Why you need life insurance before a ‘stop sign moment’
Many people don’t realize the importance of life insurance — until it’s almost too late. While we hope an unfortunate situation never happens to you or your loved ones, sometimes the worst-case scenario does occur, and you should be equipped with the knowledge and tools to prepare for the unexpected.
Consider this ‘stop sign’ moment….
The end of the week has finally arrived, and you’re excited for a week off with your family. You get in the car, buckle up and head home on your usual route, thinking about the vacation ahead. You’ll be taking the family camping in Riding Mountain National Park, and this is the final summer hurrah before your son goes off to university!
But on your drive, a distracted driver from another street misses their stop sign…
In the next moment, your life flashes before your eyes.
- Your spouse has made so many sacrifices for the family, just getting back into the workforce since being sidelined from COVID-19 closures.
- Savings have been tight, but as a family you were still able to set aside a few extra dollars for your kids’ upcoming expenses.
- Your son is about to graduate — he received a small scholarship to play hockey at the University of North Dakota.
- Your daughter is home from university — she’s in second year electrical engineering.
- Your aging parents are moving into a retirement home.
What if you don’t make it home? Will your family be okay, will they make ends meet, and will your kids be able to continue their schooling as planned? Will your work coverage be enough?
If you have never considered purchasing life insurance before, you are not alone. After all, thinking about one’s own mortality is not something we like dwelling upon. But if you have anyone who is dependent on you financially, life insurance is what will provide the peace of mind that, if the worst did happen, they will be okay.
It’s important to consider this long before you have a ‘stop sign moment.’
Life insurance terminology and options
Life insurance comes through work coverage and private coverage. No matter which coverage you have, the best insurance is the one in force when it is needed — that is to say, that if you have life insurance and you pass away, your beneficiary will receive payment. Whether it is defined as Group, Permanent or Term, they all pay a benefit when your loved ones may need it most.
Here is a quick summary of the different options:
Work coverage helps if you pass away prematurely, while employed. Some amount of group life insurance is very common in companies today. However, each workplace benefits package is different, so it is important to read through your benefits booklet.
Group coverage at work is often the cheapest insurance you can buy. This coverage comes in units, starting with base coverage that often provide the opportunity to buy additional units. This allows it to scale based on the coverage you want.
But remember that cost is only one factor. One problem with group coverage is that employees often forget to revisit it when they experience a major life event, like marriage, divorce and the birth or adoption of a child. Another problem is that when employees retire, or if they leave the workplace, this work coverage usually terminates. For this reason, work coverage is considered temporary.
Private coverage is additional insurance that you purchase with the help of a licensed Insurance Agent. It can be split in two groups — term and permanent — each with their own rules.
Term insurance policies are temporary in nature, and they provide coverage for a set period of time like 10, 20 or 30 years. They are intended to provide peace of mind for a short-term need or financial obligation such as a mortgage.
At the end of the term, the policy may end or renew. If the policy renews, you will not have to provide medical evidence that you are healthy, so the policy will increase in cost to offset this. Keep in mind, that eventually the policy will either come to an end or renew at such a high cost that you may feel compelled to cancel it.
Permanent polices continue until you pass away, at which time they will payout to your beneficiary or estate — even if you live past 100 years old. In most cases, permanent policy premiums do not increase, so they are a predictable expense with a level cost.
Most permanent insurance policies build cash values. This cash can be invested within the policy in a variety of different ways, and traditionally these values can be accessed via a policy loan or surrender. Nowadays, these values are often utilized as part of an Insured Retirement Strategy.
Types of permanent life insurance policies
There are also different types of permanent insurance. The one that is right for you depends on your situation, so once again it is important to have a conversation with your Insurance Advisor.
Whole Life Participating insurance has fixed premiums, and often offers guaranteed benefits. In particular, “participating” refers to sharing in the life insurance company’s profits, as these policies generate an annual dividend. Note that the annual dividend can fluctuate from year to year, and there is no guarantee that the company will pay a dividend in any given year.
Whole Life Non-Participating insurance also has fixed premiums, however, these do not offer dividends.
Universal Life insurance is another popular permanent option, which features an investment component that is separate from the life insurance portion. The main difference between Universal Life and Whole Life is the flexibility. You can choose how to handle the investment component of the Universal Life policy, from guaranteed interest accumulation to high-risk equity investments.
T-100 is permanent insurance with no investment value. It typically has a cash surrender value that increases up to the value of the policy. The cash value can be accessed by surrendering the policy.
What life insurance coverage should I get?
The life insurance you should buy depends on your financial goals. Discussing this with a qualified Insurance Advisor is important, and they can work with you to establish adequate coverage. For example:
- Worried your mortgage will be too much for your spouse to handle on their own? Consider Term 25 or Term 30.
- Want to protect your kids from the cottage capital gain tax bill? Consider Joint-Last-to-Die Whole Life or Term-100.
- Paying too much tax on your non-registered investments, and have an insurance need? Look at Universal Life.
No matter your individual situation, your situation is unique and deserves to be discussed with a qualified Insurance Advisor. Your insurance contract will provide details of the coverage available under the plan you choose. Restrictions may apply. The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that is this accurate or complete. This article is provided as a general source of information and should not be considered personal advice or a solicitation to buy or sell any insurance of other investments.
Insurance Specialist, Wealth Advisor
Credential Financial Strategies Inc.
Bachelor of Arts (BA)
Certified Financial Planner (CFP)
Responsible Investment Specialist (RIS)
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