Werner C. Duever

Financial Security Advisor
Investment Representative
Freedom 55 Financial

The secret sauce to a good financial security plan

Putting a good financial security plan together is like building a puzzle. A proper plan includes insurance and investments. My wife and I have built businesses in London, Ontario that generate income and in case something happens to either one of us we would like to make sure that we can maintain our savings and our way of life.

I like to be a good example for clients, so I made sure we have good life insurance, critical and disability insurance in place and we are planning properly for the future when we would like to slow down and not work as hard as we are working today (most call that retirement, I prefer to think of it as transitioning or slowing down).

How to set up a financial security plan

I like to help clients with wealth accumulation, preservation and utilization. To accomplish this I suggest three baskets should be established:

  • Security basket - to help in time of unexpected need
  • Retirement basket – to plan for not working
  • Fun basket – to live the life you have always wanted to live

Security basket

A security basket includes life insurance, critical illness and disability insurance and health benefits. The life insurance my wife and I own through London Life ensures that if either one of us pass away the other may pay off all debts and have extra money to help with generating extra income that is lost. We have a universal life policy and a term policy. The reason we have the universal life policy is because we own a business and sometimes our income fluctuates. Universal life is great for business owners who know they can afford to pay the minimum premium and who occasionally earn extra money. Once we use up our RRSP and TFSA contribution room we can add more to our universal life policies to have another vehicle for tax-advantaged growth. Eventually, we’ll convert our term policy to whole life or universal life insurance for more tax-advantaged growth.

We both have disability insurance through our group benefit plans at our workplaces and would like to upgrade to personally-owned long-term disability plans. My wife recently tried to get individual disability insurance through a major insurance provider but since she owns a freelance writing business she was ineligible to apply. We will investigate getting her disability coverage through another insurance company. To compensate for her not having her own individual long-term disability coverage we added decreasing critical illness insurance coverage with Great-West Life. I have decreasing critical illness coverage which ensures that I will have an income in case I become critically ill1. Our intention is to get larger critical illness policies in the future because critical illness policies can include a long-term care component to help with the added costs in case either one of us has to be put in a long-term care facility in the future. We intend on adding return on premium to our policies in case we do not require the coverage and would like to get our premiums back. My wife has return on premium option on one of her critical illness policies presently. I chose not to get the return on premium option because it was too expensive for me due to my age. I am happy to just have the coverage.

We both have built a sizeable emergency fund because we are business owners and our income can potentially fluctuate. Even so, our income has been relatively steady and we have accumulated an emergency fund that could last us a whole year in expenses. Because we have such a large emergency fund we are now able to get a little more aggressive with the investments we choose. We keep most of our emergency fund money in TFSAs.

Through my contract with London Life I have Great-West Life health benefits. I made sure we got the best available dental and healthcare coverage. I believe not having health coverage is one of the top ways to become bankrupt, so I made sure we had good coverage in place. Because my wife cannot get her own disability insurance coverage because of her freelance writing business we made sure she kept the disability coverage at her work. This is something that I cannot provide her under my health benefits.

Retirement basket

For retirement we have been saving in our TFSAs, RRSPs and through our company pension plans. We would like to build a portfolio of at least $2,000,000 to provide a comfortable income stream so we won’t have to work if we choose. We would like to have the majority of this in mutual funds and segregated funds appropriate for our investment risk tolerance. Because I love my work I foresee myself continuing to work past age 65 so I will continue to add to my savings and grow my wealth. I see no reason why I should stop growing my wealth after age 65. I will probably reduce my workload and take more vacations – some longer than others.

Fun basket

We save for all our vacations and major purchases. Recently we took a two week trip to Newfoundland and paid most of our trip off after we returned. We saved most of the money needed before we went on holidays so that we would not have a large financial burden when we returned. Right now we are saving money for our next vacation and a new car for my wife. We do this with cash in an envelope and in our TFSAs. The principle of saving in an envelope we learned from the Financial Peace course we took through Dave Ramsey.

Because we like to give to charity we’ve also created a charitable envelope where we put 10 per cent of our extra income. Whenever we hear of a need in our church or our community we always have money to give.

Other protection for business owners and business partners

Something I would ensure was in place if we had other business partners is a partner agreement. I would put a business partner agreement in place as soon as the partnership was started along with a buy-sell agreement in case one of the partners died or became disabled. I would do this to help ensure that the remaining partners could buy out their share and the company could continue operating smoothly. I would try to make sure the buy-sell agreement was funded in an efficient way using insurance. In addition, I would add salary continuation protection for the partners in case they became ill or disabled and could not continue to work or contribute to the company. For key people who are vital to the company’s success but not partners in the business I would put insurance protection in place – enough insurance to cover the expenses to replace them in case they passed away or became too ill to work.

And finally you should make sure your have proper wills and powers of attorneys in place and they are up to date with a legal firm to ensure your final wishes will be secured in your passing. There are three possible places your wealth will be transferred when you die – your family, a charity or the government. You can choose any one or a combination of any of these before you die but not after. Also hire a good legal, accounting or tax advisor to be part of your team. When your wealth increases it is important to have good advisors to help you make smart decisions for your future.

Because life changes and different events occur, try to meet regularly with your advisors to keep them abreast of the important changes like buying a house or a business or supporting children or grandparents. They can give you valuable guidance that can make a significant impact on your future well being.

1 Only certain illnesses are covered by critical illness insurance and satisfying the survival period is required.