This & That: My Husband & I Edition

H Wrote: My husband and I have a life insurance policy that we took out 20 years ago. It is set to hit the 20 years and I have been told that the premiums that we currently pay will more than double if we want to continue having this coverage (face value $350,000.00 for my husband and $125,000.00 for myself). I was wondering if it is wise to pay the new premiums as we are now mid 50’s and it is harder to get life insurance and we could not invest this money and get the same return. Our current premium is just over $200 monthly and it will be going up to around $540.00.

Gail Says: Let’s deal with your two issues separately:

Insurance: While term insurance seems much less expensive in early years, the premiums on renewal can be a shock, which is why I suggest people think carefully about why they’re buying insurance. If you want to have a policy in place for the really long haul (until you croak) then permanent is often cheaper in the long run. Having said that, do you still need insurance? Are you still trying to protect someone who is counting on that income or would need to have a significant debt paid off (like a mortgage)? If the answer is yes, then you’ll have to buy the extension on your policy.


Investments. Your insurance is not an investment (except in peace of mind). If you let the policy lapse tomorrow, and next Thursday one of you dies, will the $540 you invested cover your needs? How about 2 years from now when you’ll have invested $13,000…would that be enough to make the transition smoothly? If the answer is no, then you still need your insurance. Sure, it feels like you’re pissing away money on premiums. What you’re actually doing is shifting the risk from you to the insurer. If someone dies early, the insurance company pays more than collected. If you both live long, lives paying lots in premiums, the insurance company makes more money. In both cases you protected your loved ones from financial shock or, worse, potential destitution. If you feel like you have a big enough asset base to not need the insurance, then don’t renew the policy.

 

J Wrote: My hubby is a grad student and does contract work for a company that does technical writing. He does around 45 reports a year and takes home $4500 a year as additional income. A friend suggested that he register this work as a business; and I was wondering your thoughts. Could you recommend any books or websites?

Gail Says: For an income of just $4,500 a year I’m not sure what the point of registering as a business would be. For now, he is just earning freelance income. It’s not even enough to report for HST purposes since it’s under the annual limit of $30,000 in sales. He can still write off expenses against that freelance income (internet, biz supplies, etc.) but his expenses cannot exceed his freelance income and must be connected to the work he is doing to pass muster.

 

H Wrote: My husband just came to me about a week and a half ago and informed me he has a gambling problem. He has spent our savings, borrowed against his RRSP and the kids RESP, and borrowed money from family and friends. I have calculated that he has spent/borrowed over $117,000. He took out a small loan from Money Mart that we were able to pay back from borrowing money from his family. He also took out an unsecured loan from CitiFinancial back in September 2014. The money he borrowed is $23,000. I noticed on the statement today that his agreement states that he is paying 24.99% interest on this loan, meaning that he will be paying over $17,000 in interest fees. I have since taken over all of the finances. I am appalled that a lending company can charge this high interest rate. Is there any way to get this interest rate lowered? Any advice would be greatly appreciated.

Gail Says: Yours is a story that’s all too familiar to me. It’s one of the reasons I strongly advocate that both people in a relationship be involved with the money from the get-go.

Lenders can charge whatever they want. We have a usury rate in Canada: 60%+. But the pay advance stores get around that by charging extra fees on top of the ridiculous interest rate. I used to recommend that people reduce their interest rates, but that’s becoming less and less of an option as lenders tighten up their lending (because they’ve seen the writing on the wall.)

That being said, if he signed the paperwork for the loan, then he’s on the hook unless he goes into bankruptcy. I strongly recommend that if you have any equity in your home (which will be taken in the bankruptcy proceedings) that you file for separation and divvy up the assets (if you intend to separate) BEFORE he goes bankrupt so that your share of the assets are not also at risk.

Above everything else he must seek help for the gambling since he will get his hands on money, by hook or by crook, and you and the children will always be at risk, if he doesn’t. I’m sorry. This is a tough thing to live with.

 

C Wrote: I wish I knew about you 8 years ago when my husband and I were deciding to buy a house. We got into a foolish ‘cash back’ mortgage at a high rate (his credit score wasn’t great at the time). If that wasn’t bad enough, we continued to live the ‘high life’ with trips, dinners out, weekends away etc. We continued to rack up our credit cards.

Four years ago we re-mortgaged, but the penalty to get out of the original mortgage was so high, we couldn’t consolidate any of our other debt. Two years ago I entered into a credit counselling agreement in order to pay off my credit, which amounted to nearly $28,000. My monthly payment is $600, but my husband has a couple of small credit cards with monthly payments totalling $250 or so. We’ve been scrapping by (barely) with overtime and on-call for my husband, and last summer I took on a part time job too. Yet each week we see the paycheques gone on the basics (long gone are the Starbucks trips and expensive salon visits!) We’ve been following your budgeting advice but life is more expensive than you think it will be! Basically, the stress of living so bare bones is getting the better of us. We finally decided to see our mortgage broker to consolidate everything into the mortgage, but because I’m in the credit counselling program, my once decent credit score is too low. She’s looking into a ‘B’ lender, which means higher rates (although she says they’re still pretty good right now). Because we had already re-mortgaged, we really haven’t paid enough off so the amount of money available might cover the remainder of my loan to the credit counsellor but nothing more.

SO, finally the question.   Is it advisable to re-mortgage with a B lender at a higher rate, get rid of the credit counselling loan so I can start re-building my credit earlier (I have another 2.5 years before the full amount is paid) and live with the ‘Band-Aid’ mortgage for 2 years, in the hopes that after that we would be eligible for a better mortgage OR do we sell the house, pay the mortgage and whatever debt we can after the fees and taxes, rent a place and start over? We have 2 children, aged 12 and 5, so university is on the horizon. Is renting an acceptable place in a good neighbourhood, which will cost us $1400 plus utilities, a better financial option? Everyone says keep the house for the investment, but honestly, there is no investment right now when the bank owns nearly every penny of it! I’m 42 and want to enjoy life with my family. I feel like the last few years have sucked the enjoyment out, we are living the very definition of the RAT RACE! HELP!

Gail Says: There is nothing wrong with renting as a lifestyle choice. However, if you’re not going to be building assets in land, then you must make sure you’re saving. If you don’t have a pension plan at work, you will need to be setting aside about 18% of your net income for the future if you’re just starting out to catch up for time lost. As far as the rent of $1,400 + utilities, to put it in context, I owe my home outright and it costs me about $1200 a month to carry: property taxes, insurance, utilities, and maintenance. So your $1400 doesn’t look so bad from here! 

 

If you do decide to keep the house do NOT do the B-lender mortgage. You’ve come this far, so suck it up and finish the credit counselling program. I hope they are helping you to create a realistic budget and set some goals for the future as part of the service. And you’re running out of time to grab all the RESP free (grant) money available to your first child, so you best make some decisions about setting aside some money for post-secondary lickety-split.