Life Insurance

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What are the benefits of life insurance?

An instant estate
Few individuals, particularly those with the responsibility of a young family, have sufficient savings to adequately protect their loved ones should the main income earner die.  Life insurance can help create an estate at a time when funds may be needed most. This is a low-cost way to ensure your family’s continued financial well-being.

Money in hand – quickly
Your beneficiary, the person(s) you name to receive the insurance money, will be paid within a few days of the insurance company receiving the required information. By contrast, savings and other assets may be tied up legally for some time after death.

Financial benefits you enjoy
Some people have the impression that insurance pays only if you die.  That’s not the case. Many permanent insurance policies (i.e. participating and universal life) build cash values that you can access during your lifetime. The cash value is the equity you have built up in your policy. Cash values can accumulate within your policy on a tax-advantaged basis. The growth in the cash value is generally only subject to income tax when it is withdrawn from the policy. Your policy’s cash surrender value can be used to:
  • provide funds in an emergency
  • finance a down payment on a home or cottage
  • launch or expand a business
  • act as collateral for a loan from a third-party lending institution
  • supplement your retirement income
  • provide income for long-term care or home care for you or your spouse
How you use the money is really up to you.

Other advantages
  • the death benefit is not subject to income taxes
  • probate costs can be avoided if you name a beneficiary other than your estate
  • unlike a will, information regarding your life insurance can remain private
  • in many instances, life insurance may be protected against creditors.

When should you buy life insurance?

The best way to buy insurance at a reasonable price is to buy it when you don’t appear to need it; that is, when you’re healthy. However, it is seldom too late, or the wrong time to buy life insurance.

You should review your life insurance protection annually or whenever there are changes in your life, such as the birth or adoption of a child or a change in marital status. The purchase of a home or cottage, or a new job or launching your own business are also circumstances which should prompt a review of your insurance protection.

How much life insurance do you need?

The key to understanding your insurance needs is to determine what protection you need today, and keep in mind what may be important tomorrow.
How much coverage you need, combined with your cash flow, and the length of time you need the coverage, are all used to determine the type and how much life insurance you should buy.  

What type of insurance can you buy?

There are two types of life insurance: permanent and term. They are two different types of protection that satisfy many different life insurance needs. Term may be all the life insurance you’ll ever need, or it may be used as an interim step before purchasing permanent insurance.
Possibly, a combination of term and permanent in the same policy may be the best solution for you. We can show you the strengths of each and their differences.

Permanent life insurance
Permanent life insurance – as the name implies – protects you for your lifetime. It can build cash surrender values and provide a death benefit.  Some permanent policies pay policy owner dividends (participating or par), and others don’t (non-participating).
If the permanent policy you are considering has a cash surrender value, you should review the product guide provided by the insurance company to better understand how the assets backing the policy are managed and how these assets are used to accumulate value within the policy.

Term life insurance
Term life insurance is well suited to meeting high, short-term protection needs for the lowest initial cost. For example, a couple with young children and/or a mortgage might select term insurance as an affordable way to obtain the full coverage they need today. Many term insurance plans do a good job of meeting immediate needs and provide the freedom to later move, or convert to a permanent product without providing proof of health. However, this ability to convert to permanent insurance often expires around age 65 or 70.

When reflecting on the cost of term insurance, be sure to consider the following factors impacting your total cost:
  • the initial premium,
  • the renewal rate and whether evidence of insurability is required at time of renewal,
  • how long you’ll need the protection, and
  • how much flexibility you want in case your needs change in the future.
Other types of term insurance

Decreasing term (also known as creditor insurance or mortgage life insurance)
Most lending institutions offer creditor or mortgage life insurance as part of their lending or mortgage packaging.  Its primary purpose is to protect the lender. Creditor or mortgage insurance from a lending institution is generally non-convertible term insurance (you can’t move to a permanent insurance plan if your needs change) – there are no cash surrender values and no premium flexibility. A personal life insurance policy has distinct advantages over typical creditor or mortgage insurance such as:
  • you can control the amount of coverage, because it’s not tied to the balance of your loan or mortgage.
  • your beneficiaries can choose how to use the funds – to pay off the loan or mortgage, provide a monthly income or take care of other immediate needs. It’s their choice, not the lender’s.
  • you choose the type of insurance that best suits your needs with premiums to suit your budget – the cost may be lower than creditor or mortgage insurance from a lender.
  • you own the policy, not your lender. You have the freedom to switch your loan or mortgage to another lending institution without jeopardizing your life insurance coverage.
It pays to compare. Insure yourself, not the lender.

Group insurance
If you’re working, there is a good chance your employer offers group life insurance. You may also obtain life insurance coverage as a member of an association, professional body, union or club.
Group coverage provides simple, low-cost insurance protection; however, it can have some drawbacks when compared to an individual life insurance policy.
Group coverage doesn’t offer the level of control, portability or choices that can be obtained with your personal life insurance policy. With many group or association plans, you are insured only as long as you remain part of the group. Employment related group coverage is owned by your employer and is subject to change at their discretion based on an annual review. With a group life insurance plan, you have the right to convert to an individual plan when you leave the group or retire, but this is not always practical. Depending on your age when you retire or leave the company, converting to personally-owned permanent life insurance could be expensive or may not be possible.

Who needs life insurance?

People with responsibility for others
For people who depend on you for support - a spouse, children or dependent adults - life insurance can play a fundamental role in their continued financial well-being.  In addition to making up for the loss of your income, the proceeds from a life insurance policy can be used to take care of funeral expenses and other costs such as a mortgage, loans or credit card payments. If you’re a stay-at-home parent, the role you play also needs to be covered because of the additional expenses associated with childcare if something happens to you.

People without family ties
Over the course of a lifetime, situations and responsibilities change.  Even if you are single, or you and your partner both work but don’t have a family, life insurance can still play an important role in your financial security plans.
A life insurance policy can provide an efficient and cost-effective way to take care of any expenses or unpaid bills you might leave behind, such as legal fees and taxes, medical expenses, funeral costs, mortgage debt or car loans. It can also be used to leave a gift to a loved one or a favourite charity or to provide a supplemental income while you are alive.

People with estates to protect
Many people believe as they get older and become more financially independent, their need for life insurance decreases. However, over a lifetime, estate values tend to rise. Life insurance can help pay the inevitable taxes that are due on an estate upon death. This can ensure as much of your estate as possible is passed on to your beneficiaries.

Business owners
If you’re a business owner, either on your own or with a partner, you may have personal liability for the debts of your business. In fact, the vast majority of your wealth is likely tied up in the business. You have a greater need to protect what you have built against unforeseen circumstances such as death and disability or to ensure liquidity for a variety of reasons including funds for retirement.
In case of death, it is important that you have adequate insurance.  Otherwise, the claims of business creditors could significantly reduce your personal estate and leave your beneficiaries without the financial security you had intended.  Equally important is the smooth transition of ownership of the business to a family member, partners or a key employee. A life insurance policy can make this possible.
Your business is an asset that provides income for your family, both while you are alive and after your death. It is also likely your largest asset and will provide you with a retirement income. Life insurance can ensure your family receives fair value for this asset at your death.

People who want to leave a legacy
You may wish to leave money to family or a favourite charity. Life insurance coverage allows you to leave a lasting personal legacy and provide your favourite charity with stable funding over the long term without reducing the estate available to your family or jeopardizing your future financial independence. A carefully arranged planned gift can be tax effective, and at the same time balance your final needs and the needs of your family.

People starting a child’s or grandchild’s insurance program
Life insurance provides a powerful foundation for building your child’s or grandchild’s financial security plan.  Insurance can work as a flexible asset that grows along with your child.  Premiums are relatively low for children and this low premium can be maintained throughout their lives.

Get professional advice 

Purchasing life insurance that meets your needs now and in the future can be complex. That’s why it’s essential to get professional advice from a knowledgeable advisor, supported by a team of experts.
Life insurance is definitely not a one-size-fits-all product. We will take the time to understand your financial goals and insurance needs, your risk tolerance, and the control you want in managing your policy. Then we will help you to consider your options and ensure your life insurance is a good fit for you now, and in the future.

You may be paying too much or for the wrong coverage if you haven’t reviewed your life insurance lately. 
Here are seven insurance opportunities that could provide you with lower rates, better coverage, benefits you can receive while you are alive, an inheritance for your family, and a lifelong retirement income:

1. As people are living longer, life insurance rates have decreased. You may be able to get more coverage for the same rate you are now paying, or you may be able to pay less for the same coverage you have now. With term insurance, your premium often doubles or triples each time the term ends (usually every 10 years). If your term is coming up in the next few years, it makes sense to compare your rate and term to current rates.

2. If you have mortgage insurance with your financial institution, did you know that the bank is the beneficiary if you pass away, not your family? And the value of the insurance declines as your mortgage principal declines, but your monthly premium stays the same. Term insurance costs about the same and sometimes less, you choose the beneficiary, and your coverage does not decline.

3. Canadians are living longer and are not prepared for the costs of long-term care as they age. Did you know that you can buy a life insurance policy that you can use for long-term care coverage? This permanent life insurance policy offers a tax-free monthly benefit if you need daily care after age 65 or 10 years after the contract is issued, whichever is later. Have you thought about how you will pay for long-term care when you or your spouse or your parents are old and in need of care?

4. Many people have life insurance but little or no insurance that provides for them if they were to get sick or have to miss work because of an injury or accident. Did you know that a 50 year-old female non-smoker is almost 9 times as likely to become disabled before age 65 compared to her likelihood of dying by that age? And a 50 year old non-smoking male is almost 6 times as likely to contract cancer, heart attack, stroke or another critical illness before age 65, compared to his likelihood of dying. Wouldn’t it make sense to have more balance in your insurance coverage?
Without disability or critical illness insurance, who would support you or your family if you were to get sick or were injured in an accident? And what would happen to your retirement savings if you had to dip into them to support yourself?

5. Perhaps it’s time to consider the one asset class that never loses value. Did you know you can buy permanent insurance that covers you with a level premium until you die? You also have the option of paying for 20 years or less, but keeping your life insurance coverage for the rest of your life. What a great way to leave an inheritance for your family. You can then feel good about spending all of your money in retirement and dying with a dollar in your pocket!

6. With a permanent whole life insurance policy, you can borrow against the cash value of the policy as a source of tax-free income in retirement, and may never have to pay the loan back until after you pass away.

7. If you are over age 60, it may make sense to purchase a permanent life insurance policy, and then buy an annuity. The income from the annuity pays for the life insurance premium, plus an after-tax return that is higher than you can get from GICs. So you get the best of both worlds, a guaranteed lifetime income for yourself and an inheritance for your family.

Contact us and tell us about yourself.

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