Insurance is often one of those things in life people don’t think much about until there’s a significant health event or an emergency. Day to day life is hectic and many of us are spending our valuable time thinking about seemingly more immediate concerns like paying bills, saving for special occasions or these days, what school will look like for our kids come September.
The truth is, insurance isan immediate need, but it is difficult to determine what the need is, when exactly it will arise and how best to address it. When we say immediate need, we’re referring to the immediate financial relief these products provide if you or a loved one suddenly dies or becomes ill/disabled. Saving for future events is important (and often is a higher priority for consumers), but unlike when there is a sudden death or illness/injury, those plans can be delayed to accommodate the need for more savings.
There are lots of reasons why someone might choose to buy insurance, and lots of different insurance products to suit peoples’ unique situations. A good advisor can help determine what type and amount of insurance is right for you by conducting a Needs Analysis – it takes into consideration things like your current debts and financial obligations balanced with your accumulated assets, final arrangements, estate objectives, number of dependents and overall life goals. The aim is to capture as accurate a snapshot of your financial life as possible. Once this analysis is complete, an advisor can suggest ways insurance can mitigate financial risk to help maintain your current lifestyle and/or facilitate your intentions in the event you were to unexpectedly get sick/injured or pass away.
Here are some general products (which can be personally or corporately owned, depending on the situation) an advisor may suggest:
In North America, life insurance is generally viewed favourably and considered to be a smart choice for people interested in meeting their financial obligations and lessening the economic burden of their absence if they happen to predecease their family, friends, or business partners. It is also a very economic way to create or safeguard a legacy for loved ones or philanthropic purposes.
Despite having significant amounts of student loans, current trends indicate millennials are less interested in life insurance because many of them, especially those on the younger side (mid-twenties to early thirties) are waiting longer to do things like get married and buy property, both of which are reasons why having life insurance makes a lot of sense. Without a significant other, dependents or a mortgage, many millennials may not necessarily see the point.
But what many people of all ages tend to overlook is that when they are potentially “ready” for life insurance, their health and certainly their age, could make getting coverage more difficult and expensive… sometimes drastically so. Waiting to purchase life insurance could result in a missed opportunity to “lock-in” a lower cost of insurance.
For example, a young person in their twenties could purchase a permanent insurance policy – permanent in the sense that as long as they pay the premiums, they’ll have coverage for life – and continue to be insured even if they develop serious health issues later in life. Even securing a temporary or term policy that allows for conversion to a permanent policy at some point in the future can secure someone’s insurability regardless of future negative health changes.
Life insurance is also a great tool for estate planning purposes. If you have a desire to leave bequests to family, friends or charity and require the majority, if not all, of your life’s savings to support your needs during your lifetime, life insurance can provide the funds necessary to see those goals accomplished.
Insurance can be used to pay significant tax burdens that only arise at death. If, for example, you are fortunate enough to leave a cottage or secondary property to beneficiaries, there will likely be a substantial tax bill when those assets change hands through your estate.
Another good use for life insurance is mortgage protection. Coverage for your outstanding mortgage would provide security for loved ones who might face downsizing or worse if those payments were to become unmanageable in your absence. There are significant differences between the coverage offered by mortgage lenders and personally purchased policies and it is strongly recommended you explore those differences with a licensed advisor before accepting a lenders coverage.
Critical Illness Insurance
Unlike life insurance, which is paid out to named beneficiaries, an estate or even a charity after death, critical illness (CI) insurance is meant to provide financial support for the insured in the event they are diagnosed with an unexpected illness – think cancer, heart attack or stroke. Sadly, despite being unexpected, these kinds of life altering diagnoses are quite common and affect 1 in 3 Canadians.
Policyowners pay a monthly or annual premium and in the event of a diagnosis, would receive a tax-free, one-time payout to be used for whatever they need (keep in mind, there may be a short waiting period before a benefit is paid out). This lump-sum payment is designed to provide financial relief so the policyowner can focus on recovery.
Like CI insurance, disability insurance (DI) is meant to provide protection in the event of an unexpected accident/injury that impedes a person’s ability to work (this can include issues relating to mental health and chronic pain). Unlike CI however, once the waiting period is over, DI provides monthly, tax-free income to ensure ongoing expenses are taken care of until that person is ready to return to work.
Insurance is an incredibly versatile and useful tool many people often deeply regret not having access to when an emergency arises. If you feel you may be under-insured or if you have questions about how insurance can fit into your life, connect with us.