A Complete Guide on Insurance Brokers

Laymen and women do not fully understand the insurance field. A business owner seeking to find the best business insurance brokers Burlington offers will do a quick internet search which will yield several results. It is likely that most of such individuals are not aware that not all commercial insurance brokers operate in a similar manner. Thus, they may randomly select a broker, without prior knowledge on the services to expect.

There are different types of insurance brokers. Each of the categories has its strengths, limitations and procedure to operate. Therefore, one broker can be appropriate for one business but not the other. Here are the different types available.

Broker networks

They comprise of many small business insurance brokers, who share assets, market opportunities, and resources collectively. This arrangement is considered to be advantageous to companies that decide to be part of one of these networks. These companies advertise attractive commission for individual brokers and service expectations in general.

Insurer-owned brokers

These are probably the most commonly known and appreciated the type of insurance agents in the market. Most of the popularly known brokers are in this category. The brokers are owned and managed by the said insurance company. The insurer stipulates their practices and standards. For a long time, this model has been regarded as the industry standard. However, this is no longer the case, as their effectiveness has gradually decreased over the years.

Consolidated brokers

They result when one company buys or rather assimilates some smaller companies, just like what happens in corporate mergers. Some time back, these were the most common types of insurance brokers in some markets, with mergers taking place on a weekly basis. Considering that the result of consolidation is not clear, these mergers are not popular today.

Independent brokers

The forth type of commercial insurance brokers are independent brokers. They are not in any way associated with any of the three mentioned in the article. They tend to be small, and some are family owned. They have direct and personalized relationships with their clients. Clients who choose this type experienced personalized services, with high face-to-face interactions and more time devotion to every case.

How to choose an insurance broker

Consider recommendations

Ask advice from friends, relatives and colleagues who have hired insurance brokers previously. It is always better to ask for recommendations rather than to depend on yellow pages. Ask them how their experience with the broker was like, as well as their charges.

Look for reviews

Visit the sites for the brokers to whom you have been recommended to. Usually, former clients will post their reviews. If there are more positive reviews than negative ones, that is a good broker. On the contrary, many negative reviews are red signs of poor services.

Specialization

Brokers tend to specialize in various insurance policies. Therefore, choose one who can serve your needs.

Customized advice

A good broker will be knowledgeable on matters pertaining policies, the coverage, and the costs. The individual will thus be able to give you appropriate guidance. If you come across one who has the shallow, know how do not hire them.

Now, you know the type of broker and the considerations to bear when choosing a business insurance broker. Make a wise decision.…

Student Debt Repayment

Post secondary education is definitely an investment in ones’  future, but the costs are rising each and every year.  Statistics Canada reported that Canadian undergraduate tuition fees in the 2008/09 academic year rose 3.6% from the previous year, after a 2.8% increase in the 2007/08 year. Over the 10 year period from 1998/99 to 2008/08, undergrad tuition fees rose on average 4.4% per year, while inflation in comparison rose 2.3% per year over the same period.

Because of this, it’s not surprising that many students must go into debt to pursue their education.  In fact, the Canadian Federation of Students claims that as of this writing, that the level of Canada Student Loan debt is currently over $13 Billion.  This even excludes provincial and private loans to pursue education, and many students must borrow from multiple sources.

One advantage of a Canada Student Loan versus a bank student loan, is that any interest paid on your loan is tax-deductible (that is, you pay the interest in pre-tax dollars).  Every year, come tax season, the National Student Loan Service Centre (NSLSC) mails out a receipt for the total interest paid on your loans to claim on your tax return.

If you’re like me, and have loans through both the NSLSC and a bank, you may want to consider this strategy to see if it makes sense for you.

Because the interest on your bank loan is not tax deductible, it is likely to your benefit to pay off this loan as quickly as possible, in order to pay as little interest as you can.  However, many students in their first few years coming out of school, likely don’t have incredibly lucrative careers yet.  Hence, you may not have the cash flow to pay as much as you would like to your loans as quickly as you’d like.

Now, when it comes to repayment at your bank, you won’t really have a lot of options: they will likely dictate the term of your loan repayment, and assign an interest rate based on your credit history.  You may even have had a co-signer on your loan (like a parent, spouse, or other family member) whose credit this loan will affect.  The bank will determine what your periodic payments will be, and you’ll start paying!

With a Canada Student Loan, there is the possibility for a tad more flexibility.  If your income is not over a certain threshold, you could qualify for interest relief, where you do not have to make payments for a period of time.  Also, you get to choose either a fixed or variable rate (set by the NSLSC) for your repayment, and can negotiate the term.  If you’ve subscribed to the NSLSC’s Online Services, you can even log on to their website, and customize your repayment terms there.

Now to the strategy:

*Note: Evaluate whether this is right for you.  You may wish to seek outside professional financial advice.

• Say, right now you’re paying $300 per month to the NSLSC, and an additional $300 to your bank each month, for $600 total.
• By extending the term of your Canada Student Loan to the maximum they will allow, this will lower your monthly payments.  You will also end up paying more interest, of course, but as discussed previously it is tax deductible unlike the interest on your bank loan.  Say in our example, extending your term allows you to lower your NSLSC payment to $200.
• This frees up $100 more cash flow each month!  Now, it’s not time to go out and party.  We’re going to turn around and pay this additional $100 on our bank loan, making our payment there $400 total.
• We’ll continue to pay off the bank loan at an accelerated rate, getting rid of the non-interest deductible loan more quickly.
• Once the bank loan has been eliminated, this doesn’t mean we have $400 per month to spend on clothes and beer: we go bank and adjust the NSLSC payment to the entire $600 per month, accelerating the repayment of that loan.

By employing this strategy, you could end up saving money spent on interest on your student loans!  Crunch the numbers yourself, or speak to a financial pro and see if this might work for you.…

Debunking The RRSP Mystery

As you probably already know, Canadian taxpayers are eligible to contribute to their retirement savings through something called an RRSP.  Some of you might actually contribute too… for those who do: Good Job!; for those who don’t: START NOW!

If you’re a little confused by all the banking acronyms out there (RRSP, RSP, LIRA, LRSP, etc., etc…) I don’t blame you.

First:

• RSP = Retirement Savings Plan
• RRSP = Registered Retirement Savings Plan

In general: RSP = RRSP – when people say one, they mean exactly the same thing.  The “Registered” part has to do with the fact it is registered with the Federal Government, allowing you to take advantage of the benefits of holding an RRSP.

As for the other acronyms… we’ll worry about them later.

Now, the biggest part of the shroud of secrecy that surrounds RRSPs has everything to do with the last letter of the infamous acronym.

P = Plan

An RRSP isn’t an investment on it’s own, like a stock, mutual fund, a bond, or a Guaranteed Investment Certificate (GIC):  It’s a PLAN.  It’s a portfolio to hold investments inside.  If it helps, think of it as a manilla folder that you hold your investment statements inside.  Of course banks and investment brokers confound and confuse you by asking you “Have you bought RRSPs this year?”

You can have virtually any kind of investment in an RRSP:

• stocks
• bonds
• GICs
• mutual funds
• cash (Yes, even plain old cash… sitting there earning little to no interest)

When you go to a bank or broker and “buy an RRSP”, you are getting some combination of the above.

The other part about the Plan is that you can hold multiple RRSPs.  For example, you could have:

• A Mutual fund account from your Big-5 bank (RBC, TD, Scotia, BMO, CIBC)
• Stocks through a discount brokerage
• A high-interest savings account from an online bank (ING, PC, etc.)
• Canada Savings Bond RRSP

There are no restrictions on the number of accounts you can hold, and only a few restrictions on the types on investments.  See the Canada Revenue Agency’s RRSP website if you’re more curious.…

Early RRSP Withdrawls

As in life, too with RRSPs: there are always exceptions to the rule.

I mentioned yesterday that if you withdraw funds from your RRSP prior to retirement, you pay a hefty amount of tax on these funds.  However, the government has set up some programs to assist people in certain situations to temporarily withdraw these funds for use, and not have them taxed as income.  These programs include:

• Home Buyers Plan (HBP)
• Lifelong Learning Plan (LLP)

Home Buyers Plan

If you are a first time home buyer* the government will allow you to withdraw up to $25,000 from your RRSP when you purchase a home.  If you are part of a couple, each person may withdraw up to the full amount, for $50,000 total.  The intention is that you use this for your down payment, but it can be used for anything including, but not limited to: closing costs, renovations, furnishings, a trip to the Maldives, etc.

*Note: the government defines a first time home buyer as anyone who has not owned their residence in the last 4 years (approximately – see the CRA for exact conditions.)  So you may qualify even if you have owned a home previously, just not recently.

Two conditions to note:

• You cannot withdraw funds you have contributed in the last 89 days
• These funds have to be repaid to the RRSP within 15 years: the program is in effect a loan to yourself.

Lifelong Learning Plan

This is effectively the “Adult” version of the Registered Education Savings Plan (RESP).  A person can withdraw up to $20,000, with an annual limit of $10,000, from their RRSP in order to pursue full-time post-secondary studies.  Of course, there are conditions.  Check the CRA’s website to be sure.

There are similar conditions to the LLP:

• Same as the HBP, you cannot withdraw funds you have contributed in the last 89 days
• These funds have to be repaid to the RRSP within 10 years instead of 15 like the HBP.  However there is a grace period from repayment while you are studying full-time, and briefly following your studies.

Remember, if you’re interested in participating in these programs, they are a bit more complicated than the overview I’ve given here.  Consult the Canada Revenue Agency’s website, and speak to a financial professional.…

Friday’s RR Top 5

Continuing my weekly tradition, here’s my five (in no particular order) favourite personal finance articles in the news and/or blogosphere:

• Canadian Capitalist answers Questions on Cancelling Mortgage Life Insurance (and others)
• Kathryn, writing a guest post on MDJ asks: To RESP or Not: Should we be funding our children’s higher education? (You can read my opinion in the comments)
• Thicken My Wallet gives their take on Personal finance blogs vs. mainstream media
• Frugal Trader of Million Dollar Journey writes about his first step to Buying a Car – The Research
• Tax Guy discusses more of the implications if you decide to Cash Out Your RRSP And Pay Down Debt (or if you want to buy a boat like in my Marginal Tax Rate post)

The Perils Of Revolving Credit

Financial independence is being able to make decisions with your money to do what you want with it, when you want to.  If you’re in debt, your creditors are making those decisions for you.  Thus, one of the first steps towards financial independence is paying off your debt.

People tend to get into the most trouble with debt when they have access to what’s called “revolving credit”.  That is, you ring up debt, pay some or all of it off, then the credit is again available to you.  The typical instruments of revolving credit are: credit cards, and lines of credit.

Of course, when you have credit you’re paying interest on the money you’ve borrowed.  (If not, I’d like to know where you got a 0% rate!)  The worst culprits for getting people into trouble misusing their credit, and charging high interest rates are credit cards.  Department store credit cards can have interest rates approaching 30% interest!  Even your regular Visa, MasterCard, or AMEX likely has a rate around 18-19% unless you have a low-rate card.  (The crux being, to qualify for a lower rate card, you have to have good credit in the first place.)  Lastly, credit line interest rates are commonly tied to prime rate, with a certain percentage added based on your credit risk. (Ex. Bank Prime Rate + 4.5%).

To make things worse, banks and credit card companies often only require you to pay monthly, either just the interest on the money you’ve borrowed, or a small percentage of the balance after the interest has been applied (5% of your balance for many credit cards).  Of course creditors are happy to take your minimum payment since that $500 you charged on your credit card could end up costing you (and thus earning them) much, much more over time!

The moral of the story is: if you only pay your minimum payment, you basically have a snowball’s chance in hell of ever getting out of debt!  So how do you get out of it all?  Fight back with your own snowball!  More on that tomorrow.…

The First RR Top 5

Well, this ends my first week blogging, and it’s been quite fun so far.  Being an IT “geek” the technical part of setting up and maintaining the blog is just as interesting to me as writing the posts so far!

This week I wrote about RRSPs for a few reasons:  I think they’re a somewhat misunderstood entity, despite their ubiquity.  My RRSP is my first serious foray into investing.  And lastly, I plan on taking advantage of the HBP when we purchase out first home.

And finally, this is the start of what will be a Friday tradition here (and seems to be a popular practice in the PF blogging world!).  I’m going to feature my five favourite (in no particular order) financial articles from the last week, either from the blogoshpere or in the media:

• Kathryn wrote a guest post on MDJ about some of her Financial Regrets
• According to Canadian Dream: Free at 45, The Most Important Thing to Get to FI is… you’ll have to click-through to find out.
• “Will 5-year Mortgage Rates Fall Further?“, was the question of the day at Canadian Mortgage Trends.
• Canadian Tax Resources wrote about What You Need To Know About Getting a Mortgage
• Consumer advocate Ellen Roseman explained Your right to a credit card refund

Thanks to everyone who read my blog this week.  I’m enjoying it so far, but start leaving comments and let’s get the discussion going!  Have a great weekend everyone!…

Recession Over, Bank Of Canada says

The recession is over, the Bank of Canada said in its quarterly Monetary Policy Report released Thursday.

via Recession over, Bank of Canada says.

Click on over to the CBC article to read more details.

What do you think?  How has the recession affected you, and are you still feeling the effects?…

Marginal Tax Rates

You’ve likely heard the term “Marginal Tax Rate” a number of times (I’ve even dropped it previously on this blog), and wondered what it meant.

By definition: your marginal tax rate is defined as “the rate of tax on your last dollar of income”.

Because in Canada, there’s no flat income tax rate across all ranges of incomes your marginal tax rate will vary depending on what your salary is, and what province you live in.

It’s a somewhat complicated calculation, but thankfully there’s many tools out there to help you.  Ernst & Young’s 2009 Personal tax calculator is a great resource (among many others on their site).

So why is knowing your marginal tax rate important?  Well, one applcation relates to my RRSP articles from last week:  If you withdraw funds from your RRSP without taking advantage of a program like the Homebuyer’s Plan, or the Lifelong Learning Plan, these funds are taxed as income at your marginal tax rate.

Now to an example!

Let’s say that I live in Quebec, earn $59,000 per year, and am considering withdrawing some money from my RRSP to buy a boat.  Before I do this, I should find out what my marginal tax rate is to see if this is really a good idea.

I visit the calculator, plug in my salary, hit Calculate and find that my marginal tax rate is a whopping 38.37%!

The boat I want to purchase costs $15,000. (It’s a nice boat)  Keeping in mind that I’ll have to pay 38.37% tax on my withdrawl, I calculate:

B = the amount I need to withdraw to buy my boat

B – 38.37% = $15,000

B – (B * 0.3837) = $15,000

0.6163 B = $15,000

B = $15,000 / 0.6163

B = $24,338.80

Note: Hopefully I didn’t lose anyone here, but I know that not everyone is mathematically inclined.  If you’d like a nice formula for doing this calculation it’s:

If I withdraw money from my RRSP to buy my $15,000 boat, it’s going to end up costing me $24,338.80!  This is likely a very bad idea, and I should probably just save the money and buy my boat next summer instead.

But now I know the implications of withdrawing funds from an RRSP!…

Snowball Debt Repayment

A very effective strategy to helping you fight your way out of debt is to use a snowball!  That is, utilize the snowball debt repayment strategy.

Think of your total debt as a snowball.  Paying off that debt is analogous to melting away the layers of snow, until it had completely melted.  The key here, is not to use your credit  in the meantime, otherwise you’re defeating the purpose of entirely eliminating your debt.  To curb your spending use another frigid solution: place your cards on ice… literally!  Freeze them in a water filled container in your freezer.  This way, you’ll have to go through the trouble of defrosting them if you need to use the card.  Hopefully this will give you the time to consider making a wiser spending decision.  But I digress…

Now, how do you employ this strategy?  Say you have three monthly debt payments:  a store credit card (such as a Sears or HBC card), a major credit card (such as a Visa, MasterCard, or AMEX), and a bank line of credit.

Listed are the interest rates on each of these debts, and the minimum percentage payment of the balance, and the total minimum monthly payment that you must make (let’s say you must only pay interest towards the line of credit, hence 0% in our example below).

So, in this example, your total monthly debt payments are: $38.39 + $76.16 + $70.83 = $185.38.

Now, you’re committed to paying off this debt, and have decided that you will allocate $250 per month to do so.  It’s not a significant amount, but it’s all you can afford at the moment.  Don’t worry, it’s a step in the right direction!

Now the snowball part:  each of these debts is one layer of the snowball.  The key here is to pay off the highest interest debt first (the outside layer of the snowball, so to speak), since it is costing you the most money that does not go towards the principal (the original amount borrowed).  Note however, that you always want to pay the minimum monthly payment to all your bills so you don’t get dinged with penalty charges, or worse: collection agents!

In the first month, since our HBC card has the highest rate, we pay the minimum balance on our Visa and Credit Line ($76.16 + $70.83 = $146.99), leaving us $103.01 to put towards the HBC card.  Now, we continue to pay $103.01 on to our HBC card until is has been entirely paid off.  Now’s the time to destroy your card and cancel the account.  Step one accomplished!

Now you continue as before, making your minimum credit line payment of $70.83, and now you have a whole $179.17 to pay towards your Visa every month!  Once it’s done, cut it, cancel it, and concentrate on the credit line!

Now that your other debts are paid, you can contribute the entire $250 per month towards paying down your credit line!

Paying off your debts isn’t easy, but once completed you have control of all your money.  In our example here, it’s like having an extra $250 per month to do with whatever you’d like!  Personally, I’d recommend saving or investing it, but that’s up to you.  It is your money after all.…