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Frequently Asked Questions
Critical Illness FAQ's
Registered Education Savings Plan
FAQ's
Disability Insurance FAQ’s
RRSP FAQ’s
Critical Illness FAQ ’s
1. What is Critical Illness Insurance?
Critical Illness Insurance as the name implies protects an insured in the event
of a life threatening illness. A doctor who saw the need to financially protect
his patients while they were recovering from a major illness developed critical
Illness insurance in South Africa.
2. How does Critical Illness protect me?
Critical Illness insurance pay out a tax-free lump sum to an insured in the
event that he/she suffers from life threatening illness.
3. When is the claim paid out?
The proceeds are paid out thirty (30) days after the first occurrence of a
life threatening illness.
4. What are some of the covered conditions?
Covered conditions vary from company to company but some of the most common
illnesses covered are Heart Attack, Stroke, Life threatening Cancer, Paralysis,
Multiple Sclerosis, Coronary Artery by-pass Surgery, Renal Failure, Blindness,
Deafness and Major Organ transplant.
5. Why is there such a need for this product?
Critical Illness insurance is strategically placed between life and disability
insurance since it pays out a tax-free lump sum thirty days after a life
threatening illness. Life insurance pays out on death and disability insurance
pays out a monthly income stream. Statistics Canada has also revealed that
1 out of every 4 Canadians will experience a serious, life threatening illness
by the time they are 65.
6. Why is that Statistic Canada ratio so important?
This is very important since we live in a country which provides an excellent
health care system, and with advances in medical technology will result in
many of us living longer, even after suffering a life threatening illness.
7. What are some of the applications for Critical Illness insurance?
Most Canadians today are purchasing Critical Illness protection for that added
peace of mind knowing that if these illnesses do occur they will be in a
better position to make strategic financial decisions. Critical Illness insurance
is also being used for mortgage protection, fund buy-sell agreements and
key-man insurance in the business markets.
8. What is the minimum/maximum age for his product?
Most companies issue this product from age eighteen (18)
to a maximum age of 65. Keep in mind that a parent can attach
a Child’s rider to his/her
own policy to cover Critical Illness.
9. What are the minimum/maximum coverage of Critical Illness?
These amounts vary from company to company. The minimum amount that can be
issued is $25,000 and the maximum is $ 1,000,000. Companies may also consider
offers for higher limits.
10. What happens if I die within thirty days of being diagnosed?
If you were to die within thirty days of the first occurrence
of your life threatening illness, your beneficiary would receive
a full refund of the
premiums you’ve paid.
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Registered Education Savings Plan
1. What is an RESP?
RESP's are Registered Education Savings Plans is an educational savings plan
that allows for the tax-free accumulation of deposits until your child is ready
for post-secondary education. The plan can be opened at any time, but has a
maximum life span of twenty- six years.
2. What is the Canadian Education Savings Grant (CESG)?
The CESG came into effect on January 1st 1998 by the federal
government. This grant equals 20% of the first $2,000 that is contributed
to the plan annually. The grant stops at age 18 and the maximum
annual grant will be $400 per child.
3. Is there a maximum contribution amount?
Yes, you can contribute up to $4,000 per year to a maximum
of $42,000. However the CESG is only available to the first $2,000
per year.
4. Is there a maximum contribution period?
Yes, you can contribute to an RESP for up to 21 years. However
the grant is only available until the beneficiary (child) turns
18. You can also leave the plan intact for no more than 26 years.
5. Is there a deadline for contributions?
No, a subscriber can make deposits to an RESP plan at any time
during the year as the grants are paid on a quarterly basis, based
on a calendar year. It is to your advantage to contribute early
in the year to take advantage of the grant and the tax-free compounding
of the plan.
6. Who is a subscriber?
A subscriber is any one who establishes an RESP for a child.
Subscribers may be parents, grandparents as long as there is a
blood or adoption association under a Family Beneficiary RESP plan.
Under a single beneficiary plan anyone can be a subscriber including
a friend or family member.
7. Are joint-subscribers allowed?
Yes, only spouses are qualified for the joint subscriber privilege.
8. Can I deduct my contribution?
Unfortunately, RESP contributions are not tax deductible. However
contributions made to the RESP as well as the CESG grow tax deferred
until withdrawn by your child.
9. What do I have to do to qualify for the CESG?
Your child will need to have his/her Social Insurance Number
(SIN) in order to receive this grant. Human Resources Development
Canada issues SIN cards. You may be able to pick up the application
forms from some local banks and Financial Advisors. Or from this
website.
10. What educational programs qualify?
Presently, a program must run for three or four consecutive
weeks (13 weeks if your child studies outside of Canada) and the
child must spend at least 10 hours per week on his/her educational
program. This applies to post-secondary education.
11. What happens if my child doesn't attend post-secondary school?
Most RESP plans are multi-beneficiary which allows the benefits
to be transferred to another child. In some cases and under certain
conditions, you are allowed to transfer the RESP into your RRSP.
12. When is the best time to start?
Honestly, the best time to start an RESP for your child is
yesterday. With the spiralling costs of post-secondary education
the sooner you get started the better.
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Disability Insurance FAQ’s
1. What is Disability Insurance?
Disability Insurance (DI) is an insurance contract, which guarantees
a policyholder a fixed or indexed income in the event of an unexpected
disability.
2. What are the maximum benefits?
Maximum benefits depend on your choice of Insurance Companies
and would range from 66 2/3% to 70% of your taxable income.
3. What are the key factors of DI?
In order to have the proper type of coverage and most economical
pricing model you will have to consider your occupation, age, sex,
income, and health.
4. Why is occupation important?
Occupation is very important since DI is determined by classification
and duties of the policyholder are more important than his/her
job title.
5. What does occupation classification control?
Occupation classification controls the type of policy you will
own, the benefits you receive and the premiums you pay.
6. How many occupation classifications are there?
Classification differs from one Insurance Company to another
but most companies have 4-6 classes.
7. What are these classes?
Classes range from Professionals and Executives to Middle Management
and Manual Labour.
8. Why is age important?
The age of the insured determines the premium that will be
charged as in some cases limit the amount of the benefits.
9. Why is sex important?
Unlike life insurance where woman live longer than men and
they pay less premiums, the opposite holds true for DI. Women tend
to have more frequent claims and they generally pay higher premiums.
10. How important is income?
The purpose of establishing a DI contract is to provide the
necessitation of life while you recover from a disability. DI will
replace a percentage of the earned income of the insured and a
percentage of a taxable income for self-employed individuals.
11. What is Earned Income?
Earned income consists of salary, commissions, fees or other
income earned as well as a result of day-to-day activities.
12. What is Unearned Income?
Unearned income is income that will continue even when you
are disabled. An example of this may be invested income from stocks,
mutual funds, or rental income from property.
13. Why is health so important?
Good health is crucial in a DI policy being approved. You
can completely satisfy the previous key factors but if you
don’t
fulfill the medical standards, the policy will not be
granted.
14. What is Definition of Total Disability?
Of all the provisions in a DI contract, definition is most
important since it proved eligibility for claims.
15. How many types of Total Disability Definitions are there?
There are basically three types of Total Disability Definitions.
They are – Own Occupation, Regular Occupation, and Any
Occupation.
16. What is Own Occupation Definition?
This is the most literal definition and is usually available
in top occupational classes. The key point is that a person is
unable to perform the important duties of his/her own occupation
and is under the regular care of a physician.
17. What is Regular Occupation Definition?
The definition is important if the insured cannot perform substantial
and material duties of his or her own occupation and is not employed
in a reasonable occupation.
18. What is Any Occupation Definition?
This definition does not recognize the insured’s own occupation
but instead, his/her ability to earn income. If he/she
is able to work in another reasonable occupation they will not
be eligible for
total disability benefits.
19. How many DI policies can I own?
Technically you can own as many controls as you deserve
as long as your total benefit does not go over 66 2/3 – 70%
of your taxable income.
20. What is the waiting time for benefits?
The waiting time or Elimination Periods can vary from immediate
to 30, 60, 90 days or more. The longer the elimination period the
more cost offered the policy.
21. How long can I recover benefits?
That depends on the type of policy you purchase since benefits
can range from 2yrs, 5yr, 10yrs or to age 65.
22. Are my benefits Taxable?
Generally no, since you (on an individual basis) will pay for
the DI coverage with after-tax dollars the benefit to you will
be tax-free.
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RRSP FAQ’s
1. What is an RRSP?
RRSP is the abbreviated name for Registered Retirement savings Plan.
This a voluntary plan that allows the Canadian consumer the
ability to accumulate money, on a tax-deferred basis for their retirement.
2. Why do I need to start one? And how do I start?
The best way to save for retirement and to save on taxes at the
same time is to buy RRSP's. If you have not yet taken a look at this
concept, now is the time.
3. Tax deductions
When you invest in an RRSP you are entitled to claim a tax reduction
for the total amount you contributed to the RRSP. The more you earn,
the more you stand to receive. For example, for a person who earns
an average income, they can invest about $1,000 and be eligible to
receive at least $385.
4. Tax-protected earnings
You earn interest on your RRSP but you do not pay any taxes on the
interest until you withdraw money from the account. When you contribute
to an RRSP, you usually leave the money in the account until you
reach the age of retirement. At that time you would make gradual
withdrawals, each time declaring it as income and, when you file
your annual tax return, you pay the tax on the amounts you withdrew.
However, you are entitled to withdraw money from your RRSP account
at any time provided you declare the amounts as income and pay the
taxes on them when you file your annual tax return.
5. Annual contribution limit
You are allowed to invest a maximum of 18% of your income for the
current year, or to a maximum of currently (2004) $14,500. For 2005
that maximum limit will be $15,500 and then indexed for future years.
For example, if your net income for the last year were $49,500 you
would be allowed to contribute a maximum of $8,910 this year.
6. RRSP contribution deadline
You are allowed to make an RRSP contribution during the current
year of income and the first sixty (60) days of a new calendar year.
7. Unused contribution room
Since the seven-year carry forward limit was lifted from the Government,
you can now carry forward any unused contribution from as long ago
as 1991. This amount can be carried forward every year until your
retirement age.
If you have not made any RRSP contributions for the past few years
but you have been earning an income, your unused amounts will be
carried forward to the next year you make an RRSP contribution.
Check the Assessment Notice you received after find last year’s
taxes under the heading RRSP Deduction Limit Statement
to find out the amount you are allowed to contribute.
8. Choosing investments for RRSP's
At least a hundred RRSP investments are there for you to choose
from. If you are skeptical as to which is best suited for you consult
your bank or credit union. By doing this you will be able to get
a better understanding of how RRSP's work and not go into any investment
blindly.
Some of the RRSP plans will be based on GIC's or Guaranteed Investment
Certificates and issued directly from your bank. The bank offers
you interest on the amount you invest but usually the rate is not
very high. The bank also guarantees that the money you invest will
not be lost.
Other RRSP investments are in the stock market, government treasury
bills, which have a guarantee by the government, combinations of
stocks and bonds, etc.
9. Beginner's steps
The bigger the risk you are willing to take, the higher your rate
of return. However, beginners tend to choose investments that are
safer such as GIC's until they have gained enough experience to try
other investments.
Free booklets on RRSP's are available at any financial institution
for your information. Also, there are leaflets available at your
tax office with information on the tax advantages of RRSP's and how
to calculate contribution limits.
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