Blog Post

The Importance of Disability Insurance

Katherine Martin • Mar 28, 2016

It took a journey back into the archives to find this little beauty of a video by Canadian finance expert Preet Banerjee.

Before giving Ted Talks, or appearing regularly on CBC Marketplace, or any of the other countless things Preet has done, he had some smart things to say about disability insurance. Certainly worth a watch!

If you are in the process of buying a home and/or thinking about protecting yourself, feel free to contact me anytime! I will make sure you are well taken care of.

Transcript

Hi everyone, my name is Preet Banerjee, and today we’re going to talk about disability insurance. But before we get started, I wanted to share some other feedback that I received from the first video blog entry. Essentially I was told, do not wear just a black t-shirt, do not call it Mostly Money Mostly Canadian, and try not to be such a tight ass.

Okay, so what’s the deal with disability insurance? You insure your house, you insure your car, and might even injure every single out electronic gadget that you own. But what about your single biggest asset; your ability to earning income for the rest of your life.

Let’s put that into context: Assume a university graduate starts their working career earning forty five thousand dollars per year, assuming raises and promotions over time, perhaps their salary grows by 4% per year. Over 40 year career, that translates into over 4.25 million dollars. Overtime part of that is slowly converted into tangible assets and investments. While you are younger your future potential earnings is your biggest asset. How well-protected is that asset?

For example, life insurance protects your family’s lifestyle if you die. Clearly your income stops but a lump sum death benefit is there to provide for your family. When you die, you don’t want your spouse or the rest of your family to be burdened unnecessarily if you can avoid it. So perhaps, that lump sum benefit can be used to pay off the mortgage, help with the bills that need to be paid, maybe it’s for education for the kids. But what happens if you don’t die? What happens if you become sick or injured and don’t have an income anymore? Your family is not going to get that life insurance lump-sum death benefit and remember to collect that lump sum death benefit you have to be dead, so that’s off the table. You’re alive, you’re just unable to work, what do you do?

Unfortunately the sad realization for many families is, they might have been better off if they had indeed died. Because they’re still alive but they don’t have an income and they still have all those bills to pay. The mortgage still needs to be paid, other bills around the house all still need to be paid, and quite frankly depending on your injury or sickness you might need to afford special assistant devices. What could end up happening is a downsizing of your lifestyle, or quite frankly you can go broke.

According to Canada Life you have a 1 in 3 chance at becoming disabled for more than 90 days before the age of 65 and the average length disability that last more than 90 days is 2.9 years.

Ask yourself this question: Could your finances survive 2.9 years of no income? Now if you have a benefit plan at work that provides for disability insurance coverage, make sure that you take a look at that book and see exactly what that coverage is. Some benefit plans only pay for five years, others pay until you turn 65. The percentage of income that’s replaced also varies, so dig out that employee handbook and look it up and see how much coverage you actually have. If you find that you don’t have enough or as much as you would like, talk to an insurance agent. They can create a pop-up plan that would piggyback onto your existing coverage. And if you have no disability insurance whatsoever, run (safely) don’t walk to your insurance agent to talk about what your options are.

Simply talking to an insurance agent doesn’t mean you have to sign up for a policy but I promise you one of the biggest mistake people make is not having disability insurance coverage.

Now, you should be prepared for some sticker shock, disability insurance policy’s don’t tend to be the cheapest insurance policies but remember the asset that you’re protecting is potentially one is your single biggest asset, so it would only make sense that it would cost more. a typical insurance policy for disability coverage might be a hundred dollars a month, it could be a little bit less and could be substantially more. It really depends on the type of work you do, and your health situation as well as other factors that you’re agent can talk to you about. Remember, always seek the advice of a qualified professional for your own situation. These are just general tips to bring you up to speed on that very basics.

Well that’s it for this video, I hope you have a better understanding now of disability insurance coverage. My name’s Preet Banerjee, don’t forget to subscribe to my YouTube channel for more money tips.

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Mail

Katherine Martin

Origin Mortgages

Phone: 1-604-454-0843
Email: kmartin@planmymortgage.ca
Fax: 1-604-454-0842

Understanding a Spousal Buyout Mortgage

By Katherine Martin • 08 May, 2024

If you’re going through or considering a divorce or separation, you might not be aware that there are mortgage products designed to allow you to refinance your property and buy out your ex-spouse. If you’re like most people, your property is your most significant asset and is where most of your equity is tied up. If this is the case, it’s possible to structure a new mortgage that allows you to purchase the property from your ex-spouse for up to 95% of the property’s value. Alternatively, if your ex-spouse wants to keep the property, they can buy you out using the same program. It’s called the spousal buyout program. Here are some of the common questions people have about the program. Is a finalized separation agreement required? Yes. To qualify, you’ll need to provide the lender with a copy of the signed separation agreement, which clearly outlines asset allocation. Can the net proceeds be used for home renovations or pay off loans? No. The net proceeds can only buy out the other owner’s share of equity and/or pay off joint debt as explicitly agreed upon in the finalized separation agreement. What is the maximum amount that you can access through the program? The maximum equity you can withdraw is the amount agreed upon in the separation agreement to buy out the other owner’s share of the property and/or retire joint debts (if any), not exceeding 95% loan to value. What is the maximum permitted loan to value? The maximum loan to value is the lesser of 95% or the remaining mortgage + the equity required to buy out other owner and/or pay off joint debt (which, in some cases, can total < 95% LTV. The property must be the primary owner-occupied residence. Do all parties have to be on title? Yes. All parties to the transaction have to be current registered owners on title. Your solicitor will be required to confirm this with a title search. Do the parties have to be a married or common-law couple? No. Not only will the spousal buyout program support married and common-law couples who are divorcing or separating, but it’s also designed for friends or siblings who need an exit from a mortgage. The lender can consider this on an exception basis with insurer approval. In this case, as there won’t be a separation agreement, a standard clause will need to be included in the purchase contract to outline the buyout. Is a full appraisal required? Yes. When considering this type of mortgage, a physical appraisal of the property is required as part of the necessary documents to finalize the transaction. While this is a good start to answering some of the questions you might have about getting a mortgage to help you through a marital breakdown, it’s certainly not comprehensive. When you work with an independent mortgage professional, not only do you get a choice between lenders and considerably more mortgage options, but you get the unbiased mortgage advice to ensure you understand all your options and get the right mortgage for you. Please connect anytime; it would be a pleasure to discuss your needs directly and provide you with options to help you secure the best mortgage financing available. Also, please be assured that all communication will be held in the strictest of confidence.

Why Downpayment Source Matters

By Katherine Martin • 01 May, 2024

If you’re looking to purchase a property, although you might not think it matters too much, the source of your downpayment means a great deal to the lender. Let’s discuss the lender requirements, what your downpayment tells the lender about your financial situation, a how downpayment helps establish the mortgage loan to value. Anti-money laundering Lenders care about your downpayment source because, legally, they have to. To prevent money laundering, lenders have to document the source of the downpayment on every home purchase. Acceptable forms of downpayment are money from your resources, borrowed funds through an insured program called the FlexDown, or money you receive as a gift from an immediate family member. To prove the funds are from your resources and not laundered money from the proceeds of crime, you’ll be required to provide bank statements showing the money has been in your account for at least 90 days or that you’ve accumulated the funds through payroll deposits or other acceptable means. Now, if you’re borrowing all or part of your downpayment, you’ll need to include the costs of carrying the payments on the borrowed downpayment in your debt service ratios. If you’re the recipient of a gift from a direct family member, you’ll need to provide a signed gift letter indicating that the funds are a true gift and have no schedule for repayment. From there, you’ll need to show the money deposit into your account. Financial suitability Lenders care about the source of the downpayment because it is an indicator that you are financially able to purchase the property. Showing the lender that your downpayment is coming from your resources is the best. This demonstrates that you have positive cash flow and that you’re able to save money and manage your finances in a way that indicates you’ll most likely make your mortgage payments on time. If your downpayment is borrowed or from a gift, there’s a chance that they’ll want to scrutinize the rest of your application more closely. The bigger your downpayment, the better, well, as far as the lender is concerned. The way they see it, there is a direct correlation between how much money you have as equity to the likelihood you will or won’t default on their mortgage. Essentially, the more equity you have, the less likely you will walk away from the mortgage, which lessens their risk. Downpayment establishes the loan to value (LTV) Thirdly, your downpayment establishes the loan to value ratio. The loan to value ratio or LTV is the percentage of the property’s value compared to the mortgage amount. In Canada, a lender cannot lend more than 95% of a property’s value. So, if you’re buying a home for $400k, the lender can lend $380k, and you’re responsible for coming up with 5%, $ 20k in this situation. But you might be asking yourself, how does the source of the downpayment impact LTV? Great question, and to answer this, we have to look at how to establish property value. Simply put, something is worth what someone is willing to pay for it and what someone is willing to sell it for. Of course, within reason, having no external factors coming into play. When dealing with real estate, an appraisal of the property will include comparisons of what other people have agreed to pay for similar properties in the past. You’ll often hear of situations where buyers and sellers try to inflate the sale price to help finalize the transaction artificially. Any scenario where the buyer isn’t coming up with all of the money for the downpayment, independent of the seller, impacts the LTV. All details of a real estate transaction purchase and sale have to be disclosed to the lender. If there’s any money transferring behind the scenes, this impacts the LTV, and the lender won’t proceed with financing. Non-disclosure to the lender is mortgage fraud. So there you have it; hopefully, this provides context to why lenders ask for documents to prove the source of your downpayment. If you’d like to talk about mortgage financing, please connect anytime; it would be a pleasure to work with you.