It perplexes me when I hear statements like: “I can’t afford life insurance; I have so many bills as it is every month.” I guess most of us don’t think about spending money on food, entertainment, vacations or even home and auto insurance. Why?
Think about how difficult it is to keep up with all the bills every month; do you really think it would be easier if you were gone? Life insurance is the best way to protect your family should the unthinkable happen… you die unexpectedly.
Losing someone in your family or a business partner often has a huge financial impact. The death benefit from a life insurance policy can help the survivors avoid having to rely on using retirement savings, or even selling your home or business assets to cover final and unexpected expenses like:
• Your funeral
• Travel expenses to bring family together
• Replacing lost income and health benefits
• Child care and education fees
• Home maintenance and repairs
• Estate and legal fees
• Final income taxes
• Outstanding debts and bill payments
If you’re a business owner; your family might need to bring in other people to help in the business. How many people do you think they would need to replace you? Quite often when I’m working with an unattached individual with no plans on having any children; I’m asked do I need life insurance. That usually turns into a thought provoking conversation (one that I really enjoy — I’m not in this business because I don’t believe in insurance)!
The short answer is, almost everyone has a need for life insurance, no matter what. Coverage is available for children, if you’re married or single, whether you have family members who rely on you financially or not — chances are, you may need life insurance.
Breadwinner: The person who has the higher income or the only income in the household
That person provides the financial security and greatly attributes to the stability/continuity of the home.
As far as I know, life insurance is the only way to help ensure household expenses and care needs, such as your children’s education, your partner’s retirement, or providing care for your aging parents, are looked after
Life insurance might not be necessary for someone who wants to believe that: they own the winning lottery ticket, somebody else will look after the family when there gone, a little financial assistance would make their family and or friends very upset, or that nobody deserves a better quality of life.
Even if you’re single, life insurance helps those responsible for your estate to take care of outstanding bills, debts, taxes and final expenses, or leaving something to a favorite cause, charity, or alma mater. If you’re a business owner, most likely you will need additional insurance because there are different requirements. Life insurance can assist with minimizing tax when used as a tool to help transfer a family business or farm to the next generation.
Many of us already have some life insurance in place through our employee benefits or attached to our mortgage. This is a good start, but here are things to keep in mind:
— Life insurance offered through your mortgage provider is paid to your lender, not to your family. It only covers the outstanding balance of your mortgage. Nothing is left over to help your family with the other expenses.
— Life insurance through your employee benefits can be an affordable way to begin your life insurance program, but it’s important to make sure your coverage is enough to meet your needs. You may be able to buy additional coverage, through your employee plan. Please remember if you change employers or you retire, your coverage ends and that is the time you need it the most.
Let us look at advantages of a personal, individually owned life insurance policy:
• You determine the amount of insurance that meets your specific needs.
• You choose the type of life insurance that is best suited to your personal situation.
• You own the policy. The insurance company can’t change or cancel your coverage.
• You don’t have to worry about losing coverage if you change jobs or mortgage lenders.
In order for you to develop the right insurance portfolio for your family and your estate, you first need to understand the different kinds of life insurance coverage available and the features and benefits they offer. Perhaps your needs are simple and you need just one type of insurance. Or, you may need more than one type if your situation is more complex.
Keep in mind that examining the different types of insurance with an advisor and determining the potential advantages each one holds for you is the best way to determine the level of financial security you need to obtain.
Generally speaking, there are three basic types of life insurance:
• Term
• Whole life
• Universal life
I went into detail in last month’s article, so I will not expand on all the types in this article. There are many reasons why people don’t want to buy life insurance:
Reason: I’m single with no dependents
Response: Would you want your parents to have to pay off your credit cards and any other expenses you may have?
Reason: I don’t have the money to pay for it
Response: Those you leave behind, will they have more money without your income.
Reason: I’m young – nothing will happen
Response: Take a couple of minutes. I’m sure you’ve known or heard about someone under the age of 40 who has died.
Reason: I’m healthy – nothing will happen
Response: That’s the time to buy it, when you can get it. You can’t buy fire insurance on your home when your house is already smoldering.
Where term insurance might fit:
• Having a baby really puts life into perspective for most of us. There are many bills to be paid, money is short.
• Just bought a house/condo and have a mortgage.
• Just negotiated a large business loan at the bank, and they asked me to personally sign for it as well.
Term insurance generally works like this: you select the term that covers the time you need temporary coverage.
Depending on the insurance company, many options are available, including:
• Coverage periods of less than 5 years.
• Coverage periods of 5, 10, 20 years.
• Some have longer terms and some have terms to match exactly what you need.
• Some companies offer the ability to renew terms up to age 75, 80 or more.
Premiums are guaranteed to stay the same for the term you choose. When purchasing term insurance there are two important features to know: renewable and convertible.
A renewable policy allows you to renew your coverage for additional terms at an increased premium level without providing your health history again.
A convertible term policy allows you to change any portion up to the original benefit amount to a different type of coverage.
Permanent life insurance typically appeals to people who don’t like surprises. They want the assurance that their coverage is guaranteed for as long as they live. They also want to know exactly how much they will pay for their insurance each year and for how long.
Where Permanent Insurance might fit:
• Wanting life insurance guaranteed for as long as you live.
• When you die, wanting life insurance to pay for final expenses, including estate taxes.
• You like the security of having a set premium that doesn’t change, no matter what your age is or if your health changes.
• You want to have a policy that will build money over time and let you borrow against it in case of an emergency or supplement your retirement.
• Leave enough behind so your grandchildren are able to get a good education and a head start on their futures.
• Having the premiums flexible so you can increase or decrease, depending on how much money you have available.
• Having the ability to choose where your money is invested, while knowing that this brings both risks and growth opportunities.
• You have maximized your RRSP contributions and are interested in other tax advantaged savings options.
If you want to get the best bang for your buck knowing the different types of life insurance well help you along the way when building your insurance portfolio.
Most people think once they have coverage in place they can put it in a drawer and forget all about it. Not a good idea, anytime there are major changes in your family/business situation you should ask yourself if you have enough coverage in place.
At a minimum every 2-3 years you should meet with a qualified advisor (not necessarily the one who sold it to you in the first place) and review your insurance portfolio to make sure it is keeping pace with yours.
It might be time when:
• You have changed your marital status
• You have added to your family (including parents who have moved in or grandchildren)
• You bought a home/condo
• Revisiting your mortgage
• You acquired a personal or business loan
• You have changed jobs or plan to, don’t know if they will have the same coverage
• You are moving away
• You have started a new business
• You quit smoking
• You completed/updated your will or power of attorney
• You want to change the beneficiary designation(s)
Please remember insurance costs less and is easier to qualify for when you’re younger and healthy — so don’t wait!