Provided through WCS Financial Services/BridgeForce Financial Group, one of the largest Canadian owned and operated Managing General Agency.
Why You Need Life Insurance
While there are many types of life insurance the bottom line for all of them is the same – they pay cash to your family after you die. So, if someone depends on you financially you most likely need life insurance.
Consider for a moment, the stages in life in which you would need life insurance:
Married or getting married – if it takes two incomes to make ends meet and you suddenly died, would your spouse have enough money to pay for funeral expenses, credit card balances, loans and even daily living expenses? If the answer is no, you need life insurance.
Parent or about to become a parent – raising a child is both rewarding and expensive but if you died suddenly would there be enough money to provide your children with all the opportunities you envisioned for them? If the answer is no, you need life insurance.
Home owner – for most people, owning a home is their most significant financial asset and life insurance can be used to pay down or retire your mortgage but what happens if you die without life insurance? Would there be enough money in your estate to allow your loved ones to remain in your home? If the answer is no, you need life insurance.
Changing jobs – each time you change jobs you should re-evaluate your life insurance because very often your change in jobs means a higher income which elevates your spending. Would your family be able to continue the current lifestyle should something happen to you? If the answer is no, you need life insurance.
Retirement – this stage in life suggests that your children are on their own and that major expenses such as your mortgage is paid off. It also suggests that your need for life insurance has passed. But this may not be the case because your spouse could outlive you for many years. Having adequate life insurance coverage can help your spouse avoid financial struggles.
Single – yes, even single people need life insurance. Very often single people can be caring for aging parents or siblings or even carrying a significant debt which you wouldn’t want passed on to family members.
How Much Life Insurance is Enough?
This is a simple question but one that’s hard to answer because everyone’s situation is different. The basic math is this: current and future financial obligations – spouse’s earnings and the investments and life insurance you already own = the amount of life insurance you need. The tricky part is identifying all the inputs you need to plug into the equation plus you will need to factor in things like inflation and how much you think your investments will earn over time.
Types of Life Insurance
There are several reasons to own life insurance, the main reason being the death benefit – the money paid to the beneficiary when the policy holder dies. But there are other good reasons to own life insurance specific to the type of insurance which are explained below.
Term Life Insurance
This type of life insurance is for a specific period of time, known as ‘the term.’ The exact length of time is flexible which can vary from a single year to several years. Having a term life insurance policy makes the most sense when your need for coverage will end at some point such as when a major debt will be paid off. The advantage of such a policy is that it provides the greatest coverage (protection) at the lowest initial premium (premiums increase as the insured ages). Young families on a tight budget find that this gives them peace of mind. Many term life policies can be converted to permanent insurance. Term life policies have no cash value and cannot be used for wealth management.
Permanent Life Insurance
Unlike term insurance permanent life insurance has no end date – it provides coverage for as long as the premiums are paid. Most whole life contracts with cash values will create a premium loan against the cash value if the premiums are not paid. If the cash value decreases to $0, the contract will lapse. Premiums are typically divided into two parts. One part belongs to the insurer to pay for your coverage. The other part is used to increase the cash value of the policy. There are different types of permanent insurance (e.g. whole life, universal) each with their own distinct features but all have the following characteristics in common:
- Have a cash value
- Provide a death benefit
- Last for a person’s lifetime
- Can be used for wealth management and estate planning
- Earnings can be tax-deferred
Whole Life Insurance
- Premiums can be stretched out over a long time throughout the policy
- The amount of the death benefit is guaranteed
- The rate of return on your cash value may be guaranteed
- Premiums are level throughout the life of the contract
Universal Life Insurance
- The amount of the death benefit can be changed (increased or decreased) in certain circumstances
- The cash value tends to increase non-linearily depending on how your money is invested
- Offers many options for wealth management and estate planning
- Premiums are flexible
- Includes a savings element
- A portion of the premium is invested in various accounts such as bonds, money market funds and mortgages
- A certain amount of return on the premium may be guaranteed regardless of how the investments fare
Variable Life Insurance
- Includes permanent protection for beneficiaries
- Flexibility allows for allocating premium money in various accounts for different investment funds
- Investment risks rest with the policy holder
- Unable to withdraw cash from the investment while living
Given the wide variety of life insurance products and the diversity of each person’s situation, we highly suggest that you talk to Jacqui McFarlane before you make a purchase. Put Jacqui’s expertise to work for you to ensure that you get the coverage that meets your needs.
We also suggest that you take a moment and read Purchasing a Life Insurance Policy – it briefly explains the process.
Tip: An annual review of your life insurance needs should be part of your money management strategy.