One of the most neglected vehicles for wealth preservation and tax minimization is the Insurance Audit. “For many people, insurance is considered to be a necessary evil,” says Colin Keddy, Director of TAAG’s Family Office + Wealth division. “Less than 50% of people have proper insurance coverage.”
For an individual, an Insurance Audit is a review of all the insurance you have purchased over your lifetime and the determination of whether that insurance provides proper value and coverage for your wealth and estate objectives.
Businesses also need to review the status of the various forms of insurance they carry, such as “buy/sell” agreements and “key man” provisions. Many business owners have no critical illness or disability insurance. They hope that nothing will go wrong or that the business will carry on without them.
“At TAAG Family Office + Wealth, we have a set format,” says Keddy. “We specialize in whole life insurance and living benefits, such as critical illness and disability insurance. We don’t do home, vehicle, or corporate insurance.”
“An Insurance Audit can be done in a couple of hours after you have gathered all the relevant information,” says Keddy, “and we generally offer this service on a complimentary basis.”
The principal benefit of an Insurance Audit is “peace of mind”. You rest easier knowing that the insurance you have purchased will look after your needs over your lifetime. Keddy points out that the majority of people purchase term insurance because it is less expensive. However, they are usually unaware of, or ignore, the huge increases in premiums for term insurance that occur in the tenth and twentieth years, and also that policies cannot continue beyond age 85. “So it is really rented insurance,” says Keddy.
“Many people use term insurance for their estate planning when it is really whole life insurance that should be used. Permanent insurance provides a tax-sheltered source of wealth. The balance grows on a tax-free basis and money can be withdrawn if and as required. “Compare this to the 50.5% tax on passive income that the government charges. Insurance is one of the few vehicles where you can shelter passive income and not create a tax liability.”
How often should an Insurance Audit be conducted? “In general terms, about once every seven years,” says Keddy, “similar to wills and powers of attorney.” But major life events – a new baby, a new home, increased liability in an investment or business – should trigger a review of all insurance in place.
For more information on whether it is time for you to have an Insurance Audit, contact Colin Keddy, TAAG Family Office + Wealth at colin@taag.ca.
Colin Keddy, RFP
Director of Family Office + Wealth
