Insurance and the Financial Plan - The crucial role insurance

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					The importance of a critical illness recovery plan
                                                                             canada remains the only country      •  Reduce your financial stress
Today, MoRe PeoPLe aRe ConsIdeRIng                                           in the world with a critical illness •  Reduce or pay off debts              Assante Financial                                                                  A BUILDER, STEWARD AND PRESERVER OF MULTIGENERATIONAL WEALTH
                                                                             product that still has guaranteed        M
                                                                                                                  •    aintain your business              Management Ltd.
exTRa InsURanCe CoveRage                                                     future premiums.                         or practice
Beyond MedICaRe                                                              Today, though, if you are diagnosed •  Maintain your independence
                                                                             with and survive a critical illness, •    odify your home to better 
                                                                                                                      M                                       CLIENT QUARTERLY                                                                                            sPRIng 2003. voL 1/#2
Nobody wants to think about illness. your total RRSP investment could        critical illness insurance pays a        address mobility and hire                                                                                                                    oRIgInaLLy PUBLIshed In 2003 By FRank MaLInka
Yet most of us know someone who be reduced by as much as $134,000 lump sum benefit to use in any                      additional help during recovery
has suffered from the financial and (because of taxes attached to a          manner you choose, providing you         A
                                                                                                                  •    llow a family member to take 
emotional devastation caused by an large, lump sum withdrawal).
illness such as cancer. Would you      All of these issues are important
                                                                             with greater financial resources to:
                                                                             •   n Canada, pay for drugs and 
                                                                                I
                                                                                                                      a leave of absence to help
                                                                                                                      you recover
                                                                                                                                                                                              The crucial role insurance plays
be prepared if you — or one of your but much more important is being
loved ones — were confronted by        able to find — and afford — the
                                                                                treatment not covered by
                                                                                provincial health plans
                                                                                                                  Sooner or later, sadly, we all must
                                                                                                                  deal with the challenge of critical                                         in financial planning
a critical illness or a severe injury? resources needed to heal and             O
                                                                             •    utside of Canada, pay for       illness in our lives. The most we can
consider your answer very carefully. recover. Timely access to medical,         timely treatment that may         do is be prepared ahead of time. Join
                                                                                                                                                                                                                                         Many people spend a lifetime        large family asset or business.
Facing a critical illness can be one   assistance and rehabilitative            not be available at home and      me for a cup of coffee and a risk
of the most difficult challenges in    services can have a significant          for your family’s travel and      management review and let’s talk                                            IT’s an IMPoRTanT                      building and growing an estate,             In most cases, the premium
                                                                                                                                                                                                                                     paying taxes all along the way,         isn’t the problem, it’s the solution.
life. Beyond dealing with the fear     affect on a person’s ability to cope     lodging expenses                  about it.                                                                   PaRT oF RIsk                           and still have canada customs           In this issue of client Quarterly,
and anxiety of coping with the
illness itself, consider: finances,
                                       with and recover from a critical
                                       illness. That’s why you do not
                                                                                                                                                                                              ManageMenT                             and Revenue Agency wanting to           we feature the story of one very
                                                                                                                                                                                                                                                                             wealthy individual who has always
                                                                                                                                                                                                                                     take a large share at the end of
meeting the day-to-day needs           want financial issues to be a major        WhaT CRITICaL CondITIons aRe CoveRed?                                         Frank Malinka                 of the same name to eventually
                                                                                                                                                                                                                                     your life. Life insurance can play      appreciated the value of insurance.
of your family and much, much          consideration when you are trying                                                                                     BCom, CFP, CLU, ChFC                                                    an important roll in helping people Every year, when he and I review his
                                                                                  Alzheimer’s Disease                Blindness                                                                become the world’s most famous
more. Whether you are coping with to find the best possible solutions                                                                                                                                                                maintain and preserve their estates, financial plan, we always reconsider
                                                                                                                                                                                              insurance company. It was there                                                the role that insurance has to play.

                                                                                                                                                              I
an illness yourself, or caring for     to a critical illness in your family.      Benign Brain Tumor                 coma                                                                                                            particularly when it involves a
                                                                                                                                                                        nsurance should play  that the term “underwriter” evolved,                                           I hope his story will help you better
someone you love, the demands can For all of these reasons, you should                                                                                                  a critical role in theto describe those who signed their     special asset subject to taxation.
                                                                                  coronary Artery Bypass Surgery     Deafness
                                                                                                                                                                        “risk management” of  names beneath each other on a          Estate equalization strategies using understand the importance of
sometimes seem overwhelming.           carefully consider critical illness                                                                                                                                                                                                   insurance in your financial planning
                                                                                  Heart Attack                       kidney Failure                       your life and financial portfolio.  policy, with the amount of the risk    insurance can help parents to treat
Serious financial consequences are insurance — for yourself and all of                                                                                                                                                                                                       and I welcome the opportunity to
                                                                                                                                                          Appropriate insurance coverage is   they were prepared to cover.           their children equally in estate
also possible. Retirement savings      your loved ones — as part of your          Loss of Speech                     Life Threatening cancer                                                                                                                                 discuss your needs.
                                                                                                                                                                                                 Today, insurance has evolved to
                                                                                                                                                          especially crucial if your estate is large                                 distribution, particularly when it is
can be severely affected by a critical overall insurance strategy.                Major Organ Transplant             Motor Neuron Disease                                                                                            not in the best interest to split up a
                                                                                                                                                          and there are many beneficiaries to meet a broad spectrum of needs.
illness. For example, if you were      critical illness insurance in the                                                                                  consider. But insurance can benefit Life insurance, of course, is probably
forced to withdraw a net $75,000       future will not be the product that        Multiple Sclerosis                 Occupational HIV Infection
                                                                                                                                                          just about everyone, with different the most familiar form of insurance
from your RRSP to deal with the        we know today. There are many              Paralysis or Loss of Limbs         Parkinson’s Disease                                                      and still plays an important role in
                                                                                                                                                          needs at different times of life, and                                         JOIN US FOR A cUP OF cOFFEE
financial needs caused by a critical   indicators that point to a higher-
                                                                                  Severe Burns                       Stroke
                                                                                                                                                          you should definitely reconsider    protecting family dependents from         AND A RISk MANAGEMENT REVIEW
illness, the actual gross amount of priced product in the future. In fact,                                                                                your insurance strategy every time  possible financial hardship. Less well
                                                                                                                                                          you review your financial plan.     understood are the tax advantages         These days, a lot of people are taking a hard look at their over-all
                                                                                                                                                                                              of life insurance. You can maximize
                                                                                                                                                             Insurance in various forms has been                                        finances and insurance risk management.
                                                                                                                                                                                              your investment growth in the
                                                                                                                                                          with us for a long time. The earliest                                         Some people want to make sure they have enough coverage while
                                                                                                                                                          known type of life insurance was    tax-sheltered environment of a
  MALINKA FINANCIAL                        A BUILDER, STEWARD AND PRESERVER OF MULTIGENERATIONAL WEALTH                                                                                       permanent life insurance policy.
                                                                                                                                                          for the cost of burial that Greek and
                                                                                                                                                                                                                                        others want to make certain they are not paying for too much coverage.
                                                                                                                                                                                                                                        changes in group benefit plans and the Provincial Medical Services
                                                                                                                                                          Roman religious societies provided  The cash equity can also be used
                                                                                                                                                                                                                                        Plan— along with continuing uncertainty about the economy and
                                          Financial Planning / Corporate Planning / Risk Management / Unbiased & Independent                              for their members, although no      for emergencies, as well as
                                                                                                                                                          actuarial calculations were used.   for opportunities, and to help            long-term employment — are creating insecurity for people
                                          Trusted professional wealth advice for your long term investments, insurance and                                                                                                              concerned with what might happen if they were either sick or hurt.
                                                                                                                                                          The Tontine Annuity System,         supplement your retirement income.
                                          financial planning since 1985                                                                                   founded in Paris by the 17th century   If you’re sick or hurt, long-term      We can help. That’s why we have instituted our “cup of coffee and
                                                                                                                                                          Italian born banker Lorenzo Tonti,  disability income insurance can           Risk Management Review Hour” from 8:45 am to 9:45 am, Monday
                                                                                                                                                          has been regarded as an early       be used to replace your income.           through Thursday. We will offer you a sound opinion on what type
                                            Assante Financial Management Ltd.
                                                                                                                                                          attempt to use the law of averages  critical illness coverage, not so         and what amount of insurance is right for you. No cost. No obligation.
                                            Malinka Financial Suite 1588 – 789 West Pender Street, Vancouver, B.c. V6c 1H2                                                                    well known or understood, is the
                                                                                                                                                          and the principle of life expectancies
                                            emailus@MalinkaFinancial.com Tel: 604-688-0300 Fax: 604-688-2423                                                                                                                            And when you stop by our office, we’ll also buy you a cup of coffee.
                                                                                                                                                          as the basis for payment of         focus of much attention these
                                            www.MalinkaFinancial.com                                                                                                                          days, given the state of our medical
                                                                                                                                                          annuities. In the 18th century, Lloyd’s                                       may not have all the answers but we might have one which could be
                                                                                                                                                          of London evolved out of humble     services plan. It is discussed in         the best financial decision you will make this year.
                                                                                                                                                          beginnings in a London coffee house more detail on page four.
 4                                                                                                                                                                                                                                                                                                             1
    THE GRANDFATHER & THE GRANDSON
    HOW A GREAT FORTUNE WAS BUILT OVER
                                                                              The premium isn’t the
    John Donaldson’s grandfather emigrated from Eastern Europe early          problem—it’s the solution
    in the 20th century. Equipped with only a grade three education,
                                                                                                                                                                  do everything possible to prevent it    office staff, contracted people and    me not to make adequate provision         like a much better business person
    Ed Marcus opened a store in Noranda, Quebec, and successfully
                                                                              InsURanCe Is a neCessaRy and ReasonaBLy PRICed                                      from being broken up. But for those     employees. It’s just not a business    for my family and my business,”           because I am making decisions for
    operated it for 13 years.
                                                                              soLUTIon To The RIsk ManageMenT IssUes InvoLved                                     who care enough to pass the baton       that should be wound down quickly.” he said. “I feel responsible for my          the short and long terms based on
                                                                                                                                                                  to the next generation, insurance                                              family, my employees and my               factors that are important at the
    In 1946, Ed came to British columbia intending to retire. But he was      In PReseRvIng a MaJoR esTaTe and BUsIness                                           provides an excellent solution.”        cONFRONTING THE                        contractors. The death of one person      time and in accordance with my
    tempted by the possibilities of real estate in the young province and
                                                                                                                                                                                                          ‘BIG QUESTIONS’                        should not wipe out everything I          strategic plan. I don’t need to factor
    began successfully buying and selling land and property. Within a
    few years he had built a prosperous commercial real estate company.
                                                                                                                                                                  LIFE INSURANcE                            John is able to take a very rational have worked for during my entire          in any considerations for insurance
                                                                                John Donaldson took over his            preserving his mother’s estate, he          A key component of a well-planned approach to his insurance needs but life. Most importantly, though,                  needs because those decisions have
    John was born in 1960 and Ed took an immediate interest in                troubled grandfather’s estate in          realized there would be a tax liability   estate must be life insurance.          recognizes that some people can        my wife and family will be able to        long since been made.”
    his infant grandson. For his part, John was fascinated by his             1988 and grew it from an asset base       when his mother passed away. The          “In my will and estate planning         find this hard.                        pass through a period of mourning
    grandfather’s business and, when he was only three years old, would       of about $15 million to its present       family business and the estate would      my first priority is my wife,” John     “The difficulty in talking about       without having to worry about any         PARTNERSHIP INSURANcE
    visit Ed in his offices. The old man took time to explain the business    worth of more than $90 million.           both owe taxes. The solution to the       said. “she will survive to care for     insurance is that you have to face financial considerations.”                      John recently entered into a
    to the child, who was a very quick learner.                               Today, he owns and manages a              problem, he discovered, was to take       the children and she will need to       your own mortality. you have to                                                  business relationship with a key
                                                                              real estate company involved in all       out a life insurance policy on his        make important decisions about          confront great ‘What if’ questions A STRATEGY FOR RISk                           employee of his company. Naturally
    “He would show me business documents and explain what they
                                                                              aspects of property development           mother’s life that would pay for the      the future of the estate and the        like, ‘What if my family was not       MANAGEMENT                                enough, he applied the principles
    were for, why they were needed,” John recalled. “In fact, he was the
                                                                              including owning, leasing and             taxes owing after her death.              family business. I do not want her to fully provided for, what if my             When it comes to business and           of risk management to this new
    first person to talk to me about insurance when I was very young.
                                                                              managing commercial properties.           “The plan was essentially very            be worried about monetary issues        business was not able to carry on      financial planning, John always           business venture as well.
    He explained to me why insurance was important and why he had
                                                                              As well, he acts as a real estate         simple,” John said. “My accountant        during the necessarily difficult time without me, etc.?’ emotionally, as       includes insurance as a strategy for        “We carry partnership insurance
    taken out the policies he had. I really was interested in what he had
                                                                              consultant for third parties, providing   and other professionals analyzed          after my death.”                        well as mentally, these are tough      risk management.                          on each other so in the event that
    to teach me.
                                                                              counsel on commercial real estate,        the value of my mother’s estate,             Strategic planning review            issues to                                                   “Insurance           something happens to one of us, the
    “I was very close to him and he was also my mentor. He asked me if I      lease negotiations, portfolio reviews     including the family business. With       Now operating his own practice,         consider. “           “If you build an asset                should be            estate or family of the other partner
    would work with him and carry on the legacy of the family business.       and strategic planning.                   those numbers it was possible to          Frank continues to serve as John’s      “smart and             you should secure that               considered           will be able to buy out the partner’s
    I agreed to do so and began working with him part time, before and          He is a very smart, savvy guy in his    assess what the estate taxes would        financial consultant. Every year,       focused               asset. It’s really as simple part of the                   interest in the business or retire the
                                                                              early 40s who has also worked very        be when my mother passed away.            during their review of John’s           business people                                             infrastructure       debt on the property so there is no
    after school, or weekends, depending on his needs.”                                                                                                                                                                         as that in business and
                                                                              hard to achieve his success. Guided       We then acquired a policy from the        financial plan, he and Frank assess     know these                                                  of any financial     crisis or need to dispose of anything.
    In 1978, John graduated from high school and began attending                                                        London Life Insurance Company that        whether the plan includes adequate decisions are
                                                                                                                                                                                                                                the principle also applies plan,” John                        For example, if I died my partner
                                                                              by a grandfather who acted as an
    the University of British columbia. He continued working for his          early and powerful mentor, John           would provide the cash required to        risk management in the form of          critical but
                                                                                                                                                                                                                                to managing your wealth believes. “If you                  would get a million dollars from my
    grandfather part time while he completed a Bachelor of Arts in            acquired the habit of education as        meet that government requirement.”        insurance coverage. They take           may still avoid
                                                                                                                                                                                                                                and estate. you do it                 build an asset       partnership policy and he would be
    Political Science. When John graduated, Ed asked him to join the          a very young boy and never lost the       Frank Malinka was then an agent           great care in the planning. Three       them. Just as         partly through insurance you should                        able to say to my estate: ‘If you want
    family company full time. John agreed to do so and has remained           habit. In his field, he probably has      for London Life, where John was           generations of John’s family are        some people           and partly through                    secure that          to hold the remaining share and
    with the company ever since.                                              more degrees behind his name than         primarily insured. He took over           protected in order to preserve the      will avoid            building a sound                      asset. It’s really   continue doing business with me,
    When he began working for his grandfather full time, John                 just about anyone else in the same        John’s file in 1988.                      estate in its entirety. The family      questions             portfolio.”                           as simple as         that is fine or, if you like, I will buy
    established a pattern of hard work and continual self-improvement         business. He has also worked literally    “Frank fine-tuned our existing            business, which currently employs       about                                                       that in business     you out at fair market value.’
    that continues to dominate his life. Up bright and early, he would be     night and day on his business to          policy and made it work really            dozens of people, will also be          whether they have a will in place, and the principle also applies to                This kind of insurance is
    at the company offices by six o’ clock. He’d start with maintenance       build a large and secure estate for       well,” John said.                         preserved as a functioning entity in or whether they have made                 managing your wealth and estate.          particularly important for someone
    chores — landscaping, opening all the buildings and getting them          his family. That’s why insurance            For very good reasons, Frank            the event of his death.                 instructions for the guardianship you do it partly through insurance             like my partner, who does not have
    ready for the day, other odd jobs. Then he’d get on with the “real”       matters so much to him.                   continues to advise clients that             “I have sufficient insurance to      of their children, or how they         and partly through building a sound       a large asset base at this time in his
    business of the real estate company, including tenant relations             “When you come right down to it,”       insurance can play a critical role in     provide for any tax liabilities, family want to be buried. you can’t avoid portfolio.”                                   life. his wife and son will be protected
    and other property management issues. During his spare time,              he said in an interview, “insurance       preserving an estate after death.         security and charities that I wish to   bringing up the big questions          Naturally enough, a byproduct of          from any outstanding debt that
    John would attend part-time courses at UBc or BcIT, continually           is basically about estate and              “despite today’s lower capital gains     support,” John said. “I also needed     when you bring up the smaller          a wise insurance strategy should          might remain after his death. They
    improving his knowledge of the business.                                  wealth preservation.”                     taxes, paying these taxes using life      to protect my business so that my       ones. and many people just can’t       be peace of mind and John has
                                                                                                                                                                                                                                                                                           This is a true story about a client
                                                                                John wants very much to preserve        insurance is like paying pennies on       wife would not necessarily be forced face the big questions.” The key          been able to find that through
                                                                                                                                                                                                                                                                                           of Malinka Financial. however,
    Like his grandfather, John believes that education is a critical factor   his estate for future generations.        the dollar — eliminating your taxes       to wind it down after my death. It’s    to John’s approach is personal         his planning.
                                                                                                                                                                                                                                                                                           the client’s name and some of
    in business success and he continues to take more business courses                                                  at a significant discount,” Frank         very important that she have the        responsibility coupled with sound        “knowing that my business and           the details of the story have
    every year. He has acquired an impressive — and lengthy — array of        PRESERVING AN ESTATE                      advises. “Clearly, not everybody          option to not just sell everything and business and personal financial         personal affairs are well planned         been changed to protect our
    professional credentials behind his name.                                  In the 1980s, when John                  has the desire or, in some cases, the     close it because literally hundreds of planning.                               and that insurance is in place to         client’s confidentiality.
                                                                              considered the problem of                 obligation to maintain an estate and      people would be affected —tenants, “I would consider it irresponsible for manage the risk makes me feel


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