One discussion we seem to run into over and over again is the need for life insurance. It seems like a pretty simple question, but many Canadians fail to address the need for life insurance until it is too late.
It is one of the most misunderstood products in the financial industry, partly because there are many different forms, such as Term, Whole Life, and Universal Life. To understand which insurance is right for you, you will need to first determine if your need (i.e. death benefit) is a temporary (term) or permanent (your whole life).
Term life insurance is designed to financially protect you and your family against worst-case scenarios. With term life insurance, you first determine the amount of money you would want your family to have if you passed away and then you pick the number of years you want the insurance contract to last. It is the most affordable type of life insurance to protect your family from unforeseen circumstances. Always remember, you are not purchasing term insurance for you… you are purchasing it for your loved ones in case you pass away and can no longer produce an income that they rely on!
Who should absolutely have term life insurance?
- Parents with dependable children. They rely on the income you bring home… what would their lifestyle look like if you stopped coming home?
- You have debt that would be passed to a loved one upon death (think mortgages). Term insurance is usually cheaper than mortgage insurance from the bank… and you own the policy not them!
There are many other situations where term insurance is used, especially for business purposes, but these are the two most common personal reasons.
Consider this example:
A 35 year old couple (Joe and Sarah) with 2 children (age 1 and 3).
Joe earns $55,000 and Sarah $60,000 each year after taxes (a $115,000 household income).
The only loan they have is $250,000 mortgage on their home.
For the next 20 years, their children will depend on the parents income to be able to live their lifestyle.
If Joe passes away unexpectedly, lets assume Sarah continues to work but needs to have a household income of $95,000 after tax to be able to pay the bills and make sure the children get to continue their current lifestyle.
To do this, Joe would have to have a term life insurance policy of approximately $1 million which Sarah would receive on his untimely passing. While it sounds like a large amount, a policy like this for a 35 year old (non-smoker) male who is otherwise healthy would cost around $60 per month… an otherwise small price to pay to protect your families future.
As for permanent insurance, the need is generally used for estate planning or to cover a known tax on death from an asset transfer like a cottage or small business that one wants to keep in the family. Permanent insurance is much more costly than temporary as the insurance is meant to last for your life. If you would like to know more about Whole Life or Universal Life, please let us know and we would be glad to help.
If you would like our assistance from our advisors in helping you determine your insurance needs, shop the major insurance carriers for the best rates or just to discuss your estate planning needs please don’t hesitate to send us an email. Remember, no plan is complete without planning for the unexpected.