The ins and outs of life insurance can not only seem dull and somber– they can also be pretty confusing. There are multiple options to choose from, a number of different reasons to buy, and the very real possibility of investing in a policy with a return on investment of zilch.
This maze of choices has caused more than a few people to stall out in their quest to invest in life insurance, so they put it off until tomorrow. And then tomorrow comes and it gets put off once again. Soon, a couple of years have gone by, and all that ‘fence-sitting’ means higher premiums because the older we get, the higher the cost of life insurance.
When should I buy life insurance?
For most people, the answer is: right now. After all, the price is only going to go up. But this advice also ignores many nuances of the different types of life insurance options available.
So, while buying life insurance now may net you lower premiums, it may not deliver exactly the benefits you want. That’s why understanding why you need life insurance is the first step to knowing when you should invest in it.
Why do I buy life insurance?
Life insurance is possibly the strangest investment out there, as you, personally, will never reap the benefits. That’s because, like a Christmas gift or Valentine’s flowers, life insurance isn’t actually about you at all. Life insurance is for the people you love and cherish the most in this life, ie. your family.
We often talk about the cost of living, but the truth is: the cost of dying is just as real, and it goes beyond the emotional toll on those you leave behind. From outstanding debts to funeral costs and other expenses, passing on can leave your spouse and dependents scrambling.
The unforeseen costs left for your loved ones
When a family’s main bread-winner passes on, lost income can drastically change each member’s life going forward. From dependants losing funding to pursue higher education, to spouses having to sell the home they’ve lived in for years, the repercussions of losing this wage could be very detrimental to your family.
Life insurance: The safety net for your family
This is where life insurance comes in to save the day. It’s the safety net, protecting your family if the worst should happen – you not being around to provide for them.
Life Insurance can help to cover:
Paying down assets
Do I still need life insurance if I am a high-income earner?
There are some individuals who have enough wealth that they don’t need to invest in insurance to make sure their family has enough liquid assets to pay for unforeseen costs. But even for higher income earners, life insurance still has its place. For these individuals, life insurance is often used as an investment opportunity, and as a method of estate planning.
A breakdown of life insurance in Canada: How does it work and what does it cover?
In Canada, life insurance is available in two main branches: term insurance and permanent insurance. Each of these breaks down into further categories, making decisions regarding life insurance more complicated.
Term insurance versus Permanent insurance
For a simple overview, it’s fair to say term insurance is for those looking to keep their loved ones safe from fiscal troubles in case of death, while permanent insurance is for those looking to use it as an estate planning tool.
So, let’s dive further into each branch:
Term Insurance: This is the most common type of life insurance. It covers a set term (10, 15, 20 years, or more) when the policyholder pays a small monthly fee that ensures if they die, the insurance company will pay out the agreed upon amount. This gives younger people the confidence that their spouse and family will be able to pay their mortgage, consumer debt, and any other loans they are carrying even if the primary income-earner passes on. Because debts like these are usually higher for young people, and the cost for term insurance is reasonable, this is the policy new parents, or newly-weds rush out to buy. However, if you live past the term, your beneficiaries will not receive any of the money paid out when you pass on.
Permanent Insurance: This product is bought as an investment vehicle or to ease estate planning, and is broken down into three main types: Whole Life; Term 100; and Universal Life. With permanent insurance, the policyholder pays a larger fee from their initial purchase right up until the event of their death, or until the buyer is 100 years of age in the case of Term 100. These types of life insurance policies also offer investment components along with the insurance and increase the net worth of the individual who buys them. In fact, money can be withdrawn after retirement to supplement income or borrowed against to fund a larger purchase with these types of life insurance policies.
For most people, term life insurance offers the peace of mind they want, so they can feel confident their loved ones will be taken care of should the worst case scenario happen – all while paying a reasonable price per month.
However, for those individuals concerned about estate taxes, or about passing their wealth onto their children in the most tax-efficient manner, a form of permanent life insurance is a great option and can even offer a tax shelter for any additional savings.
How do I buy life insurance?
Life insurance is only available from designated brokers. But before you choose a broker, be sure to do your homework. While a good broker will make your life easier by guiding you through the maze of choices with your best interests in mind, a bad broker will make the choice much harder for you.
Start by asking friends and family members, then back up each of their suggestions through research of your own, online. Look for testimonials, reviews and even look at the resources their brokerage firm offer. Finally, once you decide on a broker you can trust, ask them to walk you through all the steps to finding the right insurance policy for you.
What is the next step?
The best decision you can make today is to start researching the right broker so you can take the valuable next step in securing your family’s future.
Need guidance in finding a trusted broker? Contact Bayview Financial today. We work with some of the most trustworthy insurance companies in the industry and we can help you make the most educated decisions in order to protect your most valuable asset: your family.