pays the cost of the pharmacy fee.

Using a dispensing fee deductible encourages members to shop where the fee's, and often drugs, are the cheapest. However, members can only be savvy consumers if they know where to shop. Social engineering is going to be the next frontier in benefit plan cost control. Encouraging members to be savvy shoppers, getting them to change their prescription purchasing habits and eventually lifestyle habits. Simply convincing members to shop at one pharmacy rather than another can result in savings of thousands of dollars in unnecessary costs.

Drug Plans

2009-11-30T14:39:00.000-08:00

Prescription Drugs are the most expensive part of any benefits plan. Prescription Drugs typically account for 60-70% of all health care expenses, and account for the majority of cost increases. In order to combat the explosive growth in drug costs carriers have come up with several strategies, most of which, revolve around controlling which drugs are covered and which are not.

Brand Name Drugs

Just like the name implies these are drugs made by big name pharmaceutical companies. They fall under brand names like Viagra, Cialis and Levitra. We see ads on TV, brochures in doctors’ offices and generally know what they are called but not what they do. (ask your doctor if is right for you! )
Because of the marketing blitz and patent periods (the time when no other company can produce a similar chemical agent) the big drug companies can charge whatever they want. Brand name drugs tend to be very expensive, not necessarily because they work any better but because they are SOLD better.
Most cost saving measures have targeted Brand Name Drugs. By avoiding brand names plans can avoid the cost of all that marketing and hype, reducing costs substantially.

Generic Alternatives

Often made in the very same factory as brand name drugs, generics are typically bough in huge bulk orders by either provincial or federal agencies. Because the generics lack the little logo stamp and occasionally use less expensive fillers they can cost up to a half as much as the same brand name drug. Generics are mandated by law, to provide the exact same medicinal ingredients, in the exact same dosages and of the exact same quality as the brand name. Generics, for all intents and purposes ARE the brand name drug, for only half the cost.

While the medicinal ingredients are mandated by law the fillers and binders aren’t; occasionally people will find they are sensitive to side effects from the generic when they are not sensitive to the brand name. This can usually be traced to a difference in fillers or psychosomatic response. For these people drug plans typically allow for a “no substitutions” clause. If the doctor writes “No substitutions” on the script the drug plan will cover the cost of the brand name drug.

Lowest Cost Alternative (LCA)

A newer and more aggressive plan of attack on drug costs, LCA goes beyond substituting brand for generic form, and actually replaces the whole ingredient with another designed to do the same job. LCA looks not at the drug being prescribed but the ailment being treated. Take depression as an example, Prozac has been around for years, it is inexpensive and effective at the treatment of depression. Wellbutrin is another drug designed to treat depression, however, it is about 5 times the cost of Prozac. Wellbutrin has the added benefits of reduced side effects, fewer drug interactions and less complications, so doctors will often prescribe Wellbutrin over Prozac. A Lowest Cost Alternative plan will look at the problem of depression, and determine that while Wellbutrin is indeed a method of solving the problem it is substantially more expensive than good old Prozac. The LCA plan will decline the claim for Wellburtin, and prompt the pharmacist to dispense one of the less expensive alternatives which are covered by the plan.

LCA plans receive a substantial rate reduction, as well as a huge amount of flack from members. I have on several occasions had employees screaming at me over an LCA drug plan. The fact that they cannot receive the drug prescribed by their physician drives them crazy. Again for these people a plan can have a No Substitutions clause which allows the generic or Brand name drug to be claimed.

Formulary

Most plans work on a formulary basis, a formulary is just a list of drugs to be covered. Simple examples of active formularies are drug plans that do not cover lifestyle drugs such as: anti-smoking drugs, fertility drugs, or prescription weight loss medication. More aggressive formularies resemble the Lowest Cost Alternative plans but are even more restrictive, they also tend not to allow a “no-substitutions” clause. That is, if a drug isn’t covered, no amount of fuss from your doctor will get it covered.

Formulary plans are designed to use the cheapest drug possible to treat any one given malady. Typically there is ONE single drug for each medical condition. Members are allowed to purchase a non-formulary drug, however, they tend to either be reimbursed at a lower level, or only the cost of the listed drug is covered, any additional cost is born by the plan member.

A new, kinder, gentler formulary plan is referred to as a Conditional Formulary. Pioneered by Green Shield of Canada this is a very restrictive formulary which has several hoops plan members can jump through to get their drug of choice. You have to play the insurance companies game to get the drugs. The plan starts off very restrictive, most claims occur without incident; however, once a member has a problem with a formulary drug, they can apply for an alternative. Once approved, the more expensive alternative is covered and hopefully fixes the problem with the first drug, perhaps there are lesser side effects. If this second drug still is unsatisfactory a second application can be made for a higher tier of coverage. More expensive drugs are made available at this tier and again the process is repeated until a satisfactory drug of the lowest cost is found. The core idea is to cover the cheapest drug that works. If it doesn’t work you can try a more expensive one until either a working drug is found or you reach the top tier where the most expensive drugs are covered.

By starting at the bottom price wise, and moving up only when necessary, huge costs savings can be found. Administration, paperwork and frustration are the trade off for these savings.

Summary
Which plan is best for your group depends on your budget, your drug claims history and your benefits philosophy. Obviously not everyone wants to put their members into a position of jumping through hoops with a conditional formulary, then again having conditional coverage is better than none at all.

Other than Brand Name drugs, all of these strategies require a drug card. Drug cards are where the plan design and formulary are held. While a drug card increases the cost of a benefits plan due to an increase in claims, the cost savings from drug control are starting to offset the cost.

TL;DR you might be able to lower your drug costs by using generic, lowest cost alternative, or conditional formularies.

Demystifying Renewal Pricing

2009-11-27T12:28:00.000-08:00

Group insurance renewals can seem strange and clouded in mystery. While each group, carrier and renewal is different here is a simple example of how renewal rates are set.

1) Past Experience
The insurance company looks at your claims experience and demographics, over the past 12 months, sometimes going back as far as 36 months.

Paid Premium = $20,000
Paid Claims = $18,000

Paid Claims = 90% of Paid Premium

2) Pricing for the Future
Health care in Canada is getting more expensive every year. Expensive new drugs, an aging population and government cutbacks are causing healthcare costs to increase at approximately 13-15% annually . This increase is called a Trend Factor.

Trend Factor = 14%

3) Administrative Costs
Administrative costs include: processing claims, printing booklets, maintaining phone and internet support, plan enrolment, preparing billings and invoices etc. If a plan has a Target Loss Ratio of 72%, the remaining 28% is used for administration.

Administration Costs of 28% = Target Loss Ratio of 72%

4) Putting it all Together
From past claims experience, known administration costs and predicted increases in healthcare costs we can predict next years’ claims and budget accordingly.

Example #1 High Claims
Paid Claims + Trend Factor – Target Loss Ratio = Rate Change
90% + 14% – 72% = +32%

Example #2 Low Claims
Paid Claims + Trend Factor – Target Loss Ratio = Rate Change
55% + 14% – 72% = -3%

Often clients feel like they are getting taken advantage of when their claims are at or below their Target Loss Ratio and they still receive an increase. They instinctively feel that if they hit their "Target" they shouldn't have any change to rates. If health care costs were stable this would be the case but, sadly the fact is that health care is getting more expensive each year, so insurance premiums need to increase to keep up. If you wanted to calculate this break-even point, where next year you would see no rate change it would be found by subtracting the current trend factors from your Target Loss Ratio. In the example above with a 14% trend and 72% Target Loss Ratio the "break-even" point for claims would be 58% of premium.

Clients need to understand that administration is going to account for between 15-30% of their premium, depending on group size. Trend factors will, on average increase the cost of health and dental plans by 15% and 8% each year, respectively.

Why is my Extended Heath Care plan always getting more expensive?

2009-11-18T09:31:00.000-08:00

Good question little Johnny, come sit on my knee and I will tell you a story.

Health Care is getting more expensive, therefore the insurance you buy to protect yourself from unexpected health care claims is also getting more expensive. In the insurance industry we call the rate at which health care costs increase a Trend Factor. Over the past 5 or so years, the Trend Factor has been about a 15% increase per year, every year. Costs are doubling approximately every 4 years. That's the "how much" part, for the "why" bit see one of my articles below.

What is a TREND FACTOR?

Trend factors are used when insurers are trying to forecast future costs. Most commonly you will see these at the annual policy renewal when the insurer is trying to determine the appropriate rates for the upcoming year.

Trend factors play a vital role in pricing any group. They take into account a few main factors.

Inflation: The inflation component of a trend factor refers to the increases in the cost per service. For example,

Ø Escalating ingredient costs, rising research costs, and growing dispensing fees changed by pharmacies have an inflationary effect on drugs.

Utilization: An increase in utilization is an increase in the number of services used per plan member. For example,

Ø Massage therapy claims are now the second most claimed part of healthcare next to prescription drugs. Five years ago, it was one of the least claimed benefits.

Aging: As the population ages average utilization is generally expected to increase as more treatments and prescriptions are required. For Example,

Ø A 35 year old plan member claims for 11 prescriptions per year on average, compared to the average 55 year old who claims for more then 25 prescriptions per year.

Changes in Health Services Environment (including legislative changes): Cost shifting from Provincial plans places more pressure on private insurance plans and these costs need to be taken into consideration. Each year sees more offloading onto private sector plans. For example,

Ø Eye exams are no longer covered by the provincial medical plan for anyone ages 19 to 64. Private plans are picking up the slack where before they didn’t need to provide coverage.

Ø Hospitals are providing more outpatient treatments such as day surgeries which means costs that would have previously been borne by the hospital (i.e.: prescription medications) are now the employees responsibility and are being claimed on their group insurance.

Deduction Erosion: Year over year a fixed deductible does not keep up with that of average costs increases; as a result the proportion of costs paid by plan sponsors increases each year. The cost of providing the service keeps rising, but the deductible amount required from the employee doesn’t keep pace.

So there you have it Jimmy, Johnny, whatever your name is. Aging, government cutbacks and a general increase in the cost of medical care are all conspiring to increase health care costs. Now go play outside and try not to scrape your knee, our premiums are high enough as it is.

How Do I Know I am Getting "The Best Rate"?

2009-11-09T16:30:00.000-08:00

This is what a Life-Guide printout looks like. Life- Guide is the software I use when producing Life Insurance quotes. Life-Guide tracks insurance rates from every brokerage insurance company in Canada. Life-Guide is how I know which companies have the best rates. Every Insurance Advisor should be able to give you a similar printout. I usually try and use one of the top 10 in the list based on price. I don’t always use the cheapest due to various reasons: service, policy wording, renewal premiums etc. but I try and stay in the top 5 as a general rule.

If you broker doesn’t provide you this kind of market survey, ask them for one. If the company they are recommending isn’t near the top price wise, ask them why not. Sometimes it is a good reason, like mine above. Sometimes its commission related and the agent will make far more money placing all their business with one carrier, if this is the case they probably aren’t looking out for your best interest. Or sometimes it is just as simple as they are not contracted with that particular company. As a broker, I am supposed to provide the best price possible, or at very least the best value. Captive agent companies like, Sun Life, Clarica, London Life and Desjardins are often only allowed to sell their parent company products. These companies rarely show up on these surveys and when they do they are often at the bottom of the pile.

You can even check rates yourself by going to

http://www.winquote.net/

WinQuote is a website version of Life-Guide. You can run simple quotes and get accurate results.

One tip about WinQuote is that they automatically quote based on “Super Preferred” health status, in my experience only Olympic athletes get super preferred, for a more realistic rate change health risk to Regular

I find that Life-Guide is slightly more accurate than WinQuote so don’t be surprised if there is a slight discrepancy between the two.

Group Savings Plan Returns are NOT the Same as Private Plan Returns

2009-10-28T10:07:00.000-07:00

Did you know that Group Retirement Savings Plans, namely Pensions, Group RRSPs, Group TFSA and Deferred Profit Sharing Plans (DPSP) report their gains differently than privatly invested RRSPs, TFSAs or other investments?

In the private or "retail" space, everyone pays the same fee's the only exception to this are very high value clients typically with excess of a quarter million dollars invested. You, me the guy down the street, we all pay the same fee for the same investment fund. Members in the same Group Plan all pay the same fee as each other, but each group plan is different.

Group pensions or RRSPs can easily amass a quarter million dollars, most pensions are measured in millions of dollars. Because these plans are so large they receive a "bulk discount" on the fees they pay. The fee's each plan pay depend on the invested assets of that plan, each plan is a different size, and therefore pays different fees. There is an obvious challenge in providing each and every group plan with their own specific rates of return, especially in the days before computers, so group returns are reported GROSS of fees. When you see a return from a fund held by a group plan to find your true rate of return you need to subtract your plan specific fees.

In the retail channel since everyone pays the same fee, it is easy to simply subtract the fee from the gross return and post the NET return. Everyone paid the same fee so only one statement is needed.

Lets compare a retail fund to the same fund held inside a pension plan. I manage a pension plan with a value of approximately $6 Million in invested assets. Because of the large dollar amount the fees charged for each given fund are greatly reduced compared to retail funds. I have randomly selected the Great West Life Diversified Fund it is available through both retail channels such as brokers as well as it is currently held inside the pension fund I managed.

Fees

Great West Life Diversified Fund (No Load, Retail)
Management Expense Ratio (MER) 2.78%

Great West Life Diversified Fund (No Load, Pension)
Management Expense Ratio (MER) 1.535%

The retail MER is nearly double the pension MER. The 1.245% difference is added return for the pension fund member. Remember, it is the same fund, but the person in the pension made an extra 1.245% more this year than the retail investor. A little over 1% doesn't sound like much, but it can definitely add up over time.

Returns

Great West Life Diversified Fund (No Load, Retail)
One Year Return (as at Sept. 30, 2009) = -1.22%

Great West Life Diversified Fund (No Load, Pension)
One Year Return (as at Sept. 30, 2009) = 1.31%

Now recall that retail fund returns are published NET of fees and Group funds are published GROSS of fee's. Without remembering this fact it looks like the Pension fund has out performed the Retail fund by almost 3%.

To find the NET return of the pension fund we need to subtract the MER from the published GROSS rate of return.

Gross rate of return - fund MER = Net rate of return
1.31% - 1.535% = -0.225%

Obviously, neither of these funds have performed very well over a one year period, regardless of performance though, the fact remains the person invested in the pension fared better than the retail investor.

The group plan lost only a little less than one quarter of one percent, the retail investor lost nearly one and a quarter percent.

TL;DR Group savings plans have better rates of return for the same fund as retail investment funds, all thanks to lower fees.

How Group Insurance is Funded

2009-10-27T14:31:00.000-07:00

There are four ways of funding a benefits plan. They essentially fall along a continuum of risk and reward. Fully pooled benefits are the least risky as if your group has a catastrophic claim, it does not impact your premium at all. The downside is that you have no idea if you are getting good value as your premiums may be much higher than the claims you incur. Prospectively rated benefits plans are the most common, they involve an annual review of claims incurred and premiums paid. Premiums tend to track closely to claims incurred. Rates are more volatile than pooled plans but Prospectively funded plans are often less expensive in the long run. Retention Accounting is more commonly known as Refund Accounting, having lost favor with the insurance carriers Refund is currently only offered by a selective few carriers. Refund provides, in my opinion, the best possible arrangement from the clients perspective. Premiums are calculated similar to Prospectively rated groups, however, if claims are lower than predicted, a refund of the difference is paid to the group. More frequently the refund is help inside a trust account and used to smooth future rate fluctuations. ASO plans offer the most possible savings as there is no "cost of insurance" however, they trade potential savings for certain risk. Only very large groups should consider ASO funding. ASO also brings with it certain other possible problems such as cost sharing, pay roll deductions and the treatment of a surplus or deficit.

FULLY POOLED BENEFITS (Less than 10 members)

The policyholder pays whatever premium is charged by the insurer. The premiums are pooled among all of the policyholders for the insurer, and all claims and administrative expenses are taken out of the pool. All renewals are based on how the whole pool does, each policyholder has no control or input as to how the premiums are allocated. Cost-containment measures available to policyholders are to add deductibles, reduce reimbursement percentages by the insurer, or reduce or eliminate particular benefits. The advantage of fully-pooled plans is that they help spread of catastrophic claim for smaller policyholders. This disadvantage of fully-pooled plans is the lack of control over the allocation of premium dollars.

PARTIALLY-EXPERIENCE RATED BENEFITS (PROSPECTIVELY RATED) (10+ Members)

This method is a hybrid to the experience-rated policy and the fully-pooled plans. Insurers like these
policies because they can use the policyholder’s own experience to determine the renewal rates, yet they do not have to disclose the individual charges in which their premium dollars are used. Partially-experience rated plans can run up deficits, but should expect to face renewal increases to ensure future deficits do not occur. The advantage of the partial experience-rated plan is that the policyholder may run a deficit and terminate without financial repercussions. The disadvantage of the partial experience-rated plan is the limited information provided by the insurer. Although a break-even or target loss ratio is often provided to the policyholder, this does not reveal all of the charges being levied.

FULLY EXPERIENCE-RATED BENEFITS (RETENTION & NON-RETENTION ACCOUNTING) (100+ Members, or $100,000 in annual premium)
Under this method, the insurer works out each policyholder’s premium rating, based solely on the
policyholder’s own past experience for the benefit. At renewal, the insurer takes the paid premium for the year and then allocates various expenses against it. Apart from the actual utilization, there are claims paying charges, administration fees, taxes, insurer profit and agent/broker commissions. There are also requirements to fund reserves to pay for all of the outstanding claims that have not been submitted, or processed, and which must be paid by the insurer. There can also be a claims fluctuation reserve in which the insurer puts excess premium, if there is any. The advantage of the fully experience-rated plans is that all of the charges are fully disclosed. If retention accounting is used, the policyholder participates in the financial results of the group. This means that the policyholder owns both the surplus and deficit over the policy year. On a non-retention accounting basis, the policyholder would not participate in the financial results. The ideal policyholder for fully experienced-rated benefits is generating approximately $100,000 in annual claims, this will ensure that the utilization is “credible”. To protect against catastrophic claims by any individual plan member, the policyholder can purchase stop-loss protection from the insurer.

ADMINISTRATIVE SERVICES ONLY PLANS (ASO) (100+ Members or $100,000 in Annual Premium)

With this funding method, a policyholder pays an insurance company or third-party administrator to provide only certain services (i.e., adjudication, booklets, and wallet certificates). All charges are fully disclosed and negotiable. Stop-loss coverage can be purchased by the policyholder to reduce the risk of catastrophic claims by any individual plan member. The savings being generated may not be substantial in light of the additional resources required to provide the identical level of communication to the plan members, but the policyholder will never forfeit surplus premium. The advantage of the ASO funding method is the amount of control gained by the policyholder. The disadvantage of the ASO funding method is the potential risk of deficit funding. Dental Care can often be ASO funded at a lower level of approximately 25 members or $25,000 in premium. These lower levels are possible due to Dental Care claims being non-catastrophic in nature.

Funding explanations taken from Advocis Best Practice Manual.

Maximum Retirement Income

2009-10-26T13:33:00.001-07:00

You have saved all your life for retirement, you have a nice little nest egg of cash and are ready to start drawing an income. How do you get the best bang for your buck while taking a minimum amount of risk?

People at or near retirement are naturally more conservative with their money and investments, they like to color within the lines. Most retirees gravitate towards guaranteed investments like GIC’s. While safe, GIC’s provide poor returns and notoriously bad after tax returns. GIC’s are treated as income, and fully taxed at your marginal tax rate. This can be as high as 43.7% in BC. Why give up almost have of your gains to taxes if you don’t have too.

Enter stage left, the Insured Annuity. Annuities provide a guaranteed stream of income just like GIC’s but, they are far more tax efficient than a GIC and they provide a substantially higher ROI than a GIC.

A brief primer on annuities.

Annuities pay the highest ROI of any guaranteed investment product. An annuity, in a nut shell is a backwards life insurance policy. Instead of paying a small monthly premium and getting a big payout from the insurance company at death, you give the insurance company a big cheque now, and they agree to pay you for the rest of your life. There are lots of options and guarantees which can be added but in its simplest form a life annuity will pay you from today to the day you die, be it next week or decades from now. The catch, if you do die next week, the insurance company keeps all your cash, even if you only received a single payment. Flip side of that coin is, if you live a long time, the insurance company has to keep paying you even after your money is long gone. The people who die young subsidize those who live to a ripe old age. Because some people die before their money is paid back, there is more money to go around, which is why annuities pay such a high rate of return.

An annuity will pay you a big income, but what good is it if you die tomorrow and your spouse gets nothing? Risk of dying too soon, sounds to me like you need life insurance...

Life Insurance, more specifically low cost, permanent life insurance.

Term 100 or minimum pay Universal Life will provide a guaranteed premium, and a guaranteed payout. Remember retiree’s life guarantees! Purchasing a permanent life insurance policy for the face amount of the annuity will allow us to preserve our original capital in the event of dying too soon. There is an insurance premium that needs to be paid of course, we take part of the annuity payment and earmark it for the insurance cost. As luck would have it the insurance costs are about half of what the annuity will pay us.

To summarize, we buy a Single Life Annuity to get the highest income from our capital, we have a risk that we could die too soon and lose our capital before it’s repaid so we buy life insurance which replaces our capital when we die. Still following along?

Now, the bright crayons in the box will be thinking, “why pay all that insurance premium, when I could just live off the capital in the first place?” good job Burnt Sienna, one word, taxes. I have to harken back to the beginning of the post, retiree’s like guarantees. Other than annuities, GICs are the main player, and they are a tax nightmare. The insurance cost pales in comparison to the brutal tax bill CRA is going to exact from your GIC’s.

Math time.

(FYI, current annuity payout as of Oct 26 2009 $46,578.00, current 5 year GIC rate 3.925% so the example above is fairly accurate)

Starting with the same amount of capital, $500,000 we compare an annuity payout to the annual return of a long term GIC. All of the GIC earnings are spent and the original capital is reinvested.

Right off the bat you can see that the annuity provides more than double the pre-tax income of the GIC, $45,668 vs $20,000. This increased payout is due to those people who died young, subsidizing the rest. Other than the superior ROI, the tax situation is very noteworthy. As previously mentioned the GIC earnings are treated as income, and are fully taxable at your marginal tax rate. The Annuity in its “prescribed” form, includes a Return of Capital, which basically means you are spending a portion of your own money (tax free), and a portion of investment earnings (taxable). This greatly reduces the tax bill in the early years of the annuity. Tax payable at the end of the year, $4023 for the annuity and $9000 for the GIC’s. The annuity can produce a net after tax income to nearly FOUR TIMES that of the GIC $41,645 compared to just $11,000.

Carnation Pink has pointed out that while the Annuity has a better cash flow; if you die early you lose all your capital, while the GIC retains its capital every year. When you have a risk of dying too soon you buy insurance. That insurance costs $21,305 in this example, which again is accurate as of today’s date. As long as you pay your insurance premiums your capital will be restored tax free with a death benefit. So while you have lost your original nest egg to the annuity gods, your heirs receive a brand new infusion from the insurance fairy.

What’s the catch? You have to pay your insurance premium, if you let the life insurance policy lapse the whole plan falls apart. If you are uninsurable or have health problems, you can’t get the insurance in the first place; this strategy is not for you.

Lastly, Insured annuities used to be really popular about 20 years ago, they have recently reared their heads again due to the global economic crisis. The reason they fell out of practice for so long comes down to two words, lapse rates. Permanent insurance is only as cheap as it is because some of the policies lapse, people paid premiums but never collected. Lapse rates need to be predicted accurately to know how to set the life insurance rates, problem is; insured annuity strategies necessitate NOT lapsing a policy, which skewed the predicted lapse rates. Insurance companies either lost money or had to increase their premiums. Most companies stopped offering both the insurance and the annuity, as doing both was a losing game; Multi-Company insured annuities were still available but the added complexity, as well as the better performance and taxation of equities made GICs and insured annuities less popular. BMO Insurance (formerly AIG Canada) has recently started promoting Insured Annuities again, they are providing both the annuity and the insurance, their rates for both products are quite good as well. I am not entirely sure how they plan on making a profit given the lapse rate problem I mention above, I can only assume their underwriters and actuaries have accounted for it.

TL;DR – Double your retirement income, guaranteed. Maintain your capital, guaranteed. Pay less tax, guaranteed.

E.O.&E.

And now for something completely different

2009-10-20T12:29:00.000-07:00

I, like many people, have an iPhone and use MS Outlook for emails, calendar and contacts in the office. Both are wonderful pieces of technology, but without an Exchange Server they do not like to talk to each other. I wanted to post here on how I finally made the iPhone and Outlook play nice together.

Goal: Real time 2-way sync of email, contacts and calendars between iPhone and Outlook. (for free)

Prerequisites:
IMAP email account
Google Account (Gmail and Calendar)
Nueva Sync account
Soocial.com Account

Step 1: The cloud

Register a Gmail and Google Calendar account if you don’t already have one. Gmail is going to act as the middle man between the iPhone and Outlook, it also provides a great webmail service if you are away from your phone or office.

Push Calendar from Outlook to Gmail

Download and install the Google Calendar Sync app

Push contacts from outlook to Soocial.com
Add a connection for Outlook to your Soocial.com account. Install the outlook add-on and sync contacts to Soocial. Add a second connection for Gmail to your Soocial account; Soocial will now 2-way sync contacts from Outlook to Gmail.

Gmail Account setup

If you go into the "Accounts and Import" settings in Gmail you can add your IMAP email to Gmail. Google will log into your email account and periodically pull any new emails into your Gmail account.

You should now have all of your Outlook data synced to your Google Account. Now that we are talking to the cloud we need to pull it down to the iPhone.

Step 2: The iPhone
Email: I connect to my email directly through the IMAP server, I don’t bother going through Gmail for this, I find going through Gmail adds a 20 minute lag, and sending and receiving directly through the IMAP server works best.

A copy is still stored in Gmail in case you need it.

Log into your Nueva Sync account and add a connection to your Gmail account. Choose to Sync calendar and contacts, but not email (see above).

Nueva Sync will now pull contact and calendar info from Gmail to its free hosted exchange server. On your iPhone go to settings, and create a new Mail, Contacts and Calendar Account. Choose Exchange from the presets.

Enter your NuevaSync account information.

Once everything is set up correctly anything you add to Outlook is replicated to Gmail, synced wirelessly to your iPhone and vice versa. I find the contacts and calendar sync is almost instant, I can add a contact to my phone and within 30 seconds it shows up in Outlook. Having everything replicated to Gmail is another nice feature, I have been at a clients house with no laptop and a dead cell phone battery, and was still able to pull quotes I had emailed myself just by logging into my Gmail account from their home computer.

It is unfortunate that to do what should be such a simple task takes no less than 5 different pieces of software. Google has recently added a new Apps Sync tool which accomplishes everything above, but it is not free.

Risk, sometimes it’s worth it.

2009-10-19T12:28:00.000-07:00

Insurance is all about risk, more importantly, paying someone to take a risk for you. In group insurance, the risk is that your employee’s might incur a large and costly medical claim. You would then have to pay it, even if you didn’t have the funds available. The insurance company takes the risk of paying for catastrophic claims, but charges a premium on everyday claims. 9 times out of 10 you pay more with insurance than without it. However, it is that 1 out of 10 that saves your butt.

I had a group which had excellent claims history, very stable and very low, especially when compared to their premiums. While I did everything I could to keep premiums down, I eventually reached a minimum premium which the insurance company refused decrease further. The claims of the group still warranted a rate decrease so I began looking for alternatives.

Self insurance came to mind, simply pay the claims, and be done with it. You will never overpay and as long as claims are low you have nothing to worry about. Except risk. Without an insurance company, any large claims are now the responcibility of the business. Risk reward, big rewards usually require big risks.

We needed some kind of insurance, but there must be something out there less expensive than what this client currently had. Their premium was more than twice what their claims were, they were not getting good value.

I found a product called Benaccount from a company I work with regularly, Benefits By Design. Benaccount lets you self insure what you are comfortable with and insure the rest. This way you get the best of both worlds, low insurance costs, but protection in case of catastrophic claims.

Benaccount relies on a health spending account for each employee; each account is funded to $1000 for a single employee and $2000 for an employee with family. This money is the first payor, every claim will reduce this account until the money is gone. The account is used for both health and dental claims. Once the account is empty, the employee switches to an inexpensive stop-loss insurance plan ($8/month single, $22/ month family) the stop loss doesn’t provide dental, paramedical or other small coverages however, it does provide coverage for prescription drugs, hospital, and large ticket medical items like electric wheelchairs etc.

A good way to think of the plan is as a stripped down health plan, with a high deductible of either $1000 or $2000. You take the risk that you might have to pay the deductible yourself, but after that you are protected. Speaking of risk, there is certainly a potential downside here, if every employee maxed out their claims, the total cost for this little 5 life group would have been $7700. When the insurance company guaranteed a rate of a only $6000. Giving up the rate guarantee was a risk the business owner had to agree to take, this plan could cost him more, while not likely to happen, it is still possible.

When agreeing to take on any risk, there needs to be a return involved. The return is if claims are lower than $6000, the company saved money.

At the end of the day, this group claimed, about what they always do, $2205.59 over the year on health and dental expenses. They paid $671.14 in insurance about 10% of their old premium, for the security that if a catastrophic claim occurs they will be safe.

Their total annual cost was $2876.73
Vs. Their insurance quote of $6203.26
The reward for taking a little risk?

$3,326.53 saved.

On nom nom

2009-10-11T20:55:00.001-07:00

Happy thanksgiving all.

- Posted using BlogPress from my iPhone

Great West Life - Segregated Funds with NEW Lifetime Income Benefit

2009-10-05T10:22:00.000-07:00

I just got a huge package from Great West Life, on their new Segregated Fund product. They have jumped on the bandwagon and added a Lifetime Income Benefit similar to Manulife, IAP, DFS, Sun Life, Transamerica etc.

*BIAS DISCLOSURE*

I don't really like these products no matter who sells them, the fee's are just way too high.

Case in point, please see the MER (Management Expense Ratio) chart for the new shelf.

Lets look at the Mackenzie Financial Balanced Fund, once you add in all the bells and whistles and the Lifetime Income Benefit your MER is 4.01%

Yeah, no thanks.

More to come later.

Private Health Services Plans AKA Health and Welfare Trust AKA Health Spending Accounts

2009-10-02T13:50:00.000-07:00

While each of the above names are in fact slightly different they are all fairly interchangeable and they all have the same goal at heart; making medical expenses tax deductible.

Government likes a healthy electorate, so they encourage business to provide health benefits by making benefits tax preferred. Health and Dental benefits are tax deductible to a business, AND non-taxable to the employee. Health insurance is basically tax free!

I use the words Health and Welfare Trust in the image below, it works the same way.

Back in the day, insurance companies would only offer insurance to businesses with at least 10+ employees. This was a problem to most small businesses because it meant they couldn’t offer medical benefits. So along comes Mr. Taxman and creates the Private Health Services Plan (PHSP). A private health services plan is essentially a trust fund set up by a company to pay employee medical expenses. Because the business pays into a trust, it is tax deductible, and because the trust pays the medical expenses for the employee, the benefit is non-taxable. It is NOT insurance, once you run out of money in your trust you are on your own. PHSPs save a heck of a lot of money in taxes.

Some of the rules that apply to all PHSPs is that all claims must be adjudicated by a third party, typically a trust company or an insurance company. There are two reasons for this requirement: First, so privacy is maintained for employees. Secondly, so that all claims are verified eligible. These plan administrators usually charge a small fee, typically 10%, to push the paper and process the claim.

PHSPs are very flexible, they will pay for expenses that no insurance company will touch. Rather than use a plan design, (we will cover 80% of this drug but only 50% of that drug) any prescription, medical device, dental expense or vision care is eligible. What is and is not covered is dictated by the Income Tax Act, the Act is very vague and if you can justify it as a medical expense it is probably eligible.

Sample List of Eligible Expenses (PDF)

With the PHSP now any size business can provide health benefits to their employee’s. Incorporated business are essentially unlimited to how much they want to provide in benefit, unincorporated businesses such as sole proprietors have a few rules to follow.

Unincorporated
If you are unincorporated Canada Revenue has a harder time tracking your actual business income. Because of this they impose some strict rules to prevent money laundering. If you are unincorporated, your benefit cannot exceed the following

$1500 per year for yourself
$1500 per year for your spouse (if any)
$750 per dependent child (if any)

The average family of four gets $4500 in tax free medical and dental each year. Of note is that the money can be spent by anyone in the family, if you are greedy and want to spend $4500 yourself and let little Timmy’s teeth rot, you can.

Incorporated
If you have employee's you MUST provide a "like benefit" which just means give them a piece of the pie as well. The rule of thumb is that no class of employee should receive more than 10 times the next class. So if you are the owner and want $10,000 your employees should all receive $1,000. If you don't you risk creating a shareholder benefit, which is taxable.

My providers
I use two providers, Olympia Trust and Quikcard. I use two because they suit different needs.

Olympia Trust is excellent for sole proprietors or single person companies. They allow payment to be sent in at the time of claim, rather than requiring a trust fund be prepaid. Downside, they charge almost $400 to set up a plan. Their administration fee is 10% of the paid claims.

Quikcard, has no setup fee but requires prefunding of a trust, this means writing a cheque for $1500 to $4500 at the beginning of the year or making monthly contributions, and letting them sit on it. If you don’t spend the money you can have it back, it is yours after all, but not a lot of people like letting go of that much cash if they don’t have too. Their administration fee is 12% of paid claims.

TL;DR: If you are self employed incorporated or not, with any medical, dental or vision care claims you can save a boat load of tax dollars with a Private Health Services Plan

Edit: April 1, 2011 - I have changed providers away from Benecaid and to Quikcard, as Benecaid has implemented a $95 per year fee which started on April 1, 2011 and they provided very little notice of this change.

Insurance companies are smrt

2009-09-30T17:11:00.000-07:00

Dear Mr. Reynolds

We have returned the enclosed application due to a lack of Void cheque with which to set up the automated banking, please provide a void cheque and return to our office at your earliest convenience

You mean like the one I stapled to the application, like the one which someone in your office, removed, stamped "received" and then taped to the back of the same page? You mean like the one that was plainly obvious in the package you just returned to me as soon as I looked at it. You need a void cheque just like that one? Hmm, I'm stumped, I don't know where I will ever find a cheque like that... FML

Big Brother

2009-09-30T12:23:00.000-07:00

So my dad, Rick, got the following email from Standard Life today...

Hi Rick,
I've just been in touch with your assistant Kate. There has been some positive conversations here at Standard Life as a result of something your son wrote in his blog. I would very much like to discuss this with you when you are able. I would also like to introduce myself to you as one of your primary contacts at Standard Life.
My phone number is: XXX-XXX-XXXX

Best regards,
Tim Madokoro

At first I was worried I might have said something Standard Life considered libelous, and that I was going to be sued by their pack of hungry lawyers, then I re-read the email and found the words "positive conversation" and I felt a little better, but confused.

Apparently, Standard Life uses Google to tracks every time the words "Standard Life" appears on the internet. This was in regards to my post on Transamerica seg funds, which was just a quick post I made on my iPhone while waiting in the ferry lineup. I had a nice chat with Tim, who basically just said thanks for the recommendation and that I have been "noticed" by head office. A tiny blog post about a competators product, with a one line recommendation which had another competator listed first gets me noticed. I can only imagine what this post will generate as I have mentioned Standard Life, like a dozen times.

I'm not sure if this is awesome, or a little bit creepy. I'm being watched. Rest assured dear loyal readership of....um... Mom...? That I shall remain impartial and unbiased, unless I magically qualify for that upcoming convention in Prague. /sarcasm

Standard Life is a good company, it's nice to see they do take notice of what the advisors on the ground think and say. Most insurance companies are deaf and dumb when it comes to listening to their sales teams' advice. Now if only they would add the inception date and maturity guarantee dates to their investment statements. *waves* Hi Tim, Standard Life Head Office and Google.

Benefits Plan Taxation

2009-09-28T12:36:00.000-07:00

Benefits are typically tax preferred, the government likes private insurance because it takes strain off of the public plans. Canada Revenue encourages businesses to provide benefits by making them cheaper thanks to tax writeoffs and exemptions.

I have a handy article I include in all my group renewals, which provides all the taxation info you might need for your benefits plan. Taxation of Benefits

	Employer paid premiums	Benefits received by Employee
Health Care	Tax Deductible	Non-Taxable
Dental Care	Tax Deductible	Non-Taxable
Critical Illness*	Tax Deductible	Non-Taxable
Life Insurance/ AD&D	Tax Deductible	Taxable
Short and Long Term Disability	Tax Deductible	Taxable

*Critical Illness is currently being treated as a "Health Care" benefit Canada Revenue has not ruled on its official tax status and while we believe this tax treatment will be honored Canada Revenue could change their mind in the future.

Life Insurance and Disability Insurance benefits are considered Taxable by CRA, because they are paid as income. If an employer paid any portion (even 1 cent) of a disability premium, the benefit becomes taxable. For this reason we always recommend that the employee pay 100% of their Life and Disability premiums. This is usually fine if there is a 50/50 cost sharing arangment unless health and dental waivers are involved, see example C in the attached article. In that case you can add the required amount to an employees T4 as "extra income" and make the benefit non-taxable.

In cases where benefits are 100% employer paid, we will increase the disability benefit to adjust for taxation. Usually this means increasing the benefit formula from 66.7% of pre-disability income to 75% of pre-disability income. The after tax benefit amount will be similar, however, this is a more expensive method as it involves higher insurance volumes therefore higher premiums.

Taxation of Benefits

E.O.&E.

Disability Insurance Stats

2009-09-28T12:13:00.000-07:00

I got an interesting marketing piece from Canada Life today, I just wanted to share some of their Disability Stats. I use a lot of Great West Life disability policies, which are essentially identical to Canada Life, as Canada Life was purchased by Great West Life a few years ago and their product lines were merged.

As you can see a huge proportion of claims are from Mental Disorders, primarily Depression/Anxiety. The other massive group is Musculo-Skeletal, which are usually injury related, mostly back injuries.

A few more examples of typical claims.

Disability can effect people of all ages, in all occupations, for a large variety of reasons and for a number of years at a time. I think Disability Insurance is really important, and often gets overlooked.

Google analytics says

2009-09-25T09:08:00.001-07:00

People are finding my blog while searching for info on Transamerica Segfunds, specifically if they are safe.

Some back story. Transamerica sold a LOT of seg funds right before the dot com crash. Those funds are all negative over the last 10 years. Seg fund maturity guarentees are 10 years. So all those NASDAQ funds are now at maturity, which means Transamerica has to pay back 100% of the original deposits. Ouch for Transamerica but great for clients.

So if you own a dot com era Transamerica seg fund you might be in for a nice maturity guarentee cheque.

Transamerica has had to reserve a lot of capital to pay these guarentees so they might not be the best place to invest. They still have Assuris guarentees of $100k per account, so they are safe, but they might get bought out or merged if they keep taking big losses. Personally, I would get my maturity guarentee and invest the money somewhere else. I like Industrial Alliance Pacific and Standard Life.

- Posted using BlogPress from my iPhone

Thank god I'm covered

2009-09-24T18:05:00.000-07:00

I have been doing a lot of Disability Insurance quotes lately. I think it is related to the recession, specifically the unemployment numbers. I beleive people are seeing all of these layoffs which gets them thinking about their own job security. It is not a big stretch to go from worries about being laid off, to worries about being disabled and being unable to work even if you have a job.

Disability Insurance comes in all sorts of flavors, all different price ranges and have a wide variety of options. If you are thinking about disability insurance I can certainly help you find the right fit.

I work with small business owners and sole proprietors a lot, I have been doing a lot of policies set up like what i will describe below.

Policy : Great West Life - BossPlus Non-Cancelable Disability Policy
The policy is underwritten by Great West Life, which has an office in town, a lovely Living Benefits specialist named Helen Murphy, who can solve any problem and helps tremendously getting difficult policies placed. Great West Life has solid rates, which easily compete with the likes of RBC, and Manulife, two other companies with strong disability products.

The BossPlus policy has a lot of good features built in and is designed for business owners. One of my favorite built in features is the cashflow benefit. It is hard to just jump right back into your business after being disabled for possibly years. You have to let your clients know you are back, or find new ones. Those first months back are going to be tough. Great West Life will pay you a portion of your benefit for the first few months while you are returning to work to make things easier for you.

The Optional Features that I try and add to every policy are:

Enhanced Partial Disability
Either Regular Occupation Extention or Own Occupation Extention.

The Enhanced Partial Disability benefit pays you a pro-rated benefit if you suffer a partial loss of income or if you can only work part time due to disability. Often business owners will still answer the phone, do the books and try to manage from afar even if they are totally disabled, without this option, if they work at all they loose their benefit. But, by adding this option the business owner can keep their business alive while we pay them a prorated benefit to make up for their loss of income.

Regular Occupation and Own Occupation, have their differences but their goal is the same, keep your benefit coming even if you can do another job. With Regular Occupation, if you can work in another job but choose not too, you still get your benefit. With Own Occupation, you can work in another job, as long as it is a different career than before, earn a salary and STILL receive your benefit. I like Own Occupation for a business owner, because often they might be able to do another job, but are unable to run their own business. With this option they can take a job they might enjoy, earn a living, and still receive a benefit simply because they are unable to run their own company.

Premiums
Pricing, is influenced by the options above but mostly is tied to benefit amount, elimination period, and benefit length. Obviously the larger the benefit the more its going to cost.

The Elimination Period is the length of time you must be disabled before the benefit starts, it typically ranges from 30-365 days. Most employee's set their elimination period to 120 days, as EI runs out at 119 days. This way they jump right from EI to LTD so they never go without an income. Business owners don't have EI coverage, so the choice isn't as simple. I typically recommend 91 day elimination periods, most people can go 3 months on savings, or drawing from the company. 91 days is also the sweet spot for premium, dropping to 61 days adds 30% to the cost, waiting the whole 120 days only saves about 3%.

Benefit length is also up for debate, but most business owners love what they do and don't want to do anything else, most of them choose coverage to age 65. If the benefit is going to last more than 10 years I also add a Cost of Living Adjustment (COLA) which increases the benefit amount with inflation.

So whats it all add up too?

Name: John Doe
Age: 40
Gender: Male
Occupation: Accountant (class 4A)
Monthly Benefit: $5000
Elimination Period: 91 Days
Max Benefit: to Age 65
Options: Cost of Living Adjustment, Enhanced Partial Disability, Own Occupation Protection.

Monthly Premium: $185.54

Sample Illustration

It seems expensive at first but if he were disabled in the first month of the policy, and stayed that way till age 65, the insurance company would have paid him 2.5 Million dollars over the life of the policy. Furthermore, if he is getting a benefit of $5000 a month, he has to be earning close to $10,000 per month to qualify for that benefit, which means the premium is a little less than 2% of his income. Who wouldn't trade 2% for 2.5 Million? especially when you would need it the most.

One last little anecdote. We have a client who kept refusing the buy disability insurance, we finally convinced him he needed it, he was a motorcycle rider after all. About 6 months after getting the policy he was riding his bike down the road, hit a bump, flew over the handlebars, and while in mid air the only thought in his mind, or so he tell us, was "Thank god I'm covered". He broke both his wrists. His policy paid him buckets.

***Edit: I just re-read the post at home. Ugh, so many grammatical errors, I'll fix it later promise.

Enjoy attending those Chamber of Commerce meetings?

2009-09-22T18:40:00.000-07:00

What’s that? You don’t go? Then why are you paying upwards of $400 a year for the privilege of attending? Benefits plan you say? Let me show you something...

Most of the businesses I talk to who have a Chamber of Commerce benefits plan don’t go to the meetings, don’t take advantage of the services provided by the chamber, they pay the annual fee just so they can get into the benefits plan.

For a 2-5 employee company the Victoria Chamber of Commerce charges $448.38 per year to be a member. Why pay over four hundred dollars a year when we can do the same thing without a membership fee.

I have a plan which was designed specifically to compete directly with the Chamber of Commerce plan. On average we are 6-8% less expensive than the chamber for exactly the same benefits. We provide 100% pooling just like the Chamber, so you receive stable renewal rates. And no membership fee.

Want Proof?
Behold, Chamber of Commerce Plan (confidential information redacted) actual invoice

Total monthly premium $345.78
Total annual premium $4,149.36
Total annual premium plus membership fee $4,597.74

Sirius Benefits Plan

Total monthly premium $299.46
Total annual premium $3,593.52

You save $46.32 per month

$555.84 per year

PLUS the $448.38 charged by the Chamber for membership.

TOTAL SAVINGS $1050.54 per year, 22% savings.

If you have a Chamber of Commerce plan and you don't go to the meetings, I can save you a bunch of money. Even if you do enjoy your membership, I can still save you about 13% like the example above.

Check out my company website www.hmrinsurance.ca or call me toll free 1-888-592-4614

HST and your investments

2009-09-18T16:31:00.000-07:00

I received the following bulletin from Mackenzie Financial on the effect of the new Harmonized Sales Tax (HST) on investments such as Mutual Funds and Segregated Funds.

How does Harmonization affect
Canadian mutual fund investors?
Mutual fund investors pay a management fee on their
mutual funds in order to obtain the benefit of professional
money management advice and other services.
Since professional money management is considered a
service, mutual fund investors currently pay 5 percent
federal GST on the management fee and certain
operating expenses of the investment funds. These costs
are included in the Management Expense Ratio (MER) of
each particular mutual fund.
As a result of the HST, investors will now be required to
pay an additional provincial tax on management fees (and
certain other expenses of the MER) where it did not apply
previously. Therefore, this will result in a proportional
increase in the MERs of mutual funds and an additional
cost to investors.
Higher taxes on mutual funds will result in lower returns
to investors. Using Ontario as an example, assume a
mutual fund has a pre-tax MER equal to 2.28 percent1
and earns an 8 percent rate of return.
Under the current rules, the MER is equal to 2.39 percent
when GST is applied2. In this case, the investor would
receive a net return of 5.61 percent. If the HST legislation
is approved, the MER will increase by a further 0.18
percent to 2.57 percent. As a result of the additional
taxes imposed by the government on mutual funds, the
investor’s return would be reduced to 5.43 percent. In
other words, this tax increase imposed by the government
will directly result in a lower net return to the investor.
The following chart summarizes the implications to
investors on investments returns because of HST.

In real dollar terms, assume you have a mutual fund

portfolio with a value of $100,000 and it earns an

8 percent rate of return annually. Using the figures

above, you would be subject to additional taxes

of approximately $194 at the end of the first year,

assuming the fee is charged at the end of the year. In

addition, since the tax is applied annually based on

the market value of the investments, the annual dollar

amount may increase over time.

As the chart below illustrates, the cumulative taxes over

a 10-year period as a result of the HST is approximately

equal to $2,460, assuming the investment grows at an

annual rate of 8 percent per year over 10 years.

TL;DR
HST will eat an additional 0.16% of your investment return
HST will cost you $1,608 extra when using the 10 Year, $100,000 example above.

Original Bulletin

Corporate Insured Retirement Strategy

2009-09-17T17:05:00.000-07:00

Who likes paying taxes?

Yeah me neither... In retirement a lot of people are looking for ways to get at their money while paying the smallest amount of tax possible. Income streams are king in retirement, if you can pay less taxes you get more income. Drawing an income from an RRSP or RRIF has a heavy tax burden but is the only option for most people. If you are a business owner you have a strategy available to you that most people don’t have. It takes time to implement so you might want to start now.

Many business owners will retain earnings in their company as a natural tax shelter. Getting the money out can be difficult as it needs to come out in salary or dividends which means lots of tax is payable. Another issue with retained earnings is that once you have $400,000 of retained earnings in your company you have to start paying a “passive income tax” of 50% on that amount. Rather than pay this passive tax we start to deposit retained earnings into a Universal Life policy, the policy provides Key Person insurance which is probably needed, as well as holds a tax sheltered account exempt from the passive income tax.

Let’s assume a business owner shuffles $15,000 a year for 10 years into a universal life policy. At the end of 10 years, the policy has a death benefit of $319,333 and a cash value of $187,699.

Red is your cash, yellow is the growth of your cash, blue is the combination of the life insurance, deposits and growth.

The business owner goes to a bank and asks to borrow $187,699 in the form of a Line of Credit. The bank says it needs collateral, no problem the businessman has exactly $187,699 in his corporate life insurance policy. The company, which he owns, will even sign as a guarantor for the loan. The bank is happy and agrees to the loan. The bank stipulates it will call the loan if it is 90% of the value held in the life insurance policy. Since the investments in the life insurance policy will continue to grow the bank will often agree to extend further credit in the future. Interest on the Line of Credit is capitalized, rather than paid, it is added to the balance of the Line of Credit. You never need to pay an interest payment until the end of the loan.

Now I have fancy software that will calculate how much I can draw each year. The final number depends on life expectancy, rates of return and interest rates. A modest calculation show that starting at retirement, age 66, I can draw a TAX FREE income of $12,451 from the LoC every year till age 90. If all goes according to plan the loan balance will equal $554,233 at age 90, this is 90% of the value of the life insurance policy. At this point the bank can call the loan, this is a good time to die.

Once you kick the bucket, your life insurance policy pays out $709,538 in benefit, the bank gobbles up their half million and your heirs are left with a little over $150,000.

The linchpin of the whole exercise comes back to taxes, income and dividends are taxable, a loan isn’t. The $311,275 you drew drawn from the Line of Credit over the years is 100% tax free, furthermore the interest on the loan is potentially tax deductible (obligatory, refer to your accountant or tax specialist).
Sure you had to pay the insurance premiums and the interest but that is still $158,000 less than the taxes.
The Line of Credit is paid off with the life insurance, which comes in tax free. The income drawn from the Line of Credit was spent tax free, the retained earnings in the company were sheltered from tax in the life insurance policy.

So what is the downside, well risk. If the investments in the life insurance policy underperformed they might not be able to pay off the Line of Credit. If the loan was callable the bank might force you to liquidate other assets or even cash in the insurance policy against your will. You need to be insurable to get the life insurance policy in the first place. Lastly its confusing, its complex and the average person doesn’t want to think about it, a good accountant is often in charge of the whole plan.

While a very effective and intriguing plan, it is complex and requires a long time horizion, usually 25 years to complete. While proven to work, diversity is king, I would never recommend this as a sole retirement strategy, but it can be a powerful part of your retirement strategy.

TL;DR
1) Borrow a bunch of money
2) pay it off with insurance when you die.
3) ???
4) Profit

EO&E

To pool or not to pool - Small group insurance economics

2009-09-15T12:01:00.000-07:00

Pooling is essential for insurance, a large group of people pitch in a little bit of money each, and the result is a large reservoir of cash. Any claims are paid out of this pool, the water level drops a little but soon rises back to the high water mark with the many added contributions.

Group insurance typically pools Life, Accidental Death, Disability and Critical Illness Insurance. Because these claims are so unpredictable, and so large in value there is no way a small group can absorb their cost on their own. Sometimes for small groups, usually 10 or less, Health and Dental Insurance are pooled as well. A more common way of pricing health and dental insurance though, is called prospectively rated, or experience rated. Just like if you are constantly in car accidents or regularly set your house on fire, your insurance rates increase. The same can also be true for health insurance, if you are constantly in the hospital or have higher than normal claims your rates go up. The opposite can also be true, if you claim less you pay less.

Health and Dental expenses are different because they are more predictable than a death or disability claim. You can fairly accurately predict that the average person will go to the dentist twice a year approximately 6 months apart. You can predict that a prescription for the birth control pill will be filled once a month. Because we have a pretty good idea of what is going to happen we start budgeting rather than insuring. The wonderful thing about a budget is that you can come under budget and bank the difference.

I normally like experience rated health and dental benefits because it lets me and the client set out a budget for their claims, if they are over or under budget we have that information and can react accordingly. The client knows that they are paying for only as much as they are claiming. Under a fully pooled plan the client might be paying far more than they are actually claiming, they have no idea if they are getting a good deal or not, the insurance company doesn’t tell them.

A pool is big, stable, and predictable, a small group is just the opposite, volatile, unpredictable. The pool is safe and calm, what little ripples there are you can see coming from across the water. Small groups can seem like river rapids; rates and claims wildly gyrating, swirling constantly changing and never knowing what is coming around the next bend.

I instinctively gravitate towards the river rapids, as I think it is the best value. However, the wild rate changes a group can experience can easily backfire against me. When I have to tell a group their rates are going up 30% next year it is never a good day for anyone. On the other hand, a large pooled plan might only go up 6% that same year, with the same claims from that same member group. It doesn’t mean that group doesn’t deserve a 30% increase it just means other member groups in the pool paid too much and offset my groups high claims.

Fully pooled plans are, by nature, unfair. Some groups pay more than their share, while others profit from it. But in the end everyone gets the same rates. I think as a first step a pooled plan can be good for a client, if they don’t want to worry about the plan, and just want it in place and they can think about it as a true insurance sunk cost. Then a pooled plan will probably be alright, but I will still feel like I’m not getting them the best value, and I lie awake at night worrying that they might be spending too much (seriously, I lose sleep over this stuff, it's a good thing I have those psychologist benefits). On the other hand they could go experience rated and see their rates fly through the roof, that doesn’t help them either as it means their benefits now cost more than the pooled plan would have. That client also can’t get the better pooled rate anymore since they have to disclose their experience to the pool before they join, so even if they did try and go into the pooled plan they will get a higher rate which reflects their past experience.

It is a tough choice, be ignorant of your actual cost but maintain stability in rates, or have transparency and volatility. I am an open information kinda guy, so I choose transparency and freedom of information over closed systems and being in the dark. I know of some clients who would have been better in a pool. But I have just as many that are far better off being experience rated. The choice ultimately comes down to what the client wants and their risk tolerance, If they are willing to accept some volatility in the name of potential savings. Or if they are willing to possibly pay too much to reduce their risk.

Joint First to Die

2009-09-08T11:29:00.001-07:00

One of the most frequent life insurance needs I run into is a young family who have just purchased a house. Both spouses need life insurance in case one of them dies. The benefit would be used to pay off the mortgage, provide some income for the survivor and maybe set up a trust fund for the kids. A Joint First to Die policy seems like the perfect fit. This type of policy is one contract on both of the spouse’s lives. The benefit is triggered by the death of the first spouse. Sounds simple enough right?

I have a few problems with Joint First to Die policies, some of which come from experience, others I hope never to experience. Every company words their policies differently and they all have certain... shall we say “quirks” that don’t make any darned sense. I feel I need to preface this entire article with “typically”, “most of the time”, “usually” because the way you think, want, or understand it should work isn’t always how it works. Observe.

Joint Disaster – No, not when the police seize your weed, but a scary way of saying both people insured die at the same time (car crash, plane crash, etc.). Typically to be considered a joint disaster both insured have to die within 30 days. They don’t have to die of the same event, just within the same 30 day window. The first to die of Jack and Jill is insured for $1 Million. If both insured die at the same time, some policies will pay out double, or $2 Million because each life was insured for $1 Million. Some other policies such as Great West Life do not pay a double benefit they will only pay out on the first death and then the contract ends. Don’t you think little Timmy and Tammy should get $2 Million if both their parents die? I do.

Well if the benefit is half it must be cheaper right? Wrong.
Joint policies tend to be a little bit cheaper; Manulife boasts their joint policies are 3% cheaper than two separate policies. True but misleading, every policy has a “policy fee” attached to it. The policy fee usually runs about $50 a year, it is just an administration charge it is not part of the insurance. Since Joint policies cover two people with only one policy you save on the fee, good deal right? Guess what? If I send in two applications at the same time, say for a husband and wife, I can ask the insurance company to waive one of the two policy fees, presto same price.

Separation/Divorce – While most of the clients I talk to are all happy loving couples who just bought their first home and love each other ever so much, the fact is that about half of them will divorce at some point. Splitting a joint policy is a pain in the butt. Divorces can be nasty, ugly, bitter affairs. I have seen cases where the policy is paid out of “that cheating bastards” bank account, so “the backstabbing bitch” won’t sign the papers to change the banking information because it costs “the asshole” money. Hilarity and lawyers ensue...

Aside from the actual paperwork to split the policy, how the policy is split can also be fraught with peril. Two lives, each insured for $1 Million depending on who dies first should be split into two policies worth $1 Million each right? Not necessarily. After the first death the policy usually ends, the insurance company would only have to pay out $1 Million, there is no way they are going to want to double the risk on their books. You each get $500,000, tough.

Joint First to Die policies have a lot of problems and a lot of uncertainty due to the myriad of rules, quirks and annoying little idiosyncrasies. Two individual policies avoid this entire headache, cost the same, are more portable and pay out as expected. Because of this I have stopped selling Joint First to Die policies entirely, you can simply do a better job with two policies instead of one. It means I have to do double the paperwork but it is well worth it for my clients.

EO&E

	Annual Trend factor for EHC plans
No Deductible	11.5%
With Deductible	13%

Date	Generic drug price
April/May 2010	Prices reduce to 50 per cent of brand price
April 1, 2011	Prices reduce to 35 per cent of brand price
April 1, 2012	Prices reduce to 25 per cent of brand price

Drug use in Ontario:	Brand versus Generic
Brand name drugs	76 per cent of sales
Generic	24 per cent of sales

Canadian Life and Health Insurance

Pooled Registered Pension Plan (PRPP)

Long time no post, here is some marketing jargon I put together recently

A more affordable Health and Dental plan

where you control the rates!

Lower EHC trend factor used for pricing

New Trend Factors

Why are we making these changes?

Timing

Questions?

Worst Acting Ever

Dollar Cost Averaging

Insurance and LGBT

Money back guarentee

How to spot a crappy advisor

Bonds for dummies

Sound off in the comments

What is the absolute cheapest way to run a benefits plan?

Potential conflict of interest

Creative Saving

New ACS Buck Health Care Trends Survey for 2010

New Agency Managment System.

Youtube

New Generic Drug Reform Coming to BC

Group Benefits GST/HST Update

Courtesy of Sun Life Focus Update

Background

General Place of Supply rules

How will the GST/HST be applied?

Overview of GST, HST or QST rates by Province:

Other Relevant Details

Other Taxes

More Information

Survey your employees, find out what they really want in a benefits plan.

Care for stroke patients: $50,000 in first 6 months

Creative Employee Benefits solutions

10 Perks We Love

Pressed for time

A free ride

Lunch is served

Swept off your feet

Bonus prizes

Do your own thing

Bon voyage!

Bring the kids

Dinner's on us

Helping you help out

Generic Drugs Vs. Brand Name Drugs

The Future

A Benefit plan – The Basics

Is you benefits plan in the crapper? We can help flush away your problems!

A tooth ache can be taxing.

Why Price sometimes doesn't matter

Lisa Needs Braces

Group Insurance Quotes

More news on HST

Ontario Drug Reform

Target Loss Ratio?

Renewal Reports

I'm having a good day today

HST on Insurance and Investments

Please allow 6-8 weeks for delivery

Critical Illness Insurance Stats

Renewal maths

Look in the mirror and say their name three times: Manulife, Manulife, Manulife

Manulife your group renewals SUCK

Gamble with a guarantee

Trading liquidity for certainty with an annuity

Taxation of Critical Illness and Disability Insurance Cheat Sheet

Employment Insurance for Self Employed Individuals

Happy New Year

Employee premium rate(per $100 of insurable earnings)

Downtime

Got Liability Insurance?

Pharmacy Dispensing Fee's in BC

Drug Plans

Demystifying Renewal Pricing

Why is my Extended Heath Care plan always getting more expensive?

How Do I Know I am Getting "The Best Rate"?

Group Savings Plan Returns are NOT the Same as Private Plan Returns

Employee premium rate
(per $100 of insurable earnings)