Life Insurance- The Who, The What, The How
by Meiz Majoub
Over the next few months, I’ll be writing about Insurance in general, the what, who needs it, how much is needed and what type is required. I will briefly review Auto and Home Insurance in a future article.
This month I will be addressing Life Insurance. Subsequent articles will cover Mortgage Insurance, Critical Illness, Disability, Group and Long Term Care Insurance as well as other uses of insurance (Charitable Giving).
Life Insurance: Who needs it?
This question can simply be answered if anyone is dependent on you, then you need it. The following questions, should be considered when buying Life insurance. What will happen if one of us was no longer here? How will the mortgage payments be made? Can the remaining family stay in the same house, neighbourhood or school? Whether married or not, single person or single parent, adult children or retired, we all have the needs for life insurance. Depending on the size of your estate, Life insurance plays a significant role. The proceeds of Life insurance are generally tax free and payable immediately. This can be used for funeral expenses, charitable giving, pay estate and final taxes without having to liquidate assets.
Furthermore, for the small business owner, Life insurance can be used to protect your business. It can be used to fund a buy-sell agreement or for a Key Person protection. In a nutshell, anyone whose death will create a financial strain, needs Life insurance.
What are the Options?
- Term Insurance
As the name implies, TERM is temporary. It can be for a term of 1 year, 5 yrs, 10 yrs, 15 yrs, 20 yrs, 30 yrs or to a specific age, such as 65, 75 or age 100. As a result the term depends on one’s needs and the shorter the term, the more affordable it is. However, at the end of the term, rates significantly go up unless one re-enters and applies for another coverage. Term life insurance as it normally called is the most affordable but at renewal if one’s medical condition has changed, this may result in increased cost or sometimes a denial which may have the insured maintain whatever their current policy is. Renewal rates are guaranteed.
- Permanent Insurance
This insurance however is a lifelong contract and provides protection for Life. Premium for permanent is set for the Life at the beginning of the contract and can be paid for a specific period. In otherwords, the premium payment may be for 10 or 20 yrs or for life, but the coverage is for Life. Permanent insurance also accumulates cash values that can be accessed as a loan or withdrawn for personal use.
- Universal Life
This is a blend of Term and Permanent insurance, but funding of this product is complicated and outside of the scope of this article.
How do I get coverage?
As this may seem overwhelming, help is available. Most people will seek the assistance of a Financial & Insurance Advisor.
The advisor will determine the need. How much one needs is based on:
- Replacement income for dependants
- Mortgage pay off
- Funeral Costs
- Bills & Credit cards as well as other financial commitments
- Continue family business
- Kids’ education
- Spouse’s needs
- External family commitment
- Charitable giving, etc etc
The internet is full of information, but what you do with that information can be challenging. Buying Life insurance may be one of your most significant financial decisions. As a result you need to be well informed by a qualified and trusted advisor.
The most effective and often reliable way to get a Trusted Advisor is to seek information through referrals. Speak to a parent, family friend, co-workers or centers of influence. There’s nothing better than a referral from someone’s experience because the trusted advisor is key to your decision.
A trusted advisor will be your counsellor and will help you through all the mysteries in Life Insurance. Infact, the sooner in life that you buy life insurance, the better it is. Premiums in life insurance are based on sex, age and life style. Therefore, the sooner you buy insurance, the better it is.
The advisors role is to assist you in determining your need through a financial need analysis, as well as providing you with your choice of products. When the need is established, then you have to consider the affordability. Often times, you will need a combination of Term and Permanent Insurance.
When determining your insurance need, if you have a mortgage, that mortgage amount should be included in your analysis rather than buying the banks’ mortgage insurance. This topic will be addressed in next months article.
Lastly, buying Life Insurance should not be a “one time” effort. Just as we do our annual medical check-up, your life insurance needs and lifestyle should be reviewed regularly and not less than every 24 months.
Hopefully this brief overview has provided sufficient understanding in guiding your decision to acquire Life Insurance if you haven’t done so.
About the writer
Meiz Majdoub, B.Comm, is a financial professional with over 30 years of experience and is accredited with a CLU, CH.F.C. He is also a member of the Conference for Advance Underwriters (CALU). and the Estate Planning Council Of Ottawa. He has helped individuals, organizations and corporations attain their goals in the areas of Financial & Estate Planning, Insurance, Living Benefits and Employee/ Group Benefits. He can be reached at: 613-749-4007, or [email protected].