Crowdfunding: An Alternative to Insurance?

Word Cloud "Crowd Funding"

I was watching the local news one night and saw a feature about YouCaring.com- a crowd funding website that helps people raise money to cover health care and funerals. Being an insurance nerd, it got me thinking- is this the future of insurance or another way to pay for healthcare or a combo?

So I started researching and this is what I learned:

Crowdfunding is raising money from a large number of people (usually online) where individuals/groups can contribute to your cause or business, there are currently over 450 crowdfunding platforms.

These websites give people an alternative to debt and bankruptcy by providing a platform to raise money to cover medical costs and associated expenses by asking for donations from friends, family and others by sharing over social media.

Asks can range from $1,000 to several thousand dollars, the donations can add up quickly so the recipient can hit their goal. On average though, according to the 2013 Crowdfunding Industry Report, the success rate was around 50%.

I did a little more digging and checked out 3 different crowdfunding platforms since they allowed personal causes on their sites: YouCaring, IndieGogo and GoFundMe

 

Crowdfunding Site YouCaring IndieGogo GoFundMe
Campaign Setup Fee $0 $0 $0
Credit Card Transaction Fee 2.9% + $0.30 per transaction 3-5% per transaction 2.9% + $0.30 per transaction
Pricing None

5% Suggested Fee from the Donor

4% per transaction if goals are met

9% per transaction if goals aren’t met

5% per transaction
Total 2.9% to 7.9%

+$0.30/transaction

7% to 14% 7.9%

+$0.30/transaction

 

Interestingly enough- the total of their percentages really ranges, from 2.9% to 14%, depending on the site, while in some cases I think this might be a bit steep it is still a viable alternative to raise money to:

  • Cover costs of Critical Illness
  • Cover costs from an accident
  • Funeral Costs
  • Pay the deductible or co-insurance from health/group insurance plans
  • Pay costs that aren’t covered by health/group insurance plans
  • Supplement for costs not covered such as rent, mortgage, utilities and other daily living expenses not covered by health/group insurance plans.

As an alternative to critical illness insurance, disability, health or life insurance- I’m not convinced yet but I know it’s something that can help supplement and help those that can’t afford the premiums.

Le Journal de l’Assurance Feature

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Recently our apps were featured in the Le Journal de L’Assurance. Our latest promotion: 60 Days Free, $19.99/month after.  Here’s the link to the ad.

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Taxation of Estates, Interest Expense, Death of an RRSP Holder

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Interesting article from CLU Comment about the Changes in taxation of estates, an introduction of the Graduated Rate Estate Trust that will come into effect Jan 1, 2016. CLU Comment also provides a sample case and table about the tax return schedule when dealing with an estate utilizing the GRE Trust.

Interest Expense- one of the highlights was the point about where interest expense claimed on money borrowed to buy shares of a family business were denied because dividends were never paid out on the shares, rather bonuses were paid out to the shareholders.  Therefore this shows the importance of paying dividends and having a stated dividend policy if you were to ever to borrow money for the purpose of earning income from your business.

Death of RRSP Plan Holder- Provides some awesome insight on tax planning opportunities for passing assets to a surviving spouse or certain financially dependent children.

To go into it in more detail, here’s the article.

Why have an App

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If you think apps are only for big brand names like Starbucks or Royal Bank, you’re wrong. Years ago, Financial Advisors were questioning why it was necessary to have a website, the reasons are now obvious:

Credibility
Keep your clients informed and up to date
Showcase your services
Always accessible- 24/7

Nowadays, you’ll find that small businesses that you interact with on a regular basis have their own dedicated app- like the coffee shop or spa. These companies are taking their marketing to the next level.In case you’re still not sure why your financial practice needs an app, here are the benefits of an app.

Be Visible to Clients at All Times.

Statistics show that Canadians spend over 2.5 hours a day online, of that time over an 1 hour of their overall time within an app.

Direct Marketing to Your Clients

Through push notifications, you’re getting even closer to direct interaction and can remind your clients about your services.

Provide Value to Your Clients

Being able to provide all information to your clients such as changes in taxation to estates in 2016 or insurance rates are going up through your app at their fingertips is really powerful.

Build Brand and Recognition

An app for your Financial practice, can contribute to your recognition, statistics show that people that can see or hear your brand about 20 times, will totally get you noticed.

Stand out From the Competition

Presently, apps for Financial Advisors are still rare, but this is where you can leap ahead of your competitors. Be one of the first advisors to offer your clients an app, they’ll be impressed.

Cultivate Client Loyalty

Make a true connection with your client by being a “fingertip” away.

Credibility

Make your financial practice look even more credible and professional.

Insight about your clients

Analytics can provide you insight about what your clients are interested in, retirement, life insurance, investments, tax efficient strategies. This helps your practice focus on what your clients needs are.

Taxation of Estates: Changes are coming

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Last year, the federal government announced that changes would be coming with respect to testamentary trusts, these new changes come into effect January 1st, 2016.  The new changes include:

  • No Graduated Tax Rates Available for Testamentary Trusts
  • All income earned and kept by a Testamentary Trust will be subject to tax at the top flat rate. (rate equal to federal personal tax rate of 29%)
  • Exceptions to the rules: Graduated Rate Estate and Qualified Disability Trust

What’s a Graduated Rate Estate and why 36 months?

Graduated Rate Estate occurs as a result of death and can exist for 36 months following death.  During the 36 months, the estate is eligible for the “old graduated rates”, after the 36 months the estate becomes subject to the top flat tax rate.

36 months is considered a reasonable amount of time by the federal government because most estates are typically wound up in this time.

What does this mean?

  • Increased income tax consequences
  • In some cases, tax liability shifts from the trust to the deceased beneficiary.
  • Existing plans will need to be reviewed

With the changes coming in 2016, it’s time to review how you would like to leave your legacy to the next generation, your favorite charity or beneficiaries. By getting your financial affairs in order, you can make important decisions about yourself, your family and any wishes you wish to be fulfilled.

We can help with this.

RRSP Deposit versus Mortgage Repayment

mortgagevsRRSPDetermining whether to contribute to an RRSP or pay down a mortgage has always been a great debate, for each have their advantages. To begin with, an RRSP contribution is tax-deductible, and it can generate a tax refund for you or it can reduce your income tax liability. In addition, an RRSP will continue to grow and accumulate without taxation, meaning you will accumulate more over similar taxable investments. On the other hand, while paying against the principle of a mortgage is not tax deductible, it does reduce the cost of the mortgage over the long term; however, interest on a mortgage is not tax deductible either.

When determining what works best for you, either contributing to an RRSP or paying down a mortgage, we do a series of calculations comparing RRSP contributions and accumulations versus mortgage payments and accumulations. To do this, total RRSP investments accumulated at retirement age are compared using two approaches: making the RRSP contribution, or making the mortgage repayment and using the subsequent savings from the mortgage towards RRSP contributions once the mortgage is paid off. This intricate analysis is best done by a financial planner to ensure the figures used are accurate and specific to your individual case.

When doing an analysis like this, we would look at the following:
• Current outstanding balance on your mortgage
• Current mortgage interest rate
• Assumed long term mortgage interest rate
• Rights under the your mortgage to make payments against the principal
• RRSP carryforward room
• Annual RRSP room created
• Assumed long term rate of return in the RRSP
• Your marginal tax bracket

An example:

Arianna (age 50) would like to figure out if she should contribute to $5,000 to her RRSP or put the same after-tax equivalent $3,000 (40% tax rate) against her mortgage.

If Arianna applies $5,000 to her RRSP contribution, the investment would accumulate to $10,658.52 by age 65 assuming 5% rate of return compounded monthly.

Alternatively, she can apply $3,000 against her current mortgage of $50,000 with an amortization of 15 years and interest rate of 4%. Her current mortgage payment is $369.84 (Pre tax equivalent: $616.40).
By doing this, she reduces her amortization period by 1.2 years, making her new amortization period to 13.8 years. She then redirects her mortgage payment of $616.40 to her RRSP for the next 1.2 years at 5% rate of return, she would accumulate $9,913.92 by age 65.

In this example, she would be better off contributing to her RRSP.

It is likely that these assumptions will vary in the future and could change the outcome of the analysis. Please consult us before making a decision.

In reality, you can also do a combination of the 2 approaches, for instance by contributing to your RRSP, you can use the tax refund to pay down your mortgage, this way you can get the benefits of both strategies.