Thinking about the financial implications to your loved ones should you pass away is an important part of your protection planning against loss and damage, just like you do with your material assets. Our life is our most valuable asset and we must protect it ahead of anything else.
However, if you are about to purchase life insurance protection, it’s important to understand what options you have and how they work.
1. Who needs life insurance?
If you have people who are financially dependent on you, such as your children, spouse, parents or sibling, then life insurance is almost certainly essential for you. Therefore, any induvial that provides for a family or has dependents that rely on his/her income to meet their financial needs must have proper life insurance in force, to make sure that dependents will be taking care of in an event of premature death.
2. How does life insurance work?
You buy a life insurance policy for a stipulated amount that you pay monthly premiums for and it will be paid out to your beneficiaries at the time of your death. Depending on factors such as your health, age, gender, and the amount of the death benefit, the cost of the life insurance will be worked out. In most cases, especially with bigger payout amounts, you will need to undergo a health examination and, in some cases, financial underwriting as well.
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3. Types of life insurance cover
Two main types of life insurance are available in Canada, term life insurance and permanent life insurance.
Term life insurance
The premiums paid for your life insurance policy will stay the same throughout the term (number of years) that you bought the life insurance policy for. If you die before the end of the term of the policy, the insurance company pays out to the beneficiary the pre-determined amount (face amount of your life insurance policy) tax-free. If you haven’t died by the termination of the policy, there won’t be any payment made to the beneficiaries. However, you do have the option to renew or convert your policy to a permanent life insurance policy if there is still a need for insurance coverage by the time policy ends.
Permanent life insurance
Permanent life insurance remains in force for as many years as you pay the premiums and they offer both life insurance and an accumulated amount, like an investment. Permanent life insurance policies such as whole life insurance and universal life insurance are more expensive compared to term life insurance. However, your loved ones will receive the death benefit when you pass away as long as you pay the premiums and keep the policy in force, no matter how many years since you bought the policy.
Permanent life insurance products have a paid-up feature that allows customers to pay off their life insurance policy in a shorter period and keep the coverage for life. Permanent products also allow the policyholder to build up cash value and savings within their life insurance policy.
4. Debts and liabilities
Like most people today, you most probably have a mortgage, loan, or other types of debt that you are repaying. This could be your student loan, business loan, credit card, credit lines, or vehicle loan. If you have debts and liabilities, you must consider who will be liable for them if anything should happen to you. If your bank balance does not currently cover the cost of repayment of your loans and debts and does not leave a substantial amount for funeral expenses, then you need life insurance.
5. Funeral expenses
Funeral costs can run into thousands of dollars. Your family will also have certain estate costs that they will need to pay, namely, probate and executor fees. The cash from your life insurance will provide the cash to settle these. Funerals are such an emotional time. It is crucial to leave enough money for your final expenses, so your loved ones don’t go through financial hardship on top of losing their loved one.
6. Children and other future life expenses
Take into consideration the future expenses that will be incurred by your family once your income is out of the picture. How will your spouse manage to raise and educate the children on one income or no income? Even if your bank balance reflects that they will manage to cope, have you taken the rising cost of living into consideration?
The cost of raising one child in Canada is between $10,000 to $15,000 a year until the age of 18. If the child has plans to attend college or university that is an extra $100,000 to $152,000 for four years of education. Since all these costs are rising every year, life insurance is a must for every household with children.
Many are not aware of how much tax they must pay upon their death. Between probate tax, capital gain tax, and income tax, we are looking at a considerable amount of money. Capital gains taxes at death or providing for the future needs of a dependent that is disabled are an essential part of long-term estate planning and life insurance can help meet these. Plan for the future of your family and make sure your wealth no matter how much it is, fully goes to the next generation and keeps growing.
8. Who should be your beneficiary?
In most cases, people name their spouse as the beneficiary. Your kids should only be made beneficiaries if they are over the age of 18, or otherwise, you must set up a life insurance trust which becomes the beneficiary and you appoint a friend or family member as the trustee. You can even name a charity organization as your beneficiary.
While naming a beneficiary, you must be accurate with the name and its relationship to you. You can change the name of your beneficiaries at any time unless you structure your life insurance policy in a way that the beneficiary name becomes irrevocable.
9. How to know what premiums you can afford?
You and your insurance advisor will need to determine the expenses your family needs to cover, in the event of your death. The main expenses that must be covered are mortgage and debts, at least 5 years of lost income and final expenses. If you can’t afford the full amount, smaller insurance is better than no insurance at all. In most cases, a financial advisor or an insurance agent can get creative and structure a policy that fits your budget and covers most or all your needs.
10. The importance of having an expert adviser at your side
An expert advisor is the best person to help you secure your family’s financial future and guide you to find the best type of life insurance. A financial advisor or insurance agent will assess your financial needs, look at the existing life insurance policies you may have, then they will find a way to cover all your life insurance needs within your budget.
Finding the right Life insurance policy with the proper coverage amount at the right price is complicated and overwhelming. Our expert advisers are fully qualified to help you work out the coverage that will meet the needs of your family. By taking your age, and health, liabilities, and goals into consideration. At Apluswealth, you can get a quote, compare quotes and find the life insurance quote you feel comfortable with. Our life insurance advisors will provide you with quotations and the most suitable policy types.
advisers today and find out which is the best life insurance for you.
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